COMMON WELFARE ECONOMY

NEW VALUES FOR THE ECONOMY ABSTRACT

The Common Welfare Economy (CWE) is an economic alternative to both the free market economy and the centrally planned economy. It is a completely different paradigm, as well as a synthesis of the major concepts of capitalism and communism. This alternative socio-economic model is a form of market economy in which the polarity of motives and goals of private enterprises is reversed: from profit-orientation and competition to the pursuit of the common good and cooperation. The Austrian author and political activist Christian Felber developed the basis for the CWE in his book New Values for our Economy an Alternative to Capitalism and Communism (2008). A few Austrian entrepreneurs subsequently refined this model and called it Common Welfare Economy. The number of supporting companies increased to over 500 in January of 2012, and it is growing continuously. A pioneer group of more than 100 businesses is currently implementing the core element of the model the Common Welfare Balance and presented their first results publicly on October 5, 2011.

I. BACKGROUND
Financialization and globalization have intensified the harmful consequences of capitalism, resulting in a broad spectrum of collateral and direct damage to all areas of human life and the natural environment as a whole. The financial crisis, economic crisis, food crisis, redistribution crisis, democracy crisis and values crisis are all interconnected, and are inherent to the current economic system. Not only do these crises destroy our livelihood, they destroy that of the future generations. Their casualties include ecosystems, personal relationships, and human capital; as well as trust, solidarity, creativity, and democracy. The economic system is no longer being shaped and regulated; rather, it regulates and shapes the political and democratic system itself. It imposes its values and goals on society and nature, showing more and more characteristics of a totalitarian system. The present system is based on measuring economic values, achievements and success with monetary indicators that really tell us very little about what is truly essential to the wellbeing of all human beings and the environment in which we live. Neither the GDP on the macroeconomic level, nor a companys financial benefit on the microeconomic level can do so. One key dimension of the ongoing crises is the translation of all existing values into -1-

monetary values. Money, however, should only facilitate economic activity; its accumulation should not represent an ultimate goal. The capitalist code of values is an expression of prevailing patriarchal structures, particularly with regard to competition (a more precise translation from the Latin would be counterpetition) and pushing individual interests while ignoring all non-monetary results, including negative consequences. Currently, the generation of profit and counter-petition are the fundamental factors in the capitalist market system and the assumed basic motivation for all economic activity. Emphasis on this set of values does not encourage other values and behaviors that allow interpersonal relationships to grow and flourish; the present economic system promotes egoism, greed, avarice, carelessness and irresponsibility rather than trust, compassion, responsibility, cooperation, and reciprocity. It rewards asocial behavior (and thus the wrong values), while simultaneously ignoring and thereby punishing social and virtuous behavior. One can make money by forcing foreclosures of the homes of bankrupt families, but not by assisting and aiding them. A farmer can make considerably more profit using pesticides and GMOs than by growing food organically. Allocating funds and resources to harmful energy sources such as oil, coal, or nuclear power is cheaper and more profitable than investing in renewable and green energies. The most striking characteristics of this system are the missing ties: The Economy is disconnected from human values, technology is disconnected from nature, and human beings are disconnected from their emotions. Surprisingly, the system relies on a paradigm of human behavior that assserts that egoism and counter-petition are a natural component of our genetic makeup. However, contemporary scientific research shows that, on the contrary, cooperation is the more fundamental principle of evolution. Moreover, it has been proven that cooperation is a stronger motivation for people than counter-petition. In fact, it was shown that fulfilling relationships are our strongest motivator, and make us happier than material wealth, power, or (economic) success. The time has come: According to an opinion poll of the Bertelsmann foundation in August, 2010, 88% of the German and 90% of the Austrian population ask for a new economic order, People not only ask for reform in keeping with the system, they ask for a completely new system. The CWE meets this need by reversing the polarity of motives: Businesses are to be rewarded for cooperation instead of competition and the creation of profit.

