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David Korten


Microcredit: The Good, the Bad, and the Ugly

Unraveling the confusion behind microcredit: how some models help alleviate poverty, while others exploit the poor to make the rich richer.

Originally posted on the YES! Magazine website.

 

By David Korten

For more than 20 years, microcredit has been widely heralded as the remedy for world poverty. Recent news stories, however, have sullied microcredit’s glowing reputation with reports on scandals, exorbitant compensation to managers, skyrocketing interest rates and aggressive marketing schemes.

Once praised as a universal panacea, microlenders are now being widely attacked as predatory loan sharks. In December 2010, Sheik Hasina Wazed, the prime minister of Bangladesh and former microcredit advocate, accused microcredit programs of “sucking blood from the poor in the name of poverty alleviation.”

What happened?

It turns out there are two very different models of microcredit. As Muhammad Yunus, winner of the 2006 Nobel Prize, pointed out in his January 15, 2011, New York Times op-ed, one type of microcredit program is designed to serve the poor; another to maximize financial returns to program managers and Wall Street investors.

The differences raise crucial questions for the future directions of microfinance. They also help us see where the banking system here in the United States went off course and how we must restructure it to support prosperous Main Street economies.

Grameen as a Model Community Bank

In 1983 Yunus founded the Grameen Bank, universally cited as the inspiration and model for the global microcredit movement. His purpose was to improve the lives of millions of poor Bangladeshis by making small loans to poor women to fund income-generating microbusinesses.

The basis for the Grameen Bank’s worldwide renown lies in a number of key characteristics that are not widely understood. 

  • Most local branches are self-funded by deposits of their local members in taka, the Bangladesh national currency.
  • By serving as a depository for its members, Grameen Bank allows the poor to build their own financial asset base.
  • The bank extends loans to its members at a maximum interest rate of 20 percent, a fraction of what many other microlenders charge.
  • Operating on a cooperative model, profits are redistributed to the Grameen Bank’s owner-members or are invested in community projects.

These features root the Grameen Bank in the community it serves and keep money, including interest payments, continuously circulating locally to facilitate productive local exchange and build real community wealth.

Microcredit programs seeking to replicate the Grameen model have spread rapidly across the globe. Most, however, replicate only the loan feature. Few provide their members with depository services or replicate the Grameen Bank’s other defining features, though these features are central to its commitment to community wealth building.

The Turn to Wall Street

As microlending programs became increasingly focused on repayment rates and growing the size of their loan portfolios, they looked for new sources of capital to expand their reach. With encouragement from foreign philanthropists, many turned to foreign commercial equity investors. Since private equity conflicts with the nonprofit model, sometime around 2005 many nonprofit microcredit programs changed their status to for-profit enterprises and converted their philanthropic nonprofit assets into private for-profit assets.

One such micro-finance program was Compartamos in Mexico, which in 2007 launched an initial public stock offering. According to a New York Times article, it charged its borrowers an annual interest rate of near 90 percent, producing a return on equity of more than 40 percent, nearly three times the 15 percent average for Mexican commercial banks. This made Compartamos highly attractive to private equity investors. The public offering brought in $458 million, of which “private Mexican investors, including the bank’s top executives, pocketed $150 million.”

Another example is SKS Microfinance in India, whose initial public offering in August 2010 raised $358 million from international investors and yielded its founders stock options worth more than $40 million.

Yunus describes the consequences of such conversions and public sales:

To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared.

For the groups that turned to Wall Street for financing, the line between social purpose microcredit and predatory loan sharking began to disappear, with some programs charging annual interests rates of more than 100 percent. Programs that had raised philanthropic funding to help put money into poor communities became vehicles for sucking wealth out of them to generate financial profits for already wealthy people.

Follow the Money

Apologists argue that so long as the Wall Street-funded microcredit programs charge interest rates lower than the local money lenders, they still benefit the poor.

Tara Thiagarajan, Chairperson of Madura Micro Finance, a for-profit microcredit program in India, followed the money and challenged this premise in a thoughtful and self-critical blog:

The local moneylender … may charge a higher interest rate, but being local will probably spend most of that income in the village supporting the overall village economy. So potentially, local lending at higher rates could be more beneficial to the village if the money is in turn spent in the village, compared to lower rates where the money leaves the village.

