Sociological Federalism
Economic arguments for a federal system with the lower order of governments being defined geographically are fairly well known. Since I have written in this area myself, I certainly do not want to criticize them. The point of this chapter, however, is to suggest that there is another possible way of federalizing a society for which the arguments are very similar to those for geographical federalism. It is not inconsistent with geographical federalism, moreover, it is possible to have both types of federalism simultaneously in the same country.
Consider the current situation in the USA with respect to corporation law. Each of our states has enacted a corporation act and a corporation incorporated in any one of the states is free to do business in other states. This has led to a competitive attitude among the states, with Delaware winning. On the whole, Delaware, a very small state, has succeeded in obtaining a fair part of its annual revenues from incorporation fees of corporations whose only connection with Delaware is that they have an attorney there.
Would it make any difference to this system if the organizations which provided corporate charters were not geographic entities like the state of Delaware or the state of Iowa? The obvious answer is ‘no’. The present system is simply a hangover from an earlier period. Suppose, then, a different system. Assume that we permit private organizations to call themselves ‘incorporation societies’, and for a fee provide a set of rules for those corporations that choose to join that particular society, together with an arbitration tribunal which will enforce them.
Note that this would not have much to do with the non-corporate part of the law except in so far as it would be necessary to make sure that these organizations were not fraudulent. Problems with corporation law come up almost exclusively in terms of differences between stockholders and management, stockholders and stockholders, sometimes management and stockholders, and occasionally between creditors and stockholders. All of these are voluntary parties and their involvement with a corporation which is a member of one of these associations would be a voluntary adhesion to the contract providing for arbitration. Once again, it would be necessary to prevent fraud by seeing to it that the rules which are enforced by any given group are at least as public as those of present-day corporation statutes.
Why not permit corporations simply to incorporate by themselves without either a national charter or a charter from one of these associations? The answer seems to be that there are, indeed, a number of economies of scale involved in having a number of corporations under the same system. These are partly economies in providing such things as the before-mentioned arbitration tribunal, and partly the simplification of the problem of investors. Today in the USA, the investor—or to be more exact whoever is his/her investment counsellor—has a general idea of the nature of the corporation acts enacted by some 50 states. If one of them deviates very sharply from the others, the investment counsellor would certainly know. Investors need not therefore worry much about the details of the individual corporate-organizing document.
If each individual corporation could set up its own charter, this would no longer be so. It should, however, be said that it would be lawful to permit people to set up corporations which are entirely on their own (i.e. not connected with one of these associations), provided that they told everyone that they had done so. I doubt whether such a corporation would attract shareholders or creditors. The privilege would thus be harmless because unexercised.
It would not, of course, be necessary to repeal the existing corporation statutes. All that would happen would be that corporations, or people wanting to organize corporations, would have some additional opportunities. There would also be more experimentation in new forms of corporation ‘law’ than there can be in present circumstances.
This is simply an example, of a more general idea. The idea is, in fact, stolen from the old Turkish Empire. This empire—which was not too different from any other society in its immediate environment—used what was called the millet system. If you were a member of a millet, which might, for example, be Mennonite Christian or Sunni Muslim—the Sunni Muslims, in fact, were the dominant millet because the Shah himself was a member and, indeed, this was not as such called a miller—a great many of the laws that bound you were those of your millet. These millet, in fact, maintained a small police force and collected taxes. Some of them actually had prisons for people who violated their rules.
The distinction between different groups was not geographic, but sociological. If we look at these millet, their most important single area of jurisdiction was that of family relations. The laws of marriage, divorce, inheritance, and so on, were all controlled by the millet and people could, with some difficulty, shift to that millet which had what they thought were the best laws.
There was, of course, a basic underlying law for people who were not members of any millet—the law of the Sunni Muslims. Further, there were restrictions on the scope and content of millet laws. They had jurisdiction only in certain areas and there were substantive limits on what their laws could provide. Still, most intergroup relations were controlled by the group.
