Introduction

We (1) have agreed to contribute this article to the first publication of the International Journal of Political excellence because of its promising approach to initiate a currently missing “discussion, which leaves a reform discourse aside and actively engages in the re-evaluation of the background conditions”. Given the alternatives of writing a provoking, polemic or a daring essay, we opted for a thought provoking and daring one. Given the choice between a seeking, dreaming or idealistic contribution, we chose “dreaming”. For the German language, we have coined the word “Reality-Dreamer” (Realträumer) for an entrepreneur. It is our charter to continuously use our ability to dream and thus actually anticipate future realities before they are actually here.

Through this approach – dreaming-thinking-executing-experiencing-reflecting-enabling – we can initiate a path for an ever better, evolving society. A society without dreams has no future. Who are the dreamers, thinkers and entrepreneurs in our society? It is you, it is all of us.

When an engineer is planning the construction of a bridge and there are errors in his calculation, what are the likely consequences? The bridge may collapse! When politicians, entrepreneurs, managers, family members are committing errors or mistakes, what are the likely consequences? Well, the consequences may not be as easy to predict. But how do we have to think about errors and mistakes that are being made when “designing” or “creating” or “crafting” sociality? How can we actually identify errors and mistakes that are being made when shaping or modeling the social organism? How do we detect errors and mistakes when shaping society? Shaping we actually do every time we interact with somebody else. When errors and mistakes in the inner workings of the social organism are committed, suffering increases! We look at society as an organism since we believe that the principles that make biological organisms so adaptable, yet resilient, can be taken into account when shaping social structures such as a society (Malik 2006). The perception that society is like a mechanism has failed and is partially responsible for the misconceptions and ill-designed institutions we have today. Would you like an example? Take the exclusive promotion of elites. It is a widely held notion in Europe, England, the United States of America and increasingly also parts of Asia, that, in order to enhance a society’s development, we need to particularly promote elites. This notion, however, is a mistake, rooting from a mechanical understanding of society: if one part of a machine is strong and others are only working fairly, one can increase the overall performance best by improving the already strong part to make up for the weaker ones. Quite the opposite is true for an organism: if you have a weak heart and strong lungs, it does not help to improve the function of the lungs. An organism is only as strong as its weakest part and in order to make it stronger you also have to focus on its weaknesses. For our example, this means that the promotion of elites will create social disruptions if it is implemented at the expense of the remaining pupils. The state of the public school system in some parts of the US is already sad testimony of this misallocation of funds and also in Germany the examples lately are countless.

So, let’s now look at how some of the aspects of our current society could be organized to address current challenges.

Design for a Dynamic Society

With the emergence of industrialization and the transformation of society into a service and knowledge based society in developed economies in particular – we shall further refer to this as a “cultural society” –  we are increasingly liberated from physically straining and mind numbing work. In other words: labor, in which we either do not see a sense for our own biography or which can be automated, should be automated. With technology advancing, more and more tasks can be automated for which this was unthinkable not too long ago. Today, however, the liberation from this kind of work today goes hand in hand with a denial of income.

In today’s advanced economies, the industrial era and thus the industrial society has come to an end. Already in the 1970s (Bell 1973), the industrial sector ceased to provide the majority of jobs – at a continuously increasing industrial output. Yet many of our contemporaries fail to recognize this development as a success in productivity and economics and are trying to respond to today’s problems with yesteryear’s concepts.

240 years ago, about  80% of the total workforce was working in the agricultural sector. 120 years ago, this number decreased to  40%. Only 60 years ago, still 20% worked in the agricultural sector and today, this percentage is down to just above 1 % in modern, economically developed societies.
Based on experience and since the beginning of mankind as we know it, making a living always meant: people grow what their families need to survive and sell or exchange the rest on the market. Over only the last few decades, something has occurred which we as a society have not yet fully grasped from a social and cultural perspective: we are increasingly liberated from industrial, income generating labor. In other words: If – and at the degree – we abandon labor as a production factor, we must also replace it as a source of income. At the same time, labor that cannot be automated is badly needed in other sectors of society: family, education, science, medicine, care for the elderly, or the arts. This kind of labor is directed immediately towards people, for instance also customer service in retailing, counseling and some areas of business consulting.

