Wednesday, October 20, 2004

Socialism for Today: Economic Democracy vs Neoliberalism


Published by:
Rowman & Littlefield, 2002
PB: $23.95; 193pp.

Reviewed By Carl Davidson

In this short book, building on his earlier work, ‘Against Capitalism,’ David Schweickart has given us an excellent breakthrough in finding the road to a new socialism for the 21st century. Using both practical and ethical arguments, his main objective is to take on the ‘TINA’ argument—‘There Is No Alternative’—of the neoliberals. He convincingly shows there is at least one alternative, a ‘successor system’ that he calls ‘Economic Democracy.’ His critics will find it hard to dismiss his ideas lightly.

First, Schweickart’s Economic Democracy alternative is a working hypothesis, and not a rigid or doctrinaire model. While rooted in historical materialism, Schweickart’s Marxian notions of science are more in tune with the ‘open systems’ and critical instrumentalism of modern pragmatism. He casts a wide net to draw lessons from practice—from the failed Soviet-led command economies, to the ongoing surge of China’s market socialism, to the new smaller and more tentative projects in Spain’s Mondragon Cooperatives and Brazil’s Worker’s Party projects. He uses all these as resources, but he returns to American soil to work out his basic ideas and proposals.

‘Successor-system theory’, Schweickart explains, ‘is meant to be theory with practical intent. If it cannot offer a plausible projection as to how we might get from here to there, successor-system theory remains an intellectual exercise in model building—interesting in its own right, perhaps, and capable of providing a rejoinder to the smug apologists for capital, but useless to people trying to change the world.’

So what is ‘Economic Democracy’? The core idea is that the workers themselves democratically elect the managers of their firms. They also share the wealth they create by sharing the profit among themselves. They make their money the old-fashioned way: by finding consumer needs, meeting those needs with decent products, and selling them to satisfied customers at reasonable prices.

But how are things like costs, prices, new products and production goals determined? Here Schweickart departs from traditional socialist conceptions; he affirms the primary role of the market rather than relying on nationally centralized planning. What to produce is shaped mainly by consumer demand; what to charge for products or services is determined by competition for market share with other worker-controlled or private enterprises; and what to pay the workforce is limited by what’s left over after total costs are deducted from total sales.

What about ownership? Each Economic Democracy plant or workplace is controlled by each respective group of workers, but the firm is not owned by each particular group. The firms are socially owned by the public at large. Because of this public ownership, the local workers are also required to meet the cost of paying into two funds: a depreciation fund, to be used locally by the firm for capital expenditures, and a government-controlled capital investment fund. This latter payment is in the form of a capital assets tax also added to the firm’s costs. In a sense, the workplace is leased by the workers from the government. But what’s left after all the costs are met, the profit, the workers divide among themselves as they see fit. The depreciation and capital assets taxes that the government takes in is used to finance new enterprises, to maintain and develop infrastructure projects, and other costs spread across the whole of society.

That’s the bare-bones model. Naturally, it has further implications and raises many more questions, not the least of which is how we get from today’s globalized capitalism to the ‘successor system’ of Economic Democracy . In the course of the book, Schweickart addresses a good deal of these problems; but for some issues, he has only hints or open possibilities.

Here are some of the critical implications of his theory:

1. Labor is not a cost, as it is under capitalism. Rather, labor gets its return from the local profits. This means there is no pressure to keep the workers’ compensation low. Just the opposite: the pressure is for the local workers to produce good quality, desired products efficiently, since that is the best way to gain better profits and a thus a better share for each of them.

2. Firms are under no pressure to ‘expand or die’, as they are under capitalism. If the workers produce and sell to a share of the market that gives them a comfortable living, all they need to do is maintain it over time. If the firm grew its market share simply by adding more and more workers to produce more and more products to sell, it would just mean that the resulting greater profit would be divided by a greater number on workers. Each worker would still receive about the same. Economic Democracy’s tendency, then, is to maintain small and medium-sized firms supplying more local and regional markets, rather than to expand into larger firms reaching a global scale.

3. Worker-controlled firms do have an incentive for technological innovation, but differently than under capitalism. They will want to increase productivity per worker, but not to eliminate workers, expect perhaps through attrition. They will, however, want to eliminate drudgery, but in a way that enhances and upgrades the skills of all workers, and/or in a way that shortens the working hours per worker. But they will not want to enhance profits via automation at the expense of themselves, as the current system works now.

