HOMESTEAD: Comparing LSOPs & OTCs

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

There is little to gain in comparing both systems for which is "better" as 
it would depend  upon the context in which either was used.  I support 
both.  There are "different strokes for different folk" or "horses for courses"

Central bank financing of Leveraged Share Ownership Plans (LSOPs) are 
better than Ownership Transfer Corporations (OTCs) in making a country 
independent of external debt.
OTCs would be better than LSOPs at eliminating what Professor Edith Penrose 
describes as the "unlimited, unknown and uncontrollable" cost of servicing 
direct foreign equity investment which can aggravate the loss of foreign 
exchange and the debt trap of nations.

I believe that OTCs are far more tax efficient for transforming society. No 
tax incentives are required to transform socialist economies or for 
privatization in market economies.  In market economies OTCs create far 
greater spread of ownership per tax dollar.

LSOPs are limited to firms requiring additional funding while OTCs apply to 
both these type of firms and those that do not.  Likewise Community Land 
Banks (CLBs) can spread the ownership of the existing stock of realty not 
just new developments.

LSOPs do not limit the overpayment of investors and so do not cure the 
fundamental problem of a market economy in allowing the very rich to get 
even richer to make wealth even more concentrated.  But it is better to 
have LSOPs than nothing.

CLBs limit overpayment of investors and exploitation by landlords by 
creating a more efficient, equitable and sustainable system of property 
rights.  I describe the system of property rights also used in OTC and 
negative interest rate money as "ecological" as they have limited life like 
all intellectual property and life forms and like life forms change over 
time according to the environmental context.

Also, some politicians and public policy think tanks may favour one or the 
other for various ideological, theoretical or operational reasons.  As Mao 
said "let a thousand flowers bloom".

Regards

Shann


At 02:11 AM 17/1/2001, you wrote:
>At 03:17 PM 1/16/01 +1100, Shann Turnbull wrote:
>>Yes you seem to have a grasp of surplus profits except for the fact that 
>>by definition their ex ante alienation cannot reduce the incentive to 
>>invest.  If ownership of the company reverted to its managers, employees 
>>and other stakeholders it may earn greater profits for the investors in 
>>the shorter term and so make countries using this approach more 
>>attractive.  You can argue either way.
>>
>>My proposals for transforming the economic system is through a 
>>differential tax incentive to make it more profitable for investors in 
>>those companies that volunteered to transfer long term ownership to the 
>>stakeholders.  This would encourage the full pay out of earnings as 
>>dividends to be re-invested in "offspring" companies formed by investors 
>>to compete with the progenitor enterprise for markets, employees, and 
>>more competitive technology, etc.
>>
>>All investors in depletable resources like mining leases and production 
>>facilities that wear out and/or become obsolete accept limited 
>>life.  Likewise investors in films and patents, etc.  The ability to earn 
>>larger, sooner, less risky profits through tax incentives should be more 
>>attractive to all types of businesses.
>
>Tax incentives are indeed always attractive. But it seems to be that to 
>the extent that any investment scheme depends on tax advantages, it 
>depends on something external rather than internal. Of course, all 
>investment is, to a greater or lesser degree dependent on the tax 
>consequences, and poor tax policies can and do distort investment 
>decisions. But should not investment paradigm be based mainly on its 
>internal advantages? After all, if everybody adopted the scheme, or if the 
>tax laws were more rational, then the tax advantage would disappear and we 
>would have to ask, "why are we doing this?"
>
>You are quite correct about investments being time limited. In fact, all 
>investments are to some degree, save for investment in land; all other 
>investments are in assets which have a useful life. However, there is the 
>assumption that the investment itself will generate its own replacement 
>income, so in that sense, it could go on forever, in theory if not in 
>practice. Patents and copywrights place an artificial time limit on 
>"useful life."
>
>Looking more closely at your paper, I found much that was useful to me in 
>my thinking about these problems. But I still have doubts that the central 
>problem is "surplus profit"; rather I think it is the concentration of 
>profit in a small class. I think there is a nexus between OTC's and binary 
>theory in that they both use the profits as a means of spreading 
>ownership. For OTCs it is critical that some profit be regarded as 
>"surplus", for ESOPS, it is critical that capital achieve its full profit 
>potential. It seems to be that binary theory is more easily reconciled 
>with classical economic and monetary theory. Whether you consider this an 
>an advantage or not is another question.
>
>Is not the central question, then, the *distribution* of capital assets? 
>If that is true, I think it fair to ask which theory is better at 
>addressing the problem of distribution. And the criteria for "better" we 
>previously identified as dual, being supplied both by economics and by 
>some concept of justice. Since we are all after the same goal (a better 
>distribution of wealth), would it not be useful to compare both systems to 
>these criteria, and see which seems to be better?
>
>John

Shann Turnbull
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