Dear Orio, Garry, Bernard and Matko,
Prompted by several discussions with Orio as well as by the statement from UNDP that "people are the true wealth of nations" I wrote to Orio on Dec 15 suggesting a crazy idea: that we get involved in discussing the contemporary wealth of nations. You are all economists: Orio worked and works in various segments of economy including risk management and now is publishing a pivotal journal on new European welfare particularly addressing what we like to call svecchiamento, ie the fact that we have an increasing number of persons over 65, that life expectancy increases 2-3 months per year, that China's population will soon start to decrease (China and India have a women deficit in tens of millions) - yet people of 80 now are as young as those of 50 half a century ago; Bernard is a world expert on money and played an important role in euro (money is a very useful technology, but did it go out of our control?), Garry was the key person in India's strategy of full employment (currently European countries have employment at about 50-60%, EU's goal is 75%) and Garry leads strategic planning of our WAAS, Matko is the CEO of the leading pharmaceutical factory in Croatia - PLIVA, and I am the only outsider - a physicist. Orio and Garry made recently considerably progress (I was in the email communication with them but made no contribution except suggesting a "crazy idea" - anyway I intend to be more useful from now on.)
Though we are all fellows of WAAS and we now have a WAAS open approach to many projects within WAAS, I suggest that this one we keep within a limited range - ie just five of us. I see my role very modestly: to ask stupid questions and here are some of them:
1) does economics need a scientific revolution (as it was in physics at the beginning of the 20th century, and possibly needed today - when we realize that all the time we discussed only 4% of the universe - the rest being 23% Dark matter and 73% Dark energy - or maybe all is wrong - more precisely partly wrong!). JP Bouchard wrote an article Economics needs scientific revolution arXiv:0810.5306v1 and then (Unfortunate complexity of the economics arXiv:0904.0805v1 and there are many more.
2) presently we have economic and ecological crisis combined. Nobel laureate F. Soddy wrote in 1920-ties on ecological economy (NYT April 12, 2009). Biology is the basis of human beings. Orio brilliantly pointed out that A. Smith and other great economists until today did think and contribute in a specific historical time, and today we live in a new era. As Alex King said we are undergoing first true global revolution - more profound that any previous.
3) it is often said that this is also a moral crisis. I remember when I first became professor at UCLA the expenses for the UC system were larger than for the penitentiary system, now it is quite the opposite. Crime is terrible (see book of M. Glenny McMafia). It is impossible that people deteriorated so fast - the system is out of joint (to use a Shakespearean phrase). Do we need to change the system? Which components? How about the impossible relation between the real and the virtual. Money has to be in service of humankind, it is not. Similarly, the laws are supposed to help people, are they - particularly laws regulating economics?
I believe our goal should be to produce a draft of the Contemporary wealth of nations (in his From Newtonian economics to full employment Garry lucidly points out that the aim of economics is at least to provide viable means for everybody to acquire at least the minimum level of purchasing power. If it does not, that we need a new theory. Again, experience from physics: Einsteins Theory of Relativity and quantum physics do not completely negate classical physics - they include it as a special sub-case with limited validity, and possibly new economics should include our present economic knowledge and behaviour as a special case valid in some cases, but for the time when we have reached 1.27 ecological footprint, when we have WMD and any war and violence is potentially catastrophic.) This Draft could be our Report to the WAAS and to the Club of Rome and hopefully to the community at large. Maybe it is too much?
Cordially ivo
PS I suggest that Garry forwards all the previous email correspondence between himself, Orio and myself to Bernard and to Matko to bring them up to speed. Of course, the above is just my modest outline, all your suggestions of different approaches and different goals are more than welcome. I see ourselves as a group o dedicated persons trying to understand a crucial problem and trying to find some improvements (solutions are too much to ask for).
Papers and earlier correspondence
Dear All
My thanks again to both Ivo and Orio for proposing this important initiative, which I fully endorse and wish to support. As Ivo suggested, I am appending below the entire correspondence beginning with Ivo’s message to Orio on December 15 and including two papers which I prepared in response. I look forward to working with you on this project.
Best regards
Garry
More papers
Friends,
Further to my mail of yesterday, I realized this morning that my earlier message omitted two key documents provided by Orio during our exchange of views on the need for new economic theory.
The first is a report by Orio and Patrick Liedtke to the Club of Rome which clearly sets forth the need for new theory regarding employment. This attachment should be read along with Orio’s message of Jan 6th (appended below) submitted with reference to the Academy’s project on Global Employment Challenge.
The second attachment is a report by Orio on the Service Economy which elaborates on many of the key points briefly mentioned in his messages regarding the need for new economic theory. This document was attached to Orio’s other message dated January 6 addressed to Jeff, Jose, Ivo and myself.
I believe the record of our interactions is now complete.
