So far we proposed some basic principles that could help the existing economic system to evolve. We also argued that economy works best if it is predicated on cooperation between the state, businesses, and people, and suggested some checks and balances to secure a good balance between them. It is fortunate that we do not need to wait for a crisis or revolution to bring this to life – in fact, changes in this direction are already happening in various parts of the world. There are many initiatives and agents that are working towards a constructive shift and if they prevail, the system may evolve relatively smoothly, though of course this is, by no means, certain. It is not an exaggeration to say that we are now at another crossroads. To tip the balance in favour of this evolution, any new economic model needs to be attractive for and implementable at all levels of the society: individual, community, organisational, national, and global. To this purpose, let’s first consider these levels generally. The application to specific issues (such as banking, taxation, investment, etc.) will be discussed in the next chapter.
At the individual level
If we want the economy to serve us, rather than the other way around, we all need to take responsibility for it. As long as we think that somebody else should run the economy (big businesses, the state, etc.) they will. We are not hopeless or helpless in this respect. There is a lot that every individual can do when buying, producing and managing (even if they are only managing their own household). Whoever you are and whatever you do, your actions matter, as we live in an interconnected world in which seemingly small actions can have huge consequences. Saying, ‘what’s the point, it won’t make any difference’, is similar to saying, ‘what’s the point of voting, one vote will not make a big difference’. If everybody thought in this way, democracy would vanish. Every action matters, as every action could potentially tip the balance. To make it happen, all we need is to have hope and willingness to take responsibility as nobody can stop us from doing the following:
- Thinking anew: we can start evolving our mindset and help others to evolve theirs in accord with the new principles – in other words, we can free ourselves from the shackles of capitalist thinking. For example, we can abandon simplistic divisions and distinctions, pitching the change as ‘us against them’. It is easy to think in terms of people v. the state, or people v. corporations, or the market v. the state, but this will not get us far. Not all that corporations, states, or popular movements do is always good, but not all that they do is bad either. We need to cut across these categories and put our weight behind what can facilitate the change, and boycott, ignore, and disempower what goes against it in each of them. First of all though, we need to banish TINA (there is no alternative) from the collective zeitgeist.
- Behaving anew: we can evolve our behaviour to match the new thinking. If we live our lives as if the change has already happened, we may actually bring it about. Influence by example has always been the most effective way. This is also a way of testing and experimenting with new ideas.
- Spreading the new matters too and can be done in several ways:
- Transforming the old: we can help existing social institutions and norms (e.g. legislations) to evolve.
- Making the new: we can help create new or parallel economic structures based on the new principles.
- Joining the dots: we can help promulgate and connect existing practices that are already in line with new economic thinking.
- Winning the hearts and minds (be it our friends, neighbours, colleagues, or social media contacts) is also very important because the effect can multiply.
Some concrete examples of the first three options will be considered in the next chapter, and the last one will be addressed in more detail in the ‘How of change’.
At the community level
Communities can play a huge and essential role in the transition period as well as in the new economy. There are already many good examples of this, particularly, but not exclusively, in the developing world. The UK has several so-called transition towns and initiatives preparing for the change (transition networks are now spreading throughout the world). There are also a number of organisations that forge new ways of running economy at the community level. For example, New Economy Coalition (NEC) is a network of over 200 organizations based in the US and Canada working for “a future where people, communities, and ecosystems thrive…where capital (wealth and the means of creating it) is a tool of the people, not the other way around.” The International Association for Community Development (IACD) acts as a hub for community development practitioners and scholars all over the world. The importance of communities for the economic evolution is hard to overestimate. However, it is important not to be prescriptive and to allow grass-roots initiatives to take the lead. This is because every community is unique in some ways, so different paths may have to be taken to arrive at the same destination. Furthermore, preserving diversity can be crucial in safeguarding against totalitarianism of one sort or another. One tentative suggestion can be made though. Greater self-reliance may be important, especially in times of crisis. So, supporting initiatives that enable local authorities to raise their own finance through, for example, local taxation or issuing their own bonds (as some cities and counties in the USA and the UK already do) may be important.
