I am haunted by the theory of Civil Endowment, a body of thought I've developed over a period of many years. There is a yawning gap between the elegance and potential of the theory and the obstacles to its implementation -- or even to getting anyone to see the beauty of it. In part, the limitations have been my own.
I spent five years as a full-time editor in the 1990s, but when my theory came into focus around 2002 it became clear to me that I was not much of a writer at all. Different skill set. My "writing" was a pile of notepads with handwritten notes and all sorts of key ideas and brilliant phrases and very few complete sentences! This blog has been an excellent way, short of a full-length book, for me to get into writing in a way that is about communicating with others, not just notes to myself. My early post were essay-length efforts that, in retrospect, did not really fit the blog format at all. Sometimes they were as long as 3000 words or more, taking days to write. I appreciate that a few of my stalwart friends took the time to read them. I didn't reach a very big audience, but there was one good -- OK, great -- outcome of this: I landed a regular writing job. After several years of doing a column on "The New Economics" and all that entails -- doing the research, keeping things compact and accessible, meeting deadlines -- I realize that, yeah, I'm more of a writer now. I am deeply grateful, especially to Chris Hewitt of Country Wisdom News, for giving me the freedom and the respect to go with it and flow with it.
How does all this relate to the challenges of communicating Civil Endowment Theory and perhaps putting it into practice? I'd like to draw a parallel between my evolution into "being a writer" and notions of fostering -- or even communicating -- fundamental changes in our world. Maybe it's a stretch, but both are challenges of the relationship between vision, expression, and practicality. I feel that fundamental change can be obtained gradually, as can learning a skill. But to do that, we have to specifically aspire to that change, just as we have to aspire to a learning a skill.
I titled this post "Fundamental Reform vs. Utopianism," but there is a third player in the game, which is called "business as usual." Now, business as usual can be interpreted both personally and in the broader social context. Our economy as it functions now is "business as usual." My habits, lifestyle, and existing skills are "business as usual." Attempts to change "business as usual" are difficult in both arenas. Perhaps that is why we settle for incremental change, or maybe none at all. Fundamental change is too difficult, and nobody gets it anyway. Or at least that's the cynical version of the story. In fact, fundamental change is Utopian, says the cynic, the realist, in all of us. But I would like to draw a distinction here between utopianism and fundamental change here, and perhaps comment on differences between fundamental and incremental change.
Green business, philanthropy, Slow Money . . . the list could go on. These are great things, but they are not fundamental economic reform. Where does utopianism come in here? Well, early attempts at fundamental reform, notably Socialism/Marxism (which are more of a spectrum of movements and views than one single trend) were, in fact, utopian. I have tremendous respect for the wisdom that is expressed in the utopian literature, and in fact it would be difficult to really discuss the matter with someone who hasn't read, at least, Thomas More's Utopia, which is the granddaddy of what is really a whole genre of thought. Interestingly, though, one of the accepted meanings of the term utopian is "unrealistic, overly idealistic." Despite my respect, which I'll restate here, for the actual ideas of utopian thought, I am using the term utopian here in that meaning of "unrealistic." What I'm getting at is that fundamental change and utopianism are not the same thing. And we don't need to settle for incremental change simply because fundamental change is difficult.
All this would be a mere intellectual exercise if there were not some practical example of it. So here's the example: I would like you to consider the assertion that Civil Endowment Theory is not utopian, it is not about incremental change, and it certainly is not business as usual. It is about fundamental reform. But the other point, one that relates to my gradual development of skills as a writer, is that fundamental change can occur gradually. The fact that civil endowment can "trickle in" is precisely why it is not utopian. It does not depend on upending "business as usual" in some sort of disruptive way, and in fact it can build on and leverage trends that I've described (with all appropriate respect)as incremental reforms, such as Green Business, philanthropy, and social enterprise. But the fact that it is gentle and respectful, and perhaps a bit subtle in its construction, makes it hard to put into the spotlight. That's my challenge.
Monday, April 29, 2013
Thursday, February 2, 2012
Civil Credit and Civil Money
(from THE NEW ECONOMICS Column in Country Wisdom News, February 2012 issue)
Right around now is a great time to be interested in alternative economic thinking! The uncertainties and injustices we are all going through have created a lot of motivation for new thinking and new directions of action. A lot of smart people are getting involved and working for change.
One of the key areas of economic activism nowadays is the world-wide trend toward local currencies and mutual credit networks. It’s impossible to say exactly how many of these there are, but it’s in the thousands. True, not all are successful or long lasting. But what is significant about these initiatives is that ordinary people are taking practical steps to create systems that localize their economic lives, build community, and raise awareness. In this column, I’d like to step back and discuss the basic ideas of civil credit, and related to that, civil money. This is by no means merely an intellectual exercise, as I am currently working with an intrepid group of cohorts to create a mutual credit network right here in the Hudson Valley that could be linked to a local currency.
Let’s think about credit. In an exchange economy, we provide goods and services to each other on a reciprocal basis. It is perhaps a feature of civilization that we are in some cases willing to receive compensation at a later time. That is called credit. The basis of this is trust, but the trust is not just personal. We also trust that there is some sort of accountability, whether it is by social convention or by law. This applies to money as well. When someone hands you a dollar, why do you believe it is worth something? We could say that money and credit are “trust-based” social technologies. Even with the basic levels of trust and accountability that people have out of their basic goodness, it has become clear to a lot of folks that the complex financial systems that have evolved are not basically sound. They are unstable, they are rigged, and are unjust in many ways. One type of reform effort these days involves taking the fundamental principles of money and credit, simplifying them, and integrating them with modern communications technology.
If we possess fundamental economic freedoms (something not to be taken for granted) we have the right to exchange goods and services and to enter into contracts. Libertarian writers such as E.C. Riegel have made the point that if we have these rights, we have the right to create money independent of government, or for that matter, the business establishment. Ah, but what is money, and how is it created?
Let’s take a very simple scenario: if I do a job for my friend Jim, and he gives me an IOU for that work, it would be possible for me to trade that IOU with someone else for some other good or service. This would mean that Jim would repay that debt to the other person, not me, since they gave me something in exchange for the credit represented by the IOU. The IOU is actually the simplest form of civil money. The IOU represents a credit for the person who has it, and a debt for the person who issued it. All paper money involves this credit/debt relationship, and please keep in mind that credit and debt are really the same thing—just from different perspectives. Notice that civil money was created by civil credit: I extended credit to Jim by giving him something he needed in exchange for a scrap of paper, a piece of paper that represented, however, his willingness to pay me back. Now, in this simple 3-party exchange, the IOU would be torn up (oops, recycled) at the end, and the “money” would disappear. There are a lot of lessons in such simple scenarios, and as an aside, I often feel that people could progress more in their understanding of economic matters by contemplating things like this than by listening to diatribes on the Federal Reserve or the budget deficit. But I digress.
Now, even without computers and the web, which make things very convenient, it would be possible to create a mutual credit system with a large number of participants and with no “money” at all. It would simply be a matter of keeping track of all the transactions. Systems like LETS and Time Banks do just that using a web-based accounting platform. So called “second-generation” mutual credit networks increase the sophistication of such systems by putting careful controls on accounts to reduce risks of default and to ensure that the network remains valuable to users over time. It is important to see that these systems are examples of civil credit. The participants are extending credit to each other on a community basis.
OK, if you’re with me this far, you’re a geek (that’s a compliment) and let’s take it another step. We’ve been thinking of creating a local currency for our area for some time. But how do you do that? Do you just print up some bills and say, “This is money.” That’s a fail, as they say these days. Money has to have a basis of issue. Some local currencies, like the Berkshare in nearby Massachusetts, are issues in exchange for dollars. You buy them for U.S. dollars, and you can convert them back to dollars if you want. I argue that the actual economic power of such a currency is very limited, despite the community-building aspect of the whole thing. Why not issue a local currency that is really civil money? Here’s how it would work: At any given time in a mutual credit network, some accounts will have a positive balance, some negative. Those with positive balances can redeem that credit by getting goods and services from other members. By why not also let them redeem that credit by being issued ( . . .drumroll . . . ) paper money? Such a local currency would be tradable with anyone who agreed to accept it, not just network members, which extends the convenience of the system for members, and builds community awareness. Why is this type of local currency more powerful? Because it is based on goods and services already delivered. It is truly credit based. The money is actually created by the delivery of goods and services, and becomes a circulating asset in the community.
This is all still a work in progress, and if you’re interested in learning more about such a system, participating in it, or (especially at this point) getting involved with organizing it, please be in touch. By its very nature this is a community project, and it won’t happen any other way.
see also: hudsonvalleycurrent.org
Right around now is a great time to be interested in alternative economic thinking! The uncertainties and injustices we are all going through have created a lot of motivation for new thinking and new directions of action. A lot of smart people are getting involved and working for change.
One of the key areas of economic activism nowadays is the world-wide trend toward local currencies and mutual credit networks. It’s impossible to say exactly how many of these there are, but it’s in the thousands. True, not all are successful or long lasting. But what is significant about these initiatives is that ordinary people are taking practical steps to create systems that localize their economic lives, build community, and raise awareness. In this column, I’d like to step back and discuss the basic ideas of civil credit, and related to that, civil money. This is by no means merely an intellectual exercise, as I am currently working with an intrepid group of cohorts to create a mutual credit network right here in the Hudson Valley that could be linked to a local currency.
Let’s think about credit. In an exchange economy, we provide goods and services to each other on a reciprocal basis. It is perhaps a feature of civilization that we are in some cases willing to receive compensation at a later time. That is called credit. The basis of this is trust, but the trust is not just personal. We also trust that there is some sort of accountability, whether it is by social convention or by law. This applies to money as well. When someone hands you a dollar, why do you believe it is worth something? We could say that money and credit are “trust-based” social technologies. Even with the basic levels of trust and accountability that people have out of their basic goodness, it has become clear to a lot of folks that the complex financial systems that have evolved are not basically sound. They are unstable, they are rigged, and are unjust in many ways. One type of reform effort these days involves taking the fundamental principles of money and credit, simplifying them, and integrating them with modern communications technology.
If we possess fundamental economic freedoms (something not to be taken for granted) we have the right to exchange goods and services and to enter into contracts. Libertarian writers such as E.C. Riegel have made the point that if we have these rights, we have the right to create money independent of government, or for that matter, the business establishment. Ah, but what is money, and how is it created?
Let’s take a very simple scenario: if I do a job for my friend Jim, and he gives me an IOU for that work, it would be possible for me to trade that IOU with someone else for some other good or service. This would mean that Jim would repay that debt to the other person, not me, since they gave me something in exchange for the credit represented by the IOU. The IOU is actually the simplest form of civil money. The IOU represents a credit for the person who has it, and a debt for the person who issued it. All paper money involves this credit/debt relationship, and please keep in mind that credit and debt are really the same thing—just from different perspectives. Notice that civil money was created by civil credit: I extended credit to Jim by giving him something he needed in exchange for a scrap of paper, a piece of paper that represented, however, his willingness to pay me back. Now, in this simple 3-party exchange, the IOU would be torn up (oops, recycled) at the end, and the “money” would disappear. There are a lot of lessons in such simple scenarios, and as an aside, I often feel that people could progress more in their understanding of economic matters by contemplating things like this than by listening to diatribes on the Federal Reserve or the budget deficit. But I digress.
Now, even without computers and the web, which make things very convenient, it would be possible to create a mutual credit system with a large number of participants and with no “money” at all. It would simply be a matter of keeping track of all the transactions. Systems like LETS and Time Banks do just that using a web-based accounting platform. So called “second-generation” mutual credit networks increase the sophistication of such systems by putting careful controls on accounts to reduce risks of default and to ensure that the network remains valuable to users over time. It is important to see that these systems are examples of civil credit. The participants are extending credit to each other on a community basis.
