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10 Potential Alternatives To The Conventional Capitalist System

by David Tormsen
fact checked by Jamie Frater

Some believe our current system of economic organization is starting to fail us, but other than the horrors of Communist collectivism, what alternatives do we really have? As it turns out, there are quite a few. Here are 10 systems of economic organization that go against the grain of conventional thinking.

10 Islamic Finance

Two Emarati Business people talking outside the office.
The first Islamic banks emerged in the mid-20th century, but have since become one of the fastest-growing forms of financial institution in the world. Islamic banks differ from conventional banks in the nonexistence of interest, considered a form of usury allowing the rich to exploit to poor without creating value themselves. The Quran has very strict rules against collecting interest, as is evident in Al-Baqarah 2:275:

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury]—those are the companions of the Fire; they will abide eternally therein.

While many Muslims still use the standard banking system, including interest, Islamic banking provides an alternative for the more devout. Islamic financial institutions work according to a profit-and-loss system known as musharaka, by which the bank and the borrower form a joint venture to share profits and losses from an enterprise. It is thus the norm for Islamic banks to assess the potential profitability of a venture before making a loan. For proponents of the system, Islamic finance recognizes private ownership, the profit motive, and the power of the market, but puts restrictions on activities to reduce exploitation and selfishness, based on their belief in sharia law.

There are a number of other ways that Islamic banks can provide financial services in accordance with sharia law. In ijara, banks can buy items for customers and lease them back to them, with customers sometimes paying for the final purchase with installments. Murabaha is where the bank supplies goods for resale to the customer including a margin above costs, paid back in installments. Wakala has the bank acting as a customer’s agent and investing their money in profitable and sharia-compliant trading activities. The global Islamic financial system is now worth $2 trillion, held mostly in banks but also in Islamic investment funds, as well sukuk and takaful, the Islamic equivalents of bonds and insurance, respectively.

9 Firewall Economics

Food Prices
Social worker J.D. Phillips developed this idiosyncratic economic system based on the idea that while the best economies are mixed economies, socialism and capitalism do not mix well, as they cancel out each others’ benefits. His proposed alternative is called Firewall Economics, a system in which markets exist, but they are separated from the production of desperate human necessities—food, water, clothing, shelter, utilities, medical care, and so on. His logic states that classical economics assumed the price of such necessities would only go as high as people were willing to pay but didn’t take into account predatory lending forcing people into debt in order to survive. In the current capitalist system, the fact that necessary items are distributed through a market capitalist system has led to income inequality and spiraling debt.

As a layperson and non-economist, Phillips’s ideas have been given short shrift in serious academia. He presents many of them in a fictionalized form with a self-published Amazon novel entitled The Firewall Sedition, about a brilliant economics professor whose ideas are rejected by conservative economic thinkers and suffers mysterious harassment. Then, he somehow gets involved with Colombian drug dealers at a biker bar. He has a more serious version, a 155-page manifesto entitled BLUE COLLAR FIREWALL ECONOMICS: POLITICAL LITERACY FOR DEMOCRATS, most of which is dedicated to describing his own views about both sides of the political spectrum before he even gets into his economic theory, which is ultimately dispensed in a few pages at the end of the manifesto.

8 Economic Democracy

The central idea behind economic democracy is extending the principles of popular sovereignty, by which power is constrained by accountability, to the economy. In the modern world, economic power is exercised in workplaces by bosses and managers, by financial organizations such as banks and money markets, and through investment, where business owners have imbalanced levels of power. This economic power allows for control and subordination, and so is, by definition, political power, which means that it should be subject to public accountability. If capitalism is leading to unequal and unaccountable political power in democratic societies, then new economic arrangements accountable to the citizenry should be developed, or at least so goes the argument.

There have been different proposals to expand economic democracy. The three key ideas are creating workers’ cooperative firms, where worker-owners make decisions collectively or through an elective structure, public banks serving a broader social purpose, replacing profit-driven private banks, and participatory budgeting, in which the state devolves a significant amount of public funds to cities or neighborhood assemblies to ensure a more democratic allocation of funds.

Economic democracy can be traced back to socialist and anarchist thinking in the 19th century but has only come into greater prominence over the last few years in the wake of the collapse of state socialism. One practical and successful application of the ideas of economic democracy has been Mondragon Corporation, based in the city of Arrasate-Mondragon, Spain. Most of the corporation is dominated by self-managing cooperatives in four sectors—industry, finance, retail, and knowledge. A managing director is chosen through an annual general assembly. Now the largest corporation in the region, Mondragon is known for its income equity between workers, high job security, and even improved gender roles within the company.

7 Reputation Economy

Also known as the sharing economy, this system is the idea that the rise of peer-to-peer marketplaces has been changing the way consumption is organized. Through websites like Airbnb, Craigslist, and SnapGoods, more and more people are finding ways to borrow or rent someone’s apartment, bike, car, parking spot, or random household good. The most important aspect of this developing economy is the reputation you develop on the networks, as safety and trustworthiness are of highest value in an economy where strangers essentially share goods and services for mutual benefit.

