Audacity, not hoping for reforms, the route to a humane world

Working people in the core capitalist countries have received benefits from imperialism (even if only crumbs) that workers in the rest of the world don’t receive. That dichotomy is a barrier that has hindered the building of global alliances necessary to reverse neoliberalism.

Or, going beyond, to create an international social movement strong enough steer the world from its present course of economic and ecological suicide to a sustainable system oriented toward human need. A further division among the world’s working peoples between the diminishing numbers with reasonably secure, regular employment and the vast numbers of those without available regular work — the “reserve army of labor” or, to use the increasingly popular term, the “precariat” — and divisions within these broad categories also, on the surface, seems to imply that the world’s workers don’t have any unifying interests.

On the contrary, an international movement that brings together the peoples of the global North and the global South, with a common goal of nationalizing the monopolies that currently have a stranglehold on the world’s economy and a commitment to “de-financialization” (a “world without Wall Street”) is not only possible but indispensable, argues Samir Amin in his latest book, The Implosion of Contemporary Capitalism.* These would not be ends unto themselves, but rather the first necessary steps on a long road toward a sustainable and equitable future.

The Implosion of Contemporary CapitalismCritical to developing strategies to transcend an “imploding” capitalist system is developing an understanding of the world’s current organization. In the current stage of “generalized monopoly capitalism,” as Dr. Amin defines today’s world, monopolies tightly control all systems of production and thereby extract extraordinarily large profits. These surpluses are so large they can’t be invested rationally and therefore can only be deployed in speculation, fueling financialization. The process of financialization in turn enables banks to amass vast power and create debt that they profit from.

Increases in productivity outstripping growth in wages further fuels this process. But these monopolies are not located just anywhere — they are located in the capitalist core of the United States, Europe and Japan. Thus the power amassed by these monopolies is inflated by the extraction of capital from peripheries to these centers. Dr. Amin writes:

“In its globalized setup capitalism is inseparable from imperialist exploitation of its dominated peripheries by its dominant centers. Under monopoly capitalism this exploitation takes the form of monopoly rents (in ordinary language, the superprofits of multinational corporations) that are by and large imperialist rents. … [T]he material benefits drawn from this rent, accruing not only to the profit of capital ruling on a world scale but equally to the centers’ opulent societies, are more than considerable.” [pages 20-21]

(The term “monopoly” here is not meant in the “pure” sense of one single corporation dominating an industry, but rather refers to a handful of corporations that, as a group, act in a monopolistic manner. “Rent” is a macroeconomic term meaning the extraction of profits above the ordinary level derived from an advantage.)

The ability of monopoly capital to exploit the global South is aided by the collaboration of local elites, a class of “corruptionists,” to use Dr. Amin’s pungent phrase, who are “highly compensated intermediaries” allowed to take a slice of the extracted superprofits. The whole is partially masked by the fragmentation of production, which nonetheless remains tightly controlled by monopoly capitalists.

This creates the illusion of a divergence in the interests of working people, both within and among countries, but differences in skill levels and ability to earn higher wages has always existed. All working people have in common that they are exploited; the challenge then becomes to effect the unity of workers (including those in informal sectors), peasants and the middle classes in a united front crossing borders.

Smaller enterprises and farmers subordinate to dominant firms

The latest stage of capitalism, starting with the late 20th century, is the era of “generalized monopolies” in which monopolies command the heights of the economy and directly control entire production systems, reducing small, medium and all peripheral enterprises to subordinate roles. Those subordinate enterprises, as well as farmers, have become subcontractors whose operations are subject to rigid control by the monopolies. From this, Dr. Amin concludes:

“There is no other possible answer to the challenge: the monopolies must be nationalized. This is a first, unavoidable step toward a possible socialization of their management by workers and citizens. Only this will make it possible to make progress along the long road to socialism. At the same time it will be the only way to develop a new macro economy that restores genuine space for the operations of small and medium enterprises. If that is not done, the logic of domination by abstract capital can produce nothing but the decline of democracy and civilization, and a ‘generalized apartheid’ at the world level.” [page 113]

The “imperial rent” that accrues to the capitalist core’s monopolies mainly flows to the capitalists, but the workers of the North also benefit from it, and this creates a barrier to North-South alliance building. Workers of the South can’t help but be acutely aware of global imbalances that impoverish them, in contrast to many workers of the North tacitly embracing the relative crumbs they receive at the expense of their Southern brothers and sisters through uncritical acceptance of nationalist ideologies extolling the supposed superiority of imperial countries; this acceptance is reflected, for example, in the U.S. labor federation AFL-CIO’s decades-long uncritical embrace of Washington’s imperialist foreign policy.

Creating a better world — a world in which economic decisions are reached through democratic processes in which all affected parties have a voice and in which the economy is run for the benefit and development of all humanity rather than the private profit of capitalists — is therefore inextricably linked with providing solutions and better living conditions to the majority of the world who live in the peripheral countries.

Change must be in three “dimensions,” Dr. Amin writes — peoples, nations and states. The liberation of a nation and achievements by a state are complements to the advancements of the people; the idea that people can transform the world without taking power is “simply naïve,” the author writes. But it is the people who must be at the forefront:

“[T]he notion of national liberation ‘at all costs,’ in other words being independent of the social content of the hegemonic coalition, leads to the cultural illusion of attachment to the past (political Islam, Hinduism, and Buddhism are examples) [that] is in fact powerless. The notion of power, conceived as being capable of ‘achievements’ for the people, but carried out without them, leads to the drift to authoritarianism and crystallization of a new bourgeoisie. The deviation of Sovietism, evolving from ‘capitalism without capitalists’ (state capitalism) to ‘capitalism with capitalists,’ is the most tragic example of this.” [pages 116-117]

The impossibility of reforming away concentrated power

Additional illusions are that the South can “catch up” with the core capitalist countries or that the maldevelopment of capitalism can be wished away through reforms. The imperialist system blocks the development of new industrial contenders; moreover, the rise of European capitalism required the “safety valve” of emigration to the New World as peasants were forced off the land. There are no new worlds that can absorb the many millions of peasants displaced and to be displaced as capitalism washes over all parts of the globe.

And, although this was not discussed in The Implosion of Contemporary Capitalism, anarchist and Proudhonist ideas that employees can gradually take control of their workplaces while ignoring the state are also illusions. You may wish to ignore the state, but that does not mean the state will ignore you, nor will capitalists, with the powerful coercive apparatus of the state at their disposal, idly sit by and allow their property and prerogatives to be gradually taken away. Similarly, reformist ideas such as more regulation or a return to the post-World War II model are illusions — reforms can and are taken back and there is no going back to the past because the conditions of today are not the conditions of yesterday.

What Dr. Amin does advocate is “audacity, more audacity.” The proposed audacity centers on three programs: socializing the ownership of monopolies, “de-financialization,” and “de-linking” at the international level. Reversing the current social order is impossible without expropriating the power of monopolies.

Economic activity should be organized by public institutions representing groups up and down production supply chains, consumers, local authorities and citizens self-organized democratically. Management of monopolies should include workers in the enterprise as well as representatives of consumers, citizens, (democratically controlled) banks, research institutions and upstream industries. Large-scale production would continue to exist because it is unrealistic to believe that artisans and small local collectives could replace the production of large enterprises, the author writes, but production must be done on the basis of being answerable to society’s collective choices.

“De-financialization” is conceptualized as not simply the abolishment of “shareholder value” as the supreme force animating production but going beyond nationalization/socialization to establish direct participation in management by relevant social partners. Ecological impact, minimization of risk and client participation would be the foundation of banking. The focus on community control and international “de-linking,” however, does not mean a retreat into isolationism; rather it would be a reconstruction of global relations through negotiation rather than the current system of submission to the imperial powers.

