A Proposal for Financial and Ethical Global Governance Reform

Article published May 1, 2020 by Jonah Wittkamper
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of the Global Governance Philanthropy Network.

Background

The global commons is under-managed and many systemic problems ranging from carbon emissions to ocean pollution continue to worsen.  By uniting blockchain, ethical payments and new governance strategies, this article proposes a systemic solution that could scale if aligned with the right partnerships and policies.

Our failing global governance

Research on the commons, including work by economist Elinor Ostrom, demonstrates that to achieve sustainability we need mechanisms for rule-making and accountability.  Without such mechanisms our environment will fail, yet today, our system of global governance comes up short.  The Paris Climate Agreement is unenforceable and the UN security council continuously blocks major reforms of the international system.  Instead of a system of global law we have a patchwork of competing national interests and a political allergy to anything that might challenge national sovereignty.  The result is an accountability vacuum that thwarts effective action on trans-national issues like refugees, nuclear weapons, human trafficking, cybercrime, environment and much more.  New systems are needed.

Innovation as a pathway to success

Buckminster Fuller, the futurist, encouraged change agents to fight the system less, and instead build new systems that makes the old ones obsolete. Innovation is often the catalytic turning point for cultural and industrial revolutions, with the printing press and the transistor as two leading historic examples.

Signals from the financial sector

Relevant for the global commons, the financial services sector has been a hotbed for innovation.  The past 10 years has seen a dramatic rise of social and environmental accounting in both investing and corporate governance.   In 2017, 30+ central banks joined forces to form the Central Banks and Supervisors Network for Greening the Financial System and to ask, “If the purpose of a central bank is to stabilize a currency, should it also stabilize the climate?”  Numerous other organizations have come online as well including the Climate Action in Financial Institutions Initiative, the Global Impact Investing Network, the Sustainability Accounting Standards Board, the Climate Bonds Initiative, the Carbon Disclosure Project and many more.  Also significant, however, has been the advance of cryptocurrency as proof that it is possible to decouple currencies from nation states.  To stay competitive, even the US federal reserve is exploring development of its own digital currency.  While some fear such innovation, others see a new way to solve old problems.

Inevitability of global currencies

Early on, most people doubted the significance of Bitcoin.  Ten years in, there are now thousands of cryptocurrencies but limited adoption.  Then, in early 2019, Facebook announced Libra, a new global currency governed by the Libra Association, a new Switzerland based non-profit composed of dozens of member organizations that work together in a democracy.  While Bitcoin and Libra may grab the headlines, the advance and adoption of global cryptocurrencies is inevitable.

Inevitability of responsible payment networks

In survey after survey, overwhelming majorities of consumers say that they are willing to pay more for socially and environmentally responsible products.  This trend has even reached retail banks with the creation of groups like the Global Alliance for Banking on Values.  The payment sector is beginning to catch up as well.  The American Express Red Card donated transaction fees to diverse charities while numerous university alumni associations offer school-branded credit cards where transaction fees support alma maters.  And finally, due to innovations in risk mitigation, new startups like Good Money offer financial kickbacks on payments in a mix of company equity, cash back, and environmental investments.  As payment innovations spread climate responsible transaction fees will grow.

The FEGG Proposal: An incremental, non-adversarial, and systemic opportunity for new finance and governance

These ethical finance trends present an opportunity for global citizens to design a new system of participatory global governance.  New global agreements among payment networks and cryptocurrencies could offer systems for rule-making and accountability.  Transaction fees could generate revenue to fund the “global commons” and merchant account policies could tax bad actors that have irresponsible environmental footprints.  The system could form the basis for a new kind of “world law” that could be voluntarily adopted by citizens, merchants and others around the world.  The proposal is simultaneously non-adversarial and systemic while permitting global incremental adoption.  For the purpose of this article, the proposal is called the Financial and Ethical Global Governance system or the “FEGG” system.

How would it work?

Transaction fees: Standard credit card fees in the United States cost about 3% per transaction.  A new FEGG-inspired fee of 0.25% would be imperceptible, but could make a big difference if collected into a “global commons fund.”  For example, while the GDP of the USA is about $21.44 trillion dollars and Facebook has about 2.5 billion users, it would only take adoption by 5% of Americans or 1.4% of Facebook Libra users to fund the annual budget of the UN Secretariat (assuming an average spend of $30,000 USD per year for Libra users).

