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It's time for Socapitalism
Citizens aren't supplicants, they are the shareholders of the nation...
I am a working class capitalist. Born to two factory workers, one union, the other not. I watched as their faith in the system - the government, the union and the company - was shattered by the convulsions of the 1970’s and 1980’s. In truth, like so many, they were shattered. My family was shattered.
But the lesson I learned was that it was their dependence, their lack of agency that was the problem. To avoid their fate, I determined to look after myself. I looked around and saw that the people with the power, with the things I wanted, were those that had bought the capitalist, ‘free market’ dream. And I wanted what they had.
I first looked for a ‘real’ job in 1980 - in the depths of recession. I was first promoted, and then packaged-out of the best job I ever had in 1992 - another recession. After years of entrepreneurial sacrifice, I raised the first $1 million of the $10 million needed for my dot.com - in the Spring of 2000, just weeks before the dot.com marketplace imploded. It would take six years more to find the next million for a venture that IBM had once hailed the ‘next market maker’.
Throughout it all, I remained a staunch defender of capitalism. Afterall, it - we - had triumphed over the evil alternative of communism, it’s shortcomings made naked with the collapse of the Wall. It was the debacle of the 2008 financial crisis that finally broke my trust in the system. The world paid a heavy price for the behaviour of a very small, extraordinarily arrogant cohort of middle aged white men, their arrogance matched only by their corruption and incompetence. And their luck.
As I watched the obvious and growing financial inequity in western societies - and the concurrent growing potential of new technologies to make our world more equitable, I became a conditional capitalist, believing in the need to drive innovation and wealth creation, but increasingly distrustful of ‘the system’ to share that wealth in anything like a fair and just way.
Now, in the midst of the great contest between democracy and the spectrum of fascist/corporatist/autocratic forces aligned against it, the role of capitalism as the sister to both is on everyone’s minds. ‘Reinventing capitalism’ is the topic du jour. Indeed, the contest is increasingly that which will determine the economic order that will take us into the middle decades of this century - globalist humanism vs. fascist technocracy. And ‘we’ are not prevailing in this fight.
So I spent some time looking into, and thinking about, what ‘reinventing capitalism’ might mean as the precondition for Democracy 2.0 and the new Age of Wonder I believe to be then almost a certainty. A critical caveat though - I am clearly not an economist. I’ll say it upfront, I failed math in high school. But I have been both a footsoldier for capitalism, and a fairly astute observer of business and economic news for five decades now, so I claim the authority to at least survey a challenge for which there are now a great many commentators.
What I found was most disappointing, and also thoroughly, profoundly heartening.
First the disappointment. As I’ve grown in my late adulthood, I’ve been in awe of the visionaries driving the great technological innovations in society, shattering norms and establishing new ones in years, sometimes even in months. From healthcare to food production, AI to neuroscience, the scope, scale and pace of innovation is literally breathtaking. We are told today that human knowledge is doubling every twelve hours1, remaking in real time the sciences that frame our understanding of the human experience.
All, that is, with the evident exception of the economists and the capital elite that both nurture and feed off of the systems and institutions that are Capitalism 2022. As orthodoxy is washed away by new understanding in virtually every intellectual endeavor, we seem to be having the exact same arguments I recall us having in the 1970’s, that in turn referenced the post WWI experience - that is that a constant balance must be effected between debt, inflation and deflation. This they argue is a fact that can’t be in any way altered or otherwise considered. Just as one can’t turn lead into gold, the laws governing economics are held to be likewise immutable. It’s not orthodoxy or white male/class privilege - it’s just the way it is.
That this ‘way’ seems to work for fewer and fewer humans is of course, no longer acceptable. Some of us win, most of us lose. A jaw-dropping failure of imagination.
The heartening part is that it needn’t be the case. There are many credentialled subject matter experts challenging the orthodoxy at the core of capitalism. Here, I will briefly examine two convergent themes that have the potential to be transformative - one an old concept which time has come, and a newer concept that I argue can make it real. Then I will offer a new take on how we might view the role of macroeconomics, with a new language, or a new way of framing it.
First though, a quick review of the substance of currency. There isn’t any. Zero. Nothing. Nada. All economists agree, whatever their political stripe, that currency is an abstract concept, a human-made construct, to facilitate the accumulation and management of wealth and resources. All economic theories/systems - barterism, mercantilism, capitalism, marxism/communism/socialism, fascism, are agreed abstract constructs intended to manage national output, unemployment, and inflation, against different belief/value systems and their consequent ideologies. I remain in the camp of those who argue that of the historical precedents, capitalism has been the least-worst to create and redistribute wealth. I am also in the camp of those that argue that ‘least-worst’ is no longer good enough, as evidenced by the egregiously accelerating concentration of wealth globally.
