25.
THE
CREATIVE
STATE
How do we make a state more creative?
One suggestion that may sound too simple, but which could have an enormous effect, is to eliminate the right to take out unsecured government loans. In the 1700s, the brilliant Irish politician and philosopher Edmund Burke described society as “a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” That sounds right, and the current generation should respect the partnership by not borrowing money, squandering and then leaving the bill for the next generations to pick up. Especially, if they in the process of overbuilding the state destroys society’s growth potential so that these children may have less wealth than their parents and grandparents who borrowed from them. And yet, this is exactly what has been happening, and on a massive scale. To solve this, it should be illegal, by constitution, for governments to borrow, unless it goes to fund defensive war or to finance investments in specific assets, where these, and only these, assets may be pledged as collateral. In other words, if the state borrows money to build a bridge, the lenders would only have this bridge as collateral, and coming generations would not be liable in any way.
As these pay-as-you-go states would always need buffers for stabilization during recessions but couldn’t resort to borrowing, they should have sovereign wealth funds, into which they could tap during recessions. There could be strict, rules for when a government could spend some of this wealth for stabilization purposes and when it must replenish the fund, and if any government failed to meet these rules, that should trigger an automatic election, in which none of the previous ministers are allowed to run for office.
A sovereign wealth fund of around 30% of GDP should be enough for even the worst crises, but some countries such as Singapore have much more (nearly 70% in 2013). Such a model for the management of state finances would prevent public financial crises, such as we saw in 2008-13, and this would instil much more trust in private entrepreneurs and investors. Furthermore, as there would be far less (and ultimately no) government bonds, more money would be invested in private companies instead. This combination of cash and confidence would give a major boost to creativity.
States should also replace the precautionary principle with the cost-benefit principle for approval of scientific research and new technologies. The fact that a new technology may cause problems should not prevent its introduction, if it can be shown to remove even bigger problems.
The centralized state can also stimulate innovation through conscious use of standards, mandates and strategic purchases. Let’s start with standards. States have an obvious position to impose certain requirements and open standards, and the web standards were actually launched by the US Department of Defence, while the GPS system came from the US Air Force.
Mandates are akin to common standards but define a performance requirement rather than an implementation methods. Such mandates are often environmental, but a future example might be that any new car with an internal combustion engine should be able to switch between gasoline and methanol. Methanol has, for years, been trading at far less than half a dollar per litre on the world market and it can be produced from biomass or via chemical catalysis driven by power from the nuclear, wind or solar panels.
States may also stimulate innovation with strategic purchases optimized to stimulate private innovation. For instance, large orders from the US government were instrumental in helping companies like Intel and HP, when they were small.
What about the legal tangle? How can the state make life simpler and reduce the bureaucracy that comes with too many laws and prohibitions? A place to start is working time regulations. There are significant differences between how much and how long different people can and do work. Some would like to work full- time and others part-time while their children are growing up. Some save up to start their own businesses and would prefer, therefore, to work 16-hours a day; seven days a week, and others have already started their businesses and have to work 16-hour days. Some prefer to work to their dying day, while others would rather wind down gradually over many years or stop abruptly when they reach a certain retirement age. So why restrict people with rigid laws that have no relationship to individual preference?
A second proposal is this: judges should be able to toss out any civil suit in just the same way as they must approve a search warrant. A large proportion of lawsuits are frivolous, and many are completely baseless and filed by people suffering from paranoid personality disorders.506
Any government could also establish a deregulation office in government, with a sole purpose of continuously simplifying or abolishing laws and prohibitions. The motto should be: “If we didn’t have this law today, would we then introduce it now?” Such an office should publish independently-audited figures to show how many laws have been implemented and removed in the past year; they should represent this, long-term, in the form of a graph .
The concept of systematically reducing legal mazes has been tried from time-to-time by different governments, and has been popular. The Roman emperor Justinian commissioned a major clean-up of the legal jungles in the sixth century and Napoleon Bonaparte did the same. The Danish government did it in a big campaign in 1982-88, and in January 2011, the American state of Kansas introduced “The Office of the Repealer”, whose only task was to find redundant laws that could be repealed. Similarly, in 2013, the UK government embarked on a determined campaign to reduce the number of laws with the stated objective of becoming the first UK government (at least in modern times) to leave behind fewer laws than it inherited.
