Journalist Nick Romeo joins us to discuss his new book “The Alternative: How to Build a Just Economy.” Romeo argues that the conventional economic wisdom has fostered political and economic instability, resulting in widening inequality, environmental degradation, and the exploitation of workers. He also highlights innovative solutions and success stories—including worker cooperatives, public-option marketplaces, and job guarantee programs— that paint a picture of how we can design systems in a market economy that truly work for everyone.
Nick Romeo is a journalist, critic, and essayist who has spent years covering policy and ideas for The New Yorker magazine. He also teaches at the Graduate School of Journalism at UC Berkeley.
The Alternative: How to Build a Just Economy
Website: https://pitchforkeconomics.com
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Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Speaker 2:
It’s time to build our economy from the bottom-up and from the middle-out, not the top-down.
Nick Hanauer:
Middle-out economics is the answer.
Speaker 2:
Because Wall Street didn’t build this country; great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Audio:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle-out. Welcome to the show.
Goldy:
At the dawn of the neoliberal era, Nick, British Prime Minister Margaret Thatcher famously proclaimed that there is no alternative. Well, today’s guest would disagree with that.
Goldy:
Yes, indeed. Yes, indeed. Today on the pod, we have Nick Romeo who’s a journalist who writes mostly for the New Yorker, covering economic issues and other things. But he has a new book out called The Alternative: How to Build a Just Economy. Nick is one of now thousands of people who are coming to the conclusion that the existing framework of economics is bankrupt and corrupt and that we don’t have to just… There are rather alternatives to the neoliberal form of shareholder value max capitalism that we live with today that has done so much damage to human societies and also to the planet. It’s a really interesting book. He lays out actually a lot of alternatives, which I think are really interesting and substantive.
Goldy:
Why don’t we just talk to Nick?
Nick Romeo:
My name is Nick Romeo. I have just published a book called The Alternative: How to Build a Just Economy. It grows out of years of reporting for The New Yorker magazine, where I cover policy and economics. I also teach at UC Berkeley in the Graduate School of Journalism.
Nick Hanauer:
Well, Nick, why don’t we start with a little bit of context setting? In your book, you start with this idea that orthodox economic thinking constrains a lot of the options that are available to help people and build a better life. Can you describe that?
Nick Romeo:
Absolutely. The book opens with a reported look at the battle for the ECON101 curriculum. Believe it or not, this is highly contested terrain. People within economics disagree violently on what should be in that introductory class. Zooming back a bit, the history of economics is quite interesting and relevant to this conversation. The field used to conceive of itself as a branch of political philosophy, so even the term economics is relatively recent. People used to talk about political economy as a subject and some of the luminaries in the history of the field, people like Adam Smith, John Stuart Mill, would likely have thought of themselves more as political economists or even philosophers than just economists per se.
Why does any of this matter? Well, I think, like you said, if you have a very limited sense of economics as a field akin to the natural sciences, then it’s a consequence of that view that political considerations, ethical debates, are simply less relevant to the work of doing economics. You’re looking for fundamental laws and you’re not really thinking about political decisions, trade-offs, all of the kind of rich nuance and complexity that we might associate with the social sciences or even the humanities. That kind of drops out if you have a certain view of economics, and that’s kind of what I get into in the first chapter of the book.
Nick Hanauer:
Yeah. But, I mean, I think it should be said that your position in the book is that if you exclude all those other considerations, it makes it very, very hard to help people.
Nick Romeo:
Absolutely. Absolutely.
Goldy:
Well, you’re just going to hurt the people you’re trying to help, Nick.
Nick Hanauer:
That’s right. Right.
Nick Romeo:
Yeah.
Nick Hanauer:
From there, from the point of view that a lot of the ECON101 precepts have led us astray, you begin to explore alternatives to this effectively what has become modern capitalism, the idea that the only purpose of the economy is effectively to enrich the few. If we do that, then somehow that will be good for everyone.
Nick Romeo:
That’s right.
