Review of Private Governance by Edward P. Stringham

Stringham, Edward Peter. 2015. Private Governance: Creating Order in Economic and Social Life. New York: Oxford University Press.

In Private Governance, Edward Stringham makes a case that societies ought to rely on private systems of governance rather than “legal centralism” – a reference to the sovereign state, or public government. Stringham draws upon several contemporary and historical examples of private governance, such as stock markets in 18th century London, private policing in 19th century San Francisco, and contemporary private third party adjudication services. Private Governance is a thought provoking book which promotes discussion on several important and perennial questions concerning social governance. In the following critique of Stringham’s book it will be argued that the public sector has at least two advantages (both real and potential) over the private sector, specifically with regards to limiting aggression and in the management of natural monopolies. Next, two common market libertarian critiques of the public sector are addressed. Specicifically, it will be argued that democratic institutions can ensure accountablity and responsiveness in the public sector, and that the public sector and individual liberty are not irreconcilable. The essay concludes with a focus on anarchist strategy and a critique of Stringham’s reformism. 

Private governance and metanorms

As one reads Private Governance, it becomes apparent that a system of private governance would be ill-equiped to deal with community-wide (public) issues. In his discussion of Hayek’s views on spontaneous order (chapter 13), Stringham recognizes that, “Hayek did worry that in a society without a monopoly governance, people would encounter others who do not follow the exact same rules”, and admits that, “In an important sense [Hayek] is correct that if rules were left to voluntary evolution, different clubs [i.e., private sector organizations] would have different rules” (222). In response, Stringham points out that people can “vote with their feet”, and that various forms of cross-border cooperation such as international travel and international trade thrive despite legal differences across states and localities.

However, Stringham also notes that there would be a minimal need for consensus across clubs on respect for and compliance with “metanorms” such as the non-aggression principle (223), and that the lack of self-governance increases the need for some type of external governance (137). Therein lies a vulnerability for Stringham’s argument: one could argue – similar to classical social contract theory – that having a strong central authority in place could be more conducive to social welfare than a state of anarchy. For instance, it would arguably be beneficial to the international community if the World Trade Organization could stop rich countries from subsidizing their domestic agricultural businesses, or if the United Nations could stop the United States from carrying out drone assassinations without due process (Stringham mentions this as an example of the problems of state policing in a footnote on page 119).

Equal access to essential goods and services

Another concern is that, under a system of private governance, many would lack access to basic goods and services. Consider, for example, the possibility that racial segregation becomes a bigger issue under a system of private governance. This seems like a legitimate concern since, without external regulation, private businesses would presumably be free to exclude along racial, religious, sexual, and other demographic lines. At one point, Stringham mentions that businesses tend to be less concerned with such democraphic factors than they are with other customer charteristics such as their ability to pay for the service. Even so, given the correlation between income and demographic factors such as race, without a radical redistribution of wealth, the concern remains that higher quality services would only be available to wealthy white people, while people of color and minorities would be limited to low quality services.

To ensure universal access to essential goods and services under a system of private governance, two requirements seem apparent: competitive markets and low unemployment. The idea here being that, with many providers of a particular good or service, prices would remain relatively low, and high rates of employment would, in turn, ensure that most individuals would have an income with which they could access these goods and services. However, concerns arise regarding both requirements. Parenti, for instance, notes that private business owners may benefit from unemployment because, “[w]ithout a reserve army of unemployed to compete for jobs and deflate wages, labor would cut more deeply into profits” (Parenti 2011, 40). To what extent would such incentives continue to exist under a system of private goverance?

With regards to maintaining competitive markets – accepting for a moment the (plausible) market anarchist argument that eliminating the state would preclude crony capitalism and thereby help to level the economic playing field – what about natural monopolies such as public utilities? Would not the public sector have certain advantages in the management of such resources? This topic is discussed, for instance, by John Stuart Mill who refers to

“the case of gas and water companies, among which, though perfect freedom is allowed to competition, none really takes place, and practically they are found to be even more irresponsible, and unapproachable by individual complaints, than the government” (Mill 1998 [1848], 348).

