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April at Ethical Markets and Hazel Henderson

Wednesday, May 20th, 2009

Happy Spring!  April brought a record number of visitors to our three websites as well as, for the first time, companies interested in advertising with us!!  Thus, we are exploring this revenue option (limited to companies that share our goals and meet the highest social, environmental and ethical auditing standards).

 

*  My recent papers on reforming global finance for the Club of Rome and UNCTAD are at www.ethicalmarkets.com.   Another, "Qualitative Growth" which I co-authored with my good friend physicist Fritjof Capra (also on our Advisory Board), will be published in the UK by the Institute of Chartered Accountants of England and Wales and Tomorrow's Company.

 

*  We hosted a retreat here with our Brazilian partner Christina Carvalho Pinto, president of Mercado Etico; with Advisory Board members Rosa Alegria and Thais Corral; as well as dear friends Rodrigo Loures, Michel Haradom, Maria Fernanda Tiexera, Giovanni Barontini and Homero Santos.  We moved forward on the design of our proposed Green Brazil Index of sustainable private companies, lesser-known to U.S. and European investors, modeled on the Private Company Index of Entrex (www.entrex.net), the private exchange for smaller companies not wishing to list on Wall Street exchanges.

 

*  We are supporting Entrex and its new asset class, the TIGRcubs™, which our Brazilian colleagues and many other green, SRI investors see as a way of raising working capital without giving up equity, while listing on Entrex's electronic exchange based in Chicago.  We are  helping set up meetings with Entrex for many of our colleagues.  Let me know if you are interested in learning more about Entrex's "small is beautiful" financial innovations.  The great disintermediation from Wall Street and "too big to fail" banks has begun.  The old "masters of the universe" still don't understand that in this Information Age, we don't need them!  We are bypassing these old "financial hubs," as I discussed with my colleagues at the Dallas Institute's conference on "MONEY" with Scott Burns, financial editor of the Dallas Morning News.

 

*  We welcome key new members of our Advisory Board: Mark Finser, TBL Capital, California; John Fullerton, Level 3 Capital Advisors, LLC, New York; Ellen Brown, JD, author of Web of Debt, California, and Dr. Marc Weiss, Global Urban Development, Washington, DC.

 

*  You may enjoy my latest editorial, "The Politics of Economics," to be published by our partner The Schumacher Society.  Also, look for "Coming Home," a TV program on their work in Massachusetts and their famous local currency – Berkshares – which will be airing at www.ethicalmarkets.tv next week.

 

*  I will be speaking by videocast at the Sustainable Brands Conference, on the topic "The Economy at a Crossroads."   Judi Schweitzer of our Sustainability Research Group will also be representing us.  We can offer a 20% discount if you register here www.regonline.com/sb09 using my personal invitation code spkrptsb09.

*  The 3rd annual EthicMark® Award for Advertising that Uplifts the Human Spirit and Society, which I founded in 2003, will be presented by Rinaldo Brutoco, president of the World Business Academy on June 2nd at the opening night banquet of the 2009 Global Forum, hosted at Case Western Reserve University’s Weatherhead School of Management Center for Business as Agent of World Benefit in partnership with the Academy of Management and the United Nations Global Compact.

 

As the financial meltdown continues to take its toll on real economies, it is leading to a much-needed world wide re-think of market fundamentalism, as with the historic summit at the United Nations, The UN Conference on the Financial Crisis, June 1-3, of the G-192, i.e., all the world's nations, beyond the older clubs: the G-7, G-8 and G-20.  Stay tuned for my analyses – as well as for our new TV special "The Money Fix" for PBS stations in the Fall.

 

Warmest wishes,

Hazel

The Politics of Economics

Friday, May 15th, 2009

The death knell for the economics discipline was sounded by Nobelist chemist Frederick Soddy in 1921 ("Mr. Soddy's Ecological Economy," New York Times, April 11, 2009). Why were Soddy's insights into the fatal flaws of economics buried for almost a century? In my The Politics of the Solar Age (1981), reviewed by Langdon Winner (New York Times Book Review 1981), I described how Soddy's deeper understanding of the physical realities of production and economic processes shattered virtually all the theories of economists from Adam Smith and Karl Marx to John Maynard Keynes.

Soddy used the example of the steam engine and what makes a railroad train go. "In one sense or another the credit for the achievement may be claimed by the so-called engine-driver, the guard, the signalman, the manager, the capitalist, or the shareholder – or, again, by the scientific pioneers who discovered the nature of fire, by the inventors who harnessed it, by Labor, which built the railway and the train. The fact remains that all of them by their united efforts could not drive the train. The real engine-driver is the coal. So, in the present state of science, the answer to the question how men live, or how anything lives …, is with few and unimportant exceptions, BY SUNSHINE." (Cartesian Economics, Henderson, London 1922).

