Denis Stairs

Harold Nicolson

Peacemaking 1919 (1933)

”œWhat book had the greatest influence on the way you think about policy?” The question can’t be answered. Not honestly, at any rate. It can only be constructed. For all I know, the greatest influence came from the didacticism in the tales of Hans Christian Andersen or the brothers Grimm””tales read to me at bedside long before I could read myself. The biggest influences, after all, are the ones we internalize. They’re like oil in an engine. We don’t know they’re there””although we soon enough start to cough and sputter if they dry up. We find then that we can’t run. We have nothing to say.

So the answer has to be construct- ed. It can’t be induced. And the con- struction itself must be built on mem- ory””usually a memory from youth, not from maturity. The heads of the young are nearly empty, and their minds impressionable. The heads of the old fill up (or shrink, more likely), so it’s harder to get new ideas in. They bounce off (although to be fair to filled-up heads, in the study of politics this is often because the new ideas aren’t really new after all).

As an alleged policy wonk who has made a modest living out of peanut-gallery observations on foreign policy and international affairs””an academic spectator’s sport if ever there was one””I’d have to construct my own answer in favour of Harold Nicolson’s Peacemaking 1919, first pub- lished, in two parts, in 1933, and again, with a new introduction, ten years later, when the world was once more at war.

I read it first as an undergraduate student of history at Dalhousie in the late 1950s. Neither of the two world wars had then acquired the place they now hold among the young, who appear to see them in much the same way as I, at their age, saw the Crusades, or the Wars of the Roses””as the bar- barous happenings of a dead past, hav- ing no relevance, and offering no les- sons, for a living present. But for us the two great shooting wars of the 20th cen- tury were far from empty abstractions. Our fathers and grandfathers had served in them. As adolescent males, we won- dered and debated (and doubted) whether we would have been able to match their courage if challenged as they had been in combat; whether we would have had the strength to keep faith with our comrades if we had been tortured, like captured members of the Resistance, by the Gestapo; whether we would have tried””somehow””to defend and protect the Jews had we been ordinary Germans in Hitler’s time. The world wars, in short, were still very real in the 1950s, and with atomic bombs spreading about, and sabres rat- tling, and the forces of the Warsaw Pact and the NATO alliance bristling at one another, it was self-evident that such lessons as could be found in them might still be germane. This was a ”œmodern,” not a postmodern age, and we knew it to be dangerous. States mattered. Nations mattered. Beliefs mattered. And they all had a terrible habit of killing.

It was easy to move, when young, from so melodramatic a perspective to a fascination with Nicolson’s melan- choly tale, and his own reaction to it. Nicolson was only 33 and a relatively junior British diplomat when he arrived in Paris in January 1919 to take part in the conference that was sup- posed to bring the peace that was to end all wars. Like many of the young, though perhaps not so many of the old, he had been gripped and inspired 12 months before by Woodrow Wilson’s Fourteen Points, Four Principles and Five Particulars. He ”œ[t]ook it for granted,” as he later reported, ”œthat on them alone would the Treaties of Peace be based.” They were morally compelling. There was general agreement that they would form the basis of negotiation. And he was sure that President Wilson ”œpos- sessed unlimited physical power to enforce his views.”

But then the real work began, and one by one the principles came tum- bling down, or were compromised beyond recognition. Their collapse started with the very first. The ”œcovenants,” the negotiators soon found out, could not be ”œopenly arrived at,” for if the bargaining were truly in the open, the howls of their respective constituency populations would deprive them of the power to make the concessions they knew they had to make. The concessions them- selves, moreover, depended on a will- ingness to violate, one after another, the very points, principles and partic- ulars that the final result was sup- posed to embody. The diplomatic agenda was cluttered in any case by shadowy deals and self-serving com- mitments that not long before had been secretly contrived in response to the necessities, or at least to the con- veniences, of war. It was all too clear, as the process wound down, that its intended job could not be done. At the end of the stiffly formal ceremony in which the Treaty of Versailles is signed, Nicolson finds a colleague, Headlam Morley, ”œstanding miserably in the littered immensity of the Galerie des Glaces.” They ”œsay noth- ing to each other. It has all been hor- rible.” Back at the hotel, after an apparently sombre celebration with ”œvery bad champagne” and a stroll on the boulevards of Paris, the defeated idealist retreats ”œ[t]o bed, sick of life.”

Here was the portrait of a politics whose stakes were not merely power and property, but life and death””a politics that had not only failed, but failed cataclysmically. It was the por- trait also of a clash of optimism and idealism with the brutish realities of world affairs. In the contest, the opti- mism and idealism lost. It was the por- trait, further, of an encounter of an elitist diplomacy with vox populi. But as it turned out, there was precious lit- tle to be said for the wisdom or perspi- cacity of either the diplomats them- selves or the populations they were there to serve. Small wonder that one of the lessons that Nicolson identified in his fresh introduction to the 1943 edition was that ”œPeace must be found- ed on realities rather than on hopes.”

Perhaps it was not the best of les- sons to learn. Certainly former Foreign Minister Lloyd Axworthy would not think so. But it must have seemed the right lesson to draw in 1943, when the cataclysm that had begun with the fail- ure of Versailles was wrecking its havoc around the globe. And it seemed a per- suasive enough lesson for an undergrad- uate to learn in 1959.

There have been more influential expositors of the realist position by far than Harold Nicolson”” Thucydides, for example, in ancient times, and Hans J. Morgenthau in a time that I have to recognize as my own. But Nicolson, with his telling combination of historical analysis and daily diary, made the link to the personal. In so doing, he also made his world-view stick.

Denis Stairs is McCulloch Professor in Political Science at Dalhousie University. He is also a member of the IRPP’s Board of Directors.

Charles Castonguay

André Laurendau and Davidson Dunton, co-chairs

Reports of the Royal Commission on Bilingualism and Biculturalism (1965-1970)

When I return to check a point in the Laurendeau-Dunton Commission’s preliminary or final reports, I more often than not find myself lingering longer than necessary, with a feeling that I’ve come home, that here is the way we should proceed in our think- ing over language matters: with policy based on fact-finding and on compro- mise between the ideal and the practi- cal. And the facts come first, to ensure that the end result works out as suc- cessfully as possible.

Reconnecting with this familiar wisdom and with the Commission’s pioneering investigations prompts me to continue exploring language behav- iour in Canada, while keeping a critical eye on policies or statements which are not sufficiently in touch with lin- guistic reality. The report’s basic approach””that lack of transparency and inadequate examination of the facts pave the way to half-truths and prejudice””nags me to action whenev- er partisan zeal attempts to suppress investigation or discussion of sensitive but central aspects of language behav- iour such as linguistic assimilation.

I came to appreciate the Commis- sion’s work in the early 1970s, at the same time that I first took an interest in language issues. My curiosity had been stirred by the possible creation of feder- al bilingual districts and by public debate over the distinct language policy which was emerging in Quebec.

As the years go by, the growing sclerosis of the language bureaucracies now firmly established in Ottawa and Quebec City leads them to channel research and debate on languages along official lines. The era of the Laurendeau-Dunton Commission has in retrospect taken on the aura of a golden age of free, uninhibited enquiry.

The Commission’s mandate””to see how Canada might develop ”œon the basis of an equal partnership between the two founding races”””strikes one today as strange and extraordinarily far removed from the current Canadian political agenda. Given the inextricable interweaving of linguistic and national identities, the gradual hardening of English-speaking Canada’s response to Québécois aspirations for security and recognition in these respects renders ever more remote the chance of a return to frank and sober deliberation over language issues.

Nevertheless, revisiting the B&B books still works on me a welcome feeling of relief and détente. Not so much through their proposed solu- tions to the enduring Canadian lan- guage and political crises: on language policy they largely amounted to apply- ing a symmetric treatment””support of English in Quebec and French in the rest of Canada””to remedy a situation which from the standpoint of French was seriously out of kilter from coast to coast. For example, the bilingual dis- tricts concept, the result of an interest- ing compromise between the princi- ples of personality and of territoriality, could have effectively alleviated the pressure of anglicization without arousing Québécois apprehensions, had the Commission proposed its application be limited to the principal French-speaking populations outside Quebec, those in New Brunswick and Eastern and Northern Ontario. But such was not the case, and the doctri- naire stance of the subsequent Trudeau administration did the rest.

The books continue to be relevant, then, not so much because of the solu- tions they propose””it must be added in the Commission’s defence that it was not as well-informed as it would have liked to be concerning the magnitude and trends of linguistic assimilation in Montreal and the rest of Canada””as by their spirit of sane, sincere, upright and responsible enquiry, which remains an inspiration to this day.

Charles Castonguay teaches in the Department of Mathematics and Statistics, University of Ottawa.

Ross Finnie

Arthur M. Okun

Equality and Efficiency The Big Tradeoff (1975)

After I decided to write about Arthur Okun’s classic book, conversations with various colleagues revealed that it had been an important book for others as well. Above all, I was reminded, this was because Okun used a simple analo- gy to represent a complex set of social- political-economic choices. We can increase the well-being of those at the bottom of the economic ladder, but at a cost: Okun’s ”œleaky bucket” symbol- izes the losses which occur when money is transferred from those with higher incomes to those who are not so well off. It’s a simple, useful metaphor, but the book is in fact much deeper, much richer than this.

After considerable scholarly dis- cussion””the text is more than abun- dantly footnoted””of the nature of ”œrights,” both economic and other- wise, Okun comes to the main theme of the book when he offers a strong, indeed passionate argument for why the more-or-less equal distribution of political rights in Western democracies should be accompanied by greater equality in the distribution of eco- nomic rights. But after presenting the big picture in this regard, he narrows his focus to concentrate on what might be done to eradicate poverty. This strategy emerges from a simple benefit-cost analysis which causes him to judge that the greatest benefits of any redistribution program would result from bringing those at the very bottom up towards the middle, and that the means of going much further than this would be more complex, and the costs higher.

Okun’s position could thus be phrased in the modern parlance of social inclusion: ”œI have stressed par- ticularly the urgency of assisting the bottom fifth on the income scale and helping them into the mainstream of our affluent society…” (emphasis added), such as the opportunity to have ”œfirst homes, first cars, and college slots for solid students” (118) and the participa- tion in civic society which goes along with such material well-being.

But Okun speaks at similar length, if less passionately, about market effi- ciency and all that the market econo- my typically delivers, principally because of the individualistic incen- tives that drive people to produce according to their own particular tal- ents and energies. These are old les- sons, dating at least from Adam Smith, but they always bear repeating””per- haps especially because the view Okun provides is far from uncritical, as he notes the dehumanizing role of greed, the energies consumed by conflict, the often arbitrary nature of the gains and losses, the inequity of the winner- takes-all conflicts that so often occur, and so forth. But in a pragmatic con- clusion reminiscent of Churchill’s maxim that democracy is the worst form of government, except for all the others, Okun concludes that ”œAlthough the ethical case for capital- ism is totally unpersuasive, the effi- ciency case is thoroughly compelling to me” (64). We can, so to speak, be bought by the market system and the material abundance it delivers.

The equity-efficiency trade-off this:

If both equality and efficiency are val- ued, and neither takes absolute priori- ty over the other, then in places where they conflict, compromises ought to be struck. In such cases, some equality will have to be sacrificed for the sake of efficiency, and some efficiency for the sake of equality. But any sacrifice of either has to be justified as a neces- sary means of obtaining more of the other (or perhaps some other valued social end).

This is the classic economist’s trade-off: inequality-reducing interven- tions come at an efficiency cost, and vice versa. The leaky bucket. So, how much water do we wish to haul with it?

Okun lays out the principal redis- tributive tools: tax reform, cash trans- fers, in-kind benefits (especially health care and food stamps), and expanded employment incentives and opportu- nities. The costs are similarly lined up: administrative costs, reduced labour supply (although Okun notes the lack of any convincing empirical evidence that these effects are large), reduced saving, and the destructive effects on ”œattitudes.”

What, then, are the programs that might be employed to accomplish the desired redistributive ends and what are the associated losses? These are empirical issues upon which we can (at least in principle) agree. What should we choose? That is for each of us to decide, and no one can tell us if we are right or wrong. The relevant political problem is to find the point on this frontier””the equality-efficiency trade- off””that is right for us collectively. It must be done, and will be done implic- itly if not explicitly, but the task is daunting.

Yet Okun steps up to the chal- lenge and is unafraid to offer a set of specific policy prescriptions which he believes could do the redistributive job he thinks needs to be done, and yet win widespread support precisely for its intelligent, effective (my adjec- tives, not his) balance between the desirability of helping the poor and the costs of doing so.

To this end, Okun outlines the measures he believes would generate a given amount of increased equality in the most efficient manner, thus essentially identifying the unleakiest bucket possible. He suggests where the aid would be best targeted for maximum benefit, based on the size of the gains and the deservingness of those assisted, and he then argues why the Americans of his day (the mid-1970s) would (or should) support the specific program choices he pro- poses, which to his mind represent the best equality-efficiency trade-off possible.

Okun’s recommendations thus comprise a practical anti-poverty poli- cy agenda which could form the basis of public action still today, either in the United States, for which Okun designed it, or here in Canada, or indeed in a good number of other countries. Not bad for a little book”” just 120 pages””written over a quarter century ago!

Although this slight volume is of course dated, going back to it gave me some of the same thrills I felt as a fourth-year undergrad when I first turned its pages and wrote comments in its margins, some of which I was not ashamed to read this latest time through it. And ”œthrills” is not too strong a word: One should be thrilled by such ideas, at least those of us who entered economics because it seemed the discipline most able to make the world a better place (corny as that might sound to many), and not simply an exercise in applied math or a game board for the intellectual one-upman- ship into which so many academic debates deteriorate.

The basic ideas Okun proposes are not especially complicated, but before I read his exposition of them, the world seemed to me to be largely divided into two camps. Either you supported ”œhelping the poor,” and a different distribution of income and different ways of organising society in general, and despised markets””and economics and indeed economists, in general””or you were in favour of mar- kets and saw value and hope only in dabbling a bit at the margin so as not to disrupt things in any significant manner, and tended toward an arro- gance derived from a presumed under- standing of how things really worked that those others””with their childlike innocence, well-meaning though they might be””did not possess. I’m obvi- ously setting up straw persons here and generalizing rather extravagantly, but only to emphasize that it did seem to me at the time that only two ways of thinking about these issues were possible.

Okun therefore opened up a whole new range of thought for me and made clear that there was ample room for effective action. To respect, even embrace markets for all the marvellous things they do was not at all inconsis- tent with seeing the need for and pos- sibility of effecting change in an effi- cient manner. In modern pop jargon, it was the meeting of ”œhead and heart,” a union that on such questions I think only economists can truly experience.

In personal, practical terms, Okun gave me the desire to study poverty, low earnings and income distribution more generally, so as to possibly con- tribute to our understanding of what the situation is, how it came to be, and how things might be different. The ultimate destination was policy analysis, indeed policy recommenda- tions, based on a strong appreciation of markets, of individuals’ incentives, and of the need to change the distri- bution of income principally by open- ing up opportunities for those at the bottom, targeting programs on such people at the times in their lives when action would be most justifiable on grounds of ”œfairness” and most effec- tive in terms of the subsequent flow of benefits.

So I am strongly in favour of:

  • assured access to high-quality education and otherwise enriched environments for all children so as to generate the base platform from which they can build productive careers and constructive lives;
  • generous wage subsidies and earned-income tax credits designed to provide those at the bottom end of the labour market with incentives to work and with the day care, trans- portation, and other help they need to make work pay and thus get them into the sorts of entry-level jobs that can serve as a first step toward moving into the economic mainstream;
  • adult education and training to help people recover from previous stumbles or bad luck or to help them pick up and move when jobs and an economic future lie in different places than they did in the past.

In short, I believe in a society which provides generous assistance in the form of expanding employment opportunities which could help those in the lower reaches of the economic system build better lives””and all this in preference to passive employment insurance or welfare schemes, to train- ing programs which become the job rather than a means of actually devel- oping skills and moving into the labour force, or to transfer programs which prop up regions or industries which are not inherently viable on their own.

I find support for this view in Okun’s simple statement that ”œIf those at the bottom receive the contents of the [unleakiest!] leaky bucket and are granted greater equality of opportuni- ty, most will get on their own two feet.” (118) I am perhaps not so san- guine as Okun, but we will not know until we try. To make the attempt is surely what defines us as human beings: the will and ability to work together to help those who are less well off. It is only good sense to do this ””yes””with our eyes open to its costs and in as efficient a manner as possible.

In fact, I would go further than Okun in arguing that there can be direct efficiency gains from certain redistributive measures. Giving every child””or adult””the chance to devel- op the skills and labour market oppor- tunities that will make him or her more productive can be efficiency- enhancing. But I share Okun’s disdain for the failed policies of the past, and for what typically passes for ”œleft” thinking today, which so often pro- ceeds from ignorance of ”œthe econom- ics” of the problem. As Okun puts it:

Ironically, the cause of reform received a serious setback from those who sought to advance it. With friends like that, it needed no ene- mies. A new effort should display more concern for the preservation of market incentives and more respect for genuine skepticism; and it should eschew divisive rhetoric. My fellow reformers should want to design pro- grams of aid to the poor that will not spawn laziness, as they can, guided by a solid body of factual””even sci- entific””evidence.

If it is done properly, however, ”œEqualization should have a unifying theme: this can be a better nation for rich and poor alike by fulfilling the right to a reasonable standard of decent living for all citizens” (116).

In short, this little book is well worth a read now, as it was then. This is especially true for reformers with ”œleft- ist” instincts who remain economists to the core. But it is also true for any- one interested in inequality issues, as Okun covers topics as diverse as the underlying theoretical arguments for and against any particular level of inequality, the major types of econom- ic system, all the way through to a practical program of reform that would help bring those at the bottom into the economic mainstream. The Big Tradeoff: One of the great issues of the day. A great, big book.

Ross Finnie is a Research Fellow and an Adjunct Professor in the School of Policy Studies, Queen’s University.

Pierre Fortin

John Maynard Keynes

The General Theory of Employment, Interest and Money (1936)

The book that has had the greatest influence on the way I understand macroeconomics and think about macroeconomic policy is Keynes’ General Theory. It has been to macro- economics what Einstein’s Grundlage der allgemeinen Relatività¤tstheorie (1916) was earlier to cosmology and gravity. Each brought giant leaps in important areas of scientific knowledge.

For economists, the main intellec- tual challenge of the interwar period had been to explain the persistence of mass involuntary unemployment in advanced countries during the Great Depression of the 1930s. Until Keynes’ book appeared in 1936, this extraordi- nary macroeconomic fact had been denied theoretical existence by the canons of classical economic thought. For, the argument went, if workers came for any reason to offer more labour services than firms needed, competitive labour markets would exert downward pressure on wages. The resulting lower wages would lead workers to voluntarily reduce their sup- ply of labour and firms to increase their demand for labour, so that the initial excess supply would shrink and even- tually disappear. Hence, persistent involuntary unemployment was seen as a theoretical impossibility.

Keynes thought denying the exis- tence of involuntary unemployment in the midst of the Great Depression was absurd. He saw things differently. First, he argued that business expectations about the future were volatile and inde- terminate. This left business invest- ment highly vulnerable to periodic bouts of rising optimism or pes- simism””irrational exuberance or dis- tress, as we would call it today. The out- come was large economy-wide fluctua- tions in aggregate demand for goods and services, with associated repercus- sions in labour markets. Later, Keynes’ successors identified many other sources of aggregate demand instability: household consumption, commodity exports, military spending, etc.

Second, Keynes claimed that the corrective reaction in wages that classi- cal economic thinking relied on to bring production and employment back into balance after such an econo- my-wide disturbance either did not work at all or worked too slowly to be relevant in real time. One line of argu- ment was that, to the extent depressed production and high unemployment caused prices to fall in general, con- sumers and firms could in fact decide to spend less now in expectation of lower prices later. Instead of curing depression and mass unemployment the market reaction would make things even worse. A downward spiral of depression and price deflation could set in. Needless to say, in the midst of the deflation experienced by many countries in the 1930s, this kind of argument looked strikingly relevant, just as it would today considering what has recently been happening in Japan.

Keynes suggested recessions could be made shorter and less severe by the appropriate use of monetary and fiscal policy to stabilize aggregate demand, production and employment. In eco- nomic downturns, central banks could lower interest rates and ministries of finance could increase spending or reduce taxes to prop up aggregate demand and decrease unemployment. In economic expansions and times of rapid inflation, monetary and fiscal policies would work in reverse.

At the time Keynes was writing, many believed the only choice coun- tries had was either to remain capital- ist, which meant keeping individual freedom but accepting high unem- ployment, or to embrace socialism, which implied full employment with restricted freedom. Keynes showed a way out of this dilemma: capitalism with state-managed aggregate demand could bring near-full employment without suppressing political and eco- nomic freedom. Although he has since been accused by conservatives of pro- moting state intervention, his policy proposals were actually meant to save capitalism from destruction during its worst crisis in two centuries. To belie Marx, so to speak.

The popular interpretation of Keynes’ General Theory is as a tract for fiscal activism. There are two rea- sons why this is totally incorrect. First, Keynes emphasized the stabilizing role of monetary policy as much as that of fiscal policy. He did acknowledge mon- etary policy would be ineffective in a situation where interest rates would have already fallen to zero and could not be reduced further. Fiscal expan- sion would then be available as a last resort. But he definitely saw this as an exceptional case, likely to occur only in the depth of a depression such as experienced in the 1930s or in 21st- century Japan.

Second, there is no evidence whatsoever that Keynes ever displayed any bias in favour of either fiscal fine-tun- ing or systematic deficit spending. He was a fiscal conservative who kept warning against excessive short-term tinkering with the tax system and was a staunch supporter of medium-term fiscal balance. He definitely recom- mended that the fiscal deficits incurred in recessions be offset by fiscal surplus- es in expansions. A public debt-to-GDP ratio rising on trend is something he strongly condemned. Canadian fiscal policy was never as anti-Keynesian as in the two-decade period from 1975 to 1995, when fiscal deficits were large and systematic and the public debt-to- GDP ratio quadrupled.

In the last 60 years, Keynesian ideas have been bitterly attacked by both left and right. Leftists obviously never had any taste for theories whose basic pur- pose was to make capitalism run better. Conservatives tried to deny the basic tenets of Keynesian thought and bring the classical view back to life, suggest- ing that the private economy was inherently stable and that wages and prices were sufficiently flexible to quickly remove any imbalances between supply and demand. The con- servative counter-revolution against Keynesian ideas was spearheaded by Milton Friedman and Robert Lucas, both of the University of Chicago, and Edward Prescott of the University of Minnesota.

In the 1960s and 1970s, Friedman and Lucas developed the view that economic fluctuations resulted from confusion about wages and prices that was generated by ill-advised monetary and fiscal policies in labour and prod- uct markets. One startling and implau- sible implication of this line of argu- ment was that workers withdrew their labour services voluntarily for almost a decade after 1929 because they could not figure out what the true rate of inflation was. In the early 1980s, Prescott went even further. He rejected any suggestion that monetary policy could affect production and employ- ment, and argued that business cycles were the economy’s best response to changing productivity growth. The straight implication was that reces- sions were always a good thing. Unemployment was high in recessions only because workers rejected job offers that paid less than they thought their labour was worth.

These conservative explanations of periodic recessions and high unem- ployment had their academic hour of glory in the 1965-85 period. But they challenged common sense and were eventually contradicted by empirical evidence. For example, if unemploy- ment was high in recessions due to workers rejecting job offers because wages were too low, then one would observe many more job quits in reces- sions than in expansions. But in fact, precisely the opposite is true: job quits decline in recessions and rise in expansions.

And guess what? Keynes is back! The years since 1985 have seen an extraordinary resurgence of Keynesian ideas, led, among many others, by macroeconomists such as 2001 Nobel prize-winners George Akerlof and Joseph Stiglitz. In the practical world of monetary policy, Alan Greenspan’s success at the helm of the U.S. Federal Reserve since 1987 owes almost every- thing to Keynes, and almost nothing to the conservative icons of the previ- ous two decades.

For some time in the 1970s and 1980s, it was difficult to advocate Keynesian ideas. The world of acade- mia can be just as intolerant as the world of religion or politics. In those days, Keynes was repeatedly pronounced ”œdead,” and Keynesians were just not listened to. But the beauty of the scientific method, which guides the progress of economic ideas over the long run, is that conservative the- ory could not survive indefinitely against common sense and mounting contradictory evidence.

Naturally, Keynes’ book will never be so widely read as a Danielle Steele novel. But, believe it or not, I recently saw a flight attendant reading the General Theory during her break on an Air Canada flight from Vancouver to Montreal. ”œIt’s a bit difficult to fol- low,” she said, ”œbut people say it’s one of the most important books of the 20th century.”

I couldn’t agree more.

Pierre Fortin is Professor of Economics at l’Université du Québec à Montréal.

Pierre Fortin

John Maynard Keynes

The General Theory of Employment, Interest and Money (1936)

Chaque fois qu’une récession frappe, on se pose toujours les mêmes ques- tions : d’où viennent les récessions?, comment se fait-il que l’économie se met à produire en dessous de son potentiel véritable?, pourquoi tant de travailleurs tombent-ils en chômage et tant d’entreprises doivent-elles déposer leur bilan? C’est l’économiste britannique John Maynard Keynes qui proposa la première explication cohérente des récessions, dans son livre intitulé La théorie générale de l’emploi, de l’intérêt et de la monnaie et publié en 1936. En économie, ce livre eut une portée révolutionnaire com- parable à celle de l’article de 1916 d’Einstein sur la théorie de la relati- vité générale en cosmologie.

Que contenait le livre de Keynes? Au milieu de la Grande Dépression des années 1930, le prin- cipal défi posé aux économistes était évidemment d’expliquer la persis- tance de taux de chômage de 20 p. 100 ou plus qui affligeaient plusieurs pays industrialisés. Jusque là, la pen- sée classique en économie avait tout simplement nié la possibilité d’une telle occurrence. Car, prétendait-on, si un excédent de main-d’œuvre en chômage apparaissait pour quelque raison, la concurrence pour les emplois disponibles aurait tôt fait d’abaisser les salaires. Des salaires plus bas inciteraient les travailleurs à renoncer volontairement à offrir leurs services et les entreprises à augmenter leur niveau d’embauche. L’excédent initial de main-d’œuvre diminuerait donc et finirait par se résorber entièrement. Ainsi, la persistance du chômage involontaire était perçue comme une impossibilité théorique.

Keynes comprit qu’en niant l’existence du chômage involontaire prolongé, qui crevait les yeux au creux de la Grande Dépression, la sci- ence économique se couvrait de ridicule. Il aborda les choses de manière différente. En premier lieu, il fit remarquer que les attentes des entrepreneurs face à l’avenir étaient fragiles et instables. Par conséquent, l’investissement des entreprises (cons- truction d’usines et achat d’équipement) était très vulnérable à des phases alter- nantes d’exubérance irrationnelle et de pessimisme exagéré, comme on dit encore aujourd’hui. S’ensuivaient des fluctuations périodiques de la demande globale de biens et de ser- vices et des répercussions généralisées sur la production et l’emploi. Les suc- cesseurs de Keynes en ont en fait rajouté : la consommation, les expor- tations, les dépenses militaires, etc., sont aussi reconnues aujourd’hui comme des sources importantes de fluctuations de la demande globale.

En second lieu, Keynes prétendit que, lorsque la demande globale s’af- faiblissait et qu’un écart se creusait entre l’offre et la demande de travail, la réaction correctrice des salaires sur laquelle l’analyse classique comptait pour résorber le chômage ou bien ne se produisait pas ou bien se produisait trop lentement en temps réel. Il fit même observer qu’une chute des salaires et des prix, plutôt que de résorber le chômage, pouvait avoir l’effet contraire de l’amplifier. Car, dans la mesure où un effondrement de la production et de l’emploi entraîne une baisse généralisée des prix””une déflation””, les consomma- teurs et les entreprises peuvent très bien décider de dépenser encore moins aujourd’hui et de reporter leurs dépenses à plus tard dans l’attente de prix plus bas dans l’avenir. Le cas échéant, la dépression et le chômage s’aggravent plutôt que de se résorber. C’est la descente aux enfers : la dépression cause la déflation, qui creuse la dépression, qui accentue la déflation, et ainsi de suite.

À la suite de son diagnostic, Keynes affirma qu’on pouvait atténuer et raccourcir les récessions en stabilisant la demande globale, la production et l’emploi au moyen d’une politique régulatrice intelligente. Lors d’un ralentissement économique, les banques centrales abaisseraient les taux d’intérêt et les ministères des finances augmenteraient les dépenses publiques ou allégeraient la fiscalité de manière à ranimer la demande globale et à réduire le chômage. Lors d’une expansion économique accom- pagnée d’une inflation en hausse, la politique monétaire et budgétaire agi- rait en sens inverse.

