NGO Another Way (Stichting Bakens
Verzet), 1018 AM Amsterdam, Netherlands.
SELF-FINANCING, ECOLOGICAL, SUSTAINABLE,
LOCAL INTEGRATED DEVELOPMENT PROJECTS FOR THE WORLD’S POOR
Edition
04: 26 March, 2008
(CLIQUEZ ICI POUR LA VERSION EN FRANÇAIS)
08.70 Projects under the Model are
independent of the credit and food
crises.
08.71 Introduction.
Local social,
financial, productive and service structures created during the execution of
projects under the Model together form cooperative, interest-free,
inflation-free local economy systems in the project areas. These systems
operate in parallel and in harmony with existing traditional formal-money
structures, but do not substitute them.
Changes in the parallel formal money structures do not directly affect
the local economy systems created. Where the world-wide formal economic
situation worsens, people in individual project areas may choose, or be forced,
to make more frequent use of the alternative local money system at their
disposal. In “better times” of “economic
growth” they may be more likely to consider using formal money structures for
conducting their business transactions.
Section 08.72
describes the nature of financial leakage, the main cause of poverty, and the
role interest plays in it.
Section 08.73
shows how the project blocks financial leakage from, and keeps available
financial resources re-circulating continuously in the project area.
Section 08.74
describes how on-going operation and management costs are fully covered by the
project structures independently of the formal economy.
Section 08.75
describes how on-going food security is guaranteed in periods of famine or
financial crisis.
08.72 The dominating debt-based
financial system.
08.72.01 The interest-factor.
The cumulative interest content of a typical
western industrial product is thought to be at least 40% of the cost to the end
user. It may sometimes be more. This interest content normally exits promptly
from local consumer areas never to return. Little, if any, of the purchasing price
of an imported item is recycled locally. Commonly, not even local savings are
invested locally for local development purposes.
The currently
dominating “capitalist” economy is debt-based. Most money, these days about 98%
of it, is created or put into circulation by privately-owned banks against
interest. Most business organisations, but also public bodies and even
governments, finance their activities by way of interest-bearing loans issued
by private banks. This means the total amount charged to end users by those
involved in the production of goods and services must take into account and
include the amount of interest incurred during the various phases of that production.
08.72.02 Cumulative interest in supply chains.
A supply chain is a
series of commercial links between the first steps in planning and preparing
for the exploitation of raw materials or equipment for a given product or
service before a product or service reaches the final consumer. In the modern world, especially in
industrialised economies, supply chains can be very complex. There may be many
hundreds, even thousands, of steps in the progress made by a manufactured
product or service from its conception to its final destination.
The following simple supply chain is purely notional. In reality the
supply chain in such cases is infinitely more complex. It will often have many
more steps than in the following example.
Assume oil has been found in a
desert area. A well has to be drilled to tap the oil supplies. An oil-drill is
needed together with other materials and equipment to drill the well. The
contractor building the factory where the drill is produced, may have borrowed
money against interest to cover the cost of buildings, equipment and materials
costs. The costs of the factory where the drilling machine is made includes an
amount to cover that interest (level 1). This interest must in turn be covered
in the price the drilling manufacturer charges for his drilling equipment. He
may have borrowed funds for his factory and for the purchase of materials and
equipment to build the drilling machine (level 2). The price of each drilling
machine therefore includes coverage for part of the interest originally charged
by the contractor for the factory, together with partial coverage for the
interest paid by the drilling machine manufacturer for his materials and
equipment. The company drilling the well may have to borrow money to buy the
drilling equipment (level 3). Its price for drilling the well must therefore
cover part of the interest originally charged by the contractor (level 1), part
of the interest charged by the drilling machine manufacturer (level 2), and the
interest on his own loan (level 3). The same applies to the cost of the
pipelines transporting the oil, the construction of the ports for the ships,
the construction of the ships transporting the oil, the ownership of the ships,
the running of the ships, the storage facilities for the crude oil, the oil
refinery, the entire distribution system all the way down to the tank station
where the refined fuel is sold to the public.
Interest built into prices
this way is cumulative. On the way along the commercial chain, interest is paid
on loans taken out to cover prices which also include earlier amounts of
interest. More interest is being paid on accumulated interest at each link in
the chain, all the way down the line.
The VAT value added tax
structure widely adopted in industrialised countries is different and
complementary. Under the VAT system, a given rate of tax is applied on the
effective sale price at each passage, and the same rate of tax applied to costs
at that level is deducted. The intention is that sales tax be applied on gross
business profits at each single level. The final consumer pays all. Each
supplier, manufacturer, and retailer is accountable to the state for the VAT
tax on his gross-profit share in the price build-up. Interest accumulated at
each single level in the price build-up is included in the taxed amount, though
it is not easily identifiable and is difficult to trace.
In practice, then, not only
does the amount of interest included in the price of a given product or service
accrue (increase) during its voyage along the supply chain as described. It is
also subject where applicable to sales taxes and other charges which are also
profit, including the interest content, as it accrues.
The interest content of a given product or service and
the taxes paid on it are unproductive and parasitic. They have nothing to do
with the inherent value or usefulness of the product or service in question.
The interest paid by the final purchaser meanders back to the banks who made
the original loan at the various links in the chain in the first place. Since
the interest paid is not cancelled on return to the issuing bank, it is free to
circulate at a vertiginous speed around the world in real time. It becomes part
of an ever-increasing uncontrolled volatile speculative money mass in the hands
of a non-elected financial elite, often of dubious ethical background. The
recent credit crisis provides an excellent example of this.
The total accumulated interest and the taxes included
in the price of a given good or service are fully paid by the final consumer.
Without it, average prices for industrial consumer products and services would
on an average be just one-half to sixty percent of what they are today. Perhaps
less.
08.72.03 : Final user borrowing.
The final consumer may also have to borrow money to pay
for the good or service he is purchasing. In this case, not only does he have
to pay for the large interest content already built into the price including
interest and taxes as described. In most cases he also has to pay interest on
the funds he gets from the bank to be able to do so. These interest costs must
be added to the price (which includes interest accrued during the production
process and the taxes on the interest)
the buyer has agreed to pay for the good or service. The amount the buyer borrows
expressed as a percentage of the cost of the goods or service in question can,
of course, vary from 0% to more than 100%. For many “special” consumer items
including motor vehicles and housing, the percentage in the western world tends
towards 100%. In some countries such as
the
Interest rates may be quite
low for real property investments, but they easily reach 10% per annum in real
terms for consumer items bought on credit. The longer the credit period is
spread out, the higher the percentage of real interest expressed as part of the
purchasing price of the good or service in question. In general, the poorer the
buyer, the more interest he is expected to pay, while payback time will also
tend to be longer. Annual interest rates in poor countries can be 20% or more.
These comments relate to official markets and interest rates. The situation is
worse still in the presence of black
market and usury practices.
Where accrued interest built into prices is at least
40%, and where interest on the funds borrowed to make the purchase is up to 10%
(per year), the total combined interest content is 50% or more. Where sales
taxes are applied on the interest content, another 5-10% can be added to the
unproductive content of the price of the product in question. These figures may
be considered conservative.
The principles applied to the
industrial production chain are also true, perhaps to a lesser extent, for the
food and fertilisers industries.
8.72.04: What happens to the
interest?
The following is a generalised summary of what happens
with interest under the present ruling economic system. In reality the system
is more complex. Each comment made here is subject to many variations.
Where a buyer purchases a
product or service, the price is usually paid to the seller. The payment may be
in cash, or it may be credited to the seller’s bank account. There are also
other ways of making payment. One way or another, most funds usually finish up
in the private banking system, first at the level of the local branch of a
bank, then at national level, and then (often) at international level.
