Building Economic Resilience

Economics has always been on somewhat shaky ground as a science – economic modeling and probabilities do not make it as “hard” a science as many would like us to believe. Capitalism, often posited as the only/best course of action for the flourishing of humankind, is rarely questioned by most Western countries’ policymakers. We, at least in the U.S., seem to accept many highly questionable aspects of economic theory without the full examination we would demand of, say, medical theories – and their impact on us is immense.

A version of this paper was published over a decade ago, but it now seems more important than ever to question some of the basic understandings behind our economic decision-making. One primary question that continues to haunt us is this: Why can’t we afford what we truly value?

Of course, there is no simple answer to this question. But one good place to start is by discussing the term capital. Naturally, financial capital is the first thing that comes to mind. Especially In the midst of an economic crisis, it is easy to forget that there is actually more than one form of capital. Might part of the answer be to remember just what these are?

Four forms of capital

Financial – cash, stocks, bonds, intellectual property
Physical – buildings, roads, infrastructure, ports, bridges
Social – community/family, social networks, quality of life
Natural – clean water & air, biodiversity, renewable resources

Yes, these are all forms of capital! Yet, even though we inherently know their value, in our over-zealous pursuit of financial capital we have been devaluing these other forms with unrelenting “efficiency”. Our obsession with the financial domain diverts our attention from all the others.
How has the over-emphasis on Financial Capital been allowed to over-ride our sense of what’s real, what’s valuable? This is truly the crux of the matter. There are two points of particular relevance to bring into question here:

First, what is it about our financial/monetary system that promotes the devaluation of so many things that we genuinely know are essential components to our long-term sustainability? How has Financial Capital so thoroughly trumped all the others?

Second, what choices do we have to address this imbalance and reclaim the things we know are of lasting value?

Obviously, this short paper will not be able to go into much depth on these huge questions, but at least we can begin a new conversation.

How did Financial Capital become the whole pie?

Interesting visual, but over-stated, right? But, wait a minute, haven’t we, quite literally and systematically, been “monetizing” every other form of capital over time? Don’t we talk about everything in terms of its relationship to money? You can almost hear the on-going excuses, can’t you? “Sure, we really want to take care of a) the environment, b) our infrastructure, c) our health and school systems, but we just don’t have the money!” When everything becomes monetized, we are forced to behave in increasingly irrational ways. We continue to narrow our already short-term horizons -- ultimately leading to reckless waste all forms of capital! (One quick example: we lose approximately 7 billion gallons of water per year through broken underground pipes that we can’t “afford” to repair. This seems pretty irrational on multiple levels, doesn’t it?) Because we place such high value on financial capital, we increasingly devalue the core necessities of life: our natural resources, our health, our relationships, our very future.

Money and debt have become inextricably linked, and we have been creating both at such a rate that it is hard to make any real sense of the numbers, even while we seem fixated on financial indices and quarterly market reports. This fixation has essentially overridden our values and our reason.

Many elemental human values do not flourish in a financially dominant system – since Natural and Social Capital are difficult to fully quantify, they systematically get discounted.

Here is a hidden-in-plain-sight secret: an exponential level of debt creates the need for exponential growth to keep up with it! And this requirement for growth fuels the fire of many unsustainable choices. Some so-called experts are still trying to assure us that “growth is limitless” -- does that really seem possible to you? Up until now, we may have been able to mask much of the fall-out from this thinking. But eventually, instability catches up and we hit a wall.

The intensity of this growth-at-all-cost mentality has led to the manic frenzy of a boom-to-bust economy – which in turn leads to increasingly short-sighted and wasteful decisions. And these decisions affect every aspect of our environment, every part of our lives.

The economy is an ecology – it is an interconnected system, not a static entity. As Gaylord Nelson, the founder of Earth Day, told us: “The economy is a wholly owned subsidiary of the environment, not the other way around.”

The Window of Viability:

Here I would like to introduce you to one of the most original economic thinkers of our lifetime, Bernard Lietaer, the author of The Future of Money, one of the originators of the Euro, and a leading researcher of complementary currencies. Although Bernard is no longer with us, his ideas hold particular importance for these times and offer some potentially critical answers.

Lietaer and his colleagues looked at the issue of economic stability through the lens of an ecosystem, deeply considering what makes for sustainability – or not. It seems that the sustainability of any system is actually a balancing act between its resilience and its efficiency (Lietaer, Ulanowicz, Goerner, and McLaren, 2010). Whereas we tend to understand the concept of efficiency quite well (reducing redundancy, streamlining), we are often less knowledgeable about what actually creates resilience – a generally less quantifiable combination of diversity and interconnection.

