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First step is to understand how capitalism really works

By John Courtneidge

In this series of articles, I'm suggesting that the time has come to help create a "Not-authoritarian, Not-capitalist" system: a Canadian Co-operative Commonweal as part of a Global Commonweal of Local Commonweals.

To do so, we need to have strategies for the five core features of present-day economics:

  • theft ("ownership") of, and from, the commonweal;
  • "ownership" of land and natural resources, and their use for profit;
  • "ownership" of the practices of money-lending and credit-creation for profit;
  • "ownership" of workplaces and knowledge, and their use for profit; and
  • "ownership" of higher-than-average paid-work positions, and their use for profit.

To deal with these core aspects of capitalism, we must, first, return money to its proper use: as a lubricant of human activity, created by and flowing through nationally-owned, democratic, public service banking and financial systems.

As a result, we can then convert workplaces into appropriate co-operative enterprises, such that each person has respectful co-stewardship of land and knowledge resources; so that everyone receives a fair, guaranteed income and we all embrace proper co-stewardship of the planet as our central life task.

This would be a world, in other words, that is based upon the evolving Co-operative Values and Principles and Definition found in the Statement on the Co-operative Identity from the International Co-operative Alliance, published in the October issue of The Monitor.

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In the planet-trashing meat-grinder called capitalism, people are (expensive) "factors of production" to be eliminated wherever possible, or as profitable units of consumption, to be captured wherever possible. This is the main reason our planet has been so badly polluted and its non-renewable resources so irresponsibly plundered.

No wonder so many of us feel so bad.

Now, whether you wish capitalism to be replaced (as socialists do), or whether you wish to manage it more equitably and humanely (as social democrats of the left, right or centre do — foolishly, in my estimation); or even if you are a committed fan of capitalism who favours more regulation (or deregulation!), you'd do well to know how it works.

And that's what this second article in my series is all about. In the first part of this series, last month, we explored values and political mapping, which suggests that the co-operative socialist alternative to both capitalism and authoritarian leftism is located in the same place where the values system of present-day Canadians is also found.

So I'm suggesting here that the concept of "Co-operative Commonweal" implies that we convert all workplaces into appropriate co-operative enterprises: so that every person, and every organization, has respectful, time-limited stewardship of land and knowledge resources, and that, as a result, true equality and sustainability are both created.

This requires changes to the central features of present-day economics:

  • the "ownership" of land and natural resources, and their use for profit;
  • the practices of money-lending, and of debt- and credit-creation, for profit;
  • the "ownership" of workplaces and knowledge and their use for profit;
  • the inequality and insecurity of household incomes; and
  • the consequently-created culture of rampant crime, fear, debt, and insecurity.

Thus, in a Co-operative Commonweal, each community will be in full, open, time-limited, co-operative co-stewardship of its economic resources: ensuring that they are used for the benefit of the whole of humanity, and for the benefit of the whole global ecology.

Which brings us to the question of what capitalism is, so first, let's look at how wealth is created.

[Note: If you are reading this as part of a study group, you might pause here and — collectively — try to list the resources that you'd need to set up a steel teaspoon manufacturing and marketing operation. Then, try to work out how the proceeds of the sale of those spoons would be distributed if the activity were set up as a capitalist "boss-and-workers" outfit, or as a co-operative socialist alternative: an equal-pay workers' co-op.

Remember that capitalism uses the five mechanisms of economic oppression (theft, rent, interest, profit and unequal pay for work, for which the acronym "TRIP-UP" serves well). These five mechanisms comprise the ways wealth are distributed in a capitalist economy. For those using these articles in study groups, it would also be worthwhile listing those paid-work activities that provide higher-than-average pay: you'll be surprised how many start with the letter P!

It's worth noting that the "secondary wealth-distribution mechanisms" of tax-collecting and tax-distribution are where capitalist propagandists put their emphasis, but it's at the wealth creation and primary distribution stage that real changes are possible. Hence this essay!]

