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The Voluntary City
Choice, Community, and Civil Society
By David T. Beito, Peter Gordon, Alexander Tabarrok
The Independent InstituteCopyright © 2002 The Independent Institute
All rights reserved.
Toward a Rebirth of Civil Society
David T. Beito, Peter Gordon, and Alexander Tabarrok
If the most remarkable political events of the twentieth century were the fall of the Berlin Wall and the demise of socialism, then its most auspicious intellectual realignment has been the widespread rediscovery of the virtues of free markets. Today the left and the right have reached a consensus that markets and supporting institutions, such as secure property rights, a sound currency, and a free capital market, are necessary for the material progress of both developed and developing nations. Debate has not ended, however; it has only shifted to higher ground. Markets may be necessary for material progress, but are they sufficient? And what exactly do we mean by progress? Growth in average income is not the only desirable aspect of an economy. Can a market economy protect workers from economic downturns? Can it provide for the downtrodden and unfortunate? And, rising to yet higher ground, what about nonmaterial progress? Can markets be equitable? Can a market society develop community?
The authors of this volume join the debate on the higher ground. They argue that the scope for markets is wider than is now recognized and present exciting evidence that voluntary and contractual arrangements can also develop communities and deliver social services. In part, their evidence comes from a rediscovery of the history of voluntarism in the social services. For example, David T. Beito (chapter 8) and David G. Green (chapter 9) recount the remarkable history of fraternal orders and friendly societies in nineteenth-century America and Great Britain. Fraternal orders and friendly societies provided their members with medical care, unemployment insurance, sickness insurance, and many other social services before the welfare state. Nor were these institutions marginal to their times. Green notes, for example, that "[w]hen the British government introduced compulsory social insurance for twelve million persons under the 1911 National Insurance Act, registered and unregistered voluntary insurance associations — chiefly the friendly societies — already covered at least nine million individuals."
The example of fraternal orders and friendly societies is an important one because it illustrates that the authors do not have a blinkered view of either markets or human nature. With respect to markets, too often the vital role of the nonprofit sector has been ignored. Proponents of markets, especially neoclassical economists, tend to argue as if the profit-maximizing firm were always and everywhere an ideal and as if any attenuation of profit incentives, whether in a nonprofit firm or in a government bureaucracy, were always an unwelcome divergence from this ideal. Proponents of government, while more supportive of the idea/ideal of nonprofits, tend to see the nonprofit sector in capitalist societies as weak, frail, and entirely marginal to the dominant ethos. Yet in contrast to both views, the nonprofit sector in the United States today accounts for some 10 percent of the gross domestic product (GDP) and nearly 15 percent of total employment (Sokolowski and Salamon 1999). Moreover, the nonprofit sector is a major player in such important industries as health, education, and high culture (and was a major player in these industries long before receiving any tax breaks or other regulatory advantages).
The authors of this volume manifestly include nonprofits in the market sector. The inclusion is important because by focusing on for-profit firms, proponents of markets may have overstated the case for markets narrowly conceived. Yet by ignoring the role of nonprofits, opponents of markets may have understated the case for markets broadly conceived. Alternatively put, what conventional economics refers to as "market failure" may actually be a limited set of problems associated with for-profit firms and markets. If the term "market" is broadened to include nonprofit firms and other voluntary but not-for-profit organizations, the scope of such failure may be diminished. Thus, rather than saying that the authors of this volume argue for a larger role for markets, it is more revealing to say that they argue for a larger role for civil society.
One virtue of the term "civil society" is that it is not wrapped up in the same baggage as the term "markets"; in particular, to favor civil society is not necessarily to regard self-interest as the sole or even the most important motivator of human action. Unfortunately, the markets/government debate has often proceeded as if it were a debate between self-interest and other-regardingness. Yet there is growing support for the view that our ancestors learned to forge connections and developed a social nature for the practical reason that such connections enhanced survival, just as their capacity for self-interest did (Ridley 1996; Wright 2000). Humans are neither purely self-interested nor purely other-regarding; humans are individuals who join groups, and they possess all the skills appropriate to such a classification. It should come as no surprise, then, that other-regardingness is not absent from markets and self-interest is not absent from government.
