Start-up nations – Disrupting modern governance

 

I

‘Disruption’ is the buzzword du jour. Everywhere one looks –­ from venerable newspapers being upended by online platforms; to ‘fintech’, and the promise it holds to disintermediate the oligopolistic banks; to robotics and artificial intelligence, which may automate whole industries and put thousands out of work – technological disruption threatens to transform the way we live our lives.

And yet in some realms, the more things change, the more they seem to stay the same. Take contemporary notions of government. The idea of the modern state – with a defined territory, a permanent population, and a central government that claims singular authority to determine the laws by which its citizens are bound – remains unchallenged as a normative ideal. The sovereignty and territorial integrity of states are central tenets of international law.

In this essay, I argue in favour of greater experimentation in the ways in which societies self-organise. I propose measures that would make it easier for people to change not just who they are governed by, but how they are governed, through the propagation of new ‘start-up nations’.

It is time to disrupt the state’s monopoly on governance.

II

Discontent with politics is common in many developing countries. What is more surprising, however, is that across much of the developed world, trust in the institutions of government and faith in democracy are on the decline. In the US – where the federal government has shut down 18 times since 1976 – just one in five Americans say they can trust Washington, DC to do what is right.

This paradigm shift has many contributing factors. These include economic uncertainty and inequality; the emergence of a 24/7 media cycle, which turns governing into a perpetual campaign; the corrupting influence of lobbyists and special interests; and the disconnect between policymaking elites and the communities they are meant to serve.

In response, scholars have suggested a range of remedies. Innovations like digital democracy, participatory budgeting, and legislative crowdsourcing could better engage and empower citizens. Decentralisation of power could promote closer relationships between governors and the governed. Profligate administrations could exercise greater self-restraint through binding fiscal rules, or the appointment of non-partisan commissions to propose long-term reforms.

While some of these ideas are laudable, most have a fundamental flaw: they rely on the very same institutions that created today’s crisis of trust to summon the wisdom to implement reform. Short of a revolution, what is to be done?

III

The essence of the disruptive innovator’s mindset is a willingness to challenge the foundations of the status quo: to reinvent rather than renovate. What would an innovator, confronted with the challenge of declining faith in governments, do? What if it were possible to readily create entirely new quasi-countries, and thereby to experiment with different political and constitutional frameworks?

Today, disaffected citizens of democratic states have few real options for effecting change. They can push for reform incrementally, via the opinion pages or the ballot box; they can ‘vote with their feet’ and emigrate; or, from time to time, they have seceded or revolted. 34 new states have been formed since 1990, many from the dissolution of the USSR and former Yugoslavia, but some through peaceful independence movements.

I propose a mechanism for states to empower small, autonomous regions to act as testbeds for alternative systems of governance. Geographically-delimited ‘start-up nations’ would offer policy innovators the opportunity to test their ideas, and governments the chance to learn through experimentation. Different start-up nations could trial different combinations of laws, rights, and liberties. Freedom of movement between a parent state and its auxiliaries would allow citizens (and corporations) to express their preferences through migration – giving competing start-up nations a strong incentive to improve how they govern.

Under customary international law, forming a new state is difficult. The world has run out of frontier, and very few states recognise the legal right of a region or group to secede. Nevertheless, examples abound of central governments granting constituent regions various degrees of autonomy.

For instance, three territories of the UK operate as self-governing Crown Dependencies, with their own courts and elected legislatures. Australia’s Norfolk Island was largely self-governing from 1979 to 2016, operating outside of Australia’s immigration, social security, and taxation systems. The Cook Islands and Niue are self-governing countries in ‘free association’ with New Zealand (whereby both Cook Islanders and Niueans are citizens of New Zealand). The Cook Islands has many of the attributes of an independent state: it has its own constitution, has entered into diplomatic relations with foreign states, and has acceded to well over 100 multilateral conventions.

Hong Kong deserves special mention. It has been described as an entity which is not a state, yet possesses stately attributes; not sovereign, yet highly autonomous. As a Special Administrative Region (SAR) of China, it enjoys a degree of autonomy greater than that of other local governments. Under the principle of ‘One Country, Two Systems’, Chinese socialism is not practised in Hong Kong.

Many of the world’s dependent territories are the product of a colonial legacy or quirks of history, rather than conscious design. More interesting, from the point of view of this essay, are autonomous regions at a sub-national level. One example is the special economic zone (SEZ), which allows governments to pilot new policies and approaches in designated enclaves. In China, the Shenzhen SEZ helped to transform Shenzhen from a small fishing village into a thriving metropolis within the space of a generation. In Korea, export processing zones have spearheaded the transformation of its overall economy.

A more recent idea is for moribund states to outsource the governance of entire cities. Enter the charter city, as proposed by Paul Romer. In Romer’s conception, governments could permit selected cities to operate temporarily under a charter of rules set by some third-party guarantor (i.e. a foreign government or corporation). The Honduran government is pressing ahead with plans for charter cities, although its approach has sparked popular fears about a loss of sovereignty.

More radical concepts test the limits of geography and human ingenuity. Proponents of seasteading envision artificial homes and cities floating in international waters, free from the interference of governments. Previous attempts have met ignominious fates: in the 1970s, ‘Operation Atlantis’ saw an American entrepreneur purchase an offshore oil rig, only to see it destroyed in a hurricane; the ‘Republic of Minerva’, a self-declared micro-nation in the South Pacific, was invaded by the nearby Kingdom of Tonga. None have been able to overcome the great costs and technological challenges of building a platform that can operate in open waters, safe from storms and marauders.

