Pseudo-Markets Versus Voluntary Networks – Libertarian Strategies for Rolling Back the State

This is a good analysis of rigged markets under modern capitalism. The recognition of explicit capital accumulation and funding via government contracts and private-public partnerships is well encapsulated in the voucher system for schools that Wellings notes. Further, his updating of Konkin’s thesis of counter-economics for the modern world, such as through raising awareness, and his comparison of non-state networks with pseudo-markets are excellent. (by the blog author)

by Richard Wellings

Libertarians should not put much faith in the extension of ‘pseudo-markets’ as a means of rolling back government. A more radical strategy is needed.

The pseudo-markets approach involves setting up some kind of market-like structure in a largely government controlled sector. A typical example is education vouchers. Parents receive state-funded vouchers, which they then use to ‘purchase’ education for their children. To the extent such systems facilitate choice, competition and entrepreneurship they may provide benefits for participants. But there are also significant downsides. Pseudo-market structures are often afflicted by high transaction costs (partly because parasitic special interests benefit from artificial complexity). And since state funding is retained, the misallocation of resources remains entrenched and pervasive. Using education once again as an example, this could mean that government would carry on funding the teaching of those children who were gaining little from formal education, or indeed losing out due to the opportunity costs.

Moreover, with government funding comes government control. Under any plausible voucher system, only education providers that met certain politically determined criteria would qualify for state funding. In practice this would mean official control over the curriculum and other key elements such as admission rules. Even if a more flexible system were introduced initially, it would only take a few scandals – renegade schools adopting practices that were deemed unacceptable – for stricter eligibility controls to be instituted.

Another highly regrettable aspect of pseudo-markets is their creation of ‘distributional coalitions’ of groups that depend on government subsidies and regulatory privileges. Given strong financial incentives, private firms providing voucher-funded schooling would likely be far more effective at rent-seeking than the moribund government institutions they replaced. Similar examples abound, from the US ‘prison-industrial complex’ to Britain’s ‘privatised’ rail industry. Indeed rent-seeking activities may actually lead to an expansion in government support, with even more resources appropriated through taxation.

These state-dependent special interests would also have strong incentives to capture the regulatory framework in order to shut out competition and increase their returns. Thus large education firms would inevitably lobby for government protection in the form of stricter licensing of providers. They could also successfully promote expanded services to politicians, as a means of achieving various social objectives. Similarly, potential investors such as state-privileged pension funds favour rigged markets in order to reduce risk and guarantee returns. And parent-voters are likely to resist any attempt to reduce the value of handouts such as education vouchers, particularly given the skewed distribution of the tax burden. Indeed, the relative transparency of vouchers etc. compared with more opaque intra-state funding mechanisms would arguably make it even harder to reduce government spending. It is easy to see how the introduction of pseudo-markets in so-called public services can degenerate into yet another shakedown by special interests.

If pseudo-markets risk being counterproductive in terms of rolling back the state, they do at least provide lessons for the development of more effective strategies. Incentive structures would appear to be a key consideration. Clearly the retention of an element of state funding encourages rent-seeking behaviour that undermines attempts to reduce government involvement. This suggests that instead of attempting to reform ‘public services’, libertarians should focus their efforts on approaches that reject them completely. Accordingly, activists should develop strategies that first bypass and later supplant state institutions entirely.

Samuel Edward Konkin argued that a libertarian society could be achieved through the extension of the counter-economy – non-legal shadow markets that, due to their voluntary nature and greater efficiency, would eventually displace governments. The plausibility of such an outcome may be questioned in the context of modern surveillance states. Nevertheless, a less ambitious ‘quasi-agorist’ or ‘neo-agorist’ approach that sought to extend non-state networks could indeed be an effective strategy for undermining dependence on and support for government services.

Konkin was also highly sceptical about the efficacy of libertarian participation in politics. Yet, to the extent that libertarians do have political influence, it should perhaps be targeted towards removing those regulatory barriers that prevent individuals, families and communities from bypassing state institutions. Looking at education once again, this might for example involve campaigning for the removal of legislation that prevents homeschooling, requires the licensing of non-state schools or mandates education up to a certain age. Many such rules are relatively obscure and have little political salience, suggesting that in some instances concentrated pressure would result in reform.

Of course in some places, such as the UK and in many US states, there are relatively few barriers to methods of opting out such as homeschooling. Effective strategies may then revolve around raising awareness of these possibilities through the dissemination of information and practical methods of implementation. Ivan Illich, for example, advocated the development of ‘learning webs’ which would allow children outside formal state schooling to access appropriate expertise and learning materials. Indeed, contemporary homeschooling networks pool skills and materials to enrich children’s education and capture economies of scale.

Such non-state networks are clearly far superior to pseudo-markets in terms of preserving and extending liberty: Provision is voluntary and does not depend on theft of resources; incentives for rent-seeking are absent because there are no government officials to lobby for funding/special privileges; top-down politicisation and social engineering is extremely difficult to impose on such decentralised structures; and allocative efficiency is likely to be much higher than under state systems, because the investors in education (i.e. parents, extended families and small community groups) possess local, time and place specific knowledge (e.g. the talents of a particular child and local employment opportunities), as well as having strong incentives to control costs.

Libertarian objectives are also enhanced by the wider effects of extending non-state networks. Reduced dependence on government handouts is likely to undermine political support for predatory politics and the funding of ‘public services’. At the same time, non-state networks that develop in a particular sector can extend into other activities. For example, connections that develop through a homeschooling network can form the basis of counter-economic activities and the voluntary exchange of goods and services outside government regulatory frameworks. Networks could also develop around subcultures that resisted governments on ideological grounds, effectively becoming refuges for political dissidents (e.g. by facilitating escape to a safe location). Thus a strategy of exiting ‘public services’ and developing voluntary alternatives has the potential to snowball into the creation of resilient sanctuaries from the state offering protection from government aggression. The contrast with counterproductive pseudo-markets is stark.

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