Informality and its Discontents

China’s problem with poorly formalized power:

As an old-style Leninist party in a modern world, the CCP is confronted by two major challenges: first, how to maintain “ideological discipline” among its almost 89 million members in a globalized world awash with money, international travel, electronically transmitted information, and heretical ideas. Second, how to cleanse itself of its chronic corruption, a blight that Xi has himself described as “a matter of life and death.” […] The primary reason the Party is so susceptible to graft is that while officials are poorly paid, they do control valuable national assets. So, for example, when property development deals come together involving real estate (all land belongs to the government) and banking (all the major banks also belong to the government), officials vetting the deals find themselves in tempting positions to supplement their paltry salaries by accepting bribes or covertly raking off a percentage of the action. (XS emphasis.)

(The article as a whole is ideologically pedestrian.)

Obscure the degree to which government is a business, and it will find a way to make itself one, around the back (with its executives privatizing sovereign property on an ad hoc, chaotic basis). Exhortations (from Sun Yat-sen, repeated by Mao Zedong) to “Serve the People!” are no substitute for sound administrative engineering, of a kind that rationally aligns incentives, and lucidly recognizes the sole consistent function of government — maximization of sovereign property value. The pretense of altruistic government and the reality of rampant corruption are exactly the same thing, seen from two different sides. The illusion of a public sphere is the root of the social sickness.

The gist of Orville Schell’s analysis is that China has deviated disturbingly from a functional Western model it would be better advised to return to. On the contrary, it is China’s continued (profound) submission to a Western demotist framework of administrative legitimation that makes its problems so intractable. A government devoted to serving the people is radically corrupt by essence. Government properly tends the national estate, as the agent of its owners. Open, clear, and unapologetic admission of that basic principle seems no closer in the East than the West.

ADDED: “Russian corruption is the new Soviet Communism.” … and the old Soviet Communism, and the older universal Jacobinism, and everything spawned from it. Corruption is what demotism is, rather than what it looks like to itself in the mirror.

April 13, 2016admin 39 Comments »
FILED UNDER :Political economy


39 Responses to this entry

  • Brett Stevens Says:

    A government devoted to serving the people is radically corrupt by essence.

    This is the essence of ideological government or “big government” that conservatives crusade against.

    Give government a method of justifying its expansion, and it will grow infinitely and expand its powers, because no one can say NO to its “good intentions.”


    Posted on April 13th, 2016 at 4:04 pm Reply | Quote
  • Uriel Alexis Says:

    i find myself with a question similar to the previous post: what could prompt the acceptance of a formalist, neocameral government? Elon Musk’s cities on the moon? or is it just another tragedy?


    admin Reply:

    Acceptance of a Neocameral government is nothing more than a refusal to exercise an exit option. In other words, no one’s being asked to “accept” it, in the sense of recognizing its legitimacy in the eyes of the people.

    It’s only a short drive to the airport. Hell, you can probably take the hyperloop — which is among the reasons to stay. (“I gave up my positive political rights, and all I got in exchange was this lousy science fiction infrastructure.”)


    iyaku Reply:

    Seems that gesturing at exit sidesteps the problem of ideological legitimation in actually-existing social structures. Homo sapiens tend to be resentful of hierarchy, and even non-demotic political structures have to justify their power. Auspicia sunt patrum and all that.


    Grotesque Body Reply:

    As I’ve said, “because it works.”

    grey enlightenment Reply:

    seems worth it


    Uriel Alexis Reply:

    makes sense. a drone army needs no convincing.


    Posted on April 13th, 2016 at 4:59 pm Reply | Quote
  • Scott Alexander Says:

    Why is this different from a mid-level corporate employee who is encouraged to make deals that increase corporate profit, rather than accept bribes to take deals that are worse for the company as a whole?


    Kwisatz Haderach Reply:

    I won’t speak for admin, but I think the key difference is the incentive structure.

