Social cohesion comes with trusted commercial transactions. When we pay with cash and consume immediately, we trust the transaction. There is less trust when we purchase something, and it takes a long time to pay for it.
To increase trust communities introduced the idea of private debt to supply funds and protect lenders. Debt protects them by charging borrowers interest and by interest payments preceding debt repayments. Interest is paid first then the debt is reduced. Interest is a cost to consumers to reduce the risk to lenders, but it increases the cost of long-term transactions. Hence trust increases for lenders, but consumers pay the price and receive no extra benefit.
Public Capital is a debt alternative that increases trust without increasing consumer costs. Lenders purchase Public Capital from the community, and the community invests in Capital goods that produce goods and services. It removes the cost of debt, and lenders and the consumers share the savings. Consumers share the savings as lower prices both now and in the future. Lenders get a higher return on investment. The risk is reduced for both lenders and consumers when compared to debt because less money is exchanged, and consumers have an incentive to complete the transaction as quickly as possible. With debt, consumers have an incentive never to pay the debt.
With Public Capital, if a consumer does not pay, they lose their future lower prices. If they have no future lower prices, the community excludes them from further transactions.
Importantly, all community members have equal access to buying, acquiring, and benefiting from Public Capital. It ensures everyone will accumulate some wealth and reduce the need for safety nets and other forms of government assistance.
Equally important, it gives consumers and citizens a direct voice in investing money in assets built for their benefit. It contrasts with Private Capital, where the lenders have a greater say in the investments.
Public Capital and Solar Panels
Prepower One has run a trial over 16 months with an investor and a consumer member. The investor is accumulating returns at a flat rate of 10% indexed per annum. The return on investment is double the average Australian superannuation allocated pension. At the same time, the consumer member has reduced their monthly invoice of electricity from $250 to $160 and is acquiring future reductions at $25 per month.
If the consumer member had purchased the solar panels with Private Capital, their monthly invoice would have dropped to $180.
Consumer members receive further advantages:
- They can buy Public Capital and get a steady income stream of 10% indexed for 20 years from their investment.
- Members can sell Public Capital they own to other members at its face value.
- They purchase equity in panels each time they buy Public Capital.
- The cooperative takes care of ongoing maintenance and repair.
- The cooperative advises and assists with the panel purchase.
- The cooperative negotiates with retailers, the electricity distributor, and finance organisations.
- The cooperative negotiates with community battery and metering suppliers.
- The cooperative accepts consumer members who rent and negotiates with landlords.
- The cooperative will advise on further cost reductions.
If the consumer member drops behind in their payments, the cheaper electricity from the panels stops, and the consumer pays the retailer.
If a consumer member vacates their accommodation, the cooperative takes responsibility for enlisting the new occupier to the cooperative.
Most investors and consumers find Private Capital has lower risk and higher value than using debt. Significantly, as solar technology changes, the community can adjust the savings between investors and consumers to account for the differences in value.
Public Capital and Affordable Housing
Public Capital has some similarities to the Scandinavian Model and the German model for affordable house rentals.
With Public Capital, investors receive a 7% indexed return on investment for 30 years, while occupiers pay a minimum of 25% of their income with no deposit to purchase equity in their house. When they have 100% equity in their home, they pay 10% of their income to help maintain the property.
Occupiers of houses receive similar benefits to the consumer members of solar panel cooperatives.
- They can buy Public Capital in their cooperative and get a steady income stream of 7% indexed for 30 years from their investment.
- Members can sell Public Capital they own to other members at its face value.
- Each time they pay to occupy a home, some of the funds become future payments to occupy a home within the Cooperative.
- The cooperative works with occupiers and assists with maintenance and repair.
- The cooperative negotiates with housing support services on behalf of members.
- The cooperative assists with capital expenditures to reduce the cost of living in a house.
- The cost of moving from one dwelling to another is much less than moving with debt.
With Public Capital, it pays an occupier to buy Public Capital and own the home they occupy as there is no advantage from inflation and capital gains. Investors have no disadvantage from inflation and gain little from capital gains.
Public Capital and Public Infrastructure
At present, community members can rarely invest in public infrastructure. Private Capital finances many roads, railways, ports, public transport, hospitals, and schools, and the community repays Private Capital from taxes and fees and tolls. Public Capital could build public infrastructure with prepaid taxes, removing the interest cost from governments. For a country with $700 billion in public debt at 3.5% interest, this is about $25 billion each year.
Public Capital makes it difficult to privatise community assets to benefit some individuals at the expense of the rest of the community.
