11. A different kind of union

The labor union is one of the most divisive issue in American politics. In previous blogs, we have laid out the basic principles of the distributed govlet system, and let’s use them to design a solution for labor unions that makes everyone happy.

Why the labor union is such a controversial and divisive issue? The following are the three main stakeholders in labor unions, and their best interests and the consequences of fullfilling that:
Workers: better pay/benefits  → higher prices to consumers, lower business profit
Business owners: more profit → lower pay/benefits for workers, higher prices to consumers
Consumers: lower prices → lower pay/benefits for workers, lower business profit

The consumers include both workers and business owners, as well as other groups such as professionals (aka, exempted employees) and people not in the workforce. As you can see, the interests of the three stakeholders are directly against one another, advancing the interest of one group would hurt the other two, if everything else equal. Of course people’s behavior changes in response to the economic incentives, it is incorrect to assume that everything would remain the same if one party gets a bigger slice of the pie. Therefore the fundamental debate is about which party is the main driver of the economic growth, thus advancing its interests would best stimulate the economy growth. The pro-business camp believes that the entrepreneurs create most of the jobs and innovations for growth and labor unions only lead to waste and overheads; but the pro-union camp believes that the workers are the main creator of the wealth and the main driver of the consumer demands for growth.

As discussed in blog #2, there is no universal truth and we should let both sides to turn their beliefs into corresponding laws and regulations, and test their ideas in practice. Essentially we want two govlets side by side, one is pro-union (like Sweden), the other is pro business (like Hong Kong), and give workers and businesses the choice to join either side. The pro-union govlet has the typical worker’s protection laws, such as the right to form union, collective bargain, right to strike etc. Such policies usually lead to higher labor costs, thus hurting the competitiveness of its businesses. To counter that, the pro-union govlet would have to flex its legislative muscle to protect its labor and consumer market. For example, it could and should collect tariffs on similar products from the pro-business govlet to offset the higher labor costs, the tariff collected can be used for the benefits of the workers, e.g. the unemployment benefits etc.; the pro union govlet should also require its businesses to give preference in hiring the unionized home workers. The tariff is a much more powerful and effective weapon than picketing in front of the non-union businesses. The pro-business govlet, on the other hand, would outlaw labor unions and the rights of collective bargain to ensure a competitive labor market, and it does not need any protectionism regulations because its products and services would presumably be more competitive.

Let’s look at the optimal choices for the three parties under this two govlet system.  For business owners, in order to reach the consumers in the pro-union govlet, they would have to either incorporate in the pro-union govlet thus subjecting to higher labor costs, or pay the tariff. If everything else equal, business owners should be indifferent between the two govlets because the higher costs in unionized labor can be passed to the consumers in the pro union govlet. Such transfer of labor cost is protected by the tariff, which effectively segregate the two markets. The workers in the pro-union govlet would enjoy better pay, benefits and job security but they would have to pay more for similar products and services than fellow citizens in the pro-business govlet. They may also have to stomach other pro-union legislative restrictions, such as having to send their kids to unionized schools in order to support teacher unions. For those who truly believe in unions and worker’s rights, this is certainly a fair price that they would proudly and happily pay. The consumers who are not affiliated with the pro union govlet can still enjoy the lower prices and unrestricted choices in products and services from the pro-business govlet.

As we discussed in blog #4, the pro union govlet would have to design its exit penalty carefully to prevent people from exiting right before making major purchases such as houses and cars, where the price difference between the two govlets can be significant (i.e., easily in thousands of dollars). Also, the minimum unit to join and exit the pro-union govlet would have to be households, because it would be rather damaging to the businesses in the pro-union govlet if husbands are paid with pro-union salaries and benefits, but the wives are shopping cheaply for the family as a citizen of the pro-business govlet.

The govlet system allows the Sweden and Hong Kong style governments to operate side by side and let everyone to choose according to his/her political beliefs and best personal interests. The unionized workers will probably be better off in the pro-union govlet because they would have more powerful legislative protections, such as the tariff and the preference in hiring, than what is possible in today’s political environment; and the business owners and consumers can enjoy the lower consumer prices and labor costs from the union free govlet.

