The economic crisis which today shakes the whole world is the greatest challenge facing the globe and each individual state. We are facing a global crisis - economic, energy, ecological, moral and psycho-social aggravated by climate change and demographic transition. No country - and in particular not our country can isolate itself from this global crisis. Moreover, the crisis in some countries probably started even earlier. Some countries are enormously indebted, their products and exports are significantly less than imports and consumption, most of their riches have been sold, the workforce is underemployed (Poland, Croatia and Serbia have very lo employment rate, about 50-58%) and the ratio between pensioners and workers is unsustainable (typically less than 1 vs. 2.5). The majority of socio-economic indicators classify many South East European countries near the bottom of European countries and sometimes even worse than that.
Present crises are interwoven and cannot be approached independently one from another, nor they can be approached only by "old methods" developed for the very slowly changing world, that was not interconnected and not interdependent. This crisis is so deep and so complex that active involvement of all is demanded. Different ideas and full information are required. President B. Obama's approach is an excellent role-model for the politics necessary for the contemporary world: leadership by ideas, by openness, without arrogance of power, constantly keeping in touch with all ideas, needs and wishes of all citizens. We will achieve progress only together by all of us being active. This is the essence of social cohesion. There is no magic, simple solution. Indeed, likely solutions will be different for different countries (to paraphrase Tolstoy's Ana Karenina that unhappy families are unhappy in their specific way).
Neither the world nor any individual country has prepared for these crises, and of course, it is unable to prevent them. Approach to these crises demands competent political action - without lies, without Potemkin's facades and without deceiving citizens by pleasing parochial interests. Approach to solutions requires vision, open-heartedness, intellect, authenticity, thoughts and heart. It requires the inclusion of scientists of all disciplines, entrepreneurs, businesspersons, consumers and producers and politicians, both in a personal capacity and institutionally. These crises are global and it is natural that on behalf of The World Academy of Art and Science and its South-East European Division (including fellows - scientists, artists, entrepreneurs and politicians from all countries from Italy and Austria to Greece and Turkey)
I invite you all to participate in discussions/project that The World Academy wants to organize under the title
FROM CRISIS TO ECONOMIC DEVELOPMENT AND SOCIAL COHESION
We emphasize social cohesion. The European Union also stresses social cohesion within each member state and among them and channels its funding so as to strengthen social cohesion. Croatia, Bosnia & Herzegovina, Serbia, Montenegro, Macedonia, Albania and Turkey desire to become members of the European Union. Economic inequalities, particularly inequalities among salaries undermine social cohesion. Plato argued that harmonic society demands that the ratio between the highest and lowest income does not surpass 5:1 and even J.P. Morgan argued for 20:1. Today these ratios, even in South East European countries are larger than 100:1. Economic inequalities within countries increased since 1990, i.e. before this global crisis, so it is possible that these inequalities accelerated this crisis, since special privileges of CEO were not connected with the successful operation of their firms. From 1990 to 2005 two thirds of the countries showed increasing inequalities (Increasing GINI indices and increasing ratios among the wealthiest 10% and poorest 10% of the population of a given country). If it reflects innovation and hard and creative work the inequalities could be an engine of economic growth, of development and wealth creation, but if this is not so, and notably if the inequalities are extremely large, then the inequalities are dangerous for social stability and they suppress economic efficiency. Analyses showed that large inequalities result in increasing crime rate, in increasing corruption, increasing macro-economic instabilities and in lower life expectancy. Life expectancy in 10% of the countries with least inequalities is 77.4 year compared to only 60 years in 10% of the countries with largest inequalities. It is sometimes argued that large inequalities are caused by low productivity, but data show that the productivity increased from 1990 to 2006 more than workers salaries. Studies in 23 countries during 1989-2004 showed that inequalities are less and less accepted.
Unfortunately, facing complex crisis we might be tempted to try to solve it by fire-fighting approaches, which can themselves be contradictory one with another. Since we do not fully understand all the aspect of this crisis, we might decide, sometimes prompted by other reasons also, not to act. Not to act is a grave sin of omission! We must act! It seems to me that a good approach how to act can be facilitated if we all agree on some basic principles - postulates and assess all our proposals, initiatives and actions according to them. Here are three basic principles, which I hope are a coherent and sufficient set:
1) Any plan must satisfy short-term needs: avoiding an economic catastrophe, recession, deflation and inflation, maintaining and improving employment levels, securing stable energy supplies, and reducing the effects of climate change. At the same time it must be strategic and sustainable in order to ensure that the crisis is transformed into an opportunity. (This is identical to the Action plan of the European Commission of November 26, 008 and December 16, 2008 (COM(2008) 800 final) which emphasizes employment, R&D, innovation, education, need for clean technologies, energy interconnection and efficiency, fast internet and reduction of administrative burden to entrepreneurship. EU Plan is based on solidarity and social cohesion.)
