Monday, August 10, 2015

Confirmation of Tainter's Thesis? (Updated and Expanded)

I have previously discussed Joseph A. Tainter's The Collapse of Complex Societies (Cambridge Press, 1988) (see, e.g., my review: Part 1, Part 2, Part 3Part 4, Part 5, and Part 6. Tainter's theory was to combine the idea of the law of decreasing marginal utility (or decreasing marginal return) to the growth, and collapse of a society. His thesis was that when an increase in societal complexity reached a certain point where the costs of successive increases in complexity (regulations, bureaucracy, etc.) exceeded the benefits realized from the increase in complexity, a society was in danger of collapsing to a simpler form. This process, he theorized, would manifest itself by tertiary territories seeking to dissolve political ties with the central authority in order to seek a new equilibrium or sustainable level of complexity.

With that out of the way, I would note a recent story from The Economist entitled "If Russia Breaks Up: The peril beyond Putin" which has occasioned quite a bit of commentary from various other publications and blogs. The article observes:

Under Vladimir Putin’s presidency, Russia is seen in the outside world as an expansionist power trying to revise post-Soviet borders and rebuild an empire. But what if Russia itself—a country of nearly 200 nationalities that stretches across 11 time zones—is in danger of crumbling?

It would not be the first time that Russia tried aggression and expansion as a defence against modernisation and by doing so undermined its own territorial integrity. In 1904, when Russia was on the verge of a revolution, Nicholas II attempted to stave off change by looking for national traitors and starting a small war with Japan. The war ended a year later in Russia’s defeat and 12 years later the tsarist Russian empire faded away in a few days. In 1979, as Communist rule struggled under the weight of its own contradictions, the Soviet Union invaded Afghanistan; 12 years later the Soviet Union collapsed just as suddenly.

In 2011 Moscow’s urban middle class took to the streets to demand modernisation. Mr Putin responded by picking out alleged national traitors, annexing Crimea and starting a war against Ukraine. The idea that Russia’s latest foreign-policy adventures might end in the same way as previous ones—with the collapse of the state and disintegration of the country—is not as far-fetched as it might seem.

The Soviet Union came apart because it overstretched itself and ran out of money and ideas. Local elites saw no benefit in remaining part of a bankrupt country. It fragmented along the administrative borders of the 15 republics that made up the giant country.

Yet there was no reason why the process had to stop there. Indeed, many of Russia’s regions—including Siberia, Ural, Karelia and Tatarstan—declared their “sovereignty” at the time. To prevent further disintegration Russia’s then president, Boris Yeltsin, came up with the idea of a federation, promising each region as much “sovereignty as it could swallow”. Yeltsin made this promise in Kazan, the ancient capital of Tatarstan, which acquired many attributes of a separate state: a president, a constitution, a flag and, most important, its own budget. In exchange, Tatarstan promised to stay part of Russia.
Mr Putin has reversed federalism, and turned Russia into a centralised state. He cancelled regional elections, imposed a “presidential” representative over the heads of governors and redistributed tax revenues in Moscow’s favour. But he did not build common institutions. The Russian state is seen not as an upholder of law but as a source of injustice and corruption.

In the words of Mikhail Iampolski, a historian, Russia at present resembles a khanate in which local princes receive a licence to rule from the chief khan in the Kremlin. ... 
(Underline added). The article goes on to note:
The spectre of disintegration is already haunting Russia. Politicians and pundits are scared to discuss it publicly. Shortly after annexing Crimea and stirring separatism in eastern Ukraine, the Kremlin introduced a law which makes “incitement of any action undermining Russia’s own territorial integrity” a criminal offence. ...
* * *
Even more perilously for Russia’s future, Mr Putin brought into motion forces that thrive on war and nationalism. These are not the forces of imperial expansion—Russia lacks the dynamism, resources and vision that empire-building requires. They are forces of chaos and disorganisation. Eastern Ukraine has turned into a nest of criminals and racketeers. They cannot spread Russian civilisation, but they can spread anarchy.
And there is this warning:
Despite Russia’s deep paranoia that America is trying to break it up, such a scenario is one of the West’s worst nightmares. It opens the question of control over Russia’s nuclear arms. Although the command centre would remain in Moscow, securing missiles spread across Russian territory could be harder than it was after the collapse of the Soviet Union. At the time, the Russians and Americans worked successfully together to move the nuclear arsenal from Ukraine and Kazakhstan to Russia. Ukraine was given a piece of paper—called the Budapest memorandum and signed by Russia, America and Britain—which guaranteed its territorial integrity in exchange for giving up its nuclear arms. Now, Russia’s annexation of Crimea has made any such assurance worthless.
(See also "Could Russia Breakup after Putin ?" at Next Big Future).

