The First Knowledge Economy State

By Ron Rivers,

One of my favorite lessons learned about U.S. democracy is the concept of states as methods of experimentation. We see it to a reasonable extent in the United States with different state’s approach to issues such as abortion, LGBTQ rights, education, and redistributive social programs.
What we don’t see is any significant variation in structural arrangements such as laws surrounding property and contract, education, and democratic practice. The first state to embrace the Knowledge Economy will be the one that dedicates the time and resources required to reshape these core institutions.

Whichever state chooses to be the first to embrace the Knowledge Economy’s potential will begin with a plan for consistent, piecemeal, and focused transformation. The structural changes that we need are a far cry from Capitalism as we know it, but no one could accurately label it Socialism. Knowing how intertwined our personal lives are with our chosen economic arrangements, the Knowledge Economy provides a model of exchange that raises the human experience in every direction it grows.

Law and Identity

Central to the American historical narrative is the private ownership of property. This concept has molded the American psyche for centuries, tying freedom to economics. It has also shaped our educational institutions, our definition of work, and our relationships with one another. Culminating into a system best illustrated by Reverand Martin Luther King’s Jr., “This country has socialism for the rich, rugged individualism for the poor.”

What happens to rugged individualism when entire industries become unemployed in rapid succession due to breakthroughs in artificial intelligence and automation? We can imagine the inevitable scenario where transit drivers of all kinds, fast food, retail, and data entry workers rapidly becoming unemployed would not be handled well in today’s economy. Our present economic arrangements rely on resource redistribution to lessen inequalities created by our structures and will have no viable solution to such extensive and widespread financial hardship.

The first Knowledge Economy state will understand that a proactive approach towards restructuring laws supporting our economic structures is necessary to avoid repeating crisis driven by increasingly fast economic disruption. Policy-wise this translates to reimagining laws surrounding property and contract. In addition, knowledge economy implementation requires us to reorganize laws surrounding patents.

Patent Law

The defining characteristic of a Knowledge Economy is that it ties innovation and production into the same process. Imagine the concept of change as a foundation that we build upon, all new creations growing out of the imagination of past ideas and efforts. The higher the floor, the more rapidly human creativity can flourish in more directions. A Knowledge Economy values innovation over profit and in doing so operates under arrangements that lessen the strength of individual organizations to maximize returns while promoting a significantly higher level of access and opportunity for outsiders to innovate within an established niche.

United States patents typically last about 20 years which given the present rate of exponential technological growth[1] is, by my estimate, about 15 years too long. In a state economy organized in such a way to maximize the total creative potential of its citizenry, the goal is to allow as many people as possible to have access to the most advanced technologies and practice as quickly as possible. Reducing patent durations will enable us to provide innovators with a higher floor to stand on, accelerating both the pace and variance of innovation within a society.

As the U.S. Constitution supports patent laws, states seeking to embrace the knowledge economy would be wise to create separate sets of market arrangements to avoid getting tangled up in legal disputes. According to professor Roberto Mangabeira Unger, the single greatest achievement in legal history has been to determine that there is no unique form of market economy required by law.

Innovation firms could be attracted to these new arrangements with incentives such as public investments, workspaces, and technology access. In exchange, we could design profit structures with deep social responsibilities built into them such as social profit distribution after certain profitability tiers, and the responsibility to develop and facilitate continuing education programs for state residents looking to change the direction of their life.

Giving more people access to the most advanced technologies, practice, and procedure available will spur more innovation. The first Knowledge Economy State will require a population that believes that profit is not the defining factor of the human experience.

Private Property and Access

Implementing a Knowledge Economy within a state will require the emergence of a new type of social and moral code for the majority of residents. A shift from a profit-driven ownership mentality to an access based use approach. My argument is not for the abolishment of private property, instead for the expansion of alternatives to the singular form of property ownership we have now.

We can begin with residential properties. It’s difficult to attract and maintain talent when people cannot afford to live in locations where specific niche verticals are concentrated. Simply put, if we want to draw talented people from different walks of life, we need to think of ways for them to have access to a permanent residence.

One solution proposed in Amsterdam is that all new housing units sold cannot be used as rental properties[2]. This suggestion would decrease overall housing costs and lessen rent-seeking, a financial activity that adds nothing to the real economy[3]. An alternative idea is to fine landlords who own properties that are not occupied, encouraging them to sell the properties or lower costs to find tenants. Rent-seeking on residential properties is damaging to entire generations who were unable to take part in the cheap land and housing grabs of previous decades.

Image Credit: Hasbro Games

Alternatively, we could stop thinking of housing as a profit center entirely. One idea to accomplish this would be to establish permanent access to residential locations for people free of cost. If the public desires durations and conditions the details can be decided democratically.

