GOVERNMENTS-AS-FIRMS: MORE ON THE EVOLUTION OF PATRONAGE

Joseph D. Reid, Jr. Michael M. Kurth
George Mason University McNeese State University

Governments increasingly attract the attention of economic historians. Unfortunately, often governments are mistaken for government. The implied assumption being that there is a political sphere and there is a nonpolitical sphere, and in charge of the political sphere is government. In history, however, neither the sphere of governments nor their organization are well settled. In one sense, we all know this: after all, the economic history of the United States cannot antedate the United States, and so begins at earliest with revolution in 1776. But in another sense we don't know this: economic historians have been slow to grasp that government is what governors make it, and in the large governors have tried steadily to expand their government, at the expense of the private sector and of other governments.

In American history, horizontal and vertical competitions among governments are well mirrored by the evolution of organization of employees of federal, state, and local governments. In each government, employees were organized into patronage and then into civil service bureaus. But at each level these evolutionary paths seem dissimilar and diverse-- urban patronage grew while federal patronage declined, for instance, urban patronage mainly was in industrial rather than in agricultural areas, and later state and local unionism grew while federal unionism stagnated--but in fact all of these changes are remarkably well described as outcomes from attempts by political firms or would-be governments to minimize cost and maximize payoff from governing, while increasing the costs and reducing the payoffs to competitors. It seems that government employees are employed by politicians to best produce current and future income and votes, and politicians are the cooperating entrepreneurs in political firms designed and managed for maximum expected political present value through entrenchment and expansion.

I. Theory

As with any firm, public or private, would-be or established, maximization of expected present value requires choice of what to produce, how to produce, and how to sell. Because pluralities of votes capture political markets in the United States, the first task of an American political firm is to find out what is wanted by alternative minimum winning coalitions of voters, and to supply the most profitable coalition. This is, admittedly, no easy task, since voters' interests rationally are masked by their reluctance to spend effort or income for publicly provided goods. Furthermore, since generally there are lead times to supply voters' wants, the evolution of minimum winning coalitions should be anticipated and, if possible, affected by policy. In sum, what is best for political firms to sell requires discernment of what voters will pay for from what voters say they want, and requires forecast and market direction. This means that at any time there will be confusion and there will be failing political firms. It further means that when voters' wants are clear and stable, most political firms will promise the same things and will compete on costs. But when voters' wants are murky or unstable, political firms will promise different things, including to lead (in anticipation of growing consensus) or to follow closely and efficiently (in hope of staving off challenge from newly emerging coalitions). When different governments face different costs or constituencies, they understandably will supply different things. And if one government can expand with profit at the expense of another, it will. There are entrepreneurs and hack producers in public as well as in private firms, in short. But there are differences. Choices of how to produce and sell are more important to political firms than to private firms, because quids are more separated in time from quos and are more varied in political exchanges. A typical private market sale is the customer gets the good at the same time the provider gets the sale price in legal tender. A typical political market sale is the customer gets the good and much later the government gets paid in varied currency (votes, in-kind campaign assistance, legal tender). If a government bought a promised lifetime of votes by creating a long-lived source of voter payoffs (a dam, for instance), voters would withhold their votes without fear of loss of the benefits (that flow for a long time automatically); thus "what has politician X done for me lately?" is a stereotypical illustration of voters' fickleness. Other things equal, then in political markets sales will be small and continuous to voters, in order to link payment to payoff. On the other hand, if a government sold a promise of production of a special interest's want, it could sell its promise for more the more irreversible the outcome; thus a constitutional amendment would sell for more than a statute, and a rule from an independent agency would sell for more than a promise of favor upon request, no matter how fervently made, for who knows how circumstances will change, but circumstances will little affect outputs from independent agencies, the Constitution, and large capital intense (low marginal cost) sources (such as dams).

