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.

Roger Douglas Supports Competitive Government

The architect of New Zealand’s free-market reforms of the 1980s now advoctates an end to the geographic monopoly of local councils:

Sir Roger Douglas wants ratepayers to be able to shop around for the best local council, saying that being able to defect to one nearby even if they do not live there will invoke the spirit of competition.

Sir Roger told a parliamentary select committee considering legislation setting up Auckland’s Super City that there should be a flexible community council structure with ratepayers able to decide its size and even set up their own councils.

Groups of ratepayers who lived next to another community council should also be able to opt out and join another council.

“The capacity to change council will create competition for ratepayers, which is likely to see value for money being delivered by local government,” Sir Roger said.

If choice is a good thing, why not open the market to new entrants competing with existing councils and central government? A truly free market in governance replaces coercion with choice (i.e. government in the Weberian sense ceases to exist).

Come on, Roger. Admit you’re an anarchist.

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.

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.

Technology versus Ideology

Patri Friedman has an excellent essay at Cato Unbound (HT: Eric) arguing that libertarian activists are largely wasting their time by taking an advocacy approach.

I deeply yearn to live in an actual free society, not just to imagine a theoretical future utopia or achieve small incremental gains in freedom. For many years, I enthusiastically advocated for liberty under the vague assumption that advocacy would help our cause. However, I recently began trying to create free societies as my full-time job, and this has given me a dramatic perspective shift from my days of armchair philosophizing. My new perspective is that the advocacy approach which many libertarian individuals, groups, and think tanks follow (including me sometimes, sadly) is an utter waste of time.

Argument has refined our principles, and academic research has enlarged our understanding, but they have gotten us no closer to an actual libertarian state. Our debating springs not from calculated strategy, but from an intuitive “folk activism”: an instinct to seek political change through personal interaction, born in our hunter-gatherer days when all politics was personal. In the modern world, however, bad policies are the result of human action, not human design. To change them we must understand how they emerge from human interaction, and then alter the web of incentives that drives behavior. Attempts to directly influence people or ideas without changing incentives, such as the U.S. Libertarian Party, the Ron Paul campaign, and academic research, are thus useless for achieving real-world liberty.

Friedman distinguishes between three levels of abstraction in politics:

1. Policies: Specific sets of laws.

2. Institutions: An entire country and its legal and political systems.

3. Ecosystem: All nations and the environment in which they compete and evolve.

Policies emerge from institutions, which themselves emerge from the ecosystem. This approach is undoubtedly right, and I agree that complaining about outcomes while ignoring the milieu from which they emerge is utterly pointless. I disagree, though, with Patri’s characterization of the relevant ecosystem from which political institutions emerge. Instead of treating the ecosystem as purely technological, it is important to recognize that institutions emerge from both material capabilities and ideological preferences.

Patri’s approach gives primacy to the technological context in which political institutions develop, arguing that the currently dominant model of geographic monopoly with extremely high barriers to entry is the major factor in limiting freedom. There are significant costs to moving countries, and it is impossible, short of winning a war, revolution or election, to start your own. Seasteading is one of the few ways of actually advancing freedom, since it changes the underlying ecosystem from which government emerges. It strikes at the root of the problem rather than hacking at the branches.

The technological context is very important in determining political outcomes, but I would suggest that preferences should also be considered as part of the ecosystem out of which policies and institutions emerge. Patri takes a view of politics, informed by Public Choice Theory, that politics is strongly influenced by entrenched special interests.

As a libertarian, I find it easy to see the empirical evidence that incentives matter. More difficult, but very important, is to look at the vast gap between libertarian principles and the size and scope of current governments as empirical evidence that power matters too. Politicians are demonstrably, consistently, and ubiquitously expert at entrenching the power of the political class. To most libertarians this is morally illegitimate, but morality has sadly little influence over the realities of power.

While this is definitely part of the story, I think incentive-based explanations for the poor performance of government have been overstated. The expressive voting / rational irrationality view of politics suggests that democracy does not fail because it is hijacked by special interests, but because it gives voters what they ask for. While the role of special interests are bound to be significant in policy areas with low salience to voters, the public generally has strong preferences over those issues which most affect our freedom. Politicians cannot ignore these preferences and expect to stay in office.

The neglect of preferences has become standard in economics (the rationale is given in this paper by Stigler and Becker), but there are very good reasons for doubt, particularly when it comes to politics. Protectionism is not the triumph of special interests over the general will. The public likes protectionism. Unpopular policies seldom survive and policy responds to changes in preferences.

