The Six Core Practices of the Fractal Economy
There has historically been many attempts to come to terms with the egregious elements of capitalism - attempts to establish new workable practices; to ameliorate the suffering and damage, to raise awareness of various issues, and so on. Whilst many of these measures have had a degree of positive outcome, the broad trend is that society is getting more and more polarised with a small proportion of society (the 1% so to speak) getting richer and richer at the expense of the rest of society. The aggregation of financial power in this top end of society brings with it political power - power which is in conflict with democracy.
The many measures referred to above include: microfinance, cooperatives, community banking, community supported agriculture, land trusts, ethical investments, ‘buy local’ movements, alternative currencies, Transition Towns, and so on.
On the other hand, governments could actually implement many effective and systemic changes (such as taking control of the banking system and the power of credit creation) but for reasons of corruption of the legislatures by Big Money and for reasons of ideological torpor/indoctrination, governments are not pursuing these lines.
The FEC incorporates six core practices which are quite radical and have never really been practiced widely - not at the level of government nor at grassroots community level. We believe these practices will be extremely powerful in themselves but together (i.e. synergistically*) they are an unstoppable force.
The Six Core Practices of the Fractal Economy Co-operative Ltd are as briefly described below. By clicking on the title of each core practice, you will be directed to the relevant section of The Core Practices in Detail which is on this page below this section.
Please note that of these six core practices, the FEC is currently only using the first three. Core practices 4-6 can only start when we have a banking license in the future. Practices 1-3 constitute our current goals. Practices 4-6 constitute part of our vision of the future.
The FEC has a board which is elected much as our political representatives are elected. This means that we practice what is called representative democracy - we vote in people on a regular basis who acton our behalf as representatives for a period of time. We also employ a second,and even more powerful, form of democratic governance called direct democracy.Effectively, this means that if someone or some group wants to implement a new policy, if they can get say ten to twenty percent of members to sign their petition, the policy is put to a binding referendum. Representative democracy -legislatures, in other words - whilst a necessary political institution, is not inherently strong enough to withstand the corrosive and corrupting forces of capitalism. Direct democracy is strong enough. Direct democracy makes the coop vital, creative, participatory and immune to attack by external capitalist forces.
FEC implements a taxation system in which members are taxed say 3% (as is currently the case) on the receipt of money from fellow members (and only from fellow members). As explained in The Core practices in Detail below, this will not deter potential members. Also explained is how this tax is collected. This tax is called a transaction tax. This will be a significant and valuable income stream for communal use. At FEC we are adamant that Commons Bank.
[Reference link please] When we form a bank, it will be unlike any that has ever been practised - private, public/government or 'community banks'. We call it commons banking. Backed by the revenue from the transaction tax, we can achieve the following:
Giving loans with collateral requirements (guarantees), as the rules of the private banking system requires, means that the rich get easier access to loans. There is nothing to say that the rich are, as a class, more talented,more honest or harder working than the poor. Private bank practices of requiring collateral on loans exacerbate the situation in which the rich get richer to the detriment of the rest of society. Bearing in mind that our commons bank loans are 'guaranteed' or secured by our transaction tax revenue,our bank can
- make loans with much lower interest rates, even zero interest if desired
- require no collateral on loans.
Social guarantees replace financial guarantees.
The FEC bank will ask of loan applicants, instead of collateral, a 'social guarantee' in which friends,business acquaintances etc. of the loan applicant will vouch for her credit-worthiness. Credit comes from the Latin credere - to believe in.The practice of social guarantee brings 'believe ability' into loan making/credit.
Loans are only for the purchase of goods and services
A commons bank will not loan money to buy things that can be speculated on and which will lead to unearned income for the borrower. This means it will not loan for the purposes of buying land and shares and derivatives. The FEC intends to make all land commonly owned,and to replace the practice of share ownership with (profit making and profit sharing) cooperatives. Therefore, all loans will be strictly for the purchases of buying goods and services (including housing and construction). Our loans will not contribute to the ever escalating price of land.
Externalised costs are considered in our loans.
The price of most, if not all,goods and services do not reflect many of the true costs to society and the environment, e.g. food manufactured with junk and high sugar and preservative contents 'externalises' the cost onto society's health and our medical system.(A former World Bank economist, Raj Patel, calculated in 2010 that the true price of a McDonalds' Big Mac is around $US 200.) When stuff is imported from the other side of the world, their prices do not incorporate the true costs involved in the burning of fossil fuel and pollution to the ocean. When a commonsbank makes loan, these externalised costs start to be factored in - the costs cannot be externalised 'somewhere else' outside of the commons. Thus, for instance, if membership is in favour of it, the FEC bank will only support chemical-free and sustainable farming in its agricultural loans.
Supporting the practice of cooperatives and eliminating share ownership.
[Reference link please] In making business loans to larger concerns, the FEC will actively favour lending to cooperatives rather than privately owned or share owned businesses. FEC will actively promote the cooperative movement. Cooperatives can only thrive if loans are accessible which do not require collateral. (The person who puts up collateral for loans usually becomes the ‘owner’ in one way or another. Even if he doesn't gain financially from the arrangement, he will have leverage over the cooperative - "It's my money on the line").FEC can provide no-collateral-required loans but capitalist banking can’t or won’t.
