James Buchanan A State Of Bias

James Buchanan, A State Of Bias?

From the formation of a social contract two distinct types of government emerge. Self-interest leads an individual to default on contractual agreements when he believes that this can be achieved unilaterally. Consequently, at the constitutional stage an agency is created to perform the function of enforcing contractual agreements. Buchanan terms this agency the 'Protective State'. At the post constitutional stage we have seen that individuals may choose to provide a good collectively rather than through private or voluntary organisations. So a 'Productive State' is devised to provide public goods.

The most important features of the protective state are that it is external to the parties it is protecting and that it has no potential for operating in its own interests. Unfortunately, Superman is a comic book character so individuals must select some internal candidate to act as enforcer and treat him as if he were external. The protective state does not make law, rather, given a specifi­cation of law and penalties, it acts in a scientific manner to determine whether contracts have been violated and metes out the appropriate punishment when it finds that they have.

Given the individualist postulate the productive state must be internal and respond to individuals' desires. The productive state determines the quantities and cost-sharing arrangements for those goods within its domain, where these decisions are derived from individuals' values this is not a scientific operation. The productive state is a mechanism enabling individuals to achieve the benefits of public goods.

Given Buchanan's perspective of government and his view that the status quo is not rigid, is everything in the garden rosy?

Buchanan's answer is an emphatic 'no'; instead of 'ordered anarchy' he sees 'constitutional anarchy'.
It is not necessary to locate some malignant cause for this corruption of the ideal. Adopting LUR, on a rational basis, may be a source of undesirable outcomes even when there are a set of procedural limits on the use of LUR. Such a limit might be that, in all proposals for collective action, gross benefits must exceed gross costs. A series of collective decisions on proposals that meet this criterion can easily produce an over-expanded budget. Though each proposal taken separately with LUR appears to create benefits in excess of costs this overlooks the spillover effects. For as the budget expands so the resistance to paying tax and enforcement costs rise. The increase in enforcement costs in­fluences not only the current decisions but all previous decisions as well, thereby reducing net benefits.

But frequently such criteria are not institutionalised. We can examine the possible outcome in the absence of such criteria with the aid of Table 1. It represents a three-person group where taxes are equal for each individual. Three proposals are considered, separately. Each costs £9 so that tax is £3 per head. The benefits are distributed unevenly as illustrated in Table 1. With a simple majority rule Project 1 will receive the support of both A and B for whom benefits exceed tax. Similarly projects 2 and 3 will be adopted. However, in total, each person will have paid £9 in tax but received only £8 in benefits. Again the acceptance of LUR has produced the undesirable outcome of an over-extended budget.

Table 1

This is not the only source of budgetary bias. Politicians, government employees and bureaucrats can also affect budgetary outcomes. Politicians are unlikely to be drawn from those who prefer a minimal role for government but rather from those interested in social engineering and the concomitant budgets. Politicians who derive utility from making decisions for large numbers of people are interested in big budgets and projects with differential impacts. And that small proportion of politicians who are motivated by the possibility of pecuniary rewards of govern­ment and corruption will probably prefer large budgets. Consequently, there exists a preference amongst politicians for larger budgets that will find expression when the control mechanism of voters over politicians is less than absolute. Equally bureaucrats and government employees have a preference, based on self-interest, for large budgets, for their own welfare is directly related to budget size. Further, as budget size and the number of active programmes grows, politicians will find it increasingly difficult to control their employees who, in turn, will express their preference for large budgets. Finally, growing budgets will make public employees a significant voice in the political process. Thus within the productive state there is an inherent bias towards very substantial budgets, and thereby a loss of freedom of choice.

There are also problems within the protective state. Enforce­ment of contractual agreements is costly and defaults are certain to occur unless individuals decide to uphold the law at any cost. In this sense individuals' property rights are related to the cost incurred in enforcing them and exogenous changes in these costs clearly determine the extent to which laws can remain socially viable. Any law is only as good as the policeman.

Further the enforcement agency's view of what rights can be justifiably guaranteed may alter in time. But the costs of enforcement do not relate purely to those taxes necessary to cover the discovery and punishment of law-breakers, they also contain a subjective element.

Choosing and handing out punishment, either directly or indirectly, is for most people a 'bad', something that imposes a utility loss and something they will wish to avoid or pay to be reduced. This attitude does not reflect just charity, self-interest is also present. The individual may conceivably become a law­breaker himself, or be erroneously found guilty. The benefit of punishment is in its function as a deterrent, whilst the cost of the punishment has to be met after it has failed and will not restore the original position. Taken together these factors are an incentive to relax the enforcement of laws which in turn may promote further law-breaking. An increased frequency of such behaviour normally leads to a higher level of discoveries and potential punishment. And so the circle continues. Obviously a Samaritan is in danger of being exploited (Buchanan, 1975c). This general reluctance to punish Buchanan terms the 'Punishment Dilemma' and it has a debilitating effect on the functioning and the notion of enforcement.

But these general biases within the productive and protective states are not the real source of 'Constitutional Anarchy'. An individual might reasonably expect them and take them into account and a political economist might fruitfully be employed in suggesting beneficial institutional changes. For Buchanan the source of the problem is the inter-penetration of the two states and the violation of the constitutional contract by the state itself.

Due to rising decision-making costs a system of representatives for political decisions has evolved. In turn the representatives have established a bureaucracy in the interests of 'efficiency'. However the bureaucrats, lacking any criteria or popular control, have departed from the voluntaristic nature of the social contract. Experts (economists) have been recruited to advise on social goals. The experts, instead of searching for possible institutional changes, have identified 'market failures' and recommend an ever expanding role for government.

The outcome has been policies with differential rather than general beneficial effects. Naturally, those who are damaged by specific policies agitate to gain their own preferential proposals and the circle starts again. Buchanan comments 'collectivized governmental attempts to do more and more have been de­monstrably revealed to accomplish less and less' (1975a).

Buchanan's view is that individuals, locked into this im­personal system, have found little succour from the protective state. The productive state having decided on provision and cost sharing, has utilised the protective state to enforce its decisions. The protective state has failed to distinguish between 'constitutionality' and 'the public interest'. It has made law, it has not recognised the limits to the use of LUR and has supported arbitrary and uncompensated shifts in property rights. In behav­ing in this manner the protective state has failed to punish violations of the constitutional contract by the state.
This breaking of fundamental rules is for Buchanan no more apparent than in the dropping of the balanced-budget rule (Buchanan and Wagner, 1977). Budget deficits are in politicians' interests, enabling them to win electoral support and express their preferences for large budgets. But the costs of such actions in terms of inflation and the dysfunctional impact on economic co­ordination could be ruinous to the whole economy. Buchanan bluntly states 'Sober assessment suggests that, politically, Keynesianism represents a substantial disease that over the long run can prove fatal for the survival of democracy'. (Buchanan, Burton and Wagner, 1978).

The state has become too powerful and persuasive; it has acted unlawfully. This has induced the citizency to behave in a similar manner so that disorder characterises many areas where pre­viously ordered anarchy prevailed (Buchanan and Devletoglou, 1970).

The most poignant aspect of Buchanan's analysis is that it is government that has failed not just markets.