Quote Originally Posted by Chris Coles View Post
This is going to become a multi-part thread that will debate why there is a need for new mechanisms to invest equity capital at the grass roots of society.

Part two: Job creation, not credit; is the primary driver of prosperity

If you live as I do, here in the UK, you will have discovered that many around you consider job creation to be a form of antisocial behaviour; and that the job creator is doing something only marginally moral and probably illegal. Try, as I have recently, to describe how my own proposals for a new business might create a good gross profit and you will be asked, “But you cannot spend that much money” and told with a look that tries to make you feel uncomfortable at the same time. What has happened is that the actual process of new job creation has become antisocial in a society that absolutely depends upon the creation of new jobs.

In a true free market, you simply have to make what you want to sell and go out and sell it. There is no law to prevent you from setting up your stall and trying to sell the product. Yes, there are rules for quality etc. But that is not relevant to this discussion.

Try producing some origami, paper cut into interesting shapes. No problem. OK, now take that same piece of paper and write upon the paper the words “XYZ Company Share Certificate”

You have just broken the law.

You may write and typeset a book, print it, bind it and set out your stall to sell it, but you are not permitted to create the company structure to create jobs to allow others in your community to be employees, to enjoy jobs, created by the publication of the book; without your becoming enclosed into a very costly legal process involving company law.

Further, you also need the money to pay the wages of the employees, to pay for the jobs.

How much money do you have in your pockets? OK, now empty your pockets, completely. Yes, I want you all to do something for me; I want you to spend a day of your lives trying to do without money. No money to post a letter, even buy the envelope, let alone the stamp. No, you cannot pick up the telephone, no money for that either. No, no car, no petrol. No, no computer, email, and you cannot pay for someone to act as a secretary for example. No money…….. By now, you are getting the idea. But I need you to actually experience the reality of such a situation. Please, try it and you will understand the utter frustration of being completely unfunded.

I was reminded of this when I remembered a conversation with Kenneth Dibben, who at the time, mid 1970’s, had recently retired from being a director of Hambros Bank in the City of London. “Chris, he said, I never knew how much I took all the facilities available to me for granted. Now I am out on my own, I have to provide everything, secretary, typing…. I never knew what it is like to not have these things to hand.” He had arrived into the world of the unfunded job creator.

Let us start with a blank sheet of paper and try and get a handle on how much money we need to create a few jobs. Walk through the door into an empty office and you will already have spent three months rent up front as a deposit with the first months rent up front as you are a new start up with no credit record. First month, travel, fuel & oil, Motor insurance, printing, postage and stationary, computer software & support, telephone, internet charges, subscriptions, advertising, marketing, entertaining, sundry expenses, rent and rates, (rates often as much as the rent), light & heat, premises insurance, buildings repairs and renewals, (The last occupier has left the place in a mess and the owner has pocketed the reparations from the last tenant), other insurance, legal and professional fees, audit and accountancy charges, bank charges, bank loan interest, bank overdraft charges, plant and machinery purchase costs, office equipment purchase costs, depreciation. What do they come to? Let us assume, say, 12 -15K will be enough for a small one person office with very little else, desk chair computer and software. If you were considering any form of manufacturing, the cost goes through the roof.

All these payments pay for the jobs of all the employees for all your suppliers plus, if you want to take an income from day one add that too.

Historically, it was always assumed you could not expect to get into profit for at least three years. Indeed, in countries like Japan, you are not expected to be into full profit for at least a decade. So to create a long term job requires that you pay the costs of all your suppliers’ employees, plus all your own employees - for between three years and up to a decade.

So job creation is not about profit, but the expectation of being able to create a profit in the future while you pay all these costs until either you succeed, or, if not successful, you cease to trade and thus try and start again.

Job creation is a very expensive process and you will see very little of the money yourself. But that fact disguises another misunderstanding; that somehow, all the money you ask for is going into your own pockets. Very few understand the true cost of job creation and assume you are pocketing the cash yourself. Remember those wonderful words so often spoken by a civil servant when you ask for help in creating new jobs; “But we have to be careful as this is public money”.

What has been completely forgotten is that the process of new job creation is by far the most effective way to increase prosperity. Instead of prosperity coming from banks granting credit into the hands of the people - spending their credit at the local monopoly store, all the money pays for the long term employment costs of everyone needed to supply every service the local community can provide while the new business finds its feet.

When the Joint Stock Company was first created, the overall costs of job creation were always covered by what we call equity capital. The basic idea was that until you have reached the point where you can make a constant, regular profit, you need to keep your overall costs to the minimum. The longer the period between start up and stability, the more you need to keep the costs under control. So every aspect of the process was geared to keeping the costs down.

Equity capital is free money, put up front into the new job creation vehicle with only the expectation of an income when the new business became profitable.

So, in that case, the equity capital pays for the entire employment costs of the surrounding community for between several years and a decade.

Multiply that by many new businesses, all trying to create new jobs, all employing new people out of those surrounding communities. And with the only cost not directly associated with that process being the wages you, the new job creator, take to cover your own personal living costs; perhaps no different than any other employee in the surrounding community.

