Benefits of the New Economy

Globalization: “globalization” refers to the increasingly international relationships involving culture, people, and economic activity. most often it refers to economics: the planetary distribution of locations where goods and services are produced, enabled through the reduction of barriers to international trade such as tariffs, export fees, and import quotas. globalization has accompanied and contributed to economic growth in developed and developing countries through increased specialization and the principle of comparative advantage (the ability of a person or a country to produce a particular good or service at a lower cost).

the term can also refer to the transnational circulation of ideas, languages, and popular culture. integral: entire, complete, whole. also, consisting or composed of parts that together constitute a whole. 10 foreword the social unrest began with “the arab spring,” an uprising that led to the fall of regimes in egypt and libya, and chaos and bloodshed in syria. social unrest quickly spread to europe, with tent-cities appearing in spain, riots in greece and the u. K. , and various forms of civil protest in several other countries. finally, protest arrived in the u. s.

with the “occupy movement” that began in new york city and spread like bushfire throughout the country. this global unrest had a common root—the sense that social injustice was being perpetrated. finally, people rose up, determined that their voices would no longer be ignored; they demanded that economic sufficiency and democracy, in the case of the arab spring, would be given to all. in europe and in the u. s. , another demand was put on the table—to narrow the gap between the wealthiest 1% of the population and the other 99%, and to change, or at least mend the capitalist system that has allowed such gaps to be created.

The second major issue was the global economic crisis. the tools that decision-makers used, such as cutting interest rates, pouring torrents of money into the market, or establishing aid funds, had become utterly inefficient as the global economy continued its downward spiral. the world stopped behaving the 11 t wo issues mark 2011 as a turning point in history. the first is the worldwide social unrest, and the second is the global economic crisis. 12 T he B enefiT s of The n ew e conomy way economists had predicted it would because the world had changed since the paradigms of classical economics were laid out.

Unfortunately, economists had not changed their paradigms accordingly. the new world is a global-integral one, where every event, whether a natural disaster or a global crisis, affects the entire world. the interdependence among all elements of the global system is a fact that must be taken into account, as both the debt crisis in europe and the earthquake in Japan clearly demonstrate. the social unrest and the global economic crisis are closely linked. as the same groups carried out protests against both the economic system and social injustices, it became clear that economy and society are interlinked.

In fact, our economy reflects the nature of our society, the way we relate to one another. the expansion of global trade and technological advancement helped tighten our connections even more, transcending borders, culture, religion, and race. the world has now become a small village, where anyone is one free internet call away from anyone else. and yet, the economic paradigm that we have been following for decades has become obsolete. worse yet, its premises of free competition and maximizing personal gain, founded on the belief that those traits would keep the system healthy and running, have proven themselves wrong.

We have made consumption a culture we call “consumerism,” we have consecrated and venerated individualism and entitlement, and we have created inequality so extreme that 1% of the world population possesses 40% of the world’s wealth! the rest of the world suffers from deepening financial insecurity, or worse. even in the most developed countries, millions go to bed hungry each night, tens of millions have no health insurance, and millions are not only indigent, but hopeless. foreword 13 the earth can provide abundantly for all of us, but our mutual alienation prevents us from distributing food and other necessities to those in need.

The global crisis and global protests testify that people are no longer willing to tolerate this injustice, and that transformation has become the call of the hour. the first thing to change must be human relations; after all, that is the root of the problem. when that element has changed, the rest of life’s systems will change accordingly. in a globalintegral world where all are interdependent, the prevailing spirit of human relations should be one of mutual guarantee, where all are guarantors of each other’s well-being.

If we ponder the meaning of the network of connections we have formed through globalization, we will see that the incongruity between our self-centered approach and the interdependent nature of our connections is the cause of the crisis. and since globalization is an irreversible fact of life, what’s left is for us to adjust our relations to this reality. therefore, if we assume a modus operandi of mutual guarantee—which is congruent with interdependence—we will resolve both the global crisis and social unrest. this book contains thirteen “stand-alone” essays written in 2011 by several economists and financiers from different disciplines.

