The Economy for the Common Good and Its Enemies

How are the different positions of proponents and critics of the ECG-propositions on the governance of the economy informed and driven by economic paradigms?


Term Paper (Advanced seminar), 2019
17 Pages, Grade: 1,0
Simon Valentin (Author)

Excerpt

Inhalt

Introduction

Literature and Theory

Empirics

1. Values

2. Measuring economic success

3. Legal incentives for companies

4. Financial profits

5. Company ownership and cooperation

6. Global cooperation

7. Income and wealth inequalities

8. Working time

9. Protection of nature and ecosystems

10. Direct and participatory bottom-up democracy

Summary

Conclusion

References

Introduction

At a time at which the persistent socio-economic crisis is increasingly perceived as a systemic, “multiple” (Brand, 2016, p. 23), crisis rather than a cyclical one and at which the traditional economic models are called into question, there is a need to develop new models that respond better to the demands of today’s world by promoting a way of fair and sustainable development.

This has led to the resurgence of old and the emergence of new alternative streams of thought that contrast the traditional neoclassical paradigm. However, despite the flourishing critical debate over the current form of capitalism and its underlying economic assumptions, concrete alternative economic models are hard to find.

The Economy of the Common Good (ECG) is an expression of such a new economic model that places people and the functioning of their relations at the heart of economic activity. The ECG was born in Vienna in October of 2010 as a movement of “social innovation” (Zapf, 1994), promoting an alternative economic model that focuses on the orientation of the economy towards the common good, cooperation and the community and seeks to support societal values such as human dignity, solidarity, ecological sustainability, social justice and participation (Felber, 2015). Unlike most movements that advocate for a change in the economic system, the ECG does not only have a vague idea of what is going wrong in the current capitalist system but presents a detailed alternative system, that is open for debate. Moreover, besides being an interesting utopia, a still small but growing number of initiatives, individuals, firms, and (local) governments all over the world commit themselves to the ECG and adjust their economic behavior (ECG, 2019a), so that the ECG has also very concrete impacts.

Both, the concrete nature of the propositions as well the happening change at the ground, make the ECG open for attack and lead to the ideas being highly contested. In contrast to most critical social movements that coexist with the orthodox mainstream, the ECG has caused a lot of criticism and resistance from economists and economic interest groups. Since today, the debate is conducted in a polemic and non-scientific way and neither the ECG nor its opponents put their position in a theoretical context, although implicitly drawing on existing ideas of economic philosophy. The debate reveals the often blurred clash of paradigms and normative principles about the governance of the economy within the capitalist society. This paper seeks to exemplify and evaluate this clash with the debate on the ECG and answer the question: How are the different positions of proponents and critics of the ECG-propositions on the governance of the economy informed and driven by economic paradigms?

Literature and Theory

In order to compare the opinions on the ideas of the ECG, this chapter gives an overview of the literature on the topic. I will, firstly, introduce the foundations of the ECG and, secondly, describe the criticism of the ECG ideas and the ongoing debate.

The main publication medium of the ECG is the website www.ecogood.org that is available in English, German, French, and Dutch. Here, the structure, the activities, the supporters, and the main positions are published. Moreover, numerous discussions, propositions, and reports from ECG projects from all over the world can be found there in online publications and blog posts (ECG, 2019a).

Besides the website, the ECG builds theoretically on the work by one of the founders of the movement, Christian Felber. In 2010 Felber wrote a book about the ECG, that was followed by several updates and appeared so far in 9 languages. The English version contains a foreword by Nobel laureate in economics Eric Maskin (Felber, 2015). In the book, Felber sketches the ECG as a profound response to the multiple crisis that he sees manifested in financial bubbles, unemployment, poverty, climate change, migration, globalization, the dismantling of democracy, and the loss of values and meaning. The ECG is described as an alternative to capitalism and communism. It is a market economy, based on private companies and individual initiative, but the companies do not strive for financial gain in competition with each other but cooperate with the goal of the greatest possible common good (Felber, 2015). This book became the reference point for any theoretical discussion about the ECG, while several other books on related topics were published by Felber and others (ECG, 2019a).

Since today, only very few academic works deal with the ECG. While there is a multitude of seminar papers, Bachelor’s and Master’s theses on the ECG that are available on the ECG website, only two ECG-related papers can be found in peer-reviewed journals: Meynhardt & Fröhlich (2017) are looking at the practicability of one of the tools, the Common Good Balance Sheet from a management viewpoint and Foti et al. (2017) are describing the ECG and evaluating it by applying the Common Good Balance Sheet on an enterprise that has been operating in Sicily for several years according to the principles of the ECG.

Soon after the foundation of the ECG movement, widespread criticism arose, primarily in Austria where the movement was founded. Most criticism is non-academic and published in newspaper articles or as comments from associations and organizations. A comprehensive overview of the critical publications can be found on the ECG website (ECG, 2019b).

