The Archipelago, Part 2: Theory

Part of a series on the Archipelago: Part 1, Part 3

In Part 1 of this series, I discussed Scott Alexander’s Archipelago. In short, by having different states compete for citizens, the Archipelago encourages states to create public goods (like in the Tiebout model) and provide competent governance. Additionally, the diverse governance this creates can help meet peoples diverse needs.

Here, I examine several theoretical issues with the Archipelago and how to approach them. As you will see, many issues in the Archipelago are analogous to issues within a single government, but are easier to solve at a larger scale.

Scott Alexander identified one of the most important pieces of the Archipelago: peace. There needs to be a system to prevent wars between states. Alexander suggested having some conscription system wherein each state provides soldiers to a peacekeeping army. Alternatively, each member-state could provide yearly funding for this military if they did not want to provide citizens. This system might end up looking a lot like NATO, defending threats from the outside as well as preventing threats within. In an extreme case, the Archipelago could maintain peace by being the sole possessor of nuclear weapons (or by giving each state an equal stockpile), but this seems unnecessary. By having strong norms for peace as well as interdependent trade between states, peace can be maintained and individual governments can avoid wasteful spending on arms races.

What about smaller acts of aggression like a cyber-attack? For this, the Archipelago will need to foster a system of courts or potentially create arbitration agreements between member states. As punishment for acts of aggression, states can be fined to prevent future attacks. Overall, this system seems like it would be relatively straightforward to implement.

The logistics of keeping the peace raise another issue. Security is a public good, so how exactly do you fund public goods across states? The Archipelago requires funding to provide security, a court system, and administer governance. In practice, institutions like the World Bank provide some global public goods, but it falls short in general. I have looked at this briefly in a previous post, but it seems there is more work to be done here. Fortunately, some of the questionable assumptions made in the mechanism design literature concerning individuals might be reasonable when considering governments. For example, at the state level, quasilinear utility in money may be reasonable, suggesting that the VCG mechanism may be appropriate. Even if we ignore the possibilities of mechanism design, taxation may solve our problem. By taxing member states, revenue can be generated for public goods. For example, the net imports and exports of a country could determine that country’s net income and could be taxed at a flat rate. Alternatively, each transaction between states could be taxed using a VAT. Taxing states as a constant percentage of their GDP would be even simpler. Note that some of these systems (like their individual counterparts) could induce deadweight loss. One interesting approach would be to adapt a Land Value Tax to this system.

Are externalities an issue in the Archipelago? I would argue they largely are not. First, a system of taxation can be built on top of the existing public goods infrastructure to discourage negative externalities (such as pollution) and reward positive ones (e.g. innovation). Second, most issues occurring between two member states can be worked out by those member states independently. This is Coasean bargaining at the state level. However, unlike between individuals, a large difference in information or high transaction costs are unlikely at the level of governments, making the Coase theorem more applicable. This suggests that as long as the Archipelago has a system to enforce contracts, most issues between states will work themselves out.

Thus far, we have tackled straightforward issues in governance. Peacekeeping, taxation, and trade are routinely dealt with on the individual and state level today. Now, lets look at issues specific to the Archipelago.

Since the Archipelago involves competing for citizens, several dangers can be anticipated by extending problems already found in economics and finance. For example, a “state-level Ponzi scheme” is possible here. Simply have each new citizen pay a “citizenship fee” and find new citizens to add to your state. This Ponzi government can entice people to join using flashy parks and monuments, advertising a quality of life the state cannot support. The population will grow until no new immigrants can be found, at which point, the government will collapse and the citizens will move to other states. Popularity bubbles like this can range from relatively harmless to disastrous. The Archipelago can help prevent this by investigating the revenue streams of each government and providing useful public information in this regard. However, this mostly seems like a non-issue, as governments like this cannot outlast honest governments and citizens join or leave of their own accord.

Similarly, a state could inflate it’s value to potential citizens and then not deliver on its promises. The boundaries between a government being genuinely optimistic and outright deceptive are murky, and I treat this as a “practical” issue in the next post in this series.

Alternatively, citizens could manipulate states using mass migrations. For example, a group of green activists could leave a country if the country does not meet their demands for a wildlife preserve. I am not sure to what extent this is really a problem as much as a sign that the system works. To the extent that people might leave a country which is independent of that country’s overall quality of governance, there should be plenty of people ready to take their place.

It is important to note that this ability to pick up and move somewhere else is essential to the function of the Archipelago, but it is not without its downsides. Being able to move easily creates moral hazard where citizens and governments take more risks than they normally would. Though encouraging risk taking could also be considered a benefit of the Archipelago, so whether or not this is a problem depends on the implementation details.

