Fixing the Future - NOW on PBS Fixing The Future NOW on PBS

The Big Picture

David Brancaccio interviews leading economists, David Korten and Jane D'Arista, as well as the US Editor of The Economist, Matthew Bishop, to find out how to go about fixing capitalism, rebuilding our economy and creating jobs.

Interview with David Korten, economist and author of Agenda for a New Economy.

See a full transcript below.

Interview with Matthew Bishop, US editor, The Economist

See a full transcript below.

Interview with Jane D'Arista, an economist at the Economic Policy Institute

See a full transcript below.

Transcript David Korten

David Brancaccio (DB): So our mission here is to fix the future; just give me a sense of how we can get started on this question.

David Korten (DK): Well you know, David, it starts with a very basic question. Do people exist to serve the economy, or should the economy exist to serve people? Now it turns out that we’ve created a whole society with culture and institutions around the idea that people exist to serve the economy. And millions of people are waking up to the reality that that’s a misplaced priority.

DB: Our knee jerk is to go down to Wall Street to ask questions about how we fix the economy. That’s the usual way of doing things. In fact I think their entire cable TC channels devoted to asking those people what the solution is. You’re asking us to go not toward Wall Street but where? Just to Main Street, America?

DK: Wall Street is basically dedicated to eliminating jobs or outsourcing jobs in order to increase financial profits of the biggest corporations to increase the financial assets of the world’s already richest people. Now what we need is a money system that actually is doing what you just said, is connecting real resources with real needs, creating real community wealth at the community level. But that requires a financial system that is rooted in the community and accountable to community interest and that operates by life values rather than financial values.

DB: So if you’re trying to figure out what values an economy or a financial system is displaying, you have a theory about where to look for where the center of power of the economy is, is, is rooted in. Tell me about that idea.

DK: The current system is organized around financial values over life values. We need to shift that locus of power down to the community level because the financial markets recognize only money and thereby only financial values. If you’re living in the community and you own your local businesses and you’re engaged in the local economy you have a definite interest in the strength and health of your community, the caring relationships that bind people together. And you have an inherent interest in the health of your environment. So there’s a natural connection between how you make your financial decisions, how you operate your enterprise and the broader public interest, none of which exist when the power resides in Wall Street.

DB: That’s what they’re trying in Bellingham, Washington aren’t they?

DK: That’s exactly what they’re trying in Bellingham, Washington. And it’s very interesting. This drive to rebuild local economies when, when we first started organizing the Business Alliance for Local Living Economies, people, so many people responded, oh, you’re talking about rebuilding community. You know I hadn’t thought about it that way but bingo, that is exactly what they’re doing. And it’s part of recognizing that your community economy is part of the glue that brings people together. And part of what I love about Bellingham is when you visit there you see the joy of the people as they participate in the economy. And best of all if you go there when they’re having one of their street parties, it is just amazing. I think one of the most important skills of a local organizer of a local economy is an ability to put on a terrific street party.

DB: But you’re making a serious point, right, that this is not the hair shirt, uh, approach to running an economy. You’re not asking people to desperately sacrifice when you organize, for instance, Bellingham along these lines.

DK: That’s exactly right. It’s truly amazing that the changes we have to make if we’re going to have a human future are exactly the same changes we need to make to create the world that most people have dreamed of for millennia, which is an economy, which brings prosperity to everyone. An economy supports strong families, strong communities and a healthy natural environment. And that is exactly what is being created in these local economies. And it is, it is the key not only to survival but also to our, quite literally, to our physical and mental health and happiness.

DB: But Bellingham alone is not going to change the country or the world. Is Bellingham alone?

DK: Bellingham’s not alone. Um, you know, in, in just in the Business Alliance for Local Living Economies, which is only one small piece of this bigger picture. We have 80 communities around the United States and Canada that are engaged in much the same process. And those networks involve 22,000 businesses. But in addition you have transition towns. You have the American Independent Business Alliance. You have all these local food movements and so forth that are happening everywhere. Now each of these is growing, expanding and as those grow and connect we begin to, uh, create the power and the dynamic for a global transformation of the economy. It’s quite an amazing process to see how that is, uh, how that is working and to recognize the potential.

