|
"21st Century Strategies
for Sustainability"
|
|
The globalization of finance and technology,
the spread of privatization and deregulated markets have produced
a range of unanticipated consequences. For example, today's global
Information Age has already become The Age of Truth - where careless
corporate actions can destroy a global brand in real time. Business
leaders worldwide have responded by embracing the idea of good
corporate citizenship, both at home and globally. Two thousand
companies (including some 600 in Brasil) have signed on to the
ten principles of Global Corporate Citizenship of the Global Compact,
launched by the United Nations in 2000, covering human rights,
workplace safety, justice and ILO standards, as well as the environment
and anti-corruption. Civic groups worldwide now monitor all the
companies who have engaged with the Global Compact, to see if
they are walking their talk. Backsliders are publicly shown on
hundreds of websites. The World Social Forum has successfully
linked hundreds of thousands of civic activists and organizations
and made the beautiful city of Porto Alegre a mecca of innovative
thought. My TV series "Ethical Markets" on US public
broadcasting stations benchmarks higher standards, corporate ethical
performance and socially-responsible investing worldwide (www.ethicalmarkets.com).
Contrary to The Economist's editorial skepticism about such corporate
social responsibility, [vi] 77% of CEOs of major corporations
surveyed by KPMG and the World Economic Forum in 2005 said that
such higher ethical behavior was "vital to profitability." In light of the new brain research, the
current practices in US public schools of commercial sponsorship
of TV news, sports and events, product advertising, junk-food
vending machines and curricula prepared by corporate PR departments
- all to supplement budgets - may be ruled illegal. Research shows
that children and adolescents have not yet developed forebrain
capabilities to override such influences. Teachers can be better
paid and schools will no longer have to fight in annual government
budgeting with other expenditures for needed police, fire protection
and other public services and in national budgets, even military
weapons. MIT-trained economist, John B. Perkins,
author of Confessions of an Economic Hit Man (Perkins, 2004) documents
the misuse of economics to over-estimate GDP-growth projections
to justify the huge World Bank and IMF loans to many developing
countries in the 1980s, which ensnared them into unrepayable debt The human family numbering now over 6
billion is clearly the most biologically successful species on
planet Earth. We have evolved from our birthplaces on the African
continent to colonize every part of Earth, consuming 40% of all
its primary photosynthetic production - leading to the current
and mass extinction of other species. We have conquered the oceans,
the Moon and outer space and now set our sights on Mars. To continue
our spectacular technological success and preserve the options
for our grandchildren's survival, we must now face ourselves and
fearlessly diagnose our major failures: the fragmenting of human
knowledge, the persistence of violent conflicts, wars and poverty.
The UN Millennium Development Goals (Figure 1) provide
an initial agenda. Fulfilling these Goals and shifting from fossil
fuels to renewable resources and their sustainability can employ
every willing man and woman on earth and expand global prosperity.
Reintegrating human knowledge, systems thinking and multi-disciplinary
approaches to public and private decisions are widely-recognized
as necessary to address the human condition in this new century. Reappraisals of the work of Charles Darwin
together with new evidence from historians, archeologists and
anthropologist now clearly point to the evolution of human emotional
capacity for bonding, cooperation and altruism (www.thedarwinproject.com).
Competition, territoriality and tribalism, rooted in the fears
of our past, served humans well in our early trials and vulnerability.
So did cooperation and the ability to trust and bond with each
other - influenced in all humans by the hormone oxytocin. Higher
levels of this hormone during pregnancy and lactation bonds women
to their children, over the extended developmental period to maturity.[i]
Today, research by scientists from many fields, neurosciences,
endocrinology, psychology, physics, thermodynamics, mathematics
and anthropology have invalidated the core assumptions underlying
economic models - which dominate public and private decision-making
in most countries, multi-lateral agencies, including the World
Bank, the IMF and the World Trade Organization. This new research
reveals economics as a profession, not a science. Yet today, as
privatization and technological evolution speeds change and globalization,
economists and their general equilibrium models still drive these
processes. While competition remains a key driver in evolution
and all human affairs, cooperation and co-evolutionary processes
are equally important. Social sciences study the full range of
human behavior - with the exception of economics, which assumes
competition and self-interest are rooted in human nature. (Figure
2, Full Repertoire of Human Behavior) Political economy studies, as they were
originally termed, rose to academic prominence after the publishing
in 1776 of Adam Smith's great work "An Inquiry Into the Nature
and Causes of the Wealth of Nations". Invoking the scientific
knowledge of the day, Smith related his famous theory of "an
invisible hand" that guided competition among self-interested
individuals to serve the public good and economic growth. Smith
drew parallels ascribing this pattern of human behavior to Sir
Isaac Newton's great discovery of the physical laws of motion.
These principles of Newtonian physics can still be used to guide
space craft to land on distant celestial bodies - most recently,
Titan, one of Saturn's moons. Economists of the early industrial revolution
based their theories not only on Adam Smith's work, but also
on Charles Darwin's The Descent of Man and The Origin of Species
(www.thedarwinproject.com).
They seized on Darwin's research on the survival of the fittest
and the role of competition among species as additional foundations
for their classical economics of "laissez faire" - the
idea that human societies could advance wealth and progress by
simply allowing this invisible hand of the market to work its
magic. Karl Polanyi's The Great Transformation and many
other studies showed that Britain's nationwide market economy,
in reality, was installed by Acts of Parliament. (Polanyi,
1945) Yet, in class-ridden Victorian Britain, economists and
upper-class elites espoused theories known as "social Darwinism:"
the belief that laissez faire competition and inequities in the
distribution of land, wealth and income would nevertheless produce
economic growth to trickle down to benefit the less fortunate.
The benefits of competition in societies are widely-recognized
- in spurring innovation, efficiency and driving industrialism
and economic growth. The role of cooperation in families and communities
was unpaid, unrewarded and invisible in economic models. Cooperation
allowed for collective action, taxes and vital infrastructure
for commerce. Charles Darwin also saw the human capacity
for bonding, cooperation and altruism as an essential factor in
our successful evolution. (Loye, 2000) In retrospect, how
otherwise could we have gone from the experience of over 95% of
our history lived in roving bands of 25 people or less (Tainter,1988)
- to today's mega cities: Sao Paulo, Shanghai, Mexico City or
Jakarta? These improbable metropolises, along with global corporations
and governance institutions such as the United Nations and all
its agencies, the European Union, now expanded to embrace 25 formerly
warring countries - could never have emerged without humanity's
capacities for bonding, cooperation and altruism. So as we have evolved into our complex
societies, organizations and technologies of today - we need to
re-examine our belief systems and the extent to which they still
may be trapped in earlier primitive stages of our development.
