UK Inc.

The Chris Cook Economics 3.0 column

“The problem is that the State will soon be larger than the taxpayers’ willingness to fund it”.

So opined the Financial Times on 23rd June in the course of a major feature “The State of Britain”.

The FT then details public sector spending by central government of £423.5bn, plus an additional £7.1bn by public corporations like the Royal Mail, and £155.7bn by local authorities. They also list a Domesday Book of public assets in excess of £300bn.

Moreover:

Public debt is about to hit £1,000bn next year and public spending will account for half the economy. Borrowing is set to rise to £175bn a year or 12.5% of national income. Unless people are willing to pay £5 in future for every £4 they currently pay in taxes the size of the state is now unsustainable. Some parts of public spending will have to give.

The entire FT narrative, and the neoclassical political economy which it informs, is based upon an assumption that Public means “owned by the State”, and Private means owned by an individual or by that particular legal beast known as a Joint Stock Limited Liability Company.

On Planet FT there is no such thing as investment in public assets, because by definition investment is Private. So public assets may be financed only out of the current year’s taxes, or by public borrowing from future years’ taxes, which increases the National Debt. This convention results in the nonsense of the “Golden Rule” which has it that borrowing for consumption is impermissible but borrowing for investment, while permissible, must balance over an economic cycle – whatever that is.

* UK PLC?
We frequently hear about UK Plc when reference is made to UK business generally, but let’s imagine how the UK might look if constituted as a corporate body – UK Incorporated.

The last thing we need for UK Inc is the “principal/agency” conflict between owners and management built into a conventional Company, so we don’t touch the archaic 19th century Limited Company form with a bargepole. We don’t need limitation of liability either, since because every citizen and enterprise is a member of UK Inc there is no one to limit our liability against.

All assets could be nominally held by the Crown as a “Custodian” member of UK Inc so no change there in relation to land, at least.

Individuals, whose membership of UK Inc would be through networked associations, would each be entitled to a proportional share of the revenues which flow from a “National Equity” of the public assets held in custody.

These individuals would pay service provider members of UK Inc, whether public or private, and whatever the legal form, for whatever services are agreed as necessary. These service providers would again be members of a network of networks. The outcome is a UK Inc consisting of a networked Cooperative of Cooperatives or partnership of partnerships.

Whether the payments which are made for services, or for the use of assets in public ownership, are called “taxes” or not is a matter of semantics. The point is that funding for investment may be provided directly from the Treasury by selling Units of future income directly to investors without the intermediation of central banks or private banks.

Private banks would become service providers who manage the necessary Treasury credit creation. The Central Bank would become purely a Monetary Authority which sets the parameters for credit creation – not a new idea, actually, because this has always been the position in Hong Kong.

* Public Land Investment
The solution to the credit crunch – at least insofar as it affects secured private loans, and loans to the Public sector – is now quite straightforward. Local Treasury branches would issue credit to anyone wishing to refinance debt secured by mortgages over their property. In return, the property occupier would pay an index-linked rental in respect of what would be a Public Land Investment, and the local Treasury branch would become a “Capital Partner” in the relevant property (a fact that would be noted at the Land Registry).

Service providers formerly known as banks would manage the process, for a reasonable fee.

This would result in a vast and homogeneous (there being no fragmentation into different time periods or interest rates) pool of undated Units of index-linked rentals. A reasonable index-linked (and Islamically sound) return would be available to long term risk averse investors not just in the UK, but internationally.

The cost of municipal and property financing would drop dramatically for the simple reason that there are no debt repayments. This would gradually extend the National Equity, and in so doing pay off the greater part of the National Debt, the remainder being that necessary for the circulation of goods and services and the creation of new productive assets.

It would also be quite possible for similar investment, Public Energy Investment, for example, to be made in other productive assets, such as turbines, in municipal ownership to replace conventional debt, whether public or private.

* UK Incorporated
There is no reason why UK Incorporated should not come into existence not as an “organisation” or State – which has been the convention since the Jacobins – but instead as an agreement which evolves from the ground up simply though the creation and linking together of local partnerships into area, regional and finally national partnerships.

UK Inc would not own anything, do anything, employ anyone, or contract with anyone – but its members could, and would. Within the UK Inc partnership framework service providers would provide the services required by citizens at an agreed cost.

Taxation, mortgages, arbitrary interest rates, leverage, productivity – even Profit and Loss and the artificial Public and Private distinction – from which these accounting concepts flow would then join the Golden Rule where they all belong – in the Archives of History.