Capitalism at the Crossroads

Back on to my reading binge, and I've had the luck to have been put on a surprise assignment in Kuala Lumpur, which means five hours of flying time in which to read stuff. I just about finished Capitalism at the Crossroads by Stuart L. Hart. His arguments are reasonably straightforward, and targeted on one main idea: business can and should be the way to help the "bottom of the pyramid". The bottom of the pyramid is conceived as the 4 billion people who are in developing economies. Most economic models eliminate them as consumers of any importance. The economic models that DO include them as important consumers tend to be exploitative. It's a real nasty situation.

Hart's contention is that capitalism is best placed to create the solutions to the world's problems because of its nimbleness and capacity to self-organise. I agree he has a point. He has to admit, however, that by writing a book geared at making businesses realise that uplifting the poor is good business practice, he has undone his own contention. If business has to be told to do the right thing, then is business capable of solving these problems on its own? Hart's work is a clarion call pointing out to businesses that helping the poor is an exercise in research and collaboration that will pay off dividends in future when corporate projects go mainstream. He shows how established businesses block innovation in mature markets (much as I explained here) and how it is possible to develop disruptive strategies in Base of Pyramid (BoP) markets then bring them to disrupt higher value markets.

But if he had to go to all this length just to make businesses do what is in their interest, is capitalism, by itself, really capable of doing the right thing?

I'm two things: a firm believer in capitalism (primarily because it's a natural force, like wind or rain) and a firm believer in democracy (and all that that entails, read the Charter of Rights and Freedoms for further information). Hart can say that capitalism is the right tool to do the right thing for the poor, and he would be correct on that count. It is unquestionably the most versatile tool for solving the problems of distribution of the world's wealth. The past 50 years have shown us, however, that capitalism isn't interested in helping the poor. It's just a force, for good or ill. Capitalism can redistribute wealth all over, but left to its own devices, the free market's Nash Equilibrium is monopoly. We have antitrust laws not because we think monopoly might possibly occur, but because it has, and it isn't good for the economy. Business has done lots of bad stuff to make money, and some regulation and direction is necessary to make it toe the ethical line.

And that's where democracy comes in. No, I am not talking Truth, Justice, and the American Way kind of democracy, I'm talking Peace, Order, and Good Governance kind of democracy. You know, Canadian democracy, fundamentally founded on the rights of the individual to self-actualisation within the framework of the Rule of Law. As my parents used to say, the difference between the West of Canada and the West of the US is that in the US, the settlers came first and the law came after. In Canada, we had the March West to break up the whiskey trade, then the settlers came in earnest. To separate a country of the Commonwealth from its tradition of the Rule of Law would be to deny it a fundamental and foundational part of its character. The Rule of Law is why people keep coming to Canada to make a new life - precisely because the Rule of Law is actually a rarity only a minority of the population of the world actually get to enjoy.

What I'm trying to say, then, in what turned out to be a rather rah-rah flag-waving way, is that unless the raw force of capitalism is put in a space where it's useful, it can be a force for evil just as much as it can be a force for good. Corporations, due to the share value motive, will not do what is right or even what is in their own best interest unless pointed in the right direction. This is why we need to cross the Jacobsian divide between the governmental and corporate paradigms. Systems of Survival was not necessarily correct in saying that the two worlds shall never agree - each side has to recognise its strengths and weaknesses. To get to the point, here's what those strengths and weaknesses are:

1) GOVERNMENT - is good at oversight and enforcement; it has the capacity to be the morality of a civilisation. Specifically under a functioning democracy, where the Rule of Law is respected and the rights of the individual within that Rule is recognised, the government is forced to (hypothetically) represent the will of its people or be kicked out. Government is NOT good at micromanaging, solving local problems, distribution of goods and services, and should never be trusted with setting prices for stuff.

2) BUSINESS - is really good at solving local problems and redistributing goods and services to those who need them. It encourages a kind of semi-chaotic self-ordering that simply cannot be imposed by fiat. So long as there are minimal interferences with the flow of commerce, and information is readily available, the market is the perfect place to make sure everyone has the opportunity to get their fair share. It's also good at setting prices for stuff. Business is NOT good at self-regulation or policing, and given enough leeway, will pursue only profit. Business has the potential to be completely amoral with inadequate guidance.

To create an analogy, government puts up the post and frame, business fills in the walls, windows, roof, doors, etc. The government alone would create a very cold house, and business alone would make a pile of siding and rafters. The two, working in harmony in their own jurisdictions, work great. That's why policy is key. We must trust that business will do what business does, and that business does it better than government... but business must accomplish the aims of government to provide for the people of the nation and operate sustainably such that it can continue to provide for many generations to come. Both business and government have the capacity to save each other from themselves if they take the time to understand one another.

I'll make one more point about something Hart was mentioning in his book. The fact that BoP markets are great places to test disruptive technologies because established businesses in mature markets can price such disruptive technologies out. I think we are all on the same page regarding disruptive technologies: they are an unmitigated good. They need to happen. Personally, I would prefer they happen in my country rather than elsewhere. This is but a little warning sign that the creative edge of the established economies is being diminished by the anticompetitive properties of its constituent megacorporations. Why should government offshore innovation? Isn't that supposedly the last thing the developed economies have left?

As I've already said, we need a way to stop the runaway leader problem and allow for disruptive technologies to take hold at home. The shocks these technologies provide are good for the economic system as a whole, and better to have first mover advantage when a disruptive tech emerges than follow the crowd. This is even more reason to push for policy that a) gives business enough breathing room to do what it's good at, yet b) doesn't allow it to do stuff that holds back the development of the national economy as a whole. We can do it, we just need to create the policy space for it to happen.

Nino Ricci (on the Fiction of Neoconservative Policy)

Zero Carbon, Zero Waste City

Masdar City in the Abu Dhabi Emirate of the UAE is slated to be the first zero carbon zero waste city. Why in Abu Dhabi, the largest and "most equal" of all the "equals" in the UAE? I have a thought... perhaps this is Abu Dhabi's claim to fame for after the oil boom. Perhaps the oil boom is coming to an end sooner than we thought.

I've been to Dubai a couple times, but never Abu Dhabi - though I hear it's pretty livable. Dubai is cool, modern, fun - for a couple days, anyhow. Dubai, of course, has one of the most forward-thinking Emirs of the region, and his determination to make Dubai the Hong Kong of the Middle East is paying off. The place is slowly becoming a financial centre, especially with the rise of Islamic Finance. Even HSBC is getting into the act (with, I might add, some amazing commercials for Islamic Banking that would make even the hardest of hearts consider conversion). Abu Dhabi, the bigger, governmental, and less cool neighbour always seems to lag behind. After Dubai built Emirates Airlines, Abu Dhabi made Etihad. With Dubai's post-oil future seemingly built out of being a banking, transport, and convention hub, Abu Dhabi was clearly looking for a different angle.

This is promising. Not only promising that the progressivism of Dubai is contagious, but promising that the future Abu Dhabi is mapping is actually sustainable. I guess once the oil runs out for us, it runs out for them, too...

Taxes: an Addendum to the Addendum

No quicker have I said my piece about taxing the rich than the Economist quotes S&P regarding the USA's unwillingness to tax the rich, and how that may lower its AAA credit rating!

