(This is a guest post by Below Potential – ed)
If you are interested in economics and/or political thought, you may have come across the following three terms:
- Competitive Governance
- Free Private Cities
The purpose of this post is to explain in a clear and concise manner the economic and political thought behind each of these terms. Of particular importance is to understand how these terms, respectively, the ideas behind them relate to each other.
The Market for Governance
In contrast to other markets, the market for governance has been producing meagre results. Products (the bundle of rules and public goods provided by governments) are low-quality, prices (taxes) are high and the customers (the citizens) are generally unsatisfied.
The reason for this is lack of competition. In a competitive market producers of bad products are weeded out by natural selection. In the governance industry, producers (governments) are not subject to this selection mechanism. Instead, the market for governance is dominated by a series of large geographic monopolies.
There are two reasons for the lack of competition in the governance industry:
On the supply-side there are high barriers of entry. Imagine you have a new idea that would revolutionise the governance industry. In any other industry you would have to convince some investors to give you the necessary capital. Then you could start producing and selling to customers. As things stand today, market entry into the governance industry would be significantly more difficult. You would have to win either an election or a revolution.
On the demand-side there are high barriers of switching. Switching your internet provider means something like having to send an email to customer service. Switching governance providers means either emigration or the election of a new government within your current jurisdiction.
Obtaining permission to immigrate into a country can take years. On top of that, since today’s governments often cover a whole language area, emigration may well entail having to learn a new language. The problem with elections, on the other hand, is that neither you nor anybody else has an incentive to put any effort in making a good choice – as illustrated by David D. Friedman in The Machinery of Freedom:
Imagine buying cars the way we buy governments. Ten thousand people would get together and agree to vote, each for the car he preferred. Whichever car won, each of the ten thousand would have to buy it. It would not pay any of us to make any serious effort to find out which car was best; whatever I decide, my car is being picked for me by other members of the group. Under such institutions, the quality of cars would quickly decline.
If high barriers of entry for producers and high barriers of switching for consumers are causes for the dysfunctionality observed in the market for governance, then it becomes clear that there cannot exist a solution that does not tackle at least one of these causes.
The idea underlying Competitive Governance is to minimise the cost of switching governance providers by switching between geographic jurisdictions.
This is to be achieved by geographically decentralizing political power, i.e. increasing the number (decreasing the size) of units of governance among which people could move. Low barriers of exit would mean higher competitive pressure for governments and therefore better governance.
While the focus of Competitive Governance is on the demand-side of the market for governance (the high barriers of switching faced by consumers), the focus of Seasteading is on the high barriers of entry, i.e. on the supply-side of the market for governance.
In contrast to the earth’s land, the ocean is largely unclaimed by states. Seasteaders want to develop the technology to create permanent, autonomous communities on the ocean, arguing that the creation of ocean platforms constitutes a much lower barrier to entry for forming a new government than winning an election or a revolution – or a war. And with technology advancing, the barriers of entry to the market of governance will decline year by year.
By opening up the vast space of the ocean for experimentation with new institutions, an evolutionary process will be started that will led to new and better products in the market for governance.
Proponents of Competitive Governance have argued for more competition in the governance industry, but traditionally they did not provide an explanation for how to effectuate this change. Seasteading can be considered as a a route for getting from here to there, i.e. as a proposal for implementing Competitive Governance.
Free Private Cities
Competitive Governance and Seasteading refer to the level of the governance industry and are agnostic with respect to the shape and form of the units of governance within the governance industry. Put differently: the question of how governance is to be provided is out of scope.
Titus Gebel’s proposal for the foundation of so-called Free Private Cities, on the other hand, provides one answer to this question. Gebel, a German entrepreneur, argues for private, for-profit companies to act as governance providers in defined territories (Free Private Cities) and he has started such a company: Free Private Cities Ltd.
Citizens/customers in a Free Private City would pay a fee for the governance services provided by the company. Each customer’s rights and duties would be laid down in a written agreement between the customer and the governance provider of the respective Free Private City.
Free Private Cities may be established within the territory of an existing state, whereby the parent state (hoping to reap benefits from a potential hub of growth and prosperity) grants the operator the right to set its own rules within a defined territory. Most likely though, the first Free Private City is going to be established via Seasteading on the ocean.
