Let A Thousand Nations Bloom

Sick of college? Love science and technology? Under 20 or know someone talented who is? Want $100,000 to invent something revolutionary to change the world? Then apply to becomes a 20 Under 20 Thiel Fellow. The deadline is this Saturday at midnight Pacific time. What is the fellowship? So glad you asked. We’ve got an introductary video here:

I came across this in a best of list. It’s an old Monkey Cage post on some research from Dietlind Stolle:

First, daycare kids were given clickers and asked to vote which sticker they liked best, one of an ice cream cone or a soccer ball. Because this was a democracy, and ice cream had trounced soccer, everyone got a sticker with an ice cream cone on it. But what would have happened if this wasn’t a democracy? “They voted again for a sticker, but instead they got nap time,” said Stolle. “They were puzzled, and one girl said right away, ‘I want democracy.’ Then all the others joined in. It was fantastic as an experience.”

I wonder if any kids asked why they all had to have the same sticker.

David Leonhardt in the NYT:

Economists have long understood that technological advance is crucial to economic growth and, by extension, higher living standards. In recent years, thanks partly to the work of Paul Romer, a New York University professor, they have also begun to recognize the importance of processes, rules and systems. The great advances in health and longevity came not only from new medicines but, more important, from the spread of clean water, sanitation systems and rules requiring doctors to wash their hands…You can make a good argument — as Romer and others do — that the greatest opportunities for progress today lie with better rules and systems. 

The Adam Smith Institute has published an excerpt from a project I’ve been working on based on research in Kenya’s ‘informal sector’. The article is about private security firms that provide security subscription packages, run a full service fire company and, yes, deliver the mail. Those interested in competitive governance may find it interesting:

For BABS, security means much more than guards and cameras. Kenya’s dysfunctional State has failed to provide many services traditionally considered the purview of “public” authorities. BABS runs a growing courier service, delivering domestic and international mail. I ask Ouma what a person could have delivered. “Anything,” he retorts nonchalantly.

BABS also consults for companies to protect themselves against industrial espionage and even helps industry comply with safety and health regulations. BABS has a staff of private investigators and can even be hired to do forensics: physical and digital.

More surprising still, they supply and maintain all the equipment and staff necessary to operate a full-service firefighting outfit. Contracts are typically annual and tied to individual properties – not neighborhoods or cities. BABS will work with your insurance company to lower premiums if you take out a contract with their fire service, since some municipal services are unreliable or just nonexistent.

Steven Johnson writing about his current book project:

The subject matter of the book is not all that important here, but suffice it to say that I am currently working on an introductory bit that contrasts old, bureaucratic models of state organization with some new network structures that are currently on the rise.

His post is about his research methods, and so it touched on the topic. But I can help with both: our recommendations page.

NYTimes on Blueseed:

Blueseed’s co-founders, Max Marty, 27, and Dario Mutabdzija, 31, envision a seaworthy, 1,000-passenger hothouse for entrepreneurs from around the world, moored 12 nautical miles offshore — just outside California’s territorial waters — with enough appealing amenities to make it a “Googleplex of the Sea.” Passengers could take a day trip by ferry to the mainland on temporary tourist or business visas, returning to sleep in cabins that would rent for $1,200 to $3,000 a month.

“Blueseed is a way to connect Silicon Valley with the amazing founders and entrepreneurs out around the world,” Mr. Marty said. “Existing visa policies were designed for a different era. The nature of business has changed, and what’s lacking now is an avenue for people to be able to come in and create great companies.”

While I’m happy to see coverage of the developments in Honduras, the Economist decided to frame its side story as yet another wild episode of Randian fantasy. This spin does everyone involved a great disservice. Both Kevin Lyons and Michael Strong took to the comments of the online article to clarify some misconceptions. I’m going to reprint Kevin’s here:

In “Free Cities: Honduras Shrugged” I am incorrectly described as a “libertarian activist” though I am neither. I am a scientist focused on solving the poverty problem, through both policy advising and entrepreneurship as necessary.

On that same theme, framing this story with an Ayn Rand reference and a history of failed libertarian new country projects is amusing, but also a missed opportunity to foretell a better and truer story that has nothing to do with ideology. The real scoop in Honduras is one of thoughtful innovation in political governance as part of a concerted attempt to better citizen’s lives. I hope to read a proper chronicling in these same pages someday and am happy to suggest an outline below.

The Hondurans want to get out of poverty, citizens and politicians alike. Fifty years ago they were doing slightly better than South Korea. Today they compare better to North Korea, so they are rightly convinced that whatever they have been doing is not working.

Like all poor countries, they find themselves stuck in a system of law and government that is overrun with bad deals and incentives. The existing framework encourages people to do too much taking and breaking things and (thus) not enough making things. The result is anemic wealth accumulation and stunted prosperity. Everyone knows that they need reforms that credibly protect persons and property to encourage more positive sum behavior.

So far Honduras sounds like every other poor country on earth. Their problems have nothing to do with knowing what “good policy” looks like. Their challenge is figuring out how to eliminate bad institutions and create good ones, given their political realities. (Before you snicker at this being a third world problem due to bad leadership, ask yourself why the USA still has a mohair wool subsidy or why most European governments are insolvent). Special zones have been one partial answer to this problem around the world for many decades. But as the persistence of widespread poverty suggests, they are an imperfect one. One problem is that the tax breaks and other policy adjustments they contain are generally time limited or not perpetually credible in the way that real capital accumulation demands. Companies come in reluctantly with very limited fixed capital and expect to leave overnight when governments renege and things go bad again.

But what if a special development region was designed with credible commitments to good policies in perpetuity? What if through grants of authentic autonomy and other structural safeguards it could be more than the least bad place to do business in a struggling country? What if a region could legitimately strive to be the best business and residential environments in their country or region or hemisphere? This is the real narrative that we are composing in Honduras and why the government there should be loudly applauded.

Making fun of democracy is unfair. Yes it can mean awful things like two wolves and one sheep voting on what to have for dinner, but what if the wolves and the sheep both have to approve the menu by voting as separate, similarly situated groups? Their meal is suddenly guaranteed to exclude predation by either side. Extrapolate to each sheep or wolf getting their own veto in matters negatively affecting them (civil rights) and the system looks even better. This barely scratches the surface of this topic, but suffice it say that there are very good reasons that democratic voting is voluntarily and privately adopted in everything from corporations to condominium associations.

The special development regions in Honduras will simply be applying the best known practices for ensuring good governance, whatever they are. There will even be some experimenting in this arena to create future best practices for other regions of Honduras and other countries. The best ideas will come from an in-depth understanding of the real economic hazards that need to be addressed by real safeguards in the real world, and not by academic scribbling on a blackboard. There is no place for ideology because we are talking about solutions that have to attract investors and residents. The result is that the finest democratic, republican and libertarian concepts will all be implemented and the lesser ones will not.

I look forward to the day that this story is correctly covered for being a novel example of customer-driven government that is designed to continuously improve and serve its residents. In the meantime I’ll be working on building that delightfully apolitical reality.

(As a side note, I encourage interested readers to discover the New Institutional Economics recognized by the 2009 Nobel Prize in Economics. This is arguably our best scientific thinking in matters of political and economic theory. For a great introduction in the development context, read the forthcoming book “Solomon’s Knot” by Cooter and Schaefer, then peruse past conference paper titles at www.isnie.org )