Monday, August 3, 2009

The Case for a Civil-Guided Economy

Making a case for civil-society guidance in the economy is in part a call for recognition of what already exists, since such institutions already play an important role. But it is also a proposal for new modes of influence from civil society. It comes from asking basic questions such as, “What types of institutions guide our economy?” and “Where does economic power reside?” As we explore the various sectors or “domains” of human institutions, we will see just how central they are to the various theories and active systems of economics. Creative thinking about such arrangements can lead to transformative solutions.

Observers of human society generally have grouped the institutions we create into three broad categories, namely the governmental, business, and civil sectors. Governmental institutions have the main characteristic of wielding political power; the business sector has the characteristic of working in the exchange economy and providing livelihood. The civil sector is less simple in definition in the sense that civil institutions most characteristically have some sort of intended purpose or cause behind them, and the range of causes is extremely wide. A civil society group can be anything from a group of hobbyists who love to grow roses, to humanitarian groups trying to end various forms of human suffering, to reactionary groups trying to roll back any number of human advances most of us take for granted. Churches, schools, arts associations . . . the range of civil society groups is as broad as the interests and purposes of human life. Civil society ranges from the pinnacles of spirituality and creativity to the depths of hate and destructiveness. It's a group promoting brotherhood or ecological sustainability, and it's also the Ku Klux Klan.

In my work on economics, I have generally called the three broad grouping of institutions “domains” and reserved the term “sector” for more narrow divisions within the economy, such as the manufacturing sector, the agricultural sector, and so on. Whatever the terminology we use, it is vitally important to think about the structure and interactions of these three kinds of institutions when we think about economics. As well, I believe it is vital to add a fourth domain to the discussion: the domain of the individual.

This fourth domain takes on two important dimensions. First is the significance of the aggregation of individual choices and economic actions. For example, many advocates for sustainability have counseled, no doubt with some degree of validity, that individuals need to make more responsible buying choices to transform the economy. They say that we should buy compact fluorescent light bulbs instead of incandescent ones. There are often long lists presented of such actions that we ought to take. Though I accept that such actions are are extremely significant, I also believe it is inherently insufficient to try to achieve a sustainable economy by promoting such individual actions. In any case, this is merely mentioned here as an illustration of fourth domain behavior. The aspect of fourth domain behavior that is the aggregated result of individual choices is also the driving force behind democracy, for better or worse. The other significant aspect of fourth domain behavior is the whole subject of leadership. Even as we function in institutions and other social units, such as the family, the nationality, and so on, we function individually in that context. Our individual actions and the influence we exert on others is very significant. Leadership can also mean individual deviation from social norms -- again for better or worse.

If we look at these four domains, we will see a framework for looking at the whole of society, one that is general enough to cover pretty much any particular human group we need to consider. Of course, there are many institutions that straddle the borders of the different domains, such as public schools, or non-profit organizations that undertake business activities, and so on. There are also groups that operate fraudulently, such as church groups that are really political fronts, fake non-profits operated by corporations, and so on. The other significant fact is the deep level of interaction and influence that take place between the domains. Indeed, the only way to understand much of what happens in society is by considering this interdependence.

Rudolph Steiner and his intellectual heirs have done very interesting work in this area of thought, and the theory of Social Threefolding, which derives from Steiner's Anthroposophy, suggests that greater independence of the three spheres would lead to positive results for humanity. This is understandable, especially considering the various extreme situations of imbalance that existed in the early 20th Century. Totalitarianism (the complete dominance of government over all aspects of life), Communism (specifically the domination of economic life by the government), and Theocracy (a form of civil society domination), were the focus of Steiner's notion of a remedy based on more independent functioning of the three spheres. It is hard to argue with the very reasonable notion that the three spheres need basic independence to work properly, and that domination of one sphere over the others is unhealthy. However, my own work focuses more on how the various domains can function interdependently in a healthy way.

Concerning the domination of one sphere or domain over the others, I think it can be argued that, at least in the so-called “developed” nations, the domination has shifted to the business sphere, as the rise of materialism and globalism have given business and money interests unprecedented influence over government and society generally. By holding the keys of wealth, the business sector also holds broad power advantages over civil society organizations – such as being able to outspend environmental defense groups on an issue even where there is broad agreement on that issue in society generally. The control by ownership of media and information flow by profit-oriented corporate power centers is another significant aspect of the profound influence of the business domain.

It could also be argued that negative fourth domain behavior, specifically the relentless consumerism and self-absorbed mentality of individuals in the current era is a profound influence on the world direction at this time.