However, much can be achieved by having a more conscious process of cost-benefit analysis of new laws, which might be done like this:
Before a Bill is sent for parliamentary vote, it is sent for public consultation via a standard crowdsourcing platform. Here, one might even experiment with letting people try to write the draft law-text together like a wiki. There should also be a forum through which people can present relevant criticism and suggestions.
The Bill is then be submitted to an office for a cost-benefit analysis, including costing of wasted time and money among everyone affected.
If it is implemented, it should be with a so-called “sunset clause” (unless it is a criminal Bill), meaning that it will automatically expire after a set number of years.
Before the automatic expiry date, a new cost-benefit analysis is made, so that the results are known when parliament votes either to renew it or accept the expiry.
Such a process is similar to the routine cost-benefit analysis and marketing control carried out by well-run private companies, and it will draw bureaucrats’ and politicians’ attention to the enormity of the law burden as well as its true costs to the state, its citizens and to companies.
Here are some other possible initiatives to reduce the legal burden:
Use legal “harm done” clauses stating that people can only be punished for offenses if they caused actual damage to a third party
Use “opt out” clauses whereby companies can opt out of some regulation as long as they clearly state that they have done so.
Always follow the subsidiary principle stating that matters should be handled by the smallest, lowest, or least-centralised authority capable of addressing that matter effectively (such as is actually inscribed into the Swiss constitution)
Develop a concept for law-writing that makes it easy for analytical software to interpret them immediately (make laws computer readable)
Replace, when possible, the command-and-control approach with “advise and consult” (by stating basic principles and objectives rather than specific implementation rules in the laws).
Set a time limit for public approval processes.
Develop one-stop approval procedures, so that you only have to file a single application for an activity and will either receive a “yes” or a “no” within a specified maximum timescale.
Develop prediction markets, in which people can place bets on the impact of different laws and the progression of social metrics.
Furthermore, it should be made possible to submit complex application,s including building applications, for online pre-approval by computers. All this to halt or reverse the legal inflation.
Why do states have anti-trust regulation? It’s evidently because monopolies normally deliver services that are expensive and poor. This is correct, but why, then, have the states delivered most of their own services as monopolies while growing ever larger?
The alternative to monopolies can be so-called “open architecture”, a term that was introduced among IT companies in the 1980s. This started primarily with the operating system UNIX, which, unlike, for example, the systems used on IBM mainframes, as a system for which anyone could write applications and change.
Many people at IBM were not impressed with that, because, as demonstrated by the aforementioned Kronos effect, they preferred things they had invented themselves and fought things they hadn’t created. “Not invented here” could be the company’s unofficial motto, or “we-will-make-it-all-ourselves” But IBM was actually heading towards a crisis, which is why it’s new CEO, Louis Gerstner, decided to turn the thinking on its head and replace its “we-will-do-it-all-ourselves” approach with a culture of “the-customer-is-king”. In line with this strategy, IBM would figure out what its customers needed and then assemble solutions for them, whether these were made by IBM or not. So the company became solution provider rather than mere product-pusher.
This was a big success, and the concept soon spread. However, Apple took it to new heights when it launched its iPhone in 2007. Rather than just developing all the phone’s software applications itself, the company invited others to write “apps” they could sell via an “App Store”. This triggered an explosion of creativity - about 800,000 different apps were written for the App Store within the first five years of its launch, and these were downloaded a approximately 40 billion times by users. It was wildly popular in other words, and the competition in the App Store was so fierce that average prices of software packages quickly dropped at just $1.5.
This became one of the most amazing creative explosions and price drops ever seen in any sector. It was so overwhelming that competitors such as Nokia, which had stayed closer to the “we-do-everything-ourselves” philosophy, were almost wiped off the map.
Western states today (in fact, all states) function predominantly as IBM did before Louis Gerstner, or as Nokia did before Apple attacked it. They operate largely as closed, monopolistic dinosaurs characterized by “we-will-do-it-all-ourselves” mentalities. Of course, governments generally don’t build their own hardware (such as cars or office buildings), but they do tend to deliver their own services as monopolies, which, as we have seen, leads to weak innovation and generally zero or negative productivity growth.
