Economy
A Brief Call for Transformation
May 15, 2013
by John Bloom
In a world in which we have commodified labor, land, and all natural resources, and now capital as well, why should we be surprised that democracy is also for sale? Citizens United has proven this point in the extreme. What has been less noticed or documented is a long-standing stealth campaign to commoditize human identity—the human ego is in many ways the last frontier of commerce. Anyone who doubts this intention should be aware of the following clarion call from the Art Directors Club Annual No. 34 of 1955: “It is now the business of advertising to manufacture customers in the comfort of their own homes.”
We cannot seek the antidote to this invasion in social isolation. Self-reflection is an important tool of self-knowledge, but self-knowledge is meaningless without the reciprocal knowledge reflected back to each of us from the world. In some ways we serve each other as awakeners and sanity checkers, and hold each other to accounts so to speak. Another way of looking at this would be that each of us needs to be free in determining a destiny path and vocation, and at the same time find meaningful work in serving others’ material needs. The world of rights and agreements mediates this intersection of the individual and material world, and the collective activity itself is what we call economics—or how we meet human materials needs out of compassionate interdependence. I might venture to say that understanding and transforming how we work in the world economy, even in its most local or regional expression, is itself a threshold to restoring, preserving, or furthering the development of consciousness.
The experience of this transformation acts as preventive counterpoint to what is a kind of virtual identity theft. Money, with all its attendant issues, is nothing more than the barometric instrument of the collective we call world economy. Understand money and the current condition of humanity, and our ability to know ourselves and care for each other is visible in it, for better or worse. Truth is, unless one hews to and hides behind a protected right of privilege, the picture demands profound transformation that centers on the intersection of money and spirit. This is work that no one other than each of us can do for ourselves, and even better to be done in community so that we can support others as they support us. If we do not rise to this challenge, we risk the human birthright and inner work of spiritual freedom and step instead onto a path of slow tyranny.
John Bloom is Senior Director, Organizational Culture at RSF Social Finance.
A Healthy Stream of Capital
April 25, 2013
by Tammy Childers
Originally published in the Spring 2013 RSF Quarterly.
RSF’s purpose is “to transform the way the world works with money,” but what exactly does that mean? In pondering this question, I recalled time spent outdoors exploring a particular creek. I realized there was a metaphor in the story of that creek for a transformed financial system.
Last summer, with my family, I visited Filigreen Farm, a diverse Demeter certified Biodynamic fruit farm in Mendocino County. One morning, my mother-in-law, Joellen, and I set out to tromp through the creek that bisects the farm. This creek, the Anderson Creek, is a major tributary feeding into the Navarro River and to the Pacific Ocean twenty miles away.
In the year that had passed since my last visit, the creek had changed. The water was deeper in some places, but there were also more sandbars. Standing up to our knees in cool, clear and slow moving water we marveled at dark pools of circling fry, audible frogs, and lush vegetation. We lingered in shallow water searching for captivating treasures.
By the time the sun was directly over our heads, we were ready to head back to the cool shade of the house, but with willows, shrubs, and grasses crowding the creek banks and islands, we could see no obvious path to the farm on the other side.
When we finally emerged, we ran into Stephanie Tebbutt, one of Filigreen’s managers. We thanked our host, and Joellen commented on what great fun she had in the creek. This creek, Joellen said, struck her as particularly beautiful; she had not seen a stream as clear as this one since she was a child on her family’s farm in Nebraska.
When Stephanie and her husband Chris, both landscape designers, first came to Anderson Valley in 1982, “the stream looked nothing like its present self: curving, clear, and about twenty feet further back from its former location,” Stephanie said. “It looked like others up and down the Anderson Valley: straight, denuded of vegetation. The landowner at that time had bulldozed the creek each autumn to straighten it, clearing any vegetation brave enough to rear its head along the way. What little survived was grazed down by the cattle.” The practice had eroded the farm land, sending topsoil down to the sea, creating a steep cut bank, and facilitating spring flooding.
Lush landscape and Filigreen Fram
Together the Tebbutts set out to stabilize the creek bank. Bringing the natural rhythm and energy back to the water would be the key to the riparian restoration. “Water is not meant to flow in a straight line,” Stephanie said. “There are unintentional consequences to forcing water in that way: flooding, bank erosion, and a wider, shallower summer creek bed with higher water temperatures unsuitable for nurturing new life.”
They began by planting willows and cottonwoods along the banks, and over a period of 18 years, experimented with an array of engineering techniques to stabilize what was considered one of the worst erosion problems in the county. Many of those early efforts failed, but eventually, Chris came up with a system to build jetties, or “nick points” to slow the creek in flood. The jetties were planted in fast-growing riparian trees and formed the basis for what would eventually become the flowform structure that enabled meander to return to the creek. Now the water would hit a berm, follow the curve, hit another berm, and follow the curve, depositing silt and topsoil from upstream at the back of the jetties, and scouring out deep pools in front, effectively changing the flow of the water back to that of a healthy creek.
In time, silt and soil built up along the banks and native weeds and woody plants moved in to capitalize on the new territory, thus providing habitat for the life we witnessed. Now this half-mile stretch of Anderson Creek is monitored by county and state agencies for its remarkable come-back.
