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It’s Not a Welfare State, It’s a Special Interest State

Thursday, June 14, 2012

The concept of ‘welfare’ has become an open, bottomless vessel into which every desire can be poured.

One of the most successful linguistic hijackings ever is the Left’s appropriation of the term “welfare state.”

No one opposes the most basic version of a welfare state, one that provides essential public facilities, cares for the destitute and unfortunate, educates children, and protects public health and safety. Indeed, as the Supreme Court said in 1881, during an era regarded by the Left as a dark-age trough, “It will not be denied by any one that these are public purposes in which the whole community have an interest.”

A democratic polity can bicker over the scope of these functions. Some think care for the unfortunate should go a long way in the direction of income redistribution and that protecting public health requires extensive regulation. Others are more cautious. But these disagreements, while sometimes acrid, are within the bounds of civil political contest.

A democratic republic cannot long survive as a special interest state.

The problem is that the concept of “welfare” has become an open, bottomless vessel into which every desire can be poured: Government takeover of the entire health and retirement systems; detailed regulation of employment; manipulation of money; subsidies for housing, education, energy, food; or anything else that strikes the fancy of some segment of the public.

The “some segment” part is crucial, because today’s welfare has ceased to be limited to that of the public generally, or to the welfare of any group that has a serious claim to special deserts. Instead, it is the welfare of some special interest that is able to capture the policy process. This may require a cover story, a fig leaf of pro bono publico justification, but these stories grow increasingly thin as the number of subsidies multiplies. They are credible only to a rationally ignorant public that is too busy tending to its own affairs to dig down even an inch. The governmental expansion created by these forces is awesome. In 1902, U.S. federal, state, and local governments spent less than 7 percent of the Gross National Product. Most (3.5 percent) occurred at the local level. States spent 0.76 percent, and the federal government controlled 2.71 percent. Now, total federal, state, and local government spending in the United States is about 42 percent. An unknown share is mandated by laws and regulations, many of which are triggered by special interests rather than by any serious public considerations. Good estimates are hard to come by, but probably at least another 15 percent of GDP goes into this maw.

As government has grown, its functions have necessarily been divided and delegated to subunits. These become juicy targets for capture, and “welfare state” also means one in which pieces of the government are parceled out among various special interests, with each then allowed to use the power of its captive to promote private agendas through spending, regulation, taxation, and law. What we have created is not really a welfare state, it is a “Big SIS,” with SIS standing for “Special Interest State.”

Capture is not limited to economic interests—would that it were! Ideology is an equal if not greater motivator, and most powerful of all are the “bootleggers and Baptists” coalitions that combine the economic power of those who profit with the ideological élan of those who believe.

In 1902, U.S. federal, state, and local governments spent less than 7 percent of the Gross National Product. Now, total federal, state, and local government spending in the United States is about 42 percent.

The Environmental Protection Agency is a prime example. The agency and its confreres in the Department of the Interior and the Army Corps of Engineers have been captured by the True Greens. They promote their anti-industrial agenda on every front, ranging from energy production to control of the electric grid to automobile safety to land use.

The EPA is a poster child because the capture is so complete and the scope of ambition so voracious, but the phenomenon is quite general. For example, since the passage of Medicare and Medicaid, the healthcare system has been driven by government funding. Department of Health and Human Services (HHS) rules on treatment and reimbursement rates determine everything, and the agency serves as an arena for fierce struggles among all the interests involved in healthcare.

Tariffs illustrate Big SIS as small ball. Tariffs are set by complicated political infighting, and lubricated by political influence and campaign contributions. Then individual exemptions are granted, also as the outcome of political prowess. The result is a double layer of destruction. The original tariffs promote inefficiency and damage consumers, and then the exemptions destroy the value of investments made in reliance on the law and add huge uncertainty. After a few rounds, the result is a system in which only a fool invests in industrial facilities when he could invest in congressmen.

The ObamaCare and financial reform laws represent Big SIS on a grand scale—2000+ page bills, each line drafted by some ideological or economic special interest, punting on most big issues and commanding dozens of rules to be drafted according to no known standard and with no consistency. The rulemaking process then, as in HHS, becomes the cockpit for the special interest battles that determine the true outcome of the law.

The Environmental Protection Agency is a prime example. The agency and its confreres in the Department of the Interior and the Corps of Engineers have been captured by the True Greens.

