Politics

Ideas In Nation Building

First Principles

Philosophy

The central idea is to provide an alternative to the uneasy choice between a welfare state and laissez-faire. It is recognized that a free market with strong incentives for hard work and innovation is a prerequisite for a healthy and vigorous economy. But this needs careful management by a (relatively) small but strong democratically elected central government. The goal is to achieve somewhat greater equality of outcomes than is typically found in modern democracies, while not sacrificing the dynamism of a competitive marketplace. In particular, the transmission of inherited wealth and the reliance of individuals on economic rent from unearned sources (e.g. land) is restricted. The model below is based on the economic philosophy of the nineteenth century American philosopher Henry George. Georgism has, at the core, the common ownership of all the land and natural resources. This can provide a stable bedrock of income to all persons as an inalienable right. This income is called the "entitlement" and is equally distributed to everyone. With appropriate handling this can provide a basis for a society without the need for a welfare state. Individuals who find themselves in difficult circumstances, either through their own misfortune or through the vagaries of the economy, need not feel themselves a "burden" nor can they be demonized by others as they will always have sufficient resources to support themselves without government aid. Also, they will have strong incentives to return to a productive role as the effective marginal tax on additional income is zero. In addition, families are naturally supported as children are eligible for the Entitlement from birth.  

Democracy

First establish a democracy. Not much can be achieved until this is accomplished.

Land Bank

A land bank is set up that effectively controls all of the land and its resources. The land bank is responsible for subdivision and allocation of the land to its primary usage. This includes everything from a house block to commercial uses such as factories, farming and mining. In this it is directed both by market forces and public interest. All subdivisions are then sold as leases of varying time lengths to the highest bidder. All such auctions are a matter of public record. This means no individual or group can own land in perpetuity. 

The Entitlement

All money generated by this process is returned in equal proportion to every individual as a weekly income starting from birth and ending with death. This income is called The Entitlement. It is essentially the rent paid to a person throughout life for their share of the the unimproved value of the land including all its natural resources. Childhood entitlement is kept in trust to be made available to support education (see below). It is not available to parents.

Bill Of Rights

Individuals are entitled to all of the freedoms most democracies currently guarantee: Freedom of speech, freedom of movement, freedom of association, freedom to trade and run a business for profit. Except, of course, where freedom of movement is lost through crime. All such freedoms should be guaranteed through a Bill of Rights that place them above the political process.

Taxation

Taxation should be progressive. That is, the higher the income the more tax is paid as a percentage. It should be noted, however, that the tax take will generally be low as there is no welfare state to pay for (see below).

Law Enforcement

Common law is the backbone of the society. This must be policed by well funded law enforcement paid through taxes. It may be that the cost of this is lower than is usually the case. The risk of losing part or all of a weekly entitlement, possibly for years into the future, is both an obvious disincentive for criminal behaviour, as well as providing an unavoidable means of paying some of the cost.         

 Education

Childhood education is partly funded through the Entitlement and the rest from government through taxation. Schools are privately run for profit and must compete for students. Parents decide which schools to send their children to. Funding is sufficient to ensure that all children receive a good education irrespective of parental income or wealth. Of course, parents are free to make their own contribution to the education of their child and some schools will require additional fees beyond the Entitlement and government funding. Fee paying schools will, however, receive more limited government funding than non-fee paying schools. All schools must be government accredited and provide a reasonable standard of education.

Higher education has a different funding model. All occupations are assessed for educational input. Any person working in an occupation then pays an additional tax designed to fully recover the cost of that educational input. For example, a medical specialist will pay a greater additional tax than, say, a librarian; reflecting the higher cost of medical training.

Medical Benefits

The government is responsible for basic health care which it finances through taxation. This can be done by tender to HMOs (Health Maintenance Organizations). The idea is to provide finance based on the population serviced. Some rationing takes place as doctors decide treatment based on individual need - not on wealth. Wealthier individuals may choose private health care, but this is managed to ensure that wealth does not allow significantly better health outcomes than is available to the general population. Universal health care is provided as a right to all in society.

Defence

Again, financed by taxation through government. This time run directly by government.

Welfare 

There is no "welfare state". The income from the entitlement will have to suffice to cover periods of unemployment. So there are no unemployment benefits or state pensions. It is, however, part of this model that some form of forced saving (through superannuation for example) be undertaken to supply a retirement fund. Individuals are free to choose the fund to which they belong. The contribution is set at an average 10% of the gross wage. Earnings in the fund are taxed at the individual's marginal tax rate. At retirement age the fund is converted to a pension with a variable payout plan. For example, some may prefer a higher income in early retirement, others a fixed income. Options are, however, limited as all plans must provide a viable income for the life of the individual. At death, remaining funds allocated to an individual are returned to the general population as an addition to the Entitlement. Conceptually, the significance of the fund is to create a situation where all wage earners are also capitalists.

Externalities

Externalities occur when there are obvious market failures, such as industrial pollution for example. These can often be managed through taxation as well as directly through legislation. It is a significant role of government to ensure that incentives are properly aligned with socially beneficial outcomes.  Free markets usually provide good outcomes, but not always.