Nick Hanauer:
And if that’s your view, then anything that markets do is by definition good, and anything that intrudes in the market is by definition bad, which, again, precludes the possibility of doing things like requiring companies to pay workers enough to get by without food stamps. It requires any kind of public alternative to a market-based solution and so on. Expand on those ideas.
Nick Romeo:
Absolutely. I mean, the rest of the book is a series of empirical reported case studies of what an economy could look like if we take this more capacious view of economics, a view that sees the subject as fundamentally interwoven with politics and ethics, which, to be fair, a lot of economists already think this way. Now, as you mentioned, there are some very impactful consequences of taking this broader view of economics. Suddenly, the default assumption that markets are the natural state and that any intervention into them is, therefore, meddling or intrusion and is fundamentally unnatural… The burden of proof shifts once you see markets as political institutions that are always subject to negotiation and trade-off and that reflect the current priorities and moral values of a society. It’s never a choice between free and unfree markets; it’s just the extent of regulation and which choices best reflect our values in the short and long term. Happy to get into actual case studies from the book as well, but that’s the kind of framework.
Nick Hanauer:
Yeah. I think we’re in violent agreement with you that we need to take a more capacious view, but the devil is in the details, right? Why don’t you take us through some of the case studies that you find most compelling?
Goldy:
Yeah. Because, I think, Nick, that one of the most compelling arguments you make near the end of the book, you say something to the effect that if it exists, it’s possible. And you go chapter by chapter through alternatives that currently exist and are functioning quite well.
Nick Romeo:
Absolutely. I’m happy to go into more depth on any of these that are interesting, but the book covers everything from the largest worker-owned cooperative in the world, which is in the Basque Country of Northern Spain and it’s called Mondragón to a job-guarantee experiment that’s being piloted outside of Vienna, Austria, where anyone who wants employment gets to co-design meaningful work in collaboration with social workers in a way that both reflects their interests and fulfills some genuine need in the community. I look at the Living Wage Movement in America. I look at a public option for gig workers that would compete with the private sector players in that space. And then, I also take a look at private equity and what private equity is doing, especially in the employee ownership sphere. Another one I love is true pricing, which tries to include externalities back into the price mechanism sometimes in a consumer-facing way, other times just as a kind of auditing tool or even a guide to regulation. That gives you some flavor, but happy to dive deeper on any of those.
Nick Hanauer:
Obviously, the modern and particularly American form of capitalism is governed by this norm, which is shareholder value max, which is the idea that the purpose of the corporation is to maximize value for shareholders and it is the principle responsibility of executives and boards to do that. As many of the listeners of our podcast know, that’s a bunch of nonsense. That was just an idea invented out of whole cloth in the early seventies by Milton Friedman and others. The evil part of it, of course, was they weren’t saying, “Screw the poor. Make yourselves richer.” They said a far more pernicious thing, which is that, by so doing that, you make the economy more efficient and better for everyone.
That was the trick, obviously. But this construct obviously is massively appealing to people with capital and who run businesses and who benefit from that arrangement, because it justifies effectively any kind of behavior which directly benefits you morally and socially. It confers, frankly, a massive advantage on the worst people in our society, because if you really, really don’t care about other people, you’ve now been given social, moral, and legal permission to go do the most terrible things in order to advance your own wealth and net worth. That is, for better or worse, the central organizing principle of our market-based economy. The high order bit is what can we do to replace that as a way of operating that makes sense?
Goldy:
And you’ve got a couple alternatives in the book that, I think, give the lie to that.
Nick Hanauer:
Right.
Goldy:
I don’t know. Which one do you think you want to start with? Mondragón or…
Nick Romeo:
Yeah. Two things come right to mind. I mean, I agree with your analysis and diagnosis, Nick. The two alternative sort of models, both of which push back in different ways on that paradigm. One would be true pricing, where costs that are currently externalized perhaps onto ecosystems or perhaps onto future generations or perhaps onto current generations but humans who live far away on the other end of some global supply chain… All of these costs are typically not included in the prices of goods that we buy. When you think about the kind of responsibility of a corporation to profit maximize in the Milton Friedman neoliberal paradigm, all of that depends on being able to draw a very narrow scope around your accounting practices such that all of these other costs… It’s not that they’re not being paid. They are being paid or they will be paid, but you’re able to ignore them.