Because foreign private equity investors expect to recover their investment plus a perpetual flow of profits, the contradictions go even deeper than what Thiagrarajan outlined.

Say an equity investor in the United States buys shares in a microcredit program in India. The investor pays for the shares in U.S. dollars and in turn expects to be paid in U.S. dollars. The microlender, however, does business in Indian rupees.

The dollars, therefore, are exchanged for rupees in the foreign exchange market and become part of India’s foreign exchange pool, which funds consumer imports, machinery, foreign scholarships, capital flight, arms imports, foreign travel and whatever other uses India may have for dollars—virtually none of which benefit the poor.

If the microlender meets its profit projections, this creates claims by the foreign investors on India’s foreign exchange reserves potentially many times the amount of the original investment. To fulfill this obligation, India must produce goods and service for sale abroad or sell or mortgage additional assets to foreigners, which creates still greater claims against future foreign exchange earnings. The community in which the borrowers reside will be dealing only in rupees, but faces a similar external drain on its resources to meet the borrowers’ obligations to the lending organization.

Say the microlending supported an increase in village food production. Rather than improving the diets of the workers who produce it, however, a portion of their additional production must be sold to outsiders to generate the rupees to repay their debts.

In return for a short-term inflow of money, both India and the village bind themselves to a long-term outflow of money and real wealth. It is an insidious dynamic that supports a classic pattern of colonization and wealth concentration long characteristic of foreign equity investment and loan funded foreign aid. A small short-term economic gain can come at a large long-term cost when it is funded with outside debt or equity.

A Lesson for the Rest of Us

The microcredit experience brings to light a larger principle: the institutional structure of a financial system determines where money flows and who benefits. In short, structure determines purpose.

The transformation of microcredit institutions from a model that serves communities to a model that is “sucking blood from the poor in the name of poverty alleviation” mirrors a similar transformation of the U.S. banking system, which occurred through the process of banking deregulation that began in the United States in 1970s.

Throughout the 1940s, 50s and 60s the United States had a system of locally owned and strictly regulated community banks, mutual savings and loans, and credit unions, many of them organized on a cooperative ownership model much like the Grameen Bank. They were organized and managed to serve the financial needs of the communities in which they were located and kept money flowing within the community in service to community needs.

Banking deregulation over the past 30 years led to a wave of banking mergers and acquisitions that created too-big-to-fail Wall Street banks devoted to maximizing financial returns to Wall Street bankers and financiers. Rather than supporting local wealth creation, the system now sucks money and real resources out of the community. Both the microcredit experience and the aftermath of the 2008 Wall Street financial crash vividly reveal that the values and interests of Wall Street stand in fundamental opposition to those of Main Street.

Financial institutions can serve communities in pursuit of a better life for all or they can serve global markets to maximize financial returns to Wall Street bankers and financiers. They cannot serve both.

The world does not need more predatory lenders in service to Wall Street. We all need more local, cooperatively owned community banks on the model of Grameen.

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).

Talkback Readers: What are your views on microcredit? Tell us on Talkback!

03:33 pm by csrwiretalkback[2 notes]

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Wall Street Illusionists

As part of the New Economy 2.0 series 

 

By David Korten

“Much of what Wall Street celebrates as financial innovation involves borrowing to inflate the value of financial assets to create collateral to support more borrowing to further inflate the assets to create more collateral… Call it a loan pyramid or a Ponzi scheme, it is a form of theft.”

The ancient alchemist and modern Wall Street capitalist have much in common. The latter has achieved the modern equivalent of the alchemist dream of turning cheap metals into gold. He creates money out of absolutely nothing and wholly free from exertion or the inconvenience of producing anything of real value.

Making money with no effort can be an addictive experience. I recall my excitement back in the mid-1960s, when Fran, my wife, and I first made a modest investment in a mutual fund and watched our savings grow magically by hundreds and then thousands of dollars with no effort whatsoever on our part. We got a case of Wall Street fever on what by current standards was a tiny scale.

Of course, most of what we call magic is illusion. When the credit collapse pulled back the curtain to expose Wall Street’s secret inner workings, we learned the extent to which Wall Street is a world of deception, misrepresentation and insider dealing on a breathtaking scale. It was such an ugly picture that Wall Street’s seriously corrupted institutions stopped lending even to each other for the simple reason that no one trusted the other guy’s financial statements.

