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CHAPTER 6 – THE ERRORS OF ECONOMICS
I want to admit here at the front end that I am not a big fan of the field of economics. It
will help to explain why, because my perspective regarding this field lays the foundation for the
ideas I want to address in this chapter. My exposure to economics began when I was an
undergraduate business major. As I recall, we were required to take both a micro- and a
macro-economics class in order to complete the degree. After I had taken quite a few
accounting classes, I thought I might be able to “place out” of micro-economics by passing a
placement test. I was successful in this attempt, and thus only had to take the macro class.
While the issues addressed in this class – how the economy works on broad national and
international levels – were reasonably interesting, it was a level of analysis much higher than my
own interests in human behavior at the organizational level. If anything, my reaction at that
point was just that economics seemed boring.
As a doctoral student, I was required to take a micro-economics class, which I proceeded
to fail (fortunately for my ego, so did two of my classmates). The fact that I had never had any
exposure to micro-economics was only a trivial part of the problem. Much greater was the fact
that the course content was taught almost entirely in terms of mathematical equations which were
grounded in differential calculus, of which I had at best a rudimentary understanding. I literally
had no clue what the professor was trying to explain, nor how it had any correspondence to
anything in the real world. I was baffled, and thus was not at all surprised that I failed.
However, our failure in the class posed a bit of a problem for the doctoral program
administrators, since the course was required for the degree and our Fs meant that we did not
meet the requirement. They decided that what we should do is to take a micro-economics class
offered in the Economics department by Professor Kenneth Arrow, a Nobel Prize-winning
economist. Arrow taught the course by focusing primarily on explaining key concepts, rather
than clarifying the mathematical analyses underlying these concepts. Whereas I didn’t at all
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understand the math in the first class, I did well enough with the concepts to get an A in the
second class (again, as did my colleagues). We felt vindicated, and the doctoral program was
satisfied that we had met the requirement for learning micro-economics. A nice win-win
solution!
The longer I was in the doctoral program, the more I realized that high-level “research” in
economics is simply a task of mathematical modeling. The leading-edge economics research
being done by world-class economists is simply an analytical process of identifying a set of
starting assumptions and theoretical dynamics (e.g., causal relationships), codifying these into
mathematical equations, and mathematically “solving” this system of simultaneous equations in
order to develop a “proof” of the outcome or effect of the modeled system. Economic research,
it seemed to me, was nothing more than finding a way to prove that what you think is true about
the world can be demonstrated mathematically. I was being trained as an organizational
scholar, and the research process as I was learning it typically included the collection of data
from the real world with which to assess the validity of ones’ theoretical framework or starting
hypotheses. Thus, I was a bit bemused, if not dismayed, to learn that no such real world
validation was necessary in economics research. Data, or so it seems, are largely irrelevant to
some of these top economists, and once a set of ideas has been proven mathematically, it
apparently becomes viable economic theory.
Unfortunately, this economic theory then becomes the foundation for economic policy,
since it is these same top economists who serve as advisors to the President and Congress and
thus shape public policy. My years in the doctoral program coincided with the Reagan
administration, and as I was learning a little more about economics, the effects of that
administration’s economic policy on U.S. society were also becoming more readily apparent.
Reaganomics was grounded in the premises of “trickle down” theory, the idea that if the
economy were stimulated among those who had the most resources, the increased economic
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activity would generate additional wealth that would trickle down from those with the most to
those with the least. The Reagan administration’s approach to overcoming the economic
problems of the 1970s was to deregulate the economy so that the private sector had more
freedom to function and thus grow, and to provide incentives (e.g., tax breaks) to those with
capital to encourage them to invest it in new economic activity. Put bluntly, the basic idea was
to give rich people more leeway to use their existing money to make more money, with the hope
that this would create additional jobs for the masses and improve the economy more generally so
that everyone’s standard of living would improve.
The economy was stimulated, sure enough, but it wasn’t long before it became clear that
the increased wealth wasn’t trickling down. The number of homeless people seemed to increase
rather quickly and dramatically, and statistics started to indicate that the gap between the richest
and poorest was growing, not shrinking. A flurry of merger and acquisition activity in the
corporate world paid handsome dividends to the wealthy top executives and investment bankers
involved in the transactions, but resulted in massive downsizings and layoffs that left many
middle- and working-class Americans without a job. Deregulation of the finance sector coupled
with a surge in speculative investing led to the savings-and-loan debacle, where thousands of
citizens lost their life savings because wealthy investors were taking advantage of risky
opportunities to make a quick buck. Basically, the economy under Reaganomics acted like the
antithesis of Robin Hood – taking from the poor to give to the rich. It certainly created wealth,
but the mechanism at play seems to have been more “trickle up” than trickle down.
The economic policies of the Reagan administration were a manifestation of the
resurgence of the conservative movement into national and then international politics. The
conservative movement incorporates a number of core beliefs, two of which are fundamental to
the economic policies espoused by this ideological framework. First is the belief that economic
markets should be as unconstrained as possible, so that participants can compete freely in pursuit
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of their own self-interests. This is based on the premise from economic theory that a “Pareto
optimal solution” for the distribution of wealth in society is, generally speaking, more likely to
be obtained as a market system approximates the conditions of “pure competition.” In other
words, the purer the competition – the freer the market – the better the outcome for society. The
notion of Pareto optimality is a mathematical concept, and refers to a solution derived from the
kind of mathematical analysis mentioned above. Mathematically, given a set of starting
assumptions (basically, those of the dominant paradigm), free-market economists have “proven”
that competitive dynamics are good for society. As a result, the conservative movement is
inherently biased against any kind of government regulation, since more regulation means more
restricted competition and more fettered markets. The Reagan administration deregulated
enthusiastically, and the result for society was increased poverty, a shrinking middle-class
separating into the “haves” and the “have-nots,” and rich people becoming filthy rich. Since
real-world data are essentially irrelevant to the development of economic theory, these outcomes
did nothing to reduce the free-market theorists’ faith in the optimality of free, open markets.
The second core belief underlying conservative economic policy is that government
should be smaller rather than bigger. On one hand, much of the government bureaucracy exists
in order to implement the regulatory activities imposed on the economy and its participants by
lawmakers. From the conservative perspective, this is a double whammy – costs imposed on
those being regulated and costs imposed on taxpayers to fund the regulators. So the
conservative agenda towards deregulation is supported by this underlying anti-government
sentiment. On the other hand, a considerable portion of the government bureaucracy exists in
order to provide benefits and services to individuals in society who have been defined by the
lawmakers (and/or the bureaucrats) as entitled to these benefits and services. The conservatives
again point to the costs to the taxpayer of providing these entitlements, and further argue that
such government handouts undermine individuals’ sense of responsibility and self-reliance.
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Their conclusion, then, is that the “welfare state” needs to be cut back, in order to reduce the size
of government, save the taxpayers money, and force individuals’ to take more responsibility for
themselves. Basically, conservative economic policies have the effect of making life more
difficult for the poorest segments of society, while simultaneously making it easier for the richest
segments of society to increase their wealth.
