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Three Principles for Reconstructing the Economy

Having written at great length on these topics,  I have tried to condense some main points into a few words, hoping to attract the attention of the majority with only a few minutes to read,   The topic is nothing less than how to save humanity and the biosphere.  "The economy" refers indifferently to national economies, regional economies, and the global economy.   The premise of this indifference is, as Charles Taylor would say, that the constitutive rules are the same in all three cases.

Please note: Revised version published here.

Three Principles for Reconstructing the Economy

First Principle

The needs of those who need to sell something to live (to sell either their labor or some other saleable item) usually exceed effective demand. [1]  There are more sellers than buyers.  

Therefore, in a green, responsible, plural and caring (or “solidarity”) economy there must be work (or some other source of livelihood) that does not depend on sales.

Roughly speaking, work that does not depend on selling can be financed paying for social programs with money siphoned off from the extraction of natural resources (via severance taxes, public ownership, endowments of charities, or in some other way).[2] 

Second Principle

The main dynamic [3] that now drives the production of goods and services is profit.  In more technical and exact language it is the accumulation of capital.   For this reason little can be done that reduces profits (i.e. restricts the accumulation of capital) without also reducing production; [4]  that means reducing employment; it means reducing the supply of food, of medicine, of housing, of transportation etc.

A green, responsible, plural, and caring economy must diversify the dynamics and the logics that drive and orient production and distribution.  Diversification is in principle unbounded.   It refers to institutions that have not yet been invented.  It also refers to institutions that have been invented, such as (for examples)  publicly owned enterprises,  mixed public/private enterprises,  cooperatives,  parastatals,  pension funds with social conscience, employee ownership  (“empresas recuperadas” in Argentina),  all kinds of nonprofits,  community currencies,  municipal utilities (electricity, water),  swap meets, anchoring capital to a territory and assigning it a mission (e.g. with a municipal bank chartered to support small business), corporate social responsibility,  micro business and micro lending schemes like the Grameen Bank, mom and pop shops (which make no profit but at most the equivalent of a wage), self-employment, professional partnerships, neighborhood solidarity, gift economy, friendship,  fair trade, economy of communion, community supported agriculture, L.E.T.S., voluntarism,  flea markets, subsistence agriculture,  hand-me-down clothing, families, permaculture (1. Love the land, 2. Love the people, 3. Share the surplus), production for use, eco villages, monasteries, motherhood, do-it-yourself home improvement, indigenous forms of cooperation and sharing, Habitat for Humanity, Medecins sans Frontières, and so on.

To the extent that an economy becomes plural capitalism becomes governable. The “systemic imperative” [5] to create optimal conditions for profit-making (and hence for producing) becomes less imperative. [6]  

This second principle articulates a common goal for diverse social movements.  Many social movements in one way or another pursue a value that is not profit.  Many tend to create dynamics and logics that get production and distribution accomplished in ways that are distinct from the accumulation of capital.    To the extent that the sum of their efforts makes people’s welfare less dependent on the confidence of investors (i.e. their confidence that investments will be profitable) they make capitalism governable.   Capitalism becomes governable because now if profit-making is restricted (for example by raising wages or by enforcing environmental laws) then other dynamics are in place to take up the slack so that old livelihoods lost are replaced by new livelihoods added. [7]

Third Principle

The greatest threat to humanity is ecological.  With the destruction of the fragile biosphere we inhabit, which now seems more likely than not, the life of our species and the lives of many other species will be over. 

The necessary transition to green technologies requires governability.

Governability requires the First Principle and the Second Principle.

Without the First Principle the world is ungovernable because of social conflicts.   For example, governments often do not dare enforce anti-pollution laws for fear of destroying jobs.   Precarious employment and unemployment, and associated evils like the implacable advance of narco-culture and narco-power, are already intolerable.  Without the First Principle enforcing green laws threatens to make the intolerable worse.

Without the Second Principle the world is ungovernable because of the systemic imperative to create favorable conditions for the accumulation of capital (and therefore for production) cost what it may.    For example, the summits at Rio de Janeiro and other well-publicized meetings on environmental issues usually fail because governments do not dare make commitments that would lower profits.  The perennial clash between civil society environmentalists and the governments of the industrialized countries is not caused simply by wealthy people controlling the politicians whose campaigns they pay for.   The deeper cause is that the system requires profit, always more profit and never less profit.   Profit is a necessary condition for the operation of the system’s mechanisms for producing everybody’s daily bread.