Much of what Wall Street celebrates as financial innovation involves borrowing to inflate the value of financial assets to create collateral to support more borrowing to further inflate the assets to create more collateral… Call it a loan pyramid or a Ponzi scheme, it is a form of theft.

A responsible Federal Reserve would have raised interest rates to dampen asset bubbles like the tech-stock bubble of the 1990s and housing bubble of 2000s. Instead, captive to Wall Street interests, it pursued cheap money policies to encourage and facilitate ever more borrowing by speculators to keep the bubbles growing.

Academics who never learned the difference between real wealth and phantom financial wealth published scholarly articles celebrating the discovery of the secret of effortless wealth creation. Back in 1997, I came across an article in Foreign Policy by John Edmunds, then a finance professor at Babson College and the Arthur D. Little School of Management, titled “Securities: The New Wealth Machine.” This is a defining quote:

Historically, manufacturing, exporting and direct investment produced prosperity through income creation. Wealth was created when a portion of income was diverted from consumption into investment in buildings, machinery and technological change. Societies accumulated wealth slowly over generations. Now many societies, and indeed the entire world, have learned how to create wealth directly. The new approach requires that a state find ways to increase the market value of its stock of productive assets. [Emphasis in the original.] … An economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective.

The thesis was so absurd that on first reading I thought it must surely be some sort of joke or parody intended to expose the irrationality of the exuberance surrounding the inflation of financial bubbles. In his 2008 book, Bad Money, the journalist and former Republican Party political strategist Kevin Phillips notes the Edmunds article was widely discussed on Wall Street and implies that it may have inspired the securitization of housing mortgages.

Contrary to the Edmunds’s “logic,” an asset bubble, real estate or otherwise, does not create wealth. A rise in the market price of a house from $200,000 to $400,000 does not make it more functional or comfortable. The real consequence of a real estate bubble is to increase the financial power of those who own property relative to those who do not. Wall Street encouraged homeowners to monetize their market gains with mortgages they lacked the means to repay except by further borrowing. It then converted these toxic mortgages into worthless toxic securities and sold them to the unwary, including the pension funds that many of those who borrowed against their inflated home values counted on for their retirement. [Editor’s Note: See JP Morgan Chase mortgages investigated and Wall Street violates mortgage-backed securities.]

Why do we tolerate Wall Street’s reckless excess and abuse of power? In part, it is because so many people of influence have bought into the Edmunds fallacy. If you have difficulty understanding economist speak, it may be because you are in touch with reality.

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.

This exciting, new series is co-published by CSRwire and YES! Magazine.

The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.

Talkback Readers: Is it fair for Wall Street to use financial instruments to create wealth out of thin air? Tell us what you think on Talkback!

10:58 pm by csrwiretalkback[19 notes]

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A Bad Theory

As part of the New Economy 2.0 series 

 

By David Korten

Many years ago a wise Canadian colleague, Tim Brodhead, explained to me why most efforts to end poverty fail. “They stop at treating the symptoms of poverty, such as hunger and poor health, with food programs and clinics.” They never ask the obvious question: “Why do a few people enjoy effortless abundance, while billions of others who work far harder experience extreme deprivation?”

I realized it was the same lesson my business school professors had drummed into my head in my student days. “The visible problem – a defective product or an underperforming employee – is a symptom of system failure. Look upstream to find and fix the problem at its source. Step back and look at the big picture.”

Tim summed up his observation with a profound lesson, “If you act to correct a problem without a theory about its cause, you inevitably treat only the symptoms.”

I soon found myself asking a yet larger question: “Why does our economic system consign billions of people to degrading poverty, destroy Earth’s ecosystem and tear apart the social fabric of civilized community?”

It turns out the consequences of acting on a bad theory based on a false premise can be even worse than acting without a theory. Indeed, it can lead to collective self-extinction.

Cultural historian Jared Diamond tells of the Viking colony on the coast of Greenland that perished of hunger next to waters abundant with fish; it had a cultural theory that eating fish is not “civilized.”

