What's different about the New Economy?

While there is no one definition for the “new economy”, most folks working in this field would probably agree on a few basic elements that distinguish this economic approach from the current dominant economic model.  I’ve attempted to summarize those below.

Six Elements of Emerging New Economies, Contrasted with the Dominant Economy

1) New economies are more just, work better for people.

The dominant economy has used tax, trade and patent policy to greatly favor huge corporations and the very wealthy over small businesses and working people, leading to extreme levels of wealth concentration at the top alongside stagnant wages for working and middle class people, and growing poverty.  The very wealthy pay lower taxes on much of their income than do teachers and truck drivers; giant corporations pay an effective tax rate that is 6 – 8% less than what small businesses pay.  Trade policy grants corporations the right to sue nations, states and communities over health and environmental protections. You can’t make this stuff up.

In the new economy, small businesses and family farms create more jobs per dollar of sales; by purchasing from other local businesses, they create ‘economic multipliers’ that add much more value to the local economy than do chains and big boxes.  New corporate forms, such as the Benefit Corporation, which commits a business to positive social and environmental outcomes as well as financial profit, are also emerging in the new economy, with over 1000 nationwide.  Some localities have begun to use Community Benefit Agreements to hold big corporations legally accountable for the promises they make.  These and many other creative measures ensure that economies work for people, not the other way around.

2) New economies are more diverse, less dependent on outside corporations, foreign markets.

The dominant economy rests on two core assumptions:  that prosperity requires endless growth, and that jobs and income for the many ‘trickle down’ from the top, so long as taxes on this group are low.  In actuality, the record of the past 60 years demonstrates unequivocally that lower taxes on the wealthiest and on the biggest companies have not made for a bigger economic pie; and economic wealth, rather than trickling down has been sucked up from working people, community banks and small businesses.  There are many reasons for this, but one of them is the subsidies we provide to big boxes and big business, averaging over $100 billion per year.  The results?  Several studies have shown how communities with a diverse array of local businesses are stronger economically and socially, with better incomes, higher employment, and lower rates of poverty, incarceration, health problems and substandard housing, than those dependent upon a few big employers.

In the new economy, small to mid-size businesses take hold that build on the assets of their place, including music, art and culture, farms, forests and fisheries, the outdoors, historic downtowns and more.  Local business associations, like the Business Alliance for Local Living Economies (BALLE) help strengthen these local enterprises and increase the connections between consumers and producers.  Instead of spending millions of dollars to entice a big box chain, resources are redirected to homegrown businesses and entrepreneurs, making for more resilient economies and communities.

3) New economies build broadly-based prosperity, real wealth from the bottom up.

The five biggest Wall Street financial institutions own more than twice the capital of all the community banks in the nation combined.  Yet these mega banks direct very little of their resources towards local prosperity:  The community banks, with just half the assets, provide more than twice as much lending to local businesses.  Big banks, especially since the overturning of the Glass-Stegall Act, concentrate on generating high returns for the biggest, wealthiest investors, often through the use of derivatives and other means that don’t produce tangible wealth.

In the new economy, capital is refocused towards small to mid-sized businesses, towards infrastructure that enables farmers and entrepreneurs to add value to their products, and towards technologies and businesses that meet real needs, such as affordable, green housing, renovated buildings and revitalized downtown business districts, and regenerative farm and food enterprises.  Cooperatives, Employee Stock Ownership options, community land trusts and community-owned energy systems are among the means used to broaden prosperity, while increasing the productivity of businesses.

4) New economies fit within the ecosystem, recognizing limits rather than depending upon endless growth.

The dominant economy both depends upon endless growth and assumes that it is possible forever into the future.  Yet serious limits confront us, from enormous declines in groundwater reserves, to an 80% reduction in productive land per capita, worldwide.  And of course, there’s climate change and the consequences of too much carbon in our atmosphere – drought, floods and severe weather, sea level rise and more.  In spite of these increasingly serious problems, the dominant economy fights all environmental regulation and assumes that technology and ‘the market’ will fix things.

