Article: A social capitalism

Our current financial system is failing. It’s time to overturn corporate capitalism and let community systems flourish in its place.

Not so very long ago, it seemed that the system question had largely been settled. The fall of the Berlin Wall and collapse of the Soviet Union, together with the promise of a new digital economy, were taken to spell not just the end of history but the end of the political economy as well. Liberal capitalism appeared as near-universally triumphant; the end-point and final destination of our collective human journey and endeavour. Certainly there remained a few bumps in the road, the need for some corrections to speculative over-enthusiasm and a means of tackling the environmental externalities that would have to be taken care of at some point. But, for most, the notion that the capitalist system itself was programmed at a fundamental level to produce social, economic and ecological outcomes antithetical to widely shared values and even to continued life on the planet seemed utterly alien.

No longer. Times have changed, and in profound ways. For many, the continuing build-up of long-running economic and ecological crises has put the idea that the system is broken squarely on the table. Faith in corporate capitalism as the best of all possible economic worlds simply could not be maintained after the global financial crash of 2007-2008. Klaus Schwab, founder and executive chairman of the World Economic Forum, opened the 2012 meeting of global elites at Davos with a statement claiming that “capitalism in its current form no longer fits the world around us”.

The mainstream business and economics press spent much of 2014 exploring economist Thomas Piketty’s surprise bestseller Capital in the Twenty-First Century, with its basic claim that capitalism was reverting to a fundamental and pernicious trajectory towards ever-greater inequality. At the start of 2015, releasing a report with former UK chancellor Ed Balls, former US treasury secretary Larry Summers wrote, “The ability of free-market democracies to deliver widely shared increases in prosperity is in question as never before.” Just this summer, Pope Francis’s hard-hitting encyclical Laudato Si connected economic inequality to the accelerating climate change disaster, laying the blame squarely at the door of the economic system: “By itself, the market cannot guarantee integral human development and social inclusion […] the present world system is certainly unsustainable.”

Poll data confirms this shifting zeitgeist. A 2015 YouGov poll revealed that only 39% of Americans between the ages of 18 and 29 have a favourable view of capitalism. Moreover, 36% of this same rising generation views socialism favourably; one explanation, perhaps, for the surprising traction of self-declared ‘democratic socialist’ senator Bernie Sanders in the early stages of the US Democratic presidential primary race. The ongoing stalemate and decay of the existing system is itself generating calls for something new.

But while the breakdown of the current system may now be on the table in a serious fashion, systemic solutions are not. Despite growing gestures in the direction of possible alternatives and an explosion of promising small-scale experiments, a real conversation – in the mainstream and not just at the margins – on the nature of a ‘next system’ has yet to take place. Only by presenting specific alternative possibilities are we likely to engender real responses at the level of systemic design rather than rhetorical critique.

The key question that needs to be asked – and answered – is this: if we acknowledge that our current system is broken, then what do we want instead? If corporate capitalism, to say nothing of the traditional state socialist model, appears unable to sustain equality, liberty and democracy, or to avert planetary disaster, what is the alternative?

It is profoundly difficult for any society to come to terms with systemic challenges. As a historian, I know that far-reaching ideas do not usually matter at most points in time. What matters is entrenched power. But we are in one of those exceptional moments in history when the old ideas are demonstrably failing at a time when new ones represent a very great source of potential power and political energy.

What’s next?

It is imperative to take a long-term perspective that sees beyond the daily churn and business cycles. From this vantage point we can discern powerful trajectories over the past half-century that are drivers of many of our problems: steadily increasing levels of CO2 in the atmosphere and, in the US, UK and elsewhere, a steadily increasing share of wealth flowing to the very top of the 1% and a steadily declining share of income for the rest of us. While the drama of the Great Recession has helped bring this all into focus, the real problem is deeper and much more fundamental.

One of the most important trends in the US, as in much of the advanced industrial world, has been the decline of organised labour, especially in the private sector. This is problematic not just because of the well-documented correlation between falling union density and falling wages, but because labour’s function in the capitalist system in the mid-20th century was to provide what John Kenneth Galbraith called “countervailing power”. If it was possible, for a few brief decades between the end of the Depression and Second World War and the onset of a new crisis in the 1970s, to believe in a corporate capitalism that would deliver progressively better outcomes for the majority of people, this was in no small part due to the labour movement at the time.  It was capable of providing a bulwark against corporate power, serving as the engine of regulation and creating the space in which other movements (like those around race, gender and sexual inclusion) could operate successfully. With labour now in significant decline in most parts of the advanced world, the current system offers ever-decaying pushback to the corporate agenda.

It is also distressing to note fractures in the vision of an inclusive society constructed in the post-Second World War period. Nativist sentiments are on the rise in the US and Europe, with a sense of optimistic openness giving way to a fortress mentality and revived fears of ‘the Other’. Essentially, the model for inclusion in corporate society, involving a perpetually expanding economy whose benefits could be managed and channelled through a social-democratic or liberal nation state, is breaking down. Instead, globalisation is sharply undercutting former certainty about a secure place in the economy.