À l’époque où Keynes publia son livre, on croyait souvent que les pays étaient confrontés à une alterna- tive : ou bien demeurer capitalistes, ce qui préserverait les libertés fonda- mentales, mais au prix d’un chômage endémique, ou bien embrasser le socialisme, ce qui procurerait le plein emploi, mais au prix d’accrocs aux libertés. Keynes proposait une solu- tion élégante au dilemme. Un capita- lisme assorti d’une régulation appro- priée de la demande par l’État permet- trait de réconcilier plein emploi et pleine liberté. On pouvait avoir le beurre et l’argent du beurre. Il est ahurissant d’entendre encore aujour- d’hui une certaine opinion conserva- trice accuser Keynes d’avoir fait la promotion de l’étatisme. Sa proposi- tion ne visait qu’un objectif : sauver le capitalisme de la destruction au milieu de sa pire crise en 200 ans et empêcher la répétition de telles crises dans l’avenir. Faire mentir Marx, en quelque sorte.

Une interprétation répandue de la Théorie générale de Keynes est qu’il s’agit d’un pamphlet en faveur de l’« activisme budgétaire ». Cette lec- ture de la pensée de Keynes, que ses critiques ont cherché à accréditer, est complètement erronée pour deux raisons. La première est que Keynes a insisté sur le rôle stabilisateur de la politique monétaire tout autant que de la politique bugétaire. À ses yeux, des taux d’intérêt bas pouvaient, en général, nous débarrasser des réces- sions tout aussi efficacement qu’une accélération des dépenses publiques ou une réduction des impôts. (La stratégie actuelle de reprise en Amérique du Nord repose précisé- ment sur l’abaissement des taux d’in- térêt, ce qui est parfaitement keynésien.) Naturellement, Keynes a souligné que la politique monétaire serait inopérante dans le cas où les taux d’intérêt auraient déjà atteint le niveau zéro et ne pourraient baisser encore plus. La politique budgétaire serait alors disponible comme dernier recours. Mais il a reconnu sans ambiguïté cette situation comme exceptionnelle et susceptible d’appa- raître seulement au creux d’une dépression comme celle des années 1930 (ou comme celle du Japon con- temporain).

La seconde erreur est de croire que Keynes ait envisagé la politique de régulation conjoncturelle comme une tentative de réglage de précision de l’économie ou qu’il se soit fait le promoteur des déficits budgétaires systématiques. Bien au contraire, sur le plan budgétaire, Keynes était plutôt conservateur. Il ne cessait de mettre en garde contre la manipula- tion exagérée du régime fiscal et il était un fervent partisan de l’équili- bre financier à moyen terme. Il a clairement recommandé de combler les déficits encourus lors des réces- sions par des surplus réalisés lors des phases d’expansion. Il s’est ferme- ment opposé aux déficits à repetition comme ceux que le Canada a encou- rus de 1975 à 1995. Ce furent les années les plus anti-keynésiennes de toute l’histoire macroéconomique du pays.

Au cours des 60 dernières années, les idées de Keynes ont fait l’ob- jet d’attaques virulentes, de la part de la gauche comme de la droite. Les penseurs de gauche, il va sans dire, n’ont jamais apprécié les théories dont la conséquence est d’améliorer le fonctionnement du régime capita- liste. De leur côté, les penseurs de droite ont systématiquement tenté de réfuter la doctrine keynésienne et de redonner vie à la vision classique des choses, selon laquelle le secteur privé de l’économie est fondamentalement stable et la flexibilité des salaires et des prix permet une résorption rapide de tout déséquilibre entre l’offre et la demande globales.

Les années 1970 à 1990 ont vu ces idées classiques connaître un regain de popularité dans les milieux de la recherche universitaire. Mais la négation du chômage involontaire et de la capacité stabilisatrice de la poli- tique macroéconomique continuait de défier le bon sens et fut contredite par une accumulation de preuves défavorables. Affirmer que le chô- mage était toujours volontaire don- nait une explication assez incroyable de la Grande Dépression des années 1930 : nos grands-parents se seraient mis eux-mêmes en chômage pendant 10 ans en s’entêtant à rejeter les emplois disponibles parce qu’ils jugeaient les salaires offerts insuf- fisants ! En fait, si vraiment les hausses de chômage qui accompag- nent les récessions découlaient d’un refus de travailler en raison de salaires jugés insuffisants, les travailleurs seraient beaucoup plus nombreux à démissionner de leurs postes d’emploi pendant les récessions que pendant les expansions. Or, c’est bel et bien le contraire qui est observé : les démis- sions sont nettement moins fréquentes pendant les récessions. (Et on comprend pourquoi !)

Et devinez quoi? Après ce nouveau recul des idées classiques, Keynes est maintenant de retour! Un collègue l’a même baptisé « le Lapin Energizer de l’économie ». Les 15 dernières années ont été témoins d’une remon- tée extraordinaire des idées keyné- siennes, sous l’influence de chercheurs tels que George Akerlof et Joseph Stiglitz, lauréats du Prix Nobel 2001, et de plusieurs autres. Sur le terrain concret de la politique monétaire, le président de la banque centrale des Etats-Unis, Alan Greenspan, doit pra- tiquement tout son succès aux idées de Keynes.

Naturellement, le livre de Keynes ne sera jamais lu autant qu’un roman d’Alexandre Jardin ou de Marie Laberge. Mais, croyez-le ou non, j’ai récemment rencontré, sur le vol 150 d’Air Canada de Vancouver à Montréal, une agente de bord qui lisait la Théorie générale pendant sa pause. « C’est un peu difficile à suivre, me confia-t-elle, mais il paraît que c’est un des livres les plus importants du 20e siècle. »

Fort bien dit, madame!

Pierre Fortin est professeur au départe- ment d’économie à l’Université du Québec à Montréal. Il est auteur de Cible d’inflation : la solution du trois pour cent, paru dans la série Enjeux publics de l’IRPP en février 2001.

Rainer Knopff

Alexander Hamilton, James Madison and John Jay

The Federalist Papers (1787-8)

Since September 11, it has become less fashionable to say that political extremism and violence stem from such ”œroot causes” as poverty. Not that ”œroot causes” are irrelevant, but we are relearning some of the terrain proper- ly covered by that phrase. As Clifford Orwin so aptly put it in the National Post, ”œAristotle had it right 2,300 years ago: Men don’t become tyrants in order to get in from the cold.”

One could learn the same lesson from my book of choice: The Federalist Papers. Hastily written by Alexander Hamilton, James Madison and John Jay (under the composite pseudonym of Publius) to encourage New Yorkers to ratify the American Constitution, this series of newspaper articles forms a remarkably coherent and substantial contribution to political and constitu- tional thought.

I first read The Federalist in gradu- ate school in the mid-1970s, under the tutelage of Walter Berns. Other books I was reading at the time had a more immediate impact on me, and some of those (Plato’s Republic, for example) rank ahead of The Federalist on my all- time list. There are few books, howev- er, that have stayed with me as long or that I turn to more regularly for politi- cal and constitutional guidance, even about the most current issues””Sept. 11, for example.

For all of their profound differ- ences, Aristotle and Publius would agree that the ”œroot causes” of September 11 extend well beyond eco- nomic inequality. True, Madison in Federalist 10 identifies the ”œunequal distribution of property” as ”œthe most common and durable source of fac- tions”; far more dangerous, however, is the burning desire of the ambitious few for ”œpre-eminence and power,” mir- rored by a similar lust for victory among their followers. This desire for pre-eminence contributes to a propensity for ”œmutual animosities” so strong ”œthat where no substantial occasion presents itself the most frivolous and fanciful distinctions have been suffi- cient to kindle … unfriendly passions and excite [the] most violent conflicts.”

Not only is property a less danger- ous source of faction, but Madison actually considers it ”œthe first object of government” to protect ”œthe diversity in the faculties of men from which the rights of property originate.” In effect, government should promote the ”œmost durable” source of faction in order to counteract the most danger- ous source. The desire for pre-emi- nence on the part of at least some of the ambitious few will then be divert- ed into the building of commercial empires, while the consumer benefici- aries become less likely recruits for warlike crusades.

Not all of the ambitious few in modern commercial society become captains of industry, of course. Some continue to pursue political pre-emi- nence, but here too there are ways of harnessing ambition to the public good. The answer lies in representative democracy organized in a system of checks and balances in which ”œambi- tion [is] made to counteract ambition.”

In all of this, The Federalist is unblinkingly realistic about human nature. ”œIf men were angels,” says Madison, ”œno government would be necessary. If angels were to govern men, neither external nor internal controls on government would be nec- essary.” Since men aren’t angels, how- ever””since bellicose factionalism is ”œsown in the nature of man”””one needs arrangements that supply ”œby opposite and rival interests, the defect of better motives.” One must fight fire with fire, in other words””and one must do so endlessly. Do you think that the ills of the human condition can be ultimately solved? Do you want to fight the ”œwar to end all wars,” or root out terrorism once and for all? Take an antidote: read The Federalist.

But take the full dose. If you end up agreeing with Kant that appropriate checks and balances make decent poli- tics possible even for a race of intelli- gent devils, you’ve passed too quickly over Federalist 55. Publius may think it important to compensate institutional- ly for the ”œdefect of better motives,” but he doesn’t think better motives are unnecessary or lacking. Just as there is ”œa degree of depravity in mankind which requires a certain degree of cir- cumspection and distrust,” says Madison, ”œso there are other qualities in human nature which justify a certain portion of esteem and confidence.” Moreover, liberal democratic govern- ment ”œpresupposes the existence of these qualities in a higher degree than any other form.” In other words, with- out ”œsufficient virtue among men for self-government,…nothing less than the chains of despotism can restrain them from destroying and devouring one another.” Social conservatives, take heart. While government as soulcraft is not central to Publius’ agenda, his reflections surely count against state- supported hostility to conventional virtue and its seedbeds.

Perhaps the requisite virtue can survive social libertarianism. Certainly, the muscular response of America to the events of September 11 means that citizens of that nation are not as dis- solute as social conservatives some- times fear. But the same events should remind libertarians of The Federalist’s warning not to conflate limited gov- ernment with weak government. Government properly limited in the ends it pursues must nevertheless be powerful enough to achieve those ends. The libertarians among us worry about the power imbalance between the state leviathan and the puny indi- vidual. In the words of Canada’s Supreme Court, the state should come under special scrutiny when it stands as the ”œsingular antagonist” of the individual. Well, yes, the power of the state is indeed a source of danger, but as Publius knew, it is also an essential source of protection.

How to achieve the correct balance? Therein lies the great difficulty: ”œYou must first enable the government to control the governed; and in the next place oblige it to control itself.” In achieving the latter, ”œa dependence on the people is, no doubt, the primary control.” But not an overly direct dependence. No recall of elected repre- sentatives, for example. In The Federalist one finds a powerful defence of repre- sentative government against populism.

Representative democracy may be the ”œprimary control,” but it is not enough. ”œExperience has taught mankind the necessity of auxiliary precautions.” These include the sepa- ration of powers and the checks and balances already referred to. Judicial review of the Constitution is one of those checks. On the other hand, Publius defended the Constitution against those who decried its lack of a bill of rights, arguing that the existing document, without what later became the first 10 amendments, was ”œitself, in every rational sense, and to every useful purpose, a bill of rights.” Yes, that was Hamilton writing, not Madison, who later became the father of the Bill of Rights, shepherding it through the first Congress. Until then, however, Madison had been a staunch critic of the ”œparchment bar- riers” of a bill of rights. Robert Goldwin argues that Madison assumed leadership of the Bill of Rights movement in the First Congress as a prudential concession to political reality and in order to ensure a much weaker bill than its partisans wanted. However that may be, Publius certainly provides consid- erable food for thought on the issue of judicial power, as on so many others.

And that is my point. The Federalist is a rich source of political wisdom on many of our public issues. Do you want to think clearly about the executive, legislative and judicial branches of government and the proper relations between them? I would not be alone in directing you to The Federalist Papers. Ditto for fed- eralism itself, the novel modern understanding of which was first laid out by Publius. What about the rela- tionship between the institutional devices of liberal democracy and com- mercial capitalism? Again, The Federalist is very revealing. Are you perplexed by the debate between pop- ulism and representative govern- ment? Between the advocates and critics of judicial power? Consult Publius. How about an analysis of human passions and their relation- ship to public life? On this last ques- tion, Plato, Aristotle or Shakespeare might go deeper into the heart of the human soul, but Publius is far from a shallow analyst. He certainly knows why the desire to get in from the cold explains neither tyrants nor terrorists.

Rainer Knopff teaches in the Department of Political Science, University of Calgary.

Jeff Rose

Sidney and Beatrice Webb

Statutory Authorities for Special Purposes (1922)

Not long after the First World War, as the forerunners of Thatcherism at Westminster brayed against the damnable socialistic practice of gov- ernment regulation, denouncing it for being at loggerheads with the creed of individualistic enterprise, a well-aimed work of scholarship was published whose purpose was to defend both government regulation and its sup- porting doctrine””a doctrine of com- munal cooperation which understood individualistic aspirations to be a potential threat to projects that were intended to benefit the collectivity, and which relied upon government regulation to nullify that potential threat.

Drawing most of its detail from thousands of examples of communal cooperation which lay documented in parish and county records dating from the 13th century, the book reminded its readers why regulation had been practised over the length and breadth of England since the time of the Norman Conquest and likely before. The self-imposed task of uncovering these records and of eluci- dating the thinking that lay beneath the regulatory regimes whose histo- ries were told there was a crowning accomplishment of Sidney and Beatrice Webb, whose researches into the nooks and crannies of English public policy produced the massive history of English local government of which the book in question, Statutory Authorities for Special Purposes (1922), was the final volume.

A magnificent work of literature, research and advocacy, Statutory Authorities for Special Purposes is peer- less as an introduction to the later development of government as an instrument of collective welfare. It was also historically original, focusing the reader’s attention on a variety of unconventional sources of insight into the permanent tension between com- munal needs and individualistic impulsions.

The Webbs’ research unearthed the roots of government regulation not, as might have been expected, in communal cooperation that was aimed, for example, at suppressing the spread of communicable diseases or the spread of fire, but rather in the communal cooperation that was nec- essary for the creation and mainte- nance of such improvements as embankments, drainage sewers and sluices in order to render the land hab- itable; primitive systems of main roads known as turnpikes; urban services-in- common including lighting, paving, ”œwatching” and cleansing; and rudi- mentary measures whose purpose was to alleviate destitution.

In all cases, the Webbs found that the rich documentary record disclosed similar histories. A collectivity, beset by a natural challenge which had to be overcome, but could not be overcome unless every appertaining individual could be counted on completely, invariably found that mere social norms were insufficient to ensure the primacy of collective interests over individualistic aspirations. Human nature being what it is, merely infor- mal pressure to conform was inade- quate to make certain, for example, that every individual owning part of a wall of turf which kept the sea at bay would maintain his own part in good repair. Yet he must, because everyone’s livelihood depended on his doing so. It followed that the behaviour of every appertaining individual had to be reg- ulated, a task performed at first by local magistrates, later by county insti- tutions and eventually by means of private legislation from Westminster. In certain cases, it was even judged necessary to confer an exclusive right to act upon municipal or county insti- tutions, thereby removing individual- istic enterprise from the picture alto- gether and with it, any residual threat to the interests of the collective.

Sometimes the benefits of regula- tion were distributed with a degree of equity; sometimes regulation was indistinguishable from class rule. Nonetheless, the result was that by the time the English political system began to democratize the concept of the common good””that is, to widen the definition of society to incorpo- rate more and more of its members, thereby enlarging the ambit of the collectivity to which the benefits of communal cooperation would be dis- tributed””centuries of experience had delivered and nurtured a dependable mindset about how to accomplish any collective purpose, practical or moral, which really mattered to the society.

This mindset can be said to have encompassed the following prescrip- tive propositions. If a common chal- lenge had to be surmounted, if guar- anteeing an outcome really mattered to the society, if the effectiveness of the communal project was too important to allow it to be jeopard- ized by individualistic aspirations, then government regulation was necessary. On the other hand, if guaranteeing an outcome did not really matter, the life of the collec- tivity in that regard could be deter- mined by the interaction of individ- ualistic impulsions, that is, shaped by market forces. Put another way, if the society did not turn to govern- ment regulation to guarantee an out- come, but left the outcome to be determined by market forces, the society was declaring that whatever ultimately resulted in that regard did not really matter.

Whatever you might think of these propositions (they’ve always seemed pretty sensible to me) they surely provide an interesting way to think about such contemporary issues as security screening at airports, or whether to let the market decide how much hydroelectric power will be produced, at what price and for whom. If a society does not turn to government regulation to guarantee an outcome, but leaves the outcome to be determined by market forces, the society is declaring that whatever ulti- mately results in that regard does not really matter. Yet as far as those con- temporary issues are concerned, the outcomes appear to matter to society a great deal, do they not? So the way forward ought to be clear.

Truth be told, reading Statutory Authorities for Special Purposes over 30 years ago was not a road-to-Damascus moment for me. In fact my youthful influences were a heterodox tabernacle of scholars and doers from which the Fabians were largely absent. But Statutory Authorities for Special Purposes belongs on these pages for the simple but sufficient reason that it sets an inspirationally high standard for com- mitted advocacy and scholarship by practitioners of public policy and aca- demics alike.

Jeff Rose is Senior Fellow in the Harrowston Program on Conflict Management and Negotiation at the University of Toronto.

John F. Helliwell

K.C. Wheare

Federal Government (3rd edition, 1953)


Report of the Royal Commission on Dominion-Provincial Relations (The Rowell-Sirois Report, 1940)

To choose a book or books that had the most influence on my policy thinking, I knew I would have to go a long way back. Once a few thousand volumes have passed before your eyes, and been assessed in the light of many years of experience, it is too much to expect a single book to fundamentally change the course of your thinking. John McCallum’s paper showing trade intensities more than 20 times greater among Canadian provinces than between provinces and U.S. states has had an enormous influence on my own subsequent research and policy analysis, as has Robert Putnam’s research on social capital. But both were in discussion paper form when they had their influence.

I finally came up with two books: the Rowell-Sirois Report (The Report of the Royal Commission on Dominion- Provincial Relations, 1940) and K.C. Wheare’s Federal Government (third edi- tion, 1953). Both had their influence because they were two of the three principal texts (the third being The Federalist Papers of Hamilton, Jay and Madison) used by John Deutsch in his senior UBC political science course on federalism, which I took in the late 1950s. In his deft hands, these books revealed the complexity and fascina- tion of the interplay between institu- tions, events and political thought, set in a context where people matter indi- vidually, collectively and in their enriching diversity. Deutsch not only sowed the seeds of my life long fasci- nation with societies and how they work, but offered countless instances where evidence and careful thought had been combined to fashion policies to improve the quality of life.

Those were heady days for federal- ism, before the federal constitutions adopted by so many new African states in the 1960s failed to fulfill their design- ers’ hopes for post-colonial progress. These failed experiments demonstrated once more the truth of John Deutsch’s insistence that the success of institutions depends on the norms and networks of society (what has under Putnam’s influ- ence come to be called ”œsocial capital”). An unintended refresher course was pro- vided by the experience of the former Soviet Union in the decade following the fall of the Berlin Wall. Most of those studying the transition understood the importance of establishing an institu- tional framework to support and facili- tate transition, but all were surprised by the speed with which the initial institu- tional vacuum was filled by criminal alternatives to social order, and widely anticipated economic convergence was replaced by years of shrinking output, growing inequality, rising mortality and crime and crumbling trust.

Even among heavy readers, I sus- pect my experience is common””that certain books had a profound impor- tance because they were tools in the hands of a master scholar. If John Deutsch has not made the Rowell- Sirois Report come alive as the chroni- cle of a society thinking out its prob- lems, it would have remained just another official document for me.

John Helliwell is Professor of Economics at the University of British Columbia and a member of IRPP’s Board of Directors.

Christina Spencer

Ayn Rand

Atlas Shrugged (1957)

I am sitting on the Toronto-Ottawa train””which arrived 15 minutes late at my stop, and which will lose anoth- er 30 minutes before reaching its final destination””and re-reading one of the most powerful policy books of our era: Ayn Rand’s Atlas Shrugged. The exercise feels a bit odd, since the plot centres on a transcontinental railroad system crumbling due to bad public policy. As VIA Rail adds reading time to my schedule, I console myself that at least our transportation systems, rail includ- ed, aren’t going to crumble today.

But maybe tomorrow.

All public policy, after all, is based on philosophical principles, and if the principles are wrong, the future will be messy. Ayn Rand’s genius is that she identified these principles in a format accessible to all””not just wonks and politicians””by writing a novel that has enjoyed huge popularity since its pub- lication in 1957. For all that her intel- lectual opponents accuse Ms. Rand of being cruel and elitist for having creat- ing tough, uncompromising heroes, it is her insistence on bringing philoso- phy down to earth that truly infuriates the college crowd. Their favourite cry is that her views are ”œsimplistic.” They aren’t; they are simply clear.

I read this book for the first time when I was 14, and, as the cliché goes, it changed my life. Morality had always mattered, but I rarely chal- lenged my moral premises. Altruism was good. Money was the root of all evil. Enjoying one’s own achievement was selfish. Corporations were evil.

Atlas Shrugged rapidly changed those views. But its broader impact was in convincing me that one must base one’s actions on a framework of consistent principles””which required both identifying the roots of those principles and constantly testing them by their effects in the real world. Philosophical evasion is out.

Rand’s fictional villains, who set policy, start with the philosophical principle ”œfrom each according to his ability, to each according to his need.” They take it to its logical conclusion, which is the destruction of individual creativity, of personal incentive and, ultimately, of human happiness. They do it through legislative initiatives such as the ”œanti-dog-eat-dog policy” which hamstrings competition; the ”œequalization of opportunity” bill, which forces successful businesses to divest themselves of some assets so others will have a ”œchance”; and the ”œfair share law,” which allows competi- tors access to a producer’s products so that they may enjoy profits whether or not they do any innovation of their own. Versions of all of these laws exist in Western countries today. Indeed, the specifics of Ms. Rand’s ”œfictional” legis- lation are mimicked in many modern laws. Which shows that ideas have practical, predictable consequences.

The fictional demise of the railroad at the centre of this book eerily foreshadows the current state of the airline industry. The key plot twist”” productive men finally refusing to martyr themselves to those who feel entitled to their work without pay- ment””points directly to the Canadian ”œbrain drain.” (Conrad Black, in decid- ing that he would no longer put up with the philosophical disgrace that passes for much of government policy in this country, can be easily imagined as a character from Atlas Shrugged.)

How do governments get away with policies that any good economist (or reasonable person, for that matter) knows are unsound? Because produc- tive men and women, specifically entrepreneurs, tacitly accept the ideas behind such policies.

I’ve sat through far too many edi- torial boards where a corporate CEO or equivalent refuses to condemn an inept government initiative, lest we think his only motive is profit. Profit, we all know, is evil; that’s a philosoph- ical axiom. That’s why Allan Rock attacked ”œbig pharma” in the Cipro affair last fall. That’s why he was will- ing to see his officials flout regulations in the name of a perceived public need. ”œBig pharma’s” response? While defending its patent rights, it never once tried a moral defence of the right to earn a profit.

To that, Ayn Rand would say: ”œCheck your premises.” Profit-vs.-need gets a good look in Atlas Shrugged in one character’s ”œspeech” on why the profit motive is profoundly moral. Our political leaders are unlikely ever to read it. But serious students of policy should.

Try the rest of the book, too, the next time you are on a train.

Christina Spencer is the editorial pages editor of the Ottawa Citizen.


Jim Stanford

Daniel Fusfeld

The Age of the Economist (1966)

I started my undergraduate university education in 1979 at the University of Calgary. I thought I might major in eco- nomics, but I wasn’t sure, so I also checked out a number of other disci- plines during my first year. In the eco- nomics stream, a first-year student had two choices in those days at the U of C. He or she could take the standard micro and macro introductory courses””in classrooms which were already bursting at the seams (long before fiscal restraint hit the campuses), presided over by teachers who taught the laws of eco- nomics as if they were laws of physics.

The other option was to take a sin- gle full-year course called ”œThe Economics of Capitalism.” The course title alone suggested something rather subversive. It was taught by Robert Wright, an eclectic, open-minded pro- fessor who had sold men’s suits in an earlier incarnation. For most econo- mists, well-versed in the logic and beau- ty of free markets, capitalism is a natural state of being: there is no need to actu- ally name it. Simply to use the ”œc-word” is to open the possibility that the cur- rent state of economic affairs might only be a way station en route to some- thing else. I immediately signed up.

Professor Wright assigned three textbooks for the year-long course, one of which was a thin paperback volume costing only eight dollars at the U of C. bookstore. (Twenty-two years later, the price tag is still firmly affixed to my dog-eared copy.) This alone was enough to merit immediate plaudits from shell- shocked students, reeling at the price of textbooks. But it got much better when we actually started to read the thing.

The Age of the Economist turned me on to economics. Instead of throwing novice students straight into a deep end full of supply-and-demand graphs and invertible matrices, the book didn’t have a single graph or equation. (It does include a couple of simple flow charts to help readers visualize the logic of particular arguments, but they don’t really count). In other words, this was an eco- nomics book that spoke English.

The book provides a readable, almost suspenseful overview of the evo- lution of economic thought, embedded in an equally dense history of global economic development. The early mar- ket theorists are introduced in the con- text of the early rise of merchant capi- talism and, later, its industrial progeny. Then the subsequent emergence of rad- ical economic theorists, from Owen to Marx to Lange to Sweezy, is described along with the ferment of the times in which they lived. Post-war debates in economic theory””even obscure ones, like the ”œtwo-Cambridges” controver- sies, real business cycle debates and monetary targeting””come alive because they were vested with a broad- er socio-political significance.

Learning economics this way, this wide-eyed first-year student was impressed with a lesson that is unfortu- nately lost on most economists. Human beings are not atoms, and their eco- nomic behaviour cannot really be explained in the same way that physi- cists model velocities and gravities. (In fact, in this postmodern era even physi- cists recognize considerably more con- tingency and uncertainty than most economists do.) Competing economic theories reflect the power struggles and politics of the societies in which they are developed. Hence, economic theo- ries evolve over time to reflect the rise and fall of the broad political-economic regimes which spawned them.

The absolutist, ahistorical econom- ics that is standard fare in mainstream economics departments misses this per- spective. The fact that the history of economic thought, and even economic history itself, is hardly taught anymore in university economics programs is ample testimony to the arrogance and narrow-mindedness of the profession. And the decline in economics enroll- ments is a further warning of the poten- tial irrelevance of the discipline; for some reason, building highly technical models of atomistic Pavlovian behav- iour does not strike many critical-think- ing young people as a rewarding life’s vocation. If more economists started thinking and writing like Fusfeld, who deliberately linked the evolution of eco- nomics to the evolution of human soci- ety, a lot more students would get turned onto the subject, and economics would be all the better for it.

In the preface to the version of his book which I studied from (the third edition, published in 1977), Fusfeld wrote:

This book tries to show how one discipline [economics] is related to the great issues that have troubled people everywhere””order versus freedom, riches and poverty, privilege and equality, human welfare, material and moral values, and others. It is easy to get so involved in the intricacies of economics that we lose sight of these larger issues. Here they are pushed to the front of the stage, for economics has always been an instrument through which we may achieve a bet- ter understanding of the great prob- lems that have troubled humankind.

Fusfeld’s book helped convince me that economics was indeed the dis- cipline that could contribute the most to helping to solve pressing human problems, and so I majored in econom- ics. If I had enrolled in the standard micro-macro course path, and seen eco- nomics first through the standard text- books””which spend more time explaining the difference between mar- ginal and average functions than addressing pressing real-world concerns like poverty and environmental degra- dation””I would not be an economist today. Some of my colleagues, who think that ”œunion economist” is a con- tradiction in terms, probably think that would have been a good thing.

The Age of the Economist is now into its ninth edition, its author about to turn 80 years old. The latest edition includes, according to a breathless announcement from the publisher, an all-new chapter on ”œThe New Economy.” Oh yeah, I remember the New Economy. That was the world in which computer technology powered unmeasurable pro- ductivity gains, the business cycle was a thing of the past, and high-tech com- panies didn’t have to worry about the old rules of business. We didn’t study the New Economy in first-year eco- nomics classes in 1979; and I doubt that first-year economics students will be studying it five years from now, either.

The long-lived perspective I gained from seeing economics first through Fusfeld’s eyes is that it is a historically relative and ideologically loaded disci- pline””no matter how positivist its practitioners pretend to make it, with their charts and graphs and grids and formulas. So when powerful people started telling me that problems like class conflict, unemployment and inequality were all passé now that we had the Internet, I was immediately very suspicious. I doubted that there was anything new at all about the New Economy. And now I look pretty smart. (I never bought a single share in Nortel Networks, either.) And given the events of the past year, I suspect that Fusfeld himself is already busy on a tenth edi- tion, featuring an all-new chapter titled ”œPlus ça change, plus c’est la meme chose.”

Jim Stanford is an economist with the Canadian Auto Workers, and current chairperson of the Progressive Economics Forum ( Many of those he has debated over the years think he should have gone into sociology.

John English

James Eayrs, ed.

The Mackenzie King Diaries (1973)

Policy, like sex, was not discussed in polite Canadian political company for most of the country’s history. Contemporary critics may denounce government from the centre, but the centre was much narrower in the past when prime ministers made policy while perched on the loneliest heights.

Laurier made certain his principal minister Clifford Sifton was absent when he decided how Alberta and Saskatchewan would become provinces. R.B. Bennett forgot the names of his francophone ministers when he intro- duced them to the press after the elec- tion of 1930. Mackenzie King despised policy gatherings and became constipat- ed during the famous Liberal policy con- ference of 1933. The conference’s end brought immediate relief.

