On Economic Democracy (A Reply to Jason Schulman)


Despite Jason Schulman's condemnation of "market socialism," a variant of which (the "most attractive," he kindly says) I espouse, he and I are not too far apart, not on fundamental issues.  Although he thinks my model, which I call "Economic Democracy," (henceforth ED) is "a valiant attempt to fry ice," the model he endorses also has a role for markets.  In fact, "the market" plays much the same role in Economic Democracy as it does in his "Democratic Planning Through Negotiated Coordination," (henceforth DPNC).

Schulman distinguishes "market exchange," defined as "buying and selling, which generates information about what customers want and extent to which different enterprises are supplying it,” from "market forces," which govern "changes in productive capacity," i.e., investment allocation. "Market exchange," he tells us, "is a central feature of the model I am proposing." Enterprises in DPNC compete to satisfy consumer demand.

It is important to understand that what is often called "the market" in a capitalist economy is in fact an amalgam of three quite distinct kinds of markets: markets for goods and services, labor markets and capital markets. Markets for goods and services existed long before capitalism; indeed they are characteristic of most post-hunter-gatherer societies. As Marx points out, it is when labor markets (labor-power as a commodity to be bought and sold) become the dominant form of labor allocation that we get capitalism.  Capital markets (of ever increasing complexity) have also emerged as a distinguishing feature of capitalism.

These latter two markets, those capital and labor markets, are responsible for most of the deep irrationalities and injustices of capitalism.  (See my Against Capitalism or After Capitalism for the arguments.) Markets for goods and services are not wholly benign, and so need to be regulated, but there exist no good replacements for the functions they perform--generating information as to what people want, and providing incentives for these wants to be satisfied efficiently. The situation is different for labor and capital markets.  These need to be replaced by alternative mechanisms--more democratic mechanisms.  Schulman and I agree on this point also.

What is to replace that capitalist "labor market," where workers compete with one another to find buyers for their labor-power?  In ED it's workplace democracy.  When workers join an enterprise, they join a community. They elect, on the basis of one-person, one-vote, a workers' council that appoints the firm's upper management and oversees all major enterprise decisions. Ultimate control of a firm rests with those who work there.

Schulman favors a governing board that is more inclusive, consisting of worker representatives, but also representatives of "customers and suppliers, competing enterprises, the communities in which the enterprise is located and groups concerned with equal opportunities, environmental issues and so on."

This "inclusiveness" strikes me as excessive. How exactly will these various representatives be selected? Will they be paid?  If so, by whom?  (They will, after all, be putting in a lot of time.) Notice, a huge number of candidates will be required, since every enterprise must have such a board.  How will the competing interests represented on the governing board be weighted?  How effective can such a board be expected to be?  There are an awfully lot of cooks seasoning this broth.

It would seem to be far more sensible to have general regulations adopted by the normal political bodies at the national, state and local levels regarding consumer rights, environmental issues, anti-discrimination provisions, etc. than to have these battles fought out, enterprise by enterprise.  Let the workers, who, after all, must spend forty-hours or so a week on the premises, govern their enterprises in accordance with rules set democratically by the larger society.

If workplace democracy democratizes labor, how might capital be democratized?  At stake here is the question of investment: How are funds for investment to be generated?  How will they be allocated?  This latter question is of particular importance, since investment priorities determine the trajectory of an economy over time.  Schulman and I agree that these decisions are too important to be left to blind market forces.  Some sort of democratic planning must be invoked if we are to have any kind of conscious control over our economic future.

The mechanism I propose for Economic Democracy is straightforward.  Investment funds are raised by a flat-rate tax on the capital assets of all business enterprises.  These funds are collected by the central government, then channeled back to regions--all of these funds--for the purpose of investment.  Every region--and every locality within each region--gets its per capita share.  This process is simple and transparent.

Regional and local governments, when they get their "fair share" of the national investment fund, then decide how much of these funds should be set aside for public projects--new schools, hospitals, parks, bicycle paths, whatever.  The remainder then goes to public banks, which make them available to businesses wanting to retool, expand production or introduce a new product line, or to individuals or groups wanting to start up new businesses.  Here a double criteria is invoked: the economic viability of the proposed project and its potential for increasing employment in the region.  (Genuine full employment is an explicit value in Economic Democracy: anyone who wants to work has a right to a job.  The government stands by as the employer-of-last-resort for anyone unable to find work elsewhere.)  Communities, if they so desire, may also impose other criteria, in an attempt to steer their economy in particular direction (ecological sustainability, for example).

The investment mechanism Schulman proposes is less straightforward than that of Economic Democracy.  He tells us that "decisions on investment within an industry would be made by the negotiated coordination body for that industry, which would consist of representatives of those affected by the decisions," i.e., all of the above stakeholders, with (presumably) every enterprise in the industry having some representation.