An important date in the onset of this process in America was the shuttering of Youngstown Sheet and Tube in 1977, one of the first big steel mills to close in what would become known as the US Rust Belt. At the time, the prospect of such a closure – with all the harm it would inflict on a community whose fabric depended on the presence of a particular corporation – was quite unprecedented, a topic for the national news. Today, such dislocations have become commonplace, with predictable consequences. Entire cities have been thrown away and communities dissolved in a process that results, ultimately, in the atomisation of our relationships to each other. If we want to restore community as an essential precondition for democratic life, we must build an economy that recreates its foundations. The task is no longer merely seeking to temper capitalism but rather to transform or displace it.

The culture of community
Central to the project of building a next system is the role of culture. Far too often, proponents of economic alternatives assume that new models will thrive on their technical merits alone. In some ways, this is a symptom of our faith in technocratic intervention: we are far more likely to suggest solving a social problem with a new app rather than undertake the difficult work of forging new social relations.  A next system, however, will need genuine participation starting in the community and in the workplace, coming together (to use Raymond Williams’ helpful term) in a larger ‘structure of feeling’; one in which cooperation, solidarity and long-term shared interest acquire real meaning in everyday life. The great Jewish theologian Martin Buber emphasised this need to build from the bottom up: “An organic commonwealth [...] will never build itself up out of individuals but only out of small and ever smaller communities: a nation is a community to the degree that it is a community of communities.”

To truly develop a culture of participation and cooperation requires time, in two important senses. First, we need the patience and commitment to do such work on a timescale measured in decades. This is a very hard thing to grasp in a culture without any real attention span, addicted to ‘disruption’ and quick fixes.

More importantly, we need economic arrangements that allow people the free time necessary to perform the work of teaching themselves a new way of living together as neighbours and citizens. In many ways, our current system is programmed to do exactly the opposite: chipping away at evenings and weekends with ever more work, forcing people to take two or three or more precarious jobs to survive, while millions upon millions remain jobless. Reducing the time we must spend on work is a key requirement of a  next system; not just because it will make people happier, reduce unemployment and lower ecological impact, but also because without such reductions there is little chance to lay the new foundation of community and citizenship required to sustain it.

Building a next system also requires reimagining the spatial relations of the economy. The current system is based on expansion. Unwilling to countenance the democratisation of the ownership of wealth, it instead looks to endless growth and expansion for what David Harvey has termed a ‘spatial fix’. New markets are constantly required; a rising tide is supposed to lift all boats; the pie, in theory, is supposed to continuously expand so that slices become bigger instead of more evenly cut. The large private corporation, currently the dominant form of industrial organisation, financed through capital traded on public markets, is dependent upon growth in order to return profits to shareholders and fend off competitors.

All this, besides threatening ecological disaster on a finite planet, leads to various forms of de facto interventionist global policies when taken to its geopolitical conclusion, almost always via policies genuinely believed to further idealistic goals. It was coming to terms with the historic expansionist as well as ‘idealist’ reasons that ultimately resulted in the deployment of the atomic bomb against the civilians of Hiroshima and Nagasaki – the 70th anniversary of which we remember this August – that forced me to confront the hard edges of the system problem in my own historical research.  It is imperative that we begin to build systems that, unlike both corporate capitalism and state socialism, value human life over and above a self-perpetuating need to claim increasingly large spheres of influence geopolitically.

Rather than the endless abstract space of expansion, the turn to a truly community-sustaining system requires a commitment to place. Democratising ownership does not just mean equalising citizens’ bank balances, it also means developing the cooperative and community structures that anchor productive capital at the level most appropriate for each sector. In this regard, Catholic economic thought has stressed the useful principle of subsidiarity, whereby one addresses a problem at the lowest possible level, although without being afraid to tackle things at higher scales when necessary. The same lesson can be found in the work of E.F. Schumacher. Mostly remembered for the titular claim of his book that ‘small is beautiful’, many readers neglect to read all the way to the end, where Schumacher insists that the hyperlocal must be complemented by publicly owned enterprises at various scales: “When we come to large-scale enterprises, the idea of private ownership becomes an absurdity.”

We need to invent new ways of building a relationship between place and the larger economy. Instead of nostalgia for lost villages of a prelapsarian agrarian past or the idealised small town ‘main streets’ that figure so heavily in the American popular imagination, we need models for transition that build the same connections and spirit of cooperation, but are suited for life in a technologically advanced, highly productive industrial society alongside millions of our fellow citizens. New models that do so are, in fact, already in development in many parts of the US and around the world. The community land trust, for instance, carves out spaces of democratic control and permanent affordability in housing markets otherwise prey to local gentrification and speculative insanity. Participatory budgeting is beginning (albeit at a small scale and to a limited extent in most places) to explore how to rebuild a sense of democratic ownership of and control over public spending.

