World economy is facing the worst time since the great depression of 1930. This recession started with the reduction of Business and Banks having the credit crisis for conducting their further business in December 2007. Banks either started defaulting or getting acquired by other bigger banks. This resulted in huge job loss across the world. US have seen that largest bankruptcy of Lehman Brothers which owed as much as USD 613 billion when it collapsed. The economic turmoil didn’t stop here itself. As the time progressed the manufacturing industry and retail industries also started showing the worst sign. They started filing bankruptcy. Another biggest bankruptcy was in the form of GM defaults. The unemployment rate in US soared from 4.6% to 9.5% within a year. The foreclosures increased all across the US. Consumer habits started changing due to the ailing economy and start impacting the retail sectors heavily.

The US S&P 500 figures have seen a drop of 41 percent in stock market just in 2008 which is huge and definitely one of the worst considering that the biggest yearly drop ever was in 1931 during the Great Depression when the S&P dropped by 47.1 percent. In 2008 US equity performance has seen a USD 7.3 trillion of stock market value vanishes.

To counter the effect of downtrodden economy the US Govt and even all the Govts of the world had only one plan to pump trillions of dollars of artificial money in the economic system. Govt started bailing out the banks with the logic that the current forms of banks are the savior of economy of the world. US itself pumped USD 700 billion in 2008 which was increased further by additional USD 150 billion. These money was definitely a savior for these banks for not to file bankruptcy. But the market was not getting stabilized and was witnessing continuous fall. Banks were still facing the credit crisis to operate and continue their business smoothly.
US got a new and dynamic president in the form of Mr Obama in 2009. He looked very promising leader and claimed to bring a change. After getting into the office he had the toughest task in the US history to rescue US economy to crumble completely. He also used the similar weapon like the previous administration to rescue economy. In Feb 2009 US administration officials committed to flood the financial system with as much as $2.5 trillion — $350 billion of that coming from the bailout fund and the rest from private investors and the Federal Reserve, making use of its ability to print money.

Starting with the monthly view of the S&P 500 trend chart, the bull market of the last five years turned down, as the index fell below the 24-month exponential moving average. The Relative Strength Indicator (RSI) is below 50, indicating a downtrend is in place. The Moving Average Convergence Divergence (MACD) fell below zero, a sign stock market trend has reversed and we have entered a bear market. Finally, the Slow Stochastic fell through zero, another sign of a bear market.

US Market Trend for last 10 years

With the advent of the huge artificial money market started showing the sign of the progress. Banks hands again started getting little free to operate and provide market credits. The stock market started showing an early sign of improvement. Slowly consumer behaviors have also started showing the sign of improvement with increase in their expenditure. The consumer behavior researchers started commenting it to be stabilizing. We have to keep in mind that 71% of US GDP of around USD 10 trillion is generated by consuming habits. The current results of stabilization can be considered as a very significant sign of market stabilization.

The trend for the US Consumer behavior for last 2 years is as follows:

US Consumer Behavior

The overall Consumer Mood Index (which is based on a combination of current economic conditions and economic outlook measures), now at -98, improved by 15% from February to March, and has essentially returned to its level of a year ago (-94).

The market signs are looking very good that we will be out of recession very soon and again the economy will be very strong and free from any fear. The investment tendency of the common man will improve and will provide an additional strength to the US economy.

My perspective differs here. In my perspective the current sign of improvement of economy is artificial and will stay only for short time. The current visible improvement of economy is just due to the extra credit available in the market due to the artificial money pumped by the US Govt. Consumer habits seemed to improved as US citizens are thinking that their Govt has nailed down the problem and now they have the safe gateway. I will go back to the basics of economics to support my theory. The economy can become stronger if there is balance between demand and supply. The demand is nothing but the purchasing power capacity and supply is in the form of production.

The rate of increase in unemployment rate has definitely reduced compared to last year but still there is no significant sign of improving job market. Until the jobs will start creating we can’t say that we are over with the recession. The improvement can be a short term effect and the condition can become worst due to the negligence.

The unemployment forecast for US is as follows:
U.S. Civilian Unemployment Rate
Past Trend Present Value & Future Projection
Percent Unemployed Seasonally Adjusted.

US Unemployment Rate

The average consumer spending seems to be improved but it’s among the Americans who were able to afford and already possessed surplus and were reluctant to spend because economy was continuously going down. The data to support my logic is in terms of average consumer expenditure per day is as follows:

US Consumer Spending 2008 - 2009

Upper Class Income US Spending 2008 - 2009

From the above data we can easily analyze that there is significant improvement in the upper income Americans which is the main reason of improvement of average consumer spending. In reality the average American household income has not stabilized as the job condition for them has not improved and neither there is any visible sign for the same. Still the job loss is continued and the rate decrease in job loss seems to be promising but most likely that seems to be temporary to me due to the huge amount of artificial paper money pumped into the market. Sooner the artificial money in the market will be exhausted and we’ll be again back to the same condition which we witnessed in 2008. This time the effect will be much grave then 2008 as it’ll be proved that artificial pumping of money will not help in stabilizing the economy. All the Govts of the world is going to be clueless for the action of economic reforms. This will result into the longer period of economic chaos. Everyone will start realizing that there are very big flaws in the current system of economics and it requires a radical change to build economic strength.

