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.

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 20^th 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 http://ev1.org/nimhsup.htm).

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.

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.)

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.

Civil Endowment Theory

This post is an effort to set forth in summary form the essential points of a Civil Endowment System that forms the heart of the Special Proposal as described in my previous post.

Although some of this is theoretical in nature, it is extremely timely, because although it does not offer a quick fix for the current economic mess, it does offer a slow fix. By analogy, a Civil Endowment System is like good diet and regular exercise as a way to attain health. In some sense our current collective economic behavior is like someone who smokes, lives on junk food, sugar, and caffeine, never exercises, and then wonders why radical surgery or even chemotherapy has become necessary.

The analogy, of course, is not exact, but our world is indeed approaching critical condition. It is clear that the current economic pattern is unsustainable. This means that it will inevitably change, but how? Will it change through collapse, destruction, and catastrophe? Or will we succeed in designing a system upgrade with new insights, new functionality, and new paradigms?

Adding a Civil Endowment System to our current financial and economic structure is a proposal for just such a system upgrade. In many ways, what is proposed is as different from classic capitalist and socialist models as they are from each other. At the same time, it can take root and grow organically within our global society as it is, and it can do so without violence, appropriation, or even substantial political change.

It is interesting that a proposal for a Civil Endowment System could be the subject for an article entitled “Fixing the Free Enterprise System.” That would probably appeal to a business audience. But another completely apt title would be “Economic Justice for All Humanity.” That would probably appeal to a different crowd – more my personal crowd, I would say, although I also own a business and can relate to that sort of thinking. It could also appeal to an environmental constituency under the title: “Sustainable Development: Where's the Money REALLY Going to Come From?” What is significant is not these slightly grandiose titles, but that a Civil Endowment System is the programmatic proposal in each case.

Concerning the “free enterprise system,” many of us dispute whether it really exists at all. (The term “market economy” is more widely used in professional circles.) Whatever you call it, many people think that it is necessary to scrap the whole idea of capitalism and start over. Unfortunately that is the sort of Utopian thinking that got economics in the sort of mess that it is in today. Capitalism isn't just going to go way, and the historically proposed alternatives are even worse. In reality, both socialistic and capitalistic economic theories are highly Utopian. This will be the subject of a future post, and it's not my idea, by the way. But the bottom line is this: business is not going to go away. Self interest isn't going to go away. And hopefully personal freedom isn't going away. And although government in general is deeply involved in even so-called free or market economies, government isn't structurally capable of fixing such an economy. I will further state here that government is structurally incapable, or at least inadequate, at actually running or controlling an economy (socialism/communism). Moreover, it has been tried. The socialist experiments are history, and they are overall a history of failure. At the same time, it can safely be said that capitalism in its present form is a dismal failure too, one that has the dubious honor of potentially destroying the world.

I am personally quite sensitive about the question of what is Utopian, since when some people ingest the details of the Special Proposal they will undoubtedly suggest that it is a Utopian dream. It is not, but until you understand that the basic ideas of classic socialism and capitalism ARE Utopian, you'll probably not see that. Stay tuned for that discussion.

In the U.S., there is little mainstream support for out-and-out socialism, although it is quite interesting that the Bush administration has been buying banks lately! What there is though, is quite a bit of emphasis on the assumption that the current economic mess is the government's to fix. Though I generally support short term measures such as are being taken (with all the reservations and distaste that many people have about who the bailout does and doesn't bail out), we have to come to grips with the limitations of government in establishing a decent economic order. Of course the government has a role to play, and it should do that well. When you have an administration as disastrously corrupt and incompetent as the current one, and with the structures and conventions we have currently in place, combined with the general malaise of a society adrift and in denial about the realities of history, we definitely will get the sorts of boom and bust cycles we are now seeing. To summarize, let's just say this: although government intervention is necessary in the current crisis, and although significant government involvement and regulation of the economy is a given in today's world, we shouldn't assume that the government is going to fix the structural problems that exist in our economy. If we do assume that, we will miss the chance to really fix or even begin to remedy such problems. Government can't do it.

If we are to be pragmatic, we will try to find a way to get from the current situation to something better, and not only think about the short term. That is the emphasis of the Special Proposal.

Civil endowment theory begins by pointing out the power of capital. Capital, in the sense of being the direct investment of resources to launch productive processes, is powerful because it is the initiator and driver of the these processes. It is an essential ingredient. As such it also carries with it complex qualitative outcomes. We could say that the investment of capital is both a tipping-point type causal factor, and a long-term or persistent type causal factor. It is a tipping point factor, because it initiates a particular type of economic activity. It is persistent because it locks into place that mode of activity for a certain period of time.

When we talk about the power of capital, do not assume I am discounting other forms of economic power. It is possible to talk about the economic power of government, of individual choices, of consumer fads, of fear, of jealousy, even the power of, say, celebrities. But capital is more primary than these kinds of power, more creative, and carries with it certain kinds of potential or real freedom, though this freedom is often hidden from view or understanding. What is interesting about the power of capital is that there is some transformative flexibility in its application. You can build a green factory, or a wind power farm as opposed to digging a coal mine. You could even start a bank that treats customers fairly rather than ripping them off. You could launch enterprises that plan to transfer ownership to the workers over time. These are just a few (and by this point in time, well known) improvements of capital behavior.

The basic idea of “capital behavior,” refers to the way the intentions behind investment are put into practice. From this point, students of economics will note that I'm using a modern, more general definition of capital than the original 19th century one, which more or less referred to factory equipment. Nowadays, the definition of capital has expanded to mean any investment intended to create economic productivity, including money used for that purpose. As noted in a previous post, this modern definition creates the immensely slippery problem of confusing true investment with speculation. Even assuming we are able to understand the difference, from the time of Marx, it has been more or less assumed that capital is extractive, exploitive, exclusive, and materialistic, and that it has no conscience, no kindness, and indeed no ethics whatsoever. Certainly that is the behavior of much capital in today's world, perhaps the majority. Thus there is an assumption that capital only exists to feed and multiply itself, like some sort of invasive parasitic or viral infection. This sort of capital I humorously (but accurately) call “reptilian capital.” It is cold blooded and carnivorous. It eats it own young when it feels like it. It answers to no one.

