By Catherine Austin Fitts
How knowledge behaves as an economic resource, we do not yet fully understand…We need an economic theory that puts knowledge into the center of the wealth-producing process.
—Peter F. Drucker
Table of Contents
I. The Most Significant Investment Opportunity in America
II. A Solari: The Overview
IV. Solari Stock Plan: Solari As and Bs
VI. Solari Investment Analytics
VII. Solari Voting: Voting in the Market for the Rule of Law
@Copyright Solari, Inc. 2002
Our task is to look at the world and see it whole.
----E. F. Schumacher
An entrepreneur who grew up on a small island once explained why small islands produced a much higher percentage of people who were good at starting and building successful businesses. He said it was because when a person grows up on a small island, you see how everything is connected. It is much easier to learn how to take responsibility for the whole -- to see how all time and energy is precious and never to waste anything. People who grow up on small islands, he said, understand that “a penny saved is a penny earned.”
He had been taught from the time he was a small child to connect the behavior of individual people with how everything works around him. He said that he had learned to adjust his behavior so that it contributed to the system working in the way he hoped it would. His family, his school and his church all encouraged him to take responsibility for the whole in practical concrete ways. People who grow up on small islands, he said, understand that “what goes around comes around.”
My friend said that America is just a very big island, but most Americans do not know this -- nor do they understand that the planet is also just an even bigger island. They cannot connect how the system works -- particularly the aspects of the system they do not like -- with their individual actions. They do not have even simple maps of how things connect. They do not understand their own power to vote with their thoughts, their choice of friends and spouse, their actions and how they spend their money every day. People who grow up on small islands, he said, “see the world whole.”
Most Americans look at our situation from their own individual points of view. From every degree of the circle, there is a different definition of what ails us, of why our system isn’t working, and what the solutions are. Often, what we perceive as our own individual problems are really just the symptoms each person experiences of the deeper problems that we all share. Too many times, the solution is to blame or attack someone, or to propose that more government or private capital be spent in a futile attempt to keep the wolf from the door. Without a simple map of where we are and how to get to a better place together, we have forgotten that we are in this together and at the simplest level, you simply can’t eat what you don’t grow.
A highly centralized, non-sustainable economy means different things to different people. To the investor who has gotten hammered in the stock market, it looks like a capital loss and a shrinking portfolio. To the parents whose deteriorating neighborhood is no longer safe for their children, it looks like the world is becoming a scary place. To the people of Argentina or Russia who are being looted to support it, it feels like economic holocaust. To lobbyists who live in Washington, DC and are experiencing job growth and increases in their housing values as more government contracts are issued, it feels more bearable. In fact each group is experiencing different parts of the same financial merry-go-round.
For quite some time, Americans have pumped up corporate earnings with non-sustainable economics. We have used government contracts and outsourcing of services, as well as grants, subsidies and credit (in the form of government insurance and guarantees) to ensure rich profits, irrespective of the performance of the government’s investments. We have permitted organized crime and financial fraud to grow at significant rates when measured as a percentage of our profits and accumulated capital. We have floated the economy on a sea of growing consumer, mortgage, municipal and federal debt. We have managed this leverage by debasing our currency and digging the leverage hole even deeper with derivatives and other financial speculation that we do not understand or properly regulate or govern. We have “pumped and dumped” the stock market with “dot.com” companies that did not produce anything of value for busy people in the real world. We have turned off our economic smoke alarm by manipulating the gold market and gold prices. We have enlisted the cooperation of some of the great minds in our most prestigious universities to provide high-falutin, yet academically dishonest, justifications for transferring public and consumer assets to private investors at below market values. Enron is only one of many examples. We have “cooked our books” until our “goose is cooked.”
Americans have encouraged and participated in tremendous speculative financial activity at the expense of the concrete productive sector of our economy. The impact on our economic productivity has been predictable. The deterioration of our neighborhoods, infrastructure and environmental resources can be seen in every place – north, south, east, west -- and touches everyone, rich and poor alike. The dumbing down of the workforce grows as the daily television consumption, which teaches counter-productive behavior, reaches frightening levels. What is happening in America in many respects parallels what is happening around the world.
The folks who feel that their biggest problem is falling yields on their investment portfolios have yet to see that they cannot enjoy capital gains unless their neighborhoods and children are safe and that the very things that will contribute to their safety – an increase in real human productivity, honest feedback systems and a restoration of personal accountability – will also lead to huge increases in collective investment capital in the economy. The folks who feel that their greatest problem is that they and their children are not safe have yet to see that we cannot achieve personal safety when yields for both retail and institutional investors are dependent upon profits from organized crime, trickery of the investing public and government guarantees that promote unproductive investment and personal behavior. Only when we achieve real economic growth based upon concrete increases in productivity, accounted for and disclosed on an honest basis, can we be both safe and wealthy. Americas’ accumulated savings needs to be taxed less -- not more. Nor do we need to lose more asset value by investing capital in ways that produce lower or negative returns.
The purpose of this article is to introduce the organizational and investment building block that is needed to build a new and profitable alignment among people, natural resources and money. This model is the building block that will allow global investors to generate high capital gains from building healthy people in beautiful, safe and environmentally rich and cared-for places -- not just from extraction and consumption. It’s called a solari – an investment databank and investment advisor for your neighborhood that is created and controlled locally and can access capital both locally and globally. A network of solaris and the equity pools they will create and manage are the most significant capital gains opportunity in America today.
A solari offers the opportunity for higher returns to all Americans -- a soccer mom, a trucker, the general counsel of an insurance company, the young man or woman who works the late shift at the food mart on Route 66 or a Wall Street master of the universe. It does not matter where you went to school or who you know. It does not matter if you are young or old, male or female, black or white, rich or poor. If you are a person who loves making things work, a solari can help you find and mine the “diamonds” in your own backyard.
A solari is for anyone who loves making money on “the real deal.”
II. A Solari: An Overview
We have not journeyed all this way across the centuries, across the oceans, across the mountains, across the prairies, because we are made of sugar candy.
------Winston Churchill
A Solari: Nuts and Bolts
“The time came when they [partners] wanted some shares, so they could take part
in the growth, and so we just sold them to them”
---C. Douglas Dillon, 57th Secretary of the Treasury and Chairman of Dillon Read
A solari is an investment databank and investment advisor for a place -- a place being an area that is typically no larger than 10,000 people resident at the time of the solari's creation.
A solari as investment databank promotes literacy about “how the money works” within its place and -- with tools such as investment clubs -- promotes higher rates of investment within its place. A solari circulates annual reports on:
· “neighborhood financial statements” describing public and government resources and management;
· its estimate or poll of one or more indices (such as the Solari Index -- see next section below) of well being that support a common vision of intelligence; and
· the equity value of the solari and any equity pools it manages.
A solari as investment advisor invests in local reengineering and investment transactions that improve equity rates of return within its place that are profitable and attractive for the solari and its shareholders (see “Investment Opportunities), including but not limited to:
Market forces determine the number of solaris in a place and their relative market shares (see “A Solari.”)
A solari has two classes of common equity: Solari As and Bs. Solari A voting shareholders -- the founders and their self-perpetuating successors -- live within the solari’s place and govern the solari. Economic ownership is represented by Solari B non-voting shares, which can access local and global capital, directly or through vehicles managed by the solari. Solari A shareholders make their profits on Solari Bs just like everyone else. The solari’s equity structure promotes governance by local leadership best qualified to create the highest local equity yields for the benefit of all shareholders -- whether management, neighbor or global investor (see “Stock Plan: Solari As and Bs.”)
A solari’s A/B equity structure provides incentives to reengineer current local investment to significantly higher yields. Transformation of local investment performance occurs in part by increasing alignment of interests where such alignment enhances equity yields -- among various groups locally, between local and global investors, and among human, environmental and financial capital.
The
United States was the location for prototyping the solari model (see “The Solari
Action Network & Solari Trust”) and is the basis of describing it here. The
solari concept has broad application globally, both in transforming
industrialized nations to sustainable economies as well as supporting
non-industrialized nations to optimize current resources and create new wealth.
Indeed, in many places throughout the world, it is essential to ensure
successful privatization and wealth creation in the face of efforts by the
industrial nations and G-7 to deplete wealth to subsidize non-sustainable first
world populations and lifestyles as well as to centralize political and
financial power and resources. This is an important topic for later articles, as
only models with global application will be successful in any one place,
including America.
There are 287 million people in the United States. Assuming a neighborhood or “place” of up to 10,000 people and averaging 4,000 people, the US market has approximately 72,000 potential solari service areas. The creation of solaris and their investment databanks and related equity pools is the most significant capital gains opportunity in the US today. (See “Solari Network Valuation”)
What is relevant is what solves the problem. If we had thought through real relevancies, we would be on Sirius by now.
---Peter Medawar
The word “solari” translated from the Greek means “to reduce anxiety through illumination.1” By promoting literacy about “how the money works” and improvement in investment performance, a solari provides transparency regarding place-based resource optimization and risks necessary to support wealth creation.
U.S. resources have traditionally been managed by two systems:
Whether the democratic process related to resource management within a republic or the market process in the economy, both systems require transparency to optimize individual and system-wide intelligence. Citizens require accessible information about “how the money works” to understand their political representatives’ and governmental organizations’ budgets and actions and hold their representatives and themselves accountable for actual performance. Likewise, consumers, entrepreneurs and workers need accessible and low cost information to optimize preferences and self-interest in the marketplace.