The alternative way is to create what we can call “open architecture states”, where citizens are treated more as commercial customers and given commercial choices, and where decisions are moved away from expert committees to the masses. Such states will be built on a combination of :
1.Monopolized public services: the obvious ones are the legal system, the legislative function, the central bank, the intelligence services, diplomacy and the core of the armed forces and the police.
2.Outsourced services: where a given service task is licensed to a single company for a given duration of time. This is suitable for natural monopolies where democratic control is less important. The typical areas are operation of utilities, environmental protection, security services, control functions, the penal system and some social services.
3.Open Service Shop: this is similar to Apple’s App Store, but offering services rather than software. Citizens have access to these services via free coupons but can buy add-on services with their own money. The most obvious areas are education and healthcare.
4.Crowdsourcing: through which anyone can get involved in public problem-solving. This is most relevant for scientific, technical, social and administrative tasks and may take the form of crowdfunding, social impact bonds, crowd voting, prediction markets and inducement contests such as innovation awards.
Crowdsourcing can take an incredible number of shapes. Imagine every citizen in a community can take a photo of any problem such as graffiti or a lamp that doesn’t work and send it to authorities tagged with the GPS coordinates. Authorities can then post it online and offer a small amount to the first one who offers to fix it – a concept a bit like the Uber service. Or make a competition for the best idea for ideas to fix this type of problems more permanently. In order to create a really creative public sector, it is important that as few activities as possible are delivered by monopolies. As an example, in a dynamic economy, 30% of its economy may be public, out of which 5% is monopolized, 5% outsourced, 15% in service shops and 5% crowdsourced.
Now, let’s look at outsourcing. As mentioned, this is suited to functions that are best run as local monopolies (such as air traffic control), but which do not need to be provided by the government’s own staff.
It can be achieved for many functions, and there is nothing particularly controversial, for example, in outsourcing a control function. The private sector already has countless companies that are specialized in all sorts of control functions on a consultancy basis. Examples are private inspection firms Veritas Group, SGS and Intertek, which in 2014 had approximately 75,000, 50,000 and 35,000 employees, respectively. Each of these had in the region of 1,000 offices worldwide, and they were in intense competition with one another and countless other local companies.
Similarly, it is not controversial to outsource military services to private companies (which are known as private military companies (PMCs)). PMCs’ share of US military personnel has increased from approximately 2.5% of the total staff in the 1990s to 10 % in 2013, because they are often more efficient and cheaper than government-hired personnel. These help with security planning, training, logistics, translation, monitoring, bodyguard services, protection of critical installations, computer security and cryptography. Some advantages of using such companies are that they can move their staff from country-to-country and from job-to-job, so there is less or no periodic idleness or associated cost.
You can use private police forces as well. This is particularly common in the US, where private police outnumber public police by a ratio of approximately 3:1.507 Private police in the US are often given public authority to make arrests and carry weapons.
This can reduce the state’s costs significantly. One example is the US city Reminderville,which asked its own police staff, as well as some private companies to bid on provision of surveillance and alarm services. Their own police staff calculated they to do it for $180,000 a year with a guaranteed response time of 45 minutes. The city, however, chose instead to give the job to the company Corporate Security, which for half the price, offered a response time six minutes and twice the number of patrol cars.
There are four important variations to the outsourcing concept:
No cure, no pay consulting
Sponsored outsourcing
Social impact bonds
Outsourcing via tender is the classic one. An example: a government needs to run a security service, so it outlines the task and writes a tender. A number of companies make bids and the government chooses the best for a period of, say, five or 10 years, after which a new tender is developed.
No cure, no pay consulting is a bit different. Let’s say that the state is running a service, but suspects it could be done more efficiently by someone else. So it makes a contract with a private management company, which takes over the management with the promise of receiving, for example, half of any savings made. Many private companies do this, with Accenture being among the leaders. In 2014, this company had approximately 280,000 employees worldwide and has had great success in taking over operations of IT departments, applications development and maintenance teams, help desk services plus human resources. It will often do this largely with the same employees who previously performed the task, “re-badged” as Accenture employees for the duration of the contract.
Sponsored outsourcing is where a sponsor offers to manage a public task because it can use it as a promotional tool. In addition to bearing the costs, the sponsor may even pay for the right to operate the service – this can be achieved through an auction process. The classic examples are private sponsors for sports and music events.
