Month: September 2014

Economic Democracy – The Alternative To Capitalism

A lot of people these days, even some who are pro-capitalism, and especially post-recession (if that’s not too bold a statement, it probably is), are aware of capitalism’s flaws. But first – what exactly is capitalism?

As an economic and social system, capitalism can be defined as a society in which private individuals and groups of individuals control the money supply (so, the banks), and the majority of the means of production (the food industry, fuel prices, investment, housing, factories, etc.). All capitalist economies are also market economies (though the reverse is not true) so businesses compete to make a bigger profit, and prices are determined by competition. Finally, most people in capitalist societies have to rent themselves out to the people who own the means of production in order to get the things they need to survive – workers have no claim to the product they make during their work, it is the owners of the business who make all the decisions regarding what workers make, how they make it, and what they do with it, though the owner may and usually does delegate authority hierarchically throughout the organization.

Now the pursuit of short term profit over long-term sustainability, and the prioritizing of profit over people’s needs has resulted in innumerable high profile disasters. The recent recession of ’07 onward happened because banks were lending to people they knew could not pay back the loans, on mortgages, cars, student loans etc., they would then group all these loans together into something cryptically called a Collateralized Debt Obligation (CDO). Don’t worry about the fancy names – they’re just a way of disguising dodgy dealings behind jargon. Having done this, one financial institution would sell the CDO to another for a large sum, and the buyer would, in exchange for that sum, be the future recipient on the payments for the loans in the CDO.

However, as many of us now know , there were only so many dominos in that row, and sooner or later it would become apparent that the finance sectors huge profits were based at their roots on sub-prime mortgages, or mortgages given to people who were highly unlikely to be able to repay them. That’s a much longer story than we have time for (though its equal parts fascinating and depressing – here’s a good link if you want one of the more entertaining and informative versions of the full story – but its illustrative of what capitalism does.

Some other examples are huge income and wealth inequality – Thomas Piketty’s recent ‘Capital in the 21st Century’ has closed the debate on whether that’s really a thing or not in a similar manner to how Occupy Wall St. opened it. His research has unequivocally demonstrated that wealth inequality has been growing for hundreds of years and that this in fact structurally inherent to capitalism, proving that the rich get richer while the poor stay poor or get poorer again. The reason for this is that the return on inherited wealth always outstrips economic growth. In other words, while the economic pie keeps growing, it doesn’t grow as fast as the most gluttonous man’s slice. So even as capitalism has generated unprecedented economic wealth, the majority of people have gotten a smaller and smaller portion of it. Not to mention that a similarly groundbreaking book entitled ‘The Spirit Level – Why Equality is Better for Everyone’ has shown that as income inequality goes up – murder rates go up, average lifespans go down, educational attainment goes down, imprisonment rates go up, community well being goes down, and so on. So this is all bad news.

I could go on about what happened with US companies after the Iraq war ten years ago, or the dodgy dealings of the IMF, WTO and the World Bank. I could talk about the US and its economically motivated wars, or how amoral investment practices engineer artificial famines around the world by hiking up food prices. But really, there’s so much information on all this and its so easy to find out about it you search for it. There’ll be juicy links sprinkled throughout the article though, so hakuna matata, except about society, and stuff.

But all of these complaints are so easily impaled on the spikes of one of Margaret Thatcher’s favorite phrases – There is no alternative. Cheerily shortened to TINA by those looking to give their hopelessness some personality.

The attempts at replacing capitalism have been even more disastrous than capitalism itself. Now admittedly the Russian Revolution of 1917 had to face up to being invaded on about fifteen different fronts by the entire capitalist world. But that doesn’t excuse the Lenin and the Bolsheviks suppression of other parties and the anarchists and any dissent. Not to mention Spain in 1936 successfully replaced the old order and did away with hierarchies and inequalities to a huge extent, only to be sabotaged by their allies in necessity, the soviet communists, in the fight against General Franco and the fascists. And nobody even remembers the Makhnovists – Ukrainian anarchists led militarily by Nestor Makhno, who instituted worker’s self management and collective control of land and factories through village assemblies and councils. They fell to the dual threat of the red army of the bolsheviks, and the White army of those who wanted capitalism, and/or supported the old Tzar.