Governance processes: Because our global governance accountability deficit is the primary driver of our global “tragedy of the commons,” designing a new, better governance system is the most important task before us.  The FEGG system would need a wide-reaching legal foundation and the consent of people.  A global constitutional convention with online and offline elements could start the process.  In order to enroll currency designers and payment networks, some form of global moral authority would be needed to justify “why us?”  Former Nobel Peace Prize laureates, leading philanthropists, and other globally admired allies could help guide the way in partnership with networks like those taking a Pledge of Interdependence. Policies could be developed to properly engage and represent nation states, NGOs, corporations, and common citizens.  Language like “participatory governance” instead of “democracy” would help to onboard China and similar democracy-shy stakeholders. Neutral deliberation processes like citizen juries can help the governance system tackle thorny issues without influence from corruption, propaganda or partisanship.  Economic incentives for usage of the FEGG payment network and taxes on specific transactions could provide mechanisms for accountability.

Compliance and reporting: Every merchant and citizen in the FEGG system would need to have a unique identifier to prevent fraud. This identifier could be developed through a biometric-sensitive cell phone app or government ID, but it would be the basis for commerce and political representation.  Simultaneously, the system would need to support and align with globally compliant Know Your Customer policies.  Finally, third party corporate auditing providers will be needed to help structure policies that, for example, govern how to tax merchants with bad carbon footprints.

Adoption strategy: To facilitate adoption, the FEGG system would need to develop partnerships with industry associations like the Electronics Transaction Association, the Center for Payments and others to help enroll Visa, Mastercard and other stakeholders in aggregate.  As a US domestic strategy, the FEGG system can use Philanthropay or Groundswell LLC to launch the first climate-responsible credit card.  A similar strategy can be developed for other countries.  As a product it would appeal to activist consumers as the first “global governance responsible” financial system.  By partnering with Avaaz (50 million members) and other civil society groups the system could offer loyalty cards that benefit each promotion partner financially.  As the system grew to enjoy the participation of millions of consumers, it would compel more and more merchants to sign on because they would not want to miss out on the ever expanding market of consumers.

Developing moral authority: By using corruption-proof technology like blockchain and having both a transparent and participatory design, the FEGG system would carry some moral authority by way of structure.  A public awareness enrollment campaign would be important, as well, to on-board the public, governance experts, celebrities, artists, NGOs, political leaders and other stakeholders.  By exercising public moral authority, an ever widening coalition of partners would adopt the system.  In some cases, entire institutions like mission-centered foundation endowments could switch their financial infrastructure to the system, thereby bringing in billions of dollars at once.  If designed to sway financial markets, the FEGG system could boast that it is the first “climate and global governance responsible financial system.” Many of the lessons learned from the wider divest-invest movement could be relevant here.

Key design principles: To help ensure an effective FEGG system, the design process should adhere to the following principles.

  1. Scope: The decision-making authority of the FEGG system should embrace the principle of subsidiarity to ensure that any problem is governed from the level and context from which it arises. This principle would prevent global control over local issues and make the system unthreatening to notions of national sovereignty.
  2. Control vs. Consent: All governance systems face a choice about citizen participation with a spectrum that ranges from direct democracy to autocracy. According to recent polls most people prefer democratic systems suggesting that participatory global governance is more viable than the autocratic alternative.   By offering consumers a choice to make payments via FEGG compliant systems or traditional systems, we could help bypass protest of climate-related taxes such the Yellow Vest Movement of France that was sparked in part by the TICPE tax.
  3. Corporate Allies: Due to potential risks, transnational corporations prefer to conduct business in corruption-free environments and would thus prefer FEGG compliant systems and advocate for them when the need arises. As a consequence, the FEGG system could help create mechanisms to reduce corruption in countries with questionable political regimes.
  4. Influence of High Integrity: Climate responsible policies developed within strategic commercial jurisdictions can have a positive influence on the wider global community. This principle was on display in July of 2019 when automakers adapted their global fuel efficiency standards to match the emission requirements of California.  In line with this principle, the FEGG system could grow to positively influence all industries.

Implementation

To facilitate FEGG adoption and growth we could develop an iterative, multi-year process of planning, enrollment, technology design, policy development, and more.  Some key steps of the implantation plan are suggested here.