In 1971, Romanian scientist Nicholas Georgescu-Roegen re-told Soddy's lesson to the current generation of economists in his The Entropy Law and the Economic Process (Harvard University Press), which I reviewed in the Harvard Business Review in 1971. I had speculated on why economists had ignored both Soddy and Georgescu-Roegen. In handwritten letters to me, Georgescu-Roegen lamented that it was probably impossible for economists to counter his or Soddy's arguments since they destroyed all the core theories of economics. My own experience of the politics of economics, encountered during my service on the Technology Assessment Advisory Council of the US Congress Office of Technology Assessment from 1974 until 1980, led me to agree with Georgescu-Roegen. We shared our frustrations with the economics establishment and their dismissals of critics from other disciplines. Economists had converged on Washington, London and policy-making processes following mathematician John Maynard Keynes and his stimulus recipes for pulling the USA out of the Great Depression used by FDR in the 1930s. Economics with its promises to "manage" whole economies to create full employment colonized national policies in most industrial countries. Even Richard Nixon famously proclaimed "We are all Keynesians now" (New York Times, January 4, 1971).

Yet all was not well. Keynesian pump-priming also led to inflation and the new disease "stagflation" which helped unseat Jimmy Carter, along with OPEC's reminder to the world of the realities of energy-dependent industrial societies. I covered these issues in the British journal Resurgence, edited by Satish Kumar, a former Jain monk from India. Satish insisted that I meet another of his writers, E. F. Schumacher, who in 1973 authored Small is Beautiful. Schumacher and I became friends and I, with Robert Swann (who later founded the Schumacher Society) and Ian Baldwin (who later founded Chelsea Green Publishers), arranged for Schumacher's first lecture tour in the USA. We shared many platforms together, urging economists to look at the realities of energy and environmental dependence of industrial societies. While President Carter and many Senators met with Schumacher and I was invited to testify before many Congressional committees, neither of us could pierce the inner sanctums of the by-then powerful economics profession. Schumacher wrote the forward to my Creating Alternative Futures: the End of Economics (1978), yet both of us were banned from lecturing by the economics departments of most universities.

Meanwhile, the embittered Georgescu-Roegen, then teaching at Vanderbilt University, had nurtured a brilliant student, Herman Daly, who was teaching at the University of Louisiana at Baton Rouge. Herman and I corresponded frequently about impervious economists who simply refused to debate the new challenges to their profession posed by energy and environmental issues.

My views that these issues, described so well by Soddy and Georgescu-Roegen, had rung the death knell for economics made me a pariah, together with my activism with Ralph Nader in the 1968 campaign to Make General Motors Responsible. While students paid me to lecture in their campus-wide events and made my Creating Alternative Futures into an underground bestseller, many of their professors removed it from college libraries.

While I wrote about the Club of Rome's Limits to Growth report and criss-crossed the country lecturing on "The Bankruptcy of Economics," and the idiocies of measuring progress by the Gross National Product (GNP), my friend Herman Daly chose to do his missionary work at the World Bank. We connected with our friend Lester Brown, and I joined his board at the Worldwatch Institute in 1975 and served until 2001 when Lester left to found the Earth Policy Institute. Herman Daly became disenchanted with trying to influence World Bank economists and now teaches in the political science department of the University of Maryland. I continued my crusade to correct GNP and include indicators on health, education, poverty gaps and environment. I launched with the Calvert Group, the Calvert-Henderson Quality of Life Indicators in 2000 (updated at www.calvert-henderson.com), and co-organized the European Parliament's "Beyond GDP" conference in 2007 (www.beyond-gdp.eu).

Fast forward to the economic woes of 2008 still plaguing us today, which I had been forecasting in my editorials for InterPress Service since the late 1980s. Economists, whose narrow profit-maximizing models and misuse of mathematics had informed a generation of MBAs and aspiring hedge fund managers, are still in the saddle. They colonized the Obama administration, with Larry Summers, Tim Geithner and legions of Goldman Sachs alumni still calling the shots in favor of their Wall Street friends. Finance and its oligarchs could never have trumped governments and run their global casino without the ideological justifications provided by economic textbooks and their scientific pretensions.

De-frocking the economics priesthood has become easier since the financial collapse. Many scientists have joined in my crusade with Peter Nobel (grandson of Alfred Nobel) to have the Nobel Committee delink the Bank of Sweden's Prize in Economic Science in Memory of Alfred Nobel, from the real Nobel Prize. Lawyer Peter Nobel accuses the Bank of Sweden of infringing on Nobel's intellectual property. Many winners in mathematics and other sciences joined this effort to separate this prize in economics from the real Nobels, along with mathematicians, Nassim Nicholas Taleb, author of the Black Swan; chaos theorist, Ralph Abraham; historian of science Robert Nadeau and others.

