Three Motivations for State Capacity Libertarianism

Or what used to be called "ordered liberty"

The following was originally published on January 24, 2020, for the Niskanen Center. I’m republishing it here because I think the concept of “state capacity libertarianism” is increasingly relevant and because it provides useful context for future pieces.

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In a widely discussed post on Marginal Revolution, Tyler Cowen argued that the libertarian movement has “hollowed out” and all but stopped gaining new adherents. The zeitgeist, according to Cowen, has shifted toward “State Capacity Libertarianism,” an inelegant umbrella term for folks with pro-growth, pro-market views who nonetheless believe capitalism works better when combined with a strong and high-quality government.

I’ve noted this trend myself, both in the evolution of my own views and in the growing intellectual gravity of the West Coast and Bay Area. But what caused the zeitgeist to change, and why now?

Technology and the State

Cowen’s original post points to “the influence of Peter Thiel.” There is something to this. In my notes on the [the first] National Conservatism conference from July, I argued that Peter Thiel’s opening speech displayed a kind of “conservative Hamiltonianism” which might as well be “state capacity libertarianism” by another name:

Peter Thiel put his own spin on conservative Hamiltonianism at the conference’s opening dinner. Despite appearances of rapid technological innovation, he argued, we’re actually living through a period of deep, unacknowledged stagnation. Wages are flat, scientific discovery has slowed, and our institutional capacity to build new bridges, much less another Apollo program, has all but collapsed. In this view, the administrative state is an enemy not because the federal government is inherently bad, but because a thicket of procedural and judicial veto points has hobbled our ability to think big and act decisively. … It’s a conservatism that seeks to build up American state capacity in order to solve dire social problems and push the technological frontier (emphasis added).

Whatever one’s personal opinion of Thiel, something like “state capacity libertarianism” clearly animates his investment and corporate-governance philosophy. For example, if Facebook is the American version of WeChat (China’s all-in-one social media platform), then Messenger should have end-to-end encryption and its payments should be cryptographically secure — two priorities Thiel has pushed from his seat on Facebook’s board. Similarly, Palantir (the data analytics company Thiel co-founded) expands the “state capacity” of the U.S. government agencies it has contracts with, but with an underlying commitment to what it calls “Privacy & Civil Liberties Engineering.” (Although it’s worth dwelling on whether state capacity is itself undermined by reliance on third party contractors; what might be better described as “conditional state capacity”).

One impetus for the changing zeitgeist is therefore the sense that technologies like social media and artificial intelligence have the potential to make governments and corporations much more powerful, but also much more efficient. Capturing the benefits of scalable technology while protecting against tyranny requires building privacy and civil-liberty protections into the technology itself.

Consider Martin Gurri’s thesis that information technology has put a spotlight on public corruption while lowering the cost of mass mobilization. If that is correct, the ancient tension between individual liberty and public order may well define the political crises of the 21st century, from the Arab Spring to the Yellow Vest protests and beyond. Yet the classic libertarian framing of “government versus the market” isn’t much help here. The institutions that produce ordered liberty belong to what Daron Acemoglu and James Robinson call the “Narrow Corridor,” a development path in which the powers of the state and society are in harmonious balance.

The Narrow Corridor: States, Societies, and the Fate of Liberty

If information technology is inherently destabilizing, then less liberal regimes with low state capacity may well be teetering on a knife-edge between Venezuelan-style anarchy and the construction of non-libertarian state capacity on the the Chinese model of a high-tech panopticon. It is thus imperative to find ways of enhancing the state’s capacity to secure public order while also becoming more responsive to democratic demands, particularly as they relate to individual and minority rights.

The Public-Private User Experience Gap

The second, related impetus I see for “state capacity libertarianism” is simply the growing chasm between the public- and private-sector user experience. With a few taps on my phone, I can hail a car, pay my rent, reserve a table for dinner, and share a video with my friends and family. And if anything goes wrong, a chat-based customer service agent is there to help. But if I want to pay my taxes, order a new passport, transfer a property title, or simply have a question answered about a rule or regulation, the experience is much different. There’s a good chance I’ll need a pen and paper, time to stand in line, and a nine-digit Social Security Number rooted in 1936 technology.

