In an ever-evolving world, does it make sense to use a 200-year old theory of trickle-down economics as the primary instrument for our economic system? In the fifth edition of Toward Sustainable Communities, a new tool is introduced to measure the environmental, economic, and social benefits of complex community and regional decisions. Today’s excerpt looks at the relationship between labor and capital through that lens, and provides a glimpse of what a community might be like if we imagined a new tool to measure success.
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Within capitalist economies, short-term profit- seeking practices have also led to financial and social inequality in North America and globally, with workers’ rights violations and an ever-widening income gap. The savings from efficient technologies often are reinvested in CEO and stockholder profits or more growth instead of “trickle-down economics” to workers and consumers. As an example, a 2022 report by the Canadian Centre for Policy Alternatives showed that Canada’s 100 highest-paid CEOs recorded their second-best year ever for compensation in 2020, making 191 times more than the average worker wage in Canada.
Despite indications of strengthening economic markets in some countries, the global economy is arguably in the worst condition since the Great Depression as the capital-labor inequalities are worsening with the increasing gap between rich and poor “sometimes called ‘global apartheid.’” The global financial crisis (GFC) of 2008 and the following recession are simply the most recent evidence of the fundamental flaws of the assumptions underlying capitalism: limitless natural resources, progress, and growth. Yet, despite the devastating global impact, capitalism’s adherents have steadfastly refused to step back and question these assumptions, or capitalism itself. Indeed, recession responses like “too big to fail” bail-outs, regulatory capture, and ongoing failures in corporate governance continued to fuel power and merely exacerbated economic asymmetries and injustices.
Instead of diversifying socioeconomic perspectives and aiming to reduce disparities, capitalist globalization tends to homogenize cultures in the model of atomistic self-interest; “It is an ideology that defines basic expectations about the roles and behaviors of individuals and institutions.” Advanced capitalism uses fear of strong centralized control and the globalization wave to become a hegemonic force for deregulation and the hollowing out of governments, resulting in “deregulation as a form of freedom” in which “global corporatism and the ‘utopia’ of unlimited consumption prevail.” Such market rhetoric “obscures how it itself requires a very large state to support and protect its preconditions of being.”
This hegemonic argument is difficult to deny as the key actors in globalization and the push toward international governance include the World Bank, the International Monetary Fund (IMF), various UN economic development initiatives, the Organisation for Economic Co-operation and Development, and the G-20 summits. These organizations wield strong influence over public policy and ask that states demonstrate good governance, i.e., “transparency and accountability in government, economic liberalization and privatization, civil society participation, and respect for human rights, democracy and the rule of law.” Typically, though, the expected role of government to ensure “the rights of outside suppliers of equity finance to corporations are protected and receive a fair return” results in forcing capitalist market policies on populations regardless of whether such economic and governance structures are culturally appropriate or desired.
Today’s economic crises are not recent phenomena: in 1929, public intellectual Henry George wrote that it was both unconscionable and mystifying that poverty could perpetuate and even worsen amidst the overall growth of wealth.119 Many would agree that postwar capitalism has led us even further down this regressive road. Scarcity, self-interest, competition, and the ensuing greed, corruption, and government austerity threaten markets, governments, and civil society alike. According to George, poverty persists because the means of production—land, labor, and capital—are privately owned and there are asymmetries of power. In order to increase profits for the owners of land and capital, market exchange is increasingly competitive, demanding ever-higher prices and volumes from consumers while providing ever lower wages to labor. Public administration theorist Frederick Thayer noted that capitalism is but another symptom of the more “generic” problem of hierarchy and its system of subordination. Relational sociologist Pierpaolo Donati similarly argues that capitalism frames the “institutional order of the whole society,” and William Connolly adds that neoliberalism “inflates the self-organizing power of markets by implicitly deflating the self-organizing powers and creative capacity of all other systems.”
In the wake of failing communism and socialism, many resign themselves to a lack of any viable alternatives to this capitalist model and its attendant liberal democracy. Challenges to its utilitarian assumptions are dismissed as “audacious” and “hopeless” simply because they represent “reforms which would interfere with the interests of any powerful class.” Indeed, capitalism advocates argue its political economy is the only or best type of self-organizing and self-regulating system.
Connolly suggests that because of these systemic beliefs, the 2008 GFC produced a sort of cultural disbelief—How could government and the market allow this to happen? But he argues that with more participants in various social movements making a critical account of neoliberal capitalism, we may be at a turning point in political economy quite similar to where religion stood before the Enlightenment and where the physical sciences stood as the Newtonian system began to collapse into quantum and complexity theory. The Next System Project initiative may be one such indicator.
Because policymakers still adopt capitalist and neoliberal strategies, sustainability initiatives are sometimes used for greenwashing, demonstrated by the fact that the fossil fuel industry had the biggest delegation in both the COP26 and COP27 climate summits. Capitalism and the pursuit of economic growth cannot solve the problems they create. Despite windows of opportunity such as the GFC, the annual climate conferences, or the 2020 (and ongoing) pandemic, such economic downturns have still not resulted in necessary shifts in thinking and practice.
Socioeconomic and environmental justice demands that we balance economic development goals with the needs of the vast majority of the human population—the poor. Contemporary calls for equity emphasize that human inequality is bad for environmental quality and a sustainable future. This means we can no longer rely on our 200-year tradition of material growth and trickle-down benefits as the primary instrument of economic policy. Bold global and local action is required, with social equity policies targeted at narrowing the gap between the wealthy and the poor.