These programs can’t be implemented on a global or regional basis, Dr. Amin argues, but only within countries committed to socialization and democratization of the economy. Thus the South must de-link from international institutions controlled by the imperial powers and Europeans must dismantle their undemocratic institutions responsive only to “market” reactions. There are no alternatives, the author writes:

“Capitalism is now an obsolete system, its continuation leading only to barbarism. No other capitalism is possible. … Either the radical left will succeed through the audacity of its initiatives to make revolutionary advances, or the counterrevolution will win. There is no effective compromise between these two responses to the challenge.” [page 146]

There is no guarantee as to what will succeed capitalism. We can sit back and let history unfold, continuing to cede the initiative to elites who have imposed austerity on the world and can only offer ever more harsh and repressive policies while consuming the Earth’s resources until nothing is left. Or we can collectively work together to create a humane, democratic future by overturning capitalism. If we don’t accomplish the latter, we will surely find ourselves in the hell of the former.

* Samir Amin, The Implosion of Contemporary Capitalism [Monthly Review Press, New York, 2013]

More capitalism for Chinese ‘Communist’ Party

A deeper integration into the world capitalist system appears to be the goal of the Chinese Communist Party, a decision obscured but not occulted by the ritual “all hail the party” slogans littering the “communiqué” the party issued following this month’s much anticipated planning meeting.

Nonetheless, the gradually mounting contradictions of China’s heavy reliance on exports and investment, and the larger implications for global living standards, remain in place. China’s role in global capitalism, despite its impressive growth figures, has been an assembly platform for foreign multi-national corporations. This system has brought wealth to a minuscule layer of Chinese capitalists while enormously profiting Western and Japanese companies, and their East Asian contractors.

Two-thirds of China’s exports are shipped from factories wholly or partially owned by non-Chinese companies. In high-technology industries, the ratio is higher: Wholly owned non-Chinese corporations account for 68 percent of high-tech exports and, if firms partially owned by foreign companies are included, the total is 83 percent.

And in contrast to misleading trade statistics, most of the money captured by this Chinese production is taken by Western and East Asian multi-national corporations, not by China. The world’s multi-national corporations profit immensely from China’s low wages and like the current Chinese system just as it is.

Socialist rhetoric, but capitalist content

The communiqué referenced above is the official statement released by the Chinese Communist Party following the “Third Plenum” of the 18th Party Congress. The plenum, a meeting of the entire party Central Committee that concluded on November 12 in Beijing, was intended to re-orient the Chinese economy in a new direction. The corporate media predictably issued downcast reports in the wake of China not immediately adopting International Monetary Fund diktats.

Factory on Yangtze River

Factory on Yangtze River

The communiqué is full of long-winded sloganeering and short on details. Nonetheless, in between the repeated ritualistic panegyrics to the party’s guidance and the “magnificent progress” it has bequeathed China, there are clear indications that the party intends to continue down its capitalist path. That no significant backtracking is contemplated is signaled by this oxymoronic formulation:

“The Plenum stressed that to comprehensively deepen reform, we must hold high the magnificent banner of Socialism with Chinese characteristics, take Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the important ‘Three Represents’ thought and the scientific development view as guidance.”

The “Three Represents” reference is an official line announced in 2001 the party should represent the most advanced productive forces, the most advanced culture and the broadest layers of the people. Promulgated by former President Jiang Zemin, it is a declaration that the interests of different classes are not in conflict and that the party can harmoniously represent all classes simultaneously. One can of course enunciate such a program if one wishes, but such a theory has nothing in common with Marxism. “Three Represents” follows naturally from the policies of President Jiang’s predecessor, Deng Xiaoping, who firmly pushed China on to its capitalist path.

Also noteworthy is the one Communist leader omitted from the list — Hu Jintao, the president between Jiang Zemin and current President Xi Jinping. President Xi is seen as a protégé of former President Jiang, who is believed to have helped pack the Politburo Standing Committee, China’s highest political body, with his followers. The references to Marxism-Leninism and Mao Zedong Thought are ritualistic references, necessary to establish the party’s right to continuity in power and thus its authority to continue to rule.

That only “Three Represents” had the adjective “important” in front of it can be interpreted as to the importance of that line. Moreover, President Jiang was elevated to power following the massacre in Tiananmen Square, which smashed dissent and enabled paramount leader Deng to dismantle social protections. During the 1990s, when President Jiang was in power, state- and collective-owned enterprises were privatized, millions were laid off, peasant rights were revoked and dislocation induced a steady stream of migrant workers into the urban sweatshops. No basic change to this pattern should be expected.

Exalting the party but the market, too

Some of the key ideas put forth by the communiqué are these:

• “The Plenum pointed out that we must closely revolve around the decisive function that the market has in allocating resources.”

• “The Plenum pointed out that to comprehensively deepen reform, we must base ourselves on the largest reality that our country will remain in the preliminary stage of Socialism for a long time, persist in this major strategic judgment that development still is crucial in resolving all of our country’s problems.”

• “We must relax investment access, accelerate the construction of free trade zones and expand inland and coastal openness.”

• “[W]e must strengthen and improve that Party’s leadership, fully give rein to the Party’s core leadership function in assuming all responsibility for the entire picture and coordinating all sides.”

The corporate media was unified in grumbling over the last of these, and although the party will certainly maintain a tight grip on political power, the direction of the party over the past three decades is what has granted Western and East Asian multi-national corporations opportunities for massive profiteering on the backs of Chinese workers. In contrast, Xinhua, the official Chinese news agency, focused on the word “decisive,” declaring the use of that word to describe the role of markets a development from the party’s previous use of “basic.” Xinhua wrote:

“The role of the market in China has officially switched from ‘basic’ to ‘decisive,’ and is key to understanding the reform agenda. [The party] communique … stressed profound economic reform, with the market to play the decisive role in allocation of resources. The previous socialist market economy — official policy since 1992 — attributed only a ‘basic’ role to the market. … [A] unified market for both urban and rural construction land and an improved financial system are definitely in the pipeline.”

More market capitalism then. But as there are no perpetual-motion machines, how long can China continue to its current path?

Export-based economy can’t be easily changed

China’s economy continues to be overly dependent on investment and unable to easily shift toward more household consumption, and thus dependent on exporting. Its ability to be the world’s workshop rests on its ultra-low wages, which are in turn based on systematic exploitation of its rural population.

Three Gorges Dam (photo by Christoph Filnkössl)

Three Gorges Dam (photo by Christoph Filnkössl)

For China to re-orient itself to producing for internal consumption would mean having to allow dramatic growth in workers’ income. But doing so would mean ending foreign capital’s reason to move production to China. China could try to switch to high-end manufacturing — to some degree, it is trying to extend its mix of production to do that — but it doesn’t have the capabilities of non-Chinese companies that are already making such products and it would have to compete by muscling out foreign competitors. (Much of China’s machinery is imported from Germany.)

As their own populations become more restless, foreign governments could find it politically difficult to continue to allow themselves to be swamped by cheap Chinese imports. Moreover, the internal demand for such high-end products is limited within China, so it would be right back to having to rely on exports. Considerable Chinese demand for high-technology products comes from government infrastructure projects and there comes a time when such a high level of investment ceases to be prudent and becomes wasteful spending, as has happened to Japan.

