THE FUTURE OF FINANCE BLOG

City States Rising!

December 29, 2016

city-states-rising-graphic

Globalism’s associated and accelerating complexity of interconnected crises from migration to terrorism, from pandemics to climate change, define the new context of our 21st-century reality.  Unmanaged technological change and an outdated economic ideology compound the already unfair burden these crises impose on global citizens.  One need only consider the 18 percent approval rating of the United States Congress, the recent U.S. election, the EU/Euro fiasco, Syria, Israel, Egypt, Turkey (and more) to question whether the Nation State, a 400-year-old response to a different challenge in a different context, is up to the task.

Ideological rather than pragmatic, a political abstraction that has no grounding in the concrete reality of where and how we live and how life-supporting ecosystems function, the Nation State, together with its political party structure, is not well equipped for today’s most important globally interdependent challenges that cannot be solved through inter-State rivalries where self-interest and might rule the day.

The “City State” predates the Nation State; it endures.  Rome is older than Italy, Alexandria is older than Egypt.  Cities are expanding as we know.  They are already home to more than half the world’s population, and 80% in the developed economies.  They are home to 85% of the global economy (and associated greenhouse gas emissions) and much of the evolution of our culture.  Like it or not, we have become an increasingly urban species.  Visionaries like Jonathan Rose are showing the way to regenerative cities with his timely publication of A Well-Tempered City.  At the same time, rural culture, small towns, and life-sustaining rural landscapes, historically understood as essential extensions of the City State, have never been more vital, as I will discuss below.

Cities are also where many of the world’s great challenges must be met. The migration crisis and terrorism are urban affairs.  Since most cities are on coastlines or rivers, climate change will increasingly dominate the agenda of cities.  And cities will be the target of a nuclear attack if dangerous men go unrestrained.  Wise and competent city governance is a matter of life and death, not political theater among self-important globalist and nationalist bureaucrats.

In response to the governance failures of the global system of Nation States, political theorist Benjamin Barber wrote an important book in 2013 called, If Mayors Ruled the World: Dysfunctional Nations, Rising Cities.  The Global Parliament of Mayors (GPM), which he inspired, held its inaugural meeting in The Hague, two months before rural America elected Donald Trump against the wishes of a strong democratic majority of citizens living in America’s cities.

Interesting.

Mayors must be pragmatists first.  Ineptitude, ignorance, and ideology give way to the concreteness of real problems of real people living in real communities. New York Mayor Fiorello La Guardia once famously said, “There is no Democratic or Republican way of fixing a sewer.”  So too for dealing with rising sea levels or, God forbid, a nuclear attack.

When our centralized governing bodies fail to uphold their responsibilities, a power vacuum ensues, creating an opening for dangerous “strongman” responses, as we are now witnessing in the U.S and abroad.  Our present moment is particularly dangerous, with the simultaneous failure of other critical and powerful institutions – banking and the media in particular – to uphold their civil responsibilities and serve the health of the whole rather than their narrow self-interests.

Banking’s consequential leadership failures are now a matter for the history books.  But the media’s complex leadership failures are still unfolding, perhaps best epitomized by CBS CEO Leslie Moonves’ shamefully cynical comment at a Morgan Stanley analyst conference earlier this year:

“It may not be good for America, but it’s damn good for CBS,” he said of the election circus.  “Sorry. It’s a terrible thing to say. But, bring it on, Donald. Keep going.”

Well, the young crowd at Morgan Stanley chuckled, “Donald kept going,” and we have elected a man to the highest office in the land who numerous respected psychologists believe has a (dangerous to the world) incurable mental illness known as “Narcissistic Personality Disorder.”

Not so funny, is it, Mr. Moonves?  Enjoy your good quarterly profits.  Just as the reckless behavior of Wall Street was not funny, its ongoing consequences leading directly to the rise in authoritarian movements across the globe are not funny.

A core principle of sustainable systems is that a system must adapt to its changing context or it will collapse. The current context of accelerating, unpredictable (by definition) complexity and too powerful, dysfunctional critical institutions – Nation States, banking and finance, and the media, together providing much of the essential fabric of our modern democratic and free society – creates the pressure for real change and the very real prospect of possible collapse.

Our response most certainly lies in the concept of subsidiarity, one of four tenets of Catholic social doctrine, balancing power away from the center and closer to where the inclusive and democratic will of the people is still expressed: the modern City State.  Rise up Mayors!  And, rise up regional banks and community newspapers!

