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There is no alternative? New principles for the economy

Hendrik Tiesinga sketches out the basic elements of a new political and economic operating system

We live in a post-political age, an age where politics is reduced to primarily welfare state management according to the rules of conventional economics. Even in the face of the most severe financial crisis since the 1930s there doesn’t seem to be any fresh idea of how to reform our current political and economic system beyond dealing with some pressing symptoms. This in the context of increasing resource shortages and growing environmental pressures should provide the perfect window of opportunity for a new progressive politics. Yet the progressive political response is mute.

Currently it seems that both progressive and conservative political leaders would implement the same austerity reforms, perhaps in a slightly more equal manner, but austerity nonetheless. Old school socialists still cry out for shorter workweeks, higher pensions, wages and benefits without explaining how they will be paid for. Without wanting to go in much detail about the reasons for this state of political paralysis and ideological vacuum, it is painfully obvious that it is there.

This proposal is a call to fundamentally rewrite the rules of our current social contract. To reintroduce politics with a capital P. It aims to provide a radical yet pragmatic alternative vision for progressive politics. Radical in challenging some of the fundamental assumptions of our current liberal democratic capitalist order, pragmatic in the sense that nothing proposed here is impossible to achieve, that all this can be accomplished by taking small practical and democratic steps.

Nothing in this proposal is originally mine. I’ve merely brought together three design principles that have been proposed by many others under different names. Together however they provide a potential comprehensive framework for a radical reorganisation of our current political and economic order. An initial sketch, intended to open up a space to re-imagine collective political action behind a shared political vision.

Our current political ecosystem is based on three ground rules. The two basic rules underlying our economic system are absolute ownership rights and linear production models, together they work to perpetuate inequality and environmental inefficiency. The third rule, the separation of the public and private sphere dictates that democracy and public goods can only be provided by the state, leading to immoral markets and overbearing government intervention. This is a call to radically rewrite these rules to set the stage for a new global politics of equality, sustainability and democracy.

 

Circular economics and temporary ownership rights

Ownership rights and by extension the rule of law are the foundation of our liberal democratic society and individual freedom. They prevent us from being robbed by neighbouring warlords and corrupt state officials. This is great, but absolute property rights also reinforce structural economic inequality. The ownership of natural resources gives the owning classes the right to effectively tax the rest of the population for their use, indefinitely. Ownership rights shouldn’t be abolished but need to be reformed.

The second rule underlying our modern economic system is that of linear production models. Simply put, the owners of natural resources sell them to manufacturers, who sell products to consumers, which the consumers subsequently dispose of in the public domain. This one-way system of economics incentivizes companies to produce goods that have short life cycles with little regard for resource efficiency and negative externalities.

The most comprehensive model to counter this is to move to a system of circular economics and temporary ownership or use rights. A system where producers no longer earn an income once by producing and selling a product once, but continuously by leasing them to users whilst retaining ownership and responsibility for disposing of the product after use. In this model companies are incentivized to produce long-lasting resource and energy efficient products that are easily re-usable or recyclable. Consumers instead of absolutely owning a car, washing machines or houses, thus obtain the temporary use-rights of a particular product or service in exchange for paying a monthly fee. A circular economic system will increase resource efficiency and real productivity whilst decreasing the overall impact on the environment.

This model has to be expanded beyond manufacturering to include natural resources and ecosystem services such as land, minerals, fisheries and fresh water. Individuals, households or companies under this model can never obtain absolute ownership of these goods. Instead they rent them for a set period of time from publicly owned natural resource trusts that sell the use rights on the free market. Rental income over these natural resources, a national dividend, can flow into the public purse. A circular economy will also require a more stable monetary system, where public authorities issue non-debt based money and gradually expand the money supply with the real productivity growth of the economy.

 

Universal basic income and the end of the welfare state

To balance the narrow interest of private enterprises with the aim to reduce income inequality, the state taxes capital and labour to provide public goods like infrastructure, health care, education, national defence, unemployment and so on. The negative side effects of this are that investment and work are dis-incentivized and state monopolies in the aforementioned sectors create massive inefficiencies, not to mention a lack of consumer choice.

Together with the linear production model it creates the perverse effect of having to increase economic growth by producing more and more non-sustainable goods to generate enough profit and employment to raise the taxes needed to provide the public goods. This is where social democracy is stuck. More growth generates more negative externalities which requires more public goods and thus taxes. Additional taxes stifle economic activity forcing progressive politicians to paradoxically cut the public goods they promised to provide more of.

What I propose is to divorce the desirable aim of creating public goods and a reasonable level of economic equality from the provision of them by the state. The role of an agile state is not the provision of public goods, but developing ground rules to ensure markets operate in the public interest and provide a basic level of access for every citizen.

