"It turns out, it isn't capital that creates economic growth, it's people.
And it isn't self interest that promotes the public good, it's reciprocity.
And it isn't competition that produces our prosperity, it's cooperation."
- Nick Hanauer, American entrepreneur and venture capitalist
We've spent a lot of time talking about Economic Extractionism, the system of extracting more value from the surrounding community than is created. It's obvious that, by design, this system will always lead to economic inequality.
So how do we shift to an economy where we create more value than we extract? Some of you who have been indoctrinated to the belief that ours is the most effective economic system, may even question if it is preferable or even possible to create more value than we extract.
To answer this question, let's start by exploring an economic principle called the Velocity of Money.
“The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. The velocity of money also refers to how much a unit of currency is used in a given period of time. Simply put, it's the rate at which consumers and businesses in an economy collectively spend money.” (Chen, 2022).
The Velocity of Money is the measurement of how many times a single dollar is exchanged or spent in a set amount of time, usually a year.
For example: Bob goes down to the corner market and buys a can of soda for $1. The market owner takes that dollar and uses it to pay the cashier. The cashier takes that dollar and goes down the street to buy a taco. The taco cart owner uses that dollar to buy some lollipops for her kids... and it goes on and on. That same dollar keeps circulating within the community, providing more and more value.
Every subsequent use of that $1 increases it's velocity.
This is the opposite of Economic Extractionism, where the objective is to extract that dollar. To take it out of circulation. In other words, the capitalist makes more money by taking it out of circulation and sequestering it in a bank account. There is no Velocity of Money because it's not being spent. Capitalism is a wealth-extraction machine at its very core. It’s designed to literally extract money from the community and move it upwards in the form of profits.
Increasing the Velocity of Money is not necessarily the key to Community Wealth Building, but it is a simple economic principle that can be used to illustrate the difference between hoarding wealth and allowing it to circulate naturally in a community.
A higher Velocity of Money is generally considered a sign of a healthy, vibrant economy. But that number has remained relatively low in the US since it peaked in 1997.
"One reason... is that a lot of the money is concentrated among the richest Americans who are not spending most of their wealth." (Murad Antia, Tampa Bay Times 2021)
When huge amounts of money are being hoarded and kept out of circulation by the upper percenters, the Velocity of Money will continue to remain low.
However, there is some important context that is missing from this picture.
At first glance it may seem like we, the working class, are victims of our circumstances. That it's ultimately up to the owner class to have that... "Ghost of Christmas-Future" moment, where they find it in their hearts to share some of that wealth with the rest of us so we can get it circulating in our communities.
But that notion ignores some fundamental and important data.
First, when you take into account what the working class collectively pays in gas taxes and payroll taxes in addition to income tax, we actually contribute a lot towards federal revenue. "Low-income Americans pay a lot in taxes, and their role in paying for schools, roads and other public services largely go unrecognized." (Williamson, 2017)
Also, in the US, the GDP (Gross Domestic Product) for 2022 was about $25.46 Trillion. Now here's the important part. Over $17 Trillion of that was consumer spending. That's you and me spending money every day, on bread and butter, power and water, cars and hotels, tacos, tennis shoes and televisions. That comes out to about 68% of our GDP.
An argument could certainly be made that our collective financial contributions are the backbone of this economy. Yet we enjoy only a small percentage of the economic benefits.
But this gives us our next clue for transitioning to a system of Community Wealth Building. Notice the repeated use of the word "collectively" in the previous paragraphs? That's no accident. It is this collective influence that is our superpower.
So let's talk about Community Wealth Building, first articulated by The Democracy Collaborative in 2005.
Community Wealth Building
"Community Wealth Building is an economic development model that transforms local economics based on communities having direct ownership and control of their assets." (democracycollaborative.org)
How does that work in practice?
The Democracy Collaborative outlines a 5 Pillar strategy.
Inclusive and democratic enterprise
Locally rooted finance
Fair work
Just use of land and property
Progressive procurement
We will dig into each of these pillars over the next few chapters. Starting with how worker-owned cooperatives can become a vehicle for transforming our economy, one business at a time.
"The trickle-down experiment that began in the Reagan years
failed America's middle class. Sure, the rich are doing great.
Giant corporations are doing great. Lobbyists are doing great.
But we need an economy where everyone else who works hard gets a shot at doing great!"
- Elizabeth Warren