Creating Wealth Page 14

  The difference between a conventional business and a sustainable business isn’t merely adherence to the triple (economic, social and environmental) bottom line. It’s something deeper: a real commitment to community and the values that underlie it. This, and the business culture within the company itself, can make all the difference.

  Within the business itself, there are elements of how it operates that add value to the enterprise which are hard to quantify in dollar terms. Often described as intangible assets, these things include brand recognition, employee loyalty, intellectual property and the reputation the company has in the community and among its clients. These intangible assets are fertile ground for the creation of complementary currencies. Perhaps employees can earn points for mentoring other employees into higher levels of leadership and responsibility. Or they could get credit for different types of community service that can be exchanged for lunch at the company cafeteria. Anytime there are underutilized (or undervalued) resources and unmet needs, there are opportunities for new ways to mobilize people to increase productivity and value.

  Rewarding Loyalty

  Maybe you’ve never heard the term loyalty currency, but you know what it is. It is ubiquitous these days. Every store seems to have one. The store tracks your spending, encourages more and rewards you for coming back. Rewards cards, frequent-flyer miles, co-op memberships, even those little punch cards that coffee shops give out — they are all loyalty currencies, and they are the most widespread type of complementary currency today.

  Although customer loyalty programs have proliferated lately, the granddaddy of loyalty currencies, the trading stamp, dates to the 1890s, when merchants, hungry for cash during that era’s depression, began to issue stamps as a reward for cash payment. Eventually most chain supermarkets, as well as a host of other retailers, issued stamps to all customers, regardless of payment method. The stamps, which retailers bought from a stamp company (like Blue Chip or S&H) were issued along with one’s receipt. They could then be pasted into stamp books and redeemed for goods at the stamp store. Except for the extensive licking required by the enterprise, it was like getting things for free.

  Another older, and still very common, paper-based, loyalty currency is the discount voucher, redeemable for goods or services in retail shops and supermarkets. In the UK, Tesco has grown to become the largest supermarket chain on the strength of its loyalty currency system, which it developed into a fully fledged complementary currency system. Introduced in the mid-1990s, the Tesco loyalty program was so successful that it forced rival retailers to follow suit. One in three UK households now are Tesco card members, and the Clubcard magazine is Europe’s largest circulating customer magazine.1

  Loyalty currencies are becoming so pervasive that new ventures are being established that enable people to trade in the currencies themselves, without respect to the original company with whom the points or miles was designed to benefit. Whether it’s LoyaltyMatch in Canada2 or a patent filed recently in the US that will enable transactions to occur between multiple “non-financial loyalty currencies held by different loyalty issuers,”3 these currencies have intangible value for companies but real value to their customers.

  Loyalty currencies are also often used as just another marketing strategy. But by themselves, they don’t provide a complete, sustainable business strategy.

  Recession-Proof Commerce

  Back in the 1930s, the world was reeling from the banking crash that caused the Great Depression. Then as now, banks were cutting back on their lending, and money was scarce; there were also several instances around the world where hyperinflation took over. For example, there are many stories of people using suitcases full of money to pay for simple things like a loaf of bread.

  When money is not available at all, the first option is a return to barter. Barter is one of the oldest exchange mechanisms in history. With the advent of currencies though, barter slowly fell out of favor. It’s easier, after all, to give the shopkeeper a few coins or bills than to haul a bushel of corn or a squealing pig into the shop. Now, as we try to recapture community, create sustainability and find stability, barter is making a modern-day comeback. Some of barter’s popularity is about lifestyle choices — local choices in particular — but it is also about economic security in an unpredictable economy.

  Like individuals, businesses, too, can have a cash flow shortage but a surplus of goods. Again in this case, it’s not terribly convenient to pay in corn, pigs or saddle shoes. And doing so might limit what you can purchase. The shoelace supplier probably doesn’t want a warehouse full of shoes.

  In 1934, a small group of business owners in Switzerland convened to talk about their troubles. It didn’t take long before they realized that one of them needed his credit line from the bank to pay a supplier. That supplier’s business in turn needed the same kind of credit line for similar purposes. They all decided to work together to create a mutual credit system, where instead of borrowing money from banks, they issued credits and debits to each other at the moment of an exchange to keep production going so it all would balance out in the end.

  Needless to say, the banks did not like the idea, and they tried to stop the new currency, called the WIR, in its tracks. (WIR is derived from the word Wirtschaftsring or economic circle — but wir also means “we” in German.) Nevertheless, the system survived. The WIR system evolved into a full-scale dual currency bank which manages and lends in both WIR and Swiss Francs.