To save mother earth it is necessary to learn from the teachings of our colleagues in the natural sciences.   It is necessary to commit to acting in the light of what they teach us.  But no amount of scientific knowledge and no amount of commitment will save mother earth without structural changes like those called for by the First Principle and the Second Principle.

[1] “The celebrated optimism of traditional economic theory, which has led to economists being looked upon as Candides, who, having left this world for the cultivation of their gardens, teach that all is for the best in this best of all possible worlds provided we will let well enough alone, is also to be traced, I think, to their having neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand.”   J.M. Keynes, General Theory p. 33. 

[2]  This does not mean that all the rents that pay for work without sales have to pass through the public treasury.    In the European Middle Ages for example rents from agricultural land were channeled to “hospitals” (in those times general houses of hospitality for people in need, ill or not) through the church and religious orders.   Today private foundations sponsor art and science.  (For example the Guggenheim Foundation with wealth historically derived from Chilean copper.)  They provide employment that does not depend on sales for artists and scientists.  

[3] “Main” does not mean “only.”  It also does not necessarily mean that hiring workers in business-for-profit is the source of the majority of employment. 

[4]  The regulationist school of economists associated with the University of Grenoble holds that there must be a “regime of accumulation.”   Politics, culture, religion, education, in fact all of social life, must function to provide guarantees that the conditions necessary for capital accumulation will be established and preserved. 

[5] The phrase “systemic imperative” is from Ellen Wood’s Empire of Capital.

[6]  It must be added that even extreme measures that are pro-capital and anti-labor will fail in the long run to keep profits high enough to motivate enough production and distribution to establish general prosperity.   Sooner or later a system overly dependent on capital accumulation to keep it going will lead to stagnation like that we see today in Japan, the USA, and the European Union.   On this point the arguments advanced by Rosa Luxembourg almost a century ago in her Accumulation of Capital (1913) have stood the test of time.   See also Keynes’ General Theory chapter 24. (1936)  Regarding the inevitable failure also of the so-called “Keynesian” strategy of keeping profits up by creating an affluent middle class and working class with the purchasing power to buy the products of industry see Howard Richards and Joanna Swanger The Dilemmas of Social Democracies. (2006)

[7]  For example in 1971 in the first few months of the Salvador Allende government in Chile private new investment fell to zero, but total new investment did not decline because public investment increased.   Although this example is instructive, the solution of humanity’s problems requires something more.  It requires de-growth in which loss of old livelihoods is replaced by ecologically sustainable new livelihoods rather than by a different form of ecologically unsustainable industrialization.

Comments

Three Principles for Reconstructing the Economy

by Paul Crawford - Sep 19 2012 - 18:56

Dear Dr. Richard,

Thank you for your posting.  I agree with many of the basic sentiments in this essay: complete reliance on profit-making is no way to run a fragile planet.  With that said, I found the essay pretty hard to follow -- and I wasn't sure who you were trying (or hoping) to convince.  

Upon finishing the essay, I could not precisely recollect the three principles.  It looked like as if you were trying to build a philosophically sophisticated argument based on love of neighbor ... but a love that is somehow governed or regulated by something that looks a bit like socialism.  I'm not qualified to argue that socialism is inherently bad; I don't know.  I find it easier to say that capitalism (and the profit motive) is insufficient.  

Further to the above, I sensed incoherence in your argument -- i.e., you seem to champion both pluralism AND some regulatory enforcement oriented to, at least, environmental sustainability.  Does this enforcement suggest a kind of alternative "systemic imperative?"  If so, which form(s) of pluralism is (are) most adequate?

As I read the essay, I found myself thinking that the only people who will take note of this are people who already agree with your basic sentiments.  I couldn't think of anyone from the world of commerce who would find this statement compelling or convincing.

I have recently been astounded by the realization that there are a lot of people who are entrepreneurial masters-of-profit-making who do what they do because they want to create opportunities for people to earn a living.  The more profit I make, the more I can help others.  That's not all bad.  The true entrepreneur is a philanthropist.  I wish I knew how we could foster the development of more of those individuals.

In sum, I am not in favor of "throwing the baby out with the bathwater."  I sensed that your argument tended that way, but I am not sure.  It might be interesting to get feedback from those people whose minds you most want to change.  They won't agree with you, to be sure ... but you might find new ways to sharpen your statement ... a statement that is still too long.

