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What is the “Social Economy”?
Severyn Bruyn
Many people have asked me “What is the social economy?”
I say to them, “read my books,” but that’s not fair to those who are
just curious. So here is a quick way to answer it.
“Social economy” is a field of knowledge about how people organize
the production, distribution, and consumption of scarce resources in society.
It refers to all income making people, organizations, corporations, and
government. This means that the economy in its broad sense is coterminous
with society. It includes the family, the business sector, and the Third Sector.
A concept of the economy usually refers to the business sector but
corporations and capitalist markets also have a social order. A “social order”
refers to “a set of linked structures, institutions, and social practices that
maintain regular ways of relating and behaving.” The social organization of
business is taught in schools of business and management but the courses are
based on how capitalist corporations are organized. The courses do not teach
about cooperatives, as in the Mondragon markets that characterize the
Basque region of Spain.i
Social economy is broader than the fields of economics and political
economy. It is not based on the principles and premises of capitalist markets.
People in every society down through history have experienced scarcity and
organized associations. They engage in social (symbolic) interaction in very
different ways. Capitalism is just one way to create systems of exchange.ii
Capitalist markets did not exist in the ancient empires or the Middle
Ages and they are changing into something new today. They are changing
within the culture and institutions of the larger society. The business sector,
as one part of the economy, has its own subculture, evolving in the context
of other sectors and subcultures like religion, art, science, and government.iii
The idea of “economy” comes from the Ancient Greek word
oikonomia, which for Aristotle meant "management of a household." In the
transition into the 16th–18th century, overseas expansion led to the growth
of commerce and a theory known as mercantilism. In the late 17th and the
18th centuries a protest against the governmental regulation was voiced, by
the physiocrats. That group, led by Francois Quesnay, preceded the classical
school of economics. They argued that business should follow “natural
laws” with minimum amount of government interference.iv
. The idea of “political economy” began with the social contract
philosophers (notably Jean Jacques Rousseau, 1755) who described the
economy in the context of the state, not society. Then in the latter 19th
century, economists (notably Alfred Marshal, 1890) recommended
“economics” as a term emphasizing how this new field is a science.v
The concept of political economy is narrower than social economy.
The organizations and human interactions that take place in the economy are
not all political. Rather, they are more broadly rooted in social relations and
organizations. The concept of “social” includes “political” and “economic”
relations but is more inclusive as a category. Social interactions and forces
take place in markets that not just political, based on just power and politics.
Put another way, the concept “social economy” is more
comprehensive than political economy. It comprehends non-political
relations -- like interpersonal relations and organizational relations based on
symbolic interaction. It includes nonprofit institutions and their subcultures.
The social economy in the modern period includes the Third Sector with its
churches, science associations and civic groups with their own values and
ways of life. All associations have their own norms and traditions that
intersect with the business sector.
In sum, the field of economics and political economy tend to focus on
the business sector and its relation to government. But social economy
includes more cultures and sectors of a nation that linked with other nations
in a process of globalization. In this broad sense, the economy is linked with
society that is not the same as a nation-state.vi
Etymology
Such words as “social” and “economy” and “society” did not exist at
centuries ago. The word “society” was not in the language of the ancient
Greeks. Aristotle did not write about the economy in “society”, rather, he
wrote about the family and government. Economics was not a word in his
vocabulary even though he talked about the use of goods in the
marketplace.vii
The terms themselves, “social” and “society,” emerged in the
sixteenth and seventeenth century at the time of the Social Contract
philosophers. The word “society” come into view in English with various
meanings, as “A system of sharing within a group,” and the “condition of
living or associating with others,” and “companionship, fellowship, or
company,” and as human association or friendly interaction with other
people.viii
Then in the nineteenth and twentieth centuries it became defined in
more complex terms by sociologists. See the history of civil society as a
concept in Appendix A and B of the Civil Republic posted on my webpage.ix
Adam Smith wrote about “commerce” but did not use the word
“capitalism”. When he was writing in 1776, the word did not exist. Karl
Marx did not use the word “capitalism” in the Communist Manifesto. It came
to be popularized in his later work and Das Kapital in 1867.x
The Word Social Emerges as an Analytical Concept
The word “social” in the field of sociology refers to a fact-based
meaning (or facticity.) It does not refer to its a normative meaning, that is,
what “ought to be.” Normative meaning refers to an ideal, a value, a
standard or model. These two meanings are different in reference to the
market economy. The words “individual” and “social” are facts but they
may become normative doctrines (or ideologies) called individualism and
socialism, i.e. systems of belief.xi
My point is that the word “social” from a sociological perspective
refers to a scientific (analytical) fact that underlies human existence. It is fact
in capitalist markets. At this moment in time, the social factor is hidden in
the ethos of the business sector. Hence, the word “social” is latent (hidden)
rather than manifest (obvious) in the culture of markets. The word
“economic” is manifest, seen by the public to be the tone and character of
modern markets.
Stay with me. This is subtle.
The social factor is not viewed as significant in today’s economy
because the market is defined publicly to exist on an economic foundation,
not a social foundation. This is the zeitgeist of the modern period. In this
modern ethos, for example, the market is defined as a process of
competition, not a process of cooperation. The process of cooperation exists
in markets as a fact but it is not seen to typify markets. Competition is what
is manifest and cooperation is a process that is latent and emerging.
Similarly in this zeitgeist today the term “private sector” refers to
business and the term “public” refers to government. But the private sector is
steeped in questions of how the business sector should be more transparent,
“public” outside of government. The term “public” is emerging with its own
meaning inside the private sector. For example, when an enterprise moves to
the stock exchange, it is required to have more transparency. And when the
lack of transparency caused a Great Depression and later a great recession,
the government required more transparency in business. Transparency is a
latent factor that is emerging as more required and manifest. The term
“public” refers to a government (not the private sector) but it depends on
how well business serves the public interest and the common welfare.
Adam Smith looked at enterprises as “public.” When the market was
structured with small enterprises that were transparent, then Smith said
“reason” should win for buyers. People can make rational decisions in their
own self-interest. In his time, the business sector was new and had not yet
legally separated itself as different from other organizations in society.
In sum, many terms, like public and private, evolve in meaning with
the advance of new social structures and laws in society. The legal
“structure” and the “ethos” of society are interrelated in this evolution. For
example, the ideas of Justice John Marshall in the Dartmouth College case
(1819) set the guidelines for understanding the nature of the corporation in
the private sector. Now when a corporation puts shares on the market, it goes
“public” in the private sector.xii
Social Enters into the Field of Economics
The work of the economic historian Karl Polanyi shows how the term
“social” was evolving as an analytical concept in markets. Polanyi saw how
every economy is submerged in social relationships. His book on The Great
Transformation is a history of the self-regulating market and its emergence
from the Industrial Revolution. He wrote about the cultivation of the market
economy through the efforts of statesmen of England in the first decades of
the nineteenth century. The market was brought into existence by
government not just by “natural” forces. Government policies for him were
instrumental in helping to develop free markets. He saw how social
processes like cooperation, reciprocity, and association were part of
economies. But he felt the capitalist economy developed as an economic
order with competition and profit making.xiii
Stay with me. My point is that Polanyi was part of the change for
historians and social scientists to see the social factor analytically and as a
fact in markets. He was part of that shift in economic thought that included a
series of new outlooks by economists who could see the social factor. These
“social economists” started separate movements in their own discipline
called evolutionary economics, welfare economics, labor economics,
institutional economics, social economics, and socioeconomics.xiv
Such intellectual movements in economics show how the social factor
began to play a role in the economics paradigm. But the “social” in the
capitalist system was seen only as “conditioning” (affecting) market activity.
The terms evolutionary economics, welfare economics, etc. altered the
neoclassical view but they did not recognize that the economy is based on a
social order. These movements did not change the basic premises of
economics as a field itself. They are movements in the field of economics,
not in the field of sociology.xv
Consider the intricacy of this change in “social” as analytical concept.
It is like watching the hour hand of a clock move in time. For economists to
see the social factor active in the economy took many decades. For
economists, the concept of “social” is still a “conditioning” (influencing)
factor in markets not at the root of markets. It is not seen analytically to be at
the foundation of the economy.
