Time to Ditch Our Profit-Hungry Corporate Economy: Here's What the Future Could Look Like Instead
The economy was bound to tank. Not just because greedy corporations rigged the system or because government helped grease the wheels for them. But because the dominate way that we've come to do business -- profit at the expense of all else -- is simply incompatible with the planet we're living on. It's an economy that Marjorie Kelly would call "extractive."
Kelly, a fellow at the Tellus Institute and co-founder of Business Ethics magazine, wrote the just-released book, Owning Our Future: The Emerging Ownership Revolution (Berrett-Koehler, 2012) that helps provide an antidote to the extractive, money-at-all-costs economy. She calls it the "generative economy," and her book is proving to be a great contribution to the growing New Economy movement.
"Our minds have been so colonized by the paradigm of industrial-age capitalism that we've lost the ability to imagine other ways of organizing an economy," she writes.
"My sense is that there is an alternative, and that the reality of it is farther along than we suppose. When we can't see this, it's because we've left no room for it in our imagination. If it's hard to talk about, it's because it doesn't yet have a name. I suggest we call it the generative economy. It's a corner of the economy (hopefully someday much more) that's not designed for the extraction of maximum financial wealth. Its purpose is to create the conditions for life. It does this through its normal functioning, because of the way it's designed, the way it's owned -- like an employee-owned solar company."
Kelly's book takes readers across the U.S. and across the world to examine communities and businesses that have flipped the traditional corporate model on its head, providing us with working examples of the transformation we are headed toward if we want a sustainable economy. "Emerging ownership models are new members of an older family of designs that include cooperatives, employee-owned firms, and government-sponsored enterprises," she writes. "In the UK, these include the John Lewis Partnership--the largest department store chain in the country--which is 100 percent owned by its employees and has an employee house of representatives in addition to a traditional board of directors."
Kelly talked to AlterNet about her vision for transforming our economy, the long road we'll need to travel to get there, and the brightest lights that can help guide us along the way.
Tara Lohan: In a lot of circles the word 'corporation' has become a dirty word -- does it have to be like that?
Marjorie Kelly: No, certainly not. It's important to distinguish between different kinds of corporations. The real problems lie mostly with publicly traded companies which have built-in pressure from Wall Street for maximum short-term earnings. There are a few companies that are publicly traded companies that manage to escape that, but outside of that arena, there's actually a lot of good companies.
TL: So what separates out these good companies -- what are they doing differently?
MK: I point to five elements of design -- or I call them design patterns for generative ownership. What I'm trying to do in the book is distinguish between extractive ownership and generative ownership. Extractive ownership is ownership that is designed to generate maximum financial wealth in the short term. But generative ownership is aimed at serving the needs of life. Serving the needs of life is what economies have been about for thousands of years -- creating food, shelter, clothing -- this is what economies are for. In the recent time period, like post-war, we've completely lost our way and now it is all about finance.
And so, how do you bring companies back to earth; how do you bring them back to focus on the real economy? It comes down to designing ownership in a way that keeps mission in focus. So the five elements start with purpose -- you have to have a generative purpose. Are you a bank that is out to help people buy homes and cars and do things in the real world, or are you just trying to extract as much wealth as possible and pass the risk off to someone else? Those are two different kinds of purposes -- and you know, we are not talking nonprofits here -- we're not talking about "save the world" kind of a mission -- we're just talking about human beings doing something in the real economy.
So purpose is the first element that has to be there if you're going to have a generative design. The second is what I call membership, what is commonly called ownership. Who is the firm? Who gets to vote? Who has a share in the profits? So in a cooperative for example, you can have producers, like in farmer-owned cooperative, the producers are the members. You could have employees be the members. In a credit union the customers or depositors are the members. In a food co-op the shoppers are the members. It's a social boundary -- who is the firm, who is the enterprise. That's the second element.
Then third is governance -- who has a say in the major decisions? Different than management, which is day-to-day, governance is more long-term, big picture.
Fourth is capitalization. How do you get capital into a firm without giving total control to capital? How do you make capital a friend rather than a master of enterprise?
Then the fifth is network. No company is an isolated entity. You are going to have a stronger sense of yourself as a generative economy if you're part of a network that supports your values. So I talk about the different commodity networks and what I call values-based networks.
Not every generative firms has every one of these elements. But the more you have, the stronger the design you have.
TL: So do you think there is any hope for the publicly traded companies that we have now?
MK: Yeah, I think that there has to be. The reason that I focus on the more ideal models is that you have to start with a powerful vision of what it is that you want. If we don't have a vision of what a generative economy should look like, we don't have a compass point to guide us. Think about democracy: we have a very pure idea of democracy in our minds. It's about equality, it's about justice, and democracy always falls short of that but it steers us, those values give us a compass point.
What is that compass point with businesses? I don't think it has ever been articulated that there can be an economy guided by powerful, positive values. Not just big corporate firms that we try to hedge them around with rules and laws, but actually guided internally by a set of positive values -- fairness, sustainability, community.
So you start with a vision of the positive and the possible -- I think that is really critical and that's been missing. What you have in your mind as a culture, yes it is possible first. Second, here is what it looks like and the design elements that hold it in place. Then you can begin to talk about how do we move more of existing large companies into this model. As this point if you start with the large companies and just try to change them as they are -- I've seen this happen -- I used to think this myself. You know, you start with federal legislation and new corporate chartering, we need to change the purpose of firms and we need to do it in state law or federal law and we're going to drive this change. There was a movement to do that in the UK but it just gets defeated or completely watered down by the time it gets anywhere.
It's not a good place to start. But I do think ultimately we'll need to have an articulation of what a company ought to be in law. But I think we're quite a ways from that. We need to begin thinking long-term. Statisticians talk about the rule of 15 -- in developed nations every year 15 percent of jobs are destroyed and a new 15 percent replaces them. It's the same with companies -- companies are destroyed every year and new ones come up. Industries and companies are always coming and going -- I mean hypothetically you could have a whole new economy in place in seven years, if you were to capture every single new company coming up into a generative form.
Now that is not going to happen, but if we think long-term, we can see that if we can get new companies and companies transitioning past their founder, if we can get those into a generative form, we'll see that more and more of the economy over time can become generative. We may have a goal of maybe 10 percent of the economy should be held by generative firms in 10 years, maybe in 20 years we aim for 20 percent.
One business leader used the phrase, "thinking like a cathedral builder." You are building something that you will not see completed in your lifetime but you are part of a large project that is worth doing. I think that is how we need to approach it and not think, "What kind of law do we need to create to force all companies into this design" -- I think that's a very primitive way of approaching it.
TL: Do you think we need any kind of incentives to help move things along?
MK: I do think we need incentives, like let's incentivize employee ownership. So how would you create a massive movement for employee ownership? At one point in the post-war period we created a national policy of broader home ownership -- and we achieved it, something like two-thirds of people came to own their homes, although now we've seen a crisis in this and it's gone awry a bit, but we can create a similar movement and say "every employee an owner."
There is a lot of knowledge in the employee ownership movement of how to do this -- tax incentives for owners to sell to their employees, financing mechanisms can be put in place; there are a lot of known techniques. So that is one example. That is applicable in many nations. There are many nations working right now for more employee ownership, including in the UK, in Cuba and other places.
And you have the whole Baby Boomer generation reaching retirement age and there are a lot of entrepreneurs in that generation and many of them have progressive values or simply feel solidarity with their employees, would love to see it go to employee hands, if they could cash out on favorable terms. So there is looming right now, a very good opportunity to advance employee ownership in a pretty major way.
How do we advance cooperatives? There is a movement to do that. We can advance lots of different models.
TL: I feel a great urgency for change because of the critical state the planet it is. I know you had a lot of great things to say about the John Lewis Partnership in the UK but you also mention that at the ecological mark they didn't quite hit it -- they are in the business of selling us more stuff. So how do we put more emphasis on the ecological component of doing business?
MK: The first thing we have to recognize is that there is a diversity of ownership design that are ecologically beneficial. You know we live with the monoculture of ownership design right now -- publicly traded companies control roughly two-thirds of global GDP and so we are used to thinking of corporate design as a single thing and it's easy to think, "well what's the other single thing that will replace it?" But I don't think it works that way. In a more living economy there is going to be biodiversity, there is going to be different forms for different purposes, so there isn't a single answer to your question, but I can point to some of the best models.
