Two of the main questions asked by statists about Anarcho-Capitalism is, “Who will defend us?” and “Who will handle the court system?” For the answer to the first question please see my articles “Defense and the State,” “Costa Rica and Defense,” “Liechtenstein,” and “Maritime Defense.” In these articles I show real world examples of defense that’s not being provided by the state, and that the people living in these territories are thriving and prosperous despite being located in some violent and dangerous points in world history. For the answer to the second question let’s look at the issue of private courts.
This is one aspect of Anarcho-Capitalism that seems to have become extremely popular. The American Arbitration Association (AAA) hears over 2 million cases each year, and hundreds of thousands of cases are heard every year by other agencies and individuals. The exciting thing about this statistic is that every year millions of people are opting out of what is allegedly one of the most important roles of government (for those who believe in government). I doubt many of the people involved in these cases are Anarcho-Capitalists. So, why would they chose a private alternative over the state system? For those of us in the liberty movement the answer is obvious. The government tends to be incompetent at best, and evil at worst. People instinctively recognize this, and shy away from the option with a monopoly on violence at all costs.
The majority of arbitration cases are business related disputes. This makes perfect sense because commerce is based on voluntary exchange. So, when a dispute arises the preferred method of resolution is voluntary, rather than a state backed court, which can impose harsh penalties backed up by armed men with the power to place people in cages or confiscate property.
A common question that arises is, “How are private systems of arbitration enforced?” The simple answer is they usually are not. That’s the beauty of voluntary association. No one holds a gun to your head to force you to do anything. So, why would the losing party abide by the ruling? As anyone who has worked in the private sector knows, a company lives and dies by its reputation. A firm with a bad reputation does not stay in business for long in a free market. If you are seen as unreasonable, or unfair, why would a customer want to do business with you? Especially when they have the option of using a competitor with a better a reputation?
The same goes for individuals. The most important thing you have in life is your reputation, and no one wants to be seen as unreasonable, irrational, or incompetent. Even the people I have known who are unreasonable, irrational, or incompetent do not tend to see themselves this way. Their delusion is often times protected by some faulty feed back mechanism. In other words some person or organization protects them from the consequences of their actions. This can be done by a person’s position in an organization (a bureaucrat who cannot be fired), a protected legal status (diplomatic immunity), or some other benefactor who is immune to their behavior (a spoiled child who is protected by their parents). This concern for reputation is ultimately what binds decisions in arbitration. I would also argue that it is what makes civilization possible.
Often companies and individuals involved in arbitration will continue to do business with each other. The last company I worked for was a firm that specialized in custom engineering. Private arbitration was called for in our contracts as the method of dispute resolution with our customers. We were involved in numerous arbitration disputes with customers that we did repeat business with. Both sides had things they were unhappy with, but ultimately each side found the business relationship profitable, and decided to carry on.
Other key reasons private arbitration is used is disputes are resolved faster, and both parties can chose an arbitrator with specialized knowledge in their area of expertise. What does the average judge and jury know about mechanical engineering, computer programming, consulting or music? If you have a dispute with someone, chances are you want them making an informed decision based on the facts. If the person deciding your case has no knowledge of your industry they may make their decision based solely on emotional appeal. To fill the niche in this market arbitrators have arisen who specialize in nearly every field imaginable.
The market is already rising to meet the demand for arbitration.