Monday, September 06, 2010

Will work for something real.

For Labor Day, a thoughtful piece about economic development from YES! Magazine's David Korten, reprinted in its entirety under a Creative Commons license.

10 Common Sense Principles for a New Economy
It’s time we the people declare our independence from the money-favoring Wall Street economy.

by David Korten

I find hope in the fact that millions of people the world over are seeing through the moral and practical fallacies underlying the Wall Street economy and-—by contributing to the creation of a New Economy--are taking charge of their economic lives.

Here are ten common sense principles to frame the New Economy that we the people must now bring forth:

1. The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing.

2. GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it.

3. A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives— war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness.

4. Markets allocate efficiently only within a framework of appropriate rules to maintain competition, cost internalization, balanced trade, domestic investment, and equality. These are essential conditions for efficient market function. Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.

5. A proper money system roots the power to create and allocate money in people and communities in order to facilitate the creation of livelihoods and ecologically balanced community wealth. Money properly serves life, not the reverse. Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. Main Street uses money to connect underutilized resources with unmet needs. Public policy properly favors Main Street.

6. Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.

7. Speculation, the inflation of financial bubbles, risk externalization, the extraction of usury, and the use of creative accounting to create money from nothing, unrelated to the creation of anything of real value, serve no valid social purpose. The Wall Street corporations that engage in these activities are not in the business of contributing to the creation of real community wealth. They are in the business of expropriating it, a polite term for theft. They should be regulated or taxed out of existence.

8. Greed is not a virtue; sharing is not a sin. If your primary business purpose is not to serve the community, you have no business being in business.

9. The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.

10. Public policy properly favors local investors and businesses dedicated to creating community wealth over investors and businesses that come only to extract it. The former are most likely to be investors and businesses with strong roots in the communities in which they do business. We properly favor them.

David Korten 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.


Kerberos said...

What an excellent top 10 list. I wholeheartedly agree with all points the author mentions and look forward to exploring more about David Korten. Thanks for the post, Jeff.

The New Albanian said...

Ditto. More fuel for the "Why do you guys hate America" crowd of slack jaws.

dan chandler said...

Six, except maybe when deflation is a serious threat, sounds like a recipe for inflation. Yes, banks "create" money (using economics' careful M1, M2, M3 definitions of money); what's often missed is that banks destroy money at virtually the same rate.

Nine, if enforceable in a meaningful way, is just scary. Between Anheuser-Busch and NABC, should government say one or the other does or does not serve a clearly defined public purpose? Do you want the elected Indiana Sec. of State making this call?

Jeff Gillenwater said...

What value does money have?

Why should we have corporations at all?

dan chandler said...

Getting rid of corporation would not in itself get rid of pollution or political power of business. Here's the value.

Under common law principles of partnership, if two or more people enter into a common money making enterprise, each person is equally liable for the torts and breaches of contract for any of the other people. This model worked fine for hundreds of years, mainly through periods where the largest enterprises consisted of a handful of partners and maybe a few carts and a horse. That’s still the law today if you don’t register some type of limited liability entity like an LLC or a corporation.

The importance of corporations grew as advances in technology and trade created new industries with larger economies of scale. More economies of scale (i.e. higher standards of living) came about from larger and larger capital investments. Most individuals could not build a railroad with cash out of pocket or with a bank loan. We wouldn't want that either since such as system would allow only the wealthy to invest in many new companies. Instead, if you wanted a railroad, you had to raise money from hundreds or thousands of individuals. Hundreds or thousands do not want to be equally liable for the acts of each of those other hundreds or thousands of contributors; if we were going to have a privately owned railroad, there needed to be a shield from liability (Note: State owned railroads, or state owned anything else, have always enjoyed limited liability. You can’t garnish Obama’s wages when AmTrak screws up.).

You can argue that the shield is too great, that it creates “moral hazard.” The threshold for obtaining limited liability is far lower (with the proliferation of LLCs) than it was a generation ago. Nonetheless, the value of corporations is that it allows individuals to operate large enterprises where the economies of scale make it the most productive way of doing business. Without this, we’d have far fewer Boeings, iPhones, Blogger sites, or anything else. Also, half of us might be illiterate because society never became wealthy enough to move beyond one room dirt floor schoolhouses. Even if we could build a few modern technologies without corporations, that alone does not address the pollution problems of modern technology; an iPhone still is going to have some nasty metals and chemicals used in its construction. Nor would it address aggregated political power; all of the independent, corner iPhoneSmiths could form guilds (trade & lobbyist organizations) just as tradesmen did in ancient Rome.

The value of money is that it beats the pants off barter.

Steve Magruder said...

Money beats the pants off barter, except that barter is a very useful tool when money is scarce, and you really need something, and don't mind parting with something to trade.

