The Six Core Practices of the Fractal Economy
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.
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 NFPs and Cooperatives.
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 share as commons ownership
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.
Support for Co-operatives through the commons bank
‘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. frgfgfdg
Common ownershp 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.