Why Corporate Regulation is a Socioenvironmental Necessity. Part 4 of 5: Why does the current Economic System tend towards Uniformity and Instability?

Welcome to the fourth and penultimate episode of a five-part Arkadian analysis which works towards the conclusion in the series title by seeking the answer to a simple question: –

“What difference between natural / social systems and the current economic system causes the former to tend towards diversity and stability, and the latter, uniformity and instability?”

In Weeks 1 and 2, we explored why ecosystems and ‘civilisations’ tend towards diversity and proposed virtuous dynamics (the ‘Diversity Engine’) that power increasingly fine-grained specialisation / cooperation, whilst inhibiting environmental dominance by particular species or social ‘groups’. Last Week, we looked at three examples at different ‘levels’ (social group, societal, global) which illustrated why overall systemic stability and resilience, and, thus, the common good,  depends on a shared responsibility for productivity produced by this trend.

Today, we aim to get the crux of the issue at the heart of this series by investigating why the current global economic system behaves in the opposite way.

The last few decades have seen a dramatic global trend towards economic uniformity across most market sectors – most notably and worryingly, finance, media, food and agriculture, and manufacturing. A recent systems analysis by PLos One revealed that a network of 1318 companies directly represent a quarter of global operating revenues and, indirectly, via shareholdings in blue chips and manufacturing, a further 60%. Of these, a super-group of 147 companies, mostly financial institutions controls 40% of the total wealth in the system.

This homogeneity has also correlated with a spectacular increase in the scale and financial muscle of global corporations. A 2002 UNCTAD analysis, which used the sum of salaries and benefits, depreciation and amortization, and pre-tax income to compare firms with the GDP of countries, found that a third of the world’s 100 largest economic entities were transnational corporations. The biggest, Exxon, rivaled the economies of Chile or Pakistan; Philip Morris was on a par with Tunisia, Slovakia and Guatemala; and a more recent study research shows General Motors, DaimlerChrysler, Shell, and Sony to outsize Denmark, Poland, Venezuela, and Pakistan, respectively.

Many other corrosive trends have gone hand-in-hand with this expansion. According to statistics gathered  by the New Economics Foundation, income inequality is now higher than at any other time in human history with the CEOs of the 365 biggest US companies earning over 500x that of the average employee. Corporate strategies to augment profits – outsourcing, temporary employment contracts, mechanisation and process efficiency – have eroded wages, job satisfaction and security, and human labour productivity, with the world’s biggest 200 transnationals now accounting for a third of world economic activity but employing less than 0.25% of the global workforce.

So what are the dynamics underpinning this pernicious trend? MODEL 3 of our analysis below proposes an answer (N.B. If you have trouble reading the text, click on the diagram to open it in a new browser tab and then refer back to the explanation here).

Whilst Model 3 involves more-or-less identical variables to the Models 1 (Ecosystems) and 2 (Civilisations) we explored in Weeks 1 and 2 respectively, there are several critical differences. Firstly, we broaden the definition of ‘diversity’ to include both socioeconomic and natural systems. Secondly, the term ‘group’ (which referred to political elites in Model 2) now refers specifically to the small alliance of people for whom a given corporation is a vehicle of wealth-creation: board executives, major shareholders, higher management and, to a lesser degree, senior employees, i.e. the people who don’t lose their jobs or bonuses during cutbacks.

Thirdly, and most fundamentally, is a change in the polarity of the two arrows (coloured red) connecting variables (2), (3) and (4).  Unlike dominant species in ecosystems and ruling elites in political systems,  these ‘groups’,empowered by (7) policy and infrastructure that enable vast geographical reach, promote their self-interest and shield them against personal accountability for abuses, are able to reduce systemic diversity without their actions having corresponding negative effects on the stability and resilience of their own local environment.

Indeed, (3) the greater the ‘group’s’ impact on diversity, the more prosperous and secure their personal environment becomes. Thus, in the current economic system,  (1, 4, 5 and 6) the drive for dominance of rules and resources is invigorated by growing wealth, social mobility and political influence, unlike  ecosystems and civilisations, where it was curtailed by its weakening and destabilising impact on the environment  And so it turns: not a Balancing Loop, but a Vicious Circle: a feedback loop where one trouble leads to effects that aggravate the first trouble, and so on.

