Time for True Market Reform, June 2007

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© Hazel Henderson, 2007
(word count 947)

Hazel Henderson

The mantra of economists, central bankers, the World Bank, the IMF and others advising developing countries, calls for, above all, market reform. Un-packing the jargon, they mean de-regulation, free trade, privatization, convertible currencies, export and debt-led growth and flexible labor markets –summarized as the “Washington Consensus”. Today, the call for market reform is morphing into demands for reforming markets and capitalism, as well as their narrow economic scorecard of progress, the Gross Domestic Product (GDP). European Environment Commissioner Stavros Dimas is spearheading the BEYOND GDP conference in the European Parliament set for November, 2007 (Beyond-GDP.eu).

Today, the one-size-fits-all conventional recipe for economic growth, measured by GDP, is being challenged not only on social and environmental grounds — because it is widely seen as failing. The G-8 summit in Germany and corporate CEOs at Davos worry about global climate chaos and their US-CAP group urges mandatory caps on their own carbon emissions. Soul-searching continues on the failure of WTO trade talks, the growing gap between rich and poor, the effects globalization and outsourcing of blue and, increasingly, white-collar jobs. There is little to reassure average citizens that any serious policy re-think is afoot.

Europeans are leading the new debate and already favor the mixed social market economy. China has modified the Washington Consensus model to create its own social market economy where markets are seen as “good servants but bad masters”. Today, most Latin American countries are rejecting the US formula in favor of the Chinese and European models. In earlier years, the economies of Taiwan, South Korea and Singapore grew on the Asian model of markets steered and regulated by governments.

Socially-responsible pension fund trustees and mutual fund managers launched the United Nations Principles of Responsible Investing representing over $8 trillion in assets. The Carbon Disclosure Project, representing $31 trillion held by global asset managers demands disclosure of carbon emissions. These financiers are giving new meaning to market reform. (see EthicalMarkets.com). They demand that companies they own in their portfolios also focus on making markets more ethical. They employ the new accounting protocols of the “Triple Bottom Line” that go beyond the traditional single bottom line of profit and also improve their governance, social and environmental performance. This is not surprising since today bad behavior entails new kinds of risk to companies’ stock prices: social, environmental and reputational risk, measured by financial services firms such as Innovest Strategic Value Advisors, Truecost and others.

The Information Age has also morphed into a new Age of Truth, where a company’s reputation, precious brands and stock can be broken in real time by negative postings by global watchdog groups such as Corpwatch.org and Global Exchange. Individual investors, making common cause with labor unions, environmentalists and social justice groups have fueled this new definition of market reform, representing $2.3 trillion in assets in the USA alone. Even the Nobel Committee gave its Peace Prize to Mohammed Yunus, banker to the poor.

Such market reforms include more ethical, transparent and accountable corporate management, full disclosure, responsible marketing and advertising, environmentally-friendly products, cutting exorbitant executive pay and stock options, curbing lobbying and political influence of elections, unfair labor practices, environmental pollution and resource depletion.

Ethics is the big story in governments as well as markets and the often unholy alliance between them. The recent US corporate crime wave helped elect Governor Eliot Spitzer of New York. The US Senate passed a stricter ethics package limiting lobbying, perks and earmarks in response to the public outcry against corruption. Political candidates might do better if they simply pledge to never become lobbyists.

Even foundations are no longer immune, as socially-responsible investors demand that they examine their portfolios of stocks underwriting their charitable giving. The schizophrenic rules which still allow a “Chinese wall” between investing and grant-making decisions are ethically blind. The Bill and Melinda Gates Foundation is only the latest to be challenged. It is ethically-confused, even incoherent for a foundation, say in healthcare, to hold a portfolio loaded up with stocks of tobacco, alcohol, junk foods and over-sweetened soft drinks companies. Clean portfolio management complementing foundations’ social missions is the new standard.

The ethics debate is growing in global markets and policy–making, as the USA reassesses the morality of preventive war in Iraq and its tragic human costs. Nuclear proliferation beyond the “club” of the USA, Russia, China, France, Britain, as well as Israel, to India, Pakistan, and probably other countries is forcing the deeply moral issues of their Nuclear Proliferation Treaty, which pledges all countries to relinquish these weapons.

Market reform is coming to mean reforming markets and capitalism itself. Would Adam Smith be surprised? Probably not, since he lauded the dynamism of capitalism. Schumpeter later saw the evolution of markets as “creative destruction”, as seen today in the new “disruptive” technologies of cleaner, greener energy and resource-use now challenging coal, oil, and nuclear power. The new values and ethical concerns driving the further evolution of capitalism reflect the new imperatives of the 21st century on our small, endangered planet. Smith’s famous “invisible hand” turned out to be our own… not some metaphysical force. Guided by our growing human awareness of what we have wrought on this planet and our potential for further development, all our long-term self-interests are now indivisible. Ethics and morality are becoming the new pragmatism.


Hazel Henderson’s latest book is Ethical Markets: Growing the Green Economy (2007). She co-created the Calvert-Henderson Quality of Life Indicators, www.Calvert-Henderson.com, and is on the Organizing Committee for “Beyond GDP,” the upcoming conference in the European Parliament, Nov. 19-20, 2007, www.beyond-gdp.eu.