A submission to an Australian Senate inquiry on Poverty in Australia.
This submission addresses
(f) mechanisms to address and reduce poverty;
People are poor because they own few assets or Capital. Poor people are likely to remain poor because the economic system increases the wealth of those with wealth with little effort on their part. It happens because profits (or the increase in value from the use of Capital or new Capital) accrue to the asset owner. A solution to the wealth disparity is for investors to share the profits with the buyer who paid the extra money to create the profit. This submission shows how any business can share profits between investors and consumers at the time any consumer buys goods or services.
When invested, Capital creates a profit with each sale, and it is available again on the next sale to generate more profit. It is like a turbo-charged magic pudding. Not only does it produce Capital for no cost to the owner, but the new Capital also creates more Capital. However, not sharing the new Capital with the buyer breaks the principle of reciprocity at the core of human survival. To see more on this idea, read Pagel’s “Wired for Culture”.
In response to the investors not sharing, society invented expensive solutions to share Capital with consumers. Some are:
- Free Markets to share by reducing prices to consumers.
- Taxation on Profits allows governments to redistribute profits through Social Security.
- Profit Sharing with employees.
- Debt Jubilees to forgive debts caused by unnecessary charges for money.
All are expensive to operate and subject to abuse, and remove Capital from productive use. If the financial system shares Capital when a transaction creates a profit, it reduces reliance on societal solutions to sharing and more than doubles the productivity of all existing Capital. The resulting system is fairer, and everyone becomes wealthier. This submission to the Productivity Commission on productivity expands on increasing productivity by increasing the rate Capital circulates and reducing the cost of moving Capital.
This form of Community Capital is simple and cheap to implement. Holders of Capital are part-owners who use or intend to use the asset. Community Capital transfers into the system at 1 and 2 below. Capital transfers to Consumers happen at the payment for goods and services.
- Community Capital is a prepayment for goods and services produced by an asset.
- Paying for using the asset is a payment.
- Using it first and promising to pay for it later is credit.
Equity Capital uses efficient payment systems. Adding the bookkeeping for Community Capital to payments is relatively trivial and easily accomplished leaving existing systems in place.
However, the systems to share the new Capital are not in place, and we need to develop adaptable ways to share. We know what we wish to do, and they are relatively easy to model and implement.
One way to share Capital between consumers is with local non-distributing cooperatives. The reason is that consumers should control their Capital, and appropriate distribution is best done by separate local groups deciding how to divide the wealth they receive from any business with whom they all deal. The second reason is that sharing capital is an investment opportunity; it is better to work with others when deciding what to invest and how to invest.
Sharing Profits with Community Capital outlines how it can work. A presentation to the Australian Energy Regulator on distributing the Capital embedded in the National Energy Grid shows how to accelerate the Rewiring of Australia by sharing profits.
The Australian Energy Regulator recommends that the Rate of Return on regulated assets increases by about 1%. It will increase electricity prices and reduce the productivity of existing assets. (Consumers will pay more for the same output). If the regulated assets were in the form of Community Capital rather than equity, the Rate of Return could be reduced by 1% and increase the productivity of the 110 Billion dollars of regulated assets. The difference between electricity prices is likely to be about 16% between the efficient use of Capital with Community Capital and the inefficient use with Equity.
Here is a short article on how to provide affordable housing to all. Permanent Housing Markets will more than double the productivity of housing capital resulting in lower prices to occupy a property while giving higher returns to investors.
Community Capital can fund all commodity goods and services infrastructure. Toll roads, airport, and water charges will all drop while consumers become wealthier. The wealthy will retain their wealth — but the rate of accumulation of unused wealth will slow.
Community Capital will give the Reserve Bank better control over the economy. It will recommend the Rate of Return for regulated assets, the Interest Rate on lending, and most importantly, how much new money the Government should release into the economy.
We can find a way to live on this planet without destroying it, and we can start by keeping everyone out of poverty in ways that enhance the natural Capital on the planet. We ensure that other living systems do not suffer from a lack of investment and exploitation without compensation. We can evolve our financial systems to integrate with existing natural Capital.
Addressing poverty can have benefits for every human and help other living things.
