Most of that transformation will come from the efforts of ordinary people at creating the building blocks of the successor society on the ground, and from those building blocks replicating laterally and coalescing into an ecosystem of counter-institutions that expands until it supplants the previous order.

Some of it will come from political engagement to run interference for the new society developing within the shell of the old, and pressuring the state from outside to behave in more benign ways. Some of it will come from using some parts of the state against other parts, and using the state’s own internal procedural rules to sabotage it.

Some of it will come from attempts to engage friendly forces within the belly of the beast. Individuals here and there on the inside of corporate or state institutions who are friendly to our efforts and willing to engage informally with us can pass along information and take advantage of their inside positions to nudge things in a favorable direction. As was the case with the transition from feudalism and capitalism, some organizational entities — now nominally within state bodies or corporations — will persist in a post-state and post-capitalist society, but with their character fundamentally changed along with their relationship to the surrounding system.  If you want to see some interesting examples of attempts at “belly of the beast” grantsmanship and institutional politics, take a look at the appendices to some of Paul Goodman’s books.

A great deal, I predict, will come from efforts — particularly at the local level — to transform the state in a less statelike direction: a general principle first framed by Saint-Simon as “replacing legislation over people with the administration of things,” and since recycled under a long series of labels ranging from “dissolution of the state within the social body” to “the Wikified State” to “the Partner State.” The primary examples I have in mind today are the new municipalist movements in Barcelona, Madrid, Bologna, and Jackson and the dozens and hundreds of cities replicating that model around the world, as well as particular institutional forms like community land trusts and other commons-based local economic models.

There is no “magic button” that will cause the state to instantaneously disappear, and it has currently preempted the avenues and channels (to paraphrase Paul Goodman) for carrying out many necessary social functions. So long as the state continues to be a thing, I prefer that its interventions in society and the economy take the least horrible forms possible, and that its performance of the necessary social functions it has preempted be carried out in the most humane and humanly tolerable ways possible during the period of socializing them — i.e., returning them to genuine social control by non-coercive, cooperative forms of association. I prefer that reforms of the state be Gorzian “non-reformist reforms” that lay the groundwork for further transformations, and bridge the transition to a fundamentally different society.

In dealing with cases like catastrophic climate change, where lifeboat ethics comes into play and it’s justifiable to forcibly shut down economic activities that actively endanger us, when the regulatory state has already preempted the avenues for otherwise shutting down such activities, stepping back and allowing the state  to actually do so — especially when it’s acting against entities like corporations which are abusing power and privilege granted by the state in the first place — may be the least unsatisfactory short-term option. When the state has created and actively subsidized the entire economic model that threatens the biosphere, intervening to partially curtail and reverse that model is probably the form of intervention I’m least likely to lose any sleep over.

To take a case from ten years ago as an illustration, something like Obama’s stimulus package was necessary, given the existence of corporate capitalism on the current model and its chronic crisis tendencies towards surplus capital and idle productive capacity, to prevent a Depression. So long as capitalism and the state existed, some such intervention was inevitable. Given those facts, I would prefer that the hundreds of billions of dollars in stimulus spending go towards fundamental infrastructures that would bridge the transition towards a more sustainable and less destructive model. I recall reading at the time that for $200 or $300 billion dollars — about a third or less of the total package — it would have been possible to build out the bottlenecks in the national railroad system and transfer around 80% of long-haul truck freight to trains, thereby reducing carbon emissions from long-distance shipping to a fraction of their former value. Instead, Obama elected to dole out the money to “shovel-ready” projects, which meant local infrastructure projects already promoted and approved by local real estate interests and other components of the urban Growth Machines, to promote further expansion of the ultimately doomed model of car culture, sprawl, and monoculture.

Given that massive deficit spending to avert Depression was inevitable, it would have been far less statist to simply spend money into existence interest-free along the lines suggested by Modern Monetary Theory, either by appropriation for government projects or simply depositing it into people’s checking accounts as a Citizen’s Dividend, than to finance deficit spending by the sale of interest bearing securities to rentiers. It would have been less statist to carry out quantitative easing functions by eliminating the current central banking model of authorizing banks to expand the money supply by lending it into existence at interest, and instead creating new money by simply issuing in the form of a Basic Income. It would have been better to make the bank bailout conditional on banks marking mortgages in default down to their current market value and refinancing them on more affordable terms. You get the idea.

