Global governance at the G20: protest on the outside, national self interest on the inside. Where will the solutions we need come from?

Simultaneous Policy Adopters are planning a visible presence at protests in London today in advance of the G20 summit.

http://www.guardian.co.uk/world/2009/mar/28/g20-protest-police-rainbow-alliance

Many other groups are also to be there. The Guardian reports disparate groups are setting aside their differences to protest.

And there is the nub of the problem of the Global Justice Movement in my view. It can unite in opposition, but has no real mechanism for debate and building consensus on alternatives. It has struck me at the European Social Forums I have attended that those seeking democratic discussion are frustrated; the slogan may be 'another world is possible', but there is no route map for bringing it about.

Even amongst campaign coalitions such as the Trade Justice Movement, I have seen how policy aspirations have to be scaled back to what is politically achievable: it is a piece meal approach that wins important concessions, but nothing like the sweeping changes advocated. A broad coalition campaigning in the UK for corporate accountability measures had to celebrate as a victory a requirement that corporations report on their social and environmental impacts; indeed, it was a significant victory given the scale of political opposition. Yet there are no standards for the reports, nor sanctions if companies lie. Perhaps those will be achieved in the decades to come once the reporting principal has bedded in. That is the best hope on offer through conventional campaigning. On climate change, some campaigners are already voicing fears that the lack of progress means there is no hope left: runaway climate change could be unavoidable.

It is such concerns that fuel my support for the Simultaneous Policy approach, which provides a structure for discussing, developing and approving the policies needed to address global problems. My own proposal, which gained good support in the last voting round, is for a World Transnational Corporation Regulatory Authority, something with real teeth to ensure corporations comply with the human rights and environmental standards their glossy reports claim to respect and means to ensure governments play their part in regulating wayward corporations. See:

http://globaljusticeideas.blogspot.com/2008/07/world-tnc-regulatory-authority.html

Other top issues and policies are given in the youtube clip below.

Simultaneous Policy Adopters call on politicians to pledge to implement, alongside other governments, the policies agreed on by we, the people, of the world. Simultaneous implementation removes the principal obstacle to progress: the fear that unilateral action will put a country at a competitive disadvantage, harm its economy and lose political leaders their power. It breaks the power of vested interests to play one country of against another.

The democratic process and the undertaking by Adopters to give a voting preference at elections to candidates who have made the pledge overcomes the second obstacle: the influence of vested interests on the political process. Business leaders may gain privileged access to politicians, but their hold on setting policies to address global problems is broken.

Some politicians have already signed up, as much for the logic of the approach as the chance to pick up votes. When I briefed one MP on the strategy she immediately saw the point, having campaigned without success for aviation fuel to be taxed as other fuels; such a tax, the government argues, would shift air transport from London to Paris or Amsterdam. But not if introduced simultaneously. She returned the signed pledge a few months later.

Even the UK Prime Minister, Gordon Brown, sees the point of simultaneous action even if the Simultaneous Policy is not yet on his radar. Look at what he was saying in New York this week, as reported in The Guardian:

http://www.guardian.co.uk/politics/2009/mar/28/gordon-brown-g20-summit

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"Global problems will need better global solutions. In the wake of the second world war, we managed to create an IMF [International Monetary Fund], a World Bank, a WTO [World Trade Organisation], a Marshall Plan. We had the capacity with vision and determination to create institutions based on the principle that for prosperity to be sustained it had to be shared and we had to have mechanisms by which we brought the whole world into this enterprise.

"I think we need the same vision now to say the IMF was built for the days when you were dealing with balance of payments problems of individual countries in essentially a national set of economies. Now we've got a global market place, global competition, global flows of capital, global sourcing of goods.

"The institutions you need to deal with these problems are going to be quite different for this new era, so we must shape them."

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Well, that's great, but if the G20 is capable of the vision and agreement to achieve these new institutions, what guarantee is there that they will not be as divisive and flawed as the IMF and World Bank and the structural adjustment policies they forced developing countries to adopt? Ironically the IMF, controlled by rich nations, has in the past pressured developing countries not to intervene to protect their banking systems, saying they must be allowed to fail; when it suits them, rich countries do not follow the rules they impose on others.

The answer is, of course, that there is no guarantee. Even if it works, the vision is still for perpetual growth on a planet that already cannot support the demands placed upon it.

While the Simultaneous Policy campaign cannot offer guarantees about the policies developed in the democratic space it provides, the fact that people around the world are invited to participate in the process, shape the policies and vote on them does provide checks and balances missing from the rich countries' club.

The G20 will see campaigners united in opposition on the outside and leaders inside protecting their individual national interests when we need coordinated, coherent and effective action.

If all involved backed the Simultaneous Policy approach, at the very least as a parallel strategy, we might get somewhere. Global problems require global solutions, but they also merit global involvement of citizens in deciding those solutions.

You can take part by signing up as a Simultaneous Policy Adopter free of charge at:

http://www.simpol.org/

This clip gives information on the state of policies at the moment. As an Adopter you will be able to vote against any you don't like and put forward and support those that you do.

Gordon Brown calls for global regulation, but what about democracy and transparency?

The logic of the Simultaneous Policy approach to addressing global problems - at least the Simultaneous part of it, if not the democracy and transparency - becomes ever more prominent during the current global financial crisis.