There is also another interesting point. In the latter article from Next Big Future, it points out:
Putin is keeping Russia together through force and payoffs to regions and regional leaders. Putin will turn 63 this year (born Oct 1952). An average life expectancy for a wealthy Russian man who takes care of his health would be about 75-80 years. So a post Putin situation would likely become a reality by 2027-2032 based on his death from aging or earlier if he lost power for other reasons.
This may be significant because recent solar models suggest that the sun will be entering an extremely low level of activity in the solar cycle between 2030 and 2040, which could produce a mini-ice age.  Combined with the likelihood that Russia will have engaged in, and lost, a second cold war with the United States in the 2020s or 2030s, there is a good likelihood of grave social disruption in Russia in the late 2020s and in the 2030s, perhaps leading to various regional conflicts.

There is a lesson in all of this for the United States. The United States has all but abandoned even the pretense of federalism. I could spend considerable time and space on this topic, but a few articles and comments illustrate my point. In a recent article by John Cochrane entitled "Rule of Law in the Regulatory State," Cochrane warns:
The United States’ regulatory bureaucracy has vast power. Regulators can ruin your life, and your business, very quickly, and you have very little recourse. That this power is damaging the economy is a commonplace complaint. Less recognized, but perhaps even more important, the burgeoning regulatory state poses a new threat to our political freedom.

What banker dares to speak out against the Fed, or trader against the SEC? What hospital or health insurer dares to speak out against HHS or Obamacare? What business needing environmental approval for a project dares to speak out against the EPA? What drug company dares to challenge the FDA? Our problems are not just national. What real estate developer needing zoning approval dares to speak out against the local zoning board?

The agencies demand political support for themselves first of all. They are like barons in monarchies, and the King’s problems are secondary. But they can now demand broader support for their political agendas. And the larger partisan political system is discovering how the newly enhanced power of the regulatory state is ideal for enforcing its own political support.

* * *

I haven’t yet found a really good word to describe this emerging threat of large discretionary regulation, used as tool of political control.

Many people call it “socialism.” But socialism means government ownership of the means of production. In our brave new world private businesses exist, but they are tightly controlled. Obamacare is a vast bureaucracy controlling a large cartelized private business, which does the governments political and economic bidding. Obamacare is not the Veteran’s Administration, or the British National Health Service. Socialism doesn’t produce nearly as much money.

It’s not “capture.” George Stigler described the process by which regulated businesses “capture” their regulators, using regulations to keep competition out. Stigler’s regulated businesses certainly support their regulators politically. But Stigler’s regulators and business golf together and drink together, and the balance power is strongly in the hands of the businesses. “Capture” doesn't see billion-dollar criminal cases and settlements. And “capture” does not describe how national political forces use regulatory power to extract political support.

It’s not really “crony capitalism.” That term has a bit more of the needed political flavor than “capture.” Yes, there is a revolving door, connections by which businesses get regulators to do them favors. But what’s missing in both “capture” and “cronyism” is the opposite flow of power, the Devil’s bargain aspect of it from the point of view of the regulated business or individual, the silencing of political opposition by threat of regulation.