Why for example do we underestimate our genius for bonding, cooperation
and altruism - seemingly stuck in our earlier fears and games
of competition and territoriality? Why do we over-reward such
behavior and still assume in our economic textbooks and business
schools that maximizing one's individual self-interest in competition
with all others is behavior fundamental to human nature? Why do
the neoconservatives that drive most US policies today believe,
as Margaret Thatcher proclaimed, that the individual has primacy
over community? US society is already highly individualistic,
whereas Mrs. Thatcher sought to rescue individualism from a more
socialistic Britain. Scientific research is now revealing excessive
individualism as dogma, while systems views, including those of
Ken Wilber, Richard Slaughter, Fritjof Capra, Elisabet Sahtouris,
Riane Eisler, Jane Jacobs, myself and many others seek a balance
in acknowledging society, culture and the planet's ecosystems. Why is our equal genius for bonding and
cooperative behavior - even altruism not taught in business schools
as the true foundation of all human organizations and our greatest
scientific and technological achievements? In reality, as every
business executive knows, competition and territoriality are channeled
within structures of cooperation and networks of agreements, contracts,
laws and international regulatory regimes that allow airlines,
shipping, communications, and other infrastructure to undergird
global commerce and finance. This reality is now recognized as
"Co-opetition," (Brandenburger and Nalebuff (1996)
but has not supplanted the competition model in economic theory.
(Axelrod, 2000; Henderson, 1996; Moore, 1996, Wright, 2000)
Thus, the formula for humanity's success has always rested on
cooperation while embracing competition and creativity. Yet, shocking
evidence documents[ii] that the very methods and curricula
still taught in most business schools encourages managers in the
kind of behavior that produced the wave of corporate scandals
and crimes at Enron, Worldcom, Parmalat, Tyco and Arthur Andersen.
(Goshal, 2005) This debate in academia can be followed by accessing
the publications of Sweden's Dag Hammarskjold Foundation (www.dhf.uu.se)
and the French movement for "post-autistic economics,"
covered in the LeMonde and at www.paecon.net. What do deep, primitive beliefs about
the primacy of competition and territoriality have to do with
poverty, conflicts and wars? All are rooted in ancient human fears
- of scarcity, of attacks by wild animals or other fearful bands
of humans. Rooting out these fears - deeply coded in our "us-versus-them"
political and economic textbooks - is the essential task of our
generation. We must move beyond this economics of our early reptilian
brains - to include the economics of our hearts and forebrains!
These old fears underlie today's continuing cycles of oppression,
poverty, violence, revenge and terrorism. Indeed, if we humans
do not root out these now-dysfunctional old fears, we will destroy
each other. Politicians frequently use fear to manipulate consent.
Yet fear can be counterproductive. Franklin D. Roosevelt during
the Great Depression in the US proclaimed that we have nothing
to fear but fear itself! Meanwhile, the fantastic potential humans
have created for further successes through pursuing the UN Millennium
Development Goals and building prosperous, equitable, sustainable
human societies is now within our grasp. The new "superpower"
of global public opinion is already rejecting the old dysfunctional
dogmas. Over ten million people demonstrated peacefully worldwide
against the preemptive war on Iraq. Yet as Thomas Kuhn described
in his Structure of Scientific Revolutions old dysfunctional
beliefs often persist long after they have been disproved. (Kuhn,
1962) So it is with today's political and economic
textbooks and the entire paradigm underlying the "Washington
Consensus" model of development. We have evidence of its
bankruptcy all around us: widening poverty gaps, the digital divide,
unbalanced, unsustainable economies mired in debt - breeding despair
and terrorism, diverting resources from enhancing human life to
military weapons. Today, even military leaders acknowledge that
many problems we face are not susceptible to military approaches.
This new awareness reveals not a flaw in human nature - but a
flaw in our encoding of our past in that set of dysfunctional
beliefs that deny humanity's true genius - those cooperative,
bonding and altruistic skills that have undergirded our progress
to date. Dysfunctional beliefs are deeply entrenched in many of
the models of economics that dominate our decision and public
policies. This malfunctioning source code underlying economics
focused on money circulation, is still replicating behaviors and
organizational structures that imperil human survival under 21st
century conditions. The creation of money - from clay tablets,
coins to electronic data - was a vital social innovation to track
transactions beyond barter in early markets. Yet, money does not
equate to wealth and today's high-tech electronic barter reminds
us that money is merely one form of information - no longer needed
in today's electronic barter transactions.[iii] Echoes of obsolete theories are still
heard today and propounded in mainstream economic textbooks as
theories of "efficient markets," rational human behavior
as "competitive maximizing of individual self-interest,"
"natural" rates of unemployment (codified as the NAIRU
rule of central bankers) and the ubiquitous "Washington Consensus"
formula for economic growth (free trade, open markets, privatization,
deregulation, floating currencies and export-led policies). Lately,
the US Federal Reserve Board's use of "neutral" interest
rates has been exposed by the Levy Institute as convoluted and
favoring asset owners above workers' wages (www.levy.org).
Central banks' theoretical money-circulation models must be scrutinized
because these institutions have won independence from political
control and wield enormous power over societies. Monetary policy
and money-creation are now widely-understood as political, not
scientific (Leitaer, 2001) Such unaccountable, obscure theories still
underpin today's economic and technological globalization and
the rules of the World Trade Organization, the International Monetary
Fund, the World Bank, stock markets, currency exchange as well
as central banks. Since the 1980s and the waves of global deregulation
and privatization unleashed by Britain's Margaret Thatcher and
US President Ronald Reagan, central banks lobbied for freedom
from political control - even by democratically-elected governments.
