A Summary of Smarter Capitalism:
The New & Improved Version
Its Purpose: Sustainability, Health and Happiness
Using human creativity, energy and fairness, Smarter Capitalism transforms natural resources into these economic prerequisites for health and happiness without degrading them for future generations: sufficient, quality food, water, air, clothing, shelter, healthcare and time for relationships with loved ones, friends and community.
The New Realism
- Nature or Creation, however one prefers to call it, is the real World Wide Web with matter and energy recycling in great loops.
Some examples are the water cycle, creatures eating and being eaten, reaping what you sow and treating others as one would want to be treated.
- In this amazing Web, every creature and species including our own is interconnected and interdependent with other creatures and species for survival.
The more diversity of interdependent/interconnected links in any ecosystem, the more long term stability and strength it has. The same is true for regional and national economies, societies and civilizations.
- Our Web’s energy from the sun, air, water, plants, animals, soil, ecosystems and their services such as water purification, soil conservation, flood control and carbon sequestration is all defined as natural capital.
Our Web’s natural capital is only so big. There are limits, even to those things that before seemed limitless like air, water, soil, birds in the sky, fish in the oceans and trees in Siberia and the Amazon.
- Unfortunately, our current model of capitalist civilization is going over many limits and each year using and emitting more than Nature/Creation can replenish and absorb in sixteen months.
This is called global overshoot. Some of its signs are rising temperatures, falling water tables, desertification, deforestation, loss of topsoil and croplands, the collapse of most of the world’s large fisheries, five huge, growing oceanic garbage patches and the current man-made sixth mass extinction since life began on Earth. Smarter Capitalism recognizes we must correct this “overspending” or else face eventual global ecological bankruptcy.
- Smarter Capitalism furthermore gives natural capital monetary value, spiritual value and acknowledges it as the ultimate foundation of every economy and by extension every company and organization on the planet.
And approximately what is it worth in dollars? When the 1987 global GNP was only $18 trillion, an international panel of scientists estimated that the world’s major ecosystems alone were providing humanity $16 – $54 trillion dollars worth of ecosystem services each year.
- In other words, averaged out, Nature/Creation’s contribution each year to every economy, company and organization is worth roughly twice as much as all the work its members that year.
- Smarter Capitalism recognizes that on top of any economy’s natural capital is its social capital. This includes all of a society’s past and current investments of time, love, energy and money into its people, its social groups, culture, values, mindsets and paradigms, its cities and countryside and its economy and infrastructure — schools, transportation, communication, police, fire and other governmental support systems.
As just a part of this, the annual unpaid work of women has alone been computed to be worth almost as much as an entire nation’s Gross Domestic Product, i.e. its paid sector and this was Switzerland! Presumably the same would apply to most if not all other nations as Swiss workers are some of the highest paid in the world.
- So when society and the environment’s investments are added together, especially over time, they completely dwarf private investments.
Social and Environmental Responsibility Become Legal Requirements for Every Company and Organization
- For this reason, Smarter Capitalism considers the environment and society (not the government) two of the largest if not the two largest “silent partners”/shareholders in every company.
Practically speaking though, because those who start and/or invest time and money in companies deserve to be fairly rewarded if things go well, Smarter Capitalism advocates that society and the environment be legally considered at least two substantial shareholders in every company and the two largest stakeholders in every governmental agency and social organization.
- As a result, social and environmental responsibility would become legal requirements of every company, organization and governmental agency. With appropriate financial incentives, a new cultural consensus and new laws with strong enforcement, social and environmental responsibility would become part of everyone’s mission, mindset and way of doing business.
In general, this would mean companies, government agencies and non-profits would have to consider the interests of society and the environment in their decisions and would conduct their business using the Golden Rule and the values of honesty, fair play and loyalty.
- Companies that met various benchmarks in social and environmental responsibility and self-governance would receive financial incentives from government to encourage this process.