Will we see economics demoted and revealed simply as a profession along with lawyers, advocating their policies honestly? This would be the best news from the financial collapse. With Wall Street in disgrace and the spectacle on TV of central banks printing money, we are all learning that money, a useful invention of the human mind, is not wealth. Real wealth is in human talents, wisdom and understanding of the priceless assets and ecological capital of our living planet. Ethical markets and higher morality have become pragmatic.

Hazel Henderson is author of Ethical Markets: Growing the Green Economy (2006) and a Fellow of the Britain's Royal Society for the Arts.

Democratizing Finance

Tuesday, April 7th, 2009

The financial meltdown generated by Wall Street and the too big to fail culture of global money-center banks and financiers is generating local initiatives and demands to decentralize and democratize finance.

Meanwhile, at the global level, the G-20 countries demands to democratize the voting structures of the IMF and the World Bank are essential to reflect the changing balance of economic power. The G-7 and G-8 group of countries are no longer relevant now that the G-20 group (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union) has taken center stage.

While national safety-nets are unraveling due to budget cuts, local leadership is rising, offering many creative alternatives for communities to nurture healthier homegrown economies:

€ Local barter-clubs, like Freecycle.com, Craigslist and LETS, and scrip currencies are proliferating ­ as they always do when central bankers and the International Monetary Fund fail or apply the wrong remedies and make matters worse. Some of the most successful complementary currencies are Switzerlands WIR and in the USA, BerkShares, with equivalent to $2 million issued in the first two years and accepted by banks and businesses in Massachusetts. Similar complementary currencies are matching needs and resources and clearing local markets in Britain, Canada, Australia, Argentina, Brazil and other countries.

€ People-to-people lending and microfinance projects are booming in many countries. Womens World Banking, Grameen Bank in Bangladesh, now emulated in many countries, FINCA and ACCION in Latin America, as well as the newer online versions, including Microplace, Kiva, as well as lenders Prosper.com in the USA and Zopa.com in Britain. Credit unions, operated in Europe and North America for a century, are becoming more proactive. They are filling new local needs, reaching out to poorer people and adding microfinance and lending to small businesses.

€ Associations of small local banks and businesses are wielding more political clout, as are credit unions. In the USA, they are demanding equal treatment in the governments TARP, TALF, and other bailout funds currently showered on the big banks whose reckless lending triggered the financial mess. Venture capital and venture philanthropy firms, including the Rudolf Steiner Foundation, Acumen and the foundations of Ebay founders Pierre Omidyar and Jeffrey Skoll, are investing in social enterprises which meet social needs while making modest profits. Such social capital is now creating a new hybrid sector in many economies.

€ The Business Alliance for Local Living Economics (BALLE) is such a network in North America, as well as the New Voice of Business, Green America, the Social Enterprise Alliance, the Fourth Sector Network and the Business-NGO Working Group. Entrex.net focuses on helping small businesses with their Private Company Index (PCI) which outperforms most stock indexes. Britains New Economics Foundation (NEF) has been generating both local initiatives, such as the Transition Towns movement, as well as its Green New Deal and alternative indicators to correct GDP, measuring wellbeing and ecological sustainability. NEFs proposal to save Britains 11,500 postal offices by adding local banking functions is backed by trade unions, small businesses, public interest groups and pensioners.

€ Time banking, a brainchild of Edgar Cahn in the USA (see www.ethicalmarkets.tv), is now helping local people connect and share services in Japan, Europe and other countries. Neighbors contact each other via a local time banker to provide meals and help for shut-ins, babysit each others children, watch over property, mow lawns and share appliances. Car-sharing has now spawned many new companies such as Zip Car in the USA and others in Canada and Europe where people can make ride arrangements rapidly on Blackberrys and laptops.

€ China is host to many such local initiatives, linking small businesses on networks, including Baidu.com, Alibaba.com, as well as Qifang.com which provides affordable loans to Chinas 25 million students. Circle Pleasure, a private company selling prepaid consumer cards, has formed a joint venture with Qifang for people-to-people banking, the first private company to receive a banking license from Chinas Central Bank. In many countries in Africa, cell phone banking has taken off. Cell phones are the basis for the phone ladies in Indian and Bangladeshi villages, who rent out use of their cell phones to other villages. Rural farmers and fishers can consult prices being offered in nearby towns and markets on their cell phones to make sure they take their goods to the best places to sell them.