Sooner or later, somewhere
along the banking chain, the bona fide capital part of the funds representing
the value of labour and materials
invested in the product or service purchased by the final consumer will be used
as a credit. The credit will cancel a corresponding debt of the buyer in the books of the bank which issued
(created) the loan in the first place. The bank itself wrote the loan into its
books as a credit to itself and a debt to the buyer. Repayment of the loan is
treated as a corresponding credit for the buyer. The buyer’s balance with the
bank, and therefore the bank’s credit with the buyer offset each other .On full
repayment by the buyer they are both set at zero. The two transactions (the
loan and the repayment) are both part of the formal bona-fide productive part
of the economy. Where production takes place outside the area of residence of
the buyer, these money usually leaves the local buyer’s economic system to
return to the one where the goods or services were produced. In this case, even
the bona-fide productive part of transactions represents financial leakage from
the buyer’s area.
The accumulated interest which
(together with related tax loadings) is an important part of the final purchase
price also finds its way back to the ones, usually banks, who “created” the
loans in the first place. The interest represents unproductive, or unearned,
income. For this unproductive part of the purchase price no formal credit entry
(bank) and debit entry (buyer) was made in the bank’s books. It remains in
circulation at the will of the banking system as part of what we call the
paper, or the speculative, economy. This usually happens at national or
international bank levels. This interest is never cancelled from the books of
the banks. It is sometimes, but not
often, fed back into the productive part of the economy in case of economic
depression. Mostly it is held in paper or “liquid” form for world-wide
speculative manoeuvres on currencies or “invested” in real property or in the
share markets. The prices of property
and shares increase and become inflated. People who wish to buy real property
or shares therefore have to pay more for them. To pay for them they often have
to borrow more money, on which more interest has to be paid. The unproductive
speculative cycle continues this way indefinitely….until the whole system
temporarily collapses where the productive part of the economy is no longer
able to support all the interest payments. This is the case with the present
credit crisis.
08.72.05: Debt in developing countries.
In some ways the
poorest people in developing countries have an advantage over the “rich” in
industrialised countries as they often have no personal debt to finance. They
survive on their own work without subsidy and without external interest-bearing
“financing”. Unfortunately, the same cannot always be said of their
governments. These have, under pressure from international (western) lending
organisations, borrowed money against interest for purposes which have rarely,
if ever, led to real, on-going improvement of the quality of life of the
ordinary people.
In the
absence of debt-relief measures, governments of developing countries not only
have to pay their loans back, but also interest on the loans as well. In order
to pay the interest back, they have to take out more loans, in an exponentially
increasing debt-trap spiral. The only alternative governments of developing
countries have is to reduce their expenditure for goods and services. In poor
countries this usually means reducing expenditure on already scarce basic
services such as health and schools and on the maintenance of basic
infrastructures such as roads. In recent times they have actually been forced
to reduce expenditure this way by institutions such as the World Bank and the
International Monetary Fund under their iniquitous Structural Adjustment
Programmes.
08.73 Independent financial
structures set up during project execution.
08.73.01 Money as a catalyst.
Libraries have been written on
the subject of money. For our purposes, money is viewed as being itself without
intrinsic value. The metal used for coins might have some limited value if
recycled in the real productive economy. However the intrinsic value of coins
used for transactions today is an irrelevant part of the total value of the
money supply. Bank notes and coins together account for less than 2% of total
money supply in industrialised economies. Coins account for just a tiny part of
that 2%.
The “money” we usually refer to
acts as a “catalyst” so that a commercial transaction can take place. There are
at least two parties to a transaction. Most typically, these are the seller of
goods or services and the buyer of them. The seller passes his goods and
services to the buyer. Let us assume that the goods and services represent 10
productivity hours of the seller’s life. To pay for them, and for the materials
used, the buyer must himself in turn supply goods and services for a similar
value, usually to a third party. Let us assume for convenience that those goods
and services represent 10 productivity hours of the buyer’s life. The perceived
value of the goods and services supplied by the buyer to third parties is then,
in principle, in balance with the perceived value of the goods and services
bought by him from the seller. The money, which is used as the catalyst for the
transaction, enables the seller to take his time to buy goods and services from
third parties for the same value. The real contract between the buyer and the
seller is, in fact, about the productivity hours needed by the seller to make
or perform the goods and services he sells to the buyer. These are balanced by
the productivity hours needed by the buyer to produce the “credits” necessary
to buy those goods or services. Allowance must always be made for variables
such as working speed and efficiency of the parties and the techniques they
use.