This smarter capitalist respect, honesty and fair play for employees of course also extends throughout the economy to customers, suppliers, investors, partners and affiliates.
When Society is a Substantial Shareholder:
Better Pay, Working Conditions and Respect for the Average Joe and Jane
- In particular, it would first mean implementing these values with the part of society that most directly contributes to all organizations — the employees. Specifically, this would mean employees having significant representation in management as has been the case in Germany for decades where it’s called co-determination. This leads to better and safer working conditions, better benefits and employees being treated respectfully as real people, not as easily discardable hands, brains or numbers.
It would also mean, among other changes, freedom in the workplace to vote without intimidation for or against collective bargaining, more checks, balances and freedom within unions, requiring good cause for termination, employee stock ownership programs and last but not least, redirecting a larger portion of profits, dividends and current executive compensation to the vast majority of American employees who like the vast majority of Americans, 95%, make less than six figures.
- Note: In 1965, the average CEO working no less harder or smarter than today’s CEO made 24 times the average non-managerial employee. In 1978 they made 35 times more and in 2004, 431 times more! Had minimum wage risen as fast as CEO compensation since 1990, in 2004 it would have reached $23.03/hour and the average employee making more than minimum wage would have been making $110,126/year instead of $27,460!
Lower Taxes for the Average Jane and Joe
- Not only would wages for the average employee go up, but Smarter Capitalism also means smarter, progressive taxation where the civic responsibility and yes, burden of paying taxes is shared equally. But an equal responsibility and burden for everyone doesn’t mean the same tax for everyone. A 30% tax for someone making $40,000 is much, much harder to bear than for someone making $400,000 or $4,000,000 a year. Smarter Taxation means in general everyone should share and feel the same burden and weight.
Unfortunately, that hasn’t been the case for a long time. During the 50’s when the American middle class and America was arguably at its strongest, the average American earning $2992 a year paid income and payroll taxes of around 23% and the wealthiest few paid around 93%! Not only was their percentage four times higher than the average American’s, the gap percentage-wise between the wealthiest and the average American was 70%!
- Fast forward to today when, combining federal income, payroll and Medicare taxes, the average Jane and Joe making between $34,000 and $82,000 pays around 32.6%. Now, instead of 93%, the wealthy and super wealthiest taxpayers are (supposed) to pay only around 36.5% in income and Medicare tax — plus not a dime in payroll tax after their first $106,800! Now, percentage-wise, the gap dropped from 70% to around 4%!
But it’s even worse than that. Now many of the wealthy and super-wealthy pay percentage-wise about half what the average Jane and Joe pay, because capital gains, taxed at the criminally low rate of 15% is the lion’s share of their earnings. Here’s how one of these super-wealthy, billionaire Warren Buffett described it at a $4,600-a-seat fundraiser. “’The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter.’ He went on to say that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.” Warren Buffet summed up the situation this way. “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
- With smarter taxation though, everyone including corporations will share the same responsibility, burden and weight of taxation. The average Joe and Jane would pay lower taxes than currently and the wealthy and super-wealthy would pay progressively higher taxes than at present. Aside from making our taxes much fairer and our society more stable and sustainable, it could also start to lower our budget deficit.
The Result of Society as a Substantial Shareholder
- Every company, governmental agency and social organization gains happier, more productive and loyal employees,
Society becomes more just and hence more secure and sustainable.
- Government of the people, by the people and for the people where the majority is supposed to rule becomes stronger as the wealth and power of the majority of the people becomes stronger.
The Environment as a Substantial Shareholder
- And what does it mean when a company considers the environment as a major shareholder? Again companies, governmental agencies and other organizations in general will need to directly consider the impact of their decisions on this major shareholder but there is another very key way that will automatically take much of society’s and the environment’s long term interests into account – Real Cost-Benefit Pricing.
