NGO "ANOTHER WAY" (STICHTING BAKENS VERZET), NETHERLANDS, SUSTAINABLE INTEGRATED SELF-FINANCING DEVELOPMENT PROJECTS AND ADVANCED DEVELOPMENT TECHNOLOGIES

In industrialised countries, up to 99% of new money is created by private banks against payment of interest. Our financial system is exponential.. The higher the amount of the collective debt, the more profit the private banks make.

For more information consult:

The interest-bearing debt system and its economic impacts. (Revised edition).

The Savings Myth. (Revised edition)

The DNA of the debt-based economy.

Unified text of the manifesto of the debt-based economy.

Suppose you have no money. Your bank lends you € 100 for one year at 10% interest, or €10 interest per year.

To carry out this operation, your bank creates a capital sum of € 100 “from nothing” in its books. On one side it creates a credit to itself of € 100 . On the other side it creates a deposit in your favour of € 100. That deposit is a debt for the bank. As you pay your debt back, the deposit in your favour is reduced. The bank’s capital account credit is reduced by the same amount. Once you have paid your debt of € 100 back, you have no debt with the bank, the bank’s capital account credit has also been reduced to zero.

At that point you have repaid your capital debt of € 100. However, you still have to settle the agreed interest payment of €10, which was never a part of the formal book debt. How are you going to do that ? Often you will have to make another loan, this time for € 110 to be able to renew your debt and to pay the interest on the previous loan. At the end of the second year, you will have repaid € 110, but you will still have interest to repay. This time the interest will be € 11. The system works exponentially. The amount of the interest ( the first year € 10, the second year € 11, together € 21) is never cancelled from the system. It continues to increase «indefinitely »......

2. ONE FACE OF THE COIN

Accumulated interest.

In industrialised countries today practically all new finances are issued by private banks against interest. Each link in the industrial production chain is subject to finance against interest. That means that at each step along the chain, the price demanded by the seller must include a margin to cover the interest he has to pay on his loans. The margins covering interest payments increase exponentially along the production chain. At each step interest is paid on capital plus interest already accumulated.

The final touch.

As just stated, an important part of the price of “modern” industrial products covers interest accumulated during their production. All that interest is paid by the final buyer (consumer). To pay that price, the buyer often has to borrow money against interest from a bank. In case of medium- and long-term loans, the interest paid by the end user over time may equal an important part of the original purchase price, much of which already comprised accumulative interest margins.

What happens to the interest?

Interest accumulated by creditors (bankers and, especially, wealthy people with interest-bearing bank deposits) in the absence of negative rates of interest on loans, that is, where interest is lower than 0%, is by definition never cancelled. Interest is not “earned” through productive work. It is profit on money deposits. Over time, especially during the past 20 years, an enormous mass of this “unearned income” has formed. This money mass is called «the speculative economy » or «the paper economy ». It is «invested » mostly in speculation on variable currency exchange rates, on land and buildings, and on shares and financial instruments, most of which have nothing to do with the productive economy.

Migration of control over the real value added.

In paragraph 02 Some factors linked with poverty of Part 2 : In depth analysis of the causes of poverty, the adventures of a can of peas are analysed.. Originally, commercial control over the peas was local. It usually lay by the farmer himself. When peas are canned, where does the control at the end of the productive chain lie? Which levels of control have the peas passed through ?

Lack of means of transfer at local level.

Consider your replies to the questions above. How much money is left at local level to conduct transactions for the sale and purchase of goods and services?

Suppose you are a commercial operator in one of the least industrialised countries. You produce something and create value added. This value added forms a part of the real (bona fide) productive economy. You put the money you have earned into a bank account. Your bank uses this money, your money, for commercial activities. According to present banking rules, the bank can officially lend up to 12,5 times the value of your deposit. In practice, many banking operations in recent times have been off-record, and the bank’s leverage, as it is called, may not have exceeded 1%. In that case it could create loans for up to 100 times the amount of your deposit. Where will that money be invested? What will it be invested in?

Necessary imported goods and services.