As we are perplexed by the foolishness of the Viking colony, future generations may be perplexed by our equally foolish devotion to an economic theory that using borrowed money to speculate on financial bubbles will eventually result in prosperity for all. No need for concern that in the process we are trashing Earth’s life support system and destroying the social bonds of family and community. Eventually, or so the theory goes, we will have enough money to heal the environment and end poverty.

As I looked ever further up-stream I was startled to find the source of our foolish behavior is an illusion: the belief that money – a mere number created with a simple accounting entry that has no reality outside the human mind – is wealth—indeed the standard against which all other forms of wealth are properly measured.

Because money represents a claim on so many things essential to our survival and well being, it is easy to confuse it with the things for which it may be exchanged. From there we easily slip into evaluating economic performance by the rate at which it is growing phantom wealth financial assets. Focused on returns to money, we embrace GDP growth, essentially a measure of the rate at which human relationships are being monetized and commodified and real assets are being converted to financial assets, as our primary measure of progress.

Once the belief that money is wealth is implanted firmly in the mind, it is easy to accept the idea that money is a storehouse of value rather than simply a storehouse of expectations, and that “making money” is the equivalent of “creating wealth.”

This misdirection ultimately explains why we tolerate an economy that cycles violently between boom-and-bust; decimates the middle class; forces families to choose between paying the rent, putting food on the table and caring for their children; and wantonly destroys the relationships of community and Earth’s biosphere.

It explains why we have allowed Wall Street to assume control of our most powerful economic, political and media institutions to make financial speculation, accounting fraud and the inflation of financial bubbles our national economic priorities. It explains why we allow the perpetrators of this fraud to reward themselves with obscene bonuses for creating phantom financial assets that inflate their claims to the real wealth created by others – an act that in a slightly different context would be considered counterfeiting, a form of theft.

The Wall Street edifice sits on a foundation of a false theory grounded in grand illusion. Spending trillions of dollars to renovate the edifice is a fool’s errand. Our best hope for a viable future is to build a New Economy grounded in reality-based theories and devoted to the sustainable production and exchange of real goods and services to meet the real needs of our children, families, communities and natural environmental systems.

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.

This exciting, new series is co-published by CSRwire and YES! Magazine.

The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.

Talkback Readers: What thoughts do you have on SRI and participating in financial markets? Can the bubble mentality be avoided? How? Share your thoughts on Talkback!

04:39 pm by csrwiretalkback[20 notes]

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Wall Street’s Zero Sum Game: Phantom Wealth

As part of the New Economy 2.0 series 

 

By David Korten

In business school we were taught to assess investment options to maximize financial return. I don’t recall that the professor ever mentioned this meant maximizing returns to people who have money—to make rich people richer. Or that money is a system of power and the more our lives depend on money, the greater our subservience to those who control the creation and allocation of money.

Nor do I recall asking my professors, “What is money?” “Why do we assume maximizing financial return maximizes the creation of real value?” “How does the conversion of natural living wealth to financial wealth create real value?” “What about the many fortunes built through financial speculation, fraud, government subsidies, the sale of harmful products and the abuse of monopoly power?” I may have had some doubts, but kept them to myself for fear of being dismissed as hopelessly stupid.

Perhaps those who taught us economics, finance and accounting did not themselves recognize the difference real living wealth and phantom financial wealth.

Real wealth has intrinsic value. Examples include fertile land, healthful food, knowledge, productive labor, pure water and clean air, labor, and physical infrastructure. The most important forms of real wealth are beyond price and unavailable for market purchase. These include healthy, happy children, loving families, caring communities, a beautiful, healthy, natural environment.

Real wealth also includes all the many things of intrinsic artistic, spiritual or utilitarian value essential to maintaining the various forms of living wealth. These may or may not have a market price. They include healthful food, fertile land, pure water, clean air, caring relationships and loving parents, education, health care, fulfilling opportunities for service, and time for meditation and spiritual reflection.

Money, a number on a piece of paper or created with an accounting enter, has no intrinsic value. Wall Street generates it in astonishing quantities through accounting tricks, financial bubbles and debt pyramids. It appears from nowhere and can disappear in an instant, as a phantom in the night.

Those engaged in creating phantom wealth collect handsome “performance” fees for their services and walk away with their gains. When the bubble bursts, borrowers default on debts they cannot pay and the bubbles and debt pyramid collapse in a cascade of bankruptcies.