This same idea could serve to help uplift so many of our residents who are victims of systemic poverty. You have a permanent residence, free of charge until you are ready to move on. Occupants of these access-based housing units would be prohibited from owning other properties and would be required to keep them in good order or face expulsion and fines.

By challenging residential rent-seeking, the first Knowledge Economy state begins to build a more comprehensive suite of protections for the individual. Giving every interested person the opportunity to attempt to experiment and innovate, to take risks, and to fail without fear of homelessness. An innovation economy protects its participants from decimation for trying something new. We know that 90% of startups do not succeed[4], but think of how many great ideas we’re missing by operating within a structure that both punishes people so immensely for failure and denies others entry entirely.

Consider the inherent structural classism proliferated by our present structure; it mainly empowers those with the safety net to fail to take risks. How much creative potential do we squander each year because our suite of social protections is inadequately prepared to deal with shifting advances in productivity?

A Knowledge Economy state recognizes that being poor isn’t a lack of character; it’s a lack of cash. Human ingenuity is our primary productive resource moving forward. The first state to recognize and organize around this concept will lead the rest in transitioning to a high-frequency innovation economy.

Education

The institutional arrangements in a Knowledge Economy state are designed to help shape each person in a way that provides them the capabilities to change the direction of their lives at will. We understand the disruptive impact technological innovation can have on entire industries, and we know that the rate of change is speeding up. Therefore it is logical to conclude that industry-wide disruption will occur more frequently soon. The first state to embrace education as a lifelong process supported by institutional arrangements will lay the foundation necessary to take full advantage of the Knowledge Economy.

Primary education will need to shift from traditional encyclopedic memorization methods used to prepare people for hierarchical work structures to a more dialogue-based way of learning. Beyond the fundamentals, school becomes less about memorizing facts and regurgitating them and more about exploration and selective depth. Whenever possible subjects learn from two perspectives and then a discussion is fostered between the students and guided by the professors. We can illustrate this point with an example of American history, teaching the colonization of North America from both the native inhabitants and the conquesting Europeans perspective.

Given that the students of today will have perpetual access to all of the world’s information at their fingertips the memorization of facts loses its value. Creative problem solving, cooperation, and communication, become driving objectives of primary education, preparing students to enter a world of collaborative competition built around maximizing the potential of every individual.

Specialized secondary educations opens up to all individuals at no cost. Democratic elections can determine the qualifications and requirements for program entry. A Knowledge Economy state rejects the practice of requiring people to subjugate themselves to for-profit banks to advance their skills and understanding of the world.

Given that the economy is shifting to a highly skilled, highly transferable workforce having more people with advanced experience and educational depth lays a foundation for more radical innovation and experimentation. The narrative that more highly educated people diminishes the value of the education is false and only perpetuated by our present economic arrangements which encourage firms to seek the lowest labor costs possible.

Beyond primary and secondary education the first Knowledge Economy state will proactively create numerous pathways for continuing adult education in a wide variety of fields. The state can cooperate with its best companies to facilitate and design these programs. Funding can be in the form of total corporate sponsorship, public investment, or a hybrid model. The decisions should be made democratically, giving the public credible and transparent sources of factual information available in multiple mediums comparing the alternatives.

Recognizing that large corporations have more social responsibility than presently required, the Knowledge Economy state designs programs where adults can enter and learn the most advanced practice and procedure from the state’s best talent. Our long term goal is to give every person the agency in the direction of their life. Companies benefit by getting direct access to highly specialized expertise in their verticals, trained and prepared to adapt to their standards and procedures upon graduation. It’s a win-win and a necessary step to create a transition into a new era of economics and labor.

No Alternatives

Stagnation of the economy is bad for organizations but even worse for families. If we continue to allow a handful of companies to isolate the best technologies and practice, then stagnation is almost certainly a given. Coupled with advances in automation and artificial intelligence we find ourselves on the verge of a market and economic disruption, unlike anything we have experienced. Unfortunately, under present arrangements, these innovations will only stand to benefit a tiny minority. States that are serious about being ahead of crisis should begin the foundational work for transitioning into a knowledge economy today.

The choice to embrace a state-wide Knowledge Economy directional shift seems on the surface to be a far off fantasy given the state of politics in the many states and nation as a whole. In reality, it is both feasible and achievable. Our struggle is not ones of means. It’s one of imagination. There is no future for the methods of the past, and if we’re going to prosper, we need to rethink the structure of our most core institutions. Only then will be able to reach our fullest potential in both progress and our humanity.

The first state to adopt a Knowledge Economy will be the first state to have the political leadership that can create the language to convey the need to transform accurately.



