If Not Global Capitalism - then What?
by Chris Cook
Introduction
This paper is intended to stimulate a process of academic exploration
into a Great Unknown. My objective is to present a phenomenon I have observed
and to speculate as to connections which may be made across several disciplines
based upon new “a priori” assumptions.
I do not profess any particular knowledge or expertise in any of the areas
which I will cover – I have merely learnt enough over the years to
begin to understand – to some degree – the extent of my ignorance.
I make intuitive connections and speculate as to the way in which the
world as we experience it actually relates to the theory of economics
and politics and by analogy with advances in other sciences. As a result
I posit an optimistic view of the potential for Society from the emergence
of a new and “Open” form of Capitalism.
Open Capital
As J K Galbraith said in relation to private bank creation of Money,
the concept of “Open” Capital is “so simple…. it repels
the mind".
Open Capital is defined as “a proportional share
in an enterprise for an indeterminate time”
‘Enterprise’ is defined as ‘any entity within which two
or more individuals create, accumulate or exchange Value”.
Value is indefinite or indeterminate: Value is to Economics as Energy
and Matter are to Physics. Unfortunately, Economics and thence Politics
remain mired in a Newtonian world of absolute certainties and “closed”
boundaries and definitions.
A “quantum leap” is needed in Economics to explain the phenomenon
of “Open” Capital and to form a basis for what follows we must
make a brief detour into Metaphysics.
The Metaphysics Of Value
Robert Pirsig, in his books “Zen and the Art of Motorcycle Maintenance”
and “Lila” sets out a case that Western civilisation has long
been under the thrall of an artificial division between “subject”
and “object”. He proposed that the primary reality is “Quality”
which is both formless and indefinable. It is not a “thing”
but an event at which the subject becomes aware of the object and before
he distinguishes it: ie a non-intellectual awareness or “pre-intellectual
reality”.
Quality is the basis of both subject and object. The bad “Quality
sensation” one gets from sitting on a hot stove leads to a consciousness
both of oneself – the subject – and the stove – the object.
He went on to distinguish between “Static” and “Dynamic”
Quality, where the static order of one level forms the precondition for
the establishment of a “higher” level.
The perspective I offer upon a new form of Economics more
nearly related to reality (based upon empirical observation) is based
upon treating Value as a form of “Quality” as envisioned by
Pirsig.
Another perspective upon Value is that of the writer EC Riegel –
who in his posthumously published book on monetary matters “Flight
from Inflation” - defined “Value” as “ the Relativity
of Desire” again implying indeterminacy. Taking Pirsig’s approach
Capital may be viewed as “Static” Value and Money as “Dynamic”
Value. “Transactions” are the “events” at which individuals
(Subjects) interact with each other or with Capital (both as Objects)
to create forms of Value and at which “Value judgments” are
made based upon a “Value Unit”.
The result of these Value Events /Transactions is to create
subject/object pairings in the form of data ie Who “owns” or
has rights of use in What, and - by reference to some form of Value Unit
– at what Price. This data we recognise as accounting data.
Note at this point that modern “Neo-Classical” Economics confuses
indeterminate Value with a market– determined Price – a confusion
best summarised by Oscar Wilde’s definition of a Cynic as someone
who knows the Price of Everything and the Value of Nothing.
Data may be static such as the written word, or magnetic polarities on
computer discs; or dynamic, such as the packets of energy passing between
databases and defined under the “Internet Protocol”. This Data
identifies the subject with objects such as tangible ‘Material Value’
– such as Land, Commodities, Goods and Services; energy ie‘Calorific
Value’ derived from oil, gas, and other fuels and source. Data may
itself constitute ‘Intellectual Value’ – such as music,
video, information, the written word and software and may exist in electronic
or tangible form. It, too, may then be defined in a subject/object pairing
through the concept of “intellectual property”.
