Why Liechtenstein Works: Self-Determination and Market Governance
Before we jump in, let’s have a show of hands. How many of you have ever been told that your conception of liberty sounds good in theory, on paper, but could never work in practice? How many of you have ever been called utopians? Good, I see this is most of you.
Well I am here to dispel this notion and to show all of you that you are nothing if not realists. After all the word utopia comes from the Greek words Ou and Topos. Ou means Not and Topos means Place. Utopia therefore literally means, “not a place.” In other words, those who call us utopians believe that our ideas have not been and cannot be implemented in any physical space in the real world.
I am about to tell you about a place where fundamental libertarian pillars of self-ownership and private property are never violated, a place of almost absolute, maximum individual liberty. A place where state coercion is nonexistent, or actually, as I will later argue, a place where there might be no state at all.
But here is what I am not going to do: I am not going to try to convince you to move there. Actually, I would discourage most of you from even trying. This place is too small, its culture too skeptical of foreigners, and quite frankly the cause of liberty is too great for us libertarians to attempt a mass exodus of this kind. Instead, what I want to do is show you how this place became so free, and what this freedom actually looks like, because libertarians often have a flawed conception of what would happen if we suddenly got rid of the state. Second, I would like to share my ideas about what kind of strategic changes we can make to our discourse, that is to say the language that libertarians use, in order to make our countries a bit more like this amazing place, the Principality of Liechtenstein.
First of all, I would like to start by recommending three amazing books that have shaped my political beliefs and served as the main inspiration for this talk. The first one, which I will be focusing on today, is The State in the Third Millennium by His Serene Highness Prince Hans-Adam II, the second is Democracy: The God that Failed by Hans-Hermann Hoppe, and the third is Liberalism by Ludwig von Mises.
Though these books may offer quite different perspectives on the matter, they all agree on a single, central point: That is, that the State is not a divine entity; that we have an individual right to self-determine our political affiliation and that like any other industry, providers of government services are subject to the basic rules of economics with respect to competition, monopoly, and human action.
This is a quote from Prince Hans-Adam in the first few pages of his book, explaining the goal of his writing, which incidentally is also the goal of this lecture:
I would like to set out in this book the reasons why the traditional state as a monopoly enterprise not only is an inefficient enterprise with a poor price-performance ratio, but even more importantly, becomes more of a danger for humanity the longer it exists.
Although I mean no disrespect to Mises, Rothbard and Hoppe, three great intellectuals who are very dear to my heart and to whom I owe so much, it has always been of a particular and distinct fascination to me that a head of state worth $3.5 billion, a person of actual power and influence beyond the common man’s imagination, would write about abolishing the monopoly of the state and establishing government competition under the right of secession. It is for this reason that I will now devote the next part of my presentation to explaining Liechtenstein’s unique political system, and the context under which these ideas have been implemented.
Liechtenstein is a country of about 38,000 people; at 160 square kilometers it is not very densely populated. For comparison, Monaco has around the same population and is 80 times smaller. The principality boasts among the highest GDP per capita and average salary in the world, but contrary to popular belief, the financial sector only contributes a total of 24 percent to Liechtenstein’s GDP and 16 percent of the workforce. 27 percent of the GDP is in non-financial services, 8 percent is agriculture, and 37 percent is industrial, as Liechtenstein is a popular spot for highly specialized and niche manufacturing. Some notable examples include Hilti, one of the global leaders in the production of power tools, Ivoclar, one of the biggest producers of dental goods, through which Liechtenstein has actually become the world’s biggest exporter of false teeth, and the well-known jewelry manufacturer Swarovski also has significant operations within the country.
Liechtenstein is one of the last functional monarchies in Europe, with the Princely House being able to exercise almost complete power through the Sovereign Prince, currently Prince Hans-Adam II, and unlike most monarchies, power is transferred from father to son not at the time of the father’s death, but some time before, in order to allow the successor to learn from his predecessor while on the job. The current regent is Prince Alois, who is now effectively ruling the country, although his father still has the power to step in and overrule him.
However, despite the Princely Family’s constitutional power, Liechtenstein is also a democracy. In the words of Prince Hans-Adam:
We in the Princely House are convinced that the Liechtenstein monarchy is a partnership between the people and the Princely House, a partnership that should be voluntary and based on mutual respect.
