Monthly Archives: April 2006

Is our monetary system sustainable?

Nowadays more and more people are concerned about the sustainability issue but it’s quite odd to find that very few attempts have been ever made to apply this concept for the monetary realm. Everybody is quite aware of how devastating the monetary crisis is for any national economy as we’ve witnessed several cases all over the world(Asia in 1997, Russia in 1998, Argentina in 2002…), but it’s quite hard for me to imagine financial analysts debating over how to build up a sustainable monetary system.

Margrit Kennedy, a German architect, is one of few persons in the world who have ever tried to give an answer to this question. She found out that the current monetary system is unfavorable for eco-friendly buildings she was making and she began studying the monetary aspect of our economic system to conclude that it has several structural faults. Here are her key findings from her masterpiece “Inflation and Interest-free Money.

1. Exponential growth

The current monetary system, equipped with the compound interest, obliges our economy to grow forever and even more than before. This phenomenon is uncommon in the natural world, however, for instance human beings stop their physical growth when they become adults, and the economic exponential curve is destined to eat up all the natural and/or human resources before going bankrupt just like the cancer accelerates its growth to end up with killing the whole body.

2.Interest repayment is a big burden for any project

We pay interest not only when we repay our debt but also when we pay for any goods and/or service. Part of your bus fare is spent to repay the bus company’s debt with interest, and Kennedy estimates that the percentage of interest on what we pay amount to about one fourth on average. It’s quite important to notice that this interest makes some eco-friendly projects “unprofitable.”

3.Unfair redistribution of wealth by way of interest

But the most important point of the interest in relation to the economic democratization is that this transfers the wealth from the poor to the rich: Obviously those without money need to borrow it when they need to buy something big(like house or car) and they have to repay the interest in addition to the principal while wealthy ones can make use of this circumstance to enrich themselves even more. Kennedy shows that more than 80% of the population loses money with this system while only a fistful of superrich can earn from this system, raising a question whether a monetary system with such a feature is allowed from the viewpoint of social justice.

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Banca Etica: a bank for social and eco-friendly projects

This blog is not only to harangue my theoretical framework which may sound like an utopian illusion to some of you: This web space will be used to show you some ongoing practices which seem to be indicating the way towards the economic democratization as well, proving that what I have in mind is not unfeasible.

Banca Etica(Ethical Bank), founded in 1999 in Padua(Padova in Italian), Italy, is a good example to pour our asset towards socially-and/or-environmentally responsible projects. It has gathered more than €400 million from more than 20,000 members to invest for more than 1,700 projects.

http://www.bancaetica.com/ (in Italian, English and French)

This bank was created by a group of people, for instance activists for non-profits and members of cooperatives, who were not satisfied with conventional banks(read my previous post to learn why). Savers can choose one of the four realms(social co-operation / eco-friendly projects / aid to developing countries / cultural events) their deposit will be used for and the bank analyzes the social and/or ecological impact of the project as well as whether the borrower can repay money to decide whether a loan is given or not. Here are several examples of projects which have been financed by this institution.

– Fair trade for a Honduran coffee cooperative- Reconstruction of a historic district in Riace, Southern Italy

– Organic farm by a Benedictine monastery

– Organic farming to lessen people’s dependency on the underground economy

– Support for the drug-addicted

– Health-care support system for prostitutes

– Economic aid to Albania

And another feature of this bank is that this financial cooperative is managed by its own savers, although in fact indirectly by their representatives. Transparency on all information about loans is assured and anybody involved with this agency has a clear picture on its administration. Maybe your return from Banca Etica is smaller than in other normal commercial banks, but you’ll be always proud of what your money is achieving(your contribution to the society and/or to the Mother Nature). Isn’t it a good deal for you?

Democracy and finance

The discussion about the democratic management within corporations is not enough to attain our final goal: it’s also important to re-examine banks and other financial institutions as this sector determines which kinds of projects to be developed.

In fact the financial sector is the least democratically-controlled one among other economic actors. You deposit your money, for instance US$10,000, at a bank and your sole concern is the interest rate, in other words the growth rate of your asset provided that the chance for your bank’s insolvency is none. You’re happy when you get a higher return and it doesn’t matter you whether this growth comes from McDonalds’ or from an organic farm, from Nike’s impoverished workers in Southeast Asia or from modest craftsmen in Italy, from a destroyer of rain forest in Brazil or from a reforestation NGO in the Philippines(I’m not sure whether reforestation is regarded in today’s economy as a profitable project or not, but just to give you an example).

