In The Times last week Hugo Rifkind threw down the gauntlet to demonstrators protesting at the G20 summit to "formulate a coherent argument" and "propose some sort of feasible alternative to the world economy instead of just bitching about it and blowing your bloody whistles".
Humorous disciples of neo-liberalism too often delight in ridiculing critics through caricature. So I welcome this opportunity to point out that we not only offered cogent reasons why capital and trade liberalization aggravate global inequality, but predicted that they would prove destabilizing as well. We not only argued that stock market and property bubbles were no substitutes for productive investment, but predicted that these bubbles would pop, leaving wreckage in their wake. And we predicted that, whatever one might say about markets in general, free-market finance and free-market environmentalism were accidents waiting to happen.
I sympathize with Rifkind’s lament that, because we could not predict the date when a crisis would occur, it was impossible for him to be certain about our warnings – but I have the same regrets for myself as well.
Yet Rifkind and others are right to ask what we want instead. Our answer is simple: we want to empower people to protect themselves and the natural environment from the damage caused by neo-liberal capitalism. But we also want to replace the economics of competition and greed with the economics of equitable co-operation so we are not forever fighting defensive battles to mitigate environmental destruction and economic injustice, and so we need not fear that a crisis such as this will happen again.
Moreover, we have "coherent arguments" and "feasible alternatives" about how to do both.
Of course, if Rifkind asks a demonstrator clad in "hemp clothes and nasty piercings" to articulate proposals, he is likely to be disappointed. What he will hear is a primal scream of righteous outrage at a catastrophe that need never have occurred. But visit the websites of any number of reputable, progressive economic institutes, or read the publications of any number of distinguished economists who dare to break from neo-liberal strictures – including three recent Nobel prizewinners – and you will find many concrete alternatives.
Step 1: Until capitalism is replaced, we want the tail to stop wagging the dog. Finance should serve the real economy instead of the other way around. If the financial sector improves the efficiency of the real economy, it is helpful. But if it misdirects investment resources to where they are less productive, it reduces production in the real economy by obstructing the flow of credit altogether. Then it is failing to accomplish its only social purpose. Jobs producing useful goods and services, and investments which help us to produce what we need with less human toil and less strain on the environment, are what count. Increases in the profit rates and stock prices of financial corporations count for nothing when they fail to correspond to real increases in productivity, as has too often been the case.
We have offered several positive alternatives to capital liberalization and to the governing structures and policies of the International Monetary Fund (IMF) and the World Bank, such as capital controls and a Tobin tax to protect smaller economies from volatile speculative flows. We have made suggestions on how national governments can restore competent regulation of their traditional financial sectors, and stressed the urgency of extending regulation to cover new financial institutions which were allowed to grow outside existing regulatory structures.
Unlike neo-liberals, who inexplicably are still in charge of managing the response to the financial crisis that their policies created, we do not persist in the Utopian illusion that toxic assets are really not toxic after all. The problem is that the industry was permitted to dig itself into a hole so deep that many financial institutions are now dead on arrival (DOA) – and nobody knows how many enormous transfers of wealth from taxpayers to their balance sheets would be required to make them solvent again.
The neo-liberal answer is for taxpayers to pay much more than the going market price for as many toxic assets as the banks say they need to sell before they feel that they can begin lending again. Whether the subsidy takes the form of US Treasury purchases of toxic assets, as Secretary Paulson, the former Treasury Secretary, proposed, or "private public partnerships" in which the Federal Deposit Insurance Corporation and the Federal Reserve provide free insurance against downside risk to induce private participation, as Secretary Geithner, the current Treasury Secretary, has proposed, the neo-liberal solution is the same: keep applying ever larger doses of electric shock treatment to DOA patients even though there is no sign that they will revive, and even though the generator has a limited capacity and is needed for the rest of the hospital.
Instead of bailouts without limits which may fail to revive patients in any case, we propose public takeovers of failed financial institutions. This can be done through government purchases of a majority of shares at current market prices, then appointing new managers to carry out new lending policies. Or it can be done, as it has been countless times before, by bankruptcy followed by sales of assets to healthy institutions. In either case, the cost to the taxpayer would be far less than endless bailouts. In either case, we know that credit would begin to flow again.
And if we could rid ourselves of the myth that the "wizards of finance" who brought on this crisis are the only ones smart enough to decide on the disposition of society’s investment resources, and that they can choose wisely only when working for private financial institutions that pay them gargantuan bonuses, we might find ourselves with a financial sector that begins to serve the social interest.