Each essay addresses a specific issue and can be read as a separate unit, but one leitmotif connects them—the absence of mutual guarantee as the cause of our problems in the globalintegral world. you can read the essays in the order of your choice. we, the authors, believe that if you read at least several of the essays, you will form a more inclusive picture of the shift suggested in the pages ahead, the transformation required to resolve the global crisis and create a sustainable, prosperous economy.

14 T he B enefiT s of The n ew e conomy to facilitate the shift as quickly and smoothly as possible, the influence of the environment is key. the key to a successful transition from independent to interdependent paradigm lies in expansive education and circulation of a) the necessity to change, b) the nature of the required change. the media and the education system can and should play a lead role in creating an environment that both informs people of the kind of change required, and supports its expansion. a solution must not be forced. this will only lead to a painful failure. to achieve mutual guarantee, we must mutually take part in rebuilding our social values.

This should be done within the framework of a social-economic treaty, and it should unfold gradually, maintaining broad consensus and deliberation throughout the process. if we work in this way, we believe that the global crisis will manifest as a golden opportunity for all of humanity. it will enable us to live in lasting economic and financial security, based on a connection of mutual guarantee among all people. the change must, of course, begin with us. The economy As A reflecTion of humAn relATions a TRuE aNd LasTiNG ECoNomiC imPRovEmENT dEPENds oN ChaNGiNG humaN RELaTioNs Key Points • the economy is a reflection of our social relations.

Hence, the crisis in the economy is first and foremost a crisis in our interrelations. • the function of man is egoistic—aiming to maximize profit for self. in a reality of scarcity, that function creates an inherent conflict between people, manifesting in competition and a zero-sum game where one’s gain is necessarily another’s loss. • there is interdependence among us in the global-integral world into which humanity has evolved. this is why the egoistic connections among us have stopped functioning. 15 16 T he B enefiT s of The n ew e conomy that gap between our egoism and our interconnectedness is the reason for the crisis.

• The laws of the global-integral world compel us to connect in mutual guarantee and act as cells in a single organism for the benefit of the entire populace. • when mutual guarantee and social solidarity are the basis of a new economic paradigm—a balanced and functional economy—as dictated by the laws of the global-integral world, we will achieve a life of comfort, personal and social prosperity, and a harmonious and sustainable system. • Providing information and education, and creating a supportive environment are necessary for us to connect in mutual guarantee.

The Global economic crisis is challenGinG The economic ParadiGm according to classic economics, people aspire to maximize profits for completely egoistic motives. the 17th 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 afterthe-fact result, and that our forefathers made social treaties only for the profits they yielded, not because they were drawn to each other’s company.

In the last decade, a new school of thought 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 to understand the way we make financial decisions. behavioral economics describes the nature and power of human relations, their collaborations, and 1 Thomas Hobbes, Rudiments, 1651, iii the economy as a Reflection of human Relations 17 the extent to which tendencies and fundamental perceptions of human economics rely on values of mutuality.

The current global crisis and our unsuccessful attempts to solve it could mean that the answers to humanity’s challenges lie in those new avenues of research. indeed, thus far every attempt to resolve the crisis has failed. interest rate cuts, bailouts, expansion programs, and increasing government deficits are based on classical economics, which rely on a collection of monetary moves (primarily interest rate cuts) and fiscal steps (expanding government budgets, tax cuts and so forth). government intervention and central bank assistance was meant to nudge the market back into balance.

