Tuesday, November 1, 2011

What to do after Occupying Wall St? -- Create a new stock exchange

New stock market, new money and measures, new economic organizations…

Occupy Wall Street raises some issues about what we would like to do with Wall Street. One alternative may be to build a new stock exchange based upon new principles, and replace Wall Street with something not driven by maximum profit and greed.

The key to this is to design multiple values and performance goals for firms. And then to measure achievement or lack of achievement of these targets.
And further to have investment be directed to businesses that perform the best in this new matrix of expectations.

Profit would only be one goal of a company. A list of metrics would cover many fundamental issues. We might call these “social metrics” because we would be setting out many new values for a company to abide. With a multiple value system we would have multiple metrics, and the age of the mono-value system of the bottom-line profit margin will come to an end.

This new method leads to new stock exchanges, new investment banks, new types of social-economic organizations of investors, communities and consumers. Further, it leads to a new way of looking at money and measure. As a result, we have a new kind of market economy.

How are the metrics used by investors, consumers, communities?
For example, when you buy a product from a company you look at the price of the product and a set of metrics about the behavior of the company such as keeping capital in the local community for jobs, charity toward the community, green issues in the region, fair treatment of their employees, the quality of the product, safety and health issues, treatment of customers etc. 

These measures might be in a simplified one-to-ten system, where ten is the highest rating and 1 is lowest, or maybe zero. As a consumer you look at price and then the 7 or 12 other metrics. Perhaps a formula will be there that sums up a total metric score.

But a one-to-ten system may be too simplistic, it might be best to create a measure type that best fits each issue. So that environmental issues might be measured differently from behavior about diversity. Certainly more refined systems and more complex methods can be developed.

With a set of metrics, you will then choose which company to buy your product from by making your own sort of interpolation of the data. (If low price is very important for you because of a limited budget then you will consider that more; if that is not an issue then you will not; people will make their own decisions on what works best for them. But in the long run with this system of buying you will find that this system will tend toward emphasis on the new metrics.)

Consumer’s league
A consumer’s league would investigate companies and provide these ratings on these issues to everyone. You would go to its site, and there would actually be many consumer leagues providing this information in their various formats. 

Investment league
This would happen for investing in companies also, you would invest only in the companies that fit your profile of a good company; profit is a consideration but so are these other issues. So you once again might have the stock price and all the conventional data, and then beside that metrics on all these other issues.

In this new kind of economy, profit and social metrics are not in contradiction, they are not either/or. Companies with good values and metrics will become more profitable because consumers will want to buy their products, rather than those of standard firms that have poor to no metric performance.

An investment league would be set up to provide information on this, in fact, many investment leagues with individualized metric strategies for different kinds of investors.

Community league
A community league would be concerned with exporting revenue out of community, community service, environmental impact, fair taxation, diversity programs and so on. Consumers and investors would go to a community league site and get intimate local information of firm.

With these three basic leagues you would force business to interact with society, that is the point of the league system to reconnect society into a whole again, and to counterbalance the singular power of business and economics. Capitalism has been operating on its own for centuries making decisions that impact society and without any limitation on its actions.

Economic decisions must include all of society because all of society is involved in economics, an economy includes everybody and thus requires the participation of everyone, we are all stakeholders, we all need equity.

The real Wealth of Nations
The old Adam Smith model that holds that wealth is only monetary is now challenged. The Wealth of Nations is much larger than balance sheets, EBITDA and GDP, it includes all Human values and not simply one, Profit.

And the notion of the “invisible hand” that makes the dynamics of capitalism work out in magical way is rejected in favor of balance and Human control.

Historically, capitalism has generated an evolution in these directions:
  • ·         A continuing maximization of profit
  • ·         A growing privatization and commercialization of all spheres of society and culture
  • ·         And the ascendancy of charity as a business means to replace the demise of non-profit services.