In sum, economists do not see the economic order rooted in a social
order. Consider how separated the fields of economics and sociology were at
the beginning in the late 1800s and how they are now closing ranks by
sections. A few sociologists joined economists in those first stages of change
(e.g. sections on institutional economics) and more sociologists joined later
in the field of socioeconomics where sociologists and economists work
together in the membership. But now we must see how economic
anthropology took one its own step toward recognizing that economic life is
rooted in a social order.
Economic Anthropologyxvi
Karl Polanyi was drawing from theory and research in anthropology.
He argued that “economics'” has two meanings: the formal meaning refers to
economics as the logic of rational action and decision-making -- a rational
choice between the alternative uses of limited (scarce) means. The second,
substantive meaning, presupposes neither rational decision-making nor
conditions of scarcity. It refers to the study of how humans make a living.
He saw society's livelihood as an adaptation to its environment and
material conditions. It may or may not involve utility maximization. The
substantive meaning of “economics” is seen in the sense of “economizing”.
Economics, substantively, is simply the way society meets material needs.
Polanyi's term "great transformation" refers to how modern market
societies are different from pre-industrial societies, and centrally planned
economies. Early societies are not based on market exchange but on
processes he called redistribution and reciprocity. Reciprocity is the mutual
exchange of goods or services as part of long-term relationships.
Redistribution implies the existence of a strong political center, which
receives and then redistributes subsistence goods according to culturespecific principles. Rather than being a separate and distinct sector the
economy is embedded in both economic and non-economic institutions.
Exchange takes place within and is regulated by society.
Polanyi says, for example, that religion and government can be just as
important to economics as economic institutions themselves. Social
obligations, norms and values play a significant role in people's livelihood.
Consequently, any analysis in the field of economics -- as an analytically
distinct sector isolated from its socio-cultural and political context -- is
flawed from the outset. What Polanyi calls a substantivist analysis focuses
on the study of the various social institutions on which people's livelihoods
are based. The market is only one amongst many institutions that determine
the nature of economic transactions. Institutions are the primary organizers
of economic processes. The substantive economy is an "instituted process of
interaction between man and his environment, which results in a continuous
supply of want satisfying material means" This outlook leads to a
sociological perspective on the economy. xvii
Economic Sociology
Sociologists have been interested in the relationship between the
economy and the society since the field began in the 19th century, but
economic sociology began developing in the 1980s. Then it began as a
section of ASA in August 2000. Wayne Baker, the section's organizing
committee—Nicole Biggart, Neil Fligstein, Mark Granovetter, Brian Uzzi,
Fernanda Wanderley, and Harrison White—set up the section and it became
a permanent Section in January 2001.xviii
The idea of economic sociology gained legitimacy with the 1985 work
of Mark Granovetter titled "Economic Action and Social Structure: The
Problem of Embeddedness". Granovetter analyses how economic relations
between people take place within social relations, indeed, through social
network analysis. Granovetter's theory of weak ties and Ronald Burt's
concept of structural holes are among the most reported theoretical
contributions of the field.
Some section members say economic sociology analyzes economic
phenomena such as markets, corporations, property rights, and work using
the tools of sociology. The field shares in economic theory's attention to the
role of interests and rationality, but equally emphasizes the importance of
social relations and social institutions.
Neil Smelser and Richard Swedberg define economic sociology as
“the sociological perspective applied to economic phenomena” Swedberg
emphasizes the role of institutions and gives special attention to the effects
of culture on economic phenomena. He studies the ways that economic
actions are embedded in social structures.xix
Alejandro Portes argues that economic activity is embedded in social
and cultural relations, and that power and the unintended consequences of
purposive action must be factored in when seeking to explain economic
behavior. Portes identifies three strategic sites of research--the informal
economy, ethnic enclaves, and transnational communities.xx
Wayne E. Baker says in the official section of ASA,
The mission of the Section on Economic Sociology is to promote the
sociological study of the production, distribution, exchange, and
consumption of scarce goods and services. It does so by facilitating the
exchange of ideas, information, and resources among economic sociologists,
by stimulating research on matters of both theoretical and policy interest, by
assisting the education of undergraduate and graduate students, and by
communicating research findings to policy makers and other external
audiences. Economic sociology is a distinct subfield. It is ecumenical with
respect to method and theory. Economic sociologists use the full range of
qualitative and quantitative methods. No theoretical approach dominates; the
field is inclusive, eclectic, and pluralistic.
Karl Polanyi played a key role in this transition of thought. After
finding other economies around the world based on social processes, he
decided that capitalist markets were different. He said: “Instead of economy
being embedded in social relations, social relations are embedded in the
economic system.” The differentiation of the business sector in the evolution
of society convinced him of the change. “Once an economic system is
organized in separate institutions, based on specific motives and conferring a
special status, society must be shaped in such a manner as to allow that
system to function according to its own laws.”xxi
Notice. He does not describe how the economy is grounded in a social
order. But the business sector evolved as a special order of society. He
developed the social factor as an analytical concept in economies around the
world.xxii
Economic sociologists study inter-organizational relations that exist in
the economy in society not just in the business sector. In this sociological
perspective, they are more able to see how the economy is embedded in
society. Economic relations are embedded in types of social relations, not the
reverse.
Polanyi argued that there were interdependencies between economics,
politics, and civil society that could not be coordinated simply through the
market mechanism. He did much to advance the idea of economic sociology
as a field of knowledge. He could see how markets work in the “shadow” of
a social order.xxiii
When I wrote The Field of Social Economy in 1976 I had not read the
work of Karl Polanyi. I had studied all the classical sociologists but it
appeared to me that some new field was needed. The concept of economic
sociology was not in the vocabulary of sociology at that time. Social
economy was my term for a sociological perspective of the economy.
What does this history tell us?
A Sociological Perspective
The culture of society is important to consider in sociological theory.
The public thinks that the market is based on competition and the bottom
line is “economic” (i.e. money, efficiency and profits); markets are driven by
financial incentives. But that is not the whole story and so this kind of
thinking can be misleading. The economy includes nonprofits like churches,
temples, unions, and universities compete and cooperate in the market. The
foremost goal of corporations in the Third Sector is not profit; money is not
their primary motivation.
The economic bottom line misleading because in this modern ethos
people believe that there would be no incentive to work and no inventions
would take place without a profit-making goal. That is clearly not true.
Inventions were taking place long before the appearance of capitalism.
Inventions by humans have been going on since the beginning of
civilization.xxiv
When sociological research on the economy is popularized and
publicly oriented like economics, citizens will see how a social order
underlies the economy. The bottom line is “social” -- in its analytical
meaning -- not just “economic.” Mainstream economics has become filled
with formulas and calculations on prices as though the economy was
“natural.” Economics is too often defined as a science that explains how
markets work by natural laws and is understood by formulas.xxv
When the capitalist economy is conceptualized sociologically, the
picture changes. The public can see the economy grounded in society. A
sociological perspective alters the way we see markets change in this larger
context.xxvi
For example, sociologists study the way a corporation is socially
organized, It is not microeconomics. It does not assuming that they are all
command systems. Nonprofit corporations include churches that range in
governing systems from high “command” (e.g. Catholic and Episcopal) to
relatively democratic (e.g. Presbyterian and Congregational). Business
corporations may socially develop new governing systems as this broader
perspective of the economy becomes more public.xxvii
The way business corporations are socially organized is important to
understand. Corporations are organized by systems of “mutual governance”
as well as by a system of “command governance”. Sociologists have studied
how corporations decentralize their operations and develop self-management
and worker ownership successfully. This type of advanced mutual
governance changes the character of business from its typical command
structure. Employee ownership and self-management are evolving today in
business firms. This is a latent trend, emerging, not typical of capitalism.xxviii
The way markets are socially organized can show how capitalism is
changing. A sociological perspective can predict a market’s success or
failure better than an economic perspective. This is because so many social
processes exist in a market beyond competition. These processes include
collaboration, accommodation, assistance, conflict, mediation, adjustment,
support, conflict, negotiation, absorption, integration, cooperation,
assimilation and different kinds of socialization. Research needs a
sociological perspective about the organization of economic exchange to
understand the reality and predict the future.xxix
Business corporations were competing so hard in the 19th century that
they were destroying each other. Competition in this case was not in their
self-interest; hence, they decided to cooperate and create trade associations.
