[FONT=Times New Roman, Times, serif]The fact that people still cling to the belief that the State is required to resolve disputes is amazing, since modern courts are out of the reach of all but the most wealthy and patient, and are primarily used to shield the powerful from competition or criticism. In this writer’s experience, to take a dispute with a stockbroker to the court system would have cost more than a quarter of a million dollars and taken from five to ten years – however, a private mediator settled the matter within a few months for very little money. In the realm of marital dissolution, private mediators are commonplace. Unions use grievance processes, and a plethora of other specialists in dispute resolution have sprung up to fill in the void left by a ridiculously lengthy, expensive and incompetent State court system.[/FONT][FONT=Times New Roman, Times, serif]Thus the belief that the State is required for dispute resolution is obviously false, since the court apparatus is unavailable to the vast majority of the population, who resolve their disputes either privately or through agreed-upon mediators.[/FONT][FONT=Times New Roman, Times, serif]How can the free market deal with the problem of dispute resolution? Outside the realm of organized crime, very few people are comfortable with armed confrontations, and so generally prefer to delegate that task to others. Let’s assume that people’s need for such representatives produces Dispute Resolution Organizations (DROs), which promise to resolve disputes on their behalf.[/FONT][FONT=Times New Roman, Times, serif]Thus, if Stan is hired by Bob, they both sign a document specifying which DRO they both accept as an authority in dispute resolution. If they disagree about something, and are unable to resolve it between themselves, they submit their case to the DRO, and agree to abide by that DRO’s decision.[/FONT][FONT=Times New Roman, Times, serif]So far so good. However, what if Stan decides he doesn’t want to abide by the DRO’s decision? Well, several options arise.[/FONT][FONT=Times New Roman, Times, serif]First of all, when Stan signed the DRO agreement, it is likely that he would have agreed to property confiscation if he did not abide by the DRO’s decision. Thus the DRO would be entirely within its right to go and remove property from Stan – by force if necessary – to pay for his side of the dispute.[/FONT][FONT=Times New Roman, Times, serif]It is at this point that people generally throw up their arms and dismiss the idea of DROs by claiming that society would descend into civil war within a few days.[/FONT][FONT=Times New Roman, Times, serif]Everyone, of course, realizes that civil war is a rather bad situation, and so it seems likely that the DROs would consider alternatives to armed combat.[/FONT][FONT=Times New Roman, Times, serif]What other options could be pursued? To take a current example, small debts which are not worth pursuing legally are still regularly paid off – and why? Because a group of companies produce credit ratings on individuals, and the inconvenience of a lowered credit rating is usually greater than the inconvenience of paying off a small debt. Thus, in the absence of any recourse to force, small debts are usually settled. This is one example of how desired behaviour can be elicited without pulling out a gun or kicking in a door.[/FONT][FONT=Times New Roman, Times, serif]Picture for a moment the infinite complexity of modern economic life. Most individuals bind themselves to dozens of contracts, from car loans and mortgages to cell phone contracts, gym membership, condo agreements and so on. To flourish in a free market, a man must honour his contracts. A reputation for honest dealing is the foundation of a successful economic life. Now, few DROs will want to represent a man who regularly breaks contracts, or associates with difficult and litigious people. (For instance, this writer once refrained from entering into a business partnership because the potential partner revealed that he had sued two previous partners.)[/FONT][FONT=Times New Roman, Times, serif]Thus if Stan refuses to abide by his DRO’s ruling, the DRO has to barely lift a finger to punish him. All the DRO has to do is report Stan’s non-compliance to the localcontract-rating company, who will enter his name into a database of contract violators. Stan’s DRO will also probably drop him, or raise his rates considerably.[/FONT][FONT=Times New Roman, Times, serif]And so, from an economic standpoint, Stan has just shot himself in the foot. He is now universally known as a man who rejects legitimate DRO rulings that he agreed to accept in advance. What happens when he goes for his next job? What if he decides to eschew employment and start his own company, what happens when he applies for his first lease? Or tries to hire his first employee? Or rent a car, or buy an airline ticket? Or enter into a contract with his first customer? No, in almost every situation, Stan would be far better off to abide by the decision of the DRO. Whatever he has to pay, it is far cheaper than facing the barriers of existing without access to a DRO, or with a record of rejecting a legitimate ruling.