I’m a businessman. I believe society should reward successful initiative with profit. At the same time, I know that profit-seeking activities have unhealthy side effects. They cause pollution, waste, inequality, anxiety, and no small amount of confusion about the purpose of life.
I’m also a liberal, in the sense that I’m not averse to a role for government in society. Yet history has convinced me that representative government can’t adequately protect the interests of ordinary citizens. Even less can it protect the interests of future generations, ecosystems, and nonhuman species. The reason is that most—though not all—of the time, government puts the interests of private corporations first. This is a systemic problem of a capitalist democracy, not just a matter of electing new leaders.
If you identify with the preceding sentiments, then you might be confused and demoralized, as I have been lately. If capitalism as we know it is deeply flawed, and government is no savior, where lies hope?
This strikes me as one of the great dilemmas of our time. For years the Right has been saying—nay, shouting—that government is flawed and that only privatization, deregulation, and tax cuts can save us. For just as long, the Left has been insisting that markets are flawed and that only government can save us. The trouble is that both sides are half-right and half-wrong. They’re both right that markets and state are flawed, and both wrong that salvation lies in either sphere. But if that’s the case, what are we to do? Is there, perhaps, a missing set of institutions that can help us?
I began pondering this dilemma about ten years ago after retiring from Working Assets, a business I cofounded in 1982. (Working Assets offers telephone and credit card services which automatically donate to nonprofit groups working for a better world.) My initial ruminations focused on climate change caused by human emissions of heat-trapping gases. Some analysts saw this as a “tragedy of the commons,” a concept popularized forty years ago by biologist Garrett Hardin. According to Hardin, people will always overuse a commons because it’s in their self-interest to do so. I saw the problem instead as a pair of tragedies: first a tragedy of the market, which has no way of curbing its own excesses, and second a tragedy of government, which fails to protect the atmosphere because polluting corporations are powerful and future generations don’t vote.
This way of viewing the situation led to a hypothesis: if the commons is a victim of market and government failures, rather than the cause of its own destruction, the remedy might lie in strengthening the commons. But how might that be done? According to prevailing wisdom, commons are inherently difficult to manage because no one effectively owns them. If Waste Management Inc. owned the atmosphere, it would charge dumpers a fee, just as it does for terrestrial landfills. But since no one has title to the atmosphere, dumping proceeds without limit or cost.
There’s a reason, of course, why no one has title to the atmosphere. For as long as anyone can remember there’s been more than enough air to go around, and thus no point in owning any of it. But nowadays, things are different. Our spacious skies aren’t empty anymore. We’ve filled them with invisible gases that are altering the climate patterns to which we and other species have adapted. In this new context, the atmosphere is a scarce resource, and having someone own it might not be a bad idea.
But who should own the sky? That question became a kind of Zen koan for me, a seemingly innocent query that, on reflection, opened many unexpected doors. I pondered the possibility of starting a planet-saving, for-profit, sky-owning business; after all, I’d done well by doing good before. When that didn’t seem right, I wondered what would happen if we, as a society, created a trust to manage the atmosphere on behalf of future generations, with present-day citizens as secondary beneficiaries. Such a trust would do exactly what Waste Management Inc. would do if it owned the sky: charge dumpers for filling its dwindling storage space. Pollution would cost more and there’d be steadily less of it. All this would happen, after the initial deeding of rights to the trust, without government intervention. But if this trust—not Waste Management Inc. or some other corporation—owned the sky, there’d be a wonderful bonus: every American would get a yearly dividend check.
This thought experiment turned into a proposal known as the sky trust and has made some political headway. It also served as the epicenter of my thinking about the commons, which led to this book.
A Personal Exploration
The exploring that lies behind this book began long before I started Working Assets. As a boy, I helped my father crunch numbers for several books he wrote about the stock market. Later, as a journalist for Newsweek and The New Republic, I wrote dozens of articles on economic issues. But my real economic education began in my thirties, when, after a midlife crisis, I abandoned journalism and plunged headfirst into capitalism.
My motives at the time were mixed. On one level, I was tired of writing, needed money, and didn’t like working for other people. On another level, I wanted to see if various ideas I’d acquired made sense. I’d been much affected by the writings of British economist E. F. Schumacher. In his 1973 book Small Is Beautiful, Schumacher argued that capitalism is dangerously out of sync with both nature and the human psyche. As an alternative, he envisioned an economy of small-scale enterprises, often employee-owned, using clean technologies.
With Schumacher’s vision in mind, I leapt into action. Along with five friends, I started a solar energy company owned cooperatively by its employees. The company flourished until changes in tax law wiped out the nascent solar industry in the 1980s. By then, I was knee-deep into a twenty-year second career, during which I started mutual funds and telephone companies, served on boards of banks and manufacturers, and invested in numerous other businesses. The unifying theme of all these ventures was that they sought to earn a profit and improve the world at the same time. Their managers were strongly committed to multiple bottom lines: they knew they had to make a profit, but they also had social and environmental goals.
For much of this time I was president of Working Assets, a company that donates 1 percent of its gross sales to nonprofit groups working for a better world. These donations come off its top line, not its bottom line; the company makes them whether it’s profitable or not (and many years we were not). It occurred to me that 1 percent is an exceedingly small portion of sales for any business to return to the larger world, given that businesses take so much from the larger world without paying. How, for example, could we make any goods without nature’s many free gifts? And how could we sell them without society’s vast infrastructure of laws, roads, money, and so on? At the very least, I liked to think, we ought to pay a 1 percent royalty for the privilege of being a limited liability corporation.
