III ARPEL symposium on
“business social responsibility in the americas
Rio de Janeiro, Brasil
May 11, 2004
Let me begin by congratulating the organizers of this Conference for fearlessly addressing the most systemic failure of human societies on this planet: poverty. Like war, poverty is a damning indictment of our collective humanity, our organizational skills, our science and technology and our political will. Even more, the continued existence of poverty and human deprivation within affluent societies calls into question our professed beliefs underlying all humanity’s major religious and faith traditions.
The human family numbering now over 6 billion is clearly the most biologically successful species on planet Earth. We have evolved from our birthplaces on the African continent to colonize every part of Earth, consuming 40% of all its primary photosynthetic production – leading to the current and mass extinction of other species. We have conquered the oceans, the Moon and outer space and now set our sights on Mars. To continue our spectacular technological success and preserve the options for our grandchildren’s survival, we must now face ourselves and fearlessly diagnose our major failures: the persistence of war and poverty.
Reappraisals of the work of Charles Darwin together with new evidence from historians, archeologists and anthropologist point to the evolution of human emotional capacity for bonding, cooperation and altruism. Competition, territoriality and tribalism, rooted in the fears of our past, served humans well in their early trials and vulnerability. So did cooperation and the ability to trust and bond with each other – controlled by the hormone oxytocin. Higher levels of this hormone during pregnancy and lactation bonds women to their children over the extended developmental period to maturity. Charles Darwin saw this human capacity for bonding, cooperation and altruism as an essential factor in our successful evolution. How otherwise could we have gone from the experience of over 95% of our history lived in roving bands of 25 people or less – to today’s mega cities: Sao Paulo, Shanghai, Mexico City or Rio de Janeiro? These improbable metropolises, along with global corporations and governance institutions such as the United Nations and all its agencies, the European Union, now expanded to embrace 25 formerly warring countries – could never have emerged without humanity’s capacities for bonding, cooperation and altruism.
So as we have evolved into our complex societies, organizations and technologies of today – we need to re-examine our belief systems and the extent to which they still may be rooted in earlier primitive stages of our development. Why for example do we underestimate our genius for bonding, cooperation and altruism – seemingly stuck in our earlier fears and games of competition and territoriality? Why do we over-reward such behavior and still assume in our economic textbooks and business schools that maximizing one’s individual self-interest in competition with all others is behavior fundamental to human nature? Why is our equal genius for bonding and cooperative behavior – even altruism not taught in business schools as the true foundation of all human organizations and our greatest scientific and technological achievements? Even competition and territoriality as every business executive knows, exists within structures of cooperation and networks of agreements, contracts, laws and international regulatory regimes that allow airlines, shipping, communications, and other infrastructure to undergird global commerce and finance. What do these deep, primitive beliefs about the primacy of competition and territoriality have to do with poverty and war? All are rooted in these ancient human fears – of scarcity, of attacks by wild animals or other fearful bands of humans. Rooting out these fears – deeply coded in our “us-versus-them” political and economic textbooks – is the essential task of our generation. These old fears underlie today’s continuing cycles of oppression, poverty, violence, revenge and terrorism. Indeed, if we humans do not root out these now-dysfunctional old fears, we will destroy each other. Meanwhile, the fantastic potential we have created for further successes and building the prosperous, equitable, sustainable human societies is now within our grasp.
Why then, do we continue to allow these old textbooks with their Manichean mantras of competition, global economic warfare, balance-of-power, eye-for-an-eye geopolitics – all amplified in mass media – to dominate our lives? The world’s newest superpower: global public opinion is already rejecting these old dysfunctional dogmas. Over ten million of our fellow humans demonstrated peacefully worldwide against the now-patently misguided war on Iraq. Yet as Thomas Kuhn described in his Structure of Scientific Revolutions old dysfunctional beliefs often persist long after they have been disproved. So it is with today’s economic textbooks and the entire paradigm underlying the “Washington Consensus” model of development. We have evidence of its bankruptcy all around us: widening poverty gaps, the digital divide, unbalanced, unsustainable economies mired in debt – breeding despair and terrorism, diverting resources from enhancing human life to military weapons, death and destruction! No, all this is not a flaw in human nature – but a flaw in our encoding of our past in that set of dysfunctional beliefs that deny humanity’s true genius – those cooperative, bonding and altruistic skills that have undergirded all our progress to date!
These human skills now have laid before us a rich array of potentials for astounding, widespread, shared prosperity, peace, restoring and our planet’s ecosystems as I describe in my Além da Globalização (See Figure 1). Our old competitive drives are already transcending former materialistic goals – toward new visions such as those laid out in the Brasil Vision 2020 agenda developed by the Economic and Social Council in Belo Horizonte, October 2003 (Figure 2); in the United Nations Millennium Development Goals, in the UN Global Compact (Figure 3); in the Prague Declaration on Humanizing Globalization; the Report of the Commission on the Human Dimensions of Globalization; and the 16 principles of the Earth Charter (Figure 4), now ratified by hundreds of municipalities, companies and NGOs in over one hundred countries.
The best minds in academia, in the economics profession have already abandoned the old mantras of competition and global economic warfare and adopted the goals of meeting humanity’s needs for better nutrition, health, education, basic human requirements for sustainable livelihoods. Such insider critics of the dying economic order as Joseph Stiglitz, Paul Krugman, and Jeffrey Sachs are joined by the worldwide movement of statisticians of the new indicators of sustainability and quality of life that met in Curitiba at the ICONS conference in October 2003.  We are already overcoming the primitive economics of reptilian brains! Brasil has become a leader in bringing forth these viable visions, plans and actions to create this win-win world. The World Social Forum, launched in Porto Alegre in 2000, promotes them. The world’s great leaders, from Mahatma Gandhi, Martin Luther King, Mother Teresa and Rosa Parks to Nelson Mandela, Vaclav Havel, Jody Williams and Shirin Ibadi have affirmed these goals and the inseparability of human experience. In today’s Information Age, the some 2 billion members of the human family still excluded from opportunities for decent lives – can see all too clearly the lifestyles of the more fortunate. The Information Age has become a new Age of Truth.
