Montréal, 4 août 2001  /  No 86  
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Jean-Luc Migué is a Senior Fellow of the Fraser Institute.
by Jean-Luc Migué
          Private property anarchists are generally purists. They are solid advocates of their vision, but generally short on institutional arrangements to make it operational. It often seems that only a formally stateless society can gain their favor. This may explain that few libertarian economists adhere to this philosophy in its most radical form. Actually market-like institutional arrangements consistent with a more analytical vision of voluntary association are not lacking. Indeed several can be observed in the real world. I present below an overview of actual observable institutional relations between government and individuals that bring us closer to a free society.
          Free exchange between agents meaning the absence of coercion on the parties to the exchange is the defining characteristic of capitalism. Capitalism implies freedom but no institution is free of transaction costs. I therefore assume that any institutional arrangement that implies consensual sacrifice on the part of the decision-makers pertains to the anarchist model to some degree. This should presumably hold true of a free exchange between an individual and a government. If so, it is my contention that numerous observable institutional frameworks involve elements of voluntary association between the state and individuals and do in fact contribute to the advent of a society free of politics. As such, they move us in the direction of the capitalist anarchy category. Those who favor liberty should pay more attention to these arrangements. 
National and supranational Federalism  
          A first and familiar arrangement favorable to more freedom and less coercive government is federalism à la Tiebout. Free trade is an indirect way of reducing coercion and containing public monopolies, inside and outside national territories. Free market analysts have done a good job of popularising the notion that free trade raises the living standards of the masses. What is less emphasized in public debates on the question is a second, no less far-reaching contribution of freer trade, namely its role in minimising political coercion in society and promoting the advancement of human liberty. In an extension of the federalist principles to international conditions after free trade, more focus should be placed on the role of resource mobility as constraints on domestic public choice. Free trade in private goods, capital and persons can act as an effective substitute arrangement to monopoly government. 
          The government of a national economy with free inward and outward movement of factors and goods, has less power to engage in purely redistributive policies. Imposing heavier taxes and inefficient regulations on domestic resources in conditions of free trade leads first to more rapid and more pronounced substitution of foreign for local production. It also causes capital to move out of higher-cost economies. Finally victims of government abuse may « vote with their feet » and leave the territory(1). 
          As a competitive arrangement in the public sphere, free trade places national governments in the approximate position of a province, or a state, or a canton vis-à-vis the national economy in national federations. As a federalist process, free trade is in a real sense the extension of the market economy to the organisation of the political structure. And its logic extends to any political structure where the power of the central authority extends to less than the size of the economy where resource movement is unimpeded by trade barriers. The mobility (exit) of goods and people acts as an alternative to politics (voice) as a process for revealing preferences. 
          Resource owners in those conditions do acquire some power to choose the government that will rule over them. In most countries of the European Union and of North America after NAFTA, residents can more easily escape the burden of monopoly governments either by purchasing their supply outside their own country or by moving their assets or their person to neighboring countries offering more favorable legislations. Even under the rules of the WTO (GATT) after more than half a dozen rounds of negotiation, conditions are evolving towards what looks more and more like federalism at the supranational level, thanks also to technological innovations which have enhanced resource mobility. 
          Globalization and resource mobility across national borders is the first line of defence against the public monopoly structure put in place in Europe as in most Western nations over the last 40 years. 
          Regarding the dimensions addressed in these pages, those forces have brought us a little closer to contractual governments and voluntary association in the public sphere. 
Contractual cities 
          A number of contractual cities have been developing in the US in recent years. Private communities, as they are some times called, are set up alongside conventional municipalities. Sunshine Mountain Ridge Homeowners Association in Arizona, Reston in Virginia or Irvine in California are some of the « private cities » that have emerged in the recent past. Owners of land and buildings acquire rights to vote in the club in proportion to the value of the property owned. Only owners can vote. As such shares in the local entity can be bought and sold in the manner of a private company. Voting rights are traded as property changes hands. The association of owners constitute the government which set co-ownership rules(2). 
          From a libertarian standpoint, two of the weaknesses of conventional municipalities are overcome by this arrangement. Location choices are made more easily reversible, inasmuch as good and bad decisions by the local council are immediately capitalized in the property of club members. As owners possess tradable rights in their property, minorities are no longer at the mercy of majorities in the decision making process. Good decisions by the majority are also profitable for minority owners, while bad decisions penalize the majority as the price of their rights also suffer. On the whole, voters bear the benefits and costs of their decisions. 
     « Exasperated by the lasting secessionist inclinations of some segments of the population in the Quebec province, some Canadian observers are turning to the concept of parallel governments to break the deadlock. »
          In traditional cities, individuals have little or no incentive to participate in the decision making process by virtue of the familiar collective action theorem. By contrast, owners in contractual communities rely more on voice to protect their specific investment, while tenants are induced to resort more to exit as moving costs are lower for them. Entrepreneurs who set up the private community are the residual claimants. Their interest is to establish efficient constitutional rules to enhance the value of their organization. From the point of view that concerns us here, one important dimension is that co-ownership is voluntary as opposed to municipalities where it is not. 
Non geographic federalism or parallel governments 
          In traditional federalist arrangements, public suppliers do not themselves gain mobility the way private capital moves across borders in search of higher returns. The French ministry of education does not directly compete with the German ministry, because both hold government-enforced monopoly powers in their respective territories. 
