Smaller. Freer. More Decentralized.

We can overcome failures of imagination with living examples of small, free, and decentralized.

The most radical source of inequalities in human societies is the ‘ruler-ruled’ relationship. The fashioning of a truly free world depends upon building the fundamental infrastructures that enable different peoples to become self-governing.
— Vincent Ostrom

Legal scholar Eugen Huber had a big task on his hands when he sought to unite ethnic Italians, Germans, and French under a single federal system in the early 1900s. When he succeeded, modern Switzerland was born. In 1907, the Swiss Federal Assembly passed Huber’s Zivilgesetzbuch. Today the Swiss canton system is one of the most impressive national operating systems on earth.

It’s so impressive that economist Daniel Mitchell was led to enumerate ways “Switzerland is Better than the United States.” The following are four such ways, according to Mitchell:

1. The burden of government spending is lower in Switzerland. According to OECD, the public sector consumes only 33.1 percent of economic output in Switzerland, compared to 41.1 percent of GDP in the United States.

2. Switzerland has genuine federalism, with the national government responsible for only about one-third of government spending. The United States used to be like that, but now more than two-thirds of government spending comes from Washington.

3. Because of a belief that individuals have a right to control information about their personal affairs, Switzerland has a strong human rights policy that protects financial privacy. In the United States, the government can look at your bank account and does not even need a search warrant.

4. Switzerland has a positive form of multiculturalism with people living together peacefully notwithstanding different languages and different religions. In the United States, by contrast, the government causes strife and resentment with a system of racial spoils.

What makes the Swiss system so impressive concerning point 4 is that it doesn’t attempt to create a monolithic law or culture that demands minorities assimilate. In this way, the Swiss handle diversity far better than most countries. After all, diversity can be fracturing to a society. As Robert Putnam concluded in 2007, shocking the author as much as it did the social science world:

It would be unfortunate if a politically correct progressivism were to deny the reality of the challenge to social solidarity posed by diversity," Putnam warns in the report. "It would be equally unfortunate if an ahistorical and ethnocentric conservatism were to deny that addressing that challenge is both feasible and desirable.

Switzerland isn’t perfect. But it has done a pretty good job of balancing diversity and unity.

More to the point, though, Switzerland has also achieved what the United States has not—a more decentralized nation-state. In other words, the canton is as powerful as the federal government in most regards, so the Swiss are ahead of the curve.

When Huber set about weaving together the Swiss, he had been concerned with updating the old Swiss Confederacy. Given Europe’s intellectual and political climate of the time, this update could have been an opportunity to centralize power. One only needs to look at the trends in those days to see that centralization was happening everywhere. Germany was consolidating power under Kaiser Wilhelm II, which helped sow the seeds of World War I. The Austro-Hungarian Empire lay close by. The British Empire was peaking under King Edward VII.

And yet the Swiss did what the Swiss do: their own thing. 

A More Perfect Disunion

American history enthusiasts will recall that Swiss-style federalism had been the basic idea behind the failed Articles of Confederation. But the revolutionaries who won American Independence soon conspired to scrap the Articles after quelling a couple of rebellions. The U.S. Constitution was born. And though the Constitution is a brilliant document in most respects, creating checks and balances laterally among the branches of government, it could have done a better job of distributing power “to the states and to the people,” the 9th and 10th Amendments notwithstanding. 

The American Experiment has been, if nothing else, a wild ride. Depending on whom you ask, the U.S. is either a beacon of hope or a Great Satan. At its inception, it was meant to be a loose confederation of states inhabited mostly by ornery farmers and a handful of fishermen. They shared a history of war by shedding the yoke of the British Monarchy, having a common tongue, and some cultural similarities. Beyond that, the States were not meant to be United. 

After the Constitution was ratified, Vice President Thomas Jefferson expressed concerns about America becoming a behemoth. One way he thought the U.S. might stave off tyranny was through decentralization.

In an 1800 letter to Gideon Granger, Jefferson wrote,

"Our country is too large to have all its affairs directed by a single government. Public servants at such a distance, and from under the eye of their constituents, must, from the circumstance of distance, be unable to administer and overlook all the details necessary for the good government of the citizens; and the same circumstance, by rendering detection impossible to their constituents, will invite public agents to corruption, plunder and waste."