Which brings us back to the Green New Deal.

Getting back to our earlier principle that, if the state has already entered the field, I prefer state interventions that are less shitty rather than more shitty, I would definitely prefer that tax money be spent building public transit that partially reverses or undoes a century of social engineering through state subsidies to highways and civil aviation, to interventions that continue to subsidize the further expansion of car culture.

The question is, to what extent does the Green New Deal actually do this?

Insofar as it proposes shifting public funding from the automobile-highway complex and civil aviation system to local public transit and intercity passenger rail, or reducing fossil fuel extraction and shifting to renewable energy, I think it’s about the best line of action we could possibly expect from a state given the likely realities in the near-term future.  

But there are two main structural problems with the Green New Deal as proposed by Michael Moore, Jill Stein, and Alexandria Ocasio-Cortez. First, it takes for granted most of the existing economy’s patterns of energy use and simply calls for decarbonizing actual power generation.

As an illustration of the general spirit of this approach, Alex Baca mentions a Berkeley parking garage:

It’s got “rooftop solar, electric-vehicle charging stations, and dedicated spots for car-share vehicles, rainwater capture, and water treatment features” — not to mention 720 parking spots. It cost nearly $40 million to build. At night, it positively glows. And it’s a block from the downtown Berkeley BART station.

That America’s most famous progressive city, one where nearly everything is within walking distance, spent $40 million to renovate a parking garage one block from a subway station suggests that progressive Democrats remain unwilling to seriously confront the crisis of climate change.

In fairness to Ocasio-Cortez, she does favor shifting a considerable share of public subsidies from highways to public transit. But the overall thrust of her approach is far more towards decarbonizing power generation than changing the ways we use energy.

The Green New Deal, Baca says, “has a huge blind spot.”

It doesn’t address the places Americans live. And our physical geography — where we sleep, work, shop, worship, and send our kids to play, and how we move between those places — is more foundational to a green, fair future than just about anything else. The proposal encapsulates the liberal delusion on climate change: that technology and spending can spare us the hard work of reform.

Baca points, in particular, to the car-centered urban design model — promoted by decades of social engineering by the automobile and real estate industries in conjunction with urban planners — which locates housing and work/shopping in monoculture enclaves widely separated from one another and linked by freeways. More than anything, we need to return to the kind of urban layout that prevailed before widespread car ownership: compact population centers with a mixture of residences and businesses where people can get to work and shopping by walking, wheelchair, bicycle, bus, or streetcar. And rather than just replacing internal-combustion vehicles with electric ones and coal plants with solar panels, we need to travel fewer miles and consume less power.

Baca’s focus on urban layout, as on-the-mark as it is, doesn’t go nearly far enough. Equally important is industrial organization and the need to relocalize production and change the fundamental ways that production and distribution are organized.

Because of a combination of massive subsidies to energy consumption and transportation, entry barriers that promote cartelization and enable oligopoly firms to pass on overhead from waste and inefficiency to consumers on a cost-plus basis, socialization of the cost of many material and social inputs to production, and artificial property rights like trademarks and patents that facilitate legal control over the disposal of products whose manufacture is outsourced to overseas firms, we have market areas, supply chains, and distribution chains many times larger than efficiency-maximizing levels if all costs were internalized by capitalist firms. And even when production within a plant is rationalized on a lean or just-in-time basis, the existence of continental or trans-oceanic distribution chains means that the old supply-push model of the mass production era is just swept under the rug; all the in-process inventories stacked up by the assembly lines and warehouse inventories of finished goods that characterized Sloanist production have just been shifted to warehouses on wheels and container ships.

Ultimately, what we need is a relocalized economy on the lines described by Kropotkin, Mumford, and Borsodi, which capitalizes on all the advantages offered — but ignored — by the introduction of electrically powered machinery in the Second Industrial Revolution. Namely, we need high-tech craft industry with community and neighborhood workshops using general-purpose CNC machine tools to produce for consumption within the community, frequently switching between product runs as orders come in on a just-in-time basis. This would eliminate not only a huge share of the transportation costs embedded in the current system, but additional costs associated with mass marketing in an environment where production is undertaken without regard to existing orders, and the cost of waste production (planned obsolescence, the Military-Industrial Complex, car culture and suburbanization, etc.) that is used as a remedy for idle production capacity.

Building “infrastructure” as such is not progressive. It’s only progressive when it’s compatible with things like industrial relocalization and the replacement of the car culture with compact mixed-use communities.

Second, the Green New Deal is very much an agenda for saving capitalism in the same spirit as the original New Deal. It’s an anti-deflationary program to create new outlets for surplus labor and capital and provide “jobs” for everyone, instead of directly confronting the fact that technical progress has drastically reduced the amount of labor and material inputs required to produce a high standard of living and seeing that the leisure and productivity benefits are distributed fairly.

This was central to the Green New Deal model proposed by Michael Moore several years back, and it’s central to Alexandria Ocasio-Cortez’s version.

The Wikipedia article on “Green New Deal” attributes first use of that phrase to Thomas Friedman, who envisioned it as a way to “create a whole new clean power industry to spur our economy into the 21st century.” And the creation of new “green” industries as a huge source of “jobs” has been the chief selling point of every Green New Deal proposal since. More broadly, it’s the defining theme of the whole “Progressive Capitalist” or “Green Capitalist” paradigm promoted by Warren Buffett, Bill  Gates and the like. The idea is to use new technology as a weapon against capitalism’s chronic problem of surplus capital without a profitable outlet, by enclosing it as a source of profit, and using it to create new industries and new support infrastructures that will provide a new “engine of accumulation” or “Kondratiev wave” to soak up capital for another generation or so. This creation of new industries is one of the “counteracting tendencies” to the tendency for the direct rate of profit to fall that Marx described in volume 3 of Capital.

And that’s basically the same vision promoted by Michael Moore: run those Ford and GM factories at full capacity and put millions of auto workers back to work building buses and bullet trains, and employ millions more building solar panels and wind generators. The problem is that the cheapening and ephemeralization of production technology is rendering a growing share of investment capital superfluous at such a rapid rate that building buses and trains and generators will barely put a dent in it. And in any case, a major share of existing production is waste that just needs to be ended, not run on a different power source;  while replacing necessary transportation with more environmentally friendly forms is a great idea, the fact remains that most existing transportation is also unnecessary and should be eliminated by restructuring the layout of cities and industry. The buses and bullet trains may take up the slack left by ceasing to produce cars for a few years, at most.

There is simply no way to invest enough money in producing alternative energy, trains and public transit to guarantee 40-hour-a-week jobs, get the assembly lines moving in Detroit again, and prevent the bottom from falling out of the capital markets, without enormous levels of waste production.

So to the extent that AOC and her friends want to keep oil and coal in the ground and promote decarbonization, and end America’s subsidies to car culture, I wish them well. But “green jobs guarantees,” promises of economic expansion through new “green industries,” and similar approaches aimed at prolonging the long-term survival of capitalism, are a dead end.

Where does that leave us? What do we do in the meantime?

In framing the alternatives, I start from the assumption that our primary purpose is actually building the post-capitalist society, and that our engagement or lack of engagement with the state is a secondary course of action whose main purpose is to create a more conducive, less harmful environment in which to do the building. If you want to vote strategically for the sake of damage mitigation, or try to push the state in less environmentally harmful directions, or shift its existing interventions in a more environmentally favorable direction, more power to you.

It was this kind of thing that Antonio Negri and Michael Hardt referred to, in Declaration, as part of a symbiotic strategy between the horizontalist left with its practice of building prefigurative counter-institutions, and leftist parties attempting to influence state policy. It’s fine for grassroots movements engaged in constructing a new society outside the state to throw support behind political actors who are taking specific measures to push things in the right direction, or enlist their help in running interference for us and creating a more favorable environment for the process of building the new society. But it’s absolutely vital to retain total autonomy and freedom of action, and resist being turned into the social movement auxiliary of a political party as Van Jones tried to do with Occupy, and not let leftist parties in government divert suck up all the energy and oxygen from those engaged in building counter-institutions like Syriza did to Syntagma after coming to power in Greece.

Our most important strategic focus must be on institution-building. The most important form of institution-building is at the local level, and some of it may or may not entail incidental engagement with local government.

Pressuring local government to scale back zoning laws that mandate sprawl and monoculture, and to stop actively subsidizing sprawl through below-cost extension of utilities to outlying developments, may well be fruitful. But the most productive path in local decarbonization will be the work of actually retrofitting suburbs and strip malls into mixed-use communities with diversified local economies.

