1 July 2010
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Always darkest before the dawn
Our global society is in crisis, and the core of the crisis seems to be about resources: resource limits, overuse and misuse of resources, resource-related conflicts, and the resulting destruction of our natural life-support systems. The crisis is at an extreme stage, as we are approaching the final hard limits of a finite earth. This is all the more frightening because our governments seem powerless to respond effectively to the crisis. We can all see the rocks ahead, and yet the crew steams straight on, as the ship-of-state carries us toward destruction.
Some people saw the crisis coming years ago. A worldwide environmental movement has been active since at least 1962, after Rachael Carson’s The Silent Spring was published to wide acclaim. This movement has focused on lobbying for environmental protections, and for stronger regulation of corporations. The movement has had a number of successes, as when the Environmental Protection Agency was first established in the USA. But over time the movement has become less effective, the regulatory agencies have been corrupted by corporate influence, and the dark clouds of crisis loom ever larger.
But hark! At this darkest time, promising new initiatives are emerging. While the environmental movement may have faltered, environmental consciousness has spread throughout the society. And in the face of government ineffectiveness, activists are turning their attention toward grassroots solutions to the crisis.
From the early days of the environmental movement, we have had the notion of ‘think globally and act locally’. This translated mostly into individual life-style choices, such as driving and consuming less, recycling and bicycling, installing double-glazed windows, etc. The new wave of activists are interpreting ‘act locally’ in a more empowered way: they are working to mobilize whole communities around the goal of achieving sustainability at the local level.
This new wave of environmentalism is non-confrontational and more or less apolitical, unlike the feisty old wave, and yet the new wave represents a much more radical response to the resource crisis. These activists realize that environmental regulations are simply not enough, even if they could be achieved. A total transformation is needed in the way we use resources and in the way we run our economies. If every community could go through a transition process, and achieve sustainability locally, then the whole society would be transformed.
The total economic transformation of our societies is a very radical agenda indeed. If we look back in history for movements with equally radical agendas, we find only violent revolutionary movements, and mass political movements. Our new wave of environmental activists are not at all radically minded, in that traditional political sense, and yet they find themselves on a very radical path, a path toward social transformation. How do we account for this novel emergence of politically innocent, and yet potentially effective, radicalism?
I suggest that this new kind of radicalism comes from a fundamental shift in consciousness on the part of leading-edge activists. That shift is not toward radicalism itself, rather it is a shift from ‘asking government to solve our problems’, to ‘figuring out what we can do for ourselves’. Activists were drawn toward this new consciousness, as it became increasingly clear that governments were simply not facing up to the crisis, and that no amount of political activism was going to wake them up.
As long as activist energy is directed towards influencing governments, only small things will be asked for. In order for initiatives to have any hope of success, they must be framed within the context of overall government policy, and they must not be making ‘unrealistic demands’. Thus stifled in their options, the very imagination of activists ends up being constrained to incremental hopes and proposals.
But once activists turn their attention to grassroots solutions, their imagination, their visions, and their creativity are unleashed. Instead of limiting their thinking to ‘achievable reforms’, they begin to ask, ‘How can the problem actually be solved?’ Once that bold question is asked, sensible people can often find answers, even if governments can’t.
The community is the natural place to pursue grassroots initiatives, and the techniques of sustainability have been pioneered by intentional communities, ecovillages, permaculture farms, etc. This new wave of environmental localism is simply bringing the available tools to bear in a place where they can make a real difference in mainstream society. While governments aren’t listening, communities might be persuaded to pay attention — to ideas that can benefit them. This seems to be a quite sensible strategy for moving toward sustainability, one community at a time.
It is not only environmentalists who have turned their attention to the local, as a focus for effective activism. The crisis is multi-faceted, extending to economic collapse, unemployment, homelessness, etc. And in every such area of crisis, governments show the same inability to respond effectively.
Activists who have ideas for creating employment, or responding to some other area of crisis, are increasingly seeing the community as the best place to apply their ideas and their energies. As these energies converge on the community, we are beginning to see the emergence of a generalized localization movement.
Around the world, there is a growing movement to pull back from the relentless march of corporate globalisation by re-rooting economic and social activities at the community level. From the burgeoning popularity of farmers’ markets and food co-ops to the revitalisation of community banking, people are organising themselves to reclaim the economy from large profit-driven corporations and instead build sustainable, local alternatives.