To exacerbate problems, the absence of limiting environmental feedback also reverses the dynamics of the ‘Diversity Engine’, turning it into its ominous alter ego: a Vicious Circle we’ve named the (6) ‘Benefits-of-Big Engine’.

Here, instead of a trend towards economic diversity facilitating healthy competition and new business opportunities, and making market domination progressively more difficult, a small group of dominant players is able to harness ever greater resources, economies-of-scale and mechanisms of influence (price, lobbying, political office, advertising, media, academia) to overcome existing competition and render future challengers increasingly futile and improbable.

Disturbingly, whilst in nature / society the weaknesses and instability resulting from systemic impoverishment ultimately defeat the dominant species and ruling groups responsible, thereby facilitating a new order, in the current economic system they increasingly further the interests of the corporate ‘groups’ that have caused them.

These giants can downsize, buyout or price-out smaller floundering competition,  and their huge economic significance means that, even if things get really bad, national governments are likely to intervene rather than risk the impact of bankruptcy.  As touched upon in Week 2, the crisis-stricken financial sector is a perfect example, where after the panic of insolvencies, public bailouts and recession, a run of mergers and buyouts gave birth to a more monolithic, powerful and fragile banking system than ever before.

Possibly the darkest characteristic of ‘The Benefits of Big’, however, is that the larger and more ubiquitous these corporate vehicles become, and the more competitively priced their products and services, the more difficult it becomes for us to avoid participating in their expansionary activities.

Thus, as customers, suppliers and employees, we all unknowingly or unwillingly, become complicit in dynamics that increasingly impoverish and endanger the systems upon which we depend.

In short, in the current economic system there appears to be no constraint on the wealth-creation of ‘groups’ at the helms of corporations other than a total socioenvironmental meltdown.

Happily, there is much we can do to change this. We hope you’ll join us next Friday for our final installment, when we shall use what we’ve learned from the virtuous ‘Diversity Engine’ of ecosystems / civilisations to propose interventions that could reverse the vicious ‘Benefits of Big Engine’ and create a self-sustaining economic system that benefits people and planet. 

What the One Demand of the ‘Occupy’ Movement should be and why.

Today was Occupy Wall Street’s first Global Day of Action. We’re on our way home from our local urban occupation, feeling inspired, hopeful and slightly unsettled. Inspired and hopeful because people of all ages and backgrounds from around the world joined in protest against a corrupt economic system; unsettled due to a heated difference of opinion about what to do and who to battle (thankfully, and topically, resolved democratically and peaceably).

History is strewn with social movements that imploded through infighting, or where, for lack of a clear aim, the chaotic forces of moral indignation were steered by groups, with a plan and organisation, towards their own agenda (and, usually, more of the same).  For either to happen to this beautiful movement would be a tragedy of inestimable proportions.

So is there a single aim that could unite the 99%?

The answer to this, we believe, lies in a further question: how is it that in a democratic system the 99% can be so flagrantly disregarded? This points to a problem with the machinery of Democracy itself. Perhaps, if we could locate the faulty part and fix or replace it, these diverse opinions would be enriching collective solutions rather than jeopardising their own vehicle for liberation?

There follows a 2-part systems dynamics analysis to this end. 

PART 1 proposes two Vicious Circles at work in the current system. These are series of events where one trouble leads to troubles that further aggravate that first trouble, and so on

(N.B. It’s easiest to click on the diagram to open it in a new browser and then refer back to the explanation here. Depending on your screen size, you may also need to zoom in-and-out in order to read the smaller text by clicking on the relevant area).

SYSTEMS ANALYSIS 1: THE VICIOUS CIRCLES

The best place to start is at the bottom where government policies that serve corporate interests are pursued at the expense of those that serve the 99% and the natural environment.

Whilst this enriches the 1% and motivates them to even greater future investments in manipulating Government policy (the 1st Vicious Circle – inner), it also exacerbates a range of hugely-profitable (in the short-term) c21st century ills: war, recession, inequality, loss of public services and assets, our increasing dependency on corporations for life’s essentials and, most critically, a severe threat to Earth’s life systems.

These factors, together with diminishing quality-of-life and broken political promises intensify our apathy and denial, and reduce time or inclination for political action, thus eroding a key constraining factor on the corporate policy abuses with which we began (the 1st Vicious Circle – outer). And so the Circles turn.