I can’t say that I learned a lot about formal economic theory during my doctoral program.
As an informed citizen, however, my observation of the implementation of conservative
free-market economic policy in the United States and its effects on society led me to the personal
conclusion that something was fundamentally wrong with its underlying theoretical framework.
According to the theory, “we the people” are supposed to benefit from free-market economics,
yet according to the evidence, many folks – especially those already worst off – were not
benefiting and in fact life was getting even tougher for them. Clearly, it seemed to me, the
theory was wrong! Early on in my exposure to economics, I had been troubled by the field’s
very limiting assumptions regarding the basis of economic behavior. Economics simply
assumes that behavior, whether of individuals or of organizations, is exclusively self-interested
with a goal of maximizing utility or profit. Yet I knew very well that people and organizations
are much more complex than suggested by this very simplistic assumption. It seemed to me that
the field of economics was ignoring or assuming away all the complexities of human and
organizational behavior that were the focus of my studies, and thus I viewed the field as
essentially naïve. When I realized that economic theory is essentially derived without reference
to real world data, I started to question its relevance and practical value. When I observed the
destructive effects of conservative, free-market economic policy on people and communities, I
began to see economic thinking as dysfunctional if not unethical.
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By the end of the 1980s, however, with the fall of the Berlin Wall signaling the near-end
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of communism, free-market economics stood unchallenged as the best economic system in the
world. Never mind that the fall of communism can just as easily be interpreted as an indicator
of the inherent superiority of democracies over authoritarian regimes (i.e., a political rather than
an economic advantage), the community of nations comprising the new global economy drew the
collective conclusion that free-market economics was the clear victor of the Cold War. This
laid the foundation for the emergence of what has come to be known as the “Washington
consensus” (Burki & Perry, 1998; Williamson, 1990), the political economic agenda articulated
by the US government, promoted through its various foreign policy efforts in collaboration with
the other major industrialized nations, and implemented through such institutions as the World
Bank and the International Monetary Fund. In essence, the Washington consensus constitutes a
form of ideological imperialism, i.e., a process through which the rich countries of the world put
pressure on the governments of “developing” countries to adopt their ideology and its
corresponding practices. This influence is exerted by tying financial support for further
economic development in these countries to their willingness to adopt a free-market economic
system supported by a democratic political system. It is widely accepted, certainly among the
US public, that this policy orientation is a good one, and that adoption of the Washington
consensus by more and more countries around the world reflects a positive step forward for
human civilization.
In many ways, free-market economics is the dominant religion of contemporary
civilization. It is grounded in a faith in the benevolence of the Invisible Hand, which will insure
that the necessities of life are fairly distributed among the people according to a merit-based
principle of who is the most deserving. The basic tenets of this religion are taken-for-granted
assumptions that cannot be verified or refuted, yet believers adhere to these core premises with
tenacious commitment even in the face of growing evidence that they are invalid and
problematic. The cardinals and bishops of this religion – top economic advisors and researchers
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– discern “truths” through an analysis of sacred text that is written in a language – mathematics –
that is inaccessible to the masses. The masses have been led to believe in the wisdom of these
high priests and the infallibility of their truths, to accept their recommendations for how we
should live, and to heed their warnings regarding the negative consequences of disobeying the
commandments. While the high priests are not officially running the country, their advice is
extremely influential in the decisions made by the formal leaders. While these decisions are
communicated to the people as being to their advantage, the obvious effect of these decisions – if
not the intent – is to enhance the power and wealth of the ruling elite while disregarding the
well-being of the masses. Ultimately, average citizens are much like serfs, trapped in a system
in which they have to work extremely hard to make a decent living for themselves while the
profits generated by their labor are hoarded by those in control – the corporate “nobles” whose
loyalty helps to insure that the formal leaders maintain their authority.
Two variations of this dominant religion compete to get one of their adherents “on the
throne,” so to speak, with the liberal and conservative variations of free-market economics
reflecting a distinction analogous to that between the Roman Catholic and Protestant variations
of European Christianity. And just as Christianity waged a holy war against the followers of the
new, upstart Islamic religion, the free-market religion enjoined the Cold War crusade in an effort
to vanquish the new, upstart communist religion. Reagan successfully articulated this as a battle
of good versus evil, and thus the Cold War victory was viewed by many people, here and abroad,
as a triumph of righteousness over the sinfulness of the heathens. With complete faith in the
moral superiority of their own ideology, free-market loyalists determined that the rest of the
world needed to be “saved” by making a commitment to follow this religion. And just as the
Christians colonized the world by justifying their conquests with the claim that their purpose was
to bring salvation to the natives, the developed countries are forcing their religion on other
countries under the guise that it is for their own good. In both cases, the dominant culture
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imposes a worldview and way of being on weaker cultures while taking advantage of the latters’
resources for its own gain. The various “free trade” agreements implemented in an effort to
facilitate competition in the global economy make it that much easier for multi-national
corporations to take advantage of the cheap labor and resources and relatively unregulated
environments typical of most developing countries. For example, the pressure on China to
become more market-oriented is easy to understand when one realizes that they have a
nearly-untapped market of over a billion people.
The primary sacrament in the free-market religion is the economic transaction. The
various media through which the religion is communicated and discussed continually reinforce
the message that we should partake of this sacrament as often as possible. The cathedrals and
churches of this religion – the malls and the stores – are widely dispersed for easy access and as
constant reminder of the importance of daily practice of this holy ritual. The power of the
religion is reflected in and reinforced by an annual month-long celebration that is explicitly
oriented towards maximizing the volume of economic transactions engaged in by adherents.
The state of the economy – the primary indicator of our collective well-being – is gauged in part
by the total level of participation in this sacred act of “buying.” The primary rational for
spreading this religion to other countries is to increase the overall volume of economic exchange
on the planet. The religion teaches us that this is the path to our collective development, the
only way in which we can live the good life, a necessary requirement to be saved from human
imperfections and to transcend existing human limitations.
The Washington consensus, then, reflects a centralization of power behind a single
ideological orientation that is being disseminated throughout the world as a result of pressure put
on weaker governments by stronger governments, on the leaders of poor countries by the leaders
of rich countries, on the people of the world by those in control. These policies are grounded on
faith, on adherence to a set of beliefs, much more than they are grounded in any evidence that the
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policies are leading to improvements in the well-being of individuals, communities, nations, and
the planetary system. Economics is much less a science than it is a religion, and even George
Bush recognized that the ideas underlying Reaganomics resembled “voodoo.” Sachs (1999)
recently suggested that economics should become less like theology and more like clinical
medicine. Whereas doctors will take a detailed case history of a patient and check a variety of
current conditions before diagnosing the problem and recommending a course of action, the
cabal in charge of global economic policy prescribes the same course of action for each patient.
