The Economic Crisis of the Commons
Arthur Warmoth, Ph.D.
Sonoma State University
© 2002
In the postmodern world, the
economic system has become the basis of human adaptation to the
environment. Conventional
economics is essentially the economics of markets, of manufacturing and
trade. As a result, insufficient
attention is paid to the question of the nature of money as such, and to the
large arena of economic activity that cannot be traded in markets. This economic arena is sometimes
referred to as public goods and services.
However, it is worth noting that there is no widely accepted term to
refer to these collectively consumed goods, services, and collectively held
assets. Recently some commentators
have begun to refer to this economic arena as "the commons" (Rowe,
2002; also see the section "Further Reading on the Commons" below).[1]
The commons can be defined as all
activities and ecological assets essential to or useful for human wealth and
well-being that cannot be produced and distributed to individuals operating in
price auction markets. In other
words it includes all productivity and assets that must be produced and/or
consumed, at least in part, collectively.
We find most aspects of the commons, ranging from the integrity of the
environment to the social fabric of our communities, are in a state of crisis
today. This is because we simply
do not know how to think about the economics of these critical systems,
including politics, health care, education, public safety, retirement security,
employment security, energy, transportation, housing and land use, and culture
and the arts.
The economics of the commons
are fundamentally different from the economics of markets. Unfortunately, the economics of the
commons does not include an elegant self-regulating mechanism comparable to the
"invisible hand" of price auction markets that serves the economics
of commerce so well. Our
relationship to the commons is characterized by mechanisms that operate
according to rhythms and orders of conceptual complexity that are different
from those governing markets. In
the long view of history, the commons has primarily been managed by the largely
unconscious (or more accurately, embodied in iconic and narrative consciousness)
hand of incrementally evolving tradition.
Since the Renaissance, it has become increasingly the province of the
conscious hand of politics, which is ideally guided, though often misguided, by
reason. These political processes
are widely recognized as vulnerable to whim and corruption. The founding fathers of the United
States believed that they had succeeded in creating a new form of democratic
political process that provided historically unparalleled accountability to the
people. It embodied an innovative
system of checks and balances that they believed would limit the negative
impact of unbridled self-interest and provide a level of reflective
deliberation that would generally permit wisdom and the long view of the public
interest to prevail. While this
system has served us reasonably well for the past two centuries, the last half
century has seen the ascendance of economic power and the acceleration of rates
of social change powered by the information technology revolution. This increasing domination of politics
by economic power has led an increasing bias in the direction of short term
economic interests in our approach to issues related to the commons. It has led to an ideological emphasis
on the reliance on markets as the solution to all economic and political
problems. This in turn has tended
to obfuscate our efforts to respond politically to the negative ecological side
effects of industrial production and to directly address pressing issues of
social equity and cultural pluralism.
However, information technology also gives us the historically
unprecedented ability to examine and interpret the fine structure of the
commons in ways that could conceivably enhance our ability to make informed
political decisions.
The tragedy of the Bush
administration, and of conservative political strategy for the several last
decades, is that it combines religious fundamentalism with free market
fundamentalism. Free market
fundamentalism is sometimes referred to as the Washington Consensus, as it is
the basis of the conditions imposed by the International Monetary Fund and the
World Bank on developing economies in need of international aid (Stiglitz,
2002) . It is also called
"neo-liberal economics," especially in those parts of the world where
"liberal" has not become a negative stereotype.
This is truly a Faustian
bargain with the devil, and in the absence of a clearly defined alternative,
combined with the post 9/11 fear factor, it has succeeded in attracting a very
slim political majority that is now being recklessly interpreted as a mandate. The good new is that this policy is
simply not sustainable. How and
when it will eventually collapse of its own weight, and how many souls will be
sacrificed in the process remains to be seen. But this paradigm is based on economic theory that cannot
continue to work indefinitely because it is based on the unsustainable practice
of creating wealth through paper entrepreneurialism (Reich, 1983) and the
unsustainable expectations of endlessly available natural resources and
exponential economic growth (compound interest).