Without place-based transparency, government and market allocation of resources in the U.S. has become increasingly manipulated and sub-optimal in terms of economic performance. The deterioration of the rule of law has accelerated, with organized crime rising as a percent of economic activity and capital investment.2 As this happens, total wealth and productivity shrinks from the optimal and concentrates into fewer hands. There is a shift from small business and farming to corporate control and production that is not merited by fundamental economics. Leadership is increasingly determined by performance in capital control and asset shifting rather than wealth creation. The citizenry has experienced deterioration in standards of individual and civic responsibility and accountability.
The rise of a more economic and timely rule of law cannot be achieved through governmental reform, even with the type of transparency provided by a network of solaris. Worldwide developments in technology -- including digital technology -- have caused significant and growing gaps in technological access and learning speeds between local citizens and organizations and global investors. As a result, a portion of the support for the enforcement of the rule of law will have to shift to open networks that have the power -- when organized around place-based equity based incentives as opposed to the non-performance based incentives associated with municipal and governmental debt -- to match the economic, media and covert clout of large global investors and their regional syndicates. Transparency will need to include the feedback that consumers need to price and “vote” in the marketplace with their purchases, deposits and investments to support and enforce standards previously considered to be the sole enforcement responsibilities of government and the judiciary (see “Voting in the Market for “the Rule of Law” and “Investment Analytics.”)
Such a decentralized system can only succeed if it is committed to the highest standards of traditional fiduciary performance and wealth creation. In short, in the age-old competition between the forces of centralization and the forces of decentralization, the model that produces the highest learning metabolism and performance in terms of both individual and shared wealth creation has the best chance to win (see “Solari Investment Analytics.”)
Solari Opportunity #2: Reengineering to Higher Yields on
All Capital Within a Place
Never be
afraid to try something new. Remember, amateurs built the Ark;
professionals built the
Titanic.
---Anonymous
As US national leadership bolstered by NAFTA continues to move -- even expropriate3 -- significant amounts of private and public capital and employment4 abroad and encourage low wage immigration, local U.S. leadership is faced with the challenge of:
In this environment, a solari can use the increased local transparency it creates to enhance equity yields locally (see “Solari Investment Opportunities.”) To name a few:
As to the history of the Revolution, my ideas may be peculiar, perhaps singular. What do We Mean by the Revolution? The War? That was no part of the Revolution. It was only an Effect and Consequence of it. The Revolution was in the minds of the People...
-----John Adams
The speed at which US citizens reengineer their “shared intelligence” and learning speeds locally will determine the extent to which the US is able to avoid the economic dilution and/or demodernization and depopulation experienced by Russia,6 Argentina7 and other areas of the world that have experienced an implosion of the rule of law8 and the resulting “continuous consolidation of money and power into higher, tighter and ‘righter’ hands.”9 As Tina Turner once sang, “We can do this nice…or rough.” A network of solaris is essential for the U.S. to transform “nice” in the current globalization process (see “Macroeconomic & Risk Issues.”)
A more entrepreneurial way to say this is that a network of solaris is the infrastructure needed to exploit the reengineering opportunity to transform the United States to a sustainable economy. Privatization, globalization, securitization, and digital technology -- these are trains that have left the station. If we rethink traditional alignments and reinvent how we support our resource governance on a decentralized basis we can engage traditional market forces and fiduciary principles to create substantial new wealth around optimal care of the land, of each other and of ourselves.
In the shift to a global economy, a solari is the local investment “compass” that makes it possible for freedom, accountability and wealth creation to reinvigorate each other.
Let’s make no mistake about this: The American Dream starts with the neighborhoods…to sit on the front steps – whether it’s a veranda in a small town or a concrete stoop in a big city – and talk to our neighbors . . .
---Harvey Milk
A solari is an investment databank and investment advisor for a place.
A solari creates transparency and literacy about “how the money works” and related risks within a place. A solari invests in local reengineering and investment transactions that improve equity rates of return within its place.
