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 Policy Brief No.2 /2014 Economic Direct Democracy: A Framework to End Poverty and Maximize Well‐Being By John Boik Ph.D. http://www.PrincipledSocietiesProject.org The world is confronted by serious economic, environmental and social challenges. These include income and wealth disparities, climate change, habitat destruction and decaying infrastructure. The fact that all are related via economic components suggests that current economic systems are unsustainable. Unfettered capitalism itself is increasingly seen as part of the problem, as economists ranging from Thomas Piketty to Joseph Stiglitz demonstrate. The time is ripe to explore approaches beyond “capitalism as usual.” One such approach is the LEDDA economic direct democracy. In the recently released book Economic Direct Democracy the author asserts that LEDDA offers a bold yet practical approach. A LEDDA—a Local Economic Direct Democracy Association—is a membership‐
based, community‐benefit corporation that implements a new economic framework as a local overlay to an existing city or regional economy. In effect the framework provides greater organization to a local economy, one hard‐wired for cooperation and steeped in democratic decision‐making processes. Money itself is viewed as a voting tool, an agent of democracy. The approach is in keeping with new evidence from a variety of fields including behavioral economics, neuroeconomics, evolutionary biology, and game theory, that 1 suggests humans are physiologically and psychologically “programmed” to cooperate, when conditions are conducive to do so. The LEDDA framework is designed to foster these conditions, favoring cooperation as the default behavior. The book is written from a U.S. perspective, and thus the focus is on U.S. cities and counties, as well as the U.S. economy. It describes a token–dollar economy, where the token is an innovative local electronic currency that circulates as a complement to the dollar. Regardless of the U.S.‐centric language, the hope is that cities and regions around the globe will benefit by implementing the framework. Thus, one might speak of a local token–rand economy or a token–euro economy. The LEDDA framework synthesizes multiple approaches, currently in use in cities and regions around the world, into a coherent, consistent, integrated whole. The framework builds on ideas from buy‐local, invest‐local, local‐currency, local‐food, local‐sharing, open‐source, open‐government, open‐data, participatory democracy, and related community development, knowledge transfer, and decision‐making initiatives. An integrated approach could allow rapid progress with relative ease. In the United States and many other countries, no legislative action would be required to implement the framework. It would not conflict with existing statutes and laws. A computer simulation model of a county‐level token–dollar economy has been submitted for publication and is discussed throughout the book. The model is descriptive rather than predictive. The aims are to introduce the LEDDA framework, describe general concepts of token–dollar flow, and demonstrate that a set of parameters exists that could result in increased mean family income, full income equality, and full employment, for the simulated member population. Roughly speaking, the framework “pays” people to participate. Every person who becomes a member (and who receives tokens) sees an income gain over baseline values. Gains are proportionally larger for those who initially have low incomes. In the simulation, by construction, the participation rate starts at 5% of the local population in Year 1 and rises linearly to 100% of the target population by Year 15. The target population comprises all families that have baseline incomes below the 90th percentile. The participation rate remains at 90% of the county population until Year 28, the end of the simulation. 2 As shown in Figure 1, the mean family income for LEDDA members increases from about $40,000 at the start to about 107,000 tokens plus dollars (T&D) by Year 28. The purchasing value of a token is assumed to be equal to that of a dollar. Thus, family income rises by about 270% on average. This gain is not due to inflation or background economic growth, which is not modeled—it is due solely to the LEDDA itself. Further, complete income equality is achieved: essentially all member families, regardless of employment status, receive about 107,000 T&D by the end of the simulation. Figure 1. Member mean take‐home, pre‐tax family income, with and without accumulated LEDDA savings As shown in Figure 2, full employment (1% structural unemployment) is reached for all members by Year 10 and for all county residents by year 15. 3 Figure 2. LEDDA and LEDDA county unemployment rates, as fractions The simulated LEDDA raises large sums of money annually, which can be used to create jobs and address social and environmental problems. By Year 28, the membership funds local nonprofit and for‐profit organizations via interest‐free loans, subsidies, and donations at a rate of about 2.6 billion T&D per year. The size of the simulated population is 100,000 adults, about the average‐sized U.S. County. As such LEDDA funding is roughly on par with the size of outstanding loans of U.S. commercial banks, averaged over all counties. If results similar to those of the simulation are achievable in practice, then communities would have ample funds to address infrastructure decay, climate change, and other major challenges, at the local level while simultaneously maintaining full employment. The nonprofit sector especially, can benefit from the framework. By Year 28 of the simulation, the size of the sector doubles, from 7% of the workforce to about 14%. Further, all new LEDDA‐funded jobs in the nonprofit sector are supported at 100% of ongoing wages; nonprofits hire staff at essentially no additional cost.
This brief is based on a presentation given at the Governance Innovation Week 2014 (2‐7 June 2014), for the workshop Sustainable Regions?, funded by the Jean Monnet Research and Information Activities (Project N°. 538192‐LLP‐1‐2013‐1‐ZA‐AJM‐IC). 4