Other forms of Value are however not definable by data: who has not paid
more than an object is “worth” because it has “sentimental”
Value? In particular we see:‘Emotional Value’ –
at its most basic, the need to love and to be loved, but extending into
the concept of Society; 'Spiritual Value’ – who am I?
Why am I here? Questions in relation to God and the relationship with
the eternal. We may therefore look at the “transaction” or “value
event” in a new light. We may, for instance be prepared to exchange
Material Value for the right to watch a film – Intellectual Value
– from which we derive Spiritual and/or Emotional Value. As these
different types of Value accumulate they form Static Value/ Capital, in
Material, Intellectual or other forms. The creation and circulation of
Value essentially comprises the concept we know of as “Money”.
Money / Dynamic Value
Few people understand Money: the following - which was written by E C
Riegel in “Flight from Inflation – a Monetary Alternative”
in the early Fifties and published posthumously in 1978 – is a good
summary.
“The purpose of money is to facilitate barter by splitting the transaction
into two parts, the acceptor of money reserving the power to requisition
value from any trader at any time. The method of money is to employ a
concept of value in terms of a value unit dissociated from any object.
The monetary unit is any adopted value, which value is the basis relative
to which other values may be expressed.” The monetary process is
a dynamic one involving the creation and recording of obligations as between
individuals and the later fulfilment of these obligations. The monetary
“Value Event”/ Transaction involves the creation of “Credit”:
so in exchange for something of Value to me (of whatever type) I will
assume an obligation to provide something of equivalent Value at a future
point in time.
These obligations may be recorded on transferable documents,
electronically or even merely retained mentally. Let us consider the sum
total of all obligations as recorded in the accounting universe of all
sets of accounting records. Essentially this comprises a “ledger
of ledgers” or “Master Ledger” as Riegel put it. Another
way of viewing it is as a “Cloud” of “Accounts Receivable”
and “Accounts Payable”.
This massive database of “Credit”/obligations is not Money,
but temporary “Capital” (often known as “Working Capital”).
It is Static Value – which only becomes “Money”/ Dynamic
Value when exchanged in the transitory Monetary process. Rather than the
“clearing” of these obligations by a mutually owned and operated
exchange and offset system we utilise Banks as intermediaries to carry
out the “Clearing” function for us. In this electronic age what
we think of as Money is in fact not tangible “cash” but rather
for the most part (97% of Money in circulation) the flow of data between
databases of obligations maintained by Credit Institutions (ie Banks and
Building Societies).
The role of Credit Institutions such as Banks in current Money creation
is little understood. Banks literally “loan” Money into existence.
In exchange for an obligation by an Individual to provide to the Bank
something of Value (ie a claim upon Value) as described above the Bank’s
obligation is merely to provide another obligation at some future time.
These Bank-issued obligations are therefore not a claim upon Value, but
rather a claim upon a claim upon Value. A “double negative”
giving rise to what is essentially a “false positive”.
The true source of Credit is the Individual, not the intermediary Bank,
and Banks therefore levy upon Borrowers a return – in the form of
Interest - upon this Money they create from nothing despite the fact that
it is literally Value-less. At this point it is necessary to flag an issue
in relation to Credit/Debt and this relates to the nature of Lending itself.
Even if no Interest is charged, the practice of Lending involves an incomplete
exchange in terms of risk and reward: a Lender, as opposed to an Investor,
has no interest in the outcome of the Loan, and requires the repayment
of Principal no matter the ability of the Borrower to repay. Thus there
is no true sharing of Risk and Reward involved in Lending and this, rather
than the charging of Interest, is in fact the Ethical problem familiar
to religious scholars which relates to the practice of Lending and Borrowing.
In summary, Money is not – as we currently regard it - an “Object”
circulating but rather a dynamic process of Value creation and exchange
by reference to a “Value Unit”.
