IN THIS SECTION:

 

Every few years in Western history there occurs a sharp transformation. We cross a “divide”. Within a few short decades, society rearranges itself - its worldview, its basic values, its arts, its key institutions. Fifty years later, there is a new world. And the people born then cannot even imagine the world into which their own parents were born. We are living through just such a transformation.

Peter Drucker,
Post-Capitalist Society
(1964)

 

The forces for change facing the world could be so far-reaching, complex and interactive that they call for nothing less than the re-education of humankind.

Paul Kennedy, Preparing for the Twenty-first Century (1993)

Metanomics: A Really New World Order

The End of the Old World

Tis all in pieces, all coherence gone.

John Donne, The Anatomy of the World (1621)

Things fall apart, the centre cannot hold.

W. B. Yeats, Second Coming (1919)

The speed at which the global financial crisis is unfolding has taken even the most expert economists by surprise. In the normal way a recession develops in four stages over two or three years, starting with a slowdown in real estate, then in retailing and leisure, followed by unemployment in core industries and a surge in bankruptcies. This time it is different. The explosive creation of “money” (the quotes are important) to save the banking system with taxpayers’ hard-earned savings, makes it clear that historical economic charts are becoming worse than useless: they are positively dangerous in these turbulent new waters. Old solutions are likely to make things worse rather than better.

Indeed, without a market for most of them, most banks do not even know the value of their own asset base. As earlier noted, there is about $600 trillion dollars worth of derivatives in the global financial system, and if only five per cent were to go into default, economic institutions, but mostly banks, would suddenly have to find $15 trillion – that is, $15,000,000,000,000. It can confidently be said that even with coordinated government support the world banking system cannot be recapitalized on this scale. We are coming to the end of an era.

The words of Donne quoted at the top apply with equal force to our own time. He was referring to the breakdown of a European culture under the forces of Copernicus’s new view of the universe and the split in Christendom that  precipitated the Thirty Years War Yeats was writing just after the First World War about a “rough beast slouching towards Bethlehem to be born,” a reference to the emergence of dark new global forces. The economic scene today is losing all coherence, and breaking up under forces which this website has sketched very inadequately, but it is worth summarizing them to keep the theme in focus. In a word, the three key elements of classical economics are collapsing under pressures that can no longer be contained. Fiat and debt money, detached from asset backing, is losing its social function; banks have become both gamblers and bookmakers, and the trust which underpins both banking and a stable currency has been destroyed through a combination of greed and confidence trickery at every level of the financial system. The thrust of this website is that nothing can be put right until the ethical element of economics is brought back. Like it or not, a new ethical foundation must be relaid on which new economic structures can be raised. There are a few, but not many, examples from history to give some guidance in this unfamiliar field.

The challenge is monumental, for greed and deceit have become institutionalized and, as well, a kind of self-delusion has become normalized in the way that debt has been monetized. That is to say, in the West, and especially in America and Britain, loan money has become an everyday currency, without clear idea of how the loan is to be repaid. Can we rebuild the old world and make it workable with tighter regulations? The fact is that there was already ample regulation to prevent all this happening. The real problem is that the regulatory structure in America has been systematically dismantled by those who did not wish to be regulated, and elsewhere (as with Britain’s Financial Services Authority) regulatory bodies have proved to be either blind to what was going on or unwilling to use their legal powers. Where was the FSA when Northern Rock was playing fast and loose with banking principles? President Reagan’s mantra of “the magic of the markets” seems to have lulled everyone into trusting that self-regulation, or “light touch regulation,” would keep the financial world in order, but when greed and deception are rife, self-regulation is just a weasel argument for no-regulation.

Global economic events are now changing at such a pace that one cannot do much more than give a few snapshots to indicate the direction in which they are heading, and on that basis we can discern the end of three thousand years of economic history, since money was invented, and three hundred years of political history, since the nation state was recognized as the basic economic community. Socio-economic trends are now culminating in a sort of banking and monetary Götterdämmerung. The collapse has come about through deception at the highest level and because it has been practised by the most respectable institutions, it is hard for the ordinary person to believe or even to comprehend.

To speak thus is to risk getting lost in abstractions, but the concrete reality is that the wealth of the planet becomes concentrated in fewer and fewer hands, and the ordinary person wonders why they have ended up owing the bank £200,000 on a house which is worth only £100,000, or why the shares they bought for their retirement are worth only a quarter of what they cost, or why the value of their savings is melting down or why they are suddenly out of a job and unemployable.

