NGO Another Way (Stichting Bakens Verzet), 1018 AM Amsterdam, Netherlands.

 

                                                                                    01. E-course : Diploma in Integrated Development (Dip. Int. Dev)

 

Edition 01: 28 November, 2009

 

 

 

 

 

 

 

Study points : 06 points out of 18.

Minimum study time : 186 hours out of 504

 

The points are awarded only on passing the consolidated exam for  Section B :  Solutions to the Problems.

 

 

Fifth block : How the third block structures solve specific problems.

 

Study points : 02 points out of 18

Minimum study time : 54 hours out of 504

 

The points are awarded only on passing the consolidated exam for  Section B :  Solutions to the Problems.

 

 

Fifth block : How the third block structures solve specific problems.

 

Section 3: Credit crisis. [5 hours]

 

02.00 Hours analysis of Model material.

02.00 Hours in-depth analysis.

01.00 Report.

 

 

Section 3: Credit crisis. [5 hours]

 

In-depth analysis. (At least 2 hours).

 

Financial leakage.

 

The Model blocks financial leakage from project areas

 

Projects under the Model reduce financial leakage from given project or local development areas. Hopefully they eliminate it altogether. They enforce a zero balance in the value of goods and services imported into and exported from a given economic area. They set up  cooperative interest-free local financial environments limiting as far as possible financial leakage caused by interest payments. Finally, they make sure that trading of locally produced and consumed goods and services can take place under local money LETS systems set up for the purpose.

 

As we have seen in section 08.72 interest, and related taxes on the interest, globally accounts for at least 50% of the cost of a modern western product or service. Its elimination greatly increases economic buying potential of the users in the local economic area where a project under the Model is set up. The quicker interest-free formal money development funds made available to users in the project area are re-circulated there the greater the advantage the area will have over other areas where interest continues to be paid.

 

A basis for local productivity increase.

 

Similarly, a stable interest- and inflation-free local money system for locally-produced and consumed goods and services enables a limitless series of  neutral or zero-sum economic transactions to take place. The notional funds in the system are constant. They vary only with the number of people in the system at any given time.  The faster the local money funds circulate, the greater the productivity of the people in the project area and the greater the improvement in the local quality of life. Under the system proposed, the only limiting factor is the amount of work the various members of the community are able or choose to do. The more, and the more efficiently, they work, the more credits they will earn and the more goods and services from others in the area they will be able to buy. The less, and the less efficiently, they work, the fewer the credits they will have available for the purchase of locally produced goods and services. Since no-one can work more than 24 hours a day, the system has inherent, built-in, finite, limits. In an economic area with 35000 adult members, and assuming an average working day of 8 hours per person, maximum presumed normal daily productivity is that produced by 280.000 working hours per day. One member may choose to work more or less than another. He may work more or less efficiently than another. He may have a specialisation enabling him to demand more credits per hour’s work than another. Taking all such variations, which are typical of any open, mature, fair, slavery-free economic system into account, the greater the number of transactions which take place every day under the local money LETS systems, the better the quality of life of the inhabitants will be.

 

The local money system for each project area is set up in an early phase of project execution. It operates independently of the formal money economy. Economic  crises in the formal money system therefore do not influence it.   

 

Interest built into the cost of necessary imported goods and services.

 

While interest on the purchase of a good of service produced in a given project area can be eliminated under the Model, the cumulative interest content included in the price of a good or service imported into a given project area cannot. This is why, under the Model, only goods or services necessary for the purposes of productivity increase can be imported into a given project area within the framework of an integrated development project. The interest-free purchase of PV for television sets for private consumption does not fall under the terms of  the Model. Interest-free purchase of PV television sets for collective study purposes does, as does, for instance, the interest-free purchase of a sewing machine to enable a woman to produce clothes.

 

Obviously, projects under the Model will never restrict the freedom of community members to spend their formal money income the way they choose. If they wish to buy a PV television set with their own formal currency means, they can always do so. However, they cannot use project structures to do this. If groups of inhabitants wish to purchase PV television sets, project managements would usually, on request, help them set up cooperative interest-free buyers’ group for that purpose. The Project Management can take advantage of reduced prices through bulk purchases and pay for the goods in cash. The goods are delivered to members of the cooperative interest-free at the original landed formal money purchase price. Project Management costs, if there are any, are charged to the buyers under the local money system.

 

Coverage of on-going management and maintenance costs.

 

The local money system created.

 

In principle, one local LETS currency system will normally be set up in each project area. The systems are set up and run by the people themselves.

 

All adults within a system are registered as members, but except for goods and services necessary for the project itself, use of the system is voluntary. Any member may usually freely choose whether to conduct a given transaction in the local currency system or within the formal currency system.

