What's different about the New Economy?

While there is no one definition for the “new economy”, most folks working in this field would probably agree on a few basic elements that distinguish this economic approach from the current dominant economic model.  I’ve attempted to summarize those below.

Six Elements of Emerging New Economies, Contrasted with the Dominant Economy

1) New economies are more just, work better for people.

The dominant economy has used tax, trade and patent policy to greatly favor huge corporations and the very wealthy over small businesses and working people, leading to extreme levels of wealth concentration at the top alongside stagnant wages for working and middle class people, and growing poverty.  The very wealthy pay lower taxes on much of their income than do teachers and truck drivers; giant corporations pay an effective tax rate that is 6 – 8% less than what small businesses pay.  Trade policy grants corporations the right to sue nations, states and communities over health and environmental protections. You can’t make this stuff up.

In the new economy, small businesses and family farms create more jobs per dollar of sales; by purchasing from other local businesses, they create ‘economic multipliers’ that add much more value to the local economy than do chains and big boxes.  New corporate forms, such as the Benefit Corporation, which commits a business to positive social and environmental outcomes as well as financial profit, are also emerging in the new economy, with over 1000 nationwide.  Some localities have begun to use Community Benefit Agreements to hold big corporations legally accountable for the promises they make.  These and many other creative measures ensure that economies work for people, not the other way around.

2) New economies are more diverse, less dependent on outside corporations, foreign markets.

The dominant economy rests on two core assumptions:  that prosperity requires endless growth, and that jobs and income for the many ‘trickle down’ from the top, so long as taxes on this group are low.  In actuality, the record of the past 60 years demonstrates unequivocally that lower taxes on the wealthiest and on the biggest companies have not made for a bigger economic pie; and economic wealth, rather than trickling down has been sucked up from working people, community banks and small businesses.  There are many reasons for this, but one of them is the subsidies we provide to big boxes and big business, averaging over $100 billion per year.  The results?  Several studies have shown how communities with a diverse array of local businesses are stronger economically and socially, with better incomes, higher employment, and lower rates of poverty, incarceration, health problems and substandard housing, than those dependent upon a few big employers.

In the new economy, small to mid-size businesses take hold that build on the assets of their place, including music, art and culture, farms, forests and fisheries, the outdoors, historic downtowns and more.  Local business associations, like the Business Alliance for Local Living Economies (BALLE) help strengthen these local enterprises and increase the connections between consumers and producers.  Instead of spending millions of dollars to entice a big box chain, resources are redirected to homegrown businesses and entrepreneurs, making for more resilient economies and communities.

3) New economies build broadly-based prosperity, real wealth from the bottom up.

The five biggest Wall Street financial institutions own more than twice the capital of all the community banks in the nation combined.  Yet these mega banks direct very little of their resources towards local prosperity:  The community banks, with just half the assets, provide more than twice as much lending to local businesses.  Big banks, especially since the overturning of the Glass-Stegall Act, concentrate on generating high returns for the biggest, wealthiest investors, often through the use of derivatives and other means that don’t produce tangible wealth.

In the new economy, capital is refocused towards small to mid-sized businesses, towards infrastructure that enables farmers and entrepreneurs to add value to their products, and towards technologies and businesses that meet real needs, such as affordable, green housing, renovated buildings and revitalized downtown business districts, and regenerative farm and food enterprises.  Cooperatives, Employee Stock Ownership options, community land trusts and community-owned energy systems are among the means used to broaden prosperity, while increasing the productivity of businesses.

4) New economies fit within the ecosystem, recognizing limits rather than depending upon endless growth.

The dominant economy both depends upon endless growth and assumes that it is possible forever into the future.  Yet serious limits confront us, from enormous declines in groundwater reserves, to an 80% reduction in productive land per capita, worldwide.  And of course, there’s climate change and the consequences of too much carbon in our atmosphere – drought, floods and severe weather, sea level rise and more.  In spite of these increasingly serious problems, the dominant economy fights all environmental regulation and assumes that technology and ‘the market’ will fix things.