Sachs made this observation in the context of explaining how an economic crisis in Brazil in
1998 was exacerbated by the implementation of Washington consensus solutions. His point was
that specific policy recommendations should be made in the context of the particular history and
culture of the country undergoing development. However, he did not go so far as to suggest that
the basic ideology underlying the Washington consensus is itself problematic.
My argument, of course, is that this ideology and the economic system it generates are at
the heart of the problem, and the direct cause of some key dilemmas facing global civilization.
Human civilization’s current path of “development” is destroying the natural environment,
exacerbating already-significant inequalities in the distribution of resources among the world’s
people, and causing massive social fragmentation in societies around the world. To make
matters worse, the governmental institutions designed to address collective concerns are
demonstrating their inability to respond to the multiple interdependent problems (e.g.,
homelessness, drug abuse, alienation, violent crime, ethnic conflict, war, pollution, etc.)
generated by these various system dysfunctions. From this perspective, it is clear that dramatic
changes are required to create a sustainable human civilization oriented towards enhancing the
well-being of all the world’s inhabitants. Unfortunately, the necessary changes run counter to
the basic premises and practices of the dominant political-economic ideology and the
paradigmatic worldview on which it is based. Furthermore, since the rich and powerful
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members of society have a vested interest in maintaining the status quo (that is, after all, why
rich people tend to be conservatives), those in control of society’s dominant institutions are not
likely to initiate or support the needed changes.
In the remainder of this chapter, I address in more concrete terms some of the
fundamental problems with global free-market capitalism. Many of these problems stem from
the rules of capitalism, which are different than the assumptions of free-market economics. In
our economic system, people tend to think of the two as one and the same, but capitalism is an
ideological framework that is distinct from free-market ideology. In principle, a free-market
system could be designed to operate according to a different set of rules than those derived from
capitalism. But it is capitalism which biases a free-market system in favor of the wealthy and
thus exacerbates the problems for society generated by the competitive dynamics of a
free-market economy. In outlining the dysfunctions of the existing economic system, I will also
identify some of the transformational changes that have been proposed by those who envision a
very different kind of global economy. These ideas make it clear that potential practical
solutions already exist which could be implemented if only the decision-makers of society chose
to implement them. In other words, the issue isn’t whether the system can or cannot be
changed; it is whether we will or will not collectively decide to change it.
Flaws of Free-Market Capitalism
This discussion of the problems of the dominant paradigm’s economic system is
necessarily cursory. On one hand, I am not an economist, and as indicated above, I can hardly
claim to have learned a lot about the field of economics as a scholarly discipline. I am certainly
not an economic expert and thus, to be honest, could not go into nuanced analyses of the
observations I offer below, or provide detailed data and statistics supporting my claims. Yet my
training as a doctoral student in a business school, coupled with my ten years as a member of a
faculty which focuses on the complex fields of public policy and administration, have given me
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reason and opportunity to learn about the nature of the economic system in the real world and its
relationship to government, organizations, communities, and humans. I pay attention to the
“public debate” regarding public policy (i.e., the positions and rationales outlined by adversarial
politicians as reported by the corporate media), both foreign and domestic, and my recent travels
to many different countries around the world have given me the opportunity to see first-hand
some of the effects of economic globalization. I think it is fair to conclude that I have a
reasonably well-informed understanding of the nature of economic activity and its impact on the
social and cultural spheres of human civilization. And my intent here is simply to identify a few
of the critical characteristics of global free-market capitalism that are the direct cause of the
devastation being done to the planetary system. Recognition of these does not require one to be
an economic expert.
On the other hand, the global economy is so vast, complex, and interdependent that it is
impossible to provide anything more than a cursory analysis in the short space being allocated to
the discussion here. There are entire books and volumes that identify and analyze the issues
raised below. In particular, a number of recent analyses of the inherent flaws and dysfunctional
consequences of the global economic system provide thorough, detailed, and well-documented
critiques (e.g., Ayres, 1998; Greider, 1997; Hawken, 1993; Henderson, 1996; Korten, 1995;
Mander & Goldsmith, 1996; Terry, 1995). Collectively, this literature makes an extremely
powerful argument that our current competitive, growth-oriented economic system is
unsustainable and leading us towards eventual self-destruction. My own knowledge and
understanding has been greatly enhanced by some of these insightful and incisive analyses, and
most of what follows in this chapter draws directly or indirectly from these economic experts.
The Lack of Sustainability
At the deepest level, of course, the problem with the global economy is that it is grounded
in the assumptions of the old dysfunctional paradigm. Fear of “scarcity” drives the competitive
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orientation and the desire to accumulate wealth, as well as the self-interested behavior which
disregards the well-being of others or the collective. Its materialistic emphasis generates a
culture that is primarily oriented towards the production and consumption of goods and services,
resulting in the depletion of exhaustible natural resources and the destruction of natural systems.
By orienting human civilization towards material well-being and away from spiritual well-being,
the economy inhibits the development of consciousness necessary for individual and collective
evolution. By orienting society towards economic growth, global free-market capitalism is
undermining our collective capacity for conscious evolution towards a more desirable future.
In more pragmatic terms, the first essential problem with the global economy is that the
present path of “development” is literally unsustainable. Human society simply cannot sustain
its current pace of economic growth given the rate of increase in global population. Basically,
one or the other has to give in the very near future, or the consequences are likely to be
calamitous. The Washington consensus holds out to developing countries the promise that, if
they adopt these policies, they should experience economic growth that would allow them to
enjoy more of the pleasures of the American way of life.
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The problem, of course, is that this is
an empty promise, in that the world cannot tolerate much more economic growth for the billions
of people who live closer to subsistence level than to the level of comfort and security enjoyed
by the average American or European. In order for people in developing countries to
significantly improve their material standard of living, people in industrialized nations would
have to choose to live much more simply. And even if that were to happen in a meaningful
way, it would probably not be enough to slow down the world’s production and consumption
machine to a sustainable level of activity.
The concept of sustainable development emerged in the 1970s out of discussions
regarding the appropriate strategies and technologies to use for development in poor countries
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(Olson, 1995). The fact that its principles and practices have not been incorporated in any
meaningful way into the policies espoused by the Washington consensus attests to the resistance
to these ideas by the American government as well as those of the other industrialized nations.
In essence, sustainable development requires rich nations and the corporations they sponsor to
change their basic objectives and practices in fundamental ways. Arguments against such
changes typically take the form that they would be costly, making organizations less competitive,
which could result in economic slow-down, the loss of jobs, and overall deterioration of the
quality of life for the average citizen. Furthermore, movement towards sustainable development
would require a change in the basic rules by which the economy functioned, but since those with
power tend to be advantaged by the existing rules, they are naturally resistant to implementing
any such changes. Instead, they continue to espouse more economic growth, rather than less, as
the solution to the world’s problems.
