The Next Economy: Understanding the Problem, Envisioning Solutions

Catlin: I want to begin by giving you a chance to set the stage. When you pull way back and look at this moment in history and the current economic situation, what do you see? I’m asking for a broad look at the cycle and where the paradigmatic break downs are taking place.

Bjonnes: As many of us have noticed, we’re living in a time of great polarization, as well as a time of great economic, environmental, political and cultural turmoil. Some economists, such as the German economist Wolfgang Streek, the author of How Will Capitalism End, said that “The finance sector will very soon implode in a crash.” Incidentally, P. R. Sarkar, the Indian philosopher and economist, said something similar–that capitalism would eventually “explode like a firecracker.” When this will happen, is, of course, anybody’s guess. But it could happen soon, or it could happen in a decade. As we all know, the beast of capitalism, is very resilient. I am here, of course, talking about corporate capitalism, since small scale capitalism, or small private enterprises such as farms, restaurants, shops, and so on are vital to any healthy economy.

So, as you said, let’s step back and take a brief overview by looking at the four crises we mention in our book: the finance, inequality, resource, and environmental crises. Each one of these crises are quite severe on their own, and they cannot be solved in a piecemeal fashion, by reforms. We opened our book with a quote by Naomi Klein. She wrote that, “We live in a time of overlapping crises, and we need to connect the dots. We do not have time to solve each crisis sequentially. We need a movement that addresses all of them.” And that’s essentially the essence of our book, as well.

We need solutions. The times for reforms are over. That’s why it’s likely we’re in for a big crash, because the reforms are not working. We’ve been, in a sense, taking a reform pill for decades.

We are offering our solutions in the third part of our book. We need solutions. The times for reforms are over. That’s why it’s likely we’re in for a big crash, because the reforms are not working. We’ve been, in a sense, taking a reform pill for decades. The acid reflux of corporate capitalism has turned into heart disease. But the good news is that this heart disease can be reversed. But only if we throw away the reform pill and change our lifestyle, our way of living, our economy. As we say in the book, we have to restructure the entire economy, step-by-step.

As we have also seen recently, there’s a growing discontent, both from the right and the left. The right is reacting in many reactionary ways, and sometimes even in ugly ways. And on the left, people are protesting against racism, inequality and climate change, sometimes violently. But nevertheless, many of the reactions are justified, as many people are frustrated, grasping for answers, for solutions. There is great instability and uncertainty from the growing precariat, a term used recently by James Kurth, when he spoke at the Festival of New Economic Thinking, in Edinburgh, Scotland. One of my friends sent me some notes from that conference, and he said that James Kurth, who used to work for the Council on Foreign Relations, surprisingly sees hope in the restless precariat, the underemployed, and those of us working three jobs to make ends meet.

He also sees hope in the Bernie Sanders movement. And again, Sarkar said something similar, that the change would come from the “disgruntled intellectuals”, those with a “revolutionary spirit.” At that same conference, Joseph Stiglitz was speaking as well. The former chief economist of the World Bank, who in many ways has made a complete turnaround, as he is now very skeptical of neoliberal policies, of deregulation, [corporate] free trade, and so on. These are all policies, which he once supported, but now he says, “We need to create a Nordic model of economics everywhere.”

If we go back to the roots, to the Greek word Oikos, economics then literally means to take good care of our Earth household. Oikos is thus the common basis of both economics and ecology. That idea, to combine ecology with economy, needs to be our basic economic philosophy.

But in Growing a New Economy, we ask: is that going to work? Does the Nordic model hold the solution to our problems? This is an essential issue, I think, because many progressive people, many people who talk about economic democracy, they are seeing great hope in the Nordic model. And the environmentalists see hope in sustainable capitalism. But are these models good enough? I don’t think so. Instead we need to pose some more fundamental questions. The main question, which E.F. Schumacher also talked about, is the following: what should be the philosophical underpinning of our economy? Then we need to ask what economics is all about? If we go back to the roots, to the Greek word Oikos, economics then literally means to take good care of our Earth household. Oikos is thus the common basis of both economics and ecology. That idea, to combine ecology with economy, needs to be our basic economic philosophy.

