If Not Global Capitalism - then What ?

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

Published in "Authentic Business" 6/5/2004