As Stephanie explained this, I exclaimed “That’s what RSF is trying to do with money! We are trying to change the flow of capital so that it flows to the businesses and organizations that are creating a deep, positive social impact.”
With our current financial system, if we speak of the flow of water as the flow of capital, we could say the flow has been interrupted; it has been bulldozed and channeled straight. As a result, the flow is muddy and opaque and the wealth is removed from its origins and deposited far downstream. When bad news hits, businesses lacking deep roots in the community are wiped out in a flash flood. As aggradation, or the displacement of sediments caused by repeat floods, alters geography resulting in shallow and dispersed water flow, a financial crisis erodes capital from communities and displaces it to far off investors resulting in less capital for local initiatives.
A healthy financial system can be seen as a healthy stream with its meander restored by the actions of the social finance community. Through direct lending, investing, and giving, RSF can contribute to restoring the natural flow of capital to businesses and organizations that encourage a healthy economy, environment, and people.
With a transformed financial system, we will directly invest in businesses and organizations with deep social impacts that encourage and support their communities. There will be diversity among these businesses and they will add value to their community by investing in people and practices that are good for society and the planet. The flow of capital will be patient and will settle into areas suitable for sparking new opportunities that, in turn, contribute back to the greater flow. More people will have access to and benefit from this flow, increasing the diversity of businesses and organizations. When bad news hits, it will not be a tragedy because our businesses and organizations will have established deep, healthy, community-based roots.
Now I ask you to ponder: What does it mean to you to transform the way the world works with money? How would that world be different than it is today? What needs to happen to make that change? And what can you do to contribute to it?
Tammy Childers is Loan Servicing Manager at RSF Social Finance.
Between Land and Money: An Economic Consideration, Part V
March 20, 2013
This is the fifth and final post in a series by John Bloom on money (global) and land-based (local) economic systems. While we are largely accustomed to the former, this historical analysis makes the argument for a new kind of economy, one which raises the profile of land-based systems to benefit and balance the global economy as we know it.
In my last post, I described the distinct differences between money and land-based economies.
We need both facets of the economy, but with a renewed awareness of land. By and large the land economy has been adumbrated by the money economy. Everything, it seems, has been monetized. What the Relocalization Movement, Transition Towns, Business Alliance for Local Living Economies, TimeBanks, BerkShares, Buy Fresh Buy Local, and Community Supported Agriculture, along with numerous other groups are doing, each in its own way, is trying to reawaken the local-regional economy consciousness with the rebuilding of community and resilience at the core of all initiative. In essence they are encouraging communities and individuals to take back authority as much as possible for the development of economic life out of a sense of interdependence. In some cases these groups are creating their own innovative means of exchange in order to complement the conventional money system. And the new tools are more in alignment with the values they are cultivating. The money economy has set us in competition with one another, atomized us and left some of us in a state of fear of not having enough to take care of ourselves—all on the assumption that the only way to meet one’s needs is through money. Since we are so busy trying to make money, and do not have time to do anything else, we are left with paying someone else to take care of matters. The extreme of the money economy is that we work so hard at our livelihood that we end up outsourcing our life.
The conclusion of all this economic history and analysis is to say that we need a new kind of economy, which raises the local-regional land-based on equal ground with the global, recognizes the value and role each play, and manages capital in a way that supports the interplay between them. This management component would raise community self-determination to a new level beyond politics, recognize the importance of multi-stakeholder participation and at the same time steward the intersections between local and global via larger scale associations of stakeholders. A picture that says only one system is the answer for all, that to be economically viable and profitable, for example, everything must be built out to large-scale efficiencies, no longer works.
Both the money system, though overstretched and fraying at the edges, and land-based systems are already working, even if the latter is still surviving only in the background. However, in many cases the local or regional land-based solution is going to be far more resilient in the future because those who create it usually feel responsible and accountable for what they have co-created and accomplished. To change our economic being will require a radical reconsideration of ownership—how we own, why we own—and a major disruption of the myth of self-interest. The reality of our interdependence in economic life will have a new story that also celebrates the importance of community-interest, both local and global.
What we seriously lack in order to move toward this new level of economic system consciousness is an educational infrastructure that seriously challenges the current economic and money paradigm while researching and experimenting far more broadly the methodologies and benefits of the land-based economy. But nothing will happen in this direction unless each of us steps out of consumer consciousness—one endgame of the money economy—and finds a way to really reconnect with land, not as real estate, but as the source of all economic life.
John Bloom is Senior Director, Organizational Culture at RSF Social Finance.
Between Land and Money: An Economic Consideration, Part IV
March 7, 2013
This is the fourth post in a series by John Bloom on money (global) and land-based (local) economic systems. While we are largely accustomed to the former, this historical analysis makes the argument for a new kind of economy, one which raises the profile of land-based systems to benefit and balance the global economy as we know it.
In my last post, I described the rise of various visionary economic thinkers who viewed the economy as a whole system in contrast to the limited money-based view.
