Circulation instead of cumulation
LOCAL - BONUS - SYSTEM
A model for development projects that encourage circulation
Matina Hæmmerli and Bruno Jehle
1992
(Draft: To be updated soon with contents, charts and tables ...)
Introduction
Exploitation and alms
Why are are there still people living below the subsistence level? Why
is their number increasing in our age of unlimited possibilities? It is
only possible through constant exploitation of the majority of mankind
who own almost nothing. A system that legalizes patterns of farranging
explolitation creates injustice, poverty, hunger and misery. The
attempts, innate in this system, to reduce the effects of exploitation
are mercy, alms, presents. Yet each attempt to heal which does not reach
the roots but conqueers symptoms only, creates unintended secondary
effects. These are sometimes stronger than the effect of help and
therefore make the result of the action appear negative.
Presents destroy the market.
They create distorted conditions. For
instance: If the Indian government reduces the price of rice
considerably through money from taxes it may well destroy the existence
of local rice farmers. They are forced to move away with their families
and search for a living in town. Thus the numbers of the masses of
people who are without land, home and hope increase. Presents and
subsidies (in a number of Indian states these come up to more than 70%
of the budget) also encourage a mentality that expects the solution to
the problems from outside and thus paralyses individual initiative.
Corruption is the big obstacle which often thwarts the aims of
development projects. There is a close connection between this fact and
the practice of giving alms. The receivers are chosen individuals or
groups, the long distances make effictive control difficult and usually
there are big amounts of money concentrated at one place etc. All these
are factors which give a great amount of power to individuals. And there
is the well known temptation for politicians to present subsidies and
alms as their personal achievements. Assistance Agencies often use
bribes as a tool to gain acceptance.
We have mentioned just a few of the dark consequences. Let us not forget
the psychological effects, the loss of dignity usually typical for
people dependent on charity.
If people are thrown into situations of misery by unfortunate incidents,
then single, unconditional assistance makes sense. But if the system
continues to produce new misery through continued exploitation, then
presents from the hands of those profiteers are just part of the system.
Our system of money and interest makes the poor poorer and the wealthy
wealthier. Alms do not equalize but make the mighty still mightier and
the dependant more dependent. If we do not manage to escape from this
absurd process, then we shall end up not only with the destruction of
mankind but also the entire environment.
The problem: Accumulation in centres instead of circulation in regions
We all know of the gigantic growth of cities. Every day hundreds of
thousands move from the country to the cities. The rural population is
forced to follow the flow of the money. Even nature is being exploited.
Without money you can neither become active in reforestation nor in
irrigation. Yet such long term projects are necessary to re-establish
the fertility of destroyed land. Thus the earth is increasingly
devastated. The scarce grass of the savannah is eaten by gaunt cattle,
its dung used as fuel and thus lost for fertility. Women and children
walk for days in distant forests to collect firewood, which will then be
sold in towns. Milk also is sold in towns. Thus one of the ingredients
of nourishment, extremely important for children is lost also. Whatever
could serve for your own subsistence must be made a source of income in
this poor environment. Prices for farm products deteriorate due to
industrialization and, capital intensive methods of cultivation.
When financial aid reaches a village, even though the villagers are in
need, it often ends up in the pocket of the money lender. Sometimes it
is diverted to a nearby town for urgently needed medical help or for a
job for one of the sons of the family. Thus, if we bring money to where
it is needed it is drained off immediately because of the repidly
growing debts of the poor and the cumulative character of interest.
Why development aid?
Development aid would be unnecessary, if...
Many people - especially those who have worked in development aid - have
doubts. Does development aid make sense at all? Does the introduction of
an alien culture and especially of alien money not destroy the few
functioning structures? By having a bridge built the ferry is made
unnecessary a family loses their income. Easy transport causes goods to
be brought to town that previously were consumed in the region. Would it
not be wiser to remain outside and let people solve their problems
themselves?
... decent salaries were paid
No development aid would be necessary if decent salaries are paid. Yet
in poor countries work is paid especially badly. Why? The price for
goods and for the work necessary to produce them is fixed in those areas
where most wealth has been accumulated, in cities. He who has nothing
but his work has no choice. He needs money today for he needs to eat
today. Money comes - directly or indirectly - from the cities. Even if
he is paid by the local landlord, his products are sold in town. He also
has no other choice. He is obliged to sell before white ants have eaten
the products or they have been destroyed by the next rain. There is no
local market left; it has been moved to town. No money remains in the
villages.