    Mid-level corporate employees have reward packages tied to company performance, so they do well when the company does well. Furthermore, the assets under the control of an employee are related to his pay grade by cold-eyed rational calculus. Working in the O&G industry, I see this first hand.

    I think you have a good point in that the principle-agent problem is still there in private orgs. Selling out to your biggest competitor might still be more personally advantageous than cooperating with your org. But the multiple of the advantage is likely to be less – say 10x or 100x more lucrative to defect to Chevron rather than keep your cushy job at Shell. This could be contrasted with a 1000x or 10000x more lucractive defect option when accepting bribes to make a real estate deal happen. In well-managed corporations, the marginal utility of defection is kept – by design – more in line with the risk of that defection.

    The official narrative of a People’s Republic simply doesn’t allow for such a calculus to be made. It isn’t able to acknowledge that the assets of a Republic are property that can realize a return, or that the public servant is actually a self-interested agent that needs to have his incentives carefully managed.


    R. Reply:

    Won’t stop corruption. And dysfunction. The horror stories I hear from family working in corporate setting make me heavily skeptical of the idea govt as business would be better.

    Corruption, graft, faddish idiocy, incompetence (it took the corp 7 years to get its most elite developers solid workstations and multiple screens).

    Obsession with metrics and processes instead of results. Endless amounts of management deadwood.

    IRe-animating Marie-Therese or someone like that seems less wacky tbh. Imo, convince me democracy shorn of stupid voters and conflicts of interest would still be dysfunctional.

    If voting was a privilege of smart, successful people, would it still suck?


    goat Reply:

    “If voting was a privilege of smart, successful people, would it still suck?”


    TheDividualist Reply:

    >If voting was a privilege of smart, successful people, would it still suck?

    Yes – smart and successful people would use it to gain an advantage like regulate their competitors out of business leading to slow decay and slow destruction.

    But let’s get something straight. Dictatorship is not a good idea because it simply means one competing group dominating the others. It is called one-party system for a reason: one part of the elites dominates.

    Undivided authority should be something above all competing groups, above all parties and suchlikes. If there is anything like a governing party, it is a fail. No “part rule” can be undivided. Undivided authority must in a certain way represent the whole – but of course it does not mean elected by the whole as every election is struggle between coalitions…

    This is obviously very difficult. Even as a mental exercise.

    TheDividualist Reply:

    Generally the issue is long chains of incentives. As they are handed down in a large structure, many hierarchical layers, it is like a game of telephone.

    This is how small businesses, startups get an advantage despite numbers working against them. They are more motivated than the employee whose bosses bosses bosses boss is a non-shareholder employee-CEO hired by a pension fund who owns the shares. The incentive from the pensioners dissipates and gets distorted by the time it gets handed down to the lowest level of employee.

    If it was not so, the world would be owned by a handful of megacorps, due to the economy of numbers. Because they can just thrown money at problems or kill small competition with dumping prices or buy up all the innovation. But their coordination and efficiency is low, as the dissipation and distortion of incentives as they are handed down in long chains makes them look amusing like a sclerotic, navel-gazing Soviet corporation.

    In other words, General Electric is more like NASA than like SpaceX.

    (This is also why they can afford to play SJW games. It is not profitable but beyond a certain size the profit motive dissipates as the incentive gets handed down.)


    Xoth Reply:

    “Man hands incentive on to man / it deepens like a coastal shelf”

    Xoth Reply:

    According to some, the world’s assets are already largely controlled by a financial “super-entity”.

    Soft version:

    Hard version:
    (“The Network of Global Corporate Control”)

    Startups are already largely owned by pension funds, etc., at one remove.

    Johnny Anglo Reply:

    Incentives start at the top, and cascade down the management ladder. So to unpack this question, work backwards from corporate middle management > Jr execs > CEO > Board > Shareholders.


    goat Reply:

    Because the state pretends to be an eleemosynary institution, rather than formally acknowledging itself as a revenue maximizer. If its objective was to maximize profit for a single logical owner (shareholders), it would be organized to do so. Instead, it is organized to provide “services” to “the people”. “profit” has nothing to do with its gestalt incentive structure.

