Capitalism 2.0: Pay For What You Use!

Past Due

In the 2nd grade, my homeroom teacher loved to have unscheduled ethics tests. Her favorite was, “As you walk down the street, and you see a wallet lying on the ground. The wallet is filled with cash. What do you do next?” The answer she was looking for was, “I would go through the wallet, find the owner’s address, and return the wallet.” My class, however, was had a more nuanced Lord of The Flies response. “Finders Keepers!”, they would yell. I have come to realize just how valuable a similar education in ethics would be for today’s financial and political leaders. Starting with…

Capitalism, Democracy, and modern Charity evolved together. Each influenced and shaped the other.  Conservative politicians revere the political model the Founding Fathers of America created. Conservative Economists might want to re-familiarize themselves with the original economic model created by early American Capitalists. It is a far cry from today’s Capitalism. Especially how public land and resources are to be used.

One of the simplest ethical concepts of Capitalism is that some things belong to you, and some things don’t. Before the Enlightenment (i.e. before Democracy & Capitalism), Kings owned the world. But even Kings had limits. All classes enjoy certain rights.

The King owned the Commons (shared land), but individuals had specific rights, such as a right to hunt on certain days, or plant at a certain time of year, or consume a certain amount of water from a pond or lake. Rights to public lands were protected by the law.

While early America often ignored the rights of Native Americas, the rights of other American Citizens were acknowledged. As America filled up and green spaces diminished, even conservative voices demanded the protection of forests and the creation of parks.

The government, however, has a special power… Eminent Domain. This allows the government to take over public and private lands. The government may need that property for its own use (a military base, a highway) or it may transfer the land to a development group (to build a factory, access oil or minerals, etc.). But such a transfer must always be for the good of the public. And property owners MUST be compensated. It’s in the Bill of Rights!

The 5th Amendment states, “… nor shall private property be taken for public use, without just compensation.” If you want something that isn’t yours, you need to pay for it! The words of the Founding Fathers were carefully chosen, and shouldn’t be taken lightly.

Consider two businesses that are next-door neighbors. One-day business “A” realizes that they could save $20,000 a year if they dumped their garbage next door, on company “B’s” property. That’s $20,000 in extra profit, Capitalism at work!

Absurd, right? Company “A” cannot use the property of Company “B” without obtaining their permission and providing just compensation. Stealing someone’s property (or stealing its use, or degrading the value of that property) is anti-Capitalism! Taking property, or compelling labor without compensation was a big part of America’s rebellion against King George’s England.

But when the land belongs to many owners, perhaps the entire nation, some believe that these rules do not apply. “Public” land and resources are repeatedly given to private owners who then mismanage these resources, using the air, our lakes, and rivers as garbage dumps. That’s not Capitalism.

Capitalism (and Capitalists) fully account for all costs. In America, and in most developed nations, Capitalist are legally REQUIRED to account for all costs. Otherwise, they may be guilty of criminally misleading investors and shareholders, by understating financial risks. When the costs of a firm’s operations are forced upon others, these “others” are increasingly seeking restitution.

Consider tobacco. Billions in lawsuits and bad press, resulting in a major shift from Big Tobacco to “no tobacco”, or to small “Vaping” firms. Smokers may have voluntarily damaged their health. But what about secondary smoke? Non-smokers get polluted air, and small children get respiratory ailments. Tobacco-related healthcare issues cost America $300,000,000,000 annually. Penalties for tobacco firms have been relatively light. However, if big tobacco wants to dominate the new vaping industry, the next round of lawsuits will have MUCH higher penalties.

Consider the California utility firm PG&E. They failed to put the safety of the public and “other peoples” property ahead of their own profits. However, it is less clear if they violated any laws. Before they were cleared of liability in the 2017 fires, PG&E’s stock price was in freefall, and the firm had prepared for bankruptcy. After going through this process, if there are more fires this year (or the year after, or the year after) saying, “We didn’t know. And besides, it wasn’t illegal”, probably won’t cut it. Remember, not just land, but lives were lost.

When Americans have their private assets devalued without compensation, something has gone terribly wrong. In part, the fault lies with bad science, or at least early science.

A century ago, our understanding of the environment was limited. “The Solution for Pollution is Dilution”, was the formula for dealing with toxic waste. Scientists and Capitalists alike thought that with sufficient dilution (dump in a bigger lake or build higher smokestacks), pollution goes away. Dumping in the Ocean rather than the nearest lake, was a reasonable, even environmentally conscious, solution.

That was a century ago. We now know that dilution cannot solve these problems. When you dump toxins, you just send it “downstream”. Today, scientists and Capitalists both KNOW that pollution is merely passed on to our neighbors…. sometimes our very distant neighbors.

Global Climate Change has shown that we live in a closed environment. The toxins we push downstream eventually circle the globe and come back. EVERYONE is downstream, eventually. Your problem may be sent up a smokestack or down a river, but you are just transferring your problem to someone else, robbing them of their health and the value of their property. If we do not fully account for costs, we cannot know if a project is legitimately profitable.

Speaking of downstream, consider the 2017 Hurricane Harvey flood.  Houston had unprecedented, but not unpredicted rains. Environmentalists and Houston’s own City Planning warned of coming floods. Not just because of the complex science behind Global Climate Change. Houston’s direct actions ensured a future flood.

Houston encouraged and financed uncontrolled urban sprawl. Wetlands were turned into malls and housing. Once the wetlands and prairies that soaked up storm waters were paved over, it was inevitable that floodwaters would flow over concrete and asphalt, and head downhill… and into neighboring basements.

Scientists told Houston that they would create killer floods. A recent study by the University of Iowa determined that the excessive construction magnified the damage by 21 times, creating $125 billion in property damage and the deaths of 68 people.

Houston’s leadership sold the natural protection that the previous generations of Houston business owners and homeowner enjoyed… and needed! Yet, the City never compensated business or home owners for this sale. Nor did they even announce that they chose to make this enormous transfer of wealth, even after enginers form Houston’s City Planning department verified research on the looming disaster.

The Governor, backed by Senator Ted Cruz and fellow Texas “conservatives”, had a solution. Request $125,000,000,000 in Federal aid and have the rest of the nation pay for what looks a great deal like criminal neglect. And then, Houston can get back to paving over their wetlands. Is it just me, or are these “conservatives” acting like socialists?

True Capitalists, however, are standing up and demanding that projects must clearly state negative impacts: bad environmental policies, gaps in worker safety, failure to address sexual harassment, inequitable compensation, illegally holding back required benefits, punishing whistleblowers.  Having a clear statement… and accounting… of both positive and negative impacts are a vital part of the ESG (Environment, Social, and Governance) and Impact Investor movement.

Bad Capitalists have done grievous harm to the legacy of Capitalism. Luckily, however, Capitalism is self-correcting. Bad Capitalists have pushed in one direction. Now, a new generation of Impact Investors is pushing back. They want greater transparency and a more honest accounting of corporate operations. Hidden and unaccounted for costs are a red flag. That’s one of the reasons why Impact Investors are interested in “B” corporations. B Corps (and similar certifications) require independent third-party audits. These audits cover not just the obvious financial issues, but less obvious social costs as well.

With the extra little push from Impact Investors, Capitalism can not only become safer for investors, it can also return Capitalism to its roots as the single greatest source of optimism for a prosperous future! What do you think? Are you tired of your kids telling you that all Capitalism is evil? Have you heard that Impact Investing is just misguided socialism? Share your opinions with us!



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