  Today, over 75 years later, the WIR Bank has grown into a major financial institution in Switzerland. Some 75,000 small and medium sized businesses (SMEs) in Switzerland are members, ¼ of the total number of businesses in the country. SMEs make up 99.7% of Swiss companies and provide jobs for 66.8% of the workforce. The total value of WIR traded in 2008 was over $1.58 billion. The WIR bank in addition issued 2.74 billion Swiss Francs in loans in 2008.4

  Notice that, in the case of the WIR, the complementary currency is not convertible into Swiss Francs: a debt incurred in WIR needs to be compensated by a sale in WIR of a good or service to another member of the network. The next system considered, Commercial Credit Circuits, improves on that approach by making the complementary currency automatically convertible into conventional national currency.

  Commercial Credit Circuits (C3)

  Commercial Credit Circuits, or C3s, developed only over the past decade. They are based on businesses paying for goods and services completely electronically.

  Here’s how a C3 works. The process starts by having one participating small or medium sized business get insurance on an invoice or other payment claims. This insured invoice is then used as backing for a complementary currency for the same amount as the invoice. The proceeds in complementary currency are then used as a liquid payment instrument within a business-to-business network. Each recipient of such an invoice can either cash it in for conventional currency (at the cost of paying the interest to the maturity of the invoice) or pass the proceeds on to pay its own suppliers. At the maturity of the invoice, the amount gets paid in conventional money (normally by the company to whom the invoice was issued, or in case of default, by the insurance company). At that point, all the C3 units that were created become convertible to conventional money at no cost.

  This process injects working capital into the C3 members’ network at a cost substantially lower than what would otherwise be possible. Given that small and medium sized firms provide the vast majority of all private jobs, the C3 mechanism systemically contributes to the stability of both employment and the entire economy. The software for implementing the C3 approach is open source, called Cyclos.5

  If governments, particularly regional governments, would accept C3 currency in payment of taxes (as the country of Uruguay has now begun to do), this would not only encourage all other businesses to accept C3, but would also provide additional income to the government from transactions that wouldn’t otherwise take place. Furthermore, that additional income would become automatically
available in conventional national currency at the maturity of the original invoice. Thus accepting C3 units does not upset any existing procurement policies. The first country that has agreed to accept C3 units in payment of all fees and taxes is Uruguay.6

  The C3 approach is probably the most dependable way to systemically reduce unemployment, and accepting C3 units in payment of taxes is the most effective way for governments to support the spread of the C3 system. Businesses with an account in the same regional network have an incentive to spend their balances with each other, and thus further stimulate the regional economy. C3 provides a win-win environment for all participants and therefore promotes other collaborative activities among regional businesses.

  The win-win approach of C3 also benefits the financial system itself. As the entire C3 process is computerized, it significantly streamlines the lending and management for its insurance and loan providers. SMEs can thereby become a more profitable sector for banks, because credit lines are negotiated with the entire clearing network, providing the financial sector with automatic risk diversification among participants in the network.

  A Role for Businesses

  Businesses are poised to play a greater role in the trade and exchange world — they often are the leaders that step in whenever monetary systems fail. During the Great Depression, it was often individual businesses or business associations that introduced alternative forms of currency (such as scrip) that circulated on a local level to keep doors open and people employed. Businesses have developed the most widely circulated complementary currencies in the world — the loyalty currencies — and the most stable alternative exchange systems. The WIR and the C3 systems are clear examples of this.

  We can do a lot to foster a healthy business climate by expanding the ability of local businesses to use either loyalty or commercial barter systems in new ways. When our cities and other local governments accept C3 units in payment of taxes and fees, this will be one of the most effective ways for local governments and businesses to collaborate in solving local economic problems.

  CHAPTER 10

  Putting the Care

  Back in Healthcare

  The greatest wealth is health.

  VIRGIL

  In Sickness and in Health

  Healthcare in the US is one of the glaring examples of the failure of money, insurance and the privately held healthcare companies’ ability to meet human needs. The US Constitution affirms that we all are created equal — no one born on Earth is more deserving of basic human rights than anyone else. However, the same centripetal forces that consolidate wealth and power in the marketplace and in society are also at work in the healthcare system.

  The starting point should be to recognize that we don’t have a healthcare system — instead we have a medical care system. Furthermore, income for that medical care system is produced essentially by people who are alive and sick. Therefore only more sick people — not healthy ones — lead to more growth and income in that sector. With such an incentive scheme, that system has become remarkably adept at keeping sick people alive. Over 60% of total lifelong medical expenses are typically incurred in the last three months of a patient’s life; and emergency care is clearly a domain in which Western medicine excels.

  Sickness Treatment vs. Wellness Promotion

  When industries are built around a medical model that rewards the proliferation of illnesses rather than the provision of genuine health, there are fewer incentives for participants in the system to discover and promote treatments that will keep people healthy. A good example of this is the relationship of food to our health. “You are what you eat,” is a statement to be taken seriously: nutrition plays a pivotal role in our lifelong health. Obesity, cancer, heart disease, diabetes, high blood pressure, stroke and infections — all of these are on the list of the top killers in our society, and every one of them has a direct causal relationship to the food we eat.