Humans have created all the necessary technologies for abundance. We have demonstrated our collective skills at organizing ourselves in ever-larger urban habitats, in globe-girdling institutions, treaties and agreements. Yes, there is much to be done to fulfill the UN Millennium Development Goals and reversing the in-equality perpetuated in our old laws, institutions and erroneous beliefs that debase human nature.
Our first order of business, as always, is to proclaim the truth underlying human success: cooperation and that bonding that gives rise to empathy and our ability to share. This sharing behavior is the basis for the world’s informal, unpaid economic sectors, still larger than the official money-denominated sectors, as discussed on page 11. Today, we have created all the information and communications technologies to correct old conceptual errors rapidly. Commercial mass media’s obsessions with violence, perversion, greed and consumer addictions must be called to account. The planet’s electromagnetic spectrum is a global commons, licensed to media and wireless companies in social contracts to inform the public – not only private property, for maximizing corporate profits. In today’s Information Age, money and information have become equivalent. Information drives markets, as we experience every day. In the 1980s, former President of Citibank, Walter Wriston stated that the world was no longer on the gold standard but the information standard.
The mission of the new media company I have founded, Ethical Markets Media LLC, and its initial TV series is to raise capitalism’s standards, showcasing the most ethical companies and the evolutionary possibilities of capitalism in the 21st century. I have been discussing a strategic alliance with a diverse group of socially responsible companies and media to jointly create MERCADO ETICO – AMERICA LATINA. This media enterprise is a sort of Bloomberg for ethical companies and to grow the sustainability industries globally (www.ethicalmarkets.com). The non-profit EthicMark Institute will distribute these programs to schools and ethics courses in management and business administration curricula (www.ethicmark.org).
Ethical Markets Media will remind viewers of this new financial show of the real values that undergird successful, sustainable markets: trust, honesty, transparency, fidelity in contracts, meeting needs of consumers and providing good and fair service to all their stakeholders: investors, employees, customers, their neighbors and communities as well as protecting and conserving the environment and global commons. In the USA, 50% of all adults own stocks either individually or involuntarily in hopes of retirement security, through their pension plans, 401Ks, etc. There are thousands of good companies and entrepreneurs who operate by these ethics and principles in countries all over the world. While Ethical Markets will cover all this good news – raising the “best-practices” standards, the mainstream financial media must continue reporting on the current corporate crime wave – often based on behavior and strategies taught in traditional business schools. Unfortunately, this bad news is compounding all the cynicism over media revelations about political and other corruptions – together with their focus on violence, sex and depravity.
Today’s mass media is mis-educating humanity on a vast scale in the competitive search for profits and market share. Many countries, whose mass media developed beyond this marketing focus, foster public education and inform citizens. Indeed, the US Constitution holds media to be the fourth branch of government, since democracy is impossible without an informed electorate. The British Broadcasting Corporation’s Open University has graduated millions of prisoners, housewives and disabled people with college degrees since it was founded in the 1950s. Brasil’s TV Cultura and Mexico’s distance-learning programs from Monterrey’s Institute Technologia are examples of ethical media that enhance humanity’s self-image and potential for further development. Ethical Markets Media TV, radio and internet operations will likewise focus on all the most ethical companies and enterprises, from local to global, all the most visionary, altruistic CEOs, all the cleanest, greenest, most innovative technologies and the genius of social entrepreneurs bettering local communities worldwide.
Through all such efforts, we can rapidly re-code humanity’s historical experience from its current pathological, fear-based cynical view of human experience to the fuller view of our true survival skills as trustful, imaginative, creative, cooperative beings. As US President Franklin Delano Roosevelt famously said in the depth of the Depression in the 1930s “We have nothing to fear but fear itself!” This is ever more true today – when misguided politicians obsessed by their own fears, try to govern by inducing fear in their citizens. Today, unlike in the past, new media and the Internet allow citizens to organize, resisting such paranoid exhortations and dysfunctional policies with their new movements proclaiming correctly “Another world is possible!” These new citizens movements created the Landmine Ban Treaty over the objections of many “realistic” politicians – now ratified by a majority of nations. Such movements led to the Universal Declaration of Human Rights, the International Criminal Court and the Earth Charter. Amplifying their creative voices via mass communications can rapidly avert the current march toward more inequality, poverty, despair and violence.
The multiple causes of poverty and inequality: from lack of adequate food, shelter, health care and education to geography, climate, culture and other factors, have been analyzed in the voluminous literature from many disciplinary perspectives. In my own work, I take account of all these factors. Human societies are experiencing an uneven, often traumatic global transition from 300 years of industrialism based on fossil fuels (popularly termed the “Old Economy”) to the emerging “New Economies” based on accelerating information flows and de-materializing of OECD countries’ GDPs toward services. Such epochal shifts require paradigm shifts, evidenced by the crisis within economics, which is slowly moving away from equilibrium theories, simple, static models of human behavior and its pseudo-scientific misuse of mathematics. Today, the growing “hyphenated” societies of ecological-economics, social-economics, political-economics and evolutionary-economics attest to their broadening focus.
Similarly, development models are in disarray. My own model sees development as the evolution of human societies’ understanding of three basic resources: matter, energy and information and the substitution patterns toward greater thermodynamic (not economic) efficiency. (See Figure 5, Three Modes of Resource Use) Thus, societies’ key resource is information and the extent to which its culture educates and nurtures its human and social capital, and applies its knowledge base to managing its material and energy resources. An example is the evolution of fossil-fuel technologies since 1850 from solids and liquids to gases (See Figure 6, The Shape of Things to Come). The paper presented by Calvert-Henderson Indicators energy expert John A. “Skip” Laitner of the US Environmental Protection Agency “How Far Energy Efficiency: Practical Limits or Policy Choices? (April 2004) confirms these trends (See Figures 6A, 6B, 6C and 6D).
I want to focus on two factors often overlooked by economists, because they are often invisible, due to biases within traditional economics, and thus transmitted to policies of both private and public sector financial institutions and other government decisions-makers. Examples of these paradigm problems include the recent narrow-gauge approaches of the IMF and other institutions to reform of regulations and international financial architecture. At an even deeper level, the myopia of policies of development summarized as the now infamous “Washington Consensus” have blinded a generation of public and private decision-makers – however well intentioned and democratically inclined.
