Markets that respect the commons are the way of the future.
As part of the Green Economy series
By Hazel Henderson
The idea that more markets are always better and should eventually spread worldwide (known as “market fundamentalism”) is now challenged by the growing movement to protect and defend the global commons: our Earth’s atmosphere, rivers, oceans, biodiversity and electromagnetic spectrum underpinning our global communications networks, satellites and the Internet – providing the publicly funded platform of global finance.
So where did this idea that markets should overtake every other aspect of human affairs come from? Adam Smith’s enthusiasm for markets in The Wealth of Nations (1776) saw them limited by society’s rules: markets could only allocate resources efficiently so long as buyers and sellers had equal power and information and no innocent bystanders were harmed by market transactions. Clearly today with global corporations, banks and financial markets, Smith’s rules rarely apply. Economic textbooks that promoted markets’ expansion into formerly common lands, forests inhabited by indigenous people, were based on the idea that air and water were free goods. Today, this idea that companies could use our air and water for dumping their wastes is widely challenged in rules forcing companies to internalize on their balance sheets many of those polluting “externalities.”
As markets widen their reach, financiers now see new markets in privatizing forests, public lands, watersheds, infrastructure, and turning carbon and CO2 emissions into new asset classes to trade along with oil and food. Promoted by the University of Chicago’s School of Economics, “free markets” and the Arrow-Debreu model of “market completion” have now collided with the worldwide movement and theories of common wealth, cooperatively owned and managed public assets, and defending the global commons whose air, water and biodiversity provide the basis for all economies and human survival.
As human societies grew from nomadic tribes to settled agriculture, villages, towns, cities and nations, industries and finance also became global. The global commons also embraced the realities of caring for and providing global public goods: clean air, water, health, human rights and good governance. Global communications underpin this “global village,” along with global finance and markets it supports – recognized in 1944 at the Bretton Woods conference, which set global rules for financial markets on which all nations relied.
After the debacle on Wall Street in 2007-2008 infected the world and devastated Main Street’s millions of citizens and smaller business, the importance of global commons beyond markets is now widely-recognized. “Market completion” ideology held that only privatizing the world’s common resources could protect them from over-exploitation, expounded by biologist Garret Hardin in his “Tragedy of the Commons.” Research by Elinor Ostrom and others now shows community governance and traditions have managed efficient use of public resources for centuries.
Financial services and the intermediation they provide between savers, investors, entrepreneurs and borrowers are essential in societies. Financiers do not “provide” capital; they merely intermediate among the producers of real wealth in real economies. The mystique of finance collapsed after public bailouts of too-big-to-fail banks. Today’s debate has turned toward returning banks to serving real economies and designating banking as the public utility it is in fact. Public banking, like the Bank of North Dakota, is proposed in 12 US states!
I have long been a defender of the global commons and rights of indigenous peoples to their traditional lands (“Defending the Global Commons,” “New Markets, New Commons”). In 2010, my colleagues John Fullerton of the Capital Institute, Leo Burke of the University of Notre Dame and Steve Waddell of NetworkingAction hosted at Ethical Markets Media an experts meeting on Transforming Finance. You can join the over 80 expert signers of our statement at TransformingFinance.net.
About Hazel Henderson
Hazel Henderson, D.Sc.Hon., FRSA, founder of Ethical Markets Media, is a futurist, evolutionary economist and author of award-winning Ethical Markets: Growing the Green Economy. She leads the Transforming Finance initiative, created the Green Transition Scoreboard®, tracking global private sector investment in green tech, and developed with Calvert Group the widely used alternative to GNP, the Calvert-Henderson Quality of Life Indicators. In 2010 she was honored as one of the “Top 100 Thought Leaders in Trustworthy Business Behavior 2010” by Trust Across America.
Talkback Readers: How can markets and respect for the commons co-exist? Send your thoughts to Talkback!