— Anna White, “Why Local Economies Matter”
Anna White talks about a ‘growing movement’, but unfortunately the growth is horizontal rather than vertical. More and more activists are getting involved, in a growing number of communities and a variety of initiatives, but in each community the actual benefit of the initiatives has remained marginal.
There might be a weekly farmer’s market, for example, and it might be crowded with happy farmers and happy customers. But in terms of the overall food business in the community, the farmer’s market usually handles only a negligible percentage. The early adopters get on board, for some percentage of their food purchases, and the program never grows much beyond that.
Localization activists are motivated by a vision of transformation, and their intiatives do have transformational potential. However none of these initiatives has found a way to escape from marginalism and really begin to have a significant effect on any community’s economy, or to move any community significantly closer to sustainability.
Let us now take a closer look at the various initatives, in order to understand the nature of the obstacles preventing greater progress. In the next chapter, we will then take on the challenge of figuring out how these obstacles can be overcome.
Reviewing the threads of localism
The various localization initiatives can be categorized under three primary threads of activity:
- Achieving self-sufficiency
- Revitalizing the local economy
- Harmonizing community concerns
• Achieving self-sufficiency
These initiatives are oriented around making the most of local resources, reducing consumption of resources generally, and seeking to minimize dependence on goods and services sourced outside the community. To the extent these efforts succeed, the community could be shielded from disruption by global resource scarcities, or by a collapse in society’s supply chains.
Among the specific initiatives are campaigns to encourage certain individual lifestyle choices, such as buying from local shops, riding bicycles, installing better insulation, and all those other things that environmentally-minded people have been doing for quite some time, on the basis of the principle, ‘think globally and act locally’.
The new-wave activists have extended the initiatives to group undertakings, such as urban gardens, farmer’s markets, local energy production, and local currencies to encourage local shopping.
As regards the lifestyle-choice initiatives, the obstacle to greater progress is clear. The immediate benefits to the individual from making such choices are marginal, there are costs and sacrifices involved, and only a limited number of people are sufficiently motivated by long-term concerns to join in.
In the case of the group undertakings, there are two different obstacles preventing the intiatives from having a more significant impact on the local economy. In some cases, as with Farmer’s markets, the obstacle is the same as above: not enough immediate benefits to attract widespread participation.
In other cases, we see a different kind of obstacle. In these cases activists have found a way to generate widespread participation. But in doing so they have narrowed the scope of their initiatives to the point where even widespread participation has only a marginal impact on the local economy. Examples of this are Berkshares and the Transition Townsmovement.
Berkshares are a community currency that has been introduced into the Bershire region of Massachusetts. Local residents can purchase Berkshares at a discount, 100 Berkshares for $95. They can then spend those Berkshares as if they were dollars, at merchants who have chosen to participate. Such a merchant can trade in 100 Berkshares and get back $95. The net effect is that merchants are offering a 5% discount to local residents, in order to increase their business volume, and in order to encourage a community spirit of ‘shop locally’.
This is an attractive enough proposition that many local businesses and residents are participating. This has succeeded in increasing the percentage of local shopping, and the local residents are benefitting from the 5% discount. Those are certainly good outcomes, but in terms of moving toward local self-sufficiency or sustainability, the net result is marginal.
The Transition Towns movement is focused specifically on the need to reduce energy consumption, based on the belief that oil is getting scarce and that society’s supply chains are going to break down. The movement has a step-by-step plan for communities, based on educating the people in the community about the need to reduce energy usage, working with local authorities, and developing a multi-year Energy Descent Action Plan, with the overall support of the community.
The town of Totnes, in the UK, seems to be the most advanced of the Transition Towns, having launched their project in 2006. They have an Energy Descent Action Plan, with 39 projects on the go, and the activity has generated more than £8,000 income for the community. They also have a local currency, the ‘Totnes Pound’, and out of a population of less than 8,000, over 3,000 have signed up as supporters of the project.
These are impressive achievements in terms of community organizing, and yet, with all that local support and activity, and four years of effort, the income generated has amounted to only about £1 per resident. And the Action Plan, at this point, is actually just a plan to create a plan, which in turn will hopefullyoutline a path to becoming somewhat more sustainable by the year 2030.