The efforts are required to strengthen the economic strength of common man by decentralization of economic development rather than giving power only to big giants who commits all sorts of mistakes in the greed of accumulation and maximization of personal profit. The concept of profit maximization of the firm should be changed to the increase in purchasing power capacity of larger group so that there would increase in consumption which will balance the increase in production due to technological progress. The concept of empowering every producer who physically and intellectually directly participates in the increase in the production should be implemented by allowing them as the share holders and profit sharers of any economic organization. This will help in increasing the purchasing power capacity of larger population of the world; which will result into larger consumption of the available production. The ratio of conversion of need into demand will be increased which is going to build economic strength of any economic zone.

One precaution will also require to be implemented is to restrict the pressure from the production from external economic system. In true sense the free trade has to be balanced with local production strength and capacity. Regular endeavor is required to build the strength for local production for local needs. This will result in making every individual economic zone stronger to support them and do the economic development planning. Another best practice to implement would be providing more control to the individual economic for local economic planning and decision making process. The locals understand best of the local problems hence they should be allowed to take the decision for local progress. The administrative system and economic system should be separated so that the economic corruption due to the result of central administrative system can be avoided. This type of radical change in the system is not going to come until the locals are better educated with the economic system and start participating in building the economic system. It’s like when more hands will join to build the economy the stronger will be the effort and there would be multiple gateway of control which will result into the better quality of the economy. It’s my vision but you are the one who can implement it for your own progress.

ABSTRACT

With the advent of internet technology and subsequent integration of national and global economies in the last couple of decades, brilliant brains have devised methods to generate money for millionaires and billionaires by moving money from one place to another any place in the world by the click of a mouse button as well as playing, and by creating financial instruments (derivatives, credit default swaps, etc.), that resembles casino games, which create trillions of dollars of investments on paper. The hedge funds play these casino games, but the ultimate losers are the common people.

A BRIEF HISTORY OF THE GLOBAL ECONOMY

Until 700 to 800 years ago, the various continents exhibited little difference in wealth and poverty. The industrial revolution in Europe, however, created vast differences in wealth between rich and poor countries due to the fact that the colonies were deprived of the use of the “new technologies.” As shown in Tables 1 and 2, the economies of Third World countries like India, China, and Brazil were comparable to those of what are now the developed countries until 1750, but due to exploitation of their resources and trade restrictions their economies declined.
During the 18th century, for example, the British imposed trade restrictions on Indian textile exports, which were better than British machine-manufactured textiles, to safeguard its own textile industry. India experienced zero per capita growth from 1600 to 1870, the period of growing British influence. Per capita economic growth from 1870 to independence in 1947 was a meager 0.2 percent per year, compared with 1 percent in the UK.
The U.K. and other European countries achieved tremendous economic growth in the 1800s at the expense of the economic growth of their colonies until the two world wars ended this scheme. The U.S. then took over economic leadership when European nations had to take American war loans and due to the boost these wars gave American industry. The U.S. supplied billions of dollars’ worth of munitions and foodstuffs to the Allies during two World Wars, and the Allies had to borrow money on the New York and Chicago money markets to pay for them. By the late 1940s, the U.S. gross domestic product (GDP) was almost half of the world’s GDP, and American companies were working at full capacity. This contrasts dramatically with post-war Europe, most of whose factories had been completely destroyed. In addition, technological advances in both ocean and air transport during the war made the transportation of goods cheap, integrating the American economy into the world economy.
The war also caused the demise of the world’s two main colonial powers, Britain and France. Britain’s national debt was about 250 percent of its GDP in 1946. This forced them to grant independence to most of their colonies, which were too expensive to keep within the colonial fold.
World War II also saw the emergence of the U.S.S.R., which initially demonstrated tremendous economic growth. Soviet rulers claimed that they would surpass the economic might of the West, but after a few decades the Soviet economic miracle fizzled out once the drawbacks of communism, including inefficiency and relatively poor productivity, crept into the Soviet economy. This finally led to the collapse of the Soviet empire in 1991.
Due to the Korean War, the Japanese and South Korean economies were rebuilt on the ruins of World War II. After the oil price increases in the late 1970s and subsequent inflation, U.S. industries started shifting their production to East Asia, creating the four “Asian Tigers,” namely, South Korea, Hong Kong, Taiwan, and Singapore. Since these four countries were too small to produce all the manufactured goods needed for the U.S. consumer market, Chinese businessmen in Hong Kong, Taiwan, and Singapore invested in countries like Indonesia, Thailand, and Malaysia, where the Chinese origin people had a monopoly on industry. This finally led to the rise of China. The losers were American workers, who were laid off on a large scale. The advent of information technology in the mid-1990s created jobs in the U.S., but to satisfy the profit demands of Wall Street investors, CEO’s had to send information technology jobs to countries like India, Ireland, and Philippines.

The Failure of Economism

The worldview that Truman so successfully articulated has been termed economism by the German author and green activist Wolfgang Sachs. According to this worldview, a country’s level of civilization is based on its ability to produce material goods–that is, to increase its GNP. To the society’s in the South, who had, for centuries, advanced a more or less sustainable agricultural economy and advanced some of the world’s most sophisticated cultures, this model appeared to have little meaning. Yet, according to the Truman doctrine, these Southern countries were from now on to be recognized as poor, struggling nations, whose main goal was to copy the North by climbing to the top of the ladder of material progress.

