Economics

What Is Radical Economics? (Hint: It’s Not Neoliberal or Marxist)

Transformation doesn’t require an alternative “social economy,” because the economy we have is already social. We just need to recognize and act on that fact.

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By Julie Nelson

Socially equitable. Ecologically sustainable. Personally and spiritually satisfying. What sort of economic transformations are needed to achieve societies like these?

Many writers including Gar Alperovitz, David Loy and David Korten argue that the current economic system of global, profit-oriented, individualistic, and greed-driven corporations and markets must be dismantled, and replaced with a “new economy” of local, well-being-oriented, cooperative, and compassion-inspired communities.  You’ve probably read articles along these lines – or perhaps you’ve written them.

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This isn’t another.

It’s true that we live in an age when the pursuit of economic self-interest is glorified. Consumerism promotes the most unsatisfactory of goals; poverty and ecological destruction are creating unconscionable suffering; and large concentrations of corporate power overshadow traditional modes of governing for the public good.

Radical change is clearly and urgently necessary.

But what does that mean? “Radical” comes from the Latin word for “root,” so radical change should be change that goes to the very heart of the problem. The positive, institution-building side of the new economy approach is helpful and can be inspiring. But the negative, “dismantle the capitalist machine” view expressed in a number of new economy writings is, I believe, both misleading and harmful to the overall prospects of the movement. The image of the “old economy” they point to is a relic of outdated economic ideologies.

Academic economics has long bamboozled intellectuals and activists – from across the political spectrum – into adopting narrow ways of thinking about business and commerce. Mainstream economic theory claims that in economic life, people are driven by self-interest.  Firms have no choice but to maximize profits. Individuals maximize satisfaction from consumption. Markets are invariably distant and impersonal. And people act as rational, individual agents when exchanging goods, labor power, and money.

Building on this image of the machine-like economy, neoliberal thinkers treat the ideal of the competitive market as the summum bonum (or supreme good). Taking inspiration from a few selective passages from Adam Smith, they argue that the “invisible hand” of the free market causes individual selfishness to serve the social good. Since social welfare programs or government regulations would hamper this mechanism, it is said that they must be avoided.

The best alternative to such theories is sometimes taken to be “radical economics,” as envisioned by Karl Marx and his followers. Marxist economists envision a revolutionary displacement of the capitalist system by an alternative economy of solidarity. Yet Marx also drew his inspiration from Adam Smith. Marxist economists portray capitalist economies as populated by firms that are driven to extract the last possible dollar of profit. People are duped by the marketers of consumer products, and workers are alienated from their humanity by their role in the economic machine. The foundations of community are seen as corrupted by inhuman exchange relations and by the invidious, society-destroying power of money.  So now the capitalist economy is the summum malum (or supreme evil) instead.

Note, however, that both neoliberals and these Marxist critics believe that market economies are essentially machines – entities that are fundamentally separated from society and human emotions, and from ethics and interdependence.

To the extent that they adopt the “dismantle the capitalist machine” version of radical thinking, new economy writers create “us versus them” divisions. The new economy camp is portrayed as populated by warm-hearted and mindful people who are trying to create a socially and ecologically sustainable society. The old economy camp is portrayed as populated by heartless villains who sit at the controls of the juggernaut of global capitalism, directing an economy populated by duped and mindless workers and consumers. Any talk of corporate ethics or business sustainability initiatives is likely to be immediately rejected as mere green-washing or ineffective reformism. Not until the system is dismantled, it is said, can real change be expected.

What’s wrong with this picture?

One of my Zen teachers likes to interpret the traditional “three poisons” of Buddhism (“greed, anger, and ignorance”) as “greed, anger, and certainty.” New economy writers like Korten and Alperowitz seem certain about the mechanisms that drive the old economy, but perhaps those beliefs deserve fresh examination?

Take, for example, the belief that firms must maximize profit. One might think that economists discovered this belief by studying businesses, but in fact they invented it. It’s a convenient assumption because it turns the analysis of firms’ behavior into a simple calculus problem, and that satisfies economists’ desire for physics-like regularities. But profit maximization isn’t actually legally mandated. Nor is it an inevitable result of competition. If anything, life here is imitating fiction, since business leaders and investors increasingly appear to believe that maximizing profits (for which read greed) is not only permissible but required.

