- Development & Aid
- Economy & Trade
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Tuesday, May 3, 2016
In this column, Hazel Henderson, a futurist and economic iconoclast who is the president of Ethical Markets Media (USA and Brazil) and creator of the Green Transition Scoreboard, writes that economism must be defrocked as obsolete and a failed ideology.
- As our climate destabilises, floods inundate cities, wildfires burn forests, droughts kill our crops and manmade radioactive isotopes leach into our soil and water, many accountants and policy analysts are waking up. They are joined by NGOs, civic leaders, whistle-blowers and a few public-minded politicians.
The big message is that the deep but false philosophy of “economism” and its narrow, outdated dogmas are the hidden virus spreading financialisation and its social and ecological destruction.
This malfunctioning source code spread worldwide, commandeered public and private decision-making, overriding scientific research in other disciplines which clearly demonstrate the real conditions of our 7.5 billion member human family on this planet.
Change is difficult, especially in many human minds, as my late friend Thomas Kuhn wrote in his Structure of Scientific Revolutions in 1993. New paradigms are introduced in social systems “one funeral at a time.”
Mahatma Gandhi reminded us that “First they ignore you, then they ridicule you, then they fight you and then you win.” Polls in the U.S. find some 40 percent of the public do not believe in evolution while many politicians still deny science and climate change.
Brain and behavioural scientists demonstrate how our brains lock in habits of thought, often amplifying our fear of change and “the other,” those primitive emotions seated in the amygdala in our brains.
This constrains both personal development and public policy as we hear politicians intoning ”there is no alternative” to old ideas or the financial bubble-created status quo: austerity and cuts in public services, jobs, education, health and environmental protection. Others blame God for human-made environmental pollution and climate disruption.
Many observers, including myself, predicted the 2008 financial crisis and the continuing misery imposed on so many around the world. Wall Street morphed from small firms, partnerships and petty manipulators into ever-larger corporations and trusts, capturing hungry politicians and regulators.
These financial firms capitalised on public infrastructure, unprotected common resources and newer communications technologies, computers, the internet and satellites funded by taxpayers. Compliant politicians helped finance go global after the “big bang” deregulation and privatisation of Ronald Reagan and Margaret Thatcher in the 1980s. Money was moved offshore into tax havens as detailed by Nicholas Shaxson.
This culminated in today’s global financial bubble, with over four trillion dollars of currencies traded daily, quadrillions of derivatives generated by mega banks and flighty traders. High-frequency trading firms place and cancel billions of orders every second, phishing for trends ahead of other investors – all on shaky computer platforms and programmed by algorithms that regularly malfunction.
This misuse of publicly funded IT infrastructure led to the mini-crashes which occurred frequently since the ominous “flash crash” of May 2010 and continue in the latest three-hour crash of NASDAQ on Aug. 22, 2013.
All efforts to regulate and downsize this destructive financial bubble and restore finance to its boring, modest role supporting real and local economies are fiercely opposed by lobbyists from Wall Street, in London, Washington, Davos and among their privately funded think tanks and revolving-door intellectual mercenaries in governments.
Well-endowed academic economists and their university departments buttress economic orthodoxies: equating “free” markets with human freedom and individual rights, expanding trade and privatisation. All these policies still are based on “externalising” social and environmental costs onto others, taxpayers and future generations.
This pernicious philosophy of “economism” is unchallenged even in still referring to winners of the Bank of Sweden prize in economic “science” (sic) as a real Nobel Prize. Even correcting accounts to include “externalities” has been resisted for decades.
In 1992, 170 governments in Article 40 of Agenda 21 at the second United Nations Earth Summit in Rio de Janeiro agreed to include in their gross domestic product (GDP) the unpaid work of millions in traditional agriculture, households and community volunteering.
I experienced this resistance from the economics profession, and from finance, economic and trade ministries, while I served as a science policy advisor in Washington, DC, in the 1970s.
Statistics from other disciplines and ministries measuring poverty gaps and real performance in health, education, housing, public infrastructure and environmental monitoring were relegated to “satellite” accounts, rather than integrated into broader measures of national progress beyond GDP.
Only in 1995 did the pioneering group at the United Nations Development Programme (UNDP) publish in their Human Development Report an estimation of the global value of unpaid productive work: 11 trillion dollars of work by women and five trillion dollars by men – simply missing from the official 24 trillion dollars of global GDP reported that year.
So most societies are much richer than economists acknowledge, both in un-priced human skills and environmental assets – as social and ecological researchers have shown for decades.
Recent U.N.-commissioned reports by TEEB, Trucost and others now show that billions counted by corporations as “profits” are offset by even larger environmental and social costs and losses.
Pricking the global financial bubble and preventing its further exploitation of citizens and ecosystems requires facing down both the underlying false philosophies of economism and their adherents in government, business, academia as well as their operators in financial markets.
Once economism is defrocked as obsolete and a failed ideology, with its derived financial “innovations” exposed as mathematical abstractions, we will not be flying blind.
Accounting is a more realistic profession than macroeconomics. The growth of new more realistic accounting protocols is providing new wheels for social change toward healthier, more inclusive, equitable, greener and more knowledge-rich societies.
Accountants are now beginning to measure six forms of capital: physical (buildings, bridges, etc.); financial (money as the accepted unit of account); human (talent, energy, sweat); social (associations, community, institutions); intellectual (knowledge); and, natural (biodiversity, ecosystem services).
These new metrics for assessing corporate and financial firms’ performance as well as of cooperatives, social enterprises and community associations have been quietly growing for decades. They developed practically in socially responsible, ethical funds, pensions, foundations and endowments and among concerned asset managers, entrepreneurs, innovative scientists and monetary reformers.
Today they emerge in many forms, both at the company level and in correcting GDP. New accounting protocols are multi-disciplinary, integrating many factors key to analysing performance of firms in creating or destroying value.
They include the GRI, the IIRC, the ACCA, the ICAEW, the AICPA, the SASB, together with the NSFM and pioneer asset managers Domini, Calvert, Innovest and now reflected by Bloomberg, Dow Jones and others.
NGOs have largely driven these changes through their work, and collaborations with many U.N. agencies include those of the GEC, the WSF since 2000 and those active since the U.N. Conference on Innovative Finance for Development, Monterrey, Mexico, 2001 and joined in 2013 by many experts on Long Term Finance.
As needed, incremental changes are made and private investments have poured into green sectors worldwide since 2007, the fatal flaws of economism underlying the 2008 crash are now exposed and reforms are underway. Yet, NGOs must remain vigilant if too-big-to-fail or jail finance is to be downsized from a global casino to a public service sector.