February/March 2008

Everybody Wants to Rule the World
Ted Glick

A Better World is Possible
John Cavanaugh & Jerry Manders

Cultivating Wholeness and Community in a Fragmented World
Kim Corbin interviews Bill Plotkin

Relearning What We've Forgotten
Chris Maser

The Welcome Home Project
Jody Woodruff

Diabetes: Inherently Treatable and In Many Cases Preventable
Daniel Smith, MD

Riding the Age Wave
Gaea Yudron

Radient Mind: Intervuew wuth author Peter Fenner
Carrie Grossman

Cosmic Calendar
Salina Rain

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A Better World Is Possible

Localization Restores Face-to-Face, Knowing Relationships of Trust to Economic Transactions

By John Cavanaugh & Jerry Manders

From highlighting the history and power structure of the Unholy Trinity (the World Trade Organization, International Monetary Fund and World Bank) to detailed global economic reforms, the second edition of Alternatives to Economic Globalization: A Better World is Possible is an excellent resource for all who are interested in contributing to the great shift occurring on our planet. This text provides much needed solutions to our growing global problems while clearly defining their root causes, and also has information we deserve to know which has been left out of most history, political science and governments texts—including how and why the economic policies of the last five centuries created the problems we face as a global community and the fact that the global civic society is active and leading the way towards solutions that work.

Knowledge is the tool we need most and the essays contained in Alternatives to Economic Globalization illuminate, empower, and foster the changes required for our survival. With more than twenty of the world’s most forward thinking economic, social and political minds coauthoring this book—from Vandana Shiva to David Korten—it is an essential guide for those seeking a better world. The following excerpt focuses on ideas which can assist us in returning to localized economies.

• • • • •

It is the major conceit, or gamble, of the proponents of economic globalization that by removing economic control from the places where it has traditionally resided—in nations, states, subregions, communities, or indigenous societies—and placing that control into absentee authorities that operate globally via giant corporations and bureaucracies, all levels of society will benefit. But this is not true, and it is a principal reason why so many millions of people are angrily protesting.

The captains of globalization are driven by what is still essentially an economic ideology. They operate on a macro scale removed from the everyday realities of local conditions or awareness. They lobby for their ideas and theories as though they were viable and cogent, as if they themselves were expert visionaries and managers of their new centralized global architecture. They continue to praise their formulas despite the numerous spectacular breakdowns they have caused: the Asian financial crisis, the Russian financial crisis, the near-economic meltdown of Brazil, and the collapse of the Argentine economy, along with the global increase in poverty, hunger, inequity, dependency, and powerlessness. These theories do not work and cannot work; the main beneficiaries, unsurprisingly, remain the global corporations and economic elites that have instituted these processes.

The central modus operandi of the globalization model is to delocalize controls over economic and political activity in a systematic appropriation of the powers, decisions, options, and functions that through history have been fulfilled by the community, region, or state. Another modus operandi of globalization is anonymity. On the other hand, it is a principal virtue of localization that it restores face-to-face, knowing relationships of trust to economic transactions.

When sovereign powers are removed from the local and put into distant bureaucracies, local politics must also be redesigned to conform to the rules and practices of distant bureaucracies. Communities and nations that formerly operated in a relatively self-reliant manner, in the interests of their own people, are converted into unwilling subjects of these larger, undemocratic, unaccountable global structures.

Meanwhile, millions of people all over the world continue to go to work every day, trying to maintain their traditional small-scale, artisanal, or indigenous livelihoods. In fact, the local economy is the foundation for most communities, whether North or South, rich or poor. Even traditional economists like Paul Krugman acknowledge that most US cities are locally rooted because of the expanding service economy. Yet these local economic activities are under constant attack. They are increasingly subject to, and dependent on, mysterious eruptions and gyrations in the larger system. These may include the vagaries of distant export markets, fluctuations in prices and exchange rates, abilities of national governments to service interest payments on loans, and centralized decisions about international capital flows, commodity specializations, and the like—decisions made by authorities in Washington, Geneva, Brussels, Rome, and Tokyo without the slightest nod to democratic processes. At the local level, such mundane issues as the price of coffee, tomatoes, oil, wheat, or rice depend on these unfathomable distant factors. Financial assets such as stocks and bonds, as well as prevailing wage rates for labor, are also governed less and less frequently by local conditions and instead fluctuate according to the manipulations of economic networks by financiers and corporations.

