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Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

So too in a market economy. When two property rights come to the same intersection, one has to trump the other. Either capital can fire labor, or labor can fire capital. Either my right to pollute trumps your right not to be polluted, or vice versa. As they say in Hollywood, someone must get top billing.

But who? Marjorie Kelly has written a brilliant book called The Divine Right of Capital. By divine she doesn’t mean God-given. She means that, under our current operating system, the rights of capital trump everything else. The rights of workers, communities, nature, and future generations — all play second fiddle to capital’s prerogative to maximize short-term gain. This hierarchy isn’t the doing of God or some inexorable law of nature. Rather, it’s a result of political choice.

The question of who gets the top right in any society is always an interesting one. Invariably, the top dogs in any era assert that there’s no alternative. Kings said it three hundred years ago; capital owners say it today. They hire priests and economists to add moral or pseudoscientific credence to their claims. The truth, though, is that societies choose their top right holders, and we can change our minds if we wish.

Kelly locates many places where capital’s supremacy is written into our codes. Corporate directors, for example, are bound by law to put shareholders’ financial gain first. If a raider offers a higher price for a publicly traded company than its current market value, directors have little choice but to sell, regardless of the consequences for workers, communities, or nature. Similarly, it’s the fiduciary duty of mutual funds, pension funds, and other institutional investors to seek the highest returns for their shareholders or beneficiaries. This duty is embodied, among other places, in the Employee Retirement Income Security Act of 1974. Although the language of the act sounds innocent enough — a pension fund manager, like any trustee, “shall discharge his duties . . . solely in the interest of the participants and beneficiaries” — it results, ironically, in the financing of many workers’ retirements by investing in companies that shift other workers’ jobs overseas. Throw in the WTO and NAFTA, and the rights of capital stand comfortably astride everyone else’s. ...

Trusts are centuries-old institutions devised to hold and manage property for beneficiaries. The essence of a trust is a fiduciary relationship. Neither trusts nor their trustees may ever act in their own self-interest; they’re legally obligated to act solely on behalf of beneficiaries.

Trusts are bound by numerous rules, including the following:

* Managers must act with undivided loyalty to beneficiaries.
* Unless authorized to act otherwise, managers must preserve the corpus of the trust. It’s okay to spend income, but not to diminish principal.
* Managers must ensure transparency by making timely financial information available to beneficiaries.

These rules are enforceable. The basic enforcement mechanism is that an aggrieved beneficiary or a state attorney general can bring suit against a trustee. When that happens, the trustee must prove she acted prudently; if there’s any doubt, the trustee is fined or fired. As Supreme Court Justice Benjamin Cardozo once put it: “A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is the standard of behavior.”

A trustee isn’t the same thing as a steward. Stewards care for an asset, but their obligations are voluntary and vague. By contrast, trustees’ obligations are mandatory and quite specific. Trusteeship is thus a more formal and rigorous responsibility than stewardship.

Trusts can be in charge of financial as well as physical assets. In this chapter, my concern is natural assets — gifts we inherit from creation. One of my premises is that each generation has a contract to pass on such gifts, undiminished, to those not yet born. If we are to keep this contract, someone must act as trustee of nature’s gifts, or at least of the most endangered of them. The question is, who?

The candidates are government, corporations, and trusts. I argued earlier that neither corporations nor government can fulfill this function; they’re both too bound to short-term private interests. That leaves trusts. ...

Think, for example, about carbon. At present, our economic engine is emitting far too much carbon dioxide into the atmosphere; this is destabilizing the climate. We desperately need a valve that can crank the carbon flow down. Let’s assume we can design and install such a valve. (I explained how this can be done in my previous book, Who Owns the Sky? It involves selling a limited quantity of “upstream” permits to companies that bring fossil fuels into the economy.) The question then is, who should control the valve?

Unfettered markets can’t be given that responsibility; as we’ve seen, they have no ability to limit polluting. So we’re left with two options: government or trusts. Government is a political creature; its time horizon is short, and future generations have no clout in it. Common property trusts, by contrast, are fiduciary institutions. They have long time horizons and a legal responsibility to future generations. Given the choice, I’d designate a common property trust to be keeper of the carbon valve, based on peer-reviewed advice from scientists. Its trustees could make hard decisions without committing political suicide. They might be appointed by the president, like governors of the Fed, but they wouldn’t be obedient to him the way cabinet members are. Once appointed, they’d be legally accountable to future generations.