The money economy is global. It allows for trade and the movement of manufactured goods across political boundaries, and money can move around the world at electronic speed. It supports scale and efficiency and has made the accumulation of wealth a bedfellow of unparalleled poverty. Much of that wealth is a result of enclosing and owning natural resources and newer technological infrastructure that could more rightly be considered in the commons. It was this disparity and the injustice that accompanies it which led Henry George to seek a remedy. It is not hard to see both the genius and shadows of the money economy; many of us benefit and suffer from it. It has, unfortunately, pervaded all aspects of economic life to the exclusion of other ways of being economic.
A land-based economy is by definition rooted in place, animated by its inhabitants, and conditioned by the natural resources that make up the span of its geography, however that is defined—one day’s horse ride, river or mountain boundaries. Agriculture, for example, cannot be anything other than land based. In many ways, I would venture that most economies prior to the modern era and certainly prior to the ascent of the money economy worked that way. Such an economy understands and depends upon a social ethos in order to function, and every community member is valued though each has different capacities. In its ideal, it is a kind of gift economy. The Sarvodaya Movement in Sri Lanka founded by Dr. A.T. Ariyaratne is a living example. There are now some 15,000 villages practicing economic self-reliance based upon the land. Everyone is cared for, and everyone has meaningful work to contribute to the community regardless of age. They never talk about full employment as we do in Western culture. Instead they speak of full engagement. The beauty of such an economy is that the quality of community life is lifted and with it each individual. While a land-based economy may not generate such enormous wealth for individuals, it is, as in the case of Sarvodaya villages, more likely to foster a more fair economy that produces sufficiency. Of course, the risk involved in working this way is a shadow, a closed community that oppresses the life of the individual.
An example of the transformation of a land-based economy to a money-based one might help illustrate the distinction between the two. In Indonesia, prior to its independence following World War II, village life was very strong. The staple food crop was an indigenous variety of red rice, which provided a wide range of nutrients and supported people’s wellbeing; there was little disease or starvation. Following upon independence, the new government wished to participate in the emerging global economy and essentially directed rice growers to cultivate white rice that could be exported to hungry markets. The government provided the necessary subsidies and support. Shortly thereafter, with a shortage of red rice for nutrition and white rice transported out of the community to the marketplace, there was a rise in disease, malnutrition, and poverty. At the same time, wealth accrued to those who controlled the marketplace, who did not live in the villages, but rather in the ports and centers of capital. This portrayal is oversimplified to make the point, but the facts remain and the circumstances are nonetheless true—and, sadly, it is not an isolated case.
In the land economy, people are connected to the food they eat, the people that grow it, and the soil in which it is grown. Land based enterprise might include food processing, crafts and manufacture from regional materials, localized energy production through wind or solar, and the list I am sure can be much longer. The point here is that the economy emerges from working on the land. This framework does not in any way limit exchange between communities because the exchange remains between people who have their own connection to the land. Because the land held in common is a source of production, and not economic in and of itself, the land economy is much less likely to have externalized costs. And, there will be more ecological consciousness as the community has to live with the consequences of its own activities. In a land economy, transparency means that a product can be traced to its sources and makers.
On the other hand, the money economy makes it possible to manufacture on a scale and with efficiency not possible at a regional level. It would be absurd, for example, to think that each region has to make its own mass transportation vehicles. One question would be whether externalized costs and other less visible human and environmental consequences of manufacturing can be accounted and paid for, and mitigated in a restorative manner.
John Bloom is Senior Director, Organizational Culture at RSF Social Finance.
Between Land and Money: An Economic Consideration, Part III
February 28, 2013
This is the third post in a series by John Bloom on money (global) and land-based (local) economic systems. While we are largely accustomed to the former, this historical analysis makes the argument for a new kind of economy, one which raises the profile of land-based systems to benefit and balance the global economy as we know it.
In my last post, I discussed the evolution of the American version of economic life: an industry of limitless production fueled by commoditized land and labor, growing economic inequality, and volatile market fluctuation.
Numerous economists have observed the cyclical patterns of boom and bust, the disparity of wealth and poverty that seem an endemic part of the industrialized and global economy. But, none has addressed it as directly as Henry George with the publication of Progress and Poverty in 1880. In the book, which caused no little controversy, George argued that land and natural resources should be owned in the commons, and that private ownership and the control of rents was one of the major contributing causes of impoverishment of the many at the hands of the few. As a remedy, he proposed a single tax on the value of land. This tax would return to the public the monetary resources that in some senses were sequestered in the land and in private hands. He hoped to free up enterprise and enliven the diversity of the free market by eliminating production taxes. He argued that the single land tax would provide adequate revenue for the government’s needs. It was simple and brilliant, and a threat to those in power. What George was trying to do was find a monetary equivalent for decommoditizing the land, to make it in the community’s interest to make sure that the land was rightfully used and stewarded for future generations. George’s was a land-based economy in which the community benefited from the wealth generated by the increasing value of land. He was mostly concerned with the multiplier effect of manufacturing and production on the value, especially in cities, and less concerned about the role of land in agriculture since it was not subject to the same kind of dynamic of development.
