mutualism

For those of you highly skeptical of my prediction that the internet will cause the nation state as we know it to be unable to tax fairly incomes or transactions in goods and services and so cease to exist in its current form , here's a slightly different angle on it at Reason...

It seems to have finally dawned on the US government that whatever laws and regulations they pass, they will not be able to ban offshore internet gambling:

In other news this week about the internet and real life colliding, we also had Second Life being cited in a divorce case in the UK and a Japanese woman sued for murdering her husband's online persona.

Which are you going to be - more restrictions, ultimately futile; or building new mutual institutions to help deliver public goods in an era of a reduced ability to collect tax?

You know who you are. Those liberals (in particular) who always claim that "libertarian free markets" will result in a corporate plutocracy, or that the current turmoil in world financial markets (yes, it's still going on you know!) is a result of "libertarian free markets". Here, especially for you (but of interest to others I hope too), is a brilliant explanation of how this mutualist understands that free markets benefit people, not corporations.

CORPORATIONS VERSUS THE MARKET; OR, WHIP CONFLATION NOW

by RODERICK LONG - LEAD ESSAY - November 10th, 2008

Defenders of the free market are often accused of being apologists for big business and shills for the corporate elite. Is this a fair charge? No and yes. Emphatically no—because corporate power and the free market are actually antithetical; genuine competition is big business’s worst nightmare. But also, in all too many cases, yes —because although liberty and plutocracy cannot coexist, simultaneous advocacy of both is all too possible.

Read the rest...

The End is Nigh
Originally uploaded by Martin~

Or, why I am really a "geo-mutualist" and why I think you should be too!

The revolution has begun. In fact it's been building for at least twenty years. When history looks back it will not probably be able to identify a particular date, but it could do worse than choose Christmas Day 1990, the day a humble academic computing geek communicated with his server in something nobody had really heard of called "hyper text". Finally there was something useful to do with the "internet" that would eventually draw in users from well outside of the ivory towers and military research facilities that developed it. Users in every corner of the world; users of every age and race; users of every background.

And what will history say about this revolution? Will it be seen as a great leap in human freedoms, capable of finally fulfilling Cobden's vision that "peace will come to earth when the people have more to do with each other and governments less"? Or perhaps that it heralded an era of unprecedented interference in our lives by governments?

Actually, I think it is a one way bet; that eventually it will be a revolution in human freedoms, in co-operation and in innovation. Such are the players in this brave new world; hackers working to bust the Great Firewall of China and liberate a fifth of the world's population for example; Kenyans being the first to be able to make payments quickly and simply by mobile phone; privacy technologists working to keep us one level of information security ahead of the law; game players investing ever more realistic virtual worlds; their individuality and very lack of co-ordination in many cases makes it inevitable.

What politicians can do, however, is either to make the transition long and painful, or to smooth its passage for the "good of mankind" so to speak. We can choose to stick by the state and try and keep it working just as its citizens are less and less tied to it, which will inevitably lead to more and more monitoring and restrictions; or we can choose to look at how to build alternative civic institutions and mechanisms to fulfill our needs in an era when the state has much less power to intervene at least without the force that is endemic in state action becoming more and more obvious to the point of rebellion against it.

So what is the great weapon of mass destruction that is going to bring low the state as we know it? Why, tax, of course. I'll let you into a little secret: in order to function a state needs to be able to tax: in order to tax it needs to have the ability to track transactions or peoples' wealth and changes therein. And from the taxpayer's point of view, there is every incentive to try to minimize their tax liability. Up until now, or very recently, it has been only the global super-rich who have had the means and sufficient incentive to take advantage of loopholes and allowances that enable them to choose the lowest tax jurisdiction in which to crystalize out their tax liability.

But thanks to the global and interpersonal nature of this most recent communications revolution we are on the cusp of mechanisms being easily available to the big majority of people that will enable us to minimize our "financial footsteps". When most of us only ever relate to the majority of our money through pixels on a screen or numbers on a bank statement - a small minority of trade now relies on real metal or crinkly coloured paper currency - what does it matter what those pixels are called; pounds, dollars, euro, yen? What about a completely new, essentially fictitious currency perhaps, like the "Linden Dollars" of "Second Life"?