Even Britain's labor government under Tony Blair conceded this
autonomy to the Bank of England. In the USA, Daniel Altman's analysis
of the agenda of the neoconservatives, Neoconomy: George
Bush's Revolutionary Gamble with America's Future (Altman, 2004)
and Ravi Batra's Greenspan's Fraud (Batra, 2005)
reveal their intentions to dismantle the "New Deal"
of Franklin D. Roosevelt, including Social Security, Medicare,
laws protecting employee rights, union-organizing, abortion, welfare
and other legislation of the past sixty years. This quiet "coup" achieved by
central bankers and their advocates among the economics profession
is illustrative of the methods of neoconservatives, such as those
currently dominant in the USA. Yet, the failures of these economic
models in achieving their targets of non-inflationary economic
growth and fuller employment is evident in the recent history
of financial crises, booms, busts, bubbles, un-repayable debt
and un-employment. The policy drumbeats of economists and market
players supported central banks. They were buttressed by their
claims that economics with its increasing use of mathematical
models, had matured into a science, matching the feats of natural
sciences since Newton and Darwin in discovering the laws of nature.
Economists' theories from Smith's "invisible hand" to
Vilfredo Pareto's "optimality" were elevated from theories
to the status of scientific principles. Many debates over categories
and indicators derived from such theories involve basic questions
of causality. For example, why is education a "cost"
not an "investment"?[iv] In 1969, the Central Bank of Sweden put
up US$1 million to create a prize to confer scientific status
and legitimacy on the academic discipline and widespread policy
advocacy of the economics profession. Thus, the Bank of Sweden
named its economics prize "in memory of Alfred Nobel"
and lobbied this designation onto the Nobel Prize Committee. As
his descendant, Peter Nobel put it, "The Bank of Sweden,
like a cuckoo, laid its egg in the nest of another very decent
bird, infringing on the name and trademark of Nobel." Since
1969, most of the Bank of Sweden Prizes in Economic Science has
been awarded to US economists espousing the Chicago School policies
of laissez faire "free markets" typical of its most
prominent prize winner Milton Friedman (who is often erroneously
described as a "Nobel laureate"). Peter Nobel added,
"These economists use models to speculate in stock markets
and options - the very opposite of the humanitarian purposes of
Alfred Nobel."[v] Chicago School doctrine holds
that if individuals and private business make money that this
process will eventually "lift all boats" in a rising
tide of prosperity - thus confusing money with wealth - a much
broader concept. While controversies have often surrounded Nobel
awards, arguably the Bank of Sweden prize should be properly named,
since economics is central to public policies in all countries
and multi-lateral agencies. The prizes for peace and literature
rarely impact the daily lives of billions of people. Some prizes
in peace and science have been controversial and too often encouraged
military research driven by corporate contractors, profit, personal
greed and ego-gratification. As a scientific advisor to the US
Congress from 1974-1980, I found "intellectual mercenaries"
flourish in business, government and academia. December 2004 many scientists revolted,
including members of the Nobel Committee and Peter Nobel himself,
demanding that the Bank of Sweden's economics prize either be
properly labeled and de-linked from the other Nobel prizes - or
abolished. The reason for this sudden outburst, which had been
brewing for some time, was the awarding of the economics prize
to two more Chicago School economists Edward C. Prescott and Finn
E. Kydland for their 1977 paper purporting to prove by use of
a mathematical model, that central banks should be freed from
the control of politicians - even those elected in democracies.
The mathematicians pounced - pointing to the many mis-uses of
their models by Prescott and Kydland and other economists to "dress
up" their questionable theories and unscientific assumptions
(Dagens Nyheter, Stockholm, Dec. 10, 2004). As this news spread around the world (InterPress
Service, Jan 2005, LeMonde Diplomatique, Feb. 2005) the usual
heralding of the new economics prize winners in the mainstream
financial press was strangely muted. Editors and spokespersons
for market fundamentalism fell quiet in their citing of their
favorite policies as backed by some "Nobel laureate"
in economics. Yet economics is an honorable profession, like law,
medicine, engineering, architecture and other such applications
of knowledge. Lawyers are known as advocates. Economists have
always been advocates of various government policies, regulations
or deregulation, and of the interests of their clients (most often
bankers, financial firms and corporations in general). These advocates,
whether lawyers, economists or lobbyists, have legitimate roles
in policy-making. Transparency requires policy-making so that
the public is fully informed - and the issues are argued honestly.
The globalization of finance and technology,
the spread of privatization and deregulated markets have produced
a range of unanticipated consequences. For example, today's global
Information Age has already become The Age of Truth - where careless
corporate actions can destroy a global brand in real time. Business
leaders worldwide have responded by embracing the idea of good
corporate citizenship, both at home and globally. Two thousand
companies (including some 600 in Brasil) have signed on to the
ten principles of Global Corporate Citizenship of the Global Compact,
launched by the United Nations in 2000, covering human rights,
workplace safety, justice and ILO standards, as well as the environment
and anti-corruption. Civic groups worldwide now monitor all the
companies who have engaged with the Global Compact, to see if
they are walking their talk. Backsliders are publicly shown on
hundreds of websites. The World Social Forum has successfully
linked hundreds of thousands of civic activists and organizations
and made the beautiful city of Porto Alegre a mecca of innovative
thought. My TV series "Ethical Markets" on US public
broadcasting stations benchmarks higher standards, corporate ethical
performance and socially-responsible investing worldwide (www.ethicalmarkets.com)
. Contrary to The Economist's editorial skepticism about such
corporate social responsibility, [vi] 77% of CEOs of
major corporations surveyed by KPMG and the World Economic Forum
in 2005 said that such higher ethical behavior was "vital
to profitability." We are also entering the Age of Light
(See Figure4, The Age of Light). As we humans shape this
current global stage in our development, our new awareness of
our beautiful planetary home is calling forth an expanded identity,
which I explored with Japanese Buddhist leader, Daisaku Ikeda
of Soka Gakkai (with some 20 million members worldwide) in our
"Planetary Citizenship." (Henderson/Ikeda, 2004)
(See Figure 5,Toward Planetary Citizenship). This larger identity
enfolds and gives deeper meaning to our identity with our family,
our community and companies, and the country of our birth. We
are enriched by the unique expressions of so many other cultures
in our world. We savor their art, dance, music, literature and
especially their cuisine! This human mutual appreciation for diversity
is the starting point for planetary citizenship and the necessary
transition to global sustainability, as the online global debates
of the Global Transition Initiative illustrate (www.gti.org).
