(iv) Review international trade and propose mechanisms to reclaim economic sovereignty from the over-riding influence of international money markets and financial institutions;

(v) Research and develop mechanisms which eliminate foreign debt, reverse foreign ownership of Australian enterprises, enhance self-sufficiency and rehabilitate the environment;

(vi) Support economic solutions to achieve sustainable populations which accurately identify the complex issues involved;

(vii) Develop concepts of ownership based on usage and the rights and obligations of owners as custodians of the natural environment and contributors to a just social order;

(viii) Demand that economic and financial systems enhance human, civil, cultural and political rights and responsibilities, ensure economic equality for women, and protect children from exploitation and slavery;

(ix) Research viable systems of governance which assist the full participation of all citizens in the democratic process, and which devolve power to local communities;

(x) Do all such things as are agreed to by ERA in order to achieve these objectives.

Rationale and Background to ERA’s Objectives:

ERA considers the present debt-based financial system, where almost 95% of all money enters the system as interest-bearing loans advanced by commercial banks, as a major structural impediment to a socially and ecologically sustainable economy. ERA was established in 1993 as a non-party advocate of a range of alternatives to those features which characterise an economic system driven by debt. ERA’s proposals aim to reclaim economic sovereignty by reducing reliance on foreign debt and ownership; eliminating current account deficits, budget deficits and public debt; maintaining low interest and inflation; and discouraging speculation.

ERA places financial reform within a framework of social justice and equity, ecological sustainability, public accountability and control, and economic regulation. It highlights interest-bearing debt as a pivotal force driving the need for levels of economic growth and consumption which destroy our natural resources, pollute the environment, and exacerbate poverty and inequality. ERA insists that governments have the responsibility to use their central banks to generate substantially interest-free loans for essential public infrastructure as has been the case in the past until full financial deregulation in 1984. These will also generate employment. It is also the responsibility of governments to ensure a fair distribution of income throughout the society through such arrangements as job sharing and a Guaranteed Adequate Income (Citizens’ Income).

ERA is affiliated to the international Committee on Monetary and Economic Reform (COMER) whose policies it supports. ERA has assisted in the formation of the Debt Crisis Network which is calling for the writing off of Third World debt, national self-financing using central bank credit, and grants in place of interest-bearing loans. ERA has taken a central role in convening annual TOES (The Other Economic Summit) in Australia to challenge the economic growth and the deregulation policies of the G-7 Summit.

ERA’s Short-Term Proposal Details

1. The Economic Sovereignty Loan Plan

The Economic Sovereignty Loan Plan requires that governments, instead of borrowing at market interest rates from the private sector, especially banks and foreign lenders, are issued interest-free or very low interest loans by the Reserve Bank (or State Banks). These would be for capital infrastructure projects and to retire existing debt. Interest on public debt of over $200 billion now costs Australian taxpayers more than $20 billion annually. Retiring public debt would gradually eliminate the annual interest bill and improve budget deficits. It would also improve current account deficits because almost half the public sector debt is overseas funded. ERA proposes that Reserve and State Bank credit representing 1% of GDP be made available to the various levels of government in the first year for employment intensive capital works.

All projects would be required to meet stringent criteria of social and environmental benefit, and strict accountability. The effects would be closely monitored but are not expected to be inflationary until full employment is approached. At this point increased tax revenues might overtake any need for further government credit. At the same time the Reserve bank would be required, if necessary, to raise reserve requirements on the private banks to limit the overall growth of the money supply to a non-inflationary rate. This might be achieved by reimposing fractional reserve requirements comparable to those used prior to 1988, or by other means such as raising the prime asset requirement. Eventually all credit would be interest-free and issued by governments through banks. In the meantime the amount of interest-free credit issued by government as Sovereignty Loans should increase by 1 percent of GDP a year. What is being proposed is that the Reserve Bank and State authorities should transfer the government securities (debt) held by the private banks to their own accounts at the rate of around $5 billion debt a year, and lend it interest-free or at very low interest for approved capital projects.