There is a parliament with 25 seats. Currently 10 seats belong to a party called the Progressive Citizens Party, or FBP, which is the only party that explicitly supports the princely family and has the best relationship with them. Eight seats belong to the Christian and conservative Patriotic Union, four seats belong to independents, and three to the Free List, which is the equivalent of the Green Party.
In practice, it would seem that the parliament and the princely house are more or less equal in power. But actually the princely house has the rarely-exercised power to veto or dissolve the parliament, which makes it slightly more powerful.
All of this exists within the context of direct democracy, so any disagreement between the parliament and the princely house can be resolved by popular vote. You only need 1,000 signatures in order to start a national referendum, or 1,500 if your proposal includes a change to the constitution.
The Prince can actually veto any national referendum, unless they are one of two specific types of referendum: The first is a referendum to dismiss the Prince, in which case the Princely House must elect a new Prince, and the second is a referendum to get rid of the entire Princely House altogether and abolish the monarchy. If the people start one of these two referendums, then the Prince’s power of veto is void.
Then Liechtenstein has 11 municipalities, often referred to as villages or communes, with populations of roughly between 400 and 6,000. These villages have a fairly high degree of autonomy, and are able to pass a great deal of their own laws, and levy their own taxes (for reference, the national income tax is 1.2 percent, but the average income tax level is about 17.8 percent if you include village income tax).
Now here comes the really interesting part: Each of these villages have their own system of direct democracy, with referendums usually requiring the signatures of 5 percent of local eligible voters to initiate. Since the constitutional reform of 2003, the villages have had the right to secede. Even tiny Planken with its 280 voters could have its independence recognized following a local vote.
All of this was initiated by His Serene Highness, who personally went down into the streets of Liechtenstein to collect signatures in order to start a constitutional referendum. The 2003 constitutional reform also gave the people of Liechtenstein the aforementioned right to dismiss the prince or the princely house, by the way. Such was his belief in liberty that he actually worked to convince a people over whom he had complete dominion to take hold of their rights and demand more freedom. In his own words:
The State should treat its citizens like an enterprise treats its customers. For this to work, the State also needs competition. We therefore support the right of self-determination at the municipal level, in order to end the monopoly of the State over its territory.
Actually, you will probably be shocked to hear that he initially did not only propose that villages have the right of self-determination, but even individuals and their private property! This is from an article called, “Freedom and Prosperity in Liechtenstein,” by Andrew Young, published in 2010 in the Journal of Libertarian Studies. I strongly recommend reading the full paper.
At this point some of you may be scratching your heads, asking yourself if any of this is real. After all, why would a head of state willingly give up so much power, and in fact go through a lot of trouble to try and give up this power. In The State in the Third Millennium, Prince Hans-Adam explains:
Naturally, an anarchist could claim that a monarch from a family that has reigned for centuries cannot possibly be in favor of abolishing the state. In response, I should like to note that the Princes of Liechtenstein are not paid for their duties as head of state by either the state or the taxpayer. The total cost of our monarchy, in contrast to almost all other monarchies, is covered by the Prince’s or the Princely House’s private funds.
Personally, I do not think this response tells the whole story, and that there are several other factors that have led Liechtenstein to where it is. I will get back to this a little bit later, but first, let me share the following newspaper clipping from the BBC in 2003.
That article was written shortly after the constitutional reform. Now, in this constitutional reform, let me remind you, while the Prince tried and failed to give every individual the right of secession, he succeeded in giving every village that right, and he gave the people the right to dismiss him and his family. He also happened to simultaneously slightly increase his influence in the election of judges. The BBC’s reaction is right there in the subhead, “The people of Liechtenstein have voted to make their prince an absolute monarch again.”
No mention of the right of secession or the right to abolish the monarchy. Not one. The BBC outright lied and claimed Prince Hans-Adam was been made “an absolute monarch again,” when actually it was quite the contrary. Now this lecture is supposed to be positive; I came here to cheer you up, but I thought it was necessary to include a small reality check right in the middle, just to remind you what we are up against.