Fundamentally, we humans have three basic resources at our disposal
for this transition - information, matter and energy (See Figure
6, Three Modes of Resource Use). Of these, information is
primary, since the quality of information drives our use of matter
and energy. The history of the social innovation of
markets is instructive, since they are now evolving rapidly. Markets
of course, were created by humans, not by any deity. Adam Smith's
"invisible hand" was in reality our own human invention,
as recognized by historians of science. (Nadeau/Kafatos, 1999)
Yet, this belief in an "invisible hand" persists in
many economic textbooks - even today, buttressing neoconservative
agendas expressed by such philosophers as Freidrich Hayak and
Ayn Rand and her aficionados including Alan Greenspan, Chair of
the US Federal Reserve. Not only are independent central bank
policies obscure and driven by often obsolete general equilibrium
models, central bankers are also politically-motivated. For example,
Italy's independent central bank president, Antonio Fazio is accused
of cronyism, condoning fraud in the Parmalat scandal and disregard
for ethical standards.[vii] The organization of markets by the British
Parliament three centuries ago fostered the rapid evolution of
industrialism. (Polanyi, 1945) These early markets described by
Adam Smith sparked many innovations. The British laws that legitimized
markets and protected property rights led to a revolution of individual
entrepreneurship, creativity and innovation, which spread across
the Atlantic Ocean and Europe. This 300 year-old wave of industrialism
spread around the world and today is still changing Japan, China,
India and reaching the other ancient cultures of South East Asia
from Vietnam and Cambodia to the Islands of Polynesia. (Landes,
1998)Yet, industrialism must be reshaped because it is socially
and environmentally unsustainable. The early markets of the Industrial Revolution
and their business leaders created the infrastructure platforms
of concrete, steel, electricity, mechanized production, shipping,
roads and ports that still undergird today's societies. But the
market freedoms provided by social legislation limiting companies'
liabilities, enforcing property rights, upholding their patents
to their inventions, also brought great harm to less fortunate,
vulnerable members of society. Who can forget the history book
pictures of those early sweatshops: the children chained to spinning
machines in textile factories, the women dragging carts of coal
on their hands and knees in Britain's coal mines. Industrialism's
goal was labor-saving via investments in technology. Machinery,
property rights and the Enclosure Laws drove peasants and small
farmers off their ancestral common land and into factories. Then,
as factories automated their production lines, workers moved into
service sectors. Today, services are being automated. Full-employment
promises fall short and un-employment remains an ironic result
of industrialism. Today, economists are admitting that the flip
side of their model of "labor-productivity" is more
unemployment. The social costs of disruptive technological change
are borne by employees unless governments and taxpayers cushion
unemployment and provide re-training. Yet, as Chinese analysts
rightly observe, markets are good servants but bad masters. If
prices correctly include all external costs they can guide resource
allocation decisions efficiently. The other main feedback from
individuals to decision-centers, votes, must be uncorrupted by
money, rigged elections, jerry-mandering and other distortions. In every country where industrialism took
hold, the "tortoise" of social innovation lagged behind
the "hare" of technological innovation. The history
of the Industrial Revolution with all its good and bad news has
included the lagging response of social rules to distribute the
fruits of mechanized production and steer technological development
and regulations to ameliorate its social costs and environmental
damage. The very notion of an "invisible hand" inhibited
broader views and visions of how economic systems could be steered
to foster the common good, shared prosperity and protect nature's
wealth. In the USA, lawyer Louis O. Kelso and philosopher Mortimer
Adler challenged economists' panglossian model of "frictionless"
technological change. Kelso recognized that if a machine took
over a worker's job, then the worker would need to own a piece
of that machine. Employee Stock Ownership Plans (ESOPs) now exist
in 11,000 US employee-owned companies. (Rosen/Case/ Staubus, 2005)
A few industrialists evolved from their single-minded accumulation
of money and material goods - into philanthropists promoting wider
access to education, health and other global public goods. The economist, Joseph Schumpeter best
described these processes of "creative destruction"
that also drove this greatest period of technological innovation
in human history. (Schumpeter, 1942, 1947) The Information Age
superseded industrialism itself in the mid-20th century. This
new wave of innovation has produced all the good and bad news
of today's globalization of markets and technology. In my Politics
of the Solar Age (1981, 1986), I documented the ideological biases
of neoclassical economics and the unreality of many of the inaccurate
assumptions underlying even today's economics textbooks. The new
chorus of scientists in physics, mathematics, neurosciences and
ecology joined their Swedish colleagues in calling for the Bank
of Sweden Prize in Economics to be broadened, properly labeled
and disassociated from the Nobel Prizes - or simply abolished.
The objections from scientists who study the natural world and
whose research findings are therefore subject to verification
or refutation included scores of ecologists, biologists, natural
resource experts, engineers and thermodynamicists. I documented
their critiques of economics, building on the 1971 classic by
Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process,
which I reviewed in the Harvard Business Review (1971). Other scientists including physicist,
Professor Dr. Hans Peter Durr of Germany's famed Max Planck Institute
agree that economics is not a science. Durr says "economics
is not even bad science because its core assumptions are incorrect."
I had previously asked Prof. Durr "how could such a scandalous
mis-use of other sciences have continued unchallenged for over
40 years?" Durr replied that academic etiquette usually restrained
scholars from other fields from straying into other disciplines,
especially with such criticisms. Austrian physicist, systems theorist,
author of The Web of Life, Fritjof Capra asserts that "The
dimension of meaning, purpose, values and conflicts is critical
to social reality. Any model of social organization that does
not include this critical dimension is inadequate. Unfortunately,
this is true for most theoretical models in economics today."[viii]
Even the growth of hybrid professions
- so-called ecological economics, natural resource economics and
others, cannot escape economics' fundamental errors. Many critics
liken its postulates to religious beliefs. For example, I showed
that economics' Pareto Optimality "principle" ignored
prior distribution of wealth, power and information - and could
lead to unfair social outcomes. Dressing up such concepts in fancy
mathematics tends to disguise their underlying ideologies. Professor
Robert Nadeau, a distinguished historian of science at George
Mason University in the USA examined such flaws in economics in
his recent books, (Nadeau, 2003) and challenges economics faculties
to engage in public debates. The temptation to mathematize concepts
and faulty assumptions in economics is understandable, because
it obscures these value-laden biases. This conceals public issues
as too "technical" for the public or even legislators
to understand. Thus, economists can gain influence with central
banks and other wealthy and powerful institutions in society.