Those who studied Canadian gov- ernment from the 1940s through the early 1960s relied upon such eminent scholars as Dawson, Ward, Corry and Hodgetts whose worthy texts concen- trated upon the constitutional, institu- tional and administrative foundations of the Canadian government. These were the texts for Canadians even though the so-called ”œpolicy sciences” had become the academic fashion at American universities in the early 1950s. Canadian politicians rarely wrote mem- oirs and, when they did, said little. The country’s powerful bureaucrats rivalled Opus Dei in their commitment to the oath of secrecy. As a humble summer student in the Department of External Affairs in 1966, I made the mistake of praising Jim Eayrs’ In Defence of Canada, which explained national security poli- cy in the interwar years. I was severely rebuked by the division head who expressed the view that Professor Eayrs had betrayed the trust of Canadian offi- cials and should be arrested.

All came undone in the later 1960s, including the diary of Mackenzie King where Eayrs had found so many of the secrets when he worked on the King biography. When R.M. Dawson, King’s official biographer, read King’s diary in the 1950s, he treated it as a parson would pornography. On the lonely heights, King made policy””on Empire, on social welfare, on the provinces and on war. Rare are the references to sections 91 and 92 of the BNA Act in the King diary; fre- quent are the clashes of personality, the bursts of memory and the invocation of the deity as a guiding force. In under- standing how political decisions are made, no document tells more.

Reading Mackenzie King’s diary in the early 1970s when ”œpolicy,” ”œpartic- ipation” and ”œprocess” were the new mantras of early Trudeau Ottawa, I felt the windows on past politics come open. This stiff, prissy prime minister had bequeathed a document that explained better than any other how decisions had been made in Canada. King had wanted the record sup- pressed, but those bureaucrats he trust- ed most, the civil servants who had always kept the secrets, betrayed him. As Philip Larkin said of sexual inter- course after 1963, all that went before belonged to yesterday’s tomorrow.

John English is an historian at Waterloo University and a former Member of Parliament. With J. O. Stubbs, he edited Mackenzie King: Widening the Debate, in 1977.

André Blais

Hubert Blalock

Causal Inferences in Nonexperimental Research (1964)


Theory Construction: From Verbal to Mathematical Formulations (1969)

These two books by Hubert Blalock have had the greatest influence on how I think and how I see the world. I was exposed to Blalock during my graduate studies. In my case, he was preaching to the converted. After all, I was doing my Ph.D. so that I could do quantitative empirical research.

Yet reading Blalock was a cultural shock. His starting point was that ”œcausal thinking belongs completely on the theoretical level and [that] causal laws can never be demonstrated empirically” (Causal Inferences, 6). I was being told that what I wanted to do was an unattainable objective. I had to learn to become sceptical about everything, including social science research.

Blalock’s point is that it is impos- sible to test causal statements without making some simplifying assumptions about the direction of causality, about the potential effect of ”œother” factors not explicitly incorporated into the analysis and about the relationship between the theoretical concepts and the empirical measures. In my view, his point is indisputable. This is a les- son in humility which it is in the interest of all social scientists never to forget.

One of the lessons I have drawn from Blalock is that any analysis entails some simplification. This has led me to be wary both of those who criticize others for being simplistic and of those who ”œsimplistically” think that it is possible to come up with ”œcomplete,” ”œexhaustive,” ”œholistic” accounts of social life. I suspect that these people do not really appreciate the complexity of social phenomena. Any interpretation is necessarily a sim- plification of a complex process.

Right after asserting that causal laws cannot be demonstrated empiri- cally, Blalock adds that ”œthis does not mean that it is not helpful to think causally and to develop causal models that have implications that are indi- rectly testable” (Causal Inferences, 6). One of the great advantages of causal thinking is clarity. When I teach, when I conduct research, and when I try to make sense of contemporary events, I spontaneously ask myself the three following questions: What is going on exactly? Why? And what will it change? Making sense of reali- ty entails providing an accurate (though simplified) description of that reality and examining its causes and consequences. This can be achieved only by clearly distinguish- ing these three questions, and by ask- ing oneself what we should observe if what we think””our hypothesis””is right and if it is wrong.

In Blalock’s Theory Construction, there is a particularly interesting section on block-recursive systems that I have found quite helpful in doing research and in making sense of the world. Blalock shows that it is possible, when thinking in terms of a complex model including a great number of variables, to combine these variables into blocs of interrelated factors and to focus on one bloc at a time. But he also insists that this is possible only if we assume a (block-recursive) system in which the temporal and causal sequence of the blocs is clearly laid out. The message is that it is possible to introduce some degree of complexi- ty, provided some simplifying assumptions are made.

Thinking in terms of block-recur- sive systems helps us to distinguish ”œproximate” and ”œdistant” causal fac- tors. Some people, for reasons of their own, like to focus on the former and others on the latter, but some of the debate about which are more impor- tant seems to me misguided. Let us recognize that different factors play a qualitatively different role in the causal sequence.

That being said, Blalock has nev- ertheless convinced me that we should have a particular concern for the most distant factors. The reason is that failing to incorporate an impor- tant distant factor is more consequen- tial than not including even a crucial proximate one. In the latter case, the consequence is that the explanation is only quite partial, that it does not fully elaborate the causal process. In the former, the risk is that the expla- nation is simply wrong, because the relationship is spurious. I can live with partial explanations; I do not want to be dead wrong.

The implication is that when I study the vote, for instance, I start with the most distant factors, old fash- ioned socio-demographic characteris- tics, such as the regional cleavage. That should only be the starting point of the analysis, but it should be the starting point nevertheless. I think Blalock would approve.

André Blais is Professor of Political Science at l’Université de Montréal.

Robin Boadway

Anthony Downs

An Economic Theory of Democracy (1957)


James Buchanan and Gordon Tullock

The Calculus of Consent (1962)

Political economy””the study of how political processes condition policy outcomes””is very much the fashion nowadays among academic econo- mists. Public choice explanations of government behaviour abound, and policy prescriptions are subjected to the joint tests of political feasibility and immunity to public sector failure. The current methodology owes much to two remarkable, persuasive and highly readable books: An Economic Theory of Democracy by Anthony Downs, published in 1957, and The Calculus of Consent, by James Buchanan and Gordon Tullock, pub- lished in 1962. These two books launched the field of public choice, and the ideas in them have formed the basis for the way most economists view the political process. They were the first public finance books I read as a graduate student at Queen’s, even before Richard Musgrave’s great 1959 treatise The Theory of Public Finance, from which my generation learned the field. In fact, the Downs and Buchanan-Tullock books conditioned my appreciation for the latter.

The contents of the books are dis- armingly intuitive, and my brief discussion of their many ideas will by no means do them justice. Downs argued that since politicians are peo- ple, their actions will be driven by self-interest. Their main concern is to be elected, and in a parliamentary sys- tem of government, the vehicle for election is the political party. Downs constructed a model of political party competition in which party platforms are determined solely by the objective of maximizing votes. He recognized that majority voting can lead to certain instabilities or cyclical majorities, especially where redistributive out- comes are at stake. However, he argued that uncertainties and imper- fect information on behalf of both voters and political parties would mit- igate the vote-cycling problem, an approach that anticipates the notion of probabilistic voting that has come to dominate modern-day political competition models. Downs recog- nized that there was a place for ideo- logical differences between political parties, but since ”œeach party realizes that some citizens vote by means of ideologies rather than policies, … it fashions an ideology which it believes will attract the greatest number of vot- ers” (100). Thus, even ideology is pre- scribed by the desire to get elected.

Buchanan and Tullock, on the other hand, also accept the self-inter- ested version of political decision- makers, but view the role of the polit- ical process from a more contractual perspective. Collective, and coercive, choice is essentially a means by which unexploited gains from trade are internalized. Because of the free-rider problem, this cannot be done by vol- untary contract: governments are needed. However, collective decision- making comes with costs. For one, governments can be inefficient. They are susceptible to lobbying, log-rolling and the like. For another, since una- nimity is not a feasible voting rule, the political process is liable not just to internalize free riding, but also to redistribute. This is viewed as a potential cost imposed by the government on citizens, who may find themselves on the wrong side of redistributive policy. Constitutional rules ought to trade off the potential benefits to citi- zens from participating in collective decisions through the political process against the possible inefficiencies and confiscation of property that such decisions will inevitably entail.

These important tracts have been very influential for my own thinking about policy issues, though not in a way that might be predicted. My reaction to them has been a bit contrary. They have served to reinforce, and even to form, my view that the world needs sound normative policy analysis, unfettered by considerations of political feasibility, as a complement to political economy-based policy analysis. In other words, the lessons I have taken from these books concern the limitations, rather than the poten- tial, of public choice for informing nor- mative policy analysis. In particular, I can think of three important and relat- ed reasons why normative policy analysis should not necessarily feel constrained by political feasibility.

First, neither these books nor the public choice theory that has followed have succeeded in resolving the most fundamental problem of collective decision-making””how to deal with the redistributive dimension. It is no exaggeration to say that government is largely an institution for redistribu- tion: virtually everything it does has redistributive consequences, whether intended or not. (Try and identify policies that make no one worse off.) Regrettably, policy analysis must be based on some value judgment, if only implicitly, about how to weigh the gains and losses of different citizens. Political economy models offer little guidance on these matters. Indeed, redistribution is their Achilles heel. It is well known that if politicians, vot- ers and bureaucrats all behaved in their own self-interest, chaos would ensue, and this cannot be precluded by Downsian notions of uncertainty and probabilistic voting. I would pre- fer to think that there must be some consensus over basic social values, and normative analysis can contribute to searching for that consensus.

Second, political economy models simply cannot capture the reality and complexity of political decision-mak- ing. We economists have been seduced by the niceties of the market mechanism, and the way it reconciles and coordinates millions of conflict- ing decisions made every day. Conceiving of a political marketplace that is analogous to the economic marketplace reflects the conceit of economics. Political institutions are not like economic models, and there is no analogue of prices as a device to facilitate equilibrium outcomes. As Arrow pointed out in his profound but exacting 1951 tract Social Choice and Individual Values (a great and demand- ing read, but not for the weak of heart), there is no mechanism that will readily guarantee stable collective choice outcomes. And, this is true without the additional complication of institutions, transaction costs, and so on. The implication I take from this observation is that since political out- comes are ultimately unpredictable, even if one wanted to use political fea- sibility as a constraint on policy advice, it would be practically impos- sible to do so. Political feasibility is simply too elusive a concept. What is feasible is what the public can be per- suaded to accept, and what politicians can be persuaded to enact.

That being the case, political out- comes can be manipulated, which brings us to the third reason why nor- mative policy analysis should not nec- essarily feel constrained by political feasibility. Since collective decisions must be based on some value judg- ment, and since some consensus about value judgments is necessary for a stable society, part of the purpose of normative analysis is to inform the political process rather than the reverse. In other words, part of the purpose of normative policy analysis is to persuade or advocate, and that involves winning over the public to one’s own scheme of values. It being impossible to prescribe policy without such value judgments, it is highly desirable to be up-front about those values, rather than to hide beneath the cloak of political feasibility.

These considerations have per- suaded me that there is room in public policy discourse for normative analysis that does not take political feasibility to be a binding constraint. It is both intellectually and ethically justified, and might even lead to good things in the end. It can be argued that some of the more important pol- icy changes that we have witnessed in Canada in the post-war period would not have come about had political fea- sibility been (mistakenly) treated as a constraint””think of free trade, medicare, the GST””and it seems to me that it is important that at least some economists are adamant about eschewing political feasibility in pur- suing their work.

This might seem like a strange conclusion to draw from reading the two books that parented the whole field of public choice. (It was certainly not the response expected from my professor at the time, Walter Hettich, who has earned a reputation as a dis- tinguished scholar of public choice.) That said, the books, especially Downs’, still make fascinating reading. I would highly recommend that anyone interested in serious policy analysis do read them, though no doubt the response elicited will not typically be as contrary as mine.

Robin Boadway is Sir Edward Peacock Professor of Political Economy at Queen’s University.

Heather MacIvor


The Prince (1514)

For me, politics and government are interesting insofar as they relate to what makes people tick. A fascination with individual and group psychology lies at the heart of my approach to pol- itics. I was born and raised a Nova Scotia Tory. Politics was the air I breathed, but politics of a particular kind. It revolved around personalities and passions, not abstract principles. Which people would join which party faction? How can we get this particular person ”œonside”? How many of his friends will follow him? It has always been crystal-clear to me that love and hate, loyalty and fear, friendship and resentment fuel the political machine. My two years as a foot soldier on Parliament Hill only confirmed this conviction. If we do not take into account such basic truths as the ego and ambition of the individual politi- cian, or the group pressures which are essential to effective political organiza- tion, then we really have no idea what politics and government are about. After all, if politics isn’t about real, live human beings, then what’s the point?

Needless to say, my psychological understanding of politics has often gotten me into trouble. In gradu- ate school my work was sometimes derided as ”œjournalistic,” a ”œPeople mag- azine” approach to a discipline based on general laws. The quirks of personal- ity had no place in the modern ”œsci- ence”œ of politics. (Strangely enough, those who adhered most strongly to this view were themselves acute and ardent observers of the personalities and group dynamics which drove the internal politics of their own depart- ment.DoasIsay,notasIdo.)WhenI suggested to one of my professors that his pet theory was rather unrealistic in psychological terms, he replied, in a voice dripping with disdain, ”œOf course, you’ve been a practitioner.” So I am always enthusiastic about books which explore the connection between poli- tics and human nature, if only because they make me feel less like an alien in my own discipline.

One such book, which I discov- ered in my undergraduate days, is James W. Ceaser’s Presidential Selection: Theory and Development (1979). Ceaser’s historical and institutional analysis of American presidential nomination has profoundly shaped my own under- standing of Canadian party leadership selection, as well as my approach to political institutions in general. In his introduction, Ceaser argues that those who design political institutions must take individual ambition into account. They must craft institutions in such a way as to establish ”œcertain constraints and incentives that promote desired habits and actions and discourage unwanted behaviour.” While he acknowledges that ”œthe ambitious seek what in the first instance is advanta- geous for themselves,” Ceaser is nonetheless optimistic that, when appropriately channelled through well- designed institutions, ”œambition can be used to curb its own natural excesses.” On the other hand, a poorly designed institution perversely rewards behav- iour which undermines the legitimacy of the institution itself and threatens to damage the public good.

The relevance to current Canadian debates over institutional reform should be obvious. Consider the popu- lar perception that our House of Commons is full of political eunuchs, blindly following their party leaders into ever-lower depths of public esteem. Throw in the recent concern about prime ministerial power, as described by Donald Savoie and Jeffrey Simpson, and the value of Ceaser’s analysis becomes apparent. Government MPs are induced by their ambition to kow- tow to the prime minister, who controls access to the cabinet, parliamentary sec- retaryships, patronage positions, and other rewards for loyalty. The prime minister also appoints the clerk of the Privy Council, and holds the fate of deputy ministers in his hands. So a prime minister with a majority of seats controls the legislative branch, the political executive and the permanent executive. The ambition of MPs, cabi- net ministers and public servants leads them to curry favour with the one man on whom their hopes of advancement depend. No wonder Canada is gov- erned by a ”œfriendly dictatorship,” in Simpson’s phrase.

To readers interested in pursuing this subject, I recommend two other books; Joseph A. Schlesinger, Ambition and Politics: Political Careers in the United States (1966), for its analysis of ”œpoliti- cal opportunity structures,” and James Q. Wilson, Political Organizations (1974), for its shrewd analysis of insti- tutional incentives and their impact on individual and group behaviour.

But with the greatest respect to con- temporary political scientists, none of us can hold a candle to the great thinkers of the classical era and the Renaissance. Both Plato and Aristotle understood the connection between politics and human nature, although the former believed that the purpose of politics was to re-create humanity and the latter believed that institutions should be tailored to fit the people they were intended to govern. Once so tailored, they must be adjusted regularly to reflect improvements in the moral and intellectual virtues of the population””an idea later adopted by John Stuart Mill.

To my mind, the greatest single analysis of personality in politics is Machiavelli’s The Prince, perhaps because Machiavelli, too, was ”œa practi- tioner.” The former Florentine diplo- mat had witnessed the full pageant of Italian Renaissance skullduggery: popes leading armies into battle, popes awarding seats in the College of Cardinals to their illegitimate sons, political murder and torture, the exter- mination of conquered populations and the deliberate violation of Christian teachings in the name of gaining and securing personal power.

Naturally, Machiavelli concluded that politics was a dirty business with little room for conventional morality:

…there is such a gap between how one lives and how one ought to live that anyone who abandons what is done for what ought to be done learns his ruin rather than his preservation; for a man who wishes to profess goodness at all times will come to ruin among so many who are not good.

Such candour is risky””and refreshing: would that today’s political scientists wrote with such clarity and concision! ””and Machiavelli has paid a high posthumous price. But a careful reading of The Prince, and of his other political writings (especially The Discourses), uncovers the shaky foundations of his notoriety. Machiavelli did not argue that ”œthe ends justify the means,” as is often alleged, nor did he sanction cruel- ty for its own sake. His advice to rulers can perhaps best be summarized, in a paraphrase from one of our own former prime ministers, as ”œevil if necessary, but not necessarily evil.”

Those who sanctimoniously dis- miss the Florentine as the devil incar- nate, and The Prince as ”œTyranny for Dummies,” are living in a fool’s para- dise. Politics is a dirty business, from time to time, as all zero-sum games fuelled by ambition must be. It abounds with flatterers who praise a ruler to the skies and then take full credit for his success (hello there, Warren Kinsella). It is chock-a-block with pious hypocrites whose private dealings bear no resem- blance to their public pronouncements. While contemporary Canadian politics are (mercifully) a good deal less bloody than those of Machiavelli’s day, we have merely switched from actual mur- der to ”œdeath by press release.” The means have changed, but the game and its goals remain the same.

In recent years, some political sci- entists have attempted to ”œrehabilitate” Machiavelli as a relatively benign figure in the history of political thought. Harvey Mansfield, for example, sug- gests that Machiavelli is the father of the modern executive branch (see his Taming the Prince: The Ambivalence of Modern Executive Power, 1989). While these are noble efforts, it will not do to sanitize Machiavelli completely. Edward Pearce’s delightful book Machiavelli’s Children (1993), takes the Florentine diplomat on his own terms and applies his teachings to the experi- ence of several modern rulers: Franco, Mussolini, Hitler, Stalin, Thatcher and even George Bush père. Machiavelli ”œuntamed” is immensely valuable as an observer of human nature, particularly the nature of homo politicus.

Oddly, many political scientists overlook what may be the most intrigu- ing element of The Prince: the relation- ship between fortuna (luck, destiny, opportunity) and virtù (courage, shrewd- ness, skill). To Machiavelli, the interplay between our opportunities and our abil- ity to take advantage of them deter- mines political success. Perhaps this insight helps to explain an enduring puzzle of Canadian politics: the remark- able longevity and ascendancy of Jean Chrétien, a man without conspicuous verbal or mental gifts. Machiavelli might point out that Chrétien is a deeply shrewd man with a sharp eye for the main chance, and the willingness to seize opportunities when they fall his way. But he might also caution, in light of the political and fiscal crises provoked by September 11, that a prince who relies too heavily on fortuna may lose his crown when Lady Luck deserts him.

Machiavelli’s portrayal of human beings as ”œungrateful, fickle, simulators and deceivers, avoiders of danger, greedy for gain” is incomplete. There are people who enter politics for pure and principled reasons, and a few even manage to hang on to those principles throughout their careers. But Machiavelli’s point is that as long as those other, nasty people play the polit- ical game, they must be dealt with appropriately. The good and the pure will quickly become the powerless and the irrelevant unless they master the techniques of ”œnecessary evil.” Machiavelli’s editorial comment on his advice about dishonesty could stand as the motto for the entire book: ”œIf men were all good, this rule would not be good.” Until politics is populated by saints, The Prince will remain an indis- pensable resource for all who partici- pate in, and observe, political life.

Heather MacIvor teaches political science at the University of Windsor.

Neil Brooks

Report of the Royal Commission on Taxation (The Carter Commission, 1966)


Louis Eisenstein

The Ideologies of Taxation (1962)

The tax policy junkie’s canon is com- posed of books written by a succession of brilliant scholars and elegant styl- ists. Like all canons, it is a legacy of great geniuses. The incisive analysis and erudite wit displayed in the clas- sic works of Henry Simons, Richard Musgrave and Stanley Surrey, to name only a few of the scholars who changed the current of thought in tax policy, compare by any measure to the Great Books in any policy field. We minor figures who swim in their cur- rents have been inescapably influ- enced by them all.

In a way that is likely unprece- dented in the great literature of the other policy fields, a Royal Commission produced one of the most important documents in the tax policy canon. The Report of the Royal Commission on Taxation was released by Lester B. Pearson’s government in February 1967. Most policy analysts, even those uninterested in tax policy, are familiar with this report; however, many may not appreciate its pre-emi- nent place in the tax canon.

The commission’s blueprint for tax reform is bold, imaginative, and comprehensive. Mitchell Sharp, then the Minister of Finance, described it as ”œone of the most far-reaching, explo- sive, and revolutionary sets of propos- als ever put before the Canadian peo- ple.” Arnold Harberger, a leading pub- lic finance scholar, called the report ”œa landmark among public docu- ments…No such document, to my knowledge, has ever equalled its com- bination of positive attributes”” scope, comprehensiveness, consisten- cy, depth of theoretical and empirical analysis, and respect for the basic eco- nomic criteria of efficiency and equity.” Another leading public finance scholar, Richard Musgrave, said that ”œthe pilgrim cannot but bow to the architect and craftsmen who created this impressive work.” Parenthetically, although the report reflects the efforts of a good many people, one of Canada’s most distinguished policy analysts, the late Douglas Hartle, the research director for the Commission, undoubtedly deserves a good deal of the credit for the report.

The report is a model of how pol- icy analysis should be done. The prose is clear, vivid and free from jargon. The issues are set out objectively and major alternative solutions fairly pre- sented. Empirical judgments are sup- ported with the best available evi- dence. Normative judgments and con- flicting objectives are acknowledged and identified, and the boundaries between expert opinion and value presuppositions are delineated as pre- cisely as possible. Recommendations are made with varying degrees of cer- titude, and often modestly, reflecting the state of knowledge upon which they rest. Most important, the report is not a series of unrelated ideas and recommendations. It tells a story with clarity and passion. The story is premised on a clear vision of a just and equitable society. Years later, reflecting back on the Commission’s work, Douglas Hartle reiterated his view that ”œthe search for fairness…(is) one of the most enduring of the shared values of a civilized society.”

As anyone even vaguely familiar with the report knows, the Commission’s unflinching commit- ment to equity leads it to embrace the concept of a comprehensive tax base. In the history of public finance ideas, the Commission will be best remem- bered for the fact that it took this rel- atively simply and elegant idea””that in a fair and neutral tax system all sources of economic power should bear the same tax””and pursued it relentlessly and imaginatively.

In spite of the fact that the report provided a blueprint for a tax system in a free-market economy, the Canadian business community and its usual collection of sycophants vicious- ly attacked it. They initiated letter- writing campaigns, published briefs and made threats of non-investment and disinvestment. Considerably understating the reaction, a tax practi- tioner noted that ”œapart from Academics and Socialists, the Report was not well received.” A quote from a well-known corporate executive is typical of the reaction: he said that if the report was adopted, ”œit would be a rapid road to mediocrity, socialism, and a police state…Canada is still a frontier country demanding venture capital, individual initiative, and just reward if we wish to survive and pros- per as a whole.” For months after the report was released the newspapers were filled with such dire predictions.

There are many ironies in the busi- ness community’s reaction to the report. The Commission was estab- lished by the Diefenbaker government at the insistence of that community’s representatives. The Commission itself was composed largely of members of that community; its chair, Kenneth Carter, was a chartered accountant from Toronto and a long-time member of the business establishment. The Commission’s recommendations were based largely on the tax philosophy of Henry Simons, a self-professed libertar- ian and one of the founders of the Chicago school of economics; and the comprehensive tax base that the Commission proposed would have lim- ited state interference in the economy.

Like everyone else who worked in the tax policy field in the early 1970s, I was greatly influenced by the Carter Commission’s report. A good part of my career has consisted of par- aphrasing it. However, much as I admire the report, and much as it has shaped the way I view tax, it is not the work that had the greatest influence in shaping the way I think about the world. That book is The Ideologies of Taxation, which was published in 1962, the same year the Carter Commission was appointed.

The Ideologies of Taxation was written by Louis Eisenstein, an American tax attorney of startling brilliance and origi- nality. Although he spent most of his life in the private practice of law and was a member of the well-known Washington firm of Arnold, Fortas and Porter, he wrote a number of insightful articles in tax journals. The Ideologies of Taxation is his only book, and it conveys the unique characteristics of his genius. I first read the book while agonizing over the reaction of the business com- munity, the business press and right- wing economists to the Carter report.

In his no-nonsense, tough-mind- ed way, Eisenstein asserts that ”œtaxes reflect a continuing struggle among contending interests for the privilege of paying the least … They are a changing product of earnest efforts to have others pay them.” He makes the obvious point that naked self-interest is not widely regarded as an acceptable basis for demanding the adoption of a given tax provision or system. Instead, reliance must be placed on arguments ”œwhose sole virtue is that they bestow upon their proponents an appearance of selflessness, neutrality, and dedica- tion to the ”˜public interest.’” They must ”œconvey a vital sense of some immutable principle that rises majesti- cally above partisan preferences.” He then proceeds with a searching and searing examination of ”œthe modes of thought to which groups and interests resort in order to obtain tax laws to their liking,” and finds that they are usually nothing more than ”œa preten- tious facade to disguise a selfish pur- pose.” Eisenstein divides such argu- ments into the three ”œideologies” of taxation: ability to pay, barriers and deterrents, and equity.

The familiar ideology of ability to pay is ”œthe darling of the liberals.” Eisenstein notes that in the early debates over progressive income tax, the class discrimination that this form of tax imposed was either deplored or praised but it was not denied. He ridicules all attempts to place the concept of ability to pay on a scientific footing and admonishes ability-to-pay ideologists to assert openly their goal of reduced inequali- ty and to ”œdo battle on the questions of policy.”

Eisenstein reserves his heaviest fire for the rich, for business interests and for their spokespersons who employ the ideology of barriers and deterrents””that is, ”œIf you don’t give us the legislation we want, you will be setting up barriers and deterrents to the types of actions which are good for the country.” This ideology ”œembraces three related precepts that point to the inevitable disintegration of private enterprise if the precepts are disregarded. Progressive taxes danger- ously diminish the desire to work; they fatally discourage the incentive to invest; and they irreparably impair the sources of new capital.” His attacks on these ”œdogmas” are inci- sive, thoroughly documented and pitiless. The pronouncements of the ideologues are reduced to mush.

The third ideology, equity, is the most obliging, and ”œsupplies the answer to almost any prayer.” As employed by those resorting to it, it consists of two principles: ”œEquity is special relief for certain taxpayers who are differently situated from all other taxpayers,” and ”œequity is the privi- lege of paying as little as somebody else. Since someone is always paying less, it is always possible to ask for equity.” Under the ideology of equity, anything can be analogized to or dis- tinguished from anything else, depending on the interest of the per- son arguing for equity.

What did I take away from this gem of a book? On a personal level, tax policy analysis was more fun after I read Eisenstein. Before reading him I agonized about the arguments made against the Carter proposals; after reading him, I laughed more often. In the immortal words of the well-known philosopher and roots rocker Elvis Costello, ”œI used to be disgusted/ Now I try to be amused.”

At the most basic level, Eisenstein demonstrates that the guides for choices in the formation of tax policy are often little more than rationalizations that serve the self- interest of those who rely upon them. They are used as sales talk even though, given the high stakes, their use often borders on thuggery. Although the point seems obvious, it is surprising to learn how seriously these self-interested arguments were taken in the assault on the Carter Report””and how seriously they are still taken.

At a slightly more profound level, Eisenstein demonstrates that the structure of most policy arguments is irreducibly rhetorical. Read in this way, he anticipates the more recent turn to rhetoric and argumentation in policy analysis. Policy analysis must be evaluated not only for its truth or falsity but also for its partiality, its selective framing of the issues, its symbolic significance, and its use of rhetorical devices such as metaphor, metonymy and irony, in which words are used to suggest more than their literal meaning.

Even more radically, Eisenstein can be read as a practising postmod- ernist. He shows that all arguments from principle conceal and in fact pre- suppose politics and self-interest, and are always invoked in the service of a political agenda. There are no neutral principles; all reasoning is mere rationalization.

This more radical position has led some policy analysts on the left to retreat to various forms of relativism or to attempts to replace the liberal democratic state with an imagined show-of-hands democracy in which expertise has no privileged role. Instead of this radical position, Eisenstein’s book demonstrates the need for theoretical and methodologi- cal pluralism in public policy analysis, as well as the need to explicate the vision of the good life that inescapably underlies all serious policy debates. There should be no assumed default position in public policy analysis. Distributive ends, values associated with human dignity and the public good need to be continually empha- sized. As Eisenstein says, ”œAny intelli- gent thinking on taxes eventually reaches the ultimate purpose of life on this planet as each of us conceives it.” The story he tells in his book also demonstrates the urgent need to restructure the political system to ensure that policies are determined by pluralist compromises following sus- tained argument rather than by the naked exercise of power.

