New Money for a New World

by Bernard Lietaer

  Complementary Currencies and Resilience

  The solution that leads toward monetary sustainability defies conventional economic thinking, which mistakenly assumes monopolies for national currencies as a given. Sustainable ecosystems demonstrate that flow systems require sufficient diversity and connectivity at different scales covering all levels.208 A monopoly of one type of centralized currency, particularly one that requires artificial scarcity to maintain its value, is not compatible with such a role. A monoculture of bank-debt national money may have been appropriate—perhaps even necessary—for an industrial-age world to emerge. But this paradigm is without question far too limited for a 21st-century pluralistic society seeking innovative, sustainable, postindustrial economic solutions.

  Even some of the more simple complementary currency systems can empower people. The use of these monetary tools allows many more people to participate in exchanges, and provides a richer interconnectivity among the constituents of an economy. Complementary currencies thereby serve to prod the overall system back towards more sustainability.

  Complementary currencies improve the resilience of the whole economy by providing greater diversity in exchanges; they enable transactions that otherwise wouldn’t occur, through connections that otherwise wouldn’t exist. Though traditional economics tends to dismiss the contributions of complementary currencies on the grounds that they are less efficient, systems thinking demonstrates the fundamental flaws in that argument. Though complementary currencies may reduce overall efficiency, they increase resilience and engender a more sustainable economy. When diverse types of money reach every level of society, a richer socioeconomic fabric is inevitably woven that is far more pliant, able to better withstand and deal with multiple contingencies and changes to the environment. The system thus becomes more stable. This is the structural lesson of natural ecosystems.

  New understandings regarding complex flow systems and the need for resilience points a way towards the long-term health of our economies. It also helps clarify why today’s pressure for ever-greater efficiency actually destabilizes the economy by relentlessly repressing diversity. The lack of diversity erodes businesses, communities, and the well-being of the billions of people that interact through our economies.

  CLOSING THOUGHTS

  A new way of understanding any type of complex flow system is now available. A continuous exchange of energy, matter, and information outputs from one part of a system serve as inputs to another part of that same system. Importantly, understandings gained from any one kind of flow system are applicable to all others with the same structure, be they ecosystems, electrical distribution systems, human immune systems or entire economies.

  Flow systems that are optimally sustainable enjoy a dynamic balance between efficiency and resilience. Excessive efficiency occurs in the case of too little diversity or too few connections, and can result in the sudden collapse of a network. Resilience is instead enhanced by increasing diversity and connections. These findings have vital implications for our financial, economic, and monetary systems.

  CHAPTER THIRTEEN - Sustainable Development

  Growth for the sake of growth

  is the ideology of the cancer cell.

  ~EDWARD ABBEY

  Understanding the need for a balance between efficiency and resilience, together with the ability to measure a network’s structure, allows for a deeper, more accurate assessment of a number of vital contemporary issues. One such issue, and a key factor related to most of our current socioeconomic and environmental concerns, is that of sustainable development.209

  ECONOMIC DEVELOPMENT VERSUS GROWTH

  Traditional economic thought and practices have placed great emphasis on continued economic growth. Widely considered to be synonymous with development, economic growth is the main criterion used to determine overall economic vitality and is a key objective in economic planning and policies. Yet, many accepted assumptions regarding the concept of growth reveal themselves to be just that—assumptions.

  Even the most basic questions regarding growth defy simple answers. How, for example, do we define economic growth? Which criteria and methods should be employed to measure it? What kind of growth is actually good for the long-term health or sustainability of an economy? Confusion and misconceptions associated with this subject matter have contributed instead to policies and practices that exacerbate ongoing economic instability, inequities, hardship, and ecological devastation…hardly expressions of health or sustainability.

  For decades, mounting numbers of concerned citizens have intuitively understood and identified many supposedly growth-oriented economic activities as deleterious to society and the actual economy of peoples and nations. Such concerns, however, lacked the kind of supporting empirical evidence deemed acceptable by traditional economic protocol. Consequently, growth has persisted as a key objective and desired outcome in most economic pursuits.

  Fortunately, new findings—particularly with regard to flow networks, resilience, and sustainability—enable a much clearer understanding of what actually constitutes healthy development, and the means by which to differentiate it from mere growth. We now know, for example, that a large ecosystem that lacks sufficiently diverse nutrient pathways, such as the lack of ample waterways or nourishing topsoil, is not properly prepared to withstand challenges such as drought or disease. Size alone does not make ecosystems sustainable. The same structural rules apply to any type of flow system, including our economies.

