An Fear Rua - Money Versus Wealth

Coddler

(523 Posts)

Posted: 29-Jul-2012 13:33

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Here’s an article from 1997 which goes a long way to
explaining why we are in the current economic mess.

Money Versus Wealth

Instead of creating wealth, our money system is depleting our real wealth: our communities, ecosystems, and productive infrastructure
by David Korten
posted Jun 30, 1997

What is this madness? The economy is booming. The stock market is setting new records. The US is again heralded as the world's most competitive economy. We are assured that we are richer than ever before and getting richer by the day.
Yet we are also told there is no longer enough money to provide an adequate education for our children, health care and safety nets for the poor, protection for the environment, parks, a living wage for working people, public funding for the arts and public radio, or adequate pensions for the elderly. According to the official wisdom, even though richer, we can no longer afford what we once took for granted. How is this possible? What's gone wrong?
A quick hint. The problem most definitely is not a lack of money. The world is awash in it. The world's 450 billionaires alone have combined financial assets greater than the combined annual incomes of half of humanity.
The problem is this: a predatory global financial system, driven by the single imperative of making ever more money for those who already have lots of it, is rapidly depleting the real capital - the human, social, natural, and even physical capital - on which our well-being depends.
The truly troubling part is that so many of us have become willing accomplices to what is best described as a war of money against life. It starts, in part, from our failure to recognize that money is not wealth. Wealth is something that has real value in meeting our needs and fulfilling our wants. Modern money is only a number on a piece of paper or an electronic trace in a computer that by social convention gives its holder a claim on real wealth. In our confusion we concentrate on the money to the neglect of those things that actually sustain a good life.
It is striking how difficult our very language makes it to express the critical difference between money and real wealth. Picture yourself alone on a desert island with nothing to sustain yourself but a large trunk filled with bundles of hundred dollar bills. The point becomes immediately clear.
During a visit to Malaysia some years ago I met the minister responsible for forestry. In explaining Malaysia's forestry policy he observed that the country would be better off once its forests were cleared away and the money from the sale was stashed in banks earning interest. The financial returns would be greater. The image flashed through my mind of a barren and lifeless world populated only by banks with their computers faithfully and endlessly compounding the interest on the profits from timber sales.
The importance of the difference between money and wealth is not limited to people who find themselves stranded on desert islands. It is basic to understanding why the more money we have as a nation the less we can afford. It is as well a key to understanding the underlying pathology of the global economic system.

Money pathology
Think of a modern money economy as comprised of two related subsystems. One creates wealth. It consists of factories, homes, farms, stores, transportation and communications facilities, the natural productive systems of the planet, and people going to work in factories, hospitals, schools, stores, restaurants, publishing houses, and elsewhere to produce the goods and services that sustain us. The other creates and distributes money as a convenient mechanism for allocating wealth. In a healthy economy the money system serves as dutiful servant of wealth creation, allocating real capital to productive investment and rewarding those who do productive work in relation to their contribution.
In a healthy economy, money is not the dominant value, nor is it the sole or even dominant medium of exchange. Indeed, one of the most important indicators of economic health is the presence of an active economy of affection and reciprocity in which people do a great many useful things for one another with no expectation of financial gain. Such voluntary sharing creates and maintains the fabric of trust and mutual caring of which the social capital of any healthy family, community, or society is comprised.
Pathology enters the economic system when money, once convenient as a means of facilitating commerce, comes to define the life purpose of individuals and society. The human, social, and natural capital on which the well-being of any society depends becomes subject to sacrifice on the altar of money making. Those who already have money prosper at the expense of those who don't. It is a social pathology called finance capitalism.
When financial assets and transactions grow faster than growth in the output of real wealth, it is a strong indication that the global economy is getting sick. A study by McKinsey and Company found that from 1980 to 1992 financial assets in the developed countries of the OECD grew twice as fast as their underlying economies and bullishly predicted that future financial growth would be three times real output growth. [William Greider, One World, Ready or Not; New York: Simon and Schuster, 1997, page 232.] Indeed, as the Malaysian minister noted, in the global economy money is growing a great deal faster than the trees.
Furthermore, the biggest profits are going to those who deal in pure finance. For 1996, the shareholders of the seven largest US money center banks reaped an average total return of 44 percent. Mutual funds specializing in finance averaged a 26.5 percent return, besting all other industry categories by a wide margin. Funds specializing in much-touted technology stocks came in a poor second at 21 percent.
The growing dominance of money is also revealed in the increasing monetization of human relationships. Not long ago, even in the most supposedly advanced countries, half of the adult population worked without pay to maintain home and community. These are among the most fundamental and important of functions in a healthy economy. Now, it typically takes two adults holding two to three paid jobs between them to support a household. Child and home care is either left undone or hired out. Community service becomes the work of public employees - to the extent there is public money to pay them. As the social capital of caring relations is depleted, family and community life fall into disarray.

