SolidarityEconomy.net

by David Schweickart

Immanuel Kant proposed three questions as constitutive of the philosophical enterprise: What can we know? How should we act? For what may we hope? As a philosopher long interested in economic issues, let me offer some thoughts on these questions as they apply to our contemporary economic order: What do we know? In what may we hope? What should we do? I want to talk about the big picture–about capitalism and about what, if anything, might come next.

Part I: Four Development Theses

The publication in 1978 of G. A. Cohen’s Karl Marx’s Theory of History: A Defense marked the beginning of an exciting new genre of Marxist scholarship in the English-speaking world.[1] “Analytical Marxism” was the (soon-to-be applied) official appellation. “Marxism without the bullshit” was the unofficial label among core afficionados. Henceforth, the conceptual and logical rigor of analytical philosophy and the best methods of contemporary social science would be applied to the various elements of Marxist theory. Although most participants in the project thought of themselves as in-some-sense Marxists, there was a determination to let the chips fall where they may. What cannot be rigorously defended will be discarded, however sacred the pedigree.

In 1983 Kai Nielsen joined the analytical-Marxist debate on Cohen’s book with his essay, “On Taking Historical Materialism Seriously.”[2] Two theses are central to Cohen’s defense of historical materialism: the “primacy thesis,” which asserts that economic forces explain economic relations, and the “development thesis,” which asserts that these economic forces tend to develop over time. Cohen, famously and controversially, appeals to the concept of “functional explanation” in defending the former. He sees the latter as less problematic, deriving from human intelligence and rationality in the context of material scarcity, and thinks it confirmed by historical experience.

But has it been? “Should we accept the development thesis?” Nielsen asks. He notes that some critics, even Marxists ones, are skeptical. (He cites Andrew Levine, E. O. Wright, Joshua Cohen and Milton Fisk.) Nielsen points to an extensive set of counterexamples, societies in which the tendency for productive forces to develop did not manifest itself over long periods of time (a century or more): the Roman Empire, the Incan Empire, the aborigines in Australia, the native peoples of New Guinea, the Ming and Xing Dynasties in China.

He then upsets the reader’s expectation by pronouncing in favor of the development thesis. If we think of the thesis as applying, not to individual societies, but to “human society as a whole,” then, he argues, the thesis is not disconfirmed by such examples. He argues further that the concept, “human society as a whole,” does not involve reification, nor does it commit one to any problematic metaphysical doctrine of universals.

Well then, if the development thesis is true, does it follow that historical materialism is true? Nielsen grants that Cohen has shown it to be coherent and plausible, but that’s not the same as being true. What about the most important claim of the theory, the claim that energized generations of socialists: the prediction that capitalism would one day be supplanted by a higher, more humane form of society? Cohen himself does not explicitly endorse inevitability, but the tenor of his book is decidedly optimistic. He argues that the productive forces of society are not now rationally deployed, given our technological capabilities and the needs and wants of the great masses of people. Hence, “capitalism is no longer justified, and no longer stable.” [3]

Nielsen asks two obvious questions. Given the vast ideological resources of capitalist societies, will these great masses perceive the suboptimality of the system? Secondly, even if they do, will they risk their necks to bring a new order into being–given the awesome technological means of supervision, control and oppression in the hands of the ruling classes of the world? He concludes that we can only hope that historical materialism is true. He invokes Antonio Gramsci: “Pessimism of the intellect and optimism of the will [is] a compelling way of ordering one’s being.”[4]

Let us look at this “successor-system” question more closely. I doubt that there are many of us today who, when thinking seriously about the future, do not feel a sense of foreboding. Ever-widening disparities of income and wealth. Global warming. Failed states. Terrorism. But I want to argue that if we take historical materialism seriously, we need not be pessimistic. Our spirits may be down right now, but pessimism of the intellect–at least with regard to long-term prospects–may not be warranted.

To establish this claim, or at least make it not implausible, I need to add another premise to the standard theory of historical materialism, as set out so rigorously by Cohen. If we take seriously the driving force of technological development in shaping human history, we must note that technological development has not been confined to forces of production, that is to say, to the means by which we interact with nature to produce the goods and services we consume. Let me propose a second development thesis. It, like Nielsen’s version of Cohen’s, is understood as applying to human society as a whole. If Cohen’s thesis is D1, let us add: D2: Means to species solidarity tend to develop over time.

In my view, D2, although rarely theorized within the context of historical materialism, is central to any convincing account of epochal transition. Let us reflect on this thesis for a moment. Let us begin by observing that our capacity to identify deeply with other members of our species and with the human species as a whole (what Marx, following Feurerbach, calls our “species being”) is a contingent biological fact. Our species needn’t have evolved such a capacity.

