This is sort of a funny topic I’ve been reading about recently, and I wanted to share some findings.  It’s mostly just meant for fun (mental masturbation in the wider sense of “breaking free”) but has some interesting long term implications.

Read on future King and Queens!

First Of All, Why Would You Want To Start Your Own Country?

This is usually people’s first reaction to the idea of starting a country, and rightfully so.

The simple answer is: you think you can make a better one.  Maybe where you currently live the government is annoying you in some way (like wars, taxes, environmental policies, oppression, extortion, etc – whatever you care about).  So after doing some strong letter writing campaigns that don’t accomplish anything, you start to look at what other countries are out there.  If you still haven’t found one you like, people eventually get the idea in their head that they could do better if they started one of their own!

But there is a more complex and serious answer to this as well.  Which is that there is a market for governments just like for anything else.  Allow me to explain.

When you go out for dinner you have to pick a place to eat.  You give the restaurant some money, and they give you some food and service in return.  If the food sucks you won’t go back, and if it’s great you tell all your friends about it and the restaurant thrives.  In short, there is a market for restaurants.  No surprise there.  This idea of “voting with your dollars” obviously works and encourages good restaurants.

But just like restaurants, there is a market for countries. You choose to pay money (taxes) to a government in exchange for some sort of services (military, roads, health care, etc).  And if you aren’t happy with the service, you can always leave and choose to patronize another country with your business.

But people rarely, if ever, choose to switch countries despite constantly complaining about the service.  Why is this?  Why doesn’t anyone seem very happy with their government, but you can find a pretty decent Italian restaurant in every city?  The answer turns out to be that the market for governments is inefficient.

We can see this by looking at two questions, and comparing the restaurant market to the government market:

• How easy is it to start your own?
  RESTAURANT: It’s relatively easy (get investors, incorporate, lease a space, hire some chefs).  Whether you will be successful or not is another story, but it’s at least not that difficult to try if you think you can make a better restaurant.   As proof of this you can see the thousands of new restaurants opening each year.

  COUNTRY: You need to discover new land (not possible anymore, every square inch of dirt on Earth is claimed by someone at this point), conquer another country by force to take their land, or pull off a military coup.  You could argue winning an election for president should be on this list, but that’s not really the same as having your own country – any country democratic enough to allow elections probably doesn’t give the president 100% power to do whatever they want in the same way an owner of a restaurant could.

• How easy is it to switch (as a customer) if you don’t like your current one?
  RESTAURANT: Easy.  Go down a few blocks.

  COUNTRY: Hard.  You’d probably have to quit your job, sell everything you own (house, car, etc), move away from everyone you know (unless you could convince them to come with you), and go through lots of paperwork to establish citizenship elsewhere.

What is the major consequence of this?   Well, it means that, on average, the service provided by governments is worse than the service provided by restaurants.  They can get away with it, because they know it’s such a pain for you to actually leave, and there are few other options even if you wanted to. Simply put, it’s an inefficient market.

To say “on average, it’s worse” may actually be too kind.  Indeed, governments on occasion actually murder thousands of their own citizens, so in some countries it’s not even close.  But even in the U.S. people have still occasionally gotten fed up enough to leave (when the draft was instated during the Vietnam war for example).  Compared to restaurants, the threshold is much lower.  I might not go back to a restaurant if the waiter was rude, or I just like the salsa at the other place.

So how can we make countries more like restaurants and get better service from them? Those two questions above hold the key.  Somehow, you’d have to make it easy for anyone to start a country, and easy for citizens to switch if they saw one they liked better.  Economists would call this lowering “barriers to entry” and reducing “switching costs”.  This is, at the risk of oversimplifying, what makes markets more efficient.  And more efficient markets make for better service because they have to compete against each other to win your business.

Now, you could easily say “but countries will never be as efficient as restaurants, they are far apart, natural barriers, etc, etc…”.  And I agree with you.  But efficiency exists along a spectrum, and the closer we get to the ideal, the more improvement we’ll see in government service.

To prove this to yourself you can take a quick look at cable companies.  They exist somewhere in between restaurants and governments on that spectrum (both in efficiency and service).  It’s harder to start a cable company than a restaurant (more capital required) and consequently fewer of them.  It’s also more difficult for customers to switch if they don’t like their cable company, because there are contracts and only one or two options in most neighborhoods.  It’s no accident that service provided by cable companies is far inferior to restaurants (“your food will arrive somewhere between the hours of 8am and 6pm tomorrow…”) but not nearly as bad as governments (cable companies haven’t murdered anyone yet, that I’m aware of).  My point here is that there is a range of efficiency in markets and it seems to correspond with a range in quality of service.  Any gains in making government markets more efficient would have some benefit, even if they don’t get all the way to restaurant levels.

So now that we’ve seen why someone might want to start their own country, you might be wondering…

Ok, So How Would You Actually Start One?

Let’s look at the three main ways people have tried over the years, with varying degrees of success, and a real life example for each.

1. Build Up A Man-Made Island

Ok this one is pretty hilarious.  In the 1970′s, a group of people (led by Las Vegas real estate millionarie Michael Oliver) took over this “island” that was just below sea-level (and thus unclaimed by any nation).

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