    A revenue maximizing institution would certainly never allow itself to run a deficit; a bureaucracy does exactly that, because a deficit does not necessarily run orthogonal to its stated goal. Basically, a bureaucracy is owned by its employees rather than its creditors (taxpayers), and suffers from a massive tragedy of the commons problem accordingly.

    Rather than being one hierarchical incentive structure tracing back to its single logical owner, the bureaucracy consists of many disparate and autonomous components (state agencies) responsible instead primarily to its own employee.

    If a state agency fails to perform optimally, it makes no difference to its executive administrator – it just needs to run well enough to keep him/her from facing political backlash. In fact, it is in the administrators incentive to fill as many jobs as possible within their agency – the more heads, the more political power.

    If the state as a whole fails to perform optimally, it makes no difference to Xi Jingping – it just needs to run well enough to keep him from facing political backlash. In fact, it is in his incentive to keep all of his employees happy. Enforcing a stifling and stressful performance-based incentive structure is not a good way to earn political allies.

    Abolish the politics, install a single, secure logical owner – taxes are set to the Laffer limit, and the incentive structure flows from there – no more corruption. Or at least, as much corruption as you would expect from Microsoft, Google, or any other profit-driven corporation. (Possible side effects may include lead in your water supply, toys designed to choke small children, and homeless people being harvested for their organs)


    Grotesque Body Reply:

    “Because the state pretends to be an eleemosynary institution, rather than formally acknowledging itself as a revenue maximizer.”

    I’ve known drug traffickers and biker gangs to do the same.


    Jesse M. Reply:

    “Because the state pretends to be an eleemosynary institution, rather than formally acknowledging itself as a revenue maximizer. If its objective was to maximize profit for a single logical owner (shareholders), it would be organized to do so.”

    But you’re still relying on the collective human judgments of the shareholders, who have to be making fairly subjective judgments about whether the current organization and leadership is sub-optimal relative to some hypothetical alternate organization and leadership they might consider. It isn’t really like a regular market where you have competing firms making extremely similar products and trying to sell them to the same set of potential buyers, and free to hire employees with similar abilities, so that looking at the performance of other similar firms is a nice concrete way to evaluate your own firms’ performance. Each state would be dealing with different economies that have evolved to specialize in different things, different natural resources, and a different population with different typical cultural values and education levels (who can’t easily be ‘fired’ and replaced with ‘better’ people, unless you want to get really dystopian and imagine neocameralist states regularly killing off or exiling large segments of their population).

    Isn’t the neocameralist scheme basically the same as a form of democracy where the only people allowed to vote are people with similar knowledge and intelligence to your hypothetical shareholders, along with similar values of caring more or less exclusively about economic performance rather than other metrics modern voters typically use to judge a government? And thinking along these lines, aside from shared cultural values, are their any feedback systems in the neocameralist system will reliably root out shareholders who start to evaluate the performance of the government at least partly based on non-economic metrics, like the health and happiness of the citizens?


    goat Reply:

    @Jesse M.
    “Isn’t the neocameralist scheme basically the same as a form of democracy where the only people allowed to vote are people with similar knowledge and intelligence to your hypothetical shareholders, along with similar values of caring more or less exclusively about economic performance rather than other metrics modern voters typically use to judge a government?”

    No, it is not the same, because a voter is not the same as a shareholder. They are two fundamentally different responsibility structures.

    A shareholder receives profit tied to the market value of the entity which they represent; therefore, the incentive structure is shaped to maximize the value of the estate. Incentives matter; even if the hypothetical voter were the same being as the hypothetical shareholder, the connection to profit is simply not there, and the incentive structure will be shaped accordingly (or not at all). Voters do not receive dividends, nor can a vote be formally transferred or sold (it can certainly be informally sold however, though only to politicians, and only in a very convoluted and informal manner – think “vote-bank”).