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At the organisational level
Making a stride at this level is a challenge but not an insurmountable one. There are already new corporate models such as social enterprises, social purpose companies, and B Corps, which are exempt from a corporate law that oblige management to pursue stockholders’ profit over and above ethical considerations or social responsibility. Such business models are spreading rapidly throughout the world. Corporate philanthropy too has skyrocketed in recent years. What’s more, companies are increasingly moving beyond donating, and are instead using their particular expertise to help with social projects and development efforts. Granted, this philanthropy sometimes has ulterior motives, such as retaining a stable supply chain (e.g. donating plants to farmers to ensure there’s a crop next year) or helping future recruitment (getting school children involved in projects that will make them think of joining the company). In some cases the ‘philanthropy’ is actually paid by the recipients themselves (Nestlé, for example, introduced a child labour protection scheme and then made the cocoa farmers, who probably never wanted it in the first place, contribute to the scheme)[1]. Such cases may fuel cynicism about corporate philanthropy, but we should not throw out the baby with the bathwater. By and large, these are steps in the right direction that would not happen if only unadulterated, pure altruism is demanded. There is nothing wrong with combining a positive social impact with what is good for the company, as long as the company is transparent about it and the recipients really benefit. Of course, much more can be done, but these trends unambiguously indicate that evolution can take place at this level too.
At the state level
Generally speaking, the purpose of the state should be to protect and advance the common good. From this perspective, the state could have several functions in the new economy (they are already largely recognised, but not always carried out well):
- The state is the only agent that could make sure that the power of big businesses does not get out of control and endanger the common good. The state as a democratic institution should be strong enough to keep big businesses in check, as they are non-democratic entities only accountable to shareholders. Even if many businesses serve society as a whole, not all do. The aims of business (making a profit) and of society may not always coincide (Chang, 2011, Thing 18) and when these two come into conflict, the state needs to make sure that the latter does not lose. It can also play a role in ‘saving businesses from themselves’, by ensuring that short-term benefits do not damage the long-term prospects of that business.
- Protection from the shadow economy (that includes the black market and undeclared payments to downright criminal activities, such as the drug trade) is, of course, equally important. The shadow economy should not be underestimated, the drug trade is the third-largest economic sector in the US, and is likely to be an even greater problem in a transition period.
- The state could also help to coordinate, harmonise and synchronise various facets and strands of the economy, as well as the distribution of labour. The free labour market does not necessarily allocate talent in the most efficient way because it produces jobs insecurity.
- The other role of the state would be to secure diversification. When one industry dominates, it is like putting all one’s eggs into one basket. If things go wrong in that industry, it affects everybody and makes it much more difficult to get out of the crisis. If the industry is doing well, the whole country can become hostage to it. For example, when the financial sector that dominated the UK economy went bust, the whole country had to pay for bailouts, but the state was powerless to cap obscene bonuses as the rest of Europe wanted. It is true that this diversification to some extent contradicts the wisdom of classical economics, which advises states to specialise. This wisdom is, though, only valid if the trade between countries is seen in isolation. When other variables (in particular unstable ones) are taken into account, diversification combined with limited specialisation seems to win the day.
- The state is also needed to secure standards (e.g. for food, hygiene, safety) and minimise their abuse through the reinforcement of regulations. There are good guys and bad guys everywhere, but the state can have mechanisms that make life difficult for the bad guys. Corporate self-regulation will never do the trick, because cutting corners often have a competitive advantage that is too alluring.
- The state can also make sure that the economy stays in the Goldilocks zone by moderating the economy through controlling the money supply and interest rate when necessary (when the economy is either overheated or sluggish).
- The state should also provide infrastructure, education and health services, as well as offer relative stability and security so that the economy can run smoothly and long-term projects are worthwhile. Note that the above provisions are usually natural monopolies or social prerogatives, thus not suitable for being left to the market and private sector alone.
