What would an Economy for the Common Good look like?
The Economy for the Common Good (ECG) is an international movement which started in October 2010 on the initiative of a dozen companies in Austria. Presently over 2000 companies support the ECG and over 100 local chapters are working with businesses, governments and civil society. It is a holistic, alternative economic model which envisions a free market economy, in which the common good is the ultimate goal of economic activity.
Goals of ECG
The ECG has three underlining goals:
1. It strives to dissolve the contradiction between the values held by many business interests such as profit maximization and values held by society in general. The ECG looks for ways to encourage values in the business community that allow us to nurture interpersonal relationships. These include trust-building, mutual appreciation, cooperation, sharing and a connectedness with nature.
2. The values and goals laid down in most western constitutions should be implemented in business practices. The current economic order contradicts the spirit of these constitutions. One example can be found in the Italian constitution:
„Public and private economic activity should be oriented to the common good.”
3. Economic success should no longer be measured strictly in financial terms such as profits and growth. Success should be measured according to a company’s contribution to the common good. Business should be rewarded for practices that improve human rights, social justice and environmental protection. At present a company often suffers if it adheres to these ideals.
Cooperation vs. Competition
One cornerstone of our current economic system is the concept that competition is necessary for business. The Nobel Prize laureate for economics Friedrich August von Hayek(1) wrote that “competition is in most cases the most efficient method we know”.
This concept has never, to our knowledge, been scientifically proven. People just assume it to be true. Research has shown, however, that cooperation, not competition, is much more effective in terms of motivation, a key element regarding business innovation and efficiency(2). Competition does, of course, motivate people and market capitalism has proven this, but it motivates them in very problematic ways. Cooperation motivates people through successful relationships, recognition, esteem, mutual goals and mutual achievements.
In contrast, competition is defined as the “mutually exclusive achievement of objectives”. I can only be successful if someone else is unsuccessful. Competition primarily motivates people through fear. Fear is a widespread phenomenon in market capitalism. Many fear losing their job, their income, their social status and their place in the community.
There is another component of motivation when it comes to competition. Aside from fear, competition elicits a form of delight in being better than someone else. This motive is very problematic. The goal of our actions should not be to be better than others but rather to perform our task well because we enjoy it and find it valuable and helpful. If you derive self-worth from being better than others, you are dependent upon others being worse. This actually constitutes pathological narcissism: feeling better because others are worse is sick.
If we, as human beings, do not learn to cooperate and act in the spirit of solidarity we will not call power relations into question but rather will attempt to elbow our way into the realm of power and the social elite. In doing so, the majority will fall by the wayside. And social cohesion will be poisoned because we will constantly take advantage of others, exploit and debase them in the pursuit of our own advantage, weakening and destroying social trust and social bonds.
Measuring the Common Good
If the common good is the goal of all economic activity, then it is only logical that this must be measured by a corresponding Common Good Balance Sheet. This ethics-based balance sheet would assume a presiding role over the financial-based balance sheet.
As in the past, enterprises that are striving to promote the common good will not want to make financial losses. Without profits, enterprises would quickly fail. Profits, however, should not be made for the sake of making profits. They are merely a means of fulfilling a higher purpose.
The Common Good Balance Sheet measures how key constitutional values which serve the common good are fulfilled by companies. These include human dignity, solidarity, justice, ecological sustainability and democracy.
This new balance sheet measures 17 common good indicators, for example:
- Do products and services satisfy human needs?
- How humane are working conditions?
- How environmentally-friendly are production processes?
- How ethical is the sales and purchasing policy?
- How are profits distributed?
- Do women receive equal pay for equal work?
- Are employees involved in core, strategic decision making?
Over 400 businesses have already conducted a Common Good Balance Sheet. First they look through the catalogue of indicators and judge their own behavior. If a company decides to complete the certification process and publicize its results, they are required to bring in an external ECG auditor to examine and discuss the results.
A maximum of 1000 points can be reached. Up until now the average is around 500, which shows that companies across the board have room for improvement. Whether it’s an organic farmer, a machine-producer or a bank, the results show strengths and weaknesses and help pinpoint practices which need improvement.
The current mode of regulation in capitalism constitutes an extremely effective regulatory order that incentivizes certain behavior like profit maximization, uncontrolled growth and competition. The unfortunate results are activities that destroy trust and damage relationships. This is rarely ascribed to this misguided legal framework and all too often explained by flawed human nature. The Common Good Balance Sheet constitutes an attempt to correct this defective programming of the market and the “laws of the market”, and to harmonize these laws with the values defined in our constitutions.
