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Summary. The stock market system has become an oligarchy and should be decentralised.

 

Capital investment for start-ups and small business is crucial for innovation and growth and is a crucial concept for the Smallism principle in returning wealth and control back to the people.

Unfortunately, while the principle of the stock exchange is sound, politically expedient barriers have been constructed that prevents markets from operating as they should.

The emergence of the investment funds fundamentally altered the perspective of investors to a relentless focus on short-term profits, disconnecting shareholder responsibility to the business in the meantime, causing many fundamentally sound companies to crash spectacularly[1].

The barriers to entry into the stock exchange markets are high for both the small investor or for a rival stock exchange to enter for two core reasons. Protectionism in the industry maintains trading fees artificially high, meaning small investors have to outperform corporate funds to make an equivalent return.  When a return is made it attracts tax as additional income, reducing the incentive to invest further.

To correct these issues the stock exchange industry will be opened up and deregulated to allow competition in much the same way as estate agents.

For example, in our isolated ward, we see in the Annual Membership Bill that Paul Slater is an electrician who has tendered for the contract to maintain all electrical systems managed by the ward.  In a simple ward, this might just be a Pylon or two, some cables and street lights, in others, substations and three-phase as well. Paul is, of course, qualified to be doing this work. 

Paul has also listed some shares in his business at the local stock exchange and for which the ward (his neighbours) have agreed to purchase, to provide Paul with some required startup capital for equipment and labour. 

By the time Paul has finished the year, his business has prospered and he returns a dividend to the shareholders, who just happen to be his neighbours, represented by the ward, who have a stake in the performance of his business as both customer base and investor. 

Example 2: Katy wants to set up a small hairdressing salon.  She places her plan at the exchange and tells all her friends and relatives who then go and invest.  Not because they expect to make a profit (although that would, of course, be nice) but because they want to support a friend or family member.  Not only that, but even her 12-year-old nephew would be allowed to buy his two £1 shares from his pocket money and be added to his wealth fund. These people are then actually likely to provide business to Katy who over time will expand and recruit trainees. Or of course, she might be terrible and have to close out. That's business.  The point being small investments are small losses. Her father might lose £1000, her nephew £2. Nobodies going to lose their pension pot and she has a personal and social obligation to do well, or quit when the shareholders call time (hopefully at a level where assets can be liquidated and a reasonable repurchase of shares rate can be established).

Essentially, any suitable person or group will be able to lodge a business plan with an exchange and request that their shares are put up for sale, there are no implied guarantees of sales and unless someone knows something about the plan people will not invest.

This principle will also apply to large companies who would previously have raised share capital on the one national exchange on which it was listed, will now list their shares on the market in which they are expanding operations such as opening new business premises. In this way, local people are the first to be able to show their support for a new project and take part ownership either as an individual or as a ward.

If Tescos want to open a new store in an area then they would list shares for the local unit in a local exchange. If residents desperately wanted a new Tescos then they would buy in, if not they wouldn't. This also gives the company a good indicator of the kind of business environment they're going into and allows them to change their plan before committing capital.  If local people don't like the proposed building design they would show this, change the building design, and the community (literally) buys in.  This also doesn't preclude a company from using outside capital even they can't raise enough locally, but it does provide a good feedback mechanism to gauge the kind of response they will get once running.  Once again, we are taking money away from corporate investors and hedge funds and allowing people at the bottom to make their own wealth decisions on local social values.

The Stock Broker

These changes introduce a major change to the role of Stock Broker whose role will return to the nitty-gritty of researching businesses ‘in the field’ to find companies that are likely to make a good return for their clients investment, money based on groundwork, instead of trading on rumour and technical’s they will become more closely aligned to the operation of the business, as a representative of his clients and potential shareholders.

This deals with the issue of banker bonuses so hated by the left simply by reducing the size of the national exchange and putting capital investment choices back into the hands of individual investors.  This is part of the growth portfolio of wealth that Smallism encourages all economic units to engage in.

Moves towards Local investment

In the USA the JOBS act allows everyday people to invest in private business while at the same time allowing private business to solicit capital from everyday people. While probably not done in quite the way Smallism would do it this is a move in the right direction lending more credence to the principles of Smallism.

Summary

The stock market system is protectionist and does not serve the needs of those who need it most.  By decentralising, we return to fundamental principles of share ownership and make it easier for small entrepreneurs to raise capital.  

For socialists, this would have the advantage of reducing the power of investment managers/houses and creating more investment managers with smaller portfolios; meaning their bonuses will be reduced. However, socialists will decry the free market principle because for them the only solution to Oligarchy, is a state driven monopoly. A nonsensical argument that relies on the belief that whoever is in charge will be virtuous.  The last twenty years have shown this is a naive position to take.

It will also increase employment potential for the same reason.  For conservatives, it is one of many steps Smallism uses to make 'ease of entry' into markets more easy for small startups and entrepreneurs. 


[1] See the GEC/Marconi Story for a classic example.

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