It’s Not Socialism, It’s Clientelism

“Socialism” has enjoyed something of a renaissance in the U.S. over the past few years, with the rise of populist politicians like Bernie Sanders and AOC who proudly embrace the label. Opponents attach to it the crimes of Stalin and the failures of Chavez; proponents argue that this is a strawman, and insist that democratic socialism is something entirely different from authoritarian socialism.

In spite of the appearance of special pleading however, there is something essentially different about the arguments for the “new” socialism. There have been few outright calls for nationalizing the means of production. Rather, the political energy is geared toward redistribution, of both resources and status, along interest group lines. This is not Soviet socialism; if we grant it the name of socialism at all, we might call it “socialism of the Latin American pattern”. A more apt term, though, is clientelism, a method of political administration based on the exchange of favors for loyalty. The pining for it unites today’s self-styled anticapitalists with many on the populist Right as well, where it has yet to distinguish itself with a clear label. They, similarly, are not “fascists” at all (as the accusation goes, though no one self-describes that way), but clientelists. The fact that their client groups are different should not cause us to overlook to this basic similarity.

This is not a defense of either: historically, clientelism has proven an even more potent way to kill an economy than either socialism or fascism.

What is Clientelism?

First we must distinguish between economic systems and administrative systems. Capitalism and socialism are alternative economic systems; different ways of answering the question “who owns the means of production?” Clientelism, on the other hand, is an administrative system. It is not opposed to capitalism, but to bureaucracy (Democracy vs. authoritarianism would be still a third distinction, one that will be left to the side here).

Administrative systems are the structures through which organizations make decisions. These systems are ubiquitous: you encounter them at work, at church, in your school and community groups; anywhere people come together and establish procedures to accomplish a goal. In the private sector administration is called management, but it takes on particular significance in political bodies, where we can’t count on profit and loss to weed out dysfunctional systems.

Though organizations will be established with a goal in mind, the people inside can have a variety of interests, opinions, experiences, and so on, not all of which will align. Some may not want to work hard. Some may have other ideas about how the organization should achieve its goals, or what those goals should be. Others may just want to accrue power and influence as an end in itself. As the ubiquity of “office politics” attests, harmonizing this diversity is by no means trivial.

The fundamental problem of administration, therefore, is what economists call the principal-agent problem. Given the variety of interests, opinions, and work ethics in the organization, how do you incentivize the people under you work hard and do their jobs the way you want them to?

Bureaucracy and clientelism are two ways of answering this question. A bureaucracy makes decisions based on objective and prespecified rules. This is both the greatest strength of, as well as the principal complaint about, bureaucracies. They are indeed cold, inhuman, sometimes even Kafkaesque. And yet, widespread functional bureaucracies are one of the more remarkable innovations of the past few centuries, part of what I’ve called a rise in organizational capacity—remarkable for exactly the same reason as strong-but-limited states: how do you make sure that the people enforcing the rules will have the incentive to follow them?

I won’t pursue that question further here, except to note that it’s extremely hard to answer reliably. The developed world has apparently stumbled upon an answer, but it’s not clear we understand entirely how we’ve made it work, or that such an understanding is even possible in principle. Which is why, historically, bureaucracy has been much less common than clientelism.

In contrast to a bureaucracy, a clientelist organization solves the principal-agent problem with networks of personal obligation. If it’s too difficult to ensure my loyalty to the organization as a whole, I can at least be made loyal to my boss, who protects my sinecure and defends me from other departments. In this case the boss is my patron and I his client, and this is the fundamental relational molecule out of which clientelist structures are built. My boss, in turn, is a client to his own patron, and I may have my own clients under me. Motivation is quid pro quo: information and loyalty flow up the hierarchy from clients to patrons, benefits flow down from patrons to clients.

Clientelism and bureaucracy also characterize the interface between the organization and the people it serves. In the market, especially locally, I might frequent the laundromat down the street not because it’s the most convenient, but because I know the proprietor. In local politics, aldermen may entrench themselves as patrons of their local constituency, and provide an interface between that constituency and their patrons further up the government hierarchy. In this case, constituencies are organized into identity groups through which benefits are dispersed, and which ensure loyalty through their own internal structures.

