Exploitation, Exit Rights, and Liberal Democracy 2.0

~by Roger

Note: This post is part of our League Symposium on Democracy. You can read the introductory post for the Symposium here. To see a list of all posts in the Symposium so far, click here.

Let me present a simple, even a slightly oversimplified, model of human problem solving. We advance our situation as we move toward a more desirable state. Steps forward are good.

Of course, sometimes it is prudent to take one step backward to gain the ability to take two steps forward. On net, progress can still be achieved.

It is also wise to consider cooperative steps.  Often we can accomplish more together than separately. Synergy, reciprocity and specialization are just three of the most obvious examples.

The problem is that as we step forward, we can also interfere with the progress of others. It is even possible to move toward a more desirable state by causing another to move back. We can steal, cheat, lie, restrain, exclude, and rape other individuals. We can gain by harming them, with no net progress. Indeed this type of activity is actually massively regressive, as it encourages an arms race of attack, defense, and even proactive annihilation. The best way to move forward is to eliminate the jerk trying to force you back.

Let us call this win/lose behavior “exploitation” — advancing one’s interest at the direct expense of another. Exploitation* is the great enemy of human progress. It leads us not forward but back. It also kills off the incentive to cooperate.  Exploitation leads to a self amplifying, destructive dynamic.

Human prosperity, or dare I say “progress,” is the cumulative long term gain in wide scale advancement toward more desirable states. Not for one. Not for some. For all of us. It is all the steps forward less all the steps back.**

Not that I am suggesting that anyone can actually do the sums. Utility is notoriously impossible to measure, especially when more than one individual with more than one value is involved.  However there are tricks economists, game theorists and philosophers have discovered that allow us to sidestep the measurement issue. One is that a series of voluntary actions by a rational adult experiencing the feedback of her actions is reasonably likely to be a step forward.  Three plus billion years of evolution and several decades of social learning allow us to be reasonably good judges of our own advancement.

This of course assumes the action doesn’t affect others. If it does, the rule of thumb is that the action must be mutually agreed to by all involved (or directly affected) parties. I’ll spare us all the geek speak about Pareto efficiencies and so forth. The basic concept is pretty obvious. Win/win interactions tend to be constructive just as win/lose interactions tend to be destructive. Win/win interactions lead to a virtuous cycle and a creative dynamic.

The key takeaway is that voluntary and mutually voluntary interactions are a good proxy for utility gains.  If you can establish institutions, rules and protocols which encourage a cascading variety of voluntary, mutually advantageous actions and interactions and which discourage exploitation and negative externalities, you can accumulate a theoretically unlimited series of cumulative advances toward the various goals and desires of humanity. Billions of people can make trillions of win/win interactions, which further build upon each other.

What does this have to do with Democracy? 

Sometimes collective action is needed. But it can be wasteful for every individual in a society to weigh in and negotiate a voluntary agreement to every collective decision. In addition, some decisions involve public goods, where everyone can benefit from the activity, but everyone tries to avoid paying, though they would be better off if they did so, collectively.

Democracy is a great way to solve a lot of cooperative problems and to set the institutional frameworks necessary to promote prosperity.  The problem with democracy is that it isn’t just a way to establish institutions and deliver public goods; it is also a way to make decisions where the majority forces the minority to go along against their will.

Consider the following quote from Milton Friedman:

“The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity.  The great advantage of the market, on the other hand, is that it permits wide diversity.  It is, in political terms, a system of proportional representation.  Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color the majority wants and then, if he is in the minority, submit.”

If most want blue, and a few want red, then if we vote to go blue, those wanting to go red are forced to do so against their will. It becomes a win/lose situation.  I won’t go so far as to say it is exploitation, because supposedly the individual agreed to the social contract at the higher level of agreeing to play by those rules.

Even worse, as the extent and range of democratic decisions grows, the extent of win/lose activity grows with it. Where there are winners and losers we know to expect arms races of attack and defense. And that is what we see in aging democracies.  We see special interest groups lobbying for privilege and gains at others’ expense. Groups form to seek redistribution. Others form to oppose this activity. Bureaucrats, talking heads and politicians step up to serve these interest groups, collecting their proper tributes along the way. Indeed they form interest groups of their own, using the system they manage to distribute more goodies from others.

