Alternative Agenda for a New Economy

Alternative Agenda for a New Economy
by Dick Burkhart, March, 2009

(1) Develop a new global financial and trade system to serve a transparent, equitable, and sustainable global economy, based on democratic participation in the creation and governance of this system.
Democratic participation by the peoples of the world is the key, so that the system serves the world, not the selfish interests of the major economic powers. In addition, the primary direction to the participants must be to serve the welfare of future generations, even if this means significant sacrifices by current generations. Even a democracy, without vision, could destroy itself through “ecological overshoot and collapse”.
Democratic participation could be by a variety of means, based on population but also on resources and economic output. However direct election of representatives to a global assembly should be the primary means where feasible. Such an assembly would have the legitimacy to establish policy for the allocation of scarce tax dollars and credit, such as requirements for equity and sustainability that might include taxation of the wealthy, population control, education, public health, environmental restoration, energy efficiency, renewable energy, etc.
(2) Base the global financial system on a global currency, backed by measurable real wealth, issued and regulated by a global bank, with credit directed toward the development of equitable and sustainable cultures, and quantified to prevent inflation or deflation.
The most basic form of measurable real wealth is energy. However it may not be so easily measured until it is produced, i.e., reserves can only be estimated. Also, once produced, it may not be easily stored, such as electricity. So there are many problems to be solved, but, over time, ever more accurate measurements of real wealth can be made. Thus the currency can be made to track real wealth, not phantom wealth, automatically keeping pace with economic “growth” or “decline” and preventing inflation or deflation. A resource managed as a public trust would provide an excellent real wealth backing for a global currency.
Lack of a sound global financial system makes all regions vulnerable to unanticipated shocks, as instabilities propagate without adequate means to control them. This includes wealthy regions, not just poor regions, as in the possibility of a US dollar collapse.
(3) Base the global trade system on rules that favor under-developed regions and poorer communities and that promote self-reliance and basic standards for labor, resources, and the environment.
This means trade biases that permit poorer regions to use limited subsidies or protective measures to promote the development of select industries. It also means lack of export subsidies for mature industries of richer regions. This would also permit a limited amount of protection or subsidy for local enterprise based on cultural and security concerns. To prevent abuse, all protections and subsidies must be approved by a democratically governed agency at a higher level based on standards set at a yet higher level, or at the global level. Thus protections or subsidies at the state or provincial level would be reviewed and approved by a national agency, based on democratically determined continental or global standards, with appeal rights to a higher court.
Broad labor, resource, and environmental standards set at global or regional levels must be interpreted locally in the light of the local culture and its state of development. Thus this function requires agencies and courts that are highly trained in cultural sensitivity.
(4) Manage major natural resources by means that incorporate the true costs to future generations of the depletion or degradation of these resources, with requirements or incentives for ecological restoration where applicable.
Typical means of incorporating true costs are taxes, permits, and various kinds of public trusts or trading mechanisms. These require broadly sponsored scientific studies and monitoring to estimate and revise long term costs, with a bias toward higher costs when there is great uncertainty and very costly or catastrophic worst case scenarios. The IPCC studies on climate change are a good model.
One way for a public trust to manage a resource is to determine a limited number of permits, or production quotas, based on scientific studies and market demand, then to auction these to the highest bidders, using the proceeds to address key issues relevant to the resource. Something like this is already done for some fisheries. It could also be done for forests, water, minerals, etc., with special allocations for subsistence use.
A particular proposal to address green house gas emissions is for “personal carbon allowances”. Each person would be given a carbon allowance for a month, based on a total carbon cap that would decline from year to year. If the person used less than the allowance, the excess could be automatically sold on a computerized market to someone who needed more than the allowance, or the excess could be donated to a charity. A transaction cost on these sales could finance investment to reduce the “carbon footprint”.

(5) Outlaw all complex financial derivatives and regulate useful financial instruments to prevent, or strongly penalize, gambling, leveraging, and usury.
Mortgage backed securities, credit-default swaps, and the like should be banned. Gambling on the stock market or any other markets with borrowed money should be banned. Transactions fees would further dampen speculation and could be an important source of revenue from the national to global levels.
All financial instruments which have the effect of insurance should be regulated as such, with stringent capital requirements to protect against losses. All forms of predatory lending should be banned, with transparent interest rates and fees that correspond to actual risk as determined by agreed upon criteria.
Any money that is created directly or indirectly by any private financial institution must be done in accordance with government policy for the public welfare and must be closely monitored by the government. Capital reserve should be lowest for loans to high priority projects such as wind energy, the rise to 100% for low priority projects, such as luxury resorts. Direct government spending should come first, in terms of what the economy can handle, then private spending.
(6) Regulate and monitor all financial organizations to ensure honesty and transparency, including total separation between accounting, rating, insurance, commercial banking, and investment banking functions.
Reinstate the Glass-Steagall Act in a much stronger form, to build fire-walls between all the functions cited. Outlaw conflicts of interest at rating and accounting firms, and monitor them closely for compliance with relevant public policy and law. Banks should be treated as regulated utilities.
Strictly local businesses would be monitored by state bodies. Corporations doing interstate business would fall under national agencies. Those doing international business would fall under continental or global agencies.
(7) Dismantle any corporation which is “too big to fail”, especially large insolvent banks, and outlaw or penalize mergers and acquisitions unless a public benefit can be demonstrated.
Reinstate effective anti-trust laws. Enforce stringent financial public disclosure requirements for all corporations, but especially financial institutions. Only permit large businesses where there are clear economies of scale. Encourage networking of allied businesses instead of vertical integration, but prohibit monopolistic practices or collusion among competitive businesses.
(8) Adopt highly progressive income, wealth, luxury, and green taxes, and use this revenue for massive government spending on the most critical needs of a sustainable economy.
For example, a trillion dollar green stimulus package could be easily financed by a trillion dollars of these 4 kinds of taxes. This would have dramatic egalitarian benefits as well. A good goal would be the maximum wage proposal: The maximum legal compensation would be no more than 10 times the minimum, including all benefits, perks, stock options, etc. Simply tax away all income above the corresponding level.
Green taxes would be on the use or extraction of non-renewable resources, or where environmental damage is significant. A modest wealth tax might be 2% per year on the current value of family estates valued at over $5 million, with local property taxes deductible. In fact this would be similar to a property tax but would include all wealth, or at least the current market value of all major items. This way most excess wealth would be taxed away in 2 or 3 generations.
(9) Facilitate the transition of business to stakeholder corporate governance for older, larger businesses, and include public representation that matches the scale and scope of the business.
Stakeholder Board directors could represent employees, customers, suppliers, and the public. The idea would be to put a 20 year time limit on new or existing shares, with an automatic transition of share ownership to a stakeholder board from year 16 to year 20. However, corporations would not begin the transition until they have reached a certain size. This would eliminate most stock market gambling, as anticipated dividends would be the primary value of shares, not capital gains. In addition it would ensure that all medium to large corporations serve the public interest, while still encouraging entrepreneurial activity.
A Corporate Governance agency, government chartered and regulated, would oversee this transfer. A similar Corporate Finance agency would provide financial oversight of all businesses via their accountants, but especially those that are larger or not stakeholder governed, to prevent excessive debt, illegal compensation, fraud, and tax evasion, etc. Non-profits would not be subject to stakeholder boards, but would still have some governance and financial oversight, depending on size, with incentives toward at least partial stakeholder governance for larger enterprises.
(10) Facilitate union representation, collective bargaining, and egalitarian pay scales.
This means eliminating the “free rider” option, outlawing retaliation for union organizing, etc. Presumably union/management conflict would be much less with stakeholder boards.