PCDForum Column #20 Release date December 1, 1991
by Donella Meadows
The fashionable solution to the economic woes of a community, state, bank, or nation, is to open its boundaries.
The idea is that a larger system, more capital, bigger
markets or the involvement of more parties will somehow
solve the problem. It would be wise, however, to look out
the door before opening it to see what’s waiting to come in.
Free trade, free banking, free movements of capital can
create problems of their own.
The experience of my own once rural community in
the Northeast United States demonstrates the consequences
of huge waves of money sloshing around looking for quick
returns. About 10 years ago, land values around here
started to rise. That attracted some smart money, which
made values rise more and caught the attention of still more
Pretty soon any old house or woodlot was increasing
in value by 25 percent per year. Money flooded in. Old
houses and wood lots turned into subdivisions, condominiums and shopping malls–way more than anyone needed.
Then the bubble burst and the money drained away with
amazing speed, seeking 25 percent returns somewhere else
and leaving behind a trail of bankruptcies.
We who live here were hurt on both the upswing and
On the upswing, farmers and small businessmen
couldn’t compete for land or storefronts against out-of-staters with huge bankrolls. Only the rich could buy
houses. Large parcels were snatched up, logged over, and
spit back out onto the market in small lots. Taxpayers were
faced with million-dollar school-expansion bonds. Roads
had to be widened. Landfills filled up. Easy money attracted sharks, resulting in scams and scandals that undermined the integrity of local government.
On the downswing, we’re the ones who became
unemployed. Local business that had geared up to service
the boom found themselves over expanded. As land and
housing prices fell, some people found themselves in
technical bankruptcy; though they had met every mortgage
payment, the value of their property no longer provided
collateral for their loan. Banks failed. Local and state
governments went into deficit. Taxes rose to repay government bonds issued to finance the expansion just as we were
least able to pay them.
On a recent visit to Southeast Asia I found Bangkok
caught in a similar dynamic. Thailand is Asia’s hot spot
these days, the place of 25 percent returns, the magnet for
panicked capital leaving Hong Kong and for investors from
Japan seeking cheap land and cheap labor. In a 70-mile
circle around Bangkok, you can see construction booms
everywhere. Billboards announce the coming of office
buildings, condominiums, shopping malls, tourist hotels.
Is this the development Thailand needs? The profits go
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. Bangkok
residents breathe in the dust of construction, swelter in
persistent traffic jams, and live with pollution that is
blighting the new resorts and turning the tourists away.
Eventually there will be a crash, vacancies, bankruptcies,
when capital flows out again to Asia’s next hot spot.
In downtown Bangkok a shiny convention complex
was being rushed to completion in order to host the World
Bank/IMF conference held there in October. The government leveled a nearby squatter settlement so high-level
visitors wouldn’t get the wrong impression about Thailand’s economy. To save the international dignitaries from
Bangkok traffic, officials closed the schools for three days
and declared a government holiday.
There is a vast difference between responsible investment and the tidal waves of loose money that wreak such
havoc around the world. Responsible investment is rooted
in the community and recognizes that a community can
sustain economic 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. Experience suggests that such
conditions depend on government placing 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.
Donella Meadows is an independent researcher and syndicated
columnist on global issues and an adjunct professor of environmental studies at Dartmouth College. This column was prepared
and distributed by the PCDForum based on her syndicated
column of the same title published in the Valley News. Her
address is P.O. Box 58, Daniels Rd., Plainfield, VT 03781,