I have documented elsewhere such tragic myopia and even psychological states of denial within academic economics – particularly in the USA and the UK (Henderson, 1978, 1991, 1995). I also examined (Henderson 1981, 1988) the social processes whereby this discipline (economics is not a science) came to bestride public policy worldwide – crowding out many other relevant disciplines – from sociology, psychology and anthropology to game theory, thermodynamics, chaos theory and ecology.
Now that globalization of markets has followed the erroneous dictates of such faulty economic paradigms targeted toward per-capita averaged GDP growth (see Figure 7, GNP Problems) – we are dealing with their growing “externalities,” including the costs in wider poverty gaps and social exclusion. Another uncounted cost is the continued erosion of non-money-based local livelihoods and cultures – similar to the extinction of other species and ecosystem disruption. Expanding micro-credit can usefully bring millions of traditional small entrepreneurs into money-based economies. Unfortunately, these money-based systems, now globally linked and highly unstable, must be overhauled to prevent the massive epidemics of new and exacerbated poverty they can precipitate. We witnessed such impoverishing of millions in Thailand, Indonesia and the other “tiger economies” during the 1997 Asian meltdown, as well as in Mexico, Brasil, Argentina and Turkey. The Copenhagen Consensus project estimates that the crises in Indonesia and Argentina wiped out over 20% of those countries’ GDP. The Asian crisis pushed 22 million people into poverty.
Too often, luring people from their traditional ways and communities into monetarized urban areas – where promises of “development” and the advertised “good life” – has proved unsustainable and led to such human tragedies. Public relations efforts of both government and financial players in today’s global markets sought to blame domestic causes for these national meltdowns: from cronyism, lack of oversight, transparency and institutional structures to faulty macro-economic policies. The usual recipes included “disciplining” governments via floating currency regimes or pegs, even dollarization, and ever-wider opening of their markets to “free” trade. As Harvard economist Dani Rodrik documents in “Trading Illusions” (Foreign Policy, Mar-Apr, 2001, pp. 55-62) this “incessantly repeated openness mantra,” echoed by officials of the IMF, the World Bank and other international financial agencies has perverted development priorities in many developing countries.
Like Rodrik, I have also stressed the need to build homegrown economies without falling into excessive import-substitution, tariffs, etc. In any case, global FDI flows have shrunk from $1.1 trillion in 2000. In 2001, despite the general slow down, FDI in the least developed countries (LDCs) rose slightly to $3.8 billion. But the share going to the 49 least developing countries is estimated at only 2% of all FDI to developing countries as a whole and only 0.5% of the global total (UNCTAD, 2003). China receives the largest portion, while the most needy countries in Africa are by-passed. The debate about global poverty and inequality has been joined with deeper questioning of old per-capita averaged data and mantras about free trade. Even the World Bank now admits that the composition of world poverty has changed. In the early 1980s, one in ten of the world’s poorest lived in Africa. Today, the figure is one in three.
Today, with the global sharing of experiences, more pragmatic development can be country-specific, employing multiple strategies more fitted to culture, knowledge, geography, ecological and social assets. I welcome the recent honesty of defectors from the “old-time religion” economic orthodoxies, including Joseph Stiglitz, Jeffrey Sachs, Amartya Sen, George Soros, and Paul Krugman – to cite those who are well known. They are helping expand the horizons of the economics profession toward a more humble, inter-disciplinary stance – rather than the usual conceptual imperialism of economics. London’s The Economist, for example, has been claiming the territory and contributions of game theorists, psychologists, ecologists, etc… all as part of economics. This kind of intellectual inflation is understandable, because circulation, consulting fees and textbook sales are at stake!
Beyond the reforms discussed earlier, I will focus on two main approaches to reducing poverty and inequality that stem from my “outside the economics box” analyses. I consider them key tools to apply at global “acupuncture points” where focused interventions can produce beneficial results:
- Reforming the worlds’ money-systems, particularly currency exchanges. Such reforms must also include macro policy and banking reforms I have advocated (Henderson, 1999) to address structural inequities, and to expand today’s narrow indicators of “wealth” and progress. Conventional policies and paradigms are promoted by powerful special interests and will be difficult to change. They have led societies off course – in the pursuit of per-capita averaged, money-denominated GDP-growth.
- Building out electronic platforms from global to local for extending barter, countertrade and other money-free, pure information-based trading systems. This task is much easier, since it builds on age-old cultural knowledge, rests on powerful incentives, makes use of the Internet and is growing via private sector and technological initiatives involving civic society and local governments.
I must disclose
- I am a patent co-applicant in the Foreign Exchange Transaction Reporting System (FXTRSsm) now under consideration by several central banks to create “best practice,” transparent, well-regulated, fee-based currency exchanges. I and my co-patent holder, Alan F. Kay, founder and CEO of AutEx, Inc. in 1969 (the first e-commerce company) have pledged our royalties to the United Nations – because our country still owes the UN over $500 million back dues.
- I co-created with the Calvert Group, Inc. of Bethesda, MD, a socially-responsible mutual fund manager with over $10 billion under management, the Calvert-Henderson Quality of Life Indicators, a wider view of “wealth” and progress in the USA. (See Figure 8, Calvert-Henderson Quality of Life Indicators).
- I am an investor and advisor to several electronic barter start-ups and have long been an advisor on barter systems and local scrip and similar trading systems to clear local markets. Indeed, I consider the proliferation of these information-based trading and credit systems as leading indicators of the under-performance of monetary authorities, banking systems and macro-economic management.
Before I describe the FXTRS and my approaches to barter, a little context is necessary. We are well into the processes of globalization and the Information Age – whose technologies have changed and will continue to change our economic landscapes on the planet. As mentioned, the world is already on the information-standard; i.e., information is the world’s new currency (either on paper or as bits in electronic telecommunications) and most importantly, information, unlike money, is not scarce.