Capital/ Static Value
Capital represents the static accumulation of Value and exists in exactly
the same types as the underlying forms of Value identified above. Some
forms of Capital are “productive” by which it is meant that
when an individual interacts with it in a “Value Event/ Transaction”
he may create and accumulate further Value: so as I type this paper using
Microsoft’s “Intellectual Capital” (word processing software)
I am generating further “intellectual value” in which I have
the “property” or “copyright” and which may or may
not give rise to further Value in transactions with other individuals.
An ethical question which arises in relation to Productive Capital relates
to the extent of “property rights” which may be held over it
thereby allowing individuals to assert “absolute” permanent
and exclusive ownership - in particular in relation to Land. As outlined
above, our current financial system is based not upon Value but rather
a claim upon Value. Our accounting conventions give us the “Balance
Sheet” which records on the one side “Assets” including
Material and Intellectual Value and the existence of obligations due (“Accounts
Receivable”) and on the other side Financial Capital – representing
claims upon Value.
Financial Capital consists of two types:
“Debt” - obligations of finite/temporary duration but with no
participation in the assets or revenues of the borrowing enterprise other
than a rate of Interest;
“Equity” – absolute and permanent ownership/participation
(without obligation) in assets and revenues of the enterprise.
It is the absolute (ie without obligation) and infinite nature of “Equity”
that leads to the discontinuity between Debt and Equity in the existing
system of Global Capitalism which is at the heart of our current problems
as a Society.
The Enterprise
Three forms of Enterprise are identified:
1. the ‘Charitable’ Enterprise – where Material, Calorific
or Intellectual Value is exchanged for the Spiritual and Emotional Value
of giving;
2. the ‘Social’ Enterprise – a ‘Public’ Enterprise
open to all, where Material, Calorific and Intellectual Value are exchanged
in agreed proportions;
3. the ‘Commercial’ Enterprise – a ‘closed’ or
‘Private’ Enterprise where Material, Calorific and Intellectual
Value are exchanged between a limited number of individuals but may be
retained or distributed in whatever way the Members agree.
Early enterprises were partnerships and unincorporated associations. However,
the need for institutions which outlived the lives of the Members led
to the development of the Corporate body with a legal existence independent
of its Members. In the UK the earliest Corporates were created by Royal
Charter – a possibility which exists to this day. The key development
in the history of Capitalism was the creation of the ‘Joint Stock’
Corporate with liability limited by shares of a ‘Nominal’ or
‘Par’ value, typically £1.00. The UK Industrial Revolution
was fuelled by Capital raised through Joint Stock Corporates largely created
by Act of Parliament.
From 1844 onwards, the creation of Corporates through registration under
Companies Statutes further streamlined the process and over the next 150
years the Limited Liability Corporate evolved into the Public Limited
Liability Corporate at the heart of the malaise deriving from the process
we know as ‘Globalisation’. Such “Closed” Shares of
“fixed” value constitute an absolute and permanent claim over
the assets and revenues of the Enterprise to the exclusion of all other
“stakeholders” such as Suppliers, Customers, Staff, and Debt
Financiers.
The latter are essentially ‘costs’ external to the (absentee
in the case of a Public Corporate) owners of the Enterprise and the resulting
drive to maximise ‘Shareholder Value’ through a combination
of ‘cutting costs’ and growth at any price has brought us the
Wall Street/City analyst-driven management excesses typified by Enron
and Global Crossing. There is a discontinuity/ fault-line within the ‘Closed’
Corporate. It has the characteristics of what biologists call a ‘semi-permeable
membrane’ in the way that it allows Economic Value to be extracted
from other stakeholders but not to pass the other way.
So while Capitalism may not, as its critics aver, be ‘broken’
– Capital most certainly is and always has been - through the discontinuity
(see diagram) between:‘Fixed’ Capital in the form of shares
ie Equity; and ‘Working’ Capital in the form of debt finance,
credit from suppliers, pre-payments by customers and obligations to staff
and management.
In particular if we consider Financial Capital alone we see two opposing
claims to the same assets and revenues: in other words a fundamental and
irreconcilable conflict between Equity and Debt.
