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 is a social order that generates a culture for the entire society.
It includes the family, the business sector, and the Third Sector.i
This is a field of knowledge in sociology that 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 organize associations and engage in social
interaction in very different ways. Capitalism is only one way to do this.ii
Capitalist markets did not exist in the Middle Ages and they are
changing today into something different. 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” without much 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. Social interactions and forces take place in
markets that not based on just power and politics.
The concept “social” is more comprehensive (including political
relations of course) but also relationships that are not -- like interpersonal
relations and organizational relations based on symbolic interaction. It
includes the nonprofit institutions and their subcultures, not just government.
The social economy in the modern period includes the Third Sector with its
churches, science associations and civic groups having their own values and
ways of life.
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 society. In this broad sense, the economy is
linked with the whole society.vi
Etymology
Such words as “social” and “economy” and “society” did not exist at
one time. 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 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 its 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, or systems of belief.xi
My point is that the word “social” from a sociological perspective
refers to a scientific (analytical) fact that underlies all 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 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 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 seen 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. It is a phenomenon that is latent and emerging.
Similarly today the term “private sector” can refer to the business
economy and the “public” refer to government. But the private sector is
steeped in questions of whether it should be “public” outside of government.
We can see the term “public” emerging with its own meaning inside the
private sector as issues of transparency appear again and again in business.
The term “public” is used (normally) to refer to a government but it may
refer to “the community as a whole.” It can refer to the common welfare. It
can refer to an activity in the private sector.
Adam Smith looked at enterprises as “public.” When the market has
small enterprises that are transparent, then “reason” should win for buyers;
people can make rational decisions in their own self-interest. In his time,
business had not yet legally separated itself as distinct sector of society.
Many terms (e.g. public and private) evolve in meaning with the
advance of new social structures and laws in society. The legal “structure”
and the “ethos” affect one another 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 central to
economies. But he felt the capitalist economy developed as an economic
system.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 fact. 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 paradigm. But the “social” as a fact was seen
only as “conditioning” (affecting) economic 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 economics, not sociology.xv
Consider the intricacy of this change. It is like watching the hour hand
of a clock move or a seed grow into a flower. 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. It
is not seen analytically to be at the foundation of the economy. Economists
do not see the economic order rooted in a social order.
Consider how different and 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 blend together into the membership. But now we must see
how economic anthropology took one more step toward recognizing that
economic life is rooted in a social order.
Economic Anthropologyxvi
Polanyi was drawing from research in economic 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 broader sense of
“economizing”. Economics 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
redistribution and reciprocity. Reciprocity is defined as 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 cultural-specific 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 of
economics 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" 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 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 plays 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 part of society. He simply develops
the social factor as an analytical concept in the economies around the
world.xxii
Economic sociologists now 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 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 at least 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.
What does this history tell us?
A Sociological Perspective
The ethos of a society is important to consider in a theory of social
economy. The public thinks that the market is based on competition; the
bottom line is “economic” (i.e. money, efficiency and profits); markets are
driven by financial incentives. But that is not the whole story. Nonprofits
like churches, temples, unions, and universities compete and cooperate in the
market. They must balance their budget but their foremost goals are not
profit making. Money is not their primary motivation.
In this business ethos people believe that there would be no incentive
to work and that no inventions would take place without the goal of making
money. But that is not true. Inventions took place long before the evolution
of capitalism. Inventions have taken place since the beginning of
civilization.xxiv
When sociological research on the economy is more popularized and
publicly oriented, citizens should see how a social order underlies the
economy. The bottom line is “social” in its analytical meaning, not just
profit making. Mainstream economics has become filled with formulas and
calculations on prices as though the economy was “natural” (not human);
economics is defined as a science, not a social science. But when the
capitalist economy is conceptualized sociologically, the picture changes; the
economy is grounded in society. A sociological perspective alters the way
we see markets change in a larger context.xxv
For example, sociologists study the way a corporation is socially
organized, not assuming that they are all command systems. The nonprofit
sector of corporations includes churches that range in their governing
systems from high “command” (e.g. Catholic and Episcopal) to relatively
democratic (e.g. Presbyterian and Congregational). Business corporations
may develop such governing variations as this sociological perspective
becomes more public.
The way business corporations are socially organized is important.
