Barbara’s Blog

CREDIT WHERE IT’S DUE

08-02-2009

Jon Walker recently wrote in the Birmingham Post that the challenge to politicians during the current recession is to construct a successful and stable economy that does not rely on credit. Barbara Panvel explores the alternatives.

One local example of business that did not rely on bank loans to cover cash-flow problems and expansion is Wing Yip’s superstore, which does not work on credit but cash transactions.

Instead of borrowing, Wing Yip saved and waited to finance expansion. Other businesses that relied on borrowing are now suffering as banks are calling in loans, even though repayments are being met, because the assets on which they are secured have fallen in value.

Far-sighted economists Richard Douthwaite, Bernard Lietaer and James Robertson foresaw a major collapse of the world’s financial system and also spent time designing more stable and valuable alternatives.

Richard Douthwaite forecast the collapse at least ten years ago and was surprised that it did not happen sooner.

He advocates the development of community enterprise which concentrates on selling into local markets - ensuring a "secure" local circular flow of goods, services, payments and credit - rather than selling to the distant markets that pay higher prices today but which may pay much less tomorrow.

Not-for-personal-profit co-operatives and mutuals would use local financial systems to ensure that capital accumulated is reinvested locally rather than in banks, which pay higher interest but export local capital. In a limited way this is already happening within credit unions and the Aston Reinvestment Trust.

Bernard Lietaer, once president of Belgium’s Electronic Payment System, highlights the Swiss business model; when banks refused credit to 16 businesses they, with clients and suppliers, formed a cooperative, and created their own currency which could be borrowed at no interest.

Despite a massive press campaign by banks to discredit it this WIR system has flourished for over sixty years.

Lietaer advocates that national governments accept, in part payment of taxes, regional complementary currencies [well established in some parts of Germany and Japan] and that cities and local governments choose a complementary currency to cope as they “bear the brunt of the social effects of the looming recession”.

James Robertson, who set up and directed the UK Inter-Bank Research Organisation, was an adviser on parliamentary control of public spending and taxation to the House of Commons Procedure Committee and co-founded the New Economics Foundation.

He recently sent a submission to the Treasury Select Committee’s enquiry, proposing that the Bank of England should create and issue bank-account money debt-free, and that - as already is the case with banknotes and coins – no-one else should be allowed to create it.

His second proposal is that the UK government should be asked to consider promoting the introduction of a genuinely international currency which could provide a firm foundation for a stable, efficient and fair international economy in this globalised world.

Banking and other financial interests will persistently lobby ministers, putting great pressure on them to prevent such measures being taken, as they did in Switzerland, but after the exposure of their inefficiency and poor judgment, perhaps the public interest will eventually carry the day.

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