When Does Governance Go Public?

I have long thought that defining private governance is trickier than most people acknowledge. Edward Stringham and Aaron Ross Powell have been debating its meaning, thereby illuminating some of the difficulties. I will restrict my remarks to territorial governance as Stringham and Powell have done.

First, I would like to note that the conversation has drifted a little. At some points Stringham and Powell are discussing private governance, at others they are discussing states. These topics are related, but not identical. In my response I will first define state then review several thought experiments to illuminate what private governance is.

I prefer Weber’s definition of a state, a territorial monopoly of force. This means that a sovereign privately developed and owned city would be a state, contrary to Stringham.  

There are three facets which can help define territorial private governance. The first facet involves the decisionmaking process of the governing body. The second facet involves the acquisition of the territory on which the body governs. The third facet is the size of the population in question. Ultimately I argue that the definition of private governance is somewhat nebulous, and that that is ok.

In this essay I will use examples of several types of territorial governance structures, by which I mean any body with decisionmaking authority over a given territory. I am assuming that the territorial governance structures have sovereignty over their territory, that is, they are not subordinated to any broader governing body.

The first facet is the decisionmaking process of the governance body. Assume a developer wants to build a new independent city. They justly acquire the land under allodial title. After building the attractions of the city, the developer now has two choices. First, they can establish a home owner’s association (HOA), giving up decisionmaking rights. Second, they can lease the land, retaining decisionmaking rights, a setup known as a proprietary community. A third option not available to the developer is simply to exist as a democratic socialist state. There are now three contrasting decisionmaking processes over a potential city-state in addition to traditional government.

The second facet is the consent when establishing a governance body. One can establish a governance structure with no consent, universal consent, or anywhere in between. Establishing a territorial governance structure with no consent would be the conquest of a new region. An example of establishing a governance structure with universal consent would be a company buying land and building a new city, Jamshedpur India for example. The Swiss state is an example of a governance structure being established with partial consent.

The final facet is the population in question. Does private governance become public when a certain number of people are subject to their decisions?

There are various thought experiments with these facets to test our intuitions about what private governance is.  

Take, for example, a developer wanting to build a city-state. They try to copy an existing government. To do so the developer creates an HOA, basing the constitution and procedures on the existing government. After finishing there are two city-states, one governed by a government and one by an HOA. However, they are functionally the same, they have the same decisionmaking process, and they have the same outcomes.

If the developer instead chooses to lease the land, rather than establishing an HOA, the governance structure would look different. However, assume the developer likes the idea of both an HOA and retaining ownership. The developer could lease the land for 1000 years and grant an HOA decisionmaking authority for those 1000 years. The city is still privately owned, but with a governing structure identical to a traditional government. 

Regarding consent when establishing the governance body, assume two identical cities. Both are governed by a traditional democratic socialist state. Both have existed about the same amount of time. However, one was founded by conquest while the other was founded on a deserted island. In other words, they are functionally identical but differ in the consent levels during the founding.

Now, assume the two cities are both privately owned. A corporation retains ownership over the land. The corporations have the same governance structure. However, one city was founded by conquest and the land for the other was legitimately acquired. 

Lastly, does size impact whether something is considered public or private governance. Is an HOA of two people public governance? What about a proprietary city of 10,000,000?

For what it’s worth, here’s my intuition. An HOA is public governance. Initial consent is irrelevant to considering whether something is public or private governance. And a proprietary community of a sufficient size can be considered a form of public governance. That being said, reasonable people can disagree. However, the fact that the lines between private and public governance are not clear does not mean the concepts are indistinct, after all, night and day are distinct even though dusk and dawn still exist.

Also from this issue

Lead Essay

  • Edward Peter Stringham argues that private governance isn’t a fiction. It’s a key, though unappreciated, aspect of modern life. Much political economy begins with the assumption that markets require external, nonmarket institutions to provide services of assurance and trust, without which markets cannot function. Stringham suggests that this is not necessarily so, and he uses evidence from real-world private governance to make the point. Private governance has existed and continues to exist in markets both simple and highly complex.

Response Essays

  • Aaron Ross Powell questions whether private governance is truly possible, and if so, what that would mean. Much of our current private governance would clearly never exist if it were not backed by the persuasive threat of force from some state-like entity. Both in his lead essay and in his book, Edward Stringham fails to draw a clear distinction between public and private, and as a result, it is unclear how these two terms should be deployed in many plausible situations, both hypothetical and in our own world. Powell questions whether these terms are not used in an ad hoc manner, robbing Stringham’s work of any significant normative force. The state we have may still be inefficient and cruel, and private institutions may commonly still be better, but the line between them isn’t so clear.

  • James E. Hanley argues that private institutions may be ill-suited to certain forms of governance. In particular, violent crime lacks the iterative nature that makes private governance work in many other situations. Moreover, as private institutions assume more and more of the duties of criminal punishment, they increasingly risk taking on the attributes of criminal enterprises themselves, particularly if their procedures lack legitimacy. Those who choose to say under their care will find themselves at the mercy, perhaps, of “stationary bandits” - and yet it is commonly observed exactly such organizations may have been the state’s progenitors.

  • Mark Lutter cites evidence that suggests that even in the realm of finance, private governance can’t always deliver. He questions Stringham: How far, exactly, does he think private governance should go? All the way to anarchy? If so, what does he think will happen to the problem of violent competition among agencies with varying degrees of legitimacy? Lutter also raises the problem of low-frequency preferences: One of the great things about the market is that, unlike in democratic decisionmaking, minority tastes in the market can commonly be satisfied. That’s a wonderful thing when it’s a matter of deodorant or sneakers. It’s not so great when a small minority has a taste for violence, as with, for example, the Ku Klux Klan: A market for violence might see much more of the Klan’s demand satisfied.