Best regards
Garry
Need for A New Economics -- Bernard
Dear Ivo, Orio, Garry, and Matko,
Thank you for this idea of exploring the need for a "new economy", an idea which I enthusiastically support.
As an appetizer for these conversations, I am attaching here some documents which may be useful in this context.
One is a paper that I just completed for the Journal of Future Studies for their special issue on the Financial Crisis (coming out in February-March 2010).
It focuses on the issue of rethinking our media of exchange.
Ivo may want to have a look at the mathematical backing of this approach, something which I am attaching for his specific perusal ( Ecological Complexity).
The final document is a chapter extracted from a new book about "Intentional Economics" due for publication in 2010, and which distinguishes among 10 forms of capital.
I believe that both a broader concept of assets and of media of exchange would be two relevant pieces of the puzzle for a "new economy".
Cordially,
Bernard
www.lietaer.com
PS: I will be seeing our mutual friend Gunter Pauli next Wednesday as he comes through Brussels...
Response to Bernard
Dear Bernard, dear all,
Excellent! Thanks a lot. I will caredully read all you sent us.
Currently I am in the USA, and on Feb 21 I will come to Brussels for two weeks. I am one of EU evaluators, but I have weekend free and I hope we could meet. cordially ivo
Need for a New Economics -- Matko
Dear Ivo, Orio, Garry, and Bernard,
Thank you for keeping me in this conversation which is extremely interesting and I definitely think that financial crises are avoidable and am very enthusiastic about you project which I strongly support.
By leading PLIVA I can tell that a purposeful, goal-oriented rethinking on economics is something we need, and by us I think the whole society and I'm here to be at your help.
Last year was very turbulent for PLIVA due to organizational changes we had to go through with our new owner, and we had to lay off about one third of our employees in order to remain competitive.
As part of our severance packages, we took care of all employees that unfortunately had to be laid off with many different types of support such as outplacement services, orientation trainings, and different educational possibilities for raising their employability.
Even though, general view is that we had a good strategy and did a very good job, as most of our employees did find new jobs in short period of time, I think this is something that needs to be avoided, or at least jobs need to be available for all in other areas.
Somehow, as few of you mentioned it is important to create possible means for all to obtain at least the minimum level of purchasing power.
I've been thinking of many different ways on how to improve Croatian economy. As we find ourselves in extremely difficult times (80 percent of expenses of Croatian national budget are fixed) we need to think of a better society with satisfied individuals and start from the scratch if necessary.
I believe that leading scientists as well as people leading businesses should join their ideas and together with governments work on projects which would be of interest to society as only in this way we will have much brighter future in front of us. We all have to find ourselves on the same page and realize how brighter future for every individual means brighter future for all. We have to raise the economy, find employment for all and raise the purchasing power, but also have people realize this is something they need, in order to have such society in the long run.
So, when you ask is there a need of new economy, I can say that from my experience the time is right and it's on all of us to raise consciousness of others in order to make people realize how the time for a shift in perception has just arrived.
Kind regards,
Matko
Ecological Complexity
Dear Bernard, dear Garry, dear Orio and dear Matko,
I read all three articles you sent us, Bernard, and here are my comments:
1. let me start with the article published in Ecological Complexity. It is an excellent work that applies Boltzmann's concept of entropy extended by C.E. Shannon's work and the article provides the theoretical basis for the paper to be published in J.Future Studies. I found one minor misprint in eqn (3) where H should not multiply the sum etc, but H = sum etc. The essentila issue are eqns (8) and (14) that are implicitly used in the paper in J.FutStudies.
2. I absolutely fully share your view that biology is our best chance to understand socio-economic systems. Physics is much too simple, and if one ignores biology and remains entire within socio-econ system one might miss seeing the true roots, which of course are in biology. (On a personal note, when I was in the parliament I was asked whether I lack legal knowledge, and I replied that I lack better knowledge in biology. If I am not mistaken Matko original training was as MD).
I fully agree that present economic system displays underlying structural problems, ie it is system that needs improvement and human nature CANNOT be quickly changed. (Human nature also changes but slower) It is true that science investigates primarily what is apparent, however, we should not forget "zero" and quantum physics. Actually, a lot of what is in this article as well as in one in Ecol Compl is in quantum physics "potentiality". I think one philosopher quoted that the absence of something is something, which is the basis of your H = X + psi,l which is consequently the basis for resilience, adaptive resilience - and I fully support that. This is brilliant!
Networks are essencial features of socio system. Manuel Castels, and I believe he is also our fellow, published several books on that. I fully agree that complex systems have their window of viability and this is how biology works.
However, is the present economic system and for that matter our contemporary world analogous with existing (or extinct) biosystems? Namely, present conditions are strong interdependence and rapid changes and I am not sure that any ecological systems that we studied enough had been under such strenous conditions? Now I should come to Application to Financial Systems but since I have a meeting I will continue writing this email tomorrow, since it is too complicated to write it from my blackberry,cordially ivo
Further responses to Bernard's papers
Dear friends,
this is the continuation of my email of yesterday.