But most affected of all, tragically, is democracy itself and all its institutions.

If democracy is based on the idea that people must participate in the great decisions affecting their lives, then the movement of basic life decisions to distant venues—particularly venues that abhor democratic participation, openness, accountability, and transparency—brings the death of democracy. If local economic activity is something that people have been able to do for themselves, globalization is something done to people rather than by them.

We have reached the end of the road for that process. It’s time to change directions.

Understanding Subsidiarity

Because globalization is the problem, then logically a return to the local—a reinvigoration of the conditions by which local communities regain the power to determine and control their preferred economic and political paths—is inevitable. Instead of shaping all systems to conform to a global model that emphasizes specialization of production, comparative advantage, export-oriented growth, monoculture, and homogenization of economic, cultural, and political forms under the direction of transnational corporate institutions, we must reshape our institutions to favor exactly the opposite.

The operating principle for this turnaround is the concept of subsidiarity—that is, favoring the local whenever a choice exists. In practice, subsidiarity means that all decisions should be made at the lowest level of governing authority competent to deal with them. Global health crises and global pollution issues often require cooperative international decisions. But most economic, cultural, and political decisions are not international and can be made at the national, regional, or local levels, depending on the issue. Power should be encouraged to evolve downward, not upward. Decisions should constantly move closer to the people most affected by them. Wherever economic production, labor, and markets can be local, they should be, and rules should help achieve that. International, regional, and subregional trade will continue to exist, of course, but it should serve as a final resort, not as the purpose of the system.

All systems should emphasize local production and consumption rather than be deliberately designed to serve long-distance trade. This means shortening the length of lines for economic activity: fewer food miles, fewer oil supply miles, fewer travel-to-work miles. Technologies should also be chosen that best serve local control, rather than megatechnologies that operate globally. (The authors of Alternatives to Economic Globalization prefer solar, wind, mini-hydro, micropower, and conservation over nuclear and oil; we prefer small-scale local agriculture and local markets over globalized industrial agriculture for export markets.) Firms should continue to operate, but only within the confines of a “site-here-to-sell-here” policy, and investment and capital should remain rooted in the community, constantly recycled, and locally controlled.

We want to clarify that such self-reliance does not mean autarky. Indeed, there is a compelling argument that many healthy local economies will continue to have exports and imports, but spread among hundreds of items, none of them critical to the survival of the community. North Dakota’s electricity sector provides a good example. Some are now urging that if North Dakotans want to become energy independent, they should build large-scale wind farms. Then, if they found themselves dependent on imports of wind machines, they might develop a local wind-machine industry. If they did this, they would likely depend on imports of metals and parts. Thus, the process never ends, but a process of import substitution steadily leads toward a more diverse, healthy, and self-reliant economy.

Where commons are found to exist—water, land, biodiversity, local knowledge—these should remain the property of the community as a whole. Wherever indigenous activities or effective non-monetized acti-vities continue to occur, these should be respected and encouraged as legitimate economic forms, providing real services to people and communities if not to global corporations and the market. The goal can no longer be individual or corporate wealth; rather it must be community self-reliance, public health, equity, accountability, and democracy.

Clearly, a reversal of this kind—consciously favoring the local over the global—will not sit comfortably with the largest and most powerful institutions in the world, all of which depend on the larger global system, long supply lines, expanding trade, and centralized absentee control. Those are the forms that were made in their image, as it were, and that offer maximum profit opportunity. But citizen groups and general populations around the world are making their own preference clear, and that is to move in the direction of re-empowerment of local communities. Farmers, workers, unions, small businesses, consumer groups, peasant organizations, environmentalists, human rights advocates, and all groups seeking functional democracies are already working to reverse course. They will not be denied, but they need help in doing more faster.

One important reason why these people will not be denied has to do with the economics of local, small-scale alternatives which are already generating most of the goods and services people need in a cost-effective manner, and many trends suggest that their role will expand. Among others, the most salient trends are these:

Distribution costs are getting proportionately larger than production costs (suggesting opportunities, as in food, for creating cheaper products through direct marketing).

