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Reconstructing America’s Economic System Is Within Reach
A labor Organizer in Winston Salem. (Photo: barb howe / Flickr)

Reconstructing America’s Economic System Is Within Reach

A labor Organizer in Winston Salem. (Photo: barb howe / Flickr)

Professor Gar Alperovitz believes that the creation of new just and equitable economic options are not just theoretical or utopian; they are within reach. His new book, “America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy,” is yours with a donation of $30 – or a monthly donation of $15 to support Truthout.

Excerpt from the introduction to the new paperback edition of “America Beyond Capitalism”:

The primary theoretical and strategic argument of America Beyond Capitalism is that an “evolutionary reconstruction” of the system is not only necessary but well within the range of long run possibility. The argument rests on three challenging assessments:

The first and foundational judgment is that (quite apart from other considerations) with the radical decline of organized labor as an institution from 35 percent of the labor force to 6.9 percent in the private sector (11.9 percent overall, and falling), a new progressive politics must ultimately build new institutional foundations to undergird its fundamental approach, or it will continue to remain in an essentially defensive and ultimately declining posture.

The second judgment is that a new longer term institution-building effort–one that at its core is based on the democratization of capital, beginning first at the community and state level and then moving to larger scale as time goes on—is both essential, and also that it is possible.

The third is that the emerging historical context is likely to create conditions that steadily open the way to such a strategy, and also help force awareness that it is needed.

These judgments, of course, do not dispute the importance of efforts to help sustain and re-energize labor organizing, create a more engaged activist ‘movement’ and mobilize a new and more energetic ‘populism.’ They do, however, point in a direction far more attuned to a diverse, decentralized and more democratized economic and political vision than has been central to progressive thought for much of the last century.


At the center of the traditional progressive theory is the hope that the political and economic power of the large corporation can be contained economically and politically through political mobilization, aided, abetted and bolstered by the organizational and financial power of labor unions. Numerous studies have documented the importance of labor in this theory. The “main finding” of international research on the relationship of union membership to political outcomes in industrialized countries, the late Seymour Martin Lipset and Noah Meltz observe, is straightforward: “support for unions is associated with social democratic strength.”

Studies by Emory sociologist Alexander Hicks of European social democracy also reveal a “[near]-perfect relationship between mid-century [social] program consolidation and working class strength in five major areas of social insurance policy—”retirement, work-injury, illness, unemployment, and child-rearing compensation.” Yale University political-economist David Cameron adds: “The existence of a relatively high level of unionization is…an important prerequisite for enduring leftist government, since unionized workers provide the core of the electoral base of most Social Democratic and Labor parties.”

Confronting the new realities of labor’s decline is not easy; but realities they are. Which means, quite simply, that along with the decline, traditional liberalism has lost a good part of its fundamental power base—and further, that unless some new institutional source of political capacity is developed, it is likely to continue to remain in a defensive and weakened posture. (And this, of course, is to say nothing of race, cultural, religious and other factors weakening traditional reform politics.)

America Beyond Capitalism’s cautious and paradoxical optimism that a new (and potentially newly energized) institutional way forward is possible derives from two streams of quietly developing evidence that been largely ignored by many progressives. The first is that just below the surface of media attention literally thousands of grass roots institution-changing, wealth-democratizing efforts have been quietly developing throughout the nation for the last several decades. Roughly 4,500 not-for-profit community development corporations devoted in the main to housing manage day-to-day operations in cities throughout the country. There are also now more than 11,000 businesses owned in whole or part by their employees; approximately six million more individuals are involved in these enterprises than are members of private sector unions. Another 130 million Americans are members of various urban, agricultural, and credit union cooperatives. In many cities, important new “land trust” developments are underway using an institutional form of nonprofit or municipal ownership that develops and maintains low- and moderate-income housing. “Social enterprises” that undertake businesses in order to support specific social missions now increasingly comprise what is sometimes called “a fourth sector” (different from the government, business, and non-profit sectors).

Related to this is a “paradoxical dynamic” that is generating more forms of institutional change even as traditional reforms falter. Job training programs, small business programs, incentives to lure major corporations to depressed communities—all these have either largely failed, or at great taxpayer expense induced corporations to move to one community and away from some other community. A full employment strategy along Keynesian lines could achieve greater results in theory, but in the real world, again, the decay of progressive political power (and its underlying labor union base) has reduced its capacity to achieve traditional policy solutions here as well. Given the inability of politics to provide meaningful solutions to problems facing millions of Americans, either nothing is done, or somehow creating new institutional forms appears as the only answer available, difficult as this may be.

The state of Ohio offers an illustration of just what this can mean:

A major effort in Cleveland has built upon the long developing institutional work in Ohio (and on related research and theoretical efforts) to suggest further directions and broader possibilities. The “Cleveland Model” now underway in that city involves an integrated complex of worker-owned cooperative enterprises targeted in significant part at the $3 billion in purchasing power of such large scale “anchor institutions” as the Cleveland Clinic, University Hospital, and Case Western Reserve University. The complex also includes a revolving fund so that profits made by the businesses help establish new ventures as time goes on.

