by Rob Dietz
Many communities around the world have launched local currencies and are using them successfully (although typically on a small scale). In the Berkshire region of Massachusetts, BerkShares are accepted by nearly four hundred businesses, and five area banks will gladly exchange 95 dollars for 100 BerkShares.20 On the south side of London, the Brixton Pound made its debut in 2009. In addition to paper money, Brixton Pounds are conveniently available as an electronic currency. After setting up a “B£e” account, a customer can complete a transaction by sending a text message to the B£e Bank to authorize payment to a participating business.21
Despite these encouraging developments, many local currencies remain consigned to the fringes of the economy. An important step needed to promote the circulation of local currencies is for governments to accept them for tax payments. In Bristol, U.K., the local government has recently decided to take this step, a decision that should help the Bristol Pound achieve mainstream acceptance among residents and businesses.22
International Currency
The international economic playing field is quite uneven, and since fairness is one of the key characteristics of a steady-state economy, nations should consider adopting a new international currency to help level the playing field. The unevenness stems from the use of the U.S. dollar and the euro as the main “reserve currencies” in the world. Central banks in other countries hold reserves of dollars and euros to support their national economies and help balance trade deficits. Widespread reliance on these currencies gives a tremendous advantage to the United States and Eurozone countries, because other countries are willing to export goods and services to the United States and Europe, but they use little of the money they receive as payment to buy American and European products. Instead, they leave this money sitting in their central banks. The result is that the United States and Europe have received billions of dollars worth of imports, while giving little in return except for paper notes and electronic credits.23
An international currency, which could be issued by an independent organization to settle trade balances between nations, could put a stop to this unfair arrangement. John Maynard Keynes proposed an idea along these lines in the 1940s at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. Keynes suggested establishing a currency (which he called the “Bancor”) and an international clearing union to regulate currency exchanges. Unfortunately the dollar won out over the Bancor at the conference and became the main reserve currency—not because of flaws in Keynes’s proposal, but because the United States was the dominant economic power and largest international creditor.24
Now, more than ever, the world needs a neutral international currency that is not controlled by any single country or group of countries. The new international currency could either be created as fiat money, meaning that its value would be derived only from its declaration as legal tender (this is the case for all reserve currencies today), or it could be given value by linking it to a physical resource, such as the right to emit carbon dioxide.25
Restructuring Financial Institutions
The proposed three-currency system, with a debt-free national currency, an abundance of local currencies, and a neutral international currency, represents a seismic shift in the monetary landscape that would shake the foundations of financial institutions. The changes that we propose seek to balance claims on wealth with the supply of real wealth, promote local production and consumption, provide greater equality among the economies of different nations, and encourage commerce commensurate with ecosystem capacities. Financial institutions need to follow suit and square their operations with these aims, so they can support a sustainable and equitable monetary system.
A number of organizations have proposed promising ideas for restructuring banks and other financial institutions. In addition to John Fullerton’s Capital Institute, other nonprofit organizations, such as the New Economy Working Group, the New Economics Foundation, Positive Money, Slow Money, and RSF Social Finance, are calling for major reforms. A common theme emanating from all these sources is the need to decrease the size and power of financial institutions. “Too big to fail” means too big, period.
The 100-percent-reserve requirement proposed for the switch to a debt-free national currency would go a long way toward tempering the power of banks. But other policy changes are probably needed as well. A tax on international financial transactions, sometimes called a Tobin tax (named after an influential economist) or a Robin Hood tax (named after an influential social worker), would further discourage the “wheeling-and-dealing” culture of banks. The merits of this idea have been discussed for decades, and it now appears that someone is willing to give it a try. The French government has announced plans to collect a tax of 0.1 percent on financial transactions, with the hope that other countries will follow suit.26
Measures like the 100-percent-reserve requirement and Tobin tax can rein in financial institutions that have run wild in the era of economic expansion. Shortly after banks such as Goldman Sachs and Citigroup were reduced to groveling for federal bailout funds, they were siphoning off record profits from a distressed economy.27 The era of ecologically sound economics will be fundamentally different, with changes in who creates money, how it circulates, how it is invested, and how benefits from its use accrue to people across society.
WHERE DO WE GO FROM HERE?
In a sense, the financial sector can be viewed as a cost. It’s the cost of helping money flow to where it’s needed in the economy. The fewer resources needed to accomplish this service, the better off society is. So we should aim to minimize the cost represented by the financial sector—it should account for as small a percentage of total economic activity as possible. That’s the opposite of financialization and counter to the way banks have been accumulating money and consolidating power. Instead of focusing on using money to make more money, financiers should be focusing on serving a stable economy, an equitable society, and a healthy biosphere.
