Hedgehogs and Switching Costs

How to develop reformist politics while keeping an eye out for unintended consequences

"hedgehog" by purplekey is licensed under CC BY-NC 2.0.

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Last week’s essay contained this line: “Extremists often refuse to think about switching costs.” I’d like to drill down a little deeper in today’s essay.

What is an extremist? Regular readers will be unsurprised to know that extremists are often hedgehogs, as opposed to foxes. Hedgehogs prefer one ultra-simplified model of reality, which is often based on their tribal identity. They will tend to deploy conspiracy theories to act as bodyguards to protect their tribal views when these lose contact with the outside world. Their simplified narratives tend to be good at engaging with our emotions in a primal way even when they fail to explain all the complexities of reality.

By contrast, foxes understand that the reality outside our heads will always be complicated, so it will always be necessary to have multiple models. Foxes tend to spend some time trying to decide which model is most appropriate in different circumstances. This subtle approach means that foxes tend to be significantly better at making predictions than hedgehogs while being worse at emotional engagement.

Meanwhile, switching costs are defined as the costs that consumers incur when they switch brands, suppliers or products. Examples include a business struggling with cancellation fees and disruptions to normal operations when it changes suppliers. Switching costs also apply in politics when a hedgehog gains power and tries to quickly remodel society around a simplified black-and-white model.

We have seen many examples of hedgehogs ignoring switching costs in this blog over the years. One example from the right is the Catalan independence movement. Its leaders failed to discuss the risks of capital flight during their self-coup attempt and covered up reports that showed that the “unilateral” (ie, illegal) route to independence would crash the economy. Other examples on the right include promoters of Brexit who said experts talking about switching costs were being too boring for words.

There are many examples on the left too. Socialists, as opposed to social democrats, want to do away with a market economy, despite the appalling track record of this policy whenever it has been tried before. Hedgehogs will never reconsider their assumptions when faced with failure, which is why the idea of replacing markets with a massive bureaucracy never seems to die. Another example from the left involves people who have adopted Palestinian nationalism as their pet cause. Some want to completely expel Jewish people from the Middle East as a result.

Of course, no society can ever be perfect. The combination of liberal democracy (which protects the population against the excesses of elected officials), a market economy (which is meant to make at least some ultra-ambitious people think hard about value creation) and a welfare state (which is designed to prepare the population for life in a market economy while looking after the sick and protecting the vulnerable) will yield better results than any other set of institutions ever tried. However, this combination also embeds contradictions that can never be fully resolved, much to the disgust of hedgehogs, who hate this complexity.

Even while working within these three institutions, there will also be plenty of room for fox-like reformists to improve society while thinking about switching costs. This week’s essay will discuss three interlocking approaches to reforms.

On the fence

In 1929, the writer G.K. Chesterton proposed a very simple rule of thumb for reformists, which became known as Chesterton’s fence. He wrote:

There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, 'I don't see the use of this; let us clear it away.' To which the more intelligent type of reformer will do well to answer: 'If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.'

There is a huge amount of wisdom packed into these five sentences. They strongly influenced my earlier essay on non-populist republicanism. Anyone who wants to propose turning a monarchy into a republic needs to do some serious thinking about why constitutional monarchies tend to punch above their weight when it comes to democratic quality. Failing to do so will lead to poor results.

We can recognise extremists by their refusal to think about Chesterton’s fence. Last week’s essay discussed anarcho-capitalism in depth. These ultra-libertarians are so convinced that markets will spring to life to save us from chaos that they are perfectly happy spreading havoc in society without worrying about why any boring old fences happen to be in place. UK membership of the European Union (EU) and Catalonia’s status as an autonomous community of Spain are clear examples of fences. So was the position of the Iraqi army in that country’s society after the 2003 invasion.

The best example of an extremist learning about Chesterton’s fence on the go that I can remember comes from Rick Perry. A radical Republican from Texas, he called on the Department of Energy to be abolished in 2012. As a result, Donald Trump appointed him as Secretary of Energy in 2016. Press reports at the time suggested he didn’t know he would be in charge of the US nuclear arsenal. He eventually resigned in 2019 after boosting the department’s budget. There is actually a whole branch of economics that looks at why bureaucrats will tend to protect the interests of the institutions they represent, but that takes us outside the scope of this week’s essay.

