July 7, 2017

The Liechtenstein Model: Governance as a Service

Andreas Kohl

Andreas Kohl

The policy initiative outlined in this essay is based on the ideas espoused by His Serene Highness Hans-Adam II, the Reigning Prince of the Liechtenstein, and enacted in the Principality following the constitutional referendum held in 2003.

Article 1, paragraph 2 of the Charter of the United Nations defines one of the purposes of the UN as “To develop friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples”. The general contention of this essay is that respect for the self-determination of peoples has extremely beneficial socio-economic implications, and should therefore be promoted even more strongly as a desirable government policy.

Several of the arguments presented to this effect were inspired by Prince Hans-Adam II's political treatise The State in the Third Millennium (2009) as well as from a selection of supporting literature, or consist of logical deductions and relevant historical observations that illustrate the desirable effects of such a policy.

Introduction: Liechtenstein's Constitutional Reform of 2003

In March 2003, a constitutional referendum was held in the Principality of Liechtenstein. The proposal included two important democratic amendments: One meant to give citizens of Liechtenstein the possibility of impeaching the Princely House through national referendum, and the other recognising each municipality's right of self-determination, as well as outlining the process for evoking a local referendum on independence from Liechtenstein. 

This proposal was approved by 64% of the voters, and was subsequently made into law.

There are 11 municipalities (also referred to as “communities” or “villages”) in Liechtenstein. The smallest community, Planken, has a population of around 400 people, while the most populated, Schaan, counts with around 6,000 inhabitants. This means that in theory, if the people of Planken wished to secede from Liechtenstein and become an independent state, this would only require the consent of half of eligible voters in the community, that is to say, less than 200 votes.

To this day, there have not been any municipal referendums on the matter of independence, nor is there any record of any popular campaigns in favour of holding such a referendum. It is fair to say that such a measure is very much regarded as a last resort, especially in light of the numerous other avenues for political appeal that are made available to citizens under Liechtenstein law.

Historical Analysis: the Right of Self-Determination, a Recipe for Peace and Social Harmony

Matters of national identity and social belonging are of great importance, due to their tendency to escalate towards violent conflict and civil unrest.

Several different types of minority groups exist; to name a few, there are ethnolinguistic minorities such as the Basques in Spain and Kurds in the northern middle east, ethno- religious ones such as the Irish Catholics during the Anglo-Irish War and Palestinian Muslims in the ongoing Israeli-Palestinian conflict, or even persecuted political minorities such as communists during the 20th century's so-called “Red Scare” in many Western countries.

What all of these groups have in common, is that some members of these minorities have, at one point or another in time, resorted to organised acts of violence and even terrorism, in the name of their collective group struggle. These aforementioned examples are only a very small sample out of the innumerable cases throughout history where denial of self- determination has led to social catastrophes and even all out war. 

Albeit regrettably few, due to the so far undeniable propensity for governments to suppress minority separatism and impose majority rule, there are also a number of instances where the scale of social unrest was minimised, or even completely avoided by recognising a minority's right of self-determination and eventually their independence.

One such case that comes to mind is the Maltese independence from Great Britain, which was peacefully established following a constitutional referendum in May 1964. Despite only being approved by 54.5% of voters following heated internal campaigns on both sides, the respect for the democratic process that was ultimately displayed by both Britain and the Maltese opposition ensured that Malta could enjoy one of the most peaceful separations from the British Empire relative to other former colonies which were not as fortunate.

It should be noted that the right of self-determination doesn't necessarily need to be exclusive to one region with respect to its sovereign nation; similar arguments can be applied to the ability of parts of an administrative community (particularly in the case of more or less significantly devolved regions) to split into two or more administrative entities.

One such example was displayed in the second half of the 20th century, during times of unrest between the French-speaking Catholic minority and the German-speaking Protestant majority in the Swiss canton of Bern.

Although the conflict was allowed to escalate to the point where bomb attacks were carried out by a short-lived radical element of the French community, which at the time wished to accede into France, the Swiss central government finally put a peaceful end to the situation by allowing a referendum on splitting the canton.

The canton of Jura was thus created in 1979, and Switzerland successfully prevented any loss of land to France. There were some French-speaking communities that chose to remain in the canton of Bern, which is still one of Switzerland's few bilingual cantons, although some of these eventually changed their minds and ended up joining the Jura several years later, after witnessing its great economic success.

Furthermore, even in cases where a referendum on independence is unsuccessful, the very act of holding such a referendum can be seen as a way of solidifying existing unions and preventing the consolidation of separatist sentiments into socially disruptive movements.

