Top seven failings of the old economy and their new economy solutions.
As part of the New Economy 2.0 series
By David Korten
The Old Economy fails us because it concentrates power in unaccountable corporations and financial markets that value money more than life. Here are seven critical sources of Old Economy failure—each paired with its New Economy solution.
1. Problem: Financial 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 financial values over life values. This leads to the sacrifice of human, community and natural health to make money for people who already have more than they need.
Solution: Living Indicators. Optimize sustainable human well-being by evaluating economic performance against indicators of human- and natural-systems health. The Bhutan experiment with a happiness index is an excellent start.
2. Problem: Wall Street Money System. Wall Street’s control of the creation and allocation of money gives control of our lives and national priorities to institutions devoted solely to maximizing their own financial return through financial games that contribute nothing to the creation of anything of real value.
Solution: Main Street Money System. Decentralize and democratize the money system so the power to create and allocate money resides in a system of community banks, mutual savings and loans, and credit unions accountable to local people and devoted to serving local financial needs. It would look much like the system we had in the United States before the disastrous banking deregulation that began in the 1970s.
3. Problem: Wealth Concentration.Wall Street interests use their political power to cut taxes for the rich and advance trade, fiscal, workplace and social policies that suppress wages, erode worker protections and cut services and safety nets for those most in need. The ever more extreme concentration of wealth leads to ever greater social dysfunction.
Solution: Equitable Distribution. 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.
4. Problem: Zombie Corporations with Absentee Owners. An ideology of market fundamentalism has embedded a belief in public culture that the sole purpose and responsibility of a business enterprise is to maximize financial returns to its owners. This morally bankrupt belief combines with a system of absentee ownership and instantaneous trading of corporate shares to encourage short-term over long-term thinking and strips corporate decision-making of concern for social and environmental consequences.
Solution: Living Enterprises with Living Owners. Advance public policies that favor living enterprises with living, locally-rooted responsible owners who seek a living return that includes a healthy community and natural environment. Cooperative, worker- and community-owned enterprises are positive examples. Tax away the profits of short-term capital gains to discourage the speculative public trading of corporate shares by absentee owners.
5. Problem: Market Monopolies and Big Money Politics.Global corporations operate beyond public accountability to monopolize economic and political power under unified management accountable only to itself. They use this power to manipulate markets, extract public subsidies and externalize social and environmental costs – all in violation of foundational principles of socially-efficient fair market competition and one-person, one-vote democracy.
Solution: Real Markets/Real Democracy. Create real rule-based markets and 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 and fair competition. Corporations are creations of government, and government has a responsibility to assure they are democratically accountable and play by proper market rules.
6. Problem: Fragmented, Colonized Local 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 accountability to their interests.
Solution: Self-Reliant Bio-Regional Economies. Pursue local economic development programs that build diversified, self-reliant, energy efficient, democratically self-organizing regional economies comprised of locally-owned living enterprises accountable to local owners and devoted to serving local needs.
7. Problem: Global Rules By and For Corporations. Global rules formulated and enforced by corporate dominated institutions like the WTO enforce corporate monopoly power and place it beyond democratic accountability.
Solution: Global Rules By and For People. Restructure global rules and institutions to limit the concentration of corporate power and secure the economic sovereignty of people by assuring that any corporation that operates across national borders is democratically accountable to the communities in which it operates.
We the people have the right and means to strip Wall Street of its illegitimate power and carry forward the historic democratic experiment.
About David Korten
David Korten (livingeconomiesforum.org) is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine, co-chair of the New Economy Working Group and a founding member of Business Alliance for Local Living Economies (BALLE).
About New Economy 2.0
Visionary economist David Korten introduces a national conversation series, New Economy 2.0, on CSRwire Talkback based on his acclaimed book, Agenda for a New Economy, 2nd edition. For the next several weeks, Korten will summarize the main points and key lessons of each chapter of his book, leading from a dissection of what went wrong in the “phantom wealth Wall Street economy” to the presentation of a vision of a world of real wealth Main Street economies that support strong middle class societies, honor real market principles and work in partnership with Earth’s biosphere.
New Economy 2.0 envisions an economy in which life is the defining value and power that resides in people and communities. It contrasts with the popular New Economy 1.0 fantasy of a magical high-tech economy liberated from environmental reality and devoted to the growth of phantom wealth financial assets.
The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.
Talkback Readers: How can we move from the Old Economy to the New? Share your ideas on Talkback!