Crowding Out Government

Arnold Kling has a great post at Econlog on possible strategies libertarians might take to improving freedom. Arnold prefers a secessionist or “bye-bye” agenda, by which he means competitive government:

The idea is to enable people to escape the power of monopoly government. This could be all-out escape, as in seasteading or charter cities. Or it could be incremental escape, as I propose in Unchecked and Unbalanced, with vouchers, charter communities, and competitive government, meaning mutual associations and standard-setting bodies in which people enter and exit voluntarily.

Under competitive government, you would not have an FDA, but you would have several private companies that certify pharmaceuticals. It would be up to individuals to decide which certification companies to trust. You would not have government-provided deposit insurance and bank regulation, but you would have several mutual associations to which banks might belong. It would be up to individuals to choose a bank in part based on confidence in the mutual association to which the bank belongs.

I think the idea of incremental escape from government is an important and promising one. The way Arnold frames the approach, though, seems to imply that we need to reform existing political institutions in order to introduce competition. Given the problems of democracy and the ineffectiveness of folk activism, that’s unlikely to happen. The neat thing about seasteading is that we don’t need to change many minds and can leave existing governments exactly as they are. Voucher systems, charter communities, and the replacement of the FDA with private companies all lack that important quality.

Another option is a-political incremental secession within the boundaries of existing states. Instead of seeking to change the state to allow or encourage competition, we simply ignore it and do our own thing. The problem is, of course, that private provision of many goods has been crowded-out by government. In some cases, private provison is illegal; in others, it’s just difficult due to the fact that those wishing to secede are forced to pay twice for services. With sufficiently inefficient government, though, people will switch to private providers even in the face of punishment or double-payment.

We see this happening all the time: parents – even very poor ones – enrol their kids in private schools even when they can send them to government schools as zero marginal cost; residents upgrade their local governance services; and people who don’t like product regulation turn to black and gray markets which rely on reputation and trust. These people aren’t making these decisions out of an ideological commitment to freedom, but because private solutions better meet their needs. This could provide those of us who do wish to increase freedom with some leverage.

If people are given a concrete example of private provision of some good and the option of switching, they’re more likely to buy the argument for freedom. It would take a pretty impressive feat of self-deception to maintain that government is better at providing some good even as you’ve switched to private provision. (Of course, humans are capable of some impressive feats of self-deception.) As private provision increases, there will be some tendency for the demand for government to decrease. Experimental economists Mark Isaac and Doug Norton call this, in the context of charitable giving, the “reverse crowd-out” effect. They see it as possible that:

a renewed commitment on the part of a citizenry to private institutions of charity and compassion could “crowd out”, that is “replace” the decades-old predominance of government, especially the federal government, as the primary engine of social welfare.

Isaac and Norton don’t find any experimental evidence that voluntary provision crowds out coercive provision in the particular lab conditions they use. Whether we can expect reverse crowd-out to happen in reality is not obvious and depends primarily on the answers to two questions: