The Global, Economic, Financial Crisis:
We need something new. A paradigm shift in our thinking

Dr. Ichak Adizes

A blog by Dr. Ichak Adizes

I am in Moscow. Watching the BBC. There is a live round table discussion with very prominent economists as to what to do about the global, financial, economic crisis, in the USA and in Europe. Their concerns: unemployment, declining economic growth, recession, potential for country defaults etc.

Around the table are the managing director of the IMF, the CEO of Pimco, a distinguished professor of economics from Chicago and another person with a heavy Italian accent whose name I failed to record.

To summarize what they are saying: there is a crisis of unemployment, the financial markets are sick and there is declining economic growth. Result: a serious crisis of a potential for a double dip recession and potential for a default by some countries.

They recommend different solutions how to solve the financial crisis, how to improve the rate of employment etc.

The common denominator to their solutions is that they are trying to get back to what we HAD before, which is full employment, healthy financial markets and economic growth.

It will not work.

If we succeed to go BACK, it will be only a temporary solution and the crisis will come back as a tsunami, much bigger, later on.

Why?

Let us analyze the problem.

Economic growth, unemployment, financial crisis, double dip recession, dangers of default…are not of equal nature.

My analysis is that the driving force is economic growth which provides for full employment and for which healthy financial markets are necessary. That means that economic growth is the goal and full employment and healthy financial markets are the means.

Double dip recession and dangers of default are manifestations of lack of economic growth.

The problem is with the goal.  And from there stem the problems with the means.

What is the problem with the goal of economic growth? (My focus here is exclusively on developed nations. What to do with emerging, developing nations, will be addressed at the end of this insight.)

In order to have economic growth, we need to have growing markets.

How do you have growing markets?

One way is to have a growing population. That apparently is not enough. Businesses create markets by creating needs, needs   markets did not know they had.  Look at the choices offered to consumers on any product in a supermarket. Or a department store. Furthermore, to create markets, to create demand, products are produced with planned obsolescence in mind.

But what is the result of having continuously growing markets as a goal?

It is not sustainable.

If we paraphrase Malthus and instead of population growth say “ economic growth,” and instead of food production say “ natural resources”, we can see that linear progression of economic growth MUST eventually bring us to a point where there are limits to growth: We ARE destroying the planet.

So the solution to the financial, economic, unemployment crisis is not more of what used to be, more economic growth. We need something new. A paradigm shift in our thinking.

Economic growth should not be our deterministic goal, a goal where more is better, a goal we are determined to maximize. Economic growth should now become a constraint goal: no less than x%, when the “ x” is determined by population growth and real needs, not by artificial needs generation.

What should be the deterministic goal than, if it is not economic growth?

Quality of life rather than the standard of living.

Who says we should have full employment? Why not have very early retirement? Why not have only three working days in a week? Earn enough to satisfy your basic needs. Not more and more and more. Just enough.

But a decimated demand and planned unemployment will dry the need for credit and for business growth and put the financial institutions in trouble.

I sure hope so.

The solution to our present problems is not going back to our past but creating a new future.

Now, what about developing, emerging, nations?

For emerging ones and especially those unfortunate to suffer from malnutrition, from lack of health treatment facilities etc there the need for economic growth is REAL.

There, the goal SHOULD BE economic growth but please notice: it is not going back for them. It is going forward. They need economic growth. They never had it.

Here the business community of the developed world should do its best to develop the market, satisfy the needs of the population.

“But there is no market there.”  “No buying power will be the excuse.”  Right. That is the true  challenge to the business community. The true challenge. Not the artificial self created challenge of how to provide more of something people have too much of it already.

Sincerely,

Dr. Ichak Kalderon Adizes

Ref: http://www.adizes.com/blog/?p=990