It is easy to confuse phantom financial assets with the real wealth for which they can be exchanged. Indeed, the illusions of phantom wealth are so convincing that most Wall Street players believe they are creating real wealth.

The market, of course, makes no distinction between the dollars acquired through means that enrich society, those created by means that impoverish society and those simply created out of thin air. Money is money, and the more you have, the more the market eagerly responds to your every whim. It is still only a number with no existence outside the human mind.

Those who benefit from the creation of phantom wealth may never realize their gain is unfairly diluting everyone else’s claim to the available stock of real wealth. They may also fail to realize Wall Street and its international counterparts have generated total phantom-wealth claims far in excess of the value of all the world’s real wealth, thus creating expectations of future security and comforts that can never be fulfilled.

The deceptions are built right into our language. We refer to speculation as “investment” and to phantom financial wealth as “capital.” Indeed, when we hear the terms wealth, resources, capital, assets or resources, we have no way to know whether the reference is to a real asset or only to a phantom financial asset. Our language gives us no way to make this essential distinction. It is no wonder we get confused and fail to recognize that Wall Street produces nothing of real value.

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.

This exciting, new series is co-published by CSRwire and YES! Magazine.

The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.

Talkback Readers: Does Wall Street deal in real or phantom assets? Tell us your thoughts on Talkback!

09:11 pm by csrwiretalkback[34 notes]

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Defection

As part of the New Economy 2.0 series 

 

By David Korten

Many people are intrigued by the story of my defection from my establishment roots to become a rebel voice challenging the legitimacy of the institutions I once served. It is the story of a lifelong journey filled with uncommonly rich and varied collection of experiences. Here are some highlights:

I grew up in a conservative small town where I learned to value family, community and nature. I was raised to believe in the special character of America as a middle-class democracy, free from the extremes of wealth and poverty that supposedly characterized the world’s less advanced nations. In my childhood, my dad, a local retail merchant, taught me if your primary business purpose is not to serve your customers and community, then you have no business being in business.

My Stanford Business School education taught me to look for the big picture. My doctoral dissertation research on cultural change in Ethiopia and its impact on modern organizations taught me the power of culture in shaping collective behavior.

From my experience as an Air Force captain on the faculty of the Special Air Warfare School and as a military aide in the Office of the Secretary of Defense during the Vietnam War, I learned how the world’s most powerful military was thwarted by the self-organizing networks of an ill-equipped peasant army motivated by a vision of independence and self-rule. That experience helped me later recognize the potential of a committed citizenry to likewise thwart the seemingly invincible power of Wall Street and gave me insights into how that resistance might self-organize.

While academic director of the Central American Institute for Business Administration in Managua, Nicaragua, I witnessed the extreme gap between the super-rich and super-poor.

While a professor on the organization faculty at the Harvard Business School, I learned how the structures of large-scale institutional systems shape behavior and how system structures can be designed to support intended outcomes.

During 15 years in Asia with the Ford Foundation and U.S. Agency for International Development, I experienced the positive power and potential of local community self-organization and the importance of the local control and management of essential natural resources and participated in many experiences in large-scale organizational change. These were the years of my awakening to the terrible truth that development models centered on economic growth almost inevitably make a few people fabulously wealthy at an enormous social and environmental cost to the substantial majority.

In 1992, Fran (my wife) and I returned to the United States and settled in New York City near Union Square between Madison Avenue and Wall Street and engaged the inquiry into the nature of the publicly traded limited liability, private-benefit corporation as an inherently destructive anti-market business form that produced When Corporations Rule the World. 

As a founding member of the International Forum on Globalization, I learned about the power of a new story propagated through global citizen networks to thwart the agenda of the world’s most powerful corporations and reshape the course of history.

As the cofounder and board chair of YES! Magazine, I have come to realize every act of resistance against what we don’t want must be paired with a positive vision of what we do want.

Writing The Post-Corporate World: Life After Capitalism drew me into in the study of the incredible reality of life’s capacity for creative, cooperative self-organization and the implications for the design of economies that mimic healthy living systems.

 The Great Turning: From Empire to Earth Community drew me into an examination of contemporary impact of 5,000 years of organizing human societies as hierarchies of domination governed byinstitutions that nurture and reward moral, emotional and behavioral dysfunction.

