Let's Try Something Radical. Like a Market Economy

Plenary Presentation by David C. Korten to the Peoples' Summit 1997 (TOES97)
Denver, Colorado, June 20, 1997

Welcome to the Peoples' Summit 1997—the real economy summit. You know, those guys meeting in that other economic summit in the Denver library have a strange idea about democracy. There you have the Heads of State, Foreign Ministers, and Finance Ministers of just eight countries — Canada, France, Germany, Italy, Japan, United Kingdom, United States, and Russia. They are presuming to craft policies with far reaching implications for the lives of ever single person on this planet. Yet even most of the world's democratically elected leaders — to say nothing of ordinary citizens—are excluded from their meetings.

Here at the People's Summit, where our discussions are open and public, we will be sharing the stories of real people who are organizing at local, national, and global levels to reclaim control of their economic lives and to counter the devastating growth in inequality, exclusion, social breakdown, and environmental destruction being experienced everywhere on the planet.

Those folks at the other summit will present a very different picture of the world's condition and reach quite different conclusions. They will predictably issue a communique affirming their commitment to the neoliberal agenda of free trade, market deregulation, privatization, and the dismantling of social safety nets as pathways to prosperity. They will surely call for measures to aggressively advance the implementation of this agenda in every region of the world— giving special attention, no doubt, to Japan, the former Soviet Union, Africa, Latin America, and China.

This is, of course, the very same agenda that participants in the People's Summit will be identifying as the causes of exclusion, rapidly growing inequality, falling wages, economic insecurity, and the failing legitimacy of our democratic institutions.

One might well wonder whether the G-7 participants live in the same world as the rest of us. The obvious answer? No they don't.

We come to the Peoples' Summit from the real world where people are struggling to keep a roof over their heads and food on the table. A world of economic exclusion, insecurity, and a deteriorating quality of life.

Those who gather for the other summit live in a world of high finance, multi million dollar incomes, and the corporate power brokers who bought their elections. Their world is booming. But they live at such a distance from the needs and realities of the real world of people, families, and communities — they no longer realize there are interests other than those of big money.

In addition they are burdened by a serious intellectual handicap. First, they have no idea that there is a critical difference between a market economy —to which they pledge their commitment—and a capitalist economy—which is what their policies in fact serve.

Second, they don't realize that there is a major difference between making money and creating wealth. Money is just a number of no intrinsic value, which by social convention gives those who hold it a claim on the real wealth of people, community, nature, and technology.

Unmindful of these distinctions, the G-7 participants see no contradiction in promoting an economy centrally planned by global mega-corporations in the name of freeing the market. Nor do they see the folly of creating an economy that punishes the working people who create real wealth while rewarding speculators and predators who make huge amounts of money at the expense of the rest of society.

It is with these incapacities of our supposed political leaders in mind, that we have here convened a People's Summit, a real world economic summit, to share and advance citizen agendas for creating a world that works for all people, for the planet, and for all living things —a world that measures progress not in terms of growth in corporate profits and stock prices, but rather in terms of real improvements in the lives of real people—and especially in the lives of those most in need.

We meet here in the knowledge that if there are to be solutions to the global economic crisis wrought by the policies of the G-7, the OECD, the WTO, the World Bank, the IMF, and the other elitist institutions of the global economy, these solutions will have to come from civil society— from people like those of us.

I want to suggest to you a radical proposal. Since both capitalist and communist economic models have failed us, let's try something different. Like say — a market economy.

Just in case anyone here shares the illusions of the G-7 leaders that the disaster we now have is a market economy, let us be clear that we live in a capitalist economy — which means an economy ruled by big capital — by people who have lots of money. The claims of its massive propaganda machinery not withstanding, a capitalist economy dominated by monopolies, oligopolies, media control, and corporate owned politicians is elitist, anti-market, and anti-democratic.

I have in mind something more like the populist sort of market economy that Adam Smith wrote about. And for old dead economist, I think he had a pretty good idea. Consider four principles fundamental to a real market economy.

1. The market must be comprised of small buyers — and small sellers who compete on the basis of price and service for customer favor. No unearned monopoly profits or trade secrets. A real market economy also implies a substantial degree of economic equality among its participants—no one of which can be large enough to dominate the others. These sound like pretty good ideas to me. Why not give them a try?