Thus economic values superseded all other societal values. According to Sachs, a society no longer had an economy, society simply was the economy. However, this materialistic and one-dimensional ethos was not always embraced by the countries of the South. For them, society included a tapestry of functions, ideals, modes of knowing and cultural legacies that were often diametrically opposed to a society driven by the streamlined dictates of maximum economic output.

Consequently, over the past 40 years, the North’s development strategies have caused tremendous cultural upheaval. Thousands of local or indigenous subsistence cultures have been decimated during the forced process of joining the global race toward economism. However, the gap between the so-called underdeveloped and developed countries has not been closed. To the contrary, it has widened. In the process, millions of people have become uprooted from their local environment to join the poor day laborers or unemployed struggling to eke out a living in dilapidated and burgeoning shanty-towns from Mexico City to Calcutta. In short, modern development practices have been, for the most part, detrimental to both local economies and local cultures.

Economic Development and the Destruction of the Environment

The myth that the global economy can continue along the path it has been following since Truman’s speech in 1949 stems in part from the narrow worldview of economism. According to the business weeklies and forecasts by economists, the world’s economy is relatively healthy and long term economic growth prospects are promising. That is, relatively healthy for those countries with an advanced industrial or post-industrial economy, fueled, in part, by cheap labor and raw materials from the South.

In Africa and Asia, for example, the economic prospects for most people are not promising. But more to the point, when it comes to relate economic demand levels to the health of the natural world, economic planners are at a loss. In fact, economic planning, guided as it is by economic indicators and basing its future predictions on past performances, have worried little about its impact or relation to the environment. Economism, in other words, often do not see the intricate relationship between economic output and its effect on the global ecosystem.

This shortsightedness has had disastrous environmental consequences with often equally calamitous consequences to people, their culture and livelihood.

Five Reasons Why Development Has Not Eradicated Poverty

The dominant neo-liberal development model has also failed to deliver its promise of eradicating poverty in the world. Here is a summary of the the five main reasons:

1. It has failed to bring economic equity. Economists Herman Daly and John Cobb maintain that development itself contributes directly to the growth of global poverty: “On the whole,…development policies in the Third world have made many landless, filled the vast slums surrounding Third World cities, and added to the problem of hunger.”

2. It has failed to integrate economic and ecological concerns. Too often we are consuming and destroying our biosystems instead of living in harmony with them. More to the point, the materially rich Northern countries extract natural resources from the biologically rich Southern hemisphere, thereby causing both economic and environmental breakdown in the so-called Third World.

3. It has failed to protect local cultures and communities. Multinational companies generally do not ask the local people for permission to profit from its extraction of resources from an area. A typical example is the Choco region of Ecuador were oil and other natural resource companies have built a destructive network of roads, colonized and destroyed half of the country’s rainforest, and devastated the lives of thousands of native peoples.

4. It has failed to establish a global, human security policy, to bring about human rights, peace and justice. According to Michael Renner of the Worldwatch Institute: “A human security policy [must] include…redistribution of wealth, debt relief, job creation, technology development , more democratic and accountable governance, and the strengthening of civil society.”

5. It has failed to provide depth of meaning. Official development policies has expanded the money economy ever more deeply into every sphere of human life. The increasing hunger for more material goods and profits has created a world of inequity, but also an impoverished global culture lacking in deep, human and spiritual values.

Toward Sustainable Economics

The most basic tenets of free market capitalism or economic liberalism, which is the predominant economic model today, can, according to author David C. Korten, be described as follows:

–Sustained economic growth, measured by Gross National Product, is the foundation of human progress and essential to alleviate poverty

–Free markets are the most efficient and socially optimal way to allocate resources

–Economic globalization–the free flow of goods, irrespective of national borders, in an increasingly integrated world market–is beneficial for all

–Local economies should abandon goals of self-sufficiency and instead attract outside investors in order to become internationally competitive

” These tenets,” according to Korten, “have become so deeply embedded within our institutions and popular culture that they are accepted by most people without question… To question them openly has become virtual heresy and invokes the risk of professional censure and career damage in most institutions of business, government, and academia.”

Moreover, the philosophical underpinnings upon which economic liberalism rests are rarely questioned. Briefly, according to Korten, these are: 1) humans are motivated by self-interest; 2) the action that yields the most profit is the most beneficial to individual and society; 3) competition is more beneficial than cooperation; 4) human progress is best measured in consumption, i.e…. those who consume the most contribute more to progress.

” The moral perversity of economic liberalism,” according to Korten, “is perhaps most evident in what it views as economic success in a world in which more than a billion people live in absolute deprivation, go to bed hungry each night, and live without the minimum of adequate shelter and clothing.”

This moral perversity is even more appalling in light of the
mounting evidence that the recent years increase in poverty and deprivation is a direct result of economic liberalism’s monopolistic domination of the Third World

The Need For New Models of Development

Central to the question of how to eradicate poverty is the question of which type of development is best suited for the task. According to the dominant model of development that arose during the post-War era, economic growth is seen as the best way to eradicate poverty. Furthermore, economic growth is best promoted by privatizing community assets, deregulating markets, removing barriers to free-trade and investment, and protecting intellectual property rights.

