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Small-group, Multi-level, Bottom-up Democracy Dec. 2008, Economics and Democracy


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Title: Small-group, Multi-level, Bottom-up Democracy Dec. 2008, Economics and Democracy

Small-group, Multi-level, Bottom-up Democracy
Dec. 2008, Economics and Democracyhttp//foldvar
  • Fred Foldvary
  • Santa Clara University, California
  • Santa Clara CA 95053 USA

  • A constitutional-economics comparative-systems
    approach to public choice, examining the
    incentives for voters and policy makers, and the
    impact on rent seeking, for mass democracy vs.
    small-group democracy.

Public Choice
  • The branch of economics consisting of theory
    applied to collective decisions and their
    processes and outcomes.

Rent seeking (transfer seeking)
  • Offering and making payments to office seekers
    and holders and their political parties in order
    to obtain privileges such as transfers of funds
    and protection from competition.

Why rent seeking succeeds
  • Concentrated benefits and spread-out costs.
  • Rational voter ignorance (not worth knowing

Methods to limit rent seeking
  • Federalism
  • Branches of government
  • Constitutional constraints
  • Democracy

Constraints have failed
  • Courts stretch interpretations, e.g. inter-state
  • Grants of funds are conditional.
  • Intra-party collusion.
  • Voters are rationally ignorant and apathetic.

Remedies have failed
  • Campaign finance restrictions can be
  • Government financing of campaigns entrenches the
    major parties and does not prevent outside
  • Extreme restrictions limit free speech.

Presidential Campaign 2008
  • Candidate Total Raised
  • Obama, Barack 640,000,000
  • Clinton, Hillary 221,600,000
  • McCain, John 370,000,000
  • source

Top 10 donors since 1989
  • ATT Inc 40,468,000
  • American Fed Govt Employs 40,050,000
  • National Assn of Realtors 34,344,000
  • Goldman Sachs 30,262,000
  • Am. Assn for Justice (trial lawyers) 29,587,000
  • Intl Electrical Workers 28,898,000
  • National Education Assn 28,623,000
  • Laborers Union 27,213,000
  • Service Employees Union 26,842,000
  • Carpenters Joiners Union 26,159,000

Top Industries Giving to Congress, 2008 Cycle
  • Rank Industry Total Dem GOP Top
  • 1 Retired 124,277,528 55 45 Obama (D)
  • 2 Lawyers/Law Firms 119,000,136 78 22 Obama
  • 3 Real Estate 58,583,102 57 43 Obama (D)
  • 4 Securities/Invest 58,553,173 65 35 Obama
  • 5 Health Professionals 52,832,341 60 40 Obama
  • 6 Education 33,465,984 88 12 Obama (D)
  • 7 Business Services 29,854,447 72 28 Obama
  • 8 Misc Business 28,131,359 67 33 Obama (D)
  • 9 Insurance 27,689,770 51 49 McCain (R)
  • 10 Misc Finance 25,346,934 54 46 Obama (D)
  • http//
    FEC, Nov. 17, 2008.

Incumbent Advantage 2006
  • Senate
  • Type Total Raised Number Avg Raised
  • Incumbent 318,615,165 31 10,277,909
  • Challenger 141,290,839 96 1,471,780
  • Open Seat 80,312,338 32 2,509,761
  • Grand Total 540,218,342 159 3,397,600

Incumbent Advantage 2006
  • House
  • Type Total Raised Number Avg Raised
  • Incumbent 460,140,185 424 1,085,236
  • Challenger 131,928,472 604 218,425
  • Open Seat 122,949,896 259 474,710
  • Grand Total 715,018,553 1,287 555,570

Campaign costs are increasing
  • Presidential Candidates, Total Receipts
  • Year Total (current, millions)
  • 2008 1,634 (up 86)
  • 2004 880.5 (up 66)
  • 2000 528.9 (up 24)
  • 1996 425.7 (up 29)
  • 1992 331.1 (up 2)
  • 1988 324.4 (up 61)
  • 1984 202.0 (up 25)

Restrictions on rent seeking treat the symptoms,
rather than the cause mass democracy.Mass
an electorate so large it is too costly for
candidates and office holders to meet face to
face with most voters.
Consequences of mass voting
  • There is an inherent demand to use the mass media
    to communicate to voters, and thus an inherent
    demand for campaign funds.
  • Special interests exploit the demand by supplying
    funds in exchange for either privileges or to
    prevent milking.

The alternative
  • "where possible, collective activity should be
    organized in small rather than large political
  • Buchanan and Tullock, The Calculus of Consent
    Logical Foundations of Constitutional Democracy

Cellular democracy
  • Just as a biological body is divided into cells,
    so too the political body can be based on small
    cells as the foundational political unit.
  • Size of a cell small enough for face-to-face
    contact, large enough for contested elections.