You may agree that the importation of certain goods and services into your chosen project area in a developing country may be justifiable to increase local productivity there. Which goods and services ? Do you agree that that importation should be kept to minimum indispensable levels? Why?

Monopolistic control – monocultures.

Control over the value added of the can of peas at the end of its “productive” cycle is a long way away from the farmer who grew the peas. Unearned accumulative interest finds its way into the pockets of an elite of “investors”. Local money deposited in bank accounts in developing countries is rarely invested at local level. That money, including the savings of the poor, is used elsewhere, maybe to re-build the twin towers in New York..

Contributions paid by emigrant workers to their families in their country of origin form an important part of the commercial budgets of poor countries. How do you think these payments are spent? Which part of the contributions is spent to finance local productive activities? For how long?

1. Opinion.

Who have financial capacity to purchase lands, structures, infrastructures in poor countries? Why would they want to purchase the lands? [ Refer to Cotula L. et al, Land grab or development opportunity? - Agricultural investment and agricultural land deals in Africa, FAO, IIED and IFAD, London/Rome, 2009].See also Vidal J. How food and water are driving a 21^st century African land grab (The Observer, London, Sunday 7 March, 2010).

On the human rights aspects of monocultures, see Suárez S., Emanueli M, Monocultures and human rights, Food First Information and Action Network (FIAN), Heidelberg, and Habitat International Coalition Regional Office Latin America, Mexico City, June 2009.o:p>

3.THE OTHER FACE OF THE COIN.

Subsidies.

Subsidies are an «indispensable » part of most modern industrial economies.

They are defined for the purposes of the World Trade Organisation (WTO) in the Agreement on Subsidies and Countervailing Measures which is annexed to the Marrakech Agreement instituting the World Trade Organisation signed on Marrakech, Morocco on 15th April, 1994. Types of subsidy listed under art. 1.1 of the agreement include subsidies specific to an enterprise, industry or group of industries involving : direct or indirect transfer of funds or liabilities, revenues that are foregone or not collected, provision of goods or services below market value, and provision of income or price support.

See the animated film The Story of Broke, by the Story of Stuff Project, , Berkeley, 08 November, 2011.

Fossil fuel subsidies.

On pages 13 and 14 of the report Fossil Fuels – At What Price ? by Sawyer D and Stiebert S, for the International Institute for Sustainable Development (IISD), Global Subsidies Initiative, Geneva, November 2010, 29 subsidy groups for just the Canadian Oil Industry (excluding the coal and gas sectors !) are listed showing benefits amounting to $Can 2.800.000.000 in 2008, without taking any of the consequential social costs linked to sector activities into account. By way of comparison, the entire Canadian contribution to international development aid in 2008 was US$ 4.725.000.000 (Source OECD Statistics, 2009). In a similar IISD report for Norway dated 23 January 2012, six oil industry subsidies were found to total US$ 4 billion in 2009.

It has proved difficult to get accurate information, often to get any useful information at all, on government subsidies to the fossil fuel (gas, coal, oil) industries. (Ask Your Government Survey, Global Subsidies Initiative, Geneva, April, 2011). The same organisation, in its August 2011 policy brief A High Impact Initiative for Rio + 20 : A pledge to phase out fossil-fuel subsidies states :

“Global fossil-fuel consumption subsidies amounted to US$ 312 billion in 2009 and US$ 558 billion in 2008…. Global producer subsidies are estimated by GSI to be US$ 100 billion annually.”

The figure of US$ 312 billion for fuel consumption subsidies (excluding producer subsidies promoting domestic exploration, extraction or refining) is taken from the International Energy Agency (IEA) ,Paris, report World Energy Outlook 2010 (Executive summary).

