Democracy

Democracy is a government in which the majority of people exercise sovereignty either directly, through ballot measures or town hall-style meetings, or indirectly, through elected representatives. Ludwig von Mises favored democracy because he believed that a minority would, in the long run, be unable to rule over a majority that refused to acquiesce. Mises viewed democracy as a means of avoiding needless bloodshed and destruction by allowing the majority to peacefully take the reins of power, without resort to violent revolution. Later economists in the Austrian school, such as Murray Rothbard, argued against this view. Rothbard points out in Power and Market that there are many factors besides numerical strength that decide civil wars.

See also: Democracy: The God That Failed

Alternatives to democracy

Various methods of regime change other than elections have been suggested. Emigration can be a means by which people vote with their feet and thereby encourage states to engage in tax competition, regulatory competition, and other methods of competing to offer conditions that will attract immigrants. A nation may amend its policies out of reluctance to see a brain drain occur that robs it of prestige, economic power, and the know-how needed to establish and maintain a well-equipped and well-led military.

Governments can also be partly or completely privatized — i.e. their assets and functions can be turned over to privately-owned, for-profit firms — introducing a set of incentives and safeguards more conducive to good management, assuming consumer choice and a competitive marketplace for governance exist. If government becomes a corporation owned by private citizens with fully divestible shares, control of the government will tend to fall into the hands of those whose competitive advantage is governance. For example, if a person feels he is more competent at bricklaying, and that the market price for his bricklaying labor is higher than what he could get for investing his labor in the running of government, he will be inclined to sell his shares of that government. But he will still influence governments in his capacity as consumer, by choosing a provider of government services that he believes suits his needs best. In such a situation, government becomes essentially a "super-landlord" managing a certain territory for profit, and perhaps allowing them to sublet to others. The taxes paid by residents of the territory to the government are similar to rent payments.

The ethics of such an arrangement have been debated by libertarians. Rothbard viewed natural law as the only means by which one could determine legitimate control over a territory, arguing that "only those libertarians who have a theory of justice in property titles that does not depend on government decree, could be in a position to scoff at the new rulers' claims to have private property in the territory of the country, and to rebuff these claims as invalid." Mises rebuts this by arguing, "That all rights derive from violence, all ownership from appropriation or robbery, we may freely admit to those who oppose ownership on considerations of natural law. But this offers not the slightest proof that the abolition of ownership is necessary, advisable, or morally justified."

Another possibility is that government could be abolished and the current property owners would become the new sovereigns. Companies would then serve as contractors to property owners, much like present-day private security firms (handing the enforcement of property rights defined by law); mediation firms and arbitration associations (resolving disputes between parties); or lawyers (helping parties determine what rules it would be in their interests to voluntarily agree to be bound by). Thus, whether a person lives under a government or is a sovereign unto himself, he will incur expenses if he wishes to receive some of the services presently provided by government. However, it is possible that, just as governments provide some services (such as education) free of charge to the indigent, poverty-stricken sovereigns will also receive some assistance from donors or contractors who provide services on a sliding scale. This already occurs, to some extent, in our present international system; for example, Germany is helping to bail out insolvent Greece.

For those who, for one reason or another, are unwilling or unable to emigrate, civil disobedience can be an effective nonviolent method of revolution that does not require elections. Rothbard also points out, in For a New Liberty, that violent revolution need not be very destructive. He argues that guerrilla warfare can be ethical as long as it consists of (a) weapons limited so that no civilians are injured in their persons or property; (b) volunteer rather than conscript armies; and (c) financing by voluntary methods instead of taxation. He cites the Bangladesh Liberation War as an example of a just war in which the innocent were spared by the rebels and "[o]nly Punjabi soldiers were on the receiving end of Indian bullets."

Analysis

Connection, or lack thereof, to liberty

Democracy is often conflated with liberty. The conventional wisdom is that democratic states are free states because the electoral system provides the citizen a means of safeguarding his rights by voting to expel an tyrannical elected official from office. There are many flaws in this argument. Most fundamentally, the citizen requires the assistance of his fellow voters to secure his rights; his own efforts, by themselves, will not suffice. Sometimes one's fellow voters can be an enemy, rather than a friend, to one's liberty. It was perhaps of little consolation to the ethnic and religious minorities of Germany that they were allowed to cast votes in the German federal election of July 1932. The concept of "consent of the governed" was exploded by Murray Rothbard, who pointed out, "Under this reasoning, any Jews murdered by the Nazi government were not murdered; instead, they must have 'committed suicide,' since they were the government (which was democratically chosen), and, therefore, anything the government did to them was voluntary on their part."