This is reflected in the fact that following the unsuccessful 2014 referendum on independence held in Scotland, opinion polls have consistently depicted considerably lowered demand for Scottish independence (amongst residents of Scotland) than on the date of the actual referendum.

However, demand for a second Scottish referendum on independence did resurface somewhat following the British referendum on leaving the European Union, which succeeded despite widespread opposition in Scotland and Northern Ireland. The possibility for Scotland to hold a second referendum was anticipated and shows the collective bargaining power derived from the right of self-determination, as Britons who wish for Scotland to remain in the United Kingdom will have had to take this into consideration when casting their vote on the EU, and will continue to do so going forward with the separation.

To some extent, the majority of England and Wales have demonstrated a preference for leaving the EU over the interests and therefore continued membership of Scotland and Northern Ireland in the Union. Were Scotland or Northern Ireland allowed a referendum on independence following the UK's decision to exit the EU, it would then be possible to measure whether the people of each respective region prefer to remain in the EU over maintaining their membership to the UK, therefore allowing large populations to voice a much more complex set of preferences than they would with either referenda alone, all of which would ultimately promote a relatively peaceful resolution based on compromise over potentially violent protest.

Competition and the Right of Self-Determination: Further Socio-Economic Benefits

Aside from the obvious economic advantages that derive from the prevention of civil unrest, the right of self-determination also plays an important role in promoting fiscal and regulatory competition.

It is important to note that secession is not typically a very affordable process, or one that can feasibly be repeated to no end and at any scale. A community that newly becomes independent usually loses access to treaties and trade deals that had been negotiated by their previous sovereign entity, and therefore needs to renegotiate their way into the global economy, with terms that might not be as advantageous to them than those that had been set by the leveraging power of their more powerful former State.

It may also possible for a community to join another pre-existing jurisdiction which may have an even better access to global markets than their previous jurisdiction, however, even in this case, there could be entry costs imposed by the new nation, either directly or indirectly through the requirement to comply with a new legal framework that such community might not presently adapted to.

Given that discontent over a specific government policy or budget is sufficiently strong to warrant the costly process of separation, a community should be able to become independent or join another pre-existing jurisdiction where these perceived threats to their interests do not exist.

That being said, if such a possibility exists, it is likely that the market pressure, implicit and explicit, that governments would face in having to compete with other governments (both current and potential) for governable territory would be sufficient to gradually drive the administrative costs of governance down to a minimum level.

In the same fashion that competition drives down production costs in any other industry, the Liechtenstein Model would eliminate a lot of presently wasted resources by drastically reducing levels of unneeded bureaucracy, while also forcing majoritarian governments to be a lot more conscientious about minority populations.

Moreover, it should be expected that such a competitive environment, following the Liechtenstein model, would probably lead to an increased rate of democratization and would subsequently maximise the avenues of political action or appeal that are available to the average citizen, as it has in the Principality. For example, reducing the barriers for evoking a national referendum or plebiscite, creating channels that would facilitate communication with legislators and other decision makers, and streamlining the process of impeachment and the devolution of powers to local levels could all be initiatives that a central government may implement in order to dissuade communities from seeking independence.

To a certain very limited extent, this kind of competition is already built into the current model of state sovereignty, through the possibility for constituents to migrate to different jurisdictions, and the economic threat posed by mass migration of taxpayers. However, a migrating taxpayer faces a multitude of costs, both tangible (e.g. moving costs) and intangible, such as the cost of leaving behind family members or a sentimentally valued homeland.

It can be argued that the personal costs of migration to each individual taxpayer can often be even greater than the cost of secession would be if distributed amongst every individual of a community that would, given the chance, vote to leave its parent nation.

Furthermore, the culmination of these aforedescribed costs may also impede the process of returning to one's native country following a politically or economically motivated migration, regardless of whether said country is now perceived as having improved on these factors, hence making the prospect of reform less attractive or rewarding for a struggling nation undergoing what is sometimes referred to as a “brain drain”.

In these ways, the current territorial monopoly model of most nation-states makes fiscal and regulatory competition relatively costly and ineffective, allowing dysfunctional, inefficient or even tyrannical forms of governance to persist for extended periods of time despite causing economic and social stagnation or regression in many if not all of their territories.

In fact, the worst forms of governance can be associated with countries that have the relatively highest costs of emigration, and hence facing the least competition for their citizens, not to even mention territory. The Democratic People's Republic of Korea and the Republic of Cuba come to mind as being some of the countries that restrict the departure of its citizens the most, and are also widely considered as some of the least desirable places to live in. This further suggests the asserted correlation between levels of governmental competition and effectual governance.