As for the list, I generally like its attitude, although I agree with Dan that #6 is problematic.

Jeff Gillenwater said...

Whether or not massive economies of scale equate to higher quality of life and the most productive way to do business is a highly subjective value judgment, isn't it?

To use a popular example, Wal-mart's entire business model is predicated on economies of scale. Have they made your life better?

What tests exist, with the exception of an initial qualification process and paperwork, to determine that those who are relieved of liability are actually enhancing quality of life (besides their own) as they continue to be granted special privilege in perpetuity?

Money has no intrinsic value beyond what we collectively assign to it. It's a social construct and its status and purpose is therefore open to change and interpretation as well.

It used to be considered shameful to profit from handling money since doing so in itself doesn't produce anything. Now, people who do nothing, build nothing, and contribute nothing beyond handling money (often with little if any concern for its impact beyond their own balance sheet) are among the wealthiest and most influential. How did we get to this point?

dan chandler said...

Most problems with Wal-Mart are not created by its superior economies of scale. If we had one less Wal-Mart and replaced it with 1000 smaller retailers,

-people would still demand as much stuff that creates as much landfill,

-as many unskilled workers still would be paid low wages, just by many different employers,

-smaller retailers still would create the same sprawl that should be tackled by zoning, etc. (Look at Charlestown Rd. Get rid of Meijer and there's still plenty of little shops in little stripe malls far from people's houses.),

-it's possible that there would be more pollution as trucking/distrubution is less corrdinated. Goods still have to get from the factory to the shelf. The more shelves you have the more delivery trucks need to drive around.

Merely striking out against large corproations is too blunt of a tool to be good policy.

dan chandler said...

Instead of attacking Wal-Mart, I’d prefer a system that:

-internalized externalities in the production/consumption of goods,

-ensured workers rights and livable wages, and provided lifelong job training opportunities,

-pushed New Urbanist land use policies, urban revitalization, and impact fees for new construction that took into account a broad range of externalities,

-cut subsidies for automobiles, roads and gasoline, and invested in public transportation.

Do these things and your Wal-Marts will adapt in a way that makes it a better neighbor.

Jeff Gillenwater said...

It's a fairly straightforward question, Dan: Is Wal-mart (or any other corporation) improving quality of life for the public at large or serving a particular public purpose?

If the answer is "no", "I don't know", or "I'm not sure if we can even measure that", then on what basis do we justify granting them special privilege?

If the answer is "yes" they are, how are they doing it? What is the public good being served?

dan chandler said...

The reason big corporations are big and rich is because they provide so many people with stuff they really want and/or need. I call providing people stuff they want and/or need a public service. Externalities are many, but small business has externalities too. Corporate structure creates wealth. Wealth cures diseases, pays for education, pays salaries, funds solutions to pollution and buys culture. Attack the externalities. Don't attack the tools that generate all the public good that comes from not being impoverished.

Jeff Gillenwater said...

I disagree with many of your assertions, but thank you for answering.

dan chandler said...

Local Corporations include:






I would never be a board member of Carnegie Center if I were personally liable for every slip and fall by a visitor.

Iamhoosier said...

Dammit, I was going to take a hiatus from commenting on the web for a bit. Never did have any will power.

I don't see how either of you(or any of us)can answer the corporation question without first defining "quality of life". As Jeff stated above, it is highly subjective.

Jeff Gillenwater said...

Actually, Dan, it's doubtful that you'd be held responsible for a slip and fall as a member of the Carnegie Center, Inc. board. They're a separate non-profit with no real responsibility for the facility, which is a division of the library.

Do they, as a non-profit, serve a public purpose? I think so. Others may not, but they shouldn't be held any more or less accountable for making their case in order to maintain their status.

The good news is that they actually had to specify a purpose (which at least they consider to be beneficial to the community) in order to be granted non-profit status and must document each year how whatever "wealth" they have is going toward that purpose. If it's determined that their "wealth" is being used for anything other than accomplishing that stated purpose (being distributed to members, for instance), they risk losing their special status.

I realize you were trying to personalize the situation but Carnegie, Inc. probably isn't a very good example. I don't have much time today to deal with it, but if you'd like to pick another example, the floor is open as always.

And by the way, I think IAH is right on it.

In order to answer the quality of life question as it pertains to corporate privilege, I think we first have to ask what quality is and then ask again at regular intervals thereafter whether or not the inherent social contract is being honored, rather than providing lifetime, carte blanche privileges without really ever considering those issues.

Like Ohio River bridges, the extension of special privilege and status to entities large or small is a choice to be made rather than an inevitability to be faced.

B.W. Smith said...

9. The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.

Much has been written on this topic. See the history of the "ultra vires" doctrine in corporate law.