21
DEC
2011

Benefits of the New Economy

A balanced economy is not only mandatory in the global and integral reality, it also pays off for all of us.

An Escalating Crisis in Europe and the U.S.

The global economic crisis is rapidly deteriorating. The U.S. suffered its first ever downgrade of its credit rating, and the Eurozone is threatening to collapse altogether, or alternately, face insolvency of sovereign debt, which would shake up financial markets all over the world. At the same time, world leading economists are making foreboding statements, such as Nouriel Roubini’s, “There’s a significant probability there’s going to be another recession in most advanced economies,”[1] or Joseph E. Stiglitz’s, “In a way, not only there is a crisis in our economy, there ought to be a crisis in economics.”[2]

The economic interdependence among all the countries makes it impossible for them to isolate themselves and resolve their problems separately. An example of that is the attempt to save the faltering Greek economy. The Polish Finance Minister, Jacek Rostowski, speaking before the European Parliament, warned that “Europe is in danger, and the breakdown of the Eurozone would lead to a chain reaction leading to the breakup of the European Union (EU) and ultimately to the return of war in Europe.”[3] Also, German Chancellor Angela Merkel, stated that “Euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states.”[4]

Naturally, investors are concerned for the future of the world economy. During weekend talks of policy makers, investors and bankers in Washington, Pimco, the world’s largest bond investor, predicted, “Economies will stall over the next year as Europe slides into a recession.”[5] On that same event, former U.S. Treasury Secretary, Lawrence Summers, said he has been to 20 years of (International Monetary Fund (IMF) gatherings, and “There’s not been a prior meeting at which matters have had more gravity and at which I’ve been more concerned about the future of the global economy.”

Unemployment in Europe and the U.S. is high and rising. Thus, “Spain’s unemployment rate rose sharply to a new Eurozone high of 21.3 percent in the first quarter of the year, with a record 4.9 million people out of work.”[6] In the U.S., the current unemployment rate is 8.6, with 13.3 million people out of work.[7]

The Economy Needs a Makeover

The failure to resolve the global crisis that began in 2008 baffles the most prominent economists and exposes the limitations of the current economic paradigms. Fiscal expansion and an expanding monetary policy were meant to reverse the decline and gradually heal the world economy, but this has not happened. On the contrary, it seems as though the economic “toolbox” in the hands of decision makers treated only the symptoms of the crisis rather than the crisis itself.

The interest rate cuts, expansion of budgets—intended to boost the industry and commerce—tax cuts, reforms in finance, interference of central banks in bond and currency markets have all failed.

To resolve the crisis, we must first diagnose the root of the problem, and then adopt a solution that deals with that root. Treating only the symptoms doesn’t resolve the crisis itself, as its recent reemergence testifies.

At the very heart of it, economy is an expression of human relations. In the current economy, people’s primary motive is to maximize their profit in a competitive environment that maintains the sense of lack. The meaning of this self-centered profit function is necessarily a zero-sum-game, where one’s gain comes at the expense of another.

The solution to the economic crisis necessitates that we first change human relations into ones that are based on mutual guarantee (in which all are guarantors of each other’s well-being). Such a change is possible only by creating a supportive environment—information systems that educate of the change using the media, as well as adult and youth education systems. The educational framework will commend such values as solidarity, collaboration, empathy, care for others, and mutual guarantee.

Social sciences provide ample proof of the influence of the environment on people.[8] Hence, we must build a society that teaches us to think differently, and to adopt prosocial values.

Today society rewards with money, power, and glory. Such rewards create competition and induce aggressiveness. Each person tries to exploit or manipulate others on the personal level, company level, national level, or international level. If the rewards were to change and encourage mutual guarantee, the change would be easy to make and would have broad public support. This is the power of the influence of the environment.

First Thing’s First: Putting Out the Fire

First, we must put out the fires, meaning deal with the most pressing issues. For that, we should come together, deliberate in a round-table format, and discuss—just like a family—how we can help those among us who are in desperate need, below the poverty line. Without a solution for existential problems that is agreed upon by all, it is impossible to continue. It is a precondition to forming the mutual guarantee among us. Agreeing on mutual guarantee will make the necessary concessions by the more fortunate among us possible, in order to assist each other and execute the needed economic amendments to thoroughly deal with the challenge of poverty.

