There is no democracy without economic democracy

By Pete Dolack

When we talk about “democracy,” inevitably, it seems, the discussion is about political democracy. Rarely is there discussion about economic democracy. Democracy stops at the entrance to the workplace.

At the workplace, you have no say in what is produced, how it is produced or much of anything beyond what you will be eating for lunch. You surely did not get a vote when the corporation decided to drop a large sum of money on a candidate for public office whose positions you detest even though that donation came out of the profits created by the work you and your co-workers performed. As large businesses become ever larger and accumulate ever more money — and fewer survive as competition causes some of the previous winners in competition to go under or merge — their power grows ever stronger.

That power enables decisive influence over the political process. So we have formal democracy — political office-holders submit to elections and abide by the results. But choosing between two bad candidates, and selecting the one not quite as bad as the other — both completely beholden to corporate interests and unable to compete without truckloads of their money — could qualify as a living democratic system only under the most sterile and narrowly formulaic definition.

Inseparable from a vigorous and real political democracy is economic democracy. Economic democracy is impossible without production being oriented toward human, community and social need rather than private accumulation of capital. And economic democracy, in turn, requires an economy that is based on, and rewards, cooperation rather than competition. An economy in which enterprises are cooperative ventures rather than top-down authoritarian institutions.

Economic democracy means that everybody who contributes to production earns a share of the proceeds — in wages and whatever other form is appropriate — and everybody is entitled to have a say in what is produced, how it is produced and how it is distributed, and that these collective decisions are made in the context of the broader community and in quantities sufficient to meet needs, and that pricing and other decisions are not made outside the community or without input from suppliers, distributors and buyers.

Nobody is entitled to take disproportionately large shares off the top because they are in a power position. Every person who reaches retirement age is entitled to a pension that can be lived on in dignity. Disabled people who are unable to work are treated with dignity and supported with state assistance; disabled people who are able to work can do so. Quality health care, food, shelter and education are human rights. Artistic expression and all other human endeavors are encouraged, and — because nobody will have to work excessive hours except those who freely volunteer for the extra pay — everybody will have sufficient time and rest to pursue their interests and hobbies.

In such a world, there would not be extreme wealth and the power that wealth concentrates — political opinion-making would not be dominated by numerically tiny but dominant capitalists perpetrating their rule. Without extreme wealth, there would be no widespread poverty — large groups of people would not have their living standard driven as low as possible to support the accumulation of a few.

A critical component of the capitalist ideology that is so pervasive is that only a tiny handful of entrepreneurial geniuses can master business, and so must make all decisions and therefore reap massively disproportionate rewards. That is heavily stressed because it contradicts our everyday experience at the workplace.

In the modern capitalist enterprise, most of us complain about management, who so often have no experience in the lower levels and don’t really understand the nuts and bolts of how the business works. Top managers collect salaries tens or hundreds or thousands of times larger than yours while making decisions that make no sense and without consulting the employees who actually do the work and who could provide insight if only they were asked. Most of us have been in at least one job like this; for many of us it might even be the norm.

Why wouldn’t we want to take some responsibility for making decisions? Line workers could develop into managers, or perhaps different people would rotate in management positions for set periods, enabling many people to gain administrative experience. Management could be promoted from within, elected from the ranks of the full workforce by the workforce. The cooperative enterprise’s workforce would retain the right to remove managers who deviate from carrying out decisions made by the collective. (Just as managers today are answerable to owners and boards of directors.) Different enterprises would surely develop different cultures.

With no more rigid hierarchy, no more capitalists to rake in massive amounts of money, a business enterprise can be run on a democratic basis, without internal exploitation of any of its staff. Yet this is not the whole story: In what sort of economic system would such enterprises operate?

In a cooperative model, all strategic enterprise decisions would be made by a vote of all the workers. Meetings to discuss, and vote on, the enterprise’s business would be a part of the regular workweek. All ownership would stay within the workforce — each would own one share and relinquish it upon leaving or retiring. Shares could not be transferred or sold, except to the collective.

