Reimagining Capitalism Series: Rebalancing the Relationship Between Government, Markets, and Communities

October 20, 2021
2:55 pm

This post expands on the fourth key pillar for building a new economic paradigm as outlined in Our Call to Reimagine Capitalism. Read the first post in this series, “An Introduction to Ideas, Rules, and Power and How They Shape Our Democracy and Economy” here.

By Audrey Stienon, Associate, Reimagining Capitalism

Understanding society’s mutual responsibilities within the context of COVID-19

Throughout the course of the pandemic, our lives have changed in ways that would have been nearly unthinkable when the crisis began. We entered lockdowns believing that it would be impossible to sustain such a drastic change to the status quo for more than a few weeks; and yet here we are, a year and a half later, with many of the rituals and requirements of social distancing still in place, having largely adapted to living in this new normal.

Across history, pandemics have been an existential threat to societies precisely because, beyond a staggering death toll, they have the power to strain to the point of collapse the three legs on which, like a stool, society stands: representative governments that set and enforce the rules for how diverse people wish to live together and advance their collective wellbeing; markets that mobilize decentralized incentives to generate and distribute wealth, goods, services, and knowledge across society; and communities that unite people across shared identities and build inclusive spaces where people can find a sense of belonging, support, and meaning.

These three legs are all social constructs that vary in shapes and sizes across countries, but our experience in learning to live with COVID illustrates the key ways in which each is essential to our ability to make it through a crisis like the pandemic. Government coordinated the formal public health response even as publicly funded biomedical research provided the basic building blocks for the vaccines, which the government then distributed across the country. The markets and businesses innovated to meet rapidly changing needs in a socially-distanced world — enabling many employees to work from home, promoting contactless delivery, and even mass-producing necessities like hand sanitizer and ventilators. And communities across the country adopted new norms and behaviors to support and protect the safety of their members.

Even so, the monumental difficulties that we have faced in effectively responding to the pandemic have drawn attention to the challenges undermining the support each leg provides to society. Necessary government coordination was undercut by partisanship, polarization, and ideological self-sabotage. Markets proved to be overly reliant on brittle supply chains and failed to ensure that the immense wealth created by a small subset of companies because of the crisis trickled down to struggling communities. And many communities—driven by a deep mistrust of government, companies, and even other communities in our society—rejected and fought against the adoption of public health precautions to the detriment of us all.

We may yet get through the worst of this public health crisis, but if history is any guide, we are certain to feel the reverberations of COVID long after the threat of the virus has been brought fully under control. If we are to make it to the other side of this challenge with our society still standing as a thriving liberal market democracy, we must shore up and strengthen all three of these legs.

What happens when we saw off two legs of a three-legged stool?

The types of governments, markets, and communities that ideally support democratic societies have much in common. All three are strengthened in environments of vibrant competition — be it competition between political ideologies and policy options, business models and technological innovation, or options for environments where people can build connections and a sense of belonging. This implies that all three thrive when everyone has the right to participate, challenge the status quo, and offer new ideas of how to do things better.

They also all share a common vulnerability to concentrations of power which—as American history and current events can attest—are inevitably used to exclude and stifle competition: unopposed political power will silence opposing views and opinions through tools like voter suppression; monopolistic market power will be used to prevent rivals from threatening profits; community power will be used to erect protectionist barriers— including discrimination, segregation, and outright violence—to avoid having to share community benefits with perceived outsiders.

Since each leg struggles to regulate itself to prevent such corrosive concentrations of power, they are each dependent on the other two to act as checks on power that can protect competition. Representative governments, responsible for securing everyone’s basic and equal rights, can enact and enforce rules against discrimination and monopolies that require communities and markets respectively to remain open to new members and ideas. Competitive markets both create and connect a diverse range of communities and political interest groups who share the common interest of opposing government or community efforts to empower one group over all others. Inclusive community needs and preferences inspire the new ideas of government and markets, and community members have the power as voters, protesters, consumers, investors, and employees to mobilize if the other two pillars fail to meet their demands.

All this implies that the wellbeing of a democratic society—as well as any hope of building a democratic society in which the equal participation of all of its members is truly valued—rests on the collective strength of these three legs. Should any one of them fail, our democracy will begin to crumble.

In recent decades, we have become overly dependent on markets to meet society’s needs. For decades, conservative politicians, economists, and many business leaders sold Americans on the idea that markets were more efficient and less prejudiced than either government or communities. In response, policymakers, business leaders, and a large number of community representatives acted to systematically shift the societal responsibilities of government and communities onto markets by restricting the activities of these two legs. Government capacity to provide public services, earn income through taxes, or regulate was limited, while the distress of communities asking for support and to have their concerns addressed was ignored.

Although markets are remarkable and powerful tools, they will never be capable of single-handedly upholding societal wellbeing—just as no one could hope to sit comfortably on a stool balanced entirely on one leg. Markets will always be shaped by government rules and community norms and values, and—rather than making markets stronger—weakening the other two legs has only engendered a version of markets with few checks to prevent either the concentration of economic power or the use of that power to limit competition from other businesses, political ideologies, or societal norms across all of society. As a result, our country is one in which our markets no longer provide widespread wealth and opportunity and in which neither our restrained government nor economically starved communities have the capacity to provide support or new opportunities to the people that markets have been unable to reach. This has fueled mistrust in markets incapable of delivering the shared prosperity that was promised, in governments unable to respond to the demands of their constituents, and in other distressed communities increasingly seen as competitors for scarce resources and government attention.