[1] The Law of Accelerating Returns by Ray Kurzweil http://www.kurzweilai.net/the-law-of-accelerating-returns
[2] Amsterdam’s Plan: If You Buy a Newly Built House, You Can’t Rent It Out by Feargus O’Sullivan City Lab https://www.citylab.com/equity/2019/03/amsterdam-rental-housing-prices-new-home-owner-occupied/585235/
[3] Finance, the Real Economy, and the Progressive by Ron Rivers OurSocietyhttps://www.oursociety.org/finance-the-real-economy-and-the-progressive/
[4] 298 Startup Failure Post-Mortems CBI Insights https://www.cbinsights.com/research/startup-failure-post-mortem

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The Impact of Trust in a Knowledge Economy

By Ron Rivers,

The nature of work is changing rapidly here in the United States and across the world.  A growing pool of technological resources, best practices, and a highly skilled and innovative workforce is shaping the way humanity can work into a new and exciting potential that will forever change our lives.  The transformation is already occurring and demonstrates that high-trust environments producing flourishing environments. Here we explore the impact of trust on businesses in the past and present economic models and how we can utilize government as a tool to ensure that the new high-trust work methodologies benefit all business sectors. In doing so we build a stronger foundation for cooperation and collaboration in every day life.

Welcome to your first day of training… (Photo Cred)

Trust and Competition

All exchange in the world is based on trust.  Market economies are essentially a form of institutionalized cooperation between strangers.  If we consider the present market arrangements, we can conclude that in an environment completely devoid of trust exchange as we know it would not be possible.  In other words, if our fear that the person we are going to exchange with outweighs our trust for them we would never choose to complete exchanges. You would avoid buying things online entirely, and merchants would be hesitant to accept transactions from unfamiliar people.

The mass production economic model that historically defines the United States generates a relatively low trust model of exchange.  In many respects the way the laws enabling these operations encourage behaviors that do not put much faith in employees or outside parties.  An internal example would be an assembly line worker who is given exact direction on how to act and does not have the autonomy to break from routine to experiment with new processes that might better create results and efficiencies.  Externally we observe low trust through the existing patent system which in many cases imprisons some of our most advanced practices and technologies in the hands of single companies, denying others the ability to take those advancements in new directions. These two examples are practices that help to create low-trust organizational structures.

Drawing from personal experience, this low-trust structuring of work can hinder the development of strategic advances for businesses of all sizes.   Before selling my previous small business, I spent time developing strategies to organize purchasing cooperatives among competitive firms within our geographic radius.  The benefits on paper supported the collaborative efforts and would have generated net profitability benefits for all involved parties. Unfortunately, a few members were unwilling to participate because they did not want to share the quantities and products they were purchasing with the other members of the cooperative.  By closing the door on a more cooperative form of competition they lost the ability to add 3-6% to their bottom line revenues.   

Alternatively, in an environment with high trust, our present market arrangements become unnecessary.   This is the future that is at our doorstep presently, it’s not a question of if but when this model of exchange assumes dominance within the world.  We can imagine a system of exchange where people can choose cooperative teamwork or independent ventures and have access to the most advanced technologies and practices independent of their preferred work style.  Using advanced techniques such as 3-D Printing and deeply networked communication, the experimental nature of development, labor, and exchange becomes instantaneous.

High trust contributes significantly to the success model of Silicon Valley companies.  Cooperation is deeply embedded in its productive ecosystem. A software developer expresses their talents through sets of programming languages that allow them to express their creativity differently depending on needs.  Their abilities make them highly skilled labor, but their ability to work anywhere makes them highly transferable. If you know how to code in a specific language, you can apply those skills to any organization that needs them in any direction they desire.  Each time an individual leaves one team for another, they bring a wealth of knowledge in both practice and procedure to the new organization. By creating a web of talent that moves fairly freely between organizations, Silicon Valley as a whole has harnessed humanity’s potential like no other productive sector ever has.  The beauty of this high trust model of labor is that the more it spreads, the better it gets, perpetually expanding its capabilities alongside its participants.

Building the Foundation for High-Trust Economies

High trust is not the natural default for every laborer in present society.  On the surface, high trust for others seems more natural for generations who have grown up with the internet.  For many Millennials, myself included, personal connections were made and maintained without ever meeting people in person.  For many people, these interactions build understanding and trust with others outside of their immediate circle. Compare the future scenario where the majority of people of different ages, races, religions, and economic classes are interacting with each other around shared interests for decades before entering the workforce.  We could imagine that if given the opportunity to do so, work will transform into a more inclusive and high trust process that better reflects the openness of evolving communication. A predisposition to high trust combined with exponentially increasing innovation sets the stage for a radical transformation of how trust and labor intertwine in society.  