The first of the linked worker-owned companies, a technologically advanced and ecologically sophisticated laundry, is a state-of-the-art commercial effort that provides clean linens for area hospitals, nursing homes, and hotels. The thoroughly “green” company operates out of a LEED-Silver ecologically sophisticated building and uses (and only has to heat) less than one third as much water per pound of laundry as typical competitors. The enterprise pays above-market wages, provides health insurance, and is still able to compete successfully against commercial laundries. Another company, Ohio Cooperative Solar (OCS), provides weatherization services and installs, owns and maintains solar panels on the rooftops of large university, hospital, and civic buildings. In its first year of operations OCS installed 400 kW of solar generation capacity. OCS alone is on target to more than double current total statewide solar generating capacity of two megawatts in 2012.

A commercial hydroponic greenhouse that covers 3.25 acres and will be capable of producing three million heads of lettuce and 300,000 pounds of herbs a year broke ground on October 17, 2011, just as this volume was going to press. Additional new businesses are being developed at a planned expansion rate of two to four ventures per year. A twenty acre land trust is also being designed for the land upon which many of the businesses are situated and as a first step to permit development in targeted neighborhoods of urban agriculture, and, when conditions permit, affordable housing.

That much larger scale and more advanced development is not beyond future possibilities is suggested by one of the precedents planners in Cleveland are drawing drawn upon: The Mondragón Cooperative Corporation in the Basque country of Spain is a highly successful integrated grouping of worker-owned cooperatives that employs more than 85,000 individuals in fields ranging from sophisticated medical technology and the production of appliances to large supermarkets and a credit union with 21 billion Euros in assets. In a further and related development “the Cleveland Model” has, in turn, struck a chord among activists and economic development practitioners throughout the nation who are concerned with the collapse of the economic core of many cities. At this writing exploratory efforts are underway to replicate aspects of the model in Atlanta, Pittsburgh, Washington, D.C., and other communities.

The judgment that broader, longer term processes of institutional innovation—and, critically, the development of ideas concerning the practicality, political feasibility, and importance of such innovation—may be underway (and forced by the paradoxical logic now facing traditional reform) is also suggested by the historical evolution of the United Steelworkers union over time. In the late 1970s the union saw worker-ownership as a threat to organizing, and it opposed efforts of local steelworkers to explore new employee owned institution-building in cities like Youngstown. Over time, however, the union reversed field as its leaders saw the need to supplement traditional organizing with new forms of economic organization. The United Steelworkers union has now become a strong advocate of such ownership, and is exploring a new ownership model based upon the Mondragón experience that also helped inform some of the directions taken in Cleveland.

Although there is nothing inevitable about the processes of institutional change illustrated by these developments, there are many more communities experiencing converging institution-building possibilities than is commonly realized. Furthermore, the deepening social and economic pain is intensifying the “situational logic” that demands either that a new approach be undertaken, or social and economic pain must continue. Critically, the “demonstration effect” of successes in one part of the country can also radically shorten the time frame of change in new situations, super-charging the dynamics of institutional development.


That new directions for longer term change may be possible at the state and national level as well is suggested by emerging lines of political cleavage and dynamic change in connection with health care and finance. The central argument in connection with health care is that ever intensifying difficulties must inevitably increase the pressure to find new solutions. The Obama health care legislation may be understood as an important first step in a process of paradoxical political and institutional change similar to that which is quietly occurring in many cities. Almost certainly, the next step will be painful, as millions of Americans are hurt by conservative efforts to cut back the mostly unrealized benefits of the Affordable Care Act. The next step, however, is not likely to be the last, and a new situational logic is already coming into focus:

Polls show overwhelming distrust and deep hostility toward insurance companies. Cost pressures are also building up—and, critically, in ways that will continue to undermine corporations facing global competitors, forcing them to seek new solutions and at the same time creating divisions in traditional conservative political alliances. A recent report from the federal Centers for Medicare and Medicaid Services projects health costs to rise from the 2010 level of 17.5 percent of GDP to 19.6 percent in 2019. It has long been clear that the central question is to what extent, and at what pace social pain, on the one hand, and underlying cost pressures, on the other, ultimately force development of some form of single-payer system—the only serious way even to begin to deal with the underlying cost problem.

A new national institutional solution is likely to come about over the coming decades either in response to a burst of public outrage (aided by corporate divisions), or more slowly through a state by state build-up to a national system. Massachusetts, of course, already has a near universal plan, with 99.8 percent of children covered and 98.1 percent of adults. In Hawaii, health coverage (provided mostly by non-profit insurers) reaches 91.8 percent of adults in large part because of a 1970s law mandating low cost insurance for anyone working twenty hours a week. In Vermont, Governor Peter Shumlin signed legislation in May 2011 creating “Green Mountain Care,” a broad effort that would ultimately allow state residents to move into a publicly funded insurance pool—in essence a form of single-payer insurance. Universal coverage, dependent on a federal waiver, would begin in 2017 and possibly as early as 2014. Since 2009 Connecticut has been striving towards a system of affordable health care for virtually all residents—one that in the future will likely include a non-profit public health insurance program. In California a universal “Medicare for all” bill came within two votes of passage in the Senate this year. (Similar legislation passed by both House and Senate was vetoed by Governor Schwarzenegger in 2006 and 2008.) In all, at this writing more than 15 states appear likely to consider bills to create one or another form of universal health care, a number that will surely vary over time as legislative wins and losses occur, but one that nonetheless suggests the emerging direction of potentially major long term change.

