The nation-state undertook to be responsible for economic planning for the society, income redistribution, and democratic accountability, and it promised to underwrite (in varying degrees) employment, health care, education, and old-age security. The nation-state is rightly thought of as a new constitutional order, for not only are these responsibilities a significant departure from those of the state-nation, they also reflect the unique source of the nation-state's legitimacy, its promise to provide for the material well-being of the nation. This promise was made by parliamentary, communist, and fascist governments alike. The market-state need make no such commitments because its relationship to its society is formed on a different basis.
It is obviously true, however, that single-parent families, declining literacy, teenage pregnancy, and drug, alcohol, and tobacco abuse, represent significant economic costs to a society. Apart from the lost productivity of workers who put themselves in, or find themselves in, such difficult situations, there is the tremendous cost involved in providing family subsistence (or day care), unemployment compensation, medical insurance, remedial education, and so forth. Ought not the market-state to be concerned with these problems, even if the reason for its concern is different from that of the nation-state? It depends on how effective you think the state—any sort of state—is in addressing such issues.
The nation-state, it is implied by some critics, created its budget problems because in undertaking to improve the welfare of all of its citizens, it both hobbled the opportunities for its most productive workers (through regulatory and redistributive legislation) and inadvertently crippled its neediest and least productive workers by tying them to programs that locked them into a cycle of dependency. Thus, it is alleged, the state became progressively less able to pay a bill that wasn't worth paying in any case. If there appears to be a consensus today that none of the problems listed in the paragraphs above—teenage pregnancy, drug abuse, etc.—could actually be cured by massive government programs, let alone by those that are likely actually to be initiated, 40 this reflects a profound shift in the expectations we believe can be imposed on the State.
The first casualty of this shift in opinion is the legitimacy of the nation-state. The State cannot covenant to improve the welfare of all of its citizens if it is generally believed that there are a great many persons in desperate straits whom government cannot—and, for various reasons, perhaps should not—attempt to assist. In the face of such a consensus of delegitiation, the acceptance of a new constitutional order becomes virtually an imperative and the shape of that order must be one that is compatible with that consensus. Thus the second casualty of this shift in view of the basis of the State is any large-scale effort by government to address social dysfunction (though it is assumed by market-state ideology that increased opportunity means increased wealth, and that this will ameliorate many social ills).
It may be that we can expect in the United States (and elsewhere) the sharp and permanent diminishment of the welfare state, with its safety net of public housing, free medical care, aid to dependent children, and unemployment allowances. Whether or not these programs are cut back, a simple refusal to maintain their ever-increasing costs with ever-increasing funding will in the not-too-distant future reduce their ameliorative impact significantly. At the same time, regulatory reform will proceed at a quickened pace. Regulation can be viewed, from an economic perspective, as a tax41 no less than direct taxes. Either a business can be taxed to pay for garbage removal or it can be required to remove its own garbage: either way, it pays. In a situation of perfect information there is no difference in the effect on the ultimate allocation of resources whether the tool of regulation or taxation is used. The difference occurs when deregulation is accompanied by tax cutting. Thus regulatory reform is not merely an effort to unchain innovative entrepreneurs and to remove noisome and idiotic rules from the workplace; when coupled with tax-lowering politics, it is also part of a larger effort to reduce the percentage of GDP taken by government (directly or indirectly).
For that portion of the nation-state's agenda that cannot be offloaded by the market-state, there is the alternative of privatization. In the American context, this term does not mean auctioning off state-run commercial enterprises (like British Rail) to private investors, but rather contracting out traditional government duties. In some cases, such as operating prisons and hospitals, this is simply a roundabout way of introducing more careful financial accountability and more efficient practices into public enterprises. But in other cases—notably education—it amounts to a more profound change. The nation-state was inevitably hostile to private education (many nation-states banned or attempted to ban private schooling) because it tends to remove such an important cultural experience from the inclusive objectives of the national agenda. In the market-state, however, with its skepticism about government and its compact with individual choice, the prospect of turning over education to parents is welcomed enthusiastically. Voucher systems—which effectively use the state as a tuition collector, rebating the collected fees to private and public schools that are chosen by parents—are likely to become the standard, not the exceptional, means of school selection. The default rule will perhaps always provide some publicly managed schools—though federalism makes possible the option of doing away with public schools entirely—but the days of virtually universal mass public education, like the similar experience of universal military conscription, are probably unlikely to continue. The voucher scheme is precisely the sort of expansion of opportunity the market-state undertakes to provide: more options, less coercion by law.
These speculations about how the market-state will play out in the United States must not be taken to obscure the point that different cultures will adapt the market-state in different ways. The Soviet Union, Great Britain, and Fascist Japan were all nation-states, after all, no matter how greatly their policies and politics differed. Different cultures will adapt the market-state in distinct ways. The American emphasis on individual rights, a laissez-faire business and trading system, and restless personal freedom will take the market-state in one direction; other societies will find the market-state just as adaptable to preferences for group responsibility, a state-inflected market, and long-term social stability.
The United States is remarkably well situated to become a market-state. Its multiculturalism, its free market, and its diverse religious makeup—all of which resisted the centralizing efforts of the nation-state—and, above all, its habit of tolerance for diversity give it an advantage over other countries in adapting its state to this new constitutional order. Insofar as the American people are able to resist calls to take back the state in order to unify the culture and reform dissenters, the agnosticism of the market-state will be well accepted. Nostalgia aside—which I feel more than most—t is important to identify which cultural and political struggles are simply hangovers from the dying nation-state and its resistance to the form of the new market-state and which are genuine choices that the market-state brings to life.*