Some of the challenges that the global world faces during and post-lockdown are the following:
- In our current economic model of corporatism, how to rectify the growing inequities amongst people?
- How can we modify or restructure our financial systems so that people retain trust in our banking industries?
- How can nations move away from the GDP measure of wealth and instead implement a system which takes into account quality of life, access to resources and services and overall well-being of their population?
When visitors come to cities like San Francisco and Seattle or even London, Prague, Beijing and Moscow, they might be shocked at the number of homeless people roaming the streets. The inherent issue in nations with high GDP (which have been used to determine a nation’s measure of wealth) has created a paradoxical situation which has led to widespread inequity, where the few remain wealthy whilst the majority of the population continually suffers under the rule of corporatism.
Our contemporary era of corporatism has been dubbed by academics as a kind of “technocratic feudalism”. The modern corporation has been criticised as limiting democracy and launching a feudal culture, in which few billionaires are created whilst the majority of the population suffers similar to the landlords in Medieval Europe who retained the majority of wealth, whilst the serfs who worked under them remained relatively poor.
If we examine the corporate structure, we can see that there are inherent limitations in the amount of public good that the corporation can serve, as founders and board members are forced to focus on short-term profit, creating as much value for shareholders as possible, otherwise, they may often become targets of lawsuits.
Short-term thinking from shareholders forces founders to take actions which may hurt its long-term goals. During 2018, activist investors led 240 campaigns targeting 218 companies worth more than $500 million, Comparatively, activists targeted 169 companies in 194 campaigns in 2017.
Case in point: eBay knowingly and voluntarily bought a piece of Craig Newmark's frugal, community-centered company, craigslist. As such, the fiduciary duty owed by the founders to eBay has to be viewed in the context of the company itself – a company renowned for its tiny size, community service mindset, and its refusal to adopt typical principles of short-term profit-maximization. However, it did not stop eBay from suing the founders for breach of fiduciary duty in 2009.
This problem has found a viable solution with the development of the B-Corporation structure which was initially launched in 2007. Benefit corporations or B-corps are a new kind of corporation legally required to:
1) have a corporate purpose to create a material positive impact on society and the environment
2) redefine fiduciary duty to require consideration of the interests of workers, community and the environment
3) publicly report annually on its overall social and environmental performance using a comprehensive, credible, independent, and transparent third party standard. Current law requires corporations to prioritise the financial interests of shareholders over the interests of workers, communities, and the environment.
B-Corporations put increased emphasis on other stakeholder values, such as environmental and social concerns, on their employees and the local community and shields founders and board members from the frivolous lawsuits by activist shareholders when they do not abide by the decisions that lead to “short-term profit” and instead adheres to a mission-based philosophy.
We can see that the traditional corporate structure, the C-Corp or S-Corp can no longer be utilised to maintain the public good, as the bottom line of “maximising shareholder value” has led to practices that have not only increased inequalities in wealth, but also has had significant damage on local communities and negative impacts on the environment.
When Patagonia reclassified its corporate structure from a C-Corp to a B-Corporation, instead of continually producing massive amounts of products for sale, they partially changed their revenue model in order for their old products to be repaired and updated to create less waste for the environment. This model could also be used for the electronics and mobile phone industries, in which old models could be serviced and continually updated to mitigate the culture of planned obsolescence, in which perfectly usable parts take up space in landfills and seep into the water supply.
When part of the corporate mission legally ensures that the corporation has a duty to the local community, to their employees and to the environment, then much of the inequities that have been created through old corporate models can be dismantled. Currently, there are only 2,500 B-Corporations in the world out of the hundreds of millions that exist today.
In order to address the growing distrust of banking systems by the general public, one possible solution by lawmakers would be to require all banks and financial institutions to become B-Corporations. This action would immediately mitigate the predatory lending practices of financial institutions and their use of financial products such as credit default swaps, derivatives trading and the commingling of customer accounts which have led to the numerous bank bailouts that culminated in the 2008 financial crisis.