In the new economy, our places, our ecosystems are understood to have limits, but also to present new and better ways of meeting needs and creating work.  From organic farms and restorative fishery systems to super energy efficient building systems and solar and wind power companies, the new economy is spawning products and services that meet people’s needs with far less impact on the environment.  Complementing that is a growing emphasis on urban and community design that makes our towns and cities more walkable, more bike-able and more enjoyable.

5) New economies focus more on meeting real needs, fostering innovation in the process.

The dominant economy has been enormously productive and has made countless products much more affordable for ordinary folks, from cars to computers.  However over the last thirty years or so, it has also become increasingly dependent upon what is called financialization, that is a focus on money and monetary products as a central part of the economy and the policy guiding it.  This has led to what David Korten calls “phantom wealth”, where trillions of dollars of ‘assets’ are traded on Wall Street, making a small group of people spectacularly rich, while real assets – bridges, roads, high speed rail, rural health clinics, waterways and agricultural lands – are neglected and fall into decline.

In the new economy, there is a strong focus on addressing real needs and doing so in a way that helps people and communities to become more self-reliant.

Business incubators and accelerators help local firms be more competitive, more innovative.  Poor communities, from Detroit and Buffalo to Appalachia and the Southeast launch community gardens, urban farms, and ‘green development zones’.  New techniques and systems enable farms to simultaneously increase their productivity while pulling excess carbon from the atmosphere. Businesses put people to work in reclamation of disturbed land, urban brownfields and energy efficient housing.  Lower income people gain access to healthier foods through mobile markets and farmers market EBT initiatives.  In the new economy, the driving question shifts from “Where are the jobs?” to “What work needs to be done?”

6) New economies cultivate citizens, not just consumers.

The dominant economy is now a consumer economy, fundamentally dependent upon more and more people buying more and more stuff.  At the same time, the belief in private, market-based solutions to a whole host of societal problems – from prisons to public schools – has become increasingly commonplace.  Alongside both of these developments is the reality of widespread cynicism, even disgust with politics and government.  Taken together, these trends have convinced many people to give up on civic, political or even neighborhood engagement, believing that their opportunities as well as their responsibilities play out almost entirely as consumers.  

The new economy welcomes the creative force of the marketplace and encourages people to use their dollars to support businesses that reflect their values.  But it recognizes that this is not enough; that in order to have an economy that works well for all people, and that is sustainable into the lives of our grandchildren and beyond, we also need a vibrant democracy and honest public debate.  Many new economies are therefore emerging alongside community based media, arts and theater that give voice to folks from all walks of life.  The revival of public squares, parks and community centers has facilitated both new commerce and broader public participation.  The work of Policy Link and other organizations is helping to find ways to revitalize communities economically without falling into the trap of gentrification and even greater racial segregation.

*Originally published at BottomUpEconomy.org

Is there an Alternative to Trickle Down Economics?

There are at least four key components of what I’m calling a “bottom up economy”:   Focusing on the assets and strengths of your community; developing infrastructure to support and build upon these assets; fostering local ownership of businesses and capital; and building entrepreneurial networks that increase the competitiveness and impact of local businesses.    Before we examine how public policy can help communities develop each of these elements of a bottom up economy, it is fair to ask, “Why bother?  What is wrong with traditional, top down economic strategies?”

Most of our economic policy and practices over the past thirty years have been top down, or “trickle down” in nature, based upon this belief:  If we free up a small group of job creators at the top – wealthy investors and large corporations – they will create wealth which will trickle down to the rest of us.  This has been the driver of our economic, fiscal and labor policy since Ronald Reagan was president.  Trickle down economics did create wealth, but there were two problems with it:  First, much of it has been based upon financial speculation, rather than real wealth.  As stock market “bubbles” and so-called derivatives both demonstrate, Wall Street can create a lot of “wealth” that has little real value or base of productive assets.   We’re talking here about the difference between the house that someone owns – a tangible asset – and the value of the debt on their home, repackaged with the debt and risk of thousands of other aspiring home owners as a tradeable commodity, known as a derivative.  One is real, providing shelter, warmth, pleasure (usually…).  The other exists purely in the mind and can rise or fall in value dramatically, overnight.  And that is exactly what happened to trillions of dollars of Wall Street “wealth” in 2007 and 2008.

