Commentary by Arthur Warmoth

Jeff Gates has put his finger on the most critical political and ecological problem of the contemporary world: the systems design flaws in globalization. And he has identified some key elements in the solution. I suggest that there are three additional conceptual threads that might be pulled in an effort to untangle the web of human and ecological tragedy called "globalization."

Thread 1&emdash;The Rank and File of Corporate Ownership

Gates's first target is appropriately "systems-savvy business leaders," the opinion leaders in the most powerful sector of the globalizing economy. Although Gates suggests that "legislators and executives are the systems architects," in too many cases, legislators and politicians follow the lead of corporate executives and lobbyists. Forward-looking executives willing to embrace the need for sustainable financial and social institutions are likely to have more leverage in today's world than anyone else.

However, it is also important to mobilize the rank and file of corporate ownership to promote these reforms. According to recent reports, more than half the households in the US own equities. The recent recession has become a crash course in capitalist economics for many. But much of the discussion has focused on the narrow band of issues that Gates correctly identifies as "simplistic," primarily problems of providing better information about accounting practices and financial returns. The crash course middle-class investors need would focus on the broader issues of financial, social, and ecological sustainability.

An important lesson is that speculative bubbles of the type can generate rapid growth on paper, but not in real economic terms, an inevitable conclusion to be drawn from the enormous growth over the past quarter century of what Robert Reich called "paper entrepreneurialism" (Reich, 1983). The successes of paper entrepreneurialism for today's upper middle-class elites have obscured the fact that financial management and services may be exceptionally ripe candidates for enormous productivity gains. These gains could be realized if our financial institutions were managed fairly, honestly, and with the direct connection to the dynamics of real wealth creation and distribution that information technology makes possible. The hard lesson that owners of financial capital must learn&emdash;whether they are wealthy individuals, corporations and financial institutions, or workers saving for retirement&emdash;is that a return on capital&emdash;whether as interest, dividends, or more exotic forms of financial return&emdash;is justifiable only when it is tied to the creation of new tangible or intangible wealth.

Thread 2&emdash;The Design of Money

The most important system-design issue on which we must focus to get globalization back on track is the design of money, a task undertaken by Bernard Lietaer. Lietaer's definition of money is simple: "Money is an agreement, within a community, to use something as a means of payment" (Lietaer, 2001: 41). This definition describes the function of money at all times and places. Its value comes not from the fact that it is a thing, but rather that it is an agreement to use something as a measure of value.

All contemporary national currencies are bank debt-created fiat money. Although governments print bills and mint coins, most of the money supply exists as bank accounts and other financial instruments. Modern governments create money by authorizing banks to create new accounts, based on interest-bearing loans.

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 Bank. 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 unmonetized 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 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. 5) Because the system is primarily under the control of national governments, it encourages national consciousness and discourages global identity.

This system evolved primarily in pre-Victorian England. Because the system is primarily under the control of national governments, it encourages national consciousness and discourages global identity (Lietaer, 2001: 242-248). Its characteristics seem ideally suited to promote capitalism and the industrial revolution. Can the current system adequately serve a postindustrial globalizing world? While virtually all contemporary money is designed according to one systems model, there are alternative, or complementary, forms of monetary system design, some of which are succeeding in the real world, that can solve these problems. For example, according to Lietaer, there are more than 2,500 community currency systems now in operation worldwide.

Thread 3&emdash;Public-Sector Economics

There is limited understanding of the systems dynamics involved in the economics of the public good and, therefore, little clarity about system redesign. In fact, we do not even have a good label to cover all the various sectors that contribute to our collective wealth and well-being. Economists speak of "public goods" (which includes public services), but we need a concept that includes public assets and nongovernmental public productivity. Many aspects of our collective well-being are attended to by philanthropy and the nonprofit or nongovernmental sector, and they involve our environmental and social welfare. These sources of wealth and well-being, essential to our quality of our life, are "owned" by the public in general and thus suffer from the same poorly designed incentives for responsible ownership that Gates analyzes in the corporate sector.

In the public sector, there is no mechanism comparable to the elegant efficiency of markets for making economic decisions. In fact, individuals tend to want to obtain the benefits of a healthy "commons," while shifting the burdens of caring for it to others. (Garrett Hardin identified this problem; perhaps the "commons" is an appropriate term to embrace all the sectors that produce public goods [Hardin, 1968].)

The scope of the commons can be defined as all activities and ecological processes essential or useful for human wealth and well-being that cannot be produced by and/or distributed to individuals operating in price auction markets. This includes government services such as public safety, education, transportation infrastructure, public health, and environmental protection.

The debate continues as to the most efficient method of including these costs in the cycle of economic activity: regulation vs. taxation/public subsidy vs. direct assessment of the actual costs. However, all these goods and services represent real contributions to human wealth and well-being, that is, they involve real productivity. The cliché that the private sector produces wealth and the public sector consumes it is simply not true!

Once we come to grips with the actual size of the commons, we are faced with the problem of how to finance it.

First, we should ask certain basic-policy questions: How do we find the right balance between public and private spending? What is the right amount or proportion of collective economic activity? In other words, what allocation of society's resources will help fulfill the broad spectrum of human needs across the population.

Second, how can we provide public goods and services more efficiently? One major virtue of the free market is its economic efficiency. There is no comparable feedback mechanism for the commons. Part of the solution probably lies in providing adequate professional and ethical education for public servants. Another approach, advocated by David Osborne and Ted Gaebler (1992), is to promote competition in the provision of public services, while the legislative function determines the desirable quantity and quality of the services to be provided. The neo-liberal privatization movement appropriately understands the value of competition in increasing the efficiency and productivity of services, but it misses the fact that the allocation of resources to public purposes is necessarily a collective, or political, decision.

Third, how can we appropriately balance compulsory (taxation) with voluntary (charitable or philanthropic) spending in support of the commons? Philanthropy allows for the direct expression of priorities and encourages a personal sense of responsibility for and participation in civic life. For the very wealthy, it provides the rewards associated with noblesse oblige and, perhaps to some extent, counterbalances the regressive structure of taxes, such as those on sales and social security. However, for reasons well understood by Hardin, voluntary individual spending will always be insufficient. What is needed is a comprehensive, sophisticated model of financing the commons that includes a mix of philanthropy, user fees, and progressive taxation on both income and assets.

The challenge of redesigning emerging global institutions to account for the needs of communities and bio-regions is indeed a daunting task. Challenging our leaders to rethink ownership, along with the design of money and the economics of the commons, can move us in the right direction.


Hardin, G. "The Tragedy of the Commons." Science 162(1968): 1243-1248.

Lietaer, B. The Future of Money (London: Century, 2001).

Osborne, D. and T. Gaebler. Reinventing Government (Reading, MA: Addison-Wesley, 1992).

Reich, R.B. The Next American Frontier (New York: New York Times Books, 1983).