Due to this discontinuity between permanent Capital and Capital of defined
duration the exchange of Economic Value in a Closed Corporate is made
difficult and true sharing of Risk and Reward is simply not possible.
Society is crying out for a ‘Third Way’ between the co-operative/collaborative
and the competitive: the public and the private: the paradox of the modern
world: that humans have never been more inter-dependent in our needs,
or more individualist in our outlook. No Enterprise Model has been capable
of resolving this dilemma. Until now.
The UK Limited Liability Partnership ("LLP")
From 1844 onwards in the UK it has been mandatory for partnerships
with more than 20 partners to be incorporated – the result being
Corporate Partnerships with unlimited liability. In 1907, it became possible
for Partners to limit their partnership individually rather than collectively
within a UK partnership at the cost of being unable to participate in
the management of the partnership. This model routinely continues in the
USA where it is the normal structure for professional partnerships.
In the late 1990's UK professional partnerships, faced with the prospect
of individual bankruptcy as a result of litigation against the firm, successfully
lobbied for protection, which arrived in the shape of the Limited Liability
Partnerships Act 2000 and came into effect on 6 April 2001. Since then
over 7,000 UK LLP's have been incorporated, for the most part from conversions
of partnerships previously with unlimited liability.
The UK LLP is supremely simple and remarkably flexible. The only requirements
are for two "Designated Members" to complete an Application
Form obtainable at the Companies House web-site and to return it with
the requisite fee of £95. There is no requirement for the mandatory
and arcane Victorian vintage Memorandum of Incorporation and Articles
of Association – the prescriptive Contracts between Members laid
down by Statute – and no need for a supplementary Shareholder Agreement
tailoring these Contracts to the precise present day needs of the Members
in the relevant Enterprise. All that is needed is a simple ‘Member
Agreement’ – a legal protocol which sets out the Aims, Objectives.
Principles of Governance, Revenue Sharing, Dispute Resolution, Transparency
and any other matters that Members agree should be included. Amazingly
enough, this Agreement need not even be in writing, since in the absence
of a written agreement Partnership Law is applied by way of default.
While a UK LLP should be a business run "With a View to Profit"
the proposed Enterprise Model redefines the relationship between stakeholders
in a way that literally removes the very concept of Profit and Loss –
a subject to which we will return. The ease of use and total flexibility
enables the UK LLP to be utilised in a way never intended – as an
‘Open’ Corporate partnership.
‘Open’ Corporate Partnership
There are two innovative concepts which characterise the ‘Open’
Corporate Partnership. Firstly: the realisation that it is now possible
for any stakeholder to become a Member of a UK LLP simply through signing
a suitably drafted Member Agreement: this puts the ‘Open’ in
the Open Corporate. So instead of a supplier signing contractual terms
of business negotiated adversarially or an employee being confronted with
a Contract of Employment they may instead become true Partners in the
Enterprise with their interests aligned with other stakeholders.
The result is that there are no ‘externalities’ and no profit
or loss in an Open Corporate Partnership, merely Value creation and exchange
between members in conformance with the Member Agreement.
The second innovation is the concept of “Open” Capital itself
as defined above. Proportional shares (such as one half, three fifths,
five millionths) in an Enterprise constitute an infinitely divisible,
flexible and scaleable form of Capital capable of distributing or accumulating
Value organically as the Enterprise itself grows in Value or chooses to
distribute it.
Emergence of “Open” Capital
The optimal nature of the UK LLP is already becoming apparent, and a number
of technology start-ups have utilised the form. Moreover, a transaction
entered into in late 2002 by the Hilton Hotel Group serves as an example
of how ‘Temporary Equity’ may operate in practice (although
it is extremely doubtful that the parties realised quite how ground-breaking
their transaction was to be).