The Economist:
"Of course, our ability to pay isn't the issue. S&P lowered its outlook because it questioned our willingness to pay."

...and S&P:
"We note that the President advocated the latter proposal last year before agreeing with Republicans to extend the cuts beyond their previously scheduled 2011 expiration. The compromise agreed in December likely provides short-term support for the economic recovery, but we believe it also weakens the U.S.'s fiscal outlook and reduces the likelihood that Congress will allow these tax cuts to expire in the near future. We also note that previously enacted legislative mechanisms meant to enforce budgetary discipline on future Congresses have not always succeeded."

Both agree with me, it seems...

Also, just a note, I love Canada:
"Meanwhile, Canada, the only sovereign of the peer group to suffer no major financial institution failures requiring direct government assistance during the crisis, enjoys by far the lowest net general government debt of the five peers (we estimate it at 34% of GDP this year), largely because of an unbroken string of balanced-or-better general government budgetary outturns from 1997 through 2008. Canada's general government deficit never exceeded 4% of GDP during the recent recession, and we expect it to return to below 0.5% of GDP by 2013."

Taxes: an Addendum

Some more thoughts on taxation:

1. Nine Things the Rich Don't Want You to Know about Taxes

This is about why Reaganomics and Supply-Side Economics don't work. Proof positive: cutting taxes to the rich is stupid. It's in the numbers.

2. The Consequences of Taxation

This is what would be classified as a "Chewbacca Defence" of low taxation. In a word, it's dumb. Attempting to correlate work disincentives to high taxes is not only disingenuous, but utterly bound-up with the concept that GDP is the only effective measure of economic well-being. If a German family doesn't have to spend the money on health insurance that an American family does, then the disincentive to work is actually the lack of need of income to cover costs, not the lack of interest in getting a job. People mainly work because they need money, not because they enjoy paying lower taxes. This article is the kind of non-sequiturish reasoning we're up against.

3. Ten Reasons not to Tax the Rich - and Why They're All Bad

Slightly less numbers and more to the point, but on the right track nonetheless.

4. Scott Adams (of Dilbert fame) on How to Tax the Rich

Funny, but sad.

5. Tax the Rich: How Hard Can it Be?

A few links to follow regarding a change in attitude towards raising revenue in the USA which embraces...

6. MILLIONAIRE MIGRATION AND STATE TAXATION OF TOP INCOMES

...a study that says higher taxes do not equal capital flight. Hmm. I think I heard that somewhere else before.

Enough to tide us over for now, perhaps... but the fact doesn't change: higher taxes on the rich increase government revenues without severe impact on anyone's pocketbook. I'd be happy to make more than four million bucks a year, even if it meant I was paying six million in taxes. Four million bucks is more than I have now.

Pollination and Food Security

Now, most people will recognise that - if you work in a company that extracts resources - the best way to do it is to get workers who know their trade, extract resources safely and efficiently, and do so with minimum impact on their environment. It's of course a good idea to give your workers adequate safety gear so that the expertise you maintain in your workforce is protected from harm. A company that harms its workers physically or mentally is going to be hard pressed to hire more workers (well, unless the money's more important than all that). The case study of Chinese mining companies in Zambia shooting their workers when the workers militated for reasonable pay is perhaps the example of the worst way to maintain a cadre of loyal and productive workers in your company, perhaps doubly so because the Chinese mining company also found a way to make sure not one of those bosses was touched by the long arm of the law.

It's funny how corporations - entities described by one of my friends as being solely developed for the purpose of diffusing blame - are able to get away with treating their workers so badly. Well, there is a very troubling case of worker mistreatment going on in North America that is threatening the very food security we enjoy on our vast open expanses of farmland: the killing of millions of honeybees by pesticide use. Though USDA scientists have previously danced around the issue, the topic has been broached more openly at a DC luncheon where - while blame was not directly assigned to the people at Bayer - the causal lines could be drawn by the observant. What's more obvious is the fact that the UK is acknowledging the source of the problem directly and several nations in Europe have banned pesticides that have been shown to harm bees. Never mind the fact that the call to ban these pesticides is years old.

What really ticks me off is that we pay bees nothing and they provide - free of charge - both honey and an invaluable pollination service that secures our food resources but also allows for the multiplication of our biomass. We're shooting workers who work for free and provide us with two invaluable services. That's just bad labour relations strategy right there.

So food security is one of the most incredibly fundamental factors in the survival of a nation. China is exposing its Achilles' Heel by importing more than it produces in recent years. Food, as China has known from decades ago, is one of the most basic strategic resources. China instituted a draconian system of internal movement control called the Hukou system that was essentially used to force farmers to stay in the countryside and grow food. We need to understand food with the same level of importance. The world is running out of productive arable land, and we want to make certain we don't go hungry. If we kill off the honeybees each winter, our pollination services die with them, and with those services our biomass. The less we produce, the less we can export, the less we can use to feed ourselves. Scarcity will drive prices higher, and we will wonder what we thought we were saving by using pesticides in the first place, because in the end the cost to the consumer will be higher than that of a temporary crop failure due to pests. The long term economics of pesticide use equals high priced food plus pesticide. The lack of pesticide means higher priced food minus pesticide.

The math isn't that hard. Food will rise in price. We can control the why and the how, and in my mind, we save more money and time overall by eliminating pesticide rather than maintaining it.

Growing Power

Many people will be familiar with Growing Power, a working farm from Milwaukee that has set up satellites all over the United States. These people not only train, educate, and employ, but they produce good, wholesome food on a minimum amount of groundspace.

What's interesting about these guys is that they walk the walk (as opposed to people who just talk the talk like me). The CEO of the farm, Will Allen, consistently stresses "dollars per square foot" in his farming practices, and sells his produce in "baskets" usable by a family over a week.

Through using integrated practices as diverse as methane digestion, vermiculture, aquaponics, and ordinary greenhousing, the production of Growing Power's farms is something spectacular.

Just to remind you I'm still alive (after suffering a pretty nasty bout of food poisoning) and I'll be back blogging more regularly soon!

The Future of Education

A brilliant idea that is immediately implementable:

http://video.ted.com/talks/podcast/SalmanKhan_2011.mp4

A few things spring from this video that are wholly systemic thinking:

1) why do we allow children to progress in school when they haven't fully mastered concepts?

2) even though kids get a regular report card based on tests and homework, why has that been the only feedback available?

The concept of assigning grades every quarter or semester is totally antiquated and leaves loads of kids unable to follow concepts in future simply because they were allowed to "pass" a subject even though they didn't master it. That's just dumb. Mastery is what we seek from education, not good grades. Just like our obsession with money can take us away from what we really need, our obsession with grades can distract us from what we must learn.

Systems demand closed information loops in order to function optimally. With teachers able to monitor not only what exercises their kids did but also what exercise questions they attempted, which questions they got wrong, and how long they spent on each video and question, teachers can guide their students' education without ever having to embarrass them in front of peers. The feedback loop in this system is finally closed, and it allows students, in effect, to direct their own education. The fact that the teacher can then assign tutors from the class to assist their students who haven't totally mastered all topics frees up the teacher from both doing lectures and attempting to help all the students all the time. Some kids just need a nudge, they can get that from other students. Some kids need teacher support, and by using this feedback, the teacher manages the education of the entire class, pupil by pupil, without much effort at all. All my teacher friends keep telling me they want to be an educator, not an administrator. Well, this should be their dream.

