Three Key Steps to Sustainability By Richard Douthwaite

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Sep 18, 2002, 5:05:54 PM9/18/02
ATTAC Weekly newsletter - Wednesday 18/09/02

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3- Three Key Steps to Sustainability

By Richard Douthwaite

Sustainability needs to be achieved in two time-frames. One is short-
term and largely economic. We need to eat tonight. Employees have to
be paid at the end of the week. Interest has to be paid at the end of
the half-year. The second time-frame seems less urgent but is no less
important. The natural environment has to be preserved. Capital
equipment, buildings and infrastructure have to be kept up. Health
has to be maintained. Knowledge and skills have to be preserved and
passed on. And social structures such as families, friendships and
neighbourhoods have to stay strong.

Unfortunately, the achievement of immediate, short-term
sustainability is often at the expense of the longer-term type. One
reason for this is that the components of long-term sustainability
are far too forgiving for their own good and, eventually, for ours.
They allow themselves to be damaged quite a lot before they turn
around, bite, and force us to pay them some attention by impeding us
economically. We take advantage of their forbearance by ignoring them
whenever we can. Indeed, we have organised our personal lives, our
economies, our companies and our politics in a way which makes it
hard for us to do otherwise. Only when a crisis actually occurs do we
consider changing our habits but by that time, it may already be too
late, as many societies in history have found to their cost. In
Mesopotamia, in the Indus Valley and in the jungles of Mesoamerica,
civilisations collapsed because they had undermined their
environment. So did the Soviet and Roman empires. The people of
Easter Island turned to cannibalism to replace fish protein to their
diets after cutting down all the trees suitable for building fishing
canoes. In New Zealand, the Maori also became cannibals after they
had killed and eaten to extinction all twelve species of the
flightless moa birds. Abel Tasman, the first European navigator to
reach New Zealand, had several of his ship's crew eaten.

The difference between today's sustainability crisis and those in the
past is that this one affects the whole world rather than just
regions or small parts of it. The consequences of our continuing to
set short-term sustainability ahead of the longer-term type will
therefore be global and very grave - some commentators warn of a
drastic fall in human numbers. So, despite the fact that it is hard
to think of any historical precedent for people listening to warnings
of impending disaster and radically changing their way of life to
avert it, can we improve our chances of doing so this time by finding
ways in which the economic system could be reformed to make it easier
to maintain short-term sustainability and thus free enough resources
and enthusiasm to make progress towards the longer-term type?

At present, governments attempt to maintain economic sustainability
by following four short-term indicators: the rate of economic growth,
the balance of payments, the health of the public finances and the
rate of inflation. Let's explore why these indicators are currently
so crucial to see if there is any way of making them easier to

National income growth is the world's most widely considered economic
sustainability indicator. It is the percentage by which the amount of
trading in the monetarised part of a national economy has risen ,
usually in the course of a year. Put another way, it is the
percentage increase in the total of all the money incomes generated.

It is an indicator for much more than that, however. Because it
measures the amount of additional incomes and resources the economy
has generated, growth is an excellent indicator for the extra profits
that arose in the economy and hence its attractiveness to investors.
If there is no growth in any given year, the investments made the
previous year have produced no return. Indeed, it's worse than that
because as borrowed money will have been used to part-finance the
investments and as interest will have to be paid on the borrowings,
the failure of an economy to grow means that profits fall in
comparison with the previous year.

Falling profits and unused capacity from last year's investments
obviously discourage companies from making further investments in the
current year. This has serious results. In normal years in OECD
economies, somewhere between 16% (Sweden) and 27% (Japan) of GNP is
invested, and a similar proportion of the labour force employed, in
projects which, it is hoped, will enable the economy to grow the
following year. If the expected growth fails to materialise and
further investments are cancelled, up to a quarter of the country's
workers can therefore find themselves without jobs. With only savings
or social welfare payments to live on, these newly-unemployed people
are forced to cut their spending sharply, which in turn costs other
workers their jobs. The economy enters a downward spiral, with one
set of job losses leading to further ones. The prospect of this
happening terrifies governments so much that they work very closely
with the business sector to ensure that, regardless of any social or
environmental damage, the economy continues to grow.

