Fewer places offer a more compelling (and urgent) case for digital transformation than the affairs and functioning of states and cities. The world over, national and municipal governments continue to labor with a maelstrom of complex forces, from the wafting embers of populism to the new phenomenon of millennial socialism, set against a backdrop of trust eroding cyber distortions, governments will be hard pressed to mount a meaningful response without embracing technology. This change will require a type of uncommon leadership in the public square and an uncomfortable embrace of transparency, real-time accountability, reduced complexity and friction in the provision of citizen services. The case for the emergence of a digital state is not only compelling, it may very well spell democracy’s survival amid so much institutional mistrust, operational friction and ineffectiveness.
Restoring the wellspring of trust, the very lifeblood of democratic institutions, is one thing, if perhaps a bit too lofty in the business case for modernizing government functions. A more mundane and achievable goal, however, is to place cash strapped governments on a path toward financial leverage where a greater share of government coffers can be allocated to essential citizen services or invested in the commons on which markets rely. The world over, the provision of government services as a share of GDP is woefully inefficient. The expense ratio of government services to GDP in the U.S., for example, is approximately 38%. And yet, the U.S., like many advanced economies, is facing the double-edged sword of citizens demanding greater returns for their tax dollars, while governments and political leaders are increasingly making promissory statements about investments and a brighter future using rubber checks.
Facing this call to deliver more with less is not possible without the right balance of visionary leadership, talent and technology. Of the three elements, technology is most often the easiest to grasp, even though some like blockchain requires the suspension of disbelief and long-held norms on information sharing, power structures and structural relationships to be fully harnessed. Neither the case for change nor the blueprint for government transformation exists in a vacuum, which is why they should be trialed in the real world. While repressive states will not broach a conversation involving statecraft and technology that improves transparency, accountability and the provision of citizen services. To the contrary, in nefarious political hands technology serves to obfuscate, monitor, distort, steal, censure and censor. Indeed, the very concept that internet connectivity is a human right is abhorrent to techno repressive regimes. Lest advanced democracies embrace technology to improve their efficiency, security and institutional trust, they may fare no better in the long run than the very countries they wag their fingers at to accelerate liberalization.
While the vision is dramatic, the reason it is plausible is that there is a broad decoupling from overall economic performance in countries like the U.S., and the lot of the middle-class, who are increasingly squeezed by impossible financial trade-offs. For this, the citizen relationship to their city, state or country and the welfare, commons and security it is meant to provide is becoming increasingly tenuous. Not to speak of the fact that the social security net in many advanced economies is in tatters or all but bankrupt. As France’s gilets jaunes movement borne from Macron’s folly of taxing diesel fuel largely affecting the middle class, the political instincts to raise taxes amid a separation of real wages and high government expense ratios, is not only problematic, it is incendiary. Guillotines – at least in effigy – are back on the streets in the birthplaces of modern democracy and governments and political leaders alike are being caught flat-footed by how to restore faith in their institutions and provide a more meaningful return for tax dollars – notwithstanding the often-unrealistic demands made by an angered citizenry.
Whether quelling a rebellion, like the insatiable gilets jaunes, who have not disbanded even after €10 billion euro in paycheck persuasion or merely improving outcomes in one government function, it is hard to imagine better applications for emerging technologies like blockchain. Governments the world over, particularly those in city-states and small but technologically-forward nations, like Estonia, are doing to arcane (and analog) government functions what mobile banking has done to its old-world cousin, leapfrogging. It is now time for the large, entrenched and established governments of the world to take heed of the opportunities presented to give their citizens (voters and disenfranchised alike) better outcomes. Each time the band-aid solution of one-sided tax schemes or aimless deficit spending is turned to, rather than real structural or operational reform, the sovereign debt doomsday clock edges a little closer to midnight.
The technology stack for the government enterprise is not only compelling, it is being proven in one pilot project after another. The base layer of this stack must include digitizing aged, vulnerable and massively over exposed identity systems. The Equifax breach is exhibit A in the case for self-sovereign identities, or at a minimum governments embarking on a process of shoring up existing analog and alphanumeric identifiers, such as the social security number, with a digital twin. Gradually, as analog and digital identifiers begin to coexist, governments can begin making them interoperable in order to make key citizen services more efficient, without the high (and highly vulnerable) burden of proof by today’s standards.
If identity is layer 0, layer 1 in the government technology stack is to help make the voting process at once more secure and more participatory. Even in vigorous democracies like the U.S., the lifecycle of the electoral process, from registering to vote to the dreaded long lines on election day, to the sad reality that many segments of the population such as the elderly, infirm, veterans and expatriates, among others, are all but precluded from exercising their rights. The reason simply, is that for many people the friction-laden process of voting or taking uncompensated time off from work amid such high voter apathy, is a line too far. Herein, a blockchain pilot in the state of West Virginia, which enabled overseas veterans to vote in the 2018 midterm election offers a compelling model for how existing voting processes need not be replaced, but merely augmented to facilitate the process for key constituents. This model has promise nationally and the structure has implications globally.
Layer 2 of the government technology stack must involve creating more trust, less friction and higher security (read as permanence) for the principle asset people accrue over generations, namely their property. While blockchain is a well-proven solution for property registration, with countries like Georgia having embarked on a national land registry, which has not only dramatically reduced processing times, it has also all but eliminated pressures of corruption, bribery or fraud – not to mention the risk of expropriation – because of the transparency and permanence of a distributed land registry. Beyond these well documented use cases, a blockchain-based land registry has inherent disaster proofing, which can speed up matching affected homeowners to emergency response services, as well as speeding up insurance claims validation, which can be an unnecessarily arduous process exacerbating community recovery following a disaster.
Once a government has embraced layers 0 through 2 of the digital state roadmap, which will help make operations more efficient, perhaps even capping or reducing operating expense ratios, focus can turn to the revenue side of the equation. For this, layer 3 applying technologies like blockchain to the tax and revenue generation environment offers some truly compelling directions for an audit-free (or audit-light) tax environment. Conceptually this is possible through the same trust mechanism and resolution for double counting that underpins blockchain – now in its 10th year of ledgering transactions with little or no overhead or the need for audits, even at the micropayment level. While full scale tax and revenue opportunities could be harnessed in every function of a city or national tax system, from easing filing processes to accelerating refunds or eliminating costly overpayments (after all why should citizens lend money to their governments?), it is hard to envision radical tax transformation without technology playing a major role. Enshrined in this vision of a more efficient, secure and effective government, is a state in better equilibrium with the needs, wants and accountabilities of its citizens – the vast majority of whom were born with a smart phone in their hands and the internet coursing through their veins. With technologies like blockchain in the government transformation arsenal, matching speed, instant gratification and accuracy, need not denote error-prone, irreversible and fraudulent.