Reisman’s critique of Piketty, from beginning to end, is nothing but pronouncements of a priori Austrian dogma from Böhm-Bawerk and Mises, with no direct contact with reality outside the pages of their work at any point in the process. He makes dogmatic pronouncements about the role of capital investment in productivity without reference to actual technological history, about the effect of government spending on capital investment while having apparently paid no attention to the actual role of government in corporate state capitalism, and about the heroic role of corporate management with obviously zero awareness of how information flow and distributed knowledge work within corporate hierarchies.

Reisman’s Mistaken Views on Technology

Reisman, like most of the Austrians, equates increased productivity to capital accumulation and capital intensiveness. Piketty, Reisman says, “advocates his program on the basis of ignorance of the essential role of capital in production, which is to raise the productivity of labor, real wages, and the general standard of living.” But Reisman’s criticism, in turn, is based on ignorance of actual technological history, or of anything else outside the dogmas of Austrian economics.

As people have learned that the economic system is not indestructible, they have turned in anger and resentment against “economic inequality,” as though it were the surviving wealth of others that was the cause of their poverty, rather than the fact that, thanks to the government, others do not have sufficient capital to supply and employ them in the manner they would like.

* * *

Now into the midst both of the assault on the capital supply of the American economic system and its ability to produce, and the unfounded resentment against economic inequality that has been stirred up by the impoverishment caused by that assault, has stepped one Thomas Piketty.

The truth, Reisman declares contra Piketty, is that “a rise in the productivity of labor and concomitant economic progress almost always requires an increase in the supply of physical capital goods relative to the supply of labor.”

What this means, for example, is that from time to time such things as the increasing quantities of iron and steel available per worker be accompanied by steam shovels made of iron and steel replacing conventional shovels made of iron and steel. While equipping a worker with 1,000 or 10,000 conventional shovels would not increase his output beyond what he can produce using just a single shovel, the same quantity of iron and steel as is in that many shovels being instead in the form of a steam shovel, can very dramatically increase his output. Such technological progress is essential to the continuing increase in the supply of capital goods.

The result of this accumulation of large-scale physical capital “is a steady rise in the productivity of labor, which continually increases the supply of goods produced relative to the number of workers producing them.”

Reisman’s imagery is straight out of the mid-20th century mass production era. The irony is that his aesthetic is almost identical to those of Rachel Maddow and Joseph Stalin. As far apart as they may be in some aspects of economic theory, Reisman’s heart beats in unison with those of the producers of 1930s Soviet propaganda films on the First Five-Year Plan and contemporary Maddow PSAs showing a gargantuan hydroelectric dam.

This ignores virtually the entire trend of technological history—especially over the past thirty years, but to a considerable extent since the late 19th century.

The internal logic of the changes in production technology made possible by the invention of the electric motor, as explained by Pyotr Kropotkin in Fields, Factories and Workshops, was to shift things toward small scale and decentralization.

In the days of steam power, the large factory was justified by the need to make maximum use of the power generated by a prime mover, so you crowded as many big machines as possible into a single building, all running off belts from drive shafts powered by a single giant steam engine. Electrical power, by making it possible to build a prime mover into each machine scaled to its size and power needs, ended this imperative. Instead, individual machines could be scaled to production flow, the scale of production flow matched to immediate demand, and the production process sited near the point of consumption. So instead of large factories distributing their wares over enormous market areas, you might instead have small shops with electrical machinery serving community markets.

The ideal use of electrical power, based on its innate advantages, was to integrate general-purpose electrically powered machinery into craft production serving the local market on a lean, demand-pull basis, with the shops frequently shifting from one product line to another in the face of demand.

Instead we got the 20th century mass production model, which was almost entirely a creation of the state. That model entailed large factories full of extremely expensive, product-specific machinery and dies that took a lot of time and effort to change. To minimize unit costs from these enormous capital outlays, it was necessary to run the machines at full capacity producing single product lines for long periods of time, and retooling as seldom as possible. This meant that production was undertaken without regard to current demand, and instead the entire society had to be reengineered to guarantee demand for the product after the fact.

Contrary to Reisman, this was only “more productive” (if at all) at the actual point of production. As pointed out by Ralph Borsodi in the 20s and 30s (especially in The Distribution Age), the unit cost of production for small-scale production near the point of consumption was a final cost, with distribution costs being virtually nil. The unit cost of production in a large factory, on the other hand—no matter how low it was—was only the first cost. In addition there was the bureaucratic overhead of not only the large factory but the multi-unit corporation, the enormous costs of work-in-process inventory, warehouses full of product awaiting distribution, long distance distribution chains full of goods in transit, mass advertising and high-pressure marketing.

On top of this state capitalism, by enforcing monopolies and artificial property rights from which the large property-owning classes derived rents, tended to shift income from those who produced and had a high propensity to spend, to those who lived off rentier incomes and had a high propensity to save and invest. That meant that there was a chronic tendency for the propertied classes to have more investment capital than they could find profitable investment opportunities for, and for them to invest in more productive capacity than there was sufficient demand to purchase the output of at full capacity. So the state was forced to step in to remedy these chronic tendencies by investing in public works, creating new (and unnecessary infrastructures), creating large military establishments, etc. All these incidental costs of mass production, in society at large, were far more than sufficient to outweigh the illusory efficiencies at the point of production.

(Note: I am not saying, with Keynes and some other under-consumptionists, that chronic tendencies toward over-accumulation and idle capacity are endemic to the market as such. Rather, I am saying that the intervention of the state to enforce special privileges on behalf of propertied classes, under capitalism, creates these tendencies by shifting wealth from those who create it to those who collect tribute with the government’s help. This was essentially the argument of J.A. Hobson in Imperialism.)

More recently, the unsustainability of mid-20th century mass production capitalism and a new spate of rapid technological innovation, taken together, have given new life to the decentralized, small-scale industrial model envisioned by Kropotkin. The main technological trend has been ephemeralization: lower and lower capital inputs required for production, in terms both of sheer material mass and price, compared to labor.

The first comparatively cheap, small-scale CNC (computer numeric controlled) machine tools in the 70s led to the proliferation of job-shop production. A major share of production for large corporations today is undertaken on a contract basis by independent job shops in Shenzhen province in China, and job shops in Emilia-Romagna province in Italy engage in networked independent production.

And more recently, hardware hackers have produced open-source tabletop CNC machinery that costs two orders of magnitude less than earlier commercial counterparts: CNC cutting tables, routers, 3-D printers, etc., for $500-$1500. That means that garage factories with ten or twenty thousand dollars’ worth of tabletop machinery can produce the kinds of goods that once required a million-dollar factory.

Reisman’s Mistaken View of the State’s Role

Reisman’s mistaken view of the significance of capital investment in the contemporary economy, described above, means he’s also flat-out clueless about the role of government spending under corporate capitalism. Like many economists on the Right, he views government spending and debt as crowding out private capital investment that would otherwise “create jobs.”

Over the course of several generations, the US government has taxed away trillions upon trillions of dollars that otherwise would have been saved and invested and thereby added to the capital of the American economy.

* * *

The massive loss of capital resulting from all this, is reflected not only in the recent recession/depression, but in the much larger-scale wiping out of much of the industrial base of the United States and its replacement with the “rustbelt.” As a consequence of this devastation, the populations of once great American cities, such as Detroit, St. Louis, Cleveland, and Pittsburgh have been decimated. Much of Detroit is now on the verge of reverting to farmland.

* * *

The government’s massive assault on the supply of capital has begun to transform the American economic system from one of continuous economic progress and generally rising living standards into one of stagnation and outright decline.

This is nonsense. The actual crisis tendency of corporate capitalism is its growing mass of surplus investment capital without a profitable outlet, and overbuilt industry with idle capacity resulting from inadequate demand. Capitalists aren’t investing the capital they already have.

This was already true of industrial capitalism in the early 20th century, with the resulting boom-bust cycle almost destroying capitalism in the 1930s, but World War II postponed the crisis for a generation by destroying most industrial plant and equipment outside the United States and creating a huge permanent war economy as an additional sink for surplus capital. But the crisis resumed around 1970, when the Western European and Pacific Rim economies had rebuilt their industry, and has worsened ever since. Capitalism has depended, from 1980 on, mainly on speculative bubbles in finance, high tech and real estate to absorb surplus capital. And the technological trend towards ephemeralization has made things still worse.

As Douglas Rushkoff argued, the crisis of California’s tech industry results from the fact that it takes far less capital than it used to to do anything.

The fact is, most Internet businesses don’t require venture capital. The beauty of these technologies is that they decentralize value creation. Anyone with a PC and bandwidth can program the next Twitter or Facebook plug-in, the next iPhone app, or even the next social network. While a few thousand dollars might be nice, the hundreds of millions that venture capitalists want to—need to—invest, simply aren’t required….

The banking crisis began with the dot.com industry, because here was a business sector that did not require massive investments of capital in order to grow. (I spent an entire night on the phone with one young entrepreneur who secured $20 million of capital from a venture firm, trying to figure out how to possibly spend it. We could only come up with $2 million of possible expenditures.) What’s a bank to do when its money is no longer needed?

