The fundamental trouble with government is that it is unconstrained. There is no process to achieve the optimal amount of regulation or private sector intervention, and even if it is perchance achieved at one point, there is nothing to keep it there. If we admit that some exercise of power is desirable, the line beyond which we consider it abuse is, practically speaking, very fuzzy. If we grant the power to tax at all, how much is too much? If we grant the power to bust trust companies, what’s to prevent them from using that power arbitrarily to shape the marketplace to their liking? Without a strict separation of economy and state, the state accrues vast powers over the economy that were never intended and are almost always detrimental. Government failure is more dire than market failure – not in each case at a single point in time, but because of the dynamic effects – the apparatus cost.
But instead of giving up on government, what if we could implement market processes to government policy?
Prices on the market face the same problem of a fuzzy optimum. If Motts charges $2 for a jar of applesauce, why not $3, or $5? A priori, there is again no line between desirable and abusive. But the market economy has a feature that government does not: competition. Competition, both among producers for consumers and among consumers for products, drives prices down and up, respectively, until they reach an equilibrium. Motts cannot charge $10 for a jar of applesauce because people will go buy Dole applesauce. Dole, on the other hand, cannot charge below cost for very long because people will flock to their product and accelerate their loss of money until they fail. The equilibrium price is where the upward and downward forces stabilize. Not only does this give us a definite price, but one that optimally allocates the good.
What would such a spontaneous order look like for governments? Well, the first prerequisite of a competitive market is competition. States right now barely compete with one another. Yes, globalization has brought much good in the way of liberalizing economies worldwide in order to attract business, but this is only scratching the surface of the possibilities afforded. The only prerequisite of a microfederalist supersystem is completely open borders.
Open borders allows for people to “vote with their feet”, so to speak. If a government taxes too highly (the price is too high), or is inefficient in providing public services (bad quality), people can simply move out to more friendly states. Likewise if a government gives too much in the way of welfare benefits (charging below cost), people will flock to it and bankrupt the state. Governments will be forced to eliminate both welfare benefits and taxes, making for very lean states.
States must also be allowed to fail economically. The failure of a state, much like the failure of a corporation for its employees, is not the end of the world for its populace. More efficient neighboring states can buy out failed states by assuming their debts and buying out their residents (stockholders).
Conversely, states must be allowed to divest themselves of regions, creating separate states. The marketplace works through acquisitions, mergers, failures, and divestitures to arrive at the optimal firm size in a particular market – from large single-firm markets with high barriers to entry (like utility companies) and those with high economies of scale and a few major players (like electronics companies), to markets with low barriers to entry and multitudes of smaller competitors (like parts of the food industry). There is no possible way to determine optimal firm size without this process. Likewise, without a competitive process, there is no way to determine optimal size of governments, in population, geographical size, or scope of authority. Though exorbitantly overstretched governments can currently fail on account of unwieldiness (both intensive – e.g. the Soviet Union – and extensive – e.g. Europe’s colonial empires), the current governments of the world are almost certainly still larger than optimal, sustained only by lack of competition.
A competitive microfederalist system would make procedural problems practically irrelevant. Every form of government, from democracy to dictatorship, would be forced to act in roughly the same manner – operating at regulatory equilibrium, much like firms within a market will behave competitively despite being organized differently internally (though, like the case for Market-Based Management for firms, one could make the case that democracies will be better able to adjust than dictatorships. One might also make the opposite case.). The upshot is, in long-run equilibrium, we get the optimal mix of government provision and market provision, each constrained by competitive forces in their respective spheres.
Furthermore, this system provides for choice in regulatory preference. Just like Coke and Pepsi have natural markets of people who prefer one over the other, governments could tailor their policies to their localities. Gay marriage (or marriage benefits at all) would be adopted by some governments, and not by others. Predominantly Islamic states could without problem live under Sharia law. None of this is problematic with open borders, because like a homeowners’ association that requires neatly mown lawns and bans red drapes, there is always the option to leave. All associations are voluntary.
It is a curious shortsightedness that makes conservatives worry the welfare state will expand if we should open the borders. Closed borders, indeed, are what has allowed the establishment and expansion of all manner of public and semi-public welfare programs. A plurality of open-bordered competitive political entities, more so even than the total abolition of the political, commends itself not only as an ideal end state, but as a self-reinforcing path forward from our present state.