Monday, November 16, 2009

The Vision of Civil Endowment

To build an economic system on the basis of human compassion may at first seem idealistic, naïve, or just plain impossible. But if we take a deeper look, it starts to look refreshingly possible. In my work to connect economic theory with the insights of Mahayana Buddhism, I've outlined six economic virtues that correspond to the six transcendent qualities by which a person on the bodhisattva path puts compassion into practice, eventually leading to full spiritual awakening. In other words, I've looked at the kinds of actions or qualities that are traditionally taught to bring about enlightenment, and looked for a related economic pattern. Except for one or two of them, you don't even have to change the names. The economic virtues are: generosity, ethics, non-aggression, diligence, focus, and wisdom.

A dismissive response to this line of thinking might be: “Fine, what's the big deal? If people would just do all that good stuff, society would be in great shape. What else is new?” What's interesting though, is that it turns out that there are very readily identifiable economic efficiencies that arise from each of these virtues, whether they are practiced individually, within institutions, or in society as a whole. This suggests that it should be possible to design economic structures and institutions based on those efficiencies.

My contemplation on how to make use of those efficiencies and build a more compassionate economic system in practice has led me to develop the theory of civil endowment. The key point of this body of thought is that we could create a new kind of capital which would be fully dedicated to the common good. This new kind of capital, called civil capital, would form the civil endowment. The other important point is that this civil endowment would be administered by civil society institutions created specially for that purpose. Structuring this innovation as a civil society initiative largely sidesteps the political process, where fundamental economic reform remains highly unlikely. It also avoids relying on the even more unlikely event that the business sector -- and especially the financial part of that sector -- will reform itself.

The great need for general economic reform, especially in addressing the vast and widening gulf between rich and poor, is justification enough for the establishment of a civil endowment system. But on top of that we have the extreme urgency of the multiple crises that human society faces. All this seen together should make us all the more willing to look beyond our existing toolbox of ideas, not to mention our stale rhetoric and dogma. We need major innovation in economic theory and practice, or the human race may not survive the historical era we are entering now. It's that serious.

Civil endowment theory is such a system innovation. It is also non-utopian, in the sense that it can be instituted in today's world, as it is. It is not an attempt to scrap the existing economic system, but rather to institute a new paradigm incrementally. For it to work, it is true, there must exist at least the basic features of open society, such as the right to form organizations, fundamental economic freedoms, ownership rights, and the rule of law. Though these conditions do not exist worldwide, there are enough places where they do exist to establish the system. And, as it happens, a civil endowment system would do much to preserve and promote open society worldwide. Thus, there is every possibility that it would help move closed (i.e. authoritarian) societies toward openness. Open society and civil endowment are mutually reinforcing, a statement that cannot be made about either capitalism or socialism.

From a theoretical point of view, this system of thought and practice is fundamentally outside of the categories of capitalism or socialism. It is not socialism because it does not rely on government ownership or control of productive enterprise. It is not capitalism because it does not promote extractive or exploitive investment, or productivity that destroys the world we live in. Nor does it, at a more theoretical level, subscribe to the notion that selfish behavior creates the common good. Instead, it works to create beneficial causal factors that work at the scope of the whole system (global human society and the ecosphere), which are implemented on a civil society basis rather than a political one.

It is important to be clear that this proposal is not an attack on business, private property, or on responsible self-interest. Nor is it a repudiation of the needed role of governments in the economy. It does, however, point out the possibility of an increased role for civil society in guiding the economy, one enhanced by the real economic power inherent in the civil endowments. Civil endowments could function as a stabilizing and moderating part of the overall economy, one capable of providing leadership and of addressing the crushing human problems of our times. The investment of civil capital would be used as needed in a given context. In the developing world it could promote basic sufficiency for all and the kind of sustainable infrastructure development that could nurture truly healthy economies. In the more developed economies, it could help reverse the wide and increasing gap between rich and poor, and bring healthy re-development to devastated post-industrial economies such as that of the United States. Importantly, it could play a major role in supporting renewable, non-fossil energy investments. Though there is a lot of private money going in that direction, much, much more is needed.

A quick way into the theoretical world of civil endowment is the little phrase, “capitalism can't be reformed, but capital can.” This is the counter-intuitive essence of the proposal. If we create a substantial system of NGO-administered capital fully committed to the common good of humanity, we will not have abolished private property, economic rights, or even “free enterprise.” We will simply have created an open-society economic system that moves beyond capitalism. To the extent that capital is reformed, the unbounded lust for profit that characterizes primitive capital is no longer the primary value or driving force. Human wellbeing is the primary value. Thus, though it may seem paradoxical, the way to diffuse and transcend the contemporary destructive manifestation of capitalism is not to eliminate capital but to reform it.

What would this reformed capital be like? Here is a summary that introduces the key ideas:

Civil capital is a form of finance capital which is invested as an endowment for the universal beneficiary, under a strict investment paradigm for the benefit of all humanity on an unbounded time horizon. As such, it optimizes both social and natural capital. Although the maximization of profit and productivity is not part of the civil investment paradigm, all retained earnings and productivity are endowed to the beneficial owner of civil capital, the universal beneficiary. Civil capital is managed by civil society organizations which are accountable to society at large.

Let's consider at a few of the phrases used in this definition:

The Universal Beneficiary
refers to all human beings now living and yet to be born. This unique designation of people in both the present and future creates the unbounded time horizon of the civil investment paradigm.

The Civil Investment Paradigm
refers to capital investment for non-frivolous economic productivity on behalf of the Universal Beneficiary. In practice, this paradigm is informed by the principles of environmental and social sustainability, universal sufficiency, and social justice.

Civil society organizations refers to specially created non-profit organizations that would function as fiduciaries for civil capital and its investment, preservation, and evolution.