The term capital is used to refer to spending which will have the effect of broadening the tax-base over the longer period, and therefore must be treated as an investment which depreciates over its useful lifetime. To balance the public debt incurred there must be an inventory of capital assets as in the private sector eg roads, sewage, and energy plant, roads, public transport, schools, public housing etc.



2. Financial Asset Taxes (FAT)

High interest rates and unstable exchange rates provide ideal opportunities to use money to make money without the intervention of productive effort. As a result, funds invested in banks, superannuation and insurance are increasingly being channeled into non-productive speculative financial transactions currently exceeding by 20-30 times the value of transactions producing goods and services. These speculative international transactions now govern national economic policies, yet are taxed at negligible, concessional rates. Financial transactions involved in the production of actual goods and services are estimated as less than 3% of all financial transactions in Australia to-day. Financial deregulation has exacerbated speculation, and Australia’s dollar has become so volatile that it is one of the most traded currencies in the world. Currency volatility is a world-wide problem and in 1994 the Bretton Woods Commission, establish-ed to mark the 50th anniversary of the World Bank and the IMF, called for an extensive reshaping of the global monetary system to include a more managed system of exchange rates. However, a financial assets tax of between 0.1 and 0.5 percent would be more effective in raising revenue and discouraging speculative financial transactions because of the narrow margins of profit on which they operate. One estimate was that for every .2% tax, Australia could collect $14/15 billion of additional revenue. The Australian Government has already supported such a tax on foreign exchange transactions at the 1994 Social Summit in Copenhagen.

3. Impex System of Foreign Exchange

The Impex (Import/export) system of Foreign Exchange management would establish a free market in foreign exchange which would automatically balance its current account of overseas financial transactions. It would do so by ensuring that no money was spent overseas which had not already been earned overseas without overseas borrowings, or sale of Australian assets. No overseas money could be directly exchanged for Australian dollars, and all overseas currency would be bought and auctioned on an Impex market which would establish the going Impex rate. Under this system exporters and other earners of foreign exchange would own the foreign exchange they earned, and be able to sell it on the Impex market when rates were favourable.

The Impex rate would reflect the ratio of overseas earnings to overseas payments. While Australia’s balance of payments showed a current account deficit, the Impex rate would be high, effectively increasing the cost of imports and encouraging Australian manufacturers to establish import replacement industries. A high Impex rate would, in effect, put an additional cost on all interest, services, and foreign profits out of Australia. All overseas transactions would go through the Impex Facility (a branch of the Reserve Bank) where, as now happens, the $A dollar value of each transaction would be calculated at the current rate of exchange for the currency involved. So that the system could be phased in gradually, the government would continue some overseas borrowing to feed into the Impex market to hold down the initial Impex rate.

The advantages of the Impex system include:

• an exact balance of payments;
• no changes would be required to existing tariffs, duties and exchange rates;
• when importers have to pay more for exchange to buy overseas products they will seek out Australian suppliers, and encourage the establishment of import replacement industries providing local employment;
• as Australia’s manufacturing base expands, tax evasion through off-shore production will decrease, as will other malpractices such as transfer pricing;
• existing overseas debt can be gradually paid off by setting the Impex rate somewhat higher than the natural market rate;
• Impex will automatically apply the exact incentives for exporters and disincentives for importers needed to ensure a constant balance of payments.

4. Foreign Ownership and FIRB Reform

The Impex system will need to be supported by a reformed Foreign Investment Review Board (FIRB) to reverse the disastrous situation where foreign ownership/control of Australian enterprises has now reached 49%. FIRB’s approval criteria must be based on not only the estimated expenditure in Australia but more importantly, the estimated number of Australians who will be employed initially and in the following five years. FIRB’s role and funding should be expanded to include information and education to local enterprises to undertake projects for which Australia would otherwise be dependent on foreign investment and imports. As well FIRB should ensure:

• transfer of ownership to Australian owners and investors at the end of 10-15 years;
• detailed monitoring and regulation of foreign capital;
• investment of foreign capital in import replacement industries;
• and enterprises consistent with national environmental and social priorities;
• approval of foreign involvement in new ventures only where foreign capital, technology and relevant expertise are not available in Australia;
• strict monitoring of export and import prices to reduce transfer pricing arrangements;
• prohibition of foreign investment used to acquire land for residential or commercial purposes.