  An economy that lacks resilience cannot be considered to be optimal, no matter how seemingly big or efficient it may be. Even Simon Kuznets, the principal architect of the original GNP national accounting scheme, cautioned that economic wellbeing cannot be determined by volume or growth alone. Theoretical ecologist Robert Ulanowicz points out that the long-term sustainability of any type of flow system depends on a judicious balance of size in conjunction with internal structural development. These insights regarding flow systems, together with advancements in our understanding of money, allow for a much clearer and more accurate assessment of the conditions needed by free-enterprise networks to produce the kind of economic vitality that enhances the wellbeing at all levels of our global civilization.

  In economies, volume is measured by Gross Domestic Product (GDP). In ecosystems, size is generally measured by the Total System Throughput (TST), which gauges the total volume of nutrients, biomass, or energy moving through a system. Both GDP and TST are, however, poor measures of sustainability in that they each measure only size (volume), while ignoring the agents and pathways needed to process resources and circulate energy in a network structure to all parts of the whole. This leaves metrics such as the GDP unable to distinguish between the kind of frenetic growth that occurs in a bubble economy and that of healthy development in a resilient economy.

  Sustainability in Natural Ecosystems

  A simple ecosystem example from Dr. Ulanowicz clarifies how tradeoffs among efficiency, resilience, and growth affect a flow-system’s long-term health. The following study observed the American alligator in one of its natural habitats, the Cypress wetlands of South Florida.210

  One of the alligator’s important sources of biomass (carbon flow or food) is freshwater prawns. The alligators do not, however, normally feed directly on the prawns themselves, but obtain this biomass indirectly by instead consuming other predators that in turn feed on the prawns. Three such intermediate predators include: large fish, turtles, and snakes.

  In this example, the most efficient pathway between prawns and alligators is via large fishes. If, as is often the case in economics, efficiency were taken as the sole criterion for vitality, then the flow path through the fish would grow at the expense of less efficient routes until it completely dominated the transfer. In such a scenario, the increase in efficiency almost doubles and also creates a 20 percent jump in volume (available biomass). A comparable economic event would be a massive increase in productivity and efficiency that leads to a dram
atic leap in GDP and growth, which is then conflated with healthy development.211

  In this ecosystem scenario, the resilience for this highly efficient system vanishes completely. The alligators are now strictly dependent on large fish as their only food source. Should some catastrophe occur to these now overly efficient predators, like a virus wiping out the fish population, all transfer from prawns to alligators would cease, with potentially cataclysmic consequences for the predator species. The growth that would have taken place is based on a shaky foundation and is not sustainable.

  Dr. Goerner points out that this natural ecosystem situation mirrors what occurs in the marketplace. The surges in GDP growth that often accompany increased efficiency may give the appearance of economic vitality but could mask increasing brittleness. One example of systemic fragility is found in the energy sector, with global dependence on oil as the primary source of fuel, whose production and supply is limited to a few, very large suppliers. Any disruption here bodes ill for the economy at large due to the absence of viable contingencies and alternative sources to turn to. In other words, there is a lack of resilience.

  Global dependence on large agribusinesses presents a similarly serious threat. A mere ten to twelve companies now control over 80 percent of the world’s food supply of cereals, grains, meat, dairy, edible oils, fats, and fruits.212 Such consolidation may, as some economists claim, represent the most efficient path from resource to consumer. But the global food system is left with few options should political, economic, microbial, or climate-change-induced events disrupt one or more major pathways. Consolidation of this kind puts all of one’s eggs in a single basket; it errs on the side of efficiency and courts disaster by eliminating resilience.

  Systems that, in contrast, maintain proper resilience during growth are more likely to adapt to crises in ways that largely protect TST. In the alligator biomass transfer example, healthy populations of turtles and snakes would provide alternate pathways and allow the system to adapt while maintaining flow in case of a fish virus outbreak. Though the loss of large fish does cause sustainability to drop by almost half, the TST volume only drops a modest 2-3 percent, and the efficiency loss is slight as well. Most notably, total collapse of the system is avoided. The alligator still receives a plentiful supply of biomass.

  Such numbers substantiate diversity’s role in supporting a soft-landing response to the booms, busts, and other periodic disturbances that inevitably befall an economy. The ability to quantify resilience also provides an empirical basis and new appreciation for the small, diverse economic networks that make up the bulk of any economy, and lends support to concerns about, for instance, the plight of small farms that provide vital, alternate food-supply pathways for the global food-security crisis (that many experts argue lies on the horizon). In short, understanding the need for resilience discredits the idea that focusing on highly efficient big businesses is the surest path to economic health.

  Sustainability and Positive Feedback

  Understanding the tradeoffs required for long-term economic vitality helps us aim policies toward a more appropriate balance between efficiency and resilience. There is, however, more to this story, especially in trying to grasp phenomena such as the booms and busts of the business cycle. For this, we must turn to positive feedback circuits that take the form of centripetal pull.

  The following example, named after one the world’s largest corporations, helps illustrate how self-reinforcing or autocatalytic forces draw ever more resources into their sway, like an expanding whirlpool that sucks all surrounding flows into itself.

