Exit, Voice, and Liberty

There’s been some interesting, and heated, debate in the libertarian blogosphere about the importance of democracy to freedom. Will Wilkinson suggests that since charter cities (and presumably seasteads) are undemocratic, they might allow rulers of authoritarian regimes to reap the benefits of high economic growth without giving their subjects “real freedom.” I think Will’s point that charter cities may allow illiberal regimes to create market-facilitating institutions and increase economic freedom (most often good for dictators) while ignoring civil liberties (most often bad for dictators) is important.

Will seems to think that an important aspect of freedom is democracy, though, and that’s what has caused the debate. Arnold Kling argues that real freedom is exit, not voice. Charter cities and seasteading aim to make exit easier and thus remove the need for democratic voice:

The exercise of voice, including the right to vote, is not the ultimate expression of freedom. Rather, it is the last refuge of those who suffer under a monopoly. If we take it as given that the political jurisdiction where I reside is a monopoly, then perhaps I will have more influence over that monopoly if I have a right to vote and a right to organize opposition than if I do not.

The idea of charter cities (or seasteading) will be a success to the extent that it creates a viable exit option vis-a-vis government. … In fact, if we had real competitive government, then we would be no more interested in elections and speaking out to government officials than we are in holding elections and town-hall meetings at the supermarket.

Will Chamberlain and Patri Friedman expand upon Arnold’s argument at A Thousand Nations; Wilkinson responds to Arnold here. All of these posts, including the comments, are well worth reading. I’m with Arnold and the other competitive government types and I have little to add to their joint efforts.

As a side note to the debate, though, I think Wilkinson is right to suggest that exit, narrowly conceived, is not enough to produce real freedom. Seasteading aims to do more than simply make exit easier; it’s about producing the technology to lower barriers to entry in the governance market.

Most people are free to exit their jurisdictions (county, state, country) and move to another (albeit at a fairly large cost). What they are not free to do, though, is to start their own country. This is why Will’s second-guessing of Arnold’s commitment to exit as freedom on the basis that he hasn’t left his county are so off-base. A major reason for jurisdictional exit’s failure to do much to enhance freedom today is the poor selection of products in the governance market. Even with zero relocation costs, I only have the choice among some really bad autocracies and a fairly homogenous set of liberal democracies. It’s not simply freedom of movement (exit, narrowly conceived) which enhances freedom, but meaningful choice.

The only way I can see of getting meaningful choice of government is to lower the barriers to entry.  When there are literally a thousand forms of government from which to choose – and the possibility of creating your own if none are quite right – you’re surely orders of magnitude freer than you are today, even with freedom of movement and the cost of relocation remaining constant.

You think voice is important for liberty? Fine! Go somewhere with voice. I disagree, and strongly suspect that the bloated and liberty-restricting governments (relative to my standard of what a government should be, not to any actually existing governments) that we see today are pretty much an inevitable outcome of democratic decision-making. The only places to which I can currently relocate in order to get away from democracy, though, are even worse.

I don’t much care for voting and would prefer to live under a government run like an insurance firm. I think even voluntary governments run democratically will be subject 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 won’t see too many democratic seasteads survive too long: people will voice their prejudices and then exit once they realise they have to pay the cost.

The beautiful thing about competitive government is that we don’t need to argue about who’s right. I could be wrong, and maybe voting will prove to be an important part of freedom. I just don’t see, though, how one can maintain that voice is just as fundamental as exit (defined widely as freedom of movement combined with low barriers to entry in the market for governance). If you start with only the capacity for exit, you can move somewhere which gives you voice. If you begin only with the capacity for voice, there’s no obvious way to get the capacity for exit. This asymmetry is crucial: exit can give you any other freedom, including voice. Competitive government isn’t about securing any particular freedom, but giving people the freedom to choose whether or not they want other freedoms. Exit, thus conceived, is the most fundamental freedom.

Customer-Owned Protection Agencies

I suggested yesterday that protection agencies which credibly commit to not joining any nascent cartel are likely to attract more customers than those which don’t, potentially nullifying Cowen and Sutter’s critique of market anarchism. One obvious possibility is customer ownership of protection agencies. Cowen makes this suggestion in the final paragraph of his 1992 paper:

In the above scenarios, the network becomes a government because network shareholders are able to exploit successfully conflicts between network profit maximization and the interests of network consumers. If consumers are sufficiently far-sighted, they may prefer dealing with agencies that precommit to never becoming collusive or coercive. Consumers may attempt to control the network by owning the member firms; under this scenario, the protection agencies would become mutuals or cooperatives. Protection agencies could then be bound by democratic procedures, according to consumer vote. Collusion could not occur unless approved by agency customers (shareholders).