OK, if you’re with me this far, you’re a geek (that’s a compliment) and let’s take it another step. We’ve been thinking of creating a local currency for our area for some time. But how do you do that? Do you just print up some bills and say, “This is money.” That’s a fail, as they say these days. Money has to have a basis of issue. Some local currencies, like the Berkshare in nearby Massachusetts, are issues in exchange for dollars. You buy them for U.S. dollars, and you can convert them back to dollars if you want. I argue that the actual economic power of such a currency is very limited, despite the community-building aspect of the whole thing. Why not issue a local currency that is really civil money? Here’s how it would work: At any given time in a mutual credit network, some accounts will have a positive balance, some negative. Those with positive balances can redeem that credit by getting goods and services from other members. By why not also let them redeem that credit by being issued ( . . .drumroll . . . ) paper money? Such a local currency would be tradable with anyone who agreed to accept it, not just network members, which extends the convenience of the system for members, and builds community awareness. Why is this type of local currency more powerful? Because it is based on goods and services already delivered. It is truly credit based. The money is actually created by the delivery of goods and services, and becomes a circulating asset in the community.
This is all still a work in progress, and if you’re interested in learning more about such a system, participating in it, or (especially at this point) getting involved with organizing it, please be in touch. By its very nature this is a community project, and it won’t happen any other way.
see also: hudsonvalleycurrent.org
Monday, November 28, 2011
The Road to Economic Democracy
With all the concern about our economy these days, there is a tremendous amount of discussion on just what’s wrong with the system, and what we could do about it. From the outset, we need to see the difference between merely complaining about things (valid as that may be), and discussion that is joined with a willingness to be part of the change we advocate. Then within that, we need to notice if what we are really about is talking change at a fundamental level, or if it is just about treating the symptoms. Finally, if we do have ideas that could improve matters at a structural level, are they feasible? Do they have a realistic chance of taking root, even on a small scale?
A lot of issues we are seeing today, such as the nefarious activities of big banks, money as debt, the crushing power of corporations, and the political power of the rich, have been around a long time. One “big picture” remedy with enduring appeal is that of economic democracy. The concept has been associated with a very wide range of proposals and programs, including workplace democracy, employee ownership, a national dividend, guaranteed income programs (negative income tax), and many others. H.C. Douglas, who favored a national dividend, published a book entitled Economic Democracy in 1918. Also around that time, some companies began granting stock ownership to workers, in part to lessen the appeal of socialism. Though many proposals made under the banner of economic democracy are outdated or downright utopian, the idea of extending democratic principles into the economic order remains an extremely attractive one.
But just how would that happen? Just as political democracy grants political power to the many rather than to the few, economic democracy would need to find a way to universalize something in the economic sphere. But what? I argue that granting decision-making power, or even direct spending power to everyone equally does not quite hit the nail on the head. This is especially true because of the tough choices needed to transition the economy to sustainability. And worker ownership and workplace democracy, as positive as they are, don’t change the overall conditions of the economy as a whole. When you throw in the competitive environment of global economy today, with many large economies practicing state capitalism, it’s hard to find a way past the “race to the bottom” for wages, employment—and, oh yes, the environment.
Especially when we use a term borrowed from politics like democracy, it is natural to think about a political path to economic democracy. Indeed there are lots of people working for that, whether they use the term or not. If you’re interested in reducing wealth and income disparity, increasing fairness for ordinary people, fostering ecological responsibility of business and so on, these are all pieces of the puzzle of economic democracy.
There are a lot of us who feel that holders of concentrated of wealth (corporations and the rich) need to carry their weight in terms of taxation and environmental responsibility, and especially that they shouldn’t stack the political deck in their own favor. In particular, we need a system in which our collective livelihood does not devastate the natural world on which we and future generations depend. However, the lack of real progress on sustainability generally, and in particular on moving away from fossil energy sources, is symptomatic of the entrenchment of economic power centers that have nothing to do with the public interest.
Though much of the reform spirit active today is directed towards political reforms, such as changes in regulation and legislation, there is a catch-22 at work here. The people we want to make less money from the system as it stands are the very people who have tremendous political power in preventing real change. Although it is honorable to fight for economic and social justice in the political realm on a piecemeal basis, issue by issue, actual change in the system can only come about by more fundamental shifts. These shifts start with changes of outlook at the individual level, such as transcending our relentless materialism and selfishness. But the needed changes are not going come from individual actions or changes of attitude alone. We need to create countervailing systems and institutions. For this reason I have emphasized civil activism as an alternative (and compliment) to the political sort. In short, we could say that there is only going to be a political solution to our economic problems when there is a non-political solution. Though this may seem like double talk, all it means is that unless realistic alternatives are in place (and not just as ideas) the political realm will have no traction, nothing to support, as it were. Reform minded legislation and improved regulation are needed, to be sure, but if we only work in that direction, we will not succeed. I really believe that. And because there are plenty of smart and dedicated people working for political reforms (and against them, I might add), I choose to work in civil domain.
Though it may seem difficult to see how to introduce effective reforms from a civil society direction, a window of opportunity appears if we consider the pattern of influence that capital investment exerts over time on the very character of our interconnected economy. By shifting the management of a portion of society’s capital to civil endowments, there is the possibility of creating capital which is fully devoted to serving the common good. In fact, we could go so far as to say that this aggregation of economic power, which I have called Civil Capital, has the potential to create the conditions for economic democracy.
A civil endowment system would grant everyone an equal beneficial interest in pools of capital fully dedicated to serving the common good. By excluding no one from its benefit, this type of investment by definition could not operate on an extractive, exploitive, or speculative basis. By its very imperative, it would need to find expressions in sustainable and socially just contributions to livelihood. Such capital pools could function at a global, regional, and even individual level, but in every case they would be managed by, and accountable to, civil society. This would emphatically not be a centralized, monolithic system. It could encompass any number of funds and oversight organizations devoted to sustainability, fairness and inclusion, and to building authentic prosperity at the scale of the whole of society. It could be said that the principles of economic democracy are built into the DNA, as it were, of civil capital itself.
It may be helpful to revisit the idea that a Civil Endowment System would be a condition, but not a direct cause of economic democracy. By analogy, a farmer’s field is a condition for the growth of a crop, and the seeds and water and sunlight are various kinds of causes for that growth. In a similar way, a road is a condition that makes travel feasible. It is from that point of view that I make the assertion that a civil endowment system is a road to economic democracy.
Though there may be plenty of valid ideological justifications of economic democracy, it is in some sense a description of an outcome, not a program that provides a causal model for its development. The question of “how to get there from here” is where civil endowment comes in. Even at a small scale, civil endowment capital pools would create capital backing for sustainable enterprises, with job and equity opportunities for workers. The productivity of those investments would be returned fully to the common good in the form of further investment and direct economic benefits to individuals on an egalitarian basis. The beauty of a civil endowment system is that it requires no major political upheavals, does not disrupt basic economic freedoms, and does not require universal buy-in. For example, a symbolic civil endowment fund for the United States, valued at one penny per capita, could be established for just over three million dollars.
Because it means so many things to so many people, economic democracy can’t be regarded as a unified movement. But because it embodies so many positive aspirations and ideals, it is a very interesting “idea sandbox” for learning and discussion on economic reform. Whatever we call it, we need to move toward an economy that provides real fairness and opportunity across the board, and helps the very poor move out of that condition—all while safeguarding the environment. That is a tall order. We need remedies that are equal to the problems at hand. Even if a civil endowment system is the road—or one of many roads—to economic democracy, we still need to build that road, and make the journey. Then again, it could be a very interesting trip.
A lot of issues we are seeing today, such as the nefarious activities of big banks, money as debt, the crushing power of corporations, and the political power of the rich, have been around a long time. One “big picture” remedy with enduring appeal is that of economic democracy. The concept has been associated with a very wide range of proposals and programs, including workplace democracy, employee ownership, a national dividend, guaranteed income programs (negative income tax), and many others. H.C. Douglas, who favored a national dividend, published a book entitled Economic Democracy in 1918. Also around that time, some companies began granting stock ownership to workers, in part to lessen the appeal of socialism. Though many proposals made under the banner of economic democracy are outdated or downright utopian, the idea of extending democratic principles into the economic order remains an extremely attractive one.
But just how would that happen? Just as political democracy grants political power to the many rather than to the few, economic democracy would need to find a way to universalize something in the economic sphere. But what? I argue that granting decision-making power, or even direct spending power to everyone equally does not quite hit the nail on the head. This is especially true because of the tough choices needed to transition the economy to sustainability. And worker ownership and workplace democracy, as positive as they are, don’t change the overall conditions of the economy as a whole. When you throw in the competitive environment of global economy today, with many large economies practicing state capitalism, it’s hard to find a way past the “race to the bottom” for wages, employment—and, oh yes, the environment.
Especially when we use a term borrowed from politics like democracy, it is natural to think about a political path to economic democracy. Indeed there are lots of people working for that, whether they use the term or not. If you’re interested in reducing wealth and income disparity, increasing fairness for ordinary people, fostering ecological responsibility of business and so on, these are all pieces of the puzzle of economic democracy.
There are a lot of us who feel that holders of concentrated of wealth (corporations and the rich) need to carry their weight in terms of taxation and environmental responsibility, and especially that they shouldn’t stack the political deck in their own favor. In particular, we need a system in which our collective livelihood does not devastate the natural world on which we and future generations depend. However, the lack of real progress on sustainability generally, and in particular on moving away from fossil energy sources, is symptomatic of the entrenchment of economic power centers that have nothing to do with the public interest.
Though much of the reform spirit active today is directed towards political reforms, such as changes in regulation and legislation, there is a catch-22 at work here. The people we want to make less money from the system as it stands are the very people who have tremendous political power in preventing real change. Although it is honorable to fight for economic and social justice in the political realm on a piecemeal basis, issue by issue, actual change in the system can only come about by more fundamental shifts. These shifts start with changes of outlook at the individual level, such as transcending our relentless materialism and selfishness. But the needed changes are not going come from individual actions or changes of attitude alone. We need to create countervailing systems and institutions. For this reason I have emphasized civil activism as an alternative (and compliment) to the political sort. In short, we could say that there is only going to be a political solution to our economic problems when there is a non-political solution. Though this may seem like double talk, all it means is that unless realistic alternatives are in place (and not just as ideas) the political realm will have no traction, nothing to support, as it were. Reform minded legislation and improved regulation are needed, to be sure, but if we only work in that direction, we will not succeed. I really believe that. And because there are plenty of smart and dedicated people working for political reforms (and against them, I might add), I choose to work in civil domain.
Though it may seem difficult to see how to introduce effective reforms from a civil society direction, a window of opportunity appears if we consider the pattern of influence that capital investment exerts over time on the very character of our interconnected economy. By shifting the management of a portion of society’s capital to civil endowments, there is the possibility of creating capital which is fully devoted to serving the common good. In fact, we could go so far as to say that this aggregation of economic power, which I have called Civil Capital, has the potential to create the conditions for economic democracy.
A civil endowment system would grant everyone an equal beneficial interest in pools of capital fully dedicated to serving the common good. By excluding no one from its benefit, this type of investment by definition could not operate on an extractive, exploitive, or speculative basis. By its very imperative, it would need to find expressions in sustainable and socially just contributions to livelihood. Such capital pools could function at a global, regional, and even individual level, but in every case they would be managed by, and accountable to, civil society. This would emphatically not be a centralized, monolithic system. It could encompass any number of funds and oversight organizations devoted to sustainability, fairness and inclusion, and to building authentic prosperity at the scale of the whole of society. It could be said that the principles of economic democracy are built into the DNA, as it were, of civil capital itself.
