Sectoral Banks

By the mid-late 2010s, we saw corporate profits worldwide were soaring to new records, to the benefit of very few. Most of this money was held in cash, not reinvested, nor used for hiring or wage increases.

Sectoral Banks and some of the industries that own them, would need to be kick-started by government in their initial phase. This would also include the technical capacity for their educational facilities, and in some cases industrial capacity as well.

Typically in developed economies we see disproportionate profit growth in a small handful of economic sectors. Recently these have been finance, resource extraction, tourism, and technology services. This has created a situation in which many economies lack diversification, rely on a handful of unstable sectors, hollow out their static sectors, and hurt cultures and traditional ways of life. By ensuring balanced development with diversification between [and within] sectors, and the promotion of new businesses, the economy will be far better placed to find new paths for growth in the event of shock or rapid change. At the same time, the production of basic essentials for living (of which there is always a demand for), will be maintained as economic sectors, and serve as industries in which an economy can fall back on in times of need.

The word country is used loosely in this section, and would also be applicable to labor market and customs unions, and other common markets, which jointly collect tariff revenues.

Sectoral Banks must be part of the toolset and automatic mechanisms in a New Physiocratic government which are employed with the following purposes:

• A means to return corporate tax revenues back to businesses

• To provide support to strategic sectors of business and society

• Put downward pressure on prices of Basic Essentials, by increasing their supply through substantial capitalization for their investment

• Creating mechanisms with which funds are automatically channelled to the appropriate segments of the economy to deal with economic changes as they aris e

• Providing training for people who are employed or wish to be employed in each respective sector

• A means with which companies within in each sector can share capital equipment

• Allows companies to join forces to buy capital equipment at bulk purchase prices

• Establishing a means to pool resources so that each sector can develop a strategy for long-term success

• A channel for funds to circulate to all economic sectors when one specific sector is booming (typically oil and mineral resources); thereby addressing Dutch Disease

Sectoral Banks must be owned by the sectors they represent. For example, all farms would be owners of the Agricultural Bank. To achieve their goals effectively, certain rules must be instituted:

• Businesses holding shares in Sectoral Banks must meet domestic residency requirements for directors’ residency, domestic operations, profits, stock listings, and corporate headquarters; foreign companies would need to set up local companies to apply

• The banks could only offer their loans, ownership, dividends, and training strictly to their own sectors

• Although shareholders in the banks could not receive the benefits from Sectoral Banks outside their sectors, they would be free to take loans from independent banks

• Some economic groups would be shareholders in multiple banks (e.g., farms would hold shares in both the Agricultural Bank as well as the Bank of Basic Essentials)

• Dividends are to be paid from Sectoral Banks’ profits, not from the funds they receive from tax revenues

• New entrants must be allowed as shareholders immediately, but only entitled to dividends after beginning operation s

• Shareholdings should increase with output, then capped at a certain point; with the mandate of safeguarding competition and new entrants

• Each bank must own and operate educational facilities, with which to train their labor force for their own sector

• Individual bank branches would have a degree of autonomy, and invest a portion of their funds locally

• Communities could petition for a Sectoral Bank branch in their area

• The banks cannot be a means to form cartels in any kind, and could not force industry groups to become members, nor their members to join in group purchase or sale initiatives; enforced by an elected, independent investigative agency

• The banks could not restrict entrance of new companies to becoming owning members

• The unused portion of distributed funds that the each Sectoral Bank receives would be taxed at a rate of 2% per year (with a 2-year exemption), and redistributed evenly back among all the Sectoral Banks

• Transparency must be guaranteed in management meetings and reporting for Sectoral Banks, safeguarding public visibility of their operations

• Each bank must include its own venture capital fund, for which they are entitled to use half of their funding, in order to ensure no artificial preference between debt and equity financing

All corporate income taxes that would be raised, aside from the special cases discussed, must be re-distributed evenly across all Sectoral Banks.

The following banks would be established:

• Resource Exploration Ban k

• Agricultural Bank

• Manufacturing Bank

• Basic Essentials Bank

• Startup Bank

• National Defense Bank

• Strategic Technology Bank

• Infrastructure Bank

• Infrastructure Industry Bank

• Electrical Energy Bank

• Export Development Bank

• Cultural Bank

• Network of Regional Credit Unions

• Housing Bank

• Consumers Bank

• Regional Development Bank

Resource Exploration Bank:

As the name suggests, this bank would be mandated with funding resource exploration projects, and initiate the first steps of the extraction process. Owned by the nation’s resource extraction and exploration companies, it would house the related educational and resource houses for these endeavours, and train the required labor force. It would ensure that when resource prices are low, exploration and the groundwork continues in preparation for upward price and demand shocks. When resource prices rise, tax rates on this sector would automatically rise too, and this bank would also ensure ample investment in response to these changes.