For banks to become B-Corporations, it would require changing their articles of incorporation and bylaws. Such changes put shareholders on parity with employees, the environment and the community in terms of decision-making. This will require board approval and may have regulatory implications as well.
If other industries, such as those in energy and healthcare are also legally obliged to take a duty to the local community, to their employees and to the environment and reset their priorities from “maximising shareholder value” to that of the well-being of their local communities, it could have an immediate yet impactful effect on widespread inequities, and also on the quality of living.
Addressing Technocratic Feudalism: Progressive Equity Structure
Another way to pacify the “technocratic feudalism” of our era is to implement a progressive equity structure as outlined by former Groupon founder Andrew Mason.
“Let’s say you’re the founder and you own about 50% — in a normal company, you’d get 500 megadonks. But under the Progressive Equity program, everything above the financial independence threshold gets “taxed” at 50% — you keep half, and the other half is redistributed back to employees, pro rata. So in our example, you’d get the first 50 megadonks outright and half of the other 450, for a total of 275 megadonks, and the other 225 would be redistributed to employees. So if you had 225 employees, on average each would get a megadonk. The cool thing about this is that employee percent ownership increases as the value of the company increases — natural incentive alignment.” - Andrew Mason
As an example, when President Obama launched legislation in order to limit senior executive pay limit to $500K, many tech leaders were able to bypass this law by giving themselves a $1 salary whilst being compensated primarily through stocks and other privileges. However, through a progressive equity structure, it would directly address the compensation disparity, and founders of unicorn companies would receive stock up to a certain percentage in which any excess would be redistributed directly to the employees pro rata. This progressive equity structure would create more multi-millionaires than billionaires, hence serving to eliminate the growing era of contemporary feudalism in Silicon Valley corporations and other companies with a valuation in excess of $1bln.
By making it mandatory for all corporations to transition into B-Corporations, and allowing the Board of Directors to implement a progressive equity structure, the role of the govt would be to allow corporations to take on the brunt of the responsibility of placing communities, their employees and the environment ahead of profit, instead of launching multiple time-consuming legislation in which lawyers can always find many creative loopholes in order to bypass regulation.
The Advantages of a Resource-Based Economy
In my presentation, I discuss how a resource-based economy can co-exist with contemporary corporatism and in fact, complementary to a democratic, capitalist system. Akin to a good OS, an ideal government mainly stays out of the way, but is in the background, making sure things run smoothly. In this type of government, the focus should primarily be on:
1) fair and efficient justice system
2) empowering people or self-agency (ie, ability of people to make their own choices and decisions, enhancing freedom of speech
3) built on a society of inclusion in which many different types of people with various backgrounds and religious beliefs can co-exist peacefully and where innovative programmes address the needs of the population
4) ability of people to have access to a variety of resources (eg, high tech transportation, internet, health care, education, job resources, emergency fund for natural disasters etc).
We live in a resource-rich society in which unsold food from supermarkets are readily thrown away into landfills everyday by the tonnes, and where there are 18 million abandoned homes in the US and 11 million abandoned mansions across the UK and EU which are simply rotting away. By redirecting and redistributing these abandoned assets, co-operatives can be developed to address homelessness, poverty and education skill training in which a diverse group of people are living together for a shared purpose instead of the current govt solution of temporary housing, low income housing and the welfare state which have only led to racial segregation and the rise of criminal gangs.
Comparing the Strength of Nations
If we examine some of the largest economies, we can see how effective each government is in regards to the 4 following categories: Justice System, Self-Agency, Society of Inclusion, Access to Resources.
As we can see, a strong justice system is what is the true core and architecture of a democratic nation. Without a fair and efficient justice system, people are subject to anarchy and instability in which there is a proliferation of criminal gangs and lack of individual freedoms and self-agency. In this regard, of the comparison group, the UK, Germany and the United States are the most democratic in the sense that there is an overall prevailing belief and trust in their justice system. In nations such as Russia, China and India, people have the lowest trust in their justice system, which leads to the proliferation of organised crime, corruption in government and lack of individual freedoms.