So, first, we need to bridge ecology with economics. Then we need to bridge ethics with economics. And we need to bridge science with soul, or with spirituality. These vital links are totally missing in our economic system today. But this is something we need to address. We are not doing that on any big scale. Finally, we need to ask what “progress” means. Capitalism says that progress is equal to material growth, to making profit. Sarkar, on the other hand, says that material progress is not real progress because there are always side effects to any kind of material progress. You can never create perfection on the material level. So, he says that real progress is found in creating a good society and in creating great culture. In other words, in finding inner meaning, in a society that supports the spiritual growth of humanity. This is fundamental. And again, these are all issues missing in mainstream economics and in capitalism in particular.

…society and our ethics and our basic philosophy of life, and not some abstract mathematical theory, need to guide economics.

There’s a fundamental failure in materialism, because materialism can only give us some physical comforts, but not inner peace and happiness. Fortunately, there are a few economists focusing on this today, which is very heartening. But because of this failure in modern, mainstream economics, the capitalists try, but have failed, to turn economics into a pure science. They are operating in a theoretical vacuum, and Karl Polanyi pointed this out already in the ‘40s, that society and our ethics and our basic philosophy of life, and not some abstract mathematical theory, need to guide economics. We can’t just assume that economics is some sort of numbers game. And he also pointed out that capitalism tends to commodify everything, to make everything into a commodity. And finance capitalism has made economics into a speculative game. In a sense, I think today’s speculative economy is an outgrowth of this commodification.

Capitalism is also based on the selfish pursuit of greed, the freedom to earn as much as you like. But also on the freedom to exploit, the freedom to have the power to deny other people their fair share. This freedom is totally ignored by conservatives. They simply justify exploitation and great inequality, as if that’s normal. The Marxists criticize this aspect of capitalism, but they haven’t really come up with a real alternative.

Then we have the reform movement, which again points towards the Scandinavian model. Incidentally, I grew up in Norway, and I’m quite familiar with that society as an alternative to the more hard core capitalism of the US. John Maynard Keynes, the economist, with his reform policies, and the European left in general, struggled to soften the blows of capitalism, to redistribute wealth through higher taxes and wages, and so on. And this created a European welfare state, and many economists are today looking towards that as the model of the future. Paul Krugman, Joseph Stiglitz and Bernie Sanders, they all love that model, as well as many other economists.

But, I think that this model also has serious flaws. For one, it’s not environmentally sustainable. It also wastes enormous resources on propping up a welfare system that has many flaws. I can go into great detail about that, but in short, I agree with some of the criticism on the right about that model. And again Sarkar has, I think, an answer to that: not to create a welfare model, but rather a full employment model, to utilize people’s inventive spirit and strong work ethic. And again, the EU is a reflection of this flawed welfare model. And in the book, we are quite critical of the EU, mainly because the EU is fundamentally based on a neoliberal economics model with the four freedoms: the free movement of goods, capital, people and services. And I think because of this neoliberal economic foundation of the EU, we’re seeing a crisis in the EU right now. Both a political crisis and an economic crisis.

So, the reform movement, supported by Stiglitz, Sanders, and so on, is in many ways a very positive sign, but it is also a limited vision. Then we have the environmental movement, which again is very important and very positive. But it has certain weaknesses also. And we’re trying to reveal some of those weaknesses in the book. The main weakness is that they haven’t really understood the fundamental flaws of capitalism. We are also seeing that these reform societies are leading us toward increased inequality, and into speculative finance capitalism. Every time I go home to my mother in Norway, I see more rich people, more and more materialism, more and more wealth and inequality, and a general movement away from the decentralized economic system that I grew up with in Norway in the 60s and 70s.

On the other extreme, we have the American model of less regulation, less reform. An extreme neoliberal economic model, which has created a speculative, rentier economy, with large monopoly companies, and so on. Banks controlling the economy and the rest of us, who are, in a sense, economic slaves. Many of us have become part of that precariat, the educated underemployed. And as an economist said, we’ve created a “casino capitalist economy.” We’ve got increased inequality. We have created an inverse welfare state, welfare for the rich. Or, as Ralph Nader put it, we have socialism for the rich and capitalism for the poor. And, as we have written in the book, we have created a resource crisis, we are on the way to live out our means. As some researchers have pointed out, we are literally using the resources of one and a half planet, and soon we will double that usage.

We’ve created a tremendous global ecological crisis. On top of the debt crisis, and the inequality crisis. And again, the green movement has been a great response to that, but I don’t think it is enough. We don’t need a reform system, or a sustainable capitalist system. We need a new economic structure.