However, this model, as promoted by the so-called developed nations, has so far failed to eradicate economic inequality, human oppression, environmental imbalance, and the destruction of local cultures. In other words, development has failed to curb the underlying causes of global poverty. Consequently, new development models have arisen as alternatives to the dominant model. These new models are often referred to as “sustainable development.”

Sustainable Development

The sustainable development paradigm was first defined by the UN’s Brundtland report as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Development is defined as “a progressive transformation of economy and society.”

Said another way, sustainable development involves balancing the environmental demands of human economic activities with the regenerative capacity of earth’s eco-systems. While sustainable development calls for substantial reforms in the functioning of the global economy, it does so–in most of its variants–within the context of the neo-liberal, free-market economy dominated by transnational corporations, the IMF and the World Bank.

Alternative Development Models

These development models–which also are referred to as sustainable–call into question some of the core institutions and ideological foundations of the world economy, such as growth, centralized economies, unprotected local markets, private domination of resources, and material increase as the sole measure of progress.

Post-development–holds the view that development theory is riddled with the fundamentally flawed assumptions of Western, industrialized civilization. The discourse of development theory must be abandoned, and new models must be formulated, informed by the traditions of indigenous peoples, spiritual values, and authentic regional cultures. Post-development supports the critique that, as expressed by Vandana Shiva, “development devalued people by declaring them underdeveloped.”

Thus, development promotes a perception of “the Other,”–in this case, the global poor–instead of asserting humanity’s inherent unity.

Sustainable society–holds the view that sustainable development as held by the Brundtland Report is inherently unsustainable, as it calls for dramatic growth in the world economy in order to eliminate poverty. Gowth on such a scale, according to founders Justin Lowe and David Brower of Earth Island Institute, would be “attainable only with cataclysmic costs to the Earth and the future.”

Grass-roots development–a term coined by the New Internationalist magazine to signify a decentralist approach to sustainable development in which individuals and local communities take increasing control over their economic and social destinies, with a corresponding elimination of the influence of big business and, for the most part, big governments. This view has close affinities with the agenda of the bio-regionalists, who would add the need for local control over culture as well.

People-centered development–popularized by David C. Korten of the People-Centered Development Forum. Attempts to advance the emergence of “an awakening civil society,” particularly as it is seeking expression by progressive citizens organizations. Suggests that truly sustainable development can only occur where culture and the institutions of civil society are strong, local communities exercise economic self-determination, ecological systems remain vital, and societies are just and economies equitable.

Natural Capitalism–proposed by Paul Hawken. Advocates socially responsible business practices in order to reverse global environmental and social degradation. This “double bottom line approach” to economics holds that commercial activity should generate both financial and social dividends. Economic reform will occur by holding corporations responsible for their actions through green taxes and external cost accountability. The task of this “capitalism with a green face” is to create new industrial and market designs that are “self-actuating as opposed to regulated or morally mandated.”

Balanced Development–proposed by social theorist Sohail Inayatullah, and others, attempts to move away from the language of development theory by using the ideas of P. R. Sarkar and his PROUT theory (Progressive Utilization Theory). PROUT calls for a dynamically balanced use of physical, mental and spiritual resources for the development of individual and society, and within the context of a strong ecological ethic. Development is not only balanced and dynamic, but it is progressive; progress being conceptualized as movement toward spiritual enlightenment.

Central to PROUT’s vision of a more balanced society are decentralized economics, economic democracy, cooperative enterprises, self-sufficiency, and both a minimum and maximum income.

Emerging from these alternative models of development is the need for a comprehensive theory of development, one which must address, in integrated fashion, economy, ecology, society, and spirituality. To establish this new concept of development in practice, however, will require a fifth element–the political.

All these five elements are today to be found in the dialog on sustainability and development. But how can they be brought together in an integral fashion? Through the large scale integration of political action with the creation of model community-based socio-economic development projects. These locally-based, small scale model development projects can spearhead a development movent that can counter the top-down planning characterized by today’s global economy. Nothing less, it appears, will suffice if we are to replace the world-wide dichotomy of affluence and poverty with a more equitable, humane, and ecological economy.

Economics As If All Living Beings Mattered

What will be the underlying values of the new economy? David C. Korten claims that “a sustainable society needs a spiritual foundation. Why? Because spirituality, not materialism, is the ultimate foundation of life. Economic liberalism has partly failed, he claims, because of its denial of the human quest for inner meaning and meaningful relations. The late British economist E. F. Schumacher concurs. In his seminal book, Small is Beautiful, he warned against the unsustainable nature of capitalism’s rampant materialism:

“Economy as the content of life is a deadly illness, because infinite growth does not fit into a finite world. That economy should not be the content of life, has been told to mankind by all its teachers; that it cannot be, is evident today… If the spiritual value of inner man is neglected, then selfishness, like capitalism, fits the orientation better than a system of love for one’s fellow beings.”

Here Schumacher points out a central dogma in current economic thinking: that it is possible, even desirable, to fulfill infinite human longings with finite things. This materialist philosophy forms the underlying economic doctrine of today’s market capitalism, of our system of unlimited control over productive property. Put bluntly, it supports the dictum that selfishness and greed are good, even necessary fuels for the capitalist engine of growth.