Global transportation costs will rise as oil prices rise, to begin to reflect real costs that have until now been externalized, and as green taxes are enacted.

Niche marketing increasingly favors local producers who best know local consumers.

The shift from goods to services inherently favors local business.

The growth of computers and the Internet makes it easier to run complex businesses
from anywhere, including the home basement.

Large corporations are generally worse places to work than smaller ones.

Terrorist threats increase the importance of unhooking from the corporate-global juggernaut and returning to local self-reliance.

The Road to the Local

Localization attempts to reverse the trend toward the global by discriminating actively in favor of the local in all policies. Depending on the context, the local is defined as a subgroup within a nation-state; it may also be the nation-state itself, or occasionally, a regional grouping of nation-states. In all cases, the idea is for power to devolve to the lowest unit appropriate for a particular goal.

Policies that bring about localization are ones that increase democratic control of the economy by communities or nation-states, taking it back from the global institutions that have appropriated it. These policies may enable nations, local governments, and communities to reclaim their economies, make them as diverse as possible, and rebuild stability into community life—to achieve maximum self-reliance nationally and regionally in a way that ensures more sustainable forms of development.

To move in the direction of localization will require a complete change in society’s assumptions and will also require a long time and many steps. But to get our thinking started, we mention here a few points that have been spelled out by Colin Hines in his book Localization: A Global Manifesto, Michael Shuman in Going Local, and Helena Norberg-Hodge in her chapter on localization in Jerry Mander and Edward Goldsmith’s The Case Against the Global Economy.

Reintroduce safeguards that were traditionally used to protect local economies. Traditional safeguards include tariffs, import quotas, investment restrictions and rules, and nontariff barriers concerning health, worker and environmental, and investment standards. All of these protections instituted by national governments have been the direct target of global trade rules established by the WTO and other bureaucracies intent on undermining local authority and its ability to maintain self-reliance.

Change subsidy policy. Presently, countries offer huge subsidies for infrastructure development, especially for large-scale energy, transport and communications, and other megadevelopment schemes, as well as for the externalized costs of pollution-creating activity. Such policies should be wholly reversed to favor vital local enterprises such as small-scale organic agriculture for local markets, small-scale energy and transportation infrastructures (solar, wind, small-scale hydro, and so on, dedicated bus lanes, and pedestrian and bicycle accommodations), as well as community banking and development and loan funds. Municipal governments should screen local subsidies to test for local ownership and local import replacement. These subsidies include loans, loan guarantees, bonds, capital improvements, and so on. Subsidy programs of this nature would benefit from two further requirements, that they be duly noticed and bid upon (to prevent backroom dealing and to encourage transparency) and that they be performance-based (you get the tax break after you produce the promised jobs).

Put new controls on corporate activity. Such new controls would include site-here-to-sell-here policies for manufacturing, banking, and other services, whether domestic or regional. Localities should have the right to require any of the following: changed composition of corporate boards to include labor or environmental or other local stakeholders; limits on corporate freedoms to buy other businesses, especially in other locales; strict limits on mobility and capital movement; loss of corporate personhood laws, which give corporations the rights of ordinary citizens without the responsibilities; abandonment of limited liability rules that protect corporate shareholders from liability for crimes; requirements for public transparency; and so on.

Invest in the community. Profits made locally should remain primarily local. Outside direct investment is permissible and desirable only when geared toward local conditions and requirements. The Canadian labor-sponsored investment funds (LSIFs) offer a good example of how to ground capital. LSIFs invest pension funds exclusively in businesses that are labor-friendly and environmentally friendly and are locally owned in the provinces. The key to their success is that the government must be able to provide tax breaks to those who put money into these funds. There is also a great potential role for the selective investment of public pension funds and surplus revenue funds of public entities. Also desirable are the new local money systems designed for community use.

