Let A Thousand Nations Bloom

Gary Becker writes:

While average rates of growth do not appear to differ much between democracies and authoritarian regimes, the variability in performance does differ more among authoritarian governments.

While developing democracies may linger in the purgatory of mild or no growth, autocratic rulers tend to offer heavens or hells.  Here’s one comparison data graph by Almeida and Ferreira:

Hat to tip to Bryan Caplan, who also adds, “Interesting finding #2: When a dictator accidentally dies, growth rates persistently change. When a democratic leader accidentally dies, in contrast, they don’t.”

One thing that might cloud this issue is that catch up economic growth is often faster and of greater magnitude than that in the developed world. After innovative countries have slogged through the trial and error process of invention, autocrats have the luxury of copying what works. But once most countries approach the technological frontier as other sources of growth have been tapped out, I’m curious as to what the comparison between growth rates would be–will angel autocrats still attain superior rates? Singapore is making a run for it….but China may soon tell a different story.

Now if some kind of peaceful filtering process were at work (and the infernal hell of a failed autocracy weren’t so dreadful), I would see the variability of growth rates as a virtue. It would be evidence of a discovery process driven by rule set experimentation. Bottom rung countries would fail fast, fail safely, and fail often, quickly adopting the best practices and rule sets of the top rung batch. The decision making costs in autocracy are lower–one guy or a committee calls the shots–so that kind of process would work best in a market full of tyrants, especially if their customers could easily change government service providers, thereby avoiding onerous impositions. But, alas, the human costs of autocratic variability are very great, men aren’t angels, exit is expensive, and the top rule sets aren’t so easily emulated.

In case you haven’t checked it out, do take a look at Brink Lindsay’s essay on the relationship between economic development and economic freedom. He discusses some important trends in the global economy. Imitation lets poor countries jump start their economies and catch up to rich countries in GDP rankings. For instance, it’s easier to bring 20th century plumbing to China than it is to bring 21st century biotech to California. The really hard task is to discover new ideas, not to spread current best practices to places where they’re absent.  The main thesis of Lindsay’s paper is that he believes he sees a positive ratchet effect as the developing world develops. They run out of things to imitate so they have to start thinking for themselves. But that requires economic reforms in favor of liberty:

…the richer and more advanced a country gets, the more economic freedom it needs for growth to continue. Even at the most basic level, poor countries need to develop successful market economies to grow rich. But, once countries become rich, they find themselves ever more dependent on unpredictable entrepreneurial innovation—and, therefore, on a broader range of well-functioning, competitive markets—for continued prosperity. Consequently, as countries develop, they come under increasing pressure to liberalize their markets to stave off deteriorating economic performance.

And later on:

Both when economic development is at a relatively low level (behind the technological frontier), or when it is still at an absolutely low level (still transitioning from mass poverty to mass affluence), the uncertainty of economic life is thus at a relatively low ebb. But, as an economy approaches the technological frontier, and as successful industrialization ushers in mass affluence, increasing uncertainty about how best to advance consumer welfare requires incessant, extensive trial and error to plot a viable path forward. This requires, in turn, an institutional and policy environment that gives free rein to entrepreneurship and competition.

Singapore imitated Hong Kong. In the mid to late 60s, the Koreans imitated the Japanese, who had implemented reforms after WWII. Then, in early 80s, the Chinese imitated the Koreans. The result has been gangbusters. And Lindsay’s contention is supported by this story. But he neglects to tell the countervailing ratchet effect–namely, that yesterday’s innovators become today’s vested interests. And boy do they like to erect barriers to entry in the U.S. and elsewhere on the economic frontier. Yes, in the long run, the jury’s still out on this. Maybe enough stagnation will bring the matter to a head. Get ready to cue the Twisted Sister. On the other hand, maybe it won’t and U.S. dynamism is imperiled by sclerosis.

The future may be better, it may worse, but either way it will come down to whether or not individuals turn up the ratchet Brink takes for granted in the developed world. Continued expansion in economic freedoms doesn’t happen by itself even on the frontier. When there’s no one left to imitate, and no one can create, there’s nothing left but plunder.

In a somewhat cheeky article, he says he’d stamp out all the rulers:

But information technology has changed the game of both corporate and political governance completely…

The world, in other words, has left behind the old top-down command structure. In its place has arisen a host of interlocking and overlapping networks. The positive “externalities” created by the mere existence of these networks can hardly be overstated. It is not that I buy the theory of the wisdom of crowds: people in the aggregate can and do make horrendous mistakes. It’s more that networks allow information to flow to where it is needed, making all kinds of markets work better. They may be prone to violent mood swings. But so, in case you hadn’t noticed, are rulers. And while markets may occasionally throw millions of people out of work, they tend not to murder them and toss them into mass graves.

