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
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.
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.