One of the main reasons free market economies don't feel free, is the fact that many forms of knowledge use received special privileges (and consequent limitations), prior to the emergence of modern democracies. The lack of free markets for time and knowledge product, has meant less competition and choice in terms of personal endeavor.
Time based product exists in both practical and experiential forms. What is paramount in this regard? A marketplace for time value would highlight how individuals choose to assist one another, and influence one another, given the vast options that have emerged in recent centuries. Even though both pragmatic and experiential time use are basic in our lives, many individuals end up attempting to offer time based activity to others on non economic terms. How well is this state of affairs turning out? The institution of marriage is a prime example, since it fares poorly when both partners do not have substantive and reliable employment.
Since economic relationships overtook other resource use patterns (especially in the twentieth century), individuals have been slowly losing the ability to negotiate for personal time value. This is especially true as people age - and one's preferences become better understood. Historically, populations become more susceptible to slavery and other non voluntary circumstance, when too few have access to resource capacity or an ability to negotiate time value. Economically, arbitrary limits on time value also translate into reduced non tradable sector activity. Further, there is subsequently less demand for tradable sector activity than would be the case with sufficient economic access.
Knowledge use privilege can be thought of as a form of asymmetric compensation or externally assigned value for specific skill sets. My primary concern is the time based product of non tradable sectors, since diffused social support (taxation redistribution) is beginning to reach a political tipping point. Asymmetric compensation is also associated with the sticky wages which contribute to job loss in recessions, for both tradable and non tradable sectors. Regular readers know that I support the asymmetric time value that fiat monetary policy makes possible. Still, I don't believe this employment and market option is enough, to maintain stable and broad economic participation in the 21st century.
It's been more than two centuries, since knowledge workers began to assume a greater role in developed economies. National governments gradually took advantage of new revenue streams that resulted from specialization in manufacturing. Most important was the fact that national governments gained much of their power from the Industrial Revolution, and Georg Wilhelm Friedrich Hegel provided many important philosophical arguments which contributed to the process.
Four years earlier, in an internet discussion, some commenters compared my reasoning to Hegel. Apparently, they thought I was arguing for more state control! At the time, my familiarity with Hegel was quite limited. And I'd forgotten what I read about him in "The Mind and the Market" some years earlier, due to intervening life events that were quite stressful. So after a reread, I found myself grateful to those commenters, for encouraging me to take note of historical developments in the marketplace I might otherwise have missed. Even though Hegel was concerned about individual freedom, he believed the state was the primary means to greater freedom for the individual.
As a result, many observers have mixed feelings about this important philosopher. Jerry Muller, author of "The Mind and the Market", is somewhat sympathetic to Hegel given the historical framework of his era. The specialized labor of factory work which was transforming the marketplace, also appeared as though permanent economic losses at local levels. Nations gradually became more powerful and centralized further. Hence specialization in tradable sectors, also contributed to the asymmetric compensation (and organizational capacity) of specialized knowledge use as well.
Fast forward two hundred years, however, and "the end of history" which seemed certain only a decade earlier, is in doubt. Indeed, the entire "scaling up" process which provided an economic foundation for some of Hegel's reasoning, is winding down. Unfortunately, this has yet to be acknowledged by policy makers. Even though governments may recognize that tradable sectors can't continue (more of) the same patronage for knowledge based endeavor, policy makers continue to seek further avenues for taxation, in spite of already existing levels.
How to think about the fact, that most gains in scale for tradable sectors have already been realized? Paul Graham - in a recent essay - referred to this reversal as The Refragmentation. Even though consolidation of centralized power appeared to be permanent, decentralization processes are likely to become more prevalent in some capacity. The challenge for all involved in the near future, is one of maintaining the more practical elements of economic complexity and coordination that national governments provide. By meeting the challenge head on, democratic extinction events would also be less likely. However, national governments are best equipped to assist global commodity patterns, while local communities are best suited to maintain and coordinate time value and knowledge based resources.
Part of the challenge would involve a reexamination of today's institutions. Only consider how Hegel once stressed that individuals needed to adapt to the newly evolving institutions of his time. If institutions of the present are to retain their economic viability, it will be because they prove able to respond to the needs and desires of the individual. Vital economic complexity could in fact be lost, should power simply devolve to states which mimic the centralized power structures of national governments.
Knowledge use and time based product could make the transition to a more decentralized world. However, the journey to a dual local to global economy would be a fragile road, due to the levels of local sustainability that are needed to preserve economic complexity. Often, knowledge use complexity has declined in the past, when civilizations were unable to maintain productive resource use patterns. Today's patterns aren't the "wrong" patterns. They simply need more marketplace structure, than has been possible thus far.