The Chinese Communist Party can continue to apply repression to keep wages and working conditions low, but such policies directly contradict its supposed reliance on Mao Zedong Thought, which produced the now-shredded social safety net known as the “Iron Rice Bowl” — an achievement not lost to collective memory. If the continual drip of scattered local rebellions organizes enough to force competitive wages, Western capitalists would still want to sell their products in China, but would produce at least some of them elsewhere.

Chinese industry could step in and build new capacity, or acquire the capacity that Western capitalists abandon, but the upward pressure on wages would undercut China’s ability to export cheaply, and without much increased internal demand China would have a glut of capacity that would face shuttering.

Chinese workers endure long period of low wages

Household consumption — all the things that people buy for personal use from toothbrushes to automobiles — constituted about 36 percent of China’s gross domestic product in 2012, only two percentage points above China’s bottom three years earlier and far below the 51 percent in 1985. In comparison, household consumption is 58 to 72 percent of the economy of the world’s largest advanced capitalist countries. Fixed capital investment continues to account for large and growing portions of China’s GDP — 46 percent in 2012, a figure more than double countries like Japan and the United States.

What those numbers signify is that China, despite the repeated proclamations of its leaders, has made no progress in re-orienting its economy.

The share of labor income in China’s gross domestic product shrank to 37 percent in 2005 (the latest for which I can find statistics) after having been consistently above 50 percent in the 1980s. A bigger proportion of China’s surplus is being taken by capitalists, but not necessarily Chinese capitalists.

For example, a paper written by Yuqing Xing and Neal Detert found that almost all of the value created by iPhone production in China goes to manufacturing corporations outside of China, where only the final assembly is conducted. The paper, “How the iPhone Widens the United States Trade Deficit with the People’s Republic of China,” argues that conventional trade statistics are highly misleading because the value of the entire product is assigned to the country where the final assembly is conducted, rather than allocated by the value of the various inputs. The paper reports:

“The US also has an absolute advantage in the smart phone category. … [T]heory would suggest the US should export iPhones to the [People’s Republic of China], but in fact the PRC exports iPhones to the US. All ready-to-use iPhones have been shipped to the US from the PRC. Foreign direct investment, production fragmentation, and production networks have jointly reversed the trade pattern predicted by conventional trade theories. Chinese workers simply put all these parts and components together and contribute only US$6.50 to each iPhone, about 3.6% of the total manufacturing cost.

If the PRC’s iPhone exports were calculated based on the value-added, i.e., the assembling cost, the export value as well as the trade deficit would be much lower, at only US$73 million, just 3.6% of the US$2.0 billion calculated by using the prevailing method. … Bilateral trade imbalances between a country used as a final assembler and its destination markets are greatly inflated by trade in intermediate products. … The Sino-US bilateral trade imbalance has been greatly inflated.”

The paper argues that the other $162 of the total manufacturing cost of iPhones (all of the cost other than the $6.50 contributed by underpaid Chinese labor) came from U.S., German, South Korean and Japanese manufacturers who supplied the parts and shipped them to the final assembly plant, which itself is owned by a Taiwanese corporation that is a subcontractor to Apple. The iPhone is designed and sold by Apple, which enjoys a large profit from it. Thus, the money from trade deficits fills Apple’s, and not necessarily Chinese, coffers.

Rural exploitation drives sweatshop exploitation

The dramatic increase in Chinese manufacturing is driven by multi-national corporations from the U.S., East Asia and Western Europe. State-owned enterprises account for 25 percent of China’s industrial output, down from 75 percent in the mid-1980s.

Exploitable workers are needed in those factories, and China’s supply of labor comes from rural wages being consistently 40 percent or less that of urban wages and that local and regional officials continually take and sell off farming land to developers, partly for their own enrichment but also to generate revenue to fund local government. According to a Reuters report, about four million farmers lose their land annually — and those farmers receive an average of $17,850 an acre from local governments, which resell it for an average of $740,000 an acre.

The vast disruptions, vicious exploitation and cavernous inequality of early capitalism is being repeated in China, at an accelerated pace. Earlier industrializing countries did so during a time when capitalism covered only a portion of the globe and thus had considerable room for growth. Wages could eventually rise because of the scope for expansion via exporting, capital controls and the difficulty of moving production to other countries. Mass organizing, including the creation of then-militant unions, leveraged those factors into rising living standards.

Capitalism no longer has places into which to grow, having blanketed the Earth, and the capitalist class has succeeded in eliminating barriers to their moving production at will, accelerating a race to the bottom. The rise of China, or any other country, can only come by taking market share away from somebody else, and the growing mass of low-wage workers drags down wages globally. The alliance of party-connected Chinese capitalists with Western capitalists is profitable for them, but at the expense of working people in those countries and around the world.

Self-directed workers as a “cure for capitalism”

The economy of the future will not be a tabula rasa. Today’s bricks will form part of tomorrow’s edifice and, assuming that humanity’s zig-zagging and often circular course toward greater freedom continues, pieces of a better world exist scattered around us.

Cooperative enterprises are surely part of that (hoped for) better tomorrow. If tomorrow’s better world is one of economic democracy, environmental sensitivity, rationality in production and distribution, equality and meaningful community involvement, than cooperatives will form some of the backbone. Some of these bricks are already here: Successful cooperatives exist today, although they are as yet small islands of democracy in the vast sea of authoritarian capitalist enterprises.

No one model could ever be universal. Differentiated internal operations and cultures are bound to develop. But certain bedrock principals can, and should, be in place for cooperative enterprises operating in an economy that increasingly includes them. The economist Richard Wolff, in his latest book, Democracy at Work: A Cure for Capitalism,* argues that the ability of the workers of an enterprise to be involved in all its strategic decisions is the most important principal to bring about economic democracy, without which political democracy is a formal, empty shell. He introduces the term “workers’ self-directed enterprises” to encompass such enterprises.

During the last structural crisis of capitalism, the Great Depression of the 1930s, massive movements from the Left, including unions, socialist parties and communist parties, forced widespread reforms to be instituted. Eventually, however, Keynesianism and social democratic programs developed new sets of instability and capitalists were able to at first slowly and then more vigorously roll back one reform after another. Professor Wolff argues that even if a suite of reforms could be enacted, the fix would be temporary — capitalists would intervene to take back the reforms, plunging us back into crisis.

But the problem is not simply that the wealthy, through their concentration of accumulated capital, can so readily bend political systems to their ends. The problem is the instability of capitalism itself — capitalists are induced to do everything they can to increase profits due to the relentless nature of competition. That can be achieved through taking a larger share of a market or through cutting costs — the latter can include the introduction of machinery or moving facilities to somewhere else where the workers can be paid far less. These decisions are made by a small number of people at the top of the company, ultimately by the board of directors, a body that almost always includes top executives.

A similar process of alienation happened in countries that used the system of the former Soviet Union, in which the government owned all enterprises. Professor Wolff uses the term “state capitalism” to describe that model because, in place of a private board of directors, state officials made all the decisions, again excluding workers. Those officials controlled all the production of the workers, appropriating the surplus by paying the workers a small fraction of the value of what they produced, the same as in a traditional private capitalist enterprise. A many-sided argument among Bolsheviks and others on how to organize production raged after the October Revolution, but, within a year of assuming power, the Bolsheviks nationalized large enterprises under the impact of the multiple deep crises of World War I and the threat of the advancing German army.

Such a system became synonymous with “socialism.” Along with many others, Professor Wolff argues that “socialism” has to be a much different system, one in which the workers themselves make the decisions of their enterprises, in conjunction with the community of which they are a part. A central part of the ongoing furious campaign against “socialism” is the supposed efficiency of capitalism in comparison to anything else. The inherent instability of capitalism (euphemistically called “business cycles” in orthodox economics) is itself inefficient, nor is it possible to measure all the wins and losses across a society.