The consequences of this gap are more than personal inconvenience. Inefficient bureaucracies running on legacy systems and processes can become a bottleneck for economic growth and development. And as Donald Moynihan and Pamela Herd argue in their recent book, Administrative Burden, confusing paperwork and complex regulations harm the resource-constrained poor above all.

Yet for an older generation of libertarians, a dysfunctional government is arguably what success looks like. When Cato’s David Boaz was asked what one law he’d abolish if he had a magic wand, he answered, “End tax withholding. There is no way the government could collect half of what it does if people had to write a check at the end of the year.” When the government works too well or when paying taxes is too easy, the theory goes, the public will demand bigger government and tolerate higher taxes. Even Milton Friedman, who helped invent withholding, said he wished it would be abolished.

But why stop there? Why not require taxes to be filed quarterly, on papyrus, while doing push-ups? Taken to its logical extreme, a strategy based on public sector inefficiency moves from being an implicit subsidy for lawyers and accountants into a strange kind of libertarian masochism: Starve the beast until it bites back.

The strategy has the added bug of not working. On the contrary: Instead of heralding a small-government revolution, declining trust and satisfaction in public institutions seem to merely empower anti-system authoritarians — the kind of “strong men” who offer false promises to drain the swamp, cut through the administrative state, and make the trains run on time.

If State Capacity Libertarianism has any purpose, it should be to nudge libertarians away from a purely negative view of liberty. Directionally, that means striving to be more like Estonia — a country where the same sophisticated, electronic infrastructure that makes taxes and transfers automatic has also eliminated many of the burdens associated with regulatory compliance or starting a new business, all while dramatically shrinking the public sector’s employment footprint.

On this theme, Steve Teles’ 2013 essay, “Kludgeocracy in America,” clearly deserves a spot in the “state capacity libertarian” canon. A kludgeocracy is any government beset by accumulated complexity, built up from decades of policy “kludges” meant to solve some ad hoc problem. As Teles puts it, “With the frontiers of the state roughly fixed, the issues that will define our major debates will concern the complexity of government, rather than its sheer scope.”

Diffuse Authority and Accountability

The third impetus I see for State Capacity Libertarianism relates to concerns about regulatory capture and unclear lines of public accountability. The classic libertarian solution to regulatory capture is straightforward: Reduce the size of government and therefore the opportunities for it to be captured in the first place. But while this is sometimes the best answer, it fails as a general prescription, a bit like a doctor who advises amputation for a broken arm.

Regulatory capture is ultimately a problem of political economy and institutional design. All else equal, independent agencies with career civil servants, competitive salaries, and strong internal watchdogs are harder to capture than regulators with tight funding and a revolving door with industry.

Clear lines of authority and accountability are also essential to getting things done and knowing who to blame when things go wrong. When authority is diffused, so is responsibility. This has implications for the argument that regulatory capture can be minimized through devolution. While local governments are often romantically thought of as “closer to the people,” powerful incumbent interest groups are people, too.

In his conversation with Tyler Cowen and Mark Zuckerberg, Stripe’s Patrick Collison argued that economic growth has been harmed by the “promiscuous distribution of veto power,” a turn of phrase borrowed from Larry Summers. The ease with which new housing construction is blocked in San Francisco is a case in point. And while land use regulation may seem like a clear case of “government versus the market,” in another sense the problem is that San Francisco’s city government is not nearly strong enough. Indeed, the current mayor, London Breed, is a passionate housing advocate, but between San Francisco’s captured city council and incumbent homeowners who protest even modest reforms, she’s fighting an uphill battle.

A similar analysis applies to environmental reviews and federal grantmaking. Structural reforms could speed up the permitting process for new infrastructure, or give scientists the autonomy to pursue heterodox ideas. But in either case, the axis of reform is not “more or less government” but “better or worse government,” and in ways that are highly sensitive to organizational design.

Why State Capacity Matters

The concept of “state capacity” is hard to rigorously define, but its importance is easy to see in practice. In 1951, for example, Alberta’s agriculture minister released a report arguing that the province should ban rats. And lo’ and behold, this year Alberta is celebrating 70 years rat-free.

Of course, there was more to it than that. With the rocky mountains to the west, a “Rat Control Zone” was established along Alberta’s eastern border with Saskatchewan. Tracking powder was blown beneath buildings and armed investigators patrolled the zone for any rodent infiltrators. A major educational campaign was launched instructing Albertans to kill rats on sight, and poison was provided free of charge.