          While national economies can almost costlessly derive the benefits of global private investments in R&D, most are denied the benefits of direct competition between government suppliers across borders. If one can hardly conceive of being deprived of the contributions of IBM, GE, or Macdonald to the spread of new technologies and methods, why are we denied the technological contributions of public multinationals in our consumption of health, education or other services? 
          Yet there is a conceptually feasible arrangement capable of promoting the benefits of direct investment and innovation transfers by national public suppliers of services such as education, health services, public pension funds, etc. It is called non-geographic federalism(3). Since a large fraction of publicly-supplied services is of a non-public nature in most nations, there is often no reason why governments should have geographic monopolies. In numerous instances, few technical impediments in the production or cost structure prevent us from doing so. No demand-side considerations either seem to keep us from seeking global know-how from this source. The real cause of the things we do without is the forced implementation of national public monopolies within national borders. The share of public production originating from foreign-controlled concerns is often reduced to nil for our collective impoverishment. 
          Under present-day federalist arrangements, parallel governments are prevented from competing for the favors of voters outside their territory. A provincial or state government cannot compete for the supply of services on the territory of its neighbor. Nor can the state of New York compete with Ontario for the supply, say, of a labor relations legal framework. Only higher, central authorities have the power to compete with lower-level authorities. The pitfalls resulting from these restrictions are obvious. 
          By contrast, parallel governments have jurisdiction of a non-geographic nature. All governments have equal, non exclusive jurisdiction over all territories provided they can obtain the consent of the governed. Members voluntarily enter the « association » or « club », which then has authority to tax the members. 
          The concept of non-geographic governments is not merely theoretical; it does have real-world representation on a small scale. Already in Europe, direct foreign investments by national firms are governed by the laws of the country of incorporation with adjudication governed by the laws of this state, rather than the laws of the host country, as is the rule within the North American Free Trade Area. United States businesses may choose their state of incorporation, regardless of the state of the plaintiff. This has made tiny Delaware the preferred state of incorporation of businesses. Extension of this framework to product liability laws has recently been advocated by analysts.  
          The « choice in education » movement in Canada and the United States points to the kind of arrangements that can free voters from the shortcomings of monopoly national or local governments. Parents can choose to « purchase » school services from a neighbouring school board. Tax dollars follow pupils to the district that supplies the services, which implies that a school board implicitly has the power to tax resources outside its district. Members of the Montreal business and political elite for generations have had the option of sending their children to a school which for all practical purposes is a subsidiary of the French ministry of education. Why is this privilege denied to the rest of the common people? Exasperated by the lasting secessionist inclinations of some segments of the population in the Quebec province, some Canadian observers are turning to the concept of parallel governments to break the deadlock(4). 
          Canadian residents in Quebec and Quebeckers residing in the rest of Canada would choose the government which would rule over them. Those who self-identify as Canadians in Quebec would pay their taxes to the Canadian government and would be guaranteed full civil and property rights by this government. The rule would be reciprocated for Quebeckers residing in Canada. Similarly, a proposal has been considered to constitute the numerous separated aboriginal communities of Canada into a single province. 
          One advantage of parallel government is that the cost of moving across jurisdiction in the search for one's preferred administration is removed. It provides the benefits of government competition without its intended beneficiaries having to move. This desirable result is accomplished as voters benefit from an escape mechanism available to them to move away from the excesses of monopoly government. Parallel government arrangements place every government in the position of individual firms in the private market. Indivisibilities associated with public supply are removed by the availability of an escape from excess burdens. Then only wealth-creating entrants can hope to find a place in the market for votes. 
          Capitalist anarchy is not the absence of scarcity. Even under free exchange the parties are forced to sacrifice something to get something else. This is not just an empty statement. Consumers have to give up money to obtain their preferred goods or services. Earning income requires that time and effort be sacrificed. Perhaps the weakness of pure anarchy is to assume that there are indeed free goods. More realist economists know that all institutional arrangements involve transaction costs. The cost of pure stateless society may be infinite in that life and property can be threatened. On the other hand, the cost of having to freely choose the public administration to whom to entrust one's wealth can be highly reduced by arrangements which come close to resembling capitalist anarchy. Some of them may remain unrealized visions, at least at the supra national level. On the other hand, parallel governments and contractual states would be such an immense step forward in the search for minimum coercion that they deserve more attention from libertarians. 
1. For a more extensive discussion of this thesis, see Jean-Luc Migué, Federalism and Free Trade, Hobart Paper 122, Institute of Economic Affairs, London 1993.  >>
2. Interested readers can get a more extensive treatment of this institution and its analytical significance in B. Lemennicier, La théorie contractuelle des gouvernements locaux, in the author's Web site.  >>
3. Gordon Tullock (1994), The New Federalist, Vancouver: The Fraser Institute. The author, who has initiated analysis of this arrangement, designates it by various names, including « sociological », « non-geograhic » federalism or simply « parallel » governments, « clubs » or « associations ». The idea has been taken up in the latest issue of The Independent Review by Bruno S. Frey, « A Utopia? Government Without Territorial Monopoly », VI, Summer 2001, 99-112.  >>
4. For an explicit formulation of this arrangement, see Conrad Black (1995), « Abandon the national effort to accommodate Quebec », The Globe & Mail, November 7, A23.  >>
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