Henry George’s approach to economics represents a view that land and all natural resources are not economic unto themselves. That is, they do not enter the economic stream until someone works on that resource; the product of that work is economic. Rudolf Steiner in his lectures on Economics given in 1922 put forth a similar concept and elaborated further that this work on the land generates one kind of value. He also identified a second kind of value stream: that which emerges when intelligence is applied to labor. These dynamically related principles lie at the heart of economic life, lead naturally to the division of labor, and the capacity to arrange that labor in such a way as to achieve efficiency and surplus capital. In some ways we have lost sight of the first value stream as our consciousness and technical capacities have developed. The land-based stream has been devalued as it tends toward place, and stands against the imperative of capital and global markets.
Steiner’s insights into evolving economic life, which he saw as global in nature, run counter to the prevailing market money paradigm in which everything down to genetic structure is owned and commoditized. Steiner stated that all the essential elements of the economy—land, labor, and capital—were phenomena not commodities. Economic life as we experience it emerges from the interactions between them, and is embodied in people’s capacities to recognize and meet each other’s material needs. For example, it was an invention of industrial society to be able to attach a price to someone’s work. It was as if to parse an individual’s capacity into machine-like component of production. In essence, Steiner also said that capital is not a singular thing, but instead could be traced in movement through its various functions. The value of that capital would be realized in how it could serve initiative and enterprise in the economy. In his far-reaching view he felt that treating capital and money as a thing would lead to a world of speculative or virtual rather than real value.
In her study of economic life, especially in an urban environment in the late 20th century, Jane Jacobs developed a vision of self-sustaining regional economies based upon what she called import replacement. Hers was a vision of small to medium-scale entrepreneurs and manufacturers who would find ways to make things locally that the community needed but had gotten by importing them. Her imagination was of a vibrant diverse and interconnected economy that depends on outside inputs only in so far as they enable local innovation. She indicated that this approach would sustain the local entrepreneurship, the job market and the rest of the local economy, and at the same time reduce the environmental degradation that results from extensive transportation of goods. Her vision also includes that which both Hamilton and Jefferson missed—a mindfulness of organic systems that looks at waste as an integral part of the economic whole and which finds innovative ways to transform that waste into new value. From a financial standpoint she realized that money kept in local circulation as a result of import replacement would have significant added value for the quality of community life. It should come as no surprise that her work has become a prime inspiration and philosophical framework for the local living economies movement. Jacobs crafted an economics of place in which land and regional natural resources play an important part, but her take on land itself in relation to economic value is not directly addressed.
Each of these visionary economic thinkers saw the economy as a whole system, and each brought a new perspective based upon the reality of their respective times. The purpose of narrating these various views of land and money is to tease out of them some sense of how we can actually live in a dynamic tension between the two, and to resurrect the shared reality and importance of land and natural resources, not as economic in and of themselves, but as part of a livable economic future—and before it is too late to do so. And further, to revise our understanding of capital; to the extent that it represents applied intelligence, it serves as something of a mediator, moderator, and motivator of the two.
Between Land and Money: An Economic Consideration Part II
February 21, 2013
This is the second post in a series by John Bloom on money (global) and land-based (local) economic systems. While we are largely accustomed to the former, this historical analysis makes the argument for a new kind of economy, one which raises the profile of land-based systems to benefit and balance the global economy as we know it.
In my last post, I described the development of Paterson Great Falls into the first industrial park under the leadership of Alexander Hamilton.
Hamilton’s economic vision became essentially the American version of economic life. Consistent with the pattern of the wider Industrial Revolution beginning in England, his approach created the conditions that drew labor from the countryside to urban industry while diminishing the agrarian foundation that had sustained the American colonists. But, there was another imagination articulated and fought for by Thomas Jefferson as Hamilton was carrying the day. That vision was less sympathetic to the manufacturing and money economy than it was to the deep value of agriculture as the primary driver for American economic life. Jefferson’s view was grounded in an ever-expanding land base that could support regional economic subsistence and produce plant-based products such as tobacco and cotton for foreign markets, especially Europe. Jefferson, a farmer himself, reaped economic benefit from agriculture aided by slave labor, and also celebrated the pedagogical value of tillage for the development of character. He understood that a good farmer is also a land steward; soil fertility and economic productivity are entwined.
Jefferson saw the expansion of the American land base as essential for more farming and agricultural product growth, access to markets, and ever-wider distribution—thus the Louisiana Purchase and the implementation of the doctrine of manifest destiny. This “destiny” was used to justify the merciless destruction of the Native American peoples, and their way of life that was reverently open land based. When the US government granted significant land tracts to soldiers who had fought in the Revolutionary war in lieu of pay (the government had no money), that land had to be parceled into ownership, measured, fenced, and priced—anathema to the ethos of land as shared commons. Those fences enclosed land and brought an end to the dynamic, reciprocal flow between man and nature that had long marked the economic life of Native America.
Both Hamilton and Jefferson knew the need for natural resources of all kinds would increase continually to support economic and national development. From their place in time, both could see no limits to the kind of economic growth they were imagining. And both contributed to what would become the industrialization of everything, including agriculture. The value of a human being would be measured by his or her capacity to produce economically; land itself became a store of value as well as a source of production. Land and labor were commoditized in a way that was material to all economic matters. In essence, with the emergence of property rights granted to individuals and corporations by the government, the mutuality of “ownership” in common gave way to the self-interest described so ably by Adam Smith in The Wealth of Nations, first published 1776, the same year as the Declaration of Independence was signed.