    Profit (maximization of “market value”) is a completely objective metric. What is profitable for one shareholder is by definition profitable for all shareholders. Other metrics, such as “health” or “happiness” are inherently subjective metrics, and a cause for friction between voters.

    In the shareholder structure, all power is divested into one dictator; the only responsibility the shareholders have is the incentive to select a profit-maximizing dictator. They are not micromanaging him or her. The dictator is responsible to the shareholders, and is the single autonomous entity in deciding how to maximize that profit (unless the shareholders boot her out).

    In the remotely equivalent dictator-based voter structure, which we usually refer to (correctly) as fascism, there is no connection between the voter and any objective profit metric. Some voters want to restore glory to the empire (subjective). Others just want to enhance workers rights (very subjective). There is no objective metric for which to select a dictator, and friction abounds. The swine most capable of co-opting these divergent interests is the swine they elect. Swine proceeds to exterminate the jews, drive the military to their death in the east, and otherwise assure that the empire is subjugated by its enemies for the next 200 years. Our “separation of powers” tends to mitigate this to a degree; the trade-off is the stark and continual paralyzation of bureaucracy which we see all around us. (we are also extremely lucky to live in a society for which this is the result. Historically and to this day, most societies where Democracy is tried result in significantly more morbid outcomes).

    There is nothing in theory that would stop a major block of shareholders from eschewing their profit-based intensives and focusing on a different metric, but given the difficulty in aligning non-profit-based subjective interests, and the problem of even defining the proper alternative metrics, it seems unlikely. Profit is such an objective metric, and the profit incentive seems to be a powerful force of alignment in the ape-mind, so long as the organizing structure is set up sufficiently (we can see this clearly in the publicly held joint-stock corporation).

    This is I think why we tend to see privately held corporations often sustain some level of non-profit oriented autonomy. Once a corporation goes public, where anyone can buy/sell shares on an open exchange, the profit incentives of the ape-hive-mind tend to completely override any other incentives or values which may exist. (“Corporate social responsibility?”, Google’s “don’t be evil”? Laughable).

    For example, perhaps our neocameral dictator (or ‘fnargl’) would ensure there was no lead in our water supply, because lead in our water supply lowers IQ, which lowers human capital, which directly contributes to the value of the estate. Therefore, if the incentive structure is designed to maximize the value of the estate, there will be no lead in our water supply. Personally I am dubious, which is why I would love to see real world Patchwork and this speculation tested by reality.

    goat Reply:

    To answer the other part of your question, and to sort of re-frame my response more succinctly, no, we cannot be sure that any sovereign (or corporation) is being run “optimally”. Is there any entity in the world which is running to perfection? There is not. We cannot ensure that an entity is running perfectly efficiently; we can, however, ensure that the incentive structure is designed to reward efficiency.

    This is why virtually all major sovereignties run perpetual deficits. Corporate monopolies do not run deficits, and if they do, they will not last long (unless they are being subsidized by the government of course. In which case, they are essentially part of the government).

    All of our major sovereignties will eventually be forced to monetize their debts, and the resulting hyperinflation will destroy civilization as we know it. Lenin was right about at least one thing. And no, it will not be “Keynesian fiscal spending” that ultimately debases the currency; the root cause will be policies like Social Security and Medicare (translate appropriately to your specific polity). A neocameral state may not be “optimal”, but it will never allow itself to be destroyed by hyperinflation, either. (This does not necessarily imply that it won’t have a “social safety net” in some form, just that it won’t allow such policies to create bureaucracies which engulf and destroy the state.)

    Peter A. Taylor Reply:


    I strongly disagree that there is a major difference that is relevant here between an ordinary voter and a minor stockholder. Adam Smith thought a joint stock company was a lousy way of organizing a business for the same reason that Bryan Caplan thinks democracy sucks: the common voter’s vote is not decisive. There is something like a 10^-6 chance of a major political election coming down to one vote, and there is a similar astronomically small probability of a minor stockholders’ vote tipping a stock company’s election. What makes stock companies work as well as they do is (1) large institutional investors who have different incentives and (2) low exit costs.

