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New app will breed capitalists, and that might be a good thing


Robinhood app on iPhone

The economic ideology of distributism, which arose partially from Catholic circles in the late 19th century, argues that the most equitable and democratic society is one in which property ownership is as widespread as possible. To quote one of G. K. Chesterton's most often quoted lines: 'too much capitalism does not mean too many capitalists, but too few capitalists'.

In our young century, we have lost capitalists, and wealth has coagulated to a seemingly smaller and smaller number of financiers, oligarchs and corporations.

The stock market is where entrenched wealth is kept and made (and sometimes lost). An industry-shattering share-trading app coming to Australia next month could help deepen our pool of capitalists. Robinhood is the first $0 commission online brokerage in the world. It has been live in America since January and allows investors to buy and sell stock for free.

Robinhood makes money from interest on idle cash in investors' accounts and is planning to eventually charge for upgraded services such as shorting and margin calls. Initially, investors will be restricted to US-listed companies and there is a long waiting list for Australian users.

As of November 2014 the financial services industry represented 9 per cent of Australia's GDP, making it our most valuable industry, outpacing mining, manufacturing and healthcare. The Financial Services Council, which represents retail and wholesale managed funds, including superannuation, manages 2.3 trillion dollars, a sum larger than Australia's GDP and the total capitalisation of the ASX.

As business journalist David James reported last year, around $20 billion dollars are spent on superannuation account fees every year, which is about $14 billion above international norms.

As James notes, the deregulation of the last several decades doesn't mean that there are no rules, it means that companies make their own rules. The utility financial managers provide to society is marginal at best. Most US mutual fund managers underperform the S&P 500 index. Frequent buying and selling of securities generates commission income for brokers but often leaves clients worse off.

In the US hundreds of companies offer shares directly to small-time investors but for regulatory reasons this is much rarer in Australia. Apps like Robinhood will give the average punter more control over his or her finances and loosen the grip of mutual fund and superannuation managers.

Those who seek a more equitable society look most often to government and charitable organisations. While Robinhood is designed for middle-class tech-savvy young people with tolerance for stock market risk and the time and inclination to learn about investing, it has the potential to bring about a more equitable society.

Share-trading has always been the preserve of a financial coterie. Commission free brokerages will enable buying and selling stock to become as common as buying coffee on the way to work. When you can show your friend how to make a ten-dollar share purchase on their phone at a party on a Friday night, the mystique of the stock market will slowly dissipate.

For the layperson wondering what to do with a bit of extra cash this is a great opportunity. As it stands retail investors need thousands of dollars to invest before commission fees become worthwhile. Apps like Robinhood will allow retail investors to put small amounts of money to work with every paycheck.

Robin Hood and its inevitable successors will put competitive pressure on established brokerages, drive down commissions, and in the long run possibly drive some financial service providers out of business.

With so much talk about game-changing technology over the years, it's important to be realistic about new financial technologies. Facebook and twitter soon became just as useful to despotic governments as they were to organisers of revolution. Robinhood, unlike its namesake, is unlikely to help anyone out of true penury. As with most millenial enthusiasms we should be cautious.

The big players have a knack for sticking around. Perhaps making it easier for more people to enter the market will make more people prey for the market or inflame their financial greed. But, like it or not, mega-companies like ANZ and BHP Billiton have an outsized effect on Australia. Where they go, the nation often follows.

Easier access to shares means more shareholders and more democratic corporate governance. If 10,000 environmental activists, for example, shell out 30 bucks for a share of BHP then organise and vote at shareholder meetings, things could very much be shaken up and we might find ourselves finally with an equitable number of capitalists.

Lucas Smith

Lucas Smith is a PhD candidate at the National Centre for Australian Studies at Monash University. His work has appeared in The Lifted Brow, Voiceworks and Cordite Poetry. He is not affiliated in any way with Robin Hood.


Topic tags: Lucas Smith, Robin Hood, investment



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Existing comments

To mention the ‘ideology of distributism’ in the same breath as investing in the share market is breathtaking in its ignorance. Those great warriors in the cause of distributism, the likes of the Chesterton brothers, Belloc, Arthur Penty, Vincent McNab and many others would grind their teeth in rage to hear it. The ‘property’ they defended was the sort exercised by the working proprietor, the small farmer who walked on ‘his’ land and dug his fingers down into ‘his’ soil; the small storekeeper who opened the door to ‘his’ shop with ‘his’ keys in the morning and locked it again with ‘his’ keys in the evening. This was the sort of property they wanted to see more widely distributed for they believed that it ensured economic and political freedom for a majority of citizens. The share market, for them, led to a concentration of power into fewer and fewer hands with a consequent diminution of freedom for the ordinary citizen, the very antithesis of what they regarded as a well balanced and ordered society. And how right they were! The distinctive mark of a modern industrial society is economic and political power wielded by bank and industrial managers while the mass of the people, propertyless wage employees, get to vote once every three years for whoever will best do the bidding of the bank and industrial managers. And anyone who thinks that an electronic device which makes it easier to invest in shares will lead to less power for the rulers of the world will be sorely disappointed.

Paul | 14 August 2015  

Small businesses are a part of the past. Chesterton et al if alive today would be wanting individuals to be in the share market. That is the avenue of prosperity for the future. An app like this would lift the barriers that restrict the average person, brokerage. Capitalism works for capitalists, it would be good if all were able to join. As a former small business owner they are, then and now, another form of slavery for the vast majority.

BEN | 16 August 2015  

Small businesses were never part of the past, at least never part of the recent past, and never in the sense that the working proprietor was ever the norm, was ever so numerous as to set the tone of society. The distributists were well aware that to survive the small owner would need to be supported by government legislation to enforce just prices, to curtail business practices which allowed rapacious operators to undercut competitors on price (still a vile practice); to restrict advertising; to prevent larger entities swallowing the small operator and much more. This support was never forthcoming and a shadow of this struggle can still be seen today in the occasional noises made by National Party politicians protesting at the two large grocery chains destroying family owned stores and crippling vegetable and dairy farmers while their coalition ‘partners’ defend the rights of the large chains’ shareholders. Moreover, material prosperity of itself was never the aim of the distributists, never, it was the liberty of citizens they sought, freedom from the wage system and freedom from political ideologies which ensnare the masses with false promises. This was the sort of freedom distributism thought widespread property ownership offered, the very opposite of a society of usurers i.e. shareholders. To suggest, therefore, that were the distributists around today they would want anyone to be a part of such a society displays a rank ignorance of what distributism tried to achieve. I might also add in passing that as the son of a working proprietor, a dairy farmer of the 40s and 50s, I am well aware that our lives were little better than slavery. I have long thought that few people in this country have been more exploited than the wives and children of dairy farmers, but I am also aware that the sort of property ownership exercised by my father was anything but what the distributists envisaged.

Paul | 18 August 2015  

Just a question to the Author about "An industry-shattering share-trading app coming to Australia next month could help deepen our pool of capitalists." Just wondering what your source was for the release date, im just really interested in the app but i cant find anything about a release date.

Jordan Selby | 07 September 2015