Nothing in Adam Smith’s text would have predicted the level of greed and manipulation that have pervaded our current financial system. Smith assumed a standard of morality in the economic sphere that was guided by the dominant religious principles of his time. But much has changed in the human psyche since then. Wealth has become a game of never enough, of winners and losers. Greed is not a modern invention, it is one of the seven deadly sins; neither is manipulation of the market for private benefit. But the scale and affects of recent events indicate an extreme disconnect between money and land to the extent that land itself accrued economic value as a store-place for money. Land is a treasury unto itself measured in ever-rising prices, which, in turn, present insurmountable barriers to access, especially for farmers.
John Bloom is Senior Director, Organizational Culture at RSF Social Finance.
Between Land and Money: An Economic Consideration, Part I
February 14, 2013
This is the first post in a series by John Bloom on money (global) and land-based (local) economic systems. While we are largely accustomed to the former, this historical analysis makes the argument for a new kind of economy, one which raises the profile of land-based systems to benefit and balance the global economy as we know it.
I recently visited the newly created Paterson Great Falls National Historic Park on the Passaic River in northern New Jersey. There stands a sign inscribed with the following: “Alexander Hamilton envisioned the great potential power of these scenic falls for industrial development.” Of course, this is intended as an encomium to the first Secretary of the Treasury of United States, and to the economic vision that he enacted on behalf of the hard-won and newly formed country. The Falls are magnificent, powerful expressions of natural forces. One can feel in the current an energetic transformation of the water as it falls seventy-seven feet, turns frothy white, and sends an uprush of mist and air.
A panorama of Paterson Great Falls. Photo courtesy, John Bloom
The sound the Falls generate is a kind of white noise to the heavy highway traffic flowing by Paterson. Looking up from the effluence to its surroundings brought with it a chilling reminder of fallen industry in a town that the poetry of William Carlos Williams celebrated and economic history left behind.
Hamilton was an economic visionary. He saw nature as an underutilized economic resource and perceived the driving needs and opportunities of young untapped markets. Political revolution and the desire for independence constituted a seedbed for America’s version of the Industrial Revolution. This drive headed the US into the interdependent web of the global marketplace. For Hamilton, fixing the major structural debt problem in post-revolutionary America’s finances by stimulating industrial manufacturing was both motivator and strategy. Paterson, under Hamilton’s guidance, became the first industrial park. This venture was accomplished by the Society for Establishing Useful Manufactures [S.U.M.], a private corporation founded by Hamilton in 1791 with other investors. The success of the venture was supported by a New Jersey governmental decree of local and county tax exemption in perpetuity along with the rights to hold property, re-engineer the natural waterways, and raise additional capital. Not a bad deal—it became the working model for government-driven economic development to this day—except that we are running out of natural resources to exploit. The history of S.U.M. is a bit checkered and instructive. Having supported the engineering and construction of the industrial infrastructure in harnessing the power of the river, they faltered in their actual manufacturing business and five years later became instead property manager and executor of water rights for all the ensuing industrial development. Their work amounted to collecting rents.
While Hamilton operated in the name of public service, and he did much to right the economy, private enterprise was the game. The history of Paterson’s Great Falls was about new industries including textiles (especially silk), handguns, rope, continuous sheet paper, submarines, locomotives and, later, airplane engines. The industrial park along with its surrounding services, shops, and residential quarters became a place of industrial innovation and manufacture, expanding jobs suited to the skills of the influx of new workers from Europe, and was an easy access upriver economic partner to the vibrant marketplace of New York City. Well after Hamilton’s time, this growth also harbored the cross-streams of cultural, economic, and political worldviews that evolved in the later stages of the Industrial Revolution. By then, the human and social consequences of capitalism were in evidence. In 1913 in Paterson, with much wealth created but in private hands, jobs created for many but at the sacrifice of worker well-being, there was a protracted silk factory workers’ strike—it represented the voice of labor striving to find its place in the growing economy. It was an inflection point marking a downturn in Paterson’s economic arc, and a reflection of how disconnected capital could become from public service in the name of profit seeking.
The sub-story to this economic development was the untaxed right granted in perpetuity to industry to use the Great Falls as an energy resource with little regard for the resource itself. With the application of capital and ingenuity, energy was extracted from the water and transformed into power, power into manufacture, manufacture into markets, markets into capital, capital into wealth, and wealth into power. This is a story of economic manifestation in which God-given abundant natural resources are seized and under the control of capital, power, and polity. This disregard for the inherent gift of nature to all and the arrogation of private and privileged rights to determine its use is a one-sided self-interested, and shortsighted economic vision. The widespread implementation of this same vision has brought us to the brink of ecological miscarriage. While the natural gravitational flow of the river is used to generate the currency we call capital or money, nothing of that value is returned to nature itself.
