Financing the Resilient Economy
Updated on 5 February, 2016
Disclaimer: The information provided in this article is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, needs and financial situation. Before acting on any information in this article you should consider the appropriateness of the information with regard to your objectives, needs and financial situation. All statements made in this article are made in good faith, and I believe they are accurate and reliable. I am not a financial adviser, and do not give any warranty as to the accuracy, reliability or completeness of information that is contained in this article. I do not accept any liability for any error or omission in this article, or for any resulting loss or damage suffered by the recipient or any other person.
So we all know the economy is going to the dogs, that much is obvious. It’s impossible to say exactly when or how, though it seems completely clear is that by the time most of us retire, our superannuation (the Australian privatised compulsory pension scheme, which is mostly invested in the stock market) won’t have held the value it has today.
The superannuation scheme means that even non-wealthy Australians often have a good deal of money under their control which could be diverted into the resilient economy, making it quite an exciting area to look at. In total, there is now over $2 trillion in superannuation! 0.01% of that is still $200 million, an amount which could be extremely useful to social and environmental change. On an individual level, a middle-class wage earner just in their thirties will often have around $50,000 or more in super. There’s some more information below on setting up your own self-managed super fund so read on if that sounds like something you might be interested in doing.
Collectively speaking, there’s actually quite a lot of money in progressive/transition communities that we could be working with. It’s not just super I’m talking about either, there’s quite a lot of money floating around our circles that’s come from savings, inheritances, selling properties, and elsewhere.
At the same time, we have a fledgling resilience and solidarity economy with plenty of people wanting to take action, limited largely by the fact that they are working full or part-time in non-resilient sector jobs to make a living. I feel the need to emphasize this point. In my experience, people doing lots of amazing unpaid work tend to get burnt out, and there’s not that many of us as it is. There’s way more people doing unexciting paid work and doing a bit of community stuff on the side. They’re passionate, but they just don’t have much time, and they get burnt out too.
I know a lot of people feel weird about the idea of getting paid for work that they would happily do for free, but if it meant they could do more of it, and sustainably, then getting paid for it would be a really good thing. A lot of the emotional barriers beyond that are to do with not wanting to take a risk, or not wanting to be part of the system of exploitation that political people generally associate with business. But there are concrete ways to greatly reduce risk and to run non-exploitative, generally awesome businesses (perhaps so radically ethical that you wouldn’t even call them businesses).
The resilient sector has next to no funding in Australia at the moment. If we could divert some of our superannuation and other money towards the beautiful new economy we’re slowly creating, we could give it a big boost. Even just a small amount of money would make a pretty big difference, and it doesn’t seem inconceivable that we could raise a million dollars or more pretty quickly just by putting the word out through informal networks.
There’s a lot of talk at the moment about divesting monetary support from the fossil fuel industry. Investing in the beautiful, resilient solidarity economy would be doing just that, at the same time as divesting from prison and war industrial complexes, the mainstream media, and all manner of unnecessary, polluting and socially unjust industries. Why go only as far as getting your money fossil free when you could be going further and using it to build the alternative economy and society that you want to live in?
Dealing with ethics and risk
When thinking about your super or other money that you have access to, most of us don’t know what to do with this money that we feel good about in terms of both risks and ethics. Similarly, I know people who have houses that they would like to sell because the housing market is likely to crash sometime soon, but they don’t because they can’t think what else they could do with the money. I believe that investing money into resilient, ethical and awesome enterprises is the safest and most ethical thing we could potentially do with our money.
Well the most ethical thing we could do, I honestly think, is to just give it away to resilient commons-style organisations such as community gardens. But considering that we’re still living in a society that doesn’t make sure that everyone’s needs are always met, I think it’s pretty understandable that those of us lucky – or privileged – enough to have some money wish to hang on to it (additionally you’re not allowed to give your super money away, at least not until you retire). At the same time, there are also a lot of people working for money, spending most of their time doing things that aren’t resilient, and spending their very limited spare time doing positive things for the community, burning themselves out in the process. It seems like a no-brainer to me that while we’re living in the kind of economy where people need money to live, that we should be setting up and supporting as many businesses as we can that are as resilient, ethical and awesome as possible.
And when I say resilient, ethical and awesome businesses and investing, I’m talking about the kinds of businesses that almost aren’t really businesses, and the kind of investing that almost isn’t really investing. I’m more just talking about facilitating good stuff happening. So from hereon in, I’m going to just say ‘organisation’ or ‘enterprise’ (apparently the original meaning of enterprise is simply, a bold endeavour) instead of ‘business’, and ‘providing capital’ or ‘lending’ instead of ‘investing’.
I know plenty of people in Melbourne at the moment, who are interested in finding low-risk, resilient, ethical and awesome things to do with their money. We’ve done a fair bit of legal research, and it all seems possible. Although little has been done so far, we’re generally of the opinion that it’s worth taking a risk on doing something new in order to change the world, especially when we know that there’s not much else we can do with our money that will preserve it through economic collapse anyway.
