David Korten: Agenda for a New Economy


Richard Moore


David Korten: “Agenda for a New Economy: From Phantom Wealth to Real Wealth”


As President Barack Obama reveals more details of his $825 billion economic stimulus plan, we turn to David Korten of YES! Magazine. In his new book, Korten argues that the nation faces a monumental economic challenge that goes far beyond anything being discussed in Congress. He writes that now is an opportune moment to move forward an agenda to replace the failed money-serving institutions of our present economy with the institutions of a new economy dedicated to serving life. [includes rush transcript]


David Korten, co-founder and board chair of YES! Magazine. He is also a former professor at Harvard University’s Graduate School of Business and the author of several books, including When Corporations Rule the World and The Great Turning: From Empire to Earth Community. His newest book is titled Agenda for a New Economy: From Phantom Wealth to Real Wealth (Berrett-Koehler).

AMY GOODMAN: President Barack Obama has revealed more details of his $825 billion economic stimulus plan ahead of its introduction on the House floor this week. In his first weekly radio address as president, Obama said the plan would fund a new 3,000-mile electricity grid, computerize the nation’s health records, modernize schools, and repair and modernize the country’s mass transit system. 

PRESIDENT BARACK OBAMA: To accelerate the creation of a clean energy economy, we will double our capacity to generate alternative sources of energy, like wind, solar and biofuels, over the next three years. We’ll begin to build a new electricity grid that lay down more than 3,000 miles of transmission lines to convey this new energy from coast to coast. We’ll save taxpayers $2 billion a year by making 75 percent of federal buildings more energy efficient and save the average working family $350 on their energy bills by weatherizing 2.5 million homes.

To lower healthcare cost, cut medical errors and improve care, we’ll computerize the nation’s health records in five years, saving billions of dollars in healthcare costs and countless lives. And we’ll protect health insurance for more than eight million Americans who are in danger of losing their coverage during this economic downturn.

To ensure our children can compete and succeed in this new economy, we’ll renovate and modernize 10,000 schools, building state-of-the-art classrooms, libraries and labs to improve learning for over five million students. We’ll invest more in Pell Grants to make college affordable for seven million more students, provide a $2,500 college tax credit to four million students, and triple the number of fellowships in science to help spur the next generation of innovation.

Finally, we will rebuild and retrofit America to meet the demands of the twenty-first century. That means repairing and modernizing thousands of miles of America’s roadways and providing new mass transit options for millions of Americans. It means protecting America by securing ninety major ports and creating a better communications network for local law enforcement and public safety officials in the event of an emergency. And it means expanding broadband access to millions of Americans, so business can compete on a level playing field, wherever they’re located.

I know that some are skeptical about the size and scale of this recovery plan. I understand that skepticism, which is why this recovery plan must and will include unprecedented measures that will allow the American people to hold my administration accountable for these results. We won’t just throw money at our problems; we’ll invest in what works.

AMY GOODMAN: President Obama in his first weekly presidential radio address. 

Meanwhile, the Obama administration could be planning on spending even more money to bail out the nation’s banks. Speaking on CBS’s Face the Nation, Vice President Joe Biden said Treasury Secretary nominee Timothy Geithner will soon report on whether he thinks banks need more bailout money. Speculation is growing that the Obama administration may decide to nationalize two of the nation’s largest banks: Citigroup and Bank of America. Earlier this month, the Bush Treasury Department announced an additional $118 billion infusion for Bank of America. Citigroup recently announced it suffered an $8 billion net loss in the fourth quarter.

For more on the economy, I want to turn now to David Korten, co-founder of Positive Futures Network and publisher of the magazine YES!. He is also a former professor at Harvard University’s Graduate School of Business and the author of several books, including When Corporations Rule the Worldand The Great Turning: From Empire to Earth Community. His newest book is just out, called Agenda for a New Economy: From Phantom Wealth to Real Wealth. In it, David Korten argues the nation faces a monumental economic challenge that goes far beyond anything being discussed in Congress. He writes that now is an opportune moment to move forward an agenda to replace the failed money-serving institutions of our present economy with the institutions of a new economy dedicated to serving life. 

Juan Gonzalez and I spoke to David Korten on Friday about the nation’s economic crisis and how it should be addressed. 

DAVID KORTEN: Well, it really starts with being clear that we have a failed economic system. And we’ve seen very dramatically the consequences of the financial failure. But what we’re not talking about is the connection to the environmental failure, the destruction of earth’s living systems, and the social failure of an economic system that by its very design, particularly as manifest on Wall Street, is designed to increase inequality. You know, having worked in international development for many years, I’m very familiar with the argument that the way to deal with poverty is, through economic growth, to bring up the bottom. But, of course, what we see—and we’ve seen this for decades—is that, in fact, economic growth tends to raise the top and depress the bottom. 

