The
Four Big Stories In Complementary Economics
Arthur
Warmoth, Ph.D.
Copyright
© 2005
There are four big stories in complementary economics, of which
complementary currencies are only one.
The stories are:
1.
Complementary currencies and local/micro banking.
2.
Taxation and public spending.
3.
Savings, Investment & Ownership
4.
Ecopsychology
1.
Complementary Currencies and Local/Micro Banking.
Complementary currencies are designed primarily to serve the
market sector of the economy.
Complementary currencies treat money as a public utility financed by a
service charge, rather than as a commodity financed by compound interest.
Complementary currencies deal with the instabilities of the
business cycle by providing sufficient liquidity during periods of a shortage
of national currency commonly known as recession or depression. In addition, because they are not based
on compound interest, complementary currencies address the excessive
competitiveness of the present system and the ecological destructiveness of
near term-focused planning. (Bernard Lietaer, The Future of Money, 2001; Thomas H. Greco, Jr., Money, 2001, Lietaer &
Brunnhuber, in press.)
Another recent invention is microbanking, which was pioneered by
Muhammad Yunus' Grameen Bank in Bangladesh. Microbanking provides access to liquidity for persons
usually considered too insignificant for conventional banking to deal
with. Since microbanking invests
in real wealth-based economic development, it also represents a very grass
roots approach to ownership issues (see below). Credit unions might be an interesting market to approach to
implement alternative models of banking.
2.
Taxation and Public Spending.
This and the subsequent stories get into the economics of the
commons. The public seems to be
forgetting that taxes are actually designed to pay for valuable, often
essential, public goods and services.
According to Lietaer and Brunnhuber (2005):
Almost
everywhere the proportion of income from capital income (income generated
through investments), is increasing, while the proportion from wage income
(income generated through work) is declining. Furthermore, the ability and will
of governments to tax and redistribute capital income and assets has been
weakened, a fact which is linked both to potential capital migration and the
internationalization of business groups. As more states worldwide compete for
direct investment, the threat of a trans-national group closing down a facility
is ever present and feeds a continuous "race-to-the-bottom" among
states, with potentially ruinous consequences. (p. 71)
This had led to the chronic underfunding of public services
including education, health care, public safety, transportation infrastructure,
and environmental protection.
Ultimately, as long as democratic decision-making mechanisms are in
place, public policy failures reflect a lack of understanding on the part of
the electorate. At the present time, various instances of venality and
corruption and the widespread experience of stagnant real income—contrary
to the popular expectations of the American Dream—have played into the
American populist tradition of distrust of government to further erode public
confidence that taxpayers are getting value for their money. This has tended to elicit a nostalgia
for simple fundamentalist solutions in politics, economics, and morality,
including the skepticism about any kind of politics that has been part of the
American tradition since the time of the Revolution and an over reliance on the
charisma of anti-politics political leaders. However, a deeper analysis would see the problem as the lag
time involved in the political process responding to the huge and rapid
structural changes in our economic institutions that are being driven by
communications and information management technology.
In an information economy, the information commons is probably the
most valuable asset of all, and it will be the main basis for quality of life
in the future. Sufficiently
available money--which is made possible by complementary currencies--can lessen
some of the temptations for venality and corruption. Information technology and institutional system redesign can
greatly reduce the overhead cost of government and offer greater accountability. The governator is moving somewhat in
the right direction, but his thinking is hobbled by his commitment to a
business-focused ideology that embraces free market-fundamentalism and the
outdated notion that ‘business creates wealth and government spends
it.’ David Osborne and Ted
Gaebler’s Reinventing Government (1992) offered a good recipe for separating the
legislative priority setting and the service delivery functions of government
that could lead to the realization of these efficiencies, if only legislatures
were inclined to reinvent themselves.
3.
Savings, Investment & Ownership
This may actually be the biggest story right now. Enron, WorldCom, and Arthur Anderson
have recently made big headlines by their abuse of stockholder and employee
ownership. But the bigger story is
the fact that the shift from defined benefit to defined contribution pension
plans (including the proposed ‘privatization’ of social security)
is precipitating the crisis predicted by Louis Kelso. Kelso predicted that as technology increasingly replaces
labor in the production of manufactured goods, the concentration of the
ownership of productive capital would squeeze out jobs as the basis for claims
on the output of productive capital.
(Kelso & Adler, 1958,1961; Kelso & Hetter, 1967) This ownership crisis represents a Malthusian
twist on Marx’s analysis of the surplus: the owners of the means of production can accumulate surplus
to the point where the increasingly unnecessary workers starve.
Ownership issues can be broadly sorted into two types:
Issues
related to shareholder ownership can be sorted into monetary and financial
institution issues and issues of ecological economics. The former are problems created by the
way that contemporary monetary and financial services institutions are
designed. The latter relate to
institutional arrangements linking ownership and stewardship to the real wealth
ecologies of the social and natural worlds.
