Fair, Efficient, Sustainable, Wealth Sharing

Kevin Cox
8 min readMar 21, 2023

Most Australians believe the economy should promote a fair, efficient, and sustainable allocation of resources, fostering social justice, economic growth, and overall societal progress.

Unfortunately, Australia's economy is doing poorly on sustainability and social justice. The last ten years have seen the wealthiest 10% of the population increase their wealth share from 40 to 60 times that of the poorest 10%. Every six months, the wealthiest increase their wealth by as much as the total wealth of the poorest. The economy divides the increase in wealth unfairly. Today investors decide the profit to make and how to distribute it. It inevitably leads to unfair profit distribution where the rich get richer, and everyone else, at best, remains the same.

Fortunately, there is a way to divide the profit distribution, so everyone has enough wealth at different stages of their life. Wealth is a store of money we use when we lack the income to satisfy our needs. Australia has enough wealth in its infrastructure to satisfy each individual’s basic needs if their income drops below the minimum they need. Unfortunately, our financial system constrains the distribution of wealth, so much of it is unavailable. The following outlines how to make stagnate community wealth available to those lacking the income to satisfy their basic needs.

Wealth increases when an economic activity makes a profit. Profits are determined by the price someone pays for the goods and services delivered by the activity. Today all the profits from economic activity go to investors. Allowing some to go to consumers and some stagnate wealth to be sold will allow everyone to acquire some wealth.

Sharing Profits

Today decision-makers depend on free markets to set prices that best divide the profit cake between sellers and buyers. Economic modelling assumes that free markets set fair prices and that supply and demand drive investment. The approach can work in a cash economy with many buyers and sellers and a transparent market. But it fails when Capital costs are high because all the profit from Capital goes to shareholders. Market failure occurs when the profit is unknown and where the profits end up is unclear.

Economies need other approaches to sharing the profits when the Capital Cost is high, profits are unknown or non-transparent, or wealth stagnates. Free markets do not solve these problems. Free markets need methods to move Capital other than supply and demand.

Another approach to designing an economy is to use Cake Cutting rules to share the profit cake and to require the Cake to be shared as soon as possible. A simple Cake cutting rule is for investors to choose the profit, and buyers decide how to divide it, knowing that investors will not invest if the return is too low. Many Cake Cutting algorithms address this problem, and communities can choose one to fit their needs.

In contrast to free market economies, Cake Cutting models better predict economic outcomes. Communities can reverse the wealth distribution trajectories, increase investment from existing Capital, and produce sufficient goods and services for the population within planetary boundaries with accurate predictions.

Pricing and Profits from Monopolies

Market economists do not like monopolies because, by definition, there is no free market to establish a fair price. However, establishing a fair price based on a fair share of profits works well for monopolies, monopsonies, oligopolies and free markets. The predictions on profits and the sharing are accurate as prices, rates of investment and profits are adjustable.

The following city water pricing example illustrates how Cake Cutting rules achieve the results of fair wealth distribution and maximum output for the least amount of Capital, all within planetary boundaries.

Water supplies are best achieved with a monopoly supplier because multiple pipes and sewerage lines more than double the cost to the community. A competitive market makes no sense, and as we will see, sharing profits brings choice to consumers and investors — the main advantage of markets. Choices are essential because they bring variety, and with variety comes innovation and progress.

Water supply organisations have expert teams calculating the water available from existing water supplies that can be sustainably harvested as the climate changes. They calculate the variation in supply and the size of existing storage and water usage practices. They have existing data on water usage and know the price elasticity of demand for different types of users. They know how much it costs to operate the current system and the investment needed to maintain it.

However, there is more to water sustainability than the water consumed and paid for through water supply systems. The surface and underground water supplies must be cared for and looked after. The water upstream and downstream of the city must be considered. A sustainable system will use the profits from the investments and usage of water to pay for the maintenance, investment and sustainability of these other water systems.

Profit sharing with consumers will find the money needed to build, operate, and maintain a sustainable water system for a Community.

Profit Sharing in a Monopoly

Profits are shared by giving a return on investment to investors for the use of their money and by providing buyers with lower prices on their purchases. The following rules achieve this for the minimum amount of money on each sale.

  1. Give investors 50% of the profit generated by the sale to the investor as new shares.
  2. The monopoly sells the other 50% profit and the system's operating costs to buyers as new shares or water.
  3. Invest all the money received for new shares into the monopoly.