Looked at through a regenerative systems lens, this is a return to the natural “fractal” ordering of things, demanding an emergent network of City States to counterbalance the corrupted power at the center. Indeed, such a response is already underway with the numerous networks of city-based initiatives such as the prescient GMP, the C-40 focused on climate change, UN-Habitatthe Strong Cities Network, and numerous “Smart Cities” initiatives.

Rural communities, too, have a vital role to play.  In addition to preserving the ageless wisdom embedded in the diversity of rural cultures and communities, they have the critical responsibility to steward our essential landscapes – our forests, our soils, our watersheds, all under threat from our short-sighted, extractive, industrial economy.  Critically, the regenerative management of forestry and agriculture, with the potential to massively increase natural carbon sequestration, now holds perhaps the missing critical dimension of our ability to respond in time to climate change.  Therefore, City States have a self-interest in valuing and supporting the culture of land stewardship, the very foundation of human civilization and still very much alive in rural communities.  No soil, no water, no life.

We are passing from the 500-year-old Modern Era in which great progress including the Nation State emerged in response to pressures from a different context.  We are entering the “Integral Era,” in response to new pressures and a new context.  Power is shifting from corrupted institutions of an extractive and overly powerful center to a regenerative and more distributed network of interconnected City States.

Happy New Era!

Comment<Back
  • ProsperityForRI

    The nation state is passe, and many of us have known it for years. But even in cities neoliberalism is still undermining the economies as the mayors , while congnizant of climate cfhange, still think subsidizing the rich is economic development. Until Mayors and city councils learn that subsidizing downtown real estate it is simply funneling more wealth to the rich while the rest of the city gets poorer, even city states witll struggle.

    • John Fullerton

      Well said!

  • Ethan Roland

    Thanks John, I believe a key consideration in the emergence of new City States is developing functional reciprocal relationships between urban centers and the pools of Living Capital (held primarily in rural areas) that make them possible. I think you are right to point out Regenerative Agriculture & Forestry systems as essential characteristics of this urban-rural relationship… especially as the he global discussion on “What is Regenerative Agriculture” is heating up over at http://www.regenerativeagriculturedefinition.com and other forums…

    • John Fullerton

      The principle of “Right Relationship” most certainly applies!

      • Mark Phillips

        Indeed, glad you pointed out the opportunity presented by regenerative agriculture, and the city’s relationship with the land that sustains it.

  • Doc Hall

    That the institution called a nation state has been slowly weakening has been remarked for 20 years or so. Will a city state world take its place? If so, what is the domain of their influence?

    How about, borderless states? Citibankopolis? Googleville? Amazonia? Toyota Town?

    Global corporations can play urban areas like a tune, seeking low-tax havens. I have not found a reliable compilation of the billions spent by states and municipalities to obtain and retrain corporate operations. Nobody could compete with the Chinese in this game.

    And rural areas of the United States also have the farm equivalent of the 1% — 99% split. It’s between the industrial scale farmers and the “weekenders.” The vast majority of farms being small operations, they are tended part-time by people otherwise employed. That’s why, per USDA, the median farm household loses money on farming each year, but lives middle class on other income, often from two earners.

    Want to invest in a weekender’s farming operation? They usually scrape by on inherited land and by using small equipment long ago paid off.

    The whole system, not just farms, is pumped up on debt (lots of well-known statistics), and on government subsidies, including “economic development” breaks. Pull away the tax incentives and the subsidies, would the whole thing quickly collapse?

    • ProsperityForRI

      The entirety of economic development in cities would stall without tax breaks to the rich, And even the IMF and World Bank know that giving tax breaks to millionaires is the stupidest way to do economic development. Economic development needs to be a bottom up process, but the politics of cities means that elected officials need lots of money from the real estate industry, so they play despite how it harms the community

    • John Fullerton

      As usual Doc, you are raising many valid issues that have no easy answers. But at the root of all this, is a flawed economic system design, in need of workable principles that are aligned with how all sustainable systems actually work rather than the wishful thinking of ideologically driven economists. Your “borderless states” are most certainly NOT the answer. They demand real governance and a holistic understanding of the impacts they have beyond the provision of “efficient goods and services”…which is most definitely only part of the story…
      We agree that a focus on the entire “economic development” paradigm and industry is a critical leverage point and our focus in 2017.
      Happy New Year!

  • John, I agree that “Power is shifting from corrupted
    institutions of an extractive and overly powerful center to a regenerative and
    more distributed network of interconnected City States,” but it needs to proceed
    more quickly. The trend toward decentralization which enables personal and
    community empowerment needs to extend to every realm, including the generation
    and ownership electric power, as well as the generation and ownership of the
    exchange media we use to pay one another. The latter is the solution to a generally
    overlooked problem with the money system which is highly dysfunctional,
    inequitable, and the mother of all monopolies. We know how to do this, and we
    have long had effective (though sub-optimal) prototypes.

