By Mike Suarez
Capitalism, as we know it, has served the economy in much better ways than any other economic system, but that was then. Now, we ask: Can capitalism survive the challenges that humanity will face in the 21st century, serving societies in the same successful ways? How can capitalism adapt itself to cope with the future?
Let’s start by taking a brief glance at some of those challenges and how they could collide in a perfect storm and then we will examine a redress, that of ‘Indispensable Philanthropic Capitalism’.
Monopolies, by concentrating wealth, undermine democracy and become a determining factor in economic depressions. Using the Gini coefficient, the accumulated wealth of the richest 1% in the US has increased from 33.4% in 1962 to 39.6% in 2016* (Table 2, see also income statistics). There is no personal prejudice for such accumulation, but the lack of a savings cushion in the middle class threatens to aggravate the consequences of an upcoming recession of more serious consequences than the one suffered in (2007) and may become a major depression, that surpasses that of 1929.
Currently, and increasingly, technology is a determining factor in the concentration of wealth and the creation of new global monopolies. Four of the five largest market capitalization companies in 2019: Apple (1976), Microsoft (1975), Amazon (1994), Berkshire Hathaway (1962) and Facebook (2004) are technology companies, with a global scope and less than 50 years of history *.
Free trade has been the guarantor of the expansion of these monopolies, but what political counterweight to free trade is able to curb some of the most pressing problems on the planet? The invisible hand of Adam Smith does not seem to have dealt efficiently with these problems, which leads us to our third argument. Non-economic resources are wasted or abused by citizens who, motivated by personal interest and acting independently, albeit rationally, end up destroying a common shared resource, although none of them agrees to do so. (Tragedy of the Commons & Elinor Ostrom).
“Freedom in a commons brings ruin to all” Garrett Hardin
Until the twentieth century, global problems — when corrected — did so with national or partial solutions, but rarely coordinated. As the excesses in society as a whole, and especially in developed countries, suffocate our only habitable planet, it will be necessary for society as a whole to seek solutions and the richest, given its greatest surplus of resources, will be the ones which will have to make a greater effort for its resolution; I can’t think of who else can fund global solutions to global problems of vital importance. Whatever the future of humanity may be, it will have to be a shared future. Therefore, involving and giving management capacity to individuals with greater financial and business success in solving global problems seems a sensible way to ensure the success of that enterprise; they and their families will also be the most benefited. On the other hand, I trust them more than any politician and having a common philanthropic obligation may be the spark that starts a virtuous circle. Warren Buffett encouraged hundreds of wealthy families to follow his example, but that might not be enough to convince other magnates like Carlos Slim of the need to solve the unpostponeable problems of society. Let’s give Carlos Slim the opportunity to make his wishes come true when he says that his concept is based more on solving problems than distributing money like Santa Claus. Let us make ultra-wealth limited as long as the unpostponeable problems limit the future of all humanity.
The central idea of philanthropic capitalism is to analyze a temporary limitation on the wealth of any individual to a maximum amount whose excess, instead of being collected through taxes, is separated from the donor’s equity and aimed at developing solutions to those unpostponeable problems, such as: the degradation and destruction of nature and the environment. The philanthropic capitalism can freely choose which community projects to donor and he will be part of its management and administration bodies, if that were his desire.
Why call it ‘Indispensable Philanthropic Capitalism’? First, because it is not a mere adjustment of fiscal policy; it is a limitation, desirably temporary, to the operation of the capitalist system whose success has been indisputable, from my point of view, whether we observe its worldwide implementation, as if we compare it to other systems. However, the seriousness of certain problems in our near future make the search for solutions unpostponable and given that the rest of the agents: states, political institutions, global or national, have been unable to solve them, perhaps it is the economic system itself whoever has to go to the rescue and demonstrate whether capitalism is up to the challenge or we must pass the witness to other economic systems, such as communism or socialism. I want to think that capitalism is the system that is most likely to find such solutions, but I don’t consider it sensible to close ourselves in trying the other options. Unfortunately, failure is not an alternative. It is possible that some people think that it is not the task of capitalism to control itself, but what if it were also capable of doing so by avoiding its death by success? Wouldn’t it be an improvement?
And why do I call it ‘indispensable’? The temptation may be to impose such a system, in which case, it would have been called mandatory, but it is necessary for societies to choose it freely and democratically, in the same way that capitalism and the free market have been chosen in most countries that have adopted it. On the other hand, it is not a tax itself, since it is not a transfer of resources from the private sector to the public sector, when it is the philanthropist himself who organizes the resources to achieve a freely chosen objective. Nor is it a donation, in the strict sense, since it would not be voluntary, hence the adjective of ‘indispensable’.
Given that the idea is based on the way in which the investor Warren Buffett has made his philanthropic donations, it is appropriate to refer to the reasons that led him to make his decision.