In many respects, we are on the cusp of a moral evolution fueled by our institutions.  The direction of that evolution is uncertain, but not entirely out of our control. With enough social and political willpower, we could work to expand a high trust collaborative competition model throughout numerous economic verticals.  While this may seem like a radical utopian ideal, the reality is that opportunities exist now to create structural innovations to increase the frequency of high trust transactions within society.

Let us examine a relevant moral and economic issue in the increasing of the minimum wage to $15 per hour and how Knowledge Economy practices might impact our possible solutions.  The argument for a minimum wage increase is supported both by the historical data and the moral obligation to help support our brothers and sisters throughout the nation.  Discussions against the minimum wage increase typically center around rising costs for small businesses, the potential for inflation, and the old fashioned “pull yourself up by your bootstraps”  mentality. This presents us with the false narrative that increasing the minimum wage is a battle between small businesses owners and the poor. The truth that fails to our current leadership fails to represent is that the evolving nature of work requires innovative thinking outside existing structural arrangements to avoid a crisis.

Understanding the value small businesses provide to our communities requires us to recognize that with the changing nature of work small companies may need assistance to rethink their strategies on how to prosper.    Here the state could be used to facilitate high-trust frameworks through deeper government cooperation with small business owners to help with this transition.

For example, government administrations could work with small businesses owners in the state to implement a more collaborative form of competition.  We could facilitate regional purchasing cooperatives for similar businesses. The state could provide the tools in the way of information resources, logistical resources, and a digital platform to help coordinate orders for small business owners in specific regions.  This allows individuals to organize on their own without direct state intervention beyond the initial foundation building.

If we use a Pizza shop as an example, collaborative purchasing would drive down resource costs such as flour, sauce, cheese, etc. for the shop and increase their profitability per slice. This way small businesses can better focus on the things they do best, offering real and personal value in the experience.  The revenue gains recognized from this type of structural innovation would likely exceed the costs associated with an increased minimum wage.

Beyond revenue initiatives, participating businesses could cooperate to facilitate research into best practices that could be shared to all participants, network employees together to create shared labor pools, and develop cooperative marketing strategies.  There is no limit to the latent cooperative potential existing both inside and outside our existing market arrangements. By facilitating cooperation and high trust among small business owners, we empower industry participants to work towards redefining the markets they operate within, continuously pushing the envelope of what is possible.  When necessary their combined forces could influence the creation of laws surrounding property and contract within their specific niche.

While it is difficult to quantify the intangible benefits gained arranging higher trust into our economic arrangements, it is worth mentioning.  As humans, we’re context driven beings. Much of our experience and feelings dictate our perception of the world and the others that inhabit it. While the argument that a higher level of trust and cooperation within society would be a good thing is relatively self-evident, the scale of this impact is still yet to be determined.  The Knowledge Economy presents us with an opportunity to radically transform the nature of our most frequent interactions and doing so creates a significant chance to build higher trust and stronger social bonds into our everyday interactions.

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What is the Knowledge Economy?

By Ron Rivers,

Labor and productivity play a foundational role in the human experience.  Through so much of our shared past and present the work that we do becomes a defining part of who we are and how we interact with the world around us.  History teaches us that while the nature of productive efforts changes, there is always more to be done and numerous methods establishing how to do it. While change is a proven constant, the precursor of awakening to new approaches and ideas is often a crisis.  In this first article of a series we explore what the new Knowledge Economy is and is not. Arguing throughout the essays that a proactive approach towards scaled implementation of the Knowledge Economy must be central to the Progressive narrative.

Society in the United States seems to go through peaks and valleys when it comes to active participation in the arrangement of society.     When a crisis arises, we see an increase in activity to shape the direction of how we address the circumstances generated.  A modern example is the surge of political activism and action stemming from the 2016 elections. Genuine transformation for good demands that we extend our expanding understanding of consciousness into our institutional arrangements, creating a structure that enables every person to choose between routine work and creative innovation at their discretion.   This is why a deep understanding of the latent potential of the Knowledge Economy is vital to the future of so many people.

Structure and Form

The Knowledge Economy is an economic system where the most advanced form of production requires highly skilled labor that is easily transferable between organizations. Our modern example being Silicon Valley. This type of work has already displaced manufacturing for the title of the most advanced form of production.   In many cases, most advanced will be defined as the most significant returns for input, but not necessarily in all. Knowledge Economy organiziations are the ones that reach the forefront of productive power and, more importantly, demonstrate the ability to stay at the forefront for the foreseeable future.

Central to the Knowledge Economy is the ability to create a high degree of customization of labor and output without requiring standardization.  You can imagine it as a blend of innovative experimentation and productivity, creating a form of employment that draws from humanity’s highest potential, our imagination.   Historically scientific advancements helped to drive advances in productive activity. Today we can observe how within the Knowledge Economy production becomes a vehicle for scientific progress.   

