Universal Basic Capital

Could the mechanism used to pay the Queen be extended to every citizen of the UK to form a system of Universal Basic Income? Such a notion gives rise to the concept of ‘Universal Basic Capital’.

The heart of this idea is to give all citizens equal access to capital. Perhaps this would balance out the accident of birth that gives some people, such as the Royal Family, access to networks and funds that are simply unavailable to others, allowing them advantages that are unimaginable to poorer people. Perhaps access to capital is the only real distinction that exists between rich and poor people? I.e. Even people with no money, but the right friends and relatives who can get access to capital to get started, can end up rich. Is it that simple?

In the UK, the Government pays the Queen 15% of the profits of an organisation called “The Crown Estate” every year. We call this “The Sovereign Grant” and it is used to support the monarch’s international diplomatic role.

The complex portfolio of holdings of the Crown Estates was derived initially from the land grab that occurred shortly after the Norman Conquest in 1066. Today it is worth about £9.9 billion and these assets generate £267 million a year in profits. Over the ensuing centuries the management of these holdings has changed a lot. The full history is available on the Crown Estates’ website and the Wikipedia article about them.

The assets of the Crown Estate do not formally belong to the person who is the King or Queen; at present that is one Elizabeth Windsor. Rather, they belong to the role of the “reigning monarch” itself. Whoever holds that title cannot sell the assets for their own private ends, and as such these assets, like the Crown Jewels, are entirely separate from the monarch’s private affairs. Today the surplus revenues from all of the Crown Estates are paid directly into the Treasury – the same place that all the tax money goes – and the proceeds are used directly to benefit the UK tax payer, less the stipend which supports the role of the monarch – the Sovereign’s Grant.

I like the idea that land can notionally belong to a particular role but not to a private individual and not to the state either. The land cannot be bought or sold in the same way that private land holdings can be. That gave me an idea!  Why not create a new ‘role’. As well as the ‘monarch’ we could also have ‘her loyal subjects’; the citizens of the United Kingdom.

All such citizens would nominally own equal fractions of the Crown Estate and would be paid a stipend every year, via HM treasury and this would constitute a management mechanism for Universal Basic Income – a ‘Citizen’s Grant’ that was administered in exactly the same way as the Sovereign’s Grant.

If it is good enough for the Queen then surely it is good enough for her subjects?

Regardless of the regal colouring of this concept, the actual core idea is that of a “Universal Basic Capital” (UBC) which extends the concept of a Universal Basic Income (UBI). If every citizen is to be paid an annual salary in perpetuity there must somewhere be a corresponding pot of capital – a national trust-fund if you like – which is invested in various places for the long term benefit of the citizens of the UK, and which cannot be bought or sold.

This is not far off the idea of the original Saxon folkland concept actually, in which only a king could take folkland away from a family, as opposed to book land which could be bought or sold. The dual folkland and bookland system, created by Alfred the Great (I believe, although I could be wrong about that) ended in 1066 when the Norman conquerors simply took it all and began the feudal system.

Personally, I would be happy to entrust the management of such assets to an independent and reputable organisation such as the Crown Estates. They have proven their ability to manage capital with commercial acumen and respect for the environment, without a single private shareholder in sight. All at the same time as withholding the assets from the state thus preventing abuse by those in power. They are protected by an act of Parliament and aren’t, as far as I know, at risk from hostile takeovers. They do not have a legal duty to make a profit for any shareholders which means that they can take a very long term strategic view that takes into account more than just how much money they can make, but what effect they are having on the culture and economics of the land that is owned by the Crown.

How practical would it be to extend this arrangement to every citizen of the UK?

From the diligent work of the Crown Estates, and some hasty back of the envelope guestimates on my part, we learn that in the UK one can earn 2.7% return on capital invested in land. Thus, to generate £27K of income per person per year (the current average salary) would require around £1 million of assets per person. Thus 64.1 million people would require £64.1 trillion of assets! Gawsh. Now that is a lot of money!

Perhaps, by way of a thought experiment, we could increase the holdings of the Crown Estate to include ALL the land in the UK and employ the premise that the holdings are owned in equal share among every citizen, and that the revenues arising from the land shall be shared out evenly. Such an arrangement would effectively reverse the Norman land grab of 1066 back to the Saxon arrangement, where everybody owned the land they lived on.

The total land area of the UK is 243,610 km2, which means that each person would have an area of land 61 m x 61 m that would nominally belong to them.  Notice that the ownership is not a private ownership. Nobody could point to their bit of land and say, that’s mine! The equal share belongs to the 64.1 million citizen roles, which are only nominal. I can’t just go and sell my bit of land if I want to. Just as the Queen can’t sell hers. And equally the land wouldn’t belong to the state either! No one could touch it in perpetuity. It would be in a sort of royal purgatory.