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The Evolutionary Spiral

What we are witnessing is the latest turn in an evolutionary spiral that has taken the species from the tribal group in which barter was the only form of economic activity to the nation state with all its complex monetary institutions and political associations. The vector of change has been towards larger groupings and more sophisticated ways of using money, but under all change has been a struggle between two types of human being and two tendencies within each individual. At its simplest, it can be seen as a struggle between greed and unselfishness, but at a deeper level it is a matter of empathy and self-identity. Greed in the individual goes along with moral numbness more generally, and greed in the group, labelled mercantilism by economists, goes along with war. The constant antagonism between empathy and moral autism seems to break out into the open when humankind crosses critical barriers in social organisation, and we take a critical step forward in our understanding of what it means to be human.

The conflict between primitive, greedy man and a higher kind of humanity is age-old.  One can see it in the Old Testament, as, for instance, the prophet Amos railing against those who “swindle and tamper with the scales, who buy up the poor for money and the needy for a pair of sandals (Amos 8:46). One sees it in Dante, acutely aware of a world passing from mediaeval culture to the early stages of the Renaissance and racked by endemic war. His political writings hinge on the conflict between cieca cupidigia, e ira folle  – “blind greed, insane folly” - and fratellanza - “brotherhood” which is the only basis for any worthwhile human group. We are now facing the biggest step of all, from seeing ourselves as members of a nation, with all the tribal and selfish instincts it preserves, or members of a global family. This ethical-economic issue is not abstract philosophy but a matter of survival. To quote from Buckminster Fuller’s Utopia or Oblivion: The Prospect for Humanity (1969):

Humanity now, for the first time in history, has the realistic opportunity to help evolution do what it is inexorably intent on doing – converting all humanity into one harmonious world family and making that family sustainingly, economically successful.

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Economics for a Better World

With the present economic order being tested to destruction, we must start thinking about what is to follow and what kind of sustainable system is possible. The alternative is simply to let disaster overtake us and limit our opportunity for any action. Recent economic developments are starting to raise awareness of the ethical dimension of economics, but it is assumed that the system can be reformed by a return to normal standards of decency, rather than by advance to something higher, which is the point of this website, for moral responsibility is alien to a global system dedicated single-mindedly to making profit.

It is an illusion that commerce and banking at global level is a game played by gentlemen. The appropriate metaphor is war, with all its ruthlessness, war in which no prisoners are taken and disinformation is a strategy. For those at the top making money is the most serious business of life. While all men may be prone to deceive and exploit at an individual level, when this kind of behaviour is scaled up to the level of global economic activity, it becomes an alternative ethics, or rather an anti-ethics in which selfishness becomes a new norm. This is the elephant in the economic room that no one sees. The joint stock company, in its drive for growth without limit, generates an insidious anti-morality. The directors’ duty is to “maximize shareholder benefit,” and they would be doing wrong if they were to subordinate this to any other aim, such as helping the sick or protecting the environment.

The novelist Ben Okri put the case well in a Times article entitled “Our false oracles have failed. We need a new vision to live by,” (30/10/2008). It is a call to look forward rather than backward and is worth quoting at length, for it echoes the arguments of this website, particularly about the breakdown of community:

The crisis affecting the economy is a crisis of our civilisation. The meltdown in the economy is a harsh metaphor of the meltdown of some of our value systems …. The only hope lies in a fundamental re-examination of the values that we have lived by in the past 30 years. It wouldn’t do just to improve the banking system – we need to redesign the whole edifice …. We are now at a crossroad …. To whom do we turn for guidance in our modern world? …. The Church speaks with a broken voice. Politicians are more guided by polls than by vision …. If we need a new vision for our times, what might it be? …. Education ought to be more global … we need to be a people of the world …. We must transform ourselves or perish.

It is a strange sort of economic theory that calls for self-transformation, but Okri is surely right in suggesting that global economic collapse has been caused by selfishness and deceit on an institutional scale. The vector of his thinking takes us in the opposite direction to that which mainstream economics has been following for two centuries. The call for simple unselfishness – which I take it is the germ of the self-transformation promoted by Okri – ultimately gives rise to an evolutionary agenda on every scale and to a new kind of globalisation.

In support of the need for vision and self-transformation, I would quote another novelist, J K. Rowland, who has become a half billionaire almost by accident. Giving the Commencement Address at Harvard University in June 2008, she pressed home the theme that vision and imagination go far deeper than entertainment:

In its arguably most transformative and revelatory capacity, imagination is the power that enables us to empathise with humans whose experience we have never suffered.