This has been an admirable effort by the activists and the community, and in many ways the project is an ongoing success story. But again, in terms of moving toward local self-sufficiency or sustainability, the net result is marginal.
• Revitalizing the local economy
These initiatives are oriented around stimulating the local economy, putting people to work, and seeking to create local prosperity — while minimizing dependence on the outside economy or outside investment. These objectives are complementary to the self-sufficiency objectives above, but the emphasis is on stimulating economic activity, rather than on reducing imports to the community.
The primary revitalization initiatives have to do with local currencies, local funding entities, and co-ops.
In the previous section, local currencies were seen as a way to encourage buying from local businesses. Here we are emphasizing something else: the ability of local currencies to enable a greater level of local economic activity, than can be supported by the locally available dollars.
Note: for simplicity, I’m using the term ‘dollars’ for the local official currency, but of course this might really be Euros, Pounds, or whatever, depending on where the community is located.
In discount-based local currencies, such as Berkshares, some degree of increased economic activity can be generated, but that is limited to a small percentage increase over what could be supported by available dollars. In order to move beyond that, another kind of local currency is needed, a complementary currency, such as Ithaca Hours, Time Dollars, or LETS.
Complementary currencies are separate currencies in their own right. Units are not purchased for dollars, but are issued on some other basis. And units are not exchangeable for dollars; their value is defined only by the goods and services that can be accessed with them. Complementary currencies have the potential to support a vibrant local economy, even in a dollar-impoverished community.
Discount-based currencies and complementary currencies each appeal to different constituencies, and for different kinds of transactions. As we saw with Berkshares, discount-based currencies are appealing to established merchants, as a way of increasing their business volume. However established merchants are not likely to be intersted in accepting complementary currencies, because they are unlikely to be able to buy their supplies of goods using such a currency.
Complementary currencies are appealing to ordinary people, as a way to exchange goods and services among one another. Someone might earn units by giving haircuts, and then use those units to buy bread from someone who bakes. For these kinds of transactions, a discount-based currency offers no benefits over using dollars directly.
The reason discount-based currencies have only a marginal effect on the local economy — despite widespread participation — is that discounts are inherently limited as regards the the benefits they can provide. In the case of complementary currencies, the benefits have been marginal because not enough people have participated thus far, and the transactions involved have tended to be of marginal value.
Local funding entities
A local funding entity could be a local bank, a local credit union, or some kind of local entity that is able to invest in local projects and enterprises. In order to serve the purpose of revitalizing the local economy, the funding entity needs to have a certain ethic about its operations. In particular, the entity needs to be dedicated to revitalizing the local economy, rather than dedicated to maximizing its own return on investment.
Credit unions are very beneficial to communities. They are owned by their members, and their mission is to serve their members rather than maximize their profits. They tend to offer better terms on both loans and savings accounts than banks do. And since credit unions don’t make speculative investments, they survived the recent financial collapse relatively unscathed.
Banks, if they are established on an appropriate basis, can also be very beneficial to their communities. If we consider the state of North Dakota to be a ‘community’, then the Bank of North Dakota demonstrates the ability of a bank to insulate its community from external financial problems.
This bank is owned by the state of North Dakota, rather than by private investors, and it is dedicated to promoting the economic welfare of its citizens and businesses, rather than maximizing profits. As with credit unions, this bank came through the financial collapse in very good shape: How the Nation’s Only State-Owned Bank Became the Envy of Wall Street.
Perhaps the most impressive example of how a bank can benefit its community can be found in Mondragon, Spain, as explained in the excellent documentary film, The Mondragon Experiment. This bank was created for the specific purpose of developing the local economy, and in particular to fund and launch worker-owned production co-ops.
The bank not only provides funding, but it helps people with entrepreneurial ideas to develop a business plan, and to set up a sound management team. The bank then stays in touch with the enterprise, providing counselling, and making additional funding available, when that makes good business sense. The bank acts as a friendly partner and mentor in such enterprises, and the economic success of the Mondragon system has been remarkable.