The issue, therefore, is not human nature but rather how different institutions channel human nature. Adam Smith argued that markets channel self-interest into socially beneficial directions — this is the meaning of his famous statement, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." The public-choice school of political economy argues that government institutions often channel self-interest in socially undesirable directions (e.g., Gwartney and Wagner 1988). But as of yet, there is no well-developed theory of how other-regardingness is channeled by civil society or by government. Although such a theory is not developed here, the authors provide some case studies of the former process that we think will help motivate the formulation of such a theory as well as stimulate more historical study.
The authors argue that the voluntary arrangements that were used in the past (and that in some cases are returning today) have much to offer. An overview of these episodes is presented in the introductions to each part of the book. (Alexander Tabarrok's epilogue [chapter 15] also offers an overview of the essays included in this volume from the perspective of economics and market-failure theory.) The point we wish to emphasize here is that the welfare state did not so much create new institutions as crowd out the civic associations that people had spontaneously fashioned to provide "public goods," "safety nets," and even law and order. Were the spontaneously created institutions of the civil society better than the government institutions that replaced them? The essays in this volume cannot definitively answer this question, but it is remarkable enough that they show that the question is real.
The question comes at a propitious moment because for the first time in decades, increasingly severe failures in the governmental sector have led officials to ponder long-neglected arguments for private provision. At this writing, privatized education, social security, highways, prisons, weather forecasts, municipal services, and medical savings accounts are either being implemented or are making their way into "mainstream" political discourse in the United States and abroad. Reform is occurring in fits and starts, but it is occurring.
To be sure, there is a renascent demand for government in the form of the command-and-control environmentalism that has steadily gained force throughout the developed world (Lal 1999). Yet even this new regulation is tempered by growing attention to more flexible, market-compatible ways to limit emissions, dispose of wastes, and protect valuable wildlife stocks and endangered species. Emission bubbles, tradable pollution permits, riparian property rights, privatized elephant herds and fisheries — all of these approaches, once considered radical, are becoming commonplace not only in the United States but around the world. Moreover, support for these sorts of policies is coming not just from proponents of markets but, perhaps more importantly, from environmentalists who are more interested in success than in ideology.
The international trend toward political divestiture and privatization marks a recognition by politicians in nonsocialist as well as formerly socialist states that state planning has stifled cost cutting and innovation (Shleifer 1998). Privatization and competition restore efficiency and result in greater innovation. In the United States, the deregulation of communications, financial services, railroads, energy, and passenger airlines offers examples of this (Winston 1998; Poole and Butler 1999; Morrison and Winston 2000).
Moving farther afield, various school-voucher experiments have raised the possibility of a flowering and vital market in private education. And remarkably, the 1996 U.S. welfare reform bill includes a charitable choice clause that, although now used only to fund a few hundred groups, allows for the privatization of federal welfare through religious charities (Glenn 2000; Geoly 1996).
These current efforts have prominent historical precursors that provide some useful lessons for today. A case in point is the centuries-old record of the private provision of social infrastructure. The work of Beito (chapter 8) and Green (chapter 9) on the history of social insurance in the United States and Great Britain has already been mentioned. In chapter 10, James Tooley examines the record of private education in the United States and Britain in the nineteenth century. Private education is not limited to the past or to developed nations, however; Tooley also examines the remarkable blossoming of private schools for the poorest of the poor in modern-day India. Bruce L. Benson (chapter 6) documents how law merchants met the demand for commercial rule making and adjudication as extended trade networks developed in medieval and early modern Europe; he also discusses modern examples of private civil and criminal arbitration. Stephen Davies (chapter 7) describes how law and order were created in nineteenth-century Britain before the introduction of public police. Private prosecution associations — a not entirely unfamiliar combination of legal insurance, private security guards, and private investigators — were quite successful at controlling crime. Why then the shift to public policing? One clue lies in the fact — amazing to us today — that the English public opposed public policing and jeered the newly created bobbies! Davies explains why. (Also see Tabarrok [chapter 15] for an attempt to draw some general lessons from this history.)
Regarding physical infrastructure, Davies (chapter 2) shows how land markets and private covenants met the challenge of the first wave of English urbanization; Beito (chapter 3) recounts the rise of private places and self-governing enclaves in St. Louis; Daniel Klein (chapter 4) examines the history of private turnpikes in the United States in the early nineteenth century; and Robert C. Arne (chapter 5) describes the first U.S. industrial park as an example of large-scale nonresidential development.
