Capitalism 3.0Peter Barnes’ Capitalism 3.0: A Guide to Reclaiming the Commons (also available as a free PDF at Barnes’ site) suggests that flaws in capitalism lie at the root of the environmental and social problems we face today; his solution, as a retired corporate CEO, is not to discard capitalism, but fix those flaws.

As he puts it:

Eventually, after retiring from Working Assets in 1995, I began reflecting on the profit-making world I’d emerged from. I’d tested the system for twenty years, pushing it toward multiple bottom lines as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.

In retrospect, I realized the question I’d been asking since early adulthood was: Is capitalism a brilliant solution to the problem of scarcity, or is it itself modernity’s central problem? The question has many layers, but explorations of each layer led me to the same verdict. Although capitalism started as a brilliant solution, it has become the central problem of our day. It was right for its time, but times have changed.

When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we’re awash in capital and literally running out of nature. We’re also losing many social arrangements that bind us together as communities and enrich our lives in nonmonetary ways. This doesn’t mean capitalism is doomed or useless, but it does mean we have to modify it. We have to adapt it to the twenty-first century rather than the eighteenth. And that can be done.

How do you revise a system as vast and complex as capitalism? And how do you do it gracefully, with a minimum of pain and disruption? The answer is, you do what Bill Gates does: you upgrade the operating system.

In essence, Barnes sees two fixable flaws: wrong assignment of property rights, and the lack of a large “commons sector” that is neither governmental nor corporate.

The latter concept grows out of Sky Trust, which Barnes developed around global warming. The fundamental policy insight climate change science gives us is that there is a limit to the amount of greenhouse-gas emissions we can afford to pump into the atmosphere (along with a similar limit on the number of greenhouse-gas sinks we can afford to destroy). We have collectively used up most of the total atmospheric space available for such emissions without catastrophic consequences; serious discussion around climate change policy means discussion of how to divide up that remaining atmospheric space.

Barnes took that policy insight and asked, if there is only so much atmospheric space to go around, who does it belong to? He concluded that it belongs to the human race — that each person should get an equal share of emissions. In the U.S., his suggestion was to set up a trust that owns our nation’s limited atmospheric space and auctions off permits for using it; the revenue generated by that trust would be divided among all of us. So every U.S. resident would get a dividend check from the Sky Trust in the same way that Alaska residents get revenue from the Alaska Pipeline.

He extended that to water trusts — to limit both withdrawal from, and pollution of, water tables — again auctioning permits for those now-limited rights. He suggests similar trusts for forests and habitats, and even extends the plan to economic rents created by social commons but collected by private entities. This, as Barnes acknowledges, is essentially a form of modern Georgism.

Barnes bases his commons plans on property rights, going back to Locke and some of the original theorists of capitalism. They defined legitimate withdrawal from the world’s common property as “leaving enough, and as good.” Barnes argues that destroying endangered habitats or emitting greenhouse gases in excess of what the atmosphere can handle is not “leaving as much and as good.” These trusts are not a taking of private property, but a recovery of property that is currently being stolen from us without compensation.

His second argument regards how this “recovered property” should be treated. He opposes simply giving it away — “grandfathering” it — to large corporations, as under the failed Kyoto treaty. He’s also against simply turning it over to government, because he fears corporate appropriation via regulatory capture. So he favors a new sector in the economy, neither public nor private: a sector of trusts that manages these common sectors on behalf of the both today’s public and the public of the future. This would amount to economic representation for the seventh generation.

In short, Barnes is arguing for green social democracy, with a property rights justification.

Barnes’ Property Rights Justification

To the extent the moral justification is taken seriously, I’m not sure the specifics Barnes borrows from Locke are convincing. If we accept the premise that X is an economic commons, then what follows is the need to protect it and ensure that everyone benefits. I’m not sure what is gained by drilling down to an individual property rights level. Property is an artificial creation, after all. Barnes makes a big deal of how public stock exchanges are artificial creations that add tremendous value to private corporations. But private corporations are just as artificial, and also require tremendous social infrastructure — so do partnerships, and banks, and mortgages, and bonds, and credit cards, and … Barnes makes a pragmatic case that the old software is failing, and needs an upgrade or replacement; I think that is “enough, and as good.”

