A New Economy: The System

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A New Economy: The System 2017-07-06T14:26:44+00:00

Our choice of our common future turns on the economy, the system of institutions through which we relate to one another and Earth to obtain our means of living. The old economy fails to fulfill its essential function and threatens species viability. To change the outcome, change the system. Ownership is key. Our common future depends on a New Economy in which the power and responsibilities of ownership of the means of living are distributed equitably among the people who depend on them.

When ownership of the means of living is held by the few solely to maximize personal financial gain, the certain outcome is what we now get: destruction of the social and environmental foundations on which the health and well-being of all depend. As our current experience demonstrates, economic democracy is an essential foundation of political democracy.

Democracy and markets are essential foundations of a health society. As mergers of transnational corporations consolidate ownership of our means of living, I wonder. How long until one corporation owns it all.

When does democracy turn to oligarchy. When does a market turn to monopoly?

The Economy’s Purpose

The transition from the failed economy of Imperial Civilization to the New Economy of an Ecological Civilization begins with recognizing that the economy’s only legitimate purpose is to support living communities in meeting in perpetuity, the needs of all their members for the essentials of a healthy, happy, and productive life. That must be accomplished in ways consistent with our nature and needs as living beings and the reality that we are now a global species inhabiting a full and overburdened living Earth.

The institutions of the new economy must recognize that our ability and responsibility to adapt to Earth exceeds Earth’s capacity and responsibility to adapt to us. They must also recognize that money is a tool of the economy—not its purpose. And is properly valued only for its service to life. And if the economy is to serve life, control of economic resources and priorities must be rooted in living communities in which people care for one another and the natural living systems of the place where they live and on which they depend.

Old Economy Failure

Since shortly after WWII, the world sought a path to universal prosperity through economic growth. According to the World Bank, in 1960, global GDP was $11.194 trillion. In 2016, it was $77.297 trillion. Over the intervening 56 years, the global economy grew by a multiple of 6.9 times in constant 2010 US$.

Given the current level of human knowledge, technology, organization, awareness, and economic output every person in the world should by now be assured secure access to the essentials of a healthy happy life: a healthy diet, clean water, housing, peace and justice, basic health care and education, accurate and timely news, and access to the global communications network. The fact that an unconscionable number of people still lack these essentials of a healthy, secure, and happy life is mark of deep economic failure. Further proof of this failure are the rapidly deepening environmental, equality, and governance crises that present a potentially terminal threat to the human future.

  1. Environmental Crisis: The Global Footprint Network calculates that in 1970, human consumption exceeded for the first time, the limits of Earth’s bio capacity. By 2017, we were consuming at a rate 1.7 times what Earth can sustain. The excess 0.7 is depleting Earth’s capacity to support life—including human life. And the gap continues to grow.
  2. Equity Crisis: In 2010, the combined wealth of the world’s richest 388 billionaires equaled the combined wealth of the poorest half of humanity—3.5 billion people. As of 2017, it took only the financial wealth of world’s 8 wealthiest billionaires to equal that of poorest half of humanity—the greatest maldistribution of wealth and power in human history.
  3. Governance Crisis: Global corporate rule strips local people and communities of control of the local economies and resources on which they depend in perpetuity to serve the needs of themselves and their descendants. The resulting deprivation, tension, and insecurity is destroying the credibility of political institutions and fueling political extremism, violence, and intolerance.

These are all indicators of the profound failure of a global economy ruled by transnational corporations and financial markets that that seek only financial gain and value life only for its current market price.

The Power of Corporate Rule

Because power in the old economy resides in institutions that value life only for its service to money, it fails in an economy’s only legitimate purpose: to serve in perpetuity the people who depend on it for their means of living. The institutions of a new economy for an Ecological Civilization must empower living people and the communities in which they live. They must value money only for its service to life.

In traditional societies, most people met their essential needs through direct exchanges with the land and other members of their community. They had little or no need for money.

During the 30 years that Fran, my wife, and I worked in international development we saw a troubling pattern. The policies and programs of official development agencies intentionally disrupted, monopolized, and monetized the relationships by which the people of self-governing communities had together created their means of living.

Control of land, water, shelter, transportation, information, education, health care and other essential of living passed to private-benefit corporate oligopolies and monopolies that demand money for access. To get money, people sold their labor to corporations for meager wages or borrowed it from corporations at usurious interest rates. Economic development masked a new colonialism.