Trade associations developed as a form of mutual governance, with electoral
processes and tribunals. They became self-governing in their trade field.xxx
Socialist Doctrines
Henri de Saint-Simon is often called the founder of French socialism.
He argued that a “brotherhood of man” must accompany the organization of
industry and society. He proposed production and distribution be carried out
by the state, allowing everyone to have equal opportunity to develop their
talents. This would lead, he said, to social harmony, and the state could be
virtually eliminated, or transformed. "Rule over men would be replaced by
the administration of things.”
In the early 1800s there were many “utopian socialists.” François
Marie Charles Fourier was a French philosopher inspired the founding of the
utopian communities. Robert Owen advocated the transformation of society
into small, local collectives without elaborate systems of social organization.
Pierre-Joseph Proudhon pronounced that socialism was "every
aspiration towards the amelioration of society". Proudhon called himself an
anarchist and proposed that free association of individuals should replace the
coercive state. Mikhail Bakunin is called the father of modern anarchism. He
had a theory in which the workers would manage the means of production
through their own productive associations. There would be "equal means of
subsistence, support, education, and opportunity for every child, boy or girl,
until maturity. There would be equal resources and facilities in adulthood for
people to create their own well-being.
Marx and Engels drew from these socialist (and communist) ideas and
from the German philosophy of G.W.F. Hegel. They developed a body of
ideas they called scientific socialism. Utopian socialism could not be
achieved without a revolution. After a proletarian revolution, the class
structure is eliminated and the socialist state withers away. What remains is
a society in which people no longer suffer from alienation and "all the
springs of co-operative wealth flow more abundantly." According to Marx
and Engels, once a socialist society had been ushered in, the state would
begin to "wither away" and humanity would be in control of its own destiny
for the first time.
During the first half of the twentieth century state socialism came to
represent the alternative to capitalism. Socialism was defined in terms of the
Soviet model and t other countries (e.g. China and Cuba) followed this
model of centralized planning by the state. Other governments, moving more
cautiously called themselves a “mixed economy” with partial nationalization
and an emphasis on social welfare.
I could go on with more variations in socialist doctrine but they do not
represent my normative theory.xxxi
A Normative Theory in Social Economy
There is a normative element in my theory that starts by defining the
purpose of a democratic government.
The purpose of the government is to cultivate the basis for the
market to regulate itself. The state encourages corporations to govern
themselves through associations designed for the common good apart
from the state. The market keeps competition going but the government
encourages cooperation in associations to maintain public standards
(e.g. safety, healthy, environmental protection) in the interest of society.
This saves the free market and lessens the need for government to
regulate it from the outside. This cannot be done in a short time.
This task will require more transparency and social
accountability in the economy. It means encouraging countervailing
powers, electoral processes, judicial powers and democratic associations
in the private (non-statist) economy. The government can offer
economic incentives to trade associations that lay a basis for selfgovernance for the common good.xxxii
This normative theory is different from positions taken by Democratic
and Republic parties in the United States but ironically in perfect accord
with their key values. This theory in practice leads to Republican values, e.g.
a small government, a balanced budget, self-regulation and fair competition
in a free market. It also leads to Democratic values, e.g. greater income
equality among citizens, transparency in competitive markets, and public
accountability
Republicans and conservative economists claim that the market is
already self-regulating. Well. This is partly true but not enough to keep the
market from becoming destructive to people and the environment. The
current market organization in my view is self-destructive in ways that
require a parent state to regulate it. The capitalist economy is not selfregulating in any true sense. One could describe the capitalist economy as in
an adolescence stage of development, not yet mature enough to be
independent of the government.
Democrats claim that the government should regulate the market. This
is true under present conditions, but such policies lead toward bigger
government. Ironic. The capitalist market will find new ways to be
exploitive in spite of federal agencies and state regulations.xxxiii
Hence, the market requires a new organization. It needs new
government policies to build a civil economy that can be more free,
profitable, self-regulating, self-sufficient, self-correcting and self-reliant
with less government regulation. My books all show how this can be done
with societal development. The process is based on a mix of voluntary
action, modeling, competition, cooperation, spontaneity and government
planning.xxxiv
How Can This Be Done over Time?
How could the private sector become more self-governing? How
could the market economy work for the common good? How could the
private sector become more free, profitable, and self-regulating apart from
the state?
Developing a civil (democratically-oriented) economy will require a
long period of time. Look at the time it took to develop state democracy. It is
a long story of civil protest, revolution, government legislation and planning
through competing political parties.
A form of limited democracy began in ancient Greece but it has taken
centuries for it to evolve, as we know it today. The rise of democratic
parliaments in England and Scotland involved nobles protesting and
achieving the Magna Carta (1215), limiting the authority of kings and power
holders. The first elected parliament (1265), The Levelers’ political
movement, the English Civil War (1642–1651), Habeas Corpus (1679), the
English Bill of Rights, the Mayflower Compact, and so much more history
that would show thousands of details over time. Likewise one could also see
a civil economy developing through the decades and centuries, slowly.
Look what happened in the development of modern society. States
became democratic and the business sector separated from the state to
become a private domain. It was progress but with private monarchies in the
market. The new market kept a feudal tradition. In the United States, citizens
were afraid of the “new corporations.” States required charters for
corporations and demanded ethical rules for them to operate. But then states
began to compete for state charters and corporations went to states with the
lowest social standards in their charters, mainly Delaware and New Jersey.
By the end of the 19th century people described the market composed
of “lords and barons”. The capitalist economy developed without any basic
form of democracy. Government regulations then began to protect the
public.xxxv
The legal scholar Kent Greenfield describes how States competed
against one another in this “race to the bottom.” Delaware won the race
during the last century. It is a state with less than one-third of 1 percent of
the nation’s population providing the governing law for nearly 50 percent of
all American corporations and 60 percent of the Fortune 500. The New York
Times identified one office building in Wilmington that serves as the legal
address of more than a quarter of a million businesses, including Apple,
General Electric, JPMorgan Chase, and Wal-Mart. In fact, Delaware is home
to more corporations than people.xxxvi
In 1776 Adam Smith wrote The Wealth of Nations in which he
thought the new economy would work for the common good. He described
how wealth is produced in a “self-regulating market.” The market was selfregulating for Smith because people produced according to what people
would buy and people consumed according to what they wanted and could
afford. Businesses in his day were small and transparent. Freedom to trade
was part of this so-called self-regulating market -- a freedom depicted by
Frenchmen as laissez faire. The great value in these markets was “freedom
from government controls.”
Smith coined the phrase the “invisible hand” to describe how ambition
and self-interest benefits society even when such motives have no
benevolent intention. Since Smith's time, the principle of the invisible hand
has been discussed in economic theory but the fact is: nobody really
understands how it happens. Well, it did happen by some measure but how it
did not happen is not explained by economics. It is explained in
sociology.xxxvii
Competition in markets alone could not support laissez faire apart
from the state. Markets were kept from collapsing by social forces and
processes that were not economic. Sociologists can see new social processes
like cooperation and association as part of the answer.
Private entrepreneurs and professionals found themselves competing
so fiercely that they were destroying one another. This kind of competition
was good for no one. It was a joint recognition that association was needed
for survival. They had to cooperate to set social standards as trade and
professional associations. They had to set up standards by which to stay
alive. They created private adjudicatory courts to settle disputes between
them. They sought to make trade associations democratic with electoral
processes and judges.
Laborers also cooperated to organize unions with electoral processes
to protect themselves from business corporations and trade groups. In these
and other cases, like the social movement to create cooperatives, we see
indications of self-governance advancing slowly in the capitalist economy.
But the changes were not widespread, not good enough to change the name
of capitalism.