Tell me where you have seen job creation described like that? I will bet my bottom dollar that you haven’t! No one seems to have given a proper thought to the process of real, honest, new job creation. Instead, society assumes the job creator is either going to make themselves a millionaire in very short order, or, they are about to steal your money for their pet project; that the money will be “lost” or “stolen”, in some way, wasted. In both cases, nothing could be further from the truth and in the process we seem to have conveniently forgotten that:

  • The money in the pot waiting for investment cannot create new jobs.
  • The idea on the sheet of paper cannot create new jobs.
  • The unemployed, potential new employee cannot create new jobs either.
  • No one other than that individual stepping forward to create the job can do it.
Now we need to recognise some simple facts.

The primary impediment to new job creation is that the existing FIRE economy, probably very sincerely, believes that it is nigh on impossible to create new jobs. That what jobs we have are all that we can sustain and that the only way forward is to keep the imports flowing by keeping the retail sales as high as possible. Ergo, do everything they can to renew the flow of credit. Bank bailouts are seen as the only way out of this mess. I believe that is the wrong way to look at the overall problem.

It is my certain belief that there are hundreds of thousands of individuals out there that hanker to create jobs but have never been able to find a suitable source of funding, the capital needed to be able to do so. Now you can see why I started this thread with my own experience. Below a certain level, the capital to use to create new jobs simply does not exist.

The Times article was correct to ask: Where?

FIRE economy Venture Capital will have, (with the greatest of respects, you have all failed to see that existing Venture capital is an integral part of the FIRE economy), again, with the greatest of respects; sneered at them. - Too small, too off the wall, too bright, (i.e. too intellectual and thus wanting to do longer term research and development), not a fast enough route to profit sufficient to attract another, larger company, to purchase the equity for ongoing M&A; will be by far the most obvious reason.

Job creators have been made out to be untrustworthy and thus not worth consideration to hold onto the funds needed to create jobs. We see that in particular by the grand new rules that have sprung up over the last five or six decades to "protect" your savings from.......... fear of loss! - In the process creating a new upper class of individual to rule the roost in finance. We might describe these rules as the FIRE economy rules.

The simple fact is we live in a capitalist society that no longer invests capital. No longer accepts failure or the absolute necessity and responsibility to create a successful nation, at all levels of the nation.

Ask yourselves the question; why were all those lost manufacturing jobs not replaced with new manufacturing jobs?

The clear answer is that FIRE finance had decided, decades ago, that your local society no longer had any right to those jobs. They were not going to re-invest. The capital was to be invested in another nation, not yours.

So I want to start by making a few simple suggestions:
1. A functioning nation must have jobs. Gainful, productive employment. Not funded by tax income, but instead creating new tax income, new savings, new increasing personal income; as the primary mechanism to create a free, successful, prosperous society.

2. The greater the number of your nation in honest gainful employment, the more prosperous you are. The better the tax income. The easier it is for everyone to pay their way.

3. Gainful, productive employment is absolutely vital. Nothing can replace it.

4. Unemployed and under employed, (earning insufficient to pay their way in the wider society), cost the nation a large proportion of the tax income of the nation, either from direct tax payment to them as subsistence, or from a failure to earn enough to pay income tax. It is simply not cost effective to leave these people with insufficient income.

5. Spending tax income to create jobs does not fulfil the need for a stable nation; it only creates administrative jobs that are always a part of the overall trading overhead of the nation. As with any normal business, a nation needs to keep its overhead costs to a minimum.

6. Government administrations always set out to create further, often very expensive false jobs, to bolster the size of their departments. Indeed, the more false jobs, the closer you are to a form of pure socialist or communist society where government employs everyone.

7. The more tax income you spend on false jobs, the less you have available to pay for the base, essential services, supporting the productive society. The higher the overhead of the trading nation.

8. Banks do not themselves create new productive jobs other than those they need to fulfil their own needs within their own administration.

9. Bank lending, historically, had always been to provide a "working capital" function, paying for the short term transition between production and sale. Bank lending is a mercantile function.

10. So a productive business uses its capital base to create the full working mechanism to create a product and the banks function was always to provide the short term credit needed to pay for materials passing through that working mechanism.

11. You therefore have two funding requirements for a successful society. Equity capital to create the long term jobs and a second, mercantile banking system to provide that working capital.

12. I am arguing that we only have one part of the funding requirements in place, short term banking and the primary job creation funding, equity capital, is almost non existent.
Once you recognise the above as true, then the next thing is to recognise that it takes a long time to create any new job. You do not create new productive jobs overnight. It can and often does take decades.
• When you make a start from as serious a situation as we face today, someone has to pay all the long term job creation costs for all that time to create a new, stable, local economy.

• By far the majority of job creators will fail, at least once, while trying to create a stable business to provide stable employment in their local community.

• Failure is a quite normal function of honest job creation.

• By far the vast majority within any nation do not have sufficient income to pay for more than their own personal family costs; home, children, education....even if they have a good job.

