By Slavi Binev – Member of the European Parliament

Always, before I say or write something I remember the words of one famous European woman: “The freedom is freedom for those who think differently”. I do this because I come from a world – the world of my childhood and youth – where we were taught to believe in the collective rightness and the individual ignorance. It was a world of demagogy, with proclaimed equality of the people, and complete inability to be equal to the others except in the lack of opportunities.

For many Bulgarians – especially from the generation that listened illegally “Free Europe” – United Europe is a dream came true. Moreover – it is a dream without bad characters for now. Perhaps, because the bad role is assigned to the Bulgarians themselves. For us it’s a world of freedom and civilization to which we belonged for more than 1000 years, and from which we were forcibly separated, first by the Ottoman and later by the Soviet empire.

Europe is designed and proclaimed as a world tolerant of the differences. It tries to make the next important step – Lisbon Treaty and the difficulties encountered on the route are not the result of something imperfect, they are omens for something far more terrible. Recently I had the opportunity to be acquainted with the problems of disabled people and realized that the double standards and discrimination exist for them too. I hope that this is not going to be summary of the attitude to the different! I hope that the equal rights and opportunities are not just a mantra in the European Union. I mean the demagoguery and different standards. Is it right to blame the nationalists in deliberate mistreatment of the immigrants, demonstrating deliberate mistreatment to them at the same time?

One of our biggest disputes is whether in the future pillars of Europe to be specially included reference to the Christian values. Whether you are Christian, Muslim or Buddhist, everywhere in the sacred texts will encounter the same recommendation: don’t judge to not be judged. And that’s why I say now: don’t rush to judge the people who are called nationalists. Don’t make forcibly enemies of united Europe, because they are not. It is difficult to be another when you belong to nation that nearly 700 years has suffered to regain its national state. And this is applicable not only to the Bulgarians – often the scepticism of the nationalists is healthy. It is an antibiotic that our common European body needs. Its stigmatization, the summarization of so many different by genesis and essence political ideas is exactly the opposite of the principles in the name of which is proclaimed the idea for United Europe.

I can boldly say – the attitude of the big to the small European parties in EP is demagogic. And if to me – as someone who lived in communism – demagoguery is nothing new, and I’m used to identify it, for the generation after me it is indiscernible. And worse – this generation even starts to consider it as a part of the modern European rhetoric. Therefore on the European elections will be fewer, and fewer people will believe in one – in generally great as idea – project.

I am trying to maintain and manage, with love and desire, several human processes in the EP, through my work with the Intergroups of sports and religion, and I hope that the desire to do something good not a privilege only to the Members of the big political groups, and the others are not going to be accepted as “necessary evil” and that despite all the evidences to the contrary, this attitude will not continue to be artificially imposed. Perhaps the aggression towards us is reinforced by jealousy and the lost doctrines / as all the MEPs are elected in their homeland and in some sense they are advocates of their countries /. I hope I am wrong. The time will show us.

I belong to a political formation that is often stigmatized as “nationalist”. So often that people who voted for me, now associate the word “nationalist” with someone who says uncomfortable truths. In this sense, you are probably making me a favour, but you aren’t making a favour to yourselves. You aren’t making a favour to the pan-European idea. Thus, you only emphasize the differences that are false and fabricated. Demagogic. It is not enough to simply say: “we accept the differences”. You should really do it. I remind you – the words: “Whoever is not with me is against me” are allowed only to One. Jesus Christ…

If tomorrow appear people who know how to fly, is it going to appear, according to you, a gravitational scepticism? Is it going to appear a pedestrian nationalist party? People are different and their differences make the world an interesting place to live. From the differences the EU must draw its strength, not its weakness. Even one of the darkest totalitarian dictators –the Chinese Mao – used to say: “Let one hundred flowers bloom, let be a hundred schools”. Sometimes the beautiful thoughts are transformed into beautiful words, but – unfortunately – very rare in beautiful works. We live in a connected world and among the many inconveniences that causes us the global village, there is a huge advantage. Advantage which is comparable only with the invention of the printing press by Gutenberg. This advantage of the connected world is the inability of the lies and demagoguery to live very long. Too fast, they are unmasked and are turning against those who use them. The European politicians have become accustomed to this thought. The Honesty – more than ever in the political history of millenniums of mankind – now is really the best policy.

I am not euro optimistic or euro sceptic, I am a euro realist. I’ll believe to my eyes, not to my ears. And I repeat – I hope I’m wrong, because Europe and all the humanity have a huge need for optimism.

We live in a time of flying people. Time in which the ideas and words move at the speed of light. Let’s try to start living in light…

Did you guessed now how is called a swarthy Arab, who runs Boeing?

Pilot! It is called pilot, you racist ones!

A major flaw in the policy debate on the current recession is to identify it with previous recessions. Characteristic for recessions is that they all have a different cause. For that reason, Haberler has already in 1937, in its book Prosperity and Depression, collected for the League of Nations a comprehensive list of the various causes and mechanisms responsible for the succession of good and bad economic times. The current recession, with the credit crisis as a prime cause, can thereby be allotted to the class of the purely monetary theories of the cycle. The variability of the cycle makes the economic tides hard to predict. As a result, it is also difficult to conduct an appropriate cyclical policy. When all cyclical fluctuations would be similar and lookalikes, economists should by now be successful in dampening these fluctuations as much as possible. Ideally, there would be no recessions anymore.

Uncertainty

Uncertainty is the major problem for the policy response to the next cyclical fluctuation. Economists have learnt to deal with certain types of uncertainty. This is the case when economic time series data show some regular and recurrent patterns so that they can be described by stochastic processes.  Then the parameters of these processes can be estimated, given the assumptions on the probability distributions of the data. Even in case probability distributions are unknown, there are parameter free methods to be used. And in most cases of risk, the odds are known. However, there are many other and more fundamental types of uncertainty (Van Asselt, 2000). The most far-reaching, and for the analysis of future events most troublesome type is what Wynne (1992) labels ‘ignorance’. It is when we do not know what we do not know. In the Netherlands the Scientific Council for Government Policy (WRR) advises the government on long term policy issues, based on scientific information. When I was a member of that council we discussed possible future developments which would impose problems to the government and on which we were ‘ignorant’. Among others, space trash and nanorobots were mentioned. On second thought, however, it seemed that there was too little information and that is was too uncertain to dedicate a scientifically based study to these subjects. Moreover there is no complete ignorance about space trash and nanorobots.

