With conventional jobs rapidly disappearing new mechanisms are needed to distribute wealth and provide for the needs of people. The future will require local people have access to investment earnings as a means of wealth transfer. Taxation and social handouts have proven a disaster in this interim period that we have been struggling with job transition.
The smaller independent investor now has limited access to independent securities investing because larger institutional investors have such impact. The same is true for the smaller business entrepreneur in accessing equity capital because they lack the confidence of these larger institutional investors. Such ineffectiveness of traditional securities policy and institutions is one of the reasons that financial fund managers and transnationals are running rampant without significant accountability.
Obviously, investment vehicles created in an earlier democratic era, where political power and economic power had been considered separate, now are being made redundant. These investment mediums, including banks, the stock markets, and building societies etc., are being pushed aside by new creations. Many of these new models are in their infancy and operate outside of any control. Mutual funds (Unit Trusts), derivatives, junk bonds and computer-based systems are but examples of new investment approaches. Vast amounts of money are being shifted, invested and even lost. Much of this, in experimental activities that come from the creativity of those who see potential and opportunities, as the investment world attempts to reinvent itself.
The industrial era expanded the dispersal of wealth among greater numbers of people than at any other period in history. This has resulted in a shift in the levers of influence from a very narrow sector of society to much broader group which became known as middle class. The advent of advanced technology created a new dynamic. The “working” class, who make up this middle class and who have been the beneficiaries of these changes, are beginning to loose ground and feel threatened. The reaction has been political while, the real issue, generally misunderstood, is about wealth distribution.
Technology has become a means to displace workers and their incomes thus, threatening the income and lifestyle privileges gained and now considered rights. Policies have been sought to redress the diminishment of these rights leaving a financial control vacuum. The controllers of the technologies and those with insight into their workings, have rapidly moved to influence government and corporate policy makers. What has to be learned is that during periods of significant wealth and subsequent power re-balancing, economic, social and political transformations result.
Political reaction was the primary cause for governments to intervene in the early stages of these technology advances. Because people were loosing jobs to technology, political pressure was cultivated demanding action. The resulting responses predicated programs designed to shift wealth to those being made redundant in the economy. Such government reactions and resulting programs only worsened the economic imbalances. More of this financial burden was eventually transferred to the middle classes as, those with accumulated wealth devised ways to secure their capital outside of traditional investment patterns and used their power to influence the political process to mitigate negative impacting policies.
Large pools of capital are being agglomerated and controlled by fewer people because of the absence of precepts and rules to control, much less, stem these flows of wealth. One can see small individual pockets of wealth flowing into these massive pools of funds with relatively small returns to the original investors. An analogy would liken this to the tiny rivulets of water that fall as rain causing torrents of floods that without any controls cause considerable damage yet, often opening up new fertile land. Such is true for a market system left to its own devices. The damage will be colossal for some while, beneficial to others.
A recent article suggested that Canadian main stream securities are now controlled by less than 100 people who manage large funds. Interestingly, these large pools are full of little investors. If these investors could be encouraged to recognise their collective clout and develop their own investment devices the operators of the huge pools of capital and the transnationals could very quickly be made more accountable.
There is also a fundamental shift taking place in democratic societies in power sharing. In practically all developed democracies, conventional power sharing came from political participation in elected bodies. Evolving is a concept where power is shared through investments that control the flows of wealth – the more traditional measure of power.
Throughout this changing environment, the private sector has gradually become less democratic in their approaches to corporate control. The authority of the Boards of Directors has been traded for management dominance, in the belief, that this would make these corporations more flexible like the new technology companies who are riding the wave of change with ever more creative technology.
Government policy-makers, latterly, are recognising further erosion of their power through their inability to re-balance wealth distribution with programs and policies which were hybrids of earlier policies created to address much different economic and social issues. Less taxation revenue and less employment has compounded with more expenditures as government tried to stem the economic floods.
Governments, in an effort to stem this tide of change and growing deficits, have begun emulating the private sector and creating new service delivery mechanisms. These organisations, some known as quangos in Britain, NGOs in other countries are operated by volunteers and provided with public funds to do what governments traditionally, over time, committed to do. These neither public or private organisations, are to operate similarly to private sector corporations and accomplish such activities with less resources. The advent of a continuum of new programs and funding encouraged a proliferation of these organisations, many representing ever expanding disadvantaged people or disparate causes. Competition for funds has become rampant and as with the private sector these entities have become less democratic and neither accountable to their boards, their community or cause, or the government.
