Friday, June 17, 2016

Capitalism 2.0?

Capitalism is one particular configuration of the economic institutions that define production and consumption in a society. It involves private ownership of firms and resources, and a system of wage labor through which individuals compete for jobs within the context of a labor market. In its nature it creates positions of substantial power for owners of capital, and generally little power for owners of labor power -- workers. In theory capitalism can be joined with both democratic and authoritarian systems of government -- for example, France (democratic) and Argentina 1970 (military dictatorship). (Here is an earlier post on alternative capitalisms; link.)

As Marx himself noted, capitalism brought a number of powerful and emancipatory changes into the world. But it is plain that there are substantial deficiencies in our contemporary political economy, from the point of view of the great majority of society. For example:
  • Rising inequalities of income and wealth
  • Disproportionate power of corporations in political and economic life
  • Persistence of racial and ethnic segregation and discrimination 
  • Slow rates of social mobility
  • Pervasive inequalities of opportunity
  • Overwhelming influence of money in electoral politics
  • Inability to address the causes of climate change
  • Inability of the state to effectively regulate products and processes to ensure health and safety
  • Manipulation of culture and values for the sake of profit
What kinds of institutional changes might we imagine for our current political economy that do a better job of satisfying the demands of justice and human wellbeing?

A number of philosophers, political scientists, and economists have addressed the question of how to envision a more just form of capitalism. Kathleen Thelen considers the prospects for an "egalitarian capitalism" (Varieties of Liberalization and the New Politics of Social Solidaritylink); Jon Elster had an important contribution to make on the question of alternatives to capitalism (Alternatives to Capitalism; link); and John Rawls put forward a view of a preferable alternative to capitalism, which he referred to as a property-owning democracy (O'Neill and Williamson, Property-Owning Democracy: Rawls and Beyond; link).

So what might capitalism 2.0 look like if we want a genuinely fair and progressive society in the 21st century? Several features seem clear.
  • Something like decentralized markets in labor and capital seem unavoidable in a large modern society. So the 21st-century economy will be a market economy.
  • Rawls is right that extreme inequalities of property ownership lead to unacceptable inequalities of political participation and human capability fulfillment. So the 21st century will need to find effective ways of distributing wealth and income more broadly.
  • Market mechanisms generally leave some disadvantaged sub-populations behind. A key goal of the 21st century state must be to find effective ways of improving the prerequisites of opportunity for disadvantaged groups. This means that a substantial equality of availability and access to education, nutrition, housing, and other components of quality of life need to be secured by the state.
  • Existing market institutions do not automatically guarantee fair equality of opportunity. So the political economy of capitalism 2.0 will need to use public resources and authority to ensure equality of opportunity for all citizens.
What kinds of political and economic institutions would serve to advance these social goals?

One approach that is gaining international attention is the idea of a universal basic income for all citizens. Belgian philosopher Philippe van Parijs makes a powerful case for the need for universal basic income (link) in the world economy we now face. Here is his definition in the Boston Review article:
By universal basic income I mean an income paid by a government, at a uniform level and at regular intervals, to each adult member of society. The grant is paid, and its level is fixed, irrespective of whether the person is rich or poor, lives alone or with others, is willing to work or not. In most versions–certainly in mine–it is granted not only to citizens, but to all permanent residents. 
The UBI is called "basic" because it is something on which a person can safely count, a material foundation on which a life can firmly rest. Any other income–whether in cash or in kind, from work or savings, from the market or the state–can lawfully be added to it. On the other hand, nothing in the definition of UBI, as it is here understood, connects it to some notion of "basic needs." A UBI, as defined, can fall short of or exceed what is regarded as necessary to a decent existence. (link)
Swiss voters defeated such a proposal for Switzerland this spring (link), but serious debates continue. 

Another approach results from politically effective demands for real equality of opportunity. Equality of opportunity requires high-quality public education for everyone. So capitalism 2.0 needs to embody educational institutions that are substantially better and more egalitarian than those we now have -- ranging from pre-school to K-12 to universities. Consider this fascinating county-level map of the United States combining per capita income, high school graduate rate, and college graduate rate (link):

The map makes clear the strong association between county income and educational attainment, which implies in turn that children born into the wrong zip code have substantially lower likelihood of attaining high-quality educational success. A more just society would show little variation with respect to educational attainment, even when it also shows substantial variation in per-capita incomes across counties. Achieving comparable levels of educational attainment across rich and poor counties requires a substantial public investment in schools, teachers, and educational resources.

