A legal framework could initiate a new public utility: state-of-the-art online markets built around anything organizations and people at the base of the economy can sell.
Aims of a framework
The five key aspirations for a “Modern Markets for All” policy should be:
- Growth: Increase activity, inclusion, incomes, and investment at the base of the economy while attracting activity out of the illegal shadow economy.
- Exploit leverage: Use public agencies’ ability to pump-prime and protect activity in markets to spread social, environmental, and economic benefits of new marketplace technologies.
- Choices: Add a distinctive public option as one more option alongside any number of commercial or charitable marketplaces for anyone to use as, or if, they wish.
- Avoid costs: Ensure government does not design, fund, or run an officially backed system of markets. All risks are borne by private operators.
- Maximize impact: Infrastructure enabling new markets could also enhance democracy, civic participation, quality of public services, and government accountability.
Structure of the framework
There’s an obvious way to deliver the above aims, widely used by governments of right and left: an official concession that attracts corporates into bidding to fund and run a new facility. Take lotteries in the UK as one example. A Conservative legislature passed the 1993 National Lottery Act. Eight consortia bid for an initial 7-year concession. Camelot, who won, then implemented in record time. Five billion £1 tickets were purchased within 18 months. For its first double rollover, 96% of UK adults played.
Concessions like this also create self-funding toll-roads, schools, lotteries, airports, bridges, cable TV services, and ferry links. Each concession typically bestows protections or facilities only government can give, for a fixed timeframe, with accompanying obligations on operators. Investors get their return from charges to users. Dramatic outputs include the Euro-Tunnel, delivered only after Margaret Thatcher’s Conservative government guaranteed a 33 year monopoly to a first consortia erecting a fixed link across the English Channel.
Applying this model to e-markets could create a robustly independent, for-profit, group of operators incentivized to drive state-of-the-art trading infrastructure across a country’s micro-economy. We call the resulting service POEMs (Public Official E-Markets).
There is a mass of evolving research behind the points below. See more on our briefings page.
What government offer operators
For a concession period of perhaps 20 years, winning operators exclusively get:
- Pump priming: Government spending on services and workers, direct or indirect, will go mainly through POEMs.
- Official authentication: POEMs is allowed direct verification – with a user’s permission – of a user’s identity or licenses in any government database.
- Automated relationship with courts: POEMs can feed disputes between users into the courts who input judgement, but only when its own mediating technology is unable to nudge parties to a resolution.
- Marketing: Government will promote POEMs through its channels to workers, tourists, businesses, officials, claimants, taxpayers, and inward investors.
- Clarity of status: POEMs’ operators will not be a counterparty in transactions, financial services are licensed, independence from government is enshrined.
There is a further facility POEMs could exploit that is easy for policymakers to offer: an official registry of trading records. This stores 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 a first with penalty points.
This verifiable record of a person or small businesses’ reliability could be used in any way they wish, inside or outside POEMs. It should foster 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 technologies like mobile telephony and give away the value too cheaply. Key demands in the concession should include:
- Universal service: Operators must deliver markets for the full range of legal trades, to any legal buyer, seller, or investor. Automated deduction of tax, administration of welfare, or benefits should be an option for any user.
- All funding: Operators pay for everything; the system, interfaces, modernization of 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 facilities to users without charge, for example volunteering or voting.
- Market neutrality: Operators can’t buy, sell, invest through, or take a position in any of the markets they operate. They can’t set prices or transaction parameters, only enable each user to do so. Anonymized market data must be published. All users are treated equally.
- 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, premium options, or fees for access. Their cut is subject to a Maximum Average Transaction Size.
- Public service obligations: Extreme transparency, accountability, user ownership of data, absolute freedom to port details to alternative platforms, open interfacing (anyone can launch an app on top), plus decentralization of control and operations, are mandated.
Bidding for the concession should be open to any credible consortium. The one that commits to the lowest charge for users (see point 4 above) wins. Government then gets out of the way as the clock starts ticking on their concession period.
The business case
Banks and tech. companies sit on cash piles. Would a framework like this induce them to spend it on enabling new economic infrastructure specifically serving the less well off? And what would they need to charge users? As a quick test, this spreadsheet assesses the opportunity for a 20 year concession with South Korea as a sample country:
Our first input is costs of building POEMs. Looking around the world for non-optimistic scenarios in complex, official, IT initiatives we alighted on the UK government’s disastrous Universal Credit scheme with its final cost of £15.8bn.
We added annual maintenance at an above-industry-average 20% of original build cost a year, then assumed $5bn for training, ensuring public access, and other non-system costs. That’s a further $102bn required over the 20 years.
Concession winners’ returns are modeled on three factors; (a) existing percentage of GDP made up of the small transactions POEMs will offer, (b) latent activity that becomes viable only 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 get there.
These rough calculations suggest even a disastrously launched South Korea POEMs, charging 2% on each transaction, would generate a 110% return for its backers. Actual costs and charges in any jurisdiction could be flushed out in competitive bidding for a concession.