Placing Value Creation at the Heart of Next-Gen Liberalism
Value creation combines personal freedom and permissionless innovation with solidarity for others
"Growth chart" by griseldangelo1 is licensed under CC BY-NC-SA 2.0.
Liberals (in the old-fashioned and European sense of the word) have a significant problem. “We should mostly leave people alone and then good things will happen” is a time-tested statement. Unfortunately, slogans based on this message will rarely win elections; and some people will undermine the idea by basing their whole worldview on it, without tempering it with any other insights. Anti-state nihilists ruin a perfectly good message by taking it too far.
Previous essays on Sharpen Your Axe have addressed several ways forward. I have suggested finding common ground with liberal-minded projects across the centre of the horseshoe in the name of institutionalism. As floating voters, we can support parties that back the institutions that liberalism built (a market economy, a welfare state and liberal democracy), whether or not the leaders of these parties label themselves as liberals.
I have also argued that we should keep our worldview and our values separate; and we should modify our worldview based on findings from the intersection of biology and social sciences. We should be wary of post-Marxist theorists in the social sciences without going down any anti-”woke” rabbit holes that end up on the far right or the hard right. I have also suggested that liberals need to think hard about building the innovation society and preparing for the energy transition.
In this week’s essay, I will suggest a slightly different way forward. I strongly suspect that next-gen liberalism could be based on creating value for others (a concept that unites individual freedom with values like solidarity and generosity). Before I get stuck in, though, I would like to make a significant caveat. The concept of value creation has been largely neglected by philosophers. It mainly thrives in the the worlds of finance and business, where there is an obvious bias towards value creation that can be measured and brought to market.
Focusing on the measurable side of value creation tends to take the work of cleaners, carers and security guards for granted, not to mention mothers, fathers, grandparents and teachers. Without them, though, the baseline conditions for value creation can evaporate. We need to avoid making this mistake.
Thinking about Somalia can help us get a better understanding of the conditions needed for value creation. Freedom House says that the African country has struggled to establish a functioning state since 1991. It scores just eight out of 100 in terms of political rights and civil liberties. Without a proper state, Somalia has a piracy problem; and armed youth gangs have been running riot in recent years.
If you were a Somali with entrepreneurial tendencies, how would you deal with literal pirates or gangsters ready to hijack any value you might create? Most emigrate; and end up seeking to create value for other people overseas rather than at home. As a result, GDP per capita in Somalia is around USD 592. This compares to more than USD 1,000 in Ethiopia, which has a Freedom House score of 26 out of 100 - nowhere near perfect, but still significantly better than its neighbour.
Market economies in the West are based on setting incentives to encourage people to create value for others. Some libertarians, most notably libertarian philosopher Robert Nozick, have argued that any taxation on this income is equivalent to forced labour. However, the example of Somalia provides us with some important context.
I would like to propose a metaphor. I have already said that finance should be seen as a bridge between families that save and entrepreneurs that need capital. My next metaphor, sadly, also involves a bridge, this time over a deep and wide river. It is possible to ford the river some 100 miles downstream, but doing so will always be messy, not to mention inconvenient at best and dangerous at worst. Most people will probably accept that the people who built the bridge can charge a small toll for crossing it, given how unpleasant the alternative is.
This metaphor provides us with a way of understanding the tax system. If you live in a country like Somalia, it is next to impossible to create value for others, as pirates and gangsters can come and steal any profits. If you are lucky enough to live in a society that gives you the opportunity to earn money by creating value for others, paying a toll should be acceptable.
Philosopher and economist Amartya Sen makes a similar point, as previously discussed. He gives the example of Ethiopian emperor Haile Selassie, who refused to spend any money on famine relief in 1973 because he wanted to create an incentive for hard work. His regime ended up being violently overthrown. As we have seen many times before, humanity is deeply connected. It is a mistake to see us as atomised individuals: we are all in this together.
When we set the rate of the toll, there will always be a certain tension between creating incentives for value creation (keep the toll low) and raising enough income for a functional state (keep it high). This tension can never be fully resolved, which is why fierce competition between centre-right parties that defend investor-friendly policies and centre-left parties that want to build public infrastructure is so important.