A comparative systems analysis
  • Constitutional economics the branch of public
    economics that studies the choice of constraints
    rather than choice within constraints (James
  • A comparative systems approach contrast the
    incentives and constraints of mass democracy with
    cellular democracy.

Elements of cellular democracy
  • Small-group voting only
  • Bottom-up multi-level governance
  • Each council level elected from next lower level
    council members
  • At-will recall of representatives

Models of cellular democracy
  • 1. Plain cellular democracy
  • 2. Cellular democracy with secession
  • 3. 2 plus decentralized public finances
  • 4. 3 plus demand revelation

Small-group voting (SGV)
  • Each neighborhood cell elects a council,
    including an alternate member.
  • Citizens who are not council members do not vote
    for any other offices.
  • Council members may be recalled by a petition
    calling for a new election.

Multi-level governance
  • A group of 20-40 neighborhood councils elect,
    from their members, representatives to the next
    higher-level council.
  • Level zero is the citizen voter level 1 is the
    neighborhood council, and level 2 is the council
    elected by level 1.

Bottom-up democracy
  • The level 2 councils elect from their members,
    representatives to level 3.
  • And so on to the highest level h.
  • A recall of a representative recalls him also
    from all higher-level offices.
  • In each council level 2 or higher, voting is per

Multi-level structure
Comparative voting incentives
  • In SGV, the probability of affecting the outcome
    is much greater.
  • The knowledge needed to make an intelligent
    choice is much lower.
  • Face-to-face meetings enable the voter to know
    the candidates.

Comparative voting incentives
  • In a small group, with personal contact, the
    voter is less likely to vote capriciously. In
    mass democracy, voters react to the order of
    candidates on the ballot, the physical appearance
    of candidates, slogans, etc.

Office-seeking motivation
  • Most people avoid political entrepreneurship.
  • The cost of campaigning for level 1 office is
  • Those with ambition can seek level 1 office and
    then work their way up.

Incumbent advantage
  • With SGV, incumbents still have an advantage
    (which can be beneficial), but they do not have
    as much of a financial advantage.

Comparative rent seeking
  • Money can be spent for level-1 posts, but can be
    countered with personal contacts and low-cost
    distribution of information.
  • Therefore the demand for campaign funds is
    greatly diminished for small-group voting.

Rent seeking with SGV
  • Rent seekers have to campaign in many tiny
  • Mass media can still be used, but competes much
    more with local communication.
  • Political parties may still be powerful, but
    independents and minor parties can have a greater

Top-down vs. bottom-up federalism
  • Top-down federalism depletes the power of the
    lower levels.
  • With bottom-up federalism, level i monitors level
    i1 and is monitored by level i -1. Voter
    knowledge increases with personal contact, less
    costly monitoring, and voter power level i1 can
    be recalled by level i.

Separation of powers
  • Each level i council elects a leader, e.g. chair,
    mayor, governor, president.
  • Cellular democracy thus has no separation of
    powers between the executive and legislative
    branches, but this is replaced by bottom-up

Model 2 secession
  • Each level i jurisdiction may secede from level
    i1 or level i except from level h.
  • Secession can be partial, e.g. for schooling and
    its financing.
  • A new level i jurisdiction elects its own
    representatives to the council.
  • Secession from i1 creates a new i1.

The exit option complements the voice option.
  • Greater incentives for efficient provision, as
    unhappy citizens may secede.
  • Less scope for rent seeking, since taxpayers may
    withdraw funding.
  • Minority interests are better served, lest they

The tyranny of medianocracy
  • The rule of the median voter.

Secession reduces TM
  • Without secession, minority interests, on the
    tails get, get suppressed.
  • The two-party system caters to the median,
    reducing political diversity, dampening debate.
  • Secession gives minorities greater clout and
    reduces majority rent seeking.

Model 3aDecentralized public revenue
  • All public revenues are sent to level-2,
    representing about 30,000 persons, on an equal
    per-capita basis. Many services, e.g. police,
    have economies of scale at that level.
  • Revenues flow down to level 1, and from 2 up to
    level 3 and then up to h.

Consequences of bottom-up transfers
  • There are no top-down transfers other than from
    level 2 to level 1.
  • The power of funding enhances the power of
  • Power becomes more decentralized.

Model 3bOnly level 1 may tax
  • All levels gt 1 obtain revenues from i-1.
  • With Model 3a, taxation of income and sales
    must be at level h or h-1 to prevent tax
    competition and secession.
  • With Model 3b, income and sales taxes are
    repealed due to tax competition and secession.

