We’ve got to break out of the old ways of thinking about the economy.
But what if neither revolution nor reform is viable?
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Paradoxically, we believe the current stalemating of progressive reform may open up some unique strategic possibilities to transform institutions of the political economy over time. We call this third option evolutionary reconstruction. Like reform, evolutionary reconstruction involves step-by-step nonviolent change. But like revolution, evolutionary reconstruction changes the basic institutions of ownership of the economy, so that the broad public, rather than a narrow band of individuals (i.e., the “one percent”) owns more and more of the nation’s productive assets.
1. A People’s Bank
One area where this logic can be seen at work is in the financial industry. At the height of the financial crisis in early 2009, some kind of nationalization of the banks seemed possible. It was a moment, President Obama told banking CEOs, when his administration was “the only thing between you and the pitchforks.” The president opted for a soft bailout, but that was not the only possible decision.
When the next financial crisis occurs – and many experts think it will —a different resolution may well be possible. One option has already been put on the table. In 2010, 33 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 anti-trust and finance suggests that the big banks, even if broken up, will ultimately regroup. So what can be done when breaking them up fails?
Traditional reforms have aimed at improved regulation, higher reserve requirements and the channeling of credit to key sectors. But future crises may bring into play a spectrum of sophisticated proposals for more radical change. For instance, a “Limited Purpose Banking” strategy put forward by conservative economist Laurence Kolticoff would impose a 100% 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 bankers, directly control system-wide financial flows.
More 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 have become essentially public banks.
Nor is this far from current political tradition. Unknown to most, there have been a large number of small and medium-sized public banking institutions for some time now. In fact, the federal government already operates 140 banks and quasi-banks that provide loans and loan guarantees for an extraordinary range of domestic and international economic activities.
The economic crisis has also produced widespread interest in the Bank of North Dakota, a highly successful state-owned bank founded in 1919. Between 1996 and 2008, the bank returned $340 million in profits to the state. The bank enjoys broad support in the 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 more than a dozen states.
2. Move to Universal Healthcare
That austerity and failing reform might open the way to “evolutionary reconstructive” institutional change is also suggested by emerging developments in healthcare.
Cost pressures are also building up—and, critically, in ways that will continue to undermine U.S. corporations facing global competitors, forcing them to seek new solutions. The federal Center for Medicare and Medicaid Services projects that healthcare costs will go up from the 2010 level of 17.5 percent of GDP to 19.6 percent in 2019. It has long been clear that over the long-haul cost pressures are ultimately likely to force development of some form of single-payer system —the only serious way to deal with the underlying problem.
A national solution may come about either in response to a burst of pain-driven public outrage, or more slowly through a state-by-state build-up. Massachusetts already has a near universal plan. In Hawaii, health coverage (provided mostly by nonprofit insurers) reaches 91.8 percent of adults in part because of a 1970s law mandating low-cost insurance for anyone working 20 hours a week. In Vermont, Governor Peter Shumlin signed legislation in May 2011 creating “Green Mountain Care.” Universal coverage, dependent on a federal waiver, would begin in 2017 and possibly as early as 2014. In Connecticut, the legislature in 2011 authorized a “SustiNet” non-profit public health insurance program, which it aims to launch in 2014. In all, bills to create universal healthcare have been introduced in nearly 20 states.
3. Build Community Wealth
“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). Roughly 4,500 not-for-profit community development corporations are largely devoted to housing development. There are now also more than 10,000 businesses owned in whole or part by their employees; nearly 3 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, “land trusts” are underway using an institutional form of nonprofit or municipal ownership that develops and maintains low- and moderate-income housing.
In Cleveland, Ohio, an integrated group of worker-owned companies has been developed, supported in part by the purchasing power of large hospitals and universities. The Cleveland effort, which is partly modeled on the 85,000-person Mondragón cooperative network, based in the Basque region of Spain, is on track to create new businesses, year by year, as time goes on. The goal is not simply worker ownership, but the democratization of wealth and community building in general. Linked by a community-serving non-profit corporation and a revolving fund, the companies cannot be sold outside the network; they also return 10 percent of profits to help develop additional worker-owned firms.