The lead solari in a given place is determined by the market. Anyone can start a solari and call it a solari so long as it fits the definition of a solari:
· Place-based boundary: A solari must have a place-based boundary for its operations that encompasses a group of no more than 10,000 people at the time of its creation. A larger area may be necessitated where a large discrete entity (a university, a utility or governmental installation, the boundaries of a county) cannot be subdivided. The current expectation is that an area of 5,000 or fewer is optimal. This service area defines those people who are qualified to serve as holders of a solari’s voting shares. (See “Solari Stock Plan: Solari As and Bs”)
· Products and services: A solari must (a) generate and circulate annual reports (“neighborhood financial statements”) that describe public and government resources and management in its place that are accessible at reasonable cost to the people who live within its place and (b) publish the solari's estimate or poll of (i) the Solari Index and/or one or more indices of human, physical and financial well-being in that place that the solari believes support a common vision of intelligence within its place, (ii) the market value of the B shares of the solari and any equity pools that it and its affiliates manage, and (iii) the methods it uses to estimate or poll. A solari may pursue additional products and services. (See “A Solari’s Investment Opportunities”)
· The Solari Index: Expressed numerically as a percentage, the number of people within a solari's place that believe a child is free at any time of day or night before bedtime to leave his or her home, go to the nearest place to buy a popsicle and come home alone safely. The Solari Index has been found in the United States to be a key determinant of the real estate and small business equity valuations within a place.10
· Solari Stock Model: A solari must use the Solari Stock Model (see “Solari As and Bs”) to (i) restrict voting control to Solari A shareholders who live within the solari’s boundary and are the Solari’s founders or their self perpetuating successors, (ii) represent economic ownership with Solari B non voting shares that can be used to distribute 100% ownership of economic value to (a) Solari A voting shareholders, (b) all people within the solari’s service area, as well as (c) retail and institutional investors from outside the service area, including through solari managed investment vehicles that can access private and publicly traded stock markets and institutional capital globally.
· Tithing Requirement: A solari must tithe 10% of its revenues (or such percent as is determined optimal by its board) to those organizations or projects within its place that the solari believes most enhance the spiritual, cultural and/or civic intelligence of that place.
A solari may not incur debt, may not promote any equity plan other than the Solari stock model and must avoid conflicts of interest between the value of investments in its place and its relationship with government and large corporations.
· No debt: A solari may not finance with debt. A solari may create affiliates that are financed with debt so long as that debt is not issued with -- or any obligations of such entity are not -- recourse to the solari in any way, including in events of collection by taxing authorities and litigation judgments.
· Solari stock plan: A solari may not manage, promote or market, or in any way be associated with equity financing for itself, its affiliates or for its place, by any method that does not use the Solari stock model to divide voting equity and economic equity and that does not require majority voting control by those who live within the solari’s place.
· No conflicts: A solari may not enter into a contract to provide goods or services to (a) any governmental entity or (b) any corporation other than a small business located within its service area or another solari. This does not include those contracts required for the solari to purchase goods and services used in the ordinary course of the its business, so long as such purchases do not create an operational risk or dependency. This also does not include contracts created by affiliates or investments to privatize local municipal functions. A solari may support local businesses in obtaining -- or create affiliates that enter into -- contracts with a governmental or corporate entity outside its boundaries so long as these contracts and any liability arising out of them are not recourse to the solari in any way.
If you are
interested in starting a solari, the first step to assess the potential is to
collect up the publicly available economic and investment information about “how
the money works” in your place. Your kitchen or dining room table will work just
fine as a paperful “investment databank.” See if you can estimate a one or two
page sources and uses statement
of local resources in your
neighborhood and a simple balance sheet for neighborhood assets for the last
year or two. If you don’t want to do this alone, see if you can interest one of
the local investment clubs or book clubs to undertake such an effort. If you
take the time to do this, Buddha’s words will apply, “those who are awake live
in a state of constant amazement.”
If we had been obliged to get permission from a board of directors, from banking interests, or from outside stockholders, for the expenditure of the millions that we have put into new buildings, new machinery, and new processes, it [the expansion program] couldn’t have been done. Things go smoothly when the actual owners are right in the factory, and are the most enthusiastic of all in having the best. (Quoting Dodge Brothers factory manager)
Dillon Read intended to recapitalize the company with shares of Class “A” common stock and …shares of Class “B” …This would enable Dillon Read to satisfy two constituencies: the (founders) would be assured of continued control, while potential investors would be all but granted the… payout. This part of the transaction was completed in late December 1925.
----Robert Sobel, The Life and Times of Dillon Read, describing Clarence Dillon’s recapitalization of Dodge Brothers and NCR with two-class common stock plans that divided voting and economic interests.
Solari Stock
Plan: Nuts and Bolts
The Solari Stock Plan consists of two classes of stock: Solari As (voting shares) and Solari Bs (nonvoting shares.)
· Solari As are voting shares. They must be owned by residents of the community. Solari As have a nominal value and no dividend. They are owned by the solari’s founders -- and their self-perpetuating successors -- who vote for and are eligible to serve on the board or governance structure of the solari. Solari As may not be pledged or used as collateral by their owner. If A shareholders resign or move from the boundaries of the solari or die, they or their estates must sell their shares back to the solari for the nominal value.
