Community Capital Markets
A cause of the disparity between the rich and poor is dysfunctional Capital Markets. One way to reduce the disparity is to make Capital Markets cheaper to access, allow universal participation, and increase the rate of new investment. Done well, these Markets will mean the poor will become richer by increasing their share of new wealth while the rich retain their wealth.
Community Capital Markets are Markets where a Community owns the Capital, and individuals take custody of some of the Capital. Custody means taking responsibility for and gaining the benefit from some of the Capital but not owning it.
Individual Ownership Capital Markets are where individuals own the assets and can do what they like — including not using them.
Community Capital Markets cost less to operate, and they lead to Property Owning Democracies. Organisations needing Capital can use the approach with or without Individual Capital.
Individual Ownership Capital Markets
Capital Markets, like Stock Markets and Housing Markets, are expensive and restricted and have the following issues.
- Complexity: Capital Markets are complicated systems that involve multiple parties, regulations, and financial instruments. The complications make it difficult for individuals and organisations to navigate the markets and understand how they work.
- Information asymmetry: In many cases, there is a lack of transparency in Capital Markets, which can create information asymmetry between buyers and sellers. This can lead to inefficiencies and higher costs for participants.
- Market manipulation: There have been instances of market manipulation in Capital Markets, where individuals or organisations use their influence or insider information to manipulate prices and gain an unfair advantage.
- High barriers to entry: It can be costly and time-consuming for individuals or organisations to participate in Capital Markets, creating barriers to entry and limiting competition.
- Limited accessibility: Capital Markets are often only accessible to large financial institutions and high-net-worth individuals, making it difficult for smaller investors to participate.
The following factors in Capital Markets' operation increase the trading costs.
- Trading fees: Many capital markets charge fees for trading activities, such as buying and selling securities. These fees increase the overall cost of participating in the markets.
- Spreads: The spread is the difference between a share's bid price (the highest price a buyer is willing to pay) and the asking price (the lowest price a seller accepts). The wider the spread, the more costly it is to buy or sell a security.
- Brokerage fees: Capital markets often require brokers to facilitate transactions who charge fees for their services.
- Market impact: Large trades can impact the price of a security, increasing the cost of the trade. This is known as market impact.
- Liquidity refers to how easily shares can be bought or sold without significantly affecting the price. Due to difficulty finding a buyer or seller, it is more expensive to trade securities with low liquidity.
- Volatility: Volatility refers to how much prices tend to fluctuate. Shares with high volatility can be more expensive to trade due to the increased risk involved.
- Taxes: In some cases, capital gains taxes and other taxes on securities trades can increase the cost of participating in capital markets.
- Unearned Income: The major problem is the incentive for investors to keep their Capital and continue to receive, after the first return on Capital, what is unearned income. Capital is like a magic pudding for investors and was the message in Norman Lindsay’s story.
An Alternative Stock Market
A Community Capital Market is an alternative to traditional Stock Markets. Each month, all investors sell a specified proportion of their shares. The percentage is equivalent to 50% of the projected new Capital (profit) generated from all sales for the month. The price of the products includes the cost of the shares purchased by buyers. The price is a fixed price decided by the company's Board in consultation with all shareholders. The remaining 50% is distributed to investors as an addition to their shareholdings. The share price rarely changes.
Consumers who do not wish to retain the Capital earned from their product purchase can opt to sell it, offering it initially to investors who had previously put it up for sale. Alternatively, the value of the sale can be applied as a discount on a future purchase. If the Company is not making sales or is incurring losses, a similar percentage of the investment and an anticipated amount of Capital for the upcoming year would be made available for sale to other investors at a fixed price.
The approach addresses all the issues 1 to 5 and 1 to 7 above. Prices are fixed by agreement. There are few restrictions on participation and moving in and out of the market. All participants have access to the same transparent information. Importantly participants have a choice of markets in which to participate. If there is no choice, they can join other members and create a new market.
Small Business and Community Capital Markets.
Small Businesses often need access to the same level of Capital as larger businesses, which puts them at a disadvantage in the marketplace. While large companies can raise Capital through stock markets, small businesses typically rely on internal generation or loans to fund growth.
Community Capital Markets level the playing field by providing small businesses access to a marketplace where they can sell ownership stakes in their companies and their products. This allows small businesses to raise Capital in a way that costs less than large businesses. It allows investors to invest in and support local businesses directly. Additionally, Community Capital Markets can help small businesses cooperate and gain economies of scale while retaining the benefits of being a small, adaptable, and locally focused business.
It provides the advantages of franchising with the low cost of Capital and customer loyalty.
Community Capital Markets are estimated to save the value of the investment over the investment life by reducing or eliminating costs associated with investing in large Capital Markets. In other words, the Capital is made more productive by investing rapidly and for less cost. Additionally, the need for borrowing money through loans is reduced, as buying shares is less risky than giving a loan. This removes the need to take Capital from the business to repay the loan.