This structure makes ecologically or socially devastating projects thrive while social enterprises find it quite difficult to be sufficiently financed. Usually you can make more money by ignoring human rights and environment because the consideration on these aspects brings you no direct economic benefit at all(although corporations run the risk of boycott and/or other sanctions if they go too far in this respect) and it’s quite natural that CEOs are rather interested in saving cost than in improving their employees’ life standard and/or the environment. But I don’t see any logical consistency in those who claim the company they work for is not paying them enough and that the interest rate for their deposit is too low.

We need to make it possible for ourselves to check how our money is used should we want to have an economy which is friendly both to humans and to the ecology. The civil control on money is indispensable if we are to direct our monetary resource for socially and/or environmentally responsible projects. Or are we happy to make more money while impoverishing others or our own ecosystem?

Neither capitalism nor communism

Our economic system today is called capitalism because corporations(main economic actors) are supposed to serve for the capital(called investors or stockholders) and are obviously far from being democratically managed: most corporations are owned by stockholders who see these economic actors merely as their income source.  Employees are regarded, in this mindset, no different from machines, computers and other tools which are necessary for their moneymaking process and CEOs, always under the pressure from stockholders, are forced to save as much as possible to maximize the profit.  They open their factory in China where they can get somebody who works for US$100 per month while closing another one in United States, Western Europe or Japan where they need to pay more than ten times to get the same workforce, just not to “overspend.”  There’re for sure some laws in any country to protect employees, but it’s an universal rule that managers put employees just at the same level as machines, with the following priority: 1) stockholders(as they’ll be fired if they fail to make money), 2) clients(as they’ll give money) and 3) workers(who are easily replaceable).

We need to make clear the difference between capitalism and market economy, because both the capitalism without market economy and the market economy without capitalism are possible.  A good example of capitalism without market economy is monopoly(Windows, for example) where the sole provider of goods and/or service raises its price as much as possible to earn more.  And you can see some real experiences of market economy without capitalism even today, for instance at a farmers’ market where producers aren’t governed at all by anybody else.

Last century saw the emergence and fall of an alternative to the capitalism: communist countries nationalized all corporations to do away with stockholders and to improve workers’ life standard.  But the lack of pursuit for the efficiency, always and forcibly achieved in the capitalism in the form of pressure from stockholders, deteriorated these corporations and most of them had to give up this regime except Cuba and North Korea.

What’s common in both systems is that employees have no access at all to the management of the corporation they work for.  They’re at the mercy of a system they can’t control at all, and it makes little difference whether it’s run by private stockholders or by the State.  So how can we reach a system where employees can have a real influence on the management of the company they work for?

Political democracy and economic tyranny?

The fierce neoliberalism is sweeping all over the world. Here in Japan, just to give you an example, more and more youngsters are forced to settle with an informal job, either in the form of so-called “freeter” or “dispatched employees(haken shain),” and are unable to plan for their future, i.e. marriage and childraising, because of their uncertain labor condition on top of their low income. Even formal workers are afraid of layoff and are obliged to work overtime(sometimes 70 to 80 hours per week!), without being duly paid or even unpaid(so-called “service zangyô”). None of these new slaves is happy with this circumstance, but this is the only way they can make ends meet.

Well, I know Japan is an extreme case as individuals are meaningless before the “culture of harmony”(wa-no bunka) people in the archipelago are proud of. Those who stick to legally-acknowledged rights without taking people’s emotion into consideration are rather blamed as “selfish” as the abduction of three JP nationals two years ago showed. But something similar is happening in Germany too where some workers gave up their 35-hour just to prevent their employer from transferring its factory to somewhere in Eastern Europe. Workers are afraid that the company will take them out to the street, so they need to do as much as possible to please their boss.

I just don’t understand what makes it possible for us to live in two contradictory disciplines: political democracy and economic tyranny. We can elect any politician we like, but what does it serve for while we are still deprived of human rights in the economic life? Why isn’t there anybody at all to discuss seriously how to achieve the same democratic process that we have today in the politics for our economy as well?

This blog is just my small attempt to seek for such a transformation in our economic life. Your comments will be highly appreciated.