Buying land to place it into commons ownership
[Reference link please] Increased membership and increased revenue will lead to FEC having the capacity to become a land trust. Instead of lending money to members to buy land, FEC members setup a sister organisation which is a commons land trust and which is a totally separate legal entity but with much the same membership, and makes it a policy of loaning money to purchase property only to this land trust. The terms of these leases are explored below. FEC will not contribute to lands peculation and to the social inequality stemming from land ownership. Land rental becomes a third income stream for FEC (after the transaction tax and interest on loans). As we acquire capital and economic power, the FEC will also buy up natural resources (eg forestry leases) and sequester them from capitalist exploitation.
The 6 Core Practices in Detail
Direct Democracy in the FEC
A quick note: various communities around the world are experimenting with various kinds of democratic practices. Some of them are called participatory democracy and deliberative democracy. There are also 'citizens juries' and the practice of sociocracy.The FEC democratic practices may in the near future take in these other practices and may well go beyond our current representative democracy (voting for board members) and direct democracy.
Traditionally, cooperatives have been legally obliged to comply with its memberships’ (majority) wishes through the principle of voting on resolutions. In years past, this was a time consuming affair and could only be done at the annual general meeting or with special meetings. In an age of internet and mobile phone technology, the participation of members in making and forming decisions can be accelerated exponentially. With an interactive website, apps and so on, we can have vital active ongoing discussions. We have made it as as easy as possible that members, if they wish to change a policy or initiate a new one, can begin a petition in support of it.
On our Direct Democracy in Action page, you can take part in our practice of formulating rules and policies within the cooperative via the process of direct democracy.
If a petition can get the endorsement of 20% (as it currently stands) of the membership, it goes on to become a binding referendum for FEC. This is a heightened level of participation and inclusiveness that no national society (except perhaps Switzerland, which practices direct democracy) has ever experienced. No-one can grumble about the corruption or vested interest in the leadership or management if we all have a truly equal say on policies and internal rules.
A very brief and selective history of democracy Democracy had its 'official' birth in Ancient Greece - Athens actually. It was a way of having a form of government which was not based on an absolute ruler or monarch. The franchise was limited to land owning men. However it was a form of direct democracy insomuch as the men entitled to vote did not vote for representatives amongst themselves but voted directly on issues. In recent centuries, the drive towards democracy as we understand it today - representative democracy with universal franchise - did not come without resistance from the ruling class, which is to say, propertied men. For instance, the wealthy propertied men who framed the US constitution had in mind a 'republic' which did not incorporate universal franchise. More battles had to be fought to give women and coloured people the right to vote in later years.
As history has demonstrated, our political representatives, even though we enjoy the prerogative of voting them out of office after a few years, are highly susceptible to corruption by, and cooperation with, concentrated economic power. Political parties are particularly susceptible. Our trust in politicians is, in many countries, at an historically unprecedented low.
History also shows that there is a broad relationship between literacy and the functionality of democracy. When literacy rates are higher, the process of democracy runs closer to its theoretical ideal of government by the people. Hence undeveloped countries with low literacy rates often have a dysfunctional democracy even though the framework or structure is there. The development of representative democracy in recent centuries roughly parallels the arrival of universal literacy.
The original architect of the FEC, Gavin Tang, contends that the arrival of universal and instant access to information (as well as the capacity to disseminate information in the same manner) creates a social condition which demands a yet higher level of democratic participation by members of society - direct democracy. Universal and instant access to information means that anybody can gain access to information and knowledge as easy as anyone else, and that discussions on any policy issues can be debated as freely as our political representative do in the legislatures. This 'universal and instant access to information' was delivered to us of course by the internet and email. Again, as with the introduction in history of universal franchise, people with power, including the majority of political parties which win legislative seats, will resist the demand for direct democracy (as well as keeping quiet on any suggestion of its possibility). Those who want to hang on to illicit power will resist 'mob rule'.
A transaction tax
FEC has bulk purchasing power, meaning that collectively we can demand a discount on things we buy. However instead of getting a discount on our individual purchases, we are asking sellers to pay a 'transaction tax' to the FEC cooperative. This tax does not exist merely to pay for the administration of FEC. As membership numbers increase, it will become a very powerful tool for generating communal revenue. There are a number of things to discuss.
What rate should the tax rate be?
There is no fixed answer to this question – the higher the tax rate, the more communal revenue per sale, but at the same time it might discourage membership participation. Currently, the FEC has started off with a tax rate of 3% but this rate will be reviewed over time. It is possible that certain businesses might have a lower tax rate because their margins are lower (e.g. service stations). It is even possible that people can set their own tax rate, so that a 3 star member is saying that it pays 3% of its FEC sales to the FEC treasury; a 5 star member pays 5%, and so on. As a member of FEC, you may give a little more preference to a 5 star member than a 3 star when you make purchases. Some people think ‘tax’ is a dirty word. Within FEC, we associate tax with a source of pride – one is saying, in paying one’s taxes, that one is contributing towards society.
Why would people and businesses join if they knew they would be incurring a tax on their monetary receipts from fellow members?