It may be helpful to revisit the idea that a Civil Endowment System would be a condition, but not a direct cause of economic democracy. By analogy, a farmer’s field is a condition for the growth of a crop, and the seeds and water and sunlight are various kinds of causes for that growth. In a similar way, a road is a condition that makes travel feasible. It is from that point of view that I make the assertion that a civil endowment system is a road to economic democracy.
Though there may be plenty of valid ideological justifications of economic democracy, it is in some sense a description of an outcome, not a program that provides a causal model for its development. The question of “how to get there from here” is where civil endowment comes in. Even at a small scale, civil endowment capital pools would create capital backing for sustainable enterprises, with job and equity opportunities for workers. The productivity of those investments would be returned fully to the common good in the form of further investment and direct economic benefits to individuals on an egalitarian basis. The beauty of a civil endowment system is that it requires no major political upheavals, does not disrupt basic economic freedoms, and does not require universal buy-in. For example, a symbolic civil endowment fund for the United States, valued at one penny per capita, could be established for just over three million dollars.
Because it means so many things to so many people, economic democracy can’t be regarded as a unified movement. But because it embodies so many positive aspirations and ideals, it is a very interesting “idea sandbox” for learning and discussion on economic reform. Whatever we call it, we need to move toward an economy that provides real fairness and opportunity across the board, and helps the very poor move out of that condition—all while safeguarding the environment. That is a tall order. We need remedies that are equal to the problems at hand. Even if a civil endowment system is the road—or one of many roads—to economic democracy, we still need to build that road, and make the journey. Then again, it could be a very interesting trip.
Monday, October 31, 2011
Civil Endowment Theory and The Special Proposal
In this post I will try to very succinctly lay out the basic ideas of Civil Endowment Theory, Civil Capital, and The Special Proposal. I realize that many of my previous posts have been too long for people to grapple with in a blog format. I am grateful to Country Wisdom News and Visit Vortex for giving me professional experience in writing on topics of importance and keeping it fairly brief.
Civil Endowment Theory looks at our current-state economy and tries to put real world solutions on the table, solutions that are both feasible and non-utopian. It should be noted that economic dogma of both left and right is largely based on utopian thinking. The market fundamentalists think that the market can fix everything. Socialist/Marxist thinkers believe the government can fix everything. These utopian theories qualify as “zombie economics.” They are dead theories that still have a lot of legs.
Keynesian economics occupies a much different territory. To put it very briefly, Keynes was right. The government can positively influence things like employment, business investment, and inflation through fiscal and tax policy, along with the actions of central banks. Yes, it can. But that implies there is the political will, sanity, and honesty to exercise this influence skillfully. What we’re seeing in our current time period is a total lack of political will, unity, and honesty around using the powers of government in the economy. In particular, we are seeing the flagrant abuse of deficit spending for things like unfunded foreign wars. Keynesian remedies are a bit on the subtle side, perhaps almost like homeopathy in medicine. If you’re drinking 20 cups of coffee a day, don’t expect homeopathy to work! Thus, though Keynes was right, Keynes is also not enough—especially in our current political climate.
For all these reasons, I believe the true way forward is through what I call civil economics. Civil society needs to step up and take on new responsibilities and new powers in the economy. We can keep an open and free economic system, and build in social justice and sustainability. However, it is going to take some changes in how we think and behave. A lot of people want these positive changes, and I guarantee everyone wants a realistic sense of economic opportunity in their lives. We are looking for solutions, and the time has come to put them in place.
Civil Endowment Theory takes a look at the role of capital in a modern economy, and points out two things: first, capital is essential. Since the dawn of the industrial age, we’ve become completely dependent on manufactured goods for economic life. Manufactured goods in turn depend on the investment of money, ideas, and work. A very pure and simple definition of capital is that it is the union of financial power and an investment idea that is put into practice for a productive result. This leads us to the second key point of Civil Endowment Theory: there is nothing inherent in capital that necessitates that it be used for selfish purposes. That is merely the historical pattern we’ve inherited.
Marx’s critique of primitive capital is correct as far as it goes, but his solution is both an historical and a theoretical failure. Civil Endowment Theory takes the following view: capitalism cannot be reformed, but capital can! What is the reformation of capital? It is quite simple: capital for the common good. We can institute a causal force for reform by creating such capital, which I call civil capital. We do not need to outlaw private property or private capital, but we need to create a balancing force, a leading force, of investment power in the economy. How will we endow such civil capital? Again, the answer is simple: through generosity.
If you take these ideas at all seriously, a lot of questions will arise for you. How will this capital be administered? Is there really enough generosity in the human spirit to create enough civil capital to make a difference? How will this play out as a story in the public realm? These are good and indeed crucial questions. I have developed a lot of detailed responses to these questions, but it’s also good that you think about them yourself.
Finally, there is Special Proposal. This proposal is again extremely simple in its essence. The Special Proposal is that we create a Civil Endowment System. We need to test the hypothesis of Civil Endowment Theory. I have no interest in arguing about its feasibility for the rest of my life. Only by engaging in this work will we see if it will perform as designed. Civil Endowment Theory holds that civil capital will operate at three levels: symbolic, catalytic, and structural. The first level, the symbolic, is of significance at literally any level of scale. So the question arises: would you contribute a penny to build a permanent capital investment fund for the economic wellbeing of all humanity, all those living now, and those yet to be born? Even thinking about such an act will influence the way you regard the economy, capital, and your fellow human beings. As for me, I’m in for a penny.
Civil Endowment Theory looks at our current-state economy and tries to put real world solutions on the table, solutions that are both feasible and non-utopian. It should be noted that economic dogma of both left and right is largely based on utopian thinking. The market fundamentalists think that the market can fix everything. Socialist/Marxist thinkers believe the government can fix everything. These utopian theories qualify as “zombie economics.” They are dead theories that still have a lot of legs.
Keynesian economics occupies a much different territory. To put it very briefly, Keynes was right. The government can positively influence things like employment, business investment, and inflation through fiscal and tax policy, along with the actions of central banks. Yes, it can. But that implies there is the political will, sanity, and honesty to exercise this influence skillfully. What we’re seeing in our current time period is a total lack of political will, unity, and honesty around using the powers of government in the economy. In particular, we are seeing the flagrant abuse of deficit spending for things like unfunded foreign wars. Keynesian remedies are a bit on the subtle side, perhaps almost like homeopathy in medicine. If you’re drinking 20 cups of coffee a day, don’t expect homeopathy to work! Thus, though Keynes was right, Keynes is also not enough—especially in our current political climate.
For all these reasons, I believe the true way forward is through what I call civil economics. Civil society needs to step up and take on new responsibilities and new powers in the economy. We can keep an open and free economic system, and build in social justice and sustainability. However, it is going to take some changes in how we think and behave. A lot of people want these positive changes, and I guarantee everyone wants a realistic sense of economic opportunity in their lives. We are looking for solutions, and the time has come to put them in place.
Civil Endowment Theory takes a look at the role of capital in a modern economy, and points out two things: first, capital is essential. Since the dawn of the industrial age, we’ve become completely dependent on manufactured goods for economic life. Manufactured goods in turn depend on the investment of money, ideas, and work. A very pure and simple definition of capital is that it is the union of financial power and an investment idea that is put into practice for a productive result. This leads us to the second key point of Civil Endowment Theory: there is nothing inherent in capital that necessitates that it be used for selfish purposes. That is merely the historical pattern we’ve inherited.
Marx’s critique of primitive capital is correct as far as it goes, but his solution is both an historical and a theoretical failure. Civil Endowment Theory takes the following view: capitalism cannot be reformed, but capital can! What is the reformation of capital? It is quite simple: capital for the common good. We can institute a causal force for reform by creating such capital, which I call civil capital. We do not need to outlaw private property or private capital, but we need to create a balancing force, a leading force, of investment power in the economy. How will we endow such civil capital? Again, the answer is simple: through generosity.
If you take these ideas at all seriously, a lot of questions will arise for you. How will this capital be administered? Is there really enough generosity in the human spirit to create enough civil capital to make a difference? How will this play out as a story in the public realm? These are good and indeed crucial questions. I have developed a lot of detailed responses to these questions, but it’s also good that you think about them yourself.
Finally, there is Special Proposal. This proposal is again extremely simple in its essence. The Special Proposal is that we create a Civil Endowment System. We need to test the hypothesis of Civil Endowment Theory. I have no interest in arguing about its feasibility for the rest of my life. Only by engaging in this work will we see if it will perform as designed. Civil Endowment Theory holds that civil capital will operate at three levels: symbolic, catalytic, and structural. The first level, the symbolic, is of significance at literally any level of scale. So the question arises: would you contribute a penny to build a permanent capital investment fund for the economic wellbeing of all humanity, all those living now, and those yet to be born? Even thinking about such an act will influence the way you regard the economy, capital, and your fellow human beings. As for me, I’m in for a penny.
Wednesday, February 3, 2010
The Perfection of Capital
There are a lot of things in the economic sphere that are necessary but, in practice, imperfect. For example, competition is necessary, but it is imperfect. Markets are necessary, but they are imperfect. Government oversight of the economy is necessary, but it is imperfect. Keynesian intervention is often necessary and effective, but it too is imperfect.
What is perfect, then? Authentic, unbiased compassion is perfect. But how can we enact compassion in the economic sphere? In most general terms, we can do so through the six economic virtues of generosity, ethics, tolerance, diligence, focus, and wisdom. More specifically, we can do so by creating a Civil Endowment System (CES).
At the core of the CES is civil capital, a base of resources permanently invested for the common good of humanity. It is not asserted here that civil capital could be perfect in execution. What is asserted is that it is perfect in conception. George Soros talks about the radical fallibility of human actions, and there is actually nothing in this assertion that contradicts that principle. What is asserted is that something in the realm of pure idea can be perfect, just as the mathematical formula for, say, a circle is perfect, and even though an absolutely perfect circle could never be drawn.
To understand why this is important, or even worth talking about, we need to go back to Folkert Wilkin's brilliant characterization of capital. He broke it down into two simple parts. The first is geist, a German term that can be translated as spirit or idea. This is the mental component of capital, the part that not only generates a business plan in its practical manifestation, but is also the spirit that governs the behavior of the capital altogether. The second aspect is wealth or financial power. This aspect, usually embodied in money, is the means by which the geist is put into action. There is a common assumption that the only geist of capital is to provide financial return on a selfish basis to the parties that provided the money. This assumption needs to be challenged. The logical outcome of applying universal unbiased compassion to the capital geist is to arrive at a form of capital that benefits the universal beneficiary.
The idea that the income or productivity of a body of capital could be assigned to the universal common good is, from a social and legal point of view, no different than designating a specific beneficiary of a trust fund. The macroeconomic effects of such a system could be truly transformative. Indeed, every major problem that we face globally in the economic sphere could be positively addressed by the formation of a CES. I do not say solved, here, because there remains the question of scale and implementation. This is not a Utopian proposal.
Though the Socially Responsible Investment (SRI) movement is a step in the right direction, it is not a complete transformation of the capital geist, since those who invest the capital are still the recipients of its productivity, albeit profits that are more ethically earned than with “reptilian” capital. As we consider the possibilities of civil capital, we should also keep in mind that the proposal for the CES (also called the Special Proposal) is an open-society initiative. One important implication of that is that nothing in it is meant to prohibit anyone from investing for their own benefit. What is challenged is merely the assumption that selfishness is the only geist available in the operation of capital.
Since geist resides in the sphere of mind, we can talk about the perfection of geist. The leap to a geist of universal benefit brings capital to its perfection. It is perfect in the sense that it is the most beneficial. As well, it completes the very conception of capital, so to speak. I use the term “perfection” here somewhat in the sense of the Tibetan term dzogpa, which also means completion. Thus, the notion of perfection of capital means not only civil capital, but also means recognizing the full extent of the range of qualities of geist behind it, from the least beneficial (pure selfishness) to the most (pure universal compassion).
