Summary:
A banking institution with shares 100% owned by the government that operates in all neighbourhoods to provide low-cost banking services and tax-funded venture capitalist funds to aspiring entrepreneurs. This allows the government to directly target specific industries for investment. It is also a lever upon which the government can press upon the industry better operating standards.
Long Description:
The government can create a banking institution (like a TD-Canadatrust or BMO, or for something relevant to Americans, a Wells Fargo or Bank of America) which operates independently at arms-length and competes with private banking institutions.
The primary aspects of this bank:
- Far higher capital reserve and more strict investment options
- Firewall between this bank and the central bank, just like any other bank
- Disallowed from risky investment opportunities (except for the venture capitalist department)
- Performs venture capitalist investments with special repayment options for government loans
The most important factor about this bank is the investment side. As a government operated bank it can offer a special type of loan for entrepreneurs. It can provide a very large loan that is repaid via a tax on the income earned off the business. It can also place special restrictions on corporations formed by the investment funds.
As an example, a group of 200 steel workers feel that they can run a factory far better than today's competitors. Unfortunately, they cannot find 1 billion dollars to build the factory, and most certainly do not have the connections to normal venture capitalists to secure that type of funding. Instead, they turn to the government bank, present their case and are approved and given the money to start the factory.
The factory workers create a business that is profitable, so the government levies a special income tax on the individuals to repay the loan. If the revenue per worker is (for instance, this is similar to GM) $700 000, the cost of running the business leaves each of them with $350 000, the government then levies a tax based on the investment cost and the length of time it expects the factory to last (say 20 years for a factory), perhaps each person is taxed $250 000 a year. Then each worker earns $100 000.
If a business fails, they're aren't footed with the full cost of repaying the loan. Much like a default, they are not required to pay it back. The concept is that overall the investments will be profitable to make up for the failed investments. Of course, people associated with failed businesses will have less chance at securing a future investment loan.
Rationale:
It is problematic that most individuals have virtual no chance to ever attempt to start a business in certain key industries. High-sunk-cost industries have a very large market entry barrier. This allows highly inefficient companies to continue to exist despite serious flaws in their structure.
(Definition of Market Entry Barrier: An economics term that refers to the cost of starting a business in a particular industry. For instance, if I wanted to start a car company, I would have to build a car factory, which is likely to cost me a billion dollars. Most people don't have that kind of money.)
The investment side of the bank lowers the entry cost by allowing middle or lower class individuals to pit themselves against established corporations. This type of increased competition should promote better wages for workers and better products for consumers and leaner businesses.
Additionally, it would likely be useful for those living in poverty or poor locations to obtain microloans to increase their ability both to find work or produce products for sale. This may be combined with other government initiatives such as providing a marketplace, creating an area with subsidised rent for shops to open to provide jobs and a point of sale for products produced in the local community. Micro-loans could be used, for example, to purchase a car and/or perform car repairs so that a person can continue to work if they must commute to their workplace. These types of micro-loans would serve to displace current cash for pay cheque businesses which usually have interest rates in excess of 50%, causing a severe impediment to social mobility in the overall society.
Tools:
The bank will have to be run by highly qualified banking officials. For investments a few types of useful data from StatCan (or an equivalent statistics agency in your country) would be helpful in determining a few key measures.
* The usual length of time a particular capital investment lasts. For instance if a car factory usually lasts 25 years, then you want a repayment schedule that is around 25 years. That way, when this factory is done, the group can then reapply for a subsequent investment fund to build a new factory.
What I'd like to talk about later:
Automated Tax System
Corporate Tax Revisions and Business/R&D Grants
Healthcare - Preventative Care
Nursing Home Funding
Minimum Income
Carbon and Toxins Tax
-Ultrapunk
Well what you would want to do is turn the Federal Reserve into a Central Bank, and then create a separate organisation without any connections to the Central Bank to be your Services Bank. The reason I want that separation is because you don't want the folks in control of your monetary policy to also have intimate knowledge of your Banking Services division. As that type of separation has worked well in the past, I think that it will continue to work well in the future unless new data proves me wrong.
ReplyDeleteIt's mostly that you don't want to have a situation in which the Central Bank prints free money to offset bad investment decisions or risky investment decisions by the Services Bank. The Services Bank should be able to handle itself independently.