A Self-Regulating Efficient Monopoly

Kevin Cox
7 min readFeb 26, 2023
Figure 1 — Automated Control through a Regulated Market

Monopolies have many problems. The owners may take too much Capital out of the business and keep prices higher than necessary, or they may take too little out and have excess Capital that could be used elsewhere. Monopolies suffer from a lack of competition, stagnate, become inefficient, and are easily corrupted.

A Community Capital Market (CCM) solves the monopoly problems by creating a Capital Market of investors and customers to share the profits from Capital automatically and fairly.

The characteristics of monopoly markets that create problems are:

  • Ownership by investors with no market feedback.
  • Capital exits the Company as cash dividends.
  • As there is one corporate owner and if the business makes a profit, there is little incentive to improve.

A Community Capital Market (CCM) resolves all these issues by creating an ownership market of Capital that includes customers and operates largely automatically. The characteristics of a Community Capital Market of investors and customers are:

  • Capital goes into the market and stays there.
  • Returns are provided with discounts in the goods and services market, removing the need for a separate Capital Market.
  • Returns on Capital are fixed, and the Capital cannot leave the market. It can reduce and increase within the market but not leave.
  • Returns come from profits on transactions, not on changes in Capital value.
  • The Capital Market is liquid as a percentage is transferred continuously between investors and customers.
  • Automatic control of the Capital Market happens by changing the percentage of Capital traded each month, the rate of new investments, and reducing or increasing operational costs. Prices and returns stay fixed.
  • Competition occurs with localised internal Capital Markets where different parts of the organisation compete to lower costs.
  • Liquidity and automatic adjustments increase if suppliers use CCMs for their financing.
  • Increased liquidity leads to more investment from the same amount of Capital.
  • More investment occurs because Capital must be invested or used to purchase goods and services at a discount.

A CCM is a zero-cost Capital market because the returns are with discounts, and the Capital transfers are a bookkeeping entry at the time of sale. All other Capital sales are bank transfers from one investor to another or the Company.

Because CCM are zero-cost and the returns are fixed, speculation is difficult. Zero-cost means that returns on investment are higher for a CCM business than those using regular Capital Markets as there is less Capital, less cost, and the Capital is invested more often. The fixed return on investment is set to ensure the average investor gets a higher return than regular Capital investments.

For example, a CCM bank will always out-compete an interest bank as it will need zero reserves as its Capital is its reserve. Instead of paying interest, it gives a return on investment as a discount on loan repayments.

CCM-financed companies always remain solvent as the business will expire slowly until it has consumed all its Capital, at which time it ceases trading.

Because CCM businesses have zero-cost, fixed returns, investors choose to invest for non-financial reasons. As consumers become investors, they also buy for non-financial reasons. Quality, environmental care, privacy, and reputation are all possible reasons.

Because a CCM monopoly has no financial advantage over other CCM companies, it is no longer in the interests of investors to seek a monopoly, oligopoly, or monopsony. Existing entities will find competing with a collection of CCM companies difficult and likely turn themselves into CCM companies.

Iconwater as Community Capital Market

Iconwater is an ACT Government wholly owned monopoly. It could be turned into a Community Capital Market, making the Iconwater profits and sales of Capital available for further investment to benefit ACT residents.

In 2022 Iconwater had $4,200 million in assets, $1,800 million of debt, interest on debt of $72 million, an income of $382 million, and operating costs of $276 million.

Iconwater could raise $1,800 million from the citizens of Canberra and their superannuation funds to repay the debt. This would save $72 million each year in interest payments giving a total income of $382 million+$72 million= $454 million. The citizens would own $1,800 million and the government $2,400 million in ICON Capital.

Each year the shareholders of $4,200 million would sell $210 million to the consumers, who would also pay another $244 million, giving a return on investment and profit. The citizens would receive $180 million, and the government $240 million. The $420 million would be invested in ACT infrastructure, including Iconwater. Of this, $210 million comes from the sale of Capital, and the other $210 million comes from the water payments.

