Global Governance vs. Jurisdictional Competition

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Global Governance vs. Jurisdictional Competition

Contrary to what some people believe, competition and free markets represent the best way to handle any and all human activities.  This is as true for nations and cities as it is for companies and individuals. 

Consider for a moment the diverging paths taken by Europe and Asia over the past millennium.  From the fall of the Western Roman Empire at around 500 AD, until about 1300 AD, Europe was an economic backwater.  Meanwhile, India, China, and the Islamic world were relatively advanced. 

Then, Europe experienced the Renaissance, the Enlightenment, and the Industrial Revolution, while the empires of Asia languished.  By the middle of the 19th century, the entire globe was effectively controlled, both economically and politically, by the nations of Europe and the republics they spawned in North America. 

Virtually the entire scientific revolution that raised per capita global GDP by more than 3,200 percent over the past 200 years has come from those nations.  This is evidenced by the near-monopoly they hold on Nobel Prizes in Physics, Chemistry, and Medicine. 

What accounts for this dramatic shift in wealth and power?  There are several explanatory factors.  But the most powerful, and definitely the most underestimated, is the phenomenon we call jurisdictional competition. 

What is jurisdictional competition?  It’s what happens when governments are forced to adopt better policies because labor, capital, and ideas have a realistic ability to cross borders in search of more favorable conditions.

Jurisdictional competition functions just like competition among businesses:  Governments realize that they must compete with one another in a Darwinian contest for survival. 

  • The countries that are at the center of the competition for taxes and the loyalties of people become more competent, wealthier, and more resilient over time. 
  • Meanwhile, countries that have de facto monopolies become poorer, less effective, and less resilient. 
  • Eventually, the most competitive countries (like England) take over the weaker, less effective ones (like India) and redeploy their assets. 
  • More importantly, those countries that willingly compete and innovate (like the Netherlands in the 17th century) quickly eclipse those that resist change (like 17th century Spain).

As Nobel Laureate Gary Becker expressed this concept, “[C]ompetition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations...

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