How Freedom, Innovation, and Incentives Do a Better Job at Building Society than Can Government

Most governments compete for the innovators of the world. In the United States, however, every great innovation leads to more government departments and more regulation, lessening the incentive to innovate. So companies innovating around drones, Bitcoin and initial coin offerings, driverless cars, and many new drugs are moving their operations overseas.

What if policymakers instead adopted an entrepreneurial mindset, hiring slowly, firing fast, cutting ineffective programs, and innovating wherever possible? There is no reason why governments can’t use the latest ideas and technologies developed for the marketplace. Such efforts are underway in several countries, but the United States seems to be lagging.

Estonia has created a system that allows citizens to use a digital signature for all communications with the government. Registering a new company takes only 20 minutes, and even foreign investors can digitally sign business documents without going to Estonia, thanks to its e-Residency program. Citizens can vote online, open a bank account in 24 hours, and receive their tax refunds in two days.

Such innovation has saved the country the equivalent of 2 percent of its GDP, former Prime Minister Taavi Rõivas told me. Low taxes and the ease with which foreigners can do business has attracted tremendous flows of capital to Estonia, leading to rapid gains in labor productivity and a corresponding rise in wages.

I wouldn’t be surprised if Estonia continued this remarkable progress, given its emphasis on cultivating an entrepreneurial mindset and rapidly deploying innovations in government.

America could do this. Our civic culture can become more innovative too.

The inertia, inefficiencies, and partisanship that plague our political system suggest we may get better results by making it easy for private startups to tackle social problems. One way is to widen the scope of incentive competitions.

The X Prize offers multimillion-dollar awards for the advancement of private spaceflight and exploration, fresh-water abundance, adult literacy, women’s safety, Alzheimer’s cures, and other worthy goals.

We could take this further. To improve education, we could create businesses that offer after-school programs to allow students more life-relevant courses and allow working parents to leave their child at school for the entire workday—not just the teachers’ union-mandated workday.

To help the homeless, we could offer prizes for creating safe, self-sustaining live-work spaces equipped with social services and job training. Industrial-size 3-D printers could build them quickly.

Private investment and philanthropy could finance the prizes, but competitions would be more easily launched if we made changes to public policies such occupational licensing, building codes, banking and securities regulations, and international commercial law.

Delegating responsibility for our poor, our criminals, our sick, and our uneducated to the government may seem easier. But in practice, if incentives are aligned, it is far more effective to keep responsibility with the people, who can innovate and provide solutions cheaper and more effectively than a government bureaucracy can. When we leave these matters to a bureaucracy, we lose contact with the needy since they are the government’s, not our, responsibility. While we think we are helping them, we are really making things worse by making the needy outcasts.

Through freedom and innovation we will more easily solve the world’s problems and build a more utopian planet. We can create a happier, healthier, and more prosperous society, while reducing the cost of big government.