It is also an objective way of settling the big debate: If the workers are the main creator of the wealth and the main consumers that drive growth, then the businesses in the pro-union govlet should thrive and become more competitive and innovative, thus attracts more businesses to the pro union govlet; and they may not even need the tariff protection after all. On the other hand, if unions do discourage risk taking and lead to lower efficiency and productivity, then the price and quality difference of similar products and services between the two govlets will become so large that unionized workers would voluntarily migrate to the pro-business govlet even with reduced pay and benefits.

Here is your perfect labor union, where everyone gets what he/she wants, and nobody is subjected to any coercion.

P.S: one important note is that the modern technology is a critical enabler for the distributed govlet system. In the example above, digital identification and payment are the prerequisite to be able to collect the tariff only from the pro union citizens, but not those from the pro business citizens. I will discuss the important role of the technology in future blogs.

10. The role of local governments

The govlet is not necessarily the right solution for every problem. By being borderless, the advantage of a govlet is to reach and mobilize people everywhere for the same political goals; however, the flip side is that the govlet’s policy cannot possibly be tailored to local needs and local conditions, while retaining its global appeal.

The existing state and local governments remain a very efficient form to manage the local real estates, such as roads, bridges, building and fire codes, zoning etc. The distributed govlets are likely to cause havoc if being applied to the local real estate management: Just imaging individual sections of your local roads and bridges are owned and operated by different govlets, and they are built and maintained with varying quality and standards, it wouldn't be a pleasant experience. Most people would agree that the proper zoning of a city helps everyone; the city therefore needs some authority over all the people and businesses within its territory to enforce a consistent zoning. In addition, when it comes to infrastructure projects, such as roads, bridges, train rails, airports etc, the benefits, costs and environmental impacts are all localized, therefore a local government with a well defined territory is at a much better position to organize these projects than a territory-less govlet.

However, besides the real estate management, all the other major functions and services of the state and local governments can be transferred to competing govlets. In the following pie chart of the local and state government spending (courtesy of usgovernmentspending.com), the bulk of the state and local government spending is in the areas of education, health, pension, welfare, protection, which are not related to local real estate management, thus can be effectively managed by competing govlets.

Though more difficult, it is possible to introduce more competitions to state and local governments even for the real estate management; this is not the main point of the blog thus I will postpone the discussion. However, to put the matter in the right perspective: If we manage to migrate 90% of the local government spending to competing govlets, the main problem of government waste and inefficiencies are solved; and we should be able to live happily with the the remaining 10% of the current government spending, such as defense, environment protection and real estate management, still being monopolized by the much smaller local and federal governments.

9. The role of the federal government

As discussed in earlier blogs, the federal government plays the important role of resolving the jurisdiction among govlets. Besides that, a few other important governmental functions or services have to remain in the hands of the federal government. 

Let's take a look at our current federal spending to understand its main functions. The following is a pie chart  of the federal budget for the fiscal year 2013 (courtesy of usgovernmentspending.com): The main federal spending are social security (pension), defense, health (including medicare, NIH funding etc), welfare etc. The remainder 18% of federal budget includes debt interests, education, environment protection, scientific research etc. 

Among these functions, defense clearly should remain the responsibility of the federal government because military training and operations are best run centrally. If govlets maintain their own armed forces, the civil wars may erupt between competing govlets. It is too much of a risk comparing to any potential efficiency gains from military competitions. It is certainly debatable whether the federal government needs to spend that much ($846 billion per year) on defense, but it is a separate issue we will revisit later. 

Another important function that should remain in the hands of federal government is the natural resource and environmental protection. The govlets cannot possibly fulfill the environmental protection objectives because they lacks the broad jurisdiction over large geographical areas, which is essential for environmental protection. In addition, the basic philosophy of the govlets is to protect everyone's right to pursue his/her own interests. The pursuit of personal wealth and profits is the primary driver for human ingenuity and productivity, and the best incentive to organize and mobilize a group of people for the common goals. However, in the case of the natural resource and environmental issues, the best interests of the current generation is clearly to consume and pollute as much as we can, and let the future generation to bear the consequences. The general population are selfish and unwilling to sacrifice their own interests and convenience for the benefits of the future generations, this is why most of the environmental protection legislation have met stern resistance on the capital hill. The future generations are the true stakeholders of the natural resource and environmental issues, but unfortunately they don't have any representations in the current political process for obvious reasons. Therefore, the federal government has to represent the interests of the future generations, and advocate and regulate natural resource and environmental issues against the selfish interests of the current generation. 