II. VISION, VALUES AND OBJECTIVES

The overall economic goal will be common welfare. This concept is not new: All economic activity serves common welfare, according to Article 151 of the Bavarian Constitution as of 1946. Moreover, economists unanimously agree that the general welfare is theoretically the major global purpose of economic activity. The CWE therefore proposes that the main goal of single actors be aligned with the overall goal, and no longer contradict common welfare. It is from the benevolence of the butcher, the brewer, or the baker that we expect our daily dinner. This is our answer to Adam Smith, who claimed the opposite. The basis for the CWE are those values that nurture interpersonal relationships: confidence building, cooperation, appreciation, democracy, solidarity. These are adopted as principles for economic behavior. -2-

New legal incentives will initiate a shift from competition and profit-orientation to cooperation and the pursuit of the common good. Entrepreneurial success will be redefined, from financial profit maximization to the common welfare. As a result, companies will be motivated to cooperate instead of competing against one another. Growth and expansion in monetary terms will no longer serve as a goal, as economic success will no longer be measured with monetary indicators (GDP, financial profit). What should now grow is common welfare, and because this goal is virtuous, it is no longer possible to pursue it to an extreme! There is no such thing as too much common welfare: We can work on improving relationships, social justice, co-determination, ecological health, and gender equality endlessly. As growth and expansion are relativized in the CWE, companies will be able to strive to reach their optimal size by growing or shrinking. A sound legal basis will, for instance, prohibit hostile takeovers. Therefore, companies will not face disadvantages simply because they cease looking at expansion as an end in itself. Economy will be re-embedded into society in the same way that society is embedded into the ecosystem and the spiritual universe. Economic activity will be linked to the peoples needs, their emotions and common values, and to the natural environment.

III. NEW POLITICAL, ECONOMIC, AND LEGAL RULES

THE COMMON WELFARE BALANCE
The pursuit of common welfare will not only become the new legal goal of all (private) business, but also the new meaning of entrepreneurial success. The CWE places the human being and all living entities as well as fulfilling interpersonal relationships at the center of economic activity. It transposes standards that bolster human relationships as well as constitutional values to an economic context, rewarding economic stakeholders for acting in a humane, cooperative, ecologically sound, and democratic way; as well as for demonstrating solidarity. A new key balance sheet complementing the traditional balance sheet based on financial data and figures will therefore be established in order to measure the success of every company: the Common Welfare Balance. Instead of measuring success in monetary terms, it employs indicators that measure the contribution of a business to the common welfare. Common welfare as well as the set of values and indicators measuring a companys success will be defined in a broad democratic process. Actively engaged entrepreneurs have already adopted five core values that embody the key elements of the common welfare economy, and should be measured. These values are human dignity, solidarity, ecological sustainability, social justice, and democracy. A company that complies with these values must not only uphold them, but will also pass them on to stakeholders: employees, owners, customers and clients, business partners, suppliers, the regional population, state leaders, future generations, and the environment. The Common Welfare Matrix (a simplified chart of the Common Welfare Balance Sheet) crosses the five values with the stakeholders of a company. The Common Welfare Criteria in the cross-sections are measurable and attached a certain value: the Common Welfare Points. The sum of all Points provides the Common Welfare Score, at a maximum of 1000 Common Welfare Points. There is also a maximum of 200 points for each of the five value categories. Because all values are considered equally important, neglecting one of them -3-

cannot be compensated by points in another value category. An electronic calculation program is used to facilitate processing and to check weighting in the Balance. Knock-out Criteria punish extremely harmful acts to common welfare that are still legal. Companies exercising hostile takeovers, generating electricity by nuclear power, genetically modifying seeds or constructing large-scale power plants in ecologically sensitive regions receive zero points in a whole category of values, regardless of other achievements in this category. Those achievements will still be indicated, but not rewarded. The Common Welfare Points are awarded exclusively for measurable Common Welfare Criteria, and companies can decide which criteria they will accept, and to what extent. This means that points are awarded only for accepted standards that exceed those set by law. The purpose is as follows: Today, most companies are far from the common welfare ideal (best possible environmental protection, co-determination of staff and other stakeholders, justly distributed income, gender equality). Theoretically, corresponding minimum standards could be formulated in order to oblige companies to behave ideally. However, companies' self-interest (egoism) drives them to fight increases in legally binding standards with all their power. Keep higher standards voluntary while legally rewarding those companies that achieve them (tax incentives, customs duties, interest rates, public contracts, etc) could change this. In this manner, more and more companies would begin to promote this gentle political redirection of entrepreneurial aspiration towards common welfare. The Common Welfare Balance can initiate a process that guides companies from their current state to the target state in accordance with market conditions. The Common Welfare Balance serves as the catalyst in this process: The more companies apply Common Welfare Criteria, approach, and reach the Common Welfare Goals, the more plausible it will become to translate criteria from the Common Welfare Balance into legal minimum standards, thus making room for newer and stricter voluntary Common Welfare Criteria. In this way, the whole entrepreneurial landscape would move towards common welfare, and those companies that keep the old set of values would eventually run the risk of going bankrupt!

THE COMMON WELFARE AUDIT

Who controls the Common Welfare Balances, and how? When the whole process is fully realized, a new profession will be required to carry out the task: the Common Welfare Auditor equivalent to the auditors who presently check financial balances. At the outset, the Balance Sheet is generated and reviewed by companies internally (controlling, internal revision). Afterwards, it is submitted to Common Welfare Audit, where the verification and attestation take place. Only then does the Balance become valid and effective. In comparison with the financial balance, a Common Welfare Balances offers many advantages: - - - - It is public and accessible to all. It is easily comprehensible, with simple, humane, value-oriented criteria. There are many stakeholders with a vested interest in its accuracy. Common Welfare Licenses of auditors who approve fraudulent Common Welfare Balance Sheets will be revoked immediately, minimizing the potential for fraud and corruption. -4-

Companies are motivated to achieve the best possible Common Welfare Score with numerous legal incentives. The entire process operates on a voluntary basis, removing the need for a board of examiners and excess bureaucracy. The Common Welfare Balance guides the behavior of companies without creating the need for additional regulation requirements.

Similar to the separation of the consulting business and the examination of financial data, the Common Welfare Consulting and Auditing is divided by law. During the initial phase (2011), pioneer companies that voluntarily generate the Common Welfare Balance assess one another. In the event that they achieve a total of more than 600 points, they are subsequently assessed by a member of the Platform Common Welfare Consultants. It is also likely that, due to the complexity of the subject matter, audit teams will eventually be established to replace individual auditors. Audit teams would include experts from different areas in order to handle complex matters with increased security and efficacy.

LEGAL BENEFITS
The higher the Common Welfare Score, the more legal advantages are granted to a certain company, e.g.: - - - - - Lower taxes Reduced customs duties (e.g Fair Trade) Loans on more favorable terms Priority in public procurement Research cooperation with public universities

These benefits allow "successful" businesses to more easily cover their (increased) expenses. These standards also legally value ethical behavior and activity, whereas at present, unethical behavior, irresponsibility and carelessness are systemically rewarded. This leads to the effect that traditional, unfairly traded, unethical, imported products are cheaper than organic, fairly traded, ethical, and regional products. The goal of the CWE is that fairly traded, organic, ecological and regional products become cheaper than those produced and traded unethically. This process will allow the rules of the market to correspond to our values.

FINANCIAL BALANCES AS SECONDARY BALANCES

The financial balance becomes a secondary, less important balance alongside the primary Common Welfare Balance. The significance of financial profit is too limited with regards to the actual objectives of economic activity: utility optimization, satisfaction of needs, peoples participation, fair distribution, co-determination, gender democracy, ecological sustainability, etc. Financial profit is measured monetarily, and money measures exchange values, but not utility values. Provided the aforementioned objectives are given priority, capital is no longer an end, but a means. It helps companies achieve their real goal, which is to support the common welfare. As a consequence, financial surplus may be used for: -5-

1. Investment (with social and/or ecological benefit) 2. Loan repayment 3. Accrued liabilities (to a limited extent) 4. Distribution of profits to employees (up to 20 times the minimum wage) 5. Interest-free loans to other companies It may not be used for: 1. Profit distribution to shareholders that are not employed with the company 2. Risky financial investments (which will cease to be) the money must be brought to the Democratic Bank or another common welfare bank 3. Hostile acquisition and takeover of another company 4. Donations to political parties and candidates Complying with these standards will eliminate the harmful and negative effects of profit maximization. Moreover, companies profits will be used for the benefit of the society as a whole Point no. 1, which prohibits the sharing of profits with non-employees, is intended to alleviate the consequences of capitalism. Those who wish to earn money must work for it in the CWE! This will make things simpler, because a) businesses will not compete to minimize costs, b) persons will be allowed a sabbatical year for every decade of work while still receiving a basic salary, and c) income and wealth will be more evenly distributed than it is today.