Of course, the metaphor of the toll carries certain dangers. It will always be possible for the toll-master to set rates so low that the bridge ends up crumbling; or to set rates so abusive that would-be travellers decide to just stay at home. Taking one model to extremes will never lead to good policy; which is why the peaceful transition of power is the killer app of liberal democracy. The ability to fire incumbents is also designed to stop elected officials who destroy value.
As a rule of thumb, tax rates should on the whole be low on goods and services that create value and high on those that destroy it. Modest taxes on solar panels, but heavy ones on oil make sense in this context; as do ideas like giving the parents of babies and toddlers a tax holiday.
If we are serious about putting value creation at the heart of society, we need to think hard about education. We want as many people as possible to have the chance of launching projects that can create value for others, while accepting that it will never be 100%. Israel set the record for engagement with startups (which correlates with measurable value creation for digital projects), with 14% of its workforce being employed by tech companies before the Hamas attacks last October. It is unrealistic to expect a much higher score elsewhere anytime soon. However, economist Enrico Moretti has shown that every high-powered job in a “brain hub” tends to create five jobs in its wake.
In order to maximise the number of people who can create large amounts of value for others digitally, education should be mostly free and of high quality. We need to find and encourage bright people from under-privileged backgrounds; and that might mean giving them free school meals so they can concentrate on their classes and not the hole in their stomachs. We should also welcome aspiring entrepreneurs from countries like Somalia, who would jump at the chance to create value for us.
In a world awash with data, science, engineering, technology and mathematics (STEM) skills are particularly important nowadays. However, we need to note that we can only expect some percentage of the population to engage with STEM subjects - digital projects are not the only way of creating value. We also need artists, philosophers and writers, not to mention cleaners and security guards to keep the baseline conditions in place.
The state also has a role to play in supporting basic research at universities and research institutions, as economist Mariana Mazzucato has shown. This top-level investment helps create the conditions for startups to flourish.
The contemporary world can change very fast, so lifelong learning is extremely important to help citizens refresh and update their skills. If the vast majority of projects tend to fail, the welfare state will also need to get much better at helping people get back on their feet and having another shot.
Permissionless innovation is massively important for value creation. This also involves making it cheap and easy to become a freelancer, take a side gig or start a speculative project - a radical point in Spain, where I live. We need to encourage as many people to tinker and experiment as possible; and be tolerant of the inevitable failures. Excessive bureaucracy will always mean that some projects will only live as days dreams, never to be tested in the real world.
Platform decay is a subject I have dealt with in previous essays. The best way of developing a vast fortune is to find new ways of creating value for people digitally and then getting back a small percentage of the new value back. However, power corrupts. Once an entrepreneur has built a dominant platform, there will always be temptations to take small decisions that hurt users. These decisions compound over time. Tough anti-trust laws are needed; and blocs like the European Union (EU) will always have a better chance of applying them than small states.
In a world where we want to encourage citizens to create value while discouraging platform decay, inheritance taxes make a lot of sense. They are a valid means of preventing elites from entrenching themselves at the top of society while living on rents from inherited assets instead of creating value through new projects. However, I strongly suggest that we should err on the side of high thresholds. Some percentage of the people who inherit money and houses will invest in projects to create value for the rest of society. Some might even give up their day jobs to try something new.
High thresholds for inheritance taxes may seem unfair to some, but it is important to note that value creation is good for society as a whole. Central heating is a good example. It was seen as a luxury good as recently in the 1960s, but prices have fallen sharply over the decades thanks to innovation and competition. Some in the West now see central heating as a basic human right. Releasing capital to invest in projects will tend to deliver good results for society over the longer term, even if the rollout is patchy and unfair. Grants to aspiring entrepreneurs from poor backgrounds would also be a sensible measure.
