The Builders’ Manifesto

Dear World Leaders,

This relationship isn’t working out. Its time for us to explore other government opportunities. We’ve tried to make it work. But it’s not us — it’s you (really).

I’ve been thinking a lot about leadership lately. Specifically: why, today, when a wave of crises is sweeping the globe, does leadership seem to be almost totally absent?

The answer I’ve come to is, ironically enough, leadership itself. I’d like to advance a hypothesis: 20th century leadership is what’s stopping 21st century prosperity.

Let’s face it. The very word “leader” feels like a relic of 20th century thinking. And it just might be that the case that instead of aspiring to be (or train) more “leaders,” we should be seeking to reboot leadership. Why? When we examine the economics of leadership from a 21st century standpoint, we see that:

Leadership was built for 20th century economics. It’s a myth that leadership is a set of timeless skills. Is it? Abraham Zaleznik famously defined leadership as “using power to influence the thoughts and actions of other people.” Influence is the key word. The textbook skills of the “leader” — persuasion, delegation, coalition — aren’t universally applicable. Rather, they fit a very specific context best: the giant, evil, industrial-era organization.

Leaders don’t lead. How did this particular skillset emerge? Influence counts because the vast, Kafkaesque bureaucracies that managed 20th century prosperity, created, in turn, the need for “leaders”: people who could navigate the endlessly twisting politics at the heart of such organizations, and so ensure their survival. But leaders don’t create great organizations — the organization creates the leader. 20th century economics created a canonical model of organization — and “leadership” was built to fit it.

Leadership can be a bad. Organizations are just tools — and leaders are just more proficient users. When would a tool need a more proficient user — a leader — most? When the opportunity cost is greatest: exactly when that tool is about to be outcompeted by a better tool. Leaders are created when organizations are threatened to ensure organizational survival. But sometimes organizational death is the optimal outcome. That’s exactly what we see in the real world: leaders unleashing bailout after bailout, horse-trade after horse-trade, to ensure the survival of yesterday’s malfunctioning machines. The economics suggest that 20th century leadership lets dysfunctional organizations thrive at the expense of prosperity.

Here’s the problem in a nutshell. What leaders “lead” are yesterday’s organizations. But yesterday’s organizations — from carmakers, to investment banks, to the healthcare system, to the energy industry, to the Senate itself — are broken. Today’s biggest human challenge isn’t leading broken organizations slightly better. It’s building better organizations in the first place. It isn’t about leadership: it’s about “buildership”, or what I often refer to as Constructivism.

Leadership is the art of becoming, well, a leader. Constructivism, in contrast, is the art of becoming a builder — of new institutions. Like artistic Constructivism rejected “art for art’s sake,” so economic Constructivism rejects leadership for the organization’s sake — instead of for society’s.

Builders forge better building blocks to construct economies, polities, and societies. They’re the true prime movers, the fundamental causes of prosperity. They build the institutions that create new kinds of leaders — as well as managers, workers, and customers.

Who’s a Builder — and who’s just a leader? Here are some Builders contrasted with mere leaders: (link to full article)

See this the intro to the Chairman’s summary below..

THE WAYS OUT OF THE CRISIS AND
THE BUILDING OF A MORE COHESIVE WORLD

Chair’s Summary
Jean-Paul Fitoussi and Joseph Stiglitz

This year the G’s are meeting at a critical moment in history, at least
economic and social history. They will confront the gravest economic and
social crisis in almost 80 years. To paraphrase Keynes, the destiny of the
world is in the hands of the members of the G’s. They could act in such a way
that would allow us to get out of this situation, creating a future where
growth is more sustainable, friendlier to the environment, and where its fruits
would be distributed in a more equitable way, both within and among
countries. Otherwise, they will bear an enormous responsibility before
history, that of not having done the duty which has been delegated to them by
their people, despite having been in exceptional circumstances that gave
them much more room for manoeuvre than they would have had in ‘normal’
times.

That is why a group of ‘experts’, with no commitments other that of being
citizens of the world, decided to meet to reflect on what could be done,
hoping that from their reflection some useful recommendations to the
powerful of this world would emerge. This group, which christened itself the
Shadow GN, has been constituted under the leadership of Joseph Stiglitz and
Jean-Paul Fitoussi, thanks to a partnership between Luiss and Columbia
University.

…I think there are three main positions in this debate:

• A1: The banking system is broken. Banks need to get rid of their toxic assets and they need more capital. The solution is for the government to buy their toxic assets at a high price (or insure those assets) and to give them lots of cheap capital.
• A2: The banking system is broken. Banks need to get rid of their toxic assets and they need more capital. The solution is for the government to take them over, transfer off their toxic assets, recapitalize them, and (when possible) sell them back into the private sector.
• B: The banking system is basically sound and will recover if we give it some time. In the meantime, the government should give the banks just enough money and intervene as little as possible to keep them afloat until asset prices recover…. Link to article

Introduction

Systemic Fiscal Reform is a radical programme for the reform of taxation, subsidies and welfare.  It is designed to stabilise economies, improve quality of life, and facilitates the transition to full environmental sustainability.