Labor that cannot be automated and is hard to quantify in terms of an immediate financial return, it can only be enabled by providing the financial means upfront (customers demanding the fruits of that labor will of course then have to pay for it). The economic or financial return for labor, like the one mentioned, often only transpires after decades, if at all, and is therefore hard to quantify when it is performed.

Today’s developed economies are characterized by a virtually complete division of labor in the process of the creation of goods and services. As a consequence, we no longer can consume the physical outcome of our own labor but instead have to entirely rely on the goods and services produced by others in order to maintain our standard of living. We thus depend on the initiative of others in order to live. In return, others expect us to contribute our share. Given this interdependence in a society which depend on the individual’s initiative, is it sensible to burden and hamper this initiative by taxing income? We rather should want to pull out all the stop signs, encourage contribution, work ourselves and have others work for us in return so that our well-being and the well-being of society can be maximized. In the reality of the modern, radical division of labor, taxation of the income is an anachronistic concept which poisons the well which nourishes the prosperity of modern societies.

The absurd consequences of income taxation become even more evident once we realize that all costs in the value chain are in the end reflected in the price of the consumable good or service. Therefore, all taxes incurred in the value creation process are paid for today by the consumer. This is maybe the most fundamental effect of advanced labor division, and probably the most ignored one, too. An increase in income tax will inevitably lead to higher costs in the value creation process and thereby becomes part of the product price (unless the increase in cost can be absorbed by an increase in productivity, which often comes through the elimination of industrial labor). Any other tax that is levied on the value creation process, such as the corporate income tax, has the same effect. We believe that the gradual transformation away from taxes that are levied onto the value creation process  to a single consumption tax will eliminate the initiative dampening effect that taxation nowadays often has.
A single consumption tax will make transparent what in reality is already the case today. As we look at the price receipt of a good we purchase, we will then see the costs of value creation (which in the labor-divided value creation process all dissolve into private income) and the costs of the public sector, which is expressed in the taxes. Any public policy that declares transparency to be one of its goals cannot ignore the need for and logic of the introduction of a single consumption tax (2).

In today’s society, there is consensus that the basic needs should be exempt from taxes. This is reflected in the exemption of income from taxes up to a certain income level. With the introduction of a single consumption tax and the elimination of income tax, current tax exemptions such as the income tax exemption, become ineffective. Under the new system, an equivalent for the income tax exemption would be a consumption tax refund (CTR). This would ensure that the basic consumption can be made without paying taxes. The introduction of such a refund could and should already start today, as in economies like Germany and France the VAT accounts for the biggest single tax source in the public budget. Another word for the CTR is “Basic Income” (BI), which of course can be designed to pay out more than would be needed to ensure the tax-exemption of only the basic needs. Henceforth we shall therefore speak of a CTR – or BI – which covers not only vegetative needs but a socio-economic minimum (Althaus 2008) and which ensures human dignity unconditionally (Article 1 of the German Constitution). A BI is a step into the “Culture Society” that succeeds the Information and Knowledge-Society.

A Basic Income would contribute substantially to a reduction in labor cost (which is a combination of salary, taxes and social insurance costs) if it was paid out on a substitional basis – i. e. all other transfers or salary income for any respective person would be set off by the amount of a Basic Income. In a competitive economic environment, price levels would remain stable as the reduction in labor cost will result in a reduction of net prices while the simultaneous increase of the consumption tax will bring gross prices up to their previous levels.

In Germany, every percentage point of VAT yields an annual Basic Income of 100  € per capita (roughly 8 billion dividded by about 80 million inhabitants). A three percentage point increase as incurred in 2007 would yield a monthly Basic Income of 25 € per capita. Based on the current German Social Securitx Budget, a Basic Income of 600 € would already be affordable today ot of the existing tax revenue and social Insurance budget (Straubhaar 2007)(3).