Attitudes toward capital within the various camps of economic theory and practice are such that there is a bit of a Catch-22 in operation. On the one hand, those who recognize the tremendous power of capital tend to only see it in terms of selfish motivations and benefits. That is true, actually, for most of those who either think capital is great, and for those who are against the whole idea. Among those who love capital, some theorists or individuals continue to harbor the notion that “everyone acting selfishly yields the best result for society.” This notion, and that of the “invisible hand” of markets, is in wide disrepute, yet it remains a secure refuge of rationalization for the materialist. The wealthy and powerful believe in capital, and they know how to use it. On the other side of the ideological divide, those who yearn for “the common good” have tended to neglect the investment process, and implicitly, capital itself, and think more in terms of governmental regulation or control on the one hand, or individual actions and social movements on the other. And therein lies the catch. Neither side sees the transformative potential of capital once it is liberated from its selfish application. If anything, I hope that my contributions to the conversation will cause people of both persuasions to rethink what capital is and what it could be.

What is meant by investment here is the actual commitment of economic power to a productive purpose. The “crest of the wave” of any modern economy (including ones that are government controlled) is the ongoing process of investment. Although governmental involvement is a major factor in any modern economy, the real driving force as an economy moves forward through time lies within the actual investments that are made. The economic processes that are enabled by each investment as it happens are at the absolute core of the economy, and especially at the core of the way an economy changes and evolves. This is why the reformation of capital could be tremendously effective in reforming the economy itself.

If we look at human needs in the coming decades, the transition to a sustainable, non-catastrophic future for our race requires a vast and skillful transition in how investment is made, by whom, and for whom. Briefly put, those investments need to do what is necessary, on the scale that is necessary, to provide for the sustenance of the human race in a way that is ecologically sustainable. Who will make those investments? Where will the will and the leadership come from, not to mention the actual investment resources, to transition to a post-fossil energy economy? And who will benefit from the immense profit and productivity inherent in such investments? The answer to all these questions is, at least potentially, “all of us.”

But to answer these questions in greater depth, we need to delve into the fundamental theory of capital. This realm has received little attention since the basic ideological divide between socialist and capitalist dogma was laid down in the 19th Century. But if we undertake an analysis with a fresh mind (a journey undertaken brilliantly by Folkert Wilkin in his book The Liberation of Capital), we find a rather subtle realm, a realm in which tremendous creative and indeed compassionate possibilities reside. A key possibility within this basic capital theory is that capital could function without the relentless and amoral quest for profit. In other words, there could be a post-materialist conception of capital. Furthermore, there could be an altruistic conception of capital. Key to both these points is that capital could function without selfishness. Civil capital is the practical conception that arises out of these possibilities.

At this point you may rightly ask, “Well, how is this idea of civil capital different from Socially Responsible investing?”Socially Responsible Investing (SRI) and the more recent notion of “impact investing” are very positive movements, but don't forget that the people who put the money up for such investments want their money back, with profit. They may be willing to earn less and work harder for what they earn, but the basic selfish orientation of their capital is unchanged. They are trying to invest with a sense of ethics, which is a good thing, but it is still their capital. Civil capital, by contrast, is detached from private ownership. Its beneficiary is the universal beneficiary. Therefore, the investment decisions associated with it, along with the dispensation of the returns on those investments, are wholly different from any sort of private capital.

To explain this point about private capital, I use the playfully evocative terms “reptilian capital” and “mammalian capital.” Reptilian capital is cold blooded. It is concerned only with selfish return on investment. It has no ethical compunctions. It abides by laws and regulations only for pragmatic reasons. The reptilian capital paradigm rules much of our business and financial world today. We should never underestimate the extent and power of this mentality in our society. At the same time, there is an investment mentality based on more decent instincts, instincts that are warm blooded. Hence the term “mammalian.” This mindset is concerned with environmental and social outcomes as well as profit. Out of such a mindset comes the world of SRI, impact investing, and socially responsible business. To understand civil capital, we need to see that it goes far beyond even the laudable mentality of mammalian capital. The key difference is in the beneficiary. Instead of the financial returns and other benefits of ownership going to the investors, the returns on civil capital go to the universal beneficiary. The secondary difference, but also a crucial one, is in the administrative structure of civil capital. It is managed by socially accountable NGOs, by people who are not motivated by personal financial return.

Admittedly, it may be a little hard to visualize at first how this “return to the universal beneficiary” would happen in practice. Are we going to send a dividend check to everyone on Earth? In theory, that could happen, though not immediately. It would take a long time for enough civil capital to accumulate for that. It is possible, though, that even in the early phases of such a system, productivity could be channeled to those who need it most in creative ways. In practice, any profits of civil investment would most likely be re-invested as the system develops. As significant as that is, the financial returns or growth of civil endowment is not really the primary benefit of civil endowment investment. What is more significant, and what can take place on any level of scale, is the qualitative stimulus effect that civil capital can have on an economy. Going back to the nice folks who brought us SRI, what they realized, in their wisdom, is that quite apart from financial return, a capital investment has a qualitative real-world impact in terms of the economic actions it promotes. Those actions in turn have effects, not just in the sphere of the overall economy, but also socially and environmentally. It was this “ripple-out” effect that the SRI folks want to cultivate, albeit while taking the profits for themselves. Quite apart from the question of the financial returns of such investments, the paradigm under which civil capital would be put to work would open up a whole new realm of investment thinking, since the time frame under consideration would be unlimited, as would be the social scope of action and benefit. Therefore, it is not just the question of “who gets the profits” that makes civil capital vastly more beneficial than SRI. The unbounded scope of the event horizons in the investment decisions, both socially and temporally, opens up profound possibilities for the best possible kinds of economic development.

Furthermore, the economic power that results from the productivity of civil capital can be used in far more creative ways than simply sending everyone a check. There is actually a route to true economic democracy lurking in this paradigm. Though economic democracy is an imprecise concept, and one that has many proposed expressions, it is also an idea that has a deep resonance for those who favor economic justice. Unfortunately, most of the proposals associated with economic democracy are, at least on their own, more or less impossible to implement. They also show little likelihood of addressing -- let alone solving -- the paramount issues of our time, namely, global warming and global poverty. Civil endowment funds, on the other hand, could be targeted at precisely these most crucial problems and gradually bring about the conditions necessary for greater economic democracy and participation.