Ephemeralization and downscaling of physical production capacity is doing the same thing to the money which previously went into large-scale industrial capital. I wrote the following comments in a review of Cory Doctorow’s Makers, but it applies almost as much to the era we’re living in.

The story begins with a press conference by Landon Kettlewell, frontman and CEO for the newly-formed Kodacell (a merger of Kodak and Duracell). He begins by summing up the current changes in physical production: “Capitalism is eating itself…. The days of companies with names like General Electric and General Mills and General Motors are over.” There are, in other words, no longer any surviving forms of capital-intensive, large-batch production sufficient to gobble up enormous amounts of investment capital.

Later in the story, Kettlewell splurges with travel on the seven Kodacell corporate jets with something of an “apres moi, le deluge” air. He mentions that the company can’t even unload them at fire sale prices, because there just aren’t any companies out there willing to spend money on jets any more. Not even Saudi princes. And an accountant says “In ten years, if we do our jobs, there won’t be five companies on earth that can afford this kind of thing — it’ll be like building a cathedral after the Protestant Reformation.”

Kodacell’s new business model, in that environment, is to ruthlessly liquidate most of its surplus manufacturing capability, and use its cash on hand as something like a Grameen bank for hardware hackers, to fund thousands of micromanufacturing startups. “The money on the table is like krill: a billion little entrepreneurial opportunities that can be discovered and exploited by smart, creative people.”

….The dying Fortune 500 companies at the outset of Makers are in the process of liquidating what’s left of their old mass-production facilities, and using their remaining liquid assets to fund as many micromanufacturing startups as they could find. Almost before Kettlewell’s press conference is finished, this becomes the dominant investment model for dozens and dozens of corporations that were finding 90% of their plant and equipment was superfluous with no idea what they could spend their capital on. Before long Westinghouse had shut down its appliances division and started its own multi-billion dollar microcredit operation, looking for garage startups to fund. By the end of Part One, the list of organizations with their own New Work microfinance organizations include not only a major part of the Fortune 500, but the investment arms of the AFL-CIO and major industrial unions….

The key to why the failure of the New Work boom is the contradiction inherent in Kettlewell’s investment strategy, and that of the other big corporate venture capital funds. There was a fallacy of composition implicit in his “straining a billion bits of krill” investment model. Those hundreds of thousands and even millions of ventures, cumulatively, weren’t enough to soak up even a large fraction of all the capital lying around waiting to be invested. What he described was an excellent model for a single small venture capitalist with several thousand dollars to invest. And that’s just how it worked, at the level of the individual product: he put fifty grand into bankrolling one of Perry’s and Lester’s product lines, and got seventy grand out three months later. But despite those astronomical ROIs, the absolute quantities of capital required for such startups was quite small. A corporation with fifty billion can’t repeat the same process a million times — especially when the entire Fortune 100 is doing the same thing, looking for opportunities to unload all their idle cash on whatever terms are available. As Kettlewell later complained,

“Our business units have an industry-high return on investment, but there’s not enough of them. We’ve only signed a thousand teams and we wanted ten thousand, so ninety percent of the money we had to spend is sitting in the bank at garbage interest rates. We need to soak up that money with big projects — the Hoover Dam, Hong Kong Disneyland, the Big Dig. All we’ve got are little projects.”

So the overwhelming majority of available capital still sat idle without any productive outlet.

We’ve essentially reached, and gone past, the point of both Peak Capital and Peak Jobs.

So throwing all the money currently soaked up by taxation and the capital soaked up by federal debt back into the private economy would just make the crisis of surplus capital even worse. The main interest served by deficit spending and government debt is that of capitalists, as evidenced by the role of corporate leaders like GE’s Gerard Swope in the New Deal. The federal debt absorbs trillions of dollars worth of capital that otherwise would have no outlet, and provides a guaranteed if small rate of profit on it. It’s basically a price support program for capital, directly analogous to the USDA program that pays farmers rent on land they hold out of use.

Reisman is also about as wrong as it is possible for a human being to get on the actual purpose of the regulatory state. The purpose of government rules and regulations (including, “of course, …those that compel dealing with labor unions”) is “forcing business firms to do what is unprofitable or prevent them from doing what is profitable”—resulting, among other things, in unnecessarily high production costs.

But in fact the main purpose of regulations–especially when they raise costs–is to erect entry barriers against market entry by newer, smaller firms using newer, more efficient technologies. They also restrict price or quality competition, so the handful of oligopoly firms that dominate an industry can agree to slow down the introduction of new technology, and collude in using administered pricing to pass the costs of inefficiency onto the consumer. The state, to paraphrase Marx, is an executive committee of the corporate ruling class, for managing its common affairs. In many cases its regulations are things in the common interest of capital, but–owing to prisoner’s dilemma incentives to defect–in the several interest of firms not to do. The regulatory state serves the same purpose as a private cartel, with the added advantage of stability resulting from the inability of individual firms to defect.

Reisman’s Managerialism

Reisman takes a heroic, Galtian view of corporate management and, in so doing, virtually repudiates insights by Friedrich Hayek and James Scott into the nature of distributed knowledge.

These CEOs are responsible for directing the labor of tens of thousands of workers and the use of tens of billions of dollars of capital. They decide what these workers produce and how they produce it. Thus, their decisions have enormous consequences. It is reasonable that they be remunerated on a scale commensurate with the scale of their decisions. A $50 million dollar income for a CEO is just 1 percent of $5 billion of capital or $5 billion of sales revenue, and the capitals and sales revenues they are actually responsible for are much greater. Money managers routinely earn a higher percentage of the capital they manage. Real estate brokers typically earn 6 percent of the price of the houses they sell. At a rate of remuneration of just 1 percent, indeed, less than that, to the extent that the amounts of capital and sales revenues actually involved are more than $5 billion, these CEOs are arguably underpaid.

Most important, it is essential that the decision-making power of CEOs be guided by their having a major ownership stake in the firms they direct. To function properly, they need to be motivated not only by the desire to make profits but also by the desire to avoid losses. To experience that desire, as it needs to be experienced, they need to have a major ownership stake in the firms they run. The high incomes they are paid are the means of their acquiring that stake. Typically, much or most of their income is paid to them in the form either of company stock or options to buy company stock.

Ironically, in CEOs and other key executives earning extremely high incomes, capitalism operates to accomplish something that the alleged champions of workers’ rights and “social justice” might be thought to favor. Namely, it accomplishes a transfer of a significant part of the ownership of the means of production from more or less passive capitalists to the workers who are doing the actual job of running the firms, i.e., those workers who are providing the overall, guiding, directing intelligence in the firms’ operations, and who, in just payment, now become substantial capitalists. Of course, as the result of the powerful ownership incentives given to those running the firms, the passive capitalists can expect to do better than they would have done otherwise.

In serving to make possible the acquisition of a substantial ownership stake in their firms, the high incomes of CEOs and other key executives solve another problem long lamented by the left. Namely, the alleged separation of ownership and control, a problem cited as far back as 1932 by Berle and Means. To the extent that this problem is real (and confiscatory income and inheritance taxes operate to make it real), it is solved by the high incomes of the executives. For their resulting ownership stakes mean that ownership is being given to those who have control.

Well actually, no. Misesians tend to minimize the Hayekian problems of aggregating distributed information, as well as what Herbert Simon called “bounded rationality,” in favor of a near-magical faith in the potential of double-entry bookkeeping. For Misesians, the ability of capitalists to punish firms by withdrawing capital, the use of senior management stock options and bonuses to reward good corporate performance, and the use of double-entry bookkeeping to monitor the performance of internal divisions of a corporation, make the corporation for all intents and purposes a miniature Gosplan functioning to meet the expectations of the most enthusiastic Soviet advocate of central planning.

Unfortunately this is nothing more than a long string of myths from beginning to end. First of all, outside investor leverage over the corporation is minimal. Mature corporations raise virtually none of their operating funds from sales of new shares, and in fact there has been a large-scale trend toward stock buy-backs. Hostile takeovers from outside, funded by junk bonds, were a short-lived phenomenon in the 80s which corporate management inevitably thwarted through their inside control over governance rules. The great majority of genuine investment—i.e. on new plant and equipment—is financed internally by retained earnings.

In any case the profit and loss figures of large corporations are meaningless to outside investors, as a gauge of management skill. Any given industry tends to be an oligopoly, dominated by a few firms protected from competition by assorted cartelizing regulations, sharing the same pathological internal culture (inside directors and senior managers, who absorbed the same B-school culture, constantly shuffling from one firm to the other), with major inputs heavily subsidized by the government, and able to pass the costs of mismanagement on to the consumer through administered pricing. So it’s entirely possible for all the major firms in an industry to be horribly mismanaged, but remain profitable.

