Is there a P2P approach to market regulation?

Key thesis

Profit-Maximisation can no longer be contained by pure external state regulation, but needs new forms, that embed the profit function into higher ethical requirements, that are embedded in the very corporate structures, while at the same time, new economic forms are created directly by autonomous productive communities, so that they can maintain their independence.

Michel Bauwens:

Broadly speaking, contemporary politics moves between two polarities, i.e. neoliberalism/corporate welfare; vs. social democracy/social welfare.

When democracy becomes oligarchic and the forces of high finance and big business take over, deregulation becomes the main approach. It is assumed that the private market transactions, if freed from regulation and oversight, will lead to optimal wealth and results through the invisible hand. It is assumed that the market players will regulate themselves. At best, we can expect public-private partnerships, market solutions to social problems (like carbon trading); and the functions of the state are minimized to maintaining security for business, and making sure wealth continues to flow upwards. When the system fails, as it inevitably does at the end of each such era of “laisser faire”, massive bailouts schemes are set in motion that impoverish the rest of society. This is the familiar story of the last historical era that started in the 1980’s and which ended with the sudden system shock of 2008. This era is far from over, as the same players are still dominant, but as we can see in the Middle East and Egypt, the first rumblings of a massive spike in people power are again in the offing, setting in motion what could the second configuration. One could argue that this is precisely what is happening already in Latin America, where the reconstruction of progressive and social-friendly states are again on the agenda, under various forms in Argentina, Brazil, Ecuador, Venezuela, Bolivia, and even as the social policies of the right-wing Columbian government.

When classical social forces take the upper hand, they indeed tend to use the state and public authorities to impose regulation, higher corporate taxation, and other measures that make sure the wealth flows to the majority of the population. The heyday of such approach was of course the post-War period in Europe, which ended, also in crisis, with the 1973 oil shock and the collapse of social-democratric dominance. In the U.S. it produced consumer protection regulation, environmental protection, and other forms of public control.

Both approaches are of course very different, but they also share the same understanding that the issue is to impose, or not, external regulation. From the point of view of business in a competitive capitalist society, what is legal is ethical, and thus, it is by changing the law that it is assumed that the most destructive profit-maximising behaviours can be brought under control.

I believe though, that the peer to peer paradigm brings something new to this dichotomy. And it does this through the following innovation: stressing internalized regulation. This is not the same as the neoliberal proposal to let business regulate itself, and it is also not a reliance on purely external regulation.

So what are we talking about?

We are assuming that a profit-maximising entity which structurally has to ignore environmental and social externalities is not a fit entity for a world requiring sustainability. We assume that private players should not just be constrained by the external force of the state and its regulation, but should have internal mechanisms that prevent it from doing willful harm in the first place. Today, companies are legally obliged to create the maximum value for their shareholders, and if their social and environmental friendliness leads them to increasing costs over less ethical competitors, the latter will tend to win, bringing down the entire playing field. External regulation is therefore constantly tested with a view towards diminishing its power and reach.

The logic of the commons and peer to peer sees this quite differently.

At the core of value creation is the commons and civil society, on which private entities rest. Both the state and business are not values and priorities on their own, but are servants of the citizens and their commons. So, if we accept that at the core of value creation are the citizens and the wealth they create through their interaction. In peer production, this expresses itself by having at its core an open knowledge, software or design commons and community, to which anyone can contribute, and to which market-oriented entities can create extra value that allows them to operate in the marketplace.

However, what a commons entity, i.e. the participating commoners should wish, is not that their commons is exploited by an alien profit-maximizing entity, which doesn’t share the value it has extracted from the commons, but by a new type of entity, which has internalized the values of the commons. Hence, what we need are new forms, such as trusts, which have to preserve the ‘capital’ represented by the commons; non-profits, or rather, for-benefit, institutions, which have as their prime goal the maintenance of that particular commons; cooperatives, where commoners share equitable amongst themselves. In their very constitution, such entities are not obliged towards profit-maximisation, but have a duty towards the common good, both generally and for their particular commons. Hence, we can have an ideal situation, whereby an open design community can design the best eco-friendly and sustainable ‘product’; and that product is produced by entities which have no incentive to undermine that sustainability.

Does such an approach replace the need for external regulation. Certainly not at first, and certainly as long as we live under a dominance of profit-maximising entitites. But gradually, over time, as the social field is more and more dominated by such entities, which are sustainable by their very nature, the objective need for external regulation would certainly diminish.

In the meantime of course, we certainly do not except the bureaucratic and undemocratic state to exist unchanged, but commoners and civil society would also work at inventing ‘state forms’, or entities in charge of the common good of society as a whole, rather than of particular commons, which do not have the negative aspects attached to a detached, corporate controlled, bureaucratic state apparatus.

