Regulation, common goods and institutions

Boyes raises the question about the public choice implications of state regulation. Regulation or coordination, can take place in a number of settings. The state can generate top down regulation and, as Eleanor and Vincent Ostrom observe, regulation can be bottoms up - that is individuals can develop modes of coordination or regulation that deal with issues arising from commons, expernalities and public goods.

I recall a comment made years ago at a Liberty Fund conference in which a participant observed that the world is characterized by ubiquitous externalities. As I reflect on this and the important considerations raised by Seabright in The Company of Strangers I can see how institutions have emerged and evolved to address issues of the commons. Seabright uses the metaphor of the stranger to illustrate this issue and I think his analysis provides food for thought. How does coordination emerge and persist in social settings? Vernon Smith argues that successful societies have emergent ideologies of honesty. This trust is an important lubricant for the functioning of a society.

So the question becomes, are there any tops down regulations that in fact foster rather than inhibit emergence and persistence of honesty and trust?

For some reason this question lead me back to Adam Smith's view in The Theory of Moral Sentiments that humans all have a moral sense composed of justice, beneficience, prudence and self command.

Regulation or coordination that is both wealth creating and supportive of liberalism must support and encourage self command and not replace it. One of the costs that state mandated regulation is at risk of creating is weakening individual self command.

Complex modern societies confront the challenge of coordination or regulation daily. Successful societies tend to evolve a mix of coordination systems to foster honesty and trust. Failed states or societies devolve and the coordination and regulatory schemes become predatory.

Douglass North's last book - Violence and the Social Orders argued that successful, modern societies evolve a mix of coordination and regulatory matrices that include public and private schemes. The public organizations (the North definition of organizations) are dense and diffuse and operate at local, state and national levels in a mosaic of interconnections with each other and the private sector.

This argument is intriguing and one that libertarians confront - the empirical evidence, at least in North's work, suggests that the open access orders (developed, successful societies) manifest honesty and trust in an environment of significant state presence. Natural orders (developing societies) range from failed states to mature natural orders and tend to have markedly less public sector presence in the form of public organizations.

So, coordination is the challenge of societies. What is the mix and source of regulation that emerges to support honesty and trust?