CHAPTER 13
SEVEN POINTS OF INTERVENTION
Life or money: that is our choice. The current Wall Street system serves only money. Our task is to replace it with a New Economy system that serves life.
In this chapter, I identify seven critical system-intervention clusters around which citizen action can mobilize to hasten the dying of the old and the birthing of the new.1 The order in which the intervention points are presented defines a hierarchy of sorts, in that each item on the list provides a foundation for those that follow.
Living-wealth indicators provide the basic reframing of the New Economy’s purpose and values. That reframing becomes the basis for reorganizing the money system, which in turn creates a more favorable context for sharing wealth, making the transition to living enterprises, and restoring democracy and markets by breaking up big corporations. All of the above come together in local living economies organized as subsystems of their local ecosystems. New global rules create the necessary overarching legal framework to secure local democracy and prevent global corporations from stifling the development of local living economies by monopolizing economic resources and political power.
A logical sequencing of the intervention clusters is helpful in seeing the essential relationships among them. As a practical matter, of course, it is necessary and appropriate that grassroots groups work simultaneously on each cluster — which they are indeed doing. Let’s take a closer look at the interventions.
LIVING-WEALTH INDICATORS
THE GOAL: Replace financial indicators with indicators of human- and natural-systems health as the basis for evaluating economic performance. We get what we measure, so let’s measure what we want.
Children are society’s most vulnerable members. If you know the rates of infant mortality, child poverty, childhood malnutrition, teenage crime, and out-of-wedlock pregnancies, you have a remarkably clear picture of a society’s state of health. Other suitable indicators of human health include longevity and life satisfaction.
Indicators of social health include high school graduation rates, the percentage of jobs that pay a living wage with benefits, the unemployment rate among people seeking a paid job, average commuting times, attendance at farmers’ markets, and involvement in community service.
For natural systems, air quality, rates of soil runoff, biodiversity, the amount of CO2 in the atmosphere, and the size of fragile fish, bird, and frog populations are excellent indicators.
Once we adopt such indicators as the basis for evaluating economic performance, our national economic priorities will shift dramatically from a focus on money to a focus on life. We will see more clearly the benefits of reallocating real-wealth resources from the military to health care and environmental rejuvenation, from prisons to rehabilitation, from automobiles to public transportation, from mining to recycling, from suburban sprawl to compact communities, from advertising to education, and from financial speculation to financing local entrepreneurship.
Living-wealth indicators: Replace financial indicators with indicators of human- and natural-systems health as the basis for evaluating economic performance.
Living-wealth money system: Redesign the money system to direct the flow of money to productive Main Street businesses rather than to Wall Street speculators.
Shared prosperity: Redistribute income and ownership to achieve a more equitable distribution of power and real wealth.
Living enterprises: Redefine the purpose of the enterprise from making money to serving community needs, and favor enterprise forms that support this purpose.
Real democracy/real markets: Free both the market and democracy from corporate domination by breaking up concentrations of economic power and limiting political participation to real people.
Local living economies: Create a planetary system of coherent, self-reliant local economies that function as subsystems of their local ecosystems.
Global rules: Restructure global rules and institutions to support all of the above.
One of my favorite living-wealth indicators is the Happy Planet Index, created by the New Economics Foundation in London,2 which is based on purely nonfinancial indicators.
The numerator is a composite of two indicators: life expectancy, which is a simple objective measure of physical health, and life satisfaction or happiness, which is a subjective proxy for mental health. The denominator is the ecological footprint, an indicator of the economy’s per capita environmental burden.
The result is an indicator of the ecological efficiency with which a society’s economy is producing a given level of physical and emotional well-being. The results demonstrate that it is possible to live long, happy lives with a relatively small environmental impact.
The highest-scoring nation is Costa Rica, where people report much higher levels of satisfaction than Americans and live slightly longer but have an ecological footprint less than a quarter of that of the United States. The United States is 114 on the list, and our rank declined between 1990 and 1995. We could be far happier and healthier at a far lower environmental cost if we chose to base our economic choices on social and environmental, rather than financial, indicators.
