Renaissance Cities

Joyce Brand unpacks the failing incentive dynamics of legacy cities and nation-states, a prelude to describing the Morazán Model. This is an excerpt from her new book Pioneering Prosperity.

Source: Morazán.city

Joyce Brand is a writer living in Ciudad Morazán. The following is an excerpt from her new book, Pioneering Prosperity, which makes the case for competitive governance in a market for free cities. She is a customer, not a citizen. So, Brand doesn’t just write about it. She lives it. —Editor

In 1981, I learned a lesson that changed my perception of incentives and how they affect the way governments work. I was selling office equipment in Portland, Oregon with a goal of helping businesses be more productive.

Having tasted success with dictation systems, I was brimming with excitement as my company introduced a new line of electronic typewriters. In our current time with a computer on every desk, electronic typewriters are a brief and distant memory, but in the 80s, these marvels of technology promised to make typing tasks easier. The typewriters ranged from affordable $1,000 models, capable of remembering a single line of text, to sophisticated $3,500 machines, loaded with features that required more training to use.

Unknown to me, the manufacturer had a lucrative government contract. I unexpectedly found myself in a novel situation. I received an order to deliver five high-end typewriters to the District Court in Portland. Rather than doing any traditional sales, I just had to provide training for the secretaries to use these new machines.

To my surprise and consternation, the only thing the secretaries did in that office was fill out forms. They didn’t need typewriters with memory because each form was unique. More importantly, it was easier to feed in the documents and line them up accurately with an older electric typewriter. 

My challenge was disabling most of the advanced features so the typists could fill out forms with machines that had sacrificed the ease of old-fashioned paper adjusting for the benefits of memory they didn’t need. And I had to do it without spoiling their pleasure in being gifted with shiny new toys.

Curiosity drove me to carefully uncover the reason the court had spent so much money on these electronic typewriters that weren’t suitable for their specific task. I learned that the legal office had a budget for equipment, which they had to either spend or lose. Not only would they lose it for the current year, but it would impact their future budgets. 

I learned that department heads’ status and reputation hinge on the size of their budget and staff. In addition, if the equipment purchased increases the productivity of their personnel too much, they might have to reduce staff, a blow to their status. Such dynamics are intrinsic to government offices.

This experience revealed a vastly larger problem than I had ever imagined. People commonly grumble about government inefficiency, but I was unaware of its inescapable reality. Government officials, no matter the size of their department, are driven by certain incentives. They want bigger budgets and more staff, even if it decreases efficiency.

Consequently, there is no relationship between the money they get for salaries and equipment and their work output. What’s more, they cannot afford to solve the problem their department was created to solve because that would remove the justification for their existence. Unlike the private sector, where solving problems leads to profitability and promotions, solving problems in government leads to positions becoming obsolete—which is why it seldom happens.

This dilemma isn’t confined to a single office or jurisdiction; it thrives throughout any government funded by taxes rather than through voluntary market exchanges. Without a means to measure the value they provide, there is no way to judge the best allocation of resources. No matter how well-intentioned the politicians and bureaucrats are, the structural framework results in significant financial misallocation.

This realization fundamentally reshaped my perspective. It struck me as perplexing when societal problems were blamed on the free market—where incentives align with value delivery at optimal costs—instead of government services funded by taxation, driven by an opposing incentive structure. You may have noticed the same phenomena when dealing with government officials.

Buy the book.

Pitfalls of Public Incentives

The experience lit a fire in me to research government incentives. A fascinating realization emerged. This strange situation I witnessed was connected to a deeper economic law called public choice theory. Government officials, even though they’re supposed to work for the public’s benefit, are influenced by their own incentives, just like anyone else. 

Politicians want to get re-elected, and bureaucrats want to keep their jobs with ever increasing salaries. Those in positions of power rarely face the consequences of their decisions despite the impact on the citizens they pledge to serve.

When you think about these dynamics, it becomes clear why even the most well-intentioned individuals are swayed by these incentives. Some people who are drawn to positions of power, believing they can make society better, find this belief reinforced when they get into authority, even when the opposite is true.

The irony lies in the fact that they lack the tools to measure whether their ideas are working. Unlike entrepreneurs, who continually receive feedback from the market through prices and profits, politicians and bureaucrats lack the information to gauge whether their course is productive or inadvertently detrimental.

And then there’s the characterization of profit—a misunderstood concept. Our culture often sees profit as the emblem of greed, but in reality it’s a collection of essential information. Every transaction reflects choices—what we prioritize and forgo. It’s a world of trade-offs. When people make voluntary purchases, they are voting with their money and showing what they genuinely value. 

Profit, moreover, serves as an enterprise’s lifeblood, a testament to its vitality. Profit-driven businesses sustain themselves and rely on their profitability. Unlike government agencies, private entities cannot levy involuntary taxes and continue operations without voluntary revenue. Except for fraudulent endeavors—to which the government is not immune—profit is what keeps companies running.

For years, I looked for solutions to the problem of incentives. Another truth became apparent: Democrats and Republicans were trapped in the same situation, unintentionally making things worse. The Libertarian party seemed like a hopeful alternative, yet even they, being part of the political system, fell into the same trap—believing that politics could fix the world’s problems.

Trying to win elections made them subject to the same perverse incentives as all politicians. To “do good,” you must first win an election, which means making compromises and exaggerating promises to gain votes. You also owe favors to campaign contributors, which can erode your principles.

I searched for a label for my “political” philosophy. Eventually, I heard the word voluntaryist, and it was the best term for my viewpoint. I believe that all interactions between human beings should be voluntary. That means all political actions based on majority rule are, at best, ineffective and, at worst, immoral.

Today, echoes of my early observations reverberate globally. Wealth flees states, and nations resort to looting their productive citizens for survival. Individuals clutch their resources tighter, wary of uncertainties. Entrepreneurs, especially small business owners, are at the mercy of government closures, often on weak pretexts. As technology surges forward, the tentacles of central power, bolstered by taxation, tighten their grip. The bureaucratic state, inevitable and growing, transcends borders and hinders prosperity.

However, incentives can work for good. As the nation-state edges toward its precipice, alternative solutions become more appealing. Natural incentives based on human nature can offer those alternative solutions. Despite all the complexities, one thing is clear: incentives shape destinies, molding societies and guiding them toward justice and prosperity.

Buy Pioneering Prosperity today.

---