Replacing Our Failed Economy Is Long Overdue and We Have the Power to Change It

An excerpt from David Korten's Agenda for a New Economy, on what it's going to take to repair our society.

The following is an excerpt from the introduction of the 2nd edition of David Korten'sAgenda for a New Economy(Berrett-Koehler, 2010).

I wrote the first edition of Agenda for a New Economyin late 2008 when Wall Street was in the throes of collapse. The phantom wealth machine had been exposed and its devastating effects on the real economy were apparent everywhere.

The book was published just as a new president and new Congress were taking power, and I had hopes they would begin to rein in the Wall Street financial institutions that were causing such pain and set us on the path to a much more sensible economy. I included a chapter with the speech I wanted our youthful, idealistic, articulate new president to give -- one that would recognize the transformation needed in our money system, our economic institutions and the rules that determine their behavior.

I knew the speech was a fantasy. Mostly it was designed to help readers see as clearly as possible the ideas that must redirect our policy making. But in my heart I guess I still hoped that perhaps the new president would in fact put forward some of the ideas in a speech of his own and we would begin the journey to an economy that treats people fairly and is in line with the limits of the planet.

In the 18 months since the first edition came out, we have seen with increasing clarity the extent of Wall Street's hold on Washington. I have abandoned my brief flirtation with the fantasy that Obama might be the exception and that contrary to what I have believed and taught for more than 20 years change might come from the top.

If change comes, the leadership will come from below through citizen action that originates from outside of the institutions that are failing us on so many fronts. Change from below can succeed only when a large number of people have a shared understanding of the roots of the problem and share a vision of the path to its resolution.

As a society, we cannot create a future that we cannot see in our collective mind. One of the most important tasks of the moment is to define a vision of the life-serving New Economy it is ours to create and to build popular commitment to its realization. The first Agenda for a New Economy was a start.

I have since had conversations with a great many intelligent and thoughtful colleagues who have further deepened my own understanding of the issues and options. I've written this second edition to sharpen the framing of the problem and take the vision to the next level as one input to an essential national conversation.

A National Conversation

The Wall Street meltdown in 2008 and the failure of the subsequent bailout effort has in some way touched the life of nearly everyone and is currently at the center of public awareness and concern. People want to understand what went wrong and how it can be set right. It is a propitious opportunity to engage a long-overdue national conversation around some basic yet rarely asked questions.

Most public discussion of the financial crisis has focused on finger-pointing. Who engaged in criminal activity? Who was responsible for falsifying securities ratings? Who was responsible for rolling back essential regulations? Which regulators were asleep at the switch and why? Are Wall Street Bankers over paid?

A few observers -- including Dean Baker (Plunder and Blunder), Kevin Phillips (Bad Money), Gary Weiss (Born to Steal: When the Mafia Hit Wall Street and Wall Street Versus America), Charles Morris (The Trillion Dollar Meltdown), and William Black (The Best Way to Rob a Bank Is to Own One) -- provided extensive documentation of the corruption of Wall Street's most powerful institutions even before the September 2008 financial crash that brought down the global economy. Since the crash there has been an outpouring of such books and articles, including Martin Lowy, Debt Spiral: How Credit Failed Capitalism, RP Bottle, The Trouble with Markets: Saving Capitalism from Itself, Janine R. Wedel, Shadow Elite, and Barry Lynn, Cornered: The New Monopoly Capitalism and the Economics of Destruction. The corruption of Wall Street is beyond dispute and it is now difficult to find anyone not on the Wall Street payroll who publicly denies the need for stronger rules and closer oversight.

Most calls for strengthening regulations and oversight are aimed at keeping reckless bankers and financiers from repeating the crash. While that seems quite a good idea, more fundamental questions are rarely raised.

For example:

  • Why should society allow such concentration of power in institutions that benefit only the already rich and powerful while placing the well-being of the larger society at grave risk?
  • Do Wall Street institutions do anything so vital to the national interest as to justify opening the national purse strings to shower them with trillions of dollars to save them from the consequences of their own excess?
  • Is the whole Wall Street edifice is built on an illusion that has no substance yet carries deadly economic, social, and environmental consequences for the larger society?
  • What essential services would a properly structured financial services sector provide in a healthy well-functioning economy and how might that sector best be organized to fulfill those needs?
  • What would be the lead indicators that our economies are healthy and well-functioning?

I believe that honest, accurate answers to these questions support the conclusion that rather than repair and restrain the institutions responsible for the crash, the need is to replace them with a system of institutions appropriate to the needs and realities of the 21st century.

