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Sunday, April 12, 2015

The Age of Exit Has Arrived

Competition will drive the future of governance

The 20th century was an era defined by the clash of ideologies. Fascism. Communism. Democracy. As adherents mobilized armies, the implicit assumption was that to be correct was to be universalized — by force if necessary. My ideology is the best, they thought, and we are so sure of it that we are willing to impose it on everyone.

Luckily, we’re moving away from such ideological crusades. By the end of the twentieth century, it seemed social-democratic liberalism had won, but history has not ended.

Instead of ideological battles, the 21st century will be defined by political decentralization. Rather than enforcing a single political model as ideal for all of humanity, people will instead choose from a sort of political menu. Political decisions will be made on a more localized level, encouraging experimentation and innovation.

The economist Albert Hirschman differentiated between “voice” and “exit.”  In any given system or organization, voice is essentially about expression: protesting, voting, speaking out, or otherwise raising your concerns and hoping the organization responds to them. Exit is about leaving the system to join — or maybe even to create — a new one.

It is important to note that voice and exit are complements, not substitutes. The power of exit enhances voice, ensuring decision makers have an incentive to listen to you.

Traditionally, people have relied on voice to influence their governments. This occurs either explicitly through democracy, or implicitly through protests and even the possibility of revolution, which is often the only choice in oppressive regimes. Exit can only happen through emigration.

This, however, is changing. Independence movements around the world are gaining influence and attention. Complete independence is not the only way for political decentralization to occur; it can also mean devolving more political power to the provincial or city level.

There are two important aspects defining the Age of Exit. The first will be the creation of new political units. Rather than emigrating, people are choosing to reject centralized authority and exit the larger system in favor of new and smaller units. Second, with more and smaller polities, as well as decreased social distance, it will become easier to move between units. Both shifts raise the power of exit as a political mechanism. But such devolutions of political authority also magnify the power of voice by giving residents relatively larger influence over their local governance.

Exit via migration is a weak option when there are few choices and many barriers, but political independence movements will increase the number and variety of options, lowering the cost and increasing the power of emigration.

The most recent example of political independence is Scotland, which, while narrowly choosing to remain part of Great Britain, nonetheless showed the world that peaceful exit is possible. Catalonia is another prominent example, and many influential economists support Catalan independence. The quasi-state of Iraqi Kurdistan is showing itself to be civilization’s most reliable ally against ISIS. Somaliland has had free and fair elections for over a decade now, though it has yet to gain international recognition.

Even if such independence movements fail to achieve their stated goals, there is still likely to be a devolution of political power. England promised greater autonomy to Scotland in an attempt to stem the need for complete independence. Kurdistan now has de facto autonomy.

Another point on the trend line is the increase in the political authority of cities. Dubai is the best example, existing only as a desert a mere 25 years ago. Saudi Arabia is building a new city, the King Abdullah Economic City, which allows greater social freedoms. Lagos Nigeria is showing how power can be devolved to already existing mega-cities.

Why political decentralization is happening is a trickier question. However, it can be broken down into two important components:

  • First, the advantages of large states are diminishing. Despite bleeding headlines, the world is a far more peaceful place than it used to be, which reduces the necessity for large, costly armies. The world is also becoming more open. Because there is increasingly free trade among nations, there is less value to creating insular regional economic blocs.

  • Second, the advantages of local governance are increasing. National governments are slow to respond to the ever-changing needs of citizens. Local governments are able to experiment at lower cost and quickly copy successful experiments.

Moreover, the costs of exit are going down. Increased mobility and smaller political units will allow people increasingly to vote with their feet. The old political questions of which ideological empire controls which territory will give way to a choose-your-own-governance meta system.

Thus, to be successful, political units will have to attract residents—that is, to providing better services at lower cost. Increased competition among smaller political units will spur innovation, leading to new forms of governance. Many will fail. But the successful will be replicated, outcompeting more stagnant forms. Singapore, Dubai, Hong Kong, Switzerland, and Lichtenstein show the beginnings of such success. 

Not all the governments will be libertarian. In fact, most probably will not be. Some will experiment with higher levels of redistribution; others with petty tyrannies, zealous zoning and even social exclusion. However, competition will eliminate unsuccessful models. Ultimately, the meta-rules that are emerging are decidedly libertarian in flavor, as choice will govern the survival of political units.

Find a Portuguese translation of this article here.

  • Mark Lutter is writing his dissertation on proprietary cities at George Mason University.