Handbook on Contemporary Austrian Economics

How much order can spontaneous order create 151
commensurate with what modern societies governed by highly functioning
governments generate, this doesn't mean, as is commonly supposed,
that spontaneous order is incapable of generating such levels of wealth.
We must remain agnostic on the question of the comparative efficiency of
spontaneously created social order vs. government-created social order
as a general proposition. Theoretically, there are conditions under which
spontaneously created social order can outperform government-created
social order and vice versa. In practice what matters is the specific situation
that spontaneous order or government operates in, the particular
variety of spontaneously emerged social institutions or state institutions
that exist, and so forth. It would be foolish to contend that all cases of
spontaneous social order will outperform all cases of government-created
social order. Switzerland, for example, would clearly not improve its
situation by moving toward the institutions of Igbo self-governance in
pre-colonial Africa.
But economists are in no danger of coming to such an erroneous blanket
conclusion. The far more imminent danger is coming to the equally erroneous
blanket conclusion to the opposite effect: all cases of government are
superior to all cases of spontaneous order. This idea, though commonly
suggested, is patently false, not only theoretically, but also empirically, as
the case of Somalia highlights. The key factor to consider when evaluating
the efficiency of spontaneously created vs. government-created institutions
of social order is the kind of government that represents the institutional
opportunity cost of spontaneous order. Switzerland's government is quite
a different bird from the government that currently rules the Democratic
Republic of Congo. If the government alternative to spontaneous order in
a particular case looks like, or is more likely to look like, the latter variety
than the former variety, spontaneous order may very well produce superior
outcomes even if under idealized conditions it does not facilitate as
much cooperation as government can under such conditions.
In other words, a "first-best government" - one that successfully
protects private property rights, supplies important public goods, and
does not use its power to prey on citizens - may outperform a "first-best
spontaneous order." But this is irrelevant for assessing the comparative
efficiency of spontaneous order and government unless the institutional
alternative to spontaneous order in a particular case is in fact a first-best
government. Second-, or even third-best spontaneous order, for example,
may outperform second- or third-best government, even if spontaneous
order loses in the efficiency contest when comparing first-bests. Stated differently,
deviations from first-best government may involve larger welfare
losses than deviations from first-best spontaneous orders. even if first-best
government outperforms first-best spontaneous order.