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The Paradox of Revolution

September 9, 2015

vladimir_lenin_quote

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.

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