8.7.14

AS THE OLD SOCIAL ORDER FRACTURES.

Nils Gilman's "The Twin Insurgency" offers an instructive perspective on the challenges to the existing governmental order.
From below comes a series of interconnected criminal insurgencies in which the global disenfranchised resist, coopt, and route around states as they seek ways to empower and enrich themselves in the shadows of the global economy. Drug cartels, human traffickers, computer hackers, counterfeiters, arms dealers, and others exploit the loopholes, exceptions, and failures of governance institutions to build global commercial empires. These empires then deploy their resources to corrupt, coopt, or challenge incumbent political actors.

From above comes the plutocratic insurgency, in which globalized elites seek to disengage from traditional national obligations and responsibilities. From libertarian activists to tax-haven lawyers to currency speculators to mineral-extraction magnates, the new global super-rich and their hired help are waging a broad-based campaign to limit the reach and capacity of government tax-collectors and regulators, or to manipulate these functions as a tool in their own cut-throat business competition.

Unlike classic 20th-century insurgents, who sought control over the state apparatus in order to implement social reforms, criminal and plutocratic insurgents do not seek to take over the state. Nor do they wish to destroy the state, since they rely parasitically on it to provide the legacy goods of social welfare: health, education, infrastructure, and so on. Rather, their aim is simpler: to carve out de facto zones of autonomy for themselves by crippling the state’s ability to constrain their freedom of (economic) action.
Mr Gilman's analysis notes failures of the previously preferred systems of governance clearing the way for these insurgencies.
The liberal welfare state remained firmly ensconced as the hegemonic model—that is, as the baseline against which other political discourses and proposed political-economic models had to define themselves.

By the 1970s, however, it was becoming clear that the social modernist states were increasingly failing to deliver on their promises. In the West, inflation eroded the technical foundations of the Bretton Woods financial order, and economic stagnation undermined the technocratic consensus in favor of Keynesian demand management and the political consensus in favor of sharing productivity gains between labor and capital. In the East, centrally planned economies were revealing themselves not only as politically repressive but also as economically inefficient and environmentally catastrophic. In the “Global South”, the commodity boom of the 1970s led to a golden age for some primary producers, but industrialization by means of import substitution failed to sustain growth, and the debt crisis of the early 1980s put to rest any dreams of a new international economic order.

By 1980, the reaction against the social modernist state had set in.
Some of what follows echoes predictions from McKenzie and Lee's 1991 Quicksilver Capital, in which liquidity and computer technology enable the rapid movement of financial assets to tax havens.  The book also suggested the importance of human capital, something that neither the current political order nor the noveaux riches seem to be getting right.
The price the social modernist state asks them to pay in taxes and regulatory burdens outweighs the benefits they believe they receive from living in such a state. Plutocratic insurgents believe they can afford (and therefore everyone should be required) to buy for themselves the sorts of goods that the state was once expected to provide. They live in gated communities, travel via personal jets and private bus fleets, and send their children to exclusive schools. While each of these decisions may be motivated by lifestyle choices or a desire for social differentiation, the result is a progressive moral disinvestment and civic disengagement from the quality of these traditionally public services, especially as the habit of opting out of public services trickles down from the oligarchs to the upper middle classes.
Yes, and when there are only relatively few capitalist and petty-bourgeois households left, to whom will the oligarchs sell their services. Cue the drug lords.
While the mainstream globalization celebrated by the likes of Thomas Friedman grabbed the headlines, the parallel development of a “deviant” globalization in industries like narcotics, immigration, wildlife harvesting, and antiquities smuggling remained long enough in the shadows for it to set deep roots. Though the weakness of the post-communist and post-developmental state represented a dire problem for mainstream businesses and for imploding middle classes in these countries, it offered comparative advantages for illicit commerce. While plutocrats sewed up the licit opportunities afforded by the integration of the global economy, they mostly avoided dealing in goods and services that were banned for moral or prudential reasons. By contrast, deviant entrepreneurs realized that arbitraging the moral and regulatory differences that existed in different jurisdictions worldwide presented fantastic business opportunities—with opportunities continuously emerging as the capacities of different states contracted at differing rates. The unsung globalizers of the 1990s and 2000s, therefore, were the criminals who rapidly scaled up their local mom-and-pop graft organizations to become globe-spanning deviant commercial empires.