· Solari Bs are non-voting shares. All of the economic value of the solari’s common equity other than such nominal value assigned to the Solari As is vested in Solari B shares. Owners of the Solari As look to their ownership of Solari Bs for their economic participation. Alignment of Solari A economic incentives with all other investors in the solari is essential for the success of the solari. In all cases, ownership of stock by employees and all investors and constituencies of the organization will be used to incentivize the performance believed to lead to the optimal total B share valuation. The B shares may be owned without restriction, but the solari will endeavor to create and maintain a high percentage of ownership by Solari A shareholders and people who live within its service boundaries. 11
A solari must use the Solari Stock Plan for its own capital structure as well as the pools of equity that it raise and manages to finance its place. Whether through its own capital structure or through related investment pools, the optimal Solari A and Solari B structures (of which there are many possible variations) are those that access liquid equity capital -- retail or institutional, public or private capital markets, or local or global -- at the lowest possible cost.
The Solari
Stock Plan is ideal to help a solari finance small business and local real
estate as well as to privatize municipal functions where appropriate to access
equity capital. It allows place-based income flows and assets to be
“securitized” through a venture capital or investment trust-type
structure (there are many
possible variations) in a manner that achieves the highest sustained equity
valuations. It allows investment in small and illiquid equity through an entity
that can both underwrite and mange with the appropriate analytics at low cost
(see “Solari Investment Analytics.”)
The solari serves as a venture capitalist who intermediates between liquid equity markets and smaller businessmen, entrepreneurs, farmers and developers who are more productive in providing their products and performing services in the local concrete economy than a larger corporation, particularly when their local customers can participate in their economic success through a locally diversified pool managed professionally by the solari. Making customers participants in local business economic success promotes the highest possible learning speeds between business owners and their customers -- often the basis of small business productivity and success.
The creation of two classes of common equity stock to separate governance from some or all economic ownership is nothing new. These types of stock plans have a long history in America and elsewhere. In emerging markets such as China, they are used to help maintain local ownership and to ensure sufficient strategic control to impose restrictions on reinvestment of technology and intellectual capital by foreign investors who are attracted by low wages. The use of a stock plan designed to help ensure that productivity grows from the investment and reinvestment of intellectual capital is appropriate to an economy integrating the benefits of digital technology -- and shifting to greater learning speeds worldwide.
There is no such thing as bad people, just bad systems.
-----W. Edwards Deming
The Solari Stock Plan is designed to ensure optimal equity performance of all capital within a place. To understand why, it is important to understand a few principles regarding the optimization of human, environmental and financial capital. These issues are so critical to wealth creation -- and so misunderstood -- that it is important to describe this concept in detail.
Each human being gives and gets energy. Energy comes in many forms -- health and physical energy, time, attention, love, knowledge and money. What gives a person energy -- or drains their energy -- varies widely. What people like to do to give and get energy -- or to avoid their energy being drained -- varies widely. Universally, what all humans want is more energy. The reason why democratic process and free markets -- where they are supported by transparency, and the rule of law within a republic -- work so well is that they optimize total energy, and therefore total wealth.
Exactly how this works is an age-old question. The founding fathers understood that all men “are created equal by virtue of the divinity of their creation and that human rights are intrinsic to human creation and therefore inalienable.”12 Freedom is a fundamental condition of life, not something that mankind can create or destroy. This theme is found in the teachings of many spiritual and political leaders throughout history -- from the Buddha to the Bible. Recent developments in physics and biology have informed our understanding of why a free people are so productive. David Bohm, the physicist, said that meaning links mind and matter like opposite sides of a coin.
Decentralized systems generate far greater optimization of this mysterious interaction between the human spirit and a world of matter. The mathematics of price and polls communicate meaning in a continual stream of practical applications and choices. As a result, free markets and democratic process promote extraordinarily high individual and shared learning speeds to optimize the complexity created by diverse people in diverse places. They allow individuals equal opportunity to create energy and then allocate energy created disproportionately to those who created it. This permits unequal contribution and allocation of energy among people whose equality is based on opportunity and expression, not on outcome. Performance determines outcome and reward incentivizes value creation. This creates the most total energy for all. This leads us back to the point that this is optimal because what all people in the system want is more energy. If ultimately a society can only eat what it grows, the solution to the problem of how to maximise one's energy must be to create the biggest “pie” possible.
This is counter intuitive for most people -- particularly Americans who have bought in and grown used to a “rigged system.” I am reminded of the optimization technologists at AT&T Bell Labs which discovered from reviewing years of airline scheduling data that seniority privileges for pilots and flight personnel so sub-optimized the total scheduling optimization that everyone, including those with the most senior status, was harmed. Those with senior status would have gotten more if they had stopped requiring a guarantee that they do better than others. This principle applies across the board, whether to Enron rigging business through Congress or the use of Echelon, PROMIS and other taxpayer funded surveillance systems for investment espionage to support insider trading and dealings or affirmative action for those not on the inside. Not only does a rigged deal make the winner more stupid, it makes the whole system more stupid. A rigged system steadily shifts resources to the management of those who want it and take it as opposed to those who know how to create it. Hence the rise of the stupider and stupider as the pie both consolidates and shrinks.
