My project is to try to flesh out a neo-Marxian politics using resources from institutional and new institutional economics. I begin from the hypothesis that human beings are evil. I try to be a little deflationary about this; when I say we are evil, I do not mean that we are malicious – though we can be – but only that we are not very good cooperators. This is because we are, at least potentially, a) prudentially rational agents, b) who act independently of one another, but c) who are dependent on one another for realizing our desired outcomes. In other words, we face the persistent threat of coordination problems.
This specter of coordination problems does not always arrive – collective action happens – but it is a real enough threat that we cannot, in principle, rule out the possibility of prudentially rational opportunism (free-riding, defection, rent-seeking, moral hazard, etc.) in our considerations of institutional design. The threat amounts to a divergence between the common good and the good achievable by the independent actions of prudentially rational agents. Any approach to collective action that does not take this threat into account in the structure and working rules it proposes for institutions seems, by that very fact, to convict itself of criminal naiveté by entrusting the entire existence of the proposed institutions to the care of good fortune alone. My essay tests various approaches to collective action by this criterion of naiveté.
Taking evil for granted allows me summarily to dismiss or bracket the spontaneous order theories offered up by admirers of market exchange from Smith to Hayek and beyond. These theories maintain either a) that collective action is pernicious, since the common good can only ever be the outcome of independent actions undertaken by prudentially rational agents, or else b) that collective action is impossible, since every conceivable institution is analyzable into the aggregate outcome of independent actions undertaken by prudentially rational agents. Both versions entail the denial of my hypothesis within the sphere of transactions governed by spontaneous order. The presence of spontaneous order within a domain means there is, for that domain, no problem of human evil, since coordination problems are either a) produced by the encroachment upon this domain of spontaneous order by some external principle (e.g., coercion) or else b) impossible. For my purpose here, I can be agnostic about the scope – either actual or proper – of spontaneous order, at least up to a point. There may be a great deal, there may be none at all; I insist only that spontaneous order does not govern the whole of the human condition. Even if the market is or should be very large, there are at least some transactions that cannot be included in it. Whatever transactions take place outside the market are within the domain of institutional order, where coordination is a problem, and evil must be taken seriously.
My next question is: can we conceive of this domain of institutional order as consisting, in whole or in part, of the state? I think not. Despite its self-proclaimed pessimism, from Hobbes to Schmitt, state theory is, it seems to me, thoroughly and optimistically moralistic, in the precise sense that the state presupposes dutiful, and hence non-opportunistic subjects. The lynch-pin of my argument here is Hobbes’ own wonderfully incisive question from Behemoth: “If men know not their duty, what is there that can force them to obey the laws? An army, you will say. But what shall force the army?” The subject’s recognition of the state as sovereign means nothing other than this: the subject alienates his or her prudential judgment to the state, pre-committing him- or herself to override the counsel of prudential rationality whenever this conflicts with the laws or decrees handed down from the sovereign. This pre-commitment is the consent to be governed that in fact grounds and makes possible the sovereign’s power of the sword, since, as the Hobbes makes clear, this “de facto” power is nothing other than the army’s own de jure consent to be governed. Consequently, the state can be no part of the institutional domain of human life for the simple reason that, being unable to rule out the possibility of prudentially rational opportunism, we cannot make the transition from the state of nature to the civil state. The only institutions available to us, on my hypothesis, are what Hobbes refers to as “irregular systems” or “leagues,” held together by nothing more than prudential rationality itself.
The question is: given how bad we are at cooperating, how are such purely prudential institutions possible?
In order to talk about institutional arrangements divorced from both the spontaneous order of the market and the moral order of the state I avail myself of the theory of the firm as it has developed from Coase through the new institutional economics of Williamson and Ostrom. The theory of the firm originated in the twin realizations that a) conducting a transaction on the market has costs, and that b) sometimes accessing the market costs more than it is worth. Once transaction costs – the time and effort it takes to enter the market – are figured into the equation, hierarchy, personal relationships, and long-term contracts – the prudential order of the firm – might be more efficient than a series of competitive market transactions. This framework might explain how a set of merely prudential institutions would arise and persist outside the sphere of the market.
However, I think there are two problems with the theory of the firm (as it is articulated by Coase and Williamson, at least).
First, both Coase and Williamson carry over to the analysis of the firm the marginal utility framework of perfectly competitive markets. This allows both to say that firms are not only more efficient than the market transactions they replace, but efficient tout court; wherever any transaction can be most cheaply carried out, that is just where it will be carried out. This just-so story is completely unwarranted, I think. Some of the very transaction costs that motivate the move to firms in the first place constitute opaque barriers to any judgment that all transactions are being carried out just where they should be. There is no reason to suppose that prudential institutions are, in any given case, better homes for the transactions they encompass than the market or other possible or actual institutions.
Second, even – indeed, especially – if firms are supposed to be efficient institutions, the threat of coordination problems would seem to militate against prudentially rational agents being able to provide themselves with such institutions, since they would constitute public goods susceptible to all the problems of supply familiar to students of collective action dilemmas. This reinforces the conclusion that existing institutions are unlikely to be efficient. The very fact that an institution exists indicates that it is probably not a rationally efficient institution.
Such institutions – organized by non-obligatory directive authority – do exist. Hence, the state of nature is not the war of all against all. Moreover, even if we have good reason to doubt they are efficient, these institutions do frequently exhibit a stability that could only signify some degree of support from opportunistic calculation. What we lack, as Elinor Ostrom has pointed out, is a “theory that would identify the mechanisms by which a group of individuals could organize themselves” into such irregular associations.
However, I do not think this lack of a theory is a problem – except, maybe, for theoreticians. Implementing the right institution for a given situation does not depend in any way on applying a theory of institutions. Indeed, I think that any such theory would have the same structure, and be inadmissible on the same grounds, as the Hobbesian theory of the state. It would, it seems to me, look something like Rawls’ original essay on “Justice as Fairness” and would comprise a principle or set of principles according to which the working rules of institutions would be formulated as rules binding for members, or meta-rules governing the proposal and emendation of institutional rules. But this framework of meta-rules or principles asks members of an institution always to interact with the prudential rules of their institution via the principles of institutions, and never to subordinate these principles to the prudential considerations motivating the particular institutional rules. This is exactly Hobbes’ move. It makes institutional membership contingent on deferring one’s prudential judgment to the principles of institutions, thereby rendering the institution a moral rather than a prudential order. This appeal from prudential to moral rationality is ruled out by my hypothesis. Therefore, I think any normative theory of institutions will, when it comes to proposing and refining institutional rules, run aground on the threat posed by prudentially rational opportunism. Only actual practices of institution formation and reform can look this human evil in the eye.