Aluminium Wrap

In an income-addicted, hand-to-mouth, economy your standard of living is connected directly to the price of your labour (your salary). This is precarious if the work disappears or the set of problems that need solving changes. Price is not value. Price discovery is hard. It is a negotiation between the ask and the offer. If lots of people can solve a valuable problem, its price will be low. Aluminium used to be prized as special cutlery for the wealthy. Now we wrap food in it, cook, and discard. Supply and Demand. A good rule of thumb for if an industry is broken is if the price for the same thing keeps going up. That means we are not finding better solutions. Prices should go down. We need to wean ourself off defining ourselves and our lives by our income source. Like the Government Pension Fund of Norway (known as the Oil Fund) which gradually shifted investment from oil to a broad basket of international investments that are independent of the Norwegian Economy.

Building the Assets

The largest 300 Pension Funds collectively hold about $18 trillion (12 zeros) worth of assets. The idea of a retirement fund has taken root. That you can build capital to put to work on your behalf when you no longer can. Many Retirements Schemes started life as Defined Benefit Pension Plans (DB). This means the payment was a promise from the container the retiree was part of (employer/sponsor). The amount of the promise depended on formulas based on length of service, final salary, and age (for example) rather than on investment returns. Many were funded Pay-As-You-Go (PAYG) with those currently working effectively paying those who retired directly. PAYG is fragile with a constant balance between contributors and beneficiaries. There has been a big shift to Defined Contribution (DC) where individual accounts are set up. Where the amount paid depends on the Capital built over the working life. There are lessons to be learnt in figuring out how Universal Basic Income can be funded. How do we build the assets to support strong, flexible, foundations?

Building over more than a day...

Connecting the past, present, and future

Building Together

You can’t just wave a wand and wish yourself a Norway Sovereign Wealth Fund. A more realistic model is presented by the Australian Superannuation Funds. One of the most powerful forces preventing the development of financial security is “the lifestyles to which we are accustomed”, and discretionary spending (the things we want, after the things we have no choice but to pay for). Investing can be a team sport. If the entry ticket to our community is high because everyone is living hand to mouth, it makes it hard to be the odd one out. The one building rather than lifestyling. The Australian Supers make saving compulsory, and add tax incentives. Over time, the amount has gradually increased, so people can become “accustomed”. In 1992, the minimum contribution started at 3% and has gently increased with a target of 12% in 2025. In 2018, AU$2.7 trillion made Australia the 4th largest holder of pension assets in the world. Sometimes you strike Oil. Otherwise, build. Ideally, together.

On the Ball - Australia & Norway

Public Pool

Pooling allows us to have a slice of something bigger. If you buy a house, it is yours or it isn’t. Private Property. Mostly, it is also the banks because it is easier to borrow for. Equity is different. You can buy and sell smaller slices of ownership. It isn’t as either or. A share/stock is a slice of ownership in a real underlying business. Public Equity. It is like getting your money a part-time job with clear constraints rather than giving it a boss with 24-7 access to its email and phone number. Your money can work at multiple companies. With multiple suppliers. In multiple countries. For multiple clients. It is not in a Scrooge McDuck pool of coins. It is working. An Equity Fund is when you have units of a pool of money that a professional equity manager chooses jobs for. A Public Pool.  An Equity Analyst acts as the Engine Driver, doing the Due Diligence on the underlying businesses. When you need money, you sell units. If the money does a good job, over time it grows. If that growth is sustainable, it can power your focus on things that don’t make money.

Start Again

Building an Engine (Capital) starts with finding an income. The raw material is the first person’s labour. Labour is like the Oil that started the Norway Sovereign Wealth Fund (now in a position to divest from Fossil Fuels). It starts with striking Oil. It's especially hard if you are a work taker with no work to take. Hard to develop the skills and knowledge required to kick start the process with no external assistance (Bank of Mom and Dad). Even then, the next obstacle is Emergencies. Even with Titan like self-discipline keeping outs (spending) less than ins, unavoidable bumps loom. Particularly if you are the first in a community to break free, and have obligations beyond yourself (Bank of Son or Daughter). Even when Governments legislate compulsory savings and investment (like Australia’s Superannuation Funds), the question of Emergency Access remains. What clear and present dangers are acceptable to etch-a-sketch all the Capital? To start again. What emergencies are worth borrowing against your future income stream, so that you end up endlessly working to pay off debt rather than building Capital? Forced back from the starting line. Finding an income is the hardest part, but even then, you may not be in a position to build an Engine yet.