In the story of how natural resources are used for profit, between land [representing all natural resources] and money, is an economic paradigm in need of reassessment and intervention. They are not the same. Their sources are different, their character is different, and to quantify the capacity of the land to support life, even to call it economic, is to sell its sustaining value short. In Paterson, what all that industry returned to the water by way of manufacturing and toxic waste was far from restorative, an insult to the living water and ecosystem. Hamilton’s fundamental economic assumption was an unlimited supply of raw materials and labor, inexpensive transportation and ever expanding markets. It was essentially a materialistic view, one in which man’s role was to dominate nature. His vision lacked any sense of or need for regeneration, and imperiously ignored any wisdom to be found with the processes of nature itself. There was, even until the mid-twentieth century, no need or incentive to consider used nature or waste as an economic resource in need of ingenuity and reinvestment. Paterson’s economy held through World War II but began to fade thereafter as did much of the textile industry and manufacturing in the northeast United States. The money economy and its attendant wealth accumulation sought ever-cheaper labor and production costs, and, tragically, cared little about the waste of people and place it would leave behind.
The polluted de-natured Passaic flows on as a man-made emblematic shadow of one end of capitalism. When capital or money is extracted from nature without regard for nature’s regeneration, without respect for its living system, nature is left to die. Capital moves freely about the world, across space and time; land and natural resources are rooted in place and geologic time. In a materialistic economy, time is money, and money used in this way sadly has no patience for the evolutionary pace of nature.
John Bloom is Senior Director, Organizational Culture at RSF Social Finance.
Impact Investing: Lessons from the Field
February 4, 2013
This is the second post in a series by Morgan Simon on the trends, challenges and opportunities of impact investment, focusing on an exploration of the mechanisms which allow affected communities to lead and shape investments.
In my first post of this series I explored an idea called Transformative Finance; which sets out basic principles for maximizing the social impact of an investment. In short, such investments:
- are primarily designed, managed and owned by those affected by these projects;
- build local assets that support long-term sustainable development on the community’s own terms;
- are designed to add, rather than extract value from communities; and
- balance risk and return between investors, entrepreneurs and communities.
I received a number of comments from investors and social entrepreneurs excited by the concept, and curious if they “qualified” as transformative in their work. In response, as a way to make the point more explicit, I would like to share examples of a social investment gone wrong, and one gone right, in the same community.
With this case in mind, I invite investors and entrepreneurs to take the “transformative challenge”. Ask yourselves: is the local community included in the design, governance and ownership of the enterprise? If not, what has been lost? Looking at the financial flows of the enterprise, how much is staying in the community vs. being exported out of the region or country?
The point of this framing is not to say that all projects must be alike; innovation is one of the sacred hallmarks of entrepreneurship that we want to embrace and support. It is to say: let us be intentional about our impact, and set some basic ground rules for what we want to promote as an industry. As Andy Lower, executive director of the Eleos Foundation and Toniic board member often says, “Making money off of ‘poor’ people is traditional investing – and investors are welcome to do that if they want. Investing where you receive increased financial returns in correlation with increased impact – now THAT’s impact investing.”
So without any further ado—here is the story of several indigenous communities in the southern state of Oaxaca, Mexico and their experience with two very different impact investment projects.
Impact investing gone wrong
The Isthmus of Tehuantepec is one of the world’s greatest areas for wind energy, a fact not lost on energy companies that have invested over $550M in Latin America’s largest wind project. The project will offset several hundred thousand pounds of carbon, while offering attractive returns to investors and jobs for community members. What’s not to like?
As the Mexican press and numerous community organizations have reported, plenty.
“The creation of the wind corridor in the Isthmus of Tehuantepec, developed mainly by Spanish firms, has almost become the new conquest because the indigenous Zapoteco and Ikoot communities have been basically evicted from 12 thousand hectares through unfair and disadvantageous contracts, in order to generate electric energy with their wind and on their land, in the benefit of private initiative.”[1]
Transnationals out of the country! Completely against the wind corridor in the Isthmus”
Not only has land been taken from communities (for often as little as $50/month in “rent”), but it has been done in an aggressive and violent manner including unlawful detention and physical harm of local protesters speaking out against the project. On November 5th, the Indigenous Peoples’ Assembly of the Isthmus of Tehuantepec noted the following recent actions:
“They fired bullets and discharged pepper spray at women, youth and old people, beating several of those present, including pregnant women. The police detained 9 people, among these 2 women, without giving any information about the charges or where the prisoners would be taken…
No Windpower Project on the Tehuantepec Isthmus
Immediate Liberation of the Detained
Stop the Intimidation, Hostility and Violence Generated by the Wind Power Project[2]”
How did this happen? We are used to seeing this sort of thing happen in environmentally exploitative situations, but not from the clean energy community.
In short, it happened because a foreign company developed a project without thinking through its community engagement strategy or making any attempt to share financial returns fairly. In this instance the concept of “social impact” is undermined and distorted. If is fair to assume that investors in this type of circumstance were told that they were going to be a major force in spreading renewable energy in Latin America—a seemingly great impact story. This demonstrates the challenges associated with defining impact investing, as addressed in my last post: impact cannot simply be defined by investors and entrepreneurs, beneficiaries must be a part of the process.
