Friday, November 7, 2008

Capitalism Is Dead. Now What Do We Do?

(Originally published on The Huffington Post on 17 September 2008)

Capitalism is dead.

And I'm not surprised.

I'll explain why in a minute, but first here's Capitalism's obituary. It's the New York Times' lead story on the bailout of A.I.G....

WASHINGTON -- Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank's history.

With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.

Hmm... "...the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with."

Controversial? No. Not to me. Confirmational. That's what it is.

It confirms that our nation is not willing to let Capitalism be Capitalism, except for us little guys of course. But here's the thing. If Capitalism isn't Capitalism for the Big Guys, then it isn't Capitalism for the little guys either.

Just like there's no such thing as being a little bit pregnant, there's no such thing as having a little Capitalism over here and a little Socialism over there. You can't have two economic systems operating in one country at the same time, at least not if "all men are created equal" is written in that country's founding documents.

Sorry, my friends. You either have Capitalism or you don't.

And here in the USA, we no longer have it. It's dead.

Think about this. Our government has just decided -- without asking any of us, including our Congressional representatives -- that $85 billion more of our money should be used to cover the actions of (and pardon the unsophisticated language here) stupid, greedy, criminal people. Stupid, because they didn't have a clue that what they were doing would have such negative consequences. Greedy, because all they could see were short term dollar signs in front of their eyes. Criminal, because they just robbed you and me of $85 billion dollars by holding a "we're too big to fail" gun to the head of the US government.

They should have let A.I.G. fail, because -- if that had brought about the collapse of the global economic system -- that would have just sped up our journey to a point of systemic collapse we are destined to reach anyway. I say destined to reach not because it's God's will but because no system can continue to function when its fundamental design is flawed. You see, the current global economic system is based on a fundamental assumption that -- while it was true when the system was first set up -- is no longer true today.

Let me give you another way of thinking about this. If a car that is designed to handle any road condition at any speed suddenly finds itself traveling across the water, it will quickly sink below the surface even as its wheels keep spinning. And, if the driver remains oblivious to the fact that there's no longer a road under his or her car, that driver will die.

We are no longer on land, my friends. We are in a car when we should be in a boat (or maybe an airplane). The global reality has shifted, but our political leaders are largely blind to this reality. They think we're still on dry land.

More about all this in a minute. But first, back to the US economy...

The funny thing is, I've known that a significant portion of the US economy is Socialistic for years. "What are you talking about?", you ask? "The Military Industrial Complex," I answer.

You do know that all military weapons are purchased using "cost plus" contracts, in which businesses are guaranteed a profit, don't you? And that literally every weapons system comes in over its original budget... and that those cost overruns are absorbed by the government, not the arms manufacturer? There is no Capitalism in the Military Industrial Complex. It's all Socialism, justified by the concept that these weapons are so important to American security that the companies that manufacture them have to be guaranteed a profit, so they don't accidentally go out of business. (By the way, I worked in contracting years ago at the Army Corps of Engineers. So, I know something about how military contracts work.)

Now, getting back to the death of Capitalism in America as a whole, don't be so sad. You know the expression: "From every emergency, there's a chance for something new to emerge."? Well, that's where we are.

We are in one hell of an emergency. And - if you'll step back for a minute - you'll see it's the opportunity of a lifetime.... the opportunity to stop using what no longer works and figure out what does.

And now I'm going to surprise you by (partially) agreeing with John McCain. He says we need a Commission to study the problem. And I agree. But we don't need a Commission of the kind John McCain suggests we have. His Commission would consist of financial experts. And that won't do. Because financial experts are experts in the past.

We need to bring specific, outside of Washington expertise to the party. But they must be experts in the future, not the past.

And what kind of people are experts in the future?

Designers. That's what kind.

Designers know how to envision what's possible from the best of what we know how to do today. They know how to take a clean sheet of paper approach to figuring out how to fulfill a particular need.

Designers know how to take a system that no longer works... determine what assumptions (or design principles) used to build the system are still correct and which are incorrect... substitute new assumptions or principles where necessary... and develop and implement a new design appropriate to the reality of today.

We need people like that... people who know that a tipping point has been reached... that the ground on which our old economic system has stood has disappeared... and that, as a result, the old system is totally dysfunctional. But at the same time, these experts must know how functional - how elegantly functional - our new economic system can be!

