Sunday, April 1, 2012

Charter Cities and Government Innovation

The government industry is stagnant. There are few new service providers. When a new provider of government services comes into existence, it is almost always carefully constructed by existing government entities such as the United States government or the United Nations (see Iraq and Afghanistan). 

In other industries, technological progress is made when entrepreneurs with ideas for beneficial innovation try them out. They either succeed and see their ideas have a large impact on their industry or they fail and their failed ideas dissapear. In government, there is no chance for this Darwinian process to play out. That is why structuralists support more entry into the government industry through vehicles like Seasteading and Charter cities. 

Paul Romer is pioneering the effort to make charter cities a reality. A descriptive motto for this movement would be "Let a thousand Hong Kongs bloom". Honduras has already amended their constitution to allow for land grants for the establishment of charter cities administered by outside government agencies. 

In the short term, charter cities face the barier of legitimacy. It is vital that one of the early experiments in Honduras succeed and demonstrate the value of good, agile governance. Only then can charter cities spread across the world, bringing good governance to those who badly need it. 

Charter cities can bring ideas from the best systems of government today to citizens of the third world who are by and large stuck with ineffective, counter-productive governments. City-states like Hong Kong and Singapore that combine a high standard of living with some of the lowest taxes in the world provide obvious inspiration. 

But charter cities can do more than spread the best systems of government we have today. They allow for entrepreneurs to push the envelope and push forward the state of the art in government technology. 

For example, one of the flaws in the American system of government is that the government judges whether or not its own actions are legal as defined by the Constitution, a clear conflict of interest! Nominally, the courts are separated from the other branches of government. But the other branches have pressured the courts from time to time. And due to the doctrine of stare decisis, bad court decisions can hold the power of law for centuries. Over time, this has led to court decisions which give the government more and more power while gradually narrowing the scope of the Constitutional limits which  are supposed to protect citizens from overreaching government.

What does this have to do with charter cities? A yet to be released paper by Tom Bell convinced me that charter cities could be the first sovreign entities with truly independent judiciaries. Right now, all states provide their own courts. But a charter city can contract out the court system to one or several independent arbitration corporations. The city could publish a list of arbitrators they are willing to use, and citizens could sue the city in any of those courts. The city might still have more power to influence  judges than the average citizen, but with a layer of organizational distance between the state and the courts and a system of competition, citizens might expect more fair trials on average. 

So charter cities can help solve one problem that leads to long term instability in tradional states: the difficulty of precommitting to limit state power and abide by a charter. All states drift towards absolute power over time, punctuated by sudden, violent resets. Charter cities will be better at credibly binding their own hands. This will attract business investment by executives who will appreciate the stability and save the state the administrative burden of building their own court system. 

1 comment:

  1. Experience with arbitration firms suggest they tend to favor whichever party is best able to send them business. If a city exercises discretion over which arbitration firm to use, I would expect the city to pick firms that tend to rule in the city's favor.

    In contrast, I see much less structural problem with elected judges.