Impact investing done right
In reaction to the trend of destructive development, community members on the Isthmus, declared that they were not against wind energy, but were against corporate control of their lands. They began to consider ways in which they could implement wind energy on their lands on their own terms. Working with Ashoka fellow Sergio Oceransky of Grupo Yansa, they have come up with a model for community-owned wind that will deliver strong returns to investors while equally benefiting the local community. The project plan explained below was approved in the pueblo’s general assembly, its forum for group decisions-making.
Grupo Yansa’s pilot project will take place in the indigenous Zapotec pueblo of Ixtepec, a large community with over 30,000 inhabitants, endowed with a very rich wind resource. The community maintains common ownership and management over their land and resources, dating back for centuries and codified into law after the Mexican revolution of 1917. The communal property status means that the community cannot use its land as collateral. It is therefore very difficult for them to obtain the magnitude of financing required to develop a wind farm.
However, the largest (and only) Mexican utility offers 20 year contracts to energy producers, locking in production at a fixed price. This means that as long as the community can secure the contract (and of course, execute), it will have guaranteed income for the energy it produces, significantly reducing risk to investors. The investment structure works similar to the practice of factoring—while accounts receivable are not directly purchased, they essentially serve as a guarantee on the investment. A debt structure is being offered to ensure community ownership over the project.
The profit that remains each year after debt servicing will be divided on a 50% basis between the Grupo Yansa and the community. The 50% of profits going to the community will be administered by a community trust devoted to strengthening quality of life, economic opportunities and environmental sustainability. One element of that, for instance, has been creating pension funds for elders—a way to prevent young people from having to migrate, and a benefit that can be equally shared by community members as all will eventually be eligible.
The 50% of profits going to Yansa will be used to finance further projects under the same scheme in other communities. Renewable energy projects will, therefore, finance a broad framework of integral and sustainable community development that is partly based on solidarity and sharing between different communities. Yansa’s financial participation in future projects will be the part of the investment most exposed to risk. This will ideally lower the risk profile of future investments and give Yansa access to a wider scope of institutional investors interested in safe returns and high social and environmental impact.
Closing the chasm
Globally, thousands of communities are deeply concerned about “land grabs” in the name of clean energy (see www.viacampesina.org for numerous examples, from Brazil to Japan). Regardless of the industry, basic questions must be considered: what is our responsibility as impact investors to make sure we are accountable to the communities in which we work? How do we, like Grupo Yansa, find ways to make communities front and center in the design, governance, and ownership of the work?
I do not have a single, simple answer to these questions—the same way that the impact investment community is still struggling to define impact assessment, market rate returns, and alternative deal structures. Let us just make sure that community accountability shares the pedestal as a key element of impact investment. These issues need to be debated, discussed and executed as the impact investing industry goes through its growing pains. We need to continue asking the hard questions and continue building effective frameworks and structures that will support the development of truly positive impact investments.
Morgan Simon is the co-founder and CEO of Toniic, a global network of early-stage social investors. Toniic members share deal flow, due diligence and monitoring on global investments in this action-oriented community looking to move $100 million into global social enterprise. She is also the co-founder of Innovacion Investments, the first community development venture capital fund in Texas, and was the Founding Executive Director of the Responsible Endowments Coalition, leveraging the $400B managed by US colleges and universities. In all her work, she emphasizes community empowerment, leadership and ownership.
RSF Social Finance is a proud sponsor and member of Toniic.
Note: The opinions expressed in this article are the authors alone and do not claim to represent the opinions of Toniic at large or any individual Toniic member.
[1] “The dark side of wind energy in Mexico” http://www.renewableenergymexico.com/?p=205
[2] http://intercontinentalcry.org/solidarity-with-the-resistance-against-corporate-windfarm-in-oaxaca-mexico/
Impact Investing for All
December 4, 2012
Earlier this year, Mark Finser, RSF Board Chair, had a lively conversation with Chris Mann, Guayaki CEO, and Matt Reynolds, Indigenous Designs President. Matt and Chris were energized about the RSF pricing meeting in which they had just participated and were enthused by the community spirit. They started asking several questions including: How can RSF borrowers better acknowledge their relationship with RSF? In what ways can the borrowers cross-promote their brands and support one another? How can the borrowers leverage their communities to raise more awareness about RSF and the Social Investment Fund, which allows individuals to make a return on their investment while providing loan funds to phenomenal social enterprises?
Chris and Matt’s spirited energy is something we always see following the RSF quarterly pricing meetings and community receptions.
There’s no question that RSF’s pricing meetings are unique. The three stakeholder groups in the RSF Social Investment Fund—investors, borrowers and RSF staff—come together to discuss the interest rate for the upcoming calendar quarter. As far as we know, this process is unprecedented in the world of financial services. What bank is out there asking investors what rate they should receive or inquiring of borrowers what a fair loan rate would be? But, it’s not just the discussion of price that makes the pricing meetings so revolutionary. It’s what happens during the meetings while the participants are sharing their needs and motivations. It’s the stories they tell about what led them to become an RSF investor or, as a borrower, what the RSF loan has allowed their social enterprise to accomplish. It’s community building around financial transactions. Through our expanding and engaged community, amplified by the impact of our borrowers, we’re building the next economy—one that considers everyone’s needs and restores trust in financial relationships.