Civil Society - Part 1: The People, Chapter III: First Nations

I risk embarrassing myself at my lack of knowledge of First Nations issues in Canada by writing anything at all regarding policy ideas for First Nations peoples. I also risk embarrassing myself through complete and utter cultural insensitivity, and from the simple fact that it isn't my place to speak for First Nations peoples. Still, I have these thoughts rumbling about in my head and they have to go someplace... so I thought I'd write them down so they could rumble around in your head instead.

I'm not going to go into history except to say one very simple thing: in Canada, there were "Treaties" with the First Nations peoples. The word "treaty" is an important one. A treaty is an agreement between sovereign nations. Terminology, in this case, is quite powerful. The implication of the word "treaty" is that the First Nations peoples were (ostensibly) afforded the recognition of sovereignty that our Westphalian system upheld at the time of their signing. Please pardon me for thinking that the original treaties were, perhaps, not signed in good faith as true Westphalian-style documents signifying mutual recognition and equality of sovereignty.

The system has not fared well. Neither has it assisted the First Nations in maintaining their ancestral ways of life or their land, nor has it allowed Canada to treat the First Nations as nations proper, alike in dignity to herself. True, there is a lot of blame to go around. True, there is much to be repaired in the system. As with any problem that needs fixing, it is better to roll up one's sleeves and fix it than to start by apportioning blame. The goal of such a system would be to return to the original concept of the treaties without dreaming anachronistic dreams. The First Nations peoples must be given the leeway to protect and preserve their culture and habitat, as well as being granted the sovereignty required to do so. Oddly enough, multiple benefits accrue from this arrangement... and to everybody involved. Follow closely: this is going to be somewhat unconventional.

FIRST PEOPLE, PEOPLE FIRST

Conservation as a means to cultural and industrial preservation

Part of that title may have forced some readers to purse their lips, but I'm serious - this is to preserve industry, too. Where there is the incentive of making money, money will go... so how does one make conservation an activity that not only preserves culture, fosters the development of industries, AND makes money? Well, I'm going to crib a bit from Paul Hawken on this one with a little riff of my own on the side. The concept is called a common utility. It means a resource held in common, but the holding of the resource is incentivised to grow the resource, not exploit it. It's a solution to the Nash Equilibrium of the Tragedy of the Commons. Oddly enough, a seed form of what I am about to describe was developed by the Coast Salish. The Coast Salish had a potlatch gift-giving economy, and it therefore suited them to foster their local resources in order to be able to give the most impressive gifts during potlatch. The same theory can hold today: fostering and husbanding resources allows these resources to be maintained at an acceptable level of abundance for posterity rather than exploited and exhausted. By preservation, we ensure responsible exploitation, which ensures long-term meaningful employment for the workers in a natural resource based industry.

The means Hawken suggests to combat the tragedy of the commons, such as overfishing, is to give the rights to all fish to someone. He makes an example of the Pacific salmon, which dovetails nicely with all our talk about the Coast Salish. Every salmon that is taken from the area protected by the salmon utility (including farmed and wild salmon) would have a small levy attached to it. Perhaps ten percent of the wholesale value of the fish removed from the watershed. This would go to the salmon utility, and the salmon utility would be responsible for watershed maintenance, education, habitat preservation, and overall improvement of the stocks of wild salmon. Hawken has a good idea there, but I feel it needs a little more oomph to really make the system functional.

First off, in the case of our fictional salmon utility, I think the government should enforce and collect the levy, because the government can. The government is good at collecting money and holding shirkers accountable. That's good. To maintain a strong incentive to build stocks, however, I feel that the utility should be rewarded for fish in the water, not simply fish taken out. Some metric could be selected... perhaps the size of the salmon run in a given year, or the total number of females of reproductive age in the run... but there should be the equivalent of the infamous share price bonus for the utility when it comes to the end of the fiscal (or should I say halieutic) year. This bonus would be a good incentive to boost stocks and improve habitat. Hawken also throws in that a mandated 90% of the profits of the utility must go to habitat improvement. Perhaps that will work, perhaps not. I think that if the bonus incentive is sexy enough, habitat improvement would happen as a matter of course, and not due to an imposition.

To get back to our Coast Salish, I propose the Coast Salish (and Tlingit, and Haida, and Nuxalk, and everybody else) be granted control of the salmon utility. As a matter of fact, they would also be able to form an oyster utility, a cockle utility, and a mighty clam utility. These ancient staples of the west coast people are under threat from, among other things, septic tank leachate, which renders them unsafe to eat. The money gained from the utility levy could be used for, among other things, purchasing safer and less harmful septic systems for coastal watershed houses. While the utilities would not be granted the right to appropriate land, there could perhaps be a case made to request the government acquire land on the behalf of the utility if it was absolutely necessary to habitat survival. The utility would be able to use its funds to purchase land on the open market in order to protect habitats. Land owned by the utility would not be built upon unless the housing was culturally appropriate.

This plan gives the sovereignty back to the First Nations peoples over their natural foodstuffs and products. It also creates a source of income based on sound ecological husbandry practices that are already part of the rich culture of peoples such as the Coast Salish. Some might argue that the government grants adequate First Nations fishing rights on the west coast, but the concept of a resource utility is ownership. Fishing rights are granted by the government and do not mean ownership any more than a sport fishing license does. Ownership begets stewardship when incentives are properly structured. The power of First Nations people to have sovereignty over their culturally significant resources is a particularly capitalist solution to an issue that fundamentally deals with wealth. In this case, natural wealth. The salmon fishing industry would be happy to see the salmon catch increase year on year. The salmon utility would benefit from increasing catches year on year, and the improvement of spawning grounds. All would benefit from environmental protection of beaches from water-borne disease and pollution, which would increase the total natural capital available for exploitation. Preservation creates wealth, and sustainable exploitation of that wealth creates long-term meaningful and satisfying employment. The empowerment of the First Nations would lead to preservation, preservation would lead to abundance, abundance to profit. The cycle would continue onward, a virtuous circle of increasing levies to create better habitats and greater stores of natural capital.

Each Nation or set of Nations would be granted a special utility over resources. For some it might be logging rights or hunting; for some acres of prairie or heads of buffalo; for some, lobsters or seal. In their sovereignty over natural wealth, I hope that First Nations peoples would find greater empowerment, perhaps coming closer to the original intent of the word "treaty" than heretofore experienced. Through an odd set of virtuous knock-on influences, the preservation of First Nations wealth would lead to greater stores of natural capital, and therefore more capacity for nature to support meaningful work and produce profit. Indeed, the profits of cooperation and mutual assistance would be far greater than simply those valued in dollars and cents.

Readings so far...

