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II. IDEAS FOUND IN THE LITERATURE
III. WE MIGHT USE INTEREST GROUPS
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My talk has three parts.
Then I will tell what I have found relating to this question in a search of literature.
And last I will tell a way that we might think about the challenge of dismantling the state, a way that considers the economics of formation of interest groups.
I. SETTING THE STAGE
Bill offers you a job.
The phone rings. It is Bill Clinton. He describes a job and asks if you will accept it. The job is Commander General of the United Nations Peaceforcing Mission in Burundi.
Perhaps I'd better give you some background. Burundi, you know, neighbors Rwanda. It has the same ethnic groups and tensions. And tensions are mounting. Many fear new massacres. So Bill and his buddies at the U.N. have struck a deal in furtherance of their zeal to fix humanity: The U.N. will let Bill do this if Bill will let U.S. taxpayers pay 99% of the tab.
If you take the job you will be in absolute command of 50,000 troops with machine guns and tanks. No force exists in the region which could think of confronting your military might. Your command will be absolute. If you think somebody needs to be shot, you can order it done.
But there is a catch. You are a decent human being, a libertarian. You do not believe in using force. You think that if government has a single legitimate role, it is to protect people from illegitimate use of force. And for all you know Bill may be right: these inhabitants of Burundi may reenact the Rwanda massacres, if left alone with their machetes and their memories of previous abuses of state power, state power used to the advantage of one ethnic group over the other.
And even worse, if you do not take this job Janet Reno will. Bill naturally approached Janet first, offering it to her. But she protested that the need for compassion in the U.S. already overburdens her. She told Bill that she would do it - but only if he could not find anyone else. He has tried a few people who have turned him down. Now you are the last on his list. If you turn him down he goes back to Janet.
This sets the stage for our question today. Can government dismantle government? Assume you are in government in Burundi. You possess not only military might but also other resources and services which can be purchased with taxpayer money. Can you do things which, when you and your forces eventually depart, make it likely that the people will thereafter settle their disputes in civil ways, with a minimum of violence?
And do not forget this: if you do things while you are in power that train the inhabitants to believe that only government can supply certain services, then when you leave the inhabitants will probably set up government to force those services. In this you will have failed.
What does this have to do with the work of the Free Nation Foundation?
This question, "how can government dismantle government", I admit, seems riddled with self contradiction. But nonetheless I hope it leads to educational inquiry. And, looking way ahead, it does raise issues with which we must deal in the eventuality that our free nation movement succeeds.
Suppose with me that one day our movement gains strength to make the step to sovereignty. By this I mean that there will be a large number of people, a million or more, who possess knowledge of the critical institutions which would make a free nation work, and who have such confidence in this vision that they are prepared to move with their lives and their assets to some new place on the Earth where they can set up and secure their free nation.
The real estate on which the free nation would situate might be acquired from some existing state through either purchase or lease. For today's discussion the means of acquiring real estate is not important. But what is important is that any piece of territory would almost certainly have an indigenous population, not libertarian.
Hopefully this population would be small, or easily converted to libertarianism. But in any case we are challenged by the problem of dealing with this population. I believe we should work to preserve their rights and their goodwill toward us.
One way to deal with this indigenous population would be to implement a program to wean them from government. But how is this done?
Think of government as a list of functions.
Here is a way that I sometimes think about government and our libertarian dilemma. Humans have needs, numerous needs. For each of these needs, governments sometimes take on the function of attempting to satisfy the need. Thus for each of innumerable human needs, government has a possible function. In Figure 1, you will see a small subset of these functions. With a list such as this we can think of government not as a single thing, but as a list of functions.
Any person looking at the list could pick out the functions which he thinks government should do. To this person the ideal government then would consist only of the agencies necessary to perform the functions he chooses.
We can find some amusement in noticing that two people, one from the left and one from the right, may agree in their insistence that government is necessary, but may disagree entirely on the functions they think government should perform.
We can also notice anarchy in the opposite: when a person believes that government should not perform some function on the list, then that person evidently believes in anarchy for that particular function. While it seems to me that most people shudder at the word anarchy, in fact most people prefer a system of anarchy to satisfy a great many of their needs.
A list such as this gives us a way to think of the way that government grows. Government grows, I believe, by continually taking on new functions.
One more note: The overwhelming tendency for government to grow, to take on new functions, challenges our ability to write a constitution. If we would purport to write a constitution which would check the growth of government, it would behoove us to have a theory as to what causes that growth. Our ability to specify mechanisms to check the growth will be limited by our understanding of underlying forces causing that growth.
II. IDEAS FOUND IN THE LITERATURE
Let me start by commenting upon what I found in the literature on the subject of privatization, which seems quite near to the subject of our Forum today. Most of the literature on privatization is full of attempts to persuade, to convince doubters about the value of privatization. As you know we are not here attempting to persuade. In the Free Nation Foundation we assume that our audience is already libertarian. We ask not "why dismantle the state" but "how dismantle the state". Therefore some, but not all, of the literature on privatization helps us.
You may know that one organization in particular, The Reason Foundation, specializes on issues of privatization. It is headquartered in Los Angeles, and headed by Robert W. Poole, Jr. In a 1980 book Cutting Back City Hall, Poole gives an instructive example of private policing. In San Francisco, "Stretched across the city's northern section are 62 private police beats, 'owned' by private police officers who are paid by their customers - the businesses, apartment owners and homeowners." p. 39.
