On Pareto efficiency in Heath's Philosophy of the Executive, pt 2
Regular readers may find my (short) essay, “Condorcet’s Bottom Up Federalism,” published at Isonomia Quarterly of interest. It draws on an earlier digression (here). Recently, my friends at Estudios Públicos translated and published (here) one of my papers into Spanish, “Adam Smith y el origen del liberalismo.” (There is a video-clip of my original lecture; I start at the 32 minute mark.)
This is the second post on Joseph Heath’s The Machinery of Government: Public Administration and the Liberal State (OUP, 2020). [The first one is here.] The second half of today’s post will be rather critical, but before I get there I do want to express something of the inner logic and so virtue of the book.
I noted last week that for Heath, the executive’s output legitimacy is rooted in the principle of efficiency because he treats the executive as principally responding to circumstances where the transaction costs associated with a system of voluntary exchange would be prohibitive or subject to market failures (p. 165ff). This framework allows Heath to explain the nature and persistence of modern welfare/administrative states as a feature of the development of liberalism. These instantiate modern liberalism’s commitment to “liberty, equality, and efficiency.” (p. 143)
Heath embraces what he calls the “the public-economic model of the welfare state,” in order to show that “it should be, not just the economist’s preferred understanding of why the welfare state does what it does, but also the political philosopher’s preferred normative standard for assessing the contribution made by the welfare state to the realization of social justice. In the long run, this will help us to better understand the normative ideas that have come to inform the practice of public administration, and in particular, the central role that considerations of efficiency have come to play.” (p. 151 emphasis added)
As an aside, this means that for Heath, the public-economic model understands the executive branch in the business of providing so-called “public goods.” But by that he doesn’t mean what Samuelson meant by that provision of goods that are “nonrival” and “nonexcludable” (p. 160). Rather, he means by that provision of goods and services where there is a market-failure in some sense, and where the state can “resolve collective action problems whenever it can do so more efficiently than other institutional forms.” (p. 162) Last week, I bracketed what Heath means by ‘efficient,’ but below I will address it.
Now, before I get to that, wat makes Heath’s book thrilling is that he very effectively demolishes both the communitarian and egalitarian-redistributive defenses of the existing welfare state across a range of liberal democracies. He shows that they are unable to make intelligible the structure of outcomes we find across many liberal democracies, and so fail as ‘reconstructive’ projects. (p. 165ff.) He also suggests that the rent-seeking model fails as an explanation. (p. 183f)* In particular, his argument rests on the idea that ”the win-win structure of these arrangements [of the modern welfare state] winds up explaining their persistence, even in cases where it does not explain their origins.” (p. 185)
There is something Hegelian about Heath’s enterprise in so far as the persistence of our major social arrangements in the contemporary welfare state are made intelligible and rational (and so justifiable) in a non-trivial fashion. Heath does so by making explicit, as it were, the inner logic of the principles that guide enduring social patterns of the administrative state. I use ‘Hegelian’ not as a criticism, but rather to hint at Heath’s tendency to black-box the messy political process and administrative trial-and-error that generates the stable outcome patterns as a kind of teleological equilibrium, but throughout he strongly implies that a well-functioning administrative apparatus will have the resources to settle on these patterns (not the least through cost-benefit analysis).
At this point one may well wonder how ‘efficiency’ can do that. How can it ground any normativity? Isn’t that concept associated with the a-moral (even immoral) commodification of market relations? (Let’s call that the implied ‘amorality objection’ to efficiency.) Not for Heath. Last week I explicitly bracketed what he means by ‘efficiency.’ Here’s what Heath writes,
When it comes to resolving collective action problems, the central principle (or, perhaps better yet, the guiding idea) is that of Pareto efficiency. This is the rule that says that, if it is possible to make some people better off (by their own lights), without making anyone else worse off (again, by their own lights), then one should do so. Collective action problems are simply cases in which, owing to the structure of the interaction, individuals fail to bring about a Pareto efficient outcome through self-interested action. This gives each individual a reason to accept some form of constraint, on the grounds that when everyone does so, it results in an outcome that is better for each individual, including all those subject to the constraint. (p. 84, emphasis added.)
A “crucial feature of the Pareto principle is that it does not require interpersonal comparisons of utility, it simply states that a social state is to be preferred if it makes at least one person better off, by his or her own lights, and no one worse off.” (p. 138)
Now, before I continue. Heath’s move surprised me not because of the amorality objection. I actually agree with Heath’s central contention that Pareto efficiency exhibits an important kind of normativity. It’s not merely a “technical, value- free standard.” (p. 159) Heath generously credits Rawls with grasping the full implications of this point, and to inscribe pareto efficiency as the ruling principle of impartiality among “individuals” in “systems of cooperation” without requiring interpersonal comparisons of utility (p. 138ff.) While the apparatus of Pareto frontiers and improvements is quite technocratic, it can be made fully objective and so part of a science that is normative (and a normative political philosophy that generates objective decision-procedures). In it individuals or persons can be treated equally, and it facilitates what Heath nicely calls “win-win transformations” (p. 144). As he puts it, “Pareto improvement…allows the state to bring about an outcome that is deemed better for all, each from his or her own perspective— which is to say, according to each individual’s own conception of the good, or system of values. Pareto efficiency is therefore the paradigm instance of a normative principle that the state can act on without presupposing the correctness of any first-order conception of the good.” (p, 193)
So far so good. Heath’s major achievement is to show how, even before he gets to the logic of cost benefit analysis, Pareto efficiency captures the logic of bureaucratic agency in a liberal environment.