Technology as well as honor of parties helps to determine how government transactions are produced and sold. If technology increasingly favored capital intensive means of production, then competition on costs would prompt more capital intensive production, other things equal. If particular voters could be better identified, so that their demands and payoffs could be measured more accurately, then these voters would gain more payoff from politicians. These insights are illustrated by the evolution of governments in the United States. By removing the South as an effective blocker of federal growth, The Civil War enlarged the potential domain of the federal government. The circumstances were most propitious, for demand for that most American of government activities, subsidation of transportation improvements, had been pent up by Southern reluctance and then by absorption in the War effort. The lands that railroads would make valuable were homogeneous and unpopulated, and were championed by well organized special interests, as well--railroads and coastal merchants anticipating profits from trade from the interior. Homogeneity meant that large-scale solutions to preparing the interior for settlement would be economical, and lack of western settlement meant that voters' payoff for improvements need not be linked to delivery; a few easily monitored railroads would pay. Thus, seeking economies of scale and unconcerned about discovering and collecting the value of western improvements from settlers, the federal government moved to produce political outcomes independently of payment or response of constituents. One means was through bureaucrization of independent agencies dedicated to production only.

At the same time, cities handy to bulk inputs (say, on water), run-down housing (old, on water) to house poor laborers, and fast output dispersion (on rail lines) began steam-powered industrialization and polyglot population growth. Municipal governments there faced demands from well placed special interests for commercial favors (to permit more smoke and more noise from factories, and to crowd adequate labor forces nearby) and demands from new potentially minimum winning coalitions for helps in coping with the risks of industrial work in a strange land--demands for help in finding lodging, jobs, and insurance from familial inattention, injury, or death. The demanded commercial favors were idiosyncratic and expectedly would be opposed by rivals, as well as by old line residents who fondly recalled quieter times. The demanded voter favors were equally idiosyncratic, in that relief for a large family with a badly injured breadwinner would be larger and longer than relief for a widower, and were subject to malfeascant overindulgence unless monitored. Thus, newly winning governments in such cites became patronage governments that so-to-speak sold idiosyncratic zoning variances to manufacturers, and delivered and monitored social insurance to poor workers in return for their votes.

In contrast to postbellum manufacturing cities, the mercantile wants of farm cities were homogeneously focused on efficient service of the crops. Where there was a dominant market crop, as in prairie agriculture, this was truest, because everybody was benefitted by efficient service of the crop. So, while increasingly diverse manufacturing cities turned to the neighborhood politics of patronage, homogeneous farm cities followed the federal government into the apolitical bureaucratized and professionalized politics of commission governments.

II. History

Technology and history raised the relative cost of patronage to reform government. Technology drove down the cost of communicating and tracking people and groups, while passed time and lessened immigration homogenized and enriched urban populations. Urban homogenization propelled the replacement of patronage workers by bureaucrats in manufacturing towns, and the narrowing of membership in urban minimum winning coalitions to the great median of the white, stable middle-class

The Depression and the Second World War legitimated an expanded federal government. But the War's end left it with little legitimate to do. More likely by accident than design, the federal government stumbled into helping the downtrodden excluded from the new urban consensus. First helped were blacks. Blacks already had a means of organizing and articulating their interests, the black Christian churches. But technological improvements (such as computerized mailing lists) facilitated cheaper federal and state communication with other demographic or zip-code groups excluded from winning urban political coalitions. Reaching out for new constituents, the federal government aided those excluded from winning urban coalitions.

To spend on Blacks and others excluded from urban ruling coalitions secured the federal government a taxes shelter and a breach in limits on federal authority that was welcome. Many federal spending programs were institutionalized into categorical aid (revenue sharing) programs that directed and subsidized municipal spending. The trillion dollar subsidation of revenue sharing (between 1960 and 1980) was welcome. But the direction was unwelcome to the municipal governments that, had they wanted to embrace the excluded, earlier could have done so. To protect their turf and to satisfy their electoral coalitions, urban governments began to tolerate militancy among their public employees. Suddenly, job actions and work slow downs by municipal employees dispensing categorical shared revenues led