On the more positive side, there are tremendous movements for change and transformation emerging from both the civil (third) domain and the individual (fourth) domain. The recent epochal events in Iran, for example, though currently inconclusive and possibly unsuccessful, are of a broadly third and fourth domain character. Though nominally a third domain theocracy, Iran has proved itself to be a solidly totalitarian (first domain dominated) state, but one that is seething with individual and organizational “change vectors.” Though the government apparently has won the recent struggle, no one who has observed the situation closely believes that Iran will ever be the same.

Writer Paul Hawken has written a wonderful and ultimately very optimistic book called Blessed Unrest, which documents the spontaneous flowering of civil-society movements for positive change worldwide. In it, he points out the vast and surprisingly effective network of people and organizations working for environmental, social, and economic reform, despite powerful opposition and limited resources.

Turning now to a contemplation of economics in light of the four domains, we can see to what a great extent the various major historical movements and theories actually turn on exactly how these four domains interact, and specifically how economic power operates in a particular society. For example in Socialism, the state (first domain) has the upper hand in controlling the economy. The degree of control varies from more or less absolute (North Korea comes to mind as an example), to something far less so, such as Scandanavian-style “social democracy.” Though Marx postulated that the end result of socialism would be that the state would “wither away,” the outcome of the historical Marxist and Socialist experiments has proved the opposite. It is more that Socialism itself has withered away, leaving the state in places like Russia and China very much intact. Probably Marx's prediction that Capitalism will destroy the world carries far more potency and possibility than his predictions concerning a dictatorship of the proletariat and the emergence of a stateless communist utopia.

On the other side of the ideological divide, so called “free-market capitalism” hinges on the fourth domain notion of individual economic freedom. Don't forget that Adam Smith's Wealth of Nations was published in 1776, a year of some significance historically in relation to the subject of freedom. Individual liberty was a radical and liberating concept at that time, one that was percolating in the social science innovations of the “Scottish Enlightenment” just as it was politically in America. Though the ideal of personal freedom has taken root worldwide, in much of the world today it remains, sadly, no more than a dream. While actual individual liberties are often taken for granted in the West, the mythology of freedom has been significantly co-opted by entities that are by no means human, namely corporations. There is even the astonishingly corrupt notion – a notion that stands as accepted law in the United States – that corporations are, in the eyes of the law, persons. This goes far beyond the reasonable notion that business entities should be provided with due process of law.

The mythology of individualism and the worthlessness of government has been extended and sustained (with plenty of corporate funding) with promotion of the idea that Capitalism is the best of all possible economic structures . . . which is baseless fantasy at this point. Witness the stark realities of huge profit-oriented corporate entities manipulating governments, shaping public perception of reality through media, and more or less enslaving humanity for the profit of the rich, while thoroughly neglecting the actualities of human need and destroying our very planet in the process. Does anyone of integrity still believe that raw selfish interest results in the “most efficient allocation of resources,” after seeing the disgraceful pattern of greed, speculation, and corruption that led to the recent global meltdown? And to whom does the business community turn when their speculative house of cards collapses? Government, of course.

What is the upshot of all this from the point of view of the four domains? It is simply that the present power arrangement in which business entities exercise control over governments which they then use to prop themselves up in the aftermath of their own dysfunctional behavior has little likelihood of ever working out well for America or any country. The relationship between business and politics is incestuous. It lacks honesty. Bad guys often win. And as if that is not enough, the whole human race is imperiled by this arrangement.

Clearly, the recent economic meltdown has led the United States toward an economy that is more “state guided” than in the past. Indeed it was the Bush administration's near complete abandonment of regulation (specifically in financial markets) that deserves much of the blame for the events that followed. But is a state-guided economy really a solution? Though I do support the pragmatic efforts of the current administration to undue the horrible effects of the previous one, I do not believe that a state-guided economy is a long term solution or an optimal structure for a healthy economy. The state is best suited for the more clumsy (but essential) work of providing a legal system, national defense, international relations, and the maintenance of such institutions and responsibilities as it can effective undertake. It is not so well-suited to the creative and nuanced work of guiding the economy, except in the matters of legal oversight and regulation, as needed.

