The Extractive Economy:

mine-south-america38There is a theory—Canadian scholar Danny Miller lays it out nicely in a 1991 book, The Icarus Paradox—that when companies truly get into the deepest trouble, it’s usually not because of their weaknesses but rather because of their strengths. Or more specifically, it’s because they tend to overdo the very energies, inclinations, and expertise that brought them success.  Remember the Irish Elk and the insider traders from previous posts?

In an economy where all of the participants are competitors vying for scarce resources it can be tempting to “overdo-it:” exploiting undocumented workers, outsourcing to sweat-shops, utilizing child labor, discriminating employment practices, misclassifying workers, price fixing, tax fraud, “cooking the books,” breech of fiduciary duties, false or misleading advertising, conflicts of interest, insider trading, risking worker health and safety, planning product obsolescence, and participating in unethical (if not illegal) schemes to maximize bonuses to the detriment of the firm, the economy at large, or even the customer.

“At Pfizer I was expected to increase profits at all costs, even when sales meant endangering lives. I couldn’t do that,” according to John Kopchinski, the sales representative who blew the whistle on Pfizer’s illegal marketing practices of Bextra, a now-discontinued medication approved for arthritis and menstrual pain.  “If you don’t aggressively sell your products . . . you’re labeled a non-team player,” Kopchinski said, adding that only by promoting Bextra for unapproved uses could he achieve management’s revenue goals.  Mr. Kopchinski was fired from the company in 2003. In hindsight, he won’t miss his job. He’ll receive over $50 million from the US government for his efforts to prosecute the $2.3 billion fraud settlement from his former employer—the largest such settlement in US history.[1]

Though many businesses are upstanding and trustworthy, practices like those mentioned above have been the order of things (economy) for centuries.  And these behaviors are not limited to “C” level executives and business owners.  To be sure, employees have been cheating on their time cards, taking office supplies, and clients and company secrets for just as long.

Now, thought leaders are calling this type of economic paradigm (an economy ordered around a scarcity/competition mindset) an “extractive economy.”  The extractive economy encourages all manor of techniques and strategies for maximizing individual wealth at the expense of others and the ecosystem/economy as a whole.  In her book, Owning Our Future, Marjorie Kelly, former editor for Business Ethics Magazine defines the term “extractive economy” as one that focuses on maximizing physical and financial extraction (rather than maximizing well-being.)

Before Owning our Future, the concept of the extractive economy was first brought to my attention while reading a blog post by Tim O’Reilly, a successful technology entrepreneur and the founder of Code for America, entitled Value Creation vs. Value Capture: Musings on the New Economy.  In that post Mr. O’Reilly wrote:

It’s easy to see that we live in a natural world that was given to us “for free” and how much of the value we enjoy as a society was not created but extracted from that feedstock of abundance. But it is important to realize that even in the world of discovery and intellectual innovation, there are those who create value, and those who merely extract it.

These ideas are of particular interest to me as I question some of the commonly accepted business practices in light of work I am doing around the Generative King Archetype[2], which I will present in subsequent posts.  For now, the Generative King Archetype is a model leader, much like the “Level 5” leader identified by Jim Collins in his well known business management book, Good to Great.  With the Generative King Archetypal leader at the helm of a business, I imagine a new economic paradigm, and with that I am particularly interested in juxtaposing the elements and drivers of the extractive economy with what I have been calling the “generative economy,” and I will do so in blog posts to follow.

In the mean time, it seems to me that something like an “awakening” is emerging among some business leaders, or maybe I’m just becoming aware of it.  Specifically, the emerging awareness that it is preferable (maybe even necessary) to participate in a different type of economy.  The work of questioning the economic status quo is, for me, relevant, and justified, and brings to mind Albert Einstein’s famous quote:  “We can’t solve problems by using the same kind of thinking we used when we created them.”


[1] Rudin, Andrew. “Pfizer’s Ethics Violations Hurt All of Us.” Customer Think. Customer Think, 08 09 2009. Web. Web. 9 Apr. 2013. <http://www.customerthink.com/blog/pfizers_ethics_violations_hurt_all_of_us&gt;.


[2] Moore, Robert, and Douglas Gillette. The King Within. 1st Edition. New York, NY: William Marrow & Company, 1992. Print.

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