Capitalism: A definition

Here I'm going to describe a view of capitalism: what it is and what we can do about it. I suggest that:

  • Capitalism is the problem, not the solution;
  • Capitalism is a social, political, economic, and philosophical system that relies upon:
    • the private ownership of the means of production (i.e.,
      the means of human survival and of our interaction with the creation/the commonweal/the whole global ecology), and
    • the use of those resources for private profit (accumulation);
  • Neither of these bases (ownership and/or use for profit) has any moral justification whatsoever, nor any desirable net outcomes;
  • The "means of production" (capital assets) are:
    • land — which delivers, from its use, unearned incomes in the form of rents (and profits, usually distributed as company dividends — see below — from the sale of energy, raw materials, including water, and food),
    • money — and/or privately-created, for-profit, interest-bearing credit (resulting from, for example, the theft of "seigniorage," through Fractional Reserve Banking), which delivers distributed profit as interest and inflated bank-stock values, and
    • knowledge — the work of previous generations, in the forms of the hardware and software of "wealth production": machinery, patents, workplace know-how, and, indeed, any tangible or intangible holding of knowledge or information: "intellectual property," musical scores, "captured" images, and so on; the profits from the use of these resources are usually distributed to "owners" as dividends (and as the proceeds of sales of these assets after market inflation of their "values").

(More on this Alphabetical list later)

Co-stewardship with the planet should be our major role

But first, since I'm a chemist (and have also been a businessman), my experience suggests that wealth (i.e., things of value through their use to humans) is created when value is added to a mixture of raw materials plus energy.

Thus, in essence, wealth-creation is applied chemistry — and experience suggests that it can be represented using the following word equation (where the arrow is read as "goes to give"):

Diagram showing how raw materials are used to create wealth

If you think, for example, about making and baking an apple pie, you'll see what I mean.

[Again, if you are in a study group: all wealth creation involves creating order (low-entropy) locally (at the expense of creating more disorder globally) — hence the green-need for the abolition of capitalism . So think about the "word equation" against, say, baking that apple pie from raw ingredients, or from delivering a hand-written postcard from me, in Ottawa, to my mum in England. From this, the (unhelpful) distinction between "manufacturing" and "services" disappears: both create value — the cooked pie and the delivered postcard — along with waste ("pollution"). In terms of chemistry, this has to do with reducing the "entropy" — or disorder — of the pie-ingredients and postcard.]

So, back to the wealth-creating equation, viewed in a different way:

Put diagrammatically, wealth production can be represented as:

Capitalism: The Squeeze

Diagram illustrating Capitalism: The Squeeze

This step-wise analysis allows many other features of capitalism to be discerned: such as the inevitable suppression of wages and salaries; the ever-increasing spread of pollution, violence, and insecurity, and so on.

Further, the diagram above describes the initial — or primary — distribution of the money proceeds from the sale of the finished products. (For discussion of the "secondary wealth-distribution mechanisms" — of tax-collecting and tax-distribution — see above.)

The terms "earned" and "unearned income" might also be considered here. These seem to be culturally specific, highly politicized, much-muddled terms.

One (fairly reasonable, it seems) example is from

"Unearned income is any income that comes from sources other than employment (work). Examples of unearned income include interest from bonds, savings accounts, and other sources; dividends from stocks; capital gains from selling investments at a profit; and income from rental property. Some unearned income is taxed at the regular income tax rate; other unearned income is taxed at a lower rate, often to encourage further investment. Proceeds from retirement plans and Social Security payments are also treated as unearned income, even though they derive in part from the earned income of an individual's prior employment. Gifts, inheritances, royalties, in-kind support, awards, and prizes are considered unearned income. As such, they are treated differently from earned income for tax purposes."

Seven Point Co-operative Commonweal Action Plan to create a fair, safe, peaceful world

  • Co-operatives and peace — not corporations and coercion

Convert competitive, market-based activities into work­place co-operatives, and remodel monopoly activities as community co-operatives. Each co-op would demonstra­bly, operate according to the Co-operative Values and Principles of the International Co-operative Alliance and, from the commonweal and the planet, would have re­spectful, time-limited co-stewardship of appropriate land and knowledge resources.

