More on libertarians and governance

Aretae responds helpfully to my post from yesterday. I will answer his points in a way that will hopefully clarify my original point.

A libertarian might suggest that economics and firms work as they do primarily because of freedom of entry (to a market), and freedom of exit (from a provider, or even from a market), and semi-graceful failure (companies usually go broke/out of business without killing many people).

All true. Now let’s apply these principles to the organization of a state. What I want is a state motivated by profit (interestingly we currently have states that are motivated by losses – i.e. the more services they provide without paying for, the more stable the state).

It is my contention that a state motivated by profit will do very little to hinder entry and exit. Oppressed citizens don’t make good workers – so prohibiting exit would be folly. Entry may be limited to productive people, but I consider this a feature, not a bug.

Finally, it is my contention that a state motivated by profit will create a very graceful mechanism for failure – with failure defined as replacing the governing regime. The CEOs of joint-stock companies change hands all the time.

The joint stock corporation works because it is clearly better for rich people to not be accountable for what their companies do than for them to be accountable…and said rich people purchased a government system that allowed this.

Here we see my friend’s leftism showing. Are joint-stock companies the root of all evil? I think not.

In fact, they’re the best way any one has found of widely dispersing ownership. I find it paradoxical to complain about "rich people" exercising control while complaining about joint-stock companies. No other form of ownership allows essentially everyone to own a small portion of a company. Criticize joint-stock ownership all you want, but you have to admit that ownership of companies would be much more concentrated if joint-stock arrangements were outlawed.

I do think it’s legitimate to object to the way that managers of modern joint-stock companies under existing US law are protected from the consequences of their actions, but such an objection does not impugn the structure of joint-stock ownership in general.

Furthermore, the libertarian might suggest that there are very few advantages large companies have over small companies, except in extracting government favors, complying with government regulation, and getting governments to limit innovation ( and thus growth ). Hence the incredible correlation between socialism and stability of large companies.

I do not wish for a large government, only a strong one. I wish to create a stable society not a stable government. CEOs are replaced all the time. It seems that we must wait for terms to end to replace Presidents.

Why don’t formalists take serious conservative political scientists who have data to suggest that the size of the selectorate is a/the primary factor determining how the pie is divided in any given political system. If 3 people control 52% of the political decision process, then those 3 people somehow also get ALL of the above-subsistence surplus and the rest of the country gets none.

I can’t speak for formalism generally, but I’ll speak for myself. I believe that a huge selectorate is an impossibility – the masses simply cannot govern in any non-disastrous way. I therefore believe that any system that appears to have a huge selectorate must in fact be governed by a smaller subset of its citizens. The selectorate in the US now is not "everyone over 18." The ruling coalition doesn’t rule in a meaningful sense. Policy is more controlled by tenure selection committees, bureaucrats and newspapers than by voters in Iowa primaries.

Only way economics gives us to get good economic results from politics is to make it easy to switch jurisdictions, and to make exit easy. Make the polities compete for citizens, and the quality of the polity improves.

So all we have to do is make governments willingly give up power! If this is your wish, you must explain how you expect to achieve it. Also, if you’re wishing for unlikely things, I wonder why this is the one you would choose?

Scarcity defines power. Ricardo demonstrated that in the 1820s, and it’s been true ever since. Politics follows the power. If you want benefit to citizens, shift the balance of power from the state towards the citizen by making states compete for citizens. I think that
(A) repeal of the 16th amendment, and
(B) enforcement of the 9th/10th/originalist commerce clause would do FAR better than a joint-stock corporation form of organization.

But so long as you have countries of 300 million or 1.5 billion people, with no intra-state legal competition, and no exit, they’re all screwed by simple economic logic…and there’s simply no way out.

The best way to make states compete for citizens is to make states directly have an interest in having citizens. I think the profit motive is the best way to achieve this goal. Apparently, the libertarians disagree. If I’m reading Aretae correctly he thinks the best way is to make the state limit itself a lot. The disagreement is legitimate. However, I think a a self-limiting government is no more realistic than a perpetual motion machine. On the other hand, we have ample evidence that people respond to profit motives.


3 Responses to More on libertarians and governance

  1. sconzey says:

    As a Libertarian, I don’t disagree. 😛 I came to Formalism from Anarcho-capitalism, so I’m already comfortable with the idea of profit-making joint-stock companies providing good governance.

    What Formalism convinced me of was the un-necessity of the cool-sounding (and begging to be turned into a computer game) but essentially unproven competing protection agencies that orthodox anarcho-capitalists have to posit to preserve their Non-Aggression Principle.

    The thing you’re missing is that companies wind up neatly upon bankruptcy not because Government Goons seize the office and force the managers to behave (or what, like, hold the customers hostage and force them to buy baked beans?!), but because bankruptcy law is fairly good and provides a decent enough Schelling point for the gadzillions of economic agents involved in a bankruptcy procedure.

    Furthermore just because an organisation is sovereign doesn’t mean change-of-ownership needs to be messy. Surely Aretae will concede that a democratic election is essentially a change-of-management. Even when one Sovereign stages a “hostile take-over” of another that need not be too messy if both Sovereigns are profit-motivated. cf. Cromer’s Egypt, the Louisiana Purchase, etc.

    • Foseti says:

      Thanks. My route to formalism was basically the same as yours.

      You say, “Surely Aretae will concede that a democratic election is essentially a change-of-management.” I’m not sure. Formalists see this as trivially true, but this is not necessarily the case among others.

  2. Matt says:

    “Apparently, the libertarians disagree.”

    It’s only apparent that Aretae disagrees. (He’d probably also disagree with your assumption that he speaks for “libertarians” as a class. I know that I disagree with it. 🙂 )

    The formalist, government-as-JSC answer is unproven. But it’s quite obviously an improvement on anarchism, and seems likely to constitute an improvement on the status quo.

    Certainly a corporation is more answerable to its customers and employees than any government ever has been to its citizens. And while corporations are harder to kill from the outside than governments are, they’re much more vulnerable to the changing tastes of real stakeholders, which is what ultimately matters most for both prosperity and liberty.

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