Democracies Never Compete

There’s been a lot of interesting discussion prompted by Patri Friedman’s Folk Activism essay (my thoughts here) and Cato talk. I particularly enjoyed this from Patri’s father David (HT: Paul Walker) and this from C.J. Trillian.

One assumption which hasn’t to my knowledge been questioned is that seasteading will force existing land-based governments to better serve their citizens by exposing them to competition. I think this is wrong, and stems from Patri’s view of governance as just like any other industry, but with very high customer lock-in and barriers to entry. In this view, it is merely a lack of competition which prevents efficient, customer-focused government. I think the problem is deeper. I’m not sure how much relevance this has to the normative appeal of seasteading, but it’s something to keep in mind.

Competitive markets force firms to offer better services by creating a prisoner’s dilemma between competing firms. Each would be better if they could agree to keep prices higher and quality lower, but normally cannot commit to doing this since there are large gains to defecting. To form a cartel and act jointly as a monopolist, firms need some way of enforcing cooperation and excluding new entrants. Some libertarians see the current system of nation-states as a classic example of cartel behaviour: new entrants are excluded and there are international agreements which enable governments to prevent competition among themselves for citizens and investment.

I don’t think this is right. If governments really did aim to attract citizens and investment, there would indeed be a prisoner’s dilemma situation which the governments of the world may or may not be capable of solving through cartelization. This approach, however, treats governments as rational actors. At least in democracies, decisions are not ultimately made calculatively, but irrationally and expressively. Governments cannot (and do not, see here and here) systematically ignore the preferences of voters, and voters will not change their voting behaviour in response to economic incentives. (I also think this is a real problem for the standard model of Tiebout comptetition.)

The upshot is that democracies will continue to produce bad policies based on the expressive preferences of voters. Seasteading will not force governments to provide better services in the same way new entrants force an incumbent monopolist to do so, since governments do not respond to economic incentives. If seasteading does improve the performance of land-based government, it will be through providing an example of the benefits of freedom and thereby changing voters’ expressive preferences, something which Patri has repeatedly stated.

I’m reminded of the situation in Neal Stephenson’s novel Snow Crash. The federal government of the United States continues to exist, but faces competition from private protection agencies. The Government continues to act much as government always has, claiming sovereignty over the entire country, but with insufficient resources to enforce that claimed sovereignty. The government didn’t act as a rational economic actor because its irrational decision-making rules remained in place even with the introduction of competition.

6 Responses

  1. Brad, Tiebout competition still seems to work in the real world though. Metropolitan areas made up of smaller cities tend to perform better than agglomerated ones. Competition among US states seems to improve results. Switzerland’s inter-canton competition seems to matter.

    As much as voters have crazy preferences, they also punish governments for bad outcomes. If outcomes one town over are much better, it makes the comparison pretty easy.

  2. Yep, I realise that empirically, easy exit leads to better outcomes. I’m not meaning to dismiss Tiebout logic altogether. I don’t think the standard model which treats jurisdictions as something like profit-maximizing firms is based on very realistic assumptions, though. I think the bad outcomes leading to punishment of incumbent government has to be mediated by expressive concerns.

    I overstated the case here, particularly in the title, but my point is that any interjurisdictional competition among democracies has to go through voter preferences. People will often vote for what is demonstrably good for them, but certainly not always. I think the shining example of liberty changing voter preferences is the only real way democracies could be improved by the existence of seasteads.

    My hypothesis would be that it is easily observable alternative and superior forms of governance which would improve domestic governance, rather than the realistic option of exit. In the real world, these strongly covary. The only way I could think to empirically test the difference would to look at an exogenous change in ease of migration without a change in the visibility of neighbouring jurisdictions.

    Maybe I’m being unfairly harsh on the Tiebout assumptions? They do seem to have fairly decent predictive power.

  3. Responses to my Cato Unbound essay…

    The trackback system on Cato Unbound seems to be imperfect, so here is a roundup of the blog reactions to my essay, for some light reading for y’all over the weekend :). I’ll be making detailed replies on the Cato Unbound site starting on Tuesday.

  4. […] Taylor: Democracies Never Compete and Technology vs. […]

  5. Bryan Caplan has a good critique of Tiebout: good governance gets capitalised into land prices….

  6. […] to the problems of expressive voting and rational irrationality (see my somewhat related arguments here and here), and will therefore fail to satisfy people’s true preferences. If I’m right, we […]

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