In addition to changes in objectives, practices, and rules, the deepest change required for
a sustainable economy is a change in mindset. An oft-cited definition of sustainable
development is “development which meets the needs of the present without compromising the
ability of future generations to meet their own needs” (World Commission on Environment and
Development, 1987: 8). What this definition implies is that the future is as important as the
present in a sustainable economy. Decisions made today have to factor in the implications of
those decisions for future generations. If an action benefits the decision-maker now but
diminishes the capacity of those in the future to obtain the same benefit, that action is
incongruent with the notion of sustainability. Basically, then, a sustainable economy requires
that decisions get made and actions taken in the context of a long-term, multi-generational
perspective regarding the consequences of those decisions. This kind of future-orientation is
almost completely missing from decision-making contexts in the dominant paradigm. In current
economic thinking, the future is “discounted,” which means – in financial terms, for example –
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that a given sum of money is viewed as less valuable in the future than it is right now. More
generally, resources are recognized as having greater value in the present than in the future, so
economic decision-making is inherently biased towards present use of resources rather than
preserving them for the future.
To say this another way, a significant problem with the current economic system is that it
is oriented towards a very short-term time horizon. All in all, many decisions by organizations
reflect the importance of making a profit or meeting the budget in the short run – this year, this
quarter, now! Long-term strategic planning in the organizational world usually focuses on
three, five, or maybe ten years into the future. It is exceedingly rare for an organization to make
decisions in terms of what makes sense twenty years from now, a single generation into the
future. Yet a strategy of sustainable development would suggest that we should make decisions
regarding resource use based on an analysis of the effects of these decisions multiple generations
into the future. Because most economic decision-making – from the transactions among
individuals and organizations, to the policies enacted by governmental leaders – is guided by a
rationality that is largely limited to here-and-now definitions of self-interest, the well-being of
future generations is essentially “off the map” in terms of the extent to which it is factored into
these decisions. The problem, here and now, is that the long-term consequences of previous
decisions are catching up with us, and we are about to pay the price for the short-term thinking of
decision-makers in the current generation and those that came before.
Fortunately, ecological economists are establishing a theory base and proposing
numerous practical applications intended to shift the economy towards greater sustainability
(e.g., Callenbach, Capra, Goldman, Lutz, & Marburg, 1993; Capra & Pauli, 1995; Daly & Cobb,
1994; Hawken, 1993; Krishnan, Harris, & Goodwin, 1995; Mander & Goldsmith, 1996). While
these new ideas have not yet been adopted in any widespread sense, many concrete
recommendations have been utilized by people, organizations, and communities scattered around
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the world. Ultimately, more extensive movement towards a sustainable economy will have to
happen, almost by definition, through a grassroots emergence of new demands, expectations, and
practices that change the nature of economic interactions at the local community and
interpersonal level. Such a transformation would be facilitated, of course, if the policy context
created by the world’s government and corporate leaders were also changed so as to support and
encourage sustainable actions among economic actors. There is considerable consensus among
the nations of the world regarding a number of key principles that must be adopted by the global
community in order to move towards sustainability.
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Unfortunately, reluctance on the part of
the most powerful countries to implement these principles has prevented much progress in terms
of creating a sustainable policy context. If American politicians were just willing to let go of
the outmoded assumptions underlying the economic growth paradigm and turn their support to a
sustainable economy, human civilization seems poised and ready to take on the challenge of
implementing this transformation.
Probably the most significant and valuable change needed for the economy is a shift from
a linear to a cyclical model of production and consumption. In a linear model, inputs (resources,
energy) are brought into a system from the environment and subjected to a set of
transformational processes, and then a set of outputs is distributed back to the environment.
Some of these outputs are “waste,” i.e., by-products of the transformation process that do not
have value to anyone. Because waste material has no value, it reflects a “net loss” of resources
from the system, such that over time there is a continuous depletion of the resources available on
the planet. Rapid growth in planetary population coupled with an economy that is growing
through increased use of non-renewable resources means that we will inevitably run out of these
resources, some of them in the relatively near future. In the meantime, the waste produced by
the economic system has created a rather significant “waste management” problem. On top of
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the pollution that is routinely put into our water and air, the volume of solid waste and hazardous
waste that must be maintained or “disposed of” is becoming quite unwieldy.
In contrast, an ecological economics perspective is based on the fact that the processes
of production and consumption demonstrated in all natural, living systems are cyclical, and thus
much more efficient than the unnatural or artificial linear model found in the contemporary
economy. In a cyclical ecological system, the output or “waste” of one part of the system serves
in turn as useful input to another part of the system, in an ongoing, mutually-dependent cycle.
In a cyclical system, then, there is no such thing as waste – all output becomes valuable input
elsewhere. This notion provides a starting premise for rethinking the fundamental design of
society’s production and consumption processes, individually and systemically. An economic
system that eliminated waste – with every output of every production process being of value to
someone, and every output of every consumption process providing raw material input into
another production system – would almost inherently be sustainable. Not only would the
overall use of resources decline, but the negative impact of waste on the global ecology would
also be eliminated. The system would become more efficient, it would be sustainable in the
long run, and it would improve the overall quality of life on the planet.
The amount of waste created by the global economic system, at all stages of the
production and consumption process, is astounding and infuriating. In The Ecology of
Commerce, Hawken (1993) provides a thorough overview of the sheer quantity of waste being
dumped into the air, water, and ground systems that constitute the very foundation of the global
ecology.
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In an economic system presumably oriented towards operating efficiently, this
wasteful use of natural resources reflects a considerable level of either carelessness or
callousness. Hawken’s analysis also paints a very frightening picture of the extent to which the
global ecosystem – our essential “life support system” – has been detrimentally affected by the
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toxic quality of much of the waste produced by economic activity and even of some intended
outputs (e.g., chemical products widely used in corporate farming). By slowly making its way
into our food and water supplies, the toxicity created by the global economy appears to be
creating consequences in animals and humans that include sickness, disease, and birth defects.
Not only is this linear economic system inefficient, then, it is also causing damage to the very
planet it is ostensibly trying to help. All in all, this wasteful economy is terribly
counterproductive to the pursuit of improved quality of life.
The primary reason behind the misuse and abuse of the world’s natural resources is that
these resources are drastically undervalued in the global economic system. Under existing rules
of free-market capitalism, a number of critical goods and services provided by the natural
environment are used cheaply or for free and destroyed at no cost to the destroyer. These
include clean air and water, climate stabilization, rainfall, ocean productivity, fertile soil,
watersheds, and the processing of natural and industrial waste. Estimates suggest that
commerce annually receives trillions of dollars worth of these critical ecosystem services (cf.
Daily, 1997). Although these services have no technological substitutes, the natural systems
that produce them are being destroyed by those who do not have to include the associated costs
of this destruction in their own accounting systems. This problem stems from the fact that,
when modern industrialism and free-market capitalism were emerging, there was an obvious
surplus of natural resources on the planet. As a result, natural capital was inexpensive and the
costs of these resources were not closely monitored or fully accounted for. Even though global
conditions have now dramatically changed such that there is a relative shortage of critical natural
resources, the economy continues to rely on a dysfunctional set of accounting rules which are
based on the outdated assumption that much natural capital is nearly a free good for the
economic system to utilize at will.
