Transition to democracy -1.

Before getting into democracy let me start with the institution that we call a government. In its fundamental form a government is an arbitration device coupled with an enforcement device to back the implementation of what is arbitrated. If there were to be only one person in a society, or if every single person in the society were to agree on every concievable issue, we would not need arbitration and hence we would not need a government.

There are situations where arbitration is required but not enforcement. Two friend who want to go for a movie cannot decide between two movies because of a lack of information. That is, ex-ante each friend has pieces of information which are different and so they do not agree. The third friend, who has seen both the movie, tells them to go to a certain movie and provides both of them full information. Getting full information both the friends agree on a movie (or may decide not to go to any). The third friend's arbitration does not need an enforcement device. I would like to differentiate such arbitrations from those done through a government. Such examples abound in real life. With a little amount of reasoning, the reader can figure out that educational institutions, the media, standards of measurements etc. can provide such arbitration. Essentially, such arbitration devices provide co-ordination which are for both individual and societal benifits.

Not all kinds of co-ordination are for both individual and societal benifits. Individually, each of us (or many) may prefer to drive to work without stopping at red lights. If a sizeable set of individuals are allowed such rights, others in the group (or society) may simply not be able to go to work. From the point of view of societal benifits, it therefore may be better to make almost all of us stop at red lights. However, without enforcement many may prefer to jump red lights leading to accidents and hence greater societal losses. In other words, without enforcement it may be better not to have traffic lights at all. Arbitration backed by enforcement is needed to solve various co-ordination problems where individual and societal benifits diverge. Common examples are crime, pollution, transactions within a firm, transactions in future (as well as present) markets etc.

Till now, we have talked about governments but not about governance. Let us define governance as the act of arbitrating and enforcing the arbitrated solution. It is often the case that though we may agree on governments, i.e. the institution, we may disagree on who should govern through a certain government.

Before proceeding any further, let me clarify the situation. Assume you are one of the two friends deciding on which movie to go to (we talked about this example earlier). Assume further that you do not have the third friend (we will have reasons to call him a benevolent dictator later on in this series). Knowing that your friend is partially informed, would you give him the power to arbitrate (decide on the movie) coupled with enforcement authority (like locking you up in a room for two days if you do not follow his order)? Probably not, at least if you value his friendship. However, you may agree to do the following. Knowing that both of you will go for several movies in the future, you may allow for alternate arbitration over time. This by itself, may not be enough. For, after deciding on the movie today he may want to decide again tomorrow. To avoid such behavior you may want to decide on an enforcement mechanism. You say,that if such a thing were to happen you will not remain friends. If friendship is valued then the 'government' along with 'who will govern' will work, otherwise not.

Before the advent of capitalism, most groups had governments and governance structures like the one mentioned above. We shall turn to some examples in the next part of this series.