 

Each LETS group therefore has about 35000 registered adult members. In principle, children under the age of 16 will not normally be registered as they are not, under the international convention on the rights of children, allowed to work. However, requirements vary with cultural and economic contexts, and the age of entry into any given system will be decided by the people. Children become registered members of their local LETS systems upon reaching the age nominated in the local LETS system statutes. Children may, for instance, become members at birth and their membership remain “dormant” until the prescribed minimum age for commercial activity is reached.

 

The reference value will usually be based on the perceived average value of an hour's work. The people may often wish to put upper limits and lower limits to the hourly value. For instance, if the average perceived value is 10 units, a maximum hourly rate for hard physical work or for specialised professional work may be set at 15 units. A minimum rate, for instance for accompanying the elderly or baby-sitting, might be set at 7 units.

 

Local management and maintenance costs under the local money system.

 

All products and services produced and consumed in a project area can be brought under the local money system set up there. All transactions involving locally produced goods and services for the management and maintenance of project structures also can be brought under the local Money system. In fact, local goods and services for the project itself, and therefore for the management and maintenance of the project structures, must be brought under the local money system. Their costs, expressed in local money units can then re-circulate in the project area. The quicker the local money credits are re-circulated in the project area the better the quality of living of the people living there.

 

The only formal money costs for management and maintenance sustained by the population in the project area are for spare parts for capital goods for project structures originally purchased for formal money and for their long term replacement. These costs are covered by the monthly formal money contributions paid by families into their Cooperative Local Development Fund. Labour and administration costs for maintenance are covered under the local money systems set up. The local money units rotate continuously in the local community. In principle, the costs of maintenance of structures and services expressed in local money units therefore are not important because they are always recycled locally.  For example, the cost of maintaining a project-level drinking water supply system might need a maintenance cooperative with ten members.  A ten-member team working 8 hours per day for 300 days per year would represent an annual debit of 24.000 working hours. This is less than one hour’s work for each of the 35000 adults in the project area. Social insurance aspects protecting the weakest members of the community are provided.

The payments made by families into the Cooperative Local Development Fund typically amount to between Euro 3 and Euro 4 per family of five persons per month. The project makes a wide range of services available to the beneficiary families. All of the services are covered by the monthly contribution. Savings on traditional formal money costs for these services should be higher than the monthly contribution to the Fund. Consider for example savings in the cost of drinking water and fire-wood for cooking. Consider the time saved by women for fetching water and collecting firewood. Consider the social and financial advantages created by the project and  the introduction of interest-free micro-credits. Consider increased productivity made possible through better conditions of health.

The project budget includes complete details on the financial management of the structures set up. For the complete package of services offered, a monthly contribution of  Euro 0,60 – Euro 0,75 per person per month by 50.000 people produces a total annual contribution of  Euro 360.000 - Euro 450.000. Only Euro 100.000 in formal money is needed for management and maintenance of the system, as costs are limited to those for the purchase of spare parts for items for project structures paid for in formal money.  The remaining part of the income is continuously recycled in the form of interest-free micro-credits for productivity increase. Within ten years this fund will have accumulated at least Euro 3.000.000- Euro 4.000.000, taking repayment of initial loans for productive activities made during the first two years’ execution phase of the project into account. At the same time, each family will on an average have enjoyed interest-free micro-credit loans for at least Euro 2.500 for the purposes of increasing of their own productivity.

Since formal money costs for maintenance and administration are just 20-25% of project revenues, the relationship between formal money revenues and formal money costs can only be positive. Compare this with the sustainability problems faced by traditional international development projects. Projects under the Model are inherently permanently sustainable. They provide permanent coverage for long-term replacement of capital goods as well.

 

1. Research.

 

Except for supplies and services necessary for the creation of the integrated developmentprojects themselves, inhabitants are always free to make their transactions either in the local money set up or under the formal money system. After having spoken to the inhabitants of your chosen area, write one page summarising how they would react to the choice.

 

2. Research.

 

The people living in most integrated development project areas are practically deprived of formal money. Once the local money system in each project area is established,  even the poorest people will have enough means to transfer goods and services. After having spoken to the inhabitants of your chosen area, write one page summarising how they would react to that possibility.

 

3. Research.

 

In a situation where most commercial transactions are carried out under the local money system set up, the inhabitants may dispose of a small «surplus » of formal money that in the past they would have had use for the purchase of goods and services now available under the local money system. to buy goods and services from outside the project area. They will be able to use the cooperative purchasing systems mentioned in section 3 the financial structures of the fourth block, the structures to be created..  The cooperative purchasing groups will enable the inhabitants to buy the goods they need at bulk-purchase prices and interest-free, except for the interest incorporated in the product along the production chain. After having spoken to the inhabitants of your chosen area, write one page summarising how they would react to this possibility.

 

4. Opinion.

 

You are in charge of the execution of the integrated development project for your area. You meet the Mayor. Explain to him on one page how the local council can fully participate in he local money system set up.

 

5. Opinion.

 

On one page, explain how, eventually, an integrated development project area might suffer from the consequences of a credit crisis.