Even in principle, could all the land in the UK generate enough revenue to pay UBI?

The existing assets of the Crown Estate might be a good wide ranging sample of the potential value of UK land. From their annual report 2015, excluding the £219 million in assets relating to marine and coastal developments, we have that £9.68 billion of their assets are inland. About £6.37 billion is invested in urban regions and £2.34 billion is invested in 1,530 km2 of rural real estate including royal park land. The remainder is in shared holdings. In the UK, 2.27% of land is urban (Office of National Statistics ) so, assuming the ratio of urban to rural investments in the Crown Estates portfolio reflects the actual national ratio of urban to rural land area, we can compute a rough estimate of the total land value of the UK.

These figures suggest that all the rural land in UK is worth about £364 billion and the urban land £991 billion, a total capital of £1.35 trillion. Sadly, a substantial amount short of the £64 trillion target! So! We need to make up the other £62.65 trillion in capital from other sources!

Never mind land. How much capital is available in the UK full stop?

Total GDP is about £1.6 trillion and if that represents 2.7% return on total invested in the UK, then the total invested in the UK is about £60 trillion. In other words, of £60 trillion capital £1.3 trillion is invested in land and the rest in labour. We are truly a service economy!

So! There is physically enough capital to implement this scheme. But it may not be politically (or legally!) possible to do this. Not only would we have to grab the land back from all current landowners, we’d also have to grab all the capital currently invested in the UK and dish it out evenly, via a mechanism a bit like the Crown Estates.

In fact, its not surprising that the level of investment in the UK is so high – around £60 trillion. This investment is all around us. The pavements, the roads, the pylons, the sewers, the optic fibre networks and telephone towers. The farms and national parks. You can stand on any street in any town and mentally add up the cash value of the things you can see and in one street you’ll get to over ten million capital in no time at all. Even in the crappy places.

So to say that poor people don’t have access to capital isn’t strictly true. It depends on what you mean by “access”. It’s all around us and makes our lives easier. For example, if you work in a supermarket you are operating infrastructure worth millions.

So what exactly am I talking about then?

Ultimately, this idea is a change from a system where a small number of people own the capital to a system where a large number of people own the capital, but the mechanisms of capitalism are the same and the rules applied at the top are the same all the way down to the bottom. If it’s good enough for the Queen, it’s good enough for us!

My main argument supporting these ruminations arises from my belief that the economy would become stronger for this adjustment.

Having a small number of people own really large chunks of capital means that all the returns on that capital move to a small number of places. Now those small number of people cannot possibly spend all that cash! So they reinvest it in new capital projects that they think might make money.

Quality of life doesn’t go up once you hit an income of £absurd. Having an income of two or four times £absurd doesn’t mean your food is two or four times better, or you get two or four time as many holidays. Rather, if that excess cash were divvied out among the people, then they would spend it on the things they needed – rather than investing it in some white elephant like Trump Towers or whatever.

Instead of seeing money as a thing worth having in its own right, in effect one is seeing money as the ability to express demand.  We can of course say what we want, including all our pipe dreams about porches and mansions, but if we are able to put our money where our mouth is, then these dreams become real information in the economy!

Many thousands of people expressing their actual opinions about what they want or need, gives better information about how to distribute resources more effectively, than having one person, or a small handful, trying to guess what people want, or influence them to want the thing that they made.  At the moment poorer people work hard trying to persuade the rich people that their project is good and needs support. IF everyone had a basic level of cash, then all that effort in trying to persuade people to give us money.could just be put to use on the project itself! And people would learn and grow and work hard to find efficiencies.  That’s why the economy would be better!

What would happen if the infrastructure all around people was actually their own nominal Universal Basic Capital invested such that any returns were fed back to them directly? The more work we did using our infrastructure and the more efficiently we used it the more money we would each get. If everyone was able to exploit at least a million pounds worth of infrastructure they could generate a return of £27K a year for themselves, returns that would be spread out around the economy, providing better information about where to assign resources.

That would stimulate growth where growth needed to happen, and then those people would become more productive, as they could leverage better infrastructure. By not diverting gargantuan sums of return on capital to a small number of places the amount of growth throughout the economy could then be higher.

Another approach could be that if people were also allowed to have control over where their £1 million of universal capital was invested, then perhaps people would invest in their own businesses and enterprises? The amount of information available to the stock market about what the capital was doing and who was using it would have much a greater resolution than it does at present. Instead of one ‘expert’ guessing what’s going to make money this year and taking a bet, you would have ten thousand people knowing precisely what they were going to invest their money on!

Let’s state this another way. If the number of people buying and selling things on the stock market was equal to the number of people who were actually in the economy then the information available to the stock market about what people thought was a safe bet would go up, enabling better decisions to be made about which investments were likely to make sense, and hence better returns.