Even the term externality, a basic term in economics, presupposes some border. If you can make that border more capacious, if you can bring within into a kind of internalized worldview what’s currently pushed without and externalized onto other humans or the natural world, that’s one powerful tool that comes right to mind as a way of pushing back on what you’re describing. The other is absolutely employee ownership and worker cooperatives like the one in Mondragón, but also the ESOP movement in America. ESOP stands for employee stock ownership plan. These are powerful methods for giving workers a share of profits as opposed to simply rewarding shareholders, investors who do not actually work at companies themselves most of the time.
If you had employee ownership as a pervasive feature, as a kind of default model for the American economy… One of the most striking statistics that came across while researching the book is the Sears Corporation in America, the iconic department store. If Amazon in 2018 had the same level of worker ownership that Sears had in the 1950s, every Amazon worker in 2018 would’ve had roughly $400,000. That would’ve been the value of their assets. 2018, that’s a bit dated now. Stock price, I think, has more than doubled since then. The workforce at Amazon has also more than doubled, so think about almost a million Americans, people delivering packages, working in warehouses, all of whom had close to $1 million in assets. That starts to give you a flavor of what worker ownership models could do for the American economy.
Nick Hanauer:
No, it’s really true. I mean, there’s so many things for us to talk about in this conversation, but having run companies like Amazon, I’m not even sure if you knew that I was the first investor in amazon.com. One of the central challenges of that model of behavior is that when you are… Well, first of all, only one in a thousand companies are as successful as amazon.com, obviously, and most companies fail. When you’re constructing compensation strategies, it is often true that low level employees who frankly don’t make enough money, really, to get by in the first place don’t want any stock. They want cash instead. There’s always pressure on management to do that.
Now, obviously, if we lived in a less screwed up society, Amazon would be held to a much higher standard and their low level employees would make twice as much, because we would require Amazon to pay people enough so that they could live in dignity without food stamps. But even given that, just as a practical matter, having done this probably two dozen times, there is this really interesting dynamic there where… I mean, honestly, even executives often want cash and not stock, because in many cases the companies don’t work out. But let’s go on to the Mondragón model. Mon-
Nick Romeo:
Mondragón, yeah.
Nick Hanauer:
Mondragón model. Let’s talk about that.
Nick Romeo:
Mondragón is a network of worker-owned cooperatives in the Basque Country in Northern Spain. They have businesses that span a huge range of industries, so they do really heavy-duty manufacturing of components of jet engines, elevators, subway cars. They also have a McKinsey-style consulting firm. They have grocery stores, banks, so it’s a very versatile set of businesses. But the two defining features at Mondragón that are really, really unique, one is a 6:1 ratio for the highest to the lowest paid employees. The other is a democratic governance model, where each worker gets one vote. And people are voting on quite impactful decisions, including things like strategic acquisitions, business plans, how much to invest in R&D versus in employee compensation. Mondragón kind of gives the lie to the idea that business efficiency requires these astronomical pay levels for executives.
There are over 500 patents that Mondragón has developed. They have a whole R&D arm with tons of PhDs from around the world working on fundamental research. Happy to go into more detail on Mondragón, but at a deep level, I think it reflects a kind of alternative model of capitalism that people don’t really know what to do with or how to characterize. I mean, they compete effectively at international markets. They win contracts all around the world and yet they also have these two basic features that are highly unusual. I mean, it’s not coincidental that they show up in science fiction novels, right? Kim Stanley Robinson is a big fan of Mondragón.
Nick Hanauer:
Can you speculate about why that business model has not caught on? Also, given that it might be preferable, what we would have to change about the world in order for it to catch on?
Nick Romeo:
It’s a really tough question. Mondragón gets thousands of visitors literally every year, thousands of people from around the world come who are interested in trying to replicate the model. There are cooperatives around the world that have launched, in some way, to emulate Mondragón. People take inspiration from it. Now, have there been successes with 80,000 workers and $11 billion in annual revenue that have really said, “Look, we’ve actually transported and duplicated Mondragón”? I don’t think so. I’m not aware of anything like that, but there are thousands of smaller scale cooperatives inspired by Mondragón.