I have struggled half-way through The Natural Advantage of Nations and found I needed a break. It's not that the book isn't good or important... it's that it can get boring. I know, I enjoy reading policy because I am a strange person and I like working out in my head how things would happen if such and such a thing were done, or if we fiddled with some incentive structure. This book, however voluminous it is in details and facts and figures, could probably have been a third of the size it is now. It is one thing to make a companion book to Natural Capitalism; quite another to attempt to make an entire survey of the literature and studies on the subject and pack in dense policy ideas on top of it. Add the fact that it's not particularly well organised and there are a few copy-editing errors, it's a tough slog. So, instead of pushing the whole way through, I started Hawken's The Ecology of Commerce. I must admit that it's a bit doom and gloom. Not as much of the optimism as we saw in Natural Capitalism. Still, a lot of the stuff he said a long time ago is stuff I'm writing about now.

I've also got Blessed Unrest sitting on my bookshelf staring at me, but I wanted to read them in chronological order. After that comes Factor Five, Biomimicry, Critical Path, Capitalism at the Crossroads, interspersed with longing glances at The New Organic Grower, Edible Forest Gardens Vol. I and II, and Gaia's Garden...

...and perhaps the occasional perusal of the photos I took when spending a weekend at an alpaca ranch in Southern Alberta in 2000. Alpacas are so cute.

Compost Tea Brewer

Back to basics!

Check out a great post here on how to make a compost tea brewer for cheap!

Why do such a thing?

Because!

Ahh, cool stuff.

Fiscal Responsibility - Part 2: Markets and Innovation, Chapter IV: Patent Catch 22

There are two very divergent and very vitriolic extremities on the spectrum of thought regarding Intellectual Property. There are those who espouse the necessity to control and maintain IP rights as strongly as possible as the best way to foster innovation. The fundamental argument of this side is that an inventor should be able to profit from his or her labour. Without the inducement of the ability to profit from labour, innovation would be rare indeed - or so they argue. Then there are those who argue for the freedom of information and the abolition of IP. They argue that ideas happen no matter what you do, and the best way for us to advance is to disseminate and propagate those ideas as fast as possible. An example of the former - IP protection - would be the pharmaceutical industry, which expends billions on research and needs IP protection to realise profit. An example of the latter - open source - would be fashion design, which must advance by constantly re-creating itself. The conflict between to IP or not to IP is, at its core, one between concentration and diffusion.

There are both good and bad on both sides of the argument, and the only real way to reckon which is the superior would be to determine which of the factors is more important in the marketplace: whether concentrating IP in the hands of the people with the profit motive is a better motivator for invention or diffusion into the hands of the greatest number of potential inventors is a greater motivator for invention. Both sides agree invention is good, but disagree on how best to encourage it. Obviously, we all want to have our cake and eat it too... we'd like to be able to have the benefits of profit motive - the fact that individuals can devote their lives to invention, or the fact that corporations will spend billions on research - combined with the benefits of diffusion - the fact that thousands of programmers will converge on open source code and advance the industry, or the fact that fashion designers have to keep coming up with new stuff or become irrelevant. We also don't want the negative sides of each argument - like the recording industry, that effectively buys up rights to the work of artists and proceeds to squeeze far more profits out of those rights than the artists themselves will ever see. We also don't want the wild west of outright piracy, where the sweat and toil of innovators are ripped out from under them. Here's a thought, though, to put things in perspective a little: the question of IP is not simply about the rights of inventors and artists to profit from their work - it's about the entire economy of ideas. This is a systems problem. IP defines the recording industry. The companies that profit from IP do so because they structured themselves to use the tool of IP to make money. If IP was yanked out from under them, they would have to find a completely new way to make money because the incentive of IP effectively structures the payout matrix of the whole system. Some companies might live and some might die, but they'd have nothing in common with their former selves. IP is one of those "inducements" in the economic system that has enormous power over how the whole of industry organises itself. Fiddling with it does more than just anger Metallica.

MARKETS AND INNOVATION

Deriving the maximum benefit from innovation

How can we talk about IP and speak to all the pitfalls and potential of the system? A couple thought experiments might help. The first things I'd like to talk about are industries driven by innovation that requires little to no initial investment versus industries driven by innovation that require enormous time and investment to succeed. Key examples of these two extremes would be the recording industry and the pharmaceutical industry.

Brainstorm for a moment how the recording industry would look without IP. How would the companies derive profit from the creation and marketing of music? To be honest, several models are emerging currently from bands and fans who realise that music piracy is a fact that's here to stay. Some offer their music online for free, depending on reciprocal goodwill when it comes to purchasing their albums. I know several artists who do this, and are perfectly happy... but they keep their day jobs. Others offer tidbits online in the hopes of driving interest for their tours. A business model could be constructed where a band's real work is their stage performances, and their marketing is their music writing, as opposed to vice versa. You can see how it works... whereas nowadays tours are just promotions to announce a new album, in the no-IP music industry, songwriting would be the advertising and live performance would be how bands brought home the bacon. I don't know enough about the recording industry to speak to this authoritatively, but I'd bet dollars to doughnuts someone is already working this business model. Would it be the same industry as before? Absolutely not. Would music continue to be written? Yes it would.

So what would happen to record labels in such a system? Well, they would cease to exist. The label's sole claim to profit is now IP and the merchandising thereof. Song rights are all they have now. I say that confidently because, if you talk to the owner of a label (and I have), they'll tell you that moving records is more about logistics than music. Labels were the people who had the capital to press the vinyl, the connexions to push the music on to the radio, and the coordination to move the LPs into record stores. Except for the guys who press vinyl nowadays (and they not only exist, but are pretty cool), production and distribution is no longer an issue. As a matter of fact, it's a throwback to a now bygone era that we still purchase CDs at the brick-and-mortar store. There is enough studio time out there for a lot of reasonably-priced recording, so up-front capital isn't an issue. If you are willing to go electronic, you can do it all yourself. The only things a label has are marketing and penetration, and they won't market what they don't own. If IP goes, the entire business model of recording labels ceases to exist. Does music exist because of labels? No. Would the loss of IP matter to the recording industry? Yes... but not as much to the artists; just to the people who profit from artists' work. In sum, the loss of IP for the music industry would just kill off the fat cats. Music would continue to be made, it would just be made under a different market paradigm.

The question of IP becomes far more sticky when we talk about pharmaceuticals. For all their problems, pharmaceutical companies do make stuff that makes people feel better. Some of the stuff they make even makes them better for real. The way they make money is by having a guaranteed window of time in which they can make mammoth profits from their multi-billion dollar research and licensing programs. Unlike music, many pharmaceuticals are necessary to modern existence, and the development thereof should be encouraged. Given the regulatory hoops that pharmaceutical companies have to get through to bring a product to market, such a high-stakes game has to be rewarded with some form of payback. Profit motive being what it is, pharmaceutical companies want to be able to sell high quantities of high-priced goods to the market for as long as possible to recoup costs and make a handy profit. It is, however, in the interest of public safety that the IP reverts to the public domain after a reasonable time so that generic drugs can drive prices down. Does IP work to incentivise research and development of lifesaving drugs and treatments? Yes. What would happen if IP didn't exist in the pharmaceuticals industry?

