Hobson, Mancur Olson, Lenin, and Laissez-faire democracy

Seeing that the Imperialism of the last three decades is clearly condemned as a business policy, in that at enormous expense it has procured a small, bad, unsafe increase of markets, and has jeopardised the entire wealth of the nation in rousing the strong resentment of other nations, we may ask, “How is the British nation induced to embark upon such unsound business?” The only possible answer is that the business interests of the nation as a whole are subordinated to those of certain sectional interests that usurp control of the national resources and use them for their private gain. This is no strange or monstrous charge to bring; it is the commonest disease of all forms of government. The famous words of Sir Thomas More are as true now as when he wrote them: “Everywhere do I perceive a certain conspiracy of rich men seeking their own advantage under the name and pretext of the commonwealth.”

Although the new Imperialism has been bad business for the nation, it has been good business for certain classes and certain trades within the nation. The vast expenditure on armaments, the costly wars, the grave risks and embarrassments of foreign policy, the stoppage of political and social reforms within Great Britain, though fraught with great injury to the nation, have served well the present business interests of certain industries and professions.

It is idle to meddle with politics unless we clearly recognise this central fact and understand what these sectional interests are which are the enemies of national safety and the commonwealth. We must put aside the merely sentimental diagnosis which explains wars or other national blunders by outbursts of patriotic animosity or errors of statecraft. Doubtless at every outbreak of war not only the man in the street but the man at the helm is often duped by the cunning with which aggressive motives and greedy purposes dress themselves in defensive clothing. There is, it may be safely asserted, no war within memory, however nakedly aggressive it may seem to the dispassionate historian, which has not been presented to the people who were called upon to fight as a necessary defensive policy, in which the honour, perhaps the very existence, of the State was involved.

The disastrous folly of these wars, the material and moral damage inflicted even on the victor, appear so plain to the disinterested spectator that he is apt to despair of any State attaining years of discretion, and inclines to regard these natural cataclysms as implying some ultimate irrationalism in politics. But careful analysis of the existing relations between business and politics shows that the aggressive Imperialism which we seek to understand is not in the main the product of blind passions of races or of the mixed folly and ambition of politicians. It is far more rational than at first sight appears. Irrational from the standpoint of the whole nation, it is rational enough from the standpoint of certain classes in the nation. A completely socialist State which kept good books and presented regular balance-sheets of expenditure and assets would soon discard Imperialism; an intelligent laissez-faire democracy which gave duly proportionate weight in its policy to all economic interests alike would do the same. But a State in which certain well-organised business interests are able to outweigh the weak, diffused interest of the community is bound to pursue a policy which accords with the pressure of the former interests.--J.A. Hobson (1902) Imperialism, A Study, Chapter IV

Hobson claims that from the perspective of both liberalism ("laissez-faire democracy") and socialism a public, cost-benefit analysis of imperialism would find imperialism wanting. The mystery, then, is why it survives. And the mystery resolves once one realizes that imperialism benefits and greatly benefits concentrated, special or "sectional" interests. (He avoids the more Millian phrase, 'sinister' interest.)

Depending on one's training and disciplinary formation, it is incredibly difficult not to read the quoted passage and not think immediately of Mancur Olson's treatment of interest groups. And if I understand Paul Krugman's criticism of Adam Tooze correctly (see here), it's actually a good thing if that were to happen to you.

Or perhaps, if you are primed to see rent-seeking here, you think of Tullock and Krueger. The problem is that this literature is focused on tariffs, import licensing, and monopoly not imperialism (which tacitly is relegated to mere historical interest). That's not quite fair to Tullock, who is widely read and explicitly interested in vindicating "the classical economists;" and whose recurring mention of Gladstone in his short paper may well lead one to believe that the question of imperialism is lurking in the informal background of his treatment. After all, the implied lesson of Tullock's paper is that there are political costs from rent-seeking not well captured by a purely economic focus. And if this seems all too Straussian to you, Tullock has a known interest in Hobson (recall; see here 1963).

Hobson himself does not claim originality (his analysis is Smithian through and through) and evokes Tomas More. Some playing around with Google convinced me Hobson relies on a relatively late (1808) translation (Dibdin's revision of Raphe Robinson) of Utopia. But here I am not interested in tracing lineages. (That was the hook.)

As I have noted before (recall; and here) many people come to Hobson's Imperialism via Lenin and the tacit reception of Lenin in contemporary political economy and intellectual history. And once one has read Lenin, the crucial issue in Hobson's argument is Hobson's diagnosis of domestic underconsumption and over-saving as a driver of the export of capital. Imperialism then becomes a search for new markets (recall Duncan Bell's interpretation).