The Grameen Bank demonstrates another way that local communities can benefit, using the mechanism of microcredit. Grameen makes small loans to people in poverty, creating self-employment for income-generating activities and housing for the poor. Prof. Muhammad Yunus, founder of the Bangladesh-based Grameen Bank, received the 2006 Nobel Peace Prize for his work. Grameen has shown that people are not poor due to a lack of talent or enterprise, but because of a lack of opportunities.
One of the most promising proposals for a local funding entity is the Common Good Bank. This bank has been designed from the very beginning as a vehicle to support democratically-managed community development. The plan is to have local divisions of the bank in participating communities, and in each community the depositors would decide what the bank should invest in. Bank profits are to go to schools and suitable non-profit organizations, and some loans will be micro-loans, as with the Grameen Bank.
The most remarkable element of this banking scheme is a very special kind of local currency, called Local Money. This is a kind of complementary currency, in that it can be issued for free, but it has the virtues of a discount currency, as it can be exchanged for dollars — and there isn’t even a discount. Such a currency would be appealing to everyone in the community, including the local merchants.
Local Money is an extension of the principle of fractional reserve banking. All banks, under this principle, can issue loans in excess of their actual reserves, on the theory that most loans get repaid, and the bank won’t be caught short. In essence, money is created when a loan is issued, and the bank profits from the interest on this newly created money. It’s a very profitable scam for the banks. Local Money transforms that scam into something beneficial to communities.
Units of Local Money can be issued as loans, or as grants to community projects, or as part of the remuneration for bank workers. These units can then be used to buy things from local merchants, or exchanged for services. The value of a Local Money unit is based on the stable, inflation-free value of some basic local commodities, benchmarked regularly against the dollar. The bank will accept units and exchange them for dollars, based on the current valuation.
Needless to say, the stability of this scheme depends on fiscal prudence in the issuing of Local Money. Just as with national currencies, careful control of the local money supply is called for. The money supply must be kept in balance with the volume of trading taking place in the community. If the money supply is too great, inflation results; if the money supply is too small, the operation of the local economy is unnecessarily restrained. In addition, the amount of Local Money in circulation must be kept in balance with the bank’s dollar reserves, because of the convertiblity guarantee.
Provided that Local Money is prudently managed, the scheme has great potential for stimulating development and prosperity in the community. Wherever there are untapped talents, or undeveloped economic potential, Local Money can be made available to put that talent to work and realize that economic potential.
We might recall here that, according to Benjamin Franklin, the main reason for the Revolutionary War was the fact that Britain outlawed the issuance of local currency by the Colonies. Local currencies had enabled prosperity in the Colonies, and the Bank of England was not benefitting. It’s not nice to mess with central bankers.
There is one pitfall for the Common Good Bank’s scheme. If severe inflation occurs in the dollar economy, the convertibility guarantee cannot be maintained. If the value of the official currency plummets, and Local Money retains its value, the bank wouldn’t have sufficient reserves to handle exchanges, particularly if people panicked and started a dollar-exchange run on the bank.
If such inflation did happen, it would be a good idea for the bank to sponsor a public viewing of Jimmy Stewart’s, It’s a Good Life.
I say that only partly in jest. The fact is that in a period of severe dollar inflation, assuming that Local Money has been in use for a reasonable length of time, local people would be happy they have a currency that is working for them. They would have every reason to continue to honor it, and little incentive to exchange for a national currency that is in trouble. They would be likely to accept a change of policy, where exchanges for dollars would be limited based on need, and on the dollar reserves available to the bank.
To sum up this section on local funding entities, we can see that the effect of such entities has gone far beyond the marginal in many cases. With Mondragon, the Grameen Bank, and the Bank of North Dakota, we have seen that a well-managed and well-conceived local funding mechanism can provide very significant benefits to its ‘community’.
In the Common Good Bank’s scheme, we see a very well thought out synthesis, bringing together proven elements into a package designed specifically for facilitating community empowerment. With their Local Money, they have combined the virtues of a complementary currency with the powerful monetary model that is routinely abused by central banks, but that can also be a potent enabler of community prosperity, if used wisely.
My only reservation regarding the Common Good model is that the local entities are not fully autonomous. Presumably the intent was not central control, but rather a matter of efficiency, reducing the overhead for a community in adopting the model. Nonetheless, autonomy is an essential principle of community empowerment, and there is no reason why the Common Good design cannot be adapted to local circumstances and implemented autonomously by communities.