Of course, the expressive voting story says that democracy produces poor results because electoral incentives are poor: it is ultimately the institutional structure and in turn the technological ecosystem which determines outcomes. At the very least, though, the expressive voting approach shows us that if preferences were to significantly change, policy would most likely follow. The massive shifts in preferences over the twentieth century leave us in no doubt that preferences do change over time. Same-sex and interracial relationships are now widely accepted, as is freedom from religious persecution. Those living in western democracies are now generally much freer than they were fifty years ago. This is primarily due to changing social norms and preferences.

Illya Somin makes the argument that advocacy has substantially increased liberty here:

I question Friedman’s key assumption that promoting libertarianism in existing societies through research and activism is “an utter waste of time.” It certainly has not been as effective as he and I would like. But it has nonetheless led to important victories for freedom. For example, as I discuss in my recent debate with Sandy Levinson, there were important reductions in the size and scope of government in the 1980s and 1990s, many of them traceable in part to advocacy by libertarian scholars and movements. Even more impressive reductions in government power were achieved in nations such as Ireland and New Zealand during the same period.

Ironically, Patri Friedman’s grandfather Milton Friedman was one of the best examples of the impact of libertarian advocacy on policy. Among other things, Milton Friedman’s efforts, combined with those of other libertarians, played a key role in ending the draft, one of the greatest infringements on individual liberty in modern American history. Friedman also helped influence many governments around the world in the direction of adopting relatively more free market economic policies.

To say this is in no way denies that we are still very far from achieving a truly libertarian society. And at the moment, we are obviously moving in the wrong direction. It does, however, suggest that libertarian political action can be effective, even in spite of the many ways in which the system is biased against it.

Political institutions are alternative mechanisms of converting the preferences of people into laws. Certain institutional structures make it harder to transform certain kinds of preferences into law, but a preference held sufficiently strongly and widely will be reflected in law regardless of the institutional and ecological environment. If a large majority people hate drugs, see them as a threat and are willing to back up their preferences with money, for example, it will be impossible to take drugs openly even in an anarchist society. Seasteading is not immune to the problem of illiberal preferences. The ability to sail your house away from oppression will likely make you less subject to the whims of others, but will not free you from them completely. The preferences of others will continue to affect your freedom. This is especially true when we consider the potential of existing governments to interfere with seasteads.

Particular policies and the institutional structure from which they emerge are indeed mere branches at which many libertarians hopelessly hack. Preferences, however, are part of the root we need to strike.

At this point, I think it’s important to carefully distinguish between our beliefs over the relative influence of various factors in determining the level of freedom in a society, and which of these factors are most directly manipulable by individuals wishing to advance freedom. I think it is clear that both technology and ideology matter. The question remains as to where libertarians should concentrate their energy.

While I doubt that lobbying government to remove trade restrictions, for example, is likely to have much of an effect, I do think that offering a vision of a free society and backing it up with sound argument can produce a more free society in the long term. We probably aren’t going to convert any socialists or homophobes, but by pointing out the folly of foolish positions we can hope to dissuade young people from coming to these positions in the first place.

The most productive method of promoting freedom will depend on the individual. Patri’s comparative advantage is in creating floating platforms on the sea. Many others have no skill in such things, and would promote liberty more effectively by writing op-eds or conducting scholarly research. Obviously, we can’t all be Milton Friedmans and have any discernable influence on policy, but neither can we all be Patri Friedmans and have any discernable influence on libertygenic technology.

I am fairly convinced that Patri’s commitment to seasteading will make a significant contribution to freedom. I have no idea whether this contribution will be greater than that made by his grandfather through advocacy. I am absolutely positive, though, that both are worth pursuing.

Governments and Seasteads

Eric makes a good point in the comments:

The problem with meddlesome preferences on seasteads would be that Iran can always afford to spend more on punishing a Theo Van Gogh than a seastead can spend on protecting him.

I think if we consider the long-term dynamics of a world with both seasteads and land-based states, the problem may be more general and more serious.

If folks are able to choose between living on a seastead or on land, I can imagine an adverse selection-type dynamic causing currently liberalish countries becoming something like big illiberal sects, willing and able to intervene in the affairs of libertarian seasteaders.

If seasteading proves to be more attractive to the liberal-minded, the liberal-minded will disproportionately leave land-based states and the preferences of the median voter will shift in a more meddlesome direction. This will leave the remaining moderately liberal landlubbers dissatisfied, prompting them to leave, and so on. If seasteading became sufficiently popular, this could continue until the median voter of land-based states is significantly more meddlesome than is the case today.

Governments already have the institutions supporting coercive taxation, regulation and conscription, and will thus have higher cooperative efficacy – ability to overcome collective action problems in the production of public goods such as national defence and (widely-desired) aggression. Governments would presumably retain the military resources they have today, will have the ability extract resources from citizens to produce more, and will have the desire to use them.

