How Private Power Crushed American Liberty—and What to Do About It
by sohrab ahmari
penguin random house, 288 pages, $28
Most conservative law students of the past three decades can probably recite by heart the principles of the Federalist Society, dutifully declared at the opening of every FedSoc event on every campus by a smartly dressed young officer of the chapter. They begin: “That the state exists to preserve freedom.” Half-heard, between bites of free pizza—or Chick-fil-A, if the chapter has its act together—the phrase conjures vague allegiance to a libertarian notion of limited government. But as Alida Kass, FedSoc’s vice president and director of strategic initiatives, has become fond of pointing out, the principle does not specify which threats to freedom the state must protect against. What are the implications of this principle in modern America, where some of the greatest threats to freedom appear to emerge from the purportedly private sector, in forms against which the state’s traditional police powers are powerless?
Conservatives have awakened to this question in numerous contexts: the limited number of online platforms controlling the dissemination of information, for instance, or the limited number of institutional investors controlling the flow of capital. These are important problems, but problems that the right-of-center’s free-market dogma can largely accommodate and, with little ideological disruption, attempt to solve. What’s lacking, as the market fundamentalists see it, are competition and attention to shareholder interests. There’s nothing wrong with the market, to paraphrase Ronald Reagan, that markets cannot fix.
Fewer dare tread in the ideologically fraught realm wherein the market appears inherently coercive and capitalism, far from synonymous with economic freedom, appears in tension with it. But Sohrab Ahmari has, as the kids say, “gone there.” In Tyranny, Inc., he takes aim at the simplistic story of free markets as happy places where independent economic actors agree to mutually beneficial exchanges. “‘Consent,’” he says, “is the fig leaf covering over the sheer power of private individuals and entities to coerce as consumers, workers, and citizens.” And yet, to mix metaphors, this fig leaf is the keystone of the elegant facade that market fundamentalists have constructed to present the market as a reliable optimizer of welfare for all. Remove it and the exterior wall collapses, revealing the rather more shabby reality of the American economy within.
Among the groups that Ahmari mentions, workers are his primary concern. The employment relationship is formally symmetrical, he concedes, insofar as both employer and employee enter into it voluntarily and each is free to end it at any time. But a job’s importance is quite different for the two parties, as are the alternatives available and the consequences of termination. Only one side’s ability to provide for himself and his family is at stake. And although “we associate private action with economic dynamism, market competition, individual choice, and general spontaneity,” Ahmari writes, “most ordinary people aren’t radical entrepreneurs of the self, ready at a moment’s notice to adapt, move around, and seek new opportunities. They long, rather, for stability and order.”
The insight is not a new one, exactly, but it is one very much due for recovery. Tyranny, Inc. quotes Adam Smith in The Wealth of Nations, warning that in the competition between workers and bosses it isn’t hard to “foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into compliance with their terms.” Unfortunately, “the critical traditions of economic realism,” Ahmari laments, “have faded from memory and been replaced by today’s vacuous political rhetoric.”
Early American statesmen, he notes, “thought a virtuous, self-governing republic required a modestly propertied and competent citizenry.” Thomas Jefferson thought it vital to ensure “that as few as possible shall be without a little portion of land.” One of the book’s great joys is the sheer range of commentators introduced to the conversation. Who knew that President Grover Cleveland, in his 1888 State of the Union address, had warned that “corporations, which should be the carefully constrained creatures of the law and the servants of the people, are fast becoming the people’s masters”?
Leaders in the modern Republican Party, such as former House Speaker Paul Ryan, have sought to present their obsession with “equality of opportunity” as central to the longstanding American tradition and an extension of the unalienable rights to life, liberty, and the pursuit of happiness. “The American Idea,” as Ryan put it in a 2011 speech at the Heritage Foundation, is “that justice is done when we level the playing field at the starting line and rewards are proportionate to merit and effort.” Ahmari scoffs that “there is very little that is ‘conservative’ or traditional about [this] way of thinking.” Social mobility is desirable, to be sure. But the hypothetical prospect that anyone might move from among the powerless to sit with the powerful does not address the longstanding concern “that Americans [can’t] encounter each other as political equals if many millions of them lack enough property and material security to be invested in the system.”