Corporations at the end of the 19th century demanded federal
regulations. Giant corporations lobbied for government regulations in order
to make entry more difficult for startup competition. The classic case is
Meatpacking regulation. Gabriel Kolko, historian of the era, said: "The
reality of the matter, of course, is that the big packers were warm friends of
regulation, especially when it primarily affected their innumerable small
competitors." Small packers, it turned out, would feel the regulatory burden
more than large packers would.xxxviii
The economist Joseph Schumpeter saw markets on a path of “creative
destruction.” Capitalist markets are creative but remain self-destructive in
society. They “force” the government to regulate them over and over
again.xxxix
My question is how to lay the basis for markets to work and be
creative for the common good. In other words, how can markets be
developed without a parent having to supervise them all the time?
The short answer is that private markets need countervailing powers
in new associations and trade standards. At the moment, trade associations
need social constitutions and modes of cooperation with standards between
them (e.g. on safety and health) so members can compete within those
limits. Current markets, structured by competition alone have to be governed
by the state. They end up harming consumers and fail to work in the public
interest, hence, the need for so many government controls.
This means advancing democratic structures with private “electoral
processes” and “judiciary organizations” and standard making for the
common good. Nonprofit corporations (e.g. universities, museums and
hospitals) cooperate to establish outside judges and professional evaluators
to make sure they maintain their standards. New policies mean advancing
the values of democracy, freedom, justice, and equality into the business
sector. It means stakeholder participation at local and national levels.xl
I call this process “social development” in the private sector because it
leads to a growth in public accountability and transparency. As I said above,
social development, ironically, leads to Republican values, i.e. a balanced
budget, and smaller government, and less need for government regulation.
For Democrats it leads to market transparency and socially accountable
corporations.
In sum, government policies are needed to help create a transition for
a new economy that I call “civil,” not capitalist. The economy becomes civil
as it develops more self-governance and functions for the common good. It
means writing social contracts in private markets, and keeping competition
alive. “Self-interest” remains a motive in a civil economy; a theoretical part
of a new market system and it coexists with other concepts like “mutual
governance” and the “public interest.” It was in the self-interest of members
in trade associations and unions to “cooperate” in face of market forces. xli
For a definition of all these concepts see The Glossary on my
homepage. “Glossary” is on the left side under A Civil Republic.
An Evolving Civil Economy
Markets developed from feudalism with the support of new
government policies but they also came about spontaneously by voluntary
action. Now the same thing is happening. Structures for self-governing
markets need government support but they are also developing
spontaneously by voluntary action.
Democratic systems in corporations are developing inside business
markets like credit unions, community development corporations,
community land trusts, community finance corporations, and cooperatives
(consumer, distributive, worker owned companies). These are not capitalist
organizations.
Ethical practices in finance (e.g. social investment) are appearing
without government support. The same is happening in business enterprises
(e.g. corporate codes of conduct.) Equally the same is occurring in trade
associations (e.g. public standards) -- evolving without government
support.xlii
Below are a few organizations that exemplify self-monitoring in
market associations that are developing without government support.xliii
SA8000 is a global social accountability standard for decent working conditions,
developed and overseen by Social Accountability International (SAI). SAI offers training
in SA8000 and other workplace standards to managers, workers and auditors. It contracts
with a global accreditation agency, Social Accountability Accreditation Services (SAAS)
that licenses and oversees auditing organizations to award certification to employers that
comply with SA8000.
BSCI is an initiative started by the Foreign Trade Association (FTA). BSCI can be
described as an Industry Code with companies and associations as members. No NGOs,
unions or governments are involved in key decision-making. On local level BSCI
participates in Round Tables, where besides companies and associations also NGOs,
unions and governments participate.
Ethical Trade Initiative (ETI) is a multi-stakeholder initiative with members representing
brands, unions and NGOs. ETI is active in the garment and footwear industry but also in
the food industry. The ETI Base Code is in its most important elements comparable to the
JO-IN standard. JO-IN is however more progressive on a few issues especially those
under discrimination
The Fair Labor Association (FLA) is a multi-stakeholder initiative with members
representing brands, unions and NGOs. ETI is active in the garment and footwear
industry but also in the food industry. The ETI Base Code is in its most important
elements comparable to the JO-IN standard. JO-IN is however more progressive on a few
issues especially those under discrimination.
The Fair Weather Foundation (FWF) is method of monitoring is based on a management
system located at the brand. Each member brand annually reports to FWF on the progress
in the supply chain. The FWF method consists of a complaint procedure for workers
enabling to complain at brand and initiative level. The brands are required to audit all
their suppliers within three years. The FWF reports on initiative level regarding the
amount of audits in total, per country and the type of non conformities. There is no
transparency on brand and supplier level. The content of the FWF Code of Labour
Practices is in its most relevant aspects comparable to the JO-IN code of conduct.
World Wide Responsible apparel Foundation (WRAP) is an independent, non-profit
organization dedicated to the certification of lawful, humane and ethical manufacturing
throughout the world. It is the organization responsible for the Apparel Certification
Program. WRAP is active in the apparel sector only. Of the described standards, the
content of the code of conduct promoted by WRAP is the weakest. WRAP is less strict
on several issues. On wages, overtime and compensation of overtime WRAP settles for
local law.
Global Recycle Standard (GRS) is a standard developed to ensure greater sourcing clarity
on recycled materials right through the production supply chain. It is intended for
companies that wish to make a content claim on the amount of recycled material in the
final product. It is based on the certification of the full chain of custody for recycled
products; incorporating environmental and social criteria.
The Organic Exchange (OE) Standards by Textile Exchange is a voluntary, ”fiber only”
standard for organically grown cotton. The two versions, the OE 100 Standard and the
OE Blended Standard, are used for tracking and documenting the purchase, handling and
use of certified organic cotton fibers in yarns, fabrics and finished goods. It provides
independent certification of the used fiber in the entire textile supply chain after the
harvesting/farming stage.
The Global Organic Textile Association (GOTS) is the worldwide leading textile
processing standard for organic fibres, including ecological and social criteria, backed up
by independent certification of the entire textile supply chain.
ISO 14000 is a family of environmental management standards that provide
organizations with a practical toolbox to assist in the implementation of actions
supportive to sustainable development. It is a framework to manage environmental
aspects, assess their environmental performance and support the auditing system.
The EU Eco Flower is a product label and a voluntary certification system developed by
the European Commission to promote products that have the potential to reduce negative
environmental impacts and contribute to the efficient use of resources and a high level of
environmental protection.
The bluesign® standard is an independent industrial textile standard directed and
implemented by bluesign technologies. It is designed as a comprehensive Input-StreamManagement-System that is built around the principles of resource productivity,
consumer safety, air emission, water emission and occupational health and safety.
Sedex, the Supplier Ethical Data Exchange, is an open membership organization
providing a secure, robust, and user-friendly central database of information for
companies to store and share ethical data including self-assessment, audit reports and
corrective action reports and statuses, which enables member companies to generate
transparency and manage efficiently the ethical and responsible practices of their global
supply chains.
Each association allows member corporations to operate with selfinterest but these markets are spontaneously developing democratic
governing systems, like electoral processes, self- adjudicatory systems and
jointly approved outside monitors in the private sector. Corporate “selfinterest” remains as new democratic systems emerge. I call them systems of
mutual-governance.
Systems of mutual governance can appear both by voluntary action
and encourage by the government (e.g. a different tax system, proper
subsidies, bully pulpit from the office of the president, etc). They develop
privately with “public standards” (safety, health, environment protection,
etc.) in associations. They are developing slowly across all industries–
roofing, chemicals, plastics, furniture, shoes – and thousands more.
They also need to be researched by sociologists for their functions and
dysfunctions, their unintended consequences, as well as the degree to which
they add to the common good in the business sector. Many more research
ideas are in my books.
The government deficit hurts business. Reducing the U.S. deficit
would include taxing transactions on stocks and derivatives, stopping tax
haven abuses, taxing the wealthy in a fair way, taxing pollution, ending
fossil fuel subsidies, ending military waste, closing overseas military bases
by developing a multilateral peace force -- and more policies like these that
are just common sense.