So my answer to the question of what I would do if I ruled the world is quite easy. I would use my power for a period of, at most, a week, to stamp out traditional systems of rule and to replace outdated hierarchies with networks.

Video here:

Rolf: Twenty years out, what’s your dream?
Paul: I hope for a world where every family has a choice about living in one of several different cities, all of which are competing to attract new residents. That’s something that we take for granted. You [Rolf] could go to any city in Europe. I could go to any city in the United States…Many of those cities want to grow, they want more activity, they’d be eager to have us as residents. That kind of competition leads to new cities…that do something different, but it also disciplines cities—that if they don’t do their job well, the residents can go someplace else where things are done better.

Hat tip Brandon Fuller

This guest post comes from Mark Lutter, a free cities fan and a soon to be graduate student in economics at George Mason University. —Editor 

Perhaps the most harmful misconception ever held is that of legal positivism, that rulers must conceive and enforce laws. Michael Van Notten, a Dutch lawyer who married into the Samaron clan, living with them for the last twelve years of his life, demolishes this position at the same time offering a positive prescription on how to achieve economic development under a system of customary law while still living in a statist world. In his book, Law of the Somalis, Van Notten first describes how customary law operates in Somalia. Then he contrasts it with natural law. Finally, he describes how economic development could occur within current legal environment in Somalia.

Xeer is the name of Somali law. Though the law differs depending on the clan, the overall protections of person and property are remarkably uniform. Xeer is based on the protection of property. This means that crime is also defined in terms of property. There can only be crimes against individuals, and justice is compensatory, not punitive. Everyone is also insured through their clan against liability. If one is unable to pay the compensation after wrongdoing, his kin will pay. In this way, every individual is essentially guaranteed damages against any victimization.

Xeer has well defined court structures and procedural protections to prevent wrongful incrimination. Each Juffo, the smallest unit of the Somali political life, the extended family, has its own Oday, judge. The judge is an individual carefully chosen by clan elders. If he makes unsatisfactory judgments, he will no longer be asked to judge particular cases. When an offense is committed, the victim goes to his Oday, who will approach the Oday of the aggressor. If they cannot resolve the conflict, they will create a court with additional Odays from their extended family.

The superiority of Xeer, or any customary law, is that it is immune to political machinations. Government is the single largest externality in existence; no one in government pays the full cost of their role as an aggressor. Law that successfully restricts institutionalized force to defense of property is a necessary but insufficient condition of prosperity. Said legal system must also successfully integrate into international law in order to encourage foreign capital.

After describing how Xeer works, Van Notten goes on to describe several shortcomings, the most important being the inability to sell land to anyone outside the clan. This is because of the necessity of defending the land should the clan go to war. In order to encourage foreign investment, Michael Van Notten lays out a plan to nudge Xeer in the right direction. His idea is to create a Freeport, operating under Xeer, but without its shortcomings. The lack of taxes, no regulations, and cheap labor would attract investment. The resulting expansion would incentivize Somalis to change their law to allow foreign investment, bringing forth the premier legal environment man has ever conceived.

In short, Michael Van Notten has written a fantastic book. It is an excellent introduction to customary, as opposed to statutory law. It ends with a vision of a free prosperous Somalia and a way to achieve it. If his vision is achieved, it would represent the single greatest hope for liberty in the 21st century.

Future Free City?

I thought the conference came off quite well, despite the inaccessibility of the island of Roatan. Once you get there, you can relax in the beauty of the place. The island has its charms. I even discovered a new tropical drink. It’s called the Monkey La La. (Come on, it’s fun to say.)

Upon returning to the U.S., the customs officials at San Francisco Airport didn’t like the fact that I had just arrived from Honduras without any checked baggage. “Why were you in Honduras?”

Me: “I was attending a conference on the ins and outs of creating a free economic zone in Honduras.”

Customs: “????”

Me: “To alleviate poverty, to provide an end around to a whole host of corrupt institutions, the government of Honduras is in the process of creating a city that would have business friendly laws and regulations.”

Customs: “?????!!!!????”

Me: shrug.

