Bill Totten's Weblog

Tuesday, December 21, 2004

Sustainable Territories

In February this year, Richard Douthwaite conducted a week-long internet seminar on his book The Growth Illusion for over six hundred participants worldwide. Here is an edited version of some of his contributions towards the end of the debate.

by Richard Douthwaite

The Aisling Magazine (Issue 24, Lughnasa 1998)

I want to be quite clear. Sustainability is best achieved by international agreement and by working at a national level provided that's possible. The idea of becoming sustainable in a local area is very much a second best - it is a lifeboat solution and the lifeboats are going to be very uncomfortable and inadequate if the world ship goes down. But they may be all that we have.

Very few participants in this seminar have expressed any confidence that we can put international agreements into place - and effectively enforce them - before appalling damage is done. I think we were right to reject this possibility but perhaps we should have explored the reasons for our rejection more thoroughly than we did. My own view is that if a country's prosperity depends on its international competitiveness, governments are bound to collude with companies operating within their borders to get round treaties which impose restrictions on the way they operate which subject them to extra costs. International enforcement measures might be tried to counteract this, but they have not stopped Saddam Hussein doing things the whole world thinks undesirable.

So, without really discussing the prospects for international remedies for a global problem, we have jumped to the conclusion that national or local solutions are required.

At the national level first, I think we need to see if we can agree whether or not national governments still have the powers to take the radical measures necessary to force the economic system to transform itself. Can they restructure the whole basis of taxation, moving, perhaps, from taxes on labour to ones on resource use, without multinational corporations and investors revolting and bringing about a financial crisis?

The Significance of local money is that it is issued by the people who use it and they pay no charge to anyone else. At the local level we need to explore ways in which we can create the circumstances in which a community can use more of its resources to meet its own needs directly and less of them on satisfying those needs by the conventional, indirect way of producing goods and services for an external market and then using the money this generates to buy the things it needs from wherever in the world they can be bought most cheaply. In my second book, Short Circuit: Strengthening Local Economies for Security in an Unstable World (Green Books, Totnes, England, distributed in the US by Chelsea Green) I argue that communities which want to become more self-reliant should create a local "financial micro-climate" which enables them to do many more things than would be possible if external prices and interest rates ruled unchallenged. How? By issuing their own currencies and establishing their own banks.

If a community does not have its own currency, when one neighbour wishes to buy something from another but has nothing of equivalent value to give in exchange, he or she is forced to hand over money to complete the purchase which either they or someone else in their community originally obtained by selling their goods and services to the outside world. In other words, people in communities without their own currencies have to trade with the outside world just to be able to do business among themselves. Greater self-reliance requires that this link be broken. LETS systems are a step along the way. However, much more powerful local systems are also possible and one, the Wirtschaftsring, has been operating successfully in Switzerland for over sixty years. It now has 60,000 members, all small and medium-sized businesses. Five systems modelled on the Swiss example will start trading in Europe later this year, two of which plan to print their own currency notes.

When the British and the other colonial powers took over a new territory, their first action would frequently be to impose a tax on every hut, which had to be paid in the colonialists' money. This not only forced the native peoples to work for the new rulers in order to earn the money, but it broke down local self-sufficiency. Today, as contributors have pointed out, the majority of money is not issued by governments, but by banks, who charge for its use. The significance of local money is that it is issued by the people who use it and they pay no charge to anyone else. In other words, money creation has been democratised.

In Short Circuit I suggest that each community should try to produce its basic necessities for itself on a sustainable basis, from its own resources, so that it can trade with other communities and with the rest of the world generally out of choice rather than necessity. That way, it can never be exploited to the extent that its sustainability is destroyed.

Of course, urban communities are going to find it impossible to produce their basic necessities for themselves. How do we handle this? The development of most of the world's major conurbations is surprisingly recent, the result of the unsustainable use of fossil fuels. Isn't, as the title of one recent article asked, a sustainable city an oxymoron? My approach to this is that we should try to halt the flow of population from rural areas and work towards reversing it. Some contributors have already mentioned this flow. It is only by building greater rural self-reliance that we can stem it.


Several contributors have commented that they do not see our being able to reconfigure the world economic system towards sustainability except in crisis conditions. Well, we may soon have our chance. I believe that a world crisis worse than that experienced in the 1930s is developing at present. Indeed, in some countries it has already struck and my worry is that we haven't done sufficient thinking about the economic systems required to achieve sustainability to seize the initiative when it arrives in our areas too.

The crisis has its roots in the changes in the labour market mentioned by Margaret Hampton. The past few years have seen a significant shift in the distribution of national income in favour of the better-off in most countries around the world. In general, wage-earners (and potential wage earners who are unemployed) have lost out from the increased international competition, while big companies and those investing in them have done very well.