Localisation and a Circular Economy
Community Capital Markets allow communities to invest in businesses, including government-owned enterprises and infrastructure projects. This increases investment in a diverse range of ventures and gives community members a say in how their Capital is used and invested. It results in a Property Owning Democracy.
Large businesses, including government-funded projects, can benefit from Community Capital Markets by attracting more Capital and reducing costs. In addition, it can help prevent unproductive capital accumulation with faster capital movement.
Community Capital Markets are particularly useful for small businesses, but large companies can use them to connect with and gain the support of local communities. By raising Capital through community members, businesses can foster a sense of ownership and investment among community members, leading to increased trust and support.
Capital circulation is concentrated in local areas, with investors and buyers having a vested interest in the success of the businesses and projects in which they invest. This leads to a circular economy, where investors consider the environmental impact of their investment, leading to greater recycling, reuse and renewal, which aligns with the interests of all shareholders.
Scaling Local Community Markets
Local Community Capital Markets must have standard administrative procedures and governance to grow and thrive. Governments are crucial in working with the accounting and legal profession to establish market standards and regulations. This includes working with existing banks to provide payment services and ensure the security of funds, working with local accounting and legal firms to provide services to administer the systems, and working with IT firms to provide IT services.
The critical feature of Community Capital Markets is that the community owns them, and Community Capital also finances the various service providers that assist with administrating these markets. This means that customers and investors have partial ownership of the businesses that run the markets and have a say in how their Capital is administered.
The use of Community Capital Markets to fund the service providers of the markets will give local markets control over the infrastructure and prevent the rise of monopolies or oligopolies. Additionally, local markets can select members by sortition to oversee the market operations and represent their local community on district boards to coordinate the affairs of multiple communities. This will help to ensure that the local community's interests are represented and that the market remains responsive to their needs.
Local investors, banks, and governments can provide funding for these organisations. By aligning the interests of local investors, governments, and financial institutions, Community Capital Markets can ensure a sustainable and stable investment environment that supports local businesses and projects.
Community Capital Markets solutions.
Capital Markets have many issues (see above). Community Capital Markets address those issues and are open to all and affordable.
- Complexity: The Markets are complex but not complicated. If shareholders wish to sell or buy shares, they place them in the market at the specified price. They are either bought or sold automatically, and the money is put into or taken from their designated bank account. Shareholders have a standing order to sell a specified value of shares each month. Buyers receive a share-holding with each product purchase.
- Information symmetry: All buyers and sellers know how many shares are for sale and the current price. All buyers and sellers know the history of Capital Sales, the Balance Sheet and the Profit and Loss in real-time.
- Market manipulation: Prices are established by the Governing Board and remain fixed unless the Board changes them. It will be unusual for Capital prices to vary and difficult to manipulate the market.
- No barriers to entry: All buyers and potential buyers of products become investors and are in the market. All buyers are part of the Capital Market.
- Open Access: Everyone can participate.
The following factors in Community Capital Markets' operation decrease the trading costs.
- There are no trading fees.
- There are no spreads.
- There are no brokerage fees.
- The Volume of Sales has no impact on costs.
- Every month there are a minimum number of sales.
- Price changes are infrequent and are typically signalled months in advance.
- Taxes are automatically calculated and deducted by the system. Any variations are a matter between the Tax department and the trader.
- There is no interest on interest or Capital gains on dividends. There are no classes of shares.
What are the Barriers to Community Capital Markets?
There would appear to be no legal, regulatory, or operational reasons preventing Community Capital Markets, as there are many other ways to buy and sell shares, including:
- Private Placement: A company can issue shares privately to a select group of individuals or institutions. This method is often used to raise Capital from a small number of investors without regulatory oversight.
- Direct Sale: An individual shareholder can sell their shares directly to another person or entity without an intermediary.
- Tender Offer: A company or third party can make an offer to purchase shares directly from shareholders.
- Employee Stock Purchase Plan (ESPP): A company can offer its employees the opportunity to purchase shares directly through payroll deductions.
- Secondary Market: The shares are already listed on the stock exchange but can be traded in the secondary market, over-the-counter(OTC) markets, where buyers and sellers negotiate prices directly, but this typically would have less liquidity.
- Auctions: In situations like an IPO, the shares are sold in an auction-like process.
However, governments should establish regulations to prevent fraud and build trust in any new approach to Markets.
Community Capital Markets are created to appeal to stakeholders, especially governments and social enterprises. One of their key advantages is their transparency and equitable distribution of profits, which benefits all community members, not just a select few. Additionally, they are designed to be cost-effective, as they have straightforward and streamlined operating procedures.
Investing in Community Capital Markets is easy to understand, as shares can purchase products from businesses at a discounted price. This creates a direct benefit for the investors and increases the utility of the investment for them. The focus of the investments made through the Community Capital Markets is often on reducing costs, which can lead to a circular economy and a reduction in demands on natural resources.
Overall, Community Capital Markets create a more equitable, sustainable and responsive society that aligns the interests of the community, businesses, investors, workers, buyers and the environment.