Reward and encourage transient sacrifices now to benefit our life and society later
Overview
Some people are impulsive and yield to temptations. They seek immediate pleasure and gratification, often to the detriment of their future goals. Indeed, a variety of mental health problems, from substance abuse to narcissism, can be ascribed to this instant gratification.
In contrast, other people are willing to sacrifice their pleasure now to benefit their future life. Specifically, these individuals are more likely to accrue resources—such as useful knowledge, valued skills, trusted relationships, and sufficient cash—to thrive in the future. To benefit the future, these individuals are inclined to recognize their limitations and embrace feedback, manifesting as humility. Indeed, whenever individuals are willing to sacrifice their pleasure now to benefit their future later, a raft of social problems, including corruption, obesity, and harassment, tend to subside. So
- to transform society, we somehow need to encourage people to sacrifice their pleasure now to benefit their future life,
- fortunately, governments and other organisations can introduce a range of policies and practices to achieve this goal.
Indeed, many initiatives, implemented across many regions, were designed to reward people who sacrifice a modest level of pleasure to benefit the future. To illustrate,
- many communities have introduced time banks, in which individuals who help members of their community now earn a reward—typically the right to engage someone to reciprocate this assistance,
- some public services, such as a subway ticket machine in Moscow, accept exercise as payment—an activity that may be unpleasant now but helpful to the future,
- in some cities, including San Francisco, if people discard only items that can be recycled, rather than items that cannot be recycled, the fees they pay to receive these services diminishes,
- some schools or communities encourage children to complete more chores—an activity that tends to predict the future happiness of these children later, as demonstrated by the Harvard Study of Adult Development at Massachusetts General Hospital that spans 85 years.
Rather than only reward individuals, governments and other bodies could reward organisations that sacrifice immediate pleasure to benefit the future. To illustrate
- councils could readily ascertain which developers tend to enhance the satisfaction of their communities—by examining the relationship between the market share of developers in a computer and increases in house prices in this region—and then only engage developers that enhance this satisfaction,
- governments could offer better subsidies to medical clinics that arrange longer appointment—because these longer appointment generally correspond to more holistic assessment, greater compassion, and improved outcomes.
Rather than reward, governments may need to consider regulations that oblige these sacrifices to benefit the future. For instance
- governments may need to prohibit gambling advertisements and enforce pre-commitments, in which users must specify the maximum loss they are willing to incur—a strategy that is unlikely to decrease the revenue to TV stations or sporting clubs, because the prohibitions to tobacco did not significantly diminish this revenue,
- taxes and levies derived from natural resources should be managed in a wealth fund and distributed conservatively over time—consistent with the approach that Norway, but not Venezuela, has applied.
Case study: A tax on cash flow—to encourage businesses to invest in Australia
Some tentative recommendations
Recently, the Australian Productivity Commission has, tentatively, proposed some possible changes to company taxes that could, ultimately, foster greater humility in society. Specifically, in Australia, if businesses earn between $50 million and $1 billion,
- they now typically pay 30% tax on their profit,
- in the future, if the proposed changes are implemented, these organisations would pay only 20% on their profit but also pay 5% on net cash flow—roughly defined as the money they receive from sales minus the money they dedicate to wages, supplies, and investment, although the precise definition would depend on the legislation,
- an adjusted version would apply to other businesses as well.
The implications of these recommendations to humility
At first glance, this potential change may not seem particularly exciting. But, in practice, this approach could transform the business landscape. If the proposed changes were implemented, companies would, in general, pay less tax if
- these organisations heavily reinvest the money they earn—such as reinvest this money into training, research, or upgrades—because this reinvestment diminishes net cash flow,
- these organisations do not attempt to shift their profits offshore, because these strategies are more likely to diminish profit but not net cash flow.
As many studies and reports show, similar approaches tend to encourage investment (e.g., Mirrlees et al., 2011). That is, if the proposed changes were adopted, organisations would become especially motivated to invest not only in materials and technology but also in people. Organisations that shift a significant portion of their cash to training and development programs, for example, would receive a lower tax burden and improve their productivity. This mindset, in which organisations enable people to develop their capabilities has been shown to foster humility—and thus attracts the benefits that emanate from this quality such as diminished levels of bullying, malfeasance, and resistance to change. The proposed cash-flow tax is, therefore, not merely an economic instrument but a quiet, cultural signal to value learning.
