Decentralization: Please Hold Your Applause By Bryan Caplan

Recently, some of my friends singled out this piece by Jeff Deist, president of the Mises Institute, as truly awful. When I actually read it, however, it seemed like a reasonable presentation of a plausible view. Deist:

[L]ibertarians are busy promoting universalism even as the world moves in the other direction. Trump and Brexit rocked the globalist narrative. Nationalism is on the rise throughout Europe, forcing the EU to defend itself, secession and breakaway movements exist in Scotland, in Catalonia, in Belgium, in Andalusia, even in California. Federalism and states’ rights are suddenly popular with progressives in the US. The world desperately wants to turn its back on Washington and Brussels and the UN and the IMF and all of the globalist institutions. Average people smell a rat. We should seize on this. Mecca is not Paris, an Irishman is not an Aboriginal, a Buddhist is not a Rastafarian, a soccer mom is not a Russian. Is it our goal to convince them all to become thorough Rothbardians? Should libertarians care about gay marriage in Saudi Arabia, or insist on the same border arrangements for Brownsville, Texas and Monaco? Should we agitate for Texas-style open carry laws in France, to prevent the next Bataclan? Or would our time be better spent making the case for political decentralization, secession, and subsidiarity? In other words, should we let Malta be Maltese?

Deist concludes:

In other words, self-determination is the ultimate political goal. It is the path to liberty, however imperfect. A world of seven billion self-governing individuals is the ideal, but short of that we should prefer the Liechtensteins to the Germanys and the Luxembourgs to the Englands. We should prefer states’ rights to federalization in the US, and cheer for the breakup of EU. We should support breakaway movements in places like Catalonia and Scotland and California. We should favor local control over faraway legislatures and administrative bodies, and thus reject multilateral trade deals. We should, in sum, prefer small to large when it comes to government.

But does decentralization alone really promote liberty or prosperity? The mechanism is elusive at best. Imagine a world with a thousand sovereign countries of equal size. This is far more decentralized than the status quo, right? Suppose further, however, that there is zero mobility between these countries. Labor can’t move; capital can’t move. In this scenario, each country seems perfectly able to pursue its policies free of competitive pressure. Why should we expect such policies to promote liberty, prosperity, or anything else?

The story would change, of course, if you combine decentralization with resource mobility. In that case, each country’s government has to compete to retain labor and capital at home. If you don’t make the customer happy, somebody else proverbially will. But without this “universalist” mobility rule, decentralization leaves everyone under the rule of a preordained local monopolist.

But wouldn’t decentralized governments voluntarily embrace mobility? It’s complicated.

A profit-maximizing dictator might try to get rich by welcoming the world’s talent to a glorious land of (apolitical) freedom. But then again, he might try to hold on to the riches he already has by isolating himself from the rest of the world and crushing his real, potential, and imagined enemies. See North Korea.

Nor is democracy much of a remedy. Yes, democracies give leaders strong incentives to adopt popular policies. But if you study public opinion, you’ll discover that neither libertarian nor wealth-creating policies are very popular. While people around the world migrate for prosperity and freedom, they rarely vote for them.

But doesn’t decentralization by itself have any systematic effects? Sure. Decentralization yields variance. In a world of a thousand sovereign nations, you’ll see all kinds of weird alternatives – a veritable zoo of polities. A few will probably be great. But if resources are immobile and leaders have familiar political incentives, there’s little reason to expect their greatness to be contagious. And the fact that a few great polities exist on Earth is small comfort to the vast majority of people who will never get to live or invest there.

Now you could say, “Sure, decentralization works poorly without high mobility and good political incentives. But what good are high mobility and good political incentives without decentralization?” My main response: Once you make this concession, you should be suspicious of efforts to increase decentralization at the expense of mobility or incentives. If you can decentralize without changing anything else, great. Otherwise, hold your applause until you’ve carefully analyzed decentralization’s net effect on liberty and prosperity.

P.S. For further analysis, see Week 2, section X and Week 12, Section I of my graduate Public Choice notes.