  The Walmart Effect

  Walmart runs a chain of large U.S. discount department stores and membership-required warehouse outlets. The “Walmart Effect” is one in which large, highly efficient companies, supported by local economic development offices, tend to erode surrounding economic networks even as they increase GDP.

  For decades now, most economic development offices have focused on creating incentives to lure big corporations to set up shop in their locale in hopes that jobs and taxes would best trickle down from there. This approach skyrocketed because of increasing emphasis on GDP growth, and resulted in mutual-benefit deals between the giant, deregulated corporations and allied economic development officers, academicians, and politicians.

  Support for “big-box” retailers seemed sensible. Greater economies of scale means lower prices, which naturally and progressively pulls in more consumers and money. This centripetal pull causes corporate and government coffers to swell along with the GDP. The benefits of this centralizing circuit appeared as much undeniable as it was self-perpetuating. Those who supported the process were rewarded, while those who did not were simply removed.

  Champions of such policies failed, however, to consider the price paid for this in social and economic erosion.

  As noted in the documentary Walmart: The High Cost of Low Prices,213 the efficient, big-box retailers drive smaller, more diverse local enterprises out of business, mainly through lower prices. These same retailers then take full advantage of this situation by lowering worker wages, removing benefits, and finally increasing prices after local competition has been weakened. Main Street shops—one of the prime losers in this process—disappear one by one, leaving the center of town run-down and unsafe, and begging for another publicly funded, “urban renewal” effort. Much of the money and benefit of large-scale efficiency are ultimately drained from the local economy and siphoned off to distant headquarters.

  A 2002 study in Austin, Texas, for instance, showed that for every $100 local consumers spent at a national bookstore, only $13 was spent in the local economy, whereas the same amount spent at local bookstores yielded $45.214 A 2003 study of Mid-coast Maine expanded this finding, showing that local businesses spent 54 percent of their revenue (in goods, professional services, wages, benefits, etc.) within Maine, while big-box retailers spent just 14 percent of their revenue locally, mostly in the form of payroll.215

  This centripetal drain from the local community to corporate coffers erodes the social and economic vitality of a community. The ultimate costs to local governments far outweigh the tax revenues that the big retailer adds. The overall impact in lost jobs, lower wages, over-extended infrastructure, and the erosion of community wellbeing can be dramatic.

  The innocence with which this process proceeds explains why strategies that are intended to increase economic health often erode it instead. An autocatalytic circuit grew out of natural desires for progress in the form of economic growth, the kind that GDP numbers celebrate. More and more resources from the local community were pulled into this loop, which resulted in the loss of diversity, jobs, profits, and local resilience. Policies that promote centripetal economic growth have in common a wealth-concentrating vortex that simultaneously breeds brittleness at its periphery and unsustainable surges at its center.

  The 2008 banking and financial crisis, initially triggered by the mortgage derivative bubble, illustrates how this very process works on a broader scale than what has been described thus far.

  Autocatalysis and the Global Downturn

  In the period leading up to the global downturn of 2008, a profit-driven circuit had been well established, formed by deregulated bankers in search of new sources of income, stockbrokers in search of hot new products to sell, and big institutional investors in search of higher returns. Gains in any one part of this self-amplifying circuit benefitted other segments of the same internal circuit, but to the detriment of the resilience of the economy-at-large. This autocatalytic loop grew rapidly by drawing in resources from the greater economy through ever more-efficient, though dangerous, “pull” techniques, mainly in the form of risky derivative instruments, which served to concentrate or pull wealth into the hub. This was accompanied by a kind of rigid group-think that dismissed traditional risk assessments, which was realized via intense selection pressures that lavishly rewarded those who increased gains, and eliminating the jobs of those who did
not.

  While the derivative mess helped trigger the crisis, the erosion of other sectors created an underlying systemic risk in the form of brittleness. Not only was the broader economy left increasingly vulnerable, but the banking and financial sectors were also left exposed. The most vital factor behind this erosion and brittleness traces right back to the same epicenter—to the banking and monetary systems themselves.

  The crash of 2008 predictably devolved from a financial crisis into a liquidity crisis, in which the banks and financial sector, needled by the pressure to rebuild their balance sheets and reacting to the shift in economic climate, did what they usually do in such risky circumstances. At the very moment when Main Street needed it most, the large financial institutions reduced lending. Lacking credit, businesses and consumers were simply forced to tighten their belts and economic activity slowed down. As occurred in the 1930s, many businesses were forced into insolvency and massive unemployment ensued.

  Our ongoing monetary and banking paradigm amplifies the business cycle. It helps drive a good economic period into a potential inflationary boom, and a difficult period into a bust. It does this by making more credit available when it is least needed during high times, and by making credit less accessible when it is most needed during periods of contraction. Central banks try their best to counteract this cycle, but have limited success, at best.