The Anarchist Society vs. the Military State: The Insignificance of the Free Rider

0:00My paper is The Anarchist Society vs. The Military State, The Insignificance of the Free Rider. I'll be talking about a ceteris paribus situation, where there's an anarchist area and a government-controlled state, and the state is invading the anarchist area, and how would an insurance-based private defense defend in such a situation, and especially looking into how it would be funded through capital markets, analyzing the insurance industry as it is today and looking at the idea that there would be free riders in the defense, that some people would gain, would pay for the defense while other people would free ride and this would create a problem that the defense would be too weak and I'm going to try to prove to you all that the free riders is not just not a problem in itself, but even if there was a free ride or the capital markets are strong enough where insurance paid by a few could cover the costs.

1:06So in order to begin discussing what a private war would be like, we have to consider that the objectives are going to be much different than a regular war. The state wants to conquer, but on the other hand, a private defense company representing the claims of an insurance company has no incentive to conquer the state, for example. The only incentive it might have to conquer the state is to just disturb it politically. Its job is to dissuade the war. The private defense company would fight almost with similar objectives to guerrilla warfare where you're trying to disrupt the state politically to make the war inviolable to them. You have to threaten the power of whoever is controlling the state or the other option is to have such a large army that you can actually beat the state from ever achieving its military objectives One of the differences in the war, though, is that as the private company has different objectives from territorial claims, we have to also remember that the state is going to change its objectives, because the state, when two states fight, one state will attack the other one, and you're going to take the infrastructure, you're going to take government buildings, you know, whether it's the military or the military.

2:32The problem is if you're attacking an anarchist area, none of these things exist anymore, and you're fighting a company, so your objectives have to change to not just conquering the area, but bankrupting the company, which would change how you would fight the war entirely, and one problem that this could create would be that the insurance company could actually cause more damage to the company, Let's talk about the damage to the people that insurers, which I'll explore, because, for example, imagine a situation that the private defense is defending a block of insured property, and you have government troops that are fighting with them, and if they lose this block in a regular state versus state war, they might just take the block and go to the next block and fight, but if your block is entirely insured, you have a problem that if the private defense loses, they're going to take the block, and then they're going to set the entire block on fire, to further attempt to bankrupt the company and it almost creates an incentive for the state to do as much damage as possible.

3:41So the private insurance company has to decide if a war is even viable because that's its obvious weakness that can be driven to the point of bankruptcy. One example of the World Trade Center, when it was destroyed, it was $80 billion worth of damage and $40 billion was insured. So the question is, if somebody were to attack, like an army were to attack New York, which was supposedly heavily insured, how many skyscrapers would you have to destroy before the company gets bankrupt? So, the idea is that they have to always keep up a big enough defense to always dissuade the state from ever attacking, that it's its best option, because it doesn't even want to engage in conflict.

4:38Even in the process of defending, it's going to cause damage and destruction. You can't have a war in your territory without, you know, something being destroyed. Plus the Costs of just operating the Army. One common argument against the private defense, that since it is a profit sort of entity, that it would not defend when the costs of the state taking over were less than what it would cost to defend the area. But looking at it from a profit perspective, we can't assume this because let's say you have an anarchist area and you have an insurance company there and there's this state that's attacking you and they have relatively low taxes, maybe like 10 percent.

5:29So you would think reasonably that you could make a calculation that, you know, a defense will cost us 30 billion dollars. These taxes will only cost us 20 million over 10 years that it's better not to fight. But the problem is that the private defense company is dealing with a non-market force, that it's dealing with a government that can assert whatever it wants, in the similar way that when the income tax was started in the U.S. in 1914, the highest bracket paid 7% and four years later paid 77%. So those calculations are impossible because the company could calculate it's going to cost us $30 million to defend, The taxes are going to be 20 million over 10 years, but then they could be conquered and the taxes are changed to, you know, a hundred billion worth to them over, you know, however many years or all kinds of restrictions can be taken.

6:28And even like the U.S. has price controls in Iraq and those sorts of things. So you never know what kind of actions an invading government is going to do, even if you let them conquer peacefully. What kind of taxes and how that's going to affect the general economy. And you have to assume immediately that obviously it's the government that's attacking is not friendly. So, you know, your chances of being treated fairly are even far less. Another reason that the company may fight beyond its profit motive is just for the reputation of the company. Suppose a small area was being defended, well attacked, where there weren't many insurers, it's going to look very unfavorably to the company if that company decides not to defend that area, that if they don't act on the small area where there's few insurers, insured people in other area may switch to different insurance companies because they've seen that in a time of trouble, this insurance company is not going to be there, so we better switch to somebody else.

7:36So even beyond profit motive, there's a question of there's a possibility the insurance company will still fight. And as far as fighting back, as I was saying, the insurance company, the insurance company will try to politically, through its private defense, politically dissuade, Insurance would be ready to counterattack and kill, whether with long-range precision weapons or assassination commandos, state agents from the top of government, hierarchy of king, president or prime minister, on downward, while seeking to avoid or minimize collateral damage or property of innocent civilians, non-state agents.

