Competitive Governments on the Ocean

Patri Friedman and Brad Taylor make the case for Seasteading in the latest issue of Kyklos.

We argue that those advocating the reform of current political systems in order to promote jurisdictional competition are in a catch-22: jurisdictional competition has the potential to improve policy, but reforms to increase competition must be enacted by currently uncompetitive governments. If such governments could be relied upon to enact such reforms, they would likely not be necessary. Since existing governments are resistant to change, we argue that the only way to overcome the deep problem of reform is by focusing on the bare-metal layer of society – the technological environment in which governments are embedded. Developing the technology to create settlements in international waters, which we refer to as seasteading, changes the technological environment rather than attempting to push against the incentives of existing political systems. As such, it sidesteps the problem of reform and is more likely than more conventional approaches to significantly alter the policy equilibrium.

I love this line of work. Milton Friedman said that good government is best-case thinking; we need to constrain government. David Friedman said that constrained government is best-case thinking; we need market-based anarchy. Patri and Brad say that market-anarchy is best-case thinking; no government will cede territory to let it happen.

They aim a cannon at public choice theory:

Public choice theory tells us that we have bad rules because we have bad meta-rules. This merely shifts the question one level higher, however: why do we have bad meta-rules? This question has received much less attention from public choice theorists.² Constitutionalists generally fail to extend their dispassionate critique of policy choice to the constitutional level (Farrant, 2004), arguing that current decision-making rules tend to produce bad policy outcomes yet expecting the same flawed institutions to produce good constitutional rules (Witt, 1992).

And, they give a solution to Caplan's Tiebout capitalization problem:

... dynamic geography addresses the concern of Caplan (2001b) that Tiebout competition is undermined by the fact that governance quality is capitalized into real estate values. When land is tied to a particular jurisdiction, reductions in the quality of governance will immediately lower land prices. This means that landowners have no incentive to exit bad jurisdictions, since they have the choice between putting up with low-quality governance and taking a capital loss when they try to sell. Fascinatingly, however, this is not the case on the ocean. Since floating real estate can be moved between jurisdictions, its value is not permanently reduced by a property tax increase, because there is the alternate use of moving the real estate to a new jurisdiction. This restores the property of a well-functioning market, where resources go to their highestvalued use. Floating real estate will move to the jurisdiction where it is the most valuable whenever the value difference is greater than the cost of moving it. This cost will be substantial, yet based on the cost of moving oil platforms, is likely to be a small fraction of the value of the real estate. Thus, exit remains a check on government power on the ocean.

Harford argues for experimentation and failure as a way of figuring out what's best. Friedman and Taylor argue Seasteading provides a mechanism for polities to fail gracefully:

Unfortunately, political instability tends to be accompanied by bloodshed, producing a tradeoff between peaceful stability with high levels of rent-seeking and violent instability with low levels of rent-seeking. Seasteading allows us to have political instability without bloodshed (Chamberlain, 2009). If rent-seeking becomes too harmful in an ocean polity, the population will gradually float away. This allows the polity to die without being overthrown violently. Dysfunctional governments would no longer take up valuable land, but would wither and die based on the preferences of citizen-consumers.

Where David Friedman looked to saga-era Iceland as example of anarchist order, Patri and Brad look to the Bajau Laut's pagmunda moorages.

The biggest challenge remains existing territorial governments; should Seasteads prove too successful as competition, we could easily imagine the French sending in dive teams with explosives or the Americans sending in a carrier group. Patri and Brad reckon business models focusing on relatively innocuous applications like innovative medical tourism will not only avoid annoying existing governments but could also build support for Seasteads from within those countries' existing voter bases: would you really support bombing the place that's working out nanobot alternatives to the hip replacement surgery you're going to need in a few years? I still worry this might be a bit of best-case thinking; the Americans can always fabricate an incident whipping up support for a bombing run if they want to.