It is worth mentioning that sometimes fences do need to be destroyed. Slavery is a great example. It had existed throughout human history, but it was completely incompatible with the ideals of the Enlightenment. Its gradual abolition throughout the West, beginning in France, has only been positive. A certain reluctance to pull up fences shouldn’t be confused with a ban on pulling up any fences in any circumstances. Of course, the burden of proof will always fall on the reformist.

There is one big exception to Chesterton’s fence, in my view. Permissionless innovation is the basis of a market-based economy; and this leads to “creative destruction” being a feature of capitalism, in Joseph Schumpeter’s famous phrase. Radical new ways of solving problems will often make old fences obsolete in the business world, but that is not an argument for protecting incumbents like Blockbusters in the early 2010s from challenger brands like Netflix. The reason for the distinction is simple: any new solutions will be market-tested rather than imposed by bureaucrats or elected officials without any feedback loops when they fall short.

Startups engaged in creative destruction can come into conflict with pre-existing laws, but this fascinating area falls outside the scope of today’s essay. Adam Thierer’s book Evasive Entrepreneurs is a good starting point for anyone who wants to think about this issue.

Piecemeal reform

Chesterton’s fence shows us the dangers of abolishing actually existing institutions. Even if we are reluctant to do this, how can reformists make sure their positive proposals will actually improve society?

Karl Popper, the great liberal philosopher, discussed a contrast between utopian social engineering (starting with a vision of the perfect society and working backwards - an approach that resonates with hedgehog extremists) and piecemeal reforms (slow and careful reforms that appeal to foxes). He said that elected officials should think about the largest single problem facing society. They should then run lots of experiments to see what works and what doesn’t work. Once they have a solution, they should slowly roll it out, while keeping an eye out for any unintended consequences.

This approach can be used to justify green liberalism, or using markets to fight climate change. It also helps us identify extremists, who are likely to major in minor problems. The populist right’s concerns about people from troubled poor countries seeking asylum in sedate rich countries is a case in point. Is this really the biggest problem in society today? It might be an emotionally explosive topic for some, but I have my doubts about it even being in the top ten of significant issues.

We can game out an example of what piecemeal social engineering might look like in Spain, the country where I live. Apart from climate change, the country’s largest single problem is youth unemployment. The country has the dubious honour of leading the EU list, with a rate of 26.8%, compared to averages of 14% for the bloc and 13.8% for the euro-zone. Germany has the lowest rate of 5.7%.

What does Germany do that Spain doesn’t? Any sensible answer about tackling Spain’s youth unemployment issues should explore apprenticeships, which are common in Germany and have deep roots there. Can Spain copy any aspects of that system? Sadly, politicians here are having much too fun yelling at each other to do something boring like testing experimental apprenticeship models.

One of the reasons for Spain’s high levels of youth unemployment is its shocking rates of high-school dropouts. It is probably not a coincidence that the country has one of the highest levels of cannabis use in the EU for young people - early cannabis use is linked to low educational attainment. I have no idea how to tackle this issue, which is why an experimental approach to find what works would be so powerful.

Catalonia, the autonomous community where I live, has one of the highest dropout rates in the whole of Spain. The region’s nationalist leaders insist on nearly all education being in the Catalan language, despite the regional government’s own statistics showing that nearly 53% of the population just speak Spanish at home.

We can consider immersion in Catalan to be a failed experiment. A more sensible approach would take kids’ mother tongues into account in their educations, while of course continuing to give the Catalan language a significant role in the education system. [Catalan nationalists will probably misread this sentence as me being a fascist who wants to kill the Catalan language, but such is life.]

Meanwhile, Barcelona and Madrid are both becoming serious startup hubs, which attract well-educated young people from around Europe in search of exciting projects. Enrico Moretti’s research shows that tech jobs have a multiplier effect. Local service jobs are created in a ratio of five to one for every high-powered tech job. What else can Spanish politicians do to support the two cities’ positions as hubs? And to develop emerging hubs in Bilbao, Málaga and Valencia? And also to provide better links to the neighbouring hub in Lisbon in Portugal?

