Making The Change: Practical Models

MAKING THE CHANGE

"The journey of a thousand miles begins with a single step" - Mao Ze Dong

'Doing it differently' can mean either or both of: -

Three projects are examined below: one in the first category and two in the second.

'Open Capital' is defined as 'a proportional share in an Enterprise for an indeterminate time'.

'Enterprise' is defined as 'any entity within which two or more individuals create, accumulate or exchange Value'.

BRIEF HISTORY OF THE ENTERPRISE

Early Enterprises were partnerships and unincorporated associations. However, the need for institutions which outlived the lives of the Members led to the development of the Corporate body with a legal existence independent of its Members.

In the UK the earliest Corporates were created by Royal Charter - a possibility which exists to this day. The key development in the history of Capitalism was the creation of the 'Joint Stock' Corporate with liability limited by shares of a 'Nominal' or 'Par' value, typically £1.00. The UK Industrial Revolution was fuelled by Capital raised through Joint Stock Corporates largely created by Act of Parliament.

From 1844 onwards, the creation of Corporates through registration under Companies Statutes further streamlined the process and over the next 150 years the Limited Liability Corporate evolved into the Public Limited Liability Corporate at the heart of the malaise deriving from the process we know as 'Globalisation'.

In the early 1990's major professional partnerships such as Andersen became increasingly concerned at the risks run by individual partners of bankruptcy caused by their unlimited liability for actions or omissions by their fellow partners.

Two of the leading UK professional partnerships commissioned a major City law firm - at a rumoured cost in excess of £1m - to draw up an Act of the Jersey 'States' Parliament establishing a new form of Limited Liability Partnership (LLP).

Suitably placed UK press articles raised the spectre of a mass migration by professional firms to Jersey and the Conservative Minister Michael Heseltine then in office ordered the commencement of the consultative and legislative process subsequently continued by New Labour which eventually resulted in the UK's Limited Liability Partnerships (2000) Act which came into effect on 6 April 2001.

The outcome is an economic entity or 'Enterprise' which is both novel and supremely simple but, confusingly, is specifically not a partnership but is instead a Corporate body.

For the first time anywhere (unbelievably) it is possible to form a corporate body (ie an entity with a legal existence independent of its individual Members) which has:
(a) collective limited liability (not to be confused with the pre-existing form of UK Limited Partnership or the US form of LLP, both of which have one or more Members with unlimited liability and others with individually limited liability);
(b) the mutually beneficial collaborative and co-operative characteristics of Partnership.

It is possible for all stakeholders, whether staff, management, investors, suppliers, service providers or customers to subscribe to a suitably drafted Member Agreement, rather than to complete adversarially negotiated Contracts of Employment, Supply Agreements and the like.

It is now possible - through suitable provision in the Member Agreement - to create a new form of 'Open' Capital in the form of proportional shares /partnership interests (eg one half, five tenths, 500 thousandths - as opposed to fixed shares of say £1.00 'Nominal' or 'Par' value).

This model has already been (albeit unwittingly) demonstrated by the Hilton Group in its recent sale for £350m of 10 hotels to an LLP in which it is the 40% owner and 'Occupying' Member (or Capital User), while another LLP - itself with three Members including Bank of Scotland - owns the balance of 60% and is the 'Financing' Member (or Capital Provider).

Hilton pays to the financiers each year for the 27 year term £3m plus 28.8% of the hotels' gross revenue, subject to a 'floor' of £17.5m pa.

There is no debt, and no mortgage: equally there is no Freehold/Leasehold 'sale and leaseback' either of which would have given rise to a fixed overhead to the Hilton group and therefore to a divergence of interest between the provider of Capital and the User.

The outcome is that sharing of risk and reward characteristic of a true partnership: if Hilton has a good year the financiers do too.

One interesting consequence of the model is of a method of financing property purchases which is Islamically sound, being outside the debt/interest paradigm.