Gordon Brown, writing in today's Guardian, states:
http://www.guardian.co.uk/commentisfree/2009/feb/22/gordon-brown-comment-banks

"All markets and all jurisdictions that want to benefit from the global economy should play by the global rules. Institutions with global reach should be regulated in a global way, not by a patchwork of national regulators."

I agree, to a point. In my proposal for a World Transnational Corporation Regulatory Authority (which is conceived more to end human rights and environmental abuses than regulate financial markets), I suggest that the first port of call should be the national juridsticion, particularly of the home country of the firm. If home countries refuse to act, because they gain income and tax revenue from the business, and the country were the abuse takes place does not act, perhaps fearing disinvestment, then there should be recourse to an international institution. My suggestion is the World TNC Regulatory Authority, which can present a case to a revamped International Criminal Court for sanctions on the corporation and, perhaps, the home government that profited from turning a blind eye. For more on this proposal click on the tag link in the side panel.

Mr. Brown vision at present seems to be restricted to financial systems, where the logic for some form of global regulation arises from the cross-border nature of the business, rather than the simple power of the companies to play fast and loose with their human rights obligations and face down governments who try to hold them to account.

But Mr. Brown also makes a telling comment in his article. One which places too much faith in current systems of corporate governance. He states: "Banks must act in the long-term interests of their shareholders and therefore of the economy as a whole, not in the short-term interests of bankers."

This is really an non-sequeter. Benefits for shareholders may not be the same as benefits for the economy. For example, shareholders will benefit if a bank uses every tax dodge it can think of to maximise profits and lobbies, through fair means or foul, to stymie efforts for effective regulation.

More broadly, shareholders may benefit from corporations abusing human rights and the environment. I've had the shocking experience of sitting in a Nestle shareholder meeting when shareholders have booed and hissed anyone who has the affrontery to keep them from their free junk food samples by raising concerns about pushing of baby milk, exploitation of coffee and cocoa farmers, depletion of water reserves or trade union busting. See:
http://boycottnestle.blogspot.com/2007/04/glimpse-of-nestls-soul.html

Shareholders serving their own interests does not 'therefore' benefit the rest of us, as Mr. Brown suggests.

But he is right in suggesting global problems need global solutions. Those solutions should be the subject of democratic scrutiny. That is the aim of the Simultaneous Policy. Perhaps Mr. Brown should take a look.

Quantitative easing, monetary reform and green credit

In the current financial crisis it has been proposed that the Bank of England print money to lubricate the economy. This is referred to as 'quantitative easing'. This proposal has received a lot of criticism, dubbed in the press as 'helicopter money' with pictures of bankers throwing money for people to spend to avoid recession. The allegation is such action would devalue the pound, with Zimbabwe's currency collapse and hyperinflation cited as a cautionary tale.

But, as I have raised here, monetary reformers propose something very much like this. They point out that new money, required as the economy expands, is currently created by commercial banks at a profit as interest-bearing loans. They propose that central banks take over the role and provide the money to governments to spend into circulation through investment in capital projects or by funding tax cuts.

Monetary reform proposals didn't do well enough in the last annual vote to stay in the process - I think due to the apparent contradiction between the claim that commercial banks create money out of nothing and credit drying up. See:
http://www.simpol.org.uk/forum/index.php?topic=7.0

I've been looking for those who know more about this subject than I do to explain more about quantitative easing and how it links with monetary reform proposals. So I was very pleased to receive the following email from Barbara Panvel and links from Sabine McNeill of the Green Credit campaign, which I am off to explore.

I hope that the monetary reform proposals come back stronger and clearer. Anyone interested in working up a proposal can do so in the 'work in progress' of Simpol's online forum. See:
http://www.simpol.org.uk/forum/index.php?board=32.0

---Email from Barbara

Will the opportunity offered by the current dialogue about ‘quantitative easing’ - a term first noticed by me a couple of months ago - be taken by people working on the Green New Deal?

The definition of quantitative easing given by those with a vested interest in opposing such measures is ‘printing money’ and warnings are given citing the example of Zimbabwe.

Philip Stephens, associate editor of the Financial Times, does not agree, describing printing money as ‘the new prudence’ now that the Washington consensus has been fractured.

However, printing and distributing banknotes – once suggested by Milton Friedman and the Fed's chairman, Ben Bernanke - is not on the agenda of most monetary reformers.

MP Austin Mitchell has for years consistently and constructively proposed to spend fiat money, issued electronically, into circulation in a focussed way, meeting unfulfilled public needs such as improving transport, education and health provision – and the range of measures advocated in the Green New Deal.

In November 07, his EDM 265 called for a policy of using publicly-created money to finance carbon neutral measures and conversions which could be adopted to create additional economic growth and recommended the Treasury to use its powers to create non-interest bearing money to fund activities to combat climate change.

The real issue is not one of bank-notes versus virtual money but of the uses to additional ‘liquidity’ could be put: as Andrew Lydon once pointed out, money issued in this way could be used for good or ill.

To date, Alistair Darling has not ruled out quantitative easing, so I hope that readers will press for the funds released to be used in the interests of the ‘real’ economy and the environment - and not to give further subsidies to the arms trade or to build incinerators and nuclear power stations.

---email ends

---Links provided by Sabine McNeill

Money Supply or Public Credit Petition
http://www.gopetition.co.uk/petitions/stop-the-cash-crumble-to-equalize-the-credit-crunch.html
Parliamentary Scrutiny via the Treasury Select Committee.

