I conclude that institutional structures of real world societies profoundly affect the moral choices that occur within those societies, that increasing the absolute number or scope of a society's formal laws, beyond those that protect property rights, increases the bureaucratization of that society and strengthens incentives for deception. I further conclude that government regulations are laws beyond those necessary to protect private property rights and, hence, increase the absolute number, or in the case of an existing regulation that has been strengthened or expanded, the scope of formal laws. Government regulation can be seen as piecemeal transformation of spontaneous market organization into bureaucratic rule following, a process which increasingly subjects citizens to the bureau model incentive environment for formulating moral choice. These conclusions illuminate a seldom recognized opportunity cost of government regulation: increasing disrespect for the law, lying and deception, value relativism, and generally deteriorating ethical standards of overall society. I use the term "government regulation" in its most general sense, which includes taxation, government ownership of property, public schools, legal constraints on business activity, and all forms of economic and social policy implementation, such as monetary control, land use restrictions, income redistribution, and anti-discrimination laws.
I conclude by discussing three implications of the above conclusions. These implications are that increasing government regulation tends to (1) break down social cooperation, (2) cause the ruination of science, and (3) lower society's overall material standard of living.
Breakdown of social cooperation
Social cooperation is based on trust, which in turn is based on honesty. We saw that under bureaucratic conditions people have a tendency to dissemble and deceive to get benefits; people lose their moral sense of and respect for the law; people tend to adopt instrumental values and lie to influence the policy of the bureau. We saw that bureaus themselves lie in the form of falsified official reports to get discretionary time and resources, and that central authorities lie to get subordinates and constituents to cooperate in the implementation of policy.
The implication that government regulation breaks down social cooperation is supported by Taylor (1976), who argues that in regard to the provision of public goods "the more the state intervenes in such situations, the more 'necessary'...it becomes, because positive altruism and voluntary cooperative behavior atrophy in the presence of the state and grow in its absence" (p. 134). Further support for this implication is found in Kaplar and Maines's(1995) argument that government regulation of the media stifles the development of ethical codes in journalism by substituting government ethics for private ethics (p. 34), and by presenting barriers to the development of technologies capable of creating an environment more hospitable to the practice of ethical journalism (pp. 75-76).
Social cooperation is further broken down when government regulation interferes with community formation. This is supported by a number of writers. Taylor (1982) argues that the state destroys the main social controls that primitive societies and peasant communities use to maintain social order (p. 133). Gellner (1988), leaning heavily on Ibn Khaldun's study of Moslem pastoral societies in northern Africa, argues that "it is precisely anarchy which engenders trust or, if you want to use another name, which engenders social cohesion. It is effective government which destroys trust" (p. 143).
As increasing regulation more tightly constrains people's choices, state propaganda must play an increasing role in mollifying their increasing discontent. This gives the state a vested interest in the dissolution of existing communities because, as Ellul (1965) explains, the effectiveness of propaganda depends on the extent to which the state can break down spontaneous communities. He explains that families, villages, and parishes "are organic and having a well-structured material, spiritual, and emotional life, they are not easily penetrated by propaganda" (p. 91). Breaking down these groups results in a society comprised of individuals in isolation from parochial social norms. This is the social condition that Durkheim (1984) and many subsequent writers refers to as "anomie" (p. 304).
Shearmur and Klein see anomie among students of public schools. They argue that the coerced homogenization of public schools, "stamps out social differentiation and personal individuality, which are important preventatives to personal frustration, envy , intolerance and open hostility" (p. 41). The absence of functional communities within the public school system could explain increasing incidences of students striking out violently against fellow students such as at Columbine High School in the spring of 1999. It may also explain increased violence in the workplace, commonly referred to as "going postal." Perhaps a more accurate term for both areas of violence might be "going bureaucratic."
School and workplace violence extrapolated to a global scale have implications for the drive to globalize the world economy. To the extent that globalization is managed by various governments' policies, citizens must adjust their actions to conform to government policy. This may result in increased internal tensions that spill over into international conflicts. It seems likely, in accordance with this analysis, that managed globalization may result in international skirmishes if not war.
Ruination of science
In the policy formation process, every point of view, every study, research project, survey, and scientific discipline, is potentially political ammunition for policy entrepreneurs in their fight for favorable legislation. Using the sciences to get political favors in the policy formation process ultimately results in the socialization of the sciences, i.e., they assume a politically acceptable version of themselves. Rourke (1984) explains that, "through their role as bureaucratic advisers, professionally trained economists and natural scientists obtain influence in the policy process that they would never otherwise enjoy." Also, the wisdom of presidential decisions, "is greatly enhanced in the eyes of the electorate when it appears that these decisions rest on the best professional advice the White House has been able to obtain" (p. 23). In this environment, advisors have an incentive to abuse their sciences in order to make them render "scientific" confirmation of their superior's policy biases. As Hayek (1972) argued earlier, the need to rationalize its official position forces the planning authority, "to construct theories, i.e., assertions about the connections between facts, which then become an integral part of the governing doctrine" (p. 156). There is leeway to do this in the choice of theories, data, and quantification techniques. And, as Rourke points out, the use of quantitative techniques in the policy process, "may arm error with the seeming support of scientifically established fact, giving ill-advised policies greater credence. When this occurs, the finely honed rationalizing instruments of managerial science can become dispensers of irrationality measured out with mathematical precision" (p. 175).
