by Kate Raworth
Nature’s networks are structured by branching fractals, ranging from a few larger ones to many medium-sized ones and then myriad smaller ones, just like tributaries in a river delta, branches in a tree, blood vessels in a body, or veins in a leaf.28 Resources such as energy, matter and information can flow through these networks in ways that achieve a fine balance between the system’s efficiency and its resilience. Efficiency occurs when a system streamlines and simplifies its resource flow to achieve its aims, say by channelling resources directly between the larger nodes. Resilience, however, depends upon diversity and redundancy in the network, which means that there are ample alternative connections and options in times of shock or change. Too much efficiency makes a system vulnerable (as global financial regulators realised too late in 2008) while too much resilience makes it stagnant: vitality and robustness lie in a balance between the two.
What design principles can nature’s thriving networks teach us for creating thriving economies? In two words: diversity and distribution. If large-scale actors dominate an economic network by squeezing out the number and diversity of small and medium players, the result will be a highly unequal and brittle economy. This certainly sounds familiar, given the current scale of corporate concentration across many industrial sectors, from agribusiness, pharmaceuticals and the media to the banks that are deemed too big to fail.
As Goerner and colleagues point out, the fragility generated by such concentration is reviving appreciation for the small, diverse enterprises that make up the bulk of an economy’s network. ‘Because we have over-emphasized large-scale organisations, the best way to restore robustness today would be to revitalize our small-scale fair-enterprise root system,’ they conclude. ‘Economic development must become more focused on developing human, community, and small-business capital because long-term, cross-scale vitality depends on these.’29 The question, then, is how to design economic networks so that they distribute value – from materials and energy to knowledge and income – in a far more equitable way.
Redistributing income – and redistributing wealth
In the latter half of the twentieth century, policies aimed at national redistribution fell into three broad categories: progressive income taxes and transfers; labour market protections such as a minimum wage; and providing public services such as health, education and social housing. Beginning in the 1980s, the authors of the neoliberal script pushed back on each one. Fierce debate rose up over whether higher income taxes discouraged the high-paid from working more, and whether higher welfare payments trapped the low-paid into not working at all. Minimum wages and labour unions were portrayed not as protection for the poorest of workers but as a barrier to their employment. And the state’s role in providing quality education, universal healthcare and affordable housing was depicted as an increasingly prohibitive public expense that simultaneously encouraged dependency.
Thanks to international public outrage over widening inequalities, ambition for greater redistribution has returned in the early twenty-first century. Many mainstream economists in high-income countries now advocate raising top marginal income tax rates along with higher taxes on interest, rent and dividends. Social activists worldwide have put companies and governments under pressure to pay living wages; the Asia Wage Floor Alliance, for example, is demanding a living wage for garment workers across Asia.30 Others call for a maximum wage too, set within each company at around 20 to 50 times its lowest earner’s wage, in order to curb excessive executive pay and ensure that corporate profits are more equitably shared amongst the workforce.31 Some governments now offer guaranteed access to work, such as India’s nationwide scheme that promises 100 days of minimum-wage employment each year to every rural household that needs it.32 And citizens – from Australia and the USA to South Africa and Slovenia – are campaigning for a national basic income paid unconditionally to all, in order to ensure that, job or no job, every person has sufficient income to meet life’s essentials.33
Such redistributive policies can be life-changing for those who benefit from them. But they still may not get to the root of economic inequalities, because they focus on redistributing income, not the wealth that generates it. Tackling inequality at root calls for democratising the ownership of wealth, argues the historian and economist Gar Alperovitz, because ‘political-economic systems are largely defined by the way property is owned and controlled’.34 So in addition to redistributing income, the economist’s focus shifts towards redistributing sources of wealth too. If that sounds entirely unfeasible, a foolish pipe dream, then read on. Distributive design has an unprecedented opportunity this century to transform the dynamics of wealth ownership. Five opportunities stand out, concerning who controls land, money creation, enterprise, technology and knowledge – and all five are explored below.
Some of these opportunities depend upon state-led reforms, and so have to be seen as part of a long-term process of change. But others, crucially, can be initiated by grass-roots movements and emerge bottom-up, so can start now. Of course, many have already started. And by transforming the underlying dynamics of wealth, these innovations are helping to turn today’s divisive economies into distributive ones, reducing both poverty and inequality in the process.
Who owns the land?
