The Island – The failures of both Left and Right in economics

It just wasn’t your week. It had started out alright – your work, finally recognising your years of service, decides to send you on an international trip on a luxurious ocean liner. You spent a couple of pleasant days basking in the sunshine on a deck with thousands of other lucky travellers. It’s hard not to feel like you deserved this pleasant break from the grind of daily life. But your luck doesn’t hold, because a few days later, your ship finds itself in the grip of a once-in-a-century storm. In the mighty winds and waves, the ship’s navigation and communication systems are destroyed. Lots for days in a wild ocean, it finally runs aground off a large yet uninhabited tropical island. You and around five hundred passengers manage to scramble ashore with a handful of supplies. After catching your breath on the sandy beach, you gather to contemplate to discuss the prospect and strategies for survival.

The situation is dire – you are so far off course that it could be months before anyone discovers where the ship is, and the island, while large enough to support a beautiful rainforest, is totally untouched by human development. While there is fresh water available and enough salvaged food to last for a week or so, it’s the human challenges that seem to be presenting the most immediate problem. While the first few people to arrive attempt to discuss the situation calmly, as the group grows things become difficult. People struggle to have their opinions heard, and it becomes apparent that this large, diverse gathering of people is going to put decisions by simple consensus beyond reach. You only read Lord of the Flies a few months back, so despite the difficulties you resolve to put yourself in the thick of discussions, so that you can do what you can to help prevent a slide into anarchy.

After a day or two of chaos, some more sophisticated ideas start to emerge amongst those taking an interest in the sociological situation. Aside from more esoteric questions of morale and mental well-being, two central themes emerge in the discussions. The first is determining what rules, if any, there ought to be, and more importantly, who and how they should be decided. In a way, it’s about power. “So basically,” you think to yourself, “we’re trying to re-establish a democracy”. The second topic for discussion, given rescue could be a long way off, is how the group can produce enough resources to provide the basics of life, and where possible, a few comforts to make everybody’s time on the island bearable. Or, as one of the other survivors points out, it’s about determining who will do what and who will get what. “In other words,”, you think, “we’ve got to think about economics”.

In both cases, everyone gathered on the beach will have to deal with hundreds of strangers of unknown moral character. Chances are there are at least a few good people gathered here, willing to do what it takes to make sure everybody is safe and provided for. But there’s probably also some people that are basically out for themselves. They’d be willing to throw everyone else on the island to the sharks if it meant a ticket out of here and back to civilisation. The problem is, looking around the faces in the group, there isn’t a reliable way to tell one from the other. In a group this size, there’s bound to be a sociopath or two, plus a few people with personal hatreds or axes to grind. Of course there will be warm hearts and great altruists too. Plus a whole array of people somewhere in between. But who is who? It’s anybody’s guess.

For your part, you’re fairly certain trying to run the island on a naive honour system that assumes pure hearts all-around. If people just go for the charmer to volunteer themselves as leader, or if people a left to take from the salvaged supplies as they saw fit, things are going to get ugly very quickly. These people are not so altruistic that they will all do the right thing. You know, when it comes to power, even in a democracy, people will sometimes bully, lie and cheat to rise to the top. And when it comes to economics, without a degree of law and order, some people will gladly steal and kill to get the resources they need, or want. Wishing people were good and trusting that their morality is pure will not make it so.

At the same time, if people start assuming the worst in everyone else, and the island descends into an attitude of “every man for himself”, the group won’t survive a month. Such a culture will kill off any altruism instantly. Even basic cooperation would be near impossible, because in a world without morality, you are always better off attacking first, becoming stronger, slaughtering others before they become a threat and before they can take resources that might be useful. This is the race to the bottom, from which there will be no return for the group or any of its members.

So elections and democracy start to get a mention. Maybe the group should try to identify the most morally trustworthy individual, and assign leadership and power to them. This proposal still worries you. This supposedly great leader is ideally meant to pursue the group’s interest above their own. You have serious doubts that will work as intended – and luckily there are enough educated people in the group, ones who have a sense of the lessons of history, pointing out that power corrupts. Even if there are pure hearts that can resist the temptations of their position, an absolute leader is the ultimate magnet for those who have a fetish for power. You know such people can often muster a lot of charisma to get what they want, enough to fool most people anyway, and if they succeed the slavery and violence of a tyrant could follow.

So you try to push a new theme – structure a democracy but prevent power from being concentrated in the hands of a single individual or small group amongst the surviviors. Like the more successful democracies back in civilization. But instead of a population of millions, this democracy has hundreds. Directly importing the institutions would be bizarre and impractical. Instead, you explain to those who will listen, the group ought to consider the principles that the institutions of democracy are built on, and import them.

So, they ask, what sort of principles would apply?

