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Cloisters February 2007

New Economics


by Margaret Legum

World mapGovernments acting unilaterally may in principle introduce ‘new’ economic measures to restore economic justice within their borders. But some new policies need a global stage to be effective. None of the policies advocated here is out of the range of national and regional government, although transaction taxes need a reliable electronic banking system. All of them use the familiar market mechanism to democratize economic life.

But the freedom of capital to desert a nation has undermined governments’ capacity to respond to the electorate. National sovereignty and democracy have been “white-anted” (destroyed from within). So nations and peoples need each other as allies to take on the capital-owning lobby to re-create the capacity for policies that spread wealth. Moreover, two coming global threats will need global policies: they are the precipitate shortage of fossil fuels and the effects of climate change.

The Global Financial Architecture

What is called the global financial architecture – the operations of the World Bank, the International Monetary Fund, and the World Trade Organization– have, entirely predictably – promoted and preserved the interests of the global financial sector and capital-owners. That sector created those institutions, and provided them with institutional arrangements which allowed perpetual control by the already rich.

Voting arrangements were made proportional to the resources of members; and negotiations over trade, superficially more democratic in structure, require the on-going presence of highly skilled, trained experts – who cannot be spared by less resourced nations. Rich countries, and the interests of rich people, walk away with decisions, and then make the rules to enforce them. None of that is surprising given the history of those institutions.

What About the Rest?

But excluded nations have the power, acting together, to democratize them. Already their purposes are being partly stymied simply by refusal on the part of disadvantaged nations to agree to what the rich want. Stalemate is a useful tool. Failure on the part of the rich to adapt can lead to its replacement by something more relevant.

UN building, New YorkThe UN and its specialized agencies are already more democratic, and can be used now to introduce mechanisms to cope with the coming threats of fuel shortage and climate change. The world must prevent shortages being solved by wars and enforced monopolization of the remaining fossil fuel. Similarly it must control the right to emit dangerous gasses that will render the planet uninhabitable.

Where there is shortage the market ensures the rich get the lion’s share, regardless of equity.

The Alternative

Fuel Use

The alternative is some form of rationing. New economists propose that individuals should be entitled to a certain number of units of the fossil fuel available globally. Those units should be given a price. People who use more than their allocated units would be able to buy them - in a market, global and local - from people who use less. That would establish a supply and demand for units of fossil fuel, which would determine its price.

Such a process would give controlled, equitable incentives for fuel-light life-styles, rewarding with hard cash people who use very little and penalising the gas-guzzlers. The price of the fuel used in production and transport of all goods and services would be incorporated in the price of the product. Rationing would happen via the price, with strong incentives to switch to renewable energy processes.


Cooling TowersSimilarly, we can calculate the capacity of the planet to absorb emissions. The right to produce those emissions could be allocated to nations according to their population size, or even to individuals. This is already happening to a growing extent in the form of carbon trading. Nations that emit more than their entitlement may buy the right to do so from nations that produce less.

This is not simply a way to allow rich nations to carry on polluting regardless. It is a new and continuing expense for them to do what they have always done free. And poor countries have an incentive to direct their development in non-polluting ways. In the short term it is a seamless way to transfer access to resources as of right from rich to poor people.


Another area for global cooperation is that of agriculture. Many products - minerals, automobile and aircraft - are appropriately produced and traded in a global market. Others should be localized. Agriculture is among those. Food security is impossible in a global market, where staple foods, denominated in the global currency of dollars, can become simultaneously too cheap for farmers to make a living and too expensive for hungry people to buy. The market does not work globally for food, which is a daily basic. Also food deteriorates as it travels: it is most nutritious when picked and eaten immediately. The longer its air, sea road miles the less healthy energy it gives off when eaten; and the chemicals used to help it travel are unhealthy all round.

A global undertaking to localize food globally would have manifold advantages. Elected governments would have the right and duty to promote livelihoods on the land, and to protect farmers from the unpredictable effects of the climate as well as global prices and events. The regeneration of rural areas and communities – the stated aim of most governments – would follow

For South Africa and other South countries the grievance about North countries subsidizing agriculture would fall away. We would have the right to erect barriers equivalent to those subsidies to promote our own food security. Subsidies for exported food would become pointless. Subsidies to farming, simply to stabilize a vital but unpredictable industry, would become an option for any nation – without breaking global rules.

A Global Currency

Finally, a global currency is needed to replace the limping dollar. Its enforced use as a reserve currency is the only reason the US is able to maintain its massive overseas debt: it is given the unique right in effect to create new money globally. How’s that for a free lunch? It is time a global currency were created, as Keynes advocated, by the global equivalent of a Reserve Bank.

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