April 22nd, 2013

Capitalism 2.0 in the advent of the growing income gap

1
April 22nd, 2013

There is something in the air; collaborative working spaces, social innovation, crowdsourcing and crowdfunding, impact investing, social impact bonds, venture-philanthropy, social enterprises, triple-bottom lines, social return on investment, and social entrepreneurialism are all on the rise. Organizations like the Hub and the Centre for Social Innovation are flourishing with social entrepreneur memberships and incubating various startups or social enterprises; IndieGogo and Kickstarter are just two of the dozens of crowdfunding platforms now available; MaRsDD, Rockefeller foundation, Deloitte, FinanceForGood and many others are all exploring the notion of social impact bonds, impact investing and other new innovative ways to fund initiatives for impact; funders like the Ontario Trillium Foundation are looking for nonprofits to demonstrate a social return on investment and are encouraging them to act more like enterprises; and philanthropists are even being encouraged to act more like socially-minded investors. These shifts in business are not occurring within silos; they are all a part of a larger movement – a movement that is gaining traction and may be referred to as Capitalism 2.0.

At the time of this writing there is no accepted definition of Capitalism 2.0, nor a Wikipedia article regarding it. However, the Toronto Sustainability Speaker Series (TSSS) held an event at the end of 2012 to convene: “Thought leaders… to discuss how to create a better form of capitalism: Capitalism 2.0.” As a result of this event, TSSS has committed to release their first volume of a Strategy Manual in early 2013 called, “Capitalism 2.0: Strategies for the 21st Century Enterprise.” The manual will provide strategic guidance on how organizations can thrive in a new economy – an economy that they are calling CAP2. I imagine this report will speak to many of the terms that were mentioned above, however in the advent of a “new economy,” perhaps it is important to talk about more than just the usual suspects. One term that ought to also be part of the CAP2 conversation is the growing income gap, as I am concerned it has the potential to undermine the development of this “new economy.”

It is the elephant in the room that no one in the social space wants to talk about. No one in this new exciting movement of doing good and making good, wants to think of the growing income gap as being a factor in this movement or even influencing it. Capitalism 2.0 promises greater sentiments for social and environmental factors in the private sector, a world where business and governments work together to achieve common goals and an economy that fosters growth both locally and on a global scale. The growing income gap, however, is so harmful to our social democratic foundations and principles of justice that I fear any social, environmental or economic gains by Capitalism 2.0 will be overshadowed. This growing income gap which is slowly obliterating middle-income earners represents the monopolistic forces of big corporations, the hoarding of money for private gain, the disconnect between people, their jobs and their country, and, perhaps worst of all, the societal acceptance that such an oligarchal system is inevitable and even good.

The top 1% of America has 40% of all the nation’s wealth, and the bottom 80% only have 7%. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD. In order to understand how the growing income gap is related to the development of CAP2, we need to explore why the shift to Capitalism 2.0 is occurring, if it is indeed occurring. Assuming this change is simply because our generation “cares more” is naïve; there are always multiple forces moving in complex systems, and if we are going to champion this movement, we have an obligation not only to promote it, but also to understand it.

To accomplish this task we need to ask the more difficult questions. For instance, is it possible that Capitalism 2.0 is gaining traction because of the lack of opportunities in our current state of capitalism? Do collaborative working spaces represent a defensive response to big corporations and the weakening of other social bonds? Are crowdfunding and impact investing a reaction to the lack of venture capitalists? Are social impact bonds, venture-philanthropy and the emphasis on social return on investment effects of modern funding constraints? Are social entrepreneurs and the focus on the triple-bottom-line regressive attempts to reinstate the loss of local markets in the face of globalization? More broadly speaking, is Capitalism 2.0 a proactive movement reflecting a fundamental shift in values and aspirations, or a form of survival-adaptation within a framework that itself is undergoing material change?

By answering these sorts of questions we will gain a better grasp of this new movement and what it is means for our future. For example, if we view this movement through the lens that not-for-profits are participating in social enterprises as innovative ways to produce sustainable products and services, then we can rely on this movement to guide the developments of such a shift in the economy. But if not-for-profit social enterprises are completely the result of funding cutbacks, and not intrinsic values to produce a sustainable good, we need to understand what outcomes that may produce in the long-term. It is conceivable that encouraging not-for-profits to endeavor in cost-recovery enterprises will build the disparaging case for more future cutbacks, as the expectation to participate in such ventures would be the new established norm. Or consider a social impact bond (SIB), which is a contract with a public sector commissioner in which it pays an investor for improved social outcomes. If investors are using their money to introduce new capital into the social sector by taking on risks that governments are not willing to, then we can be more confident those investments will generate positive outcomes. However, if investors are approaching SIBs as just another opportunity to increase their net worth with public dollars, such a financial instrument will likely lead to exploitation.

If CAP2 wants to establish itself as a new economy, the driving forces cannot be mere byproducts of capitalism, but rather must be novel foundational pillars that lead to significant and real improvements. In order to do this, champions of Capitalism 2.0 cannot ignore the lingering effects of the growing income gap or they are just going to perpetuate the current economic trend of placing more money in the hands of the few and distracting change makers from making an impact that would actually see better outcomes for more people.

  • Hello from down under Mitchell
    and the top of the day to you.

    Read your article thanks !

    Re: Oligarchy: A form of government in which the power is vested in a few, or in a dominant class or clique.

