Homework for Session 6: No More Band-Aid Solutions to the Financial Crisis: We Need to Build an Economy that Works, by David Korten

Posted May 14, 2011 in Homework, Learning. Tagged: ,

Excerpt from Agenda for a New Economy: From Phantom Wealth to Real Wealth, 2nd Edition, 2010

Treat the System, Not the Symptom

As a student in business school, I learned a basic rule of effective problem solving that has shaped much of my professional life. Our professors constantly admonished us to “look at the big picture.” Treat the visible problem — a defective product or an underperforming employee — as the symptom of a deeper system failure. “Look upstream to find the root cause. Find the systemic cause and fix the system so the problem will not recur.” That is one of the most important things I learned in more than twenty-six years of formal education.

Many years after I left academia, an observation by a wise Canadian friend and colleague, Tim Brodhead, reminded me of this lesson when he explained why most efforts fail to end poverty. “They stop at treating the symptoms of poverty, such as hunger and poor health, with food programs and clinics, without ever asking the obvious question: Why do a few people enjoy effortless abundance while billions of others who work far harder experience extreme deprivation?” He summed it up with this simple statement: “If you act to correct a problem without a theory about its cause, you inevitably treat only the symptoms.” It is the same lesson my business professors were drumming into my brain many years earlier.

I was trained to apply this lesson within the confines of the business enterprise. Tim’s observation made me realize that I had been applying it in my work as a development professional in Africa, Asia, and Latin America. For years I had been asking the question: What is the underlying cause of persistent poverty? Eventually, I came to realize that poverty is not the only significant unsolved human problem, and I enlarged the question to ask: Why is our economic system consigning billions of people to degrading poverty, destroying Earth’s ecosystem, and tearing up the social fabric of civilized community? What must change if we are to have a world that works for all people and the whole of life?


Pleading with people to do the right thing is not going to get us where we need to go so long as we have a culture that celebrates the destructive behaviors we must now put behind us and as long as our institutions reward those behaviors. It is so much more sensible to direct our attention to making the right thing easy and pleasurable by working together to create a culture that celebrates positive values and to foster institutions that reward positive behavior.

Worse Than No Theory

What my wise colleague did not mention is that placing too much faith in a “bad” theory or story, one that offers incorrect explanations, may be even worse than acting with no theory at all. A bad theory can lead us to false solutions that amplify the actions that caused the problem in the first place. Indeed, a bad theory or story can lead whole societies to persist in self-destructive behavior to the point of self-extinction.

The cultural historian Jared Diamond tells of the Viking colony on the coast of Greenland that perished of hunger next to waters abundant with fish; it had a cultural theory, or story, that eating fish was not “civilized.” On a much larger scale, the human future is now in question and the cause can be traced, in part, to economic theories that serve the narrow interests of a few and result in devastating consequences for all.

As we are perplexed by the behavior of the Vikings who perished because of their unwillingness to give up an obviously foolish theory, so future generations may be perplexed by our foolish embrace of some absurd theories of our own, including the theory that financial speculation and the inflation of financial bubbles create real wealth and make us richer. No need to be concerned that we are trashing Earth’s life support system and destroying the social bonds of family and community, because eventually, or so the theory goes, we will have enough money to heal the environment and end poverty.

This theory led to economic policies that for decades served to create a mirage of phantom wealth that vanished before our eyes as the subprime mortgage crisis unfolded. Even with this dramatic demonstration that we were chasing a phantom, most observers have yet to acknowledge that the financial speculation was not creating wealth at all. Rather, it was merely increasing the claims of financial speculators on the shrinking pool of everyone else’s real wealth.

A New Story for a New Economy

A theory, of course, is nothing more than a fancy name for a story that presumes to explain how things work. It is now commonly acknowledged that we humans are on a course to self-destruction. Climate chaos, the end of cheap oil, collapsing fisheries, dead rivers, falling water tables, terrorism, genocidal wars, financial collapse, species extinction, thirty thousand child deaths daily from poverty–and in the richest country in the world, millions squeezed out of the middle class–are all evidence of the monumental failure of our existing cultural stories and the institutions to which they give rise. We have good reason to fear for our future.

At first, each of the many disasters that confront us appears distinct. In fact, they all have a common origin that our feeble “solutions” fail to address for lack of an adequate theory. We do, in fact, have the means to create an economic system that takes life as its defining value and fulfills six criteria of true economic health. Such an economy would:

  1. provide every person with the opportunity for a healthy, dignified, and fulfilling life;
  2. restore and maintain the vitality of the Earth’s natural systems;
  3. nurture the relationships of strong, caring communities;
  4. encourage economic cooperation in service to the public interest and democratically determined priorities;
  5. allocate resources equitably to socially and environmentally beneficial uses; and
  6. root economic power in people- and place-based communities to support the democratic ideal of one-person, one-vote citizen sovereignty.

David Korten is a former economist with USAID, author of “When Corporations Rule the World,” and an associate of the International Forum on Globalization.

© 2011 Berrett-Koehler Publishers. All rights reserved.