Beware Decentralization Without Mobility

Economist Bryan Caplan reminds us that political decentralization has little value unless it is accompanied by mobility.

Many conservatives, libertarians, federalism scholars, and others, are fans of political decentralization - myself included. But libertarian economist Bryan Caplan quite properly reminds us to "hold the the applause" in cases where decentralization is not accompanied by mobility:

[D]oes 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.

Bryan is absolutely right to question the merits of decentralization without mobility. I have emphasized the importance of mobility in my own work on decentralization and its relationship to liberty. When combined with freedom of movement, decentralization empowers people to "vote with their feet," which in turn increases political freedom, enables better-informed decision-making than conventional ballot-box voting, and can massively increase economic growth and productivity. In the absence of mobility, decentralization turns most people into hostages of their local rulers.

Consider, for example, the case of medieval Europe. It had a great deal of decentralization. Local lords had broad autonomy from central governments, which tended to be weak. But much of the population consisted of serfs who derived little if any benefit from that autonomy, because they were forbidden to leave their lords in search of greener pastures. The case of North Korea, noted by Bryan, is an even more extreme example of the same sort of problem. Being trapped in a small jurisdiction might well be even worse than being trapped in a larger one. Other things equal, smaller polities, on average, offer fewer and less diverse opportunities than bigger ones.

Democracy partially mitigates the perils of decentralization without mobility, by disincentivizing policies that harm the majority of the population in clear and obvious ways. But, as Bryan points out, it falls far short of eliminating those dangers. Democratic governments often perpetrate injustices against unpopular minorities. And even the majority often suffers from harmful and dysfunctional policies incentivized by widespread voter ignorance and bias. Moreover, much of the world lives in societies that are not democratic, and are unlikely to become so for some time to come. For them, interjurisdictional mobility may be the only viable way to escape oppressive government policies.

It is easy to see how restrictions on exit rights undermine the benefits of decentralization. Slavery, serfdom, the Berlin Wall, and other similar cases, vividly convey the danger. But it is also important to recognize that restrictions on entry often have much the same effect. Even if your own government does not forbid you to leave, the right to exit has little value if jurisdictions with better policies bar you from entering.

Some draw a sharp distinction between exit rights and entry on the ground that governments have property rights that entitle them to exclude newcomers, much like homeowners or members of private clubs. I criticized such claims in some detail here. In this post, I will only emphasize that giving governments powers akin to those of homeowners and clubs would further exacerbate the dangers of decentralization, since it would entitle them to sweeping control over the lives and liberties of natives, as well as potential immigrants. For example, homeowners, on their own property, can ban expression of political and religious views they disagree with, and clubs are similarly entitled to limit membership to those with a given set of political and religious views.

The importance of mobility has many implications for our evaluation of decentralization and various political institutions. I discuss some of special interest to libertarians here.

Among other things, the significance of mobility leads me to take a much more favorable view of the European Union than many other libertarians have. Despite some very real flaws, the EU has successfully established free trade and free mobility of both labor and capital over a vast territory encompassing over 600 million people. This has enabled many Eastern Europeans to seek out greater freedom and opportunity in the West. Even relatively affluent Western Europeans have greatly benefited from such foot-voting opportunities. For example, hundreds of thousands of Frenchmen and women have moved to Britain to escape the high taxes and severely restricted labor markets of their native country (though, sadly, their status - like that of the 1.2 million British citizens living in other EU countries - may be at risk as a result of Brexit).

And the EU provides these vast benefits at the relatively modest cost of a budget that consumes only about 1% of European GDP - less than one-twentieth of the percentage of US GDP that goes to federal government spending. The EU does impose some ill-advised and sometimes truly ridiculous regulations. But as libertarian scholars Johan Norberg and Jacob Levy explain, it probably precludes more harmful national-level regulation than it imposes through its own regulatory bodies.

The benefits of the European Union's promotion of mobility certainly do not prove that all multilateral organizations are necessarily good. Elsewhere, I have explained how the importance of foot-voting opportunities actually strengthens the case against world government and some forms of "global governance." But the EU example does suggest that multilateral institutions can be beneficial when they promote mobility, while allowing extensive member-state autonomy in other respects.

Decentralization has a variety of important advantages. And, obviously, even seriously flawed decentralization might be less bad than forms of centralized power that are even more severely dysfunctional. Opportunities for foot voting are not the only factor to consider in determining how centralized a political system should be. But when it comes to promoting liberty and prosperity, the virtues of decentralization are heavily dependent on mobility. Without it, decentralized political power can easily promote oppression and stagnation.

UPDATE: I have made some minor changes to the wording of this post.