Let us consider how we could do this today. Suppose that we establish, or, to be more exact, permit to be established, associations which control family relations, education of children, and so on. People who wished, could become members of such associations which would then take jurisdiction over their families, or if they wished, they could remain under the jurisdiction of the state laws. In the USA, it would be appropriate to have the governments of these organizations democratic in the sense that the members would vote for its officials just as they would in a club.
We could anticipate that there would be some competition among them, but basically the existence of a number of them would make it possible for people to have different kinds of marriage and family relations, depending upon which association they chose. If they chose none, they would, of course, come under the standard law in their particular jurisdiction. It would, of course, be necessary to prevent such local associations from being too extreme in their arrangements of family structure. Suttee could not be required by them, for example.
This would work for the same reason that having different possible incorporation associations would work. It is simply that the externalities that are generated by different kinds of family law are not of geographic scope. There are economies of scale in providing for things like education and divorce courts so there is no need for the beneficiaries and taxpayers for these things being geographically defined.
There are various other areas where this kind of arrangement might be made. Contract law, tort law, and criminal law in so far as they involved only members of the same association, could be handled in this way. Of course, if we are dealing with tort and criminal law, the likelihood that any given member of a society would find that the person whose car hit his car was a member of the same society would be fairly small. Nevertheless, there would be no reason why the society, if it wanted to, could not provide for that minority of ton actions a different system of damage or lack of damage from that of the state.
At a more controversial level, income redistribution could be handled in this way. The basic reason for income redistribution is that most of us are concerned about the poor and are willing to help them. There are reasons why it is cheaper for us to do this if we associate with a large number of other people.(3) There is no reason, however, why the people whom we associate with to promote income redistribution or aid to the poor have to be geographically defined.
Indeed, there are a good many international organizations that exist for the specific purpose of aiding the poor and which are not geographically defined. The Knights of Malta, for example, no longer own Malta. Most Churches have this kind of arrangement, although most Churches do not have any taxing power. Mormons, however, do have taxing power, not by police activity but by threat of eternal damnation. They are an international body which, in fact, exercises very considerable power over its communicants.
There are various other minor areas where such arrangements could apply. Note that in all of these cases so far, there is no externality outside the people who voluntarily join a particular ‘government’. Further, it would permit experimentation which we currently do not have. As far as I know, there is no reason to believe that any one of the innumerable different—indeed radically different—family organizations adopted in various parts of the world is better than another. Having several in basically the same general society might permit us to gather some data on this subject.
Assuming that it is accepted that such associations are feasible. The question has to be asked whether they are desirable? There are a number of reasons why they are desirable.
The first of these is simple and very straightforward—such associations would increase the freedom of the individual. Today people wanting to change the political regimen under which they live, even in minor details, must actually move physically. Under such arrangements, as I have outlined, they would be able to change the regimen simply by changing their membership documents. Obviously, this amounts to an increase in freedom.
There are, of course, two difficulties that have to be met. The first is the possibility of fraud. Suppose, for example, that a man and woman married in an association in which divorce was either prohibited or made extremely difficult. The husband later deciding that he preferred his blonde secretary might be motivated to switch to a society which followed the Islamic law of marriage. Indeed, he might find a society which permitted males to divorce their wives even more easily than the Muslims do. This would clearly be a fraudulent transfer unless at the time of the original marriage, he and his wife had agreed that either of them could switch from their strict association to a looser one.
There would be no particular difficulty here if the associations themselves were permitted to put into their general rules restrictions on leaving. It would be necessary to place at least some limitations on such restrictions since the associations themselves might engage in fraudulent behaviour, or in some other way impose unreasonable costs on their members. This does not, however, seem to be a particularly difficult problem.
A second problem would be making certain that these associations did not act as cartel managers. An association of steel manufacturers which had built into its bylaws minimum prices for the sale of steel, for example, should be illegal. Once again, this does not seem to be particularly difficult to deal with. Indeed, it would be much easier to deal with than our present cartel problems because it would of necessity be open. The problem in enforcing the laws against cartels and monopolies is the possibility of concealing them, and provision of the sort I have just mentioned would not permit concealment.