All traditional economic models are money-based and rooted in concepts of materialism, scarcity and therefore competition (the obsessions and fears of our reptilian brains). Information on the other hand is abundant and non-exclusionary. If you give me information, you still have it as well. Sharing information creates synergy, innovation and abundance. This is why bartering; formerly a local phenomenon of traditional societies (and still used by some 2 billion people who are not in the world’s money economies) is now going high-tech.
There are two ways that humans transact (see Figure 9, Two Ways of Transacting): 1) via money-systems and currencies, which are still creating artificial scarcity (e.g., via the rationing and steering of credit and restrictive monetary policies, high interest rates, etc.); and 2) via all forms of barter from local to corporate barter, countertrade, payments unions and estimated annually as between 10-25% of all world trade. Therefore, as we devise reforms for the international financial architecture, banking and money-systems, we must keep in mind that today, high-tech barter and freestanding electronic platforms can bypass malfunctioning money-systems. With this in mind, I now turn to one discrete tool to reform traditional currency-trading. Many other proposals for overhauling the global financial architecture have been discussed for decades and are now being revived, including a new global reserve currency based on a basket of major currencies and commodities; raising the capital adequacy ratios of banks; new issues of Special Drawing Rights (SDRs), allowing heavily-indebted nations to declare bankruptcy, etc…
Stabilizing Currency Markets using FXTRSsm
The Foreign Exchange Transaction Reporting System (FXTRSsm), described more fully in the handout, is targeted precisely at making foreign exchange trading more efficient and transparent. Once it is adopted by one or two important central banks in OECD or developing countries, it could become a global technological standard as others follow suit. Private market players can adopt interfaces in spite of the very small trading fees – simply because the system provides the information they lack and is more efficient. This can also reduce the money-laundering, tax-evasion and criminality that exist in today’s unregulated global casino. Such systems must handle many currency market functions, and reduce the likelihood, scope, and force of a massive bear raid attack on a weak currency. Such attacks have sometimes played a role in crippling the economy of the target currency. Nevertheless, at times and to some degree they are inevitable. FXTRSsm systems will not eliminate them, but greatly reduce their likelihood and their severity.
FX traders, per se, are not the cause of the problem; they do not make the rules. On the contrary, traders provide liquidity, with generally razor thin bid-offer spreads and very low transaction costs, which are essential to the satisfactory operation of the US$1.5 trillion global FX market. This is only possible because trader activities, including speculation, produce a market of such enormous size that it is economically possible for both high liquidity and thin margins to co-exist. Bear raids on weak currencies are examples of herd-behavior and can be viewed as battles. On one side are the central banks, whose task is to help manage their domestic currency and economy. They are the only market players ready, if necessary, to sell low and buy high to protect their national economies as we have seen again in the recent dollar-buying by the Bank of Japan. On the other side are all others, individuals, banks and financial institutions. This includes not just speculators and hedge funds, but anyone who is ready to jump into the fray at some point in hopes of buying low and selling high.
When an economy is weak, there is no doubt that to some extent its currency price should fall. Rumors or public statements by market-players amplified by mass media can cause unjustified selling and volatility. Whether a bear raid succeeds does not primarily depend on how over-valued the currency is, but more on how much capital can be brought into the attack and how much capital is fleeing the country. Even sound currencies can succumb to a large enough raid. Even groups of central banks in consort cannot defend against today’s huge leveraged hoards of cash. Thus an excessive measure of so-called “market discipline” can harm countries whose “fundamentals” are sound. Bear raids were prevalent prior to the US 1929 crash. In 1934, the newly created SEC introduced a number of changes in the transaction process itself. One was the “uptick” rule, which prevented a broker from selling “short” if the last sale price of a listed stock was lower than the previous transaction price. This slowed the momentum of bear raids and they largely disappeared. Note that this rule utilized “ticker tape” action. “Tickers” now electronic, are based on transaction reporting, at the heart of FXTRSsm systems.
Today, with screen-based technology undreamt of in the 1930s, a much smoother process handles the more active global currency markets. Technological designs in the FXTRSsm will enable the recording of purposes of trades and counter-parties and help the relevant standards body to curb bear raids without impairing the functioning of the market in normal times and without depriving or slowing the execution of any transaction desired by willing buyer and seller at a mutually agreeable price. These systems would fulfill some of the needs cited by central bankers and finance minister for “a new global financial architecture.” The system can be set up to be acceptable both politically and financially to central banks, financial firms and other users, vendors (Reuters, Bloomberg, etc.), foreign exchange brokers and dealers as well as to national political leaders and the public. The participating central banks can assure that all transactions will be promptly reported to the system on a “ticker tape.” Trade reporting itself in existing markets generally helps stabilize the market. When a market lacks information, such as today’s global currency markets, this leads to volatility, over and under-shooting and other symptoms of herd-behavior.
Trade reporting will help smooth currency markets, but further stabilizing mechanisms are still needed. The transaction fees of 0.001 percent are assumed on all trades of US$1 million equivalent, amounting to US$10 to the buyer of dollars on a base-line trade (or whatever 0.001 percent equals in a base-line trade for the buyer of another currency). That amount is slight compared to other costs and benefits perceived by both parties to any trade. It is reasonable to assume that a charge this small would not derail any trade, or normally even be noticed. However, the basic fee revenue for the system would then be US$10 million per day or about US$3 billion per year if and when all major currency countries were participating. The fuller patent description of the financial architecture FXTRSsm is available from the authors.
National policies can also include tightening oversight and regulation of capital flows, domestic banking and corporations’ borrowing and central bank supervision. Chile has provided some useful models in these areas. Game theorists understand such independent “virtuous circle” regulating better than economists. For example, in the US in 1910 the state of Kansas bucked the lawless trend of lax corporate charters. Yet in two years, twenty-four other states followed Kansas’ lead with modern, accountable charter laws, which restored investors’ confidence.
