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The New Economy 101: A primer

For more information, visit the Institute for Policy Studies, the New Economy Working Group, and Slow Money.

Originally published in The Commons issue #104 (Wednesday, June 8, 2011).


BRATTLEBORO—Buzz words like “slow money,” “self-interest economy,” “common-good economy,” and “new economy” zipped around last week’s Slow Living Summit that kicked off the annual Strolling of the Heifers weekend.

But what do these phrases mean, anyway?

“New economy” refers to a set of financial values that embrace caring for local communities, food systems, and the environment, explained John Cavanagh, director of the Institute for Policy Studies (IPS), a Washington, D.C.-based think tank.

Cavanagh, who spoke at the event, said these values contrast with the present Wall Street financial system that treats the economy like a “giant casino.” He describes the current economic situation as a “Great Depression moment” and said that the majority of Americans believe that the old money system has broken down.

“At IPS, we see work to create a new economy as the most important work in the county right now,” he said.

Cavanagh has co-authored 12 books on the economy and also co-chairs the New Economy Working Group, a joint program by IPS, YES! Magazine, and the Business Alliance for Local Living Economies.

He describes Vermont as a potential “pacesetter” for economic innovation, crediting the Shumlin administration and the state’s growing population of creative entrepreneurs.

Five key concepts

Cavanagh supports five key values for the new economy.

The first includes making choices and building systems that care for the environment.

A shared prosperity is also important, he said, adding that the U.S. has a “horrendous” distribution of benefits that rival the Gilded Age of the late 19th century. This inequality “erodes our democracy,” he said.

The third concept Cavanagh calls “a deepening of democracy.” This deepening entails the establishment of more forms of enterprise, like cooperatives and other employee-owned businesses, which give workers direct participation in their workplace.

With Vermont’s strength in this particular area, Cavanagh said, the state “truly could be a leader in the country.”

Fourth on Cavanagh’s list is what some call “resilience,” but what he calls “rootedness.”

The more that people cause their economy to take root locally, the less vulnerable they are to that economy’s external fluctuations. For example, many local banks survived the 2008 credit crunch better than the big nationals, he said.

Well-being rounds out the final key concept. This means constructing economic policies that take in a community’s overall health, rather than solely focusing on making a bottom line grow.

Cleveland has discovered the power of supporting its local economy, said Cavanagh. A few years ago, the economically struggling Ohio city encouraged anchor institutions, like hospitals and schools, to purchase goods and services locally. Co-ops providing linens and food sprang up around this model.

The process has been so successful at funneling the anchor institutions’ millions of dollars back into the local economy that its now called the “Cleveland model,” Cavanagh said.

Tried, but not true

The old Wall Street economy let local communities down in part by investing in big companies that cared only for their bottom lines, said Cavanagh.

On Wall Street, he said, corporate executives would engage in practices like pushing up stock prices so they would receive more money. It was a total “self-interest” economy, rather than reflecting the new-economy values of “linking self-interest with the solidarity of others.”

The banking sector, in his opinion, is another problem. Banks should have loaned their money to individuals and small businesses, he charged, but they invested in speculative financial ventures rather than in Main Street enterprises and local people.

After the housing bubble burst in 2007 and 2008, the federal government spent trillions of dollars to bail out the banks. However, the banks didn’t lend money to stimulate the real Main Street economy, said Cavanagh; many still are not doing so.

He also takes issue with the number of multi-billion-dollar companies like General Electric and Apple that don’t pay what he perceives as their fair share of taxes.

A growing disillusionment with the old economy nationwide is one of the drivers behind the evolution of a new economy, said Cavanagh.

With more than eight million jobs lost in the current recession, the old Wall Street economy has failed to create the jobs it promised, he said. According to Cavanagh, the last time America experienced similar economic upheaval was 80 years ago during the Great Depression.

In the 1930s, the federal government’s response was to pump money into the economy to create new jobs “at any cost,” explained Cavanagh.

This time, however, things are different.

There is little political will in Washington today to pump money into the economy on the scale of what was done in the 1930s, Cavanagh said. At the same time, he added, Americans must also confront a “huge environmental crisis” unlike anything this nation has ever experienced.

As a result, more people are working to create jobs, products, and systems that are “kind to the environment.”

Well-being over bottom line

Efficiency and cheap goods are the gold standard of the old economy, Cavanagh said. As a result, big companies that “slash jobs” in the United States, and export those jobs overseas, are rewarded with tax breaks and subsidies by the federal government.

“[The new economy] wants to shift that logic on its head,” said Cavanagh.

The new value system centers around creating a healthy society and livable wages, and encouraging small businesses, since they are the ones that are creating new jobs, he said.

New-economy efforts, said Cavanagh, are accelerating the shift from big agriculture to small farms.

For 80 years, he said, American farm policy has emphasized industrial-scale agriculture. The small, organic farms taking root, or re-rooting, in Vermont support the principles of a new economy.

Cavanagh also said that he was impressed by Vermont’s understanding of the link between farming and the energy sector. Agriculture, big or small, traditionally uses a lot of fossil fuels, but some Vermont farms have shifted more toward renewable energy.

Cavanagh said that even if governments, like Vermont’s, don’t possess a lot of money to fund initiatives, they can still provide support for change.

Vermont can provide tax incentives for entrepreneurs, guidance, and organization, and they can partner with other companies or organizations that can fund new programs.

He thinks Farm to Plate, a program to stimulate Vermonters to eat more locally produced food, represents an “encouraging” initiative in Vermont. The goal is to have all Vermonters obtaining 20 percent of their food locally by 2020.

A healthy food system leads to a healthier population, Cavanagh said. This change reverberates throughout the community, and leads to benefits such as lower health-care costs.

Cavanagh said that despite the new economy’s emphasis on local, it does not hold isolationist beliefs. Healthy local economies support the national economy, and healthy, stable national economies always benefit their neighbors.

People need to learn from their neighbors, said Cavanagh, and the United States will stand stronger if the economies around it support their respective populations.

To the people concerned with illegal immigration, Cavanagh said that most people want to remain in their homes, rather than leave their communities for another country. But if they can’t survive at home, people will emigrate.

Cavanagh said he traveled to Vermont for the Slow Living Summit because of his curiosity around what Vermonters are doing, and to share his insights. He called the experience “terrific.”

He said he understands that the state is still under the leadership of a very new governor and secretary of agriculture.

But it will be “fascinating to watch” the progress, he said.


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