A new kind of economy would constrain the profit drive by adding other performance targets. The commercialization of all things would be halted because in a multiple-value culture we have multiple institutions. Finally, corporate charity would not be seen as a primary alternative to non-profit help for a community.

What is an industrial league?
It brings together firms in a particular industry and helps them develop metrics on their activities, another way to say this is that the industrial league sets standards for companies. Why would this work? Why couldn’t firms join and lie and cheat as they do now? Because a league is formed by moral individuals who set high standards for business activity. Then they only allow businesses to join who follow these standards, otherwise they are removed from the rolls.

It is that simple. And to create this system, yes, you need a great change in the values and behaviors of a society. But it has to begin somewhere with that handful of ethical citizens who create the leagues and create the companies that use these metrics.

A sports analogy applies here because in a sports league there are many rules that franchises must follow, much more is required than a simple profit motive. If you refuse to comply, you lose your franchise.

Leagues would be staffed with experts in many fields from healthcare to environmentalism who monitor businesses and develop metric rating systems to properly reflect the behavior of a firm. And leagues work with other organizations and experts to develop and report their metric findings.

About regulation
When the majority of business is done in this way, then the government can focus less on regulation because the leagues and firms are doing their own self supervision and the consumer and community and investor leagues are doing the same.

This new economic system is not designed to replace regulation. Public health departments, the FDA, strict rules for nuclear power generation and so on are highly important. Regulation, laws, fines and criminal prosecution cannot be ended, that would be very naïve.

The social metric and league system offers a supplemental system of regulating business behavior. Its advantage is that it provides internal control over commercial activity, rather than an external control coming from government – this is a system where companies have great latitude to lie, cheat, bribe and evade. When the metrics are made internal to a firm, then executives and professionals guide the company to achieve high metrics, because this brings in more investment and sales.

In the future, a well functioning system of social metrics would create a condition where government could focus more on national issues of fiscal policy, long term industrial plan, national regulatory issues and the worst of regulatory crimes. But in the meantime, present government restriction on corporate behavior is necessary though it is a flawed way of supervising, but we are not at all near the ideal role for a state.

In any case, for example, we all are aware that government rules on the transparency and use of mortgage backed securities would have surely prevented the 2008 financial crash.

Other sorts of leagues are possible, for example for disabled people, minority groups, women, for employees of corporations, and even leagues that watch government in regards to spending and efficiency. The more the better,

And leagues with different philosophies and metric formats will arise because diversity in thought will be considered a good thing. Innovation and competition among leagues and schools would be very productive for society.

What type of measures would you use?
As said, a simple one-to-ten system might be good for a start with a formula that gives a sort of overall average. But more complicated metrics can be used or they can come later. 

As said above, we can develop metrics that are specific to each field because a one-to-ten system may not be that accurate or useful universally.

We can even use equations that mix a monetary value with other measures, this would increase or lower the price of a product or security or asset. These would have more specialized uses where people will find that one number is better than money plus a list of other metrics or a summary, average metric. This is the area where there can be a lot of creative development.

And then this leads to new kinds of financial instruments also.

How does this affect prices?
A good metric rating will generally raise the price of a good or a stock or the value of the whole company because it is now considered to meet high standards, it has a premium value, this is natural. This already happens with firms that are considered a cut above. In the diverse economy, more systematic measures would cause this to happen.

This rise in price will cause other firms to copy the metrics of its competitor, that is, to raise their standards in order to stay in business. What will happen is that the prices will then lower overall, as everyone is producing according to the same standard.

Then a company will have to raise its standards again and/or develop more efficient means to produce its product and lower its item price. 

The best strategy, on the whole, is to both raise standards and lower prices via efficiency, both at the same time, and thus dominate a market. And these two processes will benefit all of society. 

Will these new metrics make business easier?
Not necessarily, if a company is doing poorly, it may be due to low metric standards or it could just have to do with poor conventional business management — low efficiency, bad financial strategies, poor management, inept marketing, ineffective distribution and so on. The laws of business still operate. We only have another layer of metric behaviors added on.