A particularly powerful US model is to be found in Cleveland, Ohio, in the form of the Evergreen Cooperatives, a geographically oriented network of worker-owned cooperatives linked together in a place-based non-profit structure that facilitates connections between the outputs of these firms and the purchasing needs of the large local ‘anchors’; principally, non-profit universities and hospitals. This model provides democratised ownership in a community-sustaining form that creates needed jobs in poor, deeply disinvested communities of colour. The adjacent larger quasi-public institutions have a combined purchasing power of over $3bn per annum, a part of which, directed to the cooperative network, begins to articulate a form of place-based, decentralised economic planning.

By embedding community values into the flows of goods and services while maintaining the kind of efficiencies and checks on wasted resources that come with the pressures of (limited and circumscribed) competition, the Cleveland experiment represents the germ of something that’s neither the straightjacket of the central bureaucracy nor the free-for-all of the supposedly unrestricted but largely corporate-dominated market. The point is to treat markets as one would treat fire, something that is very powerful but also very dangerous, a point the collapse of 2008 made perfectly clear. We need to design a system in which controlled burns replace catastrophic wildfires, in which the exchange of commodities facilitates the development of community, not its destruction. In our current system, exactly the opposite is true. As Karl Polanyi put it: “The running of society as an adjunct to the market [where] instead of economy being embedded in social relations, social relations are embedded in the economic system.”

As we move to re-embed the economy in society and rebuild its ties to place, questions of geographic and demographic scale come to the forefront. Are there limits to the practice of real democracy at the scale of large nation-states? This question was implicit in the debate about the Scottish referendum and is lurking in the calls for Catalan independence. The continuing project of devolution points in the direction of smaller-scale regional decision-making units as a precondition for a revived popular sovereignty. This is equally, if not more, important in the US, a gargantuan nation of more than 300 million people on a continental scale: Germany could fit within the confines of the state of Montana, while the state of California would be, by itself, one of the ten largest economies in the world. In such a leviathan it is imperative to envision ways to decentralise decision-making if we are to preserve democratic control and accountability, however difficult such a transition may be politically and constitutionally.

Moving forward
Obviously, serious questions remain, highlighting the key role for research and experimentation. For example, experiments with participatory budgeting are encouraging but ultimately limited. We need much more work to develop robust participatory mechanisms not just for budgeting but also for democratic planning, especially at larger scales.

Other developing challenges underscore the importance of popular mobilisation to defend the spaces in which the next system might begin to unfold. For instance, the new generation of free-trade agreements threatens to strip away the ability to relocalise economies, with promising developments like that in Cleveland likely to be ruled illegal in unaccountable, corporate-dominated international courts. More fundamentally, the tremendous concentrations of wealth produced in the current system stack the political deck against the emergence of the new. In the US, it is estimated that the coming 2016 presidential election may involve campaign costs upwards of $5bn, an astronomical sum.

But serious challenges should not be an excuse for inaction. Too often we have a vested interest in pessimism. After all, a conclusion that ‘nothing can be done’ absolves us of any need to seriously attempt to meet the challenges posed by our time in history. The next system is developing where opportunities to begin building it exist. In the US, with Washington deadlocked by partisan paralysis, there is far more space to move forward politically at the municipal level. New York City, for instance, has begun to fund worker cooperatives as an economic development strategy aimed at building wealth in low-income communities. In Boulder, Colorado, activists have successfully mobilised to begin the municipalisation of their electrical utility in order to transition to environmentally sustainable power. Local public banks are on the agenda in cities like Santa Fe and Philadelphia.

The various processes of local experimentation point towards a final important design feature of the next system: pluralism. We must recognise that there are no magical single solutions to all the systemic problems we face; a credible model for a next system will not depend on a revolutionary all-or-nothing transition. Adopting a more pluralist vision helps us understand how the elements of a next system can be put in place as the necessary work of reconstruction unfolds over the decades to come. Nor is the next system likely to be a matter of localist change alone: General Motors and Chrysler were de facto nationalised by the US government in the recent crisis. What might happen in the next crisis – or the one after that – is by no means a closed question.

To confront the central issues, we need to begin a serious dialogue that is unafraid to admit that its aim is truly to change the system, not as a matter for the academic left but as a broad and practical discussion about the systemic crisis underpinning persistent racial and gender inequities, ecological threats and our current massive overconcentration of wealth and power. To help catalyse this conversation, I have recently launched the Next System Project, together with former presidential environmental adviser and climate activist James Gustave ‘Gus’ Speth. At this pivotal moment in history, we see this work, which has the potential to dramatically open up the space we need to envision the world we wish to see, as absolutely critical. Thousands have joined us, including leaders of major academic, labour, ecological and other institutions and engaged citizen groups. Our hope is that many more will join us in debating and constructing the next system as one in which outcomes that are truly sustainable, equitable and democratic are commonplace.

Gar Alperovitz is co-founder of the Democracy Collaborative and co-chair of the Next System Project.

This article first appeared in the RSA Journal - Issue 2 2015