Neither have economists been held to the same standards of accountability
as other professions. If a doctor makes a patient sick, a malpractice
suit can be filed. Economists' bad advice can make whole countries
sick - with impunity, as, for example, IMF economists' advice
worsened Indonesia's economic woes in 1997. Today, economists
from the IMF and central banks to those serving financial firms
all bemoan the trend toward spending rather than saving. They
refuse to acknowledge that this behavior is shaped by advertising,
credit cards and the constant barrage of consumerism on global
mass media.[ix] Neuroscientists, biochemists and those
studying the role of hormones, as well as psychologists, anthropologists,
behavioral scientists and evolutionary biologists are now dealing
death blows to economics' most enduring error. This lies in its
model of "human nature" as the "rational economic
man" who competes against all others to maximize his own
self-interest. This fear and scarcity based model is that of the
early reptilian brain and the territoriality of our primitive
past. Neuroscientist Paul Zak at Claremont University, California,
has linked trust, which enables humans to bond and cooperate and
is crucial to markets, to the reproductive hormone, oxytocin.
Indeed, we now know from brain science
why people are susceptible to behavior change via mass media,
advertising and other forms of persuasion and lures to instant
gratification. Opportunistic economists are now teaming up with
brain researchers using MRIs (magnetic resonance imaging) to explore
how the "reptilian" portions of the human brain (associated
with the limbic system) are susceptible to irrational urges, instant
gratification and short-sightedness. The discovery of "mirror"
brain cells enabling humans to empathize with each other - also
accounts for human suggestibility and the power of persuasion
in mass media and advertising. Now that economists' competitive
self-interest models of human behavior are under attack by such
brain research, this field is being colonized as "neuro economics"
or "behavioral economics" in the same way that economists
captured other disciplines as "ecological economics"
and "environmental economics." This tendency to colonize
other disciplines with false claims of universality was due to
the power and financial advantages of economists as apologists
for the powerful interests of business and finance. It remained for honest reporters to explain:
Peter Coy in Business Week "Why Logic Takes a Backseat"
(March 28, 2005) and Justin Fox's "Why Johnny Can't Save
for Retirement" in FORTUNE (March 21, 2005). Coy and Fox
point out that humans are always "of two minds" about
the signals in their lives and environments. They shift back and
forth between their pre-frontal cortex (the seat of rational decision-making)
and their reptilian, limbic brains. As yet, few have focused on
the implications of this new brain research for the crucial role
and responsibility of the advertising and commercial media industries.
Over $400 billion is spent annually on advertising to over-ride
our rational pre-frontal cortex and its longer-term decisions
"to save for a rainy day" and tempt us to run up credit
card debts to buy goods on impulse - through sophisticated manipulation
of our senses and limbic brains. Advertising in the USA is a pre-tax
cost for companies - to promote mass-consumption. Today, mass-consumption
of goods as an engine of economic growth is un-sustainable. (Henderson/Kay,
1998) The critique of economics by mathematicians
is that people don't behave like atoms, golf balls or guinea pigs.
Unlike the economists' "rational economic man" people
are often irrational and their motivations are complex, with many,
especially women, enjoying caring, sharing and cooperating often
as unpaid volunteers. Chaos theorist Ralph Abraham believes that
economics may one day become a science. Abraham is researching
with the Santa Fe Institute the new mathematics employed by some
economists, by programming "agents" in computer models
that are supposed to mimic human behavior. Prof. Abraham adds,
"The so-called "Nobel Memorial" prize in economics
should be broadened in line with the full spectrum of social sciences
to which it belongs and it should be distanced from the Nobel
awards, like the Fields Medals in mathematics." Meanwhile,
Peter Nobel maintains that economics is not a science. Riane Eisler,
systems scientist and author of the best-seller, The Chalice and
the Blade, agrees. The agent-based computerized efforts to make
economics more scientific may pay off in the future. One recent
model "Sugarscape" funded by gullible foundations, simply
recreated poverty gaps and trade wars. Clearly, if they had programmed
half of their "agents" with the behavior females so
often exhibit (by choice, or involuntarily in patriarchal societies)
they might have produced different results. Economics is patriarchal
to its core, which accounts for the rise of feminist economics.[x] Today, all economies are still mixtures
of public and private sectors, two sides of the same coin with
markets created by human rules and laws - a major social innovation.
The two top layers of the "cake" of total productivity,
the private and public sectors, rest on two lower layers ignored
by economists: the Love Economy of unpaid work and Nature's Productivity
(See Figure 7, Total Productive System of an Industrial Society,
FORESIGHT). Mass communications and the Internet enlarged
the new Third Sector: the citizen non-profit groups, charities
and foundations of global civic society. The World Social Forum,
launched in Porto Alegre, in 2000, has focused the global debate
about new paths to sustainable human development. The "cultural
DNA" of societies always determines the size and scope of
public, private and civic society sectors: based on their unique
history, values, goals and beliefs that energize their people.
The one-size-fits-all economic theories of development, such as
the "Washington Consensus" have been discredited as
they encountered the realities of the unpaid Love Economy, informal
sectors, diverse cultures, topography, climate, agriculture and
the basic productivity of ecosystems. Cultural DNA still drives development
in all societies - even though these human, social and cultural
assets (and sometimes liabilities) are overlooked in economic
textbooks, theories and the statistics they generate. Economic
models still based on the Newtonian "clockwork" ideas
of general equilibrium are now over a hundred years out of date.