Although Kenneth Carter acknowledged in public speeches that he and the Commission owed an enor- mous debt to the work of Henry Simons, the American author who had the most profound influence on Carter’s thinking in the course of preparing the Commission’s report was Louis Eisenstein. Apparently, someone gave Carter a copy of The Ideologies of Taxation, which he read while vacationing. He was greatly for- tified by Eisenstein’s searching exposé of the common shibboleths resorted to by proponents of particular tax provi- sions to lend an aura of objectivity to their self-interested proposals. In many ways, Eisenstein’s clear-sighted appraisal of the rhetoric of tax reform and his pragmatic realism are reflected in the Carter report. A book could be given no greater credit.

Neil Brooks teaches tax law and policy at Osgoode Hall Law School.

Jonathan Kay

Four books that made me a journalist

I attended university in the late 1980s and early 1990s, the heyday of political correctness. Even more so than now, campuses were smothered by anti- racist and anti-sexist dogmas. Questioning affirmative action was seen as akin to hate speech. Brainwashing programs””labeled ”œsen- sitivity training”””were widespread. At McGill University, where I studied, an expert who sought to deliver a speech debunking ”œrecovered memory syn- drome” was shouted down and cen- sored. At Concordia University, a mile away, a well-rendered painting of a black woman carrying bananas on her head was removed from a Women’s Day art exhibition because, according to the then-dean of Arts and Science, it ”œplay[ed] into the stereotype of the noble savage.”

Dinesh D’Souza’s Illiberal Education (1992) and Richard Bernstein’s Dictatorship of Virtue (1994) both made an enormous impression on me. They reported on how the cult of PC was being enforced on North American campuses. Together with related books such as Allan Bloom’s The Closing of the American Mind (1987) and Neil Bissoondath’s Selling Illusions: The Cult of Multiculturalism in Canada (1994), they helped spawn the backlash against political correctness in the late 1990s. By the time I graduated from Yale Law School in 1997, there was much less censorship than there had been when I began my university education.

I would not have become a jour- nalist were it not for these books. They showed me that, despite the effective end of Marxism as a credible alterna- tive to liberal democracy, there were still important ideological battles to be fought. They also demonstrated how much individual thinkers could accomplish through honest reporting.

Jonathan Kay is Editorials Editor of the National Post.

Neil Cameron

Roman patricians and Cold War intellectuals

As a periodical title, Policy Options pro- vides a nice balance of terms. ”œPolicy” unadorned evokes images of bureau- cratic nuisance. ”œOptions” are more reassuring. They recall to me those books that evaluated fundamental political choices, rather than provided directions for their implementation. Writers stressing both have sometimes had very large effects: consider the indefatigable Sidney and Beatrice Webb. But then, consider also how fre- quently they were wrong. Too many 20th-century thinkers worshipped Marx, too interested in changing the world and not enough in understand- ing what they were doing.

I was saved from this inclination by Shakespeare’s Julius Caesar, read in adolescence. I had seen other of Shakespeare’s plays performed, but Caesar was the first that, thanks to a good high school English teacher, I really came to understand and appre- ciate. It was also the first book of any kind I had read””and one of a very small number, even all these decades later””that drove home to me the tragic and ironic aspects of political conflict.

The play has no real villains; even the cynical Cassius has some redeem- ing qualities. The clash is not just of personalities, but of principles and practical necessities. I found that I was like the fickle Roman crowd reacting to Caesar’s assassination, first cheering on Brutus; then swept up by Antony’s funeral oration; at the end deeply moved by the suicide of Brutus, and by Antony’s tribute to his fallen enemy. I also realized that, even if Shakespeare’s Roman Senators sound more like Elizabethan gentlemen than the patri- cians of history, the struggle between aristocratic liberty and populist leader- ship would reappear in various differ- ent forms again and again.

This discovery did not move me to subjectivist relativism. I grew up in World War II and the most bitter years of the Cold War that followed hard on it, and I had no doubt that Churchill and Roosevelt were heroes, Hitler and Stalin were villains. Later years of his- torical study did not change my view. But those years also reinforced my sense of political life as a high drama with huge stakes. Of course, even in Britain and the U.S., only the themes of power and ambition remained con- stants. Until recently, those of honour and violence had faded into the back- ground. In both Shakespeare and con- temporary politics, it is war that turns attention from the prosaic debates of prosperous bourgeois societies to these more elemental preoccupations.

Such preoccupations do bring with them the danger of romanticizing violence. I later learned that Shakespeare saw this as well. Even his most bellicose play, Henry V, shows the egotism and myopia of heroic leadership and the cruelty of war. Similarly, in the 1930s George Orwell understood both the menace and appeal of fascism better than most of his contemporaries pre- cisely because he recognized that the itch for politics in the heroic mode was found not just on the right, but also among smug Stalinists and pacifists, even in himself; in fact, in all of us.

Orwell, like Shakespeare, has remained a lifelong favourite, as have several of his contemporaries or near-contemporaries. I still admire sev- eral political thinkers and cultural crit- ics, American and European, who wrote mainly from the 1929 Crash to the 1960s. My mid-century political read- ing included, roughly from left to right, Isaac Deutscher, C. Wright Mills, David Riesman, Albert Camus, Raymond Aron, George Orwell, Sidney Hook, Karl Popper, Max Eastman and Friedrich Hayek. Thus I learned the horror of Soviet five-year plans and the meaning of managerial revolutions, power elites and lonely crowds. I even took a mild interest in anarchism, a political philos- ophy suitable only for aristocrats and lunatics, still being ably defended in mid-century by gifted writers like George Woodcock and Paul Goodman.

I once met and enjoyed debating the latter two. But they did not win me over. Nor did the Marxists, including Trotskyites like Isaac Deutscher. I did not then much appreciate thinkers on the right either, although early on sus- pected that they had the best purely economic arguments. I was most impressed by the anti-totalitarian social democrats, the cold warriors of the left, who formed the Congress of Cultural Freedom and frequently wrote for Encounter magazine: Orwell confreres like Arthur Koestler and Sidney Hook. They argued that a par- tially restrained capitalist economy could both preserve political freedom and allow egalitarian social measures, balancing reason and moral idealism. Their residual socialist convictions now appear almost as archaic as those of their Leninist foes. But what was most striking about them was their uncompromising honesty and clarity of thought. This century could still learn much from books like Hook’s Political Power and Personal Freedom, Reinhold Niebuhr’s Moral Man and Immoral Society or Raymond Aron’s The Opium of the Intellectuals.

All these writers were widely detested in the universities during the Cold War. Countless pink professors in the humanities and the social sciences had almost as voracious an appetite for pious fraud as they have today, and the same fondness for disguising radi- cal snobbishness as professional schol- arship. ”œMere journalism” was the established label of contempt, snarled by dogmatic fellow-travellers and bien- pensants. But the objects of their scorn elevated the label: they were journal- ists in the great tradition of Swift, Pope, Carlyle and Macaulay.

Still, their fierce denunciations were almost always coldly received in the academies, even in the worst of the Stalin years, although their broader influence even reached into under- ground dissent in the Communist states.

The most widely-known British historian and media star of the era, the rich and witty parlour revolutionary A. J. P. Taylor, detested Orwell. His dislike was shared by the unrepentant Stalinist, defender of mass extermination and common-room charmer, Eric Hobsbawm, who is still being showered with academic and honorific distinc- tions. Just as Orwell grated on these English worthies, American academics were made as uncomfortable by Sidney Hook, mostly preferring the more urbane John Kenneth Galbraith, whose unerring talent for being wrong never interfered with his stately ascent. But at least the cold warriors got a genuine hearing in England and the U.S. In Canada, Watson Kirkconnell was the only comparable figure, and he was largely howled down or ignored. The CBC never even gave much attention to George Grant, no cold warrior, but an eccentric Christian and Red Tory. Norman Bethune remains the net- work’s preferred exemplar of prophetic intellectual.

I learned long ago from the fate of the Cold War Cassandras that call- ing a spade a spade is not a good way to have immediate influence on ”œpol- icy,” even in the more openly combat- ive political cultures of Britain and the U.S., much less in Canada, where an only slightly refurbished Edwardian Fabianism rolls on. But I have retained my fondness for Shakespeare’s patri- cians and the fierce anti-communists of half a century ago. The university social science faculties have kept this country more than adequately sup- plied with complacent mandarins, dis- ciples of the statism and syrup of Bacon and Rousseau. I prefer Shakespeare and Swift and their lineal descendants, those who have forceful- ly demonstrated that most policy choices are choices of evils, with the greater evil frequently having the more seductive and immediate appeal. The most important responsibility of political thought is not the creation of still more disastrous utopias like those of the century just past, but the care- ful determination and spirited defence of lesser evils.

Neil Cameron is an historian and a for- mer member of Quebec’s National Assembly.

Patrick Luciani

E.J. Mishan

Twenty-one Popular Economic Fallacies (1969)

When asked to write a few words about a policy book that influenced my think- ing, my first reaction was how could I possibly choose from among so many great ones? The only problem was that I hadn’t read most of them. How could I admit to being influenced by classics I’d only read parts of, such as Buchanan and Tullock’s Calculus of Consent or Adam Smith’s Wealth of Nations? The problem with studying economics in most North American universities is that most readings are from secondary sources. Now I had to select from a pre- cious few I had read. So, I ran my finger along my limited library and pulled down this obscure book by E. J. Mishan.

I can’t say I re-read the book every few years, but, surprisingly, it has stayed with me while much better books have receded from memory. Even now, leafing through it, I find intelligent passages about the brain drain, labour shortages and the national debt. Mishan’s chapter on rent controls during times of housing shortage is timeless. In fact, I liked the book so much I decided to do my own version in What Canadians Believe But Shouldn’t About Their Economy (1994).

Another book written in the same spirit: Thomas Schelling’s Choice and Consequence: Perspectives of an Errant Economist (1984). Where Mishan used economic reasoning as a bright light on public policy issues, Schelling used his powerful intellect to bring eco- nomic thinking to the darker side of human affairs, such as organized crime and dying. No one understands better than Schelling that incentives and markets operate everywhere and in the strangest places. He even draws on classics like Thucydides’ Peloponnesian War to make his point. Another book I haven’t read.

Patrick Luciani is Senior Resident at Massey College, University of Toronto.

John Courtney

Samuel P. Huntington

Political Order in Changing Societies (1968)


John W. Kingdon

Agendas, Alternatives, and Public Policy (1984)

Samuel Huntington is no stranger to an intellectual dust-up. He has never met a controversial topic he didn’t like. Perhaps best known for his recent work The Clash of Civilizations, Huntington had an early start on staking out a provocative position on a contempo- rary topic. For my money, the best of his books is one of his earliest, Political Order in Changing Societies.

Written at the height (or depth) of the Vietnam War, Political Order‘s objective was to examine a variety of political regimes (both new and old) according to their institutional and organizational features and their vary- ing rates of social mobilization. Employing a structural-functional approach to the study of comparative political development, the book offered new, sometimes controversial, insights into modern government. Wide-ranging both in terms of its use of countless historical examples and its persuasive categorization of contem- porary, seemingly contradictory, illus- trations of stable societies, the analysis of change, stability and political order was of a very high order.

The book became a model of its kind, not least because of the apho- risms upon which the author had a demonstrated tendency to rely. Throw- away lines like ”œToday America still has a king, Britain only a Crown,” were perceptive little nuggets that effective- ly captured the past and anticipated later developments. In this instance, what better confirmation of the wis- dom of that zinger than in the hugely imperial prime ministership of Margaret Thatcher and presidency of Ronald Reagan?

Huntington’s work had a special meaning for me. It introduced me to the considerable theoretical potency of ”œinstitutionalization theory.” This fancy term captured what Political Order was really all about, at least so far as my own work was concerned. Development theory offered me a chance to explain social and institu- tional changes in Canada’s political regime. I found the intellectual frame- work within which Huntington cast his analysis to be immensely helpful as, less than a decade after the appear- ance of the 1968 classic, I embarked on a series of projects and publications looking at the growth and develop- ment of the Canadian party system, leadership selection, party conven- tions and recognition of Canadian par- ties in law and in Parliament.

According to Huntington’s analysis of political development, a politi- cal system passes through four stages: factionalism, polarization, expansion and institutionalization. Each is distin- guished from the one previous by a growing level of political participa- tion””the key element of regime stabil- ity in the theory. Underpinning the argument is the explicit recognition that with increased political participa- tion comes increased political stability, although one is sometimes left to won- der which way the causal arrow goes in some regimes. For my work on Canadian parties, the four develop- ment eras broke down roughly as fol- lows: (1) 1867-1878, (2) 1878-1920, (3) 1920-1958, and (4) 1958-.

From all available evidence the fourth stage almost certainly ended in the early 1990s. Huntington’s work, published more than 30 years ago, therefore does not help me account for our last decade. That the fourth stage ended””something I had not anticipat- ed in the mid-1970s””effectively put the ball in my Canadian court. A fifth stage evidently has been entered, one that seemingly contradicts Hunting- ton’s association of ”œhigh” levels of participation with institutional accept- ance. My task now is to take the declining participation rates in Canada, the increased levels of distrust of politicians and government institu- tions, and the breakdown of a two- or three-party system into a highly regionalized five-party system and make some theoretical sense of it. Huntington helped me determine how we got to the early 1990s; the explana- tion for our development since then is now squarely in the hands of those who want to explain the recent politi- cal development of Canada.

For John Kingdon the defined objective of Agendas, Alternatives, and Public Policy could not be much different from Huntington’s. Agendas, published nearly 20 years after Political Order, employs the ”œgarbage can model” of organizational choice and is devoted to a domestic agenda analysis. Based on nearly 250 interviews with government officials and active partic- ipants in health and transportation policy in the United States, the book offers a very useful analysis of institu- tional agenda-setting in what Kingdon calls the ”œorganized anarchy” of American policy-making.

The books may be dissimilar in approach and objectives, but together they reinforce in my mind a generally truthful, and not the least bit original, observation about theory in the social sciences: social scientists are an extraordinary, eclectic lot when it comes to theory. We borrow here and there as the occasion demands. As with Huntington’s book on the politics of development, Kingdon’s on the analysis of the ideas and initiatives that eventually surface as public policy offers great utility to those who, like myself, find that theoretical concepts developed for one set of analytical questions often have great relevance to another.

Much beloved by theoreticians of bureaucracies and professors of public administration, the ”œgarbage can” metaphor relates, crudely, to what makes it and what doesn’t make it into public policy. For my most recent book, Commissioned Ridings: Designing Canada’s Electoral Districts (2001), Kingdon’s theoretical construct was a godsend. He posits that items are most likely to be ”œagenda-setting” when three ”œstreams” converge to open a ”œpolicy window.” Only if there is such a convergence can action be taken. Problems must be identified, solutions advanced and political support forth- coming if a change is to come about.

The utility of Kingdon’s work for my research came in the following way. Commissioned Ridings is about more than designing electoral districts. Its subtext amounts to an exploration of two interrelated themes: representation and federalism. One of the central ques- tions that drives the analysis in that book relates to ”œlearning” about institu- tional arrangements in a federal system and ”œapplying” that knowledge in dif- ferent ways and in different jurisdic- tions. Specifically, Commissioned Ridings attempts to explain why the reform of an institutional building-block, of which periodic readjustment of elec- toral boundaries by independent com- missions would count as one obvious example, can be brought about. Thanks to Kingdon’s theoretical propositions, I was able to trace the acceptance of inde- pendent electoral boundaries commis- sions in Canada to the confluence of the three streams: an identified prob- lem, an acceptable solution and a size- able measure of political support for the change.

The utility of Kingdon’s contribu- tion will be further tested in my cur- rent research. Canadians have heard much these past few years, and inter- mittently since Confederation, about the need to replace plurality voting with a more proportionate method of translating votes into seats. (The sub- ject was the focus of an entire issue of Policy Options: ”œVotes and Seats,” July- August 2001.) The question that comes to my mind on this subject is, in a sense, a prior one: why is it that so much in the way of public, academic and media attention and criticism of our current electoral system never leads to change? What are the vari- ables or conditions that would have to be in place before changes can be made to our electoral system? For answers to these questions I can think of no better place to begin my analysis than a framework constructed on Kingdon’s three-stream analysis of agenda-setting. Like Huntington’s con- ditions, Kingdon’s will help immeasur- ably in informing my analysis of change in Canada’s electoral and polit- ical institutions.

John C. Courtney teaches in the Department of Political Studies at the University of Saskatchewan. His e-mail is

Brian Lee Crowley

F. A. Hayek

Law, Legislation, and Liberty (1979)

All of us in the public policy game are in the business of applying reason to the solution of social and political problems. And while we often disagree among ourselves, an underlying prem- ise animates much of our work: that smart people, if they could just get their hands on the levers of power and do things right, would be able to solve many of the world’s most pressing problems.

I was certainly in that camp until, in the course of my doctoral studies in London, I was forced to grapple with the economic and social ideas of F.A. Hayek. I started my thesis determined to debunk the intellectual roots of Thatcherism, which meant studying Hayek, the intellectual godfather of the return to respectability of classical liberalism in Europe. It turned out that, like Tom Sawyer’s young friends, I came to jeer and stayed to paint. Law, Legislation and Liberty, Hayek’s mag- num opus, was such an influential book for me because it caused me, quite in spite of myself, to see that there were limits to the application of human reason to the social order, and other sources of social order than human reason.

That probably sounds hopelessly abstract, but it is in fact deeply practi- cal. Hayek set out in this book to restate in modern idiom Adam Smith’s argument about the invisible hand: the idea that there is an order in social relationships such as economic rela- tions that is much larger than the intentions of individual buyers and sellers in the marketplace.

Major social institutions such as language, the common law, the stock market, insurance, money and many others, were not designed by some individual or group that set out to cre- ate them. Instead, they emerged from a long process of trial and error, by incremental improvements, never by the conjuring of a new reality out of nothing but the cogitations of an indi- vidual mind or group of minds. The phrase that Hayek favoured to describe this process was one that comes from Bernard Mandeville, one of the great figures of the Scottish Enlightenment: such ”œgrown” social institutions are the ”œresult of human action, but not of human design.”

This distinction is a capital one for designing humans. In Law, Legislation and Liberty, Hayek gave the definitive statement of a long-running theme in his work. This is the contrast between the ”œsocial engineers,” and those who think that society cannot successfully be redesigned based on some set of ”œfirst principles.” Drawing on work from a dazzling array of fields, such as linguistics, social anthropology, political science, physics, psychology and economics, Hayek shows with austere clarity something that the modern rationalist mind grasps only reluctantly: the most complex structures in the human and the physical world greatly exceed the complexity of the human mind. Since no mind can fully com- prehend something more complex than itself, human beings are irreme- diably ignorant about much of the world they inhabit, and are reliant on many institutions and processes that they did not design. And while these institutions, such as language, or the economy, can be replaced by con- sciously designed human constructs (such as Esperanto, or central plan- ning), these ”œrational constructivist” inventions almost always leave us less able to accomplish our individual pur- poses than the untidy but inex- haustibly rich institutions that bear the mark of generations of human effort and incremental improvement.

If this sounds like a do-nothing conservatism, nothing could be further from the truth. Precisely because grown institutions are the interplay between hugely diverse and evolving human circumstances, on the one hand, and some supple but resilient rules of behaviour on the other, grown institutions can and do evolve dynam- ically with the experiences of the peo- ple using those institutions.

Language is surely paradigmatic here. As Hayek loved gleefully to point out, language was not invented by some gnomish coven of grammarians. In fact, language long predated the efforts of grammarians to state the rules underlying the regularities of communication that constitute lan- guage. And the reality of how we com- municate is always running ahead of the grammarians’ ability to state with precision exactly how we are commu- nicating. Thus, dictionaries must be re- issued every few years, and each time they contain a plethora of words that had never been imagined when the previous edition appeared. Language that can freely evolve to meet new cir- cumstances, but which is bound by some flexible and evolving rules of behaviour, is a much more dynamic and fluid institution than one where language and its rules are centrally controlled and only approved words and structures may be used.

To put it another way, Hayek’s vision of a society of grown insti- tutions is one that matches the role of human reason to its true limitations. Reason may be used to reform social institutions from within, but cannot be used to cast down existing institu- tions and to build wholly new ones from first principles. We can work to remove inconsistencies and incoher- ences within grown institutions, just as we can seek to extend their logic to new and unforeseen circumstances. All of this we can do by trying to tease out the internal logic of institutions, to describe the regularities of behaviour that seem to characterise the institu- tions, and then make incremental improvements in them.

Hayek observes that this is the proper role of the law and judges, for example. The law exists to introduce certain reliable behaviours on the part of individuals, thus creating a reason- able degree of certainty for each per- son about how others will behave towards them, and about the rules that govern their protected sphere of action, within which they may act without fear of interference by others.

Some rules under the law apply to everyone in the form of prohibitions. Thou shall not steal or murder. Some rules, such as contract law, allow peo- ple to bind each other to certain actions in the future, thus reducing the uncertainty that always plagues people striving to realise their inten- tions. And judges, in this context, are agents of the web of grown rules that constitute the law. They must not inject their personal preferences for one outcome over another into their interpretation of the law. The law is not an instrument for social engineer- ing, not a way of ”œimproving” social outcomes, but a mechanism that allows diverse individuals pursuing widely differing purposes and objec- tives to cooperate and co-exist in a society in which there is precious little agreement on first principles.

This is the inspiration of the title of the book. True law, in Hayek’s sense, springs not from the cogitations of lawmakers about how to ”œimprove” society, but rather from generations of efforts by judges and other authorities to prevent damaging collisions between individuals pursuing diver- gent purposes. ”œLegislation” is the term Hayek uses to contrast the more modern rationalist approach to legal rules with his own ”œgrown law” concept. In the modern liberal-democratic society, we have lost, in Hayek’s view, any concept of limits on our ability to redesign social institutions to fit the fads and passing fancies of the moment. Any constraint on our ability to pass laws for any purpose whatsoev- er is widely regarded as an affront to democracy. But Hayek says that while democracy means that only laws of which the people approve should be adopted, that does not mean that any scheme of which people approve should be made into law.

Modern intellectuals, in Hayek’s eyes, do not see the purpose of social institutions as being to allow individuals to plan and work to accomplish their objectives in life. Instead a vast society stretches before their imagination, one in which they see many flaws, a society whose anonymous inhabitants may be moved around with impunity like pieces on a chessboard. The sum total of people pursuing their own objec- tives seems to be poverty, inequality, ignorance, waste, ugliness and other social ills. They want to redesign socie- ty so that its outcomes are more aesthetically pleasing.

But, Hayek cautions, you can only adjust the outcomes of spontaneous social processes, such as markets or the common law, by frustrating individu- als’ attempts to develop themselves according to their lights. This insight gives rise, in the second volume of Law, Legislation, and Liberty, to a detailed dis- cussion of justice, procedural and dis- tributive. Hayek’s view, it will surprise no one to learn, is that justice is essen- tially a procedural concept. To treat someone justly is to treat them accord- ing to the grown rules of behaviour that constrain everyone equally.

Modern notions of redistributive justice not only are not justice, in Hayek’s view, but most of what passes for social justice is in fact deeply unjust. It amounts to allowing people to play the game according to the rules, and then to go around after- wards and rearrange the outcome of the game to suit one’s own prejudices about what a pleasing or proper out- come would be. But, Hayek likes to point out, if we want to encourage people to make use of their own knowledge and energy to build their own lives, and to make their knowl- edge and energy available to others in a broad network of social exchange, the results of those interactions will be unpredictable, and will never conform to someone’s idea of a just outcome. The very idea of a just outcome is nonsensical for Hayek. All we can ask is whether or not the rules of justice were followed by each of the ”œplay- ers.” If so, then the ”œoutcome” that results is neither just nor unjust, but simplyafact.

Less compelling than the first two- thirds of the book, the last volume attempts to imagine some constitu- tional structures that would constrain the proclivities of modern democracy to sweep away grown institutions in its headlong rush to re-arrange the results of social cooperation. But while the attempt is a failure, in the sense that the institutions Hayek proposes would be quite impracticable in modern cir- cumstances, the thought-experiment is more than worthwhile.

Taken as a whole, this book is a powerful counterpoint to the compla- cent assumption of the superiority of rational social planning that is still cherished by a hardy band in govern- ment and the universities. And in a world where the leader of the British Labour Party is pursuing and even adding to the economic and social agenda of that convinced Hayekian, Margaret Thatcher, where the last Democratic President of the USA ended ”œwelfare as we have known it,” and where many of the leaders of the post-Communist transition economies have been influenced by Hayek, it is clear that his ideas have helped to reshape the political spectrum and will be a force to be reckoned with for years to come.

Brian Lee Crowley is President of the Atlantic Institute for Market Studies.

Brian Flemming

Marshall McLuhan

Understanding Media (1964)

Becoming a policy wonk is like becom- ing a prostitute. First, you do ”œit” for your own enjoyment; then, you do ”œit” for a few friends; finally, you end up doing ”œit” for everyone””and for money.

I don’t know when I first realized I was destined to be one of these exotic creatures. The noun ”œwonk” didn’t even exist when the process began. ”œWonk” is a word invented in the 1980s at American Ivy League colleges; it is ”œknow,” spelled backwards. Spelling or saying words backwards is supposed to be satanic, isn’t it?

From the time I was in graduate school in England and the Netherlands, I knew I wanted a career that would encompass the law, gov- ernment, politics and business. I could see many examples of people who had accomplished this mélange of missions. But they were in London or New York. I could not find many Canadians who had arranged this kind of multi- faceted career for themselves in Toronto. Let alone Halifax, for good- ness’ sake.

My wife and I spent Christmas, 1965, in Bermuda. Among the books I took with me was Marshall McLuhan’s hot new tome, Understanding Media. I was swept away by its messages. It was an epiphany book, one I eagerly read twice in one week. Since then, I have returned to the slim volume again and again because, in it, McLuhan handed me the many magic maps I needed to become a legal-governmental-politi- cal-business policy wonk in remote, regional Halifax. McLuhan also out- lined for me a vision of the future that is still coming true.

When McLuhan wrote about ”œmedia” he superficially seemed to be talking only of the mass media and their profound impact on Western society. That’s what most of the super- ficial media folks said in the 1960s. But McLuhan was also writing about the revolutionary relationship of ”œlinear” print people to ”œorganic” electronic people.

McLuhan correctly described most politicians, bureaucrats and regulators as print people who’d had their day in the policy sun, but didn’t yet know this. The TV generation””and, by extension, the Internet generation that McLuhan never lived to see””instinc- tively distrusted centralist bureaucra- cies and the politicians who fronted for them. Being a politician in the print era was like being a hockey coach; one had to be smart enough to understand the game and dumb enough to think it was important.

All inhabitants of McLuhan’s glob- al village were doomed to know every- thing about the last 24 hours but little or nothing about the last 100 years. The current, made-for-TV war in Afghanistan, McLuhan might say, was nothing more than electronic story- telling by people sitting around a vir- tual campfire””the second great war of post-literate society, the first having been the Gulf War of 1991.

Print-driven policy wonks, which is what most wonks alive today are, seek conclusion or resolution of all issues. In an earlier time, they sought one-size-fits-all regulatory systems that would ”œsolve” broad policy problems once and for all. Socialists, like Marx himself, were, and still are, word peo- ple. That’s why tears flowed at the November, 2001, NDP convention when the old-line ”œwordies” defeated the mostly younger ”œelectronickies” who lined up on the side of the New Politics Initiative (NPI).

NPI supporters know global capi- talists are rapidly becoming electronic people and that, to oppose them effec- tively, social democrats must embrace the tribalism inherent in the street theatre of the young, in which 20 peo- ple with signs and clever costumes can hijack any TV newscast. Indeed, I think one of the principal reasons why youth has turned away from main- stream politics is a McLuhanite reason, namely, young people brought up on digital TV and powerful computers cannot buy into the conventional, lin- ear patterns that still dominate most political systems or movements.

Communication, especially in its electronic form, eliminates slavery to straight lines as well as modern theo- ries of cause and effect. By dissolving space and time, the Internet, for example, invites thinking of a nonlin- ear, repetitive and intuitive kind. It favours a discontinuity that embraces metaphor rather than sequential argument.

By its very nature, the McLuhanite new electronic village is one that encourages decentralization because it empowers people in a way that cen- tralist bureaucracies could always pre- vent. Empowered, electronic people lust for customized policy outcomes, ones that conventional linear laws or rudimentary regulations cannot pro- vide. The truncation of time inherent in so many urgent policy matters pre- vents the use of easy, old solutions whereby omnibus parliamentary bills were passed to set broad patterns that were later ”œfilled in” by conventional regulatory instruments.

As McLuhan put it: the 20th cen- tury literary person (read: policy wonk) prefers ”œto view with alarm and point with pride, while scrupulously ignoring what’s going on.” Witness the ”œoracles” American media have been wheeling out to prattle on about the Afghan war and the ”œWar Against Terrorism.” One is never told that any- one who really knows a lot about the subjects under discussion is already contract under with the Pentagon or the CIA. So, the public gets the $50 policy streetwalkers rather than the well-wired $1000-a-night call girls. And most don’t even know this.

