Alternatives To Capitalism
Marjorie Kelly is the Senior Fellow and Executive Vice President of The Democracy Collaborative, a non-profit organization that works to shift our economic system toward shared ownership and control, rather than concentrated wealth built on greed. Marjorie co-founded—and served as vice-president of—Business Ethics magazine, and received a Nautilus Book Award for her 2012 book, Owning Our Future: The Emerging Ownership Revolution.
The root of the socio-economic problems in our country, as Marjorie sees it, is “this deep underlying architecture of ownership that is driving wealth inequality and is driving a lot of the problems in our economy.” Her solution? A business model that supports communities.
Marjorie points out that companies aren’t started just to grow earnings. Companies start because someone has an idea that they think the world might need. Counter-intuitive as it may seem, trouble is only introduced when this initial idea becomes wildly successful. “Almost all these organic food companies sold to the big multinationals, and one by one they started to see their social mission being squeezed—because the big companies, they want these ball bearings to roll off the assembly line,” says Marjorie of this phenomenon in the natural foods sector.
A company that retains its mission and agency and contributes positively to its community is what Marjorie calls a “living company.” There are actually a number of them in agriculture: “In the whole farming industry there are a lot of producer cooperatives that I consider living companies. Farmers or small business people get together and help each other.” Perhaps this has to do with the fact that food is the great equalizer. Everyone has to eat, after all.
Still, Marjorie predicts that radical changes in the way our economy is set-up will have to happen sooner or later. “The enterprise models of the future are not going to be the models of today,” she says, adding that many people hold the mistaken belief that there are no alternatives to capitalism. “I think a lot of us believe that, and it’s not true. There is an alternative. They’re all around us right now, and we can scale them up.”
Listen to this enlightening and uplifting episode, on iTunes, Stitcher, Google Play or wherever you get your podcasts! You can learn more about Marjorie Kelly at her website.
Welcome to Rootstock Radio. Join us as host Theresa Marquez talks to leaders from the Good Food movement about food, farming, and our global future. Rootstock Radio—propagating a healthy planet. Now, here’s host Theresa Marquez.
THERESA MARQUEZ: Welcome to Rootstock Radio. I’m Theresa Marquez, and I’m here with Marjorie Kelly, senior fellow and executive vice president of the Democracy Collaborative, and author of a wonderful book called Owning Our Future and another book that many of you, I’m sure, have heard of: Divine Right of Capital. And also, Marjorie is a co-founder and for 20 years was the president of Business Ethics magazine. Marjorie, such an honor and a pleasure to be speaking with you today.
MARJORIE KELLY: Thanks, Theresa. It’s fun to be here.
TM: You know, I have mostly focused this Rootstock Radio show on changes in food and agriculture. And I had the great pleasure of reading your book Owning Our Future, and it made my spin a little bit because you put forward that maybe our current ownership structure is a very extractive ownership structure, and that maybe it’s stopping a lot of change to happen, and it might be one of the things that is in the way of real change happening. And certainly, you come up with this idea of generative versus extractive ownership, and I wondered if you could talk a little bit about what are these two different kinds of ownership and what led you to think through this idea of a generative ownership?
MK: Yeah, it’s taken me…I think it took me about 20 years to see that ownership was really the operating force, the driving force in our economy. I was editing Business Ethicsmagazine, and I was writing about a lot of good-guy companies that I admired and giving awards to them and so forth. And I began to see them becoming more ruthless over time, sending jobs overseas, doing mass layoffs—which nobody used to do—demanding tax breaks from cities just to stay. So the whole social contract shifted. And what I realized was at work was this deep, underlying ownership model. Ownership in public stock markets, where your earnings, or your profits, have to grow every quarter, basically forever. And so you can’t hit a nice high level and just stay there and say, “Oh, we have plenty of money, let’s just stay here.” No, you have to keep growing. And so it becomes harder and harder to come up with those profits every year, and so you start turning to more ruthless methods.