He expands a little in a footnote:

In mutuals, the corporation’s customers are also its owners. A mutual life insurance company, for instance, is owned by its policyholders, who serve as residual claimants. If the company makes money, the profits are refunded in the form of lower premiums; conversely, losses imply higher premiums. (Not all of the mutual’s profits are rebated to customers, however, as managers retain perks for themselves.) In so far as mutual shareholders succeed in controlling their company, their dual roles as owners and customers diminish conflicts of interest. Policies that deliberately defraud customers, for instance, would not be approved by mutual shareholders. Shareholders of traditional corporations, in contrast, will maximize profits at the expense of consumer interests, when possible. Cooperatives and nonprofit organizations are other possible organization forms for protection agencies. Although these forms differ from mutuals with respect to many details, they also eschew direct profit-maximization and allow managers to maximize the flow of perks, although subject to different institutional constraints.

Customer ownership of protection agencies is probably the simplest and most effective way of avoiding a despotic cartel emerging from libertarian anarchy. The problem with such arrangements, though, is that they introduce many of the same problems which currently plague democratic politics.

Customer-shareholders need some way of making sure management acts in their best interests. The most obvious way of doing this, as Cowen suggests, is to have shareholders periodically vote for the CEO, or directly vote whenever particularly important decisions arise. As in any firm, this won’t entirely prevent managers from exploiting their position, but it will place fairly tight limits on the extent of corruption.

Whenever a moderately large group of people vote to decide some course of action, no individual is faced with a genuine choice of which path to take. They can express their preference, but, except in the case of an otherwise tied election, the outcome will be unrelated to their choice. This means that nobody has an incentive to think carefully about their decision, and have every incentive to vote expressively and indulge their irrational biases. This has been well-documented with respect to ordinary democratic politics, but is relevant to any large-group voting situation.

This doesn’t seem to be particularly important in ordinary shareholder voting (though as far as I know, nobody has looked into it and I can imagine it having some effect), presumably because voting rights are allocating by the share rather than the person – giving those with the most at stake the most say – and because the activities of corporations don’t tap into expressive preferences or cognitive biases to the same extent as democratic politics.

Unfortunately, collective choice within customer-owned protection agencies more closely resembles political than shareholder voting in this respect. While customers with more expensive premiums may be given extra votes, the inequality of voting power will be nowhere near that of an ordinary corporation. Further, law enforcement and the definition of rights seem like areas in which expressive preferences are likely to dominate.

Expressive shareholders will not only make protection agencies run inefficiently, they will also be more likely to violate the rights of others and engage in destructive conflict. People are more bigoted and bloodthirsty when freed of cost considerations. These are problems we live with under democratic rule today, however, and it’s hard to see why they would get worse under anarchy. While anarchy with customer-owned protection agencies will be far from perfect, it should be considerably better than centralized government.

Protection agencies will initially behave like lots of little governments, with all the inefficiency and bigotry we see in politics today. The crucial difference, though, is the option of exit. A thousand nations will bloom and efficient protection agencies – those managing to minimize the harm of foolish voters and corrupt managers – will gain more customers than inefficient ones. This could result in many small agencies which give each customer a significant voice, or agencies with supermajority rules and other limits on strict majoritarianism. Of course, the potential for innovation will be lower than in a market with entrepreneurs making profit-seeking decisions. People will flock to efficient agencies, but agencies’ decision rules will be unresponsive to consumer demand.

There may be ways for an ordinary shareholder firm to credibly commit to avoid a cartel, and the market would provide every incentive entrepreneurial discovery. I can’t think of any entirely plausible way, but that doesn’t mean one doesn’t exist. We might see a customer-ownership equilibrium eventually give way to a shareholder equilibrium once commitment mechanisms are devised.

I do have some niggling concerns over collective action problems (one shareholder-only firm would be more efficient than its competitors, would have no peers with which to form a cartel, and would therefore be attractive to customers when all other firms are customer-owned), but it seems that customer-owned anarchy would be preferable to the status quo, and would improve over time.