Because GDP is best understood as the economic cost of achieving a given level of well-being, we may wish to retain it as a measure of the economic costs we seek to reduce. Thus, instead of our current quest for ways to grow our GDP, we would look for ways to shrink it.
LIVING-WEALTH MONEY SYSTEM
THE GOAL: Redesign the money system to direct the flow of money to productive Main Street businesses rather than to Wall Street speculators. Real resources follow the money, so design the financial system to put the money where it will produce the greatest living-wealth benefit.
The money system is to the modern economic system what the circulatory system is to the body. Where blood flows freely, the body’s cells flourish. Where blood flow is restricted, they become anemic and may die. The design of society’s money system institutions likewise determines which people, localities, and enterprises will have the opportunity to thrive and which will perish or struggle for survival.
Official money can be created by banks lending it into existence or by governments spending it into existence.
In our current system, most new money is created by private for-profit banks when they issue loans based on their assessment of risk and profitability. In recent years this has meant lavishing credit on speculation, housing bubbles, and consumer credit and withholding it from productive enterprises. As set out in chapter 2, this is exactly the opposite of what a sound money system would do. There are three issues to be addressed: (1) the structure of the banking system, (2) the respective roles of banks and government in money creation, and (3) money supply oversight and management. Let’s take them one at a time.
The banking system can be structured to favor large Wall Street banks or small community banks. The ownership can be for-profit or nonprofit. Nonprofit banks can be governed by a self-perpetuating board, organized as cooperatives, or owned by a state or local government. Priorities of the individual banks will vary accordingly. Private banks will favor their profits. Cooperative banks will favor their member interests. Government-owned banks will favor public purposes. There is nothing radical about a nonprofit bank. Cooperative banking has a long history in the United States and elsewhere.3
A New Rules Project study has confirmed exactly what we might expect.4 The smaller the bank, the greater the portion of its loans that goes to Main Street businesses. Because we want to favor a system that gives priority to funding productive Main Street business, it makes sense for the federal government to take over failed Wall Street banks, break them up, and restructure their local branches as individual community banks, savings and loans, or credit unions. To encourage the community banks to give priority to community interests over private profit, some or all might be organized as nonprofits or cooperatives. Perhaps some might be owned by state and local governments.
This process can be advanced further by legislating limits on bank size, taking antitrust actions to break up large banks, and implementing regulations and tax penalties that render banking conglomerates unprofitable.
Under a real-wealth banking system, the federal government would continue to insure the deposits of member institutions, as is now the case. But they would do so only on acceptance of strict reserve- and equity-ratio requirements. It is appropriate that local banks retain the capacity to issue credit equivalent to some modest multiple of their total equity and deposits, as this allows them to increase or shrink the local money supply in response to changing community needs and opportunities.
Now let’s look at the question of the respective roles of government and banks in creating the overall money supply. In a living-wealth money system, banks and the federal government would share the functions of money creation and allocation. As corporations and wealthy individuals have used their political leverage to significantly lower their taxes, the federal government has experienced a growing fiscal deficit that it makes up by borrowing money at interest from these same corporations and wealthy individuals, effectively shifting the burden to less affluent taxpayers. Chapter 9 described the example of Wall Street banks relending money to the government at 3 percent that they borrowed from the Federal Reserve at nearly zero interest. This, in effect, means that middle- and lower-income taxpayers are incurring future liabilities to cover the deficit created by lowering the tax rate for corporations and wealthy individuals, the bailout money paid to these same corporations to cover their speculative losses and, in turn, the losses of their wealthy clients.
This makes sense only to the bottom lines of private bankers. The federal government should be taxing corporations and wealthy individuals at a rate commensurate with their ability to pay and the public benefits they receive. If the federal government still needs credit to cover essential expenses, or to invest in productive public infrastructure such as public transportation systems, it can and should make the necessary accounting entry itself, avoid the subsidy to Wall Street, and save taxpayers a great deal of money.
