A true and lasting economic improvement depends on changing human relations

The Global Economic Crisis Is Challenging the Economic Paradigm

According to classic economics, people aspire to maximize profits for completely egoistic motives. The 17^th century British philosopher, Thomas Hobbes, put it this way: “Every man is presumed to seek what is good for himself naturally, and what is just, only for peace’s sake, and accidentally.”[1] That view, which is still prevalent, asserts that social behavior is merely an after-the-fact result, and that our forefathers made social treaties only for the profits they yield, and not because they were drawn to each other’s company.

In the last decade, a new school has emerged, known as “behavioral economics.” This new school focuses on the actual human behavior, rather than on abstract market forces, and regards that behavior as a means for understanding the way in which we make financial decisions. Behavioral economics describes the nature and power of human relations, their collaborations, and shows the extent to which tendencies and fundamental perception of human economics rely on values of mutuality.

The current global crisis and the unsuccessful attempts to solve it could mean that the answer to the challenges humanity must deal with at this time lie in those new avenues of research. Indeed, thus far all the attempts at resolving the crisis have failed. The interest rate cuts, the bailouts, the expansion programs, and the increase of government deficits are all based on classic economics. This approach relies on a collection of monetary moves (primarily interest rate cuts) and fiscal steps (expanding government budgets, tax cuts and so forth). The intervention of governments and central banks was meant to assist the market back into balance, and the failure to achieve it suggests that it is time to replace the existing economic paradigm altogether. The new paradigm must rise one level higher and show that the problem, and hence the solution, too, are at the level of human relations and connections.

Behavioral Economics Implies a New Direction, a New Kind of Solution to the Crisis

If we understand the critical impact that the nature of people’s relations has on the economy, we will understand the kind of economic system that we must build in order for it to carry out its roles effectively and maintain its stability. When the economic and financial system adapt themselves to the global-integral world, in which economic ties cross borders and firms, in which people depend on one another and affect one another, it will secure the stability of the socioeconomic system. Only then will the system avoid shocks and frequent crises that take a heavy toll from us. Classic solutions to the crises are inadequate. This is why at the start of 2012, the world is facing a severe economic crisis, which is really a continuation of the crisis that began in the summer of 2007.

Yet, not only the economy must change. Because the economic and financial systems are reflections of human relations, the entire international community is required to provide solutions that rearrange the system of human relations. When our relationships begin to change toward bonding, unity, social cohesion, care for others, and mutual guarantee, we will know how to change the economic paradigm accordingly.

The Evolution of the Economy

People cannot exist irrespective of society. As social beings, we are compelled to live among people, be assisted by them, and contribute our share for the common good. The evolution of humanity from the clan of the caveman through feudalism and onto capitalism reflects the evolution of our interconnections, our interdependence. And in accord with those changes, the way we trade and exchange goods and services has also evolved to reflect the time and its characteristics.

In prehistoric times, humans [homo sapiens] lived in clans. Then came villages, then cities, and then states. For tens of thousands of years, people worked to provide for themselves, their kin, and the people near them. But as international trade evolved, developed nations began to conquer undeveloped ones and discover new lands. The industrial revolution prompted urbanization and made the connections among people far tighter.

Commerce and Exchange

This is how the economy that we know today has evolved. This economy is driven by man’s egoism, who feels driven to profit, even at the expense of others. One person may be a farmer, another may be a manufacturer, and by connecting, they both benefit. This is why we have built all our connections in parity with our egoistic nature. In the past, it involved exchange of products without the use of money. Afterwards we learned to use coins of precious metals, and then paper notes, which represented the financial value of the one who issued them.

Today the majority of money transfers are actually virtual. The transfer is made from one account to another via computer networks. The information technology revolution has dramatically changed human relations, and the virtualization of relations finds its expression in finance and money markets, too.