And I also saw family firms that I had long admired. I was living in Minneapolis at the time. A lot of really great, big family firms there, including Target, which used to be owned by the Dayton family. And the more that they became…they went into the public stock market and became just these kind of ball bearing machines. You’re just turning out the ball bearings which are earned earnings, the profits. And it was like this great machine that would just absorb companies and turn them into these profit-making machines.
And I began to see that it was really that design that was the problem. We tend to focus on individual companies, individual bad-guy CEOs, and it’s a little bit like thinking, “Oh, the problem is King A, King B, King C.” No, the problem is the monarchy! The problem is this deep underlying social architecture that just is out of step. And it’s this deep underlying architecture of ownership that is driving wealth inequality and it’s driving a lot of the problems in our economy.
And so I started to ask myself, well, how else would you design ownership? Most of us don’t think of ownership as having a design. We think of it as just a fact—you own something or you don’t. But in fact, it can be designed a lot of different ways. Ownership is like a bundle of twigs; there’s different rights, you can distribute them in different ways.
So I traveled around the U.S. and Europe and I started looking for companies that are already designed a different way, and I found a lot of them. From the foundation-controlled companies of Northern Europe, like IKEA is one; John Lewis Partnership, a huge department store in London, is 100 percent employee owned—they give half their profits every year to employees. They do that because of their ownership design.
MK: Yeah! And so I realized, no, you can actually design companies that are helpful to communities, that are wanting to share profits with employees, and that goes down into their fundamental design. So I said, well, what would you call that? And it’s a design for life. You want to generate the conditions for life. So I said, well, it’s generative. It’s generating the conditions for us all to thrive. Which is different than just creating something you can just extract more and more money out of it. So that was how I came to those terms.
TM: So, we don’t always usually think of capitalism as an ownership model. We think about it as, oh, our free-market magic. And then you also mentioned growth. So, as you looked at these things, and you’ve come up with this idea of a generative economy, so you’re connecting real ownership with this idea of capitalism and our free market system.
MK: You know, Theresa, it’s really a red herring that we spend all this time talking about free markets. I was reading a magazine article just the other day, and the editor said, “Okay, so by capitalism you mean a free-market economy without government intervention.” He was talking to someone else, I was just reading this. And I thought, no, that’s not what capitalism [is]. Capital-ism is an economy designed to serve capital. It’s an economy designed to create more capital—which is financial wealth—and it’s designed to serve those who hold capital, which is the wealthy. And we don’t talk about that because that might lead to change.
So we say, “Oh no, it’s a free market.” Well, you can have free markets with employee ownership. You can have free markets with cooperatives. You can have free markets with municipally owned utilities—you know, selling electricity on the public market. So a free market is fine. But the real operating force is the design of the corporation and who is the economy designed to serve. And so that’s what I’m trying to point to.
TM: Well, I wonder if you could say a little bit about juxtaposing that with what you call the generative or maybe living economy?
MK: Yeah, so the first thing is to recognize that it goes down to the DNA of a company. What is the company really about? So I had the good fortune recently to visit a company in Maryland called EA Engineering. Now, this is an environmental engineering company, and in their DNA, their whole purpose is to help make the environment cleaner. So they’re consultants and they work with other companies and the government, and so forth, to solve problems with water and so forth. So the founder of that, Loren Jenson, was mentored at a younger age by Rachel Carson. He was a professor of ecology in the early days. So he left his university and started this environmental engineering firm, and it was growing rapidly. And all of his advisors said, “Well, you should go public.” And public means, now ownership shares are not held by individuals—they go into the public markets, so anybody can buy them; they could change hands every second. So he did, he took the company public.
Well, what they found was that trying to turn this very sincere environmental consulting firm with a bunch of scientists, turn it into this money-making machine, really conflicted with the culture. Because all of a sudden these scientists were now expected to go out there and bring in contracts and be salespeople, and you’re supposed to churn out the work. They weren’t paying attention to the quality anymore. They found morale plummeted; they cycled through three CEOs in about three years. They actually got in trouble with the SEC for making misstatements in their financials because they were kind of covering things up to make things look better. And so it leads to this aggressive and abusive behavior. And they said, “Enough! We’re done!”