Banks will not concede their power easily, and they have formidable resources at their disposal to oppose change. Needed financial reforms will not originate from bank boardrooms, and the speedy delivery and size of the bailouts of 2008 suggest that they will not originate from the halls of government either. That means the impetus to overhaul the system of finance must come from citizen action outside the establishment.28 Worldwide movements and protests have demonstrated that people are willing to oppose the status quo, but greater momentum is needed to overcome what has turned into a financial plutocracy. Two main ingredients for generating this momentum are widespread understanding of the financial system and utilization of financial crises.
If more people understood how inequitable and unsustainable the current debt-based money system is, it would be much easier to change it. But the financial system is complex, and many of the concepts involved are challenging to communicate. In order to raise awareness, ideas for monetary and financial reform need to be translated into a simple message that can capture the public imagination. Hopefully more financiers will find their way to a Fullerton-esque epiphany and help draft and communicate such a message.
However, even with a well-crafted message, requisite policy changes may not materialize without the forcing hand of a crisis. The monetary system negotiated at Bretton Woods emerged from the smoldering battlefields of World War II. In the transition to a steady-state economy, the goal is to avoid such a devastating crisis (in fact, it would be preferable to avoid any crisis). The meltdown of 2008 exposed serious flaws in the financial system and cost taxpayers vast sums of money. It kindled outrage and helped generate the desire for change, but banks have retained much of their power, and the monetary system remains essentially unchanged.
Another crisis or series of crises may be necessary to clear the way for more fundamental changes. But we’d better be prepared. As the economist Milton Friedman wrote, “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the acti
ons that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”29
[ CHAPTER 9 ]
ENOUGH MISCALCULATION
Changing the Way We Measure Progress
[T]he gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.
ROBERT F. KENNEDY (1968)1
WHAT ARE WE DOING?
“Almost heaven, West Virginia, Blue Ridge Mountains, Shenandoah River …” I was in a backwoods bar late one evening with three friends, when one of them dropped a quarter in the jukebox and selected John Denver’s “Country Roads.” The four of us, already on our third round of beer, began singing along. Soon enough, the other five or six patrons in the bar had joined our chorus. It would have been a typical scene in this particular bar, located in rural Virginia alongside the very Blue Ridge Mountains referenced in the song, except for one oddity. My three friends, Sonam, Tchewang, and Jigme, hailed from the Himalayan kingdom of Bhutan. It was quite a sight to see the solemn, bearded faces of the locals across the bar singing their hearts out with the three Himalayan visitors. When the song was over, all of us, Bhutanese and Americans, raised our beer bottles in a salute to happy times and the universal appeal of music.
That was the fondest of many fond memories from a six-week-long professional course on ecology and biodiversity sponsored by the Smithsonian Institution in the summer of 2001. It was the first time I had met anyone from Bhutan. Truth be told, it was the first time I had ever heard of Bhutan, a fascinating place that rocketed to the top of the list of places I’d like to see before I die. (In fact, so many Westerners yearn to experience a place sequestered from the burdens of their overgrown, techno-worshipping lifestyles that Bhutan has imposed a limit on the number of tourists it admits.)
The Smithsonian course offered an intensive curriculum to students from around the world. We spent twelve hours a day in lectures and hands-on activities to learn methods for conserving species and habitats. Sonam was my roommate at the course, and once I learned a little bit about his homeland, I spent more than a few of my free hours interrogating him.
Bhutan’s geography ranges from lowland tropical rainforests to the high Himalaya. A network of national parks and wildlife sanctuaries provides habitat for tigers, snow leopards, and plenty of other rare and endangered species. The people are proud and protective of their ecosystems and their culture, which is rooted in Buddhist pacifism. Sonam told me that the nation was modernizing, but, unlike the rest of the world, the people were making a concerted effort to prevent the invasion of Western-style consumer culture. I found all these facts fascinating, but one Bhutanese concept stood above all the rest in my mind: gross national happiness.
When I heard the term “gross national happiness,” it immediately clicked. I knew it was a play on “gross national product,” and I was intrigued by the contrast in those two terms. From my study of economics, I had a firm understanding of gross national product (and its more widely cited sibling, gross domestic product, or GDP), but I found something distasteful about using “product” or economic output as an indicator of the health of a nation. Why shouldn’t a nation strive instead to maximize its happiness over the long haul?