The Liechtenstein Model: Democratic Merits and Implementation

Meanwhile, the government of The Principality of Liechtenstein faces implicit competition for the patronage of the entirety of its territory, and enjoys the 2nd highest GNI6 per capita and the highest GDP per capita in the world. Each of the 11 constituencies in Liechtenstein enjoy a great deal of autonomy and are constitutionally guaranteed the right of self-determination.

It could be said that if none of these 11 communities seeks to join Switzerland, Germany, Austria, or become independent, that is because the central government of Liechtenstein offers them the best possible outcome relative to all of these other possibilities.

Interestingly, when the Reigning Prince of Liechtenstein, His Serene Highness Hans-Adam II, first proposed a constitutional amendment that would recognise the right of self- determination, he initially envisioned it being applied on an individual level.8 It was only after very significant opposition from the parliament that he modified his proposal so that it would apply only to whole villages. 

As he would go on to explain in a political treatise released several years later, his radical vision for a redefinition of the structure of the State was the result of his analysing the philosophical justification for its existence.

To paraphrase, Prince Hans-Adam II essentially notes that there was once a time when most states were legitimised by claims of divine right, usually centred around a monarch and his family, but that democracy gradually came to replace divine right as the ultimate justification for the authority of government.

The collective will and consent of the governed, rather than the will of God, became the perceived source of legitimacy of the State. If that is truly the case, as he goes on to argue, size, culture, ethnicity and language do not justify the existence of a state any more than religion.

Indeed, Switzerland exists as an independent state regardless of the fact that Swiss citizens from different ethnolinguistic regions have more in common with the people of France, Germany and Italy than they do amongst each other.

The very fact that Liechtenstein is a sovereign country is also an accident of history, and its continued independence can only be legitimised by the democratic will of its inhabitants.

If, for instance, Germany were to attempt to annex Switzerland and impose its governance on the Swiss, this could only be regarded as legitimate if it was approved by majority vote in a referendum reserved exclusively to the people of Switzerland.

Even if a referendum was held within the combined populations of Germany and Switzerland, a majority result in favour of the annexation would still not serve as a consistently democratic legitimisation. Yet this same principle can just as well be applied to the governance of the Swiss governments on its cantons, or cantonal governance on villages, etc.

Once more referring to the diminutive size of Liechtenstein, Prince Hans-Adam II questions whether there is a rational limit to which the democratic legitimisation of the State ends, and thus advocates for the transition of the State into a voluntary, competitive service company.

While this idealistic solution was probably appropriate in such a tight-knit and already prosperous country as Liechtenstein, which has always enjoyed balanced budgets and a rather small public sector, it may require more thought before it could be applied to countries with more significant public infrastructure and sizeable levels of public debt.

In such countries, questions could arise about how the national debt should be split, and what to do about public investments in areas such as transport and energy, which would likely have been substantially financed by taxpayers in communities other than that which might seek independence.

These dilemmas could, in of themselves, generate social unrest and potential confrontation if not handled with caution. Thankfully, there exists a number of potential solutions that could be applied such that a community seeking independence may be able to achieve their goals without resorting to any violent or otherwise disagreeable means.

The government that the community has disassociated itself from, the “former nation”, might for example offer said community the opportunity to buy the infrastructure (such as rail or motorways, power plants, dams or airports, etc), either outright or over time. Alternatively, it could also maintain ownership of these assets and offer the community access to these properties under the administration of its former nation, and at a cost that would have to be accounted for in the newly sovereign community's budget.

Certainly, all of this could make independence expensive and essentially unviable for several communities in their present condition, and might even create a de facto minimum population size or GDP level for practicable secession. The necessity to make compromises is fundamentally at the core of the principle of democracy, and even of life in society and ultimately of human development.

A community that seeks independence but can not currently afford to secede on its own may thus need to find other communities that also wish to secede and with which it may spread the costs of secession, or it might ultimately find itself unable to secede at all, at least not without making significant sacrifices in quality of life; a choice that some might be willing to make, while others should still be free to retain their association with their current government, hence creating exclaves not too dissimilar from those that currently exist.

Finally, it is worth mentioning that under such a model, a nation-state could not feasibly lock down the membership of its entire territory by investing in exaggeratedly expensive, unnecessary or otherwise excessive public infrastructure; such an overtly wasteful initiative would not only be unlikely to receive democratic approval, but could potentially trigger the secession of several territories, who might for example be offered “territorial asylum” by a third pre-exist government willing to cover the costs related to secession.

Such tactics would, in a few words, simply not be effective at retaining territorial membership relative to the efficient, accountable, and democratic management that would inevitably dominate the competitive market for governance under the Liechtenstein Model.


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