An example would be new products and services that utilize machine learning.  Each innovation builds upon advances in information technology while simultaneously pushing the envelope for what is possible with every new iteration.   Another example would be the increasing efficiency of 3-D Printing which is now allowing people to go directly from ideation to creation of products, saving significant time and resources for prototyping and developing material goods through third parties.  Both scenarios describe processes where the work of production and scientific discovery become intertwined, fundamentally redefining the nature of the labor involved. This reimagination of work, the blending of experimental innovation and creation, has profound consequences for humanity.  

Compare the shifting nature of work in a Knowledge Economy to many of the blue and white collar jobs of today.  For many people being productive in the world is limited to repetitive and machine-like tasks. A blue-collar example would be manual factory labor, taking part in an assembly line, fulfilling a single or set of repetitive tasks each day.     A white-collar case is being a fashion designer in New York City.  On the surface, it sounds like an appealing line of work but after better understanding the process it is apparent that it offers little more creativity than a traditional assembly line worker.  Designing is limited to repetitive and narrow sets of constraints provided through a top-down hierarchy with the primary value being quantities of output. Both examples highlight the needs addressed by the Knowledge Economy, the automation of the repetitive tasks people are forced to endure to live.

The blending of imagination, discovery, and labor offered by the Knowledge Economy creates an opportunity for radical transformation, the complete automation of repetitive tasks within society.   The rise of artificial intelligence as proactive problem-solving machines transcends the capabilities of historical practice. If a task is repeatable, then it is possible to express the action in a formula.  Formulas allow us to encode that action into a machine, freeing us from having to play the role of an imperfect tool in our labors. Humanity is finally at a point in time where we can begin to reconceptualize the entirety of how we work, freeing ourselves from mindless repetition and allowing us to maximize our primary resource, time.  By expanding the horizons of possible directions for our creative potential, we create structures that better support and enhance our freedoms and potential.

To better understand the concept it is important to discuss what the Knowledge Economy is not.  Applying high technology to a hierarchical organization that uses human labor for repetitive work does not constitute a Knowledge Economy organization.  We could use the conglomerate Walmart for example. Walmart has the capital to invest heavily in new practice and procedure, but no amount of technological innovation can act as a substitute for a business model that views employees as cheap, disposable widgets[1].  Walmart lacks the structure to maximize the creative potential of the majority of its staff, instead relying on historical modes of thinking about the organization of labor and tasks within their labor arrangements. Knowledge Economy organizations break from stagnant models of work by combining advanced technologies, education, and procedures to create an environment of practice that pushes the boundaries of what the firm could be.  

Image Credit: ScooNews.com

The Power of the Knowledge Economy

One of the most significant reasons that the United States should encourage the development and spread of the Knowledge Economy is the possibility to transcend the limits of diminishing returns.  Diminishing returns means that after a certain point within a production process adding more resources to a vertical within the process begins to produce lower returns per resource unit. To illustrate this point we can imagine adding more workers to an assembly line in a factory setting.  Eventually, companies reach a point where demand is stable, productive capacity reaches full utilization, and every new employee added produces less than the person before them.    Taken to the extreme, we could imagine an example where adding new employees becomes actively detrimental, causing undue stress and complications on the established processes.  A rigid arrangement of a structure with a company will always subject its productivity to diminishing returns.

Organizations embracing Knowledge Economy technologies and techniques draw from every person’s mental capacities in exploring new and undeveloped ideas.  Whereas in the past productive innovation relied heavily on external sources that were irregular in their timing and relevance, today change can integrate with the process of standard operation.    This structure empowers each worker to experiment and create both within existing arrangements as is tradition, and outside of them, challenging the structure of the firm to be better.   Implementing flexible models of structure allows firms to embrace automation of the repetitive tasks, perpetually pushing the boundaries of what is possible within their organization.

Drawing again from Silicon Valley we could take the example of a start-up development firm.  When employees develop successful automation for a task, it disseminates within the organization, forever freeing people from having to do the repetitive work once associated with the function.  Each innovation builds upon the previous while simultaneously drawing inspiration from the not yet known. The totality of their potential limited only by their imagination of the possible.

These examples provide us with a view of the true scope of power the future Knowledge Economy presents us.  A world where collective efforts towards automation of the repetitive are shared across industries to ensure that humanity is never subject to do the work that a machine can do.  It represents a pivotal point in human history that will not only redefine our definition of work, but also our understanding of who we are. Humans are context driven beings; the historical experiences we share in our cultural, political, and economic arrangements shape our perception of the world.  By embracing a world where labor can be radically fulfilling we write a new chapter in the human experience.