Barnes’ Trusts

Barnes’ solution to the problem of corporate greed on the one hand and regulatory capture on the other is to turn the commons over to trusts. They would be obliged not to maximize income from their trusts but to preserve their assets for future generations, acting on the precautionary principle rather than as risk-takers. They would have neither the obligation of corporate boards of directors to maximize profit nor the freedom of elected officials to favor the richest and most powerful. Barnes’ main examples of how trustees can be loyal to a long-term obligation to society as a whole — the Federal Reserve board and U.S. judges — are unbelievably ill-chosen.

Dean Baker, in the second chapter of his book The Conservative Nanny State, lays out how one of the primary objects of the Federal Reserve is to keep wages low. If profits rise faster than productivity, the Fed sees no problem. As far as the Fed is concerned, it’s perfectly healthy if wages rise more slowly than productivity. But the Great Market God forbids that wages should ever rise faster than productivity. That is “inflationary,” and we must raise interest rates until wages drop again.

The alternative to inflation or a wage drop is that wage earners might actually increase their share of the economy; that can never be allowed to happen. If workers’ share of the economy drops year after year, that is simply their fate in a global economy. But if they should recover some of that lost share — well, the ratchet is supposed to go one way. Workers’ share in the economy can drop; it cannot rise.

Of course, keeping wages under control is not the only role the Fed plays. It is supposed to prevent market instability by preventing bubbles from developing; for example, the internet bubble that popped in the late nineties, or the mortgage bubble that is popping as this article is being written. So much for that.

In terms of judges, history is even more decisive. There was one brief moment in history — the Warren Court — when judges were a net progressive force. But that was an exception. Nathan Newman of the National Lawyers Guild wrote a brief overview of how the courts historically have intervened for slavery and against freedom (pre-Civil War), for discrimination and against equality (post-Civil War), for government power over individual rights, for corporate power over government protection of individual rights, for owners and against unions, and for polluters against citizens. The judiciary, like the Senate, was designed by our founding fathers as a conservative institution, a protection for the rich and powerful against democracy. With few exceptions, most of them during the Warren court, that is the role it has played. Like the Federal Reserve, it seems an incredibly bad example of either fairness or insulation from corporate influence.

The Unbearable Messiness of Being

Fundamentally, though Barnes is realistic enough to understand that he must use politics to achieve any of his goals, he is unrealistic enough to hope that those goals can escape the messiness of politics.

Much as Barnes would like to think of trusts as a third way between government and corporations, ultimately they are no less vulnerable to corporate influence than legislatures, or courts, or the Federal Reserve Board. If board members are elected, corporations can intervene in the electoral process just as they do with other elected offices; if appointed, they can influence the people doing the appointing just as they do with other appointed offices.

Board members will need jobs to go to after they leave; in the meantime, they will have spouses and relatives who need jobs, or are happy to get better jobs than the ones they already have. Or they will have spouses and relatives in businesses that will be happy when good deals come their way. Or board members can be offered free continuing education and professional development opportunities in Bali and Hawaii, and on cruise ships …

It’s not hopeless. It’s just that there is no magic third way beyond politics. Barnes is completely right that these are common resources that need institutions to manage them for the common good. But the messiness won’t end with the political struggles that create such institutions. Once they are built, there will be conflict over what the common good includes. We will have to use the messy business of politics to resolve these conflicts, whether the institutions are trusts or simply new government agencies. You can’t upgrade Plato’s dream of philosopher kings to philosopher boards-of-directors.

I strongly recommend reading this book. Barnes’ inventory of various commons that are currently privatized, and his suggestions of how they would be managed if the aim were the common good, are smart, extensive, and helpful. His suggestions on politics are less helpful, as are his thoughts on how to keep the commons well-managed in the long run. Maybe those can be the main topics of another book.