Capitalism 3.0

notes on Barnes, Peter. Capitalism 3.0. San Francisco: Berrett-Koehler Publishers, 2006.

Systemic problem of capitalist democracy: government puts the interests of private corporations before those of its citizens. Neither market nor state alone can be the full answer to the problems — both are flawed.

Tragedy of the commons: people will always over-use a commons because it’s in their self-interest to do so.

Barnes sees the problems as a pair of tragedies:

  • Tragedy of the market: has no way to curb its own excesses
  • Tragedy of the government: fails to protect the commons because polluting corporations are powerful and future generations are not votesr

Possible solution: strengthen the commons.

Capitalism 3.0: Acknowledge the commons sector. Make the economy run on two engines, as opposed to one — one geared to maximize private profit, the other to preserving and enhancing common wealth (corporate sector, commons sector)

The Commons: all the gifts we inherit or create together.

  • gift is something we receive, not something we earn
  • shared gifts we receive as communities, not as individuals

The commons has three different arms: nature, community, and culture. We have a joint obligation to preserve them.

We can manage the commons, because a managed commons would not be inherently self-destructive.

Premises

  1. We have a contract — to pass on our inherited gifts
  2. We are not alone — we must respect and represent the interests of future generations and other organisms
  3. Illth happens — negative externalities, “the dark side of capitalism,” must be addressed.
  4.  Fix the code, not the symptoms.
  5. Revise wisely — efficiency and grace, fairness, cost-effectiveness.
  6. Money isn’t everything
  7. Get the incentives right.

Three Pathologies of Capitalism:

  1. Destruction of nature: “capitalism as we know it is devouring creation. It’s living off of nature’s capital and calling it growth.”
  2. Widening of the gap — there is no way to distribute new (or any) wealth evenly.
  3. We’re not happy yet — economic growth isn’t making us any happier.

Logic of collective actions: unless the number of players in a group is very small, people won’t combine to pursue collective interests. This gives corporations a huge advantage over all citizens.

Proposal: create entities like The Fed for managing carbon and other pollutants. Non-elected, appointed by elected government, with difficult assignments and enough power to accomplishment. Shift responsibility — less politics.

Pollution taxes aren’t the way to safeguard nature — we don’t want moer money from polluters, we want less pollution.

Public Land Ownership — the Forest Service is not a trust for ecosystem preservation, but a politically influenced agency dedicated to “multiple use” of government owned forests.

Ownership is not the same as trusteeship — owners can do whatever they want, while a trustee is bound by terms, and expected to act with loyalty above all else.

In a capitalist democracy, the state gives valuable prizes — property rights, tax breaks, free/cheap use of commons — to the entity/person with the most political power.

In this way, capitalism distorts democracy — the bigger the concentrations of capital, the stronger the distortion.

Our economy is driven by three algorithms (and one starting condition)

  1. Maximize return to capital
  2. Distribute property income on a per-share basis
  3. The price of nature equals zero
  • Starting condition: the top 5% of the people own more property shares than the remaining 95%.

We must distinguish between making a profit and maximizing a profit — they are different endeavors. Can we have multiple bottom lines? A third bottom line?

Enlightened managers: traditionally, managers must manage to the bottom line. If there were multiple bottom lines, they would be encouraged to make socially responsible choices that they would not have had the incentive or opportunity to make previously.

Is it even possible for a publicly traded company to be socially responsible?

Socially responsible shareholders: if the shareholders demanded social responsibility, perhaps the managers would listen.

  • Screened invesment— put money into “good” companies, withhold from “bad” companies.
    • This is tough, because most of these screened investment funds are still not willing to accept a lower rate of return. They’re in the same boat as managers who want to do good but can’t because it might hurt their profits.
  • Shareholder activism — shareholders meet with managers, urge them to change the company’s ways. If managers refuse, shareholders file resolutions to change policy, to be voted on at shareholder meetings. These rarely pass, but provide good opportunity for awareness-rasing.

Free-market environmentalism: nature protected by property rights. If polluters have the right to emit, pollutee has the right to not be emitted on.