Liberal seasteads will have trouble defending against aggression by foreign governments, since they will generally be smaller and will be less capable of collectively producing defence against aggression.   

Seasteading and Sects

We should expect sects – cohesive groups which instil extreme preferences on their members in order to ensure commitment – to be more prevalent under anarchy than under a state. Eric Crampton and I make this argument here. From the abstract:

Using insights from the economics of religion, we argue that anarchy is more likely than democracy to produce small groups with intense meddlesome preferences. Absent government provision of public goods, voluntary groups will emerge to fill the gap. Strict religious groups – ‘sects’ – are more able to overcome collective action problems and will therefore be more prevalent in an anarchic society. These sects are apt to instil intense meddlesome preferences in their members and have the ability to enforce them: anarchy produces the situation to which it is most fragile.

Sect membership is often voluntary: members get valuable services from sects and may rationally choose to take on irrational beliefs to signal loyalty. According to Larry Iannaccone, sects are not the product of brainwashing but second-best solutions to collective action problems. Sects will erect barriers to exit to ensure the commitment of members. This reduces free-riding and increases the average contribution to public and quasi-public goods.

It is interesting to think about how this plays out under dynamic geography. I assume that the same problems of collective action will be present with market-chosen law on land or water. We should thus expect to see more sects emerge on the ocean than within the jurisdiction of land-based governments. While freedom of movement will usually be greater with dynamic geography, this may not always be the case. A seasteading sect may choose to isolate itself in the middle of the ocean, far away from any other seasteads. This will clearly increase the physical costs of relocation to a more liberal regime. Land-based sects often use social isolation as a means of increasing the cost of exit. An isolated seastead will be able to increase the cost of exit more effectively. The cost of relocation is partly under the control of the seastead, and must be treated endogenously.

Of course, many libertarians will argue that there is no problem here: people voluntarily join sects and accept the high cost of exit. Nobody’s rights are being violated. Maybe, if we are considering only a single-generation seastead. Once children are involved, things become more complicated. Unless we consider children to be mere chattels of their parents, having children born into an illiberal community with little chance of exit is a serious problem for libertarians.

Unlike some libertarians, I think severe indoctrination is akin to coercion.* If a parent teaches their child that the outside world is evil and the only way to avoid eternal suffering is to live a repressed life of servitude, they are preventing the child from becoming a full-fledged agent capable of genuine choice. To me, this is about as bad as physically forcing them to live the same life. This raises the distinction between thick and thin libertarianism. Further, the same factors will increase the potential for outright coercion. Those who wish to leave a community will be more subject to restraint when they are physically and socially isolated and can not easily rely on the help of liberal outsiders.

If law is chosen through the market there are incentives for sects to form. If sects have the option of colonizing the ocean, they will be able to more effectively erect barriers to exit. Seasteading may reduce inter-community illiberalism but increase some forms of intra-community illiberalism.

*I don’t think it actually is coercion, since I don’t think there is any true “inner” self whose preferences are being thwarted by psychological abuse.

Some Thoughts on Seasteading

Seasteading is clearly awesome and one of the most important ideas of our time. My feeling is that while it won’t produce quite the utopia some might imagine, it will be a significant boon to human welfare. I worry, though, that the discussion is dominated by its cheerleaders, with those who don’t think seasteading will work dismissing it as a crackpot scheme. Serious sceptical engagement is crucial to the development of any idea. In that spirit, I will try to offer some thoughts of a political economy type nature I think are relevant.

I think the most important of these is to carefully consider the Cowen and Sutter cartelization critique of anarcho-capitalism, and see how it works under dynamic geography, and also look at the argument Eric Crampton and I make about meddlesome preferences, which may be more of a problem for seasteads in certain respects [Added: see here and here]. I still need to do a fair bit of thinking about this, and re-read the relevant parts of the seasteading book.

For now, I’ll only point out a minor issue I have with how the seasteading argument has been framed.

Seasteading claims to be politically agnostic. This is not completely true. At least part of leftist ideology rests on coercive redistribution. With dynamic geography, (in the ideal case) all government becomes voluntary and so coercive redistribution is no longer possible. If a jurisdiction redistributed wealth from rich to poor, simple microeconomic theory would predict that the rich would flee and the poor would flock, producing an adverse selection problem which would unravel the whole enterprise.

The upshot is that while many forms of government are possible under dynamic geography, some are not. The left can justifiably complain that radical Tiebout competition rules out their preferred form of government, since that involves coercion. I think everyone who supports seasteading is at least some kind of libertarian and sees preventing coercion as a feature rather than a bug, but the claim that seasteading helps anyone interested in making their preferred form of government work better is false.