Intelligent, engaged non-print people turn to the Net in a vain attempt to escape from news media that run and rerun the same tired, cliched tapes of bombs exploding and Afghani soldiers clutching their bat- tered hand-held Stinger rocket launch- ers. (Do they ever use them? Have they ever hit anything with them? We should be told.)

The electronic media are the ulti- mate in deconstructionist technolo- gies. They are daily destroying the texts of a 500 year-old print civiliza- tion and returning the world to pre-lit- eracy, something the so-called primi- tive Taliban or Northern Alliance war- riors know something about too.

Parliament, government and politi- cal parties””not to speak of antique, departmentalized academies from coast to coast””are still stuck in the Gutenberg Era. Just go to their websites if you don’t believe me. If he were alive today, McLuhan would probably pessimistical- ly opine that all the print people must perish from the earth before the elec- tronic age can truly inherit it.

So, as Lenin might ask, what is to be done in the meantime? All policy wonks must constantly retreat from their narrow issues to the broader con- text of how modern communication, and therefore politics, really works. German soldiers in World War One were given two books with their kit: the Holy Bible and Nietzsche’s Also Sprach Zarathustra. In the same spirit, every policy wonk warrior in the 21st century should be handed a copy of Understanding Media and told to absorb its messages before being allowed into the public policy arena.

One more thing: McLuhan also explained to me in 1965 that modern means of communication””physical and non-physical””were soon going to be so good that it would not matter whether one lived in Halifax or Honolulu as long as one was com- pletely connected to the pulsating organism of policy. He was therefore the first proponent of the home office, writ large.

Thanks for a great life, Marshall.

Brian Flemming was most recently chair- man of the Canadian Transportation Act Review Panel. He is a member of the Board of Directors of IRPP.

Wendy Dobson

Howard Raiffa

Decision Analysis: Introductory Lectures on Choices Under Uncertainty (1970)

This is mostly about a book embedded in an institution. In the late 1960s and early 1970s, economics and public policy was in ferment at Harvard and MIT where I was a graduate student. Many students were caught up in anti-Vietnam War protests. The Bretton Woods Agreement collapsed. Intellectual work analyzing decision-making during the Cuban Missile Crisis of 1963 was underway at the Kennedy School of Government, with Graham Allison’s work subsequently becoming a classic. MIT professors were hard at work on what would become The Limits to Growth, a systematic methodolo- gy that came to the wrong conclusion because it failed to take technological change into account.

Many professors were teaching their works-in-progress so courses often relied very little on existing works. The interested student feasted at a banquet of ideas that had immediate intellectu- al impact. It is therefore difficult to identify a single book that shaped my own direction. Experience had already done that.

There was one book, however, by a professor who is also a great human being, a fine teacher and a clear thinker. In his course and in his book, Howard Raiffa developed a methodol- ogy for evaluating and making public policy choices. We can all solve prob- lems, but how good are we at choos- ing and deciding? Effective decision- making in this increasingly complex world can have profound conse- quences for national well-being. Raiffa, a mathematician, masterfully applied mathematical models of choice to public policy problems in his book and in the classroom. A light was turned on for me””about how to think clearly and systematically”” whether the problem is in domestic or international policy, both of which have always interested me.

Raiffa and his book illustrated how public policy choices can be struc- tured and how empirical analysis can be used to anticipate possible out- comes and assess their potential impacts. His work can easily be misdi- rected by technocrats into mechanistic approaches to policy. But what his book underlined for me was how sys- tematic analysis can inform judgment, especially when there is no discipline of the bottom line.

Wendy Dobson, former Associate Deputy Minister of Finance in Ottawa and C.D. Howe Institute President, is Professor and Director of the Institute for International Business at the Rotman School of Management, University of Toronto.

Robert Wolfe

Karl Polanyi

The Great Transformation: The Political and Economic Origins of Our Time (1944)

Karl Polanyi’s famous book ends on a message of hope: out of the destruc- tion of two world wars within a single generation he could see the emergent possibility of both ”œeconomic collabo- ration among governments and the ability to organize national life at will.” That hopeful paradox was later the explicit basis for John Ruggie’s ”œcompromise of embedded liberal- ism,” the description of the post-war international order as a compromise between free trade abroad and the wel- fare state at home. When I moved from being part of the Canadian trade negotiations team to the academic study of trade, this paradox had enor- mous appeal. It offered both an analyt- ic framework and a normative bench- mark that could reconcile my desire for a Canada worthy of our loyalty with a belief in the need for strong international organizations. Much of my subsequent work on trade and for- eign policy in the era of globalization is an attempt to explore the implica- tions of this paradox.

Polanyi wrote The Great Transfor- mation during World War II, hop- ing to influence the people planning for the peace. He described the emerg- ing post-war order as a ”œgreat transfor- mation” because of the reassertion of social control over the market follow- ing on the transformation of the 1930s when states became responsible for the economic welfare of their citizens. Polanyi was a Central European Christian socialist and economic soci- ologist. His work on anthropology, notably his analysis of the economy as an instituted process, is still widely influential. His critical analysis of the dehumanizing consequences of mar- ket liberalism appeals to the left, but his organic conception of society can also be seen as deeply conservative, and his ideas still have appeal for Christian ethicists. He was working in the tradition of economic sociologists interested in the historical trajectory of capitalism that included Marx, Weber, Parsons, Durkheim and Schumpeter. But Polanyi’s approach was distinct, and arguably has greater policy rele- vance in the era of globalization.

The Great Transformation begins with an analysis of ”œThe Hundred Years’ Peace” (1815-1914); it ends with a fore- shadowing of the needs of the new world order. Polanyi’s thesis is sketched at the beginning of his book: he believed that ”œthe balance-of-power sys- tem could not ensure peace once the world economy on which it rested had failed.” He made two famous observa- tions in this book about the relation between market and society. The first concerned the idea of the self-regulating market, the laissez-faire attempt to create ”œan economy directed by market prices and nothing but market prices.” He thought the attempt aberrant, because ”œ… man’s economy, as a rule, is sub- merged in his social relationships. He does not act so as to safeguard his indi- vidual interest in the possession of material goods; he acts so as to safe- guard his social standing, his social claims, his social assets.” That being the case, ”œ… control of the economic system by the market is of overwhelming con- sequence to the whole organization of society: it means no less than the run- ning of society as an adjunct to the mar- ket. Instead of economy being embed- ded in social relations, social relations are embedded in the economic system.” Unlike Marxists, Polanyi did not object to the market on moral grounds, but he believed that it was utopian to think that society ever could be organized by the market.

Formal economics sees ”œprotection- ism” as a social pathology, but in Polanyi’s second famous observation, self-protection is the normal response of a healthy organism to stress. When the attempt was made to allow the market to be self-regulating, society protected itself in what he called a ”œdouble move- ment”””the expansion of the market was countered by society. The double movement ”œcan be personified,” he wrote, ”œas the action of two organizing principles in society, each of them set- ting itself specific institutional aims … The one was the principle of economic liberalism, aiming at the establishment of a self-regulating market, relying on the support of the trading classes…the other was the principle of social protec- tion aiming at the conservation of man and nature…” This counter-movement was evident to liberals, who called it ”œprotectionism,” when it restricted trade, but they were less scornful of the whole panoply of 19th-century social legislation. Polanyi did not argue that policy should attempt to stop or even alter the direction of structural change. Ultimately his domain was cosmopoli- tan, not national. He understood pro- tection not as autarchy or mercantilism but rather as a means of slowing the pace of change, of allowing society time to adjust.

The idea of the double movement describes a characteristic tension between politics and economics. International order can be explained in this framework as the interaction between the market-driven forces of the division of labour and the social drive toward cohesion. Polanyi argued that the ever-greater pace of commercial exchange of the late 19th century and the resultant global interdependence, one part of the double movement, pro- voked an ever more intense social response, and that the institutions of economic management eventually failed. In this failure he found the cause of the catastrophic collapse of 19th- century civilization, the international system that began with the Congress of Vienna (the settlement of the Napoleonic Wars) and ended with the catastrophe of the Great War. Attempts to resurrect the 19th-century order ended in the cataclysm of the Second World War of the 20th century. Polanyi thought that a new world order would emerge out of the chaos of war, and that its shape would respect both national cooperation and national dif- ference. He thought that it might become possible for governments to transcend ”œthe pernicious nineteenth- century dogma of the necessary unifor- mity of domestic regimes within the orbit of the world economy.”

Many scholars have used Polanyi’s ideas to explore trans- formations in post-war order and the social response to globalization, most notably John Ruggie. In Ruggie’s for- mulation, ”œembedded liberalism” describes a continuous search for a form of multilateralism compatible with the requirements of domestic sta- bility. The essence of the post-war sys- tem foreshadowed by Polanyi was that ”œunlike the economic nationalism of the 1930s, it would be multilateral in character; unlike the liberalism of the gold standard and free trade, its multi- lateralism would be predicated on domestic interventionism.” In this compromise between international openness and the domestic welfare state, liberalism continued, but it was ”œembedded” in the domestic social order. The GATT of 1947 was the clas- sic example of the compromise between free trade abroad and the wel- fare state at home. It represented a continuing compromise between the expansion of the global market and a predictable social response to that expansion, one that allowed states to regulate the global economy in order to protect domestic autonomy. The GATT, therefore, was a compromise between the need to end the managed trade of the 1930s and the equal imperative of preserving the social innovation of the New Deal.

In the absence of social rapprochement, Ruggie argues, international openness and domestic stability inevitably undermine each other, a possibility that underlies recent fears that globalization is associated with a new attempt to disembed the econo- my or, at a minimum, with a hollow- ing out of the embedded liberalism compromise. The process called ”œglob- alization” is itself material evidence that the ”œfree trade abroad” part of the compromise still works, if we under- stand it to mean that policy is suffi- ciently open to allow territory to mat- ter less and less for global economic transactions. But is it still possible to maintain the ”œwelfare state at home”? Globalization certainly extends mar- kets in time and space and puts them beyond the regulatory scope of any one territorial state, and it is associated with the creation of things like ”œtraded services,” which are analogous to what Polanyi called the ”œfictitious” com- modities of land, labor and money.

Here is the continuing relevance of The Great Transformation. On the one hand, some people see the GATT’s suc- cessor, the World Trade Organization (WTO), as the instrument of market dominance of collective life. On the other hand, the WTO is now called upon to protect man and nature from the market by developing new rules for labour and environmental standards. The analytic framework of Polanyi’s double movement thus helps us under- stand the political economy of global- ization, and the continuing paradox of trying to reconcile a global economy with local communities.

Robert Wolfe is Associate Professor in the School of Policy Studies at Queen’s University, Kingston, Ontario. His reading of Polanyi motivates the analysis in his book Farm Wars: The Political Economy of Agriculture and the International Trade Regime (Macmillan).

Robert Young

H. V. Nelles

The Politics of Development (1974)


The Art of Nation-Building: Pageantry and Spectacle at Quebec’s Tercentenary (1999)

Two books written by one scholar have influenced my thinking not only about public policy but also about Canada, governments, research and the scholarly life as such. My debt is to the historian H.V. (Viv) Nelles.

I read his Politics of Development soon after it appeared in 1974 when I was starting my doctoral fieldwork. I intended to examine how the extent and form of public participation in politics changed over the course of economic development as the state’s planning capacity and managerial activity increased, and I’d chosen to explore these general preoccupations in the context of New Brunswick, on the assumption that this society, while complete (or globale in the sense of some Québécois thinkers) was never- theless small enough to be comprehend- ed by one hard-working researcher. As well, I liked the place and was curious about it.

So there we were in Fredericton and along came the Nelles book. I was bowled over. Its subtitle helps explain why: Forests, Mines & Hydro-Electric Power in Ontario, 1849-1941. Here was a monograph that covered a large and complex province over a span of almost 100 years. Moreover, Nelles studied the development of three enormous economic sectors””hydro- electricity, mining and the forest industries. And the treatment was gen- eralizable.

The book described how provin- cial government policies evolved to stimulate and regulate the resource sectors. Nelles showed in particular how the Crown’s old property rights led governments to promote their new assets and to enact management regimes that accommodated private strategies of expansion and profit, despite the potential alternatives offered by the constitutional order.

In discussing Ontario Hydro, Nelles also showed how a systemic interest in further growth became embedded in the organization, shield- ed by a technical capacity impenetra- ble to politicians. This was an advanced idea for the time, and I hap- pily deployed it in a dissertation chap- ter about the New Brunswick Electric Power Commission.

Nelles was explicit in setting his narratives within an overarching theo- retical framework. He was concerned with democratic control over public policy, and was confident enough to cite political theorists in his conclu- sion. But for me, trained in political science and sociology, this was no big deal. I did not appreciate until much later how rare among historians are Nelles’s theoretical interest and acuity.

As a matter of fact, since I had my own theories, I was inspired less by the content of The Politics of Development than by its shape and methodology. First was the scale: this was a monu- mental work, and yet one person had done it. (Better still, it was essentially his doctoral dissertation.) Second was the depth of the research. Nelles had read all the secondary sources, and the newspapers, and the published reports of government departments and trade associations; but he had also ploughed through various archives, using official documents, the records of private firms, and the papers of premiers, min- isters and businessmen. All this mate- rial was interwoven in the text with a fine dexterity.

Nelles’s archival research was real- ly stimulating. Imagine someone who had never used archival material””like me””encountering a ”œNote on Sources” that began ”œPapers consulted in the Public Archives of Canada include those of Seà±or Gonzala de Quesada y Arostegui, Mossom Boyd and Company, Robert Borden, the British North American Mining Company Minute Book, 1846-1910, E.H. Bronson, the Canadian Pacific Railway Company””Van Horne Letterbooks,” and so on. Fabulous.

A year or so later, I went to the Public Archives to investigate Ottawa’s post-WWII reconstruction policy plan- ning, and out over the counter came the material: boxes and boxes and boxes of letters and memos and papers and notes””hard, reliable evidence: the truth. I was captivated. I slept over on the couches outside the reading room, to keep at the work, and then spent years in the Public Archives of New Brunswick, in the province’s superb Legislative Library, and in the depths of NB Power headquarters, moving through its huge collection of micro- filmed records late at night when the guardians had left me alone in the basement.

Then there were the personalities of the Ontario story. Nelles under- stood the industries and the technolo- gies, and the laws and the institutions, but he also realized how important were the leaders running firms and governments. His account of the buc- caneering Francis Hector Clergue, developer of the Soo industries, was riveting, and he understood the others ””Adam Beck, Howard Ferguson, Mitch Hepburn and a large supporting cast. They were all finely drawn. Consider the insight in this: ”œPremier Whitney’s prolonged mediation, all against Beck’s will and much of it without his knowledge, attests to his concern for the welfare of the Canadian company, or perhaps more accurately, for Ontario’s credit rating in London.” (Contemplating this sen- tence, it’s evident that the bold intu- ition that marks the other Nelles book was foreshadowed in the first.)

In any event, back in New Brunswick, where Premier Dick Hatfield could actually play the role of God in a local theatre production””if only through the medium of a reso- nant tape recording””I came to under- stand just how much provincial gov- ernments depend on the energy and initiative of the premier and a handful of others. Thanks in part to Nelles, I had no trouble entitling a chapter on the 1960s Equal Opportunity Program as ”œLouis Robichaud Clears the Undergrowth.”

Finally there was the style. The Politics of Development is a beautifully written book. It has the qualities I’ve always since tried to instill in my stu- dents: clarity and succinctness in the flow of language, and subtlety and pre- cision in the choice of words. In the preface Nelles thanks Donald Creighton (actually ”œProfessor D.G. Creighton under whose direction I began this study”) not least because ”œhe spent many hours over my laboured prose, never letting me forget that if I hoped to be a historian I first had to be a writer.”

Nelles is some writer. One can open the book anywhere and be rewarded with crisp, clear prose. On the Ontario lumbermen, at a critical turn: ”œTheir strategy, to the extent that a coherent strategy existed, was to adopt a retaliatory posture while bar- gaining for better terms.” Or, on the pulp and paper industry and the 1913 Underwood tariff that unleashed our exports into the U.S. market: ”œEconomic conditions certainly favoured the loca- tion of this industry, but the critical change in the American tariff that laid the basis of the Canadian industry came when it did and in the way it did mainly because of Ontario’s determi- nation””in association with Quebec”” to control forest exploitation accord- ing to its conception of equitable con- tinentalism.” Or this nugget: ”œThe conditions that made public owner- ship necessary and those that made it possible were identical.” This was all perfectly inspiring.

Since first reading The Politics of Development I have had the good fortune to meet Viv Nelles several times. The last occasion was a special pleasure because he was presenting some material from his most recent book, The Art of Nation-Building: Pageantry and Spectacle at Quebec’s Tercentenary.

Nelles’ latest book is every bit as impressive as his first big book. The Politics used 495 pages to describe Ontario’s development strategy over a century. The Art uses 377 pages to describe the celebration of the ter- centenary of the founding of Quebec, an event which spanned just ten days in July of 1908. The Art is not about money and management and respon- sibility, and the policies that structure and respond to them. It’s about other dimensions of policy””intrigue and symbolism, art and pageantry, mean- ing and metaphor, memory and mem- orabilia, luck and Puck. The rest is there too: the limpid writing, the prodigious archival work, the carefully chosen illustrations.

But to me this brilliant book speaks of freedom. Once more I am indebted to H. V. Nelles. First he showed what work can do; then he reminded me that scholars may work as they choose.

Robert Young teaches political science at the University of Western Ontario. His most recent book is The Struggle for Quebec (McGill-Queen’s).

Michel Venne

Rosanvallon, Touraine, Westin, Habermas, Dumont et Beck

Il n’existe pas le livre qui aurait pu éclairer ma pensée sur toutes les dimensions des politiques publiques. Mon inspiration me vient peu des auteurs classiques. Les livres qui ont eu une importance dans mon travail sont d’ailleurs relativement récents. Il y a toutefois un lien entre les auteurs que je cite ici : leurs réflexions s’appuient sur la tension entre vie privée et espace public, entre bien commun et intérêt personnel, entre nation et individu.

Ainsi en va-t-il de celui qui, à mon avis, a fait l’analyse la plus éclairante des maux et de l’avenir de l’État provi- dence. Il s’agit du français Pierre Rosanvallon avec La Crise de l’État pro- vidence, paru en 1981. Dans ce livre, Rosanvallon procède d’abord à une analyse pénétrante des raisons de la crise, notamment la cassure entre la progression automatique de l’État pro- vidence et la population. Les gens ne sont pas en principe contre l’État provi- dence. Ils n’en comprennent plus les finalités. Il fait ensuite la démonstration de l’échec lamentable des théoriciens néo-libéraux à fournir une solution de remplacement. Puis il propose une voie de sortie : la post-social-démocratie, un concept exprimant un nouveau com- promis social entre l’efficacité économique, l’autonomie des person- nes et la protection sociale notamment en réduisant la demande d’État par le transfert à des acteurs sociaux de responsabilités liées à la solidarité et des partenariats entre le privé et le public.

J’ai compris de façon plus claire que jamais l’importance de respecter l’individualité pour favoriser le bon fonctionnement d’une société en lisant Privacy and Freedom, l’ouvrage phare de l’Américain Alan Westin (1967). Westin fut le premier, dans l’ère bureaucratique, au moment où l’on commençait à peine à entrevoir les possibilités de l’informatique, à for- muler un droit à la vie privée et à la protection des renseignements personnels et à lui donner une consistance et une justification politique. Le respect de la vie privée a en effet une fonction sociale.

Le Français Alain Touraine dans Pourrons-nous vivre ensemble, égaux et différents? (1997) m’a fourni l’éclairage le plus pertinent sur le rôle de la nation à l’aube du XXIe siècle : un rôle de médiateur qui permet à l’individu d’échapper à deux dictatures. Grâce à la démocratie, échapper à la dictature des communautés fermées qui dic- taient autrefois leur conduite aux citoyens en s’appuyant sur la tradition. Et grâce à la culture dont la nation est le terreau, échapper à la dictature des marchés.

La lecture des ouvrages de l’Allemand Jà¼rgen Habermas (notamment L’intégration républicaine et Après l’État-nation) m’ont conforté dans l’idée de l’importance de la nation comme lieu d’incarnation de la démocratie.

Dans la même veine, les oeuvres du Québécois Fernand Dumont (Le sort de la culture, L’Avenir de la mémoire, Récit d’une émigration, Raisons com- munes), m’ont convaincu de l’impor- tance de la mémoire (ou de l’histoire) et de la culture pour gouverner nos choix individuels et collectifs.

Enfin, il me faut citer l’Allemand Ulrich Beck dont les réflexions sur La société du risque (Risk Society, 1992, récemment publié en français) mon- trent comment l’on doit « réinventer la politique » (The Reinvention of Politics, 1997) en reconnaissant le rôle de la société civile et l’importance des processus d’évaluation du risque col- lectif dans les décisions politiques. La thèse de Beck me semble particulière- ment utile au moment où l’humanité prend de plus en plus conscience de former une communauté de risques partagés et où ni la tradition ni notre maîtrise imparfaite de la nature ne peuvent plus, comme autrefois, imposer des limites au progrès.

Michel Venne est directeur de l’informa- tion au quotidien montréalais Le Devoir.

Herbert Grubel

A Yale degree but a Chicago education

My views on economic policy were shaped not by reading one of more key books. Instead, they were shaped by sets of books and articles published by a substantial number of distinguished economists. Several of these individu- als have been recognized through the award of a Nobel Prize in economics.

As a graduate student at Yale in the late 1950s my views were shaped by the writings of James Tobin and Arthur Okun, who in their lectures and papers developed Keynesian macroeconomics. This body of knowl- edge justified inflation to fight unem- ployment (the Phillips curve trade-off) and the use of deficits to stimulate the economy. The lectures and papers of more classical economists at Yale like William Fellner and Henry Wallich kept alive in me a flame of doubt about the merit of the Keynesian poli- cies advocated by their more famous colleagues. (Tobin won a Nobel Prize).

The small flame of doubt about the merit of Keynesian macroeconom- ics was fanned by my exposure to the University of Chicago school of eco- nomics, especially Milton Friedman, Harry Johnson, Al Harberger, T. W. Schultz and Robert Mundell (three of whom became Nobel laureates). During my three years as an assistant professor there, Johnson often had fun intro- ducing me as a man who had a Yale degree and a Chicago education. I obtained this education by reading the publications of the faculty, regularly attending the graduate student work- shops of Friedman and Johnson and the many faculty seminars that brought prominent academics from all parts of the world to Chicago for a crit- ical airing of their ideas.

As a result of this exposure to new ideas, monetarism (as an explanation of inflation, not a conservative agen- da) replaced Keynesianism as the dom- inant macroeconomic paradigm in my mind. Rational expectations demolished the concept of the Phillips curve trade-off. Long discussions with Mundell led me to appreciate the merit of hard exchange-rate fixes, an appre- ciation that resulted in my recent pro- posals for the creation of a North American Monetary Union. T.W. Schultz changed my views on the obstacles to economic development, which are inappropriate institutions and laws, not cultural taboos, as I had learned at Yale.

My own work, which stood on the shoulders of other econo- mists, caused me to take often initial- ly very controversial positions in a number of policy area. Thus, the theo- ry and evidence of trade in differenti- ated products (intra-industry trade), developed in a book of my own, strengthened my advocacy for free trade. My research and publications on the benefits from the international diversification of portfolios underlie my support for free capital flows. My work on the effects of unemployment insurance on the rate of unemploy- ment, inspired by the theory of moral hazard, led me to the conclusion that much unemployment was in effect voluntary and not the major human tragedy many considered it to be.

However, the most important influence on my understanding of eco- nomics after my training at Yale has arisen from the revolutionary literature associated with the works of James Buchanan, Gordon Tullock, William Niskanen and Mancur Olson. The writings of these economists noted that the traditional models of government spending, regulation and bureaucratic behavior were incomplete because they disregarded the personal motives of politicians and bureaucrats and the rent-seeking activities of the public. In my view, this selfish behavior and rent- seeking have resulted in a markedly larger government sector than is merit- ed by the kind of pure economic and social cost-benefit analysis that disre- gards these influences.

My persistent policy recommen- dations for smaller government, which are based on this so-called pub- lic choice model, have been reinforced by the analysis of optimal taxation found in the work of James Mirrlees of Oxford. According to this analysis, all taxation causes those who are taxed to change their behavior in an attempt to reduce their tax burden. The result- ant loss of output is highest for direct taxes like those falling on the returns from work, investment and risk-taking and lowest for indirect taxes falling on consumption through sales, value- added and other excise taxes. Optimum tax theory has inspired many of my recent recommendations for the elimination of the capital gains tax and other reforms that would make Canada raise its taxes through a pure expenditure tax.

The thinking and writing of econ- omists shape the attitudes of all Canadians on the economic and social policies of government, whether they know it or not. I hope that the preced- ing account of the sources of my views as a professional economist will be use- ful for those interested in learning more about the works that have had so much influence on economic policies in the recent past and probably will continue to shape policies for decades to come.

Herbert Grubel is Professor of Economics (Emeritus) at Simon Fraser University and Senior Fellow and David Somerville Chair at the Fraser Institute. He is a former Member of Parliament and Reform Party finance critic.

Ian Irvine

Anthony Atkinson and Joseph Stiglitz

Lectures on Public Economics (1980)

To non-economists who are interested in public policy or simply in being informed about current events, the economics profession as a whole has distanced itself too much from the hard facts of reality. In contrast, within the profession, economists are lumped into three strongly differentiated cate- gories: theorists, econometricians and policy types. Econometri-cians make a living from finding ingenious ways of dealing with inadequate data; theorists build abstract models; while policy types, the lowest of the low, are dis- paragingly thought of as a caste that is unable to compete with the technical skills of those in the other groups.

The economist who can build pol- icy on the foundation of econometrics or theory is exceptional. I was fortu- nate enough as a graduate student in the early 1970s to study under Anthony Atkinson when he was writ- ing the drafts of his book Lectures in Public Economics with Joseph Stiglitz. Both were young hot-shot academics who had been given university chairs while still in their twenties. Stiglitz has since won the Nobel Prize, and Atkinson probably won’t have to wait too long before being honoured in the same manner. Both have pro- duced prodigious amounts of path- breaking papers in fields that can be loosely bundled under the title ”œpub- lic economics.”

A major contribution of their book was to emphasize that public policy was not just fuzzily normative, but was amenable to the formalization and mathematical rigor that had become economics’ trademark in the post-war era. The trade-off between equity and efficiency lies at the core of this formalization. The efficient func- tioning of an economy relies heavily on the absence of incentive-reducing or resource-misallocating distortions, while equity considerations demand that we have progressive, and there- fore distorting, taxes. Redistribution and its extent are axioms of social choice, justified either by a Rawlsian or utilitarian philosophy. Thus the degree to which we are willing to tolerate inefficiencies in our economy depends upon the extent of our egalitarian ethic. This ethic is embodied in a social welfare function that encom- passes the behaviour of individuals.

Private individuals are assumed to act mostly out of self-interest, while in theory governments maximize the social good. Social well-being need not coincide with the sum of private well- being because of our concern for the less fortunate.

I carry with me two messages from reading Atkinson and Stiglitz. One is that the recent swing to greater emphasis on efficiency does not elimi- nate equity issues. For example, many observers have recently argued that equalization payments distort the decisions and efforts of people in both the recipient and donor provinces. But if the recipient provinces pay for most of the education of people who migrate to the donor areas of the country, leaving behind a high dependency ratio, then some distortionary effects are tolerable in order to accommodate ”œfairness.”

My second message is to remind those who favour ”œstrong government leadership” that such power must be justified by reference to a specific ethic. For example, the debate on how to restructure Ontario Hydro seems to be motivated more by a wish to avoid pay- ment of corporate taxes to Ottawa than by any desire to have an efficiently managed and focused corporation. Likewise, government monopolies on the sale of wine and liquor in Quebec can claim no ethical justification, while the granting of monopoly distribution rights on beer to a subset of the mar- ketplace in Ontario is even worse.

Atkinson and Stiglitz’s book pro- vides both a rigorous guide to the for- malization of public policy and a reminder that government interven- tion in the marketplace deserves a vig- orous defence.

Ian Irvine teaches economics at Concordia University in Montreal.

Andrew Jackson

Ralph Miliband

The State in Capitalist Society (1969)


Gosta Esping-Anderson

The Three Worlds of Welfare Capitalism (1990)

I began a B.Sc. (Econ.) at the London School of Economics in 1970, transfer- ring from staid Queen’s University to what I had believed to be a mecca of socialist thought and knew to be a hotbed of student rebellion. Originally founded by Fabian Society stalwarts Sidney and Beatrice Webb to promote an empirically grounded case for social transformation, the LSE had, I found, long since fallen to the right. Lionel (Lord) Robbins, the major intel- lectual foe of Keynes in the Depression years, had purged the Department of Economics of its Fabian legacy as long ago as the 1930s. Socialism survived longer in the Department of Government, whose long-time chair, Harold Laski, had been one of the leading Labour Party and democratic socialist intellectuals of the era of Depression and post-war reconstruction. But by the time I arrived the socialist legacy of LSE sur- vived in only a few isolated figures, most notably my new tutor, Ralph Miliband.

