Competitive Governance Puts The 'Choice' In Public Choice

Milton Friedman in the second chapter of Capitalism and Freedom takes for granted the government's monopoly in the role of ‘rulemaker and umpire.’ This assumption is reasonable in the context of his book, as he wants to stress shared values with those who may disagree with him, but it merits closer inspection today as the idea and implementation of competitive governance spreads around the world.

Businesses are forced to fulfill consumer preferences by competition; if they fail to provide what buyers want, they can take their money elsewhere. The absence of competition uncontroversially leads to higher prices and lower quality of goods and services. Governments use the high costs of switching governments and the high cost of starting a new government as barriers to competition. These barriers are undesirable for the same reasons as in the market. They lead to lower quality public goods and higher taxes. There are several technological and institutional strategies that we could implement in order to lower barriers and increase competition in the provision of public goods like rule-making and arbitration.

Barriers to switching governments include the costs of moving, crossing borders, job search, and cultural change. These costs can be decreased by transportation technology, federalism, and remote work. In 1850 the fastest route from New York to San Francisco was a 50 day boat journey through the Isthmus of Panama that cost several thousand dollars and put you at high risk to die of cholera on the way. Moving long distances is now much cheaper, faster, and safer than it was and there is room to improve with advances in supersonic air travel, high-speed rail, and self-driving cars. Federalism can decrease the costs of switching governments by putting many governments close together and uniting them under a free trade and open borders zone. Moving from Texas to Florida is a lot easier than moving from Cuba to Florida and Albemarle County to Fairfax County is easier still. The more autonomy that local governments have, the easier it will be to choose preferred bundles of public goods. Finally, remote work makes moving less costly by making location less important. One no longer needs to search for a new job when moving to a new place. These present and future technologies and institutions are ladders over the barriers to switching governments.

Starting new governments has traditionally required conquest or revolution, but new institutional forms such as special economic jurisdictions and decentralized autonomous organizations allow for much lower entry costs into the market for government services. Special economic zones are already allowing for more competitive governance in China, India, and Honduras, and they are spreading quickly to many more nations. Decentralized autonomous organizations (DAOs) are a way for people to securely organize social groups and governance around an agreed upon set of rules. These preference aggregation algorithms can act as venture capital firms, hedge funds, and even provide public goods. New technology and institutions have made Friedman’s assumption of a monopoly over the creation of rules, arbitration, and public goods provision unnecessary.