FEC members on the whole will be looking to give a preferential treatment to fellow FEC members because they, the buyers, support the FEC cause and because of the things that FEC will be spending money on. So there is a market of buyers and consumers who are buying things with something of a social and environmental ethic. If a business is having a markup on its product of say 50-100% (say furniture or greengrocery retail), it really doesn’t want to lose out on this market. So it would rather lose 3-5% of its sales (in the form of the FEC tax) than lose out on potential sales to this market. Bear in mind that sales to non-FEC members do not incur this tax, so that normal sales are as usual for all members.
The major hardware store chains in Australia offer tradespeople and various businesses and sole traders a membership discount card which amounts to about 5%, some items 10%. Now a discount is effectively the same as paying a voluntary (transaction) tax. Why do they offer such a discount scheme? Because it calculates that it is in their own financial interest to lose 5% on its sales to such customers rather than lose them as potential customers to their competitors. If FEC members are buying preferentially from fellow FEC members, not to get a discount but to contribute to FEC coffers, then effectively we can make any business follow the same line of reasoning as the hardware store chains. People and businesses will join so as to not lose out on sales to this market of FEC members.
Not too many years ago, American Express charged 5% on sales made with its card. Retailers suffered this ‘tax’ because their margins were more than capable of covering this cost, and they did not want to lose out on any sale merely because they were not taking Amex payments. For a truly socially minded organisation, FEC will have a lot more social cache than a multinational finance organisation like American Express. And people will quickly see the good that FEC can do with its revenue. Few people with a conscience will mind paying the FEC tax but even the most unphilanthropic business person will not want to lose out on the FEC market.
How will the transaction tax be collected?
Currently the FEC employs only one method to collect its transaction tax. We are seeking a suitable 'authorised deposit-taking institution' to partner up with which will allow us to streamline the transaction tax collecting process (as described below).
Our current method of collecting the transaction is with the use of an app. When a FEC member buys goods or services from a fellow member, the buyer informs the seller/vendor of her membership. The vendor pulls up the FEC tranaction tax app, and enters two things - the buyer's membership number and the value of the sale. When the details are sent off, FEC has all the requisite information to bill the vendor for the transaction tax of all the sales to FEC membership. All the sales' details will be itemised. This is done on a monthly basis. See a video [not yet active] that demonstrates the collection of the transaction tax with our app.
If the buyer in the above situation has pre-arranged it, she will get an instantaneous text or email message which will confirm that the sale details have been received and recorded.
When FEC partners up with a suitable authorised deposit-taking institution, or becomes one itself (e.g. credit union), collecting the transaction tax will be easy. Members of FEC will be asked to a)open a bank account with the FEC bank; and b)use the FEC bank for paying money to, and receiving money from, fellow FEC members. Thus if both vendor and buyer are using their FEC bank account for the transfer, the FEC bank will automatically deduct the transaction tax from the money received.
A side note: the transaction tax is the tax for the national economy; replacing company, personal, and goods and services taxes.
In The Transaction Tax is the National Tax we give seven strong reasons why the transaction tax needs to be implemented at the national level; and replace company and personal income tax, as well as GST and other lesser taxes.
Giving away money to support not-for-profits.
All kinds of not-for-profit (NFP) organisations exist to support our society – to stop the social fabric from tearing along one seam or another; to help those in need; to save our environment; to fight for social justice; to educate the next generation; and so on. Almost all, if not all, of them are under-funded. Part of the egotistical aims of capitalism is to deliberately keep them under-funded, with the ultimate ideal being that many of them do not exist at all. As the saying goes, some of these organisations 'keep the bastards honest'. These organisations need financial support and FEC should be in the position of giving a lot of this support. A substantial portion, say 75% initially, of FEC tax revenue (and, as shall be explained, there will be three big sources of revenue) can be given away to these organisations. To be clear what such organisations may be included, it could be the local school – whether it is a public or (not-for-profit) private school; it may be the local church; it may be neighbourhood centres, soup kitchens, women's refuges; it may be media outlets which take no coporate sponsorship by way of advertising; it may be a coalition to stop a coal mine project going ahead; and so on. Of course more obvious recipients like Amnesty International and charities are included. From the point of view of individual members, this is a very good reason to join. It may sometimes be for more egotistical reasons such as to support a person’s children’s school. Whatever the reason, many people will feel good about being able to support organisations that they feel could do with financial support. The support to their favoured organisations comes in two ways. Firstly, members can give preference to fellow FEC members in their purchases - an act which will generate FEC tax revenue. (This has the side effect of putting pressure on the people they buy things from to also become FEC members.) Secondly, they get a direct say in allocating where these gift money goes. For example, say that FEC has $1,000,000 to give away and has 1,000 members. That means that each member has at his/her discretion $1,000 to give away to the not-for-profits of her choice. NFP gift recipients have to become FEC members to be eligible for the gift money. We should point out that gift money recipients in turn should encourage their own membership to join FEC because their members are likely to swing budget allocations their way. Organisations that receive funding from FEC are asked to reciprocate and spend as much as they can with fellow FEC members so that more and more people and businesses are attracted to become members themselves (to gain their business). Everything starts to feed back on each other. More members = more tax = more gift money = more gift recipients = more members = more awareness of what FEC is about, etcetera.