They certainly offer a stark contrast to the capitalist economy the G-7 leaders are promoting where of the world's 100 largest economies 51 are corporations. Where the sales of the world's 200 largest corporations are equal to 28% of total world GDP. And where hardly a day goes by without announcements of new mergers creating ever larger corporate giants and further limiting market competition. Bear in mind that the market internal to a corporation is not a free market economy. It is centrally planned to maximize the returns to shareholders.

And what of this level playing field so dear to the hearts of Neoliberals? There are now 477 billionaires in the world, up from only 274 in 1991. Their combined assets are roughly equal to the combined annual incomes of the poorest half of humanity — 2.8 billion people. We have no language adequate to describe the obscenity of such extreme inequality — and it is a direct consequence of the market deregulation and globalization that the G-7 leaders want to push even further.

2. A second principle of a market economy. The full costs of production must be born by the producer and reflected in the price of the product. This is essential to efficient market allocation and another very good idea.

The current profits of most global corporations depend more than anything on their ability to pass their costs onto the rest of society by pitting people and communities against one another in a race to the bottom. The externalization of costs takes many forms, including the bidding down of corporate taxes. Paul Hawken is doing a study for Mother Jones Magazine in which he concludes that corporations in the United States currently receive more in DIRECT public subsidies than they pay in total taxes.

Then there are the costs imposed on society by the products corporations sell. For example, the health consequences of the cigarettes from which the tobacco companies profit cost the U.S. public an estimated $53.9 billion a year. Ralph Estes estimates that in the United States alone, corporations each year pass on to the society more than $2.6 trillion in externalized costs from their operations and products, roughly 5 times the amount of their profits.

In short, the big corporations that manage our economy are a very expensive economic burden — as their very existence depends on massive direct and indirect subsidies. I think it is time to give market principles a chance. That would mean demanding that any for profit corporation that can't pay its way go out of business the way the god of the market intended. If we from time to time have need of a business that requires and merits public subsidies that's fine. But that business should be owned by and accountable to the public that pays the subsidy. Public subsidies for private profit may be the capitalist way. But it is a fundamental violation of basic market principles. I say let's give market principles a chance.

3. A third, seldom acknowledged, market principle is that capital must be locally or at least nationally rooted. Neoliberals are fond of citing Adam Smith's argument that the market functions as an invisible hand to translate the decisions of self-interested individuals into outcomes that serve the public good. Now there's only one sentence in the 900 pages of The Wealth of Nations that refers to the invisible hand, and it is very specific that it is by a natural preference for supporting domestic industry that the entrepreneur promotes the larger good. Smith clearly believed investment should be local.

Similarly, the theory of comparative advantage regularly cited by free trade proponents assumes that investment capital is confined within national borders and that trade between countries is balanced. Of course in our present global capitalist economy trillions of dollars move across national borders at the speed of light without regulation and the G-7 leaders are pushing hard for a Multilateral Agreement on Investment that would further limit any public oversight of such speculative and destabilizing flows. I favor a market approach. Make capital national and keep trade balanced.

4. And the fourth principle. A strong, effective, and democratically accountable government is essential to maintain the conditions under which markets can function efficiently. Government must limit the growth of firms to maintain the competitive nature of local markets, provide a regulatory framework to require cost internalization, protect local capital from outside predators, keep trade balanced, and provide for public goods.

I believe these basic principles of a market economy are highly consonant with the values and vision for a better world that most of us bring to this Summit. Small firms that pay their own way without direct or indirect public subsidies. Local ownership. Equality. And efficient democratically accountable governments to set the rules. What a stark contrast to a global capitalist economy comprised of giant corporations that demand massive public subsidies, create obscene inequality, know no allegiance to any people or place, and displace people from the political process.

So let us be perfectly clear as we proceed with our deliberations. If we chose to reject the capitalism of the G-7, the World Bank, the WTO, the OECD, the IMF, and the Multilateral Agreement on Investment it does not mean we are against markets and democracy. To the contrary, we are rejecting their capitalism, because it is anti-market and anti-democratic.


David C. Korten is the author of When Corporations Rule the World, Kumarian Press (1-860-233-5895) and Berrett Koehler Publishers (1-415-288-0260), chair of the Positive Futures Network, publishers of Yes! A Journal of Positive Futures (1-206) 842-0216, and president of the People-Centered Development Forum.

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