30 March 2010

Bonds Set Local Economies Free

How does anybody in a local economy go about finding the money necessary to make something happen? Whether a local business, community group or the council they are likely to borrow it. Local people, meanwhile, deposit their money in a local bank branch. In a rather murky process this is then sent to the ends of the earth—perhaps even Iceland or the Amazon. It may be invested in something we know nothing of and might well disapprove of if we did, or used to ‘leverage’ the creation of more money. So when I go to the bank to borrow money to do something good it has already been on an extraordinary journey.

This reminds me of how milk from the cows in the field next door goes first to a large milk-processing factory, then to the bottling plant of Dairy Crest in Nuneaton, the to the central distribution hub of a supermarket chain elsewhere in the country, then back to the supermarket shelf where I can buy it. You can’t help wondering whether it wouldn’t be simpler to just take a jug and hop over the fence. When it comes to money, a local investment bond is that jug.

Local bond issues are a great way of enabling people to invest safely in their local economy—while also seeing a good return on their savings. They operate in essentially the same way as borrowing for national public spending: a trusted local body issues a bond (it could be a local authority or community group), which it guarantees to repay after a fixed period, and in return it borrows money from a local person or institution.

The money gained is invested in local infrastructure, for example a wind turbine or programme to retrofit local houses to make them more energy efficient. There needs to be a revenue stream to enable the issuer to pay interest on the bond, and eventually to pay back the loan. In the case of renewable energy projects the introduction of the feed-in tariff can produce this revenue stream. Bond incomes can be paid by generating energy and selling it to the national grid. Although no local authorities in the UK have yet followed this course, it was the method used to fund the upgrade of London’s tube network by Transport for London.

Although a local bond does involve borrowing money and paying interest, it is a deal between local people where no value leaves the local economy and no middlemen benefit. By contrast, the Bloomberg (NB) website notes that the Conservatives are suggesting that local authorities will be free to engage in borrowing through using bonds to raise money from capital markets. Without the local link—and democratic accountability—this is a financial fiddle to allow borrowing without it appearing on the government’s balance-sheet. And to enable the private sector to profit from local economies’ need for investment.

26 March 2010

Who is rating whom?

What exactly are the credit-rating agencies up to? I've been intrigued by the debates about who in the world economy is really behaving like a pig. Under the rules agreed at Maastricht, all the EU members have to produce a periodic report detailing how well they are meeting the criteria agreed there in terms of national economic probity. This relates primarily to how much you borrow relative to how much you earn as a nation, measured in terms of GDP. The latest reports for 2009-10 are available on the EU's website.

Reading through these is a lesson in the cultural variety of Europe and so finding the necessary figures is not as straightforward as we might hope. The figures reproduced here illustrate two distinct measures of the state of a country's finances: the amount each needs to borrow this year (the deficit) and the amount of historical borrowing (the national debt). Both are as a percentage of GDP - the accepted measure of how much life there is a nation's economy.

This is important, because it means that the absolute sums of money Greece needs to borrow are much smaller than those Germany is borrowing, but because the comparator is larger Germany's debt appears relatively small. This is valid, in the sense that Germany can pay for its debts because it exports more. But the size of borrowing by Europe's larger nations reduces the pool of available investors, and itself makes Greece's debt less attractive. As speculators work against Greek debt, Greece has to pay a higher rate of return, which pushes it further into debt.

The first figure illustrates how much the countries expect to borrow this year. It illustrates that, in a recession, countries borrow hugely to keep their economies from imploding. Capitalist economics and the debt-money system makes this inevitable. But the comparison makes clear that the UK is borrowing more than Greece, with Ireland only slightly behind. This has been illustrated graphically by researchers at the University of Sheffield. The reason that Greece is coming under the cosh is that its politicians are not convincing the credit raptors that they will succeed in cutting wages and services, whereas Ireland has.

If we turn to the second figure, which illustrates total national debt, then we see the problem for Greece, whose historic debt is 124% of its national output in any year. This is the result of a country with a small capacity for production attempting to give its people a European lifestyle. But wasn't that the promise the European Union offered?