The principles of Systemic Fiscal Reform are widely applicable.  Not only can they be applied to well established globally-scoped economies, such as those of the United States, Canada and the members of the European Union, but they can also be used by more bespoke or evolving economies such as Venezuela and South Africa.

The reforms mainly comprise the abolition of cumbersome and wasteful tax, welfare and subsidy systems, together with abolishing the bureaucracies which implement them.

In their place, a simple integrated tax and welfare system is introduced. This includes a number of existing taxes which have been found to operate effectively where they have been tried.

The wasteful burden of personal and corporate tax returns is generally eliminated.

Systemic Fiscal Reform Policy

No Income or Corporation Taxes – Replaced by a Land Value Tax

Income Tax and Corporation Tax are to be abolished (along with all payroll taxes, National Insurance payments and Gains taxes). In their place a Land Value Tax is levied on landowners, equal to the value of their land, but excluding any buildings, crops or other improvements. The land values are calculated using a standard procedure applied by local assessors. Landowners generally pay the annual fee in regular monthly instalments to their local government.

No Value Added or Sales Taxes – Replaced by a Carbon Tax

VAT and sales taxes are to be abolished. In their place, a uniform Carbon Tax is levied on all extraction and importation of fossil fuels. This Carbon Tax is in proportion to the pollution and climate change potential of the fuel when used in the normal way.

No Estate (Inheritance), Gift, Transfer or Stamp Taxes

Estate taxes such as Inheritance Tax and Accession Taxes are to be abolished. All Stamp Duties are to be abolished, including those on share and real-estate transfers.

No means-tested welfare benefits – Replaced by a Citizens’ Income

Welfare benefits based on poverty and joblessness tests are to be abolished. Any welfare payments based on disability are retained.

Universal Welfare: A Citizens’ Income

All resident citizens and lawful residents are entitled to claim a Universal Welfare payment called the Citizens’ Income. Such payment is made monthly by the local government, and may be directly used by home owners and their families to offset or cancel out their Land Value Tax obligations. Citizens’ Incomes for those in prison and state-funded care are retained by the state to help pay the costs incurred. Those in state-funded education will have an amount deducted from their Citizens’ Incomes to help pay for the education costs.

Other taxes

Most other taxes, such as “Sin Taxes” (alcohol, tobacco and gambling), road and fuel duties can be retained.  These remain operated on the principle that they reflect the differing effects on society and public costs which have to be paid for through health and other spending.  Fuel duty should include aviation and shipping, rather than retaining the existing subsidy those transport modes receive.

For resources, a  Landfill Tax is retained on the landfill disposal of refuse, reflecting the scarcity of suitable sites and the environmental harm.

An increased Insurance Premium Tax is levied on mandatory vehicle and other liability insurance to help pay for the police, fire protection, legal and social costs related to the insured activity.  This replaces the fire and police component of Council Tax.

The TV license is abolished, with Public Service Broadcasting paid for through general taxation or a radio spectrum charge on commercial broadcasters.

Subsidies abolished

Many tax-based subsidies cease to exist with the abolition of Sales, Value, Income and Corporation taxes. For example, tax exemptions on aviation, fuel, public transport, education and food simply disappear. Business subsidies such as investment relief, tax rebates, pension relief also disappear.

Explicit subsidies including those on energy and carbon emissions trading schemes should be abolished. Banking subsidies are withdrawn by removing banks’ rights to create new money in the economy (seignorage) in exchange for increases in debt.

Effects of Systemic Fiscal Reform

General economic effects

Widespread effects are certain, because Systemic Fiscal Reform addresses core economic issues, such as the costs and benefits of business activity, land ownership and employment.

Effects on housing, homes and land

The Land Value Tax has far reaching and revolutionary effects: property speculation ends; new and second hand houses become a comparable market to second hand cars reflecting their size, efficiency, condition and quality; urban land values fall, encouraging regeneration of poor and derelict land and housing; property price inflation becomes similar to that of other goods; housing becomes and remains affordable, contributing to a drastic shift in social mobility.

Effect on poverty

The universal welfare payment virtually eliminates poverty. All in society benefit from the “social dividend” created by a thriving society and effective government. The poverty trap becomes a thing of the past, with financial barriers to employment removed. Elderly home owners with insufficient income to pay their Land Value Tax will be able to “roll up” payments secured on their house value, while others will choose to move house.

Universal welfare is as significant a step forward for society as universal healthcare or universal education has been in most developed nations.

Effect on oil prices

By imposing a rising Carbon Tax on imports and production of oil, coal and natural gas, demand will be progressively reduced, improving the balance of payments (trade deficit) considerably. Suppliers will be forced to accept lower prices or reduce output (or both). If this policy is implemented by the major energy consuming nations, a substantial fall in international fuel prices will occur.  A Carbon Tax is particularly attractive to nations such as the US or the UK with rising dependence on fuel imports.

