Return to Democracy Index



by Shann Turnbull
President of the Australian Employee Ownership Association

Many Australians are demoralised by unemployment, alienated by insensitive bureaucracies, exploited by business, depressed by environmental degeneration, powerless to take control of their lives and cynical about the interest or the ability of politicians to make things better. Stakeholder democracy would resolve these problems by reducing the size and power of bureaucracies in either the public or private sectors. Citizens would obtain power to directly control their lives, neighbourhood and look after their environment. As stakeholder democracy would create a universal minimum income, policies of full employment could be replaced with a policy of fulfilment in employment.

The opportunity for Australia to establish itself in the next 30 years as an ecologically sustainable stakeholder democracy to provide all citizens with personal fulfilment will require fundamental changes in the way we govern ourselves. Beside significant changes to the Australian constitution, we need to also make substantial changes in our social institutions. Instead of relying only on market forces and the authority systems found in public and private bureaucracies to govern our lives we should place far more reliance on family and community relationships or common interest voluntary associations.

As property rights and money significantly govern our lives, their distribution and characteristics require changing if we are to build an equitable and ecologically sustainable society. To preserve the integrity of our bio-regions, we need congruent political structures. To maintain bio-regional capacity to yield nature's resources and preserve bio-diversity, we need matching diversity in: our economic institutions, the means of production and choice of consumption. To achieve choice and diversity, we need to decentralise control of the economy.

Decentralisation facilitates economic equity, efficiency and the ability to manage the information complexity of new technology. New technology will in turn facilitate the development of a decentralised political economy. Decentralised communities create the best defence against political exploitation by foreign interests.

Decentralised control of government departments and large private enterprises would improve their performance if stakeholders who have the most knowledge and interest in their operations were involved. Operational stakeholders are individuals with some physical interaction with the organisation such as employees, clients, suppliers or members of the host community.

The Aboriginal and Torres Strait Islander Commission is an illustration of decentralised stakeholder democracy in the public sector. Seventeen of its 20 commissioners are elected by its clients. In the private sector, Australian research has confirmed overseas studies which show that listed corporations with employee ownership out-perform those without stakeholder involvement. Businesses totally controlled by workers and customers around the town of Mondragon in Spain have a far lower failure rate and greater profitability than investor owned firms.

Both the Australian and State governments should immediately introduce stakeholder participation in the public sector. Privatisation provides an opportunity to create bench-marks of world's best practice for the private sector. Australia could become a world leader and export the social technology of stakeholder democracy.

However, while stakeholder democracy could improve the performance of both public and private sector institutions, it may not improve economic equity. Economic equity does not exist in Australia as less than 10% of the voters own more than 90% of the means of production. This inequality is exacerbated by substantial foreign ownership. Expanding local ownership would reinforce the benefits of stakeholder democracy by expanding the number of voters who obtained the right to control through ownership.

It is only through local ownership that communities can obtain the power to control the nature and degree of exploitation of their environments. Stakeholder ownership becomes a fundamental strategy for building sustainable societies. Local ownership also maximises the incomes of voters by eliminating the export of economic values. This avoids resource rich bio-regions becoming cash poor and allows each community to obtain the power to decide the trade-off between income and nurturing their environment. Stakeholder ownership minimises dependency, social alienation and exploitation while maximising the quality of life consistent with sustaining the environment.

Most importantly, stakeholder ownership introduces a 'Third Way' (refer to figure) for distributing national income. This new 'plumbing' creates a universal income to replace welfare. As all citizens are consumers, they would all become stakeholders and obtain property rights to dividend income. Dividends are the only way to distribute national income without work or welfare and taxation. This Third Way allows the scope, size and cost of government to be substantially reduced. It also increases incentives for expanding the breadth and value of private investment to increase dividends. An 'expanded ownership' strategy provides a way to privatise the tax and welfare system!

The opportunity for reducing taxes and expanding investment should be tied to expanding stakeholder ownership of investments. Foreign investment should be attracted only on the basis that local ownership is increased over time. The ownership transfer principle is illustrated by Build Own Operate and Transfer (BOOT) projects such as the Sydney Harbour Tunnel.