This brings us to money-supply management, which must equitably serve both public and private needs. That means it is inherently a federal government responsibility, although the authority currently resides with the Federal Reserve. The Fed professes to be a federal agency and is so listed in the government’s organization chart. It operates, however, beyond meaningful public oversight and generally acts in the best interests of Wall Street bankers — which rarely coincide with the public interest.
The Fed is properly brought under the general supervision of Congress and the Treasury Department and its operations rendered publicly transparent and subject to audit. A restructured Fed would have the tools to adjust the flows of both private and public money as required to support productive investment, local employment, and environmental balance while minimizing wage and asset inflation.
So what of the Wall Street casino? Let would-be gamblers go to Vegas, where the games are regulated.
The ideal way to deal with a malignant cancer is to cut off its blood supply. Similarly, the best way to deal with financial speculators is to cut off their money supply through appropriate taxes and regulatory actions that render illegal or unprofitable outsized banks, financial speculation, predatory lending, financial fraud, and the shadow banking system of unregulated hedge funds and private equity funds.
SHARED PROSPERITY
THE GOAL: Redistribute income and ownership to achieve a more equitable distribution of power and real wealth. We all enjoy greater health, happiness, security, and social solidarity when wealth is equitably shared.
Globally, nearly a billion people struggle to survive on less than a dollar a day, while fifty private investment fund managers each average nearly $2 million a day. In the United States,
• The wealthiest 1 percent of the country’s households hold a third of all private assets, more than the bottom 95 percent of households combined
• The top 1 percent of households received 9 percent of the country’s total income in 1976; by 2007, that figure had increased to 23.5 percent5
Contrary to the claims of market fundamentalists, unregulated markets do not fairly reward everyone willing to work commensurate with their ability and contribution.
Among the world’s thirty richest countries, the United States has the greatest wealth disparity. According to the social epidemiologist Richard Wilkinson, that disparity explains why “the USA has the highest homicide rates, the highest teenage pregnancy rates, the highest rates of imprisonment, and comes about 28th in the international league table of life expectancy.”6 These are all negative consequences of the social and mental stress associated with extreme inequality.
On an environmentally stressed planet, the destructive effects of extreme wealth disparity cannot be resolved merely by expanding the economy to bring up the bottom. Redistribution is essential. When income and ownership are equitably distributed, the health of everybody — even the rich — improves. The market allocates more efficiently in response to the needs of the many rather than the wants of the few.
Appropriate corrective actions include the following:
• Instituting income and social services policies that assure every person access to a basic means of living, while favoring those who produce real value through productive work — for example, teachers, entrepreneurs, factory and service workers, family farmers, agricultural laborers, doctors, and hospital attendants
• Implementing progressive taxation and public spending policies that continuously recycle wealth from those at the top, who have far more than they need, to those at the bottom, who lack access to the basic essentials of a secure and fulfilling life
• Eliminating payroll and income taxes on incomes below $200,000 a year and replacing them with resource-extraction fees at the point of extraction and pollution fees at the point of release, along with stiff luxury taxes on items of personal extravagance such as outsized personal yachts and private jet aircraft
• Minimizing the class divide through policies that encourage every person to engage in productive work and to share in the benefits and responsibilities of ownership in order to advance employee ownership, much as government advanced broad participation in home-ownership following World War II
• Supporting regional land-use policies for multistrata, compact development, and preventing geographic divisions by class and race and between affluent and blighted neighborhoods
• Requiring any corporation that decides to sell or close a local plant to give the workers or other interests in the affected community an option to buy the assets on preferential terms
LIVING ENTERPRISES
THE GOAL: Redefine the purpose of the enterprise from making money to serving community needs, and favor enterprise forms that support this purpose.
