Economic efficiency is essentially about getting the same goods and services for less money. Today there is an oversupply of money, leading to inflated asset prices, inflation, gross disparities in wealth and high levels of unused money. Economies are fragile and inefficient.
Individuals do not understand and hence cannot model or control the economic system. Professor Alan Kirman's lecture on Complexity Economics provides an alternative perspective on economics. This model helps us develop a more efficient and resilient economic system. This article outlines how we can adopt the professor's ideas and create a Local Community Capital-based economy that better matches the professor’s vision of a complex economy.
Kirman’s characteristics of a Complex Economy are:
- Individuals follow simple rules that they understand
- Individuals adapt to their local environment
- Individuals act in their own interest
- They have limited, mainly local information
- Aggregate behaviour emerges from the interaction between individuals
- Coordination, not efficiency, is the main problem
Local communities can meet their needs by supporting each other through balanced reciprocity using Community Capital, creating a complex scalable economy.
Community Capital shares profits locally. This is done by distributing profits from local business activities within the community. Wider markets set prices through competition, and the profits are shared locally with those who live and work within the community. By doing so, local communities benefit collectively and profits are distributed fairly.
Balanced reciprocity works particularly well for Capital goods because it
- Removes the cost of debt.
- Speeds up the movement of capital.
- Increases investment and trust.
- More investment reduces costs and increases local capital.
- Capital generated in the community stays in the community.
- All consumers acquire Capital with each purchase increasing the economic resilience of the community.
The sharing rules for individuals are simple and easily enforced through government taxation information and ownership rules.
Competitive markets flourish because excessive costs of “unearned income” are reduced. Capital flows at twice the rate of a regular economy, and consumer investors keep pressure on prices.
Critically, the existing economy remains unchanged. New sharing businesses emerge as competitors. These sharing businesses outcompete those that extract excessive money from the local community, leading to resilient economies built on efficient, fair and easily understood local economies.