3 Economy

Smallism rejects top down economic understanding in exactly the same way, and for the same reasons it rejects top down government.  Trying to run and maintain complex networks by using a single indicating number, such as GDP, is futile. There is simply too much going on underneath to be able to draw any reasonable conclusions. It is exactly the case of judging a car by its paintwork, or a book by its cover.

Smallism moves from a tax based system to a subscription model. This means everybody pays the same, although the management of the ward can change a membership cost into a profit making paradigm based on the use of local resources.

Given that there are no tax requirements the spending power of everyone increases and this means employment becomes deregulated.  In effect everyone becomes self employed. There is no reason to keep employment records as we move from an "we have 100 employees" model, to a "we have 1000 people we can call on to do a specific task" model. This makes the process of jobs and payments simple and flexible".

 

 

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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One of the complaints of today’s government is that there isn't enough liquidity in the financial system and they find new and interesting ways to implement taxes failing to understand that tax is an inhibitor of liquidity.

Consider the fees to cash out an investment (inflated as the investment provider has to pay tax and this cost always gets passed on to the consumer), the gains tax and/or income tax due on this investment. These taxes contribute to people not liquidating their assets when they might and thus inhibits money flow between investment opportunities distorting the investment market.

 In Smallism, because there are no taxes there is no fundamental reason to keep accounts in the traditional form for tax reasons.  

At the simplest level a small business person with a keen eye for buying and selling (and no external capital) would be better spending their time on creating their market and expanding their products and services, rather than wasting resources on non-core activities and leakages, such as tax accounts. 

Scaling up however, the entrepreneur and larger, more organized businesses will want to keep accounts for keeping track of inventories, capital expenditure, wage bills, investor repayments and financial investments to measure performance.

Ironically, the business response to the greater worker flexibility required by EU regulations such as the working time directive has achieved exactly the opposite effect and instead of creating job security, business has found ways to use the system to find novel ways of employing people such as zero hours contracts and greater use of agency staff. 

Because of this we are already moving towards a flexible workforce and there are links to some of the educational modes discussed in 2.7 Education where we consider professional qualification routes for specialist job roles.  These roles are often by their very nature, transitory; in that a job is specified and the specialists each do their part and move on to the next job.  This is a concept many on the left have difficulty understanding and their demands for full time employees on fixed hours is an 18th century workhouse philosophy that simply does not translate into the 21st century.

There are generally two types of people we need to consider when proposing a system that offers both those that require a fixed, established and secure routine and a need to be part of a greater cause, and those that need to be out there on the edge.

Traditionally the jobs that would normally be PAYE with regular contracted time would fit into first category, with those looking for more diversity choosing an agency for their specific talents or for seasonal work.

The contractors’ employment system is essentially the same as would be if the contractor was a business except that Gordon Brown put in restrictive legislation to crack down on people earning money as well as taxing company perks such as fuel and mobile phones.

As MP’s should know, company perks is an important part of the identity of a position and taxing these further drives a wedge between workers and employers as the perceived benefit falls, effectively making people poorer increasing the pressure the unions apply to employers.  This again, provides further business reasoning to increase the number of flexible hours’ staff they take on

There is also the appropriateness of the system. The left are currently wailing about self employment laws (despite many of them being self employed in some capacity) but these are a natural consequence to labour force flexibility they desire without completely crushing the businesses that pay for it.

 

Politicians have a lot of trouble with the concept of fair taxes so I shall state here what a fair tax is. This is no such thing as a fair tax.  Taxes are misappropriated, cancerous and impoverish a society.  Taxes are fair only to the political elite.  As Smallism does away with the need for a political elite, there is no need for taxes.

 

 Alternate currencies

There are other signs that a monetary system based on this structure already exist and the best known is Bitcoin which is virtually impossible for governments to track for purposes of taxation. Smallism provides the social and legal framework in which bit coin can work because it does not try to control money supply, interest rates or inflation.

