Bemeficent Society: Chpt. 3

NEWCAPIA

 

August 12, 2015

 

Silvia S., our new chairwoman, addressed the meeting as follows:

Two months ago, at our last regular meeting, the Society asked Arun H. to head a  committee assigned the job of creating a proposed new economic system consistent with the Society’s mission.  We are pleased to report that the committeee, with the dedication and hard work that might be imagined, fulfilled their assignment and is prepared to deliver their report tonight.  I am sure you are all looking forward to hearing it as much as I am.

The committee chairman has asked me to introduce their study with this brief observation:

Researchers in the scientific fields strive for “beautiful” discoveries—that is to say, those that their piers all agree feel “right” on account of the logical simplicity in which earlier unresolved issues fit together.  Watson and Crick’s model of the DNA molecule is a classic example of such an achievement.  Unfortunately, we who labor in the social sciences cannot aspire to such heights.  Societal issues, under the sway of unpredictable human behavior, can never be made to neatly click together with scientific certainty.  Nevertheless, the committee feels that our proposed economic system—a post-capitalistic  system we have labeled “Newcapia”—represents a marked improvement—a less ugly alternative—over existing sytems.

 

OVERVIEW OF NEWCAPIA

SOCIALISM VS CAPITALISM:

Early on in our deliberations, we imagined ourselves in Gad’s shoes and surveyed mankind’s economic landscape.  It would not have taken her long, we decided, for her attention to be drawn to a comparison between our two dominate systems, socialism and capitalism.

Still in her frame of mind, we determined that Gad would be quick to reject socialism for a number of reasons, namely: its dependence on force, its futile attempt to institute fair outcomes, its requirement for authoritarian, top-down administration, its stifling of evolutionary change, and its cynical misappropriation of her good reputation by posturing as a proponent of scientific reasoning when, in fact, its actions proved otherwise.

The committee further reasoned that Gad’s opinion of capitalism would be generally favorable on the grounds that it employed a number of her own tools such as innovation, competition, quantitative decision-making, and responsive feedback.  Unfortunately, capitalism also embraced a number of bad memes that badly retarded its effectiveness.

Based on the above, our proposed system, Newcapia, retains, and indeed expands, the positive features of capitalism while seeking to avoid its pitfalls.  Following these few introductory remarks, the committee will provide a description of the system meant to convey an overall view of the system in as brief a manner as possible.  We ask that you withhold your questions during the presentation so that it will not be interrupted.  After our  lunch break, the meeting will be thrown open to any queries you might have and the committee will do its best to answer them.  Thank you.

NEWCAPIA’S DUAL SECTORS:

Newcapia operates on two levels: the commercial sector and the individual sector.  There is no physical divide between the two sectors —any number of shops, for example, might be found in a residential area—but the two sectors are composed of different entities.  The commercial sector is made up of enterprises in every form: corporate, partnerships, sole proprietorships, nonprofits, professional practices, professional services, and artisans such as musicians, sculptors, writers, etc.

The individual sector, on the other hand, is the channel through which all personal expenditures flow: food, clothing, rentals, recreational, medical expenses, transportation, etc.

Companies selling to both individuals and businesses automatically separate transactions between these two groups in their accounting.  The simple rules are “dollars in, dollars out” and “yen in, yen out.”

CURRENCIES:

 

Another distinction between the two sectors is the currencies they employ.  The   commercial sectore utilizes yen.  Currency in the individual sector is denominated in dollars.  The channels through which the two currencies flow are separated by a Chinese wall.  Passage through this wall is restricted and conducted at an exchange rate set by the government.

Neither sector makes use of bills, coinage, or any other form of what is thought of as legal tender.  Every transactions, from the purchase of a newspaper to that of a factory is electronic and all its particulars recorded: the amount, time and date, the identity of both parties and its classification (of which more will be said later).

BANKING:

In the commercial sector, privately-owned banks operate much the same as banks in our present economy: handling accounts, lending money, facilitating merger-and- acquisition deals, distributing corporate bond issues, and, in general allocating capital to where it can be put to its most profitable use.  Transactions within the banks and all record-keeping is in yen.  They can, however, accept dollar-denominated deposits but immediately convert these into yen.  Personal loans are forbidden; however, at the banks’ discretion, business loans can be made to corporations owned by a single individual.