With the gradual introduction of a Basic Income and the simultaneous, gradual transformation of the tax system, initiative in the form of human labor would be liberated from its tax burden, become less expensive and thereby more affordable. In particular, new entrepreneurial initiatives would benefit and the full potential of human ingenuity and initiative would be unleashed for the good of society.


Design for a Mutually Beneficial Society

Human lifetime and labor are not tradable goods. The truth of this insight can become clear by just looking at the entering of a work contract. Whenever somebody enters into a work contract, the agreement is on what tasks are going to be performed or what result or going to be delivered. It is never just about time to be spent. No employer would ever be interested in somebody just spending time under a work contract. It is always the performance and the results that are in mind. Yet, again anachronistically, work contracts also stipulate a certain time to be spent at the work place. But human lifetime cannot be sold, and whenever such a thing is attempted, it is misguided and wrong – not in a moral sense, but in the sense that time never actually is the subject. The notion of time in labor agreements actually stems from ancient slavery, when the master disposed of 100 percent of the slave’s time.
So what we find today is the remainder of this in the form of a remaining part-time-slavery, in which we subordinate our free will and initiative for any time agreed under the ordinance of somebody else’s will (Kant).

If, based on this insight, we now take the next step and strictly apply the principle of performance, we would only pay for performance and terminate employment with all those that don’t perform at the level of expectation in a specific job assignment. However, while boosting productivity for the individual company, for society this would create enormous challenges as termination of employment would immediately equal deprivation of income and thus, ultimately, starvation for some of its citizens. Now, if there was a consumption tax based Basic Income, try to imagine what the scenario could instead look like …

There are three more commodities that are not supposed to be tradable in order to maintain a healthy social organism: these are money, real estate and shareholder equity in companies. Short explanations follow.

Money

The primary purpose of money is to facilitate the flow of goods and services and to account for their economic value in the form of prices. All other – secondary – purposes of money depend on this primary function. If money is thus designed to primarily organize the flow of goods and services, it should have properties equivalent to those of goods and services in order to avoid disequilibria. If money does not possess these equivalent properties but develops a life of its own, i. e. if it for instance does not emulate the “ageing” properties of goods and services that lose value over time, it tends to cause artificial monopolies. Money tends to interfere with the most beneficial allocation of resources if it does not flow freely but has a systematic, artificial tendency to accumulate in a relatively small number of places (compared to the number of people within a social organism), leaving the remaining parts of society with an increasingly serious shortage of money – and therefore lack of purchasing power – owing to the lack of natural ageing properties that would otherwise cause a decay of accumulations: Goods and services must be sold as they lose their value over time. Human beings must continuously contribute in order to remain relevant in the economic process. If money is not forced into economic circulation, it will amass at certain points and – like blood-clots in an organism – cause severe damage (4). To illustrate by a few examples what has been said: a house takes a hundred years to be ruined, a tomato gets rotten shortly after it is purchased, the service of a railway transport expires the moment you get off the train. In order to synchronize the properties of money with the expiry of the value of the underlying goods and services, a system has to be devised that prevents money from artificially accumulating in objects that are not subject to automatic devaluation, such as real estate and legal rights.
One approach is a moderate inflation, between 3 and 5 percent (e. g. through an enhanced consumption tax), reflecting the ‘average natural decay’ of goods and services.

Real Estate and dealing with Resources responsible for Climate Change

Real estate – for reasons of its efficient use – should better not be seen as a tradable good. This might seem difficult to understand and explain, in particular in the light of ideologically motivated real estate reforms under communist regimes, which failed to take the importance of private entrepreneurial initiative into account and therefore economically failed altogether.

A first insight into this logic can be found with Walras, one of the fathers of classical economic theory, who is famous in economic sciences for his equilibrium theory but widely ignored as far as his real estate theory is concerned. According to Walras (1874/1990), private ownership of ground causes speculative ownership, i. e. owners would hold ground in hope for value increase and prevent others from being initiative on that ground using it for the production of real goods and services. Walras suggested property not to be sold to private owners but to be publicly held and usage rights be given to private individuals in exchange for rent (5). This is the – maybe decisive – difference to communist real estate usage, which prevented private initiative and rather relied on public initiative.

