The Way To The Post-Epidemic Economic Growth

Shoppers are looking at the exposition of the Optical Tech Shop in Kaohsiung, Taiwan on April 20, 2020 (AFP)

 

If Taiwan, Australia, Japan and other leading economies in the region will pursue the aggressive program of expanded capital ownership-based economic growth, millions of citizens in the Indo-Pacific region not only would not fear the acute unemployment, but they would become economically independent.

 

Taiwan is the country where the Wuhan virus epidemic claimed only three lives. This is the smallest number of casualties in the country with population compared to Australia and situated in the distance of two hours flight to Communist China. Although Taiwan avoided human lose it may not escape serious economic consequences which will affect the majority of global economies.

On Wednesday The Ministry of Economic Affairs introduced special measures which are designed to alleviate costs of the small and medium production and export companies. The measures include rate costs cuts by 20 per cent, subsidy of 40 per cent wages, 50 per cent cuts in the maintenance fees and the utility rates with water and electricity. The government will provide loans at the 1 per cent interest rate. The government relief will include self-employed workers.

These measures may not be sufficient for the firms in the hospitality industry which are struggling to withstand the slump business. On Tuesday Kaohsiung-based Grand Hi-Lai Hotel has temporarily cut wages for all employees by 18 percent and is encouraging them to take unpaid leave. This epidemic is taking a far worse toll on the local hospitality industry than the SARS outbreak in 2003, Lin said, as the number of foreign tourists has dropped to zero, while domestic travellers remain at home to avoid infection, stated Hotel general manager Lin Zi-kuan. The hotel is not leaving the employees without help. It provides interest-free loans equivalent to 80 percent of reduced wages for two years to help those with cash needs during the transition, Lin said. It will also provide NT$5,000 in monthly subsidies and pay for the workers’ health insurance until the hotel can resume normal operations.

Had the Grand Hi-Lai Hotel workers been employees of Mid-South Building, American construction Company based in Virginia, they would have own its shares that have value 270 per cent above the original purchase price. They would be able to face with greater confidence this crisis. The American workers own the Company that has its headquarters in Springfield the American state of Virginia. From the day they became the owners, the Company has increased its workforce by 420 per cent. Since the purchase of the Company according to the principles of customised Employee Stock Ownership Plan, it has expanded from two locations to eight in two states with over one- hundred and fifty full-time workers.


Capital purchased by new owners without putting up money

Taiwanese employees and hundreds of thousands of their colleagues in the Pacific countries are facing unemployment or acute under-employment due to the consequences of Covid-19 epidemic would have had a second source of income or the retirement fund like employees-owners of Mid-South Building.

In 1985, the Company’s tax-exempt ESOP Trust purchased all 3,000 shares of Company stock from the then-owners, for which it paid the US $7,300,000, a price at the higher end of an appraised "fair market value.” No worker put up any money for the purchase, whether in the form of deductions from wages or salaries, personal savings, or loans. How was it possible? Under U.S. law, an owner who sells a company to the workers through an ESOP can defer any taxes on the gain from the sale if the proceeds are used to purchase “qualified replacement securities.” In the case of the Mid South ESOP, the selling owner could make an asset-backed loan guarantee to collateralise the commercial bank loan the workers used to purchase the shares through the ESOP Trust.

The bank assessed the feasibility of the loan on the basis of the future stream of pre-tax profits projected to be earned by the Company within 20 years. The Company's cash contributions and dividend payments to the ESOP repaid the acquisition loans 7 years ahead of schedule.

A new owners purchased shares of feasible businesses
The successful bank-financed buyout of Mid South Building Supply, Inc. by workers having access to a capital loan that was repaid with corporate profits, demonstrates the power of expanded capital ownership financing.

Taiwan and the other countries in the Pacific region can and should implement a broadened version of this mechanism to include all of the unemployed and homeless. Grand Hi-Lai Hotel employees do not know when the firm will renew their contracts. But if Taiwan government adopts the law that would help launch programs of an expanded capital ownership financing, the workers and unemployed will not have to suffer the consequence of the long-term recession. The recession may not be a long-term one at all.

The Centre for Social and Economic Justice that was co-founded and have been presided by lawyer and economist Dr Norman Kurland offers programs, analogical to the customised ESOP program for the Mid-South Building, that could help to finance and re-finance local businesses simultaneously creating new capital owners. Taiwanese citizens as well as the citizens in other countries of the region, could become a new owners of the shares issued by feasible businesses or those which need recapitalisation. Like Mid-South Building Supply, the Taiwanese companies would be able to defer any taxes on the gain from the sale if the proceeds would purchase “qualified replacement securities.”


Firms receive easier access to the venture capital
In a similar way, thousands of the feasible businesses would receive access to a new capital, and the wealth in Taiwan and the countries in Pacific region, including Australia, would be diffused on many new owners.

During the recent summit of G20, the world leaders asked how these enormous subsidies needed to sustain the economy during the post-epidemic time can be financed? Thus the most important question of that discussion was money.

The economic philosophy which underlies customised ESOP solutions is Economic Personalism with a New Paradigm of Money in the centre. The fundamental tenets of the New Paradigm of Money are truths that money is a scale of economic activity, and it is a social instrument. The social instrument can be shaped that it would fulfil its goal.


Article 17 Universal Declaration of Human Rights guarantees right to own property for every person
These truths reject the view of economic scarcity and emphasise that the growth is unlimited. The Economic Personalism teaches primate of a person, who is participant and beneficiary of the truly free markets. This economic philosophy points at the still the untapped source of economic growth – right of ownership that is an equal economic opportunity to become an owner of the productive capital for every child, woman and man.

This is the content of an article 17 of Universal Declaration of Human Rights which the representatives of the forty-eight countries ratified in 1948. Article 17 states that every person has the right to own property alone as well as in free association with others and that no one shall be arbitrarily deprived of his property. In other words, every child, woman, and man has the equal right to become an owner of productive capital.

If Taiwan, Australia, Japan and other leading economies in the world, will demonstrate its leadership and pursue the aggressive program of expanded capital ownership-based economic growth, Taiwanese, Australian, Japan citizens not only would cease to fear the impoverishment but they would begin transformation of the global economic that is just and inclusive.

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