The Secret to Rebuilding National Wealth

While the world talks non-stop about an end to capitalism, unregulated markets and globalization, a basic economic shift is being overlooked.

What caused the current economic crisis? Some blame the mindless sheep masquerading as American bankers, or the casinos masquerading as investment houses on Wall Street. Others point the finger at ineffective regulators, or at the dismantling of good regulations (such as the Glass-Steagall Act in the United States). Those terrified of acknowledging basic flaws in their worldview blame the “greedy bad guys” or “credit-addicted compulsive consumers” for abusing a good system.

Blameworthy candidates all, but individuals didn’t cause this mess: the system as a whole is fundamentally flawed. We need more than Band-Aids on our banking boo-boos.

At least US$2 trillion (including World Bank and International Monetary Fund contributions) will be spent globally in coming years to revitalize economies. That amount of money could restructure the entire system, not just goose it—and Canada is perfectly positioned to lead the way. But before we discuss the solution, let’s make sure we understand the problem.

Laissez-faire capitalism is getting no small amount of blame for our current woes. It arose from Adam Smith’s concept of the “invisible hand.” Smith was fully aware that his magical hand had no basis in reality; he invented it to cure a specific problem. When his book, The Wealth of Nations, was published, the British government (royalty, aristocracy, and Church of England) was choking entrepreneurs and economic growth. Smith realized he must grossly exaggerate his case in order to make an impact, thus his invention-in the hyper-religious milieu of late 1700s-of a godlike, metaphysical “hand” of the free market that transformed greed into public service. No matter how self-interested a business transaction, society would come out the better for it. So, no need for government to protect the people from rapacious business practices.

Smith would never for a moment have believed that educated people would come to believe his rhetorical fiction so wholeheartedly. But most of what he wrote was right. He focused on the value-adding efficiencies of specialized production, with a heavy emphasis on manufacturing. There wasn’t much on how the structure and function of our communities added to economic health, but he couldn’t cover everything, and planning wasn’t even a profession at the time.

But what wasn’t evident to Smith in 1776 was that he was taking the basis of Britain’s wealth creation for granted: fossil resources and ecosystem services.

Now, fossil fuels are killing our economy and its waste products are killing us. Fossil top soils are mostly gone, and fossil aquifers are turning into sinkholes.

The situation sounds hopeless, but the solution is already here. The ideal solution is to create wealth from undoing that damage, restoring the underlying basis of wealth. This economic shift from dewealth to rewealth involves renewing infrastructure, remediating brownfields, restoring heritage structures, and replenishing natural resources.

This restoration economy isn’t just an idea; it’s a $2 trillion per year reality. In the United States alone, over $17 billion has been invested in over 40,000 river restoration projects since 1990. Most older cities already rely on rewealth for 80 per cent or more of their economic growth.

For the past two decades, the dewealth-rewealth shift has been inexorable, but incremental. Now, however, it has reached a potential tipping point. The new stimulus funds can make rewealth the economic policy default, and dewealth the exception, fixing our economy’s basic problem.

A healthy portion of the US$789-billion stimulus package is focused on renewing infrastructure, as well as restoring wetlands and rivers. A $9-billion provincial investment in Toronto’s infrastructure is also focused on renewal. But both still contain significant dewealth components. Without formally embedding this dewealth-rewealth shift in local, regional and federal economic policy, the best we can hope for is false bottoms, and bounces that offer temporary respite.

For national economic stimulus strategies to create community and regional revitalization, stimulus funds must run through a finer project filter than just “shovel-ready.” The best filter would use the three proven “renewal rules” that drive revitalization success: rewealth, integration, and engagement.

We need an economic recovery strategy that quickly becomes self-propelled. That’s where the other two rules-integration and engagement-come in. It’s from integrating the renewal of our natural, built, and socioeconomic environments-and from effectively engaging local stakeholders in that renewal-that efficiencies, synergies and positive feedback loops arise. Use all three project filters-rewealth, integration, and engagement-and the effect of the stimulus money is supercharged.

The subprime fiasco and unregulated hedge funds were just the first of many winds that are capable of blowing down our economic house of cards. If it hadn’t been them, it would have been oil prices, food prices, water and energy crises, and so on. An economy that bases growth on improving natural and built assets would be better equipped to handle these crises-and it would make Adam Smith happy, too. Free enterprise would automatically become more socially responsible and environmentally sound, without the need for onerous regulations.

Canada is in a perfect position to lead the world’s recovery, both as a thought leader and as an example. It has the strongest economy in the G20, and a growing comfort with the use of tax increment financing. Now, if Canada could just filter federal, provincial and local stimulus funds through the three renewal rules, national recovery and world leadership would be virtually assured. A crisis is a terrible thing to waste.

This article appears in our May-June 2009 Issue