The Green Gap

In the Cold War, we feared a Missile Gap was a strategic weakness. Nowadays, we must awaken to the fact that the Green Gap is true strategic weakness: the nations whose economies will thrive in the coming years will not be those with the biggest factories, but those with the most sustainable, efficient, and ecological markets. What we require is a Strategic "Green Reserve" of ecological design to weather the coming changes that both climate and resource scarcity will force on the international economy.

Friday, 25 February 2011

More Jane Jacobs

I was just finishing off my latest Jane Jacobs book, and it led me to consider the utility of local currencies for major cities as being a good way to regulate price signals within a national economy.

The concept is that currency is supposed to regulate national economies through its very design: good in theory. Economies that expand will have higher demand for their currency, thus valuing the currency higher, thus tempering demand for their relatively expensive products. Economies that contract will have lower demand for their currency hence the value of the currency will fall, creating a greater demand for their relatively cheap products. It works, in theory.

But as a great man once said "in theory Communism works... in theory".

The rub is that nations are not perfectly measured economic regions. With regard to economy, nations are entirely arbitrary constructions of economic regions. Detroit is more economically integrated with Windsor than Butte. The fact that Windsor is across a national border and Butte is not is entirely inconsequential to money - especially in the era of free trade. Can the economy of Switzerland compare to the economy of Sri Lanka? I would rather have 100 Swiss Francs than 500 Swiss Francs worth of Sri Lankan Rupees. Nobody except the Sri Lankan government will buy Sri Lankan Rupees, they are utterly nonexistent outside of their country. The entire currency rests on the fact that Sri Lankan foreign workers send home Sri Lanka's foreign currency reserves in the form of Emirati Dinars and American Dollars. The same goes for the Philippine Peso. The demand for the currency is almost artificial because the produce of these nations is of vitually no utility to the international market. At least not of enough utility to justify buying a float of Philippine Pesos.

If the Philippines or Sri Lanka could produce the range of products that Switzerland does, and have banks as secure, and civil society as advanced, and an income disparity as low... then the use of currencies to even out economic differences might be somewhat justified. As it stands, if I want a good watch, I will buy one from Switzerland at any price, simply because Switzerland will make it better. No matter how cheap a Sri Lankan watch is, it is simply not comparable to a Swiss one. If the products of the markets are not comparable, then the currency value is almost totally irrelevant.

Perhaps, however, Makati (a high-income Manila suburb) can produce a good watch. Perhaps Sri Lanka can cut diamonds just as expertly as Belgium (as they do, in fact - I've toured the factory). When merchandise is of comparable value - or as rigidly fixed as that of cut diamonds - then currency fluctuations can work to the benefit of economies. Rough diamonds are a relatively inexpensive industrial nutrient when compared to their cut and polished end product. With inexpensive Sri Lankan labour, and a curency that floated within the greater economy of Sri Lanka, a diamond cutting factory could make a real go of it. If Sri Lanka maintained the Rupee throughout the country and set up a different bank, mint, and currency (let's call it the Dippee) for the diamond-cutting city region, they could make a real go of it.

Initially, the Dippee would be at par with the Rupee, buying relatively costly raw diamonds but producing far more costly polished diamonds. The price advantages of the inexpensive Sri Lankan labour (earning perhaps $300 USD per month) would make the diamonds internationally competitive. Given the fact that the value of diamonds is more or less set - as it were - in stone, this margin would produce demand not simply for Sri Lankan cut diamonds but the Dippee with which those diamonds are bought. The relative strength of the Dippee would increase the workers' relative salaries above those of the neighbouring regions, and increase their purchasing power commensurately. This would create a knock-on demand for Rupees to purchase everyday necessities such as rice-and-curry and coconuts. The demand for the products that only Rupees can buy would make the Dippee an engine for economic development, giving the diamond-cutters a margin of disposable income with which to purchase imports. With imports comes import replacement, and with it, the development of an economic engine in the form of a city and city region.

Such a thing could be done in Canada for her cities. Consider this: a currency for Toronto, Montreal, Vancouver, and Calgary. Each city would control its own currency, with the bank reserves based on floats of Canadian dollars. I would provisionally call these currencies Hogbucks, Habbucks, Starbucks, and Bullucks, respectively. Each city would be able to float its currency against the others on a Canadian bourse with the reserve currency being the Canadian Dollar. Canadian federal economic policy could therefore be directed at the smaller city centres and rural Canada. This policy would have the intent of protecting rural produce as well as producing other import-replacing cities that strike an economic critical mass and are able, in turn, to float their own currency and support their surrounding city region. Purchases of Canadian regional currencies would be forced to pass through the Canadian dollar if they came from international sources. The Bank of Canada would be able to regulate all transactions between regional and national currencies, charging a reasonable margin on all transactions and earning a hidden tax for additional government revenue. This margin could, in theory, replace provincial sales tax.

Allowing city regions to float their own currencies can have the effect of either a trade barrier or subsidy without either unsustainable government payment or violation of WTO rules. This workaround can save embattled city regions when the global economy has them on the ropes: cities would be able to manage their money supply to produce the economic effects required to combat the influences of global economic fluctuations. This natural regulation of the economies of large cities could therefore be done without any recourse to bailouts from the central government.

And the next time the city of Toronto calls out the army to shovel snow, they can be charged for the service in Hogbucks...

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