Any Enterprise or economic entity: from a co-habiting couple to a government sponsored PPP or PFI; from a football club to a software firm; may be constituted using one or more Open Corporates.

An Open Corporate is an optimal Enterprise model in the way that it allows all stakeholders to work together co-operatively and collaboratively to maximise the Value created by the enterprise: as opposed to the current model, where one constituency of stakeholder competitively attempts to extract value from the others.

Due to its optimal nature, commercial enterprises which adopt the model will in due course be able to undercut those enterprises who do not - the 'Co-operative Advantage' referred to by the co-operative movement. There is no 'Profit' and 'Loss' in an Open Corporate: these concepts give way to the mutual creation and exchange of economic value created by individuals collaboratively and co-operatively working together.

The outcome will be a web of networked and non-hierarchical partnerships with a new capital and monetary market infrastructure based upon an open and transparent architecture.

Moreover, existing political thinking becomes obsolete as the economic assumptions underpinning existing political analyses break down in the face of a new phenomenon.

Redistribution through extracting Value from one constituency of stakeholder (however undeserving) and allocation to another becomes irrelevant. The alternative is now pre-distribution whereby the Value generated by "Open" Capital is more equitably distributed through revenue sharing agreements giving rise to a new balance between Equity and Equality.

" In five years time we'll all look back and say how simple and obvious it all was... " - David King

Open Capitalism is an 'emergent' phenomenon which will supplant the existing form of Capitalism (which was itself an unplanned, emergent process) and it is emerging in the same manner that a 19 year old single-handedly destroyed the business model of the global music business through his invention of the 'Napster' music file-sharing mechanism. Or the same way that the small community of global oil traders commenced trading oil and oil products in Yahoo instant messaging 'chat rooms' without their management even being aware of the fact.

Capital is and always has been 'broken' by the conflict within it between 'Permanent' Capital (eg Freehold property or Equity in the form of shares in a limited liability company ) and 'Temporary' Capital (eg Leasehold property or Debt finance).

Open Capital - a proportionate share in an enterprise held for an indeterminate period of time - is a concept so simple that, as JK Galbraith said of the creation of Money by private Banks, " ...the mind is repelled ".

Open Capital resolves the conflict between the financiers and the financed, to the mutual benefit of both, and thereby opens the way to a truly collaborative and open society.

As will be argued later, these approaches are complementary and helpful to each other, despite appearing to start from different ends of the problem.

There has never been any shortage of 'utopians', attempting to live out collaborative social arrangements - and therefore of necessity alternative economic schemes - with each other.

A cynic might say that recent history is littered with the wrecks of such dreams: Fourier, The Owenites, etc. Karl Marx was scathing about them: "these hothouse flowers".

The Pilgrim Fathers (1620) and other groups such as the Philadelphian Quakers (1682) may be put in this category. Many retained their ideals for generations. In a broader sense the whole American Dream can be seen as a vision that lost its way.

Should we be discouraged? If all previous attempts at voluntary collaboration have contributed to our understanding of possibilities and limitations, they will not have been in vain.

We should remember that earlier collaboration attempts faced a daunting foe. The enlightenment, built on the economic foundation stone of individual private property, was then in the full vigour of its youth. Bonds to others, tribal or otherwise, were seen as shackles and historical remnants.

Times have changed. Individualism in the affluent First World is still rife, more pervasive than ever. Yet its philosophical supports are now shaky. The ecological buffers (of the second threshold) are coming into sight. The system becomes ever more frantic and brittle. The green shoots of buried wisdoms show through the cracks in the concrete reason of the enlightenment.

Today there is a fresh round of practical, mostly level-headed, experiments in economic collaboration around the globe. Just as significant, there are attempts to set what needs to be done in a coherent framework of process - handbooks of correct social and economic behaviour, if you like.

Possibly the most ambitious of such pioneers is Ted Trainer, based at the University of New South Wales, author of such books as 'Abandon Affluence' and 'The Conserver Society'.* What follows is taken from his essays 'Let's Save Our Town' and 'What Should We Do?' [As part of our network, Ted has been a major influence in taking Devolve! down the road of radical economics.]