• It is a generally accepted condition that we expect that a job creator must be bankrupted if they fail.

• You therefore place the greatest disincentive on the job creator.

• No one, not in employment, can possibly pay those long term job creation costs.

• You therefore must have an acceptable mechanism to pay for job creation.
But job creation is seen as.... Would you trust ...whomever.... with YOUR money to try and create jobs? Particularly if there is a very good chance they will fail.

Now you are beginning to get the real picture.

The most important function of any modern capitalist nation is the creation of new employment. Without that employment, the overall nation cannot function, yet:

You do not have any functioning mechanism to create enough jobs.

To say there is a need for a change in direction with attitudes to job creation, is perhaps the understatement of a lifetime.

We need to do these things first.
1. Recognise that anyone trying to create new jobs is NOT some form of criminal who must be controlled and suppressed. But instead, set out a MAJOR public campaign to get as many as possible, who would wish to create new jobs; to step forward to try.

2. Immediately set out to create completely new savings institutions charged with the primary function of making equity capital available, (not any form of lending), to pay for the long term job creation costs.

3. Encourage everybody to place their savings into these new savings institutions and arrange to pay them an acceptable fixed income on their savings until the long term profits start to flow from the new investments.

4. Agree a set of rules for the equity investment into job creation.
In short, a new Marshall Plan. Yes, it has been done before and very successfully too.

If we look at the creation of those jobs, we will see that if the job creator is only permitted to pay themselves the same as if they were in a similar job working for someone else, the job creator costs us nothing more than their moderate starting salary!

All the additional business costs, - manufacturing, - product storage, - distribution, - salaries, - pensions, - employees National Insurance, - Employers NI contributions, - travel and subsistence, - vehicle costs, - fuel, - oil, - motor insurance, - printing, - postage, - stationary, - computer, - software, - service, - telephone, - internet charges, - subscriptions, - advertising, - marketing, - entertaining, - allowable sundries,, - rent, - rates, - light, - heating, - premises insurance, - building repairs and renewals, - other insurance, - legal and professional fees, - audit and other accountancy fees, - bank charges, - bank overdraft interest, - depreciation, - buildings, - plant and machinery, - office equipment.

All these costs are perfectly legitimate and have to be paid.

But, in paying them we very effectively employ the surrounding local community in worthwhile, honest employment, supplying all those peripheral needs for the job creation process.

But look. If the idea is to create a stable, profit motivated business climate, then there is every incentive for the new job creator to keep those costs to a minimum. The faster they reach a steady, long term profit, the faster they can cash in themselves, but essentially not before they are profitable.

If we have set out to encourage the job creator, we can make it a very good thing to create new jobs.

We make a big thing of rewarding successful soldiers and suchlike. We can very easily do the same thing for job creators too.

Further, if there is sufficient equity capital available to pay those costs, the whole process brings local prosperity from day one with no short term cost to anyone.

Everybody in gainful employment, paying their own way from day one. From day one.

Aiming points:
1. An immediate conference to bring together everyone with NEW thinking. Yes, that too must be paid for. No capital available, nothing gets done. A VERY valuable lesson right from the outset.

2. At that conference, the primary aiming point being to agree, yes, agree, not promise to walk away and talk about it for another half decade, agree on a base capital value for a job. I have already set out my own thinking and suggest a figure in the region of £25,000 or perhaps the US$ equivalent.

3. Set aiming points for the number of jobs we need. No, I am not trying to become a socialist, I am saying that one of the primary difficulties has been a lack of aiming points. If you do not set targets, how do you achieve? How many jobs are needed?

4. Set out to create all those targeted new jobs and make that capital available. And yes, you are correct, they will compete with existing companies.

5. All competition is good in a free enterprise society.

6. People that believe it can be done are the only people that will make it happen.
I have already set out a simple set of rules for such an operation. It can easily be run on a perfectly normal free enterprise basis. I believe this will become a modern example of the Loaves and Fishes from the Bible. No one will believe it possible until they all set out to try.

I believe that there are many individuals with ideas for the creation of jobs. They must be encouraged, not derided as now.

Any simple job can be easily created if the normal overhead cost of the job creation is made available as equity capital. There is no loss of any capital if everything spent is a normal business cost into the local, or national community.

All the capital gets widely distributed throughout the nation, community by community, but from the bottom up, not trickle down.

If every new employee and every existing employee is encouraged to save sufficient of their incomes so that long term aiming points for available equity capital are always maintained, the whole system will become very stable.

All you need to do is change the way you treat the job creator. They are honest. They spend the capital wisely to create new employment. That new employment is spread widely throughout the nation. They cost you NOTHING MORE THAN THEIR SALARY.

All you need is to believe they can deliver instead of treating them as potential failures.

CHANGE is simply a challenge for those that believe in it. I believe that many will step forward to accept that challenge and prove me correct and for goodness sake, what have we all got to lose?

Chris Coles.

In part 3 I am going to set out the rules I believe are needed to make this work, based upon the original proposals set out in A Capital Spillway Trust.