This paradoxical philosophy has resulted in a market system in which land, food, and intellectual ideas are bought and sold without restrictions. As we have seen above, this “free market system” has created an economy of disparity, of unequal buying power, and of a deep schism between rich and poor. More specifically, this philosophy grants the concept of “the divine right of kings” to corporations. In other words, that corporate owners are ultimately only responsible to themselves and their shareholders, not to their employees, nor to the environment, nor to the human community at large.

Finally, this philosophy grants that unlimited accumulation of wealth is both positive and a basic human right.

Today it is widely accepted that unlimited exploitation of the globe’s finite natural resources is unsustainable. There is little support, however, for the idea that an economy based on unlimited accumulation of wealth, or unlimited control over private property, may be the direct cause of today’s economic and environmental problems.
Nevertheless, the accelerated accumulation of wealth in the hands of the few, has caused both economic disparity and environmental degradation. In short, while there has been an increase in the unbridled accumulation of wealth–which has resulted in an increase in GNP and per capita income, particularly in the Northern countries–there has also been an increase in the spread of poverty–both in the North, and, particularly, in the South.

As long as the basic tenet of unlimited hoarding of wealth remains fundamental to our economy, economic disparity and environmental degradation will continue. We will continue to accept as fair and inevitable that economic growth creates concentration of wealth, on the one hand, and unemployment, displacement of people and poverty, on the other. Without a fundamental rethinking of the current economic dogma of private property rights as an absolute right above all other values, and that human progress is best measured as increased material consumption, we cannot create an environmentally sustainable and poverty-free society.

Cosmic Inheritance

Economist E. F. Schumacher wrote that “no system or machinery or economic doctrine or theory stands on its own two feet: it is variably built on a metaphysical foundation, that is to say, upon our basic outlook on life, its meaning and its purpose.” The “metaphysical foundation” of economic liberalism is motivated by self-interest, individual property rights, and the fulfillment of our material or economic needs.

What, then, should be the basic outlook on life of the new economy? The spiritual conception of wealth, as described by Sarkar, expresses a common sentiment among many alternative development thinkers: “This universe is created in the imagination of the Supreme Entity, so the ownership of this universe does not belong to any particular individual; everything is the patrimony of us all. Every living being can utilize their rightful share of this property…This whole animate world is a large joint family in which nature has not assigned any property to any particular individual.”

Sarkar termed this concept of wealth “cosmic inheritance,” and made clear its implications for economic theory: ” The system of individual ownership cannot be accepted as absolute, hence [economic liberalism] too cannot be supported.” With a spiritual worldview as the basis for a new economy, the psychology of greed and selfishness is replaced with the psychology of collective welfare and cooperation.

Sustainable Spirituality

If the purpose of development–as presently conceived–is to increase material amenities, then sustainable development will certainly help us to continue to consume, but it will not help us attain inner fulfillment. Therefore, sustainable spirituality–the idea that true progress is movement toward inner fulfillment, toward self-realization– must be embraced by the sustainable development program. Spiritual progress subsumes material development, as people cannot pursue spiritual growth without adequate basic necessities such as employment, food, shelter, education, and medical care. So, the purpose of development, guided by a sense of spiritual progress, is to help us pursue personal and social pursuits that foster inner growth and communion with people and nature. Activities such as sports, art, music, theater, yoga, meditation, hiking, etc., do not simply fill our lives with more material things, instead they fill our lives with enjoyment, purpose and meaning.

Neo-humanism

Reverence for nature, for all non-human creatures, is a natural extension of such concepts as cosmic inheritance and spiritual progress. “Our universe,” according to Sarkar, “is not only the universe of humans, but the universe of all; it is for all created entities.” Economic activity, therefore, must take into account the existential rights of other species. This outlook is an integral aspect of what Sarkar terms neo-humanism–the view that expands humanism to include a common, unified consciousness behind the diversity of nature. This outlook, this spiritual ethic, is growing amongst many seeking an alternative to the disparities of the global economy.

According to activist Helena Nordberg-Hodge, “we are talking about a spiritual awakening that comes form making a connection to others and to nature. This requires us to see the world within us, to experience more consciously the great interdependent web of life, of which we ourselves are among the strands.” Thus, neo-humanism–in essence a fusion of spirituality and humanist rationality–is based on principles of love and respect for all beings, sharing, cooperation and spiritual progress. A stark contrast to economic liberalism’s idea that the most conspicuous human motives are self-interest, competition and hoarding of wealth.

The current global political and economic climate is imbalanced and unstable. Western democracies, while philosophically guided by the principles of modernism (equality, fraternity, and liberty) are often not emphasizing the same principles when global economic policies are drafted.

More precisely, the globalization forces promote political democracy while often using undemocratic means when dictating economic policies. Driven by the profit-hungry forces of neo-liberalism, or economic globalization, policies set in the West–through institutions such as the World Bank and the International Monetary Fund (IMF)–have often bypassed local democratic institutions and proven to be economically counterproductive and devastating to the so-called developing nations. “Theirs is not an ideology of freedom and democracy,” writes William Finnegan in Harper’s magazine. “It is a system of control. It is an economics of empire.”

Even in countries with a tradition of political democracy, such as in South East Asia, and in South America, the neo-liberal policies have often been economically disastrous. Argentina, for example–for a long time the poster-child of economic globalization–is today suffering the worst economic crisis in its history. In short, economic democracy is still a far cry for most developing nations. Indeed, economic democracy is also only a dream for millions of poor in the rich Western nations.

