The Theory in Action
What will the new banking system be like in practice? It will be all about how a bank uses Trust. The traditional balance sheet will diminish in relative importance and trust will become the new basis of leverage. This link will show you the reasons why this is so.
Now we go beyond the theory and this post will offer case study of the emerging realities of the new post-industrial agricultural system – the Pasture Based system.
In it we will see all the rules of new Networked Banking system applied. In it we will see how Trust imbues everything.
Pasture Based Food is a response to the Trust and the Margin problems in our current food system.
I have picked the Pasture Based Food System because it is the Tipping Point of the shift from the prior industrial model to the new networked model. If we see this model clearly, then we see all that is to come. Remember there was an Agricultural Revolution before the Industrial Revolution. (More on this here)
Here we can see the Network characteristics embodied in the Pasture system. See how they change the essential idea of value towards Trust. See how this need for Trust changes relationships and then imagine how banking will have to change to serve this model.
- It is made up of very small nodes. In the Pasture system, herds and operations have to be kept small so as the ensure the best fit with the animal to the environment. The farmer is selling Trust. Trust that the food is safe and that her practices help the environment. To do this, farms have to be small. They cannot scale vertically. These small limits are governed by how nature works and not by engineering. 500 hens drop 200 pounds of nitrogen an acre. The most that land can take up is 300 pounds. Any more is wasted or worse runs off. (Joel Salatin) The nodes are all designed around nature’s limits. The traditional farmer is locked into a war with Nature and so locked into the costs. Traditional farming cannot compete on its own terms with this as Scale is the opposite in the two systems.
- Small Nodes are Scaled by Networks. 500 hens is a small supply but 1,000 flocks of 500 hens is a large supply. This is how “small” can be big and powerful. Visa International does a multiple of the transactions of any single bank. Visa is a Trust Mediator and Group Former. Thousands of banks are connected in a network of trust. This is how the small becomes huge and powerful. What bank wants to be ejected from Visa?
- Most of the resources in Networks are attracted in for free. In conventional farming the war against nature drives most of the costs such as diesel, machinery, chemical inputs. All have to be purchased. It’s an arms race that the conventional farmer has to lose in the end. But nature and the animals do most of the work in the pasture system. Nature becomes an ally rather than an adversary. So the need for capital is diminished and so is the need to draw down the natural capital and so lose trust. So in Networks, margins improve over time and effort is reduced. It is the opposite in conventional farming.
- Over time Networks become increasingly diverse and dense which increases resilience. Pasture systems use several breeds of animals in rotation on the pasture. Each adds its own value. Even labour! All the time the underlying core assets, the soil and the attendant natural systems increase in real value. The Traditional Farmer is locked into monoculture and hence the progressive devaluation of the soil and natural systems. In the end the traditional farm has to fail.
- Networks are governed by a purpose and by a few protocols. Pasture Systems have a declared purpose and a clear set of protocols or standards. Health is at the heart of this purpose. The epidemic of chronic disease is seen by many to be rooted in our industrial food system. There is a powerful convergence between the new farmers and the new market for Real Food. Such a high purpose drives trust and so brings in a broad movement of members that include the end customers and processors. The Traditional Farmer is locked into making a profit at the expense of all else. He is “owned” by the larger players in the system who all have their sole financial success as the goal. Over time the traditional system has to work against the interests of all except a few. In so doing they have to lose the trust and support of society.
- Networks are based on real relationships and not transactions – Most Pasture Producers sell direct to the public. Your real identity is vital. Even Whole Foods identifies its Pasture Farmers by name. Quality and Trust are personal. (This link shows you the math behind the limits to group size and trust) A personal system is trustworthy by design. Being personal means that the node cannot scale beyond the personal.
- In the traditional system the vast scale makes all relationships impersonal. So quality is mediated by regulators. These are often gamed and co-opted. Over time quality declines and trust is lost.
- As Networks Scale the value builds for all the members and not just for a few. Every class of member gets value. The producer, processor, distributor and the end customer. All add value to each other. This applies to services and goods than come in for free. This process is enhanced when formal trust mediation is established. Interac is a good example of this. The very opposite to the Traditional System where all the value accrues to a few at the top and trust is progressively lost over time.
So let’s now look more deeply at the new needs of the Network and see what a Credit Union would have to understand to meet these needs.