But I still reckon Seasteading the best value play around. The odds on its all panning out still aren't great. But the upside gains are potentially very very large.

Assets and Default

If I owned a bunch of property and were going into default on some debts, the guys to whom I owed money might ask me whether I ought to consider selling some of those properties to pay my bills. And, if my kids were starving because of the austerity I'd otherwise had to impose on the family budget to keep the bondholders at bay, why wouldn't I consider a bit of asset divestiture?

Greece has somewhere around 6000 islands in one of the most beautiful parts of the world. Islands of legends and Greek Gods and stuff. Islands that, you'd expect, would be worth something to somebody. Some of them are privately owned and do trade. Here's one place you can go to buy one.

But all those islands are encumbered with Greek sovereignty. Own the island, own the  entanglements of the Greek state that make development, well, hard.

First of all, to date it is rather hard for someone to develop a private island because of the Greek state bureaucracy and the domestic Archeological Agency, which is stringent in its examination of every case that involves an island that may have antiquities of any kind lurking under its soil. 

And that's just for setting up the island as a holiday home. If you have to provide a stool sample to get through the regs letting you set up a web-based business, a Greek Island isn't going to be your first pick for doing anything innovative.

Imagine being able to bid on an island in the middle of the Mediterranean within a short flight of Europe, the mid-East, and northern Africa where Greece wouldn't just hand you title, they'd hand you sovereignty? There has to be a ton of value locked up in those islands that could be released by Greece being willing to relinquish sovereignty. Restrict it to the uninhabited islands to keep things simple, for starters.

Seasteading is cool. But imagine kickstarting it by letting a thousand sovereign islands bloom in the Aegean Sea? Keep the Americans happy by barring sale to anybody currently on terrorist watch lists.

There has to be some good reason that Greek bondholders haven't asked for sovereign ownership of Greek islands in exchange for debt writedown; the potential asset value just sitting there seems pretty obvious. Devilled if I know what's preventing it though. Surely most Greek citizens would prefer losing half their islands to the mess they're currently in. On the bondholder side - Bond debt, that's just money. Your own country in the Aegean? Priceless.

Potential obstacles:

• Nobody trusts the Greeks not to renege by reasserting sovereignty somewhere down the line; most other countries would probably back them against sovereign individual property owners too.
• Germans are reluctant to look at anything that seems territorial expansion.
• The Americans might not let them.
• The EU might not let them.

Does anybody know what the binding constraint is? 

Hacking immigration regulations

Blueseed gets a very nice writeup from the Canadian Broadcasting Corporation:

I asked him [Blueseed CEO Max Marty] if there wasn't something absurd about Blueseed — the idea of floating human beings outside an arbitrary line in the ocean because of some regulation that would appear to hobble the growth of a vital industry.

It seems like something out of science fiction. Does it mean America has become dystopian?

His answer was careful. "I wouldn't say the U.S. is a dystopian society so much as a place that has strayed from the idea of what it is supposed to be."

Marty reminds me Blueseed will be off the coast of California, not South Korea or Singapore or Tokyo, but a fast ferry ride from Silicon Valley. It's because that's where his future clients will want to be.

"Silicon Valley is still a beacon," he says.

In New Zealand's days of stupid, entrepreneurs commissioned Japanese TV makers to disassemble fully manufactured TVs and ship them to NZ in parts, there to be re-assembled, because the tariff rate on TV parts was low relative to the tariff on televisions. Bad regulations invite entrepreneurial innovation to route around the stupid and turn deadweight costs into surplus. It's not first best, but it's better. And, by helping to point out just how stupid the stupid is, it can help push us towards the first best.

The CBC piece does a nice job in pointing out just how stupid the American immigration regs on entrepreneurs are, and in pointing out why things stay as they are: They pull some particular insanity from Wired's comments section (never read comments sections, except at Worthwhile Canadian Initiative):

"So the slave ships of old have gone hi-tech?" wrote one commenter. "Lovely... I would want to be captively working for on an isolated ship away from the protections of the law. Golly, where do I sign up?"

