“How selfish soever man may be
supposed, there are evidently some principles in his nature, which interest him
in the fortune of others, and render their happiness necessary to him, though
he derives nothing from it,
except the pleasure of seeing it.” – Adam Smith (1723-1790), author, The Wealth of Nations and The Theory of Moral Sentiments.
In the late 1980s and early 1990s a group of us involved in the World
Business Academy were concerned about where capitalism was headed. WBA Founder Willis
Harman compared Wall Street with gambling casinos in his book Global
Mind Change (1988). We had many discussions comparing the growth of a
more speculative approach, demanding greater returns in shorter time frames, to
the days when people really invested for the long term and looked forward to
dividends. There were frequent comparisons to gambling casinos as growing numbers
of day traders and creative mechanisms appeared on the scene, all designed to “make
a killing” for those insiders who were skilled in manipulating the financial
system.
In 1993, Joel Kurtzman, then a business editor at The New York Times, published The Death of Money: How the Electronic Economy Has Destabilized the World’s Markets and Created Financial Chaos. Kurtzman’s “electronic economy” is the vast volume of transactions made each day by unstaffed computers, prompted by market fluctuations. Additionally he revealed the giant share of transactions in the economy that have nothing whatsoever to do with services or goods. They are entirely speculative, just like gambling. As he writes, “…how can there be equilibrium when the size of the pool of money changing hands globally every day dwarfs the actual value of the goods traded?”
Consciousness and Economics
Willis and I were excited about Kurtzman’s book and discussed compiling original writings for a new anthology which Willis and Kurtzman would co-edit. The working title was Conscious Capitalism. For various reasons the book never happened but it did inspire me to write about this new breed of capitalism, a system far closer to what Adam Smith envisioned. In 1996, I published “A Call for Conscious Capitalism” and incorporated this model into many of my subsequent articles, including an entry into a contest co-sponsored by The Economist in 2000. But, alas, the world continued its path toward more perverse and predatory ways of practicing capitalism.
Around the same time I
met Bernard Lietaer, a Belgium banker who
seemed very informed and experienced in money matters, particularly the
consciousness around money, not merely the mechanisms involved. This ability of
Lietaer to know the way the system worked as well as appreciating the impact of
human consciousness on the system was very attractive to me. He also held a
systems perspective and was predicting large scale shifts in the global economy.
Last week, Lietaer shared some of his recent writings with me. In part, he wrote,
“we have now entered the long period of unprecedented financial
instability that was predicted in The
Future of Money [his 2001 book]. It is most likely that this will take
the form of the dance where one goes two or three steps backward for every step
forward. Every small step forward (i.e. any temporary improvement) will
predictably be hailed as the ‘end of the crisis.’ It is quite understandable
why governments, banks and regulators will make such statements, simply because
saying otherwise would only make the situation worse.”
Lietaer
sees this current breakdown as a symptom of system structure, not a cycle
as many are referring to it. Lietaer is currently working on two new books due
out this winter which will surely benefit from his additional insights from
this market meltdown.
Free Market, Ha!
A couple of years ago on a flight to Brazil, I was seated next to a
young man from India. He worked for the U.S. Federal Reserve Bank. As we exchanged
cards I noticed his title was “financial engineer,” a term I found curious.
Engineering seemed contrary to free markets. Upon further reflection, however,
I could see many manipulations that were contrary to the market being truly
free. I recognized the conflict between market fundamentalism and laissez faire capitalism, with their strong opposition to government
interference, and the manipulations and contrivances these same free market advocates
endorse such as lobbying, subsidies and tax advantages. In other words, don’t
do anything that hinders us but allow us to gain every advantage we can afford
to create for ourselves. So much for “free” markets!
So it wasn’t a total surprise
when the markets crashed and the meltdown started in recent days, rippling to
other economies like dominos in free fall. Any unsustainable system eventually
reaches its breakdown. Band Aid approaches to fix the system will likely be
attempted. If they are they will merely postpone the breakdown and possibly lead
to an even harder breakdown later.
The system is
broken. Even mainstream media are saying it today. It requires a rebuilding not
repair. While there have been plenty of warnings and predictions this could happen,
the leaders of the system - those with the most power to bring about change -
refused to listen. As Harlan Cleveland, former
U.S. ambassador to NATO, wrote in his book Nobody
in Charge, "Those with visible responsibility for leadership are
nearly always too visible to take responsibility for change…"
So the forecasts were correct and now some people in leadership
positions seem more likely to listen. Perhaps this had to happen for us all to
finally get it. This is more painful than it needed to be, and it will likely
get worse, but new listening may be available for the first time. The “system”
may have been jolted hard enough to shift its attention so we can reinvent the
system, not simply prop-up the old one.
The consciousness behind the system has fostered greed, parochial short-term
thinking, market manipulation and outmoded regulations. The new system has an opportunity to be based
upon our mutual interdependence, global citizenship, market transparency and 21st
Century regulations.
Where’s the Pony?
There’s an old story about two young brothers who come home from school to find their room filled with horse manure. The pessimistic one gets very upset and immediately starts crying and complaining about the mess. The more optimistic brother starts jumping up and down, looking all around with great excitement screaming, “Oh boy! With all this manure there’s got to be a pony here somewhere?”
As I read articles in the Financial Times and The Wall Street Journal reporting that capitalism is broken (at least the U.S. model) and how our economy is the victim of the “anarchy of speculation,” part of me is elated, not for the pain and suffering so many people are feeling right now but at the prospects for a true transformation, which is sometimes only possible after the system blows up. Then President Bush (friend of the fat cats) comes on television and tells us the debacle in the markets is “the result of a speculative economy.” The man whose policies exasperated the dysfunction and brought it to a head is telling us indirectly his policies helped to bring us here. This must have eaten him up, to admit his philosophy and policies were a major factor in this disaster for which the American people will pay dearly in so many ways. And he’ll probably go down in history best known for presiding over this devastating bit of financial piracy.
Thank You Market Fundamentalists
The market fundamentalists everywhere have been the biggest contributors to this debacle. A few greedy people and many clever financial engineers did their part too. Time will tell whether or not this major upheaval will be a major blip in our evolution to a better system or a complete failure requiring us to effectively start all over again.
Like with all transformations, there is pain and chaos, uncertainty and big changes. Transformations often include rough spots. So let us make the most of this rough spot and not simply repair an outmoded system, restoring the same mechanisms. Let us create a system that works for everyone and is truly sustainable. Let us create a more compassionate capitalism, similar to that which Adam Smith – the so-called “father of capitalism” - envisioned in his works about wealth and morality.
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