We have a chance for something new... something beautiful... to emerge from this emergency! But to do this, we need people who understand how to take a culture through a Great Transition... a transition based on recognizing we're no longer on dry land, as I mentioned above.

So, if we are no longer on dry land, where are we?

Well, the "dry land" of the past is the zero-sum, fixed pie, scarcity of resources based economic model that has existed since the beginning... since the time when two groups of cave dwellers fought over a watering hole that contained enough water for only one group to survive. Humanity has been on that "dry land" for a long, long time. But science and technology - including the power to capture limitless amounts of energy from the Sun - has progressed to the point where we can live in a society based on an economic systems based on abundance (not scarcity).

A world where it's possible for all survival needs to be met. That's where we live now. Call it water or air, it's definitely not the dry land of the past.

And that's why Capitalism has died. Because it is a system that is compelled to try and make more and more money based on Darwinian principles that are no longer true. They were true when Capitalism was created, but they are obsolete now. This death was inevitable, because the mismatch between the world Wall Street thinks exists and the world that really exists is so fundamental... the methods needed to continue making money in a world of the past had become so complicated... that self destruction was only a matter of time.

If the universe is a giant clock, you can only last for so long if you don't work the machinery the way it's designed to work. You will blow up the clock if you don't change what you're doing.

"Oh, but humanity can never learn to stop fighting with itself," some people might say. "That's a fundamental part of how things work too."

"Really? Is a baby born wanting to fight? Is it born wanting to kill others of its own kind? No, fighting is a learned response," I say in return.

A big job? Yes, making this change will be a big job. But with the death of Capitalism, we have been given a great opportunity to take the first steps.

And with the choice of Barack Obama -- a man who knows cross-cultural, systemic, and bi-partisan issues and who does not see the world through warrior eyes as John McCain does - we have the opportunity to take a huge step (politically) in the direction of making this change.

But it's going to take more than electing Barack Obama to support the rise of a New Economics from Capitalism's grave. Barack has said this election has never been about him. And he is right. We must all contribute to this process, by learning what a post-scarcity-based world can be like, including the interpersonal skills of "interdependent living" such as those in the classic book "The 7 Habits of Highly Effective People" by Stephen R. Covey.

Beyond the personal, I suggest you study the works of two masters of large-scale systemic change: Drs. W. Edwards Deming and Russell Ackoff. They developed much of the management theory needed to organize such a transformation. Dr. Deming's last book was called "The New Economics". And Dr. Ackoff's recent book "Idealized Design" is the other book I would start with as.

In the popular jargon of my friend Renee Mauborgne's book "Blue Ocean Strategy" (co-authored by W. Chan Kim), what I am suggesting is that the death of Capitalism gives us the opportunity to develop and implement a Blue Ocean Strategy for America's sociopolitical economic system.

This will be a sociological change as much as it is a financial system change.
Humanity has lived in a "you or me" world for many, many centuries. Changing to a "you and me" world (as Buckminster Fuller used to call it) will be the great adventure of the 21st Century.

Thanks to the death of Capitalism, that adventure is an idea whose time has come.
Let's look for leaders who understand the need to figure out how to live in this new world. Leaders like Barack Obama. And leaders (hopefully) like the person you see in the mirror every morning.
Addendum: 10:30am Eastern

As I think about AIG saying "We're too big to fail" to the Feds, I am reminded of America's long-standing policy not to negotiate with terrorists. Well, it sure feels as if the Feds have just agreed to the demands of certain financial terrorists: people who threatened to destroy our way of life if they weren't paid $85 billion. Disgraceful... and further proof that the America we think we live in... an America of ethical, Capitalistic principles no longer exists. If AIG needed $85 billion, they should have held a big charity event and asked the American people for the money... not taken it from us by using threats of the harm they would create if they didn't get it.

Addendum 2: 12:15pm Eastern

While I responded right after a specific comment, I'll state it here so it's clearly visible to everyone. I am not advocating Socialism replace Capitalism in America. I say Socialism already exists in portions of our society, but that does not mean I think it is the solution. The solution I am advocating is a New Economics designed by people who know how to take a "clean sheet of paper" approach to problem solving.. and who will develop an economic model appropriate to an abundance-based (rather than scarcity, zero-sum based) world view. This new economic model has no name because it has not been invented yet. The closest thing I've seen to what this might look like is the concept of Developmental Economics as described by systems thinking experts such as Dr. Russell Ackoff.

I hope this clarifies things for you all.

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