The subsequent failure to achieve this suggests that it is time to replace the existing economic paradigm. any new paradigm must rise one level higher and show that the problem and hence the solution are at the level of human relations rather than the monetary level. behavioral economics imPlies a new direcTion and a new 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 systems adapt themselves to the globalintegral world, where economic ties cross borders and firms, and where people depend on and affect one another, it will stabilize the socioeconomic system. only then will the system avoid shocks and frequent crises that take a heavy toll on us. Previous solutions to these crises are inadequate, which is why at the start of 2012 the world is facing a severe economic situation, which 18 T he B enefiT s of The n ew e conomy is actually 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 must provide solutions that rearrange the system of human relations. in other words, when our attitudes change toward bonding, unity, social cohesion, care for others, and mutual guarantee, we will discover the solution to today’s economic paradigm.. The evoluTion of The economy People cannot exist without regard to 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 and our interdependence. in accord with those changes, the way we trade and exchange goods and services has also evolved to reflect the times and their characteristics. in prehistoric times, humans 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 tightened the connections among people. commerce and exchanGe it is through commerce and exchange that today’s economy has evolved. this economy is driven by humankind’s egoism, which strives 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 the economy as a Reflection of human Relations.

19 parity with our egoistic nature. in the past, it involved the exchange of products without the use of money. later, we learned to use coins of precious metals, and then paper notes that 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 is expressed through finance and money markets, as well.

It follows that the economy is a type of compromise between individual egos and the necessity to connect in order to be sustained by one another, by some sort of general consent. clearly, the 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. instead, economics deals with contrasting elements and is not subject to the physical laws of nature. Rather, it is our own creation, expressing one means we use to survive as a species, and how we approach certain relationships.

This is of paramount importance, because instead of trying to force an outdated paradigm on ourselves, we could fashion a different one that expresses the change in human interaction that exists in today’s interconnected world, in the interdependence and reciprocity of economic and social ties, which are only tightening. The whole TruTh abouT The economic crisis this crisis is expressed in our approach to the world and to society. the crisis is within us and in our interrelations. nature works in harmony and balance, and now it is up to us to change ourselves and how we relate to others.

As a result, the systems we have built, including the socioeconomic system, must be balanced and harmonious, as is nature. 20 T he B enefiT s of The n ew e conomy among the characteristics of the economic crisis are bloated prices of products, services, stocks, and loans. as a result, we are witnessing a crisis of trust in the economy. at the end of the day, the false picture of the world that was built and cultivated for many years by those with their own agendas has disintegrated. People have begun to understand that in an economy based on lies, speculation, and manipulation it is impossible to trust anyone.

Not surprisingly, in a state of general mistrust, today’s economic system is unsustainable. thus, our contemporary economy is a snapshot of a world of distorted interconnections, manipulations, and false values. unscrupulous and unrestrained competition has been created, along with irrational consumer behavior, as consumers falsely believe that what they buy defines their essence (“i buy, therefore i am”). today, society’s values are determined by brand names, celebrities, and status symbols, not by people’s rational interests. under these circumstances, the economy’s collapse was only a matter of time.

The GaP beTween a world-Turned-Global and The anachronisTic economy a more systemic explanation of the root of the crisis is that the world has become global and connected. every system, including economic and social, is linked to another, affects one another, and is affected by one another. the money markets, for instance, are a single global system. therefore, whatever 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 our hopes, our despair, our crises, and our growth.

Also, money markets are affecting other systems, especially the business world, the performance of economies, and our personal financial well-being. the world has become a complex global system of interdependent systems, connected in a way that we did not choose, but which we cannot ignore. the economy as a Reflection of human Relations 21 at the same time, however, our human relations are still based on individualistic values. our relations are inherently self-centered and competitive, and have changed very little in the past several centuries. naturally, since our economy reflects those relationships, it also reflects those values.

We are facing a huge gap between the laws of the globalintegral world, and the egoistic nature of human relations and the economy derived from them. that gap is the real reason we are experiencing economic and social crises. until we bridge that gap, we will continue to experience this gap 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.

Both these systems express the mutual guarantee among people, while the current economy continues to be based on maximizing benefit and personal gain and competition, and thus supports an inherent conflict among 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 a similar interdependence exists in other systems, such as ecology, education, and science. in fact, every system affected by human relations is now in crisis.

