Capitalism is an insufficient economic model

An extract from the Business Plan for People-Centered Economic Development, a social business.  Published and distributed in May 2004 with paper copies to ICOF and Social Enterprise London.  SWRDA was also approached for funding support. None were able to offer assistance.

The extract refers to a seminal paper which argued the strategic case  for tackling poverty as a matter of enlightened  self-interest.

A few months earlier the author had fasted for US government to adopt the International Covenant on Economic Social and Cultural Rights from a tent in Chapel Hill NC.   I forwarded status reports to the local senator and later this letter, when John Edwards stood for election as Vice President and the author had relocated to Ukraine to join the Orange Revolution.

In 2009 P-CED delivered ‘Economics in Transition‘ in seminars for the international Economics for Ecology conferences.  It would provide a study guide to the origins of the economic crisis a few months earlier.

“People-Centered Economic Development (P-CED) began as a concept in 1996 following a paper for the Committee to Reelect the President (US.)  That paper examined the need to be prepared for the risk of increased national and global poverty as we enter an information economy sufficiently sophisticated by its nature as to exclude and/or displace an increasing number of workers around the world. Main points are reviewed here.

The emerging Information Age will provide an unprecedented opportunity for outreach and communication at local community levels by way of the Internet. Given the opportunity to communicate and research global resources, communities will become able to assess their own needs, identify resources to meet those needs, and procure those resources. In that sense, the information economy can work to the advantage of impoverished people in a way never before possible.

 In order to participate in the information economy, it is essential for local communities in any nation in the world to be able to access common information.  Given that the Internet and world wide web are in their development infancy, physical infrastructure for the Internet on a global basis need to be built: the global information infrastructure, or GII .  So, why not create new companies that not only fulfill this very lucrative and ongoing infrastructure deployment and direct the profit to additional social needs such as poverty and hunger relief?  This would include companies working in:

  • hardware side: enterprises which create the physical infrastructure, via manufacture or installation of components
  • software side: enterprises providing web design and development, including programming and tools associated with web design, development and online communications tools, electronics commerce programs and methods

The opportunity for poverty relief was identified not only as a moral imperative, but also as an increasingly pressing strategic imperative. People left to suffer and languish in poverty get one message very clearly: they are not important and do not matter. They are in effect told that they are disposable, expendable. Being left to suffer and die is, for the victim, little different than being done away with by more direct means. Poverty, especially where its harsher forms exist, puts people in self-defence mode, at which point the boundaries of civilization are crossed and we are back to the law of the jungle: kill or be killed. While the vast majority of people in poverty suffer quietly and with little protest, it is not safe to assume that everyone will react the same way. When in defence of family and friends, it is completely predictable that it should be only a matter of time until uprisings become sufficient to imperil an entire nation or region of the world. People with nothing have nothing to lose. Poverty was therefore deemed not only a moral catastrophe but also a time bomb waiting to explode. Poverty reduction and relief became the overriding principle and fundamental social objective in the emerging P-CED model.

Dealing with poverty is nothing new. The question became ‘how does poverty still exist in a world with sufficient resources for a decent quality of life for everyone?’ The answer was that we have yet to develop any economic system capable redistributing finite resources in a way that everyone has at minimum enough for a decent life: food, decent housing, transportation, clothing, health care, and education. The problem has not been lack of resources, but adequate distribution of resources. Capitalism is the most powerful economic engine ever devised, yet it came up short with its classical, inherent profit-motive as being presumed to be the driving force. Under that presumption, all is good in the name of profit became the prevailing winds of international economies — thereby giving carte blanche to the notion that greed is good because it is what has driven capitalism. The 1996 paper merely took exception with the assumption that personal profit, greed, and the desire to amass as much money and property on a personal level as possible are inherent and therefore necessary aspects of any capitalist endeavour. While it is in fact very normal for that to be the case, it simply does not follow that it must be the case.

Profits can be set aside in part to address social needs, and often have been by way of small percentages of annual profits set aside for charitable and philanthropic causes by corporations. This need not necessarily be a small percentage. In fact, there is no reason why an enterprise cannot exist for the primary purpose of generating profit for social needs — i.e., a P-CED, or social, enterprise. This was seen to be the potential solution toward correcting the traditional model of capitalism, even if only in small-scale enterprises on an experimental basis.

