Why Is the Absence of a State Backstop Actually an Advantage for Online Mutual Aid?

Some friends say it would be good if online mutual aid had a state guarantee and backstop.

Because in insurance, thanks to the state guarantee, users are unafraid that an insurer will go bankrupt and so dare to buy policies; and in banking, thanks to the state guarantee, depositors dare to save and runs do not occur.

But I do not see it that way.

First, there is no need for it.

Online mutual aid is not insurance or banking; it has no large accumulation of funds. Its financial risk to the state is extremely small, and there is little necessity for a backstop or guarantee.

Second, it would have negative effects.

Once the state provided a backstop or guarantee, online mutual aid's advantages would vanish entirely.

The state is no fool, and it is not willing to give support for nothing. There would inevitably be a series of conditions and requirements to keep you from making major errors and landing in a situation where the backstop has to be called upon.

So a great many high-standard requirements would emerge. Senior executives would have to be graduates of elite universities with rich and successful industry experience; the platform would have to assemble a lavish team to precisely quantify all kinds of risk and foresee the future; shareholders would have to meet certain conditions; various data would have to be reported at all times; and so on and so forth. More importantly, the platform would have to hold a large reserve to be able to respond in a crisis.

In the end, all of this would necessarily be added to every user's contribution. Quite possibly half of each contribution would go to paying these costs. Then online mutual aid's low-contribution advantage would be gone, and it would be no different from an insurance company.

Here is a rather inexact analogy: in the protection field, an insurance company can be seen as a luxury restaurant and a star-rated hotel, while a mutual aid platform can be seen as a hole-in-the-wall eatery and a homestay. The former offers ample guarantees but is expensive; the latter may have its problems, but it is cheap and still meets the need. So they coexist without any friction, and people of different incomes take what they need — that is what 'multi-tiered' really means. The same is true in medical protection: online mutual aid can accommodate those with lower incomes, achieving a more inclusive goal. And once people's incomes reach a certain level, they will naturally turn to forms of protection with higher guarantees.

Of course, I am not saying the state should pay no attention at all. A certain degree of regulation is entirely necessary — for example, setting detailed rules for mutual aid platforms' information disclosure. Shallow management, rather than deep backstopping. The state should trust that private forces may also find some way forward.

But if the state could offer some form of guarantee or backstop that does not raise the operating costs of mutual aid platforms, that would be better still! That is probably what the friend at the start of this article had in mind.