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Civil economy: definition and strategies for sustainable well-living

Abstract

The civil economy paradigm presented in this paper has two main characteristics. First, it identifies the philosophical roots of the limits of our socioeconomic system in the reductionist views of human beings, corporations, and well-being. The three reductionist views not only fail to capture an important part of the reality, but also produce poverty of sense of life (also defined as eudaimonic well-being) and of life satisfaction, thereby generating a suboptimal level of well-being. The civil economy paradigm proposes an alternative where it is acknowledged that (1) part of the individuals depart from purely self-regarding preferences and develop other-regarding and relational skills enabling them to overcome social dilemmas, (2) part of the productive system depart from the profit maximization paradigm and aim to satisfy the interests of a wider range of stakeholders beyond shareholders, and (3) well-being is, beyond GDP, the stock of cultural, environmental, spiritual, and economic resources that a community can enjoy. The second qualifying point of the civil economy paradigm is that it proposes a richer four-hand approach to political economy (as an alternative to the traditional two-hand approach) where actions of the traditional invisible hand of the market and the visible hand of institutions in solving failures are complemented and supported by the complementary action of the two additional hands of grassroot citizens’ participation and socially and environmentally responsible companies. In our paper, we explain and document that these two additional hands are already at work, thereby confirming that the reductionist hypothesis on individuals and corporations is rejected by empirical evidence. In the paper, we argue that the civil economy paradigm, by increasing social participation and generativity of all actors, has the power of bridging the gap between the current suboptimal and the socially optimal sense of life (well described in the concept of “common good”). We as well provide evidence showing that the paradigm is far from being unrealistic and that its sprouts are already working in several fields of our society, preparing a more thorough transformation and full replacement of the old paradigm at a theoretical level that is near to come.

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Notes

  1. http://www.un.org/millenniumgoals/.

  2. http://www.un.org/sustainabledevelopment/sustainable-development-goals/.

  3. See among others Frei and Stutzer (2002a, b, c) and Becchetti and Pelloni (2013).

  4. In this paper, we mean for generativity the capacity to affect positively life satisfaction and life sense of other human beings. The intuition of the importance of generativity is widespread among the founders of economic thought. According to JS Mill “Those only are happy, I thought, who have their minds fixed on some object other than their own happiness, on the happiness of others, on the improvement of mankind, even on some art or pursuit, followed not as a means, but as itself an ideal end. Aiming thus at something else, they find happiness by the way” (Mill, 1893: p. 117).

  5. “The more you work for interest, the more you must be virtuous, unless you are a fool. It is a universal law that we cannot make ourselves happy without making others happy as well” (Genovesi, Autobiografia e lettere, p. 449, 1962).

  6. "The channels of communication are not only physical, but moral, too. Straight, easy and safe roads: rivers, and ferry routes; utility work machines, these come first. But we need moral channels too” (Antonio Genovesi 1765 ).

  7. For superadditivity we mean a situation in which team action produces an aggregate outcome superior to the sum of the stand-alone contributions. An example of superadditivity may be the value of study groups where participants get better marks than when studying alone. Superadditivity is embedded in trust investment games (Berg et al. 1995) where the contribution triggered by the first player’s trusting behavior is multiplied by 3. The sense of superadditivity is also in the fact that life activities are group activities that need contribution of different professionals with non-overlapping competences. Joint participation allows to put together the different pieces of the puzzle while non participation produces a more than proportional fall of the outcome.

  8. Sachs et al. (2016) show in the 2016 World Happiness Report that gratuitousness is one of the six key factors explaining 75% of the differences in life satisfaction among world countries. The homo economicus paradigm does not consider that possibility and therefore is bound to lower level of life satisfactions. Park et al. (2017) show in a neuroscience randomized experiment that individuals being given the task of using the money received for other-regarding purposes activate areas of the brain associated with life satisfaction, while this is not the case for those being given the task of using the money for themselves.

  9. Engel (2011) creates a meta-paper using data from 328 different Dictator game experiments held in different countries (for a total of 20,813 observations). He shows that only one-third of observation conforms to the homo economicus paradigm concluding that “While normally a sizeable fraction of participants does indeed give nothing, as predicted by the payoff maximization hypothesis, only very rarely this has been the majority choice. It is by now undisputed that human populations are systematically more benevolent than homo oeconomicus”.

  10. The seminal paper on trust games is that of Berg et al. (1995). The meta-paper of Johnson and Mislin (2011) provides a nice synthesis of experimental results in this literature.