Second, the incentive packages of corporate management—profit-based bonuses and stock options—amount to the same Lange-Taylor model of market socialism that Mises contemptuously dismissed as “playing at market.” Management gets huge bonuses in a profitable year, but pays nothing in the event of losses. Management is generally able to rig the rules to create high short-term profits by starving the company of basic maintenance and gutting human capital, at the expense of long-term capital. This means they’re basically gambling other people’s money and stand only to gain if they do well, but have nothing to lose if they do badly—exactly the features of Lange’s market socialism that caused Mises to deem it mere playing at market. And since both inside directors and the compensation committees they appoint generally owe their positions to incumbent management, they’re likely to engage in mutual logrolling with management in setting salaries and bonuses.

And third, double-entry bookkeeping is nowhere near the magic bullet Mises made it out to be. According to Mises, in Human Action, such accounting “relieves the entrepreneur of involvement in too much detail.”  The only thing necessary to transform every single employee of a corporation, from CEO on down, into a perfect instrument of the entrepreneur’s will was the ability to monitor the balance sheet of any division or office and fire the functionary responsible for red ink. Mises continues:

It is the system of double-entry bookkeeping that makes the functioning of the managerial system possible. Thanks to it, the entrepreneur is in a position to separate the calculation of each part of his total enterprise in such a way that he can determine the role it plays within his whole enterprise…. Within this system of business calculation each section of a firm represents an integral entity, a hypothetical independent business, as it were. It is assumed that this section “owns” a definite part of the whole capital employed in the enterprise, that it buys from other sections and sells to them, that it has its own expenses and its own revenues, that its dealings result either in a profit or in a loss which is imputed to its own conduct of affairs as distinguished from the result of the other sections. Thus the entrepreneur can assign to each section’s management a great deal of independence. The only directive he gives to a man whom he entrusts with the management of a circumscribed job is to make as much profit as possible. An examination of the accounts shows how successful or unsuccessful the managers were in executing this directive. Every manager and submanager is responsible for the working of his section or subsection…. His own interests impel him toward the utmost care and exertion in the conduct of his section’s affairs. If he incurs losses, he will be replaced by a man whom the entrepreneur expects to be more successful, or the whole section will be discontinued.

But in fact the standard model of corporate management accounting in use in the United States and elsewhere has built-in biases quite similar in some ways to the accounting metrics used by Soviet central planners. Under the accounting model pioneered by Donaldson Brown, who was Alfred Sloan’s man at DuPont and General Motors, labor is treated as the main direct, variable cost. Management salaries and capital outlays, on the other hand, are both treated as general overhead, and (through the magic of “overhead absorption”) incorporated into the transfer prices of goods “sold” to inventory even if there’s no buyer awaiting them.

Thus the standard corporate accounting system—like GDP accounting and like the Soviet central planning accounting system—treats the consumption of resource inputs, as such, as the creation of value. The more bloated administrative overhead and irrational misallocation of capital spending, the higher the book value of the goods in inventory. On the other hand, the treatment of labor as a variable cost leads to management focusing entirely on labor hours when it’s in a mood for “cost-cutting”—resulting in the total evisceration of distributed knowledge and other human capital within the corporation.

So for all intents and purposes, contrary to Mises’s dogma, corporate management is a self-perpetuating oligarchy with de facto ownership of a large mass of capital they did not contribute through their own savings, and using “shareholder ownership” as a legitimizing ideology to justify its own power. In that it’s much like the Soviet elite—a self-perpetuating managerial oligarchy lining its own pockets while ruling in the name of the working class or the people.

Finally, consistent with the scale of their activities, from time to time CEOs find that the services of thousands of the workers their firms employ are no longer necessary. This is the case, for example, when advances in technology and capital equipment make it possible to achieve the same results with less labor. The saving of this much labor is an enormous productive contribution not only from the point of view of the firms the CEOs work for, and for the stockholders of these firms, but also from the point view of the economic system as a whole, and the average member of the economic system, because the workers no longer needed by these firms are now available for achieving an overall expansion in production in the economic system, as and when they become employed elsewhere. Along with this, the funds no longer required to pay their wages are available to pay wages elsewhere in the economic system.

This ignores the enormous scale of the actual moral hazard built into corporate management decisions. Because of the legitimizing myth of shareholder ownership, management is able to expropriate, in the form of bonuses and increased stock prices, the productivity gains resulting from the distributed knowledge and other human capital of its workforce. Of course this results in reduced productivity from employees minimizing their contributions to productivity and doing the bare minimum necessary to avoid getting fired, because they know any contribution them make to productivity will result in the bosses getting bonuses while they themselves get downsized. The most efficient and productive organization for a firm is cooperative ownership, or at least high degrees of job security, self-management and profit-sharing. But this is not “efficient” from the standpoint of management, whose interest is rather to grab a slice that’s larger in absolute terms even if the size of the pie itself is smaller.

Finally, Mises dons cape and cigarette holder and goes into full heroic Randian mode:

The average person is not capable of making great innovations and building new industries or revolutionizing existing ones. But if he lives in a society in which private property is secure, he gets their benefit all the same. All he needs to obtain their benefit, is to have enough intelligence and knowledge to understand that his economic well-being depends on those who are more capable than him having the freedom peaceably to exercise their greater abilities. He needs to understand that he has no right to any of the property of those who supply and employ him, that seizing their property in the name of “social justice” and the “redistribution of wealth and income” is anything but just—that it is theft and can do no more good than a mob looting a store.

* * *

A manual worker uses his arms to produce his product. What makes him a producer is not the fact that he uses his arms, but that his mind directs the use of his arms to achieve the goal of producing the product. His mind provides guiding and directing intelligence to his arms and to whatever tools, implements, or machines he may use in the production of his product.

Now a capitalist supplies goals and provides guiding and directing intelligence not merely to his own arms and whatever tools or implements he may personally use, but to an organization of men, whose material means of production he has provided. A capitalist is a producer by means of the organization he controls and directs. What is produced by means of it, is his product.

Of course, he does not produce his product alone. His plans and projects may require the labor of hundreds, thousands, even tens of thousands of other workers in order to be accomplished. Those workers are appropriately called “the help”—in producing his products.

Thus, the products of Standard Oil are primarily the products of Rockefeller, not of the oil field and refinery workers, who are his helpers. It is Rockefeller who assembles these workers and provides their equipment and in determining what kind of equipment, tells them what to produce and by what means to produce it.

I hasten to point out that the standard of attribution I have just used, is the standard usually employed, at least in fields outside of economic activity. Thus history books tell us that Columbus discovered America and that Napoleon won the battle of Austerlitz. What is the standard by which such outcomes are attributed to just one man? It is by the standard of that one man being the party supplying the goal and the guiding and directing intelligence at the highest level in the achievement of that goal.

This echoes Reisman’s even more elitist language in his review of my first book, Studies in Mutualist Political Economy [PDF].

Carson is simply unaware that innovation is the product of exceptional, dedicated individuals who must overcome the uncomprehending dullness of most of their fellows, and often their hostility as well.

Well, not quite. If Reisman accuses Piketty of having never read Böhm-Bawerk or Mises, he is apparently equally guilty of having never read Hayek’s “The Uses of Knowledge in Society”—let alone James Scott’s defense of metis (situation-specific skills and knowledge) against high modernist central planning in Seeing Like a State. Most actual innovation comes from the knowledge of workers themselves—knowledge that has been referred to variously a distributed, job-specific or situation-specific, or tacit. And the most innovative and agile organizations are self-organized, stigmergic networks where the producers themselves can freely cooperate without the interference of clueless managerial hierarchies. American pointy-haired bosses, like their Soviet managerial counterparts, are heavily dependent on the ability of production workers to treat irrational management interference as damage and route around it.

Mises’s view of the omniscience and genius of the superior manager is, in a very real way, subversive to the basic principles of genuine free market thought. The Misesian, as opposed to Hayekian, view of the rational calculation problem treats the sheer volume of information, the difficulty of aggregating it, and the internal information problems of hierarchies as beside the point. The only real source of calculation difficulties lies in the need for market pricing of factor inputs. With that solved, a managerial genius equipped with double-entry accounting can run a giant corporation as a perfect centrally-planned economy, with all trains running on time.

Matthew Yglesias explains just why the cult of the cowboy CEO is so asinine, in Hayekian terms:

. . . it’s noteworthy that the business class, as a set, has a curious and somewhat incoherent view of capitalism and why it’s a good thing. Indeed, it’s in most respects a backwards view that strongly contrasts with the economic or political science take on why markets work.

The basic business outlook is very focused on the key role of the executive. Good, profitable, growing firms are run by brilliant executives. And the ability of the firm to grow and be profitable is evidence of its executives’ brilliance. And profit ultimately stems from executive brilliance. This is part of the reason that CEO salaries need to keep escalating—recruiting the best is integral to success. The leaders of large firms become revered figures . . . .

The thing about this is that if this were generally true—if the CEOs of the Fortune 500 were brilliant economic seers—then it would really make a lot of sense to implement socialism. Real socialism. Not progressive taxation to finance a mildly redistributive welfare state. But “let’s let Vikram Pandit and Jeff Immelt centrally plan the economy— after all, they’re really brilliant!”

But in the real world, the point of markets isn’t that executives are clever and bureaucrats are dimwitted. The point is that nobody is all that brilliant.

