How can governments raise money from automation and ICT to compensate the losers?

March 17, 2017

     By Duncan Green     

Got a feeling I’m going to end up looking pretty stupid with this post, but hey, what’s the point of a blog if you can’t The_revolutionhumiliate yourself in public?

Went to a ‘digital development summit’ earlier this week (here’s a prior curtain raiser on this blog). The theme was the ‘future of work’ (see earlier musings on this blog). Proper post to follow when I have time to process the conversations, powerpoints and papers, but in a desperate attempt to justify my invitation, I raised the issue of digital taxation, and wanted to consult the FP2P hivemind on the idea.

The problem (or challenge as we prefer to call them): A range of ICT is threatening mass disruption of labour markets worldwide. This could be temporary (until new jobs are taken by retrained workers and/or new cohorts) or permanent (growing fears that new jobs will not be able to fill the gaps). In either case, there is interest in finding a source of revenue to compensate those whose jobs are automated out of existence. As in the argument over trade liberalization/globalization, how do we redistribute some of the earnings from winners to losers?

The added problem with ICT is that so much of it, from global outsourcing web platforms to freelancers, is particularly footloose. Traditional taxes on income or corporate profits are easy to evade and/or push companies to relocate to low tax jurisdictions. Are there any better options?

Time for a digital Robin Hood?

Time for a digital Robin Hood?

A digital Tobin Tax? A tiny tax per gigabyte of data transferred across the Internet, which could be used either for a Universal Basic Income (one idea that has come up repeatedly in terms of ‘the end of work’), or for other more targeted purposes. I realize that taxing a public good like information is pretty heretical, but even web inventor Tim Berners Lee is starting to question the current set up (though to be clear, he’s calling for more controls, not taxes).

A digital VAT: if automation, robots etc are adding the value, rather than human workers, is that an argument for a differentiated level of tax between standard VAT and the digital variety? Here’s one discussion I came across.

Robot tax: a proposal from Bill Gates that made headlines. It looks like a narrower form of the digital VAT. All sorts of problems defining what is/is not a robot (suspect Bill did not envisage laptops running Microsoft as candidates….).

Then there’s the related how change happens discussion. Whatever the technical (de)merits of particular approaches, lots of other factors will determine when/how they get picked up. Based on what happened to the Tobin Tax (30 years in the wilderness, cultivated by a small group of supporters, then coming in from the cold due to the global financial crisis, albeit rechristened as the Financial Transactions/Robin Hood Tax), here are some thoughts:

  • Someone needs to do the intellectual leg work on the feasibility of such proposals while they remain on the fringe
  • But nothing is going to happen until a major shock hits the system, eg a neo-luddite rebellion against the machines, or a massive scandal (a tech company sends in the courts/bailiffs to drag workers out of its factories/their cars). By comparison with the Global Financial Crisis, a shock that turns tech giants into anti-social pariahs in the eyes of the public and politicians would open the doors for new forms of taxation and regulation.
  • Whether that critical juncture leads to change depends on the intellectual preparation, but also the relationships and networks built up before the shock hits.

I’m sure all these proposals have massive drawbacks, and that there are lots of other ways of getting at the same end Digital Tax 1(redistribution from the winners of ICT-based productivity rises to the losers). But the alternative is accepting a shrinking tax base, a steady decline in large areas of employment, and a bunch of under-funded and rather inadequate policy responses. Ball in your collective court.

I sent this draft over to Ben Ramalingam, one of the organizers of the conference, who kindly sent back these links for those who want to dig deeper (including me, once I’ve finished launching the book):

‘- The OECD has done some very comprehensive work in this area (chapters 7 & 8 are worth a scan).
– Worth also highlighting that in some developing countries the agenda is going in the opposite direction, with a tax on cash transactions to incentivise digital payments e.g Modi’s panel recommendations in India
– Some more on efforts to tax digital goods worldwide here, which highlights the challenge of getting a single approach / system
– The Economist had a nice piece on the Gates proposal which concluded that taxation is just one route, and in a highly interconnected world, not necessarily the most effective route, for sharing digital dividends.’