The Hilton Hotel Group sold a portfolio of 10 hotels for some £350m
to an LLP in which Hilton (the Occupier) hold 40% and the balance of 60%
is owned by another LLP linking the 3 Investor Members - one of whom is
Bank of Scotland. The Investors receive for 27 years 28.8% of the gross
revenues from these hotels plus a further £3m pa all subject to
a floor of £17.5m pa or 5%.
There were two conventional routes Hilton Group could have taken to raise
Capital from these assets.
•a loan secured by a mortgage over the hotels;
•a “sale and leaseback” transaction.
which give rise to an interest and rental overhead respectively and to
a divergence of interest between the provider of Capital and the User,
ie between the Lender and Borrower or the Freeholder and Leaseholder,
respectively. In this transaction, however, the interests of the provider
of Capital and the User are aligned, as both have an interest in maximising
the overall Value creation of the LLP in terms of revenues. The transaction
illustrates a restricted application (due to the Bank’s requirement
to limit its “downside” Risk) of what is a generic enterprise
form with dramatic implications.
The Open Capital Partnership (“OCP”)
An OCP is a “new” (since 6th April 2001) UK Limited Liability
Partnership ("LLP") the purpose of which is to acquire and develop
Capital assets in the UK or elsewhere.
An "OCP" has two Members:
(a) the "Investee"- or Capital User;
(b) the "Investor" - or Capital Provider;
and the Investee has the right of indefinite use of the Capital for so
long as he pays an agreed Rental.
Both the Investor and Investee may itself be a group of individuals or
other legal entities. The OCP creates a form of Property of indefinite
or indeterminate duration which is neither Permanent Ownership (eg freehold
property or closed Equity “shares”) nor temporary Use (eg leasehold/tenanted
property or Debt finance) but a hybrid.
Once a Capital asset such as Land and Property is within an OCP there
is no reason why it need ever again be sold, although Investees and Investors
may both change over time in accordance with the OCP Agreement. Within
the OCP Capital and Revenue are continuous: to the extent that an Investee
pays Rental in advance of the due date he becomes an Investor.
Open Capital – a new Asset Class
There is the potential to create a new asset class of proportional “shares”/partnership
interests (eg one tenth, one thousandth, one millionth) in Capital holding
OCP’s. Such “shares” would be analogous to the new asset
class created through Unit Trusts by the operation of a trust law –
based legal “wrapper” around assets and associated revenue flows.
The OCP essentially places a different form of legal “wrapper”
around Capital assets and associated revenue streams. So in the case of
the Hilton transaction a new form of security could have been (and could
still be) created in the form of partnership interests in the property
LLP of (say) 10m “shares” of £35.00 value, each of which
would be entitled to a proportionate share in the Hilton revenue stream
for 27 years.
There appear to be three classes of Land/Property Investment for which
the OCP may be suitable:
•“Commercial” based upon Hilton-type deals;
•“Public” with potential to improve upon PFI/PPP type deals;
and
•“Personal” eg “Property Investment Partnerships”;
developed below.
Property Investment Partnerships (“PIP’s”)
A PIP is an Open Capital Partnership between and one or more Investors
and one or more Occupiers/ Investees of the property it acquires, eg a
property purchased for £100,000, of which £80,000 is financed:
the Occupier/Investor receives 20 shares and the Financier/Investor 80
shares at a value of £1k each. (or 200/800: 2000/8000 etc - it is
the 20%/80% proportions which matter, there being no par or nominal value
to these shares)
There is an Exchange of Value: in return for the use of the Property,
the Occupier(s) pays a Rental to the Investor (s) for the use of the Capital,
eg a rent of £6,000 pa is agreed for two years for the above property:
the Occupier pays net £4,800 pa; the Investor receives net £4,800
pa. After two years, the Occupier wishes to invest £12k in the Property:
at £120k valuation he purchases a further 10%: at £96k valuation
he purchases 12.5% and so on.