In Our Not-For-Profit Partners you can see a list of our current NFP partners which are eligible for gift funding from the FEC. Most NFPs are eligible for membership with the same benefits (there is a screening process with certain criteria) and we encourage NFPs to apply. In the same page individuals can vote on which NFP they wish to support financially.
When private entities give away money, it is gone. When FEC gives away money, it is not gone in anyway the same sense. Money that goes into strengthening the broader community (the periphery) eventually filters back, via taxes, to reinforce the the treasury (the centre). Governments should know this principle but they have been hijacked by a capitalist ideology (so they start pandering to the likes of James Packer to grab some cash that is dropped from the casino table).
Our Vision for the Near Future. As noted earlier, we are not in the position to implement the following three core practices. These practices can only start when we gain a banking licence, which hopefully will not be too long.
A commons bank
It shouldn’t take long after some people gain awareness of FEC that things accelerate so that FEC finds itself with the membership numbers and financial clout to start a credit union – perhaps later, even a fully fledged bank. For the purpose of this article, we will refer to a FEC bank.Banking is where the real power comes in. It is the real secret to capitalism. Without private banks, capitalism cannot survive. (We explore this issue in Why banks, corporations, land and natural resources should not be privately owned.) Mayer Amschel Rothschild, the founder of the Rothschild banking dynasty is reputed to have said “Give me control of a nation’s money supply, and I care not who makes its laws.” If we come to know how powerful banking is and how much is contingent on the right kind of banking practices (as we hope will be made clear soon), we will come to acknowledge this statement of Rothschild to be true in principle. Since governments - and especially the people whom the governments are supposed to represent - have no effective control over their own central banks, it would seem very much that there is a nefarious banking oligarchy which has more power than our governments in our own countries. The FEC 'commons bank' is the beginning of the process of addressing this critical issue. We start a commons bank to go ‘toe-to-toe’ with capitalist banking. (“In the blue corner, weighing in at 500 pounds is the reigning world champion Goliath Capitalism! In the red corner, barely moving the scales, the new kid on the block.....”)
The immense power in a commons bank backed by a transaction tax
As will be spelt out below, a commons bank can do things that private banks (and credit unions and customer-owned banks, etc) have never even contemplated as being in the realm of possibilities. With a transaction tax backing it, a commons bank could, if it chose to, give zero interest loans.
Imagine the FEC commons bank makes a loan and stipulates that it can only be used for buying goods and services from other FEC members. (It is possible to put loan money and place it in a special account which can only be transferred to another FEC account.) When the borrower spends that money, it generates 3-5% in transaction tax. When that money gets spent yet again with another fellow FEC member, we have generated the equivalent of a year's worth in interest repayments (6-10%). Our transaction tax revenue comes in at a much faster rate than even the most exorbitant bank loan interest rates. There is also this: if we were to make some loans interest free and all loans at highly reduced interest rates, our loans are much less likely to fail, so we don't need a lot of money to cover failed loans. When we are not under pressure to turn a profit on a loan and we can afford to make loans much cheaper, we can then apply conditions on loans which will begin to reverse the environmental damage that capitalism necessarily has to perpetrate. The transaction tax can also heavily 'subsidise' a lot of other things not mentioned earlier - our own commons health fund and insurance company, for example. All of this will make people pay serious attention, cause them to reflect on our society, and realise that the FEC economy is the way to go.
Banks create money every time they make a loan OR Why private banks should not be allowed to exist
If one argues, as we do in the FEC, that private banks should not exist, then one should put a very good argument forward for why not. The banks' egregious behaviour - as exposed by the current royal commission into banking in Australia - is not enough, as a moral argument, to close them down. We are talking about a kind of fundamental 'right' (concerning our freedom to do what we will with our money) with profound implications for the entire economy. If one accepts it as common sense that the right to print notes and coins belongs to a public entity (central banks), then it is no less common sense to argue that private banks should not exist if one understands what banks do when they loan money out. The truth is that banks create new money every time they make a loan. The money they loan out (computer money) does not exist prior to the loan; nor is it depositors' money that is being loaned out. This process is called credit creation and we explain it in more detail here. We contend that credit creation is both a necessity for a healthy modern economy and also the sole right of the public/commons in much the same way that printing notes and coins is a public right.
In the FEC bank members now have a commons bank they can deposit their money with. We call it a commons bank because we aim to look after the interest of the whole of society and the planet through our loans. Straight away the existence of such a bank is a pain for the private banking industry, because money will be withdrawn from their system and they cannot make interest bearing loans on the back of those deposits. (Every dollar taken out of the private banking system means that the private banks have to cut back the total amount of their loans by about 20 dollars. This process is related to the above paragraph.) Secondly, the amount of money that FEC can loan out will be much greater than its initial deposits. Say $10m(illion) is withdrawn out of the capitalist banking system and is deposited into the FEC bank. If that $10m is loaned out fully and if loan recipients spend that money with fellow FEC members who then redeposit the money back in the FEC bank, FEC can then loan out almost (but not quite) $10m again. This process can be repeated many many times. Without explaining the ins and outs, that initial $10m deposit in FEC might lead to a potential $200m in loans. (For those who want to look it up, the reasons are in something called reserve requirements or capital adequacy ratios.). Consider the other consequence of this $200m in loans. If loan recipients spend all their loan money with fellow members of FEC, the initial spending of this money by the borrowers generates by itself $6m in transaction tax if the tax rate is 3%; $10m if the tax rate is 5%. Recall that the initial deposit of money out of the capitalist banking system into FEC was only $10m to begin with! This is serious revenue generation and it is only one round of spending; the recipients of that money might spend it again with yet other FEC members, and so on. With the transaction tax, FEC can generate a lot more revenue that private banks. That transaction tax revenue will in part provide the financial security to do things with our loans that private banks do not: make loans without requiring collateral. This leads to our first point about FEP commons bank lending.
