This talk given last month in Slovenia touches on many of the challenges faced by small peripheral states in the current world economy and provides an overview of solutions put forward by Feasta and like-minded organisations. The talk was organised by Lidija Zivcic of the Environmental Advocacy Organisation “Focus” (Focus Association for Sustainable Development).
The difficulty for any person who goes to another country to talk about economic and political policy is that they are almost inevitably going to be, to some degree, out of touch and out of tune with on the spot realities.
I have done a small amount of reading but I cannot claim any large amount of knowledge. Of course, I know that Slovenia is a small country which is highly integrated into the eurozone, dependent on exports and imports to European union countries and over the last few years has had serious economic problems. This includes a banking sector crisis brought about by a property market bubble that burst – owing money to banks that have been controlled by local politicians, leaving Slovenian tax payers to pick up the bill. This makes Slovenia very much like very many other countries and in need of policies and politics to sort out the mess.
Typically the way to deal with this kind of mess is assumed to be economic growth. If a country grows then the idea goes that there is extra wealth that can be used to bail out banks, government revenues are healthier and expenditure dealing with social problems, like supporting the unemployed, is less. It is easier to borrow too because prosperous countries can pay money back, with interest easier – so interest rates on borrowing are lower for growing countries.
However, the problem today is that the growth is not there, not in Slovenia and not in many other countries either. Indeed there is an argument that the growth may not be there for a long time, possibly never again. This is because the economic system is reaching limits to economic growth set by the sustaining ecological system at a global and a local level.
This creates additional challenges and it requires a different development model. In an era of climate change, rising energy prices because of fossil fuel depletion, growing levels of environmental toxicity, international shortages of fresh water, shortages of various strategic minerals, the costs of production are rising, growth is stalling and human society is at the beginning of an even bigger set of problems.
This background trend considerably exacerbates the problems brought about by competitive strains between countries. In the European Union the growing dominance of Germany would not have the same serious effects if all countries were getting richer, albeit at different paces. It is quite different when many countries are stagnating – in these circumstances the competitive dominance of Germany eats into the prosperity of southern European countries in much more fundamental way.
So what we need in this situation is a different kind of development model. We need it everywhere but we particularly need it first of all in those countries whose crisis is producing serious social and political tensions and strains. We need a no-growth development model as an alternative to an austerity model which will do nothing except bring ordinary people hardship and misery – offering them no hope and no way of coping with their problems.
What then are the main features of this non-growth development model? There are a number of these and I want to separate them into things that ordinary people can work on bringing about in their lives as soon as possible without waiting for politicians to do it for them – and those things that are likely to occur a bit later when the political system can be transformed.
I want to explain this idea a little more because I think it very important. Political engagement and social and economic change does not have to involve waiting for politicians to act to do things on your behalf. Indeed, if people expect politicians to change the world for them then they are going to be waiting for a long time and they are going to be very bitter, frustrated and disappointed.
Politicians make promises, they get elected and then they get co-opted into the circles and networks that organise the corporations that dominate at the national and international level. This is almost inevitably so because it is these business networks that are taking decisions and pursuing their private agendas of wealth accumulation with resources at their disposal – so it is quite natural for politicians to end up working with them.
If we want something else to happen we have put politicians in political power who are integrated into different kinds of economic activities and networks – working for a different kind of society at the local level that involves developing a community economy. Such politicians would not be so easily co-opted if they are connected into active local communities and get themselves elected to promote the projects that are supporting these communities.
What do I mean by an active community economy? At the local community level every city, town and village has some shared infrastructure – like a public transport system where people share the use of trams, buses and trains, like libraries, swimming pools and leisure services. The task at hand is to extend these shared resources and facilities as much as possible so that, in an era where resources become scarcer, people can share more and more without having to have more goods as personal possessions. It is about enabling people to live well or better, but on less and in a way that saves energy, transport and materials. It involves projects like community gardens, community energy projects where people help each other make their homes energy efficient, community supported agriculture, community tool libraries, community toy libraries for children, shared workshop spaces, shared media production facilities.
The point about these is not only to provide tools and equipment but places where people can come together and help each other, learn from each other and develop ideas and projects together. The aim is to develop connections between people in the community, the encouragement of creativity for its own sake and activity for the pleasure of doing things. What we are looking at here is the creation and re-creation of commons – joint management by communities of the resources needed by them. This is not the same as recreating a bureaucratically planned economy – what I am describing is a “solidarity economy” which is an extension of more effective households.
