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“Who Will Guard the Guardians?”: Restraining Sovereign Power Using Entrepreneurial Communities

January 25, 2012

Quis custodiet ipsos custodes?

Economist Barry Weingast writes, “the fundamental political dilemma of an economic system is this: A government strong enough to protect property rights and enforce contracts is also strong enough to confiscate the wealth of its citizens.”

How then do we restrain the predatory powers of government to an appropriate scope? How do we keep powerful interests from capturing government institutions to use against others? In other words, “Who will guard the guardians?”

Weingast has an easy answer:

The answer concerns the design of political institutions that credibly commit the state to preserving markets, that is, to limits on the future political discretion with respect to the economy that are in the interests of political officials to observe.

The romance surrounding America’s founding and the drafting of the Constitution is the story of this struggle. Unfortunately, actually ‘designing’ these institutions is exceedingly hard. And even if we were able, people disagree over the ideal size of government.

Disagreement over the ideal size and scope of government means any given ‘transgression’ that expands State power by exploiting the populace is not necessarily opposed by enough people to stop the expansion.

Weingast shows rigorously, using history and game theory, that sovereigns can ‘divide and conquer’ their subjects using disagreement over government’s limits:

…if citizen beliefs about the appropriate limits on the state differ considerably, it is difficult for them to react in concert to state actions. Indeed, this diversity allows the sovereign to form a coalition with one group of citizens against another, allowing the sovereign to transgress boundaries considered fundamental by other citizens.

Obviously, most Nation-States, including the US, contain severe disagreement over government’s proper scope. Unfortunately for us, the sovereign can later transgress against the same group that they used earlier for the winning coalition to transgress against another groups. The sovereign wins regardless.

Without an “automatic mechanism” (Weingast’s term) to produce a consensus on the limits of State power, we face the worst possible outcome: where sovereign power steadily balloons using a divide-and-conquer strategy against all groups, in theory indefinitely.

So what can we do?

We need to find a way to unify preferences about government’s limits. With a unified ideology, a transgression is opposed by a broad base of people and becomes politically untenable. Divide and conquer fails.

But actually convincing 300,000,000 of your fellow citizens that your idea of government’s limits is the correct one is an almost impossible task. As anyone who has tried to rally people behind a cause will attest, political activism is difficult and the results are often disappointing.

Moreover, as I have argued here previously, the expansion of government itself changes people’s perception of acceptable government limits and sovereign power expansion may even create the psychological environment that reinforces the legitimacy of future transgressions.

So we must search for Weingast’s ‘automatic mechanism’ so that our convergent preferences for limits to government bring a resilient political order by stopping attempted transgressions in their tracks.

Imagine a world in which people are opting into a wide variety of different institutional structures. People personally contract into competitive legal systems and different mixtures of ‘public goods’ and social programs provided by sovereign, small jurisdictions or private developers.

This is a world of entrepreneurial communities and competitive governance. In the act of contracting and immigrating, we find people revealing their preferences for a rule set and, by extension, a pre-defined scope for government activity.

People vote with their feet and their pen for an explicitly stated limit on ‘government power’, as expressed by contracting into an entrepreneurial community. This means that competitive governance is an automatic mechanism for bringing together people with convergent ideologies and expectations about an authority’s limits.

If Weingast’s analysis is correct, this means that not only will people enjoy the benefits of living beneath institutions more closely tailored to their preferences, but the attractiveness of a competing polity to a citizen will work to restrain unjust expansion in an authority’s power.

This is because those attracted to a particular rule system will have similar ideas about the limits of that rule system, creating a robust check against the ‘divide and conquer’ strategy of a sovereign.

Those that hope for ‘limited government’ should reconsider their acceptance of the Nation-State system for achieving their goals. Nation-State machinery is too easily used by political elites and economic special-interests against the large, dispersed mass of people with heterogeneous ideas about government’s limit. Those frustrated with the political process in countries like America must realize that ‘divide and conquer’ is endemic to the system.

To limit government, we need to bring together people’s preferences for government’s limits. Since that’s nearly impossible, we need to bring the people with convergent preferences together. With competitive governance attracting citizens by innovating rules and political institutions, we build a robust check against predatory government expansion. In short, limiting government power needs entrepreneurial communities.

  1. September 24, 2012 1:08 am

    Very good post. looking forward to posts in this vein. i’m working on a thesis on this type of stuff and reading a lot of weingast and his colleagues

  2. David permalink
    February 1, 2012 11:23 pm

    Von Humboldt’s “The Limits of State Action” is worth the read.

    About the Author

    Wilhelm von Humboldt (1767-1835) was described by Friedrich Hayek as “Germany’s greatest philosopher of freedom.” Humboldt wrote a path-breaking defense of the minimal state which had a profound influence on John Stuart Mill. Humboldt later became Director of the Section for Public Worship and Education, in the Ministry of Interior. In this capacity, he directed the reorganization of the Prussian public education system, and, in particular, founded the University of Berlin.o

    In The Library:

    author: Ideen zu einem Versuch, die Gränzen der Wirksamkeit des Staates zu bestimmen (1792)
    author: The Sphere and Duties of Government (The Limits of State Action) (1854 ed.) (1792)

  3. January 30, 2012 3:05 pm

    Since the cruise ship industry has been cited as an example for seasteaders, here’s an article critiquing their approach to law:
    Unfortunately, there don’t seem to be good statistics.

  4. January 28, 2012 11:54 pm

    On another tack, some of the early novels by Ken Mcleod (later books of the Fall Revolution series, if memory serves…) have a thoughtfully presented scenario of exactly such a “competing polities”enclave attempting to protect itself against imperialist onslaught.
    It includes a delightful picture of private enterprise justice, with competing arbitration courts handing down entirely non-enforced judgements to willing participants who have freely and jointly selected a court on the basis that accepting its judgement is likely to cost them less than prosecuting the dispute by other means.

