Tuesday, January 29, 2013

Can governments crowdfund (some of the time) rather than tax?


Taxation has become the accepted approach used by most governments to raise most of their funds.

In its simplest form it involves taking a percentage share of the income earnt by citizens and other eligible entities, such as corporations and putting all this money in a big pool for the government's use.

The government then decides how to spend this money - providing public services and infrastructure, welfare and health care, and paying for the machinery of government.

Taxation is often supplemented by other revenue raising approaches including 'user-pays' tolls or levies and the sale or rent of goods, public assets or rights.

While there's plenty of debate over how the money in government's pool is spent, the main approaches used to raise these funds have remained largely unchallenged for centuries.

With the rise of the internet, however, another approach to funding government is becoming more viable - crowdfunding.

Crowdfunding involves asking people to provide funds for worthwhile projects on a micro-scale, many individuals each donating a small amount.

This isn't a totally new approach. Rich philanthropists have donated millions for worthwhile causes, communities have come together to fund (and build) small public works and individuals have adopted park benches and potholes for many years.

However the internet has lifted crowdfunding to a new level, with the potential to cost-effectively raise millions of dollars through tiny individual donations in a managed way.

The practice is already beginning to grow in the US, as illustrated in the video below. US platforms like Neighbor.ly already exist and new ones, like Citizinvestor are sprouting.

A european platform, Brickstarter, is being built with a pilot planned with the Finnish city of Kotka later this year.

In the Netherlands, a foot bridge is being crowdsourced by Rotterdam's government, testing the concept for broader use.

There's even some use in Australia. ScreenWest (WA's government film financing body), has a crowdfunding project in partnership with Pozible to support the funding of WA films.

While it is still too early to tell how useful crowdfunding will be for governments, the crowdfunding approach has been successful in raising funds for arts projects and commercial products, even for establishing the world's first Tesla museum (which I've invested in).

Micro-financing, a related approach supporting people to lift themselves out of poverty with loans too small for banks to bother with, has also proven successful in many cases (I recommend checking out Kiva, which I use).

Perhaps, over the next few years, rather than debating tax increases or expenditure cuts, governments will consider broader, internet-enabled options for funding some activities or infrastructure - such as crowdfunding.

All it takes is an open mind and a willingness to innovate in revenue raising.  As the video below illustrates, this is already starting to get underway.




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