A buddy of mine coined the term “underthrow the state.” I use it all the time. What the hell does it mean? Shouldn’t we overthrow bad governance? Revolutions are bad for all sorts of reasons, but one under-appreciated reason we shouldn’t try to overthrow anything is because it’s not practical–too many free riders and bad incentives. Philosopher Gregory Kavka via Gordon Tullock:
Imagine a small country in which a small elite rules over and exploits the vast majority of the citizens. All the members of the exploited group know that if they acted together, they could easily overthrow the present regime and set up a new and just government that would better serve their interests. Furthermore, the elite regime has not rendered the exploited so fearful that they fail to communicate their dissatisfaction to one another. Initially, it seems obvious that, if the members of the exploited group are rational, they will pursue their common interests by revolting against the regime, toppling it, and establishing a new government in its place. But now consider the question of participation in the revolution from the point of view of an individual member of the exploited group. It would appear that, for him, the substantial costs of participation–the risk of being punished by the regime for participating or at worst dying in the fighting–will greatly exceed the expected benefits. For, in the first place, it is highly unlikely that his participation would significantly increase the chances of revolution succeeding. And, in the second place, the benefits of better government that would follow from a revolution are essentially public goods, i.e. the average individual would receive the benefits even without being an active participant in the revolution. Hence, if he maximizes expected utility, our potential revolutionary will not join in the revolt. Nor, for like reasons, will his fellows; and as a result, there would not be a revolution.
Enter the Delaware C-Corp, one of the greatest innovations ever created by a state. Equity aligns interests and rewards a company’s founders and employees; free riders are fired; and revenue received in exchange from customers only skims the top of the total social value created. Exit technologies developed by startups flip Tullock’s collective action problem by internalizing the benefits to a small cadre who can build better options for people to escape bad rules and legacy systems. To underthrow a bad rule set is to hollow it out on one dimension. It’s a piece by piece revolution, not wholesale.
Reader’s of this blog are, likely, fans of political and ideological diversity: numerous co-existing and varying opinions, political systems, and schools of thought which serve as multiple parallel experiments to advance our shared knowledge. (Which may, over time, decrease diversity by increasing the number of high-certainty objective truths; but that’s another topic).
Diversity requires boundaries; not only in abstract; but existing because of local differences. Without boundaries, all mixes and becomes homogeneous (The Heat Death of Humanity). Without local differences (ie cells separated by boundaries), then all is already homogeneous. In either case, there is no diversity.
Most of the fringe groups I have known in the past were explicitly anti-exclusion – welcoming any new members – which seemed like a positive thing to me at the time after having the typical excluded nerd experience in middle & high school. It also seems like a natural policy for a small group looking to expand. Yet now I see the downside of this lack of boundaries: it decreased diversity and cohesiveness.
One of NRx’s most basic principles is “anti-entryism”: the importance of excluding those who do not fully agree with them. In the past I would have seen this as needlessly limiting their audience and growth. However, I now see it’s importance for cohesion and maintaining ideological diversity rather than being diluted by the mainstream ideas they seek to be an alternative for. So when some NRXers consider me exactly the type they wish to exclude (an “entryist”); rather than feeling butthurt by the ghosts of teenagerdom past, I now see this as a positive. I agree with some of their oddball beliefs; disagree with others; naturally a cohesive movement will exclude people such as myself.
Similarly, my natural reaction to some of their more controversial ideas is “omg, why would you say something so extreme that 95% of those who hear it will stick their fingers in their ears and run away, when you could have convinced them of some more moderate versions of your ideas?”. Yet I can see how, from the cohesion perspective, alienating potential entryists is actually a positive. The more restrictive the filter and the stronger the antipathy generated in those who only partially agree, the more cohesive the resulting movement.
Since one of NRx’s other tenets is the importance of cohesiveness over broad appeal, it is natural that they choose to prioritize the former in forming their own group. In this context, expressing their most controversial beliefs first, loudest, and in an extreme form is actually a positive. Only Gnon can judge if the anti-entryist approach is more right than the anti-exclusionary alternative.
“Can we seriously say, that a poor peasant or artizan has a free choice to leave his country, when he knows no foreign language or manners, and lives from day to day, by the small wages which he acquires? We may as well assert, that a man, by remaining in a vessel, freely consents to the dominion of the master; though he was carried on board while asleep, and must leap into the ocean, and perish, the moment he leaves her.”
