A Guide to Reclaiming the Commons
216 pages (San Francisco: Berrett-Koehler, 2006)
Peter Barnes is calling for a fundamental change in the way our economy is structured. Our current version of capitalism (2.0) is failing to generate the environmental, social, and economic returns that are vital to our society. With a new approach, Barnes writes in Capitalism 3.0, we could simultaneously protect natural resources, reduce poverty, and make virtually everyone substantially richer. Like all utopian schemes, Barnes’ is both thought-provoking and impractical.
As co-founder of the highly successful social venture Working Assets, Barnes appreciates the importance of property rights, but as an idealist, he proposes to redefine our notion of property. Historically, capitalism has progressively increased private property rights by reducing the size of the commons. Instead, Barnes wants to increase property rights by allocating the commons to the collective, a process he awkwardly labels “propertization.”
Consider the problem of climate change. Corporations do not voluntarily limit their emissions of carbon into the atmosphere because the air is essentially free. Now suppose the government established a trust that held all property rights to the air. This trust would charge fees to polluting firms, and carbon emissions would gradually decline. The bulk of the money would be distributed as dividends to the fund’s beneficiaries – U.S. citizens – and the remainder would be spent on various public goods. With this one policy change, we could save the planet and redistribute wealth from polluters to the rest of us.
Barnes extends this model to solve other social and economic problems. Young people who weren’t born to rich parents often can’t afford to buy a home or pay for college. Why not redefine the nation’s stock exchanges as part of our commons? In exchange for the right to issue publicly traded shares and the privilege of limited liability, all publicly traded corporations would be required to deposit 1 percent of their shares in an American Permanent Fund (APF) every year for 10 years. This fund also would distribute annual dividends to all individuals, creating a universal birthright and a true ownership society.
But why not simply impose a carbon tax or increase corporate income taxes? Barnes argues that if we left fund management to elected officials, companies would lean on the government to reduce taxes. By placing the atmosphere and the stock exchanges in the hands of independent trustees – a sort of social Federal Reserve – the trust would be more immune to political pressure. At the same time, by allocating dividends to citizens, we would create a powerful political constituency to protect the APF’s revenues.
Barnes’ capitalism 3.0 is not a wholly radical innovation. Similar notions exist in various policies, not all of which he acknowledges. For example, Franklin D. Roosevelt’s Social Security system is politically untouchable thanks to the vested interest of every future retiree in the nation. And the Alaska Permanent Fund receives 24 percent of the revenues collected from the use of the state’s natural resources – principally oil – creating a $30 billion fund that pays yearly dividends to all Alaskans.
Curiously, Barnes also neglects to discuss what is arguably one of the most successful examples of the use of market incentives to reduce pollution – the emissions trading schemes established by the Clean Air Act of 1990. These schemes differ from Barnes’ plan in one important way: The property rights to the air were initially given to existing polluters. Under Barnes’ plan, the APF would sell the rights to the air. This would ensure a continual revenue stream from polluters, but it would also substantially increase the costs of pollution controls, which may or may not be economically practical.
The Federal Communications Commission provides a good model for the concept Barnes has in mind. Since 1974, it has auctioned off various parts of the electromagnetic spectrum for tens of billions of dollars. The key difference between the FCC and Barnes’ proposal is that the money from the sale of spectrum goes directly into the federal government’s general revenue fund, not to a specific purpose or to individual citizens.
Another comparable system is the leasing of public lands to energy and mining firms and ranchers. The flaw in this arrangement is that the fees appear to be set much too low. Barnes’ plan would fix that. If usage fees were distributed to citizens, they would presumably put pressure on the government to increase them.
These examples suggest that capitalism 3.0 is essentially an extension of economic principles already in place. Why, then, is it a utopian formula? Consider, for example, the carbon trust. Barnes falls prey to the common misconception that only corporations pollute. In fact, a significant portion of carbon emissions is generated by individuals driving their vehicles and heating their homes. Therefore, individuals would owe fees to the APF as well. And shouldn’t the fund also charge people who ride on mass transit, in taxis, and on airplanes – all of which pollute? What about people who build campfires and use fireplaces? Nearly everyone who received a dividend check would also get a bill, and at the end of the day, they might not be any better off. Moreover, as Barnes acknowledges, corporations would shift many of their additional costs to consumers and employees. At present, we are all benefiting financially from the current lack of controls on carbon emissions.
The APF’s other revenue source, corporate shares, is also questionable. Public corporations, after all, don’t own their stock. Barnes is actually proposing that we expropriate the property of 9 percent of a firm’s shareholders. (Presumably, the first 1 percent will come from the firm’s initial public offering.) How will these investors be chosen? And just as carbon fees would reduce the amount of pollution, would not imposing fees on publicly traded stock reduce the amount of the stock that is issued? Many businesses would likely remain private, or issue bonds instead of stock. And if that reduced the rate of economic growth, we would all be poorer, despite dividends from the APF. Unfortunately, there are few win-win solutions in the real world.
Nonetheless, Barnes prompts us to think more creatively about how to achieve public purposes, and that is a useful contribution. More modest policy alternatives might well be worth pursuing. Personally, I would like to see progressives like Barnes support a carbon tax, whereby firms can trade pollution reductions, and revenues fund a cut in Social Security taxes, as well as alternative-energy research. This may not be as exciting as capitalism 3.0, but it would do much to reduce carbon emissions without unduly burdening the working class. It would also help establish the principle that global commons are not really free: If you contribute to climate change, you should be held accountable.
David Vogel is a professor at the Haas School of Business and the department of political science at the University of California, Berkeley. His most recent book is The Market for Virtue: The Potential and Limits of Corporate Social Responsibility (Brookings Institution Press, 2005).