Even though the govlet system is not a good form to directly solve environmental issues, it can help discover creative ways to protect the environment. by letting those who truly care about the well-being of future generations to form govlets and experiment with new environmental regulations.

Besides jurisdiction resolution, defense and environment protection, all other major governmental functions, such as social security, health care, education and welfare, can be effectively and efficiently handled by competing govlets. By ending the federal government's monopoly in these areas, there are strong reasons to believe that the govlets will provide much more personalized services that are tailored to individuals' political ideologies without resorting to coercion, and at a much lower cost.  

8. Checks and balances

The main objective of the distributed govlet system is to protect the liberty of small groups of people to form new governments, and to enact and enforce their own laws among themselves. However, the liberty to swing your fist ends where my nose starts; equally important is the needs to protect others from being harassed by and burdened with unnecessary and frivolous laws and regulations. Therefore the checks and balances between competing and conflicting govlet are extremely important and warrant careful considerations.

To understand why we need checks and balances between govlets, let's consider the following scenario: An anti-pollution govlet outlaws all automobiles, and sends its law enforcement after foreign drivers despite the questionable jurisdiction. By "foreign", we mean citizens who are not directly affiliated with the govlet where the law is enacted. As we discussed in the previous blog, a govlet can only claim jurisdiction over a foreigner or foreign business if their actions affect home citizens or businesses. This anti-pollution govlet is claiming jurisdiction over every living driver based on the potential harms through the shared atmosphere we all breathe, as the air pollution is detrimental to its citizens' health and well-being. Even though there are some merits in its arguments, the anti-pollution govlet has clearly abused its jurisdiction. To prevent such abuses, a necessary measure is to require all arrest warrants or court orders issued by a govlet against foreigners to be checked and signed off by a federal court before it can be executed. The federal court only checks the validity of the jurisdiction, it should not judge the merits or the appropriateness of the law itself.

Ensuring valid jurisdiction is not enough, much stronger check and balance measures are needed to prevent govlets from abusing their power. The fundamental philosophy behind is that a govlet should always have the power to enforce any laws on its own citizen, after all the laws are the will of its own citizenry; but the bar has to be very high before a govlet can enforce its laws on foreigners because foreigners never sign up for these laws, thus deserving every protection from the harassment and abuse by potentially evil-willed rogue govlets.

The federal government should hold a govlet accountable for wrongful harassment or conviction of foreign govlet citizens. Federal court should have the power to charge the govlet's officials for criminal offenses if they knowingly harassed and wrongfully convicted foreigners. This measure is likely to safeguard against rogue govlets' abuse of its law enforcement power; it also creates a strong incentive for govlets to cooperate with one another in crime investigation and prosecution. For example, even if the victim's govlet has the priority in jurisdiction and solid evidence, it may want to share the evidence with the offender's govlet and have the case tried in offender's home court, to avoid potential future liabilities for wrongful convictions.

In addition, the federal government should set a minimum standard before a particular law can be used against foreigners. A reasonable minimum standard could be that the law must have been successfully enforced in the home govlet for 5 continuous years; and it must have successfully convicted 500 home cases. The minimum standard helps weed off frivolous laws and regulations that were inadequately enforced in practice. Let's look at a concrete example: Supposing a govlet's main political objective is to fight illegal drugs, it enacts a law mandating that any possession and trading of illegal drugs automatically receive the death penalty regardless of the quantity and circumstances. It is an extremely harsh punishment to its own citizen but the law is clearly the people's will within its home govlet. As a matter of the fact, countries like Singapore does have a less dramatic version of the death penalty law in place. However, before sending foreign drug dealers to the death row, the law has to meet the minimum standard. In another word, the govlet cannot execute a single foreigner before it executes 500 citizens of its own. The particular number of 500 is certainly up for debate and adjustment, but the overall idea seems only fair. A govlet should not be allowed to use a law against foreigners unless the law has been used extensively on its own people. If the automatic capital punishment does manage to meet the minimum standard (in a very brutal manner), then it will surely deter foreign drug dealers from selling illegal drugs to the govlet's citizen, or carrying illegal drugs on the premises of businesses registered in the govlet. To prevent people from unknowingly walking into a death trap, all the laws that meet the minimum standards should be published and registered by federal government, so that people can take precaution of potential legal risks when dealing with certain govlets' citizens, or in the areas where the govlets have jurisdiction.