In the new economy, our places, our ecosystems are understood to have limits, but also to present new and better ways of meeting needs and creating work.  From organic farms and restorative fishery systems to super energy efficient building systems and solar and wind power companies, the new economy is spawning products and services that meet people’s needs with far less impact on the environment.  Complementing that is a growing emphasis on urban and community design that makes our towns and cities more walkable, more bike-able and more enjoyable.

5) New economies focus more on meeting real needs, fostering innovation in the process.

The dominant economy has been enormously productive and has made countless products much more affordable for ordinary folks, from cars to computers.  However over the last thirty years or so, it has also become increasingly dependent upon what is called financialization, that is a focus on money and monetary products as a central part of the economy and the policy guiding it.  This has led to what David Korten calls “phantom wealth”, where trillions of dollars of ‘assets’ are traded on Wall Street, making a small group of people spectacularly rich, while real assets – bridges, roads, high speed rail, rural health clinics, waterways and agricultural lands – are neglected and fall into decline.

In the new economy, there is a strong focus on addressing real needs and doing so in a way that helps people and communities to become more self-reliant.

Business incubators and accelerators help local firms be more competitive, more innovative.  Poor communities, from Detroit and Buffalo to Appalachia and the Southeast launch community gardens, urban farms, and ‘green development zones’.  New techniques and systems enable farms to simultaneously increase their productivity while pulling excess carbon from the atmosphere. Businesses put people to work in reclamation of disturbed land, urban brownfields and energy efficient housing.  Lower income people gain access to healthier foods through mobile markets and farmers market EBT initiatives.  In the new economy, the driving question shifts from “Where are the jobs?” to “What work needs to be done?”

6) New economies cultivate citizens, not just consumers.

The dominant economy is now a consumer economy, fundamentally dependent upon more and more people buying more and more stuff.  At the same time, the belief in private, market-based solutions to a whole host of societal problems – from prisons to public schools – has become increasingly commonplace.  Alongside both of these developments is the reality of widespread cynicism, even disgust with politics and government.  Taken together, these trends have convinced many people to give up on civic, political or even neighborhood engagement, believing that their opportunities as well as their responsibilities play out almost entirely as consumers.  

The new economy welcomes the creative force of the marketplace and encourages people to use their dollars to support businesses that reflect their values.  But it recognizes that this is not enough; that in order to have an economy that works well for all people, and that is sustainable into the lives of our grandchildren and beyond, we also need a vibrant democracy and honest public debate.  Many new economies are therefore emerging alongside community based media, arts and theater that give voice to folks from all walks of life.  The revival of public squares, parks and community centers has facilitated both new commerce and broader public participation.  The work of Policy Link and other organizations is helping to find ways to revitalize communities economically without falling into the trap of gentrification and even greater racial segregation.

*Originally published at BottomUpEconomy.org

Is there an Alternative to Trickle Down Economics?

There are at least four key components of what I’m calling a “bottom up economy”:   Focusing on the assets and strengths of your community; developing infrastructure to support and build upon these assets; fostering local ownership of businesses and capital; and building entrepreneurial networks that increase the competitiveness and impact of local businesses.    Before we examine how public policy can help communities develop each of these elements of a bottom up economy, it is fair to ask, “Why bother?  What is wrong with traditional, top down economic strategies?”

Most of our economic policy and practices over the past thirty years have been top down, or “trickle down” in nature, based upon this belief:  If we free up a small group of job creators at the top – wealthy investors and large corporations – they will create wealth which will trickle down to the rest of us.  This has been the driver of our economic, fiscal and labor policy since Ronald Reagan was president.  Trickle down economics did create wealth, but there were two problems with it:  First, much of it has been based upon financial speculation, rather than real wealth.  As stock market “bubbles” and so-called derivatives both demonstrate, Wall Street can create a lot of “wealth” that has little real value or base of productive assets.   We’re talking here about the difference between the house that someone owns – a tangible asset – and the value of the debt on their home, repackaged with the debt and risk of thousands of other aspiring home owners as a tradeable commodity, known as a derivative.  One is real, providing shelter, warmth, pleasure (usually…).  The other exists purely in the mind and can rise or fall in value dramatically, overnight.  And that is exactly what happened to trillions of dollars of Wall Street “wealth” in 2007 and 2008.

