A Brief Summary of “Where Economics Meet Memetics.”

Below are some excerpts from an interview I gave to  the Adizes Graduate School Newsletter. Some of the slides included here were distributed by Don Beck at a recent conference on Conscious Capitalism with leading CEO’s like John Mackey of  Whole Foods and Kip Tindell of The Container Store. I’m told Mackey, who uses Spiral Dynamics in his management philosophy, was taken with my analysis of how the UNHEALTHY STRATEGIC ENTERPRISE 5th level system can make an entire economy toxic. One of the primary goals of this blog is to help businesses evolve from answering to the Stockholder who’s misguided by the Wall Street philosophy of short term profits to the stakeholder who has a long term eye on People, Profit, and Planet. That’s  the integral equation for the new frontier in sustainable  practices.

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Said E. Dawlabani on Economics

The Memetics behind the Financial Crisis

At the Spiral Dynamics seminars in Santa Barbara, Dr. Don E. Beck invites a number of guest presenters. Some of these special guests help participants view complex issues through the simplifying lens of spiral dynamics. In effect, spiral dynamics helps in understanding Why and How major global events occur. Below, Said E. Dawlabani, who presents during Level 2, provides us with the benefit of his insights and opinions regarding the financial crisis that impacts our lives and decision-making processes today:

Q: From a Spiral Dynamics perspective, what were the major causes of the financial crisis of 2008?

Spiral Dynamics is the study of cultural value systems that emerge in response to changing life conditions. I concern myself with large scale socio-economic changes and interpret the interplay between the eight known levels of human existence, or value systems, particularly in the area of economics.

In Spiral Dynamics terms, Finance, or Capitalism in general, is just one sector of the fifth level system which has a focus on ‘Strategic Enterprise’. The financial crisis was precipitated due to the changing balance between the 3rd, 4th, and 5th level value systems in the United States. In a nutshell, what caused the financial crisis was the erosion of the fourth level system, the ‘Authority Structure’ system, in two areas of regulation. This allowed third level system dynamics, the ‘Empire Driven’ dynamic, to take advantage of the lapse in controls.

The first area of regulation that was impacted was the governmental regulatory structure itself, which started to slowly disappear with the first Reagan Administration. The second was monetary policy at the Fed. From the top down, government had begun to favor laissez-faire capitalism. For almost three decades, these policies gave us the illusion of prosperity but in the long term gave rise to an unhealthy version of the Strategic Enterprise (fifth level system) practices that became very difficult to reverse. Productive output that was measured through the strength of our manufacturing sector gave way to a more service oriented output.

As the fifth level value system found itself unrestricted, it transitioned beyond a service based economy into what was considered prohibited or sacred territory – the field of ‘financial engineering’. This is where the foundation for potential systemic damage was created.

Q: You mentioned that ‘life conditions’ are an important catalyst for change in evolving value systems. How did this transition from a healthy value system to an unhealthy system manifest in real life?

Corporations and consumers alike abandoned the ethics of the fourth level structural system which made the US a great model of Capitalism – for an ethic that was engineered on Wall Street. For more than three centuries, this evolving but sustainable model for Capitalism called on consumers to build equity through hard work. The system called on corporations to pursue organic growth through product diversification and healthy competition. Instead of hard, productive work to build equity, the Wall Street model for capitalism substituted impulsive speculative borrowing – a hallmark of the ‘Empire Driven’ third level system.

Consumers shifted their focus on spending from what they earn to spending from what they could borrow. Borrowing – thanks to Wall Street – was limitless, and was no longer tied to strict formulas based on actual earnings. Corporations shifted their focus from providing shareholder value by growing their product line organically, to acquiring corporations their financial advisers lined up for them regardless of whether these acquisitions served the long term health and viability of the corporation, or their mission. Wall Street, being virtually unregulated, had no regard for the long term consequences of its actions as its brokerage houses gave out money to collect commissions and placement fees and not to promote the distribution of wealth to all corners of society.

Q: You mentioned that the area of financial engineering was sacred or prohibited. Could you elaborate more on what that means and how that created the systemic damage to our financial system?

When a value system is healthy, it supports the needs and the emergence of all other systems on the spiral. When it is unhealthy it is very destructive. Historically, money has played a very important fourth level systemic role in helping cultures emerge. Pay had a direct relationship to the number of hours worked or the level of skill attained. Financial output had a clearly defined correlation to input and there was a great sense of personal responsibility. The belief in the role of money is what built nations and what helped humanity emerge in the last eight thousand years. A healthy, innovative fifth level system arose as a result of a healthy fourth level system.

Between 2000 and 2006 all this changed. Unprecedented levels of liquidity came to Wall Street with no legitimate investment vehicles to put it in. So Wall Street created Notional or Virtual securities called ‘derivatives’ that forced the participants in the system to downshift to a betting game on how real assets will perform in the future. These models provided the illusion of legitimacy as they flooded consumers and capital markets with money. Wall Street quickly became identifiable with the unhealthy version (exploitive) of the third level value system and, like the case is always with a system that focuses on immediate rewards, it had no staying power. When it collapsed it almost took the whole world down with it.