This is partly about creating a seed bed for creative and interesting projects so that people are less centred on stressful employed work in order to earn money to buy their satisfactions in the shops. We need to promote a “different life style package” to that offered by the supermarket economy. This will be a network of projects and initiatives where people develop different values and priorities because they enjoy the creative opportunities and the convivial social contact for its own sake – rather than because they have been “incentivised”. Given a few years, this ‘seed bed’ of projects – and products and services developed by it – will impact into the mainstream economy.
Meanwhile, one of the things that needs to change in this local community economy are the management approaches. What is required are alternatives to the top-down paternalistic we-know-what’s-best-for-you – command and control way of managing things that is familiar to us all. Yet we do need to try to make sure that the different community gardens, energy projects, tool libraries, workshop sharing arrangements and the like, come together to evolve into a coherent whole which is more than the sum of the parts.
As far as possible projects must be enabled to develop in, and through, co-ordination networks between groups that share common or complementary purposes. In the relationships between the different projects clear protocols are needed to minimise outside interference in each organisation – while at the same time facilitating forms of co-ordination where a bigger picture makes it appropriate. That means services need to exist to help groups co-ordinate with each other in a limited number of contexts. The contexts are conflict resolution procedures, steps to achieve synergies where working together would be better than developing separately, developing a common strategic view of what is happening in shared environments and, finally, activities that clarify and develop shared value systems and purposes. (The Mondragon network of co-operatives in the Basque region of Spain can serve as a partial example of how co-ordination might function between projects).
Of course a list of ideas for the development of a local community economy does not exhaust the list of things that need doing. Some policies for the wider economy and society are very much needed. And they are needed now – even if it might take a few years for these ideas to become very influential when a new generation and a new type of political movement emerges and champions them.
Given the crisis that has occurred in Slovenia what ought to happen right now, but will probably be blocked by the elite at first, are reforms of the tax system and of the money and banking system. There is also a need for an energy policy package to drive a process of de-carbonisation and in the process transform the economy in a genuinely green direction.
Let me take the tax system first. Everywhere you look in the world the tax system is in crisis because the political-economic elite are opting out of its obligations to the wider society by looking for ways to avoid paying taxes. A global network of secrecy jurisdictions and tax havens allows them to do this and facilitates a growing amount of elite crime.
One way of solving this is to shift the basis of taxation in the direction envisaged over 200 years ago by the classical economists – I mean by taxing land and natural resource use more, and labour and work incomes less. Because land is crucial as collateral when bank loans for property developments are made, it follows that land value fluctuations are closely tied to the stability of the banking system. It is by taxing away the capital gains on rising land values that it is possible to prevent property bubbles occurring. This would be a policy that would remove the incentive for the kind of catastrophe that recently happened in the Slovenian bank sector.
In order that this idea is properly understood let me explain land value tax in more depth. The tax would be on the value of locations. What makes any site valuable is its closeness to transport links, how near it is to schools, theatres, cinemas, shops as well as the existence of street trees, a nearby park and its flower beds, and public sector funded infrastructure. While all of these things give sites an amenity value they are not sources of value created by a landowner – it is a community and its tax payers that create these desirable features of a location which a landowner can then charge for. The landowner is a beneficiary of the amenity values because they can charge rents for advantages to a site created by others.
It follows from this that, if you have a land value tax, the community is charging the landowner for the money valuation of benefits that the landowner has not created. In fact, you really need to have a land value tax if you are going to have the kind of strategy about which I spoke earlier – a kind of community economic development when people work together to make the places that they live in interesting, pleasant and cheap places with a buzz. For the danger of doing this is that landowners, who make no contribution to this process, put up the rent in these places when they become desirable locations to live. This extra value should go, instead, back to the local state which should then recycle it to pay the costs of a local community that is helping itself.
There are further reasons too – when the state taxes the value of each location they are also taxing an asset that cannot be exported to a tax haven. You cannot hide land. What’s more a land value tax would remove the incentive for speculative bubbles that destabilise the financial system – and de-stabilise the political system too (because politicians often seem to be unable to keep their paws out of the honey pot involved in speculation and land development).
Let us now turn to the banking and finance system. I have read in the financial press that Slovenian banks are state owned control and this has been held up as if it is the source of the problem that led to the losses.