Make major changes in taxation policies. Increases in resource taxes as well as the introduction of pollution taxes are needed for extraction and depletion of natural capital like forests, water, and minerals. These will more accurately reflect the true costs of corporate development activities and put the onus on corporations to cover currently externalized costs subsidized by governments. Other taxes would include the introduction of “Tobin taxes” on speculative financial transactions. (The fact that they are now untaxed has increased their volume and the great harms they cause.) There should also be a reassessment of current policies that tend toward greater tax breaks for large-scale enterprises than for smaller, local ones (including elimination of investment tax credits and accelerated depreciation allowances now enjoyed by big businesses to the detriment of smaller ones). Much of the income from such changes in tax policy could help finance the shift to localization.

Increase direct public participation in policymaking. Increased participation helps ensure equity and diverse viewpoints. This is a primary feature of localization: it makes possible a greater level of direct democracy.

Institute new competition policies. At present, global competition policy as reflected in the rules of the WTO and other bureaucracies enhances competitive opportunities for global corporations forcing their way into local and domestic domains. Under localization policies, global corporations that continue to exist will no longer have such access unless they conform to all local investment rules, including the requirement to keep capital local. Competition among local firms, however, will be strongly encouraged in order to stimulate innovation. Localities should have the right to encourage (not force) citizens to buy local. Local labeling should be permitted, as well as selective government purchasing of local goods and services.

Encourage social cohesion and local economic renewal. The push toward the global has left most local communities bereft of viable local instruments that encourage local environmental and social values. It is crucial that attention be paid to the quality and vitality of local culture and community programs on housing, livelihood, sustainable lifestyle, and a safe and healthy environment. Attention must focus on everything from land use and zoning considerations to microlending, development trusts, credit unions, community transport activity, community recycling, community self-building schemes, and myriad conservation activities that are all required aspects of the overall shift in approach. Not least important is a reformed educational system that grasps and can convey the values of this alternative system.

Investment and Finance Issues

An equally important issue in the viability of local economic systems is how and whether sufficient capital can be found to keep them operative and innovative. Clearly, in a local economy, the operating costs are entirely different from those in a globalized economy. Measurements of successful performance are not based on traditional economic growth figures like GDP and GNP, but rather on more subjective social and environmental characteristics that also include the value of not cutting down the forests and not putting vast dollars into security and military expenditures (which count as GDP). Conversely, they give positive value to unpaid and non-monetized aspects of a local economy that are reflected in personal care, household labor, self-sufficient livelihoods (sometimes based on barter), and the general goal of community self-reliance rather than individual or corporate wealth.
At least for a long while, however, capital and investment factors will continue to play major roles, so it is necessary to address them. Here are some of the ideas that are being studied to help such a system work.

Capital

Localization advocates seek to keep capital local. Capital flight has been the death of more than one otherwise viable community, and it must be prevented. Among the measures that may be considered are reintroduction of exchange controls; reregulation of banks and finance institutions so that greater advantages are achieved through local investment than flight; introduction of very high “speed bumps” that penalize investors who move money in and out of investment opportunities rapidly and prevent them from exporting more than a small percentage of their funds; 100 percent reserve requirements for banks seeking to create money through loan policies; introduction of Tobin-type taxes to hold down speculative investment and instabilities caused by frequent movement of money; higher margins for purchasing bonds; and restrictions on the use of derivatives to require that banks have cash or liquid assets in reserve to back up such contracts.

Governments also can and should put deposits in community-friendly banks to support their expansion. They can and should create new kinds of secondary markets for financing the new, local economy. Also, be-cause a great deal of savings in most economies go into equities, incentives and subsidies that encourage local reinvestment are critical. Michael Shuman suggests that some of the most intriguing opportunities for these types of local initiatives are through consortiums of like-minded municipalities. Community reinvestment is a good example. By definition, a community that reinvests 100 percent locally cannot achieve geographic diversification in its portfolio, which increases risk. One solution is for several communities to aim for 90 percent local reinvestment, with the remaining 10 percent invested in the others’ funds. All the funds would therefore support local business. A similar case can be made for intermunicipal cooperation to promote fair trade, serve as a clearinghouse for local currency exchanges, and put together flexible manufacturing networks for goods that require larger economies of scale for production or distribution.

Taxation

In addition to the elimination of special tax breaks for large-scale enterprises and the need to increase taxes on energy use and natural capital other important changes include less taxation on labor, which has had the undesirable effect of encouraging corporations to eliminate workers as a way of reducing taxes. Such taxes now include payroll or income taxes, social welfare taxes, and value-added taxes, among others.

