We Need a Social Economy, Not a Hyper-Financialized Economy

We all know what a hyper-financialized economy looks like–we live in one:central banks create credit/money out of thin air and distribute it to the already-wealthy, who use the nearly free money to buy back corporate shares, enriching themselves while creating zero jobs. Or they use the central-bank money to outbid mere savers to scoop up income-producing assets: farmland, rental properties, etc.

This asymmetric wealth accumulation and avoidance of risk creates a self-reinforcing feedback loop, as the super-wealthy financiers and corporations use a slice of their income to buy political protection of their income streams, creating cartels and quasi-monopolies that are impervious to competition and meaningful regulation.

The only possible output of a hyper-financialized economy is rapidly increasing wealth and income inequality–precisely what we see now.

What we need is a social economy, an economy that recognizes purposes and values beyond maximizing private gains by any means necessary, which is the sole goal of hyper-financialized economies.

Given the dominance of profit-maximizing markets and the state, we naturally assume these are the economy. But there is a third sector, the community economy, which is comprised of everything that isn’t directly controlled by profit-maximizing companies or the state.

What differentiates the community economy from the profit-maximizing market and the state?

1. The community economy allows for priorities and goals other than maximizing profit. Making a profit is necessary to sustain the enterprise, but it is not the sole goal of the enterprise.

2. The community economy is not funded by the state.

3. The community economy is locally owned and operated; it is not controlled by distant corporate hierarchies. The money circulating in the community stays in the community.

4. The community economy is not dominated by moral hazard; the community must live with the consequences of the actions of its residents, organizations and enterprises.

The community economy includes small-scale enterprises, local farmer’s markets, community organizations, social enterprises and faith-based institutions. Its structure is decentralized and self-organizing; it is not a formal hierarchy, though leaders naturally emerge within civic and business groups.

Few Americans have worked on a plantation. I am likely one of the few who has lived and worked in a classic plantation town (Lanai City, circa 1970; I picked pineapples along with my high school classmates as a summer job).

In my analysis, the current financial system is akin to a Plantation Economy:highly centralized and hierarchical, devoted to maximizing profits for distant owners, a finance-fueled machine for extracting wealth from local economies.

I call this the Neocolonial-Financialization Model:

The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

Wal-Mart and the Plantation Economy (August 24, 2010)

Colonizing the Plantation of the Mind (August 25, 2010)

Greece and the Endgame of the Neocolonial Model of Exploitation (February 19, 2015)

We can differentiate the community economy by comparing it to a hyper-financialized Plantation Economy. In a Plantation Economy, a once-diverse landscape of decentralized, locally owned small enterprises is displaced by corporations that are dependent on the state for their profits via direct subsidies, tax breaks, or a cartel/monopoly enforced by the state. (Think Big Pharma, Big Defense, the Higher Education Cartel, etc.)

The corporate Plantation’s low wages leave many of its workers’ families dependent on state aid to survive, and so it prospers on the backs of taxpayers who subsidize its low wages and the externalization of costs.

The current system rewards those with access to cheap capital and the power of the state. The community economy has neither.

The Plantation Economy institutionalizes poverty, parasitic finance, externalized costs, moral hazard (since the corporate/state overseers do not live in the community being cannibalized) and centralized wealth and political power. These are the only possible outputs of the hyper-financialized Plantation Economy.

Once the Plantation Economy has displaced the community economy, opportunities for work and starting small enterprises shrivel, and residents become dependent on state social welfare for their survival. By eliminating the need to be a productive member of the community, the welfare state destroys positive social roles and the inter-connected layers of the community economy between the state and the individual.

When the individual receives social welfare from the state, that individual has no compelling need to contribute to the community or participate in any way other than as a consumer of corporate goods and services. State social welfare guts the community economy by removing financial incentives to participate or contribute.

Why is the community economy so important? The community economy is first and foremost the engine of social capital, which is the source of opportunity and widely distributed wealth.

Social capital is the sum of all the connections and relationships that enable productive collaboration, commerce, exchange and cooperation. (I cover all eight kinds of capital in my book.)

Corporations offer a limited version of social capital–for example, meeting a manager in another department at a company picnic–but most of this capital vanishes once an individual leaves the company (or is “right-sized” into unemployment). This social capital is only superficially embedded in a place and community, as corporations routinely move operations in pursuit of their core purpose: expanding profits.

Corporations cannot replace communities for the simple reason each organization has different purposes and goals. The sole purpose and goal of a corporation is to expand capital and profits, for if it fails to do so, it falters and expires.

The purpose of a community is to preserve and protect a specific locale by nurturing social solidarity: the sense of sharing a purpose with others, of belonging to a community that is capable of concerted, collective action on the behalf of its members and its locale.

Political scientist Robert Putnam has described this structure as a web of horizontal social networks. Unlike corporations and the state, community economies are horizontal networks, i.e. networks of peers connected by overlapping memberships and interests.

It is not accidental that the current system of hierarchical corporations, banks and the state increases inequality and erodes the community economy: the only possible output of low social capital is rising inequality.

Putnam identified a correlation between the inequalities enforced by oppressive elites (slavery being the most extreme example) fearful of the potential of egalitarian (horizontal) networks to organize resistance to their exploitation.

Areas with low social capital are characterized by limited social mobility and rising economic inequality. In other words, the only way to lessen economic inequality is to nurture the horizontal peer-to-peer community economy that creates social capital.

This makes sense, as communities stripped of social capital offer limited access to the other forms of capital needed to launch local enterprises and construct ladders of social mobility.

A vibrant community economy provides members with an infrastructure of opportunity, i.e. multiple pathways to building capital, gaining knowledge and connecting with others.

The key to broadly distributing capital and reversing inequality is to nurture the source of social capital: the community economy.

This essay is drawn from my book A Radically Beneficial World: Automation, Technology and Creating Jobs for All: The Future Belongs to Work That Is Meaningful.

“Certainly the author is decades ahead of his time. Humanity will eventually adopt the author’s principles written in all of his books. Currently, humanity lives in delusion that the system will continue to serve them. We will see massive changes even in the next decade. Don’t waste your money on college–buy the author’s books and succeed.” Book Reader (via Amazon.com) 

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  • Jed Grover

    It may reach the burning point in order for the masses to “undivide and unconquer” and unite to rebuild and restore a more empowering, inclusive and humane democracy that include the business environment. The solution is all in the mindset. Two interesting books that helped my perspective lately are “Surviving the 21st Century by Crib first chapter is a doozy and After Capitalism by David Schweickart” clearly defines not only our challenges but also offers solutions and practical possibilities. I’m optimistic if we can get people to get involved. We all on both sides of the poisonous duopoly know that the system is broken.

    The duopoly is corrupt, obsolete and CANNOT be salvaged. People must realize this. Join local groups and support a non corporate “peoples party” that reflects authentic democratic values. The People’s Summit, Justice Democrats and Jacobin are groups heading in the right direction. To change this current disaster will require a mass united effort in order to remove the money from politics and return the voice back to real people. Money is NOT free speech.

    This recent crude vulgar display is typical of that Wall Street culture of arrogance that Scaramucci raves about. If you’ve read any of Micheal Lewis or watched the many documentaries about hitting it big on the bull its obvious. There will be exponential leaps and bounds of improvement in both humanity and planet once this private predatory banking network is absolved and converted to a transparent public banking that is far more empowering and community friendly system. Public banking is a must. There will be push back. Important, inspiring read. Richard Wolff is a friend we the people.

  • Zartan

    Look …. I am all for small business, but there is ZERO possibility of it competing with the government subsidized behemoths! Now, if you do not want “anything” from government, than stop giving it your taxes! Otherwise, you all better smarten up and demand benefits, like healthcare, because small business cannot afford it. You gave taxes to government so they could give it to bankers and SCREW you on Property, that, in the end, goes back to them at a discount, when you require rehab, because you got sick and therefore lose everything!

    Look, people, living in fantasy land will only compound your problems. You have to deal with reality. Right Now, the US government is KING, and if you, Peasant/Slaves, want to live than you better learn how to control government. You pay it; and therefore, you are responsible for it, now “you will either make it serve you with benefits” ( you paid for) or “you” will be accountable for all the murder it commits in your name with the money you gave it, FOOLS!

    Small Business cannot even make payroll! If you want benefits, America, than you will have to fight Wall Street for them, because they ate YOUR PIE, and they are eating Your children too! I am sick of repeating myself … “Put 1-million POOR, Angry and Violent Protesters on Wall Street, close the exchanges, and SHORT that PIG and you will get “anything and everything” your heart desires. Small businesses cannot compete and will go Bankrupt trying!

    Wake up and Smell the Coffee … Government is Reality! You will either make it SERVE YOU or YOU will SERVE it, Slave!

  • sellinpitchforks

    People before profits, managed growth…Love it. I just can see the Libertarians/Republicans charging in shouting “Socialists!”

  • diogenes

    Corporoate-finance-monopoly-“capitalism” is 100% enabled and enforced by government — by legislation and administrative policing. Want to change it? Change the laws that create it — e.g. “corporate personhood” — and see that government enforces business law.

  • animalogic

    Gee-whizz, Mr Smith, I agree with everything you say. Except the huge elephant in the room – you , know, how we move from today’s neo feudalism/ fascism to what you – correctly – suggest?
    Ready to get some blood on your hands Mr Smith ? That IS what it will take, Mr Smith. The Shit in power will feed ALL of us to feral pigs before they give up a particle of power. Ready to go, Mr Smith ?

  • This of course gets to the thesis of “Why Nations Fail”: an extractive economy is the route to national collapse, full stop.
    I pin the start of the US economy going from inclusive to extractive to the Truman administration when Harry started on 180 regarding the New Deal, appeasing Wall Street and putting at the head of the enlarged, engorged national security state Wall Streeters. The State and the Street were essentially separate before that point but them Harry gave it away. And here we are.