Now you might be thinking, Prince Hans-Adam talks about abolishing the State, but doesn’t Liechtenstein still have taxation, speed limits, a police force and such “statist” things?
Yes, that is true, but these things do not actually define a State. Allow me to propose a distinction between a government and a state. Most people indeed think of these words as synonymous, but these are in my opinion statist semantics which push back our movement perhaps more than any member of the Clinton family ever has.
A government is an organization that provides its customers with “governance services,” which includes the enaction of common rules (legislation), their enforcement (justice), and general protection (defense), among others. Whereas a state is a self-proclaimed government that claims a de jure territorial monopoly wherein all inhabitants must be customers, and typically enforces this monopoly through the systematic use of force, disregarding property rights. The difference between a government and a state is the difference between leadership and tyranny.
I would actually classify government as any hierarchy of leadership, including those within corporations or families. National governments today, besides Liechtenstein’s, are all states. However, not all states are actually governments, as we can see in some African countries where justice and defense are not provided with any consistency. In other words, although the two concepts often overlap, they do not have to: you may have state without government, government without state, as well as government within state.
In the same way, one may find leadership in tyranny, but one can also have leadership without tyranny and of course tyranny without leadership.
In Prince Hans-Adam’s words:
The state has to become a service company which competes peacefully, and not a monopoly which gives the customer only the alternative either to accept a bad service at the highest price, or to emigrate.
In effect, Liechtenstein is the only modern example of leadership without tyranny. The Princely family have been able to gain the love and loyalty of their people by giving them something they never even realized they wanted.
Now you might wonder, if there really is no state in Liechtenstein, how come there is only one government? Why aren’t there multiple competing governments?
Well to understand this it is fundamental to grasp the difference between what I call a de facto monopoly and a de jure monopoly. In a de facto monopoly there are no competitors because there is no demand or practical use for competitors. Barriers to entry are merely social and market-based, not legal or regulatory. A de jure monopoly is a monopoly enforced by threat of coercion. Competitors are in demand, but face “legal” persecution from the established providers.
In other words, under a de facto monopoly, the potential for competition always exists and always keep the so-called monopoly in check, although the price and quality of the goods or services provided are so good, that no competitor could currently stand a chance.
As a side note, I’d like to note that in the case of government, the quality of the services is not entirely tangible or objective; governments, particularly democratic ones, are usually seen as an expression of the national identity and there is therefore a highly emotional factor to be considered. I would therefore say that serving and reinforcing patriotism is part of what we may consider the services that a government provides and should compete for.
A possible objection one may raise is whether Liechtenstein is really a country with a non-state government, as I claim, if the right of secession is at the village rather than the individual level. The answer is quite arguable. At first thought I would say no, the village governments basically act as states if they do not recognize individual secession, but then, if we think about it thoroughly, is this starting to become a bit too pedantic?
I have personally surveyed many Liechtensteiners and so far have not found a single one of them who would have exercised individual secession if they had that right.
Try to imagine seceding individually. What an unviable nightmare that would be. Your neighbors could very easily blockade you within your property, you would become a sovereign household in a world of sovereign states unwilling to cooperate with you.
So let’s be realistic, if we had the individual right of secession and wished to exercise it, we would need to at least convince our neighbors, our community, and the people we deal with on a day to day basis. In Liechtenstein, this more or less corresponds to a village, so I would say that in practice, it is as if every individual had the right of secession.
So to conclude this point, secession must account for the economies of scale in the governance industry, and the socio-cultural implications of national identities that are expressed through government. Ludwig von Mises expressed this:
If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done. This is impracticable only because of compelling technical considerations, which make it necessary that a region be governed as a single administrative unit and that the right of self-determination be restricted to the will of the majority of the inhabitants of areas large enough to count as territorial units in the administration of the country.
However, I do agree that the individual right of secession should be the ideal for us to strive for, and Prince Hans-Adam knows this full well, even though he thinks this might be reserved for a distant future.
Returning to the present, I would now like to speak about democracy, but not the common, mainstream definition which Professor Hoppe so elegantly dismantles in Democracy: The God that Failed. I wish to speak about what I have started calling “Democracy in the Mises-Liechtenstein tradition.”
