Democracy can be understood as a kind of market where the supply of governance is meant to meet the demand of voter preferences. However, representative democracy has a critical inefficiency: the supply of decision-makers is inherently limited, while the demand – reflecting the diverse ideologies, values, and interests of the population – is vast and varied. This structural mismatch creates inefficiencies and undermines the very premise of democratic governance.
In this context, the solution is not just political but economic. To bring supply closer to demand, we must reduce the scale of decision-making to smaller, localized communities. Smaller democracies make it easier for governance to reflect the preferences of the governed, reducing inefficiencies and fostering more stable and satisfying outcomes.
The Economic Flaws of Representative Democracy
Representative democracy is constrained by its supply side. The number of elected representatives is finite, and their capacity to enact policy is further limited by bureaucracy, institutional inertia, and political compromise. Meanwhile, the demand side – voters’ preferences – exists on a virtually infinite spectrum, encompassing ideologies, cultural values, economic priorities, and personal interests.
This mismatch creates a series of inefficiencies. Voter preferences are diluted as they are aggregated into party platforms or legislative compromises. Representatives, tasked with catering to millions, often default to serving majority blocs or powerful interest groups, leaving many voices unheard. As a result, democracy becomes unresponsive and alienating for those it claims to represent.
This imbalance grows worse as the size of the polity increases. In a large, centralized democracy, the diversity of demands becomes unmanageable, and the supply of governance becomes increasingly disconnected from the population it serves. The result is inefficiency, polarization, and a breakdown of trust in democratic institutions.
The Role of Smaller Communities in Resolving Imbalances
The path to resolving this imbalance lies in reducing the size of the decision-making market. Smaller communities, by their nature, make it easier for supply to meet demand.
In smaller democracies, decision-makers operate in closer proximity to the governed. With fewer people to represent, they can more accurately reflect the preferences of their constituents. This reduces the need for the compromises and generalizations that plague larger systems. Smaller communities also allow for direct participation in decision-making, effectively making individuals both the suppliers and the demanders of governance.
Moreover, the transaction costs of governance – communication, accountability, and enforcement – are much lower in smaller communities. It is easier for citizens to communicate their needs, monitor the actions of leaders, and engage in meaningful participation. This proximity fosters trust, responsiveness, and a sense of agency, qualities that are often absent in large-scale democracies.
Tailored Governance and the Power of Localism
Large centralized governments often impose uniform policies on populations with vastly different needs. A policy designed for an urban center may be irrelevant or even harmful in a rural region. Smaller communities, by contrast, can tailor their governance to reflect local circumstances, values, and priorities.
A small town deciding its zoning laws or a neighborhood organizing its own public health initiatives will produce policies that are more relevant, efficient, and equitable than those imposed from a distant capital. When decisions are made locally, they are more likely to address the specific challenges and opportunities faced by the community.
This principle of tailored governance aligns with the economic idea that smaller markets function more efficiently because they reduce the distortions caused by generalization. Smaller communities are, in effect, more responsive markets for democratic decision-making.
Empirical Evidence for Smaller Democracies
There is substantial evidence that smaller democracies or decentralized systems produce higher levels of satisfaction and better governance outcomes. Studies on Switzerland’s cantonal system, where decision-making is localized and citizens vote directly on policies, consistently show high levels of trust and satisfaction. Similarly, Nordic countries, which delegate significant power to municipal governments, rank among the highest globally in happiness and quality of life.
Economist Elinor Ostrom’s research further supports the idea that smaller, self-governing communities are more effective at managing shared resources than large, centralized systems. These findings demonstrate that when decision-making is localized, it becomes more efficient, equitable, and responsive to the needs of the governed.
Economies of Scale vs. Diseconomies of Scale in Governance
While it is often argued that larger systems are more efficient due to economies of scale, governance does not follow the same logic as industry or infrastructure. As the scale of governance increases, it suffers from diseconomies of scale. Larger systems struggle to process the vast amounts of information needed to address local variations, leading to bureaucratic inefficiencies and one-size-fits-all policies.
In contrast, smaller communities minimize these diseconomies. Information flows more freely, decisions are made closer to the ground, and citizens have a more direct influence over the outcomes that affect their lives. While large-scale coordination may still be necessary for issues like climate change or international trade, these challenges can be addressed through networks of smaller communities rather than centralized states.
The Logical End: Anarchism and the Market of Governance
If the ultimate goal is to fully align supply and demand in the market of governance, the most natural conclusion is a system where there is no rigid distinction between the two. This is the essence of anarchism: a decentralized structure where individuals and communities self-govern directly, without the inefficiencies and distortions of centralized authority.
In an anarchist framework, individuals become both the suppliers and demanders of governance, directly participating in the decisions that affect their lives. The absence of centralized structures eliminates the diseconomies of scale, while smaller, self-organizing communities ensure that governance is tailored to local needs. The “market” of decision-making becomes fluid, responsive, and inherently balanced, as those who desire change must also contribute to its realization.
Economically, anarchism achieves what centralized systems cannot: it allows for continuous, iterative adjustments to governance based on the immediate preferences and circumstances of the governed. It decentralizes not only authority but also the transaction costs of decision-making, making the process more efficient and accessible.
While anarchism may seem radical, it is simply the logical extension of the principle that smaller, more localized governance systems work better. It removes the artificial barriers that separate supply from demand, fostering a world where individuals and communities govern themselves in alignment with their own values. The result is a system that is not only more democratic but also more efficient, equitable, and sustainable.
Conclusion: From Imbalance to Balance
Democracy, when viewed as a market, reveals a critical imbalance: the supply of governance cannot meet the demand of voter preferences. This mismatch is inherent in representative systems, especially at large scales, where diversity and complexity overwhelm the capacity of a limited number of representatives.
The solution lies in reducing the scale of the decision-making market. Smaller communities bring supply closer to demand, enabling governance that is more responsive, efficient, and satisfying. By tailoring decisions to local needs and fostering direct participation, localized systems restore the balance that centralized democracies lack.
For those seeking the ultimate alignment of supply and demand, anarchism represents the logical culmination of this reasoning. It envisions a decentralized world where individuals and communities govern themselves directly, creating a dynamic and responsive market of governance. The path to a better democratic system begins with smaller systems – and may ultimately end with none at all.
(actually, this article summarizes my very first thoughts re political systems. I was trained in applied economics, not in political science. So, many things might be a little oversimplified but that’s just how I used to think about those things back in the day)
