A prescription for tax, education and health reforms while enhancing social justice and reducing budget deficit.
Dear Web Guest:
What a mouthful and such arrogance. So let me start as usual by apologizing for my ruminations and musings but this is the one place where I can do it and maybe get away with it. This is the forum for such crazy ideas. However, maybe one day I will be able to show this article and say- “you see I said it first”.
There is no doubt that technology has had a profound effect on our lives. It is so obvious that no-one is trying to debate that fact. There is an intensive debate if it is a change for the better or not but the fact that the technological revolution of the late 20th century is as profound and maybe more so than the industrial revolution of the 19th century or maybe even the invention of the Print or the Wheel or the fire, is beyond doubt.
It is also interesting to note which sector gained the most economic benefits from this revolution. Without being an expert on the subject I will say that it is clear that it is manufacturing. The productivity gains in that sector are legendary. Following far behind but gaining ground is the service sector. Not surprisingly the one sector lagging behind is the public/government sector. Stating clearly again that I am not an expert I will hazard a guess that the productivity gains in the government sector from the application of new technologies have been not only the least of all other sectors but have been small in absolute terms.
The purpose of this article is to propose a way to fundamentally change the way our government conducts its business and fulfill its obligations to the people.
I think we can all agree that a huge organization like a government which very appropriately needs and has a huge element of accountability, transparency and bureaucracy, by definition can not be the most productive and efficient organization. It is undeniable that there are economies of scale, but there is also the law of Diminishing Returns or indeed Negative Returns. Governments all over the world fall clearly into the latter one. There is NOTHING that government can do that the private sector can not do better. I doubt that there is any serious debate on this statement. So why have government at all?
Because the private sector is only interested in doing things in which it can make money.
There are two areas in which a government needs to get involved in:
- Law, order, national security, military etc- all things where profits and risk reward analysis can not and should not be the motivating factors
- Social justice. One of the most important factors and the least understood or discussed amongst many people is how important social justice is to the stability of democracy. There is no democracy if the gap between the haves and the have-nots is too large. There is no democracy if people can not see their way to move up the ladder from the lower rungs to the middle and upper levels. There is also no profit in providing social justice. It is however extremely important to the fabric of capitalism, our society, democracy and everything that we cherish. It is also just, well- just. Fair, humane, moralistic, Judeo-Christian. In short the right thing to do. This is why government needs to be the watchman of this area.
I am not going to spend much time on the first category. We all know and accept that law enforcement, prosecution of criminals or wars, relief from disasters man made or abnormally large nature generated disasters, are all issues for the government to properly engage in. It is important though to remember that while the government is the ONLY body that can handle these issues, it will NEVER be efficient in doing so. It is a large, ineffective blundering giant and we should take this into account and be grateful that there is a body that is doing these things however inefficiently as there is no alternative. That does not mean that we should not strive to get government to be better, more efficient as long as we remember that there are limits.
It is the social justice part that I want to concentrate on in this article.
The concept of government social economic and social justice role is fairly new. I doubt if one can find many examples of governments worrying too much about the well being of their citizens other than from the law and order aspects before the middle of the 19th century. The biggest and probably the first element of this direction was the elimination of slavery in the British Empire in the first half of the 19th century and of-course the civil war in the US in the second half. Other than that I do not believe that there are any examples of governments doing anything which will fall into this category until the 20th century. The big change occurred during the first 30-40 years of the 20th century. The progress in humane rights, the advance of Communism and most of all the Depression has shaped the concept of capitalistic but socially responsible economies, governments and culture. While I strongly believe that this concept is still correct the way it is achieved has not changed since the early part of the last century.
Can you imagine a business organization that still carries out its business in the same way it did 75 years ago? This is ridiculous.
There are numerous examples and areas that one can point to, to show where fundamentally governments have not changed their thinking but I will concentrate on three of them (for now, watch this space for more articles on other issues…).
Tax reform-
The basic tax system has been devised to be a progressive (what a funny word for a system that is anything but benevolent). It is designed to take more money from those that make more money, not just in absolute terms but also in proportionate terms. That is done in the name of social justice. In order to allow governments to narrow the gap between the poor and the rich; and you know what? I agree with this ambition. It is a critical aim to achieve. But does one achieve it using a tax system which has a disincentive to be more successful and an incentive to cheat? I don’t think so and even if it helps it is doing it inefficiently and ineffectually. The growth in the number of people living below the Poverty Level (on the definition of what is “poor” see a future article….) on the one hand and the growth in the number of millionaires on the other hand proves clearly that this is not working very well.
Education-
Education is without doubt the MOST important thing that as a society we have to be concerned with. It is THE thing. Nothing, absolutely nothing gets near. It is the solution and the key to everything. How come we are failing miserably at it? Because it is not urgent, it is a long term issue and it always loses to the urgent more immediate crises. Public education is a clear failure. It is essential to provide all children with education but how do we do it in a way which will raise the level of achievement in education and will provide our children with the education they need to continue the huge progress this world has achieved in the last few thousand years? It is obvious that the current government based system is not working.
