| | You said, "Relying on a system to keep the state in check will always fail." That is a bald assertion - and an act of faith to rely on it.
So you believe that a legal system can be created to guarantee liberty for a society that, for the most part, does not value liberty?
Sorry, it's not any system, but the general attitude of the populous, that determines the character of its government.
"free market government" has to remain a contradiction in terms unless you want to redefine "free" to mean something else. Actually, any individual, business or organization acting in good faith, i.e., acting without aggression, is an example of free market government. There's no reason an agency of civil governance cannot also be a free market government.
The free market can be looked upon as a vector component of the total market; it exists everywhere that some human actions and interactions are of a voluntary nature; even in jail or in North Korea.
You said, "Different sets of laws wouldn't be a problem for competing court systems since both parties to a dispute would have to agree to use a particular court or allow an independent third party or their police agency, if they used the same one, to decide on a court for them." Who sez they have to agree? We go the law, to the police, to courts, to arbitration when we do NOT agree. It would not only be A problem, it would be THE problem why your system would never work. Anyone could resort to violence, or ignore a reasonable dispute, or not agree to the resolutions or decrees of a court/arbitrator/etc.
Under the jurisdiction of the state, all these problems you describe exist in abundance. Unlike a free market based civil government the state has no incentive to protect or enforce people's rights; in fact using its very failure as an excuse to raise taxes and expand its power. The state claims that the police have no duty to protect you; their only obligation is to enforce the law and that you can't sue them for refusal or failure to do their ostensible job. Their obligation is not to the tax slaves, but only to the state. If "war is the health of the state", then so is failure. The criminals thrive, while innocent people are punished and jailed for breaking statutory laws that have no victims.
Predicting how the market will solve problems is impossible but here's how some things might work under the voluntary model of civil government:
1.You have a dispute with someone or some organization.
2.You present your case to them and try to come to some mutually acceptable settlement.
3. If you can't come to an agreement to settle:
a. You can make an agreement to settle the dispute in a particular court.
b. Failing that, you can sue them in your court.
c. If they become threatening or violent, you call your police agency to protect you and then you sue them in your court.
4. If they use a different court, they can:
a. Come to your court anyway, because it has a good reputation.
b. They can ask you to come to their court.
c. If you can't agree on whose court to use, then your court and their court can bring in a third, neutral court that they find mutually acceptable.
If they refuse to come to any court, choosing instead to take the law and their self defense into their own hands, - while they might have the right to do this, they would find that there are great disadvantages to rejecting civilized order - your court would find in your favor, by default and you could have your police agency enforce your court order.
Unlike the state, the court and police agencies, being businesses, would have every incentive to cooperate with each other, while treating their clients as pleasantly and respectfully as possible.
Unlike the state, they would be mindful of the rights of their client's opponents, even the rights of the fools that take the law into their own hands, because they would be liable for any unjustified harm that they might inadvertently inflict. Careless disregard for anyone's rights could result in unacceptable liabilities.
You said, "...competing businesses would seek to attract business through a reputation for efficiency, honesty, fairness and just decisions." Yes, some would. And some would appeal to people who would be willing to get ahead by bullying others, or slipping around the 'rules'. And even two honest people, signed up with two honest, efficient, fair agencies can still disagree and have no common set of laws - single set of laws - that will resolve the situation - leaving them only force as a last resort.
You said, "If an agency tried to act disreputably, engaging in gang-like tactics, fraud, blackmail, violence and creating laws by fiat to favor a special group, they would lose their clients to competitors and be treated by reputable police agencies as the criminals that they are and possibly subject to military action, if they are deemed to be an incipient state, by military agencies subscribed to by the smaller police agencies." That can be viewed in two ways: pure fantasy, or as a description of an inevitable acceleration of disagreements into civil war.
I addressed some of this already so I'll just skip to the issue of rogue agencies:
If there was enough demand for rogue agencies to bring about civil war and the rise of the state, then that would, no doubt, be a reflection of the general moral decline of society. As I said before, "What is true is that we get the government that the market demands."
What could bring about such a situation? It's hard to say.
If there will ever be a self sustaining political system, a stateless society of voluntary civil government would come the closest, as all the incentives would be in favor of an evolution of the individuals and organizations toward a respect for the rights and liberties of others.
If something unforeseen does bring this about, then we can only hope that future generations will learn how to guard against its repetition.
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