A solution to the Govt.'s Agency problem

Almost all govts. in the world are not working in the most efficient way they possibly can. One of the major reasons is the internal looting of the govt by way of corruption (lobbyists influencing policies in a way that the govt and its people suffer), internal fighting among many others. All govt jobs have fixed pay and perks. The motivation to not harm the organisation they are working for is not much (excepting Patriotism and Morality). 

One of the possible solutions for solving the agency problem of the govt officials can be possibly found in the concept of capital markets. (Related post disecting the problem: http://ajitjagan.blogspot.com/2011/04/aligning-interest-of-govt-and-its.html) Capital Markets are inherently more efficient and way faster in doing things.

One solution I am proposing is to have the concept of stock markets with the very govt. itself being treated as a company. Lets take the one market which is most open to accepting free market concept - USA. So USA could be a stock which is freely traded by the citizens in the country just like its sovereign treasury securities.

Source of capital:

Now, lets assume 5 or 10% of all the govt officials salaries are given in the form of the employee stock options with the stock of USA.

Concept of Returns:

As a stock price indicates the problems of the entity and the future potential of the entity, investors will make money if they work in such a way that the country's future is better. They would like to see higher prices of all their 5-10% of their salaries in pensions to not greatly affected. This has the potential to stop the govt. official to work harder, not do things that will harm the country. Similar to how a employee stock option feels for an employee. A sense of ownership is created. These people will be willing to work harder and make better policies as they now have a stake. Once a critical mass is attained in any organisation, the peer pressure will make the others also work more efficiently and effectively.

Valuation of Stock:

This is the most tricky part. Unlike companies where future earnings is the most important parameter to be considered (if today's company abides by rules and destroys the environment, so be it. The investors dont care). But, in case of the country as a whole, there are many subjective parameters to be considered. National Security, Environment,  Sustainability of natural resources, mortality rate, quality of the govt officials making decisions, etc

Maybe an earnings index can be calculated based on the other indices. Take for example the Transparency Index the topic it relates to which is corruption and ease of doing business. Say, Corruption is given a weightage in the earnings as 10% and Ease of doing business as 5%. Next, if the country comes in the top 5 countries where corruption is least, it is given a full score of 10 points= full weightage; Top 10, 9 points; top 20, 7 points; so on and so forth.

So this will enable the country to come to a number based on the current ratings of Indices. As valuation is always subjective and depends on the uncertain future, different investors will predict different ratings and better/worse situation of the country on various parameters. This will make the people govt understand what is it that people want. If they dont do as per the wants of all their citizens, they get a lesser share of their pay/pension. If they manage to reduce crime, increase efficiency, etc, people will be happier and the govt officials will get more money. This also prevents petty politics in the country, which is nothing but a drain on national resources.

Foreign entities as investors:

Once foreign entities buys these stocks, there is an opportunity for the country to get someone who is interested in the well being of the country and get more favourable responses to various initiatives.

Concept of Holding company:

Since USA is made of various states and states resources/financials actually have a major role to play in the countries well being, state govts. should also give their employees the shares of their states.

Today, the govt. officials can play petty politics and get all their money in cash in priority. If the people can have a indirect say in what they think about the decision everyday instead of once in 5/6 years, I am sure better wiser decisions will be made by the govt. officials.

Live a well-lived life

http://blogs.hbr.org/haque/2011/05/is_a_well_lived_live_worth_anything.html?cm_sp=most_widget-_-blog_posts-_-Is%20a%20Well-Lived%20Life%20Worth%20Anything%3F

Aligning the interest of govt. and its people

There is a serious lack of alignment in the interests of the government and the collective of the people ruled. How else can anyone explain the future government's intention to liquidate the state/country in the name of helping the poor people.

Take the example of Tamilnadu. The DMK government came to power promising a television for each household (along with )if they win the election. They won the elections and this time upped the ante. Now, they want to give grinder or mixie to all the women. Plus, a laptop to all the students studying in govt. and govt aided colleges. The opposition party, AIADMK, is desperate to win and is playing the DMK's card even better. If they win the election, they promise to give grinder, mixie & a fan to all the women. Students of govt, govt aided and private colleges will get a laptop each and even class 11 and 12 students.

One question that begs to be asked here is: at whose cost? Is it at the  leader's personal cost? Of course not. It is with OPM. Other People's Money. In this case, the very people they will rule.

This problem is occuring and re-occuring due to two different reasons. One, the politicians and the government say that the ultimate test is people's vote and thats all that counts. Easy for them to say. After all, they have no stake or interest in the common people and it is the people who are going to suffer in the medium to long term.

They are no KPI (Key performance Indicators) that their bosses(the common people) or an independent arm of the government have setup or are monitoring. And there is no reward/punishment for the government and its officials based on these KPIs. The KPIs are usually used as a passive parameter to compare the policy initiatives with the effect on the ground by statistical organisations and is used more for academics and deciding policy directives. They are not currently being used as a strict performance measure of the government based on which its rewards are based.

Two, the government is able to exploit the differences between the poor and the others (working middle class and rich). The non-poor have televisions, fan, can afford spending on gold in marriage, etc. The poor on the other hand cant think of months or years ahead when they are focussed on earning their next meal to survive another day. This difference in interests gives the government ample leverage to play the pro-poor populists game while ignoring the long term impact of the decisions. This is equivalent to selling the family silver to get some income to dispose off immediately. I am not against poor, but providing televisions to all of them doesnt serve the purpose of taking them out of poverty. Where will they keep the television? Whats the use of the TV if the government doesnt have enough money to setup power plants and hence doesnt provide electricity to run the TV.

This problem of differed interests in similar that of secured and unsecured lenders in case of a distressed company. While the secured lenders would like a restructuring to happen and turn around the company, the unsecured lenders would like to see the company liquidated. The secured lenders have nothing much to lose as they have security cover over what whatever amounts have been lent. On the other hand, the unsecured lenders have some amount of money to get out of liquidation and if the restructuring doesnt turn the company around, they lose everything. One of the solutions used to align the interests of the secured and unsecured creditors is the concept of strips. Here, all the debt(secured and unsecured) is pooled up and stripped into equivalent pieces. So now, each creditor has both secured and unsecured portions in his 'strip'. Once, these strips are there, all the lenders can come to the best effective way to solve the problem (restructuring or liquidation) based on the business risks involved. 

A similar approach needs to be planned and used to align the interests of the poor and the non-poor so that the government doesn't play the divide and rule game with its people. I am yet to figure out how to make the 'strips'.

Get rich soon

I had identified this amazing opportunity a few years ago to get rich quick.

The problem was I am/was not in US or Europe.

Let me get to the point: The easiest way to get (filthy)rich quick is to sue. Sue someone, some company, some institution, something.

Sometimes you have to be in the right situation in the right place to be the victim. But if you already want to get rich quick, you can start searching/looking out for possible victimisations and make yourself a victim and then cry foul and sue.

The processes in the developed countries are pretty efficient and you can make plenty of money in a short period of time.

Just look what one guy has done:

He has sued Bank of America for 1784 billion trillion dollars, that is 1 followed by 21 zeros. The world's GDP in 2008 was merely $60 trillion.

http://economictimes.indiatimes.com/articleshow/5057180.cms

I think I am just not in the right place to get rich soon.