Of course, that is a one-sided and incomplete view of capital, but we must be realistic as to the degree that such a model truly applies. Greed- and fear-based investment is huge, and don't forget it. At the same time, there have always been business people who are decent and well intentioned, and thus there has always been some degree of responsible capital behavior. Most recently there are significant trends such as socially responsible investing (SRI), socially responsible business, and green business. All these are wonderful ideas, and the fact is that the capital behind such ventures is changing its character. Probably many of the people involved with such ventures don't see it as a change in the nature of capital itself, but rather just in the intentions behind doing business. However, there is a lot to be gained by seeing it as a change in the quality of capital. To express this, I have coined the phrase, “Capitalism can't be reformed, but capital can.”

To put it briefly, a very precise and refined definition of “reformed capital” is the economic power base of the Special Proposal. It is called civil capital, or civil endowment capital. The “leap” that led to the formulation of this special notion of “civil capital” involves the recognition that not only would it be beneficial, but it would actually be economical, for there to be a perfected form of capital that would serve the whole of human society.

This postulated economical quality of civil capital, by the way, is a technical way of talking about the economics of compassion. At the most basic level, of course, by compassion we are talking about a quality of heart and mind, and it is that quality that provides the most fundamental basis of my work. But the other meaning of the phase is that, if undertaken skilfully, compassion IS economical. It has a positive economic benefit. It is worth it in all senses of the word.

What is civil capital? A simple definition is this: “capital whose beneficiary is the social whole.” I use the term “social whole” rather than “human whole” here, because, as we will see, civil capital endowments can be designed to serve populations that are subsets of the human whole.

Every form of investment has a beneficiary, which is usually -- but not necessarily -- its owner. In the case that the beneficiary is not its formal owner or administrator, the fund is often called a trust. One common form of trust is the endowment for non-profit organizations such as universities or charitable organizations. Trusts and endowments are not civil capital, because they have a limited beneficiary, and more importantly because the investments usually are managed according to the standard exploitive/extractive model of reptilian capital. Usually they just exist to provide cash income over time. However, the legal structures and social conventions associated with trusts and endowments are highly significant in enabling the establishment of civil capital.

Civil Endowment Capital takes a radical step beyond SRI and other endowment models in that it is fully dedicated, on a beneficial basis, to the social whole. In other words, the direct financial benefits of ownership, along with the positive effects rippling out into the economy, are all granted to the whole of humanity. Those benefits are endowed to civil society, which leads us to the term “civil endowment.” We could say that all humanity effectively owns the civil endowment, in a very real sense of the word. Although there are not existing conventions or institutions by which this universal ownership can take place, such ownership can be established through the beneficial ownership of a fiduciary agency. It is possible, without any changes of law or even custom, for a non-profit organization or NGO to hold assets in trust for the entire human race. Civil Endowment Theory defines the beneficiary of civil endowment, the universal beneficiary, as follows: all human beings now living, and all human beings yet to be born. This is clearly different than SRI, since in the case of SRI the assets are owned by the individuals or groups investors and, though intended to be ethically invested, the assets (and the direct economic benefits thereof) will always remain under that ownership. The second key point of this definition is that it includes all humans yet to be born. Although there is no assumption made here that we have full and complete foreknowledge of what the best investments will be for the longest possible term, the responsibility implicit in this definition is that we must do our best for the longest possible term. The phrase “seventh generation” comes to mind. Did the Native Americans who coined that phrase mean seventh as opposed to sixth or eighth generation? I can't say, but I doubt it. Probably it is more of a beautiful metaphor for how we should think, and that is the sort of unbounded time horizon specified in the phrase “all humans yet to be born.”

If capital were to be invested for this universal beneficiary, what sort of capital behavior would be needed? In many ways, the very definition of the beneficiary leads us directly to the answer. And as it turns out, it is not hard to see that the behavior of civil capital must be exactly what decent and progressive people have been clamoring for for years: the elimination of severe poverty, economic opportunity for all (including closing the obscene gaps between rich and poor), protection of the environment (sustainability), and the general achievement of economic justice. That is a very rough sketch of what I call the civil investment paradigm. In its full expression, though, this paradigm involves a great deal of complexity and would require the development of a completely new investment decision-making model.

In particular, civil investment would not prioritize financial extraction, but rather it would emphasize optimizing the qualitative macroeconomic outcomes resulting from the economic activity inherent in the investment. This follows logically from the nature of the beneficiary. If the beneficiary is everyone, on the longest possible time horizon, we simply can not undertake business activity that is exploitive, extractive, unjust, or unsustainable. This might be such a shocking idea to people in the investment and business world that they may simply be unable to understand it, or certainly to question whether any “money can be made” under such a paradigm. This is so because in today's mindset, just as it is hard for many to differentiate investment from speculation, it is hard to differentiate profit from productivity. In fact, there is a huge difference. In the world of extractive capital, success is measured in terms of profit, whereas in the world of civil capital success is recognized by productivity in relationship to the human consequences of production and natural liabilities such as resource depletion and environmental degradation. It is entirely possible to work for optimal productivity for the satisfaction of human needs under such a protocol. In addition to its productivity in directly satisfying human needs, capital functioning in this way would be a qualitative macroeconomic stimulus. This second quality is of extreme importance. There are two reasons for this. First of all, civil capital will accumulate gradually, and is not intended to supplant or replace private wealth. Even as a very small percentage of the total economy, however, civil capital could exert a positive qualitative stimulus. Going along with this point, it should be made very clear from the beginning that it is absolutely NOT the intention of Civil Endowment Theory to take over all the world's capital or in some way dominate or control the functioning of the broader economy. Instead, civil capital should find its own level, probably as a modest percentage of total invested assets. It should also be noted that part of the strategy of civil capital would be to establish and secure private assets for individuals as an integral part of its functioning, through such vehicles as employee ownership, loans for housing, and the like. The Civil Endowment System is meant to be a multi-functional qualitative tonic for the economy, not a takeover.

The establishment of a Civil Endowment System is doable without revolution or political transformation. It is essentially a civil sector/private sector initiative. There is tremendous will in today's world to move out of the current fossil-fueled industrial economy with its grotesque business cycles and injustices, and toward a more progressive and humane future. That will is constantly stymied, not simply by lack of capital, but by lack of capital that understands and supports and indeed expects such goals. By this reasoning, civil capital as defined above should be created, because it needs to exist.

The presence of this reformed capital, operating under the civil investment paradigm, is an essential structural enhancement to the free market system. Indeed it can be said that a robust system of civil capital completes or fixes the system design of a market economy. Civil capital can thus be called “the perfection of capital.”