These things will become a matter of necessity for survival, as the combined effect of Peak Fossil Fuel and monkeywrenching efforts aimed at keeping it in the ground make long commutes prohibitively expensive for growing numbers of people, and growing numbers at the same time are forced by rising unemployment, underemployment, and precaritization to supplement or replace their wage incomes with direct production for use in the social economy.

When it comes to strategic action to promote decarbonization, direct action to make the fossil fuel industries unprofitable and fossil fuel projects unworkable in practice are at least as important as any local “carbon free” initiatives. Physical obstruction of pipeline projects, the use of the legal system and bureaucracy to sabotage them with their own system of rules, divestment efforts, and sabotage of existing pumping stations and other vulnerable nodes, together offer great hope for making such projects increasingly risky and decreasingly attractive and hastening post-carbon transition.

And it’s the people engaged in open hardware and micro-manufacturing efforts, hackerspaces, neighborhood gardens, community currencies, community broadband projects, squats in abandoned buildings and vacant lots, community land trusts and cohousing projects, tool libraries and other genuine sharing efforts, who are actually building a society that will function on zero waste and sustainable energy.

In the end, I think it’s a mistake to put our hopes in a party or in progressive celebrities like Bernie Sanders or AOC, no matter how much better they are than more mainstream politicians. I have much more modest hopes for whatever level of political engagement with the state I choose. A political party — the Millennial wing of the Democrats, the Greens, DSA — will not be the avenue by which we create a post-state, post-capitalist society that’s worthy of the human beings who live in it. Our main goal, and most attainable one, is simply using whatever opportunistic center-left non-entity is most likely to get elected to stave off the immediate fascist onslaught and buy time. At best, in the most ideal situation — and this is at least plausible as the demographics of both the country and Democratic Party shift toward leftish Millennials — we might hope for a caretaker state that offers a somewhat less virulent social democratic model of capitalism and allows a relatively benign atmosphere for our own efforts.

But if you want to see the actual future, look at what people are building on the ground. As a character in Marge Piercy’s Woman on the Edge of Time put it, revolution, was not uniformed parties, slogans, and mass-meetings; “It’s the people who worked out the labor- and land intensive farming we do. It’s all the people who changed how people bought food, raised children, went to school… who made new unions, withheld rent, refused to go to wars, wrote and educated and made speeches.”

The post One Cheer — More or Less — For the Green New Deal appeared first on P2P Foundation.

We’ve been taking the wrong approach to communicating about climate change. I get that the situation is dire. Really dire. But it goes way beyond the fact that every year is the hottest year on record, sea levels are rising, drought is forcing millions into refugee status, the Great Barrier Reef is almost dead, the oceans are 26 percent more acidic than preindustrial levels, our topsoil will be gone in less than 60 years, and we’re already at least 1.5 degrees Celsius toward the two degrees said to herald a real catastrophe. That’s all bad. The reality is actually worse.

By any rational analysis, civilization as we know it is on the brink of true disaster. And despite their outward messaging, even climate-denying, anti-scientific, messianic nations like the United States are quietly preparing for the coming storm. No, they’re not looking at how to mitigate climate change, but how to prepare for its inevitability. We’re building walls — not to keep out today’s immigrants, but to block tomorrow’s climate refugees. We’re being trained by our president and other leaders in the dark art of seeing people from other nations as less than human — a trick that will make it easier to watch as flooding and other climate catastrophes wipe out millions. “At least it’s them and not us,” we’ll be able to tell ourselves. This sort of alienation verging on sociopathy takes time to develop. But we’re working on it.

These are the sorts of things people do when they feel powerless to effect any change. They see the future as fixed — as something to predict and prepare for — but utterly impervious to their intervention. It’s the posture toward the future assumed by most corporations. They hire futurists and scenario planners to tell them what is most likely to happen 10, 20, or 50 years from now so they can invest in whatever is going to be valuable in that environment. Back in the 1980s, the futurists started talking about the coming water crisis. That’s what turned water into a private commodity — accelerating and worsening the very crisis they predicted.