My experience as a founding board member of the Business Alliance for Local Living Economies has immersed me in the experience of communities all across the United States and Canada that are taking control of their economic future by rebuilding their local economies.

These are a few of the experiences and lessons that inform and find expression in Agenda for a New Economy and the blogs I will be sharing here in the next few months.

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.

This exciting, new series is co-published by CSRwire and YES! Magazine.

The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.

Talkback Readers: What were the formative experiences that led you to a greater awareness of CSR and sustainability? Share them on Talkback!

02:43 pm by csrwiretalkback[7 notes]

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Needed: A Serious National Conversation On Economic Values And Priorities

As part of the New Economy 2.0 series 

 

By David Korten

Few and fortunate are those whose lives have not been directly touched by the September 2008 Wall Street meltdown and its consequences. People want to understand what went wrong and how we can set it right. Yet the public commentary continues to center primarily on finger-pointing. Who knew what when? Which regulators were asleep at the switch, and why?

Most calls for action seek only to limit the excesses and deceptions of greedy bankers and complicit regulators. We have yet to engage a much-needed national conversation that addresses essential, yet unasked, questions. For example:

  • Do Wall Street institutions do anything so vital for the national interest as to justify opening the national purse strings and showering them with trillions of dollars in order to save them from the consequences of their own excess?
  • Is it possible the whole Wall Street edifice is built on an illusion that has no substance yet carries deadly economic, social and environmental consequences for the larger society?
  • Might there be other ways to provide necessary and beneficial financial services with greater effectiveness and at lesser cost?

Ultimately, it comes down to a question of the values we believe the economy should serve. Should it give priority to money or life? To the fortunes of the few, or the well-being of all?

The existing Wall Street-led economy is highly effective and efficient at converting real living wealth to phantom financial wealth to make rich people richer. But it is a path to collective suicide. Our future and that of our children depend on replacing the values and institutions of the Wall Street economy with the culture and institutions of a New Economy designed to provide an adequate and satisfying livelihood for all people in balanced relationship to Earth’s biosphere.

I believe an honest public examination of these questions will lead to a unifying national political consensus that Wall Street institutions produce nothing of value to the society and fulfill no need not better served in other ways. They can and should be replaced with institutions that act like mature, caring adults and serve real needs in ways appropriate to the realities of the 21st century.

We cannot, however, simply let the Wall Street financial institutions collapse as would have happened in 2008 without the Federal bailout. Wall Street controls the creation and flow of the money that facilitates the economic transactions on which we depend for meeting most all our material needs. If its institutions suddenly shut down with no alternative in place, we would be left only the money in our pockets and instantly reduced to barter for most essentials of daily life, including food and water.

The process of shutting down Wall Street properly proceeds in parallel with action to put in place the institutions of a New Economy, including a new system for creating and allocating national currencies in ways more responsive to society’s needs.

Leadership for institutional transformation rarely comes from within the institutions of Empire that bring special privilege to the few and hardship to the many. It invariably comes from authentic grassroots movements that self-organize from outside the establishment to challenge the status quo and create alternative institutions that ultimately displace those that no longer serve.

Efforts to form a social movement to confront the Wall Street–Washington axis are handicapped, however, by the absence of a broadly shared vision of an economic system structured to achieve and maintain financial stability, ecological balance, prosperity for all, and full democratic participation.

As I will elaborate in a future blog post, the true alternative to the Wall Street capitalism that is imposing an intolerable burden on society is not totalitarian Soviet style socialism. It is a system of locally rooted, self-reliant market economies that honor true market principles, operate by clear rules maintained and enforced by truly democratic governments, and mimic the structure and dynamics of Earth’s biosphere.

This is the first of a series of blogs based on excerpts adapted from the 2nd edition of Agenda for a New Economy: From Phantom Wealth to Real Wealth. I wrote Agenda to spur a national conversation on economic policy issues and options that are otherwise largely ignored. This blog series is intended to contribute to that conversation.

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.

This exciting, new series is co-published by CSRwire and YES! Magazine.

The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.

06:40 pm by csrwiretalkback

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CSRwire is the leading source of corporate social responsibility (CSR) and sustainability news, reports, events and information.

CSRwire Talkback is hosted by Francesca Rheannon, Managing Editor, and Sarah Peyok, Director of Editorial.

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