Democracy and the Separation of Powers

Well with some creative use of voting tokens, at least election fraud should be more difficult on the island…

Assuming we can establish a system of voting (for example a representative parliament, or in the island’s case a simple council election), one of the most important ingredients for a healthy democracy will be a functional separation of powers. A well-designed division of powers is essential because whatever our aspirations, humanity is ultimately imperfect. If we could guarantee a leader was totally selfless, in possession of all relevant knowledge, and able to apply perfect reasons without bias or fallacy, there would be no need for a division. But alas, this is no such guarantee, and so history is replete with countless abuses of undivided power, where a person may appear good as they rise through the ranks, but then proceeds to indulge the worst in human nature once they have others under their control. Even the noblest amongst us, should we have the good fortune to see them prevail over more ruthless competitors, may find their resolve and pure intentions eaten away. Obtaining power, after all, requires sacrifices, and there are constant temptations and pressure to defend their position once it’s obtained. Only a rare few in history have proven immune to this corruption, and the greatest historical lesson of all is that there is precious few ways to tell who will fail the test until well after they have fallen into darkness. This is particularly true in the casual glance of a frenetic election campaign.

So, if we are wise we divide power, to limit the damage it may do, but also so that each powerful individual or group can watch over the power of others, preventing the worst abuses. But a division of power isn’t a simple task. Not only do you have be cautious that your division of power doesn’t render your society unable to defend itself from internal or external problems, you also have to ensure that power, which has a habit of drawing more power to itself, doesn’t just re-concentrate over time. So your separation will have to incorporate three principles to achieve this:

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The principle of division – Power in a community or nation ought to be divided, so that the reigns of power are never held just by one master.

We must divide power. But we must also ensure that the division is resistant to incremental re-concentration. If the power is divided, but one party has the means to co-opt, steal or control the power of another, our divisions will be destroyed in the long run. This is the problem of overt concentration of power, where power exists in plain sight and even acts legitimately, but begins to concentrate in a way that is easily overlooked until it is too late. In a country with an overt concentration of power, if you find yourself in conflict with a minister or other well-placed person, you are not just in conflict with them, you are in conflict with the government as a whole, because it is effectively one single entity of power.

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The principle of independence – The vital functions or roles must be independent and beholden to no other power except the citizens.

In some cases, power exists openly, but in other cases, while there is no official ties that violates the principle of division, there is still an unofficial web of power that spans the institutions of a nation or community. For example, in a country where the web is the way things happen, it might well be the case that the police have no official ties with, say, the Minister for the Arts, regardless of his seniority. However, because the Minister for the Arts and the Chief of Police are cousins, or perhaps close friends, or just well-connected with other leaders, your accusation of corruption against the Minister for Arts still result in the authorities coming for a friendly “visit” to your house late one quiet night.

The web of power is woven from modest favours that powerful people like the Minister and the Chief do for each-other. As its strands strengthen, the web becomes the best way to “get things done”, even amongst honest leaders with good intentions. In most cases the web tends towards control of fewer and fewer individuals, who emerge by virtue of skill, the influence of their position, or both. But even if no individual has the power to act unilaterally, the division of power has been steadily breached, because the web ultimately ensnares the basic functions of democracy in its own agendas. Acting of its own accord, it is now the web that determines the country’s decisions, not its leaders, and not its citizens. Now the country has lost much of the ability to respond to a crisis or address its most difficult problems.

A web is not the exception. It’s almost a rule. Every country or community suffers from a web to some degree, but the more the web usurps official channels, the more the engine of prosperity and success is hollowed out. As the true functions wither and become hollow facades, the country or community begins to stumble into a long-term decline. If democracies don’t keep their vital functions free from this web, they will suffer on many fronts.

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The principle of limitation – Each division of power should have a limited, discrete, well-defined role. Each of these roles checks the power of other roles, but does so within the bounds of their own.

All organisations are full of people with mixed moral standards. There will usually be a few who will dedicate themselves to the organisation’s mission out of sincere dedication to the cause, but this few is rarely enough. Humans, while they have evolved some altruism, are still significantly influenced by self-interest. The organisation’s success, as well as its responsible use of power, hinges on its ability to unite the altruism and self-interest. Take the altruists for granted, and you will have no role models to lead the way. Ignore the harsh reality of self-interest, and altruism drowns in a sea of laziness, or is crushed in a stampede for power. To solve this, you must use incentives in such a way that the morally optimal path is also personally advantageous, in terms of simple self-interest. There are two ways to do this. The first is to offer financial incentives, such as performance-pay or meritorious promotions. The second is to offer social incentives, by developing a culture that respects, admires and rewards the personal qualities and actions that align with the mission of the organisation. This is superior to relying on unrealistic moral expectations to win the day.

