04: Financial Innovation and the Commons
How would a commons approach shape the future of finance?

To begin, I offer a little guide to this journey I’d like to take you on tonight so that you know where we’re going and why. 
Some people have called finance itself a commons, but this is very far from realized. 
For finance to truly become a commons, a great deal of preliminary work is needed. 
My talk this evening is about the reasons why finance will not be seen as a commons unless major changes take place beyond the financial world. 
But these are the very changes which finance can help create. 
This will all become clearer as we go along -- and that’s the fire that I’d like to light under you this evening. 
So first, we’ll speak in monetary terms. 
Then, we’ll talk about the meaning of commons and envision a commons-based society. 
Finally, we’ll talk about the supportive role of finance in a commons society and how finance can become part of the commons, including the creation of Commons Wealth Funds. 
Let me begin by asking: is it realistic to believe that we are going to achieve sustainability through green taxes or sustainable investment through the private sector? 
Or, more pertinently, is it truly possible to create sustainability through a determined and long reduction in government budgets and public spending? 
Consider: what is preventing sustainability? 
The immediate causes are evident: boom and bust cycles, short-term thinking, compulsory growth, concentration of wealth, and devaluation of social capital. 
Ok. But what is the longer term cause? 
It’s interest rates. 
Most of us in the financial sector recognize the interest rate as an outside variable over which we have no control. 
Most proposals for stabilizing currency values reformulate the political or regulatory context in which interest rates are generated. 
But they do not retool the mechanism of the interest rate itself, which is at the core of the system of money. 
Meanwhile, as we all sit back and theorize, interest rates continue to amass deficits and debt. 
As ecological economists have been saying for many decades, interest rates represent a much faster algorithm for productive growth than the capacity of the planet to regenerate or replenish its own resources. 
A debt-free global reserve asset will require a completely different approach. 
We have to begin to understand the field of economics as a subsystem of society. 
And we also need to see society as a subsystem of the biosphere. 
Each of these levels -- economics, society and nature -- includes and transcends the one before it. 
The economy exists because society has provided it with infrastructure. 
And society exists because it has the biosphere to sustain it. 
Hence, the economy, society and nature form a nested hierarchy, or holarchy. 
But during the past several centuries, as Karl Polanyi pointed out, the economy has been disembedded from society and nature. 
Another way to say this is that the economy has attempted to embed society and nature inside itself. 
Today, the market thinks that society and nature serves it, rather than recognizing that the economy is meant to serve society and nature. 
This present economic system is based on the truism that we consume what we need. 
OK. So why has the economics of human need failed us? 
By focusing on consumption, economics has neglected the rest of the natural cycle: we consume what we need, but this also means that we consume to be replenished. 
Yes, as individuals, we are replenishing ourselves through consumption. 
But individual consumption is not replenishing society. 
And individual consumption is clearly not replenishing nature. 
Business has adopted the idea that it is meeting human needs by selling private goods to individual consumers. 
Government has adopted the idea that it is meeting human needs by regulating and provisioning public goods to individual citizens. 
But who is responsible for preserving our common goods? 
Who is responsible for replenishing what is consumed? 
Who is creating collective intentions for sustainability? 
The economics of human need must be broadened to encompass the commons. 
Our commons are the collective heritage of humanity -- the shared resources of nature and society that we inherit, create and use. 
We all depend upon these commons -- natural, genetic, material, intellectual, digital, social and cultural -- for our survival and well-being. 
We create the commons through group intentions for sustainability. 
The commons is the economics of replenishment. 
How do we embark on this economics of replenishment? 
To internalize its negative externalities and come into scale with the global commons, the economy will need to be redesigned as a subsystem of the biosphere -- not simply as a metaphor or ideal, but as a structural principle. 
Before much longer, world society will have to adjust its economic exchange flows across political/territorial boundaries (of consumption, production and income) to the resource thresholds of planetary boundaries (of inflows of raw materials and energy and outflows of wastes). 
But why even bring this up to this group? 
What impact can finance possibly have on the monetary system? 
Why should we even care about the direction of the monetary system? 
Let’s take a moment and situate ourselves in the Big Society. 
To reduce debt and pay for present public expenditures, government is selling off the social infrastructure that was originally created through through taxpayers’ money. 
In other words, the private sector is purchasing public assets and utilities that were originally funded by taxpayers, then turning around and selling these services back to us through private tolls and fees. 
This trend began in the 1980s and has increased dramatically since the recession of 2008. 
Everything is being privatized, swallowed up by the biggest fishes. 
Where does this leave the business and financial sectors? 
The ongoing creation of high-leverage debt by banks and governments has plunged corporations into a turbulent financial spiral with its own self-perpetuating dynamics. 
As market demand slows in this Age of Austerity, there are slowdowns in bank credit, liquidity, employment, spending and investment, which lead to further decreases in demand. 
Based on current projections, companies will continue to face the uncertainties of access to capital markets, cash flow, capital investment, employment levels, discretionary spending and earnings forecasts well into the future. 