  11. «Your corn is ripe to-day; mine will be so tomorrow. It is profitable for us both, that I should labour with you to-day, and that you should aid me to-morrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains upon your account; and should I labour with you upon my own account, in expectation of a return, I know I should be disappointed, and that I should in vain depend upon your gratitude. Here then I leave you to labour alone: You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security..» (Hume Treatise on Human Nature, 1740, book III).

  12. As is well known, the “sociological” definition (Bourdieu 1986; Coleman 1988) of social capital place more emphasis on its “software” (relationships among individuals), while the political scientist’s definition (Putnam 1993) focuses more on social capital “hardware” (organizations and institutions). A recent definition comes from Guiso et al. (2011) looking at that portion of social capital (that they call civic capital) intended as the set of values and beliefs shared by a community helping its members to overcome free riding problems in social dilemmas. We as well acknowledge that the awareness of the crucial importance of social capital (in its dimension of trust) was already present in the Italian school at the root of civil economy with Genovesi (“Nothing is more necessary for a prompt and grand circulation than public faith (Genovesi, Lezioni II ch. §1([…], 1765–1767) and Filangieri (“Confidence is the soul of commerce […] all the parts which comprise its edifice fall in on themselves without it” (Filangieri and Villari  1872))..

  13. “Trust is the investor’s willingness to make herself vulnerable to others’ action” (Hong and Bohnet 2007). “An individual (let’s call her the trustor or investor) trusts if she voluntarily places resources at disposal of another party (the trustees) without any legal commitment from the latter” Fehr 2009).

  14. Relational goods are defined in the literature as “antirivalrous”, partially excludable local public goods. On the characteristics and debate around relational goods see, among others, Gui (2005), Uhlaner (1989) and Bruni and Stanca (2008). For the role of relational goods in explaining the Easterlin paradox, see Bartolini et al. (2008).

  15. What we mean here is when individual’s satisfaction/utility grows only for her/his own higher monetary payoffs or availability of desirable goods, and it is in no way affected by well-being of others.

  16. Bauman and Rose (2009) find that economic students are more selfish than other students. Similar results are found by Frank et al. (1993), Selten and Ockenfels (1998), Frank and Schulze (2000).

  17. Harvard Business Review, Managing for the long term, May/June 2017.

  18. An interesting example to understand this point can be taken From Financial Times, October 28, 2016, where it is said that “Aggressive tax avoidance raises risks for investors Regulatory pressure has increased the financial implications of tax planning” For years, executives have defended these tax arrangements on the basis that they are legal. Some have even argued that they have a responsibility to shareholders to minimize tax liabilities Nordea Asset Management, the €300bn Nordic fund house, has written to a number of companies, including Alphabet and Apple, to warn that pressure from regulators and governments has increased overall risk for investors. The pressure for concrete regulatory changes will no doubt continue to raise regulatory risk for companies who prioritize aggressive tax practices in their financial strategies. The risks related to aggressive tax practices have raised investor uncertainty”.

  19. Oxfam (2017), Opening the vaults. The use of tax havens by the biggest European banks.

  20. According to Eurosif (2016) investment funds, that “vote with the wallet” (for a deeper discussion of this concept, see Sect.  4 ) simply introducing exclusion criteria, grew in Europe by 22% between 2014 and 2016, managing professionally around 48% (over 10 trillion euros) of European financial assets. According to the US SIF (2016) in the USA the amount of the SRI assets (Sustainable, Responsible and Impact) increased its value more than 30% only between 2014 and 2016 ($6.57 trillion to $8.72 trillion in 2 years) managing around one fifth of the financial market. The novel initiative Montréal Carbon Pledge, coordinated by the UN-supported Principles for Responsible Investment, is probably the best example that confirms the increasing role of SR funds. In 2016 around $310 trillion of assets were gathered and managed by the initiative under the requires of “commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis”, providing a new field of application of the vote with the wallet.

  21. See on this point, among others, the Guidelines on Ethical Shareholder’s engagement of Etica sgr a primary Italian sustainable investment fund (https://www.eticasgr.it/download/guidelines-on-active-shareholder-engagement/).