Likewise, any futurist worth their coverage in Wired is telling their corporate clients about the coming global climate crisis in stirring detail: which regions will be underwater; how temperature changes are likely to effect social unrest, politics, and violence levels; how and where the populations of Africa and Southeast Asia will migrate; and so on.

We’ve won the communications battle in the sense that the rich and powerful now accept the reality of climate change and are actively betting on it happening. They believe us. But we’re losing the war in that they don’t believe the crisis can be averted. As speculators, they’re more committed to betting on the most likely future instead of investing in the future they’d like to see happen. In the finance world, betting on what you hope for is derided as “emotional investing.” One is supposed to bet only on existing probabilities — not on one’s genuine goals or dreams. And this mentality is self-perpetuating. The more we invest in the inevitability of climate disaster, the more assuredly we bring it on and the more devastating a future we are creating for ourselves.

If we’re going to get business on our side (after which government is sure to follow), we have to convince them that the most likely future scenario is one where the whole world tries to get in on the bet that we can avert climate change. Or at least we can mitigate its effects. Slow it down. Build more resilience. We have to show that the world is on board and ready to do and pay for what is necessary to keep the planet livable for the vast majority of species.

As a thinker who is often mistaken for a futurist, the last thing I should be doing is standing in front of people and telling them how many millions or billions of people may die, how mass migrations will threaten the sanctity of nation-states, or how the oceans are on the brink of death. Because then my audiences will start betting on those outcomes.

No, the people who needed to hear the alarm bells have heard them. Those who didn’t — who couldn’t — respond to the warnings with anything but self-interested bets on shotguns, iodine tablets, water futures, and land in New Zealand? They need to hear a different message. They need to hear that climate change is about to be defeated. If they don’t get in on climate remediation now, on the ground floor, they’ll miss the opportunity. This is the chance to invest in organic agriculture and to sell short on Monsanto and Big Agra. This is the time to go all in on solar, wind, and geothermal.

And once they do — once the big money is really in — just watch as Wall Street starts lobbying for the Green New Deal proposed by Alexandria Ocasio-Cortez and others. Net-zero greenhouse emissions is not a pipe dream, but a plausible, positive, attainable goal.

Let’s start talking about our collective sustainable future in ways that make people bet on it.

Photo by tim_gorman

The post Selling the Green New Deal With Positivity appeared first on P2P Foundation.

Modern Monetary Theory (MMT) is getting significant media attention these days, after Alexandria Ocasio-Cortez said in an interview that it should “be a larger part of our conversation” when it comes to funding the Green New Deal. According to MMT, the government can spend what it needs without worrying about deficits. MMT expert and Bernie Sanders advisor Prof. Stephanie Kelton says the government actually creates money when it spends. The real limit on spending is not an artificially imposed debt ceiling but a lack of labor and materials to do the work, leading to generalized price inflation. Only when that real ceiling is hit does the money need to be taxed back, and then not to fund government spending but to shrink the money supply in an economy that has run out of resources to put the extra money to work.

Predictably, critics have been quick to rebut, calling the trend to endorse MMT “disturbing” and “a joke that’s not funny.” In a February 1^st post on The Daily Reckoning, Brian Maher darkly envisioned Bernie Sanders getting elected in 2020 and implementing “Quantitative Easing for the People” based on MMT theories. To debunk the notion that governments can just “print the money” to solve their economic problems, he raise the specter of Venezuela, where “money” is everywhere but bare essentials are out of reach for many, the storefronts are empty, unemployment is at 33%, and inflation is predicted to hit 1,000,000% by the end of the year.

Blogger Arnold Kling also pointed to the Venezuelan hyperinflation. He described MMT as “the doctrine that because the government prints money, it can spend whatever it wants . . . until it can’t.” He said:

To me, the hyperinflation in Venezuela exemplifies what happens when a country reaches the “it can’t” point. The country is not at full employment. But the government can’t seem to spend its way out of difficulty. Somebody should ask these MMT rock stars about the Venezuela example.

I’m not an MMT rock star and won’t try to expound on its subtleties. (I would submit that under existing regulations, the government cannot actually create money when it spends, but that it should be able to. In fact MMTers have acknowledged that problem; but it’s a subject for another article.) What I want to address here is the hyperinflation issue, and why Venezuelan hyperinflation and “QE for the People” are completely different animals.

