How Governments Work, Or Don’t

Before there were farmers

When hunters alone were the dominant form of civilization, there were no governments. Why not? Because there was no need for them. If there had been one arise that tried to impose standards and gather taxes, the hunters would just move on.

Disputes were handled much the same way.

Taxation was impossible because taxation requires a class of citizens who cannot move away to avoid the government.

Once farming arose

Farming requires immovable investment and once that occurs, governments can impose themselves. They are needed. Disputes must be mediated, not avoided. Some services, unavailable to individuals, make sense to provide for a community. Divisions of duties makes sense. Not everyone must be a firefighter, a police officer, or a merchant. Skills can be shared instead of owned.

Governments can be useful, albeit funded by taxes. To a point. The hardest question faced by politicians is where is the point where their services are a problem for the people?

Many governments have passed that point.

When people cannot leave easily.

Once the people are attached to a place, the government can do whatever they want and the people must put up with it. Farmers cannot migrate easily and cost free.

Government policy follows.

Some of it relies on the immovability of the people.

The government is not the only entity to rely on that state. Unions are similar. Once a business invests heavily in a place, they are likely to be unionized. When Henry Ford built the River Rouge works from 1917 to 1928, he guaranteed a union. He could not escape. It would take decades to earn out on the investment.

As businesses become less fixed capital intensive, the old rules will stop applying. People and businesses today can move more easily from one jurisdiction to another. Communication is the biggest equalizer. When you had to mail memos, communication was a problem. The internet and services like Webex and Skype mitigate that problem.

Seth Godin insight

Seth recently published Exit, Voice and Loyalty. In it he points out that voice is lost when exit becomes difficult. When you must deal with a government or a monopoly, you get different outcomes from when you can just choose another supplier.

The phone company was a favourite target on “Laugh In,” nearly 50 years ago.

“We don’t care. We don’t have to. We’re the phone company.” Lily Tomlin

Caring when you don’t have to is difficult for any entity. It takes an unusual mindset to carry off. That mindset is declining.

Caring has value though. Complaints are your friend. Complaints show loyalty. An offer to help improve the service. Only users who care complain. Listen to customers.

What happens when you don’t listen

People move on. When the price to stay is greater than the price to go, people move.

A client who sold the business for a 10-figure number moved to the Caymans to minimize tax. The effect on the family’s Toronto social life? Not so much. “Going to a dinner party is not a big deal. It is like living in from Montreal. Five hours to drive from Montreal, or four hours by jet from Grand Cayman plus some hassle at the airport.”

Nice if you have the Gulfstream.

This person sees Canadian taxation as voluntary, and chooses to not play the game.

The problem is visible.

There is quite a lot of data around the issue of tax migration between states. You can see it here, High tax states lose people. Lower tax states gain and the process accelerates. The problem for high tax states is nearly unsolvable. They lose their base.

You will notice that the highest loss states tend to be run on “progressive” principles. Could be a coincidence.

There is just one solution.

Governments must spend less to keep their base. People must see the value in their tax dollars. People want and should have value for their money. Governments should not rely on the people’s immobility to justify their programs.

The ideal is like the basics forming Singapore. Lee Kuan Yew saw the need for his new government to be honest, effective and efficient.

That requires one unique skill. The ability to say no. Like with your children. Not now, we cannot afford it, is an adult response. Not yet, we don’t know how to do it right, is honest. Never, that is not part of who we are is honest, too.

Governments don’t have to care.

Or think they don’t.

To the extent governments are neither effective nor efficient, they must be dishonest.

To be dishonest requires that they not care. Optics matter more than substance. Charisma more than character. Today more than tomorrow.

Governments behave the way they do because they think we want and need their help. Our greatest need is to remove the burden of government taxation and mindless regulation.

See what you can do to contribute to the change. Complain and offer suggestions for improvement. Do not demand things that do not provide cost effective benefits. Be a little patient.

Vote for honest people. You have no way to judge the meaning of a dishonest candidate.

I arrange life insurance for people who understand the value of a life insured estate.

In previous careers, I have been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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