One of the age-old challenges has been how to combine such open opportunity and optimization with the responsibility and accountability required to ensure practical risk management system-wide. One of the problems is the fear that transparency about real risks will give the unproductive too much power -- particularly where they align with those who might want to do harm. Another is the belief that few can integrate a long-term view or the necessities of real politick. Another is the fear of what will happen when everyone is forced to face what is really going on. These risks are serious and significant. Unfortunately, they have been used to justify an increasingly rigged system in a manner that is creating far greater risks.
It is this failure that the Solari Stock Plan reverses by shifting local power to the net energy plus people in a structure where they can balance strategic control and open performance.
I will make you fishers of men
----Jesus Christ, St. Matthew 4:19
There are no strings tied to this stock, so you can sell it whenever you wish…We just want you to know that we were thinking of you in this connection and thought you might like to have a little of the stock at the same prices we are paying for it….
-----The Secretary of J. P. Morgan in a letter to the CEO of Chase Bank, 1920’s
In any
place, approximately 10% of the people generate more energy (or wealth) than
they consume -- they are “net energy plus.” Successful entrepreneurs are
typically “net energy plus.” What is “net energy plus” in a place is often
hard to measure since many local assets relate to human, intellectual, civic and
environmental capital that traditionally is not measured or accounted for, let
alone tracked for performance. Consequently, the economic contribution of
mothers, housewives, teachers, pastors, police and individuals performing
numerous other local and municipal functions are often not understood and,
therefore, are undervalued in terms of their relative
contribution to economic productivity and equity creation. (We can envision a
day when many of these people are eligible for stock options in solari equity
pools whose performance may increasingly depend on their
performance.)
Approximately 80% of the people in a place are followers: they are “net energy neutral.” They consume the energy that they create. Many “net energy plus” people take turns being followers when a variety of circumstances cause them to reduce their energy output. Most people’s energy ebbs and flows in cycles through time.
Approximately 10% of the people in a place consume more energy than they create -- they are “net energy minus.” 13 Net energy minus refers to people who (for reasons which remain a mystery) are parasitic by nature. They seem to enjoy being a drag on the system -- they either have been trained and incentivized to drain energy or loathe giving or creating energy.
Virtually any management theory designed to optimize wealth and performance necessarily boils down to some variation of this simple rule: put the net energy plus people in charge, get the followers following the net energy plus people, and try to keep the net energy minus people from consuming more energy than they create. This rule is essential to keeping the net energy minus folks corralled. Many business leaders and entrepreneurs have heard the expression “invest in your performers.” This rule of thumb describes the facts that a business leader can generate far more productivity by investing his or her time in supporting the most productive people than in getting embroiled in problems that net energy minus people create.
The deterioration of US culture has resulted from increasingly putting the net energy minus people in charge, having the followers follow the net energy minus people (and behaving like them), and draining the net energy plus people badly. As Sam Smith, publisher of the Progressive Review says, “Corruption [in the US] is not a conspiracy, it’s a culture.” Indeed, give a group of net energy minus people control of enough resources and they will command the donations, payrolls, budgets and the awards, media and fear that get them believing they are net energy plus. This is what the story of The Emperor’s New Clothes was all about.
The key to any breakthrough transformation of productivity in the US is to reverse the order of things locally - put the net energy plus people in charge, get the followers following the net energy plus people in action and behavior and continuously find ways to temper and stop the net energy minus folks from draining energy.
This is –
of course-- easier said that done.
In the United States in the 1950s, the Solari Index in most places was 100%, the Dow Jones was about 300-500 and debt per person was very low. The net energy plus people ran their neighborhoods. They were the homeowners and ran the small businesses. The followers followed them. Whenever someone misbehaved, this leadership would deal with it -- often by threatening to cut off the money of the troublemaker. As government sponsored narcotics dealing and government subsidies and financing flowed into the neighborhood, the net energy plus people lost all their power. Their home and small business equity was wiped out and their personal time shrank and expenses skyrocketed as they dealt with the variety of problems created. The net energy minus people -- whether doing dirty HUD and other government deals, gaming the welfare system, or dealing in narcotics -- were able to get and maintain power without interference from the high performance folks. Today, the Solari Index is 0% in many neighborhoods, the Dow Jones Index is over 8,000 and has been as high as over 10,000 and debt per person in America is over $100,000 and growing daily. (One recent report claimed that it was up to $140,000 per person.)
The most significant long-term disadvantage of such a system is that it promotes net energy minus people and marginalizes net energy plus people. As the followers adopt the net energy minus behavior, the culture and productivity deteriorate significantly relative to the optimal. The U.S. reckoning has been avoided for decades by simply expending frightening amounts of government capital and issuing more debt to keep economic activity going. This works only as long as ever-larger markets worldwide will finance the process by holding and using ever-larger inventories of U.S. dollars and buying US government and private debt.