* See 'Recommended Reading' page for references. See 'Links and Allies' page for link to his Site.

Special Note: A proposal as broad and detailed as this will obviously be open to criticism on some of its assertions. No critical comments have been added in presenting this outline: it is always easier to be a knocker than a builder.

The starting point is rural Australia where small towns are dying: depressed local economies, large unemployed sectors, businesses closing or leaving town.

The cause is traced to globalisation of trade. There is selective location and resourcing by large corporations, which then undercut local industry/agriculture with what seem to be very low prices (because the social costs are not obvious). More and more of the things people need/want are bought in until the whole town and its people are in debt to the world. (And the banking system ensures that debts are paid 'double' through interest.)

Education of the unemployed is no solution: the jobs aren't there and more people will leave town to try and market their new skills.

Conventional wisdom would tell the town to adopt one or more of three strategies: -

On the supply side the combination of unused (or under used) capacity, unmet needs and high import costs indicates a potential to increase economic activity.

On the demand side there is scope for people to 'downsize': to spend less on fancy 'must have' imports and more on local goods and services.

Ted Trainer argues that the starting point for an alternative strategy (in any given town) is to set up a Community Development Co-operative or CDC. This is code for a group of confident collaborators with the vision. The CDC has a similar function to the entrepreneur in capitalist enterprise: a nose for the openings and an ability to 'make it happen'.

Although many of these ideas have been and are advocated by others, this scheme is radical in its integration of strategies and in not being utopian: it is directed at all. So far from being an alternative to the existing economy of the town, the intention is to activate a 'dead' sector (unmet needs, unused labour power, under used resources) as an add-on to that economy. Emphasis is placed on good connections between the 'new' and 'old' sectors.

As you would expect there is considerable discussion of the alternative (local) currency, which is an essential component of the proposal. Several points are made: -

Ted Trainer argues powerfully against the substitution mistake. Simply putting new local money into circulation without ensuring that it creates new purchasing power and new economic activity is mere substitution.

The general perception that local money will always be inferior to 'real' money is put in context. A direct quote from the essay: -

Alongside the introduction of a local currency the essay argues that the CDC should encourage and facilitate lifestyles that will reduce dependence on money in the first place, by: -

Since the key to a thriving local economy is reducing imports (rather than increasing exports, as in conventional economic wisdom) import substitution receives considerable attention.

It is argued that typically 80% of all money spent leaves town to pay for imports of goods and services - little wonder that local economies don't thrive. [Although the point is not made explicit it may be noted that if this estimate is correct then a 10% reduction in spending on imports (money that leaves town) could give a 50% boost to the local economy!!]

Raising capital - often critical for any new enterprise or project - is also discussed in context. The recommended strategies are: -

The final stage of economic evolution is seen as the gradual transition from a market to a gift economy.

In 'the good society' there would be a small market sector under firm social guidance. Much activity would be based on gift and reciprocity, also around the 'Community Commons'. The economic shift from what you can get to what you can give would both help to build, and be re-inforced by, bonds of goodwill between individuals plus community solidarity.

The logic of these measures, taken together, leads back into the social dimension.

Again and again the proposal draws attention to the vital role played at different stages by the Community Development Co-operative - the CDC - the nucleus of visionary and motivated people driving the changes - encouraging, enabling, exploring option, experimenting.

What is described as the CDC's 'research and education' projecy has four elements: -

Finally, the ball is thrown to all of us to get on with it where we live, starting to build examples of The Simpler Way from which 'the recipe book' can be constructed so that many more communities, towns, regions may follow.

Let's Save Our Town is essentially practical , hands on, local stuff (written for Australian conditions), though the big issues of ecology and the crisis of present society are there in the background.

The essay, or rather book, 'What Should We Do?' places what has just been argued for as the radical project, the thing to do now, in its bigger context.