    I’ll throw in psychology as a third factor: there is a romance surrounding democracy that stock companies do not have.

    But the basic problem with either system is that doing a good job as a small-time voter is like wetting your pants in a dark suit. You get a warm feeling, but nobody notices.

    goat Reply:

    @Peter A. Taylor

    Oh, I agree that only *major* holders of stock are going to have any significance on decision factors. That’s why it’s important that shares, unlike votes, can be formally transferred and aggregated. Indeed, in a neocameral system it’s probably inevitable that the shares will mostly be aggregated to a few entities. The Iron Law Of Oligarchy holds.

    However, even if you are a single individual vested in some insignificant holding of shares, you can be reasonably sure that the incentive structure results in positive value for your shares. This is true even if you have virtually no input into the decision making process. The same holds true for Microsoft, Google, Starbucks, or any other publicly held corporation today.

    admin Reply:

    The whole point is that it shouldn’t be different. If States legitimized themselves in such a way that they could accept this formulation of the problem, we’d be basically done.


    Posted on April 13th, 2016 at 5:41 pm Reply | Quote
  • Herbert Z. Oinlein Says:

    (i) Bribery has been a rampant in China for centuries before any infusive contact with “The West”. Spandrell can chip in on this.

    (ii) How do you define “demotism” in this context? How do you define “corruption” in this context? (Prove the asserted isomorphism.)


    Ahote Reply:

    The corruption problem within absolute monarchies is the same one which is exacerbated and made chronic by democracies. Joint-stock corporation would be no better than absolute monarchy in this regard… that is, unless all its employs are required to also be shareholders. The Hapsburg Monarchy came closest to this model, civil servants and merchants were buying noble titles to rise within society, which made them invested in the country.


    R. Reply:

    Yeah. One of my great-,uncles was a secret councillor(?) some sort of honorary/advisory body. Still haven’t chceked what it really was, a joke or actual body that the KuK govt condulted in policy matters.


    goat Reply:

    @Herbert Z. Oinlein

    Corruption: something which claims to be that which it is not.
    Demotism: a political formula, enabling regime stability and security on the pretense of “popular sovereignty” (“the will of the people”, “we the people have authorized it”). Either the masses are indoctrinated accordingly and the regime is stable; or they are not, and it is not.

    All polities of nontrivial size are in fact controlled by organized minorities – oligarchies. Therefore, all regimes which claim legitimacy through demotism are lies, and hence corrupt by definition.


    Posted on April 13th, 2016 at 6:54 pm Reply | Quote
  • vxxc2014 Says:

    Perhaps the Answer is Juche from what I can gather.

    Aligning incentives can take many forms.

    The notion of property having the right of exit is High Humor and nothing more.


    Mariani Reply:

    >aligning incentives can take many forms
    Such as?


    vxxc2014 Reply:

    Punishment for corruption for instance.

    At present the Chinese firing squad looks like a great idea.

    Democracies are no more corrupt than other forms of government except in people’s dreams.

    We have a people problem in our elites and indeed managerial class. It doesn’t matter what system you put them in and no systems change saves us from confronting them or laying down and dying. This isn’t a systems problem in America or for that matter China.

    And no absolute power to the corrupt even if formalized isn’t the answer.

    Shooting them is.


    Posted on April 13th, 2016 at 7:35 pm Reply | Quote
  • michael Says:

    content by jp morgan


    Posted on April 13th, 2016 at 9:46 pm Reply | Quote
  • SVErshov Says:

    regardless of methods (exit/shooting squad) both neo cam and totalitarian governments will face both, phase of relative stability and chaos. what make one better then another is understanding of how to achieve transition from choas to stability. such understanding is of ultimate practical value and can be derived and synthesised from any sources like: non equilibrium physics and chemistry, biology or reverse engenired from known historical periods.

    neo cam concept of exit have to be aligned with fact that there always will be some places with more stability (less entropy) then in another and high IQ population may adopt sort of nomadic life style. each time leaving corporations managing chaos in disgenic trend and barbarians at the gates.