Money as Debt also known as Credit
http://moneyasdebt.wordpress.com/

Green Credit for Green Purposes
http://greencredit.files.wordpress.com/2007/01/green-credit.pdf
our submission to the Committee’s Inquiry into the Stern Report

Green Credit campaign
http://greencredit.org.uk/

In the Spirit of the Forum for Stable Currencies
http://www.forumnews.wordpress.com/

Forum for Stable Currencies
http://www.forumforstablecurrencies.org.uk/

Expanding Dr. Yunus' Sphere of Influence
http://yunusphere.net/

Nuclear disarmament synergies

Once you’ve spent a bit of time browsing the proposals put forward for inclusion in the Simultaneous Policy, you see the synergies. This is brought out in some of the policy supplements to the newsletter too, such as that on ‘Turning weapons into windmills’ on the impact on climate change of redirecting weapons spending to renewable energy production.

Similar synergies occurred for me yesterday. The proposal for Nuclear Disarmament did well in the recently concluded voting on policy proposals, gaining 60% approval for its further development. Mark Horler has taken up the challenge and posted a ‘work in progress’ expanding on the initial proposal to reference a proposed Nuclear Weapons Convention. He is looking for seconders for this to go forward. You can add your name at:
http://www.simpol.org.uk/forum/index.php?topic=90.0

At the same time, I saw a news report of a new international organisation called Global Zero, which launched a campaign this week on exactly the same issue.

According to the International Business Times:
http://www.ibtimes.com/prnews/20081211/dc-global-zero-nukes.htm

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Global Zero released a poll of 21 countries that found global public opinion overwhelmingly favors an international agreement for eliminating all nuclear weapons according to a timetable -- 76 percent of respondents across all countries polled favor such an agreement. The question specified that "all countries would be monitored to ensure they follow the agreement." In the five nations with large nuclear arsenals and advanced delivery systems, large majorities favor the plan -- Russia (69%), the United States (77%), China(83%), France (86%), and Great Britain (81%). In nations that do not have nuclear weapons, similarly large majorities favor it.
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This week too I wrote of the financial crisis and how re-thinking how we calculate GDP would prompt very different policy action from that we are seeing from our leaders, who encouraging people to take on more debt and consume more to get the world out of recession. Putting arms money into factors that boost health, environmental and social issues would make the ‘Beyond GDP’ figure improve. I wasn’t initially sympathetic to the ‘Beyond GDP’ proposal – which gained 64% approval – but with the prominence given to GDP figures in policy making now see the point. Also highly relevant is the proposal that ‘weapons spending be excluded from GDP’ - which gained 60% approval (though the proposer has today insisted that this proposal be withdrawn - the Policy Committee shortly to be elected will need to face in the new year how to handle this situation given it received the backing of Adopters).

You can sign up in support of the Global Zero campaign on their website at:
http://www.globalzero.org/

But I would suggest also sending them a message to back the disarmament proposals within the context of the Simultaneous Policy and giving the Nuclear Weapons Convention your support at:
http://www.simpol.org.uk/forum/index.php?topic=90.0

The Simultaneous Policy leads us to think of a coherent package of measures, addressing the major issues facing our planet, not each in isolation. If we can harness some of the Global Zero energy to the broader Simultaneous Policy campaign and vice versa it will be mutually beneficial.

Reforming the financial markets - part 2

In part one of this article I examined the credit crunch and how this has brought the world to the brink of financial collapse and began to look at proposals for recovering the situation.

Bad news continues to arrive. Today there are worrying figures for the UK economy, suggesting that industrial output has fallen by 5.2% compared to a year ago. The television news is tracking how many thousands of jobs are being lost every week. The country is officially in recession as the Gross Domestic Product (GDP) is falling. There is also the fear of deflation - that is goods becoming cheaper. This is bad news because if the new HD TV I've been planning to buy is likely to be cheaper in 3 months time, I'll wait to buy it. If people put off purchases, the economy will contract even more.

Nobel laureate for economics, Paul Krugman, puts the necessary action in simple terms: "Policy-makers around the world need to do two things: get credit flowing again and prop up spending."

This has seen governments take shares in banks to improve their financial position and to put pressure on them to lend. Central bank interest rates have been cut to make loans, and particularly mortgages, cheaper so people have more money to spend. Various governments are trying 'fiscal stimulus' packages - tax cuts, again to put more money in people's pockets in the hope they will spend it, so boosting the economy. In the UK, the government is trying to make homeowners feel more secure - and so able to spend - by promising help with paying mortgages if they become unemployed or suffer a drop in income.

At the same time governments are planning public works. Plans are not yet announced, but there is talk of investment in green infrastructure projects to reduce carbon emissions. In the US, car manufacturers who are all but bankrupt are being offered funds to re-tool to produce energy efficient green vehicles.

To fund the investment and the tax cuts, governments are having to borrow money. They do this by issuing bonds. These are offered to investors. They do not pay the highest interest, but are supposed to be attractive because they are safe : governments don't default on loans. There is a problem, however, with many governments trying to attract investment as they may have to offer higher returns to be sure to raise what they need. If these rates go up, it will feed through to the mortgage rates. There is an analysis of this situation in The Guardian at:
http://www.guardian.co.uk/money/2008/dec/04/government-bonds-investments

Now the Monetary Reform proposals put forward for inclusion in the Simultaneous Policy suggested that instead of borrowing money in this way, governments should simply receive the money from the central bank, which creates it out of nothing for spending into circulation. This has an attraction for governments and tax payers, but what would the wider implications be? I imagine that if a government was creating money in a way economist thought was diluting its value, then the currency would fall against others. That is already happening to the pound with the increased borrowing. Perhaps other policies put forward for inclusion in the Simultaneous Policy would prevent this, such as the Tobin Tax on currency exchanges (aimed to dampen speculation) or the International Clearing Union, as proposed by Keynes to ensure companies balanced their imports and exports. It would be great to hear from Monetary Reformers how their proposals would work in the current situation and why this would be better than the methods being followed.

