Get the best of Commons Magazine — FREE!

September 13, 2005

Capitalism 3.0

Our economic system needs a new operating system to protect the planet and end economic unfairness. Call it Capitalism 3.0.

Since the 18th century, and especially since the collapse of communism, we’ve been living in a world increasingly driven by the ‘need’ to maximize return on capital. The rationale for this obsession is that, if risks taken by capital owners aren’t rewarded first and foremost, capital will sit idle and wealth won’t be created.

As a businessman and investor, I’ve benefited personally from the supremacy of capital and am not keen to question it. But as a citizen, I have to note that too much kowtowing to capital is both dangerous and unnecessary. It’s unnecessary because, in this day and age, we have a capital surplus that’s mostly wasted on speculation. And it’s dangerous because it leads, willy nilly, to the destruction of nature, community and other time-honed sources of well-being. That’s the “tragedy of the market,” and unless we fix it, we’ll see ever-greater human misery and ecological ruin, even while GDP increases.

How do you fix a system as vast and complex as global capitalism? And how do you fix it gracefully, with minimum pain, disruption and coercion? The answer is: you do what Bill Gates does. You upgrade the operating system.

If you think of the economy as a huge spreadsheet, with each cell representing a producer, consumer or property owner, you can see that the behavior of the whole is driven by the algorithms, or mathematical instructions, in the cells. Our current operating system is dominated by three algorithms and one starting condition. The algorithms are: (1) maximize return to capital; (2) the price of nature equals zero; and (3) property income is distributed on a per share basis. The starting condition is: the top 5 percent of the people own more property shares than the remaining 95 percent.

These algorithms and the starting condition stimulate the production of goods and services, but they also have non-trivial side effects: they devour ecosystems, widen inequality and distract us from truer paths to happiness. This is no accident; any economic system whose calculus is to maximize return to a small minority, while paying nothing for nature, is bound to create these effects.

If our current operating system is the cause of our ills, we can hardly expect it to fix them. Tinkering at the edges — a new regulation here, a new law there — won’t make much difference. What will make a great difference is new algorithms in the cells. This isn’t as big a deal as it might seem. It doesn’t require abolishing the present algorithms, expropriating any property, raising taxes or expanding government. Nor does it mean replacing the existing operating system in one fell swoop.

Rather, it means gradually elevating some currently under-used algorithms to greater strength so they can counter-balance the currently dominant ones. If this is properly done, our economic machine on its own — without persistent government intervention — will, over time, respect nature, reduce inequality and increase our personal well-being.

What algorithms to elevate? I’d nominate four: (1) preserve common assets, such as gifts of nature, for future generations; (2) live off income from shared gifts, not principal; (3) distribute income from shared gifts on a one person, one share basis; and (4) the more the merrier.

Each of these algorithms already exists, and institutions that embody them are popular and work well. Land trusts like the Nature Conservancy preserve millions of acres. Thousands of foundations and endowments live off income without dipping into principal. The Alaska Permanent Fund — a giant mutual fund set up with revenue from North Slope oil — pays all Alaskans equal yearly dividends, simply on the basis of residence. The Internet is a classic non-depletable commons that grows more valuable as more people use it.

The challenge as I see it is first to imagine, and then to build, new institutions to manage currently unprotected pieces of our shared inheritance. Unlike the joint stock corporation, these new economic actors wouldn’t strive to maximize profit; instead, they’d follow one or more of the algorithms noted above. Nor would they be accountable to profit-seeking shareholders; they’d owe legal loyalty to future generations, living citizens equally, and, when appropriate, the larger biotic community. Over time, they’d constitute a “commons sector” that would both contain and enhance the market sector.

One immediate consequence of this upgrade would be a hike in the price of nature; guardians of over-burdened ecosystems would no longer allow free and unlimited private use. Another consequence would be a flow of property income not just to private shareholders and fortunate Alaskans, but to all Americans as a matter of right.

I call this upgraded operating system Capitalism 3.0 and view it as a third stage in the evolution of capitalism. To see why, you’ll have to read my forthcoming book, or perhaps a later blog.