The New Systems Reader

Alternatives to a Failed Economy

James Gustave Speth, Kathleen Courrier, James Gustave Speth, Kathleen Courrier

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000171266
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Political History & Theory
• Index: Politics & International Relations

The recognition is growing: truly addressing the problems of the 21st century requires going beyond small tweaks and modest reforms to business as usual—it requires "changing the system." But what does this mean? And what would it entail? The New Systems Reader highlights some of the most thoughtful, substantive, and promising answers to these questions, drawing on the work and ideas of some of the world's key thinkers and activists on systemic change. Amid the failure of traditional politics and policies to address our fundamental challenges, an increasing number of thoughtful proposals and real-world models suggest new possibilities, this book convenes an essential conversation about the future we want.

Part I

Social Democracy and Radical Localism

Any discussion about why billions of people globally struggle (and often fail) to meet their basic needs, and why even many who nominally succeed see themselves as cogs in an economy that drains their humanity, must eventually come to the question of how the economic system is designed. What is the economy designed to do? Who is it designed to benefit? Who or what powers it?

Capitalism and socialism offer sharply different answers to these questions. But societies built around the precepts of both ideologies have come up short in distributing wealth, rewarding work, encouraging innovation and creativity, and making the opportunity for a life of well-being universal. Is the answer a better form of capitalism? A better form of socialism? A mix of the two?

This part features three approaches to building a different economy. None calls for a full break from capitalism, and all involve a market economy. But they offer different structures based on different governing principles from what we see today.

Lane Kenworthy, a sociology professor at the University of California, San Diego, drawing inspiration from the Scandinavian countries, models “social democratic capitalism”—market capitalism aimed at the full realization of economic security, equality of opportunity, and shared prosperity. In his view, government should play a key role in improving economic and living conditions, and minimizing inequality. The details of that role include using a progressive income tax structure to cover the cost of an income floor for the less well-off. “Getting closer to the good society doesn’t require a radical break from our historical path,” he writes. “It simply requires continuing along that path.”

Henning Meyer, editor in chief of Social Europe and a research associate of the Public Policy Group at the London School of Economics and Political Science, also posits a social democratic system, but his version has a mixed economy. The production and sale of some goods, like consumer electronics, would happen in a profit-seeking market while such vital public goods as healthcare services would not. His “Good Society” is values-driven, emphasizing inclusivity and democratic decision-making and “seek[ing] to combine an activist cosmopolitan outlook on global issues with a re-foundation of social democracy’s communitarian roots.” Henning calls for prioritizing enlightened politics over economic interests, and for embracing diverse ownership models, including models that better suit the production of public goods.

Economist and entrepreneur Michael H. Shuman, director of local economy projects at Neighborhood Associates Corporation, proposes radical localism to create “a million utopias.” Pointing to the economic, social, and environmental achievements of highly decentralized Switzerland, Shuman argues that a compelling possible direction for systemic transformation of the United States is through the principle of subsidiarity, in which decisions are made closest to the people—at the state and local level. He also envisions open markets coupled with robust antitrust enforcement to keep enterprises “diverse, small, and competitive,” even though the public sector’s scope and power would generally be minimal. Given the toxicity of 21st-century US politics, he writes, the strongest argument for decentralization as a path to systemic change “is that it is happening already.”

Chapter 1

Social Democratic Capitalism

The Nordic Experience and Beyond

Lane Kenworthy

To this point in history, the most successful societies have been those that feature capitalism, a democratic political system, good elementary and secondary (K-12) schooling, a big welfare state, employment-conducive public services, and moderate regulation of product and labor markets. I call this set of policies and institutions “social democratic capitalism.” All rich longstanding-democratic nations have the first three of these—capitalist economies, democratic political systems, and good-quality K-12 education. The distinguishing feature of social democratic capitalism is its addition of expansive and generous public insurance programs along with aggressive promotion of high employment via public services and modest rather than stringent regulation of product and labor markets.¹

The aims of a good society include community, democracy, economic equality, economic opportunity, economic prosperity, economic security, economic stability, education, employment, environmental quality and sustainability, family, finance, freedom, good government, happiness, health, housing, knowledge, law and order, openness and support for other peoples, privacy, and safety. Social democratic capitalist countries have done better than others at achieving economic security (decent living standards for the least well-off and stability of income and expenses) and equality of opportunity. And they have done so without sacrificing the many other things we want in a good society, from liberty to economic growth to health and happiness and much more. Social democratic capitalism has proved more effective than existing alternatives at helping the least well-off and just as effective as those alternatives at achieving other aims.

The chief practitioners of social democratic capitalism have been the Nordic countries—Denmark, Finland, Norway, and Sweden. Contrary to what some presume, there is no good reason to think social democratic capitalism will work well only in these countries. Its success almost certainly is transferable to other affluent democratic nations. Indeed, all of those nations already are partial adopters of social democratic capitalism.