As Chris Dillow (a British Marxist who hates managerialism) argues, “Insofar as the private sector does increase efficiency, it is to a large extent because market forces drive out inefficient producers, and not because good management raises the performance of existing ones.”

Conclusion

By way of conclusion, to adapt an old saying: George Reisman is entitled to a priori axioms. He is not entitled to a priori facts.

From its origins as the ideology of the managerial and professional classes in the Progressive Era to its heyday in the corporate-state gigantism of the mid-20th century, liberalism has always equated large, hierarchical institutions and the bureaucracies that run them with “progress.” Its response to the economic crises resulting from technologies of abundance — which reduce the amount of capital and labor required to produce a given level of output — has been Hamiltonian:  That is, to artificially inflate the demand for capital and labor through artificial scarcity, in order to keep their prices up.

Ygelesias has repeatedly fallen afoul of both these approaches. He has pointed out, more times than I have space to relate, the effects of licensing and zoning laws in creating barriers to self-employment and artificially raising the minimum cost of comfortable subsistence. And in a wonderful column three years ago (“Intellectual Property in the Anti-Trek Economy,” Think Progress, July 14, 2011), he pointed to the effect of so-called “intellectual property” in enclosing technologies of abundance as a source of rents for economically privileged classes rather than allowing their benefits to be socialized through free competition. Had strong patent law existed in the future of Star Trek, the result would have been an “Anti-Trek economy,” in which matter-energy replicators were a proprietary technology. Not only would replicators be DRM’ed so they couldn’t be freely reproduced (meaning people would have to buy them from the companies that held the patents), but the digital file for “tea, Earl Grey, hot” would also be someone’s “intellectual property” and you’d have to swipe your debit card every time you ordered it (that is, just incidentally, what the “progressive capitalism” model promoted by Bill Gates and Warren Buffett really amounts to).

Now Yglesias gores those same oxes again (“A Burrito Stomping on a Human Face — Forever,” Slate, February 28, 2014). He argues that peak labor hours, the mechanization of most high-paying manufacturing jobs and the predominance of low-paid service labor in the jobs that remain are virtually inevitable. But rather than repeating the standard conservative and liberal prescriptions of tax cuts for the rich, job retraining and higher minimum wages, he proposes instead the use of abundance as a weapon:

“… real wages and living standards have both a numerator and a denominator. The most sustainable way to tackle the problem of stagnating or falling working-class incomes is to work on the denominator — on the various regulatory privileges used by the wealthy and powerful to entrench their income and raise costs for everyone else.”

That means eliminating professional cartels like that of physicians (which would “raise real wages for everyone who needs medical care”) and radically scaling back or eliminating patents. It means eliminating “snob zoning laws” that prohibit trailers where land is cheap and high-density apartments and cohousing complexes where it’s expensive.

I’ve long argued that the only problem with labor-saving technology is that its full benefits aren’t internalized by workers and consumers through competition. If a self-employed farmer discovers a more efficient way of doing things that enables her to produce just as much corn while working half as many hours, she doesn’t worry that she won’t have enough work. This is because she receives the entire benefit of increased efficiency. While the amount of work she does is decreased, her consumption level remains exactly the same.

But at the level of society as a whole, the benefits of abundance are appropriated by rentier classes through artificial scarcities and artificial property rights like enclosure of vacant land, regulatory prohibition of cheaper and more efficient production techniques, and product prices that result mostly from embedded patent rents rather than actual labor and materials cost. Cheap, vernacular building techniques are criminalized by building codes, self-employment is criminalized by licensing and home-based production is criminalized by zoning.

The traditional liberal approach is to organize the economy as a Hamiltonian Rube Goldberg machine so as to provide sufficient profitable investment vehicles for Buffet’s capital and keep everyone working forty-hour weeks. Rather than allowing radical deflation of the cost of living, the idea is to keep costs artificially high so as to provide sufficient returns to fully employ labor and capital. Ours must be the opposite: To see that what is naturally free is actually free to the consumer, and whatever necessary labor hours remain are evenly distributed.

The central focus of Dillow’s critique of New Labour is managerialism. By that, he says,

…I mean an ideology which tries to eliminate political debate about the rival merits of competing ideals. In its stead, managerialism relies on a central elite which believes that it, and it alone, has the skill and know-how to devise policies to cope with the inexorable forces of economic change…. In short, New Labour believes it can run a country in the same way that executives run a business. [pp. 11-12]

…Managerialists like to pretend that we face big challenges in a fast-moving environment. They invite us to believe that they alone are equipped to address such challenges (in managerialism, problems are never solved, only addressed). And they like to present policies as necessary responses to external events–just as company bosses present mass redundancies as inevitable measures over which they have little choice. [p. 14]

The irony is that New Labour managerialists, for all their proclaimed technocratic competency, are so ham-handed in their “solutions” to the pressing needs of the changing economy. “Information technologies are transforming our lives,” goes the Nulab slogan. “Fair enough,” replies Dillow. But he points out that the organizational paradigm of the new economy is the substitution of networks for hierarchy, while the Blairite “solution” is even more hierarchy. [p. 16] An interesting point of comparison is Bill Gates, the fountain of so much superficially libertarian rhetoric about new economies and flattening hierarchies, but whose practical agenda focuses almost entirely on the use of state power to protect corporate hierarchies from the destabilizing effects of the new economy: the Digital Millennium Copyright Act, Vista Genuine Advantage, the recurring threat of infringement action against Linux distributers. Blair and Gates, faced with a technological and economic revolution against hierarchical institutions, attempt to domesticate the revolution and render it amenable to the control of hierarchical institutions.

This is especially disappointing, given Blair’s Christian socialist roots and his early affinity for quasi-distributist ideas. The Cooperative Party, in an almost touching exercise in denial, have long persisted in celebrating their ties to Blair and Brown; until recently Blair’s visage leered down from the banner of their website.

But despite occasional lip service to “a redistribution of power that offers people real control over the decisions that affect our lives” (Gordon Brown), New Labourites never consider any cooperative challenge to corporate hierarchy.

New Labour likes to claim that it is “pro-business.” The significance of this is that one rarely hears that it is “pro-market.”

The distinction is important. Markets are tumultuous, unpredictable and uncontrollable processes, which often make fools of the most esteemed expert…. Businesses, however, are hierarchical bureaucracies and their leaders are often more like senior civil servants than buccaneering entrepreneurs.

New Labour’s preference for business over markets shows its managerialist bias–because to any managerialist, businesses, with their mission statements and their illusions of control, are much more congenial than the disruptive anarchic forces of the market. [p. 19]

Dillow, in denouncing New Labour managerialism, does not fall into the common pattern of considering its economic agenda a neoliberal departure from the older Fabian socialism.

We might observe, in passing, that almost from their first Fabian and Crolyite beginnings, New Class advocates of a mixed economy in the Anglophone world have been in fact the hired help of the corporate plutocracy.

And as Dillow points out, Blair’s agenda was very much in line with the anti-labor authoritarianism of the old Fabian movement. Blair’s “work not welfare” was a logical outgrowth of the Beveridge Report’s aim “to make and keep men fit for service.” [p. 9] C.S. Lewis’ depiction of authoritarian social engineering in That Hideous Strength was a fairly plausible extrapolation from the most proto-fascistic tendencies of H.G. Wells and the Webbs (with their forced labor camps and sterilization for the underclass), and from the New Statesman agenda of the late 1940s.

There is one issue on which I probably disagree with Dillow: the necessary tradeoff between efficiency and equality. Dillow takes issue with the New Labour theme that we can have both efficiency and equality. Although that position may well be spurious as it is meant by New Labour, I think it is in fact quite possible to have dramatic gains in both equality and efficiency compared to the present baseline, with no tradeoffs of any kind. The reason is that most of the present inequality in income bears no relation to differences in efficiency, but rather results from privilege and exploitation. If by “equality” one means eliminating incomes that derive from privilege, and by “efficiency” tying income to productivity, the two are necessarily connected.

I suspect the problem with New Labour’s idea of reconciling the two lies with their conception of “efficiency”: a Schumpeterian/Chandlerian/Galbraithian monstrosity of centralization, false economies of scale, and Weberian rationality. Accordingly, their recipe for “efficiency” assumes the existing corporate institutional structure will be left intact with all its assorted forms of privilege, and then “equality” is achieved by redistributive taxation and welfare to distribute some of the surplus accruing from such “efficiency.” The New Labour approach is to leave the hierarchical corporate and state apparatus untouched, and then promote both “equality” and “efficiency” through top-down social engineering: carefully tailoring taxes, benefits, minimum wages, and other incentives to maximize output and achieve the ideal distribution of income.