MEASURES TO PREVENT INEQUALITY

The following legal provisions serve to prevent the unchecked accumulation and concentration of wealth in the hands of a few, thus reducing inequality: The maximum income will be limited to 20 times the minimum salary (approx. 1250 Euro net); Private wealth will be limited to 10 million Euro per person; Businesses with more than 250 employees are subject to shared ownership by their employees as well as by the public. Elected delegates of "regional economic assemblies" will represent the public. The government does not exercise authority over public enterprises. Inheritance can be permitted tax-free for amounts up to 500,000 euros, and in the case of a family business, up to 10 million euros. Any amount exceeding this limit will be distributed to the next generation as a democratic endowment, as seed capital is indispensable for ensuring equal opportunity.

The aforementioned provisions would be insufficient to create total economic equality, but they would certainly contribute considerably to reduce inequality and create more equal opportunities than we see today. Businesses would be co-owned and co-managed by the -6-

people. Responsibility and risk would not rest on the shoulders of a few, like today (although is some prominent cases, taxpayers have borne the ultimate responsibility), but would be divided among many. These provisions are preliminary. They are intended as proposals to be discussed in a broad participatory bottom-up process and accepted or rejected democratically by the sovereign (=the people), e.g. via referendum.

MORE PERSONAL SPACE

Working hours will be gradually reduced to 25 30 hours per week, as desired by the majority. Consequently, employees will have more time to dedicate themselves to the three most central fields of work: relationships and care (children, the sick, and elderly individuals), personal vocations (personal development, art, garden, leisure), and political and community work. Every tenth professional year is a sabbatical year and will be financed by an unconditional basic income. People can do whatever they feel like during this year. Such a measure would relieve the labor market by 10% -- the current unemployment rate in the EU.

IV. TRANSFORMATIVE EFFECTS: FROM "COUNTERPETITION" TO COMPETITION

The impact on economy will be enormous; initiating three important developments, among others: 1. A key element for change will be the "counterpetitive" behavior on the market and an appropriation of the original Latin meaning of the word from which we draw our term competition (Lat. competere: Engl. to meet, to come together). The struggle of companies against one another will change radically as they are encouraged to cooperate. Should they wish to continue doing business in the "traditional" way, they will face disadvantages like higher taxes, duties or interest rates. Transferring information, know how, workforce, and money to other companies is rewarded with Common Welfare Points. There is little risk that companies will cooperate at the cost of third parties (which is todays logic of building cartels), because companies will strive for the new goal: to maximize their contribution to the common welfare measured in the Common Welfare Balance. Consequently, cooperation will lead to a win-win-win-situation for companies, consumers, and the common welfare. 2. Furthermore, companies will be freed from the force of continual growth. They will instead strive to reach their optimal size, as financial profit will no longer represent the ultimate goal, and hostile takeovers will be considered illegal. They will not run the risk of being bought out and will not find themselves forced to outgrow or outperform other companies. All businesses will be freed from dog-eat-dog competition. 3. The CWE redefines the parameters of entrepreneurial success. Therefore, different and new leadership skills will be required. Todays systemic dynamic with the central goal of the constant pursuit of more profit in an environment of "counterpetition" advances egoist, greedy, stingy, irresponsible characters. According to current socio-medical studies, a large amount of socio-pathological, -7-

uncompassionate, socially incompetent, narcissist and addictive characters have become CEOs. This is a fatal selection mechanism. Those who behave in the most inhumane manner are quickest to climb the ladder. The Common Welfare Economy reverses the polarity from the pursuit of profits and "counterpetition" to the pursuit of the common good and cooperation. Hence, individuals who behave in a socially responsible, competent, empathic, and compassionate manner, and are socially and ecologically oriented, will be tomorrows top managers. As they act and lead companies by emphasizing the maximization of common welfare, they will serve as new role models for business leaders.