The American Way Forward

What changes are needed in the current system to achieve social democracy? In the contemporary United States, the chief changes needed lie in the realm of social policy. The United States has many public insurance programs and government services already. For the most part, they work very well. We should adjust and expand some of them and add others because the experience of other rich democratic nations shows us that there are other policies and programs that would be good for Americans and because we face new economic and social challenges that didn’t exist or were less consequential in earlier eras.

What exactly should we do? We should add or improve the following:

• Health insurance
• Paid parental leave
• Child allowance
• Unemployment insurance and wage insurance
• Sickness insurance
• Disability insurance
• Social assistance
• Criminal justice
• Pensions
• Elder care
• Housing assistance
• Early education
• Apprenticeships
• College
• Affirmative action
• Full employment
• Minimum wage
• Earned income tax credit
• Profit sharing
• Infrastructure and public spaces
• Paid vacation days and holidays

Why rely on government programs rather than such intermediary institutions as families, civic organizations, and labor unions? One reason is that these institutions don’t cover everyone. There has never been a society in which all children grow up in stable two-parent families, all workers enjoy union-negotiated wages and benefits, and civic associations serve the needs of all the disadvantaged. Moreover, these institutions have been steadily weakening for half a century. Americans marry later and divorce more frequently. Fewer children grow up in a home with both of their original parents. Participation in voluntary organizations has been declining. And barely one in ten employed Americans is a union member. Even more problematic, these changes have a class tilt: families, community organizations, and union membership have weakened most among those with less education and income. Advocates for revitalizing these institutions offer lots of hope, but little evidence here or from other rich nations that revival is possible.

On a spectrum from imminently practicable to purely speculative, social democracy lies at the imminently practicable end. It exists to varying degrees in the four Nordic countries. Many other rich nations have some of the policies in force already, and some of those countries have been changing or adding policies to move closer to social democratic ones. Since the United States has perhaps the longest road to travel among the world’s rich longstanding democracies, it might take half a century to put in place the full array of policies used in today’s Nordic nations.

The notion of a social democratic United States will strike some observers of US politics as a pipe dream. But in the realm of public social policy, the distance between the United States today and Denmark or Sweden today is smaller than the distance between the United States a century ago and the United States today. In the past 100 years, we’ve put in place a host of public programs that contribute to economic security, opportunity, and shared prosperity. Getting closer to the good society doesn’t require a radical break from our historical path; it simply requires continuing along that path.

Progress will be incremental, coming in fits and starts. But steps forward will have staying power. New programs and expansions of existing ones will mostly persist, as they have in the past, because programs that work well become popular and because the array of veto points in the US political system makes policy changes difficult. Small steps and the occasional big leap, even coupled with some backsliding, will cumulatively increase the breadth and generosity of government social programs.

This isn’t a prediction about the timing or conditions under which specific policy advances will occur. It’s a hypothesis about a probabilistic process. Over the long run, new programs occasionally will be created and existing ones intermittently expanded, and these additions and expansions are unlikely to be reversed. This pattern, in fact, aptly describes the history of US social policy over the past century.

Good Society Economics

Much remains unknown about how best to run an economy. We have virtually no evidence, for instance, about whether a large-scale democratically planned economy could function effectively. The same is true of a basic income grant at a level high enough to make employment genuinely optional. One of the strongest arguments for social democratic capitalism is that we have real-life experience with this model and that experience offers reason for optimism that the model can achieve a host of goals.

Here are some specifics, as they exist in the contemporary Nordic countries:

A significant share of all productive assets and businesses are privately owned, though in some sectors, such as health care, most or all may be state-owned. Most investment decisions are made by firms. Private firms keep profits, but are taxed at a fairly high rate, as are the income and consumption of individuals.

Markets play the leading role in allocating not only investment but also labor, goods, and services. Government regulates these markets, extensively in some sectors. And government may be a large employer; in some Nordic countries, nearly a third of employment is public. Planning of the national economy is limited mainly to steering resources toward certain sectors (“industrial policy”).²

Social democracy is compatible with a range of firm sizes and corporate governance arrangements. Firm ownership might be dominated by larger shareholders who provide patient capital or by small shareholders favoring shorter time horizons. Firm boards could be elected entirely by shareholders or by a mix of shareholders and employees (“codetermination”).

Labor unions play an important role in determining wage levels and wage differences in social democratic countries. Unionization rates in the Nordic nations remain among the world’s highest. If unions were to continue to weaken significantly, as they have in many other rich democratic nations, government would need to take a more active role in wage determination, via a statutory minimum wage (which none of the Nordic countries currently has) or Australia-style wage tribunals. Most medium-sized and large firms are required to have an employee-elected workers council, which negotiates with management about working conditions, hours, and other non-pay matters.

Consistent with their embrace of competition and their concern for the least well-off, social democratic countries typically favor economic globalization—particularly trade of goods and services. They have been more ambivalent about immigration, though in recent decades Sweden has been a world leader in accepting refugees and its foreign-born population share is now...