1. I agree that the system needs diversity to be flexible, adaptible and resilient. However, the current trend is different, eg EU imposes acquies com - what is your opinion Bernard on that. Of course, most EU countries have euros. In his paper at our GA in Hyderabad Garry is agruing in favor of world money, and this is the opinion of some economic Nobel laureates also. Is this in contradiction with your statement? Is for diversity actually more important to have something quite different from "our usual money" like complementary currency and tradeable quota?
2. I am very impressed with TEQ. Can TEQ be generalized and introduced to decrease hopefully eliminate speculations, now at the level of 95%. Could TQ somehow be introduced to require more knowledge and more creativity in the overall system, or could TQ be introduced to achieve disarmament? The idea of TQ seems to me to be a rather powerful one, with the problem of needing something like World Bank to "enforce" it. Or do I totally misunderstand?
3. Could you forward to me your article Goerner et al, EE (2009) pages 76-81.
4. Your chapter Creating New Capital is very interesting and useful to me. You address what our goal is: the capacity of the community to creat real wealth and well-being and capital as an asset available for use in the production of other assets. I am curious why you did not explicitly listed science capital. Do you consider it under 3. Techno capiotal or under 6 Human capital. You emphasize the aspect of "flow" and money represents excellent "flow" - it reminds me of the carriers of forces in physics: light quanta, gluons etc.
Cordially,
ivo
Chaos, conflict, competition, multidimensional thinking
Dear Ivo, Bernard, Garry and Orio,
By reading your emails, I came upon few thoughts which I wanted to share with you.
I hope that you all agree with me that chaos theory covers all aspects of science, and it can be seen everywhere in the world from mathematics, physics, biology, finance to art and music.
Today's world which is sort of focusing on western philosophy and capitalist economy is actually based on contrasts and conflicts; ie, conflicts between rival companies, old and young generations, employed and unemployed citizens, restrictive and expansionary fiscal policy, and we can go on and on, but to start with, we keep finding ourselves in making decisions between conflicting goals in everyday life.
The true roots of this can be found in biology; I liked Ivo's comment on this and share your views. The living world around us is full of conflicts, but I believe that from such world we need to learn that new values and new evolutionary processes are being created through such states.
Other thought that came up to me is that solving global economic issues should definitely be in the focus of our interests, especially during difficult times and financial crisis. Even though we are aware that economic cycles are appearing regularly it is very difficult to calmly look at cyclic changeovers when there are many people in our environment who are socially handicapped.
As Keynes argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and advocates active policy responses by the government to stabilize output over the business cycle, I am thinking that as such, economics as a science admits that needs help from sociology and many times from psychology as well.
Even though we live in a multinational global world, our decisions are mostly based (and influenced) on our relationship with few individuals.
I believe that history should help here a lot; the success of the Roman Empire was based on very well thought through governance. And here I'm looking only at the good models, so please don't get me wrong. It's amazing to see how this Empire held together such diverse landscape for so long. The answers are many, but by conquering new colonies, Roman rulers developed very good relations with local leaders and in this way insured and secured satisfaction of citizens of far away colony which also at the same time felt strongly associated and obedient to Rome. In such way we can look into the benefits of local government restrained by imperial control and the development of a sophisticated Roman law which still lies beneath our legal system. Romans have pointed to the benefits of the central bureaucracy and made first basics of the economies of scale and developed trade.
These are just some of my thoughts as I stated and they may look sort of confusing, but my opinion is that we should take a deep look into many different aspects, we need multidimensional thinking, and people who are well educated and are able not only to talk about hope which cannot be realized, we need people who are able to make the better society real, or at least to set the fundamentals and show the better way.
Best regards,
Matko
Reply to Matko
Dear Matko
You have raised a number of thought-provoking points in your email that should to be examined at length during our discussions.
Your comment that economics needs to take into account the perspectives of sociology and psychology suggests we need to develop a deeper perspective on human processes that can serve as a foundation for a synthesis of the social sciences.
You observe the predominance of conflict in Western thought and economics, yet note that human relationships are the basis for our most important decisions. Our way of thinking emphasizes the competitive nature of economics, yet if we examine the history and evolution of society, it seems evident that evolution is in the direction of increasing cooperation over wider and wider geographic areas. Today even competing companies cooperate in many ways, e.g. the adoption of common ISO standards or product standards to name only one. It is worthwhile examining the actual role of competition and cooperation in economic relations as well as their evolutionary direction.
It was interesting to note your reference to the Roman Empire. Much can be learned by examining the stages in humanity's historical process. I note elsewhere that Rome eventually failed because it did not discover the method of deficit financing which 1000 years later served as the basis for emergence of nations states.
As you say, multi-dimensional thinking is central to the task before us.
Best regards
Garry
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