Tag Archives: anarchy

The Post-Westphalian Order and the Age of the Network

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In my work on WCITLeaks and on my latest working paper on cybersecurity (paper, blog post, podcast), I’ve had the occasion to think a lot about governance structures. In particular, what happens when there is a mismatch between a governance structure and the problem that people need to be solved? Do, and how do, governance structures evolve?

I came across a great quotation yesterday from Toomas Hendrik Ilves, the president of Estonia. In remarks that he made in June at a conference on “cyber conflict,” Ilves said:

We must choose between two paths – either we can change the nature of the internet by placing a Westphalian regulatory structure on internet governance, or we can change the world.

To my mind, this is an intriguing way to frame the issue of Internet governance, and it is impressive that it comes from the president of a nation-state. I’m not especially familiar with the issues under discussion at the particular conference at which Ilves made this statement, but I can tell you how it relates to WCIT and cybersecurity. To a large extent, the Internet developed without top-down control. As a result, non-Westphalian Internet-native governance institutions emerged to solve the problems that netizens had. For example, on both the issue of accounting for data transfer costs and that of maintaining security, a system of zero-priced at-will peering emerged between networks at the core of the Internet.

Now that the Internet has become so important, the Westphalian order wants to remake the Internet in its own image. We’ll take it from here, it says. But my daydreams are now filled with the idea of an Internet that replies, “No, no. We‘ll take it from here.”

This might be crazy, but is it so crazy? The Peace of Westphalia was concluded in 1648. Westphalian sovereignty has had an impressive run, but why assume that it will be around forever? At some point, the Westphalian system will end, and something new will come after it. That something new will depend on a lot of real variables, not on legal fictions, just as the Peace was a ratification of the distribution of power, not a creator of that distribution.

In my new paper, I link the spontaneous provision of Internet security to the work of Elinor Ostrom, but I’ve realized that in a crucial way, my work contradicts Ostrom. She argues that the governance of large common pool resources needs to be accomplished through a nested system, a federal structure. Essentially, she solves the problem of bigness with a vertical cascade of punishment. This is a form of hierarchy. But Internet security is a large common pool resource, and as I show in the paper, it is provided non-hierarchically. Instead of a vertical cascade of punishment, there is a network cascade of punishment.

This is a big deal. One aspect of it that is especially intriguing to me is that it provides evidence for David Friedman’s critique (ungated) of Tyler Cowen’s argument (ungated) on anarchy. It also can give us a way to anticipate the real variables that may define the post-Westphalian order.

In particular, is the world becoming more network-like? I think so. Globalization means trade networks. War increasingly means non-state actors: “terrorism” networks. The plummeting cost of communication means thicker meatspace networks, not just more computer networks. Think about the rise of hacktivism and Anonymous, a loose network of online prankster-vigilantes.

We may be entering the Age of the Network, but a remaining question is to what extent networks are becoming more prominent only because they have the consent of the Westphalian order. As much as nation-states want to regulate the Internet, they don’t exactly want to shut it down. They want to ensure it remains domesticated, too weak to represent a serious alternative to their power. At some point, we may witness a genuine conflict between “sovereign” institutions and network institutions. If and when the network institutions start to win, I will interpret that as the beginning of the end for the sovereign nation-state.

What Would Stateless Internet Courts Be Like?

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Last year I wrote that there are benefits to operating a business that is subject to state law. As Schelling says, the right to be sued is the power to make a promise. Increasingly, however, there seems to be interest in running profit-making internet ventures that are immune to state control. There may be a market, therefore, for a private court that accommodates such activity. In this post, I’ll present an outline of what such a court might be like.

There are a number of private arbitration firms in the world, but in general they are not suited to deal with stateless actors, particularly those who wish to avoid state control altogether. First, they themselves rely on state law to a large extent. Firms who go to arbitration often do so because their contracts prescribe arbitration; these contracts are the ordinary state-enforceable sort. Because state law casts its shadow on private arbitration (and the disputing firms prefer it), judgments are typically secret. The secrecy of judgments creates problems. Secret judgments increase the incentive for lazy arbitrators to split the difference, rather than search for actual fault. Recently, in order to combat difference-splitting, arbitrators have relied increasingly on American-style procedural rules, which has increased the cost of arbitration and eroded one of the major benefits of private adjudication, its lower cost.

Second, private arbitration firms to my knowledge are not typically prepared to accept disputes between pseudonymous parties. Firms on the internet who seek to avoid state control must use pseudonyms; otherwise states would be able to track them down and interfere with their businesses. It’s imperative that the arbitration firm or court not have access to any concealed real identities of the parties. Otherwise if the identity of the arbitrator is discovered, the government could extract the real identities and prosecute accordingly.