  Are doctors and medical students flocking to nutrition programs as a result? Far from it — nutrition is not even a required course in medical school. Few doctors know any more about nutrition than the general population. The response of the sickness treatment industry to these epidemics is to create more patented and expensive drugs for people to take rather than to provide nutritional advice, to advocate for safer and healthier foods or to intervene when children are being raised eating junk food.

  The number of children in the US who regularly take drugs like Ritalin, an amphetamine used to treat hyperactivity and attention deficit disorder when there is a clear link between these behaviors and food that is loaded with sugars, chemicals and artificial colors, is an example of how drugs are used as a substitute for common sense. “The science shows that kids’ behavior improves when these artificial colorings are removed from their diets and worsens when they’re added to their diets,” said Dr. David Schab, author of meta-analysis published in the Journal of Developmental and Behavioral Pediatrics.1 Links between artificial colors and flavors and hyperactivity have been known for years, yet the amount of these chemicals certified by the US Food and Drug Administration (FDA) for use in food increased from 12 mg per person per day in 1955 to 59 mg per person per day in 2004.2

  The Scarcity of Health

  Health is perhaps the best example of something that human beings need in abundance. There is never “too much” health. Our spiritual traditions are full of stories of healing — it is considered a form of divine intervention. Being a healer is one of the highest callings and has always been one of the revered positions in society.

  We might legitimately hope that when we go to a doctor, the doctor’s goal would be to provide us with the care we need to get well. The system isn’t called health care for nothing. We expect the doctor to serve us in a compassionate way, to genuinely care about us as a human being and to take all the steps necessary to help us be whole again. The root of the word health is wholeness. Yet slowly and insidiously the monetary incentive scheme we have developed has twisted and deformed the institutions we hope act as healers into institutions that work more like hard nosed businesspeople than compassionate caregivers. How did this happen?

  Much has been written about the problems with the health insurance industry in the United States. Michael Moore’s film Sicko, released in 2004, provided a sometimes humorous but relentless exposé of the number of people with health insurance who are turned away — denied coverage — as soon as they get sick. The Health Maintenance Organization (HMO) industry has brought the concerns of an insurance industry right into the doctor’s office. People who enroll in HMOs no longer have the ability to go to specialists who might know more about their condition without the pre-approval of primary care doctors who don’t. The primary care doctors are often in the position of needing to keep costs down, so testing and specialized care is denied to people when their illness is still in the early stages, causing more people’s diseases to advance to much more serious forms — leading often to more treatments, hospitalization, disability and death.

  For a sickness treatment industry, however, the more treatments they provide, the more drugs that are sold, the more billable hours doctors, nurses, technicians and other healthcare workers spend with patients, the more tests that are run, the more of their product is sold. If a pharmaceutical company invents a drug and then owns the patent on it, it means they have a monopoly on the ability to sell that drug anywhere it’s needed. If you have ever taken Economics 101, you know that monopoly pricing is not necessarily fair or competitive — patented drugs can cost astronomical amounts of money. The companies argue that the costs of the drugs have to pay for the research and testing that went into developing the drugs, but in reality these companies spend three or four times more on marketing their products than on researching and developing them.

  When you understand how the variables in the system relate to one another — the positive and negative feedback — it is also possible to discover ways that interventions could change the system for t
he better. In the admittedly simplified system diagram below, one intervention that would have a beneficial impact on human health — and that would change a vicious cycle into a virtuous cycle — would be to increase access to treatment. Higher access to (presumably preventive and early diagnosis) treatment would (because of positive feedback) lead to higher individual health, which in turn would lower demand for (more expensive sickness) treatment (negative feedback), lower costs (positive feedback) and allow for increased access over time as a result of the lower costs (negative feedback).

  FIGURE 10.1 Caption: A Healthcare Feedback Loop

  To sum up this section, our health itself is being systematically undermined by the flawed systems we are using to provide health services and pay for them. The insurance and sickness treatment industries are required to put profits first in the services they offer, which creates a vicious cycle where people are getting sicker and needing more expensive forms of treatment because of a lack of preventive health services.

  The Cost of Failing Health

  Lack of preventive care also means higher costs to society. Since 2000, the cost of medical care increased by 4% per year in real terms on average across OECD countries, whereas real GDP growth averaged just 2.3% per year. This gap led to a further rise in healthcare spending as a share of GDP, reaching 8.4% on average in 2001, up from 7.3% in 1990 and just over 5% in 1970.3 For the US, according to the General Accounting Office, the cost of healthcare has risen from us$666.2 Billion in 1990 (12.2% of GNP) to us$1,615.9 Billion in 2000 (16.4% of GNP) and is expected to reach $3.1 trillion (17.7% of GNP) by 2012. For Germany, the actual costs in the health sector amount to 234.2 Billion Euro and are estimated to double by 2020.4