Thursday, August 28, 2008

A Window into Transparency: the Desire for Connection through Finance

A Window into Transparency: the Desire for Connection through Finance

I have a friend who began his career in the Netherlands at a small family bank, which had relationships with clients that went back some two hundred plus years. He saw the bank’s balance sheet from one of its earliest years in the 18th Century, and found a name of a trading firm that was still a client. This is really a long-term relationship—an unlikely scenario in today’s banking and finance world. His assessment of why the continuity and success of the financial relationship: The trust and accountability that comes of living in the same community, seeing each other at the market, and the awareness that failing to pay the loan could have consequences for neighbors and the local economy.

This story came to mind, because recently I read an article in the New York Times (July 19, 2008, B1, B6) under the “Your Money” header titled, “When the Banker Knows Your Mother” by Ron Lieber. The article is an inquiry into the value of community banking in the face of recent banking disasters, such as the failure of IndyMac in Pasadena, and the disconnected and impersonal aspects of purely on-line banking. The article indicated that the challenge for local banks is to match the interest rates of their more space-based than place-based competitors. But, risk is also an issue. When asked about the risk of his community bank, the president Mr. R. Michael S. Menzies replied, “The first loss we take here is my personal loss. It’s my personal equity in the bank, my personal reputation in a community I’ve lived in most of my life. I’m not just dealing with other people’s money, so it’s a whole different level of responsibility.” In the opaque, distant, and mostly digital world of current finance, this kind of thinking and willingness to take personal and community responsibility strike a harmonious chord in my heart, and, also bespeak social and community values that offset “advantageous” interest.

Risk and money, especially when it is my money, opens up a host of questions around tolerance, desire, greed, and, hopefully, higher social purposes. In this vulnerable state, transparency of intention and action operate as a tonic, as does access to knowing the people with whom I have entrusted my money and their ethics. Transparency is a window into the other side of financial transactions. Current risk-reward models run the gamut from casino-like with high risk and high reward (hedge funds, derivatives, even casinos themselves) to simple low interest no-risk insured savings accounts. The story is always based on the assumed validity of the risk-reward model as motivation for material gain. In fact, we have developed a whole rationale around risk and reward which basically rewards, even celebrates risk, and treats reward as a kind of compensation for having given up other uses of the capital.

In the venture capital model, the investor is tying his or her fortunes to the success of the entrepreneur; while the entrepreneur in some (but not all) cases is likely working toward exit strategy or buy out, yet another form or reward. The end goal of all this risk-reward activity is the generation and extraction of capital from the economic process. One positive of the venture capital model is that the investing is actually directly in the project and the work itself. It is based upon the faith that the investor has in the success of the undertaking and the abilities of the entrepreneur. Transparency is inherent in this structure, as it is in many ways a co-creative process between the funders and entrepreneur, at least at the outset. However, this cohesion is ruptured, for example, when the company goes public and the shares are traded for their perceived value—that is, the next round of investors are paying the original investors for the shares. Little to none of that money actually goes directly into the company itself. At this moment the risk-reward model is disengaged with any real value and is then delivered into the prestidigitation of publicly-traded on Wall Street.

In an economic world that turns on self-interest, the calculated risk sits with the owner of the money. As a result of this self-interested imperative, investment and kindred financial activities have gone from enabling new capacities on the part of entrepreneurs (direct investment) to extracting capital from the capital system itself (indirect investment). Extraction is the means, accumulation the end. The concentration of wealth effects another significant result, restriction of the flow of useful money. Money that could bring about cultural renewal and innovation, is instead tied up in real estate and other material goods.

One could read this as a judgment of wealth. It is not. Wealth is critically important to everyone, though it may feel different or in fact be different depending upon perception and cultural norms. It is, however, an argument in favor of circulation rather than accumulation, in favor of direct transactions rather than indirect, transparency over the impenetrability and weight of Wall Street, so beautifully portrayed in 1915 by photographer and film-maker Paul Strand.

Easton Bank & Trust, featured in the NYT article, is but one example of a more human-scale localized financial organization, a model of money serving community through real relationships. In many ways, credit unions and cooperative bank share this quality of community and accessibility. However, there is another economic form which addresses the question of risk in a deeply social and innovative way. It is neither banking nor investment, but rather it is a community-centered financing structure, as direct, personal, and transparent as imaginable. By its very nature, it is designed to support, indeed assure, a vocation along with production and distribution of goods, free of the adverse competitive pressures of the marketplace. There is no betting; and, the risk-reward model is turned inside out and upside down. The model, as practiced in the United States, is called community supported agriculture [CSA]. About twenty-five years ago the first such economic association was started on the East Coast of the US, having been previously implemented in Northern Europe. Today there are well over two thousand such groups in operation, though not all are equally true to the original associative intention.

