“Livid Democrats”, the New York Times reported earlier this week, moved to reclaim some $165 million in bonuses given by AIG to its executives after successive injection of federal bailout funds to the ailing giant insurance firm. David Korten, author of the newly published book, Agenda for a New Economy, writes a stinging indictment against Wall Street as he advocates its elimination:
“Efforts to fix Wall Street miss an important point. It can’t be fixed. It is corrupt beyond repair, and we cannot afford it. Moreover, because the essential functions it does perform are served better in less costly ways, we do not need it.” Then, in a tone that resonates with “livid Democrats” and others who are outraged by the continuing insensitivity of the likes of AIG’s senior management team, he continues:
“Wall Street’s only business purpose is to enrich its own major players, a bunch of buccaneers and privateers…who walk away with their fees, commissions and bonus packages and leave it to others to pick up the costs of federal bailouts.” He adds: “Even more damaging than the economic costs are the spiritual and psychological costs of a Wall Street culture that celebrates greed, favors the emotionally and morally challenged with outsized compensation packages, and denies the human capacity for cooperation and sharing.”
If Dr. Korten’s comments read like today’s editorials and opinion columns, it is because his book is fresh from the printing presses. His book-writing project began on the night of November 24, 2008 with an objective to launch on January 23, 2009 or just after President Barack Obama’s inauguration. The book launching was timed to coincide with his delivery of a keynote address at a national theological conference sponsored by the Trinity Church that is located right in the heart of Wall Street.
David Korten, who earned both his MBA and PhD degrees from Stanford University, taught for more than five years at Harvard and served as Harvard’s adviser to the Central American Management Institute in Nicaragua. He then left US academia in the late seventies and moved to Southeast Asia where he lived for nearly 15 years, doing a stint with the Ford Foundation and serving as Asia regional adviser on development manager for the US Agency for International Development (USAID). Eventually he “broke with the official aid system”, casting his lot with Asian non-governmental organizations (NGOs) and concentrating on capacity building for civil society organizations. He spent considerable time in the Philippines and Manila.
In the course of being a development manager in this part of the world, Dr. Korten realized that “the United States was actively promoting --- both at home and abroad --- the very policies that were deepening the crisis” and that “if there were to be a positive human future, the United States must change.”
Wall Street is not just the location of the New York Stock Exchange that is the virtual epicenter of global capitalism. Dr. Korten uses the term to refer to “the institutions of big finance and the captive corporations that serve them.” He describes Wall Street’s modus operandi:
“It has perfected the arts of financial speculation, corporate asset stripping, predatory lending, risk shifting, leveraging, and creating debt pyramids. Maximizing financial return is the name of the game. Successful players are rewarded with celebrity, extravagant perks and vast financial fortunes.”
Main Street is the counterpoint to Wall Street. He describes it as “the world of local businesses and working people engaged in producing real goods and services to provide a livelihood for themselves, their families, and communities…Achieving a positive financial return is an essential condition for staying in business, but most Main Street businesses function within a framework of community values and interests that moderate the drive for profit.”
Dr. Korten points out the essential difference: Wall Street produces “phantom wealth”; Main Street creates “real wealth.”
He traces Wall Street’s obsession with phantom wealth to the Edmunds fallacy, named after John Edmunds, a finance professor at Babson College and the Arthur D. Little School of Management. Dr. Edmunds wrote about “Securities: The New Wealth Machine” in Foreign Policy, a respected professional journal, where he extolled the virtues of “securitization --- the issuance of high-quality bonds and stocks” that has become “the most powerful engine of wealth creation in world’s economy.” From a slow, incremental process, wealth accumulation accelerated to the extent that (as of 1997 when he wrote the article), the total value of financial securities had ballooned to more than a year’s worldwide output of goods and services.
This preference for securities became a fascination --- and eventually an obsession --- not just among investment bankers and securities traders but also among finance ministers of leaders of countries. Dr. Edmunds wrote: “The new approach requires that a state find ways to increase the market value of the stock of productive assets…An economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective.”
The denizens of phantom wealth began jacking up the value of securities through hype, bluff and bluster, creating the internet or dot-com bubble in the 1990s and the real estate bubble of the 2000s. Meantime, the outsourcing of jobs to low-wage economies in order to reduce costs and further increase stock prices decimated production of real goods, further thinning America’s industrial base.
The Federal Reserve, Dr. Korten points out, “allied with the U.S. Treasury Department and Wall Street banks to give the creation of phantom wealth priority over the creation of real wealth.” This is what gave impetus to the subprime mortgage boom that was built on overvalued assets and deceptively rated as “triple A”. He laments “Federal bailouts to save overleveraged financial institutions when the bubble bursts represents another resource allocation distortion.”
Dr. Korten’s agenda for a new economy spells out six criteria of economic health. He envisions a new economy that would: a) “provide everyone with the opportunity for a healthy, dignified and fulfilling life; b) bring human consumption into balance with Earth’s natural systems; c) nurture relationships within strong, caring communities; d) honor sound, rule-based market principles; e) support an equitable and socially-efficient allocation of resources; and f) fulfill the democratic ideal of one-person, one-vote citizen sovereignty.”
Such new economy requires the elimination of Wall Street, the rejection of all forms of phantom wealth, and upholding the primacy of Main Street where real wealth is created by communities of people who care for their earth, for each other, and for the long-term well being of humanity.