Corporations, like all segments of society, are rapidly recognizing the limitations of strong state sovereignty and the need for a monetary system based on the long-range incentives of ecological, energy and exchange rate stability. 
Businesses of every size -- large, small and in-between -- are realizing that indebtedness is a much greater threat to business than taxation. 
In the neo-liberal era of Thatcher-Major-Blair-Brown-Cameron, this is a startling thought. 
The inexorable pace of our social and ecological debt raises important questions about the weakness inherent in current monetary institutions and policies. 
Tumult in global markets -- the risks of inflation, deflation, leverage, frozen credit, private and public debt, sovereign default and volatile foreign exchange -- will continue to plague the economic system until a commons-based monetary structure and system of credit are created. 
Finance needs to realize that its interests lie in this new kind of monetary system, not in the debt-based version. 
The monetary troubles in Europe right now belie the same kinds of troubles that loom just ahead for the international monetary system, and, yes, for Britain. 
The crisis of confidence that is upon us is rather simple: what actually are the banks’ assets and where are they? 
Just how far out of line are these banks assets from the money they are issuing? 
And shouldn’t the world’s monetary assets represent the commons? 
Finance stands to benefit from the creation of a global monetary union that provides deeper financial integration and exchange rate stability, and also preserves international peace and security, development, open markets, cultural and national identities, and the world’s natural and social commons. 
Well, this is what I’ve been building towards. 
Finance can actually lead the way in rethinking and transforming the monetary system by identifying, helping organize, and investing in the global commons. 
That is where all our interests converge for a sustainable future. 
Instead of trying to plug the holes in the leaky bucket of the debt-based economy, we can begin to build this new system alongside the old one. 
Indeed, if I may say, I think that that is what the Finance Lab is uniquely qualified to model. 
The commons are our shared wealth without which people cannot survive and thrive. 
This wealth is comprised of common goods which we have inherited or created, are entitled to use, and are obliged to restore and pass on to our children. 
These common goods — material, solar, natural, genetic, social, cultural, intellectual and digital — can be aggregated into a new kind of metric. 
This wide range of commons assets could constitute an index which is based, not on productivity, profit or interest, but on the perpetual vitality and continuous adaptation of local resources to support a good quality of life for all human beings and life-systems. 
Can we create this metric together? 
Commons trusts (including social charter initiatives, resource management groups, mutual credit systems, cooperatives, cooperative banks and credit unions) are already reformulating the meaning of socially created wealth through co-structured rules and institutions. 
We need each commons trust to determine a resource differential rate which compares how much of its resource to use in the present with how much to set aside for the future. 
Trustees then put a cap on the maximum extraction and use of this particular commons, protecting a significant portion of the resource for coming generations. 
These caps indicate how much the withdrawal rate of depletable resources must be slowed to allow stocks to catch up with flows. 
For example, limits on resource use may be set on air and water quality, ecosystem health and biological diversity; living creatures, organs and seeds; and minerals, water and the atmosphere. 
(Similar indicators can be developed for replenishable resources, including indigenous wisdom, household work and the arts; health, literacy, economic output and income distribution; and scientific knowledge, intellectual property and information flows.) 
Can we create the indicators to assist these commons trusts? 
Commons trusts are the only legal and fiduciary institutions whose primary goal is to preserve and replenish commons for future generations, according to non-monetized metrics such as sustainability, quality of life and well-being. 
In turn, the needs of the present generation are met through a new relationship between businesses, commons trusts and governments, as suggested by economists Henry George and Peter Barnes. 
Private industry provides the public with goods and services which are produced from the surplus resources rented from commons trusts. 
Government then recycles these rents as social dividends for the public and as funds for the preservation and regeneration of the commons through the trusts. 
In this way, world society can develop a dynamic equilibrium between (private) property rights, (public) sovereign rights, and (commons) sustainability rights through a new multilateral system. 
Can we set up the mechanisms to fund these commons trusts? 
The social finance sector and innovative institutional paradigms are becoming more deeply connected with our fundamental desire to support life, our health and the health of the planet. 
With the proliferation of open source platforms and models that are highly collaborative, communities are engaging on projects in a deeper and more powerful way. 
Using the internet, social media and micropayment techniques, peerfunding is bypassing banks and extending loans directly to businesses and individuals, cutting out the complex infrastructure and branch networks that underpin more traditional lenders. 
Peerfunding has already become a prototype of a new division of labor between producers and consumers. 
Resource users are getting involved in the process of producing their own resources, thereby generating new forms of value, cooperation and trusteeship. 
This is demonstrating that the commons are not just resources but the set of relationships they create, including the communities that use them, and the cultural and social practices and property regimes that manage them. 
Imagine peerfunding enabling producers and consumers to network and pool resources, creating projects that traditional finance and institutional channels won’t touch, such as commons trusts. 
Can we help commons trusts attain this kind of funding? 
Instead of financing business, Common Wealth Funds could be invested in the operation of the trusts which rent commons resources to businesses. 
