Political Monopolies: Our Biggest Unsolved Problem

A political monopoly is a political entity with a high ability to rent seekRent seeking is the term used to describe the act of capturing value from the economy without adding any. So basically just being greedy: which isn't the worst thing in the world. Not all monopolies will rent seek all the time. Sometimes they will act benevolently for while and leave money on the table. Other times they will lower the quality of their service through neglect since there isn't much pressure to maintain high standards. But companies serve their shareholders and those shareholders will eventually demand that they capitalize on their rent seeking ability. Countries on the other hand don't have owners; they have key supporters. And since a country can't be seen to be taking money from it's people and giving it directly to these key supports they need to disguise the payments. The most obnoxious of these for me is the money system. Banks are some of the biggest political donors. And in return they are given access to unlimited money at a below market rate. Almost all money in the economy has in fact arisen from the cheap loans banks take out. Which means the banks skim their profit margin from the entire money supply every year. Which is huge; if this was done explicitly people would be outraged. But so long as they keep the money system just a little too complicated for the average person to understand, they will get away with it.

Political monopolies form out of two ingredients, people and land. Given a large chunk of land people will naturally start to collocate themselves driven by transport costs. It's just cheaper to live near to the source of production. Cities, are the resultAll the earliest cities formed around rivers running through arid land. This leads to increased trade but also increased theft. To solve this the city will develop a government that enforces good behavior. Which takes it from city to city state. And if it's well run its people will become vastly more wealthy than those living outside of its field of control. But this results in a repeat of the theft problem. Except this time the theft comes from other city states. And city states solve it by joining forces with each other. Which results in nation states. And an arms raceHistory shows us this vicious cycle will continue until you have wars encompassing the entire world. But that it will halt once someone has a nuclear bomb of ever larger nation states until there is no land left unclaimed. The final step in creating a political monopoly is driven by increased switching costs. Countries often fit natural geographic boundaries and encompass cultural/language groups. So for one citizen to switch to another involves moving large distances and joining a less desirable culture. The rent a monopoly can seek over it's citizens is this switching cost. But included in the switching cost is the opportunity cost of not switching.

Every step of this process is just the obvious next step society should take to deal with its most immediate problems. Yet each step has emergent properties that would not of been easy to predict. With the first three steps, the emergent properties are net positive. However, the last two steps are a net negative since they were aimed at protecting our society from outsiders but had the side effect of creating a monopolyWhich is ironic; since in protecting ourselves from outsiders we have subjected ourselves to unrestrained exploitation by insiders. So let's look at ways we could stop the process after step three. We just need a way of preventing the arms race. The options are:

1. Make wars infinitely expensive
2. Make border expansion prohibitively expensive

Strategy #1 could be implemented by installing a nuclear bomb in each city state and providing a detonator to all other city states. However, a simple alliance with another city state could be enough to deter other city states from blowing up your city. Which enables you to go to war; at high risk to your city but nevertheless you might do it occasionally. This is essentially the situation the world is in now. All wars are just "cold" now. I suspect all implementations of #1 would suffer the same flaw so we can rule it out.

Strategy #2 could be implemented using a land taxLand taxes are criminally under appreciated. They are almost 100% efficient and since the amount people pay reflects the value society has provided to them, they are relatively happy to pay the tax. Essentially land tax is to other taxes as hobbies are to jobs. They look similar to outsiders but feel very different to participants on city states. Or in fact two land taxes. One to prevent cities from expanding their borders for no good reason. The other tax to prevent cities from locating themselves too close to one another. Which we want to avoid since this could cause border disputes.

To make the computation of tax simpler the land a city occupies would be broken up into discrete chunks and the tax computed on each and added up. The tax for each chunk will increase with distance from its city center. price is the base price of one land chunk. i.e The price of the chunk at the center of the city. And the exponent of 1.15 is there to counter the natural economies of scale that all cities benefit from as they grow. Without it small cities would be forced to increase their density prematurely in order to compete on a level footing with larger cities which are naturally more dense.