Basically, environmental destruction is conceptualized by economists as a “negative
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externality.” As explained previously, a negative externality is essentially an unintended or
indirect consequence of economic activity that is viewed as “external” to the actor whose actions
resulted in the harmful effect but for which that actor is not held responsible. In simpler terms,
negative externalities are the dysfunctional consequences of the economic system, the costs of
which are borne by society at-large and not by those whose activities cause the destruction.
Under the accounting rules of free-market capitalism, the individuals and organizations whose
practices generate waste and destroy the natural environment are not held accountable for the
costs associated with these externalities. Thus, there is inadequate incentive for them to refrain
from these activities and adopt more sustainable practices. In this way, the present economic
system lacks the internal logic required to prevent the widespread deterioration of the quality of
life on the planet. One obvious solution would be to change accounting practices so as to
“internalize” the costs associated with dysfunctional economic activities. By holding
organizations accountable for all the costs of their activities, the prices for their products and
services would more accurately reflect the full cost to society of producing these outputs.
Through market dynamics of supply and demand, full cost accounting would shift the economy
towards those activities which provide the best overall value to society.
This critical flaw is exacerbated by another, more subtle problem with the accounting
rules used in the current economic system. The primary measure of economic output in the
current system is the Gross Domestic Product (GDP), which measures the total value of the
monetary transactions taking place in the economy. Economic growth is assumed to occur
when GDP increases, and thus this measure serves as a key indicator of economic health and our
collective well-being. However, the calculation of GDP includes the dollars spent addressing
the myriad environmental and social problems that are more accurately viewed as negative
consequences of global economic activity. For example, GDP includes the value of the societal
resources allocated to such activities as prisons, toxic cleanups, homeless shelters, emergency
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room services, lawsuits, and cancer treatments. As Hawken (1997: 48) points out, “Economists
make no distinctions when reporting growth – whether we've invested in new schools or paid to
clean up a toxic waste spill... Instead of counting decay as economic growth, we need to
subtract decline from revenue to see if we are getting ahead or falling behind. Unfortunately,
where economic growth is concerned, the government uses a calculator with no minus sign.”
As a result, even though GDP has grown by about 2.5 percent per year over the last 25 years, it is
not at all clear that we are collectively better off since there is little evidence of higher real
wages, more economic security, better infrastructure, more leisure and family time, or improved
lives.
Generally speaking, then, movement towards a sustainable economy could begin with
changes in accounting rules, tax laws, and other incentives and constraints used by government
leaders to steer market dynamics in a preferred direction. On one hand, we should stop taxing
desirable activity (e.g., income and work), and on the other, we must stop subsidizing and start
taxing undesirable behaviors (e.g., resource depletion, pollution, and waste). Reducing income
taxes while increasing resource prices would stimulate employment and environmental
restoration while remaining revenue neutral (i.e., for every dollar of taxation added to resources
or waste, one dollar would be removed from labor taxes, with the eventual goal of achieving zero
taxation on labor and income). Hawken (1997) argues that the potential benefits to society of
adopting these and other strategies comprising a “natural capitalism” approach are numerous and
impressive. We would be able to end federal deficits and balance the budget, increase per capita
spending on the needy and thus take care of those who cannot care for themselves, create better
schools so as to raise educated and responsible children, restore natural and social environments
that have been damaged or degraded, insure safer communities and more economic security, and
develop stronger families and family support. All of these outcomes, which tend to be
recognized by the general public as important and valuable, are difficult to accomplish in the
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context of the existing economic system.
The Primacy of Money
Transformation to a cyclical from a linear economy can only occur through better
recognition of the true value of natural resources and thus better accounting for the real costs of
their depletion and destruction. While adoption of the principles of natural capitalism is
certainly necessary for the creation of a sustainable economy, another significant change in the
basic philosophy underlying capitalism is also required to create a more collaborative economic
system. In essence, the problem is that capitalism in its current manifestation values money
more than it does life. Making money is more important, and provides a stronger motivation,
under the rules of capitalism than does protection and improvement of living beings and
ecosystems. This problem stems in part from the definitional foundations of capitalism, and in
part from various rules that shape the dynamics of capitalism in practice. The consequences, in
addition to the waste and environmental destruction addressed above, include significant
detrimental effects on the quality of life for humans in their communities. To overcome these
additional negative externalities of free-market capitalism, the human growth and development
must be recognized as more important than the accumulation of money. While economic
sustainability is a necessary condition for the collaborative paradigm, the changes suggested
below will support the more fundamental objective of improving human well-being.
To begin, it will be necessary to redefine or expand the notion of capital that drives a
capitalist economic system. Generally speaking, the production and distribution of goods and
services – the essential activity of an economy – requires three basic types of inputs: natural
resources (including energy), human labor (physical and intellectual), and financial capital. In
capitalism, the primary objective of business activity is to maximize return to capital, defined
exclusively in terms of financial capital. What this means in practical terms is that all of the
profit generated by an economic enterprise is distributed back to the sources of the financial
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capital, who are defined as the “owners” of the enterprise. Financial capital is thus treated as an
investment in business accounting systems, and business activity is primarily oriented towards
generating as much profit as possible for the investors. In contrast, natural capital and human
capital, the other essential inputs to the system, are defined as costs or expenses rather than as
investments. Since profits are maximized in part by minimizing costs, there is pressure in a
capitalist system to pay as little as possible for the resources derived from the natural
environment and for the human beings who contribute their time, energy, and talents to the
organization. This differential treatment of financial versus human and natural capital is a clear
indication of how money is valued much more highly in the global economy than either people
or the planet.
While an economy that places a higher priority on money than on life is inherently
problematic, the capitalistic orientation that labor costs should be minimized and profit
distributed entirely to financial investors is the cause of another critical flaw in the economic
system. In particular, these rules result quite naturally and logically in a system where “the rich
get richer and the poor get poorer.” Capitalism is a system designed on the premise that it takes
money to make money, and the more money one has, the easier it is to increase one’s wealth
even further. As a result, the gap between the rich and the poor naturally tends to get wider
rather than narrower. While any given individual might be able to successfully climb the ladder
of economic success from poverty to wealth, the system is not conducive to this happening very
frequently. Moreover, while such success stories are offered as a rationale for the value of
working hard and “striving for the top,” the fact remains that it is logically impossible for
everyone to make it to the top in a competitive, hierarchical system. There are inevitably losers
in a competitive economy, and the dynamics of capitalism are inherently biased in favor of the
“haves” and against the “have-nots.” I would argue, then, that capitalism as presently defined is
a fundamentally unjust economic system.