    We need to stop taking money for granted. The deployment of
    one optimized model currency will open the floodgates for the wide-scale replication
    of decentralized currencies and credit clearing exchanges. My Solar
    Dollar currency proposal (https://beyondmoney.net/2016/08/26/solar-dollars-a-private-currency-with-multiple-benefits/) has that potential. We need only to find a utility
    company to partner with us in implementing it. Thomas H. Greco, Community Information
    Resource Center.

    • John Fullerton

      Tom-
      Thanks for the reminder on the money question, one I remain confused about! From quick read of your proposal, a couple questions/issues pop up:
      1. America’s population is now something like 80% urban (depending on definition). Are you envisioning a community currency like solar dollars at the city state scale? Like a NYC solar dollar, and a Dallas Solar dollar? Or are you thinking more of rural communities that are home to some 20% or maybe 30% of America?
      2. The banking problem as i see it is more complex. The “good” local bankers that want to make “good” productive loans complain of a lack of bankable projects with local businesses, in part because of the extractive power of large companies that have made local business such a difficult proposition. Real estate values alone along “main street” seems to be priced pretty much at a level that makes the local business a difficult credit risk, as evidenced by rapid turnover. And when business is doing well, the building sells and the rent rises extracting any value left on the table. Easier access to credit and reducing cost of credit can’t solve this problem in a vacuum.
      3. The price of credit is at historic lows. Not sure any utility sees the cost of credit as a challenge right now, whereas the cost of energy in rapidly changing context is what they lose sleep over. In NYC, ConEd borrows today around 2 or 3% i imagine, lower for their shot term working capital. Sure zero would be better, but not sure how much bang for the buck on a small percentage of their total capital base?
      5. Since electricity costs represent a small percent of most business (and household) total budgets (unless you happen to be an aluminum manufacturer), not sure how to get traction on back of electricity alone. Maybe on back of real estate rental costs?
      6. This maybe not an issue, but somehow it ruffles my feathers to think that the consumer ends up subsidizing the utility with interest free credit. It may be only pennies or dollars to each consumer, but they add up to real money for the utility. Less problematic if it’s a coop, but if a private company?

      thanks for all your good work, look forward to hearing your thoughts when you get a moment.

      • John,

        Thanks for giving my comment your close attention and raising such thoughtful questions. I will respond to each in order, but first let me restate my basic premise:

        The present system of money and banking is deeply flawed and
        does not provide adequate liquidity to productive enterprises, especially the small and medium sized enterprises (SMEs). My answer to that problem is NOT to attempt to reform the money and banking system, the owners of which have become too politically dominant, but to design and deploy innovative mechanisms for providing liquidity outside the banking system and in forms other than conventional money. This translates to a decentralized system of credit creation and allocation.

        “Home grown” liquidity can take such forms as (1) private currencies (vouchers) spent into circulation by trusted producers (like electric utilities, farmers, retailers, or any other solvent entity that has valued goods or services available for sale in the market); (2) credit allocated within organized credit clearing exchanges (like commercial “barter” or trade exchanges) that enable moneyless trading among their members.

        The Solar Dollar proposal involves the first form, private currency vouchers, as a way of providing liquidity to a community or region. That is its primary purpose—to provide a sound and credible supplemental means of payment that can be used by everyone in the community to connect their unused capacity with the unmet (real) demand. Most people are unable to understand this benefit or its vital importance.

        The choice of renewable energy as the basis of issue in this case is a strategic choice by which I think we can harness other motivations, like the desire among many in the general population to support the shift away from greenhouse-gas and pollution producing fossil fuels toward cleaner renewable sources like solar and wind, and the desire of companies for lower cost working capital. But, as I mention in my
        Solar Dollar brief (https://beyondmoney.net/2016/08/26/solar-dollars-a-private-currency-with-multiple-benefits/), “the value of any product or service that is in everyday demand can be monetized in the form of a private currency. Providers of organically produced food, for example, could issue Organic Dollars or Bio Dollars by using them to pay their contractors, suppliers, and employees, in just the same way as we
        described for the issuance of Solar Dollars.”

        Now to your
        specific questions/points.

        1. SD issued
        into a larger service area would bring greater overall benefits, but for a
        demonstration project, the impact in a smaller community might be more evident.
        I don’t expect any big utility corporation to take up this proposal since they have guaranteed profits and little concern for the subtler aspects of community quality of life. More likely, it will be a small cooperative or municipally owned utility.

