PhD thesis

Theory of unbundled and non-territorial governance

This thesis is largely theoretical in nature, broadly falling into the field of political economy. The aim is to contribute to the literature by providing a theoretical analysis of two hitherto underappreciated principles of political organisation: unbundling the functions of government and devolving responsibilities to non-territorial jurisdictions. The motivation is the inherent limitations in bundled, territorially monopolistic governance. Political economists are well aware of how majoritarian democratic decision-making necessitates various conflicts and compromises. Territorial decentralisation also bears efficiency limitations because its sorting mechanism requires citizens sacrifice economic and social preferences to satisfy political preferences. And political bundling generates trade-offs and impedes preference satisfaction if the bundles offered by governments and rival political parties do not conform to citizen preferences over the fully suite of policy areas.

Accordingly, this thesis explores the theory of unbundled and non-territorial governance as means to overcoming these problems. I use economic theory from multiple schools (i.e., new institutional, public choice, Austrian) to argue that greater efficiency and citizen welfare follows from non-territorial unbundling, and to also clarify the conditions under which it might or might not ever eventuate. I trace the history of these ideas in political-economic thought, and uncover past and contemporary cases of non-territorial unbundling. The finding here is that the ‘pure’ version of the theory has yet to fully arise in practice, but emerging examples of cryptographic ‘virtual states’ come close to realising non-territorial unbundled forms of political organisation.

Next I outline a ‘political-jurisdictional Coase theorem’ (PJCT) to describe how political systems and jurisdictions change. This model suggests that it is the relative imposition of transaction cost over different modes of jurisdictional change as well as wealth effects that enable or prevent non-territorial unbundling. In addition to this I outline a ‘political-jurisdictional possibilities frontier’ (PJPF) that describes the space of possible allocations of property rights and political authority, given the prevalence of market, political, and jurisdictional transaction costs; and a ‘political-jurisdictional transformation frontier’ (PJTF) that shows the compact trajectory of actual allocations that obtain, given the prevalence of ideas, interests, and wealth effects. Together these furnish a fuller model of the political-jurisdictional Coase theorem and illustrate its insight as to the conditions of possible emergence or implementation of non-territorial unbundling.

I then present a model of partial internal exit that captures the competitive dynamic between incumbent and potential governments in a non-territorial unbundled system. This model particularly applies to the case of ‘cryptosecession’ that appears the most likely avenue for non-territorial unbundling to ever eventuate. It demonstrates how fiscal exploitation is reduced and eventually eliminated as the capability of citizens to move to non-territorial and unbundled jurisdictions increases. When interpreted as a model of cryptosecession, it shows how the balance of citizen opacity and government legibility determines the balance of fiscal exploitation versus equivalence.

Finally, I take an Austro-evolutionary perspective on the theory of non-territorial unbundling. I define ‘the knowledge problem of the nation-state’ as the task of designing a political-jurisdictional order given that the requisite knowledge is distributed among individuals in a polity. Attempts at redrawing borders or executing population transfers have proven appalling failures in rational constructivist planning. Conversely, spontaneously ordered political jurisdictions is the general solution to the knowledge problem of the nation-state, which I label a ‘constellaxy.’ I argue that the pure theory of non-territorial unbundling resembles to a constellaxy, and submit that in the absence of a constitutional mechanism, a solution can be found in technologies of cryptosecession. While this is necessarily speculative in nature, such discussions are of value if we are to advance the quality of governance and meet with the challenges of an increasingly complex future.

Keywords: non-territorial, unbundling, jurisdictions, nation-state, secession, Coase theorem, knowledge problem, spontaneous order.

(N.B. The thesis can also be viewed at the RMIT thesis repository.)