Submitted by Robert Fitzgerald

It would be accurate to describe most contemporary economies as being effectively two track economies, which are run towards very different ends. This article is intended to be a brief introduction to the core concepts of what these two different economic structures are for, how they run and how they interact with each other.

The first track, which I term the “Productive Economy” is something I expect most readers will already be familiar with. It operates according to principles of supply and demand which are taught in entry level economics classes in high school and undergraduate university courses. The incentives are aligned towards most efficiently matching supply of goods and services with demand, through market and pricing mechanisms.

Then there is a second track to the economy, which readers are less likely to have had direct participation with, though almost all will have come into contact with. This is what I term the “Patronage Economy” and its incentives are aligned towards the maintenance of loyalty to the dominant political power structure, with productivity at best a secondary concern and at worst a mere afterthought. Depending on your point of view and where you sit in society, either the patronage economy is parasitic upon the productive economy, or the productive economy exists primarily as a support mechanism for the patronage economy.

One of the most straightforward examples of Patronage Economy is the typical State Owned Enterprise in the People’s Republic of China. They operate with complete indifference towards market forces, precisely because their purpose for being has nothing to do with the market and everything to do with political necessity. The typical State Owned Enterprise in China, exists so that a certain number of people are kept busy with factory work and paid enough to keep them reasonably content and gather them together so they can be easily monitored. This is done to avoid such people rioting or engaging in some other manner of public mischief if they were left to their own devices. As a result, a lot of these State Owned Enterprises are operating at a loss, because even that loss is much cheaper than the costs of conventionally policing them using the People’s Liberation Army. Even if the concern is trading at a profit, they will make precisely the volume of goods needed to keep that region’s peasants busy and never a single more, regardless of how strong the market demand is for them.

The west has its own patronage economy, though its methods are more complex. This is necessary because people in the west are told they are in a meritocratic and market based economy and things which go against this myth need to be disguised. There are parts of the patronage economy which are their own largely separate enterprises and there are also parts which are embedded within productive enterprises. It is the latter which most people are going to more commonly encounter.

The most common interface between the patronage and productive economies encountered is what’s known as the “diversity hire”. Just about everyone has dealt with a co-worker like this. On paper, their job is the same as the people around them, in reality they are held to a completely different set of expectations. It often becomes very clear that they’re kept around for reasons which nothing to do with their productivity. Sometimes they’re simply employed as a favor to some sort of politically influential special interest group and other times it’s more sinister than that and they act as your workplace’s equivalent of a political commissar or inquisitor. A rising factor in public vendor bid scoring involves diversity and inclusion factors some that ask for exact breakouts by race of employee demographics.

There are also entire sectors of the economy which are effectively part of the patronage economy. One of the ways to tell them apart is the degree of freedom of movement that people enjoy between them. For most work in the productivity economy, one is required to learn a very specialised set of skills and transferring to a different sector of the economy requires extensive retraining. Conversely, you can look at the curriculum vitae of some people and see their employment history effortlessly flit around between education, advertising, journalism, entertainment, not for profit and public sector consulting without any apparent gaps in between for retraining. Because these sectors exist predominantly in the patronage economy, this person is doing much the same thing in any of these fields, little of it productive.

While it is tempting to envy the lot of the person in the patronage economy and assume they have a carefree life, the truth is that they are subject to some very unpleasant realities. The bargain they take up is that they are paid a great deal more than they would ever be able to earn in the productive economy. In return, they are entirely at the mercy of their paymasters to a degree few people in the productive economy ever experience. This bargain will only ever be offered to people who would otherwise be in poverty if they were in the productive economy, because these are the people whose loyalty is bought most cheaply and most reliably. To express their personal will in defiance of the political power structure they serve will mean being cast out into inescapable poverty for the rest of their lives. They live with the terror of that possibility forever lingering in the back of their minds and deliberately being held over them. They must always be in harmony with the will of the political power structure, in a way that appears above reproach. They must only associate with those of like mind and if friends or even family dissent, then they must be ruthlessly cut out and cast aside.

This last element of only socializing with people whose beliefs are in harmony with the power structure is another of the commonly encountered interfaces between the productive and patronage sectors of the economy. Even if one is an independent business owner, one can still end up effectively working within the patronage economy, if enough of one’s customers are people employed by the patronage economy. This is why you see so many businesses bending to the whims of social media outrage mobs – they have been given a signal from the power structure that they are out of harmony with their ideology and are being given one chance (and only one chance) to grovel and beg to be allowed to still have customers who work in the patronage economy. Most business owners end up doing the math and figuring out they need those customers in order to keep being profitable. Therefore, they dutifully bow and scrape and publicly apologize in order that their customers are allowed to keep doing business with them. Those who make the mistake of remarking “These people getting mad at you aren’t your customers” fail to understand this statement is simultaneously true and irrelevant. This business’s existing customers who are employed in the patronage economy are obligated to pay attention to the outrage mob and redirect their patronage towards another business, if the business owner is revealed to be acting in defiance to the dominant political power structure.

One final core implication of the existence of a patronage economy is that the greater an extent of economic activity it occupies, the more impact it has on the purpose of money. In the context of a productive economy, the purpose of money is to keep track of the amount of productive output in an economy. Money has a completely different function in a patronage economy, its functions are to purchase loyalty and act as a limiting factor on consumption. The people in charge are rarely keeping track of things in terms of dollars, they are paying attention to things such as the number of barrels of oil, tonnes of steel & fertilizer, and production volume of microprocessors. They need to make sure that their clients in the patronage economy avoid consuming so many of these resources as to end up stifling the ability of the productive economy to sustain itself. At the same time, consumer society is a key aspect of maintaining the loyalty of people employed in the patronage economy, because the desire for goods and status are often key motivations for them. Given the disconnect between the amount of productivity exhibited by those employed in the patronage economy and the amount of money they are paid, the effects would be disastrous if they were to simply purchase a greater volume of goods, as this would rapidly lead to scarcity and levels of inflation that would make living conditions intolerable for those in the productive economy.

This is one of the reasons why luxury goods and conspicuous consumption are such common aspects of the lifestyle of those in the patronage economy. It is a way for such people to feel more important, spend more and minimize the amount of additional resources they would otherwise consume. In terms of their function, luxury goods rarely offer superior performance to their common counterpart. Their purpose is to act as a way to readily identify other participants in the patronage economy, to facilitate exclusively socializing with like-minded people, and to act as a money sink to limit the degree of resource consumption their higher wages would otherwise lead to.

In summary, large sectors of the economy are devoted to patronage of those engaged in political loyalty and ideological enforcement rather than productivity. Those engaged in this patronage agree to accept heavy burdens of compliance and conformity in return for payment which outstrips their productive capacity. Luxury consumerism is used as a means to limit the resources consumed by those in the patronage economy while also fostering ideological conformity.