What would you do to reinvent capitalism, to make it less destructive and more focused on what people really need? Not many years ago, one would have hesitated to ask that question in polite company. But the 2008 global financial crisis was a hard blow to the hull and the damage has set off alarms and attracted scrutiny.
French economist Thomas Piketty offers a grim prognosis in his bestseller, Capital in the 21st Century. He builds the case that capitalism makes the rich richer and the income gap wider, and eventually leads to plutocracy. It’s not that the benefits of capitalism are undesirable – jumbo jets and smart phones are sheer wonders – it’s that the collateral damage is growing untenable. Democracy and the commons are being sold off to the highest bidders. Activist Naomi Klein hit the nail on the head with her latest book, This Changes Everything: Capitalism vs. Climate – the global environmental catastrophe is a consequence of capitalism.
Yet few are pushing for fundamental change.
No Jumping Ship
Abrupt change is anathema to national governments, and nearly impossible for governments plagued by dysfunction and gridlock. Thus, the opening question reasonably revolves around reinventing capitalism to lessen its damage. The prominent political journalist William Greider posed it to an eclectic group of social and business leaders back in 2011. But the answers he received focused on tax, regulation, and policy changes and were deemed non-starters. According to Greider, “none of these ideas have any traction in regular politics.”
Even if modest reforms were possible, the problem is that they are too little, too late. If capitalism is fundamentally flawed as Piketty and others suggest – even 51 percent flawed – then reforms notwithstanding, it, and civilizations based on it, will eventually fail. Nothing is wrong with emergency efforts to buy some time, but beyond that, what’s the point?
Capitalism is taking on water and a new vessel is needed, but even if a rescue ship were to approach, there would be no jumping onto it. No government is going to abruptly replace its economic system without a fierce fight. However, that doesn’t mean we can’t start ambling off deck in a gradual and orderly fashion.
Beyond Capitalism and Socialism
The global public is colorblind when it comes to economic systems. It sees capitalism and socialism, and especially the gradient between the two, but not much else. The economies of all developed and developing or otherwise emerging nations are mixed, meaning that they are some combination of capitalism and socialism. The general idea is that a blend balances the drawbacks of one with the benefits of the other.
But why be colorblind when our capacity is greater? We know what isn’t working, and the really interesting territory is the unexplored regions outside the box. Perhaps there we will find workable solutions to our major problems. Humans are talented and resourceful. Surely it is possible to innovate the very foundations of our economic systems to devise something that better serves our needs.
To start, we can ask what our needs are. Common sense and a new field of scientific inquiry suggest that humans and societies need peace, happiness, security, and sustainability. In a phrase, we desire to maximize well-being.
The concept of well-being covers a lot of ground. It includes physical and financial security, access to affordable education and health care, meaningful jobs, quality goods and services, strong social bonds, justice, influence over political and economic decisions, freedoms, clean air and water, a stable climate, vibrant ecosystems, creative outlets, recreation, time to enjoy family and friends and time to ponder and grow wise.
Any new economic system worth its salt would help societies to maximize public well-being. This means, of course, that well-being must be measured (potentially using a complex set of social, political, environmental, and economic indexes). You can’t improve, much less maximize, what you don’t measure. That said, the well-being calculus must also enter into the decision-making process in a meaningful way.
Capitalism has gone wrong with its focus on economic output. It measures GDP, not well-being. Thus, we maximize the former and sideline the latter. But GDP can rise with things we don’t want (like pollution, traffic, wasteful consumerism, and war), and remain unaffected by those things we do want. Prominent economists had already begun to question use of the GDP as a measure of welfare by 1968, when Bobby Kennedy made his now-famous speech at the University of Kansas:
Yet the [GDP] does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.
Unsurprisingly, maximizing GDP and maximizing well-being produce quite different outcomes. An ever-increasing GDP is destructive, if not suicidal, on a finite planet. Eventually, resources are exhausted and wastes pile up to suffocating levels. On the other hand, well-being, sort of like joy, is limitless. The book Gross Domestic Problem shows how transforming the measure of progress could trigger a cascade of positive changes throughout society.
There may be no jumping ship to a better economic system. But we can steadily transition to one. Our suggestion is straightforward. Create a better economic system that beats capitalism at its own game: competition.
The introduction of Windows did not eliminate DOS. Far from it – DOS is still in use today. But Windows eventually gained overwhelming dominance by effectively competing in the market. Complement and compete offers the most viable path forward: build a better system that runs in parallel with existing ones, at the local level, even helping to stabilize them, but that offers greater rewards.