How does the stock exchange work? – the MBX
The metric banks and metric securities exchange is new version of Wall Street, the NASDAQ, the NY Stock Exchange, and investment banking.

We might call it “M-ban-ex” or “MBX”, short for metric banking and exchange. At a certain point good people will form MBXs to sell metric stocks and bonds to investors, and to set up investment banking to firms that accept metric accounting. 

These will start out small but will steadily grow. Citizens will set them up and then add capacity as the demand grows. 

The MBX will NOT be an old style stock market that steals from poorer investors and those who don’t have access. These securities will be bought at the exchange; the role of a stock broker will be redefined.

Further, there will not be old-style speculation. “Initial public offerings” will genuinely be initial public offerings with access by all. “Pumping and dumping” will be a thing of the past. Program trading, the use of derivatives and other current practices will receive a harsh examination.

And one will not allow these stocks or bonds to be listed on conventional “monetary” exchanges. People will de-list companies if this happens because this will undermine a MBX, to let Wall Street corrupt these highly important value measures. 

NO selling of metrics
The MBX also does not sell social metrics, that is, it does not make a commodity of a firm’s metric rating. These are determined and published based upon a philosophical, scientific and moral perspective. They are not bought, sold, discounted, used as derivatives or anything else. Further member firms cannot transfer their metrics to another and member banks cannot loan out metrics or any other such nonsense

The social metric is a sacred measure. It cannot be corrupted. If we commoditize it, then we are back to the original problem of money and profit, we will simply have money in a new format. The whole new system depends on the honesty and accuracy, and also is a test of our evolutionary rank and stature.

The MBX is the core institution of a broader set of ideas on economics. Connected to the MBX will be leagues, consumer services and more. There will be many MBXs in many nations; this is in keeping with views on diversity and creativity and range strategies of allowing many approaches at once. 

Securities will be created according to the metric list of goals and targets; these are the “standards”. Equations of various types will be used to value the stock; these equations will mix money and other metric performance measures. There will be different schools of thought expressed in these equations, some more radical than others; we can evaluate stocks with differing methods simultaneously. People will take into account degree of metric acceptance and the many different kinds of companies in an economy. 

One type of equation will set have a monetary price that sets beside a set of stats or many stats reduced to one metric as said above. 

Another type of equation will mix the monetary value and the other stat targets into a singular kind of money metric. This might be for specialized uses for valuing a stock or company assets for example. 

These two methods will give two kinds of evaluation. One method is more conservative, the other more radical. 

Different levels of metric standards
Further, it may decided that there can be differing grading systems for conventional corporations vs. new entrepreneurs — an easier metric system for bringing over mainline business to metric thinking as the first step in a long term strategy, and a more “pure” version for the new firms. Each has their place, conventional corporations can be approached with the first method; new entrepreneurs can begin immediately with the more advanced equation. Both equations can be used at once, differing sectors of the economy will be at different levels, all can be managed by the MBX.

We can create even more advanced equations if need be — equations that operate under certain conditions and change when conditions change, we can have numbers with spin about some feature of the company, acceleration or deceleration in regards to its metric history, positive and negative features and so on. We can measure relationships between opposite factors in a company, we can measure the tension created; we can measure wholes vs. parts and so on. And a good source for these metric types will already exist in science, physics and mathematics. 

Metric measurement has no end and is a fundamentally creative process that ultimately evolves with an economy. 

Also, consider that metric measurement of securities can lead to new kinds of stocks, bonds and derivatives. These can be explored so that the proper kinds are developed and the harmful instruments are avoided.

A company will want to sell metric stock through a new exchange. With help they will set up a metric accounting system. People will send to them materials, they will communicate over the internet and the MBX will send professional reps to their site. 

They will learn to measure many new things and report them to leagues and the public. They will establish metric accounting systems. They will be certified and conform to MBX standards. 

People will list their stock on the MBX with is metric stats. Investors can then buy them or not.