Solar storm

We are also not completely ignorant about the next recession. The periodicity of the cyclical movements in the past makes us presume that after the current recession and following upswing, eventually a new recession will come. However, it is uncertain when that will happen and what the cause and nature of it will be. Here we know what we do not know; the cause will be another one than in the past. Perhaps we must revive, in a modern look, an old and somewhat curious economic theory on the cycle, namely Jevons’ theory on sunspots. It may be that within a couple of years a solar storm hits the earth with the same intensity of that of 1859 (Mols, 2009). Let us suppose that it happens in 2012 when the Maya calendar ends. Some see that as the end of times or as the beginning of the new times. By the way, in its new solar cycle prediction of May 29th, 2009, NASA now forecasts the peak of the sunspot activity of ‘solar cycle 24’ for May 2013. So there may be some postponement of the end of times. Moreover, the activity of solar cycle 24 is predicted to be rather mild as compared to other periods of high solar activity. Yet, that may not prevent the new solar storm to be the beginning of a serious recession. The top of the solar cycle in 1859 was also below average. Its intensity was the result of a coincidence of circumstances where the magnetic field of the electrified gas that took off from the sun interfered with the magnetic field of the earth and hence disturbed its protection. Such a geomagnetic storm will cause much damage to the electricity distribution as it will expose many transformers in the system to permanent damage. It will also disturb all kinds of wireless communication. In 1859, the societal impact of the storm was not yet large because the uses of electricity and radio communication were in its infancies. In 2012 or 2013 it is very different. Nowadays distribution networks for electricity are much interconnected so that the storm may cause a large scale blackout of supply. Moreover, electric power is modern societies’ cornerstone technology, the technology on which virtually all other infrastructures and services depend. So, apart from the electricity supply, a severe solar storm will cause an enormous collateral damage. In 2008 a Committee on the Societal and Economic Impacts of Severe Space Weather Events made, under the auspices of the National Research Council in the US, a scenario for a ‘severe geomagnetic storm’. The scenario estimates the economic and societal costs to be $1 to $2 trillion during the first year alone, with recovery times of 4 to 10 years (National Research Council, 2008). So the overall economic and societal costs of the storm may exceed that of the US subprime mortgage crisis.

Avoid contagion

Another candidate cause for the next recession is when the successor of the Mexican flue will become really dangerous and pandemic. Seemingly, cyclical policy is unable to prevent recessions which such different external causes. Indeed, recessions are inevitable just because the cause of the next recession is unknown. Yet, we can see some similarity in the propagation mechanisms of the initial shocks. In the all three cases, the credit crisis, the solar storm and the pandemic flue, the large worldwide interdependence in the economic system brings about an enormous amplification of the initial shock. In case of the present recession it is the fast growth of the worldwide mutual dependence of the banking system which has the subprime mortgage shock amplified towards a systemic crisis. This ‘contagion’ acts as an externality in case of a negative shock (Gallegati et al. 2008). Therefore, the deepness of the present recession is mainly the result of the market failure associated with that externality, and of insufficient macroprudential supervision to repair that failure. So, the time has come to think about how this negative externality of contagion can be mitigated in the future. How can the economic system be rearranged so that the far-reaching impact of an inevitable external shock is less strong? How can we avoid that all domino stones in the economic system fall at the same time without doing harm to the enormous welfare gains that globalization has brought us? That knowledge will not prevent a next recession, but will make it less deep.

References

Asselt, M. van (2000) Perspectives on uncertainty and risk, the PRIMA approach to decision research, Boston:  Kluwer Academic Publishers.

Gallegati, M., B. Greenwald, M. Richiardi en J. Stiglitz (2008) The asymmetric effects of diffusion processes: risk sharing and contagion, Global economy journal, 8(3), 2

Haberler, G. (1937) Prosperity and depression; a theoretical analysis of cyclical movement. Geneva: League of Nations.

Mols, B. (2009) De zon is boos (the sun is angry), Natuurwetenschap & techniek, 77 (6), 24-33.

National Research Council (2008), Severe space weather events – understanding societal and economic impacts, Workshop Report, Washington DC: National Academies Press.

Wynne, B. (1992), Uncertainty and environmental learning: reconceiving science and policy in the preventive paradigm, Global environmental change, June, 111- 127.

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Julia Sorribes:

I was born in Valencia (Spain) 25 years ago. I studied journalism in my hometown, where I worked for a little before moving to London for a year to do a master´s degree in cultural journalism.Coincidences and circumstances brought me to Beijing last January, and since then I´ve been trying to reflect the city´s many contrasts through my pictures.

By Geoff Garver

This year marks the 15th anniversary of NAFTA and its environmental commission, the Commission for Environmental Cooperation or CEC.  This milestone presents the CEC Council, made up of U.S. EPA Administrator Lisa Jackson, Mexican Secretary of Environment Juan Elvira and Canadian Environment Minister Jim Prentice, the opportunity to take a fresh look at the dire and unprecedented ecological circumstances that mark this period in human history and to craft a reinvigorated agenda for North American environmental cooperation and action.  The strategic emphasis of this revitalized agenda must be on moving North America toward an economy and trade regime that both enhances individual and societal well-being and assures that the North American region lives within its ecological means.

The stakes are high and the need for a reformed approach to the trade and environment agenda urgent.  Global information on climate change, species extinctions, loss of biodiversity, depletion of freshwater and other resources, ocean dead zones, population growth, topsoil degradation, deforestation, dying coral reefs, decimation of ocean fish stocks and the sheer throughput of natural capital is beyond alarming.  This is the reality that should be driving the approach to North American trade and the economy.

The North American contribution to the global ecological crisis is unconscionable.  North America is a region of vast overconsumption and wastefulness, even as it copes with an economic and financial crisis.   The World Wildlife Fund’s 2008 Living Planet Report tells us that globally, the sustainable average per capita ecological footprint in 2005 was 2.1 hectares per person (hpp).  Yet, the U.S. average footprint was 9.4 hpp, the Canadian average was 7.1 hpp and the Mexican average was 3.4 hpp.  At 7.8 hpp, the North American average was over 3.5 times more than the sustainable rate.  This is not true sustainable development, and North America must do much better.

This region, and indeed the world, are at a critical turning point.  The ecological debt that the oversized human ecological footprint represents threatens the human prospect on this finite planet.  From here on, leadership in addressing this ecological crisis is what will make the real difference in the long term, not just economic leadership measured in terms of growth in gross domestic product.  At the very least, competitiveness, which features prominently in the policy agenda of North American political leaders, must go hand in hand with upward harmonization of environmental standards, and ultimately, it must be about who can drive their ecological footprint toward truly sustainable levels the fastest.  This will require a clear shift away from the tendencies of the three NAFTA governments to define their national interest in the international arena primarily in terms of maximizing international markets for their domestic products, services and investors.

The CEC Council, as the official environmental voice of the region, has the potential to provide the leadership that will show the world that North Americans can indeed live within their ecological means.  The stakes of not doing so are too great – not only to the environment, but to the economy as well; ecological economists like Herman Daly of the University of Maryland and Peter Victor of York University have shown clearly that economic growth becomes uneconomic when ecological limits are not respected.  NAFTA’s environmental side agreement, the North American Agreement on Environmental Cooperation, is filled with potential to provide this leadership.  It empowers the CEC to develop an environmental agenda that will live up to the desire of President Obama to address environmental concerns related to trade by strengthening existing mechanisms like the CEC – with the hope that doing so will avoid the need to renegotiate NAFTA and its side agreements.

The 2009 session of the CEC Council, which took place in Denver in June, provided some hopeful signs. The new themes that the Council chose for the CEC’s next 5 years are healthy communities and ecosystems, greening the economy, and climate change and a low-carbon economy.  These replace the previous colorless themes of trade and environment, environmental information for decisionmaking and capacity building, which provided the framework for the CEC’s lackluster 2005-10 strategic plan. The CEC’s new themes at least tell a substantive story of how North America should be steering its trade and environment agenda. Here are two things the CEC can do to meet its potential within this framework.

First, the CEC should do a more rigorous calculation of the North American use of ecological capacity, to publicize the results, and to develop clear strategies for driving it down. Quebec, through its Auditor General and Commissioner of Sustainable Development, has done a detailed calculation of Quebec’s ecological footprint.  This is a good model of the work the CEC should support, preferably with approaches that improve upon ecological footprint methodology.  The green building movement provides sound principles for economy-wide strategies for reducing use of ecological capacity:  minimize demand for energy, water and resources; maximize renewable energy; maximize reuse and recycling of materials; and favor local sourcing over long-range transport of materials.   Reducing the material and energy throughput of the economy, as this approach does, is essential, even if it entails reducing international trade or ultimately a radical re-thinking of economic growth as essential to societal well-being.