This form of democracy does not refer to the form of governance. Indeed, a democracy in this sense could be a monarchy, a theocracy, or any other type of government, so long as it is democratically approved and therefore legitimized by the governed people, as is the case in Liechtenstein.
Actually, a democratic government does not necessarily have democratic legitimation, as strange as this may sound. This is the case of most representative democracies, which regularly consult the people about who should be elected into power, but not on whether the system of representative democracy should be continued.
Instead, these States rely on divine legitimation, assuming as a God-given fact that the country should keep the same geographical boundaries and political system, and falling on democracy only for other, less important matters.
Some will refer to divine legitimation as quote unquote “national self-determination.” Be aware of this semantical trap, as it does not refer to the same kind of self-determination as an individual right that I’ve been talking about. National self-determination refers to the supposed rights that a historically-defined state has to determine its own borders, and annex other territories if it decides that the people in that territory belong to their nation. Russia has of course been a notorious champion of this kind of so-called self-determination.
As Prince Hans-Adam put it:
Democracy and self-determination are closely linked and difficult to separate. Either one believes that the state is a divine entity to be served by the people and whose borders are never to be questioned, or one believes in the principle of democracy and that the state is created by the people to serve the people.
If one says “yes” to the principle of democracy, one cannot say “no” to the right of self-determination. A number of states have tried to separate democracy and the right of self-determination, but they never successfully put forward a credible argument.
The good news is that most people already basically accept this concept, on an international scale. Allow me to illustrate this point with a hypothetical example: Imagine if the U.S. had a national referendum on annexing Canada. Would the rest of the world see this expansion as valid according to democratic principles? I don’t think so.
Even if the entire population of Canada was invited to this referendum alongside the entire population of the US, most people would still not accept the result as an example of democracy. Only if Canadians, and Canadians alone, were able to vote in this referendum, would we see this as an exercise of democracy.
The bad news is that most people still are unable to consistently expand this principle nationally. If they did, they would have to recognize that the U.S. government is only legitimate in Texas if a majority of Texans approve, that the government of Texas is only valid in Austin of a majority of Austinites approve, and so on and so forth down to the individual level.
But considering all of this, I’d like to propose a point of reflection for all of you. Are we libertarians not the true democrats? Is anarcho-capitalism not the ultimate expression of democracy and are statists who defend the divine rights of the state not the true anti-democrats?
This insistence on the divine legitimation of established states may be justified by some as a way to preserve national unity, but in reality, it does only the opposite. As Mises put it, self-determination “is the only feasible and effective way of preventing revolutions and civil and international wars.”
An example of this was produced in the Swiss canton of Bern in the late 70s, during times of civil unrest between French-speaking Catholic minority, and the German-speaking Protestant majority.
The French speakers sought independence or annexation into France, and the conflict rose to the point of violence and bombings. However, the Swiss government then allowed every French-speaking community in Bern to decide whether they wanted to stay in Bern or be part of a new canton, and this is how Jura, the newest canton in Switzerland, was created. Many French-speaking communities chose to stay in Bern however, which is still a bilingual canton today, and some decided to join Jura only several years later after being able to observe its socio-economic success.
By doing this, Switzerland prevented loss of land, and immediately calmed the conflict before it could get too bloody. This goes to show that even limited implementations of the principle of self-determination are capable of great results which actually promote, instead of reduce, national unity. In fact, the leverage and bargaining power given by self-determination can have some unexpected, yet still positive implications.
For example, imagine that 55 percent of Liechtensteiners voted to abolish the monarchy. It is very likely in this case that there would be several villages where the majority of the population is still loyal to the family and wishes to keep them as their leaders. With the current constitution, these villages would then be able to secede and reinstate the monarchy within their new country.
Knowing this, and desiring to maintain national unity, it is unlikely that 55 percent of Liechtensteiners would vote to abolish the monarchy even if 55 percent were in favor of doing so. Thus there is a largely unspoken, implicit bargaining process, where people are more conscious of the long-term effects of their votes.
Though what is right for Liechtenstein is perhaps not right for Malta and vice versa, the principle of self-determination allows a process of experimentation that is potentially beneficial to both.
While perhaps an Islamic sharia government would be chosen in several parts of London today, absent state-sponsored distortions in migration flows, this would probably not happen. Particularly not under the natural order of market governance, which the mostly homogenous, closed-borders Liechtenstein finds itself under.
