I’m going to be talking about something that’s at once as dry as dust, and also one of the key instrumentalities through which money rules the world. I have never before seen any political radical or Marxist write about it, which is odd because it is perhaps the purest example of the Marxist theory of the state under capitalism- that it is a representative of capital rather than people.
I want to emphasise that CBA is ubiquitous. It is used, to the best of my knowledge, by every OECD government, although some governments use weighted CBA which partially addresses the concerns I raise here.
- Cost-Benefit Analysis
In ordinary life, people sometimes use cost-benefit analysis to mean writing out a list of pros and cons of an action and weighing them up. That is not what we are talking about here, or rather we are talking about a very particular interpretation of that technique.
Cost-benefit analysis (CBA) is a procedure which attempts to quantify the costs and benefits of a course of action by turning them into dollar equivalents and summing them. Often benefits are quantified by looking at how much everyone affected would be willing to pay for the project. For example, let’s suppose that an agency has three options:
1) Build a bridge at point A.
2) Build a bridge at point B.
3) Don’t build a bridge at all.
Now let’s further suppose that there are two people, Bob & Sally who are potentially affected by this project. The project will cost $350 and it is only practical to build one bridge. Surveys show that Bob would be willing to pay 800 dollars for a bridge at point A and 300 dollars for a bridge at point B while Sally would be willing to pay 50 dollars for a bridge at point A and 150 dollars for a bridge at point B.
Benefits minus costs for building the bridge at point A equals:
Benefits minus costs for building the bridge at point B equals:
Thus CBA indicates that the bridge should be built at point A.
On the information we have, this seems somewhat reasonable. Suppose though (and we will make a somewhat extreme example for illustration) that Sally is a pauper who would use the bridge to visit her ailing mother more frequently. A bridge at point A will allow her to visit her mother in 15 minutes, while one at point B will take an hour. 150 dollars represents nearly all of her savings. Bob, however, is a multimillionaire, he wants the bridge in the very off chance that he ever visits that part of the countryside around his estate.
Yes, we are playing on your sympathies somewhat (and I make no apologies for that), but the point is clear, CBA does not weight the desires of everyone equally. This is a well known and understood result. How much you are willing to pay is not just a function of how much you want something, it’s also a function of how much money you have. While others have critiqued the ways in which this makes CBA fail as a utilitarian program, my specific concern here is with the way it undermines democracy.
2. Cost-benefit analysis & democracy
Why do I say CBA analysis undermines democracy? What does it even have to do with democracy?
Formally speaking CBA is equivalent to a direct democratic voting procedure by stakeholders or a randomly selected sample of stakeholders. I repeat, CBA is a kind of direct democratic voting procedure that is employed by governments. Radical democrats rejoice! Direct democracy is here already for many things and you didn’t even know it.
However, it is a very strange kind of direct democratic process. It is equivalent to a form of voting with a double weighting. The first weighting is unobjectionable- a weighting by the intensity of preference. The second weighting is very concerning, a weighting by income. The strength of your vote could be modelled reasonably well as:
(The strength of your preference)*(A function of your wealth and income)
Thousands or tens of thousands government of agencies around the world use CBA at least some of the time. To this extent, we are being governed, in part, by a plutocratic direct pseudo-democracy. The maximum number of votes you potentially have is equal to the maximum number of dollars you have. I do not think I am being melodramatic when I say that this is:
A) An insult to democracy and
B) Rule by capital in a startlingly direct sense. One dollar, one vote.
3. But CBA isn’t always about willingness to pay!
The main objection I’ve encountered since publishing this is that it focuses too heavily on an analysis of willingness-to-pay, which isn’t all of CBA. This is true, but has little effect on the argument. Rather than asking about willingness to pay, one can assess the value of the not directly monetary effects of a policy in a number of ways, for example, looking at changes to property values.
Our argument applies no less to such an approach. Purchasing choices are also equivalent to votes, and of course weighted based on income. The rich are still given a disproportionate role in determining state policy.