The words which stand out here are transformative, revelatory and empathise, and I would make the heretical statement that an enduring and beneficial economic system must have them all at its heart. If vision is to be more than smart new ways of tweaking the system now collapsing, it must be grounded in awareness of humankind as a global family. 

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What is an Economic Community?

Of the many still valid economic insights to be found in Aristotle’s Ethics and Politics, perhaps the one that most justifies attention today is his teaching that communities on different scales have different economic needs. The root meaning of the word “economics” is actually “management of a household”, even though Aristotle’s main economic thinking was directed to the polis or city state. It is important to know that he considered the polis to be the normative community for human development. He famously described man as zoon politikon, which does not mean “a political animal,” as commonly mistranslated, but an animal that lives in the polis. That historical information will help to focus attention again on the critical question of what constitutes a normative economic community today. Adam Smith, of course, considered the basic economic community to be the nation state, as indicated by the title of the work which established his reputation, The Wealth of Nations.

When Smith wrote, the nation state was a relatively new kind of political community, having only been given international status and legal existence by the Treaty of Westphalia in 1648. Before then the “natural” community, both political and economic, was the kingdom or, more rarely, the empire. There is, in fact, nothing natural about the nation state: it is, in Benedict Anderson’s well known phrase, an “imagined community,” made up very often from different linguistic, ethnic and religious groupings in balance. What defines them as a single nation is that they are born (the root meaning of “nation”) in a particular geographical area. What keeps the different groups unified and in balance is a common language and a code of common values, explicit or taken for granted, and most of all a heartfelt common cause – usually war against a common enemy. The globe is scattered with “failed states” which are nominally nation states, and have a seat in the United Nations Assembly, but whose inhabitants do not have the political maturity to hold the state together or live peacefully alongside ethnic or religious groups different from their own. They simply do not think as a nation. It is the height of naivety to think that a nation state can be created by drawing lines on a map. Without a certain level of education and shared moral values the concept of a democratic nation state is a tragic delusion. How much more then the concept of a global family of nations.

My contention here is that the world is heading into an unprecedented chaos in which a new kind of economics will need to be created, with attention given to the smallest structural element, as against Aristotle’s city state or Smith’s nation state. It will be in effect the economic cell within the body politic, a microstructure of survival units.

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Escape from the Tribal Mind

However large and diverse it may be, the nation state is the tribe writ large insofar as its citizens take their primary identity from the same geographical accident of birth. Unification is deliberately undertaken by the state through a common education, a unifying myth and a common currency. The latter is particularly worth noting in view of the creation of “Euroland” through the creation of a single currency and the reliance of its originators on a common cultural memory in the component nations. How far either of these will be able to counter the economic stresses now building up in the EU is an open question. Britain is a particularly interesting example of the way in which four nations were welded into a new “Great Britain,” a story well told in Linda Colley’s best-selling Britons: Forging the Nation (1992). When the nation state is felt to be under threat, all citizens (now united symbolically by allegiance to a common flag) feel their psychological identity under threat, and in this situation war is a natural and predictable response. As socio-economic units have evolved from clan to tribe to nation and then to nation state or empire, wars have grown in scale proportionately, and technological genius, unmatched by moral genius, has enabled us to mechanize carnage. Deaths in World War One were measured in millions, and while all reasonable men cry out in bewilderment that this is lunacy, it is a lunacy that must continue until humans find their most basic identity in something other than the tribe into which they were born by accident. A new kind of “imagined community” is the only chance for world peace.

Towards a Global Family

Three new factors which have only recently entered into history give reason for hope that such a transtribal and transnational identity may be possible. Three quite different kinds of knowledge are converging to prepare the species for a step change in self-awareness.

The evolutionary significance of the Internet is not fully appreciated, but it is very real. In the words of MIT Professor Sherry Turkle, taken from her Life on the Screen: Identity in the Age of the Internet:

The rethinking of human identity is not just taking place among the philosophers but on the ground through a philosophy in everyday life ….

At different levels of awareness we are all asking questions about the nature of a species which we feel must be defined by something deeper than nationality. Geography will always be there, and hence something akin to the nation state must always exist, but the Internet, without fanfare, is helping to lay the foundations for a new kind of global identity.  As with the nation state, however, we cannot just glue together the component parts and hope for harmony, let alone for a sense of natural unity. The obstacle that now confronts the evolutionary process is like a cliff face: to make progress means that we must go higher as a body, to levels that we would never have imagined before ordinary consciousness became infused with evolutionary awareness. But perhaps Aristotle was there before us, as so often, with his distinction between the potential and the actual. In his Monarchia Dante draws upon Aristotle's Nichomachean Ethics to reach the conclusion that “the specific capacity of humankind is an intellectual potentiality.” To which I would only add that it is also the potentiality to feel and empathize.