There are many new steps needed at the global level that are needed to
keep markets evolving for the common good. For example, reducing the
need for big defense departments and size of military armies in nations
around the world can be reduced by strengthening the United Nations,
working toward new global governing systems based on mutual governance,
developing enforceable international law and world courts. (See the
Appendix in my book on A Future for the American Economy.xliv
It took centuries to develop a capitalist economy and could take
centuries to develop an “associated market” based on democratic principles,
not capitalist. I would call it a “civil economy.”
For more details on how to advance civil markets, click on Beyond
Capitalism on my webpage. For methods to study social justice in global
markets click on Grant Proposal: Justice in the Global Economy.
i
In a sociological perspective, a social order is a “relatively persistent
system of institutions, patterns of interactions and customs, capable of
continually reproducing at a minimum those conditions essential for its own
existence.” For Talcott Parsons, it is a set of social institutions regulating
pattern of “action-orientations”, which are based on a frame of values. These
stable expectations do not necessarily lead to individuals behaving in ways
that are considered beneficial to societal welfare. Also, see William Foot
Whyte, Making Mondragón: The Growth and Dynamics of the Worker
Cooperative Complex (Cornell International Industrial and Labor Relations
Reports), 1991.
ii
The economy is based on “symbolic interaction” as integral to social
interaction. This should not confuse professional sociologists. Symbolic
Interaction originated as a concept with George Herbert Mead, Charles
Cooley, and Herbert Blumer. Blumer held premises about this outlook that
included: "Humans act toward things on the basis of the meanings they
ascribe to those things” and “the meaning of them is derived from the social
interaction that one has with others and the society." For many in this
tradition, it refers to the patterns of communication, interpretation and
adjustment between individuals. This is true but my perspective holds that
symbolic life is not just based on interpersonal relations and meaning among
individuals. People think and act on symbols (words) already produced
collectively in previous societies. Thus we are able to communicate and
examine society both objectively and subjectively. We live in the tension of
opposites seeking resolution. Max Weber argued that the meaning of
“social” was the root of all human communication (i.e. subjective) but
sociologists also think objectively as did Emile Durkheim. If Weber’s view
were taken as the truth, it would lead to subjectivism. If Durkheim’s view
were taken as the truth, it would lead to objectivism. So this term (social)
should be seen as standing between these two extremes, subject and object.
The market is in the tension of opposites, like subject and object, “order”
and “freedom” seeking resolution. For different views on symbolic
interaction, see Herbert Blumer, Symbolic Interactionism; Perspective and
Method. 1969, Englewood Cliffs, NJ: Prentice-Hall. Sheldon Stryker;
Symbolic Interactionism: A Social Structural Version” (Menlo Park, CA:
Benjamin/Cummings) 1980. (Reprinted: Blackburn Press, 2003.}
iii
“Social economy,” as a field of knowledge, assumes that there is a
constant process of diffusion and accommodation among different
institutions. This is one cause for change in the market system. William
Graham Sumner in the early 1900s recognized how “diffusion” occurs
between society’s different institutions (with different values, customs and
folkways) but he never studied the phenomenon happening in the economy
of the United States. Nonetheless, the manifest values in capitalist markets,
like freedom, competition, profit making, productivity, and privacy, contrast
markedly with other societal values, like justice, cooperation, standard
making, social accountability, and transparency. These contrary values are in
a constant process of resolution through interaction, accommodation and
synthesis. The tension among these society-wide values is one “cause” for
changes that bring about the evolution of society and its economy. For
example, people live and work in institutions that have contradictory values,
like the church and a business firm. They seek resolution and integrity.
A person teaches “cooperation and altruism” in a Sunday school to
children and the next day promotes vicious competition and strong selfinterest in his or her business. Or, let us say, a scientist believes in
transparency in his profession and then believes in privacy for his
discoveries in the laboratory of his corporations. We can say that
“opposites” seek resolution in people and a sense of wholeness in society.
iv
The assumption in “classical theory” is that the economy is self-regulating.
Classical economists held that the economy is always capable of achieving
“the natural level of real output”, which is obtained when the economy's
resources are fully employed. The classical doctrine—the economy is
always at or near the natural level of real GDP—is based two beliefs: Say's
Law and the belief that prices, wages, and interest rates are flexible. But this
fails to take account that the economy exists in the larger culture of society.
v
Alfred Marshall (1842 –1924) was the most influential economist of his
time. His book, Principles of Economics, (1890), was the dominant
economic textbook in England for many years. He brought the economic
ideas of supply and demand, marginal utility, and costs of production into a
coherent whole as natural laws.
There is a long history before Marshall that includes the Mercantilists,
Physiocrats, Classical Economics, and Modern Economics. The history
shows many outlooks in the field of economics have emerged in the last
century -- like institutional economics and social economics, etc. But they
are all based on the idea that a capitalist economy is socially conditioned.
The field of economics assumes the values of capitalism. These varieties
simply recognize that a social factor conditions market operations. None of
these subfields view the economy grounded in society with its larger culture.
They cannot envision how capitalism is evolving into a different system of
exchange
vi
A social economy is a fact of life in any country where people make a
livelihood and material scarcity prevails. Every economy is based on the
way of people socially interact through their culture of values, norms,
traditions, fashions, customs, and mores in society. In modern society it
includes all income making organizations including the family and
government. It also includes what is known as the informal economy –
where people make incomes off the official record.
vii
Aristotle wrote about the “economy” in reference to the household -- not in
reference to society. In Book I of the Politics, Aristotle distinguishes
between use value and exchange value. It was Aristotle who created the
concept of value in use. The use value or utility of a good or service depends
upon its being productive for the good of the family.
viii
The word “society” kept evolving diversely to mean “the company of
others, the system of customs and organization adopted by a group of people
for harmonious coexistence or mutual benefit, an aggregate of persons living
together in a community, esp. one having shared customs, laws, and
institutions.” (See The Oxford Dictionary.) On the other hand, “culture” is
generally understood as the beliefs, behaviors, objects, and other
characteristics common to the members of a particular group or society.
Through culture, people and groups define themselves; conform to common
values that contribute to society. Culture includes: language, customs,
values, norms, mores, rules, tools, technologies, products, organizations, and
institutions. Finally, “institution” may refer to clusters of rules and symbolic
meanings associated with specific social activities, including the family,
education, religion, work, and health care.
ix
The term "society" came from the Latin word societas, which was derived
from the noun socius (“comrade" friend, ally." When Karl Marx used the
word “social” he implied the meaning of “human” in some cases and in
other cases he implied “cooperation.” He was looking for a word that lay at
the base of the capitalist market. Max Weber later came to see the whole
field of sociology based on what is “social.” “Sociology is a science”, he
said, but it is different from physical science in the sense of researchers
dealing “with social action seen by agents as subjectively meaningful.” This
meaningfulness can be observed as intended in human interaction or as an
ideal type interpreted as a number of agents view the world.
Other sociologists had different outlooks on what is “social.” Georg
Simmel defined the word “social” as the way people resolved their
interactions into “togetherness” or a union with others. It referred to the freeplaying interacting interdependence of people. Auguste Comte considered
“social” equivalent to the word “human.” Emile Durkheim defined “social”
as the virtual opposite of Max Weber’s meaningful human interaction. He
saw “social facts” as objective conditions set by a community that teaches its
members how to act in associations with statuses and roles. The larger
community defines all these positions. Thus, Durkheim emphasized its
objective meaning while Weber emphasized the subjective meaning of
“social.” Talcott Parsons saw the word “social” as a concept that integrates
all the social sciences.
So what is correct?
My answer: the word “social” can be used in all these ways but it is
important to indicate one’s own definition. I emphasized Weber’s definition
of “Verstehen” in writing The Human Perspective (1966) and in The Social
Economy (1977). I used Weber’s “ideal type”. Generally, the word “social”
refers to human interaction and organization. In Durkheim’s research on
Suicide, he used words that referred to what could be measured objectively.
For example, “egoistic suicide” is measured by degrees in which a person is
isolated from society, lacks altruism, etc. He uses operational definitions.