The other fundamental problem with trickle down economics is that the promised prosperity never trickled down.  In fact, it has been quite the opposite, as income and wealth have moved up, not down, from working folks and the middle class to the rich.  From the end of World War II until the mid 1970’s, the benefits of economic growth were widely distributed, with Americans in the bottom and middle of the economic spectrum seeing more gains than those at the top.  However from 1980 on, we’ve seen those gains stagnate or decline, as the vast majority of new income and wealth has gone to people at the very top.  Rather than widely shared prosperity, we’ve become the most unequal country of all the advanced nations of the world.  The most unequal.

The problem with this inequality, this concentration of wealth goes beyond the question of fairness or justice.  In fact it is quite costly to our nation, as Joseph Stigletz (The Price of Inequality, WW Norton, 2012) and Richard Wilkinson (The Spirit Level:  Why Greater Equality Makes Societies Stronger, Bloomsbury Press, 2010)point out in separate books.  Stigletz demonstrates that economic inequality leads to lower overall economic output and less productivity, not more.  Wilkinson looks at a host of quality of life indicators, including life expectancy, obesity and health, educational attainment, teen pregnancy, substance abuse, crime rates and others.  He finds that the more unequal the society, the worse they do in nearly every one of these areas.   This mirrors a study, done by Thomas Lyson of Cornell University, of 200 rural counties across the country which found that those with one or two large companies dominating their economy were worse off in terms of health, economic and social indicators than the counties with a broad base of small to mid-sized businesses.

Every one of these problems is costly, both in terms of taxpayer dollars and the well- being of people.  Trickle down economic strategies haven’t solved these problems; they have made them worse.  It is time for fresh thinking about how to create jobs, to broaden the base of wealth, to lift people out of poverty and to increase the resilience of households and communities.  Fresh thinking based on successful, real world examples emerging across this nation.

What Bad Trade Policy Looks Like

Our so-called “free trade” policies are, quite simply, not about freeing up trade among people and businesses across national boundaries.   Instead, they are about freeing transnational corporations to increase their reach and profitability, and to reduce any risk that large companies and investors might face.  This is particularly true of the Trans Pacific Partnership (TPP) and the Trans Atlantic Trade and Investment Partnership (TTIP), both of which have now entered the final stages of negotiation.    Based on this, I’ve summarized in several categories below why I believe the TPP to be a very bad proposal.  Some of these issues relate to specific provisions in this proposal (as best as we can know, given the secrecy), while others pertain to the results of other trade deals, results which are likely to be repeated and exacerbated, given the extraordinarily overwhelming influence of major multi-national corporations in the current negotiations.

Deficits

• In 1993, before the signing of NAFTA, the US trade deficit with Canada and Mexico totaled $27 billion. By 2012, our deficit with these NAFTA partners had increased almost seven-fold to $181 billion.
• More recently, we signed a trade agreement with South Korea, called KORUS, an agreement said to be one of the models on which the TPP agreement is being based. In just two years, our trade deficit with South Korea has grown by $8.7 billion while our exports to them have fallen by $3 billion.

Jobs

• In the 2 years since implementation of KORUS, Robert Scott (Economic Policy Institute) estimates that 60,000 US jobs, mostly in manufacturing, have been lost due to the increased trade deficit and reduced US exports.
• Between 2001 and 2011, EPI estimates that 3.3 million US jobs were lost as a result of ballooning trade deficits with China, whereas only 1/6 of that number, 538,000 new jobs were created. Six times as many jobs lost as new jobs created.
• David Autor, in a paper in the American Economic Review, estimated that between 1990 and 2007, growing imports from China (and rising trade deficits) accounted for fully ¼ of all manufacturing jobs lost in the US, as well as lowering wage rates.

Wages

• Between 2009 and 2012, of US workers who lost their jobs due to offshoring of manufacturing but who found new jobs, two thirds had to take a pay cut, most at 20% or lower wages. Of course, hundreds of thousands of displaced workers have not found new employment.
• Nine of the eleven nations in the TPP have significantly lower average wages than the US, making further downward pressure on American wages highly likely.

Currency manipulation

• Even though many members of Congress have asked the US Trade Representative to make currency manipulation a key part of the TPP negotiations, and even though he has acknowledged that it is critical reason why US exports lag in relation to imports, as recently as April of this year he was still telling members of Congress that they have not included it even in the discussions taking place.

