Earth, Inc. Shareholder Report: Shareholder Equity

Equity: Definition (Merriam-Webster Online)

  1. a: a right, claim, or interest existing or valid in Equity
    b: the money value of a property or of an interest in a property in excess of claims or liens against it
    c: a risk interest or ownership right in property
    d: the common stock of a corporation
  2. a: justice according to natural law or right; specifically: freedom from bias or favoritism

Current Status of Earth Shareholder Equity

caption Figure 1

The World Bank has calculated financial wealth per capita based on human, built and natural capital as follows. The chart at right displays those results.

This information by itself provides an incomplete picture of the status of Earth Shareholder Equity because it leaves out the distribution of wealth. Figure 2 portrays the current distribution of financial wealth globally.

caption Figure 2

During the 1990's the trend toward growing inequality has accelerated. In 1960 the top 20% of world population had an income 30 times greater than the bottom 20%. As of 1995 the richest 20% had 82 times the income of the bottom 20%. Between 1987 and 1993 the number of people with incomes of less than $1 per day increased by almost 100 million to $1.3 billion. In 100 countries, income per inhabitant today is lower than it was in 1985. 1.6 billion individuals now live in greater poverty than at the beginning of the 1980's. Clearly the growth in world GDP alone, from 1990-2000, is an inadequate indicator of global financial wealth.

What does an Earth Shareholder own? What is a share of the earth?

The distribution of wealth from produced assets and human resources will always be subject to debate and negotiation among various interests, governments, and political systems around the world. In this report we would like to focus on those resources that are inherently the common property of all Earth Shareholders, namely those assets produced neither by labor, nor capital.

As a shareholder in Earth, Inc. each person on Earth shares a common inheritance of natural and cultural assets. These assets contribute actual or potential dividends to everyone on Earth. Actual and potential dividends can be computed on a per capita basis for ecosystem services, human and social services, and rent on natural and common assets. Our operating assumption will be that the contributions to welfare from natural capital and the shared cultural heritage of humankind should be equitably distributed among all shareholders, while the value added to these assets by individual or collective effort (labor or capital) should belong to the individuals who contributed that value, thus promoting both equity of common assets and incentives for innovation and entrepreneurship.

Additionally, our goal in managing "Earth Inc." should be to create sustainable Shareholder Equity rather than short-term dividends. Therefore, Earth, Inc. should be managed to create a perpetual stream of benefits to shareholders, rather than be liquidated as quickly as possible for maximum short-term gain.

Equity from Human and Social Services

Governments often provide services to their citizens from tax funding, which in many countries includes health care, education, welfare, unemployment, old age pensions, and disability. Governments often provide infrastructure such as roads, rail, water and sewage treatment. Other government services include research funding, access to museums, public lands and national parks. Governments provide for common defense, regulate the environment and working conditions, and operate the judicial system. These benefits provide for human welfare, but are very unequally distributed globally.

Equity from Common Assets

Many public goods cannot be assigned property rights and are inherently public such as the atmosphere, ozone layer, national defense, judicial system, etc. There is a class of public goods, which in the past had no property rights assigned, that have been termed common assets. These include the electromagnetic broadcast spectrum, fishing rights, mineral rights, aircraft landing rights, orbital satellite slots, products of government research such as the internet, patents on genetic structure, cap and trade permits for emissions of pollutants such as sulfur dioxide, NOx, or CO2, etc. Rental values on these assets could be retained as Earth shareholder equity, instead of being privatized as many of them are being done currently.

Equity from Natural Capital

caption Figure 3

UN Resolution 1803 (XVII) of 14 December, 1962/ Declaration of Permanent Sovereignty over Natural Resources:

Violation of the rights of peoples and nations to sovereignty over their natural wealth and resources is contrary to the spirit and principles of the Charter of the UN, and hinders the development of international co-operation and the maintenance of peace.”

Another View

The meek shall inherit the earth...
Except for the mineral rights
.”

—J. Paul Getty

Total national wealth from natural capital has been calculated regionally by the World Bank for 1997 including pasture land, crop land, timber resources, non-timber resources, protected areas, and subsoil assets. Urban land was included in built capital, but should be included in natural capital, and would add a substantial amount.

Note: from World Bank report; "It should be mentioned at the outset that natural capital values are primarily based on instrumental or use values of the environment and that important ecological and life support functions of natural systems have not been valued. Depleting natural capital reduces the value of ecosystems services… [Harvesting renewable natural capital at a sustainable rate can maintain the same level of ecosystem services.] For countries rich in sub-soil assets the importance of investing, rather than consuming, returns from extraction of oil, minerals, coal, gas, and other exhaustible resources needs to be stressed."

