Interest free commnunity
Sustainable economy for communities, a way through the legal minefield to closing the wealth leaks in our families and communities
Historically, for the most part sustainable economy has been local economy, based on cooperative and competitive processes. How can we shift from centralised, global to resilient local economy? A new way of seeing!
Our universities traditionally focus on macroeconomic models based on assumptions of profit maximisation and competition. It is taken for granted that money must be created as interest-bearing debt. The Greek word oikonomia - household management - points to an interpretation of economy as the management of material resources. My understanding of economics is based on the energy transactions that underpin ecological relationship. I use the design tool of sector analysis - the study of flows of energy (including materials) into, through and out of a site. This chapter explores a system of exchange that mimics the energetic exchanges that occur at the boundaries of natural systems.
Ecology and economy
The reality of nature is that all is connected with all.
Darwin's principle of the survival of the fittest is not so much about competition as about fit to niche. The better the fit to niche the more diversity and resilience and the greater the energy efficiency and organism success. The 'fit' is actually the system of exchange between the organisms (or complex of organisms) inside and outside the niche.
One can view the niche as a site with flows of energy in various forms into and out of the site. The fit of the organism determines the level of efficiency it exhibits in energy harvest and management. Economy is the description of those flows.
Economy has relevance at all levels and within all parts of the universe; it is observation-based, that is, science-based; it deals with physical reality and bears little relationship to classical economics.
Systems have boundaries across which exchanges happen. If there are no exchanges then systems cannot exist. If more energy leaves a system than enters it, the system winds down and collapses. If more energy enters a system than leaves it, the system grows and ultimately self-destructs. Living cells are bounded by semi-permeable membranes across which exchanges happen.
Energy is continually being exchanged everywhere. Put a boundary around any site and there is an economy of exchange. Economy permeates all. It is not a subset of anything.
Ecology reveals that organisms are at least as cooperative as they are competitive.
For example, fungi in the soil have no trouble dissolving minerals in rock particles. Canopy trees have no trouble harvesting energy from sunlight to photosynthesise water and carbon dioxide into sugars. What happens at the root level is a trade between trees and fungi, sugar for dissolved minerals. Give-and-take between organisms weaves complex beneficial relationships throughout ecosystems.
The principle of reciprocity applies to all bounded systems. This is a natural law. Interest (usury) violates this principle. Exponential growth is the result of violation of this principle. Self-destruction is the outcome.
Reciprocity is at the heart of sustainability. It is the principle of balanced giving and receiving. It is at the core of agreement between humans and has been for hundreds of thousands of years. Our cultures have always demanded that we honour our word when we make declarations of agreement.
We make a paradigm shift when we view economy as a social exchange process that we share in rather than compete in.
The JAK Bank
In 2005 Eva Stenius, a board member of the JAK Members Bank of Sweden, spoke at the first Ecoshow in Manukau City about interest-free banking.
The core of the JAK Bank system is reciprocity. This is manifested through concurrent savings and payments, a system invented by a Swedish engineer, Per Almgren. The system ensures totally balanced flows. The service, performed by the member-owned bank for the individual member, is fully reciprocated by the member.
The JAK Bank is a centralised banking system which is government-regulated. Even though it is a non-profit bank the JAK Bank carries a high internal overhead (equivalent to a 3% interest rate) required to service the 40-odd employees, the bank infrastructure and compliance costs.
Bank startup in New Zealand requires $35,000,000 of equity before any overheads are considered.
The Genuine Wealth System
After visiting the JAK Bank in Sweden I decided to use the basic values and systems of the JAK Bank and embed them in a new system based on personal agreements creating bounded, shared economies. In most societies there is freedom of association. This means there is freedom to act collectively.
The Genuine Wealth System (shared economy system) is a system where people who freely associate combine their contributions, governing their relationships through agreements that cover how they cooperate together just as we can in our families.
Each member's contribution is accounted for. The management and ownership of the aggregated deposits stays with the group. On-line accounting systems make it possible for the accounts to be viewed by any member of the group at any time.
Group protocols govern how money is accessed and moved.
The group can use funds in the common account to purchase and create assets owned by the group.
How do concurrent savings and payments work?
10 people contribute money on a regular basis into a common pool. At some point a member asks to use $5,200 and is given the use of the money.
A member making payments of $100 per week into the pool for a year will have returned the $5,200 but not reciprocated the service received from the group.
Instead, the member is asked to make deposits of $100 per week - $50 for payments and $50 as savings - for two years, after which the member will have reimbursed the original $5,200 and saved $5,200. The savings are then available to uplift. In the meantime other members of the pool are able to make use of the first member's savings. Reciprocity is satisfied. This is a perfectly-balanced arrangement, totally fair.