Capital gains taxes should be increased, especially for short-term holdings. Far more preferential treatment should be offered for taxes on income that is based on productive work compared with passive earnings based on moving money between investments.

Governments can severely limit tax evasion by forcing public disclosure of corporate finances, especially global taxes paid or avoided; closing national and global tax loopholes; penalizing and eventually eliminating tax havens; monitoring and halting intracorporate financial transfers used to avoid paying national taxes and imposing tax penalties for downsizing or relocation.

New Rules of Investment

The present rules of globalized finance and investment encourage moving control away from the communities that need to have it. Capital has been made almost completely mobile so it can always move wherever profit opportunity is greatest. Mobility of capital was opposed by the original gurus of free trade, David Ricardo and Adam Smith, and has required that local communities change their economies and their priorities to appeal to foreign capital investment and then follow their negative strictures from structural adjustment programs to draconian loan conditions.

Subsidiarity and localization require a reversal of that formula to emphasize and favor local direct investment over foreign investment. Where foreign investment continues to be sought, local communities should control its conditions. The goal is to redirect all benefits to the local community, including jobs, local livelihoods, services, local urban community development, small-scale energy, manufacturing for domestic and local markets rather than export, and the like. For example, governments could impose capital penalties on firms that depart a community, rather than the current policy in many municipalities of allowing the firm to write off the moving expenses.

Favoring Local Direct Investment

Colin Hines has proposed an alternative investment code for foreign investors, with some of the following new directives. Preferential treatment should always be given to local direct investment; this reverses such WTO rulings as most favored nation status, which outlawed local preferences and smoothed the way for massive dependency on investors. Investments may continue to be encouraged, but only if they have the effect of increasing local employment with decent wages and otherwise serve to improve the quality of local life. All investors should respect basic human rights and protect the environment as top priorities.

Existing laws that give preferential treatment to foreign or absentee owners of community enterprises must be rolled back over a few years time span.

Under the provisions of an alternative investment code, states and communities would be explicitly permitted to impose a code of performance requirements (again in direct opposition to current WTO rules) as follows: require a certain percentage of domestic content or local content in all manufactured products; require a given level of local personnel and respect for labor and environmental standards; protect enterprises that serve community needs from any unfair foreign competition; give preference to locally produced goods.

Encouraging Long-Term Local Investment

With conditions made more difficult for capital movement and a new set of requirements for responsible performance, the opportunities and advantages formerly enjoyed by foreign direct investors will be reduced, and there will be a desirable swing toward local direct investment and the goal of keeping money recycling productively within a community. To encourage the shift to local long-term investment, the following measures would be helpful:

Offer higher tax breaks for long-term local investment and create severe tax penalties for rapid capital movement (especially among foreign investors).

At the local level (including the national level), give central banks authority to directly influence the structure and profitability of local banks, favoring those that support local investment for local development. National policy should encourage increased market regulation, establish small banks designed for microlending, and increase the emphasis on credit unions, Local Exchange Trading Systems (LETS), and tax breaks for the breakdown of large-scale enterprise into smaller, decentralized, locally owned operating units. Central banks could also set lower discount rates for community-friendly banks.

Close down all offshore banking centers where capital hides from banking and securities laws or from national or state income taxes. National banking systems would be prohibited from honoring the transfers of offshore capital.

Encourage long-term savings in local banks by offering higher interest rates there, thus providing local banks with additional development funds for local projects.

Obviously, any community’s security would be better enhanced if its own people could grow their own foods—at least ensuring thereby their survival free of market idiosyncrasies—and also manufacture as many of their other needs as possible before entering global markets. The goal of societies should not be to find cheaper prices for products but to find the means to ensure that all the needs of all people are met and that a satisfactory and stable life is perpetuated within a system that does not collapse from being part of the volatile global market. If people grow their own food, produce their own necessities, and control the conditions of their lives, the issue of price becomes irrelevant.

Excerpted with permission from Alternatives to Economic Globalization: A Better World Is Possible, Second edition, John Cavanaugh and Jerry Manders, editors, published by Berrett-Koehler Publishers.