Another determinant of equality of opportunity is universal access to quality healthcare. Poor health affects both current quality of life and future productivity; so when poor people are in circumstances in which they cannot afford or gain access to high-quality healthcare, their current and future life prospects are at risk.

All of these ideas about a more just capitalism require resources; and those resources can only come from public finance, or taxation. The wealth of a society is a joint product which the market allocates privately. Taxation is the mechanism through which the benefits of social cooperation extend more fully to all members of society. It is through taxation that a capitalist society has the potential for creating an environment with high levels of equality of opportunity for its citizens and high levels of quality of life for its population. The resulting political economy promises to be the foundation of a more equitable and productive society. (Here is a post on the moral basis for the extensive democratic state; link.)


David Strohmaier said...

I do not see in what sense the Swiss referendum was "narrowly defeated". Almost two thirds of voters rejected it:

Andrew Anderson said...

Our money system forces* the poor, the least so-called creditworthy to lend to banks to lower the borrowing costs for the rich, the most so-called creditworthy.

Any one think that might be a cause of gross wealth inequality?

*or be limited to unsafe, inconvenient physical fiat, aka "cash."

Craig West said...

It is a sad fact that over the past 150 years, the US has attempted to implement every aspect of the societal change you propose. There is a historical analog for each of the desirable changes mentioned in your post. But the net effect has left us with an economic situation closely approximating the Gilded Age of the 19th century. The real question is why the many past attempts to "tame" capitalism have failed so utterly and why so many citizens today seem compelled to act against their own best economic interests.

The answer may be that until the political system that generates the change (and enforces it) is reformed, the hope for real, lasting change is small. But the ability of entrenched economic interests to use racial, ethnic and economic differences to separate us will make this difficult.

Doug Korty said...

You don't mention social democracy. The 8 social democratic countries, especially the Nordic countries always rank as the best places in the world to live. They have problems and some of those problems have been increasing lately but these countries have distinct advantages over the liberal democracies which are more capitalistic and more unequal. Jonas Pontusson's book, Inequality and Prosperity, does a good job of comparing the different types. Don't the social democracies give us a model for the future? They could be improved on and we should be thinking about that but too many people ignore them.

Hans Suter said...
This comment has been removed by the author.
Kate Jackson said...

What about "pre" distribution?

Rawls used the examples of democratic socialism and property-owning democracy. But I suspect that these collapse into the same thing, if you understand how corporate law works.

"Property Owning Democracy" (POD) envisions a capitalist market where everyone owns equity in our companies. Now, we're pretty close to this already -- what with the proliferation of 401ks -- and it doesn't seem to be working for a large segment of the population. His goal was to ensure that everyone got a decent share of the profits arising from our productivity -- this is the point of the dispersion of assets both intangible and tangible.

Either we don't own enough shares, or not enough people own enough shares, etc. Or, as is perhaps more likely, the hierarchical governance structures of our corporations and our financial markets (read: intermediaries, i.e., Wall Street) ensure that profits get steered into certain places rather than others.

Obviously Rawls didn't predict that intermediaries and hierarchical internal governance structures would hold up the profits flowing to the democratic distribution of assets. He assumed the market would work more like it was supposed to work, that competition would prevent these sort of barricades and channels.

So to make POD work like it is supposed to, the "Democratic Socialism" option ought to kick in. This means that including workers, etc., in corporate decisions about the distribution of profits might even out some of the intra-firm wage inequalities. It means that shareholder voices in financial intermediary decisions might redirect funds from brokers' paychecks and from investments *not* obviously tied to the real economy (the most notorious example being HFT)

Andrew Anderson said...

Or, as is perhaps more likely, the hierarchical governance structures of our corporations and our financial markets (read: intermediaries, i.e., Wall Street) ensure that profits get steered into certain places rather than others. Kate Jackson [bold added]

Such as to the banks and top management via debt-financed stock buybacks?

Yes, large corporations should be roughly equally owned by the population but unless government-subsidies for private credit creation are abolished then the banks will forever entice/compel us to steal from one another - so that no one profits ultimately though sin has its pleasure for a season.

Daniel Little said...

Hans -- point taken and corrected.

Kate -- I don't think we're as close to equity in property ownership as you suggest. Certainly the problems of corporate governance you mention are important; but the bottom 35% own virtually zero, 35-70% own under 7% of wealth; and the top 10% own 76% of wealth. ( If wealth were only as unequal as income -- itself dramatically skewed -- the bottom 70% would be doing much better. And disparities by race are even more shocking -- white households in the US own about 20 times the wealth of median black household ownership. The disparity is almost as severe for hispanic households. (