Pyramids, bubbles and the global casino
Albania recently suffered a national crisis brought on by the collapse of fraudulent pyramid schemes. Westerners wise in the ways of the market were bemused by the naivete of the Albanians who fell for "investment" schemes promising returns as high as 25 percent a month with no real business activity behind them. During the course of the nationwide speculative frenzy, farmers sold their flocks and urban dwellers their apartments to share in the promised bonanza of effortless wealth. The inevitable collapse sparked widespread riots, arson, and looting when the Albanian government failed to make up the losses.
Those inclined to laugh at the innocence of the Albanians should first consider their own response to proposals that social security contributions be invested in a stock market that even Federal Reserve Chairman Alan Greenspan says is substantially over valued. The speculative financial bubble, which involves bidding up the price of an asset far beyond its underlying value, is little more than a sophisticated variant of the classic pyramid scam.
Investing in a bubble is a form of gambling and it isn't entirely naive. Who cares if there is nothing behind it? The bubble is the action. The trick is to place big bets and get out before it bursts. It is a game of nerves. The action gets especially exciting when banks are willing to accept the inflated assets as collateral and lend new money into existence to stake further play, which pushes prices ever higher. This process of borrowing into bubbles with newly created money is key to making financial wealth increase faster than real wealth. Furthermore, when a leveraged bubble bursts and banks are left with substantial portfolios of uncollectible loans, governments are almost forced to step in with a bailout to stop a banking collapse - as the US government did in the case of the Great Depression and the more recent Savings and Loan crisis. This amounts to another money transfer, this time from taxpayers to those with money.
Betting on financial bubbles is only one of the lucrative games that attract players to the global finance casino. There are as well opportunities to speculate on short-term price movements, buy and sell simultaneously in different markets to profit from minute price differences, and bet on derivatives contracts. While economists have become exceedingly facile in rationalizing how such activities actually benefit society, in truth they are more accurately described as forms of legal theft by which a clever few expropriate rights to the real wealth of society while contributing more to its depletion than to its creation.

Consuming capital to make money
William Greider, in his newly released book One World Ready or Not, observes that corporations get caught in the trap of having to compete for investment funds against the often more lucrative financial games of the world of pure finance. With the rare exception of companies with a hot product or distinctive market niche, in an unregulated global economy most corporations have little choice but to use their economic and political power to externalize ever growing portions of their costs onto the community. The dynamics of a competitive global economy favor the cost externalization process because they pit workers and communities against one another in a deadly race to the bottom. By competing for the jobs corporations offer, workers and communities are compelled to deplete real wealth to make corporations more profitable.
Responding to the pressures of financial markets, corporations:
• Deplete social capital by moving production to places where they can pay less than a living wage or use the threat of moving jobs to break up labor unions and bargain down wages. Gains from productive activity are thus shifted from working people to money people. Furthermore, the stress of attempting to maintain self and family on insecure jobs paying less than a family wage results in family breakdown and violence, depleting the social capital of society.
• Deplete human capital by hiring young women in places like the Mexican maquiladoras under conditions that lead to their physical burnout after three or four years. Once eyesight problems, allergies, kidney problems, and repetitive stress injuries deplete their efficiency, they are replaced by a fresh supply of younger women. Such practices destroy lives and deplete society's human capital.
• Deplete the Earth's natural capital through strip mining forests, fisheries, and mineral deposits, dumping wastes, and aggressively marketing toxic chemicals.

• Deplete institutional capital by fighting environmental and other regulations essential to the long-term health and viability of society. Corporations further demand direct public subsidies, subsidized infrastructure, and relief from their fair share of taxes. This shifts a greater share of the tax burden onto working people and undermines the credibility and performance of government in its essential functions, thus eroding the legitimacy of democratic government.
• Deplete business capital. Corporate managers are forced into a short-term view even in regard to their own operations. They cut investment in research and training essential to their own future prospects. As they downsize, the sharp employee quickly learns to use the job only to build a resume to attract a higher bidder. These actions erode the corporation's own human, intellectual, social, and physical capital.
Intent on making ever more money for those who already have money - even at the cost of depleting the natural, human, institutional, and social capital on which the very survival of society depends - the money system becomes like a cancer that consumes its host and ultimately destroys itself.
The CEO of a publicly traded corporation who fails to maximize profits because of a moral aversion to engaging in such predatory practices is almost certain to be eliminated by the system, even if he - they are almost all men - runs an otherwise profitable operation. Where the shareholders don't step in, a corporate raider most surely will.

