The Underlying Issues

From the viewpoint of the twenty-first century, what are the prospects concerning the scope of the state – both in the developed industrialized countries of the West, the G7, and in the transitional economies from command-andcontrol to markets on which I have chosen to focus, namely the Russian Federation and the USSR's former East European satellites? Will the economic developments in the West lead to a further decline in the role of the state, not only with regard to public ownership and welfare but also in other respects, or will they rather tend to push toward combinations of various reductions with new extensions of the functions of the state? And as far as the indicated East European countries are concerned, will further reshaping and institutional adaptations of the state machines bring them closer to a free market economy like that of the United States, or rather to dirigiste economies in which the state always plays a decisive role as owner, regulator, and manipulator of firms that are mostly weak, though market oriented?

In order to tackle these crucial, all-encompassing questions, one must first identify the underlying issues concerning not only the actual but also the potential impact of a range of transformations that have taken place at an accelerating pace – in the West particularly since the late 1970s, and in the East since the middle to late 1980s.

This part places the various changes undergone in the industrial countries and in the former Soviet Russia with regard to privatization, welfare, and their respective connections to the state's agenda into two broad frameworks: for the West European countries considered, the framework is the group of the most advanced industrial countries, the G7; for the Russian Federation, the framework is Eastern Europe, comprising both Russia and its former East European satellites.

To begin with, I point out in Chapter 5 that the debates on the state's size and functions – which I presented in detail in Part II – are predicated on certain basic theoretical assumptions concerning the factors that determine changes in output and employment and on how these changes affect the state's agenda. In this regard, the opposition between classical economics and Keynesianism (and between their respective current offshoots) reflects vastly different views on “activist” governments and, accordingly, on the types of functions assumed by the state. To illustrate the point I present the U.S. agenda – as embodied in federal budget data – both as it might have been constituted on the basis of the classical theory and as it has actually evolved as a function of sociopolitical pressures, the requirements of economic growth, and the amplitude of technological change. A simple comparison shows that within the classical framework the state agenda would be reduced to two narrow blocks, namely general government and defense, while the modern agenda adds a variety of activities concerning economic development and social protection.

Governance by consent is extremely demanding of both governments and their citizens, but it is less costly and less dangerous than governance by coercion. While there is a strong coercive element to all governments, whatever the regime form, democracy's maintenance requires, as well, a significant degree of voluntary and active compliance. This is not the once-and-forever consent to a social contract that Hobbes elaborated, nor is it the generational and large-scale contract renewal of Locke. It is, instead, the felt and activated obligation to cooperate with the demands of government in those domains that are constitutive of citizenship and citizenship rights.

These are among the lessons of the historical events and struggles recounted here. The model of contingent consent has been endangered by observations and alternative explanations. It survives the test of plausibility and sheds considerable light on compliance and consent in democracies.

Privatization, Welfare, and the State's Agenda

As I pointed out in Chapter 3, the political and ideological upheaval brought about by Margaret Thatcher in Britain and by Ronald Reagan in the United States in the late 1970s and early 1980s aimed at liquidating the so-called postwar settlement in the first country and the Roosevelt era consensus, in the second – both viewed as embodying the ideas of activist governments preoccupied with full employment and the welfare state. The new leaders intended to redefine the role of the state, reduce its functions, and bring to an end what they perceived as the era of overcentralized, bureaucratic, and interventionist governments. Margaret Thatcher directed her attack in particular against public ownership, that is, against Labour's nationalizations and Labour municipalities' extensive power, ownership, and control. Accordingly, privatization there became a key instrument for remodeling both the state and the power relations in society. In the United States, Reagan's emphases on increased defense spending (because of the Soviet menace), along with large tax cuts, decreased welfare spending, and an eventual balanced budget – the whole denounced as “voodoo economics” by his electoral competitor and eventual partner George Bush – also aimed at redefining the scope of the state. Tax cuts – with taxes viewed as evil – and decreased income transfers became Reagan's instruments for downsizing the state and limiting its functions. The same emphases were repeated by the Republicans during and after their successful parliamentary elections of 1994. Some of their leaders reasserted Reagan's creed that taxes were not only evil but also unnecessary.

This part focuses on the policy reversals brought about in the industrial and transitional economies by critical changes concerning the role, size, and structure of the state. In the industrial countries, particularly since the late 1970s and early 1980s, debates, crucial elections, and key policy decisions have centered on the complex problems of the nature and tasks of public and quasipublic enterprises, on the scope and consequences of welfare programs, and on state policies with regard to income redistribution. On the other hand, in the former Soviet countries, multiple conflicts and confrontations – generated within Russia proper, its imperial provinces, and its satellites – have centered inevitably on the complex, interlocking issues brought about by the rapid disaggregation of the main structures of the all-encompassing Soviet party-state.