With regards to the administration of public goods and services, it would also seem beneficial to have such resources under public ownership, as the public sector can provide a more robust and participatory forum for deliberation and collective decision making. Referring again to Mill:

“Against the very ineffectual security afforded by meetings of shareholders, and by their individual inspections and inquiries, may be placed the greater publicity and more active discussion and comment, to be expected in free countries with regard to affairs in which the general government takes part” (Mill 1998 [1848], 347)

Of course, it is conceivable that private clubs can effectively coordinate on issues of common concern as well. For instance, Stringham observes that, “even though house rules at bars can differ, most establishments choose to have fairly similar rules” (223). However, at some point consensus and integration among private clubs would seem to exhibit monopolistic characteristics anyway. Thus, in the case of natural (or what Mill referred to as “practical”) monopolies, the public sector appears to have a couple advantages. First, public ownership would seem more effective in keeping prices low and thus ensuring equal access (or so that, as Mill observes, “the profits of the monopoly may at least be obtained for the public”). Second, with regards to the administration of the good or service, the public sector seems more conducive to robust deliberation and collective decision making.

The public sector and democratic accountability

In contrast to the market anarchist vision of a society governed by private individuals and clubs, what I will refer to as a “libertarian mixed economy” would strike a greater balance between public and private sectors. Murray Rothbard argued that the state cannot follow the guide of profit and loss, and refers sarcastically to “the huge zones within which the price makes no difference” (Rothbard 2009 [1970], Ch. 10). Similarly, central to Stringham’s argument is the idea that while markets have more information and feedback to base their prices on, the government lacks such feedback and also lacks incentives to provide goods and services in an efficient manner. In Stringham’s words:

“Where providers of private governance weigh the marginal benefits and marginal costs of additional rules, government officials receive limited market feedback and almost no discipline if they impose harmful rules” (204).

And in Chapter 13, Stringham states that,

“[Under a] system based on legislation, even democratically based […a] legislator could guess whether his constituents wanted more shirts or fewer than provided the last time he or his predecessor was elected, but he would have little idea about how his guesses are related to the real ranking of what each citizen prefers” (223-224).

However, beyond this, Stringham doesn’t give much consideration to the potential of democratic elections to hold public officials accountable and thus sensitize them to the quality of the policies they advance. If markets (or the “profit-and-loss system”) are the main mechanisms for information provision and accountability in the private sector, democratic processes can be thought of as the main mechanism for similar purposes in the public sector. In a similar vein, Mill observed “[most public officers] performing their duties freely, under the double check of election by their townsmen, and civil as well as criminal responsibility to the tribunals” (Mill 1998 [1848], 330).

To be sure there are problems with the use of democratic elections as a mechanism for holding representatives accountable. For instance, most U.S. congressional elections today are not competitive, huge sums of money spent on election campaign advertisements by large corporations and wealthy individuals distort information, and alternatives to the Democratic and Republican parties are largely marginalized from national elections. However, it should be noted that that many of the contemporary shortcomings of the democratic system found in the United States are not present in other democracies, nor do such shortcomings necessarily indicate that future democratic systems couldn’t outperform those of today.

Reconciling the public sector and individual liberty

One of my critiques of market libertarians is that they seem to define public sector libertarian ideas out of existence. Consistent with this tendency, Stringham falsely narrows questions of governance down to the following two choices: “People can rely on government, or they can devise private solutions” (5), and conflates Thomas Paine’s idea of a non-state society with “private” (7-8). According to the market libertarian analytical framework, anything non-state or non-coercive is “private”, and anything coercive and state-based is “public”, thus evacuating the later of its virtuous potential. However, ideas such as anarcho communism and libertarian socialism can be viewed as both volutary and public (voluntary in that they are non-state ideas, and public in that economic enterprises aim to serve the public rather than private share holders).