Tyranny, Inc. thus locates the crux of the problem in the transition to an economy in which most participants hold no assets. Without a stock of capital, the worker has no cushion to fall back on and no leverage in the employment relationship; the result is a precarity that prevents him from accumulating capital and moving from worker to employer himself. One may choose freely in theory, yet be coerced in practice. The story of Alicia Fleming, a food-service worker struggling to raise a baby while subject to just-in-time scheduling at work, is representative. “Precarity is one way to characterize what Fleming and tens of millions of other wage laborers go through for most of their lives. Another way to think about it is as a naked instance of coercion: a consequence of the employer’s power to control another human being’s use of her time in the pursuit of maximal profits, even if it means making utter chaos of her life.”
Ahmari illustrates the point with a wide range of examples beyond Fleming’s: the employees who are forced to sign disadvantageous contracts and left with no legal recourse beyond ruinously expensive and employer-friendly arbitration; the pharmaceutical companies that manipulate bankruptcy law to avoid liability for harm their products have caused; the hedge funds and private equity firms that load businesses with debt and run them into the ground, extracting cash every step of the way at the expense of both workers and customers. (Full disclosure: I helped Ahmari with the writing of the chapter on that last-mentioned topic.) “While these might appear as a miscellaneous grab bag of social ills,” he argues, “they all trace back to class-based inequalities in power and income that are inherent to the workings of unrestrained capitalism.”
The strength in this narrative is its analytical, rather than emotional, foundation. Ahmari’s answer to the question “Who is the bad guy here?” is: “No one in particular.” Shareholders, executives, workers, and consumers are all playing the game as best they can by the rules the political system has laid down. What’s needed is an insistence that “economic activity isn’t and shouldn’t be divorced from . . . principles we associate with a decent political order” and that “market exchanges be subjected to political give-and-take.”
Ahmari is thus able to chart a path forward where most polemicists, both left and right, can only shout at the sky. He mocks the “harder-left socialists” determined to accomplish “a classless society and the abolition of private property.” And he has similar disdain for the right’s “tub-thumping GOP populists,” who rail against corporations and then deliver “unreserved praise for capitalism” in the next breath. He argues both that capitalism is in dire need of saving and that it can in fact be saved. The key is the reestablishment of “countervailing power,” primarily through the revitalization of organized labor, to level the playing field on which workers and bosses meet.
By emphasizing the fact of coercion, within a conservative economic analysis, Ahmari has made an invaluable contribution to the debates raging within conservatism over the state of the economy, the role of government, and the future of capitalism. But the implications of his critique are far more radical than he realizes, or at least chooses to explore. Generalizing from the “coercion” diagnosis, he is fundamentally concerned with the fact that the free-market dogma taught in introductory economics classes and chanted with fervor on the right-of-center does not hold when economic resources and accompanying power are distributed unequally.
This problem, however, is not limited to the employment context, or even to the power of asset-holders broadly. Consider the way a market economy rations goods and services. Economists don’t like that word—“ration”—but, of course, rationing merely means deciding to whom a scarce resource should be allocated, and in that sense rationing is one of the market’s core functions, accomplished by means of prices. Many more people would like to consume filet mignon than there are filets available, and so the price rises until the quantity that people are willing to purchase equals the quantity that others are willing to provide at said price. Those who can afford the steak get the steak.
Standard economic theory holds that selling all the available goods to whoever is able and willing to pay the market price is the most efficient course and maximizes social benefit. The Principles of Economics textbook recommended by the Massachusetts Institute of Technology’s OpenCourseWare program provides an easily accessible illustration. “At the equilibrium price and output of tomatoes,” write economists Libby Rittenberg and Tim Tregarthen, “net benefit is maximized. The equilibrium quantity of tomatoes, as determined by demand and supply, is efficient.” One corollary, which they acknowledge, is that “if 1% of the population controls virtually all the income, then the market will efficiently allocate virtually all its production to those same people.”