8:29They would thereby encourage internal resistance against the aggressor, promote its de-legitimization and possibly incite liberation and transformation of the state territory within a country. And this sort of destabilization of the political and government forces, an example I thought was most like that in modern war would be maybe the Kosovo conflict where we just did precision, Well, we did precision strikes of infrastructure, of government buildings, of things controlled by government officials. There was a lot of impact on, there was targets which were definitely questionably military targets attacking lots of the economy, but we never actually put in ground troops into Kosovo.

9:19In 90 days, the US was able to politically dissuade the actions of Serbia and they were also able to change the political climate there where once it came around to election time, I think a year later, he was ousted and then later on his own people turned him into the Hague. So a similar thing could be done where there would be a strategy of of just attacking the entire legitimacy of government, you know, setting the blame form on anything and pretty much just even attacking them as the main targets. And as now in the absence of the free rider part, the thing is that other riders didn't look at is that we have to remember that this is an insurance based private defense.

10:14So that doesn't mean that you're paying for your private defense in the same way that you pay for a security guard at a building. You're paying the insurance company, which is in turn paying the private defense. So that means that the person who doesn't have insurance doesn't free ride on the benefits of the insurance. He may free ride on the benefits of the defense, but he doesn't free ride on the actual insurance itself. So, for example, I thought of a situation where, let's say, we're going to look at how the person who doesn't pay for insurance and the one who pays are affected by the war. So, if the state wins, the guy who doesn't pay, he loses all of his freedom, just like anybody else.

11:06And the second part is that he suffers all damages during the war. So if there was a war going on and your house is insured and it's damaged during the combat, if you are insured, you get your damages paid for. But if you aren't insured, the conflict is still going to be going on around your house. And if your house is damaged, that's it. You know, you're not insured, there was a war and nobody's paying for your stuff. So if the state wins, the guy who pays, he could be a target of more damage because he is insured. But at the same time, even though he's a target of more damage, he's compensated for all of his damage. So it's a very different thing that the guy who doesn't pay doesn't free ride on the damages of war at all.

11:54Where the guy who does pay for insurance-based defense, he gets the defense and he gets paid for any damages that he incurs during the war. where the guy who doesn't pay may get some defense as far as proximity that if one house in a neighborhood is insured or a few are, and there's kind of like an uninsured one in between, he may free ride on that aspect, but if any damage happens to him, he doesn't free ride on that. And same with if the anarchists win, if you paid for insurance, everything you have that was damaged is insured, But even if you don't pay all the damages you suffered during the war, you have to take for yourself. Another advantage of being insured where the free rider doesn't gain is that in the situation that the state does win over the anarchists, is that the insurance company can pay settlements to its insured clients.

12:57For example, now when we see a war ending, we see refugees crossing borders, coming to refugee camps, facing extreme scarcity. Well, that's what you would see with the people who weren't insured, but the people who were insured would have just gotten settlements from their insurance company for damages from the war and whatnot. So it would be a very different picture of the picture of the free rider leaving in a refugee camp compared to a insured person The house is gone or his country taken over but he would at least have a settlement some money to start off somewhere new. So I'm going to talk about some of the strengths and weaknesses of the private defense that are commonly talked about.

13:47One issue that I wanted to address is lots of libertarian writers have this idea that the private defense will be automatically better because private companies are far more efficient and therefore they will beat any sort of state army. Well, I think this is just not looking into it enough because nothing is stopping the state from hiring its own private army to fight the private army of the anarchists. So it's kind of like a way of completely canceling out the private efficiency part where they'll put it on equal ground. And the other kind of private advantage that's talked about is, well, naturally, the anarchist area would have greater economic freedom.

14:36So therefore, they'll have more resources to fight a war and such and such an argument. The problem with this is that we don't know exactly how the market is going to allocate its resources. You know, Ceteris Paribus could be that the anarchist area is utilizing its resources ten times more than the other area, but we don't know if this is going towards private defense, if it's going towards people buying new cars, where the state can tax and allocate resources in non-market desirable ways, and that even with the anarchist area adjusting, it has to start adjusting to the spending of the state, One advantage over a freer market and national defense would be that this would be a big advantage for the anarchists is that which weapons are produced would entirely change, because people always generally want defense, and that's a demand in the market, there's very little demand of somebody who wants conquest, for example, and that's a big advantage for the anarchists.

16:20The market for defensive weapons is extremely behind everything else. Like surface-to-air missiles are just almost like 30 years behind airplanes these days. I think the Iraq war proved that pretty well. Like, instead of the Kosovo war, you know, you don't have like a chance of shooting down in F-15. And the way that the governments were allocating resources is that it's a good example in Iraq. They were allocating towards an offensive sort of format where they had Scud missiles and chemical weapons, but their defensive surface-to-air missiles were Russian-bought and pretty much antiquated.

17:06And when it came to an actual defense, it failed, where in a market it would be completely different. There would be almost no demand for a Scud missile. There would be no demand almost for a nuclear missile unless you were threatened in some situation by somebody else possessing one. And there would be a higher demand in things like surface-to-air missiles and other protective technologies. So after a while, you would have just the opposite where your surface-to-air missiles would be extremely advanced and your airplanes would be less advanced. So it would be almost like the opposite of, imagine, the Iraq situation where we went bombing and we didn't lose one plane. It would be thinking the market would eventually shift to where almost every plane gets blown up and it's the surface-to-air missiles that stay because there's completely different incentives for defense.