Where will civil capital come from? My answer to this is perhaps the most radical and potentially controversial aspect of civil endowment theory. In simplest terms the answer is this: generosity. I have tried to discuss in my earlier posts just how immense a role human generosity plays in the economy of our world. Much of it is usually overlooked: the generosity of parents to children and children to parents; the generosity that supports all of the world religions; the generosity that builds schools, hospitals, and funds the arts; and the outpouring of giving to total strangers in times of natural disasters. The human race has plenty of generosity.

I believe we could build a worldwide civil endowment of about $1000 per capita in about a generation, say 25 years. I know: that's around 7 trillion dollars. By comparison, please note that worldwide estimated military spending for one recent year, 2004, was 1.1 trillion dollars. Just under half of that was by the U.S. That is for one year. Don't forget that civil capital endowments will be permanent, productive aggregations of resource that will trickle in as available from many sources. Note that the socially responsible investing (SRI) segment of overall financial investments is said to be about 2.71 trillion dollars. Thus a $1000 per capita civil endowment would be a pool of resources that is equivalent to about 7 years of total global military expenditures and 3 times the current aggregate SRI amount. I am just using this $1000 per capita figure as a reference point to think quantitatively about a level that could be considered structural in the sense of making a definite and stable difference in the quality and character of the world economy. But civil endowment is a good idea even at much smaller levels. I am setting a target of one penny per capita (today that would be about 67 million dollars) for a symbolic level of operation, and a hundred times that ($6.7 billion) for a catalytic level of influence. These three levels: symbolic, catalytic, and structural are the three qualitative levels of influence possible for civil endowment. Of course, it is possible that experience may show that these figures are significantly wrong. If we make a goal of achieving a structural level of aggregation, clearly new methods of fundraising are going to be needed. I have done considerable thinking about this, and perhaps the most realistic idea is to structuralize inputs through various methods, basically making small but steady flows of resource to the endowment a built-in part of doing business. This could include micro fees on certain kinds of transactions, such currency transactions, which would also create a modest curb on speculative behavior.

Related to this is the possibility of building civil endowment inputs into the structural design of a world currency, an idea that has been widely advocated by economic thinkers. It is entirely reasonable that any conversions to and from that currency should carry a tiny load that would end up in the civil endowment. There are many other types of micro fees that could be applied. Another area is revenue sharing by firms started with civil venture capital. It is quite possible that if the idea of civil endowment gained public attention and legitimacy, members of the tiny percentage of humanity with great wealth would contribute significant chunks of wealth (say a penny per capita) to the effort to give it credibility. It is possible too that a significant number of people could join in the goal of $1000 per capita by endowing one person in the time frame of their own lifetime, as a sort of personal legacy gift to the human race. Poorer people could give less. It is quite important that civil endowments NOT be funded by government and taxation in general, because once money is taken from people by coercion, resentment builds up, and there is a whole cultural habit pattern around what gets done with government money that encourages waste, fraud, corruption and incompetence. With that said, I believe there are important variations of civil capital endowments that could possibly be instituted to serve semi-public functions like Social Security and public education, which therefore may be funded by payroll deductions and taxes. But that brings in a whole other level of complexity from a political point of view, and is very much a “second phase” idea in this proposal. Civil capital in its pure form would be given freely, with understanding of its purpose. The best government support I can envision is that such contributions would be made tax deductible. Although there is a rock solid justification for such a deduction, since the money would go to direct investment in the “real” economy, it is by no means assured, at least in the U.S., that tax-exempt donations would be easily allowed by the IRS, mainly because it is such a radical concept.

To answer questions and doubts about the realistic possibility of mobilizing human generosity on this scale for this purpose is somewhat beyond the scope of this article. Clearly it is a question that needs to be examined soberly and thoroughly. But those who dismiss such a notion out of hand are probably stuck in a sort of one track of economic thinking, one that compartmentalizes various kinds of human motivations. The great economist Kenneth Boulding categorized types of motivations as transactional, fear based, and integrative. This last category refers to acts of kindness and generosity, things that are meant to bring people together. It is very easy to assume that economic actions are primarily transactional, and to take for granted fear-based motivations. Many economists have pointed out, however, what Hazel Henderson calls “the love economy.” Her analysis focuses on countless hours of unpaid labor, mostly by women, mostly in the care of family members. But really the love economy includes what Boulding calls “the grants economy.” In any case, as I have tried to sketch above, it is really a huge part of human life. What remains to be seen is whether the case can be made, and accepted, in broad enough scope, for the formation of civil capital.

The Civil Fiduciary

Once there is a significant body of civil capital, we need to ask ourselves how that will be managed. Indeed this question was the one most pointedly asked in response to my last post by my friend Jim Kukula, who among the countless (sic) readers of Trickle-In, has been perhaps following my thoughts with the most attentiveness (or at least the most feedback.)

The legal institutions and social customs associated with managing investments for individuals and groups are well established worldwide. A dictionary definition of fiduciary is “a person to whom property or power is entrusted for the benefit of another.” The word can be used as an adjective as in “upholding your fiduciary responsibilities.” Fiduciary institutions are organizational entities that do this kind of work. Broadly speaking, this includes banks (in the sense that they maintain deposit accounts or even safe deposit boxes), but most directly refers to investment management firms, pension fund managers, and so on. Certain government and non-profit organizations engage in fiduciary work as well. It is clear that civil endowments will need to be managed by fiduciary organizations of some kind. The structure, governance, and accountability of such organizations must be carefully established such that they will function as intended.

As has been amply demonstrated in the recent financial meltdowns, there are tremendous pitfalls in having one's investments managed improperly. The for-profit fiduciary world brings tremendous actual and potential conflicts of interest to the table. In the worst cases, it is like gambling at a casino run by the most addicted of gamblers. The for-profit fiduciaries are not just working for fees (which themselves are often excessive). They are players in the same game. They are big players and risk takers, with your money, for their gain.