- The state can create public works that can benefit society as a whole and reduce unemployment. It can also help with retraining and job searches, as well as with encouraging and assisting private or employee-owned businesses to get started.
- It can also be indispensable for research and development, as some socially beneficial research may not be attractive to private companies because the returns are not deemed sufficiently high for the investment (especially if is long term); this is often the case in the pharmaceutical and health industries.
This is, of course, not to say that the state cannot become a problem. Just as businesses can become too big, so can the state. But what does this mean? Obviously, we are not talking about geography here. We are not talking about money either, as excessive surpluses can be easily regulated by tax reductions. The real issue here is bureaucracy. The state becomes too big when its administrative apparatus becomes so large that it no longer serves society, but instead society serves that apparatus. In other words, when it becomes parasitic. This was the downfall of many ‘strong’ states, such as the Austro-Hungarian Empire, Czarist Russia, the Soviet Union and China in different periods. But too small an apparatus is not good either. For example, right now, financial sector regulators simply can’t cope with the task. Banking (especially if international), is too big and globalised for them to have any significant impact. So we need a Goldilocks zone in this case too.
To get there, rather than being pro or against regulations and the state administration, gradational regulations needs to be encouraged. In other words, regulations (and associated administration) need to correspond to the size of what they regulate. Bureaucracy related to small businesses should be small and regulations relatively simple. For big businesses it should be greater and regulations more complex. This may seem common sense, but it is not always applied nowadays. Such a bureaucracy to scale can be tamed further by making it reactive rather than proactive. But, surely, controls need to be proactive sometimes, even with small businesses; otherwise rats could have a good time in restaurants without customers being aware of it? We don’t want to wait for somebody to get sick and die from food poisoning, or for an epidemic to break out. Random, unannounced check-ups can account for it. Just the possibility of random inspections could keep most businesses in line (a similar strategy is already used for individual tax returns and it works pretty well) and they do not require much paperwork from those inspected.
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At the global level
There are two reasons why the above levels are addressed in a very broad sketch: one is that there are many differences between individuals, communities and even states, so it is hard to provide more detailed accounts and give justice to these differences; the other is that we will frequently return to these levels in relation to specific issues in the following chapter. On the other hand, there can only be one global economy and the global level will come up in the next chapter only when necessary, so more space is given to it here.
The present situation: internationally, capitalism was from the beginning not only driven by competition but by exploitation too. In the early stages of capitalism, fierce competition that caused many wars and flash points between European countries (such as the Netherlands, France, Spain and England) was mostly over colonies. The resources and native populations were ruthlessly exploited, and institutionalised slavery reared its ugly head in the newly colonised Americas. Over time, these barbaric practices have been abolished, but the trend of domination and economic exploitation has continued to this day.
The capital still tends to flow from developing countries to developed ones (Boyle & Simms, 2009, p.138) in a similar way to which poor people subsidise the wealthy (through, for example, excessive rent or interest on their loans). This is usually justified by the mantra of the ‘national interest’ and has some serious consequences: an increasing gap between the rich and the poor (if we exclude China); an ever-growing influx in the West of economic migrants; religious, nationalistic, and political radicalisation on both sides; and political and economic instability throughout the world. These divisive trends are happening at the same time that globalisation has led to far greater economic interconnectedness than even before, together creating a volatile situation that can easily trigger a domino effect. What happens in one country can have far-reaching economic consequences throughout the globe (many African countries suffered badly in the aftermath of the 2008 crisis, even if they had nothing to do with its causes). However, an ideology of self-interest prevents dealing with this interdependency in an optimal and constructive way.