From a radical left position, Zeller (2013) criticizes the ECG for not being radical enough and for focusing too strongly on the functioning of firms, while the German post-growth economist Niko Paech argues that the idea of the ECG is dangerous, exactly because it is not promoting a systemic change but keeping and perpetuating the current growth-oriented economic system (as cited in Hörtner, 2014).

Most criticism, however, comes from conservative voices and essentially refers to the abandonment of neoclassical economic models and the fear of the return of socialist and communist concepts under a different name (ECG, 2019b). The criticism is very harsh and terms such as command economy, totalitarianism, dictatorship, and chaos are frequently used to describe the ECG ideas (Fürst, 2011; Amon, 2012; Schmidpeter, 2012, p. 11). Within this stream, two works became the focal point of the critical discussion because their scope exceeds a short comment and they are presented as comprehensive evaluations fulfilling academic standards. First, in 2012, the employer-friendly Julius-Raab Foundation published an advisory opinion by René Schmidpeter from the Cologne Business School, that deals very critically with the ECG (Schmidpeter, 2012). Second, in 2013, the Austrian Federal Economic Chamber published a critical analysis entitled "Gemeinwohl-Ökonomie am Prüfstand" ("Common-good economy on the test bench") (Steigenberger, 2013). Both reports are also highly criticized. Bernhard Ungericht from the University of Graz, for example, accuses Schmidpeter in a counter-report of violating scientific minimum criteria (Ungericht, 2013).

Although there are still discussions today in different media and the ECG activists try to react to every criticism, the debate seems to have calmed down in recent years (ECG, 2019b). Furthermore, despite the global growth of the movement, a fundamental public debate only broke out in Austria. Since today’s works often refer back to Schmidpeter (2012) and Steigenberger (2013) for describing the opposition against the ECG (see for example Meynhardt & Fröhlich (2017)), also for this study these two works can serve to characterize the opposition from economists and economic associations against the ECG.

Empirics

Even though Felber and the ECG community start from the big questions about the purpose of human economic activity, in the following I will start from the concrete ideas of the ECG regarding the governance of the economy along which the discussion takes place to contextualize the positions of the ECG and its critics.

Although it is meant to be an ongoing developmental process, I pin down 10 key points that characterize the current state of the ECG-vison based on the book by Felber and additional information from the ECG website (Felber, 2015; Felber, 2015; ECG, 2019a). Each position is, firstly, explained in relation to underlying economic paradigms and, secondly, contrasted with the respective criticism as well in relation to underlying economic ideas.

1. Values

The ECG is thought to be based on and to promote the same fundamental values for the economy that make human relationships successful: trust, cooperation, solidarity, and sharing. This position is strongly related to the economic sociology school around authors such as Karl Polanyi and Neil Fligstein. Economic sociology suggests that markets are inherently social phenomena embedded in social structures and thereby its functioning is subject to societal values and discussion (Polanyi, 2008 [1944]; Fligstein, 2001).

Schmidpeter criticizes that this value basis is only valid within small groups of people who know each other but does not work on the macro level (2012, p. 3-4). Steigenberger doubts the existence of a common good and underlines that each individual must be able to decide what is good for him or herself (2013, p. 12). Both claims that the economy can only work based on competition of individuals and thereby draw on the ideas of the methodological individualism and the homo oeconomicus, which are rooted in the thinking of the classic liberal economic school of thought based on Adam Smith and linked to authors such as Friedrich Hayek and Milton Friedman. Especially Smith’s self‐interest principle and Hayek’s believe in the superiority of competitive systems as well as Friedman’s ideal of economic freedom can be found here (Smith, 2008 [1776]; Hayek, 2008 [1944]; Friedman, 2008 [1962]).1 Moreover, Schmidpeter explicitly uses the transaction cost theory and Steigenberger the principal-agent-theory to argue against the ECG thoughts on human interaction (Schmidpeter, 2012, p. 10; Steigenberger, 2013, p. 9). Besides the liberal paradigm, they clearly refer to the thinking of the school of new institutional economics and the work of Douglass North (1992).

2. Measuring economic success

In the ECG, economic success is no longer measured by the means of economic activity (money, capital, financial gain), but by the goals (satisfaction of needs, quality of life, common good). At the macro level, Gross Domestic Product (GDP) is replaced as a success indicator by the common good product. At the micro level (companies), the financial balance sheet is replaced by a common good balance sheet. The more ecologically, democratically, and solidarily companies act and organize themselves, the better their balance sheet and the better the sum of all companies' balance sheets in an economy, the greater the common good product. The idea of a non-financial report of companies can be found in the field of business ethics and corporate social responsibility, both within business economics, which is rooted in the resource-based view of companies, following Barney (1991). The replacement of GDP is not clearly linkable to a specific school of thought, but especially in gender economics, because GDP does not measure care work (Picchio, 2003), and within the degrowth movement, because GDP growth is perceived as problematic, alternative wealth measurements are popular (D'Alisa et al., 2015; Diefenbacher et al., 2016).

