The B Team – Let’s Rethink Capitalism

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So, The B Team recently launched a video campaign asking for a breakthrough.

Summary

“We know that companies would like to assume infinite growth. We also know the global economy is hitting natural resource limits, that fossil fuel consumption is destabilizing the environment and that our population is growing exponentially. What we don’t know is how companies will react when these realities collide. Learn about the breakthrough challenge.”

There is a nifty video that goes with it too. (Warning: has catchy tune which somewhat obscures the message)

Main Comments a la The B Team Facebook Page:

This is the worst load of shit. We can see what’s happening right now. It’s called low interest rates, churning out money faster than the work can be done to support it. And the work can’t be done fast enough to support because of those limits you mention we’re pushing up against.

But it is CLEAR now that they are going to keep turning out money at former rates of growth, because that’s what they have to do to keep going the pyramid scheme of money creation (because it’s created as debt, with the work, and interest, to added later — don’t create enough/get enough borrowers and you have a recession).

Sooner or later currencies will collapse when things can’t be sustained any longer (look at the current accounts of developed countries and tell me that’s sustainable). Ordinary savers and investors will lose out as a great levelling occurs at the Western world’s expense. Formerly rich countries will become relatively poorer — but it won’t matter to the true power holders, the asset-rich, because they already supersede national boundaries and don’t have to rely upon the state.

Your project is yet to propose anything which will get to the crux of the problem, because your’e deeply aligned with the problem. It’s a question of having the entire economy measured by money, which is a measure of work. Work eats up resources.

Billions of people and countless other forms of life would be grateful if we could measure our economy by resource use, and not labour. But companies WILL NOT SUPPORT THAT because they get their profits by skimming off labour. Unless B Team recognises that, then it’s empty fake shit.

(Video looks pretty though.)

I kept re watching the video to try to understand the message (the music etc is very distracting – silly message catchy tune – nothing more dangerous than a catchy tune)

For the project to be successful in “shifting paradigms” or “rethinking” as they call it is nothing more than factoring the externalities into the prices that companies charge or into their costs. So two possible scenarios – either consumers should be happy with higher prices because hey let’s save the environment and we should factor in sustainability as a price premium or companies are happy with lower margins thereby reducing their profits by actively or consciously making decisions that say they value sustainability or social justice more than profits or growth.

It has to be an ex ante decision not ex post which is what they are prescribing, wonder if there are any economists behind this movement, would be interesting to hear their thoughts.

To me, not so much rethinking capitalism as more of a values game, what value do you put on things and how you trade them off each other.

The Main Message of the Video is Somewhat Worrying

Current models of capitalism are failing economically, socially and environmentally. As global governance structures weaken, can business be an effective force for change in ensuring a healthy, fair and affordable world for 9 billion people? The Breakthrough Capitalism program explores how business leaders can change the rules, and aims to catalyze the conversations that will make it happen.

We should not be relying on businesses for a healthy, fair and affordable world. That is not the role of the business. Global governance is not something that businesses should be fixing. Businesses operate on a zero sum type mentality; think prisoners dilemma and predator-prey theory. That’s what businesses are. Also, Multi-National Corporations (MNCs) like Time Warner etc and the net neutrality debate is a huge reason why we shouldn’t be happy to delegate businesses a bigger role in helping us to create a more “fair and affordable world” (link to John Oliver’s excellent summary on this). Also, hello Hobby Lobby! Let’s just make corporations people. The “new” definition of a for-profit corporation from The Atlantic article by Norm Ornstein entitled “Corporations: Still not people” from which I insert the following summary (which should make The B Team happy, no? – hooray job done, legal ruling, let’s go home):

I believe the most dangerous part of Samuel Alito’s decision had to do with his definition of a for-profit corporation, and not just closely held ones. “A corporation is simply a form of organization used by human beings to achieve desired ends,” he wrote. “When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people.” He added, “Some lower court judges have suggested that RFRA [the Religious Freedom Restoration Act] does not protect for-profit corporations because the purpose of such corporations is simply to make money. This argument flies in the face of modern corporate law …. While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives.

G our resident lawyer chimes in at this point:

The B team is so much fail in and of itself. Sorry I just have too much scepticism of “social good” type initiatives especially when they come from rich old men that have made their money from what is likely to be aspects of business that are completely antithetical to “social good”.

NO! Corporations should not replace good governance! Wrong answer The B Team! The main underlying problem which the The B Team has yet to address is the fact that markets determine most of the allocations today and that we rely on prices to determine the value of things. Note that price and value are two different things. You can put a price on pollution – re: carbon tax, emissions trading schemes, but you probably would be hard-pressed to put a price on your enjoyment of the environment, or maybe you could these days and that’s the problem. As Michael Sandel puts it – the marketisation of values or what money can’t buy (you can watch one of his talks here or I recommend watching the whole justice series – Google it).

What we view as sustainability etc is merely a transaction cost to the business. All we are debating over here is who should bear the cost – consumers? businesses? As citizens of this earth, we have rights that are embedded in countless UN Charters – soft rights, perhaps the problem is that they are not hard legal rights, also maybe (and I am being purposefully controversial here) we can trade them to reach efficient outcomes. Companies can already buy the right to pollute, why not rights to cheap labour etc. If we are willing to sell, they will always be willing to buy. The converse is also true – if companies are willing to exploit to lower costs and the resulting price is low enough, we will always be willing to buy or pay the lower price, damn the consequences.