Neither can it be said that the business community, despite many positive efforts, can guide the economy, which its built in conflict of interest. The fox is just not going to be good at guarding the chickens. The “invisible hand” is a concept that has valid bearing in very constrained contexts, but it is certainly not sufficient for a real turnaround at the scale of the whole of humanity. Business is good at inventing a better battery for electric cars. But it is equally adept at buying the patents for that same car battery and sitting on them indefinitely because, well, “our main business is oil and gas.” (For the long version of this true story see

Therefore what we've seen historically is either varying degrees of a state-guided economy, or of a business-controlled state system. If you throw in the occasional theocracy, that's about it, at least recently. Instead of these structurally flawed arrangements, I propose a third possibility, a civil-guided economy. One of the key arguments for this is that since authentic civil society organizations are not fundamentally motivated by either political power or “money power,” they stand in the best position to exert guidance that is actually guidance as opposed to outright control. They are in the best position to think beyond the immediate future, indeed to even go beyond the concerns of those of us living today. Civil society groups are, in principle, uniquely suited to provide leadership that is truly for the best of society. At present, civil society organizations of all kinds provide ideas, commentary, criticism, and forums for communication on economic matters. Foundations provide all manner of charity, some of it massive in scale. Then why don't we have a civil-guided economy? At present, we have a system where in the first case, civil society organizations do a lot of talking, a lot of arm-twisting, perhaps a lot of soul searching, and they often provide truly creative and positive ideas. But when they do provide tangible economic aid, they do so without fundamentally challenging the existing economic order. From that point of view, they don't exercise much by way of transformative economic power. Much of their economic activity is actually dedicated to funding themselves for their no-doubt important work. (I'm speaking here of the endowment and fundraising activities of non-profits, about which I'll write more later.)

It is a delicate matter, perhaps, to somehow give non-profits economic power without tipping them into the realm of business. The key point in this regard is to recognize that economic power can be exercised for the common good. It is only a matter of habit and perhaps cynicism that we think otherwise, although we do not necessarily have models that fully reflect that potential in today's world. Certainly we have non-profit organizations, such as the Red Cross, which exercise large scale economic activities in charitable ways. We have giant universities and global churches. We have foundations, such as the Gates Foundation, which are having unprecedented impact.

Yet there has been no fundamental shift in the “spirit,” shall we say, of the world economy. Fifty thousand people a day are still dying of starvation. A billion or more of us don't have adequate food and water. The entire human race stands at great risk from climate change. And every one of us, rich and poor, faces real economic insecurity in our present financial system with its rampant speculation and financial manipulation. Whatever is being done to address these human problems, it simply isn't enough, either quantitatively or especially, qualitatively. Despite the unprecedented development and reach of civil society organizations, they are not yet participating in the economy in ways that will truly bring about a transformation.

The gist of The Special Proposal (discussed earlier in this blog) is for economic power to be exercised by civil society organizations in a new way, namely through the development of a civil endowment system. This system would endow significant, expanding, and dynamically managed pools of resource for the common good of humanity. Such resource would be invested as capital, called civil capital, in ways that truly benefit the whole of humanity. Economic power would be exercised through direct ownership of productive assets. Unlike Socially Responsible Investing (SRI), the ownership of the productivity of the assets would reside with “the people” rather than the original sources of the capital. Thus, although the notion of civil endowment is inspired by SRI, it is wholly different in nature. The influence of this economic power, in concert with the structure and conventions of civil society, would function in cooperation with business and government interests to create a grand triangulation of power between business, government, and civil society. In this interdependent relationship, the guidance of civil society over the economy would indeed be that. It would not be outright control. Civil capital would not supplant private capital, basic private ownership, or the role of governments. Openness and transparency, and accountability to individuals (the fourth domain) would be the balancing factors enabling true structural economic reform.

We can summarize the case for a civil-guided economy under the following points:

  • Guidance for a healthy economy needs to come, at least in part, from parties that are not primarily concerned with political power or economic gain for some individual or group. Civil society, by its very structure, has the best chance of exercising such guidance at a fundamental level.

  • Civil society by nature of its diversity, has built in checks and balances, transparency, and accountability, qualities that government and business interests often lack. Though not all civil society organizations have these features, institutions can be designed and maintained that do.

  • The true power of a civil-guided economy can be realized by instituting a system of capital ownership for the common good, with a diverse system of investment funds dedicated to the “universal beneficiary.” Through the leverage and influence of such capital pools, civil society can guide the economy through the power of ownership, without restricting fundamental individual economic freedoms, abolishing private property, or contesting the legitimate roles of government.

  • This decentralized “triangulation of influence” represents a genuine creative innovation for a post-materialist, interdependent global economy.

  • Such an arrangement embodies the potential for significant transformation of the world economy.

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