Redistributing land ownership has historically been one of the most direct ways to reduce national inequalities, as post-Second World War experience in countries like Japan and South Korea demonstrated. For people whose livelihoods and culture depend upon the land, secure land rights are essential. They enable farmers to take out loans, increase their crop yields, and build a secure future for their families and communities. That’s especially true for women farmers: with strong land-inheritance rights, they can earn almost four times more income than those left land-insecure. In the village of Santinagar, West Bengal, 36 landless families became a community of landowners in 2010 thanks to a low-cost land purchase scheme devised by the land rights organisation, Landesa, and the state government. Among them were Suchitra Dey, her husband, and nine-year-old daughter. ‘People used to call us rootless creatures,’ she said, ‘but now we feel proud as we have our own address.’ On their micro-plot – roughly the size of a tennis court – they have built a house and grow vegetables. Selling the surplus has doubled the family’s income, enabling Suchitra to put aside savings for her daughter’s education.35 It is clearly the start of a better life.
The trouble is, as populations and economies grow, the price of land rises, but no more of it can be supplied and so that shortage generates ever-higher rents for landowners. Mark Twain had his eye on this trend in nineteenth-century America: ‘Buy land,’ he quipped. ‘They’re not making it anymore.’ His contemporary Henry George was struck by the inequity inherent in this set-up, which he witnessed first hand on his travels around America in the 1870s. But instead of encouraging his fellow citizens to buy land, he called on the state to tax it. On what grounds? Because much of land’s value comes not from what is built on the plot but from nature’s gift of water or minerals that may lie beneath its surface, or from the communally created value of its surroundings: nearby roads and railways; a thriving economy, a friendly neighbourhood; good local schools and hospitals. That certainly explains the real estate agent’s timeless mantra: What determines house value? Location, location, location.
In 1914, one of George’s supporters, Fay Lewis, decided to make this point with what today would be called political performance art. He bought up an empty lot on a street in his home town of Rockford, Illinois and left it derelict, erecting only a giant billboard to explain why. He even turned it into a postcard to spread the message far and wide.36
Political performance art by Fay Lewis, Rockford, Illinois, 1914.
George’s proposal for a land-value tax – an annual levy on underlying land values as a fair means of generating public revenue – echoed John Stuart Mill’s earlier call to tax ‘rentier landlords’ who ‘grow richer, as it were in their sleep, without
working, risking, or economising’.37 Inspired by such reasoning, land-value taxes are now in use – albeit in diluted form – from Denmark and Kenya to the US, Hong Kong and Australia. But taxation to George was essentially a substitute for a more systemic fix: land, he believed, should be owned in common by a community, rather than by landowners. ‘The equal right of all men to the use of land,’ he wrote, ‘is as clear as their equal right to breathe the air.’38 This view was a reaction against the long history of land enclosure, dating back to Henry VIII’s strategy of disbanding England’s monasteries in the sixteenth century and selling off their land. Over the following two centuries, the new land-owning aristocracy fenced off the collectively grazed village commons to establish vast private estates, simultaneously creating a large class of landless workers who had to choose between ploughing their landlords’ fields or heading to industrial centres to find waged work. In the blunt words of the 1960s historian E. P. Thompson, ‘Enclosure (when all the sophistications are allowed for) was a plain enough case of class robbery.’39
That historic takeover of rural England is emblematic of the centuries-long global trend of both the state and the market encroaching on common land, at first through colonisation, then through corporate expansion. It is on the rise again today, with renewed international investor interest triggered by the 2007–8 global food price crisis. Since 2000, foreign investors have made over 1,200 large-scale land deals in low- and middle-income countries, acquiring more than 43 million hectares of land – an area bigger than Japan.40 In the majority of cases, those deals were land grabs: signed without the free prior and informed consent of the indigenous and local communities that had inhabited and collectively stewarded that land for generations. In case after case, investors’ promises to create new jobs, enrich community infrastructure and skill-up local farmers have come to nothing: instead many communities have found themselves dispossessed, dispersed and impoverished.41
Adam Smith’s celebration of the self-organising market underpinned the justification given for turning land into private property, a justification that was later reinforced by Garrett Hardin’s claim that the commons are inherently tragic. But, as we saw in Chapter 2, Elinor Ostrom challenged that belief when she started drawing attention to the equally powerful alternative of self-organising in the commons, and proved Hardin wrong. Gathering a rich array of case studies of ‘common-pool’ resource users, from Southern India to Southern California, she and her colleagues analysed how diverse communities had, sometimes for generations, successfully collaborated in harvesting, stewarding, and sustaining forests, fishing grounds and waterways.42
Many of those communities, in fact, managed their land and its common-pool resources better than markets did, and better than comparable state-run schemes. In Nepal, where rice farmers face the challenge of ensuring that every farmer gets sufficient water for irrigation, Ostrom and her colleagues compared irrigation schemes constructed and operated by the state with ones that were built and run by the farmers themselves. And they found that although the farmer-run irrigation schemes were more basic in build, they were kept in better repair, produced more rice, and distributed the available water more fairly among all their members. This self-organising system worked because the farmers developed their own rules for water use, met regularly in meetings and in the fields, set up a monitoring system, and sanctioned those who broke the rules.43
There are clearly many ways to share more equitably the wealth that lies beneath our feet. Ostrom was quick to point out, however, that there is no panacea for managing land and its resources well: neither the market, the commons, nor the state alone can provide an infallible blueprint. Approaches to distributive land design must fit the people and the place, and may well work best when they combine all three of these approaches to provisioning.44
Who makes your money?