This is the main reason why short-term sustainability gets in the way
of the longer-term kind. Governments need to be able to be much less
concerned about whether growth occurs or not before they can feel
free to tackle long-term unsustainability. So how might the link
between growth and employment be broken? How can the rate of growth
be made a totally unimportant indicator, at least as far as
politicians and the general public are concerned? After all, as
infinite growth is impossible in a finite world, an economic system
has to have the ability to cease to grow without collapsing before it
has any claim to be considered sustainable.

Despite the above, the main reason why the economy implodes when
investment stops is not that people lose their jobs and consequently
have less to spend. Any market economy that functioned well would
automatically re-allocate a resource ( in this case, people) that was
surplus in one area of activity to some other where it could be used.
This is not happening in the present economic system because, as the
rate of investment slows down, the money supply contracts, making it
impossible for trading in the rest of the economy to carry on at even
its former level - and still less expand to take on the newly
redundant workers. What is needed, therefore, is a constant stock of
money rather than one which, like a fair-weather friend, tends to
disappear when times get hard.

Money disappears because almost all the money we use only comes into
being when a company or an individual draws on a loan facility they
have been granted by their bank. Borrowers create money when they
spend their loans and it disappears when the loans are repaid.
Consequently, if people ever repay loans worth more than the total
value of the new ones being taken out, as can happen if the
proportion of national income being invested declines, the amount of
money in circulation will fall. This makes it harder to do business.
Redundancies occur. And that, in turn, destroys the optimism required
for further borrowing.

For example, if enough people begin to fear for their jobs ('Perhaps
I 'd better not take out that car loan just now') or think that house
prices are about to fall so that there's no need for them to rush to
take out a mortgage to secure a place on the property ladder, they
are collectively making self-fulfilling prophesies. Whatever enough
of them fear or expect will come about. They will defer borrowing,
less money will be put into circulation, the property market will
become less buoyant, and, yes, there was no need to rush to get into
it after all. It's the same with business. If enough firms think that
their future prospects are so doubtful that it would be better not to
risk borrowing to expand, they will find that they were right and
there really was no need for a loan to put in that extra equipment.

This mechanism works in the opposite direction too. If people are
optimistic and increase their borrowings, the extra money they put
about enables an increased amount of business to be done. Firms find
that not only are they running into capacity constraints but they are
more profitable when their books are done at the end of the year
because, with extra money in circulation, there was more of it to be
shared around. So they borrow to expand, and this in turn provides
work for other companies who, when they reach their production
limits, borrow to expand as well.

The modern economy therefore constantly moves between boom and bust
because of the way the money system works. There are very few periods
in which there is a happy medium, an in-between. In the booms, the
economy enters a virtuous circle with borrowing leading to more
profits and therefore more borrowing. The only danger is inflation.
In the busts, cuts lead to further cuts and a vicious spiral down.

It is very difficult for governments to control such booms to prevent
them becoming excessively inflationary. Increasing the interest rate
to deter borrowing (and thus limit money creation) is a very blunt
economic tool because it has to do a lot of damage to the economy to
be effective. After all, when an economy is on the way up, how much
does an increase of one or two per cent in the interest rate matter
to a firm which has customers with large orders battering down its
door? Very large rate increases indeed are necessary to stop the
system running away with itself, particularly as, if inflation is
already at, say, 5%, it is reducing the effective interest rate by
that amount. Yet if a central bank over-reacts and pushes up the
interest rate too far, it risks frightening too many potential
borrowers and plunging the economy into a precipitate decline.

Yet interest rates work even less effectively when the economy is on
the way down. If I've surplus capacity in my factory already, why
should I borrow to install more, even if the interest rate is very
low? Unless I am absolutely confident that the market is going to
turn around and there will be a boom again soon, I don't want to trap
myself in a more heavily indebted position with no sure way of
trading my way out. And, of course, as interest rates can't become
negative (though they did become zero in Japan for a time), there is
a limit to how encouraging to borrowers they can become. Indeed, if
things get really bad and the prices of goods and services start to
fall, as they did in Japan in 2001, this has the opposite effect to
inflation and pushes the real rate of interest up.