Focusing on value creation can also provide us with a way of cutting the Gordian Knot for some of the world’s gnarliest problems. Let’s backtrack to 2005 when Israel withdrew from the Gaza Strip. The Palestinians in the territory largely bet on rocket attacks and atrocities against Israel. Many saw genocide as a solution to their historical grievances - this is the real meaning of the slogan “from the river to the sea, Palestine will be free,” which implies expelling Jews from a small strip of land in the Middle East. This approach is based on destroying massive amounts of value.
True friends of the Palestinians should have encouraged the leadership of Gaza to build democratic institutions; to develop a tourist industry around the Strip’s beaches; and to develop the Gaza Marine natural gas field in alliance with Israel and the Gulf States. Creating value through tourism and natural gas might sound mundane to those people in the West who enjoy cos-playing revolutionaries, but stability, jobs and economic growth would have given the residents of Gaza significantly better results than raping and killing young women at music festivals.
Of course, every approach can be misinterpreted and building a new approach to politics around value creation is no exception. Grifters will always follow in the footsteps of entrepreneurs who genuinely create value. We need robust fraud laws to stop grifters actively destroying value. Russia, a gangster state, has started a war in Europe and we need to deter it from attacking more countries. It also encourages conspiracy theorists to spread lies about our institutions. We need to remain vigilant.
What are the implications of this essay for floating voters? In general terms, we should encourage the centre left to temper its defence of the welfare state with a pro-growth stance and an appreciation of permissionless innovation: value creation is the best way of achieving many social democratic aims. We should also encourage the centre right to be more critical of grifters, particularly when they want to take over mainstream parties and then try to stage a self-coup so they can pick winners and losers instead of letting markets do their job. We should also encourage people on the right to think hard about old-fashioned virtues like duty, service and character.
Although I obviously love these big-picture pieces, the bulk of politics is (and should be) retail not wholesale. Ideology can point you in a certain general direction, but it can only take you so far. Once you get down to knotty everyday problems, it is important to apply a little pragmatism, with a preference for policies that actually work over those that just sound good to the average uninformed person.
For example, what if the housing market is dysfunctional? Building more homes will tend to give better results than controlling rents (a policy that sounds like it should work, but never does). There should be three key questions for liberal-minded elected officials. What is the biggest problem facing society right now? What solutions have been proven to work? And how can we sell these ideas to the electorate given that failed ideas are more likely to engage better with people’s emotions?
Finally, elected officials on both sides should watch out for polices that will destroy value. I realise this point might come as a tremendous shock to the UK Conservative Party, but maybe, just maybe, it might be a bad idea to let privatised water companies pump raw sewage into the sea and rivers? The comments are closed due to the reference to the Middle East, but if you subscribe you can reply to this email. See you next week!
Previously on Sharpen Your Axe
The dangers of basing your worldview on just one idea
Anti-state nihilism and the difference between pragmatism and extremism
Separate your values and your worldview
The intersection of biology and social sciences
Building the innovation society
Further Reading
The Entrepreneurial State: Debunking Public vs Private Sector Myths by Mariana Mazzucato
Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All by Deirdre Nansen McCloskey
The New Geography of Jobs by Enrico Moretti
Anarchy, State, and Utopia by Robert Nozick
The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries
Inequality Reexamined by Amartya Sen
Zero to One: Notes on Start Ups, or How to Build the Future by Peter Thiel and Blake Masters
This essay is released with a CC BY-NY-ND license. Please link to sharpenyouraxe.substack.com if you re-use this material.
Sharpen Your Axe is a project to develop a community who want to think critically about the media, conspiracy theories and current affairs without getting conned by gurus selling fringe views. Please subscribe to get this content in your inbox every week. Shares on social media are appreciated!
If this is the first post you have seen, I recommend starting with the third anniversary post. You can also find an ultra-cheap Kindle book here. If you want to read the book on your phone, tablet or computer, you can download the Kindle software for Android, Apple or Windows for free.
Opinions expressed on Substack and Substack Notes, as well as on Bluesky, Mastodon and X (formerly Twitter), are those of Rupert Cocke as an individual and do not reflect the opinions or views of the organization where he works or its subsidiaries.