Structured in six chapters, the first of these outlines the argument to come. The second chapter attempts to make clear our real present situation - coming up against the limits to markets, affluence, growth ... and by implication the very philosophies of progress and individual destiny that sustain them. In other words, we as a species have transgressed the second threshold identified by Ivan Illich [and investigated on the previous page]. This chapter is a distillation of more than twenty years work by the author in this field, and pulls no punches. It chooses not to grasp the population nettle, doubtless from a feeling that there is already too much of what many people don't want to hear!

The third chapter describes the form that a sustainable society - one with a long term future - must take. By distinguishing real quality of life from 'standard of living', Ted Trainer argues that The Simple Way can (will!) also be humanly fulfilling; he backs this up with his own experience of actually living it.

Chapter four lifts the curtain on what is described as the Global Alternative Society Movement. Just bringing together in one place so much information on world-wide activity and so many references to surveys, analyses and arguments is a major feat - read it and learn! The chapter has three main sections.

First, evidence of attitudes shifting away from 'greed and growth' over the last twenty years or so. Some people have gone as far as down-shifting: settling for less income than they could earn in order to live differently. However the majority (in the rich world) have not actually changed their lifestyle habits ... their position is contradictory.

Second, an overview of those actually doing it - in a wide range of projects - across the first world. The whole picture is chaotic, with a wide range of motivations and up to now many more rural than urban schemes. Yet it is also encouraging.

Thirdly, the situation in the third world is even more impressive, both in terms of the numbers involved (an estimated three million in Sri Lanka alone) and the sense of urgency: driven by necessity as it is seen that the existing world economic system cannot deliver for them.

Concluding this chapter, Ted Trainer argues that the growing Global Alternative Society Movement has now entered its second phase of taking stock. He refers as an example to Richard Douthwaite's 'Short Circuit' as "a 400 page description and critical evaluation of alternative economic initiatives..." The diversity of the movement is acknowledged, with a variety of motives, often not very radical in themselves. Yet, for whatever reason, people are doing what needs to be done. The point is made that these living examples of The Simple Way are not just pointers to some future revolution: they are the real thing happening now.

In chapter five other philosophies and strategies for radical change (about fifteen of them) are examined - and most of them are found wanting. In addition there are examinations of hoary questions like: "do the means determine the ends?", "which comes first, revolution or values change?", "who is the problem?", "is confrontation necessary?". Throughout the chapter the core need to reduce consumption, to move to The Simpler Way - and to do so in a socially structured manner - is hammered home. It is the yardstick by which all theories and activities are judged. Again, the chapter is instructive for its scope, as well as for the scrutiny given to strategies and issues of policy.

Chapter six is the positive proposal for 'doing it' - essentially as outlined in the essay 'Let's Save Our Town, summarised above. It throws down the gauntlet to all of us.

The hallmark of modern societies is the private individual. The bedrock of the private individual is private ownership. Since most of us don't have much property (capital) in the normal sense, ownership of our private incomes defines our separation from each other. The other really is 'other': outside the boundary of what we own and control. [This boundary between me/us and other/others is really crucial: see Open Capitalism above.]

It follows that income sharing (in any form, to any degree) goes straight to the jugular of the separation and competition* on which capitalist society (if you want to call it that) is based.

So its easy then: just share and the system collapses? There has to be a catch. There is.

'The System' is two inches behind our eyes. Our competitive alienation is the system, the present world order. Little features like the market, transnational corporations, power lobbies and of course ego tripping, bomb throwing nation states are merely superstructure! As has been noted elsewhere, if 'capitalism' was abolished tomorrow by some wonderful external intervention it would (if the resources allowed) re-establish itself within fifty years unless our relations to each other changed.

Yes of course, the institutions have an interest in keeping us dumb and divided - but that's just the feedback loop, the re-inforcer, not the original problem.

So where to start? Following the argument in 'What Should We Do?' above, there will be (are!) a minority of people who either feel the alienation or are convinced of the present danger. The first step is for such people to find each other and to evolve structures for income sharing together that work for them.