Miliband, an exile from Fascist Europe, was one of the leading lights of the early British New Left. He helped found two influential post- Communist journals, New Left Review and Socialist Register, which survive to this day. But he fell out with the edi- tors of the New Left Review, who drew their inspiration from the salons of Paris, and he had uncomfortable rela- tions with the radicals who dominated LSE student politics of the 1960s and early 1970s. (While one utopian slo- gan of the Paris student revolt of 1968 was famously, ”œsous le pavé, la plage,” Miliband characteristically noted in one of his packed lectures on Marxism that, under the pavement, in fact, lay the sewers and water pipes. Though not a Fabian, he thought, like the Webbs, that such practical matters had to be taken seriously even by revolu- tionaries).

At our first meeting, in his book- lined living room, I vented my youth- ful socialist enthusiasms. In return. I was given a list of about 20 books to read before I would be allowed to return. This gave very short shrift to then very fashionable left gurus like Herbert Marcuse, and pride of place to careful empirical analysts of the dynamics of social class and power, such as American sociologist C. Wright Mills, British historian Eric Hobsbawm and Miliband himself. I was also admonished to read The Economist and the Financial Times. If you want to change the world, Ralph said, you have to listen in on the elites dis- cussing among themselves how the world works.

In 1969, Miliband had published his enormously influential The State in Capitalist Society. Written at the very heyday of the Keynesian welfare state when ”œthe end of ideol- ogy” was being celebrated by social democrats and mainstream conserva- tives alike, the book challenged the dominant liberal-pluralist premise of widely diffused power. The core argu- ments were that modern societies remained characterized by an unequal distribution of power between social classes, and that the democratic state played a central role in maintaining a still fundamentally capitalist economic order.

At the same time, Miliband rejected the crude Marxist argument that the state is ”œnothing but an executive committee of the bourgeoisie.” Rather, he pointed to the need for the state to be ”œrelatively autonomous” of ”œruling class” interests in order to maintain the stability and legitimacy of the social order as a whole. From this per- spective, the welfare state represented both an expression of working-class interests and an attempt to contain working-class opposition to a still fundamentally unequal order. Successful governments in capitalist societies understood the need to temper the market in the interests of both legiti- macy and economic stability.

Some 20 years later, writing within the same broad tradition of left political economy, Gosta Esping- Anderson published The Three Worlds of Welfare Capitalism. Like Miliband, he saw the welfare state as a product of class politics and class accommoda- tion, securing social stability by tem- pering the inegalitarian consequences of the market and creating ”œdecom- modified” spheres in which allocation was based on citizenship rights. Unlike Miliband, and strikingly for me at the time, Esping-Anderson stressed the existence of three quite different forms of welfare capitalism in the 1970s and 1980s.

Esping-Anderson broadly distin- guished among: the social democratic model, with highly regulated labour markets and a large ”œdecommodified” sphere of public provision; the liberal model of limited welfare provision and ”œflexible labour markets”; and the intermediate continental European ”œsocial market” tradition of welfare rights based on secure private sector employment. His key argument was that social programs and the labour market can be connected in distinc- tive ways to produce quite different welfare state regimes, each of which has its own logic of functioning and development.

It is interesting to reflect back on these seminal contributions from today’s vantage point. The welfare state and regulated labour markets are widely seen, on both left and right, as vestiges of the past that have fallen victim to the irresistible pressures of globalization. On the left, it is argued that ”œglobal corporate rule” has swept away social protections and promoted ”œsavage capitalism.” On the right, it is often argued that ”œthere is no alterna- tive” to a liberal market order and that countries must embrace the min- imalist state model or suffer the con- sequences in the form of lost invest- ment and lost jobs.

In fact, as argued in a just-pub- lished set of new essays on the con- temporary welfare state, very different forms of capitalism continue to exist today (see Paul Pierson, ed., The New Politics of the Welfare State. There cer- tainly are pressures towards austerity and retrenchment arising from global competition for production and investment, but the idea of protection from the vicissitudes and unequal out- comes of the ”œfree” labour market is enduringly popular among working people.

Moreover, it is far from clear that the social democratic and social mar- ket variants of welfare capitalism are doomed. Fast-growing Denmark and the Netherlands showed that it was possible to combine equity and effi- ciency goals in the 1990s by reform- ing rather than dismantling social programs and labour market regula- tion, while the collapse of the U.S. bubble economy makes recent predic- tions of a new era of permanent liber- al prosperity and stability seem a trifle premature.

There is no doubt that the world economy and the role of the state vis- à-vis the market are enormously differ- ent today than at the end of the post- war ”œGolden Age” of national welfare capitalisms. But Miliband’s and Esping-Anderson’s central insights should be taken more seriously by the contemporary left. The democratic state has not been supplanted by ”œglobal corporate rule,” and capitalism is quite capable of taking on different forms depending on the outcomes of the political process.

As for the right, the message is more ominous: the contradictions of market societies and capitalist economies will trump the liberal dream of a self-regulating economy and a minimalist state.

Andrew Jackson is Director of Research at the Canadian Council of Social Development.

Dan Usher

Thomas Hobbes

Leviathan (1651)

Some books influence by persuasion; others by challenge. For me, as for most readers today, Hobbes’ Leviathan is in the latter category. From my first encounter with the Leviathan as an undergraduate at McGill to other read- ings many years later, the book identi- fied the central problem of politics by ”œproving” what I could not accept to be true: that government by an uncon- strained sovereign was the best that could be hoped for in this imperfect world. As an undergraduate still under the spell of a geometry that seemed to constrain the world by pure reason, I could not help but be captivated by Hobbes’ geometrical style, his axioms about the nature of man, his theorems prescribing laws of nature, and his final declaration that as

…the estate of man can never be without some incommodity or other; and that the greatest, that in any form of govern- ment can possibly happen to the people in generall, is scarce sensible, in respect of the miseries, and horrible calamities, that accompany a Civill Warre; or that dissolute condition of masterlesse men, without subjection to Lawes, and a coer- cive Power to tye their hands from rap- ine, and revenge…

… men must in their own interest and to preserve their lives …

conferre all their power and strength upon one Man, or upon one Assembly of men, that he may reduce all their wills, by plurality of voices into one Will….and everyone to owne, and to acknowledge himselfe to be the Author of whatsoever he that so beareth their Person, shall Act, or cause to be Acted, in those things which concerne their Common Peace and Safetie.

That was heady stuff for one who had never questioned the virtues of liberal democracy. The argument con- tinues to challenge social scientists today studying how democracy works, why it works, what are its weaknesses and how institutions may be designed to keep democracy going.

Beyond its geometrical form, two other aspects of the Leviathan endear it to the contemporary reader. The first is its literary style. Hobbes writes beautifully. The Leviathan is political science in Shakespearian English with memorable lines on every page. The reader, and, I must confess, the writer, of ordinary social science prose cannot but be enchanted. The spelling is fun too. Warre is much more ominous than mere war.

The second endearing aspect of The Leviathan is the evident decency of its author. We think of tyrants as evil. We think of supporters of tyrants as almost equally evil. Despite his sup- port for what may turn out to be tyran- ny, Hobbes remains on the side of the angels. Like the axioms of geometry, his axioms about the nature of man seem self-evident, encompassing the best as well as the worst of our natures. We recognize the sincerety of Hobbes’ fervent hope that the sovereign will turn out well.

I do not know if ”œmy” Leviathan squares with the best-informed scholar- ly reading of Hobbes today. I speak only of how the book influenced me, and I should add that this influence has been exerted almost entirely by the first two parts””Of Man and Of Common- wealth””rather than by the last two parts””Of a Christian Commonwealth and Of the Kingdom of Darknesse.

Dan Usher is Adjunct Emeritus Professor of Economics at Queen’s University.

John Robson

Richard M. Nixon

The Real War (1981)

The book that had the greatest influ- ence on the way I think about public policy is Richard Nixon’s The Real War. It is neither the most important nor the best-written book I have ever read, but it is both important and well-writ- ten, and it fell into my hands at a key moment. I eventually wrote my Ph.D. dissertation on Nixon’s conception of foreign policy, but the book’s impact on me was far greater. Ever since I read it, I have been persuaded that it is indeed ideas that, for better or worse, determine the course of history.

It happened like this. In my fourth year of a B.A. in history at the University of Toronto, I was taking an excellent upper-division U.S. history seminar with Prof. Bill Berman, and among the textbooks was Jonathan Schell’s Time of Illusion, which por- trayed the Nixon years as a nightmare dominated by a kind of shapeless malevolent force in the White House, whose deeds and words were discon- nected from any reality except the need to maintain an impossible credi- bility on nuclear weapons, while at the same time cohering into a sinister plot to acquire the power to do evil … just because. Schell is an excellent writer and the book was highly entertaining, but I felt a nagging suspicion that Nixon couldn’t be both a master of illusion and a master of the realities of power, nor could he devote so much intelligent energy to the pursuit of formless, pointless wrongdoing.

Then, browsing in a bookstore from whose shelves I had often plucked surprising, interesting vol- umes, I stumbled across one by Richard Nixon called The Real War, written from his San Clemente exile in 1981. ”œThis mental nothing wrote books?” I thought to myself. Intrigued, I bought and read it. It impressed me, particularly because the mind I encountered in those pages was the exact opposite of what I would have found had Schell been right. The Real War was a period piece, a cri de coeur for a change in U.S. for- eign policy, filled through with alarm- ing examples of what had gone wrong under Jimmy Carter. But it was more than that. It was a fiercely intelligent book, and an intellectually coherent one. Nixon was not only arguing for a more assertive, ”œrealistic” American policy, he was doing so from a well- articulated theoretical perspective, whose essence was that foreign policy ought to advance the national inter- est by offering rewards and punish- ments to other nations based on their foreign policy. Not only was it not possible to concern oneself effectively with the internal affairs of other countries, Nixon argued, it was not necessary, because domestic structure had no influence on foreign policy, and any nation that wasn’t following a policy of realpolitik was simply weakening itself.

One may or may not agree with this vision; I do, and I’m in good com- pany that includes, most notably, George Washington. Among other things, I wrote a piece for Policy Options about how this concept works, how it matches very well what free- marketeers believe about economic actors more generally and how it should therefore appeal to them more than it seems to. But what struck me about this book, and exerted a pro- found influence on my thinking about public policy is that people think coherently. Yes, stupidity and hypocrisy are important factors in decision-making, but they are overlaid on a foundation of coherent, if not always highly intelligent consistency. If people are wrong, they are consis- tently wrong, because they reason con- sistently from the same wrong premis- es, and if they are right, they are con- sistently right, because they reason consistently from the same right prem- ises. The reason that Nixon kept doing things Schell didn’t like wasn’t that he was mindlessly evil but that he gen- uinely disagreed with Schell about how the world worked, about what ought and could be done and about how to go about doing it.

Nixon’s book is not the end of the story, of course, either on foreign policy or on ideology. The single best book I’ve ever read on political ideolo- gy is Thomas Sowell’s Conflict of Visions, while the best books on how it is possible for rational, intelligent peo- ple to disagree in a more general sense are the British empirical philosophers, and Thomas Kuhn’s The Structure of Scientific Revolutions. And if I were put- ting together a list of 10 books to introduce an intelligent person to pub- lic policy, The Real War would not be included. It was, however, a watershed for me in what I fondly think of as my intellectual development.

From the moment I read that book, I never again doubted that ideas matter in history and public policy, that they matter more than anything else, and that the reason people dis- agree, and disagree consistently if they disagree on anything but details, is that they think differently. The reason that intelligent people disagree in good faith about what should be done is that they disagree about why it should be done and how. I find myself impatient with those who, like Schell, can only explain their political adversaries’ poli- cies as the product of irrational malev- olence. That view is not merely cheap shooting, but it deprives its adherents of understanding, and it then drains the public debate of rational content because all one side has to contribute is an overbearing sneer.

Since then I’ve read better books than The Real War; some were more important, some were better written and a few were both. But no book had a greater impact on me, because it came into my hands at exactly the right moment to bring order out of chaos in my thinking about what makes the real world, to use one of the author’s favourite expressions, go round. It’s ideas that determine what people do, for better or worse. And I owe that insight to Richard Milhous Nixon.

John Robson is a columnist and Senior Editorial Writer for the Ottawa Citizen.

J. A. A. Lovink

Theodore J. Lowi

The End of Liberalism: Ideology, Policy and the Crisis of Public Authority (1969)

When I first read this book, in 1970, I was intrigued both by its analysis of the policy-making process in the U.S. and by its prescriptions for reform. A recent re-reading revealed its contin- ued, and in some respects increased, significance. Although the book has important weaknesses, specified below, I believe that its central message still deserves to be heard.

According to Lowi, then a profes- sor of political science at the University of Chicago:

  • Most American policy-makers in the 1950s and 1960s had implicitly accepted a new, ersatz version of liber- alism that defined the public interest in any issue of public policy as syn- onymous with the outcome of negoti- ations on that issue among the organ- ized interests most directly affected. Following the general acceptance of this new ”œpublic philosophy,” it had widely come to be seen as unnecessary (even undesirable) to define the public interest through the careful specifica- tion of ends and acceptable means in related legislation;
  • The decisions implementing the resulting legislation were being made through largely unfettered bar- gaining among administrators, agen- cies and private interests, typically in camera. Because the parties normally made no effort to link their agree- ments to an explicit, understandable interpretation of the wider public interest, the modern policy-making process had caused a severe decline in the perceived legitimacy of public pol- icy, tantamount to a ”œcrisis of public authority.”
  • The practical consequences of the resulting decisions, at least in Lowi’s limited studies of their impact on urban renewal, racial inequality and poverty, were largely contrary to the results intended or hoped for, and incompatible with important, broadly accepted public values.

The remedy, in Lowi’s view, did not lie in an attempt to reduce the role of interest groups, an effort that he regarded as both undesirable (because of the contributions that groups can make to the search for workable solu- tions to public policy problems) and politically impossible. Instead, he urged acceptance of the need to speci- fy the purposes of legislation as clearly as possible, and to set explicit stan- dards against which the results of implementation should be judged. He saw these changes as essential to pre- vent the policy-making process from serving only the interests directly involved.

Lowi did not make light of the difficulties of achieving what he rec- ognized very clearly as fundamental adjustments in the political process. He acknowledged that all the estab- lished interests would fight them (to prevent the resulting diminution in the scope for negotiation and log- rolling); that they would be criticized as impractical (because legislators would be unable to agree on the new ”œjuridical” requirements) and ineffi- cient (because attempts to do so would reduce their output unduly); and that they would require support from the courts (particularly from the Supreme Court), by rejecting legisla- tion that did not satisfy the suggested requirements. His response to these obstacles: ”œThe only test of a deter- ministic hypothesis [e.g., one declar- ing that the existing policy-making process merely reflects the realities of power and that criticism is irrelevant] is whether real-world attempts to deny it fail”(287).

Although (or perhaps because) Lowi made his case in admittedly polemical fashion, his book offered a stimulating and challenging basis of discussion with advanced students of political science when I was a member of the Department of Political Studies at Queen’s University between 1964 and 1977. A career change at that time caused me to lose track of subsequent developments in the academic litera- ture on policy-making, but it gave me a first-hand knowledge of the policy- making process in Canada. On that basis, necessarily limited in scope, and in the light of the growth in interest- group power caused by Canada’s transfer of major government respon- sibilities to independent monopoly operators, it appears to me that Lowi’s analysis and prescription deserve another look.

First, some background on the text- book understanding of democratic politics when Lowi’s book came out: At that time, it had already been wide- ly recognized in all modern democra- cies that a large role for organized pri- vate interests in the making of public policy was both necessary and desir- able. Undoubtedly, the principal source of this consensus had been the enormous extension in the ”œreach” of government, itself a response to the vast range of new needs created by the process of rapid social change in the preceding three or four decades. The resulting expansion of government had given private interests a powerful incentive to mobilize their collective political resources, both for self-pro- tection and to harness government to their own ends. Many have substan- tial political resources””such as legiti- macy, economic power, strategic social location and a unique com- mand of information essential in for- mulating effective public policies”” and their cooperation is essential to implementing many policies effectively, or even at all.

The political influence of private interest groups had also been linked to two main ideological underpinnings. One was a growing tendency in mod- ern democracies to see society from a quasi-corporatist or syndicalist per- spective””as an amalgam of occupa- tional and vocational groups each hav- ing such unique interests as to require direct representation and a large meas- ure of self-government. As a corollary of this outlook, it had in many places become a key criterion of the legitima- cy of any public policy that the inter- ests most directly affected have an adequate voice in its formulation. For example, Samuel H. Beer reported a widespread belief in the U.K. that pro- ducers’ groups

have a ”œright” to take part in making public policy related to their sector of activity, and, indeed, that their approval of a relevant policy or pro- gram is a substantial reason for public confidence in it and conversely that their disapproval is cause for public uneasiness. It is in short an attitude reflecting a widespread acceptance of functional representation in British political culture (British Politics in the Collectivist Age, 1965, 329).

A second ideological underpinning for modern pluralist politics had been found in ”œthe basic attitudes of moder- nity, rationalism and voluntarism” (Beer, Modern Political Development, 1973, 119). This spirit had manifested itself, among other ways, in a growing impatience with restraints of all kinds and in the evident diminution in respect for authority””two tendencies that were highly congruent with an expanding universe of active interest groups. Ideological change thus appeared to have contributed vitally toward bringing modern interest groups to flower by enhancing their legitimacy and supplying a major source of drive and militancy.

If this is a valid summary of the con- ventional understanding of demo- cratic pluralist politics at the time Lowi’s book appeared, what did he contribute to it?

In my opinion, his construct of an ideological justification for the wide- spread delegation of decision-making power to interest-group negotiators””a process he colourfully described as the ”œelevation of government-by-conflict- of-interest to a virtuous principle” (65)””lacks credibility. The common awareness that political playing fields tend not to be level, that not all interests are equally well-organized, and that some interests are not organized at all, makes it hard to believe that many peo- ple would regard the outcome of negoti- ations with and among organized groups as synonymous with the public interest. Lowi reinforces the doubts on that score when he says that the new public philosophy is based on ”œan impossible assumption that competi- tion [among organized interests] …yields ideal results… [T]his is as absurd as a similar assumption of laissez-faire economists about the ideal results of economic competition” (295). But he offers no direct evidence that this ”œimpossible” and ”œabsurd” assumption has actually been made by enough peo- ple to make it the ruling public philoso- phy. On a point as central as this, more than elaborate inferences are necessary.

Indeed, it is by no means evident that the increased ability of private interests to shape the practical mean- ing of public policy requires the ideo- logical rationalization concocted by Lowi. The phenomenon at issue””a far- reaching decentralization of the power to make public policy””can be explained sufficiently as a rational response to the overload of problems facing modern democratic govern- ments; to the need to reduce conflict at the national level, by ”œkicking compli- cated problems downstairs” whenever possible; to the ability of many organ- ized interests to withhold their indis- pensable cooperation in the implemen- tation of decisions which they consider unacceptable; and to the understand- able insistence of all organized groups on maximum scope for self-determina- tion and minimum scope for external guidance or review. Indeed, if the new public philosophy deduced by Lowi had been as widely accepted as he thought, the ”œcrisis of public authority” would have been much less severe than he believed it to be.

Lowi’s book is also somewhat dis- appointing from a theoretical perspec- tive. He was content merely to note, en passant, that the observed decentraliza- tion of policy-making applied more to some policy issues than others””which is not very surprising. He might at least have highlighted the many theoretical- ly important questions implied by this variation, or explained why a thorough exploration of those questions had (quite reasonably) been precluded by the breadth and complexity of the analysis involved. In truth, there is room for valid doubt that any adequate theory (as distinct from conceivable hypotheses) for explaining such varia- tion in the distribution of power, over the entire range of public policy, lies within the grasp of political science, now or perhaps ever. On that score, Charles E. Lindblom has offered the fol- lowing assessment:

Endless variety is possible in the pattern of influences brought to bear on a policy through informal mutual adjustment…. [E]ven if we see an understandable recurrent pattern in most of the forces impinging on the pol- icy, we cannot be sure just what the weight of the unique elements is, or the specific character of their influence on the outcome. We can never therefore wholly explain why a particular policy is what it is. (The Policy-Making Process, 100; emphasis added)

In my view, Lowi’s main contribu- tion lay in his wide-ranging documenta- tion of the delegation of enormous poli- cy-making power to organized private interests in the U.S.; his demonstration that, in the instances examined, the con- sequences had been difficult to reconcile with national policy objectives; and his insistence that such unfortunate results could have been prevented by ensuring that all legislation contained clear policy objectives and implementation stan- dards, thereby reducing the ”œbroad dis- cretion [that] makes a politician out of [every] bureaucrat [and interest group representative]” (300). Although he begged the question how clear is clear enough (e.g., would a statutory prohibi- tion on ”œpredatory” pricing qualify?), that was undoubtedly because the search for an adequate response would have led him too far afield. But the difficulty of the question does not invalidate his view that answers are necessary. Let them be case-by-case if general rules lie beyond our reach.

A substantial inquiry would be neces- sary to find out to what extent Lowi’s analysis is valid for Canada as well, and thus to know whether his pre- scriptions ring our bell. How much of Canada’s legislation contains objectives and implementation standards that are so vaguely formulated that administra- tors and interest groups are given little guidance on Parliament’s intent, mak- ing the subsequent negotiations more difficult and the nature of the resulting agreements (if any) more difficult to predict? Where lies the optimum balance between tighter constraints to ensure that federal money is spent in ways that are consistent with federal policy, and the need for flexibility in implementa- tion to ensure that local wishes and needs are taken into adequate consider- ation? Even if the answers are unclear, the questions are worth asking.

One field in which the answers will certainly not be satisfactory is Canada’s approach to the transfer of major opera- tional responsibilities, like the operation of airports and the provision of air nav- igation services, to autonomous com- mercial monopolies. In the govern- ment’s eagerness to hive off those func- tions, both to improve their efficiency and to reduce the deficit, the power to make many decisions with (re)distribu- tive impact””which means they are essentially political””was handed over to the operators involved, to be negoti- ated as they saw fit with their principal clients. Policy guidelines and avenues for review and redress are weak or non- existent. No situation could have fitted Lowi’s critique more perfectly.

Other evidence also confirms that Lowi’s critique applies in Canada. A notable example is the deplorable ten- dency in Ottawa in recent years to ask ”œstakeholders” and the general public for solutions to policy problems without setting the stage to facilitate an informed and constructive debate. Such assistance, in the form of substantial discussion papers that explain the prob- lem, identify and evaluate credible options and make recommendations, would be extremely helpful but seems now to be the exception. Ostensibly this in order to avoid ”œlimiting the scope for democratic debate” but it seems more likely to be an expedient to avoid the burdens and risks of leadership. Few sig- nificant deficiencies of the policy-mak- ing process would be as easy to remedy, given the necessary political will.

J.A.A. Lovink is a former professor of political studies at Queen’s University and a former senior official in the federal public service. He is now a writer and management consultant.

Christopher Ragan

Milton Friedman

”œThe Role of Monetary Policy” (1968)

When I was an undergraduate student at the University of Victoria in the early 1980s, I fell in love with economics just a few weeks into an introductory course taught by John Schofield. I had found a way of thinking that immediately agreed with me. By the time I was a sen- ior undergraduate, the attraction had only increased, but I also recognized a clear split in my view of the subject. Microeconomics was intuitive, precise and straightforward. There was usually a single decision-maker, a sensible objective, and an obvious set of con- straints. Even when the various deci- sion-makers were aggregated into a sin- gle market, it was easy to see what was going on. Macroeconomics, on the other hand, was much messier and I found it harder to get it straight in my mind. The equations and graphs were clear enough, but it was obvious that there was much more going on than in micro, and often the action appeared to take place behind the scenes, thanks in part to Walras’ Law that across even widely disparate markets demand sim- ply had to add up to supply. I made it over the necessary hurdles in terms of shifting curves and solving systems, but I couldn’t shake the feeling that I still didn’t fully ”œget it”””or, as I now describe the process to my students, the various pieces of the macro puzzle had not yet ”œclicked” into place.

Despite the messiness of macro- economics there was no question that I found it more appealing than micro. In fact, I now realize that the messi- ness””which arises naturally from the combination of general equilibrium, expectations and uncertainty and real- world institutions and policy dilem- mas””is one of the things that attracts me most about studying macroeco- nomics, and especially macroeconom- ic policy.

When I arrived at Queen’s University’s Master’s program in September 1984, I realized that macro- economics was going to get a lot messier. I recall in particular solving rational expectations models using the mathematical method of undetermined coefficients. This struck me at the time as a bizarre and unintuitive approach, and didn’t seem to help me get the big picture of what was going on or why it mattered. But I had the pleasure and extreme good fortune of taking my first graduate macroeconomics course from the late Doug Purvis, and received some of the benefits of his basics-intensive Chicago training, his considerable poli- cy savvy and, most important, his abil- ity to draw the link between theory and reality. With Doug Purvis, macroeco- nomics really came alive, and this excitement continued the following year when I was lucky enough to learn macroeconomics at MIT from Doug’s Chicago classmate Rudi Dornbusch.

It was at Queen’s that I first read Milton Friedman’s Presidential Address to the American Economic Association, ”œThe Role of Monetary Policy,” which was published in the American Economic Review in March 1968. To a budding economist entranced by the fascinating but complex puzzle of macroeconomics this paper was a godsend. As I read Friedman, there was an audible ”œclick” as the various pieces of macroeconom- ics began falling into place in my mind. His vision of the way the economy worked was so clear that it seemed to make macroeconomics straightfor- ward””perhaps deceptively so Friedman’s paper has been criticized by some, but there is no question of its enormous influence on the economics profession. It was then, and by many people still is considered the most influ- ential work on monetary theory and policy in the past 50 years. It was easy for me to see why.

The motivation for Friedman’s Presidential Address was his grow- ing concern in the late 1960s that econ- omists and policy-makers were begin- ning to put too much faith in monetary policy as a means of achieving goals such as low unemployment and the sta- bilization of national income. This growing faith followed very different views from earlier decades. In the 1920s, the dominant view was that monetary policy’s goal was to maintain stable prices and support the gold stan- dard. By the 1950s, after the Great Depression and Keynes’ influential pro- motion of activist fiscal policy, mone- tary policy was very much the poor cousin; its sole use was seen to be main- taining low interest rates on govern- ment debt. By the 1960s, however, monetary policy was back in favour”” money clearly mattered. There was an emerging belief that monetary policy could be effectively used to ”œfine-tune” the economy and to promote high and stable employment. In some circles it was thought, especially after the arrival of the Phillips Curve, that monetary policy could even be used to choose between various inflation/unemploy- ment combinations. Friedman, who was both a distinguished macroeco- nomic theorist and co-author of the definitive monetary history of the United States, was concerned that by failing to understand monetary policy’s limitations, most economists were expecting too much from it. The likely result of this excessive monetary zeal would be a world in which monetary policy was seriously abused and thus prevented from making the real and significant contribution that was well within its reach.

Friedman divides his arguments into two. In the first half he provides the positive analysis of what monetary policy can and cannot achieve. In the second he discusses the normative issue of how monetary policy should be conducted. The first half of the paper revolutionized how the profes- sion thinks and teaches its students. Here we see the important role of inflation expectations and how sensi- ble workers and firms who adapt their expectations to changes in their eco- nomic environment imply the disap- pearance of what before Friedman was thought to be a stable relationship between inflation and unemployment. Friedman’s views represent what is now the standard treatment of the short-run and long-run Phillips Curves. Indeed, his views have become so much a part of the mainstream that in our textbooks we often no longer attribute them to him””the true test of a seminal contribution.

The normative half of Friedman’s paper has been less influential. Though his guiding principles are well- accepted by most economists, his spe- cific policy recommendations are sup- ported by only a minority. Most econ- omists agree that monetary policy can be the source of a great deal of uncer- tainty and that monetary policy should be conducted in such a way as to provide greater stability in the eco- nomic environment. But at this point the agreement ends. Friedman takes the ”œstrong monetarist” position that central banks should set target rates of growth for monetary aggregates such as the stock of cash and money held in chequing accounts (the traditional definition of ”œM1”) or these plus saving account assets (”œM2”). His reasoning is, first, that such aggregates are most closely linked to the central bank’s pol- icy instrument and, second, that their growth is what ultimately drives infla- tion. He goes so far as to advocate a constant growth rate for such aggre- gates, and for a time in the 1970s many of the world’s major central banks tried exactly that. By contrast, most economists now take the view that monetary policy, though ulti- mately responsible for determining the path of inflation, is more successfully conducted by focusing on variables other than just measures of the money supply.

How has Friedman’s thinking influenced policy decisions in the world’s central banks? Pure money growth rules were largely abandoned in the 1980s, but the more recent adoption of formal inflation targets in Canada and elsewhere reflects both the influence of Friedman’s positive arguments and the controversy sur- rounding his normative arguments. Though they are not always explicit about the reasons for their policy choices, these central banks seem to have bought Friedman’s arguments that the long-run effects of monetary policy are only on nominal variables, especially the rate of inflation. Sustained inflation is now widely viewed as being fundamentally a mon- etary phenomenon. However, though these same central banks probably also accept Friedman’s point that monetary aggregates are more closely linked to the central bank’s policy instrument than is the rate of inflation, they also realize that instability of money demand makes strict monetary target- ing an ineffective way to conduct monetary policy. Since inflation is ulti- mately driven by monetary policy, there is obvious sense in making it the formal target of the policy.

