1. The State, Decentralization and Entitlement, and the Organization of Cities

This chapter discusses how the state might organize an economy where there are advantages to teamwork . This chapter presents a way of thinking about the liberal state that starts from the notion of its antithesis: an all-encompassing state. In an all-encompassing state, every decision in daily life is made by the state: there is no specific protection; no decentralization of decision-making; no rule of law ; no specific rights (e.g., civil, labor, or property) ; no markets or prices; no personal or real property; and little, if any, privacy . An all-encompassing state presumably is cumbersome in operation, slow in deliberation, and highly intrusive in the daily lives of its people. How might such a state become less cumbersome, more responsive, and less intrusive? The state can decentralize or entitle in several ways: establish professional, policing, and judicial systems with some autonomy ; appoint committees and boards with specified discretion ; empower local governments ; foster and regulate (competitive) markets; enable corporations and other economic organizations; enable and enforce contracts among individuals and other legal entities ; recognize and protect (through remedies) the rights of individuals, families , and other legal entities; fund entitlement programs. In this chapter, I explain how decentralization and entitlement enable an urban economy: e.g., in terms of realty , contracts, labor markets, and local government. The big question here is how humankind in its effort to make the state work effectively ends up with competitive markets as we increasingly see them today. In important respects , competitive markets serve the interests of actors in the state better than do cooperative or consensus-based approaches. Understanding the state and how it functions is therefore essential to understanding how competitive markets came to be as they are and how these markets in turn shape the urban economy.