Maryknoll Office for Global Concerns

Theme 2: Multilateral issues

The existing international financial institutions are keenly focused on growth (as indicated by increasing real GDP or GNP) which is not an accurate indicator of development. At the same time that the International Financial institutions were touting successful growth rates in countries like Bolivia, Maryknoll missioners living in small villages in the highlands told stories of the people they worked with who lived in dire poverty, earned less than a dollar a day and often went without food, health care, potable water and other essentials to sustain life.

The premise of growth-led development upon which the programs and policies of the international financial institutions are based is fundamentally flawed. Unlimited growth is impossible in a world that faces real, natural limits. The victims of crises created by changes in climate all around the globe are witnesses to the real limits of the earth at this time. New or restructured institutions that can understand and will respond to the current moment are needed. The priorities of these institutions must be based on the principle of sufficiency rather than the current doctrine of unlimited growth-led development. Since the financial crisis and climate crisis cannot be separated, new or renewed structures that can follow principles of ecological economics need to be put in place. All must be done in an integrative way.

The measure of health in an economy must shift from growth to the quality of life. To do this, global financial institutions will have to incorporate the voice and decision making power of those living in communities that have been excluded from the global economy and develop and use new tools for measuring a healthy economy. Examples are the Genuine Progress Indicator and the Healthy Planet Index. Or an index of indexes could be used – each measuring different aspects of health and well-being.

Indigenous communities throughout the world have a real sense of respecting the earth and its limits, and regenerative needs. They have lived in harmony with the earth and its needs for centuries. As globalization clashes with these communities some of their wisdom is being destroyed and lost. A concerted effort must be made to understand their sufficiency-led economic model. It would behoove the Commission of experts to seek the advice of these communities before further deliberations.

More space has to be created for less industrialized countries to participate in decision making in the international financial institutions.

Once there is a shift toward sufficiency and away from growth, real costs and real debts can be evaluated. The current quantitative expansion of the economic system increases environmental and social costs faster than it produces benefits, actually making those living in high-consumption countries poorer, not richer. In reality when measuring wealth, there should be two accounts – one that measures the benefits of physical growth and another that measures the costs of that growth. Over the past two centuries, the assumption has been that what exists in nature is “free.” If the real cost of natural resources (as recommended under theme 1 above – through a globally embraced ecological tax) is established, the balance of real debtors and lenders in the world will decidedly tip.

Under the new structures, poor country debt cancellation, promised by the G8, will be immediate and complete, without macroeconomic conditionalities in order to expand the policy space available to poor country governments. Debt cancellation will include a resolution of the burden on poor countries of illegitimate and odious debt.

Fundamental to creating an ecological economy that fits within the capacity of the planet will be having good information on the amount of each resource that we have remaining. With this information, that planning can be done to reduce our negative impact on the earth so that what we do fits within the limits of the earth and its capacity to regenerate. This would guarantee a livable future for generations to come. In terms of mechanisms, the purview of the Intergovernmental Panel on Climate Change could be expanded or another panel or panels could be created to make best estimates of how many resources remain on the earth as a whole.

An international corporate crime court could be established to decide appropriate fines or punishments for violations of human rights, antitrust laws and proper payment of ecological taxes.

Since renewed, more just relationships between human beings and the rest of creation are essential, national and local economies need macroeconomic flexibility, courage and integrity to shape state, national and global policies, structures and systems that support global social justice and ecological integrity. Our moral obligation to the near and the distant future is clear. Neither the U.S. economy nor the global economy can be based on the unsustainable use of resources or the assumption that constant growth is an ultimate good. At the same time, impoverished countries must have the macroeconomic policy space and ecological space to develop in a sustainable way to a level adequate for a decent life. Together we must move toward a steady-state economy that limits the use of all natural resources to the planet’s capacity to regenerate. Local and regional economies based on sustainable energy and equity for all must be encouraged. This will require de-growth or flat growth in some over-developed countries to make space for other countries to meet basic needs.

Theme 3: Macroeconomic issues and addressing the crisis

This over stressed, growth-led system presents a false ideal that everyone can have a lifestyle like that of a U.K. or U.S. citizen. According to Andrew Simms, the policy director of the New Economics Foundation in London, “It would take at least three Earths to sustain us if everyone had the lifestyle of people in the UK; five if we all lived like Americans.” (New Scientist Magazine, October 2008) We don’t have 5 planets to work with, we have one, and the central problem we face is unequal distribution of wealth and goods.

1- Central Banks should be mandated to ensure qualitative growth and to keep 100 percent reserves. In such a system money would be rarely invested except in ways that would contribute to the real economy without pollution or resource depletion (see theme 1 recommendations).