— David Hume, Of the Original Contract
“The hand-mill gives you society with the feudal lord; the steam mill, society with the industrial capitalist.”
— Karl Marx, The Poverty of Philosophy
“And Covenants, without the Sword, are but Words, and of no strength to secure a man at all.”
Let’s start with some basic questions of political philosophy. What is good governance? If you accept the Washington Consensus on both the left and right you’ll draw up a list that includes such things as free and open elections, transparency, stability in the rule of law, checks on executive power, sound monetary policy, and perhaps many more.
Ok, what’s bad governance? Easy, question, right — No elections. Concentrated power. Secrecy. Unpredictable rules. Agencies serving private interests.
Just about any reader of the New York Times can tell you this, but I’m here to tell you they’re wrong.
Let’s start with the consensus worst — dictatorship.
Workers under a despot can make different rules, but everyone and anyone can be overridden by one man at the top. He has the power to make all the laws himself. No one outside of this governance structure has any say what the laws are or who makes them. This government doesn’t even have to rig elections because the public doesn’t have a right to vote. There are no public hearings, elections, or referendums on what this government does, ever.
Second, this government can arbitrarily change its laws on a whim. Lawmaking takes place in secret. And the thousands of laws that are in force today might be repealed or changed tomorrow. Many of the laws change on a daily basis without anyone’s notice. A visitor to this territory has only a vague guess what the laws will be during their stay and only finds out what they are when inside. On any visit, the laws are certain to be different from last time.
Third, this government blatantly ignores the public interest. All its laws are made to put as much money into its pockets as possible. And they don’t even try to keep it a secret. There is widely shared public evidence they have been enriching themselves over decades. The amount of money they collect increases every year, but they’re so greedy, only a tiny fraction makes it to people outside of the organization.
You might be wondering if any government has been this bad. You might think Germany under Hitler, but they still had elections for a while. Stalin? He wasn’t very good at making money.
Neither of those dictatorships was structured as I just described.
But Apple is. Whole Foods is. Each product and price is a strict law declaring you must pay x dollars to get y. Every employee is subordinated to a private CEO who is not publicly elected. The organization sets all of their prices and designs its products by themselves in secret. Prices and what’s on offer change every day, every quarter, every year. And they set prices to make as much money for themselves as possible and their earnings are open to public view. In fact, all of your favorite companies are structured like tyrannical dictatorships (or better, constitutional monarchies). But they are not poorly behaved at all.
The same cannot be said of lawmaking territorial governments, even those obedient to the Washington Consensus and the characteristics it finds desirable. How can this be?
How can a vast bundle of goods and prices produced by a visibly dictatorial, unpredictable, and greedy Apple government be any good at all? What is their organizational secret? We can rule out democratic features because they have none. We can rule out adherence to transparency and time-tested stable law because Apple offers neither.
It turns out there’s only one thing that guarantees production of good laws. The people bound by the laws have to agree to be bound by them. Not hypothetically or tacitly, as in some imaginary will of the people or behind a veil of ignorance. Consent must be real, transparent, and continuous. No law can bind a single person unless that person consents to be bound by that law. All laws must be strictly opt in. Lawmakers could be saints, devils or monkeys on typewriters — doesn’t matter. The opt out-opt in system lets only good laws survive. Bad laws are driven out of production.
Bad laws can only inflict harm and destroy wealth up to the cost to opt out of them. We can underthrow the state one contract at a time.
We see this effect on a microscale with the adoption of smartphones and ride-sharing services like Uber and Lyft. The old regime — a medallion based taxi system — is being replaced by an on demand system based on reputation and credit. Users opt out of old, poor governance and into the new.
Enamored with the German postal system, Vladimir Lenin once wrote, “To organize the whole national economy on the lines of the postal service, so that the technicians, foremen, bookkeepers, as well as all officials, shall receive salaries no higher than a ‘workman’s wage,’ all under the control and leadership of the armed proletariat — that is our immediate aim.”
The post office is indeed a model for the future, but not the way in which Lenin expected. Billions have opted out of papermail for email. Millions opt out of USPS for FedEx. And so on.
The next 15 years will not pit the Washington Consensus against the Beijing Consensus — or other authoritarian models — but both of these against the Nakamoto Consensus. The diffusion of the smartphone, strong crytpography, and peer-to-peer decentralized public ledgers will weld individuals, networks and voluntary hierarchies into single units of sovereign power capable of opt-out and opt-in governance without precedent. Today about half the world’s adults owns a smartphone. By 2020 80 percent of adults will have a supercomputer in their pockets.