There are two domains of the
commons: the natural commons and the social commons. The natural commons includes air, water, earth, sunlight-all
natural resources. It also
includes all ecological and genetic processes, the basis of all life on
earth. It includes all of the
processes summarized in the Gaia metaphor.
The social commons includes our
cultural heritage. Jonathan Rowe's
(2001) view of the commons includes our
"languages and cultures, the stores of human knowledge, the
informal support systems of community, the peace and quiet that we
crave." It also includes our
instinctive relationship with nature and our impulse for creative
expression. It also includes
public services such as public safety, education, transportation infrastructure,
public health and health care access, and environmental protection.
And it includes collective
arrangements for economic security, including insurance and provisions for
retirement security through investments and Social Security. It is our collective provision for
retirement security that has recently been devastated by the criminal
conspiracies of high flying capitalist speculators such as President Bush's
friend Ken Lay of Enron and their felonious accountants such as Arthur
Anderson. Indeed, it is somewhat
amazing that there is not more middle class outrage at the devastating assault
on these institutions that we trusted to care for our collective economic well
being in our declining years.
However, there are well thought out alternatives, such as Jeff Gates'
(1998, 2001) proposals for saving capitalism by democratizing ownership. (See also the section on
"Democratizing Asset Ownership" below.)
A Primer on the Economics of
the Commons
The reason we need an economics
of the commons is because the globalization of market economics has led to the
monetization of all aspects of human existence. Since accountants are everywhere-and hopefully are now being
required to act with more integrity-we need to develop methods for tracking our
wealth and well-being held in common, as well as the wealth that held by
individuals (and those individuals created by legal fiction called
"corporations").
The economic activity of the
commons is created and managed mainly in three ways:
·
Custom
or tradition
·
Voluntary
association (non-profit organizations, mutual aid societies, investment and
insurance pooling)
·
Law
and public policy
"Custom" is the
mainstay of the management of the commons in traditional societies. Social arrangements in traditional
societies have evolved slowly over countless generations. They include what José Ortega y
Gasset calls "usages":
the repertoire of practices that includes ritual and ceremony, as well
as more mundane practices, and the repertoire of knowledge that is embodied in
imaginal and narrative consciousness.
They include complex provisions for the maintenance of the commons
because human evolution is essentially a collective activity. The basic adaptive unit of evolution is
the gene pool, not the individual.
Tribal traditions, including respect for the earth and all of the values
and practices we admire in Native American and other tribal cultures have
evolved a complex social commons because this fabric of social relationships is
the basis of successful adaptation to the natural environment, the natural
commons.
The development of agriculture
made the larger scale social organizations of cities and feudal societies
possible. As scale of organization
increased, the rule of law and evolution of strategic policy began to supplement
tradition as the basis for social organization. Whereas traditional arrangements generally evolve on the
basic of incremental innovations that are generally the result of conscious
reflection, law and strategic policy are the result of conscious thought on a
much more elaborate scale. These
innovations are dependent on the level of ecological sophistication achieved by
a given society. They generally
take the requirements of ecological systems into account, but there have been
major miscalculations, such as deforestation and over grazing.
In modern industrial society,
the management of the commons falls both to government and to voluntary
associations (often organized as nonprofit organizations). Governments and legal frameworks are
created by political processes that were originally legitimized by the divine
rights of feudal aristocracies.
However, since the 18th century, political legitimacy has increasingly
required some degree of democratic accountability to the citizens who make up a
society. Along with the evolution
of political democracy, groups of individuals have developed a diverse
repertoire of voluntary self-organizing systems to manage common interests.
Governments have also created
legal persons composed of many individuals called "corporations." These legal persons are expected to
contribute to the well-being of society by producing goods and services with
ever greater volume and efficiency.