Now, part of it’s coming to terms with the fact that we live on a finite planet. We’ve got finite resources. And the question is, what are our economic priorities? How do we allocate those resources? And it requires a fundamentally different approach to the economy: evaluating economic performance by the things that we really want, in terms of human and natural well-being, rather than a system that is purely designed to increase financial returns to the already very wealthy. 

JUAN GONZALEZ: Your book’s subtitle, From a Phantom Wealth to Real Wealth—what is phantom wealth? 

DAVID KORTEN: Yeah. This is part of understanding the current Wall Street system, which is built around an illusion, the illusion that money is wealth, which then translates into the idea that people who are creating—or who are making money are in fact creating wealth. And what Wall Street has become extremely expert at is creating money out of nothing through financial bubbles, through pyramiding lending to create fictitious assets that become collateral for more bank lending, and then combining that with the predatory aspects of usurious lending and deceptive lending and the use of credit cards as a substitute for a living wage—all the games that Wall Street is playing. And it’s actually based on a philosophy that says we don’t need to produce anything as a country, if we can—you know, if we can do all this financial innovation that allows us to create financial assets without producing anything of real value. I mean, it’s absolutely insane. And yet, it is the—it’s been the foundation of our economic policy in this country for decades now. 

AMY GOODMAN: You have spent your life focusing on issues of sustainability. You talk about excess consumption. What is the model that you could see right now? What is the model that we have right now? And what is the one you want to see built? 

DAVID KORTEN: Yeah, well, the amazing thing is that our system is built on driving increased consumption, but particularly it is driving the most destructive and wasteful forms of consumption, of course, starting with war, moving on to automobile dependence, and which is not just about the energy issue, but it’s about the fragmentation of society, as we move out into the suburbs. It’s about the breakdown of the family, as we put more and more stress on the family. So you have to have two or more people in the household working more than one job each just to keep the household together, which means the children are without caretakers and so forth. 

You begin to put this all together, you say, well, if we began to really organize our economic activities around the things that really matter, we’d be looking at things—well, how do we organize our economy so that it actually builds human relationships, so it supports families, so it creates an environment in which our children can grow up both physically and psychologically healthy? And we begin to say, well, first of all, it would be a good idea to end war. And, of course, most of our wars are about competition for resources to maintain our wasteful lifestyle. So let’s really get serious about world peace. Then we’ve got to start reducing our dependence on automobiles and recognize that rather than reemploying autoworkers in making automobiles, we should be employing them in building bicycles, building public transportation and so forth, all the things we need. Instead of investing massively in advertising, you know, redirect those creative communications resources to education. You begin to see, in almost every aspect of our economy, the opportunity to redirect resources in ways that actually increase our well-being—they’re not about sacrifice, ultimately—and bringing ourselves into balance with one another and with earth.

AMY GOODMAN: David Korten, author of Agenda for a New Economy: From Phantom Wealth to Real Wealth: Why Wall Street Can’t Be Fixed and How to Replace It. We’ll come back to the interview in a minute. 


AMY GOODMAN: We return to our interview with David Korten, author ofAgenda for a New Economy: From Phantom Wealth to Real Wealth: Why Wall Street Can’t Be Fixed and How to [Replace] It

JUAN GONZALEZ: You talk about this as a much more holistic and fundamental approach to the crisis we’re facing right now, but a few days ago, in his inaugural speech, President Obama, in the only reference he made really to the market, he said something to the effect that government—without the watchful eye of government, the market can sometimes spin out of control, but that basically reaffirming our markets and our system as the best to offer for the world. Your sense of his response, given the nature of the crisis you think we face right now? 

DAVID KORTEN: Well, it’s always hard to tell exactly what that translates into, but I think the bottom line of what he’s saying is that for a market to function efficiently in the service of society, it has to operate within a framework of rules. And it’s interesting. You know, by my understanding of real market economics, that’s a fundamental part of market efficiency. Now, of course, what we’ve been driven by is an economic ideology that claims to be a market theory, but in fact is anti-market, because what happens, if you try to operate a market without rules, you get this consolidation of power, the disconnect of financial power from the real economy of real people and real goods and services, and you develop a totally extractive economy. 

You know, theoretically in economics, economists talk about markets as a range, from the purely competitive market, which—you know, the kind of model would be the farmers’ market, like down here at Union Square, where I used to live; at the other end is the purely monopolistic or monopoly market, which has none of the beneficial features of the perfect competition. But they say, well, because the perfect competition works really well, you know, the market economy is the way to go. 

