Creating Wealth

by Gwendolyn Hallsmith

  So, for example, a new city councilor is elected who promised during her campaign to reduce the carbon emissions and fossil fuel use of the city. During her first day in office, she is presented with a vehicle purchase by the police department of a gas-guzzling car for the new fleet. If she tries to stop the purchase, she might immediately be frustrated by resistance from the police chief and city manager describing the fact that the vehicle was in the capital plan and part of a long-term replacement policy, possibly with contracts with local car dealers that can’t be broken. The new city councilor’s objections will probably be overruled by the councilors who have been serving for many years, and the vehicle purchase will go forward. The newest council member might protest “. . .but citizens showed in this election they wanted to reduce carbon emissions and fossil fuel use.” Patient smiles and knowing looks exchanged between the veterans on staff and the council will tell her that idealism will be tolerated but that change at this level — daily implementation — is not that easy.

  Campaign promises, regular local elections, referenda and bond votes form a steady pulse of new information and citizen input into city government, but significant changes in direction take more of a concerted effort. Freshly minted city councilors are often blind to the processes that guide large-scale implementation, and it’s all too easy to get pulled into the “business as usual” pattern of behavior, especially when you consider all the systemic forces that work to keep things the way they are.

  Cities are complex engines powered by union contracts, standing purchase contracts with suppliers, experienced professional staff and material and energy flows which have their own visible and invisible infrastructure. Major alterations to the infrastructure take careful planning — you would not cut sewer pipes to stop the flow of waste to the treatment plant if you wanted to reduce a city’s waste impact, regardless of how easy it might seem at the time. In that case, it’s obvious that the unintended consequences of action would far outweigh the short-term results. It’s less obvious, but no less true, in other areas (even, for example, with a gas-guzzling vehicle that the police department wants).

  A long-term vision guided by people’s values — what they care deeply about — is a prerequisite for mobilizing collective action. Once a city has a long-term vision, however, things do not magically change. It still will be hard to redirect the purchase of a vehicle for the fleet unless the long-term vision is translated into the short-term policies and programs which guide implementation. A larger vision for a walkable city with friendly neighborhoods and less suburban sprawl still requires changes in the land use ordinances before there will be any measurable change in density. A larger vision for clean air and reduced climate impacts will have to be translated into a number of policies — ranging from a purchasing policy that requires alternatives to energy-intensive items to capital planning for renewable energy production.

  Today, very few cities have the integrated long-term plans and policies necessary to pursue the types of implementation activities that will move a community in a more sustainable direction. Often the policy context is fragmented, short-term and internally contradictory. The city might have a master plan or a comprehensive plan that addresses infrastructure, land use and economic development over the next three to five years. If city staff and/or the city council are oriented toward integration, the capital plan might actually reflect the goals of the master plan, but all too often a city’s capital plan is a long list of projects that reflect departmental or council imperatives in isolation from each other, without a sense of how they relate to overarching long-term goals such as climate stabilization and poverty eradication. Cities almost never address some of the important underlying drivers for the policy context — a sense of shared values, social and human development issues and governance structures.

  The action needed to achieve long-term sustainability goes beyond actions taken by city government, and city government actions can be ineffective if there aren’t concurrent and commensurate changes taking place in the larger community. A multi-stakeholder process gives individuals, organizations and other major institutions in the city a role and a voice in the preparation of the plan so that later they will also work within their own context to find ways to implement it. In this way, the city and all its independent moving parts will start to work toward the same ends. Here again, however, this synchronized action doesn’t happen on its own — it takes direction and organization from the city and the stakeholders.

  Integration and long-term time horizons define sustainability planning, and are more important for achieving a city’s goals than attention to single issues such as climate change, health or local economic development. While these issues are important, action to address them cannot be successful if it occurs in a silo. An integrated approach makes connections across issue areas, across socio-economic boundaries and across city departments.

  It also helps insure that the pursuit of one objective won’t be at the expense of another. Environmental policies that marginalize or impoverish a group of people or area in the city (or in another part of the world) won’t succeed in the long run. Housing plans that ignore their impact on important open space, wetlands and agricultural land will hurt the city over the long term. Economic development practices that rely on an unsustainable exploitation of natural resources or human potential will also ultimately have the opposite effect — they will further impoverish the community rather than creating real wealth.

  If you ask some local mayors or city councilors, however, what influence they have on the economy, they are likely to give you a blank look. Some may have gone as far as to build industrial infrastructure in the hopes of attracting manufacturing firms, with their 19th and 20th century highly paid jobs, ignoring global trends that have moved most manufacturing to other parts of the world. Others place their hope in the marketing efforts of the local Chamber of Commerce that diligently attends trade shows and places ads to market the locality as business-friendly.

