The mismeasurement of investment and the resulting reinforcing of the idea that taxes should be low and that government budgets need to be balanced has played a critical role in undermining the quality of habitation. Ever since the 1970s, subnational levels of government have faced an ongoing fiscal crisis as the demand for services increased faster than the available revenues from taxes. In the U.S., the problem was briefly mitigated by federal revenue sharing, but that policy ended under the presidency of Ronald Reagan. The result has been decaying infrastructure, underfunded services, and an inability to address a growing crisis of housing affordability at the state or local level.

Most significantly, these fiscal pressures have resulted in diminished public spending on education. This is most dramatic in terms of support for public higher education. In many states in the U.S. fees at public colleges and universities were historically quite modest, making it possible for these institutions to be avenues of upward mobility for people from low- and middle-income families. However, for more than 40 years, the trend has been to reduce the amount of public support and rely to an ever-greater extent on tuition payments or student fees. The consequence is that fewer people from low- and middle-income households have been willing to take on the student debt loads required to cover tuition. This, in turn, means that the long historical trend towards higher levels of educational attainment has slowed considerably with other nations catching up and exceeding the U.S.

Moreover, spending on primary and secondary education has also been stagnant with the consequence that compensation for teachers has failed to increase. One study showed that between 1996 and 2021, weekly wages for U.S. school teachers were stable after adjusting for inflation while comparable compensation for other college graduates had increased by 33 per cent. In other words, the ongoing fiscal crisis works precisely to limit the kinds of investment spending that is most critical in a habitation economy.

In the U.S., governments at the state and local level do have the option of borrowing by issuing bonds that are used primarily to finance construction projects: infrastructure, schools, hospitals, and public buildings. The federal government has supported this market by exempting most municipal bonds from federal taxation.

The quote from Antonio Gramsci's Prison Notebooks from 1930 is eerily relevant to our current historical moment. The morbid symptoms that he had in mind included Mussolini's fascist regime that had imprisoned him and the growing strength of Hitler's National Socialist Party in Germany. Today's morbid symptoms are the rising threats to democratic governance posed by ultranationalist right-wing movements and leaders. Using the fascist label for Vladimir Putin, Victor Orbán, Jair Bolsonaro, and Donald Trump remains controversial partly because these leaders have not yet assembled paramilitary gangs dressed in uniforms of the same color. Nevertheless, their unrelenting hostility to liberal democratic norms and institutions is beyond debate.

But why is democratic governance now experiencing the most intense challenges since the 1930s? One powerful explanation emphasizes the global reign of neoliberal or market fundamentalist economic ideas from the late 1970s down to the current moment. Those ideas have led to reduced taxation of corporations and the very wealthy, and constraints on the ability of governments to protect citizens from market fluctuations. Moreover, those ideas have changed the ground rules of the global economy in ways that further constrain what governments can provide to their own citizens. The result has been dramatic increases in income and wealth inequality and relatively slow growth of average household incomes. Frustrated voters have responded by turning to outsider candidates, sometimes of the far right, who promise to restore the good times of the past.

A compatible line of argument emphasizes political realignments that have come with rising educational levels in developed economies. Thomas Piketty has called this the “Brahminization of left parties.” Historically, the majority of voters with a college education had voted with right-wing parties, but in recent decades, much of this group has shifted their allegiance to parties of the left. This has diminished the focus of these parties on improving the economic situation of voters with lower levels of education.

Unfamiliar terms can be useful to highlight patterns that are hard to recognize with our existing vocabulary and concepts. This is the reason for using the somewhat archaic word “habitation”. The dictionary definition is “the state or process of living in a particular place.” The most familiar usage is to say that there are no signs of human habitation in a particular place.

I use the term to encompass all of the activities that are involved in creating, maintaining, and improving the human settlements in which we live. During the Covid-19 lockdowns, we became acutely aware of the “essential workers” who made it possible for the rest of us to survive when we were confined to our own homes. Those essential workers included hospital employees, grocery and supermarket staffs, delivery people, and those keeping the phones, the internet, the electricity, and other utilities from crashing. We can think of these essential workers as the core of the habitation workforce.

But many of the others who were laid off or working from home during the lockdowns were also part of the habitation labor force. This includes construction workers building homes, offices, commercial spaces, or infrastructure projects. It also encompasses the people employed in education, childcare, and healthcare including also yoga studios, gyms, and mental health services. Moreover, those working in city government, policing, transportation, arts and entertainment, retail trade and restaurants are sustaining habitation. Finally, the growing number of people in the innovation economy who are developing new products and new processes are working to improve habitation in the future.

