Private & Public Governance

November 1, 2010

Final Thesis Paper

Thesis Question

What inherent flaws of governance result from functioning in a monetary economic system,
and how does this system contribute to various societal problems and global challenges?

By Markolf von Ketelhodt

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Table of Contents
Thesis Question..........................................................................................................................................1
Thesis Statement........................................................................................................................................3
Introduction................................................................................................................................................3
The role of governance and political-bureaucracy in a monetary economy..............................................3
The problems and limitations of governance and bureaucratic politics within a monetary economy.......5
The role of money and banking systems..................................................................................................10
Conclusion:..............................................................................................................................................12
A Resource Based World Economy and existing 'real-life' innovative projects that are possible
alternatives to our current systems that are in place................................................................................12

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 Thesis Statement

The role of governance within a monetary economic system has served humanity well as a guiding
platform for social, industrial and economic growth and development. However, humanity now has the
technological and intellectual resources to transcend the traditional role of governance within economic
systems, to create a more sustainable world. The true governing power within monetary economic
systems lies in monetary policy, not elected politicians and government officials.

Introduction

This paper explores the inherent limiting aspects a monetary economic systems has on social
development and how the role of governance and bureaucratic politics presently contribute to these
limitations. This paper explores the general concepts of governance and bureaucratic-administrative
politics and how these function within a monetary economy, and discusses the limitations and problems
associated with them. Possible alternatives that could resolve various problematic factors of our current
societal framework will also be explored.

The role of governance and political-bureaucracy in a monetary economy

To begin with discussing the thesis statement, it is vital to understand and define what governance,
bureaucratic politics and a monetary economy are, and how modern society functions in terms of the
private and public sector.
Modern societies means of operation is largely divided between two sectors; the public sector
and the private sector. The public sector consists largely of government institutions whilst the private
sector is mainly run by private groups or individuals.1 Public services are those services that
governmental institutions provide to the general public and are largely financed through taxation. These
services include trash disposal, the sewage systems and on a larger scale health care systems and public
education. It is important to realize that the boundary between the public and private sector is not a

1
Website: http://www.bized.co.uk/educators/level2/busactivity/activity/intro15.htm, sourced September 13, 2010

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clear cut, defined boundary. Blurring between the sectors occurs in a number of different ways.
Privatization or etatisation, deregulation or re-regulation, marketisation or collectivization as well as
incorporation or corporatization are all factors that significantly influence the boundary between the
private and public sector.2
Governance falls under the public sector and is the act of governing in terms of decision
making, granting power, problem solving and verifying performance, preferably to enhance and
encourage positive outcomes. The act and responsibility of governing can fall under one individual or
the whole of humanity. In political terms, governing can fall under various forms; either democratically
elected, enforced dictatorships or communistic governance, Islamic governance, non-profit governance,
etcetera.3 Ideally, the role of any government can be summarized “to assist in defining the most humane
and appropriate ways to manage environmental and human affairs.”4Besides ensuring and enforcing a
safe and comfortable environment for the citizens within the nation, a government is also responsible to
safeguard and secure the nations people from external threats or enemies.
It is clear that there are various forms of governance, but traditional functions of governance
include three main concepts: hierarchy, markets and networks. Hierarchy primarily consists of a top-
down form of accountability in state bureaucracy.
The concept of networks in governance concerns the relationship between the public and private
sector, also known as PPP (Public-Private-Partnership) or with collaboration of community
organizations.5
Markets involve the role of the market mechanism where competition serves to allocate and
distribute resources, and acts as a incentive for technological and social development. The function of
the market mechanism and its operations generally fall under government regulation but predominantly
function within the private sector.6
Bureaucracy is the combined structure of various organizational branches of the government,
private corporations and other interest groups that aim to regulate governmental decision making and
procedures. “Max Weber describes the bureaucracy as a ''rational'' way for society to organize itself;
they are found not only in government but throughout society.”7
2
Week 2 Power Point Presentation about the Blurring of the boundaries between the Private and Public Sector, by F. van
der Meer, September 14, 2010
3
'The Best That Money Can't Buy', Jacque Fresco, 2002, 71
4
'The Best That Money Can't Buy', Jacque Fresco, 2002, 8
5
Public-Private Partnership, http://ppp.gov.ie/, sourced October 28, 2010
6
Wikipedia, Governance, http://en.wikipedia.org/wiki/Governance, last modified on 7 October 2010, sourced on October
27, 2010.
7
Pearson; Politics in America, http://wps.prenhall.com/hss_dye_politics_6/27/7114/1821356.cw/index.html, sourced