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There is another consequence of the devaluation of human capital characteristic of a
capitalist economy. From the beginning of the industrial revolution, technologies have been
developed which can perform more efficiently a myriad of tasks previously carried out by human
beings. Because of the productivity gains that accrue from the deployment of new technology,
the natural incentive under the rules of capitalism is to replace human labor with machines
whenever it is reasonable to expect that doing so will increase profits. Up until the middle of
this century, new technologies displaced people engaged in physical labor and/or changed the
nature of their jobs so that they became simply a component of the technological system (the
emergence of the assembly-line being the prototypical example of this “deskilling” process).
5
Since the advent of the computer, new technologies have also been developed to carry out many
intellectual or interpersonal tasks that were previously the responsibility of human beings.
Certainly, new technologies have generated new industries and new jobs, and so I do not intend
to suggest that technological advances are inherently problematic and biased against human
beings. Rather, my complaint here is that the default decision in the existing economic system
tends to be that reliance on a more efficient technology is inherently better than reliance on less
efficient people.
This decision stems, of course, from the dominant paradigm’s emphasis on rationality
and, in turn, efficiency. As indicated in Chapter 4, organizations have long been criticized for
their negative effects on humans that result from an overemphasis on rationality and efficiency,
as embodied in the bureaucratic model. These dysfunctional consequences include the
“narrowness” of many of the jobs on the front-lines of the American economic system, i.e., the
workers doing all the physical tasks required to maintain the system of production and
consumption which constitutes the heart of the economy. For the sake of efficiency, most of
these jobs were designed to be quite specialized, with very little room for autonomy or discretion
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regarding what to do, when, where and/or how. Technological advances have, by and large,
been utilized to maintain or increase managerial control over these front-line workers, or to
replace them if possible, all for the sake of enhancing organizational efficiency. While
organizations can be duly criticized for this approach, the fact of the matter is that they are
simply doing what is rational to do given the demands and constraints of the broader economic
context. They simply reflect the broader paradigmatic assumptions that technological
development is inherently valuable, that efficient systems are most desirable, and thus that
technology should be applied to make organizations more efficient.
We live in a society where having a job is a necessity for building a stable and satisfying
existence, and where the political climate leans toward the perspective that those who don’t have
jobs are somehow free-loading off of those who do. The economic policies of our elected
leaders are frequently debated in terms of whether they will create or eliminate jobs, raise or
lower unemployment rates. Generally speaking, it is widely believed that having more jobs
available is better than having fewer jobs available. The fact of the matter, however, is that the
economic system promotes a pattern of behavior in which jobs for humans are routinely replaced
by machines, and many remaining jobs are de-skilled to the point of being trivial and
meaningless to those paid to do them. All told, capitalism has an undeserved reputation for
being good for human beings when, in truth, its underlying ideology is inherently biased against
us to the point of dehumanization. The result is a significant underutilization of the world’s
human resources, which constitutes another form of waste or inefficiency in the global
economy.
6
The various social and health costs associated with the poverty, alienation,
depression, and anger produced by this system (cf. Danna & Griffin, 1999) can be recognized as
additional negative externalities that are paid for (literally and figuratively) by the
public-at-large.
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The negative dynamics of capitalism described above are exacerbated in the context of a
global free-market economy. The heightened competition in the global economy simply
increases the pressure on organizations to maximize profit, minimize labor costs, and incorporate
the newest technologies. In response to these pressures, large corporations search the world for
the cheapest natural resources and least expensive labor. It is now routine for these
organizations to locate their facilities in countries that have the least restrictive governmental
regulations regarding environmental protection, labor relations, and occupational safety and
health. Again, while pretending to be in favor of creating additional jobs for Americans,
US-based multi-national organizations frequently shut down domestic operations and move them
“offshore” so as to gain the cost advantages of operating in a cheaper, more lax environment.
While further pretending that these strategies are intended to stimulate the development of the
host countries, the truth is that multi-national corporations are simply taking advantage of poor
countries’ desperation to try to “develop” along the same lines as the rich nations of the world.
In return for providing jobs and stimulating growth in GDP, these multi-nationals are allowed to
engage in the very same practices that produce significant negative externalities in terms of
environmental destruction and the deterioration of civil society (Greider, 1997). All in all, profit
proves once again to be much more important than the well-being of humans and life on the
planet.
In many ways, the free trade agreements being established around the world are designed
to increase corporate flexibility to take whatever actions are necessary to enhance their
competitiveness in the global marketplace. The laws and policies underlying these agreements
have the effect, if not the intent, of making it easy for corporations to set up operations in those
countries that are willing to provide them with the most incentives to do so. A similar
phenomenon can be seen domestically, with cities and states competing to attract businesses that
will provide additional jobs and spur economic growth. In many cases, local, state, and national
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governments attract corporations by offering them subsidies, tax reductions, exemptions from
restrictions, and other such incentives to locate their operations within that government’s
geographic boundaries. In essence, in an effort to pursue economic growth, which the dominant
paradigm identifies as their primary objective, governments that are supposed to be protecting
the public good are in reality catering to the interests of corporations (and the elite few
individuals in control of them). Many of the legal arrangements between governments and
corporations facilitate corporate efforts to maximize profit, under the assumption that this is a
necessary path to economic growth and thus the improvement of collective well-being. In doing
so, however, these arrangements frequently increase corporations’ freedom to act irresponsibly
in the process of making a profit.
In a very real sense, multi-national corporations in the global free-market economy are
almost ungovernable. Given the importance to politicians of maintaining favorable economic
conditions, governments are easily influenced by corporate demands for favorable treatment and
lax restrictions. Thus, the corporate sector has considerable influence on the development of the
legal framework within which they operate. If a government under whose jurisdiction a
corporation operates ever tries to impose restrictions or regulations on its activities, the
corporation can always move those operations to another jurisdiction that is more “friendly” to
its needs. And the free trade movement has made it easier for organizations to move their assets
and operations around the world in search of the most conducive environment for maximizing
their profit. By and large, corporations that do not want to adhere to constraints designed to
protect the interests of people and the planet can simply go someplace where such constraints do
not exist. In the absence of international agreements on the basic requirements of ethical or
socially-responsible corporate behavior, and without any kind of international governance
mechanism through which to hold corporations accountable for their destructive and immoral
behavior, corporations have considerable freedom to do as they please regardless of the negative
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consequences of their actions. Because corporations cannot be governed effectively by existing
political institutions, they are free to remain unresponsive to the real needs, desires, and concerns
of the people they ostensible exist to serve. In this sense, global free-market capitalism actually
undermines rather than supports the expansion of democracy (cf. Korten, 1995).