Creating a transparent Market
The score an audited company receives, in combination with its Common Good, allows consumers, employees, business partners and government agencies to gain a clear picture of the companies social and environmental performance. The results can be compared to other enterprises in a similar line of business.
Transparent information is mandatory in a true market economy. Without it we do not have a level playing field and market participants can not make informed decisions. Consumers today have little information on the working conditions involved in production or what the environmental effects are. It is next to impossible to find out if the producer of a given product is an equal opportunity employer, has evaded paying taxes or financed political parties. The Common Good Balance Sheet would help fill this gap and give consumers and other stakeholders the information they need.
Rewarding Good Behavior
The next step is decisive in the movement towards an Economy for the Common Good. Those enterprises that score higher on their Common Good Balance Sheet should enjoy certain privileges. Doing something good for society or the environment needs to be rewarded. Such incentive instruments already exist and would only need to be adjusted. Some examples are:
- Lower tax rates
- Lower tariffs
- Loans from public banks with better conditions
- Preferential treatment in public procurement
The result would be that companies that do more for the common good are able to produce cheaper, have certain advantages on the market and can benefit more from public contracts. This would be a clear reversal of the present situation in which companies win in the market by being ruthless, greedy and irresponsible.
Profits as a Means towards an End
How a company uses its profits should be completely transparent and should be limited in its scope. We as a society regulate business and individual activity in a multitude of ways. In order to drive a car on the highway we have to follow certain rules like speed limits. A car manufacturer is required to ensure the safety of workers at its plants. The use of profits should not be an exception.
A company should be free to use its profits for the following activities:
- Investments in the business
- Reserves for future losses
- Increasing capital
- Dividend payouts to employees
- Loans to other businesses
A company should be restricted in its use of financial surpluses for the following activities:
- Investments in financial services
- Dividend payout to proprietors who do not work in the company
- Hostile takeovers and mergers
- Donations to political parties or PACs
These measures would help eliminate the constant drive towards profit-maximization and continual growth so eminent in our present system. The reorientation of profits would encourage businesses to reorient their strategies towards increasing their contribution to society and the environment. Business would no longer be plagued with the ominous threat of failure if they do not continually increase shareholder value. The compulsion to grow and continuously gain more market share would also disappear. This would liberate businesses, allowing them to discover their optimal size and to focus on producing great products and services.
Successes of the Economy for the Common Good
In the six-year period since a small group of Austrian activists and entrepreneurs launched the movement in 2010, the ECG presently has over 100 local chapters and 20 associations. Over 400 businesses have completed their Common Good Balance Sheet. Dozens of master’s and bachelor’s theses have been written about the ECG. A three-year research project at the Europe University of Flensburg in Germany, which is financed by a 700,000 euro grant from the German government, is studying to what extent the ECG model can contribute to positive, socio-ecological change. The University of Valencia, Spain will be creating a new department chair dedicated to the Economy for the Common Good.
The European Economic and Social Committee of the EU declared that
“The ECG is a holistic model that seeks to integrate the economy into the social, cultural and ecological setting of European society.”(3)
Baden-Württemberg, a German state with a population of over 10 million and home of Mercedez Benz and Porsche, has officially endorsed the ECG is actively encouraging its utilities to embark on a Common Good Balance Sheet.
Christian Felber, born in 1972, studied Spanish Language, Psychology, Sociology and Political Sciences in Madrid and Wien. He wrote and coauthored 15 books and teaches at Vienna University of Economics and Business. He is an international speaker, contemporary dancer and founder of the Economy for the Common Good movement. In September 2016, he will visit the USA to present his book and the idea: http://www.changeeverything.info/
Gus Hagelberg, born in 1966, received his B.S. in Political Science from the California State University, Chico and his M.S. in Political Science from the University of Tübingen, Germany. He is presently Coordinator for International Expansion of the ECG.
The Common Good Balance Sheet: https://www.ecogood.org/en/common-good-balance-sheet
Felber, C. (2015): „Change Everything”. Zed Books: http://press.uchicago.edu/ucp/books/book/distributed/C/bo23073339.html
This article is inspired by Michael Lerner’s article: “Yearning for a World of Love and Justice” from November 3, 2014 publishe in Tikkun Magazine.
(1) Hayek, Friedrich August (2004): »Der Weg zur Knechtschaft«, Deutsche Reader’s-Digest-Ausgabe, Friedrich August von Hayek Institut, Vienna, page 22.
(2) Kohn, Alfie (1986/1992): »No Contest. The Case against Competition. Why we lose in our race to win«, Houghton Mifflin Company, Boston/New York, page 205.