A living enterprise is human-scale. It has preferably fewer than a hundred employees and rarely more than five hundred, and it organizes around communities of people rather than pools of money. A smaller size means less need for hierarchy and bureaucratic control. That, in turn, supports innovation, teamwork, worker satisfaction, and ethical practice. The stronger the sense of community within the enterprise, the greater the firm’s contribution to strengthening the social fabric of the larger community it serves.
Markets are more efficient, innovative, and responsive to a diversity of needs when served by many small firms. When workers are owners, the conflict between workers and owners disappears, individuals have a stronger sense of ownership in their community, and democracy is more robust.
Global corporations get the vast bulk of media attention, and in the minds of many, they define the business sector. The vast majority of business enterprises, however, are human-scale, rooted in the communities they serve, and mindful of community needs and values.
In its ideal form, the living enterprise seeks to provide a fair and balanced return to all its stakeholders — including safe, meaningful family-wage jobs for its employees; good service and useful, safe, high-quality products for its customers; and a healthy social and natural environment for the community in which it is located. Owners who are engaged in the enterprise as managers, workers, customers, or suppliers secure the firm’s relationship to the community and receive a living return that includes the benefits of life in a healthy and prosperous community with a vibrant natural environment.
Living enterprises may be organized as consumer cooperatives, worker-owned corporations, community corporations, partnerships, nonprofits, family businesses, and simple sole proprietorships — all of which involve rooted, engaged ownership. An enterprise that is publicly traded or owned by a Wall Street private equity fund is captive to Wall Street financial values and priorities, which are antithetical to the values and priorities of a living enterprise.
Contrary to the claims of market fundamentalists, there is no reason that all enterprises should be for-profit. There are many needs — health insurance, banking, electricity, and water among them — that may be best served by community-owned, nonprofit, or cooperative enterprises.
Where the nature of the work requires greater aggregations of skills and capital, individual living enterprises may come together to form larger alliances that still maintain the principles of human-scale organization and community-rooted ownership. Well-known examples include the Mondragón Cooperatives in Spain, the Organic Valley dairy co-op in the United States, local manufacturing networks located throughout the world, and purchasing and branding cooperatives owned by member stores, such as Ace Hardware and True Value.
In what could prove to be a breakthrough initiative for the U.S. labor movement, the United Steelworkers union signed an agreement in October 2009 with Mondragón International, an arm of the Mondragón Cooperatives in the Basque region of Spain, to draw on Mondragón’s expertise in cooperative worker ownership. If unions are to have a future, it will center on worker ownership, and this seems a promising model.7
REAL MARKETS/REAL DEMOCRACY
THE GOAL: Free both the market and democracy from corporate domination by breaking up concentrations of economic power, getting big money out of politics, making corporations pay their own way, and reserving Bill of Rights protections for people.
Real democracy and real markets go hand in hand. Both are accountable and responsible to the people they serve. Both are free from domination by Wall Street corporations that operate as governments unto themselves, organize their internal economies as private fiefdoms, and pass the outsized costs of their centralized command-and-control structures onto the public in the form of social, environmental, and taxpayer subsidies.
Events following the Wall Street meltdown significantly raised public awareness of the Wall Street–Washington political axis and its pernicious consequences for democracy and the market economy. It is a defining issue. For so long as we continue to allow big money to make the rules and set our priorities as a nation, we will continue to bear the consequences of stagnant wages, wasteful consumption, unaffordable health care, climate chaos, and all the other phantom-wealth casino-economy ills.
Wall Street interests lobby relentlessly against rules that protect democracy, such as those that would limit their ability to influence elections and legislation. Similarly, they lobby against rules that protect the market, such as those that would limit the size of individual enterprises, support an equitable distribution of income and ownership, or require corporations to internalize their social and environmental costs. Wall Street also lobbies against any public program that does not direct lucrative public subsidies or contracts to private corporations. The unrelenting objective is to expand corporate monopoly control of resources, markets, money, technology, knowledge, and information.