Since a private internet court must attract business without the machinery of the state, most of its rulings would need to be public. It would want to develop a reputation as a truth- and fairness-seeking body. Its opinions would need to be clear, well-reasoned, and principled. Past rulings would serve effectively as advertisements to bring in future business. It could occasionally offer secret proceedings if both parties publicly agreed to be bound by them, but in equilibrium, these would cost more since they could not be used as advertisements.

Since the court could not rely on the state to enforce its rulings, it would need to maintain a publicly accessible database of the compliance of defendants with its rulings. Market participants should be able to query the database with the pseudonym, trade name, or public encryption key of any online business and be able to see immediately whether that entity is out of compliance with the court’s ruling, and if the proceedings were public, the evidence and explanation of the ruling.

To bring a case, a plaintiff would have to pay the court’s fee up front. If the plaintiff won his case, the defendant could be ordered to reimburse the plaintiff for this fee. This ensures that the court always gets paid, and it is the only system I can think of that is fully compatible with the purely voluntary nature of the trial.

What if the defendant declines to participate in the trial? The court cannot force him to participate, but this is less of a problem than it at first seems. The court still has an incentive to supply a fair ruling (which, again, will be publicly verifiable). If it does not, then its database of out-of-compliance defendants becomes worthless. No one will pay attention to a database of people that plaintiffs sued in a corrupt court. For the database to have value, it must at least correlate with fair rulings.

Once one private internet court gets started, it will likely face competition. Courts will compete on fees and reputation for fairness. This will generate a search for efficient rules of civil procedure: what rules of procedure make the optimal tradeoff between cost and information? My intuition is that for the kinds of cases we’re discussing, the rules will need to be very low cost. Since the enforcement mechanism relies entirely on reputation, and firms can always “declare bankruptcy” on their reputation and start over, the cases that will be brought will be relatively small, at least at first. Therefore, the cost of litigation must be low enough to make adjudication worthwhile. I would expect there to be no discovery, which is very costly. In equilibrium, private courts would probably receive a complaint from a plaintiff and a response from the defendant, and then have the opportunity to question both parties. It would then issue a judgment.

While the scenario I have sketched above may seem far-fetched, there are lots of parallels between it and the actual development of merchant law and Anglo-American common law. Early courts in these traditions had little power to enforce their rulings. They also faced competition from other courts, and issued public rulings in order to establish reputations for fairness and efficiency.

If Bitcoin can get past its recent struggles (1, 2, 3, 4), or if some successor medium of exchange is more successful, then demand for state-free adjudication may increase. I’m not ready to abandon my current career plans yet, but given my academic interest in private governance, the internet, and law and economics, I’m willing to hear cases on an ad hoc basis. If you think you’ve been ripped off by a merchant on Silk Road, get in touch. I’m ready to claim universal jurisdiction.

Hail Neal Stephenson! *Snow Crash* Comes to Life

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Via Roderick Long, this New York Times article documents the fascinating case of Gurgaon, a quasi-anarchic city of 1.5 million people in India. While the city is subject to state and national law, there is no municipal government to speak of. Services are provided by an archipelago of private communities. In between the private communities there are miserable slums (this is India, after all), but life inside the communities is good. Alex Tabarrok also has a good post offering commentary with which I largely agree. See also The Voluntary City, coedited by Tabarrok.

As I read about Gurgaon, I could not help but think of Neal Stephenson’s 1992 postcyberpunk novel Snow Crash (Kindle version). Snow Crash envisions a future in which most people live in sovereign gated communities called burbclaves, or in the big business version of the same, franchises like Mr. Lee’s Greater Hong Kong. The US government still exists, it just has no power and little territory. Gurgaon is on its way. Builders of the private communities there, such as Tata Housing, have properties in other Indian cities. This is a lot like the franchising that Stephenson imagined.

There are other parallels between Snow Crash and reality. In the novel, the US government has gone bankrupt and had to resort to hyperinflation—quadrillion dollar bills circulate, alongside private currencies. The private currencies in Stephenson’s world are issued by popular franchise communities; they are not decentralized peer-to-peer currencies like Bitcoin. Nevertheless, it seems that a number of governments around the world are in the process of bankrupting themselves through overreach and dysfunctional politics. We may all learn more about private currencies in the near future.

In the novel, there is a flourishing private intelligence industry. Several of the characters are freelance intelligence gatherers for the CIC, the private commercial successor to the CIA. So far, the analogous real-world “private intelligence” organizations like Wikileaks and Anonymous are non-profit, but can for-profit variants be far behind? Or maybe Google is the CIC. Google Earth, for instance, resembles software described in the book, and it has long been alleged that Google has CIA ties.

Finally, there is The Raft, a flotilla of thousands of boats fastened to a former aircraft carrier and each other that functions as a floating city. Seasteading anyone? N.b. that an actual Raft as described in the book would not work. The chop of the ocean would cause the boats to smash each other to bits. So a seastead is the closest possible real-world analog of this element of the novel.