Agricultural Bank:

The Agricultural Bank would be owned by all registered farms, as defined by a certain value of agricultural inputs and outputs. As one of the keystone Sectoral Banks, it would have ownership of factories for value-added agricultural manufacturing (such as processing and packaging facilities), enough to meet the entire agricultural export capacity. In addition, its regional branches would own the farmers’ section of the Local Markets as well as the licensed Farmers’ Shops. It would receive funding from not only the pool of corporate tax revenues, but also revenue from agricultural import and export tariffs. When global food prices rise, so would these revenues, and farmers would be awash in resources to respond, insulating domestic consumers from the shock.

Manufacturing Bank:

The Manufacturing Bank, owned by the nation’s manufacturers, would play an important role in mitigating the effects of Dutch Disease. For example, if there is a spike in the price of oil in a major exporter, typically a country’s manufacturing sector is hollowed out as a strengthening currency renders it uncompetitive, and the country’s resources race toward the oil sector. With some of the tax revenues from such a boom (as in any other sector) being automatically diverted toward the Manufacturing Bank, the sector would be given a lifeline as the rising tide of other sectors would also pay dividends to manufacturers. The bank would also receive the compensatory tariff revenues from non-Basic Essential manufactured goods. The bank would also be in charge of a manufacturing training program.

Basic Essentials Bank:

The Basic Essentials bank, owned by the nation’s farmers and manufacturers of the other essentials for living and their subcomponents (e.g., agricultural equipment), may also be partly owned by some businesses, which also own shares in the Manufacturing Bank and Agricultural Bank. The bank’s mandate, coordinated with the Effort to Support Purchasing power, would be to provide the lowest possible consumer prices for these Basic Essentials (without sacrificing quality), and a degree of self-reliance in Static Sectors. It would also receive the import and export tariff revenues for these products that are applied under the compensatory trade regime. Like the Manufacturing Bank, the Basic Essentials Bank would have its own education and training program.

Startup Bank:

The Startup Bank would be owned by all domestic businesses that are under 5 years old (regardless of their financial success) and are not associated with any existing business; one owner could not increase shareholdings by registering multiple businesses. Businesses would receive a share upon registering, and their holding would increase after the first year, and decrease again by the final year.

National Defense Bank:

The National Defense Bank would use its funds for companies whose efforts are focused on researching or producing hardware specifically to meet the needs the unique security requirements of the country. This bank would also operate an engineering university, so that the young, creative minds can gain relevant experience for their careers while at the same time providing a source of inexpensive R&D for the military and police to reduce the burden on taxpayers. It would be unable to finance military operations of any kind, and would have a mandate of spurring dual-use (military and civilian) innovations, and achieving national self-reliance in military hardware. The New Physiocrats view national security as an essential precursor to investment, peace, and life.

Strategic Technology Bank:

The Strategic Technology Bank would be mandated to fund businesses focused on developing new technology, as defined by their domestic research and development spending, number of patents, and patent expansion rate, versus the company size. The purpose of this bank would be to provide a counterweight to the Static Sectors of Basic Essentials, by providing the economy with an equal amount of dynamism and healthy risk. By maintaining ample funding for companies which prove themselves to be innovative, the economy will be ready to seize new opportunities as economic conditions change. This bank would also own a cutting edge post-secondary institution to bring together students who are motivated to enter innovative professions and patent new ideas.

Infrastructure Bank:

The Infrastructure Bank would be a bank owned by the government’s sovereign wealth fund. Its sole mandate would be so that national and regional governments could borrow from the bank to fund infrastructure projects, and its ownership structure would ensure that the bank operates at arms-length from the government on a for-profit basis. With the ULT in place, the rise in land values after infrastructure investments would then be collected, making repayment straightforward. As the interest on the repaid funds would return to the governments via the sovereign wealth fund, infrastructure investment would flourish.

Infrastructure Industry Bank

The Infrastructure Industry Bank would be owned by companies involved in producing raw materials, equipment, and final goods for creating infrastructure. It would be a diverse group of companies, from railcar and railroad manufacturers, to concrete and excavator producers. Its mandate would be to ensure that the supply side of infrastructure can be met, and with a degree of self-reliance for such essentials, to control potential supply constraints and infrastructure cost overruns.

Electrical Energy Bank:

The Electrical Energy Bank would be a bank owned by the nation’s renewable energy suppliers. In addition to the standard pool of funds from corporate tax revenues, this bank would also be capitalized by the greenhouse gas and pollution taxes that would be levied on unclean sources of energy. This would help ensure the development of clean energy infrastructure and enable the conditions for low consumer and industrial energy prices.

Export Development Bank:

The Export Development Bank would be owned by companies whose revenues are mainly derived from exports, or those requesting funding specifically to meet goals in export growth. Mandated with promoting exports, the bank would offer export financing and trade credit insurance, as other export banks around the world. By designating this bank as a Sectoral Bank, connected to the pool of corporate taxation funds, it would ensure that as a country’s incomes grow, its current account balance remains stable.