While the principal focus of corporations tends to be productivity for
price auction markets, it should be borne in mind that the creation of
corporations is legitimized as public policy because increasing productive
capacity is recognized as a public good or social benefit. The fact that corporations are
franchised to serve the common good suggests that they should be held
accountable for their effectiveness in this regard. Our respect for the invisible hand of the market should not
prevent us from holding corporations producing for the benefit of markets to
avoid responsibility for the intended or unintended negative impact on the
social and natural environment.
The three core public policy
issues in the management of the economics of the commons today are:
·
The
need for conservation and environmental restoration
·
The
disintegration of civic society and community life (including education, health
care, public safety, cultural identity, and community and family relationships)
·
Dysfunctional
design flaws in the economic system itself (including the design of money and
of the institutions for translating savings into productive investment)
Conservation and environmental
restoration has been widely recognized as a critical political issue for
decades. Substantial progress has
been made, but much more needs to be done. Recently, the environmental movement has focused on the
concept of "sustainable economic development" as a way to integrate
the variety of issues involved, as well as to emphasize that ecological sanity
and economic growth are not incompatible.
Recent discussions of practical economic strategies for achieving
environmentally sustainable development include works by Lester Brown (2001),
Paul Hawken, Amory Lovins & L. Hunter Lovins (1999), and Hazel Henderson
(1999).
Breakdown of public civility
and community and family relationships has been the subject of much public
handwringing by commentators and politicians for years. In California, the disintegration of
civic society is rapidly becoming a serious political and economic problem as
the state faces the largest budget deficits since World War II as a consequence
of the economic meltdown following the dot.com bubble as augmented by the
criminal conspiracies of the paper entrepreneurs. Vital public services are threatened, including education,
health care, public safety, transportation, and environmental protection, and
we thus find ourselves loosing faith in our political leaders and in the
political fabric of democracy itself.
As a result our political problems are increasingly felt to be economic
problems, and the second and third areas of the crisis of the commons begin to
merge.
Economists generally recognize
two functions of money: medium
of exchange
& store of value. Both of these
functions are of substantial social value, which is why we have tolerated the
substantial design flaws in the current systems for so long. The most basic function of money is to
serve as a medium of exchange.
According to Bernard Lietaer (2001), "Money is an agreement, within
a community, to use something as a means of payment" (p. 41). (It should be noted that the
"something" needs to be countable.) This definition describes the function of money in all times
and places. Its value comes not
from the fact that it is a thing, but from the fact that it is a social
agreement to use some thing as a measure of value.
All contemporary national
currencies are bank debt-created fiat money (Lietaer, 2001, pp. 32ff). This means that new money comes into
existence by creating new bank accounts based on loans or bank debt, issued on
the authority of the government (which is responsible for controlling the
quantity in circulation, primarily with the twin objectives of providing
adequate liquidity for a healthy, growing economy and avoiding an
inflation-provoking oversupply). Although governments do print bills and mint
coins, most of the money supply actually exists in the form of bank accounts
and other financial instruments.
The primary way in which modern governments create money is to authorize
banks to create new accounts, based on interest bearing loans. Banks are
required to maintain a certain quantity of capital reserves to partially cover
their depositor's accounts, but that amount only protects a part of the
deposits, which is why it is called fractional reserve banking (and why federal
deposit insurance became necessary).
The obvious problem with this
system is the need to manage the money supply in order to avoid inflation, a
task which is assigned in the United States to the Federal Reserve Board. Too much money in circulation leads to
inflated prices, with their obvious disruptive effects; too little means recession. However, there are additional less
obvious problems inherent in the design of this system based on interest-bearing
loans. 1) Because the money
required to repay the interest on the bank loans is never created, conventional
money is necessarily scarce (participants in the economy must compete for both
profits and credit); therefore the system promotes competition over
cooperation. 2) Furthermore, the
unfunded interest requirement promotes the concentration of wealth and the
inevitability of a certain amount of bankruptcies. 3) Guaranteed compound interest also creates an impossible
expectation or assumption of endless (infinite) economic growth. 4) Because the system is primarily
under the control of national governments, it encourages national consciousness
and discourages identification and empathy with other citizens of the planet.