Granted, it could be argued that it is an unproven assertion to state that authentic, unbiased compassion is the perfection of capital geist. However, the attitude of compassion in general is in accordance with, not just Buddhism but, I would argue, all the major spiritual traditions. Ultimately, one's acceptance or rejection of this idea is a personal matter, but in any case it is the basis for the assertion that civil capital is the perfection of capital.
What is perfect, then? Authentic, unbiased compassion is perfect. But how can we enact compassion in the economic sphere? In most general terms, we can do so through the six economic virtues of generosity, ethics, tolerance, diligence, focus, and wisdom. More specifically, we can do so by creating a Civil Endowment System (CES).
At the core of the CES is civil capital, a base of resources permanently invested for the common good of humanity. It is not asserted here that civil capital could be perfect in execution. What is asserted is that it is perfect in conception. George Soros talks about the radical fallibility of human actions, and there is actually nothing in this assertion that contradicts that principle. What is asserted is that something in the realm of pure idea can be perfect, just as the mathematical formula for, say, a circle is perfect, and even though an absolutely perfect circle could never be drawn.
To understand why this is important, or even worth talking about, we need to go back to Folkert Wilkin's brilliant characterization of capital. He broke it down into two simple parts. The first is geist, a German term that can be translated as spirit or idea. This is the mental component of capital, the part that not only generates a business plan in its practical manifestation, but is also the spirit that governs the behavior of the capital altogether. The second aspect is wealth or financial power. This aspect, usually embodied in money, is the means by which the geist is put into action. There is a common assumption that the only geist of capital is to provide financial return on a selfish basis to the parties that provided the money. This assumption needs to be challenged. The logical outcome of applying universal unbiased compassion to the capital geist is to arrive at a form of capital that benefits the universal beneficiary.
The idea that the income or productivity of a body of capital could be assigned to the universal common good is, from a social and legal point of view, no different than designating a specific beneficiary of a trust fund. The macroeconomic effects of such a system could be truly transformative. Indeed, every major problem that we face globally in the economic sphere could be positively addressed by the formation of a CES. I do not say solved, here, because there remains the question of scale and implementation. This is not a Utopian proposal.
Though the Socially Responsible Investment (SRI) movement is a step in the right direction, it is not a complete transformation of the capital geist, since those who invest the capital are still the recipients of its productivity, albeit profits that are more ethically earned than with “reptilian” capital. As we consider the possibilities of civil capital, we should also keep in mind that the proposal for the CES (also called the Special Proposal) is an open-society initiative. One important implication of that is that nothing in it is meant to prohibit anyone from investing for their own benefit. What is challenged is merely the assumption that selfishness is the only geist available in the operation of capital.
Since geist resides in the sphere of mind, we can talk about the perfection of geist. The leap to a geist of universal benefit brings capital to its perfection. It is perfect in the sense that it is the most beneficial. As well, it completes the very conception of capital, so to speak. I use the term “perfection” here somewhat in the sense of the Tibetan term dzogpa, which also means completion. Thus, the notion of perfection of capital means not only civil capital, but also means recognizing the full extent of the range of qualities of geist behind it, from the least beneficial (pure selfishness) to the most (pure universal compassion).
Granted, it could be argued that it is an unproven assertion to state that authentic, unbiased compassion is the perfection of capital geist. However, the attitude of compassion in general is in accordance with, not just Buddhism but, I would argue, all the major spiritual traditions. Ultimately, one's acceptance or rejection of this idea is a personal matter, but in any case it is the basis for the assertion that civil capital is the perfection of capital.
Compassion from the Edge
The Special Proposal in an outline of a structural economic innovation called the civil endowment system. Such a system, which could function as a civil-society initiative within an open society economy, carries a great deal of potential for addressing the urgent issues of our times. Because this approach looks at things from a whole-system perspective, there is always a danger that it could be confused with traditional leftist collectivist thinking and policies. In fact, the Special Proposal does not depend on any sort of idealism about the social unity of mankind, nor does it place the responsibility on government to structure the economy or even to address economic problems.
Instead, the basis of the Special Proposal, at the most basic level, depends on just three conditions. First is a recognition of the system character of the economy as a planetary whole. This means seeing the interrelationship and interdependence of the people, the economic processes, and the environmental context of our life on this planet. Second is concern and compassion toward this whole, which really means concern for each and every individual that makes up the human whole, and recognition that the common good, to greater or lesser extent, is a factor in the wellbeing of each of us as individuals. Third, is simply generosity based on this concern. If each one of these condition is genuine, meaning that it arises from correct understanding and wisdom, the next condition will come about naturally. For example, if you really see the interdependence of all things, you will come to compassion. If you don't have compassion, you haven't seen it deeply enough. And if you really have compassion, you will have generosity.
With that said, of course, it is possible for the civil endowment system in practice to foster a greater sense of human brotherhood. Indeed, this would be a most welcome outcome. However, it is very important to distinguish causes and effects. If a pre-existing and universal spirit of human oneness and cooperation is necessary to fix the global economy, transition to a renewable energy economy, end severe poverty, and so on, it would seem that these goals are not going to be achieved. We simply don't have enough spirit of unity right now. On the other hand, it is possible to remain optimistic about a positive future for humanity because that is not what is needed.
The mistake of leftist collectivism for the last two hundred years or so is to believe that true human solidarity can be achieved either on the basis of idealism or imposed by law. It can't.
To explain the difference between conventional leftist collectivism and the civil endowment proposal, I have coined the phrase “compassion from the edge.” What is meant by “the edge” in this phrase requires a bit of explanation. In simplest terms, it means our relationship to a system of which we are a part, an individual perspective on something larger than ourselves. Of course, an egotist's perspective is that we are at the center of the world, or the universe for that matter, but a more realistic perspective is that we are, metaphorically, on the edge of it. (It should be clear here that these terms like “center” and “edge” are metaphorical throughout, in an attempt to talk about systems in plain language.) When we, as individuals, look at a system as vast and complex as the planetary eco-economy, our perspective is that of the edge. Saying we are on the edge does not imply that we are on the outside looking in. We are in the system. An easy way of think about this is to imagine one person standing in a room full of people, looking out over the room. In this example, the individual's perspective is “the edge,” the people in the room (including the observer) represent humanity and whatever humanity is doing, and the room represents the environment.
One implication of this line of thinking is that, despite our immersion in our world, the human mind is capable of looking at situations as a whole. This is not the same, however, as to say that our perspective from the edge constitutes an objective reality. Our interpretations of what we see are not necessarily accurate, even in a relative sense. A paranoid looks at his social universe and thinks, “they're all out to get me.” This is whole system thinking, actually, though most likely inaccurate. But the possibility of inaccurate interpretations does not negate the fact that we are capable of thinking in terms of whole systems.
Now, from that edge perspective, there are several psychological “stances” we could take. We could take a neutral, detached stance, for example. The other types of stance we will talk about here are the selfish one, and finally, a compassionate one.
From the neutral, detached perspective, the big picture of the planetary eco-economy tends to look a lot like a slow-motion train wreck -- completely out of control, a chaotic mix of selfish and incoherent human actions and natural processes. Indeed, if we look at things with any degree of scientific insight and environmental awareness, all the trends look quite bad right now. A neutral perspective does not necessarily have any answers to the challenges we face, but it does have the virtue of dispassionate honesty.
Then there is the stance of selfishness (or, in the language of economics, self interest). The notion of self interest applies not just to individuals, but to organizations and to nations as well. We can even talk about the self interest of humanity in general versus, say, nature. People make this last sort of argument all the time in fact, such as when some tiny endangered species stands in the way of a logging operation. The argument is not made about “this corporation and its workers vs. the tiny bird.” It is always, “which is more important, mankind or this animal?”
There is a great deal of disagreement and confusion on both sides of the ideological divide about the question of self-interest. Advocates of classical/neo-classical economics, the school of thought coming down from Adam Smith (and more lately, for example, the Chicago School) assert that the freedom to pursue self-interest individually (namely, on the edge) is a good thing, and fact it is all that is necessary.
I agree that individual economic freedom is fundamentally a good thing. It is not only good for the individual, but it also creates an essential system efficiency in the wider economy. Much can be said about the good that comes from freedom, and from our ability to exercise self interest. At the same time, much of what we do in the name of freedom and self interest is actually not in our self interest, or anyone else's, because it is based on delusional, egoistic thinking. Thus, although we need it, and need to preserve it, there are unarguably dangers and abuses associated with freedom at the edge. With all that said, my disagreement with the neoclassical economists (one shared by countless thinkers these days) is a more technical one. For all that I endorse economic freedom, it cannot be regarded as a single-factor solution to all economic woes. To regard it as such in today's world is, to put it kindly, stubborn.
I believe that most reasonable people could agree with thinking along these lines: There is, in fact, a justifiable self-interest, and it is actually not just a right, but a universal responsibility. We are responsible for ourselves. And we have a right to take care of ourselves. And furthermore I believe we could agree that where problems arise, they result from the misinterpretation and misuse of self interest, and particularly from gross inequalities of economic power.
Thus my rejection of the market fundamentalism of contemporary neoclassical economic thinkers is not a rejection of self-interest, but of unjustifiable self interest. And it is a rejection of what could be called the sufficiency of self interest, which leads to the spurious economic mysticism of “the invisible hand.”
Finally, it is entirely incorrect to assume that freedom is only exercised in selfish ways. Despite the fact that we all have to operate on the edge of a system of which we are a part, our attitude does not need to be one of simple (and possibly delusional) self-interest. We do not need to operate on the basis of mere self interest. The basic insight that we are in fact part of the system that we observe is a keyhole to the wisdom that goes beyond such a stance.
This leads to the key point of this discussion, which is is this: we can generate an attitude of compassion at the edge. We are free to do so. And interestingly enough, one of the most direct ways to get to some sort of accurate whole-system view about human beings is to develop compassion for them, because we can be quite sure that human beings desire happiness. In developing compassion, we recognize this fact and, in fact, we endorse it.
Compassion from the edge is all that is needed to build the civil endowment system. Not revolution, not new laws, not a utopian breakthrough, not a supernatural transfiguration. Compassion.
Though the compassion we are talking about is, in fact, unbiased and “for everyone,” it does not need to be “by” everyone. Because it is from the edge, not everyone needs to have compassion, and it need not be imposed on anyone. No particular person needs to endorse, accept, understand, or even be aware of it. There just needs to be enough of it.
This is a brief explanation of why the Special Proposal not only lacks the features of socialism, it lacks the features more generally of collectivism altogether.
Instead, the basis of the Special Proposal, at the most basic level, depends on just three conditions. First is a recognition of the system character of the economy as a planetary whole. This means seeing the interrelationship and interdependence of the people, the economic processes, and the environmental context of our life on this planet. Second is concern and compassion toward this whole, which really means concern for each and every individual that makes up the human whole, and recognition that the common good, to greater or lesser extent, is a factor in the wellbeing of each of us as individuals. Third, is simply generosity based on this concern. If each one of these condition is genuine, meaning that it arises from correct understanding and wisdom, the next condition will come about naturally. For example, if you really see the interdependence of all things, you will come to compassion. If you don't have compassion, you haven't seen it deeply enough. And if you really have compassion, you will have generosity.
With that said, of course, it is possible for the civil endowment system in practice to foster a greater sense of human brotherhood. Indeed, this would be a most welcome outcome. However, it is very important to distinguish causes and effects. If a pre-existing and universal spirit of human oneness and cooperation is necessary to fix the global economy, transition to a renewable energy economy, end severe poverty, and so on, it would seem that these goals are not going to be achieved. We simply don't have enough spirit of unity right now. On the other hand, it is possible to remain optimistic about a positive future for humanity because that is not what is needed.
