My recent article on how come capitalism is an extractive practice, and the later explainer of how it degrades real capital got, for me at least, a lot of interest. Very few, however, asked what could be done about it. Once you know the problem you are a long way to solving it. There are several ways to turn the extractive nature of capitalism around, and they are surprisingly simple. Read on!
Just in case you are like me and don’t bother to go back to earlier articles here is a short summary of the earlier articles. Not crony capitalism, not raw capitalism, not capitalism in the hands of wrong people but capitalism itself is the cause of the environmental degradation and social misery we see around us. Capitalism offers the rules if you like, the players play by those rules, and the results are what we see.
By the way, the best definition of capitalism I have heard is where the relationship between citizen and organisation is one of employee/customer -owner. The presence of markets makes things worse although there are markets in non-capitalist countries so markets are not an integral part of capitalism per se .
To understand this employer-owner relationship let us start with the workings of the firm by following the flow of money backwards. The diagram below illustrates that:
Let us suppose that owners and lenders want more money back on what they put in or are fearing slumps in customer demand and want to accumulate som cash. The options, laid out in the diagram below include:
- Paying themselves more
- Selling more
- Raising prices towards customers
- Reducing costs for inputs
- Reducing wage costs
This is shown in the diagram below.
So, to get more money out of the firm, or in some cases get some money out of the firm, managers have several options and all of them are extractive:
Persuade the customers to pay more or make the product cheaper by:
- Ignoring health risks with cheaper ingredients
- Using lobbying power to gain a near monopoly
- Finding ways to get the customers “addicted” to your product and sell more that way
- Cutting corners in production and transferring pollution risks to society
- Pushing wages down
There you have it: the “rules of the game”. Put you as owner (or representative of the owner) in the position where you are obliged to seek to lower costs of inputs including labour, raise the price of your goods and increase the size of the market. All of these act to extract from nature, society and individuals.
We must work to change the rules of the game so that our economic system
- takes care of people – each to their needs
- takes care of eco systems – harvesting regeneratively
- takes care of mineral wealth – retains the wealth in circulation
What follows below are some simple solutions that can be applied with the stroke of a pen, in some cases not even that. They are not fool-proof. Any system can be corrupted, the idea is to put in place alternatives that are not as likely to produce negative results.
See this article as a starting point towards the structural and rule based changes we need badly to consider.Stephen Hinton
Solution #1 remove the market
We are very used to seeing everything as buy and sell in a market. One alternative lies in replacing the market with long-term agreements. Markets have been shown to not work in areas like food provision, train services, electricity all of these have shown costs rise and standards fall when privatised. One answer is to nationalise.
Take the example of a nationalised electricity producing firm. This one has a contract with the government to provide electricity to the grid. Prices are regulated and it is a take it or leave it deal. Citizens pay the firm directly or via the government.
Another answer is for citizens to set up their own city service purchasing company and contract to suppliers for food, for example. Citizens in a city agree to buy food from the supplier in return for terms of service such as availability, range, quality, etc.
An economy without a market is indeed a planned economy. However, if you swooped over any given country at any given time with X-Ray vision and looked down at each firm, each government department, each municipal office as well as government agencies you would see plans – plans for the quarter, the year, the next 5 years. We live already in planned economies we do not however really plan for them to be successful in terms of people employed, standards of living equity and environmental performance. We might as well plan properly and ditch the pervasive market leaving it to function in the specific areas it excels at like fine art.
Solution #2 remove the owners
#2A remove ownership of land
One of the bugbears of the capitalist model is where people directly or through corporations own land. That means they can do pretty much what they like with it, like cut down trees and sell them and leave the local hydrology malfunctioning, carbon sequestration depleted and local groundwater overburdened with nutrients. Some call that ecocide – the killing of eco-systems.
The alternative is to see land as a commons – something you can use but you have to put it back in at least the same status you found it. If the right to own land was removed, and replaced with a lease that bound the tenant to abide by eco-stewardship rules, the temptation to increase profits by lowering eco stewardship costs would be gone.
The same can go for mineral wealth – this is seen as a commons and there should be agreed rules to its use in creating the circular economy.
#2B private ownership structure of corporations
It is the owners who need to service their debts and remove money from the corporation. No owners, no need to service debts. Corporations can be owned by governments, municipalities and even constellations of citizens who are the beneficiaries of the corporation’s services. But then, where would money to set the firm up come from? A central government lending facility could provide money to worker cooperatives. Or citizens themselves can provide money up front.
Solution #3 remove the workers as we know them
The government-run worker agency
This agency employs everyone. Then it hires people out to firms at a price. If there is no firm to rent the person out to the person gets paid anyway. Not a complete solution, but the government-run agency at least can make sure the workers they provide to firms are healthy, well-trained, etc and that the firm treats them fairly. And if there is no firm to take them on they get wages anyway.
The advantages to firms are many: If there is a problem with an employee, the agency can just send another. The firm has almost zero administration for the employee – they just pay the bill, and all pensions, health care etc are taken care of. And for society it just takes the consequence of accepting the relationship employer – employee to its logical ending.
If firms cannot employ people then it will have to be up to the state or municipality to do that. Or indeed, the state agency could “rent out for free” workers to charitable organisations, state run institutions like the railways, road maintenance, even the banks and telephone network, health care etc. All these essential services could be staffed in a better way.
Encourage cooperatives, charities etc
A central lending facility could provide money to worker cooperatives funded from taxes or indeed from money created by central banks. The workers are mostly interested in getting paid for their work. The central (government or folk institution) is only interested in the debt being serviced in a sustainable way. The best results are when vital services are offered in a sustainable way. The capital cost can be secondary.
Solutions combined in an example: the local commons food organisation
We could start small and start from where we are. There are several local commons of interest that impact lives and environment. One is the local market for food (a commons because it is in everyone’s interest) and the other is the food produced locally – again in everyone’s interest)
Within cycling and walking distance then, a community needs to acquire a shop or other premises from where all locals buy a good deal of their food. There is the commons market sorted. Then, they need to buy from local producers. To get started they could ask the national cooperative association to help them by getting a wholesale agreement with the local supermarket where the shop buys at wholesale and picks up from the shop.
Subscription works best so that everything the local shop buys in is pre-ordered or pre-bought by locals. That reduces food waste to around zero and helps keep the economy of the shop buoyant. That might need a nifty computer system but – hey – many love creating such things.
Next step is agreements with local suppliers and indeed community members who grow some food in their gardens to supply within the pre-planned yearly sales.
Of course, all systems can be improved, all deals can be made better. A major system design is badly needed and not just in the rules of the game. But that is the subject for the next explainer. Stay tuned, sign up for updates from my blog (in sidebar) or Medium account.