Effect on politics

At present, government spending on local amenities brings direct windfall benefits to owners of nearby homes and land. The spending is mainly taken from workers’ taxes. This misalignment of taxpayer and beneficiary is at the heart of many political conflicts and failures. Systemic Fiscal Reform ensures the beneficiary of local spending (i.e. landowner) is the taxpayer, eliminating this fundamental conflict. Any excess benefit over spending is returned through the Citizen’s Income.

Conclusion

Systemic Fiscal Reform answers the challenges of today and of the future. It resets the creeping state control and interest in every aspect of household and business life while ensuring an efficient, equitable, stable and free society.

4th March 2009

There is growing faith in the ‘wisdom of crowds’ in both its sophisticated ‘swarm’ version in business applications such as Amazon and Google, and its simplistic translation into political ‘participation’.  Participation is the uber goal of the community development movement; President Obama is a practitioner.  The force is strong too in the Irish environmental movement, locally and nationally.  Social Partnership is a highly evolved expression of the participation gene.  After all, it is only common sense that ‘participation’ – and its big brother ‘consensus’- properly implemented, will deliver the best decisions and action to benefit the irish people.

Or will it?  Could it be that fervent desire for consensus is what is retarding progress in facing up to this crisis; that participative decision-making that values everybody’s  opinion equally, where every idea is given equal weight could strand us in limbo, a nowhere place?

Could it be that the salt of leadership, or the spice of a grand narrative (much derided in the new dispensation) is required to lift the consensus hodge-podge into meaningful action.  Kevin Kelly reports on an interesting study.

…In 1990 about 5,000 attendees at a computer graphics conference were asked to operate a computer flight simulator devised by Loren Carpenter. Each participant was connected into a network via a virtual joy stick. Each of the 5,000 copilots could move the plane’s up/down, left/right controls as they saw fit, but the equipment was rigged so that the jet responded to the average decisions of the swarm of 5,000 participants. The flight took place in a large auditorium, so there was lateral communication (shouting) among the 5,000 copilots as they attempted to steer the plane. Remarkably, 5,000 novices were able to land a jet with almost no direction or coordination from above. One came away, as I did, convinced of the remarkable power of distributed, decentralized, autonomous, dumb control.

About five years after the first show (this is the update), Carpenter returned to the same conference with an improved set of simulations, better audience input controls, and greater expectations. This time, instead of flying a jet, the challenge was to steer a submarine through a 3D under-sea world to capture some sea monster eggs. The same audience now had more choices, more dimensions, and more controls. The sub could go up/down, forward/back, open claws, close claws, and so on, with far more liberty than the jet had. When the audience first took command of the submarine, nothing happened. Audience members wiggled this control and that, shouted and counter-shouted instructions to one another, but nothing moved. Each person’s instructions were being canceled by another person’s orders. There was no cohesion. The sub didn’t budge.

Finally Loren Carpenter’s voice boomed from a loudspeaker in the back of the room. “Why don’t you guys go to the right?” he hollered. Click! Instantly the sub zipped of to the right. With emergent coordination the audience adjusted the details of sailing and smoothly set off in search of sea monster eggs.

Loren Carpenter’s voice was the voice of leadership. His short message carried only a few bits of information, but that tiniest speck of top-down control was enough to unleash the swarm below. He didn’t steer the sub. The audience of 5,000 novice cocaptains did that very complicated maneuvering, magically and mysteriously. All Loren did was unlock the swarm’s paralysis with a vision of where to aim. The swarm again figured out how to get there in the same marvelous way that they had figured out how to land the jet five years earlier.  Link to Kevin Kelly’s website.

…The most common question that comes up time and time again after the initial questions is ’should we bailout the banks and companies or let them go bust?’ This is my favourite question that seems to divide the nation. The question is much more about identity then anything else. It is loaded with many previous thoughts and philosophies and is never as straight forward as the question first appears – the free market v. the welfare state and government intervention, the left wing v. the right wing, classical economics v. Keynesian economics, the conservative v. the labour, Capitalism v. socialism, Jim Rogers v. Gordon Brown, Ron Paul v. Barack Obama. Bail them out or let them go bust. My response – neither will work.” Link to article

1st published February 2nd

…..So here it is – to obtain the additional revenue our economy needs to make up for its lack of purchasing power, and upon which the economy is completely reliant, the government sells IOUs which increase in value with time. And when the time comes for them to be cashed, the government sells even more IOUs and uses this money to pay off the old ones. The government operates in an absurd system of debt-stocks which constitute a meaningless and utterly un-repayable debt to the future. This provides the government with a small amount of money now on the condition that they repay a much larger sum in ten or twenty year’s time. The government then proceeds to flood the market with these meaningless promises to pay, which can only be redeemed by the issue of yet more promises. The government draws on money already created as a debt, and relied upon for future payments on insurance claims and the pensions of the elderly, and allows banks and other lending institutions to purchase their bonds, conceding to these private institutions the right and power to create additional money, which is then loaned to the government at interest. Meanwhile, we must all work harder and harder, and the economy must become ever more productive and efficient to try to compete with other nations operating under the same lunatic structures, whilst the national debt inflates like a balloon…. Link to full article

From EndTheRecession.org

February 20th, 2009

The following may seem to be a brain teaser, but if it clicks in your mind, you will suddenly have a very different perspective on the world, and in particular, the current crisis. Enjoy.

