With a centralised bank currency in an increasingly financialised economy, ‘community wealth’ can have a hollow ring to it. If measured in money, where is the money to be kept? The only possible current answer to this question is ‘in the financial system’ – which is emphatically and increasingly not local. The post-2008 experiences of many local authorities with holdings in various financial institutions exposed this reality in often painful ways.
If we consider community wealth rather as some mix of vibrant local trading relationships, local value producing-capacity, and local economic resilience, it is much harder to deposit in a foreign bank and lose on the global casino. But if all of these conditions are mediated and transacted with bank currency, then constant and active mitigation of the extractive tendencies of that currency system is required. Such mitigation, clearly, can only be achieved through policy, and here we encounter a range of problems.
Policy is very properly a matter of politics, and current politics in the UK is increasingly centralised, with the freedoms and scope of local authorities’ action further and further constrained over the last decades under all flavours of government. Furthermore, centralised control is often expressed in terms of spending – ring-fenced grants, determination of local taxation, increasingly specific performance targets tied to funding, and the like.
There is also an issue of timescale. Politics has short timescales – less than a decade, while local economy building has a more generational periodicity. If policy is all that stands between community wealth and the inimical characteristics of the financial system, then it is no surprise that successful approaches tend to be found in ‘one-party-state’ authorities where businesses can have sufficient confidence in continuity to risk engagement. A more general experience for local businesses is that a policy-driven initiative is not fully delivered upon.
In contrast, collaborative finance tools depend upon trust between peers. This means they are always local, and always require some degree of community self-awareness (of course, there are varieties of ‘local’ that do not depend upon geography, such as industry horizontals and verticals). So from the outset, there is clear alignment between the way that economic relations are mediated, and the aims behind community wealth building.
This apparent congruence is encouraging, but we need to look at how the specific drivers of collaborative finance participants’ behaviour strengthen the three characteristics mentioned above – vibrant local trading relationships, local value-producing capacity, and local economic resilience.
Multilateral obligation set-off allows businesses in a network to cancel out invoices against each other. Mutual credit is a natural follow-on, co-ordinating existing trade credit liquidity for maximum impact. Use-credit obligations are investment instruments that can be used to finance capacity-building without debt. These tools are incorporated into Mutual Credit Services’ platforms (Clearing Clubs, Trade Credit Clubs, and High Street Vouchers respectively), with their associated benefits – reduced debt, improved payment timeliness, freeing up of working capital, and new capacity – immediately boosting adopters’ financial viability.
These same benefits also create direct incentives to find local trading partners that close ‘loops’ (circular patterns of obligations). Completion of loops – even by non-profits – provides benefits to all participants, but ‘strategic gaps’ in the trading network that could close additional loops often remain unfilled due to lack of awareness, excessive risk, or absence of appropriate financing.
Since transaction data from our platforms gives a rich map of economic activity, it becomes possible to identify and characterise these gaps, informing decision-making across scales. An increased density of loops corresponds to greater local trading volume and variety, plus independence from the financial sector, with benefits directly proportional to trust. Finally, incentivising the completion of payment loops provides a bottom-up driver for the material circular economy.
At the systemic level, evidence from Slovenia, Switzerland, and elsewhere shows that collaborative finance tools can have a strong counter-cyclical effect on the whole economy, insulating businesses from wider downturns that often originate in the financial sector. The absence of interest and leverage mean that economic activity can be stimulated within social and environmental boundaries, and without risk of systemic debt crises.
MCS works with the anchor institutions (such as local authorities, universities, and business networks) that are a key part of local economic resilience to build community-based implementations of our platforms and make the best use of the resulting data to support truly evidence-based decision-making. We also support the development of the participatory governance processes necessary to rebuild the commons economy, complementing existing community wealth building frameworks and initiatives.
In short, we couple local liquidity to available economic capacity and trust. Increased community wealth brings empowerment, and thus the ability to build social and environmental capital – the will is never lacking, only the means.