The people may sometimes even vote against their own interests due to lack of understanding. Thomas Gordon argues that "popularity is often but the price which the people pay to their chiefs, for deceiving and selling them" and asks:

Who was better beloved at Rome than Spurius Melius, while he was meditating the slavery of the Roman people? Who could ever boast such potent parties, such numerous followers, such high applause and regard, such trophies and statues, as Marius and Sulla, Pompey and Caesar, Augustus and Anthony could boast; while they were overturning the state, oppressing mankind, butchering one half of the world, and putting shackles upon the other? And, in fine, who was ever a greater impostor, and more admired prophet, than Mahomet was? All these men were enemies to liberty, truth, and peace; the plagues and scourges of the earth: But they deceived and destroyed their people with their own consent, and by the highest wickedness gained the highest popularity.

Karel Beckman argues that "the freedom and wealth people enjoy in most western countries are not due to the fact that they are democracies, but to the fact that their democratic systems were built on a classical-liberal foundation," and that the freedoms of private property, freedom of movement, freedom of speech, independent courts, and limited powers of the rulers were established before the advent of democracy in America and the other western countries. The national democratic state followed, and brought with it rising taxes, more regulations and more government power in general. She argues that in countries like Egypt, Tunisia, Libya, and China, where there is no tradition of classical-liberalism, there is reason to expect that the advent of democracy will lead to socialist, nationalist and religious dictatorships rather than more freedom, as the electorate demands that the State take action to grant their wishes.

Perverse incentives and public choice

The advent of sophisticated internet collaboration tools and ubiquitous access enables a practical citizen constructed constitution. This is a new development. In the past, it was impractical to have every citizen vote on the individual components of a governing system. Representatives of the people have classically been used to construct such systems. Even today, it is still quite costly for the people to do what is necessary to exercise their franchise intelligently. As Morris and Linda Tannehill point out in The Market for Liberty, "It has been said that the price of liberty is eternal vigilance. But such vigilance is a constant non-productive expenditure of energy, and it is grossly unreasonable to expect men to keep expending their energy non-productively out of 'unselfish idealism.' There is no area of the free market which requires the constant vigilance of the entire population to keep it from going awry." Members of the populace, being for the most part aware of the economic realities involved in the paradox of voting, often engage in rational ignorance.

The behavior of individuals as consumers and investors may be totally different than their behavior as voters, because the incentive structures are entirely different. In a free market, a consumer's decision to purchase or not purchase a particular product at a particular price is subject to approval by the producer/seller, but does not require the permission of the majority of people or their representatives. The effects of that purchasing decision are likely to have a much greater impact on the consumer's life than his decision to vote a particular way in an election.

In a market economy, both the producer and consumer can experiment with different products and determine through trial and error what the consumer likes best. Both the producer and consumer put their own money on the line in conducting such experiments, and those who do not wish to participate in the experiment are free to refrain from making any financial investment in it. Those naysayers have no power or need to veto the product, except by withholding their own money from it.

Within the sphere of decisions made by a democratic government, experiments cannot be conducted without the consent of a majority. Virginia Postrel argues in The Future and Its Enemies for dynamism, a concept with close connections to libertarianism that calls for allowing individuals and groups of individuals freedom to pursue their own experiments with only minimal centralized control over their activities. She argues that this organic process will allow for faster innovation.

Lack of safeguards against mismanagement

Many of the safeguards against abusive and incompetent leadership that are present in the business world are absent in democracy. In the corporate world, stock prices play an important role in deterring and stopping mismanagement. The owners of a company have a strong incentive to vote for good corporate and policies, not only because profits are needed to fund dividend payments to them, but because potential investors are also concerned about receiving dividends. Current and anticipated profitability therefore has a strong effect on the demand for a company's stock, and hence the stock price. The owners will not be able to sell their shares for as much money if potential investors believe that the company will not have enough money to pay out dividends.

If the stock price falls low enough, a hostile takeover may occur under some circumstances. Investors may perceive that a company would be worth much more than its current stock price if it were placed under new management. A low stock price makes it relatively inexpensive to buy large numbers of shares, possibly enough to take control or at least exert significance influence over the company. Those investors may, therefore, seek to buy up shares, vote out the current management, and put in place leaders they believe will run the company better. A company that is managed well will tend to have a higher stock price and thus be less vulnerable to hostile takeovers, because it would be costly to buy up enough shares to obtain control of the company, and because investors will perceive that there is little profitability to be gained from putting new management in place.

