After Capitalism, What?

Introduction

There has been an increase in the recognition that the world is on the verge of running out of some key resources. The responses to this challenge have been limited in number. The most popular is to propose improved efficiency. Another proposal is to improve recycling. Proposals of this sort seek to cut down on demand of raw materials, but do nothing about cutting down on demand for finished goods.

In fact the only framework for discussion is how to make capitalism work better and how to expand it into regions where it does not yet exist. There are no discussions of how alternative economic systems might factor into a solution. I've discussed some of the things that won't work when resource constraints prevent growth: Planning for a Steady-State Economy. My pleas for ideas on what such an economic system might look like have not been answered, so I'm going to take a stab myself.

Recap

The problem with capitalism is that it is based upon the concept of borrowing capital to create an enterprise. This capital must be returned, with interest, in order to induce lenders to participate. (Selling shares, is a form of borrowing, where the payback of principal is indeterminate, but interest is paid in the form of dividends.) In order to accomplish this the firm must produce more that the value of the original funds. This is usually some variation of turning natural resources into a more valuable end product. The net economic activity must be greater than what went before. In other words, capitalism requires growth. This model runs into trouble when there are limits to growth. Current economic theories have stayed away from examining this situation.

New Economic Models

The best place to look for solutions for societies which have to live within resource limits is to study existing and past societies that faced these conditions. They seem to have several things in common. First, the population tended to remain relatively stable. When a group consumes more than can be renewed, they deplete their resources for the future and this leads to shortages. In the type of groups we are discussing, shortages generally meant famine. So the first requirement for a steady-state society will have to be a stable population. The absolute level of this population is the subject of much disagreement. Some people think that the world can expand from the current 6.5 billion to the projected nine billion without it causing any major problems. There are others who think that the present level is already too high. If this is true, then how to bring down the population is another untouchable topic. I'll leave this for another time, but I will say one of the most effective ways to lower the birth rate is by educating women. There is no need for draconian measures such as practiced in China.

So, let's assume we can get to a stable level of population which is within the resource limits of the planet. The next thing we notice about steady-state societies, is that they don't have much of a concept of "progress". Things were, they are, and they are expected to remain pretty much the same in the future. This has a profound effect on how people view their own goals in life. There may be ambition, but it has to be restricted to climbing within an existing social structure. One can't build an empire. This also rules out the creation of many lasting material artifacts. The pyramids of Egypt and Latin America reflect periods where production exceeded consumption and so there was labor available to erect such structures. These were not steady-state periods for these societies. More typical would be the Polynesian societies and many areas in Africa.

Without the need to leave one's mark on the world, activities tend to focus more on well being in the here and now. This means enjoying oneself as well as one's family. The easier it is to obtain the necessities of life, the more time is available for other activities. Frequently these include participating in rituals, communal functions and creation of semi-permanent or impermanent art works. The need to amass "stuff" beyond what one needs is not a priority. Even in Europe prior to the industrial revolution, much of the excess "stuff" went into churches and homes of the aristocracy. It served no social or practical purpose. The peasants who lived in a steady-state economy left no marks.

The second thing to be noted is that what is needed now must be available now. Aside from storing a small amount of food stuffs as a hedge there is no "investment". This means no banks, no capital, no saving for the future, no interest and no capitalism. One cannot save for one's old age. Where would you invest your savings? We need to examine how one's life is "financed". Let's assume that about one third of a person's life is spent either in childhood or old age. Let's also assume that about another sixth is spent in periods where one can't be productive. This may be because of illness or other reasons. Those who can never be productive because of handicaps are also included in this category. Thus, we will assume that one can only work for about half of one's lifetime. During this productive period one will need to provide for those who are not productive. This is equivalent to a "tax" of about half of one's earnings during the productive period. I call it a "tax", but most people won't consider putting food on the table for one's family as a tax, but the economic effect is the same.

While one is productive, about half of what one gets as compensation must be spent on others. Practically this is not much different than what exists for many people in developed societies currently. All but the most affluent can't even put aside 15% into retirement funds or long-term savings. In the US the proportion of people with no real assets is increasing. This means that during their non-productive years they will have to depend upon the current earnings of others. Much of the excess wealth that is generated in our society is going into things that can never be later turned to productive use. The fancy baubles of the wealthy have no utility. The armaments that we create and destroy, or declare obsolete and junk, can not assist in providing the basic needs of society. All this will have to change. If people want to accumulate baubles they will have to be "affordable" by the individuals themselves, not by skimming off from the efforts of others.