We live in a monoculture of money, one so familiar and established that – like fish that have never noticed the water – we are barely aware of it. The money we know, be it dollars, euros, rupees or yen, is based on just one among many possible currency designs. This matters because money is not merely a metal disc, piece of paper, or electronic digit. It is, in essence, a social relationship: a promise to repay that is based on trust.45 And the design of money – how it is created, the character it is given, and how it is to be used – has widespread distributive consequences. So what is this monetary water in which we swim?
In the majority of countries, the privilege of creating money has been handed to commercial banks, which create money every time they offer loans or credit. As a result, more money is made available only by their issuing more interest-bearing debt, and that debt is increasingly being channelled into activities – like buying houses, land, or stocks and shares. Investments such as these do not create new wealth that generates additional income with which to pay the interest, but instead earn a return simply by pushing up the price of existing assets.46 In the UK, for example, 97% of money is created by commercial banks and its character takes the form of debt-based interest-bearing loans. As for its intended use? In the ten years running up to the 2008 financial crash, over 75% of those loans were granted for buying stocks or houses – so fuelling the house-price bubble – while a mere 13% went to small businesses engaged in productive enterprise.47 When such debt increases, a growing share of a nation’s income is siphoned off as payments to those with interest-earning investments and as profit for the banking sector, leaving less income available for spending on products and services made by people working in the productive economy. ‘Just as landlords were the archetypal rentiers of their agricultural societies,’ writes economist Michael Hudson, ‘so investors, financiers and bankers are in the largest rentier sector of today’s financialized economies.’48
Once the current design of money is spelled out this way – its creation, its character, and its use – it becomes clear that there are many options for redesigning it, involving the state and the commons along with the market. What’s more, many different kinds of money can coexist, with the potential to turn a monetary monoculture into a financial ecosystem.
Imagine, for starters, if central banks were to take back the power to create money and then issue it to commercial banks, while simultaneously requiring them to hold 100% reserves for the loans that they make – meaning that every loan would be backed by someone else’s savings, or the bank’s own capital. It would certainly separate the role of providing money from the role of providing credit, so helping to prevent the build-up of debt-fuelled credit bubbles that burst with such deep social costs. That idea may sound outlandish, but it is neither a new nor a fringe suggestion. First proposed during the 1930s Great Depression by influential economists of the day such as Irving Fisher and Milton Friedman, it obtained renewed support after the 2008 crash, gaining the backing of mainstream financial experts at the International Monetary Fund and Martin Wolf of the UK’s Financial Times.49
State-owned banks could, furthermore, use money from the central bank to channel substantial low- or zero-interest loans into investments for long-term transformation, such as affordable and carbon-neutral housing and public transport. It would give a crucial boost to building the transformative assets that every economy now needs, and would shift power away from what Keynes called ‘the rentier … the functionless investor’. Indeed, if the state intentionally kept interest rates very low, he argued:
it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce.50
States could also transform the distributive impact of monetary policy measures used during recessions. In mild recessions, central banks normally seek to boost the money supply by cutting interest rates in order to stimulate
commercial bank lending and hence money creation. In deep recessions, however, once interest rates have already been cut very low, central banks attempt to further boost the money supply by buying back government bonds from commercial banks – a practice known as quantitative easing, or QE – in the hope that the banks will then seek to invest the extra money in expanding productive businesses. But as post-financial-crash experience demonstrated, commercial banks used that extra money to rebuild their own balance sheets instead, buying speculative financial assets like commodities and shares. As a result, the price of commodities such as grain and metals rose, along with the price of fixed assets like land and housing, but new investments in productive businesses didn’t.51
What if, instead, central banks tackled such deep recessions by issuing new money directly to every household as windfall cash to be used specifically for paying down debts – an idea that has come to be known as ‘People’s QE’.52 Rather than inflating the price of bonds, which tends to benefit wealthy asset owners, this approach – which resembles a one-off tax rebate for all – would benefit indebted households. Additionally, suggests the tax expert Richard Murphy, central banks could channel new money into national investment banks for ‘green’ and social infrastructural projects, such as community-based renewable energy systems, as part of the long-term infrastructural transformation that is urgently needed – an idea now known as ‘Green QE’.53
Such ideas for state-led monetary redesign at first seem radical, but they are increasingly looking feasible. And at the same time as promoting greater economic stability, they would promote greater equality, tending to favour the low-income and indebted rather than favouring banks and asset owners.
