TIME FOR TRUE MARKET REFORM

By Hazel Henderson and - - Reprint | | Print |

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SAINT AUGUSTINE, Jun 26 2007 (IPS) - Today, the one-size-fits-all conventional recipe for economic growth, measured by GDP, is being challenged not only on social and environmental grounds but also because it is widely seen as a failure, writes Hazel Henderson, futurist, syndicated columnist, and author of many books including Ethical Markets: Growing The Green Economy(2007). In this article, the author writes that market reform is coming to mean reforming markets and capitalism itself. Would Adam Smith be surprised? Probably not, since he lauded the dynamism of capitalism. Schumpeter later saw the evolution of markets as \’\’creative destruction\’\’, as seen today in the new \’\’disruptive\’\’ technologies of cleaner, greener energy and resource-use shifts now challenging coal, oil, and nuclear power. The new values and ethical concerns driving the further evolution of capitalism reflect the new imperatives of the 21st century on our small, endangered planet. Guided by our growing human awareness of what we have wrought on this planet and our potential for further development, all our long-term self-interests are now indivisible. Ethics and morality are becoming the new pragmatism.

Europeans are leading the new debate and already favour the mixed social market economy. China has modified the Washington Consensus model to create its own social market economy where markets are seen as ”good servants but bad masters”. Today, most Latin American countries are rejecting the US formula in favor of the Chinese and European models, while the economies of Taiwan, South Korea, and Singapore grew on the Asian model of markets steered and regulated by governments.

Socially-responsible pension fund trustees and mutual fund managers launched the United Nations Principles of Responsible Investing, representing over USD 8 trillion in assets. The Carbon Disclosure Project, representing USD 31 trillion held by global asset managers, demands disclosure of carbon emissions. These financiers are giving new meaning to market reform. They demand that companies they own in their portfolios also focus on making markets more ethical. They employ the new accounting protocols of the ”Triple Bottom Line” that go beyond the traditional single bottom line of profit to improve their governance, social, and environmental performance as well. This is not surprising since today bad behaviour entails new kinds of risk for companies’ stock prices: social, environmental, and reputational risk, which are measured by financial services firms such as Innovest Strategic Value Advisors, Truecost, and others.

The Information Age has morphed into a new Age of Truth, in which a company’s reputation, precious brands, and stock can be broken in real time by negative postings by global watchdog groups such as Corpwatch.org and Global Exchange. Individual investors, making common cause with labour unions, environmentalists, and social justice groups have fuelled this new definition of market reform, representing USD 2.3 trillion in assets in the US alone.

Such market reforms include more ethical, transparent, and accountable corporate management, full disclosure, responsible marketing and advertising, environmentally-friendly products, reduced executive pay and stock options, and curbing lobbying and political influence of elections, unfair labour practices, environmental pollution, and resource depletion.

Ethics is the big story in governments as well as markets and the often unholy alliance between them. The recent US corporate crime wave helped elect Governor Eliot Spitzer of New York. The US Senate passed a stricter ethics package limiting lobbying, perks, and earmarks in response to the public outcry against corruption. Political candidates might do better if they simply pledge to never become lobbyists. And the Nobel Committee gave its Peace Prize to Mohammed Yunus, banker to the poor.

Even foundations are no longer immune, as socially-responsible investors demand that they examine their portfolios of stocks underwriting their charitable giving. The schizophrenic rules which still allow a ‘Chinese wall’ between investing and grant-making decisions are ethically blind. The Bill and Melinda Gates Foundation is only the latest to be challenged. It is ethically-confused, even incoherent for a foundation, say in healthcare, to hold a portfolio loaded with stocks of tobacco, alcohol, junk foods, and soft drink companies. Clean portfolio management complementing foundations’ social missions is the new standard.

Market reform is coming to mean reforming markets and capitalism itself. Would Adam Smith be surprised? Probably not, since he lauded the dynamism of capitalism. Schumpeter later saw the evolution of markets as ”creative destruction”, as seen today in the new ”disruptive” technologies of cleaner, greener energy and resource-use shifts now challenging coal, oil, and nuclear power. The new values and ethical concerns driving the further evolution of capitalism reflect the new imperatives of the 21st century on our small, endangered planet. Smith’s famous ”invisible hand” turned out to be our own, not some metaphysical force. Guided by our growing human awareness of what we have wrought on this planet and our potential for further development, all our long-term self-interests are now indivisible. Ethics and morality are becoming the new pragmatism. (END/COPYRIGHT IPS)