A critical element of the strategy points to what is essentially a quasi-public sector planning model: Hospitals and universities in the area currently spend $3 billion on goods and services a year—none, until recently, from the immediately surrounding neighborhoods. The “Cleveland model” is supported in part by decisions of these substantially publically financed institutions to allocate part of their procurement to the worker-co-ops in support of a larger community-building agenda. Numerous other cities are now exploring efforts of this kind, including Atlanta; Pittsburgh; Amarillo, Texas; and Washington, DC. Related institutional work is now underway, too, through the leadership of United Steelworkers, a union that has put forward new proposals for a co-op-union model of ownership.
Another innovative enterprise is Market Creek Plaza in San Diego, a $23.5 million, mixed-use, commercial-retail-residential development. The project was conceived, planned and developed by teams of community members working with the Jacobs Center for Neighborhood Innovation. Market Creek Plaza is also a green project, and aims to expand to become a transit-oriented village with 800 units of affordable housing and extensive facilities for nonprofit organizations. The project has restored 1,400 linear feet of wetlands, while generating 200 permanent jobs (70 percent filled by local residents), provided 415 residents with a 20-percent ownership stake in the project, and generated $42 million in economic activity (in 2008).
4. Leverage City Assets
Yet another arena of institutional growth involves municipal development. By maintaining direct ownership of areas surrounding transit station exits, public agencies in Washington, DC, Atlanta and elsewhere earn millions, capturing the increased land values their transit investments create. The town of Riverview, Michigan has been a national leader in trapping methane from its landfills and using it to fuel electricity generation, thereby providing both revenue and jobs. There are roughly 500 similar projects nationwide. Many cities have established municipally owned hotels. There are also nearly 2,000 publicly owned utilities that provide power (and often broadband) to more than 45 million Americans, generating $50 billion in annual revenue. Significant public institutions are also common at the state level. CalPERS, California’s public pension authority, helps finance local community development needs; in Alaska, state oil revenues provide each citizen with dividends as a matter of right; in Alabama, public pension investing has long focused on state economic development.
5. Organize for the Long Haul
You can think of the slow buildup of democratizing strategies as the pre-historicaldevelopmental work needed to clarify new principles for larger scale application. Just as in the decades before the New Deal, state and local experiments in the “laboratories of democracy” may suggest new larger scale approaches. The new direction has four aspects; democratization of wealth; community, both locally and in general; decentralization in general; and substantial but not complete forms of democratic planning. Let’s take a look at each of these.
Democratization of Wealth: Institutions like public banks challenge the idea that private corporate enterprise offers the only possible way forward. They also help open new ways of thinking about how to get meaningful larger scale democratization. Historically, cooperatives and other federations also helped establish institutional and organizational support for explicit political efforts in support of specific policies. Critically, they also help stabilize local community economies, since such institutions tend to be anchored locally by virtue of their democratic ownership structure.
Rethinking Community: If you want to alter larger patterns of wealth and power, you have to build a culture that reconstructs “community.” In economic terms, building community means introducing and emphasizing practical forms ofcommunity ownership. In the Cleveland effort, for example, the central institution is a community-wide, neighborhood-encompassing non-profit corporation. The board of the non-profit institution includes representatives both of the worker cooperatives and of key community institutions. Worker co-ops are linked to this (and to a revolving fund at the center), and though independently owned and managed, they cannot be sold without permission from the founding community-wide institution. The basic principle is that the effort should benefit the broader community, not only or simply workers in one or another co-op.
Decentralization: Can there be meaningful democracy in a very large system without far more rigorous decentralization than is commonly assumed in the United States? It is a commonplace that Washington is “broken.” But part of the problem has to do with scale. We rarely confront the fact that the United States is a very large geographic polity: Germany could easily be tucked into Montana. The United States is also very large in population—currently more than 310 million, likely to reach 500 million shortly after mid-century.