So, I don’t think the next economy will be the Nordic model, or the EU model, because, as I said earlier, these economies are also based on neoliberal economic values, on deregulation. They are not really about true economic democracy. I also think that it will likely get a lot worse before it gets better. It is possible, and quite soon, that the finance sector will implode in a great crash. So, yeah, as Bob Dylan sings in one of his songs: “Everything is broken.” I think, in many ways, that is true, and on a global scale. At the same time, more and more people, both on the left and even on the right, are realizing these fundamental issues. I was surprised, for example, that the biographer of Margaret Thatcher wrote in Fortune magazine some time ago that he thought that corporations should be turned into worker enterprises. Quite a surprise, and this was printed in Fortune magazine!

We can’t just tinker with the system any more, which a lot of the so-called sustainable capitalist ideas are doing, simply tinkering with a system that really needs to be restructured completely.

Of course, one article like that, is not going to create any revolution by any means. But I think it is important that some people on the right are also waking up to some of these new possibilities and realities. I also think that more and more people are realizing that nationalism is not working, that we need to both protect the local and the global at the same time. This is a very important point. We need to bridge economics and culture. We need to bridge science and spirituality. And we need to solve all of our crises in an integral way. That is very important. We can’t just tinker with the system any more, which a lot of the so-called sustainable capitalist ideas are doing, simply tinkering with a system that really needs to be restructured completely.

The positive thing is that people need to, and will, at some point, rise to the occasion, and hopefully very soon. But before that, it is likely that we will have more economic turmoil, more international turmoil, and so on, on many different levels. Different crises, both economically and environmentally, will take place. But finally, I think that these crises together will give us the critical mass of people, of awakening, which we will need for creating real change.

Catlin: Thank you, Roar. Great, great introduction. Where I want to begin is going over the distinction that comes up repeatedly in the first chapters of the book between the real economy and the financial sector.

The real economy is the easier part for me to understand. I think of it as old, basic capitalism from maybe 40, 50, 60 years ago. And in that system, someone has some money which they put into building a factory, buying machines, purchasing raw material, and hiring workers. All of that goes into producing something that is presumably sold at a profit. The workers get their salaries. And, the original investor, the capitalist, gets whatever additional profit there is. And the basic idea is that now this wealthier person will then use some of his new wealth to buy more machines and hire more workers. In this way, his profit keeps getting turned back into the real economy, helping it grow in a way that benefits everyone. Is that an essentially accurate description?

Bjonnes: Yeah, I think that your analysis is basically correct. I think the real economy is, in a sense, economic activity that adds to the amount of wealth in the world. So, yeah, I essentially agree with that description of how the system works, which also more or less corresponds to Marx’s MCM formula: money, commodity, money. In other words, money is invested to produce commodities and then sold for profit. In this system, as you said, the capitalist ends up with more money than what he had when he started. And then at the same time, he is producing something with that money. Prior to that system of capitalism, in the more feudal system, they used what Marx would term the CMC model: commodity, money, commodity. In other words, a farmer had land, and that’s a commodity, and he produced something from that land, and he sold it, and then made money, and then with that money he purchased more commodities, another horse, or some more cows. So that’s a very simple model of economics.

So in this style of capitalism, where there’s profit, that profit can be used for good, by investing it back into the real economy. Or it can be used for speculation, in what we call a Rentier economy, or the Rentier system. And this is very much what is happening today. This Rentier economy, this speculative economy has grown tremendously. But essentially, the way that you describe it, is basically right. That is how “good capitalism” functions. This would be the small-scale capitalist in the private enterprise system, where the profit margins are not allowed to become huge. And where inequality is not allowed to expand to an unhealthy level. So, rather than taming the beast of capitalism with taxes and so on, it’s better to keep capitalism on a small scale. And when capitalist firms become bigger, then we turn them into cooperatives.

Catlin: I think I remember that Sarkar suggested once a business had expanded to a certain number of employees, that that’s when it would need to become a cooperative. But, we’re not in that world yet. So let’s switch now into the world that we are in, and let’s pretend that the capitalists that I just described in the first piece there has a fairly substantial manufacturing industry. And let’s pretend he’s made a million dollars that he now has. And in this new financial sector, what are his options? What are the kinds of things he might do with that money that don’t actually create anything in the real economy?