But I still think communists and Marxists have to analyse why any group that has identified themselves that way and come into power has subordinated democracy to the rule of the party leadership. From Cuba to China, democracy and dissent have been quashed by Marxist and Communists, and even if not all Marxists and Communists supported those regimes, this is something that needs to be addressed. In my own dealings with Marxist-leninist groups in Ireland, I’ve encountered some absolutely brilliant and admirable people, but also the same old problems of quashing criticism, and brushing internal problems under the carpet. To their credit, there are plenty of people withing these organizations trying to address those problems, and they may even have had some success already, I don’t know. Hopefully they evolve beyond the old ways of central committees deciding everything, and maybe have a more anarchic, or democratic distribution of power.

So almost a thousand words in and I’ve yet to talk about Economic Democracy! OK here goes. Obviously at this point in our argument we’re not happy with the intolerable unfairness inherent in capitalism, nor do we want a single party communist dictatorship. So what we want, I suppose, is a ‘third way’. That way, which admittedly has its roots in the socialist and anarchist traditions. Both of these movements are very different in truth to the distorted versions espoused by opportunistic leaders. The likes of Stalin used the word socialism to describe Soviet Russia for example, in order to associate his regime with the true tradition of socialism, while the US and other capitalist countries were happy to call it socialist too in order to discredit that tradition, which threatened the most wealthy and powerful in those Countries. ‘What exactly is this true, shining, pure tradition?’ You may ask skeptically, and understandably. Well in a tidy phrase – one might call it ‘Economic Democracy’. And what does that entail? Well just take the word soviet. Its the Russian for ‘Council’. The Soviet Union was supposed to be, and for a short time was, a society ruled by hundreds and hundreds of councils in neighborhoods and workplaces who collectively made decisions. Workers democratically organized the factories, and neighbors democratically ran their affairs. But with the trade embargo preventing bread from reaching tables, the war taking fathers from their families, and the quintessential manipulating politician (He shares first prize along with Henry Kissinger and a few of the US presidents), Lenin, in power – this couldn’t last. Lenin, believing only a rich, industrialized country like Germany, which had the means to feed its people, could have a true revolution, did everything he could to hold onto power. While crying ‘All power to the soviets’ along with his people, he took it away, and Trotsky turned the democratic soviet military into a traditional, hierarchical one. It would have been better to lose power in an election rather than hold on no matter what and discredit the people’s revolution he (maybe inadvertently) hijacked.

Economic Democracy entails that workers democratically control their workplaces. They vote on investment decisions, they can elect and recall their managers, or they may just allocate team leaders more informally, on a project by project basis. Hiring and firing are collective decisions. New employees have a trial period of anything from two weeks to six months before they get a full vote. Work may be distributed so that you don’t have half the workers doing the dirty, boring work, and half doing the empowering, creative work – training can be provided so that everyone is skilled enough to share the responsibilities of running a business. The best (though not the only one, not by a long shot) example of this method of doing business, is Mondragon Corporation in the Basque Region of Spain. Employing over 90’000 employees, decades old, and having managed the recession with aplomb, Mondragon is a massive family of democratically run businesses across the knowledge, retail, finance and manufacturing industries. If you lose your job in one of Mondragon’s businesses they will compensate you in the hugely unlikely event you are not employed elsewhere in the network of companies. Managers are elected and the highest wages can be no more than five times the lowest.To put this in perspective, in the US, the average CEO earns 273 times the amount of the average worker. That’s not even the lowest paid, that’s just the average worker. Now this refers to the cooperative members, primarily in the Basque country where Mondragon originated. This only accounts for about a third of workers in the company. The rest of the workers, in the South of Spain where they would be primarily employed by the retail giant Euroski, and in factories abroad, are not yet full members. Mondragon’s own explanation for this is as follows –

“As a result of the rapid growth you have experienced over the last few years, with the number of employees going from 25,322 in 1992 to 92,773 in 2008, only somewhat less than a third of the Corporation’s workers are cooperative members at present. The non-members mainly work in the distribution sector outside the Basque Country and at the industrial plants that are also based outside the Basque Country, either in other parts of Spain or abroad.