“In short, the notion of measuring the efficiency of economic events or processes or of an economic system is a mirage. It is not possible to identify or measure all of the effects of any social factor, nor is it possible to separate and weigh all the influences that combine to produce each effect. The very concept of efficiency would have been banished from discourse, let alone science, long ago had it not proven so ideologically useful. Efficiency discourses resemble capitalist notions of efficiency, which in turn resemble the medieval doctrines and debates concerning how many angels can dance on the head of a pin: they too will one day strike people looking back as bizarre and absurd.” [pages 29-30]

Moreover, Professor Wolff continues:

“The efficiency argument for capitalism rings hollow in the face of high and enduring unemployment affecting jobless millions and their relatives, friends, and neighbors. Watching the growing absurdity of foreclosures creating both homeless people and empty homes throws into serious question the standard defense of capitalist efficiency. … Socialists and communists during the Cold War often simply inverted the standard argument by insisting that is was [their version of] socialism or communism that was efficient (or more efficient than capitalism) and thus represented progress. They, too, often ignored the impossibilities of identifying and measuring all costs and benefits and of separating and evaluating each of the myriad influences that produced them.” [pages 30-31]

Having set the stage, Democracy at Work provides a concise summary of the lead-up to the present crisis, from the Great Depression through the explosion of debt incurred as a result of stagnant or declining wages, and summarizes in clear, accessible language the basic problems of advanced capitalist and Soviet-style systems. The book then gets to its heart, sketching out the concept of “workers’ self-directed enterprises.” WSDEs are a distinct form of cooperative enterprise — this is an enterprise in which the workers themselves are the directors, making all decisions on what to produce, where to produce, how to distribute, determining wages and other compensation, and hiring management.

The surpluses produced would never be appropriated and distributed by anybody else. In a capitalist corporation, the board of directors are legally required to maximize the profits of the corporation going to the shareholders, regardless of the cost to the workers or the local community, and only the shareholders vote on who the directors are. The profits of the company, the bloated pay of the top executives and the huge piles of cash diverted into speculation are the product of the surpluses produced by the workers — and the competitive pressures of capitalism ensure that this process continually deepens.

WSDEs would operate in a far more humane manner. The workers themselves will make the decisions on technological innovation, which is only proper since they, and the surrounding community of which they are a part, will have to live with such decisions. (This is unlike a capitalist enterprise, in which those who bear the cost have no say in the decision.) The self-directed workers can consider a far wider set of issues and concerns about adopting new technology, or any other strategic decision, thereby fully weighing the effects on themselves, their families and their communities.

Professor Wolff proposes that a specialized agency be created that would monitor technological innovations, what enterprises need more workers, which enterprises have registered a desire to commence new production, and other social needs, to be funded with enterprise profits.

“Rather like a matchmaking service, this agency’s task would be to match employees willing to change jobs with job availability and to arrange for appropriate training and inducements to facilitate the reallocation of personnel. No loss of income would attend the transition period for workers who left one job for another. To run this agency would cost a small portion of all the surpluses distributed by WSDEs to sustain its staff and activities. This agency’s reports and services would form one basis for the decision by all workers about whether to make the technical change in question.” [page 132]

Jobs can be rotated (easing boredom), pay differentials minimized (drastically reducing inequality), environmental concerns would be taken seriously (otherwise you’d be polluting your own home) and communities would be stabilized (who would move their jobs to another country for a cut in pay?). And by being involved in your workplace’s decisions — and rewarded for your efforts in making the enterprise a success — alienation is drastically reduced. Without the need to work a crushing number of hours to compensate for low pay, you would have the time to be more of a participant in your community.

Professor Wolff’s concept of WSDEs rests on the workers being their own directors; that is, making all the strategic business decisions themselves. He stresses this aspect, and sees ownership of the enterprise as less important, arguing that different ownership models can co-exist with WSDEs. Local, regional and national governments could own them but allow them to be run by the workers; the workers themselves could own the enterprise individually or collectively; or ownership could take the form of shares traded on a market. The author also prefers not to pre-judge whether a system based on WSDEs would take place under market conditions or in which planning predominates; he believes that they can be compatible with either.

“How WSDEs will come to exist with private versus socialized productive property and to coexist with markets versus planning will not be determined by spurious claims about their comparative efficiencies. It will be determined through the construction of particular, specific postcapitalist economic systems as they emerge in transitions from both private and state capitalist systems.” [page 144]

Fair enough. But here I believe caution is warranted. Leaving a full market system in place would inevitably re-introduce some of the problems of capitalism, albeit in different and milder forms. As I have previously discussed, 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 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. 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.”

Some amount of planning — democratic, bottom-up planning based on aggregate demand as a guide and not top-down planning imposed as an order — would seem to have a significant role in an economy dominated by cooperatives; moreover, the cooperatives would have to have some cooperation with each other, particularly in negotiating prices up and down the supply chain. Ultimately, these are questions that won’t begin to be solved until there is more practice, although a “matchmaking” agency of the type proposed above implies some amount of planning.

Much more immediate is the question of how WSDEs would co-exist with capitalist enterprises. WSDEs would handle competitive problems and grapple with issues of size and other issues differently than a capitalist enterprise. For instance, Professor Wolff argues, if WSDEs organized mutual support and pooled political strength, or prove to be more productive, they could prevail against capitalist enterprises. Not extracting large amounts of money for bloated executive pay could free extra funds for developing innovations, or differentiating their products as made under democratic conditions could be a marketing advantage.

Early on, WSDEs would need state assistance. Professor Wolff advocates adapting the model of Italy’s “Marcora Law,” which enabled workers to take over troubled enterprises. The author suggests offering the unemployed a choice: Either the traditional weekly benefits, or taking it as a lump sum, pooling their resources with others taking the lump sum, and forming a WSDE. These new enterprises would likely need to rely on technical assistance, subsidized credit, tax breaks and other assistance; such aid can be looked upon as an extension of existing programs to assist small businesses or for women- or minority-owned businesses.

Social solidarity with and by existing cooperatives, unions and activist groups would be another form of support. A strong cooperative movement would provide an alternative to traditional authoritarian capitalist employment, eroding capitalists’ ability to impose harsher working conditions.

Democracy at Work does formulate one difference from traditional concepts of cooperative enterprises that will likely be seen as controversial: A differentiation between “surplus-producing” workers and “enabling” workers. The first group are those who directly produce the outputs that are sold. The second group include accountants, managers, secretaries, clerks and many other job functions that provide the conditions that enable the “surplus-producing” workers to do their work. Professor Wolff is careful to stress that both categories are equally crucial to the success of an enterprise.

Nonetheless, he advocates that only the “surplus producers” be allowed to make the decisions regarding the appropriation and distribution of the surplus. All other decisions would be voted on collectively by all workers. The rationale is that such an arrangement “secures the absence of any exploitation within the WSDE” [page 166]. But leaving such major decisions to only a portion of the workforce risks engendering a division within the workforce, the opposite of the goal, and arguably applies too narrowly the laudable goal of ending exploitation.

Moreover, this formulation presupposes that management will form a group distinct from line workers. But there should not be such a distinction: Managers should be elected by the workers a whole, to specific terms and be recallable. There is no reason why management and supervisory positions should not be rotated — workers can become managers, and then go back to being workers. More people would become familiar with more roles, be able to assume greater responsibility and be better equipped to participate in strategic decision-making.