Corporations are (and can become more) organized by a system 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 mutual
governance changes the character of business from its typical command
structure. Employee ownership and self-management are evolving in
business firms. This is a recent (latent) trend not typical of capitalism.xxvi
The way markets are socially organized can also show how capitalism
is changing. A sociological perspective can better predict a market’s success
or failure. This is because so many social processes exist by which a market
is orgnized 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 market organization to understand the reality and predict the future.xxvii
Business corporations were competing so hard in the 19th century
market that they were destroying each other in ways that were 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 sector.
They became self-governing like corporations today quietly become selfgoverning with worker ownership and self-management.xxviii
Socialist Doctrines
Normative theories develop as a reaction to capitalist markets. 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. But is different from state socialism.
People have defined state socialism with many variations.
During the first half of the twentieth century the Soviet Union and
Communist Parties around the world came to represent socialism in terms of
the Soviet model. To some extent, other countries (e.g. China and Cuba)
followed this model. This meant centralized planning directed by the state.
Some governments called themselves socialist and also a “mixed economy”
with partial nationalization and an emphasis on social welfare. I could go on
with more variations but… Socialism is a doctrine. It is not my theory.
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 a democratic government is to cultivate the basis for
the market to regulate itself. In this case, the state encourages
corporations govern themselves through associations for the common
good, together -- apart from the state. The purpose of government is to
keep fair competition going but to encourage cooperation to maintain
public standards (e.g. safety, healthy, environmental protection) in the
interest of society. This lessens the need for government to regulate the
economy from the outside.
In addition to other purposes of government, like promoting the
general welfare and protection of its citizens from invaders, the task is
to increase transparency and public accountability in the economy. The
purpose is to encourage countervailing powers, electoral processes,
judicial powers and democratic associations in the private economy.
This policy includes offering economic incentives that lay a basis for
self-governance among corporations with their associations in the
private sector.xxix
This social theory is different from positions taken by Democratic and
Republic parties in the United States but surprisingly it is in 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. In practice it also leads to Democratic values, e.g. greater
income equality among citizens, transparency in exchange, and public
accountability
Republicans and conservative economists claim that the market is
already self-regulating. Well. This may be partly true but not enough to keep
the market from becoming destructive to people and the environment. I view
the current market organization as self-destructive in ways that require a
parent state to regulate it. The capitalist economy is not truly self-regulating.
One could describe the capitalist economy as in an adolescence stage of
social development, not yet mature enough to be independent of the
government.
Democrats and left-oriented economists claim that the government
should regulate the market. This is true under present conditions, but such
policies alone (market socialism) lead toward bigger government. As
socially organized, the capitalist market will find new ways to be exploitive
in spite of government agencies and regulations.xxx
Hence, the market requires new government policies to build a new
(civil) economy that can be more free, profitable, self-regulating, selfsufficient, self-correcting and self-reliant without government regulations.
My books all show how this can be done by societal development. The
process is based on a mix of voluntary action, imitation, modeling,
competition, cooperation, spontaneity and government planning.xxxi
My Question
My question is how the private sector could become more selfgoverning to work for the common good apart from the state. How can the
private sector become truly free, profitable, and self-regulating?
Some historians argue that political democracy began in Ancient
Athens but it is a very complicated story of evolution. Political democracy
evolved in countries around the world by free will, intent, and spontaneity. It
has taken centuries for it to evolve, as we know it today, a very slow
process. The rise of democratic parliaments in England and Scotland
involved the Magna Carta (1215), which limited 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.
Likewise one could also see the economy changing by the centuries,
slowly, like the hand of a clock. In the modern period, the business sector
separated from the state to become a private domain but keeping a feudal
tradition, not democratic. In the United States, citizens were afraid of the
“new corporations.” They required state charters for corporations with
ethical rules to operate in society. But then states began to compete for
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 the “lords and barons of
industry.” The capitalist economy developed without the basic forms of
democracy. Government regulations then began to take place to protect the
public.xxxii
The legal scholar Kent Greenfield describes how States competed
against one another in this “race to the bottom.” For the last century,
Delaware has won. Here 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.xxxiii
Societal evolution is not just progressive in its differentiation of
institutions. 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 new, small, rational 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
innovative markets was “freedom from government controls.”
Smith coined the phrase the “invisible hand” to describe how
individual 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.xxxiv
Competition in markets alone could not support laissez faire apart
from the state. Markets were kept from collapsing by social forces and
processes not economic. In the social economy, 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. 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 compete and 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, or 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.xxxv
The economist Joseph Schumpeter saw markets on a path of “creative
destruction.” Capitalist markets are creative but remain self-destructive.