In such circumstances, firms have to be bribed to invest by being
offered large grants. Alternatively, governments can try to get
investment - and hence borrowing - started again by adopting
Keynesian methods and borrowing and spending themselves. The Japanese
tried this after their property and stockmarket boom burst in the
early 1990s but to little effect. By 2001, a great many under-used
roads, bridges, ports and airports had been built and the amount the
country owed in relation to its national income had become so large
that the scope for further state borrowing was restricted,
particularly when, in 2002, the credit rating agencies reduced their
grading of Japanese government debt to below that of Botswana.

Because it is so difficult to get an economy out of a depression,
governments will do almost anything to keep the economy growing,
regardless of the damage that this might do to the environment, or
through, perhaps, changes in the distribution of income, to society.
As the former British Prime Minister, Edward Heath, once said 'the
alternative to expansion is not an England of quiet market towns
linked only by trains puffing slowly and peacefully through green
meadows. The alternative is slums, dangerous roads, old factories,
cramped schools, and stunted lives.'

Step One: Ending the reign of debt-based money

The replacement of the current bank-debt-based, time-limited currency
by a permanent stock of money would mean that when the economy turned
down and people lost the confidence to borrow, the means to buy and
sell didn't just disappear too. Instead, the money stock would stay
at a constant level so that there was still the same amount of
potential purchasing power about. This would limit the downturn and
make recovery much easier.

What form might such a permanent money take? Gold and silver coins
provided a permanent money stock in the past, of course, but we've no
need to revert to them. With debt-based money, the sum total of all
the debits in people's accounts is equal to the sum of all the
credits. To achieve a permanent money stock, therefore, we simply
need to be able to create credits without the corresponding debts. In
their book, Creating New Money (2000), James Robertson and Joseph
Huber suggest a method for doing just this. They propose that money
whose creation is authorised by commercial banks should be gradually
replaced by money spent into circulation by the government. The
immediate advantage of this is that it would make it very easy to
control the size of the money stock and thus the level of activity in
the economy. The need to encourage investment in order to ensure that
growth takes place would disappear. If unemployment was becoming a
problem, a government could just spend a little more. If prices then
began to rise too much, it would either cut its spending or increase
tax, thus withdrawing money from the system's circular flow.

Government-created money has another big advantage besides ending the
growth compulsion and the economic stability it would bring. It is
that in a growing economy, either taxes could be cut or a higher
level of public services afforded. Between January 1998 and January
1999, the increase in the money supply authorised by the commercial
banks in Britain was £52,600 million. If the government had created
this sum instead of the banks' borrowers and spent it into use, taxes
could have been cut by over 15%.

Huber and Robertson propose that, once the government has started
spending money into circulation, the banks should be limited to
credit broking. In other words, they would simply take in money from
one set of customers and lend it out to others§. This would end the
massive subsidy the banks get from charging for authorising money
creation. Robertson and Huber estimate the British banks got a
£21,000 million subsidy from this source in 1998/99 Their estimate
for the US subsidy is $37,000 million and DM30,000 million for the
German one. These sums obviously distort the way the national
economies concerned operate by underwriting the banks' costs and
enabling them to make abnormal profits.

Some of the serious drawbacks to the present system of creating money

1. It generates a growth compulsion which makes it impossible for
countries to build stable, sustainable economies 2. It is highly
unstable and tends to swing from inflationary booms to deflationary
busts. 3. These swings are exceedingly difficult to control 4. The
banking system benefits from a massive subsidy because it does not
have to pay anything for half the money whose use it authorises. This
leads to a misallocation of resources. 5. Taxes are higher (or
public services worse) than would be the case in a growing economy in
which the state spent the currency into circulation. 6. Because a
high volume of bank lending is required to keep the present money
system functioning, the banks shape the way the economy develops.
This is because they determine who can borrow and for what purposes
according to criteria which favour those with a strong cash flow
and/or substantial collateral. As a result, the present money system
favours the rich and multinational companies and discriminates
against smaller firms and poorer individuals.

Putting a permanent stock of money into circulation is therefore the
first key step towards building a sustainable, equitable economic
system. Crucially, it would make the growth rate unimportant and
allow governments to set themselves other targets beyond that of
doing everything possible to ensure that commercial investments keep

As the three other short-term economic sustainability indicators
track factors that can interfere with growth, they are currently used
as guides to its achievement. This does not mean, however, that they
could be ignored if the achievement of growth became unimportant. As
the sustainability of an economy which had pulled off the trick of
ceasing to grow without a recession emerging could be threatened by
adverse movements in any of them, we ought now to look at each in

First, the balance of payments. If a country is tending to import a
greater value of goods and services than it is exporting, it can
handle the situation in two ways. One is to allow the exchange rate
between its national currency and those of its trading partners to
fall so that its imports decline (because they cost its citizens
more) while its exports rise (because they become more lucrative for
its exporters in terms of the home currency). This corrects the
incipient imbalance.