I look forward to seeing you later this year, and I hope we can have a good long conversation.  May your tribe increase.

Paul T. Crawford

De-growth and Steady State

by Mike Osborne - Sep 21 2012 - 09:59

As I said in an email to Howard, what he says seems to make sense to me. I think that the thrust for growth for its own sake must be challenged, and there must be at least room for arguments for de-growth or at least a steady-state. There is a whole movement on de-growth even in the Americas.

I agree that there are many entrepreneurs who when they have made their big bucks, want to give most of it back. However it is on their terms, and towards what they rather than democratic society determines to be priorities. I wouldn't want to discourage them, and there is a heck of lot of good work being done by Bill Gates and others, but we have to realise that such philantrophy occurs often following practices that are not accepted by all. There are also many entrepreneurs who don't want to grow, but to tick along. I'm all for entrepreneurship, innovation and creativity if allied to real social responsibility and not simply as an add-on.

Economie solidaire or ethical politics

by Mireille Pouget - Sep 25 2012 - 15:15

I don’t  really agree with Paul Crawford’s comments, but I think that Howard Richards' interesting points need further development with examples to illustrate the three principles.
 
However,  starting with the first principle, i.e. ‘let’s have a responsible, green, plural and caring economy’:  just to be fussy, the word ‘caring’ is a little misleading:  instead I think the correct word would be the French ‘solidaire’ (note the curious absence of adjective in English relating to the noun solidarity); ‘ethical’ therefore might do in its place. So the first principle relates to an economy which does not rely solely on the exchange of goods for profit. Goods in his article also includes sale of labour, which takes the argument to Marxist or Keynesian theories and I am no expert to talk about those. However, yes, I like this principle but I need some explanation when Howard Richards talks about an economy which can be financed by other sources, such as extraction of natural resources (oil??), but also public ownership, endowment or charities.
 
The second principle, i.e. ‘a green responsible, plural and solidaire/ ethical economy must diversify the dynamics and the logics that drive and orient production and distribution. ‘
It is important to have more academic voices expounding an alternative to the money/ profit making principle ruling the current financial and industrial systems, in the form of the social economy – social enterprise co-owned by the people running them, and /or by the recipients of the goods produced by them, including pension funds. There are of course European examples such as in France, where a plethora of mutualist insurance companies (especially including health insurance) complement the national health system for their members, for a wide variety of fees and conditions. Still, they are non-profit making and run just like any other companies. Of course they can be very bureaucratic.
 
Another comment: Howard Richards throws in the same bag voluntarism, flea markets, subsistence agriculture, motherhood, friendship. Motherhood?  Ah yes, motherhood (note the use of the abstract noun instead of ‘mothers’, the actual women who embody the concept) is often exalted by usually right-wing politicians, as long as mothers know their rightful place baking cookies,  raising the next generation, or in developing countries fetching water and ploughing the next crop while the men fight wars, and own the land; always in the minority however at the political or financial tables where decisions are made which have direct consequences on their everyday life. See the Guardian article  http://www.guardian.co.uk/global-development/2012/sep/20/harmony-women-peace-deals   or read the story of Halima Ismail Ibrahim in Somalia http://blogs.independent.co.uk/2012/09/21/shaping-somalias-political-landscape-and-womens-rights/

So instead of exalting motherhood male economists and academics should turn to the analysis of how women actually contribute hugely to their country’s economy through their work and contribution to their communities, raising the kids, caring for the elderly etc... We need more unorthodox economists and thinkers like Professor Muhammad Yunus, free thinkers and economists like Dambisa Moyo who offers a non-Western view of the world, even if and because it is considered by some as controversial.
 
Finally, re. the third principle of sustainable governability encompassing the first two.
Howard Richards is right that the Rio de Janeiro summit was bound to fail because governments are bound by too many vested interests, or what he calls the “systemic imperative” to create favourable conditions for the accumulation of capital, or profits.
 
I agree with his main analysis, and thereby disagree with Paul, that what we have now is a serious dichotomy between governments (and all that is behind them – corporate lobbies, financial institutions etc) and civil society.
 
It is not just a clash but also a democratic deficit as lobbyists have access to governments in a way ordinary citizens can only dream about.

It is however still a clash of two contradictory philosophical conceptions of the world of human and economic relations. Nowhere is it better illustrated than in the UK’s current Conservative political dogma which could be summed up as Private = good, State = bad, in spite of all the evidence to the contrary.