Enterprise for the primary objective of poverty relief, localized community economic development, and social support became the business model which guided P-CED’s efforts and development at a time in the US when terms such as ‘social enterprise’ and ‘social capitalism’ had not yet been coined.

Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

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9 thoughts on “Capitalism is an insufficient economic model

  1. [...] In the business plan Hallman produced for tackling poverty in the UK , we say: [...]

  2. Bookman says:

    “The answer was that we have yet to develop any economic system capable redistributing finite resources in a way that everyone has at minimum enough for a decent life: food, decent housing, transportation, clothing, health care, and education.”

    Pretty much everyone in the USA has access to all of these, save a very small percentage. What the “poor” /don’t/ have is “high enough quality” of one or more of them, generally in their opinion, sometimes in the opinions of others. What do the poor have? Often as not, cable TV, video games, internet access of some sort, cell phones, and microwaves, to name a few.

    Since this article is based on the assumption that ‘Capitalism provides none of these things’, when it does indeed provide most, if not all of them, to almost everybody, the premise of the article is broken from the start.

    The fact is, even if the bottom of the economic pyramid were provided a basic minimum of all these items for “free” (i.e. paid for by others), they still would be considered “poor”, and professional advocates would continue to look for ways to raise their standard of living. Thus poverty is an insoluble “problem”.

    • jeffmowatt says:

      Attention should be given to the warning about uprisings of which Occupy Wall Street is an illustration.

      If you read the business plan, it’s gong to be clear that rather than providing benefit for “free”, the aim is to help impoverished communities help themselves without charity and do so according to the International Covenant on Economic Social and Cultural Rights, which the US has signed but not ratified.

    • alexK says:

      The problem is not that the people at the bottom have these things but that the feeling one is living in a room over a deep pit full of alligators and that the floorboards probably have woodworm.

  3. chrisconder says:

    Empowerment is the answer. Help people help themselves. Not all capitalists are greedy selfish swines, some do an awful lot of good, quietly away.
    Not all poor people are poor because they are lazy or stupid. There are some incredible poor people who could do great work with a bit of encouragement. We can’t generalise, but we can’t overcome all the pre-conceived notions that (as humans) we carry around with us.
    I don’t agree with ‘free’, there is no such thing as free. What I do agree with is sharing abundance, but not many of us do that do we? Perhaps we put too much value on money. Perhaps we should value peace of mind more, and encourage children to grow up with a conscience, which seems to be lacking in many grown ups these days. Or it might be my age talking…
    … the welfare state has done a lot of harm I think, and its time for us all to start to shoulder our responsibilities to our country. I know people who work over 100 hour weeks for very little reward and slave to support their families with pride, but I also know some who haven’t worked a day in their lives, and yet breed children for others to support. Something has gone wrong somewhere.

    • alexK says:

      I Agree with the first two sentences. Saying there is no free is a zero sum assumption that needs testing. If all of us started valuing things like peace of mind etc the economy would collapse. Churchill talked of the ladder and the net. The net was the welfare state and the ladder was equality of opportunity. In a civilised county no one should have to worm more than 40 hours a week, ideally it should be much less. Taking that much time from people makes it harder for them to participate in politics. Guess who benefits from that.

    • jeffmowatt says:

      Chris, The proof of concept project in Russia may offer an interesting illustration. The absence of a safety net had a lot to do with the success rate. In his research Terry Hallman described the absence of opportunity:

      “There were also critical food shortages in the region, children living on the streets because they considered orphanages intolerable, women having to resort to prostitution to feed their children, and a near-total lack of new economic opportunities. Economic opportunities for women were routinely negotiated in bed, if at all.”

      The impact of the Tomsk Microfinance Bank was discussed in a 2004 interview about another project in Crimea. Around 10,000 new microenterprises were created with a first year survival rate of nearly 100% More than 80% of these started by women.

      It demonstrated that an investment of $6m dollars could be repaid and lift thousands out of poverty. Later in 2007, the comparison between this and the cost of the war in Iraq, is noted in a Doonesbury cartoon:

  4. jeffmowatt says:

    Exactly Chris, Putting what Carl R Rogers advocated into the context of business and economics was our own starting point.

    Colin Crooks has an interesting podcast on the problem of workless families.

    • chrisconder says:

      Agree with Carl, its just what we are doing in our community. People power, working together for the greater good.

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