Many of those working for economic change today point to another area of concern, namely monetary policy. Again, a robust civil endowment system paves the way for progress in this area. We need to be really clear that as long as the reptilian profit motive of bankers is the main driving force, whether it is within the institutions themselves or in their unconscionable influence on public policy, real progress is not going to happen. Though there is a great deal of public outcry, and indeed perhaps some movement toward re-regulation of the financial industry, I do not believe that the answer to the problem can be -- or even should be -- coming from the government. The alternative route, which is thus one of the most urgent and effective potential uses of civil capital, would be to create financial institutions that are non-predatory, out of which could come any number of benefits, including monetary and credit reforms. One very exciting outcome of this could be the creation of both local and global currencies that are superior to the current national currencies. This could happen if there were simply financial resources available to create them, which in turn is entirely possible if there were institutions committed to economic justice for all.

Another screaming need for a new investment paradigm is in the field of media. Advertising-supported media is not necessary a flawed business model, but at least in large-scale mass media it has become horribly corrupt. This is most evident in the case of the rising power of politically biased and even extremist news organizations we see on TV these days. More generally it is reflected in the insidious materialism that advertising promotes in society. On the other side of the fence, we see various state controlled news outlets engaging in their own extremes of distortion and control. Clearly neither the ruthless lust for profit, nor authoritarian state control is going to going to lead to “fair and balanced” media. The backing of civil capital would open up new realms of possibilities for media that is truly responsible to truth and to the public benefit.

The wide range of benefits that could potentially arise from a civil endowment system has led me to call civil capital the “perfection of capital.” The term, though perhaps grandiose, is appropriate since civil capital is designed to be in optimal accordance with compassion and wisdom in principle and human wellbeing in practice. It is detached from selfish motivations and unskilful applications of economic power. It integrates and perfects the various forms of capital such as finance capital, invested productive capital, as well as social and natural capital. It is perfect because it is designed to be perfect.

Once we see the value of civil capital, we need to ask two pragmatic questions: “Where does civil capital come from?” And, “How is it managed?”

The refreshingly simple answer to the first question is: human generosity. Not only is generosity a fundamental part of the human culture and economy, but as society becomes more globalized we see that people are often willing to give very compassionately to groups of people with whom they have no personal connection. Though people give very liberally in the case of disasters such as hurricanes and tsunamis, the power of generosity has not yet been mobilized to actually reform or heal our economic system. To galvanize human compassion and giving for this specific purpose will take time, but there is no reason to doubt that people would support it once the concept of civil endowment becomes known and its benefits understood. Beyond the sphere of direct individual giving, there are a vast range of possible revenue streams that could be directed to the endowment system. Extremely small percentages of various kinds of transactions, such as currency conversions and international capital transfers could create micro-streams of input to the system. This is similar to the “Tobin Tax” concept that has already been proposed to fund worthy projects on a global scale. A civil endowment system would be a worthy recipient of a tiny percentage of many types of transactions. There are in fact countless ways that revenue could come into the system. Keep in mind that the civil endowment would be a permanent and self-enriching body of resource. Revenue streams from civil endowment backed companies could be built into their business model from the beginning. Although all the inputs to the system would involve generosity, they clearly would not all be direct gifts. It would be more like building generosity into a system. Once established, the small streams deflected from economic processes would trickle into the endowments and not particularly deprive anyone. This notion of structuralized generosity is a key element in the feasibility of such a system.

It is actually very important that civil endowments come into being through acts of generosity, rather than through confiscation by taxation, because through the actual act of giving to the whole human race, the giver is transformed and the interdependent cycle of a compassionate economy is set in motion. To see that human compassion and generosity is sufficient – and necessary -- to start the civil endowment system is an “ah-ha” moment that I call “The Leap.”

Finally, there is the question of the management of civil endowment. I propose that special non-profit fiduciary organizations be set up to do this work. They would be publicly accountable for their actions, and operate under a strict charter. Most likely there would be both paid professionals and volunteer governance boards as part of this structure. Under the civil investment paradigm, the nominal owner of the assets would be non-profit organizations (NGOs) with a transparent administrative structure. These organizations would make the basic decisions about investment of the capital, and monitor the results of the investment. An NGO of this type could be the direct owner of for-profit entities such as holding companies, banks, or venture capital firms, or it could invest indirectly through financial professionals. The key would be to not only enact the civil investment paradigm, but to refine and evolve it over time. Probably it would also be necessary to have a specialized NGO functioning as a standards body for the NGOs that actually hold civil assets. Finally, it might be necessary to separate the functions of fundraising and asset management. With that approach, there would be one or more civil endowment foundations responsible for accumulating the assets that form civil capital, and distributing them to the administrators of the endowments. This three-fold system would create a system of checks and balances, defuse potential conflicts of interest, and generally decentralize the functioning of the civil endowment system.

There are trillions of dollars in assets under management today by trained fiduciary professionals. Unfortunately, they operate under the wrong set of rules. It is also the case that many non-profit organizations have endowment funds under management, some of them huge. However, the purpose of these endowments is to generate cash income for their non-profit work. Some have migrated in varying degrees of a socially responsible investment strategy, but basically they are still about extracting cash on an ongoing basis. Though the civil endowment model is clearly different than this, the basic societal framework of non-profit organizations owning and managing large endowments is clearly established. In the case of a civil endowment system, NGOs have a new role: that of owning and managing large endowments for the wellbeing of the human race. If this is their purpose, it makes no sense whatsoever to make investments that are based on theft, exploitation, or the very destruction of the planet we live on. Thus the whole extractive investment model that has characterized modern capitalism from the beginning can be jettisoned.