There is one need in society that will always exist. No matter how much certain individuals believed that they couldn’t live without their Porsche, they will find that there is only one thing that really matters. That one thing is food.

Society is held together on the basis of one commonly held assumption – that when you walk into a certain designated buildings and hand over a piece of delicately printed paper, you will be given food in exchange.

This might seem a little like stating the obvious, but this highlights the absurdity of our current position.

When all is said and done, we know that the computers, cars, designer clothes, foreign holidays and other trappings of luxury mean very little in a near survival situation. Anyone who has spent any time in a near-death scenario will understand what little value you really place on such physical things. What really matters to us, in moments of clarity, is that our loved ones and ourselves are fed and safe from harm.

Now, we’ve come a long way over the last few hundred years. We know that we can, without a doubt, organise ourselves in such a way that everyone in our society is provided for, with at least a shelter and adequate food to stay alive.

In fact, we can do much better than that – we can provide everyone with food, clothing, heating, internet, telecommunications, mobile phones, public transport – the list goes on. We have made enough progress in technology and in the art of organising ourselves that we can ensure that everyone is provided for.

Except, that is, in a recession.

Take money out of the equation

Forget about money for a short while. Doing so will help you see the absurdity of the situation we are in.

A few hundred years ago, you would most likely spend your time working on the farm, producing the very food that you eat.

In modern times, you work away from the fields, producing various things that people want. In return, you are given tokens – gold coins, printed paper sheets, or more commonly now, numbers in a database. You take this coin, paper or numbers and exchange them for food.

You work, you contribute to society, and in return you are given tokens that you can redeem anywhere in society.

We can see that there is a voucher system in place. In the UK, the vouchers are called pounds. In the US, they are called dollars.

Now imagine, one day, somebody realises that we have all been using more vouchers than we have been earning. You get your vouchers in return for contributing to society (the genuine value you contribute is an issue for another debate, but let’s just look at the monetary value). If you are using more vouchers than you have been earning, then you are taking more than you give. Naturally, someone else, somewhere, must be giving more than they take. The real, physical economy can only be a zero-sum game.

Would it be possible that everyone was taking more than they give? Everyone was simultaneously eating more food than they produce?

Of course not – the food would run out within days.

The absurdity of the current situation…

So when we find ourselves in a situation where the vast majority of people are in debt, and the total of their debt far exceeds the value of everyone else’s savings, who exactly is under-consuming?

How is it possible that we are all taking more than we are giving?

It isn’t, neither mathematically nor logically.

If you understand this, the complete absurdity – and the complete illegitimacy – of the current monetary system should become apparent.

After all, how can we all simultaneously be ‘borrowing from the future’ when everything that we have borrowed to buy exists NOW, in the present?

What would happen if we were to cancel all our debts right now? Literally wipe the slate clean, forget about money completely. (This is not necessarily a proposal – just a mental riddle).

What are we left with?

If we removed money from the equation, what would we be left with?

We would be left with everything that we currently have.

We would be left with an ample supply of housing, machinery, office space, computers, food, and people with time on their hands.

In other words, we have everything we need to continue living the way we have been living for the last few years.

Everything we consumed in that period was created in that period – not in the future – so why do we need to ‘pay for it’ in the future? The idea of ‘living beyond our means’ works applies to some individuals, but can not apply to everyone collectively. It’s true that a 20 year old may have spent more on credit than they have earned in their lifetime, but how is it possible that we have all spent more than we have earned?

It’s all about the numbers

This current recession is all about a defective monetary system and a currency that is nothing more than numbers floating around in a computer system. It has no basis in reality.

Big decisions

It’s time for us to make some big decision about how we organise ourselves as a society. If we were starting from scratch, would we really design a system like this? Would we design a system whereby our decisions about what we produce and how much we work is determined by the numbers created in a computer system? Would we design a system which inevitably results in a shortage of those very numbers every 7-10 years? When we are sat here, looking for work; when businesses are sat there, looking for consumers; when banks are sat there, looking for customers; and no-one can make the first move simply for the lack of electronic numbers?

This is a crazy system. A recession is an absurd idea, and can only happen in a society that has become too wrapped up in the numbers and statistics to see the reality and common sense behind the situation.  It’s time we started again.