The potential dynamics of longer term change in the financial sector were brought into sharp relief by developments at the height of the financial crisis in early 2009. “The public hates bankers right now…,” the Brookings Institution’s Douglas Elliot observed. “Truthfully, you would find considerable support for hanging a number of bankers…” It was a moment, President Obama told banking CEOs, when his administration was “the only thing between you and the pitchforks.” The President, however, opted for a soft bailout engineered by Treasury Secretary Timothy Geithner and White House Economic Adviser Lawrence Summers. Franklin Roosevelt attacked the “economic royalists” and built and mobilized his political base. Obama entered office with an already organized base and largely ignored it.

When the next financial crisis occurs (or one of the ones thereafter…), different political opportunities are likely to become increasingly possible. One option has already been put on the table: in 2010, thirty-three Senators voted to break up large Wall Street investment banks that were “too big to fail.” Such a policy would not only reduce financial vulnerability; it would alter the structure of institutional power. Nor is an effort to break up banks, even if successful, likely to be the end of the process. The modern history of the financial industry–to say nothing of anti-trust strategies in general—suggests that the big banks, even if broken up, will ultimately regroup and reconcentrate as ‘the big fish eat the little fish ‘ and restore their domination of the system. The question then becomes: What can be done when both regulation and “breaking them up” fails?

The potentially explosive political force of public anger at financial institutions was evidenced in May 2010 when the Senate voted by a stunning 96-0 margin to audit the Federal Reserve’s lending—something that had never been done before. Traditional reforms have aimed at improved regulation, higher reserve requirements, and the channeling of credit to key sectors. Future crises may bring into play demands for a spectrum of far more radical proposals already being developed and refined by figures on both the left and right. For instance, a “Limited Purpose Banking” strategy put forward by conservative economist Laurence Kotlikoff would impose a 100 percent reserve requirement on banks. Since banks typically provide loans in amounts many times their reserves, this would transform them into modest institutions with little or no capacity to finance speculation. It would also nationalize the creation of all new money as Federal authorities, rather than the banks, directly control system-wide financial flows. A variety of respected liberal as well as conservative economists have welcomed this strategy—including five Nobel laureates.

On the left, the economist Fred Moseley has proposed that for banks deemed too big to fail “permanent nationalization with bonds-to-stocks swaps for bondholders is the most equitable solution…” Nationally owned banks, he argues, would provide a basis for “a more stable and public-oriented banking system in the future.” Most striking is the argument of Willem Buiter—the Chief Economist of Citigroup—that if the public underwrites the costs of bailouts, “banks should be in public ownership…” In fact, had the taxpayer funds used to bail out major financial institutions in 2007-2010 been provided on condition that voting stock be issued in return for the investment, one or more major banks would, in fact, have become essentially public banks.

Equally important, the economic crisis has also produced widespread interest in the Bank of North Dakota, a highly successful state-owned bank founded in 1919 when the state was governed by legislators belonging to the left-populist Nonpartisan League. Over the past fourteen years, the bank has returned $340 million in profits to the state and has broad support in the state business community as well as among progressive activists. Legislative proposals to establish banks patterned in whole or in part on the North Dakota model have been put forward by activists and legislators in Washington, Oregon, California, Hawaii, Arizona, New Mexico, Montana, Illinois, Louisiana, New York, Maryland, Virginia, Maine, and Massachusetts. In Oregon, with strong support from a coalition of farmers, small business owners, and community bankers, and backed by State Treasurer Ted Wheeler, a variation on the theme —”a virtual state bank” (i.e. one that has no storefronts but channels state-backed capital to support other banks) is likely to be formed in the near future.

How far these and numerous other institutional strategies—all of which involve democratic ownership in one form or another—may develop is likely to depend on the intensity of future financial crises, the degree of social and economic pain and political anger in general, and the capacity of a new politics to focus citizen anger in support of major institutional reconstruction and democratization. In all cases the direction, again, is not simply to counter and regulate, but to actively displace—and replace!—corporate power—a strategic understanding that over time may build further, from the bottom up towards ever larger scale. Nationalization of two major auto companies has already occurred in the United States and what new forms of public or quasi-public enterprise may be possible in future is an open question—one that just possibly may be answered by the steady build-up of experience, vision and politics now quietly emerging in ‘evolutionary reconstructive’ developments now quietly beginning to democratize ownership in new and very American ways at the grass roots level throughout the nation.

Copyright Gar Alperovitz. Not to be Reproduced Without Permission.

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