What happens to profit, that concept so dear to traditional capitalists, under this model? It is still possible for businesses to make a profit under this model, but it would not be the overriding concern, nor would short-term profit expectations be of anywhere near the same significance that they take on currently. It is important to bear in mind that in reality, profit is just an accounting concept. What is more significant is the concept of productivity, which means actually producing a good or service that people need. As long as you make investments that do that, the system will do what it's meant to do. On a broader scale, the civil endowment system as a whole does not need to make a profit, in part because profit is reckoned on the basis of a specific accounting period. The civil investment paradigm is based on an unbounded event horizon. This doesn't mean that there could be no quantitative evaluation possible for its success or failure. But the actual criteria for success of specific investments would be more of a combination of qualitative and quantitative results. Keep in mind that there would be an ongoing income to the endowment system through structuralized generosity. Broadly speaking, if the system is seen to be valuable to humanity, people will continue to give resources to it to make it function. With that said, it is my hypothesis that civil endowments will be robustly profitable in the long term and will create a tremendous amount of decentralized private wealth along the way. The basis for this hypothesis is a rather esoteric concept known as “the efficiency of universal scope.” The essence of this efficiency is the view that causal factors that operate to enhance the health of a whole system will produce greater productive results than factors that destabilize or drain the system in some way.

It is inevitable, and actually preferable, for a civil endowment system to start out small. At first its presence would be, at least from a global perspective, purely symbolic. As it grows however, it could become a catalytic force, and eventually grow into a structural component of a vibrant and prosperous world economy.

Clearly there is no way to know how important such a system could become, or how soon it could begin to address human problems. I'm sure that as I explain it down the road, there will be plenty of objections that start with. “People will never . . . .” There is no doubt that the concept requires leaps of vision. But the leaps involved are as much of reason as they are of faith. It is actually rational to support a system that enhances the wellbeing of all humanity, because in an interconnected world, each of our prosperity -- and indeed our survival -- depends on the wellbeing of the whole of society. Civil Endowment Theory is not inimical to self interest. It merely points out the practical truth that each of our self interests includes, at least to some degree, the interest of the human whole. There are vast numbers of intelligent people these days who understand this. This is why, on balance, I am persuaded that a civil endowment system has real possibilities for implementation. It is a practical expression of a truth millions have seen.

As for those who don't understand it, it is important to see that this proposal by no means requires universal buy in, or even widespread awareness that it exists. It will not be imposed by any government or promoted with any kind of coercion. It is a voluntary initiative by those who see its value. Furthermore, because of the transformative character of the act of giving to a universal endowment, it can be argued that it is beneficial at absolutely any level of scale. Even a penny, given with the intention to benefit every human being now living and those yet to be born, is an expansive and uplifting act. With such a gift, the doors of possibility open to the practice of economic compassion for humanity as a whole, for the unbounded future. It is simultaneously an act of kindness, of hope, and perhaps most surprisingly, of pragmatism.

Concerning the feasibility of this idea, there are really two questions. The first is systemic: would civil endowments actually have the qualitative benefits that they are designed to have? And second: if such a system did indeed potentially have the salutary effect on the world economy that it is intended to have, would people have enough generosity to make it happen in on a large-enough scale? The answer to both questions is, “Well, let's try it.” This is admittedly a hypothetical proposal. There is no way that I know of to make theoretical models for such a thing or, for that matter, speculative prognostications. But the key thing that makes me want to push ahead is the point mentioned above about scale. If it has at least some benefit at any level of scale, why not move forward? Why not take the steps to create such a system, and take them deliberatively, cautiously, but decisively? In doing so, we can unify the outlook of compassion and practicality, and learn what works and what doesn't. Though I cannot personally predict the future of a system that has yet to come into existence, I am absolutely convinced that we need to take creative and transformative steps in the realm of economics. I am equally convinced that compassion is a worthy governing principle for guiding what we do. The idea of civil endowment is my synthesis of social vision, economic theory, and pragmatic planning at this urgent point in human history. It is my contribution to the conversation that is so important for all of us. You are warmly invited to join in.

(My thanks to Carl Frankel and Arya-Francesca Jenkins for their helpful editorial suggestions on this post.)

Friday, September 18, 2009

Event Info: Envisioning a Compassionate Economy, Sept. 20 2009

A Conversation in Four Parts with David N. McCarthy

4-6 PM, September 20, 2009
At the Lifebridge Sanctuary
Rosendale, New York

This event is free of charge. Donations to the Lifebridge Sanctuary are warmly invited.

If we want to create a compassionate economy, just how would we go about implementing it? This event presents some practical ideas, the results of over ten years of study and creative work in relation to economic theory and practice. The four sections of the conversation will be:

The Case for an Economics of Compassion
The Case for the Reform of Capital
The Case for a Civil-Guided Economy
The Case for a Civil Endowment System

There will be a short talk on each topic followed by conversation.

David N. McCarthy is a founder and the current Executive Director of Buddhist Television International (Dharma TV). He is the former Chairman of Hudson Valley Sustainable Communities Network (now Sustainable Hudson Valley), and has spent many years studying the classic and alternative theories of economics. This event is the first comprehensive public presentation of his creative work in the field.

This event is offered in the spirit of the United Nations International Day of Peace, as well as the U.N. Millennium Development Goals.

The Lifebridge Sanctuary is at 333 Mountain Road in Rosendale. It's just down the road from Sky-Lake Shambhala Center, if that is helpful. Here are directions to the Sanctuary.

The Sanctuary is a wonderful space and I strongly recommend becoming familiar with it if you aren't already.

Monday, August 3, 2009

The Case for a Civil-Guided Economy

Making a case for civil-society guidance in the economy is in part a call for recognition of what already exists, since such institutions already play an important role. But it is also a proposal for new modes of influence from civil society. It comes from asking basic questions such as, “What types of institutions guide our economy?” and “Where does economic power reside?” As we explore the various sectors or “domains” of human institutions, we will see just how central they are to the various theories and active systems of economics. Creative thinking about such arrangements can lead to transformative solutions.