The mistake of leftist collectivism for the last two hundred years or so is to believe that true human solidarity can be achieved either on the basis of idealism or imposed by law. It can't.
To explain the difference between conventional leftist collectivism and the civil endowment proposal, I have coined the phrase “compassion from the edge.” What is meant by “the edge” in this phrase requires a bit of explanation. In simplest terms, it means our relationship to a system of which we are a part, an individual perspective on something larger than ourselves. Of course, an egotist's perspective is that we are at the center of the world, or the universe for that matter, but a more realistic perspective is that we are, metaphorically, on the edge of it. (It should be clear here that these terms like “center” and “edge” are metaphorical throughout, in an attempt to talk about systems in plain language.) When we, as individuals, look at a system as vast and complex as the planetary eco-economy, our perspective is that of the edge. Saying we are on the edge does not imply that we are on the outside looking in. We are in the system. An easy way of think about this is to imagine one person standing in a room full of people, looking out over the room. In this example, the individual's perspective is “the edge,” the people in the room (including the observer) represent humanity and whatever humanity is doing, and the room represents the environment.
One implication of this line of thinking is that, despite our immersion in our world, the human mind is capable of looking at situations as a whole. This is not the same, however, as to say that our perspective from the edge constitutes an objective reality. Our interpretations of what we see are not necessarily accurate, even in a relative sense. A paranoid looks at his social universe and thinks, “they're all out to get me.” This is whole system thinking, actually, though most likely inaccurate. But the possibility of inaccurate interpretations does not negate the fact that we are capable of thinking in terms of whole systems.
Now, from that edge perspective, there are several psychological “stances” we could take. We could take a neutral, detached stance, for example. The other types of stance we will talk about here are the selfish one, and finally, a compassionate one.
From the neutral, detached perspective, the big picture of the planetary eco-economy tends to look a lot like a slow-motion train wreck -- completely out of control, a chaotic mix of selfish and incoherent human actions and natural processes. Indeed, if we look at things with any degree of scientific insight and environmental awareness, all the trends look quite bad right now. A neutral perspective does not necessarily have any answers to the challenges we face, but it does have the virtue of dispassionate honesty.
Then there is the stance of selfishness (or, in the language of economics, self interest). The notion of self interest applies not just to individuals, but to organizations and to nations as well. We can even talk about the self interest of humanity in general versus, say, nature. People make this last sort of argument all the time in fact, such as when some tiny endangered species stands in the way of a logging operation. The argument is not made about “this corporation and its workers vs. the tiny bird.” It is always, “which is more important, mankind or this animal?”
There is a great deal of disagreement and confusion on both sides of the ideological divide about the question of self-interest. Advocates of classical/neo-classical economics, the school of thought coming down from Adam Smith (and more lately, for example, the Chicago School) assert that the freedom to pursue self-interest individually (namely, on the edge) is a good thing, and fact it is all that is necessary.
I agree that individual economic freedom is fundamentally a good thing. It is not only good for the individual, but it also creates an essential system efficiency in the wider economy. Much can be said about the good that comes from freedom, and from our ability to exercise self interest. At the same time, much of what we do in the name of freedom and self interest is actually not in our self interest, or anyone else's, because it is based on delusional, egoistic thinking. Thus, although we need it, and need to preserve it, there are unarguably dangers and abuses associated with freedom at the edge. With all that said, my disagreement with the neoclassical economists (one shared by countless thinkers these days) is a more technical one. For all that I endorse economic freedom, it cannot be regarded as a single-factor solution to all economic woes. To regard it as such in today's world is, to put it kindly, stubborn.
I believe that most reasonable people could agree with thinking along these lines: There is, in fact, a justifiable self-interest, and it is actually not just a right, but a universal responsibility. We are responsible for ourselves. And we have a right to take care of ourselves. And furthermore I believe we could agree that where problems arise, they result from the misinterpretation and misuse of self interest, and particularly from gross inequalities of economic power.
Thus my rejection of the market fundamentalism of contemporary neoclassical economic thinkers is not a rejection of self-interest, but of unjustifiable self interest. And it is a rejection of what could be called the sufficiency of self interest, which leads to the spurious economic mysticism of “the invisible hand.”
Finally, it is entirely incorrect to assume that freedom is only exercised in selfish ways. Despite the fact that we all have to operate on the edge of a system of which we are a part, our attitude does not need to be one of simple (and possibly delusional) self-interest. We do not need to operate on the basis of mere self interest. The basic insight that we are in fact part of the system that we observe is a keyhole to the wisdom that goes beyond such a stance.
This leads to the key point of this discussion, which is is this: we can generate an attitude of compassion at the edge. We are free to do so. And interestingly enough, one of the most direct ways to get to some sort of accurate whole-system view about human beings is to develop compassion for them, because we can be quite sure that human beings desire happiness. In developing compassion, we recognize this fact and, in fact, we endorse it.
Compassion from the edge is all that is needed to build the civil endowment system. Not revolution, not new laws, not a utopian breakthrough, not a supernatural transfiguration. Compassion.
Though the compassion we are talking about is, in fact, unbiased and “for everyone,” it does not need to be “by” everyone. Because it is from the edge, not everyone needs to have compassion, and it need not be imposed on anyone. No particular person needs to endorse, accept, understand, or even be aware of it. There just needs to be enough of it.
This is a brief explanation of why the Special Proposal not only lacks the features of socialism, it lacks the features more generally of collectivism altogether.
Monday, November 16, 2009
The Vision of Civil Endowment
To build an economic system on the basis of human compassion may at first seem idealistic, naïve, or just plain impossible. But if we take a deeper look, it starts to look refreshingly possible. In my work to connect economic theory with the insights of Mahayana Buddhism, I've outlined six economic virtues that correspond to the six transcendent qualities by which a person on the bodhisattva path puts compassion into practice, eventually leading to full spiritual awakening. In other words, I've looked at the kinds of actions or qualities that are traditionally taught to bring about enlightenment, and looked for a related economic pattern. Except for one or two of them, you don't even have to change the names. The economic virtues are: generosity, ethics, non-aggression, diligence, focus, and wisdom.
A dismissive response to this line of thinking might be: “Fine, what's the big deal? If people would just do all that good stuff, society would be in great shape. What else is new?” What's interesting though, is that it turns out that there are very readily identifiable economic efficiencies that arise from each of these virtues, whether they are practiced individually, within institutions, or in society as a whole. This suggests that it should be possible to design economic structures and institutions based on those efficiencies.
My contemplation on how to make use of those efficiencies and build a more compassionate economic system in practice has led me to develop the theory of civil endowment. The key point of this body of thought is that we could create a new kind of capital which would be fully dedicated to the common good. This new kind of capital, called civil capital, would form the civil endowment. The other important point is that this civil endowment would be administered by civil society institutions created specially for that purpose. Structuring this innovation as a civil society initiative largely sidesteps the political process, where fundamental economic reform remains highly unlikely. It also avoids relying on the even more unlikely event that the business sector -- and especially the financial part of that sector -- will reform itself.
The great need for general economic reform, especially in addressing the vast and widening gulf between rich and poor, is justification enough for the establishment of a civil endowment system. But on top of that we have the extreme urgency of the multiple crises that human society faces. All this seen together should make us all the more willing to look beyond our existing toolbox of ideas, not to mention our stale rhetoric and dogma. We need major innovation in economic theory and practice, or the human race may not survive the historical era we are entering now. It's that serious.
Civil endowment theory is such a system innovation. It is also non-utopian, in the sense that it can be instituted in today's world, as it is. It is not an attempt to scrap the existing economic system, but rather to institute a new paradigm incrementally. For it to work, it is true, there must exist at least the basic features of open society, such as the right to form organizations, fundamental economic freedoms, ownership rights, and the rule of law. Though these conditions do not exist worldwide, there are enough places where they do exist to establish the system. And, as it happens, a civil endowment system would do much to preserve and promote open society worldwide. Thus, there is every possibility that it would help move closed (i.e. authoritarian) societies toward openness. Open society and civil endowment are mutually reinforcing, a statement that cannot be made about either capitalism or socialism.
From a theoretical point of view, this system of thought and practice is fundamentally outside of the categories of capitalism or socialism. It is not socialism because it does not rely on government ownership or control of productive enterprise. It is not capitalism because it does not promote extractive or exploitive investment, or productivity that destroys the world we live in. Nor does it, at a more theoretical level, subscribe to the notion that selfish behavior creates the common good. Instead, it works to create beneficial causal factors that work at the scope of the whole system (global human society and the ecosphere), which are implemented on a civil society basis rather than a political one.
It is important to be clear that this proposal is not an attack on business, private property, or on responsible self-interest. Nor is it a repudiation of the needed role of governments in the economy. It does, however, point out the possibility of an increased role for civil society in guiding the economy, one enhanced by the real economic power inherent in the civil endowments. Civil endowments could function as a stabilizing and moderating part of the overall economy, one capable of providing leadership and of addressing the crushing human problems of our times. The investment of civil capital would be used as needed in a given context. In the developing world it could promote basic sufficiency for all and the kind of sustainable infrastructure development that could nurture truly healthy economies. In the more developed economies, it could help reverse the wide and increasing gap between rich and poor, and bring healthy re-development to devastated post-industrial economies such as that of the United States. Importantly, it could play a major role in supporting renewable, non-fossil energy investments. Though there is a lot of private money going in that direction, much, much more is needed.
A quick way into the theoretical world of civil endowment is the little phrase, “capitalism can't be reformed, but capital can.” This is the counter-intuitive essence of the proposal. If we create a substantial system of NGO-administered capital fully committed to the common good of humanity, we will not have abolished private property, economic rights, or even “free enterprise.” We will simply have created an open-society economic system that moves beyond capitalism. To the extent that capital is reformed, the unbounded lust for profit that characterizes primitive capital is no longer the primary value or driving force. Human wellbeing is the primary value. Thus, though it may seem paradoxical, the way to diffuse and transcend the contemporary destructive manifestation of capitalism is not to eliminate capital but to reform it.
What would this reformed capital be like? Here is a summary that introduces the key ideas:
Let's consider at a few of the phrases used in this definition:
Attitudes toward capital within the various camps of economic theory and practice are such that there is a bit of a Catch-22 in operation. On the one hand, those who recognize the tremendous power of capital tend to only see it in terms of selfish motivations and benefits. That is true, actually, for most of those who either think capital is great, and for those who are against the whole idea. Among those who love capital, some theorists or individuals continue to harbor the notion that “everyone acting selfishly yields the best result for society.” This notion, and that of the “invisible hand” of markets, is in wide disrepute, yet it remains a secure refuge of rationalization for the materialist. The wealthy and powerful believe in capital, and they know how to use it. On the other side of the ideological divide, those who yearn for “the common good” have tended to neglect the investment process, and implicitly, capital itself, and think more in terms of governmental regulation or control on the one hand, or individual actions and social movements on the other. And therein lies the catch. Neither side sees the transformative potential of capital once it is liberated from its selfish application. If anything, I hope that my contributions to the conversation will cause people of both persuasions to rethink what capital is and what it could be.
What is meant by investment here is the actual commitment of economic power to a productive purpose. The “crest of the wave” of any modern economy (including ones that are government controlled) is the ongoing process of investment. Although governmental involvement is a major factor in any modern economy, the real driving force as an economy moves forward through time lies within the actual investments that are made. The economic processes that are enabled by each investment as it happens are at the absolute core of the economy, and especially at the core of the way an economy changes and evolves. This is why the reformation of capital could be tremendously effective in reforming the economy itself.
