Mark Zupan does a masterful job advancing his thesis that government insiders subvert
the public interest. By applying his disciplinary expertise in industrial organization (IO)
economics, Zupan finds both common ground with public-choice theory as well as one
important distinction. He applies the label quasi-market to the study of governance in
order to discuss the incentives of political actors as managers. Public-choice scholars, by
contrast, view their analytical lens as behavioral symmetry, which requires viewing political actors in the same way as market participants. Although not rejecting this
framework, Zupan uses IO as a lens for evaluating government accountability. The
result is a book that I recommend as a useful complement for readers of The Independent
The book is a well-organized treatment of political economy. It spends two
chapters developing the idea that insiders leverage increasing centralization to dominate
government. Importantly, this leveraging occurs both in autocracies and in democracies
as a difference in degree of domination. The book proposes microfoundations for
insiders. The demand side is the familiar culprit, interest groups, who lobby for their
economic interests through government. The other group is the insiders, public
employees and political agents who operate by supplying ideology. The book is large in
scope and balances the U.S. perspective with a global experience with government.
The contemporary examples include North Korea, Russia, Iran, Venezuela, India,
Argentina, and Greece. Zupan draws on a broad set of historical examples in his
discussion as well. Footnotes to thinkers such as James Buchanan and F. A. Hayek are
useful in drawing connections to public choice. Zupan also draws clear inspiration from
Milton Friedman in developing his central thesis.
In chapter 1, Zupan develops a supply-and-demand model of politics. He also
introduces a few examples of the insider, in one case giving New Yorks Robert Moses
as an exemplar of this type of agent. Moses used ideology to create popular reform, but
he also left a personal legacy through his idiosyncratic preferences for public spending.
Zupans narrative works with institutionally thick descriptions of the term insider, and
so a precise definition of this term remains elusive in that other writers have defined it
as the political entrepreneur.
In chapter 2, we see how breakdowns in accountability and transparency of
government create opportunities for insiders to highjack the state. One example of this
process is how insiders might wish to dominate public education through a government
monopoly. Control of education is the main way to promote a dominant ideology and
to increase the discretion that insiders need to promote their groups agenda.
The next chapter introduces the books central model of the supply side. Government
agents become insiders when they can co-opt the state. The rent that insiders
seek is labeled ideological profit, or P. Zupan identifies three factors that interact to
produce this rent: potential ideological (G)ains, (S)lack, (I)nterest. Ideology is a desirable
feature when it is directed toward achieving the public good, as in the case of
Nelson Mandela, but the lack of accountability has a tendency to place in office those
who promote their own interest above the public good. In this case, institutions have to
be designed to take seriously both ideological rents and the threat interest groups pose.
Chapter 4 outlines how growth in government increases the potential for ideological
gains. A larger government is more likely to have weak institutional checks on
insiders activity. Weak checks lead to a variety of pathologies as insiders cater to special
interests, exploit common-pool resources, and take advantage of weaker scrutiny
through things such as political clout and fiscal illusion. Zupan concludes the chapter with an empirical challenge. Weakened accountability may lead to smaller
government because of a discrepancy between voters and their agents, or it could be
optimally efficient, as Donald Wittman argued. Zupans thesis suggests that we get too
much government and that this oversupply represents the preferences of interest groups
Zupan then argues that as governments grow larger, slack increases because
transparency and accountability are harder to maintain. He promotes electoral competition
as a remedy for growth in government. He uses an analogy of a pipeline to talk
about government slack and the optimal size of government. As the circumference of
a pipe increases, it can handle a greater volume of liquid in proportion to its materials. At
some point, however, stronger materials are needed to contain this additional volume
without compromising the pipe. Government similarly needs much stronger institutions
as its size becomes greater. Breakdowns in competitive checks on the
national government render interjurisdictional competition weak. Zupan compares
this lack of competitive checks in government to the quasi-market of corporate
governance. The managers incentives matter. Incumbents will use the tools at their
discretion to hold onto power against the public interest unless the institutions make it
possible to create a smooth management transition. Government growth might still
occur when elections are contested, but that growth will be greater when accountability
Chapter 6 offers virtue as a way to curb interest. With respect to rewarding political
virtue, Zupan looks at cultural norms, property rights, and clear quasi-market institutions
that push back against incumbency. One example of the power of incumbency
is that all criticisms offered by challengers can be co-opted by the incumbent prior to the
election in order to gain some of the challengers votes. As a proxy for virtue, incumbency
is one metric offered to define ossification and corruption in government.
The contestability check helps distinguish democracies from autocracies, where governmental
regimes persist nine times longer on average. More electoral turnover might
reduce the ability of agents to develop conditions necessary for ideological rent seeking.
Chapter 7 turns to empirical methods to measure how rents are captured. Zupan
contrasts various theories of political freedom and economic freedom. He considers five
hypotheses from Robert Barro; Daron Acemoglu and James Robinson; F. A. Hayek;
Milton Friedman; and Robert Lawson and J. R. Clark. This discussion confirms that
economic freedom is necessary for political freedom, but at some point government
growth weakens economic freedom and therefore economic performance. Zupan
applies this reading of the data to a narrative for growth and ossification in the
experience of ancient Egypt, pre-Enlightenment France, and nineteenth-century
Chapters 8 and 9 are very detailed cases, the first one about twentieth-century
China and the other about public-sector unions in the United States. The chapter on
China looks at the benefits of liberalizing a very centralized economy, and the U.S. case
examines the growing sclerosis in government resulting from public unions as aninterest group. Demand-side forces interact with the supply of ideological rent such that
both groups benefit from the expansion of government.
The conclusion applies the lessons of the book to policy prescriptions. These
prescriptions include limiting public unions, promoting competition among providers
of publically provided services, establishing term limits for incumbents, increasing
accountability to weaken private benefits in government, improving transparency, and
reining in debt.
The book is a valuable and innovative study of the market for government
corruption. By dividing suppliers of political ideology from interest-group consumers,
Zupan is able to apply the tools of corporate analysis to the public sphere. This is a useful
analytical tool to explore. There are three principle areas of research outlined in this
book: electoral competition, transparency, and accountability. In the latter area,
Zupans thesis delivers the most detail by expanding on his equation of corruption.
Accountability is most important when the public allows insiders to act on ideology.
Accountability, surprisingly, can be provided in both autocracy and democracy by
limiting the size of government and providing checks and balances for those who would
supply this ideology.
This volume does not offer particularly shocking conclusions for readers of The
Independent Review. However, it backs up its claims about economic freedom with an
expansive analysis of its thesis and comprehensive global and historical cases. It would be
a great book for a comparative-institutions class. It is certainly enjoyable and worth