... there was no money business
Why is this so? This development is strongly interconnected with our
monetary system, which functions here in the same way as in developing
countries. Because money is treated like goods prices are fixwd , as a
consequence of offer and demand. It becomes a super good for it is
needed everywhere. Therefore all sorts of transactions with money are
possible. They are more effective than work, production or trade or
services anyway.
... the profit from natural resources benefited all.
Besides the necessity to pay decent salaries it is necessary that the
profit from natural resources benefits all too. Yet it benefits mainly
the industrialized countries which are at the same time the rich
countries. Therefore, similar to the situation between village and
town/city, these countries dictate internationally prices, production
processes and products. He who does not comply with these rules is not
credit worty anymore (s. IMF and world bank).
... competition was not dominated by the availability of money.
In present day society of competition diligence, intelligence, quality
of products etc. are of minor importance in competing.. What is much
more important is the availability of money. This is so in developing
countries and also in industrialized ones and even more so in former
communist countries. In third world countries the messing about with
money and the generally dirty business of trade is much more direct ,
tougher and more risky.
Development aid yes, if ...
Finally I would like to answer the question asked at the beginning: "Is
development aid sensible?" The so-called development aid would not even
be necessary if work was paid for in full (according to its importance),
if there were no financial business, if natural resources would benefit
all and if competition was not solely dominated by money. Development
aid is an absolutelIf work was paid for in full (according to its
inportance), if there were no financial business, if natural resources
would benefit all and if competition was not solely dominated by money.
Development aid is an absolute necessity in the current economic
environment. This is because natural resources are exploited for the
primary benefit of the industriakized nations and a few individuals.
There is one solution: To work out new economic criteria to enable us to
escape this hopeless situation.
The problem of development aid
In the following we describe those problems which always occur in
development aid and have to do with the above described monetary system.
Projects fail
As soon as money has reached the site of a project, it (or its value)
does not remain where it was meant to be. Many project leaders are
disappointed because, quite frequently, after an enormous amount of
faithful work things nothing is achieved. For instance at an irrigation
project, where trees again wither because the pump has broken down and
there is no-one to repair it. Such failures may be rooted in the social
structure, which had not been taken into consideration sufficently
during the plannibg stages. But a more important previously ignored
reason is the dynamics innate in our monetary system which shapes our
social structure and human relations.
The dynamics innate in money
What are the dynamics innate in money? Here we explain it only in a
simplified way. In an economic encounter between two partners usually
one exchanges money for work, goods or services of the other. The one
with the money always enjoys advantages over the other: he can wait, he
has a big choice, he can buy anywhere. Thus the other partner, having
strength, intelligence, diligence and other positive qualities, but no
money, is vulnerable to exploitation. Extortion has many faces.
Corruption, forced labour or starvation wages are some consequences.
There are other forms of exploitation where the value of man and of
money clash. The dowry in India is one of them. Because the family of
the bridegroom brings a man into the relationship and the family of the
bride brings "only" a woman her family has to balance this with money.
One of the reasons for this custom is probably the experience that it is
impossible to start a new family without money. If both partners can
only offer their labour then failure to create and rear a family is
certain. The dowry system defines the responsibility for the economic
foundation of the new family. In India it is the family of the woman. In
other countries, where the bride is "bought", it is the family of the
man. Both customs are extortive based on the discrimination against
women as well as on the economically higher value of money than human
qualities.
The one-way street of money
One of the attributes of our present monezary system is that those who
have enough get wealthier daily. Yet those who have no money have no
chance because whatever they can offer is practically worthless
compared with the availability of money. Many development projects fail
for this reason. Their aim would be to enable the participants in the
project to earn their living with their hands. Yet too often this proves
to be unattainable. An example: A woman knows how to make chairs out of
bamboo. She buys the bamboo from the same merchant who buys the chairs
from her and who sells them later in town. She ha to rely on this middle
man. In town there is money but little in the village. She could not
sell her chairs in the village where one has only the bare necessities,
perhaps a mat or not even this. Because the woman has no start up
capital, the merchant gives the first lot of bamboo on credit with an
interest rate of between 10 and 100% per month as is normal in India.