Keeping with the operating system theme, the evolution from DOS to Windows was a leap, not a mere step forward. The eventual success of the Windows series was due, in large part, to the time, attention, and money that Microsoft expended for design and testing. Likewise, an extensive design and testing effort is needed to develop any viable competitor to capitalism, or to socialism-capitalism. Dirk Helbing, writing in the journal Nature, describes one aspect of the challenge:
It is time to recognize that crowd disasters, conflicts, revolutions, wars, and financial crises are the undesired result of operating socio-economic systems in the wrong parameter range, where systems are “unstable.” In the past, these social problems seemed to be puzzling, unrelated, and almost “God-given” phenomena one had to live with. Nowadays, thanks to new complexity science models and large-scale data sets, one can analyze and understand the underlying mechanisms, which let complex systems get out of control.
Helbing is speaking primarily of averting disaster under current systems, but the task at hand is to design new, improved systems, using the latest tools and insights from modern science. Think of the effort like the space race – only the aim is for reaching stable, sustainable, and just civilizations here on Earth, not the moon.
Some might be surprised to hear that no such concerted effort exists. There are plenty of groups working on socially responsible business models, tax reforms, local currencies, and crowdfunding platforms, for example, as well as plenty of academics who are developing critiques of capitalism and socialism, or measuring their downsides. There are even efforts to bring complexity science into economic forecasting. But no program is focused on developing and scientifically testing a fundamentally new, wellness-maximizing, economic system. Until now.
We are pleased to announce the formation of a global partnership of academic, civil society, government, business, and philanthropy groups that will usher our proposal for a new economic system, the Local Economic Direct Democracy (LEDDA) framework, through the development and testing phases. This is a bold, historic if successful, ten-year, $70 million science experiment.
We hope that the partnership will grow large and diverse. Indeed, work will span nearly every field including environment, economics, finance, law, governance, poverty, labor, public health, manufacturing, agriculture, energy, conflict resolution, technology, engineering, mathematics, ethics, art, media, sociology, psychology, and education.
We also hope that in time the LEDDA partnership can serve as a model, providing direction and benchmarks for other groups that follow, who also have ideas for improved systems. Humanity would be well-served by access to multiple approaches, all learning from each other and finding strength in different niches.
The LEDDA Framework
A LEDDA is a membership-based, community benefit association open to residents, businesses, schools, nonprofits, local governments, public services, and others that choose to participate. The LEDDA framework is the local economic system – comprised of software, policies, standards, and procedures – that a new LEDDA implements. Once live, the membership can alter the local framework as desired.
In effect, the framework offers a secondary level of organization on top of an existing local economy. A complete description is given in the book Economic Direct Democracy: A Framework to End Poverty and Maximize Well-Being, available for free in PDF format.
Each LEDDA governs its own local framework through an online process of direct democracy, and all LEDDAs are networked together within a global association, which is also governed through online direct democracy. Thus the focus is both local and global.
The LEDDA framework integrates and builds on numerous initiatives already existing in cities and regions around the world, including buy local, local currency, open source, crowdfunding, socially responsible business, open data, smart cities, and participatory democracy. It contains its own monetary system, which issues a local electronic currency, called the token. And it has its own financial system, called the Crowd-Based Financial System (CBFS), which resembles crowdfunding and participatory budgeting. The framework is sophisticated, and there are many more elements.
The LEDDA framework is synonymous with LEDDA economic direct democracy, an economic system that offers all participants roughly equal and direct opportunity to influence their local economy. The framework infuses a local economy with democracy, in part by using money as a voting tool and by increasing and equalizing family incomes.
A computer simulation model has been published that illustrates the process. Inflation-adjusted mean family income more than doubles during the twenty-eight-year simulation period. As incomes rise, they become more equal. By the end of the simulation, every member family receives a pre-tax, take-home income equivalent to about $107,000, just above the 90th percentile of baseline income. Even very wealthy families would see a small direct gain.
By the end of the simulation, the LEDDA, located in an averaged-size US county, channels the equivalent of more than $2 billion dollars annually toward local businesses, schools, public services, and nonprofit organizations. Tax revenues for the county markedly rise. With such abundant resources, and democratic control over funding decisions, a community could remake its economy into one that best suits its needs.
The LEDDA framework is still theoretical, and the partnership is just forming. Over time, we hope to provide answers to the host of questions that such an approach naturally raises. In this, we invite your participation. Imagine a democracy-infused economic system that maximizes well-being. The long-run social and environmental returns might be valued in the trillions, thousands of times greater than the costs of development and pilot trials. Isn’t it worth the effort?