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 Various models, policies and laws are developed in an attempt to ensure that a governments
actions are desirable for the general public and do not fall victim to corruption, political infighting,
favouritism such as nepotism, among other degenerations. But laws, policies and political models are
just guidelines to preferred outcomes, and often do not resemble reality at all. Woodrow Wilson, the
28th president of the United States was aware that the political models hardly ever come close to the
conditions of reality. Wilson's political-philosophical ally, Max Weber, a famous economist, historian,
lawyer and sociologist noted that “a real bureaucracy will always be less optimal and effective than his
ideal type.”8 Both Weber and Wilson were advocates of the so called 'Formal-Legal Model'. In today's
society, the administrative relationship within bureaucratic politics, only partially resembles the
Weberian and Wilsionian models characteristics. 'Modern' models such as the Village Life Model, the
Functional-Village Life Model, the Adversarial Model and the Administrative State Model all influence
the reality. These models are frameworks that aim to control the behaviour between political office
holders and civil servants, and hence government activities in general.9
Both governance and political-administrative bureaucracy work together and act as the
controlling and regulating authority of modern society. One thing that is often missed when exploring
the nature and role of governance and bureaucracy, is in what context and in what environment they
exist and function in.
All of the historic, as well as present day, governing bodies and bureaucracies function(ed)
within a economic framework that use(d) barter, money or credit as a mechanism to trade goods and
services. At present, the world economies use money, in form of different currencies as the generally
accepted medium of exchange. This is exactly what a monetary economy is; “a society's economy
where products and services are traded in exchange for money.”10

The problems and limitations of governance and bureaucratic politics

within a monetary economy

The development of the economic systems throughout history has served humanity well and evidently
resulted in the extraordinary technological progress, which excelled during the industrial revolution. It

October 23, 2010

8
Wikipedia, Bureaucracy, http://en.wikipedia.org/wiki/Bureaucracy, sourced on October 23, 2010
9
Representative Government and Top Administrative Officers: A Comparative Historical Approach to political-
administrative relations, Caspar F. van den Berg, Frits M. van der Meer, Jos C.N. Raadschelders, page 13
10
Investor Dictionary, Monetary Economy, http://www.investordictionary.com/definition/monetary-economy, sourced on
October 27, 2010.

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also increased the standard of living in numerous countries, increased global awareness of other
cultures and can in essence be described as globalization. This predominantly benefited the western
nations, or so called Economically More Developed Countries (EMDC's).
Even with all the good that economic and technological developments brought, humanity at
large still suffers greatly from various problems that still persist; unemployment, hunger, victims of
war, victims of curable diseases, over population, environmental changes, unequal distribution of
resources, exploitation of less developed countries by stronger nations, deforestation, poor sanitation,
lack of safe drinkable water, and the list goes on. All of these problems should be the number one
priority for governments to solve on a national and international level, but where there is no profit to be
made, there is little incentive to lend a helping hand.
Besides the fundamental 'natural' problems that face humanity, many problems arise from the
monetary economic system it self. Jacque Fresco, a social engineer and industrial designer explains that
“all of the world's economic systems – socialism, communism, fascism, and even our free enterprise
capitalist system – perpetuate social stratification, elitism, nationalism, and racism, based primarily on
economic disparity.” According to him, “as long as a social systems uses money or barter, people and
nations will seek differential advantage by maintaining their economic competitive edge or by military
intervention”.11 The main problem is that in a monetary economy the aim is to generate profit and the
concern for the well-being of people and environment is always second. This is true for all institutional
levels, from governments to private corporations.
In his book “The best that Money can't buy” Jacque Fresco points out the flaws of the current
systems as follows: Governments enact various laws in an attempt to control and manage society. He
argues that everyone is screaming for laws that would relieve hunger, poverty, oppression, corruption,
war and scarcity but the answer lies not in laws, but in removing the conditions that are responsible for
creating the problems in the first place. A law can not solve any problems, for if it could, there'd be no
more crime. Instead laws aim to manage or avoid problematic human behaviour. He also argues that
when a nation creates laws to regulate human behaviour, the majority of legislators are unaware of the
factors responsible for the need of these laws.12
Furthermore, Fresco finds no evidence of deliberate planning, by any government to design a
sustainable and workable social system that would improve the lives of everyone.13 No government