And what about the UK, which comes out of the second figure looking surprisingly - dare I say suspciously - healthy? As Faisal Islam explained on Channel 4 News on budget day, the reason that more money was found and the UK's deficit had apparently shrunk was almost entirely the result of changing the projections about economic growth. Even with these unrealistically positive expectations, our national debt is still projected to rise to 77% of GDP by 2013. I dare say the politicians in Greece wish they could get away with this, but they can't. Because we have the pound and they have given up their own currency to become subject to the whim of Germany, the bulwark of the Eurozone.

It was the large and powerful economic nations of Europe who created the euro, and in spite of the mealey-mouthed justifications around sharing the wealth with the transition and Mediterranean countries, it was always going to work in their interests. Export markets increased and the transaction costs of sending goods overseas fell. The price that had to be paid was supporting the weaker economies of the EU; Germany and France are now reneging on their part of the deal.

This is a dangerous game. The Greeks have already responded to German self-interest by raising the spectre of the Second World War. So the monetary pact is increasing the very tensions in Europe that the EU was created to prevent.

24 March 2010

Vote for the Original Red Robbo

Robert Owen was a paradox. A self-made millionnaire entrepreneur who is considered to be the father of co-operation. A pioneer of mutualism, all of whose schemes failed, and who was only able to be successful by using capitalist methods. With his 'silent monitor' system at the cloth mill in New Lanark he could also be considered a pioneer of modern managerial methods, and yet he is considered to have liberated the working man.

Owen was a living manifestation of the truth of Oscar Wilde's epigram that the truth is rarely pure and never simple. I wonder if the two ever met. I like to think of Owen in his Manchester days, possibly rubbing shoulders with the radical thinkers of the day, who congregated in the unitarian chapel. Did he influence the philosophies of Marx and Engels? Did his work experience find its way into the novels of George Eliot?

The English are rather embarrassed about Robert Owen and not only because he was a fan of naturism. He is claimed by the Scots, because of his stature as a businessmen in Clydesdale, although he was actually a Welshman. His greatest popularity today is in Japan, where the Robert Owen Society keeps his memory alive and the country's co-operative sector flourishes.

And now, perhaps the greatest paradox of all, there comes a petition to call for Owen to be commemorated on a Scottish banknote. Owen saw through the iniquities of the banking system and how it was used to extract value from working people. His Equitable Labour Exchange and his time-based money were established precisely to end this exploitation. So should we support the campaign? I think so, if only because the paradox would probably have amused Owen himself.

22 March 2010

Come On You Reds!

It was this image of David Beckham, wearing the green-and-gold blazon of the gathering campaign against the ownership of Manchester United by the Glazers, which made it clear to me that the move towards football supporters' trusts was more than a minority sport to warm the hearts of those of us on the mutual fringe of economic life.

Here is evidence that capitalism has overplayed its hand. The working men of this country ignored the way it destroyed their workplaces, their families, even the music they enjoyed. But now it is serious: now it has reached the place closest to their heart. Capitalism is destroying football, and that hurts. The billionnaires who have moved into the game are wrecking the sport, but also wrecking our football clubs as businesses.

Marx theorised the commodification of aspects of life that we value as being central to the social process of alienation. The products of our labours are usurped by the owners of capital who employ us, and something of our essence is stolen too. 21st-century capitalism extends this process by what is known as 'financialisation', so that every aspect of economic life is hollowed out, its meaning being replaced by the empty token of money. In work we see the hegemony of the accountant; in music the rise of the manufactured band.

But it is for football that people are apparently prepared to stop whingeing and take action. New research commissioned by Co-operatives UK indicates that 83 per cent of Manchester United fans and 72 per cent of Liverpool fans thought their club would be better off as a co-op. The YouGov poll found that 56% of all the football fans who gave an opinion agreed. Manchester United fans were willing to invest about £600 each, which could raise the £2.34bn. needed to buy the club.

The latest plan afoot to save Manchester United from becoming a hollow icon has been inspired partly by the example of Barca - always a co-operative and arch-rival to the formerly pro-Franco Real Madrid, who Beckham chose to play for - which has always been a co-operative. The 'Red Knights' plan to raise investment finance to buy the club and then sell shares to its own fans. Whether they seek to gain from this financially is hard to assess, but we might hope that the sense that ownership matters it brings could spill over from the terraces into the workplaces of this country.