That’s the problem with the mechanistic image of the old economy: it denies the moral agency of people working inside it, and demands that its structures be dismantled in favor of a new, more social and human alternative. But the economy is already social and human. People may not like the current results, but human beings with complex motivations are already acting interdependently with one another.

For example, markets and corporations don’t run coolly and objectively. Instead, they are rife with human emotions such as care, desire and revenge. They rely on the creation of beliefs about the future, run on human ties of trust, and are built on social norms and legal institutions. If we put aside the distorting lenses provided by dominant economic theories, it’s obvious that businesses can pursue a variety of goals alongside returning a profit to their shareholders. These goals can be socially helpful (like innovative, high-quality products, jobs, environmental protection and non-discrimination), or socially harmful (such as making extra profits at the expense of labor and the environment, or promoting excessive executive compensation).

Do love, care, mindfulness and spirituality have a role in the economy? When economic life is imagined to be directed by the “laws of the market,” it is set apart from the influence of these values and practices. The old mechanistic thinking essentially gives current corporations an ethical free pass by providing them with the excuse that “the system made me do it.” This cleft disappears, however, when the real, human nature of the economy is recognized, allowing us to align ourselves with positive change wherever it is happening.

We don’t need to wait around for companies to reincorporate as B Corporations in order to make them work in the public interest – their current charters will do just fine. But we can and must expect much better of them, and let them know it. Citizen boycotts, shareholder resolutions, and other public campaigns are time-honored ways of calling powers to account. When we undertake such strategies for change, we may find that there are many people inside these companies who also want to work for a better world.

This is deep change. Economies have been imagined in macho terms of machines, control, and the aggressive pursuit of growth for so long that it can be difficult to think otherwise. Emotions, care, and interdependence have been imagined as only belonging to a more feminine sphere, so pointing out their relevance for commerce risks provoking accusations of naiveté.

But dropping the image of capitalism and for-profit corporations as inhuman in their essence does not mean taking a Pollyanna-ish position toward either of these things. Instead, a more unified view of economics and society recognizes that commercial life is an arena of human interaction much like any other.

Interactions within markets or corporations may manifest love or hate, and create abuse or care – much like interactions within other organizations. In fact, visions of small-scale, “love-driven” new economy institutions remind me uncomfortably of similar idealizations of families or religious organizations. While these are often assumed to be benevolent simply by virtue of being caring-oriented or spiritually-oriented, the realities of domestic violence, sexual abuse and financial mismanagement should remind us that this is not always the case.

At its root the economy is a living, complex organism. Rather than envisioning economic transformation as akin to overturning an unresponsive juggernaut, it may be more productive to see it in terms of tending to a fragile body. Avoiding drawing “us” versus “them” battle lines, and acting on the transformational potential that exists within the economy as it is right now, opens up new arenas for constructive action.  Now that would be radical.

Originally published at Open Democracy.

2017 January 29


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  • No mention of China’s economists and its remarkably successful economy. Pity.

    • Derryl Hermanutz

      In Friedrich List’s 1841, “National System of Political Economy”, List observes that every nation that has succeeded in developing itself economically has done so by explicit government industrial policy, with unapologetic state support for the nation’s nascent industries. China has successfully employed industrial policy — combined with government ownership of the yuan-issuing Chinese commercial banking system — to perform possibly the most rapid economic development any nation has ever seen.

      In Western academia’s delusory “free market” worldview, the term “industrial policy” will get you branded as a communist subversive, even though the US corporate state is nothing other than US industrial policy as a fait accompli.

  • I applaud this as a strong start. Whenever I hear talk about the inevitabilities and laws of the market side by side with ostensible defences of freedom, I scent a strong whiff of cognitive dissonance. What sort of freedom can such thinkers mean, if they also believe human beings are locked into this compulsory profit-maximization?

  • Fool2242

    Sorry to be rude, but you have completely failed to mention the current corporate monopolies, controlling, holding power over, the majority of human needs. These monopolies actively pursue the suppression of competition, using their global reach and fiscal power to coerce nations and further their own control. It is naive to think consumer boycotts will have sufficient impact on such massive monopolies. Especially in countries (most western countries) where corporate oligarchies control the governments.