Observers of human society generally have grouped the institutions we create into three broad categories, namely the governmental, business, and civil sectors. Governmental institutions have the main characteristic of wielding political power; the business sector has the characteristic of working in the exchange economy and providing livelihood. The civil sector is less simple in definition in the sense that civil institutions most characteristically have some sort of intended purpose or cause behind them, and the range of causes is extremely wide. A civil society group can be anything from a group of hobbyists who love to grow roses, to humanitarian groups trying to end various forms of human suffering, to reactionary groups trying to roll back any number of human advances most of us take for granted. Churches, schools, arts associations . . . the range of civil society groups is as broad as the interests and purposes of human life. Civil society ranges from the pinnacles of spirituality and creativity to the depths of hate and destructiveness. It's a group promoting brotherhood or ecological sustainability, and it's also the Ku Klux Klan.

In my work on economics, I have generally called the three broad grouping of institutions “domains” and reserved the term “sector” for more narrow divisions within the economy, such as the manufacturing sector, the agricultural sector, and so on. Whatever the terminology we use, it is vitally important to think about the structure and interactions of these three kinds of institutions when we think about economics. As well, I believe it is vital to add a fourth domain to the discussion: the domain of the individual.

This fourth domain takes on two important dimensions. First is the significance of the aggregation of individual choices and economic actions. For example, many advocates for sustainability have counseled, no doubt with some degree of validity, that individuals need to make more responsible buying choices to transform the economy. They say that we should buy compact fluorescent light bulbs instead of incandescent ones. There are often long lists presented of such actions that we ought to take. Though I accept that such actions are are extremely significant, I also believe it is inherently insufficient to try to achieve a sustainable economy by promoting such individual actions. In any case, this is merely mentioned here as an illustration of fourth domain behavior. The aspect of fourth domain behavior that is the aggregated result of individual choices is also the driving force behind democracy, for better or worse. The other significant aspect of fourth domain behavior is the whole subject of leadership. Even as we function in institutions and other social units, such as the family, the nationality, and so on, we function individually in that context. Our individual actions and the influence we exert on others is very significant. Leadership can also mean individual deviation from social norms -- again for better or worse.

If we look at these four domains, we will see a framework for looking at the whole of society, one that is general enough to cover pretty much any particular human group we need to consider. Of course, there are many institutions that straddle the borders of the different domains, such as public schools, or non-profit organizations that undertake business activities, and so on. There are also groups that operate fraudulently, such as church groups that are really political fronts, fake non-profits operated by corporations, and so on. The other significant fact is the deep level of interaction and influence that take place between the domains. Indeed, the only way to understand much of what happens in society is by considering this interdependence.

Rudolph Steiner and his intellectual heirs have done very interesting work in this area of thought, and the theory of Social Threefolding, which derives from Steiner's Anthroposophy, suggests that greater independence of the three spheres would lead to positive results for humanity. This is understandable, especially considering the various extreme situations of imbalance that existed in the early 20th Century. Totalitarianism (the complete dominance of government over all aspects of life), Communism (specifically the domination of economic life by the government), and Theocracy (a form of civil society domination), were the focus of Steiner's notion of a remedy based on more independent functioning of the three spheres. It is hard to argue with the very reasonable notion that the three spheres need basic independence to work properly, and that domination of one sphere over the others is unhealthy. However, my own work focuses more on how the various domains can function interdependently in a healthy way.

Concerning the domination of one sphere or domain over the others, I think it can be argued that, at least in the so-called “developed” nations, the domination has shifted to the business sphere, as the rise of materialism and globalism have given business and money interests unprecedented influence over government and society generally. By holding the keys of wealth, the business sector also holds broad power advantages over civil society organizations – such as being able to outspend environmental defense groups on an issue even where there is broad agreement on that issue in society generally. The control by ownership of media and information flow by profit-oriented corporate power centers is another significant aspect of the profound influence of the business domain.

It could also be argued that negative fourth domain behavior, specifically the relentless consumerism and self-absorbed mentality of individuals in the current era is a profound influence on the world direction at this time.

On the more positive side, there are tremendous movements for change and transformation emerging from both the civil (third) domain and the individual (fourth) domain. The recent epochal events in Iran, for example, though currently inconclusive and possibly unsuccessful, are of a broadly third and fourth domain character. Though nominally a third domain theocracy, Iran has proved itself to be a solidly totalitarian (first domain dominated) state, but one that is seething with individual and organizational “change vectors.” Though the government apparently has won the recent struggle, no one who has observed the situation closely believes that Iran will ever be the same.

Writer Paul Hawken has written a wonderful and ultimately very optimistic book called Blessed Unrest, which documents the spontaneous flowering of civil-society movements for positive change worldwide. In it, he points out the vast and surprisingly effective network of people and organizations working for environmental, social, and economic reform, despite powerful opposition and limited resources.

Turning now to a contemplation of economics in light of the four domains, we can see to what a great extent the various major historical movements and theories actually turn on exactly how these four domains interact, and specifically how economic power operates in a particular society. For example in Socialism, the state (first domain) has the upper hand in controlling the economy. The degree of control varies from more or less absolute (North Korea comes to mind as an example), to something far less so, such as Scandanavian-style “social democracy.” Though Marx postulated that the end result of socialism would be that the state would “wither away,” the outcome of the historical Marxist and Socialist experiments has proved the opposite. It is more that Socialism itself has withered away, leaving the state in places like Russia and China very much intact. Probably Marx's prediction that Capitalism will destroy the world carries far more potency and possibility than his predictions concerning a dictatorship of the proletariat and the emergence of a stateless communist utopia.