This is not to say that all for-profit fiduciaries are crooks, which is is equivalent to saying that a whole industry is corrupt. It is really enough to say that the inherent conflicts of interest in such arrangements are inappropriate for civil endowment. This leads us to the notion of a non-profit fiduciary. It turns out there are quite a few such organizations in existence. (I am not talking about non-profit organizations that have endowments. These are usually managed by for-profit fiduciaries, which often take astounding fees.) Non-profit fiduciaries include state agencies, state or municipal pension funds, and the like. I do not know of any non-profit fiduciaries that manage, for example, the endowments of other non-profits. In any case the people who fun non-profit fiduciaries are paid professionals. Thus the basic outline of what I would like to call the Civil Fiduciary exists in today's world. Needless to say, just being organized as a non-profit does not automatically make an organization suitable to invest in the civil endowment paradigm, but it does remove a major structural flaw, namely the conflicts of interest and business culture problems mentioned above.

A Civil Fiduciary Organization (CFO) will be a non-profit organization charged with investing and managing civil capital. I believe such organizations would need to be newly chartered and created. There are some possible benefits of re-purposing or adding the civil fiduciary function to existing organizations, but the discussion of that is a bit too involved for this post. In any case, the people who will do the work will be paid professionals. They will be accountable most directly to the standards of the civil investment paradigm, and formally to their own organizational boards and to legal authorities. At more of a civil society level, they would be accountable to donors and to the international public. I envision that there would be any number of CFOs, operating throughout the world. CFOs will make direct investments according to the goals of civil endowment. It may be the case that they would create wholly owned for-profit companies to undertake activities such as venture capital investment, ownership of banks, and the like.

In addition to the accountability mentioned above, there is a need for a standards body, a separate (also non-profit) organization that would monitor and certify CFOs. This organization would also need to have the power to de-certify CFOs that fail to maintain proper standards. They would bring to light irregularities and mistakes as well as successes. There would need to be strict control of certain terminology, such as “civil capital,” “civil endowment,” and so forth, such that the CFOs stay on mission. This organization could be called the Civil Endowment Institute. It would perform research and creative work in addition to certification of CFOs.

It is clear that the art and science of civil endowment investing would be a continuous work in progress. Thus each CFO would need to do research and creative thinking, along with analysis of investment results over time. A great deal of communication and collaboration would be constantly needed. The whole system of civil fiduciary organizations would have to be one large, decentralized learning system. By allowing multiple CFOs to function more or less independently, albeit with centralized certification, the issue of over centralization can be minimized.

The other question that must be addressed concerns the institutional control of fundraising. The way that funds are brought into the civil endowment system, and the public perception that process creates, is as close to a make-or-break issue as I can imagine for this idea. It will probably be best for CFOs to have no role in fundraising, but merely be the custodians of civil capital. This would remove the perception (or reality) of Ponzi-style fundraising and investment, and create another layer of accountability. Thus there would be a need for one or more of a third type of institution, a Civil Endowment Foundation. These foundations would raise and receive funds and distribute them to qualified CFOs. The Civil Endowment Institute would, in its role, set and monitor basic fundraising standards.

Though complex, this system of three institution types would create a matrix of accountability, a system of checks and balances similar to those in modern political constitutions.

The Civil Endowment Model: Variations and Extensions

Before we launch into some very interesting extensions of the civil endowment idea, let's be clear what the most pure form of civil capital would be. Pure civil capital would be owned on a beneficial basis by the universal beneficiary, namely all living humans and all humans yet to be born. It would be invested to bring benefit to humanity as a whole, in the longest foreseeable time frame. The source of this pure civil capital would be freely given resources: “from human beings, to humanity.” That is a sketch of what I have called the perfection of capital. But a civil endowment system could and probably should be more extensive than this, and be used to address more specific and localized economic challenges.

The Individual Civil Endowment

At the far end of the spectrum from a universal endowment, civil capital principles could be applied to individuals. Whereas pure civil capital applies to humanity as a whole, it is possible to endow a particular human being with civil capital, and invest it in ways that would benefit that individual in his or her lifetime, all without violating the basic principles of civil capital. This can be done by viewing the individual as a responsible, aware, world citizen, and investing accordingly. Thus the only main difference in this type of endowment is that the type as well as the productivity of the investments would be tailored to the life of a particular human being. The individual endowment would not be personal private property but, like a trust fund, it would carry various kinds of benefits and rights depending on the age and circumstances of the individual. In the best-case scenario, an individual would receive an individual endowment at birth. The productivity of the endowment would be applied towards food and health care in the earliest phase of life, toward education in childhood and teen years, and then would provide backing for productive work in adulthood. In old age it would provide basic retirement support. At the time of death, it would not be an inheritable asset, but would instead revert to the general pool of assets for individual endowments. Over time, the aggregate of individual endowments could become quite significant. In coordination with other forms of civil capital, the macroeconomic effect could be almost as beneficial as universal civil capital. It could also be a popular and engaging way to build the civil endowment system because people could create endowments for themselves or loved ones, investments that would help them in their lifetimes and then help all humanity after death. I would hope also that people in wealthier nations would develop the custom of endowing strangers in poorer places, just as people nowadays send monthly payments to poor children internationally.

Endowments for Public Pension Systems

In the U.S., debate has raged in recent years about the possible privatization of the Social Security system. You will notice, no doubt, that in the current financial situation of market meltdown, recession, and even possible depression, no one seems to be talking about that! The private investment markets are a mess. Clearly there has been a wholesale betrayal of the principles of true investment, with speculation replacing investment across the board. The hardest hit are those with 401k type plans, managed in mutual fund accounts on a passive basis by for-profit investment managers. In up-market conditions, such funds do well; in bad times people lose their retirement savings. The very rich lose more money in dollar terms, but they're still rich. The ordinary worker loses far more.

In such an environment, it may seem ludicrous to talk about investment of Social Security revenues, instead of the current pay-through system, where the payroll deductions of currently active workers fund the retirement checks of those who are receiving benefits today. Though there is much talk of the “account balance” of the Social Security system, that is merely an accounting device. There is no money in the bank. Today's workers are funding today's retirees. In some sense this is a neutral and safe mode of operation for Social Security. Certainly it is superior to throwing billions into the speculative casino-like markets as they are currently structured, under the dubious stewardship of the wolves of Wall Street.

