One of the most important analytical constructs of modern microeconomics
is that of the relationship between "principals" and
"agents". In economic theory the construct is applied
in particular to the owners of firms (principals) and their hired
agents (managers, employees, subcontractors). Thus, it is
recognised that a central form of market failure is the "principalagent
problem", meaning the difficulty that principals have in
getting their agents to pursue the interests of their employers
ahead of their own private agendas. Principals incur "transaction
costs" in getting their agents to comply.
The principalagent framework is central to the "rational
choice" school of political economy, and is applied to political
rather than economic "actors". A normative form of rational
choice is known as "public choice". Here governments
are assumed to be, at best, monopoly bandits, and the analysis
is very much directed towards the establishment of enduring legislation
and public institutions that limit the damage. (Legislation such
as the 1989 Reserve Bank Act, the 1991 Employment Contracts Act,
and the 1994 Fiscal Responsibility Act owes much to public choice
thinking.)
To its credit, the public choice perspective at least accepts
that a monopoly banditry is less damaging than an anarchy of competing
bandits. But it is never quite clear whether the monopoly bandit
is the parliament, the chief executive, or the bureaucracy.
Rational choice models are quite amoral in character. They simply
seek to analyse the different strategies of the various actors
who must engage with each other to maximise their bargaining power.
Niccolò Machiavelli could perhaps be classed as the founder
of rational choice, whereas Adam Smith is claimed by public choice
theorists as the founder of their minimalgovernment version.
An interesting example of rational choice political economy is
the book Rule and Revenue, by Margaret Levi (1988, University
of California Press). It is a blend of principalagent theory
and neoMarxism, which presents case studies ranging from
ancient Rome to 20th century Australia.
Levi's central thesis is that all polities have a predatory "ruler"
- an autocratic monarch or a chief executive such as a president
- who is the principal of that polity. She acknowledges alternative
frameworks; eg that in which a Prime Minister is an "agentruler"
- an agent of Parliament. The ruler is constrained by various
agents and constituents, including foreigners who interact through
diplomacy and trade. Rulers, along with all other agents and "constituents",
are assumed to be amoral strategists, seeking to maximise bargaining
power and to minimise constraints on their autonomy.
The strengths of the framework are that (i) it acknowledges both
market and political failure as intractable issues of political
economy, (ii) it acknowledges that power is very much a part of
economics as well as politics, and (iii) it provides a way of
analysing both the prevailing power relationships and the political
failures which prevent power relationships from being what they
ought to be. It is possible to turn to a separate literature of
moral and political philosophy to provide a basis for the "ought"
question, leaving the principalagent framework to operate
in a strictly amoral fashion. (Hence public choice, unlike rational
choice, is a comprehensive package - a doctrine - that combines
both moral philosophy and strategic action.)
What is the political philosophy that defines western democracy?
It is a citizenbased philosophy, a legacy of, in particular,
the American and French revolutions of the late 18th century.
Constituents are, in essence, citizens. Their role as citizens
predominates over their role as subjects of their respective polities.
Constituents, as citizens, are principals by definition, with
their role as citizens being central to representative democracy.
Parliament is an agent of the citizenry, and the executive is
an agent of Parliament. The public service is an agent of the
executive. Constituents, as subjects, are bound to comply with
the process. In particular, they are obliged to pay taxes levied
upon them. The executive is both agent of the people as citizens
(through Parliament) and ruler of the people as subjects (through
the intermediation of the bureaucracy).
In a nondemocratic society, the ruler rather than the citizenry
is the principal. Parliaments, where they exist, are agents of
the chief executive. The key relationship is that between the
executive and the parliament. In an autocracy, which may be a
monarchy or an oligarchy, the chief executive rules the parliament.
In a democracy, on the other hand, Parliament rules the executive.
In order to determine whether one's own polity is a democracy
or an autocracy, one must do more than read the formal language
of the political constitution, assuming there is a written constitution.
Rather, it is necessary to do a principalagent analysis
to try to observe the direction in which power really flows.
In addition to a parliament that controls the executive, an effective
democracy requires a genuinely representative parliament. If parliament
does not function as an agent of the people then it is open to
capture by an executive that is meant to be Parliament's agent.
Or, it is open to capture by political parties with their own
agendas that in many cases would never be sanctioned by the people.
Parties nevertheless play an important role in creating a representative
parliament. This is because parliament must be representative
in two different ways: representative of our geographical communities,
and representative of our ideals (ie of our philosophical and
ideological communities; of political class). Parties are required
to ensure ideological representation, and not to impose agendas
by making a run for singleparty government.
By joining the parties which we identify with, it becomes possible
to make the selection of party candidates itself a highly democratic
process; a process not unlike the primary elections in the USA.
In other words, the election of MPs is very much a twotier
process; the primary election of party candidates, followed by
the general election between parties.
An agentparliament that is in fact truly representative
of its principal - the people - can be regarded as the principal
in the practical business of politics. An efficient parliament
is one that can safely be thought of as principal rather than
agent. Its efficiency has nothing to do with its financial cost;
rather its efficiency is a measure of the extent to which the
interests of Parliament coincide with the interests of the people.