The alternative is for the country to attract foreign investment or
to borrow foreign currency to finance the purchase of the excess
imports. In this case, the exchange rate does not have to adjust,
which is good for those with savings who are worried they might be
eroded by inflation. For everyone else, the fact that the inflow of
foreign capital enables the exchange rate to remain higher than it
would otherwise be has undesirable effects. For example, the
country's exporters get less national currency when they convert the
foreign currency they earn. This cuts their profits and might mean
that some have to cease trading altogether. Companies supplying the
home market also suffer because imports stay cheap. This undermines
national self-reliance. In short, the increased availability of
foreign exchange damages companies and costs jobs.

So, apart from pandering to a sectional interest, it is difficult to
see why should any country ever take the second course. After all, if
it takes in overseas capital it has to get itself into a position at
some stage in the future in which its exports exceed its imports so
that it can at least pay the dividends or the interest on that money.
(There is no need for it ever to actually repay its foreign
obligations. All it has to do is to pay the service costs on them
Britain and the US have been importing more than they have been
exporting for the past two decades.) If it doesn't get into that
position itself, sooner or later, those supplying it with foreign
currency will decide that other, less-indebted countries are safer
havens for their money and decline to supply more. The long-delayed
adjustment of the exchange rate will come about - indeed, an serious
over-adjustment is likely.

While this delayed adjustment will at last make foreign goods more
costly and exports more profitable, it is likely to make the country
poorer than it would have been had it made any necessary exchange
rate alterations as it went along. One reason for this is that paying
the interest and dividends on the large foreign obligations the
country will have built up will require resources which could
otherwise have been used to benefit the people of the country
themselves. Indeed, having to service any foreign financial
obligation is a threat to a country's sustainability because of the
pressures it creates for the country to mis-use its resources - its
soils, its forests, its fisheries, its people - to generate the
necessary exports since they have to be sold in competition with
equally desperate countries in exactly the same trap.

While it is hard to think of circumstances in which a net inflow of
foreign capital could be beneficial, a net outflow of capital is just
as bad. True, after the exchange rate has fallen, the country's
exporters will, initially, get more national currency for the goods
they sell overseas. However, if they are to provide increased
employment, they will have to increase their sales and, in the short-
run, they will only be able to do this by cutting their prices enough
to give new purchasers an adequate incentive to abandon long-running
relationships with their existing suppliers. But as these rival
suppliers will not allow their business taken away without a fight,
they will reduce their prices too. It is impossible to say what the
final outcome will be, but if it takes a large fall in price to
greatly increase the world's consumption of the commodity, the extra
profit and employment that exporters provide will be very limited.
Significantly, the sales of most of the commodities exported by the
poorer countries of the world do not increase much when prices fall.

So would domestic producers provide more employment instead? The
answer is - it depends. All imported goods will cost more and local
manufacturers will be able to provide substitutes for only some of
them. So their customers, whose incomes in the local currency will
not have risen, will have to pay more for the imported part of their
purchases and this will leave them with less spending power to buy
local goods. Only the switching of purchases from importers to local
suppliers creates extra work and if the extent to which this can be
done is limited, total local employment might fall.

What tends to happen, then, is that when capital flows into a
country, it damages existing exporters and domestic producers,
leaving them in a weaker position to win overseas markets and take
over from imports when it flows out. Then, when capital flows in the
other direction, the local economy might be forced to contract
because too few locally-made substitutes for the now more costly
imports are available.

Step 2: Keeping current account and capital account money flows

The lesson from all this is that there should be no net capital
flows. Movements of investment money should not be lumped in with
those from imports and exports for reasons of administrative
convenience. If the government, a bank, a company or an individual
wishes to move capital overseas they should be free to do so but they
should not convert their national currency into foreign currency by
purchasing foreign exchange earned by exporters or tourism. Instead,
they should get their foreign exchange from people wishing to move
their capital in the opposite direction. If a lot of people want to
move their capital out and very few in, then the exchange rate for
capital flows adjusts to reflect this without affecting the exchange
rate for current (that is, the import/export) flows. In other words,
there would be two quite different exchange rates and each would
adjust independently of the other to ensure that both accounts,
capital and current, always balance. There would be no net inflow or
outflow of capital to the country, and the value of imports would
always equal exports.