The minimum standard ensures the political freedom of a small group of people does not end up with harassing and interfering with the general public. The threshold of 500 convictions seems to be very high for small govlets, but this is intentional because a good law can and should naturally find its way to the big stage since bigger govlets do have the incentives to copy good laws that have worked well in smaller govlets. The minimum standard thus encourages the smaller govlets to experiment and the bigger govlet to adopt; leading to quick discovery of good laws, and automatic abolishment of bad laws.

You may be wondering why we need to go through so much trouble to allow a govlet to use its own laws to prosecute foreigners, it may seem that the general public is best protected if all charges have to go through a citizen's home govlet. There are several problems, the first is that the criminal organization could take advantage of this rule and form their own govlets, and use the govlet to shield criminals from ever being prosecuted. Secondly, to effectively fight crimes, a govlet does need the power to charge whoever involved regardless of its govlet association. For example in the drug trafficking case, the capital punishment on foreign drug dealers is a much stronger deterrent than otherwise.

7. Who has the final say

The laws from different govlet are not necessarily compatible with each other, which govlet has the final say when they disagree? The govlet system will remain a fantasy unless we can design a reasonable way to resolve the jurisdiction among competing govlets.

Let’s take a look at how the current legal system works. The resolution of jurisdiction is an important and complicated process for both civil and criminal cases. If a crime or a civil dispute occurs within the border of a single state, that state usually has the jurisdiction. For interstate crimes, all the states involved have jurisdiction and the accused could be tried in multiple states. Because the same crime cannot be tried twice (aka, the no double jeopardy principle), the state prosecutors usually collaborate and try the case in the state with the best chance of conviction. Commercial contracts usually specifies the state jurisdiction under which any future disputes should be arbitrated or tried. In corporate law, the state where the company is incorporated has the jurisdiction. Since most large U.S companies are incorporated in Delaware, corporate lawsuits are primarily tried in Delaware. The lawsuits between states, mostly for water or territory disputes, have to be tried in the federal court. If both federal and state courts have jurisdiction, e.g., crimes affecting interstate commerce, the federal courts usually have priority in exercising jurisdiction.

In interstate commerce disputes, the federal court has the exclusive jurisdiction. The power to regulate interstate commerce is the legal foundation for the federal regulations on minimum wage, workers protection, labor union etc. These issues are extremely divisive and controversial, I will write more on interstate commerce in the upcoming blogs.

The jurisdiction resolution among govlets can be broadly modeled after that of our current legal system, except that the border rule must be replaced because govlets do not have well defined territories. The most natural replacement for the border rule is to give jurisdiction to the govlet of the parties involved. For example, in a criminal case, the govlet for the victim should take priority in jurisdiction over the offender's because the offender’s govlet does not have the incentive to prosecute its own citizen for the benefit of "foreign" citizen. If there are multiple victims involved, then all the victims’ govlets have jurisdiction and they can cooperate and decide which govlet has the best chance to bring the accused to justice. Civil lawsuits should be filed in the defendant’s govlet, because that govlet has the jurisdiction to seize the defendant’s assets. For corporate lawsuits, e.g., shareholders sue corporate officers for fraud, the govlet where the company is incorporated should have the jurisdiction; commercial contracts involving parties from multiple govlets should always specify which govlet has the jurisdiction in case of future disputes.

