Monday, July 7, 2014

Given New Purpose, Local Investment Could Flourish

For months I've been wanting to write a post re approaches for local investment options. A recent Vox interview with Marc Andreessen provided further impetus, and one of Kevin Erdmann's risk and valuations posts also encouraged me to put some initial thoughts together about a very important subject.

Recently I wrote of the need for a new form of dual equilibrium, which could bring greater stability to communities and/or regions with limited economic access. However, a closer look at underutilized resources would also provide a chance to fine tune and stabilize the general equilibrium. Today's prevailing equilibrium, as Kevin Erdmann explained, is what most people count on for the most rational of reasons. From "Part 6: At some margin, being short-sighted is rational":
We all specialize. This means we are optimized to an environment that is stable in relation to our competitive advantage. If we weren't, we would be reducing our standard of living substantially. This is the dilemma of the modern world. Outside of cultural outliers like the Amish, we almost all take the optimized route.
...if a dystopian hellscape comes, we will all wish that we had chosen to be Amish. And, the choice isn't obvious. It is reasonable to expect that every society will eventually devolve. Many places in the world are currently in this position, and every place in the world has been in this position at one time or another... 
More locally, most of us trade away the manageable portion of our risk for a fixed wage or fixed income...if we have a very uneven income stream, it is humanly impossible to plan rationally. The establishment of a stable plateau of outcomes, then, is very valuable, even if it can't encompass the entire range of risks.
Kevin goes on to explain the current position in which it is more rational for firms to prefer equity to labor. As it turns out, the movie Transformers 4 does a good job of illustrating some present ramifications of this issue. What hope for human capital? Particularly in the U.S. where so much is already available at all levels of skill.

Fortunately, prosperous areas are able to compensate, and many who live in these regions still have adequate economic access. However it is the areas with less economic vitality, which need to rely on citizen input as a base from which to generate further wealth. Creating steady income streams through time arbitrage, would be an initial step in an ongoing process.

Before investment opportunities (beyond actual service formation) can be discerned, diverse skills sets will need wide applicability in personal contexts. Plus the same flexibility will need to apply for various environment components, where economic activities are actively being reconsidered. Flexible building components would become the second tier, in a three tier investment strategy (first is a services base). The third investment tier would be applications of resource use which go beyond basic local needs.

However, local investment strategies would be intended for local consumption only, so that all participants can access investment options and choices in risk in multiple formations. Provisioning of local investment options is especially needed now, in that there are otherwise no strong growth environments which small investors are free to participate in. Only consider how IPO offerings have changed in the U.S, hence most growth (higher risk) investments now belong to a limited set of investors.

Another benefit of keeping investment options local (for all local citizens), is the fact that small businesses have become disadvantaged in terms of national investment strategies. That has contributed to the problem of areas which are too reliant on government "life" support. As Marc Andreessen indicated, Sarbanes Oxley has done much to damage new small business formation. By generating local investment options, communities with limited economic access would gain greater wealth possibilities, than today's government backed financial options. While government backing implies stability, it can leave areas fragile and exposed, if they do not have sufficient economic activity.

One of the primary differences between a locally augmented equilibrium versus the standard equilibrium, is that local resources (labor potential, local natural resources, and recyclables) would often be utilized where they otherwise may not appear "necessary" for total factor productivity. Consider available local commodities, for instance. If local commodities also trade on the open market, look for local adaptations which would provide greater value than what was internationally assigned. Those adaptations would also provide more local work, than the provision of raw commodities actually requires.

For local time use options, look for ways that citizens can create added value. While added value could also generate occasional windfalls in other markets, it would especially provide a sustainable base in local markets. However, this is not about reversion to earlier product formation (i.e.slow food movement) but about innovative adaptation which brings greater productivity within the reach of local producer/consumers. Automation in this regard would also provide local investment options for all citizens.

Local investment could turn communities into multifaceted organizations - only they would be more diverse and flexible than present day institutions. Recording of local investment options such as locally available raw materials, recyclables and human capital potential, would also give local investors a working picture of what is possible to achieve at local levels. Accurate records as to what has already been accomplished, would make it easier to generate new proposals for group activities to continue the process of moving forward.

No comments:

Post a Comment