Are there other ways in which Snow Crash is coming to life? Readers are advised that although this post did not contain major spoilers, commenters may need to reference important plot elements to add to the analogy. If you haven’t yet read Snow Crash, beware, and remedy that problem soon.

The “Brutality” of Private Law

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Today on Twitter, I got involved in a discussion of private law with Karl Smith (or whichever of the Modeled Behavior bloggers controls @modeledbehavior) [Update: It was Adam Ozimek]. My interlocutor was perfectly willing to accept that a system effectively of private law was suitable for non-violent offenses. Violators would pay restitution equal to damages times the reciprocal of the probability of detection (for optimal deterrence) and any enforcement costs such as court fees, the costs of investigation, and so on. Tort claims should be tradable so that the poor victims would get justice as well; they could sell their claims to wealthy entrepreneurs who would finance the up-front costs of investigating and litigating the tort.

However, I faced resistance when I said I favored such a system for violent offenses as well. Karl (or whoever) Adam said it would lead to mob justice in cases where the amount of restitution was too large to be repaid. In most customary, private legal systems, violators who cannot or do not comply with court-imposed demands for restitution lose the protection of the legal system.

As I read the literature, there is reason to suppose that private systems of law handle violent offenses relatively efficiently. Anderson and Hill argue that the American Wild West, on and beyond the fringes of government control, was not actually that wild. Bruce Benson documents the gradual transformation of customary Anglo-Saxon law to modern state-based law, which at each step seems to have been motivated by rent-seeking considerations, not by a desire to improve the efficiency of violent crime-fighting. Leeson explores the adjudication of violent offenses along the sixteenth-century Anglo-Scottish borderlands, effectively a war zone; this was not a pleasant place and time to live, but the system of adjudication was more orderly than might be supposed. Modern-day Somalia is under customary law, and while it doesn’t do a good job of protecting outsiders against pirates, it protects Somalis from other Somalis well enough that the Somali economy is outperforming that of its neighbors in many regards. Again, not where I’d like to live, but let’s not suppose that a public legal system would turn Somalia into Northern Virginia overnight either.

Nevertheless, the literature on private legal protection against violence leaves something to be desired. There are many more papers on how private legal systems such as the Lex Mercatoria arose to enforce contracts, even with heterogeneous agents in one-shot trades. At least that is the literature I am more familiar with (see, for instance, this survey by Powell and Stringham). To some extent this is because states have more thoroughly coopted control of the prosecution of violent offenses than that of non-violent offenses, and therefore there are fewer examples. But I’m interested to know if there are other papers I’m missing specifically on how violent offenses are handled in private courts, preferably as recently as possible (I know also about the systems of Medieval Iceland and Ireland).

But while it would be great if the literature on private enforcement against violent offenses were more plentiful, I doubt that the objection most people have to such a system is at root about efficiency or orderliness. Rather, the enforcement of violent offenses frequently involves penalties that we prefer to impose at arm’s length. A serial killer has so many victims and owes so much restitution that the legal system won’t protect him even after all of his assets have been seized to make partial restitution for his crimes. As a result, he’d likely be killed for his crimes under a private legal system. In a public legal system in much of the world he’d be killed as well, but the difference is that we’ve invented an entity called the public executioner to act as a moral veil between the public and its actions.

This reminds me of something that Tyler wrote in October:

Any social system must, at some stage of interactions, impose some morally unacceptable penalties.  If you are very hungry, and you shoplift food, they still might prosecute you.  If you don’t pay your taxes, and resist wage garnishes, they might put you in jail.  If you resist arrest, they might, at some point in the chain of events, shoot you while trying to escape.  Somewhere along the line there is a doctor who can treat your rare disease except he doesn’t feel like working so much, and so he lets you die or suffer; you can find both private and public sector examples here.

Social systems proceed by (usually) covering up the brutalities upon which they are based. The doctor doesn’t let you get to his door and then turn you away, rather his home address is hard to find.  The government handcuffs you so they don’t have to shoot you trying to escape.  And so on.

Those of us who believe that publicly-enforced criminal law leads to numerous injustices need to acknowledge the strength of the public system. It lets ordinary citizens feel like they are not the ones doing the enforcing. It enables a kind of self-deception that a private system does not automatically provide.

Is this a feature or a bug? On one hand, the world might be a gentler place if we were not able to self-deceive about the brutalities that we impose on each other. On the other hand, if the failure of private systems to supply this self-deception means that we are stuck with the many deficiencies of the public system (e.g., police discretion, which leads to corruption, rape of prostitutes, and victimization of the poor), then it’s imperative that we either try a) to discover ways for private law to provide self-deception or b) to unmask the brutality of the public system.