Decentralization in these circumstances is nearly inevitable, and if the continental nation is too large and most states are too small to deal with economic matters, what remains is the intermediate scale we call the region— a unit of scale that is likely to become of increasing importance as time (and population growth) go on. The question is almost certainly how to regionalize, not whether to do so—what powers to maintain at the center and what powers to relegate to various smaller scale units. The principle of subsidiarity—keeping decision-making at the lowest feasible level, and only elevating to higher levels when absolutely necessary—is implicit as a guiding principle.
Democratic Planning: A well-designed planning system can change relationships between firms, the community and the market. Planning also needs to be democratic at all levels.
Take a look at Brazil’s innovations in participatory budgeting, where citizens determine major public expenditures – an idea that is gaining traction in Chicago. So far these experiments have definite limits since they are restricted to municipal budget decisions. But if the practice can be extended in scope and scale over time, it could provide an important mechanism for increasing meaningful democracy.
High-speed rail and mass transit are another area in which we can think about larger scale planning approaches. The United States has limited capacity to build equipment for any of this. But when the next crisis occurs in the auto or other industries, a public bail-out might restructure firms so that we could use public contracts needed to build mass transit and high-speed rail in ways that also help support the development of quasi-public national and community-based firms—both to produce what is needed and simultaneously to help stabilize local communities.
6. Cut Corporate Power Down to Size
To deal with economic issues, ecological challenges and local community stability, we must also come to terms with corporate power dynamics. Public corporations are subject to Wall Street’s first commandment: Grow or die!” You can’t just wish or regulate that idea away.
In addition to carbon emissions, countless studies have documented growing energy, mineral, water, arable land and other limits to unending growth. Yet the trends continue: The United States, with less than 5 percent of global population, consumes 22 percent of the world’s oil, 13 percent of world coal, and 21 percent of world natural gas. From 1940 to 1976, Americans used up as large a share of the earth’s mineral resources as did everyone in all previous history.
At some point, a society like the United States that already produces the equivalent of over $190,000 for every family of four must ask when enough is enough. As Juliet Schor has argued, one key change is to encourage less consumption and more leisure time. That means reforming unemployment insurance policy to encourage work sharing, changing government labor practices to model shorter working hours, and discouraging excessive overtime. We need to restore balance on a personal level, but we can’t ignore the big systemic challenges. As former presidential adviser James Gustav Speth has observed: “For the most part we have worked within this current system of political economy, but working within the system will not succeed in the end when what is needed is transformative change in the system itself.”
As a matter of cold logic, if some of the most important corporations have a massively disruptive and costly impact on the economy and environment—and if experience suggests that regulation and anti-trust laws are likely to be largely subverted by these corporations—a public takeover becomes the only logical answer. This general argument was put forward most forcefully not by liberals, but by the founders of the Chicago School of economics. Conservative Nobel Laureate George Stigler repeatedly observed that regulatory strategies were “designed and operated primarily for [the corporation’s] benefit.” Henry C. Simons, Milton Friedman’s mentor, was even more forceful. “Turned loose with inordinate powers, corporations have vastly over-organized most industries,” Simons held. The state “should face the necessity of actually taking over, owning, and managing directly…industries in which it is impossible to maintain effectively competitive conditions.”
For many decades, the only choices to many have seemed state socialism, or corporate capitalism. When traditional systems falter and fail, new ideas spring to life. Little noticed by most observers, handholds on processes of potentially important new forms of change have been quietly developing around the country. These changes build upon each other to create an evolutionary process that has the power to transform the way we live – for the better.
Gar Alperovitz is the Lionel R. Bauman professor of political economy at the University of Maryland and co-founder of the Democracy Collaborative. He is the author of the forthcoming book, What Then Must We Do? Straight Talk About The Next American Revolution, Follow him on Facebook and Twitter @GarAlperovitz.