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The Global Casino
Another critical feature of the global marketplace complicates all of the dynamics
discussed so far. A market, in the basic sense of the word, is an institution through which
people exchange goods and services in an effort to satisfy their needs and desires. Originally, of
course, a market was a physical space in which people engaged in transactions with each other –
a small, localized institution in which face-to-face interactions were regulated largely by social
norms and direct accountability mechanisms. With industrialization came the expansion of the
concept of a market to include the transactions, across space and time, among individuals as well
as corporate actors. The concept of a corporation was initially developed as a way to limit the
liability of the various individuals investing their money in a collective endeavor. In other
words, built into the very notion of a corporation is the idea that individual owners are not fully
accountable for the negative consequences of corporate decisions and actions. While corporate
owners get to keep all of the profits made by the corporation (i.e., profits are privatized), they are
not liable for all of their negative externalities (i.e., costs are socialized).
Investing in corporations was thus an attractive option for those individuals fortunate
enough to have excess capital and willing to trade the risk of losing their investment for the
potential of higher returns than they could otherwise accrue. Financial instruments (e.g., stocks
and bonds) were created to facilitate and regulate the process of capital investment by individual
investors, and along with the development of financial instruments came the corresponding
financial markets. A financial market expands the concept of a market even further, in that it
entails transactions among economic actors who are not exchanging real goods and services, but
instead are simply buying and selling money, or capital, in its various forms and instruments. In
theory, there is a logical and useful connection between a financial market and the real economy,
between, for example, the value of a share of stock and the corporation’s ability to make a profit
through the effective and efficient exchange of goods and services with its environment. With
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such a connection in place, stock in an organization that performed well would increase in value
and pay attractive dividends to the investors, while stock in an organization that performed
poorly would lose its value and thus not be an attractive investment. In this way, financial
markets are believed to help “discipline” the behavior of the corporations conducting business in
real markets, in that successful organizations attract more capital to grow even bigger while
unsuccessful organizations lose capital, struggle for survival, and eventually go out of business.
A serious problem with the global marketplace in contemporary society is that the
relationship between the dynamics of the financial markets and those of the real economy is no
longer rational and functional, but instead has become chaotic and destructive (Kurtzman, 1993).
Basically, the financial markets have taken on a life of their own, to the point that the dominant
approach to making money in the world is through transactions conducted in these markets,
rather than through the effective distribution of goods and services that meet the needs and
desires of real people. The vast majority of the total volume of economic transactions on the
planet take place in the financial markets, leaving only a small percentage that have anything to
do with transactions involving real goods and services.
With a proliferation over the years of different kinds of financial instruments and various
ways to “play the market,” the complexity and sophistication of the dynamics in these markets
have grown considerably. Furthermore, they have become increasingly divorced from the
activities of the real world, as the value of a corporation in these markets now depends much
more on its ability to successfully manipulate quarterly income statements and balance sheets
than on its ability to effectively deliver something of value to a paying customer. It turns out
that corporate financial statements can be manipulated much more quickly and effectively
through such activities as acquisitions and divestitures, major employee layoffs, plant closures,
and moving operations offshore than they can by increasing sales, revenue, and profit. Thus,
major strategic business decisions are often driven primarily by the need to present a good
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financial picture to the finance community, rather than by any calculation of what it will take to
deliver a better product or service for a price the customer will find reasonable. In today’s
global marketplace, then, economic activity directly associated with the production, distribution,
and exchange of actual goods and services is dominated and distorted by the operation of global
financial markets that are driven by the dominant criterion of maximizing short-term return on
investment.
With the globalization of an economy oriented towards unrestricted free trade, these
financial markets are now essentially out of control. The volume of transactions around the
world that are nothing more than people and organizations buying and selling “money” in an
effort to make a quick buck (or a billion) is staggering. Rather than serving to discipline the real
economy, the financial markets now play havoc with it. At the micro level, for example,
organizational decisions readily reflect knee-jerk reactions and short-term solutions to the
capricious fluctuations in stock prices induced by a chaotic market. Actions are taken with one
eye on the stock market but with the other eye blind to the impact of these decisions on human
lives, community well-being, and environmental quality. At the macro level, the economies of
entire nations – and thus the lives of millions of people – are at the mercy of the capital markets
and market players’ faith in the value and/or stability of those countries’ currencies. When the
market concludes that it is no longer wise to invest in a particular country, the sudden flight of
capital and devaluation of the currency can devastate that country’s economy and make life
miserable for its citizens (cf. Greider, 1997).
My point here, in sum, is that the world’s economy is now essentially driven by the
complicated and convoluted workings of a set of interdependent and out-of-control financial
markets. Given their interconnectedness in a virtual world that anyone with a modem has
access to, these markets have united the entire global financial community into a single “global
casino.” The chaotic activity of this casino shapes the decisions of the corporations that are
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subject to the pressures brought to bear as a result of the vagaries of these markets. Operating
under the premise that their primary responsibility is to maximize profit and return on capital
investment, these organizations make whatever decisions are necessary to protect the bottom
line. Unfortunately, organizations have way too little incentive to be concerned with the
consequences of these decisions – the negative externalities – for the world around them.
Likewise, they have helped to create a global political economic system in which they are largely
free from external governance mechanisms that can effectively restrict or restrain their activities.
As a result, corporations routinely make decisions that disrupt the lives of people and deteriorate
the quality of life in their communities. And they make these dysfunctional choices simply
because they are caught up playing the game according to the rules of capitalism devised and
enforced by the world’s financiers and economic advisors.
The Washington consensus is, from this perspective, nothing more than economic
imperialism – the continuation of a process that began with European colonization of much of
the rest of the world, and is now reflected in the efforts by the developed countries to impose
their dysfunctional and destructive economic ideology and practice on everyone else. The result
is, in effect, an “Americanization” of the planet – the destruction of traditional ways of life as
they are transformed into media-hyped, consumer-oriented, short-term-thinking cultures. The
question of whether the new Americanized culture is better or worse than the old traditional
culture is a matter of hot debate in some countries, but it is an issue entirely irrelevant to my
point here. My argument is that an economy shouldn’t be in the business of changing cultures
at all. In other words, there is no reason why there should be any consensus at all about the way
“everyone” should conduct their economic activities. America professes to stand for freedom,
which makes it disconcerting that the American government is at the helm of an effort to impose
its economic framework on the whole world. What makes it all the more tragic is that this
system, by design, gives corporations the power to act irresponsibly almost without restraint, it
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increases the gap between the rich and poor people of the world, and it creates a culture where
money is more important than life itself.
To establish a collaborative economy, it will be necessary to recognize that there is no
“best way” of doing anything, that the essence of freedom is the right of people to decide for
themselves the best way of conducting their affairs, economic or otherwise. To say this a
different way, a collaborative economy cannot be designed and controlled from the top. The
paradox of free-market capitalism is that, while the free market is intended to enhance individual
freedom and choice, capitalism naturally results in a centralization of wealth and power such that
those at the top of the socio-economic hierarchy get to make the decisions that determine the
quality of life for everyone else. The Washington consensus is nothing but an agreement among
the small number of people at the top of the global political economy regarding how best to run
the system to their advantage. There is precious little evidence that they really have the interests
of the average citizen in mind as they go about shaping economic policy. Widespread
disaffection with politicians attests to the fact that the public recognizes its interests, as
individuals and communities, are not very important to those in control.