The private sector focused on the creation of short term profits and amassing ever larger pools of wealth in an effort to command more of the marketplace and, have greater power. The individuals that could deliver these profits were rewarded and, subsequently, experienced greater influence, both inside and outside of the private sector. The public sector bureaucracies, similarly, focused on who controlled the maximum number of programs to leverage influence over their political masters. Both bureaucracies were thus able to have power over the masses through their control of both private and public sources of wealth. Resultantly, elected representatives of both sectors have had less and less influence over the direction of the economy or governance.
The tragedy is that few recognised, or seemingly cared, that a such short term focus was bound to create major economic and social dilemmas. In flood areas even dams break when the amount of water exceeds certain critical masses, similarly corporate, financial, government structures eventually collapse when they are unable to contain their resources or actions. In the natural environment streams in flood create their own paths and, while able to force directional changes, eventually become impeded by a build up of the very elements that they were impacting.
Economies and social structures are ultimately the inter-relationships of people. Like the natural phenomenon of flooding, relationships and subsequent economic and social cycles, eventually, will settle back into a set pattern as people resist the pressures of ever eroding privileges that have become considered their rights. The challenge in life as in nature is to decide whether we wish the flows (economic and social in this instance) to stem naturally or do we willingly create mechanisms that assure minimum damage.
Jobs were the mechanisms created in the industrial era to stimulate a balanced environment and allow greater distribution of benefit from the flood of wealth created. It could be argued, that without jobs and subsequent sharing, the wealth of the developed world would never have reached its evolved proportions. These jobs and their ensuing financial rewards happened only with great human cost to those who were initially detrimentally impacted.
It would appear that neither the public or the private sectors have been willing to grapple with the real issues of wealth imbalance and its ensuing power disparities. Neither have pursued a course to create new mechanisms to replace the instrument that had advanced the cause of wealth dispersal during the industrial era – the job. This might be explained by the fact that the bureaucracies that had come to control both the public and private sector recognised the opportunity to increase their own control and power.
Only with new approaches and innovative experiments will another era of economic and social upheaval be forestalled. People are already flexing their economic muscle in other ways through the underground economy, having given up on much of the political process as a way to influence their community surroundings and environment. The challenge is to bring this from below the surface to where it can be enhanced and its benefits more diversely shared to provide meaningful opportunities to those currently marginalised by this latest human transition. Critical to any new concept will be a re-valuing of people and community development as investment, providing lucrative and long term returns, rather than charity which is considered a cost and in some circles even a loss.
The need to create a third sector is the appeal of experts, prophets and academics. Such a sector will need to be a hybrid private, public and community organisation to be effective. It will have to be democratically accountable, to the community it represents. This type of third sector will require new investment regulations, policies and institutions targeted to more local areas to ensure this fiscal accountability and community control. People will need to be reacquainted to local accountability and responsibility through economic control. The difference, must be that accountability will be derived from community investment, rather than through political process and community taxation.
If people were to consider the benefits of pooling some of their capital then, local based investment funds could be established . Small communities, either rural or urban, most usually have significant depositories of capital assets ranging from bank accounts to pension schemes. One rural community of three thousand in Canada discovered that it had one hundred and thirty million dollars in fiscal assets on deposit in its financial institutions. Obviously, this was mostly controlled outside its environment by conventional investment institutions.
Community funds could be operated like those operated by investment institutions with major portions of their funds invested in higher paying investments (i.e. 70% invested in blue chip investments, 20% used for local investments). The other ten percent could then be used for new start-ups, and somewhat more risky ventures such as new technologies, or even financing community projects. The larger portion would generate more than adequate funds to pay substantial returns and cover even poor investments. (How else does conventional and traditional investment schemes work?)
This concept must be facilitated with incentives, rather than punitive measures such as taxation. It will require the support of governments, banks and major corporations. Offerings at the local level could take the form of shares, both preferred and common, bonds or savings certificate. Small investments would be the target. Earned income would be returned to the community thus generating local wealth and loyalty. It would be beneficial to start with a small group of willing pioneers to create models. One real issue impeding such a scheme is the dinosaur corporate and securities legislation which are prominent in most developed countries, most designed for an era where wealth wasn’t so dispersed as today.
Presently, the scope of created wealth continues to grow as non traditional and less regulated investment vehicles are developed and corporations and individuals alike move underground. Many are even resorting to the illicit economy which expands as people try to escape the perceived harshness of living in a society without opportunity or, as some think, hope. The detrimental effects of such movements are creating social dilemmas without precedent. The dilemma of economic and political policy-makers is whether to allow this present flood of economic change to reach its own level or to create mechanisms that controls further human impacts.