Welcome to the Age of Austerity. Austerity is, of course, the opposite of prosperity. It's the latest buzzword on everyone's lips. And it's not just about Europe. The vast majority of America has faced austerity for the last decade, too. Japan's been under austerity for two decades. To Asia, Latin America, and, of course, long-suffering Africa too, the bitter taste of austerity is all too familiar. Next stop for Austerity: America.
Today's austerity is the failure of yesterday's thin, inauthentic prosperity. That means the central challenge of the Age of Austerity is to reboot prosperity. Tomorrow's global economy must be built on a more authentic prosperity: one that is more nuanced and meaningful, because it matters in human terms.
In the Age of Austerity, it is institutional innovation — the most advanced and powerful kind of innovation — that counts. Today, we're still surrounded by industrial era institutions — corporations, resources, industries, exurbs, and GDP, to name just a few. Rebooting prosperity means reinventing the institutions that led to austerity.
It's the story of reconceiving, redefining, restructuring, revolutionizing, and recalibrating yesterday's economic institutions. The catch? Institutional innovation is a new, notoriously tough discipline. Few understand it, fewer still have succeeded at it. Here's my exploration of what a successful rebooting of prosperity might look like.
Reconceiving. Yesterday's prosperity was conceptualized as simply growth in GDP, the industrial economy's foundational institution. Rebooting prosperity begins with reconceiving that metric. GDP is about product. Prosperity, the measure of a good life, comprises more than growing a product. There's a tremendous diversity of perspectives on what else should be considered. Some seem utopian, like the King of Bhutan's Gross National Happiness. Some, hard-nosed, like the World Bank's Wealth of Nations. All are baby steps. Let's invent a hypothetical measure, just for this post: NA, or National Awesomeness.
Redefining. Reconceiving what prosperity is will let us redefine how it happens. It will let us finally begin taking up a challenge that should have been answered decades ago: updating our system of national accounts. When we speak of growth, it's GDP that grows. Growth equals more income in our national accounts. But for NA to grow, a new system of accounts would be necessary. One that might address the numerous shortcomings of GDP, and counts other costs and benefits that matter to people besides product. It's another new institution that will help reboot prosperity.
Restructuring. In turn, redefining how prosperity happens will change the definition of who generates it (and benefits from it). Mark Thoma, Robert Reich, and James Kwak are having an interesting discussion about the fact that the so-called Wall Street reform bill does nothing to actually "reform" Wall Street. They're absolutely right. What might help restructure not just Wall Street — but every industry that has a social uselessness problem, from Detroit, to Big Pharma, to Big Food? Making the institutions contribute in 21st century terms. New top lines, bottom lines, assets, and liabilities are the foundations of 21st century industry structures — they will radically alter industry boundaries, market sizes, and value chains, by reshaping entry barriers, mobility barriers, and sources of bargaining power. By doing so, they'll help pop tomorrow's industries into existence, vaporize yesterday's, and ask those in the middle to shape up — or bow out.
Revolutionizing. The global macroeconomy is a machine, just like an engine is. Perhaps its key institution is the Balance of Payments. The point of the BOP is to close a feedback loop — countries with deficits should see their currencies fall, so exports can rise, and the deficit fall, and countries with surpluses should see currencies rise, so imports can rise, and the surplus fall. What if we had a Balance of Awesomeness, instead? The Balance of Awesomeness might close a different, more pressing feedback loop. It's an institution that might ask a country to balance a deficit in its national awesomeness with investment in people, communities, or the natural world. Conversely, it might let a country with a surplus in awesomeness know it's overinvesting, and begin consuming a little bit more instead. And that, in turn, might revolutionize how sustainably assets are allocated are utilized.
Recalibrating. Today's investors are speculators with the attention span of a Tasmanian Devil with ADHD. Maybe, just maybe, all of the above might be a new groundwork for investing, by altering incentives radically. If new financial instruments — new institutions, again — were linked to either National Awesomeness, or a country's Balance of Awesomeness (think Awesomeness Derivatives), investment would slow down for the long haul, tune into what matters to people, and turn on to engaging with, not just taking from, society.
Sound like a pipe dream? Wishful thinking? Think again. You're behind the curve. The challenges above have already begun to be answered, at the highest level. China's beginning to include the value of ecosystems in its national accounts, for example. In America, the State of the USA project is going to unveil a new set of Key National Indicators this summer. In France, the Stiglitz-Sen-Fitoussi Commission issued a landmark report on measuring well-being, instead of income.
Rebooting prosperity is the great challenge of the teens. There's no single right way to do it. But those who don't, won't, or can't answer it — because of ideology, inability, or because they're just plain ornery — well, they're fossilizing as we speak. Institutional innovators are already hard at work igniting a better tomorrow. New measures of prosperity are already being conceptualized, new national accounts defined. And, as I've discussed at length here, a new generation of companies and investors is hard at work turning "business" into betterness at the micro-level.
Seen through the Cyclopean eye of economic evolution, a great meteor crashed in 2007 — and those who can't reboot prosperity are a bit like the poor, straggling dinosaurs who survived yesterday's great meteor crash (hello, BP): they're living on borrowed time in this Age of Austerity, in a world being furiously reshaped.
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