Arnold Kling  

Business Innovation in a Free State

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Concerning a hypothetical start-up state, Patri Friedman asks,

What key freedoms and protections would you create, and what immediate industries would they enable? What business would you start if you moved there?

One approach is to think of something that is illegal here but would be good to have, such as an organ market.

Another possibility would be encouraging people to hire low-wage workers to do household chores, without any minimum wage. If that takes off, then industries will spring up to serve low-income people, including low-cost housing and health care.

Another approach is to try to satisfy the desire of people to preserve their own capital. A star tech worker might be able to live in a low-tax location and keep more of his her earnings. And if citizens had access to safe, sound banking without fear of being taxed to bail out government or banks, that would be attractive.

Keep in mind that Fogel's three growth sectors are education, health care, and leisure. So, yes, medical tourism is a possibility. And if professors actually succeed in blocking productivity improvements in education, then that creates an opening.

But I think that the real key is leisure. You want the start-up state to be an attractive place for people who want to retire or do part-time work. The ideal leisure environment means different things to different people, of course. But the businesses that should take off would be businesses that are complementary with leisure.

The marketing pitch might be, "Life here can be as nice as in California on a good day. But you can afford it more easily because we don't have all the taxes going for services you don't want."

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CATEGORIES: Political Economy

COMMENTS (6 to date)
david writes:

What did the successful East Asian Tiger states and NIC states do to encourage growth in their industrial and special economic zones?

It looks like a lot of these at least ensured a stable supply of politically-docile semi-skilled educated workers, plus transport infrastructure for them to get to work - services for the low-income that should exist before investors have an incentive to take a look. No investor wants to have to pay for other investor's labour.

Becky Hargrove writes:

I would encourage people to create more modular options for ownership, in which the new city builds grids for plumbing and electrical needs in a wide variety of patterns, (depending on lifestyle choices) People could then purchase building blocks and rent grids to place those building blocks on. When anyone wanted to move, they could simply sell the building blocks that were in good condition, and the grid they rented from the municipality could be checked for maintenance, before the next person chose their own building blocks for the rented grid. This way, a rent/buy model could exist that would stay relatively well maintained.

Arthur_500 writes:
Keep in mind that Fogel's three growth sectors are education, health care, and leisure.

Notice that all these sectors are consumptive.

  • Education is typically a government job.
    • Healthcare seeks funding from sources other than the user. Insurance needs to make a profit so someoen has to foot the bill greater than the expenses. Certainly we look to Government to keep the poor, destitute, healthcare workers off the unemployment lines.
      • Finally there is leisure which makes its money off of those who have excess and can afford to splurge a little. It also makes its money off the backs of low-wage employees.

        Where is the list of productive industries?

Becky Hargrove writes:

Arthur, there is tremendous potential for production of modular building pieces that can be fitted together like parts of a puzzle, from recycled plastic. Plus, the old slow-motion model of building homes is in serious need of some creative destruction, not just the uncreative destruction of banks destroying homes they have given up on selling at a profit. Unstick sticky markets and the consumers will come back.

Gary Chartier writes:

I'd suggest that a start-up of this kind might be less likely to go the way of other regimes if it featured competition in the definition of legal rules, the adjudication of disputes, and the provision of defensive services from the very beginning. An organ market? Sure: but the kinds of markets I've envisioned seem likely to be even more important.

Logan Porter writes:

I'm not sure why you chose an organ market as an example when there are others of more significance that possess less social/moral drawbacks. Fogel disregards productive enterprises (modern industry?) in favor of consumptive ones (education, leisure and health care) which I feel doesn't taken into account how dependent consumption is on production. If a society is not producing (which really creates growth) how will they be able to consume? The wealth will be allocated elsewhere in productive societies, and the non-productive society will fall behind.

Nevertheless, I do see the potential for growth in those consumptive sectors, especially in the case of education. Any presiding government should maintain an extremely limited role, only that which ensures the proper functions of a free market. The privatization of education, then, would allow for competition and the tailoring to the specific needs of the individual students. We've seen that the mass public education system fails for a large number of students, largely because they were denied the individual attention to their specific needs.

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