Nor is there any reason why people can’t change roles from a direct production job to a support job, which, to be fair, is tacitly acknowledged in the author’s stress on the ability of workers to change job functions within WSDEs. Having two categories of jobs with a crucial decision-making function reserved for one category would seem to defeat the purpose of cooperation — equality. If everybody is necessary to the enterprise, then everybody should be eligible to vote on everything.

Decision-making, however, will not be confined to the walls of the enterprise. Residents and workers should participate in each other’s decisions to the extent that they are affected, Professor Wolff writes. Community representatives should participate in WSDE decision-making, and vice versa, as WSDE members are part of the community.

“In societies where WSDEs are the prevailing organization of production, capitalists will no longer occupy a crucial political position. Capitalists’ use of the surpluses they appropriate will no longer dominate politics. We will no longer have capitalists making political use of the resources typically at their disposal — the surpluses they appropriate. Instead, the community of workers who direct WSDEs will be the prevailing political partner of residence-based governing bodies. …They might finally realize democracy, which under capitalism was never allowed to go beyond very limited electoral functions.” [pages 167-168]

A much higher level of democracy does not mean that a society with an economy based on WSDEs would be a utopia. Professor Wolff is forthright in noting that there will be new problems and contradictions. But with vastly less inequality distorting all areas of society, problems would be more easily tackled. And just as the transcending of earlier systems eliminated many but not all social ills, transcending capitalism will put many problems behind us.

“The slave and feudal systems that proceeded capitalism fostered forms of crime rooted in their mixes of economic risks and rewards. But those systems never displayed the recurring boom-and-bust cycles common to all forms of capitalism. These cycles are the products of capitalism — not of this or that group (the state, criminals, others) functioning within that system and in response to its upswings and downswings. … Overcoming the systemic roots and nature of capitalist crises requires a change in the economic system.” [pages 51-52]

Professor Wolff’s Democracy at Work offers us a well-written practical guide to alternatives to capitalism, one that we can begin to build today with the tools at our disposal. Whatever disagreements a reader may have with this or that detail, Democracy at Work is recommended to anyone seeking a concise study of why we need to bring a better world into being and how we might get there.

* Richard Wolff, Democracy at Work: A Cure for Capitalism [Haymarket Books, Chicago, 2012]

The formation of cooperatives doesn’t by itself eliminate competition

More people are becoming interested in cooperative enterprises as an alternative to the capitalist top-down corporation. In reading about and discussing the topic, I have found an interesting pattern: An assumption that competition will continue but that it will become benign.

It would be unrealistic to forecast that a cooperative economy would be without competition. But competition in what, and in what form? When we think of competition, often the visualization is of two or more companies competing to make a better consumer product. That is visible — the company that produces a shoddy product when another company produces a quality product puts itself at risk of going out of business (at least in theory).

Less visible, because it is abstract unless it is your job that is shipped overseas or eliminated, are the marco-economic results of competition. Among these are increasing downward pressure on wages; the creation of rust belts as industrialists move production to locations with ever cheaper wages; the relentless pressure (most often applied by the financial industry) to reduce costs, often by workforce reductions; the drive to produce ever higher profits, regardless of human cost; and environmental destruction. All these developments arise not because of this or that greedy banker or the personality of this or that industrialist. They arise because they are the inevitable product of market forces.

Market forces are not a “natural” phenomenon, they are the aggregate interests of the most powerful capitalists. The concentration of production in most industries into a handful of giant corporations — an oligopoly — is also the result of capitalist competition. Expand or die is the inexorable law a capitalist lives by: If you don’t get bigger and stronger, your competitor will and put you out of business. As the winners from this ruthless competition grow bigger and more powerful, they have more weight to throw around the political arena, and can (and do) exert decisive influence over the political process. It is in their interest for them to do so — and we shouldn’t expect them to act otherwise.

I have often been struck by a belief I often encounter that presumes that we need only convert business enterprises into cooperatives and capitalist competition will cease. Underlying that assumption, in my opinion, is locating the cause of greed, injustice, inequality and other social ills in the authoritarian, hierarchical structure of the capitalist enterprise. That structure is surely a significant contributing factor. But that shouldn’t obscure the cut-throat nature of unfettered, market-driven competition: The relentless pressure to increase profits, maximize market shares and eliminate competition — on pain of enterprise death for those who don’t do this sufficiently — makes unethical or anti-social business decisions inevitable.

It is not only the direct competition that compels such behavior, it is also the financial industry: Billionaire speculators, institutional investors, hedge funds, investment banks and other financiers are ever ready to apply the whip if profits falter — and can move gigantic sums of money through stock, bond and foreign-exchange markets at the click of a button to punish those who don’t deliver. During periods of economic upswing, wages may rise for a time as unemployment falls. But wage increases eventually eat into profits; falling profits are intolerable and will be punished by financiers. Cuts to wages, whether in givebacks or in the form of layoffs, and the destruction of productive capacity ensues.

Wages — and thus the human beings who work for the wages — are commodities in capitalism, or any system in which distribution is monopolized or largely controlled by capitalist-style market relations. If all enterprises were converted into cooperatives, collectively owned and managed by the full workforce, but capitalist market relations were left intact, the same competitive pressures would exist. There would be much less inequality because, presumably, all workers within a given enterprise would receive the same wage or would have small differentials, and the workers would be sharing in the profits they create rather than have them confiscated by top executives and financiers.

But their own wages would remain a commodity if everything else is a commodity priced by markets. The collective workers would face market pressure to reduce their own wages in order to compete better against their competitors. Some enterprises would become much bigger than others; smaller enterprises would be compelled to sell themselves to larger competitors, consolidating production until an oligarchal situation arose. Some industries would be much bigger than others. As market competition intensified, survival would require more ruthless behavior. In somewhat different form and with somewhat less intensity, the instability and social ills of capitalism would be reproduced.

A cooperative economy, therefore, has to not only be based on enterprises run on cooperative lines, but the cooperatives must cooperate with each other as well. An economy would have to be based on democratic control, with commodity prices negotiated in fair and open talks, and with a rational system of distribution that would be supple enough to respond to changes in consumer demand while not over-producing.

Part of the waste of capitalist production lies in its chaotic, unplanned nature: Production is increased until too much product is produced that can’t be sold; productive capacity is then destroyed (such as shuttering factories) until a shortage arises and a new cycle begins. This is done through uncoordinated, individual decisions based on guesswork. The pressure of competition compels decision-making to be done in secrecy and, additionally, no mechanism exists to judge composite demand. The result is alternating booms and busts, with accompanying human costs.

Democratic planning, from the bottom up, would be necessary to determine need and enable proper distribution. Ideally, there would be many enterprises for most products. Enterprises might work best as small or midsized production units. Here is where competition would still exist and provide a positive, rather than a destructive, role. If there are dozens of cooperatives producing shoes, the consumer would have many choices, and the enterprise that made a poor-quality shoe would have to do better — a producer that makes a product that people don’t want to buy won’t stay in business.

If one cooperative makes an innovation that gives it a higher-quality product, then other cooperatives would naturally copy the innovation. If democratic planning, to throw out a hypothetical example, determines that 1.2 million shoes need to be made because 1.1 million shoes were produced last year and the supply fell a bit short, and there are several shoe makers who make a quality shoe, that increased target can be distributed among them. If limits to capacity are being approached, one or more cooperatives can go to the local community-run and -controlled bank for a loan to expand capacity by making a case that more shoes should be made.

Production in unfettered markets will become production for private profit, not social need, even if that private profit is collective rather than concentrated at the top. Production needs to be oriented toward human need — that is the other half of the equation of cooperative enterprises.

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.

Where does profit come from?