I mean, one basic challenge is that history and culture really do matter, and so the particularities of the Basque region are not exportable and Spain post-Spanish Civil War and then under Franco developed in a particular way, which we could get into if it’s interesting. But the idiosyncratic features of Mondragón do make it hard to just take the model one for one and build it somewhere else. That being said, I think the American ESOP is a pretty powerful model. When you combine an ESOP with certain kinds of open book management practices and economic democracy at work initiatives, you can get pretty close to some of the spirit of Mondragón even if you’re not functioning at the same scale.
Goldy:
One of the things that struck me in reading the book in the chapter on Mondragón is the importance of scale, because one of the features that stands out for me is the profit sharing between the co-ops, which provides this level stability. Obviously, not all of these member co-ops are going to be doing well at the same time or in crisis at the same time. This seems like they have this intuitive understanding of the economy as this non-ergodic system, where, in fact, this level of profit sharing between the firms ensures that everybody does well over the long run and does better through the profit sharing than they would were they independent on their own.
Nick Romeo:
Absolutely. I mean, I agree with you. It’s a crucial feature. That sort of the historical development of Mondragón. It started with one or two industrial manufacturing firms and then they needed more capital, so a bank was started. And then, they wanted to sell into foreign markets, so a language school was started. And then, they wanted to develop more vertical integration, so they developed entire supply chains to feed their manufacturing firms. Over time, basically an entire ecosystem developed and the ethos of some level of solidarity through profit sharing, all of that kind of reflects what happened. I think it would be a challenge just to design that from scratch today. Not to say it’s impossible, but it’s a challenge. Yeah.
Goldy:
Right. Because that’s a feature that relies on scale, yet you can’t get that scale overnight through an ESOP.
Nick Romeo:
Yeah.
Nick Hanauer:
But the other challenge for these alternative models is that the people who have capital to allocate are usually under considerable pressure to maximize the returns on that capital. For sure, these different business models present, in many ways, more risk to those people than otherwise. It just feels to me like if you really want to get this stuff going in a bigger way, you have to create a new construct where there are structural advantages to capital allocators and entrepreneurs who do this sort of thing. By way of example, I mean, if you blend this idea with true pricing, which is where you’re headed, rather where you want the world to be headed… Just to use the simplest example, one of the ways in which we… Certainly, a lot many American companies don’t use true pricing is they pay their workers so little that the public is effectively required to subsidize their lives. Correct?
Nick Romeo:
Yeah. Yes.
Nick Hanauer:
Huge numbers of Walmart workers are food stamp recipients and Medicaid recipients and so on and so forth. Obviously, if Walmart was charged for those services, it would be easier for them to just double their wages, right?
Nick Romeo:
Yes.
Nick Hanauer:
Indeed, companies that have zero employees who need public assistance are definitely less of a burden on the society than companies for whom most of their workers require public assistance. You could imagine a very different tax regime for companies whose workers are all high wage workers versus companies whose employees were mostly poverty wage workers. But if you had a tiered tax system, which is like, “Look, if you pay your workers enough so the public doesn’t have to worry about them and they’re paying taxes into the system, your taxes are way less.” Stuff like that, it seems like, is what’s necessary to get folks to really start to take these alternative business models more seriously.
Nick Romeo:
I couldn’t agree more. I think tax and policy is the ultimate lever here, and the strongest potential implementation of true pricing is not a consumer facing model. I don’t think we just are going to virtuously purchase our way out of these various crises. But just what you were saying about tiered tax systems not only for worker treatment but also for various kinds of environmental and ecosystem impacts that companies cause, I think that has a lot of promise. It reminds me also of the guy who actually popularized the phrase “living wage in America” was a Catholic priest in the early part of the last century, the 20th century.
