Friday, February 8, 2013

Towards Consensual Governance

This is the title of the final chapter of Fred Folvary’s book, “Public Goods and Private Communities.”  I have covered the basic aspects of his theories here and here.  In this post, I will outline his summary and offer some closing thoughts of my own regarding this idea.

As mentioned in my previous post, Foldvary offers several case studies that demonstrate aspects of the possibility of private provision of public services.  No one example offers a complete picture – each example offers a reality of one or a few aspects of the theory. 

One point that he mentioned in several of the case studies was that, in order for people to implement their version of private community, existing regulations had to be swept aside in some manner.  It was the government sector’s rules that ensured the monopoly of the government sector. 

The example of Walt Disney World [WDW] in Orlando is illustrative:

Having obtained the land, Disney now needed self-government to fulfill his vision for WDW as a proprietary community.  On 15 November, 1965, Disney representatives met government officials at Orlando to discuss zoning and other laws, Disney’s commitment being contingent on reaching an agreement…. The circuit court approved the request for a separate drainage district….

The Reedy Creek Drainage District (RCDD) was formed in May 1966 under Chapter 298 of the Florida code…enabling WDW as landowner to control the environment and construction…. In 1967, Florida enacted Chapter 67-764 (House Bill No. 486) for the benefit of the Walt Disney Corporation…. The new law…‘abrogated nearly all state laws’ concerning building and development.

Foldvary suggests that the rules of the game must be changed.  He cites Buchanan, suggesting that changes below the (small “c”) constitutional level (whether this consists of electing better politicians or changing the laws) will be inadequate, because these will be “thwarted by the incentives that lead to dysfunctional outcomes.”

Such constitutional rules include: (1) those which prescribe the governance structure, (2) those which prescribe the behavior of the members, and (3) those which prescribe the powers of the organization.

Constitutional reform begins with an awareness of the meta-constitution, the ethical framework in which the constitution itself is created.  This ethical basis cannot itself be an agreement, since it sets the foundation for agreements.  This ethic was derived in Chapter 5 as what Locke called a ‘law of nature’, based on the premises of human independence and equality.  Such a fundamental change is not impossible.  Historical examples abound, including the American revolution and movements such as the abolition of slavery and equal rights for women.

Foldvary recognizes that the ethics of the people must be addressed if fundamental change, in the form of three amendments to a constitution, is to be enacted.  He looks to Locke for the basis:

The first, regarding the behavior of the citizenry, could be the codification of the Lockeian universal ethic: Any act which does not coercively harm others shall not be restricted, any state interest notwithstanding.

The second fundamental amendment regards the power of the state:

It would eliminate the taxation of individuals and firms by all levels of government, eliminating the mining of private wealth.

Foldvary goes on to describe the necessity of individual secession as the ultimate check on a government not following the rules, moving on to a third structural reform:

…one that would permit entry and exit into the government business itself, underpricing the cartel.  It would permit any person or organization having a title to land to withdraw the site from any government jurisdiction and create its own governance….an exit option helps maintain the post-constitutional enforcement of constitutional rules.

Foldvary concludes:

The theory presented in Chapters 1 to 8 presents the proposition that territorial public goods generate rents, and, if an organization has ownership rights to the sites on which rents arise, the rents reveal the demand for the goods and provide the means to pay for them.

The primary hypothesis – that incentives for personal gain do not in general induce private agents to provide the public goods that the people in the service domain effectively demand, because there is no way to induce individual users to each pay for a portion of the good – has been rejected…. Since the issue is the feasibility of private provision, the existence of the case study communities is sufficient to reject the hypothesis of market failure.

It seems to me that Foldvary has done a very good service with this idea as represented in this book.  He takes the best feature of the system of land value tax as proposed by Henry George, while eliminating the worst (i.e. where land should be common property), thereby developing it into a fully voluntary possibility, one that can be disciplined by the market.

Ultimately, the payment by the landowner is directly tied to that item that most directly benefits from community goods – the land.  Good streets, lighting, recreational facilities, security, etc.  Several such cooperatives can contract together for other services – broader security issues, for example.

Foldvary’s concept ties incentive for the entity providing the services to meet market desires at prices that offer value to the customers.  It offers the possibility for dissatisfied customers to withdraw consent – by not paying for services, joining a different cooperative, or moving without an exit liability and without requiring permission.

It allows for community pressure to be used as the means to motivate non-payers and free-riders to pay.  Not force, but peer-pressure. 

Folvary’s work deserves wider discussion and dissemination within the dialogue of the free-market, libertarian community.  I hope to have done my small part in this.

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