Thus, they are also blind even to the dynamic change and technological
evolution engendered by the very markets and industrialism on
which economists claim to focus and interpret. These dynamic changes
are now mapped by other disciplines: chaos theory, system dynamics,
physical and behavioral sciences and game theory. Today, economists
are beginning to focus on this colossal error and awaking to the
fact that general equilibrium economic models cannot be used to
guide macro-economic policy in rapidly-evolving technological
societies. Chaos models, such as those created by two "Nobel
Memorial" prize winning economists for the collapsed hedge
fund, Long Term Capital Management, as well as others used by
firms trying to beat stock markets fail because they rely too
much on historic trends and patterns. Economists' colonizing tendencies expanded
to "capture for our profession" (as a UK-based economics
society put it) (Henderson, 1996) the issues of global warming
and climate change. Economists trump other disciplines in academia
because their departments and business schools receive the lion's
share of funds, research contracts, power and prestige. Economics
is politics in disguise. Cost-benefit analysis or a carefully
crafted economic impact statement can squelch any government reform
or new social or environmental initiative. Such analyses emphasize
the costs of change to existing interests, while ignoring or downplaying
the current costs of the status quo on other actors, the environment
or future generations. Examples include the 2005 energy, transportation
and drug subsidy laws in the USA. Cost-benefit analyses fail to
estimate the future benefits of alternative policies and average
out costs and benefits so as to obscure who are the winners and
who the losers of a proposed policy. All this confuses the general
public into believing that the issues are "technical"
rather than political, documented in Priceless, analyzing recent
policies in the USA. (Ackerman/Heinzerling, 2004) Today, the chinks in economists' armor
are becoming widely evident - including the game of preempting
the work in other disciplines. Psychologists won recent Bank of
Sweden Memorial Prizes in Economics for challenging simplistic
economic models of human behavior. Even Harvard University may
soon allow a new course in its economics department that challenges
the orthodoxies still undergirding the policies of the IMF and
the decisions of Wall Street and the world's bourses. A few economists
borrowing from psychologists and real world observation now admit
that we humans are not always competitively maximizing our own
self-interest - the standard economic view of homo economicus.
Many people enjoy giving as well as receiving, care about what
kind of world we are leaving our children - "irrational"
behavior to an economist. No wonder economics is called "dismal."
This re-think undermines orthodoxy in such major policy areas
as free trade, taxes, school vouchers, as well as globalization
and the environment. Journalist, Robert Lee Hotz, "Anatomy
of Give and Take" in the Los Angeles Times (March 18, 2005)
describes a recent experiment at Baylor College of Medicine in
Houston, Texas where two women were observed with the use of a
$2.5 million brain scanner, as they interacted in a game involving
financial and investing behavior. The brain researcher's goal
was to test and hopefully discover the secret of trust, the crucial
human behavior that makes markets possible - and the variable
missing from the mathematics used by economists in their models.
Neuro scientist, Paul Glimcher of New York University explained
that "we have started looking for pieces of economic theory
in the brain." After monitoring the many moves between the
two young women, it turned out that, contrary to economic theory
and many game theorists, these two female players trusted each
other. Economics and traditional game theory predict that lack
of trust on the part of both players would cause both to lose
(the Prisoner's Dilemma). The outcome of the women's game was
that both won. Such optimal outcomes are termed "win-win"
games as opposed to the "win-lose" games of economic
theory and the "lose-lose" outcome of the Prisoner's
Dilemma game. This outcome also challenges game theorist,
John Nash's famous equilibrium, for which he won a Bank of Sweden
Prize in Economics, and which "predicts" that in economic
transactions between strangers predicting each other's responses
- that the optimal level of trust is zero! Economics is based
on patriarchal values - devaluing the work of women in child rearing,
caring for the old, community volunteering as "uneconomic"
in GNP. Economics did not predict the rise of socially-responsible
investing (now at $2.2 trillion in the USA alone, www.socialinvst.org)
and textbooks still imply that trusting, caring, sharing, volunteering
and cooperating are irrational unless self-serving. MIT-trained economist, John B. Perkins,
author of Confessions of an Economic Hit Man (Perkins, 2004) documents
the misuse of economics to over-estimate GDP-growth projections
to justify the huge World Bank and IMF loans to many developing
countries in the 1980s, which ensnared them into unrepayable debt.
The best-known economists in the USA are admitting these and other
errors, including Paul Krugman, Joseph Stiglitz and Jeffrey Sachs.
Unsung women economists revealed the patriarchal bias of economic
theories and led the way in pinpointing these and other errors.
They devised more realistic models - from Sweden's Alva Myrdal,
India's Devaki Jain, Denmark's Esther Boserup, to Argentina's
Graciela Chichilnisky, Brasil's Aspasia Camargo and futurist Rosa
Alegria, Germany's Inge Kaul, New Zealand's Marilyn Waring, myself
and many others in the USA and other countries. Statistical revisions, including those
to overhaul GNP and GDP national accounts were pledged by 170
governments at the Rio de Janeiro Earth Summit in 1992. (See Figure
8,Gross National Product Problems). They were also recommended
by the largest-ever global convening of statisticians of sustainable
development and Quality of Life (ICONS) in Curitiba, Brasil October
2003.[xi] Such statisticians have also repeatedly recommended
that GNP and GDP record national assets: the value of public infrastructure
investments in roads, public health facilities, sewage-treatment,
ports, airports, schools and universities that underpin the productivity
of modern economies. In too many countries, these asset accounts,
which properly balance the public debts undertaken to construct
such vital infrastructure - are not recorded. Such public works,
buildings and facilities are immensely valuable and should be
amortized over their lifetime of use - often over a hundred years.
Try running a company like this, where your balance sheet could
not include the value of your factories and capital assets! The
USA made some of these needed corrections in January 1996 and
these "stroke of the pen" corrections accounted for
one third of the budget surplus of the Clinton administration.
Canada followed suit in 1999 and went from a deficit to a $50
billion budget surplus. (Henderson, 1999) The investments called
for in the Millennium Development Goals, the Monterrey Consensus
and other proposals, such as the Global Marshall Plan, must be
properly accounted as assets, since they will also produce dividends
for societies as they transition to sustainability. Today, in our Information Age, we acknowledge
the value of investments in Research and Development, management
education and employee training programs. Accountants are learning
to account for intangible assets, goodwill, brands and other reputational
risks and benefits. (Allee, 2003) Risk-analysis models, such as
those of Innovest Strategic Value Advisors, Inc. (New York, London,
Toronto, Hong Kong) now calculate social and environmental risks
overhanging a company's balance sheet - which if not recorded,
can be overlooked and lead to sudden loss of shareholder value.