When small business owners have to pay ransom to the local gang, they might not be able to run a business at all. In a similar fashion, businesses cannot thrive in an environment in which the government cannot guarantee justice, and founders are subject to become victims of crime or bribery. This environment limits innovation at the core, because without a prevailing trust in the justice system, an innovative founder will most likely relocate to a more democratic nation in which he or she is able to launch a business protected by the law. Therefore, a trust in the justice system is the most fundamental foundation necessary for innovation and technological advances.
Secondly, self-agency and a society of inclusion are what are also intrinsic for a democratic society. Without freedom of speech, and the ability of individuals to make their own decisions, people would be living in a fascist state under a tyrannical rule or totalitarian state, such as what happened under Stalin and Hitler in WWII. A society dominated by intolerance and a corrupt justice system will overwhelmingly decrease the standard of living as an unstable foundation will lead to a breakdown in society and result in uprising and revolution.
If we examine the comparison of five nations here: the UK, Germany, United States, China, India and Russia, we can clearly see that GDP is not an adequate measure of wealth or quality of living and well-being for the average citizen.
The United Kingdom: A Rising Class Struggle
Although the UK has a strong justice system, it suffers from increasing poverty levels, and currently nearly ¼ of the population are living in poverty (22%) which is set to increase post-Lockdown. This decrease in overall wealth, in which a significant portion of the population are exempted from a society of inclusion will inevitably have consequences that will eventually infiltrate its justice system, self-agency and access to resources as criminal gangs proliferate and become more commonplace. When the poverty level reaches a threshold of 30%, it is likely that many British institutions will potentially become eradicated due to cycles in uprising and revolution, such as the British Monarchy, in which there is currently a growing trend to dismantle a publicly visible institution based on the privileges of birthright. It is also likely that the financial centre of Europe could migrate from London to Frankfurt in another cyclical pattern.
In order to address the growing levels of poverty in the UK, by partially adopting a resource-based economy, this will most likely mitigate the factors of homelessness, poverty, the proliferation of criminal gangs and serve to preserve Britain’s oldest institutions.
India: Prevailing Injustices
India is a nation that has been slated to replace China as the leading manufacturer of the world. However, India suffers from three inherent weaknesses which makes this improbable: a lack of fair and efficient justice system in which many members of its population sometimes utilise vigilante justice due to the many years of waiting until a case is resolved, a stringent caste system which excludes many people from a society of inclusion and an inherent lack of resources for its population. Compounded by an exponentially growing population, it is likely that these problems will become more magnified in the next decade. Although much has been given credit for India’s growing tech industry which has pulled a portion of its population out of poverty, the inherent lack of foundation in a strong and reliable justice system will most likely undercut these achievements.
Modernisation of its legal system and an overhaul of its overall justice system are necessary in order for India to move towards its future goals. In addition, only 5% of India’s population have health care, and of the largest economies in the world, it is a nation with one of the lowest literacy rates in the world. Lack of access to food, nutrition, education and adequate housing are only some of India’s problems. Violent crimes are on the rise and victims often find no retribution, allowing India to be overrun with hate crimes, violent crimes against women, exploitation of children, environmental waste and other crimes which have become altogether commonplace. These issues are all rooted in its lack of a strong justice system which will become further weakened as India’s population exponentially grows in the next decade if adequate measures are not immediately taken by Prime Minister Narendi Modi.
Russia: Post-Communist Transformation
Russia is an expansive nation that extends across northern Asia and eastern Europe and spans 11 time zones, yet only has a population of 145.9 million people. Although it has one of the most educated populations in the world, with 54% of their population having attained tertiary degrees; criminal activity, proliferation of gangs, human trafficking and arms trafficking are some of Russia’s prominent problematic areas.