Second, the CEC should develop North American indicators, such as the Genuine Progress Indicator, that provide a much more accurate picture of our well-being than does gross domestic product.  By the measure of contribution to GDP, the oil spilled from the Exxon Valdez contributed more to society by being spilled and generating clean-up costs and lawyers’ fees than it would have had it entered the marketplace.  We must be guided by better indicators of well-being in North America and beyond.

The CEC has had successes in its first fifteen years, including accelerated elimination of DDT throughout the region, integration of information on pollutant releases and transfers in the three countries and an impressive array of information on the environmental impacts of North American trade.  But, the current CEC Council’s predecessors have underfunded the CEC and not allowed it to reach its potential as an honest broker of information on the intersection of the economy and the environment in North America. Moreover, the CEC has not yet come to terms with the unprecedented ecological reality we face: for the first time in human history, we are using up the Earth’s ecological capacity faster than it is being regenerated. As the CEC turns fifteen, it has a great opportunity to turn a new face to the future.

Special thanks to Booth Media Group, Inc.

]]> http://www.liberatethemind.com/2009/07/31/geoff-garver_ecological-reality_011/feed/ 1 http://www.liberatethemind.com/2009/07/25/kimman_economic-crisis-and-ethics_002/ http://www.liberatethemind.com/2009/07/25/kimman_economic-crisis-and-ethics_002/#comments Sat, 25 Jul 2009 21:21:50 +0000 admin http://www.liberatethemind.com/?p=728 Quite often it is being said that the present economic crisis is connected to a moral crisis. Such a crisis is a situation in which conventional morality no longer is acceptable as a general guideline. Alternative sets of norms and values are being discussed while the traditional norms and values have lost their force. At the university we study morality. This discipline is called ethics. Ethics is thinking and writing about the background of good or bad behavior, ethics is a discussion about acting and behaving out of good intentions or obligations, and ethics is a discussion on wrongs, on situations of injustice, and on moral reasons for change in society. In short, ethics is about everything that might encourage or discourage a good society.

By Eduard Kimman

There are some quite opposing views about the road towards a good society: some hold that freedom and free citizens would bring the best results for the citizens, personally, and the society as a whole. Others, however, would accentuate the role of the state and alls sorts of state institutions as necessary on the road to a good society. Liberal thinkers share the first view. They propose that free markets should bring their fruitful effect if the market traders are trying to outdo each other by lowering the prices. Liberals, following the thoughts developed by the Enlightenment thinker Adam Smith, would claim that the general prosperity would surely benefit from such market arrangements. Anti-trust laws which promote competition are a result of this kind of thinking. The alternative view does not expect very good results from unregulated markets unless market authorities do function as umpires who promote fairness in the market place. The same alternative view is not averse from cooperation between companies in the same market as long as their agreements are being reported to the authorities. The two views are being seen as opposites. Yet, they may be seen as complimentary as well. A good society may be achieved thanks to the good conduct of each of its members and, complimentary to the good individual behavior, thanks to good governance, good functioning democratic institutions, the state of law, and a number of public institutions.

Since 2007 there has been an economic setback. First it was called a crisis in the interbank money market, then it was called a credit crisis, and later it got officially the label of an economic recession. Early 2009 all growth forecasts were adjusted. There is, for the first time in years, a decline in economic growth. First, downward figures around 2% and 3% were mentioned, later 5% and more. What has this economic setback to do with ethics?

The two opposing views, just mentioned, were used alternately in the media for analyzing and solving the present economic crisis. The first example is an illustration about individual behavior as a possible cause to the crisis. The second example is an illustration of an institutional and interventionist cause of the crisis.

Greed and the credit crisis
We live since the 1980s in a liberal age. So, it will not surprise that the first, i.e. the liberal view, dominated the discussion. In most media the crisis became associated with bad behavior, especially with greed of bankers. They supposedly were lured by huge bonuses to behave and to act irresponsibly. Some commentators went as far as to say that immorality, engineered by the bonus system, was the cause of this crisis. A good banker should act in harmony of a code of decent and proper behavior. Instead, the bankers were heavily influenced by the possibility of receiving higher bonuses. Consequently the present-day managers of the banks were not acting as good bankers should do.

The bank manager or deal maker of today no longer acts similarly as the banker of the past. The profession of a banker had its own professional ethical codes of practice. Professional ethical codes in the past were standards for independent professionals such as doctors, notaries, lawyers. These professionals had their own small and private practices and they could maintain the standards of their profession just by personally behaving as a good and proper medical doctor, notary public, or lawyer was required to do. The medical specialists of today are practicing their branch of the medical profession in medical centers with nursing and other facilities. Notaries and lawyers are offering their services in partnerships which are being managed and where turnover quotas exist. Their professional independency is a thing of the past. And this applies to more professions. The way professions are being practiced is no longer guided by a code of conduct but, more so, affected by the setting of a wider or larger organization with its budgeted turnover, its profit goals, its chosen specialization and its targeted category of customers, its designed image and its desired share in the market, etc.. Therefore, it does not surprise at all that a code of conduct for professionals in situations as if they are working independently does not cover the dilemmas, moral problems, and professional challenges these doctors or lawyers face in a situation where, in fact, they are employees or partners in a larger setting managed by directors motivated by economic figures. Thus, the ethical rules of the organization in which professionals work should become important as well. The quality of surgery and the good care in a hospital are not only dependent on the physician or the head nurse but on an operating team or a nursing staff. Likewise is the processing of a legal file in a law firm dependent on a staff which may include a trainee. Only the overall responsibility lies with the medical doctor, the head nurse or the lawyer. The same story applies to banks.

Rendering professional services in an organizational setting is, thus, adding new moral problems to the traditional code of professional behavior. It is misleading to think that the ‘deal’ in a bank completely depends on a partner or director who at the end of the year may receive a bonus of a few million Euros or Dollars. The deal has been made possible thanks to a staff of underpaid young economists and lawyers who had to work immensely for that deal. The accrued bonuses of the people who work in banks are not so much unjust in connection with the overall remuneration; they are unjust because they reflect an unfair remuneration structure. So the question is how to get a fairer remuneration structure?

There are basically two ways of solving this problem of an unjust remuneration structure: externally imposed norms or internally developed norms. Let me start with the first possibility. If we want to improve an existing unjust remuneration structure with help of an external intervention, it is usually parliament or government changing or redefining the remuneration structure in a legal manner. There may be, for instance, a debate in the parliament about obvious and unjust high salaries and bonuses which may result in new laws, new standards or new institutions. Will the people involved accept the new rule or standard as a norm? When the government sets a norm, the Balkenende-norm for example, there is still room for more public debate. The Balkenende-norm is meant to put a limit on the salaries of managers in institutions and enterprises in the public domain. The limit is the salary of the Prime Minister, today Mr. J.P. Balkenende. The question may be raised whether the Balkenende-norm indeed became a norm. The second possibility is an appeal to the boards of private companies to formulate minima, ceilings and standards of their remuneration policies and account for them in their annual reports to shareholders. The norms are to be expected to be developed from the inside whereas the first possibility expects the solution to the problem by imposing new norms from the outside.