Pacific Lumber Company for years pioneered the development of sustainable logging practices on its substantial holdings of ancient redwood timber stands in California. It also provided generous benefits to its employees, fully funded its pension fund, and maintained a no-layoffs policy during downturns in the timber market. This made it a good citizen. It also made it a prime takeover target. Corporate raider Charles Hurwitz gained control in a hostile takeover. He immediately doubled the cutting rate of the company's holding of thousand-year-old trees, reaming a mile-and-a-half corridor into the middle of the forest that he jeeringly named "Our wildlife-biologist study trail." He then drained $55 million from the company's $93 million pension fund and invested the remaining $38 million in annuities of the Executive Life Insurance Company - which had financed the junk bonds used to make the purchase and subsequently failed.
The remaining redwoods are now the subject of a last-ditch effort by environmentalists to save them from clearcutting.
Professional buy-out artists are drawn like bees to honey by a socially responsible firm that internalizes its environmental costs, pays union wages, invests in worker training, fully funds its pension fund, and pays its full share of taxes. In a system that puts short-term profits first, these are inefficiencies to be eliminated.
Over the last several years, the biggest corporations have performed as the financial markets have demanded - increasing their profits by an average of 20 percent a year. In 1996, the 30 US corporations whose stock prices comprise the Dow Jones Industrial Average returned to their shareholders an average of 28.2 percent for the year, a substantial increase from the five-year average of 18.3 percent. Each such increase further lifts the floor under investor expectations and increases the pressure on top managers to maintain such returns in the future - by any means.
The global corporation is arguably the most powerful instrument for concentrating power and wealth ever devised. Indeed, of the 100 largest economies in the world, 51 are corporations. The economy of Mitsubishi is larger than that of Indonesia, the world's fourth most populous country and a land of enormous natural wealth.

To heal society we must heal the money system. This will involve a two-fold process of reducing money's importance in our lives and restoring its appropriate role in service to the creation and protection of real wealth.
• It will be necessary to de-myth money. I earned MBA and PhD degrees from one of the world's leading graduate schools of business, but I was never taught the difference between making money and creating wealth, nor how to distinguish between productive and predatory investments. Such lessons should be a basic part of education for business or responsible citizenship.
• We need to reweave the social fabric. In a society in which relationships are defined by love, generosity, and community, the importance of money in mediating personal exchange and allocating resources is likely to decline markedly. This will require reducing monetary dependence and restoring non-monetary exchanges through a process that selectively delinks individuals, families, and communities from dependence on the predatory institutions of a global economy, downscaling consumption to reduce dependence on paid work, increasing reliance on local products to meet basic needs, and strengthening the engagement of all persons in the productive life of family and community.
• The truly monumental task will be to redesign the money system to make money the servant of the creation and protection of real wealth. Among other things, corrective measures will need to: 1) make speculation unprofitable; 2) limit the growth of financial bubbles; 3) increase incentives for cooperation among people and communities; 4) reward productive work and investment; 5) create a just distribution of claims to real wealth; 6) provide incentives for patient and locally rooted investment in real assets; and 7) strengthen the social fabric of family and community.
A common currency exclusive to the members of one city or geographic region is one means of moving towards these goals. Another is to introduce zero- or negative-interest money. We should also consider whether it makes sense for private banks, rather than government or communities, to create money, and seriously consider substantial taxes on short-term speculative gains.
The purpose of such measures is not to promote global growth and competition, but rather to create healthy and prosperous societies that provide economic security and just rewards for productive contribution to their members, have a strong and caring social fabric, and live in balance with their natural environment. Because we have so little experience in designing money systems to create societies that benefit people and nature, we will need to be creative; there are no tested guidelines.
Many of the best minds of our time are engaged in finding ways to use the finance system to claim ever more of the world's real wealth for those who already control much of it. But there are also those who are concerned with how we might redesign money to serve a society that works for all people and preserves the natural environment. The articles that follow contain some of their thinking and experimentation.
________________________________________
David Korten is the author of When Corporations Rule the World (Berrett-Koehler and Kumarian Press, 1995), president of the People-Centered Development Forum, and chair of the board of Positive Futures Network, publisher of YES! Magazine.