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Globalisation in Context

The economic significance of this evolutionary awareness springs from the simple fact that every community must of its nature be an economic community: it must have at least the wherewithal to survive, and in order to develop a culture it must have a system for trading – in fact, two systems, one internal, the other across its borders. Aristotle’s initial insight about economic units on different scales may be expanded as in the diagram below, which indicates clearly three kinds of economic community, thus suggesting that each has its own kind of problems and solutions. A considerable part of the problem of creating a global monetary system arises from the fact, rarely recognized, that a global currency may be poorly fitted for local use.

Family to globe relationships

We have become so hypnotized by the theoretical benefits of global free trade that we have lost sight of the very real disadvantages that it brings, and not least what I have called the race to the bottom in wages and working conditions that has followed from global competition.

Few mainstream economists have dealt directly with this problem, largely because Ricardo’s principle of comparative advantage has been relied upon too blindly. The logic that works rather obviously on the meso-level of economics, often breaks down when scaled up to global trade. Comparative advantage asserts as an economic law – like Newton’s law of gravity in physics - that when there are no artificial restrictions to trade, such as customs and tariff barriers, everyone ultimately benefits, despite local disadvantage, since goods are made available to everyone at their cheapest price. Using a very simple example to illustrate, it would be folly to protect or encourage the minuscule English wine-producing industry by placing huge duties on imported wines. Unfortunately, things are not always as simple as that, and comparative advantage can easily become an instrument so blunt that it does more harm than good. It is in the interest of huge global companies and banks to use globalisation as a mantra – “one market under God”, as it has been wittily, but rather accurately, called. It can, however, have devastating effects on developing economies. Rather surprisingly, John Maynard Keynes was a critic of globalisation without restraints (surprising perhaps, because he had proposed a global currency to replace gold, which he called “bancor”) and his words are worth quoting in this context:

I sympathize with those who would minimize, rather than with those who would maximize, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel – these are the things which should of their nature be international. But let goods be home-spun whenever it is reasonably and conveniently possible, and above all, let finance be primarily national.

The Bank of the Future

Instead of “saving the system” of banking by taxing citizens into poverty, we would surely be well advised to question the banking system in its present form, which has become so dysfunctional and socially destructive. I have made the point that the twin causes of our current economic breakdown are

We have become used to the idea of banks as pure profit-making machines, especially since modern technology has mechanised so many banking procedures, but a quote from Peter Blom, the chief executive of Triodos Bank, will show how distorted is this perception.

A bank should be an organisation that brings together two groups of people – depositors and borrowers, people who have money to spare and people who need it. A bank adds its knowledge and expertise [my emphasis]. If you move away from that basic principle, and allow the pressure for ever increasing profits and bonuses to force you into an abstract world of derivatives and structured products, you lose sight of what is virtual and what is real.

Looking with fresh eyes at the bank as part of a society where competition and profit are not absolutes, we can revive this basic principle of mutual assistance, and then anticipate the return to cooperative banking as the key element in a newly conceived economic microstructure. Before coming to that, however, there is something to be gained by considering the decay of another form which once brought together individuals who had money to spare and individuals who needed it to buy a house or develop a business.

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Quaker Banks: A Cautionary Tale

Most banks originated with wealthy individuals who lent out their surplus, and while all operated through self interest, and many were ruthless, some had a strong social conscience and sought to strengthen rather than feed upon society. History has shown, however, that initial altruism tended to wane as profits increased. Nowhere is this better illustrated than in the Quaker banks which are a hidden foundation of the British system and a fascinating microcosm of banking itself.

In the early 19th century there were about seventy small banks in England owned by Quaker families, which began by lending surplus funds on a secured basis mostly to local industries where both the business and proprietor were known to the banker and trusted. The Quaker banks prospered and played a key role in financing the development of the railways in Britain, but all have now disappeared from history, after continual amalgamation, often through marriage, though their fossil existence is still witnessed on the high street in the names of Lloyds and Barclays. Of the many things that could be said of this evolutionary process, two are of particular importance.

Firstly, Quakers succeeded in banking initially not through greed, deceit or the lust for growth that has ruined mainstream banking, but because the individuals who lent the money were regarded as trustworthy, competent and interested in the borrower as a human being: lending and borrowing was an activity which benefited the community.