Equal access can be provided by legislating price discounts for vulnerable groups (which thus will be indirectly funded by the wealthier users), but more importantly by the provision of a universal basic income for all citizens. A basic income of a level high enough to enable access to basic needs in terms of nutrition, shelter, health-care, travel and education. Initially a basic income would be funded through taxes, and in an ideal scenario almost entirely by the natural resource dividends described above.

In a system where we all have a level of basic income security, we can do away with most forms of labour regulation. One important obstacle for companies in staying competitive is their inability to hire and fire employees at will. One of the main reasons for labour exploitation or being forced to do mind numbing work for employees is our dependence on a monthly pay check. A universal basic income will do away with both. It will liberate the labour market and entrepreneurialism in ways that will excite neo-liberal economists and Marxists alike.

 

Multi-level democracy

You might ask, is the market capable of acting responsibly enough to provide us with public goods like health care and education? Which brings me to the third principle: Our modern liberal democratic system rests on the assumption of the separation between the public and private sphere. The public sphere is democratic through a system of electoral democracy and majority rule, usually on a federal, state, regional and municipal level. The private sphere is undemocratic and based on rule by economic interests and consumer choice. Civil society is crushed somewhere in between.

As a result the state has to compensate for the lack of social responsibility of private business and investors by providing strict forms of regulation. Because regulators and legislators are often several steps removed from the daily practice of business they tend to create regulation that is inefficient, cumbersome and costly to business and inhibits its creativity and economic growth. Business as a result will seek to circumvent much of the regulation or seek to change it through lobbying and manipulating the democratic process.

Our democratic notions are severely limited by our centralised top-down conception of democracy; democratic power should be regulated by the principle of subsidiarity, e.g. democratic control should take place where considerable power is exercised. Hence democratic control should move from the bureaucracies and legislative chambers of state capitals into the board, office and factory rooms of any organisation that provides products and services, public or private. There is no singular formula of what this should look like, but at a very minimum it means that significant stakeholders are part of decision-making in large companies, schools, hospitals etc. A hospital, for example, would have surgeons, general staff, patients and local communities represented. A medium and large size company would have shareholders, employees, local communities and natural resource trusts represented on their boards.

In a system where companies retain responsibility over their products throughout their life cycle the need for environmental regulation will be significantly smaller. As already pointed out, in a system with a universal basic income, labour regulation can be significantly liberalised as well. If in addition democratic control is exercised at the level where actual power is exerted through proper mechanisms of multi-stakeholder governance, the need for centralised regulation by a central government - although not superfluous - will be considerably smaller.

 

A new kind of social movement

The vision behind this proposal is a society that is collectively more wealthy, free and sustainable than our current one. A society with more social protection and democracy but a radically smaller government. An economy that is more entrepreneurial, innovative and provides real economic growth whilst reducing ecological and social impacts. A labour force that is freer, works less and earns more. This sounds utopian but it isn’t.

Many small steps are already being taken. On the circular economy, the EU is already requiring producers to take care of the disposal of white goods like washing machines, and car sharing schemes are growing rapidly in big cities. The conservative government in the UK is revamping its co-operative company statute and it has been common practice in Germany for decades for employees to be represented on company boards, instilling a tad more responsibility. The state of Alaska is providing its citizens with a monthly basic income from its oil wealth. There are hundreds of other examples around the world that move in the same direction. Small steps that need to be seen as parts of a bigger picture and progressive agenda and need acceleration by putting the thrust of broad based social movements behind them. And just as both conservative and progressive parties developed the welfare state in many countries, the power of these ideas can transcend traditional political dichotomies.

The design principles formulated here are necessarily broad, incomplete and under construction and mean to orientate us rather than provide a fixed blueprint. They need to be applied, changed, proto-typed and tested in many different local contexts and countries. Reworking the fundamentals of our system doesn’t mean that they can or have to be rewritten over night. There is a very big difference between a long, sustained and gradual effort aimed at shifting the fundamental rules of our system and a long, sustained and gradual effort aimed at alleviating the symptoms of a fundamentally misconstrued system. Currently too many of us are working on the latter whilst neglecting the need of a collective political effort to shift the bigger picture.

It will require us to reclaim state and political power in order to democratically rewrite its rules. This agenda however goes beyond waiting for the state. We need to join-up the surge in localised social action from single-issue NGO’s, community organisations, social entrepreneurs and corporate intrapreneurs that emerged in the 90’s and 00’s with collective political action that we were so good at in the 60s and 70s. If we bring together the experience of the baby-boomers with the networked energy of the millenials, who knows what is possible…

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About the author

Hendrik Tiesinga is a writer and facilitator of multi-stakeholder dialogue and innovation processes. He is a doctoral candidate at the Warwick Business School where he is researching social innovation labs and new social movements. He is a co-initiator of the Finance Innovation Lab and Natural Innovation.

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