In the capitalist banking system, people can only get bigger loans if they put up collateral such as real estate. Therein lies one of the great source of inequality in capitalism because this condition attached to loans means that richer people get better access to loans. (The rich, for instance get loans to buy 'investment properties', and in the process make land and rent more expensive for those who have no property.) Note that ‘richer’ in the previous sentence does not equate to ‘smarter’, ‘harder working’, ‘more creative’ or ‘more moral’. As the late comedian Bob Hope quipped, “A bank is a place that can lend you money if you can show you don’t need any”. By and large, very rich people do not need to work anymore, nor do they need to borrow money to buy things that get consumed. So they mostly borrow not to actually produce or purchase goods and services, but for speculative purposes, to make investment returns and capital gains. This is the source of our current housing affordability crisis in the major cities around the world.It is the FEC's policy that we do not use capitalist practices to try to solve the problems of capitalism. This means that we do not loan money for anything that can be speculated on and which will provide unearned income - a form of institutionalised theft - for the borrower (and that includes land, which is a subject to be discussed later). It also means that we do not ‘means test’ loan applicants when it comes to business loans. If we want to create a real productive economy, our business loans must be matched up with the people we deem most capable for the various undertakings. It should not matter if a loan applicant has no asset or money at all. If a person knows and loves books, knows the book retail industry and has good character references, she should get a loan to start a bookshop – other things being okay – without being asked to provide any financial collateral. By the same token, we should not finance less-than-ideal or dubious business people just because they have assets behind them. If as a bank we care for the whole economy (the commons), the economy will feed back into the commons bank in the way of spending and transaction tax revenue. The totality of this revenue will more than offset the occasional failed loan.Current capitalist banking regulations require that loans are secured either by the borrower or the lender, or both. Since the FEC gives away its earnings to enrich the community; and since we have a policy of not asking collateral on loans; this creates a conundrum in that we cannot legally secure our loans. The fact that our transaction tax revenue secures the loans is not going to pass mustard with the relevant authorities. Our transaction tax revenue guarantees our loans in reality but not legally speaking. However there are creative means to overcome this regulatory hurdle. Assuming we can legally ‘secure’ vast amounts of capital in order to loan money, we can do powerful things with the FEP bank – things that the social justice movement dares not even dream about as being possible without government backing. (Remember, as a fractal, we intend to function like a national economy.)
FEC replaces financial guarantee with ‘social guarantee’ on loans
Requiring collateral on loans may be called a financial guarantee. If we do not do financial guarantees, borrowers are not required to provide collateral on loans (at least not for business loans) but they must still be ‘screened’ in other ways. Firstly, it goes without saying that all loans should be assessed to determine if the borrower really will have the future capacity to repay the loan. This modicum of prudence should be taken for granted.The principle of social guarantee then comes in, which can be roughly described as follows: if a member approaches FEC for a loan, say for a work vehicle, FEC looks for ‘social guarantors’ who will vouch for the person. This may be customers, friends, business associates, and so on, of the loan applicant. They attest to his character and quality of his work, and his goodwill in the community. If the borrower does fall seriously behind in his repayments, the social guarantors have a responsibility to follow it up. The borrower, if he fails to repay his loan, is not failing a huge capitalist enterprise; he is failing his community. No social guarantor would like her standing in the FEC community to be unduly diminished by her endorsement of a failed loan. The word ‘credit’ has its origin in the Latin credere – to believe. Credit should be connected to a person’s credibility in the community, not to his accumulated assets.
Lending money only for the purchase of goods and services
A corollary of not lending money for asset speculation is that money is loaned only for the purchase of goods and services by members. This means that the FEC is a much more vibrant economy because it is the spending of money on goods and services that ‘creates’ jobs. Money spent on assets is non-productive and is a drag on the real economy, meaning it creates unemployment and inequality. To be clear what goods and services include: building a house or doing renovations qualifies, as building materials and contractor charges are goods and services. Land is not a ‘good or service’; nor are shares. Furthermore FEC can stipulate or request as a condition of a loan that the borrower spends the money with fellow FEC members as much as possible. So if someone asks for a home renovation loan, FEC will ask where she is likely to buy her materials from and what contractors she has in mind. The loan is more forthcoming if the borrower shows that she will be spending the money with FEC members. (It is possible to arrange that all loan money and gift money can be deposited in a special account that can only be spent with FEC members.) This of course encourages the potential contractors and hardware store etc to become FEC members. When the borrower spends his borrowed money with a FEC member, it immediately generates 3-5% tax revenue, which is perhaps 6 months of interest repayment already!By not loaning money out for the speculative purchase of assets, the FEC is creating an economy which is not a boom-bust economy. The last major bust was of course the global financial crisis of 2007/8. By acting as a commons bank, we take away the power of private banks and investment banks and their sordid and parasitical activities.