Now imagine a goodly number of valves at the local, regional, and national levels, not just for carbon (which requires only one national valve) but for a variety of pollutants. Imagine also that the valve keepers are trusts accountable to future generations. They’d have the power to reduce some of the negative externalities — the illth — that corporations shift to the commons. They’d also have the power to auction limited pollution rights to the highest bidders, and to divide the resulting income among commons owners. That’s something neither the Fed nor the EPA can do.

These trusts would fundamentally change our economic operating system. What are now unpriced externalities would become property rights under accountable management. If a corporation wanted to pollute, it couldn’t just do so; it would have to buy the rights from a commons trust. The price of pollution would go up; corporate illth creation would go down. Ecosystems would be protected for future generations. More income would flow to ordinary citizens. Nonhuman species would flourish; human inequality would diminish. And government wouldn’t be enlarged — our economic engine would do these things on its own.

One final point about valves. It’s not too critical where we set them initially. It’s far more important to install them in the right places, and to put the right people in charge. Then they can adjust the settings. ...

Accountability and Democracy

The question I’m most often asked about commons trusteeship is: How can we be sure trustees won’t succumb to corporate influence, just as politicians have? My answer is that, while there can be no guarantees, the odds of escaping corporate capture are much better with trustees than with elected officials.

The key reason is accountability. In the world of corporations, accountability is quite clear: directors must be loyal to shareholders. In the world of government, accountability is less clear. Elected officials must uphold the Constitution, but that’s about it. If there are conflicts between workers and employers, polluters and pollutees, voters and donors, or future generations and current ones, whose side should politicians be on? There are no requirements or even guidelines. Elected officials, as sovereign political actors, are free to do as they please.

The fact that politicians operate this way is no accident; it’s what the Founders had in mind. The job of democratic government isn’t to take, consistently, one side or another. Rather, it’s to resolve disputes among factions peaceably, without trampling minorities. James Madison made this plain in the Federalist Papers. Voters can “fire” elected officials at regular intervals if a majority so chooses, but they can’t expect loyalty to any particular constituency between elections. It’s this absence of built-in loyalty that opens the door to corporate influence, a force the Founders didn’t — and couldn’t — foresee.

The decision-making of judges, it should be noted, isn’t as untethered as that of legislators and executive officeholders. Their duty is to uphold not just the skeletal bones of the Constitution but the full flesh and blood of the law, with its thousands of pages and interpretations. They may, on occasion, interpret anew, but unless they’re among a Supreme Court majority, all such reinterpretations are subject to review.

Trustees are in the same boat as judges, rather than the wide-open waters in which politicians swim. Their hands are constrained both by the law and by their fiduciary duty to beneficiaries. This isn’t to say they have no room to wiggle: equally loyal trustees may differ over what’s in the best interest of beneficiaries. Still, they are subject to court review, and they can’t betray their beneficiaries too brazenly.

The tricky thing here is that the beneficiaries to whom we want commons trustees to be loyal — future generations, nonhumans, and ecosystems — are voiceless and powerless. We must therefore take extra care when we set up commons trusts. For example, we should install strict conflict-of-interest rules for trustees and managers. We should require that all relevant information about the trusts — including audited financial reports — are freely available on the Internet. We should ensure that, if a commons trust fails, its assets are transferred to a similar trust rather than privatized. We should build in internal watchdogs and ombudsmen. And we should authorize external advocates, such as nonprofit organizations, to represent nonliving beneficiaries who, by their very nature, can’t take trustees to court. Most states assign this function to their attorneys general, but this is insufficient given the political pressures attorneys general are subject to.

With regard to the manner of selecting trustees, there’s no single method. Trustees might be elected, appointed by outsiders, or be self-perpetuating like the boards of many nonprofits. This is as it should be; we don’t live in a one-size-fits-all world. The important thing is that, once selected, trustees should have secure tenure, and — like judges — lengthy terms. Indeed, trustees should be like judges in other ways: professional, impeccably honest, well-compensated, and honored. Being a commons trustee should be a distinguished and attractive calling.

It might be argued that, by shielding trustees from direct political influence, we’d make them — and commons trusts generally — undemocratic. The same could be said, however, for our courts. The fact is, there are certain decisions, both economic and judicial, that should be shielded from politics and markets. Moreover, neither government nor corporations represent the needs of future generations, ecosystems, and nonhuman species. Commons trusts can do this. In that sense, they’d expand rather than constrict the boundaries of democracy. ... read the whole chapter



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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper