In focusing on What Matters, it is crucial that we transcend previous constraints and parameters that limit our thinking about What’s Possible. Most of us have a tendency to view our own experience as “normal” and to extrapolate from our own realities to assume the “normal” for many others. This blind spot (previously explored in the Johari Window and Ladder of Inference discussions) is also true in our theories and practices in our workplaces and in the development of public policy:
For example, as an American now living in Canada, I am acutely aware that my experience with the US healthcare system limited my understanding of how a universal healthcare system might operate, as it does in Canada. Furthermore, since our news sources are locally focused and biased, we often fail to receive information from other perspectives that might inform those blind spots. So when responding economically to healthcare challenges, we might not recognize options and opportunities that are well-established in other countries and regions, overlooking potentially beneficial responses.
It is like that with Capitalism. The dominant American model defers great amounts of power to large corporations and other private entities. Through public policy and regulations, there are advantageous tax incentives to such organizations that have resulted in the terrain we witness today. There are routine cycles of prosperity and depression (“boom” and “bust”), all of which are framed as normal business cycles. There are widening gaps between rich and poor, as well as accumulation of capital in small segments of the population, all reinforced by a cultural narrative that the resulting investment, employment, and “trickle down” benefits accrue to your overall quality of life. This privately controlled and highly individualized framing of Capitalism also accepts that there are very few “public goods,” where the government must provide service and production. It is also accepted that there are few costs that exist beyond the system — “externalities” — which are then minimized in our economic models and analyses. Unfortunately, these biases and omissions are not inconsequential; they result in significant failures of the system and, given the dominant role of the US in the global economic and political system, the impacts are felt throughout the world.
Concentration of wealth has been a long-standing barrier to addressing these flaws in the system. In his 1949 essay, “Why Socialism?,” Albert Einstein wrote:
“…Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society...”
Externalities: A Fatal Flaw
I have previously alluded briefly to “externalities” and the opportunity to address them in the triple bottom line. What are externalities? Why do they represent a fundamental flaw in our usual forms of Capitalism? How might we re-conceptualize Capitalism and create a new economic system that addresses these critical failings?
Externalities are those costs not integrated into the valuation of products and services in the economic system. A common example is pollution: If nobody is held accountable for the cost of dumping garbage into a river, then its consequences are not addressed and there is no incentive to clean it up. That’s fairly obvious, and most people recognized this flaw, but there was no mechanism to address it until the 1970’s.
But there is a more insidious aspect to how Capitalism fails to deal with externalities: Because the costs aren’t addressed in this current transactional space, they are passed down to others in the future to address their consequences. Those pollutants leach into the ground, affect the water table and the future costs of remediating it so it can be used for an economically valued purpose. The carcinogens that result from toxic runoff (a non-point source) belong to nobody as well, so the health care consequences that accrue to sick individuals or entire communities (recall “Love Canal”?) become a burden for those future recipients. While the companies or farmers who caused the problem are only held accountable by the Environmental Protection Act and similar legislation of the past 50 years, the system inherently avoids addressing such issues.
Furthermore, we have the aforementioned issue of Public Goods. This has at least two dimensions that are worth noting. First, there is the “Tragedy of the Commons,” the natural consequence of over-consuming natural resources that should be held in common. This concept was first offered by the British economist William Forster Lloyd (1833) and popularized by American philosopher and biologist Garrett Hardin (1968). Hardin updates the idea of the traditional English meadow being grazed by sheep, with each herd owned individually and nobody owning the Commons. The sheep naturally overgraze until the entire Commons is stubble, and the resource is destroyed. The Public Good is what we share in common but which is not owned, like the air around us, the oceans, outer space.
The other type of Public Good identified by economists is the natural monopoly; these are certain services that cannot be developed and delivered by the private market, whether due to excessive barriers to entry (e.g., costs), scale, or risk (e.g., much basic research). Public transportation systems, public education, and interstate highways and bridges, for example, needed to be federally funded because of these factors. They have little “Return On Investment” in most cases, so they are left to the public sector for the “profit” of the Public Good.
In most of the world, public health care is seen this way. While there is room for private corporations to provide a wide range of services, healthcare is viewed as a basic right, and the economic system is seen as the wrong place to defer such a critical responsibility.
Social democracies do a far better job than the U.S. of internalizing the externalities and recognizing the intrinsic nature of certain Public Goods. But even there, the U.S. is limited by a preoccupation with Independence that obscures a greater need and reality: Interdependence (see previous post, “A Declaration of Interdependence.”) We need to reframe our system so it transcends Capitalism, fosters Interdependence, and creates spaces in our economy to recognize a far more significant role for Public Goods.