And so Loren Jenson bought the company back, and he turned it into a 100 percent employee-owned company and a benefit corporation. And that’s what it is today. A benefit corporation is when you have, it’s in your bylaws and your articles, it’s deep in your governing documents, that says, “We exist to create social and environmental benefit. That’s why we’re here.” And the stewards of the company—those who own it—are the employees. And this is a $140 million company—it’s not a tiny, tiny little company.
So that’s a generative design. They wanted to protect their social mission, and they needed a design that would protect that. And employee ownership, benefit corporation, those are both kind of design elements. They’re design elements that are in there to protect social mission.
Let me give you another example, and this is Odwalla Juice. And Greg Steltenpohl was the founder of that company. Then he sold this company to…I think he sold it to Coke.
TM: Yes, he did.
MK: Yeah, so he sold to Coca-Cola. Almost all the organic food companies sold to the big multinationals. And one by one they started to see their social mission being squeezed, because these big companies, they just want those ball bearings to roll off the assembly line—earnings, earnings, earnings. That’s the name of the game. Everything else is only a means to that.
Well, that wasn’t true with Greg—he wanted to make great juice. He stood up at this conference once, after he had sold to Coke, and he said, “You know, I used to be in the business of making great juice. Now I’m in the business of making money.” And he was very rueful about it—it wasn’t what he wanted to do. He didn’t realize that by changing the ownership design of his company, he completely changed the behavior of that company. He was forced into a different set of behavior.
So that’s what I’m trying to point to, and that you can actually design companies differently. We think, with Margaret Thatcher said—you know, it’s the TINA comment—“There is no alternative to capitalism.” I think a lot of us believe that, and it’s not true. There is an alternative. They’re all around us right now, and we can scale them up.
TM: Well, you know, Marjorie, I was taken with what, when you were saying you had been talking to people, and it’s like, okay, it’s either: Is capitalism here to stay and is going to be the ruling economic model of the day? Are there just two choices? Should we try and completely eliminate it, or should we try to reform it? And then I think what I learned from your book is that maybe there’s a third way, and that is developing other models.
MK: Yeah, I think that’s right.
TM: And so how can these other models, though, be part of still this kind of capitalistic-driven, that there has to be constant growth?
MK: Yeah, I think that’s right. Well, the reason for the constant growth—one key reason is if you’re in the stock market, because people want their stock price to go up, and the only way stock price can really go up is if your earnings go up over time. So in order to grown your earnings—which is another word for profit—you have to grow your revenue. So there’s this conveyor belt going up. And that also drives problems with the planet. We can’t live on this conveyor belt of growth going up forever on a finite planet—we know that. And so I think, Theresa, we can look down the road in the long run and say with certainty that the enterprise models for the future are not going to be the models of today. We are not going to be in a rapid-growth environment forever. We’re going to either crash or we’re going to do something different. You just can’t sustain it.
And so, what do we do in the short term? We are in this world where there’s a lot of competition for growth and so forth. And I think that what we need to do is be very clear about what our social mission is as companies. I mean, why are you here? Why does a company exist? Each company will answer that differently. But I’ll tell you: founders do not start companies just to grow earnings. That’s not why they start them. They start them because they have some idea that they think the world needs—and then get caught into this game which has kind of taken us all over and nobody feels like they’re in charge of it. But you have to design deliberately for something else, and—like for example, your bylaws and your articles and then also who’s in charge.
Some companies have something like, I call them “mission shares.” For example, the New York Times company. This is a company, it’s publicly traded—you and I could go out tomorrow and buy its shares if we wanted to; it’s on the public markets. And yet it has this second kind of shares which don’t trade; they’re not for sale. I call them mission shares. They’re held by the Ochs Sulzberger family, which is the company, the family that is stewards of this really precious company. Rupert Murdoch would dearly love to buy the New York Times. Now I don’t know if—I’m a journalist so I pay attention to people like this—but he’s this ruthless publisher who does really sleazy publications. And he did buy the Wall Street Journal. But I think we would live in a different world if Rupert Murdoch owned the New York Times. I sometimes feel like the New York Times is one of the few things standing between us and utter chaos. So we have some idea of what’s going on in the world.