In their policy note No time to waste : The Urgent need for transparency in fossil fuel subsidies, Oil Change International, Washington, May, 2012, set fossil fuel subsidies at US$ 1 trillion. Indirect and environmental costs have to added to that. Fossil fuel related external costs have been estimated at US$ 120 billion for the year 2005 for the United States alone. (Hidden Costs of Energy : Unpriced Consequences of Energy Consumption and Use, National Academy of Sciences, Washington, 2010, ISBN 978-0-309-14641-8, p.21)

Indonesia spent US$ 18.1 billion subsidising fuel products in 2011, of which US$ 8.4 billion on gasoline (petrol) subsidies. The total of US$ 18.1 billion was 20% of the state budget and more than the country spent on defence, education, health and social security combined. (Braithwaite, D. et al, Indonesia’s fuel subsidies : Action plan for reform, International Institute for Sustainable Development (IISD), Research Report, Winnipeg, March 2012.)

For the enormous subsidies enjoyed by multinational coal-mining companies dumping exporting publicly-owned United States coal, the CO2 emission and the social costs linked with those activities which have also retarded the adoption of renewable energies refer to Aubry, T., Leasing Coal, Fueling Climate Change : How the federal coal leasing program undermines President Obama’s Climate Plan, Greenpeace USA, Washington, 2014.

In the United States the fossil-fuel industry may capture even more subsidies at sub-national levels than it does at national level.

“Individual subsidies [to fossil fuels at sub-national level] often exceed $100 million per year and in the aggregate run into the many billions of dollars. Oil, natural gas, and coal industries have proven highly successful in accessing more general subsidies to capital, financing, job creation, and infrastructure support, adding this funding to a wide array of fossil fuel-specific support. While some of the items that show up in state tax expenditure budgets may have a fiscal rationale (avoiding double taxation of the same input, for example) many do not. Instead, the policies reduce infrastructure funding; introduce competitive impediments to competing technologies; subsidize fuels that may be environmentally damaging; and shift significant costs related to infrastructure, land management, and reclamation onto taxpayers.” (Koplow D., Lin C, A Review of Fossil Fuel Subsidies in Colorado, Kentucky,, Louisiana, Oklahoma, and Wyoming, Earth Track, Cambridge (MA), December 2012, executive summary p. 9.)

For the role of subsidies in bio-fuels see Gerasimchuk, I. et al, State of Play of Bio-fuel Subsidies: Are policies ready to shift ?, The International Institute for Sustainable Development (IISD), Winnipeg, June 2012. At page 19, the authors write :

“Launch of biofuel production activities in such areas [ poor rural livelihoods areas in developing countries] usually means that those local food markets become part of the global trade system, which introduces food price volatility for which local communities are not prepared.”

Failure by oil multinationals to properly clean up the serious pollution they cause all over the world is well documented. The corresponding social costs are passed on to the taxpayer. Often, the pollution is not cleaned up at all as is the case with Shell in Ogoniland in Nigeria. See Amnesty International and others, No Progress : An Evaluation of the Implementation of UNEP’s Environmental Assessment of Ogoniland, Three Years On, London, July 2014.

On top of all the above subsidies, there those for fossil-fuel exploration as well.

“Governments across the G20 countries are estimated to be spending $88 billion every year subsidising exploration for fossil fuels. Their exploration subsidies marry bad economics with potentially disastrous consequences for climate change. In effect, governments are propping up the development of oil, gas and coal reserves that cannot be exploited if the world is to avoid dangerous climate change…..These are:

investment by state-owned enterprises, which represents subsidies of around $49 billion; national subsidies delivered through direct spending and tax breaks that account for another $23 billion and public finance from banks and financial institutions that amounts to another $16 billion per year. ” (Bast, E. and others, The fossil fuel bailout : G20 subsidies for oil, gas, and coal exploration, Overseas Development Institute (ODI) with Oil Change International, London, November 2014. (Executive summary)).

For a detailed item by item analysis of subsidies applied to the nuclear power industry see Appendix A to the report by Koplow D., Nuclear Power : Still not Viable without Subsidies, Union of Concerned Scientists, Cambridge (Massachusetts), February, 2011, pp. 129-132. “And once again, [ as in the past] these subsidies to new reactors—whether publicly or privately owned—could end up exceeding the value of the power produced (4.2 to 11.4 ¢/kWh, or 70 to 200 percent of the projected value of the power).” (p. 3)

Food subsidies.