The general heading of income sharing covers a wide range of activities - from re-distributive taxes to concession tickets to gigs! However, it is the voluntary rather than the involuntary act which addresses the issues here.

Two important modes of voluntary, chosen income sharing are income pooling and income equalising.

Income pooling - making a communal kitty of all resources with each then drawing their needs from that kitty - has a very long pedigree. It was the natural behavior of our hunter-gatherer ancestors ... so it long pre-dates money incomes. The early Christians in the catacombs are said to have done it. Certainly it carried over into the monastaries of early and mediaeval Europe. Even outside them the instinct for free hospitality, co-operation and sharing remained strong.

The reformation was the decisive break point: individual consciences before God and individual places at life's monopoly board. Usury broke free. It is widely accepted that the protestant ethic allowed the flowering of modern capitalism. Apart from a few backwaters, income pooling retreated to the extended family, then to the nuclear couple, now often not even that. (Other cultures and traditions have resisted this atomising trend to various degrees.)

Local revivals of intentional income pools - within the communes movement of the nineteen seventies for example - were henceforth to be seen as eccentric exceptions, and subject all the time to the fragmenting pressures of individualist consumer society.

A few still exist: ironically both jurassic outposts and signposts to the only future we have - we humans either share our planet or we lose it. (To be more accurate, it loses us.)

Leaving aside the problem that common kitty income pooling is difficult (though not impossible) to operate outside close living groups, it has proved just too big a psychological leap for modern and post-modern people: with their high mobility, financial commitments and caution (let's not say distrust) towards others.

The verdict has to be: although it is something powerful when those able to make this commitment to others find each other and do it, this mode of income sharing is today only socially relevent in certain situations.

Income sharing by income equalisation is something different. In this mode each individual still operates and controls their own personal income - but an income adjusted by the agreed act of equalisation.

What's more, unlike kitty income pooling, which works best when 'all in', this form of income sharing can as easily be partial as total. One can opt to commit to the equalising process just 50% or 10% or 2% (or whatever) of (usually net) income. Thus a person's income in such a scheme may be adjusted, up or down, by a very modest amount - either because that income was close to the average to start with or because their chosen linkage (% committed ) is quite low. In plain English, it need not be too scary for even the modern self-first ego, and our deeper instincts to co-operate (or our well-founded social concerns) may be able to overcome.

Without going too far into numbers [literature is available on request] a person who joins a scheme with half as much income again as the average would, at 100% linkage, transfer in one third of their own original income - quite a commitment. At 10% linkage most of their own income would be outside the scheme. They would now transfer in about 3% of their original income. (The calculation could be done monthly, or as agreed.)

To take the example a bit further, if they then moved to a part time job, such that their new income was only two thirds of the average while their linkage remained at 10%, then the transfer to them would top up their wages by about 5%.

Well, we have seen above that it can, by choice, involve a much smaller leap than kitty style income pooling. Also a lot simpler. However, it still requires trust and confidence. (There are no inspectors or enforcers, as with the taxes clawed off you by whichever state you suffer from.)

This suggests that such primary sharing schemes are only likely to happen among fairly small groups of people who know each other to some extent and who also feel that they could trust each other to the level of commitment involved. (The 'risks' are much lower than - say - sharing a house with one or more others or going into a business partnership.)

Experience shows that something more is needed, even if the people concerned are all into sharing in principle. That 'something' is a group of people who have in common a shared purpose and/or shared values. The pivotal activists of a 'Let's Save Our Town' project, already joined together as the Community Development Co-operative of the town [see above] would completely fit the bill, especially as they would be exhorting others to move beyond narrow self interest.

Other examples might be: a network linked to a local church or chapel; a group of friends who have grown close around a shared hobby or sport; a local branch of the Womens Institute or of the Workers Educational Association; and so on. For the record, a small proportion of Devolve! members (including both Web organisers) are linked in a partial income sharing scheme that has been operating since year 2000.