The methods that are being followed are geared to getting people spending, to get the GDP figure up and to ensure there is sufficient demand for goods and services to stop prices deflating. The strategy is to get back to business as usual in the shortest possible time, which the most optimistic analysts seem to say will take a least a year.

But what if we look at the crisis as an opportunity for restructuring how the economy works? The Simultaneous Policy approach allows us to think radically about what we might do.

So here is a possible set of policies that could be implemented. They are offered not so much as a manifesto to be pursued, but more to show that if we remove the old boundaries set around policy making, we can address a wide range of apparently intractable problems. I hope others who are more knowledgeable than me will be inspired to put together something more sensible.

For me there is something terribly wrong that the response to the credit crunch is to try to get people to borrow more money and spend it to keep the GDP figures up. Isn't this what got us into the mess in the first place?

Let's question the basic assumption here that increasing GDP should be the aim of policy makers. The human race is already using more resources than the Earth can provide - a UN study suggests we need 1.2 Earths for current consumption patterns, and because we only have one Earth, it is suffering irrepairable damage and non-renewable resources are being exhausted.

The third most popular policy proposal in recent voting was 'Beyond GDP' - which calls for "health, social and environmental statistics" to complement wealth statistics in providing the measure of the economic well being of the country.

I didn't initially see the point of this proposal, because there is no explanation as to what difference it would make to policy making or why policy makers would look to this figure rather than the conventional GDP figure. But recent events have shown the great weight that is put on these numbers.

The calculation of such influential numbers is controversial. A thread in the discussion forum suggests that the US government has cooked the books to improve GDP figures and that on a proper measure, the US economy has been in recession since 2000. This chimes with an analysis of the US economy by journalist Larry Elliot, who describes how the US economy was been held up by cheap money coming from countries that had taken over much of the US manufacturing base and fuelling the credit boom. See:
http://www.guardian.co.uk/business/2008/nov/21/us-economy-recession

Well, let's try cooking the number another way to include the 'Beyond GDP' factors. While the economic slow-down will reduce this number, less consumption and less travel will actually benefit the environment, so that will improve the number.

Policy makers can look at boosting the 'Beyond GDP' elements in addition or instead of the economic part. Investing in green infrastructure would be good for both - and the 'Beyond GDP' figure should perhaps be suffering a major reduction while the economy is based on unsustainable energy use and harmful greenhouse gas emissions. Anything to counter this will start to make things look much better.

All the same, the economy is slowing down and people are being made redundant. A war has been a way to turn this around in the past, so it is perhaps a sensible precaution to remove weapons spending from the GDP calculation, as has been proposed and supported by Simultaneous Policy Adopters in voting.

To ensure full employment, policy makers could take the step of cutting the working week to 30 hours or 4 days, as a permanent change. This would mean for every 4 employees, a business would take on an extra worker. If people were paid for the hours they worked, then the costs to business would be the same.

What about employees, forced to cut working hours and pay? Well, firstly in parallel to the restructuring of the working week, investment could be made in community projects to provide activities for the free day. For example, parents could easily form a rota for walking kids to school, cutting out the school run. Those that volunteer for say 6 months, could be eligible for coordinator roles, with payments attached.

Extra staff could be taken on at schools to provide adult education and sports for parents on their extra day off. With the olympics coming up in the UK in 2012, there could be a national programme for a people's games to take place after the international event, where amateurs winning local heats will compete on a national stage.

There could be a new national allotment scheme, with community workers helping people use their extra free day to grow food locally.

Indeed, local life will be promoted, to build up the sense of community and volunteering once more. Grants can be made available for communities that want to organize refurbishing or constructing local amenities. If more adults are around during the day, this will have a positive impact on anti-social behaviour and crime. This will all reflect well in the 'Beyond GDP' figures.

Some people would find it hard to manage with a 20% cut in income. But in some respects life will be cheaper. If polluter-pays taxes are included on transport, for example, people will switch from weekend mini-breaks in cities across Europe to local trips, so saving money and carbon emissions. That particular party has to come to an end.

But there are steps that could be taken for managing a transition. People who need to maintain income levels could work overtime on their 5th day. The cost to the business will be higher - time and a half, for example - which could be offset in the short term by tax cuts. But these would gradually be phased out, so in the longer term staff will adjust to the four-day week.

So we come through the recession with less consumption, more time with family and strengthened communities, progress towards sustainable energy use, full employment, populations eating and exercising more healthily and a measure of the economy that values more than money.

Investors will look to the rising 'Beyond GDP' figure for the UK and see it is a country with a bright future.

There are no doubt other implications of this approach and perhaps better action that could be taken. We need to talk about them.

The conventional approach of getting people to take on more debt to continue consuming more than they need and more than the planet can provide is surely not a better option.