The option that is today very often floated to address that inequity is Universal Basic Income, a theory going back to Tudor England and the writings of Thomas Paine. It’s premise is simple, that is that to best provide a foundation for a stable, post-industrial society, the solution is to give every citizen a basic payment - say $1,000 per month - that of itself would allow one to live at a level near or just above the poverty line, thus effectively eliminating it.
It is meant to address the challenge of ‘technological unemployment’, the phenomena whereby new technologies result in the destruction of entire classes of employment, with Artificial Intelligence projected to outperform - and thereby effectively displace - humans in every job by 2062.2 Of course, there is the counter argument that every technological revolution before has displaced a great many to be sure, but that new jobs were also then created. While there are no doubt many opportunities at a time when we can't know what we might know about new opportunities, the fact remains that according to Credit Suisse, the world's richest 1 percent, those with more than $1 million, own 45.8 percent of the world's wealth,3 having grown at 6 to 9% per year since 1995, whereas the average wealth of the remaining 99% has grown at just half that - 3.2% per year.4
Consequently, many - interestingly Silicon Valley’s elite - are calling for some level of Universal Basic Income - a ‘social vaccine of the 21st century’, a ‘VC for the people’ and a ‘21st century economic right’.5
Simple or not conceptually, the execution is highly controversial - always an issue of how it gets paid, always evoking fears of increasing already burdened government deficits. It also evokes a puritan fear of promoting slovenliness amongst the working class, even though real-world tests show this to be largely unfounded.6
To address the second point first, how humans respond to cash payments is a complex issue. It can’t be done in a policy vacuum, it must be part of a holistic effort to promote personal agency, education/skills development and entrepreneurism - very broadly defined - that sees beneficiaries self-empowered and better contributing citizens (again, very broadly defined). To be sure, it also depends on one’s view of humanity, of human behaviour, and on that point I must confess I take an optimistic-enough view.
It’s the first point that catches. How to pay for the payments? Where does the money for these entitlement programs come from? Here’s where it gets very interesting, or very threatening - even dangerous - depending on whether you have the capacity to imagine, or are of the orthodoxy. Since WWII, there has been a growing movement of economists challenging the core assumptions on which capitalist societies are based with a new construct called Modern Monetary Theory. It’s assumptions have profound implications for democracy.
For this discussion, I am drawing heavily on the New York Times best selling book The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy, by Stephanie Kelton, a Professor of Economics and Public Policy at the State University of New York at Stony Brook, and Bloomberg contributing columnist. Speaking for myself, Kelton does a good job explaining the intricacies of the model in terms that a lay person can (fairly) easily understand.
The core tenet is that nations that print their own money can never be in debt to themselves, that what we call deficits should really be seen as ‘nothing more than footprints of the past’. The laws of debt do apply to the rest of us, businesses, consumers, cities, towns, states and provinces, but not to sovereign issuers of currency - subject to some constraints, they can print as much money as they like. No-one else can.
MMT proponents argue that deficits are historically beneficial, that in fact, the last six recessions in the United States (pre-COVID) all followed efforts to reduce the public debt, that every dollar of 'public ‘debt’ is actually a dollar that benefits the private sector. Moreover, your federal taxes don’t actually pay for programs, it’s the ‘deficit’ financing that does. Instead, taxes are the means for the government to be able to provision itself, to help manage inflation, and to redistribute wealth.
And quoting Kelton, “...why does the government need to borrow? The answer is, it doesn’t. It chooses to offer people a different kind of government money, one that pays a bit of interest. In other words, US Treasuries are just interest-bearing dollars.”7 This offends the conventional wisdom that it's the bond market that ultimately sets interest rates, which in turn manage inflation. Kelton and other MMT scholars agree that inflation is the apex measure to balance against all others, but argue that the government can, as it has before, play a far more active role in setting 'goldilocks' interest rates (ie. just right).
The book fundamentally challenges our understanding of the possibilities of monetary policy, not to displace or destroy capitalism, but to make it fairer, and much, much stronger. They reject the notion that the ‘only’ way to manage the economy is to manage a so-called ‘natural’ rate of employment, that in effect use human livelihoods as the primary weapon against inflation. Instead they argue that the government doesn’t need to balance its books, it’s the economy that needs to be balanced, and crucial to that is the notion of enabling full employment with a federal job guaranty.
It is far beyond me to detail the substance, and the pros and cons of the MMT theory here. My due diligence suggests that it has caught the attention of most mainstream economists, with the majority somewhere on the spectrum of vehemently or passively rejecting it. But a not-insignificant and growing number are coming to seriously consider the model as a roadmap for the successor to the current capitalist experience. And they are increasingly, convincingly and empirically, rebutting the attacks of the orthodox schools of thought - who it must be remembered are deeply invested in the status quo.
As I noted at the outset, I am not an economist. But to have a serious and recognized school of thought exploring a world that could fund full employment and much more - always vigilant against inflation - is inspiring. My only issue with MMT is it’s belief in a Federal Jobs Guaranty, where some form of UBI would appear to make more sense. Which leads me to my take.