Many countries will continue setting their own domestic rules and financial institutions’ frameworks according to their own cultures and domestic concerns. This is especially so, since the bouncebacks of Korea, Malaysia, Thailand, and the Philippines which flouted much IMF advice and used Keynesian deficit-spending to stimulate their recoveries. China will continue to resist US jawboning about its overvalued renminbi (RMB). The clever Chinese will probably check-mate the US dollar’s declining hegemony even further – by pegging the RMB to a basket of strong currencies. Japan is still re-structuring its economy. Much unhelpful conventional economic advice about “opening up” misunderstands Japanese culture and goals of social stability and full employment. National governments have wide latitude to act creatively, without waiting for international agreements or bowing to the dictates of the IMF or currency traders and corporations.
Indeed, public, private and civic society interventions are needed at all levels from global to local to shape a sustainable global economy (See Figure 10, Global Transition at Seven System Levels). The tasks include designing, at all levels, new indicators of sustainability beyond macro economic measures of GNP/GDP. An example is the Calvert-Henderson Quality of Life Indicators. More accurate accounting and many other new statistics were presented at the ICONS conference (see www.sustentabilidade.org.br); Global monitoring and feedback; higher standards for example, the Indicators of Instituto Ethos, the UN Global Compact, (Figure11, The CERES Global Reporting Initiative); investment criteria (see Figure 12, Calvert Indigenous Rights Policy); better rules; regulations and codes of conduct and principles – embracing human rights, equity, and Earth Ethics are all developing apace. These all must embody better science and information based on new biological knowledge of our relationship to nature.
Facilitating Barter from Local to Global
As mentioned, barter has been the province of the 2 billion humans not part of monetarized and urbanized sectors. Countries use payments unions, while corporations routinely exchange an estimated $1 trillion worth of goods and services annually, both domestically and internationally. Because all these barter exchanges are made by agreements, contracts, letters of credit and local scrip currencies, etc., i.e. information often exchanged in secure computer networks, their value is not tracked well in conventional monetary statistics. Even the use of reference currencies is not necessary. Many of these barter exchanges involve 2, 3, 4-way or more commodity transactions. Indeed, worldwide over 50% of all productive work and exchange is unpaid and therefore omitted from official GDP statistics. In 1995, the UN Human Development Report estimated that $16 trillion of this unpaid work was still missing from global GDP, $11 trillion by women and $5 trillion by men (see Figure 13, Total Productive System of an Industrial Society).
Barter was inefficient – and cumbersome – prior to computers and the Internet. Today, it’s a snap – and barter has several advantages over currency-based trading. Firstly, barter enables resource and commodity based economies to trade directly with each other – without first needing to earn or hold foreign exchange in key currencies. For example OPEC, which dollarized its oil 40 years ago, has suffered heavy losses due to the dollar’s 40% drop against the euro. In today’s $1.5 trillion daily global casino, many traders are expecting OPEC to redenominate their oil in euros. OPEC still has considerable pricing power (the cartel controls 65% of all the world’s proven oil reserves) and the world is still gulping its products. Yet, when its oil prices are corrected for inflation, they are less than before its 1973 increase. Many of OPEC’s member states are still developing and short of foreign exchange or in debt. Direct barter (or very low interest rate loans, which can also be repaid in goods and services) open their trading options and opportunities enormously.
For non-OPEC developing countries, barter deals allow them to avoid dollarized oil prices and obtain the oil they need by trading their under-valued commodities in exchange. Similarly, governments can procure needed capital goods, infrastructure components, etc., by bartering with each other – just as corporations barter media time, band-width, airline seats, hotel rooms, equipment and a host of other goods and services. All this can be facilitated with robust computer software that can handle different countries’ tax regimes, and all the requisite back-office clearing and settlement systems for this type of information-based, credit-trading.
As the volume of real commodities on such systems grows, today’s fiat currencies will tend to float against these “baskets of commodities” (e.g., oil, generators, machinery, agricultural commodities, etc.) whose prices in currencies are often tracked. We must remember that currencies, money per se, has no value, but performs as a tracking and scoring system – and when properly managed – a store of value. As we see for example, in the case of oil: this “black gold” is more liquid, valuable – and fungible than most fiat currencies. Furthermore, oil is the essential energy source that still drives most of the world’s transportation systems. Venezuela, the country that invented OPEC, understands all this and President Hugo Chavez took the initiative in signing 12 new oil agreements with Latin and Central American countries to provide their oil needs under innovative concessionary, exchange terms. Bankers and their economists are horrified. They are still trying to re-impose scarcity on the Internet via monetizing transactions, credit and debit cards and even getting into barter themselves.
Economists tend to dismiss barter as “primitive” as their textbooks teach – but it will be Internet barter companies and real traders in real commodities that will prove those textbooks obsolete. How can barter be facilitated among the world’s 2 billion people outside money-systems? They are not “poor” (which is what economists call people without currencies). These 2 billion people are richly resourceful, often living sustainable lives. Today, off-grid, solar-powered microgenerators, such as those being supplied to rural villages in Africa and Asia – by Equal Access, Solaria, Inc., SELCO, Hewlett-Packard and other companies – provide connectivity. Barter menus, from global to local can be accessed via cheap hand-held devices. Villagers may find a local menu of barter partners and little need to make a long trip to a market town with no assurance of selling their produce.
All countries have the sovereign power to coin their own currency and make public works loans directly. The practice (promoted by political pressures from private banks) of loaning the federal funds directly to these banks allows them to lend on to consumers at market rates of interest. This fractional-reserve banking system term has become the norm in the US and other countries. Many believe that the sovereign power of creating a nation’s money should not have been ceded by the US Congress to private banks, who can lend it out at interest while only retaining a fraction in reserves. Traditionally, the Bank of International Settlements (BIS) required these capital reserves to be at least 8% — but pressure from banks to reduce reserve requirements has now lowered these reserves for some categories of risk, to almost vanishing point, accepting the bankers’ own VAR (Value at Risk) models. This adds risk at a systemic level. There are also many other ways of fighting inflation than raising interest rates: (1) require larger capital reserve ratios, as China does, (2) increase margin requirements on stock brokers and (3) encourage, by law if necessary, much more robust credit-unions and micro-finance for local development.