No commercial investor requires ownership for ever to obtain the incentive to invest. Commercial investments are made on the expectation of obtaining a return of and on money invested within the investor's 'time horizon' during the foreseeable future. Any profits after the time horizon become surplus profits as they are not required to provide any investment incentive. For most productive assets the foreseeable future is less than ten years unless there is some government support as found in infra-structure projects. For most investments, dividends after ten years represent surplus profits. Surplus profits are totally inconsistent with the economic or moral justification for a market economy.

The transfer of business ownership from investors to stakeholders after the investor's time horizon cannot, from the definition of a time horizon, produce any disincentive to invest. Australian law limits the life of patents to 16 years and so the capture of surplus profits after this period. Our government does not create a level playing field for investors by allowing them to capture surplus profits from corporations after 16 years. It is also against the interest of Australian voters to have their income and spending power reduced through the export of surplus profits to overseas investors. This now costs Australian voters billions of dollars, absorbs foreign exchange earnings, and exacerbates our overseas debt.

To minimise these costs, tax incentives are required to attract investors on the basis that ownership reverts to resident stakeholders over time. Companies should be given the choice of obtaining the rights to surplus profits by paying tax at the existing level or having their tax rate reduced, on condition that, say 5% of the ownership were transferred each year without cost to their resident stakeholders. In this way, participating corporations would become 100% resident owned within 20 years to terminate the export of surplus profits and introduce economic democracy.

A win-win result is created for shareholders, corporations, the government, the economy, citizens, management and other stakeholders. Shareholders would obtain higher dividends from the reduction in tax and profit retention. Corporations would continue and/or expand their operations through dividend re-investment into their "offspring" Ownership Transfer Corporations (OTCs). Government revenues would increase as the tax base transferred from corporations to resident individuals with a higher tax rate. At the same time, the distribution of income to stakeholders would reduce welfare entitlements and so the cost to government. The economy would export less surplus profits and lose less foreign exchange for all citizens. Management and employees would legitimate their control with part ownership shared with customers and all other stakeholders. The surplus profits captured by stakeholders would help expand the economy with new spending and investment.

Succession of business operations, management and investment would be provided through the creation of offspring companies and the re-capitalisation of OTCs after 20 years. To build an ecologically compatible society, the dynamic, time limited property rights inherent in OTCs also need to be incorporated in the structure of money and the way we own realty. These features are inherent in negative interest rate money and Community Land Banks (CLBs) described in Building Sustainable Communities and a number of my other writings.

CLBs would manage a contiguous precinct containing around 50,000 people and create a local government unit from which all higher levels of government would be based. No higher level of government would undertake any function which would be better carried out at a lower level. Health, education and welfare services would be provided through the CLB which would capture and re-distribute most economic values created by the community. CLBs, rather than individuals, would pay tax and appoint the next level of government. Economic and political power would trickle up rather than down this cascade system of governance. The control of business, social infrastructure and land would be exercised directly by their stakeholders to introduce locally owned economic democracy.

Dividends from CLBs would underwrite a universal minimum income for all residents. Unemployment would no longer be a concern as financially independent citizens competed to undertake meaningful unpaid activities. Voluntary associations and communitarian activities would replace much of the alienating and dysfunctional market forces and hierarchies which currently govern and intrude into our lives. Voluntary community activities would both occupy and support those without paid employment. Dividends for all citizens would allow residents to develop their personal potential and achieve fulfilment without the need for paid employment or welfare.

This is the world I would like to create for our children and their descendants.


* Shann Turnbull, Dip. Elec. Eng. (Hobart); B.Sc. (Melbourne); MBA (Harvard); FAICD; FSIA; FAIM; FRSA has three young children and thus a deeply concerned stake in the future. He is author of Democratising The Wealth of Nations (1975); Parliamentary Papers on The Economic Development of Aboriginal Communities in the Northern Territory (1977/8) and co-author of Building Sustainable Communities (1989). He has won overseas awards for his proposals for economic reform and been invited to present them to the State Commission for Reform of the Economic System in Beijing and to the Central Research Institute for National Economy in Prague.

In 1975 he pioneered the teaching and study of corporate governance as a founding author of The Company Directors' Course. He has been Chairman of three listed corporations and has created and/or managed a number of other enterprises.

Many of his papers on stakeholder democracy and corporate governance are available online from Social Science Electronic Publishing.

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