Reform and “dual power”
We can have several levels of standards. At the highest level, a company will use all the metrics and will have higher quality performance. These companies will get most of the MBX’s attention and support.

Companies wanting only to meet the first or lower standard level will get less notice, they must be investigated and judged in a principled way. While the lowest level standard is not that attractive, we also have to keep in mind that most firms will only be able to transform to even this level, however when millions do this, well, then you have a massive economic shift in a nation. If a conventional company transforms itself into social metric organization, that is significant, even if the standards are less stringent.

So both levels are needed, the higher and smaller, the lower and larger; both move an economy in the metric direction.

But fundamentally the higher level firm leads the way and pulls the whole economy forward. Idealism leads, inspires, innovates and sets the general direction. A system of Dual Power is created where we have 2 competing economic systems. At the same time a strategy of reforming the old system is employed.

Consciousness and education
One factor that is essential for this new kind of system to work is consciousness. While conventional companies and industries evolve by manufacturing needs and emotional manipulation, the MBX and its social metric companies are built through education. The content of marketing and advertising is education. This new economy can only advance in tandem with the advance of consciousness.

Investment bank, “combination bank”
Another feature of a MBX is its investment bank nature. Investment banks can help form new companies. And a MBX can go farther that just finding funding for a start up firm, the MBX can find executives, professionals, skilled and unskilled labor, equipment, buildings and real estate, and raw materials. And the MBX can become a ‘Combination Bank” which combines all that is necessary to start a company. This would be a very helpful feature of the MBX.
New kind of "money"
Another thing to point out in regards to the MBX is its inception of a new kind of money. The social metric system that measures multiple values has in effect created a new kind of money. This new money includes conventional money plus many other metrics that would evaluate the performance of a business. No longer are we using a kind of money that just registers the convergence of supply and demand at a price, no longer are we seeking just profit. We now enter an age where money has evolved into something quite different. Where we can value a company and its products in a new way, where we can measure the total value of something by measuring all of the parts of this whole of value.

What about equity and ownership?
About equity, the imbalance today is conventional corporate ownership, thus cooperatives and democratic shareholding, and more employee power are the goals. We might call this “diverse-equity” or “democratic equity”...that is “d-equity”. “Dequity” is in a spectrum of degree and form and particularities, people would promote it because the diverse economy is based on diverse ownership and today the stress is too much on the corporate. And while the individual form is prevalent in many national economies it cannot be useful for large scale production and service, though we appreciate the creativity and diversity and individuality represented by private forms. Obviously, small business forms generally cannot become cooperative forms, but what we can do is organize these owners into associations and/or franchises which can give assistance in the use of social metrics and maintaining standards.

3 drivers of Creativity
A Social Metric economy is by definition a creative economy. It is creative because it establishes a system that measures multiple values, this forces firms to compete and innovate to reach the highest rankings.

A second way this economy is creative is that measures of innovation can be established. And then investors can favor the more imaginative companies.

A third aspect of creativity is that industries can collectively set targets that will drive member firms to meet these targets. Whether the targets are about price, quantity, speed, quality, new products or more, these types of metrics for production that are planned collectively can spur high rates of creative output.

What about growth of the MBX?
The MBX and all its related forms will grow differently from standard capitalist businesses. Conventional companies grow by profit, by a money driver, by greed. Instead, this movement will grow because good people will inspire with their ethics and principles, because people will trust these new business and economic leaders, and because citizens will think these unique people are one of them, from the “people”. 

Further, such a movement would welcome CEOs and the wealthy to join its economic movement; we know there are some who have moral compasses and do not like the behavior of conventional capitalism, and are willing to completely change their lifestyles and values, and bring their skills and experience over to the rising economy. 

A new economy based upon new measures will allow us to develop our most essential ideas about Human needs and values. It will force us to think about the most important issues of life:  personal growth, helping others and taking care of Nature. And dispense with the trivial and wasteful demands of consumerism.

Cage Innoye

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