Factoring in externalised costs
Backed by revenue from the transaction tax and other capital as explained in The Securitisation of Loans by the Commons, we can address something through the FEC bank which environmentalists identify as a major issue but which they have no real answer for: the externalisation of costs, or externalities. Externalities occur when the price of a good or service does not cover the social and environmental damage done in the manufacture and future disposal of the good. The real costs are ‘externalised’ onto the environment or society at large. Plastic bags for instance can be manufactured and sold for a small fraction of one cent but the damage done to the environment is perhaps several hundred times its price. Raj Patel, a former World Bank economist, calculated in 2010 that the true cost of a McDonalds' Big Mac was, after taking into account all the damage done to the environment and to consumers' health, to be US$200, instead of its $2 retail price. Likewise, when food manufacturers are allowed to put monosodium glutamate (MSG), which is a highly damaging neurotoxin commonly used as a flavour enhancer, into manufactured foods, they are externalising the costs onto the consumer and health system. Very little is manufactured within capitalism that does not have externalised costs – transport, relying as it does on oil and coal, is a hugely cost-externalised business.
As individuals, we have little leeway to do the good when it comes to preventing externalities. For instance, without a (greenhouse gas producing) car, you can be seriously disadvantaged against the rest of society in your range of holidays, commuting travel time, or choice of jobs. Similarly you may have to pay two or three times as much for a carpet whose material is easily recyclable. To do the good will set you back financially and it means, in a capitalist society, you cannot buy a better house or cannot afford an investment property to finance your retirement and so on. Thus preventing cost-externalisation is not something that consumers should be made primarily responsible for. What about producers? The same story applies. Producers who overstretch themselves on minimising externalities will find that they have to cover the extra costs, which means raising prices, which means loss of sales and profits, which might easily put them out of business. So producers are also not to be held primarily responsible for minimising externalisaties.
Under capitalism, a number of private banks compete on the market. Each of them can claim that they can’t be held to account for externalisaties. Their argument is that if they make minimising externalities a condition of loans, they will both lose business and jeopardise the borrowers’ profitability, which impacts on the banks profits as well. This is a reasonable argument under capitalist conditions but there is a flaw in the argument which is that in banking, there should not be a market. There should only be one commons (public) bank per currency. This commons bank is really just the central bank with retail extensions. If such a condition exists, the commons (i.e. the people as a whole) can set up the terms and conditions of bank loans, and if these conditions include totally ‘internalising’ all costs, then any business which wants to get a loan must really internalise all its costs. FEC as a commons bank begins to make these conditions apply to its loans. We will not only do what is right; we will also be known for doing what is right.
Many people live in a permanent state of mild despair because they see society thrashing the environment and they don’t see a way out of it. People will actually see that commons banking as practiced in FEC is the way to go. FEC cannot totally reverse externalities with its loans straight away. It is very hard for businesses to internalise oil burning costs incurred in transport for example. But we can start somewhere. Take for instance the case of making loans for an egg farmer: FEC can ignore the definition of ‘free range’ set by the huge chicken farming companies, and make loans only to farmers who actually have a much more acceptable stocking rate. If the membership so decides (as is hoped it will), we can make farm loans conditional on it being chemical- and GM-free. With food manufacturers, we can stipulate that they never use MSG or artificial colouring, or GM components in any of their products. At every turn we can set higher standards for environmental sustainability and social responsibility. As we don’t have to make a profit on any loan in particular, we can put the commons first. It doesn’t matter that big business has managed to coerce governments to implement legislation that enhance corporate profits by various kinds of cost externalities. We don't have to comply with corporate-created BS standards. FEC can set its own standards on the basis of its internal policies being made by direct democracy. Whilst internalising costs will increase costs for businesses, FEC should be able to help out with much lower interest rates on its loans. The combination of a transaction tax and a commons bank means that in effect a zero interest economy is entirely possible. The transaction tax revenue easily covers the occasional failed loan; and loans are far less likely to fail if the whole economy is on zero interest loans.
Thus, in FEC, a timber yard that does not sell uncertified tropical hardwood from Southeast Asia so as to not contribute to deforestation in the area should be able to get highly discounted, possibly zero interest, loans from FEC to make them more competitive against the others. We may find ourselves in the situation where businesses are knocking on our door in numbers because we can offer highly reduced interest rates - this in spite of the fact that we impose externalities-minimising conditions on our loans.
