Democratisation of finance for economic empowerment

This is the last piece in a series of articles whose intent was to engage us in understanding and appreciating the role of finance in economic growth (or the lack of), in development and for an economically empowered society – also called an “ownership-society” which may mean a good society.

Other than ownership of land and housing, the other type of asset ownership with an attached meaning in the role of finance to economic empowerment is the ownership of investment portfolio in the form of shares/stocks, bonds, or collective investment units.

As I had elaborated and argued, in the last two weeks’ articles, this kind of ownership gives people a real sense of participation in society and the economy which may be promoted more broadly by policies that encourage more business-oriented ownership, notably ownership of broad portfolios representing the real productive assets of the economy.

Reading from Lee Kuan Yew’s book: From Third World to First, it seems to me that, Singapore, under Lee Kuan Lew leadership, he led the way to an ownership society with its idea of Central Provident Fund, which is a mandatory saving plan for its citizens, where both the employer and employees contributes. Under such scheme, it allowed Singaporeans to purchase both local and international investments in the form of stocks/shares, bonds, units as well as housing for citizens in Singapore.

Resulting from this approach, the Central Provident Fund made Singapore a different society, given the fact that people who have substantial savings and assets have a different attitude to life – attitude of confidence and entrepreneurship and pro-activeness and consciously proactive into increasing of wealth, etc. They are also more conscious of their strength and take responsibility for themselves and their families.

What we are learning from the Singaporean story is that whether direct portfolio investment by retail/individual investors or institutional investors such as defined (or otherwise) contribution pensions plans, they encouraged people to become owners of investment portfolio, which ostensibly enables individuals or via pension funds to provide incomes for individuals within the economy, which is an important especially during retirement.

So, apart of using pension funds as vehicles for citizens ownership of investment portfolio, there are several opportunities than can be created to enable citizens to participate in the ownership of investment portfolio.

Tools such as privatisation policies via IPOs and listing of state owned companies in the stock market are among those, the other tool is for the state to create a business and investment environment that promotes enterprising and enterprises to access public funds via IPOs and subsequently list in the stock market – that way entrepreneurs and business owners dilute part of their holding in the company for the exchange of efficient sources of capital which also provide an opportunity for a wider investors base and a broad-based economic ownership and empowerment.

Other tools may be in the form of policies and/or legislative approaches such as our Electronic and Postal Communications Act (Epoca) and Mining Acts which requires companies in these selected sectors to sale part of their shares to the wider public and list such companies in the stock market.

Our privatization policy resulted into the listing of seven companies with a combined investor base of about 100,000 (that excludes the multiplier effect of such increased ownership of investment portfolio or investment by institutions such as pensions funds and the unit trust), and so one imagines if we had say 20 companies that were privatized via listing in the stock exchange, among hundreds of other privatized companies via private sales – what would have been the impact in the number of investors and in the creation of an ownership society. The single listing, by Vodacom as a compliance to Epoca brought in about 40,000 investors, many of whom are first time investors in the investment portfolio category. All these, knowingly or not, helps in the democratisation and humanisation of finance -- making finance serve the people and encouraging the people to consider themselves as active participants in a society built on the principles ownership, self-finance, and in economic empowerment.

Lastly, and I admit, not so common in our country, among these tools are policies that promotes employees ownership of business, commonly known as Employees Shares Ownership Schemes (or ESOP).

This is the idea aimed at promoting the ideals and the legacy of better employees’ morale and high effectiveness ins work place, while in the process, creating the ownership society. This financial inclusion motive or an economic empowerment idea is based on the argument that to achieve morale and high effectiveness in the work place, it is helpful if the worker feels loyalty to the employer while at the same time help the company to manage [sometimes] contentious issues of labour-management conflicts/situations which then affects the productivity of the company.

In ESOP, companies encourage their employees to participate in the ownership of the firm by obtaining stock in the company, such a plan motivates employees to work more efficiently and effectively while at the same times helps to create an ownership culture, an ownership society and in the development of an anti-shirking culture.

A society anchored in ownership culture – whether it is the ownership of land, or home ownership, or ownership of investment portfolio (i.e. shares, bonds, units, etc) or corporates that encourages ownership of shares by their employees – is a better society.