Arnold Kling  

Technological Determinishm

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Tyler Cowen writes,

Once private corporations had the organizational wherewithal to get large in the late 19th century, governments got big too. There is an important lesson there. Technology, and to a lesser extent slavery, are why earlier American governments were often so small. The influence of classical liberal ideology is often overrated here. Somehow recapturing this past ideology won't do the trick and it does not stand as an option.

This is so terse that you have to guess at what he is saying. Here is my guess:

1. Institutions are affected by technology perhaps even more than by ideology.

2. In 1800, the United States was a large country relative to the transportation and communication technologies that were available at that time. Further, it was very divided, both politically and economically, over slavery. Thus, one does not see major national institutions of any sort, private or public.

3. The rise of powerful industrial corporations and the rise of a large public sector in democracies over the past 150 years are results of changes in technology. Economies of scale have increased, because transportation costs have fallen and communication is faster and cheaper.

I agree with (1) - (3), whether or not that is what Tyler meant. I would add that the Internet permits enterprises with relatively little capital to achieve large scale (it also permits them to thrive in small niches). One does not need a large factory in order to have an important business on the Internet. Nor does one need to own a printing press in order to be able to reach a lot of people.

I think that some of the libertarianism of the 21st century is a reflection of the computer/communications revolution. I think, and I believe Tyler would agree, that libertarians who want to argue that Social Security and Medicare are the yoke of tyranny are not going to persuade very many people.

Instead, I would argue that government is too slow-footed for the Internet age. My guess is that in twenty years we will see less government because the public's expectations and interest in government will have shrunk. For now, I think that we are in a transition phase, during which politics is about exaggeration and theater. The theatrics are a desperate attempt by legacy political parties to hold onto mindshare.

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COMMENTS (18 to date)
Horatio writes:

When were politics not about exaggeration and theater? During crises and that's about it.

spencer writes:

Perhaps a different answer is that with size comes power so that because of the increased size (power) of corporations society need a countervailing power of similar size and that has to be big government.
The small government of the small town, rural society of 1800 could not be powerful enough to adequately police the large corporations that emerged after 1850.

This is a somewhat anti-libertarian argument.

Because of economies of scale with large corporations there is a strong tendency towards
monopoly or at least oligopoly that libertarian almost always seem to ignore that requires a countervailing power and that can only be a government large (strong) enough to police the monopolies -oligopolies.

Tyler seems to be the best economist at George Mason maybe because he is realistic or smart enough to recognize that libertarians can not keep on depending completely on the perfect competition model to explain the real world and expect to be taken seriously.

madsocialscientist writes:

Spencer - interesting comment. I think that Tyler is representative of a large number of libertarians on this point; more Friedman, less Rand.

Arnold Kling writes:

Countervailing power is a scoundrel's-refuge argument for big government. Big government reinforces entrenched corporate power. Government creates monopolies to a much larger degree than it destroys them.

spencer writes:

Boy -- really drinking the Kool-Aide today.

dearieme writes:

Few monopolies last long without government support.

Matt writes:

I don't see how a corporation could defeat a town. There is no level of government more powermad than the highest elected officers of a small town.

TGGP writes:

What is the worst example in history of a corporation that was too powerful relative to its government? I could see someone saying that the government of Italy was too weak relative to the mafia, or the medieval governments were too weak relative to the Catholic Church, or Somalia/Afghanistan had central governments too weak relative to warlords, but I just really do not get what people who want government as a countervailing power against corporations are worried about.

This reminds me of earlier when Boonton was saying that we like to have government slowing things down because change can be destabilizing but didn't give examples of instances in which there was a deficiency in government speed-brakes leading to too much destabilizing change (if he's reading this I'd be interested to hear his examples).

I agree with Arnold Kling's rather Public Choice view of in which direction government pushes. It would be nice if there some sort of quantitative scale with which we could measure the analogue of "weight" of corporations and government and the position of each relative to the fulcrum and the resulting balance, but that will unfortunately remain the domain of physics rather than political science.

Bruce G Charlton writes:

AK says: Government is too slow footed for the internet age...

Dead right, cancer drugs for instance:

jp writes:

I'm with Arnold and TGGP on the government/monopolies/corporations issue. If we took away antitrust laws (while keeping civil and criminal liability for fraud, theft, coercion, bribery, etc.), and if the government were reduced to a night-watchman state (with its focus on national defense and domestic law-enforcement), then I find it hard to imagine a scenario in which a corporation, however big, could force a monopoly on people without breaking the then-existing law.

