The Property General Theory of the State and Social Evolution
PART II. THE STATE
Chapter 10. State Bureaucracy
State property unlike any other type of property seems to have no any private proprietors. Speaking otherwise, property associated with the State, ideally must belong to society as a whole or to all people. Relying on common understanding of public property, the latter is utilized only on behalf of the entire society and to the benefit of its every single member and therefore no any private and moreover no any exclusive benefits potentially attached to other types of property possessions can arise here. Beneficiary ideally is represented only by society as a whole or by all particular individuals on equal basis, without any private economic proprietors or moreover without any exclusive social proprietors. However, this is a very idealistic or much rather even utopian picture. It is considering State property from the point of view of myths and legends invented by social infrastructure rather than from the point of view of underlying any economic and moreover any social phenomenon property relations. Social infrastructure, as we know by now, is bound to create various idealistic myths in order to support certain non-socialized interests. There are always a government and a State bureaucracy, which are acting on behalf of the State. While government and State bureaucracy are represented by particular individuals with their private interests. Those interests are very much based upon and enforced by the fact that State bureaucracy through its State activity tends to appropriate certain economic claims upon the State property, State revenues, privileges and benefits coming from the State as well as naturally acquires certain exclusive social property rights associated with the State.
Under the State bureaucracy we will understand not only bureaucracy in traditional connotation of this word, but rather all groups of people, which correspond to two fundamental criteria. First one is receiving of an important part of personal income and of other personal benefits from the State and from activities directly connected with the State property. Second is management and control of the State, state property, state revenues and of the instruments of coercion as their primary occupation. These criteria besides bureaucracy in conventional understanding are also embracing a variety of other State positions such as members of national legislatures (representatives), elected public officials including judges and public attorneys where relevant, superior members of the government, magistrates and finally national presidents and presidential administrations. Since State is more than just a government and since in this book we have almost no interest in government and all the interest in the State, we can unite three branches of power – legislative, executive and judicial - in one big group of the State bureaucracy, or even with a certain logical abstraction from particular members of this group - of the top-level State bureaucracy. Justification for such an approach is coming directly from the very definition of property rights as of informal possibility to control particular property and to appropriate income received from this property. For all those groups of people or for the State bureaucracy as a social group generally, concrete levels of income appropriation from the State monopoly are established internally without any serious influence on behalf of the other people or of society as a whole. Even though undeniably there are certain restrictions and limitations in this respect imposed by outsiders of the State monopoly and also emerged as a result of specific contradictions between particular private interests inside State bureaucracy as a social group.
In order to understand a nature of the State bureaucracy as of social group and in order to examine concrete mechanisms of State property administration combined with appropriation of monopolistic income by the State bureaucracy, first of all, we have to identify and categorize diverse and often quite isolated in their type of occupation groups of people associated with the State property and with the State monopoly. State bureaucracy, particularly under democracy, cannot be simply a renter of the State; State bureaucracy always has to manage State property at least somehow otherwise it cannot justify its own existence as of the social group as well as cannot justify the very necessity of the State. Under dictatorship ideological justification of the State machine is one of the major tasks of social infrastructure. It is quite unreasonable for any dictator to be merely a consumer of his power without application of any efforts for maintenance of this power. Wherever this is the case the power does not last long. Necessity of a permanent application of efforts and a struggle for “survival” accompanied by constant exposure in front of the people is making top-level State bureaucracy to be quite energetic and active social group in pursuit of their own interests. We must not be misguided by internal conflicts and controversies within State bureaucracy, which are happening from time to time both under dictatorship and under democracy. Although the struggle for power sometimes is weakening to one degree or another particular political parties, lobbying and interest groups, particular officials and even an overall system of governance, it is neither eradicating the State as a production factor monopoly nor downgrading an overall influence of the top-level State bureaucracy, which is administering this monopoly. Internal struggle within State bureaucracy is hardly even diminishing social or economic strengths of the State monopoly.