The likely reason for the lack of growth in the population is multi-dimensional; one probable reason is that Russia is a significant nation in which women are sourced to become trafficked to over 50 nations for sexual exploitation, and men are trafficked from Central Asia for labour in the construction and agricultural industries. Another presumed reason for the lack of population growth is that many young men fall victims to crime and are recruited into organised criminal gang activity due to an inherent lack of justice system, along with a prevalent culture of malnutrition and alcoholism.
Although President Vladimir Putin has taken many steps in order to incentivise higher birth rates, such as maternity capital assistance for those who have at least two children, and the implementation of fixed mortgage rates for young families, the underlying root causes of the problem remain. If we are to examine the central, architectural issues in Russia’s declining population, it could also be directly attributed to its lack of a strong justice system. Russia ranks near the bottom in the corruption perceptions index which assesses a nation’s social and economic justice, human rights, peace and security.
Despite that President Putin has spent much of his career in govt to address prevailing injustices in Russia, and during his tenure, has increased GDP and income per capita, Russia suffers from an overwhelming dominating weakness: its singular dependence on the fossil fuels sector as exports and on the arms trade. Compounded by a lack of a strong justice system, this has handicapped Russia’s other industries and sectors, decreasing the quality of life for the average Russian citizen.
One way to address this underlying problem would be for President Putin to adopt progressive policies limiting the domination of the fossil fuels sector and implementing policies for a diversified energy strategy, such as what China has done. In addition, technological innovation could supplant Russia with a Silicon Valley style headquarters in St. Petersburg, which would be able to attract talent from all around the world, instead of the focus on the development of military weapons.
A fair and efficient justice system, the promotion of free speech and self-agency, strong investment into a diversified energy strategy along with the development of a tech headquarters based on multi-national cooperation and not on the development of military weapons would most certainly place Russia as a formidable nation with an iconic leader who has been placed during one of its greatest transitional eras in which President Putin’s legacy could be that of the peacemaker in a region that has suffered much strife.
Russia is also a nation that would most likely benefit from implementing a Swiss-style of governance and taxation, with each district or canton making its own decisions on how to best implement fiscal and economic policy.
China: Overcoming Authoritarianism
Under President Xi Jinping, China has undergone a radical transformation which has become one of the largest economies in the world. However, as mentioned previously, a high GDP is not necessarily indicative of the quality of life or standard of living and similar to India and Russia, China suffers from a lack of a strong justice system, and scores the lowest of all developed nations in self-agency. According to the Freedom of Speech Reporters Without Borders Index, China is on the near bottom of the list, beneath all developed nations, due to its stringent censorship of any criticism against the government. Although this could be indicative of President Xi Jinping’s military background or farming strategy in quickly weeding out insurgents, as a society, it has an overall negative effect on self-agency and is contrary towards a society of inclusion. Alternative points of view often lead to a more robust system of governance that can quickly assimilate problems and enhance democracy, in addition to being able to become tolerant of differences which enhances a nation’s global soft power.
In the past, China had suffered from an oppressive one-child policy and its population has an overall distrust of its legal system. Lack of transparency in government processes, secrecy in dealings and lack of individual rights has led to widespread organised crime and private entrepreneurs sitting in jail for years without access to their family, their lawyers and a right to a fair trial. This lack of democratic processes in domestic matters undermine China’s strategy in implementing the global Belt and Road Initiative, as its allies and other foreign nations may become altogether suspicious of its new military ambitions.
For China to make way for a new era of global influence, it must first shed its image as an authoritarian government that does not honour individual freedoms. Despite its journey towards a high tech nation that has wisely invested in the diversification of energy resources, domestic infrastructure projects and the near eradication of poverty, these extraordinary accomplishments are in danger of becoming undermined when President Xi Jinping is no longer in power, and could instead, supplant his peaceful methodologies with a renewed military vengeance that would inevitably impede his achievements and lead the way for a perpetual New Cold War.