Suppose, for example, that the human brain had sufficient memory for only one language, or was incapable of keeping separate languages distinct. Suppose any human child was capable of learning any language–but only one. New words could be added to one’s vocabulary and to the language as whole, but they had to fit into the existing language, whose grammatical structures themselves evolved over time. Under such conditions, as subsets of our species moved out of Africa and spread around the globe, we would have become ever more alien to one other–as is the case with every other species that has dispersed geographically. With languages not inter-translatable, there would be no possibility of eventual convergence, no possibility of mutual recognition resulting in a felt sense of common identity, no possibility of a common human project.

Technological developments have, over time, given our innate capacity to identify ourselves with others ever greater scope. As a result, the size of communities with a real (as opposed to merely abstract) sense of identity has been growing steadily, from small kinship groups to clans to cultural-linguistic regions to multi-cultural nation-states. Consider the technologies we have invented: story telling, which allowed for the development of tribal myths and hence a sense of historical identity; versifying, which enabled stories to extend themselves in length and complexity while preserving basic content (relatively) undistorted; then writing (and reading), printing, and, of course, most recently, the electronic media.

These developments in means of communication have been complemented by technological developments in means of transport, facilitating trade as well as face-to-face contact among people of diverse lands and cultures. To be sure, initial contacts did not give rise to an immediate sense of common identity. Initial encounters often led to conquest and exploitation. But over time, identity has come to trump difference. It is more difficult today, surely, than at any time past to perceive the other as radically other and thus subhuman.

Needless to say, I am not claiming that the sense of common humanity, of “species being,” is the dominant identity of a large portion of humanity at present–but the tendency to enlarge one’s identity to include an ever larger segment of humanity is unmistakable–and is due to technologies that bring us into ever closer affective and intellectual contact with each other.

[One small piece of supporting evidence: During the Vietnam War, the U.S. government celebrated the number of “enemy combatants” killed. The now-notorious “body counts” were a regular feature of the nightly news. By contrast, the U.S. government refused to release even an estimate as to how many Iraqi soldiers were killed in the 2003 invasion of Iraq. Why? Because those officials controlling the news flow knew that Americans were not going to be thrilled by high numbers. Those much-maligned American TV viewers, for whom the presentation of the war was so carefully scripted, are far more likely to feel a pang of empathy for those young dead Iraqi soldiers than would ever have been the case thirty years ago for the dead Viet Cong.]

So if we take the “long view”–as historical materialism urges–there would seem to be grounds for optimism about the future. Our productive capabilities continue to develop, making the brute facts of widespread poverty and economic insecurity ever more scandalous. And the technologies that draw us ever closer together increase the likelihood that more and more of us will see ourselves as co-participants, as human beings, in a global project to enhance our mutual security and material well-being.

Of course there are countervailing forces. A third development thesis, D3, might be invoked: the forces of destruction tend to develop over time.

We hardly needed the recent display of U.S. military shock and awe to convince us of the truth of this thesis. However, its implications are worth pondering. Historical materialism has paid little attention to the development of military technologies–a deficiency, perhaps, but one linked to the insight that warfare itself usually has an economic basis, and therefore should not be considered an independent variable. Wars, after all, are not sudden, irrational irruptions, but undertakings planned by political elites. In general (although of course not always) wars are initiated either for economic gain or to protect existing economic interests.

But if warfare is driven by the prospect of economic gain, then the ever-increasing destructiveness of military technology, in the context of the economic relations of production now in existence, is rendering warfare obsolete. Simultaneously, the potential costs of war have gone up, while the potential gains have gone down. It can no longer be considered even remotely worth the risk for a developed country to engage in warfare with another developed country, or even with a large poor country that possesses ample “weapons of mass destruction.” The United States will never again go to war with Germany, nor will it go to war with France or Russia or China. There will never be a World War III, not even over scarce resources.

Under existing conditions, poor countries (or subgroups within poor countries) will continue to wage war on one another, since there are often substantial gains to be had in terms of control of resources needed locally or valuable on the world market, and little to lose, given their economically desperate straits. But these wars will remain localized. Rich countries (one rich country in particular) may still wage war on select poor countries, but even that is becoming increasingly unlikely, given the Iraqi debacle. It is becoming increasingly clear that there is little to gain in doing so. Such wars will not enhance the economic well-being of the developed countries, for even if a poor country does contain, say, a honey-pot of oil, there is no better way of extracting the benefits than the standard unequal-exchange arrangements of the global market. Military occupations are more costly. European nations learned that lesson decades ago. The United States is learning it now.

In short, I do not think that the historical materialist prediction of a better future is seriously undermined by its neglect of D3. I would venture that the Pentagon’s development of the internet will have far more impact on the shape of our new century than all of its research on high-tech weaponry during the past half-century or so combined.

