Capture and Human Nature

Continuing on our series about how the production of surplus creates the building blocks of modern civilization, we discuss how people and organizations (“special interests” or what the Founders called “private interests”) try to use the power of government to obtain surplus produced by others.

Surplus, we must remember, is more than merely excessive profits taken out of the hides of exploited laborers. Much more! Much more than the lifestyles of the rich and famous that are portrayed on TV and in scandal magazines. Surplus is accumulation in excess of what is needed for consumption. It includes the profits of giant corporations and the savings of ordinary households. The accumulated resources can be reinvested in expanded production and new products. This accumulated wealth also includes the accumulated knowledge gained over thousands of years that can be deployed by scientists and researchers in today’s products and are the inspiration for future inventions. So keep this in mind when we discuss not just the benefits of surplus but also its necessity and why it is wrong to misappropriate the surplus generated by people. As Enlightenment philosopher John Locke wrote, “The reason why men enter into society is the preservation of their property."

Human beings, by their inherent nature, try to construct the world around them to suit their tastes and to their benefit. They want the house they like, the garden they like and the view they like. Of course, not every person can get all the things they like. But you can’t blame a person for trying.

Large organizations such as corporations or unions also like to construct the world in which they operate to suit their taste and to their benefit. They want the tax treatment they like, the regulatory oversight they like, the tariff protections they like, the incentives for their customers that they like, the government contracts they like and all the other things governments can provide. Many of these things that help promote their business and enhance their profits are appropriate and benefit all the citizens of the country (as they use to say, “what’s good for General Motors is good for the country”). But some of what they ask for is not appropriate (but you can’t blame a corporation for trying). If they get a tax break not generally available, somebody else will have to pony up (it’s either us or our children and grandchildren). If lax regulatory oversight allows them to use shoddy materials then their customers will not get the products they pay for. These are examples of the inappropriate transfer of accumulated surplus or wealth from one group of citizens to another group of citizens. Government, because of the power ceded to it by its citizens, has the ability to expropriate surplus for public purposes. There are many people who want to use this power for their own non-public purposes.

How does this happen. Well, elected officials and bureaucrats, because of their inherent human nature, also like to construct the world around them to suit their tastes and to their benefit. Their positions in government give them power to not only affect the public interest but also private interests, as well. They are, thus, susceptible to the appeals from special interests to change the rules of the game and tilt the playing field in their favor. If they do so in exchange for money they are committing the crime of bribery. Other forms of illicit enrichment (such as luxurious gifts or travel) are also illegal and subject to criminal or civil penalties.

Some types of inducements, however, are not illegal. Campaign contributions are legal gifts to politicians and it is difficult to prove that a contribution was quid pro quo for legislation benefitting the private interests of the donor. Promising a large bloc of voters can also influence legislators. The possibility of future employment can also lead a government official astray (although this can also be illegal). These are only some of the ways special interests try to capture government.

This type of activity happens over and over again at all levels of government; local, state and federal. It’s just human nature. So if we can’t stop it what can we do?

Just like weeds and pests that try to invade any garden, special interests will try to divert the power of government to their own benefit. And like any good gardener we have to be on constant alert to prevent the capture of our government and be ready to apply remedies to any abuse in order to reform the system and level the playing field. In the rest of this series of essays we will examine some of the methods used to capture government and recommend ways to remedy the situation or reform our democratic institutions.

Complexity

One warning signal of an attempt to capture government (or other institutions of democracy) is complexity. The Constitution of the United States (including amendments) contains 7,591 words. If the most important government document in the world (at least in my opinion) can encompass the entire scope of government in 7,591 words, why did the Affordable Care Act (Obamacare) need 381,517 words (along with 11.6 million words of implementing regulations)? Why did we need a 77,000 page tax code? All this complexity is needed to address the petitions of special interests.

Some of these special interests have a legitimate claim for special treatment. People with pre-existing conditions needed to be sure they would continue to be covered. So some additional verbiage was required to meet that need. But a ton of verbiage was also employed to grant special benefits to less deserving groups. And if our elected officials aren’t reading these bills (after all they had all night to read those 2300 pages of the ACA before voting on it, didn't they?) how are ordinary citizens going to understand what their government is doing. And if citizens don’t understand what their government is doing how can they have any trust in government (I think you see where this is going).

I had a class in graduate school where we had to do case studies of businesses facing various problems. The class consisted of three case studies and some tests. The case studies had to analyze the business and to give precise recommendations based on that analysis. The first case study had no required length and students had to include all the relevant factors that were required to properly analyze the problems facing the subject company. The second case study had to be as precise as the first but the students’ work could not be longer than 25 pages. The final case study could only be 17 pages. We can get to the essence of a matter without excessive complexity. All of our First Amendment rights were encompassed in 45 words. When laws apply to all people equally then laws can be simple. When the law applies to different people differently then things get complex.

Taming complexity

There are various ways to try and control the ever-increasing complexity of modern life. We could limit the length of legislation. More importantly, legislation could put a limit on the length of the implementing regulations (remember that the regulations implementing Obamacare were 30 times as long as the lengthy bill itself).

There may be other good ideas out there about how to reduce the complexity of laws and regulations. The problem with most of these ideas is that they do not impact the financial incentives that motivate people to try and capture the government so that they can modify rules and regulations in the favor of special interests. And as long as the return on investment of the time and money needed to skew legislation or regulations in the favor of special interests is positive (and it is very positive) people will continue to try and capture government. And any law the legislature can make the legislature can unmake. Well-intentioned legislation can be eroded by new amendments even if attached to other unrelated legislation. Or the legislation can be superseded by new legislation.

One idea I like is the line-item veto. A line item veto allows the president to veto parts of new legislation without vetoing the parts he (or she) likes. One of the principal generators of complexity is the collegiality of legislators where one legislator inserts an amendment favored by his lobbyist while another legislator will vote for that amendment if our first legislator agrees to vote for an amendment favored by the second legislator. When you have 435 representatives and 100 senators you can easily see how these bills become complex (ask a mathematician to explain to you how many different variations are possible).

But a line-item veto can undo all this costly and complex collegiality by changing the entire economic viability of the lobbying process. It only takes one or two legislators to introduce a clause or amendment into a bill but it would take a super-majority coalition to override the line-item veto. This changes the profitability equation of lobbying, making it much more expensive and time consuming (which is expensive when you are billed by the hour) to tilt the playing field in their favor. If you change the economic motivation for lobbying you are much more likely to change how the nation’s business is done than you could with legislation.

A line-item veto would require an amendment to the Constitution. This would not be easy to do but once done, it would also not be easy to undo.

In the next essay we will look at other ways people try and capture the government.