The better-off save a greater proportion of their incomes than the poor, and so in almost every country a higher proportion of national income has been invested each year rather than being spent on consumption. This increased investment has to generate a return which can only come from selling goods and services: so who will buy the extra goods and services the investments produce? The government will take some. Business groups will press the government to spend on more roads and other forms of infrastructure to cope with the increased output levels. Subsequent investment projects will also provide a market, enabling the investment boom to feed on itself.

But sooner or later, the public is going to have to be able to take up most of the additional output and if they can't do so because almost all the extra income generated by growth has gone to the wealthiest 10% of population, the bubble will burst. Prosperity will vanish, just as it has done in Korea and elsewhere in South East Asia. The new factories, shopping centres and office blocks will lie empty and the system will begin to run in reverse, because those who have lost their jobs building new factories or producing machinery for them et cetera, will be unable to spend as much as before. The rich will be uneasy and cut their spending too. And so consumption demand as well as investment demand will drop, costing more people their jobs, and the economy will enter a downward spiral with one set of cuts leading to further ones.

In the 1930s, Henry Ford realised that workers had to be able to buy their products and mounted a campaign to encourage his fellow employers to increase their employees' wages to help the US get out of the depression. Many of them followed his advice and a study of the period shows that they put themselves into debt to do so. Today, of course, no employer would suggest such a thing because the extra wages would leak out of the country concerned and help revive factories elsewhere. This, and the loss of local production capacity, is the reason why I think that the crisis which is developing week by week will be worse than in the 1930s. It will certainly be more intractable.

So when it is asked whether people really want LETS systems and local banks, my answer is that so long as the international economy works well, they won't, but as soon as it leaves them and their neighbours without wages, they will. However, I should stress that, as Mike Rowbotham suggests, LETS systems are not even a half-adequate replacement for the current money system. They are essentially small-group systems which rely on social sanctions to make people abide by the rules, and they would break down if they had more than perhaps a thousand active members. Systems which rely on the law to keep members in line are needed to cope with large numbers, and the best example of such a system, the Wirtschaftsring in Switzerland, shows that they are capable of being used and trusted by conventional, conservative business people.

It's true, as Rowbotham says, that the Wirtschaftsring has not led to the contraction of the mainstream Swiss banking system. Vested interests were too strong for that but at least the organisation, which was born in the crisis of the 1930s, has prospered in more normal times and may demonstrate its true value in times to come.

In a totally sustainable world, each country, each territory and each community has to be sustainable by itself. This is because two or more unsustainable sub-systems can never balance each other out and make a sustainable whole. There are therefore two basic ways in which a sustainable world might be achieved, although a combination of the two would generate synergy and thus be highly desirable. One is that international regulations are introduced which force everywhere to become sustainable at more or less the same time. The other is that each community or territory makes itself sustainable within its own boundaries without waiting for the international regulations to be put into effect. Indeed, by demonstrating that it is possible to have a satisfactory way of life and yet be sustainable, such places would make it much easier for international regulations to be introduced and enforced.

A bit by bit approach to sustainability presents difficulties because for a sustainable community to stay that way in a world in which other places are behaving unsustainably, it needs to be able to protect itself militarily and economically from places that have used up their own resources and want access to resources that have been managed well. The problem of providing military protection - which would include policing of borders against hordes of environmental refugees - is outside the scope of our seminar, although one participant quite rightly raised the question of defence. All we need note is that if an arms race developed between a sustainable part of the world and an unsustainable one, it could destroy the sustainability of the former.

The economic arsenal of a sustainable territory consists of an independent currency and banking system. These are necessary to protect itself against competition from corporations and places which have lower costs because they are producing unsustainably. It would also be useful for the territory to be able to impose import duties on unsustainably produced goods but such tariffs are not currently in the realm of practical politics for sub-national areas while local currencies and banks are.

A territory which establishes its own currency or currencies gains the tremendous advantage that its people no longer have to trade with the outside world to assemble the means of exchange to trade with each other. In other words, the volume of business they are able to do amongst themselves becomes independent of inflows and outflows of national or international currencies. These inflows and outflows are affected by external interest rates, the buoyancy of the external economy and the competitiveness of the local one and so can be very erratic. Relying on somewhere else's money for local trade is therefore destabilising and makes it very difficult to become sustainable.

Another major advantage of having a territorial currency is that local producers who can sell their goods for it because they buy a lot of their inputs from the local area gain an enormous competitive advantage over producers who have to insist on payment in an external currency because most of their inputs are external. The advantage arises because it is always much easier to earn the local currency as it is never in short supply. Having a local currency therefore provides some of the protection which a generation ago could have been afforded by imposing import duties.