As PROUT founder P. R. Sarkar writes, economic democracy is the “birthright of every individual.” To achieve economic democracy–or what author and PROUT activist Dada Maheshvarananda calls “a dynamic economy of the people, by the people and for the people”– economic power must be vested in the hands of local people, not foreign corporate interests.

The Fist of Free Trade

Economic liberalization has now reached all corners of the world, but has yet to take hold in the Middle East. In the days leading up to the Iraq war, President George Bush drew several rather surprising links between the need for free trade liberalizations and a “free Iraq.” Here is a quote from a National Press Conference:

” I appreciate societies in which people can express their opinion. That society — free speech stands in stark contrast to Iraq. Secondly, I’ve seen all kinds of protests since I’ve been the President. I remember the protests against trade. A lot of people didn’t feel like free trade was good for the world. I completely disagree. I think free trade is good for both wealthy and impoverished nations. But that didn’t change my opinion about trade. As a matter of fact, I went to the Congress to get trade promotion authority out. ”

No surprise then that free trade and the messianic vision of market fundamentalism was an important part of The National Security Strategy of the United States, issued by the White House in September 2002. “We will actively work to bring the hope of democracy, development, free markets, and free trade to every corner of the world,” the Strategy claims. “The possibility that the Marines and high altitude bombers might need to be involved in spreading the good news about free trade does not, in context, seem far-fetched,” writes Finnegan.

No, it does not seem far-fetched. As New York Times columnist and economic globalization advocate Tom Friedman wrote in his book, The Lexus and the Olive Tree:

“The hidden hand of the market will never work without a hidden fist. McDonald’s cannot flourish without McDonnell Douglas… And the hidden fist that keeps the world safe for Silicon Valley’s technologies to flourish is called the U.S. Army, Air Force, Navy, and Marine Corps.”

In other words, the war against Iraq was more about fostering the freedom to make a profit on hamburgers than about finding WMD’s. It was more about McWorld vs. Jihad than it was about Bush vs. Saddam.

Free trade and corporate globalization–whichever way it is implemented–has not, however, been a boon for the world’s developing countries. While the US and Europe has increased its wealth, most people in developing nations have become poorer. Indeed, even the IMF recently reported that their policies have failed in lifting these countries out of poverty. Even in the US, globalization has had negative effects on peoples income. Real wages have fallen 4 percent since 1973, while economic growth has averaged 3 percent. In contrast, during the decades prior to globalization–between 1947 and 1973–economic growth averaged 4 percent and wages increased by 63 percent. So, why should Iraq celebrate a future designed by the warriors and free traders in Washington?

Now that the high altitude bombers have finished their work in Iraq, and the US promises the “liberated” Iraqi people that they will soon bask in the glory of democracy, this promise does of course not include the promise of economic democracy. For free market fundamentalism and real-life economic democracy are not mutually inclusive. Just ask the people of Bolivia. Although rich in natural resources, it is the poorest country in South America. Why? Most of the resources are utilized by foreign corporations. “The World Bank is the government of Bolivia,” a Bolivian newspaper editor claims. So, how can the US promise Iraq what the Washington strategists cannot even provide millions of its own citizens, not to speak of the impoverished people in the third world?

A “free Iraq” must therefore not only mean the political freedom to vote, but also freedom from poverty, and the freedom to choose the path of economic self-sufficiency. A truly liberated people should be able to exercise both political and economic democracy. Most of all they should feel secure that no foreign economic power can dictate their economic future–that they are not victims of the “dictatorship” of foreign economic powers.

There are many stated and unstated reasons behind the US-led coalition’s war against Iraq. Most of those reasons–to protect US national self-interest, to prevent future attacks by Iraq and other terrorists, to stop the proliferation of the not-yet-proven Iraqi weapons of mass destruction, to ensure US geopolitical control of the Middle East, and to ensure trade liberalization in the region–do not meet the high moral aim of simply liberating the Iraqi people from an unjust tyranny.

The economic sanctions will soon be lifted so that Iraq, and thus the whole Middle East, can open up for the commercial and cultural hegemony of Western corporations. Aid will also be flowing in. And with this aid, for the hungry and painful bodies of Iraq, will also come aid for their souls. The Messianic message of Billy Graham, his son, and many other Christian evangelical preachers will soon be heard all over the dusty towns of this ancient, Muslim country. For, as there is a holy alliance between McDonald’s and McDonnel Douglas, there is also a holy alliance between US-born capitalism and Born Again Christians, between fundamentalist Christendom and fundamentalist economics.

World Government and Economic Democracy

Unfortunately, we have a UN without a spine and a global economic system without a soul. What we need instead is a World Government with a militia, and a global economic system that fosters economic democracy, or people’s democracy.

As the civilizational and economic conflict between the North and the South, between the rich and the poor, increases, there will be a growing need for both a World Government and for economic democracy. The people of the world will soon be tired of the US operating as the World’s Cop. There will thus be demands for a world authority governing from a higher moral ground than both the UN and, especially, the US is currently operating on. In the words of philosopher Ken Wilber:

” My own belief is that, in the coming century, we will see the present United Nations peacefully replaced by the first move toward a genuine World Federation, driven particularly by threats to the global commons that cannot be handled on a national level (such as terrorism, global monetary and economic policy, and environmental threats to the global commons).”
” This would mean, for example,” writes Wilber, “that America is allowed to despise Iraq (in the privacy of its own…national, cultural space). America is not, however, allowed to attack Iraq.”