What Is Different About Venezuela

Venezuela’s problems are not the result of the government issuing money and using it to hire people to build infrastructure, provide essential services and expand economic development. If it were, unemployment would not be at 33 percent and climbing. Venezuela has a problem that the US does not have and will never have: it owes massive debts in a currency it cannot print itself, namely US dollars. When oil (its principal resource) was booming, Venezuela was able to meet its repayment schedule. But when oil plummeted, the government was reduced to printing Venezuelan Bolivars and selling them for US dollars on international currency exchanges. As speculators drove up the price of dollars, more and more printing was required by the government, massively deflating the national currency.

It was the same problem suffered by Weimar Germany and Zimbabwe, the two classic examples of hyperinflation typically raised to silence proponents of government expansion of the money supply before Venezuela suffered the same fate. Prof. Michael Hudson, an economic rock star who supports MMT principles, has studied the hyperinflation question extensively. He confirms that those disasters were not due to governments issuing money to stimulate the economy. Rather, he writes, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.”

Venezuela and other countries that are carrying massive debts in currencies that are not their own are not sovereign. Governments that are sovereign can and have engaged in issuing their own currencies for infrastructure and development quite successfully. A number of contemporary and historical examples were discussed in my earlier articles, including in Japan, China, Australia, and Canada.

Although Venezuela is not technically at war, it is suffering from foreign currency strains triggered by aggressive attacks by a foreign power. US economic sanctions have been going on for years, causing at least $20 billion in losses to the country. About $7 billion of its assets are now being held hostage by the US, which has waged an undeclared war against Venezuela ever since George W. Bush’s failed military coup against President Hugo Chavez in 2002. Chavez boldly announced the “Bolivarian Revolution,” a series of economic and social reforms that dramatically reduced poverty and illiteracy and improved health and living conditions for millions of Venezuelans. The reforms, which included nationalizing key components of the nation’s economy, made Chavez a hero to millions of people and the enemy of Venezuela’s oligarchs.

Nicolas Maduro was elected president following Chavez’s death in 2013 and vowed to continue the Bolivarian Revolution. Like Saddam Hussein and Omar Qaddafi before him, he defiantly announced that Venezuela would not be trading oil in US dollars, following sanctions imposed by President Trump.

The notorious Elliott Abrams has now been appointed as special envoy to Venezuela. Considered a criminal by many for covering up massacres committed by US-backed death squads in Central America, Abrams was among the prominent neocons closely linked to Bush’s failed Venezuelan coup in 2002. National Security Advisor John Bolton is another key neocon architect advocating regime change in Venezuela. At a January 28 press conference, he held a yellow legal pad prominently displaying the words “5,000 troops to Colombia,” a country that shares a border with Venezuela. Apparently the neocon contingent feels they have unfinished business there.

Bolton does not even pretend that it’s all about restoring “democracy.” He said on Fox News, “It will make a big difference to the United States economically if we could have American oil companies invest in and produce the oil capabilities in Venezuela.” As President Nixon said of US tactics against Allende’s government in Chile, the point of sanctions and military threats is to squeeze the country economically.

Killing the Public Banking Revolution in Venezuela

It may be about more than oil, which recently hit record lows in the market. The US hardly needs to invade a country to replenish its supplies. As with Libya and Iraq, another motive may be to suppress the banking revolution initiated by Venezuela’s upstart leaders.

The banking crisis of 2009-10 exposed the corruption and systemic weakness of Venezuelan banks. Some banks were engaged in questionable business practices.  Others were seriously undercapitalized.  Others were apparently lending top executives large sums of money.  At least one financier could not prove where he got the money to buy the banks he owned.

Rather than bailing out the culprits, as was done in the US, in 2009 the government nationalized seven Venezuelan banks, accounting for around 12% of the nation’s bank deposits.  In 2010, more were taken over.  The government arrested at least 16 bankers and issued more than 40 corruption-related arrest warrants for others who had fled the country. By the end of March 2011, only 37 banks were left, down from 59 at the end of November 2009.  State-owned institutions took a larger role, holding 35% of assets as of March 2011, while foreign institutions held just 13.2% of assets.

Over the howls of the media, in 2010 Chavez took the bold step of passing legislation defining the banking industry as one of “public service.”  The legislation specified that 5% of the banks’ net profits must go towards funding community council projects, designed and implemented by communities for the benefit of communities. The Venezuelan government directed the allocation of bank credit to preferred sectors of the economy, and it increasingly became involved in the operations of private financial institutions.  By law, nearly half the lending portfolios of Venezuelan banks had to be directed to particular mandated sectors of the economy, including small business and agriculture.