  Some of the more progressive city governments have instituted revolving loan funds to serve as a lender of last resort to local businesses with cash flow or growth issues. They build incubator space, offer business planning services, maybe even identify sources of venture capital for start-ups. Many governments are aware of the importance of locally owned businesses, but are still frightened away from taking a stand when large firms threaten to come in and outcompete smaller local ventures. Most local government think that all jobs are equal and that any and all new tax bases are sacrosanct. The economy is the master, and local communities are the servants who bend over backwards to accommodate investors, even in the face of questionable business practices.

  Redefining wealth and refocusing local initiatives on meeting human needs can help local leaders see the economy as being at the service of their community, not the other way around. There are many forms of capital that demand investment for a local community to thrive, not just financial capital. Social capital, human capital, natural capital, institutional capital, technological capital, potential exchange capital, built capital and cultural capital all need to be understood and strengthened — and this multidimensional effort is absolutely the domain of local communities.

  The Myth (and Potential) of Individual Wealth

  So far, we’ve touched on three things that define what we mean by wealth:

  1. The obvious idea of possessing a lot of money

  2. The presence of well-being through the satisfaction of a broad spectrum of human needs

  3. The community systems we have developed to provide for many of our needs

  True wealth might be defined as a sum of all three of these. Yet it is possible to feel wealthy with only the latter two, and it is possible to be impoverished if all you have is a lot of money, but no way to meet any of your critical needs and no community systems to support it.

  The North American mythology of rugged individualism tends to make us blind to the fact that real wealth can only
exist in community. “Self-made millionaires” sometimes happily forget the fact that the context for their enrichment comes out of public infrastructure, institutional arrangements and participation by many other people in their enterprise. They are the first ones to call for lower taxes — the US Chamber of Commerce spends more on lobbying than any other lobbying group in Washington. They often don’t seem to recognize that without the rule of law, without water and sewer services to industrial areas, without policies that enable their businesses to operate, they would not survive, let alone make a profit.

  If most people are blind to the structures of cities and communities that enable businesses and organizations to operate successfully, we are also blind to the structure of the other important ingredient of individual wealth — money. Most people do not understand the current monetary system, hidden as it is from public view. If they did, they might have second thoughts about whether or not to blindly trust their financial security, or insecurity, exclusively to this particular system.

  We hope in this book to open your eyes about both the role of community in wealth creation and also the role of money and other means of exchange. To do this, we need to help you remove the blindfold you’ve been wearing (through no fault of your own) — the monetary system has been obscured by the forces that profit from it. After all, before you can create wealth and build sustainable, local economies, you need to understand wealth — what it is and what it is based on. The good news is that you too have the power to create wealth, real wealth, for yourself, your children and your community. But before you buy more lottery tickets, read on to see how effective local action can accomplish the task with a lot less risk.

  CHAPTER 2

  Crash and

  Burn Economics

  Almost all systems of economic thought are premised on the idea of continued economic growth, which would be fine and dandy if we lived on an infinite planet, but there’s this small, niggling, inconvenient fact that the planet is, in fact, finite, and that, unlike economic theory, it is governed by physical and biological reality.

  GEORGE MONBIOT

  The Roller Coaster Economy

  We all know the positive side of our economic history. Our current financial system has enabled an industrial age which has proved to be the most impressive wealth creation machine in human history, at least for those countries that adopted industrialization early on.

  However, the financial markets also have an unfortunate tendency to hurtle forward like a runaway train, careening into valleys of unpredictable recession, then chugging up hills of new opportunity, only to derail at the slightest bend in the track — an Asian market blows up, the Russian ruble crashes, subprime mortgages trigger a global banking meltdown, etc. The World Bank has identified no less than 96 major banking crises and 178 monetary crises over the past 25 years.1

  US dollars, European euros and Japanese yen stoke the train’s engines, shoveled in to support financial interests in every corner of the globe. To keep the system going, we subsidize ravenous consumer consumption that devours rainforests, guzzles fossil fuels and tops it off with melted ice caps for dessert. Finally, in the shadow side of our economy we find also all the shadows of humanity itself: the operation cloaks international syndicates trading in violence, weapons, war, terror, illegal drugs, slaves and prostitution.

  In short, for better and for worse, the flawed system we have has driven the evolution of the human species on this planet to the state we have achieved today.

  Our financial system influences everyone on the planet — from parents, farmers, shopkeepers and students, to all the corporate and political leaders around the world. Most people accept it on faith, and yet some inconvenient questions need to be asked: Why do the avowed principles of most national and state constitutions — like peace, democracy, a healthy environment and healthy people — diverge so far from practices we accept as business as usual? Why does the system break down as often as it does? How do rational people with no ill intent to humanity or to Earth’s environment perpetuate a system that produces violence, pollution and corruption as its byproduct?