Health-
Secondary to education only, is health. It is also much more immediate and urgent than education and as such gets much more attention, time and money spent on it. The achievements in this area are clear for everyone to see- it is measurable. Life expectancy is up, infant’s mortality is down and new breakthroughs in treatment of once killer diseases are coming on line every day, what is the problem? The problem is that the system is bankrupt and is threatening to bankrupt us all.
The solution to all of the above problems is to GET GOVERNMENT OUT OF IT.
- Government should eliminate ALL forms of taxes with one exception- sales tax. It is the simplest most straight forward tax to collect. It can be calibrated easily to provide government with the revenue it needs. Think of all the IRS agents, the lawyers and accountants who will all suddenly have to become a productive part of the economy. Think of all the time and resources that are currently being invested in avoiding tax and in investigating such avoidance (let alone evasion) that will all be freed up and will be now invested in the productive economy. That alone could generate a huge increase in the sustainable rate of economic growth (I do have a modification to the above statement when it comes to inheritance tax. I think that tax should stay in effect with a system that will allow any person to buy themselves out of it in return for approved charitable donation of a percentage of that person’s wealth, but on that – another time).
- ALL education should become private. Government has NO business in providing education or subsidizing the product/service. Why should my children’s (I am comfortably well off, maybe even more than that) education be free? Why should it be subsidized? Why on earth should the government pay for my children’s education? It is doing it badly, inefficiently and is causing and forcing a bad allocation of market resources.
- Same for health. The only way to provide a good health system at a price which is reasonable is to allow the free market to determine what it will pay. People value their life, their health and they will pay. The free competition that will develop will force better innovations at more competitive pricing.
Get the government out of these areas and after a short adjustment period, these areas will start functioning like all other areas- efficiently with proper allocation of resources and with improvement in both result and in price. The same as every other area of intervention by governments has evolved once government got out of it.
Wow, that is a pretty radical agenda. So what about the social justice that I kept blowing about at the beginning something which I fervently believe in? Here is the answer and here is where technology comes into play:
GOVERNMENT SHOULD CREATE A SYSTEM TO SUBSIDIZE SPECIFIC PEOPLE
Do not subsidize the product or the service as the government does now but the people who need subsidizing. Not I and people who are far wealthier than me and some that are less wealthy than me, but those who really need the help. Have a system whereby any person will be allowed to apply for government financial contribution to his costs of living, education or health needs.
Each of these applications will require specific rules but some of the common elements are:
- Each person below a certain level of earnings will be eligible for support on any of these areas, on a gradually increasing basis based on the level of earnings such person declares, up to 100% of the costs of education, health or costs of living
- The application process will be simple and automatic. The only documentation required will be in the case of education: admittance to the desired school and in the case of health a medical practitioner statement that the treatment is necessary.
The application will provide details of the person’s economic status (earnings, number of dependents, assets, liabilities etc), based on which the degree of subsidy/support will be granted on a pre determined basis. - These applications will be acted upon automatically in a technology driven process. Act first, ask questions later. So that the required financial assistance is given immediately.
- The application process will allow government access to all data bases and remove all secrecy regarding the person’s life (I can already see privacy advocates causing a ruckus here, but that is the way it is- you want public money? You allow the public to check if you are lying or not. If you have something to hide, do without public assistance)
- These applications will be tested against all kinds of governments and private data bases- travel abroad, car ownerships, real estate ownerships, credit card expenditure, cell phone expenditure etc, etc. based on these checks, an automated program will select a statistically meaningful sample for investigation.
- A person caught cheating in their application will be tried and the punishments will be severe (more funds will be necessary to the judiciary system but that is needed already anyway).
Government will have to create the framework for all this to work. But this is what government does best. Look at the SEC- it is a government regulatory body, regulating the epitome of capitalism (stock and commodity exchanges) all of which are private. Here as well there will be a need for a government agency setting the rules and investigating those that try to cheat when it comes to schools, hospitals etc. That however is a very proper role of government and one that it does very well.
Due to the limitation on my time and probably more on your patience I will not go into more details here. Into how do you convert all the interest groups or at least most of them to be in favor of this new way of doing things (as an example how about offering teachers to become capitalists and owners in their own business providing education- formerly knows as school), as to how it should all be set up in detail to avoid as much as is possible fraud and complications, etc. Frankly I do not have all the answers anyway. I just know that this is a better way to do things than the one we have now which is not working and is getting us more into debt as every day goes by.
Change is needed and now.
I will welcome comments, questions, anti as well as in-favor, improvements, changes, suggestions etc. It is a subject we should all think about.
What I do know that this will result in:
A HUGE reduction HUGE!!! in government spending and thus in the deficit
A better school system (only good schools will survive, the teachers as owners will be much more motivated to succeed)
A more effective health system
And most important than all:
MORE social justice.
Again I ask the question- why in the world should the government subsidize my children’s education?
On top of it all we will have at least halved the number of attorneys in this country, is that not enough to make it all worth while??
See you next time…….
Ronnie Ben-Zur, CEO
December 5, 2005