The welfare system is another example. According to Kevin Williamson, the United States spends $65,000 per poor family to fight poverty, even though the average national family income is $50,000. Most of the money actually goes to finance members of the upper or middle class, who become a powerful claque for never solving the problem. Williamson concludes that the purpose of the Great Society was not to end poverty, but to maximize dependency and keep the Democrats in power.

The government itself has become a particularly self-righteous special interest, as blogger Tom Smith describes in a comment on the Wisconsin recall results:

It was rejection of the proposition that the taxpayers should underwrite indefinitely a sort of perpetually expanding and self-reinforcing government that saw itself as entitled to be insulated from the very people who were paying for it... The state is supposed to serve somebody; it doesn't exist for the sake of itself… The passion in this debate is about a slice of the middle class, the highly state subsidized slice, fearing how they may fall when the subsidies are cut back.

More than half a century ago, some political scientists developed a justification for Big SIS. They called it “interest group pluralism,” and assumed that having all the special interests elbowing each other on the way to the trough would somehow create a political market that echoed the efficiencies of the economic free market.

Interest group pluralism was always more of a metaphor than a real theory, and it has not proven out in practice, as our current national malaise indicates.

For one thing, interests beget interests, as Jonathan Rauch said in Government’s End:

We created a government with vast power to reassign resources…we created countless new groups. What we did not create... was a way to control the chain reaction set off when activist government and proliferating groups began interacting with each other.

Interests also learned that it is usually easier to expand government than to displace another interest, so that the theory of elbowing each other on the way to the trough does not work. It is easier to get together to promote a bigger trough than to attack a fellow interest.

As Jay Cost documents in Spoiled Rotten: How the Politics of Patronage Corrupted the Once Noble Democratic Party and Now Threatens the American Republic, the Democratic Party has become “a kind of national Tammany Hall whose real purpose is to colonize the federal government on behalf of its clients.” Its coalition of True Greens, public employees, unions, feminists, trial lawyers, crony capitalists, academic and foundation dependents, victimization advocates, and poverty profiteers understands this very well, and holds together despite considerable internal antipathy.

Today’s welfare has ceased to be limited to that of the public generally, or to the welfare of any group that has a serious claim to special deserts.

Special interest avarice has no natural limits. A generation ago, economist Mancur Olson made the point that a special interest’s appetite has no limit because it gets the benefits while the costs are borne by society at large. This incentive structure means that the interest will keep grabbing even when the costs imposed on society at large far exceed the benefits to the interest. And its Washington representatives have an incentive to be even less reasonable, as they have to juice the troops to keep the stream of dues coming.

Some commentators are under the illusion that the current national crisis will sober up the special interests. But that is not how it works, because a crisis makes special interests less, not more, responsible. The situation becomes, in the language of game theorists, a “last-period problem.” As a game approaches an end, the players have no need to cooperate for the sake of protecting long-term relationships. Their incentive is to grab as much as possible before the game ends, or, to translate to the real world, before the society collapses. Do not look for crisis to bring out a sense of responsibility in the advocates for the interests.

The Founders of the Republic used the word “factions” rather than “special interests,” and they feared their corruptive effects like the devil. In particular, they feared “systemic corruption,” a downward spiral wherein the government favors particular factions and then forces these to use part of their profits to support the regime. (A current example is the deal between the White House and PhRMA for the pharmaceutical research and biotechnology trade association to commit millions of dollars to a PR campaign in support of the healthcare bill in return for breaks on the pricing of government purchases.)

Historian John Joseph Wallis says:

Fear of corruption verging on paranoia, became a dominant feature of American politics in the early 19th century…. In the process, the rhetoric of corruption emerged as the common grammar of politics, so overwhelming that it became difficult to discuss public questions in any other language. …[T]he word most often brought to mind a fuller, more coherent, and more dreadful image of a spreading rot.

The Constitution is filled with holy water against this devil of systemic corruption, as explained with particularity in the Federalist Papers. Like architects analyzing lines of force, the Founders calculated how to set faction against faction and power against power so as to keep the Republic standing. Their calculation was that the fragmentation of factions would prevent any of them from gaining control. In addition, the powers of government were limited so that even a majority faction would be hard put to be too abusive. And if it did try, there was always the Second Amendment waiting in reserve.

The Progressive Era, the New Deal, and the Great Society wrecked the Founders’ scheme.

It is easier to get together to promote a bigger trough than to attack a fellow interest.

At the macro level, in the republic of the Founders the government had power and responsibility to facilitate the functioning of society in many ways, but it was not put “in charge” of much at all, except the Navy and federal property.