The ability of the net energy plus people in the US to understand what is happening and how and why has been surprisingly poor. This general ignorance has been helped along by corporate control of the media (which, for this reason, I call the “corporate media,” to distinguish it from the independent media), “info-warfare” and covert operations. The more public form of information warfare promotes divide-and-conquer tactics and incentives (men vs. women, rich vs. poor, black vs. white, Christian vs. non-Christian, Republican vs. Democrat and so forth). The more private form of covert operations includes targeting by tax and regulatory authorities, blackmail, financial and sexual bribery that support “control file” systems, assassination and the use various other forms of covert operations that diminish a more general communication about what is happening and why.
A review of the economics helps us understand why and how. If we can presume that 10% of revenues is a reasonable advertising and marketing budget for a high-margin industry, then organized crime in America as measured by the Department of Justice’s estimate of $500 billion to $1 trillion in annual money laundering through the US financial system has about $50 billion to spend annually on “marketing” in ways more subtle than explicit Madison Avenue T.V. and magazine ads. Add that amount to the government budgets that can be used to police franchises, and the amount of money spent on controlling and influencing the “official reality” is stupefying. When an understanding of the amount spent to mislead is combined with an understanding of our intentional failure of disclosure regarding government investment and performance, particularly place-based disclosure, the intentional and increasing centralization of economic and political power by unlawful means can be much better understood.
The advantage of such a system to current US leadership is clear. By centralizing the holding of equity in local institutions or in outside institutions that affect local matters (whether through McDonalds franchises or national telecommunications companies) and denying equity to those who do not support the centralization process, the few at the top can amass the political base of operations and resources they and their global investors need to dominate global political and economic power. It is fair to say that that if we could eliminate narcotics trafficking and the so-called “War on Drugs”, the US political and business leadership would be more likely to resemble a representative sampling of the US population than a G-7 gathering of global financial elites.
As new technology promotes meaner and far more subtle and invisible forms of economic warfare and social control, the centralization of political and economic power in the US continues with the latest transformation from the War on Drugs to the War on Terrorism. The latter moves the targeting of continuous “clamp down” supported by sophisticated relational database technology and digital surveillance to whiter, wealthier and better-educated populations at the same time that this population’s economic and political power and resources are diminishing.
The Solari challenge is to create a transformation out of the current win-lose situation in which we find ourselves. The key is to provide a trustworthy flow of information locally that -- when combined with equity incentive systems -- promotes and incentivizes high standards of responsibility and accountability going forward. Only a system that creates significantly greater amounts of wealth can do so. The fundamental principle that all humans want more energy -- not less- along with the mysteries of freedom and intelligence tell us that it is possible.
Making it possible starts with increasing the flow of energy to the net energy plus people and moving them back into leadership positions locally. This can happen in a model in which a portion of the resulting capital gains flows to the capital that was amassed through organized crime and government corruption. In exchange for offering the leadership of organized crime a “double” on their ill-gotten gains, the local “net energy plus” people can buy back control of their local areas. This alignment is necessary to achieve breakthroughs in reengineering place-based government investment. Without it, the risks to both sides are significant.
This is why the Solari Stock Plan is at the very core of the solari model. The economic productivity that can be unleashed when the high performance people are in control subject to traditional conditions of fiduciary accountability and performance are so extraordinary that “buying” our way into such a system turns out to be surprisingly economic for all concerned.
The transformation of any non-sustainable system to a sustainable system must ensure greater energy and safety -- starting in the short term -- for the net energy plus people. The net energy plus people are our primary resource. Their risks need to be reduced, not increased by heroic actions that drain more energy. This can be achieved by rebuilding the alignment of local “net energy plus” leadership with those who manage global financial capital around a common vision of high performance and wealth creation -- and the rise of a more economic rule of law that makes it possible.
Dillon was one of those who developed a means whereby small investors could profit from such intelligence. The vehicle was called an investment trust, an old concept utilized in the nineteenth century that would flourish again in the 1920’s. Unlike mutual funds, they would not sell and redeem shares at asset values plus commissions; rather, they were pools of money provided to a manager, who was supposed to utilize his special expertise to purchase and sell bonds and shares.
Robert Sobel, The Life and Times of Dillon Read
A solari as investment databank promotes literacy
about “how the money works” within its place and -- with tools such as investment clubs -- promotes higher rates of investment within its
place. A solari circulates annual reports on:
· “neighborhood financial statements” describing public and government resources and management;
· its estimate or poll of one or more indices (such as the Solari Index) of well being that support a common vision of intelligence; and
· the equity value of the solari and any equity pools it manages.
