Economic Institutions

Shifting to an economic system that better meets human needs entails changes in material structures; for example, building factories and offices with green spaces and on-site childcare facilities. But even more important are the changes in our living structures: in the patterns of interactions that form families, businesses, governments, and other social institutions.

These patterns are largely determined by the laws, rules, and beliefs that govern their construction. And these laws, rules, and beliefs are very different depending on the degree to which a society orients to the partnership or domination end of the partnership-domination continuum.

The corporation as we today know it is a descendant of Crown-chartered entities such as the British East India Company and the Hudson Bay Company, which were designed as instruments for the domination and exploitation of British colonies. As economist David Korten writes, they were formed “to exploit colonial territories by extracting their labor and resources and monopolizing their markets.”

This dominator heritage still informs present corporate design and practice. While shareholders have replaced kings, the modern corporation is basically a money-making machine, with little regard for anything else, including people and nature. And while the rules for the creation and operation of corporations are made by government charters, these charters still basically define business corporations solely as instruments for making short-term monetary profits for shareholders and accumulating financial assets.

These financial assets are now increasingly concentrated in the megacorporations that have become today’s global fiefdoms. Indeed, these megacorporations control more assets than many nations. For example, 51 of the world’s 100 largest economies are today corporations rather than nations. In short, today’s megacorporations have become instruments for the domination system by further consolidating the concentration of economic power.

Rewriting the "Free Market" Fiction

They control markets, making the idea of a “free market” a fiction. Their powerful advertising strategies shape consumer purchasing patterns to enrich their coffers. Through both legal and illegal support for politicians, they control many government policies, obtain massive tax-funded subsidies, and successfully oppose environmental and labor regulations. Moreover, they not only exercise their enormous economic and political power individually; they do so jointly.

Since corporations are fictional creatures created by government permission, changes to make corporations more accountable, limit their monopolistic powers, and ensure their activities do not deplete human and natural capital in the name of wealth creation are possible – and urgently needed. For example:

• Charters could require that corporate boards include employee and community representatives as a means of ensuring greater accountability.
• Antimonopoly laws already on the books can, and must, also be enforced and strengthened if we are to have the free market Smith envisioned.

In addition, we need changes in the rules for another important economic structure: the stock exchanges that serve corporations by facilitating sales and purchases of their shares. Today, many of these transactions are simply speculations: gambles that, as Korten, Jeff Gates, and others note, don’t create any real value. Or, as Hazel Henderson succinctly puts it, what we now have is a “global casino” where players bet that a stock’s price will rise or fall.

All this must, and can be, changed through more sensible laws, rules, and regulations. For instance:

• Stiff national and international taxes on very short-term stock transactions can be used to discourage the rampant financial speculation that doesn’t contribute any valuable goods or services.
• National and international agencies can also institute rules that no longer allow corporations to “externalize” – that is, pass on to society – the human and ecological costs of practices that harm people and nature.

Because the enormous concentration of wealth and economic power in corporations has led to so many abuses, some economists have even proposed that the large publicly-traded corporation should be abolished, arguing that its very structure encourages activities that cause social and environmental harm. Some economists have also proposed that we must stop globalization and return to small, localized economic units if we want a more equitable and sustainable economic system. They argue that people in small, local communities will have more of a voice in economic decisions. They also argue that people running local enterprises are less likely to do severe harm to their communities and environments since they have to live in them.

Why Smaller, Localized Businesses Alone Aren't Enough

Small businesses are hardly immune to price gauging and other dishonest practices, and small mills and factories continue to exploit their workers and pollute the environment. Indeed, some of the most brutal exploitation in today’s global economy is that of workers toiling for small local entities. Some of these local enterprises even use slaves, including child slaves: for example,

• carpet shops where Indian and Pakistani children lose their eyesight from long hours of stitching
• Thai, Indian, and Burmese houses of prostitution in which ten and eleven year old girls are brutalized and enslaved
• merchants who buy little boys and sell them as jockeys for Middle Eastern camel races in which child jockeys are treated more brutally than even the camels.

Moreover, the working conditions of many small subcontractors to global corporations are also abysmal – and it is local companies that run these enterprises.

A shift to a more equitable and sustainable economic system cannot be accomplished merely by reducing size or localizing business operations. While smaller localized units facilitate more human contacts, a caring economics requires more fundamental changes. It requires that we accelerate the shift to a system where beliefs and institutions across the board support partnership rather than dominator relationships.

What We Need

An economic system that no longer depletes both human and natural capital will require structural changes in economic institutions and cultural changes in the values that inform these institutions. Above all, it will require a new way of thinking about economics that takes into account matters not addressed in earlier theories. This is why we need:

• a shift in cultural values so that the life-supporting work of caregiving, along with “feminine” qualities such as sensitivity and caring, are no longer systematically devalued
• to shift from domination to partnership in all institutions.

Excerpted from The Real Wealth of Nations: Creating a Caring Economics by Riane Eisler