Restoring the Economy Is the Last Thing We Should Want
The sooner we open up the economy, the faster we simply recreate what got us into this mess. It’s time for a radical shift.
Everyone wants to know when we’re going to get the economy started up again, and just how many lives we’re willing to surrender before we do. We’ve all been made to understand the dilemma: The sooner we “open up” American and get back to our jobs, the more likely we spread Covid-19, further overwhelming hospitals and killing more people. Yet the longer we wait, the more people will suffer and die in other ways.
I think this is a false choice. Yes, it may be true that every 1% rise in unemployment leads to a corresponding 1% rise in suicides. And it’s true that an extended freeze of the economy could shorten the lifespan of 6.4 million Americans entering the job market by an average of about two years. But such metrics say less about the human cost of the downturn than they do about the dangerously absolute dependence of workers on traditional employment for basic sustenance — an artifact of an economy that has been intentionally rigged to favor big banks and passive shareholders over small and local businesses that actually provide goods and services in a sustainable way.
In reality, the sooner and more completely we restore the old economy, the faster we simply recreate the conditions that got us sick in the first place and rendered us incapable of mounting an effective response. The economy we’re committed to restoring is no more the victim of the Covid-19 crisis than it is the cause. We have to stop asking when will things get back to normal. They won’t. There is no going back. And that’s actually good news.
If we approach this moment of pause mindfully, the post-Covid economy we create could turn out to be a whole lot more resilient than the old one. Beyond exposing the brittle nature of global supply chains, top-down monetary policy, and a vanquished domestic manufacturing sector, the Covid crisis is also unleashing a powerful drive by local and networked communities to rebuild business from the bottom-up. The mechanisms so many of us are now inventing and retrieving under duress may just survive after this crisis is over, and augur a new era of sustainable commerce and much better distributed prosperity. Think local farms, worker-owned factories, and companies for whom the bottom line has more to do with selling products than selling shares of its stock. Their value created by such enterprises isn’t sucked up and out of communities (the way Amazon or mall stores do), but circulates again and again from one person or business to another.
The economy we’re committed to restoring is no more the victim of the Covid-19 crisis than it is the cause.
We can learn a lot from the relative success of today’s many efforts at economic recovery. What’s not working are traditional, top-down approaches to repair. “Ultimately the Fed doesn’t have the infrastructure to touch Main Street,” Vincent Reinhart, chief economist at Mellon, told Axios. The Fed can encourage banks to lend, but banks won’t take the capital unless they see a return. Meanwhile, small businesses can apply for grants and loans through the web, but many will have laid off their workforce or gone under themselves before such funding shows up. If it ever does.
Besides, that’s what Obama tried after the recession of 2007: forcing banks to take money so they can lend it to corporations, who then use it to build businesses and create jobs — jobs people don’t really enjoy, making crap that the rest of us have to be convinced by advertisers to buy. Such “solutions” are really just ways of restoring the original problem. They shore up the lending industries and the dominance of the corporate sector over small businesses. It’s not the way Joe’s Pizzeria is saved; it’s the way Joe ends up working for a branch of Domino’s, for less money with less security.
What’s working, instead, are a myriad of more lateral mechanisms for mutual aid and the exchange of value between people and real businesses — ones that may work so well, in fact, that they may just last beyond this crisis to define a new economic landscape. Throughout the U.S., medical supplies are being listed and dispersed through Google Docs and spreadsheets under the rules of the commons rather than those of the marketplace. In Taiwan, crude but functional public service platforms are being developed by hackers sharing information with one another and working in partnership with the government.
The innovations we’re seeing emerge are digital in spirit, but local in their execution. The temporary paralysis of globally scaled financial and business institutions is creating the need and room for alternatives to just-in-time global supply chains and centralized, debt-based monetary monopoly. The longer the crisis continues, the more experience, success, and faith people will gain in the possibility of the more locally balanced, bottom-up economics
Instead of figuring out how to extract money from the marketplace, which only increases its fragility, we must explore business practices that circulate money throughout the system. This was the original, distributive promise of a digital economy — and one we must embrace if we want to restore our collective economic immune response before the next shock to our system, whatever it may be.
As Adam Smith explained back in the 18th Century, when big corporations dominate an economic landscape, value ends up extracted from real people and places and delivered to shareholders, often very far away. Self-sufficiency becomes impossible. Instead, according to Smith, a healthy economy respects all three factors of production equally: land, labor, and capital. The people working in the businesses and the places where those businesses operate are respected as stakeholders in the enterprise. When no one speaks for the land, the topsoil gets depleted. When the workers have no vote, they are the first to be let go when the going gets rough.
As the stock market hits its nadir, the temptation for investors will be to buy stock again and double down on the winner-take-all climate of the pre-Covid landscape. Instead of buying stocks — however temptingly depressed the prices — they need to invest as partners in smaller, local enterprises that offer continuing, regenerative returns. These alternative business models are proving themselves more resilient in good times and bad. From neighborhood barter and local and crypto currencies to distributed open source apps and the doughnut economic model now being implemented in Amsterdam, these are business practices that optimize not for the extraction of capital but for the velocity of money — like the circulation of blood through an organism. They will never have IPOs, but that’s because such businesses are not built to be sold; they’re built to serve their stakeholders in an ongoing way. These are the sorts of businesses we need to support, any way we can.