Friedman’s ”œThe Role of Monetary Policy” fundamentally altered the way both academic macroeconomists and policy-makers think about what monetary policy can do and about how it should be conducted. At a per- sonal level, it was instrumental in put- ting me on track for getting my macro- economic thoughts in order. And I’m not alone. Friedman’s ideas have earned a central place within the core of the macroeconomics that academic economists teach to thousands of undergraduates every year. His presi- dential address has been on my read- ing lists at McGill””in both graduate and undergraduate courses””since I began teaching, and I see no reason why it will be removed. I re-read it every few years and am amazed at the new (or perhaps forgotten) insights that I receive each time. I encourage anyone who has an interest in mone- tary policy, and even those who don’t, to spend a rewarding hour revisiting this wonderful paper.

Christopher Ragan is Associate Professor of Economics at McGill University.

John Richards

Mancur Olson

The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (1982)

If your editor had asked me to choose the half-dozen books that have most influenced my thinking about public policy, I would have filibustered until he went on to someone else. Fortunately, he wants one book only. That makes things a whole lot easier. I choose The Rise and Decline of Nations. It is Mancur Olson’s best attempt to synthesize his ideas about the baleful effect of narrow interest groups that proliferate, like barnacles on a ship’s hull, and if not scraped off from time to time can slow the ship of state to a slug-like crawl.

Before I turn to the book, a little about the man. Born in 1932, Mancur Olson died in 1998. A Rhodes scholar- ship took him to Oxford and he earned a Ph.D. from Harvard. As a sen- ior Washington bureaucrat he took part in Lyndon Johnson’s ”œGreat Society.” From 1970 until his death, he taught economics at the University of Maryland, where he founded a policy institute””with the ponderous title of Institutional Reform and the Informal Sector, universally known by the acronym IRIS. IRIS has become a major source of pragmatic policy analysis about economic development in the Third World and former Communist countries.

What first drew me to Olson’s work was probably the political sub- text. Olson was born in Grand Forks, North Dakota. However far he traveled from the prairies, he carried with him a certain midwestern moral earnestness, a political outlook that is readily identifi- able in politicians as diverse as Tommy Douglas and Tommy Thompson. This earnestness was there, whether Olson was writing about Scandinavia’s ”œencompassing” interest groups, the inefficiencies inherent in India’s caste system or the effect on productivity of bloody-minded British union leaders.

Having grown up in Saskatoon””400 miles from Grand Forks but just next door in terms of politics””I appreciated Olson’s attempt to give intellectual substance to our prairie view of the world.

North or south of the 49th paral- lel, from Wisconsin to Alberta, the core of this political culture is some- thing like the following: Hard-work- ing farmers do God’s work by raising wheat which they sell to feed the world. People need to import things from elsewhere, and should be able to do so with no tariffs and cheap freight rates. Competitive markets and inter- national free-trade agreements make sense. Equally obviously, there are things that people cannot achieve via markets. So they get together and arrange via their state or provincial governments to pave the roads, run a respectable school system and make sure the poor avoid destitution. There are natural pests to contend with: grasshoppers, rust, droughts and early frosts. There are also man-made pests which come in the form of ”œvested interests”””combines of powerful companies whose tentacles extend into the national capital, often in con- cert with big labour. Together, these malefactors induce governments, par- ticularly far-away national govern- ments, to do things they should not: sanction price-fixing, erect tariffs and spend lavishly on bread and circuses designed to placate those living in the national capital.

I’ve often wished that somehow it would have been possible to organ- ize an informal meal in a Grand Forks restaurant, with Olson as guest of hon- our. Among the guests would be Hubert Humphrey. This son of a South Dakota drugstore owner would explain how he persuaded farm and labour leaders to cooperate in the Minnesota Democratic Farmer-Labor Party. Tommy Douglas would regale every- one with anecdotes about a cabinet full of farmers and teachers, and city slicker advisers who didn’t know wheat from oats but who had come to Regina because the CCF/NDP hadn’t won anywhere else. Ernest Manning would have had to be invited, although he would add a dour note to the proceedings, talking incessantly about wanton fiscal waste in Ottawa. Maybe, he would bring along his well- read son. Mancur Olson would analyze the perfidious doings of interest groups in other national capitals”” Washington, Moscow and Delhi. And then, he would warn guests that farm lobbies also succumb to inefficient rent-seeking strategies.

At this point, sophisticated Policy Option readers may be ready to dismiss Olson””and me””as anachronisms. In part, they’re right. In preparing for this assignment, I reread The Rise and Decline, something I had not done for many years. The ”œbest before” date on some of Olson’s analysis has, I admit, been exceeded.

According to Olson, ”œstable soci- eties with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time” (41) and these distribution- al interest groups inexorably retard economic growth. Among industrial countries, Britain is the country with the longest uninterrupted stint of polit- ical stability. Protracted stability, Olson concluded, was the ultimate cause of sluggish British economic growth over the 20th century. Short of losing a major war, there was, Olson implied, no way to break the power of vested interests. Olson was not wrong in his diagnosis of the British disease but he was too pessimistic in assessing the sources of renewal.

Olson published this book in 1982, just as Margaret Thatcher was beginning to handbag Oxbridge man- darins in Whitehall and Marxist union leaders in money-losing state-run coal mines into accepting deregulation and privatization. Olson failed to appreci- ate what was happening in Britain as he wrote. Via engagé intellectuals (such as her colleague Keith Joseph), the gro- cer’s daughter learned the essence of interest group theory and persuaded the majority of her fellow citizens that major restructuring was necessary. Not only has post-1980 British economic growth turned out better than a read- ing of Olson predicts, Thatcher’s suc- cess persuaded Tony Blair and his col- leagues to do battle with the ”œcollu- sions and organizations for collective action” (i.e., the trade unions) that had, for decades, controlled the inner councils of the Labour Party.

Though Olson got some things wrong, he got a lot right. ”œAs I see it,” he wrote of Third World develop- ment, ”œin these days it takes an enor- mous amount of stupid policies or bad or unstable institutions to prevent eco- nomic development. Unfortunately, growth-retarding regimes, policies, and institutions are the rule rather than the exception, and the majority of the world’s population lives in poverty” (175). Well said.

Olson’s analysis of the debilitating role of caste on the Indian economy is as relevant now as when he wrote it. The caste system should be seen as a set of rigidly structured economic interest groups, not just a matter of religion. Except for those in the untouchable lower castes, there exist ”œselective incentives”””one of Olson’s core ideas””that induce caste members to promote the intergenerational sur- vival of this profoundly inefficient arrangement.

In unstable developing countries, he concluded, concentrated corporate interests operating at the political centre are likely to wield undue influence and secure protective tariffs. This in turn breeds corrupt customs officials with an interest in preventing trade liberalization. Other interest groups located in the capital are also likely to drag down the economy by their dis- tributional demands. Such groups include public sector unions insisting that foreign aid be used to finance inefficient overstaffing of public enter- prises, and university students who march in the streets for an inefficient tilting of education budgets toward themselves and away from elementary and secondary schools. To keep them quiet, even the urban poor are likely to garner subsidies and services unavail- able to the rural poor. Twenty years after he described it, this syndrome still can be observed in a distressingly large number of Third World capitals.

Finally, Olson’s acute sense of per- verse interest groups foreshadowed the disappointments of post-Communist Eastern Europe. Following the collapse of the Soviet Empire, many American policy analysts subscribed to the so- called Washington consensus. It defined appropriate policy as shock therapy: rapid privatization of state- owned firms, liberalization of all mar- kets, dismantling of lifetime job securi- ty arrangements and drastic reduction in public sector spending. Too much of this agenda rested on a laissez-faire utopianism, the belief that, once freed from the communist yoke, the entre- preneurial spirit would spontaneously spring forth and free markets would thrive. Olson dismissed laissez-faire as ”œmonodiabolism,” a belief that there is but one devil and it is the government. Ten years on, it is obvious that ex-com- munist countries require much more than simply non-communist rule and smaller government. Interest groups, many of an outright criminal nature, formed within communist societies, and their baleful influence survived the formal demise of communist rule.

Had I hosted that imaginary meal in a Grand Forks restaurant, I would have concluded the proceed- ings by suggesting that Olson belongs to the venerable tradition of political realists who believe there are impor- tant things to do via government, and one of them is to impose efficient solu- tions to the inevitable clash of eco- nomically rooted interest groups. Grand Forks, North Dakota produced Olson; Orange County, Virginia pro- duced James Madison. The two men came to remarkably similar conclu- sions about what Madison called ”œfac- tions” and Olson two centuries later labelled ”œnarrow interest groups.”

”œBy a faction,” Madison wrote in one of his contributions to The Federalist Papers, ”œI understand a num- ber of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.” Madison went on: ”œthe latent causes of faction are … sown in the nature of man … [T]he causes of faction cannot be removed, and … relief is only to be sought in the means of controlling its effects.” I think Olson would have acknowledged and appreciated the parallel.

John Richards teaches in the Faculty of Business Administration at Simon Fraser University.

Christopher P. Manfredi

Donald Horowitz

The Courts and Social Policy (1977)

In January 1984, during the second semester of my doctoral program at the Claremont Graduate University, I enrolled in a course entitled ”œCourts and Social Policy.” Not surprisingly, a book by Donald Horowitz called The Courts and Social Policy had a promi- nent place in the course. The central task of Horowitz’s book was to exam- ine the institutional capacity of courts to engage in policy-making both with- in and outside their traditional areas of expertise. The timing of my introduc- tion to Horowitz’s work was fortuitous. The Charter of Rights and Freedoms was less than two years old, and the Supreme Court of Canada had yet to render its first decision under the Charter. The book thus sparked my interest in the potential implications of Charter adjudication for Canadian public policy and the role of Canadian courts in the policy process. It also gave me a theoretical framework for analyzing and understanding those implications.

The crux of Horowitz’s argument is that adjudication is a distinctive decision-making process that ”œhas its own devices for choosing problems, its own habits of analysis, its own criteria of the relevance of phenomena to issues, its own repertoire of solutions” (33). In short, according to Horowitz, there are particular ”œattributes of adju- dication” that affect the way in which courts participate in policy-making. Adjudication is focused, piecemeal, passive and retrospective, all of which makes it very good at deciding particu- lar cases, but not so good at formulat- ing general policies. Horowitz illus- trates his argument with four case studies involving housing policy, edu- cation funding, court reform and police behaviour. Each of the cases, he concludes, exhibits a common set of problems with respect to vision, information and management and control (255).

Horowitz’s approach played a key role in the construction of my doctor- al dissertation, which I would publish as The Supreme Court and Juvenile Justice (Lawrence, KS: University Press of Kansas, 1997). More importantly, it strongly influenced my thinking and research on the Canadian Supreme Court as a policy-making institution. To be precise, it led me to conclude that, even if one could settle the nor- mative issues raised by the Court’s increased policy-making role under the Charter, crucial empirical ques- tions about judicial policy-making capacity would linger. Chapters in both editions (1993, 2001) of my book Judicial Power and the Charter examine the way in which the attributes of adjudication have affected judicial pol- icy-making in areas as diverse as abor- tion, refugee determination, trial delays, health, pornography and tobacco regulation. To be sure, as Horowitz noted, the judicial process can be adjusted to increase its policy- making capacity, but at the expense of shifting courts away from the adju- dicative role from which they derive their normative strength. That is the real paradox of judicial policy-making.

Had I not read Horowitz’s book in 1984””or the other material of widely diverse theoretical and empirical approaches assigned in an excellent course taught by Ralph Rossum””I probably would not have turned my scholarly attention to the political role of courts. Even as I came to disagree with some aspects of Horowitz’s analy- sis””I think he overstates the passivity of adjudication, for example””the book made me skeptical about the use of rights-based litigation to resolve complex policy questions. My view of the policy world, therefore, is shaped by this skepticism about both the insti- tution and the discourse according to which it operates.

Christopher P. Manfredi teaches in the Department of Political Science at McGill University.

Christopher Sarlo

Milton Friedman

Capitalism and Freedom (1962)

You cannot read this book without being profoundly influenced by it. In it Friedman articulates the case for a society based on freedom and non- coercion and he lays out a series of policy alternatives that we continue to debate and discuss today. The elimina- tion of tariffs, the flat tax, school vouchers and the negative income tax are all ideas that have their popular origin in this book.

I first read Capitalism and Freedom in the late 1960s, as an undergraduate. Like most young people, particularly at that time, I was idealistic and believed in the state as a force for good. This book inspired a healthy skepticism about government action and capacity and was an important catalyst in my own development as a student of policy.

What is most fascinating about the book is Friedman’s struggle to find a position he can be comfort- able with. In an ideal world Friedman would be an anarchist. Coercion of any kind, including that by govern- ment for ostensibly good purposes, is not consistent with freedom. But alas, the world and its people are not per- fect. There are ”œexternalities” (third- party effects that bestow benefits or costs that are unintended); there are monopolies and there is criminal activity. A state is therefore needed to do things collectively that people in society, acting voluntarily and cooper- atively, cannot do for themselves. ”œHowever attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men.”

But how far do we allow the state to go? Friedman acknowledges that there is no hard and fast line determin- ing the appropriate role of the state. He does suggest some general guidelines, however. Government intervention should only be considered in cases where it is truly difficult or impossible for us to accomplish goals separately through strictly voluntary activities. And we must construct a sort of balance sheet, weighing the advantages and dis- advantages of the government involve- ment and giving any threat to freedom ”œconsiderable” weight. Any govern- ment activity that is justified should be as decentralized as possible, with local action preferred to national action. Finally, we should frequently revisit the case for any given government inter- vention and never close the door on private solutions. In the end, ”œthere is no formula that can tell us where to stop…we must put our faith, here as elsewhere, in a consensus reached by imperfect men through free discussion and trial and error.”

In terms of specifics, Friedman sees a role for the state in the areas such as defense, law and order, justice, pro- moting competition and countering technical monopolies, supplying money, overcoming the more serious externalities, supplementing private charities and protecting those not capable of free and voluntary action”” children and people with mental ill- ness, in particular. Some activities cur- rently undertaken by governments that he does not see as being justified include regulation of business and markets, including minimum wage laws, rent controls, price-support pro- grams and rules which establish any ”œlegal” monopoly; any regulation that involves censorship or otherwise vio- lates free speech; compulsory social security and retirement plans; any rules that prevent people from engaging in activities or professions if they do not have a license; public housing; and conscription.

Not content to merely criticize government involvement in these areas, Friedman sketches out, often in considerable detail, how free markets and voluntary private giving can solve social problems. The elimination of tariffs, for example, not only enhances the free choices of consumers but results in higher living standards for the trading partners, especially those who are less developed. School vouch- ers strengthen parental choice, pro- mote quality education via a kind of market competition and enhance equal opportunity. The negative income tax would create a fair and efficient taxation system (to pay for nec- essary functions of government) and yet incorporate strong, built-in incen- tives to work.

These solutions, quasi-libertarian in the sense that they involve increased scope for personal choice and freedom and reduce the scope of government, are not necessarily seen by Friedman as permanent policy arrangements. In later work, he views most as ”œtransi- tional” solutions, temporary expedients on the way to the longer-term goal of non-governmental solutions.

This book is as fresh and radical today as it was 40 years ago. If I had the power I would insist that every policy-maker, politician and journalist be forced to read and discuss it. But that would be distinctly un-Friedman- like. Instead I will voluntarily restrain myself to recommending it as strongly and passionately as I can.

Christopher Sarlo teaches economics at Nipissing University and is the author of Poverty in Canada.

Stephen Schecter

Niklas Luhmann

Social Systems (1995)

Originally published in German in 1984 as Soziale Systeme: Grundriff einer allgemeinen Theorie

Luhmann is my favourite sociological theorist. A disciple of Talcott Parsons, he was, until his death a few years ago, the leading systems theorist in German sociology and the main coun- terweight to Jà¼rgen Habermas, today’s foremost exponent of critical theory. He’s my favourite because he offers the most powerful and most adequate way to understand social life, modern social life especially. And what you wind up seeing turns out to be very useful in every aspect of social life, which extends, of course, to policy.

I first came across him in a seminar devoted to an analysis of contemporary society from a perspective diametrically opposed to the one Luhmann offers. Since his name came up I knew he must be important, and so I started to read him when preparing my own graduate course in political sociology. The more I read the more I liked, although I remained reluctant to embrace the nor- mative consequences that flowed from his analysis. I was still wedded to criti- cal theory and to lamenting the exis- tential disarray modern life throws up. But life has its own way of throwing you a monkey wrench. I ran for rector of my university and found that the critical theorists were the first not to support me. Luhmann’s analysis helped me to understand that little detail, and soon many others as well. Even my per- sonal life seemed easier to take when I no longer had to be a moral superhero. And being a poet as well as a sociolo- gist, I found Luhmann’s analysis well tuned to what modern literature has to tell us. After a few years I became an ardent fan.

Social Systems is the book in which Luhmann lays out the fundamentals of his approach. It is a big book, but it does not have to be read all at once, nor in linear mode. You can start it at any chapter, because all the concepts turn round on each other, and you can read only a few pages a night, because the stuff is dense and requires thinking. It is an excellent livre de chevet, as we say in French. It seems rather abstract, which in some ways it is, but Luhmann has a way of putting in pithy examples at the end of two pages of heavy-duty concepts which make the theoretical point crystal clear and often painfully funny. If you read it slowly and carefully, thinking as you go, you will find yourself amply rewarded. This is not a book for the faint of heart. It is pitched almost at a meta-theoretical level, but once you have understood its thrust and method, you will never look at the world in the way you have done up until now. And if you find yourself in agreement with his main premises, then you will be off to the races. Almost any of his other books is a bet- ter introduction to his thought: Love as Passion or Political Theory in the Welfare State, or Risk, even the little gem of a book called Observations on Modernity. But it is Social Systems which stays with you once you have grasped the big picture, the one you continue to think about and modify years after reading it, and so that is the one I would recommend. What fol- lows is a brief and sketchy outline of Luhmann’s theory and some of its implications for policy.

Luhmann argues that modern soci- ety can best be characterized as a functionally differentiated society, not as a stratified one. This means that any reading of how things work in terms of domination, oppression and alien- ation that is confined to a zero-sum contest between top and bottom, cen- ter and periphery, haves and have- nots, is an outmoded description that best fits pre-modern societies. Society is not going anywhere except, perhaps, to assure its own reproduction. History is an outgrowth of chance and good decision-making, but we only know that after the fact. An internally differ- entiated society can only be grasped in terms of its internal differences, which means that every social system is insu- lated from every other, able to observe the other but unable to penetrate it unless it succeeds in translating its demands into the communication media which circulate within the social system it seeks to penetrate. Social systems refer to autonomous spheres of social activity that are bounded by particular symbolic media of exchange and particular codes that govern their circulation. For the econ- omy, for example, money is the medi- um that circulates according to the binary code of solvent/insolvent. In intimate life, love circulates. In poli- tics, power. Modern societies are there- fore inherently pluralist and diverse, and inherently democratic, because more and more people have access to more and more symbolic media of exchange in more and more spheres. This, of course, creates problems, and problems call forth policy.

But what characterizes policy dilem- mas is exactly what characterizes deci- sion-making in every social sphere from the bedroom to the boardroom. Everyone in modern life is dealing with the unintended consequences of deci- sions taken, usually, in other social spheres. Everyone is trying to control the uncontrollable, planning for a future whose contours become less and less dis- cernible as the time frame recedes into the distance, and yet is unable to act otherwise. Functional differentiation produces more excitement and more problems than ever before, making risk a premium and dealing with risk an essen- tial if thankless task. But there is no escape, since the function of every social system is to reduce complexity, deal with contingency and make the improbable possible. What Luhmann says about love is true about democracy. Both are semantic discourses that make the respective activities of intimate coupling and public governing feasible where the grounds for success are highly implausi- ble. As Woody Allen put it, everyone says I love you, but we wince when we watch ourselves go through the motions. And in a society where sover- eignty supposedly resides in the people, it is nothing short of a miracle that we actually produce governments.

This brings up another crucial point in Luhmann’s theory. Everything is a matter of perspective. In politics, for example, a crucial policy area, Luhmann’s theory shows us that democracy is not a political system best understood in terms of its ability to pro- duce an egalitarian society and repre- sentative elites, but a political system where power is bifurcated at the top and the public is integrated into the decision-making process through a variety of means, one of which is the vote. This system invariably pits the government against the people and the people against the government, and each does its job by offering the other a perspective, a point of view, enabling it to see what it cannot see on its own. The government consults the people in order to know what it should be doing and the people bug the government in order to find out if its concerns are the right ones. Of course, there are also experts and expert-systems in complex, differentiated societies, and they too have a say in the policy arena, which only muddles the whole show, especial- ly if one takes democratic theory at face value, as most people do””if only because life is so much simpler when you do that. But then policy becomes overladen with moralizing. Luhmann’s theory teaches you to step back and try to understand what the other actors are trying to tell you, because it is a funda- mental tenet of systems theory that no system can observe itself. This holds as much for psychic systems as for social systems, and this too is an important distinction which Luhmann cautions us to make.

Most pictures of the world assume that social life is the product of indi- vidual human actions, and individual human actions reflect subjective intentions, needs and interests. At best you have Marx’s dictum that men make their circumstances as much as circumstances make men. For Luhmann, you no longer have to ana- lyze individual actions in order to fig- ure out how social life works. All you have to do is understand how social systems function, what circulates inside them and which codes govern the circulation. For in a modern socie- ty there are far too many actions and even more numerous subjectivities to start to explain social outcomes, like policy, in terms of individual behav- iour. Human persons, or psychic sys- tems, as Luhmann prefers to call them, furnish society, via their actions, with the carburants that social systems need in order to repro- duce themselves. That is why demo- cratic societies are conflict-producing societies, and the miracle of democra- cy consists in the highly implausible situation, to judge by most of human history, whereby people settle their differences peaceably. Policy options are formulated and outcomes selected despite high disagreement and contin- uous disappointment with the results, even by those who make the deci- sions. Once you understand this, how- ever, living with complexity becomes more tolerable. But most psychic sys- tems do not see this, since they do not observe themselves, not even after many painful and expensive years of analysis. They might be better off reading Social Systems, but that too is not a likely outcome.

When, however, you bear in mind Luhmann’s distinction between social and psychic systems, any analysis of how formal organizations work will immediately focus on the distinction between these two levels. And as any- one who works in formal organiza- tions with some degree of policy responsibility quickly comes to know, there is a big gap between what expert systems do and what psychic systems demand. To confuse the two levels only serves to make policy formulation and implementation more difficult, but it is one of the paradoxes of mod- ern society that the policy of expert systems which is designed to respond to the claims of psychic systems is often seen in denunciatory terms as responsible for making their lives more, not less complex. To policy- makers, people are often the bane of their existence, even as they are their raison d’être; and it would not be inac- curate to say that the reverse is held to be the case as well. But modern social life is paradoxical, as Luhmann con- stantly reminds us, and the perspective of social systems theory not only gives us a handle on paradox, but teaches us to laugh where others would cry. It also teaches us the profundity and wis- dom of that age-old dictum: there but for the grace of God go I. There are not many books of grand theory about which one could say the same.

Stephen Schecter teaches sociology at the Université du Québec à Montréal.

Andrew Sharpe

Robert E. Litan, Robert Z. Lawrence and Charles L. Schultze, eds.

American Living Standards: Threats and Challenges (1988)

Your editor has asked us to write about the policy book that most influenced our intellectual development and views on policy. I have chosen the vol- ume American Living Standards: Threats and Challenges, edited by Robert E. Litan, Robert Z. Lawrence and Charles Schultze and published in 1988 by the Brookings Institution in Washington, D.C. My choice was not a hard one. This volume not only influenced my intellectual development, it was also crucial in changing my career path. It was this book that gave me the idea of setting up a research organization that made living standards its central focus.

American Living Standards was the first publication of the Center on Economic Progress and Employment, established by Brookings in 1987, which had for its mission encouraging, supporting and publishing research on the main causes of the productivity slowdown and the poor performance of the U.S. labour market. The Center produced a total of eight books and five annual issues of the Brookings Papers on Economic Activity, Microeco- nomics over its six years of existence. The final volume published by the Center was the equally impressive Growth with Equity: Economic Policy- making for the Next Century, edited by Martin N. Baily, Gary Burtless and Robert E. Litan.

American Living Standards describes the nature and scope of the main eco- nomic problems that faced the United States at the end of the 1980s. It con- sists of seven chapters dealing with issues affecting living standards, includ- ing: the international dimension; the risks of recession; incomes and families; regional shifts in economic activity; productivity and management and edu- cation and productivity.

The volume begins by noting that until 1973 the long-term rise in incomes and living standards had more or less been taken for granted in the United States, as it had been in other developed countries. But with the slower productivity growth that descended on the economy after 1973, complacency towards real income growth evaporated. Indeed, the editors state in their introduction that ”œthe central economic problem for the country, and the one the book addresses by way of analysis and pre- scription, is the recent and prospec- tive slowdown in the growth of American living standards.”

The primacy of productivity growth for living standards is the vol- ume’s theme. In the short term, rising female labour market participation and increasing the consumption share of output, largely through foreign bor- rowing, can offset some of the nega- tive impact of slower productivity growth on living standards, as they did in the United States in the 1970s and 1980s. But these measures are not sus- tainable. Only productivity growth can ensure rising living standards over the long run.

The volume’s various chapters focus on the relationship between spe- cific issues, such as education and macroeconomic policy, and productiv- ity and the implications for living standards. Higher living standards, defined in terms of real income per capita, are a key bottom-line econom- ic objective of society. Productivity growth is the means to attain them. Both represent excellent prisms or frameworks from which to view the world, and in particular the impact of various economic and social policies. Indeed, it was this approach to eco- nomic and social issues through the dual perspectives of productivity and living standards that most impressed me about the volume.

Additional insights and lessons that I gleaned from the volume that have influenced my own thinking and work include the following:

  • empirical research should stress international comparisons of institutional performance;
  • improving the skills of the workforce by providing better educa- tion and training opportunities is essential for productivity advance;
  • the most appropriate role for government is to provide broad gener- al support for technology develop- ment, leaving the market to determine winners and losers; and
  • trends in living standards must be disaggregated by income group, gender, educational attain- ment, age and other variables in order to see whether all members of society benefit fairly from productivity growth.

As a great admirer of the breadth and quality of the work of the Brookings Institution, which in my view is the premier American think- tank, I monitor their publications closely. I first came across American Living Standards in the early 1990s, purchasing a copy at the Brookings booth at the annual meeting of the American Economic Association in New Orleans.

In 1992, the Economic Council of Canada had disbanded. This develop- ment greatly reduced the quantity of independent applied and policy-ori- ented research on longer-term eco- nomic issues and trends available to government and created opportunities for new organizations to enter the field. I was then Head of Research at the Canadian Labour Market and Productivity Centre in Ottawa, a bipar- tite organization that tried to bridge the business and labour perspectives of labour market and productivity issues. I was looking for a milieu in which I could pursue my research interests in a manner that would be less constrained by political considerations.

Inspired by the Brookings vol- ume, I decided the time was right go out on my own and set up an inde- pendent nonprofit, research organiza- tion that would make issues of living standards its central focus. With the close assistance of two former senior economic policy-makers, Ian Stewart and David Slater, I put together a board of directors made up of well- known Canadian economists, secured some contract funding, and in 1995 established the Centre for the Study of Living Standards. Since then, a focus of productivity and living stan- dards has been the hallmark of the research projects that the Centre has tackled.

The problems addressed by American Living Standards largely disappeared in the United States by the second half of the 1990s. Productivity growth averaged around 2.4 per cent per year in the 1995-2000 period, a significant improvement from the 1973-95 experience. The U.S. unemployment rate averaged 4.6 percent, dropping to 4.0 per cent in 2000, a rate economists previously believed was not consistent with stable infla- tion. But inflation was low and stable, averaging 2.3 per cent in the second half of the 1990s with no signs of acceleration.

Given this strong performance, two obvious questions arise. First, was U.S. economic policy in the 1990s influenced by this book? Second, if it was, did these policies have a positive effect on economic performance?

To the first question, the answer is clearly affirmative. Two of the vol- ume’s contributors assumed senior economic posts in the Clinton administration. Editor and contribu- tor Robert W. Lawrence served as a member of the Council of Economic Advisors (CEA) from 1999 to 2001 and contributor Martin N. Baily served as a CEA member from 1995 to 1998 and CEA Chairman from 1998 to 2001. Not surprisingly, many of the economic policies of the Clinton administration bear a striking resem- blance to those put forward in the volume.

(The American tradition of rotat- ing academic and think-tank econo- mists into senior economic policy- making positions in the government means that economists have an opportunity to implement the poli- cies they develop while outside gov- ernment. In Canada, our tradition of a permanent non-partisan public service means there are many fewer opportunities for economists outside government to enter government at a senior level and have a hand in the implementation of their policy rec- ommendations.)

The answer to the second question is less clear. The contribution of policy to the outstanding U.S. economic per- formance of the second half of the 1990s is very difficult to quantify. Even so, in my view it was significant.

The rapid pace of innovation in the information technology sector and the investment boom were largely responsi- ble for the pick-up in productivity growth, while structural and behaviour- al changes in the labour market account for the decline in the non-inflation accelerating rate of unemployment, or NAIRU. These developments were large- ly driven, not by policy, but by market forces shaped by technology, factor endowments, competition, consumer preferences and other factors.

