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Civic Foundation Executive Summary

Reinventing Democracy

The character of a democracy is measured by how well its practical institutions give life to its abstract ideals. While our ideals are timeless, our practical institutions have changed, and must continue to change, to reflect our circumstances and our growing understanding of what it means to be a free people. Change is particularly needed when the rules that frame our public life are easily avoided or subverted, as happens from time to time in any democracy. We have arrived at one such moment of breakdown, where gerrymandering is a science and the "constant campaign" a way of life. So now is a very good time to think about changing some of the day-to-day rules by which our democracy operates - because the real change so many people want requires changing some of the ground rules for how the game is played.

Change is often presented or perceived as coming at the expense of some particular group. But when things get bad enough, a change in the rules can make everyone better off - or at least everyone except the very few who make a living off of the inequities in our present system. We are at such a time. The change we propose is not about, or for, the left or right, the rich or the poor. It is about redefining the way we as a people conduct our democracy, and will benefit everyone but the entrenched few.

The components pieces for this change already exist. We lack only the imagination and energy to see their potential and put them together. A quiet revolution of "performance measures" and "service effectiveness" is already under way in local government. Innovations in the capital markets over the past two decades in quantification and risk analysis provide another set of tools. And new principles of corporate governance make the rules governing our political process seem like a relic. No wonder that many citizens believe there must be fundamentally better way of organizing our democracy than our present system. They are right, and that realization is itself the catalyst for change.

The main obstacle we face are certain habits of mind - unexamined reflexes and presumptions about how democracy must work - that were born in the 19th century and should have passed with the 20th. These prejudices lead us to believe that fundamental chance is impossible, and the best we can do is to fight at the margins over things like the constitutional limits of campaign finance reform. In particular, these prejudices assume that there must always be a trade-off between democracy and efficiency - as if a system which empowered people to make informed choices and be responsible for those choices was not both more democratic and more efficient than our present system.

The Civic Foundation has a plan to reinvent our democratic process by creating a system of performance-based public finance that is both more democratic - whatever particular theory of democracy you subscribe to - more efficient (unless, perhaps, you believe that central planning is more efficient in allocating resources than a market economy), and fairer than our present system - because it creates real incentives for legislators and citizens to solve democratically-defined problems, rather than reward their political constituencies. The basic elements of this system are as follows:

(1) The legislature defines the public goods for which public money can be spent (e.g., building roads, reducing infant mortality) and authorizes the amounts of money to be spent on them - but instead of spending the money itself, it defines performance goals that measure success in achieving those goods.

(2) Citizens are free to choose how best to create public goods by investing their tax obligations in agencies that seek to achieve the legislature's goals - and are held responsible for those choices through a valuation feature built into these investments that is unique to this system.

(3) The valuation feature works by rating each agency's performance against the legislature's performance goals and comparing those results with other agencies, yielding a relative score for each agency's shares. Shares in agencies that outperform earn a dividend, and shares in agencies that underperform require a premium. The overall system is revenue-neutral.

(4) Premiums are paid to a central exchange which re-allocates those funds to the agencies whose shares earned a dividend, so that each agency still receives the same face amount of money going forward, even as the citizen-shareholders now have an incentive to invest in the most efficient agencies.

This system empowers and incentivizes citizens to participate in the creation of public goods; frees the legislature to focus on defining values by getting it out of the business of controlling appropriations; and invites social entrepreneurs to use the capital markets to make long-term investments in social good that are systematically under-served by our short-term electoral cycles and our public finance system.

There will be a few losers in this new system. The political parties as we know them will be forced to evolve into organizations that organize and propose social programs that achieve measurable goods for their constituents. Many people in both parties might welcome that opportunity, and would thrive. But those who view politics as a game of tearing down other people may well fight any threat to their system.

The Civic Foundation was founded to be the non-profit, tax-exempt fundraising group to promote these reforms. The Civic Union will serve as a focal point for getting citizens involved in the fast-growing movement to define and adopt performance measures among the thousands of federal, state, and local governmental agencies that now exist. The Civic Exchange will be the market in which agencies can seek financing based on their ability to achieve publicly-defined goods.

The Civic Foundation, The Civic Exchange, and Civic Union are not affiliated
with or endorsed by any existing political party or politician that we know of.

reinventing democracy®

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The Civic Foundation
4 South Stanwich Road
Greenwich, CT 6831-3109
Phone: (203) 715-6525