By Pete Dolack

The question “Where does profit come from?” initially seems as if it has an easy answer, but on closer inspection is a matter of considerable controversy. Ordinarily, we are given simple answers such as “buy low, sell high” or, that favorite fallback position, “the magic of the market.” Standard answers such as these rest on a presumption that circulation of a commodity is the source of profit. That presumption has deep roots, having been articulated by Adam Smith in his classic work Wealth of Nations.

To summarize, Smith wrote that fixed capital (such as machinery and factory buildings) increases the productive power of labor but can produce nothing without circulating capital (such as money and inventory) — from these starting points he concluded that the circulation of capital not only furnishes raw materials and the wages of labor, but is the source of profit. Smith believed that capitalists and land owners have to be rewarded for risk-taking; therefore, upward redistribution of income is required to ensure they will employ the resources they own.

That portion of Smith’s writings is readily accepted as gospel, treated as incontestable dogma in the same way that religious fundamentalists cling to their particular holy book.

That is only side of Adam Smith, however. The Scottish economist also wrote that labor is the “real measure” of the value of a commodity and is entitled to be rewarded. This latter perspective is often referred to as the “labor theory of value,” which has deeper roots than theories of circulation. The origination of the idea that labor adds value is generally credited to Ibn Khaldûn, a fourteenth century diplomat and government official who later became a scholar. He wrote in The Muqaddimah that labor is the source of value, arguing that profits, even when resulting “from something other than a craft, the value of the resulting profit and acquired [capital] must include the value of the labor by which it was obtained.”

The idea of labor creating value was picked up in the seventeenth century, most influentially by John Locke. In The Second Treatise of Government, Locke wrote that what is taken from the earth through labor rightfully becomes the property of the laborer. Cultivated land is more valuable than fallow land as a result of labor, Locke wrote, and he extended his concept to acknowledge that all manufactured products are given value by labor.

Among those who accepted this concept in the following century was Adam Smith. Another who did, but who also significantly advanced the theory, was Karl Marx. The labor theory of value provides a much different way of looking at the question of profit. In his Theories of Surplus Value (an unfinished book originally intended to be the fourth volume of Capital), Marx wrote that Smith’s conclusion that capital is the source of profit contradicts other passages in Wealth of Nations in which Smith wrote that command of labor is the source of value — if the latter is so, profits must originate from the differential between what labor is paid and the value of what labor has produced.

Marx pointed out that the value of a commodity would be the same if the workers sold the commodity themselves, thereby retaining the full value of what they produced rather than having much of it taken by the capitalist. The portion taken by the capitalist therefore is the source of the capitalist’s profit and not the circulation of the commodity.

Marx’s breakthrough was making a distinction between “labor” and “labor power.” It is labor power that is a source of profit. Specifically, what labor power produces is “surplus value.” Labor power is not the same as labor: Labor is the actual activity of production, whereas labor power is the workers’ mental and physical capabilities that are sold to capitalists.

Here we might object that nature is the source of much wealth; precious metals, oil and gas, among other resources, readily come to mind as sources of wealth. Natural resources are surely sources of wealth, but labor power is necessary to extract them and to produce the commodities that are to be sold by capitalists.

Surplus value is the difference between the value of what an employee produces and what the employee is paid — the surplus value is converted into the owner’s profit. This is a complicated concept and initially seems counter-intuitive. Machinery is a part of modern production and does not machinery increase efficiency? The machine presumably costs less over its life than the worker; isn’t that why capitalists buy machines, so they can employ fewer workers and increase productivity? True on both counts. But the value of machines is consumed in production — their value is transferred to the products that are produced with them. It is the physical labor of production that produces the commodity that is sold for more than was paid for the materials used to make it. This concept is easier to understand when it is applied across the life of a commodity rather than narrowly within only the enterprise that manufactures the final product.

Any product made for sale has an “exchange value.” This value is not necessarily the same as its “use value” — the intrinsic value a product has to the user of it. If it takes eight hours for an individual to make a shirt for herself, then the shirt might be said to have a use value of eight hours of labor. Perhaps instead of wearing it herself the shirtmaker wishes to barter the shirt for a pair of shoes. If the shoes require sixteen hours to make, the shoe maker is not likely to see that as a fair exchange. But if the shoe maker needs two shirts, then the labor that went into each side of the exchange is equal (assuming the skill and intensity of work are close to equal). In this example, the pair of shoes can be said to have the value of two shirts.

In a modern capitalist economy, the shirt or shoe is sold for money — its exchange value is the amount of money paid for it. But the shirtmaker working for a wage paid by a manufacturer will receive only a portion of that value — the difference, the surplus value, is the source of profit. If the capitalist willingly paid to his employees the full value of what they produce, he wouldn’t be a capitalist — there would be no profit.

The owner of the factory is not altruistic — he intends to extract surplus value. But that owner does not keep all the surplus value — he must share it with those who help circulate the commodity. Distributors and merchants assume the cost of circulation, part of the expense of a commodity, while sharing the surplus value. The distributor has specialized skills and can circulate the commodity more efficiently than the manufacturer; because the cost of circulating the commodity is thereby reduced, there is more surplus value to be shared.

In the following hypothetical case, the surplus value is shared with the distributor and the merchant. Let’s say the factory owner pays a wage that is equal to eight dollars to each worker for each widget. The owner sells the widget to the distributor for ten dollars, the distributor sells it to the merchant for twelve dollars and the merchant sells the widget for fourteen dollars. When the worker goes to the store to buy a widget, she pays fourteen dollars although she was paid only eight dollars to make one. Thus, the widget is worth six dollars more than what the factory owner paid to the worker, not the two-dollar difference between the wage and what the factory owner received for it.

The distribution of that surplus value can change among the capitalists. These capitalists compete against each other to earn a bigger profit, at the same time they cooperate in getting the product to market. The widget manufacturer might miscalculate the demand and overproduce, causing a glut that reduces the price that can be realized. Or a giant merchant chain becomes so big that it has the power to force lower prices — the chain wishes to sell the widget for less to undercut its smaller competitors, and possesses sufficient clout by virtue of its size to negotiate a discount, forcing the manufacturer to cut its wholesale prices.

If the manufacturer does not wish to see its profits reduced, it has to reduce its costs. The primary way it can do so is to lower its labor-power costs. This can mean cuts to wages or benefits, increased workloads, layoffs or moving production somewhere else. In each of these cases, the capitalist is buoying profit levels by extracting more surplus value. More will be extracted from the workforce through suppressing pay or an intensification of work.

The above example is of course an oversimplification. The factory owner has costs other than labor power, and employees do not create the widgets solely with bare hands. (And, in reality, the employee will be paid far less than the 80 percent of the factory owner’s proceeds in our hypothetical example.) There is machinery in the manufacturing process, and raw materials (including previously manufactured components) are needed to make the widgets. If the company’s shares are traded on a stock exchange, the shareholders will be expecting a hefty cut of the profits.

Labor power is the source of surplus value because raw materials and the value of the machinery are consumed in production while labor power produces more value than is paid for it. That does not mean that machines aren’t productive nor that they don’t raise the productivity of those who work with them. They do both. The surplus value contained in the machines placed in production was realized by the manufacturer of the machine upon selling it; the machines transfer their value to the commodities produced using them. (Payments might continue to be made on the machine after it is put into service, but the payments go to the lender who financed the machine’s purchase; interest is another sharing of surplus value. Paying rent is as well.)