They force the government to regulate them over and over again.xxxvi
My question is how to lay the basis for markets to 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 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) do this. They cooperate to have outside judges and professional
evaluators to make sure they maintain their standards. New policies mean
advancing the values of democracy, freedom, justice, and equality in the
business sector. It means stakeholder participation at local and national
levels.
The co-op movement. xxxvii
I call this process “social development” in the private sector because it
leads to a growth in public accountability and transparency in the public
interest. Social development, ironically, leads to Republican values, a
balanced budget, and smaller government, i.e. less need for state regulation.
For Democrats it leads to more market transparency and socially
accountable corporations.
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 self-governance and becomes part of a civil society, building step
by step by social contracts in private markets, keeping competition alive.
Some market civility is evolving now but it will develop quicker and
more predictably with new government policies. New government policies
would 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.
“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. For
a definition of all these concepts see The Glossary on my homepage
“Glossary” on the left side under A Civil Republic.
An Emerging Civil Economy
Relatively “free markets” developed slowly from feudalism with new
government policies and now the structures for self-governing markets are
appearing. 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 typical
capitalist organizations. Ethical practices in finance (e.g. social investment),
corporate codes of conduct in business and public standards in trade
associations are evolving.xxxviii
Below are a few organizations that exemplify what is happening in
self-monitoring.xxxix
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 decisionmaking. 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.
he bluesign® standard is an independent industrial textile standard directed
and implemented by bluesign technologies. It is designed as a
comprehensive Input-Stream-Management-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
organisation providing a secure, robust, and user-friendly central database of
information for companies to store and share ethical data including selfassessment, 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 and corporation operates with self-interest but
develops socially through systems of shared governance, like electoral
processes, self- adjudicatory systems and jointly approved outside monitors
in the private sector. “Self-interest” remains as new democratic systems of
mutual-governance emerge.
These new systems are created both by voluntary action and by
government policies (e.g. a new tax system, proper subsidies, etc). They
develop with movements toward “public standard making” (safety, health,
environment protection, etc.) in trade associations. They should be
encouraged across all industries– roofing, chemicals, plastics, furniture,
shoes – and thousands more. They also need to be researched by sociologists
for their problems, their unintended consequences, as well as the degree to
which they add to the common good.
Many more details are in my books but new policy changes need to be
introduced right now. 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, and
ending military waste, closing overseas military bases, -- and more policies
like these that make common sense.
There are many new steps needed at the global level with details that
support domestic change. For example, reducing the need for big defense
departments and size of military armies in nations can be reduced by
strengthening and restructuring the United Nations, working toward new
global governing systems, developing enforceable international law and
world courts. Developing global nonviolent peace forces to work creatively
with the United Nations could help prevent civil wars. This was a dream of
Mahatma Gandhi (he called them Shanti Sena). And such groups are now
emerging.
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 develop civil markets, click on Beyond
Capitalism on my webpage.
i
A “social order” refers to a set of linked structures, institutions, and social
practices that maintain and enforce regular ways of relating and behaving in
society. In a sociological perspective, it 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 again are based on a frame of cultural values.
These stable expectations do not necessarily lead to individuals behaving in
ways that are considered beneficial to group welfare.
ii
Sometimes I say that the social economy is based on “symbolic
interaction” (instead of social interaction). This might confuse professional
sociologists. Symbolic Interactionism originated as a concept with George
Herbert Mead, Charles Cooley, and Herbert Blumer. Blumer held premises
about this outlook. These 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. Sociologists
(people) also 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
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.
xxvi
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 workerowned cooperatives and Employee Stock Ownership Plans, ICA helps
clients realize their goals.”
xxvii
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.
xxviii
Emile Durkheim in his Division of Labor seemed to be 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 sees the rise of corporations
needing some moral order but the key question for Durkheim was how that
moral order could be developed. Could the spontaneous development of
social norms be used for planned development?
xxix
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 19 th
century as an economy in which private corporations collaborate in the
interest of society.
xxx
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.
xxxi
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.
xxxii
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.
xxxiii
Kent Greenfield, “The Stakeholder Strategy,” Democracy: A Journal of
Ideas, Fall, 2012.
xxxiv
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.
xxxv
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
xxxvi
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.
xxxvii
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.”
xxxviii
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.
xxxix
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.