If an historical materialist trying to remain optimistic can ignore D3, what about another development thesis, one suggested by Nielsen’s deep reservations mentioned earlier? Let me call it D4: the means by which a minority ruling class can effectively control a subject majority tend to develop over time.

Here we come to the heart of the matter. Can the mechanisms of D4 contain the positive potential of D1 and D2? First-generation critical theorists were the first to theorize this possibility. Technological progress, the unsentimental grounding of Marxian hope, might usher in, not the realm of freedom, but its opposite. The dialectic of enlightenment might culminate in a one-dimensional consciousness incapable of revolt.

The question is a chilling one: Why should we think that developments in means of control will not be sufficient to keep developments in forces of production and means of species solidarity from transforming the economic structure of society? Indeed, in most societies at most times in human history, they have been sufficient.

But not always. Occasionally the controls break down. And when the controls break down in a particular society, and a new, more productive mode of production comes into being, the example tends to be contagious. Latent conflicts become open; suppressed classes become emboldened. We enter an epoch of social transformation. Notice: slavery as a mode of production no longer exists. Serfdom as a dominant economic modality no longer exists. Nor is there any prospect of large-scale regression to these forms, fevered science-fiction novels and films to the contrary notwithstanding.[5]

Why have the mechanisms of control, over the long term, been unable to prevent radical changes in relations of production, changes bitterly opposed by existing ruling classes? Why have the technical developments in mechanisms to which D4 refers been unable to keep pace with those of D1 and D2? Is this is a matter of sheer contingency, with no predictive implications, or are there grounds for thinking that this pattern will extend into the future?

Needless to say, we cannot hope to find a law of historical inevitability here. Historical materialists have been chastened enough by history to give up on inexorable “iron laws.” But there are reasons for doubting that we are dealing with mere chance.

Let us think about D4. Is this development thesis even true? The truths of D1, D2 and D3 are indisputable. Not so the truth of D4. For the technological developments that have enhanced the ability of a minority to control a majority have gone hand in hand with the declining effectiveness of older mechanisms. When referring to a general development in means of control, we have to consider the whole portfolio. But then it is not so clear that advances tend to outpace declines.

Take our present situation. Whereas it is incontestable that contemporary means of production, communication and destruction are more effective than those they have supplanted, it is by no means self-evident that contemporary means of control are more effective than earlier means.

Consider the mechanisms that have long sustained the capitalist order. A short list would include authoritarian religion, the patriarchal family, systematically cultivated racism, and an educational system more or less explicitly geared to indoctrinating the young into unquestioning patriotism. Conservative moralists are not wrong to worry about the decline of “traditional values.” They are declining. Deference to religious authorities, subservience to standard concepts of masculinity and femininity, overt racism, and “my country right or wrong,” values that have been central underpinnings of historical capitalism, still cause much harm, but they are hardly in the ascendancy.[6]

In place of these, what? Michel Foucault has delineated quite brilliantly the micro-mechanisms of surveillance and discipline that have become so pervasive in modern life.[7] Frankfurt School theorists initiated a critique of the “consciousness industry,” a set of mechanisms that have become ever more sophisticated.[8] No doubt about it, we are treated now, in developed countries anyway, to more bread and more circuses than in times past (mindless consumerism, mindless entertainment), and, in the land of the current hegemon, there exists a truly massive (and truly brutal) surveillance/prison complex.

But do these developments offset the decline of the traditional mechanisms of control?
Let’s hold that question for awhile. We’ll come back to it.

Part II: Three Questions

I’ve focused this paper thus far on development theses. But if historical materialism consisted of nothing more than D1 and D2, it would be indistinguishable from the nineteenth century liberalism of John Stuart Mill, or indeed twentieth century liberalism generally. Our productive capabilities grow steadily; our sense of species solidarity grows apace; sooner or later we march together into the promised land.

But Marx’s model is more conflictual than the liberal paradigm. Historical materialism posits a growing contradiction between steadily developing forces of production and relatively stagnant relations of production. Although a new set of economic relations initially advance forces of production, they eventually turn into–to use Marx’s metaphor–”fetters.” The time becomes ripe for a transformation to a new, more effective set of economic relations.

We need to make explicit here an exceedingly important tacit assumption of this theory. The notion that a set of economic relations that “fetters” the development of means of production will yield to a set that does not, presupposes the imminent possibility of such a favorable set. There must exist a viable alternative to existing relations. This is another premise that has gone relatively untheorized by historical materialists. Why should we assume that an Hegelian aufhebung will present itself when the contradiction between forces and relations of production reach a certain intensity?

