Get into a discussion with any self-described anarcho-capitalist and it is only a matter of time before you are directed to David Friedman for an answer to the conundrum posed. I have generally considered such appeals to authority as tacit admissions of defeat – if an argument is any good, it ought to be easy to summarise and explain. Conversely, it is often the least defensible arguments which require complex exposition (and by a third party to boot!). I was recently referred to Friedman by Scott Scheule during a discussion at my own blog and promised that Friedman would deal with the thorny question of what differentiates the “Free market protection agencies” predicted by anarcho-capitalists under anarchy from the real world “protection agencies” we observe in conditions approximating anarchy such as mafias and warlords. Friedman sketched out this scenario:
I come home one night and find my television set missing. I immediately call my protection agency, Tannahelp Inc., to report the theft. They send an agent. He checks the automatic camera which Tannahelp, as part of their service, installed in my living room and discovers a picture of one Joe Bock lugging the television set out the door. The Tannahelp agent contacts Joe, informs him that Tannahelp has reason to believe he is in possession of my television set, and suggests he return it, along with an extra ten dollars to pay for Tannahelp’s time and trouble in locating Joe. Joe replies that he has never seen my television set in his life and tells the Tannahelp agent to go to hell.
The agent points out that until Tannahelp is convinced there has been a mistake, he must proceed on the assumption that the television set is my property. Six Tannahelp employees, all large and energetic, will be at Joe’s door next morning to collect the set. Joe, in response, informs the agent that he also has a protection agency, Dawn Defense, and that his contract with them undoubtedly requires them to protect him if six goons try to break into his house and steal his television set.
The stage seems set for a nice little war between Tannahelp and Dawn Defense. It is precisely such a possibility that has led some libertarians who are not anarchists, most notably Ayn Rand, to reject the possibility of competing free-market protection agencies.
But wars are very expensive, and Tannahelp and Dawn Defense are both profit-making corporations, more interested in saving money than face. I think the rest of the story would be less violent than Miss Rand supposed.
The Tannahelp agent calls up his opposite number at Dawn Defense. ‘We’ve got a problem. . . .’ After explaining the situation, he points out that if Tannahelp sends six men and Dawn eight, there will be a fight. Someone might even get hurt. Whoever wins, by the time the conflict is over it will be expensive for both sides. They might even have to start paying their employees higher wages to make up for the risk. Then both firms will be forced to raise their rates. If they do, Murbard Ltd., an aggressive new firm which has been trying to get established in the area, will undercut their prices and steal their customers. There must be a better solution.
The man from Tannahelp suggests that the better solution is arbitration. They will take the dispute over my television set to a reputable local arbitration firm. If the arbitrator decides that Joe is innocent, Tannahelp agrees to pay Joe and Dawn Defense an indemnity to make up for their time and trouble. If he is found guilty, Dawn Defense will accept the verdict; since the television set is not Joe’s, they have no obligation to protect him when the men from Tannahelp come to seize it.
What I have described is a very makeshift arrangement. In practice, once anarcho-capitalist institutions were well established, protection agencies would anticipate such difficulties and arrange contracts in advance, before specific conflicts occurred, specifying the arbitrator who would settle them.
The problem I see with this scenario is that little assumption I highlit. It is certainly true that the profit-making corporations Tannahelp and Dawn Defense have an ultimate interest in a stable, peaceful environment where disputes are settled by arbitration. Unfortunately they also have a proximate interest in ripping everyone off and possess the means to do so. Unlike corporations who provide widgets, there is no proximate method for the market to constrain a predatory protection agency. Tannawidget and Dawn widgets may have a proximate interest in ripping everybody off but are prevented from doing so by the possibility of undercutting competitors entering the market. They are not in a position to either coerce their customers or new entrants. Not so for the “free market protection agency”
It occurs to me that this resembles the tragedy of the commons. Under common ownership, everyone shares an ultimate interest in, say, preservation of livestock, but a proximate interest in grabbing everything for oneself, if only to prevent others from doing exactly the same. If you possess the means to coerce people to give you their money – arms and a gang of heavies – you have no particular reason to respect property rights. From your point of view, everything might as well be under common ownership. If you don’t rip people off, other protection agencies will do so. It shouldn’t be a surprise to see this pattern emerge in areas where the ordinary rule of law has broken down, but apparently, for some, it is.