Termites of the State: Why Complexity Leads to Inequality
By Vito Tanzi
454 pp.; Cambridge University Press, 2017
Vito Tanzi is a former academic and high-level bureaucrat in the International Monetary Fund and the Italian government. He is also a prolific author. His latest book, Termites of the State, covers 400 pages (excluding the bibliography and index) in 34 short chapters. It is easy to read but loosely structured and often repetitive.
Summarized in a few sentences, his thesis is that many new problems have, like termites, undermined the market and made it less free and less equitable--sometimes because of state intervention. The state itself, victim of its own termites, has become less efficient at solving these problems. Yet we must look to the state for solutions.
The termites of the state are "various elements that enter into the political system and that corrupt, or distort, the legitimate economic role that governments try to play." Similarly, the termites of the market are factors that "distort the legitimate functions of markets." Inequality and externalities are two big market termites.
Something rotten in the state/ Termites of the State can be read as arguing that the state must mend its ways and that the market is desirable to ensure prosperity and protect individual freedom. The state, Tanzi suggests, has become so complex and so capturable by special interests that it has turned the free market into crony capitalism. Further, public policy has contributed to redistributing income from ordinary individuals to the rich and well-connected. He has a point.
He makes an interesting case against intellectual property rights as they are now protected by the state. Patents only became widespread in the second half of the 19th century, well into the Industrial Revolution. Copyrights developed from the 17th century on but were not fully protected until the 19th century. For a long time, the U.S. government did not protect foreign copyrights; Alexander Hamilton was all in favor of stealing industrial secrets from the British, for instance. But today, trademarks, concerts, sport games, and even the images of famous athletes or entertainers are protected.
Tanzi argues that the proliferation of these little state-sanctioned monopolies has contributed to the rise of income inequality over the past three decades. He does not provide much empirical evidence for this, but the hypothesis looks reasonable: many of the super-rich--who are...