Management teams have adopted a number of countermeasures against attempted hostile takeovers, many with colorful names, such as the Pac-Man defense, crown jewel defense, Jonestown defense, and scorched-earth defense. In some companies, the majority shareholders may be unwilling to part with their shares, making a hostile takeover impossible. Nonetheless, a corporation whose majority stockholders vote for an unprofitable business strategy or an incompetent CEO may still go bankrupt, leaving those investors with less money with which to buy other companies' stock. In such cases, those investors lose some of their power over the allocation of society's economic resources, and will therefore have less potential to contribute to other companies' mismanagement. Meanwhile, those minority shareholders who had enough foresight to recognize the danger and dump their stock in time may emerge relatively unscathed. The fact that one's personal consumption is closely tied to making good investment decisions also provides an incentive to make good decisions.

A voter in a democracy who votes for a bad law or an incompetent leader has just as much voting power in the next election. The same is true for the voter who voted for better laws and relatively competent leaders. There is no mechanism to individually reward wise voters or punish foolish ones. The rewards and punishments are, in many cases, imposed on all those who are subject to the government's jurisdiction. The voter who is in the minority can only exit the system by leaving the country, an option with potentially high switching costs. Despite having paid into the system, he cannot cash in his investment when he leaves, as the minority shareholder in a corporation can.

Rent seeking is also a problematic issue, due in large part to most democracies not enforcing a proportionate relationship between voting power and contributions to the system. The majority of voters can use their franchise to tax the relatively wealthy minority. This is in contrast to how international organizations like the World Bank and International Monetary Fund, and most private corporations, are set up. Those institutions allocate voting power and dividends in a way that is linked to how much the voter invested in the system. Thus, it is not possible, in a corporation of 100 shareholders, for the 99 who own one share apiece to vote that the company disburse to each of them one ninety-ninth of all the proceeds from the sale of stock to the investor who owns 500 shares. Nor, for that matter, could the shareholder with 500 shares vote to disburse all the company assets solely to him, without giving any to the minority shareholders.

Lack of flexibility with regard to governance and voting methods

Another way in which corporate-style governance is superior to most governmental democracies that exist today is in the aspect of voting methods. The corporate system is much more organic and flexible, allowing for the founders of each corporation to create articles of incorporation setting up governance structures and methods that they believe will best suit their purposes, without obtaining the consent of the rest of the populace. Some corporations are deliberately structured in an antidemocratic manner that temporarily gives some shares supervoting status. This is used, for example, by the founders of some tech firms such as Google and News Corporation who wish to retain control for several years while relinquishing majority ownership, in order to raise funds by selling large numbers of shares. In this way, the founders get some of the benefits of debt financing while the other shareholders get some of the benefits of equity ownership.

It has been noted that "insider supermajority voting control can add value, if an insider can make decisions that may be unpopular to short-term-oriented public shareholders but beneficial for the long-term interests of the company" but that other times, "supermajority voting shares by insiders can substantially destroy value for public shareholders." Any concerns pertaining to the dangers of separating ownership from control will tend to be incorporated into the stock price. Those who are uncomfortable with the arrangement can simply refuse to buy those shares, which will diminish the demand and hence their price in the market. For this reason, insiders will have an incentive to avoid using supervoting shares unless they can convince potential investors of the need for them.

The method by which shareholders exercise their voting rights in corporations can be modified by a variety of contractual methods, as the individual shareholders see fit. It is possible, for example, for shareholders to delegate their votes to trusted proxies via a power of attorney; to set up voting trusts; or to make binding voting agreements with other shareholders pursuant to whatever terms the parties desire. Cumulative voting for board members, which is the rule rather than the exception in corporations, helps minority shareholders obtain representation. In many cases, no such arrangements are possible in governmental elections. Voting contracts are often regarded as falling within the scope of bribery laws pertaining to elections, and any changes to the voting method require the consent of a majority, or even a supermajority, of the electorate or its representatives.

