Productivity of Capital Deployment

Kevin Cox
4 min readAug 28, 2022

According to the Australian Productivity Commission, productivity has reached a 60-year low. Wages have stagnated and gone backward. But exports are up, imports are down, house prices are high, and company profits are up. So why is productivity low, and what can we do to improve it?

There are two parts to productivity. The first is obtaining the Capital, and the second is using it. Productivity is low because the cost of deploying Capital to invest is high — not because the investments are poorly chosen.

The Financial system distributes Capital for investment, so finding a less expensive way to deploy Capital increases productivity. Finding ways to invest new profits (Capital) quickly will also increase productivity. Finding ways for everyone in a Community to acquire Capital will increase the investment rate as it allows more people to become investors.

Types of Capital

Four methods of getting Capital into a business are:

  1. When a business makes a profit, it creates Capital from the use of Capital. It can invest the profit or let it accumulate by buying existing assets.
  2. Capital comes into a business if a consumer prepays for goods and services. The profits are invested in the business, and the Capital is used to pay for discounted goods and services.
  3. Capital is put into a business when it takes out a loan. The Capital goes out of the business when it is repaid.
  4. Selling shares or equity ownership puts Capital into the business. The Capital accumulates in the business until the owner sells the shares.

Each of the four methods has a risk, rate, and cost of deployment. The speed and cost apply when the profits from Capital in the business are invested.

Capital Transfer Productivity

The order of Capital transfer productivity is:

  1. A business makes a sale and invests the profits to increase productivity in the business.
  2. A consumer prepays for goods. The Capital transfers with a sale, and the business invests the profits to increase productivity.
  3. A business takes out a loan, and the Capital transfers when making repayments of Capital and is not invested in the business.
  4. With equity Capital, the sale of ownership transfers Capital but does not increase investment.

Transferring loans and shares requires separate markets from the regular sales market — increasing the cost of moving Capital. The distribution of Capital through a market requires storing uninvested Capital and reduces Capital productivity. Loans and Equity require an intermediary or middleman and must be paid. Sales and presales have no intermediary and hence must be lower cost.

Intermediaries aggregate many smaller sources and transfer funds across businesses. Sales and presales perform the aggregation function and remove the risk, cost and delays.

Sales Capital

Sales Capital is an efficient Capital Deployment. The business can estimate its profit with each payment and the contribution from Capital. Assume the business invests the profit. There is no cost of transfer as the money comes from the payments. There is no market cost, there is no delay in investing, and there is no risk.

All the benefit of sales Capital Transfer goes to the business owner even though the consumers paid for the new Capital.

Prepayment (Consumer) Capital

Prepayment Capital is transferred as part of the payment for goods or services and is low cost and immediate. It is the same as transferring Capital from Sales, except the profit has to be divided between different consumers. Consumers take the risk. The purchasing consumers receive a proportion of the Capital as prepayments and share the risk. The cost of transferring Capital is the same as Capital from Sales.

In summary, if a business changes to prepayments or (Consumer) Capital, the savings are the cost of risk, buying, selling, and idle Capital.

Converting businesses to use Consumer Capital will reduce the cost of investment compared to loans and equity. The cost of converting is low because there is no change to business operations.

The productivity improvements of lower risk costs, lower transfer costs, and increased rate of investment will supply funds to boost the productivity of Capital in any community.

However, the main advantage of Prepayment Capital is that the Capital is available to all, not only those who already have Capital. Everyone acquires it by buying goods and services. It means that if a good or service has a high Capital Cost, everyone can afford to purchase the asset through a local cooperative. Instead of outright ownership, the asset user takes custody, giving the user the same rights and responsibilities as outright ownership.

Increasing the productivity of existing Capital by speeding up the movement of Capital to new investment is a tool for addressing many problems, including affordable housing, funding education and research, and funding the move to renewable energy.

For example, in Australia, a person on $90,000 with no deposit would own 100% of the home they occupy with a value of $700,000 after 31 years if they paid 25% of their income. By contrast, a 3% loan would require 39% of their income before they owned their home after 31 years. The difference comes solely from the lower cost of Capital transfer and the speed of profit investment.

There is no common name for prepayment Capital. Depending on implementation and the social context, it could take words like Prepayment, Consumer, Prepower, PreOccupy, Community, Democratic or Public.

Further information on Consumer Capital

Consumer Capital is Efficient Capital

How we Forgot to Share

Finding the money to survive

Converting Stranded Assets to Consumer Capital

Permanent Housing Markets

Community Ownership of Community Batteries



Kevin Cox

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