18:04One argument made by people as a strength, too, is that guerrilla warfare would be a form of defense. I also kind of wanted to throw out this idea because guerrilla warfare is extremely problematic is that it's almost never a defense, it's always resistance. To even engage in guerrilla warfare, you have to be taken over and then you fight the guerrilla warfare. There's very few instances where there's a front coming in, for example, almost any war like World War II with the French partisans, they didn't stop the Germans at the border, They were conquered and then the partisans got up, you know, started attacking and they were trying to use the same tactic of dissuading politically the invading troops.

18:58Because that's one issue I wanted to look at too, that if there is actually a free rider issue anywhere, it's with partisan resistance and guerrilla fighters. They're very effective, but if you look at the actual numbers of guerrilla fighters, they're extremely small. I found one paper on the Chechen fighters that supposedly there's only 1,800 of them. In the French resistance war, I think there's about 100,000 against the Nazis. They're very effective groups that are just always trying to dissuade the political power, but they have no power to militarily remove the troops out.

19:47It's the same thing as in Iraq. The insurgents are just affecting us politically, but the insurgents are doing nothing to actually remove US troops from there. And they kill a guy here and there. And it's extremely problematic when you run into regimes that are not going to leave. One example would be Ireland, where there's a 200-year guerrilla warfare going on there more or less, and the regime's just not going to leave. And for a private defense, that's not even an option. You can't serve customers and tell them, well, we're going to wage a guerrilla warfare. But the main thing I wanted to look at is the capital for our private defense, well, as far as there would be insurance companies today, and the surplus equity levels of the insurance company today are at $347 billion, and insurance companies can take about 20% of that without having solvency problems, so the capital for private defense is $347 billion, So at any point in time, well, that would be $69 billion.

21:00At any point in time, they can pay out $69 billion easily. Beyond that, they can tap into the other surpluses, but then insurance companies are going to have solvency problems. But the good part, though, still is that even when they start tapping into the additional surplus, In the US, there's a $347 billion surplus before you even get into the reinsurance market and if you start comparing this with military expenditures, like we've spent, I believe, $260 billion in Iraq, well, the insurance companies have, without reinsurance, $347 billion, so as far as if the money is there, it's there and they specifically prepare for extremely high rates of re-insurance.

21:53The way insurance companies, lots of people think that they run on these extremely predictable things of what's going to happen, but insurance companies actually plan always to be prepared for a one in a hundred year catastrophe that they can't, that there's no way of predicting. One of the testimonies I found was about the Northridge earthquake where they were asking the insurance industry on its capability to handle future earthquakes. and the people gathered from the insurance industry pretty much told the government that they could take 10 Northridge earthquakes at the same time, so, and that's just in their surplus, they just act upon what should happen, the probabilities like of how often a hurricane happens, affects more the rate of return they offer to their investors and the profits they make, but their actual ability Another thing I wanted to point out that earlier as I mentioned that the goal of the state would be to completely bankrupt the insurance company would be pretty problematic, too, in just the way insurance companies deal with their insurance.

23:04to completely bankrupt the insurance company would be pretty problematic, too, in just the way insurance companies deal with their insurance. That no insurance company ever places itself solely in one area, that it's the nature of insurance companies to even geographically diversify their risk. The insurance companies, they'll have maybe a certain market share. They'll have a 20% market share and they will stop accepting policies, Even if people ask him, they don't want to sell any more policies that it won't be just one insurance company that you're fighting. You'll be actually... the state attacking would be fighting several insurance companies and you don't know where all of them are from. For example, let's say you were attacking anarchist Luxembourg and there's five insurance companies that are sharing the area.

23:57Well, one insurance company might be a French insurance company, another one might be a German one, you know, another one might be an Italian one. They cover different areas that even if you wanted to attack the insurance company directly, which one do you go to first and where do you even attack it or which one are you bankrupting at the time? And it becomes very questionable on that level. And even the reinsurance markets get even more interesting Because even in the U.S. now, 50% of all reinsurance is done on an international level. So if the state was attacking the anarchist Luxembourg, and let's say they're attacking, they've decided there's, for example, like five insurance companies that are going to attack the one that's from France.

24:47So they're trying to attack the one that's from France, but the one that they're attacking, the company that's from France, could be insured by, reinsured by a company in Cambodia. So for them to destroy the insurance company in France, they'd have to bankrupt the one in Cambodia as well. So it becomes problematic that the state loses complete loss of who the target is. They can no longer, as I was saying, just take the government infrastructure, but they can't bankrupt just one company. They have to bankrupt several insurance companies, and on top of that, they have to bankrupt plenty of reinsurance companies. at the bankrupt private defense companies, and at the same time, at one point, they never know who's who almost like there's sense of a target completely disappears and that in the end becomes the greatest advantage of the anarchist through the insurance and reinsurance markets is that you no longer know who to attack.