I will not pursue this question in its general form. What really interests us is the present. We see now that an historical materialist, looking at the world today and trying to make an informed prediction about our future, must ask three questions:

1. Do existing relations of production significantly “fetter” the development of productive forces?

2. Does there exist a viable, more desirable alternative?

3. Can the development of mechanisms of control block the emergence of this alternative?

As to the first question–simply consider how much “human capital” is currently being squandered; i.e., how many able-bodied human beings there are who want to work but can’t find work, even though the human needs of billions remain unmet. Two months ago Juan Somavia, the Director-General of the International Labor Organization (ILO) warned that the world is facing “an unprecedented global jobs crisis of mammoth proportions.” In the last ten years official unemployment has grown by more than twenty-five percent and now stands at 192 million, about half of which are young people under the age of twenty-four.[9]

Not so long ago, following the collapse of communism in Eastern Europe and the Soviet Union, there was renewed hope in many quarters that capitalism could save us. I submit that much of our current sense of foreboding is due precisely to the fact that the neoliberal project, capitalism’s latest attempt to surmount stagnation, is itself in crisis. It has failed. Capitalism has been given an increasingly free reign for a quarter of a century now. The wreckage is everywhere on display. Global poverty remains scandalously severe; inequality and economic insecurity are on the rise in almost every country; those countries that most enthusiastically embraced the new paradigm–those of the ex-Soviet Union and Eastern Europe, as well as Argentina and most of the rest of Latin America–have been bitterly disappointed.

Neoliberalism, when it emerged from the exhaustion of the social democratic project, had a certain energy and promise. That energy and promise have vanished. It is obvious, is it not, that capitalism no longer inspires? It sustains itself now on fear–nowhere more so in that most frightened of republics, the current global hyperpower.

The root problem is precisely that identified by Marx: forces of production have overwhelmed relations of production. Global competition has generated enormous overcapacity in manufacturing industries worldwide.[10] Increasing productivity has rendered larger and larger segments of the workforce structurally unemployed. Rapid technological change and the hypermobility of capital have made those who do work increasingly insecure.

But is there a viable alternative, one that preserves the virtues of capitalism while eliminating, or at least mitigating the vices? It is to this fundamental question that we must now turn.

Part III: Economic Democracy

Let me begin with an historical observation. If we look at world history over the course of the past several centuries, it is hard to miss the fact that democracy has been advancing. Not steadily. There have been fits and starts, setbacks as well as gains, but it can scarcely be denied that the world is more democratic now than it was three centuries ago, or two centuries, or one century or fifty years ago or even twenty. There is scarcely a country in the world that does not at least call itself democratic. To be sure, there is a lot of hypocrisy here, but of course hypocrisy is the tribute vice pays to virtue. The notion that people have the right to rule themselves is an idea of near-universal currency right now, and it shows few signs of weakening.

Democracy has not only extended itself geographically, but in most countries it has deepened internally. Property qualifications have been dropped. Women have been granted the vote. Racial minorities are no longer formally excluded from political participation.

This deepening of democracy has changed the very nature of the state. We no longer tolerate a “night-watchman” state, a minimalist government that does nothing but maintain our national defenses and enforce law and order. Philosophers and assorted libertarians sometimes defend such an idea (Robert Nozick, of course, comes to mind) but no one takes them seriously–apart from other philosophers, most of whom strive to pick holes in some admittedly clever arguments. But in the larger society there is a near consensus: the state is also supposed to ensure that our children our educated, our elderly receive pensions, our workplaces are safe, our wages are at least above a bare “minimum,” our air and water are clean, and more–much more in European countries, but more even in the United States.

The fact of the matter is, we hold our government responsible for the state of our economy. There are few national elections in which the economy is not one of the central issues. And if there should happen to be a financial crisis–a major corporation threatened with bankruptcy, Savings and Loan Associations suddenly in deep trouble, a serious stock market downturn–we expect, indeed we demand, that the government intervene. Almost always it does.

A socialist will contend that this extension of democracy into the economic realm is a trend far from complete. Of course the trend will be resisted. Democratic rights have rarely been granted without a fight. It will always be argued that further democratization is unworkable, and, if attempted, will have dire consequences. Such arguments are always made, and yet, to date at least, these arguments (and the powers they represent) have not been able to hold back the democratic tide.

I want to suggest that Economic Democracy is on the horizon. It will probably be awhile before we get there–although it should be noted that the rhythms of history are not constant. Long periods of relative structural stability are punctuated by periods of rapid transformation. (Witness the sudden, wholly unexpected, collapse of the Soviet system.) In any event, if we know where to look, we can discern, even in the present, economic experiments, political reforms, and intellectual shifts that point to an economic formation vastly more democratic than the one in which we live today. If we know where to look.