China could eliminate this impasse in diplomacy and global influence by focusing on restructuring its justice system, eliminating its internet firewall, allowing for greater individual freedoms and instead of appeasing its military leaders who wish to build a formidable military industrial complex, refocus on the development of a multi-national alliance in space exploration and research.
Germany: A New Model of Europe
Germany, under the leadership of Angela Merkel has made rapid gains in energy independence, has become one of the EU’s leaders in green energy and implemented a robust fiscal policy which set the model of behaviour for dealing with the 2008 financial crisis. Germany also has a strong and transparent justice system, self-agency and access to resources for its population. 100% of Germany’s population is covered by health care, either public or private, and tuition-free German Universities are world-class institutions that have produced the most Nobel Laureates along with the United States and the United Kingdom. However, one area where Germany is weakened by is its growing rates of poverty and lack of a society of inclusion.
Germany, like the UK, could benefit from partially adopting a resource-based economy in order to both address its negative population growth and to adapt to the changing needs of its population. The Ruhr region in Germany has 21.1% of its residents living in abject poverty which affects both the elderly and the young. Although a wealth tax and increase in minimum wage could be a temporary solution to poverty, the underpinnings of poverty in these regions would still exist. Implementing a resource-based economy in these regions could revitalise entrepreneurship and also serve as cultural, education and social centres where youth are prevented from joining criminal gangs. By redistributing abandoned assets, investment into co-operatives and promoting cultural and social cohesion, these actions could have an immediate impact on the most vulnerable in Germany’s population.
United States: The Evolution of Corporatism
The United States is one of the most dynamic and diverse economies in the world and has been at the forefront of the technology revolution. Currently, at this time, the US is undergoing a radical transformation under the leadership of President Donald Trump, in which he is veering away from the war profiteering model of the last four decades, and setting a precedent for Middle Eastern peace, as well as challenging the most vocal proponents of the Bush War Era.
The US is also currently in a precarious position as it deals with increasing poverty, a lack of resources for its population and a waning justice system in which politicians are lobbied by multiple corporations and might not always act in the best interests in the public good, along with an outdated legal and prison system that has only propagated more criminal activity. With a steadily rising population, the lack of resources is the most prominent feature which could further cripple the US economy.
As with the UK and Germany, partially implementing a resource-based economy could counteract the negative effects of inflation, rising poverty levels and the proliferation of gang activity in major cities. Currently, the US uses govt subsidies to support industries (eg, fossil fuels, fracking and agriculture) that do not actually need support, which have only worked to further exacerbate class divisions. The launch of numerous, time consuming legislation have only found avenues in which corporations often find creative loopholes. Instead, the US could take a different approach and mandate the transfer of all corporations to the B-corporation structure and administer a resource-based economy in states and regions most affected by poverty and crime. By launching co-operative initiatives (in which employees retain ownership of the company) this could revolutionalise many sectors such as housing, agriculture, transportation, waste management, healthcare and manufacturing. Short-term solutions of simply throwing money at the problem, such as low-income housing, a welfare state or funding for the homeless would become obsolete, and instead, the most vulnerable members of the population would be able to access resources in order to create stable, meaningful lives.
As I mention in my presentation, wealth is simply the ability to access many different opportunities and not necessarily about having a lot of money. Money is a form of trade, and transfer of goods and services, but attaining opportunities to engage in new goals, start new ventures, access resources and execute ideas is at the heart of the American Dream.
Poverty is often a learned behaviour from the inability to access resources and opportunities. By re-shaping the American economy by strengthening its justice system, stabilising inflation and the eradication of poverty by partially implementing a resource-based economy, democracy can be best served to the population at large through innovation, enhanced self-agency and self-reliance, and support of a capitalist system in which individuals could retain ownership in the co-operative of their employment. This system would create a fairer system of capitalism which would address the growing era of technocratic feudalism, class divisions and income inequality.
By Sierra Choi