Real Cost-Benefit Pricing means on the costs side, if something, like coal compared to solar, is more expensive to society and the environment in the long run — after taking into account all government subsidies and other production, consumption, emission, disposal, health and security costs — then it should cost more upfront in the short run.
The mechanism Smarter Capitalism uses to bridge the gap between coal’s real cost and its current, unrealistic market cost is by scientifically assessing its real, lifecycle costs and then increasingly reflecting these social and environmental costs through Real Cost-Pollution Prevention (RCPP) taxes.
That way, reducing pollution (and ones RCPP taxes) becomes more profitable than polluting!
The resulting game changer — eco-friendlier products and services across the economy underprice, outcompete and replace their more polluting counterparts.
So by all of us, consumers and businesspeople, saving money buying less expensive, eco-friendlier alternatives, we also help save our society and civilization from global ecological bankruptcy.
Smarter Capitalism’s Alternative:
The Free and Responsible Market
- Free of unrealistic pricing which leads to profitting at the expense of everyone else, including future generations, the environment and future profits — also known as the privatization of profit and socialization of costs and killing the goose that’s laying your eggs
- Free of the huge unacknowledged, backdoor tax that pollution levies on society
- Free of the huge deferred taxation without representation that it levies on our children, grandchildren, future generations and the children of other societies
- Free of the current natural capital deficit spending where we’re using and emitting more than Nature/Creation can replenish and absorb
- Free of rules and laws that stifle competition and encourage monopolization and market over-concentration leading to companies “too big to fail”
- Free of the corporate takeover and undermining of government regulatory agencies by the very industries they’re supposed to regulate, aka “captured agencies”
- Free of inadequate regulation leading to risky behavior, market anarchy and subsequent, periodic bail-outs at the expense of the Average Joe and Jane
- Increasingly free of the current, grossly inadequate regulatory system that doesn’t require all chemicals, products and medical procedures to first be tested for safety before going on the market but waits until it’s too late and the injuries, deaths and destroyed lives and families can no longer be ignored or covered up.
- Instead, in a free and responsible market, they’re first thoroughly tested by independent labs not paid by the manufacturers; then if found safe, they can be sold.
- In short, a free and responsible market consists of socially and environmentally responsible businesses working in tandem and creative tension with a check and balance government also dedicated to social and environmental responsibility and the common good over the long haul.
As we all heard from our parents, with freedom comes responsibility. Thus, the Smarter Capitalism version of Milton Friedman’s famous dictum is that every company’s purpose, depending on whether it wants to grow or just maintain, is in a socially and environmentally responsible way, using the rules of fair play and competition to either maintain or increase sustainable returns over the long term to its shareholders which now include two substantial shareholders, society and the environment.
- Which is to say, on the income side, every company’s purpose is to maintain or increase the quality and/or quantity of its socially and environmentally beneficial goods and services. On the costs side, every company’s purpose is to reduce both its internal costs of production, operation, turnover, miscommunication, waste, social inequities/internal friction as well as its external costs of pollution, waste and ecological footprint. The difference between the two is a socially and environmentally responsible and sustainable profit.
In short, every company’s purpose is to maintain or maximize its net benefit to society and the environment.
The Result of Smarter Capitalism
Because Smarter Capitalism reinvents our economy for the common good and the long haul, it’s more sustainable and has a better chance of surviving than the current model.
We invite you the reader, President Obama, Congress and the international commmunity to a conversation on this very important and timely topic, including the development of more principles and ideas for Smarter Capitalism, followed by timely, effective legislation with teeth and specifics.
Smarter Capitalism and many of the other ideas in this website are in some ways original and in other ways a reframed and abbreviated version of many ideas already out there. Some of the people whose similar ideas have already been circulating or have inspired or influenced us are Hazel Henderson, Herman Daly, David Korten, Amory and Hunter Lovins, Lester Brown, Thomas Friedman, Robert Reich and Mark Schapiro. Much praise and credit to all of them and apologies to any inadvertently left out.