Schmidpeter (2012, p. 14) and Steigenberger (2013, p. 12-13) argue against this point by referring to the bureaucratic effort and the impossibility to measure these non-financial factors. Implicitly they argue similar to the Friedman doctrine that the business of business is business and that neither a company nor economic policy should work towards other values because companies serve the society best if they seek to increase profits (Friedman, 2008 [1962]).

3. Legal incentives for companies

The incentivizing legal framework for companies in the ECG is reversed from profit and competition to common good and cooperation, and businesses are rewarded for mutual assistance and cooperation. Competition is possible but brings disadvantages. Companies with good common good balance sheets are given legal advantages such as lower taxes, lower customs duties, cheaper loans, priority in public procurement. This facilitates market entry for responsible actors and makes ethical, environmental products and services cheaper than unethical, unecological ones. The idea of cooperation instead of competition for governing economic situations can be linked to the commons and solidarity economics approaches and the writings of Elinor Ostrom (2010). The ideas of incentives for specific economic behavior is closely related to the ideas of the social market economy and the, especially in Germany popular concept of ordoliberal thinking by Walter Eucken and Franz Böhm (Böhm et al., 1989 [1936]).

Criticism of this idea, however, perceives it as Marxist ideology. Schmidpeter sees the whole ECG as a repackaged version of communism and Steigenberger writes a whole chapter about the parallels between Marxism and ECG (Schmidpeter, p. 16; Steigenberger, p. 9-10). Both follow the natural liberal opposition to Marxism and are very quick at relating the ECG ideas to Marxism.

4. Financial profits

Financial profit is transformed from an end to a means and serves to achieve the new corporate purpose, which is contributing to the common good. Financial surpluses may be used for investments with social and environmental value, loan repayments, limited reserves, limited distributions to employees and interest-free loans to other companies. Surpluses may not be used for investments in the financial markets, which should no longer exist, hostile acquisitions of other companies, distributions to people who do not work in the company, and party donations. With these ideas towards the financial system, the ECG suggests a more strongly commanded economy that at least compared to the current state of the economy approaches Marxist and communist ideas and follow the assumption of Karl Marx and congenial thinkers about the problems of capitalist market regulation (Marx & Engels, 1848).

Schmidpeter, as well as Steigenberger, reject the idea of limitations to the use of financial profits as illiberal. Both refer to Hayek to explain that the benefits of investments are often only revealed retrospectively and that companies take enormous risks with their investments without knowing in advance whether their investment activity will be meaningful and successful (Schmidpeter, 2012, p. 22-23; Steigenberger, 2013, p. 14-15). In addition to that, Schmidpeter argues that the freedom of social and sustainable entrepreneurship leads best to a common good, relying again on the corporate social responsibility idea (Schmidpeter, 2012, p. 17-18).

5. Company ownership and cooperation

Since profit is only a means but no longer a goal, in the ECG, companies can strive for their individual optimal size. They no longer have to be afraid of being eaten and no longer need to grow bigger or more profitable than others, which will lead to many small companies. Since they no longer need to grow, cooperation and solidarity with other companies are easier. They can help each other with know-how, orders or interest-free loans. The companies increasingly form a learning community based on solidarity and the economy becomes a win-win arrangement. This is again related to solidarity and commons approaches but also refers to research, for example by the Swiss environmental economist Hans Christoph Binswanger, about an inherent growth imperative for companies in the capitalist economy contrasting the neoclassical assumptions (Binswanger, 2012). In large companies, above a certain size (e.g. 250 employees), the ECG suggests that voting rights and ownership are transferred partly to employees and the public. The third category of property alongside small private enterprises and large enterprises with a mixed ownership structure represent democratic commons, which are public enterprises in the education, health, social, mobility, energy, communications and banking sectors to secure livelihoods. These socialization and expropriation ideas have strong linkages and represent the ECG element that is closest to the ideals of a communist economy that can be found in Marx & Engels (1848) and today for example in the work of Slavoj Žižek (Douzinas & Žižek, 2010). However, weaker forms of limitations to private property can also be found within ordoliberal and social market economy thinking and the classification depends on the strictness of the limitations.

[...]


1 Both cite Smith several times, Steigenberger (2013) quotes Hayek 14 times and Schmidpeter (2012) describes his argumentation as based on the German economist Karl Homann, who argues for a normative individualism without any valuable instance above the individual (Homann, 1985).

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Details

Title
The Economy for the Common Good and Its Enemies
Subtitle
How are the different positions of proponents and critics of the ECG-propositions on the governance of the economy informed and driven by economic paradigms?
College
Hertie School of Governance
Grade
1,0
Author
Year
2019
Pages
17
Catalog Number
V497774
ISBN (eBook)
9783346022134
Language
English
Tags
Economy of the Common Good, ECG, sustainable development, social innovation, Felber, Gemeinwohlökonomie, socio-economic crisis, multiple crisis, philosophy of economics
Quote paper
Simon Valentin (Author), 2019, The Economy for the Common Good and Its Enemies, Munich, GRIN Verlag, https://www.grin.com/document/497774

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