Most of us also do habitation work when we are not engaged in paid employment. Childrearing, cleaning house, home repairs, yard work, helping neighbors, and participation in civic groups are also part of creating, maintaining, and improving our communities. Similarly, various forms of activism to reduce environmental harms or increase the accountability of police can also be counted as doing habitation work.

This book has a very long history. My politics and my worldview were a product of a time very long ago—the 1960s. I was part of the New Left in the U.S. as an undergraduate (1964–68) and as a graduate student (1968–74). My values and my understanding of politics were shaped by a movement that struggled for racial justice, to stop the Vietnam War, and to challenge corporate power. But while my core convictions have not changed, reality today is in many ways different from what it was in the 1960s. I have attempted to develop new language and new concepts to make my old values relevant to the lived experience of the third decade of the twenty-first century.

In the student movement of the 1960s, we believed in something called “participatory democracy”—the idea that people should have much greater influence over decisions shaping their lives than was possible through voting in periodic elections. While our youthful dreams of radical change were not realized as the United States moved steadily rightward in subsequent decades, I have held on to that vision of a society in which ordinary people were empowered. This book is an effort to give that idea of participatory democracy new relevance and new urgency.

With ideas that have gestated over 60 years, I have accumulated more intellectual debts that I can possibly acknowledge here. First and foremost, there is a group of friends and close colleagues who have sustained me over many decades of continuous conversations and debates. This group includes Peter Evans, Larry Hirschhorn, Carole Joffe, Karl Klare, Magali Sarfatti Larson, Marguerite Mendell, Frances Fox Piven, Michael Reich, Margaret Somers, Howard Winant, and the late Erik Olin Wright. Matthew R. Keller and Marian Negoita have worked with me for almost 20 years exploring the complexities of government-sponsored innovation in the U.S. and other nations. My co-editor for Democratizing Finance, Robert Hockett helped to deepen my understanding of finance and credit.

Our habitation economy remains largely invisible because of the consensus that our society is organized around a market economy. The problem is that a market economy is defined as one in which people buy and sell commodities. However, most of the things that we consume today are not similar to the items that economists have labeled as commodities. The factory that Adam Smith described in The Wealth of Nations made pins and David Ricardo's analysis of international trade focused on cloth and wine. Their analyses depended on a definition of commodities as standardized goods that are available from many different producers. Moreover, they also assume a transaction between buyer and seller that was a one-shot transaction rather than a longterm relationship.

Karl Polanyi noted 80 years ago that three of the core elements of an economy—land, labor, and money—are fictitious commodities because they were not produced to be sold on a market. Land is nature subdivided into parcels of different sizes, labor is the activity of human beings, and the supply of money is generally carefully regulated by central banks. It follows that the supply and demand for these key economic inputs cannot possibly be equilibrated by ongoing changes in prices. In a word, Polanyi shows that the existence of these fictitious commodities undermines the claim that a market economy could be a self-regulating structure.

The argument here builds on Polanyi, but it is somewhat different. Polanyi was effectively distinguishing between the process of commodification and the production of actual commodities. Society creates a market for labor where the work of human beings is effectively commodified, but this project of commodification does not actually transform labor into a commodity that is equivalent to a bushel of wheat or a ton of steel. Labor remains a fictitious commodity even as we pretend that the labor market is just like any other commodity market.

The point is that almost anything can be commodified. We have seen that happen with trips into outer space, nonfungible tokens, and the service of surrogates to carry a fertilized egg to childbirth. In fact, most forms of care—childcare, healthcare, eldercare—can be purchased on the market. However, the fact that something is commodified does not magically transform it into a standardized good transferred between buyer and seller in a single moment.

This book has sought to illuminate the centuries-old conflict between habitation and improvement. Improvements in the form of technological advances have frequently undermined the habitation of many people. I have tried to show, however, that we have the possibility of channeling improvements in directions that would actually improve the habitation for all people. But this potential is not being realized within the existing political-economic constraints that drastically limit the ability of people to shape their own communities. The urgent task is to democratize the creation of habitation and this requires reforms that allow people to exercise greater control over the soft and hard infrastructures of the communities in which they live.