He doesn't tell us from where the investment funds, whose allocations is to be negotiated, will come. Do firms pool their profits?  (Not a good idea, since this would remove all incentives to efficient production.) A capital assets tax could be used, as in Economic Democracy, so the source issue need not be a major problem.

More serious: he doesn't tell us what constitutes "an industry."  Presumably automakers do. Do makers of machine tools constitute an industry?  Do shoe stores?  Do "restaurants" count as an industry?  Consider restaurants.  If they are an industry, then their "negotiated coordination body" will have among its members representatives of each restaurant in the community, (or region or nation, depending on how "industry" delineated), who must pour over the accumulated data--sales figures, profits, employment, etc., for every restaurant, and then decide, via "discussion and negotiation" which restaurants will be allow to expand, which ones must contract, etc.  (Think about this. Would you want to serve on such a committee?)

More serious still: Schulman doesn't tell us how investment funds are to be allocated among the industries themselves.  In principle, by negotiation, but how, concretely, might that work.  Will the larger industries have more votes?  If so, won't their priorities dominate?  If industries aren't represented by size, what criteria will be used?

Bottom line: Schulman and I agree on the need to restructure enterprise governance and the mechanisms by which investment decisions are made so as to make each more democratic.  But we disagree sharply on the structures that should replace capitalist structures.  It is my contention that, when you try to think through carefully how the structures of DPNC would work in practice, you uncover major (to me insurmountable) difficulties.

Let me conclude by commenting on two other issues raised by Schulman, and one not raised.

First, market socialism, he says, would reward people according to the productive contribution of their own labor, which isn't fair, because luck in the genetic lottery would still count.

It's true that there will not be complete equality under ED.  But there will not be complete equality under DPNC, not unless the "negotiated consensus" holds that material incentives are no longer needed to encourage people to work conscientious and efficiently, to develop their talents, to worry about customer satisfaction, to engage in innovation, etc., etc.  That is, unless the consensus is that we have reached the stage where work is so satisfying that each will produce according to his ability and consume according to need--Marx's "higher stage of communism."

So, if we are talking about a real-world alternative to our existing economy, there will be inequalities, at least for the foreseeable future.  The question is, should these inequalities be determined by the overall performance of an enterprise in the market and the democratic judgment of its workers as to what constitutes a fair distribution of the profits, or should wage levels be determined by some "negotiated coordinating committee" somewhere.  I think the former option is infinitely preferable.  To be sure, there's an element of luck involved--and not just genetic luck--but when one's income is directly tied to the success of one's firm, one is motivated to work efficiently, and to encourage colleagues to do the same.  One takes collective pride when things go well.  One is motivated to look for problems and solutions when they do not.  None of these motivations come into play when one's income is disconnected from enterprise performance.

Second, Schulman seems to suggest that ED would leave such things as "education, health care, child care, elder care, etc." to the vagaries of the market.  He may not have meant to give that impression, for he doubtless knows that After Capitalism proposes a "principle of intergenerational solidarity" that prescribes collective responsibility for child care and elder care.  I explicitly endorse the kinds of universal healthcare, education, childcare and elder care that already exists in the most attractive social-democratic countries in the world.  Market competition is indispensable to an efficient, innovative economy, but there are crucial elements of human welfare that should not be given over to the market.  Schulman and I are on the same page here.

Concerning an issue not raised: Schulman and most other Left critics of worker-self-managed market socialism seem to think that democratic firms operating in a market environment will behave the same as capitalist firms, that competition will force a congruence. This is false.  Internal structures matter here.  One crucial difference: democratic firms lack the expansionary dynamic endemic to capitalist firms.  For a basic structural reason: When a capitalist firm doubles in size, it can expect to double it profits (assuming demand for its product exists).  When a democratic firm doubles in size, it too doubles its profits--but it also doubles the number of workers who share in these profits.  In essence, each worker's income remains more or less the same, while, at the same time, each worker's vote counts for half of what it did before.  So, once a firm has reached a size that takes full advantage of economies of scale, it tends to remain at that size.  It doesn't expand further.

One consequence: competition among firms is less cut-throat.  A firm does not want to lose market share to a competitor, but neither does it want to drive its competitor out of business.  (Non-profit firms exhibit a similar characteristic.  Universities, for example, compete for students, but they rarely want to increase overall enrollment dramatically, or drive their rivals to the wall.)  A second consequence: the tendency toward monopoly is far weaker in a worker-self-managed market socialism than it is under capitalism.  A third: firms lacking an expansionary dynamic are far more consonant with ecological sanity than are capitalist firms. (I develop this latter point in some detail in my article “A New Capitalism or a New World,” in the Sept/Oct 2009  issue of World Watch magazine.)

A defender of DPNC could argue that his model also has these good features, which is true.  But ED is economically feasible.  DPNC is not.  I agree with Schulman that "you can't beat something with nothing," but that "something," which we need to be able to articulate when confronting capitalism, has got to be able to withstand critical scrutiny.

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