This kind of act of solidarity may not seem very impressive. So ... small groups of people reduce the disparities in their incomes, leaving both the wretched of the earth and the super-rich untouched and unaware...

The significance lies in a number of psychological, practical and political consequences.

First of these is the loss of control to others of (some) income. This is a direct assault (if we can manage it) on the ego, on "the enemy two inches behind our eyes", on The System. It is not the same as making even generous donations to a charity of our choice. Then we remain in control of what happens, we are purchasing brownie points, a good feeling. This is more commendable but not psychologically different from purchasing shares or a camera.

Second, it can (and usually does) change the relationship with others in the group. They feel a bit more 'us', a bit less 'other'. This shouldn't be overstated but it is important.

Third (especially when someone who has been a net contributor has cause to draw - perhaps in between jobs) the mutual support element of the scheme becomes understood at an emotional level.

Fourth, for those lucky enough to have reasonable jobs or equivalent income, once the plunge has been taken the living down is automatic - and may descend further if group distribution has to fall (though stability is a wise aim - see next point).

Fifth, there is a natural and strong instinct to have 'rainy day' reserves against a sudden drop in income. The decision to build reserves i.e. not share out all incomings is, by definition, a further act of living down.

Sixth, these reserves are at once available for other pragmatic functions, like operating a loan club or mini credit union - quite a strong one since the funds have been 'given in' not 'lent in'.

Seventh, if and as the reserves grow they tend to take on a psychological and political character of their own. Spending 'our' money (say a chunky emergency donation) feels that little bit easier than spending 'my' money (even though it all came from individuals in the first place). Further, this block of money - like all capital - becomes political clout if used in certain ways. An obvious example would be a decision to contribute to a master fund or reserve for a whole network of income solidarity groups beginning to link up. (Such a network would have far more social significance than a single group of friends/comrades.)

Eighth, the new legal structures accidentally available to us [see discussion of Open Capital above] open up possibilities for a clear (but cheap and simple) structural relationship between the 'members' (i.e. the group of friends who have come into solidarity with each other and are now co-stewarding the funds). It doesn't stop there. Any group, say a local community, who are significant to the aims of the members may be brought into the partnership in a defined way.

If and as the number of people and groups involved in income solidarity increases, there is a natural progression from just local, project based relevance to a social/political force.

As noted in the seventh point above this will involve organised networking. The need for a common point of reference or 'bench mark' to relate the living down aspect of different income solidarity groups will become clear.

Enter the pioneering work of Charles Gray - one of the great 'living it' economists of recent decades. His development of a World Equity Budget (roughly, the average income if the whole world was in income solidarity) provides just the point of reference we need.

The W.E.B. calculation varies with year on year inflation and also locality (among other factors). For year 2004 England it would probably be around £100 per month (£1,200 p.a.).

It is not proposed that scheme members be expected now to live down to that level of simplicity-austerity-frugality. (Charles Gray did - in the USA!) What is proposed is that income solidarity groups relate their target incomes to some multiple of World Equity Budget for the purposes of comparison, clarity and social awareness.

For information, the Devolve! solidarity scheme presently operates at around six times W.E.B. This is around sixty times the income of the World's poorest communities. Looking in the other direction, the average income in England (per person) is maybe fifteen times W.E.B. - with massive variations of course.

[We hope to add more material on the issues raised by Charles Gray in due course.]

In conclusion, it should be repeated that the 'Let's Save Our Town' approach to The Simpler Way and the Income Solidarity approach are not competing radical strategies. The latter can easily 'nest' in the former. The example of CDC members opting for Solidarity with each other was given above.

Also, because small group comradeship applies leverage at an emotional level on people who are not necessarily open to political or indeed ecological ideology, it can assist with the education/exhortation dilemmas noted as a problem for The Simpler Way strategy.

At the same time, the enabling structures of Open Capitalism may prove as useful as tools for these collaborative endeavours as they are potentially subversive to the structures of The System.