(Lietaer, 2001, pp. 50-52.) 5)
Because interest has the effect of discounting future real economic returns,
the system favors short term time horizons over the long term planning horizons
required for environmental sustainability (op. cit. pp. 242-248). 6) As J. M. Keynes (1935) pointed out,
recessions and depressions are basically caused by a shortage of liquidity
(Keynes called it "effective demand"), not by a shortage of need or
productive capacity. Recessions
occur when those who hold liquid assets elect to hold onto them, rather than
recycling them through the economy as productive investments. As the money supply dries up, so does
trade and employment.
However, these problems are not
insoluble. While virtually all
contemporary national currencies are designed according to this model, there
are many alternative, or complementary, forms of monetary design, some of which
are succeeding in the real world; and they are solving these problems. For example, according to Lietaer there
are more than 2,500 community currency systems currently in operation. For a more complete discussion the
design of money as a system, see the bibliography on "Complementary
Currencies," below, especially the works of Lietaer and Thomas Greco
(2001).
The institutional arrangements
that implement the second function of money, money as a store of value, also
require scrutiny. Indeed, design
flaws inherent in translating money from the first to the second function are
responsible for much of the mischief attributable to the capitalist system. The
breakdown on this system, as seen in the recent Wall Street scandals, has
focused public attention on this as a particularly acute example of the crisis
of the commons. This crisis has
alerted us to the dangers inherent in attempting to privatize our retirement
security, as the welfare of our elders, as well as of our children, is
essentially and morally a social concern.
As Keynes recognized, shifting
liquidity from current consumption through savings into investment serves the
socially useful function of investing in future increases in productivity and
is essential if recession is to be avoided. However, as Reich pointed out in his exploration of paper
entrepreneurialism, there is a strong temptation to achieve paper profits by
the non-productive manipulation of the system, rather than by engaging in the
more challenging task of finding and realizing productive investment
opportunities in real space and time.
Correcting this design flaw in our financial institutions will require
major changes in public attitudes.
It is true that the real wealth required to redeem the claims on new
wealth that appeared to exist at the height of the dot.com bubble did not exist
and probably could note be created using current technologies and financial
institutions. But the hope for
unearned income dies hard.
Imperial capitalism, as it has operated in modern industrial
democracies, buys sufficient voter loyalty by importing unearned wealth in the
form of underpriced natural resources extorted from so-called undeveloped
countries. A realistic and
sustainable system of savings and investment would recognize that average
return cannot exceed the overall growth rate of the economy, and some
productivity growth needs to be shared with labor and management.
The impulse for speculation, or
gambling, appears to be deeply rooted in human nature. The hope for unearned riches, and
perhaps the desire to live vicariously the lives of the rich and famous, fuels
the public's willingness to accept the present system and to resist progressive
taxes such as the inheritance tax.
However, it is highly unlikely that current investment practices could
adequately fund the retirement needs of the baby boom generation, even in the
absence of the recently documented abuses of the system. Fundamental reform of the institutional
arrangements for retirement security are in order (Gates, 2001, pp. 60-64,
123-144). The key to a tolerable
future will be shared participation in increased productivity, not in increased. Gates proposes several mechanisms
whereby this could be accomplished by democratizing capitalism, a viable
alternative to the bureaucratic inefficiencies of traditional socialism (op.
cit., pp. 221-295). In addition
democratizing capitalism and strengthening the transfer payment mechanism of
the Social Security System, adequate provision for the coming elder boom will
require the development of a whole repertoire of labor intensive mutual aid
systems, such as the Hureai Kippu, or Health Care Currency System in Japan (Lietaer
& Warmoth, 1999).