Let’s take a look at a simple example: a govlet A’s citizen robbed a govlet B’s citizen. In this case, govlet B has the priority to prosecute citizen A. Govlet A may prosecute citizen A only if govlet B choose not to (e.g, due to lack of evidence). Let’s add a little twist, and suppose citizen A sold an assault rifle to citizen B, and the trading of assault rifle is legal in govlet A but is outlawed by govlet B. In this case, only govlet B could prosecute, and it can prosecute both parties involved. Of course govlet B doesn't have the jurisdiction if the trade is between two A citizens and doesn't affect B's citizen, property or business.

Inevitably jurisdiction disputes between govlets will arise, in which case the federal government has to step in to intermediate. In the above example of the rifle trade, govlet B could try to prosecute rifle trades between two citizens of govlet A, on the ground that the trades happen in close proximity to a B's citizen thus might adversely affect B citizens' safety and well-being. A’s citizens might then find themselves being frequently harassed by B’s law enforcement for legal firearm transactions, just because there happens to be B’s citizens nearby. In this case, whether govlet B has the jurisdiction purely based on the proximity to its citizen has to be resolved in the federal court. Federal court should establish clear precedence in resolving jurisdictional disputes between govlets, according to factors such as whether the alleged crime happens in public areas or a building owned by a govlet, or in a business registered in a govlet, or within in a residence or business owned by a govlet’s citizen, etc. For example, if the rifle dealing happened in a business incorporated in govlet B, govlet B could have a legitimate claim for the jurisdiction even though no citizens from govlet B are directly involved in the trade. But the jurisdiction claim based only on proximity to its citizen seems to be too outlandish, especially if the alleged crime happens in public area.

As we discussed in previous blogs, the govlets that enforce criminal justice are likely to become highly specialized through competition; and most citizens will choose crime protections from very few number of large govlets because of the economy of scale. Large specialized govlets are likely to have more resources and police powers to fight crime more efficiently, and they are less likely to run into jurisdiction problems. These large govlets for criminal justice are most likely to only offer protection against violent crimes, making them appealing for virtually everyone regardless of their political ideologies. Non-violent crimes, such as prostitution and drug trafficking, will likely be enforced by smaller specialized govlet as fewer people are willing to pay to fight these nonviolent crimes.

The distributed govlet system leads to an extremely diversified and dynamic legal environment and offers much more political freedom than our current governments. I will continue the discussion of many interesting aspects of the govlet’s legal freedom in the upcoming blogs.

6. Healthcare and broccoli

Now you probably want to ask, how does a govlet differ from a corporation? They both have officers, employees, products and consumers (citizens), and both are subject to market competition; why can’t we achieve the same objectives by forming corporations instead of govlets?

The fundamental difference between a govlet and a corporation is that govlet has the power to force certain behavior among its citizens, while a corporations generally can’t coerce their customers. Therefore if certain objectives cannot possibly be achieved through people’s willful cooperation, then we need to form a government (or govlet); otherwise a corporation would be sufficient, such as in the broccoli business. An obvious example for coercion is the crime protection and criminal justice. There are less obvious examples of government services that cannot possibly be achieved without coercion, the universal healthcare is one of them.

The universal health care mandates that affordable health insurance to be made available to everyone regardless of their age and pre-existing conditions. These objectives cannot be achieved if everyone acts on his/her own best interests. The health care costs increase significantly with age and pre-existing conditions, the optimal behavior for an individual is to delay the purchase of insurance until he/she is sick or old; therefore if everyone adopt such a strategy the insurance company would not be able find enough healthy people to average down the overall health care costs to an affordable insurance premium. Private insurance works the best for low probability and high cost events, such as car accidents. The uncertainty is the key factor that incentivize people to voluntarily pay for the coverage because any driver could be caught in a car accident. In contrast, the health care cost for the old and the sick are certain to be expensive, thus there is no economic incentive for the young and the healthy to share the costs. Therefore, the government has to force everyone to pay in order to make universal health care financially viable, which is exactly what Obamacare does.

The main criticism against Obamacare is rightfully the violation of individual liberty when a person is coerced to purchase the health insurance. The existing healthcare system, though does not involve any coercion, has its own problems too. Public nonprofit hospitals are required to treat all emergency room patients regardless of whether they have health insurance, this free pass is a lifeline for the poor who cannot afford the insurance, but it also attracts free riders who could afford but choose not to buy any insurance. These free riders take advantage of the free emergency room care and drive up the medical expense for all.