If we look at human needs in the coming decades, the transition to a sustainable, non-catastrophic future for our race requires a vast and skillful transition in how investment is made, by whom, and for whom. Briefly put, those investments need to do what is necessary, on the scale that is necessary, to provide for the sustenance of the human race in a way that is ecologically sustainable. Who will make those investments? Where will the will and the leadership come from, not to mention the actual investment resources, to transition to a post-fossil energy economy? And who will benefit from the immense profit and productivity inherent in such investments? The answer to all these questions is, at least potentially, “all of us.”
But to answer these questions in greater depth, we need to delve into the fundamental theory of capital. This realm has received little attention since the basic ideological divide between socialist and capitalist dogma was laid down in the 19th Century. But if we undertake an analysis with a fresh mind (a journey undertaken brilliantly by Folkert Wilkin in his book The Liberation of Capital), we find a rather subtle realm, a realm in which tremendous creative and indeed compassionate possibilities reside. A key possibility within this basic capital theory is that capital could function without the relentless and amoral quest for profit. In other words, there could be a post-materialist conception of capital. Furthermore, there could be an altruistic conception of capital. Key to both these points is that capital could function without selfishness. Civil capital is the practical conception that arises out of these possibilities.
At this point you may rightly ask, “Well, how is this idea of civil capital different from Socially Responsible investing?”Socially Responsible Investing (SRI) and the more recent notion of “impact investing” are very positive movements, but don't forget that the people who put the money up for such investments want their money back, with profit. They may be willing to earn less and work harder for what they earn, but the basic selfish orientation of their capital is unchanged. They are trying to invest with a sense of ethics, which is a good thing, but it is still their capital. Civil capital, by contrast, is detached from private ownership. Its beneficiary is the universal beneficiary. Therefore, the investment decisions associated with it, along with the dispensation of the returns on those investments, are wholly different from any sort of private capital.
To explain this point about private capital, I use the playfully evocative terms “reptilian capital” and “mammalian capital.” Reptilian capital is cold blooded. It is concerned only with selfish return on investment. It has no ethical compunctions. It abides by laws and regulations only for pragmatic reasons. The reptilian capital paradigm rules much of our business and financial world today. We should never underestimate the extent and power of this mentality in our society. At the same time, there is an investment mentality based on more decent instincts, instincts that are warm blooded. Hence the term “mammalian.” This mindset is concerned with environmental and social outcomes as well as profit. Out of such a mindset comes the world of SRI, impact investing, and socially responsible business. To understand civil capital, we need to see that it goes far beyond even the laudable mentality of mammalian capital. The key difference is in the beneficiary. Instead of the financial returns and other benefits of ownership going to the investors, the returns on civil capital go to the universal beneficiary. The secondary difference, but also a crucial one, is in the administrative structure of civil capital. It is managed by socially accountable NGOs, by people who are not motivated by personal financial return.
Admittedly, it may be a little hard to visualize at first how this “return to the universal beneficiary” would happen in practice. Are we going to send a dividend check to everyone on Earth? In theory, that could happen, though not immediately. It would take a long time for enough civil capital to accumulate for that. It is possible, though, that even in the early phases of such a system, productivity could be channeled to those who need it most in creative ways. In practice, any profits of civil investment would most likely be re-invested as the system develops. As significant as that is, the financial returns or growth of civil endowment is not really the primary benefit of civil endowment investment. What is more significant, and what can take place on any level of scale, is the qualitative stimulus effect that civil capital can have on an economy. Going back to the nice folks who brought us SRI, what they realized, in their wisdom, is that quite apart from financial return, a capital investment has a qualitative real-world impact in terms of the economic actions it promotes. Those actions in turn have effects, not just in the sphere of the overall economy, but also socially and environmentally. It was this “ripple-out” effect that the SRI folks want to cultivate, albeit while taking the profits for themselves. Quite apart from the question of the financial returns of such investments, the paradigm under which civil capital would be put to work would open up a whole new realm of investment thinking, since the time frame under consideration would be unlimited, as would be the social scope of action and benefit. Therefore, it is not just the question of “who gets the profits” that makes civil capital vastly more beneficial than SRI. The unbounded scope of the event horizons in the investment decisions, both socially and temporally, opens up profound possibilities for the best possible kinds of economic development.
Furthermore, the economic power that results from the productivity of civil capital can be used in far more creative ways than simply sending everyone a check. There is actually a route to true economic democracy lurking in this paradigm. Though economic democracy is an imprecise concept, and one that has many proposed expressions, it is also an idea that has a deep resonance for those who favor economic justice. Unfortunately, most of the proposals associated with economic democracy are, at least on their own, more or less impossible to implement. They also show little likelihood of addressing -- let alone solving -- the paramount issues of our time, namely, global warming and global poverty. Civil endowment funds, on the other hand, could be targeted at precisely these most crucial problems and gradually bring about the conditions necessary for greater economic democracy and participation.
Many of those working for economic change today point to another area of concern, namely monetary policy. Again, a robust civil endowment system paves the way for progress in this area. We need to be really clear that as long as the reptilian profit motive of bankers is the main driving force, whether it is within the institutions themselves or in their unconscionable influence on public policy, real progress is not going to happen. Though there is a great deal of public outcry, and indeed perhaps some movement toward re-regulation of the financial industry, I do not believe that the answer to the problem can be -- or even should be -- coming from the government. The alternative route, which is thus one of the most urgent and effective potential uses of civil capital, would be to create financial institutions that are non-predatory, out of which could come any number of benefits, including monetary and credit reforms. One very exciting outcome of this could be the creation of both local and global currencies that are superior to the current national currencies. This could happen if there were simply financial resources available to create them, which in turn is entirely possible if there were institutions committed to economic justice for all.
Another screaming need for a new investment paradigm is in the field of media. Advertising-supported media is not necessary a flawed business model, but at least in large-scale mass media it has become horribly corrupt. This is most evident in the case of the rising power of politically biased and even extremist news organizations we see on TV these days. More generally it is reflected in the insidious materialism that advertising promotes in society. On the other side of the fence, we see various state controlled news outlets engaging in their own extremes of distortion and control. Clearly neither the ruthless lust for profit, nor authoritarian state control is going to going to lead to “fair and balanced” media. The backing of civil capital would open up new realms of possibilities for media that is truly responsible to truth and to the public benefit.
The wide range of benefits that could potentially arise from a civil endowment system has led me to call civil capital the “perfection of capital.” The term, though perhaps grandiose, is appropriate since civil capital is designed to be in optimal accordance with compassion and wisdom in principle and human wellbeing in practice. It is detached from selfish motivations and unskilful applications of economic power. It integrates and perfects the various forms of capital such as finance capital, invested productive capital, as well as social and natural capital. It is perfect because it is designed to be perfect.
Once we see the value of civil capital, we need to ask two pragmatic questions: “Where does civil capital come from?” And, “How is it managed?”
The refreshingly simple answer to the first question is: human generosity. Not only is generosity a fundamental part of the human culture and economy, but as society becomes more globalized we see that people are often willing to give very compassionately to groups of people with whom they have no personal connection. Though people give very liberally in the case of disasters such as hurricanes and tsunamis, the power of generosity has not yet been mobilized to actually reform or heal our economic system. To galvanize human compassion and giving for this specific purpose will take time, but there is no reason to doubt that people would support it once the concept of civil endowment becomes known and its benefits understood. Beyond the sphere of direct individual giving, there are a vast range of possible revenue streams that could be directed to the endowment system. Extremely small percentages of various kinds of transactions, such as currency conversions and international capital transfers could create micro-streams of input to the system. This is similar to the “Tobin Tax” concept that has already been proposed to fund worthy projects on a global scale. A civil endowment system would be a worthy recipient of a tiny percentage of many types of transactions. There are in fact countless ways that revenue could come into the system. Keep in mind that the civil endowment would be a permanent and self-enriching body of resource. Revenue streams from civil endowment backed companies could be built into their business model from the beginning. Although all the inputs to the system would involve generosity, they clearly would not all be direct gifts. It would be more like building generosity into a system. Once established, the small streams deflected from economic processes would trickle into the endowments and not particularly deprive anyone. This notion of structuralized generosity is a key element in the feasibility of such a system.
It is actually very important that civil endowments come into being through acts of generosity, rather than through confiscation by taxation, because through the actual act of giving to the whole human race, the giver is transformed and the interdependent cycle of a compassionate economy is set in motion. To see that human compassion and generosity is sufficient – and necessary -- to start the civil endowment system is an “ah-ha” moment that I call “The Leap.”
Finally, there is the question of the management of civil endowment. I propose that special non-profit fiduciary organizations be set up to do this work. They would be publicly accountable for their actions, and operate under a strict charter. Most likely there would be both paid professionals and volunteer governance boards as part of this structure. Under the civil investment paradigm, the nominal owner of the assets would be non-profit organizations (NGOs) with a transparent administrative structure. These organizations would make the basic decisions about investment of the capital, and monitor the results of the investment. An NGO of this type could be the direct owner of for-profit entities such as holding companies, banks, or venture capital firms, or it could invest indirectly through financial professionals. The key would be to not only enact the civil investment paradigm, but to refine and evolve it over time. Probably it would also be necessary to have a specialized NGO functioning as a standards body for the NGOs that actually hold civil assets. Finally, it might be necessary to separate the functions of fundraising and asset management. With that approach, there would be one or more civil endowment foundations responsible for accumulating the assets that form civil capital, and distributing them to the administrators of the endowments. This three-fold system would create a system of checks and balances, defuse potential conflicts of interest, and generally decentralize the functioning of the civil endowment system.
There are trillions of dollars in assets under management today by trained fiduciary professionals. Unfortunately, they operate under the wrong set of rules. It is also the case that many non-profit organizations have endowment funds under management, some of them huge. However, the purpose of these endowments is to generate cash income for their non-profit work. Some have migrated in varying degrees of a socially responsible investment strategy, but basically they are still about extracting cash on an ongoing basis. Though the civil endowment model is clearly different than this, the basic societal framework of non-profit organizations owning and managing large endowments is clearly established. In the case of a civil endowment system, NGOs have a new role: that of owning and managing large endowments for the wellbeing of the human race. If this is their purpose, it makes no sense whatsoever to make investments that are based on theft, exploitation, or the very destruction of the planet we live on. Thus the whole extractive investment model that has characterized modern capitalism from the beginning can be jettisoned.
What happens to profit, that concept so dear to traditional capitalists, under this model? It is still possible for businesses to make a profit under this model, but it would not be the overriding concern, nor would short-term profit expectations be of anywhere near the same significance that they take on currently. It is important to bear in mind that in reality, profit is just an accounting concept. What is more significant is the concept of productivity, which means actually producing a good or service that people need. As long as you make investments that do that, the system will do what it's meant to do. On a broader scale, the civil endowment system as a whole does not need to make a profit, in part because profit is reckoned on the basis of a specific accounting period. The civil investment paradigm is based on an unbounded event horizon. This doesn't mean that there could be no quantitative evaluation possible for its success or failure. But the actual criteria for success of specific investments would be more of a combination of qualitative and quantitative results. Keep in mind that there would be an ongoing income to the endowment system through structuralized generosity. Broadly speaking, if the system is seen to be valuable to humanity, people will continue to give resources to it to make it function. With that said, it is my hypothesis that civil endowments will be robustly profitable in the long term and will create a tremendous amount of decentralized private wealth along the way. The basis for this hypothesis is a rather esoteric concept known as “the efficiency of universal scope.” The essence of this efficiency is the view that causal factors that operate to enhance the health of a whole system will produce greater productive results than factors that destabilize or drain the system in some way.
It is inevitable, and actually preferable, for a civil endowment system to start out small. At first its presence would be, at least from a global perspective, purely symbolic. As it grows however, it could become a catalytic force, and eventually grow into a structural component of a vibrant and prosperous world economy.