Some hyperbole — if the Rust Belt has come to define the hollowed out industries surrounding the American Great Lakes, in the next twenty years the Paper Belt will come to define the paper-based industries scattered along the north east coast from Washington DC to Boston. In Washington, the government prints money, passports, visas, regulations, and laws on paper. In Delaware, companies incorporate on paper. In New York City, the New York Times and Wall Street Journal print stories and ads on paper. And in Boston, Harvard and MIT print diplomas on paper. Imminent technological advances could very well burn the paper belt to the ground.
What will replace it?
For over 350 years Westphalian sovereignty has rooted its authority and expressed its power along territorial borders, lines demarcating a state’s monopoly on the legitimate use of violence. Space and time are its key coordinates. Any x and y for longitude and latitude determine which laws apply. Citizens have by and large remained stationary, hemmed in or locked out, albeit with some in and out flow. But over time those in power have changed. Government actors vary after some duration, either by coup, by annexation, by succession of the throne, or by — the current best case — the preferences of voters in elections.
We are entering an era when governance and citizenship will decouple from location. And because of that, the purveyors of bad laws will fade away and good laws will surface to dominate the law market in the century ahead.
I don’t agree with (or to be honest, understand) – all the Nietzschean / Great Chain of Being stuff in the post series “Neoreaction: is it for real?“, but I thought this was an amazing line:
“Modern thought, by contrast, is based upon relationships of difference and opposition (and the overcoming of such differences and oppositions)…For the modern progressive, difference is opposition and reflects an inequality of power; it is something to be overcome…Have you ever wondered how the political left keeps finding new forms of inequality to campaign against? Their crusade will never end, for they know that any relationship of difference can be reconceptualized as an oppositional relationship reflecting a power imbalance.“
I think this captures an important reason why many of us find progressivism so creepy and dystopian. Sure, each individual progressive cause has a purported justification of kindness and associated human interest story. Yet if you zoom out, you realize that any human difference, viewed through the oppressor/oppressed lens, can (and likely will) be perceived as an inequitable inequality, due to a power imbalance, which must be eliminated to achieve justice.
If only certain limited differences were targeted – like suffrage not being universal – this crusade could well be beneficial. Yet what we see is progressively increasing outrage over progressively smaller differences. It looks much less like a force for actual justice than like an anti-difference paperclipper – eternally dedicated to a single instrumental value which it has mistaken for the only terminal value.
A process of this form, dedicated to eternally seeking out and removing differences, can only ever end in universal homogeneity – utter blandness and sameness. It seems that perhaps progressivism is the embodiment in human systems of the second law of thermodynamics, which can be roughly stated as “the tendency of natural processes to lead towards spatial homogeneity of matter and energy, and especially of temperature“. That is, redistribution which eliminates differences. The second law is extremely progressive – for what could be more unjust than an unequal initial distribution of matter and energy, the ultimate resources?
Let us hope that with humans, unlike thermodynamic systems, this is not a true law – universal and inviolable – but merely a tendency. For the ultimate result of the second law is that we will eventually reach the heat death of the universe – a thermodynamic equilibrium where homogeneity is so great that no work can happen, which means no life can exist.
Fortunately, this is estimated to be at least 10^100 years off. That gives us plenty of time for human differences to flourish, thrive, separate, insulate, persist, recombine, and re-separate along the way. Not the superficial kind of differences – like skin reflectance – but real differences: different cultures; religions; legal systems; immigration requirements; currencies; methods of exclusion; models of thought. Let us, as a species, use the time that our universe has been given for dynamic systems to exist, rather than allowing the progressivism paperclipper to prematurely cause the Heat Death of Humanity.
One of the things life has taught me this decade is the importance of exclusion and boundaries, which are highly relevant to this metaphor. A thermodynamic system with poor borders (less insulation), will have greater thermal conductivity. It may do more work initially, but it will also move at maximum speed towards that final resting state where all energy is evenly distributed. Such a state is peaceful in precisely the same way as death; for without flows of energy, there can be no life (in vivo or in silico – as no computation is possible). I suppose those who think human extinction is fair or just will consider this the state of ultimate fairness. I don’t particularly care for that final solution.