But the beauty of the solution is that we don’t even require a revolution – it’s very simple to get out of this depression. Find out just how simple it is by reading The Solution.

By Hazel Henderson  © 2009
Prepared for the Emergency Congress – “From Crisis to a Just and Sustainable World Economy” London, February 23-25, 2009

The following is a presentation to the emergency congress in London co-sponsored by Tomorrow’s Company, the South African Human Rights Commission and Rights and Humanity, Feb. 23rd-25th, 2009, to provide input to Prime Minister Gordon Brown for the G-20 summit to be held in London April 2, 2009.

US President Obama’s decision to skip the first summit of leaders of the G-20 in Washington, November 15-16, 2008 reflected his understanding that the world economic order has changed.  The new global players in the Group of 20, led by Brazil, China, India, and many other now powerful industrializing countries of the South will challenge Mr. Obama’s own call for change.  Let us be clear – the global financial system and the processes of economic and technological globalization over the past 25 years have not only failed but have brought greater injustice, widened inequality, increased social disruption and wreaked enormous ecological damage.

While the first Communiqué from the leaders was guarded and polite, it clearly signaled a new economic order.  A new “Bretton Woods II process” will be launched on April 2, 2009 in London.  Agreements were reached in Washington on many needed reforms of the global financial system and the crises the lack of regulation and oversight, excessive greed, risk-taking and leverage have caused.  I have warned for decades how globalizing and interlinking all these 24/7 markets inevitably helped create chaos in the entire system.   While not naming the USA, the leaders blamed the crisis on “some advanced countries”  “whose policymakers, regulators and supervisors did not adequately appreciate and address the risks building up in financial markets.”  US citizens feel betrayed by Wall Street and their trust has been shaken.  The European leaders cited the need for new regulatory action to curb speculation, leverage, hedge funds, private pools of capital and derivatives such as the some $60 trillion of credit default swaps which played a key role in the turmoil.  The total of credit and derivatives contracts is estimated by the Bank for International Settlements (BIS) at $683 trillion.

The disgraced Wall Streeters and other financial players in the global casino are still in denial that financial sectors, particularly in the USA and Britain had metastasized to some 25% of their GDPs.  Switzerland is in a similar condition, while the fate of Iceland looms as a lesson.  An efficient financial sector should comprise much less than 10% of a country’s GDP.  The issue is how to downsize and deleverage all those illusory gains that have now become illusory losses that have corrupted money systems on which real productive sectors have come to rely.  The power struggles concern who is going to take the losses: the players themselves who profited on the upside, the shareholders and bond holders or taxpayers?  So far, in the USA, due to the

powerful Wall Street lobby’s influence in Washington, the taxpayers are taking the hit. So much trust has been lost that President Obama has inherited a poisoned chalice.

Meanwhile, China, Brazil, India, Russia, South Africa and other powerful members of the G-20 are also concerned with “a new international financial order that is fair, just, inclusive and orderly” as stated by China’s President Hu Jintao.  On the table will be fairer representation of voting power in the IMF, the World Bank and the WTO so as to reflect the new global reality that the USA is no longer the locomotive of the world economy.  Indeed, most of today’s global GDP growth (an inadequate measure) is, nevertheless, now provided by China, India, Brazil and other emerging economies of the South.  The USA, the world’s largest debtor, controls 17% of the votes at the IMF, while China, the world’s largest creditor, controls only 3.66%.  Unfortunately, the Obama administration’s top economic team: Larry Summers and Timothy Geithner bear heavy responsibility for the economic crisis and, together with former Treasury Secretary Robert Rubin, Jason Furman and Austan Goolsbee, they are trapped in old economic textbook models.

The 2009 report of the private Group of 30 elite financiers, chaired by former US Fed Chairman Paul Volcker, stuck to a familiar list of reforms of global financial architecture: more coordinated, transparent, international regulation, standards, governance and accounting practices, as well as limits on leverage, compensation and perverse incentives for risk-taking.  This Group of 30 representatives from Citibank, Morgan Stanley, JP Morgan Chase, AIG, Merrill Lynch and other now-humbled firms, has been studying the explosion of exotic derivatives for some two decades but has offered little useful advice other than calling for clearinghouses for over-the-counter contracts such as credit default swaps.

An important underlying issue is how capitalism itself must evolve.  The US-led model of economic growth, as measured by money-denominated GDP (see figure 1, GNP Problems), the so-called “Washington Consensus” of free markets and trade, open capital accounts, floating currencies, privatization, all dominated by mostly un-regulated global financial markets, has now clearly broken down.  China led the new debate by calling its summit meeting in Beijing in late October, 2008, attended by all the European countries, as well as the G-20 and other African countries as well.  The Bush administration’s disdain for such multi-lateralism left the USA way behind the curve, not invited to such important gatherings, including the Shanghai Cooperation Organization which includes Asian and Central Asian countries, including Iran.  Meanwhile China has formed close alliances worldwide, particularly with Europe, African countries and those in Latin America.  The new G-20 demands for fairness include democratization as well as expanding the United Nations Security Council to include permanent membership for Brazil, Japan, India and important countries of the South, such as Indonesia and South Africa, including scrapping the veto still wielded by the old “permanent five” victors of World War II.