Unelected officials

The centralization of power has overwhelmingly resulted in political systems that do not operate as advertised. Attention is rarely paid to effective mechanisms of oversight, and in many cases independent agencies are deliberately constructed to insulate them from political pressure. The inevitability of politicians' delegating some power to bureaucrats, and the implications of this, is analyzed in Mises' Bureaucracy. Mises, a former bureaucrat, argues that totalitarian policies, not the method of their implementation, are the problem: "It would make little difference if Congress had not endowed these agencies with quasi-legislative functions and had reserved to itself the right to issue all decrees required for the conduct of their functions."

The concept of an independent judiciary has also been widely accepted as a fundamental necessity in a constitutional republic. Rothbard has pointed out that judiciaries appointed by the political branches, or elected by the public, are not really independent; and even if they were, they would then constitute an oligarchic dictatorship whose exercise of power would be incompatible with the existence of democracy, at least within the judiciary's sphere of action. The lifetime tenure that U.S. Supreme Court justices enjoy has not prevented the high court from abrogating many constitutional protections against federal encroachment on prerogatives that had customarily been reserved to the states and to the people. See wikipedia:The Dirty Dozen (book).

Lack of true democracies

Democracy is based on a philosophical belief that the ideal form of government for a set of people is the government that a majority of them collaborate to construct. It is based on the concept of majoritarian popular sovereignty rather than individual sovereignty, which would require unanimous consent of the governed. In a democracy, majorities of the people theoretically maintain the absolute right to partially or completely alter or abolish the theocracy, state committee or ruling council. In practice, barriers are sometimes erected to make it difficult or impossible for the majority to exercise its sovereignty. Examples might include supermajority voting requirements needed to amend a constitution, or campaign finance legislation that impedes the economic transactions needed for members of the majority to communicate freely concerning candidates and ballot initiatives.

Though the term democracy has been used by many governments, there are no true democracies. Most governments fail to be true democracies because they fail one of the following tests.

1. Enfranchisement — The governed must have the ability to influence the government. Athens gave the right to vote to a subset of the people governed, notably omitting slaves and non-citizens. Many countries disenfranchise large groups of the governed, such as prisoners, minors, people who have not lived the required length of time in an electoral district, and so on.
2. Implied Consent — A true democracy emerges from the will of the governed. Current governments do not ratify their constitutions as new members are added to the contract. The vote of landowners in 1776 to enact a system only applies to them. Children are not bound by the contracts of their parents, although property bequeathed to them can be so encumbered.
3. Referendum — Majorities of the people must have the final say, and must be able to override the actions of their government according to a process they choose. There is currently one country in the world which allows the people to have the final say, and even there, it is limited. Switzerland stands alone as the only country where the people can vote down a war. Coincidentally, perhaps, it is the only country to stay completely out of war in the 20th century.

It is common to label some form of government as a "Democracy" and to analyze the principle, democracy, on those grounds. Democracy has only one inherent characteristic to analyze. It is the will of the majority of the people, for better or worse. The will of the people may be suffocating rules, flexible rules, or no rules at all.

Game theory

One hundred people walk into an ice cream shop. One of them says, "I think we should all get the same flavor of ice cream. Let's do it democratically."

The next step is not a vote on flavors. Democracy demands that the group be consulted to decide if they wish to collectively or individually submit to some set of rules intended to benefit them. While the suggestion was intended to bring the team closer together through shared ice cream flavor, every person is free to choose until they have agreed to contribute to the enforcement of some ruleset. This is, incidentally, the same concept embodied in rule 109 of Peter Suber's democracy simulation Nomic.

The key difference between the democracy simulated in that game and the democracy practiced by national governments is that there is no equivalent to rule 113: "A player always has the option to forfeit the game rather than continue to play or incur a game penalty. No penalty worse than losing, in the judgment of the player to incur it, may be imposed." In real-world democracies, the government will not allow individuals to secede and live their lives free of the taxation and regulation approved by the majority; it would, in the words of Henry David Thoreau, "think it inconsistent with its own repose if a few were to live aloof from it, not meddling with it, nor embraced by it, who fulfilled all the duties of neighbors and fellow-men."

Links

• Democracy’s Most Critical Defect by Robert Higgs, October 2009
• Democracy and Faits Accomplis by Robert Higgs, December 2009
• How to Win an Election by Mark Brandly, February 2011
• The Paradox of Imperialism by Hans-Hermann Hoppe, November 2006
• A Libertarian Case for Monarchy by Leland B. Yeager, 2004
• World in the Grip of an Idea: 17. Sweden: Tightening the Screws by Clarence B. Carson, May 1978
• Democracy at Wikipedia