Add e-Bay and Tesco to Second Life for example and one could imagine a world in which most of your financial transactions are conducted entirely in cyberspace, in virtual worlds that know no territorial boundaries or tax regimes (or at least that could be relocated into a sympathetic tax jurisdiction quickly if necessary), but with delivery of goods and services in the physical world. That's not to say giants like Tesco and e-Bay would necessarily be best, or would necessarily even survive the upheaval.

Those widespread international (and local) interpersonal (and business-to-business) mechanisms for sophisticated modern-day barter are now within reach and threaten the very raison d'etre of many of our longest standing institutions - banking and currency, transnational corporations built in an era when intermediaries were necessary to trade with far off lands, and ultimately the basis on which the state is founded - its monopoly of taxation. At the same time we can form non-geographic communities of genuinely voluntary co-operation in which we can build trust relationships, quasi-legal ways of dealing with disputes and so on that make trade possible with people a few short years ago we would have never had a hope of even communicating with.

So, which side are you going to be on - freedom and co-operation or ever more intrusion, regulation and restriction? And how long have we got?

Some of these technologies fall into the category of "overestimated penetration at 2 years, underestimated at 10 years." I think the state will be lucky if it has another decade of relatively easily collected taxes based on productivity, sales and incomes. If people want the state to be able to function beyond that, without increasingly authoritarian intrusion into our economic lives, we need to be looking now at how to make it pay its way through user fees for any value for money services we want it to provide. And as soon as it does of course it must also open itself to competition - else it's a monopoly again whose only rationale is to use its discretionary power to rip off the very people who both fund and use its services.

Unsurprisingly any of the various forms of land value tax will do to start with and would be especially beneficial implemented soon, near the bottom of the crash in land values currently underway. The present situation in financial markets offers an ideal opportunity for new means of trading without the sort of money so invidiously inflated and deflated by the banking cartels. Again, these alternatives could operate either on a local scale or in an international, or non-geographic trading community. Land has the singular benefit of being immoveable. You can't virtualize land as easily as you can income - for we all still need to have a base somewhere.

There's another major reason for helping this process away from the power of and dependency on nation states rather than fighting it - the state is expensive. The sort of redistributive measures required to ensure that everyone gets a fair crack at opportunity - the level playing field - are getting more and more expensive. Our interventions into the affordable housing market for example, in the form of subsidy, will continue to rise when land values rise, subsidizing the already-haves in the name of assisting the have-nots. Far better to try to ensure the fairest of level playing fields for all than trying to play uphill on a steepening playing field.

So, when you find me criticizing the state and its acolytes, it's less about what has gone on in times past - I would say times of missed opportunity for sure - but more on how we will be able to live in future, a future I think is pretty inevitable, in which the very idea of a state with the power to tax fairly will be severely compromised. The elephant in the room needs to be dealt with, and dealt with soon. Will it be freedom, or more desperate attempts to maintain the ailing state structures? You choose!

...that "government is the problem", or because anti-regulator Alan Greenspan named Ayn Rand as his biggest political influence, it's time you did some reading.

Each year the Libertarian Alliance awards the Chris R Tame Memorial Prize (named for the late founder of the Libertarian Alliance) for the best essay on a title chosen by its Director, Dr Sean Gabb, and this year's winner was announced this weekend at the Libertarian Alliance annual conference at the National Liberal Club - more on which in upcoming posts.

The Libertarian Alliance is the biggest grouping of the broad church known as Libertarianism in the UK, and this year's essay title was set just ahead of the main round of recent financial market troubles but focussing on the common idea that Libertarians would demolish the state, leaving what we currently know as big corporate capitalism to run amok. The full brief for contestants ran as follows:

Essay Title: "Can a Libertarian Society be Described as 'Tesco minus the State'?"

Explanatory Note

Many socialists and conservatives regard libertarians as cheerleaders for big business. Our belief in free enterprise is understood as support for the bigger, and therefore the more successful, corporations - General Motors, Microsoft, HSBC, Tesco, and so forth - and for an international financial system centred on the City of London.

Some libertarians are happy to be so regarded. They dislike the way in which big government provides opportunities for big business to acquire privileges that shelter it from competition. Even so, they believe that a world without government, or a world with much less government, would be broadly similar in its patterns of enterprise to the world that we now have. It would be much improved, but not fundamentally dissimilar.