Many civic society organizations (CSOs) are now challenging the practice of bringing money into creation as debt to banks. For example, in the US, the Chicago-based Sovereignty Project, a coalition of local development advocates, introduced a bill in the US Congress which would allow the US Treasury to lend directly to cities, interest-free, for democratically approved, public works projects, ecologically sound development, new schools, etc. Rather than floating high-interest bond issues, which burden future generations, such municipal sovereignty debts would be repaid back to the US Treasury directly. This was the practice with Canada’s central bank until the 1950s. Other essential strategies for local control and building thriving, home-grown economies include local credit-unions, micro-credit, and small banks devoted to local lending (mandated in the USA by the Community Reinvestment Act), local business development groups, and networks of local venture funders.
Local barter networks and various forms of local currencies and scrip are as old as human communities and are used widely in traditional societies and informal sectors worldwide. Western adaptations include Cincinnati’s Time Store, a typical “bring and buy, skills and labor exchange” café operating in the late 1890s and Ralph Borsodi’s commodity-backed currency “the constant” which circulated in Exeter, New Hampshire, in the 1970s. Indeed, such local currencies in every state and most cities in the USA during the Great Depression helped local communities survive, as document in Mitchell and Shafer, Depression Scrip of the United States (1984). (See Figure 14, Examples from New York State)
Today, we relearn that anyone short of official national currencies can engage in as much barter as necessary. Today, these include high-tech exchanges using personal computers, local exchange trading systems (LETS) and the many kinds of local scrip currencies now circulating in hundreds of towns in the USA, Europe, and other OECD countries. Indeed, the most successful Internet second-hand auction company, e-Bay is based on the same model.
These tools can complement scarce national currencies where monetary policy is ill conceived or too restrictive so as to help clear local markets, employ local people, and provide them with an alternative local, purchasing power. In short, no poverty-reduction strategy will be complete without barter.
Both “public” and “private” sectors in our economic and political textbooks must now move over, as the third, civic sector where most of the world’s poor exist, takes its rightful place in human affairs.
University courses now study these civic sectors; politicians misunderstand them. After the trade battles of Seattle, Washington, London, Prague, Davos, Cancun and Miami, governments and corporations have learned to respect them. Even the World Bank, in an unpublished study, Beyond the Washington Consensus: Institutions Matter (1998) at last allowed that “human capital,” civil organizations, social structures, families culture and values must be studied and accounted in economic development.
Brasil’s government headed by President Luiz Inacio “Lula” da Silva has made commitments to alleviate poverty and reduce Brasil’s notorious inequality. President Lula has proven to doubters in international finance his competence in managing the economy. This sprawling nation is self-sufficient in energy, plentiful agricultural land and natural resources, with vast untapped domestic markets. Its 180 million motivated citizens boast, by the new quality-of-life statistical measures (www.calvert-henderson.com) one of the highest per capita income and wealth in the world. Investors who distrusted President “Lula’s” economic team lost big. They watched Brasilian bonds and stocks rise over the past 15 months by over 150% and the equally stellar performance of Brasil’s exports.
Now President Lula is braced to implement his promise to reduce poverty and develop Brasil’s real economy: provide jobs to address official unemployment figures of 13% and match its export-led growth with similar growth of its vast untapped domestic markets. This will entail a bold change of emphasis – away from the now-discredited conventional formulas for GDP-growth favored by the “Washington Consensus.” Even so, Brasil’s GDP growth through February 2004 increased to 1.8%.
Brasil must focus on its own reality rather than the old “one-size-fits-all,” trickle-down, averaged GDP-growth model – akin to flying over the country at 50,000 feet. On-the-ground details show a country with now 82% of its people living in cities – still migrating from the rural areas where two-thirds of them lived in 1950. This rapid urbanization had many causes. Mechanized monoculture of soy, sugar cane, etc. drove many out of agriculture into self-built favelas around cities where they sought work and the better life portrayed in mass media and advertising. Land was widely bought up as a “store of value” during periods of high inflation and distrust of depreciating currency.
Neither private sector companies nor public sector infrastructure could absorb this growing urbanized population’s need for employment. As in most Latin American countries, resourceful people made their own way, built their own housing, started micro-enterprises on the city streets, and lobbied for basic sanitation and public services for their own neighborhoods. Peruvian economist Hernando de Soto has documented the striving for better lives of these “informales, ”the smart entrepreneurs and homebuilders of the favelas of Peru in The Other Path (1989). His formula for recognizing the human and property rights of these micro entrepreneurs and workers in this emerging “third sector” of civil society – is now widely-accepted.
Many Latin American governments, as well as those in Asia and lately Europe and North America now have statisticians trying to document the enormous size (sometimes over 50%) of these informal sectors – not included in their official GDP and other macro economic measures. For example, in Italy, half of the population still relies on their roots in the informal, traditional and agricultural sectors when jobs dry up in the official GDP-measured sector.
Thus, the first order of business for President Lula will be to accept the report of the October 2003 International Conference (ICONS) in Curitiba, co-hosted by FIEP and many companies, which brought 700 statisticians from Latin America, Europe, Asia and North America to compare their new statistical models – beyond the conventional GDP. These capture these informal sectors and the jobs and livelihoods they contribute, where underserved poverty areas require basic sanitation (showing that $1 of investment yields a saving of $4 in reduced health costs, epidemics, etc.), statistics readily available from the Brasilian Association for Quality of Life, IBGE and IPEA.
The reports from ICONS (www.sustentabilidade.org.br) also highlighted the need to unpack official unemployment statistics such as Brasil’s current 13% (and the USA’s 5.7%). In Brasil, adding back in those “discouraged” job searchers dropped from the statistics after one year brings unemployment to 20%. The working age population is 115 million people. Documented workers in the private sector only number around 20 million (less than one quarter) while another 7 million are employed in public sector services. This shows the enormous size of Brasil’s informal sector – a huge untapped resource. There are high-leverage returns to public investment providing the huge backlog of public services in (1) basic sanitation (2) 6 million affordable, upgraded housing units for 20 million people and (3) catching up the lag in public infrastructure, green space, etc. in cities due to the rapid rural to urban migration.
