Agenda for a New Economy: From Phantom Wealth to Real Wealth by David C. KortenAgenda for a New Economy: From Phantom Wealth to Real Wealth by David C. Korten

Agenda for a New Economy: From Phantom Wealth to Real Wealth

byDavid C. Korten

Paperback | July 5, 2010

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Nearly two years after the economic meltdown, joblessness and foreclosures are still endemic, Wall Street executives are once again getting massive bonuses, and our leaders in Washington lack the will to make desperately needed fundamental changes to the economy. Change will have to come from below. Agenda for a New Economy is the handbook for that revolution.

In this revised and updated edition David Korten has fleshed out his vision of the alternative to the corporate Wall Street economy: a Main Street economy based on locally owned, community-oriented “living enterprises” whose success is measured as much by their positive impact on people and the environment as by their positive balance sheet. We will lose nothing in the process because, as Korten ably demonstrates, the supposed services Wall Street offers are simply a con game. And Korten now offers more in-depth advice on how to mount a grassroots campaign to bring about an economy based on shared prosperity, ecological stewardship, and citizen democracy.
David Korten is president and founder of the People-Centered Development Forum, chair of the board of YES! magazine, and a founding board member of the Business Alliance for Local Living Economies. He is the author of The Great Turning, The Post-Corporate World, and When Corporations Rule the World.
Title:Agenda for a New Economy: From Phantom Wealth to Real WealthFormat:PaperbackDimensions:336 pages, 8.5 × 5.5 × 0.86 inPublished:July 5, 2010Publisher:Berrett-koehlerLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:1605093750