….governments know how labour supply decisions respond to tax and benefit rates, so they can design a tax and benefit system that encourages people to work. They know how to set the minimum wage at a high enough level to raise incomes, but not so high as to destroy employers’ willingness to employ peole. They know enough about what determines companies’ capital spending decisions, so they can promote investment by striving for macroeconomic stability. And they know how to improve education, and how education affects earnings, so they can use better schooling to reduce wage inequality and promote economic growth by providing a bigger supply of skilled workers. [p. 21]

But in fact the present corporate system is pretty bad from the standpoint of efficiency. It starts from the assumption of enormous concentrations of wealth in a few hands, the absentee ownership of capital by large-scale investors, and a hired labor force with no property in the means of production it works. Necessarily, therefore, the absentee owners must resort to the expedient of hierarchy and top-down authority to elicit effort from a work force with no rational interest in maximizing its own productivity. Such hierarchies necessarily result in the divorce of effort from reward, and of productive knowledge from authority. Each rung of authority interferes in the efforts of those who know more about what they’re doing, receives only information filtered from below based on what they want to hear, and is accountable only to those higher up the chain of command who are even more unaccountable and out of touch with reality.

The obvious solution, the worker cooperative, by uniting knowledge with authority and reward with effort, would slice through the overwhelming majority of the hierarchical corporation’s knowledge and agency problems like a Gordian knot. The problem of socially engineering the wages and benefits system so as to “encourage people to work” would disappear; the elimination of privilege and unearned income, and the receipt by labor of its full product, would tie reward directly to effort.

But this solution is ruled out by the system’s structural starting assumptions of concentrated wealth and absentee ownership. So the hierarchical corporation is adopted as a sort of Rube Goldberg expedient, the most rational means available given fundamentally irrational ends.

I say above that I probably disagree because Dillow’s own agenda, presented at the end of the book, consists of the very sort of program of economic democracy that would be perfectly designed for the coincidence of efficiency and equality. He is an enthusisatic supporter, for example, of worker cooperatives and self-management. He is also very big on the idea of the government introducing cooperative, decentralist and democratic principles into its own enterprises:

The salient fact about New labour is that it has done nothing whatever to equalize status within the organizations it runs. The civil service is as inegalitarian–lethally so–as it was in 1997. And there’s been no effort to convert schools and hospitals into more egalitarianly managed structures. The state is far more hierarchical–far more opposed to the concept of equal status–than any investment bank. [p. 215]

Indeed, one of the planks in his agenda is titled “Turn schools and hospitals into cooperatives.”

His case against hierarchy and for self-management is bolstered by extended arguments toward the end of the book. In Chapter 13, “The Rituals of Reason,” he examines at length the fallacies and biases to which management is prone, in overestimating its own competence and underestimating the intractability of problems.

One might raise the question of whether managers are really unique in this respect; are not workers, also, prone to such conceptual biases? The answer, I think, is that (of course) everyone is prone to logical fallacies and conceptual biases. But their tendency to distort thought increases the more a decision-maker is separated from direct knowledge of a problem, and the more concrete practical knowledge is replaced by abstract considerations. The closer a decision-maker is to the subject of his decision, and the more it involves matters of familiar technique or personal experience, the more competent his decisions. A skilled laborer on the shop floor is apt to be the best judge of organizing production, or of handling the organizational problems involved in coordinating the activity of skilled workers like himself in his own work unit. If his work unit is a small factory producing for a local market, made up of people largely known to the work force, and with retail outlets that have maintained relations with the factory for an extended period of time, he and his coworkers are apt to be the best judges of the levels output required by the market and the product innovations likely to be demanded.

Dillow’s critique of hierarchy, as a source of irrationality and knowledge distortion, is very Hayekian.

When the first factories were established by Richard Arkwright and James Watt, it made sense for them to control production with an iron hand, because they knew the production processes inside out–they had invented them…

Today management doesn’t have this know-how. Products, process and markets are too complex for anyone to know as thoroughly as Arkwright or Watt did….

Instead, knowledge of the production process is scattered across the organisation. If you have a problem, it is often better solved by asking your fellow workers than asking the boss.

However, hierarchies can obstruct co-operation between workers. One reason for this is simply that pyramidal reporting lines often prevent workers from knowing and therefore using the skill of their colleagues. Another reason is that communication requires trust…. Worse still, the benefits of co-operation are often impossible to quantify, and so a management obsessed with budgets and targets does not encourage it. And the knowledge that such gains will flow to managers, rather than themselves, will inhibit workers from co-operating fully. [p. 278]

The hierarchical, authoritarian corporation is especially ill-suited to knowledge work, and other forms of production in which human capital is the most important factor.

It might make sense to give the order “be here by nine o’clock.” But it’s just gibberish to say, “be creative.”

In an authoritarian environment, workers prefer (in the words of Kenneth Cloke and Joan Goldsmith) to “suppress their innate capacity to solve problems and wait instead for commands from above.” [p. 279]

Dillow observes that excessively large government works contrary to the goal of income equality. The reason is that, when state expenditures eat up a large enough portion of the GDP, it becomes impossible to fund them by taxing the rich alone. A society in which the state consumes 50% or more of GDP will, of necessity, have a high tax burden on the middle class. [p. 69]

He is quite hostile to New Labour’s social engineering approach to taxation. Rather than a complex, administration-intensive program of carefully targeted tax credits and cuts, it would make far more sense to institute a citizen’s basic income which requires little administrative bureaucracy. [p. 85] In the American context, I have long cursed the lack of an alternative to the mainstream Democratic and Republican approaches to tax cuts. The Republicans, predictably, are wedded to the idea of “across the board” tax cuts that go overwhelmingly to the plutocracy. Democrats, as one might expect of such nanny statish social engineers, prefer carefully targeted tax credits for child rearing, health insurance, higher education, home energy efficiency, etc. The obvious alternative to both, as progressive as it would be libertarian, would be to simply raise the standard exemption to $30,000 or so.

The great size of political units, and the removal of the administration of welfare as a question for local self-government, has nullified the natural tendency toward mutual aid shown by humans in communities small enough for direct personal acquaintance with the disabled or unemployed. As a result, the working class tends to resent the underclass and to be vulnerable to anti-welfare demagogy by right-wing politicians. [p. 219] A decentralized society of small, self-governing population units might well contribute voluntarily to mutual aid arrangements on a scale sufficient to render taxation unnecessary (especially if laborers received a larger portion of their actual product).

In the process of writing his book, Dillow manages to attack many of the platitudes of establishment economists and neoliberal chatterers like Tom Friedman. For example, he points out that the natural tendency of technical change is to reduce the international division of labor. The increasing speed with which technology crosses national borders means that particular nations maintain comparative advantage for shorter and shorter periods. “that tends to limit the international division of labour and, with it, world trade growth.” [p. 45] And as I recall someone else suggesting, a great deal of “comparative advantage” is the artificial result of “intellectual property” [sic] laws.

He is merciless in attacking the New Labour love affair with education as the solution to poverty (likewise beloved of social engineers in this country, both liberal and neocon). The real benefit of education, from the perspective of the corporate economy, is its function in signalling a “good attitude”: educated workers have “a high marginal utility of income, a propensity for hard work, …and an ability to identify with managers rather than workers.”

If education works by changing our characters, and by straightening the crooked timper of humanity into something useful to bosses, prosperity is achieved by sacrificing liberty and diversity to managerialism. [p. 119]

What’s more, as the impolitic Joe Bageant argued, the social engineering panacea of education depends on a fallacy of composition. While individuals can increase their chances of advancement by education, the entire population cannot do so. The Empire requires some 25% or so of the population to fill supervisory, administrative and technical slots. Increasing higher education beyond this share of the total population simply increases the competition for those slots and drives down salaries, while inspiring an authoritarian, dog-eat-dog attitude on the part of the winners toward the losers. It inspires, that is, the same status anxiety that motivated so much of the German lower middle class to support Hitler.

The chief villain in Gabb’s book is the managerial New Class and the rentier capitalists whose main source of profit is their association with the corporate state:

It is clear that our ruling class–or that loose coalition of politicians, bureaucrats, lawyers, educators, and media and business people who derive wealth and power and status from an enlarged and active state–wants an end of liberal democracy. [p. 6]

Elected politicians never have the running of a country all to themselves. While undoubtedly important, they must in all cases govern with the advice and consent of a wider community of the powerful. There are the civil servants. There are the public sector educators. There are the semi-autonomous agencies funded by the tax payers. There are journalists and other communicators. There are certain formally private media and entertainment and legal and professional and business interests that also obtain power, status and income from the policies of government. Together, these form a web of individuals and institutions that is sometimes called the Establishment, though I prefer… to call it the ruling class. [p. 8]

Gabb’s ruling class, like the mass base of Orwell’s Ingsoc party, was “brought together by the barren world of monopoly industry and centralized government.”

The new Britain he finds so objectionable was essentially described by Anthony Burgess some forty years before. Indeed I find the absence of any reference to Burgess somewhat remarkable. Tony Blair’s Britain, with its near-total supercession of common law protections by administrative courts, and with the social pathologies symbolized by the ubiquity of yobs, happy-slappers and ASBOs (Anti-Social Behaviour Orders), under the watchful eye of the public surveillance camera, could have leapt from the pages of A Clockwork Orange or 1985. Burgess’s Britain, terrorized by hoodlums like Alex and his droogs, in which “everyone not a child or with child must work,” and where the Minister of the Interior sought to empty the prisons of common prisons because they’d “soon be needing them for the politicals”–is it really such a stretch of the imagination, these days?

