Rebooting liberalism – part 2: Funding public goods

This is the next post in my series about Radical Markets. If you haven’t already, it might be a good idea to read my first post in this series before reading further. In this second post I’m going to focus on coordination between communities within liberalism, and specifically how to coordinate the funding of public goods.

Liberalism is failing on its own terms

When liberalism was conceptualised during the Enlightenment, one of the first critiques was that without some form of collective coordination, life would be dysfunctional, harsh and brutal. John Locke (as mentioned in my first post) proposed a solution to this where a democratic government was to be elected by the governed. Basically, the ideas of liberalism and democracy was put together to create the political structures we know today—liberal democracy.

However, history has shown that liberalism and democracy (as we know it today) don’t work well together. How can the independent pursuit of individuals, small communities or minority groups be accurately represented under a government that’s biased and only represents the majority of people? Liberalism would require a truly society-neutral way to do collective coordination. But as it turns out, governments elected through majority voting aren’t society-neutral.

Liberalism is failing on its own terms—it does not have an answer to how collective coordination should function without conflicting with its own ideals. Such a mechanism would have to be truly society-neutral. Liberalism and democracy needs a reboot.

Why is collective coordination needed?

Collective coordination is needed for the provisioning and maintenance of public goods. The classic definition of the term ”public goods” would be things such as shared monetary systems, roads, schools, hospitals and conservation of land.

Another interpretation of “public goods” is adding to the former, and saying that any shared utility, or organisation, that can receive benefits from shared resources or investments by individuals, where the value provided is greater than each individual funding contribution, should be considered a public good. Some examples include political parties, news organisations, charities and open source software communities.

It has been proven that funding public goods through private capitalism (no collective coordination) leads to the under-provisioning of public goods, and therefore an increase of the “free-rider problem.” In such a scenario, the only way to reduce the free-rider problem is to reduce the proportional under-provisioning of said public goods, by reducing public access (charging fees, applying digital rights management etc.). However, this leads to non-democratic exclusion of groups of people, further proving the point that liberalism (specifically capitalism in this case) and democracy doesn’t work together. A reboot is indeed needed.

How’s collective coordination currently being done?

Taxation by governments is one way to collectively coordinate the funding of public goods. But as we already covered, governments aren’t doing a good job representing all groups in a society. There are more examples in our liberal society of how funding through collective coordination is done.

Take the following examples; political campaign funding, charitable funding and funding of news/media organisations. These are largely funded through some form of collective coordination.

With private capitalism, small contributions are discouraged because of its linear and plutocratic nature. Small contributions feels like “a drop in the ocean” with little to no impact compared to much larger private or institutional contributions who therefore have a much larger influence on the outcome.

This is a known problem to our liberal society. The only solution to this problem, thus far, is “fund matching.” It’s common for city councils in the US to match small donations to political campaigns in an effort to balance large institutional influence on the political scene in US. Tax deductions on small charitable donations is also a form of governmental fund matching. Some companies and organisations might match donations under $100, to a charity of the donor’s choice. The same is often true for funding news organisations.

While fund matching does increase the incentives for small contributions, thus reducing the plutocratic nature of private capitalism, it does so in a poor and arbitrary way. Those who match funds are in power to decide what can and cannot be matched. And the ratio or distribution on how funds are matched are often arbitrary or limited in other ways.

What is needed is a society-neutral way to collectively coordinate the funding of public goods—a mechanism that encourages funding of the right amount of public goods, incentivises small contributions and removes plutocratic influence.

Liberal radicalism

A potential solution to the liberalist problem of collective coordination is the emerging idea of Liberal Radicalism. This can be seen as an extension of the ideas of Radical Markets and Quadratic Voting that I covered in my first post on this subject.

The basic idea is that funding received by a public good is the sum of the square roots of all contributions. Very similar to how Quadratic Voting works. For example, there might be two donations to a news organisation; The first donor pays $4 to cause $2 of funding to be received (remember, funding received is the square root of the cost). The second donor pays $25 to cause $5 of funding to be received. Notice how small contributions are much more “subsidised” than large contributions.

But where goes the remaining $22 (the funds that got “squared away”)? That’s up to each specific implementation to decide. For example, those funds could end up in a separate public fund controlled by Quadratic Voting that in turn is used to fund other public goods, or returned to all citizens as a “social dividend”.

At first sight, it’s very easy to critique the $22 of “underfunding” that this system is causing (mainly from large contributions). That could be seen as a very heavy “taxation”. But one must remember that the goal with this system is to turn the incentives on its head. So instead of today’s capitalistic system where a few large contributions control the outcome, Radical Markets would encourage many small contributions and thus reach the right level of funding in the end. And perhaps more importantly, people would be encouraged to fund the public goods that are right for them and their own communities.

Conclusion

One might ask, how is Radical Markets different from a traditional left, right or even traditional libertarian political economy? Well, it differs a lot in many ways. But here’s the brief version.

The traditional left will rely on heavy taxation of the rich, much like the quadratic “taxation” of large contributions in our previous examples. But the left does so by relying extensively on a majority elected (but often corrupt) government that exclusively decides, or otherwise limits, where funds are distributed. Such a system disrespects minorities and small communities without representation.

Radical Markets also differs from traditional right political economy, and traditional liberalism, in that it uproots capitalism and solves the coordination problem that liberalism has been suffering from, to provide a much more egalitarian system.

With Radical Markets we create a truly libertarian system with a better way to collectively coordinate the funding of public goods, without conflicting with the own terms of liberalism, as initially envisioned during the Enlightenment.