America the Oligarchy

The oligarchy hiding in plain sight

House keeping: We released 7 hours of content with Balaji this weekend, mostly new stuff by him. Check it out.

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In previous pieces we discussed the professional managerial class and how they coordinate across government, academia, the media, and fortune 500. We discussed how the private sector and the public sector work together to achieve things they couldn’t achieve otherwise (Twitter Files, anyone?). In “Tautology of the Elites” we also discussed who sets The Current Thing and how they all move in unison. 

“Indeed, these appeals to authority run more of society than we realize: Who designs government policies? Experts. Who do journalists quote in newspapers? Experts. And who are these experts? Professors. Who funds these professors? The government. Who votes for the government? The public. Who educates the public? Professors and journalists. Oh. 

Balaji calls this the information supply chain: Stanford does a study which gets published in a peer reviewed journal, like Nature or Science. That study is then written about in the New York Times and becomes conveyed as truth. Finally, the U.S. Government then enacts some policy based broadly on that original study, claiming their action is based in science.” 

In this piece we’ll dive deeper into understanding this private-public partnership and why America as an oligarchy is a better mental model than as a democracy.

To recap some ways in which the private sector and the public collude:

As corporations scale, they fear anti-trust, so they depend on the government to let them survive. Governments also depend on companies for tax dollars and support on basic services. The private sector manipulates the public sector via campaign finance and lobbyists, the public sector manipulates the private through regulation and subsidies. 

Burnham, Schumpeter, and others observed that the closer you get to government, the more you see how the government operates in conjunction with any given industry. The field of public choice has a name for this, regulatory capture: where corporations gain so much power in the government that they “capture” their regulator and end up implementing regulations in their industry that have the effect of cementing their market positions in place and preventing new competition. We see this in pharma, housing, healthcare, education, taxi cab industry — nearly every regulated industry. 

But you also see the reverse happening at the same time, where the government captures companies.

In a podcast with Richard Hanania, Marc Andreessen describes this phenomenon through the analogy of banking:

Take the three big banks: JP Morgan Chase, Bank of America and Citibank. In 2007-2008 these were the “too big to fail” banks. What everyone knew was the whole problem with the national crisis was the too big to fail banks are too big, so the obvious framing for regulation is that we can never tolerate banks this big again because big banks mean systemic risk, which therefore requires the bailouts, so we have to make sure this never happens again.

The regulatory reforms that followed were codified in this bill called Dodd-Frank. The big banks complained endlessly about how horrible Dodd-Frank was, but if you looked at the results of Dodd-Frank, the issuance of new bank charters in the US dropped to zero, and the three too big to fail banks got larger…The results were that the too big to fail banks were much larger and more systemically important than they were before. The problem has greatly increased, the exact problem the regulations were supposed to shut off.

Indeed: The private-public partnership allows companies to get competitive advantages they couldn’t get otherwise, but it also allows governments to outsource activities to business that it itself would not be able to do. After all, we have constitutional protections against what the government can do. But we don't have constitutional protections against what companies can do. 

The government can censor speech of course through Facebook and Twitter. Those companies can ban you with no appeal, no process, no adjudication. That’s why they got so scared when Elon said he’d take over Twitter, because they’d no longer control it. And why they got so scared when he exposed The Twitter Files, since it made their collusion legible.

In the same way the government outsources to the private sector the censorship it couldn’t do otherwise, the private sector outsources to government monopoly-protecting-regulations that it couldn’t do otherwise. It’s the powerful keeping each other powerful. 

This is why a lot of business has gotten politicized over the past few years. It's not just that people just care more about politics, which is kind of the conventional explanation, it’s that there are attempts to politically control companies for this specific purpose, because it's the escape hatch to be able to do things the government itself can't do.

One way to think about this is to imagine if private companies were actually part of the government. To paraphrase a line of thinking others have explained far better: If Harvard were the US department of expertise, would anything really change? If the Brookings Institution was the US department of public policy analysis would anything really change? If The New York Times was the US department of information would anything really change? If Google was the US department of search would anything really change?” If the answer is “little or none”, you know what they are today.

More Oligarchy than Democracy

Managerialism doesn’t seem democratic in the sense that it’s not what the masses want. As Orwell noted, “What is arising is a new kind of planned, centralized society which will be neither capitalist nor, in any accepted sense of the word, democratic.”