It is not that politicians and economists are unaware of this problem or that there is a lack of attempts to remedy the situation. It is just that they usually fall short of any substantial results because ‘national interests’, as a rule, override the global economic interest. All politicians fear that they will not last long if they don’t prioritise short-term national goals. This is so prevalent that one could be forgiven for thinking that change could only come from a major crisis that would make greater cooperation between states necessary. On the other hand, only greater global cooperation can save us from such a crisis so, in any case, it may be worthwhile delineating what a well-functioning global economy would look like.
The synthesis perspective
The world is more globalised than ever. Whether we want it or not, we are all interconnected. This applies to the economy even more than to other aspects of social life. Advocating local economies (which many already do) is a worthwhile way of countering the global corporate domination. But this doesn’t mean that the global economy can be ignored. For the first time in history, we all depend on what is happening in many other parts of the world. Assuming that local economies could spontaneously take care of the global economy will not help us escape the trap in which we are now. This would be the way backwards, not forwards. We need to think globally as well as locally. Very few people would want corporations to take over the world, but to avoid that, we need to take globalisation seriously and consider what sort of global economy we should strive for.
Globalisation is not bad per se; it all depends on how it is carried out. The world’s best-known financier, George Soros, political philosopher (and former Thatcherite), John Gray, and Nobel Laureate and a former chief economist of the World Bank, Joseph Stiglitz, agree on one thing: that neo-liberal globalisation has led to poverty for millions of people and will fail unless thoughtfully reformed. Soros and Stiglitz note that the imperfections of the market, including the fact that it is by necessity embedded in non-economic institutions and practices, demand that globalisation should be introduced gradually, should remain incomplete and should be cemented with a measure of global Keynesianism. The synthesis perspective is broadly in line with these recommendations, but it goes a step further: it suggests that there are two conditions that need to be met in order for the global economy to function well:
- Greater cooperation between countries: national states and their populations need to take on board that, in the long term, everybody will benefit from greater global cooperation. The global interest is in the interest of everybody. Keynes has already demonstrated why this is the case, so let’s consider here just one example to illustrate this: if you are in the US, would you prefer Canada to be like Mexico, or Mexico to be like Canada? Well, the advantage of having a country such as Mexico on the borders is outsourcing – but that increases unemployment in the US. Having Canada as a neighbour is more beneficial economically and otherwise to Americans overall (it generally increases employment and legal trade, as opposed to the black market such as the drug trade). So, everybody would eventually benefit from helping Mexico’s economic development.
- Reducing the regional inequality: there will always be richer and poorer parts of the world – this gap will never be reduced to zero. This may be justified to some extent, as not all countries manage their economies equally well. However, at the moment, this gap is way outside the Goldilocks zone, with the rich countries being much wealthier than those at the bottom. It should be noted that there are now many countries in the middle. This is a relatively new phenomenon that, at least statistically speaking, already reduces overall global inequality.
These conditions are not new. They were very much on the cards after WWII, which is why international institutions such as the IMF and World Bank were set up. However, the winners (the US) did not want to give up their winning position, economically or politically, so the institutions became corrupted and tools of economic exploitation and colonisation. After the 1970s, and especially following the neo-liberal counter-revolution in the 1980s, any loans to so-called ‘third-world countries’ would come with strings attached, and those strings would usually bring more benefits to the countries making the loans than to those receiving them. In simple terms, they usually involved privatisation and opening up the market. The following pretext was used to push such moves: if everything is privatised, financial help is less likely to end up in the pockets of those in power. However, the consequences in most cases were the exploitation of natural resources and cheap labour, economic dependency, and the stifling of the development of fledgling local industries, as well as reduced workers’ rights. Blanket privatisation also often created additional problems, especially with natural monopolies (i.e. the infrastructure). In short, the conditions and needs that led to the setting up of international institutions have been forgotten. Here are some suggestions that may revive them.
Greater cooperation
- Viable international institutions: A centre for global economic coordination and development – an independent advisory body that could make suggestions about what needs to be done at a global level – would offer great value. Restoring the real roles of international institutions such as the IMF and World Bank and strengthening them may also be necessary. To regain trust in such institutions, they would need to operate in a more transparent and democratic way – being truly international, rather than effectively controlled by one country. Their strength is important so that they can play a role, alongside other international bodies, in keeping in check international corporations that can override or avoid national laws and regulations.
