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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