Walras’ reasoning is as simple as it is striking: real estate, as it is limited and cannot be extended, should always be given conditionally to those that are able to make the most out of it in terms of producing goods and services. Therefore, it should not be held by those only interested in possessing it for the purpose of selling it later at a higher price (i. e. speculation), who are not actually creating real values. In order to ensure the continuous optimal use of real estate, it should be costly to simply possess it while keeping it idle. Walras suggested that commercial real estate should belong to the public but be rented out in property-equivalent long lease contracts (D: Erbpacht, CH: Baurecht). If the usage rights are conditionally auctioned off to private holders, those will be able to afford the highest leases that know best how to make the best economic use out of the real estate. If the revenue from the auctions are collected and paid to every citizen, land allocated to its most beneficial economical user and an average of the produced goods and services can be afforded by everyone. The incentive for entrepreneurial initiative remains untouched and may become even stronger as a wider population disposes of income.

This idea may be easier understood when being applied to and explained at the example of a currently “hot” topic in international politics: climate change This change is mainly caused by the emissions of carbon dioxide (CO2). When dealing with the environment, a first aspect is that resources are limited. As nature is given to all human beings, not just a flock, everybody can claim equal rights to use the atmosphere. The objection and denial of China and India to participate in the Kyoto agreement unless climate resources are granted per capita have brought that up. At the same time, society has an interest in allocating resources where they are used best, in the sense of an economically efficient use. Is there any way to match all three criteria – equality, limitation, efficiency – simultaneously? There is! Andres (2001) has proposed the following three-level sequence: On a first level, science determines the maximum CO2 capacity of the planet, on a second level the volume is auctioned-off globally (typically to companies). Those who make the best economic use of CO2 (or any other resource, such as real estate) – i. e. by using it for the most valuable production – can afford to bid the highest price. The funds collected on the second level are collected in a global fund, which on a third level redistributes the funds to every citizen per capita (6).
The benefits and consequences of such a system can be derived and seen easily. One example shall be given: there will be only one global price, in the case of CO2 the price for emission certificates. Corporations under such a climate administration could not blackmail single nations by threatening them with moving production to another country. Another benefit is that through the per- capita-redistribution, every person can afford the sustenance level, e. g. access to potable water.

Equity

Hardorp (2008) notes, that slavery was banned in the second half of the 19th century, as shares of companies became tradable, and concludes: “Slavery is retailing human beings, trading shares is wholesaling them.”
Today only two percent of the trading volume at stock exchanges is actually from initial public offerings, which provides companies with fresh capital to create real values. The vast majority of stock trades is an exchange of notes among investors that speculate on the future health of companies hoping to cash in on their bets, not creating real values in terms of consumable goods and services. An abundance of money encourages speculation which drives stock prices to levels that become disconnected from the underlying realities of real goods and services. Shareholders that try to extract money from the stock market by artificially boosting stock prices will become focused on the short term revenues rather than the long term health of companies. An economy with such a focus is doomed to experience the bursting of financial bubbles with all its accompanying economic convulsions and disruptions as companies are exhausted and the economy finds its way back to reality. Money and stocks cannot feed the kids. Only the underlying goods and services can. The first is only justified by the latter. If the first becomes disconnected and starts to systematically exhaust the latter, it will not be long lasting. Today increasingly, no real value is being created but, instead, often destroyed, for instance if productive and profitable factories  are being closed because speculation at stock or real estate markets yield higher financial returns (Ziegler 2006).

What would happen, if excess funds – i. e. funds we do not need for consumption and instead can invest – could not flow into speculation? It would have to be invested into business ventures, into the creation of goods and services for others, for all of us. This is what investment is supposed to be all about! And money that we do not want to invest into business ventures? It would be invested  into family, education and other initiatives that cannot guarantee an immediate economic return such as the education of our children, cultural initiatives et cetera, the returns of which are higher but difficult to quantify. Family and education is laying the ground for the future development of any civilization, just as previous generations laid the ground for ours. Without an immediate return on investment, these are the true and most relevant investments we can make, as these factors determine the development and well-being of our global society..