The second tax is implemented as the sum of tax₁ on each other city exponentially reduced by the distance between the two cities. So positioning your city close to a large city will be expensive. As it should, since the new city will naturally benefit from the proximity. Also, it means that as your neighboring cities grow you would be liable for more tax₂ but again the benefit of the proximity should cover the cost.

But there are a couple of problems with strategy #2:

1. Who will administer the taxes? What would they spend the money on? And what would stop them from spending it on themselves?
2. How would the federation of cities defend themselves from other nations who want to take advantage of the lack of a military?

The first issue group can be solved by implementing an automated system. Define ahead of time what all the money will be spent on and make the source code public so can check it's behaving as expected. This leaves no opportunity for exploitation that would go undetected. But unfortunately since we are forced to define spending ahead of time we can't be very intelligent. My suggestion would be to just distribute the money evenly to all citizensThis would be a universal basic income. Something that most countries will inevitably need to implement anyway. This might seem like an unfair redistribution of wealth but remember this money came from land tax and the people paying the higher land taxes are paying them because they believe that the land they occupy is more valuable. More valuable because society values it. So by occupying valuable land you are taking value from society and the redistribution of tax is just a way of returning that value to society. While on the other hand those who occupy low value land will receive more tax than they pay. But these are people who don't believe society has much to offer them so the money can be viewed as compensation for taking away the best land.

Now we just need to figure out how to stop other nations invading. The options are:

1. Hire MercenariesCarthage used this to go toe to toe with Rome for two generations or operate a full time military
2. Let the cities that comprise the nation defend themselvesGreece worked this way and they fended off the Persians, but lost to the Romans. If they all do this well the nation as a whole would be preserved.

The first option suffers one key problem, you can't have a have a federal level military without a government capable of making decisions. And we want to avoid creating such a government since its likely to eventually turn on its own citizensRoman armies did this within a century of defeating Carthage.

The second option also suffers a major problem and it's a tragedy of the commons. Because when one city invests in military defense it pays the full price but the benefit is shared with all cities of the federationThe USA struggled with this during the revolution. The federal level of government hadn't been properly established so it was just a collection of independent states unwilling to pay any money the other states weren't also paying. This means that cities will tend to spend very little on militaries since it puts them at a competitive disadvantage compared to the cities which don't need to raise taxes in order to pay for it. But even if one city is happy to support a large army on its own this isn't ideal since they may choose to extort reimbursement from other cities. Which might be fair enough at first but once they are doing that it's a short step to raising taxes more and more and eventually taking control of the federation. Forming a nation state and a political monopoly.

We need a third option. One idea is to set up an automatic auction system for hiring mercenaries when an outside country attacks. When a country declares war, an auction would automatically be created that starts at a high price, say 5 years of GDP, and all militaries from around the world can bid lower amounts to destroy the attacking country. By default the lowest bid would be accepted but the cities of the federation can vote for their preferred mercenary army if they believe they will provide a better service. The money to pay the mercenaries would be raised with a special land tax. This system would be a strong deterrent since, by declaring war, an outside country would expose themselves to potential war from all armies in the world. The performance of the mercenaries would be judged by the wars impact on the federations economy. And the payout would be reduced proportionally to the reduction in GDP. Thus armies that can end the war quickly can earn more for their efforts. There could also be a backup option that can be activated by the federation via a unanimous vote. And that is to put bounties on all the citizens of the aggressor country. This obviously would be a war crime but it would be there more as a deterrent to stop wars from happening in the first place. Bounties on the people who manage the war would be extra juicy to encourage them to turn on each other.

What's the cost of political monopolies?