[1] The Fight Against Walmart’s Labor Practices Goes Global by Michelle Chen The Nation https://www.thenation.com/article/the-fight-against-walmarts-labor-practices-goes-global/


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Finance, the Real Economy, and the Progressive

By Ron Rivers,

Improving the economy is a concept that most people are familiar with but likely have different understandings of depending on the circumstances that they find themselves in.  There seems to be no shortage of political pundits, candidates, leaders, and non-specialists provide visions of what’s wrong and how we’re going to fix it.    Strangely one topic that rarely gets any attention is the relationship between finance, that is the management of capital and credit, and the real economy.  Creating the institutional reformation necessary to reorganize society requires Progressives to have a deep understanding of this relationship to better communicate alternative visions of the future within their communities.  I argue that a fundamental objective of the Progressive is to bind financial activity to the real economy.

What is the Real Economy?

The real economy is the productive engine that powers our methods of exchange here in the United States.  A person creates something independently or as part of an organization with the intention of giving the thing to someone else in exchange for compensation.  

Through the structure of our legal arrangements, the privatization of land, resources, and outputs are intended to give people the freedom to help manifest their destiny through exchange with others.  Elements of privatization are part of the constitution, although the definition of property was left vague. [1] The constitutional architects intended for states to act as experiments in ways of living, determining their definitions of what was and was not considered legally ownable.  The Constitution also paved the way for copyright and patent laws and gave Congress the authority to punish piracy. I imagine it would have been difficult to envision the results of their structure through the lens of the present with our ever-increasing wealth concentration [2] further calcifying hard socioeconomic class structures within the United States.

The law allows for profit maximization, obligating firms to maximize value for shareholders.  In many cases, privatization ends up acting as a shield for ill-intentioned actions under the guise of profitability.  For example, Exxon knew about climate change for over 35 years and actively spread misinformation to the public about it. [3]  The CEOs serving during this time have not faced repercussions for actions they were ultimately responsible for. The real economy serves as an engine supporting the innovation of life within United States.  The narrow goal of profit does not serve the larger purpose of social organization outside of the state and restricts our collective potential for innovation. This isn’t a call for the total abolition of privatization, rather a criticism of its limitations and the arrangements that support our singular form of it.

The Value of Finance

In his 2018 Progressive Alternatives lecture series, Roberto Mangabeira Unger discusses research that indicates that over 80% of productive economic activity acquires funding by productivity itself.  This means that instead of investing in new companies, new innovations, and new types of markets that could ultimately produce results that would demonstrate significant value to society the majority of money is risked through techniques whose only intention is to create more capital through financial schemes.  Venture capital is increasingly popular but contributes a statistically insignificant amount towards the total productive agenda. These data points call into question the value of high-finance operations such as stock exchanges, which fail to fund the productive agenda of society as the majority of monies generated is staying within the system.  

When the economy is booming, high finance is invisible to many Americans; in time of crises, it’s destructive.  The 2008 financial crash was caused by the speculative financing activity of for-profit banks which then socialized their losses through government bailouts and the repossession of the very homes that they capitalized on in the first place.   All of these actions were supported and protected by our legal arrangements.

Foreclosure Rate United States – Image Credit:  Statista


We can dismiss arguments that the stock exchange somehow sets a value benchmark for corporations looking to borrow capital from banks, as we know that is just not true.  The biggest firms are stockpiling cash [4] and do not seek loans from banks. We must ask ourselves, how do our laws permitting this storing of cash benefit real economic activity?  The simple answer is that they do not, bringing into question why they still exist.

Redefining the Relationship

We need to break the narrative that markets efficiently allocate capital to the most efficient use.  The statement is only true if you define efficiency as the best returns for the owner of said capital instead of adding tangible value to the real economy.  For those of us who do not share an ownership stake in high finance, the apparent truth is that high finance does not serve the collective public good under its present arrangements.  

Progressive leaders need to be proactive in their market innovations, abandoning historical precedence of reactionary regulations applied after the damage.  This narrative is old, tired, and does not work. Never do we hear visions of alternative arrangements that would prevent the very activity that we seek to regulate in, retrospectively.  A Progressive knows that there is no legal requirement to have markets organized in a specific way and that anything that has been created can and should be improved upon without respect to historical norms.  Change is a universal truth, and no institution is sacred when it comes to innovation for the shared public good. Our purpose is clear: we must focus on changing the relationship between finance and production.  

Pulling again from Professor Unger, we can begin to develop our framework of how to proceed.  First, we create legislation that prohibits financial activities that have no relation to expanding our collective productive efforts such as derivative trading.  We redefine financial speculation, allowing it so long as the purpose is to experiment, innovate, or handle risk. Our goal is not to eliminate instability as some instability can be good, but to ensure that these efforts are towards creating real economic value.  Speculating for the sole purpose of increasing numbers on a balance sheet is akin to gambling and is hindered to reduce dramatic boom/bust cycles.