19 March 2010

Living Lightly on the Land

The Land magazine brought good news this month of a series of appeals decisions that had been won by low-impact dwellers - and particularly in Wales.

The grandmother of all these victories for a sustainable lifestyle is Lammas - a low-impact community that grew out of the occupation of a pre-war community of wooden homes at Holts Field near Swansea. The residents grew tired of struggling to resist eviction in favour of development and created a dream to build their own community in Pembrokeshire instead.

They were supported in this by some unexpectedly inspired planning officers working inside Pembrokeshire County Council, who decided to do their jobs properly and apply the lip-service commitments to sustainability that were enshrined in their planning policies. The result was Policy 52 on Low Impact Development, a supplementary planning guidance note that permitted people to build homes on the land if they could provide a plan for meeting at least 75% of needs for livelihood directly from the land.

Lammas has been the test case for the implementation of this policy which, while consistent with the Council's stated sustainability objectives, and beneficial for the planet, ran counter to the Tory councillors who dominated the local authority in 'little England beyond Wales'. The ripples are now moving outward to influence national planning policy.

The Welsh Assembly is now developing the original Policy 52 into an overall low-impact policy to be included in the TAN6 Welsh planning guidance for the countryside under the title One Planet Development. This is a significant victory for those who seek to build human communities that are embedded in and respectful of the land, against those who seem determined to confuse the word 'environment' with the word 'view'.

18 March 2010

Turner Turns Again

In between the story of the sweet child being reunited with his family in Pakistan and episode 37 of the media's latest favourite soap The Ashcroft Files you will have been forgiven for missing something rather important that happened yesterday. I've already referred to Adair Turner as 'crumpet', but my feeling for him grows warmer by the day.

First he broke ranks with the ranks of capitalist pigs by supporting the Tobin Tax, before questioning the social value of much of what happens in the Square Mile. Yesterday's intervention in the unaccountably muted debate about the structural problems of global capitalism and how to resolve them was different in kind. Lord Turner, former head of the CBI and therefore advocate on behalf of the business sector, suggested greater political control over the economy.

The specific policy suggestion that caught my eye was that the government should return to managing credit for the public good, but he has other policies that are clearly directed towards reversing the disastrous and amoral licence which has been enjoyed by the finance sector since Big Bang in 1986. The Turner Review is a regulatory review, that is to say it explores the relationship between private finance businesses and the political authorities. And the man who once argued for the interests of the private sector is now calling for more intervention by government.

It was quite a shock for me, reading a report from what I confidently consider to the opposition, and find in it many of the proposals I have myself been calling for. It would be nice to think that Lord Turner had seen the errors of his ways, or experienced some kind of moral conversion. Much more likely is that, just as Thatcher became converted to environmentalism to make sure she could control that debate, the interests of capital realise that an adaptation is necessary. And if they are beginning to support a change as radical as allowing even a modicum of political control over the worst excesses of the casino economy, we can assume that the the globalist capitalist system is much more vulnerable than it portrays itself to be.

15 March 2010

Guild of Green Economists

The New Economics Foundation is advertising for a Chief Economist. This raises several questions for me. The job is directed at a number-cruncher, which is made clear by the requirement for skill in 'modelling', which to any economist reading the advert can rapidly be translated as 'regression analysis', the stock-in-trade of the academic and research economist.

This is a pity, since regression - and indeed most forms of high-level mathematical analysis - cannot deal with the complexity of the ecological system we are a part of. If we begin our analysis of the problem with maths we are bound to end up with the sort of simplified truth that is always wrong as far as the planet is concerned.

Most large corporations have a Chief Economist - Vince Cable, now the darling of the radical set, is a former Chief Economist with Shell - and now nef is to have one too. In the world of economics, there are a great many chief economists but very few indians. This has set me wondering about why large companies need an economists but small businesses and communities apparently do not.

When I moved to Stroud nearly four years ago now I was still quite insecure in my role as an economist. I did not want that label - which smacks of capitalist apologism - but was shy about claiming the title 'green economist'. When I dared to say that I was a green economist I was delighted by the response: 'Great! We need one of those!'. It seems to me that this was the right response: every community needs at least one economist.