He had this interesting sort of paradigm flip where his argument was, “Look, a successful company is one that can succeed while also paying workers enough to live.” By live, he meant a decent middle-class lifestyle. Now, sure, you could make more money by not doing that, but that wouldn’t be success. That would sort of be cheating, so it’s just this…
Nick Hanauer:
Well, yeah, if you’re not doing that, you’re a parasite, not a company.
Nick Romeo:
Well put, indeed.
Nick Hanauer:
In the last few minutes, we have a benevolent dictator question, which we always ask, which is-
Goldy:
Do we have time before we get to that for just one more example, Nick?
Nick Hanauer:
Oh, yeah, absolutely. Yeah.
Goldy:
Yeah. Because there’s one thing from the book, one of the ideas which jumps out at me because it is so obvious is the public option for gig workers. I mean, that is… Of course, there’s nothing that Uber does that is particularly special or unique other than owning and exploiting a market. If you could just explain that a little bit, how that works.
Nick Romeo:
Yeah, absolutely. I mean, I think this is a really powerful model. The basic idea is that rather than letting private companies dominate these markets and then extract enormous fees per transaction, 30 to 50% for a lot of the gig companies, we could have a public option. The amount per transaction that’s taken would be much lower, maybe 3 to 5%. In the same way that we have public options for road systems or water systems, we could have a basic kind of digital infrastructure for markets so that part-time workers or irregular workers or gig workers, those folks would be able to choose from a huge variety of types of work. They wouldn’t be siloed by driving or delivering food. They could actually advance upward across different skill sets over time. They could make more money because there’s less taken to feed distant shareholders who’ve spent enormous amounts of money, losing money in many cases for over a decade to gain market share.
All of those perverse incentives go away with a public option, so it’s a really kind of compelling model. One challenge is just getting it to scale. There are network effects that are real, but then, again, you think about all of the work that is purchased just within the public sector. I mean, city, state, and national governments are enormous purchasers of labor, so I think there’s some potential there for a public-led jumpstart of the initiative. This is already being trialed at municipal scales in America and there’s interest at higher levels of government as well.
Goldy:
Yeah. And the software is already out there. People have developed the software for this.
Nick Romeo:
That’s right. Yeah.
Goldy:
Yeah, there’s nothing special about the technology that Uber… Yeah. What I love about that is that, really, what it comes down to is what companies like Uber are trying do is not dominate a market but own the market. The impulse is always to be the monopolist, and you see that with Amazon and the Amazon Marketplace. They’re trying to own markets. And if there’s anything that should be public, it’s the market. That’s not something that one company should be able to own and exploit. You say charge fees… It’s rent. They’re charging rent. It’s rent-seeking.
Nick Romeo:
Absolutely. Absolutely.
Goldy:
That’s why I just wanted to stop there for a moment.
Nick Hanauer:
Yeah, no, it’s fantastic.
Goldy:
I love that idea. You want to get to the benevolent dictator question?
Nick Hanauer:
Yeah, absolutely. Nick, if you were in charge, what would you do?
Nick Romeo:
Let’s see. Am I like a global emperor or…
Goldy:
Sure. Why not?
Nick Hanauer:
Yeah, why not? Usually it’s only the USA, but for you, the world.
Nick Romeo:
Okay. Okay. The world. Wow. Well, you won’t be surprised to hear that… It’s not a kind of “silver bullet one thing fixes everything” book, and so my approach as benevolent dictator would have various prongs. People from a young age would learn economics in a way that included history and philosophy and moral philosophy in particular. I would also have some less cultural and more policy interventions. I think true pricing would be implemented in a kind of policy and tax framework. There’d be international conventions around that. Employee owned companies would really be the default option. It would be a little bit unusual or weird for a company not to be owned by its workers and I mean, really, 100% owned by workers. There would be a public option for all sorts of things. There would be a public option for irregular workers, but there would also be a public option or just a job guarantee as it’s often called for anyone who wanted full-time work.