    • Derryl Hermanutz

      Excellent point. There is no free market for individuals and small businesses, when nation-size corporate conglomerates own and operate industries as their private property. And a surprisingly small number of very rich people own controlling ownership in a surprisingly small number of transnational corporations that own much of the world’s productive economic infrastructure. The present global economy looks far more like oligarchic feudalism ruled by powers, than a competitive free market populated by millions of individuals none of whom possesses or exercises market power.

  • Kevin Cox

    The root cause of our economic woes is the cost of investing. A radical solution to reduce the cost of investment is to eliminate interest through swarm investing. It gives investors higher returns for less risk.

  • Imho, the called for radical economics is an evolutionary process, cooperative-oriented, non-cooperation-resilient, social and individual psychology based endeavour, that allows us to get rid of psychologically unstable minor and major ‘leaders’.

    It is also aware of the risks and downsides of its own assumptions as much as that of a neoliberal or socialist / communist mechanistic machine metaphor to be able to ‘build’ better systems of economic, social processes, regulations and their enforcement.

  • Stef Kuypers

    It’s true that people can strive for good, even in today’s economy. But what is missing in the article for me is the influence of the system (the way it is designed and makes money flow according to the rules of its design) on our society. Research shows that kids as young as 3 are measurably less willing to share and help after having handled money (http://www.scientificamerican.com/article/even-small-children-are-less-helpful-after-touching-money/). That means the system creates ‘bad’ behaviour. We therefore indeed need to look at the root, namely the design of the monetary system and the resulting monetary flows which create the behaviour we see today. In systems thinking there is a saying: a bad system beats a good person every time. Changing the way our monetary system works is not that radical for society, only those that now hold the power to create money. History shows that those who hold the power to create money also wield a lot of political power (Debt, the first 5000 years). So my question is, why not consider other systems that create money from somewhere else than from debt, as is the case today?
    Here are a couple of alternatives:

    http://openmoney.org
    http://newsystemshub.com/index.php/projects/
    http://circularmoney.org
    http://www.gotchoices.org/mychips/index.html
    https://en.duniter.org
    http://www.grantcoin.org
    I’m ok if you say it won’t work, provided you also add a very good reason why.

    • Derryl Hermanutz

      I agree completely. Without monetary reform — that includes government issuance of at least some of the money supply as debt-free “money” rather than the current monopoly of commercial bank credit/debt — no other reforms will prove financially feasible.

      Everybody needs to maximize their money-earning to build up savings, and investible capital, and to repay old debt. Businesses invest money as their costs, then offer their outputs for sale at cost + markup (profitable) prices. The money businesses payout as their costs become the money workers and suppliers earn as their spendable incomes. As “consumers”, income-earners have to spend more money than they earn, in order for busineses to earn in sales revenues more money than they paid out as their costs, in order to earn money-profits from their investment in production of stuff for sale.

      Where does the additional consumer spending power come from?

      Debt. Government debt, business debt, household debt, every kind of debt.

      Commercial banks create new spendable credit (deposit account money) to purchase debtors’ new interest-bearing loan account and bond debts. Debtors spend the deposit account money and owe the loan account and bond debts. Payees earn the new money, most of which ends up being earned and held as private savings account balances, and corporate retained earnings. The money does NOT continuously flow in spend-earn-repay the bank loan streams. It pools up, and is held out of circulation as personal and corporate “savings”. But debtors owe ALL of the deposit account money supply “back” to the creditor-banks that created the money as bank loans and bank bond purchases.

      Banks exercise a stranglehold over money issuance — all of which is owed “back” to the creditor-banks as debtors unpaid but still owing loan account balances and bond debts. Meanwhile the world pays trillions of annual interest on outstanding “loans” of bank credit that are created out of nothing.

      The current economy does not suffer from “economic determinism”. It suffers from monetary determinism: the arithmetic necessities that arise from a system in which virtually all of the money supply is issued as repayable loans of bank credit. This system creates an artificial scarcity of money — which is simply numbers that are created out of nothing either by banks or by governments.

      Money-earning — which is the flip side of money-spending in every buy-sell, spend-earn transaction — drives the capitalist economy. Money scarcity drives the kind of self-interested, economically perverse competitions that the article author seeks to alleviate. Monetary reform is the only viable road toward that goal.

    • pkrumm
  • Dick Burkhart

    Consumer boycotts, etc., are a very poor way to control the excesses of capitalism, as things have to get pretty bad before enough people will be pissed off enough to make these actions effective.