Clearly there is no way to know how important such a system could become, or how soon it could begin to address human problems. I'm sure that as I explain it down the road, there will be plenty of objections that start with. “People will never . . . .” There is no doubt that the concept requires leaps of vision. But the leaps involved are as much of reason as they are of faith. It is actually rational to support a system that enhances the wellbeing of all humanity, because in an interconnected world, each of our prosperity -- and indeed our survival -- depends on the wellbeing of the whole of society. Civil Endowment Theory is not inimical to self interest. It merely points out the practical truth that each of our self interests includes, at least to some degree, the interest of the human whole. There are vast numbers of intelligent people these days who understand this. This is why, on balance, I am persuaded that a civil endowment system has real possibilities for implementation. It is a practical expression of a truth millions have seen.
As for those who don't understand it, it is important to see that this proposal by no means requires universal buy in, or even widespread awareness that it exists. It will not be imposed by any government or promoted with any kind of coercion. It is a voluntary initiative by those who see its value. Furthermore, because of the transformative character of the act of giving to a universal endowment, it can be argued that it is beneficial at absolutely any level of scale. Even a penny, given with the intention to benefit every human being now living and those yet to be born, is an expansive and uplifting act. With such a gift, the doors of possibility open to the practice of economic compassion for humanity as a whole, for the unbounded future. It is simultaneously an act of kindness, of hope, and perhaps most surprisingly, of pragmatism.
Concerning the feasibility of this idea, there are really two questions. The first is systemic: would civil endowments actually have the qualitative benefits that they are designed to have? And second: if such a system did indeed potentially have the salutary effect on the world economy that it is intended to have, would people have enough generosity to make it happen in on a large-enough scale? The answer to both questions is, “Well, let's try it.” This is admittedly a hypothetical proposal. There is no way that I know of to make theoretical models for such a thing or, for that matter, speculative prognostications. But the key thing that makes me want to push ahead is the point mentioned above about scale. If it has at least some benefit at any level of scale, why not move forward? Why not take the steps to create such a system, and take them deliberatively, cautiously, but decisively? In doing so, we can unify the outlook of compassion and practicality, and learn what works and what doesn't. Though I cannot personally predict the future of a system that has yet to come into existence, I am absolutely convinced that we need to take creative and transformative steps in the realm of economics. I am equally convinced that compassion is a worthy governing principle for guiding what we do. The idea of civil endowment is my synthesis of social vision, economic theory, and pragmatic planning at this urgent point in human history. It is my contribution to the conversation that is so important for all of us. You are warmly invited to join in.
(My thanks to Carl Frankel and Arya-Francesca Jenkins for their helpful editorial suggestions on this post.)
A dismissive response to this line of thinking might be: “Fine, what's the big deal? If people would just do all that good stuff, society would be in great shape. What else is new?” What's interesting though, is that it turns out that there are very readily identifiable economic efficiencies that arise from each of these virtues, whether they are practiced individually, within institutions, or in society as a whole. This suggests that it should be possible to design economic structures and institutions based on those efficiencies.
My contemplation on how to make use of those efficiencies and build a more compassionate economic system in practice has led me to develop the theory of civil endowment. The key point of this body of thought is that we could create a new kind of capital which would be fully dedicated to the common good. This new kind of capital, called civil capital, would form the civil endowment. The other important point is that this civil endowment would be administered by civil society institutions created specially for that purpose. Structuring this innovation as a civil society initiative largely sidesteps the political process, where fundamental economic reform remains highly unlikely. It also avoids relying on the even more unlikely event that the business sector -- and especially the financial part of that sector -- will reform itself.
The great need for general economic reform, especially in addressing the vast and widening gulf between rich and poor, is justification enough for the establishment of a civil endowment system. But on top of that we have the extreme urgency of the multiple crises that human society faces. All this seen together should make us all the more willing to look beyond our existing toolbox of ideas, not to mention our stale rhetoric and dogma. We need major innovation in economic theory and practice, or the human race may not survive the historical era we are entering now. It's that serious.
Civil endowment theory is such a system innovation. It is also non-utopian, in the sense that it can be instituted in today's world, as it is. It is not an attempt to scrap the existing economic system, but rather to institute a new paradigm incrementally. For it to work, it is true, there must exist at least the basic features of open society, such as the right to form organizations, fundamental economic freedoms, ownership rights, and the rule of law. Though these conditions do not exist worldwide, there are enough places where they do exist to establish the system. And, as it happens, a civil endowment system would do much to preserve and promote open society worldwide. Thus, there is every possibility that it would help move closed (i.e. authoritarian) societies toward openness. Open society and civil endowment are mutually reinforcing, a statement that cannot be made about either capitalism or socialism.
From a theoretical point of view, this system of thought and practice is fundamentally outside of the categories of capitalism or socialism. It is not socialism because it does not rely on government ownership or control of productive enterprise. It is not capitalism because it does not promote extractive or exploitive investment, or productivity that destroys the world we live in. Nor does it, at a more theoretical level, subscribe to the notion that selfish behavior creates the common good. Instead, it works to create beneficial causal factors that work at the scope of the whole system (global human society and the ecosphere), which are implemented on a civil society basis rather than a political one.
It is important to be clear that this proposal is not an attack on business, private property, or on responsible self-interest. Nor is it a repudiation of the needed role of governments in the economy. It does, however, point out the possibility of an increased role for civil society in guiding the economy, one enhanced by the real economic power inherent in the civil endowments. Civil endowments could function as a stabilizing and moderating part of the overall economy, one capable of providing leadership and of addressing the crushing human problems of our times. The investment of civil capital would be used as needed in a given context. In the developing world it could promote basic sufficiency for all and the kind of sustainable infrastructure development that could nurture truly healthy economies. In the more developed economies, it could help reverse the wide and increasing gap between rich and poor, and bring healthy re-development to devastated post-industrial economies such as that of the United States. Importantly, it could play a major role in supporting renewable, non-fossil energy investments. Though there is a lot of private money going in that direction, much, much more is needed.
A quick way into the theoretical world of civil endowment is the little phrase, “capitalism can't be reformed, but capital can.” This is the counter-intuitive essence of the proposal. If we create a substantial system of NGO-administered capital fully committed to the common good of humanity, we will not have abolished private property, economic rights, or even “free enterprise.” We will simply have created an open-society economic system that moves beyond capitalism. To the extent that capital is reformed, the unbounded lust for profit that characterizes primitive capital is no longer the primary value or driving force. Human wellbeing is the primary value. Thus, though it may seem paradoxical, the way to diffuse and transcend the contemporary destructive manifestation of capitalism is not to eliminate capital but to reform it.
What would this reformed capital be like? Here is a summary that introduces the key ideas:
Civil capital is a form of finance capital which is invested as an endowment for the universal beneficiary, under a strict investment paradigm for the benefit of all humanity on an unbounded time horizon. As such, it optimizes both social and natural capital. Although the maximization of profit and productivity is not part of the civil investment paradigm, all retained earnings and productivity are endowed to the beneficial owner of civil capital, the universal beneficiary. Civil capital is managed by civil society organizations which are accountable to society at large.
Let's consider at a few of the phrases used in this definition:
The Universal Beneficiary refers to all human beings now living and yet to be born. This unique designation of people in both the present and future creates the unbounded time horizon of the civil investment paradigm.
The Civil Investment Paradigm refers to capital investment for non-frivolous economic productivity on behalf of the Universal Beneficiary. In practice, this paradigm is informed by the principles of environmental and social sustainability, universal sufficiency, and social justice.
Civil society organizations refers to specially created non-profit organizations that would function as fiduciaries for civil capital and its investment, preservation, and evolution.
Attitudes toward capital within the various camps of economic theory and practice are such that there is a bit of a Catch-22 in operation. On the one hand, those who recognize the tremendous power of capital tend to only see it in terms of selfish motivations and benefits. That is true, actually, for most of those who either think capital is great, and for those who are against the whole idea. Among those who love capital, some theorists or individuals continue to harbor the notion that “everyone acting selfishly yields the best result for society.” This notion, and that of the “invisible hand” of markets, is in wide disrepute, yet it remains a secure refuge of rationalization for the materialist. The wealthy and powerful believe in capital, and they know how to use it. On the other side of the ideological divide, those who yearn for “the common good” have tended to neglect the investment process, and implicitly, capital itself, and think more in terms of governmental regulation or control on the one hand, or individual actions and social movements on the other. And therein lies the catch. Neither side sees the transformative potential of capital once it is liberated from its selfish application. If anything, I hope that my contributions to the conversation will cause people of both persuasions to rethink what capital is and what it could be.
What is meant by investment here is the actual commitment of economic power to a productive purpose. The “crest of the wave” of any modern economy (including ones that are government controlled) is the ongoing process of investment. Although governmental involvement is a major factor in any modern economy, the real driving force as an economy moves forward through time lies within the actual investments that are made. The economic processes that are enabled by each investment as it happens are at the absolute core of the economy, and especially at the core of the way an economy changes and evolves. This is why the reformation of capital could be tremendously effective in reforming the economy itself.
If we look at human needs in the coming decades, the transition to a sustainable, non-catastrophic future for our race requires a vast and skillful transition in how investment is made, by whom, and for whom. Briefly put, those investments need to do what is necessary, on the scale that is necessary, to provide for the sustenance of the human race in a way that is ecologically sustainable. Who will make those investments? Where will the will and the leadership come from, not to mention the actual investment resources, to transition to a post-fossil energy economy? And who will benefit from the immense profit and productivity inherent in such investments? The answer to all these questions is, at least potentially, “all of us.”
But to answer these questions in greater depth, we need to delve into the fundamental theory of capital. This realm has received little attention since the basic ideological divide between socialist and capitalist dogma was laid down in the 19th Century. But if we undertake an analysis with a fresh mind (a journey undertaken brilliantly by Folkert Wilkin in his book The Liberation of Capital), we find a rather subtle realm, a realm in which tremendous creative and indeed compassionate possibilities reside. A key possibility within this basic capital theory is that capital could function without the relentless and amoral quest for profit. In other words, there could be a post-materialist conception of capital. Furthermore, there could be an altruistic conception of capital. Key to both these points is that capital could function without selfishness. Civil capital is the practical conception that arises out of these possibilities.
At this point you may rightly ask, “Well, how is this idea of civil capital different from Socially Responsible investing?”Socially Responsible Investing (SRI) and the more recent notion of “impact investing” are very positive movements, but don't forget that the people who put the money up for such investments want their money back, with profit. They may be willing to earn less and work harder for what they earn, but the basic selfish orientation of their capital is unchanged. They are trying to invest with a sense of ethics, which is a good thing, but it is still their capital. Civil capital, by contrast, is detached from private ownership. Its beneficiary is the universal beneficiary. Therefore, the investment decisions associated with it, along with the dispensation of the returns on those investments, are wholly different from any sort of private capital.
To explain this point about private capital, I use the playfully evocative terms “reptilian capital” and “mammalian capital.” Reptilian capital is cold blooded. It is concerned only with selfish return on investment. It has no ethical compunctions. It abides by laws and regulations only for pragmatic reasons. The reptilian capital paradigm rules much of our business and financial world today. We should never underestimate the extent and power of this mentality in our society. At the same time, there is an investment mentality based on more decent instincts, instincts that are warm blooded. Hence the term “mammalian.” This mindset is concerned with environmental and social outcomes as well as profit. Out of such a mindset comes the world of SRI, impact investing, and socially responsible business. To understand civil capital, we need to see that it goes far beyond even the laudable mentality of mammalian capital. The key difference is in the beneficiary. Instead of the financial returns and other benefits of ownership going to the investors, the returns on civil capital go to the universal beneficiary. The secondary difference, but also a crucial one, is in the administrative structure of civil capital. It is managed by socially accountable NGOs, by people who are not motivated by personal financial return.