There is only one banking institution in the individual sector, the multi-branch, publicly-owned Peoples’ Bank.  In it, individuals are limited to a single, lifelong account issued at birth and associated with his or hers identity card number.  Each account encompasses not only the holder’s current assets but, for tax purposes, a subaccount in which a listing of all of the holder’s fixed assets are maintained.

THE MONEY CYCLE:

Since the only source of employment is in the commercial sector, all wage earners are paid in yen and are obliged to convert some or all of their income into dollars to meet their living expenses.  This they do by a single instruction to the People’s Bank—the rate setter for all currency exchanges—transfering their yen-converted income into their bank account in the form of dollar deposits.  With these dollars in hand, individual consumers can then purchase the goods and services they need from their retail suppliers.

 Retail establishments transfer their dollar receipts to their commercial-sector bank where these receipts are automatically converted into yen deposits at the official rate.  Manufacturers, wholesalers, mining companies, etc.  that do not deal directly with the public, conduct all their transactions in yen.

It can be seen then that the flow of dollars and yen between banks in the two sectors, out of necessity, balance.  Say Smith elects to transfer his 100 yen wages to his account in the Peoples’ Bank.  The bank thus credits Smith’s account with $100 (i.e. owes Smith) while its yen account grows by 100 yen.  Smith then withdraws his $100 and spends it at Wall-Smart for merchandise.  When Wall-Smart deposits the $100 in its Tower commercial bank account, Tower credits the company with 100 yen and increases its store of dollars by $100.  The end result is that Peoples’ has 100 yen it doesn’t want and Tower has $100 it no longer needs.  Tower then initiates a trade by which the two banks trade yen for dollars leaving both parties with the currency they require.

This chain of transactions that, at first reading may seem unecessarily involved, are so automated they impose no added burden whatsoever upon the participants.  Individuals use dollars for all their purchases; businesses use yen.  It’s as simple as that.  At the same time the dual-sector system provides tools for controlling the economy—as will be discussed later—that are beyond the means of our present over-simplistic system.

TAXES:

None of the yen-denominated activities within the commercial sector are taxed.  This exemption automatically applies to all profits, properties, fees, assessments, salaries, bonuses, and the like.  The reasoning behind this policy is our determination that capitalism’s free markets are the sole source of general prosperity. That being the case,  the committee decided that nothing should be done to dampen their dynamism.  If a company is particularly profitable, then, for the sake of economic development generally, it should be free to take full advantage of its success without the state dulling its competitive edge, last of all by diluting its risk capital.

On the other hand, the committee felt entirely justified in penalizing the accumulation of personal wealth which, by definition, flouts nature’s injunction against monetary stasis.  For that matter, we were happy to have legitimate means of dissipating the wealth gap that has been so damaging to social harmony in our present system.    Moreover, taxes must be collected somewhere and idle wealth in Newcapia is the only financial asset that can be taxed without weakening economic activity.

The workings of the wealth tax are simplicity itself.  In a feedback provision, once a month, government totals its expenditures for the previous month and, based on the amount of wealth harbored in the Peoples’ Bank, arrives at a percentage that, when applied to that sum, satisfies the government’s obligations.  Computer programs then sweep through every account retrieving the tax due from each—the amount determined by applying the fixed percentage to every account’s  automatically-calculated net worth.

TAX REGULATIONS:

In principle, the governmental software that computes net worth utilizes the same, well-established principles employed by accountants when arriving at the figure for their business employers and clients.  Such computation is made possible by Newcapia’s cashless transactions that are accompanied not only by the parties’ identification but also by enough information to classify it.  For example, were one to buy an automobile, for example, the Peoples’ Bank computer system would automatically recognize the seller as a fixed asset purveyor, and add the car’s selling price to the buyer’s assets along with its amortization schedule.

A peculiarity of the taxation software is that it does not recognize either short-term or long-term personal liabilities.   The reasoning behind this policy is that it considers personal debt inimical to the happiness and well being of the debtor and to the financial soundness of the lender.  In the above example, if the buyer took out a loan to purchase the automobile, his taxes would not be offset by his off-the-books indebtedness.  The impact of these regulations is to discourage citizens from living beyond their means.  The temptation to borrow $5,000 for a vacation is diminished by the thought of having to pay both the lender and the government for the privilege.  And only the wealthy would be willing to suffer the cost of a home mortage, for example, when it offered no tax benefit.