Multi-billion dollar US public pension funds now require companies
in their portfolios to disclose their plans to mitigate risks
of climate change. Similar disclosures are mandatory in the European
Union. Another area is corporate advertising, which is coming
under increasing public criticism. I founded the non-profit EthicMark
Institute, which will be based at Case Western University at the
Center for Business As Agent of World Benefit, founded by David
Cooperrider and Judy Rodgers. The EthicMark Institute will recognize
advertising campaigns that inspire and enhance the human spirit
with the "EthicMark" certification. The World Bank was catching up with all
these statistical innovations - beyond macroeconomic models to
multi-disciplinary systems approaches - using all the multiple
metrics beyond money to map these diverse aspects of human development
and progress. This progress may easily revert to the neoconservative
agenda and laissez-faire models of the past. I and my partner,
The Calvert Group of socially-responsible mutual funds use the
multi-discipline approach in our Calvert-Henderson Quality of
Life Indicators, which are updated regularly at www.calvert-henderson.com
(Figure 9). The World Bank staffing was also going multi-disciplinary
- replacing some of its macroeconomists with sociologists, anthropologists,
epidemiologists, educators - and even civic society representatives.
Under neoconservative management of President Paul Wolfowitz,
these policy innovations may be reversed. In its 1995 report on
the Wealth of Nations, the Bank acknowledged that 60% of this
wealth is comprised of human capital and 20% ecological capital.
Financial and built capital (factories and monetary assets) represented
only 20%. For 50 years the Bank focused most of its attention
on "economic" growth of this 20% of countries' wealth.
Now, the Bank is shifting its focus to that 60% of human capital
with more health and education investments - recently citing the
education of girls as a country's best investment. Yet the Bank has not, so far, campaigned
to add even public asset accounts to GNP/GDP. Neither the Bank
nor the International Monetary Fund (IMF) require the addition
of asset accounts, even for infrastructure assets, let alone for
education and health - the most vital investments to maintain
that 60% of the human capital comprising the wealth of nations.
These accounting corrections will shift statistical focus to longer-term
and sustainable investments. Brasil is helping the IMF to correct
its GNP/GDP accounting. In April 2004, the IMF agreed with Brasil
that its vital backlog of infrastructure investments in rapidly-growing
urban areas for basic sanitation and other public facilities should
not be accounted for in ways that would increase the public debt.
However, the IMF only agreed to the correct accounting for these
public assets as a "pilot project," an intellectually
absurd position. The IMF is still resisting adoption of these
corrections due to pressure from Wall Street bond holders, banks
and other financial special interests that benefit from high interest
rates. This issue can be advanced at the WTO by the Group of 20
and the G-77. The recent appointment by President Bush of neoconservative,
John Bolton to serve as US Ambassador to the UN may impede such
overhauls of GNP/GDP national accounts. I and other critics of the IMF's many
mistakes over the past decades are now calling for the permanent
overhaul of their GNP/GDP and all other macro-economic models.
The IMF should not only set up proper accrual accounting of assets
for all investments in public infrastructure - but should re-categorize
education and public health from "consumption" to "investment"
in human capital. The World Bank and the UN System of National
Accounts (UNSNA) should make similar corrections and add nations'
public investments in education and public health to these asset
accounts and amortize them over 20 years - the time it takes to
raise a child to a healthy, well educated, productive adult. It
is these accounting corrections that can reveal the opportunities
for long-term financial and social returns in the Millennium Development
Goals, as Jeffrey Sachs shows in The End of Poverty. (Sachs,
2005) As these statistical innovations reflect
the technological changes in our information-based societies,
and are reported in mass media, citizens in all democratic societies
will align with these evolving values. New business school curricula
now cover all these new issues and indicators. Pre-eminent is
Brasil's Amana-Key Desinvolvimento & Educacao in Sao Paulo.
Others include, World Presidio College in San Francisco, which
offers an MBA in sustainable business and the Center for Business
as Agent of World Benefit at Case Western University, Cleveland,
Ohio. Citizens will understand and place education and self-development
as the best investment individuals, companies and societies can
make in a better future for all. Even neoconservative economics
recognizes that education is a "public good," a "positive
externality" in economic jargon, i.e., activities that individuals
and private business are unlikely to fund adequately since they
cannot capture the full returns to such private investments. Economists
still need to clarify the difference between markets ruled by
competition and commons - which require cooperative rules. (Figure
10, Differing Views of Markets and Commons), as I argued (Henderson,
1995). Educators and public health professionals
and the majority of citizens can support adequate taxes so crucial
to their children's futures. In light of the new brain research,
the current practices in US public schools of commercial sponsorship
of TV news, sports and events, product advertising, junk-food
vending machines and curricula prepared by corporate PR departments
- all to supplement budgets - may be ruled illegal. Research shows
that children and adolescents have not yet developed forebrain
capabilities to override such influences. Teachers can be better
paid and schools will no longer have to fight in annual government
budgeting with other expenditures for needed police, fire protection
and other public services and in national budgets, even military
weapons. As all such new scorecards of real wealth
and human progress are implemented, societies and companies can
steer themselves on sounder paths toward order and prosperity.
Companies can hire firms like Truecost to identify avoided costs
in full-cost pricing, life-cycle costing and like Innovest to
perform social and environmental risk-analyses - while fully crediting
their intangible assets and investments in R&D. For big companies,
these changes are less arduous than for smaller companies. So
it is important to also recognize the efforts of small and medium-size
enterprises and encourage their progress. The new GNP/GDP asset accounts will end
today's egregious over-stating of public debts and the excuses
it offered for excessive interest rates, sovereign bond yields
and currency speculation. Developing countries in the HIPIC group
are already being relieved of un-repayable, often odious debt
under formulas agreed at the July 2005 G-8 Summit in Scotland.