A commodity is produced with direct labor, machines and raw materials, but the machines and raw materials assist labor in producing the surplus value — machines make labor more productive, enabling more surplus value to be extracted from each employee. (One worker using a bulldozer can do as much as several workers with shovels. Computerization also reduces the number of employees in an office; more work is done with fewer people.) Raw materials and other commodities are bought by the capitalist so they can be sold in a new form for a higher price. Raw materials and natural resources can’t do that by themselves — labor power is the only commodity that can add the value that becomes surplus value.

Marx demonstrated this concept at the beginning of Volume III of Capital. The paragraph below is dense, and so requires commentary to unpack it. Marx himself spent three chapters covering dozens of pages to explicate this one-paragraph example, examining it from every angle, knowing that his many critics would attack him for any gap were his argument not air-tight. This blog normally avoids mathematical equations, but the one quoted below is unavoidable. The “400c” in the equation represents the cost of expenses (the “c” means “constant capital”); the “100v” represents the cost to the capitalist for wages (the “v” means “variable capital”) and the “100s” represents “surplus value.” In his example, Marx wrote:

“Let us say that the production of a certain article requires a capital in expenditure of £500: £20 for wear and tear of the instruments of labour, £380 for raw materials and £100 for labour-power. If we take the rate of surplus-value as 100 per cent, the value of the product is 400c + 100v + 100s = £600. After deducting the surplus-value of £100, there remains a commodity value of £500, and this simply replaces the capital expenditure of £500. This part of the value of the commodity, which replaces the price of the means of production consumed and the labour-power employed, simply replaces what the commodity cost the capitalist himself and is therefore the cost price of the commodity, as far as he is concerned.”

In this example, the capitalist, assuming the finished product has been sold at the market value of £600, has realized a profit of 20 percent. Because £200 was realized by the capitalist above the total £400 cost of raw materials (£380) and machine-use (£20) while only £100 was paid in wages (the “100v” in the equation), £100 in surplus value was extracted through paying the employees for only half of what they produced. It is by calculating labor-power separate from other inputs that the source of profit is discovered.

This crucial point is obscured when the cost of labor-power is subsumed in the overall expenditures; the capitalist’s profit appears to him or herself simply as the difference between the sum total of his or her costs and the sale price. Thus the profit appears to derive from the circulation (sale) of the commodity while in reality circulation is the realization of profit.

I’ve used examples based on manufacturing, but the same principle exists for white-collar office work.

It is not at all out of place to ask: Why shouldn’t the people who do the work earn the rewards? Why should bosses, shareholders and speculators accumulate so much at the expense of so many? Why should those who dedicate their lives to accumulating so much be anointed the guardians of morality and ethics when their ability to acquire money does not make them experts at anything other than greed?

But to change that, an economy would have to be based on cooperation rather then competition. Employees already cooperate with one another on the job; producing a product would be impossible otherwise. We can cooperate in managing our enterprises and with our communities just as well.

This post is adapted from an excerpt from my forthcoming book It’s Not Over. The sources used in this adaptation include Karl Marx, Capital, volume 3, pages 117-140, 392-416 [Vintage Books, 1981]; Marx, Theories of Surplus-Value, chapter 3 (“Adam Smith”), posted on the Marxist Archive web site; Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, book I, chapters 1-3, and book II, chapters 1-2, posted on the Marxist Archive web site; John G. Gurley, “Marx and the Critique of Capitalism,” anthologized in Randy Albelda, Christopher Gunn and William Waller (eds.), Alternatives to Economic Orthodoxy, pages 274-276 [M.E. Sharpe, 1987]; Antonio Negri, Marx Beyond Marx: Lessons from the Grundrisse, pages 74-76 [Autonomedia, 1991]; and Tom Bottomore (ed.), A Dictionary of Marxist Thought, pages 265-266 [Harvard University Press, 1983]

The long arc of mass movements

By Pete Dolack

For as long as there has been capitalism, there has been opposition to it. Opposition to it is again on the rise, although far from coalescing into any sort of cross-border, synchronized movement. Such movements have existed in the past, and it is worthwhile to adopt a long perspective by studying them.

Toward that end, an interesting book was recently re-published by Verso as part of its “Radical Thinkers” series. Anti-Systemic Movements, by Giovanni Arrighi, Terence K. Hopkins and Immanuel Wallerstein was originally written in 1989, just before the Soviet communist bloc began to collapse, and although the book is to a small extent an artifact of the Cold War era, it nonetheless — because the authors presented a long perspective — a valuable starting point for thinking about the types of movements necessary today to overcome the massive problems of the contemporary capitalist system.

The theory underlying the book is that of “world systems” analysis, which emphasizes that capitalism is a global system that changes and mutates over time and therefore must be analyzed as a single unit rather than as a collection of nation-states. Crucial to this understanding is recognizing the global division of labor that forms the basis for a division of the world’s countries into one of three broad categories: core, semi-periphery and periphery, with the latter two subordinate to the core countries and the periphery the most exploited.

If capitalism is a global system, then the response to it must be global as well. Regardless of familiarity or agreement with a “world systems” analysis, the global nature of capitalism can not be missed — manufacturing is continually moved to new locations with ever cheaper labor costs; raw materials and resources are traded around the globe on a massive scale; and capital moves to all corners of the Earth at a click of a computer button in search of new investment or for pure speculation.

Corporate globalization is a stronger phenomenon than in the past, but is not new — Karl Marx and Friedrich Engels discussed globalization in the Communist Manifesto, written in 1848. That was a year of revolts in multiple European countries and empires. Those revolts ultimately failed, ushering in a period of reaction and strengthened monarchies. Despite the immediate failure of 1848, the uprisings did have long-term effects, most importantly the rise of working class organizations to combat the power of capitalist states, a necessity more forcefully administered after the bloody crushing of the Paris Commune in 1871.

In the fifth of the five essays that comprise Anti-Systemic Movements, professors Arrighi, Hopkins and Wallerstein argued that the events of 1848 and 1968 constitute the “only two world revolutions” (authors’ emphasis). Finding strong parallels between 1848 and 1968, the authors situate 1848 as an uprising seeking to fulfill the original hopes and overcome the limitations of the French Revolution, and overturn the counter-revolutions of 1815. The uprisings in 1968, they argued, sought to fulfill the original hopes and overcome the limitations of the Russian Revolution, and overturn the counter-revolutions of 1945, when the United States firmly established its world hegemony. They wrote:

“In both cases the bubble of popular enthusiasm and radical innovation was burst within a relatively short period. In both cases, however, the political ground-rules of the world-system were profoundly changed as a result of the revolution. It was 1848 that institutionalized the old left (using this term broadly). And it was 1968 that institutionalized the new social movements. Looking forward, 1848 was in this sense the great rehearsal for the Paris Commune and the Russian Revolution. … 1968 was the rehearsal for what?”

I would argue that it was the drowning in blood of the Paris Commune, the world’s first example of a people’s movement derived from socialist inspiration taking power, that might have been the more indispensable impetus for the growth of organizations such as political parties and unions, but there is no question that 1848 was the critical precursor of the Paris Commune and working peoples’ organizations long pre-date the Commune. There is no good argument against the authors’ statement that:

“The lesson that oppressed groups learned from 1848 was that it would not be easy to transform the system, and that the likelihood that ‘spontaneous’ uprisings would in fact be able to accomplish such a transformation was rather small. … Since the states could control the masses and the powerful strata could control the states, it was clear that a serious effort of social transformation would require counter-organization — both politically and culturally.”

