By Donella Meadows

–July 25, 1991–

The fashionable solution to the economic woes of a community, state, bank, or nation, is to open its boundaries. The idea is that somehow a larger system, more capital, bigger markets, the involvement of more parties will solve the problem.

It would be wise, however, to look out the door before opening it, to see what’s outside waiting to come in. Free trade, free banking, free movements of capital can create problems of their own. Huge waves of money sloshing around can destabilize ships of state.

The once-rural valley where I live, for example, gets money flows from the cities around it in cycles. About ten years ago land values around here started to rise. That attracted some smart money, which made values rise more, which caught the attention of more investors, who came in and bid up prices still more.

Pretty soon any old house or woodlot was increasing in value by 25 percent per year. That rate of return was irresistable. Money flooded in. Old houses and woodlots turned into subdivisions, condominiums, and shopping malls — way more than anyone needed. The bubble was sure to burst. When it did, the money drained away with amazing speed, seeking 25 percent returns somewhere else and leaving behind a trail of bankruptcies.

We who live here get hurt in both the ups and the downs of this cycle.

On the upswing good land disappears under half-acre lots and asphalt parking lots. Farmers and small businessmen can’t compete for land or storefronts against out-of-staters with huge bankrolls. Only the rich can buy houses. Large parcels are snatched up, logged over, and spit back out onto the market in small lots. Taxpayers are faced with million-dollar school expansion bonds. Roads have to be widened. Landfills fill up. Easy money attracts sharks — there are scams and scandals.

On the downswing we’re the ones who are unemployed. Local businesses that have geared up to service the boom find themselves overexpanded. As land and housing prices fall, some people find themselves in technical bankruptcy though they have met every mortgage payment — the value of their property no longer provides collateral for their loan. Banks fail. Local and state governments go into deficit. Taxes rise just as we are least able to pay them.

We benefit least from the flood; we are hurt most in the drought.

And if you think we have it bad, you should see Bangkok. Thailand is the hot spot these days, the place of 25 percent returns, the magnet for panicked capital leaving Hongkong and for investors from Japan seeking cheap land and cheap labor. In a seventy-mile circle around Bangkok you can see construction booms everywhere. Billboards announce the coming of office buildings, condominiums, shopping malls, tourist hotels. Last year a thousand golf courses opened in Thailand, many owned by and open only to members of Japanese sporting clubs.

Isn’t this development just what Thailand needs? No, it isn’t. The profits return to places far away. Only a few Thai people can afford the apartments and shopping malls that are displacing farms and villages. Most live in slums and work for low pay serving rich foreigners. The government struggles to provide water, electricity, sewage lines, and garbage dumps, not for the people but for the hotels. The citizens of Bangkok breathe in the dust of construction, swelter in traffic jams that never clear up, not even at midnight, and live with pollution that is blighting the new resorts and turning the tourists away.

In downtown Bangkok a shiny convention complex is being rushed to completion in order to host a World Bank conference next October. The government is leveling a nearby squatter settlement so high-level visitors don’t get the wrong impression about Thailand’s economy. To save the international dignitaries from Bangkok traffic, officials plan to close the schools for three days and perhaps to declare a government holiday as well.

Meanwhile money flows in to build more high-rises, with no sense of the ultimately supportable demand. There will be a crash, vacancies, bankruptcies. The capital will flow out again to wherever Asia’s next hot spot will be.

Is there any way to tame the tidal waves of loose money that wreak such havoc around the world?

The perfect solution would be a sense of responsibility on the part of investors for the communities and resources in which they invest. Their money is needed. Our valley needs affordable housing, loans for small businesses, bond buyers for schools and roads. Thailand needs everything — decent housing, schools, hospitals, farm machines, startup funds for coops. These investments could pay — not in heady booms and busts, but more stably over the long term.

Responsible investment is in fact self-serving, since a community can sustain returns only if its environment is intact, its infrastructure is adequate, and its people are educated, healthy, and sharing sufficiently in the wealth to create a market for its products. Responsible investment is unlikely to happen, however, unless governments enforce it by putting tough — really tough — restraints on the uses of outside capital.

If a government isn’t willing to do that, it’s best to keep the doors closed — to be patient and let the community grow through local businesses, local banks, and people who live in and care about the place where they put their money.

Copyright Sustainability Institute 1991