Beyond restricting, Progressives must begin with imagining how we can better utilize the potential of all of the underutilized capital floating within our economic system.  History and present time provide us examples of how this capital could be used, with the New Deal and the increasingly popular Green New Deal.   The New Deal was the most significant collective investment in the world at the time of its inception and the Green New Deal’s call for national mobilization to create a near-zero marginal cost energy infrastructure could easily surpass historical efforts.   This is a great example of redefining the relationship between finance and the real economy. Imagine if all of the latent capital trading for tradings sake or being held was applied to retrofitting every building in the United States with solar panels, networking those building together, and investing in new storage technologies to maximize the capacity and distribution of the energy created.  The collective benefits of a national infrastructure generating nearly free energy would be immense and widespread in every economic vertical.

The power of the state to should be used to create new directions for asset creation and innovation towards a shared vision of the good.  We can choose to have the state to manage these funds or if we want them independently led by actors under a non-profit structure. Either is acceptable, and the most efficient and effective method should be the primary definer.  Both choices require codifying radical transparency into the process and stricter penalties for potential misuse of resources. Reimagining the relationship between finance and the real economy need not be limited to state controlled programs, we can and should still take advantage of the latent experimental potential of the individual.

This single example of the proposed framework for Progressives proceeding draws from our shared understanding that no natural method exists to connect finance to real economic activity.  It is up to us to create the method. Our design must be consistently scrutinized for new opportunities for innovation in the service of the public. Progressives understand that our clearest pathway towards transformation is addressing systemic deficiencies at their root cause.  By forcing finance to act in the direction of productivity and denying capital holders the ability to speculate for the sole purpose of personal gain, we lay the foundation for a more expansive approach to experimentation and innovation with society.   



[1] The Constitution and Property Rights by Rob Natelson Independence Institute https://i2i.org/the-constitution-and-property-rights/

[2] Inequality gap widens as ‘world’s richest 1% get 82% of the wealth,’ Oxfam says by Sam Meredith CNBC https://www.cnbc.com/2018/01/22/wef-18-oxfam-says-worlds-richest-1-percent-get-82-percent-of-the-wealth.html

[3] Exxon Knew about Climate Change almost 40 years ago by Shannon Hall Scientific America https://www.scientificamerican.com/article/exxon-knew-about-climate-change-almost-40-years-ago/

[4] CASH RICH: 10 COMPANIES WITH THE LARGEST CASH PILES Forbes https://www.forbes.com/pictures/mlf45kijd/google/#5abcd38729a8



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Proactive Taxation for Progressives

By Ron Rivers,

Wealth concentration is the central issue to many of the social, political, and economic problems facing the United States in the present day. It negatively impacts our health, happiness, [1] and our shared ability to transform the world. Popular ideas such as a wealth tax [2], a more progressive taxation system[3], and a Universal Basic Income are growing more popular but may fall short of making the genuine systemic change needed to redefine the human experience. To successfully address poverty, we need to approach wealth distribution proactively from a structural perspective.

A central challenge facing the most commonly supported equality agendas is that they attempt to address inequality through reactive redistribution, continuously trying to fix problems perpetually generated by the system itself. The single market structure capitalism the U.S. subscribes to is a method of exchange originated with scarcity in mind and rewards those who own the highest concentrations of capital the most. Reactively approaching inequality via taxation resigns us to dealing with the inequity after-the-fact and limits our ability to create change in real time.

Some argue for radical redistribution, a sudden and dramatic allocation of existing wealth. This idea is not a viable option as it would severely disrupt the entire economic order and is unlikely to ever to be politically feasible given our present circumstances. That isn’t to say that redistribution isn’t a part of the solution, it is. But the methods we choose must be implemented in a long term strategic approach that is applied in a step-by-step manner to maximize both effectiveness and agility of the programs.

Why Should We Pay More?

Successfully transforming society into a more pluralistic set of arrangements requires us to increase our total tax take. Simply put, more resources are needed to fund social investments. The United States has one of the most progressive tax systems in the world, meaning that rates increase as people earn more, yet still suffers from the highest wealth inequality. [4] We need to be careful not to rely too much on progressive taxation as it can also be framed as a class issue. If expressed in the language of propaganda, pitting one class against another, the potential exists to create opposition from sources that would benefit from a more progressive tax organization.

Increasing taxes doesn’t make us Socialists. The United States citizens pay less in taxes than most western democracies. [4] European countries also implement a Value-Added Tax (VAT) (https://en.wikipedia.org/wiki/Value_added_tax) Much of that money is spent on redistributive efforts. You can think of a VAT as a fair form of taxation that essentially pulls a little bit from every time something is created. Implementing a VAT here in the United States would allow us to maximize our revenues while minimizing the impact on our economy.