For example, the power “to regulate commerce” assumed that there was commerce being conducted by private entities, and Congress could act to make it work better. Our current debate over whether this clause lets Congress take total control of the healthcare system would have puzzled the Founders as being nonsensical. But the political system has come to hold the government responsible for outcomes, and it follows inevitably that great responsibility requires great power.

The growth of government’s size and reach also made feasible a log-rolling coalition of government dependents that is within striking distance of becoming a permanent electoral majority, as described by Cost. Growth also dictates that authority be subdivided and delegated, which creates endless opportunities for capture of small but powerful bits and pieces.

As noted at the start, a democratic republic can survive and flourish as a welfare state, one in which a reasonable majority of citizens votes to provide protection against a selected set of risks and to pay for it. Conflicts will occur over the specific boundaries and burdens, but these are incidental.

Economist Mancur Olson made the point that a special interest’s appetite has no limit because it gets the benefits while the costs are borne by society at large.

But a democratic republic cannot long survive as a special interest state. The destruction of economic value is too complete, as interests channel the money into unproductive uses—housing and education bubbles; alternative energy; battalions of compliance officers; a ruling class that depends on the iron rice bowl of the government giving its members jobs telling the masses what to do.

The destruction of other values is also serious. Respect now goes to the person who can best manipulate the system to extract resources for his clientele, not to the one who creates productive enterprises. The term “doer” becomes a synonym for “sap.” Private institutions respond to Big SIS by becoming Little SISes, choosing their leaders for their ability to schmooze the government rather than for skill or dedication in pursuing the mission of the institution. Log-rolling coalitions require that members of each group within the tent abandon any reservations about the demands of their allies.

Margaret Thatcher said that socialism eventually runs out of other people’s money, but in a socialist world the ruling class is at least trying to promote some vision of the general welfare, however demented. The special interest state is more degraded in that the general welfare is of little concern to the interests’ representatives. Arguments that their positions are destructive have no impact, except perhaps to send them back to their offices to grab more before the game ends.

The special interest state cannot keep growing and has no natural equilibrium point. So the question now is not whether but how it will end, and this is inscrutable. One can envision a period of creative politics and institution building in which an aroused public demands the dismantling of much of the special interest state, a cut-back in government, and the creation of new institutional controls to prevent a recurrence.

Do not look for crisis to bring out a sense of responsibility in the advocates for the interests.

The essence of a constitution, indeed, the essence of any government, is to provide the mechanisms whereby people agree to limit their own short-term aggressive greed in return for others doing the same, so as to create a society in which all can prosper. We seem to have forgotten this, and we are paying the price, but reform is possible.

On the other hand, it is characteristic of unstable systems that they continue longer than one would have thought possible, then collapse with great speed. The dark end of the spectrum of possible futures is that interest-group politics blocks effective responses to the continuing woes of the deficit, entitlement, and investment-killing regime uncertainty. Then we will limp along until eventually a financial collapse—or a collapse of some of our great physical systems, such as the power grid, or a great natural disaster—throw the nation into crisis.

A crisis might cause us to circle back to option one, a period of creative politics and institution building. It could also result in governments of a shape as yet undreamt of. Lenin is reputed to have said that the Bolsheviks did not seize power in Russia; they found it lying in the gutter, and picked it up. Many, both in and out of the United States, are waiting to see if American power is headed for the gutter.

However it turns out, the fault, or the virtue, will not be in our stars but in our collective selves. And a good start toward a sunny outcome would be to retire the term “welfare state” and face squarely what we have truly created: Big SIS, a special interest state that is, in the words of AEI’s Michael Greve, “an unstructured, undisciplined, exploitative interest group free-for-all.”

As the Tea Parties show, the people understand that Big SIS is not viable, and this is precisely why they so scare the Washington establishment. Linguistic clarity will enhance the debate.

James V. DeLong is the author of a new book Ending ‘Big SIS’ (The Special Interest State) and Renewing the American Republic, on which this article is based. He can be reached at SpecialInterestState@gmail.com.

FURTHER READING: James V. DeLong also writes “The Coming of the Fourth American Republic,” “Can Government Be Limited?” “Does the Constitution Make You a Cash Cow?” and “Washington’s Seizure of Sunk Capital: Part II.” Thomas P. Miller discusses “Dueling Forces in Today's Healthcare Markets.” Allan H. Meltzer contributes “A Welfare State or a Start-up Nation?

Image by Darren Wamboldt / Bergman Group

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