'Private Tyranny' Is Less Private Than You Think

Kimberly Naranjo makes for a sympathetic protagonist. In childhood, she suffered abuse at home. In early adulthood, she struggled with addiction. But with the help of a kindly aunt, she got help, went back to school, and found a rewarding job as a drug and alcohol counselor.

Then came the mesothelioma diagnosis, which her lawyers say was caused by asbestos in Johnson & Johnson baby powder.

With less than 16 months to live, Naranjo hoped to collect damages from the megacorporation that could be used to support her children when she was gone. But her lawsuit quickly ran aground. Facing tens of thousands of potential claimants, Johnson & Johnson turned to a controversial aspect of the bankruptcy reorganization process in a bid to limit its liability. "Yes," writes the post-liberal journalist Sohrab Ahmari, "J&J—a profitable firm with a market capitalization of nearly half a trillion dollars—claimed to be broke."

This is just one in a litany of human-interest stories that Ahmari tells in Tyranny, Inc. (Forum Books), each of them eloquent and dripping with pathos. His book's goal is to show "that private actors can imperil freedom just as much as overweening governments," and his central claim is nothing if not bold: "Private tyranny precisely describes the world we inhabit today: a system that allows the asset-owning few to subject the asset-less many to pervasive coercion."

In the face of this nightmare, Ahmari says, the way forward is clear: reject unfettered markets and shift from the current "neoliberal" system to a different arrangement. Call it "social democracy," "socially managed capitalism," or—Ahmari's preference—"political-exchange capitalism": a sort of light democratic socialism in which "the state" takes "a far more active role in coordinating economic activity for the good of the whole community."

More concretely, Ahmari suggests that the state restrict international trade, encourage unionization, exert veto power over the financial sector, mandate higher minimum wages, spend far more on large-scale public works projects, and so on. He looks wistfully back at the New Deal, which he sees as a period "when government, big business, and big labor had joined hands…showcasing the productive genius of highly regulated, heavily unionized capitalism." The problem today, in his telling, is "a failure to subject the market to sufficient political control."

But hang on a moment. Careful readers of the opening anecdote might note that bankruptcy law is a creation of the state and that the judges who have handed down the decisions Ahmari laments are government employees. The bankruptcy process, in other words, is already subject to political control.

"The way to think of bankruptcy is as the least bad way we've been able to come up with for dealing with a fundamental problem, which is what do you do when there are more claims than there are assets to go around," says Todd Zywicki, a professor at George Mason University's Antonin Scalia Law School who specializes in bankruptcy and contract law. "It's an imperfect system to a fundamentally unsolvable problem….To think of it as being about private power is wrong."

***

This turns out to be true of several of the book's examples of "private tyranny," a reality Ahmari half-concedes. ("The point is to notice that market power is coercive power," he writes, "often relying on the state's backing and benefiting those blessed with legal sophistication at the expense of those who lack it.")

For instance, there's the Arizona family hit with a massive bill after a private emergency services provider they had never heard of, let alone signed a contract with, belatedly showed up to help put out a fire at their trailer. But such a scenario is imaginable only if the local authorities contract on residents' behalf, neglect to inform them of the terms, and then fall down at providing basic oversight of the vendor. Surely that is better described as an instance of government failure than market failure.

Then there's the former Sears auto mechanic who lost his job after a private equity firm purchased the struggling retail giant and ran it into bankruptcy. Ahmari says the man's story epitomizes the carnage wrought by a financial sector that enriches itself by buying, "looting," and then discarding the husks of once-great American companies.

That characterization is more than a bit rich. As Avik Roy, president of the Foundation for Research on Equal Opportunity, puts it, "You don't make money by stripping a company of its assets and selling them to the ground." While not every attempt will be successful, the goal of private equity is to create value by finding mismanaged businesses and turning them around.

At the same time, Ahmari's story overlooks the ways public policy introduces distortions in this space. Money printing, artificially low interest rates, and the implicit guarantee of government bailouts if things go sideways have all pumped up the financial industry, pushing people to invest in the stock market, increasing demand for ever more exotic financial instruments, and generally leading to riskier behavior than we would otherwise see. These are knock-on effects of government's attempts to manage the economy—to subject it to political control.

Ahmari is correct that coercion can be either private (as when a guy on the street puts a gun to your chest and demands you turn over your wallet) or public (as when the IRS threatens you with jail time if you refuse to pay your income taxes). But he goes much further than this, implying that unless employer and employee or producer and consumer enjoy precisely the same amount of bargaining power, coercion is necessarily at play.