As said earlier we live in a liberal, individualized age. So, developing norms from the inside probably will be earlier effective than remedies with outside or external interventions. I may illustrate this by the story of two nationalized banks. Two banks, ABN-AMRO (Netherlands) and Fortis Netherlands, were nationalized in September 2008 due to a run on Fortis Bank which was perceived by the public as being in trouble as a consequence of financing its takeover of a third of ABN-AMRO Bank in 2007. The costs of nationalization and the costs of keeping both banks afloat are being bore by the tax payer, so to speak. Soon parliament debated the salaries and remunerations of the directors of both banks. Yet, again and again the Minister of Finance mentioned that he would not be able to impose the Balkenende-norm on both banks. The State is the owner of all outstanding shares but that does not mean that a minister of the State is able to change at will the terms of employment of the directors and the employees of these banks. All kinds of legal arrangements prevent that. However, it is not merely a matter of obstacles but it is also a matter of time needed for persuasion. If you want to impose moral standards, you have to talk with the people involved. Try to convince them, to persuade them with arguments. Merely enforcing legal rules is insufficient. When rules are being supported then they may become internalized norms. That is a process which takes time.

An intervention by the State and the credit crisis
There is very different way of looking at the crisis. Now we do not look to vices or virtues of individual bankers but we look to laws, to institutions, to legal obligations. The origin of the credit crisis may have been an ideal, namely affordable housing for low-income families in the USA. Some 15% of the 300 million Americans live below and another 10 to 15% just above the poverty line as defined by American standards. The USA do have some social housing project in the big cities. By and large there is in the USA nothing similar as the social building associations in the Netherlands or other European countries which offer rental homes and apartments to roughly one third of the population. Affordable housing as an ideal was being discussed time and again in US Congress. When in the summer of 1999 the House and the Senate each passed different versions of a bill that allowed mergers, takeovers and consolidations among banks, insurance companies, and securities companies politician were trying to build a broad coalition to endorse this bill. Members of House and Senate worked a few months in a so-called Conference to find a compromise. Other political wishes creped into this process. Some wordings on a non-discriminatory access to financial services were incorporated. The Community Reinvestment Act, originally of 1977, was amended. In November House and Senate passed within a few days the Gramm-Leach-Bliley Act and President Clinton signed it. This law, officially known as the Financial Services Modernization Act of 1999, opened up the financial markets. The banking industry had lobbied since the 1980s for this modernization. This law repealed parts of the famous 1933 Glass-Steagall Act. Many commentators applauded the move to give as much freedom to USA banks as European bank already enjoyed since the 1980s. The commentators easily overlooked the price paid: a pledge to give more economic opportunities for the disadvantaged and more access to the financial services by lower-income classes. The banks in low-income areas started brisk, new lending practices.

Mobility is characteristic of many an American family. Blue collar families were leaving neighborhoods built in the middle of the twentieth century and put up their houses for sale. Affordable housing initiatives conceptualized schemes to assist families now renting apartments so they could own their own house. We know them by their acronyms: Fannie Mae stands for the Federal National Mortgage Association, FNMA, chartered in 1968, and Freddy Mac stands for Federal Home Loan Mortgage Corporation, FHLMC, set up in 1970. Lacking a tradition of grand scale housing corporations social ethicists, religious leaders, and representatives from lower-income districts backed up these schemes of easy access to mortgage financing as a solution to the ideal of affordable housing.

The subprime market involved an income category of some ten million American families with a living above the poverty line, not dependent on social security, but actually not wealthy enough to buy a home in a normal market situation. The subprime mortgage market offered the less affluent but not really poor households an opportunity to acquire post-war houses from families with slightly more income, slightly more opportunities for development and more flexibility to make s step backward when necessary. Flexibility is a quality the subprime market mortgage lenders were missing. Think about a single-parent family: it lacks flexibility. The road back to the tenement houses is unattractive and therefore put off as long as possible. The mortgages, often with lower costs in the early years, sooner or later became an unbearable burden for more families than was estimated at the time the terms for the mortgage were set.

The banks had probably seen these problems coming all along. They had timely ensured that a large share of the risk got securitized and was channeled through the international capital markets to buyers overseas who appeared to be unfamiliar with the risks of these high yielding financial products. The credit crisis started in 2006 and 2007 when the refinancing of short-term mortgages (circa three years) in the subprime mortgage market in the U.S encountered difficulties. The subprime USA mortgage market had swelled enormously as a consequence of the Gramm-Leach-Bliley Act, which allowed banks, actually more or less obliged them, to provide mortgages to families with an income that, in fact, was too modest to pay back the mortgage unless the mortgaged property would enormously rise in value and consequently could be sold within a few years time.

Worldwide the derivatives were traded, repackaged, and used as collateral to new lending activities. In 2006 and 2007 it became clear that the underlying mortgages of certain derivatives could not fulfill their interest obligations. Auditors at banks or other financial institutions recommended writing off on these toxic assets; that meant red figures for the banks. The total value of the potentially not so easily collectable subprime mortgages is estimated at $ 3.5 trillion. The credit crisis was born.

Ethics and economics
These two examples show that there is a relationship between “morality” and “economy” and they show that the origins of the present credit crisis may be viewed from two opposite standpoints. When we search along the lines of objectionable individual behavior we will find culprits: bonus driven bankers. When we search along the lines of reprehensible institutional and political interventions we will find misused subsidy schemes, taxation holes, and national institutions.

Yet, it is too easy to blame the bonus system or the political compromises as the prime movers in the credit crisis. It is too simple to say that the credit crisis is a moral crisis. There are serious moral flaws. Bankers forgot that they had to remain acting as a good banker in all circumstances and that lending to families with restricted budgets asks for wisdom and restraint. Politicians forgot that lobbyists seek realization of their respective interests but that representatives and senators have to remain acting as good politicians and those politicians are obliged to forward primarily the public interest. Moral leaders forgot that lofty ideals such as affordable housing easily may become a flag covering a totally different cargo.

The credit crisis has its moral aspects. Mostly is it a crisis in complying with codes of behavior and with norms. Bankers, politicians, lobbyists, and moral leaders forgot their proper functioning. Lofty ideals should not too easily being translated in rules and laws, unless there is a minimal moral awareness with the population concerning the ideals involved. The same holds for the companies which should not misuse or circumvent but respect and interpret properly the laws and the norms.

Therefore we need an active civil society wedged between the government and the citizens. Under the civil society is understood the whole of non-governmental and non-commercial organizations, such as schools, universities, care institutions, churches, public libraries, unions and employers organizations. The civil society may influence the morality of the citizens deeply and lasting.

Remuneration systems may change if there is a base for such a change in the civil society. Societal organizations have a large and close group of followers. The stronger the commitment between the organization and its followers, the greater the moral influence. Practical economic ethics, therefore, focuses on intermediary institutions between the state and citizens. Practical economic ethics is thus also evidently organizational ethics or business ethics. This does not only imply good bankers or good business people, but mostly “good” banks and good companies.

In the near future we need an ethics dealing with the moral problems of the organization: societal, governmental and commercial organizations alike. We need an ethics of the entire company. We need reflection on what the moral consequences are of corporate action in the sense of acting by business people in an organized manner. Organizational ethics should deal with the organizational instruments, such as the salary and bonus system, the safety system, or the reporting system. Until now, the salary was related to a function, to the performance of an individual, and to his or her responsibility.

That is in itself fine, but ethics draws attention to the fact that within organizations responsibilities are borne by many people. The top has no knowledge about a myriad of things and questions. Companies should not grow further than for which they can be responsible. The span of control is a concept that ethically could be developed further.

