Governments today face largely the same problems as businesses. The key challenge everywhere is not to downsize per se, but to compete more effectively by delivering the highest value for whatever they charge, in an environment where people increasingly have more say as to whether they're willing to buy it at all.
Consider a world where each of us in fact could just "buy" the government we want -- not the old-fashioned way, with a bribe to a well-placed official or a hefty campaign contribution to a politician, but the way you'd buy a new consumer product.
You would select the size and capabilities you want from a producer you chose. Of course, it would probably come with some annoying features you wish you could eliminate but are included anyway, either because others tend to want them or the provider itself just thinks they're good for you. Isn't it that the way with government -- not to mention several major high-tech companies?
Once you bought the model of your choice, you'd be able to tailor its use to your needs. It would help improve your quality of life, increase your productivity, provide valuable information -- and you'd be able to use it just about anywhere. You'd be able both to send and to receive information, to share with others, to follow the crowd or go your own way.
Alternative products might also pop up from time to time, requiring the government you purchased to update its product and services, or lower its prices, or perhaps even provide better customer support. And being at the cutting-edge, your government would be functional, streamlined, and -- perhaps coolest of all -- it wouldn't force you to indicate your choices through those old-fashioned buttons with arrows pointing left or right. Instead, you'd be able to command it by rotating through a variety of positions and going in whatever direction best suited you -- like the control wheel of an iPod.
Sound bizarre? Perhaps, but I believe this sort of "iPol" is coming soon to a world near you.
The modern nation-state is one manifestation of "government," and its dominance has conditioned us to think of the two as synonymous. But the provision of governance has long been available from entities other than the state, and territory-less "governments" -- from churches to the mafia to colonial-era "extra-territoriality" treaties -- have long governed many aspects of their "citizens'" lives far more effectively than the state in which they physically live. This is true of many private businesses, as well: Facebook has many of the attributes of a government (and "an approval rating close to that of the IRS" to show for it).
At the same time, Facebook is part of a larger tech phenomenon reducing the importance of place in human interactions: You can create your own electronic community on Facebook, while virtual worlds like Second Life have their own governments, economies, and currencies. Commercially available virtual government cannot be far behind.
Governments in fact have been facing non-virtual commercial competition for quite some time -- and losing. Businesses and wealthy individuals are turning increasingly to private-sector alternatives to what has long been regarded as government's primary (if not sole) function -- public safety. There are more private security guards than police nationwide, to say nothing of gated communities and citizen patrols. The trend is the same in primary and secondary education, long viewed as fundamental governmental responsibilities in this country. Not surprisingly, as people turn to private-sector alternatives, their willingness to pay for (arguably inferior) governmental products wanes: Americans have "withdrawn" from traditional governmental services where they have found more attractive alternatives. The range of areas in which private alternatives to government services may spring up is almost limitless. As Foreign Policy observed, as soon as former Secretary of State Hillary Clinton defined her strategy as building up American "smart power," "Defense contractors soon look[ed] to cash in, building their portfolios in health and human rights."
Health care for the world's poorest and human rights for the oppressed as private-sector businesses? Where there's money to be made, a commercial alternative will emerge. But core state enterprises are subject to increasing non-commercial competition, as well. Many in southern Lebanon willingly receive social services and other incidents of modern government from the terrorist group Hezbollah rather than from the official government. Al-Qaeda presents many Islamic radicals with an even more extreme -- and arguably more effective -- non-territorial alternative to the nation-state for purposes of waging war.