GLOBAL ECONOMY, DEBT, INTEREST-FREE BANKS

“Anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad or an economist.”

-Kenneth E. Boulding

Introduction

Ivan, consultant at the interest-free bank

Just so you know, here in Bridgedale360, we have abandoned the previous banking system altogether. So now the bank is not really a bank. For us it’s more like a museum! We set it up to remind ourselves of our heritage and mistakes of the past. After all, in this new town, we’re all refugees of the global financial system! Perhaps it wasn’t that horrible for everyone; some left for other reasons. But many were drowning in debts and mortgages, and even those lucky ones with money in their bank accounts were witnessing how the world around was falling apart and how the old growth-based financial system was destroying people and nature. Maybe it is a bit far-fetched to place the blame on the old banking system for all the misfortune in this world, but indeed, people were put into such a vicious circle of earning, borrowing and paying off debt that they focused their entire lives on money! Let me guide you through “the bank” and make my points clear. It can be illustrated well with some stories that are depicted on the walls. Let’s go inside!

Story 1. Money is Debt

A visitor comes to the town and is looking for a place to stay. He goes to a hotel and asks if he could have a look at the room before booking it. The hotel manager asks him to leave the money before the visitor sees the room, adding that she will give the money back if the visitor does not like the room. The visitor leaves the money and goes to see the room. The manager is so sure that the visitor will take the room that as soon as the visitor goes upstairs to see it, she runs across the road with the money and uses it to pay for the food she needs for next week. The shopkeeper then gets the money and uses it to pay for his daughter’s violin lesson. The violin teacher gets the payment, goes to the milkman and spends the money. The milkman then takes the money back to the hotel and makes reservations for his parents, as they are coming to visit next week. The visitor comes back downstairs, says he does not like the room, takes his money off of the counter and leaves with it. Despite the fact that real money has not been left in the town, temporary money (liquidity) allowed for the transactions to take place, creating wealth in the town. In this story money is used for the exchange of goods and services, where they are available for all, and it is good. But in reality, money is not used for exchange but is concentrated in the hands of a few who use it to earn more money through interest rates. It leads to debt of others. If there was an interest rate in the story, it would mean that the visitor coming to the hotel would ask for 20% more money to be returned than what he left, as the price for using his money, and the manager would be in debt. Now imagine that these are not people in a town, but whole countries trading with each other on a global scale. Moreover, in a real economy system, instead of actually paying each other money, they just write out I.O.U’s (I owe you) papers, thus creating a system of debt (capitalist global economy). Moreover, the countries that own the biggest debt (“money”) get to make rules when creating more of it, and they force interest rates on the already poorer countries, putting them in even more debt while making the rich countries richer.

Story 2. Globalization. Disparity between Global South & North

Poor Abraham is a Kenyan shoemaker. He makes shoes for a big shoe corporation in Europe run by Jonny. To make shoes, he must borrow money from Jonny’s bank. Jonny lends him the money, but at a 10% interest rate. Jonny’s shoe company then demands so many shoes at such a low cost that Abraham has no choice but to buy the cheapest materials from local polluting factories. He also can’t afford to hire anyone to help him, as he can barely feed his family on top of paying the interest rates for the debt he now owes Jonny.

This means Jonny gets the shoes and the money from selling them at a high profit as well as the money from the interest. Abraham gets no shoes, no money, no resources, but all the pollution. This leads the whole country to get poorer and poorer, creating conflicts. Abraham and his family are forced to seek out a decent life in the country where his money and resources have gone to. However, Jonny knows that if Abraham leaves, he will lose his cheap labor, so tries to make him stay. Jonny persuades everyone that Abraham will cause problems, bring about violence, conflicts and diseases if he comes to Europe.

In this story Abraham and Jonny are not individual people but whole countries and governments. Economic relations create the massive disparity between the Global South and North.

Stay for a while, and you can learn about the different aspects of the current economic system. Economy isn’t easy but neither is it that hard. Stay at least to understand enough to see that before we changed our economy, the system in the old society was unethical, unfair and irrational. It was impossible to continue exponential economic growth on a planet with finite resources, therefore we decided to switch to de-growth initiatives. If you would like to learn how we think about economy here in Bridgedale360 instead, have a look at the Marketplace or the Free store and the Bike Pool.

Learning Outcomes

• To understand the basics of how the global economy functions

• To understand that “money” is debt

• To grasp the disparity between the global South and North and understand the (socio-economic) roots of the issues of migration of people

• To develop critical thinking regarding the issues of the global system