To promote this cash-flow tax, governments would need to emphasise that
- organisations can minimise this tax if they invest more in Australia and create jobs here,
- this approach increases the tax burden on companies that attempt to shift their profits offshore.
The complications of these recommendations
Nevertheless, this approach is not devoid of complications. To illustrate,
- the net cash flow of businesses—especially businesses that only periodically invest in large capital projects—can fluctuate significantly;
- so, governments cannot readily forecast the revenue they may earn from tax, disrupting their capacity to set accurate budgets,
- and the tax burden on businesses may shift dramatically over time, impeding their capacity to plan how they will pay this tax.
Yet simple adjustments can address the various concerns. For example, if the government introduce smoothing mechanisms—and, for example, the cash flow is calculated on the last five years instead of the last year—this fluctuation and uncertainty will tend to subside.
Case study: Sovereign Power in Australia
Overview
When jobs and opportunities are unstable and vulnerable, people tend to perceive their future as uncertain and hazy. In this state, people are not as willing to sacrifice their pleasure now to benefit this uncertain future. For example, they are not as inspired to develop their capabilities and learn from other individuals and experiences, diminishing humility. As humility declines, a raft of social problems escalates, from bullying to misconduct.
In their report entitled “Powering Australia’s future”, the McKell Institute proposed an initiative that could enhance the stability of many critical industries, diminishing this uncertainty, and ultimately fostering humility. In essence, this report advocates the notion of Sovereign Power, an organisation, owned by the Commonwealth, that would
- construct wind farms, solar farms, and battery storage,
- sell this electricity to critical strategic industries in Australia at a competitive rate, invoking contracts that would last 15 to 25 years, and thus instil some certainty to these sectors.
The problem
For a variety of reasons, the energy costs to Australian organisations have surged in recent years. For example,
- many Australian organisations depend on coal plants that are approaching retirement and losing about a third of their capacity,
- since the expansion of LNG exports, the costs of gas to manufacturing firms have increased by almost 190% since 2000,
- for industries that demand significant energy—such as critical sectors like aluminium, steel, critical minerals processing, as well as advanced manufacturing—energy incurs about 40% of their production costs,
- these industries cannot compete with overseas rivals, because international governments often subsidise these costs heavily,
- accordingly, the Australian government has often needed to intervene to rescue companies, such as Tomago Aluminium Smelter, Whyalla Steelworks, and the Bell Bay manganese smelter, after their electricity contracts expired and replacement contracts were too expensive
Eventually, increases in the availability of renewable energy will partly resolve these problems. However, because of many obstacles, such as the inability of private firms to secure enough investment, the transition to renewable energy has been significantly impeded. Recently, only about 2 to 3 gigawatts of renewable energy have been installed each year—significantly less than is the 10 gigawatts necessary to reach the government target of 82% renewable electricity by 2030. Partly because Australian firms cannot secure an inexpensive and sustainable supply of energy, manufacturing in this country has plummeted. Since 2022, over 1000 manufacturing companies have become insolvent. Since 2012, Australia has declined from a ranking of about 60 to a ranking of about 75 on Harvard’s Economic Complexity Index.
A possible solution
According to the McKell Institute, Sovereign Power, an organisation, owned by the Commonwealth, could address these concerns. That is, Sovereign Power could construct wind farms, solar farms, and battery storage and then sell this electricity to the industries that Australia wants to prioritise and support. The benefit of Sovereign Power is
- governments can usually borrow funds at about 2% less than can the private sector,
- Sovereign Power would not need to pay dividends to shareholders,
- because of these reasons and other considerations, Sovereign Power could supply electricity at about $51 per megawatt hour, or 44%, less than can the private sector,
- more importantly, Sovereign Power could offer longer contracts to supply energy at these rates—and so these firms would not be vulnerable to the volatile energy prices from overseas markets,
- this organisation would generate many jobs: every megawatt of wind capacity, for example, generates about 280 jobs and thus support regional employment sustainably.
This stability could offset some of the uncertainty that people and firms experience, ultimately cultivating the conditions that foster humility.