All this is a rude awakening for many in the USA.  At least the Obama team is reversing the Bush administration’s ignoring of other countries’ interests and going it alone.  Today, most US citizens now realize that we need the world and the United Nations and that, indeed, the global financial crisis which began on Wall Street now requires global cooperation to solve.  This is the true dimension of change that President Obama must now face.  Former Assistant Secretary of the Treasury under Ronald Reagan, Paul Craig Roberts, warns President Obama that the Bush bailouts and the new $1 trillion-plus recovery plans must take a new course if the US dollar’s value is to stabilize.  Roberts warns that the $ trillions spent on fighting Bush’s unnecessary wars in Iraq and Afghanistan will bankrupt the fragile US economy and urges Obama to end both these senseless occupations.   Bank of Sweden Prize winner Joseph Stiglitz estimates the Iraq war alone will cost $3 trillion,  and in a recent editorial called for the US to take over its large, insolvent banks.

Reforming the un-regulated global casino must be addressed promptly if further harm to the innocent, poor and vulnerable is to be prevented..  The Communiqué from the G-20’s 2008 Washington summit clearly cited increased cooperation between nations as essential, particularly oversight of global banks and other financial players.  Cooperation is necessary to avoid “beggar-thy-neighbor” policies trying to advantage any one country, but this no longer can be couched in old “free trade” slogans.  Sovereign countries have rights to protect their citizens from private sector exploiters without being accused of “protectionism.”  British Prime Minister Gordon Brown suggested a “global collegium of regulators.”  However, no mention was made of the most urgent priority: to tackle the up to $3 trillion of daily currency trading, over 90% of which is speculation.  Bouncing currencies have led to much of the turbulence and excessive volatility in world markets as “contagion” spreads in minutes in this 24/7 around-the-clock trading.  A small, less than 1% tax on all trades has been advocated since the 1970s when it was proposed by economist James Tobin and in 1989 by former US Treasury Secretary Larry Summers.   Not only would this reduce speculation, but it would raise over $300 billion annually to meet UN Millennium Development Goals and fund needed public goods.

Such a currency-exchange tax would be simple to collect using a computerized system which can be installed on trading screens, such as the Foreign Exchange Transaction Reporting System (FXTRS).   This system operates like an electronic version of Wall Street’s venerable “uptick rule,” enacted in 1934 but repealed during the Bush II administration.  Today’s Wall Street traders themselves are calling for its re-instatement to curb naked short-selling.  The FXTRS computerized “uptick rule” gradually raises the basic, less than 1% tax whenever a bear raid starts attacking a weak currency.  Such bear raids are rarely to “discipline” a country’s policies, as traders claim, but rather to make quick profits.  In the transparent FXTRS system, traders selling falling currencies begin to see that the rising tax is cascading into the country’s currency stabilization fund and cutting into their gains.  Seeing no further profit, traders can voluntarily exit the market and search for some other currency or arbitrage opportunity.  The funds collected from such currency exchange taxes would, along with another issue of special Drawing Rights by the IMF, raise hundreds of billions of dollars.  (See www.HazelHenderson.com click on FXTRS.)

Hopefully, the April 30, 2009 summit will take up such proposals and lead to the rapid implementation of other Action steps to regulate financial markets already cited, including criminalizing tax avoidance and tax havens and exposing to shame countries that do not comply with the International Financial Action Task Force (www.fatf-safi.org), as well as harmonizing of regulations and standards between countries to prevent regulatory and tax regime arbitrage.  Professional groups, including the International Accounting Standards Board, IOSCO and others can be recruited to the task, as well as the companies in the UN Global Compact and the UN Principles of Responsible Investing.

The 800-pound elephant still not acknowledged is the need for monetary reform of fractional reserve banking itself, which allows banks to create most of a nation’s money-supply as debt – out of thin air.  Restoring the right of democratic nations to coin their currency directly (as required in the US Constitution) is now essential, particularly in the USA where debt is now crushing every sector and the Federal Reserve along with the Treasury are now printing money in clear sight of taxpayers.  In Britain, there are many such proposals for reforming the Bank of England, including those of the New Economics Foundation, banking experts James Robertson and those of Canada’s Committee on Monetary and Economic Reform (www.comer.com).   The American Monetary Institute has introduced a bill in the US Congress to achieve the gradual change needed in our banking system (www.monetary.org).

