Saturday, March 19, 2011

Open Society

There are public goods and there are private goods. An example of a private good is bread: you buy bread and you own it. It is a good idea to own your food, it is healthy for your individual rights. Public goods are non-excludable goods. This means that you can't exclude people from using them. Non-excludability means that you can't charge people who are using public goods. For example, national defense. Even if one individual has never paid his taxes, he is still protected against foreign invasions. For example, a KGB agent walking on a street in Switzerland is very well protected against foreign invasion, even though he did not contribute at all to Swiss national defense. Public goods are often underproduced. When an individual buys a public good he will enjoy it together with many people who did not pay for that good. As a result, an individual will not buy a public good unless most other people will also buy that public good. Without such a guarantee, nobody will buy the public good, and the public good will be underproduced. For example, many towns lack green spaces or clean air.

Good government is a most important public good. In fact, in order to have private goods (which is a good idea), one must have a good government. Public goods precede private goods. In a jungle, one can not have private goods. He can have some goods, if he knows how to fight to protect them, but they are not private goods. Private goods are recognized and protected by a society, through some form of government. Good governments provide lots of public goods, like green spaces and national defense, but who provides the good government?

There are two ways to provide a government:
I. A powerful individual can provide some government. This is the case of a vertically integrated society (VIS). In such a society, the client – patron relationship is stronger than the peer to peer relationship. Equal individuals or families compete with each other for the favors of a powerful person. This is a stable equilibrium because the powerful individual keeps his subjects divided and weak. If one subject seeks the cooperation of another, he will be turned in, the one who turned him in will be rewarded and he will be punished. This type of government provides some law and order and contract enforcement but it suffers from discretionary authority and many other inefficiencies.
II. A voluntary association of equals can provide some government. This is the case of a horizontally integrated society (HIS). In such a society, the relationship between equals is stronger than the client – patron relationship. This is a stable equilibrium because the members of the association identify those who don't play by the rules and exclude them from the association. The members of the association can rely on an intensive exchange of information with their peers. Please note that the association has to be voluntary. If it is compulsory or paid, then the one who imposes this restriction or provides the money is in power, not the association. Money itself exists within a government, such that they can not precede the association.

The above two paragraphs summarize the results of several decades of research which are published in: R. D. Putnam, Robert Leonardi, Raffaella Y. Nanetti, Making Democracy Work, Civic Traditions in Modern Italy, Princeton University Press, Princeton, New Jersey, 1993. The book is written in a social science jargon and makes use of some advanced statistics, which probably contributed to its undervaluation. In my opinion, this book contains a most important advancement in science, equivalent to the Newton's law of universal gravitation. One can see the application of this finding for a group of five people sitting around a table and for a nation of many millions. The production of public goods like security and a stable ecosystem are currently the main challenges for our survival over the following decades. This theory has finally allowed us to take conscious action to solve such problems and I believe that the theory already influences government policies.