In an April 2012 article called “Venezuela Increases Banks’ Obligatory Social Contributions, U.S. and Europe Do Not,” Rachael Boothroyd said that the Venezuelan government was requiring the banks to give back. Housing was declared a constitutional right, and Venezuelan banks were obliged to contribute 15% of their yearly earnings to securing it. The government’s Great Housing Mission aimed to build 2.7 million free houses for low-income families before 2019. The goal was to create a social banking system that contributed to the development of society rather than simply siphoning off its wealth.  Boothroyd wrote:

. . . Venezuelans are in the fortunate position of having a national government which prioritizes their life quality, wellbeing and development over the health of bankers’ and lobbyists’ pay checks.  If the 2009 financial crisis demonstrated anything, it was that capitalism is quite simply incapable of regulating itself, and that is precisely where progressive governments and progressive government legislation needs to step in.

That is also where the progressive wing of the Democratic Party is stepping in in the US – and why AOC’s proposals evoke howls in the media of the sort seen in Venezuela.

Article I, Section 8, of the Constitution gives Congress the power to create the nation’s money supply. Congress needs to exercise that power. Key to restoring our economic sovereignty is to reclaim the power to issue money from a commercial banking system that acknowledges no public responsibility beyond maximizing profits for its shareholders. Bank-created money is backed by the full faith and credit of the United States, including federal deposit insurance, access to the Fed’s lending window, and government bailouts when things go wrong. If we the people are backing the currency, it should be issued by the people through their representative government. Today, however, our government does not adequately represent the people. We first need to take our government back, and that is what AOC and her congressional allies are attempting to do.

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This article was first published on Truthdig.com. Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution. A 13^th book titled Banking on the People: Democratizing Finance in the Digital Age is due out soon. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Photo by ®Dave

The post The Venezuela Myth Keeping Us From Transforming Our Economy appeared first on P2P Foundation.

Funding through the Federal Reserve may be controversial, but establishing a national public infrastructure and development bank should be a no-brainer. The real question is why we don’t already have one, like China, Germany, and other countries that are running circles around us in infrastructure development. Many European, Asian and Latin American countries have their own national development banks, as well as belonging to bilateral or multinational development institutions that are jointly owned by multiple governments. Unlike the US Federal Reserve, which considers itself “independent” of government, national development banks are wholly owned by their governments and carry out public development policies.

China not only has its own China Infrastructure Bank but has established the Asian Infrastructure Investment Bank, which counts many Asian and Middle Eastern countries in its membership, including Australia, New Zealand, and Saudi Arabia. Both banks are helping to fund China’s trillion-dollar “One Belt One Road” infrastructure initiative. China is so far ahead of the United States in building infrastructure that Dan Slane, a former advisor on President Trump’s transition team, has warned, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

The leader in renewable energy, however, is Germany, called “the world’s first major renewable energy economy.” Germany has a public sector development bank called KfW (Kreditanstalt für Wiederaufbau or “Reconstruction Credit Institute”), which is even larger than the World Bank. Along with Germany’s non-profit Sparkassen banks, KfW has largely funded the country’s green energy revolution.

Unlike private commercial banks, KfW does not have to focus on maximizing short-term profits for its shareholders while turning a blind eye to external costs, including those imposed on the environment. The bank has been free to support the energy revolution by funding major investments in renewable energy and energy efficiency. Its fossil fuel investments are close to zero. One of the key features of KFW, as with other development banks, is that much of its lending is driven in a strategic direction determined by the national government. Its key role in the green energy revolution has been played within a public policy framework under Germany’s renewable energy legislation, including policy measures that have made investment in renewables commercially attractive.

KfW is one of the world’s largest development banks, with assets as of December 2017 of $566.5 billion. Ironically, the initial funding for its capitalization came from the United States, through the Marshall Plan in 1948. Why didn’t we fund a similar bank for ourselves? Apparently because powerful Wall Street interests did not want the competition from a government-owned bank that could make below-market loans for infrastructure and development. Major US investors today prefer funding infrastructure through public-private partnerships, in which private partners can reap the profits while losses are imposed on local governments.