Needless to say, our smart pundits disagree. Here’s one of the best and brightest, Thomas Friedman, liberal-realist, Pulizer-Prize-winning columnist for the New York Times, in his widely-read, highly-praised book on globalization, The Lexus and the Olive Tree:

When it comes to the question of which system today is most effective at generating rising standards of living, the historical debate is over. The answer is free market capitalism. . . . So, ideologically speaking, there is no more mint chocolate chip, there is no more strawberry swirl, and there is no more lemon-lime. There is only free-market vanilla and North Korea. There can be different brands of free-market vanilla and you can adjust your society to it by going faster or slower. But, in the end, if you want higher standards of living in a world without walls, the free market is the only alternative left. One road. Different speeds. But one road.[11]

I happen to think that Friedman is wrong. There is another road, and it is not so hard to discern, if you know how to think and are not blinded by prevailing ideology. I have already named it: Economic Democracy. It is an economic order that goes beyond capitalism. It is a socialist “strawberry swirl” that would taste much better (to most people) than free-market vanilla.

What might it look like, this new economic order? To answer this question, let us begin, not with an abstract model, but with what we know in light of the economic experiments of the past century, which occurred in unprecedented numbers. We now know at least three big things:

First of all, we now know that competitive markets are essential to the functioning of a complex, developed economy. This is the negative lesson of the socialist experiments of the twentieth century. It follows that Economic Democracy will be a competitive market economy.

We need to be careful here. Socialists and pro-capitalists alike have tended to see “the market” as a unitary structure, to be either condemned or embraced wholeheartedly. This is a mistake. For “the market” under capitalism is comprised of three quite distinct markets: a market for goods and services, where producers compete with one another for customers, a labor market, where workers compete with one another for jobs, and a capital market, where enterprises compete with one another for investment funds.

What we now know is that a market for goods and services is essential to the efficient functioning of a complex economy. Not a wholly free market, nor one that embraces all goods and services (education, health care and retirement provisions, for example, need not be market-based), but one that includes most goods and services and is not overly regulated. We want our enterprises to compete with each other for customers. We want them to try to find out what people desire, to produce as efficiently as possible, and to innovate. Enterprise competition is, by and large, a healthy form of competition. Economic Democracy will maintain the market for goods and services. The other markets, however, those labor and financial markets, are another matter altogether.

The second big thing we now know is that some sort of democratic regulation of investment flows is essential to rational, stable, sustainable development–for individual countries and for the world economy as a whole. This is the negative lesson of the neoliberal experiments of the last twenty-five years. We need some sort of “investment democracy” to complement the “consumer democracy” of the market.

Neoliberalism made its appearance as a real-world economic strategy with Margaret Thatcher and Ronald Reagan, to combat the “stagflation” (stagnation plus inflation) of the 1970s, which was seen to be the inevitable outcome of Keynesian-liberal social democracy. The neoliberal critique was not altogether wrong, but the neoliberal alternative has not fared so well. The neoliberalism agenda calls for privatization, deregulation, free trade, and a large-scale attack on labor unions and the “welfare state.” However, many of these measures have been resisted. Subsidies persist (particularly in agriculture). Labor unions have weakened but not been completely broken. The welfare state has been cut back, but far from wholly dismantled.

The neoliberal proposals most fully implemented are those calling for a deregulation of the financial markets. Financial deregulation was powerfully supported by major financial institutions, whereas there was little organized opposition. Capital became free, as never before, to seek its highest return wherever that might be: in whatever industry or speculative venture, at home or abroad. Soon enough came the great Savings and Loan debacle of the late 1980s, followed by the financial convulsions of the 1990s and beyond. All this turmoil, and very little gain–except for the rich. The rising tide raised only a few boats, while swamping vast numbers.

(Economist Paul Krugman has noted that “by standard measures, the real take-home pay is lower now than it was a quarter of a century ago.” He has also pointed out that over the past thirty years the average annual salary in America has increased only ten percent, whereas the real annual compensation of the top 100 C.E.O.’s increased three thousand percent.[12])

Clearly, neoliberalism has lost its luster. It no longer has the intellectual cachet it once had. There are not many true believers left–only cynics, sycophants and those policy-makers who plod on with their programs through force of inertia. It is clear to almost everyone else who thinks about such things that we have to reign in those out-of-control capital markets if we are to regain any kind of control over our economic destiny.[13]

There is something else we know–at least those of us who study such things. Most people don’t know this fact. It is not something talked about on TV or in polite company. It is too embarrassing. We know that productive enterprises can be run democratically with little or no loss of efficiency, often with a gain in efficiency, and almost always with considerable gain in employment security. This is the positive lesson of a great many recent experiments in alternative forms of workplace organization.

