A useful distinction explained by Peter Barnes:
“Common wealth is hugely valuable. We couldn’t live without it, and we certainly couldn’t have the amazingly productive economy we now have without it. The trouble is that the market doesn’t see this common wealth—it’s like the dark matter of the economic universe. And that’s what needs to change.
We need to make invisible common wealth visible.
The way the market ought to see common wealth is as wealth held in trust for future generations, for other species (when appropriate), and for all living persons equally—or, as legal scholar Carol Rose put it, as “property on the outside and commons on the inside.” For this to happen, common wealth must be embodied in legal entities that the market sees and respects. Outwardly, such entities would look like corporations, but inwardly they’d be coded to protect their assets for future generations and to share current income (if there is any) equally.
In Capitalism 3.0, I called this process of legally embodying Common Wealth Propertization — which shouldn’t be confused with privatization, which is the giving or selling of common wealth to private owners. Propertization keeps common wealth common, while at the same time protecting it from private takeover. A great example is the community land trust.
My argument then is that propertization of selected pieces of common wealth, if done to scale, can fix capitalism’s two great tragic flaws. By making invisible common wealth visible, it can make the invisible hand of the market smarter and fairer.”
Peter Barnes then explains how his Skytrust proposal, a form of common wealth propertization, would solve the problem of environmental and social externalities:
Flaw #1: Environmental externalities
“The current version of capitalism overuses nature because the price of taking from nature is exactly zero (as is the price of screwing future generations). Hence, despoliation rolls on. The solution, as every economist knows, is to internalize externalities—to make polluters and depleters pay today. To do that, the market must tell large commercial entities, “No externalization without compensation!” The question is how to do that efficiently and economy-wide.
Propertizing common wealth gives us a way to do it. Right now, externalities are invisible to markets because there are no economic actors that turn them into prices that externalizers have to pay. But suppose that the market was populated by what I’ll generically call common wealth trusts. On the outside, these trusts would be to common wealth what corporations are to private wealth—chartered legal entities that represent defined interests. In the case of corporations, the interest is shareholders. In the case of common wealth trusts, it would be a combination of nature, future generations, and members of society as a whole.
If the market were populated by such trusts, corporations couldn’t just shift costs and pay nothing. They’d have to bargain with representatives of nature, future generations, and members of society as a whole. “No externalization without compensation” would become the rule. This would affect prices throughout the economy, and in the process, flip positive feedback to negative. Instead of having an incentive to externalize more, corporations would be forced to externalize less.”
* Flaw #2: Social externalities
“Propertizing common wealth can also fix the second tragic flaw of capitalism, widening inequality.
Remember Henry George’s image of rent as an economic wedge, continuously widening the gap between rich and poor? The reason this happens is that the rich have powerful agents on their side—namely, corporations—while everyone else has weak or no agents on their side. And it’s simply a fact that in a competitive economic system, wealth will flow disproportionately to those who have the most powerful collection agents.
But remember those common wealth trusts we created to solve the problem of externalities? It turns out they can serve a second function: to represent all living members of society in the marketplace, as Paine argued in 1797 and as the Alaska Permanent Fund has been proving since 1980. When corporations are properly charged for using or depreciating common wealth, the trusts can distribute some or all of the proceeds to all members of the community—one person, one share. If this were done, we’d wind up over time with two parallel systems for distributing income: the highly unequal system based on private wealth that we have today, and the exactly equal system based on common wealth that would run alongside it. That second system wouldn’t eliminate economic inequality altogether, but the bigger it got, the more it would level things out.”