It is interesting to note that startups are centres of excellence when it comes to experimental solutions to complex problems. Anyone who wants to dig deeper into this should probably start with a book called The Lean Startup, by Eric Ries, which popularised ideas like “the minimum viable product (MVP)” for the worst product that will attract a paying customer. He also developed the idea of “pivoting” for sudden changes of strategy after receiving unexpected new information.

In my opinion, any young person who wants to change the world would stand a better chance of success if he or she joins or founds a startup, rather than getting involved in politics. Exponential growth is a force to be reckoned with, which is why extremists often misunderstand those who grasp the mathematics behind it. It is worth reminding young people that even those who don’t want to enter the startup scene can get some of the benefits of an exponential project by investing for compound growth over a serious length of time.

The moderate disposition

If we want to go a little deeper, it is worth engaging with the work of Michael Oakeshott, an idealist philosopher. His idealism referred to his belief that we can never truly disentangle our ideas about the world from the world itself and not to a blueprint-based form of social engineering. He recommended aligning our ideas as closely as possible with external reality in a non-ideological way. He famously described “the conservative disposition,” which is worth quoting in full:

To be conservative ... is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss.

Oakeshott died in 1990 at the age of 89. While his insight into a conservative disposition still looks insightful in the 21st century, the word “conservative” looks very jarring to modern eyes in these times of Trump and Brexit. It is also interesting to note that there is little place for religious speculation in this worldview, despite the fact that social conservatism tends to align with religious belief.

I would suggest that the “moderate disposition” would be a better term for the worldview that Oakeshott described so well. He also used the metaphor of a ship captain, who has to concentrate on staying afloat, while constantly trimming the sails to adjust course. A moderate disposition and trimming the sails should be able to find a home on the centre-left, the centre or the centre-right of the political horseshoe, as long as elected officials are prepared to put hedgehog-like ideologies to one side.

Oakeshott’s great insight is the way that ideologies can lead us astray by insisting on a single inflexible model of reality. This is particularly true of nationalism, as we have discussed at great length in these parts (for example, here). Most moderate iterations of liberalism can be considered an exception to this general rule about the dangers of ideology. Luckily for humanity, devolving decisions down to individuals and families has generally led to good results for society.

For some reason, hedgehogs find all this stuff about “thinking hard before breaking institutions,” "concentrating on the biggest problem first,” “experiments to see what works,” “worrying about unintended consequences,” “preferring the known to the unknown” and “letting people take their own decisions” to be intensely irritating. We can see their irritation in full force when they misunderstand people who think about exponential risks; and also in the way they smear the speculator and philanthropist George Soros, who was one of Popper’s students.

Extremists’ secret weapon is the emotional charge of their narratives. Instead of looking for the biggest problem, they will look for the issue that makes people the most angry. Unfortunately, their irritation with experts and impatience to change everything at once means that they will always stand a chance in competitive elections, particularly when the economy is in a bad way. On the other hand, the best bet for sensible reformists is to run as incumbents on their track record - an approach that lacks a little punchiness.

Let me conclude this column with a graffiti I once saw in Barcelona after establishment Catalan nationalists pivoted to populist nativism. Extremists were able to have a lot of fun during these years as their ideas went mainstream. The graffiti said (in Catalan): “We have to change everything in society!” If I weren’t a law-abiding journalist, I would have bought myself a spray can and written an answer underneath. “Yes! Start with your own perception of the world. Learn to meditate!”

Although I was quite pleased with this riposte, which only ever existed in my head, sadly any extremists would have been almost certain to misinterpret it. Instead of using mindfulness to study the known while avoiding drifting off into speculation about the unknown, the person who wanted to change everything at once would no doubt have been drawn to the woo that accompanies some of the more esoteric meditative traditions. Such is life!

Given their impatience, anger and intolerance, extremists can be very annoying on the internet. Regular readers will be unsurprised to learn that the comments are are closed for the week. See you next week! Also, Happy New Year!

Further Reading

The Scout Mindset: Why Some People See Things Clearly and Others Don’t by Julia Galef

The Fifth Risk: Undoing Democracy by Michael Lewis

How to Cure a Fanatic by Amos Oz

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Opinions expressed on Substack and Substack Notes, as well as on Bluesky, Mastodon, Post and X (formerly Twitter), are those of Rupert Cocke as an individual and do not reflect the opinions or views of the organization where he works or its subsidiaries.