It follows that economy is a type of compromise between the ego of each person and the necessity to connect in order to be sustained by one another, through some sort of general consent. Clearly, global economy has much to do with power games and politics, as well as with moral considerations that are not taken into account in the paradigm of classical economics.

As a result, economy is not an exact science. It deals with contrasting elements, and is not subject to physical laws of Nature. Rather, it is our own creation. It expresses our survival needs and our relationships. This is of paramount importance because instead of trying to force an anachronistic paradigm on ourselves, we could fashion a different one, expressing the change in the human relations that exist in today’s interconnected world, in the relations of interdependence and reciprocity of economic and social ties, which are only tightening.

The Whole Truth about the Economic Crisis

The crisis is expressed in our approach to the world and to society, not in the world or in society in and of themselves. The crisis is within us and in the relationships between us. Nature works in harmony and balance, and now it is up to us to change ourselves, our relationships, and as a result, the systems we have built, including the socioeconomic system, to be balanced and harmonious like Nature.

Among the characteristics of the economic crisis we can point out the bloating of prices products and services, and of stocks and loans. As a result, we are witnessing a crisis of trust in the economy. At the end of the day, the false and fictitious picture of the world that has been built and cultivated for many years by various elements with their own agenda has disintegrated. People have begun to understand that in an economy based on lies, speculation, and manipulation it is impossible to trust anyone. In a state of general mistrust, the economic system is unsustainable.

Thus, today’s economy is a picture of the world that reflects distorted interconnections, manipulations, and false values. An unscrupulous and unrestrained competition has been built, and an irrational consumer behavior, both of which have grown out of control. In the process, a false perception has been instilled into the public, by which consumption defines man’s essence (“I buy therefore I am”). The values in society are determined by brand names, celebrities, and status symbols, not by people’s rational interests. In such a state, the collapse was only a matter of time.

The Gap between a World-Turned-Global and the Anachronistic Economy

A more systemic explanation as to the root of the crisis relates to the fact that the world has become global and connected. All the systems, including the economic and social ones, are linked to one another, affect one another, and are affected by one another. The money markets, for instance, are a single global system. What happens in the U.S. affects Europe and the rest of the world, and vice versa. The stock markets have long become a global barometer that expresses the hope, the despair, the crisis, and the growth.

Also, the money markets are affecting other systems, especially the business world, the performance of economies, and the financial well-being of citizens. The world has become a complex global system in which the systems are interdependent, connected in a way that we did not choose, but which we cannot ignore.

At the same time, however, our human relations are still based on individualistic values. They are inherently self-centered and competitive, and have changed very little in the past several centuries. Naturally, since economy reflects those relations among us, it also reflects these values.

Before us is a huge gap between the laws of the global-integral world, and the nature of human relations and the economy derived from them. That gap is the real reason for the economic and social crises that are happening. Until we bridge that gap, we will continue to experience it as a crisis.

The laws of the new world compel us to bond and to change the economic and social systems to become based on mutual consideration, cooperation, and synergy, on sharing of resources and knowledge, on balanced consumption, and unification of economic, monetary, and fiscal mechanisms. These systems express the mutual guarantee among people, while the current economy continues to be based on maximizing benefit and personal gain, on competition, and on an inherent conflict between people.

Due to the importance of money in our lives, the economic crisis is receiving much attention, and the economic dependence among countries and stock markets is clear and accepted by all. Yet, such interdependence exists in other systems, such as ecology, education, science, and so forth. In fact, every system affected by human relations is now in crisis.

Crisis as an Opportunity

By and large, the appearance of the new system has taken humanity by surprise. We have built connections and social and economic systems to match our needs and the nature of our relationships. But all of a sudden it all seems insufficient for managing our lives and for living in peace and comfort. The global-integral system seems to have its own laws.

The interdependence and tightening connections among all of life’s systems leave us no choice but to change our own interconnections accordingly. Interdependence among people, firms, and countries cannot be in an economic system based on a zero-sum game, characterized by aggressive competition, a striving to maximize personal gain, and manipulations.