It seems that an ecosystem only survives if it finds a way to remain in a certain “window of viability” – essentially finding a balance between what makes it efficient while assuring that it maintains its resilience. Just as we are finding out about sustainable agriculture, monocultures are deeply problematic in any system. Without adequate diversity, systems can collapse without warning. Research on optimal sustainability of systems points to the need for, if anything, more resilience than efficiency. The chart below sums up this point:

This “window of viability” formulation has much to offer our discussion about what maintains sustainability in financial systems. It seems that over the last few decades we have been raising the pursuit of “efficiency” to extreme levels – focusing on just one side of the equation. We have been told that this is the true path to “optimizing productivity” as if it were the Holy Grail itself.

Those who maintain this vantage point claim that of course we need to “streamline” the workforce, eliminate the “redundancy” in our energy delivery systems, make our food sources more “efficient” by increasing the size and “productivity” of agriculture through the use of chemicals, modified seeds and immense food factories. Because, following this line of thinking, nothing much matters except the bottom line.

Yet, sadly, even this obsession with producing and maximizing Financial Capital does not seem to be doing the trick – as you’ve probably noticed, we’ve been having a couple of problems stabilizing our economic system of late. “Today’s global monetary ecosystem is significantly overshooting the optimal balance, or the Window of Viability,” Lietaer tells us, “because of its exclusive emphasis on efficiency. It is careening toward brittleness and collapse because a general belief prevails that all improvements need to go further in the same exclusive direction of increasing growth and efficiency.” (Lietaer, 2009)

The point being made here is truly profound and has wide-reaching implications for all complex systems, natural or human-made. Placing too much emphasis on efficiency tends to automatically maximize flows, size, and consolidation at the expense of choice, connectivity and resilience until the entire system becomes unstable and collapses. –Bernard Lietaer

So, with all of our plaguing monetary concerns – the dominance of Financial Capital, the corresponding devaluing of all other forms of capital, the exponentially growing debt driving an unrelenting quest for “efficiency” and “growth” – what can we possibly do?

Some thoughts on re-balancing:

The level of rethinking and re-visioning necessary to change things may appear to be overwhelming. But some important questioning of our entrenched economic models has been happening these days which may be moving beyond what has confounded us for decades. Paul Krugman calls these “zombie economic ideas” that cannot seem to die (such as promoting tax cuts which have never, ever actually “trickled down”.) More and more of us are recognizing that the system is broken and that answers like increased “austerity” and “efficiency” simply do not live up to their promises. This opens the door to reconsideration about what we truly value -- and the realization that we actually have collective economic choices!

Of course, change is rarely painless or easy. But even small steps can and do add up. One seemingly small step may be to move back towards the “window of viability” for our human ecosystem by redefining what a balance between efficiency and resilience might look like. Perhaps something like this?

Just how we create this re-balancing act will almost certainly be part of the next big socio-economic conversation we have politically. By drawing from real examples of how Nature continually re-balances itself, we can build confidence in our inherent capacity to return to systemic health.

Having good counterarguments to our traditional over-reliance on “efficiency” can provide us some space for new conversations and action steps to come forward. When we acknowledge the need to nourish and reinforce our Social and Natural Capital, and adequately maintain our Physical Capital, a natural re-sizing of our relationship with Financial Capital is bound to take place.

Change only feels impossible when we listen to the old voices saying, “That’s just how things are.” Collective trauma is the glue that holds dysfunction in place – but even trauma can be loosened and healed in relation. Our human ecosystem needs interconnection and diversity to spark the creative, evolutionary urge to reclaim what we value. Isn’t it high time to move past the debilitating path of separation and towards the doorway that opens up new choices for our economic and social well-being?

“Below the radar beams of many official monetary experts, fundamental change in our money systems is in fact already well under way, irresistibly driven by the social and technological forces of the Information Age… The real issue is not whether widespread changes will happen or not, but how much awareness there will be about where these changes are leading us. The real question is whether we are even conscious that we have a choice in the matter.” Bernard Lietaer, “The Future of Money”

About Bernard Lietaer: I had the pleasure of meeting Bernard Lietaer back in 2000 and have been attempting to follow the sheer genius of his thought process ever since. The galley edition of his groundbreaking work Of Human Wealth—Beyond Greed & Scarcity that he gave me in 2004 will always be treasured. Indeed, I feel deeply indebted to him for all his many books, for sharing the outstanding articles that are still available on his website www.lietaer.com, and especially for allowing me to use his essential diagram of the “Window of Viability” found in his academic paper: “Is Our Monetary Structure a Systemic Cause for Financial Instability? Evidence and Remedies from Nature” in the Journal of Future Studies (February-March 2010) which he co-authored with Robert Ulanowicz, Sally Goerner, and Nadia McLaren. Bernard continues to live in the hearts and minds of his countless students, past and future.