        2. You mention that “good” local bankers” lack bankable projects with local businesses. Why is that? In my view it is mainly because the even “good” local bank, which are becoming fewer and far between, have access to guaranteed returns with no apparent risk. It makes sense for them to buy government bonds or the bonds of mega-corporations instead of investing in local businesses that are handicapped by the system. Monetizing the value that these local companies have
        already produced, or the value of services they are able to provide in the
        near-term, helps to level the playing field and seems to me the best place to start, then the rest begins to fall into place.

        3. Yes, interest rates at present are quite low FOR BIG COMPANIES, but I’d guess not so low for small ones, especially coops. But it is true, lower rates for credit reduce the utilities incentive.

        4. I find no item 4.

        5. As I said, the Solar Dollar is intended to DEMONSTRATE the benefits of independent sources of liquidity and a decentralized credit system. It is NOT the be all and end all, only the beginning. What we do to monetize the value of renewable energy in this project must eventually be extended to decentralize the monetization of all marketable goods and services. The monetization of the rental value of real estate, as you suggest, might get better traction.

        6. Interest-free SHORT-TERM credit is the norm in the business world. Businesses typically ship goods with an invoice or provide services with payment dues at a later time. How about the employees who get paid once a week or once a month, after delivery of their services to their employer? They have deliver value and accept payment later. This is credit extension. What about consumers who buy gift cards from Target or Best Buy or some other retail chain? They are giving the company money, in exchange for what?
        In the case of Solar Dollars the consumers and local businesses get something of value in return—a supplemental means of payment that benefits the entire economy.

      • John,

        Thanks for giving my comment your close attention and
        raising such thoughtful questions. I
        will respond to each in order, but first let me restate my basic premise:

        The present system of money and banking is deeply flawed and
        does not provide adequate liquidity to productive enterprises, especially the
        small and medium sized enterprises (SMEs). My answer to that problem is NOT to
        attempt to reform the money and banking system, the owners of which have become
        too politically dominant, but to design and deploy innovative mechanisms for
        providing liquidity outside the banking system and in forms other than conventional
        money. This translates to a decentralized system of credit creation and
        allocation.

        “Home grown”
        liquidity can take such forms as (1) private currencies (vouchers) spent into
        circulation by trusted producers (like electric utilities, farmers, retailers,
        or any other solvent entity that has valued goods or services available for
        sale in the market); (2) credit allocated within organized credit clearing exchanges
        (like commercial “barter” or trade exchanges) that enable moneyless trading among
        their members.

        The Solar
        Dollar proposal involves the first form, private currency vouchers, as a way of
        providing liquidity to a community or region. That is its primary purpose—to provide
        a sound and credible supplemental means of payment that can be used by everyone
        in the community to connect their unused capacity with the unmet (real) demand.
        Most people are unable to understand this benefit or its vital importance.

        The choice
        of renewable energy as the basis of issue in this case is a strategic choice by
        which I think we can harness other motivations, like the desire among many in the
        general population to support the shift away from greenhouse-gas and pollution producing
        fossil fuels toward cleaner renewable sources like solar and wind, and the
        desire of companies for lower cost working capital. But, as I mention in my
        Solar Dollar brief (https://beyondmoney.net/2016/08/26/solar-dollars-a-private-currency-with-multiple-benefits/),
        “the value of any product or service that is in everyday demand can be
        monetized in the form of a private currency. Providers of organically produced
        food, for example, could issue Organic Dollars or Bio Dollars by using them to
        pay their contractors, suppliers, and employees, in just the same way as we
        described for the issuance of Solar Dollars.”

        Now to your
        specific questions/points.

        1. SD issued
        into a larger service area would bring greater overall benefits, but for a
        demonstration project, the impact in a smaller community might be more evident.
        I don’t expect any big utility corporation to take up this proposal since they
        have guaranteed profits and little concern for the subtler aspects of community
        quality of life. More likely, it will be a small cooperative or municipally
        owned utility.

        2. You
        mention that “good” local bankers” lack bankable projects with local
        businesses. Why is that? In my view it is mainly because the even “good” local
        bank, which are becoming fewer and far between, have access to guaranteed returns
        with no apparent risk. It makes sense for them to buy government bonds or the
        bonds of mega-corporations instead of investing in local businesses that are
        handicapped by the system. Monetizing the value that these local companies have
        already produced, or the value of services they are able to provide in the
        near-term, helps to level the playing field and seems to me the best place to
        start, then the rest begins to fall into place.

        3. Yes,
        interest rates at present are quite low FOR BIG COMPANIES, but I’d guess not so
        low for small ones, especially coops. But it is true, lower rates for credit
        reduce the utilities incentive.