11
'The Best That Money Can't Buy', Jacque Fresco, 2002, 31
12
“The best that Money can't buy” Jacque Fresco, 2002, pages: 71-74
13
“The best that Money can't buy” Jacque Fresco, 2002, pages: 71-74

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asks: 'how do we get rid of poverty?', 'how do we eliminate hunger world wide?', 'how do we eliminate
crime altogether?', etcetera. These are technical problems, which demand technical solutions, and the
problem herein lies, that the technical solutions that could solve most problems, often do not generate
any profit. Technicians, engineers, sociologists, biologists, psychologists, scientists in general, are those
who seek out to identify a problem and then aim to solve it. Lawyers, politicians, business men and
women, and government officials have never been taught to solve problems and are not paid to do so.
They are paid to generate profit through managing problems. Crime, corruption and misbehaviour on
commercial or individual levels, can be managed by creating and enforcing laws, but cannot be solved.
Unequal distribution of resources is the main cause for individuals to commit a crime, and laws
cannot solve the problems of (financial) inequality. If a person is hungry and has no money, no capital
to trade in order to acquire food, he or she will be forced to steal, no matter what laws are in place. The
task to solve the problems of crime and other unfavourable behaviour, is that of sociologists and
psychologists, not politicians. The first thing that behavioural biologists learn, is that the environment
an organism lives in, shapes and influences the behaviour of it.14 If there is a scarce amount of food in a
chimpanzee cage in a zoo, the animals will fight each other in order to secure enough food for them
selves. The same applies to chimpanzees in the wild. So its not the cage or the jungle that is the only
factor that constitutes the nature of the environment, but the availability of resources is an integral part
of the environment. This example of how scarcity influences behaviour is not only true for
chimpanzees.
Furthermore, in a monetary economic system, crime is a multi-billion dollar industry. Privately
owned prison systems, guards, private security companies, police, lawyers and judges all function and
earn a living through managing crime. Eliminating crime all together, would put a lot of these people
out of business. Crime, as harsh as it might sound, creates jobs and it almost seems 'unprofitable' to
eliminate crime all together.
In a monetary economy, or one could even say, a monetary environment, where artificial value
is assigned to natural resources, goods and services, scarcity will always be an integral part of the
environment and unfavourable behaviour of those who are less fortunate will persist and is a natural
consequence. The worst thing that occurs within a monetary economy, is that scarcity is often
encouraged and maintained, and if something cannot be sold, it is thrown away instead of given to

14
EMBO Report, Science & Behaviour, “The biology of behaviour: scientific and ethical implications”,
http://www.nature.com/embor/journal/v8/n1s/full/7401012.html, sourced October 30, 2010