For the same reasons but with even less justification, perhaps, the taxation software does not consider the depreciation of real estate, precious metals, and the like.

It is important to note that there is no ready escape from the wealth tax mechanism.  For example, it would seem that anyone could reduce  his tax obligation by dividing funds among family members.  The problem with that tactic is that it merely exposes their accounts to the same flat tax that would have been applied to the original owner’s account.  Another provision of the wealth tax system dictates that no exceptions are allowed whether out of consideration of income, age, profession, health or any other sort of hardship considerations.  Newcaps strongly resist any temptation to distort monetary measures in order to achieve social ends for the simple reason good governance becomes impossible when a change in one law brings on a cascade of unrelated alterations.

At month’s end, the account holder is left with nothing to do but review a statement detailing how his tax obligation was met and how much of his net worth remains.  In the hopefully rare case in which there is insufficient cash in a person’s regular account to cover his wealth tax, the government is entitled to liquidate whatever items are in the account to satisfy the obligation.

NEOSOCIALISM:

All businesses in Newcapia, from single ownership to giant concerns, are exclusively employee-owned—a decision that simultaneously abolished the financial industry associated with outside ownership.  Ownership is vested in employees in the form of common shares.  Within regulations that ensure a fair distribution of shares, companies are free to distribute them as they see fit.  The committee envisions that a popular formula might provide that shares are acquired both by seniority and by investment.  In the first case, each year employees might be awarded an amount of stock based on their length of service—lets say, one share at the end of the first year, two shares at the end of the second, etc.  up to a maximum accumulation of 55 shares at the end of the tenth year after which the award remains at ten per year for the remainder  of their employment.  A twenty-year veteran share holdings would, by this reckoning, be 605 shares.  On the anniversaries of their employment, employees may increase their holdings by buying whatever they can afford of company shares at book value.

Unlike the shares of stock under our present system, common stock in Newcopia is non-transferable, and cannot be used as collateral for a loan.  The only way in which a worker can acquire the book-value equity in his shares is the termination—either voluntary or involuntary—of his employment.  Should death overtake a worker while still on the job, the disposition of his estate would be considered a special case of the latter in favor of the deceased dependents.  Needless to add, such a system would discourage a company  from large-scale layoffs.

An inevitable fallout from the practice of rewarding seniority is the restriction that no one can be gainfully employed by any more that one company at any given time.  This would not, of course, prevent someone from donating his time to a nonprofit or engaging in some other activity for which he receives no compensation.

COMPANY ORGANIZATION:  

 Sole proprietorships and other small businesses are controlled by their founders just as they are under our present system, the only difference being that, for the sake of consistency, they are officially corporate.  Whatever capital the founders invested in the company’s start up entitles them to their initial share holdings and, to these thereafter, their seniority allowances and stock investments are added.

Somewhat larger firms are also managed much as they would be under our present system—that is to say, the shareholders elect a workers’ council that acts much like a board of directors appointing active management and keeping an eye on company policy.

At a certain point in a company’s development, it is probable that most workers would come to the realization that they do not have among them the management expertise needed to run their firms at optimum profitability in Newcapia’s  highly competitive environment.  Therefore, the committee envisions that, as a rule, the workers would hire third-party, experienced, professional managers having no ties—financial or otherwise—with the company.  Such a situation would invite a number of such management teams from which workers could choose—each team touting its track record with other firms.  Details might vary from company to company, but on such an important matter as the selection of outside management, a general election by the entire workforce would be mandatory.  Typically, management teams would be awarded renewable, three-year contracts, but, in the case of fraud or gross mismanagement, could be forced out at any time by worker initiative.

Upon committee’s recommendation being seconded and approved by voice vote, Silvia S., adjourned the meeting for a ninety-minute lunch break after which, she announced, there will be an  open question-and-answer session on the proposal in which the membershhip  will be given ample opportunity to freely comment.  She urged  that we withhold any initial opinions we may have formed from the foregoing until after all the evidence, as produced by the afternoon’s discussion, was in.

 

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