Low profit investment

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Low-profit investments (LPI) are investments in the real economy that promise only a low return , around 0–3% per year. With LPI, companies can tap additional CSR potential and thus contribute to the timely implementation of the UN Sustainable Development Goals ( SDG ). The prerequisite for this are certain monetary and fiscal policy measures in order to create favorable framework conditions for LPI.

Historical starting point

At the time of the 2008/09 financial crisis, the first low-profit limited liability companies (L3C) emerged in the USA . L3C is a low-profit organization that generates a moderate return in connection with a social cause and distributes this to the owners. The term LPI is more general and can serve as an umbrella term. It includes all businesses based on low profit. So is z. B. a low-profit organization always also an LPI, because if an investor participates in one, then this is a low-profit investment for him.

Classic finance

According to classic doctrine, the expected return on a real economic investment ex ante is composed of the risk-free interest rate and a positive risk premium that covers the investment-specific risk. The risk-free interest rate is represented by an interbank interest rate , internationally by the Libor (London Interbank Offered Rate) and in the euro zone by the Euribor . The amount of the risk premium is estimated between 3% and 6% per year, depending on the company and industry. The classic view initially seems very plausible, according to which a company must generate both the risk-free interest rate (Libor, Euribor) and the risk of an investment in order to be attractive for investors and creditworthy for banks .

Zero interest rate policy

With a zero interest rate policy, the central bank's key interest rate is zero and thus also the risk-free reference interest rate (Libor, Euribor). Even if the reference interest rate is zero, companies have to generate returns of 3–6% per year in order to cover corresponding market risks. In view of the current economic weakness , however, it is questionable whether companies will in future be able to generate returns of 3–6% per year and whether this is compatible with sustainable economic development .

Holistic approach

Low-profit is an interdisciplinary field of research and forms the intersection of various sciences. In addition to the financial sector as a supporting pillar, this also includes the central bank's monetary policy , public finance , in particular fiscal and subsidy policy , as well as public law , in particular administrative law , tax and subsidy law , EU state aid law and data protection .

Public law

Public law applies where there is state regulation. It is primarily not about classic regulation with prohibitions and imperative measures , but about new forms of cooperation and collaboration between the state and companies that operate on a low-profit basis. In practice, subsidies are awarded in accordance with administrative regulations and guidelines. In the future, it should be more a matter of tying the award to strict social and ecological standards.

State support for LPI is legitimate wherever public services are provided that serve the common good . These are areas and industries that only generate low income but generate social and ecological added value ( social return ), e.g. B. ecological agriculture , renewable energies , recycling u. a. The promotion of socially and ecologically sustainable LPI can thus be legitimized in the same way as e.g. B. environmental subsidies , regional subsidies or housing subsidies .

financing

The financing of LPI requires that investors reduce their return expectations and provide the companies with equity capital at low cost . Low-interest bank loans are also needed so that companies can obtain cheap outside capital . Since private investors are naturally not prepared to forego an appropriate risk premium for real economic investments and banks cannot easily grant low-interest loans, completely new monetary and fiscal policy frameworks are needed so that companies can operate on a low-profit basis .

Framework

There are basically two strategies for creating favorable framework conditions for LPI. Central bank and state play a very different role. In the first strategy, the central bank pursues a negative interest rate policy , in the second, the central bank is neutral in terms of monetary policy and the state pursues an active economic and fiscal policy . Both strategies lead to the same result: Companies receive equity and debt capital cheaply in order to be able to finance LPI.

Central Bank's negative interest rate policy

The negative interest rate policy goes back to a proposal by the American economist Kenneth S. Rogoff in 2014 to lower the central bank's key interest rate to −3% to −5% in an economic crisis. The aim of this measure is to enable companies to refinance themselves with reduced efficiency and low capital costs . In view of negative interest rates , investors and banks are ready to provide companies with cheap equity and debt capital. Small savers , on the other hand, should be compensated for lost interest income , for example through state-sponsored savings ( savings allowance ).

Fiscal Policy Measures

The central bank is returning to monetary policy neutrality and can raise the key interest rate again at its own discretion, e.g. B. to 1–2% and year. At the same time, the state is introducing a special wealth tax on secure investments ( overnight and fixed-term accounts , government bonds, etc.). Due to a generous tax exemption , small savers receive positive interest income. Large investors, on the other hand, who invest risk-free beyond the exemption, are taxable and have to pay wealth tax. A uniform, EU-wide wealth tax of 3–5% per year would be conceivable. If safe investments are taxed higher, then investors adjust their return expectations for real economic, risky investments "downwards" and provide companies with equity capital at low cost.