    Posted on April 14th, 2016 at 3:47 am Reply | Quote
  • spandrell Says:

    Underpaid mandarins living off the land has been the basic modus operandi of Chinese statecraft since the Han Dynasty.

    Imperial policy was to look the other way, but use selective enforcement to remove inconvenient officials, and crack down hard when the bribery got too bad (embezzling funds destined for the dykes on the Yellow River, which eventually causes a flood where 10 million people die. That happened once every 20 years).

    The Chinese themselves will tell you that nothing fundamental has changed.


    SVErshov Reply:

    It is exactly why China is different, and such kind differende is really hard to comprehend for hedonistic West. China can easily lose 25% of its population and start growing againg. for achiving same goals Europe may relay on importing degenerative ratchet. China can do it on its own, in 7th century 90% of population inChina were killed, during civil wars with no intervention from outside.


    spandrell Reply:

    Please somebody ban this freak.


    admin Reply:

    That would be bad for the body counts.

    Posted on April 14th, 2016 at 10:13 am Reply | Quote
  • Blogospheroid Says:

    I don’t think that eleemosynary impulses automatically lead to corruption. It is possible to imagine worlds where bureaucrats are paid bonuses on achieving social targets. It might be possible to even have democratic checks and balances that could achieve a facsimile of that. Imagine most of your senior bureaucrats, judges, Members of parliament are on a variable pay schedule with the pay being determined by achieving certain social goals. But the statistics institution which measures these goals reports to the leader of the opposition. You could make it completely independent also, by making a norwegian in charge of it, or something. It might lead to interesting results. A deep thinker can probably figure out ways to corrupt such a setup in a day, but the meta-game looks very interesting.

    The major downside is that, in absence of actually collected revenue (i.e. you’re good at achieving social goals, but not fiscal goals), what will you pay the people with? The simplest answer seems to be equity. Pay your main people in equity so that they either divest it to live a good life or accumulate it to accumulate power. With sufficient equity, a person could modify the social goals to suit themselves. The new social goals being guided by those good at achieving the old goals. It’s not a bad system.


    goat Reply:

    “It is possible to imagine worlds where bureaucrats are paid bonuses on achieving social targets.”

    The problem with that is, even if we could find the proper independent observer to provide the proper rational metrics, there is no way to ensure that our bureaucratic administrator or politician will meet that criteria without creating mass negative externalities.

    For example, what if we set a metric for reducing cancer deaths? Perhaps our administrator will transfer investment out of traffic infrastructure and into health care, in order to maximize their bonus. What if the metric is set to maximize efficient transportation? Perhaps they will divest in health services and invest the proceeds into traffic infrastructure, at a rate far more than is economically sensible – for the sake of their bonus. What if we set the metric to both? Perhaps they will resort to money-printing, or taxing beyond the Laffer limit. What if we ban them from doing even that? Then perhaps they will…

    The problem goes on and on. If the single metric of success for our administrator is profit maximization, then the entire economic structure is viewed only through that lens. The amount spent on health services and transportation infrastructure (and everything else) in aggregate will be the amount which approximately maximizes revenue. And they will certainly not resort to hyper-inflation or taxing beyond the Laffer limit in order to do so.

    (This also looks at the problem in terms of raw spending, and ignores other organizational factors. For example, if our traffic metric is designated in part by minimizing road accidents, perhaps our administrator sets the speed limit to 20MPH – a rather morbid effect on economic output, surely. Ban them from doing that, and I’m sure they’ll find another way to produce an equally morbid result. It’s like playing whack-a-mole. Hope the independent party setting the metrics is up to the task.)


    Posted on April 15th, 2016 at 6:25 pm Reply | Quote

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