        4. I find no
        item 4.

        5. As I
        said, the Solar Dollar is intended to DEMONSTRATE the benefits of independent
        sources of liquidity and a decentralized credit system. It is NOT the be all
        and end all, only the beginning. What we do to monetize the value of renewable
        energy in this project must eventually be extended to decentralize the monetization
        of all marketable goods and services. The monetization of the rental value of
        real estate, as you suggest, might get better traction.

        6. Interest-free
        SHORT-TERM credit is the norm in the business world. Businesses typically ship
        goods with an invoice or provide services with payment dues at a later time.
        How about the employees who get paid once a week or once a month, after
        delivery of their services to their employer? They have deliver value and
        accept payment later. This is credit extension. What about consumers who buy
        gift cards from Target or Best Buy or some other retail chain? They are giving
        the company money, in exchange for what?

        In the case
        of Solar Dollars the consumers and local businesses get something of value in
        return—a supplemental means of payment that benefits the entire economy.

  • Dana Burch

    Grateful for the perspective. In the “New Era” tomorrow, as we try to hold socioeconomic development by the hand… can we hold new socioeconomic education in the other hand? We see the peril of how economic influencers fool people, misinform the search for truth and destroy everyone else’s best laid plans. In our cities as in nations, how can economic models account to citizen economic intelligence? What ethical economy will grow without requiring people to think through contested economic ideas and narratives? The challenge is to popularize this kind of citizenship like a virus and target good early adopters. Two principled, concrete queries come to mind: (1) Who pays (and how much) to help mass groups with practical learning for genuine economic self-determination? (2) Will the education be at odds with global creativity, sourcing, IP and popular personal possessions? I am avoiding pedagogies and purity cults at this point. Thank you sincerely for your work. 🙂

    • John Fullerton

      Dana,
      These are very thoughtful and interesting questions, perhaps should be at the heart of our work. I constantly am reminded when I talk to “normal people” how completely confused, annoyed, and helpless they feel to understand and develop thoughtful viewpoints on our overly complex financial and economic system as it is – they know in their bones it is broken and unfair – much less what to do about it. Yes to “popularizing this kind of (economic) citizenship like a virus!

      1. On who pays, well it will need to be either a public good or a philanthropic supported public good.
      2. Do you mean wth the answers be things we don’t want to hear? Certainly “yes” if my regenerative framework or anything like it is part of the curriculum. But there will be both real gains of values and things we truly value (well being broadly defined) and “losses” and ultimately the only gain that matters in the long run: that our children can continue the (“infinite”) game!

  • Allen White

    The promise and pitfalls of devolving power to the world’s city-states were in full display during a recent walking tour of downtown Los Angeles. After decades of stagnation and suburban flight, the city center is undergoing a rapid commercial and residential renaissance, mirroring the larger back-to-the-city movement in many major U.S. metropolitan areas. The confluence and tensions among the elites, the creative class and the poor are in full display. Over the last decade, artists have carved out small apartments, work spaces and galleries in former formerly vacant low rise buildings. Meanwhile, nearby blocks have become attracted thousands of homeless lured by LA’s climate and tolerance. Efforts are underway to corral the homeless into a patch of downtown blocks while providing tents, sanitation and social services. Skid Row is becoming a de facto community shoulder to shoulder with renovating neighborhoods. Return of the affluent, drawn in part by artistic and cultural amenities, is fueling a rapid rise in property values. As the market responds to demands of the affluent for residential space, the same artists responsible for the revitalization in the first place are threatened by rising rental costs. The cycle of relocation, dislocation and disparities is a powerful reminder of the amorality of unbridled markets. In the U.S. and elsewhere, devolving political power to city-states in ways that produce just and inclusive living environments will not occur without activist, enlightened government. Like regenerative economies in general, creating regenerative cities requires a holistic, visible hand that views shelter, jobs and healthy environment not as commendable aspirations but, instead, as basic human rights to all those who elect to partake in the unfolding urban renaissance.

    • John Fullerton

      Indeed! Mayors need very clear “first principles” that become the foundation of their economic development vision and plans. I had dinner with Jonathan Rose recently (see his magnificent “Well Tempered City” which is about “regenerative cities”). He made the comment that the new preference in the upcoming paper back would call attention to the fact that no city he has toured with his book has anywhere near the scale of resources dedicated to the task. He used LA as an example regarding low income housing. Some huge budget dollars allocated to create 10,000 new units in the coming decade (or more) yet projections call for a need of a huge multiple of that. Meanwhile our economy invests its capital in new apps we probably don’t need, and server farms to store pictures we will never look at (and we use up our solar installation for such server farms because google has no capital constraints so why not.)