The profit after payment of operating expenses would be $454 million-$210 million-$276 million or — $32 million, which would be covered by selling $32 million more Iconwater shares to investors.

Consumers can use shares to purchase water at a discount. This is how they get their return on investment, even a community asset — like a cleaner creek that does not earn income.

Changing to a Community Capital Market would supply $420 million in investment funds yearly to the ACT government and community and remove the need to regulate the price of water as the fixed return on Capital is automatically maintained without changing prices.

The community only has to invest enough to keep the system operating, and the remaining funds are available for any other purpose, including investing in the environment. By making Capital work more often and more efficiently, funds are available to clean up and enhance the ACT's waterways and help repair the National Parks from fire damage.

The same principle can apply to the Murray Darling Basin water systems. Using Water Trading to control water usage is foolish as it does not put money into repairing the system and does not automatically adjust consumption to match supply.

In the same way, Iconwater can pay to refurbish the waterways of the ACT so the Capital generated from the sale of water can go back into repairing the Murray Darling Basin and buying back water rights. The idea is to circulate Capital and automatically trade it. Every time a landholder pays for water, they buy shares that entitle them to future water. Only people who can use water get to use their shares. The prices are fixed, and the system adjusts by slowing the speed of Capital transfer when water is in short supply. The system generates a surplus of money to spend on repairing the system.

Are there Winners and Losers with Community Capital Markets?

With Iconwater, the Canberra Community wins handsomely. Today Iconwater supplies the government with investment Capital of about $90M from the payment of water, although it is difficult to estimate. The Banks take $72 million a year “forever” as the government pays interest and goes to the banks for extra Capital.

With CCM, the Community gains new investments of $420 million each year, and the benefits of the investment are spread across the community. Importantly the Community has a direct voice in how the money is spent. If everyone cashed in their investments, it would average at $900 a person each year, but the government would still have the money to invest, and the community would have a say in how the funds were invested. The community would also have a say in how the Capital was distributed across the population. Perhaps in inverse proportion to the amount of water consumed?

In summary, Communities will always win with Community Capital Markets. How the winnings are distributed will be a deliberate decision by the community rather than the current system that gives smaller benefits and most of the smaller amount to the community members with the most Capital.

CCM in a Competitive Market Place

Any government, private, or community business can use a CCM and gain the same benefits as a monopoly like Iconwater of the minimum cost to raise and distribute Capital.

Suppose two businesses sell the same product. If one uses CCM, their prices will almost certainly be lower as the cost of Capital is lower. If both use it, consumer choice is no longer dominated by the price but by quality, greenhouse gas emissions, reputation, reusability, maintenance, and other non-financial considerations.

Suppose a supplier of a CCM business uses CCM. In that case, the supplier has a competitive advantage over non-CCM businesses as the two can work together to coordinate their cash flows.

Changing from regular Capital to CCM is a bookkeeping change, costs little and leaves operations the same.

Importantly it is equitable and leads to stable, competitive, sharing, wealthier communities.

Discussion

The idea of saving surplus money from trading and calling it Capital has been extraordinarily productive. Investing Capital to generate more Capital through investment has driven economic progress by giving a return on investment. Unfortunately, the limitations of hand calculations and slow communications led to the need for debt and interest to calculate a return on Capital.

Money, as Capital, can create more money without effort but with risk. Money is a Commons, but with debt, it became an asset and could be owned. This has led to the complicated financial system of today. Interest is a derivative of money, and now the financial system is full of derivatives like Capital gains, Insurance and the idea that all productive assets are commodities.

A Community Capital Market is an alternative way to organise the financial system so that the business creates a stable fixed rate of return by automatically adjusting the Capital Market. It uses the same terms of rate of return, shareholdings and Capital but removes the ability of money itself to create more money. Debt and interest can still exist, but interest compounding is removed.

Community Capital Markets are alternatives to debt. Instead of money becoming a commodity, it remains a store of value, a means of exchange, and a unit of value. With today’s computing and communications infrastructure Community Capital Markets are a zero-cost way to distribute Capital equitably through a community.

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Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income.