On the other side of the ideological divide, so called “free-market capitalism” hinges on the fourth domain notion of individual economic freedom. Don't forget that Adam Smith's Wealth of Nations was published in 1776, a year of some significance historically in relation to the subject of freedom. Individual liberty was a radical and liberating concept at that time, one that was percolating in the social science innovations of the “Scottish Enlightenment” just as it was politically in America. Though the ideal of personal freedom has taken root worldwide, in much of the world today it remains, sadly, no more than a dream. While actual individual liberties are often taken for granted in the West, the mythology of freedom has been significantly co-opted by entities that are by no means human, namely corporations. There is even the astonishingly corrupt notion – a notion that stands as accepted law in the United States – that corporations are, in the eyes of the law, persons. This goes far beyond the reasonable notion that business entities should be provided with due process of law.

The mythology of individualism and the worthlessness of government has been extended and sustained (with plenty of corporate funding) with promotion of the idea that Capitalism is the best of all possible economic structures . . . which is baseless fantasy at this point. Witness the stark realities of huge profit-oriented corporate entities manipulating governments, shaping public perception of reality through media, and more or less enslaving humanity for the profit of the rich, while thoroughly neglecting the actualities of human need and destroying our very planet in the process. Does anyone of integrity still believe that raw selfish interest results in the “most efficient allocation of resources,” after seeing the disgraceful pattern of greed, speculation, and corruption that led to the recent global meltdown? And to whom does the business community turn when their speculative house of cards collapses? Government, of course.

What is the upshot of all this from the point of view of the four domains? It is simply that the present power arrangement in which business entities exercise control over governments which they then use to prop themselves up in the aftermath of their own dysfunctional behavior has little likelihood of ever working out well for America or any country. The relationship between business and politics is incestuous. It lacks honesty. Bad guys often win. And as if that is not enough, the whole human race is imperiled by this arrangement.

Clearly, the recent economic meltdown has led the United States toward an economy that is more “state guided” than in the past. Indeed it was the Bush administration's near complete abandonment of regulation (specifically in financial markets) that deserves much of the blame for the events that followed. But is a state-guided economy really a solution? Though I do support the pragmatic efforts of the current administration to undue the horrible effects of the previous one, I do not believe that a state-guided economy is a long term solution or an optimal structure for a healthy economy. The state is best suited for the more clumsy (but essential) work of providing a legal system, national defense, international relations, and the maintenance of such institutions and responsibilities as it can effective undertake. It is not so well-suited to the creative and nuanced work of guiding the economy, except in the matters of legal oversight and regulation, as needed.

Neither can it be said that the business community, despite many positive efforts, can guide the economy, which its built in conflict of interest. The fox is just not going to be good at guarding the chickens. The “invisible hand” is a concept that has valid bearing in very constrained contexts, but it is certainly not sufficient for a real turnaround at the scale of the whole of humanity. Business is good at inventing a better battery for electric cars. But it is equally adept at buying the patents for that same car battery and sitting on them indefinitely because, well, “our main business is oil and gas.” (For the long version of this true story see

Therefore what we've seen historically is either varying degrees of a state-guided economy, or of a business-controlled state system. If you throw in the occasional theocracy, that's about it, at least recently. Instead of these structurally flawed arrangements, I propose a third possibility, a civil-guided economy. One of the key arguments for this is that since authentic civil society organizations are not fundamentally motivated by either political power or “money power,” they stand in the best position to exert guidance that is actually guidance as opposed to outright control. They are in the best position to think beyond the immediate future, indeed to even go beyond the concerns of those of us living today. Civil society groups are, in principle, uniquely suited to provide leadership that is truly for the best of society. At present, civil society organizations of all kinds provide ideas, commentary, criticism, and forums for communication on economic matters. Foundations provide all manner of charity, some of it massive in scale. Then why don't we have a civil-guided economy? At present, we have a system where in the first case, civil society organizations do a lot of talking, a lot of arm-twisting, perhaps a lot of soul searching, and they often provide truly creative and positive ideas. But when they do provide tangible economic aid, they do so without fundamentally challenging the existing economic order. From that point of view, they don't exercise much by way of transformative economic power. Much of their economic activity is actually dedicated to funding themselves for their no-doubt important work. (I'm speaking here of the endowment and fundraising activities of non-profits, about which I'll write more later.)

It is a delicate matter, perhaps, to somehow give non-profits economic power without tipping them into the realm of business. The key point in this regard is to recognize that economic power can be exercised for the common good. It is only a matter of habit and perhaps cynicism that we think otherwise, although we do not necessarily have models that fully reflect that potential in today's world. Certainly we have non-profit organizations, such as the Red Cross, which exercise large scale economic activities in charitable ways. We have giant universities and global churches. We have foundations, such as the Gates Foundation, which are having unprecedented impact.

Yet there has been no fundamental shift in the “spirit,” shall we say, of the world economy. Fifty thousand people a day are still dying of starvation. A billion or more of us don't have adequate food and water. The entire human race stands at great risk from climate change. And every one of us, rich and poor, faces real economic insecurity in our present financial system with its rampant speculation and financial manipulation. Whatever is being done to address these human problems, it simply isn't enough, either quantitatively or especially, qualitatively. Despite the unprecedented development and reach of civil society organizations, they are not yet participating in the economy in ways that will truly bring about a transformation.

The gist of The Special Proposal (discussed earlier in this blog) is for economic power to be exercised by civil society organizations in a new way, namely through the development of a civil endowment system. This system would endow significant, expanding, and dynamically managed pools of resource for the common good of humanity. Such resource would be invested as capital, called civil capital, in ways that truly benefit the whole of humanity. Economic power would be exercised through direct ownership of productive assets. Unlike Socially Responsible Investing (SRI), the ownership of the productivity of the assets would reside with “the people” rather than the original sources of the capital. Thus, although the notion of civil endowment is inspired by SRI, it is wholly different in nature. The influence of this economic power, in concert with the structure and conventions of civil society, would function in cooperation with business and government interests to create a grand triangulation of power between business, government, and civil society. In this interdependent relationship, the guidance of civil society over the economy would indeed be that. It would not be outright control. Civil capital would not supplant private capital, basic private ownership, or the role of governments. Openness and transparency, and accountability to individuals (the fourth domain) would be the balancing factors enabling true structural economic reform.