However,
there are problems with the contemporary design of money and associated
financial institutions that make our current institutional arrangements
unsustainable. These have been
well summarized by Lietaer and Brunnhuber (2005).
Seven characteristics of today's
financial system reveal that it is not neutral in terms of sustainability.
These characteristics are briefly summarized below. The rest of the chapter
provides some of the evidence that supports these claims.
1. Instability of the international
financial system itself
The international monetary system itself has become
unstable. This instability creates major problems not only for the financial
industry itself, but for the entire economy as well. Any investment in the
future invariably has a component of speculation, as it requires a prognosis
now about an uncertain future. However, monetary and banking crises are adding
an entire new layer of uncertainty to investment decisions. The
"contagion" effect whereby a crisis in one country can trigger a series
of crises in other countries adds to this uncertainty, as entire continents may
be affected in a completely unpredictable ways. Furthermore, the dramatic
social consequences of such monetary or banking crashes linger much longer than
the purely financial ones.
2. Pro-cyclical money creation process
The
instability mentioned above is in fact an exacerbation of a much older systemic
problem - namely, the process by which the banking system creates money is
pro-cyclical. That is, it tends to amplify the fluctuations of the business
cycle. Indeed, banks simultaneously tend to either make credit available or
restrict it for a given country or group of countries. Specifically, when
business is good in a particular market, banks tend to be more generous in terms
of credit availability, thereby pushing the "good times" into a
potentially inflationary boom period. Conversely, as soon as the business
horizon looks less promising, banks logically tend to try to reduce their
exposure to the perceived risks and therefore restrict credit availability,
potentially pushing a business dip into a full-blown recession. Central banks
attempt to counteract such fluctuations by giving counteracting interest rate
signals. Nonetheless, the net effect remains clear: collective actions of the
banking system tend to exacerbate the business cycle in both boom and bust
directions.
3. Short-term orientation
Our
present financial system systematically introduces a bias towards very
short-term results, thereby discouraging concern about long-term implications.
4. Compulsory growth pressure
Particularly
in the case of debt-laden individuals and companies, the present monetary and
financial system exerts systematic pressure to achieve economic growth at all
costs. For developing countries for instance, this translates into coercion for
export-led development. This kind of growth pressure, particularly when it
combines with short-term priorities, provides incentives to overexploit
resources and disregard sustainable practices.
5. Unrelenting concentration of wealth
Wealth
is concentrated in increasingly fewer hands as the disparity between rich and
poor increases in all countries throughout the world. This is true both within
most countries and between developed and developing countries. It will be shown
how our monetary and financial system is one of the key underlying mechanisms
of this process.
6. Devaluation of social capital
George
Soros, who cannot be suspected of an anti-capitalist bias, concluded that: "International trade and global
financial markets are very good at generating wealth, but they cannot take care
of other social needs, such as the preservation of peace, alleviation of
poverty, protection of the environment, labor conditions, or human rights -
what are generally called 'public goods'." [On Globalization. (Oxford Public Affairs, 2002) p. 14] Consequently, as market mechanisms are
introduced into ever-greater areas of society, social capital begins to erode.
We can observe social capital in the readiness of citizens to help each other
spontaneously, to form self-help groups, clubs, trade unions and parties,
through membership of religious communities, or through the organization of
charitable events. Social capital has proven fiendishly hard to measure
quantitatively, but is nevertheless a critical ingredient to create a robustly
sustainable society.
7. Mobility of capital vs. mobility of goods
We
know since David Ricardo (1772-1823) that trade is beneficial between two
countries whenever there is a comparative cost advantage in the production of
the goods or services they exchange. Every economic textbook elaborates on this
thesis. Ricardo's arguments in favor of international trade are the main
justification for dismantling protectionist measures worldwide and for the
globalization efforts of the past decades. However, one of the conditions
specified by Ricardo himself is that the comparative advantage theory works
only if capital doesn't become mobile as well. If Ricardo is right, we have to
choose between freedom of movement of capital or of goods: we can't have both
and still derive the benefits of international trade. Because of a lack of
empirical studies on the benefits of free capital movement, the jury is still
out on this issue. (pp. 48-49)
Full-ownership
policy. Today's
full-employment economic policy needs a
counterpart ownership policy. We need both
widespread employment of our labor resources
and widespread ownership of our capital resources.
Ownership
impact reporting. Every
policy pronouncement should be accompanied by an ownership impact report. We
have a right to know when those we elect pass laws that make the rich richer.
An international effort should compile and maintain a detailed global ownership
registry.
Fiscally
foresighted investment practices.
Today's $8 trillion-plus in retirement-plan assets must be invested in a way
that fosters broad-based ownership. Pensioners need to retire into a fiscal environment
characterized by widespread financial self-reliance. Anything less endangers
their retirement benefits.
Private
wealth from public assets.
