State Government: Role


Under the new design, the role of the state government is to promote the state economy and to take operational control over most government programs for individuals, such as social programs and risk management. Because revenues would be redistributed according to this redistribution of legislative responsibilities, the states would have the resources to fund the activities acquired from federal control. This redistribution of funds and responsibilities, however, places more of the burden of estimating the common weal on the shoulders of the state governments. Thus the state governments would face more difficult problems than currently.

One such problem would be the promotion  of the state economy. Traditionally states have promoted business through investments in the infrastructure, for example, by financing roads, schools and amenities, such as state parks which also promote economic activity by attracting a quality workforce. States would continue to perform many tasks in these functions and through the decentralization criterion delegate the remainder to the metropolitan governments.

One current method of promoting economic activity would be sharply curtailed. Today, states and municipalities try to attract business by offering tax and other incentives and as should be expected, businesses use this state and local competition to their advantage to obtain the best deal. Empirically these incentive plans have proven ineffective in promoting economic activitytex2html_wrap_inline288. Given the professional review, such practices would be successfully challenged both on the grounds of efficiency and lack of general benefits.

The aspect of economic promotion which would present the states with an extremely difficult problem would be efforts to accelerate the transfer of technology from research to the marketplace. The problem as was pointed out in Chapter 1 is that basic research is a public task funded by government and invention is a privately funded task. The difficult problem is knowing where to draw the line between public and private promoting of research in the continuum between basic research and new products. To promote better government innovation the federal government would fund only basic research and general applied research leaving the state governments to fund all activities directed towards transferring federally funding research to the private sector. A state which develops a better means of transferring knowledge from the public research to private startups, would enjoy increased prosperity by promoting new types of industries displacing older industries. A state which completely foregoes such promotion would forego the benefits of expanding industries. At the other extreme a state which funds too many promotion attempts would likely end up with expensive boondogles.

A second difficult problem each state would face would be welfare  and social programs. In the initial of governmental functions and tasks most social programs such as social security would be transferred to the states. Thus each state would be responsible for retirement programs, medical programs, unemployment insurance, and programs to aid the poor. Consequently, each state would have to make its own estimate of the appropriate level of social and welfare programs. Consider medicine. Currently the federal government has medicare for the elderly, medicaid for the poor. Individuals with fringe benefits have medical coverage through their employers, but millions of individuals do not have medical coverage and do not qualify for either medicare or medicaid. Local governments provide some medical care for individuals lacking medical insurance. In the proposed decentralization the states would assume complete operational control over medicare and medicaid. Thus each state would have to make the difficult estimate of what level of medical care each individual would be entitled. In making this estimate each state would have to select somewhere between the extremes of only the medical care each individual could privately afford to the best the medical profession is capable of providing. Currently one trend in social programs is for the states to make them required programs of private firms for employees. As informational society develops such a trend would be reversed. In informational society most individuals would find employment through a sequence of short term contracts. For this reason it would be efficient to shift various fringe benefit programs such as medical insurance from the firm to the individual in order that each individual would have consistent long term coverage.

Consequently, states would have incentives to use social inheritance as a method of financing social programs. As was pointed out in Chapter 4, each year every citizen receives his share of capital from those who died that year. The federal government would collect from the estates of the deceased and pass these funds to the states for social inheritance implementation. In creating the state social inheritance programs a state could make certain types of insurance mandatory. Consider medicine, for example. As indigent care is funded at public expense, the public has an interest in making certain that all persons carry some form of medical insurance. Such a requirement that all residents carry a prescribed level of medical insurance funded from the income of social inheritance, is simply an extension of the current requirement that all automobile owners carry auto insurance.

Faced with the assumption of the retirement income provision of social security states might place heavy reliance on social inheritance. Prudently managed, social inheritance could provide a guaranteed income which would increase over the life of the individual. In implementing their new welfare policies, state governments would have to decide how an individual could invest his social inheritance. As individuals have very different preferences concerning the tradeoff between immediate and future income, different individuals would want to make very different types of investments. However, allowing individuals unlimited freedom to consume or invest their social inheritance, especially if individuals could sell the discounted value of future social inheritance, might result in a large number of destitute fools in old age requiring public support. Thus, each state would face the difficult decision of deciding what are the appropriate restrictions on the use and investment of social inheritance.

A third difficult problem for each state would be the operational control of risk  management for individuals and local concerns. Governmental tasks which would fall into this category would include the governance of worker safety, local environment, drug release policy and the previously discussed social inheritance. Experience with federal risk management since the 1960s has driven home the point that there is tradeoff between reducing risk and economic activity especially economic innovation. Each state would have to make the difficult estimate of the common weal in formulating risk management policies.