In general, however, in order to make sure that this kind of thing did not develop, it might be wise to make certain that none of these associations had memberships which would be likely to develop into a cartel. The elaborate set of associations organized by the Department of Commerce for the purpose of establishing standard specifications for things from screw threads to transistor design could be a model for this. As far as I know, no one has ever alleged that any of these have cartel aspects.
The second major advantage of this type of organization would be the removal of a good many of the detailed activities that the state must now undertake. In general, the less you have to do, the more efficiently you can do it. Enforcing the law of domestic relations (and remember, there is no reason to believe that our law of domestic relations is any better than any other) is a tedious, time-consuming task. Further, the state does it badly. If, to a large extent, this were abandoned and a separate set of organizations dealt with it, it is likely that it would be better handled, and so would the other activities of the state.
Are there disadvantages? I can frankly think of only three. The first is that this is not customary. That sounds like stuffy conservatism, but as a matter of fact imposing major changes on people does lead to large-scale costs. In this case, of course, there is no proposal that anything be imposed on people: people could join the associations or not, just as they chose. But it would impose on those people who had not joined such associations the need to discover whether at least some people with whom they had dealings had done so.
Probably most couples who marry have no special knowledge of the US law of domestic relations. Indeed, except for certain specialists, most lawyers have little. Nevertheless, they have a sort of general idea of marital law and would feel a little unhappy if it were proposed that they looked it up before they married. The availability of different marriage institutions would lead to at least some examination of this kind of problem by many couples and this might well impose some social cost. My own impression is that the social cost would be much less than the social benefit.
The second problem would be the development of rules as to what these associations could control. As a matter of fact, the Mafia is an organization rather similar to the ones that I am describing except that its motives and methods of operation are entirely criminal. This is, of course, an important distinction, but it would be necessary to decide what matters these societies could deal with and what matters they could not. I mentioned suttee before as something they obviously could not enforce. Most Americans would be unhappy if one of these societies agreed that polygamy was permissible. The current explosion of concern with abortion indicates that there are many Americans who would feel that a society that permitted abortion should be banned, and many who would feel a society that prohibited polygamy should also be banned. There is no easy solution to this problem, but I think that it would be less of a problem if it were left to the control of the associations.
The third problem would be that voters, if they joined these associations, would have one more election to participate in. Many people voluntarily join clubs which have elections, and do not seem to think that the elections of, let us say, the board of a golf-club, is especially onerous.
What then, am I proposing? I am suggesting that one or more states enact a law providing that people with similar interests may form an association. The procedure would be much like the present rules permitting people living in the same area incorporating a city, subject, of course, to the Municipal Corporation Act. Thus people not necessarily geographically defined could incorporate a society which had jurisdiction over, let us say, the family relations of its members. It might, of course, deal with many more things than family relations.
People could then join the society or not as they chose, just as they could move into a newly incorporated community or not as they chose. Their departure would be subject to somewhat the same rules we now have about departing from a municipal community. In general, you are quite free to do it as long as you are not avoiding any obligations to it which you had before you left. Departing before you pay your taxes, for example, does not get you out of the tax if the taxing authority is able to find out where you have gone. The same general rules would apply to my associations. Once again, this does not seem very difficult. 1 am not at all sure I know now many people would take advantage of the opportunity, but there certainly seems no reason why the present situation in which such things are impossible, should be continued. My proposal is, from the standpoint of current social mores, a radical one. I do not think, however, that the mere radicalness of its theoretical structure would be permitted to conceal the rather modest nature of what actually would happen. Before the Second World War, citizens of the United States faced quite a number of different laws concerning family relations. The Catholic Church actually was able, to a considerable extent, to prevent divorces among its communicants. Most of the differences, however, were geographical rather than sociological, but that does not seem an important matter. The change would permit groups, whether they turned out to be religious sects, political groups, or simply people who found a particular set of institutions desirable, to implement their preferences. A priori this seems desirable and there does not seem to be any great practical objection to it.
Robert J. Bennet ed., Centralization, Local Government and Markets (Oxford: Clarendon Press, 1990) pp 78-82.