Catalysts other than coins, bank
notes and pieces of paper, such as shells and grain, have in the past been
accepted by members of communities and successfully used as means of
transactions for the same purpose, sometimes for centuries. Any material or
immaterial item or concept can be used as a basic transaction catalyst,
provided the members of the community involved agree to adopt and apply it.
In the Model, the means, or “catalyst,
used is the subjectively perceived value of an hour’s work.
08.73.02 No catalyst, no
transaction
Where no commonly agreed
transaction catalyst is available, trading other than direct barter between any
two parties cannot take place. One alternative to barter trading would be
theft. While commonly practised, theft is not considered a viable alternative
in this work.
08.73.03 Financial leakage.
Where more goods and services
are bought by individuals, families, groups, or communities than they can
produce or sell financial leakage
occurs. Financial leakage due to trading, interest payments and “export” of
savings funds means that the limited amount of formal money that reaches rural
and poor urban areas in less developed countries is usually immediately sucked
out of the area again. The poor areas are left without any means for
transferring goods and services, including goods and services bought and
sold within the area itself.
Economic development there is blocked.
08.73.04 :The Model blocks
financial leakage from project areas
Projects under the Model
reduce financial leakage from given project or local development areas.
Hopefully they eliminate it altogether. They enforce a zero balance in the value
of goods and services imported into and exported from a given economic area.
They set up cooperative interest-free
local financial environments limiting as far as possible financial leakage
caused by interest payments. Finally, they make sure that trading of locally
produced and consumed goods and services can take place under local money LETS
systems set up for the purpose.
As we have seen in section
08.72 interest, and related taxes on the interest, globally accounts for at
least 50% of the cost of a modern western product or service. Its elimination
greatly increases economic buying potential of the users in the local economic
area where a project under the Model is set up. The quicker interest-free
formal money development funds made available to users in the project area are
re-circulated there the greater the advantage the area will have over other
areas where interest continues to be paid.
08.73.05 : A basis for local productivity increase.
Similarly, a stable interest-
and inflation-free local money system for locally-produced and consumed goods
and services enables a limitless series of
neutral or zero-sum economic transactions to take place. The notional
funds in the system are constant. They vary only with the number of people in
the system at any given time. The faster
the local money funds circulate, the greater the productivity of the people in
the project area and the greater the improvement in the local quality of life.
Under the system proposed, the only limiting factor is the amount of work the
various members of the community are able or choose to do. The more, and the
more efficiently, they work, the more credits they will earn and the more goods
and services from others in the area they will be able to buy. The less, and
the less efficiently, they work, the fewer the credits they will have available
for the purchase of locally produced goods and services. Since no-one can work
more than 24 hours a day, the system has inherent, built-in, finite, limits. In
an economic area with 35000 adult members, and assuming an average working day
of 8 hours per person, maximum presumed normal daily productivity is that
produced by 280.000 working hours per day. One member may choose to work more
or less than another. He may work more or less efficiently than another. He may
have a specialisation enabling him to demand more credits per hour’s work than
another. Taking all such variations, which are typical of any open, mature,
fair, slavery-free economic system into account, the greater the number of
transactions which take place every day under the local money LETS systems, the
better the quality of life of the inhabitants will be.
The local money system for
each project area is set up in an early phase of project execution. It operates
independently of the formal money economy. Economic crises in the formal money system therefore
do not influence it.
08.73.06 : Interest built into the cost of necessary imported goods and
services.