    I have a feeling there is currently a rejuvenated concept by governments of the above, with the added burden of
    people having to learn how best to manage coping with the above. Like sleeping in 6 beds all at once or eating with
    3 silver spoons all at once. Vitally important learning skills. Sorry can’t contribute anything useful other than
    the picturesque notion of all the wealthiest be put on a barge in the middle of the ocean & do big deals with
    one another. May the most dominant have the barge all to him/herself.
    It’s a matter of the % distributed amongst people, currently the gap is too big, like Upstairs & Downstairs of the 17th century.
    The Biblical quote by Jesus is timeless “ The poor ye shall always have “ what a legacy to leave behind !

    Cheers
    Adelinde Mackay

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  • You’re asking the right questions, Mitchell. Capitalism 2.0 is an interesting concept, but I’m still troubled by the question of whether the basic trends of capitalism—personal gain, perpetual growth, and population seen as a means to production—can morph into something all inclusive and sustainable for society at large.

  • You’re asking the right questions, Mitchell. Capitalism 2.0 is an interesting concept, but I’m still troubled by the question of whether the basic trends of capitalism—personal gain, perpetual growth, and population seen as a means to production—can morph into something all inclusive and sustainable for society at large.

  • Mitchell Kutney

    I’m a big fan of Tonya’s work with CSI, glad to hear NYC is going well 🙂 – Thanks for taking the time to read and share your thoughts on the article Grace.

  • Great name and concept. The key to any future economic system is how we account for all the costs of capitalism both social and environmental on balance sheets, income statements and cash flow statements.

  • Hi Mitchell,

    I enjoy what you wrote. Also, thanks for the twitter follow, let’s chat. connect to me through mindstack…”http://54.200.24.40/capitalism2-0″

  • tim barrus

    I would buy that barge and sink it. It would be very crowded. I doubt they could swim.

  • tim barrus

    There is no evidence that the aristocracy (yes, they do exist) will champion anything that does not reinforce their position in the hierarchy of their class. Capitalism 2.0 CAN be ignored (more likely placated) and so can the lingering effects of the growing income gap or and they will perpetuate the current economic trend of placing more money in the hands of the few and distracting change makers from making any impact. re: Tom Perkins: https://www.youtube.com/watch?v=qfGhTEl__Lw KIckstarter IS venture capital. They are extremely picky about what they support. They reject more ideas than Tom Perkins ever did. It’s not just about what venture capital does. It’s also about missed opportunities and what they DON’t do that defines them. They are the curse of humanity. A pox upon all their houses. Big Pharma is NOT a paradigm.

  • dwb

    “The growing income gap, however, is so harmful to our social democratic foundations and principles of justice”

    A silly paternalistic view (not even a new or recent one either). No one is in the voting booth with you. Money does not buy elections. Lot’s of wealthy donor’s causes lost this election, both liberal and conservative. Hogan won in Maryland despite being outspent 5:1. And, Cantor got outsed. Money does not trump the message.

    Progressives have been crying about money in politics for 100+ years. You cannot win by assuming people are stupid and their opinions can be bought.

    If Capitalism 2.0 is just more Robin Hood economics, it will get trounced just like all the other times people rejected it.

  • Mitchell Kutney

    Thanks for your comment, you raise some great points; however – they are anecdotal – there is lots of evidence that money does influence elections… why else would lobbying exist if it didn’t? It certainly doesn’t trump democratic processes, but claiming it isn’t a factor, would be naïve acceptance of an imperfect system. Interestingly enough, capitalism 2.0 is probably better categorized as more conservative than liberal— as it is speaks to the increasing attractive forces of neoliberalism and a de-emphasis on government oversight. That being said, I really appreciate that you read the article and took the time to share your thoughts.

  • dwb

    Rent seeking by industry lobbyists is a real concern. But, industry lobbyists are less concerned about winning elections than influencing the rule-making process. They don’t care who’s in office so long as they have access.

    Rent-seeking is a real phenomena, but it is much more subtle and happens in the halls of congress and at at the local legislative level. Real rent-seeking happens a lot through rule making that restricts competition or leads to poor land use policies. Eliminating it would start by eliminating gerrymandering and giving politicians themselves healthy competition. Gerrymandering is far more insidious than money, because it ensures one-party rule at the local level. It also would probably require a balanced budget at the federal level, so that politicians were forced to prioritize tax expenditures.

    Real rent-seeking by lobbyists often involves subtle, not so well known laws, and it’s often bipartisan. Think Tesla: in NJ and other states Tesla cannot sell cars because politicians passed laws that favor dealerships. Or, Uber. Flex-fuel cars are another example. You cannot (easily) convert your used car to flex fuel (e.g. biodiesel) because the rules (mysteriously) favor the automakers. An aftermarket conversion is not very expensive (maybe a few 000)- except for all the EPA regs that require licenses, inspection, and so on. Think also, ethanol, and farm subsidies. Some of these have nothing to do with money – how do you sell reduced ethanol mandates (in favor of generic biodiesel) and farm subsidies to Iowa corn farmers?

    Monopolies are a real problem – but who is going to vote for a politician that threatens to break up Facebook, Twitter, Google, or Apple (those are the real, modern monopolies).

    You are correct that a genuine focus on reducing rent seeking from politics would not (necessarily) be liberal or conservative. It is not focused on the money, which is a symptom not a root cause. It would probably be more “libertarian.” It would have progressives up in arms about union-busting, industry deregulation, and (ack!) gentrification of cities because a lot of zoning would be changed or eliminated. It would have conservatives up in arms about energy policy (e.g. tax expenditures) and national security.

    And, mostly it would have everyone up in arms about eliminating gerrymandering and one-party rule at the local level. Good luck getting politicians to eliminate gerrymandering, making their districts less safe.

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