DB: Some people regard a big economic trend or force like globalization as a law of physics. It just is. It’s not a human construct. It’s just what are you going to do to stop it. Do you see what’s going on in a place like Bellingham as a, as a force that curbs globalization as a, as a counter-veiling force?

DK: That’s a fascinating question. As you know I spent most of my adult career working overseas in Africa, Asia and Latin America on a quest to end global poverty. What we’ve come to realize is that there are two competing globalizations. One of the globalization of corporate power. The other is a globalization of people power. And they are diametrically opposed to one another. In competition. So this is not about building isolated economies. We still need trade but at the margin, not as the foundation of our economy and certainly not the foundation of our food system.

But a whole planetary system of local living economies that are connected to each other trading at the margins but most importantly sharing their ideas, sharing their technology freely so that the whole of the economy, the whole of the specie and of global society can evolve with the speed that is necessary if we’re going to create a future in which we bring ourselves into balance with our biosphere. Creating a world in which the needs of everyone are met. At the same time do this within a framework of democracy and real citizen sovereignty and local control.

DB: Let me show this to you in action. Let’s meet somebody here. A couple people here from Bellingham, Washington. We are going to start with a gentleman named Keith Carpenter. Keith Carpenter. He, he’s the CEO of Wood Stone. It’s this very high end oven company like if you go to a fancy pizza place it might be his oven. They cost about $50,000. And he builds them in Bellingham.

So Keith, he brought in some robots and there was some suspicion among his workers. Are these going to replace my job? . And he showed them that ultimately they were able to bring on 40 more people based on this investment in technology. But here’s the thing. That man, Keith when wondering about how he was going to do the manufacturing that he needs took some bids from Asia that apparently were cost effective. If you just looked at the dollar figure it was, it would have been cheaper for him. He could have saved some money. He could have made, I assume, a slightly higher profit. But he’s part of this Bellingham network, Sustainable Connections. And this is not what he wanted to do. He, uh, he tells us about how it was important to him to grow the local workforce because he himself lives in the community. So what’s clear to me in my conversation with him is that he had many bottom lines.

DK: This is what we call a living return. It’s a return to the owner that is not just the financial return, which is necessary to maintain the business. But in addition to an honest and adequate profit it is the return that the owner gets personally from living in a healthy community with a healthy natural environment. And that’s a whole shift in perspective that you can only get with what I call living owners of living enterprises that live in relationship to the community with the goal to serve the community. And this is only one example. I mean that’s what’s so exciting about being part of this local living economies movement. Is there are thousands and thousands of business people out there now that are exactly like him. They’re responding exactly the same way in terms of what gives them real satisfaction in their lives. It’s a beautiful thing to see.

DB: Just about everybody watching this wants to know, okay, that’s fine but will it get me a job?

DK: Actually the real issue is livelihoods, our means of living. A job is one means of living but it is a means of living that, that depends on money as the intermediary. Now one of the things I find fascinating is that there’s an amazing move of young people back to the land, back to farming, back to connecting with nature. And part of what they’re doing is rediscovering the household as a unit of production. The more of their own food that, that we produce, the more food we produce within our community, again, the less we are dependent on the money system that Wall Street controls and the greater control we have over our lives. We need to move beyond thinking about jobs. It’s, uh, it’s livelihoods, it’s entrepreneurship. It’s all the ways of creating our means of living together, some of which will involve paid employment.

DB: But if I were to ask how does this scale up, your answer is actually it already is.

DK: It’s already scaling up. There are three essential elements. One is changing the story of our economic possibility, the story of what is the proper purpose of the economy. The second is creating the new reality from the bottom up. Creating it by doing it. Which is what’s happening in Bellingham. And the third is then as we change the story, create the new reality, we build the political power to change the rules so that they favor the Main Street economy over the Wall Street economy.

DB: What do you make of this model of worker ownership in, in...using a coop?

DK: You know I think worker ownership is, is the wave of the future. Various forms of, of coops, which is about democratizing ownership and rooting in community in ways it can also scale because you can, you can do larger scale enterprises that require more capital but also still maintain the roots in the community. So I think it’s, I think, I think it’s a very powerful piece of the, uh, of the cutting edge.