ERA’s Long-Term Vision:

Economics deals with the organisation of the material welfare of humankind. It is the science of the production, distribution and consumption of goods and services. To achieve a socially just and environmentally sustainable society, economic systems need to be regulated and publicly accountable. They need also to be based on human needs and motivations, and the physical limits of the environmental field with which human populations are now finely balanced. But deregulation on an international scale, far from contributing to human welfare, rewards the rich and powerful at the expense of the poor. It also treats the environment as a resource to be indefinitely plundered, and favours speculative activity over the production of real goods and services. Most of those now involved in economic reform believe the social, environmental and financial systems are now under such stress, that increasing instability will trigger a collapse of the existing order.

Therefore, ERA’s vision is of an economic system which ensures a modest and dignified living for all humankind without overconsumption and stress to our home planet Earth, on which our survival depends. The economy must support a social system which helps all individuals fulfill their potential, and contribute to the society throughout their lives in satisfying and beneficial ways. The permanent loss of jobs from the mechanisation of labour and new computer technology has radically transformed the availability of paid work. This period of major transition is a creative opportunity to reorganise and redefine work as "socially beneficial participation" to ensure that work does not become the special privilege of a social elite. Money must assume its primary role in facilitating the production, distribution and consumption of goods and services instead of being diverted into quick profits and speculative activities. The short-term proposals outlined foreshadow a very different economic system, and will enable the whole system to be redesigned. However, the luxury of a gradualist approach could give way to rapid and more far-reaching reforms if the system collapses.

In an increasingly unstable economic environment some of the more radical visions put forward by ERA members are achievable. For instance, it is possible to envisage a society where all debt and interest are eliminated and taxation ceases to be a way of collecting revenue. A citizens’ income, not wages and salaries, would become the primary way of distributing money so that the nexus between production and income is broken and the cost of labour need no longer be included in price.

Governments or community groups could be responsible for the creation of interest-free credit, and local banks would issue the money as a non-profit public service. Some propose using taxes as a disincentive to the consumption of scarce resources or polluting activities, others as a way to extinguish surplus money from circulation where governments create the money supply.

We have reached the turning point, and ecological economists warn that the world’s vanishing natural capital is now the limiting factor in human economic activity. While population pressures are the major threat for poorer economies, far more destructive is the overconsumption by the world’s affluent. It is imperative to move from resource intensive economic activities to economies based on services which raise our quality of life and awareness without destroying the environment. The problem is that our economies currently serve the short-term interests of those with money to spare to the detriment of our long-term social and environmental well being of the planet. We are now dangerously dependent on a steady flow of manufactured goods and it is essential to step off the treadmill of material consumption and production, or at least slow it down, so that future generations have a fair chance of personal happiness and survival . At the heart of the matter is our attitude to the land which must move from the concepts of personal ownership to the obligation to be responsible custodians of what is not ours to own.

While the economic prognosis looks grim, we have within our grasp all the mechanisms to organise a socially, environmentally and financially sustainable society. Modern computers allow us access to all information needed to generate sustainable economic practices, and telecommunications have the potential for interested citizens around the world to vote on any issue. Accountability by elected or appointed representatives and private enterprise to the public can be complete and instantaneous, and outmoded systems of political parties molded by personal addiction to power, vested interests and sensationalist media can give way to direct voting on all matters by the entire citizenry. Such voting rights and responsibilities would require a fundamentally different education system where a holistic understanding of human needs and psychological process and the complex interactions between living and non-living social and economic systems formed the overarching framework of all other disciplines.

Education would be a whole-of-life experience and take place as naturally as possible when individuals were ready to engage in different levels of learning, self-expression and artistic endeavour, with unlimited access to the educational resources of the whole society. Research would be the natural outcome of the human search for greater understanding, and would be part of the contribution of those with particular skills and expertise.

