THE MALEVOLENT BACKHAND OF NEOLIBERAL GOVERNANCE[564]
The rational choice two-person Prisoner’s Dilemma model applies to any case in which individuals exist in a state of, as Mancur Olson puts it, “perceptible interdependence,” including basic market exchange and bargaining, the social contract, and even the state of nature.[565] The Stern Review documents that since the mid-1970s, it has been standard practice for analysts to extrapolate from the two-person scenario to circumstances composed of any number of individuals, that each person’s pursuit of preference satisfaction despite others represents a normal and rational manner of conduct.
Major theorists - Thomas Schelling, Michael Taylor, Russell Hardin, Philip Pettit, and Dennis Mueller, to name a few - have found this analysis compelling.[566] Such accounts of the tragedy of the commons, free riding, and the failure of collective action accomplish two goals. First, they normalize the rationality of pursuing self-interest in opposition to others’ interests under all circumstances. Second, they subsume earlier theoretical findings under this generalized multi-person Prisoner’s Dilemma game. This approach is easy to teach and easy to digest. The PD logic looks unassailable in all contexts: regardless of what other individuals do, I am consistently better off defecting. Once this rationale has been thoroughly vindicated in a two-person situation, it must extend through the levels of small, medium, and very large-sized groups with the same outcome: self-interest leads to mutual ruin.Russell Hardin helped lead the way in promoting this cynical, as he refers to it, view of individuals’ inability to collaborate in assemblies of all sizes.[567] In Collective Action, Hardin observes,
The problem of the back of the invisible hand has become known as the problem of collective action, or the Prisoner’s Dilemma, or the free rider problem, or the condition of common fate, depending on the context or discipline in which it is used.
This multiplicity of terms reveals a failure to generalize the nature of the problem. It has been generalized only recently, most notably... in the game-theoretic Prisoner’s Dilemma... and in Mancur Olson’s The Logic of Collective Action.[568]Hardin confirms that he and other mainstream rational choice theorists see the Prisoner’s Dilemma as a general case with myriad applications. He goes on to envelop Olson’s diagnosis of the failure of collective action and to catalogue the wider variety of circumstances to which the PD can be applied. However, the fact that the Prisoner’s Dilemma model does not even pertain to Olson’s theory of collective action signifies that this perverse game gained a momentum of its own and provided the opportunity to reinterpret the significance of social actions that even in the mid-twentieth century were permeated with much different meanings.
Recasting the tragedy of the global commons in light of any single individual’s despair over changing anything, for better or worse, rather than hope to free ride, profoundly alters the diagnosis and potential remedy of this problem. Olson directly addresses this point, noting that his theory of large-scale collective action “does not necessarily assume the selfish, profit-maximizing behavior that economists usually find in the marketplace.” He clarifies, “The concept of the large or latent group offered here holds true whether behavior is selfish or unselfish, so long as it is strictly speaking ‘rational.’”[569] Olson’s entire thesis revolves around the breakdown of instrumental rationality in enormous groups. The Prisoner’s Dilemma logic represents the opposite because “each criminal’s actions have a real and appreciable effect on the other criminal’s utility.”[570] Especially in our contemporary era of looming collective tragedies, it behooves us to grasp the import of Olson’s message and to reappraise our seven-decade infatuation with strategic rationality and the Prisoner’s Dilemma impasse.
Not only is the paralysis of being unable to causally impact the outcome in large groups wholly distinct from the PD prescription to advance by negatively impacting others, but Olson’s investigation also suggests that PD logic is not necessarily relevant in any setting. Olson discusses how groups whose members can impact one another have various means to successfully collaborate, including moral scruples and solidarity.[571] These two acute points puncture the hot air balloon of the generalized Prisoner’s Dilemma approach to the tragedy of the commons, free riding, and collective action.Elinor Ostrom’s Governing the Commons (1990) critiqued the Prisoner’s Dilemma industry by providing numerous case studies in which agents overcame the challenge of cooperating, and contributed to her receipt of the Nobel Memorial Prize in economic sciences in 2009.[572] The task at hand is to move beyond examining individualized empirical examples and to challenge the entire apparatus of strategic rationality as an exhaustive account of coherent action and the Prisoner’s Dilemma as a relevant model for tackling cooperation. An equally important task is to determine why few researchers have noticed the wide berth between the game theoretic neoliberal understanding of political economy and the modern liberal approach preceding it. There are of course prominent spokespersons who offer criticisms of aspects of the strategic rationality paradigm.[573] Still, not only does game theory, as a well-established pedagogy, hold its place in graduate and professional courses, but its findings, from the tragedy of the commons and rationality of free riding to the irrationality of voting, also continue to be undergraduate staples and important tools in economists’ toolkit.[574] Why has this single approach to rendering purposive agency intelligible, with its exclusive focus on ends rather than processes, single criterion mensuration, individualistic maximization, and narrow self-interest, prevailed?
To slightly rephrase the question, where did the “backside” of the invisible hand come from? Either Adam Smith failed to notice it in Enlightenment Europe or rational choice theorists invented it during the Cold War.
