Creating Wealth
Page 9
What are the different values and characteristics of a system that fosters competition compared to one that fosters cooperation? Figure 1 presents the tendencies and patterns on each side of the game.
Values and
Characteristics Competition Cooperation
Motivation Having, Doing Being
Operation Peak Experience Endurance-Sustainability
Thought Process Formal Logic Dialectical Logic
Causality Linear Non-linear, Cyclical
Problem-Solving Technology Interpersonal Relationships
Organizational Preferences Bigger is Better Small is Beautiful
Hierarchy Egalitarian
Central Authority Decentralized System
Command and Control Mutual Trust and Action
Spirituality Transcendent God Immanent Divinity
Figure 4.1. Competition and Cooperation
Obviously, in real life a balance needs to be struck between these two orientations. An exclusive focus on either one of those poles would be a problem. Yet the monetary system we have developed, which is now the primary one worldwide, focuses only on the competitive side, and therefore fosters competition at the expense of cooperation.
THE WAY OF YIN-YANG
The age-old philosophical framework of Yin-Yang makes it possible to provide a shorthand description of the entire thesis in this book. Conventional money is an extreme Yang construct: hierarchical, top down, with build-in interest which acts as a centralizing (by definition those with money get more of it, those without get less) and competition driving mechanism (see “The Eleventh Round” in Chapter 2).
A monopoly of a Yang currency will tend to induce a Yang bias in what is being honored with that currency. This explains why all the Yin functions tend to be underpaid in our societies. How many salaries of an average schoolteacher fit into an average investment banker’s monthly check? Yet we entrust these underpaid teachers with what we hold as most precious: our children. In an environment where the monopoly of a Yang currency is enforced, all the caring functions — in fact all Yin functions — will systematically tend to be undervalued.
One irony is that it is government that enforces this monopoly by accepting only privately created bank-debt money as legal tender in payment for all fees and taxes. Taxes are what systemically enforce the demand for a particular currency.6 The marginalization of any currency, including any Yin currency, would automatically stop whenever a government (at whatever level) requests annual contributions payable only in that specific currency. That same governmental entity could also issue this Yin currency interest free under whatever rules and principles that it chooses. Nonprofit NGOs would be among the logical organizers of the programs for which Yin currency would be issued. Such a dual legal tender currency strategy would empower civil society. Democratic control over the entity that has the power to require such a tax is important: it will be where the balance between the relative importance of the Yin and Yang economies will be decided. For instance, up to 1/3 of an adult Balinese’s time is part of the Yin economy, and it has been proven that it is essential for a very democratic process to prevail for such a system to work.7
Much of the balance of Creating Wealth is about currencies which foster cooperative behavior that can counterbalance the existing system. One of the key questions is whether they can be introduced at a speed and scale adequate to face so many global crises. The evidence of their effectiveness (even when their existence was not introduced by design as in the cases of ancient Egypt, modern day Bali or the Central Medieval period in Europe) would suggest that a “two-game” economy could provide a more resilient prosperity over the long term. The chapters in Part II will describe in detail the problems in each sector of the economy caused by the constraint of a monopoly of bank-debt money and the alternatives that exist to address these problems.
Unmet Needs and Underutilized Resources
One of the critical faults of the national money system’s tendency to value only those things that are scarce is its propensity to leave many economic resources undervalued and/or underutilized. Introducing complementary currencies links underutilized resources with unmet needs — this is the primary way these currencies create new wealth. Empty airline seats are transformed into customer loyalty and higher profits. Undervalued time is transformed into critical services needed to help elders be involved in their communities. Excess inventory can be liberated to serve people without the resources to buy it, in exchange for other things highly valued by the company.
There are a wide variety of unmet needs:
• Social needs (e.g., elderly care or youth mentoring)
• Economic needs (e.g., unemployment and underemployment)
• Commercial needs (e.g., helping the locally owned groceries to better compete against the supermarket chains)
• Ecological, cultural or educational needs (e.g., supporting local nonprofit organizations, and community or regional identity building)
Similarly, underutilized resources can be found in the most unexpected places:
• Any unemployed person who is willing and able to do something has some unused capacities
• The next time you go to your neighborhood restaurant or movie house, count the tables and chairs that are empty: these are all unused resources that could be mobilized for your purposes
• Schools or other buildings that are empty during part of the week or the year
• College, university or vocational courses
• Youth organizations and other nonprofits that have people ready to do things if supplies are provided
The idea is to design complementary currencies that are backed by or redeemable in some of those underutilized resources and can be mobilized to meet unmet needs. Empty stadium seats at sporting events might be offered to people who volunteer to coach student sports or who mentor youth in other ways. The marginal costs to the sports facility do not increase with more people filling the seats, and while they would always prefer to sell the seats, the fact remains that an empty seat is an unsold seat. The same principle applies to empty seats on public transportation systems, seats in the theater and tickets to public and private recreational facilities: amusement parks, swimming pools, golf courses and ski areas. Obviously there might be some interest in making the free passes available at times when the facilities are not at capacity, just as airlines black out times when their frequent flyers cannot use the seats.
