Introduction to the foundation and
practice of appropriate economics
by Stephen DeMeulenaere
© 2003
“Local production from local resources for local use.”
E.F. Schumacher
Good Work, 1979
Since the publication of “Small is Beautiful” by E.F.
Schumacher in 1973, his presentation of the need for an intermediate
and appropriate technology has grown to become a significant movement
in development worldwide. Although his calls for an appropriate application
of economics in development were equally revolutionary and realistic,
only rarely have we seen them put into practice. Many microfinance
programs still rely on external loans from big banks at high rates
of interest rather than developing the capital from within through
a program which encourages borrowers to also save their money. Many
economic and technological development programs follow models of economic
development that are inappropriate to their particular situation.
Some economists have begun to realize that resources are not being
allocated properly. Herman Daly and Joseph Stiglitz, both former heads
of the World Bank, have outlined[1] the
destructive effects of the present economic system on cultures and
environments around the world. Many join them in criticizing the negative
impacts of economic globalization and the subjugation of third world
economies to the global marketplace. Other renowned economists such
as J.K. Galbraith along with philosophers Fritjof Capra and E.F. Schumacher
show great concern for the impacts of economics on people, environment
and culture. Meanwhile, all major religions have expressed their concern,
in the strongest terms, about the effects of an interest-based economic
system on a harmonious way of life, calling for the inclusion of values
and ethics in economics, and their opposition to the charging of interest
and usury in moneylending. It sounds good, but how do we put it into
practice?
We have heard it many times already that some 1.3 billion people live
on less than 1 US dollar a day, and many survive on no monetary income
at all. This over-simplification of the issue of monetary poverty
obscures many important questions. How do people get what they need
without money? Can we get what we need without having to first have
money? Is the lack of day-to-day pocket money the real problem, or
is it a lack of access to capital, a lack caused by dependence on external
money and the charging of interest on access to it which limits its
supply? Are mega-projects the only way to bring large amounts of capital
into a low-income country? Is displaying the poverty and weakness of
a country the only way to gain the charity of a richer country? Are
agriculture and natural resources exports the only way for a low-income
country to earn foreign investment and capital?
To this, those working towards an Appropriate Economics say no in
response to these questions, and demonstrate this by presenting a viable
working alternative. Already, more than 7 million people earn part
or all of their income in forms of money that do not include the national
currency, in more than 35 countries worldwide[2],
and many millions more meet their basic needs through social cooperation
and reciprocation.
In the past two decades, this grassroots social and economic movement,
which some call a movement for Socio-Economic Solidarity, People’s
Economy or Solidarity Economy, which we group under the term “Appropriate
Economics” has focused itself on decentralizing economic systems
to the local level and using proper processes to include the entire
community in economic planning, to put the economy back into the hands
of the people. Economies such as these that facilitate “local
production from local resources for local use”, and extend it
to include “through participatory processes using local knowledge
based on local cultures using local forms of exchange” are what
we mean by Appropriate Economic systems. This may be fine for a starting
definition, but what makes this kind of economics appropriate?
To say that something is “appropriate” is to make a value
judgement. Therefore values, which are the expression of what people
people consider important and essential to them and ethics, which are
the practical application of values, are intrinsic to anything that
can be called “appropriate”. In terms of values, economic
systems must be connected to the places, environments, societies, cultures
and impacts of its application, and the process for assessing what
is appropriate must respect these elements. In terms of ethics, the
process of actively engaging the community in the conceptualization,
design and realization of an economy which provides each person with enough, what
Herman Daly calls “satisficing” through the combination
of the words ‘sufficient’ and ‘satisfied’, is
the application of an appropriate economic process.
Forming an economic network in which all are included, which has both
values and ethics embedded in the core concept makes it possible to
devise systems which work towards economic solutions to social and
environmental challenges. Appropriate economics is therefore a process
of applying broad-based community determined values through an ethical
system that has an impact on the economic lives of people. Unlike
conventional economic thinking which divorces social concerns from
economic thinking, appropriate economics sees economic relations fundamentally
as social relations. It provides a means for people to relate economically
with each other as they would want to relate with each other socially. In
this way, money is seen as media, a form of communication between people. One
can use money that talks down to people, or one can use money that
speaks on even terms with people.
Such systems naturally encourage cooperation, which means sharing
and working together at the same time, and reciprocation, which means
taking turns sharing and working together over time. In addition,
these networks must encourage both self-reliance, which means helping
oneself and one’s kin, as well as mutual aid, which means helping
people that we do not personally know. These four elements are the
foundation of social interdependence and socio-economic solidarity. The
identification of local human and natural assets in improving the local
economy helps local resources to meet local needs, building social
capital and socio-economic solidarity in the process by narrowing the
gap between those who have more than they need and those whose needs
go unmet, to ensure that everyone has enough.
Appropriate economics means a decentralized, bottom-up process, and
must therefore be founded on a wide variety of local assets. This
includes community input, choice, and collaboration, in the identification
of issues that concern the community most. By encouraging community
participation in identifying social and economic issues and setting
goals, people come back to the center of the economy again, which is
why in Asia the movement for an appropriate economics is called a People’s
Economy movement. Starting from the bottom level, it is possible to
design systems which achieve the social, economic and environmental
goals of the community. When people’s needs are met at the local
level, the regional and national economies are also likely to be much
stronger.
An Appropriate Economic system is not alien to the local culture,
rather it must be founded upon these cultures and traditions. It is
important to know how previous generations of people traded or cooperated
with each other in designing an economic system that is appropriate
and sustainable as it will be founded upon local assets and therefore
what is familiar to people. In this way, local culture and identity
are strengthened through economic cooperation and reciprocation, and
not discarded and abandoned in the push to join the global economic
system.