It would change for certain, but medicine would go on being done by government and university researchers. As a matter of fact, when I hear about possible cures to type I diabetes or the cure for peptic ulcers or, you know, any cure at all... I think about universities and state-funded medical centres, not big pharma. There is a place for pharmaceutical companies in the universe, but the question of whether the incentive of profit moves them to make our lives better is not as cut-and-dried as we might imagine. Cures are not as profitable as treatments. By creating an inducement to incentivise innovation in medical treatment, we neglected to say it should be to find cures rather than symptom management. Still, there is some use to the incentive of IP in this case because bringing a medicine to market does take a lot of work and is highly capital-intensive. Even cures developed by universities must go through rigorous testing that takes a great deal of time and money to accomplish.

Some industries would seem to be served well by IP whereas in others, IP perpetuates an obsolete business model. The problem is that IP is IP is IP, and whether we like it or not, the strength of IP is either exerted on a product or it isn't: it's tough to find a good balance. Diffusion benefits the producers of innovations: generic drug manufacturing depends on it. They compete on price and process, not ideas. Musicians also could compete solely on the merits of their music without the input of labels. However, for some companies, ideas are where they compete. Pharmaceutical companies are a big and important example. Innovators like 3M are another. For each model, there must be a sensible way to handle IP.

My thoughts lean toward diffusion, but not completely. IP must exist in order to act as a carrot for people with good ideas. IP can be used to advance the ends of the government as well as increase the diversity and liveliness of the economy. When deciding how to apply IP, states must consider first whether IP is the right solution to sparking competition and innovation in a market. In fashion, IP would lead to stagnation. In music, some could argue it has already lead to stagnation. Second, the decision has to be made for how long it would be appropriate to allow the IP to be controlled. In my mind, pharmaceutical companies should be allowed to keep IP for longer on cures and shorter on treatments. If cures are what interest us, then the system should be nudged in that direction. On an industry by industry basis, we have to decide whether IP orders the market in a positive or negative direction. IP, like any other policy, is a tool; it is not some Gods-given right to eternal royalty cheques. The government, for its part, should intervene when it is in the interest of the market to do so. For instance, if an innovation in efficiency would spark major gains by being cheaply and broadly disseminated, government should acquire the patent and open it for general use. A few thoughts on this:

1) Open the product for construction only within Canada by Canadian owned companies.

2) Since the patent is Canadian government property, the Canadian government would chase down IP violators outside of the country.

3) The originator of the patent would be reasonably rewarded... but forfeiture of the patent (for said reasonable price) would be mandatory.

This is a quick fix that works within the existing IP system to attempt to derive benefit from both the incentive of IP and the market benefits of diffusion.

I hope that this has made us think of IP in a different way. IP is not a right, it's a policy tool that was conceived in order to drive innovation. It's been around for so long that some people consider it a necessity to technological advancement. It is not. Its use should be studied and understood, and applied only when it is useful to the market. Whether the interests vested in IP are served by its elimination is not my concern here - our concern is the health of the market and the goal of competition through innovation. IP does not always serve that end.

Governance and Game Design

Those who know me know I like to dabble in game design, and I have a published hobby game out on the market right now. I think a game designer comes at the concept of governance from a unique angle. A game designer's goal is to create a competitive experience that the players feel is both fair and enjoyable. Oddly enough, a policy designer in a democratic and capitalist system has the task of moulding a competitive system both fair and enjoyable. Both work with rules and objectives, both try to encourage competitive activity within the bounds of civilised society, and both attempt to use their understanding of human nature in order to make their designs better.

When you design a game, there are a couple things you use to make the experience fun and fair for the players: rules and objectives. Objectives are the winning conditions of the game, the payoff structures, the stuff that people complete for. Rules are the things that keep the game fair, the bounds to the game, the stuff that ensures the game itself is neutral. Many believe the rules are what makes the game, but that's not how it works. The game exists as soon as you have an objective. The rules are just there to make certain everyone has an equal chance of attaining that objective. The true art of game design, then, is to make the objectives, the incentives, and the inducements so perfect that the game only needs a minimum of rules. Rules create a kind of friction. They can limit creativity and expression, and they certainly take time to learn. The less of them, the better - so long as the game is fun and fair.

Policy should be thought of more like game design. Objectives themselves change player behaviour, and rules are a necessary evil. As Laozi said:

A leader is best when people barely know that he exists, not so good when people obey and acclaim him, worst when they despise him. Fail to honour people, They fail to honour you. But of a good leader, who talks little, when his work is done, his aims fulfilled, they will all say, "We did this ourselves."

Just so, a game should take its players seamlessly into a joyful place without their even noticing. Equally so, the incentives in society must be structured such that simply by acting in accordance with self-interest, all are able to chase their own objectives on a level playing field. Game theory is a great example of how to study the structuring of incentives. If incentives make cooperation easier, then cooperation will happen. If cooperation happens, you don't need to make a rule against being a killjoy. By structuring the incentives, you can eliminate rules. By eliminating rules, you make the game self-ordering based not on fiat but on the simple self-interest of the players. In other words, good policy makes certain laws obsolete simply through incentives.

The interesting thing about real life is that everyone more or less sets their own objectives and sets out to attain them... but most lose track along the way. Both conveniently and sadly, the medium of exchange and competition in real life is money. The place through and in which we compete is the market. Since money is so relevant to achieving so many objectives, many people take it for an objective in itself. Part of helping people play the game of life is helping them discover what their objectives are, and how to attain them. Me, personally, I'd like to have a nice place in the country and perhaps an alpaca or two. That will take money, but if someone offered me a place in the country (and a couple alpacas) for the price of three kilos of dandelion fluff, my value system would shift to the collection of dandelion fluff. For everything, there is a medium of exchange, and it is not always money. For some human needs, money does not provide satisfaction. Knowledge of self and a sense of imagination regarding how to attain one's goals should be a prerequisite to playing the game. The first key to structuring incentives is to engage the players to seek their own goals, and not simply to seek the medium with which some goals may be attained.

Corporations are so structured as to make the accumulation value (denominated in money) their sole objective. Corporations, being individuals with objectives, are also players - albeit rather mechanistic ones. Since their objective is money, it is all the more important that incentives are structured through the use of money. Money flows to where it will make the most money, and the market will act according to price. If, in the words of Hawken, price reflected cost, the market - and corporations - would begin acting in a manner that had a lower or negligible negative impact on society. The market is a place in which choices are made, and corporate choices are reasonably predictable. If corporate choices are predictable, then they can be manipulated to do good rather than evil through incentives, not rules.

So what is the key to a good game? It must be fun and it must be fair. What is the key to good policy? It must be fun and it must be fair. The more incentives and prices reflect actual cost, the more positive decisions will be made by the market. The more positive decisions are made by the market, the less rules are required. The less rules are required, the greater the range human ingenuity can roam. The greater human ingenuity is employed, the more rich the ecology of ideas is, and the more fun the game becomes.

