Chelsea Green Publishing

Chelsea Green Blog

Re-Localize and De-Globalize: The Transition to a Sustainable Economy

The following is an excerpt from The End of Money and the Future of Civilization by Thomas H. Greco, Jr. It has been adapted for the Web.

A Regional Economic Development Plan Based on Credit Clearing

Throughout the world today, local communities are struggling to maintain their economic vitality and quality of life. The reasons for this are both economic and political, and are largely the result of external forces that are driven by outside agencies like central governments, central banks, and large transnational corporations. In brief, decisions made by others outside of the community are having enormous impacts on life within the community. Be that as it may, it is possible for communities to regain a large measure of control over their own welfare and to ameliorate the effects of those external forces by employing peaceful approaches that encourage human solidarity and are based on private, voluntary initiative and creativity.

I often use the analogy of the small boat harbor to convey the general idea of how local communities can protect their small enterprises while remaining open to the global economy. The process of globalization, while having many positive aspects, has thus far been carried out in such a way as to be destructive to small businesses, local economies, and democratic governance. It is as if there were a policy to remove the breakwaters from every small boat harbor in the world, the effect of which is to expose small boats to the turbulence of the open sea. As I put it in one of my lecture presentations—a rising tide may lift all boats, but the tidal wave of globalization smashes all but the biggest.

But a healthy global economy and a peaceful world require healthy communities. Is there still a place for small businesses? Must every advantage be given to the corporate megaliths at the expense of small enterprises? The ancient economic debate that poses “free trade” against “protection” is too limiting and outmoded. Healthy economies require both free trade and protection, each confined within its appropriate bounds. Communities must create the equivalent of breakwaters to protect their small enterprises and workers, while at the same time remaining open to the national and world economies.

It is encouraging to note that there has been a recent major awakening about the mega-crisis that is developing worldwide, and a plethora of creative responses to it. Sustainability, relocalization, human scale, and the devolution of power are the current buzz. The big question, of course, is how are they to be achieved in the face of the tremendous forces that are driving us toward the precipice?

Approaches to Community Economic Development

Sadly, the orthodox approach to community economic development over the past several decades has centered upon efforts to recruit some large corporation to come and set up operations in the local region—with the expectation that they will provide additional jobs for local people, stimulate business for peripheral industries and the service sector, and ultimately add to local tax revenues. The consequent competition among cities and states in pursuing that strategy has resulted in corporations wresting enormous concessions from host communities in such forms as tax abatements and infrastructure provided at taxpayer expense. But capital is notoriously fickle and recent developments have given it unprecedented mobility. Quite often the experience has been for companies to leave town as soon as the “free lunch” has expired, only to play the same game again somewhere else.

It is widely acknowledged that, in comparison to large corporations, small and medium enterprises (SMEs) contribute proportionately more to the economy in jobs, productivity, and innovation. According to the Organization for Economic Cooperation and Development (OECD), “SMEs play a major role in economic growth in the OECD area, providing the source for most new jobs. Over 95% of OECD enterprises are SMEs, which account for 60%–70% of employment in most countries. As larger firms downsize and outsource more functions, the weight of SMEs in the economy is increasing. In addition, productivity growth—and consequently economic growth—is strongly influenced by the competition inherent in the birth and death, entry and exit of smaller firms.”157 The same pattern would seem to hold in other parts of the world, including America.

Doesn’t it therefore make more sense to nurture the businesses that are already part of the local economy? Doesn’t it make sense to support those companies that are locally owned or managed and have a stake in the prosperity and quality of life in their home communities? Communities that have a high quality of life, an able workforce, and a clean and pleasant environment do not need to offer bribes to outsiders. Relocalization efforts cannot get very far without the creation of metasystems that support buying locally, selling locally, investing locally, and saving locally. Conventional political forms of money, and huge banking companies that are owned and managed by remote entities, by their very nature militate against relocalization. There is no need for antagonistic opposition to those entities; they can be made less relevant and less destructive by implementing creative methods that localize control over both exchange and finance.

I propose that groups and organizations that seek to promote healthy, sustainable local economies should make it a priority to organize regional mutual credit clearing associations as the centerpiece of a comprehensive program. As these associations develop and grow, they will provide their regions with an increasing measure of independence from the outside forces that control conventional money and banking, enabling communities to rise above “the race to the bottom” that has resulted from the kind of globalization that has been architected and forced upon the world by the World Trade Organization, the International Monetary Fund, and the World Bank. The credit clearing exchange is the key element that enables a community to develop a sustainable economy under local control and to maintain a high standard of living and quality of life.


Mutual Credit Clearing Provides an Alternative Means of Payment

The second stage is the most important and unique stage of the project. It provides an alternative means of payment based on the community’s own credit through the process of direct credit clearing.

Working capital in the form of conventional money is always scarce and expensive for most businesses. Mutual credit clearing is an extension of the common business practice of selling on “open account,” but it is done on a more organized multilateral basis, which has the effect of sharing the risks and enabling a participant’s sales to pay for purchases without the use of any third-party credit instrument such as conventional money. As a member of a mutual credit clearing exchange, a business can have an interest-free line of credit, it will be able to acquire the things it needs without the use of cash, and (because it accepts payment in the form of exchange credit) will be a preferred source of supply for others who are members of the exchange.

The allocation of credit in a clearing exchange involves the granting of an “overdraft privilege,” which means that a member’s account may have a negative balance up to some specified limit. In allocating lines of credit, it is impor tant (especially in the beginning) to allocate the greatest share of credit to “trusted issuers”—i.e., those that are well established, financially sound, and whose products and services are in greatest demand within the local region. This is the key to maintaining a rapid circulation of credits through the system, avoiding defaults, and preventing the excessive accumulation of credits in the hands of businesses that cannot easily spend them. In brief, the businesses that you wish to have accept community credits in payment are the ones that should be issuing them in the first place. By beginning with “trusted issuers” the value and usefulness of the community credits is quickly demonstrated beyond any doubt. As the process gains credibility and general acceptance in the community, more businesses and individuals will want to join the credit clearing exchange and as each member develops a trading history they too can earn an overdraft privilege commensurate with their volume of sales within the system.

Like any network, a credit clearing system becomes more valuable and useful as it continues to expand and a greater variety of goods and services become available within the network. By way of example one may note that the first fax machine was very expensive—but useless. As more fax machines were deployed and connected in an expanding network, the fax became more valuable to all users—even as prices plummeted and quality improved. The same will happen with clearing networks, but it is essential that the network and each node in it be properly designed and operated from the very start.

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