As a fundamental criterion for classification of the State bureaucracy we will use a relation of particular groups inside State bureaucracy both to generation and to eradication of the different types of property rights imperfections. Consequently our classification will rely on real State functions examined in previous chapter. More generally proposed classification will be based on property relations and on influence of the State as of social monopoly upon economic development and social evolution. Originally we will separate two major groups according to their relation to administration of the State property and to accomplishing State functions. First group comprises people, who are responsible for the state functions related to economy (both social and economic) - stimulation of national economic growth, direct income redistribution and supply of certain goods and services. These people are involved in administering State both as an economic (supply of certain goods and services) and as a social agent (income redistribution, regulation, etc.). They are dealing with economic regulation, taxation, debt management, State property administration, central banking, social welfare including State owned education, State provided health care and social security. We will equally add to this group a top level of executive power, represented by the institution of presidency and by cabinet of ministers. Finally, we will also relate to this category the entire management of all State owned enterprises. Functional importance of this group is underlined by its closest association with the nature of State as of production factor monopoly. State’s second immanent social nature of the key instrument of power and coercion is finding its reflection within the second group of the state bureaucracy. Ideally this group is dealing with prevention and elimination of the different types of property rights imperfections. In reality it represents those very mechanisms of power and coercion upon which all property rights imperfections are built. This group covers, first of all, the entire national parliamentary and legislative system (in case of democracy, while in case of dictatorship their embryonic, ideological and artificial substitutes), which is bound to eliminate governmental monopoly. Another very important part of this group is represented by judicial and law-enforcement agencies, which task is to fight property rights violations. National defense institutions may also be attributed to this particular group since they suppose to eliminate external threats of property rights violations and of potential externally induced property rights imperfections. At the same time, association with this group of the antitrust and competition enforcement agencies is not that straightforward. Seems that naturally they also fit in this group. However, since their real function in modern economy and in modern society is connected with elimination of economic rather than of the social monopolization, they are primarily counteracting economic monopolies, which, as we concluded before, do not even make a part of property rights imperfections.
Diagram 5. State Bureaucracy
Inside these two fundamental groups of the State bureaucracy a variety of subgroups and sub-sub-groups can be identified in relation to specific tasks and functions. However, for our analysis of the nature and of the social role of State bureaucracy exactly the division into two essential groups above represents a major interest. In fact, absolutely different classifications of State bureaucracy from different angles of view are valid and illustrative of specific occasions. We are not inclined here to provide some extra original and exclusively legitimate one. Our classification serves one specific objective – investigation of the nature and role of the State bureaucracy in society and within the State monopoly.
First group (involved in realization of economic and macroeconomic functions) in reality is dealing with the support, maintenance, and administration of State property or of State monopoly as well as with direct management of distributed, redistributed and appropriated by the State bureaucracy monopolistic income. Social infrastructure makes it look like this group is working on social welfare, promotion of economic growth, control over production, reduction of unemployment, maintenance of adequate property regime, etc. All these tasks are significantly portrayed, especially by socialist tradition, as a struggle with selfish and egocentric interests of private proprietors. People’s attention is being merely diverted from the very same selfish, egocentric and always non-socialized interests of the top-level State bureaucracy associated with production factor monopoly of the State. Objectives and role of the first group inside the State monopoly are quite clear and fairly visible. Second group (involved in realization of social functions) in terms of its origin and of its objectives is even more interesting and more complicated than the first one. One part of second group (associated with elimination of governmental monopoly) actually marks a direct consequence of people’s social counteraction with the State and with the other forms of property rights imperfections, which are relying upon the power of State. The very existence and consolidation of this subgroup inside the State bureaucracy is exhibiting an important victory of non-monopolistic social groups and of the people generally, for that matter, over a power of State monopoly. Even though this subgroup in its embryonic form might exist even under dictatorship, under democracy it symbolizes exactly the end of governmental monopoly. However, being once upon a time established as a triumph of representative democracy, further on owing to its association with the State property directly or indirectly, in one way or another it is starting to serve the interests of the very same State monopoly. Financial or material interests of the people united in this subgroup are being increasingly attached to the interests of the State. Misunderstanding must not arise here - activities being carried out by people in second group might be important and useful. As a matter of fact, tasks being accomplished by this group (especially counteraction and prevention of property rights violations of private nature) are much more justifiable and much less controversial than the tasks and especially the size of the first group. Dealings and responsibilities of the first group (involved in realization of economic functions) being manifested in State interventions and State regulation of economy, society and property relations not only represent property rights violations of social nature, but are also consolidating State monopoly, general level of property rights imperfections in society, economic inefficiency, economic injustice and in-law corruption associated with the State property. Actions of the first group are enforcing social monopolization and consolidating economic strength of the State monopoly. On the contrary to the first group, the second one (involved in realization of social functions), symbolizes, among other things, elimination of governmental monopoly (dictatorship), which represents a key barrier for economic and political freedom as well as for social and economic development. Maturity of this function testifies that we are dealing with representative democracy. Besides all that, second group is contributing to maintenance of social order or to counteraction of property rights violations of private nature. Preservation of human life and property, which are making society different from wild nature, ideally is another fundamental goal of the second group. This group is called upon to counteract direct individual forcible threats to personal property and, first of all, threats to human life, which is the most important kind of property and which, otherwise, would probably be a matter of armed gambling. Disregard of this function or its attribution to other social and economic agents is not that straightforward and because of that an abolition of State even in theory seems to be problematic. And yet, tasks and actions of the second group, whatever important and essential they might be, are enforcing and consolidating exclusive property rights, economic inefficiency and economic injustice connected with the State monopoly. Major problem with this group as well as with associated State functions stands in the fact that not only this group is linked with mechanisms of power, coercion and social persuasion, but that it actually represents those power, coercion and social persuasion. Second group is associated exactly with that kind of economic and political power, which is making the first group to permanently grow and simultaneously to be even further consolidated by such growth. Furthermore, the second group is associated exactly with that kind of power, which is finding its final expression in the very existence and in the size of the first group.