Civil Society - Part 1: The People, Chapter II: Protest

Perhaps unlike many people, I believe that protest - in democracies - is not only noble but necessary. Protest is a very specific form of feedback, and one that should be singled out not only for its energy but for its contagion. One man self-immolating in Tunisia sparked a wildfire of revolution across North Africa and the Middle East. A key to the power of protest is actually the opposite of a standard feedback loop: protest occurs when feedback is blocked. The feeling of utter and complete powerlessness can transform most readily into rage. Powerlessness comes from being unheard, or from being silenced. Powerlessness comes from when the lines of communication with the powers that be have either broken down or never existed in the first place. Consider the fate of Zhao Lianhai, who was one of the people who blew the whistle on the Sanlu tainted milk scandal. While loving his country and hoping for China to be great, he was moved to criticise it in order to improve it. For doing so, he was detained. In a way, his protest is a greater sign of patriotism, because he knew he risked detention for his protest, but did so in the belief that the leaders would hear his plea and rectify the system. In the end, the protester wants something to improve, and is left with no other avenue to voice his concerns except protest. Dissent is the highest form of loyalty, for it is necessary, yet almost certainly ends poorly for the dissenter.

I remember the Kananaskis G8 summit in 2002 when I think about how to deal with protest. In Calgary, the scene of the most numerous protests (and where I was living at the time) the police response had a stark difference to police responses at other such events elsewhere in the world. Protests were mainly policed by lightly-clothed officers on bicycles. When an unplanned (and, effectively, illegal) snake march began in the downtown core, the police didn't attempt to stop it. They blocked intersections along the route and made certain it progressed safely. While Calgary's police may have been considered aloof by some of the protesters (they did decline to play a street soccer game with some anarchists), they cannot be considered non-responsive, and they certainly didn't escalate the tension level at any of the protest venues. In sum, they professionally protected the public peace, and showed restraint and discipline, just as they were supposed to do. This is, after all, a democracy, and people have a right to be heard... even if it means holding up traffic a bit. Blocking the progress of the protest would simply have fuelled greater demonstrations.

But what if we could harness that energy?

THE PEOPLE

Harnessing the power of protest

The government is a giant system with its own series of feedbacks. As I have indicated in previous posts, it makes sense that the people be allowed to give feedback on important topics within set guidelines. It's equally important that the government react to that feedback automatically and uniformly, so that the populace has faith in the system. When I worked in Sri Lanka, I was in charge of an occasionally unruly line-up of clients. They would line up perfectly fine until someone managed to sweet-talk their way past the line-up. At that point, the system changed. I hesitate to use the word "broke down", though that is what appeared to have happened. No, the system changed to a less fair and equitable system. Once the fiction of the line-up was shattered, the line degraded into a crushing mob. This was not the fault of the people in line; it was the fault of the people who were rewarded for bucking the system. If people are not mechanistically provided with uniform feedback based on their inputs, the system changes. If the people do what they are supposed to do and they don't get the result they expect, they stop upholding the previous system.

Protest is feedback that hasn't got a channel. This type of feedback, too, must be heard - even if there is no extant process to deal with it. The unique problem that protest presents is that it is a form of feedback that has noplace to go - so it bursts out onto the street. Protest that is allowed to proceed - just as it did during the Calgary anti-G8 parade - can be dissipated before it meets resistance. Resistance amplifies protest because protest is, by definition, an aggressive reaction to resistance. The best reaction to protest, then, is to put it someplace.

While I don't think the police approach to protest should change that much from what I saw in Calgary way back when, there needs to be a general way to deal with protest. Protest is not a special case. It happens. Regularly. Just as the people should have expectations of how their feedback should be treated, they should also have expectations about how their protests will be treated. Opacity works for nobody when it comes to issues of the law. Police should be given rules of engagement that allow them to balance collective good against minor infractions. Though many people may think otherwise, especially after the most recent G8 issues, police are neither dumb nor unsympathetic. They don't actually want to ruin people's lives. Their interest is in preserving order, and when given the freedom to exercise their discretion to do so, they do. Just as police understand the occasional need to allow petty crime to go unpunished to facilitate a greater investigation, police are fully capable of comprehending the need to let obstructing traffic go unpunished in order to avoid a larger (and utterly preventable) confrontation. In the end, they understand that punishing a minor crime can lead to the commission of more serious crimes. When given the rules of engagement that allow them to make that judgement, I would have confidence in their ability to do so. Rigid rules of engagement do not take dynamic situations into account, as projections cannot take all possible futures into account. Delegation of greater power to ground level would potentially solve this problem. It's not like you want to congratulate people for mucking up traffic, but you don't want to muck up traffic worse by writing two jaywalking tickets and making two hundred people angry at you.

But I digress. Protests may happen, but the interest of the government is to stem the need to protest by allowing that energy to be put into a beneficial place. If we classify feedback as "public opinion that has a natural place to go" and protest as "public opinion that has no natural place to go", then what is protest, really? It's a kind of meta-feedback. It's feedback that tells the government that existing modes of feedback are not functioning properly. The mechanism for handling protest should be some form of tribunal with the executive power to request the implementation of changes in the way government feedback is administered (if it is a matter of changing an existing feedback mechanism), or to deliver a report to the House of Commons (if it is a matter of creating a new feedback mechanism). The perfect place for such a tribunal would be under the Office of the Auditor General. Based on the information provided by would-be protesters, the Auditor General would be able to provide a report either to Commons or to the Department in charge of the feedback system in question. Unless the tribunal itself was found to be insufficient to fulfil the needs of the people, protest itself would become redundant. Since the tribunal would be able to escalate matters directly to the Commons, there would be an established mechanism for attenuating its own mandate via Parliament. Protesters would instead become petitioners, and have full right to due process under the law.

The issue here is that protest, in and of itself, is a legitimate voicing of opinion that has nowhere else to go but the streets. The people shouldn't be congratulated for inconveniencing shopowners and commuters, but they should be given the right to due process with regard to their grievances. While being accepting of protest and dissent as a legitimate way in which to express dissatisfaction, I would rather know that the people have a way to avoid the need for protest by having a mechanism by which their needs can be expressed. By turning protesters into petitioners, the government can constantly adapt and improve is feedback mechanisms, and both improve governance while responding directly to the will of the people. What's more, you don't even have to get an MP out of bed for it... the police and bureaucrats can take care of the whole deal.

If we let them.

Civil Society - Part 1: The People, Chapter I: Feedback

I have a bit of experience with turning disparate and occasionally disconnected information into useful analysis. It's hard. It takes a lot of work and three very rare things: a the ability to make and defend a thesis, a penchant for lateral thinking, and a great data storage/retrieval methodology. Yes, there are other qualities that make the production of reports and analysis better, such as expertise in one's craft, profound subject-matter knowledge, or broad-ranging interests; but starting from those three basic things, one can maintain a good data-synthesis capacity. In most organisations that do this kind of data-synthesis, they rely on individuals to put all this together. Perhaps individuals with small teams, but the typical "producer" of analysis is the analyst - a person. One single person. Bureaucracies and think tanks are constantly in need of more "processor power" to deal with all the information they collect and have to report on. Collection itself is onerous - requiring its own specific and hard-to-find skillsets - let alone the ability to synthesise data together into a useful piece of information. There will always be more data around than the group assigned to processing it will be able to process.

