by David Korten
Seven reasons why our Old Economy is failing—each paired with its New Economy solution.
In his recent State of the Union address, President Obama emphasized the global competition for jobs. He pointed to the example of China and India educating their children “earlier and longer, with greater emphasis on math and science.” He brought both Republicans and Democrats to their feet to applaud his call for America to “out-innovate, out-educate, and out-build the rest of the world.”
It was a politically unifying moment—and one that revealed how badly we have lost our way as a nation, not to mention how far our national economic and political institutions are from providing the leadership that we, and the world, now need.
A global competition for survival and dominance has given us a world divided between the profligate and the desperate. It leads to the expropriation of ever more of the world’s real wealth to secure the privilege and extravagance of the few. Rededicating ourselves to this destructive path is not likely to produce a different result.
Hope for our common human future depends instead on global cooperation to create a world in which every child can look forward to a prosperous, secure, and meaningful life irrespective of nationality, race, or religion. This will require replacing the economic policies and institutions responsible for Old Economy failure with the policies and institutions of a New Economy—one based on positive life-values and a democratic distribution of power.
The following are seven critical sources of Old Economy failure—each paired with its New Economy solution.
Living Indicators. The use of financial indicators like gross domestic product (GDP) and the Dow Jones average to assess the performance of the economy gives priority to false values. We currently see just how invalid these financial measures are: GDP grows, but jobs don’t. The Dow Jones climbs, but wages are stagnant and foreclosures continue. Neither is a valid measure of the kind of economic performance we need.
SOLUTION: Replace financial indicators like GDP with indicators of human- and natural-systems health as the basis for evaluating economic performance. The Bhutan experiment with a happiness index is an excellent start.
A Real Wealth Money System. Wall Street control of the creation and allocation of money concentrates the power to set national priorities in institutions that recognize no interest beyond their own profits. As we become ever more dependent on money to meet our basic daily needs, this control becomes ever more complete—and more destructive of all that we truly value.
SOLUTION: Decentralize and democratize the money system so that it redirects the flow of money away from Wall Street speculators to productive Main Street businesses. We once had a system of community banks, mutual savings and loans, and credit unions that were locally rooted and served local needs. But that system has been largely dismantled and transformed into too-big-to-fail Wall Street mega-banks that suck wealth out of communities and depend on government subsidies and protections. There is nothing esoteric about the banking system we must create. It looks a great deal like the system we had before the start of banking deregulation in the 1970s.
Equitable Distribution. Wall Street political influence has produced trade, fiscal, workplace, and social policies that create ever more extreme inequality by suppressing wages and eroding protections, services, and safety nets for those who do productive work to increase profits for the owning class. Aren’t we glad that the politicians restored tax breaks for the very rich so they could continue to inflate their claims against the real wealth of the rest of us?
SOLUTION: Implement fiscal, workplace, and social policies that distribute income and ownership equitably. Equitable societies are healthier, happier, more democratic, and avoid the excesses of extravagance and desperation.
Living Enterprises with Living Owners. An ideology of market fundamentalism has embedded a belief in the public culture that the sole purpose and responsibility of a business enterprise is to maximize financial returns to its owners. This belief, combined with a system of absentee ownership and instantaneous trading of corporate shares, encourages short-term over long-term thinking and strips corporate decision making of concern for social and environmental consequences.
SOLUTION: Recognize that the primary purpose of any enterprise is to serve the needs of a living community. Favor living enterprises with living, locally rooted owners who have a direct stake in the social and environmental consequences of the firm’s management decisions—people who are looking not for maximum financial return, but for a living return that includes a healthy community and a healthy natural environment. This means favoring cooperative, worker- and community-owned enterprises and discouraging the speculative public trading of corporate shares.
Real Markets/Real Democracy. The institution of the global corporation is designed to facilitate the creation of global-scale, legally protected concentrations of economic and political power dedicated to extracting social, environmental, and governmental subsidies to advance the exclusive and narrow private interests of financial elites beyond public accountability. This violates the principle of shared and distributed power foundational to democracy and a market economy.
SOLUTION: Create real rule-based markets and real democracy by breaking up concentrations of corporate power, barring corporations from competing with living human beings for political power, and implementing rules and incentives that support cost internalization.
Local Living Economies. Fragmented local economies dependent on global corporations for jobs and basic goods and services leave people and nature captive to the financial interests of distant institutions that have no concern for their well-being and no accountability to their interests.
SOLUTION: Pursue local economic development programs that build diversified, self-reliant, energy efficient, democratically self-organizing local economies comprised of locally owned living enterprises devoted to serving local needs.
Supportive Global Rules. Global rules put forward by institutions like the WTO that are largely captive to corporate interests circumvent the institutions of democracy to support the other six Old Economy dysfunctions.
SOLUTION: Restructure global rules and institutions to honor and serve life values and local control.
Leadership in framing and popularizing a vision for a New Economy must come from We the People. We are the one’s we’re waiting for.
David Korten adapted this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions, from a speech he delivered to the Rauschenbusch Center for Spiritual Action. David is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His books include Agenda for a New Economy: From Phantom Wealth to Real Wealth, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World.