This is why I am now a tentative anarchist.

Protection Agency Cartels and Organizational Innovation

Every liberal worthy of the label is a philosophical anarchist. The presumption of liberty – i.e. the notion that everything is permissible unless shown otherwise, with the burden of proof resting with those who would restrict liberty – means that we should only resort to politics after all peaceful means of solving social conflict have been exhausted. Force will always be required to stop bad people raping and killing, but I think it’s an open question whether force against the innocent (taxation) is required to fund protection against the guilty.

Market anarchists such as the Tannehills and David Friedman have argued that it is not. They imagine private protection agencies and courts voluntarily competing for customers on the open market. The current monopoly on violence would be replaced by many firms filling diverse market niches and being forced to respond to customer needs. As in any other market, they say, competition will do a far better job of satisfying customer preferences than a coercive monopoly.

If these arguments are correct, it’s pretty hard to see how anyone valuing individual preferences above all else could support government. Anarchy won’t be utopia, but it will make people far freer than they are under government.

Many anarchists will claim that since markets work better than government for every good they’ve been tried, we must conclude that they’ll also work well for policing and court services. While there’s definitely some merit in this argument, I think we need to be very careful when comparing the market for organized violence with other markets.

Tyler Cowen and Dan Sutter have had me convinced for some time that orderly anarchy is unstable and would result in something very similar to a highly predatory government. To avoid perpetual war, competing protection agencies will need some way of resolving disputes when customers of different agencies come into conflict.

Suppose Alice is a customer of Agency A and Bob is a customer of Agency B. Since agencies compete partially on the basis of offering different rules tailored to customer preferences, some things viewed as a crime by Agency A will be deemed permissible by Agency B. What happens when Alice demands compensation for some action Bob has performed which she has paid Agency A to protect her against? In a world without interagency arbitration, Agency A will punish Bob. Bob will demand that Agency B protect him from this, and the two agencies will go to war. We end up with Hobbesian anarchy.

Of course, this would be very expensive for everyone concerned, and there is a strong incentive to provide for peaceful means of dispute resolution. This is where private arbitration firms come in. To avoid conflict, protection agencies will agree to be bound by the decisions of independent courts whenever conflicts arise.

Arbitration is a natural monopoly, since it’s very important to customers of protection agencies that they be able to resolve disputes with customers of other agencies. This requires considerable cooperation between competing protection agencies, including the ability to exclude or otherwise punish agencies not playing by the rules. The capabilities required of competing firms to cooperate (“cooperative efficacy”) to avoid Hobbesian anarchy – communication, ability to punish defectors, etc – are the very same things required to form a profit-maximizing cartel capable of excluding market entrants and ignoring customer preferences. From the customer’s point of view, it would be hard to distinguish this from an extremely predatory state.

So: if protection agencies can’t cooperate, we end up with chaos. If they can, we end up with a de facto state. Orderly libertarian anarchy is not a stable equilibrium.

Bryan Caplan and Ed Stringham point out that refusing to deal with harmful outlaw agencies (e.g. those allowing murder, or always willing to defend their customer with violence without concern to their guilt or innocence) is a self-enforcing constraint. The arbitration network can declare such agencies rogue, and it is in every other agency’s interest not to deal with them. It will remain profitable, however, to continue dealing with agencies which behave decently but refuse to abide by the rules of the cartel.

It therefore requires more cooperative efficacy to enforce a cartel arrangement than it does to exclude genuinely rogue agencies: there is a zone of stable libertarian anarchy between Hobbesian anarchy and despotic government. Cowen and Sutter admit that such a zone exists, but insist that it is a narrow one. We have no reason to think that this is where we’ll end up and should not wish to experiment with anarchy.

As far as the argument has gone so far, I basically agree with Cowen and Sutter. I don’t think the debate has gone far enough, however. Stringham and Hummel attempt to reply to Cowen and Sutter by arguing that ideology can change the payoffs facing protection agencies: positive material payoffs would be outweighed by negative psychic payoffs of cartelization if only those running protection agencies would internalize the libertarian worldview. That may be so, but I’d feel very uncomfortable if the only barrier between me and a despotic cartel was ideological.