Proposition for Investors
“Virtual” Property – giving a proportionate share of the
market rental for the properties in question coupled with actual ownership
of a proportional share of the assets in question. In the event that the
Investee chooses not to pay the Rental – which may well be the case
where the PIP is used as a vehicle for Equity Release in, rather than
purchase of, a property – then the Rental is payable through a transfer
of Equity from Investee to Investor, who will be free to dispose of it
to another Investor should he require the liquidity.
Proposition for Investees
(a) Equity Release
There is estimated to be at least £650 billion in “equity”
“tied up” in UK residential property: at least a third is in
respect of properties owned by pensioners for many of whom it represents
a major proportion of their retirement capital.
There are currently two ways in which pensioners can release equity:
(a) “Reversion” – where part or all of the property is
sold in return for an annuity, and the property reverts to the financier
upon the death of the pensioner;
(b) “Roll-up mortgages” – where the interest on a mortgage
advance rolls up exponentially for as long as the property remains unsold;
and both are extremely expensive and poor value.
The PIP represents a simple and elegant way for a pensioner to release
Capital by simply “renting” a proportion of the Equity. If a
pensioner decides not to pay the rental in cash he may instead do so through
transferring more equity to either the existing or a new Investor.
(b) Property Purchase
The PIP represents a simple and innovative form of property purchase,
which happens to be Islamically sound in that debt and interest are not
involved. Since property prices are widely perceived to be on a long-term
upward trend most property purchasers prefer to purchase with a mortgage
loan, since they then receive the entire benefit of the rise in property
prices. However, a PIP created by a Pension scheme in which an individual
is a Member creates an entirely new possibility.
Pension Funds and PIP’s
The equity release use of the PIP is perhaps the most relevant initially
for Pension Funds, whose exposure to property is currently typically restricted
to commercial property. Here a Pension fund has a portfolio of existing
pensioners to whom it could offer this entirely new Equity Release product.
But in doing so a Pension fund also acquires a pool of investments in
UK residential properties with a rental income and potential capital growth.
Having tested the model in an equity release application, it is envisaged
that it would rapidly be possible to extend it to pension investors wishing
to acquire equity in property. For instance, if a pensioner leaves his
PIP property to enter (say) sheltered accommodation, it would be simple
to find a new occupier prepared to rent the property and begin to acquire
equity as a member of the Pension fund’s scheme. In this situation
the property occupier participates in any increase in property values
both directly – to the extent that he has equity – and indirectly
– to the extent that his Pension Scheme owns any balance.
It is envisaged that occupational pension schemes would find the PIP approach
extremely useful in providing affordable property to their Membership
during their working career.
Challenges
The development of this new asset class would face similar challenges
to those which faced the nascent unit trust industry ie taxation issues,
regulation, accounting. It would also be necessary to establish intermediary
liquidity providers, and other service provision.
Open Corporate Partnerships as a Co-operative Enterprise model
A Co-operative is not an enterprise structure: it is a set of Principles
that may be applied to different types of enterprise structure. Considering
firstly Limited Companies operating under the Companies Acts: the unsuitability
of a ‘For Profit’ Company Limited by Shares as Co-operative
is inherent in its divided and essentially competitive structure; the
‘mutual’ company Limited by Guarantee is restricted in its ability
to raise Capital or pay dividends.
Enterprises operating under the Industrial & Provident Societies legislation,
while better able to comply with Co-operative Principles: suffer from
a vulnerability to ‘asset alienation’ though “demutualisation”
by “carpet-baggers”; in that they favour the interests of other
stakeholders, are relatively restricted in accessing investment; are arguably
deficient in incentivising innovation.
The proposed Community Interest Company merely adds a new layer of regulation
and complexity to manage the conflicts inherent in “closed”
Capital.
Consider Partnerships however: the very word ‘partnership’ is
redolent of collaboration and co-operation in the mutual pursuit of the
creation and exchange of Value. Partners do not compete with each other
– they collaborate together, sharing risks and rewards, rather than
seeking to maximise reward and minimise risk at each other’s expense.