All these public investments would provide basic platforms for local development both in underserved neighborhoods in Brasil’s large cities and hundreds of small towns. Some towns in beautiful coastal areas have lost valuable tourist trade due to soiled beaches from inadequate sewage treatment. Investing in such basics – a program advocated by a broad coalition around CUT (Central Unica de Trabalhadores – the PT group of Brasilian unions), would not only provide millions of new jobs, added tax revenues and a rapid multiplier effect on local economies. It would pay off in better public health, more children in better schools, and real advances toward “zero hunger” and other important sustainable development goals.
Will Brasil move toward such broader, sustainable development goals? A big question is whether Wall Street and global bond markets will see this as just “adding to Brasil’s public debt” or more “Keynesianism.” US President Bush’s massive economic and fiscal stimulus, which has taken the USA from a large surplus to a $550 billion deficit since he took office, is similarly criticized. The difference is that Mr. Bush’s policies produce few lasting public assets. His tax cuts skewed toward corporations and wealthy investors – produced little retail spending (since these people save and invest). Investment tax credits are often used not to create jobs in the USA, but to move jobs and factories to China and India. This accounts for the current backlash over trade agreements and growing support for Democrats. Furthermore, over $100 billion has been committed, so far, to the war in Iraq and reconstruction there. While US states have deficits of some $65 billion, over $450 billion will go to the 2004 military budget and $40 billion to Homeland Security. Almost three million jobs have been lost in the USA since 2001. New jobs are mostly temporary, low-wage or government and public sector jobs, i.e., “industrial policy” and Keynesianism.
The US recovery has revived stocks on Wall Street, despite an official 5.7% unemployment count. However, this figure omits millions of discouraged workers no longer counted among those seeking work. Growing awareness of the need to “unpack” such macro-economic indicators led to many media stories on the “hidden unemployment” of those discouraged job seekers, under-employed part-timers, structurally-unemployed youth and minorities. The spurt in hourly productivity (up about 4% over last year) translates into fewer jobs as companies strive for efficiency and profits by downsizing their workforces. The10-year study by The Russell Sage and Rockefeller Foundations of the changing structure of US employment and declining average wages pointed to some startling conclusions. Almost one American worker in five reported having been paid less than $8 per hour in 2001. Furthermore, the median American workers real hourly wages rose only 7% between 1973 and 2001 according to The State of Working America, published by the Economic Policy Institute, Washington, DC (www.epi.org).
Why do ordinary American workers get to keep less of what they produce than ordinary workers in other rich countries? The Russell Sage – Rockefeller Foundations’ reports on why the gap between rich and poor is wider than in most other rich democracies? The answer is politics! These differences in income distribution seem to be traceable to differences in constitutional arrangements, electoral systems and economic institutions. These differences, in turn, affect the political balance, the level of spending on the welfare state and a wide range of other economic policies. Economic inequality is less pronounced in countries that favor multi-party systems and proportional representation (rather than a two-party system) and produce more equal economic outcomes. A summary of this ground-breaking research is published in The American Prospective, January 2004 (www.prospect.org).
Brasil is a very different case: the huge infrastructure backlog in cities could be matched with underutilized local workforces, stimulating growth in domestic markets. Credit unions could recycle these funds within local communities. The small businesses of SEBRAE, their national association, support this domestic growth strategy. Key to success is assuring global investors that Brasil’s infrastructure development will create valuable long-term public asset and goods. As financial markets are beginning to adopt the new statistics of sustainability and quality of life, they will recognize the needed corrections in GDP national accounts.
This means creating a long-recommended asset account to balance public investments with the long-term value of the public infrastructure they create. These are amortized (as in corporate balance sheets) over the life of these assets: universities, schools, hospitals, roads, airports – even the public investments by President Juscelino Kubitschek that created the bustling city that is Brasilia! When these retroactive and current asset accounts are adopted (as “savings” in the USA since January 1996 and by Canada in 1999) the size of the actual public debt is cut by about half! Such “stroke of the pen” accounting corrections contributed one third of the US surplus during the late 1990s, and a $50 billion surplus in Canada.
Finance Minister Dr. Palocci and central banker Henrique Meirelles have done a good job of helping to correctly portray Brasil’s enormous economy with its huge untapped, uncounted potential assets. Now they need to educate Wall Street and inform Washington Consensus ideologues about Brasil’s cultural, social, human and ecological assets. While recent conventional GNP measures by consultants Global Invest show Brasil as slipping from the world’s 12th to 15th largest economy – broader measures of its uncounted assets would likely place Brasil in the top ten. These and the new public investments such as CUT proposes should, from now on, be correctly accounted as investments – not “spending” in the PPA – and added to GDP. The dividends from these new assets can also be projected: more jobs, tax revenues, local economic development, better health, education and visible improvements in urban quality of life for Brasil’s 82% urban dwellers.
Once financial markets grasp Brasil’s new development model they will also see that Brasil is more than a great exporter of a full range of competitive products – from airplanes to agricultural commodities. Brasil can also show the world what a sustainable world trade model looks like. SEBRAE is developing such a strategy – on which I was asked to comment at their convention of more than 1,500 Latin American entrepreneurs in Vitoria, October 2003.
At the heart of a sustainable world trade strategy is still the model of comparative, not competitive, advantage (See Figure 15, Principles of Sustainable World Trade and Figure 16, Subsidies to World Trade). This is widely misunderstood today. The current Washington Consensus model of promoting export-led growth and foreign investment has put many developing countries into competing to export identical products, from coffee to computer chips. This has led to many glutted world markets, worsening terms of trade, greater public and private debts and defaults. Worse, local economies and agriculture were distorted in many ways that exacerbated poverty, hunger and social exclusion.
Comparative advantage is a cooperative “niche” strategy – thinking harder about a country’s unique assets: cultural, social, human and ecological. SEBRAE’s rethink of Brasil’ “brand” in world markets lead to much more careful analyses – and a better balance between domestic market versus export market development. SEBRAE’s focus is practical – building on all Brasil’s real strengths: social, cultural and natural resources. Some shifts may be simple. For example, I suggested as a US analyst based in Florida that beyond competing with US trade barriers and selling orange juice to Floridians (who often have fresh oranges in their local markets and gardens) Brasil could send us their delicious mango juice – a delicacy we rarely see.