  22.  «The GDP also includes air pollution and cigarette advertising, and ambulances to clear our highways of carnage in the weekends. GDP puts locks on doors, house and prisons for those who seek to force them […]. It includes television programs that enhance violence to sell violent products to our children. It grows with the production of napalm, missiles and nuclear warheads, includes research to improve the dissemination of the bubonic plague, grows with the equipment police uses to quell riots, and still increases when ashes build popular slum. GDP takes no account of the health of our families, of the quality of their education, or of the joy of their leisure time. […] It does not include the beauty of our poetry or the firmness of family values, the intelligence of our debate or the honesty of our public servants. Does not take account of justice in our courts, nor of fairness in relations between us all. GDP does not measure neither our wit nor our courage, neither our wisdom nor our learning, Neither our compassion nor our devotion to our country. It measure everything, in short, except that which makes life truly worth living. It can tell us everything about America, but not if we can be proud to be Americans».

  23. For the literature on the happiness paradox see, among others, Veenhoven et al. (1993), Blanchflower and Oswald (2004), Frey and Stutzer (2002a, b, c), Stevenson and Wolfers (2008), Bartolini et al. (2008) and Easterlin and Angelescu (2009).

  24. See on this point Guidelines for active shareholder engagement from Etica sgr (https://www.eticasgr.it/download/guidelines-on-active-shareholder-engagement/).

  25. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices." (Adam Smith The Wealth of Nation, Book I, Chapter X).

  26. http://www.un.org/millenniumgoals/.

  27. http://www.un.org/sustainabledevelopment/sustainable-development-goals/.

  28. The Eurobarometer (2013) survey asks to a representative sample of respondents from 28 EU countries who are the actors they believe should take the leading role in influencing corporate actions: “citizens through their purchase decisions” is the answer with the highest frequency (49%), followed by “management of companies” (40%), “public authorities” (36%) and “trade unions” (28%). This ranking suggests that citizens are aware of the vote with the wallet power they have with their consumption decisions.

  29. The history of CSR indicates that there is broad consensus on some issues (i.e., global warming, dignity of labor) or, in general, issues raised with SDGs, while other may be much more controversial. Obviously, even on these general issues, when entering into details, opinions can be mixed even though some specific points remain quite clear-cut (e.g., preference for renewables over fossil fuels, good working conditions against labor exploitation). An example of mixed opinions is even that of how much we should fight inequality and poverty. Alesina et al. (2001) find that when asking whether poor have to be blamed US respondents say yes in a much higher share than Europeans. More in depth, the vote with the wallet is a tool that can be powerful when used for those broad issues on which there is consensus but it can also be used for much more debatable normative goals. An example of it is the “nationalist” version of the vote with the wallet (that can be discriminatory for products coming from other countries) which is growing of importance in Europe in most recent times and can even lead to extreme forms of invitation to boycott products or shops run by migrants.

  30. Becchetti et al. (2015) and Nofsinger and Varma (2014).

  31. The literature review on other-regarding preferences could be summarized by the results on the existence of elements of (positive and negative) reciprocity (Rabin 1993) inequity aversion (Fehr and Schmidt 1999; Bolton and Ockenfels 2000), other-regarding preferences (Cox 2004), social welfare preferences (Charness and Rabin 2002), and various forms of pure and impure (warm glow) altruism (Andreoni 1989, 1990).

  32. Volkswagen was found cheating on emission standards by the US regulatory agency. The stock price of Volkswagen fell by 20% the first day of trading after the EPA’s notice of violation became public (21 September 2015). The combined fall of the following 2 days was 22.5%. The negative reputational effect also hit other German automakers such as BMW (− 14.9%) and Daimler (− 5.8%). Volkswagen stock price was still 30% lower 1 year later.

  33. In three European countries (France, Italy and Portugal) the VAT rate was reduced for green electricity. In the case of France there was a reduction of 5.5% for those buying basic products related to improvements, changes and installation in residential buildings that incorporate technology based on solar power, wind power, hydroelectric power and biomass. In Italy a reduced tax rate (10%, rather than the usual 22%) was introduced on sales and services related to wind and solar power generation, as well as on investments in green electricity distribution networks. Finally, in Portugal, in spite of the 23% general rate, a reduced tax of 12% was introduced for buying systems which generate green electricity. In all these countries the idea was to introduce a tax incentive reducing the tax rate, loading the final cost of the operation on the government spending.

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Becchetti, L., Cermelli, M. Civil economy: definition and strategies for sustainable well-living. Int Rev Econ 65, 329–357 (2018). https://doi.org/10.1007/s12232-018-0299-6

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Keywords

  • Business ethics
  • Corporate social responsibility
  • Multidimensional well-being

JEL Classification

  • A1
  • B4
  • P1