Such a system was used in what was then the Sterling Area from 1947
when Britain passed the Exchange Control Act until May,
1979. Anyone wanting to move capital out of the Area had to pay what
was known as the 'dollar premium', the difference between the
two exchange rates. A similar two-tier currency system was used in
South Africa between September 1985 and March 1995. The
capital currency was known as the financial rand. "The financial rand
system has served South Africa well during the years of the
country's economic isolation" the South Africa minister of finance,
C.F. Liebenburg, said when he announced its abolition on the
grounds that it might discourage foreign investment in the country.
As, of course, it would have done to the extent that it ensured that
there was no net foreign investment, as capital inflows would have
been matched by capital coming out.

>From a sustainability perspective, the major advantage to be gained
from operating what are effectively two currencies, one for
capital purposes and the other for normal buying and selling, each
with its own exchange rate, is that policies to promote
sustainability cannot be derailed by investors taking fright at want
is going on and rushing to get their money out of the country.
Consider what happened in Mexico in December 1994. The government
devalued the peso by 13% in an attempt to correct an 8%
deficit on its current account - a deficit caused, of course, by
overseas investors in 'emerging markets' moving their money into the
country to lend short-term at attractive rates or invest in the
stockmarket. But no-one was convinced that the devaluation would
prove large enough and foreign and local investors rushed to get
their money out of the country before another took place. With so
many people panicking, the new rate was abandoned the following day
and the peso was allowed to float, ending almost 40% below
its former level. The higher price of imports naturally caused an
inflation so the Central Bank jacked up interest rates to try to
suppress it. This ruined many companies and 250,000 jobs were lost in
one month, January 1995, alone. The business collapses left
bad debts which in turn ruined the local banks. "With most local
banks reeling, the eight foreign banks operating in the country have
moved quickly to take advantage" The Financial Times wrote at the
time . "The Mexican financial crisis is an object lesson in the
power and caprice of the international capital markets" Will Hutton
wrote in The Guardian . " [Capital] flows can be cut off at will with
hugely destabilising consequences."

A two-tier exchange system would, of course, have prevented the
crisis happening. It would have given the government enormous
freedom to develop policies to suit its people rather than
international investors. It would not have mattered to it at all
whether or not
Intel was going to build a chip fabrication factory in the country as
the only effect that such a massive inward investment would have
would be to make it much more attractive for Mexicans to move their
capital overseas.

The second key step towards sustainability is therefore to keep
capital flows completely apart from those on the current account.

The two remaining conventional economic sustainability indicators,
the rate of inflation and the health of the public finances, can be
discussed quite quickly. In an economy in which the government spent
any additional money into circulation, excessive inflation
would only occur if ministers behaved irresponsibility and tried to
capture more of a greater a proportion of the country's scarce
resources by putting too much extra money into use rather than by
removing those resources from private hands by increasing
taxes. The remedy would be in their hands. Management of the public
finances would be much easier, too. There would be no need
for the state to borrow - ever. If the economy did slow down, it
would be possible for the government to create extra demand by
spending extra money into use. No debt would be incurred. And if the
economy then began to overheat, causing too rapid an
inflation, taxes could be increased and the money they brought in
removed from circulation, dampening overall demand. So while
both indicators would still have to be watched, their management, and
that of the economy, would be very easy.

Step 3: Limiting the supply of money to that of the scarcest

While the two steps we have identified so far would make it much
easier for governments to pay less attention to short-term
economic sustainability and to follow other objectives, they would
not compel them to do so. Indeed, without step three, steps one
and two could just make the economic system easier to run and, by
freeing it from the credit squeezes, recessions and depressions
that currently slow its expansion down. it could become even more
destructive. Accordingly, the final step involves tying the global
money supply to the availability of the scarcest global environmental
resource so that the world economy automatically functions
within the limits set by that resource and the two are not in
constant conflict with each other. This would mean that, whenever
tried to save money, they would automatically be minimising the
stress they were placing on the scarcest aspect of the global
environment rather than denying someone else work, which is what
saving can do at present.