Being a part of the State monopoly and, first of all, appropriating income from the very same sources as the first group, the second group is certainly having significantly State correlated interests. Actually, the nature and connection with State property of the second group (involved in realization of social functions) are much more complicated than those of the first group, which interests and income appropriation patterns associated with the State monopoly are much more obvious. Based on counteraction of particular types of property rights imperfections the second group can be divided into two subgroups. First subgroup (already analyzed above) dealing with elimination of governmental monopoly marks a direct outcome of representative democracy or more precisely of the conventional property rights dispersion towards the State monopoly. It includes people from national legislations as well as people from a judicial branch of power in their capacity related to elimination of governmental monopoly such as supreme or constitutional courts for example. Second subgroup is dealing with elimination and prevention of property rights violations. Property rights violations, among other things, can be either of external or of internal nature. Threats of property rights violations of the external nature are a matter of concern for national security and national defense - for army, navy and intelligence. Property rights violations of internal character are in the competence of law enforcement agencies – of police and judiciary in their capacity related to counteraction of property rights violations. We deliberately divided judicial institutions into two parts – one involved in elimination of governmental monopoly and the other one implicated in counteraction of the property rights violations of private nature. If the first part or the first subgroup liquidating governmental monopoly is introducing an element of personal freedom in society (at least ideally), the second subgroup (involved in counteraction of property rights violations) no matter what are the intentions - directly represents an instrument of coercion in the last instance. Even ideal task of this subgroup is associated with limitations of the very same personal freedom. Ideally, of course, an objective of the second subgroup is to oppress “bad guys” for the sake of the “good guys”. However, idealistic schemes in human society based on power and coercion almost never work. The very understanding of who are those “bad guys” and who are those “good guys” represents a quite complicated and permanently evolving dilemma with constantly changing and challenging one another points of view. On the contrary forces of coercion exist, compel and oppress every day at any time in ancient Egypt, in Roman Empire, in times of inquisition, in nazi Germany, in former Soviet Union and even in modern economically developed democracies. Forces of coercion are also permanently evolving, sometimes getting gentler under the pressure of social counteraction, but this “evolution” does not change a bit their nature and underlying them material interests.
Government, no doubt, is the most powerful part of the State bureaucracy, which is also accomplishing a general control over State property and State monopoly. However, government is not yet all State bureaucracy. It is not even necessarily the most conservative and inefficient part of the State bureaucracy. Government is always under scrutiny, permanently experiencing a constant pressure on behalf of different parliamentary, lobbying and special interest groups as well as on behalf of public opinion (whatever it is). Government, being appointed directly from inside the State according to specific political practices and to some extent being indirectly elected under the process of general elections (in the best case and only under democracy), is subject to a certain degree of control both on behalf of the parliament and on behalf of the voters or rather of the co-interested groups of voters and of the special interest groups (which certainly pursue their own interests ahead of any interests of the voters). General elections under representative democracy based on universal suffrage and upon a fundamental principle of “one man – one vote” are simultaneously creating preconditions for virtually unlimited income redistributions. Both governments and parliaments have to satisfy voters to one degree or another. While any material or any real satisfaction, first of all, implies money and financial resources or speaking more generally - different types of property. Even non-material satisfaction of voters implies huge financial resources and quite often is more expensive than the material one. Governments and parliaments in our days are not elected or appointed for descent things such as maintenance of God established economic order and of property regime or moreover for a complete elimination of property rights imperfections. Vice a versa, normally it is assumed that they must do exactly an opposite - violate property regime applying property expropriations and income redistribution practices, permanently reestablish rules of the game for economic agents in mythical attempts to assure employment and growth and in fact constantly hampering the former and slowing down the latter, hasten an implication in society of the mechanisms of power and coercion, and finally reinforce the strongest social monopoly ever - the State. What government is actually doing – is coercively expropriating property from one group of people and exchanging it with the other group of people for a right to be reelected and to be re-included in the process of appropriation of monopolistic income associated with the State monopoly. This is quite a “seductive” and corruptive procedure both what concerns overall social and economic incentives as well as what concerns general morality (whatever that is).