Former IMF chief economist, Kenneth Rogoff, suggested many reforms
in his article in The Economist, July 24, 2004. I moderated five
TV debates on "Reforming International Finance" between
Kenneth Rogoff, John B. Perkins, author of best seller Confessions
of an Economic Hitman and Sakiko Fukuda-Parr, lead author of the
UN's Human Development Report.[xii] Even before the
G-8 Summit, the IMF's new President, Rodrigo Rato accepted the
need to change many of its socially disastrous policies and to
write off more un-repayable debt - largely due to global civic
society and public opinion. In this new century, long-held ideas are
changing. The European Union is a new model of integration of
formerly warring countries. Despite the "No" votes in
France and Holland over the proposed EU Constitution and recent
budget squabbles, negotiation, cooperation and multi-lateral agreements
are the way forward. The wars in Afghanistan and Iraq have revealed
the many problems that even politicians and military leaders now
admit, require diplomatic solutions. New approaches to terrorism
now favor funding education and building schools in countries
where poor parents have no choice but to send their children to
fundamentalist "madrassahs" where they are taught the
ways of "jihad" and suicidal "martyrdom" to
kill others in the name of God. Societies that pandered excessively
to individual immigrants' rights to retain their own culture and
language (multiculturalism) are re-balancing toward the needs
of societies for inclusive, shared values, languages and the "melting
pot." Meanwhile, the search for balance between the rights
of individuals and society continues. In our age of weapons of mass destruction,
wars are the most dangerous and ineffective options. We see already
in our 21st century that the new weapons of choice are currencies,
as well as better diplomacy, intelligence and widely shared information.
Investments geared toward the Global Marshall Plan can help guide
the re-prioritizing needed to steer societies toward equitable
resource-use and reduction of conflicts (Radermacher, 2004). Insurance
policies for peace-keeping forces can reduce military budgets
for countries wishing to follow Costa Rica, which abolished its
army in 1947. The proposed United Nations Security Insurance Agency
(UNSIA[xiii]), a partnership of the Security Council
with insurance companies would assess country risks and collect
premiums that would be pooled to train standing UN peace-keeping
and humanitarian forces. (Henderson,1995) Reforming and expanding
the Security Council is now on the UN's agenda. The UN General
Assembly should take up all the alternative financing mechanisms,
including those of the 2002 UN Monterrey Consensus, the Global
Marshall Plan, so as to implement the Millennium Development Goals.
The time has come for global taxes on arms sales, currency trading,
airline tickets and e-mail to provide global public goods: education,
health care, sounder international financial architecture and
peace-keeping. These human skills now have laid before
us a rich array of potentials for astounding, widespread, shared
prosperity, peace, restoring and our planet's ecosystems. These
new visions and values underlie in the United Nations Millennium
Development Goals, in the UN Global Compact; in the Prague Declaration
on Humanizing Globalization; the Global Marshall Plan; the ILO's
Report of the Commission on the Human Dimensions of Globalization;
and the 16 principles of the Earth Charter, now ratified by hundreds
of municipalities, companies and thousands of NGOs in over one
hundred countries. The way forward and transition to peaceful
sustainable societies is possible. ---------------------------------------------------------------
Ackerman, Frank and Heinzerling, Lisa, Priceless,
The New Press, New York, London, 2004 Allee, Verna, Increasing Prosperity Through
Value Networks (2003) Altman, Daniel, Neoconomy, Public Affairs,
New York 2004 Axelrod, R. , The Evolution of Cooperation,
Basic Books, NY (1984) Batra, Ravi, Greenspan's Fraud, Palgrave, Macmillan,
New York, 2005 Brandenburger, Adam M., Nalebuff, Barry J.,
Co-opetition, Currency Doubleday, BantamDoubleday,
Dell Publishing, New York, 1996 Goshal, Sumantra "Bad Management Theories
are Destroying Good Management Practices," Academy of Management
Learning and Education, 2005, Vol. 4, #1, pp 75-91 Henderson, Hazel and Ikeda, Daisaku, Planetary
Citizenship, Middleway Press, Los Angeles, 2004 Henderson, Hazel and Kay, Alan F., Human Development
Report, "Proposal for a Truth in Advertising Assurance Set-Aside"
outlines a way to reduce the volume of advertising fairly and
without curbing freedom of speech, United Nations Development
Program, 1998, NY Henderson, Hazel, Beyond Globalization: Shaping
a Sustainable Global Economy, Kumarian Press (1999) Henderson, Hazel, Building A Win-Win-World,
Berrett-Koehler, San Francisco (1996) Henderson, Hazel, Building a Win-Win World,
Berrett-Koehler, San Francisco (1996), pp 56 Henderson, Hazel, The UN Policy and Financing
Alternatives, FUTURES, Elsevier, UK 1995 Kuhn, Thomas S., The Structure of Scientific
Revolutions, University of Chicago Press, Chicago (1962) (As a
friend, I had the pleasure of discussing his theories with him
over many dinners at my home in Princeton) Landes, David, The Wealth and Poverty of Nations,
New York, Norton, 1998 Leitaer, Bernard, The Future of Money, Ramdon
House, London, UK, 2001 Loye, David, Darwin's Lost Theory of Love,
ToExel, New York, 2000 Moore, James F., The Death of Competition,
Harper-Collins, NY (1996) Nadeau, Robert and Kafatos, Menas, The Non-Local
Universe: the New Physics and Matters
of the Mind, Oxford University Press, UK, 1999 Nadeau, Robert The Wealth of Nature (Columbia
University Press, 2003) Polanyi, Karl, The Great Transformation, Beacon
Press, Boston (1945) Radermacher, Franz Josef, Global Marshall Plan:
A Planetary Contract, Global Marshall Plan Foundation, Hamburg,
Germany (2004) Rosen, Corey; Case, John; Staubus, Martin,
Equity, Harvard Business School Press, Boston, 2005 Sachs, Jeffrey, The End of Poverty, Penguin
Books, London (2005) Schumpeter, Joseph A., Capitalism, Socialism
and Democracy, Harper and Row, New York, 1942, 1947 Tainter, Joseph, The Collapse of Complex Societies,
Cambridge University Press, NY (1988) Wright, Robert, Non-Zero, Pantheon, NY (2000)
---------------------------------------------------------------
Hazel Henderson, author of Building a Win-Win World and other books (www.hazelhenderson.com), co-created with the Calvert group of socially-responsible mutual funds, the Calvert-Henderson Quality of Life Indicators (updated at www.Calvert-Henderson.com). She created the financial TV series, Ethical Marketplace, premiering on Public Broadcasting stations in the USA in January, 2005. Contact: Hazel Henderson's Library
--------------------------------------------------------------- |