However, when I think about and explain Pareto efficiency, I tend to think of it as a rather demanding criterion. It only obtains when nobody is made worse off. So, while Pareto efficiency is a kind of ‘no brainer’ when it obtains — of course you act on it! —, it only obtains in politically innocuous circumstances (when there is no trade-offs).+ So, described Pareto efficiency has enormous status quo bias built into it. For the historical Pareto this was a feature against Socialist reformers and Marxist revolutionaries; it de facto blocks most change from any existing social baseline (and this is why the principle is attractive also to potentially rather reactionary thinkers).
So, Health’s full-on embrace of the Pareto logic puzzled me a bit. Now, part of the puzzle can be defused by Heath’s resolute tendency to bracket explanations of the social origin of the welfare state. The actual political process (be it social conflicts or context of war mobilization) that gave rise to particular social arrangements does not have to exhibit commitment to Pareto efficiency at all. (Of course, alas, Heath wants to have it both ways and so he often also writes things like, “it is the Pareto improvement that motivates state involvement.” p. 176, emphasis added)
Even so, even retrospectively many of the most durable social arrangements do involve some folk who are actually made worse off through them. Think of building a city bridge over an urban river that runs through a deep and dangerous valley, where people either have to make a difficult descent down to a river to catch a ferry or take a very long detour, and thereby puts a monopoly ferry company out of business. If the state does not compensate the ferry company (and its suppliers, and the cafe near the ferry entrance), the bridge will be a net loss for it (and the suppliers, etc.) even if it is broadly welcomed by everyone else and great for the economy (etc.)
Now, the way Heath handles cases like this is instructive. Because he thinks that building the bridge (if it is not too costly, and doesn’t generate new externalities, etc.) can be justified with an appeal to Pareto. In doing so, he does not appeal to in principle compensation (with a nod to Kaldor-Hicks, pp. 111-112). A policy or public good can only go forward if it “is possible to actually compensate” (p. 250, emphasis in Heath). This is more demanding than in principle compensation.
However, Heath recognizes that states often do not pay out to policy losers after a change in policy or a provision of a new public good. So, he separates the collective efficiency gain (as analyzed with the possibility to actually compensate) from the distributive outcome pattern. And he treats the first counterfactually: “here, the state is imposing the outcome that the parties would have contracted to, had empirical circumstances (i.e., high transactions costs) not intervened.” (p. 212, emphasis added.) Actual compensation will depend on concrete circumstances (say a party could free ride), and arguments that there is or not an obligation to do so (p. 250).
But this means that even retrospectively actual policy outcomes will have created winners and losers. The losers from a change in policy will not understand the new policy in terms of a counterfactual improvement visible to the social planner or bureaucrat, they will understand it in terms of an actual loss.
Now, at this point one may well grant me the point, in principle, but in practice be unconcerned. Heath offers two observations to support this stance: first, as Heath notes, persisting in the status quo that involves actual market failure may itself generate actual winners and losers (e.g. pp. 210-212, p. 241). Second, many principles and deliberative practices that one may view as more democratic alternative to Pareto-efficiency will actually generate many worse losers (and also involve many worse cognitive biases), p. 73. Fair enough.
Yet, the reason why I am made uneasy by Heath’s argument is that, in practice, if the administrative state pursues Pareto efficiency improvements without requiring of itself actual compensation “(as is the case with many regulations)” (p. 250), then it is predictable that, in practice, there will be structural losers. By structural losers I mean social individuals or groups who lack the political clout or social standing to impose on the state the obligation to pay out actual compensation when the administrative state pursues, in principle Pareto improvements across multiple domains. This is is likely to occur in conditions of structural inequalities, especially in contexts where the permanent upper civil service is drawn disproportionally from social classes other than those who will be structural losers.
It is actually quite amazing that Heath ignores this possibility because the book was written in the era of BLM and widespread attention to the idea of structural injustice (a phrase wholly absent in the book).** To be sure, structural losers in this sense need not be those that we ordinarily tend to think of intersectionally vulnerable minorities.
More subtly, since Heath is so clear-sighted on the fact that multiplicity of rules and laws across domains will interact with each other in often complex and unpredictable ways in the context of administrative discretion (p. 271), it is simply odd that he misses that such interactions may also impact the outcome patterns of the pursuits of Pareto efficiency without actual compensation. There is no reason to assume that the effects of these will always wash out or be isolated.
I don’t think this is a mere theoretical or rhetorical point. I suspect being as tructural loser correlates with mistrust toward social elites even in societies with otherwise relatively uncorrupt civil servants. But I have gone on long enough. To be continued.
*I think his argument is somewhat less plausible against the rent-seeking conception, but about that some other time.
+I do not mean to deny it can be rather controversial normatively. Because Pareto efficiency may well come into conflict with deontic or intrinsic values that are not captured by it. (Heath is very good on this.)
**Heath clearly and repeatedly seems to think the US is especially dysfunctional. But he seems wholly unfamiliar with the possibility of the conditions that lead to the Dutch childcare benefits scandal or The British Post Office scandal (etc.).