Economic growth: inclusive, green, no-cost.

A legal framework for Modern Markets

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A legal framework could initiate a new public utility: state-of-the-art online markets built around what people and organizations at the bottom of the economy have to sell.


Aims of a framework

Aspirations for a “Modern Markets for All” policy should include:

  1. Increase activity, inclusion, opportunity, incomes and investment at the base of the economic pyramid.
  2. Attract activity out of the shadow economy.
  3. Increase choice in marketplaces with a distinctive, widely trusted, public option sitting alongside any number of purely commercial marketplaces.
  4. Ensure government does not design, fund or run the markets system. All costs are borne by private sector operators.
  5. As a byproduct: Enhance democracy, civic participation, quality of public services, government accountability and social stability.



Structure of the framework

There’s an obvious way to deliver the above, widely used by governments of right and left: an official concession. To take one example; Determined to finally create a fixed link between France and England, Margaret Thatcher’s Conservative government guaranteed a 33 year monopoly, to a first consortia willing to tunnel or bridge the waterway. Removing the possibility of a competing link attracted billions in in private investment.

Concessions like this also create; self-funding toll-roads, schools, lotteries, airports, bridges, cable TV services and ferry links. Each concession typically bestows benefits only government can give, for a fixed timeframe, with accompanying obligations on operators. Their investment is recouped from charges to users.

Successful implementation stems from; (a) a well thought out specification for the putative facility, (b) a mix of benefits and obligations that creates an attractive business case for investors and (c) a defensible process for selecting the winning consortia. Once a transparent ability-to-deliver threshold has been proven, the winner is typically the group committing to lowest charges for users.

There are other ways to shape “Modern Markets for All”. But an official concession, perhaps for 20 years initially, seems the most promising. It would turn independent operators, focused on recouping set-up costs, into a robust counterweight against any government inroads on system independence. And it protects taxpayers from risks of a bad implementation. The challenge then, is defining a package of benefits and obligations that will initiate a service we call POEMs (Public Official E-Markets).



What policymakers offer operators

There is a mass of detail behind each of these offers, see our Legislation section for a fuller list.

  1. Pump priming: All government spending will go through POEMs except where it is demonstrable that better value can be obtained in other channels. Even in the US, 25% of workers are in entities beholden to public contracts.
  2. Official authentication: POEMs is uniquely allowed direct authentication – with a user’s permission – of their status/licenses in any government database.
  3. Automated relationship with courts: POEMs can uniquely feed disputes between users into the courts, but only when its own comprehensive mediating technology is unable to nudge parties to a resolution.
  4. Marketing: Government will promote POEMs through its channels to; workers, tourists, businesses, officials and inward investors.
  5. Clarity of status: POEMs’ operators will not be a counterparty in transactions between buyers and sellers. They are allowed to operate a narrow bank and enable financial services for users.


There is a further facility POEMs could exploit that is easy for policymakers to offer: an official registry of trading records. This is a unique, objective, record of each user’s successful completion of transactions in POEMs that is given official status; like a driving license. It is under the control of each user but can’t be replaced in case of sanctions, just as we can’t get an alternative driving license having filled the first with points for reckless road use. This verifiable record of a person or small businesses’ reliability could be used by them any way they wish, inside or outside POEMs. It should strongly incentivize good behavior in the markets.



Obligations on operators

The list above creates a sizeable business opportunity. Policymakers mustn’t repeat mistakes made in early days of mobile telephony and give away the value too cheaply. An abbreviated list of demands in the framework should include:

  1. Universal service: Operators must deliver markets for the full range of legal trades, to any legal buyer, seller or investor by a given date. Market functionality must be commensurate with the amount of activity in each sector. Deduction of tax, payment of public assistance and portable benefits must be an option for any user.
  2. All funding: Operators pay for everything; the system, interfaces and modernization for public databases before launch, public POEMs terminals in areas of low internet penetration, peer training for the techno-unconfident and so on. They must also provide some services to users without charge, for example voting.
  3. Market neutrality: Operators can’t buy, sell, invest or take any position in any of the markets they operate. They can’t set prices or transaction parameters, only enable any user to competitively do so. Anonymized market data must be published openly. All users are treated equally. Anyone can build additional services, and their own charges, on top of the core POEMs platform.
  4. Charging controls: Operators must set a flat-rate percentage mark-up they impose on each transaction. They have no other source of income: No advertising, premium listings, exploitation of user data, extra costs at checkout, enhanced services or fees for access. Their cut is subject to a Maximum Transaction Size
  5. Reallocation in case of failure: if POEMs’ operators breach their obligations, there is an escalating process of public warnings that cumulates in transfer of the concession to another provider. Operators’ investment in modernization and training is not repaid. To allow preparation for this, operators must open source, or at least publish, their code.



The business case

Banks and Big. Tech. sit on cash piles. Would this framework induce them to spend it on enabling new economic activity for the less well off? And what will they need to charge users? As a back-of-an-envelope test, this spreadsheet assesses the opportunity with South Korea as a sample country:

Our first input is cost of building a POEMs system. Looking around for pessimistic scenarios in official IT systems we alighted on the UK’s Universal Credit scheme. This sweeping replacement for multiple public assistance programs is years behind schedule and 7 times over its original budget. Final cost: £15.8bn. So, we have used US$19bn as the cost of build for South Korea’s POEMs, added annual maintenance at industry norm of 20%, then assumed $5bn for training, ensuring public access and other non-system costs. That’s $102bn to be invested over a 20-year concession.

Returns are modelled on three underlying factors; (a) percentage of GDP made up of the small transactions POEMs will underpin, (b) latent activity that becomes viable because of POEMs and; (c) current shadow activity made up of small transactions. That’s the addressable market. We have assumed POEMs will only ever penetrate 50% of this and it will take 5 years to do so. (For simplicity we are ignoring earnings as usage grows over the first 5 years.)

These rough calculations suggest even a disastrously launched South Korea POEMs, charging 2% on each transaction, would generate a 110% return for its commercial backers. Not controlled by politicians, a build might cost closer to the original figure for Universal Credit: $2.5bn. Returns then rise to 700%+.


Much of the software will be reusable. Numbers for territories like India, Indonesia or the European Union point to a case for investing in POEMs even for a small first territory. It could be a loss leader for corporates on the way to much bigger implementations.

Actual costs and charges in any jurisdiction would be flushed out in the competitive bidding process for a concession. Our point is: global investors should look seriously at releasing the vast sums required to enable state-of-the-art markets at the bottom, if policymakers somewhere created a first framework.

International companies are the best candidates to build POEMs. They have the funds required and would have much to lose if kowtowing to government at the expense of their users. But they may be bad arbiters of local activity.

So, a POEMs framework could mandate franchising of front-end marketplaces; one local running POEMs’ market for medical procedures, another invested in enabling anyone to do neighbors’ laundry, a third using the core platform to develop its roadside repairs market, and so on.


→ The policy/politics frame