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those who might need them. A good example of this is when many food products from Africa were
destroyed because they could not be flown into Europe, due to the volcanic eruption in Iceland.
Furthermore, if something is scarce, the price or value of the good or service rises, hence more
profit can be made. This is part of the economic laws of 'Supply & Demand', and corruption occurs
when supply is manipulated so that profits can be increased.
This is especially dangerous when a specific industry has a monopoly over a good or service.
These problems are commonly associated to the private sector, which is misleading. The private sector
and public sector work together, especially when it comes to the natural resources. The blurring
boundaries between the private and public sector, also contribute to the unclear nature of these
problems.
If a government can make more money on oil, by holding a monopoly for it, it will do so and do
anything deemed necessary to keep its position of power. This is corruption in its most fundamental
form. Not only is a monopoly over resources dangerous, but a monopoly over a currency is just as, if
not more dangerous as it perpetuates corruptive behaviour, encourages scarcity, financially cripples
already weak nations and can even lead to international conflict.
The US Dollar is a good example of exactly this, and shows how unfavourable behaviour of
governments and large corporations is motivated by keeping a competitive edge over other nations on
the international market. In the article “Macroeconomic and Geostrategic Analysis of the unspoken
truth”, William R. Clark discusses the implications that the petrodollar has on global trade and
international relations.
The petrodollar is a term that was coined in 1973, by Ibrahim Oweiss, a professor of economics
at Georgetown University, and describes US-dollars that are used to buy or sell petroleum from OPEC
nations (Organization of the Petroleum Exporting Countries), which include Iraq, Angola, Iran,
Ecuador, Nigeria and many others.15
It is common knowledge that whenever one buys oil, gold, platinum or other natural resources
on the international market, the exchange is always done using the US dollar. To explain how this came
about requires a book in itself, but what it implies is that the US dollar essentially monopolizes global
trade.
To illustrate the petrodollar cycle it is a good idea to use a simplified example: When a country
like Japan wants to buy petroleum from a OPEC nation, they need to pay them in US dollars. Since

15
Wikipedia, petrodollar, http://en.wikipedia.org/wiki/Petrodollar, sourced October 28, 2010

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Japan does not use the US$ as its own currency, they have to exchange goods and services with
America in order to acquire US$. So they send products like Mitsubishi, Yamaha, Hello Kitty and other
Japanese goods and services to the US in exchange for US$. Now that Japan has US$ it can buy
petroleum from an OPEC nation. After the transaction, these dollars are in the possession of that OPEC
nation, which undoubtedly also has it's own currency and needs to get rid of these dollars. It does not
need to buy petroleum itself, since it's a producer, but can use those dollars to buy gold, platinum or
other resources, or it can choose to save the money in respective banks.
According to John Perkins, author of the international best seller “Confessions of an Economic
Hitman”, in the case of Ecuador, most of the dollars it earns from petroleum export flows directly back
to the US to pay off its foreign debt16. Not to mention that most companies that pump oil in Ecuador,
such as Texaco, are US based companies. The petrodollars earned through oil export flow through the
institutions such as the IMF or other international banking systems, and eventually end up back in the
US. Essentially, Ecuador is getting nothing in return for its oil. The headlines of a BBC article from
December 13, 2008, substantiates Ecuador's debt problem and reads: “Ecuador is to default officially
on billions of dollars of foreign debt it considers ''illegitimate'', says President Rafael Correa”17.
William R. Clark goes so far to say that this petrodollar cycle was the reason for the war in Iraq,
since Saddam Hussein switched from selling oil in dollars to Euros, and this switch, if replicated by
other OPEC nations would have an immense impact on global trade. If this theory holds any merit, one
can see how a governments behaviour is directly influenced by macroeconomic conditions and
influences geopolitical relations and stability.
These problems of global trade do not only concern natural resources, but everything from
clothing production – sweat shops in China, to the agriculture sector. Policies like “Fair Trade” aim to
manage these problems, but again, they cannot solve them.
Further problems arise when blurring between the private and public sector occurs and this is
especially relevant when considering the relationship between Dick Cheney, defence secretary under
the Bush administration and two times running Vice President of the United States, and Haliburton, a
private construction company that is employed in the Iraq war. During the Clinton administration,
Cheney was out of the white house office, but acted as the CEO of Haliburton, in which he still holds a
majority of the shares. One can question whether Haliburton's involvement in the Iraq war, was

16
“Confessions of an Economic Hitman”, John Perins,
17
BBC, “Ecuador defaults on foreign debt”, http://news.bbc.co.uk/2/hi/7780984.stm, Page last updated at 00:49 GMT,
Saturday, 13 December 2008, and sourced October 30, 2010