But framework and program-spe- cific policies were important and with- out them the economy would not have been able to realize its potential. For example, the welfare reform of 1996 increased labour supply and reduced the NAIRU, raising the poten- tial growth path of the economy.

And then there is the adage, ”œAbove all, do no harm.” Economic policy that is badly applied always has the potential of doing serious damage to the economy, as we saw with the Bank of Canada’s overzealous pursuit of price stability in the late 1980s and early 1990s. The United States appears to have avoided any major economic policy blunders in the 1990s and poli- cy-makers, influenced by books such as American Living Standards, deserve credit in this regard.

While the policy context in which this book was crafted has obviously changed since 1988, much if not most of the analysis it presents is still rele- vant to contemporary economic policy debates. Indeed, the productivity/liv- ing standards nexus never loses its rel- evance to economic policy-making. American Living Standards represents a first-rate example of writing on eco- nomic policy.

Andrew Sharpe ( is Executive Director of the Centre for the Study of Living Standards, Ottawa.

Lawrence Solomon

Jane Jacobs

The Economy of Cities (1969)

[T]hrough the greater part of Europe the commerce and manufactures of cities, instead of being the effect, have been the cause and occasion of the improvement and cultivation of the country.

Adam Smith

The Wealth of Nations

Adam Smith’s one-sentence summary of the economic relationship between city and country was Jane Jacobs’ start- ing point for her astonishing book, The Economy of Cities. For while she and Smith agreed that cities fostered rural development, and not the other way around, they disagreed over whether this had always been so.

Smith accepted ”œThe Dogma of Agricultural Primacy,” as Jacobs calls it. Under this dogma, civilization began with little groups of hunters and gath- erers who eventually came to sow and harvest wild grasses. The hunters and gatherers thus became agriculturalists and, after many thousands of years of agricultural village life, at about 3500 B.C. cities arose. Smith was not alone in accepting this dogma, of course. We were all raised with it, and most of us still accept it, unaware of the confu- sion about the nature of development that it sows to this day.

Jacobs shows this dogma to be mere conjecture, and highly implausi- ble conjecture at that. Hunters and gatherers were also traders who lived in dense, permanent settlements, she shows us, putting to rest the old belief that permanent settlements weren’t possible before agriculture. Ancient cities invented agriculture and later exported it to the outskirts, she argues persuasively. When archeologists are asked why they hold to The Dogma of Agricultural Primacy, they explain that economists had established its truth. Economists, meantime, attribute their acceptance to archeological evidence.

Jacobs traces the root of this great con- fusion over the origins of economic development to none other than Adam Smith himself, who relied on the accepted view of his day. This accepted view, in turn, had its origins in the Bible, which placed man’s ori- gins in a garden.

I discovered The Economy of Cities dur- ing a rift in the late 1970s between Energy Probe and Pollution Probe, two organizations housed within the same Pollution Probe Foundation. Underpinning the many differences between the organi- zations were different world-views. Pollution Probe saw natural resources as limited and population growth as unlimited, a combination of circum- stances that would inevitably lead to rapacious conduct and the need for gov- ernment regulation. Energy Probe, where I worked, rejected talk of popula- tion explosions, viewed the potential for economic growth as unlimited, and sought to regulate the economy by inter- nalizing environmental costs into eco- nomic decisions. Jacobs’ book, and its city-driven theories of economic devel- opment, was replete with historical examples of how city economies had solved environmental problems, and it succinctly explained why population explosions, and resource shortages, are phony issues:

Wild animals are strictly limited in their numbers by natural resources, including other animals on which they feed. But this is because any given species of animal, except man, uses directly only a few resources and uses them indefinitely. Once we stopped liv- ing like the other animals, on what nature provided us ready-made, we began riding a tiger we dare not dis- mount, but we also began opening up new resources””unlimited resources except as they may be limited by eco- nomic stagnation.

Analogies of human population growth to animal population growth, based on the relation of population to current resources, are thus specious. The idea that, under sensible economic plan- ning, population growth must be limited because natural resources are limited is profoundly reactionary. Indeed, that is not planning for economic development at all. It is planning for stagnation.

Jacobs stressed that environmen- tal destruction stems less from too many people exploiting too rapacious- ly than from restraining human inge- nuity. ”œTo be sure, developing coun- tries are all too ruthless to nature, but their depredations do not compare in destructiveness to those of stagnating and stagnant economies where people exploit too narrow a range of resources too heavily and monotonously for too long, and also fail to add into their economies the new goods and services that can help repair their depreda- tions.” Developed countries, too, can become stagnant, to the harm of the environment. ”œIn the United States, lack of progress in dealing with wastes, and overdependence on automobiles ””both evidence of arrested develop- ment””are becoming very destructive of water, air and land.”

The diversity needed to avoid stag- nation cannot be achieved by econom- ic policies that are blind to the impor- tance of cities to economic growth. Unlike other environmental groups, which sought lower economic growth and a return to the land, Energy Probe would split off from Pollution Probe to become the continent’s only environ- mental group that placed cities and eco- nomic efficiency at the centre of envi- ronmental well-being. To Jane Jacobs, Energy Probe was a ”œbreakaway”””a British term she employed to describe the process by which new work begins. She became a founder of Energy Probe Research Foundation and served for almost two decades as a director, help- ing the upstart understand the impor- tance of competition, property rights, global trade and cities in nurturing human development.

Lawrence Solomon, along with Jane Jacobs and several others, helped found Energy Probe Research Foundation. He is now exec- utive director of the foundation’s Urban Renaissance Institute division and can be reached at

Reg Whitaker

Manuel Castells

The Information Age: Economy, Society and Culture (1996, 1997, 1998)

In 1996 Manuel Castells published The Rise of the Network Society, the first of a trilogy called The Information Age: Economy, Society and Culture. The remaining volumes followed in succes- sive years: The Power of Identity in 1997 and finally End of Millennium in 1998. Together they constitute the first clas- sic work on the ”œinformation age.” Other books may have explored aspects of the new era in greater depth, but there is nothing else to my knowl- edge with the breadth and sweep of Castells’ great work.

I encountered his first volume shortly after its publication. A year ear- lier I had published an article consider- ing some of the promises and threats of cyberspace as a new dimension, and I had begun teaching a graduate seminar with the perhaps too-trendy title, ”œThe politics of cyberspace.” I had already begun working on a book considering the impact of the new information technologies on political power (The End of Privacy, 1999). I had been search- ing for ideas about what was new and different in the information age, and was already somewhat jaundiced at the division I had encountered between Panglossian enthusiasts of a new utopia in which all human problems would be solved by technology and grumpy Luddites pronouncing that the universe was unfolding exactly as it should not. ”œA plague on both their houses” seemed an unsatisfactory foundation for interpreting change.

In his first volume Castells provides rational analysis of the deeper processes at work that are producing a new social and organizational form: the network. There is a sense in this book of a mind puzzling through appearances to arrive at understanding, motivated by a gen- uine intellectual curiosity untainted by preconceived ideological colouring. Although Castells’ personal political background was on the Marxist Left, he is far from applying received truths. Rather, he is trying to decipher a form of emergent capitalism quite different from the industrial capitalism that Marx described in the 19th century. As he treats it, globalized informational capitalism is something to be analyzed, rather than ritually denounced.

There is a refreshingly open-ended quality about Castells’ writing. Reading it, one can catch a sense of intellectual excitement, of new pictures coming into view for the first time. Student reac- tion to the book, which I set as a text for my seminar, exemplified this open-end- edness. Some caught the excitement and debated spiritedly with Castells in their papers. Others resented the lack of unequivocal answers: where did he come down on technology and unem- ployment, anyway? Was globalization a good or bad thing?

One of the strengths of The Network Society is Castells’ refusal to confine himself to economics alone, although there is a fair bit of economic data. The social and the cultural are the focus of his last three chapters, which are the real culmination of the earlier technological and economic argument. He examines the ironies of the ”œculture of real virtuality” in a multimedia envi- ronment, and moves from there to examine the reconstitution of space and time. Time, he argues, has flattened as we lose the capacity to think histori- cally, leaving us on ”œthe edge of forev- er,” caught on the shores of history we cannot escape even as we fail to grasp it.

Time is overwhelmed by space. In a networked world, he argues, space pres- ents itself in different dimensions: the ”œspace of flows” and the ”œspace of places.” This image of the space of flows riveted me when I first encountered it, and it continues to reverberate. Especially fascinating is the degree to which we inhabit simultaneously the two kinds of space””the old space of places, our local residential and work communities, our national and political structures rooted in bounded territory, and at the same moment, the global- ized space of flows that passes through and around the space of places. The political implications of the simultane- ity of these two spaces are both unset- tling and fascinating. Castells is perhaps not as much help politically as he is economically, socially, and culturally. That leaves a very large agenda for political scientists to follow up on.

Volume Two, The Power of Identity, explores the paradox of resurgent national, ethnic, religious and other forms of identity politics””what he refers to as ”œcommunal heavens”””in a globalized, networked world. He exam- ines social movements against globaliza- tion via the ”œonline” guerilla move- ment, the Zapatistas, the U.S. right-wing militia movements, and the Japanese millenarian cult Aum Shinrikyo, which put lethal sarin gas into the Tokyo sub- way. Castells writes three years before the murderous Sept. 11 attacks by the Al-Qaeda terrorist network, but readers can draw their own parallels. Castells, by the way, hardly presents much encouragement for the Western-led movements of ”œcivil society” against globalization. The real blows against globalization tend to come in forms that are more regressive and more chilling in their atavistic violence than the idealis- tic young protestors who have drawn so much media attention, at least until Osama bin Laden stepped up to the plate.

In his final volume, Castells picks up on a theme he introduced in the second, the powerlessness of the state. He banefully examines the collapse of the ”œindustrial statism” form embod- ied in the former Soviet Union and its bloc. He follows this with a bleak account of the rise of a ”œfourth world” of poverty and exclusion, one cutting across the globe from Africa to the underclasses of America. He goes on to a critical analysis of the emergent global criminal economy, paralleling the rise of transnational capital flows, but undermining and corrupting in odious ways. These are the black holes of informational capitalism, and they weigh heavily on the promises of globalization.

It is apparent from his final volume that Castells has not, after all, entirely thrown off his Marxist past. He has kept the hard critical edge of Marxist analy- sis, if not the specific formulas that have long since hardened into orthodoxies. And he retains at the end the animating conscience of the social activist, though not the impetus to thoughtless activism that drives so many to confront, protest and manipulate, but not necessarily to understand. Ironically echoing Lenin, he asks the old question ”œwhat is to be done?” Twentieth-century intellectuals were obsessed, he notes, with Marx’s famous injunction to change the world rather then interpret it. Generous impulses were inspired by this call, Castells grants.

However, I have seen so much misled sacrifice, so many dead ends induced by ideology, and such horrors provoked by artificial paradises of dog- matic politics that I want to convey a salutary reaction against trying to frame political practice in accordance with social theory, or, for that matter, with ideology. Theory and research … should be considered as a means for understanding our world, and should be judged exclusively on their accuracy, rigor, and relevance … No more ”œmaîtres à penser” and no more intel- lectuals pretending to be so … In the 20th century, philosophers have been trying to change the world. In the 21st century, it is time for them to interpret it differently. Hence my circumspection, which is not indifference, about a world troubled by its own promise.

Castells has gone a long way toward laying the foundations for that reinter- pretation. And those who follow in his path should profit from his salutary ”œcir- cumspection, which is not indifference.”

Reg Whitaker is Distinguished Research Professor (Emeritus) at York and he is cur- rently Adjunct Professor of Political Science at the University of Victoria.

Michael Walker

First Ottawa, then Hayek, Buchanan, Friedman and Tullock

I have been asked this question on many occasions and my usual response is to provide a few books that I regard as important. Your editor’s request has come at a time when I have been thinking about these issues and I am therefore going to give a somewhat different answer.

The thing that had the greatest impact on my thinking about the con- duct of policy was my observation of how the process worked and the sorts of results which it produced. As a newly-minted econometrician I went to Ottawa full of idealism about how this great technology could solve the sort of problems which were endemic to my birthplace, Newfoundland. I soon discovered that as a practitioner of the science in a policy environment I was actually part of the problem””in the sense that the way in which econo- metric models (and to some extent economic models of all kinds) caused us to think about the world’s difficul- ties led us to command-and-control type solutions.

Having realized that I was part of the problem I went in search of people who had thought about the relation- ship between people and policy. At first I encountered only the emotive expres- sion of the point of view in Ayn Rand. She certainly confirmed my suspicions! But she was not a satisfying muse.

Eventually I discovered the works of Friedrich Hayek, first his Road to Serfdom, but then his article on the use of knowledge in society, which led me to invite him to be one of the founding members of the Editorial Board of the Fraser Institute. Hayek led me to adopt a more organic view of human action and of the utter unsuitability of many of our mechanistic models to capture the behaviour which concerned me. Milton Friedman, my friend for nearly 30 years, in much of his non-technical writing (Capitalism and Freedom, Free To Choose, The Tyranny of the Status Quo and in many discussions) taught me not to throw out the analytical and sta- tistical baby with the pretence-of- knowledge bath water that Hayek iden- tified. James Buchanan, also an early member of the Fraser Institute’s Editorial Board, along with Gordon Tullock, in The Calculus of Consent, Democracy in Deficit and the journal Public Choice, taught me why it was that the public sector had the problems that I observed and why it would always have these problems.

The integration of many of these ideas into a coherent framework of thinking didn’t occur for me until I had worked for some time on a Fraser Institute project, The Economic Freedom of the World. This project, which has involved 80 of the world’s top economists, political scientists and philosophers has produced a series of books, an Index of Economic Freedom which ranks 123 countries, and now an outpouring of journal articles attempting to ascertain the appropri- ate role of government in facilitating the economic process and in financing the acquisition of goods and services where social benefit exceeds private benefit. One of the outputs has been to enable empirical testing of the rela- tionships amongst economic freedom, political freedom, civil freedom and social and economic outcomes.

Michael Walker is Executive Director of the Fraser Institute.

David Gratzer

Henry Hazlitt

Economics in One Lesson (1946)

Henry Hazlitt was a writer.

Of course, everyone today claims to be a writer. (Even actress Jennifer Aniston’s mother has penned a vol- ume.) But Hazlitt was a true writer. The elegant prose that came churning out of his typewriter still, decades later, reads fresh and relevant.

As H.L. Mencken””no slouch for words himself””once observed: ”œHazlitt is one of the few economists in human history who could really write.”

And write he did. If Hazlitt was skilled with language, he had a good deal of practice. In his lifetime, he managed to write more than 10,000 pages worth of articles, essays and books. To put that in perspective, a weekly columnist will produce roughly 100 pages in a good year.

Hazlitt always assumed that some of his essays would survive the vicissi- tudes of time. He was particularly proud of his devastating but now forgotten book critiquing presidential govern- ment systems. His greatest work, how- ever, was a thin little book ambitiously titled Economics in One Lesson. Written as a response to American public policy of the 1940s, Hazlitt assumed the book was too specific and time-sensitive to be remembered.

Economics in One Lesson has been translated into eight languages. It has been printed, reprinted, revised, updated and reprinted some more. F.A. Hayek, the Noble Laureate economist, suggests that the book is ”œa brilliant performance.” It is. In under a couple of hundred pages, Hazlitt tackles the most excessive government programs of the 1940s””and the 1950s, 1960s, 1970s, 1980s, 1990s, and today.

Economics in One Lesson begins with a simple observation: ”œEconomics is haunted by more fallacies than any other study known to man.” Hazlitt explains: ”œThis is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine””the special pleading of selfish interests.”

Worse yet, economics is dominat- ed by people who look only to see immediate results, without concern for the long run””an approach to life that is counterintuitive. After all, don’t we recognize that indulgences can be delightful at the moment but disas- trous in the long run? Don’t we see that a night of drinking leads to a hangover the next morning? Or Don Juan experiences to ”œblackmail and disease?”

Hazlitt suggests all of economics can be reduced to one lesson””a lesson so elegant and simple it could be described in a sentence: ”œThe art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” It is this simple les- son that Hazlitt applies to a score of issues.

The government of Manitoba is cur- rently contemplating an increase in the minimum wage. If Premier Doer and his Cabinet read Chapter 19 of Economics in One Lesson, they might consider not rushing to temper with market wages. That chapter, by the way, makes its argument in just six pages. As Hazlitt notes, a minimum wage tends to out-price the lowest end of the labour market. Drafted with the best of inten- tions, minimum wage policies are job killers.

Amidst great controversy, the Ontario Tories partially dismantled Toronto’s rent control regulations in the mid-1990s. Had Mike Harris read Chapter 18, his government would have gone all the way. As Hazlitt describes, rent control (even partially deregulated) punishes capital invest- ment, thereby leading to a housing shortage and high rents. In other words, rent control ends up hurting the very people it seeks to help: the work- ing poor.

The French government recently imposed a shorter work week on employees in hopes of increasing employment. Hazlitt’s Chapter 8 might have persuaded Prime Minister Jospin to consider other options. There, Hazlitt neatly observes that gov- ernment-mandated ”œspread-the-work” schemes tend to undercut productivity by underutilizing and overcompensat- ing employees.

The issues discussed in Economics in One Lesson are as relevant today as they were when Hazlitt originally sat down at his typewriter: the importance of free trade, the disaster of govern- ment price controls, the case against government subsidies and high taxes.

Hazlitt makes economics and pub- lic policy appear simple and straight- forward, freed from formulas and com- plicated language. Hazlitt was no sim- ple thinker, however. His introduction tackles the essence of Keynesian eco- nomics; a later chapter neatly describes Say’s Law; a final section summarizes the complexities of inflation.

Hazlitt promises to teach every- thing important about economics in a sentence. Actually, it takes him a book ””and what a book it is.

David Gratzer, a Toronto physician, is the author of Code Blue: Reviving Canada’s Health Care System. His latest book, Better Medicine, appears this spring.

Daniel Schwanen

Lao Tzu

Tao te ching (Sixth century B.C.)

My first reaction when asked about the book that has most influenced my thinking on policy was that no matter how insightful the work, I would be wary of listing any one modern book considerably above all other possible sources of enlightenment. The compe- tition in this respect between key economists since Adam Smith is fierce. And no economist claiming the man- tle of policy wonk can consider him- self truly well-rounded if towering works on history, politics and conflicts in general do not figure on his list of useful influences.

It is therefore with some trepida- tion that I agreed to answer this ques- tion. What I have chosen is a short book that has, through numerous reads and in spite of its apparent simplicity, always yielded interesting thoughts about what was both desirable and achievable in policy-making. That book, sometimes called the Tao te ching, was written, according to tradition, some two and a half millennia ago by a disillusioned Chinese scholar and civil servant, Lao Tzu (or ”œthe old man”). Lao Tzu wrote about ”œThe way,” an intricate philosophical construct that later acquired formal religious and mys- tical overtones and which, even to unbelievers, yields important applica- tions for the proper way of running the state and for the personal behavior of the ruler, two issues that occupy a large part of the book.

A fundamental tenet of Lao Tzu’s work, as in modern economics, is equi- librium or sustainability. Ultimately, a leader can only be successful if his policies are meant to ensure a return to some equilibrium, rather than a depar- ture from it. This is not unlike the view of leadership that sees as its funda- mental quality the identification and resolution of contradictions that exist at any given point in time.

In this context, Lao Tzu was wary of the accumulation of government interventions of all sorts. In his view, too many laws and edicts practically create thieves and robbers, with unfor- tunate results: ”œThe more taboos there are in the Empire, the poorer the peo- ple.” He held a similarly dim view of taxes, noting that ”œThe people are hungry: It is because those in authori- ty eat up too much in taxes [T]hat the people are hungry.” (Note: not being qualified to pronounce on the transla- tion, I chose to rely on the reputation of the publisher of the version in my possession, in this case Penguin.)

But before we induct Lao Tzu into the Fraser Institute hall of fame, it should be said that Lao Tzu is not easy to categorize in modern political terms. ”œThe way is broad, reaching left as well as right,” he wrote, echoing Pascal’s admonition two millennia later that greatness cannot be achieved by standing at one end of an issue, but by reaching to both. In any event, error has its place in policy formation: the good man learns from the bad, says Lao Tzu, and in this context, both must be valued. Furthermore, the per- son who understands an issue is really no better than one who does not, if the former is unwilling to act on the basis of this understanding.

Lao Tzu also firmly believed in the importance of social capital, bemoaning its deterioration as the people slid successively from ”œthe way” into virtue, then benevolence, then rectitude, in the end being left only with empty rites. When only meaningless gesture and posturing are left, social capital has disappeared: ”œThe rites are the wearing thin of loy- alty and good faith [A]nd the begin- ning of disorder. ”

Admittedly, Lao Tzu’s work can be read as a source of depressing and deeply conservative advice””perhaps well-suited to practitioners of the dis- mal science. But he is also realist: reforms and innovations that disre- gard both history and social constants are bound to fail. Reading Lao Tzu, one truly gains a better appreciation for the carefully crafty way in which Henry II of England promulgated Common Law in the 12th century (a revolution paradoxically made by constantly evoking past practices), or, for that matter, Warren Buffet’s investment and managerial strategy (staying clear of the herd, and keeping key personnel in place after acquisitions with mini- mum interference).

Furthermore, good policy-makers stay close to their constituents, and aim at ensuring their welfare rather than simply impressing them with tricks. The sage, says Lao Tzu, is ”œfor the belly, not for the eye” and ”œtakes as his own the mind of the people.” Nevertheless, although it is better for a leader to be loved and praised than to be feared, the worst leader of all is the one with whom people take liberties.

Of course, this book does not offer the policy wonk a scientific, modern exploration of all the concepts required for a rigorous scholarly exam- ination of current policy issues. And I would not suggest reading it without the help of a serious commentary (which in most editions is longer than the book itself). But, some 2500 years after its appearance, it can repeatedly provide fresh thoughts when policy thinking ”œoutside the box” is needed.

Daniel Schwanen is Senior Economist with the Institute for Research on Public Policy.

William Robson

Thomas Sowell

A Conflict of Visions: Ideological Origins of Political Struggles (1987)

One of the curious things about politi- cal opinions is how often the same people line up on opposite sides of dif- ferent issues. The issues themselves may have no intrinsic connection with each other. They may range from mil- itary spending to drug laws to mone- tary policy to education. Yet the same familiar faces can be found glaring at each other from opposite sides of the political fence, again and again. It happens too often to be coincidence and it is too uncontrolled to be a plot.

Thomas Sowell

These promising words introduce Thomas Sowell’s look at the differing predispositions that make many public policy debates so heated and seemingly impossible to resolve. A Conflict of Visions sheds light not only on the atti- tudes that induce the same people to line up on opposite sides of all kinds of disputes, but also on why communica- tion between the two camps is so diffi- cult and often ill-tempered.

Sowell’s main point is simple: there are two strongly contrasting ten- dencies in different people’s expecta- tions about the human race and the world it inhabits. On one side of the fence are those who feel that freedom from want and oppression is a natural and achievable state, an orientation Sowell labels ”œunconstrained.” Exemplars of this orientation are Jean- Jacques Rousseau, the utopian socialists of the 19th century, and modern cen- tral planners and social engineers”” believers in the possibility and desir- ability of radical improvements in the human condition. On the other side are those who feel these evils are an inevitable fact of life. This is a ”œcon- strained” view. As an economist, Sowell gives pride of place to Adam Smith as a representative of those who accept that the world and its inhabitants are imper- fect and, like many modern conserva- tives, think in terms of trade-offs, offer- ing correspondingly cautious prescrip- tions for change.

If the differences between uncon- strained and constrained visions ended with disagreement about the prospects for radical improvement, the conflict between them would not be so intractable. As Sowell points out, how- ever, whether one sees humans as fallen angels or risen apes will affect more than just one’s optimism about the future. Unconstrained thinkers are like- lier to feel that ends justify means, and to associate good or bad outcomes with good or bad intentions. Their con- strained opponents, by contrast, usually see process as central to the legitimacy of outcomes, and tend to dwell on the problems of unintended consequences.

Put a specific dispute””whether, say, a judge should rule that a welfare recipient has a constitutional right to a certain level of benefits””before the two parties, and it is easy to see why this mix produces disagreement on several levels. Constrained thinkers will argue that setting welfare benefits involves difficult compromises and trade-offs”” whether relief of absolute or relative poverty is the objective, for example, and how to ensure that people on wel- fare are not better off than low-wage workers. For these reasons, as well as ensuring the democratic legitimacy of the result, constrained thinkers would want to see welfare levels set by elected representatives. Unconstrained thinkers who think welfare benefits are too low or dislike governments imposing condi- tions on recipients will react impatient- ly to such objections. Poverty is, after all, a situation of inadequate resources, and if elected politicians are unwilling to provide the poor with the support they require, it is the duty of judges to step in. No one would be surprised if accusations of low intelligence or moral character on the other side featured prominently in the debate.

It has often been noted that liberals tend to criticize their opponents for being hardhearted, while conservatives are likely to criticize their opponents for being softheaded. A Conflict of Visions explains why this is so.

Sowell notes that not all people or views can be easily sorted into the two camps””as a constrained thinker him- self, he is cautious about claiming too much for his analysis. Indeed, most readers of this magazine are probably constrained enough to feel that prob- lems need careful study and experi- mentation before any attempt is made at a solution, yet unconstrained enough to hope for a solution exciting enough to justify the work that went into devising it. The conflict Sowell describes exists in us as individuals as well as in society.

I find Sowell’s approach and insights powerful enough that I have assigned readings from this book to the students I teach as a part-time instruc- tor in public finance and public policy at the University of Toronto. It gets a mixed reaction. There are those””the utterly cynical, relentlessly mathemati- cal or hopelessly unconstrained””who apparently find it an idiosyncratic indulgence on the part of their instruc- tor. For those many students who do get it, however, A Conflict of Visions offers powerful insight into the nature and vehemence of our public debates.

William Robson is Vice President and Director of Research, C.D. Howe Institute.

Conrad Winn

Three guides to my thinking: Acton, Niebuhr, and Maimonides

Three scholars of public affairs, each informed by a certain religious sensi- bility, have been the source of a pow- erful idea that has guided my thinking over the years. These three are the 20th-century liberal Protestant, Reinhold Niebuhr, the 19th-century liberal Catholic, Lord Acton, and the 12th-century Jewish philosopher, Moses Maimonides.

Lord Acton is the most widely recognised of the three. Nineteenth century Parliamentarian, prominent liberal Catholic, and modern histori- an, he is the source of one of the most best-known quotations in the English language”””œpower tends to corrupt, and absolute power corrupts absolute- ly.” From this powerful observation flow many potent corollaries, for example that good oppositions make good governments or that strong crit- ics make good public policy.

Reinhold Niebuhr is the most con- temporary of the three scholars. His memorable book, The Children of Light and The Children of Darkness (New York: Charles Scribner’s, 1944), propounded a distinction between lawful, democratic-minded people and corrupt, cynical, or despotic- minded people who ”œhave no law beyond their will and interest” (p.9). This dichotomy would emerge later in countless political science texts con- trasting democracy and totalitarian- ism. But none of these many subse- quent works captured Niebuhr’s awareness of a fundamental psycho- logical difference””the contrasting naivety and simple-mindedness of the children of light vs. the cunning, cyn- ical realism and opportunism of the children of darkness.

Though Niebuhr tended to liberal and social democratic solutions in public policy, he perceived all streams of democratic thought as sharing a dangerous innocence and simple- mindedness about human nature. ”œThe excessively optimistic estimates of human nature and of human his- tory with which the democratic credo has been historically associated,” he warned, ”œare a source of peril to dem- ocratic society; for contemporary experience is refuting this optimism and there is danger that it will seem to refute the democratic ideal as well.”

Niebuhr’s concern about the naivety of the children of light vis-à- vis the children of light led him to accept the necessity of strong action abroad. But he was also concerned about the naivety of children of light about themselves. The forces of dark- ness achieved so much success in World War II, he wrote, because ”œmoral cynicism had a provisional advantage over moral sentimentality. Its advantage lay not merely in its own lack of moral scruple but also in its shrewd assessment of the power of self-interest, individual and national, among the children of light, despite their moral protestations” (p. 12).

Niebuhr’s insights about the needs of democratic society remain discerning to this day even if we may not all or always share his passion for interventionism: ”œThe children of light must be armed with the wisdom of the children of darkness but remain free from their malice. They must know the power of self-interest in human society without giving it moral justification. They must … beguile, deflect, harness, and restrain self-interest … for the sake of the community.”

Though he wrote in the 12th cen- tury, Moses Maimonides actually had much to say about the principles of good public policy, especially good social policy. In his Guide to the Perplexed, the master codifier of Jewish law went one step further than re- asserting the traditional rabbinical injunction to care for the less fortu- nate. Maimonides asserted that the most effective charitable policy entails a transfer of benefits that is not expe- rienced or perceived as charity by the recipient. The beneficiaries of charity often become resentful of their per- ceived dependency, with the result that the generosity of the giver exacer- bates rather than enhances relation- ships. For Maimonides, the careful structuring of a charitable relationship is as important as the charitable gift itself. Social policy and foreign aid experts, take note.

Conrad Winn is President of COMPAS Research and teaches Political Science at Carleton University. 

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