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The Long Tail and the Size of Nations

June 29, 2010

I started writing a post arguing that the optimal size of nations is decreasing due to a combination of technological innovation and social change. Now that I’ve thought about the problem more carefully, though, I’m beginning to think that the effect of these changes is to render the whole idea of territorially defined states less attractive.  Simply insisting that the current geographical monopolies in the market for governance should be smaller doesn’t go far enough.

While it’s not clear that the idea of an optimal country size ever made sense – as Ostrom, Tiebout, and Warren argued in 1961, not all public goods are best provided at the same scale, which means that we need polycentric governance – recent social and technological developments has made multi-purpose territorial government much less attractive. The factors affecting the optimal size of nations have changed over time. As the essays in this wonderful book edited by Fred Foldvary and Dan Klein show, technology can void previously sound policy rationales by shifting costs and benefits. I think that’s happened with the size of nations in some rather confusing ways.

Recall that, in Alesina and Spolaore‘s model of optimal nation size, the benefit of large countries comes from economies of scale in the provision of public services, and from the network externalities of a large market. Briefly considering the second factor, it seems that the cost of borders has been decreasing in recent years. Tariffs and have been reducing, while the interoperability of business law has been increasing. These factors both tend to decrease the optimal size of nations. Further, there seems to be some tendency for technology to reduce the fixed costs associated with running an organization. In particular, IT makes outsourcing easier. When small governments, like small firms, can outsource much of their back-office work to specialist firms, citizens can enjoy some of the cost savings which result from firms serving a larger customer base without the disadvantages of product homogeneity: we can have something like mass customization of rule-sets. If certain technological trends continue, we might such an extreme reduction in fixed costs that desktop manufacturing of public goods becomes possible.

So: I think there’s a reasonable case to be made that it’s now more feasible to run a country at a small scale due to a reduction in economies of scale in public good provision and an easing of the friction caused by borders. It’s when we start thinking about the costs of large countries, though, that things start getting interesting.

Recall further that, according to Alesina and Spolaore, the major cost of large countries comes from preference heterogeneity. What has happened to preferences in recent years? Well, I think they have become more heterogeneous, which means that more people will be more dissatisfied with their governments.

First, there has been a long-running trend towards more urban populations. One of the great things about cities, from an individual perspective, is that they allow sorting by lifestyle preference. In small towns, there are few people with whom to interact and therefore no opportunity to form niche subcultures. It’s difficult to imagine a queer nationalist movement emerging in a medieval European village, for example, since preference homogeneity tends to reinforce itself by increasing the costs of difference. The increased communication facilitated by the internet makes this trend more pronounced: As a resident of Christchurch, New Zealand, I doubt I’d be able to find many people with whom to discuss anarchism, seasteading, and competitive government without the internet.  Another trend increasing preference diversity within countries is the increase in migration. As the ethnic diversity of a country increases, so too do the religious and cultural factors which influence policy preferences.

In short: changing patterns of communication have likely made preferences more diverse within countries and increased the cost of one-size-fits-all government. It’s tempting to conclude that this, especially when combined with the reduction in economies of scale suggested above, reduces optimal country size. I don’t think things are that simple.

Recall even further that Alesina and Spolaore’s model relies on preferences being separated along geographic lines. While overall diversity within a country, and especially within any given region, that diversity is probably becoming less regionally-based. Lower barriers to communication likely increase diversity within any area, but make each region more alike. (Tyler Cowen makes the same argument with respect to different cultures on a global scale in Creative Destruction.) The upshot is that social change has given us a greater need for a means of escaping the tyranny of the majority but has also made territorial secession a less effective way of improving government. You probably have more in common with a random dude on 4chan than with your neighbor. Thus, getting together with other locals is going to be less useful than it once was.

Does this mean we should put up with large, one-size-fits-all government? Well, no. It means we should press for non-territorial secession: we should be able to choose our service providers without also making that choice for our neighbors. The most powerful means of overcoming the tyranny of the majority in the face of diversity, though, will be dynamic geography. If we could create a technology allowing the land of nations to be constantly rearranged, we’d not only see more nations, but nations which include all and only the people who want to be so included.

(This post is part of Secession Week Tuesday: The Size of Nations.)


  1. nicolas1776 permalink
    July 25, 2010 9:19 pm

    The real question remains the same as it ever was: is what you want a rule to achieve suited to a geographical monopoly or not? Technology ultimately reduces the number of things that need to be territorial on a practical basis, but it does nothing for things that are inherently so.

    For instance, one might want to found a new state to control some behaviors in the immediate surroundings (no placing of advertising billboards in the neighborhood). This is a rule preference that cannot be satisfied in a non territorial based rule making framework. The rule itself calls for compliance within a particular area. This particular area is inherent to the rule, it is one of its objectives and cannot be taken away without changing the nature of the rule.

    It seems difficult to argue that this sort of rule should be brought forth by anybody but people local to the area being regulated. It is also difficult to argue that different entities should be able to make conflicting rules targeting the same area. Hence the monopoly on rule making targeting a specific geographic space.

    Thinking even smaller than nations, we have rules on our own properties which are very much territorial as well. These rules are created by the local ruler, oligarchy or democracy as the case may be. The principle is the same, only the scale changes. So long as we live in the physical world, there will be a place for territorial rules. You can call that a nation, a city, a neighborhood, a shopping mall, a household or even a bedroom if you like… but this isn’t different from what we already have in principle, and won’t entirely go away with improving technology.

    > If we could create a technology allowing the land of nations to be constantly rearranged, we’d not only see more nations, but nations which include all and only the people who want to be so included.

    You are actually arguing for geographical government again, dynamic and unstable in nature, but still very much territorially based. The above wouldn’t be needed if there were no territorial rules and rule making bodies.

    > I started writing a post arguing that the optimal size of nations is decreasing due to a combination of technological innovation and social change.

    I therefore tend to agree with your original thesis more than with your ultimate conclusion… until the singularity is upon us that is, but anything after the singularity is not open to useful speculation 🙂
    Scarcity is a B.

    > Thus, getting together with other locals is going to be less useful than it once was.

    This is the crucial point here. Secession is about political autonomy and I agree you would probably not be better off with your current neighbors in charge. But rather than making it less useful, I would instead argue that technology has made it easier to find the right people to seceed with!

    This, coupled with dynamic geography, makes secession even more attractive an option than it ever was.


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