There are three constitutional events relevant to current New
Zealand politics that should be considered in terms of rational
choice principalagent analysis: (i) the agitation by some
people for another change in our electoral system, (ii) the agitation
for a reduced size of parliament, and (iii) the "Cullen Bill"
which seeks to curb the constitutional rights of MPs to act autonomously
from their parties.
With respect to (i), Labour's Phil Goff seeks a shift to the former
FPP system (Sunday StarTimes, 19 October), while
Act's recent recruit Ruth Richardson favours the Supplementary
Member system (NZ Herald, 1 November); a system which would
in fact destroy her own party. Given that both of these voting
systems were soundly rejected in the 1992 referendum, the continued
advocacy of rejected voting systems does not give much confidence
that either Goff or Richardson are motivated by anything other
than power. When Richardson tells "the [Act] conference that
MMP was an unmitigated mistake" (Sunday StarTimes,
2/11/97), we start to feel that MMP really is part of the process
by which citizens are claiming their status as principals.
Certainly, under FPP, Parliament was blatantly unrepresentative
of the population. Because of political failure in the citizentoparliament
relationship, Parliament was able to operate on its own account
to some extent. That is what political failure means; political
agents operating on their own accounts.
The extent that parliament used to operate on its own account
under FPP was minimal however. With the government caucus dominating
parliament, the ministry dominating the government caucus, and
the inner cabinet dominating the ministry, it was the inner cabinet
that operated on its own account, as the principal, as the seat
of power in New Zealand politics. Or, perhaps, operating as the
public face of a hidden principal?
The SM electoral system that Richardson favours would be a complete
disaster. Under MMP, the list MPs create balance in the parliament;
very few are from the largest party. Under SM, almost all of the
list MPs would be from the two parties that dominate parliament.
It would be worse than FPP, in that the parties would have even
more power over the composition of parliament than they did under
FPP. On the other hand, under MMP, the party lists cannot be used
to featherbed unpopular MPs, because the dominant party cannot
be sure of any, let alone many, list seats.
Under the former FPP electoral system, the small size of parliament
and the large size of cabinet aggravated the problem of executive
dominance of Parliament. Under MMP, this problem is not as bad,
but it is by no means absent. Any move to reduce the size of Parliament
relative to the size of the executive (defined as Ministers inside
and outside of cabinet) must give more power to the executive.
Having noted this, it cannot be argued that raising the size of
parliament will give parliament significantly more power over
the executive. The change to proportional representation was vastly
more important than the change in the size of parliament, as a
means of making the executive accountable to the people through
a representative parliament.
With respect to the provisions of the Cullen Bill, parties become
power sources in their own right when they have an effective veto
on the actions of the MPs they helped into parliament. The distinction
between electorate MPs and list MPs is unimportant. All MPs except
Independents are party selections. As Margaret Levi notes (p.30):
"In the responsible party system of Britain ... the party
had considerable leverage in relation to the Members of Parliament."
Under the "Westminster System" the parties have always
been principals rather than simply catalysts for achieving accurate
representation. That in itself is wrong for a democrat, who, by
definition, subscribes to the view that citizens and only citizens
are true principals.
It is also wrong in that parties can become vehicles for covert
power; they may become the agents of interests other than the
citizenry. Just as the executive wing of government may be "captured"
and become an agent for some extraparliamentary interest,
so can political parties become agents for covert agendas. Part
of the strength of MMP is its emphasis on massmembership
parties. A large membership minimises the risk of a party not
playing its proper part in the democratic process. As a part of
that process, parties should be vehicles for getting a diversity
of MPs into Parliament, and not the source of veto power over
individual MPs during the course of a parliament.
It should also be noted that the Labour Party would appear to
be disingenuous, in using senior spokespeople to speak out in
favour of nonproportionality (eg Goff, Clark), while using
others from the front bench (eg Cullen) to promote a bill "designed
to protect the proportionality of an MMP parliament" (ref
"Bill to curb MPs proceeds", NZ Herald, 23 October).
Does Labour really wish to promote the principle of proportionality?
Or is it seeking to increase its already tootight party
discipline?
If in fact, on investigation, we find that parliament continues
to act as an agent for the executive, as it did under "FirstPastthePost",
then this would constitute a continuation of political failure,
in that our constitution is meant to work the other way around.
Given such political failure, who is the real principal? Could
it be that the executive is in fact the agent of someone else;
of an interest that has no constitutional basis for being principal?
Such a covert principal is most likely to be an oligarchy; a government
by the few over the many. Indeed, in the capitalist system, the
natural order of Government would seem to be a plutocracy. This
is certainly the view of Immanuel Wallerstein (
Immanuel Wallerstein on the Crisis of the World System), who sees western
polities as liberal states rather than as democracies. The real
principal is capital as an economic class, and capitalists as
a social class. In the world system, the real principal is international
capital, which treats national governments as its agents.
The challenge for the "Rainbow Coalition" - the global
political force which Wallerstein sees as a necessary prerequisite
to genuine democracy - is to assert the constitutional role established
by the French Revolution. The challenge is to establish citizen
government. We become true citizens when we crack the principalagency
problem of political economy; when the people as nominal principals
become the real principals. When that happens, the revolution
which started in France in 1789 will have been completed.
{ This document is: http://www.oocities.org/Athens/Delphi/3142/krf26-pr_agent.html
{ the above reference is to: http://www.oocities.org/Athens/Delphi/3142/krf18-imm_waller.html
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