The debates for or against dismantling public and quasi-public state-owned or -supported enterprises and the actual liquidation or privatization of the most outstanding among them, notably in Great Britain, have had a great impact throughout the world. In Chapter 3, I indicate how these debates throw light on the multiple forms and purposes of public companies and off-budget statutory agencies, as well as on their use as devices for circumventing certain constraints, as alternative ways of asserting control in certain sectors and branches, as channels for moving credit in selected directions, and as instruments for coordinating government programs and plans. The debates also show the difficulties encountered at times in attempts to disentangle the frontiers between the public and the private sectors – for instance, in the case of government-oriented corporations with long-term capital supplied by the state or that are integrated into state-determined planning frameworks.

The chronicle of mass conscription in modern democracies is the story of the changing relationship between the state and its citizens, and the Great War is one of the major turning points, especially in the Anglo-Saxon democracies. The institution of conscription significantly extends the obligations of male citizens and the reach of the state. Its history offers insight into both the institutional arrangements that promote or undermine the consent of the governed and the changing bases for that consent.

The high degree of citizen support necessary for conscription hinges on the perception of an acceptable policy bargain whose terms government actors are likely to uphold. The minimal terms of the democratic conscription bargain are that government will conscript according to some legislated and relatively equitable formula.

Focusing in historical perspective on the role of the state with regard to public ownership and to welfare in the Western industrialized countries, on the one hand, and in Russia, on the other, I have tried to underline the correspondences that have arisen over time within and between these markedly dissimilar systems. Let me recall briefly the crucial moments and forms of these correspondences and their implications.

With regard to the industrial West, I pointed out that from the very emergence of the national states and the continuous expansion of market relations, the states began to exercise vast control over the types of production, openly protected and subsidized various industrial enterprises, and consolidated their own ownership and direct management over their countries' key industries. Eventually, within the mixed liberal-mercantilist and rapidly industrializing framework of the nineteenth century, the role of government decreased in some respects, but continued in certain Western countries with regard to the promotion of national industries, the subsidization of exports, and the limitation of imports. This direct role of the state expanded further during World War I and the interwar years, as well as during and after World War II. As we noted, the role of welfare also became increasingly significant from the end of the nineteenth century onward and gained in scope and importance during the interwar years and then again particularly after World War II.

Why should a private enterprise economy be subjected to any kind of government intervention and not be left entirely to the guidance of the “invisible hand” of the market? The answers to this often-repeated question have varied enormously through time under the impact of intertwined economic, social, and political considerations and of power relations within the society. Modern conservative politicians, and certain economists, contend that the more limited the economic role of the state, the better off the economy and the population at large. Other economists dismiss this contention and its theoretical underpinnings as unrealistic (as we shall see in Part II). These economists point out that the market cannot perform all the socially necessary economic functions – moreover, that it could not consistently discharge all of them efficiently. As a matter of fact, the state's (i.e., the government's) interventions in the economy have developed historically in a number of ways that could be grouped into the following basic categories: legal and regulatory, allocative, growth-oriented and/or stabilizatory, income distributive.

Building on the foundation of property laws, the first category of activities has consisted of determining the market's legal structure and regulating its processes involving coalitions and bargaining among consumers and firms. As Professor Milton Friedman, an ardent defender of individuals' freedom to choose, has pointed out (in Capitalism and Freedom), government is essential for achieving something that the market cannot do for itself, namely to act both as “a forum for determining the rules of the game” and as “an umpire to interpret and enforce the rules decided on.”

Throughout the nineteenth century states enhanced the extent and depth of their coercive capacity while also expanding the privileges and numbers of citizens. Rulers developed increasingly efficient and centralized administrative apparatuses to monitor and extract manpower from the countryside, but they had to appease citizens who were also voters and to ensure the cooperation (or at least avoid the resistance) of those whose services they sought, whether voters or not. Nearly all the European, North American, and Antipodean states – democratic or autocratic – devised new equilibrium policies to define the mutual obligations of citizens and government actors. In terms of military policy, the problem for modernizing states was how to develop an effective fighting force more embedded in national society than the absolutist armies of Europe or the local militias of the new countries of North America and the Antipodes.

The substantive focus of this chapter is on the disappearance of various forms of buying one's way out of military service if conscripted: commutation, a fee paid to government; and substitution and replacement, payment to someone else to take one's place.

Marxism and State Ownership

The verb to nationalize, coined during the French Revolution, meant “to return to the nation” the properties of various “estates,” namely those of the clergy and nobles. From the middle of the nineteenth century on, its derivative, nationalization, acquired various extensions, connotations, and interpretations. One such extension referred to bringing under “the control of the nation” banks and railroads (even foreign capital holdings) that were supposed to be “renationalized” for the purpose. Another extension of the term referred to the “socialization” (or nationalization) of the means of production and to the centralization of all production activities in the hands of the state.