If for the entire growth of income redistribution are directly responsible interests of parliamentarians, presidents and national governments (i.e. of politicians), who are always eager to buy short-term political support throwing people a bone of coercive social welfare, for the entire growth of State revenues and therefore of monopolistic income associated with the State are responsible compound interests of all groups inside the State bureaucracy. State bureaucracy is always eager to maintain and to increase its power, prestige, influence, privileges, incomes and benefits through the expansion of State revenues and through the diversification of State functions generally as well as through the expansion of budgets and diversification of functions of every single governmental agency and of every single governmental department. Generally speaking, top-level State bureaucracy being triple a single shareholder, a chairman of the board and chief executive officer of the State monopoly, similarly to the top management of any business corporation, is always having growth of revenues and of appropriated income as its major goal.
It is worth mentioning that our classification of the State bureaucracy here is much more clearly expressed under democracy. Under dictatorship all the groups and sub-groups, even though exist at least in their rudimentary form, are brought together and merged quite often with overlapping and intermingling functions in one single class or caste of the State bureaucracy. When power structure is vertical and property rights both upon the State and upon mechanisms of power and coercion are private, only a distinction from the point of view of a relation to the peak of power makes all the sense.
Reading different reports and analytical materials on State activities and governmental performance throughout modern history one can find a regular rigid set of characteristics common for all of them. Those are a sincere astonishment about enormous waste and inefficiency related to an overall State activity, strong believes that all mistakes and inefficiencies will be corrected if not today then the latest tomorrow and a sincere wondering why these waste, mistakes and inefficiencies seem like never disappear.
“The Federal Government Consists of a Maze of Programs and Agencies, Many of Which Appear Ineffective
Over the years, Federal programs and agencies have evolved in an ad hoc and random manner with little consideration of how they relate to each other. Individual programs proliferated in response to the real or perceived needs of the moment. This committee's recent report, Creating A 21st Century Government, pointed out that there were 1,013 Federal programs in 1985, while today there are 1,390 Federal programs administered by 53 departments and agencies. To support these programs and the bureaucracies that run them, Federal income tax receipts today have grown 13 times higher than they were in 1960.
As the agency-by-agency survey findings indicate, numerous Federal activities are chronically ineffective and wasteful. It is unclear, at best, whether many of these activities serve currently valid Federal missions. Legitimate questions have been raised concerning the viability of entire departments, including Commerce, Energy, and Housing and Urban Development. Many other activities that clearly address valid Federal missions are so beset by chronic problems that it is questionable whether they can carry out these missions effectively without fundamental change…” 32
“The historians of the Soviet Union cannot fail to conclude that the policy of the ruling bureaucracy upon great questions has been a series of contradictory zigzags. The attempt to explain or justify them "by changing circumstances" obviously won't hold water. To guide means at least in some degree to exercise foresight. The Stalin faction have not in the slightest degree foreseen the inevitable results of the development; they have been caught napping every time. They have reacted with mere administrative reflexes. The theory of each successive turn has been created after the fact, and with small regard for what they were teaching yesterday. On the basis of the same irrefutable facts and documents, the historian will be compelled to conclude that the so-called "Left Opposition" offered an immeasurably more correct analysis of the processes taking place in the country, and far more truly foresaw their further development.” 33
Concept of property rights imperfections claims that those are in no way temporary mistakes and occasional inefficiencies, but absolutely immanent outcomes originated in the very nature of the State as of production factor monopoly. Interests of every single social group are never directly and voluntarily oriented towards economic efficiency, social justice and well-being of the other people and social groups. On the contrary, a single unique rationale for any social group is to establish and maintain exclusive, unachievable for others social and property rights, generating outcomes, which are making people worse off in terms of economic efficiency and social justice. Those mistakes and inefficiencies are direct results of income distribution associated with the State monopoly and of income appropriation by the State bureaucracy based on exclusive property rights and on the nature of State as of production factor monopoly. It is not in the interests of State bureaucracy to make State more efficient; vice a versa inside inefficient State (the one with a lot of uncontrollable revenues and expenditures) income appropriation is much easier, a way more hidden, while an amount of appropriated income is much more significant. Sometimes, State actions owing to their immanent inefficiency or coming from private interests of particular bureaucrats are creating new and strengthening existing monopolies. Quite often they cause a situation when economic agents or market participants are rather co-interested in the State for preservation of their particular privileges. On the other hand, it is in direct ideological interests of the State bureaucracy to maintain a certain level of property rights imperfections or at least their image, which might serve as a justification for preservation and escalation of State interventions in economy, property and society and therefore for an associated growth of State revenues and State expenditures. But, generally speaking, the State is quite a self-sufficient and independent economic and social player with its own separate economic and political interests and ideals.