Through these new political accountability structures, citizen financiers will be making direct decisions on each common property of significance, holding and managing this resource for future and existing generations and species. 
There are thousands upon thousands of resources across the world that could benefit from the management and production of trusts. 
The opportunities for financing commons trusts are enormous. 
Look around. 
In many places across the world, people who share particular resources -- including users, managers, producers and providers -- are already managing them through unique forms of self-governance and collaboration. 
Whether these commons are traditional (rivers, forests, indigenous cultures) or emerging (solar energy, intellectual property, internet), many communities are taking collective action to preserve their local resources, both for themselves and for future generations. 
These local trusts would greatly benefit from Commons Wealth Funds. 
And just as smaller resource communities have learned to manage their assets successfully, the world’s regional and international communities must also preserve their transborder commons and thereby pay back modern society’s huge debts to the environment, the poor and future generations. 
As in local commons, new management of the global commons will mean that resource extraction, production and consumption are limited to levels that do not exceed their carrying capacity. 
Transborder Commons Wealth Funds could be invested in the trusts that are created to govern many kinds of transborder commons, including: 
• carbon emissions 
• international investment 
• foreign exchange transactions 
• international trade 
• international airline tickets 
• maritime freight transport 
• ocean fishing 
• sea-bed mining 
• offshore oil and gas 
• international oil trading 
• satellite parking spaces 
• electromagnetic spectrum use 
• internet 
• information flows 
• toxic wastes 
• energy consumption 
In coming years, the recovery of our suppressed commons as a source of participative governance and non-monetized value will become critical as the private and public sectors search for a way out of the current global economic, energy and ecological crises. 
Central Banks and private banks are not going to be the ones to redefine the meaning of wealth. 
That will be up to the finance industry and its capacity to reformulate existing monetary models. 
The commons offer a range of resources which could generate a unique measure of mutual wealth and well-being that is based, not on productivity, profit or interest, but directly on the sustainability and resilience of the global commons -- on the perpetual vitality and continuous adaptation of local reserves to support people’s natural and social quality of life and that of future generations. 
Imagine a world where long-term wealth arises, not through consumer demand, investment or capital accumulation, but in the enhancement of the carrying capacity of the global commons to support life and life-systems for present and future generations. 
And this commons reserve system would provide business and finance with what we are presently seeking — long-term signals and incentives that arise through ecological, energy and exchange rate stability. 
Now is the time to manifest plenty in our world, to manifest the processes needed to ensure that it is used wisely and sustainably, so that everyone will get their needs met today, tomorrow and hundreds of years into the future 
To do this, to incorporate the economic system as a component part of society, and society as a component part of the biosphere, we are going to need to treat money as a monetary ecosystem with the commons as our reserve assets 
The commons must be created and sustained for the benefit of everyone in society. 
Can we create Commons Wealth Funds that demonstrate our collective intentions for sustainability? 
That’s what I hope we can discuss. 
In any case, when you go home and someone asks you, what exactly is the commons? 
Now you can tell them, the commons is the finance of replenishment. 

Original Introduction
As ecological economists have been saying for some time, the modern economy needs to be reconceived as a subsystem of the biospheric commons. For the present economic system to internalize its negative externalities and come into scale with the global commons, it will need to adjust the exchange flows (consumption, production, income) across political/territorial boundaries to the natural resource thresholds (inflows of raw materials and energy and outflows of wastes) of the planet’s own boundaries. 
This seminar addresses how the global commons — material, solar, natural, genetic, social, cultural, intellectual and digital — can be aggregated into a new kind of metric. This wide range of commons assets would constitute a unique index which is based, not on productivity, profit or interest, but on the perpetual vitality and continuous adaptation of local resources to support a good quality of life for all human beings and life-systems. 
Under this new monetary system, private industry flourishes from the surplus resources which are rented from commons trusts, the socially marginalized and vulnerable receive a subsistence income from the state, and the primary assets of the commons are preserved and regenerated. 
The long-term security of the commons thus provides full backing for an interest-free system of mutual credit, through which the credits and debits of each currency user are instantly adjusted and cleared. 
Under new constitutional agreements, businesses and governments would agree to use this interest-free credit currency in payment for all transactions, taxes and fees. This would reorient the focus of the private sector away from devaluing commons resources as unaccountable external costs, encouraging businesses to adopt a framework of property management and value that reflects a more accurate measure of the actual costs of resource production. 
Under this commons reserve system, business would continue to create profits and positive externalities through innovation, competitive products and services, and the adjustment of the market to the actual value of resources. But long-term wealth now arises, not through consumer demand, investment or capital accumulation, but in the enhancement of the carrying capacity of the global commons to support life and life-systems for present and future generations. 
Instead of presenting a handicap, the commons reserve system will provide businesses with what they are presently seeking — long-term signals and incentives that arise through ecological, energy and exchange rate stability. 
The Emergence of a Commons-Based Economy »The Emergence of a Commons-Based Economy
The Quilligan Seminars »The Quilligan Seminars
04: Financial Innovation and the Commons
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