Conclusion

Our current economic system has undoubtedly yielded its benefits in the past. Increasingly we realize that “more of the same” does not carry us forward. How many speculation bubbles at stock and real estate markets need to burst until a democratic majority questions it? We don’t know. A systematic approach to excellence in policy making and governance must evaluate the timeliness of such thoughts and draw its own conclusions. The time may be right – and then again, it may be not – for a re-evaluation of some paradigms which today are sometimes cherished as almost natural laws by many economists. How many bubbles and bursts at stock exchanges and real estate markets need to occur before the underlying, structural dysfunctions are understood and not only the symptoms are cured with just another contingency fund? How long will it take until we – each of us – recognize that the “re-evaluation of the background conditions” is necessary? The ideas presented are one approach for a truly liberal economy with an initiative-fostering economic design – a path beyond communism and capitalism – whose time has more and more come but yet needs to be fully understood.

Notes

(1) Professor Goetz W. Werner is the founder and CEO of one of Europe´s largest drugstore chains (dm Drogerie Markt) and head of the Interdisciplinary Institute of Entrepreneurship (IEP) at the Karlsruhe University/Karlsruhe Institute of Technology (KIT), Christoph Werner is a manager at Glaxo SmithKline and holds an Executive MBA from the University of Pittsburgh, André Presse holds an MBA from the Leipzig Graduate School of Management (HHL) and is research associate at the IEP.
(2) The authors are aware that there are ecological reasons for taxing resources. We agree and will later in this essay sketch a combining approach.
(3) These are very rough figures and meant only to demonstrate the principle and volumes generally possible.
(4) Schwarz (1925) recognizes similar problems in the Roman monetary system to be one cause of the collapse of the Roman Empire.
(5) Andres (2001). In order to answer just two of the main questions that may arise to the reader at this point – about the mode of allocation and the incentive to invest – shall be said: temporary (or even timely unlimited) usage rights could either be auctioned-off or distributed by the local authority (finding the “right price” according to a simple algorithm: does it ask for a rent to high, nobody will be interested in using the ground). If a tenant ceases to be the economically most beneficial user for any piece of ground – i. e. is there somebody else offering a higher rent –, the ground goes to somebody else – of course investments made by the previous owner and not being depreciated at that time will be reimbursed by any new tenant.
(6) Current global institutions may not appear to be in place for such an arrangement. But take a second glance: in developed economies practically every citizen holds a bank or tax account. In most developing economies micro-credit systems are being created that can serve the same purpose. Thirdly, until a global per-capita-arrangement can be implemented by the UN or any successor, funds may be given to countries which may autonomously decide how to best use them. Until the system outlined here will be implemented, global citizenship might have reached a stage at which per-capita distribution may not represent an administrative challenge anymore.

References

Althaus, Dieter (2008): Das Solidarische Bürgergeld, in: Internet under: "http://www.dieter-althaus.de/52.html"

http://www.dieter-althaus.de/52.

Andres, Fritz (2001): Wieviel Erde braucht der Mensch, in: Fragen der Freiheit, vol. 257, Bad Boll 2001.

Bell, Daniel (1973): The Coming of Post-Industrial Society, New York 1973.

Malik, Fredmund ( (2006): Strategie des Managatements komplexer Systeme, Bern 2006.

Hardorp, Benediktus (2008): Das Geldwesen als gesellschaftliches Bewusstseinsphänomen^. Lecture given to students in entrepreneurship at the Karlsruhe University/Karlsruhe Institute of Technology (KIT) on January 23rd, 2008. Texts for further reference can be found in: Internet under www.hardorp-schriften.de.

Schwarz, Fritz (1925): Segen und Fluch des Geldes in der Geschichte der Völker, pp. 72-106, Bern 1925.

Straubhaar, Thomas (2007): Bedingungsloses Grundeinkommen und Solidarisches Bürgergeld – mehr als sozialutopische Konzepte, Hamburg 2007.

Walras, Leon (1874/1990): Théorie de la Propriété, in: Oevres Èconomiques Complètes Vo. IX – Ètudes d’Économie Sociale, Paris 1990,

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