Lastly, Brasil can continue its focus on smart eco-efficient investments in leapfrog technologies, expanding partnerships with Chinese and Indian innovators in solar, wind power, hydrogen and fuel cells. Brasil led the world in flexible fuel vehicles (FFVs) that can run mixes of gasoline, ethanol, and methanol – and can mandate these and other transitional electric-gas hybrid cars now widely favored in the USA. PETROBRAS, FIEP, CEMIG, member companies of Instituto Ethos de Empresas e Responsabilidade Social and those that are endorsers of the UN Global Compact are now repositioning themselves in these growing 21st century global markets. They will take advantage of the more efficient, cleaner, greener technologies and investments that will provide Brasilians jobs and prosperity over the next 20 years. Unlike the USA, which is still backing into the future looking through the rearview mirror, “BRASIL VISION 2020” provides the roadmap to this equitable, prosperous sustainable future.
In this 21st century, let us together shape the kind of globalization that builds further on humanity’s true genius: for bonding, sharing and cooperation. In a planetary context, our next great transition is toward achieving prosperous, equitable and sustainable societies. This next wave of technological and social innovation, providing new infrastructure and public goods to undergird humanity’s new global goals can provide decent work and satisfying livelihoods for every man and woman on Earth. As millions of socially-responsible investors in the USA and Europe have proved, well-governed, ethical companies deliver higher financial returns as well. The new stock indexes of these socially responsible companies, for example, the Domini Social 400, CALVIN, FTSE4Good, Dow-Jones Sustainability Group and the New Bovespa regularly outperform traditional indexes, such as the Standard and Poors 500. Idealism has become practical! Altruism has become pragmatic!
List of Figures
(1) Corporate Social Responsibility
(2) Re-appraisals of Charles Darwin’s Origin of SpeciesFigure 1, Além da Globalização book cover
Figure 2, Economic and Social Council in Belo Horizonte, October 2003
Figure 3, UN Global Compact
Figure 4, 16 principles of the Earth Charter
Figure 5, Three Modes of Resource Use
Figure 6, The Shape of Things to Come
Figures 6a-6d: How Far Energy Efficiency: Practical Limits or Policy Choices?
Figure 7, GNP Problems
Figure 8, Calvert-Henderson Quality of Life Indicators
Figure 9, Two Ways of Transacting
Figure 9a, Four Billion People at the Bottom of the Pyramid
Hazel Henderson is a futurist, evolutionary economist, author of Beyond Globalization and seven other books published in 8 languages. Her editorials are syndicated by InterPress Service (Rome) to 400 newspapers in 27 languages. She is fellow of the World Business Academy and the World Futures Studies Federation, and advisor to the Calvert Social Investment Fund (Washington, DC) with whom she is co-created the Calvert-Henderson Quality-of-Life Indicators. She held the Horace Albright Chair at the University of California, Berkeley, and has served on Committees of the US National Academy of Engineering, the National Science Foundation, and the US Office of Technology Assessment.
 See for example, The Darwin Project, www.thedarwinproject.com,
 H. Henderson, “G-8 Economists In Retreat,” InterPress Service, Montevideo, NY, Rome, June 2003
 See for example, David Loye, Darwin’s Lost Theory of Love, ToExel, New York, 2000
 Joseph Tainter, The Collapse of Complex Societies, Cambridge University Press, NY (1988)
 See for example, R. Axelrod, The Evolution of Cooperation, Basic Books, NY (1984); Robert Wright, Non-Zero, Pantheon, NY (2000); H. Henderson, Building A Win-Win-World; Berrett-Koehler, San Francisco (1996); James F. Moore, The Death of Competition, Harper-Collins, NY (1996)
 Thomas S. Kuhn, The Structure of Scientific Revolutions, University of Chicago Press, Chicago (1962
)  Hazel Henderson, “Statisticians of the World Unite!” editorial, InterPress Service, November 2003
 Hazel Henderson, “The Age of Truth,” editorial, InterPress Service, Montevideo, New York, Rome, December 1998
 Visit some of their websites: www.anhglobal.org; www.wsf.org; www.moveon.org;
www.glboalexchange.org; www.via3.net; www.planetwork.org; www.care2.org;
 Such approaches are reviewed in Development Beyond Economics, InterAmerican Development Bank, Washington, DC 2000; by David Landes, The Wealth and Poverty of Nations, W. W. Norton, NY (1998); in my Paradigms in Progress, Berrett-Koehler, San Francisco (1995) and in my Beyond Globalization: Shaping a Sustainable Global Economy, Kumarian Press, Bloomfield, CT (1999) (Portuguese editions: Além da Globalização: Modelando uma Economia Global Sustentável, © Hazel Henderson (1999), ©da Introdução; Construindo Um Mundo Onde Todos Ganhem (1996);
Transcendendo A Economia (1991), all available through Editora Cultrix, Sao Paulo, Brasil).
 My late friend Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (Harvard University Press 1971) grounded erroneous economic theories of
“productivity” and “efficiency” in thermodynamics following British chemist, Frederick Soddy, who shared a Nobel Prize with E. Rutherford for the discovery of isotopes.
 The Copenhagen Consensus, organized by Denmark’s Environmental Assessment Institute with the cooperation of The Economist, March 6, April 15, 2004.
 The Economist, World Investment Prospects, Feb. 24, 2001, p.80
 The Economist, “Pessimism or Poverty?” April 10, 2004
 Henderson, H., Building a Win-Win World, Ibid. Ch. 9 “Information, the World’s New Currency, Isn’t Scarce,” Berrett-Koehler, San Francisco, CA (1996).
 See for example, Hazel Henderson, Beyond Globalization, Ibid.
 Henderson, H. and Kay, Alan F., FUTURES, Vol. 31, Oct., 1999, Elsevier Scientific, UK pp.759-777.
 The US dollar has declined over 40% against the euro, matched by falls since January 2002 of 31% against the Australian dollar, 20% against the Japanese yen, and 19% against the UK pound sterling.
 The Economist, April 10, 2004
 Henderson, H., Building a Win-Win World, ibid.
 H. Henderson, “Sustainable World Trade”, downloadable at www.hazelhenderson.com.