The intensification of the climate crisis has made the task of democratizing habitation ever more urgent. Climate scientists have been warning for decades of the dangers of continuing to pump more and more greenhouse gases into the earth's atmosphere, but it has only been in the decade of the 2020s that the negative consequences have become undeniably obvious. Extreme heat, uncontrollable wild fires that darken the sky for thousands of miles, devastating droughts, ever more powerful hurricanes, typhoons and tornadoes, floods, and other extreme weather events have become increasingly common. Everyone's habitation and even their survival are now threatened by the reality of climate change.

Responding to this threat requires two connected initiatives that would be accelerated by democratizing habitation. The first is to speed up the shift to energy conservation and the use of renewables so that societies could more quickly lower the production of greenhouse gases. Whatever initiatives have been put into place by central governments are bound to move more quickly if and when people at the local level are actively engaged in reducing their community's dependence on fossil fuels. At the same time, those local initiatives would place more pressure on central governments to move more boldly and spend more money on the effort.

The second initiative is increasing the resilience of local communities, so that people are better protected against extreme heat, flooding or other climate-related disasters. This can involve everything from major infrastructure projects to redirect water flows to the creation of cooling centers to organizing self-help initiatives at the neighborhood level.

In the era of standardized commodities, a particular type of organization became the dominant type of business firm in the economy. This was the large multi-divisional, hierarchical corporation that excelled at producing large quantities of standardized items with great efficiency. However, we continue to rely on this same type of organization to produce destandardized goods and services in a habitation economy even though other organizational models are actually better at producing destandardized goods and services. Since these organizations have very deep pockets and considerable influence in the political system, they have been able to continue their dominance despite the fact that other types of organization might be more effective and more efficient. Their continuing dominance is one of the key reasons why we are not able to have the kind of habitation that most of us would like to have.

The concept of monoculture that comes from farming provides a useful analogy. Critics of industrial-style agriculture employ the term to describe what happens when large areas of land are shifted from cultivating multiple types of vegetation to focusing on a single crop or one particular type of livestock. For farming organizations, monoculture often seems like an obvious and efficient choice since it allows for the optimal use of both farm machinery and land. Monoculture is basically the application of the assembly line to agricultural production to reduce the cost of production of each unit of output.

Critics point out, however, that the cost–benefit supporting monoculture is often misleading. Vast expanses of the same crop are an invitation to the rapid proliferation of pests and disease that specialize in that particular crop or species of animal. Furthermore, monoculture tends to deplete the soil of key nutrients requiring ever larger outlays for fertilizer which, in turn, has negative environmental consequences. Concentrated animal feeding operations such as giant pig farms produce huge lagoons of animal waste that can seep into the ground water and produce noxious odors for miles around. In sum, monoculture might be profitable in the short term, but it can be unsustainable and inefficient over the longer term.

There are two powerful mechanisms that work to entrench the dominance of hierarchical corporations. Chapter 6 will explain how our current financial system reinforces corporate dominance and helps to keep people from exercising control over their habitation. This chapter explains how the categories of mainstream economics produce a systematic mismeasurement of the amount of investment in the economy. This mismeasurement, in turn, reinforces the idea that public policy should be oriented towards incentivizing business investment. This leads directly to limitations on both public spending and wage gains for workers since both of these come at the expense of corporation profitability. The consequence is a systematic underinvestment in the expenditures that would improve our habitation.

Even though we have a habitation economy, we are using the economic tools that were developed to understand an industrial economy. Among the most important of these tools are the definition of investment and the accounting methods for measuring it. Investment is generally defined by economists as the production of goods that will be used to make other goods. Whether or not an outlay is defined as an investment has important consequences for measuring total output.

Investment outlays are contrasted with spending on intermediate goods that are used up in the process of production, such as the steel and glass used to make automobiles or a company's use of bookkeeping services. These intermediate goods are not included in GDP since their cost is incorporated in the price of final products. Investment is also distinguished from consumption activity that simply uses up the supply of goods and services produced in a given year. It follows that when an expense that was previously defined as either an intermediate good or a consumption good is redefined as an investment, it increases gross domestic product (GDP). GDP is the sum of investment plus the total amount of goods and services that are consumed by final users plus government spending plus the balance of international trade. In short, investment expenditures are productive whereas consumption simply uses up what has been produced elsewhere; intermediate goods are necessary but do not have the generative power of investments.