4. Inequality will exist in worker-controlled firms, but not to the degree of the huge inequalities between CEOs and production workers under capitalism. To keep especially good or skilled workers and managers, or to account for the difference s between new and older workers, the factory council will likely give some categories a greater share in compensation or benefits. Otherwise a competing firm may lure them away. But the varying compensation packages will be set by a process of one vote per worker in the enterprise. This creates a different and more restricted dynamic than the current setup, where decisions are made by management arbitrarily or by stockholders with one vote per share of stock, with vast differences in the amounts of shares held per voter.

5. Entrepreneurship will encouraged under Economic Democracy, but in a different way. Groups of individuals with projects for new products or enterprises could apply to the government’s capital investment fund and its subsidiaries, rather than relying on venture capitalists. If approved as risk worthy, socially appropriate and capable or generating new wealth, the project would be funded with a grant, not a loan. The grant, however, would become part of the new enterprise’s capital assets and hence taxed over time, assuming the project is successful. The creators of a successful project could pay themselves a startup fee for launching a successful enterprise, but afterwards would only be compensated if they were a worker or working manager. Straight-up capitalist entrepreneurs can apply to the capital assets fund, or even raise money privately, and make money from their ventures (subject to being taxed, of course). Under Schweickart’s model, however, a capitalist firm, when sold, must be sold to the state.

6. All information about a firm and its finances is open to all workers in the firm, unlike the many restrictions on information needed for decision-making under capitalism. This way, workers can make informed decisions via direct democracy in periodic assemblies, or through the managers they choose to hire or fire as their representatives. Workers can also still have their unions to settle problems with management and to work on larger social issues.

Schweickart offers only a brief concluding chapter about the strategy and tactics of getting from the present order to economic democracy. Briefly it is quite flexible and open, but he mainly discusses two possibilities:

1. A political party of popular and economy democracy could win a majority of the electorate, and take a majority of seats and positions at all levels of government. The new administration would decree economic democracy by passing laws and executive orders that would nationalize stock and redefine corporate charters with varying degrees of compensation.

2. Economic democracy, including its firms and political groupings, could be grown over time as an expanding counter-hegemonic community within the existing order. Step-by-step, it would demonstrate its superiority to the old way of doing things, competing over a longer period within a mixed system, but as a growing force that ultimately would supplant capitalism.

There is also a third option. While Schweickart doesn’t directly mention it, there is nothing in his perspective that would prohibit it, and it’s worth pointing out:

3. A political party of popular and economy democracy could take power through revolutionary insurrection at a time of severe crisis brought on by war, fascism or ecological and economic disaster. Economic democracy would be organized as the way to resolve the crisis and put the country on its feet again.

Apart from these three projections, I have stressed only the economic aspects of Economic Democracy. What about the broader political and social reforms that would accompany Economic Democracy? First off, no particular set of political reforms are strictly required by Economic Democracy , even though winning a wide range of structural reforms under the existing order would be both helpful and desirable. But Economic Democracy can develop, to a certain extent, even under an authoritarian regime with little in the way of a social safety net.

Schweickart is very clear on the implications of the structures of class privilege on democracy. He defines democracy as existing where ‘suffrage is universal among adults’ and ‘the electorate is sovereign.’ A sovereign electorate, he adds, requires open information and public education, but especially that ‘there exists no stable minority class that is privileged,’ i.e., ‘it possesses political power at least equal to that of elected officials and unmatched by any other stable grouping.’
Systems with these elite privileged groupings Schweickart calls ‘polyarchies.’ Since that accurately describes our existing order, Schweickart bluntly states ‘we do not live in a democracy.’

Economic Democracy, however, has a built-in political bias towards radical political democracy. By dampening great inequalities in wealth and diminishing the role of corporate lobbyists and PACs, Economic Democracy enhances the prospect for public financing of political campaigns and reduces the role of private wealth in politics. It thus opens the door to reforms like preferential ballots, instant runoff, and proportional representation. The practice of participatory democracy in the workplace—which is usually punished in today’s world—would likely stir political participation and a multiparty system in the political realm of the broader society.

Economic Democracy thrives where social well-being and social capital are widely generated. It is especially enhanced by access to life-long learning for all who want to learn, and by access to universal single payer health care. Having these social costs born by general revenues is a spur to the successful launching of new enterprises and sustaining those that may have temporary difficulties.

