by Robert Maynard
Not surprisingly there are some folks in Vermont that have taken exception to the comparison of how the state’s political economy works to the high risk environment of countries with what is referred to as an “emerging market”. Allison Kingsley is assistant professor of management at the University of Vermont School of Business. Prior to joining the UVM faculty in 2010, she worked for nearly a decade in international finance. She earned her M.S.L. from Yale Law School and her Ph.D. in political science from Columbia University. Professor Kingsley wrote a September 27 article for the Burlington Free Press in which she compared the economic risk of going business in Vermont to that of doing business in countries with emerging markets: “What I hear about doing business in Vermont is eerily similar to what I hear about doing business in Kazakhstan, Argentina, or Indonesia.”
A big part of the problem is Vermont’s “ideological politics”:
Let’s start with the policies. What we know from emerging markets is that capital flows to the most attractive destination. In the US, Vermont’s corporate income tax rate is the twelfth highest, and state and local property taxes are the sixth highest. In terms of energy, Vermont has one of the highest energy rates in the US. Although there is no state-level measure for business regulation and permitting, one experienced entrepreneur told me that getting a business started in Vermont requires navigating “a labyrinth of Byzantine rules.”
Vermont’s ideological politics are also at play. Existing research finds that political risk increases for business as more ideologically-motivated interest groups oppose them. Groups with ideological agendas have strongly felt preferences, tend to leverage public pressure effectively, and typically focus on politically salient or “hot” issues. In Vermont, anecdotal evidence suggests that businesses largely confront interest groups distrustful of the private sector and hostile to business interests. Environmentalist and anti-growth groups opposed the Circ-Williston highway proposal that IBM advocated. Walmart battled VNRC and buy-local groups for 18 years in St. Albans. Employee unions fought Fletcher Allen. VPIRG and NEC confronted Vermont Yankee and Entergy.
Needless to say, her observations have provoked a response. Jon Reidel revisits Professor Kingsley’s argument in an article that appeared in yesterday’s edition of the Vermont Business Magazine. This article contains a discussion with Professor Kingsley about the arguments made by some of her critics. I find this part to be a fascinating look into the progressive mindset. Here is her explanation of the first type of critique she received: One argued (hostilely in some cases) that constraining business is a core Vermont value. “In saying so,” says Kingsley, “they concede by example that there is a significant opposition to business.”
This response represents the hard core left who see business and making a profit as evil. To some of us, the notion that “there is a significant opposition to business” in Vermont or that this crowd considers “constraining business is a core Vermont value” is not exactly a revelation. There has always been a vocal sector of the progressive movement that thinks this way. The other response represents the thinking of another sector of the progressive movement:
The other camp has a more nuanced argument, claiming that there are business success stories in Vermont that disprove Kingsley’s argument, offering detailed evidence of businesses that have excelled or capital that has flowed into Vermont.
“In fact, I agree that business can be successful in Vermont or in any politically risky environment,” says Kingsley. “My investment track record shows this. The story is really in how those businesses have been successful. This brings me to the heart of my work with Rick and others. What we have found in the U.S. and emerging markets is that when a business confronts a political environment that is uncompetitive and populated with ideological opposition, it often chooses not to invest. When a business does move forward, simultaneously investing in a costly political strategy to manage the risk is prudent, particularly if that business is on the political radar screen.”
Cronyism is the inevitable result when businesses must resort to “investing in a costly political strategy to manage the risk” in order to thrive. I would like to add one caveat. Not all such behavior can be explained by a strategy for survival in the face of ideological opposition. There always has been a sector, some would argue the dominant sector, of the progressive movement that is not anti-business, but merely anti-free market. This group is not facing ideological opposition, but is in fact a driving force behind that ideology. As the following article in the Freeman points out:
The Progressive movement at the turn of the twentieth century—the doctrine from which the main current of modern liberalism developed—is sometimes erroneously viewed as an “anti-business” philosophy. It was anti-market to be sure, but by no means necessarily anti-business. Progressivism was, more than anything, managerialist.
The American economy after the Civil War became increasingly dominated by large organizations. I’ve written in The Freeman before about the role of the government in the growth of the centralized corporate economy: the railroad land grants and subsidies, which tipped the balance toward large manufacturing firms serving a national market (“The Distorting Effects of Transportation Subsidies,” November 2010), and the patent system, which was a primary tool of consolidation and cartelization in a number of industries (“How ‘Intellectual Property’ Impedes Competition,” October 2009, tinyurl.com/lqzehv)
These giant corporations were followed by large government agencies whose mission was to support and stabilize the corporate economy, and then by large bureaucratic universities, centralized school systems, and assorted “helping professionals” to process the “human resources” the corporations and State fed on. These interlocking bureaucracies required a large managerial class to administer them.
At the heart of progressivism is the conviction that a society should be run from the top down by experts. The anti-business progressives and the corporatist progressives simply disagree on who those experts were to be. The former look to experts in the social science to shape their vision of utopia, while the latter look to the elite in the field of business management to run a more efficiently organized society. Both were and are hostile to the messiness of individual liberty and the free market. Here is how the corporate wing of the progressive movement saw their role:
According to Rakesh Khurana of the Harvard Business School (in From Higher Aims to Hired Hands), the first corporation managers came from an industrial engineering background and saw their job as doing for the entire organization what they’d previously done for production on the shop floor. The managerial revolution in the large corporation, Khurana writes, was in essence an attempt to apply the engineer’s approach (standardizing and rationalizing tools, processes, and systems) to the organization as a system.
And according to Yehouda Shenhav (Manufacturing Rationality: The Engineering Foundations of the Managerial Revolution), Progressivism was the ideology of the managers and engineers who administered the large organizations; political action was a matter of applying the same principles they used to rationalize their organizations to society as a whole.
If you are part of the new elite that is running the society, your business is going to thrive. What you do not want is the kind of free market competition that will allow others to rise up and surpass you. It looks like Professor Kingsley has encountered some of the new ruling class: Kingsley also thinks that many of the people who wrote critical responses “have a horse in the game” or are raising capital for companies or are running an organization. “I don’t sit on any Vermont boards. I have no partisan affiliation. I’m not involved in any interest group or involved in any businesses or raising capital. I don’t actually have a conflict of interest.”
Some of these people have more than a “ horse in the game”, they own the game and professor Kingsley is exposing the whole racket. Because of her credentials they cannot ignore her. Is it any wonder that her observations have provoked a response?