Agenda for a New Economy

by David C Korten

  WHY WALL STREET GLOBALIZED THE ECONOMY

  The elimination of national borders as barriers to the expansion of corporate control of world markets and resources didn’t happen as a result of some inexorable law of nature. It came about over a period of some thirty years through the relentless effort of Wall Street interests using every political tool at their disposal to remove legal barriers to their expansion.

  Wall Street did not expend all this effort to improve the health of people and the biosphere. It figured out that its ability to generate profits would be best served by a system that maximized each locality’s dependence on distant resources and markets.

  Create Dependence

  Take the system by which we produce, process, transport, and market our food. A farmers’ market where local producers and consumers gather to engage in direct exchange offers many benefits from a community perspective. The food is fresh, the energy costs of transport are minimal, the personal exchanges enhance community ties, farmers can adapt rapidly to changing local preferences and conditions, and the local economy is cushioned from food shocks elsewhere in the world.

  Wall Street has a different perspective. It observes this scene and says in effect:

  What’s the profit here? We need a global food system in which producers in Chile depend on customers in New York and vice versa. Then both are dependent on us to serve as middleman. We can monopolize global markets, set prices for both producers and consumers, and force producers either to buy our seeds, fertilizers, and insecticides at whatever price we choose or to lose their market access. The greater our success in convincing local producers that they will have higher profits, and local consumers that they will have greater selection at low prices when everything is traded globally, the more they will depend on us as intermediaries, the greater will be our hold on people’s lives everywhere, and the more profit we can extract.

  When the world’s agricultural land is organized on the model of industrial monocropping, both producers and consumers depend on the global agricultural conglomerates for their survival. Until a crisis strikes, few notice that the resulting increase in global food interdependence increases the real costs of food production and reduces food security for everyone. This in turn creates lucrative opportunities for Wall Street speculators who profit from volatile commodity prices as a weather disruption on one side of the world creates food shortages on the other.

  If the United States decides to convert its corn crop to ethanol, the price of tortillas in Mexico shoots through the roof. One nation may decide that it is more profitable to pave over its farmland and import food from a place where labor and land are cheaper. A nation may see the folly of this choice only when the supplying country decides to do the same or faces a bad harvest and shuts off its exports in favor of feeding its own people. Corporations that control global markets then profit from the frantic bidding up of prices by countries desperate to avoid the rebellion of a hungry population.

  Such a system is also folly from a biological standpoint. The resilience of economic and biological systems is a function of local diversity and self-reliance. The less diverse and self-reliant the local system, the greater is its dependence on resources and decisions over which the people affected have no influence. In the case of the economy, this works to the benefit of global corporations, not the local communities that depend on choices made by those corporations without consideration for community interests or preferences.

  Furthermore, shipping massive quantities of food around the world breaches natural ecosystem barriers and introduces alien predators against which ecosystems on the receiving end have no defense. In addition, monoculture cropping is particularly vulnerable to invasive pests or a change in weather conditions.

  Eliminate Local Options

  A thriving Main Street economy comprising locally owned, community-oriented enterprises is essential to the creation of a sense of community and place. Wall Street, however, has political clout, which it uses shamelessly to promote public policies that favor its corporations and investors at the expense of local enterprises and ownership.

  Local stores that have served their communities for generations are driven out of business by subsidized corporate box stores. Local manufacturers find themselves competing with foreign producers that pay their workers pennies an hour and freely discharge toxic pollutants into the air and water.

  As local businesses close their doors, wages fall, once-thriving Main Streets that served as centers of community life are abandoned, and ugly, auto-dependent strip malls, box stores, and shopping centers dominate the countryside. The disruption of community life and the loss of natural beauty and biologically productive open space come at an enormous but largely unacknowledged cost in lost social and environmental capital and increased physical and mental stress.

  We must now seize this pivotal moment in our collective history to recognize that we are in fact part of Earth’s biosphere and transform our economies accordingly.

  LIFE AS TEACHER AND PARTNER

  Earth’s biosphere is segmented into countless self-organizing ecosystems, each exquisitely adapted to its particular place on Earth to optimize the sustainable use of locally available resources in service to life. It involves a highly sophisticated and complex fractal structure of nested, self-reliant, progressively smaller ecosystems.4

  Our task is to reorganize our human economies to function as locally self-reliant subsystems of our local ecosystems. This requires segmenting the borderless global economy into a planetary system of interlinked, self-reliant regional economies, each rooted in a community of place and organized to optimize the lives of all who live within its borders.

  These economies will trade their surplus with their neighbors in return for that which they cannot reasonably produce for themselves. Most needs, however, will be met by local production using local resources in the manner of local ecosystems. As each local economy limits its population growth and eliminates wasteful and destructive resource use to bring itself into balance with its place on Earth, global GDP will shrink, overall human well-being will increase, and we humans will come into balance with Earth’s biosphere.