One could also imagine that sometimes peoples movement might be too free. The collapse of one country could create large immigration flows into another, damaging institutions there. Rapid changes in net migration might outpace the ability of different countries to build houses or adapt their economies. As such, the Archipelago will need to develop a clearing house for citizenship. Essentially, there needs to be a method for smoothing large scale transitions between states and providing housing when there is not room in other countries. One approach might be to require large, unused housing supply in each state which gets filled when migration flows are high, having immigrants spend a few days there to smooth the transition into a new country. Alternatively, people could face “surge pricing” to enter a country when demand is high there, encouraging people to move to countries which are more able to deal with new migrants.

Free movement is the greatest strength of the Archipelago, so it is important to protect citizens’ right to move. Scott Alexander anticipated that states may coerce citizens to stay in their country and recommended strong enforcement measures against this. But there are also less obvious ways for a state to hold on to it’s citizens. One of the easiest ways to do this is through propaganda. If a country can convince it’s citizens that every other country is terrible, then nobody would leave! It is revealing that many totalitarian regimes already do this, suggesting that propaganda is an efficient way to control citizens. As such, free sources of unbiased information about other states will be needed to help people make good decisions about where to move.

It is arguably more important to make sure that children are well informed in the Archipelago. In theory, states could use their education systems to brainwash children into staying in the country, never exploring new ways of life. Alexander proposed a simple solution to this where each student receives unbiased instruction about the different states within the Archipelago, preventing parents from brainwashing their children about the danger of leaving. Another approach may be to give students sponsored field trips to other countries, or require each citizen to spend some time in a different state than the one they grew up in.

Beyond propaganda and coercion, there are several ways which citizens may get “stuck” in one country. One benign possibility is that people may stay in a less-than-ideal country because their friends or family live there. Finding ways for small groups of people to move together to new places would help, but to some degree, people will always face a trade off between their social lives and the quality of governance.

More seriously, one country may possess important job opportunities which cannot be found somewhere else. This would mean that, despite low quality governance, the country would continue to retain citizens because they are tied to their employment. This happens today with places like the Bay Area retaining tech workers, despite increasing housing costs, due to network effects. Relatedly, a country may possess properties such as good weather which are unrelated to their quality of governance. In both cases, the local government collects “rent” on its strong economy or good weather. Because of this problem, the Archipelago could encourage companies to establish locations in several different states. If the employment opportunities in question are physically centralized (e.g. mining) the Archipelago could require that several states share access to that location. This might result in cities divided into subsections controlled by different governments with free movement between parts of the city. Furthermore, to compensate for inequalities between countries based on natural resources or climate, taxes can be paid to share this good fortune more equally.

The existence of natural inequalities between different countries suggests a system of welfare at the government level may be necessary. In other words, each government in the Archipelago should receive a certain amount of resources, population, and financing to help get things started and maintain stability. The details of this depend on the specifics of the Archipelago, but one can imagine giving each state a slice of total tax revenue as a “basic income”. This will allow new states to weather any volatility, essentially acting like startup funding. A consistent revenue stream will also give states some slack as well, helping them find better modes of governance. Additionally, lowering the barriers to entry for new governments helps maintain healthy competition between states, preventing collusion.

If we are providing welfare for states, doesn’t that mean we should provide welfare for citizens? Though I expect people will differ on this, I believe we should. Some citizens may be born to unfortunate circumstances, have little education, or struggle with mental illness. The Archipelago could provide assistance to these citizens and help them integrate into the society of their choice. Recognizing that some citizens will require more state resources, the Archipelago could provide assistance to states willing to help these individuals.

The Archipelago probably doesn’t fundamentally change your views on governance, nor change the fundamental problems, it just moves these things up a level. I anticipate that the same disagreements about taxes and welfare today would occur at the state level if the Archipelago were built. But the main benefit here is that these problems become smaller in the Archipelago. This is because, for your day-to-day life, the details about how your state is run are a bigger deal than how the Archipelago is run. By pushing difficult questions up to the level of the Archipelago, we have shrunk the importance of getting the specifics correct. Because of this, the Archipelago can bring us closer to an ideal system of government, not by solving problems, but by reducing their importance. Even better, we no longer have to agree on the best system of governance! You can live in your utopia and I can live in mine, turning major differences we might have into nitpicking about how to run the overarching system.

In the next post in this series, I will examine more practical issues with the Archipelago, looking at what local governance and immigration in the modern day can tell us about the challenges of creating one.

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