Zero Sum Currencies

An idea I have thought about for a long time...

First, what is a zero sum currency. One example I know of, but there many, is the futures market. The total return on commodities futures is zero but the market performs an important function, it lowers the risk for individuals or business who make a living digging commodities out of the ground or raising livestock or growing food. For example, a farmer needs to achieve a minimum sale price for his/her goods to make a profit. They would sell a futures contract for an amount of their goods (quality, lot size, delivery, etc.) all specified by the standardized futures contracts sold on the various markets that would guarantee them a price on a specified date.

Buyers of the contract would either be a business who uses the farmer's goods to make their product and would like to guarantee a specific purchase price that fits their business model or a speculator who makes money by predicting a price that will be higher than the farmers guarantee and can sell the contract for a profit before taking delivery. The commodity buyers and sellers use the instrument to reduce the impact of the commodity price on their business and view it as a cost of doing business, it is like insurance. Total wins and losses across all contracts sum to zero but importantly the risk for businesses depending on the commodity price is reduced.

Other examples are the Kyoto protocol or Carbon taxes which are types of zero sum currencies where the polluters pay the non-polluters with the overall objective of reducing greenhouse gases or carbon emissions.

The government should do this for its citizens for all the programs it plans to execute. For example, if the government's healthcare program is designed to improve healthcare quality and reduce costs it should publish metrics about the current state and what it wants to accomplish. Maybe the metrics would be number of visits, cost per visit and number of deaths by age band. The objective being to reduce number of visits, reduce cost per visit and reduce number of deaths by age band. (I am sure you could come up with better metrics but for arguments sake lets consider these)

The government knows how many visits to the healthcare system there are because here in Canada we show our healthcard everytime we get medical attention, and they know how much each visit costs because the healthcare provider bills the government for that visit. The government would also know deaths and ages of the deceased.

Now the goverment healthcare experts come up with their brilliant ideas to incent citizens to behave in a way to achieve the metrics. For example, the government might pay for gym memberships because being healthy is proactive and you will go to doctor less. How will they pay? They should create a zero sum currency, in the form of tax credits. Everytime you go to the gym you present your healthcard which the government can track. Perhaps the government also thinks that everyone should see the doctor once per year for a physical, something they can already track, because that would allow early detection or doctor recommended preventative activities to reduce your dependence on healthcare. The overall result being improved health and longer lifespans over time.

The citizens who believe in the governments plan will take advantage of the opportunity and earn tax credits, the citizens who don't believe or care will be taxed more to offset the cost of the tax credits. Lets say everyone climbs on the bandwagon and the tax increases don't offset the tax credits. In this case, the monies will then be taken from the existing healthcare budgets we are already taxed for reducing the overall cost of healthcare and putting money back in our pockets. If no one participates , i believe a less likely scenario, then we will all pay more tax which the government can use to put towards the current healthcare model. If the theory of gym visits, GP visits works we should see the death rate and cost of healthcare go down. The tax credit is a zero sum currency (tax credits offset by tax increases and reduction in healthcare funding equals zero) and healthcare gets cheaper and better. Obviously an overly simplified example but you get the idea.

Side benefits are transparency, we all know what the governments programs are and how they translate into results and what is expected of us. Transparency brings accountability and allows us to hold our politicians accountable (see previous posts on transparency). You can't improve what you don't measure (see previous posts on this topic)

This is kind of government loyalty program. Instead of using hard dollars you could use a different currency or points which the government translates into dollars at the end of the tax year based on how much tax revenue they have collected. Repeat this concept for all government programs.

Business should also follow. Some businesses already have loyalty programs but haven't set them up as zero sum currencies. Most companies cannot determine what loyalty is doing for them partly because there are no concrete objectives or they have difficulty measuring the results or they don't have clearly marketed customer incentives except to buy more spend more. Setting up a zero sum currency for loyalty is critical. I think the next generation of loyalty programs should align social responsiblity, corporate values and consumer behaviour to create more interesting and authentic experiences for consumers.

Check this ted.com talk out http://www.ted.com/index.php/talks/joseph_pine_on_what_consumers_want.html

I'll post more on loyalty programs later ...

My bottom line, zero sum currencies everywhere set up to improve the world in measurable, transparent and accountable ways. Analytics used to discover the levers that create the incentives and penalties.