  Organizing ourselves to partner with the biosphere properly begins with identifying the biosphere’s underlying organizing principles. These principles are a product of an extraordinary 3.5-billion-year evolutionary experience through which life has learned to optimize its potential on a varied and finite Earth. This experience has much to teach us about what we must do to prosper in balanced relationship with the whole of Earth’s web of life.

  * * *

  FRACTALS IN NATURE

  A fractal is a geometric figure in which each part has the same statistical character as the whole, which means that similar patterns recur at progressively smaller scales. Fractal structures are ubiquitous in nature. I sense that they have much to teach us about organizing human economies that will function in balanced, creative relationship to nature at all system levels, from the household to the bioregion to the global biosphere. A Web search on fractals in nature yields a wealth of photos and videos that illustrate the concept and stir the imagination.

  ORGANIZING PRINCIPLES OF HEALTHY LIVING SYSTEMS

  1. Self-organize into dynamic, inclusive, self-reliant communities of place.

  2. Balance individual and community needs and interest.

  3. Practice frugality and reciprocity.

  4. Reward cooperation.

  5. Optimize the sustainable capture and use of energy and matter by adapting to the specific details of the microenvironment.

  6. Form and manage permeable boundaries.

  7. Cultivate diversity and share knowledge.

  * * *

  Cooperative Self-Organization

  Since our early turn to dominator systems of organization, we humans have been inclined to see life as a brutal competitive struggle for food, sex, and survival, perhaps to justify our imperial brutality to one another. Although life’s compet
itive elements contribute to its dynamism, competition is only a subtext to the larger story of life’s extraordinary capacity for cooperative self-organization.

  The secret to life’s success is found in the trillions upon trillions of cells, organisms, and communities of organisms engaged in an exquisite dance of continuous exchange with their living neighbors. Each maintains its own identity and health while contributing to the life of the whole. Each balances its own needs with the needs of the larger community. Biologists at the cutting edge of their field now tell us that the species that prosper over the longer term are not the most brutal and competitive, but rather are those that find a niche in which they meet their own needs in ways that simultaneously serve the needs of others and contribute to the life of the whole.

  In its continuous exchange, life is both frugal and reciprocal. The waste of one species is the food of another in constant and pervasive processes of recycling and reuse.

  Because life thrives on diversity and depends on continuous exchange, living beings can exist only in community. An individual organism cannot survive in isolation from other organisms or in a monoculture exclusive to its own species. The greater the diversity of the bio-community and the greater the cooperation among its diverse species, the greater the community’s resilience in times of crisis, its potential for creativity in the pursuit of new possibilities, and its capacity to adapt to diverse and changing local conditions.

  Self-Reliant Local Adaptation

  This capacity for self-organization supports a constant process of adaptation to the intricate features of Earth’s distinctive physical microenvironments, using nature’s fractal structure of nested subsystems. Each subsystem is able to optimize the capture, sharing, use, and storage of available energy and material resources, both for itself and as its contribution to the needs of the larger system of which it is a part, all the way down to the microscopic level. Because of this fractal structure, each ecosystem level up to and including the biosphere is local everywhere within its boundaries, which is the key to the ability of all system levels to be both adaptive and resilient.

  Local self-reliance in each microsystem’s food and energy capture and production maximizes security and stability both locally and globally. A disturbance in one part of the system is readily absorbed and contained locally, instead of disrupting the whole system. Local self-reliance also forces each local system to balance its consumption and reproduction with local resource availability, thus maintaining balance in the system as a whole.

  Managed Boundaries

  Living systems have learned to form permeable membranes at every level of organization — the cell, the organ, the multicelled organism, and the multispecies ecosystem. At each of these levels, from the individual cell to the ecosystem, the living entity must capture energy from its environment and then maintain it in an active state of continuous flows within itself and with its neighbors. The membrane is also the entity’s defense against parasitic predators that would sup on its energies while offering no compensating service in return.

  If the membrane is breached, the continuously flowing embodied energy that sustains the organism’s internal structures mixes with the energy of its environment, and it dies. It also dies, however, if the membrane becomes impermeable, thus isolating the entity and cutting off its needed energy exchange with its neighbors. Managed boundaries are not only essential to life’s good health but are essential to its very existence.

  We must learn to apply these principles of cooperative self-organization, self-reliant local adaptation, and managed boundaries to our own economic systems as our planetary crises force us to recognize that we must play by Earth’s rules.