Czech experience told by Hazlett
I found good ideas in a recent article by Thomas W. Hazlett, "The Czech Miracle: Why privatization went right in the Czech Republic", Reason April 1995, pp 28-35.
Between 1990 and early this year, 1995, the leaders of the Czech republic have turned over to private citizens most of the productive assets in the country. Private ownership has expanded from about 3% to about 80%. As Hazlett tells it, they used innovative and bold techniques.
They turned over state enterprises to the citizens at a rate of one share per citizen. Eligible citizens were allowed to buy voucher coupons, which could then be used in auctions to bid for shares in state enterprises.
Western experts had scoffed at the plan, saying that unsophisticated citizens could not wisely invest their vouchers. But a market solution emerged: competing investment privatization funds - mutual funds, sort of. These funds had 72% of all coupon points in the first wave of privatization.
The auction included: " 'the highly flexible concept of a privatization project.' Instead of bureaucrats going over the books and deciding what state assets to unload and how, the process is bottom-up. The public petitions the government to privatize a particular property." There was open competition to submit a proposal. This spared the state bureaucrats the overwhelming task of defining assets to be sold. Basic proposals included legal and financial information, suggesting how to privatize the assets.
In this scheme the state uses the people as the source of information. Many of the best proposals were submitted by managers, or insiders in the companies, with knowledge of the operations.
Clearly, I think, the Czech leaders managed intelligently the complexity of the process. While they did tackle considerable detail, they took on only as much as they could manage in the time allotted. As for the rest of the complexity, they set up an auction which would call forth information from those among the citizens who possessed it, and trusted the forces of the market.
Insights from British privatization told by Pirie
I found good analysis in a book by Madsen Pirie, Dismantling the State, 1985. While this book was published by the National Center for Policy Analysis, in Texas, Pirie draws accounts mostly from experience with the wave of privatization in Great Britain which followed the 1979 election of the Conservative government. Pirie deals with subtleties, with the expectations and political power of various constituent groups.
The meat of Pirie's book is lumped in one long chapter, and that chapter is organized as a list of twenty-two methods to dismantle the state. For many of these twenty-two methods we probably already have a general awareness. These include:
contracting out services
charging for services
small scale trials (enterprise zones)
repealing monopolies
liquidate state assets (like a bankruptcy sale - this seems to make labor unions wake up).
Buying out interest groups. Here he gave an example of making it possible to rescind rent control piecemeal. The large vested interest, of people presently in apartments and not wanting to pay more, can be bought out by letting them keep their steal, and rescinding rent control for only new tenants and new buildings.
Setting up counter groups. New interest groups can be established which benefit from privatization, and which will help give momentum to the movement for privatization. He gave the example of selling public housing to its tenants, creating a new group of property owners who will fight for their rights.
Encouraging exit from state provisions. For example, if the marginal cost to the city of collecting trash from a residence is $10/month, offer the resident a $5/month tax credit to opt out of the city service. This way the city gains, and no doubt some residents would take the deal and also gain.
And Pirie's accounts of using interest groups to favor the process of divestiture propelled my thinking about the economics of interest groups. This follows.
III. WE MIGHT USE INTEREST GROUPS
From our standpoint, of wanting to dismantle state, interest groups can be either good or bad. We may be accustomed to thinking of interest groups as bad, as favoring the growth of state. But in our studies we have seen groups which we would call good. Community policing cooperatives exemplify such groups. Here we approve of the motivations of the members, and we applaud their successes.
Another example is provided by insurance companies, in which, similarly, people pool their resources, enabling them to face threats collectively rather than individually.
In a sense we can view our whole problem, of individual liberties being trampled by state power, as a question of the economics of interest groups. Why is it that some interests succeed in grouping, while others do not?
When I think of successful interest groups, I tend to think first of the type of group where a small number of people each stand to gain a lot. And this gain is at the expense of a large number of people who each stand to lose so little that it is not worth the trouble of any of these individuals to fight it off.
But as we have just seen, there are successful examples of the other kind of group, where each member of a large group stands to gain a little at the expense of a small group who each stand to lose a lot. With the example of the community policing cooperative, the large group consists of the community association and the small group consists of the few criminals who would otherwise flourish.
Obviously, transactions costs play a role in restricting which interests succeed in forming groups. And normally this transactions-cost restriction favors organization of the few at the expense of the many.
But if transactions costs can be lowered, then the many, I believe, can be expected to combine to fight off the few. Some institutions thrive because they do just this.
These ideas might justifiably make you nervous. I might sound like a communist, talking about the many combining to protect their interest, combining to win in their squabbles with the few. It might sound like a call for the workers of the world to unite. But I believe economic reality keeps this from descending into communism.
When interests unite and battle with one another, the victors will be those with the most economic muscle. And we know, from von Mises and from experience, that socialism lacks economic muscle. What does have economic muscle, I believe, is individual liberty: human industry freed to work within the rules of a free market.
Look for a moment at the big picture, at the whole problem of fighting off government. In a sense all that we need is a great big insurance company that will protect us from the thieves and bullies in government. For payment of a modest premium this insurance company could represent us and defend us in all battles with the state. Such a company should be viable because, if I understand economics, it serves the interest with greatest purchasing clout.
Coming back to the more modest question of how government can be dismantled one function at a time, we can employ a theory of interest groups. The theory is:
Virtually every act of government victimizes a class of people who would be better served by some alternative institution. If the class of people so victimized can be identified, and if innovation can overcome the transaction cost which inhibits formation of an interest group, then this interest group should be able to organize and prevail.