With that said, it must also be said that the nice folks who want to privatize Social Security have a point. Their point is that if your retirement savings are accumulated throughout your working life, that means much of it will be taken out of your pay decades before you retire. Even at modest rates of return, you should do better by investing it than just giving it to the government, which immediately gives it to someone who is now retired. But even more significant than the potentially superior returns to the individual, is the potential benefit to society -- the macroeconomic effect if all that investment resource were to move into the economy at large. Pumping vast sums of money into true investments, not speculation, would create vast numbers of jobs, vast amounts of economic wellbeing, solve environmental problems, solve social problems, and increase tax revenue. The overall effect, of course, depends on the crucial issue of using the correct investment paradigm. I am convinced that an appropriate civil investment protocol could be designed for retirement funds in general, and Social Security in particular, that would have immense benefit. This will probably not happen any time soon, and not just because of current market conditions. The concept of Civil Endowment Investing needs to be tested and proven, at least initially, in its purer form, before there is any real chance of its acceptance in the highly sensitive (and rightly so) institution of Social Security. It is possible though, that a route to such a system coming into being could be found through an altruistic variant of SRI that would move private retirement investment further than SRI toward a civil endowment model. At that level, such a retirement investment would be little different than an individual endowment, except that the retirement account would optionally self liquidate as needed in the payout phase. In other words, it would not necessarily be passed on to the next generation, as would the individual endowment mentioned above. This type of account would not be civil capital, but would be an example of a further extended auxiliary to civil endowment that I call “parallel funds.” The goal for a Social Security endowment would, however, be to create a permanent fund that would increase over the generations and which would guarantee the elderly not just the necessities of life, but genuine dignity in old age. And for society at large, the Social Security endowment would be a treasure of investment capital for a vibrant and prosperous economy.

Civil Endowments for Public Education

It is interesting to note that when public school systems were first instituted in the United States, it was standard practice to give them rather large chunks of land. I need to do more research on this, but I believe the idea was that this land was to be rented out to farmers and the rent would pay for the schools. If that was the model, then the founding fathers were trying to create a permanent endowment system for their public schools! Back then, land wasn't considered to be capital, but clearly in a more current definition, and based on the intended usage, it was capital, and it was meant to be quasi-permanent. However, history shows that the land was almost always gradually sold off by the school systems to bring in more substantial short term revenues. Whatever the wisdom of that, I believe it is time for school systems to find new ways of endowing themselves. No one needs to be told that public schools need help. At the same time, local economies are often starved for investments that provide jobs, housing, health care, and so on. I believe it would be helpful to create a system of public school endowments that would raise money locally, and create permanent pools of capital to be invested and reinvested in that same community. (There are a few local public school endowments existing in the United States, but from my research they do not carry with them the notion of local re-investment or anything like the civil investment paradigm. They are small, extractive endowments designed to provide small-scale support to local school budgets for things like art programs.)

The local investment of endowments, important as it is, creates significant risks if those investments are also chosen and managed locally. Therefore, it is probably better to spread the risk by creating state level or national level non-profit education endowment fiduciaries that would pool the endowments from participating school systems, but commit to invest and manage locally amounts of capital commensurate with the size of the local endowment. In other words, if the Elk Horn, North Dakota school system has a 10 million dollar endowment, the North Dakota CFO (certified for education endowments by the Institute for Civil Endowment), would be committed to invest that amount locally, but direct returns on the endowment would be based on a state or national average proportional to the size of the endowment. This would spread out risk of failed investments, and deliver an average productive return to school budgets, while leaving the positive ripple-out effects locally where they belong. Thus the benefits are twofold: investment in the community, which inevitably increases the tax base along with the wellbeing of the community, and a direct financial return to the school budget. Overall the school endowment system could reduce reliance on property taxes over time, and stabilize school budgets as state and federal support fluctuates.

There is also the issue of fairness in property tax based funding. New York State has a system where older home owners get a reduction on their property taxes. This has an aspect of kindness and fairness, both because older homeowners often have more limited or fixed incomes and because they've perhaps paid their share. That is all well and good, but it would make more sense economically if some property tax money went into the Public School endowment, because their history of payment would translate to the maturing of investments over time. Then the longer a person had been paying into the system, the more real economic justification there would be for their being excused from further burden. It is quite possible that older homeowners could stop paying school tax altogether, either by paying into the endowment for a given number of years, or by making extra payments to the endowment during high income years to reach a certain threshold.

I believe there would also be strong community support for charitable fundraising locally for such endowments, from grassroots effort on a small scale, all the way up to large donations and bequests by wealthy individuals. One interesting and very educational tradition that might spring up is for the students themselves to do some sort of fundraising activity on a yearly basis that would make a permanent contribution, however modest, to their future education and that of all students yet to enter the system. Needless to say, this would help the kids understand and appreciate the nature of civil endowment, its altruistic intent, and help them make a connection with the actual work of building the system. Probably the kids would have an easier time understanding it than their parents!

An example of how these types of endowments might synergize is as follows: say a school system with a civil endowment also had a certain number of students with individual endowments. During those student's school years, the individual endowment income could be paid either directly into the school budget, or more interestingly, into the endowment for that school. The parents of those children could get credit against future tax payments by channeling endowment income from their kids into the school endowment. This could encourage higher-income parents to create individual endowments for their kids. It gets very interesting.

There are several other possible variants of civil endowments, such as organizational endowments and local economy endowments, as well as perhaps endowments based on demographic factors. This last possibility, such as an endowment for Native Americans, international refugees, and so on, has a certain appeal, but also has obvious shortcomings since it is discriminatory, even if in a generally positive direction. I will leave the discussion of all these variations for future posts. However, one type of demographic endowment that recently came to mind, and which I find quite appealing, is an endowment for the poorest of humanity, say, the poorest billion on the planet. I recently saw a United Nations statistic that 963 million people worldwide last year didn't have enough to eat. Then there's that lovely statistic that about 50 thousand people a day, mostly children, die of hunger and malnutrition. That stuff starts to haunt you if you think about it a lot. There have been a lot of interesting proposals for business to help address the problem of extreme poverty. Where's the capital for that going to come from? Think: civil endowment for the poorest.

Conclusion

To give a really thorough exposition of civil endowment theory would require much more theoretical explanation, including a romp through systems theory as applied to economics. Stay tuned for that. But to summarize a systems view, we could say that capital reform is an “opportunity point,” a point of possibility -- or to use a fancy term, motility. In longer term thinking, it is a qualitative macroeconomic stimulus. At the inner or psychological level of society, the activity of building a civil endowment system would be a potent force for human unity. Exactly how contributing to civil endowment can be transformative for the giver is one topic that deserves much greater discussion than I can give it here. But suffice to say that beneficial effect of giving to the civil endowment is one reason that this idea is beneficial at any level of scale.