Clientelism may seem like an aberration from the perspective of first-world bureaucracies. We’d probably describe it as corrupt. But it’s an ancient strategy, older than either capitalism or socialism, and remarkably resilient. Clientelism is how all large-scale political bodies were organized prior to the 17th century, and clientelism is what bureaucracies collapse back into when they lose the inclination to abide by their own rules. The key to this resilience is the fact that the quid pro quo element ensures that everyone that matters is invested in the system, even if it harms growth in the long run.

And today in the U.S., we are seeing not only a passive devolution of our bureaucracies; we’re seeing open calls to replace them with clientelism.

What’s Wrong With Clientelism Anyway?

If some of the examples from the previous section sound benign enough, like patronizing the grocer you know, it’s because scale is the crucial variable.

The human mind developed in a small social environment, and is adapted to keep track of social obligations on this scale. Clientelism builds directly on this capacity. Indeed, there’s something particularly human about it. Clientelism feels personable, it feels warm, it feels like belonging. And at small enough scales, indeed it is. There’s certainly no moral or practical imperative to abandon your neighborhood grocer and switch to Amazon to save a few dollars. There’s no need to organize the local PTA as a formal bureaucracy. We rightly feel that something would be lost by expunging these elements of community and personal obligation from our lives. Context, loyalty, understanding—these are all important parts of a healthy community that bureaucracies are particularly inept at taking into account.

But things change as we consider larger organizations. Healthy community shades imperceptibly into “good-old-boy network,” even at the scale of small-town administration. At larger scales still, it shades into “smoke-filled rooms” and then into outright graft and corruption. All this suggests that what naturally repulses us about bureaucracies is perhaps not bureaucracy itself, but simply large administrative bodies as such. If large administrative bodies are necessary in the modern world—and experience suggests they are—the humanizing appeal of clientelism is a false allure.

But drawing unsavory associations does not, by itself, close the case. Is our revulsion at these examples of scaled-up clientelism justified?

Consider the dashed hopes of Russia and its post-Soviet satellites after the collapse of communism. The conventional wisdom—not without justification—went like this: Soviet communism is a repressive and inefficient system of central control. Dismantling it, privatizing the state-owned enterprises, and subjecting them to market competition, should foster efficiency, innovation, and—ultimately—accelerated economic growth.

With few exceptions, this has not borne out. Indeed, in most—including, most significantly, in Russia—post-Soviet growth rates have been lower than under communism. How could that have happened?

The conventional wisdom was not wrong in its evaluation of Soviet communism. Economically the system was certainly inefficient, and politically it was certainly repressive. Where the conventional wisdom erred, however, was in overlooking the importance of administrative systems. While there were important areas where it was necessary to know someone to get something done—and in this sense clientelism was a way of routing around unworkable bureaucratic rules—Soviet Russia had a relatively effective bureaucracy that (sometimes brutally) tamped down more blatant forms of corruption.

Because the Soviet system had closely linked economic and political functions, dismantling the command economy also dismantled these administrative structures. In Russia, the privatization process was coopted by a nakedly corrupt “kleptocracy” in which the assets of Russian firms, representing vast amounts of wealth, were funneled away to well-connected elites and offshored. Subsequent administration in Russia and its satellite states has been similarly kleptocratic. In the years following the collapse of communism, Russian GDP contracted by over 40%, saved in the early 2000s only by rising oil prices.

Venezuela is another example. Like most Latin American growth disasters, its spectacular ruin is not a function of socialism proper (though Chavez’ extensive nationalizations certainly did Venezuelans no favors), but rather the collapse of a lavish clientelism previously propped up by the distribution of oil revenues in exchange for political support. Naturally, when the benefits dry up, the hierarchy collapses. An economy can hobble under an impure socialism—hardly a vindication—but sudden fiscal implosions in wealthy countries happen because patrons can’t afford not to dissipate any windfalls in favors to their clients.

More broadly, we can look at the “hockey stick” graph of global economic growth. Compared to the vast increases in wealth we’ve seen starting around the 1700s in Western Europe and more recently elsewhere, every other episode of growth in history barely registers as a blip. Many have asked: why didn’t the Industrial Revolution happen in Rome? Or China? Or anywhere else? And while a variety of answers ranging everywhere from proximate to ultimate causes have been offered, one crucial element seems to be: Northwestern Europe was the first to escape from clientelist administration. Countries outside of Europe have since managed to grow to the extent they’ve been able to establish effective bureaucracies in place of ordinary clientelist networks.

So how does that lead to growth?

