Imagine a scenario in which inefficient governments coupled with the efficient privatization of core services persuaded people to opt for a “user pays” system. Roads, hospitals, streets, lighting, schools – all these services are entirely managed by private companies. People value personal choice over national or ethnic identities, and seek to move to neighbourhoods that reflect their core values and lifestyle choices. Political power now rests with individuals and private sector organizations. Individual responsibility and choice prevail. The private sector is the main provider of collective services.

Citizens use technology to evaluate policy in real time. In this way, they co-design policy and shape their living environment through the choices they make. Governance representatives have strong economic incentives to be responsive. People become more involved in actively volunteering in their communities to shape their living environment.

Social inequality is high. Individuals pay only for what they want and need. Citizens express their preferences by moving to areas tailored to their desires.

To some extent, all scenarios are extrapolations of a trend that already exists. While all of the above could be beneficial in some respects, there are also features that could lead to dystopian outcomes.

We already have many gated communities. Technology is making markets more efficient. More and more things can be done with the use of markets, and that means the role of government, which still has an important role in regulating markets, may be seen as too cumbersome. In that sense, citizens will find that they can use markets to buy goods – say, security – that are in the purview of government as “public” goods, but can now be marketized as “club” goods.

Imagine a gated community hiring guards and providing its own police force, and members can pay for extra guards in their neighbourhood. That is a market transaction. The government of the larger area in which gated communities exist play no role in it. We see this already – and I think there are reasons to believe that it is likely to increase.

The problem that comes with it – the aspect of this scenario that worries me – is what happens to our larger citizenship and to the positive qualities of that citizenship? If we regard ourselves solely as citizens of the gated community, then what’s our relationship to those who live outside the gates? What obligations, what relations, do we have? What will remain of “community” outside the gate?

The second thing that worries me is what about the public goods that are larger than those provided by the gated community itself? Security for the community can be provided by private enterprise, but what about national security? How will that be provided?

There are other public goods that simply can’t be provided at the level of the gated community alone. For example, if we concern ourselves with global climate change, you might say, “Well my gated community will have a very strict recycling programme and carbon taxes to encourage energy conservation”, but that’s not going to solve the problem of global climate change unless you can coordinate similar policies across all gated communities. And that, we know, is one of the classic problems of providing collective goods. How will we produce collective goods for issues and problems that are much greater than the gated communities in which we will be living?

Markets can provide a surprising range of collective goods, for example the transportation system, waste collection, education. There are increased roles already for the private sector in providing things for the community that were once the provenance of central government, but there are limits.

When we look at the military, it’s generally argued that it’s one thing to provide the machines that people use – the arms and supplies that keep soldiers alive – but do we really want to return to a world of mercenary armies in which the private sector is essentially killing people in the name of a country? Where is the accountability there? If the accountability is simply to markets, is that sufficient? We saw an example of this when guards from private security firms in Iraq killed a number of Iraqi citizens in 2007. That isn’t the way we want to organize that aspect of the common good of security.

One of the worthy things that comes out of a system like this is that markets are very good at allowing people to refine their preferences. If you want something, and somebody else doesn’t, you can find a price to be able to have it. Government services tend to have a “one size fits all” system that may not meet the needs of all citizens. Market provision allows people to satisfy different preferences in a way that is better for everyone.

The problem of course is that some people start out with a lot of “chips”, and are able to use the market. Others start out with nothing and are priced out of the market. This scenario privileges those who have “chips”. So there needs to be ways to set some limits on the initial provision of “chips” to deal with the inequality, before you use the market to maximize gains for all.

Sometimes you can have a nice mix in which the government role is to set the framework for the markets, but the markets do the actual provision. Markets and private sectors are far more efficient at the provision of goods. There is a metaphor – government shouldn’t be rowing the boat. Markets should be rowing the boat, and government should be steering with the tiller.

The ideal is a world in which the bulk of the burden is being carried by private sector actors, and the role of government is one of coordination and management. This doesn’t always work in practice, but at least it gives a reasonable framework within which to think about gated communities. The question to ask then is, “How do we combine the things the markets do best with the things that governments do best?”

Author: Joseph S. Nye is a university distinguished service professor at the Harvard Kennedy School of Government and chairs the World Economic Forum’s Global Agenda Council on the Future of Government

The World Economic Forum’s Strategic Foresight team and the Global Agenda Council on the Future of Government have developed three scenarios of how the world of governance could evolve by 2050: CityStates, e-1984 and Gated Communities.