Capitalism 3.0 – Peter Barnes
This is the first book that I’ve read in 6 months or so. The recent happenings, while evermore encouraging, have also tried mine and everyone’s perseverance, leaving little (in geekspeak) mental bandwidth or (in Portuguese) saco to distill an analysis on a particular topic. This, coupled with the fact that I’m almost exclusively a non-fiction reader, and my reluctance to use the blog as a cathartic tool, yields the long-standing hiatus.
Wow, was that a contrived and businessy paragraph or what? Okay, I’ll try to ease into it.
Whether it’s a sign that the topic is very near to my heart or the fact that I had a 7-hour layover in JFK, the fact is I finished Peter Barnes’s “Capitalism 3.0” in a day. I first read about this book in an issue of AdBusters (An interesting magazine, though as the title suggests, makes up for its lack of ads with a $20 price tag). While the magazine is more leftist than my own convictions, the article Barnes penned really caught my attention, as he posited something I had a chance to talk and study about at both courses I took at Harvard. But first, let’s re-cap on how is it that this book really struck gold with me.
Awhile back I decided Bentley wasn’t adequately stimulating my neurons, so I decided to double-up on summer school and take classes at Harvard in addition to my normal workload. I picked two classes: game theory and a management course. I picked game theory for a very silly reason: it sounded really pretentious and it was taught by a de-facto Harvard professor (as opposed to other Summer School courses), so I figured I’d give it a try and see what all the Harvard fuss was about. The second course was a more general management course that was heavy in theory and light in cases—the exact opposite of the standard Bentley course.
Game theory was a blast—I never felt so stimulated in my life and, I admit, its pace was perhaps too fast for my dormant neurons. At the same time, it introduced me to a foundation of choice and consequence, actions and motivations which have been with me ever since. Those of you who talked to me for the month after the course know that I ended every rational analysis with an indicator for choice and motivation and the quip “It’s all game theory.” Between allegories of hawks and doves, prisoners and their dilemmas, we addressed (however briefly) the tragedy of the commons. Wikipedia describes the tragedy as follows:
The parable demonstrates how free access and unrestricted demand for a finite resource ultimately dooms the resource through over-exploitation. This occurs because the benefits of exploitation accrue to individuals, each of which is motivated to maximise his or her own use of the resource, while the costs of exploitation are distributed between all those to whom the resource is available (which may be a wider class of individuals than those who are exploiting it).
The paradigm example is the use by individuals of communally owned land for the grazing of animals owned privately by those individuals. As Hardin sees it, the utility to each individual of adding a single animal to his own herd is, more or less, the value of that animal; the cost to the individual is the consumption of the resources of that animal divided by the number of communal owners of the common. That is, the benefit to an individual of “hogging” a resource inevitably outweighs the cost where communal resources are concerned. All economically rational herdsman in the community will add as many animals as they can to their own herds and as quickly as they can (before other herdsmen do), meaning that the finite resources of the communal land will quickly become exhausted.
“Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit—in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.
This was in agreement with game theory, which posits that rational players in a game with a finite or known number of “rounds” will always be best served by “defecting”, and in this case, taking more than their fair share of the commons.
My management theory class was also very interesting (though certainly less life-altering), and dealt a lot with Ronald Coase’s work and agency theory. It was a good parallel to my game theory course as it provided applications of choice and motivation questions not answered in the “pure” spectrum of 2×2 squares and 1,-1 values of game theory.
All of this, plus my readings of The Corporation and Globalization and its Discontents, formed a lot of my worldview on Keynes vs. Hayek, Friedman vs. Galbraith, Statism vs. Privatism. Where does private enterprise stop and government start? In this, I always proudly called myself a “radical moderate” (Tom Friedman’s words) or an “extreme centrist” (Peter Barne’s). I say proudly not because of pride in my convictions (and thus irrationally immutable), but a pride in my ability to look at things from both sides before coming to a conclusion and not being dogmatic about one particular side of the spectrum. (Austin would probably argue I do this to a fault).
These things come to my previous conclusions about the solution to these economic quandaries, and how despite the late Milton Friedman’s sheer brilliance, at the end of the day he is talking about irrational actors acting on imperfect information in asymmetric markets. I often talk about bringing that level of information up and using “dollar voting” as a form of activism. My work on “It-who-must-not-be-named” is a core illustration in that belief (for reasons which will be explained in a later post).
Peter Barnes offered a perfectly reasonable alternative (although possibly just as optimistic) to striving for perfect information. And someone who can quote Dr. Seuss alongside Ronald Coase and Thomas Payne is sure to have my complete and undivided attention.