Because Smallism promotes competition in all things there is no limit to the range of  currencies in circulation. If people need to start trading in conquers for some reason, that’s fine there is no free reason why any government should prevent that (barter is one of the few true human rights).  Fiat currencies are based on nothing more than faith that a debt will be paid but if there is only one fiat currency people can’t act on their better judgment and move their wealth to assets where it is better protected.  It is up to the Bank of England simply to try and maintain faith in its product.  Evidence of capital flight from Europe is everywhere, with most of it going to Singapore and Hong Kong. Where they have got a very successful system, Smallism will provide a much fairer system with an even greater focus of financial success for everyone regardless of ability, class, race, gender or any other label that might be applied.

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Current solutions and systems for dealing with problems in the financial markets (wrongly termed Capitalism) and the current financial crisis tend to focus on the ‘unfair’ accumulation of wealth by those at the very top. These are the same people who have political connections and are involved in lobbying government for rules and regulations that benefit themselves and their business or industry.  

This lobbying is possible because  the state wields power through it's implementation of law and is exemplified by the EU punishing small publishers with VAT requirements, yet allowing tax heavens for corporations that can afford the luxury of offices for tax purposes in areas specifically setup by the EU for these reasons.  

If the role and extent of the state were reduced to the bare minimum there would be no advantage to corporation heads, bodies and organisations to lobby government and therefore no moral hazards or perverse incentives.

It's an arrangement demonstrated admirably by the CBI's incestuous relationship with the EU, where-by the CBI lobby the EU on directives and regulations. The EU in turn then fund the CBI (From money taken by us, the people, in the form of taxes) in 2013 for the sum of 4 million Euro's.  It is any surprise the CBI wish the UK to stay  part of the EU.

The cause of "excessive" pay deals is size.

Big pay is a consequence of the responsibility taken by a leader of an business roughly proportional to the size of the business.

Once of the many faux arguments following the financial crises is that big pay is ‘wrong’ somehow, although no genuine arguments (discounting envy) are presented to support this view.  Given the circumstances the banks found themselves in, the pay was entirely appropriate. 

Diamond, Hester and Adair were in positions that made them responsible for megalithic institutions which huge responsibility for thousands of staff in locations across the globe.  The problem is not that they were paid a considerably sum for taking on the job, but that these businesses were allowed to become so big and powerful in the first place as a natural consequence of the command economy that banking effectively became under Gordon Brown.

The issue of “Bonuses for failure” is simply a representation of the failure of the shareholders to ensure the best interests of the company over the maximization of wealth, a self defeating stance that Smallism aims to prevent as discussed in 3.1 Raising Capital and Entrepreneurship for People

Additionally, as the size of businesses and their investors has grown the relationship between them has become disjointed. Hedge funds acting on behalf of share holders have a short term, profit driven motivation for voting in shareholder motions.  Going back to section 3.1 Smallism aims to re-establish the link between shareholder responsibility to the business for long term dividend gain, rather than short term stock sales gains.

The problem of 'excessive' pay, and 'pay for failure' could also be applied to the utilities companies with the left apoplectic about the salaries of senior executives especially of those companies that are owned by foreign corporations who leak money out of the UK and once again the solution to the root cause of the problem is to remove some of the responsibilities of those companies.

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Following on from our efforts to reduce the size (and thus power) of organizations we then have to realize that for social and income equality we must, in specific cases, stop our quest for efficiency and accept that some inefficiency is a good thing when looking for higher quality.

An example of this can be found in the world of high quality audio equipment.  There are generally three classes of amplifiers, (actually 4 but the last is such low quality it's not used in Hi-Fi applications) known as Class A, B and C.  Class C is the most efficient when we compare power usage to output, but the sound quality is reduced. B is a bit better but uses more power and Class A, which uses huge amounts of power but provides the best quality reproduction of sound waves (full wave rectification).

In the same way, now that we have broken corporations up and set up smaller specialist units to perform specialist functions, we naturally increase the number of business support jobs such as HR and payroll, because we have lost the efficiency of volume we gain number of jobs.  Not only that but we also provide more jobs which means moving companies becomes easier.  

This removes the trap of employment, the "I can't get another job so I have to stay in a job I hate" mentality. It also provides more manager level jobs for career progression instead of being trapped on the shop floor of a large company because there is only one supervisor role for 1000 employees, we now have 100 employees at 10 companies, all needing a supervisor.  We have instantly created 10 higher level, higher quality jobs.

In HR where we had a department of 10 for 5000 employees we now have 500 higher level, better paid, more responsible jobs for 500 companies of 100 people.