I mean, basically, we need to realize we’ve been told that there are only two economic models. One is the capitalist model, and the other is the communist or socialist model. One, the capitalists own everything, and the other, the government runs everything. The real alternative is, in fact, a real market economy that looks a whole lot more like what Adam Smith had in mind, which is—which looks more like a farmers’ market. And I think—you know, we talk about Wall Street and Main Street, and really the solution is to rebuild a new economy based on Main Street, which means local businesses and people who are rooted in their community and working within a framework of community values and a set of public rules that enforce basic conditions of market efficiency. 

JUAN GONZALEZ: Isn’t part of the problem—is, here you talk about the—even in the classical style of capitalism, we’ve seen a huge turn away. For instance, so much of our financial system now is in derivatives and credit default swaps and all of these unregulated and almost unknown— 


JUAN GONZALEZ: —aspects of the financial system, and then the rise in recent years of all of these private equity firms. At least in the classic corporation, there are shareholders, and there are boards of directors, and you have filings with the SEC, and you have some sort of transparency. But now, with these private equity firms dominating so much of investment and with all of these off-the-books financial systems, you really have a system that no one even knows how deep the problem is. 

DAVID KORTEN: That’s absolutely right. And, you know, the values have morphed further and further away from any kind of connection to or commitment to a larger public interest. And, of course, underlying this is also this immoral philosophy that says if we each simply pursue our individual financial benefit, that this maximizes the benefit for the society. Now that is about as corrupt a theory as one could imagine. We are seeing the consequences of it. 

And one of the things we have to break out of is to recognize that that is a—it’s pragmatically flawed, it is morally flawed, that there is a community interest, and it beholds every one of us in every aspect of our life to recognize not only our personal interest, but also the collective interest, which means we’ve got to create a totally different economy around different institutions and different values. 

AMY GOODMAN: Now, as people listen to you, David Korten, they might be saying this is really pie in the sky. But it sounds like you’re redefining it as apple pie in the sky, right? As patriotic. 

DAVID KORTEN: It is patriotic. It’s democratic. 

AMY GOODMAN: You’re saying that Wall Street can’t be fixed. How do we replace it? Lay out how the environment fits into this and exactly what you mean when you say, you know, families should be able to do things more together. How do people survive? Why is Main Street more real than Wall Street? 

DAVID KORTEN: Well, because Wall Street is totally in the business of creating phantom wealth. You know, it goes back to one of the fundamentals that I realized when I was working in international development and I began to wonder, “Why is it that the more developed the country gets, there’s more and more people living in poverty?” And it comes down to a very simple recognition. All the decisions that we make and official aid agencies are based on, what will maximize the returns to money, which means to people who already have money. And people who don’t have any money basically don’t fit into the equation. And that’s the way our whole economy, the whole Wall Street picture, is defined. 

So, you know, part of the shift is recognizing, again, that the whole concept of economic growth is flawed in terms of how we measure it, because in fact what economic growth really measures is the cost of producing whatever level of human well-being, health and well-being, we have achieved. So, in an economy that works, we would start assessing economic performance against indicators of the health of our children, of our families, of our communities, the health of our natural systems, and we would look at GDP as a measure of the cost of that attainment, so we would be trying to minimize GDP rather than maximize it, as we organize economies that are really about—they’re about building community. They are about providing people with meaningful jobs that give us a sense of personal meaning in our lives.

AMY GOODMAN: Give us an example.

DAVID KORTEN: Well, I mean, one of the interesting examples is the data that shows that people who shop in a farmers’ market have ten times the number of conversations of people who shop in a supermarket. And, you know, I know that from when I lived here in New York on Union Square and I did most of my grocery shopping at the farmers’ market. And, yeah, you meet people, and you talk, and you meet your neighbors, and you get acquainted with the farmer that grows your produce and so forth. And this is all about building relationships. And, you know, we have so monetized the economy, and a part of that process is monetizing relationships. And it diminishes our very humanity.

JUAN GONZALEZ: I’d like to ask you to put this more in the perspective of our global economy. Clearly, one of the great economic trends of the past fifty years is that the industrial heartland of America has moved from the Midwest to China—


JUAN GONZALEZ: —to India, to the developing world. And much of the production of the West is now in countries where the labor standards under which that production is made is far inferior to where it was made when it was here, in western Europe or in the United States.


JUAN GONZALEZ: That’s, it seems to me, at this point, an almost irreversible trend. How will that affect the future of American society in twenty, thirty, forty, fifty years?