I also entertained a notion that, by showing other companies that they could give back 1 percent of their sales and survive, Working Assets could spark a movement that would improve the world. It was a pipe dream, I confess, but not entirely without logic. My thinking was that the 1 percent give-back was like a mutant gene added to our DNA. If it survived in the marketplace, it could spread. At employee orientations, I used to say that our company was seeking to make socially responsible genes the dominant business genes of the future.
Eventually, after retiring from Working Assets in 1995, I began reflecting on the profit-making world I’d emerged from. I’d tested the system for twenty years, pushing it toward multiple bottom lines as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.
In retrospect, I realized the question I’d been asking since early adulthood was: Is capitalism a brilliant solution to the problem of scarcity, or is it itself modernity’s central problem? The question has many layers, but explorations of each layer led me to the same verdict. Although capitalism started as a brilliant solution, it has become the central problem of our day. It was right for its time, but times have changed.
When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we’re awash in capital and literally running out of nature. We’re also losing many social arrangements that bind us together as communities and enrich our lives in nonmonetary ways. This doesn’t mean capitalism is doomed or useless, but it does mean we have to modify it. We have to adapt it to the twenty-first century rather than the eighteenth. And that can be done.
How do you revise a system as vast and complex as capitalism? And how do you do it gracefully, with a minimum of pain and disruption? The answer is, you do what Bill Gates does: you upgrade the operating system.
Scope of the Book
Much as our Constitution sets forth the rules for government, so our economic operating system lays down the rules for commerce. I use the possessive our to emphasize that this economic operating system belongs to everyone. It’s not immutable, and we have a right to upgrade it, just as we have a right to amend our Constitution. This book tells why we must upgrade it, what a new operating system could look like, and how we might install it.
The book has three parts. Part 1 focuses on our current operating system, a version I call Capitalism 2.0. (Capitalism 1.0 died around 1950, as I’ll explain in chapter 2.) I show how this system devours nature, widens inequality, and makes us unhappy in the process. Although many readers will already be aware of these problems, I examine them anew to show that these outcomes aren’t accidental—they’re inescapable consequences of our economic software. This means they can’t be fixed by tinkering at the edges. If we want to fix them, we have to change the code.
Part 2 of the book focuses on capitalism as it could be, a version I call Capitalism 3.0.The key difference between versions 2.0 and 3.0 is the inclusion in the latter of a set of institutions I call the commons sector. Instead of having only one engine—that is, the corporate-dominated private sector—our improved economic system would run on two: one geared to maximizing private profit, the other to preserving and enhancing common wealth.
These twin engines—call them the corporate and commons sectors—would feed and constrain each other. One would cater to our “me” side, the other to our “we” side. When properly balanced—and achieving that balance would be government’s big job—these twin engines would make us more prosperous, secure, and content than our present single engine does or can. And it would do this without destroying the planet.
Part 2 proposes a number of new property rights, birthrights, and institutions that would enlarge the commons sector in one way or another. I like to think that these proposals blend hope and realism. Among them are:
- A mutual fund that pays dividends to all Americans—one person, one share;
- A trust fund that provides start-up capital to every child;
- A risk-sharing pool for health care that covers everyone;
- A national fund based on copyright fees that supports local arts;
- A limit on the amount of advertising.
The final part of the book explains how we can get to Capitalism 3.0 from here, how the models can work, and what you and I can do to help.
The dramatis personae throughout the book are corporations, government, and the commons. The plot goes something like this. As the curtain rises, corporations are gobbling up the commons. They’re the big boys on the block, and the commons—an unorganized mélange of nature, community, and culture—is the constant loser. It has no property rights of its own, so must rely on government for protection. But government is a fickle guardian that tilts heavily toward corporations.
Fortunately, corporations only dominate government most of the time; every once in a while, they lose their grip. So it’s possible to imagine that the next time corporate dominance ebbs, government—acting on behalf of commoners—swiftly fortifies the commons. It assigns new property rights to commons trusts, builds commons infrastructure, and spawns a new class of genuine co-owners. When corporations regain political dominance, as they inevitably will, they can’t undo the new system. The commons now has safeguards and stakeholders; it’s entrenched for the long haul. And in time, corporations accept the commons as their business partner. They find they can still make profits, plan farther ahead, and even become more globally competitive.
None of the proposals advanced in this book will come to fruition tomorrow. My aim, though, is not that. My aim is to light a beacon, to show the kind of system we should be building, bit by bit, as opportunities arise. I see this system-building as a decades-long process punctuated by periods of rapid change. It will involve businesses and politicians, economists and lawyers, citizens and opinion leaders at all levels. If we’re not to get lost, we’ll need a guide, and that’s what I hope this book will be.
Biologist Garrett Hardin: Garrett Hardin, “The Tragedy of the Commons,” Science, 1968, 162, 1243–1248.
- envisioned an economy: E. F. Schumacher, Small Is Beautiful (New York: HarperCollins, 1973).
This is a chapter from Capitalism 3.0: A Guide to Reclaiming the Commons (e-book).
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