Any novel socio-economic that proposes to redistribute the rewards of production, either or both present and past rewards, is going to cause a reaction by those from whom something will be taken. Supposing that the novel system has a new definition of what is fair and just is allocating benefits, and purports to do this once it is inaugurated, the first reaction is going to be by those who will lose something, and if they have amassed political power, this will be used to block the novel system from ever being tried. Political power often encompasses blackmail, espionage, assassination, media control, information control, legal delays, moles inside opposition organization, distraction of the public, bribery, public relations efforts, and multiple other mechanisms by which those who have accumulated power act to keep it and enlarge it. It makes little or no difference what the previous socio-economic system was, it will have, after some settling in period, resulted in political power being accumulated in a few hands, and these mechanisms will be available, regardless of the name applied to the political system.
This conflict is one of the most elementary and ubiquitous ones. Wealth and power gets concentrated in a few hands and is used to preserve this arrangement. The only possible opposition is a large movement of those not having wealth or power, and since it takes some very unusual circumstances to motivate a large mass of people to make grand changes to an economic system, such changes are very infrequent. Often in the history of the world, they have been violent.
One conceivable alternative is a soft revolution, where changes in taxes or anti-corruption activity are put in place by some other means, such as direct voting or mass replacement of corrupt politicians followed by a choice of new laws by the new team. This might happen gradually or suddenly, but even if happens suddenly, there will be warning signs that some of those with wealth and power can recognize. The traditional means by which the wealthy and powerful stop such things can be tried, and perhaps they succeed and perhaps they don’t. However, some of the wealthy and powerful may estimate that the blocking measures will not succeed, and proceed to take alternative measures to maintain some portion of their wealth and power. One example of this is emigration from the region where they were formerly in control but in the future may not be to a different location where they can still have some or all of their wealth and use it to re-establish political control in the new region, or even remotely in the old one. This is loosely referred to as the flight of capital.
Given the despairingly low probability that any novel system of economics will be put in place, it might seem frivolous to think about this manner of avoidance of it by those with wealth and power. More important is thinking through how a transition might be effected, or how political power might be devolved to the powerless sufficiently that they can break the feedback loop that keeps them powerless and a small minority wholly in control of the economy. While that certainly is more important, there might be some details about the new socio-economic system that can reduce any bad effects of flight capital or similar means of evading the new system.
Once again, there is a bottom-up approach and a top-down approach. The bottom-up approach involves figuring out in advance what financial mechanisms could be used to move vast amounts of capital out of a region that was beginning to warm up to some novel socio-economic system that involved some redistribution of wealth and income. Once the list of mechanisms is decided upon, there can be some plan for an instantaneous application of counter-mechanisms which will stop the flight of capital. This is a fool’s errand. First, there are more methods on the hidden list of mechanisms than on the list of mechanisms compiled by the officials of the new system. The ones not found will be the ones used. Most likely, the number of unknown ones exceeds the number of ones that are known. Wealth and power can spin off a tiny percentage of itself to ensure that many mechanisms exist that are not known, perhaps never having been used before. If it costs 1% of some huge amount of wealth to ensure it travels to a new region, this is simply a cost to be born by the wealthy and powerful. So, the idea of figuring out methods that will be used and blocking them is simply too difficult.
The top-down method focuses on the people who have all this wealth, and involves requesting them to turn over their holdings, hidden and visible, to whatever agency of the new economic regime is supposed to get it. There are difficulties here as well. Mobility is so easy in our era, that finding these people and making them available to some new agency would be virtually impossible. Long before the new system was in place, the people with wealth and power would have disappeared.
This is not to say that there would be zero results from either the top-down or the bottom-up approach, but instead, they would only have some percentage effect. More than enough wealth would have been transferred beyond the jurisdiction of the new regime so that those who possess it would hardly notice the difference in their capabilities. Thus, some means of mitigating the effects of capital flight upon a new socio-economic system need to be developed, rather than putting any hopes in the concept of preventing it.
The point to concentrate on is the prevention of the destruction of the new economy, the one where a novel socio-economic system is going to be tried out. It is through the mechanism of foreign ownership that the new system would be most damaged, so that is the feature which must be examined. If those with wealth and power in the region simply move outside it, and continue to possess the same wealth while abroad, they can continue to dabble in corrupting the new regime, possibly with a mind toward returning after it fails with the new economic system. This means that some methods of insulating a new economic system from external influence must be installed as part of the new system.
If ownership by non-employees was allowed, or some equivalent in debt burden, then this external control might be possible. Thus, it is clearly an important component of the new system that ownership of companies, corporations, and any other form of business be connected with those who work there. There are obvious means of corrupting the importance of this regulation, such as by having only one employee listed on the books, the former owner possibly, while everyone else working there is an independent contractor. This needs to be corrected, by making the ownership of the corporation fall into the hands of anyone who works for it, in the guise of an independent worker or otherwise. Are there other scams possible which concentrate ownership but maintain the label of employee-owned enterprise? Certainly, if the distribution of ownership was disproportionate to the justly-measured contribution of the employee to the corporation or company.
Debt is a lukewarm version of ownership, so it too must be separated and put into the hands of those who contribute to the society, rather than those who do not. Some public agency would need to hold debt. There are a great many problems involved with conceiving such an agency, but assume for this discussion that it has been done successfully. Thus the transition problem boils down to figuring out how to transfer ownership of both enterprises, and debt associated with them, when a new economic system is put in place. Wealth in the previous economic system would have been manifested in ownership being concentrated, by the wealth feedback process, in the hands of a few. How could a transition be done legitimately?
The third member of the triad of means for distributing benefits in a society is taxes. It is what is left. Thus, there would need to be wealth taxes that would accomplish the redeployment of ownership of enterprises and of debt. Another aspect of unjust income and accumulation of wealth is the concentration of ownership of real estate. A third prong of the taxation for transition would be a tax on real estate, but a progressive one, designed to revert ownership of much of the real estate to those who contribute to producing the benefits of the society.
Evasion of income taxes is a game that is played world-wide, and so any transition taxation rules would have to be thought out carefully to have the desired effect. One tool is the unique-to-America plan of making any citizen liable for taxes, despite his location or employment situation. If this was a common, world-wide situation, then anyone possessing citizenship in a country and simultaneously possessing unearned wealth would find themselves liable for a wealth tax. There would need to be a corresponding tax levied on the relinquishment of citizenship in the nation or group of nations that was introducing the new economic system.
Having taxes in the laws of a nation does not mean collecting them. Someone who owns property within the nation can find liens placed upon it, whether it is a corporate asset or a piece of real estate. Thus, for someone to successfully evade taxes of the transition variety, they would have to sell or otherwise transfer ownership of property out of their name. This means that the transition taxation legislation would have to be able to look through the possible maze of ownership arrangements down to individuals who actually own the property. One means of evasion would be to have sham owners with citizenship outside the nation with the new system. They would be beyond the reach of any laws, so therefore the transition taxation would also have to affect foreign ownership. This would only be necessary if other nations around the world did not have similar economic systems and were not cooperating on taxation.
Exactly how this is done might make a substantial difference in whether there are large negative effects of the transition. There are some alternatives, and they deserve a separate treatment.