You captain a ship. You used to be a pirate. That was before there was the state monopolized the use of force on the high seas. You became a merchant. Then a privateer. Now you're a naval officer.
- You're American.
- You're British.
- You're French.
- You're Russian.
The Age of Discovery is drawing to a close. Exploration is making way for exploitation.
You arrive on the shores of Japan. Japan is a backwards land inhabited by violent, rude, noisy people. It is your moral imperative to bring them the enlightened values of Science, Rationalism and Christianity.
Japan refuses to talk. You land marines in Edo. Japan agrees to talk. What concessions do you demand of the Japanese government?
Your job is to maximize American/British/French/Russian interests. Japan will attempt to play the Western powers against one another. A united front can negotiate better terms than a divided front.
If you can coordinate with the other Western powers then you can obtain a treaty that maximizes American/British/French/Russian interests at the expense of Japanese interests. If you cannot coordinate with the other Western powers then you will get a treaty that maximizes Japanese interests at the expensive of American/British/French/Russian interests.
In order to coordinate against Japan, the Western powers must agree on what to demand. Unfortunately, the Western powers are mortal enemies.
The British fought the Americans in the Revolutionary War of 1776 and in the War of 1812. The French fought the Russians in a different War of 1812. The British have been fighting the French since the Norman Conquest of 1066. The British (including the Americans, who were British at the time) and the Prussians fought everyone in the Seven Years War.
If you fail to maximize your nation's interests then you might not be granted extraterritoriality. Without extraterritoriality, your nation's right to break quarantine might not outweigh Japan's desire to keep 100,000 of its civilians from dying of cholera.
Most Favored Nation
How do you coordinate with your enemies to present a united front against the Japanese in negotiations? You write a smart contract.
Specifically, you demand that any concession a rival power negotiates with Japan is automatically granted to your nation too. For example, if the Japanese agree to impose no import tariffs on German goods then no import tariffs will be imposed on your goods either. This clause is called most favored nation status.
Most favored nation status grants unilateral advantage to your nation. You can demand it unilaterally without waiting for other nations to do the same. The same goes for your enemies. You are are all incentivized to demand most favored nation status independently. Once most favored nation status is in place, a concession granted to one must be granted to all.
Most favored nation creates an asymmetric ratchet. If a single Western power demands new concessions then they are granted to all most favored nations. If the Japanese demand new concessions then they must either revoke most favored nation status against one nation at a time with a single nation or they must impose terms on all most favored nations simultaneously
- If Japan revokes most favored nation status against a single Western nation then that nation is massively incentivized to attack Japan because otherwise it would be at a disadvantage relative to its adversaries.
- If Japan demands new concessions from all Western nations simultaneously then that would trigger unified hostilities from all most favored nations simultaneously.
All of the most powerful Western nations end up demanding identical terms. If Japan tries to punish a foreigner for violating Japanese law on Japanese soil then you and your rivals can all gang up on Japan. Everybody wins.