Equity from Ecosystem services

Adding to the natural capital values calculated by the World Bank are the values of ecosystem services. The services of nature provide at least $33 trillion worth of free benefits to humans, which is equivalent to $5322 each for the 6.2 billion people on earth. These services include:
Gas, climate, and water Regulation, Water supply, Erosion control, Soil formation, Nutrient cycling, Waste treatment, Pollination, Biological control, Habitat, Food production, Raw materials, Genetic resources, Recreation, Cultural resources.

A Model for Sustainability and Shareholder Equity

caption Table 2

An existing model of shareholder equity in natural capital, combined with weak sustainability currently exists in the US state of Alaska. Oil resources in Alaska belong to the people of the state. The severance tax rate on oil is 12.25%-15% of extraction value depending on the age of the oil field, and 10% on natural gas. Royalties paid by oil companies drilling in Alaska are partly used for state revenue, but a large portion is placed in a permanent fund (APF), which is invested for the benefit of the citizens of Alaska. Without depleting the capital fund, interest is paid as an annual dividend to every resident of Alaska who has lived in the state for more than one year. Payments have averaged over $1000 per year in recent years (Table 2).

Figure 2 illustrates the transformation of natural capital into a sustainable stream of financial capital. As state oil resources are used up, the citizens of Alaska will still have a large and growing capital fund earning interest for them. This will continue indefinitely as long as the fund is managed well, and the state government is prevented from spending the funds.

The APF demonstrates the principle of weak sustainability replacing oil income with investment income. This assumes that oil is replaceable (substitutable) by money, a highly dubious assumption, considering the unique qualities of oil. The APF is one of the few cases in the world where the public has obtained property rights to natural capital. Governments usually retain rights to these resources, and revenues are used for general government expenditures, or quite often end up in the bank accounts of government officials, especially in authoritarian regimes. By establishing Earth shareholder equity to common assets and natural capital, these benefits will accrue to the population at large, rather than to government officials and their associates, or to corporate owners.

Case studies of Shareholder Equity Kuwait has an estimated oil reserve of more than 94 billion barrels, translating into a per citizen oil wealth of 142,000 barrels, which at today's levels is worth $2.1 million per person. However, mismanagement, militarization, and lack of a private market economy have resulted in a Kuwaiti budget deficit. Recent proposals for a Niger Delta fund and Iraq fund would establish oil funds in these countries paying direct dividends to the populace rather than enriching their undemocratic rulers.

In 1968, following years of struggle, the island of Nauru gained independence and control over their lucrative phosphate deposits. From then on, the annual income from phosphates of around $100 million was shared between The Nauru Royalties Trust Fund, Nauruan landowners and the Government. By 1976, the annual tax-free income for every Nauruan had reached $37,000.

Nauru has also invested these funds for the time when phosphate runs out. By no means was this resource managed wisely or sustainably, and the island has been devastated. The people have high levels of obesity and severe health problems such as diabetes. Nevertheless, Nauru is one of the few examples where people have regained equity in their own natural assets.

Usurious rates of rent on agricultural land paid by tenant farmers around the world has been cited by Nobel prize winning economist Joseph Stiglitz as a major cause of poverty. This is another egregious case of denying earth shareholders equity in their own resources, and allowing this equity to be privatized into a small group of hands. One of the highest sources of natural capital equity is in urban land value, which is often taxed somewhat for local public services, but the vast majority of land rent accrues to private landowners. By contrast, all land in Canberra, Australia the nation's capital, is owned by the Commonwealth of Australia. Land is leased for a term, usually 99 years. Leasehold tenure was adopted so that speculation in undeveloped land could be avoided, and future increases in the value of land remained in the public purse.

Hong Kong, China also grants 50 year leases to land, subject to a 3% rental payment. Recently the islands of Eigg and Gigha in Scotland bought back the rights to all the land on the islands and put them into community ownership.

In the past wealth from natural and common assets has flowed mostly into the hands of government or private individuals and corporations. The trend towards privatization of unclaimed natural and common assets is accelerating. To counteract that trend Earth Shareholders are inherently entitled to equity in those assets that are not the products of labor or capital, and to democratically choose the amount paid in dividends and the proportion spent on government services.



This is a chapter from Earth, Inc. Shareholder Report (e-book).
Previous: Capital Accounting  |  Table of Contents  |  Next: The Bottom Line


Glossary

Citation

Inc., E. (2007). Earth, Inc. Shareholder Report: Shareholder Equity. Retrieved from http://www.eoearth.org/view/article/151838

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