  • Not-for-profit banking and financial structures as co-ops — Pre-distribution, not Redistribution

Distribute the added-value/created-wealth from these workplace co-ops through nationally collected, co-opera­tive corporate taxation, distributed into local, democrat­ically-controlled Community Banks, and so make money and credit available for eco- and socially-responsible wealth creation, community development, and global care.

  • Step-wise abolition of money as access to needs — global co-stewardship for needs and care, not private resources for profit

Maximize necessary service provision (health, education, libraries, transport, and so on) on a co-operative, free-at­the-point-of-use basis: retaining money only as a mecha­nism for access to discretionary purchases.

  • Fair, Guaranteed Incomes — Near equal/Equal income for all

Introduce guaranteed fair income for all, within upper and lower brackets: based upon a liveable, fair Citizen's Income, and so do away with the need for direct and indirect personal taxation — income tax, sales taxes, and so on.

  • Abolition of for-profit money - An end to usury/riba, and of banking as global warfare

Abolish money-lending and credit-creation for profit, and so operate banking as a community-controlled, co­operative public service.

  • Regulated international relations — An end to global exploitation through financial speculation

Reintroduce international exchange controls, a Tobin Tax, etc., as necessary.

  • All our sisters our brothers, and all our brothers our sisters — One in all, all as one, all in one.

Make capital grants (not loans) to developing countries.

I leave the readers and study groups to judge this definition: particularly whether it is equitable that some receive "unearned income" when most have to work for their income.

Moreover, you could debate whether unearned incomes (i.e., rent, interest, and profits) are either necessary (for economic functioning), or even "beneficial" in terms of human equality or planetary well-being. Another study group discussion, perhaps?

That's where the acronym TRIP-UP helps us remember the five mechanisms that capitalism uses to create inequality and trash the planet. TRIP-UP stands for Theft, Rent, Interest, Profit, and Unequal-Pay for work.

No more TRIP-UP!

This leads us to some solutions (spiritual, economic, and social - not more chemistry!)... So, back to our alphabetical list:

  1. Thus, the solution to getting rid of capitalism is to have strategies to deal with:
  2. inequitable ownership of the knowledge and land resources held in the ownership of workplaces,
  3. exploitation in the use of money and credit necessary to lubricate production (in a money economy),
  4. inequality in the "returns to labour": the inequalities in income from wages, salaries, and benefits, along with inequalities in income from those in paid work and those not in paid work (care providers, home parents, the elderly, students, those unable to join in paid work, and so on);
  5. This suggests that the route to the eradication of capitalism requires:
  6. a) conversion of workplaces into appropriate co-operatives, each having time-limited co-stewardship (rather than ownership) of necessary land and knowledge resources,
    1. financing of those co-operatives by community banking systems which recoup annual "co-operative surpluses" (i.e., co-operatives' financial "profits"): for distribution back to the communities (and the wider world), and to cover the working costs of these not-for-profit community banking systems (this will enable the abolition of private money-landing and credit-creation for profit),
    2. the guarantee of fair "Citizen Incomes" for all, resulting in a narrow band between a minimum guaranteed income and a maximum, socially-determined, greater income — this will enable the increasing funding of public services on a "free-at-the-point-of-use" basis and render redundant the whole structure of personal taxation (income tax, sales tax, etc.),
    3. the conversion, therefore, of an economic system based on "ownership and use-for-profit" (i.e., capitalism), into one based on responsible co-stewardship of the commonweal (a co-operative commonweal), and of use, only, for that end.

    In practical terms, this is evolving into The Fair World Action Plan, which appears above.

    John Courtneidge is a scientist, writer and teacher, with a PhD in chemistry and experience as a researcher, co-educator, small-scale farmer, and community organizer. The third article in his series on the campaign for co-operative socialism will appear in our December-January issue.