Reforming the financial markets - part 1

Why is the financial system on the brink of collapse, what is being done about it and what better alternatives could be brought in through the Simultaneous Policy campaign? Those are three questions which I aim to answer over the course of these two articles.

There is an in-depth article on the credit crunch on The Guardian website from Paul Krugman, new Nobel laureate for economics, which provides valuable insight. I'm not going to attempt to reproduce his argument, but will put some of it in terms that I can understand and fill in some of the gaps. For his article see:
http://www.guardian.co.uk/books/2008/dec/06/paul-krugman-financial-crisis-2008

Those who have followed proposals put forward for inclusion in the Simultaneous Policy will be familiar that for Monetary Reform, originating from James Robertson. This claims that commercial banks create money out of nothing as interest-bearing loans and demands that this role be taken over by central banks. Commercial banks would then be "linking potential lenders to potential borrowers ­ as many people wrongly assume they are now." The proposals failed to gain large support in the recently-completed voting round and are on the way out. Why? I think because people thought it cannot be true that banks create money out of nothing, otherwise credit would not have dried up.

The fact is that commercial banks do need lenders. This is why banks and building societies offer interest to savers to have a capital base from which to lend. If you want a loan, they can give you some of this money, which you repay with interest. Some of the interest goes to the lender, some goes to the bank - as profits and to cover liabilities because some borrowers will default. Banks are required to keep a certain level of stocks of money to maintain confidence in case savers decide to withdraw their deposits - if the bank told savers their money was not available no-one would trust the bank, everyone would try to remove their money and it would collapse.

So banks are acting as brokers between lenders and borrowers. However, because most savers simply leave their money in the bank to earn the interest, the banks are allowed a trick. They are able to lend more money than they really have on deposit. If you sign a contract for a mortgage, the bank can create the money out of nothing, write the amount into your bank account and you can use it to buy the house. This system is regulated by the central bank. It sets a limit on how much money the commercial bank can create.

Part of the solution being followed by central banks in the current crisis is to change the rules so that banks have to have a better ratio of loans to savings - that is, more money on deposit. This is why in the UK people say the banks that have been bailed out by the government are in a bind. Publicly the government is saying the banks should start lending again. But at the same time, the banks are trying to build up their deposits. This also explains why commercial banks feel it hard to pass on the full cut in the bank base rate when the Bank of England makes cuts.

According to Krugman, this issue will resolve itself and is not too serious in isolation.

The bigger problem is the shadow banking system, which is not regulated to the same degree. This is where the sub-prime mortgage problem originates.

An important fact to realise is that the assets of a bank are not the money they have from its savers, it is the loans they have with borrowers. Loans provide income. So a mortgage contract is an asset. What has happened is these have been traded, en masse. Investors have bought them because they provide a return as people repay the mortgage with interest. They were thought to be low risk because if someone couldn't pay, the house would be sold and clear the debt, plus a profit on top for the owner of the debt in default fees. But it all went wrong because house prices stopped going up and people who should never have been given loans in the first place started to default. Even if the house could be sold, the investor would get less than they paid to buy the contract.

So investors with billions of pounds invested in these assets have had to write them off as losses, which, for some, has pushed them to the edge of bankruptcy, or even into bankruptcy, in the case of Lehman Brothers.

Because financial markets have become globalized, these losses have had a devastating effect.

The banks and hedge funds that have made huge losses are trying to recover their positions. So they are sacking people. They are also selling assets they own overseas. I was living in Brazil until recently and the stock market was falling drastically as investors cashed in their assets. The supply of dollars dried up as investors bought up supplies to repatriate the money. Brazilian companies needing dollars to pay for imported materials have found it difficult to obtain dollars and the value of the dollar has soared, making imports more expensive and adding to costs. At the same time, Americans are tightening their belts so there is less of an export market. Annual growth in Brazil, predicted to be above 5% is now likely to be below 3%. Other countries are being tipped into recession.

There is another factor at play identified by Krugman. It is that money lending is now global, where banks or shadow banks find money at cheap interest rates (such as Japanese Yen) and lend it in countries with high interest rates (such as Brazil). This is called carry trade.
Krugman simply states: "And one of the casualties of the latest round of panic was the carry trade. The conduit of funds from Japan and other low-interest nations was cut off."

Personally I need a few more dots joined up to understand why this happened and the implications. Funds have dried up because faith in the organisations that ran the carry trade has evaporated with the collapse of Lehman Brothers, which was unable to honour its contracts.

Prior to this, people with Yen were keen to lend them even if the return was small. With lots of Yen on offer, Yen were cheap to convert into the currency of other countries where the money was to be leant. When the borrower in, say, Brazil, repaid the loan in Brazilian Reais, this was converted back to Yen and the payments made along the chain.

Now with no-one wanting to lend out Yen, for fear they won't be repaid, the exchange rate has gone up. A simple case of supply and demand. In Brazil people are still desperately trying to buy foreign exchange, so the value of the Real has fallen. The result? The conduit organisations receive the same amount of Reais, but they are worth less. At the other end, they get less Yen for them, because Yen are more expensive. So carry trade is not a profitable business.

Krugman says this is the real threat to the global system, because unfreeing this flow of financing is going to be far, far harder than persuading commercial banks to lend to would-be home owners and small businesses. The sums are many times greater, the business is international and regulation barely exists.

His solution is quick to say: "Policy-makers around the world need to do two things: get credit flowing again and prop up spending."

