Populism and Democracy: A Transaction Cost Diagnosis and a Cryptodemocracy Treatment

Abstract: This paper argues that populism in the era of Donald Trump and Brexit is a reaction to high transaction costs between citizens and the political class. In the Westminster system, voters delegate large amounts of decision-making power to elected representatives, who in turn delegate much of their decision-making power to an executive government. A transaction cost analysis helps make concrete the ideas of reduced individual political autonomy, lost national sovereignty, and alienation from political elites that run through populist rhetoric and action. The treatment for problem of populism should focus on reducing those transaction costs. Democratic structures are shaped by the prevailing institutional and technological limitations in which they were designed. One new technology, the blockchain, offers a set of mechanisms to significantly reduce transaction costs in matching, writing and enforcing contracts. The paper provides an outline of how a ‘crypto-democracy’ would function and how it might address the problems of political transaction costs. Crypto-democratic relationships treat political delegation as a series of contractual relationships from citizen to an executive decision-making structure. Citizens contract among themselves to delegate or reserve decision-making power. In a crypto-democracy, democratic structures – i.e. legislatures, electoral bodies, voting systems, and executive authorities – are not designed but rather emerge in a Hayekian process of contractual interactions between political citizens exercising their property rights. The analysis sheds new light on the underlying structure of our current system, its costs and the populist backlash to those costs, and directions for liberal reform.

Working paper available at SSRN.

Delegation and Unbundling in a Crypto-Democracy

Abstract: Representative democracy consists of a chain of delegation from voters to the executive and a corresponding chain of accountability, with some questions (particularly constitutional questions) reserved for popular vote. This structure reflects the high transaction costs of coordinating preferences among a large and diverse population, which has in part been determined by technological limitations. A new technology, blockchain, significantly reduces transaction costs. This technology turns out to have significant implications for democratic governance. In a crypto-democracy, voters have contractual relationships that allow them to unbundle, delegate, re-rebundle and reserve their voting power. Rather than planning our democratic structure and thus restricting opportunities for political exchange, the use of blockchain in a crypto-democracy allows us to ‘grow’ a democracy in a Hayekian framework.

Working paper available at SSRN.

The Economics of Crypto-Democracy

With Darcy WE Allen, Aaron M Lane and Jason Potts

Abstract: Democracy is an economic problem of choice constrained by transaction costs and information costs. Society must choose between competing institutional frameworks for the conduct of voting and elections. These decisions are constrained by the technologies and institutions available. Blockchains are a governance technology that reduces the costs of consensus, coordinating information, and monitoring and enforcing contracts. Blockchain could be applied to the voting and electoral process to form a crypto-democracy. Analysed through the Institutional Possibility Frontier framework, we propose that blockchain lowers disorder and dictatorship costs of the voting and electoral process. In addition to efficiency gains, this technological progress has implications for decentralised institutions of voting. One application of crypto-democracy, quadratic voting, is discussed.

Working paper available at SSRN.

Liberty, Equality & Democracy

Connor Court Publishing, 2015

No one has the right to rule. If we don’t believe our fellow citizens are intellectually capable of deciding what and how much to eat, whether to drink, or how to arrange their financial affairs, then why do we think they are capable of voting?’

We live in a fundamentally undemocratic age. Governments treat their citizens as incapable of making decisions for themselves. Policy-making power has been taken out of the hands of elected politicians. Poll after poll shows the public are unhappy with democracy itself. In this wide-ranging book, Chris Berg makes the case for radical democratic equality, and a democracy order that truly respects the equality and rights of its citizens.

Available from Connor Court Publishing and Amazon.com