The word “economy” can be equally various in its usage. The
common reference is to the business sector but it can also refer to the Third
Sector apart from government. It may also be used to refer to the whole
society that includes government, business, and the Third Sector. In general
it exists where income is created. This broader usage makes the “general
economy” coterminous with society. See Appendix C under Glossary on my
webpage.
x
The Oxford English Dictionary credits William Makepeace Thackeray for
the first published use of the word ‘capitalism’ in his novel, The Newcomes
(1853-55). It is clear from its use and context that the word referred to
finance capital, rather than as a market “system’”. The word ‘capitalist’ was
used first in French, A. R. J. Turgot (1727-1781) used ‘capitaliste’ in his
essay, ‘Reflection on the Formation and Distribution of Wealth’ (17691770), and William Godwin used its English version, ‘capitalist’, in his
Political Justice (1794).
xi
In the late seventeenth century the word “individual” appeared as a fact.
People were beginning see themselves apart from their role (like a serf or
nobleman) in society. The importance of this idea then developed with a
normative meaning, the doctrine called “individualism”. The idea of “social”
was at first a fact but became a doctrine called “socialism”. In the 1830s
Robert Owen and his followers introduced the word “individualism” with a
pejorative meaning. Saint-Simon had the same derogatory notion. The word
“social,” in turn, became seen as a value apart from being an idea and a fact
of life. It became a doctrine called “socialism”. This doctrine of socialism
had a positive value in contrast with individualism and the new critical
notion of capitalism. It is important to distinguish the difference between
fact and doctrine. We know the idea of individual as a fact and the idea of
social as a fact. When I applied for research money during the Ronald
Reagan, I was told not to use the word “social” in my application.
xii
The financial benefit in the form of raising capital is a most distinct
advantage. An increased public awareness of the company can generate
publicity by making their products known to a new group of potential
customers. The Securities Exchange Commission regulates public
companies. In the case Santa Clara County v. Southern Pacific Railroad the
corporation was viewed as a citizen, with the rights of an individual. The
ideas of those times defined markets as natural, as though they were like
persons. In this world of evolving ideas and laws, and social structures we
see them all affecting one another. Ideas can affect the shape of a
corporation and market structures and vice versa.
xiii
Capitalism for professionals came to be defined as an economic system
based on private ownership of the means of production and the creation of
goods and services for a profit. Competitive markets, wage labor, capital
accumulation, voluntary exchange, and personal finance are part of those
markets considered capitalistic but this is not the whole story regarding the
economy.
Karl Polanyi looked at early societies, like Polynesian tribal groups and
ancient empires like Egypt and Rome. He found relationships characterized
by "reciprocity and redistribution" as well as "symmetry and centricity," not
“competition” and “profit.” Polanyi says that a market economy implies a
self-regulating system. A capitalist economy is directed by market prices.
But he notes how the economic system is actually absorbed in a social
system. A self-regulating market demands an institutional separation of
society into different spheres. Polanyi, Karl. The Great Transformation: The
Political and Economic Origins of Our Time (Boston: Beacon Press by
arrangement with Rinehart & Company, Inc.) 1944, 1957.
xiv
Mainstream economics refers to economics taught in prominent
universities, as opposed to heterodox economics. Heterodox economics
refers to approaches that are considered outside the mainstream. It is an
umbrella term that refers to various approaches. These include institutional,
evolutionary, post-Keynesian, socialist, Marxian, feminist, social economics
among others. It would take a book to differentiate between them but here
are few sentences that offer a hint. Evolutionary economics stresses
“complex interdependencies, competition, and structural change with
resource restraints,” Institutional economics focuses on understanding “the
role of institutions in shaping economic behavior”, i.e. the interaction of
various institutions (e.g. individuals, firms, states, social norms). Welfare
economics is a branch of economics that “uses microeconomic techniques to
evaluate economic well being” relative to competition and efficiency and the
resulting income distribution. Evolutionary economics deals with “the study
of processes that transform economy for firms, institutions, industries,
employment, production, trade and growth within, through the actions of
diverse agents from experience and interactions.” Social economics is a
branch of economics that focuses on the relationship between social
behavior and economics. It is close to socioeconomics insofar as examining
how social norms, ethics and other social philosophies influence consumer
behavior and shape an economy,
xv
The “neoclassical view” in economics refers to the mainstream field: the
determination of prices, outputs, and income distributions in markets
through supply and demand. It assumes maximizing utility by incomeconstrained individuals and of profits by cost-constrained firms employing
available information and factors of production. It accords with rational
choice theory. It is part of microeconomics, and includes Keynesian
economics
xvi
This field has its own a complex relationship with economics. At first
economic anthropologists began to view the economy from an individual
standpoint. They said the individuals pursue utility maximization by
choosing between alternative means. People will choose alternatives that
maximize a given amount of utility for the least possible amount of inputs or
effort required. They will do so based on rationality, using all available
information to measure the cost and utility of each means and considering
the opportunity costs involved compared to spending their time and effort on
other utility pursuits. Individuals are able to undertake the relevant
calculations. All individuals live under conditions of scarcity of means while
at the same time having unlimited “wants.” But other anthropologists
became closer to the thinking of Karl Polanyi.
xvii
Karl Polanyi, The Economy as Instituted Process. in Economic
Anthropology E. LeClair, H. Schneider (eds) New York: Holt, Rinehart and
Winston, p. (1968).
xviii
The first section-sessions on Economic Sociology were held at the 2001
Annual Meetings of the ASA in Anaheim, California. Two sessions (“The
Evolving Field of Economic Sociology,” and “Global Financial Markets”),
and roundtables (“Culture and Economy”) were organized by Brian Uzzi. In
its annual rankings of sociology departments, U.S. News and World Report
includes a section on Economic Sociology.
xix
Richard Swedberg says that he examines the full range of “economic
institutions “and explicates the relationship of the economy to politics, law,
culture, and gender. He says that sociologists too often fail to emphasize the
role that self-interested behavior plays in economic decisions, while
economists frequently underestimate the importance of social relations. For
him, the next major task for economic sociology is to develop a theoretical
and empirical understanding of how interests and social relations work in
combination to affect economic action. Neil J. Smelser & Richard
Swedberg, (eds.) The Handbook of Economic Sociology, (Princeton
University Press, 1995)
xx
Alexander Portes, Economic Sociology: A Systematic Inquiry, (Princeton
University Press) 2010.
xxi
(op.cit. Polanyi 1944:57). This point is worth repeating in different words.
Polanyi argued that the market economy achieved its highest point in the
nineteenth century with the “disembedding” of the market from its earlier
institutional context and the development of laissez-faire. But he added that
this first movement provoked a counter-movement from society expressed in
various attempts to re-embed market forces in social institutions and thereby
to regulate the market mechanism. Polanyi saw that the people in roles they
maintain, voice financial interests; other interests have a wider constituency.
They affect people in countless ways as neighbors, professional persons,
consumers, pedestrians, commuters, sportsmen, hikers, gardeners, patients,
mothers, or lovers – and are thus capable of representation by almost any
type of territorial or functional association such as churches, townships,
fraternal lodges, clubs, trade unions, or, most commonly, political parties
based on broad principles of adherence. (P.154).
xxii
Polanyi suggests that a theory of self-governance requires a more
sophisticated analysis. His perspective provides the basis for analyzing the
structural linking of the market economy with other institutions, such as the
legal, religious, political, educational, and more. This extension provided
some sociologists a basis for developing economic sociology.
xxiii
(Op. cit. p.3, 10-11, and p.206-08. Polyani saw high finance as the main
connection between the political and the economic organization. He saw the
self-destructive nature of the business sector. When the trade cycle failed to
restore employment, when imports failed to produce exports, when bank
reserve regulations threatened business with a panic, when foreign debtors
refused to pay -- governments had to respond to regulate business. (See my
book on The Field of Social Investment, Cambridge University Press, 1987)
xxiv
Inventions are basic to nature itself. See my e-book on “Evolution”
posted on my webpage. Inventions exist with animals (e.g. birds building
nests) and Homo sapiens with flint stones, and the evolution of civilization
with agricultural implements and further on into feudalism with the
invention of windmills. It is not a function of capitalism.
xxv
Mainstream economics relies upon a priori quantitative models.