An asset is purchased or created for a member of the group according to prior agreement.
When taking possession (of a house for example), the member enters into a purchase agreement covering the amount, the payments, the concurrent savings and the term.
It is like a hire purchase agreement without interest but with savings. Ownership is not transferred until full payment has been made and savings obligations are met.
The magic of acting collectively - the release of social capital
A community economy includes much more than the cash contributions the members can aggregate.
Non-cash resources are usually at least as big as cash resources. This is sometimes called social capital. It is the relationships and collective skills, labour, experience, knowledge, materials, contacts and obligations that can be called upon.
Everyone in the group has a vested interest in creating the best results possible at the lowest cost. This leads to the exchange of social capital. The result is a quicker turnaround in creating assets and a shorter financial commitment period for the individual.
Use of social capital results in a dramatic reduction of the cash cost of building a house, it can be at least halved - with variations from group to group - so that the payment time for the individual member can be reduced by 50%.
Contrast with a conventional mortgage
Interest payments typically range from 100% to 200% of principal by the time the mortgage is discharged (excluding set-up fees, brokerage etc), making costs two to three times the value of the asset. By bringing into play the social capital of the group, under the shared economy system, home construction costs can range from 50% to 100% of the asset's value.
Example: $80,000 house cost, $200/week outgoings
A community approach to housing can easily save 50% in costs (labour & materials). The balance will require a purchase agreement of $40,000, with $100/week in payments and $100/week savings.
After 8 years the total outgoings are $40,000 (payments) plus $40,000 (savings). The asset created is worth $120,000.
With conventional mortgage finance for $80,000, without collective input, an asset valued at $80,000 can be paid for over a period of 15 years at $200 per week.
The community approach is 3 times more efficient than conventional borrowing in this example, creating 1½ times the value in half the time.
The combination of purchase payments and savings increases the cash flow into the collective pot. After each purchase, the next purchase can be made sooner. Soon savings can be accumulated very fast.
There are now a number of groups of people using this system in New Zealand. They are of mixed age, gender, ethnicity and income levels. They include family groups, groups with a housing focus and groups with no particular focus. Group size is at present from four to fifteen members; the upper useful limit is probably thirty members.
Most of the groups have been formed as a result of public meetings so those who form a group do not necessarily know each other very well.
In one group a request came from a member shortly after start-up for $1000 to retire credit card debt. The group was a bit nervous, so the person concerned offered to sell his car (worth $4,000) to the group for $1000. The member uplifted the $1000 and entered a purchase agreement with the group to buy back the car (and save concurrently). Essentially the group had become a pawnshop for this transaction. Now, a year later, the level of trust in this group is very high and collateral is not required.
A game has been devised that replicates the shared economy system but collapses time.
The goal of the game is to create wealth within the local community and minimise total outgoings. The group of players is the community. They are aiming to all be better off after a year's transactions, with more income and less fixed expenditure.
Individual profile (role) cards are created and handed out at the beginning of the game, with 4 parameters: income and profession/occupation, fixed costs, discretionary spending and individual goals (short and long term).
To introduce an element of randomness, we have "Opportunity/Crisis Cards" (20-30) also created by the group. These should be applicable to any player, such as "breaking a leg", "pay rise", and collective events such as "setting up a free wifi service", which entices discussion around personal and collective goals.
The players have individual graph papers to plot the development of the 4 parameters. They each choose how much of their own discretionary spending should go into the group pool, and how much should be used privately (spending and/or savings).
The roles, besides the ordinary players, are the Accountant for the Savings-pool, and the Banker, who is handling the fixed costs/outgoings for each player and adds them together to see how the "leaks" from the collective change throughout the game.
Learning the lessons
The players get together, maybe over a bottle of wine and a shared meal. The time for each cycle of the game is theoretically very short. In practice there is a lot of conversation and laughter. This is the time of learning. How do we cooperate together to get our needs met? Can we create solutions to a player's problems which may have lower or no costs? What other ways could we cooperate - the usual standard negotiation strategies come into play - what have I got that I value little and you value highly, what have you got that I value highly and you have little value for?
Playing out the community economy system, through the transparency and conviviality, creates opportunities for players to learn and change their contribution and purchase strategies to achieve their goals faster, and by degrees the collective strategies enabling everyone to achieve their goals faster. Players' non-cash assets very soon become valued and used. The mere tabling of an aspiration, sometimes even a very big goal, can call forth an immediate solution.