Because my rather explicit call to shut down Wall Street, I want to clearly distinguish my position from that of those on the far right who said the too big to fail Wall Street banks should been left to collapse as a self-corrective act of market discipline. As appealing as that option might have been for those of us who are justly outraged by their behavior, because of the interconnections between Wall Street institutions that would have instantly shut down most all of Wall Street and perhaps the rest of the global financial system almost instantly.

The problem is that Wall Street controls the creation and flow of the money on which we depend for meeting most all our material needs. If it suddenly shut down, whether by government action or lack thereof, the credit system would shut down and the money in our bank accounts would disappear. Apart from such exchange as might be supported by the walking around money in our pockets and purses, economic activity would halt, hospitals and government offices would close, and we would have no access to most essentials of daily life, including food and water.

This, of course, is why an otherwise cash strapped and grid locked Washington political establishment and a Congress that can barely reach agreement on the color of the towels in Congressional bathrooms1 responded instantly with a massive bailout when it appeared that Wall Street's largest banks were on the verge of collapse.

Wall Street must be dismantled slowly and only as alternative institutions are in place to fulfill its necessary and useful functions.

The Story of the First Edition

I wrote Agenda for a New Economy to open a discussion on why a fundamental redesign of our economic institutions is required and what it will involve. The second edition, as the first, is addressed to people who are acutely aware that things are going badly wrong economically, socially, and environmentally and are looking for real solutions based on new approaches and institutions.

The first edition of Agenda(Agenda I) was written and published in immediate response to the meltdown. It launched at a national theological conference at the historic Wall Street Trinity Church at the foot of Wall Street in New York City on January 23, 2009,. the day after the inauguration of Barack Obama as President of the United States.

The nation was in a state of euphoria born of hope that our new president would deliver on his promise of change. The euphoria has since evaporated as the reality became all too evident that Wall Street has a stranglehold on Washington, including on arguably one of the smartest and most visionary president the United States has ever had.

The public outrage at Wall Street excesses that swept Obama into the White House should have created fertile ground for serious action on economic reform. Wall Street's shameless actions since the meltdown have further strengthened the case for radical economic restructuring. Yet nothing of this nature has been forthcoming from the administration.

Wall Street interests stepped into the vacuum and used their financial, political, and media power to deflect the outrage away from themselves and focus it instead on would be reformers who proposed serious corrective action on such critical issues as health care, climate change, and financial regulation.

There are evident political explanations for President Obama's failure in this regard, but that is only part of the story. I realize in retrospect the extent to which his options were severely limited by the fact that neither of the two prevailing schools of economic thought--market fundamentalism or Keynesianism address the underlying institutional, social and environmental foundations of the problem he faced and therefore provide no framework for the needed institutional reforms.

The market fundamentalism of the prevailing Chicago School of economics is more ideology than science and its call to trust in markets driven solely by financial values to solve all problems led to policy decisions that virtually assured the collapse.

The Keynesian School recognizes an essential role for government in managing the money supply. Beyond this, however, it shares the Chicago School's embrace of GDP growth as the defining measure of economic performance, takes institutions as a given rather than a policy choice, makes no distinction between phantom wealth and real wealth, and has nothing to say about environmental limits and the nature and distribution of ownership.

Most of President Obama's economic advisers are inclined to the market fundamentalist view moderated by a Keynesian recognition that government has a necessary role. Neither of the two predominant schools of economics provides the framework needed to address the economic system's critical institutional flaws....

Apart from the political and intellectual context of Barack Obama's presidency, the leadership for institutional transformation rarely comes from those who depend on the existing institutions as their base of power. It necessarily comes from authentic grassroots movements, where the momentum for economic transformation is currently building below the radar of corporate media and the Washington political establishment.

Successful social movements, however, require more than a critique. They need a positive vision of possibility and an agenda for actualizing it. They too suffer from the failure of the prevailing economic models to provide a framework for a comprehensive economic restructuring. Many groups are now engaged in clarifying and elaborating a New Economy vision and agenda. My participation in countless such conversations over the past year and a half have substantially deepened my own understanding of the issues and the possibilities.

1 Although given the sorry state of the U.S. Congress it is all too easy to imagine such a dispute, I made up the point about the towels to make a point.

David Korten is a former economist with USAID, author of "When Corporations Rule the World," and an associate of the International Forum on Globalization. He is the author of Agenda for a New Economy (Berrett-Koehler, 2010), now released in a 2nd edition.
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