What the crisis and ethics have to do with one another, lies not in the past, but in the future. Organizations must develop their moral self-awareness. Legislative measures of governments are necessary but can never do it alone. Without moral support, beautiful lofty moral norms and laws do not lead to a desirable – good – society. Organizations are the main intermediaries.

Eduard Kimman

]]> http://www.liberatethemind.com/2009/07/25/kimman_economic-crisis-and-ethics_002/feed/ 0 http://www.liberatethemind.com/2009/07/23/douglas-rushkoff-life-inc_003/ http://www.liberatethemind.com/2009/07/23/douglas-rushkoff-life-inc_003/#comments Thu, 23 Jul 2009 13:32:55 +0000 admin http://www.liberatethemind.com/?p=721 This is the third and last part of an excerpt from Douglas Rushkoff’s new book Life Inc. You can read the first part here and the second part here.

The comparative advantage argument no longer holds when you’re talking about a car manufactured in ten countries, each with its own exchange rates. Comparative advantage applies to balanced national economies trading with one another. Trade agreements like the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) are more about creating “integrated economies,” whose national boundaries no longer pose any obstacles to the corporations who transcend them. The United States is not trading with China at all. Wal-Mart is leveraging what used to be comparative advantage by sourcing products in China and selling them in the U.S.—where nothing but credit is produced in return. And what is a Mercedes manufactured by Beijing Benz- Daimler-Chrysler Automotive Corporation, Ltd., anyway? Who exactly is trading to whom?

By Douglas Rushkoff

The tasks sent overseas are simply the ones whose greater costs— environmental damage and health risks—can be externalized to the natives of the country where they are being performed. Labor is treated as a commodity. Is the terrain of China or the Philippines more suited to environmental damage? Are the people there better at getting cancer? Of course not. Unlike comparative advantage, externalizing costs is not about giving people the jobs that they do best, or using land in a manner consistent with natural climate and topology. It’s more a matter of giving the lowest- paying and most dangerous jobs to people who don’t have the means to complain—or who are so far away that we couldn’t hear them if they did. International trade offers a means for businesses to circumvent democratic oversight, regulation, and labor laws. In the process, corporations externalize the longer-term costs of their operations to nations who have no choice but to absorb them. The credit column of the corporate balance sheet remains intact.

Those on the other side of the trade have little choice in the matter. They are debtor nations, whose loans have been restructured by an IMF with only corporate interests or misapplied international trade theories in mind. A free- trade landscape sloped to the interests of corporate colonialism leads to what progressive economists call a “race to the bottom.” Nations compete to offer the best prices and the fewest obstacles for corporations to come set up shop. If this means preventing unions from forming, lowering environmental standards, or even subsidizing the construction of factories, so be it. With no minimum standards established between them or through international regulation, whoever stoops the lowest wins the contract.

This downward leveling supports the West’s consumption via credit while inhibiting local production of goods by developing nations for their own use. The cost of basic staples like food and clothing go up, as local consumers are now forced to compete against those in much wealthier nations for the same products. The net result is that the disparity of wealth and standards of living between the rich and poor nations gets worse, not better.

People living in the developing world might take heart in the fact that corporate colonialism no longer distinguishes between the localities it undermines. The phrase “race to the bottom” was first used, in fact, by Supreme Court Justice Louis Brandeis in 1933 to describe the way American states were falling over themselves to attract corporate business. Just like developing nations undercutting each other’s labor and environmental interests to win factory contracts, U.S. states were busy rewriting their charters and laws to the benefit of companies who incorporated there. Delaware eliminated most corporate tax, while New Jersey limited its citizens’ ability to challenge corporate behavior.

Corporations in the United States, England, and most other market-driven Western nations now operate at home with the very same colonial aggression they applied overseas—if we can even refer to today’s corporations as having “home” nations anymore. And domestic localities still fall over each other to win their business, either too confused or too corrupt to act in their own best interests.

In the 1970s, for example, Moore County, North Carolina, began working hard to attract businesses from the Northeast, with promises of corporate tax breaks, lax environmental standards, and a compliant, union- free workforce. The county finally won the privilege of hosting a Proctor Silex plant by floating a $5.5 million bond to finance water and sewer services for the facility—even though many residents in the region were themselves living without running water or basic services. Predictably, in 1990 the company moved to Mexico, which was offering more competitive terms. Moore County was left with toxic waste, eight hundred unemployed workers, and tremendous public debt for having subsidized the company’s plant.

In 1993, South Carolina bent over backward to secure a plant from BMW. BusinessWeek and other publications praised the state for its progressive policy toward competing with Mexico for automobile-manufacturing jobs. South Carolina promised to help BMW externalize its costs by subsidizing inexpensive mansions for executives, good golf courses, cheap labor, low taxes, and limited union activity. The state raised $2.8 million to send engineers to Germany for training. When BMW indicated its preference for a particular thousand- acre parcel on which over one hundred homes were already located, the state spent another $36.6 million to purchase all of them for subsequent destruction. South Carolina then leased the site back to BMW for one dollar per year. Winning the BMW factory is estimated to cost taxpayers $130 million over thirty years.

It’s not only our production that we subsidize on behalf of corporations, but our consumption as well. Remember, in addition to extracting resources from the colonies they controlled, chartered corporations also held monopolies over what the colonies could buy and from whom. The more corporations could control the laws and tax policies of the regions where they were operating, the more they could externalize the costs of selling just as they did the costs of manufacture. Today’s corporate- favoring legal framework permits domestic companies to behave in an analogous fashion.

Wal- Mart may be the easiest and most obvious target for us in this regard, but that’s for a very real reason: its practice of colonizing new regions for stores amounts to a scorched- earth policy that leaves financial and social ruin in its wake. Wal- Mart monopolizes new territory by pricing items below cost and rendering local merchants incapable of competing. Once the competition goes out of business and the community is dependent on Wal- Mart, the corporation raises prices to more profitable levels. Free and fair competition, as defined by the market, favors the company with more money to burn.

Although Wal- Mart enters new regions promising gainful employment and an expanded local tax base, the opposite usually occurs. A Congressional Research Service report found that for every two jobs created by a Wal- Mart store, the local community ended up losing three. Furthermore, the jobs created were at lower wages (an average of under $250 a week), fewer hours, and reduced benefits. A majority of Wal- Mart employees with children live below the poverty line, qualifying for public welfare benefits such as free lunch at school. Seventy percent of Wal- Mart employees leave within the first year of employment, and do so—according to a survey that Wal- Mart itself conducted—because of inadequate pay and lack of recognition for their work. Other studies have shown that, as a result of the increase in social services spent on the families of Wal- Mart employees, the net effect of a new store is to place a greater financial burden on the taxpaying community.

In spite of a huge “buy American” campaign, Wal- Mart purchases 85 percent of its merchandise from overseas, and is consistently associated with sweatshop scandals, from Kathie Lee Gifford’s clothing line and Disney’s Haitian- made pajamas to child- produced clothing from Bangladesh and Wal- Mart– brand apparel manufactured by underage Chinese workers in New York City sweatshops. So maybe it’s not even in Americans’ best interests to be manufacturing for Wal- Mart, anyway.

