Short Circuit

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Book. Richard Douthwaite. Short Circuit.

2004 edition online at

On community-based economics.


"The global economy can no longer be relied upon to provide the necessities of life. Even in wealthy countries, the vagaries of free trade and the unimpeded movement of capital pose a threat not just to job security but to food and energy supplies as well.

Short Circuit proposes that each community build an independent local economy capable of supplying the goods and services its people would need should the mainstream economy collapse. It details the financial structures necessary for self-reliance, and it describes the techniques already in use in pioneering communities across the industrialized world. These inculde local currency schemes and community banks that enable local interest rates and credit terms to differ from those in the world economy. Efforts to meet local food and energy requirements using local resources are also reviewed.

Blending sophisticated analysis with practical guidance, Short Circuit opens up a wide range of possible futures and demonstrates sources of empowerment and cultural identity beyond conventional politics and economics. It is at once a survival manual, a guide to community self-sufficiency, a celebration of pluralism and diversity, and an exciting call to action.

Richard Douthwaite was born in Yorkshire in 1942 and studied at Leeds and Essex universities. After working as a government economist in the West Indies, in 1974 he moved with his wife and family to Westport, County Mayo, Ireland, and in 1992 published his much-aclaimed The Growth Illusion.' (


By Dave Pollard:

Irish Economist Richard Douthwaite has written "a book about how to create a bottom-up community-based economy. What's more, he's now put it on the web for free, with updates to 2004.

In his previous book, The Growth Illusion, Douthwaite laid out four qualities of a sustainable economic system:

- the need to end or reverse human population increase

- acceptance of a responsibility to leave as healthy an environment with as many resources for future generations, as we inherited from past generations

- valuation of other people's interest equally with our own

- acceptance that some things are priceless' and hence off-limits to economic development -- they must not be sold, bartered, destroyed or used up regardless of the economic 'value' this might bring

He then went on to describe such a sustainable system at a high level.

Here's his summary:

The new economy must be built bottom-up. It starts with sustainable local economies that would produce the essentials of life from the resources in their areas and thus be largely self-sufficient and independent of each other. This is not to say that they would not trade. They would, but never out of necessity. A local economy that needs to trade is an indication that it is, or will become in time, unsustainable...A greater diversity of diet, clothing, building materials and lifestyles [would result] just as in the natural world where species have their own ecological niches and avoid competing directly. Regional economies would develop by finding good ways to use the resources of their immediate areas to meet the needs of local people rather than the demands of uniform markets far away. New cuisines and vernacular architectures would develop and new cultures would be born, and remain sustainable...provided its population did not exceed its carrying capacity.

In Short Circuit, he's laid out a blueprint for this new economy. One of the breakthrough ideas (to me anyway) comes right in the Preface, where he says:

Admittedly, most groups' efforts to develop their local economies are still on the conventional 'what can we supply to outside markets?' lines but a certain 'which of our needs can we start satisfying from our own district's resources?' radicalism is creeping in.

As obvious as this is, it had never occurred to me that, beyond creating community self-sufficiency in energy, food (as much as climate permits), and health/biotech, the way to create a viable community is to focus on meeting that community's own needs, not the needs of the world at large. That means community-based education, utilities, clothing and furniture, manufacture, entertainment and recreation, service of transportation and computer technology, home renovation and repair, social and financial services, and a few other things

The first two chapters of the book reiterate the failures of our unsustainable, 'globalized' economy. He tells the story of an Irish island that was once self-sufficient, but which now produces almost nothing and depends substantially on welfare from Dublin. Douthwaite's summary of these chapters:

The world economy has changed its nature. Since the early 1970s it has become highly unstable and has favoured the rich over the poor. Unfortunately, even if politicians accepted this, there would be very little they could do. In the world economy, only a very limited range of activities is commercially feasible in most communities because of the intensity of competition from outside. We must therefore build independent, parallel economies if we are to fill more of our needs for ourselves.

The next chapters describe how such independent, parallel economies could be built, focusing on:

- The need for a local, independent, time-based currency for each community (he shows that this stimulates and more fairly values local enterprise, and reduces dependency on and vulnerability to economic activities outside the community, but says existing LETS systems need serious reform through experimentation);

- The need for a local credit union that invests money from those in the community, in the community, and that insures community members, unintermediated by expensive financial agents, and provides a social dividend to the community (there is a fascinating discussion in the book that concludes the charging of interest on loans is counterproductive, inflationary and unsustainable, and proposes instead that the community itself decide who to loan to, interest free);

- The need for local, renewable energy co-ops that preclude the need for communities to rely on outside power generation and foreign and non-renewable energy sources, coupled with aggressive community-based conservation programs;

- The need for community-based, organic farms and locally-owned shops to replace industrial agriculture and massive transportation, centralized buying and warehousing of foods

The opportunity for peer-to-peer lending is certainly enabled by the Internet, and has recently been the subject of a bold experiment (thanks to Lavonne at Born Famous for this link) called Kiva, that builds on commercial Grameen-style microlending experiments by allowing people to lend money to those in struggling nations and track the value produced by that investment through online newsletters. These loans bear no interest but have a very high repayment record. For those demanding a better return than this, and wanting to keep their investment in their own community, an increasing number of businesses are seeking funds online and offering attractive interest rates. For example, this socially and environmentally friendly Toronto-based business is looking for expansion funds. The risks are relatively high, but if I'm going to take a financial risk I'd rather take it with a business that's trying to make the world better, is located in or near my own community, and which I can personally visit and be welcomed at beyond the annual general meeting.

I have argued in Natural Enterprise that with organic financing, lending may not even be necessary, except for large community-wide infrastructure (like wind turbines), which financing can be considered a 'prepayment' by community-members rather than a loan.

I'd like to see Douthwaite expand the book to deal with other core economic activities and how they would work in a community-based economy: specifically education, health care, clothing manufacture and construction & renovation. I don't see any of them as especially problematic.

Douthwaite's conclusion is that a competition-based 'market economy' simply would not work as a community-based system. For a start, a completely different set of measurements, less quantitative and more oriented to well-being and equality than to profit and growth, would be required. The idea that the 'profits' of community enterprises belong to the whole community and should be reinvested in accordance with the whole community's consensus will take some getting used to. So will the development and acceptance of community operating principles based on the collective interest, rather than self-interest. The networking of small enterprises to replace single, large, hierarchical enterprises, on the other hand, will likely be easier to accept, as the wisdom of this type of operation is already gathering broad acceptance. So will the idea of democratically choosing who to form community with and make a living with, instead of having to accept one's neighbours and employers as an economic necessity -- though it will take us a lot of practice to learn to choose our community-mates well.

The conclusion of Short Circuit profiles the town of Maleny, Australia, which for 25 years has been trying out much of the community-based economy model that Douthwaite's book espouses, mostly successfully, though the learning experience, and experiment, continues.

If Douthwaite and other economists are correct, and the massively dysfunctional so-called 'market' economy is doomed, we need a lot more such experiments, a renaissance of the commons, an understanding of collective processes, and a great variety of models, from which we can learn how to replace it when it collapses." (