The other fundamental problem with trickle down economics is that the promised prosperity never trickled down.  In fact, it has been quite the opposite, as income and wealth have moved up, not down, from working folks and the middle class to the rich.  From the end of World War II until the mid 1970’s, the benefits of economic growth were widely distributed, with Americans in the bottom and middle of the economic spectrum seeing more gains than those at the top.  However from 1980 on, we’ve seen those gains stagnate or decline, as the vast majority of new income and wealth has gone to people at the very top.  Rather than widely shared prosperity, we’ve become the most unequal country of all the advanced nations of the world.  The most unequal.

The problem with this inequality, this concentration of wealth goes beyond the question of fairness or justice.  In fact it is quite costly to our nation, as Joseph Stigletz (The Price of Inequality, WW Norton, 2012) and Richard Wilkinson (The Spirit Level:  Why Greater Equality Makes Societies Stronger, Bloomsbury Press, 2010)point out in separate books.  Stigletz demonstrates that economic inequality leads to lower overall economic output and less productivity, not more.  Wilkinson looks at a host of quality of life indicators, including life expectancy, obesity and health, educational attainment, teen pregnancy, substance abuse, crime rates and others.  He finds that the more unequal the society, the worse they do in nearly every one of these areas.   This mirrors a study, done by Thomas Lyson of Cornell University, of 200 rural counties across the country which found that those with one or two large companies dominating their economy were worse off in terms of health, economic and social indicators than the counties with a broad base of small to mid-sized businesses.

Every one of these problems is costly, both in terms of taxpayer dollars and the well- being of people.  Trickle down economic strategies haven’t solved these problems; they have made them worse.  It is time for fresh thinking about how to create jobs, to broaden the base of wealth, to lift people out of poverty and to increase the resilience of households and communities.  Fresh thinking based on successful, real world examples emerging across this nation.

Facebook versus Face-to-Face: As Shared Realities have Disappeared, So have Our Shared Truths

 A lot of folks have begun talking about “fake news” and more broadly, the widespread decline of shared truths, of commonly agreed-upon sets of facts about issues critical to most of us.  This is an enormous and daunting problem for our country, especially given the political and cultural polarization that it has helped foster.  Many people are debating how this has come to be, but at least one of the underlying causes has received scant attention:  The loss of functioning community, of shared realities in our day-to-day lives.  I’m speaking here not of community in the realm of the “community of social workers”, but in the Ghostbuster sense of the word, that is, ‘actual physical contact’.  If you think we’ve evolved beyond that, I hope you’ll read on.

In his essay, “The Vanishing Commons”, Jonathan Rowe quotes a man who explains why his luxury yacht-building business is booming: “Rich people can go to a beautiful hotel and pay $3000 a night for a suite.  The trouble is, when you go down the elevator you are in the lobby with people who paid twenty times less.  My clients don’t like that.”   Of course, the very rich have separated themselves from the hoi polloi for centuries.  But that trend has accelerated and broadened in recent years, with the number of gated communities in the US increasing from about 2000 in the 1970s to over 50,000 today.  It’s not just the rich that seek to insulate themselves from the wider community, but increasingly middle income people as well.   Especially, though not exclusively, White people.  Whether motivated by fear, racial animus or the hope for higher property values, the result, according to a recent study by Renaud LeGoix and Elena Vesselinov, is that “gated communities are significant contributors to segregation patterns at the local level”.

