Ecological Economics has a compelling narrative. Here is a summary gathered with references generated by perplexity. In particular, Ecological Economics understands that reciprocity is a key element of economics. Here is a link to the pdf version of Ecological economics by Daly and Farley.
Changing financial transactions to balanced reciprocity and removing negative reciprocity will likely evolve the current economic system to Ecological Economics. Changing from negative reciprocity, where one party seeks to gain more than they give, to balanced reciprocity, where an equal exchange is expected, is a shift in social norms or rules. This change is social evolution and occurs through social expectations and cultural values shifts. On the other hand, it could be a “rule change” if it results from explicit new guidelines or policies being implemented to enforce fairer exchanges.
An Economy Based on Reciprocity shows the economic advantage of Banks using balanced reciprocity with borrowers. The Banks still make the same profit but for less time. This idea is expanded to show the effect of balanced reciprocity on home loans in Reciprocal or Community Capital and Institutionalised Balanced Reciprocity.
When we model reciprocal loans with agent-based modelling, it becomes apparent that there is no need for interest-bearing loans in small groups. We can remove the need to monetise assets and, using balanced reciprocal principles, establish the exchange of assets without loans and remove the cost of markets and interest. This is outlined in Permanent Markets versus Capital Markets.
Sharing profits produces a more efficient economy — where we need less money to achieve a given output value. The challenge is to encourage and facilitate social evolution. Our several attempts to change from the bottom up have been unsuccessful. The evolution is unlikely without the support of existing institutions that finance investments. Putting the case on behalf of “the commons” is difficult when vested interests have large profits they think they need to protect.
Profits from the Water Commons
Our first attempt at non-market allocation of investment was Water-Rewards. Water Rewards was two years of planning and consultation by a consortium of the eWater CRC, the Ecos Corporation (better known for its “easy being green” campaign), and the Canberra-based IT company Edentiti. It was rejected by the ACT Independent Competition and Regulatory Commission (ICRC) and by the Murray Darling Basin Authority. The reasons for rejection were never explicitly given.
Here is a link to the Water Rewards proposal to the ACT ICRC.
A later submission to the ICRC objected to an increase in the price of water where the water authority argued that the cost of money was increasing; hence, they needed to cover their costs with higher prices. Instead of getting loans, we suggested sharing their existing profits with their customers and requiring the customer's share to be spent on capital works. The regulator rejected it without explanation, presumably on the advice of the government owner.
Institutionalised Barriers to Reciprocation
In November 2018, we established a local Cooperative Pre Power Co-op One Limited to use balanced reciprocity investments for household solar panels. The idea was for investors to share their profits from investing in solar panels on other people’s roofs. The system was set up and operated with one household, showing that reciprocal capital is economically efficient.
We have been unable to expand the trial beyond one household due to the lack of available finance sources. This is mainly because most finance options we investigated have rules that only allow negative reciprocity finance. Even though this is not explicitly stated, the regulations around today’s investments do not allow borrowers to request balanced reciprocity. In cases where borrowers request balanced reciprocity, the regulations are interpreted so that it is not permitted.
It is unlikely that institutions that use negative reciprocity — like share-holder banks or government instrumentalities and departments modelled to be “business-like” will initially participate. The common belief is that all profit should go to owners, and none goes to their customers, who pay the money to create the profit.
This results in bodies like the Australian Energy Market Regulator, which believes in the effectiveness of negative reciprocity in markets, and it has set up a system where the electricity consumers cannot invest in the infrastructure they use and are not compensated for the extraordinary profits that distributors, transmission business and fossil fuel companies obtain. Please read Setting the Rate of Return for Electricity Assets.
Institutional Support for Balanced Reciprocity in Finance
Local communities are unlikely to be permitted to deploy Ecological Economics at scale. They require institutional support. Fortunately, that is available in Mutual Societies, Credit Unions, Cooperatives and religious organisations in many countries.
These organisations were established to serve their members, and most practised balanced reciprocity in their groups. Most importantly, family units practise it. The concept is not unknown, and we continually see it as communities organise themselves when disasters strike. One estimate of the number of Australians in balanced reciprocity organisations is 33 Million, even without considering families.
What will happen with Widespread Balanced Reciprocity in Finance?
Balanced Reciprocity is modelled with Agent-Based Models. Agent-based models use Proactive Algorithms.
Models with Proactive Algorithms can implement the world of finance as it exists, and if it changes, the models change. This happens because humans make economies that do not exist without humans. The real world of finance is a model of human economic behaviour. The models will exist at different levels, including the individual level.
Every individual can have a tailored model for themselves. When their financial situation varies from the model, an individual with agency can take action to adjust their financial situation to accommodate the new environment. This is not predeterminism but is how the economic organism adapts itself.
We know that organisms adapt to survive, and seeing the economics that arise will be interesting. It will adapt towards the predictions of Ecological Economics.