DAVID KORTEN: Well, in some ways, it is a very reversible trend, because we have been supporting that purely by living off of consumer credit extended by the rest of the world, and the rest of the world is beginning to finally wake up to the fact that the US dollar is not worth as much as we all thought it was, because our own economy is increasingly built on—you know, and this has been an explicit policy—the growth of the financial sector is a percentage of our total economy, so we built an economy that assumes that we can live by simply creating money out of nothing, advertising to sell goods and services produced in China, security services to maintain order in the face of breakdown, health services to make up for the fact that we’re eating crummy non-nutritious food and ingesting all sorts of toxins from the environment, and toxic waste cleanup. Now, this is not the foundation for much of an economy. The rest of the world is at some point going to stop sending us their goods and their food, because they’re going to realize that they’re much better off to eat that food themselves and to produce shoes for their own children rather than shipping to us. So either we get cracking on rebuilding our economy and our capacity to produce, or we’re going to end up in a pretty desperate strait in the not-too-distant future. 

And, of course, while we’re doing this, we need to rebuild all that around a model that is environmentally sustainable, which means our total consumption of material goods has to drop significantly. But if you put it in the context of, well, if we get rid of our military-industrial complex; if we begin to roll back our suburbs, to begin to reform ourselves into more compact communities so that we eliminate our automobile dependence; if we start putting more of our energy into education and into primary healthcare and all the things that are essential to a good society; we begin to rebuild the relationships of community, people begin to find satisfaction in their jobs because they’re really producing goods and services that help their neighbors, and they feel like they’re contributing to their community. 

Now, you know, the amount of adjustment that we have to make in order for all this to happen is huge, and that cannot be downplayed. You know, we’ve done work in fifty years to create this monstrosity of an economy that runs on a fossil fuel subsidy that’s being withdrawn and that is based on this premise that if we just make more money out of nothing, we are more prosperous. So this is kind of a wake-up call. We’ve been living in a trance.

AMY GOODMAN: David Korten, Inauguration Day, Wall Street experienced one of its greatest dives down. Very interesting. As one said, Wall Street jeered, while Washington cheered.

DAVID KORTEN: As the world cheered.

AMY GOODMAN: As the world cheered. You had, by the closing bell, the Dow Jones Industrial Average down 322 points, below 8,000. S&P 500 Index dropped forty-five points, more than five percent. It rarely goes below one percent. How is the Dow Jones related to real life? When it goes up, is that good for America? Is that good for the world? When it goes down, is that bad? 

DAVID KORTEN: Well, the interesting thing is, when it goes up, what it really means is that rich people are getting richer than the rest of us, or they’re getting richer faster. And it’s actually bad. Now, you know, if you really accepted it in the context of the way we’re supposed to think about it, that is generating more and more resources for productive activity. But in fact, most of the Wall Street funding is focused on funding speculation. And, of course, most of the trading, at least 90 percent of the trading, probably more like 95 percent of the trading, that goes on on Wall Street has nothing to do with funding real businesses; it’s just exchanging pieces of paper. So, you know, when the market goes up quickly, that’s a financial bubble. It has absolutely nothing to do with anything related to real wealth. I mean, this is part of the insanity of it, that we have come to believe that a financial bubble is actually creating wealth, where it does absolutely nothing except create additional financial credits. And yet, the business commentators are always talking about, we created so much—so much wealth was created in the market today, or so much wealth was destroyed. That’s the phantom wealth.

JUAN GONZALEZ: And what part of some of your prescriptions for a way out of this economic quagmire do you believe that the team that Barack Obama is assembled—Larry Summers and Timothy Geithner and these others—will be able or even willing to try to address?

DAVID KORTEN: Well, certainly, Summers is one of the ultimate neoliberal, free market ideologues.

AMY GOODMAN: What does that mean?

DAVID KORTEN: It means he has been a promoter of the idea of unregulated markets. He was—by my understanding, he was actively involved in the dismantling of Glass-Steagall, so that you could consolidate the depository banks with the investment banks with the brokerages and so forth, which then get us into banks creating money by lending it essentially to themselves. That’s where the system really starts spinning out of control. 

You know, Timothy Geithner was head of the New York Federal Reserve, which really is considered to be the lead Federal Reserve organization all during the time that they were going through the processes of deregulating the financial markets and even the Federal Reserve, pouring trillions of dollars that go way beyond the bailout of the Treasury Department. 

So it’s hard for me to see that these folks have a framework consistent with where we need to move and that they have a recognition that Wall Street, as we know it, basically needs to be allowed to fail. And, in fact, we should be putting in regulations not only to make it—not to make it work, but to stop the speculation. And if you stop the speculation, if you stop the usury, the excessive interest charges and so forth, Wall Street will in fact collapse. Now, I was fascinated. I hadn’t heard this yet, but you mentioned that the government is starting to actually talk about takeover of some of the big banks. Now that, if they do it right, is potentially a right step.