An intriguing case to consider is protection of endangered species, where a company can be paid to protect plants or animals against performance-based remuneration and the branding rights. General Electric or Google might, for instance, own a nature reserve with rhinos and continuously report on their website, what has happened to the stock (of rhinos, that is). If their reputation is at stake, they will probably publish some good news about rhinos.
The fourth form of outsourcing is the use of social impact bonds (contracts where private providers are paid performance fees for solving social tasks). For instance, in 2014, a Boston-based non-profit organization called Roca offered to help reduce crime in Massachusetts by working with young men released from jail to prevent them from committing more crimes. The work was financed by bonds, which had Goldman Sachs as prime investor. Goldman would get its full investment back, if the men targeted by Rocas programme spent 22% less time in jail than their peers. If they performed even better, Goldman would make a profit.508
That was outsourcing, so let’s now move on to the public service shop (the parallel to an App Store), where obvious sectors include healthcare, care of the elderly, prisons and education.
Healthcare is always a big cost item and a big source of frustration for policymakers as well as for patients. The most efficient solution could be a modified combination of the Swiss and the Singaporean systems. That would work out something like this:
Every resident needs to sign up for a private healthcare system.
The providers of these insurance policies are not allowed to reject anyone or discriminate in price unless for lifestyle-related factors such as smoking.
They are not allowed to earn profit (on average) for selling basic insurance, but they are allowed to sell for-profit add-on insurances and make money on that.
There is partial coverage for personal fitness training.
If the basic insurance cost exceeds x% of the insured person’s’ income, the state pays the rest.
The insured people have unlimited coverage for dangerous and serious diseases, but only an annual maximum allowance for “trivial” illnesses (such as common cold). If they do not use this whole allowance within a given year, they are credited half the savings.
Treatment of the trivial illnesses is not performed by doctors, but by medical students and nurses in walk-in centres/clinics at shopping malls, large work places and train stations.
No matter which clinic a patient visits and or for what, patients always need to make a symbolic payment.
Serviced homes for the elderly are included in the healthcare schemes.
This would give people a very direct, personal economic interest in staying healthy and in avoiding abuses of the health insurance system, and it would put every healthcare provider under competitive pressure, which would force them to innovate constantly. Indeed, most would think twice about seeking medical care for none-issues or out of boredom. It would also motivate them to seek low prices when they need help, which again would stimulate a market for low price treatments.
The consequence would be less time-wasting in doctors’ surgeries and less waste of highly-trained physicians’ time on banalities, so they could focus on more on complex diseases. It would cost much less and be more innovative. Nursing homes and protected/services homes for the elderly could also be private and offered under competition on an service store platform; one could imagine international nursing home chains which tried to attract clients by, for instance, combining locations where they elderly live and holiday locations, so that the elderly spent some of their time “under the sun”.
An even bigger and more complex task for the open state and its service store is education, which in its basic structure, has changed surprisingly little over the past century. A complete rethink would be to offer all education via single courses from a public service shop, to which each citizen would receive vouchers for, say, 15 years or free life-long education. Some of the steps taken could be this:
Primary and secondary school plus vocational education would be financed with vouchers granted to all citizens at birth.
Tertiary education (university/college) would be financed in part by tax payments from their own graduates (and drop-outs); covering perhaps 10 years from the date they began studying there. Universities would also be entitled to sell their innovations (it should be said that many already are today, although few are good at it).
The latter would mean that if an institution provided education that didn’t lead to many good job opportunities, its funding would automatically dry up, so it would either have to improve its education, educate fewer people or close down.
Please note how all this would change the behaviour of educational institutions. If the administrators of these knew their income would depend on the tax payments from their students, they would do everything possible to make these very successful and hopefully nourish a few superstars who would start the next Facebook or Microsoft. So they would behave much more like venture capital funds and venture incubators and less as certificate pushers.
How could they do that? By establishing so-called technology transfer offices, which sell licensing rights for the technologies. This works best by using standard licensing contracts or even “express license agreements”. Universities could also promote their innovations by making joint innovation databases such as iBridge, through which people could gain an overview of the technologies a number of universities owned and offered for licensing.
