Monday, January 21, 2008

TINA – Part 4

Following are concerns and questions that have been raised by readers in previous postings about public investment as alternatives to capital.

Democratic Accountability
It’s been asked whether public investment system would be democratically accountable. The CDC’s and the CDFI’s would be accountable to the local and community level along with the state in some cases. The national social investment system would be established by democratic mandate through Congressional action. I would expect that the social investment banks would operate independently much like the Federal Reserve. Currently Congressional oversight is to, “clearly establish a viable objective for the Federal Reserve and to ensure the Central Bank is fully accountable for achieving this goal.” Democratic accountability of the social investment system would be similar.

Should Social Investment be Profitable?
Another question that was asked was whether the public investment system would be required to make the best possible use of the tax money. Without a doubt the social investment system would be expected to meet the requirements of its mandate, which would be to insure universal employment through the ongoing creation of profitable cooperative and family-owned enterprises.

At one point that questioner used the P-Word: profitable and whether it would need to “show evidence of actual growth.” In answer to profitability the social investment system would not operate to make a profit in the same fashion as business. Instead, the success of the public investment system would be in whether it’s meeting its mandate. If it wasn’t then the leadership would be replaced with those who would insure that the mandate was met.

Risk of Bureaucratic Control
It was also asked whether public investment would leave control in the hands of the politicians. The concern being that the system might cause the only way to get investment would be through backdoor politics. This concern is another reason why the social investment banks would need to operate independently plus the reason for the existence on the CDC’s and CDFI’s.

Availability of Investment
Another questioner pointed out that capitalism is a good way to make money available to companies. I would point out that actually most of the money in the system moves through the Secondary Market, which means it moves between the shareholders without actually reaching the companies. It’s the Primary Market, which involves direct investments with the businesses, that provides money to businesses. Take venture capital, for example, which is important for the creation of new enterprises. In 2007, according to a report by PricewaterhouseCoopers and the National Venture Capital Association, there was $29.4 billion invested into business ventures by venture capitalists. The social investment system along with the CDC/CDFI would be more than sufficient.

Sunday, January 6, 2008

TINA -Part 3

In the prior installments of this series I’ve presented three real world examples of alternatives to capital. We can now build on those models to create a possible alternative to capital on a national scale. Luckily much of the work has already been done.

In his book, “After Capitalism”, author David Schweickart proposed replacing capital with social investment. His model involves a "capital asset tax" levied on all of the cooperative enterprises, which would then be returned back in the form of start-up and expansion grants provided by a social investment banking system.

Schweickart mentions a variety of ways that this banking system might function. His preference, which is the same as mine, is that the system should be set up to distribute the funds via regional authorities rather than distributed directly by the Federal government. The various regional authorities would then distribute these funds down to community level non-profit banks. These banks would operate on a mandate to provide the funds to the various economic enterprises for start-ups and pro-growth expansion investment in the form of grants with the goal of universal employment. This grant money would be added to the capital value of the enterprises, which would then be subject to the capital asset tax.

Along with Schweickart’s social investment network I would also want to see a dramatic expansion of the Community Development Corporations and the Community Development Financial Institutions mentioned in part 2. One reason for these additional bodies would be to expand the sources of capital for entrepreneurs and cooperatives. If the social investment banks miss an opportunity with an entrepreneur then a CDC of CDFI might take a chance and provide the needed investment. The more investment money from more sources the better the chances for innovation. Plus, they would provide political pressure on the social investment banks because they would be forced to compete for applicants to satisfy their mandate. In addition, their existence would help insure that investment isn’t controlled by bureaucrats.

I don’t mean to imply that Schweickart’s model is the only possible alternative. For example, Venezuela uses loans rather than grants as social investment for new cooperatives, which was a method advocated by John Stuart Mill. But Schweickart’s model does show that, along with CDC’s and CDFI’s, there are indeed viable alternatives to capital. TINA has been proven false and the final objection to the establishment of a successor system has been removed.

In the next and final installment of this series I’ll address some concerns expressed by readers.