Yet the specifics of how Alberta abolished the rat are in a sense incidental to the definition. What matters is that they succeeded. At the most basic level, then, state capacity simply refers to a government’s ability to adopt a policy and have it faithfully enacted through some combination of competence, credibility, and political will. Land reform was a “bloodless revolution” in Taiwan, for example, and an epic boondoggle in Thailand. Likewise, the government of Australia enacted a mandatory gun buyback and tough new gun laws after the Port Arthur massacre, while one can easily imagine similar legislation in the United States facing armed resistance.

Whether the policy in question is for good or evil is also a separate question. Alberta’s rat control program only costs $377,000 per year to administer and saves millions of dollars in prevented economic and environmental damage. Apply similar methods to the efficient extermination of human beings, and state capacity is an evil. And yet no one is worried about a looming Albertan genocide since their government is well constrained by, among other things, Canada’s humane culture and robust constitutional law, and the agricultural ministry’s rather narrow portfolio.

However it’s used, state capacity remains necessary because without it, distributional coalitions can block critical public goods and structural reforms that can benefit the whole. This includes the public good of reducing the size of government itself. As Tyler Cowen noted back in 2010, Canada “cut federal government spending by about 20 percent from 1992 to 1997” — an unimaginable downsizing in the American context:

Counterintuitively, the relatively strong Canadian trust in government may have paved the way for government spending cuts, a pattern that also appears in Scandinavia. Citizens were told by their government leadership that such cuts were necessary and, to some extent, they trusted the messenger. It’s less obvious that the United States can head down the same path, partly because many Americans are so cynical about policy makers. In many ways, this cynicism may be justified, but it is not always helpful, as it lowers trust and impedes useful social bargains. Forces like the Tea Party movement argue for fiscal conservatism, though it isn’t obvious that they are creating the conditions for success.

I suspect something similar applies to many other libertarian-leaning reforms. Take education. As I and my co-authors wrote in The Center Can Hold, “There is good evidence that charter schools work best in districts with a strong, relatively autonomous governing structure, rather than those characterized by a laissez-faire, anything-goes approach.” This is because “educational competition, in the sense of light restrictions on market entry, needs a lot of social supports to actually function effectively.” That is, it needs state capacity.

Why I’m Not [exactly] a “State Capacity Libertarian”

America abolished slavery and brought the states back into union under the leadership of Abraham Lincoln — perhaps the single most state capacity- and liberty-enhancing move in U.S. history. Today, however, it feels like we can’t even abolish the penny without the zinc lobby’s permission. Unfortunately, there is no easy fix to this kind of institutional sclerosis, but a change in the anti-government right’s rhetorical emphasis can only help.

So why don’t I adopt the State Capacity Libertarian label? Besides being a mouthful, it’s because I think it’s oxymoronic. The cultural antecedents of American libertarianism are Jeffersonian, based in a romantic vision of yeoman settlers resisting the federal government and encroaching metropolis. This is reflected in works like Albert Jay Nock’s Our Enemy, The State and Henry David Thoreau’s Civil Disobedience; works which conceive of liberty as inherently anti-statist, if not opposed to the idea of a positive obligation to society whatsoever.

This accords with Arnold Kling’s Three Languages of Politics, which argues that libertarians see politics along a liberty-coercion axis. Conservatives, in contrast, adhere to a civilization-barbarism axis, and therefore treat anarchy without romance. In the The Art of Not Being Governed, for example, James C. Scott provides an “anarchist history” of the Zomia highlands of Southeast Asia. It’s a region notoriously resistant to nation-building thanks to its mountainous terrain, not unlike Afghanistan or, for that matter, Appalachia. As Scott puts it, such societies are “barbaric by design” — a concept that appeals to many libertarians but which is clearly antithetical to any notion of state capacity.

And if there’s anything uniting the three themes to State Capacity Libertarian I identified above — destabilizing technology, antiquated bureaucracies, and the sclerotic diffusion of authority — it’s the growing sense that another renaissance is needed to defend our civilization from either sudden collapse or manage decline. In my opinion, that makes Cowen’s neologism a species of conservatism, however loath my libertarian friends are to admit it.