Our Economic Model Needs Changing

February 3, 2021

Some of my best friends supported (and still support) former president Donald Trump. They’re smart, capable business people. I’ve asked them why. They tell me that, true, Trump’s style was inappropriate, but his achievements over four years were incredible. I ask: What were those achievements?
   One of them is putting up a wall to stop immigration from the south. Although the wall is not finished, some may consider it a partial success. The important point to ponder,  however,  is whether a wall is the solution to the problem of illegal immigration to the United States. Let us analyze this achievement with a cause effect chain analysis.
  The immigration of thousands and thousands of people from the South to the Northern American continent is not the problem, it’s a manifestation of the problem. It is caused by the fact that the countries they come from have high crime rates and poverty bordering on starvation.
   Why? Two major causes.
   Number one is the climate change that brought drought to their countries. They cannot grow their corn and have less and less means for survival. Second, adding to their plight, is a high level of unemployment or lower than subsistence wages, caused by lack of local capital formation to enable economic growth. The multinational companies that dominate the economy siphon the money out of these countries by lenient tax laws that enable them to move money out and leaving these countries with capital crumbs. Those crumbs are then stolen by corrupt politicians, which leaves the country with inadequate local capital on which to build a good economic base that will give people employment and decent wages giving people the capability to survive.
   People have two choices: Either immigrate or become criminals that rob whomever they can in order to survive, and/or grow drugs and export them to the United States.
   The poverty, hunger, criminals, and corrupt politicians push people into immigrating to the United States where the money is, where the employment is. Some of the money is the one siphoned out of their country  by the multi nationals.
  The movement of money out of the country to tax havens and the deteriorating climate have a common cause and it is the business model on which the market economy is built on, where you aim to achieve the best profitability you can to maximize stockholders’ equity. It is this model that causes the destruction of the environment and the siphoning of capital out of developing countries.
   The root problem, causing mass immigration to the United States, is the paradigm by which we operate our economic model, but it too, is a manifestation of something deeper. It is that we think in terms of we-they. We don’t think of ourselves as being one. If we realized that bankrupting another country is going to boomerang back and hurt us by a costly immigration of millions of people trying to survive, or by selling drugs which are going to destroy our children, we might think differently and reevaluate our actions.
  COVID-19 is giving us a signal that we are one. The epidemic that started in some distant city, all the way in China, that we’ve never heard of, might kill our parents, our brothers or sisters, our families, our best friends—here, in our own country. We are one. This is the realization that is necessary if we are going to change our economic model, which would change the conditions in those countries, which would change the need for immigration. Nothing we do does not just end on the other side; it feeds back to us.
 The wall is not the solution. At best, it would have arrested the problem temporarily, and only temporarily, because the problem is much deeper. Starving people will find ways to overcome the wall, whether by immigrating by sea, or by building tunnels under the wall or ladders over it. Desperate people take desperate measures as we’ve seen in the immigration into Europe. It might cost them their lives, but desperate people act desperately.  Illegal immigration will not stop unless the source of the problem is addressed, and it is not in providing aid to those countries. It’s time for us to start thinking how to change our model, worldwide, if humanity is going to survive.
  I’m talking about survival of humanity, because humanity is a subsystem of the whole ecosystem of the planet Earth. And the subsystem called humanity is exploiting the other subsystems: air, water, vegetation, and other animals, to the detriment of the planet where we reside. We are hurting ourselves with our exclusively self-serving economic model. The sooner we think of ourselves as part of a totality, not only a totality of humanity, but a totality of planet Earth, the sooner we can start healing this planet and protecting future generations from extinction.
  To expect to change our global  consciousness that we are one, however, is a utopian expectation. Even if we change the consciousness of every single individual on this planet, it will not make a difference. What will make a difference is the relationship between us, how we work together, the dynamics of the relationship which is driven at present by self-interest of each nation state. And it is not realistic that the self-interest of states  will change in a timely manner. It will take a long time, and in the meantime, the destruction of the environment and of how developing countries continue to suffer  will continue. We need to address an intermediary variable in the cause effect chain, which should impact upstream and downstream the factors in the chain. In my humble judgment, it is the economic model of the capital markets which is driving the behavior of the business community and causing problems throughout the system.
  The stock market is built on making money for the stockholders, which is measured in earnings per share, which is causing the rush for profitability, which is causing problems to the environment and impoverishing developing countries. We need to re-engineer the capital markets' economic model. If that changes, we might see changes in the consciousness and the behavior of the business world. To change behavior, you need to change the reward system.
  Adolf  Berle and G Means in their book The Modern Corporation and Private Property  made the point that what enabled the capitalist system to flourish was the separation of ownership from management. Via the stock market, owners could be in the millions and not necessarily managing the company. It brings enormous amounts of capital to public companies that can grow to gargantuan dimensions. The owners want a return on their investment and the more the better, or they switch to another stock—no loyalty, which was the cornerstone of the owned and managed enterprise. The owner managed company  was smaller and in the community and the manager–owner was concerned about his reputation in the community and acted accordingly. The stock market enabled huge amounts of capital to be raised, to build huge companies whose sense of responsibility to the community is mostly expressed in philanthropic donations while destroying the health of the population they serve. See Coca-Cola. See McDonald’s. See KFC. See even the new economy businesses that are changing the nature and dynamics of democracy.

Written by
Dr. Ichak Adizes