The place the debate needs to go, in my view, is looking at forms of organization other than a simple subscription service protection agencies might take to pre-commit to not cartelizing. Cowen mentions this at the end of his 1992 paper “Law as a Public Good,” (not on the web, but available in Stringham’s excellent volume Anarchy and the Law) but doesn’t go into any detail and the idea has not been pursued by anyone else.

Cartelization is a market failure, and like any market failure provides incentives for its own solution (see Coase on the lighthouse, for example). A firm which can guarantee its customers that it won’t enslave them in the future will receive more custom than one which cannot make such a guarantee. This would generally require forward-looking consumers, but there don’t seem to be any collective action problems to overcome. If we ever get to the situation where the state has withered away, I would bet on people being reasonably far-sighted in their choice of protection agency.

Of course, just because there’s an incentive to provide something doesn’t mean it can actually be provided. Anyone inventing a perpetual motion machine would become very rich. Unfortunately, such a machine seems to be a physical impossibility. I don’t see any reason, however, to suppose that credible commitment to non-cartelization is impossible, and there are some plausible candidates for how it might be achieved.

This post is getting long, so I’ll leave discussion of the particular ways firms might pre-commit for another day (Update: see here). By the way, this detailed overview of public choice theory and anarchism by Powell and Stringham is great stuff for anyone wanting a broad understanding of the literature.

The future is already here, and it’s reasonably evenly distributed

This video from 1981 (hat tip: Jerry Brito) shows the remarkable progress of information technology in recent years.

That which which seemed amazing yesterday is taken for granted today. Hyperland (1990) from Douglas Adams is even more remarkable in how exciting it made hypertext seem.

If we think back even further, someone 300 years ago would find the way we live today – or even the way we did in 1981 – absolutely unimaginable. Talking to someone on the other side of the world through some strange contraption? Witchcraft! This is why we shouldn’t discount future technological innovations – indefinite lifespans, bioengineered superintelligence, desktop nanotech – based on their pure strangeness and unfamiliarity. We are in the midst of self-reinforcing and accelerating economic growth. Decent institutional arrangements have allowed markets and other means of technological innovation to produce new knowledge at an unprecedented rate. Knowledge begets more knowledge, as we use past innovations to more effectively produce new ones.

This sort of growth is not the norm if we consider human history as a whole, and it’s possible that an exogenous shock could force us out of our positive feedback loop. I wouldn’t bet on that happening, and think those in the near future will have levels of wealth and capabilities only the most imaginative of us can dream of today. We tend not to notice change as it’s happening, but its cumulative effect is enormous. The Singularity will come, but nobody will notice it.

Real, No-Fooling Socialism [updated]

The Alliance Party says the Government should take ownership of the Lane Walker Rudkin (LWR) Factory in Christchurch to prevent a disastrous loss of hundreds of jobs.

Alliance Economic Development Spokesperson Quentin Findlay says it is vital that jobs and incomes are preserved to prevent mass unemployment in New Zealand.

He says the Government should take control of failing enterprises and investigate options such as public ownership, employee shareholdings and worker ownership.

“The cost of positive action is far less than the human misery, financial burden and economic stagnation of mass unemployment.”

Mr Findlay says the cause of the LWR factory’s closure was both National and Labour led Governments supporting free trade deals and free market policies.

Ugh.

It’s hard to believe these morons won 13 seats in the New Zealand’s parliament in the 1996 election. I understand calls to compensate those who lose out from economic change (I know some very smart and reasonable lefties), but it is just beyond me how anyone could be so short-sighted as to think that businesses which do not produce anything of value should be kept afloat. Whenever someone proposes this sort of thing I generally ask them whether they would think it a good thing if ninety percent of people still worked in agriculture and had pre-industrial levels of wealth. I’ve never heard to reasonable argument for the idea that past, but not future, economic growth was worth the short-term costs of dislocation. There are some primitivists, of course, but they’re certainly a minority of anti-current progress types. I suspect a big part of it is the status quo bias.

Update: Paul Walker offers a very thorough and wide-ranging takedown of Alliance’s stupidity.

Regulation Will Kill Millions

A good point from the Fight Aging blog:

I have said in the past that, from a pure research timeline perspective, by 2040 we’ll plausibly have all the technologies needed to repair and reverse aging. Unfortunately when we look beyond the laboratory, the field is strewn with roadblocks of legislation, slowing everything down. Even the time taken for new businesses to raise capital, try, fail, and try again is less than the delays imposed by the ball and chain of regulation.