Government contracting should favor broadly owned companies. The same should
hold true for government-granted licenses (broadcasting, etc.) or anywhere
private access is granted to public assets, such as commercial access to
minerals, timber, and oil on public lands.
New
ownership possibilities.
Ongoing commercial relationships (supplier, distributor, customer, contractor,
bank depositor, service provider) should be the priority focus for an
array of policies designed to broaden wealth while improving enterprise performance
by "ownerizing" those relationships.
Customer-owned
utilities.
Investor-owned utilities should become partially owned by their customers,
gradually transforming bill payments into customer-owned equity.
Corporate
localization. Today's
megamergers should be restructured to ensure broad-based ownership,
particularly within those communities where corporate operations are located.
Ownership-pattern-attuned
tax policy. Fiscal
foresight requires a tax policy ensuring that more of the nation's
income-producing capital finds its way into the accounts of those now
undercapitalized.
Monetary
policy. The Federal
Reserve's indifference to fast-widening economic disparities is destined to
undermine long-term price stability as more people become dependent on the
government. Both monetary and fiscal policy must be made more sensitive to
ownership patterns.
Antitrust
policy. Ownership
patterns should be considered a key factor in assessing both the structure and
the conduct of monopolistic firms.
Populist
foreign policy. U.S.
foreign policy should set as its top priority the worldwide alleviation of
poverty. Plutocratic ownership patterns, now the global norm, pose a clear
danger to global stability, to the environment, and to the continued advance of
democracy.
Foreign
assistance. Foreign aid,
including assistance provided by the World Bank and the International Monetary
Fund (IMF), should adopt ownership-pattern-sensitive development techniques.
Capital
commons user fee. Global
capital markets are a commons. An international effort should impose a
capital commons user fee, directing the proceeds to fund human needs in the developing
world. International law should extract a "freeloader's levy" from
those who've hidden $8 trillion in the world's tax havens.
Resource
productivity policies.
All public policies should be designed to multiply the productivity of
natural resources.
New
assets for new owners.
Limits should be placed on hydrocarbon emissions, property rights created
in emission permits, and those permits used to capitalize households
nationwide, linking energy conservation to income generation.5
Socially
responsible investing.
As with the antiapartheid screening of investments a decade ago, the investor
community should screen for equity and sustainability.
Prosperity
corps. A prosperity
corps should be established to train Americans for missions abroad that
implement best-practice development programs.
Culture
corps. Americans should
be sent abroad to share our diverse cultures with others while showcasing
the world's cultures here.
Just
say no to values-free free trade.
Free trade, yes, but no more values-free free trade. Democracies must oppose
injustice and un-sustainability, whether here or abroad. (Gates, 2002, pp.
8-10.)
The recent trends toward defined contribution, rather than defined
benefit, pension plans is combining with President Bush’s initiative to
privatize Social Security to force the public to consider the possibility that
Kelso’s prophecy may be
coming to pass. This situation
could lead to the pension fund socialism predicted by Peter Drucker (in The
Unseen Revolution, 1976; also see Jeff Gates, The Ownership Solution, 1998.) Pension fund managers could become more
important than legislators as shapers of public policy in the near future. Investment in ‘miracle’
technologies and investment in sustainable regional technologies (including
social systems, natural capital, etc.) are important areas to study. Co-ops, land trusts, etc. will become
increasingly important. New
investment institutions taking advantage of the cheap information
processing (including cheap accounting)
made possible by technology are on the horizon. Philanthropy is in for a radical revisioning.
4.
Ecopsychology
Along side all of this are the questions of values and ethics than
can only be addressed and managed by telling ourselves and one another
appropriate stories built around images of sustainability. (The neo-Jungians call this imaginal
psychology, and Susanne Langer called it “presentational symbolic
forms.”) This is the growth
industry being explored by the bioneers of the ecopsychology movement.
Gates, Jeff. (2002). Democracy at Risk. Cambridge, MA:
Perseus.
Greco, Thomas H., Jr. (2001). Money: Understanding and
Creating Alternatives to Legal Tender.
White River Junction, VT: Chelsea Green.
Kelso, Louis O. & Adler, Mortimer J.
(1958). The Capitalist Manifesto.
New York: Random House.
Kelso, Louis O. & Adler, Mortimer J.
(1961). The New Capitalists.
New York: Random House.
Kelso, Louis O. & Hetter, Patricia.
(1967). The Two Factor Theory.
New York: Vintage.
Lietaer, Bernard. (2001). The Future
of Money: Creating New Wealth, Work, and a Wiser World. London: Century.
Lietaer, Bernard & Brunnhuber,
Stefan. (2005). Our Future Economy: Money and Sustainability–the
Missing Link. (EU Chapter of The Club of Rome, in
press.)
Osborne, David & Gaebler, Ted.
(1992). Reinventing Government.
Reading, MA: Addison-Wesley.