By Jen Hinton and Donnie Maclurcan of the Post Growth Institute
Positive Money has been doing an excellent job of creating proposals and moving people to act in order to address the fundamental flaws of our current monetary systems. As most of us sense, monetary and financial reforms will be most effective when accompanied by reforms in the way we do business, as well. We, at the Post Growth Institute, are working on a book that answers this issue directly. It’s called “How on Earth: Flourishing in a Not-For-Profit World by 2050”.
Imagine a world in which you know that the full life-cycle of the money you use is involved in creating more wellbeing for yourself as well as everyone else in your community. Imagine a world in which the banks that handle everyone’s money are no longer solely accountable to a small number of investors and shareholders. Imagine that the number one priority of all economic activity is no longer to maximize private profit, but rather to maximize societal wellbeing.
Welcome to a Not-For-Profit World, a world economy based on entrepreneurial not-for-profit enterprises that do make profits, but are legally required to recycle them back into their organizations and projects that benefit the community. You can read more about how this world is already emerging and about the “How on Earth” book project here.
In this article, we are going to focus on how a Not-For-Profit World would affect the monetary system, in particular.
The Role of Profit Maximization in Today’s Monetary System
Currently, the number one priority of a for-profit business (which includes almost all banks) is to maximize profit for shareholders. Following this logic, it makes sense that we’ve ended up with fractional reserve banking and an enormous financial sector that does very little for the real economy. In the for-profit world, banks want to create as much money as possible because they maximize profits by doing so. Maximizing profits also entails selling off, trading and speculating (i.e., gambling) on debt in the form of financial agreements, like the infamous Credit Default Swap.
In a for-profit world, benefitting from someone else’s default is a smart move. Benefitting from and contributing to the massive levels of societal debt is just a sign of success in a game where the rules are based on a ‘dog-eat-dog’ understanding of human nature. But there is as much generosity in human nature as there is greed. In this sense, wouldn’t most of us prefer systems that encourage and enable the more cooperative, generous parts of our nature, rather than greed and selfishness? It’s time that we design our businesses, including our banking industry, to reflect this deeper understanding of human nature and encourage action for the profit of all rather than private profit allocated to a few.
One way in which the shift to a not-for-profit world would affect monetary systems is through banks. How might not-for-profit banks help change the situation?
As mentioned above, for-profit banks are held accountable to return profits to shareholders; that’s their primary goal. Not-for-profit banks, such as JAK Members Bank and Charity Bank, exist to provide financial services to their members. This means that dabbling in the financial sector to return profits to investors and shareholders isn’t their top priority. Instead, not-for-profit banks are more likely to keep the money where it needs to be: in the real economy that provides real goods and services that satisfy real needs.
Sound too good to be true? Luckily, there are already lots of instances of this happening.
Credit unions in the US, for example, are all not-for-profit, cooperative, tax-exempt organizations. Their profits cannot be distributed to members as dividends, but rather must be recycled back into the credit union’s work and projects that benefit the wider community. In the US, credit unions have 96 million members, meaning they serve 40% of the population. In the UK, credit unions and building associations are very popular and have been growing their member-base steadily, as the Move Your Money campaign has encouraged and highlighted.
In fact, the number of credit unions world-wide has been rapidly growing for the entire last decade. As of 2011, according to the World Council of Credit Unions, there were over 51,000 credit unions with a total of almost 200 million members in 100 different countries.
Not-For-Profits Can Help Centralize Money Creation
A Not-For-Profit World Economy will also take pressure off of the money creation system, allowing for more ease in putting the responsibility of creating money into the central bank’s hands. How so? In a Not-For-Profit World, competitive markets continue to exist, but instead of seeking to maximize private profits, they seek to fulfill human needs through the provision of services and goods. This means that the not-for-profit enterprise has efficiency built into its mission, whereas for-profit businesses try to maximize profits often through redundancy and creating new customer “needs” via marketing. This is highly inefficient and it relies on and encourages the debt-based money system. A Not-For-Profit World economy would take this pressure off of the system, by reducing the fuel for the debt-based money system (i.e. – businesses based on profit-maximization, often through the inefficient processes of creating artificial consumer needs and compounding debt). A Not-For-Profit World economy will do for service provision what collaborative consumption is doing for the provision of goods, because not-for-profit businesses exist primarily to meet real needs.
Not-For-Profits Contribute to the Healthy Circulation of Money
As many experts have been quick to point out, a lot of the lingo around money has to do with the metaphor of money as a liquid. We need a high level of liquidity in the monetary and financial systems because, just like blood needs to reach all parts of the body, money needs to circulate in order to reach all parts of the economy.
In a for-profit economy, the money gets stopped up quite easily, because accumulation of wealth and assets is the goal of the game. In a primarily not-for-profit economy, however, the circulatory system of the economy is kept healthy because part of doing good business includes the recycling and passing on of all profits. This is a vital part of maintaining a steady flow of money, allowing for more flexibility and resilience in the market.
Not-For-Profits Increase Equality
Just as the for-profit world economy inherently augments inequality through banks and a financial sector that systematically siphons wealth from the lower and middle classes to the financially well-off (via a web of debt, interest, and investor speculation), so would the not-for-profit world economy inherently distribute wealth in a way that creates more equality, as wealth keeps getting passed on and recycled through the not-for-profits themselves.
Changing the Rules of the Game
The examples above are just some of the ways in which a Not-For-Profit World model would help change the monetary system for the better. Changing the rules of the game changes everything. When you phase out private profit maximization from the center of an economy and replace it with public benefit, you get a whole different economy. For more information about the “How on Earth” book project, please see the Post Growth Institute’s website.