One of the biggest proponents of this form of economic organization is the author Cory Doctorow, whose mind-bending science fiction novel Down and Out in the Magic Kingdom featured the Whuffie, a currency based solely on reputation. In 2009, a nonprofit organization calling themselves the Whuffie Bank tried to make the Whuffie a reality in the form of a karma-like digital currency where you would be rewarded for positive comments and posts on social media sites, and “you lose them when you do something that the organization deems to be detrimental.” This would raise some serious questions about accountability and how the organization would determine if a comment on social media is positive or negative. Needless to say, the Whuffie Bank went offline in early 2013.

6 Slow Money

The Slow Money movement is based on a number of key principles. It holds that modern finance is too fast and complex and needs to be brought down to a slower speed, with more focus on food security and agriculture. The movement seeks to induce investors to focus on areas close to where they live. The Slow Money system sees the economy as resting on the health of the soil, with investors as seeds and money as potentially harmful or helpful water, depending on how it’s used. They focus to a large extent on helping small food enterprises and cooperatives get connected with investors willing to accept slow and low returns.

Based out of Boulder, Colorado, Slow Money is a nonprofit organization that intends to build up local economies by helping people to put money into tangible, local agricultural enterprises. Founder Woody Tasch describes the ideology: “Food is the place to start. Food is ground zero—the place where the economy meets the soil, where profitability meets fertility. It is where our efforts to build a restorative economy are grounded.” Some conservative thinkers are skeptical, accusing the Slow Money movement of hiding the fact it is essentially a charity organization looking for “angel investors.”

5 TEQs

Carbon Emissions
Tradable Energy Quotas (TEQs) are a proposed method of reduced carbon-intensive energy use on a national level, in a way that ensures a fair and equitable distribution of energy while also meeting carbon-energy-reduction goals. Each adult is given a set amount of TEQs per week for free, which are deducted when buying energy or fuel along with the monetary cost. The costs of fuel and electricity supplies vary depending on how carbon-efficient the fuel is. One unit represents 1 kilogram (2.2 lb) of carbon dioxide or other greenhouse gases generated in the production and use of the fuel. If you end up with extra units, you can sell them; if you need more, you can buy them. Mass energy users like governments and corporations must bid for their units at weekly auctions. A Committee on Climate Change, independent of government, sets a yearly budget for energy use, declining year by year, allowing consumer demand to set prices while giving incentive to develop more carbon-efficient energy sources.

TEQs were first proposed by David Fleming in 1996. Since then, they have been proposed to the United Nations and British Parliament. Two applications for research grants from the European Union were rejected in 1999 and 2000. A UK government review in 2008 called it “an idea ahead of its time” and politically unpalatable. The concept of personal carbon allowances strikes many as reminiscent of a strange totalitarian regime. TEQs supporters blame resistance on the elite, claiming that the introduction of TEQs would reveal the existing huge inequalities in carbon usage between the rich and the poor.

4 Participatory Economics

Stemming from anarchist philosophy, participatory economics, or PARECON, is touted as a system that produces fair and equitable economic outcomes, solidarity among the people, diversity of outcomes benefiting all, self-management, efficient use of resources, and environmental sustainability. Michael Albert and Robin Hahnel believe that neither market capitalism nor central planning can deliver on those values. They propose social ownership of the means of production, while markets are replaced by a system of non-hierarchical democratic or participatory planning committees. Members participate in consumer and workplace councils, developing plans for consumption and production respectively, or in Iteration Facilitation Boards, councils bridging the gap between the two others through research and recommendations.

In order to make sure that every worker is on the same page and no one gets an unfair advantage by claiming rewarding positions, they propose a system of balanced job complexes (BJCs), in which rewarding and rote tasks are distributed and shared equally. So, one worker might spend some time in a management or creative position and other time on a dull but necessary task like sweeping the floor. Sharing the drudgery is meant to ensure there isn’t a division between alienated manual laborers and accomplished conceptual workers. Remuneration is based on effort and sacrifice, so those who work harder are paid more, based on the assessment of one’s work colleagues.

David Schweickart argues that the Participatory Economics model proposed by Albert and Hahnel would be unwieldy and burdensome in practice, particularly in the application of reasonable BJCs over groups. He is also skeptical of peer evaluation as the basis for remuneration. Workers are more likely to give each other high evaluations to keep each other happy; they would lose motivation to work hard as a result because there would be little benefit in it. He also argues that replacing the market with a system of asking people what they want to consume and produce and working it out from there in committees would be an endless, nightmarish headache and far less efficient than the current market system.