How far can people-to-people finance go in bypassing big, greedy banks and ethically challenged Wall Street financiers and their political allies? A long way, thanks to all the communications tools now widely available. Using these new information-sharing tools is helping people realize again what money is: just one form of information. Today it is possible to trade using pure information exchange. For example, in rural areas in Florida, radio stations have call-in programs where farmers can say I have spare time on my tractor to exchange for fertilizer or pepper, melon, eggplant seeds. The farmer gives her phone number and the trades are exchanged off-line. Similarly, the growth of farmers markets and contract-supported agriculture allows local consumers to buy fresh produce directly from nearby farms.

All these local solutions and people-to-people safety-nets raise the question How did we allow big banks and centralized finance to grow so large that they become predators on the real living economies which produce the worlds real wealth? Local people around the world are realizing that they can simply bypass big banks, stock exchanges and create all these services locally. The old, bloated financial sectors must downsize, cut their bonuses and take the losses from their reckless bets in their global casino. A truly efficient financial services sector should be less than 10% of a countrys GDP. Those in Britain and the USA grew to 25% of GDP, metastasizing with their financial engineers preying on the real economy. Now students are looking for jobs as real engineers, teachers, doctors and entrepreneurs.

In a very real sense, we humans dont have a financial crisis but a crisis of perception. We are beginning to see our world differently than mainstream media portrays. We see our choices with new eyes. We know that money is not real wealth. We learn as we watch central bankers printing money on TV. Real wealth is generated by productive people using the Earths resources wisely. Money is a great invention. When it is managed properly, locally, nationally, globally or electronically, it is a useful medium of exchange. Hoarding money is no longer a reliable store of value. We are all rediscovering the many stores of value in our own communities. We find wealth beyond money. We can change our values for the new times we live in and restore the love economies to their central role in our lives.

Hazel Henderson, author of Ethical Markets: Growing the Green Economy (2006), is president of Ethical Markets Media, an independent social enterprise covering local economies, new currencies and the growing green sectors (www.ethicalmarkets.com). She co-created the Calvert-Henderson Quality of Life Indicators, updated regularly at Calvert-Henderson.com. She lives with her husband in St. Augustine, Florida.

What Was - and Wasn't - Achieved at the G20 Summit

Monday, April 6th, 2009

The G-20 April 2nd Summit in London acknowledged the group's interdependence and moved toward greater cooperation now essential to reforming global finance. The G-20 endorsed the goal of building a resilient, sustainable and green economy. "We will make the transition towards clean, innovative, resource-efficient, low-carbon technologies and infrastructure." The G-20 also reaffirmed their commitment to address climate change and to reach agreement at the December 2009 UN Conference on Climate Change in Copenhagen.

Commitments underway by G-20 countries of $5 trillion are expected to raise global output by 4% and accelerate the transition to a green economy.

Fundamental reforms were not addressed, including the need to re-design debt-based money and banking or to create a new global reserve currency, already proposed by China, Russia, India, Brazil and other G-20 members so as to relieve imbalances and excessive pressure on the US dollar.

More immediate reform of the voting representation on the boards of the World Bank and the IMF are a step forward, together with an additional $750 billion: with $250 billion for a new issuance of Special Drawing Rights (SDRs); $250 billion to support trade finance; $100 billion of additional lending to developing countries, as well as an additional $1.1 trillion from IMF gold sales for concessional finance to the poorest countries.

The heart of the G-20 agreements is to move beyond the "Anglo-Saxon" economics typified by the now-rejected "Washington Consensus" model. Many sensible new rules were promulgated to regulate and oversee global financial firms, including hedge funds, new principles for executive pay, accounting rules, credit rating agencies, excessive leverage and restraining excessive risk taking. Rules for tax and regulatory arbitrage are to be tightened and tax-havens "named and shamed." However, the hypocrisy reported by Australia's Griffith University professor Jason Sharman must be addressed: that the US states of Nevada, Delaware and Wyoming, as well as some OECD member countries, must be included in the "shaming."

No mention was made on correcting GDP as proposed by the European Parliament to include statistics on education, health, environment or poverty gaps; nor on the need for incorporating such ESG factors in company balance sheets and reporting.

My most recent editorial for Interpress Service is "Democratizing Finance."

The New Financiers

Tuesday, March 3rd, 2009

A venture capitalist friend of mine asked me in a recent discussion about the financial meltdown, "who will be the new financiers?"

I answered immediately, "the new financiers will be the high-level information and knowledge brokers - and they will aggregate the new research on global change processes and lead in structuring the deals now creating the growing green economy." Today information and media drive markets.