For example, in a classical intelligence operation, assets are run by an operator. The assets are key contacts that the operator uses to gather information to report back to either a handler or his operational unit at headquarters. The operations unit collates and synthesises the work of several operators into briefs and assessments that are then passed to a strategic unit. The strategic unit produces more broad or deep situational reports based on the briefs and assessments from the operational unit. This hierarchy of information gathering requires that at each level, the information gathered becomes more compact and dense. This requires skilled officers at every level to accomplish, and each level is mission-critical. Given the fallibility of humans, the efficiency of a trim organisation can occasionally be a weakness, and when possible, overlap and numbers help overcome this problem. With numbers comes the problem of a greater amount of information to handle, and we are back again at the beginning: the more data you have, the more people you need to parse it. Who better to collect and parse that information than the people you're parsing it for? The people.

PEOPLE POWER

Feedback: crowdsourcing monitoring of government initiatives

Feedback applies to everything a government does to maintain law, order, and a free flow of goods and people within and through its borders. Things like food safety inspections, water quality indexes, air pollution sampling, ice cores, soil monitoring, and even stuff as mundane as traffic flow analysis are all examples of data collection that the government performs to provide feedbacks for its initiatives. Every department of the government collects and maintains catalogues of indices and datapoints to better maintain its programs and make certain the public purse is being employed responsibly. All that data gets fed into huge and broad-ranging analysis to assist in steering the ship of state. That's why there's an entire department of the government called StatsCan, and it's a lot more important than people give it credit for. Monitoring what the government does is almost like a double expenditure on a program: not only does a department have to pay to implement a program, but they have to pay the administrative overhead to manage and measure its output. This is no small amount of money or manpower (expressed in "full time equivalents" or "FTEs").

It's important though, because fairness is expensive. Government must pay more for everything because it must be certain it acts without fear or favour. The process of establishing the need for an expenditure, securing budget for the expenditure, making a tender call, reviewing tenders, selecting a contractor, monitoring the performance of the contractor, assessing whether the final product meets specifications, and completing the contract (and yes, I left out a lot of steps there) must be reviewably fair, transparent, and equitable. Reviewably fair means there is a process established before the activity begins that explains how the process will proceed and why, and that all results of all steps of the process are recorded and judged as part of this established process. Transparent means that all stakeholders in the process must be given adequate and appropriate information for them to be able to take part in the process. Equitable means that no one stakeholder can have a privilege over any other stakeholder. That is, in a nutshell, what government has to do every time it does something. That means you don't simply pay for services, you pay for responsibility. That costs more than just services in the short run, but in the long run, actually costs less. A joke (from a country that shall remain nameless) explains why this is so:

"J", a member of the government of a (country that shall remain nameless) went to America to see how things were done. He visited the palatial mansion of a senator and asked the senator how he got so much money to buy such a lovely house. The senator took J to the porch and pointed to a bridge over the river. "You see that bridge?" said the senator, "I hired the contractors, got the money for double the value of the bridge from the treasury, paid the contractors and he kicked back half to me!" J was amazed. He went back to his homeland thoroughly edified.

Five years later, the senator went to visit his friend J. J, at that time, lived in a veritable resort village surrounded with parks and gardens, and was attended by all manner of servants. "Well, J," said the senator, "how did you get all this? I thought you weren't paid well at all by your government!" J smiled and pointed to a distant pair of mountain peaks. "Do you see that bridge, senator, there between the peaks?"

"No... I don't..." said the senator.

"Exactly!" said J.

In effect, we pay extra so that our government does what we ask it to. We are interested in our government doing what we ask it to because it means better services for us. In effect, it's in our own self interest to have established processes and feedbacks in order to make sure the public purse is being used effectively and efficiently. So this is good, right? Well, yes, actually, it is. Canadians get good governance, no matter what anybody says about it. You can make a low salary in Canada and still have all the security of fully paid medical services and education... and there's the added bonus that we don't have much social stratification. If you're a janitor, other Canadians don't think any less of you than if you were a car salesman or a pipefitter. In other countries, what you do establishes your social standing. In Canada, generally speaking, people's people. I really appreciate that.

Some feedback comes from civil society groups already. Think of Greenpeace, or Mothers Against Drunk Driving, or the Friends of Nose Hill Society. These are groups that band together to advance a given idea, or to defend laws that are already on the books. They have specific or broad interests, they develop expertise in their subject matter, and they effectively bring together hundreds of thousands of person-hours of work for free. In some cases, these civil society groups have direct input on policy. The Friends of Nose Hill certainly do. Some people take things to heart, and are willing to take their own personal time out to raise awareness, or advance a cause, or even just pick up litter. It's a part of civic pride, and such organisation is a civic virtue, whether it be to protect or oppose a given idea. The avenues by which these groups advance their aims are many and varied, but most deal with public education and awareness. If they want the government to do something, the typical way to do so is through unofficial - but broadly accepted and respected - channels such as a letter-writing campaign to the local MP/MLA/Alderman or a petition to the relevant department. There is relatively little in the way of official policy inputs that civil society groups can make, though all parts of government have places where people can give feedback.

So, to recap: this system of feedbacks is in our interest. The government does stuff, monitors it, measures it, reports on it, and has built-in methods of correcting things when they go awry. That's good. It's expensive, but it's good. It's also in our own self-interest for this monitoring to occur. Some groups even do monitoring and advocacy of their own for this very reason. This organisation of civil society is a profound virtue in a democratic society and should be cultivated and nurtured by government policy. This is because - if we really thought about it - wouldn't be in our own self-interest to get these groups to participate in monitoring in a more official way? Certainly not all of the monitoring and analysis... but couldn't the public contribute a little to lightening the load of government and adding to government's feedback systems? The answer is yes, and it requires two things: freedom of information and an effective procedure through which the feedback can happen.

I've already alluded to this in the previous section. Using civil society groups to monitor the management of feebates is simply a good way to make certain that the fox isn't left guarding the henhouse. The important thing is that the groups used to monitor and report on the projects implemented and the standards set by the government must adhere to strict procedure and exemplify the governmental qualities of fairness, transparency, and equity. This means they should be certified and registered with a central agency (or with the department responsible for the bailiwick in which they operate). It also means there must be very neatly-defined parameters for their feedback as well as clearly-stated process that the government must follow in the event feedback is generated.

For example: through engagement with the truffula society, the department of truffulas has determined that the thneed factory can only harvest 1000 truffula trees per year. The truffula society has the right to monitor truffula harvest by giving three days' advance notice to the thneed factory before inspection. Inspection may then proceed, and if all is in order, no problem. If the truffula society determines an overharvest has occurred, they flag this to the department of truffulas, which is then mandated by law to inspect themselves. If they find the truffula society was correct, a penalty is levied against the thneed factory, part of which goes to the truffula society for their services. If the truffula society raised a false positive, they would be given an administrative penalty for crying wolf. A certain amount of crying wolf would get them de-listed as a certified monitoring group, as would the flagrant abuse of their right to inspect (for instance, forcing work stoppages by inspecting every three days). So there would be a mode for redress from the thneed factory if they felt they were being improperly targeted. The truffula society would also have to agree to an open-books policy of allowing not only the government, but the thneed factory and the public, to view all their communications and reporting regarding truffula harvest monitoring. The main necessity is for fairness for both sides, but also the right to monitor must also be held inviolable. While excessive monitoring could be construed as unfair obstruction, regular monitoring should be expected. There should be no mechanism by which regular monitoring could be upheld or obstructed so long as it was not overly intrusive.