While interest on the purchase
of a good of service produced in a given project area can be eliminated
under the Model, the cumulative interest content included in the price of a
good or service imported into a given project area cannot. This is why,
under the Model, only goods or services necessary for the purposes of
productivity increase can be imported into a given project area within the
framework of an integrated development project. The interest-free purchase of
PV for television sets for private consumption does not fall under the terms of the Model. Interest-free purchase of PV
television sets for collective study purposes does, as does, for instance, the
interest-free purchase of a sewing machine to enable a woman to produce
clothes.
Obviously, projects under the
Model will never restrict the freedom of community members to spend their
formal money income the way they choose. If they wish to buy a PV television
set with their own formal currency means, they can always do so. However, they
cannot use project structures to do this. If groups of inhabitants wish to
purchase PV television sets, project managements would usually, on request,
help them set up cooperative interest-free buyers’ group for that purpose. The
Project Management can take advantage of reduced prices through bulk purchases
and pay for the goods in cash. The goods are delivered to members of the
cooperative interest-free at the original landed formal money purchase price.
Project Management costs, if there are any, are charged to the buyers under the
local money system.
08.74
Coverage of on-going management and maintenance costs.
08.74.01 The
local money system created.
In principle, one
local LETS currency system will normally be set up in each project area. The
systems are set up and run by the people themselves.
All adults within a
system are registered as members, but except for goods and services necessary
for the project itself, use of the system is voluntary. Any member may usually
freely choose whether to conduct a given transaction in the local currency
system or within the formal currency system.
Each LETS group
therefore has about 35000 registered adult members. In principle, children
under the age of 16 will not normally be registered as they are not, under the
international convention on the rights of children, allowed to work. However,
requirements vary with cultural and economic contexts, and the age of entry
into any given system will be decided by the people. Children become registered
members of their local LETS systems upon reaching the age nominated in the
local LETS system statutes. Children may, for instance, become members at birth
and their membership remain “dormant” until the prescribed minimum age for
commercial activity is reached.
The reference value
will usually be based on the perceived average value of an hour's work. The
people may often wish to put upper limits and lower limits to the hourly value.
For instance, if the average perceived value is 10 units, a maximum hourly rate
for hard physical work or for specialised professional work may be set at 15
units. A minimum rate, for instance for accompanying the elderly or
baby-sitting, might be set at 7 units.
08.74.02
Local management and maintenance costs under the local money system.
All products
and services produced and consumed in a project area can be brought under the
local money system set up there. All transactions involving locally produced
goods and services for the management and maintenance of project structures
also can be brought under the local Money system. In fact, local goods and
services for the project itself, and therefore for the management and
maintenance of the project structures, must
be brought under the local money system. Their costs, expressed in local money
units can then re-circulate in the project area. The quicker the local money
credits are re-circulated in the project area the better the quality of living
of the people living there.
The only formal money costs
for management and maintenance sustained by the population in the project area
are for spare parts for capital goods for project structures originally
purchased for formal money and for their long term replacement. These costs are covered by the monthly formal money contributions paid by families
into their Cooperative Local Development Fund. Labour and administration costs
for maintenance are covered under the local money systems set up. The local
money units rotate continuously in the local community. In principle, the costs
of maintenance of structures and services expressed in local money units
therefore are not important because they are always recycled locally. For example, the cost of maintaining a
project-level drinking water supply system might need a maintenance cooperative
with ten members. A ten-member team
working 8 hours per day for 300 days per year would represent an annual debit
of 24.000 working hours. This is less than one hour’s work for each of the
35000 adults in the project area. Social insurance aspects protecting the
weakest members of the community are provided.
The
payments made by families into the Cooperative Local Development Fund typically
amount to between Euro 3 and Euro 4 per family of five persons per month. The
project makes a wide range of services available to the beneficiary families.
All of the services are covered by the monthly contribution. Savings on
traditional formal money costs for these services should be higher than the
monthly contribution to the Fund. Consider for example savings in the cost of
drinking water and fire-wood for cooking. Consider the time saved by women for
fetching water and collecting firewood. Consider the social and financial
advantages created by the project and
the introduction of interest-free micro-credits. Consider increased
productivity made possible through better conditions of health.