And the only reason that the New York Times is not owned by him is because of these mission shares. And there are ten votes per share, so they have substantially more voting power than ordinary stock. And because of that, they control the board, and then the board controls whether that company is sold or not. That’s an example of design to protect social mission.
TM: If you’re just joining us, you’re listening to Rootstock Radio. I’m Theresa Marquez, and I’m here today with Marjorie Kelly, certainly an economic activist, I think I would call you, Marjorie, and an author of two very exciting books; also the president of Business Ethics magazine for 20 years, and founder.
Well, you know, I learned a bunch of vocabulary reading your book, Marjorie. Like, for example, I hadn’t really used the term generative economy. Usually when we talk about generative and regeneration in the food and agricultural world, we’re talking about the land, the soil. And I also learned other words like, for example, “living companies” and you talk about a “living purpose.” And I just wondered if you could talk about that. How does a living purpose have anything to do with a generative economy?
MK: Well, we live today in a financialized economy and we don’t see it. It’s like it’s the ocean that we swim in. But all throughout history, economies have been a way to meet human needs—that’s why economies exist. We need food, we need clothing, we need houses, we like to be entertained, we like to have cars, and so forth. That’s what economies exist for, is to meet human needs. And we’re learning—we’d better learn, fast—that an economy better be compatible with a living earth or we’re all in big trouble, as we know.
And so I don’t think…we haven’t done that yet. We haven’t made the turn, gone through a modern economy, a financialized economy, and then turned back to make that economy fit within the parameters of the earth. That’s the challenge that we have right now. But what we can do is we can look to history and say, well, let’s remember why we have economies in the first place, and it’s because we want to live. We don’t all want to be out there building our own houses, and so we trade with each other. I’ll build a house and you’ll make my clothes, kind of, essentially. So let’s remember that there’s a living purpose to the economy and to every company. It has a living purpose; that’s its natural reason for being.
And so, in my book Owning Our Future I talk about how the housing crisis of 2008, the mortgage crisis, was a result of us losing our way and forgetting that there was a living purpose. The reason that you have mortgages is so that people can live in their homes. A mortgage is not a way for a few people to get rich—that’s not why you have it. And when we started treating mortgages that way they blew up; we basically blew up the economy.
That’s really important to recognize. I mean, I can sit here and say these things and sound like, “Oh, she’s a do-gooder. Isn’t that sweet? Isn’t is too bad that she doesn’t live in the real world where we all know you’ve got to make money?” No. Look—we almost blew up the global economy because we forgot why economies exist. We thought they were just like trading instruments: trade them and extract more money out of them and load the world up with debt, and kaboom! There it goes.
So, getting back to living reality is an imperative. It’s not just a nice idea, it’s not a sweet little idea on the side. It’s really the imperative that we face right now as a society, is getting this economy back to earth, getting back to its living purposes.
TM: So, really, you’re saying, hey, you could have a living purpose and you could have a lot of the—you point out five elements of a living economy or creating a living company—and you can still have profits and have a good business and still have a living purpose. Can you give us a couple of the examples of companies that you know who have done well having a living purpose?
MK: Yeah. Well, I love to talk about the John Lewis Partnership in the UK. Now that’s the largest department store chain in the United Kingdom. And they have a couple of dozen big department stores—we’re talking about Macy’s—and I think over 100 grocery stores. So it’s a multibillion-dollar company. It would be up in the Fortune 500 if it were publicly traded and in the U.S. And it’s 100 percent owned by employees. In fact, it has been so successful it outperforms its peers. It has low turnover, and it has created a whole governance structure to go along with employee ownership. Ownership is one element of design, another is government. How do you internally govern a firm?