The enthusiasm and excitement of groups beginning to understand the richness and benefits of their involvement is palpable.
Community economy is a bounded economy within which the rule of reciprocity applies.
Community economy calls forth cooperation and ethical behaviour. It generates interdependence, the glue that binds and grows community.
Community economy harvests from the wider economy, supports personal and local sovereignty (no bank manager to decide who gets to share in the economy), and develops a wide range of skills including those of management and cooperation.
Community economy engenders a new way of seeing, a way that sees human beings as naturally cooperative and life-affirming.
One unanticipated outcome has been the formation of close, fun, supportive relationships within each community. This is resilience!
Where to from here?
If you are interested in forming a group economy with friends, family or like minded people please do not hesitate to contact me
Living Economies Education Trust www.le.org.nz is developing a net based, transnational system for setting up self selected groups. It will include the accounting applications needed to manage the each group systems contributions and purchase payments. It will also include the basic agreements.
Permaculture, as a design discipline, was established in the mid seventies as an outcome of a PhD thesis by David Holmgren with Bill Mollison. Since then tens of thousands of people have done design courses throughout the world and it has become an established part of agricultural curricula in many countries.
It takes years and decades of study and practical application to become a well rounded permaculturist, but only a 15 -day course to put people on the path.
Things a good permaculture practitioner has to know:
- How to produce abundant harvests with low external inputs. They should be able to produce yields equal or greater than the best farmers and gardeners in their area whilst improving their soils and reducing their costs.
- How to restore ecosystem functions and help nature get back to exuberant health.
- How to integrate knowledge to achieve results of diverse, highly productive landscapes; designing from the big picture to the detail, it is important to know about traditional agriculture, hunter-gather cultures and botanical and ecological understandings of indigenous people in their area.
- Passive solar design of buildings using low cost, low embodied energy durable, natural materials.
- Integrated hybrid energy systems for the whole farming enterprise, to choice of energy appropriate service delivery (pumps, lights, sound, transport, heat, cultivation etc)
- The role of livestock on agro-ecosystems – what are the functions of animals? How can they be beneficial? How to use animals for their function as well as their yield. What do the different kinds of livestock eat, natural medicines, breeds for local conditions, grazing systems, stacking (rotation of different species for multiple yield from same area, including fruit, fibre and timber).
- Water harvest, use and storage. Aquifer recharge. Wetland farming, aquaculture etc
- Mycology – fungi and mushrooms. Their role in fertility transfer, carbon sequestration, soil building, plant associations – how to encourage and proliferate mycorrhizal fungi. Soil building is a chief aim of permaculture.
- How to turn a mediocre soil into a luscious, fertile soil that grows bountiful healthy crops.
- Permaculture involves ethics, principles, design methodologies, observation skills and people skills. Design always involves working with people (as does farming). Design skills can be applied to social situations (humans are part of nature) and economic relationships. At present in New Zealand there are a number of successful interest- free finance and local currency systems in operation, including time banking. Cooperative systems have always been part of the agricultural scene.
- Permaculture is not dogmatic. People select what is appropriate and acceptable within their personal and cultural context. It is a process of continual learning through observation resulting in ongoing optimisation.
- There is no one size fits all.
Permaculture Inner landscape
What if permaculture were widely practiced
Recently we have been thinking about and discussing what would it look like if the principles of permaculture were widely practiced. What differences would we notice if we lived in a society that was indeed sustainable, that was consciously based on biological and ecological models?
We are definitely at a time when all kinds of assumptions, ideas and theories are up for reassessment; when businesses, science, manufacturing, governance even religions are all in a state of flux.
The picture we paint here is not intended to be an ideal, but something we can actually realise.
In future we may look back and see that apparently small changes will have profoundly affected the shape of our individual lives and our communities. We believe the shifts of most importance will be in the conceptual realms; in the way we think.
In future, it could be that:
Cities are quieter, greener and redesigned for pedestrians.
Most buildings are topped by green houses or by gardens.
On some, waste-water from the building is purified in reed beds and used for the roof top gardens.
Each city has a network of green belts, through which weave foot and cycle paths.
There are plenty of trees in these green belts, which provide food and fibre as well as habitat for birds.
Kereru, Tui and Bellbird and other birdsong is heard over the city noise.