Recall that clientelism is an exchange of benefits for loyalty. As Nobel prize winner Douglass North, along with John Wallis and Barry Weingast document, large-scale political bodies find it easiest to generate these benefits by creating valuable privileges and bestowing them upon supporters. This is familiar as the basis of feudalism in Europe, where the main privilege in question was land tenure, but—in some way or another—all political bodies prior to the 1700s held themselves together this way. North, Wallis, and Weingast even go so far as to call this the “natural state” of political organization.

These privileges, of course, are zero-sum: they don’t create value, they transfer it from outgroups to the ingroup. And as William Baumol famously argued, when the best way to get ahead in a society is by playing zero-sum games, the energies of the best and the brightest are diverted away from positive-sum activities like commerce, invention, and exchange, the basic elements of economic growth. To a greater or lesser extent, this was the situation everywhere in the world prior to 1700.

Clientelism in the U.S. Today

The establishment of well-functioning bureaucracies, where an organization can enforce its own rules without siphoning off value to ensure loyalty, is one of the most precious achievements of the modern world, one that has allowed the bulk of creative energies to flow into positive-sum outlets for the first time in human history. This is precisely what the New Clientelists threaten.

It is important, therefore, to be able to recognize clientelism. Republicans frequently accuse Democrats of standing, in effect, in a patron-client relationship to America’s ethnic minorities. In the past this has been dismissed. But the so-called “socialism” of AOC amounts to essentially this, and respectable opinion is quickly catching up. The rule of law, the ideal of meritocratic bureaucracy, the idea of formally neutral rules at all, whether administrative or legal, are all now commonly castigated as racist, in a structural sense of course. Once again the inhumanness of bureaucracy is brought to the forefront: its refusal to make exceptions, to take context into account, to allow outcomes to be second-guessed.

In essence, a significant power bloc of society now feels that it can divert more value to itself by replacing the fixed rules of bureaucratic administration with what Noel Johnson and Mark Koyama in a recent book have called ‘identity rules’. Such rules explicitly organize the identity categories that have become increasingly salient in recent decades into permanent interest blocs and embed them in a clientelist administrative structure through which benefits are distributed. This is not uncharted territory; this is simply a bureaucracy gutted of its self-conception devolving back into the stable zero-growth administrative structures of the premodern era. As the devolution progresses, intra-left fights over whether identity rules should be structured along ethnic or class lines can be expected to intensify.

I cannot, of course, give the impression that this is a purely left-wing phenomenon. The modern Progressive Left is unique in building up an ideological superstructure to legitimize its favored clients, but the Trumpian Right has indulged in a great deal of opportunistic clientelism, though of course with different clients. Trump’s speeches belie a conception of politics as an exchange of favors for support. The administration’s open nepotism is another concrete manifestation, and the selection (and regular replacement) of cabinet members on the basis of loyalty, as well as (to a lesser extent) the broader civil service, is a disturbing atavism. More dangerous in the long run, however, are the efforts to dismantle hard-won bureaucratic safeguards against clientelism, most importantly the merit system in hiring. The alternative has been aptly called a ‘patronage’ system; patronage is simply clientelism looked at from the top of the hierarchy rather than the bottom.

Conclusion: What Now?

Whether principled or opportunistic clientelism poses a greater danger, I cannot say. But it is important to emphasize that, in the American context, the fight for good governance, for bureaucracy over clientelism, is not a partisan fight; indeed, it cuts through both parties. We must resist the temptation to let political battles devolve into a question of whose clients shall receive the spoils of politics—a state from which politics in most developing nations has yet to emerge, and a state into which we may yet fall back.

Clientelism is, in some sense, mankind’s default way of organizing large-scale administrative structures, especially with salient ethnic cleavages. It is not surprising that it should assume various names. Socialism, anti-capitalism, Trumpism, Perónism, populism—none of these get precisely at the phenomenon in question, and if we misidentify it, we cannot fight it. If socialism was indeed the greatest existential threat to the developed world in the 20th century, the 21st century presents us with a new one, more insidious because it is not new and radical, but ancient and comfortable. We must, therefore, be wary of the false allure of humanizing our bureaucracies, of the all-too-easy temptation to placate power brokers by creating and distributing privileges, and outsourcing governance, along identity lines. We must resist the exploitation of our empathy in service of clientelist governance, and stand up proudly for the crowning achievement of effective and meritocratic administration that for the first time in history released its grip from human creative energies and in just a few short centuries lifted most of the world out of extreme poverty. It would be to our eternal shame to let ourselves slip back.