ISBN - 13:9781605093758


Read from the Book

LOOKING UPSTREAM A man was standing beside a stream when he saw a baby struggling in the water. Without a thought he jumped in and saved it. No sooner had he placed it gently on the shore than he saw another and jumped in to save it, then another and another. Totally focused on saving babies, he never thought to look upstream to answer the obvious question: Where were the babies coming from, and how did they get in the water? ANONYMOUS Our economic system has failed in every dimension: financial, environmental, and social. Moreover, the current financial collapse provides an incontestable demonstration that it is unable to self-correct. Bloomberg News estimated in March 2009 that total federal bank bailout commitments and guarantees topped $12.8 trillion, nearly the equivalent of the total U.S. GDP.1 Yet private bank credit still wasn’t flowing into the real economy more than a year later. The Bush administration’s response to the financial crisis focused on bailing out the Wall Street institutions that bore primary responsibility for creating the crisis; its hope was that if the government picked up enough of those institutions’ losses and toxic assets, the banks might decide to open the tap and get credit flowing again. It did not happen, because Wall Street is not in the business of financing the real economy. The failure of the credit system is only one manifestation of a failed economic system that is wildly out of balance with, and devastatingly harmful to, both humans and the natural environment. Wages are falling in the face of volatile food and energy prices. Consumer debt, housing foreclosures, and executive pay are setting historic records. The middle class is shrinking. The unconscionable and growing worldwide gap between rich and poor, with its related alienation, is eroding the social fabric to the point of fueling terrorism, genocide, and other violent criminal activity. At the same time, excessive consumption is pushing Earth’s ecosystems into collapse. Climate change and the related increase in droughts, floods, and wildfires are serious threats. Scientists are in almost universal agreement that human activity bears substantial responsibility. We face severe water shortages, the erosion of topsoil, the loss of species, and the end of the fossil fuel subsidy. In each instance, a failed economic system that takes no account of the social and environmental costs of monetary profits bears major responsibility. Spending trillions of dollars in an effort to restore a failed system to normal function is a reckless waste of time and resources and, in the absence of action to replace the failed system, is the greatest misuse of federal government credit in history. The more intelligent course is to acknowledge the failure and to set about redesigning our economic system from the bottom up to align with the realities and opportunities of the twenty-first century. We face a monumental economic challenge that goes far beyond anything being discussed by the administration, the U.S. Congress, or the corporate press. Hope that an Obama administration would take serious action to rein in Wall Street in favor of Main Street began to die even before he took office, when he announced his initial picks for the country’s top economic posts. That hope continued to fall, along with President Obama’s poll numbers, as he backed off from pushing essential Wall Street reforms. Even the Obama administration’s $787 billion economic stimulus package did nothing to address the deeper structural causes of our. nancial, social, and environmental crisis. SYSTEMIC FAILURE The failure of the phantom-wealth casino economy is evident in: 1. An economic crisis created by an unstable global financial system that favors speculation in asset bubbles over investment in the production of beneficial goods and services, drives continuing cycles of boom and bust, mires people and governments in debts they cannot pay, and holds national governments hostage to the interests of global financiers concerned only with maximizing their own profits. 2. A social crisis of extreme and growing inequality within and among nations created by a focus on maximizing returns to money — which means to the people who already have the most money. A tiny minority of executives and financiers experience soaring incomes and accumulate grand fortunes at the expense of working people whose wages are largely stagnant or falling relative to the cost of living. The enormous disparities undermine institutional legitimacy, human health, and the social fabric of families and communities and thereby feed violence. 3. An environmental crisis of climate chaos, loss of fertile soil, shortages of clean freshwater, disappearing forests, and collapsing fisheries created by an economic system prone to collapse if excessive forms of consumption do not continuously grow. This crisis is reducing Earth’s capacity to support life and is creating large-scale human displacement and hardship that further fuel social breakdowns. On the positive side, however, the financial crisis has put to rest the myths that our economic institutions are sound and that markets work best when deregulated. This opens a window of opportunity to initiate a national conversation about what we can and must do to create an economic system that can work for all people for all time. That window will remain open for as long as the nation remains mired in unemployment, housing foreclosures, and unpayable debts — which in the absence of action to implement the New Economy agenda spelled out in