KfW and Germany’s Energy Revolution

Renewable energy in Germany is mainly based on wind, solar and biomass. Renewables generated 41% of the country’s electricity in 2017, up from just 6% in 2000; and public banks provided over 72% of the financing for this transition. In 2007-09, KfW funded all of Germany’s investment in Solar Photovoltaic. After that, Solar PV was introduced nationwide on a major scale. This is the sort of catalytic role that development banks can play, kickstarting a major structural transformation by funding and showcasing new technologies and sectors.

KfW is not only one of the biggest but has been ranked one of the two safest banks in the world. (The other is also a publicly-owned bank, the Zurich Cantonal Bank in Switzerland.) KfW sports triple-A ratings from all three major rating agencies, Fitch, Standard and Poor’s, and Moody’s. The bank benefits from these top ratings and from the statutory guarantee of the German government, which allow it to issue bonds on very favorable terms and therefore to lend on favorable terms, backing its loans with the bonds.

KfW does not work through public-private partnerships, and it does not trade in derivatives and other complex financial products. It relies on traditional lending and grants. The borrower is responsible for loan repayment. Private investors can participate, but not as shareholders or public-private partners. Rather, they can invest in “Green Bonds,” which are as safe and liquid as other government bonds and are prized for their green earmarking. The first “Green Bond – Made by KfW” was issued in 2014 with a volume of $1.7 billion and a maturity of five years. It was the largest Green Bond ever at the time of issuance and generated so much interest that the order book rapidly grew to $3.02 billion, although the bonds paid an annual coupon of only 0.375%. By 2017, the issue volume of KfW Green Bonds was $4.21 billion.

Investors benefit from the high credit and sustainability ratings of KfW, the liquidity of its bonds, and the opportunity to support climate and environmental protection. For large institutional investors with funds that exceed the government deposit insurance limit, Green Bonds are the equivalent of savings accounts, a safe place to park their money that provides a modest interest. Green Bonds also appeal to “socially responsible” investors, who have the assurance with these simple and transparent bonds that their money is going where they want it to. The bonds are financed by KfW from the proceeds of its loans, which are also in high demand due to their low interest rates; and the bank can offer these low rates because its triple-A ratings allow it to cheaply mobilize funds from capital markets, and because its public policy-oriented loans qualify it for targeted subsidies.

Roosevelt’s Development Bank: The Reconstruction Finance Corporation

KfW’s role in implementing government policy parallels that of the Reconstruction Finance Corporation (RFC) in funding the New Deal in the 1930s. At that time US banks were bankrupt and incapable of financing the country’s recovery. Roosevelt attempted to set up a system of 12 public “industrial banks” through the Federal Reserve, but the measure failed; so he made an end run around his opponents by using the RFC that had been set up earlier by President Hoover, expanding it to address the nation’s financing needs.

The RFC Act of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. As with KfW’s loans, its funding source was the sale of bonds, mostly to the Treasury itself. Proceeds from the loans repaid the bonds, leaving the RFC with a net profit. The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms, and much more; and it funded all this while generating income for the government.

The RFC was so successful that it became America’s largest corporation and the world’s largest banking organization. Its success may have been its nemesis. Without the emergencies of depression and war, it was a too-powerful competitor of the private banking establishment; and in 1957, it was disbanded under President Eisenhower. The United States was left without a development bank, while Germany and other countries were hitting the ground running with theirs.

Today some US states have infrastructure and development banks, including California; but their reach is very small. One way they could be expanded to meet state infrastructure needs would be to turn them into depositories for state and municipal revenues. Rather than lending their capital directly in a revolving fund, this would allow them to leverage their capital into 10 times that sum in loans, as all depository banks are able to do. (See my earlier article here.)

The most profitable and efficient way for national and local governments to finance public infrastructure and development is with their own banks, as the impressive track records of KfW and other national development banks have shown. The RFC showed what could be done even by a country that was technically bankrupt, simply by mobilizing its own resources through a publicly-owned financial institution. We need to resurrect that public funding engine today, not only to address the national and global crises we are facing now but for the ongoing development the country needs in order to manifest its true potential.

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This article was first published on Truthdig.com.

The post Why Germany Leads in Renewables: It Has Its Own Green Bank appeared first on P2P Foundation.