Within a Partnership there is no “Profit” and no “Loss”.
While a partnership is an inherently Co-operative model in the way that
risks and rewards may be shared, the crippling factors in practical terms
have been, inter alia: the liability to which Member partners are exposed
from the actions of their co-partners on their behalf; limited ability
to raise capital.
The ‘new’ LLP was expressly created to solve the former problem
by limiting the liability of Member partners to those assets which they
choose to place within its protective ‘semi-permeable membrane’.
However, the ability to configure the LLP as an “Open” Corporate
permits a new and superior form of Enterprise.
Firstly it is possible to re-organise any existing enterprise as either
a partnership or as a partnership of partnerships. This may be accomplished
either by linking LLP’s as Members of an “umbrella LLP”
or more likely by the creation of sub “Enterprise Agreements”
between individuals who are all Members of the same LLP.
A LLP Agreement would define the different classes of stakeholder Members
(eg staff, investor) and then, through suitable provisions covering majorities
(>50%) or super-majorities (>(say) 75%), it would be possible to
ensure that certain events, such as amendments to Aims and Objectives,
or the disposal of key assets, could not take place without the agreement
of all constituencies of stakeholder.
As in all partnerships, the revenues net of costs external to the enterprise
(ie the ‘surplus of income over expenditure’) would be divided
among Members in accordance with the LLP Agreement. This means that all
Members share a common interest in collaborating/co-operating to maximise
the Value generated by the LLP collectively as opposed to competing with
other stakeholders to maximise their individual share at the other stakeholders’
expense.
The outcome is to facilitate the creation of LLP’s as “Co-operatives
of Co-operatives”. This is particularly relevant in those areas of
public service provision which are natural “monopolies” such
as utilities but also extending to other forms of public service provision
where “privatisation” is “(rightly) being resisted.
Through investment in ‘Temporary Equity’ – users of Social
Enterprises will be able to invest in the secure income stream of such
utilities, drawing down upon their partnership capital account when they
utilise the service provided. A season ticket in a transport utility is
an exact analogy. Such Social Enterprise LLP’s would be for the mutual
benefit/ “Profit” of all Members, even though this may not manifest
itself in Money terms for all of them: for service consumers, the dividend
takes the form of the Quality of service provided.
Finally, there is the ‘Commercial’ Enterprise LLP – where
the object is for a closed group of individuals to maximise the value
generated in their partnership. There are already over 7,000 of these.
`In essence, the Profit generated in a competitive economy based upon
shareholder value and unsustainable growth results from a transfer of
risks outwards, and the transfer of reward inwards, leading to a one way
transfer of Economic Value. This, depending on the degree of imbalance
in economic power between the parties, will very often impoverish one
or more constituency of stakeholders materially, intellectually, spiritually
or emotionally. A partnership, however, involves an exchange of value
through the sharing of risk and reward. Whether its assets are protected
within a corporate entity with limited liability or not, it will always
operate co-operatively – for mutual profit.
Open Capital, Economics and Politics
The concept of the Open Capital Partnership gives rise to a new form of
Financial Capital of indeterminate duration. It enables the Capitalisation
of assets and the monetisation of revenue streams in an entirely new way.
Moreover, it leads to a continuity between Capital as Static Value and
Money as Dynamic Value which has never before been possible due to the
dichotomy between the absolute/infinite and the absolute/finite durations
of the competing claims over assets – “Equity” and “Debt”
- which constitute the existing legal constructs of Financial Capital.
The assumptions of conventional Economics are based upon definitions of
Value and concepts of absolute certainties and the rationality of the
Individual which do not exist in the “real world”.
The opening up of Economics to new thinking based upon reality rather
than a closed dialectical loop could lead to a similar wave of research
and progress in “Quantum” Economics to the advances which were
made last century in Physics.