Both UBI and MMT advocates adopt the language of the marketplace, of bankers and accountants, to describe the fiduciary interactions of the government with its citizens, speaking of ‘entitlements’, of ‘paying’ unemployment insurance, or ‘paying people welfare’. We are not that far removed from the Dickensian notion that people that can’t pay their bills, or otherwise rise above their station on their own initiative, are somehow lesser citizens, and need to be reminded of that in the language of subjection.
What if instead we imagine the citizen as not a supplicant of the state, but rather, as a shareholder earning national dividends as a right of citizenship? In business it is common to value a business, to assess all liabilities against all assets and the potential to generate future revenue. Why not do the same for the nation-state as the basis for issuing dividends to all its citizens, in a modified UBI/MMT approach?
The role of government is to assure public security, to be able to defend itself from external violence, and to facilitate the development and engagement of its people so that they may be contributing citizens. Clearly, the healthier, better educated and happier/fulfilled the citizenry, the better contributors - and employees/entrepreneurs they will be.
The key would be to see the national dividend as something that covers not just a poverty-level subsistence income, but a modest, low-income lifestyle that provides a life that can be lived with dignity, that would presuppose ‘free’ healthcare and education. Almost all other government support apparatus would be eliminated - no more welfare, pensions, unemployment insurance, foodstamps etc.
In Canada, the poverty-level income for a single person is C$20,000 (approximately USD$15,000), the low-income rate C$32,000 (USD$25,000). For (back-of-the envelope) illustration sake, let’s say the target is to pay adults a $35,000 national dividend per annum, and children half that (the actuarial tables would be much more sophisticated). If such, the national dividends would pay out (excluding healthcare and education) roughly C$1.250 trillion, in an economy of $17 trillion, or 7.5% of the 2022 national net worth.8 Remember, this would be paid with sovereign funds - not debt.
Far from destroying capitalism, I argue that such a model would, by eliminating poverty and unemployment, significantly liberate entrepreneurial vigour - if perhaps, more broadly defined than is currently the case. There would be no need for a minimum wage. If balanced correctly, there should be sufficient incentive for the citizen to seek employment to augment their income, but more importantly to have purpose (especially when robots have all of the McJobs). To be sure, employers would need to provide the working environment to attract people, but at a significantly reduced wage/salary level. And as noted previously, no social transformation on this order can occur without a whole-of-society, approach, where personal agency, responsibility and entrepreneurism is encouraged at every level - with the vast majority of adults electing to pursue ‘productive’ endeavors.
As both a private and not-for-profit entrepreneur, I have watched founding teams struggle for months or even years eating-up their savings to pursue their dream. It’s capitalist drivel to suggest that their failure to launch is always due to a deficiency in their model or product - more often than not it’s simply because they ran out of money. In this new world, entrepreneurs would be free to innovate at a scale that we can’t comprehend. This elimination of poverty, combined with an explosion of innovation would provide unprecedented business opportunities. Importantly, people would be free to become as wealthy as they wish.
True to the MMT practice, income and consumption taxes (federal, state and city) would then claw-back income to help manage inflation and income distribution. Managing inflation/deflation currently involves after-the-fact responses by our national banks - inflation ran at X% last quarter, let’s respond with Y% interest rates. Is it too hard to imagine that in a world driven by AI and blockchain, that the balancing of inflation/deflation can’t be executed in real-time, eliminating run-away scenarios in either direction before they even start?
If one can imagine it, it may well be possible. If one can’t imagine a new or different future, then there is zero prospect of attaining it.9 Our economists and the capital classes that surround, enable and profit from their orthodoxy are letting humanity down. They are not doing their job - an appalling, even criminal lack of imagination.
Few of my business/capitalist friends and colleagues will have made it this far, fulminating about the dangerous, even threatening ignorance and naivete I’m displaying. Many will be embarrassed for me. But don’t worry about me. I’m not saying that either UBI or MMT are THE solution - that is for people far more expert than me to determine, but we desperately need experts who are willing to think and act in a profoundly transformative way, to challenge the far-too-comfortable and entrenched orthodoxy.
As I’ve noted before, I’m a centrist - all too happy to take from the ideologies on the left and right the pragmatic solutions that are compatible with my humanist/globalist values. I believe in capitalisms capacity to induce, amplify and reward human curiosity, exploration and innovation, but I abhor the meanness and inequity of its dark side. In turn I’m drawn to the inherent compassion of the ‘socialist’ model of floating everyone’s boat equally, but discomfited by the innovation deficit that too-often seems the result.
So let’s do both. It’s time for Socapitalism. Power to the shareholders!
Stephanie Kelton, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, PublicAffairs 2020, Kindle location 711
See Peter Coy’s recent, excellent article in the New York Times: This Is The Kind of Storytelling That Economics Needs. https://www.nytimes.com/2022/09/07/opinion/economics-science-fiction.html