So they have a constitution, and they have something that’s little bit like a parliament where employees meet and can decide on certain things. Different departments have representatives—you know, the lingerie department has its representative. And they don’t decide everything—there’s a lot that’s decided by a board of directors, which is separate from the workers council. So it’s not a naïve kind of structure, but it is a structure that allows for input. And every year the CEO comes before this body of representatives of employees and talks about the health of the company and reports to them.
So it makes people real. In the traditional view of companies, we look at companies as commodities. The real life of the company is in the hands of the stock market or the owners, who stand outside of it and just want to extract money from it. When you have the people inside the company owning it or having a say in governance, then you have a living company. It starts to become a human community.
And so John Lewis Partnership, that’s one example. There are producer cooperatives that are also great examples. In the whole farming industry there’s a lot of producer cooperatives that I consider living companies—you know, farmers who are small-business people get together and help each other. And you see the same thing in Ace Hardware. That’s a producer cooperative, so you have all these little family-owned hardware stores basically banded together under the name Ace Hardware, where they can buy collectively and save a lot of money and help each other through collaboration. So those are a couple of examples.
In the employee ownership world there are some great examples. King Arthur Flour is an employee-owned company. New Belgium Brewing, Fat Tire Amber Ale, that’s a 100 percent employee-owned company. So there are some really great companies in that space. You can also look at municipal ownership, for example, of water. About three-quarters, or possibly more than that, of the water systems in the country are owned by cities and counties.
Now there has been an experiment in recent decades of moving to investor ownership. So again, you have this life-serving product, which is water—access to water, if you want to talk about the basics of life—and then you turn that to investor ownership, so access to water now becomes a source of maximum profit extraction. Well, that was a pretty disastrous experiment. And there’s been a global movement back toward community ownership of water. And there’s been more than 375 cases where they’ve succeeded in taking water back from investors and putting it back in the hands of communities.
TM: And certainly, as we look at regional economies, it seems to me that this whole rooted, living purpose, rooted membership, maybe we should be looking at models that just aren’t as global and [are] more biodiversity-oriented.
MK: Yeah, that’s actually really insightful, Theresa. You’re right. You see, we’ve been in this long fantasy period that money could grow forever, that capital could grow forever, and that we could have a global economy and just ship things wherever and take jobs wherever they’re the cheapest, and send things back and forth across the ocean with no consequences. Well, that was a fantasy, and so that fantasy is coming to an end. And I think, as we move into a new era of sustainability, yes, the economy needs to come back to earth. It needs to live somewhere with real people at the helm, not algorithms—we don’t want algorithms in charge of our economy. And so, yes, bioregions start to become real.
There’s a wonderful book by Carina Millstone, it’s called Frugal Value. She’s in the United Kingdom and this just came out in recent months. And she’s an ecological consultant in the UK, and she says that ultimately, if we want to get to sustainable behavior in our economy, we have to look at ownership design. She says looking at the physical technologies of sustainability only takes us so far. People try to make the case to businesses that you’ll save money by going to green energy, or recycling you’ll make more money, reduce waste. And that’s true about a third of the time, the business case for sustainability is true. Two-thirds of the time it’s not. And so really, sustainability becomes a moral case. And the question is, who are the moral agents who can make the necessary and maybe hard decisions of sustainability? Well, it’s not stock markets, it’s not algorithms. It’s people.
And so you need to have real people in control of companies and of the economy. But in a company, what does that mean? Well, it means the company is probably going to be smaller, it’s probably not going to be a multinational. It’s going to be smaller, it’s going to be rooted somewhere, and it’s going to have a different definition of success, more about sustainability. You can still be profit making, but you’re not going to be profit maximizing. And that makes a big, big difference.
TM: Marjorie, thank you so much for just your insights and lovely book, Owning Our Future,plus The Divine Right of Capital, and all the fantastic work that you’ve been doing. So needed, so important, so valuable. And I am certainly going to be recommending your books to everyone I know. So, thank you so much.
MK: Theresa, thank you so much. This has been a lot of fun, I really enjoyed it.