The Middle Class Needs Enterprise Investment to Achieve the American Dream
Since the dawn of the Industrial Age, the international economy has moved steadily towards globalization in one form or another. From the late 1970s onwards, globalization became an official doctrine in Western countries as economists persuaded policymakers that the centralization of trade would raise standards in nearly all metrics for countries worldwide. For the average American worker, though, globalization hasn’t delivered on the rosy promises of the 1970s. New models of inclusive capitalism are needed to change the balance of power and reorient the American economy. Labor cooperatives and small and medium enterprises (SMEs) are the best places to start this transformation since they are already being used worldwide with excellent results.
It’s no secret that Donald Trump’s remarkable rise to power in 2016 was partially thanks to the fallout among working-class voters on matters related to globalization. Regional trade agreements like the North American Free Trade Agreement (NAFTA) hollowed out the American labor market. Coupled with the rise of China’s manufacturing sector over the past three decades, the results have been disastrous for American workers.
This isn’t an isolated problem. Emerging market economies in Africa, Southeast Asia, and the Indian subcontinent, are also developing at a remarkable rate. As global GDP shifts away from Western nations towards emerging markets, the plight of the American workforce will worsen. Instead of investing in the American worker, capital is investing in more cost-effective and efficient labor abroad. As we have seen over the last five years, disgruntled politics is one lasting manifestation of this corrosion. Stifling innovation and the weakening of American democracy are possible futures if things are left unchecked.
It’s time we stop accepting crony capitalism as the current rules of the road. We need not toss capitalism aside. Instead, we need to adjust its course towards sustainability. Giving workers more incentives can change the trajectory of American enterprises to grow the economy for everyone. This is the promise of inclusive capitalism. There are models to build from to achieve long-term profitability and scale with labor-intensive businesses that remain essential for a rapidly transforming world.
On one end of the spectrum of inclusive capitalism, the cooperative model has demonstrated success for growth and late-stage companies that have the capital and established market share. In the European Union, 1 in 5 workers is a member of a cooperative. This reality spans across industries and regardless of the size of the company. By contrast, there are roughly 400 worker-owned cooperatives in the United States. That’s a remarkably low figure considering the size of the American workforce.
The role of government in facilitating this shift extends only so far. The market itself has the power to transform our economy and revitalize the workforce. Through impact investing, we can unlock benefits for workers that ensure all parties have access to the spoils of the globalized market. A new relationship must be built on a value proposition based on respect, dignity, and opportunity for workers and communities.
Inclusive capitalism has been crucial for projects focused on urban regeneration, affordable housing, clean energy transitions, and small business finance. While some investors are focused on transforming growth and late-stage companies into full cooperative models, there is a gap in supporting earlier elements of inclusive capitalism with seed and early stage companies defining their culture and business models to value workers.
By introducing basic concepts like profit sharing and equity floors through a soft embrace of cooperative operating procedures, we can plant the seeds for a market change. Starting from the ground up, Good Scout Capital is focusing on bringing the benefits of globalization back to the American worker. With our innovative Scout Fund Alpha, we are focused on investing in SMEs that are the foundation of the American economy and key for the future health of American democracy. We are helping to educate business owners and workers on how they can operate an inclusive capital business.
There is more significant potential for impact in SMEs thanks to fundamental changes in the US and global economy. SMEs have traditionally been poised to integrate innovative business models faster than larger companies. With the explosion of gig and freelance workers, many SMEs are riding the economic transformations caused by the Covid-19 pandemic. With the proper focus from impact investment platforms such as ours, we can ensure that American SMEs can capitalize on the gains of globalization instead of being left behind.
By: Good Scout Capital. Los Angeles, California.