What are some of the benefits of a World Federation or World Government? Sarkar suggests four main benefits:

1. The huge expenses of maintaining a militia in each country will be reduced, and these savings can be used to benefit people’s needs.

2. There will be a great reduction in psychological tension.

3. There will be less bloodshed.

4. There will be free movement of people from one corner of the globe to the other.

While Wilber has been primarily preoccupied with blueprinting the cultural and political landscape fostering a more benign world, Sarkar has also mapped its economic aspects. Sarkar believed that political democracy cannot fulfill all “the hopes and aspirations of people or provide the basis for constructing a strong and healthy human society. For this the only solution is to establish economic democracy.”

According to Sarkar, the following guidelines are needed to establish economic democracy:

–The minimum requirements of life must be guaranteed to all. The minimum requirements of a particular age — including food, clothing, housing, education and medical care — should be guaranteed to all.

–Increasing purchasing power must be guaranteed to each and every individual.

–Local people will control economic power, consequently local raw materials will be used to promote the economic prosperity of the local people. This will create industries based on locally available raw materials and ensure full employment for all local people.

–Outsiders must be strictly prevented from interfering in the local economy. The outflow of local capital must be stopped by strictly preventing outsiders or a floating population from participating in any type of economic activity in the local area.”

Paul Hawken, an author whose writings and talks envisions a world of economic democracy, cultural vitality and ecological sustainability, was recently asked by a journalist: “Aren’t you just dreaming?” He replied: “Absolutely I’m dreaming; somebody’s got to dream in America.” Indeed, somebody’s got to dream of a better future, and not just in America, in all countries of the world.

So, in the spirit of Paul Hawken, Ken Wilber and P. R. Sarkar, let us all dream. Let us all dream of a better future for Iraq, and a better future for the world.

After 23 years as a corporate securities attorney-advising large corporations on securities offerings and mergers and acquisitions – I left my position as partner at Skadden, Arps, Slate, Meagher & Flom because I was disturbed by the game. I realized that the many social ills created by corporations stem directly from corporate law. It dawned on me that the law, in its current form, actually inhibits executives and corporations from being socially responsible. So in June 2000 I quit my job and decided to devote the next phase of my life to making people aware of this problem. My goal is to build consensus to change the law so it encourages good corporate citizenship, rather than inhibiting it.

The provision in the law I am talking about is the one that says the purpose of the corporation is simply to make money for shareholders. Every jurisdiction where corporations operate has its own law of corporate governance. But remarkably, the corporate design contained in hundreds of corporate laws throughout the world is nearly identical. That design creates a governing body to manage the corporation-usually a board of directors-and dictates the duties of those directors. In short, the law creates corporate purpose. That purpose is to operate in the interests of shareholders. In Maine, where I live, this duty of directors is in Section 716 of the business corporation act, which reads:

…the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders….

Although the wording of this provision differs from jurisdiction to jurisdiction, its legal effect does not. This provision is the motive behind all corporate actions everywhere in the world. Distilled to its essence, it says that the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders.

Section 716 dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder self-interest). No mention is made of responsibility to the public interest. Section 716 and its counterparts explain two things. First, they explain why corporations find social issues like human rights irrelevant–because they fall outside the corporation’s legal mandate. Second, these provisions explain why executives behave differently than they might as individual citizens, because the law says their only obligation in business is to make money.

This design has the unfortunate side effect of largely eliminating personal responsibility. Because corporate law generally regulates corporations but not executives, it leads executives to become inattentive to justice. They demand their subordinates “make the numbers,” and pay little attention to how they do so. Directors and officers know their jobs, salaries, bonuses, and stock options depend on delivering profits for shareholders.

Companies believe their duty to the public interest consists of complying with the law. Obeying the law is simply a cost. Since it interferes with making money, it must be minimized-using devices like lobbying, legal hairsplitting, and jurisdiction shopping. Directors and officers give little thought to the fact that these activities may damage the public interest.

Lower-level employees know their livelihoods depend upon satisfying superiors’ demands to make money. They have no incentive to offer ideas that would advance the public interest unless they increase profits. Projects that would serve the public interest–but at a financial cost to the corporation–are considered naive.

Corporate law thus casts ethical and social concerns as irrelevant, or as stumbling blocks to the corporation’s fundamental mandate. That’s the effect the law has inside the corporation. Outside the corporation the effect is more devastating. It is the law that leads corporations to actively disregard harm to all interests other than those of shareholders. When toxic chemicals are spilled, forests destroyed, employees left in poverty, or communities devastated through plant shutdowns, corporations view these as unimportant side effects outside their area of concern. But when the company’s stock price dips, that’s a disaster. The reason is that, in our legal framework, a low stock price leaves a company vulnerable to takeover or means the CEO’s job could be at risk.
In the end, the natural result is that corporate bottom line goes up, and the state of the public good goes down. This is called privatizing the gain and externalizing the cost.