We can summarize the case for a civil-guided economy under the following points:

  • Guidance for a healthy economy needs to come, at least in part, from parties that are not primarily concerned with political power or economic gain for some individual or group. Civil society, by its very structure, has the best chance of exercising such guidance at a fundamental level.

  • Civil society by nature of its diversity, has built in checks and balances, transparency, and accountability, qualities that government and business interests often lack. Though not all civil society organizations have these features, institutions can be designed and maintained that do.

  • The true power of a civil-guided economy can be realized by instituting a system of capital ownership for the common good, with a diverse system of investment funds dedicated to the “universal beneficiary.” Through the leverage and influence of such capital pools, civil society can guide the economy through the power of ownership, without restricting fundamental individual economic freedoms, abolishing private property, or contesting the legitimate roles of government.

  • This decentralized “triangulation of influence” represents a genuine creative innovation for a post-materialist, interdependent global economy.

  • Such an arrangement embodies the potential for significant transformation of the world economy.

Tuesday, March 17, 2009

An Introduction to the Economics of Compassion

This essay serves as an introduction to the notion of an economics of compassion, and also to the more extensive discussion of this topic which has been accumulating in my blog for the last nine months or so. At the end of this post I outline the main topics of this body of thought, and the various posts that discuss each topic.

For any theory or body of knowledge to be valid, it needs to be concordant with the way things truly are. In effect, this means that such a theory must be concordant with wisdom, if we take wisdom to mean most generally “a correct knowledge or awareness of how things are.” It would perhaps be unnecessary to make such a statement, if it were not a direct way into our topic, which the economics of compassion. The connection is simply this: according to Buddhist philosophy, compassion and wisdom are inseparable. They are two sides of the same coin, as it were. This point needs to be made, at least in passing, because it would be very easy -- and not only for the more cynical among us -- to have the immediate reaction that an economics of compassion is merely a “feel good” concept, or one based on hopelessly idealistic musings.

On the other hand, if you did agree -- or come to agree through reasoning or personal experience -- that compassion and wisdom are inseparable, it would make a great deal of sense to take the idea of an economics of compassion seriously. I am not going to make a lengthy argument here as to how and why wisdom and compassion are inseparable. The reason for that is that perhaps you already agree with me! Or if you have reservations, it may be that the point will be clarified for you as we work through the reasoning involved. One thing that is obvious even with a little reflection is that if you want to actually practice compassion, you have to have wisdom. You have to know how to help someone. Conversely, compassion can be said to arise from the wisdom that we all possess inherently.

If we were to contemplate an economics of compassion, where would it begin? Compassion is understood, both in general usage and in Buddhist thought, to be the wish for someone to be free from suffering. This is the starting point, because economic suffering is, needless to say, a known quantity. Poverty, starvation, and disease are the most obvious forms of economic suffering. And looking a little deeper, we see that people at all levels of wealth suffer. The very rich suffer from the craving and stress coming from the feeling that what they have is never enough. Those of us in the middle suffer from anxiety about our economic security, our ability to realize our dreams or just to have a reasonably comfortable old age. All the economic rungs of society suffer from the stress of endless work and uncertainty about the conditions of our human realm. Wars, disease, and environmental disasters affect us all, rich and poor. Add to this the instability of our economic system as it currently exists, an instability that threatens absolutely everyone with uncertainty and potential ruin. Finally there is the incalculable potential suffering of the future, of a planet devastated by climate change, wracked by wars and social disruption. How does that make us feel in the present? How will our descendants – if there even are any – feel about us looking back from the future?

If we wish to head off or at least reduce economic suffering, we are actually giving rise to compassion, because that is what compassion means. But compassion for whom? Intelligent people are coming to see that the system needs some sort of fixing, that it's not enough to simply plod along and take care of oneself and one's family. It is interesting that there is general agreement these days that the economy is deeply interdependent and that for prosperity to return, things have to happen at the system level. Of course, opinions differ as to the details of what should be done, but this recognition of interdependence is a glimmer of wisdom. And it ties in directly with how the Buddhists see compassion, which is the notion that if you don't have compassion in an unbiased and universal way, it is really not a complete compassion. Wanting to fix our economic system as a whole is actually an orientation towards some degree of compassion for everyone in that system. By the way, this is emphatically not contradictory to the notion of individual responsibility. It is true that we each experience the world individually and differently, and that our individual well-being is deeply dependent on our own actions. But it is equally true that no one individual has the power to address the systemic issues that face humanity today. We need to work together, because we are together, and unavoidably so.

Despite our individual responsibility at all levels (and generating compassion is a prime example of that), there persists a notion in society and economic thought that is extremely toxic and pernicious to any sort of economics of wisdom or compassion. I'm referring to the idea, based on distorted interpretations of Adam Smith's Wealth of Nations, that by behaving selfishly we automatically, through some magic or “invisible hand” are doing the best we can for others. This is such sheer nonsense that it deserves a rigorous refutation, and has in fact been refuted by many great economic thinkers. Nevertheless, it is such a seductive idea, one that relieves us both of moral responsibility for our actions and even the burden of thinking clearly, that it continues to hold sway, particularly among those who are indoctrinated with conservative economic theory. And just to be “fair and balanced,” we also need to sweep out the rubbish of the main notions of Marxist thought, particularly the idea that the only route to justice is for the government to administer the economy under a centralized command system.

If we sweep away the garbage -- and garbage it is -- of the extreme economic views of left and right, we may end up feeling a bit groundless. What reference point can we cling to? What truisms will lead us home? According to Buddhism, this groundlessness is not a problem at all. It is actually a symptom, not of intellectual poverty, but of seeing things directly, of openness, freshness, and new possibilities. So let's stay with the groundlessness, just for a moment.