The next step in the socialization of the sciences is a mutual self-deception in which advisors began believing their own lies and the president deludes himself into believing that he is not being lied to. Rue (1994, p. 146) explains how self-deception is actually beneficial to liars in their efforts to deceive others. In the context above, advisors become more persuasive when they believe their own lies, and the president is more confident in his policies if he believes he is not being lied to. At this point self-deception becomes mutual delusion, and the sciences can be used instrumentally and politically with everyone's consent. It takes only a minor feat of extrapolation to visualize this scenario in varying degrees between all bureau officials and their subordinates at all levels of bureaucracy. Arendt (1972) documents the paramount role that delusion in the U.S. government's bureaucracy played in the defeat of the U.S. military in the Vietnam. Also, Marxist writer Alan Wolfe (1977, p. 276), in his description of conditions of "late capitalism" but what in our context is "bureau relations," expounds on the pervasiveness of delusion under bureaucratic conditions.
The end result is mutual self-delusion on a national scale. Moral choice in the incentive environment engendered by bureau relations results in people using the sciences to support their deluded contentions as well as to deceive others. This view is supported in an unintended way by Jacobs' (1992, p. 45-47) argument that science is supported only by the commercial syndrome.
Reduced standard of living
The result of bureaucratization is an overall reduced standard of living. As a social order's sciences become socialized, it loses touch with reality, and its ability to conceive of and produce economic goods decreases. Concomitantly, a social order's inhabitants become less willing to produce goods and services as their property rights to them become less secure. This, as Alchian and Demsetz (1973) argue, occurs as regulation of goods and services, and the production of them, transfers subtle "partitions" of the total "bundle" of "use rights" and "exclusion rights" from property owners to the state, transforming private property rights into communal rights. This process converts more valuable rights (private) into less valuable rights (communal). "Taking" from the common reestablishes the more valuable private property rights. Under these circumstances, rational people try to regain private rights over goods and services, i.e., they engage in lobbying and other forms of favor-seeking. And thus, the nature of competition has been change from competing in the production of goods and services to competing for government favors. This amounts to a change from innovation and production to passing around existing goods, to a change from a positive-sum to a zero-sum economic environment. As Rourke (1984) reminds us, "it is clear that most policy issues have a zero-sum quality -- gains by some groups will have to be offset by losses for others" (p. 151-152).
Living standards are further reduced as increased lying and deception requires people to retreat from more-exposed to less-exposed social relations of production. That is to say, society must reduce its overall divisions of labor because of reduced trust. As division of labor becomes less intense, people must increasingly devote their conscious mind-space to categories that were previously the specialty of those now-precluded divisions of labor. People now divide their total amount of time and energy between more categories of knowledge. In other words, bureaucratization tends to make society knowledge-poor. As compared to the private property order, the bureau can only make use of a smaller set of total information, and its social organization must become less complex. This contention is supported by Hayek's (1948) argument concerning particular knowledge, and Mises's (1990) calculation argument.
In a combined sense, the above implications are reminiscent of Jacobs' (1992) "Law of Intractable Systemic Corruption." She argues that, "any significant breach of a syndrome's integrity -- usually by adopting an inappropriate function -- causes some normal virtues to convert automatically to vices, and still others to bend and break for necessary expedience" (p. 132). She gives the example of the World Bank bestowing largesse in the form of loans to third world countries, which then use the loans for ostentation and largesse as local subsidies to keep the political waters smooth. In other words, banks that are a commercial venture, got involved in an activity on a large scale that is only appropriate to the guardian syndrome. Why such a large scale? Because the normal commercial virtues of competition, industriousness, and efficiency made matters worse. These virtues became vices when used in the pursuit of bestowing largess. (p. 132). Under such circumstances she says, "self-organizing systems become self-disorganizing." (p. 133).
Suggestions for further research
The whole area of how people acquire values is relatively undiscovered by economists and yet is an important area for further economic investigation. Economists do not have theories to explain the effects on people's values and hence the social effects of the policies that they recommend. In his Structure and Change, North recommends that such an investigation become a part of economic theory, and he certainly approached this question in his minimal-changes-in-the-terms-of-exchange condition for ideology (p. 50). The writers cited in this paper have also made inroads in to this area, but there is still plenty of room for more research.
My analysis suggests three areas for further research. First, it shows an oversight in the economics of information. The conventional view, that information is a public good, causes theorists to focus on quantity rather that quality of information. Their theories, which justify the role of government in bringing about an optimal amount of information, implicitly assume that the content of information is not affected by the institutional structure in which it is produced. Second, my analysis suggests a weakness in the perfect competition model, which implies that government intervention can improve the nature of competition. My analysis suggests that government intervention increasingly leads firms to use their particular information to compete for government favors, which can hardly be seen as an improvement. Finally, a very general recommendation is that of bringing together three large and disparate literatures, that of community, the state, and regulation of the economy. Community springs primarily from the sociology literature, while the state is traditionally the subject of political philosophy, and regulation is found primarily in economics. As nearly as I can tell, these literatures rest comfortably each within its disciplinary cocoon with little interaction among them. Yet, it seems to me that they have important implications for each other, and that they could each benefit by accounting for the ideas of the other.