Some of the financing of mending of the imbalance will come from the state budget, and will reflect the change of socioeconomic priorities. However, the bulk of the money will come from new and additional sources that will be created by the transition from excessive consumerism to reasonable consumption, from an individualistic, competitive economy into a collaborative, harmonious one, in sync with the laws of the global, integral world.

At the same time, we must acquire basic skills for life and consumer education to qualify us to an independent, balanced way of living, within the possibilities in the new world. The combination of immediate economic and financial solutions, and education for proper consumer education, is a “CPR” for the lower income individuals in society. This will create the common basis necessary to adopt the mutual guarantee as a social and economic treaty that ties all of us together, in sync with the laws of the global-integral world.

Toward a New Economy, Under the Umbrella of Mutual Guarantee

It is easy to describe the socioeconomic system at the end of the transformation process, to which the crisis is compelling us. The inadequacy of the current economic systems in the global network of ties and interdependence among people and countries is the real reason for the escalating global crisis. When decision makers and leading economists grasp that this is the root of the crisis, the solution will become obvious, though we will still need to adapt our relations to ones of mutual guarantee, and derived from that, to the new economy, which reflects the shift of conceptions and values in the world.

Under the umbrella of mutual guarantee, the economy and the human society will be in harmony with the global network of connections. Instead of “sailing against the wind,” wasting energy and resources trying to maintain the existing failing economic method, a new economy will form, a balanced and stable one, relying on sound social cohesion on all levels, expansive international cooperation, balanced consumption, and stable financial markets, instead of the current financial markets, which produce destructive bubbles every 5-7 years.

Benefits of the Economy of Mutual Guarantee

There are many benefits to the new economy, based on mutual guarantee. Our attempts to cling to the existing, failing economic model, and ease the immediate problems following the financial crisis are making it harder for us to appreciate the immense socioeconomic potential of the mutual guarantee economy. If we imagine that we are already in a state of mutual guarantee, will be able to see its many advantages:

1)    A just and fair standard of living for all: An economic policy based on mutual consideration will help us allocate the necessary public funds for raising the lower classes above the poverty line. At the same time, workshops and trainings in life skills and consumer science will help people develop financial independence. Living above our means and over consumption have become a global phenomenon that requires treatment.[9],[10]

2)    Lowering the cost of living: When greed is no longer the basis of our economic relations, when each of us is content with a reasonable profit and does not aspire to maximize profit at the expense of others, the prices of products and services will drop to near-production cost. Today the pricing of many goods and services is too high because each link along the commerce chain strives to maximize its own benefit. Extolling the value of mutual guarantee in communication networks and in the general public discourse will make firms add public benefit to their equations. This will make life more affordable for all of us.

The first signs of it are already apparent. The social unrest is causing manufacturers to lower the prices of products and services. For now these are transient and less meaningful discounts, but the trend is clear. Additionally, the transition into a relatively balanced consumption will lower the demand and help lower the prices.

Also, diminishing the cost of living will diminish inequality and social gaps, and this is one of the primary advantages of the mutual guarantee economy, on its way to true and lasting social justice.

3)    Diminishing social gaps: One of the primary ills of the global economy is the constant increase in inequality. This is the prime motive behind the worldwide unrests that demand social justice. When we treat each other like family, we won’t be able to tolerate inequality of opportunity or means among us or among countries. Instead of unrests and fear of revolutions and violence, the mutual guarantee economy will yield broad consent over the need to diminish the economic gaps, thus maintaining stability of the system.

Diminishing inequality means, among other things, economic and social concessions on the part of the top income tiers. Education, the influence of the environment, and an effective mechanism of communication—such as the round table—will guarantee that decisions are reached with transparency and fairness, and reflect the social and economical consensus—imperative in relations of mutual guarantee. In return for their concessions for the common good, the ones who make them will be rewarded with public appreciation for their contribution. Additionally, those who receive the assistance and resources will have a better life, a dignified one, and they, too, will appreciate the new method.

4)    A genuine and thorough budget reform: The only thing that can create a sense of social justice and mutual guarantee, while tending to each individual in society, is the sensation that we are all in the same boat and must work together. There needs to be a more just prioritizing in the national budget, reached by broad consensus and not through the squabbles of lobbyists and pressure groups.