The financing with debt is done with interest-free or low-interest development loans. This can be a normal bank loan, in which the state grants a subsidy to reduce interest costs. Promotional loans must be linked to CSR sustainability reporting and strict national and international sustainability indicators . These include the Sustainable Development Goals (SDG), the UN Global Compact , the UN Guiding Principles for Business and Human Rights , the ILO Core Labor Standards , ISO 26000 and other national and international standards and regulations.

Cap Leverage

The awarding of state subsidies to profit-oriented companies ( corporations ) is subject to additional requirements and restrictions. This includes capping manager salaries and financial leverage at the beneficiary companies. For example, B. the UN Environment Program (UNEP) 2015 the restriction of leverage in connection with corporate redesign and an inclusive green economy . This measure is intended to prevent for-profit companies from receiving loans at low interest rates, which would result in high leverage and in this way the state subsidized private sector profits and returns.

Conclusion

From a financial point of view, both strategies are equivalent, as both have the same effect on the return expectations of investors and the lending of banks. However, both strategies require that banknotes (paper money) be abolished and cash largely digitized in order to prevent people from escaping into cash (Rogoff 2016). In both strategies, small savers receive positive interest income. Both strategies enable long-term favorable financing conditions for companies and transform the economy into a sustained stable low-profit phase in an economic crisis.

Web links

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  1. ↑ Malika Zouhali-Worrall: For L3C companies, profit isn't the point. In: The-CNN-Wire / Atlanta. February 8, 2010, accessed June 20, 2020 .
  2. ↑ Jim Witkin: The L3C: A More Creative Capitalism. January 2009, accessed June 20, 2020 .
  3. ^ André Jäggi: Social Firms as Low-Profit Enterprises? In: Stefan M. Adam (ed.): The social company - work economically and act socially, contributions to a socio-economic innovation. 2nd Edition. Haupt Verlag, Bern 2012, p. 16-40 .
  4. ^ Ivo Welch: A first course in corporate finance . Upper Saddle River October 2006.
  5. ↑ Martin Eifert: Regulation strategies . In: Hoffmann-Riem, Schmidt-Aßmann, Voßkuhle, Fundamentals of Administrative Law . tape 1 . Munich 2006, p. 1319-1394 .
  6. ^ Christian Fahrbach: Low-profit investments - assess, finance, promote . Lit-Verlag, Münster, Vienna 2014.
  7. ↑ André Jäggi: Doing good with entrepreneurial means: Low-profit companies maximize benefits for many instead of profit for a few. (PDF) Time 96, 2008, accessed on June 20, 2020 .
  8. ↑ Christian Fahrbach: Low-Profit - Reconciling Economy with Ecology. In: Momentum Congress, Hallstadt. Retrieved June 20, 2020 .
  9. ↑ 25th Subsidy Report. (PDF) Federal Ministry of Finance, Berlin, September 2, 2015, accessed on January 11, 2018 .
  10. ↑ Tobias Kaiser: Star economist for minus interest of up to six percent. World on Sunday, September 18, 2016.
  11. ↑ Chinese central banker advocates "deeply negative interest rates". Handelsblatt, April 6, 2018.
  12. ↑ Michael Sauga: Kenneth Rogoff, Harvard economist, expects negative interest rates to rise. Der Spiegel, 04/2020.
  13. ↑ Christian Fahrbach: Mean-variance asset pricing after variable taxes. (PDF) Austrian Working Group on Banking and Finance, Vienna, October 2008, accessed on January 1, 2018 (English).
  14. ^ Christian Fahrbach: Low-Profit Investment - Pricing, Funding, Supporting. In: 1st Vienna Conference on Pluralism in Economics. April 2015, accessed on June 20, 2020 .
  15. ↑ Michael Wandt: Promotional Loan or Grant? In: Creditreform . No. 7 , July 3, 2009, p. 50 .
  16. ↑ Ulrich Thielemann: Ethics as a success factor? The case against the business case and the idea of ​​earned reputation. In: Scherer and Patzer (Ed.): Business administration and business ethics . Wiesbaden 2008.
  17. ^ Schneider, A. and Schmidpeter, R. (Eds.): Corporate social responsibility. Responsible corporate management in theory and practice . Berlin 2015.
  18. ↑ Sheng Fulai et al .: Uncovering pathways towards an inclusive green economy: A summary for leaders. (PDF) United Nations Environment Program (UNEP), Director of Publication: Naysán Sabha, 2015, accessed on June 20, 2020 .
  19. ↑ Kenneth S. Rogoff: The Curse of Money: Why Our Cash Will Disappear. Munich 2016, ISBN 978-3-89879-966-9 .
  20. ↑ Philip Plickert: Superfluous or useful? Economist Rogoff wants to abolish cash. FAZ from November 19, 2014.