part IV, is likely to be a very long time. REAL WEALTH/LIVING WEALTH Real wealth has intrinsic value, as contrasted to exchange value. Life, not money, is the measure of real-wealth value. Examples include land, labor, knowledge, and physical infrastructure. The most important forms of wealth are beyond price and are unavailable for market purchase. These include healthy, happy children, loving families, caring communities, and a beautiful, healthy, natural environment. Real wealth also includes all the many things of intrinsic artistic, spiritual, or utilitarian value that are essential to maintaining the various forms of living wealth. These may or may not have a market price. They include healthful food, fertile land, pure water, clean air, caring relationships and loving parents, education, health care, fulfilling opportunities for service, and time for meditation and spiritual reflection. For most purposes, real wealth is living wealth, and living wealth is real wealth. Money is neither. TREAT THE SYSTEM, NOT THE SYMPTOM As a student in business school, I learned a basic rule of effective problem solving that has shaped much of my professional life. Our professors constantly admonished us to “look at the big picture.” Treat the visible problem — a defective product or an underperforming employee — as the symptom of a deeper system failure. Look upstream to find the source of the problem and correct the system so the problem will not recur. It is perhaps the most important lesson I learned in more than twenty-six years of formal education. Because of the essential role of caring relationships, the monetization and commodification of real wealth, which generally translates into the monetization and commodification of relationships, tends to diminish their real value. The monetization and commodification of relationships does, however, translate into growth in the gross domestic product and new opportunities for corporate profits. Replacing parental caregivers with paid child care workers is an example. In contrast to a phantom-wealth economy, money in a real-wealth or living economy is not used as a measure or a storehouse of value but solely as a convenient medium of exchange. A phantom-wealth economy seeks to monetize and commodify relationships to increase dependence on money; a real-wealth economy favors strengthening relationships based on mutual caring to reduce dependence on money. Many years after I left academia, an observation by a wise Canadian friend and colleague, Tim Brodhead, reminded me of this lesson when he explained why most efforts fail to end poverty. “They stop at treating the symptoms of poverty, such as hunger and poor health, with food programs and clinics, without ever asking the obvious question: Why do a few people enjoy effortless abundance while billions of others who work far harder experience extreme deprivation?” He summed it up with this simple statement: “If you act to correct a problem without a theory about its cause, you inevitably treat only the symptoms.” It is the same lesson my business professors were drumming into my brain many years earlier. I was trained to apply this lesson within the confines of the business enterprise. Tim’s observation made me realize that I had been applying it in my work as a development professional in Africa, Asia, and Latin America. For years, I had been asking the question: What is the underlying cause of persistent poverty? Eventually, I came to realize that poverty is not the only significant unsolved human problem, and I enlarged the question to ask: Why is our economic system consigning billions of people to degrading poverty, destroying Earth’s ecosystem, and tearing up the social fabric of civilized community? How must that system and the institutions it comprises change if we are to have a world that works for all people and the whole of life? Pleading with people to do the right thing is not going to get us where we need to go so long as we have a culture that celebrates, and institutions that reward, the destructive behaviors we must now put behind us. It is so much more sensible to direct our attention to making the right thing easy and pleasurable by working together to create a culture that celebrates positive values and to foster institutions that reward positive behavior. PHANTOM WEALTH Also called illusory wealth, this is wealth that appears or disappears as if by magic. The term generally denotes money created by accounting entries or the inflation of asset bubbles unrelated to the creation of anything of real value or utility. The high-tech-stock and housing bubbles are examples. Phantom wealth also includes financial assets created by debt pyramids in which financial institutions engage in complex trading and lending schemes using fictitious or overvalued assets as collateral for loans in order to feed and inflate asset bubbles to create more phantom collateral to support more borrowing to further feed the bubble to justify outsized management fees. Those engaged in creating phantom wealth collect handsome “performance” fees for their services at each step and walk away with their gains. When the bubble bursts, borrowers default on debts they cannot pay and the debt pyramid collapses, along with the bubble, in a cascade of bankruptcies. Those who had no part in creating or profiting from the scam are then left to absorb the losses and to sort out the phantom-wealth claims still held by the perpetrators against the marketable real wealth of the larger society. It is all legal, which makes it a perfect crime. WORSE THAN NO THEORY What my wise