Nature of all State “mistakes” and inefficiencies is connected with the two patterns of State income distribution and of its appropriation by the State bureaucracy. These two patterns are exhibiting, though to a different degree, a lack of direct interest of every particular State official in macroeconomic efficiency or rather even a direct interest of the State bureaucracy in an overall inefficiency of the entire State machine. First pattern we will call outside-of-state income while the second one - inside-state income; the words here are speaking for themselves. Let us imagine a director of autonomous but supervised by particular ministry governmental agency, which is responsible for construction works for particular State needs. Let us also suppose that the wife of our director is a member of the board and an important shareholder of some private construction company. In direct interests of an abstract director of this particular agency is to award governmental construction contracts to his wife’s commission even if her company is far from being the most efficient bidder. Interests of a concrete director can be rather different including, for example, to keep his wife away from any contracts in case if he hates her. But, if we are considering an abstract or general social behavior based on self-interest oriented human nature, in the interests of our abstract director is to make everything possible in order to help his wife to win contracts and afterwards to jointly benefit from such kind of victory. From the point of view of property relations, by doing so, he is utilizing State monopoly or State property in order to appropriate income (his informal share in his wife’s contract) outside of State distribution and redistribution functions or at least not directly connected with them, even though in this particular case contract proceeds are coming from the State revenues. Speaking otherwise, personal income of our director associated with this particular contract does not represent an income received from the State directly within his particular position in the State hierarchy, but rather from personal or private (sometimes illegal) utilization of benefits and opportunities connected with this position. If we take even more simple case of bribery, then the difference between material utilization of one’s own position inside the State and between an associated income not linked with the State revenues or with the State property is even more evident. Even though such income is not distributed or redistributed through the State, its appropriation is only possible owing to utilization of the State power and owing to administration of the State property. In this particular oversimplified pattern of behavior is the entire nature of permanent State inefficiency related to utilization of “public” property in the group interests of State bureaucracy as a whole or in private interests of particular members of this group. Worth mentioning that this kind of deeds or actions (our director’s story and not a clear-cut bribing) can be perfectly legal not only within the past historical periods or only in modern underdeveloped countries, but with certain complications in modern economically developed countries as well. On the other hand, all out-of-law or illegal deeds connected with utilization of the power of State monopoly in private interests are positioned exactly within this pattern of behavior related to outside-of-state income. Second income appropriation pattern is more complicated and mainly concerns inside-state activity. Let us try to simplify a picture by following our example. Direct economic interests of our director of this particular governmental agency are mainly linked with the people who are paying his salary and responsible for other benefits and who are also in a position to influence his future income and carrier expectations. These people are certainly not the ordinary voters, who might never even hear neither about our director nor about his agency. The lower is the position of particular State official in the State hierarchy the less visible is his connection with voters. Our director’s boss – probably a minister, is having a very common understanding about methods of work, operations and practices, which are employed by this agency. A boss of his boss – the Prime Minister – in the best case knows only general tasks and responsibilities of this particular agency. While Parliament mostly knows what the Prime Minister wants them to know unless some conspicuous problem emerges. With every single level of State hierarchy the connection with voters is becoming more and more ambiguous, while the specificity of tasks – more and more sophisticated. Already Prime Minister appointed by Parliament as a private individual with his private interests (first of all with his private material interests) is having a very relative connection with voters. Being a leader of the majority under parliamentarian system normally he is much more attached to the interests of his party than to those of ordinary voters. And whenever he is becoming a part of the State administration, his personal interests are equally becoming to be connected with the government, with the State and with the State bureaucracy. Mistakes and inefficiencies of the entire State bureaucracy are now being considered as his own and he is starting to hide them certainly not being able to get rid of them. By doing so, all of a sudden he discovers his common interest with the entire State bureaucracy – common interest in hiding of certain things. While it is exactly the common interest in hiding things, which we examined earlier, what is distinguishing monopolistic social group in the first place. His ties with voters, on the contrary, are getting more and more indistinct mainly because Prime Minister is appointed by and is reporting to his own party and to parliament, while interests of parliament and those of political parties (first of all their material or financial interests) are not the interests of the voters. Not even to mention a phenomenon of interests’ dispersion towards the State property when certain categories of voters hardly ever care at all about the State as such unless it starts to expropriate too much and too quickly. Based on self-interest oriented human nature of a concrete director of concrete agency we might conclude that in the very best case he will try to please his boss – the Minister, may be also the Prime Minister – i.e. people directly associated with his personal income and welfare. Though we must recognize that even this outcome is not that imminent because particular State bureaucrats usually are quite independent from their superiors under various systems of public administration.