However, a commons approach would also strongly reject the neoliberal public-private partnership approach, which excludes the participation of civil society, and becomes a complicit arrangement between dominant profit-maximizing companies and a corporatized state.

More Information:

1 .Corporation 20/20 : What would a corporation look like that was designed to seamlessly integrate both social and financial purpose? Corporation 20/20 is a new multi-stakeholder initiative that seeks to answer this question. Its goal is to develop and disseminate corporate designs where social purpose moves from the periphery.

2. JAS Economics : principles for grassroots economics

3. Marjorie Kelly: Not Just For Profit : Emerging alternatives to the shareholder-centric model could help companies avoid ethical mishaps and contribute more to the world at large. Explores three new-style corporate designs: 1. stakeholder-owned companies; 2. mission-controlled companies; and 3. public-private hybrids.

4. More on corporate reform here

Citations on business and the commons:

* David Bollier: Competing ‘on top’ of the Commons

“One of the best ways to stimulate competition, innovation and lower prices is for participants in a market to honor the commons (a shared pool of resources, a minimal set of safety or performance standards) and then to compete “on top” of the commons. Instead of being able to reap easy profits from monopoly control over something everyone needs — say, a computer operating system like Windows — a company must work harder to “add value” in more specialized ways.”

* Umair Haque: Obtaining Economic Advantage through Serving and Sharing

“The future of advantage is radically different from the past for a simple reason: because it’s economically better. 20th century advantage focuses firms on simply extracting resources from people, communities and society — and then protecting what they extract. 21st century advantage focuses firms on creating new resources, and allocating them better. The former is useful only to shareholders and managers — but the latter is useful to people, communities, and society. The old Microsoft was useful to shareholders, but a lot less useful to society — and that’s exactly how Google and Apple attacked it, and won.”

* Eric Kluitenberg: The Sharing Economy should be distinguished from the Monetary Economy

“… the quest for self-determination and meaningful and memorable experiences ultimately will hinge on people’s understanding that they are not merely consuming a product, but that they are actually participating in a meaningful social process not guided by an extrinsic logic (profit), something that rather has intrinsic, or ‘sovereign’ value. I don’t believe that these two can be fused into one

* Walter Powell: Market Logic vs. Network Logic

“The philosophy that undergirds exchange also contrasts sharply across forms. In markets the standard strategy is to drive the hardest possible bargain in the immediate exchange. In networks, the preferred option is often one of creating indebtedness and reliance over the long haul. Each approach thus devalues the other: prosperous market traders would be viewed as petty and untrustworthy shysters in networks, while successful participants in networks who carried those practices into competitive markets would be viewed as foolish and naive… In a market context, it is clear to everyone concerned when a debt has been discharged, but such matters and not nearly as obvious in networks.”

* Peter Suber: From Profit-Maximization and Market-Orientation to Mission-Focused

Profit maximizing limits access to knowledge, by limiting it to paying customers. If anyone thinks this is just a side-effect of today’s market incentives, then we can put the situation differently: Profit maximizing doesn’t always limit access to knowledge, but is always ready to do so if it pays better. This proposition has a darker corollary: Profit maximizing doesn’t always favor untruth, but is always ready to do so if it would pay better. … Instead of hypnotically granting the primacy of markets in all sectors, as if there were no exceptions, we should remember that many organizations compromise profits or relinquish revenues in order to foster their missions, and that we all benefit from their dedication. Which institutions and sectors ought to do so, and how should we protect and support them to pursue their missions? Instead of smothering these questions for offending the religion of markets, we should open them for wider discussion.

* Tim Lee: Markets without Money

“Money is a very important and useful medium of exchange for high-value, tangible products. For small-value, intangible products, the costs tend to exceed the value of the transactions—especially when you add in the overhead associated with making payments at a distance. Fortunately, human beings are clever. We’ve begun to find a variety of substitutes for money that work better.”

* Umair Haque: Monetization vs. Community value creation

“When you try and “monetize your users”, you accept the almost obscene assumption that people are meant to be pimped out, sold to the highest bidder, resources to be slashed, burned, and exploited. But that’s not how the edgeconomy works. Businesses need what connected consumers have to give more than connected consumers need what businesses have to sell.
Let’s put that a little more formally. Monetization is ugly because it blinds us to the truth that value must flow in many directions. That’s the essence of edge strategy, in fact.”

* Muhammad Yunus: The New Social Capitalism

“Capitalism takes a narrow view of human nature, assuming that people are one dimensional beings concerned only with the pursuit of maximum profit. The concept of the free market, as generally understood, is based on this one- dimensional human being. Mainstream freemarket theory postulates that you are contributing to the society and the world in the best possible manner if you just concentrate on getting the most for yourself. […] The presence of our multi- dimensional personalities means that not every business should be bound to serve the single objective of profit maximization”

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