The market-fundamentalists abetted by the economics profession and the Bank of Sweden have waged a 30 year campaign to portray economics as a science.  They succeeded in persuading the Nobel Committee to set up a $1 million prize in the 1960s with the late Milton Friedman of the laissez-faire Chicago School as its early recipient.  This so-called Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel is now being criticized by many, including Nobel’s heir, lawyer Peter Nobel, Nassim Nicholas Taleb, author of The Black Swan (2007), myself  and many mathematicians including Ralph Abraham, Benoit Mandelbrot and other scientists.   Too many of these subsequent Bank of Sweden “Nobel Memorial” prizes have been awarded to laissez-faire economists, particularly those whose research purported to prove (using specious mathematics) why central banks must be free of all political control – even by the most democratically elected governments.  Today we see central bankers out of control, printing money, awarding favored treatment to large banks, reckless insurance companies like AIG, and claiming the privilege of secrecy.  The US Federal Reserve Board even refused Freedom of Information requests by Bloomberg, Fox News and other media with questions as to which companies have been so favored and by how much.  Now that the US Treasury is at last disclosing where the first $350 billion of TARP funds went, perhaps the Fed will follow suit.

More fundamentally, the failures of global monetary systems are rooted in the expansion of human knowledge and innovation as we transition from the early fossil-fueled Industrial Era to the cleaner technologies of the information-rich Solar Age (see figure 2).  Just as the gold standard failed to provide enough “bandwidth” for all the growth, innovation and new communication and transactions of the Industrial Age, so today’s money circuits cannot provide enough bandwidth for the greatly expanded communications and trading of today’s growing Information economy (see figure 3).

The disruptive technologies rapidly displacing those now unsustainable, polluting Industrial Age technologies have already burst out of the existing money circuits and narrow central banking regimes.  Money is merely one form of information, and now the pure information-trading platforms are providing the needed extra bandwidth for trading, including that exclusively for socially and environmentally responsible investors and companies helping grow the green, sustainable economy world wide  (see Ethical Markets’ Advisory Council which includes leaders of the Calvert Group, the Social Investment Forum, Green America, Innovest Strategic Value Advisors, Capital Missions Company, the World Business Academy and Iowa Progressive Asset Management, the leading US broker-dealer firm for socially responsible investing.  Many, including Ethical Markets Media, LLC, are signatories of the UN Principles of Responsible Investing, which represents pension fund and other institutional asset managers $15 trillion under management.

Beyond securities trading on secure internet platforms like Archipelago, Instinet and such networks as Wall Street Without Walls, prosper.com and others, we have seen the explosion of internet trading (B2B, peer-to-peer, C2B, etc.) since 2000.  They include such major companies as e-Bay and Amazon, social networking sites like MySpace, Facebook and LinkedIn, as well as all the new electronic barter and gifting sites, Craigslist, Freecycle, Global Giving, Green Grants as well as thousands of similar electronic trading systems, cell phones, radio programs and local scrip “currencies” used to match needs and resources and clear local markets starved of credit.  Wall Street’s single-minded focus on money led to its demise.  Money was equated with wealth and ignored all the other forms of wealth, from human skills, networks and ingenuity to the productive systems of nature in which all economies are embedded.  Money, like gold, will remain a useful store of value and medium of exchange, but now as part of a new broader, more inclusive regime dominated by pure, information-based markets.

So, where should the G-20 begin in April at their London summit?  China and the European Union’s lead in October 2008, convening 40 leaders for the 7th Asian-European Meeting in Beijing, included representatives of the 27 European countries, 10 ASEAN countries, the European Commission, China, Japan, South Korea, India, Pakistan and Mongolia.  China’s foreign ministry spokesman Qin Gong said “China maintains that the international community should strengthen cooperation and jointly handle the current financial crisis on the basis of equal consultation,” as reported by analyst Antoaneta Bezlova in Other News, October 22, 2008.  UK Prime Minister Gordon Brown proposed the global system of collegial financial supervision, including empowering the IMF to monitor global markets.

French President Nicholas Sarkozy, who commented on the financial meltdown as: “an act of treason against the values of capitalism,” will announce the report of his Commission, headed by Joseph Stiglitz and Amartya Sen (also a Bank of Sweden Prize winner) on how to correct GDP and incorporate health, education, environment and poverty indicators.  This agenda was endorsed by EU Commission President Manuel Jose Barroso at the European Parliament’s BEYOND GDP conference convened by EC Commissioner Stavros Dimas, EUROSTAT, the OECD, the World Wildlife Fund and myself, representing the Club of Rome (see proceedings at www.beyond-gdp.eu).  My company also funded London-based GlobeScan’s opinion survey in ten countries which found large majorities in all ten countries (Australia, Brazil, Canada, France, Germany, Great Britain, India, Italy, Kenya and Russia) favoring the inclusion in GDP national accounts of available health, education, environment and poverty indicators (see www.ethicalmarkets.com and www.globescan.com).

