The Imperative of Decentralization of Power
As many of us have noticed over the last years, the centralization of power has caused a serious deterioration of human rights and the rule of law. Corruption and the abuse of power seem to be nearly inevitable consequences of centralized power, so the question becomes imperative how to decentralize it.
Conventional checks and balances tried to reign in the abuse of political power. Apparently, this has proven to be insufficient to secure human rights and civil liberties in the face of systemic corruption and regulatory capture. What hasn’t been considered sufficiently is financial, monetary, economic, and media power. Those were the blind spots of humanities previous attempts to prevent tyranny.
What we need is a more comprehensive approach to decentralize power. One that realizes that money is power.
Decentralization of Wealth through a Progressive Wealth Tax
But how can economic inequality be actually reduced, if economic systems have a natural tendency towards centralization? A rather simple case in point why that should be the case is the Yard Sale Model, see:
Thomas Piketty has provided an answer to that in his book “Capital in the 21st century”. That answer is a global progressive property tax. Implicit in that demand is to actually figure out what the rich possess (which is more or less a great mystery in our current world order). Otherwise they wouldn’t be taxed properly. Therefore, the omission of truthful declaration of personal wealth would amount to tax evasion.
Now the obvious practical problem is: How can such a taxation scheme be implemented in a way that doesn’t require a global political leviathan that would represent a potentially even greater centralization of power? A paradox!
The Negative Reputation System Solution
The only solution I currently see is some kind of global negative reputation system. People in violation of the global tax system would accumulate negative reputation, which in turn would hamper their business activity.
If you think that this approach is too soft, then consider the extreme form of such a system: The worst offenders end up on some kind of blacklist and suddenly disappear or commit suicide. Someone is apparently making that happen. Making it happen requires a certain amount of effort, which is measured in money. That money happens to go to those who make things happen in the form of bounties. That bounty is financed by the wealth tax.
Such a regime might be effective, but obviously it wouldn’t sit well with the initial objective of maintaining human rights and the rule of law. Another paradox!
Free Competition of Systems
Ok, so we don’t want to go quite so far as to enforce the reduction of economic equality through terrorism - at the very least not officially (what groups of radicals might consider doing may be out of our control). You might notice that a system which takes the necessity to reduce inequality seriously is in danger of degenerating towards that terror regime, if it isn’t effective enough. That should serve as strong incentive to make it sufficiently effective.
A likely scenario is that most countries eventually agree on such a system (given that the people eventually realize its necessity and decide to make it happen), but there are some countries left which act as tax havens. I call the first countries the Progressive Wealth Tax (“Prowet”) countries, and the second the Counter Wealth Tax (“Counterwet”) countries. Those Counterwet tax havens would then be sanctioned for harboring people with overwhelmingly negative reputations. If those tax havens ignore those sanctions and trade with each other, they would constitute an alternative system in which inequality can run rampant.
Would that be so terrible? Well, if we believe in the free competition of systems, that would be acceptable. If human rights and the rule of law are such great ideas, they should win in the long run over systems that are based on other values.
If people maintain the liberty to vote with their feet, in the end few might be willing to stay in corrupt countries. The problem is that many of those might not have the economic means to escape, but those wannabe refugees might get loans enabling them to actually flee (granting such loans would probably be a great business, because such refugees are probably very motivated to support the “civilized” world).
In the grand scheme of things such a political system might work. But would it grant too much power to the majority and to media which shape the will of the majority? Apparently yes. So, here’s our third paradox!
What would stop the vast majority of people from voting for ever increasing and excessive progressive taxes on the rich? What would stop the media from falsely reporting on people allegedly possessing way more wealth than officially known?
This demonstrates the need for trustworthy institutions assessing the wealth of property owners. To be trustworthy, they need to be quite transparent. This would also make the amount of wealth possessed by property owners transparent. Isn’t that a problem for privacy? Yes, it is. Here we have our fourth paradox!
I don’t see a good solution for that last paradox. Perhaps wealth transparency is the price we need to pay for an end to ever increasing wealth inequality.
Transitioning to the Establishment of the Progressive Wealth Tax System
Anyway, I have been optimistic about the prospects of this new world order based on a progressive wealth tax. A big unsolved question is: How do we get there?
If the Prowet and the Counterwet countries are in a situation of competition the whole time, what is the competitive advantage of the Prowet countries, especially if initially almost all wealthy persons would prefer to operate in Counterwet countries?
The great advantage of the Prowet countries is that they can be more meritocratic. The progressive wealth tax would enable a severe reduction of other forms of state income, including income taxes, sales taxes, and tariffs. Free trade and entrepreneurship could flourish in the Prowet countries.
The Flight from the Progressive Wealth Tax
But even if the economy will boom in the Prowet countries, wouldn’t the incentive situation be such that those becoming rich in the Prowet countries will sooner or later move to the Counterwet countries, once they feel the burden of the progressive wealth tax too strongly? Well, some will certainly decide to do just that, but others might feel uneasy about never being able to step foot again on a Prowet country without being incarcerated for tax evasion while normal people are free to travel wherever they want. Furthermore, they would need to live with the risk of being confined to a decreasing number of safe spaces, if more countries join the Prowet bloc.
The Flight towards the Progressive Wealth Tax Countries
On the other hand, the Prowet countries will be very attractive for regular people, if they pay out a large fraction of the wealth tax as universal basic income. The deal would just seem to good to be true for them: Get money for free and pay virtually no taxes. The Counterwet countries would quickly get serious problems through the ensuing population drain, and might need to resort to preventing them from escaping the Counterwet bloc. And that would prove that the Counterwet countries are not able to win in a fair competition between the two systems, which would be the start of their downfall.
There is also another key way in which Prowet countries can create incentives for the rich to join them: They would declare their tax system to be in force globally. It doesn’t matter where you live, you need to pay the wealth tax. If you want to enter a Prowet country, you need to pay the wealth tax you are due, plus some extra for late payment (much preferable to incarcerate people for tax evasion). The longer the wealthy refrain from paying that tax, the more they will have to pay to be allowed to make business with Prowet countries.
These incentives might not prove to be strong enough. In that case, the world risks drowning in chaos (again). This is of course only the starting point of a long discussion. I don’t claim to have all the answers. I just wanted to point out the paradoxes inherent in a march to effective decentralization.