Those refusing to play the game become suckers, and those that are not easily protected, such as the weak and those not yet born, are sacrificed for gains to well organized powerful groups that will play the game. As the nature of the game shifts from collective problem solving to special interest privilege and rent seeking we increasingly shift from a progressive problem solving system to a destructive, problem-fostering one. The system becomes exploitative, and not just metaphorically.

Thus a dilemma. The institution we use to solve problems collectively also tends to degrade into a win/lose, destructive, wasteful, arms race.

So, how can democracy be improved?

1. Limit government activities to the range of problems it solves best, such as public goods and collective action problems. As Friedman clarifies, there are other ways and other institutions to solve many classes of problems.
2. Consider supermajorities where practical to counteract or moderate the temptation to exploit minorities and over-regulate.
3. Consider experimenting with tax payer directed funding in some categories.
4. Use subsidiarity and competition within government where practical to encourage experimentation and allow those with different values and needs to achieve what they desire without forcing everyone else to go along.
5. Build sunset provisions into some government actions so that regulations, privileges and redistributions don’t grow and accumulate like weeds.
6. Outsource or divide government services to competing (profit, non profit or government) organizations where practical to avoid the stagnation and sclerosis of monopoly.
7. Build alternatives and options into programs. One size rarely fits all, so build flexibility in to the system where practical (consider retirement age choices in SS).
8. Build opt outs or exit options into some programs to protect individuals from being exploited by the majority. Government services tend to be over bundled.
9. Build opt ins or entrance options to attract new participants where appropriate. With benefits come responsibility. Think mutually agreed upon social contracts.
10. Experiment. Discontinue failures. Expand successes. Combine and repeat.

I am well aware that a good idea in the wrong context becomes a bad idea. Every idea above can be misapplied to inappropriate problems. I am just suggesting that some of the above may be appropriate in some situations to reduce the “exploitative” trend in democracy. The path forward for liberal democracies is to become more liberal.

While we are at it, can I have a pony too?

So, why am I bringing this up?

A generation ago, a local company with a local plant would hire a local programmer with an ad in a local paper. A generation from now a widely distributed, global company will hire contract workers based upon a global internet search.  Communications, technology and to a lesser extent transportation are becoming unimaginably cheaper, faster, more decentralized, more elastic and more user friendly. Virtual interaction is becoming superior to the alternatives. 3D printing is imminent. Soon, the capital, the firm, the “factory,” the retailer, and the worker will be located not where the customer is, but where it is most efficient to be. If this is San Jose, then San Jose is where they will be.  If it is spread throughout the globe, then it will be spread.

This will massively interfere with the rent seeking and privilege seeking activities of democratic exploitation. It already is. Those using democracy to demand above market rates in San Jose will be replaced by those willing to work at market rates in Dublin. Those companies taxed above the fair (mutually agreed upon) level, will either be replaced by those taxed more fairly, or the corporation itself will move to the locale where it can get the most fair rates.

In the words of Adam Gurri, consider the transition to “a world in which all factors of production were as mobile and elastic as financial capital. If labor and physical capital could flee instantaneously and at low cost from bad policies, there would be little danger from either the predatory or incompetent state.”

In other words, market elasticities, exit rights and creative destruction are going to become increasingly prominent forces in global politics. Jobs and capital can and will flee to non-exploitative realms or industries. Of course free riders will also try to relocate, but successful localities will have to counteract this temptation, or risk themselves becoming an unfavorable, “incompetent” location. Failure to do so will risk becoming the next East Germany, North Korea or Central Detroit. Expect lots of failures along the way. Creative destruction will occur.

Liberal democracy will be forced to evolve — forced to rely less on coercion and more on persuasion and voluntary, mutually advantageous choice.  As alternatives and exit options increase, exploitation, free riding, privilege seeking and over-regulation will become increasingly untenable.

* I am aware that others have used the term “exploitation” very differently, including those that define it as “giving someone a job.”

** For the record, I am not a utilitarian, nor have I ever slept with one.