You can also have coops of coops. So you can organize whole industries like organic valley around, uh, a coop model. All built around enterprises that are locally owned. Either by individual owners or cooperatively owned. I’m particularly fascinated when you talk about scale, uh, you know experiences like in the, in, in Northern Italy with what they call the manufacturing networks where you have hundreds or thousands of smaller enterprises that are rooted in community but they join together to, to do larger projects that one, uh, that one company could not do on its own. So you could imagine, you know, even organizing the construction of, you know, a new, new transportation systems and so forth, uh, in ways that, that maintain this principle of lo....local ownership and broad democratic participation.

Transcript: Matthew Bishop

David Brancaccio (DB): So we just have a few minutes. You and I have to fix capitalism, you and I. What are just some places to start after this near death experience for the financial system?

Matthew Bishop (MB): I think one of the biggest problems with the financial system is that it’s very short-term obsessed. And so we need to change that whole culture. And that means changing what we measure. So I think we need to get away from a focus with GDP and on short-term profit measures to look at longer indicators of progress. We need to change how we incentivize people within the system. And we need to actually change how the pension funds and mutual funds work that are supposed to be investing for our retirement and in fact were you know actually playing a casino game of the worst kind in the capital markets and I think encouraging a lot of the reckless behavior that was going on there.

DB: I mean just think about that. The pension fund managers supposedly represent you and me if we have some retirement accounts sitting with them. And so when an individual rails about the short-termism on Wall Street it’s really his or her agent who is thinking short-term often.

MB: Exactly and so your typical pension fund manager is just trying to beat the market over the next few months to get their bonus for outperformance. They never ask a question about is the Board of this company any good? How shall I vote the shares, vote the proxy votes that come with the shares to actually make a difference in how the company is run?

So Lehman Brothers, year after year after year, was being rated as a D for its Board by the leading corporate governance authorities and nobody ever tried to vote out the Board members, put better Board members in, try and hold uh the Board to proper account. And so that was the case across the board uh...across...all across capitalism was that you know public pension funds um the public’s money was not being used to actually drive better management in companies. And so you know we got these people in charge who were very short-term obsessed, didn’t really ask where...where’s this all heading? And as a result uh they...they raced us into this terrible mess that we got into.

DB: Just on this issue of thinking short-term, worried about profits over the next three months, what do we do?

MB: Well I mean I think we do have a slight cultural obsession with you know what’s the stock market doing today, what’s it done yesterday, where’s it gonna be tomorrow? And we need to recognize that that’s a false game. But I think there are some uh real changes that ought to be made. For example, we ought to require our pension funds uh to vote, to declare how they voted, to actually uh explain why they’ve done what they’ve done. I love you know to look at Warren Buffett and what he does every year with his uh Woodstock for Capitalism event where all his shareholders in Berkshire Hathaway come...come together and he basically talks about the long-term. He says I’m investing in companies that I want to keep forever. How many of our pension fund and mutual fund managers would ever say that to us? I think very, very few and we need to change the culture so that that’s what they’re doing.

DB: But I hear you wanting to fix the system. You don’t wanna throw it out? I mean we’ve been through a really bad stretch and many of the assumptions that went into the way that financial markets worked in recent years have been shown to be flawed. But you still have faith that with changes it could be optimized?

MB: I think the worst thing we could do would be to actually throw out capitalism and I think what we...the second worst thing we could do would be to actually fail to reform it. And I think the real problem that we’ve had is this system was very short-term orientated. Not that it was a bad system um you know I think had it been run in the interests of long-term progress, long-term wealth creation many of these problems like funding all sorts of mortgages that shouldn’t have been funded, those problems wouldn’t have occurred. And so the question...the challenge we face is how do we re-orientate capitalism and the financial markets to make them more long-term focused, not let’s put it back in a box. I mean capitalism has driven progress and particularly financial markets have driven progress and wealth creation over the centuries and they...I mean one of the things that people forget is that they often have bubbles and crashes and the key thing after a crash is to learn from what went wrong and improve the system, not to try and abolish it and go back to the dark ages.

