Centralised coordination easy to understand: David Friedman

Economist David Friedman got a doctorate in physics but made a successful career in economics. He home-schooled his children. He advocates a world without government. He wants a solution to the ageing problem. He wants laws made and enforced privately. The author of several non fiction and two fiction titles - including The Machinery of Freedom - was in the capital to talk on law without the state at the Chicago center in Delhi and the Center for Civil society. Excerpts from an interview with Anjuli Bharwaga.

Are governments more trouble than they are worth or are they too inefficient?

I think governments are bad at making and enforcing laws for many of the same reasons they are bad at growing food, building cars and running schools. The standard classical liberal theory is that nearly everything should be done by the market but the legal framework be provided by government.

The problem with this is that if the government is not competent to do so many other things, do you really want it to do something as important as making laws. The standard response is that there is no alternative and so a long time ago, I got interested in examining whether there were plausible institutions under which you could have a legal framework other than the government.

How long ago did this idea occur to you?

Almost certainly by the time I was 20. I started out as a classical liberal. But I was not really happy with that position. My view (at 15 or 16) was that I was not able to see any reason why people were morally obliged to obey laws. You are morally obliged not to kill others or to steal. But how does having a law change any of that?

But I also thought that unless people were obliged to obey laws, society would break down. I noticed that if at the point I was 18 and was allowed to buy liquor but if I refused to serve it to a friend who was 17, most people would think I was weird. So other people didn't, in fact, think they were obliged to obey the law. They obeyed the law due to some kind of mix of agreeing with it, being afraid of being punished. That sort of started me thinking about whether government had any moral status.

What finally persuaded me that one could manage without government was a science fiction novel. This novel describes a fictional society on the moon in which law is decentralised and privately enforced. It was very unlike my society. But here was a plausible, even if imaginary, example. And, a single counter example refutes a theorem. So, that meant it was not impossible and that made it worth my while to try and figure out how it would work in moderate society.

How does this work in developing countries like India?

I don't know. I don't know how it is going to work anywhere. What I was trying to do was to sketch out how a modern society could function without a government. But I don't know if we can get to that.

What happens to infrastructure and other public goods in a society with no government? Who builds stuff and who is accountable?

Infrastructure gets built by private firms and so on. Who decides what we need to eat? How is it that we haven't starved to death when the government is not producing food ? If people want to go from New York to Chicago, someone will build a road from one to the other. That's how the rail roads got built.

But things might overlap. People might not agree on the route, design, length...what I am saying is that one single authority needs to be responsible.

The market and the price system is a mechanism for decentralised coordination. If not enough of something is being made, the price goes up and more of that gets produced.

There are basically two ways of coordinating people. One of them is easy to understand and doesn't work and the other is hard to understand and does work. The one that is easy to understand is centralised coordination. That makes perfectly good sense. Someone says we need you to do this and someone does it. It works fine for small groups. But it doesn't scale. That's why the Soviet Union collapsed. The bigger the system is, the harder it is to run it from the centre.

Why aren't all countries laissez faire? And I think it is because understanding how markets coordinate and work is much harder than understanding how central authorities coordinate and work.

Are there more takers for the way you think today than earlier?

I don't know. The world is always moving in two different directions at all times. I don't know about India but in the United States, there is much more direct support for capitalism than there was 50 years ago partly because the Soviet Union has collapsed.

But, on the other hand, environmentalism has become a sort of a substitute. The people who want to control the way other people live instead of saying that we are doing this because we support socialism say that we are doing this because we think it is better for the environment. It is like a sort of cloaked argument.

In the academic world, yes, there is more support. Libertarianism is growing - it may be a little less popular of late due to the financial crisis - but in general it is more popular than say 50 years ago. The extreme view - which I represent - is still very, very small.

What happens if the world agrees to do what you advocate and there is chaos?

Well, I am not in favour of revolution. My approach would be more moderate. What I am suggesting is cutting back government slowly first to the classical liberal position. Then saying we can look at issuing money through banks or some other institutions and get government out of the money business. And then get government out of the schooling business. Then you start saying that government is not doing a very good job of protecting people so people look at living in gated communities with their own security. Government does not do a very good job of settling disputes so more and more people go in for private arbitration.

What do politicians say when they meet you?

(Laughs) I don't really meet...well, I did meet a lady politician recently but we didn't discuss this. She is on the wrong side on most things and on the right side on some things.

Read the interview on Business Standard website.