“A Rigged Game”
Democratic global governance under the “rule of law” is an essential framework for coping with our coming survival crisis, but there is one more thing – the values and outcomes in our global economy.
Our ecological crisis has many contributing causes, but the root of the matter is modern capitalism – at once an ideology, an economic system, a bundle of technologies, and an elaborate superstructure of supportive institutions, laws and practices that have evolved over hundreds of years. Capitalism has the cardinal virtue of rewarding innovation, initiative, and personal achievement, but it is grounded in a flawed set of assumptions about the nature and purpose of human societies and our implicit social contract; its core values are skewed.
In the idealized capitalist model, an organized society is essentially a marketplace where goods and services are exchanged in arms-length transactions among autonomous “purveyors” who are independently pursuing their own self-interests. This model is in turn supported by the assumption that our motivations can be reduced to the efficient pursuit of our personal “tastes and preferences.” We are all rational “utility maximizers” – or Homo economicus in the time-honored term. This is all for the best, or so it is claimed, because it will, on balance, produce the “greatest good for the greatest number” (to use the mantra of Utilitarianism). A corollary of this assumption is that there should be an unrestrained right to private property and the accumulation of wealth, because (in theory) this will generate the capital required to achieve further economic growth. More growth, in turn, will lead to still more wealth.
The foundational expression of this model, quoted in virtually every introductory Economics 101 textbook, is Adam Smith’s invisible hand metaphor. As Smith expressed it in The Wealth of Nations, “man is…led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it…. In spite of their natural selfishness and rapacity…[men] are led by an invisible hand to…advance the interest of the society…”
“Utopian Capitalism”
The classical economists who followed in Adam Smith’s footsteps embellished his core vision in various ways. One of the most important of these early theorists, Léon Walras, claimed that the market forces of supply and demand, if left alone, would work to ensure the efficient use of resources, full employment, and a “general equilibrium.” In other words, competitive free markets can be depended upon to be self-organizing and self-correcting, and the profits that flow to the property owners – the capitalists – will generate the wherewithal to achieve further growth and, ultimately, the general welfare. The modern economist Robert Solow summed up what has been called (sometimes derisively) “utopian capitalism” as a compound of “equilibrium, greed and rationality.”
The well-known senior economist Samuel Bowles, in his book-length critique and re-visioning of economic theory with the unassuming title Microeconomics, points out that capitalist doctrine offers “an odd utopia.” Its strongest claims are generally false; it is unable to make reliable predictions; it removes from its models many of the factors that shape real-world economies; it ignores the pervasive and inescapable influence of wealth and power in shaping how real economies work; and, not least, it’s profoundly unfair. It systematically favors capital over labor, with results that are evident in our skewed economic statistics and widespread poverty. Senior economist John Gowdy (1998, pp. xvi-xvii) candidly acknowledges that “Economic theory not only describes how resources are allocated, it provides a justification for wealth, poverty, and exploitation.”
“Stakeholder Capitalism”
It happens that a more socially responsible alternative economic model has emerged in recent years with the suggestive title, “stakeholder capitalism.” It calls for institutional arrangements that will equitably advance the interests of all the stakeholders in a society. In other words, merit is a major criterion. It plays a key role in what I refer to as the “Fair Society” model.
So, what are the implications? (To be continued.)
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Bowles, S. 2004. Microeconomics: Behavior, Institutions, and Evolution. New York: Russell Sage Foundation/ Princeton University Press.
Gowdy, J. M., ed. 1998. Limited Wants, Unlimited Means: A Reader on Hunter-Gatherer Economics and the Environment. Washington, D.C.: Island Press.
Smith, A. 1964/1776. The Wealth of Nations. (2 Vols.) London: Dent.