This percentage of worker-members will have substantially increased in three years’ time, when Eroski has completed its cooperativisation process for all its non-member employees, who work mainly outside the Basque Country and Navarra. When this process is complete, the percentage of cooperative members in the Corporation as a whole could be over 75%.”

One perk of this form of business is that aside from being an inherent improvement in itself, it would transform the education system. Our schools would turn from factories designed to churn out a small class of leaders and swathes of hardworking drones to follow their orders, into institutions who would be forced by the structure of the economy to encourage democratic organization, self-determination, discussion, creativity and so on – this would filter into every aspect of society with positive effects I can only imagine.

I should also mention that this would be the end of shareholders and dividends as we know them – collectively owned, worker managed enterprises would be structured so that one worker had one share, and that would be the end of that. No worker could own two shares, and no one who wasn’t a worker could own any. In a transitional phase it would be possible for the state and companies to combine in compensating shareholders up to a certain amount, but this amount would presumably only be enough to compensate ordinary shareholders, there’s no doubt the wealthiest shareholders would lose money here.

Also this would free up more money for public investment and better services, as the vast majority of the world’s wealth wouldn’t be loitering in billionaires bank accounts. Hey fun fact – did you know that the worlds wealthiest 85 people have the same amount of wealth as the poorest 3 billion people? Oxfam came out with that nugget in a mind blowing study this year. Capitalism is the bomb . . .

That slowly ticks away the time to our impending doom! No really – click here to read the Guardian’s feature on how “A new study partly-sponsored by Nasa’s Goddard Space Flight Center has highlighted the prospect that global industrial civilisation could collapse in coming decades due to unsustainable resource exploitation and increasingly unequal wealth distribution.”

Anyway – economic democracy doesn’t end there. It extends to the money supply. Public Banks whose purpose would be to support people’s education, training, the local economy and national infrastructure by investing deposits wisely, are an absolute prerequisite. Once again there are strong real world examples of this – Costa Rica being the best in this instance.

To this day 80% of the retail deposits in Costa Rica are held in the four public banks, because they are trusted. Sixty years ago Costa Rica was arguably the poorest Country in South America. According too political activist Scott Bidstrup, who has lived in Costa Rica for over a decade, “The winner of the 1948 civil war, José “Pepe” Figueres, now a national hero, realized that it would happen again if nothing was done to relieve the crushing poverty and deprivation of the rural population. He formulated a plan in which the public sector would be financed by profits from state-owned enterprises, and the private sector would be financed by state banking.

A large number of state-owned capitalist enterprises were founded. Their profits were returned to the national treasury, and they financed dozens of major infrastructure projects. At one point, more than 240 state-owned corporations were providing so much money that Costa Rica was building infrastructure like mad and financing it largely with cash. Yet it still had the lowest taxes in the region, and it could still afford to spend 30% of its national income on health and education.

A provision of the Figueres constitution guaranteed a job to anyone who wanted one. At one point, 42% of the working population of Costa Rica was working for the government directly or in one of the state-owned corporations. Most of the rest of the economy not involved in the coffee trade was working for small mom-and-pop companies that were suppliers to the larger state-owned firms – and it was state banking, offering credit on favorable terms, that made the founding and growth of those small firms possible. Had they been forced to rely on private-sector banking, few of them would have been able to obtain the financing needed to become established and prosperous. State banking was key to the private sector growth.”

By 1980 Costa Rica was so wealthy in per capita terms that economic statistics for South America were routinely quoted with and without Costa Rica included.”Growth rates were in the double digits for a generation and a half. And the prosperity was broadly shared. Costa Rica’s middle class – nonexistent before 1949 – became the dominant part of the economy during this period. Poverty was all but abolished, favelas [shanty towns] disappeared, and the economy was booming.” The success of this system earned Figueres two coup and one assassination attempt. In response he abolished the military, except for the Coast Guard, freeing up even more funds for public works.

“In the 1970s, however, the country fell into debt when coffee and other commodity prices suddenly fell, and oil prices shot up. To get the dollars to buy oil, Costa Rica had to resort to foreign borrowing; and in 1980, the U.S. Federal Reserve under Paul Volcker raised interest rates to unprecedented levels.” As a result Costa Rica became bankrupt and the IMF and World Bank rolled in with their usual shtick of cut public services, raise taxes and privatize everything. Don’t get me started on the IMF, but if you must know why they’re so terrible, type their name into a search engine alongside either Naomi Klein or Joseph Stieglitz (Stieglitz arguably better seeing as he dealt with them for years while working in the World Bank which he is also very critical of, and he’s also a Nobel prize winning economist. Though Klein is brilliant in her own right).