How could one modify the original scheme to make it more tractable?

Another wrinkle is to make residential housing part of everyone’s UBC. Let’s say that we magically stole £64 trillion in capital from those people who have lots of assets (monarchs, oligarchs, landowners, bankers, investment funds etc) and doled out the capital evenly to everyone on the condition that they each bought a house. Each citizen would trade some of their capital to buy a house, which they would own outright – but not as a private citizen; their ‘role’ would own it. All the mortgages could be paid off in one fell swoop and those renting could nominally own their own house.

Three key things would happen:

Firstly, everyone’s income requirements would be slashed by about a third to a half as they would no longer be paying rent or a mortgage. Therefore instead of £27K they would only need £18K UBI. So their Universal Basic Capital requirement would drop from a £million to £660K plus a house. This would substantially reduce the £64 trillion target to about £42 trillion plus the cost of a house for every family in the UK. Which would be about £4 Trillion (assuming 20 million families and ~200K for a house). So the total target would drop considerably to about £46 trillion.

Secondly, the £4 trillion capital that was ‘magically stolen’ to buy houses would be given straight back to the people from whom it had been magically stolen in the first place. The bankers, existing landowners, oligarchs etc. So they wouldn’t lose out. They would be paid for their second and third houses that were taken from them. Boo hoo.

Thirdly, no one would be charging rent or interest on mortgages anymore, which is what the bankers, existing landowners and oligarchs all rely on. So their game would end, but they’d each get their share of £4trillion, plus their UBC of £660K and a house in compensation, so they really wouldn’t be doing that badly!  And now we only need to steal two thirds of the capital in the UK. We only need £42 trillion now, not the £60 trillion that is currently invested.  So on to of their £4trillion, UBC and a house, these original people would still be left with about £20 trillion to play with.

In effect we would be treating residential houses in the same way that the Crown Estates treats the crown estates! Land designated for use as homes of a citizen cannot be used to make private profit for companies, or the individuals that live in them – just as Crown Estates have a function to perform so do people’s houses. We could literally make every Citizen’s home their castle! Just like the Queen’s!

So where does the other magic £42 trillion come from that we’d need to make this crazy baboon of a story fly?

It’s not the UK citizens or the pensions funds (approx £2 billion in assets) or the Crown. It’s not the church (690 km2 of land). I have no idea who currently owns most of the £60 trillion assets in the UK that generate £1.63 trillion of GDP every year (remember that was my estimate of the total invested in the UK). I suspect whoever they are if we reduced their holdings from £60 trillion by £42 trillion they wouldn’t even notice the change in their lifestyle one little bit.

Remember it’s not a total asset grab, we’re still leaving the rich and wealthy established capitalists with £20 trillion to play with, plus their UBC.

If they were relieved of two thirds of their capital and it was redistributed then I suspect the GDP of the economy would shoot up as everyone started to work harder to make their Universal Basic Capital of 660K work harder for themselves.

What’s the small print?

The existing idea that any one who works hard and manages to save some money will be justly rewarded just isn’t true. It’s ownership of capital that gets you financial rewards. Opponents of UBI argue that if we simply handed out income then people would wouldn’t need to work and they would become lazy, so nothing would be done, inflation would be rife and the cash value of UBI would be worthless and people would have to go back to work again! By changing the scheme slightly so that instead of handing out stipends, we hand out capital then people would still have to work to get a return on their own capital.

Many rich people work very hard because they enjoy working. Also, because they think they are important and the world cannot do without their quality input and guidance. So why would the poor-made-rich be any different to that? Would a good majority not work hard also, the more so if they can drive their UBI up, by better exploiting their UBC?

There would be no UBI payments if the return on the UBC was poor! The difference is that individuals would be working for themselves! and the unnecessary inefficiencies introduced by moving large amounts of cash to a small number of people, like rent and interest on mortgages would be eliminated. I think the economy would be stronger.

The other major criticism of UBI is that no one would want to do the rubbish jobs any more. True! So one would have to pay sensible amounts of money to encourage people to do the hard jobs. Perhaps farmers, bin collectors, street cleaners and people working in supermarkets would finally get the credit and respect they deserve for operating and maintaining the millions of pounds of investment in our infrastructure on our behalf? If they also owned the infrastructure they were operating, they would feel empowered to help you and have more self-esteem and pride, like the people who own their own small shops seem to have. But on a national scale.

In summary I think having a large number of capital owners gives rise to a better economy than a small number of capital owners and taking about two thirds of the capital away from those who currently have the capital would actually make the economy stronger and wouldn’t demotivate the work force. Quite the opposite. It would given them pride in their work and self-esteem. Oh yes. And an income for everyone of £18K per annum.

If its good enough for the Queen, it’s good enough for me!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s