The greatest underutilized resources of all are the people in every community. Our specialized economy has tended to make each of us focus on one fairly narrow task at work, and yet we have meter readers who are talented artists, store clerks who knit award winning sweaters and scarves, bankers who are expert cabinetmakers, insurance salespeople who love to teach. When you factor in the people who aren’t working — the unemployed, the elders, the underemployed — the pool of skills, knowledge and time grows exponentially. But our current system doesn’t have an effective way to mobilize people, largely because we are so dependent on money to do it.
THE CORE ECONOMY
A vast amount of services that meet our collective unmet needs are those which constitute what Edgar Cahn, the founder of Time Banks, calls the “core economy.”8 Here is an excerpt from his blog:
The Core Economy is not Wall Street or Main Street; it is the economy of family, neighborhood, kith and kin. Recently more and more economists acknowledge that something like 40–50% of productive economic activity takes place outside of the market and is not measured by traditional indicators. But even those percentages do not begin to convey either the scale or significance of an economic system that is pervasively ignored. Futurist Alvin Toffler captured the implications of what economists overlook with a question he puts to CEOs of Fortune 500 companies: “How productive do you think your workforce would be if it was not toilet trained?” That’s a useful if disconcerting starting point for reassessing what we value and measure as productive labor.
A p
hysician at a nationally renowned medical school puts this question to first year medical students: What group of people do you think delivers the most medical care and treatment in this country?” Doctors? No. Nurses? No. Allied health professionals? No. The correct answer is “mothers.” Just compute the number of days school children are sick; then add infant care, preventive medicine, and chronic conditions, and a different profile of healthcare practitioners emerges.
Who teaches children to walk? To talk? To obey the rules? To tell the truth? To avoid harming themselves? To avoid harming others? Who produces a workforce that gets up in the morning, gets to places on time, and knows it is wrong to steal and lie? Mothers, fathers, grandparents, families and those institutions that impart moral values.
Who keeps neighborhoods safe, keeps violence down? A $51 million study extending over ten years by renowned researchers from Harvard, Columbia and the University of Michigan finally pinned down the critical factor. They called it “collective efficacy” — which when translated into language we all understand turns out to mean: neighbors stopping kids from painting graffiti, having fights, hanging out on street corners. It is an invisible local culture that boils down to looking after each others’ kids.
When an economist undertook to quantify the replacement value of just one function of this Core Economy, he found that the unpaid work done by family, friends, neighbors and kinfolk to keep seniors out of nursing homes totaled $196 billion in 1997. By 2000, when he updated his computation, it had risen to $257 billion. The value of just the informal caregiving portion of the labor produced by the Core Economy was six times greater [emphasis added] than the money spent in the market economy to purchase formal home healthcare services for the elderly; it is over twice what the federal government spends on nursing home care. Consider the monetary implications of even a small drop in the productivity of the Core Economy and if we were obliged to buy those services at market prices with increased private insurance or increased taxes for Medicare and Medicaid.
In recent decades, highly respected economists have undertaken to include the value of unpaid household labor that does not get included in the GDP or other standard economic measures of productivity. Rigorous estimates of the value of household labor have ranged from ¼ to of the GDP.9
Feminine economists have tended to focus on Caring Labor as an essential component of productive labor missing from official economic indicators. But there are other kinds of labor that are equally essential and equally absent: Civic Labor, Social Justice Labor and Environmental Labor. And then there is another kind of labor that goes into Knowledge Acquisition that might be called Learning Labor.10
Caring, learning, civic engagement, the arts, social justice, a clean environment . . .what would our lives be like if people didn’t spend their time on these things? Yet the structure of the market economy based on scarce national bank-debt money is systematically robbing us of our ability to spend our time on these activities, even if we are employed. People are spending more and more of their time earning a buck, and less and less of their time making a living.
The Possibility of Sufficiency and Abundance
Complementary currencies that match unmet needs with underutilized resources can be described as sufficient — in mutual credit systems they come into existence as and when needed. The supply does not need to be tightly controlled by a central authority, there is no inflation if they are correctly designed, there is always enough of them to go around. The idea of enough captures a sense of sufficiency. On the level of meeting important needs, enough is exactly right. If we are hungry, we don’t need to overeat. If we are cold, we don’t need to overheat. If we need to go from our house to the doctor’s office, we don’t need to go back and forth the same day — one trip is sufficient.