Not democratic? How could we not be democratic? Well. Let’s think about it. What does democracy imply? That the people make the decisions. Did you vote for the War in Iraq? For our k-12 system? For our healthcare system? For any of the 3 letter agencies?

The truth is that 99% of government employees are not accountable to a market nor a democratic process. Neither bought by a customer nor picked by a voter. Which is why democracy isn’t a good way of describing what’s actually happening.

And how could it? The reality is that power is always wielded by a tightly organized minority group against a disorganized mess. This is because the masses cannot organize. For a few structural reasons:

First, you can’t get everyone in the room at the same time. Second, they neither have the skills nor interest nor the time to educate themselves on the issues, let alone organize for power. A crowd without organized leadership will simply devolve into a rabble. Think Occupy Wall Street.

In addition to technical reasons, there are psychological reasons. Most people want to be led. They don’t want to figure out every single thing for themselves. They want to outsource the hard decisions and questions to other leaders far more compelling than themselves. And for the people who want to lead, no amount of power is never enough. People who acquire power always want to consolidate and extend it. As they say, absolute power corrupts absolutely. 

As a reminder, The Iron Law of Oligarchy basically states that a true democracy cannot exist. It will devolve into oligarchy. The majority cannot organize, so even the most communist organization like a union is naturally and inevitably dominated by a minority oligarchic elite that is then in a position to corrupt and rent-seek.

We’re an Oligarchic Oligopoly

The proper way of looking at our system is as an oligarchic oligopoly: 

Oligarchic = the CEOs of a big bank are of the same class as, and have everything in common with, fellow members of the oligarchy, such as Democratic politicians, university presidents, newspaper editors, foundation heads, etc. Their peers are those people, the Davos/Aspen set, neither their employees nor their customers.

Oligopology = the big banks, credit card processors, are in oligopolistic industry structures. And then they are de facto departments of the federal government, if you define the federal government as Democratic politicians and the permanent bureaucracies.

The present Oligarchy is the fused managerial elites and civil rights state. They reinforce and protect each other. Civil rights is the political story that this oligarchy tells to hold power. Let us rule, and we will smash all oppressive hierarchies. Except our own, of course.

The boards and senior executive teams are just like this too. They will do exactly what is expected of them as members of the oligarchic elite. They have the exact same politics as their peers in that structure. And they all implement the same policies at the same time.

Indeed: We have a theocratic oligarchy wearing the suit of a representative democracy. The oligarchy spans government officials and bureaucrats as well as heads of companies, universities, media properties, foundations, etc. These people care immensely about what their peers at Davos, at Aspen, in the pages of the New York Times, at Harvard, at their dinner parties think. It is very important that they all be in exact alignment at all time.

The dominant managers (e.g. CEOs and executive management teams and boards of directors) are in a class that derives its moral authority and legitimacy from claiming to speak and act on behalf of the downtrodden marginalized groups. The whole civil rights/HR/legal apparatus that is formally administering the policy dictates that are aligned with this political story are not pushing on the top managers, for the most part; for the most part, the managers are fully onboard with the received programs.

Why the private-public partnership makes sense

In conclusion, while it seems devious, the public/private partnership does make structural sense, not only because private corporations get protections and governments get to use power they couldn’t otherwise do, but also because the amount government can do is just so limited.

When you deal with the government up close, it's quite clear that at heart it's a civil service bureaucracy with a debilitating level of rules and regulations, as well as all of the implications of civil service protections and public sector unions. It's like the Post Office blown up to giant size.

On the one hand, actually doing anything as a government employee now is nearly impossible. On the other hand, actually getting fired is also nearly impossible. And so you get the people you'd expect to go into that system.

So this is why they need to get stuff done via the private sector.

To head off a comment, there's no conspiracy. It all happens out in the open. It's mostly a collective hive mind phenomenon that always lines up with keeping and holding power.

To head off another possible comment, it's also not that all of these people have formally thought through political philosophies. Mostly they're just going with the flow, being a member of the right groups and saying the right things and doing what's expected of them, being on the right side of history. It’s a form of emergent collusion, not a deliberate conspiracy.

Emergent collusion is a concept people have a hard time taking seriously: people think of it as a conspiracy with no conspirators—a contradiction in terms. And yet it helps explain why thinking of our system as an oligarchy is a better mental model than as a democracy, given how much the private and public collude, and how little accountability is in our system at every level.