colleague did not mention is that placing too much faith in a “bad” theory or story, one that offers incorrect explanations, may be even worse than acting with no theory at all. A bad theory can lead us to false solutions that amplify the actions that caused the problem in the first place. Indeed, a bad theory or story can lead whole societies to persist in self-destructive behavior to the point of self-extinction. The cultural historian Jared Diamond tells of the Viking colony on the coast of Greenland that perished of hunger next to waters abundant with fish; it had a cultural theory, or story, that eating fish was not “civilized.”2 On a much larger scale, the human future is now in question and the cause can be traced, in part, to economic theories that serve the narrow interests of a few and result in devastating consequences for all. As we are perplexed by the behavior of the Vikings who perished because of their unwillingness to give up an obviously foolish theory, so future generations may be perplexed by our foolish embrace of some absurd theories of our own, including the theory that financial speculation and the inflation of financial bubbles create real wealth and make us richer. No need to be concerned that we are trashing Earth’s life support system and destroying the social bonds of family and community, because eventually, or so the theory goes, we will have enough money to heal the environment and end poverty. This theory led to economic policies that for decades served to create a mirage of phantom wealth that vanished before our eyes as the subprime mortgage crisis unfolded. It also led us to give control of our political and economic systems to institutions devoted to creating phantom wealth for the exclusive private benefit of their most powerful players. Even with Wall Street’s dramatic demonstration that we were chasing a phantom, most observers have yet to acknowledge that the financial speculation was not creating wealth at all. Rather it was merely increasing the claims of financial speculators on the shrinking pool of everyone else’s real wealth. A NEW STORY FOR A NEW ECONOMY A theory, of course, is nothing more than a fancy name for a story that presumes to explain how things work. It is now commonly acknowledged that we humans are on a course of self-destruction. Climate chaos, the end of cheap oil, collapsing fisheries, dead rivers, falling water tables, terrorism, genocidal wars, financial collapse, species extinction, thirty thousand child deaths daily from poverty — and, in the richest country in the world, millions squeezed out of the middle class — are all evidence of the monumental failure of our existing cultural stories and the institutions to which they give rise. We have good reason to fear for our future. At first, each of the many disasters that confront us appears distinct. In fact, they all have a common origin that our feeble “solutions” fail to address for lack of an adequate theory. Agenda for a New Economy is a big-picture story, or theory, of where we went wrong in the design of our economic institutions and what we can do about it. We do, in fact, have the means to create an economic system that takes life as its defining value and fulfills six criteria of true economic health. Such a system would 1. provide every person with the opportunity for a healthy, dignified, and fulfilling life; 2. restore and maintain the vitality of Earth’s natural systems; 3. nurture the relationships of strong, caring communities; 4. encourage economic cooperation in service to the public interest and democratically determined priorities; 5. allocate resources equitably to socially and environmentally beneficial uses; and 6. root economic power in people- and place-based communities to support the democratic ideal of one-person, one-vote citizen sovereignty. A BOOK FOR THOSE LOOKING UPSTREAM Agenda for a New Economy is a book for people who are looking upstream, not to place blame, but to find real solutions that fulfill a shared human dream of a world that works for all in perpetuity. At its core, it is about the cultural stories that shape our collective values and the institutional systems that shape our relationships with one another and with Earth. The relevance is global, but the primary focus is on the United States because U.S. economic values and institutions are somewhat distinctive and have a powerful global influence. The justified public outrage against the breathtaking excesses of Wall Street creates an opportunity to mobilize political support for a New Economy that shifts our economic priorities from making money for rich people to creating better lives for all and that reallocates our economic resources from destructive, or merely wasteful, uses to beneficial ones. To create an economic system that works for all, we need a different design grounded in different values and a different understanding of wealth, our human nature, and the sources of human happiness and well-being. The basic design elements of the New Economy we seek are known, as I will elaborate in subsequent chapters. We face an urgent need for a national and international discourse on economic policy choices that support a bottom-to-top structural transformation of the economy to strengthen community and reallocate resources to where they best serve. I have written Agenda for a New Economy as a contribution to this discourse. I hope you will be encouraged to engage your friends, colleagues, community, and media contacts in discussion about the foundational economic policy choices at hand and will find this book a useful tool.