At the same time, a balance must be struck between the essential tasks required to achieve a smoothly running society and individual preferences and choices. Community audits, especially at local level, would establish the services and priorities essential to different communities, the human resources and skills available, and the training and research needed to implement these services. Full social participation will require an acknowledgement of huge diversity of human skills and interests, and the utilisation and strengthening of this diversity for the common good.

SOS - SAVE OUR SOVEREIGNTY : Santamaria and Stretton Speak Out

Two important feature articles by B.A. Santamaria appeared in The Weekend Australian on 30/12/95 and 6/1/96, entitled “Who Rules Australia Anyway?” and “Saving our Sovereignty”. In these articles the author examines the economic direction in which the Australian government has been heading and the tactics employed to address the balance of trade, payments and unemployment problems. That is, financial deregulation, globalisation, free trade, and sales of public assets. Santamaria believes that these trends portend a major crisis, and goes on to suggest some solutions. His analysis of the overall problem reiterates what many observers and critics of government economic policy have been discussing for years, however the really interesting part of his articles - the proposed solutions - deserve to be commented upon and discussed further.

The uncritical supporters of economic rationalism (ER) will of course assert that nothing needs to be done, since the problems will inevitably self-correct via the supposed beneficial intermediation of “the invisible hand”. We have all been waiting patiently during the past decade for the self-correcting process to take place, and one wonders what time frame the ER advocates really have in mind. While it is true that over the decade a section of society has done very well under the prevailing economic regime, the fact is that a very large section of the community has, at the same time, experienced progressive impoverishment. Santamaria states “.... a rapid increase in the division between the economic classes - slower perhaps than in the US, where during the past decade the top 1 per cent of society has increased its control of the nation’s assets from 29 to 40 per cent - but still going in the same direction. The difference between the salaries of executives and directors’ fees, on the one hand, and average wages on the other has become a scandal and is breeding deep resentment that will inevitably take political shape.”

To remedy the situation in Australia, Santamaria lists the following measures as a minimum:
(a) a reduction in capital flows in and out of Australia for purely speculative purposes, to be effected by a strong system of foreign exchange controls and transaction taxes;
(b) a restoration of the balance of trade, achieved by adopting both a general primage duty of 20 % and a revenue tax, thus substantially adding customs revenue to the federal budget;
(c) an attack on the present level of foreign debt, using both direct taxation and tax incentives;
(d) development of a capacity to borrow at home rather than from abroad, through the accumulation of adequate domestic savings (eg, via an intelligently administered universal, compulsory superannuation); (e) creation of a specialised banking sector to meet the requirements of public works, with gradual extension (within carefully defined limits) into the field of rural credit.

These proposals collectively fly in the face of economic orthodoxy, and it can be expected that they will be fiercely opposed by a range of vested interests. At present, the main political parties in this country are still firmly wedded to a rationalist agenda. The only obvious possibility for change appears to be the development of a new political party or bloc prepared to go to the elect-orate with a radically different economic program. A model for this scenario is already in place in New Zealand with the alternative vision provided by the Alliance grouping, and facilitated by a proportional representation voting system.

It should be mentioned that the last of Santamaria’s proposals is clearly related to the Economic Sovereignty Loan Scheme,which currently enjoys considerable support in the USA. It appears that a version of it was recommended 60 years ago to the League of Nations by Louis Tardy, director-general of the French National Bank. Also, a royal commission on the banking system in Australia reported in 1937 that
“....Because of this power, the Commonwealth Bank [now the Reserve Bank] is able to increase the cash of the trading banks in the ways we have pointed out above. Because of this power, too, the Common-wealth Bank can increase the cash reserves of the trading banks; for example, it can buy securities or other property, it can lend to the governments or to others in a variety of ways, and it can even make money available to governments or to others free of charge [emphasis added].”

Practical examples of such alternative financing procedures are not difficult to find. It is well known that such loans were made by the Commonwealth Bank between 1913 and 1917 for the construction of the Australian intercontinental railway. In the 1990 Boyer lectures, Tom Fitzgerald spoke about the post-war industrial expansion of Japan, which involved, inter alia, a high level of personal savings and the provision of finance to industry at very low interest rates, a bewildering variety of other financial incentives such as tax concessions, as well as other government support and strong protectionist measures. In particular, interest-free loans are reported to have been offered for the establish-met of new small and medium-sized Japanese businesses, the purpose being to re-establish small businesses as the driving force of the economy.