  • In a free market, they could reach an optimal price, where the pollution level is greater than zero but less than it would be if emissions were free — the polluter has to internalize externalities.
  • Problems: how to assign property rights and pollution rights?
  • Rights in general are hard to assign when things are meant to be shared.

It is possible to propertize a natural inheritance without privatizing it. Turn pieces of the commons into common (rather than corporate) property, which would let us charge corporations higher (truer) prices for using the commons. Offset the corporate sector’s negative externalities with positive externalities of comparable magnitude.

Common property rights — land or easements held in perpetual trust (nature conservancy) or corporate assets managed on behalf of a broad community (Alaska Permanent fund)

  • Some forms of common property include individual shares, but these shares are not securities you can trade in a market — they depend on membership in a community

Commons sector institutions — would be distinct from corporations and government, whose unique and explicit mission would be to manage common property. Their organizing principles:

  1. Leave enough and as good in common — it’s okay to privatize parts of the commons, as long as there’s enough to keep them alive and vibrant.
  2. Put future generations first — think about the invisible stakeholders, choose the long-term good
  3. The more the merrier — inclusivity should be the rule
  4. One person, one share — like democracy’s one person, one vote.
  5. Include some liquidity — common property co-owners should be able to receive some income too (and people would care more if they were getting income from it?)

The “divine right of capital” — under our current operating system, the rights of capital trump everything else.

Trusts are devised to hold and manage property for beneficiaries. The rules:

  1. managers must act with loyalty to beneficiaries and trust.
  2. Managers must preserve the corpus of the trust (spend only income, not principal)
  3. Managers must ensure transparency for beneficiaries.

“A trustee is held to something stricter than the morals of the marketplace” — Supreme Court Justice Benjamin Cardozo.

Common property trust — would manage assets that come from the commons and are meant to be preserved as commons. Manage on behalf of future generations.

  • Conservation easement — voluntary agreement between a landowner and a trust that permanently limits use of the land: owner gets to own and use it, but his/her rights are restricted (no building additional houses, no logging, etc)
  • Common property trusts could control the flow of pollution into ecosystems
    • Put a value on carbon dioxide emissions, lessen carbon flow.
    • A common property trust would control this flow just like the Fed controls the flow of money
  • Change unpriced externalities into property rights under accountable management.

Public goods — services that benefit everybody but can’t easily be sold at a profit. Because markets don’t supply them, governments do.

  • Ecosystem services — valuable inputs to the economy, why don’t we treat them as if they were common property held in trust?

Commons rent — customers will pay commons rent to themselves as beneficiaries of commons trusts:

  • Everybody’s dividend is the same, but the amount of rent you pay depends on the amount you pollute/buy polluting products.
  • This incentivizes clean living micro and macroeconomically — it will be in everyone’s interest to reduce the total level of pollution.
  • Income is shifted from rich to poor — the rich use the commons more than the poor do

Birthright — we’ve spent our time so far in democracy working out our rights against  — against discrimination, against the state. Now we’re moving on to rights for things — free public education, collective bargaining for wages, etc.

  • Why don’t we pay everyone some income — an American Permanent Fund, which could invest and pay equal yearly dividends. A new ownership-based society. Money could be acquired by charging corporations for trading publicly?
  • Children’s opportunity trust — intergenerational transfer fund. Leave money for all children (replace inheritance tax?) — a trust fund for everyone, with manatory contributions, a way to give back to society. Could look at it as venture capital investing in American children

The cultural commons is inexhaustible. 

  • We must distinguish being a consumer of culture from being a participant in culture.
  • That difference is between local art and corporate entertainment.
  • Proposes a parallel economy for noncorporate art, supported by the corporate entertainment industry
  • Create a National Arts Trust — corporations should give back to a commons they now take advantage of for free. Make corporate culture support authentic culture.

So, in Capitalism 3.0, we must fortify the commons.

Local initiatives: Land trusts, surface water trusts, groundwater trusts, farmers’ markets, public spaces, time banks, municipal wifi.

Regional initiatives (nascent projects): air trusts, watershed trusts, buffalo commons.