The benefits of this are manifold. The government gets free monitoring for certain initiatives and standards. They are then able to employ their overworked monitors in a more parsimonious and effective manner. The government spends less for more coverage, and would gain greater revenue from greater discovery of infractions against standards. Civil society, however, is the big winner - not simply from the fact that it would have more power and input - but from the fact that it gets immediate response from government regarding a subject that interests it. That direct action spurs on a culture of civic responsibility. When your action makes a positive (or even negative!) reaction, you are more likely to keep up the good work.

A government that gives more avenues for people to participate will be blessed with more popular participation. When the people feel empowered, they will be more likely to feel part of the process (and by extension, the solution) rather than separate from it. The civic pride that is engendered from simply doing the right thing will build and empower civil society to do more, and to speak more about the things that are important to it. That feedback will assist in making government more responsive to its people, and the virtuous circle can build on from there. How do you get the government's work done for free? Let the people in, by tapping into the flow of interest that already exists in society. That is how to harness feedback that improves the systems set in motion by the government.

I've heard this somewhere before...

This sounds a lot like what I've been writing lately.

As a matter of fact, not only does he come to the same conclusions...

First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible. Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy.

He even finishes off where I have on past occasions:

Alexis de Tocqueville once described what he saw as a chief part of the peculiar genius of American society—something he called “self-interest properly understood.” The last two words were the key. Everyone possesses self-interest in a narrow sense: I want what’s good for me right now! Self-interest “properly understood” is different. It means appreciating that paying attention to everyone else’s self-interest—in other words, the common welfare—is in fact a precondition for one’s own ultimate well-being. Tocqueville was not suggesting that there was anything noble or idealistic about this outlook—in fact, he was suggesting the opposite. It was a mark of American pragmatism. Those canny Americans understood a basic fact: looking out for the other guy isn’t just good for the soul—it’s good for business. [emphasis mine]

Do yourself a favour and pass the article around. It's sobering, it's correct, and it's important. We need to reclaim the power of the middle class.

Tax the Wealthy

Seriously.

Allowing someone to profit from the fruits of their labour is about just rewards, it's about advancement, it's about  creating growth and economic resilience.

Wealth redistribution is about equality, it's about humanity, and it's about doing the right thing.

Somewhere between the justice inherent in being rewarded for one's work and the humanity that is manifest in helping the downtrodden out of their vicious circles of poverty is a tenuous middle ground. In this middle ground, the rich are rich because they have contributed, and by deriving profit continue to contribute to society. In this middle ground, the poor are only poor because they are just starting out, but are given ample opportunity to apply themselves to their own emancipation from poverty. That's a pretty dynamic middle ground, and it would require good, stable governance to keep on such an even keel. That's why it's important to learn from our mistakes and make small but continuous error corrections to our budgetary calculations.

Here's one error correction we can make now.

Like I've said, giving more money to those with lots of money doesn't inspire job creation or economic expansion. That's what the lower 80% of income earners are good at. Sparing the rich from taxation is not a sacred cow. We can do it. It won't hurt the economy. As a matter of fact, it will assist the government in reducing debt, which, given the OECD's rosy picture for Canada's economy in 2011, should be a priority.

But it's also part and parcel of the humanity of wealth redistribution. Taxation isn't robbery or appropriation... it's just taxation. The rich still get to keep the fruits of their labour, but they get the additional karmic benefit of helping a new mother just starting out in life pay her rent and clothe her kids... or helping a guy starting his first job pay off his student loan. It's not only the right thing to do, but it creates more economic expansion and consumption than letting the rich keep the money. Who knew that doing the right thing would also help the economy?

Robbing from the Poor to Give to the Rich

This article has me just a little bit furious.

Specifically, the quote in the article that comes from a Citigroup publication entitled "Revisiting Plutonomy: the Rich Getting Richer" drove me to take a brief look at the document. I found these gems:

Our thesis is that the rich are the dominant drivers of demand in many economies around the world (the US, UK, Canada and Australia). These economies have seen the rich take an increasing share of income and wealth over the last 20 years, to the extent that the rich now dominate income, wealth and spending in these countries. Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries.

So the upper 10% of the population drive purchases... I guess that explains why food prices really aren't a bother then.

The latest Survey of Consumer Finances for 2004 from the Fed, just released, shows that the richest 20% of Americans have gotten even wealthier since the last survey was conducted in 2001, and continue to enjoy a disproportionately large share of both income (58%) and wealth (68%). We should make clear that we have no normative view on whether plutonomies are good or bad. Our analysis is based on the facts, not what the society should look like.
This lies at the heart of our plutonomy thesis: that the rich are the dominant source of income, wealth and demand in plutonomy countries such as the UK, US, Canada and Australia, countries that have an economically liberal approach to wealth creation. We believe that the actions of the rich and the proportion of rich people in an economy helps explain many of the nasty conundrums and fears that have vexed our equity clients recently, such as global imbalances or why high oil prices haven’t destroyed consumer demand. Plutonomy, we think explains these problems away, and tells us not to worry about them. If we shouldn’t worry, the risk premia on equity markets may be too high.

Hmm. Yeah, this isn't the way the world should be, it just kinda is... and therefore we should accept that and try to make money off it. I see.

Well, this doesn't provide any political capital at all, does it? I mean, if a politician ran on a campaign of taxing the top 10% of the population in order to provide better lives for the bottom 90%, he'd never win, right? I mean, it would be dumb to shoot for a majority of voters in a democracy, right? Yeah. That logic doesn't seem to hold. I wonder why politicians don't try to rein in the plutocracy? I wonder why they don't pick the issue that could get 90% of voters behind them?

I wonder indeed.

Taxes

The Economist is going through a nice short survey of taxes amongst OECD nations. They've covered consumption taxes, income taxes, and property taxes. I'm grabbing the graphs just in case I lose the permalinks.

Canada has low consumption taxes, high-ish income taxes (especially because we include provincial taxes), and exorbitant property taxes. You'll note that my thoughts regarding taxes exacerbate the income tax issue and increase consumption taxes, hopefully up more toward OECD average. The purpose is to allow consumption taxes to take up the slack and eventually reduce income taxes. However, I'll get into my thoughts on reducing property taxes by giving municipalities direct input from the treasury later. Canadian cities have very limited ways of raising funds, and most of the ways that would be effective for cities to raise funds are actually under provincial control. They therefore tax what they can tax, and unfortunately, that is mainly only property. The rest is user fees. 

The federal treasury has to penetrate the provincial barrier to give funds straight to municipalities, which will use it far more efficiently in some cases than the federal or provincial government. Policy, administration of national programs, defence, etc... these big things are best done by the federal level of government. Service delivery, however, should be a civic bailiwick. The holy trinity of Canadian politics is Education, Healthcare, and Social Services. These things are most efficiently delivered by cities and cities should be directly funded accordingly. Five billion bucks could do wonders for both the educational and health systems, and that's not too much to pay for the two most important things on the Canadian political to-do list.