These new financiers are already operating unseen by traditional Wall Streeters and asset managers. They are largely invisible to current financial players and governments because information is their prime currency; rather than money. The new deal-makers value the role of honest, well-managed currencies that remain dependable stores of value and mediums of exchange. Money is a special kind of information, not a commodity in itself, but rather a brilliant invention of the human mind. When backed by real-world goods and service, as well as strong contracts, money can accurately track and score human ingenuity, productivity and transactions interacting with the natural wealth of resources of our home: Planet Earth.

The problem with money is keeping it honest and keeping its "promise to pay" firm. From the goldsmiths who over-lent against their piles of gold held in storage for their customers, to the kings who shaved of the edges of coins and today's bankers who create our money out of thin air, we humans have found many ways to debase our currencies.

Human activities grew from traditional barter, mutual aid and gifting to the invention of money back around 3,000 BC. Our money evolved from clay tablets, shells and cows to metal tokens, gold, silver, today's paper money and electronic currencies that are blips on millions of financial trading screens.

As we expanded worldwide with the advent of the Industrial Revolution in Europe 300 years ago, our need to trade and exchange grew exponentially. This required expanding our money systems of exchange. Gold, which backed most currencies in growing international trade, became too constricting - there just wasn't enough of if. Many traders turned to silver and other precious metals. Soon, the lack of gold led governments to issue paper "fiat" currencies backed only by promises and a fraction of actual gold. Some countries shut their "gold windows," including the USA in 1971, and restricted their citizens from owning gold.

Our current financial crises go beyond those earlier contractions, panics and recessions caused by the lack of gold or sufficient supplies of credible paper money. Central bankers have learned the lessons of the Great Depression. The money supply must keep up with, not surpass, the expansion of production and trading as a country grows and its real economy progresses. Today, the interlinking of all countries' economies due to the globalization of finance and technology caused money-creation to go wild, leading to a credit bubble and mountains of debt.

Computerization of finance and markets speeded up trading to seconds; satellite inter-linkage of round-the-clock stock and commodity exchanges led to the explosion of derivatives contracts, ever more exotic "securitization" of packages of mortgages, student loans and credit card debts. Risk-analysis was relegated to ivory-tower mathematicians' algorithms which ignored real-world conditions. All this multiplied the creation of money and credit exponentially.

Reckless, poorly regulated financial firms on Wall Street sold their dubious, toxic "securities" to gullible investors and pension funds (which should have known better) around the world. For example, the bets on who might default, called credit default swaps, grew unregulated to now comprise $683 trillion of contracts (Bank for International Settlements December 2008) - while real global production measures only the $62 trillion of global GDP (IMF October 2008).

The resulting crises were predicted by me and others over the past decades. All that money and debt creation led to illusory gains and today's inevitable losses and "de-leveraging." The bubble in finance and money itself has popped. Central bankers and financiers, schooled in the world's leading business schools and economics departments focus on money and global monetary circuitry. They were rarely taught that money was simply one form of information - now deeply devalued as all the new forms of money-creation went wild.

Today, we see central bankers printing money on TV. No amount of ink and paper can print enough new money to close the hole between that $683 trillion of false promises and the world's real GDP of $62 trillion. The only issue is who will take the hit. Up to now, the political influence of financial sectors has forced taxpayers to bail out financiers. The blatant unfairness and stupidity of this has caused huge outcries from outraged citizens. Those billions given to irresponsible bankers could have financed universal healthcare and college education. This is the end of finance based only on money and fiat currencies. We now know it's about priorities and values.

Enter the new financiers: those high-level information and knowledge brokers who understand our Information Age and the great transition from the fossil-fueled Industrial Age to our new Solar Age. Overloaded money-circuits have broken down and the huge new volume of transactions in the past decade have migrated to the internet. Pure information-based exchange and sharing has led to the new hybrid economic model described by experts, including Lawrence Lessig's Remix (2008), Yoichi Benkler's The Wealth of Networks (2007), Don Tapscott's Wikinomics (2008), Verna Allee's Knowledge Evolution (1997) and my own work (www.ethicalmarkets.com). This hybrid economy is half the old money-based competition and half information-based sharing, cooperation and exchange. From electronic stock exchanges, Instinet, Archipelago, NASDAQ, Knight and Entrex to Google, e-Bay, Craigslist, Amazon, Facebook and Wikipedia, we are seeing how money-obsessed financiers are trailing behind. The new financiers: those high-level information brokers go beyond economics to understanding whole systems and the human family on planet Earth.

Money may return to its honest base, reflecting real world values of Main Street productivity but may never again be the dominant medium of exchange. Just as gold remains valuable but can no longer support the new volume of human transactions. Money will be superseded by all the new digital currencies already circulating from local exchange trading systems (LETS) and complementary currencies like "Berkshares" and "Wirs" in Switzerland to Freecycle and many other barter sites, cell phone networks and radio shows. Incumbent money-circuit players will try to get regulators to shut down these upstart, disruptive technologies and competitors. The US Securities and Exchange Commission (SEC), for example, shut down the website Prosper.com which boomed by facilitating local residents and businesses in lending to each other.