As we rest in that groundlessness, the reference point that emerges that is truly compatible with seeing things directly is compassion itself. That is the starting point, because it is without limitations. It applies to all members of society, and actually to all living things. And it addresses what is really important, namely the relief of suffering, and by implication, providing universal access to our highest human potential. Therefore compassion is the ground of how to be successful in the world, successful in the truest sense. Many people, of course, will tell you how to be successful, and perhaps their advice is helpful. But I repeat: the foundation of authentic success is unbiased and universal compassion. In technical economic terms, you could say it is an aspiration for the health of the whole system. Think about it. If you want “the economy” to be better, what does that mean? It means wellbeing for all the people in that system. If you think about it more deeply, it means the health of our natural world too, without which we would all soon die off. Therefore, if you want the economy to get better, you have compassion. Congratulations!

Now, how do we practice that? Mahayana Buddhism presents an incredibly rich pallet of time-tested methods for practicing compassion. In particular, there are what are known as the Six Perfections: generosity, ethics, patience, diligence, meditation, and wisdom. I have adapted these six principles of practice to the sphere of economics in my essay The Six-Fold Economics of Compassion. The last of these, wisdom, is divided into two main categories: Post-Materialism, and Co-Centricity. These two principles are each discussed in a separate blog entry. Finally, wisdom could also be broadly divided into “theory,” which is the more general discussion, and “pragmatics,” meaning the practical steps we could institute at a systemic level to put economic compassion into action. The main pragmatic recommendations arising out of my years of contemplating economics issues are put forth in the essay, Civil Endowment Theory. For a shorter discussion of civil endowment, see the post entitled The Special Proposal. (You can see the titles of the various posts by clicking on the little triangles next to the dates in the column on the right side of the page.)

Wednesday, January 7, 2009

Climate Disaster and Economic Justice

A note: I have just read an important piece by Bill McKibben which is an update on the global warming picture. The news: it's happening faster than expected, and many of our standard ideas about the subject are limited. If you do nothing but read that piece, called Think Again, Climate Change, I will be pleased. My blog entry below is in direct response to it. Also note that I'm trying to write shorter entries now. This one is around 900 words. No more seven thousand words. That was an exception. But I do hope you get through the previous post on Civil Endowment Theory at some point, because it's a distillation of the last 10 or more years of my work.

This post just makes one simple point, which is this: Humanity is not going to get motivated enough, inspired enough, and unified enough to stave off climate disaster – which in simplest terms means phasing out fossil fuels – unless we do it in a way that brings economic justice and opportunity for all.

Typically when we think about the struggle against global warming, we think about governmental action, international treaties, and the like. It is true that governments have a huge role to play, of course, but they show no signs of moving away from policies that perpetuate the grotesque inequalities of wealth that exist in our world. Their leadership is inherently suspect, not to mention the fact that many governments are actually fossil fuel producers (Russia, the Arab states, Venezuela, Mexico). Their solutions will fall short because they are fundamentally beholden to conventional thinking of the same sort that got us in this mess. The recent U.S. financial sector bailout is a case in point. Outrageously, much of the money that was given to banks (about $350 billion so far) went to executive bonuses, dividends, and buying weaker banks. Reptilian capitalism at its best.

Nor do the very rich have a handle on this. T. Boone Pickens, the oil tycoon of Swift Boat fame, who recently got renewable energy religion and blanketed the airwaves with ads about wind power, has fallen silent. I heard he lost $300 million in the recent market meltdown, and financing for his wind projects is in question. That's a snapshot of course, and the rich have a huge potential role to play. They need leadership, though (something they don't want to hear) and they are fundamentally disinclined, despite genuine altruism and generosity, to do anything to change the system as it exists, which is indeed the system that made them rich.

Let's see, what else might do it? Oh, yes, “market forces.” But, as we have seen in recent months, when the price of oil collapsed much of the momentum for renewable projects was lost. Sales of SUVs rebounded. Oil prices are again inching up, and certainly smart folks know that the long term trend is going to be up. But putting our hopes on a price-based transition is too little, too late. Prices fluctuate, as we've seen recently, but CO2 emissions don't depend on the price of fossil fuels. And there's a huge amount of them left in the ground. There's no indication they won't be extracted and burned at whatever price. And then there are those lovely subsidies that governments pay for fossil fuels, subsidies that distort the market. It seems that the real market is about how much it costs to buy favorable legislation and lax regulation, and the marketing costs of manipulating public opinion, such as in the recent “Clean Coal” propaganda campaign.

Let me say this again: We need a solution for energy transition that simultaneously brings economic justice for all. There are two reasons for this. First of all, economic justice is justified! We as a human race deserve – and we will all benefit greatly from – a civilization in which everyone has basic sufficiency, basic economic security, and basic opportunity. That is what economic justice means to me. It does not mean forced egalitarianism, forced collectivization, forced conformity, government control, or any of that. It means universal freedom, the actual freedom that economic well being brings, and the civil freedoms that empowered individuals demand.

The second reason is the simple pragmatic fact mentioned at the beginning. The epochal economic transformations needed in the coming decades can only take place in the spirit of a unified humanity – unified against the threats of planetary eco-disaster, but equally unified in the inspiration of a new planetary economic paradigm. The vast masses of ordinary human beings are simply not going to make the sacrifices, the wrenching changes, and go the extra mile – in short, we are not going to do the work – simply to make the fat cats richer. We are not going to do it to perpetuate the injustice that now exists. There simply isn't enough motivation in the human spirit to do something that stupid. Neither will nationalistic competitiveness do the trick (“Let's stop global warming to show the Chinese just how superior we are . . .”). Global climate change is a problem for all humanity. We need a solution for all humanity.

The civil endowment system as expressed in The Special Proposal has the potential to make such a solution possible. What is needed is the mobilization of generosity on a planetary scale. That generosity comes from human beings, not a theory, a system, or a proposal. Nevertheless, by providing a vehicle for the expression of planetary generosity and its utilization, the implementation of civil endowment theory can become the definitive new economic paradigm of the future, a paradigm that we have always deserved, and one that is desperately needed as we move closer to irreversible climate catastrophe.