What, specifically, can we do to engender an economic environment that makes Main Street more prosperous instead of simply resurrecting the Dow Jones Industrial Average by any means necessary? Sure, it would help if anyone in government could see past their fealty to their corporate donors to help — or at least not to actively block any such efforts. The best thing they could actually do straightaway is reverse the tax code. We currently reward capital gains with low taxes, and punish earnings and dividends with much higher rates. This not only advantages passive shareholders over people actually creating value, but it incentivizes businesses to grow at all costs. The resulting addiction to growth isn’t the solution to economic resilience, as its proponents argue, but the very cause of our frailty.
Still, we can’t depend on government to implement any of such reforms from the top-down, anyway. The refusal of the administration to step up and take charge in the face of this crisis can serve as an inadvertent “tough love” lesson to states and local communities that we’re on our own — and better start finding solutions and building prosperity from the bottom up. Most of the legislative help comes from local politicians, anyway, like New York Assemblyman Ron Kim, Mayor John Reed of Fairfax, California, or New York City Council member Brad Lander. The best they can do for us, however, is stall regulations designed to favor extractive would-be monopolies like Uber, Airbnb, General Foods, Amazon, or Walmart over locally run, small and family enterprises — while also educating their constituents how to create networks of small businesses that support one another through credit unions, barter exchanges, and even local currencies.
We, the people, may struggle ourselves, but we’re in it together. The mantra for a post-Covid economy must be “make everyone rich.” The scorched earth practices of a Walmart, Amazon, or Uber, succeed only in squeezing their employees, suppliers, and partners dry. Everyone becomes one paycheck or purchase order away from bankruptcy — which renders the whole system brittle. Instead of pushing everyone into a corner and forcing them to take an unprofitable deal (that’s Trump’s The Art of the Deal, in a nutshell), companies should try to make everyone in their marketplace as prosperous as possible. It may seem counterintuitive, but the more wealth there is in a business’s ecosystem, the better that business does, more sustainably — and the more other businesses want to work with it.
Instead of competing with local suppliers, the biggest retailers should partner with them. Walmart can create an entire aisle in every store for locally produced goods. The sales of such products would recirculate at least some revenue through these devastated communities, rather than simply sucking it all up and away. Amazon could do the equivalent with an algorithm. And neither Walmart nor Amazon need to feel so terrible about helping these smaller, local businesses make a profit. Their owners and employees will simply have more money to spend with them, too.
The mantra for a post-Covid economy must be “make everyone rich.”
For their part, small businesses devastated by Covid-19 and looking for ways to dig out from debt or bankruptcy need to consider alternatives to crippling bank loans. They can move instead toward any one of the new models of employee ownership, from Employee Stock Ownership Plans to full Platform Cooperatives. During the last financial crisis, workers of New Era Windows occupied their factory which was being shuttered by the parent company. In a spontaneous act of solidarity, Chicago police refused to arrest them. Eventually, the workers purchased the company — some through sweat equity — and now run it as a co-op. Needless to say, when workers own their company, they are less likely to ruin the communities in which they operate, because they live there. They’re also less likely to consider themselves expendable when the next crisis hits.
The only ones who initially do worse in such an economy are the banks. As money circulates more freely throughout a community, less new capital is needed to keep things going. Since businesses are no longer required to grow in order to survive, they can focus instead on honing their operations, better serving their communities, and using any efficiencies to generate more wealth for everyone. Such businesses won’t be borrowing as much money, which means banks may earn less interest. But that’s not a bad thing, either. Interest is an expense — a form of drag on real business activity. We don’t want our cars to use more fuel than necessary, either.
The main principle at play here is what I’ve come to call “bounded economics.” Instead of optimizing our economy and businesses for growth and the extraction of capital, we optimize them for the velocity of money and the circulation of value. In other words, instead of earning $10 once and taking it off the table, we seek to earn one dollar, 10 times. My favorite example of this practice is when the AFL-CIO came up with the great idea of investing their retirement fund in real estate development deals that hired their own union’s construction workers. They made back their own money as salary, while also earning investments in the projects. Eventually, they got the bright idea to invest in the building of retirement communities for their own parents. Triple play.
That’s the way an economy is supposed to work. Just like the circulatory system of a living being, the money needs to be kept moving. Widespread prosperity is not a form of charity or welfare, but the surest sign of a thriving, resilient economy. Unfortunately, the economy so many seem desperate to return to is based on the opposite principles. Yet that dream of infinite, exponential growth ends only in apocalypse or escape to Mars. The wealthiest among us are preparing for both.
The restoration of local, bottom-up production and commerce based in mutual prosperity is also a chance for Trump and Bernie supporters to realize they’re on the same side. Freed of top-down political ideologies and frameworks, we can get down to the actual work of growing food, patching roofs, healing wounds, and teaching arithmetic. Local resilience need not be left or right.
It’s just a way to return to health.
WRITTEN BY
Author of Team Human, Present Shock, Throwing Rocks at the Google Bus, Program or Be Programmed, and host of the Team Human podcast http://medium.com/team-human
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