The Cultural Bank

The Cultural Bank would be owned by the country’s artists, musicians, craftsmen, media outlets, community restaurants, and artisans (like those found in the Local Markets). This bank would also own a diverse range of media outlets specifically for music, movies, art displays, and entertainment media, in addition to its ownership of the artisan section of the Local Markets. As with most of the Sectoral Banks, the new entrants would be granted a slightly disproportionate share in the bank, so that incumbents don’t always hold their market share captive. In addition, a tax on media spectrum (such as radio spectrum and communications infrastructure oligopolies), would be distributed directly to the Cultural Bank. The Cultural Bank would also be obligated to offer educational facilities for traditional crafts, cooking, and other cultural arts. This bank ensures that as the economy advances and businesses grow, culture and traditional lifestyle is not left behind.

Network of Regional Credit Unions

The National Union of Credit Unions would be owned by the regional credit unions, which in turn would be owned by their bank account holders. Each governing region would have its own autonomous credit union, and would be capitalized with the aid of its share of the corporate taxation funds distributed to all Sectoral Banks. These funds could also be used to pay for their fixed costs for meeting their mandate. The credit unions under this program would be limited to offering basic banking and brokerage services, such as bank accounts, ASP accounts, and business loans. The banks would have limitations with regards to offering mortgages, in that property loans could only be offered for business purposes.

Under the New Physiocratic constitution, citizens would be entitled to bank accounts and investment accounts, which would be necessary to administer the programs under the Three Pillars. By granting ownership of these institutions to its users, costs to consumers would be minimized. The mandate of the Network of Regional Credit unions would be to ensure all citizens have access to a bank account and ASP account. A positive externality of distributing the funds evenly across each regional credit union would be that a slightly outsized volume of capital would enter less populated regions, thereby automatically creating more even development, and by its very nature would magnify the achievements of the Regional Development Bank.

Housing Bank

The Housing Bank would be owned by entities that are licensed specifically to build affordable housing, as defined by rental price per square meter as a percentage of median income. The funds could insure a portion of the of the loan values (for the builders, not the purchasers), in addition to normal lending operations. Its mandate would to maximize the number of homes built within the affordable classification, while maintaining architectural and environmental standards. As corporate tax revenues grow, the funding for the Housing Banks (as with the other Sectoral Banks) would therefore grow too. This would ensure a healthy supply of housing to supply the citizens in a growing economy, while maintaining their purchasing power.

Consumers Bank:

The Consumers Bank would be structured like a consumers’ co-op, (such as the UK’s Co-operative Group) held by all citizen-residents, and would own farms, agricultural processing and packaging facilities (enough to meet the most basic level of domestic demand), the consumers’ section of Local Markets, and a chain of Basic Essentials shops. It would also hold the Renters’ Union, giving tenants greater power to negotiate their rent. In addition, it would house some consumer regulatory bodies (which would be funded outside of the Sectoral Banking system) to ensure consumer safety, labelling transparency, and product longevity. Giving a consumer-owned organization a strong presence in the retail market for Basic Essentials (with an element of vertical integration) tips the balance of economic power in favour of those in need of greater purchasing power for these goods.

Regional Development Bank

The Regional Development Bank would be owned by jointly the country’s regional governing bodies, allowing regions to engage in development projects which could then be repaid from rising ULT revenues. Without a regional development effort, small cities, towns, and villages end up losing their populations, while people become concentrated in a limited number of urban areas. While concentrated cities have their benefits (as discussed), an imbalance between urban and rural regions creates its own social and economic issues. A loss of rural life can lead to brain drain from the critical agricultural sector, as well as losses of traditional culture and lifestyles. Encouraging regional development also helps take luck out of the equation when it comes to the benefits of being born in a certain location. Bank branches would be divided by region, and would have autonomy for the loans they issue. The public would have the power within their own regions to impeach, charge, and replace their local branch management via petition. This would be a preventative measure against corruption and patronage. This bank would not only be mandated to ensure even development across regions, but also to operate at a profit.

Agricultural Bank and Consumers Bank - Privileges and Responsibilities

Both the Agricultural Bank and Consumers Bank would be founded with ownership in agricultural equipment and processing companies (the Consumers Bank would also own some farms itself). These Sectoral Banks would be granted the privilege to increase their shareholdings in agricultural equipment and processing companies, and invest in these firms while being exempt from taxes on capital gains and dividends earned from these companies. This would ensure that gains from adding value in agriculture would accrue both to farmers and consumers, and both groups could make the appropriate decisions in their own interest, for which they have their responsibilities. The Consumers Bank would also be granted these same privileges for ownership in affordable homebuilding companies, to the same effect.