There’s nothing new in attacking Wal- Mart for poor corporate citizenship. There are plenty of organized protests and lawsuits under way, as well as at least some action on the part of the company to correct this impression and perhaps even its own behavior. What’s more important to recognize here is that Wal- Mart’s activities do not appear to be the result of conscious choices by a mean- spirited board of human directors who have any real relationship to the communities in which they operate. Rather, Wal- Mart’s relationship to the world seems to be directed by the sort of charter written four hundred years ago for trade monopolies. The company’s practices—abroad and at home—erode regional stability and self- sufficiency in order to conduct the long- distance trade at which Wal- Mart excels. Wal- Mart turns its home territories into colonies, robbing them of their ability to generate value for themselves and creating greater dependence on the colonial empire.

Wal- Mart’s relationship to place has become so abstracted that the company views even its own stores through the conquistador’s eyeglass. Like temporary forts built solely for purposes of territorial conquest, any one of them can be abandoned at any time. For example, it is deemed efficient by Wal- Mart to open two stores very close to each other if this quickly and most completely puts local merchants out of business. Once a monopoly over the region has been established, Wal-Mart can close the less profitable of the two stores. Residents will then pick up the externalized costs of fuel to travel to the farther one. As of 2000, by utilizing this strategy, Wal- Mart had already left behind twenty- five million square feet of space. In one Kentucky town, the abandoned Wal- Mart was eventually torn down at taxpayers’ expense, according to the corporation’s own website. After peaking at more than two new stores per day in 2005, Wal- Mart still planned to open 212 stores in the U.S. in 2009, despite the credit crisis.

Wal- Mart’s behavior is not terribly mysterious. What’s more puzzling is the widespread acceptance and patronage of this company and its peers by people who actually live in the wake of their damaging effects. While regions with very strong advocates for the environment, labor, local commerce, or health may have been successful in limiting the spread of the “big box” chains to their neighborhoods, the vast majority of American and, now, European counties have succumbed to or even welcomed their own colonization by international branded retail stores.

Our readiness to surrender the territory on which we live shouldn’t surprise us all too much, for we were already treating our neighborhoods as anything but real places.

Interested? Go to Douglas’ page and read more about his book and other projects.

Over There…

At the end of World War II, it became clear that the last of the official colonies—such as Ceylon, the Ivory Coast, and Burma—would be returned to local rule. The problem for locals, however, was that their economies and social infrastructures had been devastated over a century or more of corporate exploitation. They couldn’t just start over. They needed a hand. Of course, the former colonial empires were willing to lend it—for a price.

By Douglas Rushkoff

To be fair, most European nations were having their own problems in the late 1940s. The only one of the allies that had made it through the war without significant damage was the United States. Foreseeing the need for a postcolonial world order, the Allied nations sent delegates to a meeting at a hotel in Bretton Woods, New Hampshire, in 1944 to figure out a new global monetary system. The U.S. was in a position to leverage its authority as Europe’s military savior and the only surviving industrial economy to promote its own fiscal agenda: free markets and monetary leadership. Everyone else’s currencies would be pegged to the dollar, and the world would enjoy open markets, which benefited the U.S., as the economy poised to grow the most. The meeting established the International Monetary Fund, set up the World Bank, and laid the foundations for an international trade pact that was finally implemented fifty years later by George Herbert Walker Bush and Bill Clinton as the World Trade Organization.

Through the World Bank and the International Monetary Fund, lender nations would be in a position to assist developing nations with huge injections of cash. By accepting the loans, however, borrower nations would be obligated to open themselves to rules of free trade as established by the international lending community at Bretton Woods. This made them vulnerable to a new style of the same old colonialism.

Taking a loan meant opening one’s ports to foreign ships, and one’s markets to foreign goods. It meant allowing foreign corporations to purchase land within a country, and to compete freely with any domestic company. Nations would not be allowed to impose restrictions on what sorts of goods could be imported, or which resources could be extracted. In short, taking a loan from the IMF meant losing all forms of “protectionism.” And while protectionism has been cast, in free- market terms, as a fear- based reaction to the healthy and necessary functioning of the market, there are instances when nations might simply be attempting to protect their real territories and people from the tyranny of the balance sheet. For, even if every currency in the world was in some way pegged to U.S. money, not every gain and loss proved to be measurable in dollars and cents.

For one, the economic globalization negotiated in Bretton Woods has given wealthy industrial nations the ability to pass environmental liabilities on to poorer nations. As documented in several of David Korten’s books on corporate power, wealthy nations actually take credit for this exploitation of poorer ones on the grounds that they’re bringing them prosperity.

Japan, for example, financed and constructed a copper smelting plant in the Philippines to produce cathodes. The Philippine Associated Smelting and Refining Corporation (PASAR) was built on four hundred acres of land sold to the company by the government at giveaway prices. PASAR is now a prosperous multinational, and in dollar terms the local economy is bigger than it was before. This same case study is regularly cited as a global free- trade success story: Japan now has a ready supply of copper without any of the environmental damage associated with its production, and the gross domestic product of the Philippines has been increased.

But the Filipinos actually living in the area are sick and jobless. Plant emissions, including boron, arsenic, and heavy metals, have polluted local water, poisoned fish, and sickened residents. The contamination of the land has made it impossible for them to return to subsistence farming, and their government is busy repaying Japan and the IMF for the loans that built and subsidized the plant.

Because the gross domestic product of an exploited area invariably goes up, case studies like this are used as evidence of how IMF practices and free trade provide necessary assistance to developing nations. Using these metrics, the more pollution a project can generate, the more environmental remediation and medical costs will be rung up, increasing the GDP even further. In purely corporatist terms— which are the only ones most of us physically removed from the effects of our actions have to go on—pollution is good.

IMF Annual Meeting

By lending money to developing nations, wealthier nations can force them into agreements that “grow” their economies while sapping them of their ability to take care of themselves. In order to repay ever- increasing debts, poorer nations must dedicate increasingly larger tracts of land for export crops. They grow food that their own citizens quite literally cannot afford. Since their acceptance of loans means allowing corporations from other nations to purchase land, debtor nations lose their best farmland to wealthier foreign farm conglomerates anyway. Locals who used to farm for subsistence now must farm that same land for day wages, if it is farmable at all.

Through the use of loans with binding free- market provisions, powerful nations and the corporations they support have restored the grip that chartered monopolies once had over these same regions.Their policies are analogs of those of their predecessors: the same exploitation of land from a distance, only removed another degree.

Consider the strategy of any typical early chartered corporation. In 1602, the Dutch Crown sanctioned the United East India Company to conquer territory and exploit resources in the Pacific. The Company’s scheme was to acquire lands in Indonesia by lending money to cultivators and then dispossessing them when they failed to make payments. This was made easier by trade policies that guaranteed the farmers’ failure. The Company got the Dutch to prohibit cultivation of the most profitable export crops—like cloves—on land not already under Dutch ownership. Loans failed, and more collateral in the form of land passed into Company hands. Indonesians lost access to the most fertile land, and were ultimately forced to buy their rice from United East India at the artificially inflated, monopoly- supported prices. The local economy was devastated as more land and labor were surrendered to the corporation.

As if borrowing from the United East India Company playbook, modern corporations leverage the power they’ve been granted through free- trade agreements. Where old- school colonialism was enforced with gunships, the new school uses bank loans, currency, and membership in the international community. The World Bank and the IMF impose policy prescriptions on the nations to whom they lend money, all geared toward opening their markets to the interests of foreign corporations. When they fail to make their mortgage payments, these nations are subjected to “structural adjustments” that increase the resources they must commit toward repayment of the debt. As a result, debt payments made to the World Bank calculated as a percent of total government budgets have doubled each decade in Latin America and Africa. More loans lead to more collateralization, which in turn leads to more losses.