  Despite the centrality of financial systems to our daily lives, most of us don’t understand the fundamentals of that system. And how could we? It is as hidden and complex as the workings of a secret society. We have been told that the principia economica behave like Newton’s natural laws, rather than being controlled by the decisions we make. This faith in the science of economics has been challenged repeatedly by “unforeseen crises.” Aren’t sciences supposed to be able to predict the future?

  Faulty economic assumptions can have significant ramifications. For example, many lead economists dismiss environmental pollution as an “externality,” a factor not adequately priced or otherwise accounted for in the existing system. In other words, when the theoretical system does not account for it, the problem itself is a bit of an anomaly. If the very basis for all economic activity — the natural resources and ecosystem services we depend on for life — is being irreparably harmed, and yet this is described as if it were a minor accounting mistake, there is a serious problem with the underlying theory, not with the facts. If we could bring the hidden drivers of the system that are embedded in these theories into the open and redesign them for health and real prosperity, it might help turn the ship around.

  Why does the economy appear to be so erratic? Even if 90% of the time some economic models have predictive value, they turn out to be of little help during the 10% of the cases when structural change is involved, which is unfortunately the situation we find ourselves in today. After all our history, why don’t we have a better idea about how to manage things so there aren’t wild fluctuations and sudden changes where some are impoverished while others reap huge profits? Even bankers, CEOs and CFOs who make the real decisions are often blind to the underlying systemic forces that present them with an increasingly narrow range of choices.

  What are the assumptions, frameworks, social decisions and projections driving the economic juggernaut? If they are faulty, then are there alternatives? What steps can we take to bring all of these invisible forces into the open so that people in every community can make conscious decisions about their own destiny, rather than blindly accepting a culture that seems to lead to its own destruction? Now, please hold onto your hats — some of these ideas have the potential to change the way you see the world. You may even discover why Henry Ford, one of the fathers of modern manufacturing, said: “The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.”2

  False Assumption #1:

  The Economy is Beyond Our Control

  In a country that has taken so much pride in its democratic traditions, the wholesale capitulation of basic rights to the doctrine of laissez faire, survival of the fittest, free market ideology is hard to explain. Yet we’ve lived through an era where the gap between the rich and the poor has widened by orders of magnitude. The social contract has changed dramatically in our lifetime; there was a time when the government was seen as having a legitimate role in reducing inequality and promoting social justice. The last 20 years have seen a widespread challenge to the legitimacy of government action of any sort. But there is hope, even in this shift. If it was changed once, it can be changed again. Why not make it better than it has ever been?

  There have been several times in US history where large economic changes have happened as a result of democratic intervention — the antitrust laws of the early 1900s, labor union laws, the New Deal under Roosevelt. We need to consider what institutional changes are needed to eradicate poverty if we really want to create a more sustainable world.

  False Assumption #2:

  Money is a Neutral Means of Exchange

  Most people do not know any more about money than what they need to count what’s in their pocket, balance their checkbooks and pay t
heir taxes. They know there is never enough of it for everything they want and need, but they never stop to ask why. Do they work hard enough? Sometimes people with two and three jobs can’t make ends meet for their families. Didn’t they study hard enough in school? If intelligence is a prerequisite for high pay, then why do so many of our teachers qualify for subsidized housing in the communities where they live?

  Money is not neutral with respect to affluence and poverty. Our national monetary system is based on debt — every dollar that is created is someone’s debt, be it the government’s, corporation’s or individual’s. Every dollar comes therefore with a built-in expectation that it will earn interest. The interest it earns goes to the bank and the people who buy the bonds. This automatically concentrates wealth in the system. At the same time, the debt basis for money also exerts continuous pressure on individuals and corporations to grow forever at any cost, to stay ahead of the interest payments on the basic unit of exchange.

  Money is not neutral with respect to community economic development. The existence of a national monetary system in a country with regional economies as diverse as the Midwest industrial belt, the prairie breadbasket and the Hollywood creative economy is guaranteed to undermine the economic health of at least some individual communities. If Mexico is doing better than Costa Rica, the value of their currency will reflect this, and Mexican citizens will be able to buy more Costa Rican products with their pesos. When this happens, more products in Costa Rica are sold, and their economy will improve. If Hollywood is doing better than Detroit, however, they are bound to a currency with the same value, so no similar balancing act takes place. Jane Jacobs, the author of Cities and the Wealth of Nations, compared this to everyone at a soccer game — the players, spectators and referees — using the same set of lungs.