Slide 03 Financial leakage : interest and subsidies mentions the unimaginable subsidies paid to farmers in the rich OECD countries.

“Dairy farming [in Europe] is above all a cynical dance on the altar of the subsidy-economy.” M.Thieme, Grote melkveebedrijven zijn ten dode opgeschreven [ Large dairy companies are destined to die out], De Volkskrant, Opinie & Debat, Amsterdam, 10 November, 2014. (Translation Stichting Bakens Verzet).

“Annual support [for agriculture in industrialised countries] spiralled to over $250 bn. a year, – 79 times agricultural aid – making it impossible for farmers in poor countries to compete. Confronted with these odds, many developing country governments chose not to invest in agriculture, further compounding the trend. The costs of rich country support are borne not only by poor farmers in the developing world, but also by people in rich countries, who pay twice – first through higher tax bills, and second through higher food prices. It is estimated that in 2009, the EU’s Common Agricultural Policy (CAP) added €79.5 bn. to tax bills and another €36.2 bn. to food bills. According to one calculation, it costs a typical European family of four almost €1,000 a year. The real irony is that the CAP purports to help Europe’s small farmers, but it is the rich few that benefit the most, with about 80 per cent of direct income support going into the pockets of the wealthiest 20 per cent – mainly big landowners and agribusiness companies. ” (Bailey R., Growing a Better Future – Food Justice in a Resource-Constrained World, Oxfam International, London, July 2011.)

“We subsidize food corporations through our taxes, which pay for public works like transportation infrastructure for long-distance shipping (highways, airports, and railroads), communication infrastructure (satellites, television, radio and internet), energy infrastructure (coal plants and nuclear power stations), and research and development (like government-funded crop research). Tax dollars also fund the government subsidies that keep certain crop prices low, allowing corporations to create their processed foods so cheaply…..” (Field, T. and Bell, B., The True Cost of Industrialized Food, Other Worlds Are Possible, New Orleans, 24 March, 2013). The same article describes (the) : “profound hidden costs: polluted water, air, and soil; deforestation; acid rain; species extinction; and climate change. The corporate food system wreaks countless ecological harms … [including]….pesticides….monocropping.” The authors conclude that “If prices reflected the oil that powers the jet to bring a banana thousands of miles, together with the air pollution that results, the workers’ healthcare costs after handling pesticides, and the future loss of soil health due to monocropping, this fruit would certainly be a luxury item in the North rather than part of an average American breakfast.”

Taxpayer subsidies available in the United States for junk food ( a lot) compared with those for fresh produce (few) are discussed in : Russo, M and Smith, D, Apples to Twinkies 2013 : Comparing Taxpayer Subsidies for Fresh Produce and Junk Food, United States Public Interest Research Group ( U.S. PIRG), Boston, July, 2013.

For more details on food subsidies, see : (Colombo C., Onorati, I., Food. Riots and Rights, International Institute for Environment and Development (IIED), London, 2013.

The average American family pays US$ 6,000 a year in subsidies to big business. That's over and above the payments they make to the big companies for energy and food and housing and health care and all technical devices. It's $6,000 that no family would have to pay in a competitive but well-regulated free-market economy. (Buchheit, P. Add it up : The Average American Family Pays $6,000 a Year in Subsidies to Big Business, Commons Dreams, Portland (Maine), 23 September, 2013.) The $6,000 figure is an average, which means that low-income families are paying less. But it also means that families (households) making over $72,000are paying than $6,000 to the corporations. Each of the seven items added up is, furthermore, probably underestimated. In any case, the author concludes : “Overall, American families are paying an annual $6,000 subsidy to corporations that have doubled their profits and cut their taxes in half in ten years while in the U.S. and adding almost as many jobs overseas.”

Bruvoll A., et al, Reforming environmentally harmful subsidies : How to counteract distributional inputs, Nordic Council of Ministers (Norden), Copenhagen, 15 September 2011, ISBN 978-92-893-2253-9. The report covers mainly energy subsidies. Water and fishing subsidies are also handled.