Summary of the Coase Theorem

According to the Coase theorem, rights will be acquired by those who value them most highly, which creates an incentive to discover and implement transaction cost minimizing governance forms.

The Coase Theorem describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. (Source: http://timelessecon.wordpress.com/tag/the-nature-of-the-firm/)

So really, what the video calls “breakthroughs” are really externalities. The cost of doing business for the firm does not take into account the spillovers (negative or positive) that is created as a result. For example, with a steel factory that trespasses on the lungs of a large number of individuals with pollution, it is difficult if not impossible for any one person to negotiate with the producer, and there are large transaction costs. Hence the most common approach may be to regulate the firm (by imposing limits on the amount of pollution considered “acceptable”) while paying for the regulation and enforcement with taxes. So what about the companies that are not regulated – who bears the cost then? The most problematic situation, from Coase’s perspective, occurs when the resource etc literally does not belong to anyone; the question of “who” owns the property/resource etc is not important, as any specific owner will have an interest in coming to an agreement (if such an agreement is mutually beneficial).Negative ExternalitiesWe then need to have a candid discussion about who bears the costs, who will internalise these unquantified costs. Is bargaining as we are doing now the right mechanism? If not, what are the alternatives, are there hard lines that we just should not cross i.e. why not advocate for worldwide minimum wage – a legal right to be paid a certain amount no matter where you are. As Coase aptly puts it:

Whether a transaction would be organized within a firm or whether it would be carried out on the market depended on a comparison of the costs of organizing such a transaction within the firm with the costs of a market transaction that would accomplish the same result. All this is very simple and obvious. But it took me a year to realize it – and many economists seem unaware of it (or its significance) to this day…As it was a new approach (I think) to this subject, I was quite pleased with myself. One thing I can say is that I made it all up myself. As I said in my Nobel Prize lecture, I was then twenty-one and the sun never ceased to shine.
— Ronald Coase

Which brings me to my main point – Capitalism is not the problem. How capitalism is defined is not the problem. It is merely a framework for organising that ignores underlying social structures or even stops us from questioning the structures because they are so ‘efficient’ and efficient is good. Economic frameworks can assist by explaining the effects of a policy on the efficiency with which resources are used and by tracing its effects on the distribution of income and wealth.

However, efficiency does not necessarily guarantee an equitable outcome. Whilst economics can help you trace the distributional impacts, it does not tell you the intrinsic value of the exchange that is occurring, only the nominal value.

Economics can tell you what kinds of outcomes will occur however, markets have moral limits, they cannot differentiate between outcomes that are equitable or not. The more things money can buy, the more it hurts to be poor, and the more income inequality matters. If prices govern access to things like for example, whether you can have a child, commodification of babies makes it more difficult to be poor, and inequality matters more than it should. Or how about whether you have a place to live, think of all the small islands devastated by climate change, commodification of pollution or the effects of pollution will strip you of your home if you are poor and are not as powerful as the larger nations. There could also be the tendency of using market values to crowd out values worth caring about for example, altruism associated with being a surrogate through commodification of babies or women’s reproductive organs.

In this case, if the solution is to make the market for controlling pollution more efficient, then an economics answer of imposing clear property rights and a price would be the clear solution. However, the intrinsic value of enjoying the environment is not clear from the market. Markets can allocate but they cannot value, this is a strong limitation of an economic solution.

Also, there is a wider question about whether demand for cheaper products should be solved by the labour market? Should we be able to buy and sell our services in such a way? Should cheap employment be preferable to no employment? How do we value social well-being in the price for cheap labour? Social practices are usually restricted because some higher value or norm is at stake, in this case, altruism. If this is true, then there are two implications for economics. Economists assume that markets are inert and do not taint the goods that are traded. This might be true for material goods but not for human beings, subjecting social practices to market valuation and exchange may change their meaning and the character of the goods and may crowd out values, norms and attitudes worth caring about. If this is true, then to decide where markets belong, it is not enough to engage in economics as a value neutral science of choice. If market reasoning crowds out values, attitudes and norms, when we use market mechanisms, we need to understand what kinds of goods are at stake and whether marketising the practice will erode them. Economics seems to offer a value neutral way of making a value neutral choice, that seems to spare us the need to engage in a debate on the character of goods. Allowing markets to decide the values presupposes the value of the babies, that is, as commodities.

If the B Team really want to change the world, then maybe they need to convince MNCs that sustainability is more important than profit, and that they should be willing to make that trade-off. Of course, it makes economic sense to do so too. However, it’s a simple, if not blatant, solution which should not require kitschy videos with silly tunes and dumbed down headings. And we as consumers, we should be more careful about the decisions we make on our purchases and also stuff we want and have – be aware of the intention-action gap.

More links on inequality and capitalism and minimum wages:

Nick Hanauer’s Near Insane $15 An Hour Minimum Wage Proposal – Forbes

The Capitalist’s Case for a $15 Minimum Wage, by Nick Hanauer – Bloomberg

The Pitchforks Are Coming… For Us Plutocrats, by Nick Hanauer – Politico Magazine

One Response to “The B Team – Let’s Rethink Capitalism”

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