The instruments by which the New Class is imposing this “new settlement” on Britain are the replacement of common law due process, civil liberties, and parliamentary government by the unaccountable rule of administrative bodies, and the use of multiculturalism as an ideology to divide, conquer, and reshape society.

Gabb sees the old institutional basis of liberal democracy being eviscerated by the New Class:

…structures of accountability that emerged in the 17th and 18th centuries are to be deactivated. Their forms will continue. There will be assemblies at Westminster. But these will not be sovereign assemblies with the formal authority of life and death over us all. That authority will have been passed to various unelected and transnational agencies. And so far as the Westminster assemblies will remain important, our votes will have little effect on what they enact. [p. 6]

I can find much to disagree with in Gabb’s view of cultural (or rather multicultural) matters. For example, in principle I would view the shift in orientation of the National Maritime Museum in Greenwich that he describes, from a celebration of Empire and naval supremacy to a focus on slavery and “history from the position of the colonised,” [p. 10] as a good thing. I consider insititutional racism in police forces, and the casual expression within police circles of racist attitudes toward the subject populations over which they are have been given near-unlimited power to coerce, in a much more alarming light than Gabb apparently does. In a country where the names Cory Maye and Katherine Johnson have recently figured in the news, where every week brings another story of someone murdered in a botched no-knock raid, or of someone being tasered to death for “resisting arrest” (who turned out to have been in a diabetic coma)–I can understand the reasons for rooting out such attitudes among our “protectors and servers” root and branch. I confess little sympathy for a uniformed beast of prey (or “filth,” in the apt terminology of some across the Pond) who expressed approval for the murder of black suspects in police custody, and who joked about burying a “Paki bastard” under a railway line,– regardless of how badly his life was “ruined” by exposure. [pp. 11-12] Although Gabb suggests the public reaction was “excessive” and expressed some doubt as to whether such views would affect their performance of public duties, [p. 12] given the background of police abuses in my own country I tend to think cops with absolute and unaccountable power are quite prone to act on such views, and that the public reaction isn’t severe enough.

But the remarkable fact is not our disagreement on cultural matters, but that I concur with so much of his analysis of the effect of “political correctness” and multiculturalism as ruling class ideologies. Like Gabb, I see official multiculturalism in the hands of the New Class and its state agencies as an instrument of division and control, serving a ruling class that prefers a population without the cohesion to resist.

The ruling class seeks “the establishment of absolute and unaccountable power,” to be achieved in part by coercion, but even more by the “reshaping of our thoughts.” The significance of multiculturalism is not so much its objective content, or the often harmful and wrongheaded content of the older habits of thought it seeks to replace. It is the attitude of uncertainty and deference it seeks to create among the ruled: constant uncertainty and anxiety lest they be using a word (“crippled” or “handicapped” rather than “differently-abled,” “black” rather than “African-American,” “Indian” rather than “Native American”) that has been superceded by the Eleventh Edition of the Newspeak Dictionary, and deference to the class of social engineers who decide the currently acceptable terminology. And the terminology is deliberately changed frequently enough to maintain this constant free-floating sense of anxiety and dependence.

As dangerous as virulently racist views may be when held by the lawless thugs whose “gang colors” are police uniforms, the nature of the ideas being stamped out is purely incidental for the social engineers; their real purpose could be served just as well by identifying any widely held belief, no matter its substantive content, as a “thoughtcrime” to be policed by themselves. And the assumption of such state power is even more dangerous when exercised against private citizens–as when plainclothes police agents visited Chinese and Indian restaurants to monitor the patrons for ethnic slurs against the staff. [p. 13] Criminalizing the expression of racist views by private citizens, no matter how abhorrent–it should go without saying for any libertarian–endangers the liberties of everyone else.

The ruling class’s motivation in ideologically renovating museums and such is not to replace a worse with a better understanding of an objective truth, but to “weaken their ties with the past, or… to make them into vehicles for contemporary propaganda.” [p. 10]

Every autonomous institution, every set of historical associations, every pattern of loyalty that cannot be co-opted and controlled–these must be destroyed or neuralized. [p. 25]

Their agenda, in rooting out and punishing private expressions of racist thought, is to seize on the abhorrence that many understandably feel for such views as a vehicle for putting power into the hands of a class of social engineers.

If borders and customs and other artificial barriers to the free movement of people are a bad thing, then so is the artificial mobility promoted by Empire and by subsidized global capitalism. The result, as described by Gabb, is to render impossible a recurrence of the liberal uprisings of the sixteenth and seventeenth centuries , “by promoting movements of peolles so that nations in the old sense disappear, and are replaced by patchworks of nationalities more suspicious of each other than of any ruling class.” [p. 6]

Stripped of the Left’s older preoccupations with economics and class, likewise, multiculturalism can be of immense service to the cartelized private sector in policing its wage-serfs and cubicle-drones. For one thing, the added inefficiency and overhead costs of an internal PC regime, as Gabb observes, are cartelized: that is, they apply equally to all large corporations and are therefore not a matter for competition between firms. [p. 48] For another, the postmodern, multicultural corporate culture described by Thomas Frank in One Market Under God is much closer to the worldview of David Brooks’ “Bobos” who predominate in managerial ranks. In the U.S., for the managerialists and professionals who constitute the base of the Democratic Party, stagnant wages, downsizing, and all the other economic aspects of the new global economy are perfectly fine–so long as the people in the boardrooms who do the exploiting “look like America.” Forty years ago in The Greening of America, Charles Reich depicted a hippie chic utopia in which the centralized, hierarchical power structures of the state and corporation were largely unaltered–but staffed by people with bell-bottoms and beads. What mattered was not the existence of concentrations of power, but that the people in power “had their heads in the right place, man.” That “utopia” is, in essence, now a reality. Most importantly, in an age of increasing worker disgruntlement over stagnant pay and increased workloads, an internal PC regime serves admirably to promote resentment and divisions and reduce solidarity among workers, and provide trumped-up grounds for disciplining troublemakers.

A central part of Gabb’s analytical toolkit is the work of Frankfurt School and neo-Marxist scholars on “ideological hegemony.” Although he denies the applicability of their analysis to “liberal democracy,” he sees it as well-suited to the ideological project of the new ruling class.

I should say, in passing, that I take issue with Gabb on the relevance of neo-Marxist thought to the old, “liberal” order. He denied the existence of any real “hegemonic discourse” under the old liberal regime, arguing rather that political leaders tended to legitimize their positions in terms of a value system which arose spontaneously from civil society and which they accepted as given. [p. 20] Likewise, he considers the Chomsky/Herman “propaganda model” of the media to have been inapplicable to liberal democracy. [pp. 31-32]

I think he is mistaken on this count. For one thing, the question of whether “liberal democracy” even existed in any meaningful sense is a very real one. The old liberal democracy was dominated by privileged capitalist and landed elites whose economic position resulted, not from the workings of a market, but from the state. And the old “spontaneous” ideological climate reflected, to a large extent, their interests. For another, the New Class and its ideology are nearly as old as corporate capitalism, and its managerialist world-view (eg. scientific management) has been incorporated into the service of the plutocracy since the corporate revolution first required a class of “professional” overseers. The New Class and managerialism, and the protective and nurturing state, have been integral parts of corporate capitalism since its beginning; and if we identify the full flowering of liberal democracy with the electoral reforms of 1833 and 1867 (let alone 1911), then liberal democracy was hardly even fairly begun and the Old Regime fairly ended, before the beginnings of state capitalism. Genuine “liberal democracy” was largely limited to a thin sliver of thought by Ricardian radicals like Hodgskin, assorted Cobdenites, etc., sandwiched in-between the Old Regime and state capitalism, which was quickly relegated to a few radical free market strands (the individualist anarchists, Georgists, Nock and Borsodi, etc.) fighting a rear-guard action within state capitalism.

And in more general terms, hegemonic ideology is coextensive with, and as old as, class society. As an individualist anarchist, I consider class power and economic exploitation the primary functions of the state; and just as there has never been a genuine free market, free from economic exploitation by state-privileged classes, there has never been a society without a hegemonic ideology serving such privileged classes. Hegemonic ideology, I should add, does not require any conscious, conspiratorial design–it is a largely automatic result of a society’s normal tendency to reproduce the conditions for its own continued existence.

I also suspect Gabb’s treatment of neo-Marxism as the ideology of the new ruling class is overblown. There may be something to his tracing of their political style to the New Left fashions of their formative years; Gabb cites Boyd Tonkin to the effect that while Nulab has abandoned most of the economic content of Marxism and social democracy, their “pattern-building, system-seeking cast of thought” persists. [p. 22] But stripped of their economic and political substance, the signficance of their style itself is tenuous at best (as also with explanations of the neoconservative “style” in terms of their alleged Trotskyite origins).

As an analytical tool for describing the ideological functions of the ruling class, as opposed to the content of their ideology, neo-Marxist concepts may however be quite useful.