As noted earlier, educational vouchers, privatized welfare, and arbitration all mark a limited return to the production of social infrastructure within the bounds of civil society. In the case of physical infrastructure, however, the return is much more extensive. As a result of the migration of homeowners into developer-created and -managed suburbs, modern-day American communities look increasingly like the private developments of nineteenth-century Great Britain and St. Louis. Across the United States, there are now approximately 205,000 such common interest developments (CIDs) housing more than forty-two million people (Treese 1999). This represents nearly 15 percent of the nation's housing stock, up from 3 percent in 1975 and 1.1 percent in 1970. The return to private communities is a "quiet revolution," little noticed by elites. Yet Robert H. Nelson (chapter 13) argues that the return to private communities "represents the most comprehensive privatization occurring ... in the United States today" and "may yet prove to have as much social significance as the spread of the corporate form of collective ownership of private business property in the second half of the nineteenth century." Urban planners may tout state planning as the way to develop "livable communities," but when given a choice, prospective homeowners are choosing privately planned, not state-planned, communities.
Profit-seeking developers, not technocrats or visionaries, are the heroes of the CID episode. Just as Nobel-prize winner Friedrich Hayek and fellow Austrian economist Ludwig von Mises demonstrated the folly of top-down economic planning, Jane Jacobs explained the folly of top-down city planning (Jacobs 1961, 1969). In both cases, planners are fatally hobbled by their inability to tap local knowledge, the sheer magnitude of which would overwhelm them. In a competitive market, in contrast, local knowledge reappears, lessening the dependence on politics and increasing flexibility; "public" goods (and spaces) in CIDs are provided more optimally at levels of spatial aggregation that do not coincide with municipalities; benefits capitalization more efficiently finances public-goods provision; and optimal constitutional rules are developed. The fact that the actions of private developers now supply what had been thought to be "public" goods is thus beneficial. Fred E. Foldvary (chapter 11) and Robert H. Nelson (chapter 13) describe in greater detail the theory and practice of private communities, with Nelson offering a way to bring the advantages of such communities to more traditionally governed neighborhoods.
In chapter 12, Donald J. Boudreaux and Randall G. Holcombe make the fascinating point that private communities also come equipped with privately created political structures. Every developer of a private community is also the "founding father" of a polis. Boudreaux and Holcombe argue that the choices of these founding fathers tell us something important about the best constitutions.
In contrast to some of the other authors, Spencer Heath MacCallum (chapter 14) is in substantial agreement with critics of CIDs such as Evan McKenzie (1994). But unlike such critics MacCallum does not favor a return to traditional governance but rather a moving forward to an even more private form of community, built on the hotel model.
Deregulation and privatization in the United States have been proceeding since the late 1970s, even though the twenty-five-year trend presents a decidedly mixed picture. The rise of Superfund and environmental regulation at all levels proceeded concurrently with varying degrees of air, rail, truck, telephone, and banking deregulation. CIDs are a shift away from some local governance, but they must still grapple with top-down control from higher levels. In just the last few years, voters around the United States approved 72 percent of 240 state and local "growth-control" measures. The new laws have substantially weakened the property rights of individual owners, replacing them with a bewildering array of stakeholders and what is in effect a property-rights commons. The tragedy of the commons invariably ensues (Epstein 1985). Ironically, these laws, often supported by self-described followers of Jane Jacobs, have revived the kind of top-down urban planning that Jacobs herself so effectively challenged in the 1950s and 1960s. It is still an open question whether the movement toward CIDs will not be frustrated by a movement toward political control from a higher level of government.
Unfortunately, as governance moves to higher levels, the collective-choice problem of democracy — the incentive individuals face to demand services when they think that others will pay — becomes ever stronger. Yet the mobility of factors (long thought to induce governments to respect property) has recently increased. In part, this is driven by technological developments and is likely to accelerate. Increased mobility of people and capital forces governments to compete as never before, placing a serious check on Leviathan (McKenzie and Lee 1991). CIDs are part of this phenomenon, one more institution that has developed in Hayekian fashion to compete with faltering state institutions.
Excerpted from The Voluntary City by David T. Beito, Peter Gordon, Alexander Tabarrok. Copyright © 2002 The Independent Institute. Excerpted by permission of The Independent Institute.
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