Of course, the incentive structure of an organisation, including its culture and its performance-based rewards, has to be a finely tuned machine. It requires a significant time to establish. It doesn’t change easily. It’s complex. Aligning it with organisational goals, even where those goals are very simple, is a phenomenally difficult. But it’s necessary. Corporations and governments alike spend billions of dollars trying to get it right. And it only needs a small spanner to be thrown into the works to break down that alignment of mission and self-interest. In most cases, that spanner is conflict of interest. This is where the principle of limitations becomes key.

So why is limitiation important? Where an organisation’s incentives try to align with more than one core task, the system begins to break down. Imagine, for example, if instead of an independent judiciary, the party elected to government was also tasked with sitting in judgement over court cases. We can suppose that it is unlikely that an opposition party member would be ever likely to get a fair hearing. We can also assume that governing party members would be able to get away with all kinds of criminal activity. This wouldn’t hinge on the politicians being corrupt or morally bankrupt. It’s simply the case that the different organisational incentives can not be reasonably reconciled. A political party’s central task is to out-compete the opposing parties so that it can form government, which usually results in both direct financial reward for the politicians, as well a chance to implement its agenda on a national scale. Even if an individual sitting as judge wanted to be even-handed, they would fear retribution from a party culture and internal power structure that is geared for conflict with the other party. If the party isn’t geared that way, it wouldn’t be a successful party.

Democracy isn’t just voting – it requires a complex separation of powers each with a clear division, limitations and independence

Even better, we can imagine politicians tasked to act as police officers during their days-off. That would make for an interesting society.

All organisations have internal cultures and reward systems. These systems are usually a strength in achieving their mission, but they’re almost always inappropriate in any other context (though humans naturally always feel the world would benefit if our own culture was applied to others). The media has a culture of uncovering the most sensational truths, but it’s culture is poorly suited to matters of privacy, and is poorly incentivised to deal with “dry” topics of no real public interest. Academic culture is well-suited to examining such complex issues with intelligence and intellectual rigour, but wouldn’t provide us with the determination, bravery and decisiveness a military needs to protect the country. Likewise, where military power is wielded in the political arena, we can be almost certain that disaster will result. Moral character isn’t the issue, though it is valuable for other reasons – the problem of conflict of interest arises in the limits of human sociology.

And so, we need the three principles for a separation of powers. An effective separation of powers, whether starting from scratch on an island, or when we’re trying to instil it in our nation or community, requires us to consider a model that is more that just a simple division of roles. We must also ensure the independence of those roles, and we must define clear boundaries to establish accountability and prevent mission creep, empire building and responsibility-avoidance. Above all, its about fighting a fundamental problem that plagues all human societies – conflict of interest.

If we didn’t seek to apply a separation of powers and address conflict of interest, democracy could never have worked outside of the small city-states of Ancient Greece. And if the leaders of the island want to see it thrive and prosper, they’ll need to build their own pillars and not just resort to a shaky façade of democracy.

The island – democracy and economy

Stirred by your talk of democracy, power and Ancient Greece, the most influential voices on the island agree to apply the principles you outline. All of the vital institutions of democracy can be effectively replicated in miniature. While there’s no real need for multiple levels of government, it will be easy enough for people to elect 5 councillors to decide the rules of the island. It will also be possible to elect a head-councillor with a special but limited authority to act decisively in emergencies. Several people will be tasked with running a verbal news service that covers council matters and public concerns. Another small group will record information about the island, its people, and its resources and be given a chance to describe their findings uninterrupted at council meetings. Others will organise elections, and others will make sure there’s no bullying at the elections, and so forth.

It turns out to be very lucky that the principles took root. Weeks on the island drag into months and then a year. It appears the world has forgotten the lost ship. And yet a thriving democracy has been established, and most on the island agree that its been an astounding success.

However, the island’s economy has been a much more difficult challenge. At first a marketplace is established, and the island is a thriving community of production. People establish small claims of land and salvaged equipment, which they use in tiny enterprises that meet market demand. Yet, after a while, the first difficulties begin to emerge. Not long after the crash, one opportunistic individual salvaged the main medical supplies on board the ship. Claiming the find of morphine as their own, they are able to demand extremely high prices. This is despite the fact there is many times more morphine than required by small flow of injuries and medical emergencies. Soon the morphine dealer has traded their way into control over many of the island’s small businesses. Around the same time, a number of people originally treated for minor illnesses start showing symptoms consistent with morphine addiction. When councillors start discussing a new rule that assigns all morphine ownership to the island’s only doctor, the morphine dealer goes on a campaign of charm, backed up by a little coercion and bribery. When a few people outside the council start to campaign against the morphine use, the dealer hires his own campaigners, promoting the use of morphine as essential for many different ailments, and casting doubt on the “unfounded” rumours of morphine addiction. Several of the anti-morphine campaigners are found severely bashed, though they are unable to identify their attackers or offer proof of a connection with the morphine-dealer. There is loud protestation when one of the morphine addicts is found face down in the ocean, but nothing seems to come of it.