This brings us to another great area to explore: innovation contests. We have already looked at modern examples such as X Prize and DARPA and historical competitions organized by the British government, Napoleon and others. An obvious way to combine education and public work is to develop structures so that far more tasks are solved through competitions. The state may, for instance, run fact-finding contests, cost-saving contests and, of course, technical and scientific contests. Students in primary, secondary and technical schools and universities may then spend a substantial parts of their study time competing for these awards. Here is why such competitions can be positive: it is well-known that most people who buy an electronic device normally start fiddling with it before they even open the manual. It is simply in our genes to solve tasks on our own rather than to receive instructions. MIT conducted an experiment in which researchers studied 230 million clicks on their online course material and 100,000 comments on class discussion boards, and were surprised to learn that more than half the students started solving a given task before they had studied the relevant training video.509 So giving young people instructions for many hours every day during 13-17 years must be less efficient than constantly giving them tasks – real tasks – which motivate them to seek the required information.
Such approaches would simultaneously solve several problems. First, people would love to get involved, for the fun or sport of it, out of mere academic interest or as a commercial marketing/branding tool. Second, it would make education far more interesting. Third, it would foster lots of new ideas. And finally, much of what full-time employed bureaucrats and scientists do could probably be done better and more cheaply that way. This would mean that public sponsored science – the projects that employ full-time public sector employees – would be more focused on the most capital intensive mega-research projects.
When discussing education we should be aware of a phenomenon that the economist Joseph Schumpeter once discovered, to his horror, which was that most people who demonstrate great creativity do so before the age of 30 (Schumpeter was almost 30 when he discovered it, thus his horror). The same discovery was made by the philosopher Thomas Kuhn, as he delved into the scientific processes and paradigm shifts through history and noted: “Those who have achieved fundamental inventions of a new paradigm have generally been either very young or very new to the field whose paradigm they changed.”510
It would be much more effective if more people took a short training course, combined with real-life project work, and then got a job or started a company at fairly young age, after which they could follow up with single, targeted courses from time-to-time during the rest of their lives. You are much more motivated to learn, when it is directly relevant to your current work and distributed in smaller modules spread over a lifetime, and when you gradually discover where your talents and opportunities lie. As it is today, the vast majority of learning in an academic education is irrelevant to what the graduates end up doing, which is a massive waste of time and creative potential.
Another area that could stimulate entrepreneurship would be use of entrepreneur colleges, wherein students at an economic institution that have founded companies live together, so they network more easily.
Entrepreneurship can also be promoted via business plan competitions such as those promoted on iStart. Some universities also created upstart mentoring programmess for students who have started their own businesses. Among the highly-successful examples are MIT Mentoring Service and the University of Miami Launch Pad. Within its first two years alone, the Launch Pad programme was used by approximately 1,000 students, who formed 50 new companies under its supervision. An analysis from 2009 concluded that graduates of MIT together had founded 25,800 companies that had a total of 3.3 million employees and generated sales of $2 trillion.511
There is an illusion that we need to address here. You do not gain a creative community simply by giving a lot of people higher education. A creative community should have a good balance between large and small, old and new, hightech and industrial and service-oriented and crafts-based businesses.
One reason for this is that services often find a large customer base in industrial companies. Also, creative start-ups often have great synergy with larger technology firms, which end up taking on distribution and production of the young company’s inventions.
Furthermore, the importance of handicrafts and other practical vocations such as being musician or professional athlete should not be underestimated. These people exhibit what is sometimes called “silent knowledge” (even if noisy when applied by musicians) – stuff you cannot just define in words, but which has to be learned through practice, with guidance. The Japanese understand this; they have employed 4,700 craftsmen who they call “Living National Treasures of Japan” to ensure that the finest craft skills are passed down the generations. Also, Germany, Switzerland, Holland, Austria and Scandinavia have traditionally been good at training craftsmen to levels at which they can work autonomously, and thus creatively.
Well-trained craftsmen are vital for premium and especially luxury markets, and there are lots of these involved in producing for brands like Lancôme, Gulfstream, Royal Huisman, Feadship, Ferrari, Chanel, Hermès, Cartier, Patek Philippe, Wilson Audio or Prada. Although luxury turnover only amounts to some 0.8% of the world economy, eight of the world’s 100 most-profitable brands in 2014 were actually pure luxury producers (Louis Vuitton, Gucci, Coach, Hermés, Rolex, Prada, Chanel and Burburry) and another four (German car manufacturers) made a good part of their profits from luxury.512
The trend in the West, in recent decades, has been for fewer and fewer young people to undertake vocational education and more and more to take academic courses. This is probably because they can postpone the time when they commit to a given career path and partly because “academic” is widely seen as the “A-team”. But this creates imbalanced jobs markets, economic waste, unemployment, student loan crises and social problems. A solution could be to merge vocational schools with universities so that students can combine modules of a more practical and a more theoretical nature as they see fit.