Then he buys the chairs from her at a price which, after deducting the
interest, leaves for the woman mere starvation wages. The merchant now
pays for the transport costs, his rent, cost of a guard for his space at
the market place and a fee to the street mafia of the town. Then after
considering the competition from big firms dumping goods at low prices
he will not have a big profit. If selling for export this firm must
resell at a low price. Because he depends on credits from industrialized
nations he is not free.
The economic system as vacuum-pump
Our economic system functions like a large vacuum pump with many thinly
ramified pipes. It is like the water system where a great many springs
and streams unite into a river. And at the end of it all is the great
sea. Yet there is one essential difference: water spills free and by its
own strength from the spring. The sea, through a cycle of evaporation
and rainfall, re-supplies the springs freely with new water. This is a
cycle. The money supply system is different. Money is sucked off. The
streams of money suck off the springs, the rivers suck off the streams
and the sea sucks off the rivers. Thus the sea gets larger every day
whilst the springs begin to dry up. Man follows the money because he
depends on it and cannot live without it. He goes to the cities where
misery increases constantly because with every man who moves to the city
another spring is dried up.
The psychological aspect: The mentality of receivers
Whenever "help for self-help" fails, usually one of the reasons is
psychological and closely connected with the monetary system. A
prerequisite for self-help is self-responsibility. Yet daily human
experience for ages has been that they can only survive if they
surrender to dependency. Take the earlier example: The woman owes her
living to the merchant who buys her chairs who exploits her and who is
exploited himself. For the woman it is obvious that she owes her
survival to the merchant. This understandable receiver-mentality is
normally strengthened by development projects. If, for instance, the
woman gets a interest-free loan from donors to finance her first lot of
bamboo she gets a much better start for her business. But she is still
dependent on the merchant and on the sale of her chairs in town. The
little advantage she received will soon be swallowed by her misery. The
woman has felt relief for a short period of time but nothing fundamental
was changed.
Possibilities of the Bonus-system
Created values remain in the region
The Bonus-system likes to tackle this problem on a level which has so
far been neglected in development projects, the level of the functioning
of money. Its aim is to make money circulate, as an agent of barter, in
the regions and to stop values created by projects from accumulating in
cities. By only being accepted in the regions the bonus-values are
outside the sucking system of traditional money. And because bonus
values deteriorate in the course of time similar to all created things
(safeguarding the circulation of money), they encourage constant
exchange of goods and services.
Work gets more valuable
The bonus-system can increase the value of work, because in it work is,
compared to the circulating bonus-values not in a disadvantageous
position. Although it is true that those who offer goods or services are
not completely free because they must search for bonus-values to repay
credits, those who already possess bonus-values are not much better off,
because they have only two choices: to buy in the region or to let the
bonuses rot. Clearly there is a certain balance between goods and money,
bonus-money in this case.
Rural development projects are strengthened economically
Another aim of the bonus-system is to strengthen rural regions
economically. Those values created in various projects will circulate in
the region only and thus continue to create new values and real
development. Let us imagine, using the same example for this purpose,
that the woman is given a credit, or to buy the first lot of bamboo with
the option to repay it in bonus-values. At the same time others of the
same region have received, for additional work during harvest, an
additional payment in bonus-values. Were it paid in official money, this
money would quickly be drained off to town. Thus the woman producing
chairs would continue to depend entirely on the merchant. Her chairs
could only be sold in town. But with the bonus-values rural products
will be bought in villages and thus new values can be created.
Rural life gets attractive
The bonus-system can have the effect that, for the first time, villagers
can afford to buy chairs. Perhaps for the first time they can buy a new
shirt when the old one begins to fall apart. They buy it from a woman
who can repay the loan for buying the sewing machine in bonus-values..
The farmer who has invested in fruit trees can sell the fruits in the
region against bonus-values. For a rural area in India, where most of
the children suffer from a shortage of vitamins, such a development
would be a real blessing. By creating a local market the bonus-system
can assist in making rural life again worth living. As long as you can
hardly buy anything in the countryside yet almost every thing in towns,
the move of people to towns will not decrease and misery will continue
to grow.
Self-responsibility instead of receiver-mentality
By and by the bonus-system can counter the psychological aspect of the
receiver-mentality. "Business" with bonus-values in the regions, without
intermediaries such as money lenders and merchants from the towns,
builds up the economic activities of the rural population. By this
experience they improve their situation by working and they prepare for
self-responsibility.