Table of Contents

Prologue: A Question of Values
PART I The Case for a New Economy
1: Looking Upstream
2 :Modern Alchemists and the Sport of Moneymaking
3: A Real-Market Alternative
4: More Than Tinkering at the Margins
PART II The Case for Replacing Wall Street
5: What Wall Street Really Wants
6: Buccaneers and Privateers
7: The High Cost of Phantom Wealth
8: The End of Empire
9: Greed Is Not a Virtue; Sharing Is Not a Sin
PART III A Living-Economy Vision
10: What People Really Want
11: At Home on a Living Earth
12: New Vision, New Priorities
PART IV A Living-Economy Agenda
13: Seven Points of Intervention
14: What About My. . .?
15: A Presidential Declaration of Independence from Wall Street I Hope I May One Day Hear
PART V Navigating Uncharted Waters
16: When the People Lead, the Leaders Will Follow
17: A Visionary President Meets Realpolitik
18: Change the Story, Change the Future
19: Learning to Live, Living to Learn
Epilogue: The View From 2084
About the Author

Editorial Reviews

“It’s time for a fundamentally new economic model— Agenda for a New Economy is a much-needed road map for those ready to get started.” —Annie Leonard, author and host of The Story of Stuff “At last, a book by one of our most brilliant economic thinkers that outlines the real causes of—and solutions to—the current economic crisis.” —John Perkins, New York Times bestselling author of Confessions of an Economic Hit Man “A thought-provoking, comprehensive, and readable reappraisal of the great economic and market challenge of our time.”   —David Brancaccio, PBS host “ Finally a bold Obama-era agenda that soars above the mild reforms that are grabbing daily headlines and actually meets the daunting challenges posed by the Wall Street and planetary crises . ” —John Cavanagh, Director, Institute for Policy Studies “In this new edition of his groundbreaking book, David Korten steps up with a new, practical and energizing guide we all can use to transform today’s economic disaster into a Living Democracy.” —Frances Moore Lappé, author of Getting a Grip 2 and Diet for a Small Planet “What I love about this edition of Agenda for a new Economy is that David Korten brings together previously fragmented ideas about how to move forward into a compelling, cohesive framework for personal, community and government action. This book will get you from ‘yes, but how?’ to ‘yes, and here's how’. ” —Alisa Gravitz, Executive Director, Green America “David Korten has updated and strengthened an already timely and insightful book. No one has done a better job at bringing together the multiple crises—economic, environmental, social, political—in which we find ourselves today. His vision of the path forward is clear and compelling.” —James Gustave Speth, Dean of the Yale School of Forestry and Environmental Science, former Administrator, United Nations Development Programme, and author of The Bridge at the Edge of the World "At an urgent moment in human history, David Korten offers a new way to organize our economy that is both inspired and deeply practical.  This is a must-read guide to creating a viable future." —Stacy Mitchell, senior researcher, Institute for Local Self-Reliance; chair, American Independent Business Alliance; and author of Big Box Swindle “Faith communities at their best help us see and believe in what is possible, and help us face inconvenient truths and uncomfortable realities. At their worst, faith communities kill dreams and reinforce fantasies. David Korten's new book can help all of us who lead and participate in faith communities to fulfill our best potential and stop playing to our worst. It's urgent, important, clear, and downright inspiring, and it challenges us to pursue what is excellent, mature, and real.” —Brian McLaren, author of A New Kind of Christianity “David Korten tells the truth like no one else—a truth our planet needs us to hear.” —Marjorie Kelly, cofounder, Corporation 20/20; founding editor, Business Ethics magazine; and author of The Divine Right of Capital “Korten turns conventional economic thinking upside down and inside out. This book reveals what is really going on in the U.S. and global economy—and what can and should be done about it." —Van Jones, founder of Green for All and author of The Green Collar Economy “Just as the global economy crumbles, David Korten’s timely plan for a new economy—a locally based living economy—will keep Spaceship Earth on a steady course, while bringing greater equality and strengthening our democratic institutions. And as if that were not enough, it will bring us more joy.” —Judy Wicks, cofounder and chair, Business Alliance for Local Living Economies  “David Korten shows that patching the tires of a vehicle that’s going over a cliff is neither sane nor acceptable.  But the financial crisis can be a healing crisis, and Korten gives us prescriptions that could actually give us a thriving and just economy that works for people and the planet. —Vicki Robin, coauthor of Your Money or Your Life and cofounder, Conversation Cafes “The most important book to emerge thus far on the economic crisis. David Korten provides real solutions.” —Peter Barnes, cofounder, Working Assets, and author of Capitalism 3.0 “A great book. Korten provides solutions far beyond economics. If we care about the health, safety, education, and well-being of our society, and want to create a world with a semblance of social and economic equity, this book is the next big step in that direction.” -- Peter Block, author of Community and Stewardship “A stirring defense of life and liberty. Guided by the hand of Adam Smith, David Korten paints a spirited picture of a new economy: in bold strokes, from the Earth up, and for all the people. Obama watchers, take note—page after page, redesign trumps reform and shouts, ‘Yes, we can!’” —Raffi Cavoukian, singer, author, entrepreneur, ecology advocate, and founder of Child Honoring