October 2015

Libertarians have always emphasized the importance of private governance: In a world with radically less public or state-supplied governance, how will individuals gain assurance that products and services are honest? How will they be able to trust one another? How are promises to be kept? If the state ever were to retreat from its currently prominent role in society, these questions would still need answers.

Happily, private governance is already more common than many people suspect, and it seems likely that it’s able to take on a still greater role. Private security firms frequently perform duties virtually identical to those of police forces. Stock exchanges are in many respects self-governing institutions, and, at one time in their history, they were entirely responsible for their own governance. (If you didn’t like it, you could always set up a rival.) And there are many methods - some new, some ancient - by which the public good of governance can be bundled with other goods and effectively priced.

As a result, private governance is here to stay. But just how much can it do? Can governance ever be entirely private? Or can the structures of private governance only grow up in the shadow of public governance? That’s a hard question to answer, in part because we have no ordered anarchies to experiment with. Critics would suggest, with some justification, that these societies are rare because they are impossible. Proponents would point out, again with some justification, that states are like gases; they expand to fill every vacuum.

Our lead essayist this month is Edward Peter Stringham, author of Private Governance: Creating Order in Economic and Social Life (Oxford, 2015). Joining him will be Cato’s own Aaron Ross Powell, editor of libertarianism.org; Professor James E. Hanley of Adrian College; and Mark Lutter, a graduate student at George Mason University who is researching private cities.


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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.

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