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Thus, in economies where increasing per capita income and economic growth are desired outcomes of government policies, the question of who will own the newly privatized capital matters. If it is owned by those who will only reinvest its proceeds, rather than use them for consumption, the privatized capital will fail to produce additional demand in the economy and will do nothing to satisfy the needs of the broader population. Consequently, growth in economic activity and personal income will be smaller than if the newly privatized capital were broadly distributed. This suggests that privatization programs built around the sale of enterprises in public offerings without financing vehicles to permit participation by the broader community may not achieve maximum economic growth.

It is important to note that binary economic principles are not inconsistent with the principles of capitalism and private ownership of property. Binary economics does not propose to redistribute existing capital, but only to broaden access to the formation of new capital. The broader capital ownership which is possible under the concepts of binary economics comes from the creation of new capital, not the redistribution of existing capital. Indeed, binary economics is built on the foundation of private property and free enterprise. It does not call for the redistribution of wealth and eventually will make the redistribution of income taking place today unnecessary.

The second significant implication of binary economics for the privatization process is that excess capital is destructive to the system. The ownership of productive capital by a small minority of the population and the non-ownership by a large portion of the population of consumer units, combined with the practical inability of the many to attain such ownership, is the weakness that assures the collapse of either political freedom or of economic stability in the market economies of the world. Highly concentrated ownership of capital is inconsistent with political democracy. The capital-less many will exercise their political power to shift ever increasing amounts of income through the tax system to their benefit or the political democracy will be corrupted to protect those with large concentrations of capital. The social welfare burdens of the Western democracies are an example of income shifting to support those whose labor income is insufficient for their needs but who have no access to income from capital.

The third significant implication of binary economics for the privatization process is that access to capital is limited by risk. New capital can be formed in a number of ways. It can be formed through the application of labor as in the case where an engineer designs and constructs a machine. It can be formed through the use of debt as in the case of an entrepreneur financing a new business venture. But it cannot be formed through the application of existing capital, as in the case of an exchange of currency for equipment. The latter is merely a transformation of the form of already existing capital.

The quickest and most efficient way to create new capital on a large scale is through the use of debt. However, the use of debt involves risk. Not every new venture, not all new capital, is sufficiently productive to amortize its own cost plus the cost of financing. Thus, lenders look to means other than the new capital itself to guarantee repayment of the financing. Often the lender looks to the other capital assets of the borrower to


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