We have been thinking that it would be best not to invest all the money directly into enterprises though, since diversity is always a good idea. My other suggestions would be arable land rented to organic farms, affordable housing, and stockpiling small, useful items that could be sold easily in the future. Nicole Foss also recommends short-term government bonds from your country until such time as the government is likely to go bankrupt, but I’m personally less interested in this for ethical reasons.
So here are my ideal criteria for groups that I’d be thinking about providing capital to, hopefully you might find them useful in thinking what kind of enterprise you might like to start or lend money to. Just to be clear, I’m not sure I’d demand that any one organisation meet all of these criteria; it might be enough that they meet most of them – and different people would choose different criteria, of course.
- is providing necessary goods or services that will still be in demand post-collapse.
- distributes their goods and/or services at a price that is accessible, which might include sliding-scale pricing models and/or some sharing of goods and services freely within a closed network (as in Livelyhood, a sharing and enterprising co-operative network I’m involved with).
- is producing its goods and services in as ethical a way as is feasible.
- is not-for-profit, which means that the people involved can still pay themselves a fair wage – and expand the enterprise – but don’t take profits on top of that.
- aims to make a little more than is needed to cover unforeseen difficulties and put back into the organisation, but if substantially more is made than is wanted for putting back in, it is donated to a worthy cause rather than given to the people involved.
- is a hybrid multi-stakeholder co-operative, meaning that the workers are all partners and don’t employ anyone under them, and that the customers and capital providers of the organisation have some (probably smaller) say over decisions as well. This is the most ethical framework since it gives all stakeholders decision-making rights, and also the least risky, since it means that everyone working in the organisation will really care about it, the customers will have a direct say in how and what is produced, and the providers of capital will have some influence to reflect the level of risk they’re taking.
- donates some percentage of revenue towards social or environmental change projects that can’t make money (and therefore aren’t able to take advantage of this kind of investment funding).
- is made up of a diverse group of people, and isn’t exclusive in terms of subculture, gender, race, class, age, sexuality, etc.
- is financially and operationally transparent and open source, allowing for accountability and replication.
- has relatively low overhead costs. For example, they’re not renting a shopfront, perhaps operating from a garage or a shared space instead.
- has relatively low start-up costs, and is expected to expand based on its success, rather than starting big based on projected success.
- pre-sells its products wherever possible, as in community supported agriculture, or through a crowd-funding platform, in order to lower risks.
The people involved:
- have done a lot of research and planning around market research, promotions, operations, legal issues and so on, such that it doesn’t look like there’s much that could go wrong considering how small they’re starting.
- have been through training in emotional resilience and interpersonal communication skills (because personal and interpersonal issues are the major risks in these kinds of low-risk enterprises).
- have a holistic management plan or something similar that helps ensure the owners enjoy themselves in their work, and guard against burn out and ethical transgression.
- are planning on working part-time to ensure that they have a full life in other respects and are much less likely to burn out.
- have regular meetings with a mentor that they trust and respect.
And here are my suggested criteria for capital provision agreements. That:
- the capital be provided in the form of a loan rather than equity, since equity gives capital providers an unfair level of control over an organisation that they are not actively involved with.
- it be a revenue-based loan, meaning that instead of fixed repayments, which can be crippling to a new enterprise, some percentage of all revenue (perhaps 5% or less) is repaid to the lender regularly. This can be built into the price of the goods and/or services sold. So as revenue increases, the loan is paid off faster, and in slow times, the loan is repaid more slowly. This also means that the lender is sharing in the risk of the organisation, which seems only fair, ethically speaking.
- the revenue-based loan have a fixed amount of return, say 10%, so if the loan is for $10,000, then $11,000 will be repaid, whether it takes six months or three years. Again, this is about sharing in the risk of the enterprise. Compound interest benefits the lender unfairly, often cripples borrowers, and is a core impetus behind the exponentially increasing money supply that makes our economic system so unstable.
- the rate of return should correlate to the level of perceived risk across all of your loans to enterprises, and the costs of making the loan, such that you’re not actually aiming to make money from your loans overall. The return is there to hopefully ensure that you don’t lose money – i.e. If you believe one in ten of the loans will go bad, then a 10% rate of return would be reasonable. Time spent organising the loan, legal and accounting fees, etc. could also be included.
- repayments be adjusted for inflation and deflation. If Nicole Foss and others are right, and we should be expecting massive deflation of potentially 80-90%, a loan would be near impossible to ever repay and it would be an unfair burden for the people involved to bear while unreasonably making the provider of capital much wealthier than they started out. Likewise if we see hyperinflation down the track, this agreement would help ensure that repayments made are still of a similar value to the lender.
- it be agreed that if the currency the loan was made in, for example, Australian Dollars, is superseded by some kind of alternative currency, that the loan will continue to be repaid in the new currency.