Other libertarians disagree. They regard big business as fundamentally a creation of big government. Incorporation laws free entrepreneurs from personal risk and personal responsibility, and allow the growth of large business organisations that are bureaucratically managed. These organisations then cartellise their markets and externalise many of their costs. The result is systematic distortion of market behaviour from the forms it would take without government intervention. These libertarians often go further in their analysis by denying the legitimacy of intellectual property rights and ownership rights in land beyond what any individual can directly use.

Where do you stand in this debate? Are you broadly comfortable with a global capitalism that is raising billions of people from starvation towards affluence. Or are you a radical with a vision of a society that has never yet been tried and is as alien and even frightening to most people as anything promised by the Marxists.

You tell us.

No go and read the winning essay. Congratulations go to Keith Preston, for his entry entitled "Free enterprise: the antidote to corporate plutocracy"

But if you are too lazy to read the whole lot (c 3000 words - so no more than one of my usual posts!), it concludes...

"An economy organized on the basis of worker-owned and operated industries,peoples’ banks, mutuals, consumer cooperatives, anarcho-syndicalist labor unions, individual and family enterprises, small farms and crafts workers associations engaged in local production for local use, voluntary charitable institutions, land trusts, or voluntary collectives, communes and kibbutzim may seem farfetched to some, but no more so and probably less so than a modern industrial, high-tech economy where the merchant class is the ruling class and the working class is a frequently affluent middle class would have seemed to residents of the feudal societies of pre-modern times. If the expansion of the market economy, specialization, the division of labor, industrialization and technological advancements can bring about the achievements of modern societies in eradicating disease, starvation, infant mortality and early death, one can only wonder what a genuine free enterprise system might achieve, and would have already achieved were it not for the scourge of statism and the corresponding plutocracy. "

Now, you may still not be convinced that "government is the problem", but do us the decency of not conflating "deregulation" with "evil right wing global corporatism" and blaming "libertarianism" for the great big pile of dog-doo the state and economy is in right now. Especially those of you who claim to be Liberals, fellow travelers of Libertarianism for the past 150 years.

A week or so ago Mike Killingworth challenged us on Liberal Conspiracy to show what "Lovable Banking" might look like in response to the daily emerging news that we've been shafted regularly by the banking system since, oh, at least 1695. Some of you will know that I have long taken an interest in things like local currencies and mutual finance and perhaps also that I've been looking into the use of the Limited Liability Partnership structure as a way of building multi-stakeholder less toxic alternatives to purist shareholder capitalism.

Well a couple of weeks ago I was contacted out of the blue by a chap, Frank Churchill, also in Oxfordshire, who has been looking at similar structures. In his case originally I think as a less toxic alternative to developing world microcredit systems (did you know that the effective interest rate including all charges and so on on Grameen or Kiva micro loans can get as high as 80%!) and as a way of monetizing voluntary work - mainly involving carers. We've both been steadily battling along on our own on this, trying to understand the structures and build solutions to common issues around them - in my case, mostly things like affordable housing and supporting local businesses.

And so we've got together and are, hopefully, on the verge of setting up a "think and do tank" (to coin a strap line from another - less popular amongst liberal economics followers - organization, the New Economics Foundation; but don't let that put you off - some of the issues are the same but we believe the responses are more mutual and liberals than theirs) in the form of a "Community Finance Partnership".

The Limited Liability Partnership structure was created, ironically perhaps, to get the professional firms such as accountants and lawyers out of being personally liable for the debts of their partnerships - the vast accountancy partnerships in particular were worried about the sort of "Enron scenario" of being held liable for multi-million pound lawsuits and were threatening to move their registered offices away from the UK if we didn't give them limited liability. But inadvertently they have created a beautifully simple mechanism for bringing all the parties to an enterprise - the providers of capital, landlords, customers, workers and suppliers and so on - in, if they wish, to share in the risks and the rewards of pooling their contributions to the success of that business as partners.

A partnership agreement can involve different classes of partner receiving different shares of the profits depending on the worth of their input to it - just as a co-operative structure does. Companies may be partners, or even other LLPs as well as individuals. And the partnership itself is tax transparent so each partner is responsible for accounting for the profit or loss in their own tax affairs. Some of you will be aware that I think limited liability in general is a Bad Thing that takes the personal responsibility away from business owners, but in this case it matters very little since every connection with the business could become a partner and share that responsibility explicitly.