In the govlet system, the health care problem can be solved without forcing anyone into what he/she does not want. People who support Obamacare can form their own govlet offering the same universal care among themselves through mandatory insurance coverage; people who are strong believers of personal choices can form a govlet that does not require mandatory health insurance, but for the latter to be successful, it has to find ways to go after the free riders and force them to pay their own care; people who believe that the litigation threat is the main driver of the health care cost can form a govlet whose citizens can only sue for limited damage for malpractices, hoping to reign in unnecessary exams and treatments. The beauty of the govlet system is that all the ideas can be tested in practice, and the one that works best would eventually win over most citizens. Even though within individual govlets, the coercion may still be required, but the citizens always have the freedom to migrate to other govlets of his own choice, subject to exit penalties.

5. Choose government services like grocery

Our current governments only offer package deals, you either get the whole package or nothing. For example, every state government comes with the total package of taxation, economic policies, social services, criminal justice, education, court and legal system, environmental regulation etc. If you happened to like the economic policies in Texas, but prefer the criminal justice in New York, then you are out of luck, there is no way for you to get both at the same time.

Rarely anything else we consume in life comes strictly in package deals. We all buy our grocery, clothes, cars and housing separately, it would be extremely inconvenient and wasteful if these things have to be bought as a whole package. But this is exactly what we get from our governments.

In the govlet system, you have the freedom to pick and choose the government services. A govlet does not have to offer the full package as our current governments do; as a matter of fact, there are strong incentives for a govlet to only offer a limited number of services that have go together and nothing more. For example, if a govlet’s objective is to improve social services, such as healthcare, education and retirement benefit, it must also collect taxes in order to fund the social services, and maintain a legal system to prosecute tax evaders. However, the govlet does not need to offer criminal justice as it is not its main political objective and core competency; citizens can get crime protection from other govlets specializing in fighting crimes.

On the flip side, an individual is free to be affiliated with multiple govlets at the same time. Since every govlet comes with certain costs, such as taxes and the risk of being criminally prosecuted for breaking its laws, the individual has very strong incentive to only choose the govlet services he/she really needs and is willing to pay for by money and the possible jail time.

Under such a competitive environment, most govlets are likely to become highly specialized, just like today’s corporations do. There are several reasons for it, first pursuing a smaller number of political goals makes a govlet appealing to more people. For example, a govlet that is pro union and pro gun control is less popular than a govlet that is only pro union because some pro union people are anti gun control. A pro gun control individual can always join another specialized govlet for his gun control agenda, thus there is no reason to bundle them together. By picking and choosing, everyone gets exactly what he/she wants. Secondly, specialization improves the efficiency, for the exact same reason today’s corporations become more and more specialized. Thirdly, specialization makes it easier to evaluate the costs and benefits of govlets, thus helping citizens to make choices and facilitating direct competitions. It is much easier to compare different brands of the same product than packaged deals consisting of many individual products. Fourthly, it gives the individual citizen the power to decide which service to cut in bad times, thus avoiding the usual cross the board budget cut fiasco like the ongoing sequestration. Under a govlet system, the least essential government services will get cut first by the collective decisions of individual citizens. Besides these, another important advantage of specialized govlet is to encourage people to experiment with innovative political ideas by putting them into practice. The start up cost for a small group of people to form a specialized govlet on a particular agenda is much lower than forming a full service govlet.

Full service govlet could still survive because some people will prefer the traditional one-size-fit-all government. The full service government may choose to outsource some of its services to specialized govlet to improve efficiency, through inter-govlet contracts or treaties. For example, a full service govlet could pay a specialized govlet on crime protection for police forces and criminal justice. Similar to the corporate worlds, govlet might find it is to their best interests to collaborate with each other through bilateral and multilateral contracts and treaties or govlet unions. Most of the innovations in the modern marketplace could be copied by govlets, and we have good reasons to believe that many of them will be successful in governing if they are successful for corporations.