2) People are the true wealth of every state. The fundamental goal of development is to increase the freedom of every human being so that they can live successful and creative lives“ (The State of Human Development, Human development indicators, 2004, p 127, UNDP). Our objective is to ensure that everyone is active and happy, and that we live in a society based on social justice, social cohesion, and a healthy environment for sustainable development. In a knowledge-based society human beings are the generators and keeper of knowledge and therefore a true wealth of nations.
3) A global world is inter-related and inter-dependent. Nevertheless, each state must find its own solution, which must be based on its own contemporary specificities and therefore, the primary task should be your own country: However, in a global world no action, no matter how useful it may appears for a country, should be undertaken if it threatens others.
Many countries in South East Europe are small, but it should not be forgotten that almost half the member states of the United Nations have less than 5 million inhabitants. The model of a small boat in a turbulent sea threatened by large waves caused by large boats can be embellished with the fact that the great ecological catastrophe almost 100 million years ago destroyed the dinosaurs - "the great leaders of the world“ - and saved and strengthened mammals - relatively small creatures.
The Chinese 'crisis' is represented as a combination of two symbols, one meaning 'danger' and the other 'opportunity'. It is important that we understand this crisis as an opportunity, a chance! We have all faced many threats and dangers and we have overcome. We can do this again now.
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Report on UN Conference on the World Financial & Economic Crisis
The report released on June 22, 2009 by the UN Conference on the World Financial and Economic Crisis and Its Impact on Development highlights all the elements of the international crisis referred to in this proposal. It also itemizes several important elements of a remedial strategy. However, the report adopts a piecemeal incremental approach that lacks the vision and power to eradicate the underlying weaknesses and inequities that have caused the current crisis and are very likely to reassert themselves unless a more comprehensive and integrated approach is taken to the evolution of the foundations of global governance. The report, therefore, provides further justification for the Academy to look beyond the amelioration of the immediate crisis to address the underlying assumptions, perspectives and implicit values that need to be challenged in order to provide a firm foundation for humanity’s future progress. The report can be viewed here http://www.un.org/ga/search/view_doc.asp?symbol=A/CONF.214/3&Lang=E
From Crisis to Economic Development & Sociial Cohesion - Actions
Actions to realize the project
From Crisis to Economic Development and Social Cohesion
1. The proposals dealing with the economic, ecological, energy, social and moral crises superimposed on climate change and demographic transitions are examples of what WAAS should currently do. These are the following proposals: 2.1.1. and 2.1.2. and parts of proposals 2.2.1. and 2.1.3. The aim of the activity is:
2.1. to understand the roots and nature of the individual crises,
2.2. to understand the nature of the complex integral crisis,
2.3. to analyze manifestations, as well as roots and mechanisms of the crisis in individual countries and regions, its specificities, differences and similarities with crises in other countries and regions,
2.4. to analyze the uniqueness of the present crisis,
2.5. to propose solutions,
2.6. to formulate the plan of action.
3. The realization of this activity requires involvement of scientists, scholars and experts from various disciplines: economy, sociology, political sciences, but also from natural, technical and life sciences, as well as from business, politics, humanities and art. It does need involvement of WAAS, of academies, universities and institutes, as well as of political organizations, various NGOs and religious organizations. Modes of cooperation between WAAS and these “organizations” should be formulated at the next meeting of The Board of Trustees. This is a gigantic endeavor, and in order to be feasible should be based on resources: persons and infrastructure that already exists in “organizations” that WAAS will cooperate with, and some WAAS fellows that can and are willing to devote their time and effort.
4. The realizations of the components 2.1., 2.2. and 2.4. are the most difficult and most challenging ones. Needed are ideas, new ideas, “out of the box” ideas” – ideas within specific domains: economy, ecology, energy, but also inter- and trans-disciplinary ideas. As an example, at the end of the 19th century physics appeared as perfect edifice (unification of electricity and magnetism producing explanation of optics) with only two minor clouds. It turned out that to understand these two minor clouds physics challenged traditional concepts of time, space and object-observer relationship. The proposed activity deals with the human society and it is necessary to carefully contemplate what can and should be challenged. How to assure generation of ideas? Certainly fellows interested in this activity, but not only them. The following are the means to stimulate the generation of ideas and to involve others besides fellows: e-fora, web portals, round-tables and workshops, short publications in newspapers. Though a very demanding and essential task, it does not require extra infrastructure. Therefore, no allocation of financial resources is needed. However, a very significant commitment of fellows, various institutions and citizens is demanded. The only way “to plan the generation of ideas” is to assure a creative environment. If one searches through the history of science, Plato’s or Bohr’s “seminars” could be role-models. We can foresee two-prong approach. One, this activity should start with several such “seminars” in several countries, possibly centered on collaborating institutions, followed by occasional visit from one to another. Second, e-fora and web portals: we have currently www.worldacademy.org, primarily aimed to fellows andwww.vrijemeje.com, bilingual and wide open. We need: at least one more web portal and we need interaction among them, i.e. fellows should contribute to other web portals, and segments from WAAS web should be selectively presented at other web portals.
