Open Capital Markets For Local Economies. William E. Scholz
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[4]. Wealth inequality sours wealth creation in the post-war era.
Is the American Dream realized or fading?
For some, the American Dream is defined as a family sustaining wage and the opportunity to own land and property. Others who are more affluent might view the American Dream as the ability to establish residence in multiple locations, travel frequently, or own multiple houses and cars.
Today’s economy offers little understanding as to one of the most powerful forces in our lives, the global economy.
How do we create wealth in new ways, yet ensure that wealth inequality does not destroy the socio-economic fabric and order?
How do we develop a healthier relationship to capital, the lifeblood of our economy?
How do we help foster more small business development, entrepreneurship, and innovation to ensure stable and consistent economic growth?
These questions asked by workers is echoed by many policy leaders across the ideological spectrum. Even in a polarizing political environment, one consistent theme in local, State, and Federal legislation is to create an economic framework that increases investment and supports the job creator. Flying under the radar of what seems like national political dysfunction is a financial services agenda largely bi-partisan and positively received by voters.
What does a new era economic of economic growth entail?
A common thread runs through the needs of the local economy, the actions of regulators, and the innovations occurring in financial services technology. At all levels we are moving toward an economy that facilities open capital markets for local economies.
When we think of capital markets, we think of publicly traded equities and bonds. However, as innovation takes root across the United States, not just major metros, many regions are finding a greater need for access to capital through investment funds or incentives for individuals or corporations to reinvest. The need for capital accompanies technological innovation through Blockchain that allows for the immutable transfer of asset ownership.
The combination of the need for more local reinvestment, nationally, regionally, and locally and the increased ability for transparency, accountability, and technology-enabled transfer of ownership creates the opportunity to transform how we consider economic growth.
Ensuring access to capital for regions without investment is essential to sustaining economic growth in the future. But access to capital also reaffirms our concept of liberty.
In today’s hyper-competitive economy, obtaining resources to start a new business that are equal to the resources obtained by competitors can become a barrier to entry. Likewise, for cities, having enough re-investment annually to ensure healthy real-estate markets, arts and cultural amenities, and firm-level reinvestment is essential to prevent regional divergence.
As an investor, everyday citizens must be empowered to own and benefit from local wealth creation, and more importantly, contribute to their unique sense of place and belonging. The benefits of new economic liberty and more reinvestment locally and nationally enabled by new technologies and necessity can unlock America’s next era of economic growth. However, residents will assume more responsibility both to create and grow businesses, and as investors.
Local economies are only beginning to generate study, reflection, and data collection. One does not often think of their local economy beyond their hometown or the places they lived. One likely does not view local economies as an opportunity to contribute to economic growth.
We often think about programs and incentives to encourage small business activity. These programs may come from local, State, or Federal governments or they may be led by private sector initiatives. Yet we see resources into local infrastructure surging. Stakeholders are passionate about the prospect of revitalized local economies as an important hedge against regional divergence and as a fuel to American economic growth.
We also don’t think about local economies as marketplaces of capital investment. Local economies are viewed as operating independently from one another. We drive by beautiful and blighted infrastructure, but we do not think that we have a responsibility to reinvest. That is somebody else’s responsibility.
Perspectives surrounding local economies are changing. Local economies are reemerging on a national stage whereas investment is encouraged by bi-partisan national policy, regulatory changes, and incentives.
Our objectives in writing this book are fourfold:
1. Reposition local economies as open capital markets. The most important objective is to begin viewing local economies as driven by capital markets. Real estate and small business need access to healthy amounts of capital to become financially sustainable and to flourish. Healthy capital markets that are not extractive will utilize similar primary and secondary market frameworks as we currently see in public markets. New, local institutions and a culture of capital investment will build wealth locally.
We can no longer view the many separate aspects of local economies as operating as silos from one another. We often do this in the way policy, investment, and institutions shape the business landscape. For example, the manufacturing sector is viewed as separate from the technology or real estate sectors. Support organizations operate within their own fiefdoms or territories.
Open capital markets facilitates the breakdown of these silos by shining light on firm performance, investment volume, and economic data.
2. Explore the changing regulatory landscape, incentives, and technology facilitating the local economic transformation. Financial technology is driving massive regulatory changes related to how securities are packaged and sold. We are amid a financial regulatory overhaul that the world has not seen since the 1930s driven by a revolution in financial technology. In a global economy, countries cannot turn their back on these changes.
Our goal is to explore the change in regulation, incentives, and technology from a local perspective. Technology like Blockchain is a global phenomenon. The technology allows immutable transfer of ownership to facilitate trade across national boundaries. However, keep in mind that each global transaction is fundamentally rooted in the local economy. Global investors are investing in local assets such as a real estate parcel, small business, or startup.
The future of finance must acknowledge and respect the fragile and human local economies where assets reside. Local economies must begin to see their context in a global network of investment and trade.
3. Understand the benefits and challenges of open, capital markets for local economies. The world is moving quickly toward establishing primary and secondary trading for privately held assets. What are the benefits of this activity and what are the challenges?
Financial markets facilitate transparency, better governance, and access to firm and market level data. However, markets can be manipulated by bad actors who generate fraud. The financialization of assets that are currently held privately must be handled with care and responsibility, especially at the local level where integrity is essential to a healthy economy.
4. Describe new institutions and business models of vibrant local economies. New local institutions and business models are necessitated by open capital markets. Institutions must nurture local markets that in many cities have undergone decades of disinvestment.
The private sector must facilitate business models that can utilize capital in a healthy way to find their break-even point, even if that means scaling their product and services regionally. New information networks must also develop to support the interconnection of local assets receiving national or international investment.
How Do We Reinvent Finance For Local Economies?
After working in economic development while owning a small business, I noticed some major flaws with how economies operate at the local level compared with how the economy operates at the National and International levels. At the National and International levels capital is bountiful and transparent. Capital is bountiful because equity markets exist in the form of an Initial Public Offering and in the form of secondary market raises to keep corporates flush with cash that affords