Democracy is supposed to provide a political forum in which people come together on an equal footing with one another to determine by mutual agreement the rules by which they will live. The market similarly is supposed to provide an economic forum in which people come together on an equal footing to exchange goods, services, and resources based on their individual needs and preferences.
When the essential condition of equal footing is met, the combination of democratic rule making and market exchange gives every person a voice in how society allocates the resources available to it. When a corporation that accepts no allegiance to the community or its interests takes control of both the political forum and the market forum, both democracy and the market lose all but symbolic meaning.
The corporation’s governing framework has evolved primarily through a patchwork of federal and state court decisions favoring the interests of concentrated private capital. Great care went into writing and amending the U.S. Constitution as a governing framework for the organization of political power. As a society, we have never taken on the task of debating and crafting a governing framework for the organization of economic power. Both are essential to a functioning democracy and healthy markets.8
Some basic principles would seem to be self-evident. Because all corporations are created by public action, they properly function as quasi-public bodies accountable to the communities in which they operate. Whatever wealth they create is the collective product of contributions by managers, workers, customers, suppliers, and communities, without which the investments of absentee owners would be worthless. That wealth is therefore properly shared among those who contributed to its creation.
Size, ownership, and rights are all relevant to this discussion. Initiatives to break up and restructure the ownership of oversized corporations are foundational. Rigorous antitrust enforcement can break up concentrations of corporate power and give employees or the communities in which they live first option to purchase the divested units.
Employees and communities should have the option in bankruptcy proceedings of paying off creditors at a discounted rate and taking possession of the corporation’s remaining assets. Rules governing company pension funds might allow employees to use them to purchase the assets, and voting control, of the firms that employ them. The rules governing employee stock ownership plans need to be revised to assure real worker control.
A corporation’s workers, managers, and investors all properly enjoy the protections of the U.S. Bill of Rights. The corporation itself should not. If a constitutional amendment is needed to communicate that message to the Supreme Court, then so be it.
Other measures to support a transition to real democracy and real markets include
• levying a progressive tax on corporate profits and assets to create an incentive to voluntarily break up monopolistic concentrations of corporate power;
• introducing proportional representation and instant runoff voting to open meaningful space for third parties in elections;
• eliminating public subsidies for private-benefit corporations;
• establishing rules to assure that corporations bear the full social and environmental costs of their operations and imposing fees on those that do not; and
• requiring that all corporate charters clearly specify the public purpose the corporation is chartered to serve and revoking the charters of corporations that do not comply.
LOCAL LIVING ECONOMIES
THE GOAL: Create a planetary system of coherent, self-reliant local economies that function as dynamic, life-nurturing subsystems of their local ecosystems.
When economies are local and self-reliant, people have more control over their lives and enjoy the full benefit of their labor and investments. When communities focus on sustaining themselves using their own resources rather than appropriating the resources of others, they give more attention to living within their environmental means.
When people know they and their children will be living with the social and environmental consequences of their business decisions, they have a compelling reason to take the health of the community and the natural environment into consideration.
All the many elements of the New Economy come together at the level of the bioregion: the living-wealth indicators and money system; policies that support the sharing of resources; living enterprises; real markets; and real democracy. All of these are supported by the new global rules discussed in the next section.
To advance local living economies, we need to nurture the growth and interlinking of living enterprises to form the building blocks of prosperous, resilient bioregional economies supportive of ecological balance, equitable distribution, and living democracy. We must reorient land-use patterns and transportation systems; retrofit buildings; concentrate populations in walkable, energy-efficient, multistrata communities; and rebuild local productive capacities based on closed-loop production and consumption models to reduce long-distance shipping, eliminate waste, and increase energy efficiency. We also must implement regional living-wealth indicators to track our progress toward zero waste and self-reliance in food, energy, water, and other essentials of daily life.
The decay of our public physical infrastructure creates an opportunity to reshape land-use and transportation patterns as we rebuild. The decimation of our industrial capacity allows us to reindustrialize on a new model of green technology, functional durability, and regionalized, closed-loop, zero-emissions product cycles.
