Capitalism is the demonstrated top-performing enabler behind successful economies – whether in democratic, authoritarian or communist regimes. But capitalism is not always beneficial to the planet or people. Is there a way to keep the good, and control the bad? I think so.
In this article, I propose a way to tame capitalism to our collective service.
The current situation
Legitimate criticism about capitalism has two main concerns:
1) Pollution and excessive extraction of natural resources such as air, land and water leading to extinctions and
2) social side effects such as concentration of wealth and abuse of much of humanity.
The success of capitalism re-enforces these concerns, as its hold on our social systems creates an ever-increasing pressure on nature and society. Left unabated multiple breakdowns of natural and social systems result.
Why it matters now
Breakdowns within our natural world are attributed to human activity and are nearing a point of no return. Such a catastrophe presents a novel and existential challenge for humanity.
Independently, a social breakdown can foster revolt by frustrated citizens, generating militaristic responses by increasingly authoritarian governments.
Each scenario is disastrous and, even worse, could coincide.
What has happened historically
Past and present conditions show those who control the capital – the wealthy and the politically powerful – have ignored the above concerns about capitalism. Those with money easily manipulate political power. Those with capital steer political decisions to favour larger profits. Politicians risk careers by promoting measures that reduce profits.
The public holds the countervailing power not with laws but with support for, or boycotts against, business. Sometimes public support of corporations can be co-opted in support of changing laws, such as pressure companies like Coca Cola exerted on the government in the US state of Georgia against recent new laws around voting. While welcome and useful, this power to channel consumption to publicly preferred sources is not nearly enough to offset the wealthy's concentration of capital and control.
Paradoxically our society depends on the profits of the capitalists. Whether through a company or government pensions or as individuals, we all in some way own corporate stocks and bonds. We invest in these to finance our futures. So, all society wants and needs capitalism's benefits, even though we may not find capitalism's concerns acceptable. Therefore, society has a problem.
The Solution: First accept public responsibility
Society must realize corporations always act in self-interest. Reducing pollution is seen positively by companies as long as it reduces costs. Similarly, companies support investing in employee welfare and social improvements if, in doing so, profits improve. Addressing capitalism's issues via profit improvements is a trend we hope continues.
Some corporations do not see a profitable way to solve capitalism's issues. When corporations don't address the concerns of capitalism, governments need to step in, but not with fines and action orders as typically done today. Fines and action orders have never worked well as they require careful follow-up and are often seen by offending corporations as the cost of doing business.
Instead, the action required is to fix the issue. Governments must take responsibility to clean up pollution, offset impacts, and implement social advancement programs if companies are not doing enough.
Governments represent society and are the logical public bodies to address adverse effects that often cut across multiple industries and communities. The public must take on the costs because forcing companies to correct their issues may only drive some of them into bankruptcy, leaving us all to absorb the expenses anyway.
Regulatory authorities give corporations their licence to operate. The authorities decide whether to revoke the licences of certain businesses. Thus, they, not the corporations, have the responsibility to ensure remedies are implemented.
I do not advocate that corporations or industries should be let off the hook. They must first prove a hardship situation before refusing to carry out corrective actions. If such hardships to profits truly exist, then corrective action falls to the government to fix the issues and to decide on revoking the corporation's licence.
On the bright side, government interventions are essentially doable, often more economical at scale, and such work does create jobs and economic activity.
The catch is that these intervention efforts are not funded, not currently accepted, and no one wants to pay more taxes. Let's examine ways to create these funds.
The Solution: Second, Raise Funds
Raising taxes is the first option usually considered. Short-run solutions, of course, could tax the rich if the politicians muster the courage to stand up to the powerful rich.
The wealthiest top 0.1% of the population could contribute back to fix the problems caused by the very system that generated their wealth. A straightforward tax could be, as a simple example, to levy a tax - say 2% - on all wealth above $100 million.
Taxes like this on the very wealthy might work for a while, but competent money managers would soon move capital worldwide, evaporating the taxes gained.
A longer-term, more dependable solution is a sovereign fund, and Canada could get this ready just in time. Setting up a large sovereign fund now could start to provide resultant earnings in twenty years.
For example, let's say the government borrows one trillion dollars to invest in financial instruments, primarily stocks. After twenty years, with average market returns, the fund grows to two trillion dollars. The government pays back the loan, leaving one trillion dollars free and clear. Half that amount, five hundred billion dollars, is dedicated to addressing pollution and social issues. Five hundred billion can finance twenty billion dollars per year in perpetuity.
The other five hundred billion dollars grows another fifteen years until reaching approximately one trillion dollars. Half is dedicated to funding issue solutions, and half continues to grow back to the trillion-dollar level. The cycle repeats in perpetuity, and the budget for solving issues rises every fifteen years by another twenty billion.
To illustrate, after ten iterations, i.e., after about one hundred and seventy years, the annual budget has reached two hundred billion dollars available to address the concerns of capitalism.
Fighting fire with fire
The public must create the political will to keep the government from squandering these new sovereign funds. With careful positioning in the minds of citizens, tampering can be minimized as has been shown by for example by Canada Pension Plan. No politician dares to empty those coffers. Similarly, no Canadian politicians would cancel the national health care system, as it is a source of great national pride.
Once the sovereign fund reaches a certain mass, it restores the balance between the wealthy and the public. Few wealthy individuals would have the ability to match the power for action held by this ever-growing sovereign fund. Whatever side effects the entrepreneur may conjure, public funds can correct, giving Canadians a new source of national pride.
By building financial strength on behalf of and owned by the people, society-at-large, the 99%, get back the control of their society. Humanity will have tamed capitalism's dangers using the tools that created the issues.
Photo by Mike Marrah on Unsplash