This fact is embarrassing, because it raises an embarrassing question. Why is it that in a country that celebrates, indeed almost deifies, democracy, that allows us to elect our mayors, our state and local legislators, the national leaders that can send us off to kill or be killed . . . why is it that in such a country we can’t elect our bosses?

The obvious answer is that workplace democracy doesn’t work, that ordinary workers don’t have the competence or self-discipline to select good managers. The problem with this obvious answer is that it is empirically false. There are thousands of successful worker-run enterprises operating around the world. These have been extensively studied. To my knowledge there does not exist a single comparative study that finds the authoritarian (i.e. capitalist) model superior to the democratic one.[14]

Students of democracy will not find this result surprising. To be sure, there are problems with democracy. Too many cooks can spoil the broth. Majorities can oppress minorities. These are standard problems in all democracies, for which there are standard solutions. Representative structures must be put in place; management must be given sufficient power and autonomy to make difficult decisions without being second-guessed at every turn; enterprise “constitutions” must protect minority rights.

With the right structures in place, workplace democracy works. Not perfectly. Bad managers are sometimes appointed. Bad decisions are sometimes made. Democratic firms sometimes fail. But Winston Churchill’s dictum appears to hold: “Democracy is the worst form of government–except for all the others that have been tried from time to time.”

If we reflect on what we know regarding economic institutions, and on our economic and social problems, which are becoming ever more acute, we see that these problems cannot be solved without a radical restructuring of our economic institutions, and that such a restructuring should involve democratization. Specifically, we need to democratize labor and democratize capital.

We also need to democratize democracy–that is to say, break the corrupting stranglehold corporate influence and concentrated wealth have on our political process. We need campaign finance reform, free media access for viable candidates, etc.

Democratizing democracy is perhaps our most urgent task, but we need to see beyond that. We need a clearer vision as to what it would mean to “democratize labor” and “democratize capital.” Let me spell out a concrete proposal in some detail, not as something to be accomplished immediately, but as a goal that can orient our aspirations and practices.

Let me fill in some of the details of this socialist strawberry swirl called Economic Democracy. Let us consider a society like that of the United States, and ask what Economic Democracy might look like here. What changes might we envisage that would transform our current capitalism into a democratic economy, one that preserves the efficiency strengths of capitalism, but mitigates its most distressing features?

Suppose we put nationalization back on the agenda. Actually, nationalization has never been on the agenda in the U.S., although it was in much of the rest of the world after World War Two. Neoliberalism took it off. Privatization became the rage. Privatization hasn’t worked. But we don’t want the old-style nationalization either, where government bureaucrats managed state-owned enterprises. That didn’t work so well either. Let us try something different. Let us try democracy.

Imagine an economy where all “public” corporations, that is to say, those corporations whose stocks are freely traded on the stock exchanges, have been nationalized (with compensation)–and turned over to their employees, to be managed democratically. Instead of absentee owners (stockholders) voting for a board of directors that appoints upper management, the employees elect a workers’ council, which will select the CEO and monitor the performance of his or her team. Workers have a direct financial stake in selecting good management, since their own incomes are tied directly to the company’s performance. They also have a direct stake in the performance of their fellow-workers, so less monitoring will be needed. Moreover, workers generally have a more intimate knowledge of a company than distant stockholders, so mistakes are likely to be detected more quickly.

Workers would not own the company, but they would control it. The company would be required by law to set aside a portion of its profits in a “depreciation fund,” to be used to replace deteriorating plant and equipment. But apart from this requirement, workers would have full authority over the operation of the enterprise: hiring and firing, income differentials within the company, what is produced, how it is produced, pricing, etc. Of course management would make most of these decisions, but this management is ultimately answerable to the workforce–not to stockholders or the government.

Economic Democracy does not require complete nationalization. Small businesses need not be democratized. Even large capitalist concerns can continue to function as capitalist firms, so long as they are privately-held, not publicly-traded, companies. A viable socialism can allow for a capitalist sector. The point is to democratize the “commanding heights” of the economy–those companies whose shares are now traded on the major stock exchanges. These “public” companies should become truly public, that is to say, owned by society and governed democratically.

Capitalist firms in such a setting would pose no threat to the democratic-socialist character of the economy. To the contrary, with the commanding heights democratized, employers in the capitalist sector will be under pressure to develop more participation and profit-sharing opportunities for their own employees, for they must compete with democratic firms for the best workers.

If “democratizing labor” means workplace democracy, what does “democratizing capital” entail? Consider the problem. Under capitalism, we, as citizens, lack democratic control over our society’s social surplus–the private-sector profits generated each year, which are either consumed by those legally entitled to them (i.e. the owners of these enterprises) or reinvested. But how much of the social surplus is available for reinvestment, and how this investment is allocated, determines the future of our economy: which regions will grow and which will wither, which sectors will thrive and which will be starved, how much of the social surplus will be reinvested at home and how much will go abroad.