After several discussions and brainstorms following up on Mark, Chris, and Matt’s enthusiastic conversation, we launched a Facebook campaign: Impact Investing for All. Along with Guayaki and Indigenous Designs, we’ve been joined by additional RSF borrowers: gDiapers, Happy Family, Late July, Mary’s Gone Crackers, and Nutiva.
Impact Investing for All highlights the RSF Social Investment Fund (SIF), in which anyone can become an impact investor with a minimum of $1000. All of the money in SIF is loaned to path-breaking social enterprises. If you open an account, you know where your money is working while you receive a financial return! (And, you’ll be invited to participate in the quarterly pricing meetings.) For the duration of the campaign, the borrowers will be promoting each other and highlighting this incredible community of social enterprises.
These participating social enterprises are passionate, inspiring, dedicated, and making a world of difference. We are honored to have them as part of our borrower community and we are all lucky to have such committed, mission-driven businesses in the marketplace.
Wondering if you should participate in the Impact Investing for All campaign by opening an SIF account?
Are you a mom or dad in love with the Happy Family lines which offer delicious and nutritious food for your kids? Or, are you a gMum or gDad, committed to your baby’s comfort and a healthier environment by going with disposable gDiapers?
Perhaps you’re gluten free and can’t get enough of Mary’s Gone Crackers? Or are superfoods your thing and Nutiva products a dietary staple? Do you appreciate delicious organic snacks and reach for Late July when you need a treat?
Maybe you’re a Guayaki yerba mate aficionado (we have a few on staff!)?
Is fair trade fashion a passion and Indigenous Designs a trusted purveyor?
Or are there other borrowers in our community you know and love?
If you’re interested in participating in building the next economy and know that direct, transparent and personal transactions are necessary for a resilient financial system, become an investor at RSF. All of the participating borrowers have offered generous discounts, so we have gift packages for those who open a Social Investment Fund account before Dec 31, 2012. The gift includes a $50 Indigenous Designs gift card, a $25 Happy Family basket, and much more! The gifts are limited – get yours today!
To learn more about the participating borrowers, check out the campaign page: here
To open an account, contact Mark Herrera at Mark.Herrera@RSFsocialfinance.org or 415.561.6160.
From Fragile to Resilient: Libor to RSF Prime
November 28, 2012
by Don Shaffer
Let’s recognize the historic opportunity we have to change the current culture of money!
We know, for example, that big banks like Barclays pushed the adoption of Libor over another benchmark—a comparatively simple cost-of-funds index that many observers now say was better for borrowers and much less volatile. The switch was made for one reason: to increase short-term profits for the banks. The foundation of trust in Wall Street has been completely undermined as a result of this and other recent scandals.
Based on our core principles, RSF is taking small steps to create a fundamental transformation in the way the world works with money. A great example is RSF Prime. We developed RSF Prime to create community among the participants in our flagship loan fund, the RSF Social Investment Fund.
For many years, we based our investors’ return rate on the 13-week U.S. Treasury Bill. Each quarter we recalibrated the rate based on this well-publicized benchmark. In 2006, we shifted to Libor because it represented the most commonly accepted barometer for short-term interest rates worldwide.
But as the first wave of the financial crisis unfolded in 2008, we became increasingly uncomfortable with this approach. We realized that pricing to meet the needs of our stakeholders could most productively be determined by the community of stakeholders itself. So we began hosting face-to-face meetings at our offices in San Francisco with representatives of the three stakeholder groups of our RSF Social Investment Fund: investors, borrowers and RSF staff. In October 2009, we adopted a customized interest rate collaboratively recommended by these stakeholders each quarter. We dubbed this new base rate for borrowers “RSF Prime”.
We believe this is the first time that a lending institution has facilitated meetings between investors and borrowers to determine loan pricing. With RSF staff at the table facilitating the conversations, all three stakeholders are visible to each other and engage in a direct and transparent exchange to understand intentions, motivations, and needs. We feel that other financial institutions such as community banks and credit unions have similar stakeholder groups that could be engaged in this way.
The loan-pricing meeting is one step towards modeling a more resilient financial system. At its heart is building community, which RSF also holds in how it works with borrowers by bringing them together to share wisdom and resources, and in its innovative grantmaking through Shared Gifting. A web of trusting relationships and a spirit of collaboration are foundational to a resilient economy. We have observed that by bringing all the stakeholders together, there is more engagement, fulfillment, and accountability.
Just as an organic or biodynamic farm relies on far fewer external inputs than a conventional farm, we are eliminating our reliance on Wall Street rate-setting, going “off-the-grid” as much as possible, so that we can be more resilient based on the strength of our investor-borrower community.
We invite you to share other ideas with us—either suggestions for what we can do at RSF, or ways you think other institutions can change to make our financial system more transparent and trustworthy. You can ask your bank about how they set their interest rates, for example.
Ultimately, we have to “be the change”, as Gandhi said. In our view, energy spent modeling a new way of working with money will have much more positive, transformative, and long-term effects than trying to change the existing system from within through regulation.
Let us know what you think!
Don Shaffer is President & CEO at RSF Social Finance.
Economy
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by John Bloom