V. DEMOCRATIC BANKS
Democratic banks are organized as democratic commons, and will provide basic financial services and will serve without profit orientation to guarantee savings, grant loans on favorable terms, and provide free checking accounts. Financial markets as we know them today will cease to exist: investments banks, rating agencies, funds, derivatives, stock markets will be closed. Joint stock corporations will be replaced by company structures that allow for public participation. Non-profit orientation means that banks do not pay dividends to owners, nor do they use interest rates to generate profit. Money is a public good; therefore, excessive money will be redistributed for the public benefit. Additionally, the bank grants loans at low interest rates, creating new and more jobs, reducing the unemployment rate, and leading to higher incomes achieved through work much more valuable than interest rates on savings accounts. The bank must also evaluate the social and ecological value-added of all requested loans. It would then charge lower interest rates accordingly. These range from negative up to zero per cent interest rates depending on the Common Welfare Balance Score of the requesting company and the investments social and ecological value-added. The foundation of a Democratic Bank has already begun in Austria. More than 150 persons are cooperating actively to establish this bank, and a total of more than 3000 individuals support the project. Additional information in German can be found under: www.demokratische-bank.at.

VI. REAL DEMOCRACY

Democracy will experience a surge. So far, we have only achieved about ten per cent of what is possible in a democratic system. The missing 90 per cent is still to be developed. Direct democracy and participatory democracy will be added to representative democracy. The democratic sovereign (the people) will be able to regulate their representatives, initiate and pass laws, change the constitution, and control important economic domains, such as water or energy suppliers, railways, or banks. The people, not an elite of political and economic leaders (who control the distribution of powerful positions) or "the State" should have the main decision-making power. An economic convention will be directly elected in order to democratically predefine the parameters of the common welfare in a broad participatory bottom-up process. This democratically elected economic convention will pass laws that will anchor the -8-

parameters of the common welfare in the constitutions. The people have the final word, via referendum. Additionally, a number of other conventions will be summoned to further develop democracy: an education convention, a media convention, a convention for services of common interest, and, most importantly: a convention for developing and deepening democracy. Public goods will be reorganized as democratic commons. These include businesses that provide basic services in the sectors of education, health, social welfare, mobility, energy, communication, and banking. They are public property. This means it is not the government, but the people, who exercise authority over these sovereign goods. Anchoring the values of the CWE and passing them on to the in the next generations will be realized by introducing five new compulsory subjects to public education: values and ethics, "emotionology", communication, democracy, environmental education/nature and wilderness.

VII. SHORT HISTORY AND NEXT STEPS

Christian Felber has developed the fundamental principles of the CWE in the book New Values for the Economy. An Alternative to Communism and Capitalism (2008) published by Deuticke and currently only available in German. Felber has outlined a rough sketch of an alternative economic order, which attracted two-dozen of entrepreneurs who offered their help and knowledge to further develop the model. The main idea is that economic activity should be reoriented from the pursuit of profits to the pursuit of common welfare. This idea resulted in the Common Welfare Balance. The collective product was published in August, 2010 under the title The Common Welfare Economy. The Economic Model of the Future. At that time, 70 companies already supported the new model. A list of these first signatories is included in the appendix of the book. Today (October, 2011), just over a year after the publication, the number of companies over five times what it was, and is increasing steadily. Every day, new companies join the process. In April, 2011 a French edition of the book was published (Lconomie citoyenne) by Actes Sud. German, Swiss, and Italian entrepreneurs have joined in and started networking activities. Support teams have emerged and contribute on a voluntary basis to spread the idea. On October 5, 2011, a group of 100 pioneer enterprises took part in seven local press conferences in Austria, Germany, and Italy to present their Common Welfare Balance results to the public. They stood up for issues like income differences between maintenance personnel and executives, the co-determination of staff-members, the biodegradability of their waste, their ecological footprints, etc. The group of pioneers is one of a number of circles in the growing common welfare movement. Common Welfare Consultants are another. They support companies in generating the Common Welfare Balance. Yet another circle of auditors evaluate the Common Welfare Balances. Support teams, called "energy fields", engage in awarenessbuilding activities. These present the idea to the public, help develop it, and find supporters in the business sector. The legal status of the CWE is as a non-profit organization that advances and supports the whole process in Austria. Other countries will likely follow in -9-

forming their own NGOs for this purpose. Those advocating the CWE do not just sit around they act. Join the process! Change the world! www.common-welfare-economy.org

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