Striving for local self-reliance does not mean closing one’s borders. It does mean recognizing that every healthy living organism depends on a protective membrane that is essential to maintaining its integrity. The single cell has the cell wall. The animal has its skin, the tree its bark, the ecosystem its topographic and climatic barriers, and the biosphere Earth’s atmosphere.
The fair and balanced exchange of surpluses among regional economies is integral to the New Economy vision, as is the free sharing of information and technical knowledge. Trade, however, is never a priority in itself, and there is no assumption that more trade is necessarily better.
These basic ideas are spurring local living-economy initiatives around the world that are interlinking living enterprises to form the essential building blocks of diversified, self-reliant local economies. A local food and agriculture building block, for example, typically includes a region’s farmers, ranchers, and fishers as well as food processors, food transporters, farmers’ markets, restaurants, food retailers, and food- serving institutions such as schools and hospitals, among others.9
There are far too many elements to these many initiatives to offer details. You can find more information on real-life initiatives on the Web sites of the American Independent Business Alliance (amiba.net), the Business Alliance for Local Living Economies (livingeconomies.org), the New Rules Project (newrules.org), and YES! Magazine (yesmagazine.org).
GLOBAL RULES
THE GOAL: Create a system of global rules and institutions that support living-wealth indicators and money systems, shared prosperity, living enterprises, real democracy, and local living economies.
Over the past thirty years, corporate interests have aggressively crafted global rules and institutions that in effect give global corporations a protected right to do business in whatever country they choose while restricting the right of a government to intervene to protect the interests of its own people, communities, and natural systems.
Some international trade and investment agreements even go so far as to give corporations the right to sue a government if they lose expected profits as the result of a regulation that protects the health of a community’s people and natural systems. They also require governments to vigorously protect corporate intellectual property rights, thus impairing the international sharing of information and technical knowledge.
Such rules put the rights of corporations ahead of the rights of people and even the rights and responsibilities of government. They give private for-profit global corporations virtual control over local economic priorities, free from accountability to the people affected.
Recall that the larger New Economy goal is a planetary economic system that self-organizes toward three system conditions: ecological sustainability, equitable distribution, and living democracy. To achieve these three conditions, each bioregion must have substantial control of its economic priorities and resources. There is little place in such a system for global corporations that command internal economies larger than that of most countries and accept no responsibility for the common good.
To achieve a New Economy world that works for all, the right to economic self-determination of nations and peoples must trump the assumed rights of any transnational corporation. Appropriate global rules will limit the rights and size of individual corporations, support balanced trade, set fair commodity prices, and internalize the true cost of goods and services in market prices — all in line with sound market principles. They will further recognize the right of nations and communities to determine with whom they will trade and whom they will invite to invest in their economies and on what terms.
The struggle over global rules is in essence a struggle between corporate power and people power, between capitalism and democracy, to determine who will rule. To tip the balance in favor of democracy, international trade agreements will need to be rewritten and global institutions like the World Trade Organization, the World Bank, and the International Monetary Fund, which are organized to advance the old economy, will need to be dismantled and replaced by institutions designed to serve the new.
The seven critical intervention clusters outlined in this chapter are intended to replace an inherently unstable system moving toward collapse with a more stable system that maintains equilibrium around three system conditions we defined earlier as ecological balance, equitable distribution, and living democracy.
These intervention clusters are focal points for mobilizing citizen action to achieve the needed cultural and institutional transformation. Successful action will shift the system’s defining value from money to life, its defining purpose from the creation of phantom wealth to the creation of real wealth, and its locus of power from corporations to people and from global to local.
This is an ambitious agenda. We will address the how question in greater depth in part V. First, however, I want to address a few questions I suspect may be weighing heavily on your mind: If we really shut down Wall Street, what happens to my credit card? mortgage? retirement? insurance? These are good questions, to which we now turn.