With its own banking system a territory can ensure that interest rates are related to the rate of profit possible on projects within the territory rather than to the highest rate of return that can be found anywhere in the world. This means that there is very much less pressure for the territory's resources to be used unsustainably in order to generate the financial returns required for investment funds to be committed and projects to go ahead.


A mature sustainable economy is one which employs only sustainable production processes and has ceased to grow economically. This means that although its buildings are repaired and its capital equipment is replaced as they wear out, no new buildings are erected and no extra equipment installed because the benefits from doing so are so small it's not considered worth while. In other words, all the sustainable projects which give a reasonable rate of return have been carried through. However, from time to time, new technologies will come along which make additional projects or production possible without destroying sustainability by using more resources or releasing more waste. Such technologies will be rare.

The fact that there is no net investment in a mature economy means in turn there is no net saving. That is not to say that individuals will not save, but the money they put aside will go to older people who are selling their assets and spending the proceeds during their retirement.

The low rate of return from investing in a mature sustainable economy means that the owners of capital in the territory will always be tempted to remove their funds to unsustainable or immature sustainable economies to get the higher rates of return possible there. If these capital movements are permitted, the mature economy will run down because funds which would have been used to repair buildings or replace worn-out equipment will be invested outside the territory instead. This will mean that unemployment appears and less goods and services are produced. Wages will fall and prices will rise, enabling businesses to make additional profits from which higher interest rates can be paid. Only when these rates match those available elsewhere will the capital outflow stop.

Net capital movements out of sustainable economies should therefore be strongly discouraged as they reduce total output and shift a larger share of this smaller output to the owners of capital, who also benefit from the interest payments they receive from their investments outside. Ideally, a separate exchange rate should be established for capital movements, just as the Sterling Area had until the late 1970s, so that capital outflows are matched by people moving their capital in the opposite direction. Unfortunately, though, such an arrangement is unlikely to be possible unless the territory concerned is a nation state.

If net capital movements do take place, they increase the return per unit of capital and reduce it per citizen. They also mean that no territory can become sustainably mature until everywhere else in the world does too. In addition, the need to pay interest on external capital means that the territory has to trade externally, which can put its sustainability at risk. "Neither a borrower nor lender be" is a maxim any territory intent on sustainability should follow.

Once a territory has set up its own currency and banking system, it should move towards producing all its essential requirements from the resources of its own area, regardless of whether or not this seems "economic" by conventional criteria. This is because a territory which has to export goods and services to be able to buy basic foodstuffs and fuel has to accept whatever deal the world market offers. These terms could be so unfavourable as to jeopardise its sustainability. However, if it becomes self-reliant for its essentials, the territory is able to trade with the outside world out of choice rather than necessity. It is no longer open to exploitation.

In my view, the essential features of a sustainable territory are:

* It has a stable population;

* It provides the basic necessities of life for its population from renewable resources under its control and expects to be able to continue to do so without over-using or degrading those resources for at least the next thousand years. It is therefore able to trade with the outside world out of choice rather than necessity. This frees it from the need to do unpalatable or unsustainable things in order to compete, such as adopting potentially dangerous technologies or curtailing social welfare provisions;

* It is able to protect its renewable resources and its population both militarily and economically. Its collection of economic protection weapons includes an independent currency and banking system. It has no net flows of capital across its borders, thus allowing its interest rate to fall to close to zero as it moves towards maturity;

* It does not depend on economic growth to stave off collapse. Its economy is growing very slowly if at all.

I see a sustainable world as a mosaic of sustainable territories trading non-essentials with each other to gain a greater range of consumer choice. Rather than a global mono-culture in which almost the entire human population competes for the same limited range of resources because they live in the same way, I see a world of thousands of micro-cultures, each developed to allow people to live sustainably and well within the limits of their own place. However, these territories will not be entirely self-reliant. Besides trading luxuries with each other, they will trade with global companies producing metals and other goods that cannot readily be produced on a local scale.

Like Robert Gale, many people are frightened that such territories would become inward looking and restrictive in the way that Irish communities were in, say, the 1940s. I think, however, that there is very little risk that this would happen because even if the flow of capital and goods was curtailed, the flow of information would not be. Instead, I see them as places within which people, released from the pressures of competing for a share of the global market, could develop to their fullest extent.

Richard Douthwaite is author of The Growth Illusion: How Economic Growth has enriched the few, impoverished the many, and endangered the planet (Lilliput Press and Green Books, 1992) and Short Circuit: Strengthening Local Economies for Security in an Unstable World (Lilliput Press and Green Books 1996). He lives in Westport, Co Mayo, Ireland.

Bill Totten

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