Theory proceeds with an assumption of ceteris paribus, which means
holding constant explanatory variables other than the one under
consideration. When creating theories, the purpose is to find ones that are
most precise in predictions. In microeconomics, concepts include supply and
demand, rational choice theory, opportunity cost, etc. Macroeconomic
models focus on modeling the relationships between aggregate variables.
For example in monetary theory, the quantity theory of money predicts that
increases in the money supply increases inflation. Paul Samuelson’s popular
book, Foundations of Economic Analysis, used mathematical methods to
represent the theory, maximizing behavioral relations of agents reaching
equilibrium. The book showed a class of statements called operationally
meaningful theorems. These theorems are that are capable of being refuted
by empirical data.
xxvi
Karl Marx in the 19th century saw the evolution of civilization moving
from the primitive (tribal) society to the ancient empire (slave) society to the
feudal (serf) society to the capitalist (wage-earner) society. He anticipated
that there would be a succeeding form of economy he called communism in
which equality would exist for the lower class. These roughly hewed
categories in history came from the anthropology of Marx’s day and implied
a progression of stages in which the lowest class in society was increasing its
freedom at each stage of evolution. The cause for change was in the material
forces of production, not in the development of any ideals. But hidden in this
reference we see ideals like freedom and equality increasingly realized in
that history of society. Historians of course have reason to question Marx’s
rough “labeling” of classes in stages because the story is so various in
different regions and locations around the world.
xxvii
Micro economists study the behavior of individual households and
firms in making decisions on the allocation of limited resources. The subject
applies to markets where goods or services are bought and sold.
Microeconomics is about how human decisions and behaviors affect the
supply and demand for goods and services, which determines prices, and
how prices, in turn, determine the quantity supplied and quantity demanded
of goods and services.
xxviii
Since its inception in 1978, The Employee Stock Ownership Plan
(ESOP) Association has represented the interests of all corporations that
sponsor employee stock ownership plans. There are now 10, 000 worker
owned corporations. There is also the ICA Group headquartered in Boston
begun by AFSC and friends. It is a national not-for-profit organization that
creates and saves jobs through the development of employee-owned
cooperatives and community-based projects. ICA offers “a full range of
business consulting and technical assistance services, education, and
financing to clients seeking to start worker-owned and community-based
businesses.” ICA’s clients include scores of employee-owned businesses in a
wide range of industries and a variety of public sector and private non-profit
organizations concerned with creating and retaining jobs. “Through the
development of worker-owned cooperatives and Employee Stock Ownership
Plans, ICA helps clients realize their goals.”
xxix
There are 7,600 national trade associations in the United States, with a
large number (approximately 2,000) headquartered in the Washington, DC
area but there are also many trade associations at the state and local levels.
Altogether there are probably 25,000 trade associations in the United States.
Many of them have set standards that work for the common good as well as
in their own self-interest. But this growing trade process of cooperation in
setting standards is no panacea for eliminating capitalist markets. (This
“cooperation” among firms through associations helps to protect them from
government regulation and trade unions.) They develop oligarchies, like
democratic states and political parties develop oligarchies in the United
States. How “cooperation” in the market works at best for the common good
is a subject for more study in social economy. See my books on The Civil
Economy and The Civil Republic for the processes of competition,
cooperation, assimilation, and adjustment between the profit and nonprofit
sector.
xxx
Again, corporations today are becoming self-governing through
cooperation leading to worker ownership and self-management. Emile
Durkheim in his Division of Labor was seeking a synthesis of Marx and St.
Simon. In the final chapter of his Suicide he was concerned about the
“poverty of morality.” He was looking for a stable moral order in the new
(industrial) economy. He saw the rise of corporations needing some moral
order but the key question for Durkheim was how that moral order could be
developed. Could the development of a moral order be both spontaneous and
planned with government support?
xxxi
Alternative theories could be discussed. For example, there is “social
market theory “and “market socialism. Proponents seek a middle path
between socialism and laissez-faire economics. Theorists argue that federal
(government) regulation is required to establish fair competition in
competitive markets. They argue that governments can maintain a balance
between a high rate of economic growth, low inflation and low levels of
unemployment, good working conditions and social welfare -- by using state
intervention. People have defined state socialism with many variations.
xxxii
Look at past theories. This theory is close to Adam Smith’s idea of a
small government. It is also sounds like Karl Marx’s utopian goal on a
“withering away of the state.” Marx and Engels were opposed to anarchism,
which in their eyes meant to “destroy the state.” They both felt the state was
a necessary means to achieve the development of socialism. Yet this civil
theory may be closer to Durkheim’s rough definition of socialism in the 19th
century as an economy in which private corporations collaborate in the
interest of society.
xxxiii
For example, there is collusion between the business sector and
Congress by way of lobbying power and the appointment of big business
leaders to head government agencies that (ironically) regulate the conduct of
their friends in corporations.
xxxiv
Below is an example of how I took action to help build civil markets. In
2008 I told Representative Barney Frank (during the financial crisis) how
“rating agencies” (like Standard and Poor, Moody’s, and Fitch) are paid fees
by the very corporations that evaluate them. They give triple “A” ratings to
corporate clients even when they are in deep financial trouble. I argued that
this type of financial organization had to be changed. It is ludicrous for
rating agencies to get paid by the corporations they monitor.
I said to Barney: “Here is what you could do: Have the rating system of
corporations done by organizations that suffer from corporate misconduct.
(The S&P does not suffer for its misjudgments and wrong calculations.)
Rating should be done by pension funds like CALPERS, TIAA-CREF and
other countervailing powers that have billions of dollars invested in the
stock market. They (not S&P and Moody’s) have a vital interest in keeping
businesses financially stable because they risk investing in this market. Their
survival depends on sound and transparent corporate finance.
Another alternative would be for the government to set penalties for
misjudgments by rating agencies. If the SEC finds Moody’s ratings are
unprofessional, or seriously misjudged, then Moody’s (or any rating agency)
pays a penalty to the government for its mistakes. The penalty money goes to
the SEC. The SEC then has more staff and incentives to keep an eye on the
rating agency. At the same time the penalty would give the rating agency a
reason to get its judgment right, stay professional, not get cozy with
corporate clients.
I also said to Barney: John Kenneth Galbraith wrote about the principle of
“countervailing powers”. Organizations in the Third Sector are
countervailing and help keep the market self-regulatory, reducing the need
for government agencies and regulation. The government should support
countervailing powers in the market to make it self-regulatory. It is a major
principle to follow in changing capitalist markets into civil markets.
I gave him examples of how governments acted helpfully on market crises in
the past. Here is one example I emailed to him:
Willamette Industries was destroying the environment a decade ago. The
government ignored it. The EPA and the State of Oregon were tied to
business interests and refused to let citizens get vital information from the
company. But when civil society groups finally documented the pollution and
pressed for solutions, the federal government began to act.
Willamette Industries agreed in July 2000 to pay a fine ($11.2 million) to the
federal government to settle pollution claims, according to the Justice
Department and EPA. EPA Administrator Carol Browner called the
settlement on violations of the Clean Air Act involving factory emissions the
largest in agency history. Under the plan, Willamette will also be required
to spend $74 million to install new pollution-control equipment at its 13
factories in Oregon, Arkansas, Louisiana and South Carolina. Browner
estimated that cleaning up the emissions from the Willamette plants would
keep an average of 27,000 tons of pollution out of the air. She said that is
the equivalent of taking 287,000 cars off the road.
So, this is how governments work at best in capitalist markets with pressure
from non-governmental organizations (NGOs). But how would a
government handle this case differently by following a (civil market) model?
How could the government create a civil market?
First, the money from this public fine for Willamette Industries should have
been given to those Third Sector organizations (NGOs) that exposed the
problem. It cost them a lot to do the investigation -- against both business
and government interests. The money would reward them as whistleblowers
and strengthen their associations. In this case, the money would be given to
the Northwest Environmental Defense Council, its parent EDC, and the
Plumbers Local 290. The reward would pay for their work to expose the
problem.
Barney did not reply. I said: “Support the Third Sector like this and help
create justice in the market.”
In the midst of the financial crisis, I emailed Barney to support legislation
for a Consumer Financial Protection Bureau advanced by Elizabeth Warren.