Without stratospheric executive pay or financiers getting fat by skimming off a large share of the pie, less profits would be necessary, leading to reduced work hours, higher pay and more left over for investment and taxes paid to the community to support schools and social services.

The internal workings of capitalism inevitably result in the cut-throat competition and inequalities that are so familiar. If collective enterprises, no matter how democratically they are run internally, compete with each other in unfettered markets, market forces would require the collectives to become more “efficient” — they would have to ruthlessly reduce costs (including their own wages) and aggressively expand the market for their products.*

Failure to do so would mean not surviving in competition with the enterprises who do adapt themselves to market conditions. The accumulation of capital becomes paramount under unfettered market forces due to the need to expand — failing to expand risks being driven out of business. Because all materials and finished products would remain commodities subject to price volatility in this scenario, the cooperative workers’ own labor would also become a commodity — in essence, they would “become their own capitalists.”

Cooperation and self-management within an enterprise — without owners, executives or speculators grabbing the profits for themselves — would mean that material gains would be distributed fairly among the workforce, certainly a far better result and itself a harbinger of a much more rational societal distribution of income. Although the hypothetical example of cooperatives competing fiercely against one another would be an odd hybrid because it would be based simultaneously on cooperation and competition, the distortions of capitalism would nonetheless be reproduced, albeit less severely.

Uncontrolled competition would lead to large disparities of income and power. An aggressive collectively run enterprise theoretically could gain control of the market for a particular product in high demand, resulting in the enterprise wresting for itself a commanding position. Perhaps several aggressive enterprises would do this, and we would once again find ourselves in a society with a power imbalance — not nearly the towering imbalance of present-day capitalism, but nonetheless the goal of creating a fully democratic society with no permanent sources of power would have been thwarted. In this hypothetical society, there would still be a market that operated on a capitalist basis and therefore capital would tip the balance of power to those who accumulated it.

In any country in which a model of worker cooperation or self-management (in which enterprises are run collectively and with an eye on benefitting the community) is the predominant model, there would need to be regulations to augment good will. Constitutional guarantees would be necessary as well. Some industries are simply much larger than others. In a complex, industrialized society, some enterprises are going to be much larger than others. Minimizing the problems that would derive from size imbalances would be a constant concern.

Furthermore, if enterprises are run on a cooperative basis, then it is only logical that relations among enterprises should also be run on a cooperative basis. An alternative to capitalist markets would have to be devised — such an alternative would have to be based on local input with all interested parties involved. Such an alternative would have to be able to determine demand, ensure sufficient supply, allow for fair pricing throughout the supply chain and be flexible enough to enable changes in the conditions of any factor, or multiple factors, to be accounted for in a reasonably timely and appropriate fashion.

Central planning in a hierarchal command structure with little or no local input proved to not be a long-term viable alternative system. Nor is tight regulation a solution on its own. Regulators, similar to central planners, can never possess sufficient knowledge to adequately perform their job and local enterprises can use their special knowledge to give themselves an advantage rather than share that knowledge with regulators.

Responsibility, then, would have to be tied to overall society. Negotiations among suppliers and buyers to determine prices, to determine distribution and a host of other issues would be necessary. Such negotiations are already common in certain industries; for example in the chemical industry, where companies negotiate commodity prices on a monthly or quarterly basis. Those are competitive negotiations in which the dominant position oscillates between buyer and supplier, resulting in dramatic price changes.

In a cooperative economy, negotiations would be done in a far more cooperative manner, with a wider group participating in the discussions. In this model, prices of raw materials, component parts, semifinished goods, finished goods, consumer products and producer products such as machinery would be negotiated up and down the supply chain, leading to an rationalization of prices — markups to create artificially high profits or pricing below cost to undercut competitors would be unsustainable in a system where prices are negotiated, pricing information is widely available and all enterprise financial information is public.

These would have to be fair negotiations — prices throughout the supply chain would have to be set with an eye on rational economics. Industry facilitators to assist negotiations and/or a government arbitration board to make decisions when parties are unable to agree to terms might be necessary. Community input would also be desirable, in the industries in which a given community is directly involved and for retail prices of consumer goods. It may be desirable to include these community interests in pricing negotiations directly.