In my view, the scarcest environmental resource is the ability of the
Earth to absorb the greenhouse gases created by humanity's
economic activities. The Intergovernmental Panel on Climate Change
(IPCC) believes that 60-80% cuts in greenhouse gas emissions
are urgently needed to lessen the risk of the catastrophic
consequences of a runaway global warming. Contraction and Convergence
(C&C), the plan for reducing greenhouse gas emissions developed by
the Global Commons Institute in London which has gained the
support of a majority of the nations of the world, provides a way of
linking a global currency with the limited capacity of the planet to
absorb or break down greenhouse gas emissions.

Under the C&C approach, the international community agrees how much
the level of the main greenhouse gas, carbon dioxide
(CO2), in the atmosphere can be allowed to rise. There is
considerable uncertainty over this. The EU considers a doubling from
industrial levels to around 550 parts per million (ppm) might be safe
while Bert Bolin, the former chairman of the IPCC, has suggested
that 450 ppm should be considered the absolute upper limit. Even the
present level of roughly 360ppm may prove too high though,
because of the time lag between a rise in concentration and the
climate changes it brings about. Indeed, in view of the lag, it is
worrying that so many harmful effects of warming such as melting
icecaps, dryer summers, rougher seas and more frequent storms
have already appeared.

Whatever CO2 concentration target is ultimately chosen automatically
sets the annual rate at which the world must reduce its
present emissions until they come into line with the Earth's capacity
to absorb the gas. This is the contraction course implied in the
Contraction and Convergence name.

Once the series of annual global emissions limits have been set, the
right to burn whatever amount of fuel this represents in any year
would be shared out among the nations of the world on the basis of
their population in an agreed date, say, 1990. In the early stages
of the contraction process, some nations would find themselves
consuming less than their allocation, while others would be
consuming more, so under-consumers would have the right to sell their
surplus to more energy-intensive lands. This would generate
a healthy income for some of the poorest countries in the world and
give them every incentive to continue following a low-energy
development path. Eventually, most countries would probably converge
on similar levels of fossil energy use per head.

But what currency are the over-consuming nations going to use to buy
extra CO2 emission permits? If those with reserve currencies
like the dollar, sterling and the euro were allowed to use them, they
would effectively get the right to use a lot of their extra energy
free because much of the money they paid would be used for investing
and trading around the world rather than purchasing goods
from the countries which issued them. To avoid this, Feasta, the
Dublin-based Foundation for the Economics of Sustainability,
worked with GCI to devise a plan under which a new international
organisation, the Issuing Authority, would assign Special Emission
Rights (SERs, the right to emit a specified amount of greenhouse
gases and hence to burn fossil fuel) to national governments every
month according to their entitlement under the Contraction and
Convergence formula.

SERs would essentially be ration coupons, to be handed over to fossil-
fuel production companies in addition to cash by big users,
such as electricity companies, and by fuel distributors such as oil
and coal merchants. An international inspectorate would monitor
fossil energy producers to ensure that their sales did not exceed the
number of SERs they received. This would be surprisingly easy
as nearly 80 per cent of the fossil carbon that ends up as manmade
carbon dioxide in the earth's atmosphere comes from only 122
producers of carbon-based fuels . The used SER coupons would then be

The prospect of this happening is not a fantasy. A considerable
amount of work has already been done towards the development of
an international trading system in carbon dioxide emission rights
both at a theoretical level and in practice in the United States,
where trading in permits entitling the bearer to emit sulphur dioxide
into the atmosphere has led to a rapid reduction in discharges at
the lowest possible cost.

Besides the SERs, the Issuing Authority would supply governments with
the system's new money, energy-backed currency units
(ebcus), on the same per capita basis, and hold itself ready to
supply additional SERs to whoever presented it with a specific
amount of ebcus. This would fix the value of the ebcu in relation to
a certain amount of greenhouse emissions and through that to the
use of fossil energy.