The
project budget includes complete details on the financial management of the
structures set up. For the complete package of services offered, a monthly
contribution of Euro 0,60 – Euro 0,75
per person per month by 50.000 people produces a total annual contribution
of Euro 360.000 - Euro 450.000. Only
Euro
Since
formal money costs for maintenance and administration are just 20-25% of
project revenues, the relationship between formal money revenues and formal
money costs can only be positive. Compare this with the sustainability problems
faced by traditional international development projects. Projects under the
Model are inherently permanently sustainable. They provide permanent coverage
for long-term replacement of capital goods as well.
08.75 Food and water security in
times of drought and food crisis.
08.75.01 Local autonomy for
drinking water and food supplies.
People in project areas
sustainably grow and store their own food for their own use. To do this the
inhabitants use eco-sanitary systems to fully recycle their urine and composted
faeces, thereby supplying all fertilisers needed for their on-going food
production. Urine is added to grey water (household waste water) to produce
enough liquid to supply (vertical) gardens to produce food for family
requirements at household level, even in times of drought.
Traditionally, in the case of
serious drought for extensive periods of from 2 to 3 years no community in the
world whether in the North or in the South, whether industrialised or under
development would be able to survive without help from outside. In past periods
of human history people may sometimes have been free to migrate to areas which
had remained green and fertile. Demographic pressures in the modern world mean this
is very rarely an option in our times. The only alternative is war.
Project areas under the Model
enjoy a greater resistance to droughts and other crises than most other
communities. However, they cannot offer total guarantee against disaster over
very long periods where drinking water supplies from even deep boreholes are
not available.
Recommended solar pumps for
drinking water supply work at total heads up to
Under conditions of extended
drought for 2-3 years, reserves of harvested rain-water will have run out.
There will be no surface water available, and perhaps no water left in rivers.
The only water available to the inhabitants will be the
The recommended solar pumps
also have the feature that they can be installed at any depth below the level
of the water in the borehole. It is therefore possible to take strong
fluctuations in the water level in the borehole into account to cover
situations of severe water draw-down during the day and of slow borehole
replenishment. However, where night-time replenishment becomes insufficient to
compensate for extra drawings during the day, the quantity of water pumped must
be reduced either by turning the PV arrays out of the sun or by reducing the
number of pumps in operation. As users start receiving less than
Plant nurseries will be set up under the local money
system created by the project. Tens of thousands of fruit and vegetable oil
trees will be planted in the project area. The trees will take several years to
sink deep roots and create relative immunity from drought conditions. Once they
have done this they will form a second source of food in hard times.
08.75.02 Plant nurseries and
food safety
Nurseries, especially for the
cultivation of native trees, including fruit trees, will be formed as
commercial activities under the local money system set up, with financing of
necessary imported items under the interest-free
micro-credit structures. In principle, there is no formal money requirement for
these activities. Should formal money be needed, the activities would qualify
for interest-free micro-credits. For these reasons, there is no specific item
in the project balance sheet for the nurseries.
Fruit, nut, and vegetable oil
trees will be planted along paths between villages and in public places and
placed under the management of needy families. Tens of thousands of trees can
be planted in the project area. Once the trees have had time to sink their
roots and no longer depend on surfrace water for survival, they will represent
a second important source of food in times of extended drought.
08.75.03 Cooperative seed
banks.
The project will set one or
more seed banks up under the local money system. The seed bank(s) will
serve :
a) For the reintroduction and conservation of local and
regional plant sorts threatened with extinction.
b) The preparation and conservation of seeds for local
farmers.
c) The conservation and reintroduction of traditionally
used medicinal plants.
Local farmers can buy seed from
the seed banks without needing any formal money. They can also extend their
debit limits under the local money system in accordance with their seasonal
business cycle.
NEW HORIZONS FOR DEVELOPMENT: SOME SHORT
POWERPOINT PRESENTATIONS
MORE ON SOME BASIC ISSUES COVERED BY THE MODEL:
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