Our analysis suggests that global fisheries subsidies for 2003 are between US$ 25 and 29 billion." Sumaila, U.R. et al, A bottom-up re-estimation of global fisheries subsidies, Journal of Bioeconomics, Vol, 12, Issue 3, Springer Verlag, Berlin, October 210, pp. 201-225, accessed through the website of the University of British Columbia, 01 November 2012, abstract, p. 201.)

The level of absurdity reached in fisheries subsidies is shown in the report The Economics of Japanese Whaling : A Collapsing Industry Burdens Taxpayers, International Fund for Animal Welfare (IFAW), Yarmouth Port, February, 2013. Japanese whaling industry “research” received some US$ 400 million in state subsidies over 25 years, of which US$ 45 million in 2011 and US$ 22 million (taken from the tsunami relief fund ) in 2011, while just a quarter of the whale meat caught was consumed (by just 1% of the population) and the rest stockpiled. The value of whale meat captured by Norway (with Iceland the other countries still illegally hunting whales) was just a little more than 25% of the amount of state subsidies received by the industry. Since the whale-meat is not consumed, it is used for pet food.

McIntyre R., et al, in their report Corporate Taxpayers & Corporate Tax Dodgers, (Citizens for Tax Justice with the Institute on Taxation and Economic Policy, Washington, November 2011) provide details on the tax behaviour of 280 major American corporations with pre-tax profits over the three years 2008-2010 of US$ 1.4 trillion. They received tax subsidies in that period for nearly US$ 223 billion, which is the difference between the 35% tax rate they should have paid and what they actually paid. Over the period 2008-2010, 78 corporations with profits amounting to US$ 158 billion received tax “credits” for US$ 22 billion, that is, the collective taxes for that group were -14 %. The biggest group subsidies were for large-scale retail and wholesale companies (e.g. Wal-Mart and Coca Cola). The second largest group was the financial sector (e.g. Wells Fargo and Goldman Sachs). The third largest group was oil (e.g. Exxon, American Electric and Duke Energy), the fourth telecommunications (e.g. AT&T, Verizon and Hewlett Packard), the fifth the (energy) utilities. Other well known companies avoiding tax payments in one or more of the years 2008-2010 included General Electric, Boeing, and Merck. >

2. Opinion.

What do you think about subsidisation of industrial activities?

3. Opinion.

What is the price of 280 gr. of peas bought directly from the farmer? What is the price of a 400 gr. can of peas (280 gr net weight of peas) at the end of its industrial voyage ? Try to explain how the price of the can of peas can often be lower than the price asked by the original grower for the fresh product. Who pays the subsidies?

4. Opinion.

Farmers and industrialists in rich countries receive many subsidies. Which formal authorities given them these subsidies? How are these authorities financed? The beneficiaries of the subsidies are private individuals or companies. Subsidy funds are collective and derive from tax payments. Why does this transfer of public funds to private interests take place ?

4. MULTINATIONALS.

Following the State of New York legislation “An Act Relative to Incorporations for Manufacturing Purposes”, 22 March 1811, the first national law on the limitation of investors’ liability was The Limited Liability Act 1855 (18&19 Vict. C.133) in England.

We have gradually passed from a system where, in principle, before 1811 in New York and before 1855 in England a company was required to act under Parliamentary control in the public interest with personal liability of managers and shareholders to a system where companies act exclusively in the interests of their shareholders and with a (very) limited personal liability of management. The bonus culture now rewards personnel and management as a function of the amount of shareholders’ profit they generate. This represents in reality the passage from a phase of development in the common interest to one based on the interest of the individual “investor”.

Financial deregulation began in 1971 when President Nixon of the United States abolished the coupling of the $US to gold (known as the Gold Standard) and was perfected during the 1980s with the neo-liberal policies of Mrs Thatcher in England and President Reagan in the United States. It has led us to the situation where large trans-national corporations acting in the private interests of a small elite have a budget which is larger than that of most of the world’s nations.

5. Research.

Make a list of the multinationals which are most active in your country.

◄Block 1 : Poverty and quality of life.

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