- Creating a new international currency that would play the role of the US dollar (Boyle & Simms, 2009, p.147-8). At the same conference at which the IMF and World Bank were founded, Keynes suggested introducing an international accounting unit that would serve as a reserve currency and an international clearing union to regulate currency exchanges (Dietz & O’Neill, 2013, p.109). The only stumbling block at the time – then as now – was the US, as widespread reliance on the US dollar gives its country of origin a tremendous advantage (). Nevertheless, there are already some moves in this direction.
- Global trade agreements. They are not bad in principle. However, the way they are carried out now can be damaging for several reasons:
- they erode democracy and the sovereignty of national states
- they mostly benefit already wealthy corporations, causing further inequality
- they make tax evasion even easier
- they lead to overall reduction in wages and job security
- they are about free movement of capital rather than goods and services, which increases the power of investors even further
It is not surprising that they are made in secret. To have global trade agreements that are beneficial, they need to be transparent and democratised. We cannot have deals that affect everybody done behind closed doors.
Reducing the regional inequality
Most currently poor countries have been exploited for years, even centuries, and they need to be given a fair chance to catch up. With an economic system fit for purpose, an opportunity to benefit from their own natural and human resources, and a chance to develop their own industries, this is not impossible. Of course, the best way to do so is by helping them to help themselves. Here are some suggestions:
- Changing the mindset that assumes that some countries are destined to be poor. Ha Joon Chang is right to make this claim in relation to Africa:
The main reason for Africa’s recent growth failure lies in policy – namely, the free-trade, free-market policy that has been imposed on the continent through the SAP [Structural Adjustment Programme]. Nature and history do not condemn a country to a particular future. If it is policy that is causing the problem the future can be changed even more easily. The fact that we have failed to see this, and not its allegedly chronic growth failure, is the real tragedy of Africa.” (Chang, 2011, p.124)
- Dealing constructively with national debts: it is an imperative to discourage selling national debts to private investors and hedge funds that try to profit out of them (as was the case with Argentina). Keynes proposed in Bretton Woods an international payments union that would have given countries suffering from a negative balance of payments easier access to loans. This was flatly rejected by the Americans, but is actually a sound and still relevant proposal.
- Selective protectionism: A 2012 BBC article stated that some commentators were beginning to wonder openly whether protectionism is such a bad thing after all. The left-wing Compass pressure group caused a stir when it published a paper arguing that ‘progressive protectionism’ was the answer. This is defined as “encouraging and allowing countries to rebuild and re-diversify their economies by limiting what goods they let in and what funds they choose to enter or leave the country”. This prompted a heated response from a senior fellow at a free-market think tank, the Adam Smith Institute, who described the idea as “fascist economic policy” that was “stuck in some sort of 1700s mercantilist time warp” (note that the same institute was much more conciliatory about recent US protectionism under Trump). All developed countries actually relied on protectionism until they got developed, and it is somewhat irrational to now demand that developing countries don’t follow the same path. This is not to say that foreign investments should be barred. However, trading in national shares and bonds, for example, should be regulated so that they cannot simply be sold overnight. Introducing tariffs could not only ensure that foreign companies and importers don’t undercut prices, but also that they pay the full cost (e.g. the environmental cost). This can be coupled with other incentives to help the local economy, such as making price reductions necessary to match the prices of importers, tax deductible.
- Reducing unfair competition: this may necessitate reducing subsidies (e.g. for agricultural products) in wealthy countries, so that imports from poor countries can compete. Furthermore, prohibiting foreign companies from subsidising their own price cuts could protect fledgling local economies from their onslaught when the market in their countries opens up.