And from the Leninist-Marxist perspective domestic underconsumption is best understood as an effect of monopoly capitalism. There are, indeed, passages in Hobson that seem to evoke and anticipate this diagnosis. For example, in Chapter VI, Hobson writes,

It is not industrial progress that demands the opening up of new markets and areas of investment, but maldistribution of consuming power which prevents the absorption of commodities and capital within the country. The over-saving which is the economic root of Imperialism is found by analysis to consist of rents, monopoly profits, and other unearned or excessive elements of income, which, not being earned by labour of head or hand, have no legitimate raison d'être. 

But as Hobson's wording suggests, his treatment is normative ("legitimate"). He does not think monopoly capitalism inevitable or necessary. In fact, as his analytic categories ('complete socialism' and 'laissez faire democracy') suggest he thinks alternative polities can be coherently thought. And that's because for Hobson imperialism is the effect of political decisions not the necessary outcome of economic laws. As he puts it (also in chapter VI), his economic analysis "dispels the delusion that expansion of foreign trade, and therefore of empire, is a necessity of national life." In so far as there are monopolies, these are themselves the effect of tariffs and political decisions. 

Moreover, for Hobson, the search for new markets does not drive imperialism. (Simply put, he shows that the gains from new markets tend to be negligible. This does not deny some imperialist projects are pursued in the service of expanding markets.) For Hobson, while many interests benefit from imperialism, and sustain it, and while he recognizes all kinds of ideological commitments that promote it, imperialism is fundamentally a mechanism to protect high risk (and so high interest) investment income of creditors from political risk; as he puts it in Chapter VII:

The political conditions of my country are taken into calculation at the time of my investment. If I invest in consols, I fully recognise that no right of political interference with foreign policy affecting my investment is accorded to me in virtue of my interest as a fund-holder. But, if I invest either in the public funds or in some private industrial venture in a foreign country for the benefit of my private purse, getting specially favourable terms to cover risks arising from the political insecurity of the country or the deficiencies of its Government, I am entitled to call upon my Government to use its political and military force to secure me against those very risks which I have already discounted in the terms of my investment. Can anything be more palpably unfair? 

That is to say, imperialism for Hobson is analytically connected with finance capital and its manipulation of the political process (and national public opinion).* If you pursue high risk, high reward investments, which effectively price in some defaults, you have no claim on socializing the downside risk.

On this view imperialism does not disappear with de-colonization, but is still exhibited in the gains from market turbulence -- "every oscillation of public credit short of this collapse, every risky enterprise in which public resources can be made the pledge of private speculations" -- and financial bailouts of the potential losses suffered by European and American creditors abroad. 

I do not mean to deny that for Hobson protecting the political risks faced by a creditor class abroad isn't a peculiarly modern phenomenon. As he puts it:

To a larger extent every year Great Britain is becoming a nation living upon tribute from abroad, and the classes who enjoy this tribute have an ever-increasing incentive to employ the public policy, the public purse, and the public force to extend the field of their private investments, and to safeguard and improve their existing investments. This is, perhaps, the most important fact in modern politics, and the obscurity in which it is wrapped constitutes the gravest danger to our State.

What is true of Great Britain is true likewise of France, Germany, the United States, and of all countries in which modern capitalism has placed large surplus savings in the hands of a plutocracy or of a thrifty middle class. 

And this gives rise to the modern phenomenon of competitive imperialism.+ But rather than treating such large saving surpluses as intrinsic to late stage capitalism, Hobson treats them as an effect of political decisions.  For, Hobson does not subscribe to an economic destiny; he respects the primacy of what he calls "statecraft." And this means such saving surpluses are also correctable by political decisions. For as he puts it in Chapter VI:

If, by some economic readjustment, the products which flow from the surplus saving of the rich to swell the overflow streams could be diverted so as to raise the incomes and the standard of consumption of this inefficient fourth, there would be no need for pushful Imperialism, and the cause of social reform would have won its greatest victory.

It is not inherent in the nature of things that we should spend our natural resources on militarism, war, and risky, unscrupulous diplomacy, in order to find markets for our goods and surplus capital.

Of course, diagnosing the desirably of an alternative political outcome is not the same as diagnosing the existence of a political coalition or a feasible pathway that can generate it.

 

 

 

*In particular, it corrupts national politics away from the path toward pacific internationalism toward acompetitive, zero-sum outcomes.

+He tends to deny the existence of competitive imperialism in the more distant past. This is an odd claim. Even the Romans (his favorite example) recognized other empires (especially the Parthian).