Instead of a financial sector intent on funneling society’s investment resources into stock market and property bubbles, we might find ourselves with a new financial system that channels savings where they are most needed – into investments in renewable energy sources and energy conservation which are needed to transform our fossil fuel-guzzling economy into a carbon-neutral economy before we broil ourselves to death.
Step 2: We want a fiscal stimulus of sufficient size to stem the recessionary slide into an even worse depression. Monetary policy in the
Step 3: We want trickle-up economics, not trickle-down economics. We want a dramatic redistribution of income and wealth that reverses the trend of the past 30 years because it is fair, and also because it makes capitalism less prone to crisis by providing a reliable source of demand for businesses satisfying the needs of ordinary people.
We want a welfare system that is adequately funded and treats clients with dignity and respect. We want highquality education and healthcare for all, independent of one’s financial means. And we want all this paid for by progressive taxes on income and wealth. We know that this is perfectly possible and can be achieved through well-tried policies. Only poor priorities that stem from the power of wealthy elites to impose their will stand in the way of achieving it.
But Rifkind wants to know if we have an alternative to capitalism, not just an alternative to neo-liberal capitalism. Yes, we do.
Our slogan "a better world is possible" means that we reject the economics of competition and greed as a human necessity and embrace the possibility of an economics of equitable co-operation. These approaches to solving our economic problems are fundamentally different. One way motivates people through fear and greed and pretends that market competition can be relied on to bend egotistical behavior to serve the social interest, when too often it does not. The other way organizes people to arrange their own division of labor and negotiate how to share the efficiency gains from having done so equitably. This way motivates people to work at tasks that are not always pleasant, and to consume less than they sometimes wish, because they agreed to do so, secure in the knowledge that others are doing likewise. The driving force behind our economic world is participation and fairness, no longer fear and greed.
There is agreement among us that economic decisions should be made democratically, not by an elite or left to market forces. We would also give workers, consumers and localities more decision-making autonomy than traditional approaches to economic planning have allowed.
But, not surprisingly, there are different ideas on how best to do this. Given that before the demise of the communist economies most anti-capitalists simply looked to those economies for answers, and that after the fall of the Berlin wall many people stopped thinking about alternatives to capitalism altogether, it is surprising how much progress has been made. Much work in fleshing out visions into rigorous models, comparing similarities and differences, and evaluating strengths and weaknesses of different procedures to guide equitable co-operation has occurred already, and the pace of this work will surely increase in light of renewed interest.
More importantly, ideas on how to engage in equitable co-operation have been tested in various real-world experiments over the past few decades. Worker participation and partial ownership in capitalist firms, producer and consumer co-operatives, community-supported agriculture, participatory budgeting (pioneered in Kerala, India, and Porto, Alegre, Brazil), egalitarian and sustainable "intentional" communities, solidarity economics, alternative currency systems and other developments have been stimulated by networking at world and regional social forums, by friendly governments in several Latin American countries , and now by an economic crisis that has abandoned billions to fend for themselves. Most of this has gone unreported in the mainstream media, partly because it does not fit neatly into the framework for economic debate defined by the Cold War so badly, for so long.
Demonstrators on the streets of London this week, and the millions of us who support them, think that neither authoritarian communism nor neo-liberal capitalism is the answer to our economic problems. The fall of the Berlin wall in 1989 signaled the end of political support for authoritarian planning – except among ideological diehards.
It is to be hoped that this economic crisis will reduce support for neo-liberal capitalism to a coterie who are no longer influential. We look forward to the day when the power of social movements that we have helped to build forces the political establishment to consign neo-liberal capitalism to the dustbin of history along with authoritarian communism. Meanwhile, we are also busy building a new economics of equitable co-operation. Some of us build in the realm of ideas, so that when a majoritarian movement is ready it will have a wealth of thoroughly vetted ideas on how to facilitate equitable co-operation to choose from.
Many more of us are creating living experiments in equitable co-operation to meet needs that increasingly are going unaddressed by a moribund economic system. Ridicule us if you like. Or you can pitch in and lend a hand. Suggestions are always welcome, and there’s more than enough work for everyone.
Robin Hahnel is Professor Emeritus at American University and Visiting Professor at Portland State University. His most recent book is Economic Justice and Democracy. He is co-author with Michael Albert of The Political Economy of Participatory Economics.