As more people take on more responsibility, more will gain the experience of fair negotiations, enabling more to peer over the shoulders of those involved in these decisions. In turn, more experience means more people within the community who can shoulder responsibility.

Although regulation, as noted above, is not in itself a solution, that is not a suggestion that regulation should be done away with. One method of using regulation to ensure socially positive economic activity might be a system of certification. Enterprises would be responsible for investment, production and financial decisions, but might be required to demonstrate full compliance with a range of standards on issues such as equal opportunity, workers’ rights, health and safety, environmental protection and consumer protection. Enterprises could be required to be certified on all relevant issues before conducting business, and perhaps be re-certified at specified intervals.**

In a cooperative economy, it is possible — and perhaps likely — that certain critical industries and services would remain in state hands (but fully subject to public accountability). Public transportation systems and water supply might be two examples of these types. Employees in large enterprises of these types would have the same dual role of managing the enterprise collectively at the same time they remain workers. It is not impossible that biases or favoritism could slowly arise in such enterprises; a union would provide another source of protection that could defend a worker as an individual when necessary.

Workers in enterprises that are collectively owned, since they would be owners and not simply managers, might find less ambiguity between their two roles, as long as strategic decisions are made collectively. Still, it may be that there remains a place for trade unions even in these types of enterprises, or it could be that unionization is simply a social value and all members of the enterprise join or form a union for reasons of social solidarity or to provide another check against any centralizing tendencies emerging within the enterprise or within government.

A system of democratic control and social accountability would require open information. Records and accounts of all enterprises and major production units of enterprises would have to be made available to all other parties to negotiations in order for the fairest deals to be reached and to prevent attempts to unfairly benefit at the expense of suppliers or customers. Social-justice organizations — such as those upholding civil rights, consumer rights or the environment — should also have a role, perhaps in enterprise negotiations when appropriate, but more likely in helping to set social goals, in monitoring compliance with standards and possibly being the bodies that issue certifications.***

Some amount of planning and coordination would be necessary as part of the process of determining raw materials needs and ensuring that those needs are met. Any planning committee would have to be democratically controlled and have wide social representation to oversee production and to assist in the determination of investment needs. Planning would be bottom-up and democratic, based on the best estimates of aggregate demand, and not top-down and authoritarian. Planning would provide a guide, not a hard numerical total.

Investment would need to go to where it is needed, a determination made with as many inputs as possible, but because of its importance finance and banking is one area that would have to be in state (or local community) hands (subject to full public accountability) and not in collectives. Financial speculation must be definitively ended. Enterprises seeking loans to finance expansions or other projects will have to prove their case, but should have access to investment funds if a body of decision-makers, which like all other bodies would be as inclusive as possible, agrees that the project is socially useful or necessary.

Government infrastructure projects should be subject to the same parameters as enterprises, with the added proviso that the people in the affected area have the right to make their voices heard in meaningful ways on local political bodies and on any other appropriate public committees. No private developer wielding power through vast accumulations of money will be able to destroy forests or neighborhoods to build a project designed for the developer to reap profits while the community is degraded. Development would be controlled through democratic processes at local levels, and regional or national infrastructure projects should require input from local bodies representing all affected areas.

An unprecedented level of democracy would be possible in a cooperative economy because the power of capital would be ­broken. Social constraints ensuring responsibility to the larger community would be required to prevent the accumulation of capital that translates into power, although such tendencies would be countered by a system that rewards cooperation rather than greed.

The society that has been sketched out in these very broad strokes is a society in which working people — the overwhelming majority of society — have taken control over their lives. The (ex-)capitalists are just as free to go to work as everybody else. Surely some, those with expertise and an ability to work well with others, would be among those cooperative members elected into administrative positions; regardless, they would have to become regular cooperative workers, contributing to the production of a quality product or service and having their say equal to all others who do the work.

Society as a whole benefits when everybody is entitled to contribute, and the more who do so the more likely it is that the right solution to a problem will be found. Someone who would not have been able to make a social or artistic contribution will be able to do so, enriching society. That does not mean that all ideas are equal, or good, or that all ideas are entitled to equal time. It does mean that ideas intended to better society or to advance the greater social good can receive a hearing, rather than the privileged so permeating society with an ideology that benefits themselves that other ideas are dismissed at the start.