Then we observed the same trends in the United States and other “developed” countries. Relationships being monetized. Control of access to money and the means of living passing to corporate oligopolies and monopolies. People selling their labor by necessity, not choice. Family and community relationships disintegrating. And a big money takeover of politics.

The private-benefit corporation and its nearly limitless ability to concentrate and monopolize control of resources and money makes it possible.

No Place for Private-Benefit Corporations

The global for-profit, private-benefit, limited-liability corporation is an ideal institutional instrument to advance the agenda of the new imperial colonialism. Leverage your power by creating a pyramid of holding companies that each own controlling interests in other holding companies that own controlling interests in other holding companies.

In 2007, just 737 holding companies controlled 80% of the value of all the world’s 43,060 transnational corporations. The number of holding companies is now undoubtedly smaller and the percentage of their control is undoubtedly larger.

They also facilitate the Trump Gambit. Concentrate your assets in one corporation. Concentrate your liabilities in another corporation. Declare the latter corporation bankrupt. Your creditors absorb the liabilities and you keep the assets.

Libertarian defenders of corporate rule rail against government meddling in the free market, but they fail to mention the most egregious example. Since only a government can issue a corporate charter, all corporations are government creations. Few government actions pose a greater threat to democracy and a real market economy than government created private-benefit, for-profit, limited-liability corporations with a legal license to amass monopoly power to defeat market discipline, avoid liability for the consequences, force others to absorb the costs,  and buy politicians to grant private-benefit corporations ever greater rights and freedoms.

There may be no greater threat to democracy, beneficial market discipline, and the human interest. Human viability depends on stopping it.

The search for new guidelines might start with the legal principles of early US law as summarized in a 2007 document by the Women’s International League for Peace and Freedom.

“The writers of the Constitution left control of corporations to state legislatures, where they would get the closest supervision by the people. Early corporate charters were very explicit about what a corporation could do, how, for how long, with whom, where, and when. Corporations could not own stock in other corporations, and they were prohibited from any part of the political process. Individual stockholders were held personally liable for any harms done in the name of the corporation, and most charters only lasted for 10 or 15 years.

“But most importantly, in order to receive the profit-making privileges the shareholders sought, their corporations had to represent a clear benefit for the public good, such as building a road, canal, or bridge. And when corporations violated any of these terms, their charters were frequently revoked by the state legislatures.”

By these rules all US corporations were chartered as purely public-benefit corporations and were held accountable for fulfilling that purpose by the government that issued the charter. Take that as an intention of the founders and a useful guide to crafting current rules.

Governments have jurisdictions. A natural born person has inherent natural rights that transcend government jurisdictions. As a governmental creation, a corporation is properly accountable to the government that created it and has no inherent rights other than specifically granted by that government and nowhere beyond that government’s jurisdiction. Any claim to the contrary is a perversion of both logic and justice—and as current experience demonstrates creates a threat to human viability.

A creation of governments that in principle exist at the will of the sovereign people, the private-benefit corporation is an institution that lacks moral or intellectual justification, violates foundational principles of democracy and market economics, and serves no purpose not better served in other ways. It has no place in the new economy of an Ecological Civilization.

A deep transformation of our economic institutions to align them with the outcomes consistent with our health and well-being is essential to our species viability

Essential New Economy Outcomes and System Choices

The New Economy of an Ecological Civilization must secure three essential system outcomes:

  1. Earth Balance. As living beings born of and nurtured by a finite living Earth, our health and well-being depends on Earth’s health and well-being. We must manage the economy to keep our aggregate consumption in balance with living Earth’s regenerative capacity.
  2. Shared Prosperity. Earth is the common heritage of all Earth life. We must share its available generative capacity to meet the essential material needs of all of Earth’s 7.6 billion people—and growing. There is no place on a full Earth for material extravagance.
  3. Living Democracy. To fulfill conditions 1 and 2, our human economy must mimic Earth’s biosphere, which organizes as a system of self-organizing local biosystems that constantly adapt to changing local conditions. Decision making is radically decentralized and exquisitely participatory.

Because the interests of life must come before the interests of money, two system design choices are critical:

  • Measurement: We get what we measure. Financial wealth indicators like GDP and stock prices, tell us how the financial interests of corporations and the wealthy are doing. Living indicators measure the health and well-being of nature, people and democracy, tell us how we the living people are doing. The New Economy manages to advance  dliving wealth indicators, not phantom financial wealth indicators.
  • Power: Power resides in ownership. Those who own the essential means of living, rule. Under monarchy, kings owned the lands and waters on which the lives of their subjects depended. Under state socialism, government owns the means of living and politicians hold the power. Under corporate capitalism, corporations own the means of living and wealthy financiers hold the power. The New Economy favors equitably-distributed, locally-rooted ownership over concentrated absentee ownership.