The public sector also invests
in areas such as education, health, public safety, transportation
infrastructure, housing, and environmental protection. The public is also becoming
increasingly aware of the need for public investment in our common interest in
health care access and affordability.
Public policy should support, not discourage, progressive taxation and
the taxation of accumulated assets, in order to recover for the public the
component of economic growth that is created by collective social organization
(Henry George's "single tax," 1879). Furthermore, public policy needs to systematically track the
return on public investments and to encourage channeling private investment
into productive public and private uses.
What can I do? Some immediately available personal
strategies for investing in the commons include:
·
Take
responsibility for what happens to your savings. Explore micro-banking or microinvestment and responsible
investment organizations.(See Co-Op America for information about the latter.)
·
Invest
in conservation and environmental restoration ("natural capitalism")
·
Demand
more democratic accountability from organizations managing your
investments: Mutual Funds,
PERS; the corporations in which
you invest your savings.
·
Cultivate
realistic expectations for the return on your investments. Most of what you can expect to get back
will be the capital you put in. (Your investments are "capital' in the
labor/management/capital formula, and the fruits of economic growth should be
shared among all three factors.)
·
Lobby
against the economically and environmentally destabilizing assumption of
compound interest.
·
Recognize
the extent to which your personal wealth is represented by collectively held
assets, e.g. public services, open space, cheap education. Lobby for progressive taxation and the
taxation of accumulated assets.
Participate in progressive politics and support alternative media.
The economic commons is a
socially constructed system; it is a system that has been designed. Unfortunately, most of that design has
been accomplished by historical trial and error, and the current version
embodies some egregious errors.
However, that which has been designed can be redesigned. It is not to late for democracy to take
back the commons.
References
Galbraith, John Kenneth. (1958). The Affluent Society. Boston: Houghton Mifflin.
Gates, Jeff. (1998). The Ownership Solution:
Toward a Shared Capitalism for the 21st Century. Reading, MA: Addison-Wesley.
Gates, Jeff. (2001). Democracy at Risk: Rescuing Main Street from Wall Street. Cambridge, MA: Perseus.
Hardin, Garrett. (1968). The Tragedy of the
Commons. Science, 162: 1243-48.
George, Henry. (1879, 1979). Progress and Poverty.
New York: Robert Schalkenbach Foundation.
Greco, Thomas H., Jr.
(2001). Money: Understanding
and Creating Alternatives to Legal Tender.
White River Junction, VT: Chelsea Green Publishing Co.
Keynes, John Maynard. (1935). The General Theory of
Employment, Interest, and Money. New York:
Harcourt, Brace & World.
Lietaer, Bernard & Arthur
Warmoth. (1999). "Designing
Bioregional Economies in the Context of Globalization." In Joseph Kruth
& Andrew Cohill, Eds. Pathways to Sustainability, published online by Tahoe
Center for a Sustainable Future at
<http://ceres.ca.gov/tcsf/pathways/chapter2.html>.
Lietaer, Bernard. (2001). The Future of Money:
Creating New Wealth, Work, and a Wiser World. London:
Century.
Reich, Robert B. (1983). The Next American Frontier. New York: New York Times Books.
Rowe, Jonathan. (2001, Summer). The hidden commons. Yes!
<http://www.futurenet.org/18Commons/rowe.htm>
Rowe, Jonathan. (2002, Autumn). The promise of the
commons. Earth Island Journal, pp. 28-30.
