NRPLUS MEMBER ARTICLE W riting for Reason, Stephanie Slade strikes another blow against the New Right’s flirtation with New Deal–era economics (read: progressivism) in her review of Sohrab Ahmari’s Tyranny, Inc.
Tyranny, Inc. is Ahmari’s polemic against neoliberal economic policies on the grounds that deregulation, corporate bankruptcy law, free trade, and the financial-services sector have empowered big business to exercise what he calls “private tyranny.” To Ahmari, there is no categorical difference between market power and coercion: “Market power is coercive power.”
Slade shows how Ahmari reduces his conflated concepts of private tyranny and coercion “almost to meaninglessness.” She does so by detailing how instances of market failure Ahmari presents are, in actuality, failures of the state. For example, she notes that an Arizona family facing an exorbitant bill from a private emergency-services provider is “better described as an instance of government failure” when one considers that local authorities had, unbeknownst to their constituents, contracted with this firm on their behalf.
Slade also explains why “political-exchange capitalism” — Ahmari’s term for his preferred political-economic paradigm, in which the government “takes a far more active role in coordinating economic activity” for the common good, in his description — is incompatible with Ahmari’s own ends. More political control over the economy means more economic “politicization—decisions made not because they’re in keeping with sound legal or economic principles but because they benefit groups with political connections,” Slade rightly observes.
The more the economy is politicized, the more coercive it becomes. Ahmari might respond that, if politicization of the economy is inevitable, better to be the party coercing than that coerced. But such politicization is not inevitable; Slade articulates how economic freedom is a prophylactic.
Slade’s argument recalls the first chapter of Milton Friedman’s Capitalism and Freedom: “The Relation Between Economic Freedom and Political Freedom.” Here, he explains how economic freedom is “an end in itself” and, secondarily, is “indispensable” to achieving political freedom. Using the example of journalism, Friedman explains how, in a free-market society, “it is enough to have the funds” to print either the Daily Worker or the Wall Street Journal. But in a socialist society, i.e., one in which the economy is politicized, it is not “enough to have the funds”; you must have the right politics.
Anticipating the response from those who (like Ahmari) would conflate economic and political power, Friedman acknowledges that “many potential private employers [are], rightly or wrongly, averse to hiring those pilloried.” Nevertheless, an impersonal, private market better “separates economic activities from political views” because, as Friedman explains, “costs [are] limited and not prohibitive, as they would have been if government employment had been the only possibility.” The reason costs are not prohibitive in the free-market society is that the market “permits wide diversity” in its offerings of goods, services, and employment opportunities. Slade rightly points out that these alternatives provide workers bargaining power in the labor market — and not just high-skilled workers. As George Mason University economist Don Boudreaux explains in Slade’s piece, “precisely because low-skilled workers have skills that are so general—the market for them is very thick and wide—the notion that [any job is] a take-it-or-leave-it situation is absurd.”
The one point of departure I have with Slade is her claim that private equity creates value “by finding mismanaged businesses and turning them around.” Slade does admit that “not every attempt will be successful” when private-equity firms attempt to rescue foundering businesses. What she doesn’t state is that doing so is often not the goal of private-equity firms. Sometimes the most valuable allocation of a failing firm’s capital lies not in its reorganization but in reallocating it to another firm altogether or liquidating it entirely in order to invest in a more productive enterprise.
In short, Ahmari is right to point out that private-equity firms liquidate inefficient businesses. Defenders of free-market capitalism should not contest this reality. Instead, we should explain that allocating capital to its highest-valued — i.e., most productive — use is not “looting,” as he characterizes the activity of the financial sector. It’s how the economy continues to grow. And, as Slade points out, “a wealthy, productive society is better for everyone.”
Political-exchange capitalism — just like fascism, socialism, and other species of top-down planning — makes everyone worse off by allocating resources to the best-connected instead of the most productive. If Ahmari really cares about the common good, he should consider how to reduce the extent to which politics corrupts the market instead of advocating the expansion of politics.