Most broad proposals for economic reform focus on abrupt system-wide changes that are highly improbable, such as abolishing the Federal Reserve System, canceling NAFTA, and other political steps. By contrast, civil endowment is non-political and incremental.

Although we don't ordinarily recognize it, we can change the behavior of capital. This change has begun to happen through the movements toward socially responsible investing, socially responsible business, and green business. This influence and power is already changing the way many companies do business. The inspiration of Civil Endowment Theory is that this trend or movement can be vastly refined and expanded. From a moral and compassionate point of view, capital can be perfected.

In future (and hopefully shorter) posts, I will talk about “the leap,” by which I mean the process and the internal tipping point by which I came to see the possibility of a civil endowment system. The leap was not concerned primarily with the practical description of the institutional structures outlined here (although the fact that it is institutionally possible is part of the leap). More fundamentally, it was more a perception of possibility, the possibility that we can radically change our assumptions about capital, who capital benefits, and how it could be accumulated, invested, and managed. In seeing that, we can see how civil endowment can be an effective leverage for system-wide economic reform. As such, Civil Endowment Theory is a logical, non-Utopian outcome of contemplation on the economics of compassion.

Introducing: The Special Proposal

As I have said in my earlier posts, there is a body of pragmatic suggestions that has arisen from my creative work on economics over the years. Though these ideas have been essentially complete for quite some time, I have chosen to first present more general theoretical work on an economics of compassion derived from Mahayana Buddhist thought. For reasons I discuss below, I have decided to move ahead quickly at this point with a preliminary presentation of my pragmatic ideas. For some time I have been calling this body of pragmatic thought The Special Proposal.

To be entirely thorough in preparing the ground for this material, it would be good to lay out some more detailed theoretical writings before bringing forth the proposal itself. Topics such as the economics of scope, which is itself a subset of a system theory of economics, would provide a slow and gradual approach to the proposal at hand. But I am presenting this material at this time for two reasons. First, it could be argued that a discussion of the six-fold economics of compassion, which I have presented at some length in my previous post, is really adequate in its own way as a preparation for The Special Proposal. In particular, it arises from the implications of the co-centric wisdom aspect of that presentation. However, it should be noted that I believe there is a route to The Special Proposal through the logical resources of economics as a social science, albeit economics as broadened in scope by the progressive thinking of the likes of E.F. Schumacher, Kenneth Boulding, Hazel Henderson, and Herman Daly. I plan to explore these avenues of thought in future posts and in my upcoming book, The Economics of Compassion.

The second and most compelling reason for presenting this body of thought now is a sense of urgency around the financial and economic crisis that is now unfolding here in the United States, with effects worldwide. In the midst of all this, I really do not see all that much creative thinking going on, so I thought I would throw some really unusual ideas into the mix and see what happens!

If we consider our individual economic activity, there are clearly countless ways that we can bring compassion into that activity through practicing the principles of the six-fold economics of compassion (generosity, ethics, tolerance, diligence, focus, and wisdom) in our own lives. When it comes to applying such principles in a broader organizational or societal context, it is not quite as clear what should -- or can -- be accomplished. Nevertheless, the power of organizations and collective action in general makes it quite compelling to search for ways to do so. In other words, although it is not always clear or easy how to move institutions or society at large toward an economics of compassion, the leverage and potential benefits of such shifts certainly make it worth investigating. And it is probably true that individual action, important as it is, is not going to help humanity turn the corner fast enough, except perhaps as individual action functions in leadership and creativity. Thus, though individual action is indeed crucial, changing or creating institutions and the prevailing mentality around economics on a society-wide level is the key here.

If we are to be pragmatic, we need to go beyond mere development of principle and planning, important as that is, to effective action. To achieve effective action, or even a glimpse plan for such, we need to respect the truth of cause and effect. In essence, this means we need to be honest about the subject of economic power. By contemplating economic power with a simple respect for cause and effect, we may come to a vastly different sort of consideration than the kind of cynicism, resignation, or blame game that leaves many progressives spinning their wheels. It is very easy to get angry when we think about who has power and how they use it. It is easy to wonder how we might take that power from “them,” rather than think about how “we” might obtain and use power.

If we look generally at how to address the great economic issues of our times, namely poverty, the environmental question, and economic justice in general, we need to be careful to channel our thinking in productive directions. Even if we focus specifically on economic power, there are areas that will be more or less helpful. There are many areas of economic power that can be considered, and I do not exclude them from consideration, even if I choose to emphasize other areas. Specifically, the area of political power over economic activity is one that is very much in the public eye right now. When many of us think of fixing the economy, we habitually think of what the government can or should do. I am not so naïve or ideological in orientation to to think that the government, or the political process in general, could or should possibly be disentangled from the economy. But neither am I so naïve as to think the government can fundamentally fix the economy. Government activity, for better or worse, is undeniably an aspect of economic power. However, The Special Proposal is not fundamentally based on governmental power. Instead, it rests on two aspects of economic power that may seem disparate or even unrelated. The first is a virtue of the human spirit, and the second is a principle of economics that is at once abstract and a bit mysterious, and at the same time extremely tangible and potent. I am referring to generosity in the first case, and in the second, to capital.

In essence, The Special Proposal is this: that a new form of capital be created, invested, and maintained, which will be called civil capital, or more elaborately, civil endowment capital. The aggregations of such capital will be called civil endowments. The beneficiary of civil endowment capital will be a specially defined one: the universal beneficiary. The universal beneficiary is defined as follows: all living human beings without exception, and all human beings yet to be born. The fundamental method for the formation or accumulation of civil capital will be generosity. The resources that will make it up will first and foremost be given voluntarily by human beings, for human beings. It should not be assumed that standard processes of charity and philanthropy would provide the sources of civil endowment, yet they could, at least in the beginning. More likely for the long term is that the bulk of input could come from various small and steady streams of contributions derived from routine transactions (similar to microtaxes) and from cash flow of businesses capitalized by the endowment. In the sense that these streams would be voluntary in nature, they would fall into the category of generosity. This slow and steady input to a permanent capital fund, by the way, is the implication of the term “trickle in.”

Of course, civil capital will have its own internal productivity over time, but civil capital will not follow the greed-based investment paradigm which I cheerfully call “reptilian capitalism.” It is not about the cold-blooded replication and multiplication of itself. In other words it will not be invested according to the “normal” speculative, extractive, and exploitive paradigm of conventional capitalism. Instead, it will be invested according to a civil endowment investment paradigm. This paradigm is simply in keeping with the defined beneficiary of civil capital, namely all of humanity, now and for the future. In brief, civil capital will be invested in ways that benefit all of humanity, with no one excluded. If the beneficiary is everyone, it doesn't work to exploit someone, and it doesn't work to poison someone, and it doesn't work to ignore someone.