Adoption Pledge: In order to enroll key corporations, payment networks, cryptocurrency designers and other stakeholders, the FEGG team could develop an adoption pledge and secure signatories.  The pledge would invite institutions with endowments, financial services companies, select personalities and others to publicly endorse the FEGG regime and to use it when it comes online.  This signaling will help persuade many stakeholders to come on board with payment networks (Mastercard, Visa, etc.) as the core audience.

Packaging and Promotion: A campaign could be conducted to raise awareness about the FEGG proposal and sell it to key audiences of investors, political leaders, and other influencers.  Focus groups could be used to craft messaging and understand how to effectively engage prospective users.  Steps would be taken to develop presentations on the idea at key venues including the World Economic Forum, Skoll World Forum, Milken Global Conference, TED, NEXUS and more.  In addition, constituency-specific sales teams could help to promote FEGG adoption in multiple verticals across industries and nations.

Legal Foundations: One significant challenge of global governance reform is the question of international law.  How can you create new judicial structures that have standing yet both protect the commons and cross legal jurisdictions?  How can we learn from the jurisprudence of “rights of nature” advocates and the story of the Ecuadorean constitution that upholds it?  Could the Earth Charter and other attempts at shaping global law serve as a foundation for our efforts or are they mere references for inspiration?  The FEGG team could explore these questions and prepare a set of recommendations for the future constitution of the system.

Climate Investment Strategy: In the early years, FEGG revenue from transaction fees would be modest and as a result all investment strategies would need to be highly leveraged.  With climate change as an urgent starting point, the FEGG team would conduct research on climate-related financial flows and how to influence them, improve their efficiency and inter-operability.  With a global carbon market estimated to be worth $82 billion there are still many unresolved questions such as how to avoid incentivizing new pollution when current mechanisms pay for avoided pollution.  Among several subjects, research could focus on the efficiency of investing in carbon sequestration through ecosystem performance vs. investing in the mitigating technologies of polluters.  Finally, given the possibility that FEGG could be responsible for stewardship of large financial reserves research could be conducted on for-profit conservation investments that both sequester carbon, preserve habitat and a produce a positive financial return.

Technology Platforms: In order to help facilitate scenario planning, prototype development, and experimentation, the FEGG team could produce a list of technology needs and explore technological solutions to them.  Two leading needs would be digital identity and online democracy.  Fortunately, solutions may already exist through the offerings of the I2020 Alliance and Democracy.Earth.  Other needs and solution providers could be identified in an ongoing basis.

Global Governance Philanthropy Network (GGPN):  In order to help bring the FEGG proposal into the philanthropic sector, the team could partner with the Global Governance Philanthropy Network.  As funders of diverse transnatlonal issues with significant philanthropic endowments, the GGPN members could become the early FEGG adopters.  (It should be noted that the GGPN was founded by the author of this article.)

Responsible Currency and Payments Coalition (RCC): In order to help spread a culture of responsibility and climate sensitivity among cryptocurrency and payment networks, the FEGG team could support the development of a new institution called the Responsible Currency and Payments Coalition.  The RCC would encourage all digital currencies and payment networks to implement meaningful transaction fees that help pay for issues of the global commons such as climate, oceans, refugee management, and more.  The Coalition could also promote international, participatory, governance processes to manage transaction fee collection and payments in support of the global commons.  As it grows, the Coalition would research and report about international standards for Know-Your-Customer compliance to help thwart activity of bad actors.  And finally, the Coalition would support auditing, quality control and other “watchdog” activities that monitor select cryptocurrencies and payment networks to ensure responsible behavior.

Interventions for Next Year and Beyond

During the course of the following year, the FEGG team could develop partnerships with a number of key institutions to both test the viability of the project and promote its development. Discrete budgets and teams could be organized to advance each of the design and implementation actions outlined above, including:

  1. The Adoption Pledge,
  2. Packaging and Promotion,
  3. Legal Foundations,
  4. Climate Investment Strategy,
  5. Technology Platforms,
  6. The Global Governance Philanthropy Network, and
  7. The Responsible Currency and Payments Coalition.

In addition to this stream of actions above the FEGG team could explore making interventions at leading forums dedicated to global decision making such as the World Economic Forum and the UN General Assembly.