In order to understand the rationale and scope of nationalizations carried out by socialist and/or communist parties, one must first explore the meanings assigned by the founders of Marxian socialism to private property and to the state. Also, one must attempt to understand the ways in which these parties – which often, though not always, claimed allegiance to the same Marxian theories – have come to diverge in their interpretation of Marxism or how they have come to combine Marxian ideas with different – and at time flatly opposed (or, contradictory) – practical considerations. To start with, let me note that in the Communist Manifesto(1848) Karl Marx and Friedrich Engels asserted that communist theory “may be summed up in the single sentence: Abolition of private property.”

The Breakdown of the Soviet System

The Soviet system's protracted economic slowdown and growing “malaise,” treated at the beginning of Mikhail Gorbachev's perestroika as correctable deficiencies, started from the late 1980s to be viewed increasingly as incurable diseases of the all-embracing party-state order. In the ensuing uncharted, chaotic processes of disintegration of the Soviet system, begun in the early 1990s, the decaying USSR was sucked into the whirlpools of its dislocated state machine and dissolving multinational empire. At the time, no compelling, conclusive analysis could be effectively carried out with regard to the policy choices between a so-called shock therapy – involving a simultaneous resort to rapid price liberalization, economic stabilization, and privatization – and a gradualistic process involving various preliminary combinations of legislative and restructuring measures. The passage from the decomposing centralized administration to a new economic order indeed proved largely uncontrollable and treacherous. The rapidly sinking central power was leaving behind it resilient centers of power in key positions in industry, banking, and the agricultural collectives, letting them expand their connections with the “shadow economy.” Conflicts between various still functioning government organs and their contradictory legislative decisions, and a crisscrossing of more or less spontaneously emerging trade and commercial relations, made the entire socioeconomic organism drift aimlessly.

Before presenting some of the important highlights of 1990 and 1991 – the last years of the dislocating Soviet party-state – let me recall briefly the predicaments of the Soviet economy at the end of the 1980s.

A major effect of the Canadian conscription crisis of 1917 was the deepening of the rift between francophones and anglophones. The government's imposition of conscription, in spite of francophone opposition, infuriated much of the French Canadian community. The francophone campaign against conscription and evidence of francophone draft evasion and desertion infuriated anglophones, who felt the francophones were not doing their share in the war effort.

One of the givens of military sociology is that unemployed and relatively poor young men are more likely to volunteer for the army than are other individuals from more opulent segments of the population. This is the popular explanation of why blacks were overrepresented among the U.S. volunteers for Vietnam and the Irish among the volunteers for the nineteenth-century British military. In the cases of both U.S. blacks and the British Irish, and in others, the populations were relatively low in income but also victims of discrimination. There were reasons that they might not feel well served by the state for which they were willing to die. Yet they volunteered. The francophone Canadians, on the other hand, were not so willing to give their compliance, at least not in the form of their participation in the national military.

Analyzing the variation in responses to Canadian government proposals for introducing conscription during the First and Second World Wars helps illuminate the conditions under which citizens give or refuse their contingent consent to military service.

When are individuals actively consenting and when are they more passively engaged in conforming or acquiescing? How much difference does it make to the everyday practice of democratic governance whether it is consent or not? How is policy-making influencing and influenced by behavioral consent? The model of contingent consent offers a means to begin to answer these questions both logically and historically. When citizens believe government actors promote immoral policies, have ignored their interests, or have actually betrayed them, citizens are unlikely to feel obliged to comply with the laws. The discovery that some citizens are failing to contribute reduces the willingness of otherwise willing citizens to comply. Failure to achieve contingent consent constrains policy-making, but government actors can affect the extent of contingent consent by means of their policies, institutional arrangements, and administrative practices. These are the central arguments of the book.

Mercantilism and State Ownership

The emerging and then consolidating European monarchic states of the seventeenth and eighteenth centuries inherited from the powerful examples of the medieval city-states such as Milan, Florence, Bologna, Genoa, and Venice a tradition of continuous interventions of the central power in the economic and social life of their communities, along with a strong impulse toward an incessant warfare of competition and aggression. In many respects some of these policies, which began to assert themselves forcefully also in England and France from the sixteenth century on and which came to be known as “mercantilist policies,” were actually extensions to the limits of the newly developing monarchical states of the traditional preoccupations and practices of the late Middle Ages. The modern states shaped themselves into strong and wealthy economic bodies by means of both internal and external conflicts. The internal conflicts pitted the central state power against the church, the nobility, the medieval parliaments, the districts, and the towns in a vast attempt to transform and reorganize society's economic and social structures. The external ones involved the newly rising states seeking a dominant place among the European nations and in trade (which henceforth included America and India). State making and state power were thus intertwined. The essential means of power, wealth, was increasingly viewed as indispensable for security, aggression, and eventual conquest. States sought to attain wealth by avoiding the export of bullion (gold and silver) and by securing a favorable balance of trade.