The Community Finance Partnership can we believe fulfill a great number of roles, offering a portfolio of products for consumers and a steady return based on those to investors - the aim is to produce an index-linked rate of return in the form of a "rent payment" for the use of the capital partners' (investors) funds. "Customer partner" products might include interest free mortgages - called Property Investment Partnerships, personal loans such as with Credit Unions and business finance "repaid" through a portion of the successful businesses' turnover.

One "flagship" product we are hoping to develop is the idea of a local complementary currency, probably in the form of a Nectar-like loyalty card system that businesses with a base in the geographical area can buy into and which would be able to monetize currently unpaid work like volunteer carers whose value to the local community and especially health services is enormous. The possibilities are almost limitless. For example another idea would be to finance the equivalent of PFI schemes - for example if Oxfordshire County Council wants to rebuild some schools, but with local investors sharing in the reward. And such a structure could be used to provide the mutual finance system for universities I mentioned earlier today.

Think a cross between a loyalty card system, a credit union (more on the US or Irish style than the British), a mutual building society but with the ability to lend to business and not just on homes, and possibly a friendly society offering local mutual insurance and pension products. It's early days yet, and we're still working up what each product would look like in financial terms and the sort of prospectus we'd be able to offer investors, but I'm very excited about it! We think the time is ripe for a return to more human scale financial institutions that people can become a part of on a local more human scale.

It seems slightly odd to me that I have only ever written once about Higher Education policy, given that I am a governor of my university, and hear about it all the time in meetings. But it has become a big issue at the moment in the Lib Dems, and seems to have been one of the major discussion areas at the Liberal Youth conference over the weekend, so I thought it might be time for me to jot down a few thoughts.

One thing that seems clear, and I believe this is common currency in university board-rooms across the country, is that the current muddled system cannot go on. 98% I believe it is of courses are charging the full top-up fees, and even they do not make up for the real terms fall of over 60% in funding per student over the past decade and a half or so.

On top of that, it fails to create any kind of price mechanism where people might be able to see what value a university or rather its applicants put on a particular course at a particular institution. It is a nonsense to think that three grand at The New University of Bloggshire is as good value as three grand at one of our world leading institutions like Oxford, Cambridge and Imperial. Instead we rely on very subjective analyses of the National Student Satisfaction Survey and even that is difficult as the organizers may put a good course in a subject area in which an institution is not so excellent and devalue that one course.

What also seems clear is that the value of a first degree is, shall we say, not as high as perhaps it was when all those who say "I got university free, so I'm damned if I'm going to see the next generation up to their necks in debt" went to university. It is a very generous sentiment, and, whilst I didn't in fact go to university I do recognize the hypocrisy - had I taken my school teachers' advice I would have had free higher education and a living grant too. That may not of course be the fault of the Higher Education Institutions so much as primary and secondary education - I don't suppose many students in my day would have had to be taught remedial English and maths at university as we are told some are today in order to get the most out of the Higher Education experience. Additionally, many more students than previously feel the pressure to do second and subsequent degrees in order to stand out in the job market as perhaps a first degree would have done for them in previous generations.

I think the majority feeling in those university board-rooms is that they would prefer to see the fees cap lifted completely when the opportunity arises sometime after 2010, even though by that time many may not want to charge too much so as to be in competition for a smaller number of students when the 18 year old cohort dips significantly in around 2012. We are also on tenter-hooks waiting to see how economic troubles in the wider world will affect student numbers - in previous recessions there has been a boost to Higher Education as people out of work re-train, but faced with fees and debts and an even more uncertain economic outlook, we wonder whether this will be the same this time round.

So, regardless of how our policy affects students themselves, the universities are in an ever more uncertain position. Whatever option we choose, we must see to it also that universities get sufficient funding. There will be no merit in having free Higher Education if the universities themselves cannot deliver that within the budgets allowed.

Anyway, I wanted to suggest an idea with this post. It's somewhat half formulated, and I certainly have not tried to run any figures on it yet, but I hope you might get the idea and maybe be willing to help develop it in the comments.

I have always regarded universities as social enterprises, mutual institutions of a sort. Indeed I once tried to persuade Brookes to adopt a more overt mutualism in its management structure. During the Great Depression in North America, when students were still having to pay fees but had very little money left for anything else, many embraced mutualism as a way to get through. This was the era in which the co-op meal plan, the co-op houses and halls of residence, and the university credit unions burgeoned. Partly as a result of this they have a much stronger alumni culture than we have here.