This commits him to using the same label to refer to everything from "warn[ing] a bank teller that her children will be tortured unless she empties the vault" to telling customers that if they want a product, "they have to pay the price [the factory owner] demands." In one chapter, he calls it "class-based coercion" for a retail executive to record a podcast attempting to dissuade her workers from joining a union. In another, he implies that your employer abuses its power if it contractually bars you from trying to steal its clients when you leave the job.

This is colossally unhelpful. Even if you think there's something unseemly about certain types of private-sector arrangements, there has to be a way to rhetorically differentiate between a situation that involves violence or the threat thereof and a situation in which one party to a transaction merely has more market power than the other. Tyranny, Inc. stubbornly papers over all such distinctions. Under the book's logic, an employer expecting an employee to show up on time is just as guilty of coercion as is a bank robber.

Ahmari makes a half-hearted attempt to deal with this objection by stipulating that not all coercion is a bad thing. But since he repeatedly conflates coercion with tyranny, the effect is to reduce both concepts almost to meaninglessness.

It's also hard to square the apocalyptic picture Ahmari paints ("class domination," "financial misery," "the shattered edifice of middle-class dignity") with the generally positive view most people have of their own situations. Things aren't perfect, of course, but a 2022 Gallup poll found that 88 percent of the Americans who had jobs were completely or somewhat satisfied with them. The Edelman Trust Barometer reported this year that business is the only institution the global population views as both competent and ethical. Likewise, 78 percent of respondents say they trust their own employer, compared to 50 percent who say they trust the government.

The book has little to say to that, beyond telling us that "as a society we are captives of market utopianism" who "fail to notice the coercion that envelops us in the course of our routine economic activities." Well. OK, then.

***

Notwithstanding the survey data, it's true that all manner of things about our everyday market interactions strike lots of people as somewhere between mildly annoying and deeply unfair. The frustration of being bounced to voicemail while trying to get a customer service rep on the phone. The unpredictable schedules that make it difficult for service-sector employees to line up child care.

To be presented with, say, a nondisclosure agreement to sign on your first day of work may not be coercion in the same way the government's ability to seize your house through eminent domain is; that doesn't change the high personal costs associated with refusing to sign and having to start your job search over from scratch. Social media companies may have a First Amendment right to prohibit certain views from their platforms, but when they seem to penalize one political perspective more than another, it can just feel wrong. And Americans who perceive executive compensation vastly outpacing middle-class income growth are likely to be only so placated by a reminder that the middle class is becoming materially better off by the day (although it is).

The question is what, practically, to do about all this. Ahmari's solution is to use the heavy hand of government to brute-force outcomes he likes more. Not only is this unlikely to make things better, but it has the potential to make them much worse.

As a market participant, your bargaining power is a function of the quality of the alternatives available to you. The better your alternatives, the more credibly you can threaten to walk away, and the more concessions you'll be able to extract from the other party. The fewer your alternatives, the more unpleasantness you'll be willing to put up with.

This is why a wealthy, productive society is better for everyone. (As the economist Paul Krugman once said, "Productivity isn't everything, but in the long run, it's almost everything.") Ahmari frets about "the power of those who control most of society's assets to make others do their bidding—or go hungry," but 21st century America is rich enough that hunger is rarely the next best alternative. More often, a person may have to accept a lower salary or a less convenient commute. And this is true even for the relatively less well-off among us.

"There aren't many advantages to being a low-skilled worker, but there is one," says George Mason University economist Donald Boudreaux. "The skills that you're paid for are very versatile….You can flip hamburgers at McDonald's or Wendy's or Burger King. You can mow grass for Jewel's Lawn Care or Herman's Landscaping. And so precisely because low-skilled workers have skills that are so general—the market for them is very thick and wide—the notion that [any job is] a take-it-or-leave-it situation is absurd."

These realities should lead us to oppose government interventions that get in the way of starting new businesses and rolling out new products, because entrepreneurship and innovation increase the opportunities available to workers and consumers. Meanwhile, even well-intentioned public policies can inadvertently trap people where they are. Think of how the tax code makes it cheaper to obtain health insurance through your employer than to purchase it yourself—and how employer-provided insurance makes it harder to leave a crappy job.