So if you even care about life existing – let alone the infinite diversity possible therein – then (contra Caplan), boundaries (such as national borders) are an absolute necessity. No differences, no energy flow, no (thermodynamic) work, no life. As in the stars, so on the earth: romance flows from polarity; trade from comparative advantage; thermodynamic work from heat differences; evolution from variation; economic competition from competing alternatives. All progress is driven by differences; so to erase differences is (counter-eponymously) to end progress.
Please chime in – this is just my opening prompt and I’d love to hear more discussion and speculation of these physics/politics parallels. How tight is the parallel here? And perhaps most importantly, what is the physics parallel for the countervailing force? Some have suggested Extropy, and others Negentropy (most notably Schrödinger). These anti-entropic forces are perhaps most embodied by biological life (while still respecting the Eddington rule). Whatever the parallel, what can we learn from it in our quest to avoid – or maximally postpone – the heat death of humanity?
p.s. Some people have interpreted this post as being a position of extreme conservatism. That is not at all my intention. Extreme conservatism is also death, simply of a different type – the death of stasis, of extreme boundaries such that all systems are disconnected, no energy can flow, no larger pattern be created.
However, I find this less dangerous because I think that stasis is more immediately recognizable and also more reversible than heat death. Systems can be connected and boundaries torn down, but once heat death has occurred, it takes Maxwell’s Demon to restore a living universe. Breaking an egg is easy; putting Humpty-Dumpty back together is hard. I am interested in diverse, rich, dense, evolving patterns; it is immediately clear that such patterns cannot exist in stasis; but less clear that they also require insulation to persist.
UPDATE: Related is “Gardens Need Walls“, a great post on boundaries and complex systems:
Newly released satellite images show a dramatic expansion in China’s construction of artificial islands on disputed South China Sea reefs, intensifying concerns about Beijing’s territorial ambitions.
Zhang, a professor of international relations at Fudan University in China, debated Francis Fukuyama in 2011 on the relative virtues and vices of an authoritarian “China model” versus Western style democracy. While I am not totally bullish on the future of China–it still has many growing pains to come–it is refreshing to see the US critiqued by someone outside the matrix:
A careful observer will find that Shanghai has overtaken New York in many respects. Shanghai outperforms New York in terms of “hardware” such as high-speed trains, subways, airports, harbors and many commercial facilities, but also in terms of “software.” For instance, life expectancy in Shanghai is three to four years longer than New York, and the infant mortality rate in Shanghai is lower than New York. Shanghai is a much safer place where girls can stroll the streets at midnight. My message to this German scholar is that we’ve learned a lot from the West; we’re still learning from the West, and will continue to do so in the future, but it’s also true that we have indeed looked beyond the Western model or the US model. To a certain extent, we are exploring the political, economic, social and legal systems of the next generation. In this process, the more developed regions of China like Shanghai are taking the lead.
This brings me to Prof. Fukuyama’s “end of history” thesis. I have not published my point of view yet. But mine is exactly the opposite to Prof. Fukuyama’s. I take the view that it is not the end of history, but the end of the end of history.
The Western democratic system might be only transitory in the long history of mankind. Why do I think so? Two thousand and five hundred years ago, some Greek city states like Athens, practiced democracy among its male citizens and later were defeated by Sparta. From then on, for over two thousand years, the word “democracy” basically carried the negative connotation, often equivalent to “mob politics.” The Western countries did not introduce one-person-one-vote system into their countries until their modernization process was completed.
But today, this kind of democratic system cannot solve the following big problems. First, there is no culture of “talent first.” Anyone who is elected can rule the country. This has become too costly and unaffordable even for a country like the US. Second, the welfare package can only go up, not down. Therefore it is impossible to launch such reforms as China did in its banking sector and state-owned enterprises. Thirdly, it is getting harder and harder to build social consensus within democratic countries. In the past, the winning party with 51% of votes could unite the whole society in the developed countries. Today American society is deeply divided and polarized. The losing party, instead of conceding defeat, continues to obstruct. Fourth, there is an issue of simple-minded populism which means that little consideration can be given to the long-term interest of a nation and society. Even countries like the US are running this risk.
Zhang spouts some stupid apologetics for Mao at one point, but his ideological differences from Fukuyama provide a fresh view on stagnant Western political institutions. Read the whole thing here.