The second fact of note is that the fruit of success was, paradoxically, failure, for as the banks expanded, integrity and community-consciousness diminished, until the critical step of restructuring as joint stock companies made the original Quaker banks no different from any other. In a dramatic illustration of what happens when the appetite for growth clashes with ethical principles, the Religious Society of Friends (the official name for the Quakers) after 150 years of banking with Barclays, closed its account in protest at its unethical global practices. Barclays, once synonymous with Quaker rectitude, now swims in the deepest and murkiest pools of international finance, not least the place where Lehman Brothers was finished off, carved up and the pieces which still had value scavenged by more favoured banks.

Banks for the People

Size alone weakens the cooperative ideal of banking, since personal contact between lender and borrower inevitably loses its closeness, especially when the borrower is not another human being but a large company. The main obstacle to keeping idealism alive, however, is the need to compete in the market place without using the same dubious strategies and risky investments as the purely commercial banks. A bank with a highly geared capital base is both more profitable and more risky than one that works with a smaller reserve ratio. Triodos, by way of example, keeps to a reserve ratio of 6:1, against the 12:1 limit recommended by the BIS, whereas some global banks have three times the limit, thanks to off-balance operations. That is to say, by various dodges, especially derivatives, they are able to lend thirty or forty times the amount of capital on their books. By any standards that kind of high wire banking is insecure, and it is the depositors, not the directors who suffer when the fall happens.

Self-help, or pure cooperative, banking has a long and honourable history, and has taken roots in many countries, thriving best where it presents no threat to orthodox banking interests. Where it does, as for instance in the Coop bank in the UK and Mondragon in the Basque region of Spain, it tends to become little different from other commercial banks and loses the sense, and function, of being a “bank for the people.”  The most successful of self-help banking organisations have been, without doubt, the self-limiting friendly societies and building societies which enjoyed the most vigorous growth in 19th century Britain. They were not strictly banks, and deliberately avoided using that name, in order to avoid legal and practical problems. Friendly societies were the more financially flexible financial of the two, often doubling as life insurance companies, whereas building societies concentrated on enabling their member to become home owners. More generally, they were very safe places for savings depositors, for the very reason that they did not operate on the fractional reserve system of banks. It is rare for building societies to fail, and actually requires some skills in mismanagement.

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Rethinking the Economic Community

Looking at the whole economic picture, from the global macro-level to the local micro-level, one can see the logic of the argument that different sized economic communities call for different kinds of currency, and also different kinds of banks, for the institution that lends to the local plumber by way of an unsecured overdraft is not fitted to lend the billions needed to build a new dam. Further, once we start to think of different kinds of currencies, we must work out some method of exchange between them.

The economic community on every scale is defined by the control its members have over their economic welfare, and to the extent that it has its own currency, or means of exchange, it has control over its economy. Regional control of the currency must, therefore, be an unquestionable principle in any new economic regime. Where the principle comes under strain is where a group wishes to trade across its “political” boundaries, using the word political to indicate not just the nation state but a zone of any size which has control over its currency. The most superficial consideration of the European Union will indicate how closely monetary and political identity are related. There is, indeed, a strange symbiosis that calls for further examination. To put it crudely and provocatively, I am what my currency defines me to be, and to the extent that this is true, two new questions arise: do we need a new global currency (like Keynes’ bancor) to give reality to the concept of a global family, and do we need new micro-currencies as an essential part of the survival communities that will soon become an economic necessity? The questions open up a whole new approach to economics.

Events over the past half century have gathered towards a point where they are conclusively demonstrating that profit-driven economics is now destroying itself, along with the welfare of millions and the health of the planet. Where some economists, such as the Nobel laureate Kenneth Arrow, have argued for a compromise, with not—for-profit mini-systems within an overall profit-making system, my call is for this pattern to be reversed. That is to say, we should take not-for-profit economics as the general principle but integrate profit-orientated units within it as required. That must be, inevitably, a long term view.

It is difficult to categorize a disintegration and reconstruction in economic terms.  However, let it be conceded even as a possibility, and a whole new range of economic factors suddenly come into focus.  Among them is the need for small sustainable economic units which have been gaining the title “lifeboat communities” in some fringe writing on alternative economics. What will be possible and what will be necessary to create these on a worthwhile scale, and as a movement rather than as eccentric experiments are the opening questions in a great debate, which is at the heart of metanomics.

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The End of the Old World | The Evolutionary Spiral | Economics for a Better World | What is an Economic Community? | Escape from the Tribal Mind | Towards a Global Family | Globalisation in Context | The Bank of the Future | Quaker Banks: A Cautionary Tale | Banks for the People | Rethinking the Economic Community

 

 

 

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