Re-localisation includes local currencies and local banking

It is not uncommon these days to see advertisements urging us to buy local because local shops have done it hard during the Covid-19 lockdowns. This sentiment used to be confined to the Greens and the new economics groups, but it is now widely accepted.

In 1996 economist Richard Douthwaite wrote in his book Short Circuit – Strengthening local economies for Security in an Unstable World, “The establishment of a local money system is fundamental to greater economic self-reliance.” He went on to describe the various local currencies possible, spending considerable time on the dramatically successful Austrian depression currency in Wørgl in 1932-33.  You see the Mayor of  Wørgl had read and digested the message of Silvio Gesell in his book Natural Money 1906. Gesell said that money should decay like ordinary goods and it was completely unnatural that those with money should find it increased. (of course those were the days of higher interest rates)

Another chapter of Douthwaite’s book was entitled “Banking on Ourselves” and argued that to strengthen a local economy we must have local banks. Douthwaite himself had been a development economist and knew how essential it was to have development finance for business.

Up to now it is only those on the fringe – for example the Schumacher Institute in US, the New Economics Foundation in UK and the Living Economies Educational Trust of New Zealand who have advocated for local currencies and local banking.

It was a surprise therefore when I listened to economist Steve Keen being interviewed by Phil Dobbie for his Patreon site. Steve Keen, an Australian economist who currently lives in Thailand, argued that the German system showed the importance of local banks. He said he was once being driven to a small town of 5000 people when they came across a factory building satellites. He said that sort of thing only becomes possible if the local bank manager knows and trusts the people involved. (He also argued that the bank should take shares in the business to share the risk). Keen said the big banks of Germany influence only about half the economy and the rest comes from banks called Sparkassen, local non-profit savings banks publicly owned. According to the OECD, the German public banking system had a 40% share of total banking assets in Germany.

Dobbie said that wealth in UK was concentrated in the London/South East where the GDP per capita was about twice that  of the poorer North East of England. Dobbie asked Steve Keen about relocalising, banking, taxation, democracy and even currencies and Keen rose to the occasion, describing the success of  the Wørgl currency in the 1939s.  They talked about the possible Scottish devolution. It is one thing to have a budget from the national government, but quite another to have your own currency, Treasurer and central bank.

“We don’t want to rely on gratuitous payments of a central government handing out case for political point scoring”, said Dobbie. Now that sounds familiar! That lesson is so clear in New Zealand after the spectacle of a $3 billion Provincial Growth Fund where the Minister, over three years has favoured Northland which, although poor, just happens to be where that Minister is contesting the election. It received $553 million whereas the West Coast got $140 million and the Wairarapa received $10 million.

Imagine instead if there were 16 regional banks, all supplying local money to their regions. Imagine if the regional government was able to run a deficit because it is an issuer of a currency. Can you? Wealth would be more evenly distributed in our country. But with banks and Government all being centralised we can’t help but have a concentration of political and financial power in the cities of Auckland and Wellington.

Maybe the unimaginable can become possible in these Covid days.

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To get the next economic system we need to find the assumptions of this one

Banks Peninsula fires after drought Feb 2017

Many are asking if we have to sit around waiting for the current system to collapse. If we have only 3 years to turn around the emissions pattern as the UN has said, we had better get on with designing the next system.

The current system assumes:

  1. There will be only one currency for a country.
  2. The majority of the country’s money will be created and controlled by private banks.
  3. The money will be created as interest-bearing debt.
  4. All land, all natural resources and natural monopolies can be privately owned, and this means people can profit from buying and selling it.
  5. All major decisions will be made by national or international governments or agencies.

This all adds up to a system with a growth imperative built in.(For years I thought it was just the money system but I believe now after a conversation with Steve Keen it is a combination of that and the land tenure system) The consequences are regular booms and busts, regular monetary crises, banking crises and sovereign debt crises and ever widening wealth inequality.

Edgecumbe floods 2017

The growth imperative also means that it is inevitable that we consume our natural and social capital.  Perpetual growth is not natural. There is no entity in nature which is designed to grow forever, unless, as Margrit Kennedy pointed out, you count cancer. And now we are paying for our blindness with floods, droughts, coastal erosion and food shortages.

Therefore the phrases ‘doughnut economy’, ‘stable state economy’, ‘no-growth economy’, ‘regenerative or resilient economy’ are good descriptive words, but they don’t change the current economy’s DNA. We have been inventing more and more names for this since the publication of The Limits to Growth and arrival of the NZ Values Party in the seventies. They all sound good but we can’t go on and on pretending there isn’t a growth imperative built into the design of our mono-currency economy.

It is like saying I would like this rose to be white and scented but in fact it is red and unscented. The redness and unscented is built into its DNA and no amount of nice new language or great new writing will alter it. We just can’t go on creating more and more names for a good economy.

The Growth Imperative is in the DNZ

I am sure economists like Kate Raworth are contributing to raising awareness but honestly, give or take a few years of dormancy, people in the advanced economies have been at it since the 1970s. The Greens talked about it for a few years but dropped it like a hot cake quite a while ago.

Now I don’t expect too much new thinking will come out of universities. It is tricky for a university economist to breach the parameters of what they can say without losing their salary. Professor Steve Keen is having to crowdfund his salary now.

It is now time to acknowledge that we need to leave the new system alone and invent an entirely new model. We can’t solve climate change within the current model.  Within the old system you can’t put on a hefty carbon tax and expect a different political result from Australia. (Yes you can plant trees and do other things, sure.)

Supposing therefore we allow:

  1. There to be more than one currency
  2. It must be publicly created and controlled for inflation.
  3. The currency will be spent into existence not lent into existence.
  4. The currency will be designed to decay (Silvio Gesell’s quote is “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron and evaporates like ether can be capable of standing the test as an instrument for the exchange of newspapers, potatoes, iron and ether.”)
  5. The commons must be publicly owned and rent for their monopoly use must replace income tax and sales tax.

I realise that these are all huge jumps in thinking and the last point means there have to be very strong leasehold contracts to protect the occupier of the property together with no rent on land used for conservation or historic purposes.

Naomi Klein has spelt out this challenge for a new economic system in her book This Changes Everything.

Though The Next System Project is grappling with the challenge of finding it in Washington DC it would be great to have a special platform somewhere in NZ to work on it ourselves.

Oh, and by the way, my book The Big Shift – Reinventing Money, Tax, Welfare and Governance for the Next Economic System is available from Living Economies bookshop. It is the result of a four-year think tank of what was the New Economics Party and is the source of the above ideas. We may be right we don’t know, but we tried.

 

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