I recently read a couple of interesting economic history papers on the interactions between institutions, economic and political power, and economic growth. The first was the econ-famous paper, The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth, by Harvard economists Daron Acemoglu, Simon Johnson, and James Robinson, which has managed to rack up 682 citations (so says Google Scholar). The second was the less-cited (12) but equally-good paper, The Open Constitution and its Enemies: Competition, Rent Seeking, and the Rise of the Modern State, by Oliver Volckart of LSE.
I recently came across a newish article titled ‘Schumpeter and the end of Western Capitalism’ by William Kingston in the Journal of Evolutionary Economics. This line in particular caught my eye: “The decline of capitalism began when financiers were released from this discipline, and it ended with the catastrophe caused by belief that bureaucratic control could replace it.”
Overall the paper sketches what is a very interesting thesis (Schumpeter’s, that is) placed in the context of the GFC and beyond. Well worth the read. It is good to see someone calling out the crisis for what it was – something of a Schumpterian-Minskian-Olsonian-Hayekian Frankenstein’s monster. The common thread: overcentralisation and the pathology of control. It blows my mind that people writing decades ago, up to a century ago, could be so prescient.
The abstract is below and a link to the article is here.
In part I, I introduced a distinction between ‘natural’ and ‘artificial’ non-territorial group formation as a basis for looking at examples of non-territorial practices in governing. In this post, I’ll go into a bit more detail on the natural category, and how particular examples from the past have facilitated non-territoriality.
The first commonality between historical cases of non-territorial governance, e.g. Roman Empire, Icelandic Free Commonwealth, establishment of extra-territorial consular jurisdictions, Austro-Hungarian Empire, territorially-dispersed minorities (Maori in New Zealand, Sami in Norway), and Belgium; seems to be that they tend to occur when already-existing ‘group identities’ are incorporated, marginalised or homogenised by an encompassing state or dominant group.
One of the things I have been looking at recently is the concept of ‘non-territoriality’ in governance.
The idea bears some relation to the political philosophy of panarchy:
PANARCHY (pan-archy: many chiefs; multi-government) is a system of competing, co-existing governments which conduct their operations within the same geographical territories without making any claims to those territories, and whose only powers derive from the consent of those they govern, i.e., those who voluntarily agree to submit to a particular government. These voluntary governments are constituted and operate on the basis of contractual personal law rather than the coercive territorial law of the Nation-State.
David Taylor (1989), For Panarchy
Non-territoriality also crops up in the (small) literatures on functional federalism (FOCJ) by Bruno Frey and multi-level governance by Liesbet Hooghe and Gary Marks. Not to mention to concept of extraterritorial jurisdiction that dates back to medieval merchants and modern(-ish) colonial practices.
Two questions stick out: (1) has non-territorial governance ever came to be?; and if so (2) when, where, and why?
[S]ocialism failed not only because of incentive incompatibility and an inability to utilize knowledge effectively; socialism failed, also, because it allowed little scope for the exercise of creative choice on the part of the participants in the economic process. Or, to state [this] somewhat differently, universalized benevolence could surmount the incentive incompatibility; universalized omniscience (in its usual meaning) could surmount knowledge limits. But even perfect altruists who know everything must live and work in real time. The best of intent will not allow the future to be brought within the present, no matter how perfect the knowledge of the present may be. And if the institutional structure embodies the presupposition that such a feat is possible, stagnation and failure must emerge.
If there is one central constitutional implication of radical subjectivism, it is the recognition that a constitutional framework which accounts for the creativity of the human mind has to be one that allows for, and provides, favorable conditions for learning and adaptation at all levels at which we engage in problem solving, including the level at which we choose the constitutional framework for all other efforts. It should be a framework within which experimenting and exploration are possible, yet one that imposes constraints on the explorative process that make for responsiveness to constituents’ interests as well as for viability in a broader environment. Markets are, as we have suggested above, a paradigm case for such a framework, and the constitutional implications of radical subjectivism may also be stated in the form of a recommendation that we ought to seek, in general, at all levels of problem-solving activity, to provide for market-like frameworks for competitive exploration of alternative solutions. To recommend, in this sense, the market as a model for explorative, adaptive systems, is not to say that we ought to leave everything to “the market,” in the ordinary sense. It is to say that we ought to expose our solutions to the various problems we face to competitive constraints that work like market constraints.
James Buchanan & Viktor Vanberg (2002) ‘Constitutional Implications of Radical Subjectivism, The Review of Austrian Economics, Vol. 15, No. 2/3, pp. 121–129.
The benefits of ‘the market’ are not present simply because the market is some sort of mythological ‘perfect institutional form’. The market works because it ceaselessly cranks through the evolutionary algorithm – ‘variation-selection-retention’ as it is often succinctly put. Buchanan and Vanberg recognise the importance of creativity, experimentation, learning, and adaptation – and rightly state that centralised, monopolistic, or monocentric institution forms (i.e., intrusive social democratic government, socialism, totalitarianism, and so on) suppress economic evolution. In this sense decentralised institutional systems can be thought of as more ‘dynamically efficient’ (as opposed to benevolent, omniscient central planning, which, if it existed, might be considered ‘statically efficient’) – though a better word is ‘evolvable’.
But then, how do we apply an evolutionary algorithm to constitutional craftsmanship? Stay tuned for a radical subjectivist reinterpretation of the constitutional design problem as evolutionary search!