As America makes its way out of the pandemic and we prepare ourselves to confront the challenges, like climate change, looming ahead, we must all as individuals, voters, companies, communities, and governments make a concerted effort to strengthen the social foundations on which we stand. This will entail deepening the communal ties that bind us to each other, reinvigorating the governing bodies that allow us to work together towards common goals, and, finally, redesigning our markets so that they generate wealth not for its own sake, but for the sake of increasing the wellbeing of every person in our society.

Finding our balance

To that end, Omidyar Network aims to support organizations working to reimagine and rebalance the responsibilities that government, markets, and communities have in supporting social wellbeing. Driven by a deep appreciation for the importance of of each of these legs, we aim to help develop ideas and expectations about the economic roles each can play to support society; to advance the implementation of new rules that strengthen their capacity to act on these roles; and to invigorate counterweights and checks on concentrations of economic power across them.

(To learn more about how we believe ideas, rules, and power interact to shape our economy and democracy, consider reading the first installment in this series here.)

First, we need a stronger understanding of the respective roles of markets, government, and communities in the economy, as well as insight into how to strengthen their capacity to fulfill these roles after decades of underinvestment and neglect. Rather than having to choose between market or government solutions to their economic challenges, communities must be able to work with government to access and help design market systems that prioritize the wellbeing of the many rather than the few.

We therefore have partnered with a range of organizations developing new ideas on how to design a socially-driven economy built on a more equitable distribution of power across society. Notably, we support the work of Xavier de Souza Briggs, Senior Fellow at the Brookings Institution Metropolitan Policy Program, who is identifying strategies to mobilize stakeholders from across the economy—including civil society, business leaders, worker organizations, and local and federal government agencies—around the common goal of revitalizing struggling metropolitan communities. Similarly, the Roosevelt Institute, for example, is leading on research exploring the consequences of power imbalances between public, community, and market actors, while Demos is working to develop institutions for building community power over economic decisions. Meanwhile, Omidyar Network has created the Community Infrastructure Fund for Mutual Aid, a learning project that aims to explore how to equitably address the socio-economic needs of communities while providing the essential infrastructure for organizations that have stepped up meet these needs where other institutions have failed them.

Second, we aim to revitalize competitive markets grounded by their responsibilities towards stakeholders across society. To this end, we have supported efforts to advocate for changes in the rules governing markets to allow businesses and other market actors to pursue goals beyond just short-term profit maximization. Public Citizen, JUST Capital, and the Value Reporting Foundation, for example, are advocating that government mandate that companies disclose information on environmental, social, and governance (ESG) issues and on their political spending. Such disclosures would make it easier for people who invest in companies, as well as the general public, to hold companies to account for how their activities impact society. Similarly, B Lab, an organization known for certifying businesses that advance a social purpose (B Corp), is advocating for policies to reform rules of corporate governance so that business leaders take a greater range of stakeholders into account when making their decisions. Finally, we continue to invest in organizations working to strengthen regulation that can curb the power of tech platforms, including the American Economic Liberties Project, Open Markets Institute, and the Anti-Monopoly Fund at the Economic Security Project.

Finally, we are working with organizations strengthening the power of stakeholders from across society to influence the role that markets play in society.

One piece of this work involves building the power of communities to influence the shape of markets and the behavior of market actors. Community Change and the Action Center on Race and the Economy (ACRE), for example, are building the power of communities of color to shape economic decisions and move us closer to a more inclusive democracy and economy. Meanwhile, recognizing that working people both constitute their own community and are key members of their own local communities, the California Coalition for Worker Power is mobilizing worker centers, worker advocates, labor policy experts and labor unions to ensure that every worker in California has the power to come together and improve their work conditions and their communities. Finally, Faith in Action, seeks to mobilize faith-based communities to fight against an economy of exclusion and instead create a moral economy based on a new set of values, beliefs, and identities.

The second element of this work entails building the power of stakeholders who can work within markets to hold them accountable to a wider range of social values. For example, organizations such as the Shareholder Commons and Interfaith Center on Corporate Responsibility (ICCR) equip the people and organizations who invest in businesses with the tools to use their power as shareholders to engage with companies on their ESG performance. Similarly, For the Long Term is working to support public fiduciaries and other government entities that invest in markets on behalf of citizens and public sector workers—such as public pension funds or state and municipal treasurers — to more actively pressure companies to behave in ways that serve their beneficiaries and contribute to public wellbeing. Meanwhile, organizations like The Leadership Now Project are engaging directly with business leaders themselves to mobilize their existing power to strengthen American democracy.

For all our failings, America’s response to the COVID pandemic has shown that each of the three legs still has the strength to support our society, even during a destabilizing crisis. That said, we must not take this stability for granted. We celebrate the incredible work of our grantees in this space, and commit to continuing our work to maintain a more balanced system.