Patent Law

• Patent Law, which already favors big, “incumbent” companies over smaller businesses and individual inventors and entrepreneurs, is likely to further extend both the scope and duration of patentsfor major multi-national corporations through the TPP.   This is true in terms of pharmaceuticals, internet and information companies, and others.  This has at least three negative impacts:
  • First, inventors, innovators and entrepreneurs, who generate 16 times as many new patent innovations than do large corporations (per dollar of revenue) will now face more legal and bureaucratic hurdles as a result of these trade deals;
  • Second, much of what now continues to be in the “public sphere” – particularly in the realm of creativity, the arts and the exchange of ideas across the internet – will likely face pressures of privatization and control by large providers;
  • Third, pharmaceutical companies will make critical, sometimes life-saving drugs, much less available and affordable, by maintaining patents for longer periods, precluding the availability of lower cost “generics”. This will almost surely cost lives, probably tens of thousands of lives.  If you think that the big drug companies must do this to cover the high cost of research and development, consider that they spend more on promotion and marketing than they do on R & D, and that they are already among the most profitable companies in the world.

Secret Negotiations

• The intense public secrecy and the extreme restrictions even on elected officials in being able to view the proposals is absurd, unjustifiable and really, quite an offense to citizens and the public interest. Even the Bush administration, for goodness sake, provided more information on pending trade deals.  President Obama, to my knowledge, has never explained the need for such secrecy and for the great access granted to corporate representatives in the negotiations.

Investor State Dispute Settlement agreement – ISDS

• Existing ISDS agreements in NAFTA, the WTO and other trade agreements is already very bad, but the TPP’s setting up of “independent” panels, to whom only corporations and investors can bring a claim (not citizens, unions, or local/state governments) makes a very unfair system far worse. The use of ISDS by corporations to bring suit against communities has grown dramatically over the last ten years, now averaging about 60 such suits annually.  Here’s a very short sampling of some of those suits:
  • Phillip Morris has brought suit against both Australia and Uruguay for their efforts to reduce smoking, especially among young people, through stronger mandatory health warnings and smoker cessation campaigns.

    The Renco Group filed an $800 million suit against Peru for closing the company’s Zinc smelter, which they had refused to adequately clean up. Even though the WHO found that 99% of children living nearby had lead levels 3x greater than safe levels, and eventhough Time Magazine cited the community, LaOroya as one of the “world’s most polluted places”, Uruguay was forced to reopen the smelter as a result of the lawsuit.

  • After Ontario adopted its “Green Energy and Green Economy” plan in 2009, the growth of businesses, jobs and revenues in renewable energy grew dramatically in the province. In part this was due to the law’s requirement that a minimum of 40% of materials in the solar industry be sourced from within the province.  That generated a great deal of investment in solar manufacturing, including a state-of-the-art Italian facility, Silfab, to produce super efficient PV panels.  Japan and the EU brought suit, investment dried up, and the Silfab company and others are stuck in limbo, unlikely to ever open.

I think that all of these examples, and countless more, point to the fact that what we’ve been pursuing through these treaties is not “free trade” but “corporate trade”.  When corporations are invited into all of the negotiations, for several years running, but the US public is kept completely in the dark, and our elected representatives have only very limited access to see portions of the proposed agreement, what else can we call it?  When the US has steadily shed jobs, especially better paying jobs by the millions, while its trade deficit has grown, how is this good for workers, our communities, our nation?  When major multi-nationals are able to sue governments for working to protect their citizens from deadly pollutants, for discouraging smoking, or for building a home-grown, job-creating solar industry, how does this square in any way with the well-being of people, or with the development of more resilient, healthy and bottom up economies?  Cleary it does not.

It is time to take a stand against the TPP and the TTIP.  Beyond that, it is time for a completely new approach to international trade agreements, an approach that puts people, their communities and their environment at the top of the agenda, not ever-increasing corporate profits and ever-expanding corporate control.  Trade could be about the fertile exchange of ideas and innovations across borders, about filling the critical gaps in what a nation needs, and that other countries can produce better.  Current trade policy has nothing to do with these goals.  It must change, dramatically.

*Originally published at BottomUpEconomy.org