Authorities, one way or another, need to explain their benefits to society. Otherwise, society simply will not tolerate an outright kleptocrat, and there are many historical examples of this. The government can create value by managing the creation of public goods and encouraging society to finance them. If there were no incentivizing function of the government, then “free riders” who do not wish to pay for the installation of beacons, the construction of roads, and border security would make up the overwhelming majority. Societies that failed to realize the need for a ruler to collect tribute or taxes simply disappeared from the face of the Earth.
At the same time, the ruler understood that taxes could be spent not only on a lighthouse or a road but also on himself personally. The amount he could appropriate for himself was determined solely by the people’s tolerance and the actual expenses incurred. If the lighthouse cost 1,000 coins and the people tolerated a loss of 50% of their contributions, then to extract more money from the populace, it was necessary to build a road or better equip the army. In that case, the expenses would amount to, say, 5,000 coins, of which the ruler would take 2,500 instead of 500 in the first scenario.
In order to spend more, a ruler needed to create or invent new public goods. This is the direction in which all civilized societies have developed. “Free” healthcare, “free” education, “free” pensions, and other “free” things are enthusiastically supported by politicians of all stripes not only because voters love freebies, but also due to the direct benefits for themselves. Even in countries with low levels of corruption, where direct theft is difficult, the factor of direct benefit is still present. The number of public goods administered by an official determines their influence, the budget of their department, and their salary.
Let’s take, for example, a public good like pensions. The idea of a solidarity pension, along with other measures of social protection for workers, was first implemented at the state level by Bismarck and later spread to other countries. In the United States, public goods related to social protection also began to be realized in the 19th century through labor unions. Until recently, the pension system looked like this: the ruling elite (or the bureaucratic apparatus of the union), using their power to enforce, would take a portion of citizens’ income and spend it on paying pensions to the elderly. In return, the elite promised citizens that they would pay them pensions in the future, funded by the contributions of future generations.
By exploiting the asymmetry of information, those in power could redistribute pension funds in a way that would “sweeten” their appeal to voters before elections at the expense of others, effectively bribing voters not with their own money, but with public funds.
As soon as population growth came to a halt, a crisis in the pension system began. We were fortunate that by that time, information technology had advanced to the point where it was almost costless (compared to the 19th century) to calculate and account for each citizen’s contribution to the pension fund, allowing for the payment of the pension that each individual had actually earned.
But then a question arose among citizens: “Why do we even need a government?” and among officials: “Why should I administer a fund that I can’t manage at my discretion?” All of this led to what is now referred to as pension reform and to the state losing its monopoly on one of its public goods. A similar metamorphosis is happening now, and has already occurred in developed countries, with healthcare.
If we look at another public good, such as road construction, we will find that the corresponding level of development in information technology and accounting, which allows us to track which vehicle used which road, could enable us to eliminate the transportation tax that is currently tied to fuel consumption or engine size, rather than actual mileage on actual roads. As a result, “government” roads are maintained in perfect condition, while the most heavily trafficked ones are the opposite.
Yes, there are already toll roads in place. The costs associated with toll collection and usage tracking are continuously decreasing. In the past, drivers had to purchase a “standard ticket” just to enter a toll road, but soon, systems for license plate recognition, RFID tags, navigation trackers, surveillance cameras, and video analytics will be able to monitor road usage. This will make it possible to issue specific bills for actual usage of specific roads, based on a “weight in motion” principle, instead of relying on transportation taxes. In Germany or Sweden, for example, this approach has already begun to be implemented for freight transport, which is tracked using navigation systems and tachographs. As a result, the government loses the ability to collect revenue from yet another public good. The management of roads will be taken over by those who actually build and maintain them.
One can examine literally every public good, including the police or law enforcement, which often operate outside the realm of the state in the form of private security firms, while the state continues to collect taxes “for maintaining law and order.”
The measure of the use of public goods can be taken into account in almost everything. In several cities in Ukraine, there are paid elevators in apartment buildings that are cheaper for residents than the “free” ones provided by housing maintenance services. People use the elevator with electronic keys, and based on usage statistics, they are billed accordingly. This is fair.