Crisis as an oPPorTuniTy by and large, the rise of a new economic system has taken humanity by surprise. in the past, we built connections and social and economic systems to match our needs and the way in which we interrelate. now, suddenly, these systems seem insufficient to manage our lives so we can live in peace and comfort. instead, the global-integral system seems to have its own laws. 22 T he B enefiT s of The n ew e conomy 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 exist in an economic system based on a zero-sum game, characterized by aggressive competition, an emphasis on maximizing personal gain, and manipulation. the interdependence among the various elements of the global system is in stark contrast to the social and economic gaps that continue to exist within and between countries. this global, ego-based system has become completely ineffective, making it impossible to continue using it. indeed, the relationships we built previously have led to this crisis.

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 in this global world, and the necessary interdependence of its parts. such harmony and congruence will necessarily create a different economy, this one more optimistic, balanced, and stable. economy and human relaTions at the end of the day, the network of connections between us determines everything. that network is spread out throughout the world, and consists of many elements—countries, armies, funds, raw materials, religious denominations, social ties, hopes for the future, and so forth.

All are parts of that network among us, which is why that concept is so difficult for us to grasp.. for now, those who can grasp it are those profiting most from it. 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. the system has become global and integral, and this is what hinders our attempts to live with the current socioeconomic system. everything we built in the existing system stemmed from our egoistic nature. but our current reality necessitates that we reciprocate rather than exploit.

the connection between us is much tighter now and compels us to the economy as a Reflection of human Relations 23 “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 are losing our ability to properly communicate with others. this is why we face this worldwide crisis in trust. the banks don’t believe the manufacturers, citizens don’t believe their governments, and the governments don’t believe each other.

In the past, communication was clear and relied on give and take, on individual consideration of profit and loss, and on the necessity to cooperate, even if against our will. the ego played a key role and we all understood that this was so. in the global-integral system of connections, however, we need an economy that reflects the interdependence among us, but we haven’t adapted our “operating system” to it. we are still living in economic and social systems based on how we handled relationships in the past.

At the same time, we are discovering the interdependence among us. the problem is that we have yet to understand how this works. we have not even detected its altruistic nature! here lies the problem: this contemporary crisis cannot be resolved in the old ways, since everything depends on how quickly humanity can bond and move towards mutual guarantee. economisTs are aT a loss the toolbox of classical economics is inadequate for our time, and our antiquated thinking is driving us even deeper into the current crisis.

Clearly, this must be changed, as 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 2 “Short films from the 2011 Lindau Nobel Laureate Meeting in Economic Sciences,” The New Palgrave Dictionary of Economics Online, http://www. dictionaryofeconomics. com/ resources/news_lindau_meeting 24 T he B enefiT s of The n ew e conomy

We need to adapt ourselves and the nature of our relations to the qualities of our connections in the global-integral system. by continuing to develop behavioral economics, we are taking a step in the right direction—just as the economy has become global, so have our social relations. this is why ego-based 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 come to grasp the meaning of the change and make the necessary changes, feelings of distress will give way to hope and prosperity, and to harmony and peace, both among each other 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 begin transforming the existing economic paradigm, and that of every system of life humanity has built.

Such a change is possible only through broad education and information. this will create an empathetic environment that nurtures the values of mutual guarantee and stresses its advantages. only such an evolutionary process will guarantee a stable, efficient economy that provides harmonious, balanced, and sustainable living for all. A GloBAl -inTeGrAl world requires A new economy ThE CuRRENT ECoNomiC mEThod CaNNoT CoNTiNuE To ExisT iN a GLoBaL-iNTEGRaL WoRLd Key Points • when every country is connected by trade and financial ties, irrevocable interdependence is created.

• The global crisis has exposed the extent to which the fate of all counties is linked to each other in a globalintegral world. solutions that relate to only one country are inapplicable, and resolving this global crisis is possible only through a systemic solution that takes into account the interdependence among countries. • every measure taken by world leaders to resolve the crisis has failed and bewilderment regarding the proper means of action prevails. 25 26 T he B enefiT s of The n ew e conomy.