Said another: "This is yet another greed driven excuse to bypass workplace and immigration law at the expense of shore-side economies and workforces. There are plenty of unemployed Americans willing to work for fair wages, not slave wages and as innovative as this idea is, it's a slap in the face to the middle class.

"Going to this extent to get cheap labor is as appalling as it is insulting to the American worker who can see right through this abhorrent BS."

The lump of labour fallacy is particularly fallacious when applied to entrepreneurs who are trying to start up new businesses. Blueseed will be most successful if there are enough people like those quoted above to keep US immigration law from changing, but not so many as to force regulatory tweaks that would keep Blueseed's residents from easily entering the US. Max, I'd expect, would count himself as more successful if, after the ship's earned enough to provide a nice return to its investors, immigration rules are loosened so the ship is no longer necessary. I wish Max every success.

HT: Erin Crampton

Crypto-optimism

Eli Dourado's excellent discussion of technologies of control and technologies of evasion reminds me of the anarcho-optimism of Cryptonomicon. Eli builds a business cycle story:

Here’s my model. First we need to differentiate between two kinds of innovation and think about their effects. The first kind of innovation is geared toward brute maximization of production. It is typically centralized and makes use of economies of scale. Examples might include an assembly line factory or a big, coal-fired power plant. Because these innovations tend to be centralized, they introduce points of control. The capital is typically fixed and therefore easy to tax and regulate. It’s well known in the development literature that it’s really hard for governments to control rural peasants who live off the grid. Once they move to the cities and plug into centralized services, it is easier to require them to send their children to school, for instance. Because these innovations introduce points of control, I will call them technologies of control.

On the other hand, not all innovations are about brute maximization of production. Some are about producing things that we already know how to produce in ways that have ancillary benefits. An important ancillary benefit is evading control. Examples of these innovations include 3D printers and solar power. The evasion of control that is possible with 3D printers is the subject of Cory Doctorow’s short story Printcrime. And portable solar power cells can make people harder to control by supplying electricity without the need to register an address, have a bank account, stay put, and so on. These are obvious examples, but control can be evaded through more subtle innovations as well. I will call innovations that circumvent points of control that can be used by governments or monopolies to exploit, tax, or regulate technologies of resistance.

Now, postulate some background rate of innovation. How many resources will be devoted to technologies of control and how many to technologies or resistance? The answer is that it depends on how invasive the state (or other monopolies) are. When the state is invasive, at the margin the incentive is to find ways to circumvent the points of control; a greater proportion of resources will go into technologies of resistance. When the state is non-invasive, at the margin the incentive is a purer maximization of production; a greater proportion of resources will go into technologies of control, which results higher growth.

Add in time-to-build or other frictions in shifting capital from technologies of control to technologies of resistance, and we get cycles.

I love the story, but I'm not sure how well parts of it match the stylized time path. Here's Eli:

So far, I’ve been pretty general about technologies of resistance, but I want to tie it back into McJolfsson’s story about rapid skill-biased technical change. The key point is that labor is extremely regulated; firms that use labor are subject to intense government control. In part this is because policies that give labor a “bigger piece of the pie” are popular with voters, and in part it is because labor can complain and enforce its rights in a way that machines cannot. If you own a business and you are subject to intense government control, you are going to invest resources in circumventing the points of control. In our economy, that means getting rid of lots of labor as cheaply as possible, which means skill-biased technical change. As Arnold Kling has said, “if a job can be defined, it can be automated or outsourced.” But it’s because there is so much control exercised in the labor market that the incentive to automate and outsource is so high.

Agreed. But surely American labour market regulation has been in decline since the late 1970s. I have a hard time seeing a big labour regulation shock anywhere in the 2000s that would have precipitated a dumping of labour. I suppose the shock has to come from technology reducing the costs of substitution more quickly than labour market deregulation reducing the need for such substitution. Do read Eli's full argument, which brings together Brynjolfsson's techno-optimist story with Cowen's Great Stagnation.

