Monopolies and ‘Democratisation’

Mo-nop-o-ly (n):  The exclusive possession or control of the supply or trade in a commodity or service.

We generally think that monopolies are a bad idea. They tend to result in vested interests serving themselves, without proper accountability.

Odd, then, that from the perspective of capital provision, almost everything in a modern capitalist society is operated as a monopoly.

Whilst there may be competition in the free market for customers, all public businesses are owned by private capital which has aligned together in marketplaces to seek exclusively financial return. Capital operated through markets, aggregated together, acts as a monopoly – it is the exclusive supply of capital-at-scale.

Meanwhile, the state invests for social outcomes. No other capital pays for the delivery of the education service, the NHS, and so on. Therefore, the state operates as a monopoly funder.

So our society has, on the one hand a monopoly funder seeking profit – and on the other hand, a monopoly funder seeking social outcomes. Both of these are desirable things. But by operating in isolation of one other, in silos, it means that neither has more than a passing interest in how it affects the other.

Yet we know that investment capital can leave behind a devalued social landscape, increasing the need for state investment. And we also know that the market distortion caused by state provision excludes almost all private capital from the provision of social services.

What we are starting to grasp is that, by being excluded from a major part of the economy (investing in provision of social services), private capital is forced to sweat the remaining areas of the economy too hard -so hard, in fact, that they collapse under the burden. Rather as the inhabitants of Easter Island did.

And where private capital does contract with government to deliver social services, interests are dis-aligned as the governments seek exclusively social outcomes, whilst the private capital seeks exclusively financial outcomes. PFI.

This black-and-white world of investment and taxation, at odds, avoiding one another where possible and playing cat & mouse when they must is mutually destructive.

The technicolor world of blended capital structures provides the possibility for the state, as asset owner, to democratise ownership of public services. Blended capital structures enable social investors (e.g. communities, interest groups and charitable foundations) and private financial investors to invest alongside the state for social outcomes. By retaining a ‘carried interest’, the state remains a stakeholder and can build in whatever protections (‘investor rights’) that it requires to protect the social mission. This ‘democratisation’ is, therefore, quite unlike ‘privatisation’.

Government currently finds itself surrounded by self-serving, unaccountable vested interests, whether in financial markets or social service monopolies. And this dark place will only get darker in an environment of declining revenues and increasingly hungry and belligerent mouths to feed. The imperative to pay down national debt will add a chill wind.

‘Democratisation’ may just offer government a ladder out of the hole that it finds itself in.

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