A credit union type system could be used to enable universities to charge a full market rate for their courses whilst financing all students "needs blind" so that they do not have to pay anything until they are earning. These credit unions would enable alumni (and possibly applicants before they are at university) to save, with interest, in less toxic investments than they have been in the banking system of late while funding current students through university and who would then be expected, as part of their "pay back", to join and save, investing in the next cohort of students, when they graduate.

On top of this we need a package of measures perhaps to encourage the development of low cost co-operative halls of residence and mutual housing societies to prevent the basic accommodation needs of students becoming the £5-7,000 per year drain that the big corporate halls providers expect to charge and the private rented sector delivering second class housing for students.

This is something I've been meaning to write for months, but was particularly prompted to do so by a program on BBC last week about surviving the house price downturn. One guy had built himself a property portfolio worth about £8m (about £5m of which was debt) from a standing start renting a single room in a three bedroom house share five years ago.

He stated, correctly of course, that any numptie can make a killing while everything's rising, but it takes skill to do so in the uncertainty we are now in. His current ploy is to drop leaflets on people in areas where negative equity may be about to bite offering stretched home owners the chance to sell out quickly to him, at a deep discount, but continue renting the same home and with a guaranteed option to buy back again at a pre-agreed premium when things look better.

This sort of thing has long gone on, particularly in the "right to buy" market - albeit with some differences - unscrupulous bucket shop lenders go round offering to lend those who would not get a mortgage enough to buy their council home who then have trouble with their mortgage payments, they offer them a "rent-back" deal which is only just less than the mortgage payments so what they were paying £70 a week for as a council house in which they had no equity was now costing them double that still with no equity.

Anyway - many of you will know that I "run" a group called Oxfordshire Community Land Trusts , which is a mechanism for delivering more affordable housing for the "intermediate market" - those stuck above the income levels that would justify the deep subsidy of social rented housing but below a level that they can afford to get on the ownership ladder. Basically it works by the CLT owning the land and not crystalizing out the gain in land value on every transaction. People pay what they are judged to be able to afford rather than related to the home they need - I would pay nearly full market rates for a one bed flat whilst a family on half my income would get their three bed needs met on half my payments. But I would get twice as much equity as they do. Effectively we are all subsidizing each other through the Mutual Home Ownership Society that takes on the long term debt for the development and which all the residents join.

And earlier in the year we were asked whether this was still an attractive option in a falling market. Obviously it changes the landscape somewhat. Now perhaps more of a problem is that people who could afford to buy outright are unable to get mortgages through no fault of their own. Indeed this could be a boon to the CLT market, because we could find ourselves with more better off residents who would therefore be able to subsidize even lower income houses (it all works on averaging out the total payments you see).

But also by tweaking the model, from a development model to an acquisition model, I believe we could help out those over-stretched households currently prey to the man I mentioned above and with a long term benefit to the success of future CLT projects. In this scenario, the CLT would buy up houses and convert them into mutual ownership. The occupant instead of having to rent from the profiteering speculator landlord would get to keep whatever equity their current circumstances allow them to commit to with the CLT effectively holding the balance. As circumstances change, the household could buy back extra equity (without themselves actually having to borrow anything - Mutual Home Ownership looks more like rent from the occupants' perspective).

What we need to make this happen is access to funds - not necessarily large funds - just a revolving facility that allows us to step in quickly when a household is in distress and lenders start to take action against them - we get them the money to pay off all or most of their distressed borrowing and then the Mutual Home Ownership Society borrows against its commercial facility to take on the house itself with the household's new calculated affordable commitment.

Who has such funds? Well, local authorities have a duty nowadays to try to prevent homelessness, not just deal with it after the fact. Such a scheme has got to be a more efficient use of public money than say, Vince Cable's idea of getting councils to reward previous speculative build by buying direct from builders and converting them to social rented housing (I don't think it's a bad idea - just that mine is better!). Even existing lenders might find it more attractive to convert the loan to a MHOS than to repossess.  In the longer run the CLT ends up with more freehold land that would eventually, when the housing on it has reached its planned end of life be theirs to redevelop in the interests of the local community at that time and in the meantime the distressed owners get to keep their existing home, albeit with lower equity levels and lower debt levels.

Dare I even suggest that this might be a better way to spend $700bn than rewarding the bankers who helped cause the problem in the first place?  Julia Goldsworthy , get in touch if you want to know more!