It may be hard to visualize how this is possible, but a starting point is the simple avoidance of harm. The global economy as it is currently structured is deeply harmful to each and every one of us, especially if we think about the future. It is harmful to each of us most obviously in environmental ways, with the very real and multiple threats of global ecological catastrophes looming over each of us and all humans yet to be born. The tragedies of deep poverty, human conflict, and lack of opportunity affect individuals in more varied ways. Yet if we are able to see ourselves as citizens of the world, the conditions and the suffering of our fellow human beings cannot fail to affect us. The implications of co-centric wisdom, and simple compassion as well, are that the economic interest of the whole of humanity is of direct bearing on each of us on many levels.

This sense of a whole system awareness is at the core of the proposal for civil endowment. The investment of capital is an extremely potent long term causal mechanism in the evolution of the economy. Creating a body of capital that will benefit the whole system, from the core, as it were, can have a tipping effect. The body of theory pertaining to this idea is called civil endowment theory. I look forward to providing a more rigorous discussion of this from the point of view of economic systems theory. Suffice to say for now that capital is a unique sort of causal vector, one that operates in the formative and qualitative dimensions of an economy. I will also say that its power has gotten a bad rap because it has been applied selfishly. The emergence of socially responsible investing (SRI) is a huge step toward a different type of capital altogether. SRI is not civil capital, however, because it lacks several important structural features of civil capital. Though invested ethically, ownership remains with private investors who expect a good return in a fairly short time frame. By contrast, civil capital is fully owned on a beneficial basis by humanity at large and is invested in what can be called maximum horizon time frame, namely the farthest foreseeable future.

Civil capital endowments would be administered by a system of NGO (non-profit) organizations collectively called the civil fiduciary. There is a long history of administration of capital assets by third parties on a beneficial basis, and there is also a long history of non-profit civil society organizations holding and investing assets, usually for the financial support of the organization itself. Thus the establishment of a civil fiduciary would merely be a restructuring or refining of existing organizational missions and professional skills. This last point is by no means meant to minimize the challenge of such a project, but it is definitely not a Utopian dream.

Civil endowment theory is a structural innovation, an enhancement, to the theoretical structure of free market economies. It can be said that the establishment of a civil endowment system completes or perfects a free market economy. Therefore, civil capital can be called “the perfection of capital.” Without being grandiose, it is clear from the implications of civil endowment theory that it solves the system-level issues that have divided economic thinkers of right and left for centuries. I have no illusions that this assertion will be instantly accepted, nor does it matter very much. I am content with a gradual process of, from my own side, explaining the reasoning that led to what I call the leap, (the recognition of the possibility and potential of a civil endowment system) and from a community point of view, with engendering support and development of a civil endowment system in practice.

One objection to this idea, of course, is as follows. “Well, of course if there were truly massive amounts of resources devoted to the wellbeing of all humanity, it could have some real impact, but how will you get people to give that much money, and how long will it take?” In response to that question, it can be shown through reasoning that a civil endowment system would be helpful to humanity at any level of scale. It could do so at three levels: symbolic, catalytic, and structural. The first level is mainly the inspiration of the idea, and its activation as a seed for transformation. At that level (and at all the others) the act of giving to the endowment, however that is done, is a transformative affirmation for the giver; it changes the consciousness of the giver. And the symbolic power of the endowment, even when small, creates inspiration along with whatever tangible benefit it accomplishes. At a catalytic level, the causal vectors inherent in investment decisions become significant enough to influence tipping points in the vast matrix of events that make up the system of the world economy. The civil endowment influences the economy through a process of leverage. Finally, at a structural level, a really stable enhancement of the wellbeing of humanity is possible.

Admittedly, this is a hypothesis, and to enact it would be an experiment. Certain types of obstacles could arise, such as political opposition. Though civil endowment theory is not political in nature, political factors (and not just opposition) could affect its success in general, or its applicability in various parts of the world. The Special Proposal is most immediately applicable in countries that have basic open-society conventions: private property, rule of law, and fundamental institutional freedoms. It should be noted though, that the existence of a vibrant civil endowment system could encourage open society in places (including the United States) where that openness is less than complete or threatened.

It also may be possible that humanity in general is just too stubborn and stuck to absorb ideas like this. However, that's the beauty of leadership. Not everyone has to “get it” at once, or ever. Not everyone has to be inspired to contribute to the well being of all humanity. It will take leadership and inspiration, but that's how things get done. Therefore I'm not one of those people who likes to listen to those who start sentences with “People will never . . “ It's true that some people “will never” but many other people are very open and willing to look at new ideas. Those people are called leaders.

In summary, the rationale for civil endowment system is an outgrowth of the co-centric wisdom principle as explained in the six-fold economics of compassion. It recognizes the global economy as a profoundly interconnected system. The possibility and the need for civil endowment can be seen through a rational analysis of economic power as it operates in today's world, combined with a recognition of potential efficiencies of universal scope, all within the view of a global macro-economy functioning as a whole system. Finally, it rests on a philosophical point of view, which can also be expressed as a kind of faith or confidence, that there is enough compassion present in the human race to turn our global economy around, if we just can create the appropriate methods and institutions for doing so.

Dear Friends, It's the Speculation

I must confess that the original title of this post was, “It's the Speculation, Stupid.” But I thought better of it. To say it that way is a little too cute. The problem is not just that we're all stupid a lot of the time. It's that we're stupid even when we're smart. And that's the flavor of speculation, actually. What may be smart, at least temporarily, for one person becomes stupid if everyone does it. So if we're all stupid, I guess it makes more sense to be friends, friends in our stupidity, but friends the same.

This is my first post where I take the issues of our immediate economic life to hand, rather than stepping back and presenting my ideas on a more general economics of compassion. No doubt I'll say some things that are, well, stupid, but it's a risk I need to take. As deeply as we need a new body of foundational economic theory, we need that theory translated into common sense in the present.

Alan Greenspan testified before a Congressional hearing the other day about the current financial meltdown. As much as I disagree with him fundamentally in so many areas of economic thought, I respect the man. He speaks well, and we can learn from him, especially from the nuanced language he uses. And I respected the fact that he admitted -- now that he's out of power of course -- that he made some mistakes. But the one word he didn't mention (at least in his prepared remarks, which are all I heard) was speculation.