The right of self-determination could also allow us to create governmental sandboxes to make market experiments in different forms of government. There are admirable efforts to do this today from the Seasteading Institute, the free republic of Liberland, Titus Gebel’s Free Private Cities, and the overall Startup Societies movement, however, without the recognized right of self-determination, these projects have uncertain futures.
The bargaining process of self-determination also allows us to discover the ideal and desired level of local or municipal government devolution, as a national government would always have to negotiate with local governments and take its demands seriously, since they could leave the country at any time. Liechtenstein illustrates this with its high level of local devolution.
Finally, as also illustrated in Liechtenstein with its mix of prince, parliament, direct democracy and local governance, a government that is subject to self-determination will tend to try to offer its citizens a maximum number of avenues for political action or activism, as this reduces the wish to become independent. The more you feel you can change the way your government functions, the less you feel inclined to get rid of that government altogether. From personal experience, I can tell you that in Liechtenstein, meeting with regulators, members of parliament, or other elected officials is the easiest thing in the world – they are always ready to meet anybody at very short notice, and take any proposal that may be beneficial for the country very, very seriously, no matter who brings it to them.
As a side note, Spain for example could learn a lot from all of this, Perhaps Catalonia would not wish to secede if it was in a position where its right to do so was guaranteed, and where it would therefore be able to seriously negotiate with the Spanish government. Instead, the Spanish government refuses to recognize their right to self-determination and acts as if their independence is simply impossible and not even worth trying to reach a compromise on.
Prince Hans-Adam essentially makes this point when he says:
Only a strong direct democracy and the end of the state monopoly on its territory will turn the state in the third millennium into a service company that will serve the people. It seems to be the only way to guarantee that the state is not misused by monarchs and oligarchs to oppress and plunder the people. If indirect democracy is the democracy of illiterates, then direct democracy and the right of self-determination at the local level is the democracy of educated people.
Is Liechtenstein so free because it is educated, though? This is an interesting question. Liechtenstein’s freedom cannot be exclusively thanks to the Prince’s wisdom, for that would never have been enough if his people totally opposed what he was saying. There are a mix of overlapping and interlinked factors. High trust and loyalty towards the Princely family is part of this, in part due to the family’s long history of benevolent and wise leadership. A respect for and will to conserve tradition is a big factor, as well as the principality’s highly religious population.
But I have a fairly unique theory to add to all. You see, Liechtenstein lies on the banks of the Rhine, and historically, before the construction of dams, the river used to periodically overflow, thereby flooding everything in the valley and causing massive destruction. Being right below alpine peaks, Liechtenstein also suffered from regular avalanches, delivering destruction from above. These two constant occurrences meant that Liechtensteiners have had to develop their culture in a context of ever-repeating cycles of reconstruction and destruction which required high rates of savings. Add to that the fact that until very recently, Liechtenstein was an exclusively agricultural, mountain farming community. Liechtenstein is not an extremely fertile place, and mountain farming is a very demanding, and not particularly efficient practice.
Such a lifestyle requires a lot of forward-thinking preparation to survive, and it is my belief that it has resulted in a systematically low, culturally-imbued time preference. Time preference, for those who are not aware, refers to how much you prefer a present good over a future good. A high time preference means that you prefer short term satisfaction even at high future costs, while a low time preference generally means that you prefer long term (perhaps even cross-generational) satisfaction even at high present costs.
Low time preference in society is obviously more likely to lead to conservative and libertarian governance, while high time preference favors more destructive ideologies and lifestyles such as communism and hedonism. And allow me to say, in all of my travels, I have never met a lower time preference society than Liechtenstein’s.
However, as I said at the beginning, I don’t think you should, or can move to Liechtenstein. You may still get involved with the Principality in other ways, though. The princely family runs an Austrian Economics Think Tank called the ECAEF, and every year they hold an essay contest called the Vernon Smith Prize for the Advancement of Austrian Economics, two and a half years ago at the age of 19 they gave me third prize, this year you have until the 11th of November to participate. They also hold a conference in Liechtenstein called the Gottfried von Haberler conference during the last week of May, and I would love to see some of you there.