Fortunately, due to the spectacular growth in free, online courses from universities (the aforementioned massive open online courses, or MOOCs) it is getting far easier for anyone to attend individual training courses throughout life, and the whole concept of studying at university for five or more years and then applying for a job should be replaced with something far more flexible.
Private schools will often develop individualized and innovative approaches. In New York, for example, an average 62% of pupils pass their exams in third, fourth and fifth grade but in the privately-owned Harlem Success Academy, the figure is 99%. This is despite the fact that this school is located precisely in the socially deprived area of Harlem and that it selects its students via a lottery. Other private schools in Harlem, such as KIPP and Democracy Prep also manage to produce better results for Black students than those seen among White students in the more affluent suburbs.513 These are and should not only be new ways of passing standard tests. Why not give higher freedom to specialize schools more, so that there are sports schools, fame schools, technical schools, nerd schools, etc. Children are extremely different, and this should be used as an opportunity; not seen a problem.
Private schools make good use of “carrots and stick”. If schools do well, they grow, if they disappoint, they close down. Countries that have high proportion of private schools consequently have quite high average scores on the global PISA scale of students’ academic abilities, and in the OECD as whole, students in private schools also score significantly higher in all areas than those in state schools.514
Unfortunately, it is complicated to measure the impact of private schools precisely, but a study from 2010 concluded that an increase in the proportion of private schools by 10% led to a decrease of 5% in average tuition cost at all schools, while also leading to better exam results.515
Of course, an alternative to private schools is state-funded, none-selective schools which either run with great autonomy or have private ownership. This has, for instance, been tried in England, where the majority of public schools in many areas were converted to autonomous so-called “academies”, which could control their own budgets, staffing and curriculums. The results of this have been very impressive.516 Similarly, the US has privately run charter schools, which have done well. Overall, a focus on private schools can save money, stimulate useful innovation, and improve education.
Let’s now look at crowdsourcing. It would be highly-efficient if all sorts of government bureaus routinely did what American military research institute DARPA did and launched public competitions to find solutions to its challenges. These could be innovation awards, but also public competitions to identify cost- savings, reduce red tape, optimize the tax system, develop a better traffic plan, or anything at all, really. This could be tied in with reality-style TV shows where problems were initially presented and where finalists (those with the best solutions) would present to an audience and judges.
Another approach to crowdsourcing would be simply to pursue openness. Instead of letting state employees alone crunch numbers and issue reports, it could be efficient simply to release the raw data and possible calculation models to the public in standardized formats, after which anyone (including students) could analyse it in their own way.
Experience shows that this would trigger a lot of activity with people trawling through it and analysing it in many different, and sometimes highly-creative and surprising, ways and discussing it on social media. Quite apart from the creativity this would unleash, any errors made by the experts would then soon be discovered.
This would be a step away from authoritarian rule by experts with credentials and towards more popular creativity and decentralized knowledge. And it would avoid situations like the aforementioned controversy with the hockey stick graph, where the public had access to the analysis conclusions, but was unable to see the underlying data and formulas that had let to it, despite having paid for it. In fact, many states have already taken steps in that direction; for example, when President Obama launched the “Open Government Initiative”, in which data of public relevance (not state secrets) are published in XBRL format - a standard that makes it possible for individuals to analyse large amounts of data in a standard Excel spreadsheet.
Another useful area of crowd-sourcing is that of whistleblower laws, whereby any citizen can gain immunity from prosecution and a percentage of any fines paid by perpetrators, by disclosing lawbreakers such as tax cheaters, corrupt officials or corporate swindlers.