People in the financial world don't like to mention that word to often, but it's the elephant in the living room, isn't it? Part of the problem is that it is often hard to distinguish between what could be called legitimate or even principled investment on the one hand, and speculation on the other. Another problem is that speculation certainly is not the exclusive province of the very rich. If you count homeowners and anyone who has stock investments, or even (indirectly) insurance of any kind, there are a lot of us in the game.

Speculation is something that falls under the general umbrella of what I call the “veil of money.” Money is an absolutely lovely invention, but it has serious flaws because people are, well, human. At the most fundamental level, money is a veil because it puts a linear demarcation of value on things that are inherently qualitative. How much is it really worth not to be hungry? Or to be cured of an illness? For that matter, how much is a clove of garlic really worth? Economists often avoid this issue by saying that something is worth what people are willing and able to pay. But there's still the fundamental problem of quantifying things that are really qualitative. Because of that, and because price really depends on perceived value, which (to put it mildly) can vary, economists have long known that price is not the same thing as actual value. Perhaps this is a gross simplification, but it certainly speaks to the problem of speculation.

In any modern economy, investment is necessary, so what is the difference between a constructive and principled investment and speculation? Simply put, if an asset is purchased merely on the expectation that it will inflate in price, and especially if it is subsequently sold to reap financial profits, it is speculation. In other words, if the whole purpose of an investment is to extract profits based on price inflation of the asset itself, we have a speculative investment. Notice that I'm not equating price and value here. Some investments, say a business that grows over time, do increase in actual value. That sort of increase in value is what stock investors and investment advisors often look for, or at least claim to look for. If the price goes up wildly due to extraneous factors such as “irrational exuberance” or just a bull market, most investors think that is just fine of course. Perhaps we could say, to be fair, that average investors, if there is such a thing, are often taking a strategy in which speculation plays a part, but not the whole part. It is hard, however, to categorize things like currency and commodity trading, and the recent hedge fund craze, as anything but speculation. And the sort of speculation that brought down the house of cards this fall was beyond even ordinary speculation. It was an orgy of extractive market behavior at its worst. It was layer upon layer of questionable debt and esoteric financial instruments (so-called derivatives and the like) being bought, repackaged, sold and resold.

Extractive investment, by the way, is a much broader concept than this sort of financial speculation. The very conduct of a business can be extractive in nature, and often is. Exploitation of natural resources, of labor, and degradation of the environment are all features of extractive business models. Setting those major issues to the side for a time, the practice of rampant speculation in financial investments is the type of extractive behavior that has brought us to the crisis we now face.

It is intuitively obvious that everyone can't make a killing in a speculative economy, but why is that so? In answering that question, we come to a truly fundamental principle, namely the economics of scope.

Most people are familiar with the notion of economics of scale, which means that certain kinds of efficiencies do or don't occur depending on how much of an activity, say manufacturing an item, you do. This is a well defined and well understood principle of economics. What has not been elucidated so clearly is the economics of scope, which I define to mean the behavior of economic action in relation to the whole system in question. Although this may seem to be leading toward rather mystical territory, there is actually a very good example of the economics of scope in classic economics, namely, the monopoly. In the case of monopoly, it does not so much depend on the size of the market in question, but whether one firm effectively controls the entire market. If that is the case, it is called a monopoly and certain very serious problems come up.

Economics of scope as a general principle has huge implications for the sorts of economic problems we face in the present day world. It is, in fact, a useful umbrella concept for the crucial issues of our times: the environment, social justice, even economic war vs. peace. What we find with economics of scope is that inevitably our activity takes place in some kind of larger context, some kind of system. As we push to the edge of system scope (i.e. as our actions come to affect the whole system) , certain non-linear effects come about. Economics of scope is itself a subset of the more general principle of co-centricity outlined in my earlier posts. The notion of pushing the boundaries of system scope is a little difficult to explain. The closest analogy I can make is in comparison to relativity theory, where it is said that as a physical object approaches the speed of light, its mass starts to increase wildly. In our everyday world, we would expect changes of speed of an object to have no effect at all on its mass. And that is more or less what we observe. But approaching the speed of light is some sort of fundamental system boundary of the physical universe. Different stuff happens on the edges of systems. And so it is with economic, ecological, and social systems, in so many ways.

Classic macroeconomics actually addresses the issue of economics of scope, though I don't know that the term has ever been used before in this way. In Keynesian macroeconomics, the central government attempts to use its powers of spending and taxation to impact trends in the overall economy of a nation. The problem in today's world of course it that we have a global economy. (I'm not implying that the lack of global government is a problem; I'm just saying that Keynesian macroeconomics can't be practiced on a global scale, though Keynes himself of course was instrumental in building some of the international economic institutions that try to operate at the global level.) All this is not to mention the fact that Keynesian macroeconomics never worked all that well anyway, even when it is not, as it has been in recent times, grossly distorted by political incompetence and hypocrisy.

But I digress. The point to made from the perspective of economics of scope is this: if an insignificant proportion of economic actors in an economy engage in speculative behavior, it is more or less insignificant. They may incur some sort of moral failings on an individual basis, but the overall economy will not be effected. But when everybody or close to everybody is involved with, or exposed to, speculative risk, it simply does not work out. When your whole banking system is sucked into wild speculative investments on “securitized” (a very ironic term) mortgages for real estate that was itself involved in a wild and unsustainable spiral of price inflation, mortgages for which “we did not correctly price the risk,” (to paraphrase Greenspan's quaintly understated admission of failure) you have a whole economy falling into a vortex of illusion. It's the pervasiveness of the speculation that collapsed the house of cards, and that's a good example of economics of scope. It is a system-scope level of failure.

I don't believe I've said anything truly original about the crisis here, but at least it's an opportunity to introduce the key concept of economics of scope. And by looking at what is truly a toxic and corrosive style of investment, we may be able to move toward a glimpse of the characteristics of a healthy investment paradigm.

For more on the roots of the current crisis, see this very informative (and not too long) article about the current crisis by Herman Daly.

(If you don't know who Herman Daly is, he's worth studying, to say the least.)

And for an article on the recent Greenspan testimony that's a lot harder on him than I was above, but with which I fundamentally agree, see this David Corn piece from Mother Jones.