Social Dividends

Endowing all citizens with stakeholder shares, creates a compelling way for politicians to win or maintain government. Many corporations already distribute shares and options to their employees without a tax incentive. In the US, tax incentives have resulted in over 10% of private sector employees owning shares valued at $1.4 trillion in their employer firms.

By extending this approach to all citizens, a process is created for Democratising the wealth of nations. This is the title of my 1975 book that describes how all citizens can receive “social dividends” to remove the need for welfare.

Democratising wealth is astounding simplified. No taxes for welfare, no corporate borrowing to finance shares issued to stakeholders, and no need for complex trust deeds, trustees, and expert advisers - just corporate book entries^[1]. The book entries endow a small fraction of corporate equity each year to a new class of stakeholder shares. These shares are then in turn endowed to individual citizens^[2]. Institutional investors with fiduciary duties to maximise their profits, would become legally obligated to approve changes to corporate constitutions that improved their returns from a tax incentive.

The role, size, and intrusiveness of government is reduced. New taxable sources of revenue arise as described below. These can be used to fund the tax incentives required for shareholders to lead the creation of a locally controlled sustainable stakeholder society.

The self-financing tax incentive for shareholders create profound business, social, political and regulatory benefits. “A new model of corporate governance” can be introduced as wanted by Larry Fink in 2018 Fink is the CEO of BlackRock, who manages 10% in value of all the publicly traded shares in the world.

Each year, Fink writes to all the CEOs of corporations in which BlackRock owns shares. In 2018 he also requested them to: “engage with shareholders like BlackRock, and to bring other critical stakeholders to the table”. Fink also wants companies to introduce “a more diverse and aware mindsets”, so that they are “less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.” Crucially, Fink stated: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” In 2021 Fink went further, asking firms to establish “deeper connections to stakeholders” and with “greater accountability to stakeholders”.

Wanted: A new way to govern

All of Fink’s objectives can be achieved by introducing what I described sixteen years earlier as “A new way to govern”. This is the title of my public policy booklet published by the London based New Economics Foundation^[3]. Their motivation for commissioning the booklet was to identify an alternative to either government or shareholder control. My proposal was bottom-up stakeholder governance. Impressive examples are The John Lewis Partnership in the UK, VISA Inc., in the US and the Mondragón Corporacion Cooperativa (MCC) in Europe.

Each of these enterprises has proved over a number of business cycles during the last half Century their resiliency and competitiveness. Each organisation also demonstrates distributed decision-making through many different boards. Elinor Ostrom described this as “polycentric” governance in her 2009 Nobel Prize acceptance speech.

Ostrom, a political scientist, spent her lifetime with her husband Vincent, researching how life-sustaining natural resources have been self-regulated, self-managed and self-governed since pre-modern times. This view was contrary to those of leading economists who were not aware of her work. Economists thought competition between different self-interested individuals must necessarily lead to the over exploitation of resources to deny them for everyone to create the “Tragedy of the Commons”.

The competition between shareholder interests and those of other stakeholders for common corporate resource is not life threatening. This greatly improves the ability for negotiating win-win outcomes when distributed decision-making is introduced. Both stakeholder voice and influence can be introduced with “A new way to govern” so that it does not remove the primacy of shareholders in decision-making.

Enriching And Spreading Democracy

How shareholder primacy can be maintained is illustrated in my Long Finance article “Privatising Regulation: To Enrich Democracy”. Refer to “Figure 1, How Mimicking Nature Can Mitigate Systemic Problems of Hierarchies”. The reason for maintaining shareholder primacy is because in endowment firms, stakeholders become shareholders! Politicians will note that all their constituents can become shareholders.

Figure 1 describes a simplified generic form of “Ecological” polycentric governance. It enhances the Ostrom “Design Principles” by including the self-regulating, self-managing and self-governing practices found in nature. The most crucial practice is a process for shareholders, managers, and other stakeholders to maintain engagement with their businesses by participating in “Offspring” enterprises.

The MCC complex grew organically by this process of progenitor enterprises “giving birth” to offspring enterprises to expand their business while keeping themselves to human scale. The offspring enterprises typically become a supplier or customer of the progenitor business. In this way families of firms were established, somewhat like a Japanese Keiretsu.

Corporations that endow stakeholders with a small fraction of equity each year obtain a compelling incentive to fully distribute their profits, like is commonly practiced by cooperatives. However, unlike cooperatives, shareholder corporations seek growth. Endowment corporations would achieve growth by dividend re-reinvestments in offspring firms, augmented, as may be required, by new investors.

This process allows shareholders to obtain control of how firms grow. Executives become dependent upon shareholder support for their own professional futures. There are grounds for arguing that this change would increase both the micro and macro productivity of businesses^[4].