Jefferson was always skeptical of state power, even as he wielded it. That very year, after a close election against Aaron Burr, Jefferson became the third president of the United States. In his inaugural address, he reiterated his devotion to constitutional principles and concluded that they,

should be the creed of our political faith, the text of civic instruction, the touchstone by which to try the services of those we trust; and should we wander from them in moments of error or of alarm, let us hasten to retrace our steps and to regain the road which alone leads to peace, liberty, and safety. 

The trouble is that the US became a Leviathan, having wandered in error and alarm. It’s unclear whether any civic instruction could help Americans retrace their steps. For better or worse, we’re on a new path. 

If, after a thorough reading of history, you think that more centralization is largely a good thing, I probably won’t be able to disabuse you of that notion. Instead, I suggest plotting all the world’s countries on a graph with two axes: mostly centralized and mostly decentralized, then mostly liberal and mostly illiberal. Then ask yourself: Where would I want to live?

Small (and Decentralized) is Beautiful

Switzerland isn’t the lone federalized country. Its neighbor, Liechtenstein, is a tiny nation of about 40,000 inhabitants. Though technically a monarchy, Liechtenstein is perhaps even more decentralized. Despite having a Monarch as head of state, it’s arguably freer, too. 

In 2003, enlightened Prince Hans-Adams II presented a new constitution to devolve power. This decentralization by design meant that Liechtenstein’s municipalities had more local authority and a right to secede. In the national referendum, nearly two-thirds of voters supported Hans-Adam II's new constitution, which updated the one from 1921. Few national constitutions provide a right of secession, but In Liechtenstein, all it takes is a majority vote.

“The only duties that should remain in the state’s power in the third millennium are foreign policy, law and order, education, and state finances,” said Hans-Adams II. All remaining tasks “can be fulfilled better and cheaper on the level of communities.” One might quibble with the Prince about these, but consider the implications of his claim in the context of a country like the U.S. No longer would titanic debates on healthcare policy occupy the national conversation.

Today, Liechtenstein has a corporate tax of 12.5 percent and an income tax rate of 1.2 percent. The smaller municipal divisions of Liechtenstein impose higher taxes for modest social welfare programs—i. e. not the federal government—and none taxes more than 16 percent. Could all of this decentralization have anything to do with why Liechtenstein has the highest per capita income in the world? The tiny country is, of course, a tax haven. But so is its neighbor Switzerland. After a certain point, we need to start looking at the rules of the game in a given country. Institutions that devolve power correlate with stability and prosperity. 

As does size.

Now look at size and GDP per capita:

Planned or Grown

Above, I wrote that the Swiss are “ahead of the curve.” I’m referring to a curve I made up, but one that represents a real trend. In other words, central power is breaking up everywhere. Why? Because decentralization is not always a state of affairs realized through conscious planning. It is as often a process that unfolds when societies become more complex. Even Eugen Huber, weaving together three distinct legal and linguistic frameworks, responded to the facts of history and the pressures of modernity. But I suspect he also realized that if Switzerland went the way of the rest of Europe, it would destroy its inherited diversity.

When we consider China with its special economic zones (SEZs), some planned like Shenzhen and others grown, like Hong Kong, we see decentralization formalized by wise governments. In fact, since 1958, when the total number of SEZs stood at zero, today, more than 70 percent of the world’s countries have SEZs.

In other circumstances, decentralization isn’t planned at all. It’s a process that unfolds when people get frustrated with systems holding them back. The former colonial empires or the Soviet Union after the fall of communism come to mind. People want to be free to self-determine and to try new things. Given the means, they will. On the whole, political power is moving out from central governments and down to regions, cities, and neighborhoods. And some, like technology writer Jamie Bartlett, are noticing: “The lesson of history—real, long-lens human history—is that people move, and when they do, it’s hard to stop.” And it’s getting easier and easier to move, writes Bartlett:

This is the crux of the problem: nation-states rely on control. If they can’t control information, crime, businesses, borders or the money supply, then they will cease to deliver what citizens demand of them. In the end, nation-states are nothing but agreed-upon myths: we give up certain freedoms in order to secure others. But if that transaction no longer works, and we stop agreeing on the myth, it ceases to have power over us.

Add technology, and things get interesting. 

First, we must solve an age-old problem about central control, including whether and to what extent we need it.