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Jeremy Rifkin

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Economic Recovery Will Fail Without Our Trust

Posted: 02/04/10 07:30 AM ET

The anemic global economic recovery is beginning to stall. Unemployment is shooting up again. The housing market is threatened by a new wave of foreclosures. Tens of millions of Americans are teetering on the edge of survival. Public surveys show that people on Main Street are fast loosing trust in Wall Street and the workings of the market. What's gone wrong?

The economists have a difficult time understanding the public reaction, in large part, because they believe the market is functioning as it should: that is, it is serving as a self regulating arena where individual material self interest can express itself under the guidance of an "invisible hand" that continually adjusts supply and demand and other market forces to ensure a proper functioning of commerce and trade. Recall the words of Adam Smith, the great Scottish economist of the Enlightenment, who wrote in "An Inquiry into the Nature and Causes of the Wealth of Nations" that:

Every individual is continually exerting himself to find out the most advantageous employment to whatever capital he can command. It is his own advantage, indeed, and not that of society's, which he has in view. But the study of his own advantage naturally, or rather necessarily, leaves him to prefer that employment which is most advantageous to the society.

What the economists fail to grasp is that commerce and trade, and indeed, all market relations, are only made possible by a very different kind of "invisible hand"--the one that establishes social trust among people. That social trust, in turn, is created by the extension of empathic sensibility to others. This is the process that creates human culture.

Sometimes referred to as the third sector, as if to suggest that it is of less relevance than the marketplace or government, in fact, the culture or civil society is the primary sector. It's where people create the narratives that define their lives and the life of the society. These narratives serve as the cultural common ground that allows people to create emotional bonds of affection and trust, without which commerce and trade would be impossible.

While the empathic drive is faintly acknowledged by economists, it is relegated to a secondary level in human affairs − something one engages in within the family and among friends and neighbors, but which plays no appreciable role in the economic arena. Being open, vulnerable and sensitive to the plight of others is considered detrimental to commercial relations and a prescription for failure in the marketplace.

Yet the market requires a continuous infusion of social trust to function. Indeed, the market feeds off social trust and weakens or collapses if it is withdrawn. That's why there are no examples in history in which markets preceded culture or exist in its absence. Markets are extensions of culture and never the reverse. They have always been and will always be secondary rather than primary institutions in the affairs of humanity because culture creates the empathic cloak of sociability that allows people to confidently engage each other in the marketplace.

Only recently, in the wake of the disastrous downturn of the global economy have some economists begun to turn their attention to the role social trust plays in providing the foundation for commerce and trade.

The close ties between commercial and empathic bonds might seem a bit paradoxical, but the relationship is symbiotic. Sociologist Georg Simmel, in his landmark study on "The Philosophy of Money," observed that coins are promissory notes based on the assumption of an established collective trust among anonymous parties that guarantees that at some future date the token passed in an earlier exchange will be honored by a third party in a subsequent exchange.

It's instructive to note that when anthropologists study the history of exchange, they find that social exchange virtually always precedes commercial exchange. The Trobriand Islanders engaged in an elaborate social exchange of shells, often canoeing long distances between islands to pass the tokens back and forth as a way of cementing bonds of social trust. Commercial exchange in the Trobriand Islands was always preceded by social exchange, again confirming the ancient wisdom that cultural capital precedes commercial capital and that commerce is an extension of cultural relations and, therefore, not a primary institution in the affairs of humankind.

The relationship between empathic and commercial bonds is complicated and fragile. That's because empathic extension is always a nonconditional gift, freely given, without consideration of reciprocity on behalf of the other, either in the moment or in the future. While commercial exchange would be impossible without empathic extension first establishing bonds of social trust, its utilitarian, instrumental, and exploitive nature can and often does deplete the social capital that makes its very operations possible. That's exactly what's occurring now in the United States and around the world in the aftermath of the global economic meltdown.

The populist revolt that is spreading to many countries represents a profound loss of trust in the global economy and is fueled by the sense that a small elite has rigged the game in favor of a few at the expense of the general well-being of society. But below the heat and light of the populist outcry is a deeper feeling of betrayal; that is, a feeling that our business leaders no longer empathize with the plight of their fellow citizens. It is this deep sense of abandonment that is perpetuating a decline in social trust and threatening to transform America, and other nations, into social chaos.

Still, economists shake their heads and continue to hope that governments can patch together a rational, quantifiable, utilitarian set of mechanisms to regulate a global economy and jumpstart the economic engine, only to throw up their hands in despair when world trade talks breakdown. A history lesson might be instructive to help world leaders and economists get to the nub of the problem.

At the beginning of the modern market economy, Europe found itself in the throes of a great struggle between a new commercial order and an old economic regime. New technologies were radically altering spatial and temporal realities. The old medieval social economy, based on controlling production, fixing prices, and excluding competition from the outside, was too provincial to accommodate the range of new technologies that were making possible greater exchange of goods and services between more people over longer distances.

What was missing was a new, more expansive, and agile political framework that could transcend the thousands of local municipalities and force the elimination of local tolls and tariffs and countless other statutes and codes that maintained an aging medieval economy. It was this need, says Karl Polanyi, "which forced the territorial state to the fore as the instrument of the 'nationalization' of the market and the creator of internal commerce."

Although never intended, the emergence of the territorial nation state had a collateral effect that proved to be every bit as important as acclimating large populations of previously disparate people to national markets. Nationalism extended the empathic impulse to the new expansive borders of the nation itself.

Today, the new technologies of Third Industrial Revolution − distributed communications and distributed renewable energies − are taking us to a new biosphere economy. The human race is becoming technologically interdependent and interconnected. What is sorely missing, however, is a leap in human empathy, beyond national boundaries to biosphere boundaries. We need to create social trust on a global scale if we are to create a seamless, integrated, just, and sustainable planetary economy.

We can no longer afford to limit our notion of extended family to national boundaries, with Americans empathizing with fellow Americans, Chinese with Chinese, and the like. A truly global biosphere economy will require a global empathic embrace. We will need to think as a species − as homo empathicus − and prepare the groundwork for an empathic civilization imbedded in a shared biosphere.