Apparently, around 100,000 people worldwide die per day from age-related diseases. If regulation postpones the achievement of acturial escape velocity by even a year, it will have killed 36.5 million people. Not quite the biggest act of democide in history, but it will be if the delay is much more than two years. In opportunity cost terms, slowing anti-aging technology is in fact much worse than was killing someone born too early to have the prospect of a radically extended lifespan. If you kill a 30 year old destined to die by the age of 90, you’re robbing him of 60 years of life. If you deny a 60 year old anti-aging technology, you could be robbing them of a thousand years of life.

This is why I get so angry at the bioconservatives wringing their hands over the intrinsic value of human nature: they are killing more people than Hitler  ever dreamed of. Of course, regulators have been mass murderers for some time.

Government Investment in Broadband

The New Zealand Government is set to spend around $1.5 billion in an effort to improve New Zealand’s (relatively poor) broadband capacity by laying fibre cables. I worry it’s making the mistake the US Government narrowly avoided one hundred years ago:

“That it is not feasible and desirable at the present time for the Government to purchase, to install, or to operate pneumatic tubes,” is one of the most important conclusions reached by a commission appointed by the Postmaster General to inquire into the feasibility and desirability of the purchase and operation by the Government of pneumatic tubes in the cities where the service is now installed…

The pneumatic tube service is in operation at present in New York, Philadelphia, Boston, Chicago, St. Louis, and Brooklyn…

The report commends the service as an important auxiliary for the rapid transmission of first-class mail and special delivery mail. It however, adds these conclusions:

That pneumatic tube service appears to be still in an experimental condition, although progress has been made toward the development of a fixed standard of machinery;
That with the above reservation the regularity and efficiency of the tube service are commendable.

Now, I don’t think our modern electronic intertubes will go the way of the pneumatic, but I do think it’s entirely plausible that fibre will become completely obsolete at some point in the not too distant future. I don’t know what might replace it (wi-fi mesh networks, perhaps?) but I don’t think the government can confidently assume the fibre will continue to be useful enough to justify investment.

As it happens I don’t think government investment in broadband is at all justified.  Isn’t this just thinly-veiled redistribution from those who don’t like the internet to those who do? It’s not a public good, and while there are some positive externalities from increased business activity due to lower input prices, there is no reason to single out any particular input. Why not subsidize stationary, since virtually all businesses use pens and staplers? The answer, of course, is that broadband is sexy.

Postrel on Medical Innovation

Virginia Postrel has an excellent column in The Atlantic on the problems of centralized health systems. She discusses her experience with Herceptin, an effective but expensive breast cancer drug which has been the object of much controversy here in New Zealand. This nicely illustrates the frustration she expresses so brilliantly in The Future and its Enemies over ‘the one best way’ mentality that collective decision-making entails.

The American health-care system may be a crazy mess, but it is the prime mover in the global ecology of medical treatment, creating the world’s biggest market for new drugs and devices. Even as we argue about whether or how our health-care system should change, most Americans take for granted our access to the best available cancer treatments—including the one that arguably saved my life. […]

The good thing about a decentralized, largely private system like ours [i.e. American] is that health care constantly gets weighed against everything else in the economy. No single authority has to decide whether 15 percent or 20 percent or 25 percent is the “right” amount of GDP to spend on health care, just as no single authority has to decide how much to spend on food or clothing or entertainment. Different individuals and organizations can make different trade-offs. Centralized systems, by contrast, have one health budget. This treatment gets funded, and that one doesn’t.

If I lived in New Zealand, I wouldn’t be dead, just a lot poorer. But if every place were like New Zealand, far fewer complex new drugs would get developed in the first place. And my odds of survival would be much, much lower.

Indeed. Countries with state-funded health systems are in a sense free-riding on the innovative capacity of the American system. I suspect this would be true of any goods. A country which stifles innovative effort at home could still reap the benefits of technological progress abroad if it didn’t restrict imports. Unfortunately, innovation-stifling policies and protectionism tend to go together. 

Postrel responds to critics here.

Quote of the Day

Government is one of the largest sectors of the world economy, yet it has benefited the least from technological development. The last major breakthrough was representative democracy, with the early adopter being the USA in 1776. Think about it – we get new car models every year, new electronic devices pop up every time we go to the store, but we only get new types of government every few hundred years! 

From the Seasteading book.