Contribution to GTI Roundtable "Limits to Investment"
I want to commend John Fullerton for raising the heretical question of limits to investment. This is an issue as fundamental as limits to physical growth, and far less understood. The real purpose of capitalism is infinite growth in capital; it is a system biased toward capital’s needs. We as a culture have laid bare other biases like sexism and racism, but we have yet to, as a people, broadly understand the bias toward financial wealth and power inherent in capital-ism. This bias is both a system of thought and values, and a system of institutional structures that uphold those values.
The underlying systemic structure of every economy is ownership – a cultural and legal construct that defines who possesses economic power over enterprise and who has the legal right to extract wealth. Today, we live with Wall Street ownership, where the vast majority of economic activity is conducted through publicly traded corporations, with ownership shares trading on public stock markets, and where the financial elite also controls the political process. Today, ownership is on autopilot, with the aim of maximizing returns to shareholders designed into the structures of governance—including boards of directors, voting rights, financial statements, and the frame of law. Capital bias is also reflected in laws and court cases. John Fullerton’s piece helps us see that the demands of capital lie at the heart of the institutionalized growth mandate.
What remains to be developed further are the social consequences of this system, particularly the effect on labor. If overall economic growth is sluggish, corporations increase profit by extracting more from labor. This can mean “increased productivity” - a benign term that today too often masks a harsh reality, where workers work harder, produce more, but do not share in the gains. Paying as much as possible to capital, and as little as possible to labor, is built into the design of the income statement. It often means layoffs, outsourcing jobs abroad, fighting unions, and decades of stagnant wages and high unemployment, even as the wealth of the financial elite soars. These are, in fact, among the fundamental aims of capitalism: to maximize gains for capital and to minimize gains for labor. That's capital bias.
To understand a world without this bias, we can look to an employee-owned firm like John Lewis Partnership, whose employees have a vote for the board and receive approximately 40% of profits every year in direct profit-sharing bonuses. Cooperatives also can behave differently; in the Basque region of Spain home to the Mondragon Cooperative, there is substantially lower unemployment because Mondragon deliberately avoids layoffs and instead finds jobs for redundant employees within the larger system of companies.
There are alternative social architectures available, and many are already up and running. We need to move more systematically to grow these alternatives. That begins with the recognition that institutionalized capital bias is at the heart of our system. John’s piece goes a long way toward building that awareness.