Stakeholder endowment firms introduce manifold environmental, economic, and self-governing benefits. The environmental benefits arise from substituting alien ownership with local bioregional citizen stakeholder ownership and control. This provides both stakeholder and/or shareholders with the information, motivations and means to make firms environmentally accountable. Firms likewise obtain the information and incentive to act, but crucially, with also the power to act.

Countering Climate Change

Global firms seeking benefits for all stakeholders become agents to reduce local sources of degradation of the atmosphere, oceans, fresh water, soils and biodiversity. Firms become what Ostrom describes as a “Common Pool Resource (CPR)”. But unlike natural CPRs, firms can proactively take remedial action. Importantly, global firms create a basis for engaging with most of the 8 billion citizens of the planet who are creating environmental degradations. This introduces an important feedback and feed-forward communications for establishing local spherical^[5] economies.

Twenty operational benefits of ecological governed firms are set out in Table 1 of my Long Finance essay this year. Three benefits are mostly unknown to scholars. These illustrate intellectual voids in graduate schools of Economics, Business, Management and Government.

Reducing Inequality - With Less Tax!

Inequality arises in a way accountants cannot report since they do not identify investor time horizons as noted in row eight of Table 1 of my essay. Any cash received after an investor’s time horizon is by definition surplus to their incentive to invest. This makes “surplus profits” invisible to accountants, economists, tax collectors and the voting public.

Economists do not even possess a word to describe this form of economic rent that is not required by an investor to invest. Economists assume there is no limit to human greed. They ignore the practical problem of humans not being fortune-tellers. As a result, both individuals and corporations possess investment time horizons. This is a routine process as all productive investments, except land and corporations, have limited life. Machines wear out and all intellectual property rights possess time limits.

Surplus profits are not trivial. They can be multiple times the original cost of an investment as documented in my articles^[6]. I have walked the talk and founded two corporations that later became publicly traded by offering investors only 15 years leases^[7]. We only offered investors seven years copyright ownership to attract funds to finance films. This was to remove the costs providing investment reports for a period longer than required.

While surplus profits cannot be taxed, stakeholder endowment corporations allow them to be shared to both democratise wealth and then be taxed. This is major hidden way to fund both the tax incentive for shareholders, and a citizen wellbeing dividend for all voters. The politicians introducing the shareholder tax incentive could also specify the allocation of shares among different types of citizens in their constituencies.

Endowment corporations also provide a way to attract alien investment but on the basis that ownership and control boomerangs back to local citizens. Boomerang ownership limits overpaying alien investor to enrich local economies and their stakeholders. In the language of Professor Edith Penrose endowment corporations eliminate the cost of direct alien investment that requires “the acceptance of an unlimited, unknown and uncontrollable foreign liability”^[8]. This gives voters the right to view their government as economic vandals if they accept foreign investment without boomerang ownership provisions.

Introducing Checks, Balances, And Requisite Variety^[9]

Another intellectual void in management knowledge is the existence and benefits of organisations possessing Yin ~ Yang behaviour described by Buckminister Fuller as “Tensegrity”, E. F. Schumacher described this behaviour as “antinomy”[10] and Dee Hock, the founder of VISA Inc, called it “Chaordic”. DNA hard-wires this behaviour into humans to make us both cooperative ~ competitive, trusting ~ suspicious, altruistic ~ selfish and so on. However, this unpredictable behaviour is mostly suppressed, inhibited and/or punished in command-and-control hierarchies. As a result, this type of natural behaviour is neglected or overlooked by research scholars and/or considered just paradoxical and/or dismissed as abnormal.

Tensegrity is hard wired into living things to create a sufficient variety of instincts and/or learnt behaviours to survive their birth and maturity to reproduce in unknowable dynamic complex environments. Polycentric organisations by their nature introduce rich diversities of views to be shared and contested. This provides a process not available in hierarchies to identify innovative solutions for both individuals and/or organisations to survive in unknowable dynamic complex environments.

Tensegrity introduces contestation to challenge facts, fibs, and fables. It permits consideration, and even adoption, of opposing views and opinions. Such processes provide a way to reliably improve the integrity of risk management and identify unused, unknown and/or unexpected opportunities to improve operations.

Crucially, tensegrity allows individuals and organisations to make changes, reverse their decisions and/or negotiate win-win solutions in regulating, managing and/or governing stakeholder endowment corporations (CPRs).

Education Void In Bottom-Up Self-Governance

The unstated assumption of management education is that power comes from the top and that the quality of management is vested in a leader. However, no Chief Executive Officer neuron controls our brain. Different parts of brains make different types of decisions and compete and/or cooperate with all other parts according to internal needs and drives and external risks and opportunities.

This bottom-up process of management is neglected. As a result, our most gifted leaders of the future are being educated on how to undermine democracies with a form of management favoured by dictators! This could explain why and how democracies are being undermined and replaced around the world with authoritarianism.

