It’s Time For A New Economic Paradigm by Joe Kresse, Foundation for Global Community At our Center in Palo Alto, we talk about how to help evolve the present culture into one that is “integral.” This would be a culture that works for the benefit of all the people in the culture, as well as for the larger natural processes we all depend on. Some changes in our present culture that might be agreed on as desirable include: the need to bring an end to war and violence; the need to ameliorate poverty and disease; and making education universally available. But there is one area crying out for change in which there is very little agreement, let alone understanding, even among the experts: the area of economics. Why has our economic system become so destructive? Why does the gap between the rich and the poor continue to widen even in wealthy countries? Are such concepts as NAFTA and GATT helpful in the overall well-being of the system, or harmful? What changes in underlying principles and processes need to be made? Even though I have a degree in economics and spent a quarter of a century working in the financial world, these are questions I find hard to answer. So I was pleased recently to come across two books which help to organize and clarify the problems and possibilities in the field of economics and business. One is When Corporations Rule the World by David Korten. The author received his Ph.D. in Business from Stanford, taught at the Harvard Business School, and spent 20 years in developing countries working with institutions that provide development aid. The other is The New Business of Business, which consists of articles from the World Business Academy Journal; editing is by Maya Porter and the late Willis Harman, both affiliated with the Academy. Among many things the two books agree on are our current cultural beliefs about business/economics that are so basic we don’t even see them, let alone question them. Here is Korten’s summary of them: Sustained Economic Growth, as measured by the gross national product, is the path to human progress. Free Markets, unrestrained by government, are the most efficient way to allocate resources. Economic Globalization, achieved by removing barriers to the free flow of goods and money anywhere in the world, spurs competition, increases economic efficiency, creates jobs, lowers consumer prices, increases consumer choice, increases economic growth, and is generally beneficial to almost everyone. Privatization, which moves functions and assets from governments to the private sector, improves efficiency. The Primary Responsibility of Government is to provide the infrastructure necessary to advance commerce and enforce the rule of law with respect to property rights and contracts. These beliefs are based on how neoclassical economics looks at human beings: People are motivated by self-interest, in our society primarily by earning money. What makes the most money for the individual or the firm is best for society. Competition makes more sense for the individual and the firm than cooperation; consequently, society should be built around competition. Human progress and the well-being of society are advanced by ever higher levels of consumer spending. What are some of the results of this kind of thinking? One of the clearest is a “race to the bottom,” in which wages and working conditions fall to the level of the most desperate. Since corporations are free to move almost anywhere in the world, they are able to play off people, cities, even countries, against one another in seeking preferable treatment. The result? Low pay, child labor, weak environmental standards, lack of health coverage or pensions, etc., all examples of companies passing on some of their costs of operating to the society where they are located. A second result is a focus on short-term profits. Stock markets follow quarterly and annual earnings. Discounted cash flow analysis, a standard tool for calculating return on investment, places little value on returns that are received further out than 15 years or so. Thus, a corporation will tend to choose a higher immediate return over a somewhat smaller return, even if the latter could be received in perpetuity. That higher return may well be achieved by depleting a resource or ecosystem, but this cost is given little value in the calculation. A third result is concentration of wealth. The UN estimates the average income of the top 20 percent of people in the world is 150 times that of the bottom 20 percent. The average income of people living in the wealthiest countries has doubled since 1950 compared to those in the poorest countries. And in the United States, the top 1 percent receives more income than the bottom 40 percent. This widening gap is a source of social and political tension, and raises moral questions as well. I find this list of results to be depressing. Our global economic system is creating new problems that seem to me to be worse than the ones it solves. Yet the power of economic beliefs is so great -- theologian John Cobb dubs this “the age of economism” -- and those who are benefiting from it have so much economic and political power, that it will be difficult to make changes. Because the underlying beliefs that go with our economic system so pervade our view of the world, I believe the first priority is for individuals to undertake a fundamental shift in the way