Buzzcut writes:

Spencer, nice comback.

Let's see what monopolies we can all think of, and categorize them as government granted or not.

Public education: government granted

electricity: government granted

Natural gas: government granted

phone: government granted

medical insurance for the elderly (Medicare): government granted.

Can you even think of a non-government granted monopoly? Maybe microsoft? There aren't any others that I can think of.

I don't think that Spencer has a leg to stand on.

Harry writes:

The most effective counterweights to large corporations are competitor corporations and informed consumers. Big government seems to promote rent seeking in big business.

Matt writes:

The Internet flattens large organizations, no doubt about it.

Better and faster information lessons the advantage that proprietary information often contains.

And, information plus communications lessons the ability of organizations to manipulate government.

The trend, always, is less sticky, more fluid, better allocation of volatility and money, faster corrections, greater economic velocity, and weaker governments.

The other Matt (we are a collective) is correct on small towns. This idea cropped up in my mind when Arnold was talking a theory of government. One does not necessarily get more absolute as one moves up the hierarchy of arbiters, and small towns vs larger organizations often favor the small town.

Finally, the earth is finite and we are not leaving the planet. So, there is an inherent limit to largeness and no real limit to smallness.

cljo writes:

My guess is that in twenty years we will see less government because the public's expectations and interest in government will have shrunk.

Can we say that less expectations and interest result in less government. I would hazard to guess that such a state might result in more and worse government.

Matt writes:

I troll along, have patience.

Regarding the future of government.

Globalization causes investment competition in which funds that are most mobile will counter invest against funds that are tied down by government obligations.

Large governments will have to operate their business units closer to the free market ideal, for the extent to which government shifts obligations they create volatility (my word for the day!).

Volatility is the grist of fund hedging, and government that are slow to respond always create a deficiency for their citizens because foreign hedgers play off the counter cyclity of debt allocation.

Patri Friedman writes:

I agree with 1-3, but not your optimistic projection. The ratchet of government has enormous resistance to shrinkage. And the richer we get, the more we can afford the bloat.

Robb writes:

Matt says
"I don't see how a corporation could defeat a town. There is no level of government more powermad than the highest elected officers of a small town."

I don't see how the Matts avoid reading the newspaper. Hardly a week goes by without a story of some local government grovelling to or paying off some corporation to come to or stay in their little town.

Buzzcuts says;

"Let's see what monopolies we can all think of, and categorize them as government granted or not.

Public education: government granted

electricity: government granted

Natural gas: government granted

phone: government granted

medical insurance for the elderly (Medicare): government granted.

I say;
What country (or what century do you live in?)

Education; you can buy whatever education you want if you don't like the offering paid for by your taxes. Lots do. That is not a monopoly

Electricity; That hasn't been a monopoly for a long time unless you are talking about the transmission of electricity. Do you really want several suppliers running lines into different homes on your block? get serious.

Natural gas; debatable

Phone; Huh? I have the choice between dozens of VOIP providers, plus wiredless, plus comcast and verizon. I happen to use Vonage.

Medical care for the aged; debatable.

Now lets talk about the non government monopolies.

Microsoft leads the pack and has crushed innovation in too many areas to count.

Next, how about adobe, the microsoft of graphic arts software. They bought most of their competitors and closed them down. Now they are crushing Quark, their only remaining compeitor with "suite" pricing.

How about Intel. AMD fought back for a while, but most people agree it is on the ropes. The battle has lead to astounding advances, but I can't see Intel keeping the pace of R&D when AMD disapears or becomes irrelevant.

I could go on.

TGGP writes:

If there was a company that had a monopoly on some industry, that would be unfortunate but at least I'd have the option not to purchase their product or service. With education we do not even have that option, which makes it worse than a bog-standard monopoly.

Microsoft is not a monopoly. It competes with Apple and Linux (putting the lie to "you can't compete with free"). It is out-competing them because most consumers prefer their products to that of their competitors. You yourself point out that adobe competes with quark and intel competes with AMD, which makes them, by definition, not monopolies.

The phone company used to be a government granted monopoly, but thankfully that is no longer the case (though I'm sure people were as incredulous about competition there as you are about electricity transmission).

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