So public banks to encourage indigenous business, fund education, health and infrastructure, and generally be trusted not to lose tens of billions and expect ordinary people to pick up the tab while they go back to making record profits and ‘earning’ record bonuses.

Some of the positive ramifications of this that may not be immediately apparent are that by eliminating boards of directors, shareholders and dividends we’ve just gotten rid of the hugely wealthy individuals and groups of individuals like the billionaire Koch brothers in the US who have such massive sway in politics. Its less obvious in Ireland because of the smaller scale, but hey – three words – Haughey, Lowry, Aherne. And beef scandal. And Denis O’Brien. And ESAT Digiphone. You get the point, I’ll stop now.

Now different people have different visions for economic democracy. That’s good, a diversity of ideas which can be hammered out through democratic discussion. For example David Schweickart, author of ‘After Capitalism’ reckons there’s nothing wrong with allowing some capitalist companies, provided that it is illegal for them to merge with or acquire other companies, and that on the death or retirement of the owner, the company is either shut down, or passes into the hands of the workers and becomes a cooperative, or as Richard Wolff calls them – Worker Self Directed Enterprises (WSDE’s for, um.. short?). His book, ‘Democracy at Work – A Cure for Capitalism’, is also very good on this subject. In fact this article was originally intended to be a review of those two books, and another – Michael Albert’s ‘ParEcon (Participatory Economics): Life After Capitalism. But turned into a run through of some of the main ideas the cover, lacking the detail and even some of the main ideas of the books though (especially Parecon, which is both more radical but arguably more visionary than the other two, also harder to read.). They’re all worth reading though, if you know me or live near me I’ll lend them to you. Totally worth buying. If you’re unfamiliar with all of these concepts I’d start with one of the first two, if you’ve heard of all this than check out Albert’s work which would abolish the market altogether and replace it with a process called participatory planning, which if it it could be pulled off is by far the most appealing thing on offer here, but the lack of initiative on the part of leftists, academics and so on in experimenting with it or studying it is depressing, and I don’t understand why no one is exploring it, maybe its ahead of its time. Maybe its unfeasible. The only way to know is to do controlled experiments with it. So I think the ideas espoused here would be great first steps that would in themselves be revolutionary. I prefer the term evolution myself though – revolution has too many bloody connotations and is used to market too much bullshit.

One last important idea I should mention is something called participatory budgeting which has been implemented with great success in Porto Alegre in Brazil, and is now increasingly being experimented with all over the world. It essentially involves neighborhood councils working with their local politicians to decide on the local budget. In Porto Alegre it resulted in greater local participation and long term public investment, as well as tackling social issues like homelessness. To work here in Ireland though, we would have to implement one of Schweikart’s other recommendations –  per capita allocation of funds to councils across the Country. As it stands in Ireland only about three per cent of the tax take is allocated to local government, compare that to around forty per cent in the Nordic Countries, which unsurprisingly have better public services and local participation in politics. More allocation of funds will attract more people to get involved, and participatory budgeting gives them the means to do so.

Conclusion –

So if you’re interested in all of this feel free to contact me and get working together on it. I’m currently on the path with a number of others to setting up a democratic school in Ireland (I’ll be writing more on that later.) and hopefully to other democratic projects which filter into other areas of society like banking, politics and the workplace, but one step at a time right?

If you’re not interested, please tell me why in the comments, as if there are any convincing arguments against the ideas I’ve written about here, I’m open to hearing them.

In summary – Economic Democracy is made up of democratic control of the workplace which eliminates dividends to shareholders, participatory budgeting, public banks, and per capita investment across all communities. It has the potential to transform the quality of our everyday lives, the quality of the ideals on which our society is based, and in a nod back to educoup’s routes – the education system too. In short It’d be like the IPhone 6 – changing everything, again – only it wouldn’t bend in your pocket.

Thank you for reading!