Agreements and Action

A Community Wealth Fund is analogous to a Sovereign Wealth Fund. A Stokvel is a savings or investment society to which members regularly contribute an agreed amount, and agree to a constitution which controls how the money is dispersed. A Community Wealth Fund is a form of Stokvel. A group of people can come together and build an Engine which could pay the whole Community a Basic Income. This could start Pay-As-You-Go redistribution (while the Engine is being built), and part investment (then fully Capital funded when the Engine is big enough). The difference between a Community and Sovereign Wealth Fund is that “The People” isn’t abstract. It starts from the bottom up with names and faces. It starts with agreements. Agreements to build, and agreements to support each other. Agreements followed by action.

Get Started

Building Common Wealth

A Universal Basic Income would make everyone an owner in society. One way to fund a UBI is through pure play redistribution. Everyone gets it, and then you claim back from the ones who didn’t need it. Another way is through Capital. That needs to be built over time. Like a Sovereign Wealth Fund. Norway’s Fund gradually converted Oil into other investments through reinvestment. Sovereign and Community Wealth Funds can do the same with whatever resources they have. Over time, it is possible to create a fund with a dividend that is the UBI. This is where the term “Freedom Dividend” comes from. As wealth is built, the UBI becomes the dividend on common inheritance. If you have ever witnessed the instant change in attitude when an employee is given significant shares in the company they work for, you will know what this does to people’s mindset. You can’t “think like an Owner”. Either you are an Owner or it is completely rational to try maximise what you get.

You can change the cards you are dealt

Natural Resources

Most people live off their labour. Their "Natural Resources" that have been cultivated to a point they can be sold. School becomes a preparation for work, work a preparation for retirement. A deep pragmatist giving career advice will look at someone's values, skills, and knowledge... then look at the menu. The option is either, (1) your Natural Resources can't be sold in raw form, so you need to process them, or (2) here is the option with the best price (salary) that meets your needs.

Nations grew out of the idea of distinct "The Peoples". Unlike Nature, we like to put things in neat little categories with pretty bows. The Common Wealth of these people then belongs to "the State". The State owns the Natural Resources of the land, and different countries give people different levels of Property Rights... the ability to stake a claim and build something that isn't shared.

The first Sovereign Wealth Fund was established in 1953 as the "Kuwait Investment Authority", before independence from the United Kingdom. Over time, Oil was changed into a $600 Billion Fund that is invested in public equity, bonds, real estate, private equity and hedge funds. In a connected world, these funds can own businesses and property in other states. They can invest in infrastructure projects in other states. Gradually Fossils were turned into Fuel, and Fuel was turned into Capital. 

The skills and knowledge of buried dead organisms is pretty limited. In the course of 65 years, the "career advice" of Kuwait's Natural Resources has opened up dramatically. Money and Capital, unlike people, is 'fungible' - mutually interchangeable. A career change for a person is emotional. Our colleagues become our friends and family. More and more people meet their partners at work. Changing jobs is a big deal. For people.

Ireland and Norway are gradually disinvesting from Fossil Fuels as it becomes a matter of survival. In May 2018, Norway's "Oil Fund" was valued at $195,000 per Norwegian Citizen. This Fund was created in 1990. In 28 years, the nature of the choices available to Norwegians has dramatically exploded. As has the size of the menu for how that Engine delivers its power.

We ask the famous question to kids, 'What do you want to be when you grow up?'. You are not your job. The job is the job. Gradually if we separate our identity from our livelihood, we can get on with the job of being human. If you build an engine, for yourself or your community, you can gradually disinvest from being defined by your Natural Resources.

You are not your job

Community Wealth

Initially, Community Wealth would have come in the form of natural resources. Rivers, trees, animals, mountains, and minerals. Those would have been harnessed, understood, domesticated, controlled and built into the wealth we have today. 

Norway has a Sovereign Wealth Fund that was built off the countries Oil & Gas assets. Gradually it had diversified away and this Oil has been turned into a fund that owns a number of different types of businesses. This means the Government of Norway is gradually less reliant on hand-to-mouth income tax. There is even talk of whether to completely exit investments in Fossil Fuels because of Climate Change. Instead of using the assets for the current generation, the Fund becomes something that has custodians.

Value compounds. The same amount of effort, or skill, applied to a bigger amount of capital leads to a significantly bigger effect. That is why the biggest determinants of success are still (1) the country you are born in, (2) the natural skills you inherit, (3) the wealth of your parents, and (4) the community of which you are a part. Real wealth is built across generations. Real wealth requires time. A generation to build the foundations. A generation to build the walls. A generation to build the roof. Then when you are living in a house, it is important to remember that the things you can do, are a result of what has come before.

If we switch from an Ownership Mindset, to a Custodial Mindset, the approach changes. You can think of wealth as fruit-bearing trees. We inherit an orchard. The aim is to leave more or healthier trees than we found. We can live off the fruit, but if we cut down the trees, the next generation has a right to feel miffed.

The real secret of positive Capitalism isn't profit. It is reinvestment. It is Endurance, Resilience, and Creativity. It is building wealth through taking profits and putting them back rather than spending them. Instead of building big exclusive piles of fruit that rot, it is the careful use of what you need while being a good custodian for the rest. 