- if the organisation stops operating for any reason, any tools or other physical assets of the enterprise, or other security that both parties agree to up front, may be sold in order to repay the loan, or possibly new people may take over the organisation and the loan agreement.
- if we do ever manage to transition to a society in which everyone’s needs are always met, that no further repayments will be required, since continuing such an agreement would no longer be necessary and would be detrimental to our exciting new societal structure.
- all of this be written down in a contract with a conflict resolution agreement.
And of course, ideally, you’d be working democratically with a small group of people providing capital together so that you have a diversity of experiences and perspectives that can help you make good decisions, and you are each putting just a little bit of money into a variety of loans so that your risk to any one loan is not very high.
Where do we find these organisations to lend money to?
Well we might need to help create them, this is a question that keeps coming up. The enterprises we want to invest in just don’t seem to be around. So I suggest we advertise, offering both support and money to people who would like to create their own jobs in the new economy. Almost everybody I know wants one of those jobs; they just don’t know how to get them.
We could offer a course and ongoing support that would provide training in business planning, interpersonal communication and emotional resilience, as well as help setting up project management systems, websites, social media and legal templates. In our case, we’re working on being able to provide this kind of thing as part of a bigger co-operative network (see www.livelyhood.community if you’re interested in what we’re doing). Potentially the costs of the course and support could be repaid as part of the return on the loan. An enterprise providing these services could be a project worthy of funding in itself. Just for now I’ve been running ‘Making a Living While Changing the World’ workshops to encourage people and regular micro-enterprise planning days to help people workshop issues and get some planning/research done. And excitingly, there are a few enterprises getting started now.
And what kind of enterprises am I talking about? Well it might be a permaculture co-operative that sets up gardens for people. Or a backyard enterprise that finds bikes that need fixing up – on the streets or online – and fixes them up and sells them on. Or a small scale home-based childcare centre that involves children in self-sufficiency style activities, an organisation selling preserves made in one of the many restauraunts that are closed on Mondays, or a plumber who puts in rainwater systems made out of recycled food storage tanks.
What you might want to know about self-managed superannuation
You can have anywhere between one and four people joined in one self-managed super fund, which can reduce your costs. There’s a group in Tasmania, the RESEED Trust, who have used their super to set up a sustainability hub in an old primary school; they spent $5,000 with an accountant to set up two super funds and a trust to bind them, and then pay $2,000 each year per super fund to the accountant to maintain them. If you’re happy only investing in property, the stock market and similar ‘standard’ investments, alternatively you can use a company like Esuperfund.com.au who only charge $700 per year to run a super fund (for up to four people still). Or if you’re onto it, you can learn how to do all the paperwork yourself at a cost of only around $260 a year in fees to the ATO.
You’ll want to make sure you have a lot of trust and shared values with the other members since you’ll need to make joint decisions about what your money is collectively used for. One of the biggest risks in something like this would be interpersonal conflict that could lead to one or more members withdrawing their money from the super fund, which could have a very detrimental effect on the other members and the organisations you’ve lent money to (another reason to diversify and not lend all your money to organisations).
Besides interpersonal and business risks (which I have hopefully dealt with as much as possible in the previous section), the other risk is that someone reaches retirement age or dies, and their money is withdrawn. As I mentioned above, putting only part of the money into loans and some into more liquid investments that could be sold more easily would be smart.
Part of the process of setting up your own self-managed super fund is creating an investment plan. The money has to be being used to provide for your retirement, so you can’t just donate it or spend it in ways that aren’t likely to make money.
Of course it doesn’t matter legally if your fund doesn’t actually make money – there are always risks involved and even the big super funds lose money sometimes, as was most obvious in 2008 when some funds lost as much as 40% of their value. There’s no insistence that you make the most amount of money you possibly can either; plenty of other people would be choosing low returns for low risk as well.
The one other major rule is the sole purpose test – that you can’t use your super money for something that benefits you today; it’s only to be used to provide you benefits in your retirement. Which means you can’t use your super money to buy a house and live in it. If all profits are reinvested in the super fund (or if the organisation is not-for-profit), apparently you can invest money with an organisation you are involved with (so long as you don’t gain any personal benefit, eg. free use of space) – this is what the RESEED Trust group have done. You’ll definitely want to get legal advice for yourself about all of this though.
Also, you can set up a self-managed super fund and only transfer part of your superannuation into it, which can make all of this feel a lot less risky as well. That just needs to be balanced with having enough money in the fund to make the costs of running it worth it.
Aside from all that, the possibilities are nearly endless and really exciting! And don’t forget all of this could easily be done with non-superannuation money as well. The sooner we act, the more likely we are to succeed (and to preserve any wealth). Let’s get cracking with creating this world we all so desire to live in!
You can get in touch with me at email@example.com if you’d like to chat about lending or being lent money along these kinds of lines, or if you have any questions or comments.