It is controversial to demonstrate whether or not there is a direct relationship between greater wealth, its fair distribution and the different political systems. It is Carlos Slim who says that an entrepreneur can do with a dollar the same as a politician with three. I am one of those who think that private initiative in competitive markets without barriers to entry offers better customer satisfaction results and greater work motivation than corporate or public initiatives. I also think that there are sectors that cannot be privatized without running the risk of endangering society as a whole, being the creation of money by central banks or justice, good examples. Nor is there a magic solution when economic oligopolies have shown great skills to influence power structures through political lobbies. At the same time, it is indisputable that no political system is able to achieve a fair distribution of wealth, in practice. However, these are my opinions and trying to prove them would be to enter a swampy ground where attention is easily distracted of the central issue.
Warren Buffett explains market distortions as follows:
“My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery. (For starters, the odds against my 1930 birth taking place in the U.S. were at least 30 to 1. My being male and white also removed huge obstacles that a majority of Americans then faced.)
My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.” Warren Buffett
The solution to the problem of market rewards seems more like an art than a science. The premise of this art is to prevent one or more individuals (or groups) from harming society as a whole or putting it at risk. An easy scale of values might be imposed: global, national, group and individual; but it is difficult to put it on practice. I wish the United Nations would have succeeded, but it has not been that way and time has run out. It is necessary to prepare alternative solutions, urgently. We may not have to implant them tomorrow, but if we have to do it, it is our duty to have them prepared as of today.
On the other hand, the limitation system is reversible given that the result of the projects could, under certain circumstances, reintegrate the philanthropist’s assets, for example when the problems have been solved or if the philanthropist wealth was considerably reduced (for reasons beyond the expense of his resources, and as long as the results of his philanthropic work were positive). It is not the objective to distribute poverty, nor to punish success or entrepreneurship, but to solve problems that cannot be postponed and avoid the limits to the future of humanity.
These principles should not necessarily encourage socialism. If the need becomes permanent, these principles should reduce the margin of action of the state and integrate a new competitor who, with due advantage, should increases efficiency or leave out of play, both its state competitor (allowing a reduction of taxes) as well as the private (non-philanthropic) one. It is not the objective to achieve a non-for-profit monopoly but to enlighten competition outside monopolies (public or private), oligopolies and political lobbies for crucial sectors. And this objective, if attainable, will only be achieved with the help of those entrepreneurs who have demonstrated their ability in the market. There are many dangers that turn a good desire into a bad practice (I’m thinking about left and right dictatorships). Personally, I follow the popular maxim that, in theory, theory and practice are the same, but not in practice. That leads me, to admire communism, in theory and to embrace liberal capitalism, in practice. The challenge is to avoid the limitations of each of these systems without falling into the arrogance of trying to create a new theoretical system.
Failure: What reasons could lead to the failure of an initiative that, although logical and common sense, will never please the majority who must put the funds to carry it out? Selfishness, laziness and ignorance seem clear candidates to lead to failure to an emergency resolution system that requires, precisely, high doses of generosity and collective motivation.
The main problem could be one of tax or legal jurisdiction. That is, if the 1% can avoid the rule by changing their fiscal residence, it will be very difficult to carry out such initiatives; take tax havens as an example. On the other hand, if the middle class, which has the necessary mobilization power to involve the richest 1%, takes too long to react and demand the necessary political changes to solve the unpostponeable problems, we will have to settle for the desperate solutions that someday will be imposed by those with the means to carry them out. It is clear that desperate decisions will have a clear confrontational component to perpetuate the status of some, against the needs of the majority.
Nor should we forget that selfishness can indefinitely delay some decisions. What kind of circumstances would lead the richest 1% to organize a solution to a global problem? Will that 1% be able to agree on a wealth limit, on the conditions to implement it or on how to resolve their possible conflicts when their wealth is based on the principle of competition, profit maximization and accumulation? I don’t think so.
At the same time, the middle class seems polarized and susceptible to fall into the most simplistic labels, like believing any justification that exempts them from the responsibility and effort required to investigate and contrast information to reach conclusions based on a personal analysis. If the alarm of the scientists has not been enough to alert public opinion in general, neither will an initiative so difficult to implement. I am not referring only to this initiative, but to any other alternative that has to face the challenge of convincing a majority that lacks a resolution systems of ‘common tragedies’.
Democracy presupposes the ability of citizens to make sensible decisions. If this premise is compromised, the democratic system is bound to fail. However, it will do no good to blame the politicians for the results obtained: they, as a reflection of society, never assume the faults of society as a whole, only offer to lead a change that never comes to pass.
Thus, the danger of not finding the solution to the problems that cannot be postponed in the current democracies is to derive in elitist oligarchies that dominate them or in nationalist socialisms where the party decides who is expropriated and who is rewarded. I am not sure which alternative is worse. These extremes have been literally portrayed in the Grapes of Wrath (Steinbeck) or The Gulag Archipelago (Solzhenitsyn) and become more likely when democracy and citizenship are weakened. History easily repeats itself.
If you want to share your thoughts or solutions and see more details, they are open sourced at: Github (https://github.com/raroraroraro/RedressingCapitalism)