The redoubtable Fred Smith from the Competitive Enterprise Institute sent this:

 Michael:

Your book notes that the Competitive Federalism features of the Constitution helped transform collective action problems into coordination problems (an ability that has been greatly weakened under today’s Cartel Federalism). That prompts a question that I’ve been pondering stemming from Schumpeter’s view that capitalism will fail (an argument that parallels yours in many ways).

I note that alliances between economic and ideological interests (Bootlegger and Baptist) are common (trial lawyers and enviros, unions and good-government types). Moreover, almost all public choice economists see this not only as natural but the only type alliance one would expect – rent seeking is a dominant outcome of interest group politics. And, certainly, crony capitalism is a dominant feature of our economy.

But why? First, note that markets frequently transform collective action challenges into coordination issue – joint ventures, vertical integration, standardization efforts. But, there have been almost no attempts by business to extend that approach into the political sphere. Business is often reasonably aggressive about defending against the expansion of political control but when they lose they seem only to quickly retreat, dig new defensive trenches, and remain passive pending the next statist onslaught.

Yet, wealth creation and the economic liberalization – privatization/regulatory liberalization/tax rationalization steps needed to achieve it – are decidedly not zero sum games. And we have some examples of efforts to expand the sphere within which wealth can be more efficiently created – the Anti-Corn Law League in Britain, the liberalization of the freight rail industry – but very, very few. Of course, there are free-rider, trust, etc problems with crafting such pro-market alliances but these are the stuff of any entrepreneurial breakthrough.

Indeed, the Coasian perspective – that the existence of a potential wealth creating arrangement encourages entrepreneurs to explore ways to lower transaction costs so that such arrangements become viable. We see political entrepreneurial activity abroad (China, for example and at the state level, Indiana and Wisconsin) but very little from business.

Is there any literature in the political science or public choice literature which seriously considers this asymmetry?

Fred

Good and important questions. We can all think of well-rehearsed  answers, enough to sustain a pubchoice-libertarian kvetchfest for hours: legislators and regulators don’t want to hear about hands-off solutions; lobbyists aren’t going to recommend policies that diminish the Beltway’s sway; business firms can’t advocate limited government because the regulators have a million ways to get even; and so on. But there’s something complacent about the rote responses, and they don’t really answer Fred’s deeper query: it’s the point of entrepreneurship to overcome problems of transaction costs, agency, etc.

As Fred hints, moreover, American history provides examples of private businesses acting as constitutional norm entrepreneurs; it also provides examples of private (policy) coordination on small-government terms. The modern edifice of corporate law was invented and put into action by corporations and their lobbies; the “dormant” Commerce Clause, which prohibits states from discriminating against out-of-state commerce, was likewise a product of corporate legal entrepreneurship. (The Upside-Down Constitution discusses these and a few other examples, with literature references.)  Maybe these are outlier cases, but what made them possible? What do they have in common? Are there additional examples; and what do we learn from them?

Also:  if private market forces can no longer innovate or coordinate on limited government margins at all, why don’t we all go home and find something useful to do (like, mow the lawn)?