Customs: “Mr. Gibson, do you mind stepping over here and putting your bags on the table…”

Thanks to the internet, you don’t have to deal with such nonsense. The wonderful folk at the Universidad Francisco Marroquin video taped most the talks at the conference. Michael Strong kicked things off with “Marketing Free Cities as a Mainstream Solution to Global Poverty.” Here’s Kevin Lyons talk on underthrowing the state one contract at a time. (I’ll come back to the concept of “underthrowing” in a future post.) Here’s Patri’s take on competitive governance and seasteading. And here’s Jason Sorens on “Secession as a Continuum.”

Jason has given what I think is a fair assessment of the conference, but I think he should have had more Monkey La Las.

I suspect that one of the secrets to doing something big is not to attempt to move the levers of history by yourself.  Instead, jump onto an existing trend, where powerful historical forces are pushing somewhat in the direction you want, and help shape them.  This is the case for competitive government, where the coming bankruptcy (literally) of 20th century government, the trends towards more experimentation (try lots, fail fast for tech startups, self-experimentation on health & happiness for individuals), the commoditization of sovereignty, and our increasingly mobile & interconnected world, each help push the government industry towards being more competitive.

For example, at last week’s Economist event “The Ideas Economy: Innovation for a Disruptive World”, I spoke about seasteading to an audience of entrepreneurs, non-profit leaders, government representatives, and academics all interested in innovation.  Afterwards, by a show of hands, the audience voted about two to one in favor of “That sounds cool, we should try it”, over “This guy is just crazy.”  The previous day, Intuit CEO Scott Cook spoke about the importance of experimenting inside Intuit, and touched on some very competitive-government like themes, contrasting the old style of management where “the boss votes with his opinion” to the new style of running experiments where “customers vote with their feet”.  He also characterized these as ideas winning by “politics & powerpoint” vs. “enabling ideas to prove themselves”.

But he didn’t stop there – at his presentation’s close, he described the Special Economic Zone of Shenzhen as China running an experiment, just like a company would – and learning that capitalism works.  If only there was a way to create many such experiments around the world…or as I said in my talk, to have the galvanizing competitive effect of a “Sputnik Moment” happen every day, instead of once a generation.

And this week’s issue of The Economist, the one-page article Taming Leviathan says:

In the 1990s much was made of the idea that capitalism had got so footloose that states were bound to get slimmer to compete for corporate favours.  In fact companies proved more loyal than expected – and the state went on one last splurge.  But talent and capital are getting more mobile; and the demographic pressure of those ageing populations is mounting.  The ever larger state cannot go on for ever.  It will stop.

And finally, this weekend was the first Agora I/O Agorist UnConference, a cool idea to have a virtual conference where all talks are by videoconference.  Lowers the barrier to entry to participating for sure.  Below is my talk, based on my Mises Brazil Structural Libertarianism talk from last year, with some additional thoughts on frontierism vs. agorism.

by guest blogger

Memorial for Mohamed Bouazizi

Mohamed Bouazizi’s father died when he was a child: so he became a fruit and vegetable vendor in rural Tunisia to provide for his family and send his siblings to school.

But Tunisian government officials, unmoved by Bouazizi’s plight, harassed the vendor for years. They fined him for selling fruit without a permit, sometimes several months’ worth of earnings. When he could not pay (or bribe) officials, they confiscated his scales and produce. This constant drain on Bouazizi’s meager savings, his mother recalls, stood in the way of his goal of purchasing a pick-up truck, so he no longer had to pull his vendor’s cart several miles each day. But Bouazizi would never reach this goal.

On December 17^th, he was again harassed, had his scales and fruit confiscated, and was beaten and spat upon by local officials for resisting. He went to a municipal office to petition, but was turned away. Bouazizi then doused himself with two cans of paint thinner and committed suicide by self-immolation in the street. He was only twenty-six. His death served as a watchword to Tunisians and then the Middle-East at large, setting off the revolts that continue today.

Bouazizi’s tragic story is a reminder to all of those who advocate for the Cambrian Explosion in government that the phrase “Institutions matter” has a human face. To fight for innovation in rules and competitive governance is also to hoist a banner for those like Bouazizi. He and millions like him, quiet and determined, labor in all corners of the world – struggling to reach their full potential because of stultifying rules and government predation.

Institutional barriers to entrepreneurship are also emotional barriers to the feelings of dignity and accomplishment that come with realizing one’s goals. Bouazizi’s suicide was not intentionally a political protest; it was the final, desperate act of a crushed human spirit. His needless death is evidence that movements like Seasteading or Free Cities not only have the testimony of history and economics on their side, but also sit on the moral high ground by fighting for those, like Bouazizi, who need it most.