The issue of the ebcu money would be a once-off, to get the system
started. If a buyer actually used ebcus to buy additional SERs
from the Issuing Authority in order to be able to burn more fossil
energy, the number of ebcus in circulation internationally would not
be increased to make up for the loss - the ebcus paid over to the
Issuing Authority would simply be cancelled and the world would
have to manage with less of them in circulation. This would cut the
amount of international trading it was possible to carry on and, as
a result, world fossil energy consumption would fall. In other words,
the level of international trading at any time would always be
compatible with achieving the CO2 concentration target. If renewable
energy output grew or the efficiency with which fossil energy
was used was improved sufficiently rapidly, it would be possible for
world trade to increase.

Governments could auction their Issuing Authority allocation of SERs
at home to major energy users and distributors and then pass
all or part of the national currency received to their citizens as a
basic income. They could also sell SERs abroad for ebcus. The
prices set by these two types of sale would establish the exchange
rate of their national currency in terms of ebcus, and thus in
terms of other national currencies.

The use of national currencies for international trade would be
phased out. Only the ebcu would be used for trade among participating
countries and any countries which stayed out of the system would have
tariff barriers raised against them. Many indebted countries
would find that their initial allocation of ebcu enabled them to
clear their foreign loans. In subsequent years, they would be able to
import equipment for capital projects with their income from the sale
of SERs.

A major advantage of this system is that it would establish what
would amount to a dealers' ring for the purchase of fossil fuels
similar to those set up by groups of dishonest antique dealers before
an auction? The dealers in the ring decide who is to bid for
each item and the maximum the bidder is to pay and then, afterwards,
they hold a private auction among themselves to determine
who actually gets what. The point of this ploy is to ensure that the
extra money which would have gone to the vendor if the dealers
had bid against each other in the original auction stays within the
group and does not leak away unnecessarily to a member of the
public. By limiting demand, the ebcu/SER system would prevent excess
money going to fossil fuel producers in times of scarcity
and plunging the world into an economic depression. Instead, the
money would go to poor countries after an auction for their surplus
SERs. This money would not have to be lent back into the world
economy as would happen if the energy producers received it. It
would be quickly spent back by people who urgently need many things
which the over-fossil-energy-intensive economies can make.

So, rather than debt growing, demand would, constrained only by the
availability of energy. Suppose it was decided to cut emissions
by 5% a year, a rate which would achieve the 80% cut the IPCC urges
in thirty years, the sort of goal we need to adopt if we are to
have any chance of averting a sudden, catastrophic climate change.
Cutting fossil energy supplies at this rate would mean that the
ability of the world economy to supply goods and services would
shrink by 5% a year minus the rate at which energy economies
became possible and renewable energy supplies were introduced.
Initially, energy savings would take the sting out of most of the
cuts - there's a lot of fat around - and as these became
progressively difficult to find, the rate of renewable energy
installations should
have increased enough to prevent significant falls in global output.

The global economy this system would create would be much less liable
to a boom and bust cycle than the present one for two
reasons. One is that, as the shape of every national economy would be
changing rapidly, there would be a lot of investment
opportunities around. The other is that as debt was no longer being
used as the basis for either the world currencies or for national
ones, the supply of the world's money, the ebcu, and of the various
national currencies would no longer fluctuate up and down,
magnifying changes in the business climate.

Everyone, even the fossil fuel producers, would benefit from such an
arrangement and, as far as I am aware, no other course has
been proposed which tackles the problem in a way which is both
equitable and guarantees that emissions targets are met. What is
certain is that the unguided workings of the global market are
unlikely to ensure that fossil energy use is cut back quickly enough
avoid a climate crisis in a way that brings about a rapid switch to
renewable energy supplies.

So the three main monetary changes requires to ease the world's
passage to sustainability are:

1. The replacement of debt-based national currencies with ones spent
by governments into permanent circulation.

2. The separation of capital flows and current account flows on
foreign exchange markets.

3. Ending the use of the currencies of major nations for
international trade and their replacement by a proper global currency
would be given into circulation and whose supply would be controlled
so that the total level of global economic activity was reduced
to one compatible with a sustainable world.

Of course, there are many other changes that would be desirable for
sustainability too. There's even another monetary one - the
introduction of regional currencies to allow local economies to
develop and thrive regardless of the amount of national (or, in the
case of the euro, multinational) currency flowing in from outside.
But these three are the essential ones Without them, short-term
economic sustainability will always have to be put first and long-
term sustainability will seem an impractical dream.

Contact for this article. Richard Douthwaite, Cloona, Westport,
Ireland. (098) 25313.

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