There is also the idea of gradualist libertarian socialism, according to which voluntary contributions to the public sectors are maximized, and taxes reduced to a commensurate extent. Mill, discussing the topic of public education, touches on a similar idea in Principles of Political Economy:

“[E]lementary instruction cannot be paid for, at its full cost, from the common wages of unskilled labour […] The alternative, therefore, is not between government and private speculation, but between a government provision and a voluntary charity […] It is, of course, not desirable that anything should be done by funds derived from compulsory taxation, which is already sufficiently well done by individual liberality” (Mill 1998 [1848], 340-1)

It has thus far been argued that central government has real or potential advantages in limiting acts of aggression, collective decision making, as well as with regards to the pricing and distrubution of revenue in the case of natural (or “practical”) monopolies. It has also been argued that democratic institutions can ensure public sector efficiency and responsiveness to consumer demand, and that the ideas of the public sector and individual liberty are not irreconcilable. In conclusion, I turn to a discussion of anarchist strategy, focusing in particular on Stringham’s views on self-governance and reformism.

Getting to anarchy: Self governance and reformist strategy

Typically, market libertarian arguments against the public sector, socialism, and communism fall back on a view of human nature as being more individualistic than social. From this point of view, the Marxian idea of “from each according to his ability, to each according to his needs” is an unreliable means of economic sustainment. However, Stringham doesn’t fit neatly into this mold. Drawing upon ideas from Adam Smith’s Theory of Moral Sentiments, Stringham notes that “Internal moral constraints are rules that people choose to follow even if other people do not impose them” (136). Stringham argues that even if people are not by nature principled, various incentives deriving from norms, institutions, reciprocity, reputation, and socialization can lead people to behave in quite ethical ways. In sum, Stringham explains that,

“My argument does not imply that betterment of society requires a complete transformation of humans; instead it implies that as individuals more effectively govern themselves, civil society can be improved at the margin” (146-7).

Thus, Stringham’s view on self-governance and the potential for social progress is fairly optimistic, certainly more so than the view of man as homo economicus, according to which man “considers only material gains and never morality” (139). Stringham argues that such ethics are essential to a well functioning society relying primarily on private goverance. At first, this seems counter-intuitive in that the philosophical foundations of the free market system rests in large part on the idea that “private vices” promote “public virtue”, to borrow from Bernard Mandeville’s Fable of the Bees. Adam Smith’s argument that unregulated market competition will tend to maximize national wealth derives from a similar premise. The market-related norms which Stringham highlights – respect for property rights and abiding by contracts ­– seem more compatible with individual morality than Mandeville’s notion of “private vices”. Even so, it seems that the heavy reliance on market competition promoted by Stringham would undermine social capital and erode civil society, for instance, by reducing trust among individuals.

I turn now to a brief discussion concerning anarchist strategy. Traditionally, anarchists have adhered to the prefigurative strategic principle that states cannot be used as an instrument to achieve anarchy. Market anarchists adhere to this, for instance, with the idea of agorism, according to which markets are established in and expanded from autonomous zones beyond the reach of the state. However, the path to anarchy promoted by Stringham appears reformist in nature, and ultimately establishment friendly. For example, Stringham observes that, “As religion and regular product markets become more private matters, everyone is free to choose what he thinks is best” (33), and that “[p]rivate governance is already quite pervasive, and it could easily be expanded to more areas” (36). Thus, while Stringham’s call for an eventual replacement of the state with private governance is more radical than the views of mainstream conservatives and libertarians (who favor a minimal state), the means by which he proposes approximating this goal resembles mainstream conservative views such as that of Grover Norquist who asserted famously that, “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

The problem with such a reformist strategy (aside from the problems associated with relying so heavily on privatization) is that it does not promote a revolutionary overthrow of the ruling class. Stringham notes that “many researchers have found that freedom matters at the margin and is correlated with many good things [such as] lower homicide rates” (231). However, a movement for more privatization in the current context would likely translate into more of the same neoliberal austerity, the withering away of those state sectors most beneficial to the lower classes, and an increase in inequality, leaving the lower classes even more vulnerable to the predations of increasingly powerful elites. Meanwhile, advocates of privatization will continue to blame the public sector for society’s woes, even as the public sector becomes increasingly anemic and subject to the control of the private corporate power.

References

Mill, John Stuart. 1998 [1848]. Principles of Political Economy. New York, New York: Oxford University Press.

Parenti, Michael. 2011. Democracy for the Few (9th Edition). Boston, Massachusetts: Wadsworth.

Rothbard, Murray. 2009 [1970]. Man, Economy, and State with Power and Market (2nd Edition). Auburn, Alabama: Ludwig Von Mises Institute.