“Generally speaking, neither the president nor Congress has much control over the career bureaucrats. Their only real power is to change a bureau's mission or its budget. And to do this, the two branches of government must cooperate.” 34
Hardly ever our director needs to please voters, society or particular individuals, which are having rather indirect and weak claims upon the State property and upon connected with it patterns of income distribution. State or “public” employees and State institutions do not have to report any profits or do not have to be “micro-economically efficient” under their particular responsibilities. Vice a versa, universal interest of particular State official and of the State bureaucracy as a whole is to raise budgets of particular State divisions, of particular ministries and of the State generally as much as possible in order to boost associated income appropriation opportunities. Growth of any division’s budget is providing its employees and, first of all, its management with certain additional material and non-material benefits such as higher personal incomes, privileges, significance, prestige, power, influence and with a large variety of other benefits connected with income distribution from the State and with appropriation of exclusive income from the State monopoly. On the other hand, growing budget and new responsibilities are leading to even higher degree of autonomy and independence both from superiors and from the general public. Higher level of specialization of bureaucracy’s functions associated with bigger budget is making particular jobs more exclusive, overcomplicated with technicalities, less technically understandable for supervisors and normally less exposed both to outsiders and to job cuts within the State structure. Therefore, general expansion of division’s budget is making our director more influential and powerful, first of all, owing to an extension of divisional tasks and responsibilities. On the other hand, growing influence is consolidating and diversifying our director’s possibilities to utilize outside-of-state income appropriation modalities starting from a simple wining and dining and up to certain out-of-law income opportunities. Bigger budget and growing number of divisional responsibilities are signifying to politicians and even to voters that some kind of activity is probably going on and the higher are divisional expenditures the more important this activity looks to an ordinary voter. Of course, this is an oversimplified example of income appropriation patterns connected with the State bureaucracy and it certainly does not pretend to represent any scientific discovery; displayed cases and practices being widely familiar and well-known. We brought it here in order to illustrate particular income appropriation models associated with the State and to elucidate the connection between income appropriation by State bureaucracy and visual on a surface of social life State waste, mistakes and inefficiencies. In reality every kind of inefficiency and every type of economic waste are normally connected with certain patterns of income appropriation. For any waste, mistakes and inefficiency somebody always has to pay in one way or another (including in terms of opportunity costs), while certain other people are always benefiting from them. Any waste and inefficiency in society is never a lose-lose situation it is a pure win-lose kind of game.
Outside-of-state and inside-state income appropriation patterns, being parts of social monopolization associated with the State, are interconnected with a very important social phenomenon of corruption. Corruption is a much more profound and a way more comprehensive societal phenomenon than what people commonly understand under this term. Fundamental and determinative part of corruption is the corruption in a system of social and property relations and not a widely familiar out-of-law or illegal corruption. Corruption in the system of property relations, on the contrary to out-of-law corruption, is not only perfectly legal, but vice versa is always supported and maintained by law and by entire social infrastructure. We will call it in-law or legal corruption. General level of corruption in any particular society is marked by one single factor – by the consolidated power of existing social monopolies or by their social and economic strength. The higher is a level of overall social monopolization in particular society or the higher is a social strength of all social monopolies in this particular society or the higher is a share of monopolized property in overall national property possessions - the more corrupted is this particular society. Corruption in common understanding implies certain illegal or out-of-law and outside-of-state income appropriation, usually connected with the power of State and with particular State functions. In this book we are primarily interested in the legal corruption, which is a great deal socially stronger, a way more socially influential and is much less visible than ordinary illegal corruption. Fundamental reason for distinguishing in-law and out-of-law corruption stands in a simple fact that it is not the legal system and therefore not also its infringements what is finally determining all problems and imperfections in any society and what is underlying any societal accomplishments. Social problems related to violations of laws are not yet all societal problems; vice versa they represent only a visible on the surface of social life tip of an iceberg of all the problems in society. An underwater part of the iceberg represented by the system of social and property relations and hidden by social infrastructure forms a nature of in-law corruption.
Persistent economic inefficiency, economic and social injustice and property rights imperfections are the direct consequences of in-law corruption. In modern world in-law corruption is finding its practical economic expression in a permanently growing dependency of the entire economy including producers, financial institutions, academics, media, non-governmental organizations and entrepreneurs upon the State, State financial resources and State regulation. Such situation is further consolidating already enormous State monopoly and is gradually redirecting economic agents from satisfaction of customers towards satisfaction of the State monopoly, of the State bureaucracy as a whole and of particular State officials. In-law corruption is not only creating economic inefficiency, but is also leading to moral corruption and degradation. People and economic agents are starting to realize that they can better achieve their goals socially by serving interests of the State monopoly as a whole and those of particular “civil servants”, than economically pursuing real hard work and satisfying consumers’ demands. At dawn of the State interventions in economy and society (or at the beginning of modern socialism of economically developed nations) their scale and spreading were quite low and corruption effects were not so perceptible. After a while people are getting used to in-law corruption and do not notice or do not want to notice it anymore. For the sake of their moral comfort they are even persuaded to believe that minor corruption is actually what social progress is all about; that only short-term social and economic results are worthwhile and that theoretical social philosophy does not lead humankind anywhere. This self-hypnosis is very much enforced by a constant growth of national and personal incomes, especially fascinating in comparison with the previous centuries and civilizations (however, more and more alarming today when in vast majority of economically developed countries GDP growth most of the time is even slower than in former Soviet Union). Everything looks nice and bright and people are starting to believe that nothing can change this prosperity. Nonetheless, neither one known to us civilization, no matter how advanced it became, was able to survive mounting inefficiency of the system of property relations, which usually starts with some insignificant cases (levels) of in-law and out-of-law corruption. Several vanished civilizations (for ex. ancient Rome) were the most superior for their time period and after their collapse other nations were not able to achieve their level of economic and social development (or as we would say today their standards of living) for years. What is destroying countries, nations and civilizations is certainly not the low level of economic and social development, but rising absolute and comparative inefficiency within the system of social and property relations or the in-law corruption per se.