The new financiers are operating these new digital trading platforms in many countries. Many designs for global digital currencies are on the way. They will complement the IMF's Special Drawing Rights, another pure information-based currency for international development which is still conceptually tied to gold. The new financiers will show why the old financiers and central bankers can no longer have a monopoly on money and its creation. Information-based currencies and trading platforms will operate wherever necessary for evolving human communities so as to match needs with resources and create jobs - from local and regional to national and international exchange.

Today's financial "crisis" is facilitating the evolutionary jump to the next stage of human development - shifting from faulty, money-measured GDP growth to the cleaner, greener sustainable economies. Governments are realizing that they must now also correct those money-based indicators and GDP national accounts to adopt the new Quality of Life Indicators. Pension funds have realized their errors in chasing only short-term money returns and are demanding that companies report their performance beyond the old single bottom line of money to the triple bottom line, including progress on social, environmental and governance performance. Welcome to the Information Age.

Worldwide Support Found for Measuring True Wealth of Nations

Thursday, February 19th, 2009

The "Beyond GDP" Conference in the European Parliament, Nov. 19-20th, released a survey by GLOBESCAN for Ethical Markets Media, LLC, which finds three quarters of people in ten countries agreeing that their governments should look beyond economics and include health, social and environmental statistics in measuring national progress. The survey can be accessed at www.ethicalmarkets.com, www.globescan.com and at the conference website www.beyond-gdp.eu.

Around 1000 respondents in France, Italy, Britain, Germany, Russia, Brazil, India, Canada, Australia and Kenya were asked which of two points of view was closest to their own:

  • That governments should measure national progress using money-based statistics because economic growth is the most important focus for their country; or
  • That health, social and environmental statistics are as important as economic ones and that governments should also use these for measuring progress.

Support is especially strong in mature industrial societies in the European Union. French and Italians are most enthusiastic with 86% and 85% support respectively. The British agreed with the "Beyond GDP" approach by 80%; Germans by 71%. Three of the so-called BRIC countries showed similar support: Brazilians approved by 69%, Russians by 75% and Indians by 70%. While China was not surveyed, it led the world in 2004 by unveiling China's "Green GDP" which sought to adjust China's economic model to take more account of its environmental and social consequences.

This "Green GDP" was popular with Chinese people suffering from pollution and land grabs by developers. Original "Green GDP" calculations deducted some 3% from China's reported 11% growth of conventional GDP, used by virtually all other countries and financial media. Chinese business leaders and local officials whose performance is still judged by conventional GDP growth objected. These controversies were enough to halt the "Green GDP" experiment. However, with health costs and fears of pollution keeping athletes and visitors away from the upcoming Olympic games in Beijing in 2008, China may have to revive its "Green GDP."

In other countries in the GLOBESCAN survey, Australians agreed with the "Beyond GDP" position by 79%, Canadians by 65% and Kenyans by 71%. Earlier surveys in 1993 by the Americans Talk Issues Foundation found similar super-majorities in favor of broadening GDP to include health, education and other social and environmental indicators.

In spite of pressure from civic groups which first erupted in 1992 at the UN's Earth Summit in Rio de Janeiro, governments have dragged their heels in implementing Agenda 21 which called for correcting their GDP scorecards by including social and environmental indicators. However, the 170 governments which signed on ran into domestic opposition from business and financial groups benefiting from GDP which ignores those social and environmental cost of production. GDP, as the broad measure of a nation's production of goods and services as priced in the market, is the sum of corporate balance sheets which also ignore the social and environmental costs incurred. In economic jargon, these costs are "externalities" which accountants can ignore and which are "externalized" to taxpayers, society and future generations.

Statistical bureaus were caught in the middle of these conflicts, between powerful ministries of economics, finance, trade and central banks and the weaker ministries of social welfare, health, education and environment. Thus, the growing data on social and environmental costs of production and business-as-usual were sidelined and relegated to "satellite accounts" which were naturally ignored as less important than GDP-growth.