Bjonnes: Yes, so he can invest that money in the stock market, into what we call the speculation economy. He can become a casino capitalist, if you will. If he is lucky, he can turn that $1 million into 10 million, even more. You know, many people have, for example, invested in the bitcoin market, 10 years ago, or whenever it started, and they are now multimillionaires. So this is happening more and more. This part of the economy, ironically, is now the largest part of our economy.

We can also lose all of that money in the stock market, in a stock market crash, which I’ve also seen. I studied agronomy, and I was very inspired by John Robbins’ book Diet for a New America in the 1980s, a book on factory farming. And then I learned recently that he became quite rich, after he first gave up his fortune as an heir to the Baskin-Robbins ice cream company. He made quite a lot of money writing books and having speaking engagements. He became an environmental activist. And then he lost most of that money in the financial crash of 2008. So this can happen to people like him, who basically gave up a financial fortune for ethical reasons, as he was a vegan and wanted to have nothing to do with his father’s company, and then he made his way up again. So these kinds of restless, economic crashes, these kinds of boom and bust cycles are very much a part of the American system. And we see it more and more, how the financial economy has taken over.

So in a sense, this system, or this economy, isn’t producing much tangible wealth. Yes, you may make a lot of money, and you may build five houses. So there is some spill over into the real economy, but very little. You may start another business, and so on. Yes, some tangible wealth is created, but most of that money is just sitting there somewhere and doing nothing for the real economy. So, in a better economic system, or a more ideal society, the wealth would be the oil in the machinery of the economy to produce more real wealth. We need financing. We need some debt to create more money, to produce something, to create some profit. But this financial system has become so pervasive, so powerful, that it literally controls the whole system that it was designed to serve.

Uber, the world’s largest taxi company, basically doesn’t own any taxis. Facebook, the world’s most popular owner of media, doesn’t create their own content… And so we have this strange new economy that creates tremendous amounts of wealth, but most of that wealth is going to the top.

Catlin: Right. Let me ask you a follow-up question on that. You mentioned that my hypothetical millionaire could invest in the stock market and go the speculative route there. And the question I have now is this: Would everyone agree that that’s not a really productive, useful way of investing, or of using that money? So, if we brought in a center-right businessman at this point, what would he say about investing in the stock market? Would he argue that that’s actually good for the world?

Bjonnes: Yeah, I think so.

Catlin: Okay.

Bjonnes: I think that this is very much what is happening now. In that way, the conservatives, the right, has done a fantastic job of explaining away the exploitation of capitalism. And we have all become caught up in it, more than ever. Yes, they will explain that away. This is what we hear from Trump. This is what we hear from the Republican Party. Even to some extent from the Democrats, we hear this, that more wealth creates more jobs, and so on. But it isn’t necessarily so. The financial system is necessary for the real economy to exist because it enables human beings to cooperate in complex ways, and so on. It increases productivity. So, the problem isn’t necessarily with the financial system, but due to the fact that this system has taken over the control of the real economy. That it’s siphoning off too big a portion of the profits, which could have been reinvested into the real economy instead. So today, the rentier economy has become very pervasive, and it is a system of economics which we are all caught up in.

Tom Goodwin wrote in an article recently that Uber, the world’s largest taxi company, basically doesn’t own any taxis. Facebook, the world’s most popular owner of media, doesn’t create their own content, like a newspaper does. We create the content. And the same thing with Airbnb, the world’s largest provider of accommodation, they don’t own hotels. We own those accommodations. And so we have this strange new economy that creates tremendous amounts of wealth, but most of that wealth is going to the top. And this has been illustrated by the recent research by Oxfam. When we first began researching the book, some 359 people had as much wealth as half of the world’s population. Today that same number, of extremely rich people, has dwindled to only eight people. To me, that is really astounding. That is incredible.

Similarly, Thomas Piketty, the French economist who wrote the bestseller Capital in the 21st Century about inequality, pointed to the fact that inequality is increasing. When we study his statistics, we understand that this is happening on a massive scale. But at the same time, as I said, the capitalist market is cleverly bringing us all into this very same system. We are all on Facebook. We are all buying from Amazon. We are all part of it. And I think this cleverness is part of the reason why we are all asleep at the wheel and not standing up and saying: “Enough is enough!” So, this is a very odd realization, I think, but an important one. And I’m heartened by seeing that more and more people are waking up to these insights and speaking the truth.

George Caitlin is the former president of Economic Democracy Advocates

Read Parts II and III of the interview