According to Fitzgerald,

“...What seems at first a coddling policy may, when assessed in the full human and social and economic context, be a force making for dynamism. Life gets complicated when MITI [The Japanese Ministry for International Trade and Industry] refuses to read our textbooks.”

Hugh Stretton has also recently published a challenging analysis in Australian Options (vol 1, no 1) entitled “Powerless on the Road to Mexico”. This is concerned with reconstructing those powers of government which have been dismantled since financial deregulation occurred in the early 1980s. Some of the principal points made by Stretton are that the impediments to full employment have arisen mainly from financial deregulation, and that even if the government wanted to restore full employment it would no longer dare to do so, because under the present circumstances full employment would have a devastating impact upon inflation, the balance of payments and the country’s massive foreign debt. Furthermore, both the government and opposition now positively value unemployment as a “defence against inflation”. An obsession with beating inflation into the ground at the expense of everything else has come to be a hallmark of contemporary economic thinking. In addition, there now exists in Australia a widespread preoccupation with developing an export boom to earn our way out of trouble. According to Stretton, the Opposition (now the Government) believe that we could “export” our way out of debt if only we allowed wages to fall to the levels of many of our Asian neigh-burs, in spite of considerable evidence to the contrary from the experience of the US economy.

In discussing solutions to the present economic morass, Stretton has put particular emphasis on the need for financial reforms, in common with Santamaria. He clearly recognises that there are massive conflicts of interest between bank profit-seeking and national needs for long-term investment and employment, and regards low and stable rates of interest as necessary prerequisites for any full employment strategy. Another condition to be attended to is the volume of credit that allows a full employment level of investment. Thus, he considers that

“...government needs powers, which Australian and other OECD powers have often exercised in the past to regulate rates of interest, the volume of credit, and some of the uses of credit, including foreign lending and borrowing. Most of the control can be exercised, as before, by the banks themselves, under public guidelines, as a condition of their licences.”

He recommends that the government should regain and exercise the power to regulate the volume of credit, and to segment the different types of credit in terms of price, in order to influence investment and aggregate demand. Tariffs and other import controls are also needed so that imports can be adjusted according to Australia’s ability to pay for them. Other recommended changes include the federal government buying back the private shares of the Common-wealth Bank so that specialised banks within the Commonwealth Banking Group, with non-profit purposes, can be created to assist the task of reconstructing the national economy. The purposes mentioned include the provision of interest-free finance for public infrastructure and other approved purposes, under strict discipline from the Reserve Bank, and offset by matching restraint on the growth of commercial bank credit.

It is interesting that these independent Australian economic commentators have come to similar conclusions about what is wrong and about the main thrust of measures required to effect a cure. A positive feature of their conclusions is that no extra powers are needed under the present constitution in order to implement the necessary changes - the above proposals have all been put into practice with great success previously, and with adequate will it can be done again. However there are newly emerging aspects to economic development, not the least of which are the environmental implications, which need to be seriously examined The ecological economists will of course expect any changes to be accommodated within the guidelines imposed by the ecological carrying capacity of the country, and within an overall framework which is enlightened and in harmony with the processes of the natural world. The concept of investing in natural capital must be given high priority. These requirements do not conflict with the above proposals.

Any serious study of the sources of economic growth, which after all is fundamental to the concerns of the environmentalists, should examine as a priority the growth imperative that is built into the manner in which the financial system currently operates in almost every country. The post-Keynesian economists and the members of COMER and ERA all know that, within the prevailing debt-money system, debt and interest on debt always grow faster than does both the real economy and the overall money supply. The reason for this state of affairs has been summed up by Prof John Hotson in the dictum all money is debt but not all debt is money. Inflationary booms and debt-repudiation recessions are inevitable under such a system. Equally important is the fact that such a system is incompatible with sustainable development, since growth must continue at all times if economic collapse is to be averted. Fundamental restructuring of present monetary policies and practices, as allowed under the constitution, is therefore essential.