    What we need is a system with built-in incentives for honest and socially responsible behavior by corporate leaders. This is a formidable task for “free market capitalism”, which is designed to reward short term profit more than anything else. It would require very strong regulation, such as universal ownership of large corporations and a hundred year time line for profits.

  • Rory Short

    A breath of fresh air that recognises that the economy is the result of human inter-action not that human inter-action is the result of the economy. This latter view causes us to lose our sense of self-agency and there is a narrow selfish reason why people might support such a view, it benefits them personally.

  • AxeChop

    I think, at root, the economy, like an amoeba, planet, atom, fax machine, etc. is an aggregate information structure that processes relationship interaction information.

    Here’s a fundamental challenge to established ideas in economics.This new thought-structure requires connecting various knowledge dots, distilled as follows:

    Status quo economists do not understand code, including monetary code, in a physics, evolution and complexity context.

    Codes / coding structures are fundamental, physics generated and physics efficacious, relationship infrastructure that function as information processing apps in bio, cultural & tech networks: genetic, moral, religious, math, language, monetary, legal, software, etc.

    Survival in biological, cultural & tech networks is primarily a function of: processing complex relationship information with sufficient reach, speed, accuracy & power.

    Exponentially accelerating complexity has crushed the efficacy of world culture’s dominant information processing mechanism: humans using monetary code. That information processing mechanism lacks: reach, speed, accuracy and power.

    Our species isn’t adequately coded — genetically, culturally or technologically — to pass natural selection tests in environs undergoing exponentially accelerating complexity for X number of years.

    X approaches, at a quickening pace … Humans in these ever-new, ever-alien environs: Somewhat analogous to dropping a penguin on a summer dune in the Sahara. Code ain’t gonna work.

    Presently, we’re in the Anthropocene where cultural selection increasingly drives natural selection. Increasingly, we’re doing natural selection with monetary code. FAIL.

    The Price Is Wrong: http://ow.ly/5DlX303zDDQ

  • Rick Alexander

    Great article– “shareholder primacy” is a root cause of much that is wrong in our economy, from staggering inequality to climate change. However, despite the valiant attempts of some academicians to explain it away, primacy is the law of the land in Delaware (and thus the US) since the 1985 Revlon case. Here is what the current Chief Justice of the Delaware Supreme Court says about that case:

    The understanding in Delaware is that Revlon could not have been more clear that directors of a for-profit corporation must at all times pursue the best interests of the corporation’s stockholders, and that it highlighted the instrumental nature of other constituencies and interests. Non-stockholder constituencies and interests can be considered, but only instrumentally, in other words, when giving consideration to them can be justified as benefiting the stockholders.

    * * * * * * * *

    Delaware and 30 other US jurisdictions have now adopted “benefit corporation” legislation, which allows corporations to operate on stakeholder principles. (This legal form should not be confused with “B Corporations,” an NGO certification that operates like a “Fair Trade” for companies, rather than products.) Last week a company went public as a benefit corproation for the first time. Investors, customers and workers should be encouraging more corporations to take this path.

  • Patrick cardiff

    Ms. Nelson has certainly produced a draft of how we can incorporate emotional life into the seemingly mechanistic ways of the market; how we can march humanity through our public relations by being more human, that is. I’m sanguine about how people have responded to unjust ideas lately, taking to the streets. But I also am skeptical and wary, “anti-fluffy,” in fact, when I witness peoples’ lives upended and torn apart, and it is immediately possible to attribute that fault – directly, causally – to the system. I see extreme modes of thinking as limits to radical change, sometimes, and one might define “extreme” in a biased way when one points to even popular opinion.
    So none of this is clear to me, only that passivity has its bounds. I’m pretty sure “freedom is good” and also that “you have to fight against people who would take freedoms away.” That is, if I choose to pick the fight, which is a type of freedom.
    Sometimes excellence means we have to push our view forward, exercise power in opposition, and the competition can at least provide a clear winner, an obvious outcome,” even a type of delineation for the problem.
    Even generalizations can give us logical signs. We need to understand disagreement before we try to change behavior. Think of the difference between rural and urban, and go from there. People in rural areas are “less informed,” more set in their ways, more politically conservative, more reliant on themselves as opposed to others.
    It’s a structural thing, and maybe we do not want to agree, maybe we don’t want greater equality, maybe we don’t want things to get “better.”