The Australian Federal Government Productivity Commission reports that Australian Productivity has fallen to a 60-year low. It is conducting an inquiry and is looking for ideas on how to boost productivity. This article is a version of a submission to the inquiry and asserts National Productivity is improved by boosting the Productivity of Capital Markets through localisation. That means using existing Capital more frequently and by more people to produce more Productivity Improvements.
The Productivity Commission inquiry starts with these words.
Productivity is the key to prosperity. It is the process by which we learn how to get more from less: more and better products — new solutions to meet human needs, produced with less hours of work, fewer resources and a lighter environmental impact. In essence, productivity growth is about working smarter.
Australia has low productivity growth because the Capital Markets that supply the Capital to pay people to work out how to work smarter have low Productivity. Capital is abundant, but much is stationary in assets like housing, energy, and public works infrastructure. To increase the Capital transfer rate, we can transfer Capital when buyers make a purchase rather than wait for Capital Markets. The more people with more Capital, the better the chances of improving Productivity.
The interim report includes the productivity of Capital in the Multifactor Productivity (MFP) but does not discuss Capital Markets. That is unfortunate as Capital Markets in Australia are failing to supply Capital to fund improvements in Productivity. Capital stagnates in large piles of wealth and is not available to those who could use it to improve productivity. Capital stagnates because most Capital Markets are fundamentally debt markets.
There are other ways to transfer Capital. For example, Mutual Credit non-debt Capital Markets use about half the money to transfer Capital compared to Debt Markets.
Debt Capital only transfers to those who already have non-debt Capital. Borrowers need Capital before banks find new money to give a loan. Borrowers with more Capital can outbid others with less. Consequently, debt-based Capital Markets distribute it to those who will make the least use of it as they already have Capital.
The following two examples of alternatives to debt markets show we can change Capital distribution to double available Capital that goes to those more likely to use it to increase Productivity.
Change Home Ownership to Ownership of the Right to Occupy
Changing the Housing Market from exchanging ownership of a dwelling to a market in the ownership of the right to occupy will halve the cost of buying a house and double the use of existing Capital. When we own a dwelling, the Capital in the home stagnates. When buying instalments of the right to live in it, some of the Capital moves with each instalment and is available for other use. It doubles the rate of movement compared to debt. It also removes the cost of debt or interest and the cost of the real estate market. The freed-up Capital is available to invest in Productivity improvements such as Rewiring Australian buildings. https://kevin-34708.medium.com/affordable-housing-for-all-8f85d460f782
Government Capital Incentives
Another example is the provision of zero-interest loans by the ACT government to households who will use the loans to increase their use of renewable energy. The current approach uses debt and existing Capital Markets instead of Community owned Capital. The use of debt excludes more than half the population of Canberra, and that half are the ones who cannot obtain loans to reduce the cost of electricity. Unfortunately, the funds to subsidise those who get the zero-interest loans come from everyone, including those who cannot get a subsidy. Governments can supply seed funding of repayable zero-interest Community Capital directly to communities and provide it first to those with the most need. Most government incentive schemes, including rent subsidies, end up benefiting those with Capital rather than those without Capital.
Capital incentives are even worse when they are supplied directly to Private Suppliers of goods and services. They are even worse when given to Overseas Organisations, as we have seen with fossil fuel extraction companies. One solution is to require these organisations to return the Capital to consumers when they make sales.
Capital Market Competition
Introducing competitive Capital Markets is technically simple and low-cost. However, it is socially tricky because it changes power structures and wealth distribution. It will not happen without government encouragement and regulation to prevent it from being captured by private, corporate, or government interests.
The above ideas draw upon the concepts in “Wired for Capital” by Mark Pagel,
Elinor Ostrom Eight Principles of managing a Commons http://www.onthecommons.org/magazine/elinor-ostroms-8-principles-managing-commmons and
“The Making of a Democratic Economy” by Majorie Kelly and Ted Howard.
The contribution of White Label Personal Clouds shows how to use goods and services markets to transfer Capital with a successful experiment on community-funded solar panels.
Permanent Capital Markets
Increasing Capital Productivity as a way to reduce inequality
Finding the money to survive
Affordable Housing for all
Community Ownership of Community Batteries
Termite Mounds and Finance Mounds of Wealth algorithms
Suggestions for the Productivity Improvement Review
Productivity improvements occur when we spend Capital looking for improvements. Providing more people with Capital to make improvements increases the chances of finding Productivity improvements. The following suggestions will help transfer Capital when a buyer pays for goods and services.
- The Productivity Commission look at ways to encourage experimentation, research, funding and trials of alternative Capital Markets to give fair access to all members of society according to their needs and ability to use the Capital for productive purposes.
- The Productivity Commission look at ways to measure the efficiency of Capital Markets.
- The Productivity Commission look at ways to highlight and address inefficiencies in Capital Markets. These mainly occur in Industries where Capital Ownership is concentrated and not distributed across the community of users.
- The Productivity Commission look at ways of measuring the Capital efficiency of the administrative, knowledge, finance, entertainment and information industries where knowledge and incumbency assets represent most of the shareholder value of the companies. Should large companies be able to purchase competitors and restrict competition when the assets are mainly customer numbers and knowledge? Examples are Uber, Google, Facebook, Banks, Super Funds, Government Services, and Advisory Firms.
- The Productivity Commission looks at localising ownership of services like broadband, banking, and news to accelerate Capital distribution.
Background to Community Markets
The idea for more Productive Capital is similar to iterative computational techniques well known in engineering. Solutions to problems without exact solutions are found by guessing an answer and making small changes to variables to see if the change gives a better solution. If it does, the change is accepted, and the search continues for another change.
We can treat the existing economy as a solution and make small changes within constraints to find better solutions. For example, better solutions reduce the amount of money transferred for a person to acquire home equity and optimise buyer and investor value. Buying a home for cash would require the least amount of money. Buying and selling homes incrementally using small Community Markets is a cash variation that requires the least amount of money to transfer the asset and hence is Economically Productive. The approach suits ongoing long-term investments because the environment for activities continually changes.