Examples are everywhere. Price controls meant to protect customers lead to shortages of critical goods. Minimum wages price the lowest-skilled workers out of the labor market. Subsidies meant to bolster domestic competitiveness flow to well-established corporations at the expense of startups. And regulations, which Ahmari wants more of, put a damper on economic growth.

"The regulatory compliance burdens of the last 20 years have made it almost impossible to have small nimble firms be an alternative to these large hidebound bureaucratic companies," with their armies of lobbyists and compliance officers, explains Duke University economist Michael Munger. "There are far fewer business opportunities than there should be, and as a result, the very least well-off are subject to coercion. But the answer is not new regulatory burdens that will make it even harder for new businesses to come online but to get rid of the existing regulatory burdens, which will allow me to say, 'You know what, I'm tired of your bullshit, and I'm going to get a job somewhere else.'"

Government interventions often look good on the surface, but the tradeoffs can be enormous. A few years ago, Sen. Elizabeth Warren (D–Mass.) proposed a law mandating that large corporations hand 40 percent of their board seats to worker representatives. It's easy to wonder who could be against giving employees a say in how the companies they work for are run. But if such arrangements ultimately make firms less efficient—and if you have to mandate them, there's a good reason to expect they will—the result will be less wealth to go around, which means fewer jobs and worse compensation, at the lowest rungs especially.

The same goes for the naive embrace of laws like one Ahmari touts requiring companies "to offer laid-off employees at least a week's worth of pay for every year of service." It doesn't seem to have crossed his mind that such mandates reduce full-time employment by raising the cost of each new hire and increasing the relative attractiveness of short-term contracts, automation, offshoring, and the like. Bless his heart, perhaps he thinks he can regulate those out of existence too.

***

This brings us to a different problem with Ahmari's desire for "a structural overhaul in the direction of greater political control." It's not just that more government interference in the economy diminishes productivity, making society less prosperous and reducing the alternatives available to employees and consumers. It's that politicization leads to, well, politicization—decisions made not because they're in keeping with sound legal or economic principles but because they benefit groups with political connections to those holding the reins of power.

Zywicki, the law professor, points to the auto bailouts to show how this approach threatens basic justice and the rule of law. Besides providing General Motors and Chrysler with piles of taxpayer cash, the Obama administration in 2009 also stepped in to overrule the normal bankruptcy process, dictating terms under which politically favored groups (such as members of the United Auto Workers) were protected while politically disfavored groups (including secured creditors who by rights should have been first in line for repayment) got fleeced.

Ideally, "the politics comes in when you're setting up the bankruptcy laws, just like when you're setting up the corporate laws," Zywicki says. "The idea is that after that, once the laws are in place, people understand the rules, and they can contract with respect to those background rules just like in any other contractual system." What happened in 2009, by contrast, assumes that technocratic regulators know best—and have the authority to impose their will coercively on everyone else, even when it means ignoring existing legal processes.

They don't know best. And because that sort of thinking—Zywicki has called it "the New Deal vision of the regulatory state"—opens the door to making choices for reasons of political expediency, it's also likely to be a boon for the very corporations that Tyranny, Inc. wants to see reined in.

Ahmari rightly bemoans the ways that "asset owners used economic and state power to stack the deck in their favor," a phenomenon free marketeers usually refer to as "crony capitalism." He goes so far as to write that the state today "actively abets private tyranny" (emphasis his). But if he really believes that, why on Earth would he want more political control over markets, more interference in the economy, more coziness between the public and private sectors, a more powerful state?

Some amount of politics is unavoidable. Markets will struggle to function if property rights aren't enforced, for example, and that requires laws and courts. Nor does the state always get everything wrong. In February, a three-judge panel rejected Johnson & Johnson's bankruptcy petition, finding it to be an abuse of the bankruptcy system. Naranjo's children may yet get their day in court.

Finally, there's no reason we can't work through the legal and democratic processes to roll back misguided government interventions. Abolish the Export-Import Bank, which funnels billions of tax dollars to well-connected megacorporations. Quit making it so much costlier to buy health insurance on your own than through your employer (and for goodness' sake, get rid of the ban on bare-bones catastrophic plans!). Put the regulatory state on the chopping block. Constrain the Federal Reserve. And to the extent that public policies create barriers to voluntary unionization, we should be willing to scrutinize those too.

In that sense, the choice isn't really between more politics and less; it's between more government interference in our lives and less. The alternative to trusting markets to sort things out is letting the state choose winners and losers. Tyranny, Inc. leans on the assumption that you'll be happy with those choices. I wouldn't be so sure.