These are not steps that capitalists would willingly take. Bringing about such a world would mean an enormous amount of organization and struggle, regardless of the methodology used to bringing a end to capitalist rule. It would be necessary to write new constitutions codifying the new society’s changes, locking advances and rights into formal law while preventing centralization of power; nonetheless, without the assumption of responsibility and participation, democracy will inevitably erode.

Freedom and democracy are not gifts handed down from above, and never have been — they are goals that are won through struggle and determination, through a synthesis of theory and practice.

* This and the following paragraph draws upon David McNally, Against the Market [Verso, 1993]; Bertell Ollman, “Market Mystification in Capitalist and Market Socialist Societies,” Socialism and Democracy, Fall 1997
** This paragraph draws upon Diane Elson, “Socializing Markets, Not Market Socialism,” The Socialist Register, 2000
*** This and the following paragraph draws upon “Socializing Markets, Not Market Socialism”; Pat Devine, “Self-Governing Socialism,” anthologized in William K. Tabb (ed.), The Future of Socialism: Perspectives from the Left [Monthly Review Press, 1990]

  • Next week, an examination of the workings of real-life cooperative enterprises.
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9 comments on “There is no democracy without economic democracy

  1. trenzpruca says:

    I just was directed to your site by Gravitar and enjoyed your post on economic democracy. I also have written on the same subject on my blog Trenz Pruca’s Journal (http://trenzpruca.wordpress.com/category/economic-democracy/). Should you read them, I would appreciate your reaction.

    • You quote Adam Smith in The Theory of Moral Sentiments writing: “[The wealthy] begin at last to find that wealth and greatness are mere trinkets of frivolous utility. … Power and riches … keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death.” Adam Smith was a more complex writer than the “markets über alles” propagandist his followers have made him out to be.

      He had sympathy for working people, and believed that they should be fairly compensated. But he also believed that the circulation of commodities was the source of profit and that capitalists had to be given disproportionate rewards otherwise they would not invest their capital. On the former, Karl Marx showed him to be wrong; that circulation is merely the realization of profit. Profits come paying employees much less than the value of what they produce. (See my post, “Where does profit come from?“)

      Much of what Adam Smith wrote was naïve, such as his belief that employees rather than employers would be the beneficiaries of unregulated markets. He wrote before his theories could be put to the test; after more than two centuries of capitalism in action that such things are repeated as gospel is ideology, not economics. You wrote that “Smith understood that we are not rational utilitarian calculators.” That Smith’s followers still insist that we are is a testament not to Smith or economics, but rather to treating his writings as a bible that can not be questioned. Neoclassical economics is ideological obfuscation in the service of special interests.

  2. Alcuin says:

    When you use the words “collective”, “co-operative”, and “coordination”, you are really writing about community, are you not? On another post of yours, I commented that I was reading The Spell of the Sensuous, by David Abram. If you want to read a book that will make your jaw drop, read that one. And then, read the first half of Lewis Hyde’s The Gift. After that, pick a couple of books by Wendell Berry to read. Every one of them deals with community and how a gift economy increases wealth while a capitalist economy decreases wealth because a capitalist economy removes surplus wealth from the economy for the benefit of an elite while a gift economy does not.

    As long as we worship individualism and celebrate our anonymity and anomie through the use of video games, iPods, text messaging while engaging in Who Wants to be a Millionaire fantasies, we’ll never make any progress. When “I’ve got mine, screw you” becomes the milieu that we swim in, there is no chance that cooperation will ever make headway.

    “…wanting good government in their states, they first established order in their own families; wanting order in the home, they first disciplined themselves …”

    – Confucious, The Great Digest

    Abram’s thesis, that the invention of the alphabet led to the destruction of oral cultures that had served mankind so well for hundreds of thousands of years, is a powerful condemnation of Western thought – the very thought that has gotten us into our present predicament. Hyde delves into the rise of the legitimacy of usury during the Reformation, a time when the printing press was leading to the urgency for literacy. And Berry, of course, celebrates the earth from a Christian perspective. All of these writers are important thinkers and deserve to be known more widely than they are.