Moreover I believe that the application of a co-operative networked information-sharing
enterprise model incorporating “shared transaction repositories”
and pervasive information sharing - as opposed to obsolete “Double
Entry” Book—keeping and proprietary information retention -
could lead to creation of Value an order of magnitude greater than that
possible using current closed and “linear” structures.
Numerous parallels between Economics and other disciplines remain to be
explored, now that the unreality of current thinking is plain to see.
In relation to Politics, the introduction of new a priori economic assumptions
will lead to new analyses outside existing sterile dialectics. Such a
new Politics defies classification but will necessarily be based inter
alia upon co-operation, consensus and a decentralised non-hierarchical
Society. Elements of virtually all political strands of thinking are relevant,
and it will hopefully be the case that all will be able to unite in a
constructive alternative to a clearly defective model.
Conclusion
It is possible to envisage a Society within which individuals are members
of a portfolio of Enterprises constituted as partnerships, whether limited
in liability or otherwise. Some will be charitable, or voluntary, to which
individuals give their services, or other value freely. Others will be
‘social’ where individual citizens will invest in and subscribe
to (say) health, education, transport and other utilities through functionally
decentralised partnerships operating at the neighbourhood, community,
area, regional or national levels. These will essentially be partnerships
between co-operatives of service providers and co-operatives of service
consumers ie the public. Finally, individuals will be Members of ‘Commercial’
enterprises of all kinds aimed at co-operatively working together to maximise
value for the Members.
A pipe-dream? In fact, the process has already begun. The current form
of competitive Capitalism was not planned: it is what is known as an ‘emergent’
phenomenon which continues to exist because it has demonstrated itself
to be superior – despite its manifest and documented flaws –
to all other models, such as Socialism.
It can only be replaced by another ‘emergent’ phenomenon, which
is adopted ‘virally’ because any Enterprise which does not utilise
it will be at a disadvantage to an Enterprise which does. By way of example
of ‘emergent’ phenomena, we have seen how a 19 year old US programmer
has single-handedly destroyed the entire business model of the global
music industry through inventing on-line sharing of music in a network
which grew to 60 million users within 18 months. In the same way, the
small but powerful community of traders in physical oil moved their negotiations
from the telephone into Yahoo instant messaging “chat rooms”
without their management even being aware of the fact. They did so because
it was free, because they could, and because it worked.
The ‘Open’ Corporate Partnership is: capable of linking any
individuals anywhere in respect of collective ownership of assets anywhere;
extremely cheap and simple to operate; and because one LLP may be a Member
of another it is organically flexible and ‘scaleable’. The phenomenon
of “Open Capital” – which is already visible in the form
of significant commercial transactions - enables an extremely simple and
continuous relationship between those who wish to participate indefinitely
in an Enterprise and those who wish to participate for a defined period
of time.
Moreover, the infinitely divisible proportionate “shares” which
constitute ‘Open’ Capital allow stakeholder interests to grow
flexibly and organically with the growth in Value of the Enterprise. In
legal terms, the LLP agreement is essentially consensual and ‘pre-distributive’:
it is demonstrably superior to prescriptive complex contractual relationships
negotiated adversarially and subject to subsequent re-distributive legal
action. Above all, the ‘Open’ Corporate Partnership is a Co-operative
phenomenon which is capable, the author believes, of unleashing the “Co-operative
Advantage” based upon the absence of a requirement to pay returns
to “rentier” Capitalists.
So perhaps in the “Open” Corporate form of the LLP – the
unintended consequence of a 21st Century UK legislative initiative arguably
implemented for the wrong reasons in the wrong way - we now have the means
to create a truly Co-operative alternative form of “Open” Capital
which will make obsolete the current “toxic” form of Global
Capitalism.
“Behind it all is surely an idea so simple, so beautiful, that
when we grasp it – in a decade, a century or a millennium –
we will all say to each other, how could it have been otherwise? How could
we have been so stupid for so long?” John A Wheeler
Chris Cook
October 2003