And while I disagree with Gabb on the question of whether a hegemonic ideology existed under “liberalism” and the Old Regime, I do agree that it was much more feasible to argue against the hegemonic ideology from an independent base. The average person of the late twentieth century was far more conditioned by his televised matrix reality, than the average member of the working class by the hegemonic ideology of the nineteenth century. The very extent to which Marxism and assorted brands of anarchism spread among the working classes demonstrates as much. Contrast, for example, Thomas Franks’ Kansas before WWI, to the same region in recent years. It was surely even more prone to Bible-thumping and Jesus-shouting at the turn of the twentieth century as it is now–and yet it was one of the prime constituencies for the Wobblies and Gene Debs, and home to a vibrant and independent working class press. Today, on the other hand, the populist resentment of the area is channeled by Rove’s talking points and AM talk radio against a range of targets carefully selected by the ruling class. The turning point was probably the liquidation of the genuine socialist, working class, and economic populist movements during the reign of terror under St. Woodrow and A. Mitchell Palmer. We may finally be witnessing today, with the rise of the Internet and network culture as an alternative to the gatekeepers of the corporate media, the weak beginnings of a resurgence of something like the pre-WWI independent popular culture.

Gabb’s revolutionary agenda deserves a great deal of attention. He rejects any gradualist program of scaling back one institution at a time. Such a strategy, he says, would just result in a pitched battle over each institution, with the anti-state coalition quickly losing its political capital to a war of attrition. The only hope is to gamble everything on electoral success and then to act quickly and decisively, in the brief window of opportunity, to dismantle as much of the ruling class’ institutional base as possible, so that it cannot be quickly reconstituted if power once again changes hands. That means completely abolishing institutions like the BBC, and completely dismantling the administrative apparatus and records of the regulatory state (“An hour in front of a shredding machine can ruin the work of 20 years.”), and–while leaving the state schools intact–completely abolishing teacher training colleges. [pp. 54-56, 60]

I am skeptical as to the prospects for any such all-at-once seizure of power, as opposed to gradually rolling back the state and supplanting it with alternative organizations (as per both the agorist agenda of building a counter-economy, and the Wobbly strategy of “building the structure of the new society within the shell of the old”). But I agree that, revolutionary or gradualist, the goal of any libertarian movement should be, not to control the state and other centralized institutions, but to dismantle them. I am very much a believer in Michels’ Iron Law of Oligarchy. Genuine democratic control of centralized, hierarchical institutions is impossible. Our only hope for real democracy is to destroy as much of the infrastructure of the centralized state and corporate economy as possible, and replace them with loose political federations of local direct democracies and with a free market of competing worker cooperatives.

Along these last lines, interestingly, Gabb proposes something of an entente with the libertarian left.

…there are many anarchists and syndicalists and libertarian socialists who do not believe in this extended state. And so I will make it clear that when I talk about a free market, I do not mean a legal framework within which giant corporations are able to squeeze their suppliers, shut down their small competitors and socialize their workers into human sheep.

I have already said I would not defend the landed interests. I would very strongly favor an attack on the structures of corporate capitalism

Organisations like Tesco, British Pretroleum and ICI are not free market entities. They are joint stock limited liability cororations. The Company Acts allow them to incorporate so that their directors and shareholders can evade their natural responsibilities in contract and tort. They are, for this reason, privileged in law….

It is not true that big business has in any sense suffered from the public interventions in economic activity of the past hundred years. The truth is that big business has benefited from, and in many cases, promoted every agenda of big government. Employment protection laws, product safety laws, curbs on advertising and promotion, heavy taxes, and all the rest–these have served to insulate big business from their smaller competition, or have cartelized or externalized costs, thereby reducing the need for competition between big business….

The leaders of large corporations are nothign more than the economic wing of the ruling class. They provide taxes and outright bribes that enrich the political wing. They act as part of the ideological state apparatus…. In return for all this, they receive various kinds of protection and subsidy that allow them to make large profits.

They police their workers… Workers find themselves gently conscripted into large organisations that strip them of autonomy and suppress any actual desire for self-direction. Anyone who works for any length of time in one of these big corporations tends to become just another “human resource”–all his important life decisions made for him by others, and insensibly encouraged into political and cultural passivity. [pp. 63-65]

His description of the likely fate of the state-affiliated “private sector” corporate economy, after the revolution, is positively eloquent:

Our first big attack on the present ruling class should destroy most of the really dangerous government bodies, and the formally private bodies that now cluster round them would perish like tapeworms in a dead rat. [p. 61]

The tapeworm is to be killed through the elimination of all subsidies and protections, and above all the elimination of limited liability.

We should promote the emergence of markets in which the majority of players are sole traders and partnerships and worker cooperatives, and in which the number of people employed on contracts of permanent service is an ever-dwindling minority…. [This policy] would replace armies of ruling class serfs with beneficiaries of our counter-revolution. [pp. 65-66]

The welfare state he advises to leave pretty much alone for the near term. In so doing, the revolution would deprive the ruling class of its chief potential ally for an attempted counter-revolution. And, he points out, the main actual cost of the welfare state is the administrative overhead from supporting intrusive and authoritarian welfare bureaucrats in a comfortable lifestyle. As a first reform, he proposes eliminating the entire apparatus of case workers and redirecting the entire welfare budget to a guaranteed annual income. [pp. 57-59] Ultimately, it could be drastically scaled back as increased working class prosperity and a resurgence of voluntary mutual aid arrangements made it unnecessary. [p. 63]

His tax agenda–eliminating the income tax and VAT, and replacing them with a tax on land-value–should be pleasing to the Geolibertarian contingent of the libertarian left. [pp. 62-63]

In the legal realm, Gabb proposes dismantling as much as possible of the administrative state and its prerogative law procedures. In the restored common law, all regulations of vice and private behavior are to be eliminated, while making penalties for real crimes against person and property sufficient to deter. For the latter crimes, however, a maximalist reading of all common law due process guarantees is to be restored:

the right to silence under police questioning, the full right ofhabeas corpus, the full presumption of innocence, the full right of peremptory challenge of jurors, the rules against similar fact and hearsay evidence, the unanimity rule in jury trials, and all else that has been taken away. [p. 68]

Um de meus blogueiros favoritos, Chris Dillow (“O Pânico Moral e a Ameaça à Liberdade,” Tropeço e Resmungo, 16 de abril) observou, recentemente, que o pânico moral(*) reflete uma ideologia gerencista na qual a desordem social é vista como algo a ser resolvido e restaurado a um estado normal de equilíbrio. (* Segundo a Wikipedia, pânico moral é o intenso sentimento expressado no seio de uma população a propósito de algo que pareça ameaçar a ordem social. Segundo Stanley Cohen, ocorre pânico moral quando surgem condição, episódio, pessoa ou grupo de pessoas vistos como ameaça a valores ou interesses da sociedade. Por exemplo, nos Estados Unidos há pânico moral a propósito dos imigrantes ilegais.- NT)

Essa descrição é perfeita. Os engenheiros sociais no governo com nada se parecem tanto quanto com engenheiros industriais, tratando a desordem como desvio de processo e esperando ganhar sua faixa preta da Motorola por reduzirem-na para abaixo de seis graus de desvio padrão.

Há bom motivo para a semelhança: A engenharia social contemporânea é rebento direto da engenharia industrial.

O Progressismo foi a ideologia das novas classes gerenciais e profissionais que brotaram no final do século 19 para administrarem as novas grandes instituições hierárquicas que tomaram conta da sociedade estadunidense depois da Guerra Civil. Os primeiros gerentes das corporações de unidades múltiplas tinham formação em engenharia industrial, e viam a corporação como um sistema a ser estruturado exatamente como o processo industrial da fábrica. Foram acompanhados pelo serviço público profissional e pelos gerentes profissionais das grandes universidades, de fundações caritativas e de sistemas de escolas públicas urbanas.

O Progressismo estendeu essa abordagem para a sociedade como um todo, tratando esta como um processo industrial em sua forma a mais plena. Como qualquer especialista em controle de qualidade dirá a você, um processo industrial resulta em variação porque o processo está estruturado para produzir variação. Em decorrência, você calibra o sistema até que ele produza, de modo fidedigno, resultado com variação abaixo de algum limiar aceitável.

Essa abordagem é fundamentalmente equivocada. Diferentemente dos elementos de uma linha de montagem, os serem humanos perseguem objetivos próprios, comunicam-se uns com os outros, preveem as ações dos engenheiros sociais, e agem no sentido de tapear estes quando eles interfiram com seus objetivos. Quanto mais os engenheiros recorrerem aos processos físicos reais de ligarem máquinas sequencialmente e controlarem o produto delas, e quanto mais do “planejamento” deles incorporar o elemento humano, menos os planos deles terão a ver com a realidade.

As pessoas reagem à interferência irracional da gerência em sua busca de objetivos de maneira muito parecida com aquela pela qual a Internet trata a censura: Tratam a autoridade como significando prejuízo/estrago, e contornam-na.