Support for Co-operatives through the commons bank
Quick note: 'Cooperatives' in this website refer to a particular kind of a 'collective legal entity' that does not apply to all kinds of cooperatives. In this website, 'cooperatives' refer to profit-making enterprises in which all the profits are retained by the workers and goes to no-one else. Strictly speaking, they should be called profit-sharing companies because the workers share in the profits. Workers are not remunerated by wages in profit-sharing arrangements and labour is not treated as a cost of production. Hours do not need to be fixed nor shared equally. Profits do not need to be shared equally. For example, a top notch engineer in a company should be getting a greater share of the profits, for the same hourly contribution, than the cleaner. Though cooperatives may not really know it, the coop movement is stymied by capitalist banking. Until a commons bank (and not just credit unions as they have historically been) actually comes about, cooperatives can only develop in a limp and lag manner. Why? When banks loan money to a coop they ask for collateral. The collateral provider will understandably provide the collateral by asking for something in return for the risk undertaken. For a cooperative, this usually means some kind of leverage over the cooperative by the collateral provider which may take the form of some financial returns, or perhaps an ability to restrict the coop's independence in decision making. This puts the cooperative somewhat back into the capitalist business position. Closely allied with the principle of cooperatives are 'workers-owned enterprises'. In these companies workers are asked to invest in their own business. If someone wants to join the company the usual practice is to ash him/her to put some investment money in. But this practice discriminates against the poor or those who have no money to invest. If the company waives this requirement, it puts the new worker at odds with the other workers who have put their own money into the business and bear some element of risk. If the 'paid up' workers exercise some power of decision making (as owners) that other non-paid up workers do not, then we have a diluted form of capitalist practice in which there are owners and employees. With the FEC as a commons bank, the commons, which is to say the membership as a whole, takes on the burden of the risks of the loan, so that members of the profit-sharing cooperative are totally free of ‘owners’ or shareholders. No-one in the coop has power over another because she has her own money invested in the coop and the other doesn’t.
One should not underestimate what is happening here. Cooperatives are much more productive workplaces than privately owned larger companies because workers get to have a voice in decision making and because their incomes go up in proportion to the company’s profits. In other words, workers have a much more vested interested in their company when it is a true cooperative. They are incentivised. The FEC will actively promote cooperatives when it comes to larger businesses (and perhap many small businesses as well). Many current business owners will be relieved to be able to sell their business to FEC whilst still being active in the business. Eventually FEC supported cooperatives will begin to edge out the share-owned companies such as the ones on the stock market. We do this in many ways: FEC members will be buying preferentially from FEC members so that a lot of business will be lost to the share owned companies; FEC cooperatives will be more productive than share-owned companies; and cooperatives will provide alternative and better employment to capitalist businesses. In other words, we are slowly depriving the share owned companies of bank funding, customers, and workers; at the same times we are funding strong competition in the form of cooperatives.
Common ownership of land and natural resources
The FEC will very quickly have huge financial clout. We create a very strong productive economy and, with the transaction tax, we generate a lot of communal income. Some of this income can be diverted towards land purchases. Private banks loan out money for people to buy land and then charge interest on the loan. Very often, by the time a mortgage is repaid, the borrower has paid back twice as much as she borrowed. The bank keeps the interest repayments for doing zilch. The process of borrowing money (which banks create out of nothing) and buying land creates a permanent state in which land prices generally go up. This causes one of the great social stress of our time – housing unaffordability. It also creates possibly the greatest source of inequality in our society – between those who have land and those who do not. We do not have to own land in a freehold sense in order to have a ‘free’ (or non-communist) society. It is possible to rent land from the community under certain conditions (to be discussed shortly) and have all the security of tenure that one could ever want. The commons need not be able to repossess your land against your wishes; you need not feel you might be uncompensated for your investment in your house when you move on. In turn, your rent (of the land, not of the house) contributes towards the common good - the money being used, for example, to pay for your pension or child support - and you are not working fifteen or more hours a week extra just to cover your mortgage or private rental. What does commons land ownership look like if we are to satisfy our human needs? So that we can look after the common good as well as the individual’s desire for security of tenure? The commons has to own land outright. In the transition away from capitalism this means buying it from private parties at whatever the market price is at the moment. The land is then rented out to individuals and private parties. Improvements such as dwellings are sold to private interest. Almost always the buyer of the improvements would be the party that is interested in taking over the lease of the land. Generally, improvements are owned by private interests. Improvements constitute a manufactured good and are not permanent in the same sense as land is. Ownership of improvements mean that should the tenant relinquish the lease on the land for whatever reason, they have rights of disposal over the improvement and should ‘get their money back’ for their investment. Land, under FEC policy, should be rented out for 33 years or for the duration of the tenant’s life – whichever is longer. If the tenant lives for more than 33 years after the lease begins, she is assured of living out her life on the property. If she dies before then, her children are assured of being able to stay on that property until they are of adult age (because of the 33 year lease). The children, if the tenant so wishes, inherit the improvements. Generally, the commons will just renew the lease if the same family wishes to live on the same property, so that for instance, family farms stay in the family. Rent has to be adjusted periodically to ‘market rates’. Rental rates can be decided by independent third parties such as rental agents (real estate agents who only deal in rental properties). Local governments in the state of New South Wales have a way of estimating council land rates based in part on the value of the property. Perhaps we may use a similar method. If the commons has reason to take some land back at the end of a lease it compensates the existing tenant for the improvements, which value is assessed by independent third parties like builders etcetera. No-one is prevented from sub-letting their properties to other parties. The most important thing is that they pay the market rate for their land rental. Land rent paid to the commons instead of private interest has a very different impact on society. Rent becomes an integral part of commons revenue and can be used, for instance, in paying for universal childcare and education. Without these, we have a fractured society and great hardship for individuals.