•The key to resolving the crisis is in closing the gaps between the laws of the global-integral world and the self-centered, competitive economy. it is vital to adapt the economic systems to the principle of mutual guarantee, in which all are guarantors of each other’s well-being. • it is imperative to provide information and education and to create a supportive environment so we can connect in mutual guarantee. The enormous scoPe of Global Trade creaTes muTual dePendence international trade has been part of the economy since ancient times.

The means of trading improve along with technology, and along with them evolves the international trading. in the past, countries could close themselves in an autarkic market, existing within a self-sufficient economy that does not rely on trade with other countries. today, however, this is not possible. there is not a country in the world that does not export or import goods and services. in fact, there is not a country in the world that can provide for all the needs of its citizens on its own ignoring the international system.

According to data from the world trade organization (wto), since wwii, the scope of international trade has risen sharply. the united states was the leader in international merchandise trade in 2010, with a trade volume of 3. 25 trillion dollars (1. 97 of which is imports); china was second, with approximately 2. 97 trillion dollars in volume (with 183 billion dollars in merchandise trade surplus), and germany was third with 2. 34 trillion in merchandise trade volume (with a surplus of 202 billion dollars). 3 3 “International Trade Statistics 2011,” World Trade Organization, www. wto.

Org/english/res_e/statis_e/its2011_e/its2011_e. pdf a global-integral world Requires a new economy 27 the enormous scope of international trade exemplifies the connections and dependence among the countries, both in the real economy4 and in finance. muTual Ties and connecTions in ProducTion of Goods and services (real economy) in the real economy, there are diverse economic ties that manifest in trade of goods and services. one such example is the trade connections in the auto industry between Japan and the united states. the earthquake that struck Japan on march 11, 2011 had a major impact on the u.

S. car industry because it stalled production lines and the importation of spare parts, and diminished the imports of cars from Japan to the u. s. following the rise in the price of cars, car sales dropped, which led to a reduction in Personal consumption expenditure (Pce), and hence in the performance of the u. s. economy as a whole. The financial sysTem—a mirror of The Global world as in real economy, profound interdependence has evolved in the financial sector, as well, whether through loans (bonds) that countries took from other countries or through other means.

The most conspicuous example of that interdependence is the massive amounts of u. s bonds held by the chinese government. because of the speed at which money markets respond to changes in the policies and in the economy, these markets have become the most prominent characteristic of the global and interconnected world we live in. the interdependence among countries and investors is palpable and tangible in those markets. another distinct example is the sovereign debt crisis, which is currently unfolding in the eurozone countries.

The enormous 4 Real Economy: The part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets. Source: Financial Times Lexicon (http://lexicon. ft. com/ Term? term=real-economy) 28 T he B enefiT s of The n ew e conomy debt of many countries demonstrates how all are in the same boat. the united states owes trillion dollars to eurozone countries and to Japan, and trillions more to china, Russia, and many other owners of u. s.

Bonds. germany owes 5. 46 trillion dollars to the above-mentioned countries; the Piigs countries (Portugal, ireland, italy, greece, and spain) owe a total of 6. 4 trillion dollars to those countries, and france owes them 5. 46 trillion dollars. 5 the economic and financial ties compel countries to become more involved in each other’s internal affairs out of fear for their own economies. on the one hand, financial interdependence accelerates international efforts to aid troubled countries, both directly and through the international monetary fund (imf).

On the other hand, financial and/or political interference could be construed as a threat to the country’s sovereignty and may instigate tension and conflict. in regard to the crisis in the american economy, chinese officials criticized the united states for its colossal budget deficit, which could undermine the stability of the u. s. economy and its ability to repay its debt to china and to other debt-holders. the tension wrought by the criticism prompted chinese vice President, Xi Jinping, to state, “the us economy is always highly resilient and has a strong self-repair capacity.

We believe the us economy will achieve better development in the process of coping with challenges. ”6 because approximately half of u. s. bonds are purchased by foreign investors, primarily china, Japan, Russia, and india, the international monetary system’s sensitivity to the american economy and to the u. s. government treatment of it is obvious. a comment that demonstrates the involvement among countries was