Tag Archives: Russia

Embrace Change

Kaiserin_Maria_Theresia_(HRR)Whenever someone suggested a new innovation or an improvement, Empress Maria Theresa had a favorite response: “Leave everything as it is.” As the sovereign of most of central Europe during the 18th Century, the Habsburg Empress epitomized absolutist rule, claiming that her powers had no limit.

But as her statement demonstrates, she clearly understood that her powers were limited by new and disruptive innovations. Her husband, Holy Roman Emperor Francis I understood this as well. Daron Acemoglu and James Robinson relate that when an English philanthropist suggested some social reforms for the benefit of Austria’s poorest, one of Francis’s assistants replied: “We do not desire at all that the great masses shall become well off and independent….How could we otherwise rule over them?” (A&R, 224).

This is why these Habsburg rulers did everything they could to stand athwart innovation. As Acemoglu and Robinson put it:

In addition to serfdom, which completely blocked the emergence of a labor market and removed the economic incentives or initiative from the mass of the rural population, Habsburg absolutism thrived on monopolies and other restrictions on trade. The urban economy was dominated by guilds, which restricted entry into professions. (A&R, 224).

Francis went so far as to block new technologies. For instance, he banned the adoption of new industrial machinery until 1811. He also refused to permit the building of steam railroads. Acemoglu and Robinson inform us that:

[T]he first railway built in the empire had to use horse-drawn carriages. The line…was built with gradients and corners, which meant that it was impossible subsequently to convert it to steam engines. So it continued with horse power until the 1860s. (A&R, 226).

Unfortunately, history is replete with examples of despots who stood in the way of innovation. In Russia, Nicholas I enacted laws restricting the number of factories and “forbade the opening of any new cotton or woolen spinning mills and iron foundries.” (A&R, 229). And in the Ottoman Empire, sultans banned the use of printing. So stultifying was the effect that “well into the second half of the nineteenth century, book production in the Ottoman Empire was still primarily undertaken by scribes hand-copying existing books.” (A&R, 214).

The centuries and the miles that separate us from these episodes give us some objectivity and allow us to see them for what they are: the naked exercise of government force to obstruct innovation for the benefit of a few entrenched interests. But how different are these episodes, really, from the stories we read in today’s newspapers? Are they all that different from New Jersey’s refusal to allow car companies to sell directly to consumers? Are they any less silly than the anti-Uber laws cooked up by a dozen U.S. cities? We like to think that our own political process is more enlightened but right now, federal, state and city policy makers are working to block the development of promising innovations such as wearable technologies, 3D printing, smart cars, and autonomous vehicles.

book-cover-smallFor a thoughtful and forceful discussion of what might be called the anti-Maria Theresa view, everyone should read Permissionless Innovation by my colleague Adam Thierer. It is a well-researched and well-argued defense of the proposition that our default policy should be “innovation allowed.” You can find Kindle and paperback versions on Amazon. Or you can check out the free PDF version at the Mercatus Center. For a nice overview of his book, see Adam’s post (and video) here. Please read it and send (free) copies to any modern-day Maria Theresas you may know.

The Flat Tax Debate in New Jersey

The Wall Street Journal writes that the Republican primary race in New Jersey is the center of contentious debate over the flat tax. Frontrunner Chris Christie rejects rival Steve Lonegan’s proposal to flatten New Jersey’s highly progressive income tax rates (which run from 1.47% to 8.97%) to 2.98%. Christie claims it will raise the taxes on “70 percent of working families.” Lonegan argues it will only raise taxes on 40 percent of working families, by about $300. But more importantly, as the Journal notes,  if  implemented the flat tax represents a $1000 reduction in taxes for the average New Jersey income taxpayer.

Should the state decide to go this route, they will not be alone. Alvin Rabushka who proposed a national flat tax with Robert Hall back in 1981, traces the advance of the flat tax in the last 25 years around the world  (including Russia and Estonia) and in the states. Colorado, Illinois, Indiana, Massachusetts, Michigan, Pennsylvania all have flat taxes. Rhode Island and Utah, have an optional flat tax (taxpayers must pay the higher of the AMT or the regular income tax).

If any state could use tax (and institutional) reform  it is New Jersey.

As my colleague Frederic Sautet notes at The Austrian Economists, the ideas of James Buchanan and of the Austrian economists – fiscal prudence- are immensely relevant to New Jersey’s (and many other states’) fiscal crisis.  For more on how these ideas are driving emerging policy prescriptions in New Jersey, watch the debates here. As Frederic rightly concludes, the liklihood of true reform will ultimatley depend, not on the merit of the ideas, but politics.