“Our pride resents the thought that the great highways of New England will one day lie deep under layers of encroaching vegetation, as the more substantial Roman roads of Old England have lain for generations; and that only a group of heavily overgrown hillocks will be left to attract the archaeologist's eye to the hidden débris of our collapsed skyscrapers...
…What we and our more nearly immediate descendants shall see is a steady progress in collectivism running off into a military despotism of a severe type. Closer centralization; a steadily growing bureaucracy; State power and faith in State power increasing, social power and faith in social power diminishing; the State absorbing a continually larger proportion of the national income; production languishing, the State in consequence taking over one "essential industry" after another, managing them with ever-increasing corruption, inefficiency and prodigality, and finally resorting to a system of forced labour. Then at some point in this progress, a collision of State interests, at least as general and as violent as that which occurred in 1914, will result in an industrial and financial dislocation too severe for the asthenic social structure to bear; and from this the State will be left to "the rusty death of machinery," and the casual anonymous forces of dissolution will be supreme.” 35
In-law corruption is generally characterized by an overall orientation of producers, business units and economic agents towards orders and demand of monopolistic social groups. Because of the significant economic strength of social monopolies and therefore of their huge financial resources, they are not merely generating high levels of demand, but are much rather reallocating this demand and resources from other types of economic activities. In one of our previous examples we revealed orientation of producers and financial resources towards needs and tastes of land aristocracy during the dissolution of feudalism in 18th century in France. Enormous demand for luxuries on behalf of land aristocracy existed mainly as a consequence of the high level of monopolistic income appropriated by land aristocracy. Moreover, such demand at that time had significantly influenced (and is still influencing in our days) international economic specialization of France in different kinds of luxuries such as carpets and tapestry, fancy clothing, exquisite wines and liquors, gourmet food, etc. Almost similar situation is typical for other absolute monarchies of that time and particularly for Austrian Empire. Demand of monopolistic social groups was keeping a lot of producers within an orbit of feudal property relations, thus opposing an equitable development of all the production factors. On the contrary, in England of the same times, an aggregate demand and overall economic development were more balanced with less sharp differences between wealthy aristocracy and other parts of population. This is essentially explained by a somewhat smaller persistence of social monopolization in England owing to more advanced level of social counteraction (which came in France only in 1789) and owing to conventional property rights dispersion towards the State property (democracy based on property census). Serving production factor monopoly and its proprietors is having an immediate effect upon the interests of economic agents, upon their political and social views as well as upon their social psychology. First of all, any public expression of criticism related to dominating in society social monopolies even if did not threaten entrepreneurs physically, would certainly harm their business. Serving social monopoly is not only tying up the interests of particular businessman to interests of this monopoly’s proprietors, but is also limiting a free expression of alternative political viewpoints or is limiting political freedom. Any offence of dominating social and property relations would simultaneously offend their main customers - people who are directly benefiting from existing social order. Increased role of the State in society, economic strength of the State monopoly and considerable State interventions in economy are orienting economic agents and their interests towards this huge monopolistic buyer - the State. Together with permanently expanding role and share of the State in economy and together with orientation of economic agents towards serving State demands, any political offence against the State monopoly, against based on it societal system, against dominating social values, against State bureaucracy and sometimes even against particular bureaucrats might harm offender’s business and income. Even social science may have problems with a free expression of opinion about direct buyer of some or sometimes even of all of its “products” in the form of different scientific and academic grants, subsidies to particular universities and research themes, scholarships as well as in the form of a variety of other social and economic benefits, which might be even difficult to trace.