    • I am indeed writing about community. Keeping wealth in our communities is critical — isn’t it crazy that we have to actually point that out? Shop at your local grocer and the money stays in the community; shop at Wal-Mart and the money goes to corporate headquarters and then into the bulging pockets of the Walton family and select financiers. Many a small town has realized that too late. Doing business with a cooperative would do even more to keep money local and therefore promote community stability.

      • Alcuin says:

        I don’t know if you are familiar with Wendell Berry’s ideas or not. If you aren’t, you might want to read this interview. It is a powerful explication of Berry’s ideas, which revolve around the idea of community. You should read it slowly so that you can absorb all of Berry’s implications. I don’t think it is crazy to have to point out that keeping wealth in a community is critical – very few people have focused on the core problem facing us. That is the decline of community, which has led to a huge number of problems – problems that have grown increasingly difficult to solve as community has declined. You might also enjoy Ian Welsh’s blog – he posts some fiery rants, but he has a community of pretty civil commenters – very much unlike Alternet and some others that we both know about. One of the comments in this post led me to enter the words “self-justification moral superiority” into a search engine. I found this article, which just fascinated me. It goes a long way towards explaining the political crisis that we are in. Who knew that feelings of self justification and moral superiority caused the release of brain chemicals that were identical to those released after consuming cocaine? Wow!

        How does this relate to your post? Well, how are you going to build community? From the top down, Marxist-style? Or from the bottom-up, anarchist-style? I’ve never liked Michael Albert and his ideas of participatory economics, because it is so bureaucratic and rule oriented. And I naturally don’t like the liberal “solution” of government edicts, which has caused such a horrendous backlash in the last 15 years. Nor do I have any use for the revolutionary vanguard. What’s the solution?

        • I’ll have to read the links you shared at a later date (they sound interesting), so for now let me respond to your last paragraph. We can refer to “bottom-up” and “top-down” without dragging in labels such as Marxist and anarchist. It is unnecessarily ideological to set Marxism and anarchism against each other, and, as I have noted before, the hoped-for end result of both are similar.

          Much of today’s thinking about a cooperative economy and promoting the concept of cooperative enterprises come from Marxists. Richard Wolff, Gar Alperovitz and Leo Panitch, for instance, have written and lectured extensively on this; they are many others who are doing good work on democratic alternatives to capitalism and/or reclaiming the history of experiments in workers’ control. You can see some them above in the footnotes to the article we are discussing. Manny Ness and Dario Azzellini are two others — they are the co-editors of a book I highly recommend, Ours to Master and to Own. (There will be a second volume coming out in coming months.)

          There are Marxists who continue to advocate for something along the lines of the Soviet system, but so many others are attempting to imagine much different systems, as I did above. And there is no one system that can claim some sort of monopoly on what socialism or communism (I am intentionally using the lower case here) is or can be. The crisis of capitalism is sufficiently acute that we need all hands on deck.

          From the other side, anarchism does not necessarily offer a guaranteed good, democratic result. On the Lower East Side (Manhattan) of New York City we had a laboratory of anarchism in action. The center of anarchism in this neighborhood were the abandoned buildings that were reclaimed as squats in the wake of landlord and city neglect and arson. There were about 25 squats, 11 of which survived to become legal. There was a very strong, extraordinary movement in the neighborhood that defended the squats whenever the city threatened to evict.

          These were rough places, where the squatters had to rely on themselves for self-policing and much else — they were in the place where anarchists tend to want to be: No state, no authority. What happened? The stronger often pushed out the weaker. Not always; some squats managed themselves in a cooperative fashion but several were occasionally violent places where people were forced out of their apartments and women were sexually assaulted or threatened with violence and had to leave. You can read Seth Tobocman’s graphic novel War in the Neighborhood to see what happened (the events and people depicted in it are real).