The fact of the matter is, it is exceedingly difficult to control the allocation of investment funds when these funds represent the private savings of individuals. How can a government tell a person where to invest his money? By what right can a government prohibit a person from investing abroad, if she so desires? And even if a government should claim such authority, how could that authority be enforced in an age of electronic transfers?

It follows that an effective democratization of capital requires breaking the connection between private savings and investment. We should not rely on private savers to generate our investment funds. These funds should be generated publicly.

There is a surprisingly simple way to do this. Let us impose a capital assets tax on every business enterprise–a flat-rate tax that can be regarded as a “federal property tax” on revenue-generating property. Revenues from this tax will constitute society’s “investment fund”– the money to be plowed back into the economy each year to enhance job creation and productivity growth. Since it is a flat-rate tax imposed uniformly across the country, it will have little effect on the relative competitiveness of firms. [It will have some effect, since the tax will fall more heavily on the more capital-intensive firms, but this is desirable, since it reduces (somewhat) the tendency to replace workers by more capital-intensive technology. Notice, the current payroll tax in the United States has precisely the opposite effect. Here we tax labor but not capital, thus exacerbating unemployment. It would be best to tax both, targeting the labor tax (as is now done) to social security and the capital tax to investment.]

All the revenue generated by the capital assets tax should be reinvested in the economy. Since these are public funds, they should be allocated via public banks, using criteria in addition to (but not other than) profitability considerations. They should, for example, be allocated regions the way public goods are allocated (usually on a per-capita basis), thus allowing for harmonious regional development.

This “democratization of capital” has three crucial consequences:

1. Regions do not compete for capital. Each region gets its per-capita share of the national investment fund each and every year, as a matter of right.[15] Thus regions are not tempted to compete for capital by offering tax breaks to companies who will come to their regions, less stringent environmental regulations, less unionization. These forms of destructive competition are blocked.

2. This tax-generated capital stays in the country. It does not flow abroad in search of higher returns elsewhere. Since democratic firms do not relocate to lower-wage parts of the world either, or outsource their work, the whole problem of job migration abroad disappears.

3. Since these are public funds, a certain amount of investment prioritizing can be set by national, state and local governments. For example, funds can be offered at lower rates to companies willing to invest in environmentally-friendly technologies, or to help companies transition from the production of socially or environmentally harmful commodities to those more beneficial.

There is one huge and growing problem in our world today, already mentioned, that simply “democratizing labor” and “democratizing capital” does not address. How do we insure that every person who wants to work can find a job? Unemployment rates are high and rising in almost every country on earth. The consequences are terrible: poverty, deep psychological demoralization, increasing insecurity on the part of those who still have jobs. However attractive Economic Democracy might otherwise be, it cannot claim to be a worthy strawberry swirl if it cannot offer a solution to this problem.

In fact it can, but to do so, an additional institution is necessary, since a competitive economy of democratic firms has no greater tendency toward full employment than does a capitalist economy. To be sure, democratic firms are less likely to lay off workers than are capitalist firms. They will certainly not “downsize” when times are good, just to increase profits. When times are not so good, they are more likely to share the burden than by cutting the workforce. When workers are citizens of their enterprise, they have vastly more employment security than when they are merely a “cost of production.”

However, there is no guarantee that an economy of democratic firms, even when supplemented by a capitalist sector, will provide decent jobs for all who want to work. To realize this longstanding socialist goal, a real “right to work,”[16] the government must actively intervene. It should intervene in two ways.

The first has already been mentioned, although without emphasis. Since investment capital, which comes from the capital assets tax, is allocated by public banks, these banks should make job creation a priority. Not an absolute priority. Funds should not be allocated just to keep struggling firms afloat. In a competitive market economy (which Economic Democracy is), inefficient firms, or those for whom demand for their product has fallen off, should not be subsidized. Market discipline is important to the healthy functioning of the economy. However, banks should give loan priority to startup companies and to firms willing and able to expand production by taking on new workers. Banks under capitalism do no such prioritizing.

The second form of governmental intervention is more direct and decisive. The government should serve as an employer-of-last-resort. That is to say, the government should stand ready to provide a job to anyone who wants one and who cannot find employment in the democratic or capitalist sector.

This concept, government-as-employer-of-last-resort, is not a novel concept. It has long been advocated by various economists and public policy thinkers. Indeed, the Humphrey-Hawkins Full Employment Act, which was signed into law in 1978, very nearly contained such a provision. Draft legislation did, but the key provision was excised by Congress, rendering the bill a mere platitude.