2 - Full Employment Strategies: The growth driven free trade system we now experience cannot guarantee full employment. Once growth is taken out of the equation, a real respect for natural resources, including human resources, could be established through paying the actual price for pollution and for resources extracted from the earth and a livable wage for labor. In such a system there would be fewer incentives to create products subject to planned obsolescence. What would be manufactured would be made to last. Maintenance and repair would become more important. Since these kinds of professions are relatively protected from off-shoring and are more labor intensive services, more jobs would be created. Workers could be offered a share of the business profits and encouraged to work shorter work weeks. This would distribute wealth and jobs to other workers in areas where there is over-employment and encourage more leisure time facilitating a better quality of life.

3- Distribute wealth through the use of a set range of income distribution. Set a minimum and a maximum income. When growth in wealth is no longer the emphasis of the economic system, poverty reduction will require redistribution through the institution and enforcement of a set range of income distribution.

4- Trade & the Doha Round – the commission welcomes a successful completion of the Doha Round, but if the negotiations continue to promote a trading system that continues favoring the wealthy nations, the completion of this round would be disastrous. There can be mutual benefit in international “free” trade, but not under the current system. The idea of comparative advantage – each country trading products it specialized in for products more efficiently and economically made in other countries – has become nothing more than a race to the bottom, with countries’ key advantage being lower costs for precious natural resources, lower working wages, less worker safety and no job security. In the current system, some countries and people are decidedly the losers. This is why the Doha Round has limped along for years. In dismantling the growth-led model countries would be free to focus on sufficiency, consumer safety and the preservation of resources, both human and natural. Countries would refrain from the practice of lowering standards in order to remain competitive with other countries. Countries would be free to put in place compensating tariffs to ensure that natural costs of production were internalized. A re-regulation of international commerce—moving away from free trade, free capital mobility and globalization, will adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries.

5- Trade & Intellectual Property (IPRs): The current IPR system creates massive, unnecessary costs, especially in the area of pharmaceuticals, and must be reformed. Medicines are too important to leave to the market’s ‘invisible hand.’ There are several workable models that would continue to provide incentive for the creation of new medicines without patents that drive prices up exorbitantly. See: Unlike other commodities and services, knowledge shared is multiplied, but the current system which protects knowledge for long periods of time prevents productivity and innovation. Patent protection and monopolies should be given for fewer inventions and for fewer years to free up much needed innovation in at this critical time having to restructure economic models to fit into ecological constraints and limits. As peak oil looms there is a tremendous need for more thinking and negotiating around slowing down the pace of international trade and creating ways to localize markets without upsetting people’s livelihoods.

6- The commission rightly points out that developed countries should be expanding assistance by at least 20 percent to less developed countries at this time. Vast Inequity of income distribution is tolerated by the current system and its track record of funding poverty alleviation is nothing to boast about. During the 1990s for every $100 added to the real economy, only 60 cents found its way to people living below the World Bank’s absolute poverty line; in the 1980’s this figure was closer to $2.20. It seems that the “trickle down” theory is actually working in reverse. Under this scenario wealthy people will have to get a lot wealthier to make others only slightly less poor. This is why a completely distinct macroeconomic framework is required.

Theme 4: Reforming the global financial architecture

Longer term reforms will be needed to enclose the current international financial system into a world of natural limits. Interest rates, key to the current system, necessarily require growth – both in creating new money and taking on debt. Debt and inflation have grown exponentially in the past 20 years; this kind of growth has proven to be unsustainable both for the financial system and for the planet’s health and well-being.

The current shape of the global economy does not respect the limits of the planet. At this time of exponential financial growth and exponential resource extraction the current economic system defies the fact that the earth has limits. If we continue to ignore the ways in which the natural world needs to regenerate itself, we will run out of the natural resources to sustain live.

Measurements of health and contentment for humans and the natural world have to be renegotiated. We have to stop focusing on growth, and turn the focus to quality of life. It is important to look in relationship to the earth and its resources and relate more closely to it. To do this it might be important to look at local communities, especially indigenous communities –healthy local economies that relate closely to the earth, its limits and its needs to regenerate.

1- Shift to a 100 percent global reserve system – shifting from fractional reserve banking to 100 percent reserve requirements will put control of the money supply, inflation tax and money production in hands of governments rather than private banks. Money could then become a pubic utility rather than a bi-product of borrowing and lending in pursuit of profits.

2- Create new structures: Establish an International Multilateral clearing union – seeking balance by directly penalizing persistent imbalances (both deficit and surplus).

3- Establish an international, independent mechanism for countries to resolve disputes over potentially illegitimate and/or illegal debt or in the case of bankruptcy.

4- Ensure that the same regulations apply to all parties participating in global financial systems. End the two-tier system of rules for industrialized and non-industrialized countries – especially important now as northern governments bail out banks and financial markets while signing off on proscriptions that non-industrialized countries have to follow for debt restructuring. We agree with commission members that less industrialized countries should be free to use counter-cyclical policy tools to balance their economies.