3 Community Capitalism

Asian Group
In the 1980s, the state socialist countries realized that their systems of communist central planning were failing badly. Russia and Eastern Europe took a plunge into market capitalism and liberal democracy with what some call “shock therapy,” with mixed results, while China took a more gradualist approach to the problem. The Soviet-Leninist mechanisms of the Chinese Communist Party remained intact, maintaining control of national policy while introducing democratic reforms at the village level and with so-called “intra-party democracy.” Economic reform was achieved at different rates in different sectors of the economy, with many state-owned enterprises surviving long into the reform era. Radical reform strategies were experimented with on small scales before being scaled up to the national level. St. Lawrence University’s Hou Xiaoshuo argues that these policies led to the development of a unique system he calls “community capitalism.”

Community capitalism works through collective shareholding of enterprises in villages. It is a coercive system, but collective wealth is shared, and an incentive system combines collective and individual interest. He bases much of his study on the Huaxi village in Jiangsu Province, widely known as China’s richest village. In Huaxi, there are three forms of financial distribution: The first is communist, providing villagers with basic subsistence fees. Then there is the socialist component, where villagers work in a factory or service area for a salary. Finally, the capitalist component is received in dividend, based on factory shares and village shares owned by individuals.

Hou believes the hybrid system used in China, which shows remarkable variety from region to region, is likely to stay for a long time and may represent a sustainable alternative to the standard capitalist system promoted by the West. He points to the importance of guanxi, or kinship and pseudo-kinship ties within society, as an important factor. This allows for the development of the so-called East Asia model, characterized by an authoritarian government supervising market reforms and economic development and a society characterized by collective solidarity, social relationships, achievement-oriented work ethic, and the prestige of education.

2 Objectivism

Ayn Rand’s philosophy of Objectivism is the philosophy of bare self-interest. The ideal Objectivist political system is laissez-faire capitalism, where people interact as equal traders, freely and voluntarily exchanging goods and services for mutual benefit. No one may use physical force to coerce others, and indeed, the only real role of the government in an Objectivist economy is the prevention of illegal force used by criminals and foreign invaders.

Objectivists believe that the main purpose of life is life, which means freedom, which means by extension economic freedom and therefore laissez-faire capitalism. The current mixed system of capitalism with governmental controls is not free and is unduly influenced by the Objectivist mortal sin of altruism. Objectivists believe that altruism is the idea that a person must live for the sake of others, sacrificing their lives and freedom. This is the road to statism and collectivism and therefore against freedom. They believe the ideal economic system would abandon these false ideals of altruism and build a system of economics based entirely on rational self-interest.

Objectivists believe that if the government focused only on a role of preventing the use of force and coercion in society, people would be free to produce and innovate freely. They believe capitalism is the only system in which the dissatisfied are free to form their own communities and associations, if they so choose. The only stricture against the choices is being unable to initiate force against others to force your will on them, which is not really something you should be doing anyway. The position that the government is a necessary safeguard in capitalist society to prevent people from using physical force to coerce others is one of the main distinctions between Objectivism and Anarcho-Capitalist Libertarianism.

1 Resource-Based Economy And The Collaborative Commons

Digital Currency
The hollowing-out of the middle class as wealth becomes more unequal is dangerous for a capitalist economy, which relies on middle-class consumption to survive as a viable system, at least as far as Marxist theory goes. However, according to the concepts of Resource-Based Economic thinking, technological improvements are a more important factor. The old systems of profit-driven competition and debt-based investment will be undermined and ultimately rendered void through the proliferation of technology such as 3-D printers and the rise of crypto-currencies like Bitcoin.

The argument goes that we now have the technology to access a tremendous amount of potential energy from wind, wave and tidal action, ocean currents, temperature differentials, falling water, geothermal, electrostatic, hydrogen, natural gas, algae, biomass, bacteria, phase transformation, Fresnel lenses, and thermionics. There is no reason that we couldn’t see a complete automation of the work force over the next four decades, as artificial intelligence and autonomous machines take over the drudge work entirely. A resource-based economy, it is argued, would be more appropriate in a post-scarcity world.

This theory states that the capitalist structures of companies and industries will be washed away as marginal costs of producing things (and therefore profit) begins to approach zero. This will lead to the rise of the Collaborative Commons. Aspects of this system include the “Internet of Things,” connecting billions of consumer devices to a vast global network, an Energy Internet, by which renewable energy is distributed, and consumers becoming “prosumers,” producing their own energy and releasing surplus onto the grid. This vision sees the manufacturing industry replaced by distributed 3-D printing, the financial system replaced by digital currencies, wage labor replaced by automation, and intellectual property replaced by the Creative Commons. It is a utopian ideal making more than a few assumptions, but considering that we were all riding horses and bowing to feudal lords not too long ago, it might not be as crazy as it sounds.

David Tormsen pays for most things with magic beans. Email him at [email protected].

fact checked by Jamie Frater