Enclaves for the rich or gated communities for the upwardly mobile are but two of the ways we have walled ourselves off from one another, eroding every day, face-to-face interaction.  There are at least three other critical trends that steadily increase our collective estrangement.  First, the decline of public spaces, like plazas, town squares, public playgrounds and parks, means fewer places for people to gather, play, eat lunch, or talk, without the requirement of membership, permission or payment.  In some places this has resulted from a general decline in the community or neighborhood, but in many more it is an outgrowth of the push to privatize what were historically public or common goods, a trend that Jonathan Rowe believes has “reached an epidemic level”.

A second critical factor is the decline of broadly-based voluntary civic associations, including groups like the VFW (Veterans of Foreign Wars), the Elks, rural associations like The Grange, and many more.  While far from inclusive, especially in terms of race and gender, these groups did provide a relatively level playing field across economic class, where working folks and professionals debated issues, developed skills ofgovernance, and worked through differences within organizations that were local, yet connected to regional, state and national bodies as well.  Theda Skocpol estimates that in the 1950’s 3 – 5% of all adults in the US held leadership positions in one of the twenty largest voluntary associations, meaning that tens of millions of people from all walks of life likely were regular participants.   Rotary, Kiwanis and other civic groups still operate today, but with a far smaller proportion of the public involved.

Reinforcing these trends of physical segregation and civic disengagement has been a third factor, the increasingly autonomous nature of commerce and shopping.  Chain stores and big box retailers emphasize speed and efficiency in the shopping experience, dramatically reducing social interactions when compared with independent retailers and farmers markets.  On-line shopping makes it easier still to get what we need – or want – with little or no interaction with people, let alone our neighbors.  And that impact is in a sense, self-promoting, with the meteoric rise of Amazon helping to shutter over 100 million square feet of retail store fronts, according to an analysis by the Institute for Local Self Reliance.  More autonomous shopping, fewer actual places where people might run into one another in their community.

Into this perfect storm of disengagement from one another and our communities, an array of social media platforms have arisen to help “connect” us, to provide “community” without place.  Being unbound by the limits of particular places – limits of ecology, of culture, of economics or human history – social media communities often become self-absorbed and self-perpetuating, insulated from outsiders, and nurturing of extreme points of view.  Facebook is not the only venue where this happens, just the most prominent one.  Its design fosters group-think, aligning cultural and political sympathies as tightly as buying preferences.   And it propels the inexorable decline of actual communities of place, which by comparison are, after all, a pain in the ass.

With all of the disengagement from our neighbors and communities, it should not surprise us that the language of debate in this placeless world is so often vitriolic, fiercely resistant to new information, skeptical of ‘facts’.   Discounting solidly researched analysis or accepting the seemingly preposterous is much easier when our realities are deeply segregated, and our relationships increasingly disembodied.   If Facebook were but a small part of how we interact with one another, how we get our news, how we experience the world, it might be different.  But just as Amazon’s rise has hastened and benefitted from the fall of brick and mortar retail shops, Facebook’s emerging dominance has made face-to-face community seemingly obsolete, at once cumbersome and painfully limiting.   Yet it is precisely those limits, those shared realities that can instill a bit of empathy for one another and with that, a modicum of humility about what we know and what we don’t know.

Many Saturday mornings the line at our farmers market booth includes libertarians, quiet conservatives and liberals; readers of The Nation and folks who listen to Glen Beck.  You can be sure that there are some very strong disagreements on economic, environmental and social issues in that queue.   But there’s no shouting, no hateful, dogmatic pronouncements.  What would happen if I stopped bagging produce and asked what everyone thought about climate change?  Or Black Lives Matter?  Or the president-elect?  I honestly don’t know.   I do think, however, that the realities we share, around food, our land and our local economy, may bind us to each other just enough that we’d actually listen, perhaps even consider a discomforting fact or two.  Maybe, only maybe.  Even so, compared to Facebook’s placeless world, this face-to-face community at least has a common place from which to begin the search for shared truths.

*Originally published at BottomUpEconomy.org