Natural resource ownership is a somewhat different matter to land ownership. Things like oil, minerals, fish stock, even our biodiversity and atmosphere, belong to the commons. No one should have the private right to its ‘disposal’, i.e. sale. No-one should be able to own it. The private ownership of oil, coal and mineral reserves is one of the key points on which we need resolution if we are ever to get on top of the climate change issue. Until we resolve this issue, we cannot fully resolve the bigger issue of cost externalisation as discussed in section 4d above (the use of huge quantities of oil and coal in the manufacture and transporting of our goods). Let’s try to re-imagine a new scenario. If the commons claims outright ownership of its minerals (which technically includes oil, coal and gas) and if the commons for whatever reason decides it wants to extract a certain deposit of such minerals, it does not grant private parties a mining lease and monopoly on those minerals. Instead, it contracts out the various task of extracting the mineral and refining and transporting it to a certain point. (These ‘mining companies’ should be cooperatives, so that the skulduggery associated with share owned companies does not entrench itself.) From there, the commons can sell that commodity through an auction process so that it begins life as a privately owned commodity. It is important to know that in every step of the way the commons is in charge and private parties never own the mineral. In a way all this is common sense. The US military and CIA and various allies around the world has primarily existed to ensure that countries are exposed to private ownership and exploitation of their natural resources. They have toppled many democratically elected governments to this end. The powder keg which is the Middle East is so primarily because of (mostly) Anglo-American corporations' desire to commandeer the world's oil reserves. The fossil fuel industry has bribed or coerced almost every government in the western world, and does so with the current Liberal Party in power in Australia. Acting on behalf of, or as, the commons, FEC can use its future enormous financial resources, buy these natural resources (or mining leases, or logging rights or whatever) and ‘enclose’ it from capitalist interest and exploitation. People will see that if FEC can do this, the government with its greater political and financial power, could do the same even more forcefully. We would not tolerate a government that doesn’t do the same once FEC sets the example. Finally, FEC can utilise its huge financial resources, when it has them, to finance any number of renewable energy projects. We don't wait for business-friendly governments to get the ball rolling.
And there's much more we can do... Shortly after we begin to function as a commons bank, FEC can do many more things - things that the public should have a monopoly on but which the neoliberal or economic rationalist agenda has privatised. These things include an insurance company, a health fund and an energy company. We can manage such things in competition with private companies, treat people/members with true concern and not just as a source of profit, and do it better and ultimately more profitable than for-profit entities. (The health fund and insurance company does not have to make a profit in itself and can be heavily subsidised by our three sources of commons revenue - transaction tax, interest on loans and land rental - to the point of undercutting private health fund premiums by say 50% or more. This 'fiscally irresponsible' approach is justified because if we as a community help members get better quicker, they get back to work quicker to participate in the economy as producers and consumers, and the community's coffers are strengthened via the transaction tax and so on. When the commons looks after the welfare of individuals, individuals will look after the welfare of the commons. If one thinks in a 'whole systems' way, one arrives at very different conclusions than if one uses capitalist reductionist logic.) With our commons revenue we can start, or fund, media companies that will not have to rely on corporate sponsorship (advertising revenue) and thereby get a much more truthful picture of the world. We might even donate money to the ABC (Australian Broadcasting Corporation) and shame the government for its practice of deliberately under-funding of the ABC. We could give money away to local councils on the condition that they initiate interactive direct democracy in the same way as FEC. This will have all sorts of positive effects - people get to have a say on things in their local community and get exposure to direct democracy whilst seeing their local public infrastructures improved; they also get even more exposure to FEC ideals and practices; we pull in local councils into our orbit and get some political clout; and so on. Through our land trust we could create urban and rural eco-villages which will not only make housing more affordable but also more community friendly and with a lighter carbon footprint. Many rural local councils would probably give land away to FEP for these purposes, just to boost population and economic activity. We can offer strong legal and financial support to genuine whistleblowers so that even though FEC will be known as a compassionate community, it will also be a community with a high valuing of transparency and a low tolerance for BS. We may even start the process of giving a small quantity of pension payment and child support to anyone eligible. This is not the drain on our capital that it may appear to be. Few people will knock back 'money for nothing' so those people eligible (for example, having a child of a certain age or being of pension age) will want to join up as members to receive their payment. In the process they will probably develop membership loyalty and familiarity with FEC ideals. This means that they will likely be spending money drawn from other sources within the FEC community, as well as banking with FEP. This leads to more businesses and people signing up to gain their business. This leads to more transaction tax revenue, more FEC bank deposits and money taken out of the capitalist banking system.... Worldwide there are an extremely large number of environmental and social justice movements ready to pounce on something that looks like it could be the answer to capitalism. We have been in a permanent state of the doldrums for a long long time, handicapped by corrupt legislatures and extremely mendacious activity by capitalist forces, and not able to make much progress without government support. Behind these movements/organisations there are a lot of well wishers and supporters who are not signed up as members. That is a huge groundswell of potential support - a tsunami in waiting in the best possible sense. FEC can tap into this groundswell movement and give it teeth.