The absence of place-based disclosure about resource management -- particularly government resources -- was covered in the article in the November 2001 SRA Quarterly, "The Myth of the Rule of Law; or How the Money Works: The Destruction of Hamilton Securities Group," which describes some of the transactions, portfolio strategy and simulation and software tool and database development that my former company used to prototype and price various place-based and community equity components of the Solari model over the last decade. See in particular the section “A Word about Place-Based Financial Disclosure.”
One of the lessons we learned from approximately $12 billion of place-based reengineering transactions and venture capital and portfolio strategy and simulation advice for a $500 billion portfolio of US foreclosed properties, mortgages, mortgage backed securities and mortgage insurance is that current negative returns on investment on current federal government investment can be shifted to much higher returns in a 2-5 year period if -- among other things -- literacy and understanding about “how the money works” in a place is accessible on an open basis in that place. The experience of very financially successful public-private reengineerings to date echoes the words of Nicholas Negroponte of the MIT Media Lab, “In a digital age, data about money is worth more than money.”
For a system to optimize, the players in the system must have a basic literacy about how it works. Ask people in America about how the money works in their neighborhoods. They don’t know. Ask people where to get all the information about their neighborhoods. They don’t know. That is why the core function of a solari is to collect and circulate information which serve as useful maps of “how the money and resources work” accessible for busy citizens. Particularly for government resources, such investment literacy is critical to achieve performance. When we understand our government’s budget for the concrete world we see and experience daily, we can take responsibility and be accountable to the standards described in the U.S. Constitution. Without conformity of our financial information and our physical world, most Americans become confused and easily misled and our ability to take responsibility within human time frames diminishes quickly.
There are numerous tools that a solari can use or help others use to promote investment literacy within its areas. In addition to circulating neighborhood financial information, a solari can work with local schools, libraries, home schooling associations and colleges as well as local civic and business groups to promote training and education on the local economy and to build local citizens' business and economic toolkits. It can also promote investment clubs as well as book clubs focused on economic and investment topics.
Each place is different, which is part of what makes doing the early solaris difficult -- there is no franchise “ paint by numbers” kit of what will add the most value in a particular place. A solari promotes process methodologies and incentive systems. That is why it is highly decentralizing. Within the boundaries of the definition of a solari, the Solari A shareholders have the power and responsibility to invent, design and operate their products and services subject only to the judgment of each other, their shareholders and their performance in the marketplace.
Once the solari has
established itself as an investment databank and established its process for
circulating financial information and indices on performance, whether by the
Solari Index or other indices that it determines, the Solari A shareholders will
have the knowledge they need to then assess their opportunities to invest the
solari's time and money to exploit the potential
reengineering opportunities --
either directly or
indirectly by helping local entrepreneurs, small businesses, accountants,
attorneys, associations and co-ops to do so:
One of the ways that building local venture and investment equity pools -- made possible by the Solari Stock Plan and the solari acting as an intermediary to function as a “governor” of the relationship on a diversified basis -- adds value is by connecting the local community as shareholders to the businesses that they now typically frequent as customers. This builds an alignment between the local businesses and their customers which will promote a much higher learning speed between a business and its customers. Such learning speeds are often the key to the success of such businesses and the shared intelligence within a community.
During the S&L crisis in 1989-90, there were towns in America where over 70% of the housing was owned through defaulted mortgages belonging to the federal government credit and disposition programs and the Government Sponsored Enterprises (e.g., GSEs -- Freddie Mac and Fannie Mae). The last decade has seen ballooning of these federal credit portfolios in far less credit-worth instruments than was the case in the 1980’s. That means that the possibility of a period of high default rates has increased. A solari poised to do debt-for-equity swaps could create and capture tremendous value in handling large resolutions in a way that will “grow the turnips” locally.
The coda of cleaning up financial mess is “in the destruction of the old, let there be the creation of the new.” Debt-for-equity swaps that aggregate and work out defaulted debt by place may be the way we convert to equity based local economies. If the economy sours and unemployment and default rates continue to rise, the presence of a solari and the creation of local equity vehicles can make a tremendous difference to the productive investment of a community’s time and energy in positive transformation through such a period.
One of the most mutually beneficial relationships for a solari will be with the local banks and credit unions that promote equity creation locally. The area of debt-to-equity swaps is one with potential benefits and fee business for banks in a way that could make them a valuable joint venture partner or investor in or with the solari.
Buyouts, reengineerings, renegotiation and waivers of government investment and regulation: anyone who has ever looked at the total sources and uses of government monies on a per person basis in a place will understand the potential. Ask anyone who has ever worked in a local post office handing out all the government checks how frightening the current negative return investments are.
Most necessary or attractive government reengineering cannot be done by a typical government agency within its budgets and regulatory constraints. A decade long experience with reengineering significant government subsidies, credit, insurance, assets and operations throughout America showed that 90% or more of all reengineering savings came from place-based reengineering that was cross governmental platform (i.e.,