Governments should also facilitate crowdfunding of start-ups and young companies. A major barrier for start-ups, is raising funds in the three-to-ten years, it often takes to reach break even. These may be funded by so-called angel investors or venture capital funds, but many such investors, and in particular venture capital funds, tend to prefer stepping in at later stages. Hence, the need for another public funding source in the form of crowdfunding, where people raise money through websites such as Kickstarter. Governments can help here by exempting crowdfunding up to, say, $10 million from many of the financial fundraising requirements that otherwise apply. They should, in other words, have some opt-out clauses from some financial regulation. Sovereign wealth funds could also allocate a specific part of their investments to such venture funding.
There are two more possible uses of crowdsourcing in government: It should be possible for people in a community or country to call a referendum via the collection of signatures. And there should be a system so that people can vote for a monthly subject, via text message or email that has to be debated in a televised session in parliament. Both initiatives would mean that people were more engaged in the political debate and that they felt that they had a direct say in policy. Furthermore, it would give politicians a better feel for what was on people’s minds.
A final note: how do you pay for it all?
Of course, one way is to reduce the bill directly by cutting corporate subsidies, government-to-government foreign aid transfers and those welfare offerings that pacify recipients or by letting people make symbolic payments for healthcare and contribute to the bill, if they take a higher education. Another way is to privatize government assets, which often bring both short term revenue and long term benefits. For instance, Europe has privatized a bigger proportion of its main airports than the US, which can be seen by the much higher standards these airports now have. Apart from such initiatives, the dynamic effects of a more creative society where money is invested in new businesses rather than government bonds will be higher tax revenues, which also enable lower tax rates.
But there will still be a bill, and the perfect sort of tax is placed on activities that have so-called negative externalities, i.e. negative impact on others, such as pollution. The second best is tax on individual usage of common goods, such as on driving on highways. Conversely, the worst sort of tax is on something you want to simulate, such as work, savings and business investment.
In practice, however, the former two kinds of taxes can hardly pay for everything, so more is needed, even if it may hamper work, savings and business investment. One possible tax structure that can be effective without hampering creativity (much) is this:
Negative income tax for earned income (“earned” means by working) up to a defined poverty line. There might, for instance, be a 10% subsidy on this income
For income above that, a flat tax of, say, 20%, with income deductions for up to two children, but for absolutely nothing else
VAT of approximately 10%
Corporate tax of approximately 10%
Alternative annual wealth tax of 0.5% for wealth exceeding, for instance, $5 million, which is offset against income tax, so that if a person pays enough income tax, there is no wealth tax
European-style tax on fossil fuels
No capital gains tax on company or common-equity investments, but 10% capital gains tax on property gains, as these are not equally productive for society
Annual drivers’ tax per registered driver. This should be designed to be enough to finance the road system; but no car tax (apart from the VAT)
Mandatory private health insurance, where the state pays any part exceeding, say, 5-10% of personal income
A tax system roughly like what is described above (except for the watermark issue) is very similar with what has been practised in Singapore, Switzerland and other successful, hyper-creative and economically sustainable economies, and it also reminds of what Denmark looked like in the 1960s, when it had very high economic growth, whereby it had “got to Denmark”, as Francis Fukuyama described, For instance, total taxation in Denmark was less than 30% of GDP in 1965, and the country had extremely high average growth rates and virtually no unemployment and minimal crime in the 1960s. Of course, a variation in a highly-decentralized state might be that the government collects VAT and fossil fuel taxes and leaves everything else to the local communities. Switzerland is not so far from that.
Finally, when we consider what a creative state is like, it is useful to hold a few core concepts in mind that separate how we think and act if we assume or want a static and dynamic society, respectively.
| HOW WE ACT | ||
|---|---|---|
| Static society | Creative society | |
| Safety standards | Precaution principle LNT assumption Slippery slope argument | Cost-benefit principle |
| Public services | State monopolies, standard services fro all | Outsourcing, service shop, crowd-sourcing, segment of one marketing |
| Legal concepts | Firm laws, manuals, command-and-control | Broad principles, guide-and-consult, opt-out and harmdone and sunset clauses, subsidiarity principle |
| Investments | Government bonds to finance government overspending | Equities and venture capital to finance growth and private job creation |
| Education | 13-17 years in the classroom and then apply for a job; sharp distinction between academic and vocational education | Start work much earlier; follow up with single courses. Modular education; use educational institutions as venture incubators and reward them financially for their student’s commercial results |
| Taxes | High tax on work and savings | Low tax on work and savings |