Eventually, as with a restaurant in hock to the mob, all productive assets and resources end up owned by foreign corporations and devoted to export production in order to repay the loans. Public services and utilities are taken over by foreign corporations and run for a profit. The World Bank serves as the loan shark, financing corporate missions at the expense of developing nations, while the IMF plays the menacing debt collector—backed by First World armies and their intelligence agencies.

One step further abstracted from the land and resource- management techniques of their predecessors, modern corporations exploit a sloped monetary policy to lend scarce currency to nations who pin their hopes for advancement on participation in the global economy. Only too late do they realize that this participation is limited to providing labor, resources, and land to some of the very same corporations from whom they were liberated half a century before. These loans turn out to be antidevelopmental, increasing dependence on imported technology, driving people off their lands, polluting them, and making subsistence farming impossible. And adding insult to injury, today’s corporations retell these stories on their websites and in quarterly reports as evidence of the economic opportunities they offer the rest of the world. But just because GDP has gone up, things back here in the real world have not necessarily gotten better.

The World Trade Organization, finally established in 1995, is testimony to just how universally accepted these practices have become in the developed world—and just how dependent we are on them for our lopsided prosperity. This wasn’t a Republican idea or a Democratic one, but a corporatist mentality that patiently waited for acceptance. Widespread protests by disparate groups of environmentalists, labor activists, and others who understood one or more of these points were ridiculed by most American, British, and German media as the work of unfocused, untidy, and uninformed people, afraid of the globalized future.

What these protesters understood all too well, however, is that WTO policies aren’t moving us forward at all, but sending us back into history. Indeed, we might as well be in the colonial era: the WTO plays the role of the monarchy, writing policies as favorable to today’s multinationals as their forerunners’ charters were to the corporations in which they invested. For who is in the WTO, ultimately? Board members of the banks and conglomerates who benefit from its policies.

As long as the pollution and labor unrest are “over there” somewhere, and only represented in terms of the profit they generate for one corporation or another, they are good for the bottom line—or, at worst, collateral damage to people who were probably killing each other in tribal wars, anyway. This is their path toward participation in the global marketplace.

Defenders of the free market—including editors of financial publications from The Economist to The Wall Street Journal—deride any critique of these development strategies as jingoistic, ill- informed, and protectionist. They like to cite David Ricardo’s 1817 theory of comparative advantage, which most of us were taught as freshmen in Econ 101. I had the pleasure of learning it in a Princeton lecture hall with a thousand other college freshmen from the left- leaning former Fed vice chairman Alan Blinder, and it goes something like this:

The theory of comparative advantage shows how trade can benefit all parties as long as they produce goods with different relative costs. It’s easy to see that if Country A makes shoes faster, and Country B makes hats faster, then everyone in Country A should make shoes, and everyone in Country B should make hats. But what if Country A makes both shoes and hats faster than Country B? The people in Country B should still go ahead and produce whichever item they are relatively better at, and Country A should make the other item.

So even if the U.K. can make cars and dresses less expensively than Italy can make either one, it’s still more efficient for Italy to make whichever one of these that Britain produces less efficiently. Let’s say it’s dresses. When the two nations trade their stuff, both do better. For every man- hour the U.K. spends making cars, it earns more value to trade for Italy’s dresses than it would if it made dresses for itself. It’s better to have everyone in the U.K. doing the thing they do best, and then trade with other countries that are doing what they do best.

 

David Ricardo

Corporations use the theory of comparative advantage to justify the way they do foreign trade and, moreover, to explain why building cars and trucks over in Mexico or Brazil doesn’t really take away jobs from people in Detroit or Birmingham. The domestic workers simply need to be “retrained” to do what Westerners do best (whatever that is), and then everything will be okay.

A closer look at Ricardo’s theory, however—the kind of look offered by a teacher like Blinder—reveals that it depends on a set of preconditions. The equations work out only if you’ve got full employment in both nations. It’s not more economically efficient to do international trade if it ends up decreasing employment in the more efficiently operating industrial economy. Furthermore, Ricardo himself argued that his theory works only if the trade between the two nations is balanced—something the United States has not enjoyed with, say, China for over a decade.

In today’s corporatized global marketplace, Ricardo’s work is all but obsolete, and the examples he used to prove his point have little or nothing to do with the way comparative advantage is universally applied. Ricardo showed how the climate in Portugal made it relatively more efficient for the Portuguese to make wine than for the English to do it. The Portuguese vintner enjoyed soil more conducive to growing grapes, and was much less likely to lose his crop to bad weather. It made sense, under these circumstances, for the British farmer to convert his fields to pasture for sheep. He could export wool to Portugal in return for the wine—and both could fully employ their workers in these pursuits. Even if the Portuguese farmer could have raised sheep more efficiently than the Brit, he’s better off doing the thing that he’s relatively better at. More total wine and sheep are produced, lowering everyone’s costs. Trade is good, especially if it allows nations to specialize in what they do best, or what their natural endowment allows.

This excerpt is from Douglas Rushkoff’s newest bestseller Life Inc. Next week the last part of this extended excerpt will be published on Liberate the Mind.

Until late in the twentieth century, European schoolchildren— particularly those in Portugal—were taught that the great Prince Henry single- handedly invented blue- water sailing when he taught his seamen how to navigate beyond sight of the shore. Henry of Portugal’s greatest achievement, according to those officially chronicling his exploits in the early 1400s, was to help sailors overcome their fear and superstition to sail south of Cape Bojador on the African coast. This opened unprecedented opportunities for trade, making Portugal one of the great colonial powers. Henry was later credited with opening a school of navigation at Sagres, personally teaching courses to sea captains, and studying astronomy and the oceanic arts until his death. His story was told and retold so many times and in so many contexts over the centuries that a nineteenth- century German geographer eventually dubbed him Prince Henry the Navigator—which he is called to this day.

by Douglas Rushkoff

Alas, Henry wasn’t a navigator at all. He rarely traveled by ship except as a passenger on short routine voyages. He started no school, taught no sailors, and studied no stars. The very notion that until Henry sailors would have been forced to navigate by hugging the shore is itself preposterous. Sailors of all ages avoided the coasts, which were fraught with perils, and have successfully navigated in deeper waters beyond the sight of land for many centuries.

British Empire in the 19th Century

Henry did not personally expand exploration of Africa’s coasts—he did just the opposite. For Henry was no sailor but rather one of Portugal’s first corporatist monarchs. He issued a charter in 1443 that, instead of opening Africa’s coast past the Cape of Bojador, prohibited sailors from going past it without his permission. So, contrary to corporatist mythology, Henry’s charters didn’t enable seafaring; if their journeys required approval, then apparently sailors were already more than willing to explore on their own. It was the Portuguese monarchy that, like the other kingdoms of the early Renaissance, sought to rein in the advancing class of ship merchants, and lock down deals that would help them monopolize any gains made.

Henry the navigator might as well have served as the prototype of today’s heroic CEO: a dry- land monopolist praised for his seafaring adventures, a calculating politician praised for his hands- on, can- do attitude, and a greedy opportunist lauded for his farsighted philanthropy. Almost all media profiles of modern- day business figures perform a similar alchemy. Still, while they may not be able to take credit for oceanic travel, Henry and his royal peers can claim responsibility for transforming an era of exploration and trade into one of exploitation and monopoly.