Political democracy is essential to our ability to navigate the Great Turning to a New Economy for an Ecological Civilization. And as our current situation demonstrates, political democracy necessarily rests on a foundation of economic democracy—the equitable, democratic participation in ownership of the essential means of living.

Thomas Jefferson championed the democratic ideal. Adam Smith championed the market ideal. Both envisioned market based, democratic societies of self-governing small farmers, artisans, and shopkeepers who knew and cared for the well-being of their neighbors. It is a vision far removed from a global economy of monopolistic corporations dominating the political processes of nation states.

Population growth, heightened expectations, and advanced technology create new challenges and new opportunities. But the basic principles of distributed power, self-organization, and concern for the wellbeing of all still properly define the aspiration we must now make a reality.

In Search of a Better Life for All

We have many opportunities to reduce inequality and the human burden on living Earth in ways that increase the quality of life of all people, with little sacrifice of anything other than needless profligacy.

There is substantial evidence that more equal societies are psychologically, socially, and environmentally healthier societies. And when people organize as member of communities in which they know and care about one another, they share a sense of responsibility for their common well-being that allows democracy to flourish and governments to be relatively unobtrusive.

Imagine the beneficial reduction of the human impact on living Earth if we succeed in eliminating the production and use of instruments of war, planned obsolescence, advertising and status driven consumption. If we reorganize our urban spaces to eliminate auto dependence with excellent mass transit and residences located close to work, shopping, and recreation. Imagine lives freed from the wasted hours and fossil energy of traffic congestion.

We can largely eliminate the environmental costs of mass shipping by meeting our agricultural and manufacturing needs with local production using local resources and proper support for repair, reuse, and recycling. Eliminating the use of toxic chemicals to restore the natural health of soils, water, forests fisheries can restore Earth’s beauty, while increasing our human health and comfort. These actions can assure employment opportunities for all; eliminate deprivation, insecurity, and wasted human potential; and increase time for family and community. Easy? No. Necessary and beneficial? Yes.

Most likely measured GDP will decline—perhaps significantly. But if we are increasing the health and happiness of everyone, why should we care what happens to a badly flawed financial indicator?

Additional New Economy Resources

Many organizations dedicated to deep systemic change are mobilizing under a New Economy banner. The New Economy Coalition brings together organizations from across the United States working to make a just and sustainable New Economy a reality. The Next System Project is exploring system design options. The New Economy section of the YES! Magazine website carries daily updates on the people who are living the New Economy into being.

The living systems perspective on the New Economy outlined here is spelled out in more detail in the Living Economy Forum’s various books. And is continuously elaborated and updated in my YES! Magazine Living Earth Economy column, and my Twitter and Facebook feeds.

These are some of the additional New Economy resources on this website.

  • The New Economy: A Living Earth System Model. This report prepared for the Next System Project is my most current comprehensive presentation of my suggested living Earth economy system frame.
  • Ten Common Sense Economic Truths foundational to a functional economy.
  • Ten Rules for Healthy Living Earth Markets. Essential rules for a market responsive to the needs and values of a living Earth economy.
  • Which Story? contrasts the underlying assumptions of the old and new economies and asks you to identify which you find more consistent with your experience and understanding.
  • Healthy Markets spells out the essential design principles of a healthy market economy that supports the structures and self-organizing processes of a healthy ecosystem.
  • Money Rules addresses the system design choices that determine whether money flows to the phantom wealth Wall Street economy to create inflated financial assets or to the real wealth Main Street economy to create a better life for all.
  • Confronting Systemic Evil. How capitalism undermines the rules and ethical standards essential to the proper functions of markets and democracy.
  • Life as Teacher outlines the case for looking to healthy living systems for design principles to guide our design of a new economy.
  • Advancing Transformation outlines eight action clusters framing a new economy policy agenda.
  • What’s New About this New Economy? spells out the differences between two contrasting visions of a New Economy: the magical high-tech fantasy economy and the reality-based living Earth economy.
  • New Economy Resources provides a guide to resources for further study, organizing discussions, and action engagement.

See <new-economy-resources> for more details. You will also find a wealth of additional materials in the library section of this site.