DB: So you don’t see any way of getting to a better economy that serves more people or really a better society without somehow involving the big financial system?

MB: There’s so much money being aggregated from all of us that needs to be thoughtfully placed in the place where it can make the best...the best difference, the most difference. And you need some kind of system for taking money from millions and millions of savers, aggregating it, find the...finding the best companies or the best ideas and getting that money uh to those companies and encouraging them to behave uh use that money well. And the only way you’re gonna do that is to have uh experts in that field and that...those experts you know people like the Wall Street firms and the...the City of London. And you know I think what we have to do is to get them to work better uh and they’ve clearly let us down in the last couple of years but the idea that we can bypass that kind of system uh think it’s just nonsense.

Transcript: Jane D'Arista

David Brancaccio (DB): It’s my understanding that its going to be increasingly more difficult for regular people to power the US economy forward by buying things, often using money that they’ve borrowed, for instance on credit cards.

Jane D’Arista (JDA) Absolutely because they’ve borrowed to the max. We’ve never had debt levels as high for households or for anybody, uh, in this country. So that avenue is not going to work anymore.

JDA: The driver of the global economy was the American family headed to Walmart to buy the school clothes in September. Unfortunately, they were doing so on debt and the money was not going into the US economy. It was going to China.

DB: Because the school clothes were probably made in China, right?

JDA: Walmart is the largest importer from China. And indeed when we talk about China and we rail against China, and point of fact, much of what we import is made by US firms in China, so, we have to sit back and think about, how did we get to this situation and how should we get out? Because what we really want is our economy to produce what we need. And therefore to have the returns coming back into our families.

DB: When we went around the country asking people, what do you want out of the economy of the future? They said, jobs, jobs, jobs. What would you answer? What kind of change could bring about longer-term, more jobs?

JDA: We need to get things made in this country that are public goods, not just private goods like consuming, buying dresses and whatever. But the kinds of things that will give a lot of people pleasure and will do something for the future like the schools, the hospitals, the transportation systems. I mean we need to focus on that. That’s where jobs are. And at the same time they improve the quality of life.

DB: I’m sure there are people saying right now, too bad we used all that money to bail out the banks. We could have used the money to build a hospital and some schools, etc.

JDA: And people are saying that indeed. And did, and what we have done unfortunately at the larger level of the financial system is to perpetuate a system that should die. Hopefully there will be some attempt in implementing the financial reform bill that some of this will be taken care of.

DB: The existing system that you don’t want perpetuated, foreign countries sending us cheap goods. We pay US dollars; they need US dollars because you need a dollar to do international transaction in this world. The foreign country saves those dollars. We then borrow those dollars. That’s what’s not sustainable.

JDA: It hasn’t been sustainable for a while and it’s down, downright not now. And the sense is the dollar going fall in value? Yes. For the simple reason we can’t continue to buy.

DB: We’ve spent some time going around the country talking to people who are trying to remake their communities by thinking about their local and regional economies in different ways. Worker owned coops on the industrial scale, a different type of banking that, where the capital stays a little bit more local. You’ve spent a lot of your time working on overarching issues regarding the structure of the financial system at its biggest level. When you see these community based projects do you think it’s irrelevant what’s going on in the towns and communities? Because what really matters is what’s going on with bank regulation in Washington?

JDA: No. I am a firm and strong believer in cooperative finance. I have an account with the Congressional Federal Credit Union in Washington, DC.

DB: A credit union?

JDA: Yes. Because I figured that’s the last one that’s going to go down among other things. [Laughs] But, no, seriously it reflects my strong belief in cooperative banking. I know that the banks hate it. I have a very low interest rate on my credit card. And, I can get loans and all kinds of good things. I keep money with them because I believe in this. And I think it works.

DB: Can the wider economy learn lessons from something like a cooperative credit union?

JDA: Yes and I think it is increasingly important in terms of our savings. What we need to do also is have cooperative arrangements that have to do with 401k’s.

DB: Our retirement.