          Amazingly, many squatters didn’t want the neighborhood movement to defend them, cursing the activists who helped protect their squats, with their bodies, as “outside agitators.” Those were squats that were ultimately evicted. The squats that did survive would not have without an energetic movement that made further evictions too difficult. The city eventually legalized the remainder — a true victory for the neighborhood movement.

          Why did people who were not squatters come out at 4 a.m. to leap in front of police and swarm the streets? Because the squats represented permanent, self-managed, low-cost housing in contrast to the capitalist model of landlord-controlled, high-cost housing. They represented an ability for a counter-cultural neighborhood to retain its identity for the people who lived there to stay there, as opposed to a vision of uncontested gentrification. (That is why the city government was so hostile to them.) Many squatters hold to this ideal. Many others, however, think they should not be restricted in what they can sell their apartments for (which they are under the legalizing agreement with the city) but should be able to sell it at far higher market rates, which would put them out of reach of most people.

          Why would they do that? Because their ideology, proudly brandished as the core of anarchism, is that each is “autonomous.” They believed in “community,” but what sort of community when it is all against all, and the ones were lucky to be in a squat that wasn’t evicted or burned down want to cash in personally when what they have is the result of years of struggle by a committed group of community activists? It is an ideology of individualism, and we already have such a culture: It is called capitalism. Having seem this up close for many years, I have concluded that it is no accident that so many Lower East Side anarchists come from suburban, middle class backgrounds. These anarchists imbibed the individualism they grew up with, and simply gave individualism a new name — “autonomy.” This is an anarchism riddled with sexism, intolerance and other social ills.

          I am not saying that those social ills are inherent in anarchism, nor am I arguing that the above is the sure result of anarchism, nor that all anarchists are like this, nor that all anarchists on the Lower East Side are sexist or prone to using intimidation against anybody who disagrees with them. That would be unfair and untrue. But the ideology is flawed by individualism, to the point that these particular anarchists did not create an alternative to capitalism. In fact, it is dependent on capitalism to realize the profit those who want to sell for the maximum wish to reap and even the dumpster-diving is dependent on the detritus of capitalism.

          Similarly, let us not see Marxism as a one-dimensional top-down system, even if such a system did come into being for very complicated historical reasons. I propose that we take from all schools of thought what is useful, study seriously the history of movements and alternative societies, and keep in mind that bad results can occur from a rigid application of any school of thought. So, yes, communities have to be organized bottom-up and top-down. We not need apply a particular label to one or the other.

      • Alcuin says:

        I’m guilty of a poor choice of words – I should have used “top-down” and “bottom-up.” But, as you say, it will take a combination of both, because the hierarchy that the Left so hates is actually a very efficient way of organizing to complete a task. But it must be watched carefully. I also think you touched on a very important point when you wrote, in your rant about squats and anarchists, that “it is no accident that so many Lower East Side anarchists come from suburban, middle class backgrounds.” Every one of us brings our personal history to our struggles. I was recently made acutely aware of this when a friend of mine strongly defended an “expert” approach to a community issue when a good bit of listening to the peasants was in order. You might be interested in something called Positive Deviancy, too. It’s going to take some digging in the tool box to make this change happen. And I don’t see how work can be divorced from the rest of life: worker’s co-ops are going to have to be a continuation of a co-operative life.

        • “Every one of us brings our personal history to our struggles.” You are surely correct when you write that. Much of Russian tsarist culture survived into the communist era and then a deformed model with that significant cultural baggage was then imposed in Central Europe by Soviet rulers. Lower East Side squatters brought their histories with them. All of us, even those of us strongly critical of capitalism, are going to bring our histories and cultural baggage with us, and that cultural baggage will not be free of capitalist ways of thinking.

          I found the article on “Positive Deviancy” interesting. A larger point to take from it, I believe, is that people need to see examples of something different that works better — and that example has to be organic and not imposed or “alien.” We’ll need all the tools we can find in the toolbox to effect change, including some tools that we have not yet forged. Workers cooperatives will have to be built upon models that exist today, just as the world of tomorrow will be partially built using the bricks of today.

  3. Ethan Young says:

    I crossposted to brechtforum.org/economywatch!

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