Admittedly, it may be a little hard to visualize at first how this “return to the universal beneficiary” would happen in practice. Are we going to send a dividend check to everyone on Earth? In theory, that could happen, though not immediately. It would take a long time for enough civil capital to accumulate for that. It is possible, though, that even in the early phases of such a system, productivity could be channeled to those who need it most in creative ways. In practice, any profits of civil investment would most likely be re-invested as the system develops. As significant as that is, the financial returns or growth of civil endowment is not really the primary benefit of civil endowment investment. What is more significant, and what can take place on any level of scale, is the qualitative stimulus effect that civil capital can have on an economy. Going back to the nice folks who brought us SRI, what they realized, in their wisdom, is that quite apart from financial return, a capital investment has a qualitative real-world impact in terms of the economic actions it promotes. Those actions in turn have effects, not just in the sphere of the overall economy, but also socially and environmentally. It was this “ripple-out” effect that the SRI folks want to cultivate, albeit while taking the profits for themselves. Quite apart from the question of the financial returns of such investments, the paradigm under which civil capital would be put to work would open up a whole new realm of investment thinking, since the time frame under consideration would be unlimited, as would be the social scope of action and benefit. Therefore, it is not just the question of “who gets the profits” that makes civil capital vastly more beneficial than SRI. The unbounded scope of the event horizons in the investment decisions, both socially and temporally, opens up profound possibilities for the best possible kinds of economic development.
Furthermore, the economic power that results from the productivity of civil capital can be used in far more creative ways than simply sending everyone a check. There is actually a route to true economic democracy lurking in this paradigm. Though economic democracy is an imprecise concept, and one that has many proposed expressions, it is also an idea that has a deep resonance for those who favor economic justice. Unfortunately, most of the proposals associated with economic democracy are, at least on their own, more or less impossible to implement. They also show little likelihood of addressing -- let alone solving -- the paramount issues of our time, namely, global warming and global poverty. Civil endowment funds, on the other hand, could be targeted at precisely these most crucial problems and gradually bring about the conditions necessary for greater economic democracy and participation.
Many of those working for economic change today point to another area of concern, namely monetary policy. Again, a robust civil endowment system paves the way for progress in this area. We need to be really clear that as long as the reptilian profit motive of bankers is the main driving force, whether it is within the institutions themselves or in their unconscionable influence on public policy, real progress is not going to happen. Though there is a great deal of public outcry, and indeed perhaps some movement toward re-regulation of the financial industry, I do not believe that the answer to the problem can be -- or even should be -- coming from the government. The alternative route, which is thus one of the most urgent and effective potential uses of civil capital, would be to create financial institutions that are non-predatory, out of which could come any number of benefits, including monetary and credit reforms. One very exciting outcome of this could be the creation of both local and global currencies that are superior to the current national currencies. This could happen if there were simply financial resources available to create them, which in turn is entirely possible if there were institutions committed to economic justice for all.
Another screaming need for a new investment paradigm is in the field of media. Advertising-supported media is not necessary a flawed business model, but at least in large-scale mass media it has become horribly corrupt. This is most evident in the case of the rising power of politically biased and even extremist news organizations we see on TV these days. More generally it is reflected in the insidious materialism that advertising promotes in society. On the other side of the fence, we see various state controlled news outlets engaging in their own extremes of distortion and control. Clearly neither the ruthless lust for profit, nor authoritarian state control is going to going to lead to “fair and balanced” media. The backing of civil capital would open up new realms of possibilities for media that is truly responsible to truth and to the public benefit.
The wide range of benefits that could potentially arise from a civil endowment system has led me to call civil capital the “perfection of capital.” The term, though perhaps grandiose, is appropriate since civil capital is designed to be in optimal accordance with compassion and wisdom in principle and human wellbeing in practice. It is detached from selfish motivations and unskilful applications of economic power. It integrates and perfects the various forms of capital such as finance capital, invested productive capital, as well as social and natural capital. It is perfect because it is designed to be perfect.
Once we see the value of civil capital, we need to ask two pragmatic questions: “Where does civil capital come from?” And, “How is it managed?”
The refreshingly simple answer to the first question is: human generosity. Not only is generosity a fundamental part of the human culture and economy, but as society becomes more globalized we see that people are often willing to give very compassionately to groups of people with whom they have no personal connection. Though people give very liberally in the case of disasters such as hurricanes and tsunamis, the power of generosity has not yet been mobilized to actually reform or heal our economic system. To galvanize human compassion and giving for this specific purpose will take time, but there is no reason to doubt that people would support it once the concept of civil endowment becomes known and its benefits understood. Beyond the sphere of direct individual giving, there are a vast range of possible revenue streams that could be directed to the endowment system. Extremely small percentages of various kinds of transactions, such as currency conversions and international capital transfers could create micro-streams of input to the system. This is similar to the “Tobin Tax” concept that has already been proposed to fund worthy projects on a global scale. A civil endowment system would be a worthy recipient of a tiny percentage of many types of transactions. There are in fact countless ways that revenue could come into the system. Keep in mind that the civil endowment would be a permanent and self-enriching body of resource. Revenue streams from civil endowment backed companies could be built into their business model from the beginning. Although all the inputs to the system would involve generosity, they clearly would not all be direct gifts. It would be more like building generosity into a system. Once established, the small streams deflected from economic processes would trickle into the endowments and not particularly deprive anyone. This notion of structuralized generosity is a key element in the feasibility of such a system.
It is actually very important that civil endowments come into being through acts of generosity, rather than through confiscation by taxation, because through the actual act of giving to the whole human race, the giver is transformed and the interdependent cycle of a compassionate economy is set in motion. To see that human compassion and generosity is sufficient – and necessary -- to start the civil endowment system is an “ah-ha” moment that I call “The Leap.”
Finally, there is the question of the management of civil endowment. I propose that special non-profit fiduciary organizations be set up to do this work. They would be publicly accountable for their actions, and operate under a strict charter. Most likely there would be both paid professionals and volunteer governance boards as part of this structure. Under the civil investment paradigm, the nominal owner of the assets would be non-profit organizations (NGOs) with a transparent administrative structure. These organizations would make the basic decisions about investment of the capital, and monitor the results of the investment. An NGO of this type could be the direct owner of for-profit entities such as holding companies, banks, or venture capital firms, or it could invest indirectly through financial professionals. The key would be to not only enact the civil investment paradigm, but to refine and evolve it over time. Probably it would also be necessary to have a specialized NGO functioning as a standards body for the NGOs that actually hold civil assets. Finally, it might be necessary to separate the functions of fundraising and asset management. With that approach, there would be one or more civil endowment foundations responsible for accumulating the assets that form civil capital, and distributing them to the administrators of the endowments. This three-fold system would create a system of checks and balances, defuse potential conflicts of interest, and generally decentralize the functioning of the civil endowment system.
There are trillions of dollars in assets under management today by trained fiduciary professionals. Unfortunately, they operate under the wrong set of rules. It is also the case that many non-profit organizations have endowment funds under management, some of them huge. However, the purpose of these endowments is to generate cash income for their non-profit work. Some have migrated in varying degrees of a socially responsible investment strategy, but basically they are still about extracting cash on an ongoing basis. Though the civil endowment model is clearly different than this, the basic societal framework of non-profit organizations owning and managing large endowments is clearly established. In the case of a civil endowment system, NGOs have a new role: that of owning and managing large endowments for the wellbeing of the human race. If this is their purpose, it makes no sense whatsoever to make investments that are based on theft, exploitation, or the very destruction of the planet we live on. Thus the whole extractive investment model that has characterized modern capitalism from the beginning can be jettisoned.
What happens to profit, that concept so dear to traditional capitalists, under this model? It is still possible for businesses to make a profit under this model, but it would not be the overriding concern, nor would short-term profit expectations be of anywhere near the same significance that they take on currently. It is important to bear in mind that in reality, profit is just an accounting concept. What is more significant is the concept of productivity, which means actually producing a good or service that people need. As long as you make investments that do that, the system will do what it's meant to do. On a broader scale, the civil endowment system as a whole does not need to make a profit, in part because profit is reckoned on the basis of a specific accounting period. The civil investment paradigm is based on an unbounded event horizon. This doesn't mean that there could be no quantitative evaluation possible for its success or failure. But the actual criteria for success of specific investments would be more of a combination of qualitative and quantitative results. Keep in mind that there would be an ongoing income to the endowment system through structuralized generosity. Broadly speaking, if the system is seen to be valuable to humanity, people will continue to give resources to it to make it function. With that said, it is my hypothesis that civil endowments will be robustly profitable in the long term and will create a tremendous amount of decentralized private wealth along the way. The basis for this hypothesis is a rather esoteric concept known as “the efficiency of universal scope.” The essence of this efficiency is the view that causal factors that operate to enhance the health of a whole system will produce greater productive results than factors that destabilize or drain the system in some way.
It is inevitable, and actually preferable, for a civil endowment system to start out small. At first its presence would be, at least from a global perspective, purely symbolic. As it grows however, it could become a catalytic force, and eventually grow into a structural component of a vibrant and prosperous world economy.
Clearly there is no way to know how important such a system could become, or how soon it could begin to address human problems. I'm sure that as I explain it down the road, there will be plenty of objections that start with. “People will never . . . .” There is no doubt that the concept requires leaps of vision. But the leaps involved are as much of reason as they are of faith. It is actually rational to support a system that enhances the wellbeing of all humanity, because in an interconnected world, each of our prosperity -- and indeed our survival -- depends on the wellbeing of the whole of society. Civil Endowment Theory is not inimical to self interest. It merely points out the practical truth that each of our self interests includes, at least to some degree, the interest of the human whole. There are vast numbers of intelligent people these days who understand this. This is why, on balance, I am persuaded that a civil endowment system has real possibilities for implementation. It is a practical expression of a truth millions have seen.
As for those who don't understand it, it is important to see that this proposal by no means requires universal buy in, or even widespread awareness that it exists. It will not be imposed by any government or promoted with any kind of coercion. It is a voluntary initiative by those who see its value. Furthermore, because of the transformative character of the act of giving to a universal endowment, it can be argued that it is beneficial at absolutely any level of scale. Even a penny, given with the intention to benefit every human being now living and those yet to be born, is an expansive and uplifting act. With such a gift, the doors of possibility open to the practice of economic compassion for humanity as a whole, for the unbounded future. It is simultaneously an act of kindness, of hope, and perhaps most surprisingly, of pragmatism.
Concerning the feasibility of this idea, there are really two questions. The first is systemic: would civil endowments actually have the qualitative benefits that they are designed to have? And second: if such a system did indeed potentially have the salutary effect on the world economy that it is intended to have, would people have enough generosity to make it happen in on a large-enough scale? The answer to both questions is, “Well, let's try it.” This is admittedly a hypothetical proposal. There is no way that I know of to make theoretical models for such a thing or, for that matter, speculative prognostications. But the key thing that makes me want to push ahead is the point mentioned above about scale. If it has at least some benefit at any level of scale, why not move forward? Why not take the steps to create such a system, and take them deliberatively, cautiously, but decisively? In doing so, we can unify the outlook of compassion and practicality, and learn what works and what doesn't. Though I cannot personally predict the future of a system that has yet to come into existence, I am absolutely convinced that we need to take creative and transformative steps in the realm of economics. I am equally convinced that compassion is a worthy governing principle for guiding what we do. The idea of civil endowment is my synthesis of social vision, economic theory, and pragmatic planning at this urgent point in human history. It is my contribution to the conversation that is so important for all of us. You are warmly invited to join in.
(My thanks to Carl Frankel and Arya-Francesca Jenkins for their helpful editorial suggestions on this post.)
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