Rational choice theorists tend to refer to any application of coercive threats to incentivize agents to conform to the law to solve the ubiquitous Prisoner’s Dilemma as the backside of the invisible hand.[575] However, whereas Smith counted on a mutually beneficial social contract based on the impartial spectator, self-evident property rights, and individuals’ incentives to profit through exchange rather than theft, the neoliberal society relies on heavy-handed enforcement strategies that enable some individuals to disproportionately appropriate the contributions and endowments of others as their means of success.[576]Olson’s Logic of Collective Action, which relies on standard neoclassical economic tools and not the strategic rationality of game theory, provides a helpful vantage point from which to survey the intimate details of the stark inversion from mutually beneficial classical liberalism to mutually debilitating neoliberalism. The rational choice extension of the Prisoner’s Dilemma from two individuals to 10,000, 1 million, or 7 billion provides the key to understanding this transposed appraisal of meaningful action. Where the two-person exchange is modeled as a PD because each individual prefers to leave with all the goods rather than settle on an amicable exchange, and this single logic of action is amplified to any size collection of individuals, coercive force must always be introduced to produce social order. Indeed, force can be used to change the default of bargaining so that individuals will settle for less than they would were normative bargaining via the no harm default, consent and voluntary compliance practiced instead.
Because Adam Smith also relies on police, specifically to protect those with property from those with less, rational choice does not appear to deviate from classical liberalism at first glance. However, Smith did not advocate leveraging force as a means to dispossess less well-off individuals.
Nor did he propose the “externality” approach to wealth production. The neoliberal way to generate profit is to externalize costs and internalize gains. According to Russell Hardin and the standard rational choice analysis, the backside of the invisible hand requires the introduction of coercive sanctions to get individuals to cooperate, and thereby avoid the Prisoner’s Dilemma suboptimal outcome.A clear difference between modern liberalism and postmodern neoliberalism is the former’s recognition that the “competitive market - the epitome of private institutions - is itself a public good.”[577] In the free market, as with any case of collective action, no single actor can causally affect another actor because of the shared fact of negligibility. Under perfect competition, there can be no price setters, whether producers or consumers. In opposition to the standard PD logic, the free market must be protected from firms’ desire to form cartels, therefore jointly controlling the price of goods to achieve a higher profit rate than that available to consumers through perfect competition.[578] Just as with trade unions, a legal structure must be imposed to regulate collaboration: force must be used to protect free market competition from actors’ predilection to collude.[579] Reading between Olson’s lines, the moral of his study is that just as firms must face perfect competition, so, too, must laborers, because only in this way will the free market be preserved. The Prisoner’s Dilemma analysis of market competition also leads us to conclude that no government is necessary to prevent firms from colluding to artificially maintain high prices. Where neoliberal PD analyses identify little role for governmental intervention to maintain free competition, for Smith, the state must maintain the appropriate conditions to uphold the system of natural liberty. Popular opinion seems to applaud firms, such as Walmart and Amazon, with sufficient market share to set prices in entire sectors of products, with no concern to insist that government maintain the conditions of perfect competition.
The rational choice normalization of the rationality of free riding further demonstrates the rupture between classical liberalism and postmodern liberalism. In the Prisoner’s Dilemma, each actor most prefers for the other to cooperate while personally defecting, thereby reaping the reward of the other’s contribution and leaving that other individual worse off. The straightforward Prisoner’s Dilemma model of two firms that each seek to be the sole provider of a good at a higher price also does not accurately capture the choice problem. This situation is more accurately reflected as a sequenced decision problem in which one or several firms make a product for a price that balances supply and demand.[580] A new firm then has the choice of competing at that price level or seeking an advantage by selling units at a lower price, which then forces the other firms to do the same. The concern with collusion is that if there are only a few companies in the industry, they may choose to keep the price fixed at a higher level by confining production. In free competition, however, there will be a sufficient number of actors such that no single producer (or buyer, for that matter) can alter the market price.
This analysis of the free market, which stresses the need to legally enforce firms’ individual maximization when there are lower numbers of suppliers, does not entertain the possibility of either free riding or gaining leeway by imposing costs on other actors. The private property regime is built to facilitate perfect competition, which serves the function of increasing productivity over all sectors until, over the long run, profit rates equalize across industries. This equalization of profit margins serves the function of lowering the cost of subsistence and providing goods and services in areas where there is unmet demand, and thus higher profitability.[581] In Smith’s Wealth of Nations, private property, a minimal state, and legally enforced perfect competition lead to general prosperity. Actors reap rewards according to their prudence and hard work. Productivity is compensated by profit, and the fact that individuals profit from their own efforts is the key to mutual prosperity. Individuals will seek opportunities for gain and thus will be drawn to economic activities that yield supply where demand permits a higher profit margin. The Prisoner’s Dilemma model of basic exchange is therefore irrelevant to modern capitalism because, in principle, individuals profit from their productivity, and not from imposing costs on other actors through malfeasance, shoddy products, or exporting costs.
Neoliberalism dismisses self-evident property rights and determines that even if property rights were unanimously agreed upon, everyone would still seek first and foremost to cheat others. Adam Smith’s theory of wealth production tethers the individuals’ initiative to better their condition to the overall profit rate available in the economy. Neoliberalism offers individuals three means to accumulate wealth at a rate above average: (1) maintaining monopolistic control over a product, application, or algorithm; (2) manipulating risk; and (3) imposing costs on others.[582] None of these was the sanctioned engine for classical liberal growth. However, the widespread, if reluctant, endorsement of neoliberalism may resonate with a worry that overall profit rates of the sort Adam Smith envisioned may be insufficient for all individuals to achieve their economic aspirations. Lester Thurow’s Zero Sum Society (1980) articulates the worry that auspicious rates of economic growth permitting positive-sum gain are no longer feasible, and that profiting from undermining others offers the only currently available means to profit.[583] Game theory’s formation to reflect the laws of thermodynamics supports this hypothesis, and it describes action consistent with relentless competition strictly limited by scarcity.