It's currently impossible to accurately quantify the cost since we don't have the models of human behavior we need to predict the emergent properties of alternative political decisions. However, we can measure the cost so long as we are willing to ignore the existence of emergent properties. A good example is this study which looks into the effect zoning restrictions have on the cost of housing in Australia. They found this cost is a ~40% increaseThough this was the gross cost, not net of any economic benefits that zoning laws may have in the cost of housing. If your were to conduct similar studies on all areas where government decisions impose a cost and add up all those costs you would have a lower bound estimate of the cost of political monopolies. Areas to research include:

1. The effect unfair laws have on the cost of doing business. We know this cost is significant because in the USA, where legal costs are the highest, construction projects cost several times more than in other countriesChina is particularly good at keeping these costs low..
2. The dead loss from inefficient taxes. While taxes are necessary, there are more efficient forms of taxation available.
3. The supply of credit is skewed towards housing and other unproductive assets. This is a cost because it inflates the cost of living without inflating wages. Less than 10% of credit is invested in business assets.

But ultimately political monopolies cost us everything that we are willing to give up. A good way to prove this to yourself is to compare ourselves to uncivilized people. These people tend to work about 30hrs a week to survive. They don't enjoy the same level of medical care and they don't have as many leisure options but then neither would most Australians if they were to work just 30hrs a week. So where have all the productivity improvements we have achieved gone. What technology gives, political monopolies take awayThis is why I consider political monopolies to be the most important problem of our time. Solving any other problem would do little more than push prices up on other things. Until we stop ourselves being exploited there isn't much point in making ourselves more productive..

How do we implement strategy #2?

1. Take land from another country
2. Buy land from another countryThe USA was able to buy Alaska from Russia. I imagine many countries would be willing to sell their desert and tundra regions. Especially if they were allowed to retain access to the natural resources within it.
3. Build floating landFloating land is really interesting. It could be designed to be modular and re-arrangeable. Which makes it really cheap for citizens to switch cities since it becomes just a matter of disconnecting their land from one country and connecting to another. And this would positively affect politics on floating land based countries which can be placed in international waters

#3 is the simplest in the sense that it doesn't rely on any 3rd party. International waters are up for grabs. However, the engineering challenges are pretty extreme. Rouge waves can sink the biggest of ships. It's doable though, using wave breaks, and probably still cheaper than land in most developed countries.

But #2 is likely to be the cheaper, safer, and more compelling option. I think many countries would sell exclusive political zones pretty cheap since they will benefit from trade with the new country that forms there. And desert land can be terraformed quite cheaply. About 10AUD/m² which is actually really cheap. For comparison residential land in Canberra sells for 1000AUD/m²

Conclusion

Political monopolies are an under appreciated problem because they inspire no FUDFear, Uncertainty, Doubt. Yet they're clearly the mostly costly problem of our time. And to the student of history, the most costly of all time. And history can show us the long term affects of political monopolies. Which is that in the long term they are bad even for the people in power. China for example was on par with any country in the world. But they grew to fill their natural borders and enjoyed a period where they didn't interact with the outside world much. The government stood over their businessmen and took so much of their profits that the economy stagnated. While the west was busy competing with each other they couldn't rent seek as aggressively which caused them to grow so much that they could of conquered China easily had they not been so busy fighting each other. Some rouge merchants conquered some of China almost by accident. And this outside threat caused China to reduce it's rent seeking and let it's economy grow to avoid further loss of territory. So even a mere reduction in the power of a political monopoly can mean the difference between starving citizens and wealthy ones. Imagine how wealthy people would be if they lived in a country which did zero rent seeking. Then imagine if that country started thinking about ways to add value to their economy. This is what countries would start to do once you take war and territorial expansion off the table for everyone.

My proposed solution is strategy #2 combined with implementation options #2 and #3. Implementation option #2 is cheaper so it should be tried first. There may be some issues, but hopefully they can be solved within a few iterations. There are plenty of deserts to terraform so we should get a few chances. If the problems of implementation #2 can't be solved then implementation #3 should be tried since I think floating land based countries will be naturally immuneDeclaring war on a floating land based country would be like swiping at a swarm of bees. You will hit a few but anger the rest and come out second best. So even if the analysis that lead to strategy #2 is wrong the implementation of it should still work to the problems that lead to political monopolies on land.