(He agreed that it was a great idea.) But I argued the government agency
would not work by itself without the Third Sector. It would become just
“another regulatory agency” doing nothing to protect the public. More must
be done to change the market system. The government, I said, supports
capitalist markets, not civil markets.
I said, “Governments fail to protect consumers -- regardless of which
parties are in power, Republicans or Democrats. It is not just one party or
the other. Every new administration appoints experts from business to
regulate their market sector. The government’s reasoning is that businesses
and their executives know best on how to act on corporate misconduct.
I said: “Business leaders in these government agencies will protect their
market sector.” This collusion of a “government-market system” has been
going on for a century. It is still unresolved. A Consumer Protection agency
will be dysfunctional in the future just like the SEC, FCC, FTC, and other
government agencies. The staff will not really (seriously) regulate the
market. So what should be done in this case?
I sent Barney a list of consumer organizations that were countervailing in the
nonprofit (Third) Sector. I said: They should be part of the legislation that
helps to protect consumers. The government cannot do this regulation alone.
These nonprofit organizations included The American Council on
Consumer Interests, the American Council on Science and Health, the
Center for Auto Safety, the Coalition Against Insurance Fraud, Consumer
Action, and the Consumer Federation of America, Consumers Union, the
U.S. Consumer Public Interest Group, and others. Such groups should be
associated with the Consumer Protection Agency and by legislation have the
opportunity to give advice and counsel. And they should have access to the
mass media. If new staff on the government’s consumer agency did not
“see” a consumer problem, these NGOs could go to the mass media and
inform the public. They would be “whistle blowers” with inside information.
They would increase transparency about how the government is not acting
properly.
Again, I said the principle to follow is: Create “countervailing powers to
solve this problem. Corporate malfeasance happens so often that it should
be obvious to government representatives. Lehman Brothers cooked its
books so that its quarterly reports would make the firm look far more solvent
than it actually was. It used “repurchase agreements” ("repos"), which are
short-term loans to disguise $30 to $50 billion worth of liabilities. Their
balance-sheet manipulation began in 2001.
Barney did not follow my suggestions. He phoned and asked me to stop
sending recommendations. He was too busy.
I said that this kind of corporate misbehavior demonstrates the systemic
failure of the government to protect investors, creditors and the larger
economy from corporate fraud. The Securities and Exchange Commission,
which had personnel investigating Lehman at the time, completely missed
what was going on right under its nose. It keeps happening -- like the
Madoff scandal. The government in such cases is part of the problem,
supporting and subsidizing the capitalist system.
A big way for government to treat market problems is to stop subsidies that
are unwarranted. For example, big agricultural corporations get every kind
of corporate subsidy, including dairy price supports, export-enhancement
programs, and payments for not growing certain crops. Other privileges
include special deals for ranchers, oil companies, and lumber companies to
graze on, drill in, or cut resources from federally owned lands at drastically
reduced prices. Each case needs Congressional research to maintain a
balance in trade and keep societal self-sufficiency in the economy.
xxxv
In the early 1800s statutory limits in the United States were placed on
the size, capital, scope of power, and indebtedness of corporations. See
Severyn Bruyn, The Social Economy (John Wiley & Sons) 1977, Chapter
One.
xxxvi
Kent Greenfield, “The Stakeholder Strategy,” Democracy: A Journal of
Ideas, Fall, 2012.
xxxvii
Léon Walras developed a four-equation general equilibrium model that
concludes that individual self-interest operating in a competitive market
place produces the unique conditions under which a society's total utility is
maximized. Ludwig von Mises, in Human Action, claimed that Smith
believed that the invisible hand was that of God.
xxxviii
Gabriel Kolko documented how large-scale corporations turned to
government regulation precisely because of their inefficiency. For Kolko,
the enemy has always been what sociologist Max Weber called “political
capitalism, that is, “the accumulation of private capital and fortunes via
booty connected with politics.” G. Kolko, (1963), The Triumph of
Conservatism, (The Free Press) 1963. G. Kolko, Railroads and Regulation,
1877-1916, (Greenwood Publishing Company) 1965
xxxix
In Capitalism, Socialism and Democracy (1942), Joseph Schumpeter
developed this special concept of “creative destruction” after reading Marx’s
thought, arguing (in Part II) that the creative-destructive forces unleashed by
capitalism would eventually lead to its demise as a system.
xl
There are thousands of examples of civil associations and organizations
based on democracy at work in the nonprofit sector. For example to maintain
quality pet care, the AAHA has developed a set of accreditation standards
that are used to measure excellence in veterinary medicine. Currently, more
than 3,200 veterinary clinics hold the “AAHA-accredited” designation.
The Joint Commission (TJC), formerly the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO), is a nonprofit
organization that accredits more than 19,000 health care organizations and
programs in the United States. A majority of state governments have come
to recognize Joint Commission accreditation as a condition of licensure and
the receipt of Medicaid reimbursement. Surveys (inspections) are made
available to the public in an accreditation quality report on the Quality
Check Web site. There are so many more.
Universities and colleges have their own accrediting agencies in the
private sector. They are visited periodically to determine whether they meet
high standards in the market system. The National Association of Colleges
and Employers provides “best practices”, trends, research, professional
development, and conferences. The Standards for Libraries in Higher
Education are designed to guide academic libraries in advancing and
sustaining their role in achieving their institutions’ missions on their
campuses. Libraries must demonstrate their value and document their
contributions to overall institutional effectiveness and be prepared to address
changes in higher education. They note on their webpage: “These Standards
were developed through study and consideration of new and emerging issues
and trends in libraries, higher education, and accrediting practices.”
xli
Some market civility is evolving now but it will develop quicker and
more predictably with new government policies. New government policies
could help the economy become more free, productive, efficient, and
profitable, and accountable to stakeholders. Markets should be encouraged
by government to be transparent for the common good.
xlii
Cooperatives are democratic businesses and organizations, equally
owned and controlled by a group of people. There are worker co-ops,
consumer co-ops, producer co-ops, housing co-ops, agricultural co-ops,
financial co-ops and more. In a cooperative, one member has one vote.
When community members own cooperatives, they keep money (and jobs)
in their localities. They do not go overseas. Co-ops don't outsource or just
pick up and leave. They work to benefit and contribute to the communities
they reside within. This is because people that are part of the community
own them.
In the Basque region of Spain, Mondragon has a co-op system that includes
more than 200 worker co-ops and nearly 100,000 worker-owners. The
organization of these co-ops lifted this economically depressed region out of
poverty. It continues today. Supporters say that cooperatives are
“organizations of mutual aid, where individuals work together to achieve
their goals” - financial security, workers' rights, access to healthy food and
beyond - by benefiting the whole. And cooperatives are more resilient in
economic downturns. When other businesses might shut down or lay off
workers, co-op members pull together to work out solutions. For example,
the National Rural Electric Cooperative Association reports that it has 841
distribution and 65 G&T cooperatives that serve: 42 million people in 47
states, 18 million businesses, homes, schools, churches, farms, irrigation
systems, and other establishments in 2,500 of 3,141 counties in the United
States that represents 12 percent of the nation's population.
xliii
For more information along these lines, see Waddell, S. (2011). Global
Action Networks: Creating our future together. Bocconi University on
Management. Hampshire, UK: Palgrave-Macmillan. Steering Committee of
the State-of-Knowledge Assessment of Standards and Certification. (2012).
Toward Sustainability: The Roles and Limitations of Certification.
Washington, DC, USA: RESOLVE, Inc.
xliv
In addition, we need to develop a global nonviolent peace force to work
creatively with the United Nations to prevent war. A nonviolent peace force
was a dream of Mahatma Gandhi (he called it Shanti Sena). Such global
peace forces are now emerging. For example, there is the “Nonviolent
Peaceforce” (NP). This is a nonpartisan unarmed peacekeeping organization
with the goal to protect civilians and reduce violence in areas affected by
armed conflict. In partnership with local groups, NP teams of Unarmed
Civilian Peacekeepers apply strategies to protect threatened individuals and
communities. The worldwide staff helps to deter violence, and create space
for local civil society actors to build sustainable peace.