Yet finding sufficiency in matching unmet needs with underutilized resources creates an abundance that is otherwise not as available. These transactions are a source of real wealth, and can liberate all sorts of skills and talents that are otherwise ignored. Thinking back to the definition of wealth in Chapter 1, the word refers to well-being. We are in possession of well-being when our needs are met. We can have all the money in the world, but if we are not healthy, in a loving relationship, with access to a civic and cultural life to feed our soul, the money becomes useless.
Further, the scarce money we depend on today creates a dynamic all its own that pulls us away from the things that are really important in life; how many people spend more time earning or managing their money than they do with their families? How many days off come and go where we are just too tired to go out and do anything fun because the working week has robbed us of all the energy we may have had to do something rewarding and fulfilling? Recapturing the value of the cooperative currencies and integrating them into our everyday life can restore the lost balance we need and make the circle whole again.
PART II
EXAMPLES OF
COMPLEMENTARY
CURRENCIES
CHAPTER 5
Building Equity
The reason saving comes before investing is that you need to
have seed before you can sow it in anticipation of a harvest.
RAJEN DEVADASON
Neo-feudal Housing: The New Lords and Serfs
Home ownership has been one of the cornerstones of the American dream for almost a century. As early as in the 1920s, Better Homes in America, Inc. worked with the Department of Commerce to promote housing as an economic development strategy, knowing that the construction of homes would provide jobs and other multiplied economic benefits.
It wasn’t until 1939 that the largest housing subsidy in US history was invented — the deduction on income taxes for the interest paid on mortgages. This, combined with federal mortgage insurance, the GI Bill for soldiers coming home from World War II and the mass production of automobiles, has shaped the ways in which our housing has developed ever since. Our homes are often our only source of equity — a cornerstone of the wealth we are able to accumulate in hope of securing a comfortable life.
In 2008, this clever combination of strategies — housing construction that creates jobs, mortgages that produce interest for the financial system and home ownership as a way to build wealth — collapsed on themselves and brought the rest of the financial system with them, creating the largest economic crisis in the US since the Great Depression. The genesis of the sub-prime crisis of 2008 illuminates the problems at the root of the financial system, but also points to a way forward out of the mess.
Every person who buys a home in the United States triggers the creation of money. We go to the bank and apply for a mortgage. When we do this, some people imagine that the bank has the money to lend to us from the savings of other people. It’s just a matter of making an application to get them to unlock the vault and hand out the money that’s stored there. Not so. The banks are allowed to lend money based on the fractional reserve system, which means that they are only required to have 10% of the money they loan out in reserve. When you agree to take a mortgage for $100,000, the bank therefore needs to have only about $10,000 of that on hand. They give you a check for the mortgage, which is then deposited in another bank, freeing the next bank up to provide loans for up to 90% of that deposit, and on and on it goes.
When banks were deregulated and allowed to start giving mortgages to people who they knew would be unable to keep up with the mortgage payments over the long term, a LOT of money was created. But the money was only as valuable as the promises to repay the debt; once it became obvious that a lot of the mortgages were not going to be repaid, the whole system came crashing down like a house of cards.
The financial designers were clever — they packaged all of these mortgage notes into derivatives and sold big packages of derivatives in products with different risk levels. The built-in assumptions were that real estate would continue to go up in value and that all these mortgage notes would be paid back. When real estate started to decline and people star
ted to default on their mortgages, suddenly no one wanted to touch all of the mortgage-backed financial instruments in circulation. The result was that the real market value of all these derivatives could not be determined. With $1.2 trillion in circulation, it was hard for the bankers to know who had the worthless ones. This uncertainty undermined the banks’ trust in each other — they couldn’t tell which banks or finance houses would be liable to fail, so overnight the credit market evaporated. Banks wouldn’t even lend to each other overnight, a standard practice until that moment.
The money in the system that was created by all these suddenly worthless pieces of paper disappeared even faster than it appeared in the first place. The wreckage this has caused is staggering — in 2006, there were 268,532 people who lost their homes to foreclosure, in 2007 that number grew to 405,000.1 During 2008, more than 1,000,000 people lost their homes to foreclosure! In 2009, the number grew to 2.82 million,2 and in 2011 the current trend would appear to indicate that more than 3 million homes will go through the process.3
The problem is not with the people who are trying to buy homes — everyone needs a place to live. The problem is with the structure of money.
Sweating the Way to Equity
The foreclosure crisis left many US cities and towns with whole neighborhoods of empty houses. The economic crisis also left millions of people without jobs — in early 2010, the estimate nationwide in the US was 15 million unemployed, with over 1 million discouraged workers, people who had given up looking for work and so are not counted in that figure.4