Há estreita semelhança entre os gerentes incompetentes do escalão corporativo mais alto, tentando impor a teoria de gerência na moda, e legisladores tentando controlar o comportamento social. Os sistemas sociais reais que eles tentam controlar são uma caixa preta para eles. Eles tratam a sociedade como uma linha de montagem inanimada quando ela é, na realidade, uma rede ágil de seres percipientes que pode reagir mais depressa do que os controladores conseguem atuar.

Em ambos esses contextos, os gerentes consideram “fazer algo” enquanto tal como sinônimo de eficácia, acreditando que as palavras que escrevem no papel serão magicamente traduzidas em realidade quando aplicadas à massa inerte da sociedade. Um sistema social, porém, não é inerte ou estático. Ele reage, com muito mais agilidade e inteligência do que os controladores, a qualquer tentativa de interferência vinda de cima.

Na corporação, os trabalhadores reagem a tais iniciativas com os tipos de sabotagem passivos-agressivos que a Trabalhadores Industriais do Mundo – IWW consagrou na expressão “ação direta,” mas aos quais os trabalhadores recorreram instintivamente desde o início dos tempos: Operação padrão, divulgação dos podres da empresa, vazamentos, operação-tartaruga, e apenas sorrir e anuir com a cabeça e fazer exatamente o que estava sendo feito antes.

No domínio político, respostas normativas ao pânico moral são igualmente estúpidas. Elas usualmente tomam a forma do Distúrbio de Estupidez Pós-Traumática: “Não fique parado aí! FAÇA ALGO!” Não importa se o que é feito é em realidade contraproducente. Como os gerentes de toda parte, os gerentes do estado tratam a quantidade de insumos — leis e normas — como critério de mensuração do produto.

As ações deles, porém, são, quase sempre, contraproducentes. Quando redes estigmérgicas de indivíduos livremente associados cooperam na persecução de seus próprios fins, fazem uso de eficácia máxima da inteligência e do conhecimento daqueles que delas participam. São mais do que a soma de suas partes. E se tornam mais aptas e mais eficazes em reação a ataque levado a efeito pelas hierarquias. Vejam só o progresso do Napster ao Baía dos Piratas, e a migração do Baía dos Piratas para a Nuvem como versão de código de fonte aberta: Depois de cada ataque, o movimento de compartilhamento de arquivos torna-se mais distribuído e mais efêmero, eliminando perigosos gargalos.

Em contraste, as hierarquias são menos do que a soma de suas partes. Elas não podem confiar nos subordinados para fazerem uso pleno do conhecimento distribuído que eles possuem. Tornam-se mais estúpidas na reação a ataque — vejam só as várias formas de Teatro de Segurança implementadas pela Administração da Segurança dos Transportes – TSA depois de cada ataque terrorista “fracassado.” As coisas incrivelmente estúpidas que o governo dos Estados Unidos tem feito — invadir o Iraque, transformar a aviação civil em algo a ser evitado tanto quanto possível, tornar seu sistema de segurança mais ossificado e friável — foram exatamente o que a al Qaeda desejava conseguir com o 11 de setembro.

A realidade não é a mesma coisa que o mapa. É muito mais complexa. E os chefes incompetentes que tentam controlá-la sempre farão de si próprios triste figura.

Artigo original afixado por Kevin Carson em 17 de abril de 2013.

Traduzido do inglês por Murilo Otávio Rodrigues Paes Leme.

That description is spot-on. Social engineers in government resemble nothing so much as industrial engineers, treating disorder as  process variation and hoping to get their black belt from Motorola for reducing it below six degrees of standard deviation.

There’s a good reason for the resemblance: Contemporary social engineering is a direct outgrowth of industrial engineering.

Progressivism was the ideology of the new managerial and professional classes that sprang up in the late 19th century to run the new large, hierarchical institutions dominating American society after the Civil War. The first managers of multi-unit corporations came from an industrial engineering background, and saw the corporation itself as a system to be engineered just like the industrial process in a factory. They were followed by the professional civil service and the professional managers of large universities, charitable foundations and urban public school systems.

Progressivism extended this approach to society as a whole, treating it as an industrial process writ large. As any quality control specialist will tell you, an industrial process results in variation because the process is structured to produce variation. So you tweak the process till it reliably produces an output with variation below some acceptable threshold.

That approach is fundamentally misguided. Unlike widgets on an assembly line, human beings pursue goals of  our own, communicate with one another, anticipate the actions of the social engineers, and act to circumvent them when they interfere with their own goals. The further the engineers get from the actual physical process of linking machines sequentially and regulating their output, and the more their “planning” incorporates the human element, the less their plans have to do with reality.

People respond to management’s irrational interference with their goal-seeking much as the Internet treats censorship: They treat authority as damage and route around it.

There’s a close resemblance between the pointy-haired bosses in a corporate C-suite trying to impose the management theory du jour, and legislators trying to regulate social behavior. The actual social systems they’re trying to regulate are a black box to them. They treat society like an inanimate assembly line when it’s actually an agile network of sentient beings who can react faster than the regulators can act.

In both realms, the suits equate “doing something” as such to effectiveness, believing the words they write on paper will be magically translated into reality when applied to the inert mass of society. But a social system isn’t inert or static. It responds, with far more agility and intelligence than the regulators, to any attempt at interference from above.

In the corporation, workers respond to such initiatives with the kinds of passive-aggressive monkey-wrenching that the IWW has enshrined as “direct action,” but which workers have instinctively resorted to since the beginning of time: Working-to-rule, whistleblowing, leaking, slowdowns, and just plain smiling and nodding our heads and doing exactly what we were before.

In the political realm, regulatory responses to moral panics are equally stupid. They usually take the form of Post-Traumatic Stupidity Disorder: “Don’t just stand there! DO SOMETHING!” It doesn’t matter if what’s done is actually counterproductive. Like managers everywhere, the managers of the state treat the quantity of inputs — laws and directives — as a metric of output.

But their actions almost always are counterproductive. When stigmergic networks of freely associated individuals cooperate in pursuit of their own ends, they make maximum effective use of the intelligence and knowledge of those participating in them. They’re more than the sum of their parts. And they become smarter and more effective in response to attack by hierarchies. Just look at the progression from Napster to The Pirate Bay, and Pirate Bay’s migration into the Cloud as an open-source code release: After every attack, the file-sharing movement becomes more distributed and more ephemeral, eliminating dangerous bottlenecks.

Hierarchies, in contrast, are less than the sum of their parts. They can’t trust subordinates to make full use of their distributed knowledge. They become stupider in response to attack — just look at the various forms of Security Theater implemented by the TSA after every “failed” terrorist attack. The incredibly stupid things the United States government has done — invading Iraq, turning civil aviation into something to be avoided as much as possible, making its security system more ossified and brittle — were exactly what al Qaeda wanted to achieve with 9-11.

Reality is not the same as the map. It is far more complex. And the pointy-haired bosses who attempt to regulate it will always make fools of themselves.

Translations for this article:

• Portuguese, Pânico Moral e Gerencismo.

There are two ways to be wrong about the Internet. One is to embrace cyber-utopianism and treat the Internet as inherently democratizing. … Another, more insidious way is to succumb to Internet-centrism. … To fully absorb the lessons of the Internet, urge the Internet-centrists, we need to reshape our political and social institutions in its image.”

These are, indeed, two ways to be wrong about the Internet. They’re wrong because they share Morozov’s own fundamental assumption: That the goal is to reform or compensate for the failings of existing institutions — not to supersede them. He evaluates network organization on the basis of whether, as a supplement to existing institutions, it can provide the State Department with better information for deciding whether to intervene in Syria. “Many of our political institutions regularly confront problems that are not the result of knowledge deficiencies.” Those of us who see networks as the kernel or basic organizing principle of the successor society could care less about reforming the State Department. Our expectations from the State Department can be summarized by a quote from Auric Goldfinger: “Why, I expect you to die!”

Versus Johnson’s puerile affection for networks, Morozov juxtaposes “the virtues of centralization”:

Without well-organized, centralized, and hierarchical structures to push back against entrenched interests, attempts to make politics more participatory might stall, and further disempower the weak, and coopt members of the opposition into weak and toothless political settings. This was the case before the Internet, and, most likely, it will be the case long after.

Decentralized networks are useless, Morozov says, because they lack the scale for taking over existing institutions. As an example, he points to the German Pirate Party’s model — celebrated by Johnson — of “liquid democracy” (a participatory process with delegation and trading of votes, policy formation via membership plebiscite, etc.). Of course Johnson and Morozov are both wrong. Johnson is wrong to see a horizontalist, leaderless organization as a plausible tool of taking over an institution like the state. Morozov is wrong to evaluate networked organizations in terms of their effectiveness in taking over the state and other hierarchical institutions.

Our goal is not to assume leadership of existing institutions, but rather to render them irrelevant. We don’t want to take over the state or change its policies. We want to render its laws unenforceable. We don’t want to take over corporations and make them more “socially responsible.” We want to build a counter-economy of open-source information, neighborhood garage manufacturing, Permaculture, encrypted currency and mutual banks, leaving the corporations to die on the vine along with the state.

We do not hope to reform the existing order. We intend to serve as its grave-diggers.