This system design helps explain why the war against corporate abuse is being lost, despite decades of effort by thousands of organizations. Until now, tactics used to confront corporations have focused on where and how much companies should be allowed to damage the public interest, rather than eliminating the reason they do it. When public interest groups protest a new power plant, mercury poisoning, or a new big box store, the groups don’t examine the corporations’ motives. They only seek to limit where damage is created (not in our back yard) and how much damage is created (a little less, please).
But the where-and-how-much approach is reactive, not proactive. Even when corporations are defeated in particular battles, they go on the next day, in other ways and other places, to pursue their own private interests at the expense of the public.

I believe the battle against corporate abuse should be conducted in a more holistic way. We must inquire why corporations behave as they do, and look for a way to change these underlying motives. Once we have arrived at a viable systemic solution, we should then dictate the terms of engagement to corporations, not let them dictate terms to us.
We must remember that corporations were invented to serve mankind. Mankind was not invented to serve corporations. Corporations in many ways have the rights of citizens, and those rights should be balanced by obligations to the public.

Many activists cast the fundamental issue as one of “corporate greed,” but that’s off the mark. Corporations are incapable of a human emotion like greed. They are artificial beings created by law. The real question is why corporations behave as if they are greedy. The answer is the design of corporate law.
We can change that design. We can make corporations more responsible to the public good by amending the law that says the pursuit of profit takes precedence over the public interest. I believe this can best be achieved by changing corporate law to make directors personally responsible for harms done.

Let me give you a sense of how director responsibility works in the current system. Under federal securities laws, directors are held personally liable for false and misleading statements made in prospectuses used to sell securities. If a corporate prospectus contains a material falsehood and investors suffer damage as a result, investors can sue each director personally to recover the damage. Believe me, this provision grabs the attention of company directors. They spend hours reviewing drafts of a prospectus to ensure it complies with the law. Similarly, everyone who works on the prospectus knows that directors’ personal wealth is at stake, so they too take great care with accuracy.

That’s an example of how corporate behavior changes when directors are held personally responsible. Everyone in the corporation improves their game to meet the challenge. The law has what we call an in terrorem effect. Since the potential penalties are so severe, directors err on the side of caution. While this has not eliminated securities fraud, it has over the years reduced it to an infinitesimal percentage of the total capital raised.

I propose that corporate law be changed in a similar manner–to make individuals responsible for seeing that the pursuit of profit does not damage the public interest.
To pave the way for such a change, we must challenge the myth that making profits and protecting the public interest are mutually exclusive goals. The same was once said about profits and product quality, before Japanese manufacturers taught us otherwise. If we force companies to respect the public interest while they make money, business people will figure out how to do both.

The specific change I suggest is simple: add 26 words to corporate law and thus create what I call the “Code for Corporate Responsibility.” In Maine, this would mean amending section 716 to add the following clause. Directors and officers would still have a duty to make money for shareholders, … but not at the expense of the environment, human rights, the public safety, the communities in which the corporation operates or the dignity of its employees.

This simple amendment would effect a dramatic change in the underlying mechanism that drives corporate malfeasance. It would make individuals responsible for the damage companies cause to the public interest, and would be enforced much the same way as securities laws are now. Negligent failure to abide by the code would result in the corporation, its directors, and its officers being liable for the full amount of the damage they cause. In addition to civil liability, the attorney general would have the right to criminally prosecute intentional acts. Injunctive relief-which stops specific behaviors while the legal process proceeds-would also be available.

Compliance would be in the self-interest of both individuals and the company. No one wants to see personal assets subject to a lawsuit. Such a prospect would surely temper corporate managers’ willingness to make money at the expense of the public interest. Similarly, investors tend to shy away from companies with contingent liabilities, so companies that severely or repeatedly violate the Code for Corporate Responsibility might see their stock price fall or their access to capital dry up.

Many would say such a code could never be enacted. But they’re mistaken. I take heart from a 2000 Business Week/Harris Poll that asked Americans which of the following two propositions they support more strongly:

Corporations should have only one purpose–to make the most profit for their shareholders–and pursuit of that goal will be best for America in the long run.

–or–

Corporations should have more than one purpose. They also owe something to their workers and the communities in which they operate, and they should sometimes sacrifice some profit for the sake of making things better for their workers and communities.

An overwhelming 95 percent of Americans chose the second proposition. Clearly, this finding tells us that our fate is not sealed. When 95 percent of the public supports a proposition, enacting that proposition into law should not be impossible.

If business people resist the notion of legal change, we can remind them that corporations exist only because laws allow them to exist. Without these laws, owners would be fully responsible for debts incurred and damages caused by their businesses. Because the public creates the law, corporations owe their existence as much to the public as they do to shareholders. They should have obligations to both. It simply makes no sense that society’s most powerful citizens have no concern for the public good.

It also makes no sense to endlessly chase after individual instances of corporate wrongdoing, when that wrongdoing is a natural result of the system design. Corporations abuse the public interest because the law tells them their only legal duty is to maximize profits for shareholders. Until we change the law of corporate governance, the problem of corporate abuse can never fully be solved.

Robert Hinkley rchinkley@media2.hypernet.com , formerly a partner at the law firm of Skadden, Arps, Slate, Meagher & Flom , now lives in Brooklin, Maine and is working to promote the Code. A Minnesota grassroots group has formed to work on the code (see www.C4CR.org Other information on the Code can be found at www.CitizenWorks.org Reprinted with permission from Business Ethics www.business-ethics.com