We can see without too much imagination how the drive for bigger and more efficient companies has had a disastrous impact on the labour market, especially for those trapped on the shop floor who are unable to be promoted to levels more suitable for their experience and ability.

We are also aiming to create jobs where those at the bottom can improve their chances of promotion and getting out of the current trap of low paid, no future work as promoted by all the major current political parties.

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One of the issues that created the crony culture of big business and government is the lack of regulation over directorships or organizations.  

This has allowed one person to have multiple director positions across of range of organizations and this naturally introduces moral hazard.  

Additionally this reduces the number of high level jobs available preventing those capable, but lower down the management ladder preventing them from achieving their potential.

One should also ask what value are high paid directors when they are splitting their time between various interests.

It's often said that senior management is about networking and directors are employed for who they know but given that 'pool' of people to know is shrinking and further increases conflicts of interest. 

Smallism would therefore prefer that a director was a full time employee in one organisation only. Dedicating themselves to that position.

Some entrepreneurial might see this as an issue if they have multiple companies so to allow some flexibility it would permissible to hold multiple directorships of companies owned by a parent company for which the person is also a director.

Goals:

To create greater number of higher level jobs in keeping with 3.31 When Efficiency is bad goals.

To reduce moral hazard and conflicts of interest

To increase the number of leadership positions.

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Smallism acknowledges that there is a role for a system of governance for infrastructure and defense purposes however the Tax system and the size of government is contrary to the objectives of government.

For this reason a more accountable system has to be developed and Smallism uses a subscription model at two levels. The ward level and a national level. These are presented once a year as a single one off bill and also contain the profit and loss account for the resources the members of a ward are responsible for.

 

National figures are taken from ONS publications and a considerable rounding up has been applied.  Expected returns from shares have been set low and outgoing set high, meaning this estimation is a worst case.  A good ward is a profitable ward which provides incentives to property owners and residents to ensure smooth running. Additionally the figures would be substantially reduced as we have used current government spending figures instead of trying to estimate what the Smallism finances would be once government had been substantially reduced. 

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Once we have removed tax regulation and freed up both the time and costs of administration it opens a path for financial institutions to return to a core practice of seeking yield for investment.  There are a number of funds that should be available to consumers

UK Residency subscription:  A fund that would ensure that the membership fee is paid annually.  Once a person has the correct amount invested the need to 'worry' about the residency fee would be removed.  This could be targeted at the very young, to save from pocket money and paper-rounds or other part time jobs so that the fund can start paying early in adult life. 

This would teach the young about sound financial management and be the first introduction to gaining wealth and independence.

Pension Funds: To work in a similar way to currrent funds however they must be far more transparent and fees reduced, the latter should be a natural consequence of reducing taxes and complexity of products.

The key to all investment funds must be simplicity and transparency.  One of the causes of the past financial crisis has been that financial products became so complicated it became difficult to understand what was really going on.

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While we have discussed how the localism agenda allows the public ownership in a locality to control utilities such as electricity, water works, sewerage, gas and telephones/internet and we need to consider national infrastructure such as trains and roads.

To re-iterate a point made previously, privatisation of monopoly services isn't inherently bad (as the left would have you believe) but it has been done badly and hasn't addressed the root problem of the service in question which is still, at the back of the system, a monopoly with many heads.

Smallism believes the customer should be the owner of the services it uses, directly.  This is not the government ownership which the left are convinced means public ownership. It doesn't, it means ownership by a political elite who tell you it's public ownership.  

The main users of the monopoly in rail are the train services companies, however they do not have any control over how their essential infrastructure is maintained or who is contracted to do the work.  To address this the train companies themselves would take ownership of the tracks through a number of organizations run effectively along the 'ward' structure and principles, which would be comprised of all the train companies that use various segments. This means that there would be more than one ward, each comprised of a range of train service providers, for various parts of the rail network in keeping with smallism's philosophy of competitive development (as we saw in healthcare).  This 'ward' would then be responsible for the contracts for maintenance of the tracks and would select contractors to perform the actual work using a service agreement model. 

Once again we completely removing the government middle man which decreases costs to consumers and put power in the hands of the people who know what they want and need.

 

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