Meanwhile, many socially and environmentally responsible companies began in the 1980s to include these social costs in their accounting and investment decisions. These enhanced accounting practices expand the single money-based bottom line to the new "triple bottom line" (people, planet, profit) used today by over 600 global corporations. These practices reduce risks that might be lurking over their balance sheets by ignoring or "externalizing" the social and environmental costs of their operations. Examples of financial firms using enhanced accounting and risk analysis include:

  • Global Reporting Initiative, Amsterdam, The Netherlands
  • Innovest Strategic Value Advisors, International, Toronto, Canada
  • Domini Social Investments, USA
  • Vigeo, France
  • Sustainable Asset Management, Zurich, Switzerland
  • Swiss Reinsurance, Zurich, Switzerland
  • Calvert Group, USA
  • Generation Investment Management, UK
  • EcoSecurities, Brazil & UK
  • ASRIA, Hong Kong
  • Friends Provident, London, UK
  • Triodos Bank, The Netherlands and UK
  • Rabobank, International, The Netherlands

Today, financial groups promoting enhanced environmental, social and ethical reporting include:

  • UN Global Compact - 3000 companies worldwide
  • UN Principles of Responsible Investment -$10 trillion in assets
  • Carbon Disclosure Project - $41 trillion in assets, UK
  • CERES - $3.7 trillion in assets, USA
  • The Equator Principles - used by banks worldwide
  • Social Investment Forum - $2.3 trillion in assets with over 500 member practitioners and institutions, USA
  • ChinaCSR.com - reporting on corporate social responsibility
  • Instituto Ethos - member companies total 37% of Brasil's economy
  • Environmental Markets Association, UK
  • Enhanced Analytics Initiative - $2.5 trillion in assets, UK

So the question is why have macro-economists not yet made these same adjustments to GDP? While GDP continues to "externalize" all those social and environmental costs, it keeps blinding politicians and government officials to all their risks to society: from global warming, epidemics and resource depletion to poverty gaps, and social exclusion.

All these issues were debated at the "Beyond GDP" conference, and many new proposals are expected outcomes. The initiative for the "Beyond GDP" conference came from the European Commission and Environment Commissioner Stavros Dimas, joined by Eurostat and the OECD's statistical bureau as well as civic groups - the WorldWide Fund for Nature and the Club of Rome, long-time champion of correcting GDP.

I was honored to represent the Club of Rome on the Beyond GDP Organizing Committee, and my company Ethical Markets Media LLC, producer of the TV series "Ethical Markets" on PBS station in the USA, funded the GLOBESCAN survey. Our current TV special is "Growing the Green Economy." While an advisor to the Calvert Group of socially-responsible mutual funds in the USA, I also co-created the Calvert-Henderson Quality of Life Indicators on display at the European Parliament's Exhibition Hall where we shared a booth with Jacksonville's Quality Indicators for Progress, with ample support from JCCI's Ben Warner and two of our distinguished Research Advisory Board: Dr. Carol Spalding and Dr. Francis Koster. Others on our Advisory Board who made contributions to Beyond GDP included Prof. Zhouying Jin, Chinese Academy of Social Sciences, Dr. Tachi Kiuchi and Dr. Norio Yamamoto from Japan.

Hundreds of new and more inclusive indicators of national progress were represented such as the ISEW (Indicators of Social and Economic Welfare), the Canadian Index of Wellbeing (CIW), the Genuine Progress Index (GPI), the Happy Planet Index (HPI), and the Gross National Happiness (GHI) of Bhutan. Many other exhibits included the Ecological Footprint, the Living Planet Index, the World Bank's Wealth of Nations Index as well as indices from Brazil and a presentation by Thais Corral of our Advisory Board and Director of REDEH in Rio de Janeiro, who hosted the ICONS conference on implementing all these new indicators in Curitiba in 2003. Other regions and cities have gone ahead and produced their own indicators, including Sao Paulo, Brazil, Seattle and, of course, Jacksonville, Florida.

The dam has burst, and public pressure has finally forced this long-overdue "Beyond GDP" debate into the open. Will we allow entrenched economic interests to continue benefiting from faulty GDP-measured growth or will broader measures of progress steer countries toward sustainable forms of true wealth and progress?

Diagnosing the Economic Body Politic

Thursday, January 22nd, 2009

Mainstream media in 2008 were replete with diagnoses of the sickness of the US economy. Central bankers, politicians and their economic advisors sought to explain the economy’s swoon in medical terms. The economic patient was described as having a heart attack, a seizure, a collapse, a loss of animal spirits, loss of confidence. Our body economic was described as being in shock, needing liquidity injections, going to the emergency room, on life support, on the operating table, responding to the medicine and, hopefully, in the recovery room.

Let’s look at all this body imagery conjured up by the economic experts and see if there may be some more realistic medical appraisals. Since it seems self-evident that our economy needs restructuring, let’s look at how deformed and misshapen it became over the past quarter century. We know that our economic body suffers from cancerous growth of its financial sector which metastasized to over 20% of its GDP. A normally efficient financial sector, likened to the body’s blood supply and circulatory system, need be no larger than 10% of GDP.