we see ourselves and our relationship to the larger natural system. Only by effecting personal change at such a deep level will we be able to see what is needed in the economic system. What is this new picture of self-in-the-universe? I believe it is a picture of an unfolding, primarily spiritual reality, out of which we have come and in which we are embedded. We are the first generation that has access to scientific discoveries that tell us how the universe and our Earth evolved. Rather than the mechanical, material world of Descartes and the Enlightenment, we now see that we are part of a dynamic, living process, in which self-interest, financial returns, competitive behavior, and increases in consumption no longer seem to be appropriate basic values. We can now see that our lives depend upon our understanding of, cooperation with, and love for, this reality that brought us forth, and on having our economic systems accord with these values. Here are guiding principles for an economic system that would enable it to express such values, as summarized from Korten: Environmental Sustainability. The economy must satisfy three conditions for human life to continue in any meaningful way in the long term: Rates of use of renewable resources must not exceed the rates at which the ecosystem is able to regenerate them. Rates of consumption or disposal of nonrenewable resources must not exceed the rates at which renewable substitutes are developed and phased into use. Rates of pollution emissions into the environment must not exceed the ability of the ecosystem to absorb them. Economic Justice. The economy must provide all its members -- present and future -- with those things that are essential to a healthy, secure, productive, and fulfilling life. There is nothing wrong with additional rewards for those who contribute more -- but only so long as everyone’s basic needs are met, the options of future generations are not impaired, and the distribution of economic power does not become destabilizing. Biological and Cultural Diversity. The economy nurtures the biological and cultural diversity of the planet, recognizing that diversity is not only essential for day-to-day living, but is the foundation of evolutionary potential as well. People’s Sovereignty. The purpose of the human economy is to meet the needs of people -- not of money, nor of corporations, nor of governments. The right of the people to decide what uses of the Earth best serve to nourish their bodies and their spirit within the limits of the first three principles is inalienable. People are best able to exercise this right when: The owners of productive assets are patient and the assets are locally controlled. This would ensure that important decisions are based on the long-term interests of those who will live with the consequences. Governance is located in the smallest and most local units possible to maximize opportunity for direct, participatory democracy. The role of more remote system levels is to serve and support local levels in achieving self-defined goals. Intrinsic Responsibility. The full costs of resource allocation decisions are charged to those who participate in making them. No entity has the right to pass on the costs of its consumption to another. The goal is to structure economic relationships so as to encourage each locality to live within its sustainable environmental means. Common Heritage. The environmental resources of the planet and the accumulated knowledge of the species are common heritage resources, and it is the right of every person -- present and future -- to share in their beneficial use. It is the rightful responsibility of those who own environmental resources to serve as trustees in the interest of future generations and of those who possess special knowledge to share it with all who might benefit. A healthy economic system depends on giving the rights and responsibilities defined by these principles precedence over all other rights -- including property rights of individuals, corporations, and governments. And by basing our actions on these principles, as Korten concludes, “we can reclaim the power we have yielded to the global financial system and restore our ability to rebuild our communities and heal the Earth as we work to create healthy societies that allow us to experience life in its fullness and diversity. Otherwise, we will continue to live under the tyrannical rule of a global financial system that is leading us in the direction of almost certain social and ecological collapse. We must hold one thought clearly in mind: The global institutions of money have only the power we yield to them. it is our power. We can reclaim it.” I agree. We face a huge task, but the transition from one age to another has never been easy. The books referenced in this essay are: When Corporations Rule the World by David Korten Berrett-Koehler Publishers, Inc., San Francisco, California. 374 pages. 1997 The New Business of Business edited by Willis Harman and Maya Porter Berrett-Koehler Publishers, Inc., San Francisco, California. 278 pages. 1997 Reprinted from TIMELINE, a bimonthly newsletter of Foundation for Global Community, 222 High St., Palo Alto, CA 94301-1097. Subscription: $10 per year. http://www.globalcommunity.org Phone: (650) 328-7756 Fax: (650) 328-7785 Timeline Email Edition (TEE) is available by request from: timeline@globalcommunity.org