This would put upward pressure on both wages in the private sector and also on the quality of private sector jobs if they had to compete with satisfying public sector work that paid well and that fulfilled fundamental needs, whether that’s green transition or care work. Finally, I guess I would mention that the kind of direct, democratic model of participatory budgeting would be a pervasive feature if I were dictator. That sounds a little paradoxical, but what that means is that people choose how money is spent through a competitive process where they, at a local level, debate with and try to persuade their neighbors, “What should the city do with its money every year?”
This has all kinds of civic benefits. It makes people turn out at higher levels in elections and it also makes people talk to other people who disagree with them. Final thing would be climate budgeting. Every level of government throughout the world would have to show that their operations were contributing to a decrease in emissions year over year, and the scale of that decrease or the slope of that downward curve would have to be in line with the best climate science.
Nick Hanauer:
Finally, why do you do this work?
Nick Romeo:
Well, I think journalism is often fairly criticized and maligned. There’s a lot of really bad journalism. There’s a lot of nonsense out there that kind of masquerades as journalism. I think when journalists are able to present nuanced, hopeful, empirically-grounded portraits of the adjacent possible, what is just beyond the edge of the Overton window, I think that can sometimes be a really important contribution. I don’t want to overstate the value of journalists, but I think that type of journalism has really an important place in our culture, in guiding policy, and expanding the conversation in both the public and the private sectors.
Nick Hanauer:
That’s awesome. Well, Nick, thank you very much for being with us. Nice work on the book and best of luck.
Nick Romeo:
Yeah. Well, thanks for having me. It was a pleasure to chat.
Nick Hanauer:
I love that conversation and I find the alternatives very interesting, but there’s a reason why a lot of these things haven’t scaled, Goldy. In our conversation with Nick, we talked about shareholder ownership and absent some really substantive change in policy. Believe it or not, it’s not just the fault of CEOs and boards and owners of companies that’s slowing down the rate at which employee ownership happens. Having done this a huge number of times, there’s a lot of pressure from employees to not take stock. They’d rather have cash and there are some very good reasons for that. Obviously, paid employees don’t have the space to save for the future effectively, which is what stock is. They’d rather have the cash now.
As you quite rightly pointed out to me in a conversation we had separately, most companies aren’t amazon.com. Well, in fact, most companies fail and even relatively successful companies don’t generate the kinds of returns that amazon.com does or Google or Facebook or NVIDIA or… There are a hundred companies in the country that are reported on constantly and have these insane outcomes for shareholders, but even a relatively successful company doesn’t create those kinds of returns. And then God forbid it’s private, right? Now, you’ve got stock in a private company and creating liquidity for people is very, very difficult. Often puts a huge amount of pressure on the company, because the companies are capital constrained and it’s not easy to buy people out and then, of course, the company wants to have the valuation low and the employee wants to have the valuation high. Anyway, all this is to say… When you get into the detail, it’s complicated.
Goldy:
It’s complicated, Nick. And, of course, there’s a lack of resilience if you’re relying on one company for both your income and your assets, right?
Nick Hanauer:
Right.
Goldy:
Because no company lasts forever. Again, as complicated as it is, I think the main takeaway from the book is that it is possible that, for the most part, all of the… He calls it the alternative. It’s really a bunch of alternatives.
Nick Hanauer:
The alternatives, yeah.
Goldy:
Right. Again, I think the most powerful point he makes in the book is that by going through all these examples, these are generally examples of things that are already happening to various degrees at various scales in various economies. What they show is that there is a different way of operating within a market economy that is good for both investors, for founders, for workers, for customers, for the environment, for our democracy that are different from what Margaret Thatcher told us there was no alternative to, which is this neoliberal regime, which is in the midst of collapsing. What’s important at this point in time is that you and I… We’re really confident that the neoliberal paradigm is collapsing, whether or not people get around an alternative, coherent counter paradigm, which we think we have. It’s that middle-out and everything else that underlies it. It doesn’t work anymore if it ever did work. That’s one of the things that, I think… If you want a little optimism about the economic future, I definitely recommend the book, The Alternative: How to Build a Just Economy. There’s a link to it in the show notes. There’s a lot of great ideas out there. Who knows? Some of you business owners out there might be inspired to move in one of these directions.
Audio:
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