With major industrial nations posting a drop in GDP, the measure of economic growth, and emerging markets slowing, the fear is a global recession, which means job losses and people falling into poverty.

At least in the conventional model of economics that Krugman and others are following.

This is the scenario where it would be great to hear what the Monetary Reform proposals submitted for inclusion in the Simultaneous Policy would contribute. There are other aspects to it, still. Such as what has happened to the insurance that investors have bought in case borrowers default. But this is as much complexity as we need for now, or at least, as much as I can cope with.

In the second article, I'll look again at the Monetary Reform proposal and put forward some others showing how the coherent, policy making approach enabled by the Simultaneous Policy could make a really radical transformation addressing many issues simultaneously.

Can we be sensible?

There is a succint analysis of why the world is facing a financial crisis from Larry Elliott in The Guardian today. You can read it here:
http://www.guardian.co.uk/business/2008/nov/21/us-economy-recession

I posted the response below:

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What is the sensible response to an economic crisis caused by people being up to their eyes in debt?

One would think it would be for people to spend less and to sort out the finances. Get used to the idea of putting money aside for a rainy day, or, novel idea, actually saving for things before buying them.

And isn't that actually what the masses are doing? Seeing troubled times ahead, people are spending less, thinking of having a more frugal Christmas and putting money by in case they lose their jobs. Getting used to living within our means and valuing what is closer to us, taking local holidays instead of weekend breaks in Prague, etc. will also have positive repurcussions when it comes to the depletion of resources and the carbon-overloaded atmosphere.

Sensible steps, which could mark a shift in how people consume.

Except these are exactly the opposite of what is needed to preserve the global financial system. Our leaders are worried that people aren't taking on yet more debt, so trying to make it as attractive as possible. They are toying with the idea of tax cuts, but worried people may save the money instead of blowing it. Deflation is feared because people may wait before buying in the expectation that prices may fall further.

It is sensible behaviour that our leaders fear.

The question is, can the global financial system be re-engineered so it not only allows for sustainable living, but promotes it?

Or is it our duty to spend and consume more because the system cannot even stand us being satisfied? The economy has to grow year after year after year.

Again, maybe we should trust the masses to answer this question, by putting forward their proposals to the Simultaneous Policy campaign. The recent policy supplement was on the theme of avoiding financial and climate meltdown, which may be a good starting point if you want to get involved in telling our leaders what they need to do. See:
http://globaljusticeideas.blogspot.com/2008/10/avoiding-meltdown.html
---

You can add to the sensible, planet-saving action from people, the switch from gas-guzzling SUVs. Ford's sales fell by 53.9% GM is rushing to get out an electric car. See:
http://www.guardian.co.uk/business/2008/nov/21/automotive-useconomy

Action on climate change could help end recession, says Stern Report author

There is an article from Nicholas Stern in The Guardian today. He wrote the Stern Review for the UK government on the economics of climate change, arguing there is a financial case for taking necessary action.

His article today argues that a concerted programme of work to transform societies into sustainable, low-carbon ones would also be part of an effective response to the coming global recession which has been sparked by the credit crunch.

Given the UK government has put up £500 billion to save its banking system and has then convinced many other countries to do the same, there may be a chance our leaders will actually act in this visionary way. But don't hold your breath. And Nicholas Stern, being an economist of, I believe, a fairly conventional mindset, sees growth as fundamental to the world's economic system - some of the proposals put forward for inclusion in the Simultaneous Policy - on Monetary Reform and Beyond GDP for example, might spark his interest if his attention can be captured.

Anyway, here's the link to the article:
http://www.guardian.co.uk/commentisfree/2008/oct/23/commentanddebate-energy-environment-climate-change

The type of approaches that Professor Stern proposes could perhaps flesh out the Contraction and Convergence proposal submitted for inclusion in the Simultaneous Policy.

For more information on policy proposals and to participate in the 2008 annual vote (running to 1 November) go to:
http://www.simpol.org/en/main/Policyvote08.htm

Gordon Brown: The global problems we face require global solutions

The following could be somebody arguing in favour of the Simultaneous Policy approach to addressing global problems, but it is actually UK Prime Minister, Gordon Brown, writing in the Washington Post today:
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/16/AR2008101603179.html?hpid=opinionsbox1

---extract begins

The global problems we face require global solutions. At the end of World War II, American and European visionaries built a new international economic order and formed the International Monetary Fund, the World Bank and a world trade body. They acted because they knew that peace and prosperity were indivisible. They knew that for prosperity to be sustained, it had to be shared. Such was the impact of what they did for their day and age that Secretary of State Dean Acheson spoke of being "present at the creation."

Today, the same sort of visionary internationalism is needed to resolve the crises and challenges of a different age. And the greatest of global challenges demands of us the boldest of global cooperation.

The old postwar international financial institutions are out of date. They have to be rebuilt for a wholly new era in which there is global, not national, competition and open, not closed, economies. International flows of capital are so big they can overwhelm individual governments. And trust, the most precious asset of all, has been eroded.

---extract ends

Gordon Brown talks of reforming the Bretton Wood institutions.

This is also one of the themes of the latest policy supplement to the It's Simpol ! newsletter, now available on Simpol's website, which includes a reprint of an article by Susan George on the International Clearing Union, one of the policy suggestions that gained good support in the 2007 annual round of voting. Susan George told me that she sees this as one of the possibilities that should be considered for the Simultaneous Policy.