This argument is not convincing. Wherever one looks in the world the links between banks and politicians are close and corrupt, whether the banks are under state ownership and control or under private ownership and control. It is not as if when banks are under private control they behave any better. The issue is not who owns or controls the banks – the issue is that it should not be banks creating the money supply. For that is what happens at this time.
Money is created when the banks lend and the banks lend when they and borrowers are confident about the future for the economy, during a boom. Paradoxically this is usually when new money is actually not needed because the new money, in the form of new credit, adds to an already existing boom. So the existing arrangements tend to create a speculative overshoot as credit money is used to bid up prices in the asset and land markets. Later, after it has all ended unhappily, the banks are reluctant or unable to lend and create money, at just the time when new money and aggregate demand is needed because unemployment is high.
This is a crazy way of organising a monetary and financial system and what ought to happen is that monetary authorities create non-debt money when the economy needs a boost when there is a lot of unemployment. It is generally said that money should not just be printed and made available to the state because this would create inflation. However, this is not entirely true if there is unemployed capacity. In any case, if inflation starts the state can tax the money away in conditions where there is full employment.
It is extremely unlikely though that is message will go down well with the European Central Bank, the IMF and the European Commission. Thus, given the monetary conservatism in Germany and among the banking elite, a number of alternative economists around Europe have suggested an alternative. When countries under an austerity assault from the Troika they should set up alternative currency arrangements to run alongside the euro. There are precedents for such parallel currencies running alongside the main currency – and many have been successful. For example, in Switzerland the WIR is a parallel payment arrangement alongside the Swiss franc which helps stabilise the Swiss economy. Again, as I said, I would not expect your government to set up such a system – you will probably have to set it up yourself – only don’t call it a currency or the policy vandals in the Troika will close it down.
Finally, this is all very well – but I have already said that we are reaching the limits to economic growth. Yet here I am arguing for an alternative to austerity which would help reflate the Slovenian economy by creating additional demand through a parallel currency. Is there not a conflict or an inconsistency here?
This talk given by Brian Davey last month in Slovenia touches on many of the challenges faced by small peripheral states in the current world economy and provides an overview of solutions put forward by Feasta and like-minded organisations.
It certainly would be inconsistent without an additional national level policy to drive the process of de-carbonisation – a policy that would ideally be part of an international process to transform the energy system of your country and hopefully in the rest of the world too.
Many years ago an economist called Jan Tinbergen wrote about principles for economic policy in which he suggested that one needs a separate policy instrument for each economic problem. In this respect I would suggest that what is needed is a policy for unemployment which I have already described and a policy for degrowth, which would be driven by a rapidly shrinking cap on carbon allowed into the economy. More specifically what we need, I think, instead of the European Union’s discredited Emissions Trading System, is a policy called “cap and share”.
With cap and share you ban the initial production, sale or import of fossil fuels without a permit for the amount of carbon contained in the coal, oil or gas. The amount of carbon allowed into the economy, in other words the number of permits issued each year, is capped tightly. This cap is reduced as rapidly as is required by climate science – at about 6% per annum. The fossil fuel suppliers must buy the limited number of permits – and to make the process fair the money that they pay for the permits should mainly be returned to the people.
This would be fair but it would not be easy. But it would drive a rapid process of decarbonisation. The other policies and processes mentioned would be needed to help people to respond and cope – without fairness and additional help for vulnerable people there would be resistance to a tightening cap, even with a rebate of the revenues raised by selling carbon permits. Doing this is very urgent however – otherwise in the opinion of many climate scientists humanity is likely to create a runaway process of climate change which will be more than merely dangerous, it will be utterly catastrophic.
Featured image: Autumn forest scene from Lake Bohinj, NW Slovenia. Author: Ivanmarn. Source: http://www.sxc.hu/photo/1407044
Note: Feasta is a forum for exchanging ideas. By posting on its site Feasta agrees that the ideas expressed by authors are worthy of consideration. However, there is no one ‘Feasta line’. The views of the article do not necessarily represent the views of all Feasta members.
Brian Davey graduated from the Nottingham University Department of Economics and, aside from a brief spell working in eastern Germany showing how to do community development work, has spent most of his life working in the community and voluntary sector in Nottingham particularly in health promotion, mental health and environmental fields. He helped form Ecoworks, a community garden and environmental project for people with mental health problems. He is a member of Feasta Climate Working Group and former co-ordinator of the Cap and Share Campaign. He is editor of the Feasta book Sharing for Survival: Restoring the Climate, the Commons and Society, and the author of Credo: Economic Beliefs in a World in Crisis.