An economy that is managed with transparency will allow the whole people to understand the considerations by which decisions are made, and even influence them. Sensations of partnership and involvement will neutralize negative feelings such as frustration, which currently exist toward policy makers. This will allow people to agree and support the decisions received by decisions-makers, even when some of them will not always be satisfactory for them. The satisfaction that the sense of being one family that decides around the round table will create will provide the necessary fuel to make concessions for each other.

5)    Increasing the “financial pie”: If every citizen, business, and government office feels part of that family, many extras will appear in money, goods, and services, in state budgets, municipal budgets, and even in our personal budgets. Consider how many things we have at home that we never use. We can take the surplus food and clothing, give it to the poor, and the financial extras will be turned toward covering a significant portion of the current needs without even having to increase the budget deficit or impose austerity means or taxes.

However, we are not offering charity as a solution, although charity is a great expression of a solid community life and mutual assistance. Rather, we are talking about efficacy. For example, according to a CNN report, “30% of all food produced in the world each year is wasted or lost. That’s about 1.3 billion tons, according to a new report by the U.N. Food and Agriculture Organization.”[11] Why can’t countries where hunger is a real problem receive that surplus? The answer, in a word, is “interests.” Distributing the surplus food means increasing supply, which would mean lower prices. This, in turn, would diminish the profits of food producers and marketers. In an economy based on mutual guarantee, such a state is impossible. How can we throw away food when members of our family are starving?

This is just one example. For more examples on the benefits of the mutual guarantee economy, see the chapter, “Surplus and Improving Public Well-Being.”

6)    Improving employer-employee relations and firm-government relations: Researches in behavioral psychology indicate that wealthy people seek respect, not money.[12] Yet, today companies and CEOs are evaluated based on their profits and gains. More money means a higher ranking in rating firms or in the list of “most successful CEOs of the year.” Possibly the best example of this narrow, self-centered thinking of maximizing profits is the U.S. job market. The reason why the American job market is not adding more jobs even as the economy grows is that firms prefer to increase their workers’ overtime hours or have part time workers work full time, rather than hire new people.

Today, such considerations are considered rational. But in an economy conducted in mutual guarantee, the values will be such that more people will be able to share in the prosperity of the economy, rather than having less people share more of the profits. Similar improvements will be made in companies’ relations with the government and tax authorities, leading to fairer taxes and less tax evasions.

7)    Stability and long term solutions: The new economy will be based on the values of mutual guarantee, and will necessarily be congruent with today’s global and interdependent reality. Such an economic method, which is in harmony and balance with the global and integral network, will necessarily be more stable and sustainable than all the existing economic and social methods, as it would match its environment and would reflect a broad consensus among its elements—people, companies, and states. A balanced economy, which is friendly toward man and toward Nature, will allow each person to live in dignity, to feel that the system is “friendly” toward him or her, and provides respectable sustenance and a chance to reciprocate with a contribution to the system.

8)    Certainty: The transition to the new economy will be gradual. At first, there will be dynamics of change and hope, a new spirit in society, a sense of cohesion and personal security. The current fear of being exploited will make way for concessions and gestures of generosity in several areas, such as more affordable housing prices, employment contracts that do not exploit workers, simpler bureaucracy that truly serves public interest, fair banks, and service providers that actually provide the intended service, and at a sane price. In short, people will feel confident in their interrelations, a feeling so badly needed in these uncertain times, and one which money truly cannot buy.

9)    True happiness: The new economy will create in us a sense of fulfillment that cannot be measured with money. As described in the chapter, “Studies Challenge the Notion that Money Means Happiness,” beyond a certain level of income, additional money does not improve one’s feeling. Instead, satisfaction is derived from successful relationships, from a sense of confidence and self-fulfillment. The new economy and its benefits are not transient; they are solid and stable because they are in sync with the laws of mutual guarantee, which enable a decision making process through a broad consensus.

10) An applicable decision-making process: As said earlier, the new economy will be conducted with transparency. Everyone will see how decisions are made, and will be able to influence them. This is the only way to establish an applicable decision making process, as people will feel that the decisions are both fair and were reached after thorough consideration of everyone’s needs. This will also enhance the stability of the socioeconomic system.