States in seeking to balance risk reduction against other social concerns would be subject to the professional review. As was pointed out, new risks are subject to screening while old risks are subject to standards. Politically it is much easier to prevent new risks than to control old risks, hence risk management is subject to a double standard which inhibits the development of new technology. However, the current practice of discriminating between old and new risks would probably not stand a professional review challenge of consistency. All states would have to seek better approaches to equate the dangers of old versus new risks. Some states might try proposed approaches such as a methodology of comparative risk. With decentralization, more than one approach to risk management is likely to be considered empirically at one time. Under the impact of the professional review states would seek a gradual reduction in the asymmetric treatment of new and old risks.

In trying to balance risk management between alternative risks and to adjust to changing technology each state would face the difficult problem of selecting the best combination of regulatory approaches for each risk. The original method of regulating risks was through common law. This method will be called the old incentive approach because common law precedents created incentives for creators of risk to take appropriate action. Included under the term old incentives will be the incentives to avoid civil and criminal suits under statutes imposed over common law. The middle approach starting with the Progressives was the bureaucratic approach wherein government agencies created detailed regulations which were monitored by government inspectors. The newest approach which we will call the new incentive approach is to create economic incentives for the participants to reduce the risk. An example here is the incentives for large firms to improve worker safety in order to reduce their insurance premiums.

In informational society given the forecast for an even more rapid rate of technological advance, innovations in risk management would likely place a much greater emphasis on creating incentives to promote the participants to reduce the risks themselves over time. One reason is because properly designed incentives would promote a quicker adjustment to a rapid rate of technological change than a state bureaucratic approach.

Also the rapid advance of micromonitors and the social nervous system would encourage innovations to reduce the costs associated with risk managements. For example, an innovation in all types of risk management would be the creation of decision support systems for each type of risk management. Under operational information policy one goal of this decision support system would be to ensure that all participants had complete current knowledge of the risks they faced. For example, with the development of inexpensive micromonitors the environment will be constantly monitored and the readings would be available to all parties. A second aspect of the creation of decision support systems would be to reduce the costs of determining the status of all laws and administrative rulings. User friendly software would enable business decision makers to quickly determine exactly what regulations applied in certain sets of circumstances. Also, current delays caused by bureaucratic discretion would be reduced by the creation of expert systems.

The fourth difficulty the states would face is the difficult problem of balancing concerns for economic promotion, social programs and risk management. Consider first medicine. Medical research has created effective medical procedures which society can not afford if unlimited medical care becomes every individuals right. Consider next the difficult task of risk management for which the states would develop policies balancing the need to reduce risks, such as safety hazards, environmental damage and loss of social inheritance against other considerations such as cost and a higher rate of economic activity, private invention and innovation under unregulated markets. In this balancing we shall assume that in informational society reducing risk almost always entails social losses such as higher costs or inhibiting private enterprise. Thus risk management requires the states to make an estimate of the common weal in the form of the desirable balance between opposing social goals.

What makes the balancing between economic promotion, social programs and risk management extremely difficult is that decentralization of programs from the federal government will mean that governmental tasks will be performed in a more competitive environment of the states as opposed to nations. Today, state competition exists in an environment of free trade, where no state can create money, and where state governments are generally required by state constitutions to balance their budgets. The competition among states is thus more intense than among nations because the states have fewer devices with which to impede competition. In informational society because individuals and firms would have greater freedom of  location, competition among states to promote their economies will intensify even moretex2html_wrap_inline290.

In making such estimates the increased competition among states does not mean that the states would suddenly curtail all social programs or abandon risk management to the unregulated market. With greater competition states would have greater incentives to fund social programs as part of the social inheritance program especially if the level of social inheritance increases with software becoming an increasing component of national income. Thus states which used social inheritance to fund social programs could maintain a positive business climate.

Also, increased competition would not mean an abandonment of risk management. Consider, for example, environmental regulation. With advances in chemistry and biology man will continue to introduce ever new substances and lifeforms into the biosphere. With the rise of biotechnology, such as the production of compounds using genetically altered bacteria, the number of trained professionals aware of the interaction of human activities and the biosphere will increase and some will inform the public of the environmental dangers resulting from such technology. Operational information policy will make such information available to residents gradually learn the lesson that preventing an environmental disaster such as contaminated ground water is very much cheaper than cleaning up such a catastrophe afterwards. As concerns such as those surrounding the extinction of species and the loss of the ozone layer are likely to increase, environmental regulation would increase over time in all states, but with considerable variation between states. Greater competition in environmental regulation would result in innovations to reduce the administrative costs of the participants.


Fred Norman
Tue: 12 Aug 08