You can look, for example, at community-owned forests in Mexico and other developing nations. These are places where often indigenous people will have control of the forest. They tend to the trees, they build furniture, they do some sustainable harvesting -- and so they have an incentive to keep that forest healthy and stop people who might try to do illegal logging. Deforestation as we know is a contributor to global warming. And so when you put governance in the hands of people who are rooted in place, you begin to see that self-interest and the interest of the whole become one and the same.
So that is just one model. Then you have community-owned wind farms. In Denmark there were wind guilds that jumpstarted the whole wind movement -- these were individual people who came together and invested together to get some wind farms going. And they jumpstarted the whole wind industry in Denmark. And now Denmark generates 20 percent of its electric power from wind, more than any other nation, and people credit it to the wind guilds.
Conservation easements are another model. And this is why I talk about ownership and not just corporations. I used to think the idea was to redesign corporations and we do need to do that, it's important, but we have to remember that the corporate form itself is an industrial-age model. And so a lot of the ownership that I think we're going to want is going to not involve corporations at all.
One example is distributed solar. Instead of having an electric plant that is centralized, corporate-owned, we can have solar on our rooftop owned by individual houses with some kind of collective maintenance and things like that. You can bypass corporations entirely and go to more direct community ownership. So with conservation easements, if you want to protect land from development, you can buy it outright but that's very expensive. A cheaper way to do it is to put a conservation easement on it. What that does is it allows the land to remain in private hands and yet be protected in perpetuity, from development.
Ownership is not really a single thing, it's a bundle of rights, very much like a bundle of twigs and you can separate out different strains of ownership and distribute them in different ways. So development rights on land is one kind of ownership that you can separate out and you can sell it to the state or a conservation organization and then the covenant that says "this land will never be developed" becomes attached to the property deed. It's a very different way of creating change then going to the government and trying to create a law that five or 10 years from now someone could come along and undo.
The wonderful thing about property if we can begin to turn it to our advantage, is that it's a very permanent arrangement and it's highly protected in our culture. So if we can begin to use property rights and law in our interest, which we can, it's another avenue.
It's very important to emphasize this. We're not going to stop global warming by changing ownership designs; we need very rapid action. There are lots of people working on that and that needs to happen. There is no silver bullet that is going to get us to the new economy or the new world that we need to have but what I would say is that if we're moving toward a steady state economy or a slow growth economy which I believe is the only kind of an economy that will be sustainable on this planet...not that I just believe that, I'm told by knowledgeable scientists that that's reality. And if that is the reality that we're trying to head towards some kind of steady state or slow growth economy you have to ask yourself, what kind of enterprise design is consistent with that world?
A teacher at Schumacher College posed a question: what kind of economy is suited for living inside a living being? Well, it's not an endlessly expanding economy, it's not an economy that's designed to serve the few, at the expense of the many, it is an economy that is generative -- that is life-serving in its purposes. So how do we generate the conditions for life to continue and to thrive?
Enterprise design needs to be designed with that purpose in mind. I cannot sit here and give you a six-point plan about how we're going to transform all major corporations. I don't think that's the nature of the change process in which we find ourselves. Ultimately the industrial economy that we're in right now is breaking down, that is not something that we need to make happen and it's not something that we can stop because it is incompatible with the conditions of the earth. And so it is going to continue to break down, we're seeing that, with financial crises, with ecological crises -- those are going to continue and probably get worse.
And so you can just imagine a scenario moving forward where crises multiply and accelerate and people at some point begin to say, "well, my god we need to do things differently; how do we do things differently?" What I am hoping is the kind of people that I point to in this book are the ones people can point to and say "Oh, you mean there are already places that are doing this. There is already enterprise designs and ownership designs and financial designs that do embody a different way of running an economy. What are they, what can we learn from them, how can we replicate them?"
We know from history and we know from systems science that these kind of things can happen very suddenly and very unexpectedly -- you look at the Arab Spring. I'm not saying that what is happening in Egypt is a wonderful thing right now, there is a lot of chaos and hardship, but you can say what looked like very stable regimes across the Arab world were suddenly shown to be completely vulnerable and brittle and I think that we may see the same kind of thing in our economy. What looks massive and permanent and invulnerable, may show itself quite suddenly to be brittle.
My hope in my work is to begin to point to people who are creating the designs that show another way, so when we start flailing around and say "what else is there?" there will be some things to grab onto.