But let us return to the question just asked: 1968 was the rehearsal for what? In 1989, when Anti-Systemic Movements was written, it was too early to provide an answer. I believe it is still too early to provide an answer. But perhaps, in this new era of long-term systemic capitalist crisis, a new movement can arise that not only directly challenges the capitalist system but incorporates today’s social movements — struggles against racism, sexism, homophobia, nationalism & etc. – and which not only grasps, and acts on, the need for struggle to be internationalized but is capable of crossing national lines because of its inclusion of all struggles against oppression and its ability to connect these struggles.

Can the Occupy movement become the movement just described? It is far too early to say – if we are yet unable to determine the outcome of uprisings a generation ago, we are in no position to judge a movement born six months ago. That latent discontent with the capitalist status quo is widespread was confirmed by the incredible explosion of the Occupy movement; its clear message of the one percent against the 99 percent captured the social zeitgeist while placing the social debate on a class foundation in contrast to the national and race scapegoating routinely put forth by right-wing “populist” movements.

The movements that arose during the 1960s — reaching a brief zenith in places as diverse as Mexico City, Paris and Prague, and militarily expressed in the Tet Offensive, the turning point in Vietnam’s defense against United States invasion — were responses not only against capitalism but against the bureaucratization and deformation of anti-capitalist revolutions and movements. “Errors and terrors” repeated themselves in Communist states, professors Arrighi, Hopkins and Wallerstein wrote, adding that social democratic governments were engaged in colonial repression and Third World national movements were frequently disappointing.

When new social movements burst on to the world stage in the 1960s, the “old left” seemed unable to comprehend. The French Communist Party, to provide one example, still attempted to appeal to women as mothers and housewives into the 1960s, seriously moving to modernize its line only after the 1968 student uprisings. But even afterwards, the Communists fell back on strictly economic themes, throwing overboard appeals to women based on anything other than as workers, and stifled internal discussions, ultimately driving many women away.

Moreover, the example of one movement could and did provide inspiration for other movements. A good example would be the feminist movement in the United States, which grew directly out of the experience that the women in civil rights organizations, where they developed skills to organize against their own repression experienced on a society-wide level while confronting the sexism they experienced within the civil rights movements.

Professors Arrighi, Hopkins and Wallerstein argued that four changes in relations were “established” as a result of the 1968 uprisings. The military capabilities of the core countries to police the global South became limited; changes in power relations among status groups such as genders and ethnicities “have proved to be far more lasting than the movements which brought them to world attention”; spreading labor unrest has shrunk the areas offering “safe havens of labor discipline”; and dictatorships have been replaced by democratic régimes.

The third item in the above paragraph has not been true for some time; labor has not been so weak against capital since the 1920s, or perhaps earlier. The authors were writing just before the collapse of the Soviet bloc, a zone that, despite its faults, did provide alternative ideas of social organization. The bloc’s collapse pitched the Left into a crisis nowhere near a solution, opened a previously blocked swath of the world for full exploitation by capital and weakened resistance to the onslaught of neoliberal triumphalism.

And although the other gains mentioned above are real, the authors acknowledged that the actual changes for subordinate groups from the 1968 uprisings are meager:

“[S]ome material benefits did accrue to subordinate groups as a whole from the change in the balance of power [in the world social system]. But most of these benefits have accrued to only a minority within each group, leaving the majority without any gain, perhaps even with a net loss. … In all directions we are faced with the apparent paradox that a favorable change in the balance of power has brought little or no change in benefits to the majority of each subordinate group. This apparent paradox has the simple explanation that the reproduction of material welfare in a capitalist world-economy is conditional upon the political and social subordination of the actual and potential laboring masses.”

Writing in 1989, on the eve of an unforeseeable change in world affairs, the authors forecasted four developments continuing in the following two decades: the erosion of U.S. hegemony with no clear new order to replace it; a deepening struggle between labor and capital leading to pockets of rising well-being surrounded by increasing immiseration for most; new technologies undermining the abilities of states to control their civil societies; and the “demands of disadvantaged status-groups — of gender, of generation, of ethnicity, of race, of sexuality — will get ever stronger.”

By and large those four predictions did come to pass, although the pockets of relative prosperity are now being eroded. The decline in living standards among people previously privileged is beginning to expand the base of opposition to the political and economic status quo. Those so privileged within a given country tend to be well delineated; less obvious but no less important is that all working people in advanced capitalist countries are privileged in relation to people in all other countries. That latter privilege was a fruit of imperialism, even if the rewards heavily flowed to the top; but now imperialism has dialectically evolved into a relationship that erodes the living standards of working people within those countries as ever more manufacturing and services are transferred to new low-wage havens. Now all of the benefits are flowing to the top (the “one percent”) of the advanced capitalist countries, with some diversion to the very top within the developing countries to which production is transferred.

The economic crisis — a structural crisis of the capitalist system — has been long lasting and, with short-term fluctuations, is bound to deepen. And the myriad of social problems and discriminations expressed in economic struggle and in cultural forms are a long distance from being solved. Older institutions of working people, those with roots in the first half of the 20th century and even the 19th century, proved to be disappointingly incapable of understanding, never mind responding adequately to, the social movements of the 1960s and beyond. The newer institutions that began during that decade and since routinely acknowledge social issues and the legitimate demands of minorities, women, gays, lesbians and immigrants, but continue to struggle with these issues.

That straight women, lesbians and transgendered people had to create safe spaces for themselves at the Occupy Wall Street encampment in New York City by erecting a large tent for women and another large tent for women and transgendered people speaks for itself. Social struggles such as these were (and are) discussed at great length within the Occupy movement, but that they are necessary speaks to the inability of Left movements to adequately confront them. I stress here that I am not pointing a finger at the Occupy movement; rather, I am noting a symptom of how deeply racism, sexism, homophobia, nationalism, anti-Semitism and other social ills are imbedded in the capitalist society that envelops all of us.

One important reason for the Left’s inadequate responses is a belief held among many that social ills and discriminations will magically vanish when capitalism is ended. But we should all acknowledge that racism, sexism and the other social ills are woven so deeply into the fabric of society that a conscious struggle against them is necessary before, during and after any social upheaval or revolution. Only a movement that incorporates the social movements and the struggles for economic justice and democracy — an all-encompassing movement to completely overhaul society – can succeed.

If an injury to one is an injury to all, then injury to one has to be opposed by all.

Simultaneously with inter-related struggle is to have long-term goals, not simply reforms to be won in the short term, which can easily be (and often are) taken away. The authors of Anti-Systemic Movements argued that post-1968 movements have lacked a clarity that post-1848 movements possessed:

“After 1848, the world’s old left were sure that 1917 [socialist revolution] would occur. They argued about how and when and where. But the middle-range objective of popular sovereignty was clear. After 1968, the world’s antisystemic movements — the old and the new — showed rather less clarity about the middle-range objective. They have tended therefore to concentrate on short-range ones.”

By and large, that analysis remains true more than two decades later. I am not arguing that there should not be short-range goals — tangible goals that can be obtained and create a real advance are indispensable and create their own momentum during periods of movement upsurge. Any movement, especially one that confronts a global hegemonic system, must have attainable short-term victories. But to concentrate only on reforms, and not necessarily big reforms, is a short-term strategy that isn’t viable over the long term.

If the problem humanity confronts is a global system, then the long-term goal has to be replacement of that global system. Replacing this or that banker, successfully forcing a reform on this or that corporation, successfully defending a progressive law or defeating a regressive law are real, tangible accomplishments deserving of applause, but can not be other than short-term reforms lacking a stable foundation. The problems humanity faces are far larger than any group of bankers or corporations.

Reforms that lead toward much bigger changes — clearly articulated reforms that the system can not accommodate — are the path toward a real change in human existence.

Finding those reforms, and finding that path, are no easy task. But we have no choice but to find them.