Business Management

There should be no minimum wage, payroll taxes or dismissal laws. Business is free to hire and fire as it pleases. It does have an obligation to provide a safe working environment. All must pay the retirement levy as part of a person's wage.  Market concentration is an obvious concern and laws may be necessary to discourage the formation of monopolies, cartels or other arrangements that might undermine competitive markets. Where they cannot be avoided, it is a basic role of government to monitor and, if necessary, control them. 

Trade

Trade with other countries requires careful management. Large trade deficits should be avoided. Protective tariffs may be required to ensure adequate diversity, not just in the provision of goods and services, but also in the provision of varied work opportunities. High wage countries will require higher tariffs to prevent industrial relocation of manufacturing and service providers to low wage countries. Low wage countries will want lower tariffs to encourage foreign direct investment. Both high and low wage countries can then mutually benefit from trade. Low wage countries benefit by importing technology from high wage countries, this will improve productivity, expand domestic demand and ultimately increase wages and living standards. High wage countries benefit by not producing those goods and services that are comparatively the least productive for them - but not to the extent of reducing their own living standards or seriously curtailing the variety of available work.

Monetary Responsibility

Monetary policy should be run by an independent central bank. It is responsible for setting the base interest rate, buying or selling government bonds and, in general, ensuring the viability of the financial system by acting as a lender of last resort.

Fiscal Responsibility

An independent fiscal authority (FA) is created to ensure the political party in government acts in a fiscally responsible manner. All budgetary commitments are presented to the  FA for analysis. The FA provides extensive modelling of the economy. From these models it determines a preferred fiscal target. If the budget does not meet that target then the FA will provide a list of options to the government each of which ensures their target is met. These will usually involve changes in taxation, but can also include recommendations on the expenditure side. The government must choose an option for the budget to pass. The FA is tasked with running a broadly countercyclical fiscal policy - fiscal consolidation while the economy is at near capacity, but fiscal expansion (stimulus) in response to a downturn. In the long run the FA must ensure all future government liabilities are sustainable. Finally, the FA can alter the percentage take of the retirement savings funds on a monthly basis. With this lever, it can provide a rapid fiscal response to any demand shock at no government cost. 

Discussion 

The above outline is one interpretation of the political philosophy of Henry George.  The nineteenth century economist Henry George advocated land taxes or rents to compensate individuals for loss of entitlement to their share of the land. Based on the idea that the land and its natural resources pre-existed humanity so no individual or group can claim ownership in perpetuity of any such resources. While an individual might sell or otherwise dispose of this entitlement it is not clear that such an entitlement can simply be nullified at birth. At present, in most countries, individuals have no automatic right to the productive use of any land they have not purchased or rented.

One remedy is either a land tax or rental to be evenly distributed among the population. The difficulty is that the entity (typically government) set up to administer such rent can act as a monopolist and extract more value than is due. The land bank suggested above resolves this issue as it acts as a simple clearing house that cannot dictate prices. A lease must be sold to the highest bidder - whether domestic or foreign, individual or corporation. Leases can be up to 99 years so that householders and businesses can experience virtual "freehold" tenure for a lifetime. The only difference being that land cannot be owned in perpetuity. Of course, once purchased a lease may be used for whatever purposes are legitimately allowed by the terms of the lease. Whether these be, mining, farming, commercial or residential. Developers can lease parcels of land for further subdivision, and so on. Essentially it is business as usual except that all land is leased and eventually, on any parcel of land, the lease expires and is returned to the land bank to be resold.         

Philosophically, the general idea is to move toward a society with the following characteristics:

1. A managed free market economy. There are few regulations governing small to medium size business. People are free to profit from their ingenuity and commerce. This means no payroll taxes, stamp duties, minimum wage laws. Pay and conditions are decided between employer and employee. The only restriction is the provision of a safe working environment. Firms which are large in comparison with their markets are restricted by anti-merger laws. They may also pay additional tax to allow smaller firms to compete. The formation of monopolies is actively discouraged. 

2. No welfare state. All persons receive a base income from the Entitlement. This is a proxy for the rent owed to them for their share of the land and its resources. Because payment is in addition to any earned income there is no disincentive to work. The means tested welfare that creates such disincentives is not available as it is no longer needed.

3. Trade with other countries is moderated to avoid specialization. It is a goal of economic policy to provide as much diversity in the production of goods and services as is appropriate for the size of the economy. This is designed to provide people with a wide range of options for the employment of their skills and interests, whatever they may be. It is considered a more important goal to provide a great variety of work choices rather than a great variety of consumption choices.

4. Education is a primary focus. It is well funded by the mechanism of a higher tax rate for those who monetarily benefit from their education. That higher rate is linked to the profession they are in and the benefit derived. This may mean an individual will pay many times the original education cost - thus providing a net educational benefit to the rest of society. The justification for the educational over-payment is to appropriately tax the monopoly component of the wage rate in a profession or trade. Typically, a professional qualification confers a degree of monopoly power as it prevents competitive entry. Of course, not allowing a profession itself to dictate entry standards is a good starting point in preventing the worst excesses of this. Nevertheless, any barriers to entry will restrict supply and create monopoly gains. The key words here are "appropriately tax". For professions where entry is unrestricted and qualified individuals compete with unqualified providers, there is no monopoly rent and any extra wage received by a professionally qualified person simply reflects the market value of the qualification itself. In such cases, the extra tax would be tailored to no more than cover the cost of the training received.