Dear Orio, Bernard, Ivo, and Matko
 
I read David Korten’s presentation to the Club of Rome EU with great interest and find a remarkable convergence of views. Korten’s ideas and prescriptions are bold, far-sighted, and idealistic. They are rightly based on human-values rather than impersonal mechanisms. His paper provides a good opportunity for us to identify some of the issues we would like to explore under our NET (New Economic Theory) project. I note that Korten too belongs to a working group on new economics with which we may want to interact at a later stage. Before jumping to answers, our first objective should be to clearly formulate the questions to be answered by NET. I note below some of the questions raised by his paper which I believe should be examined in our project.
 
1.        Call for a New Vision:  Korten calls for a new economic vision that transcends neo-liberal free market economics and social welfare state economy. He states that the purpose of economy is to  “ build and support prosperous democratic communities that meet the needs of all people in sustainable balance with nature, we need economic institutions designed to optimize well-being rather than growth.”  This is very similar to the view made in our NET paper Human-Centered Economics. It raises the most fundamental question which should be right starting point for evolving a new approach. What is or should be the purpose of an economic system and the theory that governs it?

2.        Money:  His paper raises fundamental questions regarding the nature of money, how it is created and what constitutes real wealth. He asserts “ From the standpoint of society, money is properly treated as a means, not an end. Rather than directing money to financial speculators and scam artists devoted to creating phantom wealth for personal gain, we must create proper official money systems designed to effectively link underutilized resources to unmet needs to improve the health of our children, families, communities, and the natural environment.”

a.        He implies that an essential deviation has occurred by which the means or instrument (money, economic activity and financial transactions) has become an end in itself. This is not only true of money. It can happen with technology, education, government and any other human institution or activity. If money is a means and not an end, what purpose was it intended to serve? What purpose is it serving now? What has changed, how and why?

b.        He says money systems should be designed to “ to effectively linkunderutilized resources to unmet needs to improve the health of our children, families, communities, and the natural environment.”  Is this the true role of money? How far is money playing that role? Where and how does it fail? Is the problem fundamental to the type of money we have today or is it a distortion that can be rectified by modifying the system?

c.         He says that financial innovation (read ‘speculation’) is a form of theft and that financial markets are channeling money to financial speculators. What is the true purpose of financial markets? What purpose are they serving? What is the role of speculation and how does it impact on the original purpose of financial markets?

d.        He condemns bank-debt money without ever going to the roots of what money really is. This is an important issue for our investigation. It requires an historical perspective on how and why money systems developed. Can we make a valid distinction between phantom money and real money? Is the problem really that there are different kinds of money or that there are differences ways in which money is utilized?

e.        He calls for development of local currencies because they can compensate for some of the gross deficiencies of the current monetary system. Theoretically we need to ask, what is the role of centralization and geographic spread in the efficacy of money systems? What makes complementary systems effective? Should we regard decentralized local money systems as a complementary means to overcome the shortcomings of national systems or as a replacement? What are those shortcomings? How have they evolved historically? What does theory tell us about the value of a wider money system like the Euro or even  a single world currency ?

3.        Wealth:  Korten denounces ‘phantom wealth’, contrasting it with ‘real wealth’ in the form of land, labor, knowledge and food. His insistence on incorporating ecological factors in our measurement of economic activity and real wealth creation is important. Yet, he omits the role of social organization/institutions as a form of wealth. He asks the right question and rightly emphasizes the real shortcomings of current concepts, but I think he fails to provide a sound and sufficient theoretical basis for an alternative. Orio has stressed the need for a fresh conception of wealth. What is the real truth behind the concept of wealth? Can we trace it to its fundamental origins? What is the difference between the money produced by land or production or trade and phantom wealth? Where does the deviation occur that results in phantom wealth? Is the problem with the way money is generated or the way it is utilized?

4.        Social Organization:  Korten rightly recognizes that a change in economic theory requires an alteration in the design and values of the institutions and organizational systems by which society carries out  its activities. Some of his specific observations and recommendations in this regard are very interesting, e.g.  need for of alternative measures of economic activity (as Orio calls for); need for redistribution of the benefits of production between capital and people; the in-build tax bias against employment; measures to eliminate speculation. His bottom up approach to building a new economic reality emphasizes an important fact – that all social innovation begins with pioneering efforts of entrepreneurial individuals at the local level. Even today SMEs are the major source of new jobs. Surely the over emphasis on policies favorable to MNCs needs to be rectified, but does that mean a version to local level economics? What is the best solution is most likely to find the proper balance between local initiative, national and global enterprises?
 
Thank you Orio for sharing this interesting paper.
 
We hosted Korten’s paper on the NET website and will host any comments in a single thread so we can easily track them.
 
Best regards
Garry