So, let’s flesh out the diagnosis in broader medical terms: The body economic suffers from:

• An enlarged heart and circulatory system. Unlike the earlier medical remedies of blood-letting, today’s economic doctors seem intent on increasing the body’s blood supply, creating hematomas in the banking sector. Injecting liquidity has led to edemas with pools and clotting in various organs and sectors. Bypass surgery may be the answer to downsizing bloated, “too big to fail” Wall Street firms, banks and “insurance” companies while re-directing the transfusions to homeowners, Main Street businesses, students, state budgets, extending unemployment benefits, food stamps, schools, healthcare, human services and charitable foundations.

• Immune system malfunctions where the regulatory functions of their watchdog cells, liver, kidneys and other vital organs were compromised, causing growth of strange, toxic organisms such as CDOs, SIVs, CDSs and a menagerie of unrecognized foreign invaders. Here immunity-boosting antibodies, whistleblowers, investigative journalists and bloggers are the remedies needed. Other prescriptions must include flushing out toxic waste “assets” from banks, hedge funds and insurance companies by simply writing them off and permitting reckless companies to fail and go bankrupt.

• Skeletal and muscular atrophy as the productive sectors were dismantled and backbone manufacturing, infrastructure, plants, equipment and goods production went to cheaper labor in other, less-regulated countries. The economy’s spine suffered deterioration as levees, sewage treatment, water mains, bridges, dams, roads and railroads fell into disrepair. Remedies are obvious in bringing new blood transfusions into circulation to oxygenate and restore tissues, bones and sinews.

• Overweight and accumulation of fatty deposits in tissues due to over-investment in automobiles for transportation while starving mass transit and hampering cycling, walking and other fitness-maintaining parks in cities and infrastructure. Remedies are at hand for stimulating urban revitalization, retrofitting city infrastructure with pedestrian malls, mass transit and reversing sprawl.

• Overgrown dysfunctional medical-industrial complex gobbling 16% of GDP and military-industrial complex, a back-breaking “charley horse” of $500 billion per year. Healing these conditions calls for shifting to preventive, universal, single-payer holistic healthcare and wellness programs while shifting weapons budgets to diplomacy, better information and intelligence services.

• Brain and nervous system atrophy due to mind-numbing mainstream media. Advertising induces impulse buying, low self-esteem and consumerist waste while obfuscating public understanding of the need to shift from fossil fuels to clean, green renewable energy and efficient resource use. Remedies include expansion of public broadcasting, ethical standards for advertising, publicly funded political campaigns, restoring the fairness doctrine, equal time provision of the FCC while rebuilding crumbling schools, revising outdated curricula and paying teachers adequately. Re-training programs will be needed for re-deploying the oversupply of economists, lawyers, MBAs, options traders, quants and financial engineers to perform useful tasks, including real engineering, retrofitting buildings, restoring parks and playgrounds, volunteering at food banks, well-baby clinics and teaching reading skills to our 20% of illiterates.

• Constipation and accumulation of toxic wastes in bodily organs, colon, liver and kidneys, leading to an inability to flush toxic assets from balance sheets by the appropriate write-downs and bankruptcies. Build up of pollution due to lack of regulatory oversight, enforcement and elimination of toxics. Prescriptions include restricting lobbying and political contributions, vigorous law enforcement and re-regulation of higher environmental, public health and safety standards. The downsizing of the financial sector must include breaking up oversized banks, banning credit default swaps, and other murky derivatives, reinstating the Glass-Steagall Act to separate banking from brokerage, investment banking and insurance while banning naked short selling, bringing back the uptick rule and the small tax on all transactions.

• Psychosomatic disorders including narcissism, feelings of entitlement, unwarranted fears, addiction to oil, over-use of patent medicines and an inability to reality-test or recognize new global conditions. Remedies include tough love from some of the other economies in the human family that lend us some $3 billion per day to sustain our over-consumption habit, including China, Japan and the OPEC nations. Another key prescription is a small tax on daily currency trading of over $2 trillion, 90% of which is speculation. This would stabilize currency turbulence and provide billions to meet the UN Millennium Goals of providing health and education to all members of the human family and reducing poverty. Tax avoidance and money-laundering can be more closely monitored and prosecuted while transfers offshore to financial brothels can be cauterized and shut down.

Can the US body economic be healed? Yes! Rejuvenation and reforms are on the agenda of the new Obama administration, as well as plans to perform re-constructive surgery on the economy, toward a new base on solar, wind, geothermal and more efficient infrastructure. As the rest of the world relies less on the US dollar, US consumers will kick many old addictions and producers will grow more sustainable local economies. Bloated industries will downsize while inefficient firms will go bust. The old dreams of Wall Street “masters of the universe” and old boys’ military adventures and empire can quietly fade away.