Appropriate Economic systems must originate at the local level and
ensure that, at the household level, every family’s needs are
met. Economist Kenneth Boulding states[3] that the ‘household economy’ is
the main driving force behind the market economy. More hours of work
are done, more trade goes on at the household and local level, factoring
in favors and women’s work, than at any other level of the economy. Only
when a community feels its needs are taken care of should it seek to
develop products for export to other local areas, or beyond to include
regional, national or international levels. In this way, a national
economy can be both sustainable and strong, and not rely on export-driven
profits to pay for the weak foundations of the economy in the rural
agricultural sector.
Appropriate economic systems must be transparent in financial management
and make information available to the community. If the community
does not know what is happening in the local economy, how can they
have a proper say in the direction the economy is going, and should
go? Most Credit Unions worldwide have already institutionalized this
practice of presenting their monthly reports to the public, all appropriate
economic systems do the same. Research must be conducted to establish
benchmarks for progress and for setting attainable goals, as well as
to build understanding of the system and its impacts.
Appropriate economic systems often use a special local medium of exchange
to facilitate reciprocation among people, or a system for accounting
exchanges made between people to encourage relative equality and fairness
by accounting for an individual’s contribution to cooperative,
volunteer and civic participation efforts. Sometimes a coupon or voucher
is used to track contributions over time and encourage exchange between
people, other times the amount received is recorded on a ledger sheet
and balanced periodically. As these systems are founded upon individual
abilities and local assets, this economy is much more reflective of
reality. This is to ensure equality in contribution according to people’s
abilities and to reduce the mentality of charity and the free-rider
syndrome, which does not encourage people to take the responsibility
for changing their situation into their own hands but rather to wait
for a hand-out or a free ride, and is indicative of the extent of inequality
between people, the hoarding of opportunities and benefits, and an
unnatural justifcation of a social system founded upon excessive social
stratification and hierarchy.
By incorporating social and environmental concerns within an economic
model, Appropriate Economic systems are much more likely to be sustainable, steady-state economic
systems[4]. A steady-state system is one which seeks to reduce external
inputs on the one hand and discharging of waste on the other to achieve
a balance in local production using local resources to meet local needs
in a way that is sustainable. Whereas the conventional economic system
will grow continually until there is a crash or until natural resources
have been exhausted to pay for this growth, a steady-state system can
continue developing naturally forever.
To be a steady-state economic system, the charging of interest on
debts which go to a private party, whether bank or individual, must
be eliminated. This allows for the charging of a “community
tax” to develop a pool of capital for interest-free loans. The
charging of interest on debt is the motor that drives unsustainable
growth, therefore ending interest-based debt is the key to a sustainable
economy. An appropriate economic system charges fees in ways to reduce
socio-economic stratification while ensuring access to these services. This
means that charging according to use is often a fairer method of recovering
the cost of operating the system, as the burden of paying the system
is moved from those with limited access to money and capital, to those
who employ large amounts of money and capital in the economy. In the
conventional economic system, it is easy to see that those with limited
access to capital pay a larger share of the burden of interest. Moving
to the international scale, countries which have limited access to
capital pay interest rates of around 20-25%, whereas those with easier
access to capital pay much lower interest, in the area of 5-9% per
year. As long as this gap continues, poor countries must rely on extractions
of natural wealth for their income as they cannot compete in manufacturing
and other capital-driven sectors of the economy, and generally rely
on foreign companies opening up subsidiaries within their country.
All of this does not mean that there is no role for organizations
from the wealthy countries to assist the less-wealthy countries. In
addition to providing low-interest capital and access to their markets,
the job of a good development organization is to supply a community
with information on a level that they can understand, giving them the
tools to define needs and solutions on their own, through a proces
of consultation and collaboration. The community decides what is appropriate
for them and the two collaborate to create and implement an economic
system that best meets those needs.
Appropriate economics therefore is not a utopian system or an “off-the-shelf” solution
to all the challenges faced by the community. It is not possible to
bypass processes of learning and experiencing and stages of development
to lead a community to what some people think is the best economic
system for them. It is simply not possible to impose or transfer an
economic model from one area to another area without following the
same process that led to the creation of the model in the first place. If
two communities are thinking the same thing, the system can transfer
from one place to another, but both communities need to consider for
themselves why that system is best for them first. In this way, appropriate
economic systems are founded upon local realities and strengthened
by best practices from similar cases.
Drawing from culture and traditions but adapted to modern realities
and in consideration of best practices from other places, appropriate
economic systems adopt what is best without pledging allegiance to
any particular ideology, religion or body of knowledge, instead using
these elements as a toolbox in designing a solution for each community.
An Appropriate Economic system engages the community to discuss issues
and design community-based socio-economic networks founded upon local
assets that embed community-determined values and encourage the behaviours
of cooperation and reciprocation, self-reliance and mutual aid that
build economic solidarity between people while revitalizing cultural
identity. By following proper process in establishing a stable, sustainable
economy at the local level, founded upon local production using local
resources to meet local needs before seeking external trade, appropriate
economic systems lay the foundation for a social harmony, rural reconstruction
and a future of sustainable abundance for all.
References
Daly, Herman. Steady-State Economics. 2nd Edition. Washington,
DC, Island Press. 1991.
Daly, Herman. Beyond Growth: The Economics of Sustainable Development.
Beacon Press, Boston. 1996.
Lietaer, Bernard. The Future of Money. Century Press, London.
2001.
Van Arkel, Henk & Ramada, Camilo. Poor Because of Money. Strohalm
Foundation, Utrecht. 2001.
Footnotes