The analysis suggested two potential intervention points (highlighted in red) where action could positively transform the Vicious Circles. These are: –

(1) Dependency on corporate relationships for political success. In short, a business wouldn’t bestow cash or media coverage on a political campaign that didn’t promise a significant return on investment. A third of the world’s 100 largest economic entities are now transnational corporations. Without bowing to these giants, no party has a hope of achieving or maintaining office, irrespective of good intentions and promises. Why pursue a policy or preserve a public service, asset, safeguard or freedom when losing it stands to make somebody a tidy profit?

(2) Ability for politicians to benefit materially from political office as a result of corporate relationships. Whilst we do not share many of Plato’s views (on Democracy, for example), we do agree that the worst form of government is one where the actions that satisfy the desires of the ruler become law. A tyranny. It was with good reason that The Republic went to great pains to isolate its philosopher kings from the temptation of riches and military stardom, the great corruptors of wise governance.

Under the Republic, for example, a former Prime Minister who made $40bn out of a dubious war he instigated whilst in office or a secret council assembled to draft laws to serve its own self-interest would have faced certain execution.

To put it simply, if we wish our countries to be run by people motivated by a desire to serve its citizenry and not by material self-interest then, within the political sphere, constraints on the latter must be codified in law and regulated independently. After all, corporate management takes conflict-of-interest very seriously. They know, as Plato did, that a person cannot responsibly wear two hats when money is involved.

For PART 2 of the analysis the ‘Occupy’ Movement collectively waves its magic wand and divorces the public and private sectors, turning our Vicious Circles into its cheerful alter ego, a Virtuous Circle, where a delight leads to delights that further promote the first delight, and so on

(N.B. Again, it’s easiest to click on the diagram to open it in a new browser and then refer back to the explanation here. Depending on your screen size, you may also need to zoom in-and-out in order to read the smaller text by clicking on the relevant area)

SYSTEMS DYNAMICS ANALYSIS 2: THE VIRTUOUS CIRCLE

Here, diverse opinion (with better access to information about actual environmental and economic constraints) is braided via participatory democratic processes and well-behaved politicians into policies that best serve both public and private interest.

This leads to a host of positive socioenvironmental effects that increase faith in people-power, government and the future. It also confers the time to get involved, thus contributing to even greater participation and ever richer solutions. And so the  Virtuous Circle turns: driven by a commitment to a better world in the long-term.

Call us idealistic, but we believe this vision of an equitable sustainable society where stakeholders are actively engaged in Government is wholly imaginable, achievable and necessary. Moreover, It will not require earth-shattering change and would improve general quality-of-life.

However, we acknowledge that, as evidence of the Arkadian worldview – steady state economics, new economics principles, Just Transition , equality, environmental restoration, nurturing new values etc. – seeps in here, it would be best to declare the pertinent aspects. We ask that anybody who posts comments extends us the same courtesy as it makes discussion of opinions easier and so much more fruitful.

“Arkadian Systems Worldview: That the current economic system has been proven environmentally unsustainable and thus we must explore and enact alternatives or risk socioenvironmental collapse and extinction. That social and environmental justice are so intimately intertwined that treatment of one leads inevitably to reinforcing effects on the other. That decision-making is always wiser when all stakeholders with an interest in the relevant situation are meaningfully involved. ”  

We should also stress that it is only the last of these  – the principle underpinning a true Participatory Democracy – that should be considered relevant here. If Democracy is reformed and re-fired, we’re confident the rest will happen all by itself, the right way, and our opinion will be one of millions that make a contribution. So, to conclude,

The One Demand of the ‘Occupy’ Movement should be: 

“GET BUSINESS OUT OF POLITICS AND LET THE PEOPLE IN”:

Insert a robust legal and regulatory framework between the private and public sectors, which enables Government to draft policy and law without conflict-of-interest and according to the principles of Participatory Democracy 

Specifically, this framework should render it impossible for politicians to benefit materially from political office as a result of corporate relationships and should define equitable and corporate-independent alternatives to campaign funding .

For us, this is eminently preferable to smashing the bankers, police, politicians, Capitalism, Consumerism: THE SYSTEM. Trying to fight The System or one of its organs, inevitably results in giving oneself a bloody nose and the awful realisation that, yes, it also includes ME!