IV

While seasteading may not yet be viable, there are no apparent technical barriers to the formation of start-up nations. Even on a planet where no terra nullius remains, start-up nations could still be established under long-term concessions (leases) on vacant reserves of state land, on uninhabited islands, or on artificial islands formed through dredging and land reclamation.

All that would be necessary is a means of creating a separate constitution for each fledgling start-up nation through an act of the parent state’s legislature – in much the same way that the constitutions of former British colonies, like Australia, were originally conceived through acts of the British Parliament. Some states already possess the right constitutional powers. For instance, the Territorial Clause of the US Constitution allows Congress, in its discretion, to choose to apply or refrain from applying both federal statutes and the Constitution itself to Puerto Rico. Public Law 600 authorised Puerto Ricans to draft their own internal constitution to govern internal affairs, without the US recognising their full sovereignty.

I envision that over time, successful start-up nations – those with demonstrated capacity for self-government, fiscal sustainability, and permanent residents – could be spun off into something akin to SARs. Unsuccessful start-ups would be subsumed back into their parent states, or remain as dependencies or members of a federation. In the long run, the residents of successful start-up nations could even seek independent statehood. (The clearest example of peaceful state separation is Czechoslovakia’s ‘velvet divorce’ in 1993; since then, both the Czech and Slovak Republics have achieved recognition as sovereign.)

Crucially, start-up nations would not necessarily be precluded from relations with foreign states or from entering into a trade agreement with their parent state. Under the terms of the Sino-British Joint Declaration, for example, Hong Kong is permitted to enter into international agreements and participate in certain international organisations on its own. Ukraine and Belarus (two members of the former USSR) were admitted to the UN, whose membership is notionally confined to states, for decades before they became independent.

The prospect of start-up nations raises several ethical dilemmas. One is the risk of jurisdictional arbitrage. A start-up nation founded on, say, libertarian principles might encourage corporations to relocate so as to benefit from lower taxation or more lenient regulation, whilst retaining market access to the parent state. (Of course this would presumably be the goal of such a start-up nation, but the parent state might find the loss of taxation revenue and regulatory power unacceptable.) To counter this risk, trade relations between parent and subordinate polities would need to be governed by a formal agreement, much like the Closer Economic Partnership Arrangements between mainland China, Hong Kong, and Macao. Citizens or corporations, if no longer paying taxes in the parent state, must also relinquish the rights and protections offered by the parent upon relocation.

V

“The difficulty lies not so much in developing new ideas as in escaping from old ones,” wrote John Maynard Keynes. By offering safe harbour for innovators, free from the vested interests and inertia that characterise modern governments, start-up nations may be the disruption that blossoms into a thousand other disruptions.

As a society, we have become more risk-averse. Accidents and crises routinely lead to new regulations that aim to make the world safer, but raise the bar for future innovation. Consider this: current regulations set out in excruciating detail the standards that manufacturers must follow when building passenger cars – so much so that rules about foot-activated brakes may hinder the development of driverless vehicles. Amazon waited nearly a year for the Federal Aviation Administration to grant it an exemption to test new delivery drones; by this time, the approved devices were already obsolete. The blind transference of old regulations to emerging industries is a public policy crisis.

Innovation is also suppressed by vested interests. Some professions, such as those in education and medicine, use licensing requirements to forestall change. Established corporations lobby for regulations and patents that make it harder for new firms to enter the market. A ratchet effect emerges, where new regulations accumulate without elimination or rationalisation of old ones.

Successive crises in democratic states point to flaws not just in rulemaking, but a deeper malaise in underlying constitutional design. Fundamental reform in the US is hampered by what one author calls the ‘American cult of constitutionality’: the deep-seated reverence for an 18th-century document despite America’s democratic deficits. Over 2010-11, Belgium took 589 days to form government. Italy has had 65 governments since 1945. These conditions are hardly conducive to innovation.

Could a Singaporean-style technocratic state work in the Western world? Should major decisions be delegated to citizen juries rather than elected officeholders? Start-up nations, through pioneering not just cutting-edge administration but also entirely new constitutional frameworks, could offer lessons for parent states to govern more effectively. They could be used to test controversial alternatives to democracy, like sortition and technocracy, in real-world political laboratories. Like in all entrepreneurial ecosystems, the failure of some start-up nations is to be expected and even encouraged.

Let us be clear what this proposal is and isn’t about. The purpose of the start-up nation is to motivate experimentation in governance. It is not about emboldening extant separatist movements, whatever their individual merits may be. Start-up nations differ from charter cities, which focus on outsourcing governance in underdeveloped states (and thus raise uncomfortable questions about land rights and neo-colonialism), rather than beginning anew in developed ones. They must also go a step further than, say, private islands, whose owners may have freehold rights but ultimately remain under some government’s jurisdiction.

The future will belong to those who can thrive in a world of complexity and disruption. This is axiomatic not just for individuals and corporations, but states too. For sclerotic modern democracies, start-up nations could offer blueprints for a full-scale retooling of their political systems. Start-up nations would allow us to fundamentally rethink the laws and edifices on which modern states are built.

 

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