National initiatives (potential): American Permanent Fund, Children’s Opportunity Trust, Spectrum (Airways) Trust, Commons Tax Credits.

Global initiatives: (potential): global carbon trust

Results of the creation of a commons sector:

  1. rights now belonging to private capital will be matched or trumped by rights held in trust for future generations.
  2. ability of private owners to receive income and inheritances will be matched by the ability of everyone to receive them.
  3. the price of nature will no longer be zero.

Peter Barnes’s Authors@Google talk:

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Comments
8 Responses to “Capitalism 3.0”
  1. dem says:

    The argument about “enlightened managers” might be an interesting point to bring up in that storyline, later on, E.5 or E.6? How to be socially responsible managers when also beholden to shareholders now?

    Also, remember the Agency Problem — maybe that dovetails in somehow? Some of the ideas about screened investments and shareholder activism present an interesting reversal or variation on the usual agency problem — the managers beholden to the(single) bottom line can’t act in a social responsible way (rather than management acting in its own, rather than the shareholders’, interest)

    Regarding, “Is it even possible for a publicly traded company to be socially responsible?” This gets into the whole B Corp thing, right? Or rather, that not being a B-Corp makes it difficult to be socially responsible? Do we have a post on these different types of corporations?

    • catemccrea says:

      We don’t, but I’ve put it on the list. I also think that part of the “enlightened managers” paradox is really nicely illustrated in the article about Costco I just posted notes on — it seems like Wall Street analysts are the only ones complaining about Costco’s business practices; their high stock price shows that shareholders are happy. Theory vs practice, etc.

      • dem says:

        Cool — I think I read that article a ways back, but not the post you just did. Thanks Cate! Also, I just added some stuff about B Corps (and some other to-dos) to the gDoc — are you still using that, or should we just email/comment our requests for areas of research?

      • catemccrea says:

        I’ve been keeping my own list, which I’ll just add to the google doc so you can see what I’m working on too (I meant to do this ages ago, whoops). I think it’s a good idea to still be using that, because then you can edit for things like high priority, etc. But don’t feel like you have to maintain it — I can definitely take requests from emails/comments and add them to the list on my own.

  2. dem says:

    Birthrights — so the whole observation about rights against vs rights for is very good, and one I’ve encountered a lot of times in various contexts. Though the advent of “rights for” can really be seen as starting after the Civil War during Reconstruction, with the 13th, 14th and 15th Amendments.

    I’m so on the fence about the idea of rights “for” things, in large part because I usually find myself tearing my hair out asking the question, “And who is supposed to fund all of these rights? What ever happened to personal responsibility?” And then one of my fellow lefty-liberal friends usually accuses me of believing in welfare queens and small farmers who lost their farms to the “death tax” and just generally being a gullible sucker for anything Frank Luntz ever pitched down the Spin Highway.

    But at the same time, I can’t help but feel there has to be a line somewhere between what you earn and what you deserve. Between what you have a right to by virtue of being alive and human on this green earth, and what you have a right to be virtue of your toil, your sweat, your creativity or your perseverance.

    I have to say, the ideas here are interesting, and at least are acknowledging the existence of (and providing an answer to) the problem of how we afford all of these new “rights for” things.

    /soapbox

  3. dem says:

    Ok, last rant, and a brief one: but why oh why does our government give the broadcast airways (a common good) to the networks rather than getting rent for it? Or, say, rent from ABC CBS NBC, give to PBS for free? Etc.

    And, what pisses me off even more: when they are getting the airways for free, why do the networks apparently put up such a battle with the government when, say, the President wants to make a national broadcast, or something like that? Isn’t that a little ungrateful?

    Sorry, this doesn;t actually have much to do with our show, but the whole commons thing got me thinking…

    • catemccrea says:

      There’s a really detailed discussion of the history of rights to the broadcast spectrum in the David Bollier “Reclaiming the Commons” essay in the dropbox, I don’t know if you’ve read it. As with so many of these things, the more you go into detail, the more upsetting it gets…

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  1. […] inspired proposals for a “sky trust” (idea courtesy of our friend Peter Barnes), to “give all Americans a stake in the scarcity rents that polluters would pay for being […]



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