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influenced by the position held by Cheney. The fact that private companies are involved in military
conflict in the first place begs the question whether they are aiming to resolve the conflict or prolong it.
Prolonging it, in fact would mean longer business contracts and hence bigger pay checks for these
companies. Blackwater, the largest privately owned 'security' company, Typhoon and other companies
also benefit when armed conflict occurs. Another problem that these companies pose, is that they do
not fall under military or governmental accountability. They are private companies, and hence, their
violations of law, must be dealt within the legal system of the country in which the crime was
committed. This is especially problematic, if the country in question does not have a functioning legal
system, and hence atrocities such as those that occurred in Abu Ghraib or Guantanamo Bay, can almost
go unpunished.
In a monetary economy the well-being of the people within any nation is rarely on any
governmental or private organizations list of priorities. The distribution of wealth and resources is and
always will be unequal and poorly managed, simply because of greed and personalistic interest in
accumulating wealth. The problems that are associated with governmental or private institutions are
predominantly rooted in the problems that arise from the use of money. Governance in a resource based
economy would be less prone to support or encourage unfavourable behaviour, because it is/will be
designed to function without the use of money, debt, credit or any form of artificial value that promote
deferential advantage.

The role of money and banking systems

Besides understanding how money is used on a micro-and-macroeconomic scale and how it influences
international relations, it is essential to understand how money is created in the first place and how
governments are involved in this process. Almost all monetary policy is carried out through national or
international central banking systems. In Europe its the European Central Bank which implements
monetary policy, in Britain its the Bank of England and in the United States its the Federal Reserve
Bank. It is important to realize that these banks are not owned or controlled by the government.
The banking systems work in the 'Grey area', the 'blurred boundary' between the public and
private sector. The Federal Reserve Bank, for example is the central banking system in the U.S. and it's
'duties' are “to conduct the nation's monetary policy, supervise and regulate banking institutions,
maintain the stability of the financial system and provide financial services to depository institutions,

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the U.S. Government, and foreign official institutions.”18 The Federal Reserve is a privately owned
institution, where its chairmen are not elected, but selected and do not have a limited time in office.
Alan Greenspan, served as the chairman of the Federal Reserve from 1987 to 2006, longer than any
President in office19. Being a private organization it is more likely to make use of “personalistic” rather
than “rational” criteria in decision making. 20
Besides being privately owned, mostly by a group of individuals or organizations like smaller
banks, central banks are capable of in-debting a governments/nation through money creation. In the
case of America; if the US government needs money, it prints and assigns value to government bonds,
which it exchanges with hard cash that the Federal Reserve then prints. The money that the 'Fed' prints
and gives to the government or other smaller banks, is just a loan and eventually needs to be repaid
with interest to the Federal Reserve Bank. Where does the money come from to repay the loans +
interest? Through trade or exploitation of other nations!
It is note worthy to mention that the procedure of money creation differs from bank to bank and
country to country, but the overall principle remains the same; that it's the banks that indirectly control
governments and economies through how much money they lend and at which level they set the
interest rates.
Most modern banks create money out of thin air by using a loaning system called 'Fractional
Reserve Banking'. This allows banks to essentially loan up to 90% more than they have in reserves.
This splits the perception of how much money there is into two categories; the perceived amount and
the actual amount. Explaining and understanding the entire process of money creation and distribution,
requires much more research and time that is not feasible in the scope of this paper.
Governments, like any other institutions rely on money to achieve their political agenda.
Without money, a government is powerless. The question of who controls the money of a nation and
hence the nation, is simple to answer: the banks.
Interest and debt are modern tools or non-invasive weapons that are used to control populations,
nations and trade. So money has evolved from a medium of exchange, to a means of control. The latest
financial crisis showed the world just how powerful the misuse of money can be, and how powerless
governments are concerning this.
18
FAQ's answers on the official Federal Reserve website: http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm,
sourced October 28, 2010
19
NNDB – “Tracking the entire world”, http://www.nndb.com/people/164/000023095/, sourced October 28, 2010
20
“Social Capital and the Public Sector: The Blurred Boundaries Between Private and Public”, Judith Tendler,
Department of Urban Studies and Planning, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139, 11
April 1995, page 2

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 One thing is very important to understand, and that is that the behaviour of these international
bankers, of corrupt government officials and CEO's is a bi-product of the environment they function in.
To get rid of this unfavourable behaviour, one has to get rid of the environment that encourages and
allows such behaviour to begin with.