Using taxes to invest in programs to support pluralistic arrangements and services will be an incredible net benefit to all of society. The greatest resource humanity has ever had and will ever have is our imagination. The Progressive project is about giving every person the ability to channel that imagination into experimentation and innovation. If maximizing our individual and shared potential is the goal then it is a primary objective to increase revenue flows to fund projects and pay down debts.

Image Source: TaxLinked.com

Examining Alternatives

All taxation intends to accomplish the same goal in different directions. We use our redistributive programs to enhance our shared standard of living. A Progressive approach to taxation learns from history without dogmatically committing to a specific method. Fortunately for us, history is full of imaginative scholars who created tax structures that could address some of our most systemic problems today.

In 1879 Henry George published Progress & Poverty. It was incredibly popular in its time and is still taught by numerous non-profit organizations. The central theme of Georgism is that land speculation is central to the boom/bust cycle that is a fixture of capitalist economies. Because available land is of fixed supply and needed for all production land values will always rise faster than economic growth, separating much of the people from accessing ownership.

His solution is the Land Value Tax. It’s a tax that considers the value of the land, ignoring improvements. It would remove the incentive from creating a livelihood whose primary income is rent seeking from multiple properties. It’s been implemented in numerous locations across the world including Pennsylvania [5] where it helped communities adapt to the changing economic situations they found themselves in after the 2008 recession. George believes that all people own the land and in many respects he is correct. A Land Value Tax strategy could be a pillar of a more access based society and help to stabilize more people in a permanent residence.

Nicholas Kaldor argued for the tax of individual consumption. “It is only by spending, not by earning or saving, that an individual imposes a burden on the rest of the community in attaining his own ends” [6] His method would tax the difference between a person’s total income (including capital gains) and investment savings, or what a person spends on themselves.

What I appreciate about Kaldor’s method is that we could structure it in such a way to significantly benefit our most disenfranchised while also using it to better redistribute from the top wealth hoarders. We could imagine that those at the bottom of the economic order would pay nothing and likely even be supplemented by a Universal Basic Income. In the middle we could have a progressive tax structure as we do presently, increasing along with income rates. At the top very we can set the number to whatever we want it to be. As an example, a consumption tax on people earning over $10,000,000 a year could be a ratio to $5.00 tax for every $1.00 spent. Because there are few feasible ways for people with such excess capital to spend more than they earn this tax is unlikely to have any impact on their consumption.

In his third lecture in the 2018 Progressive Alternatives series, Roberto Mangabeira Unger supports Kaldor and suggests that the law states that all income that cannot be shown as saved or invested counts as spending — nullifying evasion within the law itself. Unger supports Kaldor’s taxation and suggests that it is the tax most qualified to create wealth distribution for the greater good.

What I like most about these alternative tax structures is that they are a proactive approach towards the necessary redistributive efforts to fund social transformation. Both Land Value Tax and a consumption tax eliminate the burden of taxation from the poor, ensure that the highest earners pay more, and address numerous other issues facing our present tax arrangements.

Thinking about the long term trajectory of society we understand that change is both needed and inevitable. Progressives must answer the question of how we will fuel the growth of a culture that maximizes access and agency for all individuals. Our present arrangements won’t get us there, but a more proactive approach to taxation is a significant step in the right direction.


[1] Inequality and Health Inequality.org https://inequality.org/facts/inequality-and-health/
[2] Elizabeth Warren’s Tax Proposal Aims at Assets of Wealthiest Americans By Sahil Kapurand Laura Davison Bloomberg https://www.bloomberg.com/news/articles/2019-01-25/senator-warren-proposes-ultra-millionaire-tax-of-as-much-as-3
[3] For a Real-World Example of Ocasio-Cortez’s Tax Proposal, Look to Sweden By Jonas O Bergmanand Kati Pohjanpalo Bloomberg https://www.bloomberg.com/news/articles/2019-01-09/hysteria-around-a-70-tax-rate-gets-a-reality-check-in-sweden
[4] America’s taxes are the most progressive in the world. Its government is among the least. By Dylan Matthews Washington Post https://www.washingtonpost.com/news/wonk/wp/2013/04/05/americas-taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-least/?utm_term=.ca45f238d9d8

[5] Land Value in Pennsylvania: A Practical Application By Patrick Coate, PhD American Institute for Economic Research https://www.aier.org/article/land-value-pennsylvania-practical-application

[6] An Expenditure Tax by Nicholas Kaldor (p. 53) https://www.amazon.com/Expenditure-Tax-Nicholas-Kaldor/dp/0415314003


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