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Paul Romer and Competitive Government

July 15, 2009

Paul Romer, Professor of Economics at the Stanford Business School, recently gave the talk “A Theory of History, with an Application,” for the Long Now foundation, which is an excellent example of the power of thinking at the meta-system level. Here is one segment:

Here at ATN, we are not concerned with policy debate so much as we are with understanding and changing the systems that give us the poor sets of policies we see around us.  Romer, while not employed by ATN (perhaps this “Stanford” place offers a better pension plan?) is clearly thinking along the same lines.

Romer’s basic argument in the talk (similar to his EconTalk interview) is that there are a few positive feedback loops that have led to exponential growth in both population and standards of living.  These loops occur because ideas are not scarce – they can be shared by as many people as can gain access to the idea.  (In this he is echoing Alex Tabarrok’s TED talk.)  He also argues there is a feedback loop between rules and technology – but that this loop is not always positive.  If there is a good set of rules, then that can lead to the generation of better technologies – for example, Edison inventing the light bulb with the positive incentives provided by relatively democratic patent law.  But when there is a bad set of rules, that can inhibit the development of technology, and also inhibit the extent to which technologies can be shared between populations.  As an example of this last point, Romer shows us a picture of the whole world at night, and then focuses in on the Korean Peninsula.  As expected, the South is incredibly bright, with Seoul burning up the night sky.  However, the North is almost completely dark – a black hole in an otherwise very bright part of the world.  One set of rules is working – the other, not so much.

Bridging into his ideas about competitive government, Romer begins with some analysis about how low barriers to entry in businesses are key to technological development – that new firms are able to bring new ideas to the fore, that increase the speed of technological growth.  And, like ATN, he argues that the same logic applies to governments – that countries like the Netherlands, England, and the United States, were like high-quality entrants into the government industry, which drove positive change in the sets of rules that existed in countries, and thus greated positive feedback loops with technological growth and prosperity.

Romer, clearly having been influenced by our ideas about bloodless instability, argues that we need to be able to create new countries, without the use of military force, in order to gain access to the innovation in rules that is key to economic growth.

Romer’s arguments fit exactly into the thesis of ATN.  We are about creating a Cambrian explosion in government.  While our preferred method is seasteading, and Romer’s is trying to create new Hong Kongs on existing land, the point is the same.  Breaking down the barrier to entry in government is key to facilitating innovation and improving the standards of living of people all over the globe, not just rich people who want to live out in the middle of the sea.

Romer’s thoughts about sovereignty also parallel some of Mencius Moldbug’s.  Romer asks us to rethink citizenship as a combination of residing in an area and having a voice in an area, and proposes that voice and residency can be separated, with positive results – that, for example, in Hong Kong, the residents didn’t have a voice in the government of Hong Kong, as it was administrated by the British.  In formulating his idea of Patchwork, Moldbug argues that the ideal system is similar, in that the pressures governments face to serve their customers better are based on exit, and not on voice.  Also, like Moldbug (and like us), Romer thinks the best place for this sort of innovation is the city-state.

Romer doesn’t explicitly mention Mancur Olson, but it wouldn’t be surprising to find out that he has read him.  At the end of the talk, Romer cites Cardwell’s law, which states that ” every society, when left on its own, will be technologically creative for only short periods.”  In The Rise And Decline Of Nations, Olson provides an excellent explanation for Cardwell’s law, which is that as time goes on, distributional coalitions form and squelch technological innovation and economic growth, by perverting specific rules so that they gain at the expense of the broader public.

All in all, it’s a fantastic video that demonstrates the power of the sort of structural thinking that defines A Thousand Nations, and that might well create a better world.

(This is a guest post by Will Chamberlain)
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