Credit – Avidec

You can feel it. It might not be Lord of the Flies yet, but something is going wrong on the island. At night you lay awake wondering if perhaps the group should have applied the principles of a separation of power to economics too.

However, before your musings can progress into something practical, a new trouble stirs. Sharing the feeling that something on the island is amiss, but unable to effect any real action against the problem, a growing group of people are whispering rebellion. The new trend brings together not just the friends and family of several people who suffered morphine-related deaths, but some warm-hearted idealists saddened by the corruption, some sidelined people who’s skills didn’t translate to success in the island’s new economy, and a group of rebellious teenagers who spend a lot of time looking like boredom will kill them long before anything else on the island. At first, the group’s talk of change is shouted down in council meetings, and make little progress in their demands. But the desire for change is there, just beneath the surface.

Then one day one of the unsuccessful council candidates steps up to speak at a council meeting. He’s a man with a taste for confrontation, and its obvious his ambitions are bigger than his standing. Too late, you begin to grasp the dark opportunity that has been laid at his feet. In the past you’ve heard him whisper complaints that he’s too good for this island rabble, but suddenly now he’s all about the “power of the people” and the corrupt system that’s taken hold of the island. He has several firm supporters, and his angry speech seems to solidify the simmering alliance of unrest. He’s eventually silenced by a councillor, but not before he declares that reform is impossible due to the corruption gripping the island. The council meeting moves on, the disruption apparently passed, but that night there is a violent armed uprising, followed by an emotional gathering in which he appears to slide into the role of an interim leader.

The morphine dealer and several of his worst cronies are rounded up, and while the ambitious new leader is vague about their fate, it obvious to you they’ve been executed and buried in a now off-limits part of the island. Over the next few days, part of you is relieved to see the end of the poisonous morphine trade. Yet the apparent executions and the new rhetoric of profiteering seems to instil a new kind of fear, especially in the business people of the island. And perhaps most concerning of all, several of the councillors disappear. To your mind, they had nothing to do with the morphine problem, and were generally honest and well-intentioned, if at times a little too charismatic for their own good. Publicly, at least, the remaining councillors are all praise for the new leader, and opposition to the new order of things is minimal.

Soon after, the marketplace is reorganised. Good and supplies will be assigned on a basis of need, not wealth. Jobs will also be based on a combination of “skill-based appointments” of the new leader and a popular vote. The broad range of supporters for the movement fare well in the new organisation, with the leader’s reforms managing to please most people by awarding many jobs to altruists and the family of the dead morphine victim. You do notice that several position go to some former morphine addicts that also have a rough demeanour and no obvious qualifications for their new jobs. It’s also apparent the council will now be a less open affair, with economic planning being done in a private council, and some periodic announcements to keep the citizens up to date.

While you’re concerned by the way economic changes have impacted on democracy, you’re hopeful that the significant number of good people left in power can reinstitute a more public and open democracy, especially now that the morphine problem is past. But when you talk to them privately, they tell you there is a rumour of a plot by many former business people looking to bring back the morphine trade. You suppose that’s possible, given how much they lost in the transition, but when you ask various officials what evidence of the plot exists, you think you catch a look of fear in their eyes before they look away nervously and make excuses why they have to get back to work. As you go from place to place you also notice that a lot of supplies are being to moved to the off-limits part of the island. The marketplace now only has the barest essentials, if that, though you hear its because some of the morphine-dealers former cronies are raiding the supplies from a secret base on a remote corner of the large island. That night, you climb a tree to look for signs of distant camp-fires, but all you see is blackness.

Something is very wrong on the island. Trying to figure out where things went wrong, you realise from the start, even where the democracy functioned, the economy lacked a proper separation of powers. Central planning hasn’t improved anything. It’s just made it worse but concentrating power in the hands of a select few, who now have their hands in every pie.

You suppose things might have been different without the morphine dealer or the new leader, but you can count plenty of shady characters that might have just as easily taken their place. Worse, they were supported by many, many people who you feel certain were motivated by good, pure intentions. You’re not even sure if you wouldn’t have acted the same if you were in their place, especially if like them you were a little more naive about human nature. The problem was that people gained power across a range of domains. When that happens, you venture to yourself, its always the case that either compromised by the temptation of power, or, if their heart is pure, they are compromised by a conflict of interest.

 

Towards a solution… see part two.