The traditional form of government is a region controlled by a single entity. The quintessential “monopoly on violence in a given area” definition should suffice. It used to be a single person, but today it is an organization of multiple people in pretty much the whole world. Even in China, Xi Jinping does not hold all power. Governments have thousands or millions of people, with vary levels of power, split up into different divisions. But they have a single area of land, or maybe multiple areas, such as the Continental United States plus Alaska and Hawaii. That is three regions of land for one government. I expect governments to spread across multiple, non overlapping areas in the future.
The traditional nation-state gains money by taxing trade, or property. As the black market swallows up larger and larger portions of the world’s economy, taxing trade will no longer suffice. Government will tax property instead. A billionaire living in a small apartment would not pay much in taxes. Most billionaires have sophisticated tax avoidance schemes already, but millionaires and six-figure earners could easily make the jump and pay low taxes despite high incomes. If more wealthy people are willing to buy cheaper housing, the government would receive much less funding than it does now. Again, this all assumes the black market continues to grow.
Libertarian readers may rejoice at the concessions the government has had to make. Of course, this is not the end. All nation-states will try to gain more funding, one way or another. They may simply set property taxes high enough that it could make up for the loss from income and sales tax. This would also have problems. Anyone in these neighborhoods that was actually poor would end up on the street, which creates more problems than it solves.
What would they try next? Seizing control of ports and trade routes would be a good idea. Anything that passes through is subject to a tax. This would not bother the domestic markets which probably don’t have to worry about checkpoints, but would slow down the foreign trade considerably. Still, savvy businessmen could create new ports and trade routes. Drone transportation would also be hard to regulate. At the end of the day, modern political institutions will have to face a slew of problems.
Any government will surely become less powerful, but this doesn’t mean it will cease to exist. The central bank could continue to issue and repurchase its own bonds. The government could sell its physical assets, at least until there was nothing left to sell. Governments can potentially solve local coordination problems, even if they currently don’t. If a government regulates factory pollution, factories will pop up in a country that has no such laws. But government can prevent overfishing in a lake, even if they are hard pressed to end pollution (a global coodination problem) or terrorism (a fat tail risk). They can scale down, solving more legal issues at the province/state or city levels, and only a few key problems, such as military defense, at the national level.
Modern political and economic systems are getting squeezed in two directions at once. First, lower tax rates are making it difficult for the government to sustain itself. Second, coordination problems are making it harder for free markets (and some governments) to prevent pollution, corruption, and other issues with potentially deadly consequences.
The fact that neither polycentric societies nor governments are capable of dealing with coordination problems is not a point in favor of anarcho-capitalism, or against government. Moloch will literally be our demise, unless we create institutions that are capable of dealing with them. Government is a bad way of solving the largest of coordination problems, as a government cannot regulate globally. Not only that, governments cannot regulate themselves, and can suffer from an internal ability to coordinate.
The standard variant of polyentric law does not do well either. A polycentric society has just as many problems with large-scale coordination, and is worse than governments at coordinating locally. However, libartarian societies are also more adaptable, and can route around Moloch. If everyone overfishes a lake, people will start fish farms to keep the supply up. The solutions to coordination problems are hopefully politically agnostic. They must be able to function between different types of political organization.
Today’s coordination between governments are already inefficient and insufficient. In the future, different forms of smaller governance will create compatibility issues, and contracts between large swaths of the human population will be harder to come by than agreements between just a few large nations.
Of course, in a world of smaller institutions, different types of agreements can become available as well. A contract may not cover anybody, but people may be able to subscribe at an individual or city-scale level. If the contract stipulated that one could only do certain kinds of business with others who have agreed to the 2037 Antipollution Agreement, there will be a network effect leading to more and more people, businesses, and polities reducing their pollution levels. Probably other forms of agreements I haven’t even thought of will be able to take place.
Will this actually happen?
I’m still not sure. The world is, and probably has always been, in a balancing act between a few large institutions that can better solve coordination problems and many small institutions that are resilient to fat tail risk. Terrorists would find it difficult to attack a gated private city but could easily attack a nation’s capital. Pollution can be prevented by a theoretical global government, but a plurality of independent townships won’t be able to work it out between themselves.
The proper task is to make it easier for many city states to independently coordinate and also help large governments deal with fat tail risk. I cannot accurately predict how political organizations will work in the future, but I can better forecast which societies will have which kinds of problems. If the world becomes an archipelago or patchwork of polities, they must be able to kill Moloch. If it consolidates into a few large continental unions or a global government, they will need to be resilient to both external threats to the central political system and internal threats that would freeze the political system. The future will hopefully be more and less structured at the same time. An ideal world that can coordinate if necessary and is as resilient as possible. I think this is a good goal since we may all die without it.