very differently.
Why does all this matter in trying to understand how the growth of the Canadian state (at both the federal and provincial levels) became self-perpetuating, even though people thought that dependence on the state was a bad idea in principle? Because of the way rewards are distributed in the marketplace versus the way they are distributed by the state. Markets reward and encourage people for producing valued goods and services for each other. The state rewards and encourages people to organize politically to use the state to get the things they want based on their relative political power.
You may think that your employer determines, in his or her sole discretion, what you will be paid, but nothing is further from the truth. Your boss is constrained by the market. If he pays too little, other employers will bid away valuable employees by offering them more money. If he pays too much, his product will be overpriced in the marketplace or his return on investment will be too low and he’ll go out of business. One of the critical pieces of information that employers are always chasing is what the market is paying today for the kind of employees they have and wish to keep. And ultimately the value you have to your boss is determined by the value you give, measured by your productivity. If you are more productive than the average employee in your field, you’ll command a premium wage. If you give less than average value, you probably won’t last long in your job.
That means that most real jobs in the real economy offer an opportunity for someone who wants to get more than they get today, and the way that they avail themselves of that opportunity is to work harder. They can then either get better pay or, if their boss doesn’t want to reward superior productivity, they can find an employer who will. It is just the same with people offering services, lending money or selling widgets. In most circumstances you get ahead by providing superior value.44 And here is the crucial point: the other party to these transactions has to agree that they are getting the value they are looking for, because transactions in the market are not compulsory, but voluntary. I don’t have to hire you; you don’t have to buy from me. We engage in these kinds of exchanges only when both parties see the value in doing so.
So we get ahead by creating more value (or by “making”), and we are not subject to the arbitrary will of others in our business or employment relationships because, except in very exceptional circumstances, we have choices about what we buy and sell, when and to whom. No party to the vast majority of economic transactions sets the terms of those transactions unilaterally.
This is the exact opposite of transactions with the state. The state takes its resources compulsorily from taxpayers, not as a result of a negotiation of value to which each party must agree. It then distributes them in accordance with the will of those who hold political power, whether directly or indirectly. And while people will generally acquiesce in the distribution of income and so forth by the market because that distribution is not the imposition of someone’s will or preferences, they quickly grow to resent the arbitrary awarding of benefits and advantages to those close to government.
Why You Can’t Just Mind Your Own Business
This phenomenon, where more and more members of society are drawn into taking rather than making, is known as “rent-seeking,” an extremely ugly social science term that I try to avoid whenever I can (even though it will slip into this book from time to time).45 It is easier to think of it as “People Using Political Power to Enrich Themselves by plundeRing You” or, if you will forgive the acronym, what I call “PUPPETRY,” in the same spirit as “Fannie Mae” is understood to mean the Federal National Mortgage Association, or “Freddie Mac” the Federal Home Loan Mortgage Corporation. This idea of people winning unearned benefits at others’ expense through successful political activity was first systematically described in modern terms by the American political economist Mancur Olson, most famously in his little classic The Logic of Collective Action. One of his students summarized his thinking:
“The great majority of special interest organisations redistribute income rather than create it, and in ways that reduce social efficiency and output,” said Olson. Groups rarely propose ‘social benefits’ that don’t also handsomely benefit themselves.... As society becomes more and more dense with networks of interest groups, as the benefits secured by groups accumulate, the economy rigidifies, Olson argued. By locking out competition and locking in subsidies, interest groups capture resources that could be put to better use elsewhere. Entrenched interests tend to slow down the adoption of new technology and ideas by clinging to the status quo.... At last society itself begins to change. “The incentive to produce is diminished; the incentive to seek a larger share of what is produced increases.” The very direction of society’s evolution may be deflected from productive activity and toward distributional struggle. [Emphasis added]46
Another way of thinking of this shift is that the character of individuals and the society that comprises them begins to change, from one of making to one of taking. This insight that the state becomes a temptation to immorality and a character-corrupting institution when it is permitted to engage in excessive redistribution was best expressed by the nineteenth-century French political economist Frédéric Bastiat.
Since, Bastiat notes, we are all asking the state to take from others and give to us, and since the state cannot give to us without taking from everyone, the state may properly be defined as “the great fiction through which everybody endeavours to live at the expense of everybody else” [emphasis added].47
In other words, when we allow the state to become an instrument of redistribution on a large scale instead of impartially administering laws that treat everyone the same, it too easily becomes the instrument of some groups imposing their will on others. When you know that political power may be used against you, from a purely defensive point of view it becomes imperative to organize and to seize that power, even if all you want is to be left alone.
The tyrant and his victim are still present, but there is an intermediate person between them, which is the State—that is, the Law itself. What can be better calculated to silence our scruples, and, which is perhaps better appreciated, to overcome all resistance? We all, therefore, put in our claim, under some pretext or other, and apply to the State. We say to it, “I am dissatisfied at the proportion between my labour and my enjoyments. I should like, for the sake of restoring the desired equilibrium, to take a part of the possessions of others. But this would be dangerous. Could not you facilitate the thing for me? Could you not find me a good place? or obstruct the industry of my competitors? or, perhaps, lend me gratuitously some capital which you may take from its possessors? Could you not bring up my children at the public expense? or grant me some prizes? or secure me a competence when I have attained my fiftieth year? By this means I shall reach my end with an easy conscience, for the law will have acted for me, and I shall have all the advantages of plunder, without its risk or its disgrace!”
Frédéric Bastiat, Government
PUPPETRY can take many forms. Using the state to commandeer the income of individuals to redistribute it to others is just one. That use of the state is not just limited to taxation, by the way. If the state establishes marketing boards that can set the price of milk and eggs, that action transfers income from consumers (who pay higher prices) to producers (who don’t have to face competition). If widget makers win tariff protection from foreign competitors, PUPPETRY is allowing them to get extra money from consumers who now have to pay more for their widgets than they need to. If the local municipality forces taxi owners to have medallions to operate legally and issues only a few such medallions, that requirement artificially drives up the cost of cab rides, a straight politically produced transfer of income from passengers to owners. The resulting transfers don’t even have to be