  A community that organizes its economy around locally rooted businesses that rely primary on local resources to meet its needs is unlikely to find its economy devastated because a large corporation decides to outsource its production and close the local factory on which the town depends. It is less likely to suffer a loss of its markets because of some sudden shift in the global terms of trade. And it faces less risk from invasive species.

  We humans are awakening to the reality that we are living beings who inhabit a finite living Earth to whose ways we must now adapt by creating economies that mimic the biosphere’s fractal structure and capacity for self-reliant local adaptation through cooperative self-organization.

  The transition to an economy suited to the realities of life on a living Earth poses a significant creative challenge. It also presents an epic opportunity to get our priorities right, express our human capacity for creative innovation, and actualize humanity’s long-shared dream of a world of universal peace and prosperity.

  CHAPTER 12

  NEW VISION, NEW PRIORITIES

  We cannot manage the scale, complexity and dynamics of the 21st Century with the tools of the 20th. We are at a turning point in world history where new ideas, new values, new strategies and new institutional arrangements are needed. We must find the vision, the leadership, and the creativity to collaborate in developing constructive solutions to offer a decent future to present and succeeding generations.

  R. MARTIN LEES, THE CLUB OF ROME

  There is no place on an already overstressed living Earth for war, speculation in phantom wealth, advertising to encourage people to consume beyond their means and needs, paving over or otherwise taking productive land out of service, depleting or contaminating water reserves, or engaging in gratuitous displays of material excess. Yet a major portion of the current GDP is derived from or dependent on these activities. On a living Earth these are acts of suicidal insanity that of necessity must be strongly discouraged or prohibited.

  We can and must reallocate to more beneficial pursuits the resources these undesirable activities expropriate.

  The current massive misallocation of resources is the artifact of a belief that human prosperity is maximized by unrestrained global competition for resources, markets, and money to increase the consumption of whatever goods and services generate the greatest private profit. This is the underlying theory around which the institutions of the corporate-led global economy have been organized. The result is military conflicts worldwide; a global race to the bottom on wages, benefits, and environmental standards; and unregulated financial markets that produce prosperity for the few, misery for the many, and insecurity for all.

  As elaborated in the previous chapter, the path to true and secure economic prosperity is through global cooperation in a race to the top for the healthiest people, families, communities, and natural systems. The supporting economic system will allocate the sustainable product of the biosphere to maximize the well-being of people and nature rather than the profitability of Wall Street corporations.

  INSTITUTIONAL SYSTEMS FOR A NEW ECONOMY

  Although I’m sometimes called an economist because I write and speak about economic issues, the discipline for which I received my academic training is organizational systems design. I view the economy through that lens.

  As a Harvard Business School professor in the early 1970s, I taught the art of structuring human relationships in corporations to maximize profit. Partly, that involves getting the incentives right; it also involves culture, authority, communication flows, and a host of other influences subject to management intervention.

  The same intellectual tools can be used to design the institutional structures of societies either to consolidate the power and privilege of the ruling elites or to share power and facilitate creative, democratic self-organization to enhance a community’s well-being. These are essential tools for a fully developed science of applied ecology.

  To create a global human system that supports the sharing of power to optimize human and natural health and well-being, we must first be able to see it in our collective human mind, just as the ancient South Pacific mariner saw in his mind the otherwise unknown distant island that was the object of his journey.

  We seek systems of values and institutions that support self-org
anization toward three defining conditions. Defining these values and institutions can help us visualize the future we seek.

  Three Defining System Conditions

  A system condition refers to the equilibrium state toward which a healthy, resilient system self-corrects in the aftermath of a disturbance.

  The institutional system of the old economy lacks the ability to self-correct, not only because its most powerful decision makers are insulated from the social and environmental consequences of their decisions but also because their definition of system health and success is itself fatally flawed. They take the rate at which their financial-asset accounts are growing as the measure of success and allocate resources accordingly, wholly unmindful of any connection between their decisions and rising unemployment, family and community breakdowns, collapsing fisheries, and melting glaciers.

  They are most exuberant about the economy’s performance when a financial bubble is rapidly inflating, a condition of disequilibrium, and respond by feeding the bubble, a path to certain system collapse.

  The Keynesian economist John Kenneth Galbraith called this self-destructive predisposition “irrational exuberance” and demonstrated that it is the condition toward which capitalist systems have consistently self-organized for more than 360 years, with no apparent ability to self-correct or learn from experience.1

  For a human system to self-correct, it must provide negative feedback to the decision makers when they make choices that threaten the system’s health. This means the group that reaps the rewards must also bear the costs.

  The New Economy goal is to create a resilient system of economic institutions, values, and relationships that dynamically self-correct toward a healthy condition of ecological balance, equitable distribution, and living democracy. Let’s take a closer look at each of these system conditions.