5. Segment 2.3. requires case-studies and this can and should be done by institutes, academies and similar organizations that have necessary infrastructure. The only way to accomplish this task is through collaborating institutions and this activity has to become a legitimate, professional part of the activity of that institution.
6. Financial and economic crises are a very important segment of the present crisis and it is prudent and necessary to plan a link between this activity and outstanding economists, e.g. Amartya Sen, Paul Krugman, Joseph Stiglitz etc. We have some experience when we invited P. Crutzen – positive: he accepted to become our fellow, negative: he is not active within WAAS.
7. It is not clear whether the present crisis can be solved or only controlled, softened, ameliorated (we may not even have a proper word). If it can be solved, there are likely many “small solutions in different segments”. Though the crisis contains also a moral aspect, it is not clear whether “morally honest persons” would not have brought us to the almost same crisis. It is also very likely that “a solution” is different for different countries/regions and it is possible that there is no apparent similarity between these “solutions”. History is full of examples that “solutions” meant deterioration.
8. An important feature of this activity is that socio-economic indicators are very inadequate. We should refrain to get fully immersed in the improvement of indicators though we have to be aware of their shortcomings.
9. As pointed out by R. Benedick a very useful role-model offers the environmental movement. This activity should go through the project to the movement, i.e.
From crisis to economic development and social cohesion through project towards movement.
The present crisis can be overcome only with creative “out-of-the-box” ideas involving “everybody”.
10. In essence this activity encompasses a top-down approach characteristic of scientific research, and a bottom-up approach characteristic of revolutions. The involvement of political personalities in WAAS is very useful.
Root cause and solution to financial instability
The root cause of the current crisis can be traced back to an artificial division that has arisen between finance and economy and the emergence of a perception that finance is an activity in its own right divorced from economy and meeting human needs. An approach to this issue is likely to be more effective and lasting if it shifts the focus from money and financial markets to human beings and examines the role which money plays as an instrument for human development and welfare, rather than as an independent system or field of activity divorced from society.
Moral Crisis
I increasingly have a sense that civilization is at a critical potential turning point, which can offer us opportunities as well as perils.
This is not merely another market blip that can be patched up as others have in recent decades. Rather, the current global economic tribulations are rooted in a deeper, more insidious, moral crisis that has been gathering in strength probably since the middle of the last century.
When I attended Harvard Business School, finance was only one of a number of specialties, along with production, transportation, marketing, human relations, administration, etc. In recent decades, however, not only has the number of business schools multiplied dramatically worldwide, but the most talented students have flocked to financial careers. The underlying objective was not to improve the common good, nor even to produce better, more useful, and environmentally responsible goods, but rather, simply put: to make great amounts of money as fast as
possible. Hence the plethora of barely indistinguishable "hi-tech" products, and the gradual dismantlement of any meaningful controls over a sanctified "market system," together with the invention of abstract financial instruments and derivatives that gradually and increasingly defied comprehension.
There was indeed an "invisible hand" ruling the market, but not as the nineteenth-century economists had envisioned it. Rather, it was the hand of Greed. The imperative was to sell, more and more, and to promote this goal the poorer classes were motivated to buy, more and more. Buying became almost like a religion, promoted by the high priests of the "celebrity" class and by the high technologies of television and the internet. To achieve this goal, people were pushed to take on more and more indebtedness, while the saving classes were encouraged to put their money into pieces of paper that were increasingly remote from actual production of goods. Not only has the difference between the very rich and the poor widened enormously, but also between the very rich and the middle class.
The result has been, unfortunately, the creation of an oligarchy -- probably around one percent in the U.S. and Europe, and only a fraction as much in the so-called "developing countries." This global entitled class (you know who you are!) rules both our economic and our political systems to an extent that would have dazzled France's 18th-century pre-revolutionary aristocracy. The recent political scandal in the UK is for sure not an isolated aberration.
If we try merely to fix the current economic malaise with economic mechanisms, and do not address the issues of moral reform and of a more economically just society, we will have missed the point and merely set ourselves up for a greater catastrophe in the future. We need to return to basics: it is a moral crisis.
Perhaps the Academy could stimulate an alliance with a few other like-minded associations -- religious, environmental, educational institutions, social and economic organizations, possibly media (e.g., CPB) -- to explore and promote pathways to a more just and secure future. This may be too ambitious ... but it needn't be
all-encompassing, rather a varied group of influential organizations.
Global crisis
Links to International Financial Crisis
This is a comprehensive and very timely proposal. The international financial crisis has brought to the surface many essential gaps in governance of the planet which cannot be effectively managed at the national level or by ad hoc coalitions of states. Ivo's excellent proposal provides a context for examining not only the issues themselves but the challenges they present to global governance and the alternatives available for successful meeting these challenges in future.