I would like to propose a new theory of economics and new version of Capitalism. One that could benefit Puerto Rico, as well as the United States of America as a whole.
The idea is for government to invest in specific industries. Provide land, cover the cost of utilities, even provide up front financing for some of those specific industries, or businesses.
In return, as an investor Government would retain a seat or two on the board of directors and mass of Preferred Stock. The company woudl also have to agree to abide by certain specific accounting rules which would carefully define ‘profit.’
Profit would be sales, minus operating expenses without executive compensation or bonus’ or depreciation. Just a simple formula.
The Preferred stock in this case would then get a cut of THAT profit if any for as long as government holds the stock. The company would have ‘X’ number of years to make the profit or the company would have to be liquidated with all receipts going exclusively to the government.
The government would not run these companies and should be prohibited from enforcing special regulations on these companies that are not required of all others doing business in the country. (Regulation happy lawmakers and their cronies would run these companies in the ground with glad happy or down right ‘poison pill’ and preferential rules if allowed to add to many rules.)
The dividends from these profitable agreements would be split 2 ways. Half going directly to government and half going directly to individual citizens in what I call Social Services Savings Accounts or S3A’s.
Taking a cue from the US Governments TSP program (Thrift Savings Accounts) which are essentially 401ks for Federal Employees and Members of the military, these S3A’s would be invested in individual accounts that spread their investments across a group of 10 funds ranging from government bonds to commodities to precious metals, to blue chips to venture capital funds.
In other words, from low risk/low return, through moderate risk/return and up to high risk/return. This balance of investments should allow for performance even in bad economic times.
Part of this money from these accounts would also go to offset the cost of health and life insurance, short and long term disability insurance and unemployment insurance.
Every man, woman and child, ( who are citizens) would get a portion of this money with the larger portion going to Adults, and a smaller portion going to children. (The earlier you invest, the less you need to retire later).
Employees and their Employers would also contribute to the individual funds just like social security or pension plans. Adults whose employes provide an even better system would have the choice to ‘opt out’ but they would be prohibited from asking for government assistance later.
As these funds grow, as people work and get raises and promotions people would (after several years) be entitled to use some of that money for their day to day expenses. They would also be able to get low interest loans FROM THEMSELVES for important life events like buying a house, thus paying themselves interest on money they borrowed form themselves. (This occurs under the current TSP system except that the interest goes to TSP and not the individual)
Overtime, should they become unemployed they can use their own unemployment insurance, not one manipulated by government and politicians. When they retire they retire on their own money, not money at the mercy of the political times as Social Security is now.
But how much could someone have in their account when it comes time to retire? The numbers may astound you. By saving just 100 dollars per week between your contribution, your employers contribution and the governments profit sharing anyone can have over 1.5 million dollars in their savings account in just 40 years.
Depending on the average interest rates it is possible to have over 1 million dollars in 20 to 30 years.
S3A’s and shared capitalism are both long term strategies with and short term results. Those already retired or disabled would be able to use the bulk of the money flowing into their account right away, with only a small portion going to pay for their health and other insurance needs.
Middle aged persons at the time the program is instituted would be able to use about a third to a half of their funds (depending on how the legislation is written).
Younger workers however would not be able to use their funds except in loan format for the first several years so it has a chance to build up interest rates.
In many ways, this idea came from the Alaska model I have discussed previously in this blog. Expect that Alaska did not invest in the businesses, it was in exchange for oil exploration in the state.
By investing in the businesses or industries, the government will help those businesses get off the ground, create jobs, new tax revenue (lowering the cost of government) and have a voice on the board of directors allowing for more immediate response when something goes wrong or needs improving.
While I am a devout Capitalist, I recognize that the time has come to rethink our system to one that both creates wealth, opportunity and prosperity but also guarantees long term prosperity for individuals and the nation, whether the US or the Republic of Puerto Rico as a whole.