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New Financial Architecture for Sustainability
A discussion paper
April 23rd 2002
Earth Summit Ireland (ESI) is the umbrella body of Irish environmental NGOs preparing for the Rio +10 World Summit on Sustainable Development in Johannesburg. We write to express concern at positions taken by the EU during PrepCom III in New York. Our understanding of the EU position was that it favoured the inclusion of targets, timeframes, mechanisms and processes related to Sustainable Development objectives in the final Johannesburg agreement which after all, were agreed at Rio 10 years ago. Therefore we are concerned that the text currently being discussed is very weak in this regard. In response to this concern and the lack of new imaginative thinking on implementation mechanisms, we make the following proposals for additional text to be put on the table for discussion at Prep Com IV.
General: Political Declarations / International Agreements
Primacy of Sustainable Development in International Governance
"Governments commit to a total reassessment and reform of the role the World Trade Organisation and the international financial institutions play within them to ensure that there are no systemic barriers to the achievement of sustainability."
Redressing Ecological Debt
"Governments acknowledge the ecological debt which results from the unequal historical use of natural resources and fundamentally inequitable global financial systems and commit to reform monetary systems and international agreements in a way which specifically redresses this inequity.
Balancing Trade
"Governments promote measures to ensure balanced trade which protect domestic economies against speculative pressures and which are compatible with sustainability."
Corporate Accountability
"Governments commit to initiating negotiations to set up appropriate international structures to ensure the accountability of transnational corporations."
User Compensates Principle
"That governments commit themselves to a shift to taxes and/or other reallocative mechanisms on natural resources for their more efficient use and more equitable share with current and future generations."
Specific: Plan of Action / Concrete Deliverables
The following outlines the context for the general principles described before and further outcomes with specific recommendations and timelines.
Primacy of Sustainable Development in International Governance
Whether something is efficient or not can only be determined in relation to one's objectives. The present global economic system, with its emphasis on the free movement of goods and capital is very efficient in terms of maximising the return to investors. The rules of the World Trade Organisation and the practices of international financial institutions such as the World Bank and the IMF have all been developed to further this type of efficiency.
The world, however, now has another objective which has to take precedence over the achievement of economic efficiency if humanity is to avoid a catastrophe. This is, of course, sustainability - the achievement of a way of living which does not diminish the stock of the four types of capital -natural, human, social and physical - which each generation hands on to the next and which together provide the stream of benefits which make our lives possible and enjoyable.
The blind pursuit of economic efficiency is a very inefficient way of achieving sustainability. Although economic efficiency has an important role to play in the achievement of sustainability, the rules under which the global system operates need to be changed to ensure that sustainability is given the priority. In other words, the world community needs to set the limits within which the world economy can operate without endangering the global environment or human society. Then, once those limits are set, the market can be used to ensure that the limited resources available are used as efficiently as possible.
Giving the highest priority to sustainability means that the assumptions, practices and rules by which the world economy and its institutions operate need to be totally re-assessed from the new perspective. In particular, any system or institution which depends on continuous economic growth for its survival cannot be regarded as sustainable. We therefore propose the following text to be agreed at Bali:
"Governments commit to a total reassessment and reform of the role the World Trade Organisation and the international financial institutions play within them to ensure that there are no systemic barriers to the achievement of sustainability."
One of the systemic barriers to the achievement of sustainability that we think that this re-assessment would reveal is the way in which money is created. At present, most of the money used around the world is created by being lent into circulation. The problem with this is that, if, one year, more debts are repaid than new ones taken out, the money supply will shrink and cause the level of business activity to contract. Moreover, because interest has to be paid too, only if the amount of borrowing increases year by year can the money stock stay constant. As borrowing can only increase annually if the economy grows annually, this is in conflict with the sustainability objective since, as all economic activity requires the use of some of Earth's resources, continual economic growth is unsustainable on a finite planet.
Another systemic problem is that, now that gold has been effectively de-monetarised and that SDRs are no longer being issued, the growth in the world's money supply is being provided by national or multinational currencies such as the dollar, the pound and the euro. Because these currencies originate as debts, this leads to an unstable world economy and the growth of international indebtedness. Creating the world's money in this way also confers massive and unfair advantages on the countries which issue reserve currencies. We therefore would like to see negotiations start before Johannesburg on the details of what is a structurally simple change (albeit with considerable ramifications) so that the necessary changes can be approved at the WSSD itself.
We propose that:
1. A genuine world currency should be established by 2005 by a UN based international agency. This process to be initiated by the Marrakech signatories at Johannesburg.
2. This new world currency should be issued by being given into circulation by the new international agency rather than lent into circulation by commercial banks.