Partnership to Explore New Funding Sources for Innovators

30.10.2014 Blog

By Georg Mildenberger

In a 2013 SIR blog article, Rachel Schon discussed the TEPSIE telepresence, where Gunnar Glänzel and I highlighted the mismatch between the needs of innovators and the requirements of investors across six European countries. Briefly, we identified an overwhelming preference amongst innovators to receive funding in the form of grants and donations, rather than loans or other investments. In effect, innovators wanted autonomy and low-cost capital, something not easily obtained through commercial investment mechanisms. Meanwhile I learned about a fundamentally new approach that has potential to raise large amounts of grants, donations, and subsidies for innovators.

This October, Lorenzo Fioramonti, PhD, director of the Centre for the Study of Governance Innovation (GovInn) at the University of Pretoria, South Africa, and John Boik, PhD, founder of the Principled Societies Project, Houston, Texas announced formation of the LEDDA Partnership. This first-of-its-kind partnership is envisioned as a global, diverse set of academic, civil society, government, business, and philanthropy groups focused on ushering a new, parallel economic system through the development and pilot trial phases.

The economic system, called the Local Economic Direct Democracy Association (LEDDA) framework,  or synonymously, LEDDA economic direct democracy, represents a rethinking of economic purpose and money. Among other things, it uses money as a democratic voting tool, and distributes voting power by increasing and equalizing incomes. This is a local economic system designed to complement and compete with existing systems within local (city or regional) economies.

A LEDDA itself is a membership-based, community benefit association open to residents, businesses, schools, nonprofits, local governments, public services, and others that choose to participate. Each LEDDA governs its own local framework through an online direct democracy process, and all LEDDAs are networked together within a global association.

The LEDDA framework is comprehensive, including as elements a novel local electronic currency, intellectual property pool, financial system, online direct democracy governance system, socially responsible business model, and buy local program. According to Boik, who outlines the framework in his 2014 book Economic Direct Democracy: A Framework to End Poverty and Maximize Well-Being, “the framework diversifies, strengthens, and infuses a local economy with democracy, and in so doing empowers residents to address local and global issues of interest.”

One key characteristic is that the LEDDA framework employs new motivations for economic decision-making. Rather than focusing attention on strict self-interest (by rewarding individuals who strive for higher corporate profits and investor returns), it focuses attention on cooperation, via a process of maximizing community well-being. A LEDDA assesses and forecasts social, economic, and environmental well-being using modern data collection and computer modeling tools. It uses the results to guide decision-making, especially in the LEDDA financial system, called the Crowd-Based Financial System (CBFS).

The CBFS is a novel type of crowdfunding and participatory budgeting system. Each LEDDA member contributes money to the CBFS (in the form of national currency and a local electronic currency, called the token), and then decides which local for-proft, nonprofit, and hybrid organizations will receive support, and at what amount. Despite the requirement to contribute funds to the CBFS, the system is designed so that every participating family sees an income gain over baseline in every year. In effect, a LEDDA pays people to participate.

The CBFS provides zero-cost financing to nonprofits in the form of donations and interest-free loans, and to for-profits in the form of subsidies and interest-free loans. The entire system is highly transparent, and members know how and where currency is flowing at any given time.

A computer simulation model of currency flows in a virtual US county was published this October in the International Journal of Community Currency Research. The model illustrates how mean and median family incomes of members could rise by more than 260 percent, how incomes equalize as they rise, and how full employment could be achieved. Moreover, the LEDDA, which is located in an average-sized US county of 100,000 adults, eventually channels more than two billion in currency annually to local for-profit and nonprofit organizations (see Figure 1). Nonprofits can include schools, research centers, charities, and public service agencies. More sophisticated computer models are planned.

Work of the LEDDA Partnership will span such fields as education, ecology, labor, climate, poverty, public health, economics, finance, business, agriculture, sociology, manufacturing, law, computer science, statistics, technology, media, literature, public administration, political science, international relations, and conflict resolution. Fioramonti and Boik invite interested academics and others to view the partnership’s strategic plan and inquire about participating in the 10-Year, 70 million-dollar-project.

LEDDA channels over 2.5 billion in inflation-adjusted currency to local for-profit and nonprofit organizations by Year 28. Top line: Tokens (local electronic currency) plus dollars. Middle line: Dollars. Bottom line: Tokens.