Can we solve societal grand challenges by designing a prosocial economic system?

Can we solve societal grand challenges by designing a prosocial economic system?

Business scholars have taught generations of students and executives how to create and capture value. Among the richest that have mastered that doctrine are the Big Tech firms with their digital platforms. They have captured dominant market positions that cannot be easily contested, with antitrust regulation and enforcement failing to restrain them. The Big Tech firms have attracted consumers with free apps but oppressed society. Nevertheless, these firms, like many others, cannot be blamed for mastering the rules of the economic system which allows profit maximization to override societal values such as sustainability and well-being. In my book, The Cooperative Economy (Routledge, 2023), I identify several problems that our economic system has created.

1. Wealth concentration and economic inequality

In the United States, three individuals possess wealth that is greater than that of half of the population. Whereas the income share of the rich has increased, their tax liability has not. Economic inequality has been related to shortened life expectancy, illness, corruption, and political instability. Although some UN SDGs focus on reducing inequality and ending poverty and hunger, government policies have not served well these aims. 

2. The dominance of platform owners

The Big Tech firms control the technological infrastructure and act as gatekeepers that dominate digital markets. They suppress competition with exclusionary practices while their vendors receive less than their fair share; they restrict consumers’ choices while increasing switching costs, which eventually reduce quality and increase prices. Policy-making, antitrust laws, and regulation have been too slow to catch up with platform owners who modify their business models at will.

3. The loss of privacy and free choice

Consumers pay the platform owners for their free services with personal data, which is analyzed, dissected, and reconstructed using advanced algorithms with the aim of mis/guiding behavior per the profit-making interest of the platform owner. Consumers economize on effort but lose their free choice. Recent legislation in Europe seeks to ensure privacy, but it burdens small vendors, thus reinforcing the control of platform owners.

4. Overconsumption of natural resources

With their relentless profit-seeking, firms have abused our planet’s natural resources and fuelled overconsumption. The extraction of natural resources has increased substantially. Consumers have also done little to become more mindful about the consequences of their lifestyles. Some firms promote sustainability, but regulation has not fostered responsible consumption. Reducing consumption can restrict consumers’ utility and firms’ profits while jeopardizing economic growth, so all stakeholders share interest in enduring overconsumption.

5. Drawbacks of globalization

Globalization has fostered economic inequality by increasing the gains to capital owners while depriving the underprivileged. Multinational corporations have optimized their supply chains, reduced costs, and evaded taxes, while gaining power. Globalization has promoted consumerism and overconsumption while making the supply chain more vulnerable. Attempting to transplant societal values into multinational corporations with for-profit mission is unlikely to succeed.

These interrelated grand challenges have taken a toll on society, and their consequences for humanity’s well-being seem inevitable. Observers point to greed as the motive that drives opportunistic behavior at all costs. Nevertheless, we should not blame firms for seeking profits or consumers for maximizing utility. It is the fault of the economic system that prioritizes these aims over societal values such as sustainability and well-being. The system rewards opportunistic entrepreneurs while penalizing those who strive for cooperation. While some are more opportunistic than others, the majority tends to be cooperative. So why do we mostly observe opportunistic behavior? It is the design of this system that reinforces opportunistic behavior beyond the tipping point. All efforts to fix the economy via regulation, legislation, innovation, and aid treat only the symptoms, not the root cause.

A prosocial economic system as a possible solution

We cannot amend our economic system, but we can design a new system. The mirror image of opportunistic behavior is prosocial behavior, whereby individuals enhance the utility of others at a personal cost, rather than maximize their own utility at the expense of others. Experiments suggest that about half of humanity is conditionally prosocial—that is, individuals will be kind to others if others are kind to them. Acts of kindness are penalized in the current system, often met with exploitation and lack of reciprocity. By providing incentives and rewarding those who exploit, this system prevents positive reciprocity and drives out prosocial behavior. But new design principles can reinforce prosocial behavior. Such an underlying force can promote economic equality, redistribute wealth, cease exploitation of private data, and restrict overconsumption and abuse of natural resources (see Figure 1).

The cooperative economy is a prosocial digital platform system that prioritizes societal values, while acknowledging resource constraints. The cooperative economy limits consumption and profit making while facilitating economic equality. It serves consumers, vendors, and employees while preventing the accumulation of power by the platform owner. Unlike the greed that drives the current system, the engine of the cooperative economy is prosocial behavior. The proposed system scrutinizes greedy individuals and penalizes opportunistic behavior such as false disclosure and arbitrage attempts. Once opportunistic behavior becomes a deviant practice, self-reinforcing prosocial behavior can overtake it.

Price subsidization

The main novelty is the subsidization process. In the cooperative economy high-income consumers subsidize low-income consumers. Prosocial behavior is the principle that underlies this process, with consumers enjoying the happiness that comes with donation. Unlike progressive taxation in which the state steps in to imposes a burden while depriving taxpayers of their sense of contributing to society, price subsidization creates a perception of mutual support and thus carries the benefits of prosocial behavior. The cooperative economy also provides employees with the freedom to pursue a profession of choice or start a business without worrying too much about failure or financial distress. The system encourages entrepreneurship while discouraging free riding.

Additional design principles

One of the means to promote prosocial behavior is restoring a sense of community that supports face-to-face interaction and mutual support in economic exchange. Switching from a global economy to local economies minimizes transport distances and makes the value chain less vulnerable while enhancing sustainability. Another design principle is consumption per need which entails imposing consumption limits. For their part, vendors must accept reasonable profit caps while redirecting excess profit to consumers. As part of the platform’s responsibilities, no attempt is made to influence consumer behavior. The cooperative economy can be implemented as a digital platform, with advanced technologies used not to inflate consumption and abuse consumers but to protect them from opportunistic behavior.

The cooperative economy ensures fair competition by providing new entrants with guaranteed market access. In turn, stricter controls keep vendors at bay, ensuring consumers’ welfare. Vendors with higher quality receive priority in fulfilling orders. The cooperative economy also promotes protective and respectful employment and reduces salary differences, thus further enhancing economic equality. Employees, vendors, and consumers are all protected from the platform operator that accepts not to engage in any business besides its platform service provision. To prevent concentration of wealth and power, the system excludes financial shareholders, whereas other stakeholders—consumers, vendors, and employees—receive equal voice in promoting their interests.

In my book, I elaborate on the problems with our economy, consider the limitations of existing solutions, and discuss the design of the cooperative economy.

For more information visit the website www.cooperativeecoomy.net.