Most of the buildings have been retrofitted, so they are appropriately insulated for warmth in the winter and cooling in the summer. They have also been redesigned to suit the needs of those using the building. There is good quality daylight and air and areas where people can meet, children can play etc. Solar water heating is common. Many of the buildings are fitted with photo-voltaic panels, not only on the roof, but incorporated in other components of the buildings such as windows. Thus the building has become a power generator and the electricity fed into the national grid. Net metering is the usual system. (The building feeds excess power into the grid during the day, driving the meter backwards and draws from the grid during the night pushing the meter forwards again). No new power stations have been built, as energy conservation is accepted as more cost effective and environmentally friendly.
Storm water is harvested in a series of swales and ponds, recharging the water table with clean water and providing neighbourhoods with plenty of water for city food forests, including bamboo and other fibres.
Living systems are highly valued, not only for the resources they supply, but also for their services. (A healthy environment automatically supplies clean air, clean water, water storage, flood management, rainfall, fertile soil, watershed resilience, waste re-processing, climate moderation and regeneration of the atmosphere). Therefore, large natural areas providing such services surround each city, town and village.
City forests are understood as an obviously sensible land use for food, fibre , timber production and wildlife habitat.
Sewage is collected, in each neighbourhood, into small bio-gas plants and the gas fed back to the that neighbourhood for cooking and water heating. The remaining fertilizer used for the city food production.
Roads are fewer and smaller. Shoulders have been reclaimed for green space. The public transport system is well developed, cheap and used by a majority of citizens. Private cars are smaller, lighter, fewer and vastly more efficient.
The air is a lot cleaner without fossil fuel emissions
Food is growing everywhere in abundance, maintained by ecological methods. Community gardens are part of life, and those who do not wish to grow their own food have the benefit of joining a local co-op, either for purchase of food, or for making their front or backyard available as part of a city farm.
Clean water is highly valued and used sparingly and carefully. Riparian forests and grasslands line all streams and rivers. Dryer areas are planted in such a way that irrigation is not required. Grey water (the waste from showers, kitchen sinks and household laundry) is kept separate from black water and industrial wastes, and cleaned using biological processes.
There is a vast increase in the variety of recreational past-times, so large arenas are fewer, but there is a plethora of smaller sports parks catering for a great diversity of activities. The parks have many fruit and nut trees planted alongside native and other specimen trees.
The suburbs are retrofitted, so that each group of 40-50 families has community facilities available. There are meeting places, work nodes and educational opportunities for all ages. Developers and planners now support housing clusters, which include granny flats, where older people can live in close proximity to the rest of their families, remaining independent as long as they can.
The building code looks different too. It contains standards for passive solar design, maximum embodied energy limitation, electro-magnetism and energy efficiency.
Schools look very different with most learning happening in the home neighbourhood.
Travel is more for cultural and social activity and less for work and business.
Cultural life is rich, varied and inclusive. Festivals, street parties and concerts are an integral part of life for all whether urban or rural.
Marine reserves have flourished, providing rich breeding grounds, so that inshore fishing provides plenty of fresh fish for the family diet.
Rural re-population has occurred. Smaller provincial centres and villages are flourishing. They are focused on smaller, safe and culturally rich neighbourhoods. Much of the food needs of the population are grown in the town or closely surrounding it. Sewage provides bio-gas and fertilizer.
What was once steep and eroding bare land is now in permanent forest. Ecological farming is the norm. Farming birds (including emu, ostrich and possibly kereru) is common. Companies based in towns and cities have areas of forest as carbon sinks to balance their use of fossil fuels. Many companies have also developed relationships with rural communities, so that their workers can have a chance to relate more closely to nature and have time away from the city in pleasant surroundings.
Waste management has become resource reallocation; energy efficiency is paramount. Landfills are a thing of the past (as they are already in many parts of the world) Wastes are seen as resources and materials are reused or recycled. Many jobs have been created in disassembly plants, where resources are claimed for future use. Capital consumer items (such as cars, washing machines and televisions etc.) are no longer owned by the individual, but leased from the manufacturer, who retains ownership and responsibility for the goods from manufacture to recycle, thus ensuring responsible use and reuse of the materials. (This is already happening. Ray Anderson, CEO of Interface, Inc. has launched the transition from selling carpet to leasing floor covering services.)
Employment is now a choice for everyone as there is much work for people to do, maintaining the social fabric as well as earth repair. Education on how to maintain well-being, is now the main function of the public health system. The population is in better health due to lower stress levels, meaningful work for reasonable hours, good quality food, comfortable homes and less travel.
People have time-rich and rewarding lives. There are many large areas of wilderness, where indigenous plants and animals are abundant. Our dominant pets are now kiwi, gekos and kereru, rather than cats, dogs or ferrets.
Wendell Berry, Recollected Essays.
Jo Pearsall and Bryan Innes