Small businesses left behind – or not?

The bubble gum producer is thus compelled to make a significant profit in order to be able to repay the loan, which leaves her with two basic options: either she sells each piece of bubble gum at the highest possible price or she produces a large amount of bubble gum at a low unit price. Except for niche markets, capitalism favours cheap products, which are best produced with large machines and little staff. In an extreme case, we would end up with only a few bubble gum producers that cater to the entire world. Since such large corporations are considered safe investments, banks offer them loans at much better interest rates than they would to a small company—and with their enormous wealth, they make even more money.

This kind of system often leaves small businesses behind—and along with them, the jobs they provide. But what if people want to keep on living in their village or small town? What if the bubble gum producer does not have the ambition to become the world’s leading bubble gum company—if all she wants is to make a decent living for herself and her staff? What if the small business owner does not want to gear her suppliers and staff toward massive productivity increases just to be able to keep up with interest and compounded interest payments?

Now, finally, back to WIR Bank. The co-op has come up with a system that eases the constant push for growth. It makes loans to small and mid-sized companies, but it hardly charges any interest. In fact, interest is used almost exclusively to cover the administrative cost of the loan. Every borrower gets the same low-cost loan, which also slows down the race for profitability. WIR Bank is thus able to alleviate the pressure on small and mid-sized companies to expand continuously, and it makes sure that companies and jobs stay in the region. Prospective WIR Bank customers must meet only one condition: they must be a small or mid-sized business headquartered in Switzerland. The bank administration determines each individual applicant’s eligibility; that way, they keep out the big players.

A bank to support regional economic circuits

WIR Bank also supports its customers by promoting commerce between them. Trade is done in WIR francs, a virtual currency that exists only on the customers’ digital bank accounts. Here is how this works. Let’s say a Swiss herbal lozenge manufacturer needs a new cabinet for his office. Online, or in the Bank’s member magazine, he finds a carpenter who is also a WIR Bank customer. The lozenge producer orders the cabinet from her, let’s say at a price of 2,000 Swiss francs. Upon delivery, 2,000 WIR francs are debited to the lozenge company account, while 2,000 WIR francs are credited to the carpenter’s WIR Bank account. The money is thus created at the moment that a transaction happens in the real economy. Now the carpenter can go and buy wood somewhere else using her WIR francs—or she could use the money to throw a party. Overall, the whole thing works like a seesaw, always remaining a zero-sum game: The credit on one person’s account is a debit on someone else’s.

WIR accounts accrue no interest, giving the participants no incentive to save the money. On the contrary, it encourages them to spend their WIR francs sooner than the “real” interest-bearing francs they have at another bank. It also means that they will do business with other WIR Bank customers as much as possible. Capital flight is impossible, because it is prohibited to exchange WIR francs for real francs. Whoever does, gets the boot. Thus, the system supports regional economic circuits and counteracts the trend toward ever bigger, ever faster, ever leaner companies. There will never be a financial bubble, because only actual economic transactions can be charged. The money does not work here, only people do.