Clearly, the world’s money systems have been corrupted, and the basic value of trust which underlies all markets has been shattered.  We are now learning that not all our transactions can be trusted to money systems and that in today’s Information Age there are the many new, pure, information-based trading systems mentioned earlier, including international barter,  “countertrade” between governments, trading between global companies of everything from media and telephony to commodities.  Information and money are equivalent mediums of exchange and equally valuable.  Many investors are now bypassing Wall Street and big money centers in favor of private equity on trusted electronic liquidity and trading networks.  Such insights into the use of information and trading networks, including local currencies, barter and people-to-people lending are part of the emerging information-rich Solar Age economies now superseding the earlier fossil-fueled Industrial Age.

As the USA will play catch-up at the April summit, there are some additional reforms they might sponsor:

*  Imposing globally-harmonized currency exchange taxes is an obvious step.  Promoted, as mentioned, for decades by economists from James Tobin, Bank of Sweden’s Nobel Memorial prizewinner, to former US Treasury Secretary Larry Summers, this below 1% tax on the $3 trillion daily currency trading would reduce some of its 90% speculative activity.  Recent levels of turbulence in currency markets are not sustainable, and Ben Bernanke’s selling US dollars to buy other currencies was unprecedented.  Only global regulation of currency markets, by the FXTRS or similar systems, can address the problem of weaker currencies leading countries to default.

*  To reduce the over $1 trillion annually countries spend on military hardware, the summiteers can agree on the proposed United Nations Security Insurance Agency (UNSIA).  Militarism is ever-less useful in resolving today’s conflicts in Iraq, Afghanistan and other guerilla insurgencies.  This UNSIA proposal, backed by four Nobel laureates, would allow countries which wished to follow Costa Rica’s lead in 1947 and abolish their armed forces.  Instead, countries could buy the insurance of a peacekeeping force from the UN Security Council (expanded and veto-less).  Their premiums would be determined by insurance industry risk assessors contracted to see that the country had no WMD or secret weapons and did not teach militarism and xenophobia.  Countries, say those in Central America, that decided to all buy UNSIA insurance would all get lower premiums.  The premiums would fund a standing, properly trained UN peace-keeping force and complimentary contingents of NGO peace-making conflict-resolution groups.  The UNSIA proposal is taught in many university programs and was debated in the UN Security Council in 1996 (see UNSIA at www.hazelhenderson.com).  This and other proposals, including the FXTRS, are also described in The United Nations Policy and Financing Alternatives, (1995).

These two global reforms could be introduced at the London summit, debated in the UN General Assembly and ratified by member countries.  Many other reforms discussed earlier should be on the agenda:

•    Reform of ill-designed monetary systems based on debt (see www.ethicalmarkets.tv “Money as Debt” and the American Monetary Reform Act of 2008 at www.monetary.org); in the UK, monetary reforms proposed by banking expert James Robertson at www.jamesrobertson.com and those of the New Economics Foundation at www.neweconomics.org).  This includes raising capital reserve requirements for banks and reducing leverage used by all financial players.

•    Criminalizing of tax arbitrage and avoidance in tax havens, including those non-cooperative countries and territories black-listed by the US Treasury and many central banks (see the international Financial Action Task Force NCCT Initiative at www.fatf-gafi.org).

•    Regulating and requiring full disclosure of hedge funds, private equity funds, sovereign wealth funds, credit derivatives and “dark pools” of capital.  Harmonizing market rules to prevent arbitrage between major securities markets.  Changing incentives toward long-term investment goals and limiting compensation by giving shareholders a voice on this and other social, environmental and governance issues now clearly material to stock valuations.  Rating agencies should only accept fees from investors, not issuers of securities.

•    Repealing Basel II rules which allowed banks to assess their own risks, the failure of which helped bring on the crisis.  Raising capital adequacy and reserve ratios and reducing margins on all transactions.  Leveraging standards on banks operating internationally are also needed.  Many of these proposals are by law professor Daniel K. Tarullo, an advisor to President Obama, in Banking on Basel.   Raising margin requirements and increasing Basel II capital reserve ratios also reduce speculation in all markets and futures and derivatives exchanges.

All these regulations, as we have learned, are to re-balance the roles of private and public sectors now that governments have been forced to intervene using taxpayers money.  The new rules must be by international agreement lest market players skip from state to state “arbitraging” different jurisdictions and tax regimes.  Even the World Economic Forum in Davos in January found a consensus of both government and business leaders for such global-level agreements and standards.  The UN Principles of Responsible Investment are calling for similar reforms.  At last, this global financial crisis brings the opportunities discussed for decades to reform today’s global casino and restore finance to its vital but limited role in facilitating real production and innovation in the world’s real economies.

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Hazel Henderson, president of Ethical Markets Media, LLC, is author of Ethical Markets: Growing The Green Economy (2007) and co-creator with the Calvert Group of the Calvert-Henderson Quality of Life Indicators regularly updated at www.Calvert-Henderson.com.  She can be reached at www.EthicalMarkets.com and, her TV shows are at www.ethicalmarkets.tv.