Peer-to-Peer Taxation
Pages: 1, 2, 3, 4
The press: The market's feedback loop
The press will play an important role in this system by providing participants with the information they need to make informed decisions about how to allocate their funds.
Once again, the stock market provides an example of how the system will organize itself. The proliferation of individual stocks and mutual funds created a need for publications that ranked different investments side by side using many different performance criteria (for example, earnings per share, annual sales growth, earnings growth, etc.). These numbers do not automate the process of picking stocks or mutual funds, but give investors the ability to examine the relative performance of different investments side by side.
The companies that prepare these reports do not do so for free. Some sell this information on a subscription basis. Others are funded through retail brokerage houses. Others are provided as a subsidized service by larger publications. Nobody orchestrated this activity from on high. The growing complexity of the market created a need for consolidated, easier to read reports, and individual entrepreneurs and companies stepped in to fill that vacuum.
Something similar will happen in a peer-to-peer taxation system. The annual ritual of filing tax returns will involve more than dropping a check in the mail. It will become more like Election Day, and because of this will create demand for information about the different public and private agencies and aggregators competing for taxpayer funds. Local publishers, government agencies, and entrepreneurs will step in to satisfy this demand, giving rise to a network of information providers.
The local press, in particular, will also play an important watchdog role in detecting abuse and fraud within this system. Like any system, it will be managed by people, and so it will not be perfectly efficient or honest. Taxpayers and aggregators may tolerate less than stellar performance, but they will be unlikely to send their funds to agencies accused of fraud or theft. The oversight of the press will provide a powerful incentive for agencies to police themselves.
Creative destruction
While the potential for improved productivity is interesting, what is especially exciting is the creation of a system for providing venture capital to public service entrepreneurs. One of the real strengths of the free market system is the incentive it provides to entrepreneurs to create new products and companies. By freeing entrepreneurs to take risks, and by providing easy access to capital from different sources, the free market encourages continual improvement and invention of new products and services.
A peer-to-peer tax market will create a similar mechanism for pooling capital that can be used to fund public service startups. Taxpayers and aggregators will likely allocate some percentage of their funds to be set aside for experimental programs. Some of these public service startups may be seeking to improve on an existing, mundane service such as trash recycling. Others may be seeking to address a societal problem such as childcare for single parent households.
The creation of a formal system for funding public service organizations will make it easier for entrepreneurs to experiment with new ideas. The process a new agency would go through would mirror that of a for-profit startup. An entrepreneur would have easier access to seed or proof of concept funding. As the agency met milestones set by its sponsors, it would be able to secure greater amounts of funding to expand operations further. Of course, something similar to this exists in the form of private foundations and government grant programs.
The difference in this system is that the amount of capital available to fund new programs and the number of sources of funding would be greatly expanded. There would also be fewer conditions imposed on the use of funds. Because of this, entrepreneurs would be freer to experiment with new ideas, and therefore to take risks.
Defection from within
This system will also create a mechanism for funding new agencies that are spun out of existing agencies. Imagine, for example, a group of city employees who are frustrated with spending most of their time dealing with bureaucracy and poor management rather than their real job. These people decide to band together and create their own agency to beat their old employer at its own game. In this system, it would be easier to fund new organizations. This defection scenario, by the way, is taken from the history of Intel.
Defection from within, although it may seem like betrayal, has long played an important role in business. Insiders know the most about the business and its weaknesses. They usually leave after failed attempts to fix these issues from within.
This creates a mechanism for creative destruction, where defectors are rewarded for taking the initiative to improve on their old employer's work. This type of entrepreneurial activity is actually more common than the mythical lone inventor toiling away in a garage.
This system would also make it easier for entrepreneurs to raise money in a less politicized environment. There will always be some taxpayers and aggregators that will fund experimental programs, regardless of mainstream opinion. Because it will be easier to raise money for experimental programs, and to make a decent living working on these projects, this will help attract more entrepreneurs to the public sector. These are creative people who would otherwise be more likely to spend their most productive years in the for-profit business world.
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