The policy supplement can be downloaded by clicking:
http://www.simpol.org.uk/policyautumn161008.pdf

You can vote for in support of the International Clearing Union in the 2008 vote. Policies gaining more than 50% support remain in the process. Those with top votes are given greater space in the newsletter and at public meetings.

Also take a look at other policy suggestions and please give my proposal for a World Transnational Corporation Regulatory Authority an 'A'. If you don't want to give it an 'A', please let me know why. For more on that and information on the voting process, see:
http://globaljusticeideas.blogspot.com/2008/10/vote-world-tnc-regulation.html

Gordon Brown concludes: "There are no Britain-only or Europe-only or America-only solutions to today's problems. We are all in this together, and we can only resolve this crisis together. Over the past week, we have shown that with political will it is possible to agree on a global multibillion-dollar package to recapitalize our banks across many continents. In the next few weeks, we need to show the same resolve and spirit of cooperation to create the rules for our new global economy."

And not just the global economy. The Simultaneous Policy seeks to be a coherent set of policies to address global problems. As I've noted previously a piece-meal approach to addressing problems, means perceived solutions in one area may exacerbate problems in another. But once you start to look for cross-cutting solutions the possibilities for synchronicity abound.

And not just Europe and America. People from every continent can sign up as Simultaneous Policy Adopters and have their say and their vote.

Welcome to the simultaneous age

It seems our leaders are learning the importance of simultaneous action to address global problems. As the Guardian reports today on an emergency meeting by leaders of the group of 7 leading industrialized nations, whose financial systems are collapsing with global implications:
http://www.guardian.co.uk/business/2008/oct/11/banking-globaleconomy

---extract begins
With little sign that country-by-country plans have helped to kick-start lending, the G7 believes immediate action is vital to avoid a major slump. The past four weeks have seen the biggest cut in growth forecasts in living memory, and the IMF has warned that the world economy is "on the cusp" of recession.

The chancellor, Alistair Darling, said: "If international cooperation is to mean anything, it means governments have to move on from simply agreeing a general approach, and doing something to resolve the problems we are facing today."

---extract ends

It is interesting to see how the rescue plan has been summarised as neatly as policy suggestions put forward for discussion amongst Simultaneous Policy Adopters:

---quote from Guardian begins

The five-point plan

· Pledge to save key banks from collapse

· Action to free-up credit and money markets by providing ample amounts of liquidity from central banks

· Support for the part-nationalisation of banks and other institutions by the taxpayer purchase of shares

· Stronger deposit protection schemes to reassure savers their money is safe

· Force banks to disclose the true state of their losses

---quotes ends

The Simultaneous Policy aims to address problems that require a global approach, either because of their scale, or because governments feat that taking unilateral action will put them at a financial disadvantage.

Unlike the G7 meetings, policy discussions take place openly and transparently and everybody has the right to participate and put forward their own solutions. At the present state of development of the democratic process, annual voting rounds amongst those who have registered with the campaign - which is free to do and can be done when voting - are held to guage levels of support. Those without support drop out of the process (though they can be resubmitted in the same or revised form) and those with significant support are given space in Simpol's publications and policy fora for further development of the ideas.

Politicians are called on to pledge to implement the Simultaneous Policy alongside other governments, which an increasing number are doing. As the number of government pledges nears the stage when implementation can be triggered, the package of policies will be finalised and put out to all citizens around the world.

Commenting yesterday on a coordinated move by central banks to cut interest rates simultaneously, John Bunzl, founder of the Simultaneous Policy campaign, noted in an email 'Welcome to the simultaneous age' to Simpol's email discussion group that, aside from the discussion of the value of this approach: "the Financial Times today reports, such action was "unprecedented" and a "historic piece of co-ordination". Interestingly, although they weren't in on the plan, the FT reports that The People's Bank of China "moved almost simultaneously" when it also cut its rate.... This kind of coordination is indeed unprecendented and I hope it marks the beginning of people and governments properly waking up to the fact that in a globalised world, global and simultaneous action is the way forward. So folks, welcome to the simultaneous age!"

Voting on policies submitted for inclusion in the Simultaneous Policy is currently open and runs till the beginning of November. See:

http://www.simpol.org/en/main/Policyvote08.htm

Does Brazil's success under 'Lula light' mean the financiers were right?

When Luis Inácio Lula da Silva stood for election to the Presidency of Brazil in 2001 he faced a classic financial market attack, as predicted by John Bunzl in his book The Simultaneous Policy, published that same year.

Lula, as he is popularly known, had stood in the past on a radical left wing platform including policies such as renegotiating loans to the International Monetary Fund. He had lost three times before, twice to Fernando Henrique Cardoso (FHC) who had introduced Thatcherite privatizations and participated in Tony Blair's 'Third Way' international get togethers.

But free-market economics failed to deliver social cohesion in a country with a massive gulf between rich and poor which fuels a virtual state of civil war in the major cities where drugs gangs rule most of the slum areas or favellas. Lula was riding high in the opinion polls again José Serra, FHC's designated successor.

Bankers and investors weighed in, risk rating Brazil on a par with Angola and Nigera. Angola: swinging between civil war and anarchy. Nigeria: rampant corruption. Brazil: Lula, a left-winger, looked like he might win. The Brazilian Real fell against the dollar as investment dried up and currency fled the country. Interest rates climbed and inflation began to follow. There was talk that Brazil would go the way of Argentina that was in crisis after the link between the peso and dollar had been broken and had slid to 30% of its previous value.