From the point of view of property relations, out-of-law or illegal corruption is mostly represented by the property rights violations of private nature. Illegal corruption is generally associated with the different forms of bribing or sometimes with rather complicated schemes and types of actions, which in one way or another can be reduced to bribing broadly defined as a favor in exchange for material or non-material benefits. By and large, illegal corruption means illegal utilization of the State power and State property in private interests of particular State official. In-law or legal corruption, on the contrary, is having a much more profound and complicated nature. In-law corruption is associated with such forms of property rights imperfections as property rights violations of social nature, absolutely legal forms of social monopolization and State as a production factor monopoly. In-law corruption is based on appropriation of socially exclusive income appearing as a result of imperfections in the system of social and property relations. Let us illustrate the difference between out-of-law and in-law corruption on a very simple historical example. Let us come back again to France of the 18th century. This time we will take a case of bribing by ammunition manufacturer of a clerk responsible for ammunition procurement in the ministry of defense. Such action certainly and without any controversy represents an illegal corruption since common bribing normally is subject to a prosecution by law. On the other hand, let us consider a gift of several hundreds acres of land by a King of France to one of his friends, to his mistress or to the very same clerk in ministry of defense. Such gift already represents an in-law corruption. It is perfectly legal (because king is the law and nobody would apprehend him), while resources under consideration (the land) form part of a socially monopolized property (State property of which the king is a sole proprietor) and are obtained by the King of France mostly on account of imperfections in the system of social and property relations or to be more precise owing to social monopolization. Social monopolization in this particular case probably embraces some complicated combination of dual monopolization – social monopolization of land as of production factor from one side and social monopolization of the State as of production factor from the other. All imperfections in the system of social and property relations taken together represent the corruption of societal system or social corruption, which includes both legal and illegal corruption. Even if these imperfections are not violating any laws, they are corrupting particular societal system and are approaching its complete disintegration, which most of the time is much worse than any violation of laws. The more property rights imperfections dominate particular societal system the more corrupted it is. Therefore, diminishing level of property rights imperfections being the essence of social evolution is simultaneously reducing a level of social corruption in society.
Entire legal foundation of society including constitutions, laws, regulations, normative acts, decrees and other “collective agreements” are reflecting an existing in society balance of power achieved as a result of a permanent process of social counteraction between a wide variety of human interests. If anything, only production factors development and an experience of social counteraction are pressing laws to a higher degree of justice and morality. Until exist supported by laws and constitutions exclusive property rights and associated with them economic injustice and economic inefficiency, the legal system is not one hundred percent fair. People do not gather, establish rules for procurement of public services, select and hire public officials and establish constitutions and other kinds of “collective agreements” until they have won these rights in a permanent fight with monopolistic social groups and, first of all, in a battle with the State. All laws and constitutions are imposed by those who are in power or by monopolistic social groups with exclusive non-socialized rights and privileges and only afterwards (and it might be a very long “afterwards” including hundreds of years long) under pressure on behalf of the people, any laws are acquiring more human characteristics. Every word of any constitution must be fought for, must be appropriated by people, must be expropriated from monopolistic social groups and must be imprinted with a permanent struggle and efforts. All societies and civilizations beginning from an ancient Egypt and up to modern representative democracies comprise particular types of “collective agreements”. However, first always comes a bloody and forcible appropriation of exclusive social and property rights, “long” afterwards their bloody and coercive reflection in laws when usually only a tiny minority agrees and a great majority is never asked, then again bloody “contestation” of such an agreement and then another kind of agreement, another round of counteraction and so on and on and on up to the modern days. Sometimes constitution may be almost perfect as a legal document and what concerns guaranteed freedoms and liberty, but it never works in practice because it is not based on social counteraction and does not reflect an existing in society balance of power. Unfortunately words never cost anything in this world even the words of laws and constitutions unless they are not supported by social counteraction of any property rights imperfections. Those who have studied economies in transition, former communist countries or who are dealing with underdeveloped countries, know well how almost perfect words of liberty and freedom inscribed in constitutions do not work because they are based on a very insignificant level of people’s counteraction to different types of property rights imperfections.
What guarantees rather fair or less unfair societal system is certainly not constitutions or any kinds of social agreements, but only the social counteraction to any property rights imperfections. It is not the laws; it is people’s permanent resistance to social monopolization and to any property rights imperfections for that matter what is working. While laws and constitutions are usually written by wealthy appointees and self-appointees, who quite often represent different kinds of non-socialized social monopolies and whose interests at the same time are closely connected with an ultimate source of power and coercion – the State. Even so, laws still have to be respected as much or rather as long as possible because there is no any guarantee whatsoever, that any social revolt will not bring along even more disgusting forms of societal order and even more injustice in society, not even mentioning unavoidable violence accompanying any social insurrection.
32 House Report 104-861. Federal Government Management: Examining government performance as we near the next century. Eighteenth report by the Committee on government reform and oversight. House Report 104-861.
33 Leon Trotsky. Revolution Betrayed What is the Soviet Union and where is it going
34 J. Patrick Gunning. Understanding Democracy An Introduction to Public Choice
35 Albert J. Nock. Our Enemy, The State
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