Model 3b consequences
  • Public revenues require a non-mobile source
  • Land-value taxation replaces taxes on sales,
    income, and buildings.
  • Revenues are transferred up only if they enhance
    efficiency (principle of subsidiarity).

Model 3b implementation
  • Locally levied land-value taxation with funds
    transferred to higher-level governments requires
    assessments by boards represented from all
    levels, otherwise the incentive is to

Model 4 demand revelation
  • Voting for propositions in addition to
  • The Condorcet voting paradox.
  • Marquis de Condorcet (1793-94)
  • Suppose 3 outcomes A, B, C

Condorcet voting paradox
  • Group 1 2 3
  • 35 45 20
  • 1st choice A B C
  • 2nd choice B C A
  • 3rd choice C A B
  • A gt B, B gt C, C gt A
  • Not transitive, not consistent

Arrows impossibility theorem
  • Rules for a good democracy
  • 1. If all want X, we get X.
  • 2. Transitivity.
  • 3. Independence from irrelevant elements.
  • (A gt B independent of C.)
  • 4. No dictator.

An arrow shot through the heart of democracy.
  • Kenneth Arrow no voting system can satisfy all
    these criteria.
  • Alternative demand revelation.
  • Suppose a public good G is proposed.

Demand revelation
  • Each person states the maximum he would be
    willing to pay for G.
  • Each person is also assigned a cost.
  • If the total stated values gt the cost of G, then
    it is done. Otherwise, not.

Demand revelation
  • If anyones stated value, relative to his cost,
    changed the outcome, he causes a negative
    externality, and compensates the group for the
    net social cost (the Clarke tax).
  • The incentive is to tell the truth.

Demand Revelation
  • Tideman, T. Nicolaus,
  • and Gordon Tullock. 1976.
  • "A New and Superior Process for Making Social
  • Journal of Political Economy 84, 6 (December)

Consequence of DR
  • Special interests may sway opinions and values,
    but participants will not exaggerate.
  • Demand revealers are more aware of their costs.
    Those who dont vote are counted as voting
    their cost.
  • Participants have a greater incentive to obtain
    the relevant knowledge.

Related proposal
  • Bryan, Frank M., and John McClaughry. 1989. The
    Vermont Papers Recreating Democracy on a Human
    Scale. Chelsea, Vermont Chelsea Green
  • Much of state governance would devolve to a
    "shire" one level above the small town or city
    neighborhood. The citizens still directly elect
    the state legislature.

Historical examples
  • Electoral college for U.S. President.
  • U.S. Senate originally elected by state
  • Association of Bay Area Governments.
  • An elected official from each member city and
    county serves as a delegate to ABAG's General
  • Labor unions
  • Ancient and tribal examples

All Power to the Soviets!
  • Soviet means council.
  • The Bolshevik slogan and plan bottom-up union of
  • But after the revolution, the Communist Party and
    dictators ruled.
  • Echoed today, power to the hoods!

  • Cellular democracy generates substantially less
    rent seeking from special interests.
  • This effect is enhanced by decentralized public
  • Secession reduces majority rent seeking.
  • Demand revelation complements SGV for social
    choices, and discovers social benefits.

Policy implication
  • Mass democracy has inherent problems, and fails
    even worse when grafted to cultures without a
    deep democratic tradition.
  • E.g. Kenya, Zimbabwe, Nazi Germany, Russia, Gaza,
    Iraq, and multiple military coups.
  • Cellular democracy would make election fraud and
    usurpation more difficult.

Election Fraud
  • Mass democracy is vulnerable to election fraud,
    especially with electronic voting.
  • Small group voting facilitates paper ballots,
    observed counting by hand.
  • A military coup can topple level h, but has to
    contend with all lower levels.

Comparative systems
  • The comparison of mass democracy with cellular
    democracy sheds light on the cause of rent
  • It is not democracy as such, but its
    implementation as mass democracy that causes a
    high degree of rent seeking by moneyed interests.

  • The problem is not
  • the traditional belief in democracy, but the
  • in traditional democracy.

Comparative systems conclusions
  • The mass-democracy principal-agent problem is
    exacerbated by
  • Absence of secession (exit) options
  • Difficulty of recalling representatives
  • Centralized revenue collection and top-down
    revenue transfers
  • Yes-no issues voting rather than the demand
    revealing method.

Democracys flawed path
  • . Mass democracy is a product of evolution rather
    than design.
  • We are stuck in path dependency
  • rent seekers have the power and prevent
    constitutional change.
  • But we can at least better understand our
    systemic public choice problem