I'm a long term optimist on technologies of evasion. Eventually, something like BitCoin will be successful. Meanwhile, Patri is sparking more real-world hacks around control. The latest one: floating platforms 12 miles off San Francisco where foreign tech entrepreneurs could route around idiotic American immigration laws.

This immigration issue deeply affected the Blueseed team, of which two are immigrants (from Serbia and Romania), and the other is the son of Cuban immigrants. Rather than accepting the current reality, Dan tells us, "If U.S. policy hasn’t kept pace with the changing economic realities of the era, someone needs to find a solution that will help entrepreneurs come to Silicon Valley if they so desire. And that someone might as well be us. In other words, it’s time to stop complaining and start solving the problem."

On their website they state they plan to start accommodation prices off at around $1500 a month, and transportation will be provided to the mainland by a daily ferry. Internet connectivity will be provided via a point-to-point 40Gbps laser link with satellite link backup. They are also looking at additional backup solutions using submarine cable and potentially a series of WiMAX relay buoys. A visa is not required to earn a paycheck on Blueseed, and most residents will be able to travel back and forth to the mainland with a business/pleasure B1 Visa.

I worry that it will be really easy for the government to change a line of regulatory code to make it tough for Blueseed residents to commute back and forth; but, I'm also not sure that they'll face big pressure to do so and regulatory inertia would then work in Blueseed's favour. Until some California Congressman reckons the extra votes he gets from making a stink about platform-dwellers stealing jobs swamps the costs he'd impose on the tech industry.

Freedom's Angel Investor

Peter Thiel gets a nice feature write-up in Details:

Despite the innovations of the past quarter century, some of which have made him very, very wealthy, Thiel is unimpressed by how far we've come—technologically, politically, socially, financially, the works. The last successful American car company, he likes to note, was Jeep, founded in 1941. "And our cars aren't moving any faster," he says. The space-age future, as giddily envisioned in the fifties and sixties, has yet to arrive. Perhaps on the micro level—as in microprocessors—but not in the macro realm of big, audacious, and outlandish ideas where Thiel prefers to operate. He gets less satisfaction out of conventional investments in "cloud music" (Spotify) and Hollywood films (Thank You for Smoking) than he does in pursuing big ideas, which is why Thiel—along with an all-star cast of venture capitalists, including former PayPal cohorts Ken Howery and Luke Nosek, and Sean Parker, the Napster cofounder and onetime Facebook president—established the Founders Fund. Among its quixotic but potentially highly profitable investments are SpaceX, a space-transport company, and Halcyon Molecular, which aspires to use DNA sequencing to extend human life. Privately, however, Thiel is the primary backer for an idea that takes big, audacious, and outlandish to a whole other level. Two hundred miles west of the Golden Gate Bridge, past that hazy-blue horizon where the Pacific meets the sky, is where Thiel foresees his boldest venture of all. Forget start-up companies. The next frontier is start-up countries.

"Big ideas start as weird ideas." That's Patri Friedman, a former Google engineer, the grandson of the Nobel Prize-winning economist Milton Friedman, and, as of 2008, when Thiel seeded him with the same initial investment sum he'd given Mark Zuckerberg four years earlier, the world's most prominent micro-nation entrepreneur. Friedman, a short, kinetic 35-year-old with a wife and two children, maintains an energetic online presence that ranges from blogging about libertarian theory to tweeted dispatches such as "Explored BDSM in SF w/big group of friends tonight." Four years ago, a Clarium Capital employee came across a piece Friedman had written about an idea he called "seasteading." Friedman was soon pitching to Thiel, a staunch libertarian himself, the big, weird idea.

I'd love to spend a sabbatical year on a Seastead.
I'm extraordinarily pleased that my former Masters student and co-author Brad Taylor is working with Patri to make Seasteads happen.