Larkin

(4,404 Posts)

Posted: 29-Jul-2012 16:54

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Interesting article alright. Here is another one worthy of a read. chasing Glenn Beck

Coddler

(523 Posts)

Posted: 31-Jul-2012 09:45

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He makes some good points Larkin especially the one about people buying locally produced goods to help create and sustain local jobs.
He paints a very rosy picture of venture capitalists though which I’m not too sure about. He talks about ' creative entrepreneurs’ opening their cheque books when in reality it is the originators of the business who are typically the innovative ones rather than the investors .The venture capitalists invest in start-ups in order to generate profit and increase their own capital. Ultimately they will extract as much value from the business as they can and much of the wealth generated is not re-invested to sustain and grow the business locally.
I think the Enterprise Ireland model is probably a better one where the start up receives it’s seed money from a government agency. In this case both the company and the agency will share the same objective to build a long term sustainable business creating as many local jobs as possible.

Tippsy McStagger

(115 Posts)

Posted: 02-Aug-2012 21:34

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Interesting topic for a thread and a thought provoking article. Unfortunately the lack of replies shows the reality that this sort of thing goes way over the tops of the heads of most people, and especially people in politics, the vast majority of whom simply cannot comprehend anything outside of the perpetual drive for economic growth, which is an inherently unsustainable goal. Short-termism and slavish adherence to the demands of capital is the cancer that afflicts policy making the world over.

Coddler

(523 Posts)

Posted: 03-Aug-2012 10:47

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I should have given it a sexier title like ‘Seoige sisters sizzling saucy secrets’.

In fairness Tippsy, I think a lot of people are beginning to question the true nature of capitalism and the markets which they previously just accepted as the only viable economic model if they thought about it at all. Many people would instinctively favour a more socialist and sustainable way of organising our society. Those that have spoken out on this have often been shouted down and sneered at by the vested interests and their cheerleaders which makes people reluctant to comment on topics like this one.

The mask of capitalism has slipped though in the past few years with the bailout of high finance at the citizens’ expense and more people are finding the confidence to question the prevailing wisdom.

Boston Bruin

(131 Posts)

Posted: 03-Aug-2012 11:36

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"a more socialist and sustainable way of organising our society”

Coddler this statement in itself is paradoxical, in that modern western socialism ideals such as universal healthcare, state ownership of enterprise, various welfare entitlements have proven to be anything but sustainable and are wholly dependent on the Wealth Production of Free Market Capitalism to fund them.
Good article suggesting the same……

http://www.americanthinker.com/2011/11/socialisms_fundamental_flaws.html

This message has been edited - 03-aug-2012 @ 11:45

Coddler

(523 Posts)

Posted: 03-Aug-2012 12:06

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The term ‘free market’ is misleading. There is really no such thing as a ‘free’ market as they are all controlled to a greater or less degree by the powerful insiders. OPEC would be a good example of this in the Oil business. Market capitalism itself does not produce any wealth but is an efficient system for directing most of the wealth of the planet into the hands of a tiny obscenely rich elite.

It’s ironic that the article you reference is from the ‘americanthinker’.America is the richest most powerful nation in the history of the planet and is the epicentre of market capitalism.Yet it cannot provide decent affordable healthcare and education for the bulk of it’s citizens while much less powerful countries like Sweden, Norway and even Ireland (until we bailed out the free market banks) can do so. Can you explain this Bruin?

Boston Bruin

(131 Posts)

Posted: 03-Aug-2012 13:33

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Well prior to Obama, America’s methodology on healthcare seems to have been to provide good healthcare services but expecting those that avail of them to pay for it. Some mightn’t agree with it, but that’s the way its been. Norway is natural resource rich with a population similar to ourselves, so providing healthcare should not be such a big deal for them. As for Ireland, surely you can't hold up our Health system as some sort of ideal model to follow. Here some people including myself pay three times for health services (bad health services at that) once through direct tax, secondly through health insurance (to try and ensure that I get some sort of decent service when I do need it and not be placed on 24 month waiting list) and thirdly at the till on the way out of the hospital. While other people pay nothing and still will be provided with the same level of service as me. America’s system might be flawed, but I’d have it over ours.