[/FONT][FONT=Times New Roman, Times, serif]But let’s push the theory to the max, to see if it holds. To examine a worst-case scenario, imagine that Stan’s employer is an evil man who bribes the DRO to rule in his favour, and the DRO imposes an unconscionable fine – say, one million dollars – on Stan.[/FONT][FONT=Times New Roman, Times, serif]First of all, this is such an obvious problem that DROs, to get any business at all, would have to deal with this danger up front. An appeal process to a different DRO would have to be part of the contract. DROs would also rigorously vet their own employees for any unexplained income. And, of course, any DRO mediator who corrupted the process would receive perhaps the lowest contract rating on the planet, lose his job, and be liable for damages. He would lose everything, and be an economic pariah.[/FONT][FONT=Times New Roman, Times, serif]However, to go to the extreme, perhaps the worst has occurred and Stan has been unjustly fined a million dollars due to DRO corruption. Well, he has three alternatives. He can choose not to pay the fine, drop off the DRO map, and work for cash without contracts. Become part of the grey market, in other words. A perfectly respectable choice, if he has been treated unjustly.[/FONT][FONT=Times New Roman, Times, serif]However, if Stan is an intelligent and even vaguely entrepreneurial man, he will see the corruption of the DRO as a prime opportunity to start his own, competing DRO, and will write into its base contract clauses to ensure that what happened to him will never happen to anyone who signs on with his new DRO.[/FONT][FONT=Times New Roman, Times, serif]Stan’s third option is to appeal to the contract rating agency. Contract rating agencies need to be as accurate as possible, since they are attempting to assess real risk. If they believe that the DRO ruled unjustly against Stan, they will lower that DRO’s contract rating and restore Stan’s.[/FONT][FONT=Times New Roman, Times, serif]Thus it is inconceivable that violence would be required to enforce all but the most extreme contract violations, since all parties gain the most long-term value by acting honestly. This resolves the problem of instant descent into civil war.[/FONT][FONT=Times New Roman, Times, serif]Two other problems exist, however, which must be resolved before the DRO theory starts to becomes truly tenable.[/FONT][FONT=Times New Roman, Times, serif]The first is the challenge of reciprocity, or geography. If Bob has a contract with Jeff, and Jeff moves to a new location not covered by their mutual DRO, what happens? Again, this is such an obvious problem that it would be solved by any competent DRO. People who travel prefer cell phones with the greatest geographical coverage, and so cell phone companies have developed reciprocal agreements for charging competitors. Just as a person’s credit rating is available anywhere in the world, so their contract rating will also be available, and so there will be no place to hide from a broken contract save by going ‘off the grid’ completely, which would be economically crippling.[/FONT][FONT=Times New Roman, Times, serif]The second problem is the fear that a particular DRO will grow in size and stature to the point where it takes on all the features and properties of a new State.[/FONT][FONT=Times New Roman, Times, serif]This is a superstitious fear, because there is no historical example of a private company replacing a political State. While it is true that companies regularly use State coercion to enforce trading restrictions, high tariffs, cartels and other mercantilist tricks, surely this reinforces the danger of the State, not the inevitability of companies growing intoStates. All States destroy societies. No company has ever destroyed a society without the aid of the State. Thus the fear that a private company can somehow grow into a State is utterly unfounded in fact, experience, logic and history.[/FONT][FONT=Times New Roman, Times, serif]If society becomes frightened of a particular DRO, then it can simply stop doing business with it, which will cause it to collapse. If that DRO, as it collapses, somehow transforms itself from a group of secretaries, statisticians, accountants and contract lawyers into a ruthless domestic militia and successfully takes over society – and how unlikely is that! – then such a State will then be imposed on the general population. However, there are two problems even with this most unlikely scare scenario. First of all, ifany DRO can take over society and impose itself as a new State, why only a DRO? Why not the Rotary Club? Why not a union? Why not the Mafia? The YMCA? The SPCA? Is society to then ban all groups with more than a hundred members? Clearly that is not a feasible solution, and so society must live with the risk of a brutal coup by ninja accountants as much as from any other group.[/FONT][FONT=Times New Roman, Times, serif]And, in the final analysis, if society is so terrified of a single group seizing a monopoly of political power, what does that say about the existing States? They have a monopoly of political power. If a DRO should never achieve this kind of control, why should existing States continue to wield theirs?[/FONT]