The most recent example of the profit principle - and there are so many it is difficult to choose -  and of the UK government’s determination to use private companies, is that of the now infamous G4S international security company. It became infamous thanks to its ineptitude at honouring its multi-million government contract to make the London Olympic Games secure.
What happened then?
The army, the police forces across the country filled the gap, forfeiting holidays, family life, work schedules, for the collective good. Resources paid for by the State via taxpayers. The fact that the Government may recoup the money from G4S is irrelevant.
What is relevant is that, in the last resort, it is the State, this complex agency made of democratically elected representatives and complex bureaucracy established to implement a collective ‘common good’, who came to the rescue. The international and local crowds enjoyed the Games because the professionals paid though tax collection stepped in, irrespective of individual inconvenience and costs, because it was their job, their responsibility, not because they might benefit financially.
 
Has G4S’ incompetence at the Games made politicians think twice? Not at all.
G4S is still being awarded huge contracts to staff police stations in England, and the Scottish government has not hesitated to reward this illustrious company with a 13 million contract for the electronic tagging of offenders. Government contracts (England) amount to 27% of G4S’ £7.5bn turnover in 2011 (BBC 17 July 2012), which include staffing prisons and detention centres for asylum seekers, with very mixed, if not disastrous performances, in some cases.
 
I think this is a very good example of the elementary clash between the profit principle and what I would call the ‘common good’ principle or, looking for a better and less woollie terminology, the ‘ethical’ principle.
A private company with profits in mind will not care about reducing crime, and certainly will not care about reducing the prison population. In fact, the more are imprisoned, the more prisons are needed, the more contracts it will win, the more money it will make.

The fact that increasing crime is bad for society is of no concern to the company, but is of concern to the state and its citizens. Whether prisoners are rehabilitated or not while in prison is also of no concern to the company, as it will try to limit costs by employing un-trained staff at the lowest possible end of the wage structure; rehabilitation of offenders on the other hand should be of ultimate importance to society, for obvious reasons.
 
I would like to think that there will be a new generation of politicians, because it is about politics, with at least an equal part of women and black people among them, who have the courage to think differently and strategically about priorities based on “sustainable” ethics, investment in education and health to decrease social exclusion of the weakest, investment in the social economy (whatever that might include in Richards’ list) and in sustainable transport and other environmentally friendly policies, rather than investing in weapons of mass destruction for the next neo-colonialist raid in the Middle East to safeguard the West's oil supplies. 

Dr Mireille Pouget

Where are the alternative economists?

by Norman Longworth - Nov 2 2012 - 11:48

I find this discussion fascinating if only that those who are responding are not economists like Howard but yet have valuable and intelligent insights and experiences to offer. Of course Howard is correct to question the current neo-liberal cpncept of ever-increasing profit and growth at the expense of the poor, the disadvantaged and, most importantly, the planet. It isn’t rocket science to recognise what effect the over-exploitation of finite planetary resources will have on future generations. And yet where are the economists who are arguing for an alternative economic scenario. Are there others like Howard? Is the spectre of socialism always going to be raised by those with a vested interest in the status quo when alternatives to reduce inequality are mooted? The Nobel Prize winner, Joseph Stiglitz, suggests that ‘increasing inequality means a weaker economy, which means increasing inequality, which means a weaker economy.‘ I don’t know if that is true but, as an economic layman, it makes logical sense to me.

One statement that Howard made struck a chord with me. He suggests that human welfare activity is not profit-making – at least I think that that was his perception. Is not a life saved, a youngster with new aspirations, a community reborn, a prisoner well rehabilitated, profit? Perhaps we need a new definition of profit which takes into account ‘soft ’profit, the sort that results from the many benefits that a just society can provide for every citizen. And one that recognises that one less Amazonian tree felled is a profit for humankind.

Ultimately it comes down to education, or more appropriately learning, lifelong. This where the world of economics meets the world of lifelong learning. A society kept in ignorance by its media, its political and religious leaders and its lack of the ability to exercise critical judgement will not make the adjustments the planet needs in order to survive. It is also why our current thinking in the Learning Cities field includes, as essential ingredients, the vital importance of sustainability, the growth of a human-centred economic awareness and the provision of the best health-care and educational opportunity for all. If that is socialism fine but why should we be pigeon-holed by meaningless labels when the richness and diversity of potential solutions have to be implemented?   

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