Lula met financiers from São Paulo to New York, pledging that he had not only dropped his earlier policy of renegotiating Brazil’s foreign debt, but would follow FHC’s spending plans for the first year of his government. He announced as his running mate, José Alencar, a millionaire business man, in an alliance with the Liberal Party.

He was billed as ‘Lula light’ in the media, a less threatening version of the old Lula.

With the economic fears of the electorate laid to rest, he won convincingly for his promise to tackle the inequalities in Brazilian society, which have left over 30% of the population below the poverty line and crime soaring. In Rio de Janeiro, where police raids on drug gangs in the favellas prompt the hijacking and burning of buses in the city centre, the vote for Lula was 79% in the run-off against Serra.

Lula won a second term despite his party being embroiled in a scandal where public contracts had fed massive payments to many members of Congress who had joined his ruling alliance. A few were thrown out of Congress by their peers, more by the electorate. Whether the law will catch up with those involved still remains to be seen.

Lula's flagship programme has been 'Fome Zero' or 'Zero Hunger'. It was billed as support for small-scale family agriculture. After his victory it was controversially hi-jacked by Nestlé (which I monitor closely as part of my job), which used it to distribute processed food, including powdered milk, while advertising its support heavily. National and international protests resulted. The programme transformed into 'Bolsa Familia' or family income support, with families receiving payments to put them above the poverty line on the condition they vaccinate children and put them through school.

Lula's handling of the economy has been lauded (though the architect of his policy, Antonio Palocci, fell in another corruption scandal harking back to his time as a small-town mayor). Brazil's risk rating on the credit market has fallen to the point where in 2008 it was listed as an investment-grade country by Standard and Poor. As the International Herald Tribune reported in April this is: "signaling that Brazil is now officially recognized as a safe place for investors to park money." Brazil's annual growth is above 5% while other developed economies wobble on the brink of recession. The money is flowing and easy credit is fuelling a consumer boom. Coupled with discovery of new oil fields, Brazil, long billed as the country of the future, feels like it is arriving.

The impact on the poor has been documented in a report released today by the Institute for Research in Applied Economcs. The three poorest percentiles have seen their income rise up to 5 times that of the richest, reducing inequalities. The BBC in São Paulo reports those with monthly incomes in the bands R$ 206 (about US$100) , R$ 378 e R$ 422 have seen incomes increase by 21,96%, 29,91% and 15,79% between 2002 and 2008. For comparisson the three most rich (with average income of R$ 1.159, R$ 1.797 e R$ 4.853) have seen gains of 2,3%, 2,1% and 2,6%. The inequality ratio has fallen from 0.543 to 0.505.

While criminality remains so problematic that the army has been sent into some of the favellas in Rio, economic activity is booming, with small businesses flourishing (and, as an aside, Nestlé is once again targeting the poorest with a range of what it calls 'Popularly Priced Products' - again including its milk powder).

Gains are threatened by oil and food price rises. However, Brazil is protected as its domestic energy is almost entirely hydo-electric (and energy use was shocked into an efficiency overhaul in 2001 when there was a sudden realisation that the water levels were too low to sustain the country) and it has its own oil supplies for transport, making it virtually self sufficient. Brazil also has had, for decades, many cars running on alcohol from sugar cane plantations and is developing its bio-diesel production.

While much of the world is blaming the use of land for bio-diesel for increases in food prices, Brazil has much land still under-utilised - even without encroaching on the Amazon and other sensitive ecosystems. This week, Lula said he would not be following the examples of Argentina, Bolivia and Mexico, which have put a freeze on food prices and obstacles to exports (see the Folha de São Paulo). He is leaving the market to set prices while promising to make massive amounts of credit available to boost the next harvest by 5%. The sum of R$65 billion (about US$32 billion) is being made available to agrobusiness and R$13 billion to family farms (see the Folha de São Paulo).

Even the political class is recovering its reputation in Brazil, with the Senate recently refusing to renew an unpopular tax on bank account movements and currently engaged in simplifying the entire tax system.

As for renegotiating the loans with the International Monetary Fund, Lula paid them off early in 2005, along with those owing to the Paris Club of donors, saving a fortune in interest payments. He is reported in Brazzilmag: "We are making this payment because we want to show the world and the market that we are in charge. When we do things we might make mistakes or we might get things right, but we decide."

Brazil's government, through a great deal of luck as well as judgement, has played within the rules of the financial markets and is, at present, on a winning streak. There may be problems for the future in the making: consumer debt at home and the credit crunch in its export markets, peak oil and food price inflation. But no doubt the financiers look to Brazil as vindication and contrast it with other Latin American countries following very different paths.

So is a global financial system that punishes those who do not follow its decrees working? Should other countries simply follow Brazil's example?

Or are reforms already put forward for inclusion in the Simulteanous Policy necessary, such as the Tobin Tax on financial speculation and an International Clearing Union to replace the International Monetary Fund? Are those calling for a complete overhaul of how money is created correct to promote their Monetary Reform proposal? Is a country's health measured too narrowly by GDP as those proposing Beyond GDP measures suggest?

Within the Simultaneous Policy campaign those defending present global governance systems, such as the International Monetary Fund, have as much right to participate in proposing, discussing, developing and approving policies as anyone else. Join the debate and cast your vote by signing up as an SP Adopter at:
http://www.simpol.org/