Gidi Grinstein is the Founder and President of the Reut Institute, an Israeli not-for-profit leadership group, and the author of the recently published "Flexigidity: The Secret of Jewish Adaptability"
Tel Aviv -- Many developed societies are facing a dual crisis of their political and market systems. This condition challenges us to design a new approach that will enhance inclusive growth, as well as nurture a vibrant and responsive democracy.
The societal crisis among developed nations is evident, unfolding and has been extensively outlined. Economic growth has not been inclusive, and often comes from a relatively small and extremely productive export-oriented group, primarily in the high tech. The pledge that growth and prosperity will trickle down remained idle: the so-called "middle class" has been facing diminishing real income; public services are declining in quality and quantity; there is a real rise in cost of living; and employment opportunities are shrinking. Meanwhile, the lower-middle-class is more vulnerable to falling into poverty, which is increasingly inter-generational.
Thus, societal gaps are widening between a growing group that is permanently and perhaps irreversibly marginalized by the modern labor market and a small and global elite, which benefits from unprecedented economic gains and political access and influence. In between, the tax-paying middle class is being eroded, and distrust toward public institutions and elected officials is growing as politics become more aggressive and polarized.
In such an environment, public discourse has often been disappointingly dogmatic, dominated by unhelpful pigeonholing. The "left wing" calls for increasing government expenditures by taxing the rich and accepting bigger deficits that will underwrite more public goods and social services. They are referred to and often self-portray as 'socialists.'
The "'right wing," deeply faithful to the market economics, calls for further shrinkage of government by privatization, while rejecting any raise of taxes or government intervention in markets or society. They are the "capitalists."
Meanwhile governments are often limiting themselves to reforms, which offer technical fixes to complex problems, repeatedly unable to offer a fundamental remedy to societal ills, which leads to growing disenchantment of the public with politics. Many no longer feel that their vote counts or that they can make a difference. Some disengage. Others radicalize.
A root cause of this crisis is the failure to arrive at the fundamental architecture of modern economy and politics, being organized as a network of "small units." The interplay among many interconnected and interdependent such units that operate in a transparent environment and on a leveled playing field, where none is allowed to dominate, is a fundamental requirement for pragmatism, prosperity and resilience in both economics and politics. This insight is ancient to Judaism and has been highlighted by modern thinkers such as Nasim Taleb in his book Antifragility.
That network architecture is being compromised. Regulators have failed to prevent a small number of business and lobby groups to garner extraordinary power and influence over entire business sectors, the markets and the economies through the manipulation of laws, standards and regulations. Consequently, key sectors are not truly competitive, most often at the expense of ordinary citizens who end up being additionally taxed due to such regulatory failures. The American health care system -- extraordinarily expensive, bureaucratic and underperforming -- is a testament to these dynamics.
Meanwhile, modern governments, being big, bureaucratic and rigid, are compromising the vitality of both democracy and economy: they are often not open to public participation and responsive to public needs, and slow to respond to societal changes. The effect has been stifling on the fundamental dynamics of both democracy and market economics.
The remedy to this condition must focus on revitalizing that fundamental de-centralized architecture of society. Democracies and market economies must shift their center of gravity away from large conglomerates in favor of small and middle size enterprises in both economy and society on national and local levels.
In the world of economics, such a vision can be realized by powerful government incentives and benefits that encourage the establishment and growth of small businesses, yet limit the expansion of large corporations. Such a system would not only inevitably create a more resilient, creative and inclusive economy, but also increase the independence of politicians.
Democracy too must go through a process of extensive de-centralization of power, authority and leadership to local empowered institutions. Such a process is based on the approach that the fundamental unit of society is the geographic community and not the households, which are increasingly weak, fragile and unable to cope with the rising instability and complexity of economy and society. Core institutions that exist in every community -- schools, community centers, sports teams and youth movements with a designated mission, professional staff, physical space, core budget and often local civic leadership -- can be the platforms for such an approach, which creates a common denominator among all communities essential for necessary regulation, yet allow for local diversity.
Success would ultimately be measured if the basic indicators of human progress improve: if the labor force is more productive and unemployability decreases; if the public assumes greater responsibility for its institutions and society; if quality of life increases; if vulnerability in society decreases; and if inter-generational poverty declines.
This approach assumes that the crisis in the capacity of modern democratic governments to govern is worsening, and their ability to effectively address societal needs is deteriorating. It also assumes that unchecked privatization will not necessarily enhance collective prosperity but would rather concentrate power in the hands of few large players, who would then use their influence to decrease and even prevent competition and extract extraordinary profits.
Thus, the fundamental response to this crisis is to massively decentralize both government and the economy. The challenges of the 21st century require modern societies to reorganize themselves in the only architecture that may ensure true democracy, pragmatism, resilience and inclusive growth, as a network of small-scale units.