The model
List of requirements
- The introduction is done in steps:
- Phase 1: to create confidence,
- Phase 2: to encourage circulation,
- Phase 3: expansion into a local monetary-system
- Each step should represent a meaningful contribution to the regional
development.
- Connecting the programme to experiences and problems of other
projects which are running can help to reduce the misuse of
bonus-values.
- Bonus-vlues can be used to plug the famine gaps between times of
actice cultivation. Care should be taken that bonus-values do not
influence too quickly the salary scale in use so that no harm will be
done to business initiatives. Thus salaries will begin to increase after
more resources having been made available.
- Maximum instructions and freely available information for all
concerned are a essential part of the bonus-system.
- The bonus-system should be steerable, its extent to be increased or
decreased at any time when deemed favourable.
- It should be possible to close down the bonus-system at any time
without any loss for the participants. The circulating values must be
met.
- To increase understanding it can be helpful to let bonus-values run
parallel with the national currency at the beginning, so that people can
find their bearings.
- The costs of the bonus-system must be measurable.
- As far as possible the costs of the bonus-system (production of
bonus-values, administration, information and education) should be met
by the interest from deposited covering fund.
- It is not necessary that the bonus-system be attractive. Thus it is
less exposed to political pressure or false expectations.
- A security which comes from circulating prevents private storage of
bonus-values. Their term might be restricted.
- Once loans can be issued in bonus-values, the bonus-system can
become the function of a local optional currency. Experience shows this
is not possible before a careful evaluation of the knowledge gained
during the introductory phase.
- It is important that the process be documented carefully and
completely from its beginning. All facts should be made available
internationally. Explanations of the effects on partnership in
development, ecology, alternative economy etc. and their publication
should be considered parts of any bonus-project.
- It is important to have sufficient capital available at the end of
the planning phase.
Aims
- Bonus-values benefit the workers and augment the purchasing power of
a region.
- The bonus-system encourages local enterprise by offering loans -
repayable in bonus-values - and through the higher purchasing power of
the working population.
- Because bonus-values circulate in a certain region only they
discourage the migration of people, manpower and created values to urban
centres.
- By promoting the local market the bonus-system opens up regional
resources such as reforestation, fruit farms, handicraft and trade.
- The bonus-system makes possible the steering on subsidies, makes
their misuse extremely difficult and thus converts charity into real
help for self-help.
- The work of women - to guard and to tend the local resources - will
gain importance and value.
The introduction of the model in three phases
- Phase 1: To create confidence
- Normally it would be impossible in a programme for development aid to
begin at once with a complete new monetary model. Rather it must be
expected that initially there will be a lot of suspicion about the
bonus-values. In India poverty has certainly become a profession. People
have become used to buying advantages for themselves by relinquishing
power and rights. Usually the politician is elected who promises most
(e.g. subsidies, shares etc.) An organization which has the aim of
increasing the independence and the self-reliance of a village is not
easily understood. Thus the aim of the first phase is to
minimisemistrust and to offer the first positive experiences. If
necessary the project can be broken off by repaying the bonus-values in
the national currency thus disproving false accusations and mistrust.
It might also be reasonable not to issue loans at this initial stage. In
this case the bonus-papers could be exchanged within the project against
goods and services.
- Phase 2: To increase circulation
- The next step leads on to the project proper. Now the local market is
activated by making it possible to exchange bonus-values for locally
produced goods and services. Peasants and retailers are supported
because they have the possibility of investing by offering them loans
without adding to their other debts, and are guaranted sales and
services by issuing bonus-values. Workers are supported whilst the
deadly drop in income between harvest and the dry season and between man
and woman (and child) is equalised by issuing bonus-values. Furthermore
the bonus-values which have been gained, rather than the national
currency, will be used in buying basic necessities, because the
tenderers will bear in mind the issue of the loan. And in education
there will be new possibilities too for the poor population.
- Phase 3: An alternative monetary model
- As soon as loans are granted we can truly speak of a monetary model. But
this can only happen after the participants have had positive
experiences with the new system and they become accustomed to it
locally. The initial periode may easily take three to five years. Before
phase 3 is started it is necessary to study the legal situation in the
country and to adjust the model to it.
- Contact Address:
- Matina Hæmmerli & Bruno Jehle - [ boje@box.echo.ch ]
Wepfi
CH 5728 Gontenschwil
Switzerland
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