We’re headed for an economic system in which many industries have a handful of large, cartelized businesses— think 6 big banks, 5 big health insurance companies, 4 big energy companies, and so on. Sure, they are protected from competition. But the price of protection is that the businesses support the regulator and administration politically, and does their bidding. If the government wants them to hire, or build factory in unprofitable place, they do it. The benefit of cooperation is a good living and a quiet life. The cost of stepping out of line is personal and business ruin, meted out frequently. That’s neither capture nor cronyism.
Although Cochrane picks the term "bureaucratic tyranny," I think the term he is actually looking for is Gleichschaltung--a description that the Germans, prior to WWII, used to describe the close cooperation between segments of the economy (represented by large cartels and business and labor organizations) and government bureaucracies, but also exerted over those business and labor interests by the bureaucracies. In Tragedy and Hope, Carroll Quigley relates:
The period from the election of March 5, 1933, to the death of Hindenburg on August 2, 1934, is generally called the Period of Coordination (Gleichschaltung). The process was carried on, like the electoral campaign just finished, by illegal actions from below [riots and attacks by the SA] and legalistic actions from above. ... 
* * * 
The middle classes were coordinated and disappointed. Wholesale and retail trade associations were consolidated into a Reich Corporation of German Trade under the Nazi Dr. von Renteln. On July 22nd the same man became president of the German Industrial and Trade Committee, which was a union of all the chambers of commerce. ... 
The breakup of the great department stores, which had been one of the Nazi promises to the petty bourgeois ... was abandoned.... Moreover, liquidation of the cooperative societies, which had also been a promise of long duration, was abandoned....  
Labor was coordinated without resistance, except from the Communists. ... The unions themselves were incorporated into a Nazi German Labor Front under Robert Ley. ... 
Agriculture was coordinated .... The various land and peasant associations were merged into a single association..., while the various landlords' associations were united into the German Board of Agriculture.... 
Religion was coordinated in various ways. ... 
* * * 
This movement [the Nazi movement], once it came to power at the behest of the Quartet [a term referring to the primary powers in the nation: the Army, the bureaucracy, large industry, and large landlords], took on life and goals of its own quite different from, and, indeed, largely inimical to, the life and goals of the Quartet.
An interview from several years ago with Jonah Goldberg about his book Liberal Facism also discusses Gleichschaltung. He says:
You know, when I first started pondering the book, I thought it might be all about economics. About ten years ago I went on a junket to Switzerland and attended a talk with the CEO of NestlĂ©. Listening to him, it became very clear to me that he had little to no interest in free markets or capitalism properly understood. He saw his corporation as a “partner” with governments, NGOs, the U.N., and other massive multinationals. The profit motive was good for efficiency and rewarding talent, but beyond that, he wanted order and predictability and as much planning as he could get. I think that mindset informs the entire class of transnational progressives, the shock troops of what H. G. Wells hoped would lead to his liberal-fascist “world brain.” 
If you look at how most liberals think about economics, they want big corporations and big government working in tandem with labor, universities (think industrial policy), and progressive organizations to come up with “inclusive” policies set at the national or international level. That’s not necessarily socialism — it’s corporatism. When you listen to how Obama is making economic policy with “everyone at the table,” he’s describing corporatism, the economic philosophy of fascism. Government is the senior partner, but all of the other institutions are on board — so long as they agree with the government’s agenda. The people left out of this coordinated effort — the Nazis called it the Gleichschaltung — are the small businessmen, the entrepreneurs, the ideological, social, or economic mavericks who don’t want to play along. When you listen to Obama demonize Chrysler’s bondholders simply because they want their contracts enforced and the rule of law sustained, you get a sense of what I’m talking about. 
I don’t think Obama wants a brutal tyranny any more than Hillary Clinton does (which is to say I don’t think he wants anything of the sort). But I do think they honestly believe that progress is best served if everyone falls in line with a national agenda, a unifying purpose, a “village” mentality expanded to include all of society. That sentiment drips from almost every liberal exhortation about everything from global warming to national service. But to point it out earns you the label of crank. As I said a minute ago about that “We’re All Fascists Now” chapter, I think people fail to understand that tyrannies — including soft, Huxleyan tyrannies — aren’t born from criminal conspiracies by evil men; they’re born by progressive groupthink. I have an abiding faith in the liberty-loving nature of the American people. But I think we are laying down the foundation for a challenge to that nature the likes of which we haven’t seen since Wilson was in office.
I think that it is evidence of this shift to coordination between government and the large industries to point readers to this observation from a 2013 article in The Wall Street Journal:
The income of the typical D.C. household rose 23.3% between 2000 and 2012 to an inflation-adjusted $66,583, according to the Census Bureau’s American Community Survey, its most comprehensive snapshot of America’s demographic, social and economic trends. During this period, median household incomes for the nation as a whole dropped 6.6% — from $55,030 to $51,371. The state of Mississippi, which had one of the biggest declines, dropped 15% to $37,095: Nearly one in three people there have an income that is near the poverty line.

The Washington, D.C. metro area — which includes the surrounding suburbs in Maryland, Virginia and West Virginia — has it even better, with a median household income of $88,233 that ranks highest among the U.S.’s 25 most populous metro areas. Tampa, Florida’s median income, by contrast, is under $45,000.
This is not because of a manufacturing or technological boom in the nation's capital, but because the accumulation ("creation" is certainly not applicable) of wealth is so closely tied to the power of the federal government. As I documented more fully when discussing Tainter's book, the United States has been seeing declining returns on investment for decades; and the last couple of decades have seen some staggeringly negative returns. This strong coordination--with the concomitant centralization of power--will rapidly increase both complexity and the costs of complexity. And it will be hated by most people.

The United States has been immune to some of the stresses caused by increased complexity because of its wealth, and a national unity forged primarily in World War II. Historically, for much of the last century, Americans thought of themselves first as Americans and only secondarily as something else. It does not appear, on the surface, that America suffers the deep regional divides of Russia. Certainly, unlike the time of the American Civil War, Americans do not seem to have a great emotional attachment to their cities or states. (Sure, there are exceptions: Texans and handful of other cities or regions that seem to command an unusual amount of loyalty). What we are facing is perhaps more insidious than regional differences. Our (speaking of Americans in general) loyalties are instead transferring to other types of relationships--a neo-tribalism, if you will. The old national loyalties are disappearing. Other groupings based on ethnicity, gender, or other categories are coming to the fore, and claiming the loyalty that used to belong to the nation; while, at the same time, the legitimacy of the government is increasingly being questioned by not only the left (which has been challenging it since the 1960s), but also, now, the right which has so long been among the proudest flag waivers.

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