In 1972 Jigme Singye Wangchuck, the king of Bhutan, answered this question by declaring that gross national happiness was more important than gross domestic product.2 The Bhutanese government and others who subscribe to gross national happiness believe that measurements of national wealth should include more than economic output—environmental preservation and quality of life, for example. They have identified four pillars of gross national happiness: (1) promotion of equitable and sustainable socioeconomic development, (2) preservation and promotion of cultural values, (3) conservation of the natural environment, and (4) establishment of good governance.3
It’s one thing to coin a clever term; it’s another thing altogether to expand that term into operational policy. How can you measure gross national happiness? Dasho Karma Ura of the Centre for Bhutan Studies established a partnership with Michael Pennock, a Canadian public health expert, to work on it. Together they developed a survey to collect information from citizens on personal health, psychological well-being, time use, environmental quality, cultural preservation, and other topics. Bhutan uses the survey results to help craft its national policies with an eye toward ensuring that such policies will increase happiness and well-being. Applying this approach, the government concluded that membership in the World Trade Organization would not improve well-being, so it declined the invitation to join.4
The ideals embedded in gross national happiness are catching on in other countries as well. For example, the U.K. government is pursuing an index of happiness to steer government policy.5 The Australian Bureau of Statistics runs a program called Measures of Australia’s Progress (MAP) that’s designed to address the question, “Is life in Australia getting better?”6 The United Nations issued a resolution in July 2011 calling on member nations to pursue measures of happiness and well-being to guide public policies.7 And the Japanese government recently drafted a set of happiness indicators to supplement economic data.8
Gross national happiness is gaining popularity based on its own merits, but it’s also gaining popularity in response to disillusionment with gross domestic product as a measure of societal success. Such disillusionment has been building for decades, as evidenced by Robert F. Kennedy’s quote from 1968 at the beginning of this chapter.
Gross domestic product is the main economic indicator in use today, and probably the most politically influential of all indicators. Its importance in policy-making is hard to overstate. New policies and technologies are assessed in terms of their impact on GDP. Government budgets are evaluated in terms of their predicted effect on GDP. National progress has become synonymous with increasing GDP.9 But what is GDP, and is it a good indicator of progress?
In simple terms, GDP is a measure of economic activity—of money changing hands. Consumer spending on food, clothing, or entertainment contributes to GDP. Government investment in education also counts toward GDP. These are expenditures that most people would consider to be desirable. However, if there is an oil spill, such as the BP disaster in the Gulf of Mexico, the money spent by government on cleanup also contributes to GDP. If more people get cancer and require treatment, their medical costs count toward GDP. The costs of war, crime, and family breakdown all cause GDP to rise. In the language of economics, GDP does not distinguish between benefits and costs, but lumps everything together under the banner of economic activity.
Although GDP per capita has been on the rise (it has more than tripled in the United States since 1950),10 surveys of life satisfaction indicate that people have not become any happier. Beyond the level of income required to meet people’s basic needs and provide for some comforts, additional income does not appear to improve our lives.11 Studies suggest that a variety of other factors, such as living with a partner, enjoying good health, holding a secure job, having trust in institutions, volunteering, and limiting the amount of time spent watching television, do improve well-being, however.12
Our main economic measuring stick, GDP, appears to be a very poor indicator of progress, even in an economy where the goal is growth. It would be an even less useful indicator of progress in a steady-state economy, where the goal is to achieve sustainable scale, fair distribution, efficient allocation, and a high quality of life. GDP provides little information on whether we are achieving these goals.
Although GDP growth and increases in resource use tend to go hand in hand, zero growth in GDP would not necessarily be indicative of a steady-state economy. Zero growth in GDP could still be accompanied by declining stocks of natural capital or increasing inequality, both of which are counter to the goals of a steady-state economy. For these reasons, new indicators are required to replace GDP.
In addition to the work on gross national happiness, several initiatives around the world are investigating alternatives to GDP. These include the European Commission’s Beyond GDP initiative, the OECD’s Better Life Initiative, and the Commission on the Measurement of Economic Performance and Social Progress launched by former French President Nicolas Sarkozy.13
Governments in many countries, such as France, the United Kingdom, Costa Rica, Ecuador, and (naturally) Bhutan, are seriously considering alternative ways of measuring progress. They are doing this partly because of the criticisms of GDP, but also because of growing recognition that societal goals and priorities are changing.14 A U.K. poll found that 81 percent of people support the idea that the government’s main objective for its citizens should be the “greatest happiness” rather than the “greatest wealth.”15 Similarly, an international survey found that three-quarters of respondents believe health, social, and environmental indicators are just as important as economic indicators and should be used to measure progress.16