11) Economic and financial stability: Money markets have turned from a meeting ground for companies and investors into a battle ground among aggressive global players, with enough power to rattle and shake global market just to “make an extra buck,” regardless of the soundness of the system. The mutual guarantee economy will allow the money markets to regain their original function without repeatedly falling into financial bubbles that pop and become disasters in the real economy.

12) Balanced consumption: The excessive consumption has long become a key element in our lives, and in the global economy. In the mutual guarantee economy, it will gradually and willingly make way for balanced consumption. In fact, the process has already begun and is connected to the crisis and to the gradual transition from a competitive, wasteful, and inequitable economy, into a balanced and functional one, whose goal is to provide for the reasonable needs of every individual. Commercials and systems of social pressure whose only purpose is to convince us to buy redundant products and services will disappear, as will numerous brands and products that are superfluous. Instead, contribution to society and participation in community life for the common good will take their place as one’s pride and joy.

Also, because of the decreased demand, prices will drop, and reasonable, dignified living will be affordable to all. Companies will produce only what is truly necessary for us to lead a comfortable and balanced life, as we elaborate in the chapter, “Toward Balanced Consumerism in the New Economy.”

13) Global balance and harmony: The transition from excessive consumption into a balanced one will reveal that Earth contains sufficient resources to sustain all of us comfortably for many years to come. The exploitation of natural resources will stop, and we will discover Earth’s magnificent rejuvenation capabilities.

The stability of the mutual guarantee economy lies in the fact that it is based on strong social cohesion, mutual concern, and the understanding that in an era of globalization, our interdependence necessitates that we adapt our connections and our social and economic systems into a single, harmonious system that can provide for the needs of all of humanity, while supporting and encouraging everyone’s needs to realize the great potential within each and everyone of us.


[1] http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201110250135dowjonesdjonline000043&title=roubini-warns-of-double-dip-recession

[2] http://www.dictionaryofeconomics.com/resources/news_lindau_meeting (the above-mentioned statement is in Stiglitz’s video at 10:05 minutes.

[3] http://www.israelnationalnews.com/News/News.aspx/147945#.TrUbyPSArqE

[4] http://www.businessweek.com/news/2011-09-26/chilean-peso-advances-after-merkel-urges-firewall-around-greece.html

[5] http://business.financialpost.com/2011/09/26/pimco-sees-europe-sliding-into-recession/

[6] http://www.huffingtonpost.com/2011/04/29/span-unemployment-inflation-economy-debt_n_855341.html

[7] www.bls.gov/news.release/empsit.nr0.htm

[8] Perhaps the most notable examples are the studies published in the book, Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives—How Your Friends’ Friends’ Friends Affect Everything You Feel, Think, and Do, by Dr. Nicholas A. Christakis and Prof. James Fowler:

  • Christakis, N. A.; Fowler, JH (22 May 2008). “The Collective Dynamics of Smoking in a Large Social Network” (PDF). New England Journal of Medicine 358 (21): 2249–2258.
  • Christakis, N. A.; Fowler, JH (26 July 2007). “The Spread of Obesity in a Large Social Network Over 32 Years” (PDF). New England Journal of Medicine 357 (4): 370–379
  • Fowler, J. H.; Christakis, N. A (3 January 2009). “Dynamic Spread of Happiness in a Large Social Network: Longitudinal Analysis Over 20 Years in the Framingham Heart Study” (PDF). British Medical Journal 337 (768): a2338.doi:10.1136/bmj.a2338. PMC 2600606. PMID 19056788.
  • Christakis, N. A.; Fowler, JH (26 July 2007). “The Spread of Obesity in a Large Social Network Over 32 Years” (PDF). New England Journal of Medicine 357 (4): 370–379

[9] Average credit card debt per household with credit card debt: $15,799

[10] The average British adult already owes £29,500, about 123 per cent of average earnings.

[11] http://business.blogs.cnn.com/2011/05/13/30-of-all-worlds-food-goes-to-waste/

[12] Tay, L., & Diener, E., “Needs and subjective well-being around the world,” Journal of Personality and Social Psychology (2011), 101(2), 354-365. doi:10.1037/a0023779

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