Schweickart stumbles a bit, however, on the ‘safety net’ issues of guaranteed full employment and the guaranteed annual income—’Jobs or Income Now’ as the old slogan declared. One problem is that these reforms often receive substantial opposition within the working class itself. ‘Guaranteed Jobs’ is often seen as ‘make work’ that creates nothing of value and drains public resources. ‘Guaranteed Income’ is only supported for the physically disabled, but opposed as a subsidy for slackers and freeloaders.

One alternative solution to these reforms, as well as the minimum wage, is the concept of the ‘social wage.’ Here anyone who creates social value would be able to obtain a subsistence level of financial support-say $18,000 per year. The idea is that value for society can and is created in realms that reach beyond the job market. Students learning in schools, for instance, create value in the form of their skills; caretakers of young children create value in raising the next generation of producers and creators; teaching sports in the parks creates value in the form of public wellness and health, and so on. Third sector nonprofits can set the base standards for what constitutes social value, but the social wage package would be low enough and on a sliding scale to always reward regular part-time or full time employment. Since full employment is not naturally built into Economic Democracy, this would be an important supplement to regular employment.

Finally, how does Schweickart relate Economic Democracy to the broader problems and conflicts of globalization? Our country, after all, exists in a world of savage inequalities between North and South, and a reverse flow of wealth from South to North.

Schweickart points out, first of all, that since Economic Democracy has no ‘expand or die’ dynamic, it has better conditions for a more progressive and democratic foreign policy. If anything, it has a bias toward promoting Economic Democracy elsewhere. One fascinating passage in the book is a long list of alternative foreign policy decisions that could have been made if the organizing principle for U.S. policy was democracy rather than anti-communism over the last six or seven decades.

Schweickart goes on, moreover, to promote a number of measures to help reduce the North-South divide that have been around for a few years—the Green Tax to price commodities at their true social and environmental impact costs, Carbon Taxes to deal with pollution, stock transfer taxes on the global financial transfers, etc. Even if petroleum alone were priced at its true cost, it would change the price differentials between North and South due to the higher or true cost of transport. ‘Free Trade’ is often riddled with hidden subsidies.

Schweickart, however, offers a new and controversial solution that he calls ‘socialist protectionism.’ Here, our government would put a tariff on U.S. importers to raise the price of imported goods to be competitive with goods produced here. Nothing new here, but what Schweickart wants to do is to remit the tariff, not to the US treasury, but to the country of origin to improve conditions there--hence ‘socialist’ protectionism.

It’s an interesting idea, as it transfers some wealth from North to South. But the devil is in the details. Who would get the remission? The Third World governments? The local unions or NGOs? The workers themselves?

In any case, Schweickart has provided us with a fine piece of theoretical and political analysis, as well as ethical and visionary thinking. It’s a relatively easy read, and an excellent starting point and organizing principle for both socialists and radical democrats. It’s already having an impact in the academy; it’s a good time to bring it the wider audience of global justice activists.

[David Schweickart is professor of philosophy at Loyola University in Chicago, and hold Ph.D’s in both Philosophy and Mathematics. He is also the author of ‘Against Capitalism’ (1993), and ‘Capitalism or Worker Control? An Ethical Economic Appraisal’ (1980). He is also the coauthor of ‘Market Socialism: The Debate among Socialists.’ (1998).]


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Anonymous said...

Quick question ~ would the workers' votes be private, as in a democracy? or would they be transparent and monitored, as in corporate statism?

Carl Davidson said...

I know a good number of the Mondragon coops use the secret ballot, but I'm not sure if they all do. Google around and see what you find. I do know that the workers are very engaged in both selecting their managers, but also in setting a range of policies, and each firm has considerable autonomy, even as they have many horizontal links with other coops. They not have that much to do with the state, however. They had to set up there own insurance and social welfare agencies, along with their own banks, schools and retail outlets, self-funded and also coops, because as work-owners, they weren't considered wage workers, and thus outside Spain's safety net.

The major unique thing about them is that, unlike worker coops of the Owenites or others, they are not allowed to sell their share. They can only 'cash out' when they quit or retire, and the share is only resold to a new worker.

This block the problem od 'absentee owners' of a coop that would receive a profit without working in it. It also keep control in the coop.

It works rather well and since they don't have to pay a large layer of supervisors, but self-supervise, they have an edge over their traditional competitors, and they usually make a better product at a lower price.

Only two or three only the more than 200 MCC firms have every failed.

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