Is that outcome “efficient”? Is “net benefit . . . maximized”? When for some reason an acutely felt shortage looms—recall, for instance, the fears of energy shortages in Europe last winter without Russian natural gas—most self-proclaimed adherents of the free market confess the price system’s shortcomings. Suppose there is simply not enough energy to heat the United Kingdom’s homes to a balmy 70°F. In the long run, a rising price might induce an increase in supply, or substitutes for the demand, and that would be all well and good. But immediately, such convenient solutions do not apply. Who should consume the energy?
The market’s logic offers one answer: Whoever can pay the highest price must value the energy most and so should get to use it. In this formulation, the hedge fund manager will leave the thermostat at 70 degrees while the median household will turn the thermostat down to perhaps 55 degrees. We recoil from this solution. In no world is having some households proceed unaffected, while others nearly freeze, an “efficient” outcome, if by efficient we mean welfare-maximizing—forget, for the moment, about “fair.” Thus the necessity of government rationing schemes, by which the political process would dictate what constitutes adequate energy consumption and cap any household’s usage there, so that others may enjoy access to a similar quantity.
The shortage is not some exception that proves a rule. If the price system is not adequate for the efficient allocation of energy in a prospective crisis, why is it good enough at other times? The truth that we recognize in the face of an acute shortage, that he who can pay the most is not he who most values the good or will use it most efficiently, is true in all contexts. Every day, goods are allocated to those who can afford to pay more for them, not because what they can afford represents the good’s highest value, but merely because that particular consumer has greater resources at his disposal.
As with the problem of coercion in labor markets, the price system fails as a matter of both efficiency and justice. Indeed, by Ahmari’s definition, one might conclude that market prices are coercive themselves. Ahmari quotes approvingly from a 1935 essay by John Dewey: “If one wants to know what the condition of liberty is at a given time, one has to examine what persons can do and cannot do.” As with labor markets, a facially bizarre narrative of “choice” allows market fundamentalists to escape economic realism when it comes to consumption. “The allocation of resources for production and consumption is on the basis of open competition so that every individual or firm gets a fair chance to succeed,” proclaim Terry Miller and Anthony B. Kim at the start of Chapter 1 of the Heritage Foundation’s 2015 Index of Economic Freedom. Just as Anatole France’s majestic law “forbids rich and poor alike to sleep under bridges,” the Heritage Foundation’s majestic market permits rich and poor alike to buy the comfortable house in the good school district.
Since I paraphrased Reagan at the outset, it seems only fair to paraphrase Churchill here. Markets are the worst way to mediate employment relationships and allocate resources, except for all the others. We resort to government rationing only in times of duress because we recognize that, applied widely, such schemes would destroy economic vitality and concentrate dangerous levels of power. We reject calls to seize the means of production and bring about a communist utopia because we understand how much more coercive, unjust, and inefficient that utopia would be. Insofar as coercion is rooted in power imbalances, which emerge inevitably from other inequalities, any society that accepts unequal outcomes must accept some degree of coercion as well. But these are arguments for prudence, not for the market fundamentalism that ignores shortcomings and trade-offs entirely.
One may both favor markets as the organizing framework of an economy and recognize the myriad ways in which public policy can improve upon their outcomes. Employment regulations that ban “non-compete agreements” or restrict just-in-time scheduling are not irrational and inefficient interference with the freedom of contract; they are necessary adjustments to the rules of a game being played on a tilted field. A “family benefit” that transfers resources to working families as they raise young children is not some socialist scheme or theft from the taxpayers providing the funds; it is a form of social insurance that enhances the common good in ways most would want but the market will not deliver.
The Old Right will find Tyranny, Inc.’s analysis and prescriptions radical. But after a generous dose of Ahmari’s economic realism, one cannot help noticing that the real radicalism comes from those repeating the old nostrums—as when Senator Pat Toomey claims that “capitalism is just another word for economic freedom,” or Ambassador Nikki Haley condemns anything besides free-market absolutism as “a watered-down or hyphenated capitalism, which is the slow path to socialism.” Communists and market fundamentalists reach different conclusions, of course, but they share a simplistic, black-and-white understanding of political economy. The market is true freedom, or the market is pure coercion; only government can solve problems, or government can only make them worse. Seeking the places in between these extremes where real people live and real markets operate, Ahmari shows the potential of returning genuine conservatism to the economic sphere.
Oren Cass is executive director of American Compass.