  5. January 28, 2012 11:45 pm

    However, discussion of the notion that the size of government is of crucial importance in the absence of a parallel discussion about size of polity is liable to miss an important political issue.
    Among competing governance models, there are likely to be models along the lines of; “follow me as we transgress against the territorial/property rights of other polities – we will grow rich and powerful!”. Unfortunately, as many historical examples show, the inevitably short term careers of such polities are nevertheless sufficiently long-term enough to encompass the short and brutal lives of many of their adherents, and they have often proved popular whether in the form of small groups (barbarism) or large (imperialism).
    There is a paradox here; polities large enough to resist such aggressors (and in so doing justify their government’s claims to protect the property rights of their citizens), are generally large enough to be able to play the ‘divide and rule’ game.
    SF writer Jack Vance’ world often centres on the realisation of the possibility of liberty in a universe of small, radically diverse polities. The only mechanism Vance has been able to come up with which guarantees the freedom of citizens to pass from one polity to another, and which acts to discourage imperialism is unfortunately that of a ‘deus ex machina’ galactic police force which is simultaneously uniquely potent and utterly devoid of the will to power.

  6. January 26, 2012 4:40 am

    Here’s an idea I’m toying with:

    It seems that the credible commitment dilemma that Weingast is talking about is more about securing political order and establishing rule of law than it is about the size of government and preferences for redistribution (see panel 2). In other words, it’s more a problem for third world countries than it is for first world ones.

    • Z. Caceres permalink
      January 27, 2012 2:57 pm

      Hey Michael,

      I think I understand what you’re getting at. However, isn’t to some extent your framing presupposing what you’re examining? ‘First-world’ countries are ‘first-world’ because they have found a way to restrain violence with their institutions. If it’s true that markets will only work well with ‘political order’ and something approaching a ‘rule of law’, then obviously those two issues are less important for a nation that has developed robust markets.

      I also wonder if the dynamic is really ‘more’ of a problem or if the costs of it are simply more keenly felt in places that are poorer. America and Western Europe can afford the inefficiencies of government expansion much more easily than can Nigeria.

      Sounds like a good topic for conversation.

  7. January 25, 2012 11:08 am

    Really great post, Zach. It gets right to the heart of why we need competitive governance. Often those of us who have concluded that competitive governance is the only real solution have gotten here by observing the failures of limited government constitutionalism. Weingast’s paper adds yet another more depressing mechanism of endless upward ratcheting in governmental size and scope to the many existing such mechanisms.

    Regarding Taylor’s point: Sometimes my “rule of thumb” is that we should have no sovereign governments larger than reasonable commuting distance. That way it is unlikely that your job, your residence, your friends, and your community would all be held hostage at the same time. If a government begins to become abusive, relative to your preferences as a resident, worker, or community member, you can move to a different nearby community and find a better fit while still commuting to your job or community. The pressure of local exit will itself prevent governing entities from becoming excessively abusive.

    In addition, it should be regarded as “best practices” of governance to unbundle governance services as much as possible, so that even within one’s governed region one has choice and can, by means of exit, reduce the probability of abuse. Sewage lines are hard-wired into a residential area, so to speak, but garbage collection is not and should be subject to competition.

    Police and judicial services are the interesting case, but it is important that those, too, are subject to competition when possible. Some of us may prefer to live in neighborhoods with just one security service, but the possibility of regional abuse is real any time a geographical monopoly exists. (Through Antonio Buehler’s recent arrest and felony charge in Austin, TX, I’ve recently become aware of how abusive even a small urban police force can be in a city with an exceptionally educated, progressive, and vocally activist population.)

  8. January 25, 2012 2:39 am


    I don’t mean this in a snide way but how is what you so eloquently just described (which I agree with) different in form from the current reality we all live with on planet Earth today?

    Do people not (try to) vote with their feet already? Does this “automatic mechanism” accomplish that which Weingast says it should?

    Again, to be clear, not trying to be a cynic– I completely agree the solution is competition and entrepreneurial communities. But I am trying to understand how the proposal above, as described, is qualitatively different than what we have now.

    • Z. Caceres permalink
      January 25, 2012 4:25 am

      Dear Taylor,

      Thanks for your comment!

      In a way you’re absolutely right. There is competition between jurisdictions today. As long as labor and capital are mobile, there will always be some pressure to make a polity attractive (you may already know this as ‘Tiebout competition’). There is no mobility in North Korea, and the country reflects it accordingly. But states in the US, countries in the EU etc. all compete to a limited extent. Their federal structures unfortunately are constantly trying to unify, centralize and gobble up the opportunities for this kind of beneficial competition to take place.

      And indeed countries that are not able to enjoy large territories, like the Cayman Islands, Hong Kong, Singapore etc. are great examples today of how radical decentralization brings about economic freedom.

      To some extent the proposal above is one that is not qualitatively different, but quantitatively! “A Cambrian explosion” in government could mean many many smaller polities that look basically like what we have today but just in much more vigorous competition with each other.

      Pushing one step further we do have a qualitative difference. Namely, the opening up of community to entrepreneurship. This would mean no/extremely-low barriers to entry for someone to set up a near-sovereign entity. A Free City, for instance, could be owned and operated by a private development firm, using innovative, private dispute resolution and custom-tailored law. Even within an entity there could be multiple legal systems unchained from today’s territorial monopoly of the Nation-State.

      This takes jurisdictional competition one step further, since the jurisdictions themselves are not ‘given’ but also being innovated, and even within their borders there can be institutional competition.

      Best regards,

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