With each sale, the buyer becomes a shareholder, and the investor gets new shares. The price of the shares is established, and if either the buyer or the investor wants cash, they can sell their shares to another investor, including the Company.

Assume a profit of $100 and operating costs of $40. The buyer pays $140 and receives $90 worth of water and $50 of old shares. The investor receives $100 new shares and sells $50 old shares. The monopoly receives $40 for the operating costs.

The investors, buyers and other stakeholders can establish the investment return needed to attract investment. The expert group shows how much investment is needed, knows how much operations cost, and can set the price, but if the price is constant, the Company varies the rate at which it invests to balance the books. Varying the rate of investment is called changing the working capital.

In this system, Capital is not needed. If there is no need to create Capital, there is no need for a Capital Market or to rent money. Investors get a fixed return on investment, buyers become investors, and money moves at least twice as fast as Capital in a free market.

Importantly no money is created or lost from the system. The monopoly can start with a fixed amount of money and expand at the rate needed to keep the system in equilibrium. It can grow by getting new investments or reusing its money. It can slow down by generating less profit by lowering prices or investing less or slower.

Importantly there is no market, yet the amount of money to capture and sell water remains constant. At the same time, investors get a return on investment, and the water users become the new investors until they stop using water.

The system is self-regulating and uses a fixed amount of money. Existing water systems can immediately free themselves from debt and use the existing asset value to keep the system capital moving for no extra cost.

A water authority can immediately pay off its debts, sell its remaining assets to investors and invest the money. A water authority with $1 billion in debt at 4% and $2 billion in stationary assets will have the yearly sales minus operating costs plus another one-time $2 billion to invest.

Choice, Innovation, and Localisation

Markets give consumers a choice and allow investors to innovate. Market segmentation allows for small experiments with a few customers. A water monopoly has naturally overlapping geographic and consumer segmentation that will form spontaneously.

Consumers will support their local water catchment groups. School communities will support their local schools' water use. Apartment building tenants will support experiments in billing. Consumers will drive innovation and allow choice and localisation more effectively than owners who like to preserve a profitable status quo.

Emergent Properties of Fair Profit Sharing

Profit sharing in a monopoly replaces a lack of a market to drive innovation into requiring the least money to develop assets while increasing innovation through natural market segmentation. Monopolies, Oligopolies, Monsoponies, and other variations are financially inefficient when profits are not shared. They become this way because power is concentrated among a few people who want to keep systems earning money for them without extra effort.

Profit sharing shares wealth, and sharing wealth shares power. With sharing comes innovation and progress.

However, too much fragmentation and localisation of finances can bring conflict, so we need ways to unite people. Community Capital is one sharing approach that is easy to implement in a free market economy and allows groups to cooperate rather than compete.

The approach removes other costs and inefficiencies from a free-market economy while providing the advantages of a monopoly. The details are described elsewhere, but some are:

  • Removing the need for Capital markets to set the price of Capital.
  • Capital no longer sits unused as it is continuously recycled.
  • Loan Capital created through debt is unnecessary. Removing the need reduces the money supply's unnecessary expansion and asset and money inflation.
  • Most insurance is no longer needed as communities self-insure and governments create money for asset replacement or expansion.
  • Optimal prices of investments mean businesses that use the approach will outcompete businesses financed with Loan Capital.
  • Income comes from investment output, not ownership demands.
  • Every buyer becomes an investor.
  • Employees become investors by receiving some of their wages as shares.
  • Supply chains with customer investors now become chains of end-to-end links of customer/investor members.
  • Middle-men businesses become links in a chain of mutually supported businesses rather than businesses that play in a two-sided market.
  • Platforms become links between mutually supporting producers and consumers.
  • Supply chains become a set of recursive end-to-end chains of transactions.
  • Cake Cutting Algorithms are many and varied, and their use creates a rich, varied, predictable economy.

Summary

Economies aim to ensure a fair, efficient, and sustainable distribution of resources and promote social justice, economic growth, and societal progress. Australia's economy is failing, with wealth disparities increasing as investors alone determine profits and distribution. Community Capital Cake Cutting algorithms divide profits, with customers sharing profits by buying shares from investors and the monopoly. The approach minimises monetary exchange and creates a self-regulating system of fair pricing.

Encouraging consumers to form local groups allows competition and efficiency without the need for price competition to set prices. The resulting economy eliminates the need for capital markets, reduces inflation, and fosters an efficient, equitable economy. Supply chains transform into a recursive set of end-to-end chains, fostering collaboration and mutual support among businesses and consumers.

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Kevin Cox

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