A collaborative economy, for this reason, will have to be radically decentralized. At a
minimum, it means that the real economy needs to be disentangled from the global casino.
While the capital economy is literally uncontrollable, the fact remains that those pulling the
strings in an effort to manage it are biased in favor of the interests of the capitalists. Since
serving the interests of money often runs counter to serving the interests of planetary well-being,
it is dysfunctional for the real economy to be battered, bruised, and bandied about by the
irrational volatility of the financial markets. A second feature of a decentralized economy is
that economic activity is conducted in such a way that it is explicitly oriented towards enhancing
the quality of life for individuals and communities, in their own terms. In essence, the economy
will need to become “localized” in the sense that economic policies and decisions are based on
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the underlying objective of increasing the quality and self-sufficiency of neighborhoods,
communities, towns, and cities. Rather than the centralization of wealth and power that
accompanies a capitalist economy, a collaborative economy will be oriented towards distributing
as widely as possible the basic necessities for a meaningful and enjoyable life.
At present, communities around the world are often ravaged by the forces of an
impersonal, inhuman, and uncaring market economy. At the local level, peoples’ lives are
regularly disrupted by such travesties as corporate environmental disasters that significantly
damage the quality of life in communities and entire regions, continuous pollution that generates
serious health risks affecting entire communities across generations, and wars – fought over
essentially economic interests – that leave thousands of innocent people dead, injured, orphaned,
homeless, and/or heartbroken. The modern industrial economy has also generated – slowly but
inevitably throughout the last few hundred years – the mega-cities of the world, with their
extreme distributions of wealth that leave millions of people living in extreme poverty, under
unsafe and unhealthy conditions, with no hope for a better future. Even in the US, the
wealthiest country in the world, the inner cities of our major metropolitan areas continue to
disintegrate at the hands of poverty, crime, alienation, and hopelessness.
Of course, such disintegration is the logical outcome of a free-market capitalist economy
that has no incentive to try to build up these communities and every incentive to resist and
refrain from any meaningful redistribution of the resources available in this country. While
community development efforts have been undertaken in this country for many years, the reality
is that these efforts have produced very little improvement in the quality of life for our poorest
citizens. It seems quite obvious that this is because these efforts take place in the context of an
economic system dominated by corporate interests and those of the rich and powerful members
of society. No real effort has been made by those in control to provide poor communities with
the resources and the power they need to rise above the debilitating forces of chronic poverty.
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Instead, the economic decisions which dictate the conditions of existence for members of these
communities – and, to some extent, all communities everywhere – are made by large
corporations and government institutions over which the people have little or no influence. The
transformation to a collaborative economy will require that all communities, rich and poor alike,
have sufficient influence over such decisions that they are empowered to create an environment
in which they can live happily, peacefully, and safely.
Ultimately, a fundamental transformation in the economic system will require a variety of
changes in the basic policies and institutions that shape economic activity at the broadest macro
level. In Building a Win-Win World, Henderson (1996) provides an overview of numerous
devices and mechanisms which have already been identified and proposed for use at the national
and international levels to help generate a more collaborative economic system. Her analysis of
the existing economic system provides a thorough discussion of most of the problems addressed
only briefly in the pages above. Her presentation of a full range of feasible solutions to these
problems makes it clear that society could make great strides towards a collaborative economy if
we would just implement the viable and valuable ideas already on the table. Of course,
implementation of these creative and constructive changes would require the consent of those in
charge, the coalition behind the Washington consensus. As long as they adhere to the
underlying assumptions of the dominant paradigm and continue to take advantage of an
economic system biased in their favor, this is not likely to happen. But if human civilization
musters the collective will to demand these kinds of changes, the economy is much more likely
to undergo the collaborative transformation necessary for future sustainability if not survival.
The Choice Point
The Union of Concerned Scientists, in their letter titled “World Scientists’ Warning to
Humanity” (issued on November 18, 1992), described our dilemma as follows. “Human beings
and the natural world are on a collision course. Human activities inflict harsh and often
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irreversible damage on the environment and on critical resources. If not checked, many of our
current practices put at serious risk the future that we wish for human society and the plant and
animal kingdoms, and may so alter the living world that it will be unable to sustain life in the
manner that we know. Fundamental changes are urgent if we are to avoid the collision our
present course will bring about...A great change in our stewardship of the earth and life on it, is
required, if vast human misery is to be avoided and our global home on this planet is not to be
irretrievably mutilated.” While one of my colleagues suggested that this particular group of
scientists is comprised of alarmists whose warning should not be taken too seriously, it seems
reasonable to me that we should at least give serious consideration to any advice we get from a
group of over 1600 scientists (including over 100 Nobel Prize laureates) from 69 national and
international science academies.
There is some probability that these scientists are right. There is a very real chance that
human civilization is reaching the end of its rope. Certainly, experts might disagree on the odds,
the likelihood that there will be drastic consequences in the relatively near future (e.g., one or
two generations) if we don’t undergo the “great change” called for by the scientists.
Alternatively, informed opinions might agree that major problems are inevitable if society
continues on its present course, but differ in terms of the estimate for how long it will be before
those problems present themselves fully, to the point of major systemic breakdown. Yet I
would argue that regardless of the odds, and regardless of how long the human race could hold
out before the collapse occurs, the down-side risk of doing nothing is much too significant to
simply maintain the status quo. Given existing evidence regarding the scope of the problems
facing humanity, the downward trend line in most of these areas, and the likelihood of more
significant “interaction effects” among these problems in the future, the potential for calamity is
clearly great enough to warrant serious attention to the question of how to start heading in a new
direction.
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The good news for global civilization is that more and more people are reaching the
conclusion, consciously and unconsciously, that the current system is causing too many problems
and that change is necessary. This, of course, reflects the underlying shift in consciousness
associated with the transformation to the collaboration paradigm. This heightened awareness is
in turn facilitating changes in economic behavior, practices, and institutions which are laying the
groundwork for the more fundamental transformation yet to come. While signs of this
transformation can be seen even in the dominant institutions, at the impetus of those in control of
the system, many of the signs are more readily apparent at the local, grass-roots level. In their
own collaborative, networked, self-organizing processes, people in their communities are
developing mechanisms to enhance the quality of their lives in their own terms. All in all, there
are clear signs that many citizens are choosing to start doing things differently. When viewed
separately, the new approaches they are adopting may not seem to constitute evidence of a
paradigmatic change. When viewed together, however, with each one recognized as an
important manifestation of a broader pattern, there is ample evidence to suggest that the
economy is in fact transforming to become congruent with the new paradigm. An overview of a
number of practices and trends apparent in the global political economy will thus complete this
portion of my story regarding the emergence of a more collaborative economy.
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