The interdependence among the various parts of the global system is in stark contrast to the social and economic gaps, which are only widening among and within countries. This egoistic system has become completely ineffective, and it is impossible to go on using it. Indeed, this is the crisis that the relations we have built has induced. In a sense, the crisis offers us an opportunity to examine the nature of our relations and to change it so it fits what is required of the global world and the necessary interdependence among its parts. Such harmony and congruence will necessarily create a different economy, optimistic, balanced, and stable.

Economy and Human Relations

At the end of the day, it all adds up to the network of connections between us. That network is really what determines everything. That network is spread out throughout the world, and consists of many elements—countries, armies, funds, raw materials, religious denomination, social ties, hopes for the future, and so forth. All are parts of that network among us, which is why it is so difficult for us to grasp it. For now, those who can grasp it better are the ones profiting most.

Many people argue that we should examine the financial system and correct it. But we need to understand that the whole of reality has changed; it has become global and integral, and this is what hinders our attempts to continue living by the current socioeconomic system. Everything we’ve built in the existing system stemmed from our egoistic nature. But the current reality necessitates that we reciprocate rather than exploit. The connection between us is much tighter now and compels us to “upgrade” our connections toward unity and mutual guarantee (in which all are guarantors of each other’s well-being).

Because we don’t know how to approach the global-integral network, we lose the ability to properly communicate with others. This is the reason for the crisis in trust that’s awakening in the world—the banks don’t believe the manufacturers, and the governments don’t believe each other. In the past, the communication was clear and relied on give and take, on individual consideration of profit and loss, and on the necessity to cooperate, almost against our will. The ego played a key role and we all understood that this was so and understood each other.

In the global-integral system of connections, however, there is a need for an economy that reflects the relations of interdependence among us, yet we haven’t adapted our “operating system” to it. We are still living in economic and social systems that are based on the relationships of our past. At the same time, we are discovering the interdependence among us, yet cannot understand it. We’re not even detecting its altruistic nature. Here lies the problem: the crisis cannot be resolved in the old ways, since everything depends on the extent to which humanity moves toward bonding and mutual guarantee.

Economists are At a Loss

The toolbox of classic economics is inadequate for our time. Our antiquated thinking is driving us deeper into the crisis and must now be changed. In that regard, Joseph Stiglitz, Nobel Prize laureate in economics, said in a lecture at the 4th Meeting of Economic Sciences at Lindau, “The standard macroeconomic models have failed by all the most important tests of scientific theory. They did not predict that the financial crisis would happen; and when it did, they understated its effects.”[2]

We need to adapt ourselves and the nature of our relations to the characteristics of connections in the global-integral system. In that regard, continuing to develop behavioral economics is a step in the right direction because just as the economy has become global, so have our social relations. This is why egoistic relations do not work anymore. We must learn the qualities required of relationships in the new world. This will not only bring us into balance with the global-integral world, but will enable us to understand and welcome the changes that social and economic systems must undergo.

The change is inevitable; it cannot be stopped. The more we deny it, the more we will experience the change as a crisis. But if instead we will come to grasp the meaning of the change and make the necessary changes, the sensation of distress will give way to hope and prosperity, to harmony and peace among people, and between humanity and Nature.

Therefore, all that needs to change is the nature of our interrelations. If we commit to a new social and economic treaty, a global and integral one, with mutual guarantee among us, we will be able to instigate a transformation of the existing economic paradigm, and of all the systems of life that humanity has built. Such a change is possible only through broad education and informing, creating an empathetic environment that nurtures the values of mutual guarantee and stresses its advantages. Only an evolutionary process of that type will guarantee a stable and efficient economy that provides harmonious, balanced, and sustainable living for all.

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[1] Thomas Hobbes, Rudiments, 1651, iii

[2] http://www.dictionaryofeconomics.com/resources/news_lindau_meeting