Beyond the Hand

Living hand to mouth forces control of the hand. You have to work, or you starve. Putting some of the extra aside for tomorrow means if for whatever reason you can't work, you don't starve. It gives you a buffer. Putting the extra to work can create an engine that eventually will allow you to shift your attention from the hand, to the heart and the mind. It can allow you to detach. Detachment isn't ignoring something. It is only giving that thing the emotional energy it deserves, and no more. Money is incredibly useful as a trust and exchange mechanism for stuff. It allows good ideas, that can be monetised, to thrive - good business ideas. Not all good ideas are good business ideas. Not all good business ideas are good ideas. Creating financial engines can allow people, and even states (Sovereign Wealth Funds) and communities (Community Wealth Funds), the freedom to seek fulfilment in other ideas. We can detach from money while still recognising just how useful and important it is.

Build Another

There are always things that are deserving of funding. In a world of limited resources there are trade-offs and compromises. One of those trade-offs is time. If there was only one issue that needed attention, and each month it cost $100, what would you do if you suddenly had $100 a month extra for a limited period (say 10 years)? Solve it for now, and come up with another solution later? Or put some money aside to invest? Norway has a Sovereign Wealth Fund. There are always problems to solve, but Norway invests some of the money from its natural resources, and only spends part of the growth. It is like living off the fruit of trees, planting some, but leaving the trees to grow. You only get to cut the tree down once. I think we could do the same with a Community Wealth Fund. You could build your own fruit tree, and build another. If I did that too, and gradually more people joined in... we could build the engine for a genuine Universal Basic Income.

Community Wealth Fund

A Community Wealth Fund could finance an Unconditional Basic Income. A UBI is defined by the Basic Income Earth Network as "a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement". Over time, labour is transformed into capital. Who notionally 'owns' this capital is defined by property rights. In practice, ownership is just a number and an agreement. Our labour is transformed into capital if it is productive, and reinvested. As time passes, this capital grows and we build on it. It is cumulative. Hawking gets the benefit of Einstein and Newton. Einstein gets the benefit of Newton. Newton gets the benefit of giants. A Community Wealth Fund could formally recognise our privilege, as a clumsy best effort to give it a number. It could be built up by voluntary contributions. It could pay an equal share of the fruits out as an 'average' of a group of people's privilege. It would be tough to figure out how to do this for 7.5 Billion people. I think we can each be part of doing it for 150 people. The beautiful question is how to construct that 150? How to construct it in a way that can spread to 7.5 Billion.

Give Later, Give Forever

Procrastination comes naturally. It is easy to set your alarm for the morning. It is difficult to actually get up when it goes off. Delegating to our future selves. This insight led to the 'save later' concept. It is easier to save a chunk of your future increases, than to cut back on your current expenses. The same concept could be used to fund a Community Wealth Fund. If people who can afford to fund their own Universal Basic Income donate it to the community when they no longer need it. So you are giving up nothing now. Money, well managed, can live forever. If instead of seeing yourself as the owner of your wealth, privilege and talents, you can be a custodian. Zero impact on your current lifestyle. Infinite impact on the empowerment of future generations.

Forever

Norway

Norway has a population of 5.2 million. Before unification in 872, archaeologists estimate that there were about 20 petty kingdoms. The main sources of information are stories, most not written till sagas were penned from the 12th century. Stories were the internet of the past. Socrates thought the modern invention of writing would make us lazy. He speaks to us today through Plato's words. In 1990, Norway created a Sovereign Wealth Fund to manage the surplus wealth of Oil. Instead of spending the resources, the idea was to transform them into productive assets. If these are managed well, then all future generations benefit. That way the story lasts. Founded as Oil to start, as wealth and knowledge grew, the story can evolve unrestricted by its origins.

Labour intensive industries have been largely outsourced 

as Norway has become wealthier 

Kuwait

It is a sad truth that most of us don't know much about the world beyond our world. One of the ways we learn about new countries is when they go to war. I learnt about Kuwait that way when I was 10 years old during the first Gulf War. Kuwait is about the same size as Swaziland, but has a population about the same as Croatia (4.3 million v Swaziland's 1.1 million). Kuwait is the 5th richest country by GDP per person (adjusted for how expensive things are) while Swaziland is 109th. The big difference is Oil - the black liquid gold some people were randomly born above. Kuwait had already done well as a centre for boat building in the Persian region, using a relationship with Britain to stay separate from the Ottoman Empire. But the Oil Boom led the Golden Era of 1946-1982, and Kuwait started the world's first Sovereign Wealth Fund in 1953 (The Kuwait Investment Authority) diversifying away from reliance on Black Gold.

Richest Countries by GDP per Capita

Organisation of Petroleum Exporting Countries (OPEC)