AMY GOODMAN: Krugman has said nationalize the banks.

DAVID KORTEN: Yeah. Now, my sense of what we really need to do is nationalize the depository banks, let the hedge funds and private equity funds fail, but not with the idea that the government will permanently run the banking system as nationalized banks, but that they go through a transition of spinning those banks off into community banks, in a sense restoring the unitary banking system that we had some decades ago, where the banks were organized and functioned as local financial institutions, where people could deposit their savings, and the banks could make loans to people that were buying a house or running a business, which is the way the system should be structured. 

Now, the other piece that we need to deal with is the whole question of how we create money, which is not very much publicly discussed. But moving from the current system, where we essentially rely on banks to create money by lending it into existence, which creates all kinds of financial instability, and it also means that, in a sense, every economic transaction, we’re paying rent to the bank for the money, when it’s quite possible for government to spend the money into existence, as it is needed, to build a much more stable money supply. And that means that—you know, that lowers taxes. 

You know, in terms of the Obama stimulus package, people talk, “Where does that money come from?” And it’s very likely, if we do it in the traditional way, we’ll either borrow it from the banks, which means the banks will create it out of nothing and we will be paying interest on it, or if we borrow it abroad, it may be banks in China or Japan creating the money, which then we pay interest on. And it makes a whole lot more sense to develop a whole new orderly system by which the money is essentially issued by the federal government, and then we don’t owe anybody anything.

AMY GOODMAN: What if the banks are nationalized? The taxpayers have to take on the bad debt, the bad assets, and then they reprivatize them when they get healthy.

DAVID KORTEN: Well, that’s an interesting question. I think there’s good reason to say, “Don’t take on the bad debts.” You know? Let them go into bankruptcy, and then take over the assets to restructure. Now, this gets us into a huge additional problem, in that in the creation of phantom wealth—and, of course, many of these derivatives and so forth were ultimately sold off to pension funds or to university endowments or, you know, local municipality trust funds or whatever. You begin to look at that, and what you realize is that the total financial claims that were built up through that process far exceed any real wealth of the planet, which means that they are fictitious. You know, they can never be realized. We’ve been treating money as a storehouse of value. What it really is, it can be a storehouse of expectations. 

But those of us who have—we may have comfortable retirement accounts. It’s not clear how we’re going to be able to redeem that, because there’s not enough wealth in the society, real wealth of real people doing real things, to maintain us at the level of our expectations. So all of this needs to be reworked out in this process of restructuring the financial system, and it’s not going to be easy or comfortable.

JUAN GONZALEZ: Because when you talk about letting some of these big institutions go bankrupt, as you say, you’re talking about pension funds of labor unions, government investments as well, universities.


JUAN GONZALEZ: Everybody got involved in getting into the markets, and now everyone, to one degree or another, will pay from the unraveling of these markets. 

DAVID KORTEN: Yeah. And part of the really insidious nature of it is the way the money managers are running the system. They’re creating all of these fictitious transactions as a justification for collecting fees from the system, such as you know, that some of the highest compensated hedge fund managers were taking home more than a billion dollars a year in compensation. Now, that’s where we need to do some serious taxation to recover that money. I mean, that’s pure theft. What they were really doing was raiding the equity of these funds, which was supposed to be the cushion against risk. And so, again, I mean, this is a form of fraud that cannot be allowed to endure.

AMY GOODMAN: David Korten, what does the end of empire mean? 

DAVID KORTEN: The end of empire, this puts it all in a historical context, and it very much relates to democracy. 5,000 years ago, as a species, we moved away from more community-oriented forms of organization, and we began to organize ourselves by dominator hierarchy. I refer to that period of move—the move to empire. And it was not just about one nation dominating another, but it was about a dominator hierarchy at all levels of society, from the relationships among nations to relationships within families, relationships between gender, between races and so forth. 

Now, we have gone through some democratizing processes, but the fact is, we are still in that era of empire, of organization of society by dominator hierarchy. And whereas the rulers used to be kings and emperors, they are now corporate CEOs and hedge fund managers. And the system has morphed into where the real rule in society—put aside all our elections, democracy and so forth, the real rule has been by Wall Street institutions through the system of money, as money is a system of power.

AMY GOODMAN: David Korten, author of Agenda for a New Economy: From Phantom Wealth to Real Wealth: Why Wall Street Can’t Be Fixed and How to [Replace] It.