The concept of the community supported agriculture is transferrable to other contexts, and in fact has been applied to medical practices already. But for clarity, I will describe it as applied in community farming. First and foremost the farmer identifies, develops, or adopts a community that is interested in connecting with the farm, the farmer’s values and practices, and the joy of being a partner in the economic life of the farm. Then, the farmer determines how much food he or she can grow and thus how many families can be fed based on seasonal output. Based on the number of shares that can be grown, the farmer puts together an annual budget that encompasses all of the farm activity including purchasing of seeds, equipment, health insurance, facilities and farm maintenance and other living costs for the whole year (not just the growing season). In the interest of engagement and transparency, the farmers may even invite members of the community to participate in the formation of the budget. This total budget is then divided by the number of shares to arrive at the cost per share. This “price” is thus arrived at in an associative manner in the sense that all the parties to setting the price have brought their needs and perspectives into the process—somewhat akin to fair trade practices.

The benefits to this process are many. The social and community ones are self-evident. However, the economic advantages bear further discussion for what they represent as the opposite of the opaque world of conventional finance and pricing schema. First, the farmer is free to farm as he or she best knows how, without the pressures of the market-based competitive economy, or the demand for the return of capital. Second, because there is a direct connection between the farmer and the shareholders, there is no middle distribution or wholesale system to add to the cost, or reduce what the farmer might receive. The most interesting part of all, and the part that takes the most education for those new to it, is that the risk of farm or crop failure is shared across the entire community. The shareholders pay for the cost of the year for the farmer to farm, and receive food as a by-product say seven months out of the year. If there is a drought year, or some other blight, the farmers are still supported by the share income, and will thrive to farm another season. The shareholders bear that risk. In a bounteous year, the shareholders receive more than they expect. What this means is that the shareholders are not consumers in opposition to a producer; rather, they are co-producers. Neither are they paying in any direct way for the food or treating the farmer’s labor as a commodity. The beauty is that the farmer’s livelihood is not subject to the vagaries of market forces and the rising tide of climate chaos.

In the CSA model, risk and reward are actually separated from each other and reconfigured to support the vocation of the farmer. In conventional investing, reward and risk are linked through input and output of the money system. The borrower or investee uses the money for production and leverages the marketplace to repay the investor. In the community supported system, the point of the entrepreneur (farmer) is not one of economic gain, but rather of sustainability and a mission to heal the earth and cultivate soil fertility. This interest in matters beyond self-interest permeates the associative form and raises the commitment of community members to also rise above self-interest.

CSA is an associative community-centered financing model that needs no corporate or legal structure to operate. It is instead, a self-governing economic community which determines its agreements in light of the farmers and members needs. In some senses “enoughness” and sustainability are built into the model, and the money simply serves this end. It is also a completely transparent, personal and direct form of economic relationships that has a localized base and a capacity for self-renewal. I would hope for and imagine that all economic activity will someday operate within this associative approach, though scale will always be a challenge. Associating in this modality meets the rising need to connect in community through finances in a very simple and immediate way. It is a picture of the future of economic activity that returns money to its role as a means toward local and sustainable community.

That the New York Times would publish an article addressing the value of local and personal in the context of “Your Money” is significant. It points to not only a rising need for connection, but also the legitimacy of deeply human relational values that are the foundation of trust. What has been betrayed by the recent financial and banking disasters is this fundamental need for trust. Thus, any financial form that fosters transparency is to be celebrated for the healing it brings to our economic consciousness.

John Bloom


At Thursday, August 28, 2008 6:00:00 PM, Anonymous Anonymous said...

Hi, John,
Enjoyed this very much and sent it on to Gunther Hauk and Spikenard Farm.
However, no mention of Jimmy Stewart and It's a Wonderful Life!
Thanks, once again,

At Sunday, August 31, 2008 2:12:00 PM, Anonymous Rich said...


I look for your posts as the weeks go on. Each time we are rewarded with thought provoking and interesting writing. Thank you.

This discussion about associative community-centered models elegantly points us more towards the 'root' of the current banking 'situation' - an unhealthy imbalance between desire for economic gain versus sustainability in the context of our communities.

I think this same unhealthy imbalance lies at the root of much of what is now wrong with our country's economy. We have shifted too far towards me, and too away from us. We have unhealthily moved too far towards subject-object relationship versus subject-subject relationship, as Buber describes: I/It vs. I/Thou. In other words, caring more about yourself (economic gain regardless of the consequences for others) versus caring about community (I want enough, and I will do my part to see that there is enough for all.)

In the I/It relationship we must 'protect ourselves' at all costs. Which is what we must do if we have no health insurance, or if we are aging without means. However, if we do have a safety net, if we know our communities will sustain us, then we can breath deeply, and give back.

If your ultimate premise is well founded, that this sort of community/associative approach will be emerge as a more effective force for the well being of our communities, it may account for why we are now also seeing the emergence of similar community-based/associative solutions in medicine. While this model is often found in the anthroposophical context, it is also starting to crop up in medical practices around the country.

Thanks again for your writing. It is a unique contribution to the dialogue about money and our society.


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