- Reducing inequality in wealthy countries: Evidence strongly suggests that narrowing income differences within rich countries will make them more responsive to the needs of poorer countries. More equal countries tend to pay a higher proportion of their national income in foreign aid. In Spirit Level, Wilkinson and Pickett write: “Compared to the most unequal countries, some of the most equal devote four times the proportion of their national income to aid… It seems that the inequalities that affect the way people treat each other within their own societies also affect the norms and expectations they bring to bear on international issues.” (Wilkinson & Pickett, 2009, p.229)
- Real aid: Under the guise of “raising 50 million people out of poverty by 2022” the UK’s Department for International Development spent £600m on investing in private African agribusiness. Yet, it was a for-profit venture that did little to eradicate poverty: Olivier de Schutter, the UN Special Rapporteur on the right to food, found that, it had, in fact, exacerbated land insecurity among smallholders and accelerated seed privatisation. The UK aid watchdog, the Independent Commission for Aid Impact, made an equally damning conclusion, suggesting it was “little more than a means of promotion for the companies involvedand a chance to increase their influence in policy debates”. This is, through any lens, an investment in the privatisation of another nation’s infrastructure. To avoid such shenanigans, it would be necessary to have a global watchdog (akin to the UK’s) with the power to halt projects that are simply promoting the interests of donor countries and private companies disguised as aid.
These changes could create more jobs and optimise the potential of every country, which would, in turn, benefit the global economy. But it requires a shift from aiming to maximise the economy somewhere to aiming to optimise the economy everywhere. If we want a sustainable global economy in the Goldilocks zone, some countries may have to slow down their own economic growth, while others speed theirs up. This may be hard for some to stomach. A perceived short-term disadvantage works against long-term advantages, and short-termism is part of the Western zeitgeist right now. After decades of being exposed to a doctrine that glorifies self-interest, the West may be reluctant to give up its present advantageous position. This disparity and the resulting attitudes may be reduced by the rise of new economies (such as China and India) or by the next economic crisis, but we cannot wait for it. This is why it is important to communicate that, in fact, nothing that really matters needs to be sacrificed for these changes to take place; only an ego-driven sense of being special and above others, and unnecessary excesses so that everybody can have what is necessary: according to Oxfam, just 1.5% of the wealth of the rich could cater for basic health and education globally. Furthermore, this could be more than amply offset by benefits for the wealthy nations:
- In a more balanced world economy, the pressure of economic migration would be substantially reduced. Migration is a hot topic and a big challenge today that will only grow with further increases in inequality. Securing decent living conditions throughout the world is a much better way to reduce the waves of economic migrants who wash up, often literally, on the shores of Europe and elsewhere than fortifying borders and building walls.
- As Keynes remarked, “it is good for you as a country to help your neighbour”. This is because those lifted out of poverty contribute to the economy not only of their own country but those of other countries too (through trade, tourism, exchange of knowledge and innovation, and other forms of cooperative economic activities).
- The more countries are lifted out of poverty, the fewer countries will be in need of foreign aid, and the more countries will be able to contribute to those who do still need it. While an increase in inequality creates a downward spiral, a decrease of inequality globally can create an upward spiral.
- Greater cooperation would help to deal with the black market and criminal activities such as drug trafficking and particularly human trafficking.
- For many people, fairness matters too, so we would be also happier in a more equal world.
- Last but not least, all of the above would create not only greater economic stability, but also demographic and political stability.
What we can do now
If, when, and to what extent we may expect that the system will evolve in this way is hard to say, but we can start doing something about it now. For example, we can start buying Fairtrade products (such as bananas, which have played a much greater role in the global economy and politics than is commonly realised), or we can vote with our feet: boycotting products of companies that abuse labour or the environment in developing countries. And of course, we can engage and support existing organisations and initiatives that are on the same page. The most important thing, though, is to help as many people as possible to realise that global interests (rather than the national interest) is in our best interest. If our thinking in this respect evolves, these or similar changes would have a fair chance.
[1] We would like to thank the editor Neil Cole for highlighting the above examples.