Perhaps this sounds communistic or utopian, but a steady-state economic system cannot support the idle rich (or at least not very many of them). The "wealth" that they accumulate implies that the society is producing more than it needs. This is not steady-state, but yet another case of robbing from the future. It is obvious that one can have a steady-state economy without having total wealth equality, some people are just more productive, or frugal than others, but the variations between the rich and the poor must be modest. If we have a group of 100 people and each contributes only 1% then they can afford to support one person who does nothing. Once again traditional societies provide the model. Such societies typically have a leader who has slightly more wealth than others and, in many cases, works less, but the number of such individuals is kept quite small.

Most people resent paying "taxes" to support the indigent and undeserving, but this is because of the way the issue is framed. Another way to look at things is to consider your own life. When you were young you borrowed the money to pay for your education and support from your parent's generation. Once you are working, you pay them back by supporting their non-working years. In other words, you are paying for your own life, just shifting the source of funds between generations temporarily. Where else would the money come from? Only you can pay for your own life.

Having a steady-state society doesn't mean there will be no progress. Technological advancement will continue. New discoveries in medicine will continue to improve the quality of life. New devices will be invented and will enable us to do more with less physical effort. This is qualitative progress, but it needn't be quantitative. Things can get better without their needing to be more.

How will new enterprises be financed and how will one be able to afford purchases that exceed a person's current revenue? If the economy is not growing then there is no excess wealth being generated to be used to pay back investors. A new finance model will be needed. One possibility is to do away with private property. Many political philosophers have suggested this in the past. Many societies had no concept of private property (especially nomadic ones). Societies based upon serfdom had no private property for the peasants. They had rights to farm a section of land and erect a house, but they didn't "own" their holdings. This made little practical difference on a day-to-day basis, but did have a big effect on inheritance policies. One might be able to pass the leasehold to one's heirs, but this is only an implied right, not actual ownership. Even in the 20th Century, many of the communist regimes didn't allow real estate ownership. The state built and maintained the property and rented it out to the people. Thus the capital for new building is not an issue for an individual, but is part of the collective use of the general tax.

Funding of entrepreneurial enterprises is a more difficult issue. Large bureaucracies are terrible at determining which new ideas are worth funding. Centralized planning has a poor record when it comes to innovation. With no excess capital from individuals it won't be possible to raise needed funds through the types of mechanisms currently in use. Prior steady-state societies were not usually especially innovative. Even in cases where there was technological progress, the amount of resources needed to support innovation was not that great. Making a better plow is something that an individual might be able to do with his own resources, building a factory to make a newly invented widget is something else again. Even basic research is now an expensive enterprise. To develop and test a single drug can easily cost hundreds of millions of dollars. The advanced countries have had programs to support basic research. In the US we have had agencies such as the NSF and the NIH to play this role. They depend upon experts evaluating proposals from those seeking to do basic research to decide what to fund. This works reasonably well when the research follows logically from existing work, but institutional inertia prevents the funding of most highly speculative ideas. In fact most of the recent developments in the communications and computing fields have been the result of work by unknown people with no prior track record to point to. Much of this work was self funded, or funded by groups willing to take high risks, like venture capitalists. This mechanism is unlikely to exist in a steady-state society.

Conclusion

A steady-state society will require a stable population. It will require replacing the acquisitive mindset with one more focused on personal fulfillment and concern for communal well being. It will require an understanding that, on average, each of us must pay for our own lives, even if the payments are partially deferred. It will probably have to do away with the concept of inheritable resource (especially land) ownership. Mechanisms will need to be designed to foster innovation and entrepreneurship that are not tied to amassing wealth as a reward for the effort. The Japanese have a concept of a "Living National Treasure" which they award to individuals who are masters at some traditional crafts. Perhaps the public acclaim and status awarded these people is sufficient reward. Obviously if their motivation had been to acquire much material wealth these people wouldn't have entered the professions that they did in the first place. This shows that even today there are other motivations besides money.

The difficult issues that must be explored are how to make a transition and how to overcome the resistance of those who are comfortable with the present arrangement. Whether a democratic society can make bold enough changes is another unknown. Even modest steps that are proposed these days, such as wind farms are met with nimbyism and political deadlock. The alternative of a benevolent, farsighted, ruler has not proven successful in general. For every one such person, there are 100 who become dictators and abuse their authority. When people's views of their role in the universe has changed in the past it is usually because of the power of the thought of philosophers. When Thomas Jefferson penned "life, liberty and the pursuit of happiness" he altered human expectations for ever after. Perhaps we will just have to wait for such a new thought to emerge before people are willing to rethink the makeup of present society. If that is the case, such a person had better emerge soon, the world can't wait much longer.

Moral: The world can wait, but humanity can't.


Click here to see all my essays in context.

If you have any comments or for further discussions email me at robert.feinman@gmail.com
Copyright © 2007 Robert D Feinman
Feel free to use the ideas, but the words are mine.