Conclusion:

A Resource Based World Economy and existing 'real-life' innovative

projects that are possible alternatives to our current systems that are
in place
The visionaries and political ideologies attempt to improve the lives of people by instigating changes
within the established social structures of a monetary economy. The communists aimed to end
capitalism and advocate state-ownership, whilst the Fascists create dictatorships of the rich and
powerful. Democracies attempt to secure international peace and liberate people from oppression by
giving them the power to vote, whilst religious groups aim to spread their beliefs and crusade to
simpler times, advocate family values and the teachings of their charismatic leaders. Non of these take
into account the environment that they all function in. Since all function in the same environment the
behaviour of various groups are all quite similar. Democracies like the US want to spread democracy,
much like Islamic radicals aim to spread Islam.
A proposed alternative to the current systems in place, that aims to eradicate negative
degenerations, is the concept of a Resource Based World Economy, which calls working to improve the
environment itself, by applying the scientific method in accordance with natural law. Promoted and
developed by industrial designer and social engineer, Jacque Fresco, 94 years of age, a resource based
economy is a concept that proposes a “system in which all goods and services are available without the use
of money, credits, barter or any other system of debt or servitude.”21 On first glance it may sound quite
idealistic, but on the contrary, this system works by abiding to natural law and using the scientific
method to solve problems. Solutions are arrived at through calculations, evidence and data, as opposed
to personal opinion, political and economical agenda and motivations, or emotional decision making.
The unifying imperative of a resource based world economy is that it regards the world's resources and
technical information as the common heritage of all nations and people, to be used for the benefit of all
and not only the fortunate few. A resource based economy requires a large change in human and
21
http://www.thevenusproject.com/a-new-social-design/resource-based-economy

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interpersonal relations so that laws are no longer necessary to control or regulate human affairs.22 This
can be achieved through devoted and rigorous collaboration of psychologists, sociologists and various
scientific disciplines to work together in setting up and consciously designing a social living
environment that has the human need and necessities at its highest priority.
Instead of making and enforcing laws that would manage certain problems, social engineers and
scientists would work towards solving the root of the problems regardless of and unhindered by the
desire to generate profit. Consider the law against driving under the influence as an example: it is
illegal to drink and drive because of the obvious dangers these actions pose to the driver and to
innocent by-standers. The laws against driving under the influence do not solve the problem, since
people still get behind the wheel after one to many beers. Instead of making it illegal with laws, make it
impossible to do so in the first place. The problem is technical, which requires a technical solution.
Instead of using a key to ignite the engine of a car, design a start mechanism that involves a
breathalyser. Most problems within society are technical and require technical solutions, not laws to
solve them.
People will understand that their personal well-being is directly linked to the well-being of the
community. If one consciously designs a environment with the intent to eliminate unfavourable
behaviour, and that motivates humans compassion, empathy and respect towards nature and each other,
a lot of the problems of today could be solved.
The role of governance in a resource based world economy will not be in the responsibility of
individuals who only temporarily serve their country, but would fall under the responsibility of the
entire human race. This is where education comes in. A new social design would require a redesign in
our education system.
The entire concept is a “post-modern model”, which can be used as a guideline to help solve
many of the problems we face today. This is not something that can be achieved over night nor does
Fresco imply that his model is the solution to all problems. The whole concept of a resource based
economy also needs far more in-depth analysis, research and development before it can be applied in
reality. It is but a blueprint for a possible alternative to our current systems of control. Einstein, who
was a personal friend of Fresco, said that one can only solve a problem with a different kind of
consciousness that created it.23 Law, governance and the bureaucratic administrations of today can
never fully solve the problems simply because many problems that exist today are a result of law,
22
“The best that Money can't buy” Jacque Fresco, 2002, pages: 6, 71-74
23
http://quotations.about.com/cs/inspirationquotes/a/ProblemSolvi2.htm

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governance or economic conditions. Fresco rhetorically asks whether we can grow beyond thinking
that “someone” has to make decisions for us, and he aims to help creating a society that has a symbiotic
relationship with nature as opposed to a relationship of exploitation and destruction.24

Word Count: 4507 words (including quotations)

24
“The best that Money can't buy” Jacque Fresco, 2002, pages: 74

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