Engineering students are educated on how to design, build, and operate self-regulating self-managing, and self-governing automobiles and many other devices. However, I am not aware of any institution providing this knowledge for social organisations? At my Harvard Business School class re-union in 1988 I asked the Dean why they did not teach bottom-up management. His compelling reply was that there was no market for it. This situation seems still to remain even though:

1. The largest investor in the world is seeking a new model of governance;
2. Major enterprises cited above have illustrated the competitive advantages and resiliency of bottom-up governance;
3. The ability of polycentric bottom-up governance to introduce self-governance without markets or State has been recognised by the Nobel Prize committee.

Wanted: Sustainable Human Leadership

Over 100 countries have recently made an agreement to adopt a 15% minimum corporate tax rate. This is a historic initiative and a precedent for achieving global cooperation. This article has identified a more important and urgent initiatives for political leaders, and a process for business leaders of the US Business Roundtable to achieve their purpose by:

I Countering global environmental degradation of the atmosphere, oceans, fresh water, soils and biodiversity;

II Ameliorating both the loss of wellbeing and the existential risks of humanity by:

1. Engaging globally, with most of the citizens on the planet locally, to avoid degrading activities and take correct actions including birth control;
2. Establishing universally wellbeing benefits in cash and/or kind;
3. Establishing a global basis to build spherical economies to improve the ability to nurture local bioregions globally;

III Localising local ownership and control of the means of production and exchange to:

1. Improve the powers to support the protection of host bioregions and bio-diversity;
2. Enrich local economies by terminating “the acceptance of an unlimited, unknown and uncontrollable foreign liability”;
3. Enriching political democracy with bottom –up stakeholder control of the powerful social institutions that otherwise capture governments and regulators;
4. Introduce self-regulation, self-management, and self-governance to support the richness of democracy while reducing the size, cost and intrusiveness of government;

IV Substantially reduce inequalities in wealth and individual wellbeing;

V Establish a compelling vision for even ordinary political leaders to become elected to government so that they can introduce tax incentives to sustain humanity with the richest possible diversity of all other living things that can survive our “ghastly future” for eternity.

Shann's previous contributions to the pamphleteers include: Curing Infected Economies With Self-Financing Money; Holacracy - How Extinction Rebellion's Success In Organising Protests Is Based On Management Science; Why No International Standard Unit For Value?; Should Money Have A Stable Predicable Value?; Why Should The UK Adopt A Digital Currency? and Can Democratic Money With Environmental Values Reduce Market Failures?

References

[1] Because of this simplicity, the author was invited in 1991 by Jeff Gates, the attorney who drafted the first US tax laws to promote employee ownership in the US, to co-present his proposals as a privatizing technique in Beijing. The invitation was made as a result of Gates experience in Russia in 1990 to introduce the more complicated US type of leverage Employee Share Ownership Plans to privatize communism.

[2] Every citizen in Alaska obtains dividends from a pipeline described at: https://en.wikipedia.org/wiki/Alaska_Permanent_Fund Since 2014, large Indian corporations are required to donate 2% of the net after tax profits each year to charities, https://www.theguardian.com/sustainable-business/2016/apr/05/india-csr-law-requires-companies-profits-to-charity-is-it-working

[3] At the time I was representing in Australia the London based Hermes Focus Asset Management Ltd who employed a colleague that Fink referred to in his 2018 letter.

[4] Turnbull, S. (1974), 'Making the Securities Industry a Growth Business', Australian Stock Exchange Journal, February, pp. 34, 5 & 40.

[5] Introduces to a circular economy non-economic dimensions, https://liberal-international.org/wp-content/uploads/2021/10/2021-07-19-LI-Trade-Dossier-Mastercopy-Final-including-amendments.pdf

[6] The size of surplus profits are indicated in:

• Turnbull, S. (1973), Time Limited Corporations, ABACUS: A Journal of accounting, finance and business studies, 9(1): 28-43, https://onlinelibrary.wiley.com/doi/10.1111/j.1467-6281.1973.tb00173.x
• Turnbull, S. (2011), Inefficiencies and Inequities of Capitalism - And How They Can Be Reduced, Working paper, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1849624
• Turnbull, S. (2017), Democratising the wealth of Cities: Self-financing urban development, Environment and Urbanisation, 29(1): 237-250, April, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1849624

[7] Saxonvale Vineyards Limited founded in 1969, became publicly traded 1975,

Barwon Cotton Limited, founded 1979, became publicly traded 1984

Australian Film Underwriters Pty. Ltd. Operated from 1980 to 1983 raising film finance from hundreds of investors whose copyright reverted back to the producers after seven years.

[8] Penrose, E. T. (1957), Foreign investment and the growth of the firm, The Economic Journal, June, p. 235.

[9] Ashby, W.R. (1956), An introduction to cybernetics, p. 202, Wiley, London, http://pespmc1.vub.ac.be/ASHBBOOK.html

[10] Schumacher, E. F. (1973), Small is beautiful: A study of economics if people mattered, p. 209, Sphere Books Ltd, London.