This message has been edited - 03-aug-2012 @ 13:33

KOCat

(18 Posts)

Posted: 03-Aug-2012 14:49

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Great read, thanks.

Stranded on a desert island with nothing but a trunk of cash. Im not sure how any kind of wealth would help you with that one... ;)

start fc

(104 Posts)

Posted: 03-Aug-2012 15:01

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Boston Bruin. Interesting read here on the inherent flaws in the American Health Care system in comparison to the Canadian model.
http://www.rhrealitycheck.org/article/2012/07/12/how-i-lost-my-fear-universal-health-care

Tippsy McStagger

(115 Posts)

Posted: 03-Aug-2012 15:07

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America's health care system is grossly inefficient compared to the public healthcare systems in Europe. It costs over 17% of GDP compared to 9.8% in Britain and 11% in Sweden.

Coddler

(523 Posts)

Posted: 03-Aug-2012 16:11

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Originally posted by Boston Bruin:
Well prior to Obama, America’s methodology on healthcare seems to have been to provide good healthcare services but expecting those that avail of them to pay for it. Some mightn’t agree with it, but that’s the way its been. Norway is natural resource rich with a population similar to ourselves, so providing healthcare should not be such a big deal for them. As for Ireland, surely you can't hold up our Health system as some sort of ideal model to follow. Here some people including myself pay three times for health services (bad health services at that) once through direct tax, secondly through health insurance (to try and ensure that I get some sort of decent service when I do need it and not be placed on 24 month waiting list) and thirdly at the till on the way out of the hospital. While other people pay nothing and still will be provided with the same level of service as me. America’s system might be flawed, but I’d have it over ours.

By that logic, if you lost your job and were unable to pay your health insurance or medical bills, then you believe that you should not have access to our health care system?

We are opposite ends of the political spectrum Bruin but I still support your right to healthcare whether you can afford it or not.

Boston Bruin

(131 Posts)

Posted: 03-Aug-2012 16:59

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I have no problem with the concept of Universal Healthcare Coddler, its how it is implemented is where the problem lies. I’ll bring you back to your earlier comment “Many people would instinctively favour a more socialist and sustainable way of organising our society”. One for all, single tier Universal Healthcare is a great Socialist Ideal, but as we only know too well it is bloody expensive, and without a Capitalist Economy generating wealth to pay for it, how would it be sustained. Boom-time Ireland in itself is a good case study of the perils of funding modern socialist ideals on the back of Capitalist generated tax. Public Sector Benchmarking & recruitment, vanity/white elephant projects, Medical cards for all & sundry, Semi-state subsidies, State Agencies/quangos and Social Welfare Spending. Then when the capitalist economy starts to decelerate, it quickly becomes overwhelmed by the burden of socialist spending heaped upon it. And who do those that benefited most from the Socialist spending point the finger of blame towards when this happens, why the Capitalists who paid for it all in the first place of course.

This message has been edited - 03-aug-2012 @ 17:00

Coddler

(523 Posts)

Posted: 03-Aug-2012 17:46

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Ok, you accept that socialist principles like universal healthcare and education are a good idea. It’s how they are to be paid for that you are questioning. You are crediting the creation of wealth to the capitalist economy when in reality it is the work of ordinary people that generates wealth.
The people generate more than enough wealth to sustain support systems like health and education for all but the mechanisms of the market economy like banks and the stock market funnel that wealth away to maximise their profits and so it appears that we can’t afford the social safety nets anymore.
The truth is that we cannot afford the banks, stock markets, hedge funds, currency speculation, bond transactions, CFDs etc which actually destroy wealth as explained in the article above.
I don’t have the time to go into this in anymore detail tonight but we can take it up again Bruin.

Boston Bruin

(131 Posts)

Posted: 03-Aug-2012 18:11

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Originally posted by Coddler:
Ok, you accept that socialist principles like universal healthcare and education are a good idea. It’s how they are to be paid for that you are questioning. You are crediting the creation of wealth to the capitalist economy when in reality it is the work of ordinary people that generates wealth.
The people generate more than enough wealth to sustain support systems like health and education for all but the mechanisms of the market economy like banks and the stock market funnel that wealth away to maximise their profits and so it appears that we can’t afford the social safety nets anymore.
The truth is that we cannot afford the banks, stock markets, hedge funds, currency speculation, bond transactions, CFDs etc which actually destroy wealth as explained in the article above.
I don’t have the time to go into this in anymore detail tonight but we can take it up again Bruin.

No problem Coddler, enjoy your evening.

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