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

  • 14 August 2015

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