These avatars of deviant globalization constitute the leaders of today’s criminal insurgency. While they often emerge from the excluded and subaltern classes within their societies, what distinguishes them from classic social revolutionaries is that rather than seeking to build or capture institutionalized state power, they wish merely to protect their rents in the various (usually deviant) markets they control. Organizations such as the First Command of the Capital in Brazil, the ’Ndrangheta in Italy, or the Zetas in Mexico have no interest in taking over the states in which they operate. Instead, like plutocratic insurgents, they seek to selectively cripple the state so as to establish a private zone of economic autonomy, while continuing to rely on the state to supply vestigial social services. These actors thrive in (and indeed try to foster) weak-state environments, and their activities reinforce the conditions of this weakness.
We might add Russian industrialists and Chicago gang lords to the list of such rent-protectors.
Of course, even when deviant providers of alternative governance functions end up seeming “legitimate” in the eyes of local stakeholders, this type of governance is usually poorly institutionalized and nontransparent about both ends and means. Nonetheless, as these groups take over functions once expected of the state, their stakeholders increasingly lose interest in the now hollowed-out formal state institutions. Thus, even though criminal insurgents have no desire to kill their host state, they may end up precipitating a process whereby the state implodes catastrophically.
And perhaps, in this dynamic, we have the outline of the great secular challenge. Religious and resource warfare are part of the same emergent phenomenon.
The ultimate losers in all of this, of course, are the middle classes—the people who “play by the rules” by going to school and getting traditional middle-class jobs whose chief virtue is stability. These sorts of people, who lack the ruthlessness to act as criminal insurgents or the resources to act as plutocratic insurgents, can only watch as institutions built over the course of the 20th century to ensure a high quality of life for a broad majority of citizens are progressively eroded. As the social bases of collective action crumble, individuals within the middle classes may increasingly face a choice: accept a progressive loss of social security and de facto social degradation, or join one of the two insurgencies.
Or consider some new roles for the state.  Conn Carroll's "The Case for Libertarian Populism" engages some of the sources of political fragmentation.  First, he notes limits on the ability of a corporatist state (one of the consequences of oligarchs buying the best government their money can buy) to generate and dissipate rents.
Corporatism can, and often does, thrive. But only for a limited time. Eventually the tools Big Business and Big Government use to maintain their monopoly on power, undermine economic growth.
Note, that's a different argument from Mr Gilman's secession of the rich, but underlying the failure of the state is the same limit on how many resources the rich can circulate only among themselves.  And Mr Carroll has a relatively simple counter to the profits to be earned in the deviant markets.  Make their commerce legal (and subject it to transparent taxation and regulation?)
Manhattan Institute [analyst] John McWhorter explains, the War on Drugs “discourages young black men from seeking legal employment.”

“Because the illegality of drugs keeps the prices high,” McWhorter notes, “there are high salaries to be made in selling them. This makes selling drugs a standing tempting alternative to seeking lower-paying legal employment. The result is usually spells in jail, as well as failure to build the job skills for legal employment that serve as a foundation for productive existence in middle and later life.”

By ending the War on Drugs, the federal government would not only return much-needed human capital to beleaguered communities, it would also be a fiscal win for taxpayers as well. According to the Cato Institute, decriminalizing drugs would reduce federal government spending by $15.6 billion and would free up $25.7 billion in state and local tax dollars as well.

Yes, marijuana, cocaine, and heroin are all still hellish substances that we as a society should discourage people from using. But jail has proved to be an ineffective, and even harmful, method of sending that signal.
There's additional material to consider in Mr Carroll's article, most, though, tangential to the principal secular challenge.  Read and understand it.  But also read and understand Reihan Salam's "Selfish, Selfish San Francisco."
Relying solely on minimum wage hikes to make San Francisco housing affordable for local workers will ultimately mean driving all workers who can’t command a high wage out of the local labor market. Does that sound like much of a solution to you?

In The Gated City, Ryan Avent observed that high housing costs in America’s most productive cities had forced large numbers of middle- and low-income households to either accept long, costly commutes, which eat into the ability of families to work and save, or to move to low-cost, low-productivity regions. Over time, this greatly impairs the ability of working- and middle-class Americans to climb the economic ladder. Moreover, when you move large numbers of people from high-productivity, high-wage regions to low-productivity, low-wage regions, you lower the productivity of the entire country. In other words, the rich homeowners who are fighting development in San Francisco and throughout coastal California are actually making America poorer. That’s not cool.
Yes, and ultimately a lack of consumers for the products the financial and tech sectors offer will not be beneficial to the owners of tech and financial companies.  There's no escaping the Say Aggregation Principle, even in rethinking the political order.

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