Perhaps the reason we do not have local economies is that we do not have economists. The 'practicing economist' that nef explicitly ask for must have been practising either in academia or in a corporation since there is no paid role for an economist working in her or her local community. We could not imagine a local economy functioning without an accountant, yet economists are isolated in their ivory towers rather than working in their backyards. We must have people who count money, but have not seen the need for people who are expert in the wise use of local resources.

So in response to nef's call I would like to suggest a grass-roots alternative: the guild of green economists. This could be a network of those who, rather than the 'deep understanding of economic theory and practice and excellent quantitative and analytical skills' that nef is calling for, have a jobbing knowledge of how local economies work, a sensitivity to the idiosyncrasies of their own local economy, and a desire to rebuild an economy with a connection with the local environment at its heart.

If any readers of this blog would be able to commit some time to turning this vision into a reality - especially if you might be able to handle the internet end of things - I would be glad to hear from you.

7 March 2010

You Pays Your Money . . .

I'm struggling to understand what has happened with the Icesave debacle. It seems to me a fairly open-and-shut case. A bunch of naive but self-interested investors, egged on by internet and media commentators who made their living from touting risky financial ventures, put their money into banks outside our national jurisdiction. It is the first rule of money that the higher the return the higher the risk. Their gamble did not pay off and they lost their money.

This much makes sense. The bit I find hard to follow is why anybody who did not take the same risk, who did not enjoy the same returns, who invested their own money closer to home, perhaps in a secure, mutual savings institution now has to contribute to recompensing the high-risk investors for their loss. How is this different from innocent bystanders having to club together to repay a drunken gambler for a misguided punt on the National?

Now let's look at it from the Icelandic side. The ordinary people of Iceland have no doubt going about their ordinary business - catching fish, wallowing in hot pools, enjoying mud massages applied by lowly paid Baltic workers, whatever they get up to to keep themselves sane through the long dark winters. They had no democratic control over the activities of their Viking raiders, who sucked massive amounts of capital into their country from the unstable global economy. Anybody daft enough to invest anything significant in a company apparently domiciled in such a minute and wind-blown volcanic island was surely due for a catastrophic fall at some point.

But now these same self-respecting Icelanders are expected to put their hands in their pockets to compensate foreign governments whose foreign citizens made bad choices. And this is no small amount of compensation. If you add together the £2.3bn. offered to the UK government in the latest negotiations and the £1bn. offered to the Dutch and divide the total by Iceland's tiny 300,000 population you soon realise that every pensioner, worker, and child has to find £11,000 to support this compensation. I wonder how many of the individual investors in the UK and Netherlands lost so much.

The prime lesson from the past two years of credit crisis has been that the gains have been privatised while the losses remain with the public. The Icelandic public are rebelling against this law; we should do the same.

1 March 2010

Suits Meet Scythers

My latest issue of The Land has arrived and is filled as usual with excellent things. Perhaps the most encouraging is the serious attempt to find out who owns our most valuable resource - the land itself.

The threatened privatisation of The Land Registry has spurred the Public and Commercial Services union into action and an interesting relationship between land-rights campaigners and anti-privatisation campaigners seems to be developing. The first evidence is a report presenting An Alternative Vision of the Land Registry.

The report in itself is fairly unoriginal - a rehearsal of arguments about the disaster that is New Public Management - but what is interesting, and rather impressive, is that way that the PCS has identified a way of keeping their members' jobs by massively increasing their workload.

The first step to introducing a Land Value Tax would have to be a cadastral survey - a massive data-gathering exercise to establish who actually owns the rolling acres we all feel to be our national heritage. The fact that this information needs to be discovered is what brings the land campaigners - who want redistribution - and the land registry civil servants - who want jobs - together.

Simon Fairlie, bless him, is leaving nothing to chance and his cynical view of politics is likely to be proved right. In typical DIY mode, Chapter 7 are launching their own 'Map Your Local Landowner' award, with prizes of £400 for 'the best cadastral maps to show how landownership is distributed within any given county, district, town, village or parish.' If they receive enough entries they'll be able to piece the map together themselves in the Flaxdrayton Potato Store. If you feel inspired you can contact them on: chapter7@tlio.org.uk