On one level, these monarchs can’t really be blamed for their reductive approaches to new territories. Advances in the sciences had led to a rationalist—or rationed—stance on nearly everything. Reductionism promoted a fragmented view of the world, biased toward studying how constituent elements operated rather than how they might interact. The monarchy’s slow but eventually wholehearted acceptance of cause- and- effect logic and scientific observation might have been great for curbing magical thinking and superstitious activity, but it could just as easily be abused to categorize foreign peoples the way a biologist might categorize any “inferior” species, and foreign places as wilds to conquer.

Royals went map crazy. Cartography was as much the rage in the Renaissance as MapQuest and Google Earth are today. Nearly every ship had a cartographer aboard to map new regions of the world and, of course, label them as belonging to whichever kingdom had chartered the voyage. Mapping a territory meant documenting one’s control of it—whatever the reality might have been on the ground. Eventually, the mapmaking fetish turned inward as well, as monarchs attempted to map the entirety of Europe and determine who owned exactly what. By 1427, a Danish cartographer working in Rome had developed the first known map of northern Europe. In 1507, the voyages of the Florentine seaman Amerigo Vespucci resulted in the first maps of “America,” showing two distinct continents separated from Asia.

With the physicality of the world represented in maps, and the exploitation of these maps arranged by charter, monarchs were at least two steps removed from the results of their actions—actions already undertaken with a cool logic defined by scientific rationalism. This disconnect characterized the colonial era, and determined the bias with which we treat our physical surroundings to this day. Place became property.

At home in Europe, this abstraction meant a completely new approach to land ownership, as the seigneurial system gave way to active trading. Why should we care that control of land in late- medieval Europe shifted, at the dawn of the Renaissance, from “feudal” to “market” control? For the peasant working the land, this turned out to be a significant distinction. In the feudal societies, land was rarely traded; it simply passed down from generation to generation. Peasants generally stayed put, and often had as much claim on the land they worked as the fief or lord who controlled it.

The market for land was a relatively new concept, and really developed more as a vehicle for capital—an investment opportunity for the burgeoning class of merchants and bankers. Merchants were making more money through their businesses than they could reinvest in them, while landowning monarchs were falling further behind. By selling their lands, the aristocracy could participate in the new market; meanwhile, merchants could acquire property, which was both a safe investment and an opportunity to earn social distinction. Common lands, which might have been owned by lords but were open for grazing or even agriculture by any commoner, became increasingly “enclosed” or fenced in. These tracts were no longer pastures, but parcels.

As the market in property grew to account for more and more of the woods, pastures, and moors on which peasants worked, land—and the labor done to it—became more a commodity than a system of interdependence. Unlike the hierarchy of lords and vassals who both owned and depended on the active use of the land by its laborers, the people buying and selling these parcels related to them as deeds to be sold for a profit as soon as the market allowed. Peasants moved from place to place, enjoyed less implicit and explicit authority over the lands they worked, and found their labors becoming part of the same commodity markets.

Of course, the people living in newer territories had it even worse. Aboriginal people who weren’t simply massacred were treated with about the same respect as any other natural resource, and enslaved by expanding colonial empires. And while historians are at pains to decide whether the merchants or the monarchs chartering their voyages and settlements are more to blame for the inhumanity of colonialism, it was the charter itself, and the rules of engagement it demanded, that generated the disconnection from place permitting this exploitation and that remains with us today.

Remember, while the merchant class was rising in wealth and status, the aristocracy was stuck. This is because merchants were participating in manufacturing, trade, and other expanding businesses while nobles merely owned things. Their assets were stable, but static. In a growing economy, standing still meant falling behind. Charters gave the aristocracy a way to invest in opportunities that could bring their assets to life, and to do so on a playing field where they had the power to write the rules and, in Henry’s case, their mythologies as well.

The discovery of the New World may have, for a short time, created a sense of endless frontiers. But to asset- hungry corporatists, Magellan’s 1519 voyage around the world also accomplished just the opposite: it conveyed that the amount of land on this planet was bounded. There was only so much of it, making it scarce enough, at least in theory, to conform to the rules of the market. And those rules were rigged by the corporate charters spelling them out.

As investors in their corporations’ projects and competitors in the fast- growing global marketplace, monarchs hoped to extract as much value as possible from their colonies, and to do so as quickly as possible. It was in the interests of both early corporations and the monarchs legitimizing them to colonize as much of the earth as possible over the next few centuries.

Charters gave corporations the authority to take military action, while granting monarchs distance from the real and political consequences of this violence. Corporate monopolies enjoyed exclusive dominion over a region, and in return gave the authorizing monarch a disproportionate share of returns. Colonists, still subjects of the kingdoms from which they came, were as bound by the charters as the corporations on whose behalf they were written. Mercantilism didn’t give them the opportunity to build businesses, only to extend monopolies owned by others. No sooner would a market arise than it would be usurped by the corporation. It was a closed system, created to maximize the extraction of a colony’s human and resource value. This was true whether the regions considered themselves colonies or not.

The English East India Company ignored whatever markets already existed in the regions where it did business. They used their financial and military clout to deal directly with the laborers whose goods they wished to purchase, bypassing all involvement with local markets, and dissolving local cultures and business relationships in the process. In Bengal, for example, the East India Company provided its own looms, factories, and materials transport, slowly putting the local businesses that provided these services out of business. Incapable of maintaining even a local presence, Bengal’s internal weaving industry became utterly dependent on an international company that could define its own terms. Similarly, when the Muscovy Company realized that it was supporting local business in Russia by purchasing rope, it opened up its own cordage factory. But what might have looked at first like an employment opportunity for devastated workers quickly vanished, for Muscovy employed an entirely En glish workforce.

These arrangements did not always make strict financial sense— certainly not for the local economies involved. That’s why they were enforced not by the market, but by arbitrary laws written by monarchs to favor the activities of the companies in which they were either directly or indirectly invested. American colonists were permitted to grow cotton, but not to make clothing from it. It had to be shipped to En gland for manufacture, and then purchased back in finished form. This was not economic efficiency, but economic exploitation. Charters gave corporations the exclusive right to vertically integrate anything they needed onto the credit side of the balance sheet, no matter the cost to the territory. The only thing they had to fear was revolution—but to attack a chartered corporation meant facing the army of the empire that underwrote it.

It was these seventeenth-  and eighteenth- century equivalents of no-bid contracts to Halliburton that led Adam Smith to write Wealth of Nations. While celebrated today by corporate libertarians as philosophical justification for free- trade policies, the book was meant as an attack on the scale and effects of chartered monopoly. By arguing— now famously—that “self- interest” might promote a more just society, he was speaking in the context of an economy already heavily tilted against individual human agency. “By preferring the support of domestic to that of foreign industry,” Smith explains of the average person, “he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

Smith assumes that people would be biased against international trade, naturally preferring the security offered by sourcing goods locally—and that his readers would agree with him on this point. Like the founders of America, who may have differed on almost everything else but this, Smith saw economics as characterized by small, scaled, local economies working in interaction with one another and guided by the enlightened self- interest of individuals. This was not a reaction to “leftist” regulations on corporate power, but against the unfair practices of early transnational corporations, which were operating on a level completely removed from the real affairs of people and the proper stewardship of resources.

Of course, eventually real people in real places stood up against corporations and the governments behind them—the American Revolution was just one of the first in a long series of anticolonial movements that included the birth of many American, Asian, and African nations. While governments of the modern era might never be permitted to charter monopolies from afar quite as directly again, corporations didn’t forget the methodology of remote control.

This excerpt is from Douglas Rushkoff’s newest bestseller Life Inc. The second part of this excerpt can be read here