The central idea of the text is that while the current system aims to use government to control the externalities (such as pollution, deforestation, patents, etc.) produced by corporations, in practice these corporations end up bringing a Gatling gun to a knife fight, easily overpowering government through lobbyists and other financial means. Anyone who’s mildly into world events knows that to be the case (though reading The Corporation is a good “Sparknotes” substitute). What Barnes proposes is the creation of a series of trusts for common goods such as natural resources, the arts or innovations, making sure that the use of these resources can be managed sustainably while minimizing the unavoidable inflation with dividend payments directly back to its “trustees”: us and our future generations.
The short way to characterize Barnes is as a tree-hugging libertarian capitalist (I’ll bet he’s either from or lives in Vermont!)—which puts him right up my alley. At the same time, he is in favor of the supply of public goods such as universal healthcare (Canadian, not UK style). This really helps taking him at face value, as he is progressive enough to strive for equal opportunities, while being realistic enough to stay away from using taxes to redistribute income. At times he reminded me of my High School days, where I piously believed in “equal opportunity” (hardcore to the point of abolishing private schooling, mind you). But again, he does so with somewhat elegant examples, such as the Monopoly analogy.
As Barnes argues, the primary problem stems from the zero-cost of exploring what is thought of as commons. A starting example would be that of a mining company, which bought land from the government for $5 an acre, extracting gold from said land, but not paying the government (or anyone else, for that matter), for the wealth retrieved, receiving perpetual ownership rights for a one-time payment. This “distribution” of the commons means that whoever has the capital and property, will always have it, as there is no pressure to redistribute wealth.
The clearest analogy is that of Monopoly—the game, not the Microsoft kind. In it, there is a veritable “land-rush” of people going out with an equal amount of money to buy what are in effect public lands and using them for profit. Much like in Monopoly, in real life you never pay royalties to the commons on what you take out (only taxes on the land itself), so in essence what you have is perpetual ownership with property taxes, as opposed to a license to explore. The end result we all know—first one to build a hotel always wins. And that result is perfectly translated to the real world—those with the property will always be the ones with the hotels, taking others to the bank.
Monopoly has one difference, though, which is important to point out: the $200 you collect when you pass go. That single, recurring payment can be understood to be a dividend—a periodic amount paid to a trustee of the commons. A modern-day example is Alaska. Most people don’t know that the residents of Alaska do not pay any state income tax. Just the opposite, they are paid money by the state. The money comes from royalties paid by the oil industries, which in exchange for a right to explore the commons, compensate the state which, in turn, compensates the people of the state.
Barnes’s other posit, oddly, can also be explained by Monopoly. He favors the use of an estate/inheritance tax to create what is in essence Monopoly’s starting money. Those well-off would give 50% of their estate to this fund, which would give a specific amount of money at a certain age to all.
Coupled with a universal healthcare system, both the commons trusts and the “children’s fund” would go along way to making sure that people have a better chance in life, with money to be used for college or, for example, to start a business.
The book itself is very neatly structured into “problem, solution, and implementation”. For every posit there are several examples of where this is working, whether in the micro (such as the Marin County Land Trust, which pays farmers to maintain a certain level of preservation and limit development on farmland) or the macro (Canadian healthcare system). Overall, it’s a very well-written, well-supported book.
I truly believe that nearly every one of his posits would make the world a better place. At the same time, it breaks my heart to think that I (nor my children) will ever see a large trust in charge of, say, the atmosphere or even a major river. It all has to do with the one aspect Barnes doesn’t even touch on—globalization.
Unfortunately, there is a present-day parallel to make the case that Barnes’ proposal is too good to be true. The Kyoto treaty, which took effect in 2005, suffers from a classic problem of game theory, where, for example, the US would not compromise to reduce its emissions (and thus “swallow” increased costs) unless its main economic competitors (including China) did as well. When it became clear that developing countries (especially China) would be in a significantly more advantaged position due to the size of their population in calculating reduction targets, the US backed out (China was eventually granted an exemption altogether).
The same type of competition conflict occurs with the commons strategy. Unless everyone is willing to take part in the commons strategy and play by the same rules (IE: valuation of the specific commons is by a neutral party), then no one will agree to artificially decrease the competitiveness of their products in the international market. This is possible because while internal inflation should be counter-balanced by the royalty payments, there is nothing to counter-balance that higher price in an international market. If China doesn’t sign on to the commons proposal, their products will invariably be at an advantage in comparison to yours. In a global economy, that kills the commons proposal.
So is that it? Are we doomed? No, not in my opinion (and certainly not in Barnes’). I think Capitalism 3.0 is a great way to change the way people think about our common resources. Smaller, more realistic commons projects are a great way to push up the floor of government vs. corporate control. As Barnes himself says, the notion of challenging the divine right of capital in the media already goes a long way to making it real. If the commons can make sure that our basic resources are protected against plundering, then government should step in and curb excesses and inequality in the grand scale (the “ceiling”). If Kyoto was the beginning, reclaiming the commons is, perhaps, the end of the beginning.