JDA: Oh our retirement because look what happened to it. Can we trust these guys? There’s no local control over retirement. Retirement is huge in this country. It’s at the state level. It’s personal, private levels, etc. But it all goes through the major institutions. They are the gate. And they make the decisions. And it is oligarchical, they think alike. They have herd instincts, etc. If you were to organize 401k’s at a local level and everybody was putting their money into it, you know, at a given plant.

Or hospital or school system, etc, making investment decisions, that that would be another way of getting at the issue that you are approaching in this film. And a very important one because our savings are not in the banks. Our savings are in other places. And we took some huge losses there. So FDIC insurance is great. It’s important. But it wasn’t enough.

DB: And the promise that if you socked away some of your earnings in the stock market, that it would accrue and when you came around to retirement age, be that three years, 10 years or 20 years, it would have grown to the point that you could live in comfort. That promise isn’t really being fulfilled after the economic collapse.

JDA: No, not at all, but the issue of push retirement forward, hey, people have already done that. That’s what they’re thinking.

DB: Delay the retirement age.

JDA: Yes.

DB: Can’t retire until you’re 70 or something.

JDA: Right. Because they don’t have their private savings any longer. They’ve lost them. And they don’t see reconstituting those accounts. And they are right.

DB: You’re saying, you want to talk about the economy of the future? You’re going to have to think about retirement. And maybe the retirement system could learn from some of these projects we’ve seen around the country.

JDA: Exactly, yeah.

DB: Why give all that retirement money to the big Wall Street institutions.

JDA: Right. And why in the stock market altogether?

DB: And why in the stock market altogether?

JDA: Remember that, that small businesses do not issue stocks and bonds. They borrow from banks. You can create systems whereby the finance that’s in these pools of retirement funds go through placements to small business bypassing the larger banks. That is a very doable thing. Think about a small business who’s borrowing from banks and the banks are saying oh, da, da, da. You know what you got there is a dry cleaning machines, you got computers, you got trucks, etc, uh, it makes us nervous. We charge you a high rate of interest. Maybe you should pledge your house against it, which was one of the problems that happened. Small business got into problems by using their houses as collateral. And besides we really don’t want to give you a long term loan. But suppose you knew a business in your community and you had this retirement money and you knew it could be long term. You could make a real difference.

DB: What, that it might be locally based or cooperative or something?

JDA: Yes and many of them. They will know what’s going on in their local areas. They know what the businesses are. How to invest. They can also invest in nonprofit to some extent. If they decide to, that a particular share should go just as people do social investing, uh, now. So you know whatever the decisions are made and it will bring people into the decision making process about their money, what they want to do with it, how they want it to be used in the larger sense.

DB: Which has implications for what’s grandly called corporate governance. But if people are more involved with the investment decisions connected to their retirement account possibly some new way of managing retirement accounts more locally or cooperatively, they might have tougher questions to ask of the companies they’re investing in.

JDA: Absolutely. And they might be able you are suggesting with governance, take a role in, is this a good management? Is this a good board? Do we have independent members on this board? What about the compensation issue?

DB: So the practical effect, where do you live, Connecticut?

JDA: Yeah.

DB: So let’s just say there was a retirement system coop in your part of Connecticut. Where people in your area pooled their resources to save for their retirement. You’re saying it could be an additional feature in which that retirement account decides not just to buy stocks on Wall Street, but maybe invests in some small businesses or an entrepreneur that has a track record that somehow is doing something that your part of Connecticut wants done. What if they used that money, for instance, to underwrite a huge campaign for building environmentally conscious buildings? Make more energy efficient buildings. What if that, if the money, the investment money was from the union’s pension fund? That would create jobs because a lot of folks would be doing that work. That’s what you’re talking about in a sense.

JDA: Exactly. But I’m also saying that at the moment we’re talking small business. We’re talking jobs. That’s the big problem in our economy. We know that historically small business creates half of all the new jobs in the country. We do know we have no way of getting money to small businesses. They’re complaining they can’t grow. The banks aren’t lending to them, etc. The president is proposing this fund of $50 billion to help small businesses get some financing. So we are there in terms of recognition. Now we need to solve.


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