Politics isn’t perfect and Public Choice theory explains a few reasons why. Even well-intentioned politicians face strong incentives to behave poorly in certain environments. Radical social entrepreneurs have to make honest comparisons between the benefits of political and nonpolitical approaches to problems, since all institutions are flawed.
What is it?
While economists have spent many decades pointing out the failure of markets to achieve ‘perfect’ equilibrium, the solutions to these market shortcomings often relied on a perfectly functioning government to correct maladjustments. Public Choice, a discipline that combines political science and economics, asks the obvious question, “What if governments also perform less-than-perfectly?”
Nobel Laureate James Buchanan, a founder of Public Choice, calls the approach “politics without romance.” This doesn’t mean cynicism, but an honest look at the incentives faced by politicians, voters, and bureaus in a political system.
Just like markets fail, so do governments. Regulators can be corrupt, or politicians may only represent the narrow self-interest of their constituencies at the expense of other groups.
Public Choice takes the tools of political science and economics and examines how politics unfolds under different conditions. The political economy of a dictatorship is different than that of a democracy. But that doesn’t mean, as Public Choice theorists have rigorously shown, that democracy is a perfect solution.
“Government failure,” even in developed Western democracies, is as important an idea as “market failure,” since we are comparing two imperfect standards.
Furthermore, Public Choice challenges the notion that politics runs merely on ideology or ‘ideas’. In reality, economic self-interest explains the inner workings of a political system at least as much – and maybe even better than – the ideologies of political actors.
The ideas of Public Choice are pretty intuitive.
One basic idea is the ‘median voter theorem’. This is a fancy way of saying that in a simple majority election, politicians face incentives to try to win the voter representing the “51%” of the voting group. This secures victory at minimal cost.
This suggests that political groups tend to reconcile their differences and join together until two opposing parties emerge – each trying to court the voter ‘at the median’. Since they’re struggling over the voter in the middle, the ideas of these two main political coalitions will likely not diverge too wildly.
Americans often complain of ‘the two party system’, where the convergence of Democrats and Republicans leaves too little scope for innovative ideas in politics. A phenomenon like this is perhaps best understood with Public Choice.
Another major idea in Public Choice is ‘dispersed costs and concentrated benefits.’ This is a long-winded way of referring to the special-interest lobbying that plagues any political system.
A government favor channels a ‘concentrated benefit’ to a particular industry or group. This industry or group then has a strong interest in lobbying together and learning the details of the particular benefit to make sure that it’s sent their way. Even if the benefit costs society as a whole a massive amount of money (as Public Choice economists often show, to the great irritation of special-interests), these costs are spread widely over a population.
Put another way, imagine taking a few cents from every citizen to give to a small group. Losing a few cents is not enough to get most people angrily opposing the transfer. But taken together, these few cents are worth a great deal of money to the small group that stands to get it.
Costs are dispersed, but the benefits are concentrated. This imbalance leads to lobbying throughout a political system, even democracies, unless strong safeguards are in place.
It’s worth pointing out that many of Public Choice’s models have come under attack by some political scientists on the same grounds that traditional economics has been challenged by behavioral economists. The world is more complicated than the simplified, formal models of Public Choice.
The analysis of political systems using ‘incentives’, as Public Choice often does, is improved by also thinking about political ideas, the limited knowledge of people involved, and that people may be motivated by a desire to help others rather than self-interest.
But none of this undercuts the powerful, basic insights of Public Choice. Political situations are indeed more complicated than a model can capture – but that doesn’t mean we have nothing to learn by imagining a ‘politics without romance.’
What does Public Choice mean for Radical Social Entrepreneurs?
Public Choice teaches an important, if somewhat disappointing lesson. Well-intentioned political reformers may be extremely ineffective to bring about political change because of the incentives in a political system. Special-interests and power-seeking politicians can capture a system and little can be done to change it from within.
Even well-intentioned politicians themselves may be unable to create meaningful change since they are hindered by Public Choice processes. As systems evolve over time, they are likely to be captured more and more by special interests at the expense of the ‘average citizen’.
The decay of systems over time means we need constant renewal and innovation in governance structures. Entrepreneurial creation of legal systems and communities helps us renew political order from special-interest capture that occurs over time. It also gives people a wider range of choice of systems, so that they can find one that works best for them.
It takes radical social entrepreneurs working on projects like Free Cities to help us overcome the challenges of Public Choice problems.
Innovation in governance also helps us discover better ways of safeguarding systems from special-interests and building more just and humane structures to help those least well-off. It helps us find new methods for political action. Indeed, entrepreneurship in fundamental areas like law, technology, and community is how we can oppose monopolies that exploit and stand in the way of social progress. Just like representative democracy is a variation on direct democracy, new methods can be used to bring together our preferences for collective decision making.
Public Choice also reminds us that finding solutions to world problems is not as easy as saying “markets fail” therefore the government solution will be superior. It’s also not as simple as saying “cut back the government,” because we need good market structure — good rules — to let alternative solutions fill the void.
We have to avoid what economist Harold Demsetz called “the Nirvana fallacy”: the idea that we are comparing a failing market or a failing government to some perfect alternative. Our comparisons must be between realistic alternatives. This means looking with brutal honesty at the costs and benefits of different institutional arrangements.
To solve world problems, radical social entrepreneurs need to keep Public Choice in mind and look to how they can use their own entrepreneurial ability to bridge gaps left by poor functioning by both governments and markets.