Stiglitz, Joseph E. (2002). Globalization and Its Discontents. New York: W. W. Norton
Also, see my web site on
Sustainable Community Economics at http://www.skaggs-island.org/sustainable,
especially the article on "The Economic Metacrisis in Sonoma County."
from Jonathan Rowe (2002)
David Bollier. Silent Theft: The Private Plunder of Our Common Wealth (Routledge, 2002)
Whose Common Future? (by the staff of the Ecologist) (New Society, 1993)
Peter Barnes. Who Owns the Sky? (Island Press, 2001)
Lawrence Lessing. The Future of Ideas: The Fate of the Commons in a Connected World (Random House)
James Boyle. Shamans, Software, and Spleens (Harvard, 1996)
Seth Shulman. Owning the Future
(Houghton Mifflin)
Olaf Egeberg. (1994). Non-Money: That Other Money
You Didn’t Know You Had.
Washington, DC: The McGee Street Foundation.
Paul Glover.
(1998). Hometown Money: How to Enrich Your Community With Local
Currency. Ithaca, NY: Ithaca Money.
Thomas H. Greco, Jr. (1994). New Money for Healthy
Communities. Tucson, AZ: Thomas H.
Greco, Jr.
Thomas H. Greco, Jr. (2001). Money: Understanding
and Creating Alternatives to Legal Tender. White River Junction, VT: Chelsea Green Publishing Co.
Micro-Banking
We
know of no definitive book on micro-lending, but the best known system is
Muhammad Yunus’ Grameen Bank in Bangladesh. “Banking on
People,” The News Hour with Jim Lehrer (PBS, April 24, 2001) is an introduction to the
Grameen Bank. To order a transcript, send $5.00 to News Hour Transcripts,
Strictly Business, P.O. Box 12803, Overland Park, KS 66212. There are also many web sites on the
topic.
Democratizing Asset
Ownership
Jeff Gates. (1998). The Ownership Solution: Toward a Shared Capitalism for the 21st Century. Reading, MA: Addison-Wesley.
(2001). Democracy at Risk: Rescuing Main Street from Wall Street. Cambridge, MA: Perseus.
Gates examines a variety of
approaches to democratizing ownership and their implications for the future of
ownership.
Henry George. (1879, 1979). Progress and Poverty. New York: Robert Schalkenbach Foundation.
A classic study of the
social construction of wealth as the basis of land value. His single tax model
was popular in the late 19th century, and it deserves to be pondered
today.
Louis O. Kelso & Mortimer J. Adler. (1958). The
Capitalist Manifesto. New York:
Random House.
A critical study of the implications of capital ownership and the importance of democratizing ownership as a way of increasing the constituency of stakeholders in the social order. Kelso’s ideas were the basis of the ESOP (Employee Stock Ownership Plan) movement.
Shann Turnbull. (1975). Democratising the Wealth of
Nations from New Money Sources and Profit Motives. Sydney: The Company Directors Assn. of Australia, Ltd.
An overlooked classic that
explores the possibilities for using accounting models and methods to
democratize the economy. A sane
alternative to Arthur Anderson!
Lester Brown. (2001). Eco-Economy: Building an Economy for the Earth. New York: Norton.
A sustainable civilization requires the global
redesign of economic systems according to sound ecological principles. He is
also founder of the Earth Policy Institute, which has a web site at <http://www.earth-policy.org/>
Paul Hawken, Amory Lovins & L. Hunter Lovins. (1999). Natural Capitalism: Creating the Next Industrial Revolution. Boston, Little, Brown & Co.
A comprehensive review of theory and practical
experiments aimed at incorporating principles of ecological sustainability into
the design of economic institutions and systems. The book includes an extensive
description of the pilot project taking place in the city of Curitiba, Brazil,
under the leadership of Jaime Lerner and his colleagues. Check out their web
site at <http://www.naturalcapital.org/>
Hazel Henderson. (1991). Paradigms in Progress: Life Beyond Economics. Indianapolis, IN: Knowledge Systems, Inc.
(1999). Beyond Globalization: Shaping a Sustainable Global Economy. West Hartford, CT: Kumarian Press.
Hazel Henderson is a leading
futurist who has been toiling in the vineyards of alternative economics for
decades. Beyond Globalization is an elegantly compact blueprint for economic
sanity.