In fact Congress knew what it was doing. For capitalism cannot flourish without unemployment. (This is something else never mentioned in polite company.) The threat of unemployment is the disciplinary stick that keeps the workforce in check. Without it, workers get uppity, press for higher wages, more rights. We then get either inflation (if higher wages can be passed onto consumers) or a profit squeeze that brings on a recession (if they cannot).

Under Economic Democracy this disciplinary stick is unnecessary. This is a very important fact. Since workers’ incomes are tied directly to the profitability of the firm, the incentive to do well is positive, not negative. Full employment becomes a real, as opposed to a merely abstract, possibility.

Part IV: A Rational Expectation

We return now to our deferred question. Can the development of mechanism of control contain the mechanisms that are enhancing our sense of species solidarity and pushing us to go beyond capitalism? Can they block the emergence of Economic Democracy?

Perhaps. The vision is grim: global stagnation; elites holed up in gated communities; an ever shrinking middle class unable to protect, physically or economically, themselves or their children; an ever growing strata of the desperately poor; more and more police, prisons and border guards. That could be our future. Slavoj Zizak asks us to face “a bitter reality: that a new dark age is descending upon the human race.”[17] In this he echoes Alasdair MacIntyre’s pronouncement of two decades earlier: “The new dark ages are already upon us . . . . This time, however, the barbarians are not waiting beyond the gates, but have already been governing us for quite some time.”[18]

Perhaps, but I’m not so sure. The collapse of the Soviet Union is instructive. In the face of long-term economic decline, its mechanisms of control–a wholly controlled press, massive surveillance, a huge number of prisons–couldn’t stave off, first delegitimation, then structural transformation. Note too: the transformation was virtually non-violent– no armed uprisings, no civil war. The second most powerful military machine in human history could do nothing at all to preserve the old order.

Unfortunately for the Soviet citizenry and the citizens of Eastern Europe the neoliberal model was still in ascendancy at the time the old order fell apart. The appeal of this model (well enhanced by Western consultants who should have known better) proved to be irresistible.

That model no longer inspires. To what then will we turn, if history has not in fact come to an end? Which it has not–as the rational part of our soul well knows, however much the spirited element, currently daunted, urges the contrary.

I submit that pessimism of the intellect is out of place. Perhaps optimism of the intellect is too strong. The fact of the matter is, we do not know what the future holds in store for us–which means that bleak pessimism is intellectually unwarranted.

Let me end with three quotes, the first two from a man who was hardly a bubbling optimist. Commenting on the tendency to presume that the future will be simply a continuation and intensification of the bad things of the past, George Orwell writes:

The tendency to do this is not simply a bad habit, like inaccuracy or exaggeration, which one can correct by taking thought. It is a major mental disease, and its roots lie partly in cowardice and partly in the worship of power, which is not fully separable from cowardice.

He continues,

As for the claim that ‘human nature,’ or ‘inexorable laws’ of this and that make Socialism impossible, it is simply a projection of the past into the future. . . . By the same argument one could have demonstrated the impossibility of aeroplanes in 1900, or of motor cars in 1850.[19]

Let me end with one of my favorite passages from one of the best and brightest of our contemporary social critics. Arundhati Roy, in her essay “Come September,” a mediation on the meaning of the 9/11 terrorist attacks, concludes as follows:

The time has come, the Walrus said. Perhaps things will get worse, then better. Perhaps there’s a small god up in heaven readying herself for us. Another world is not only possible, she’s on her way. Maybe many of us won’t be here to greet her, but on a quiet day, if I listen very carefully, I can hear her breathing.[20]

Notes

1. G. A. Cohen, Karl Marx’s Theory of History: A Defense (Princeton University Press, 1978).

2. Kai Nielsen, “On Taking Historical Materialism Seriously” Dialogue XXII (1983): 319-338.

3. Cohen, Karl Marx’s Theory of History, p. 203. (Emphasis Cohen’s.)

4. Nielsen, “Historical Materialism,” p. 338.

5. I am not claiming that economic relations approximating slavery or serfdom have disappeared completely, for they have not. But these forms tend to exist in the interstices of contemporary economies. Nowhere are they economically dominant

6. All of these antedate capitalism, but all underwent significant modification so as to serve as legitimating factors of the new system.

7. Michel Foucault, Discipline and Punish: the Birth of the Prison (New York: Vintage, 1979).

8. The seminal text is Max Horkheimer and Theodor Adorno, Dialectic of Enlightenment (New York: Continuum, 1988). Published in German in 1944.

9. Complete text at www.ilo.org/public/english/bureau/inf/pr/2006/2.htm.

10. Overcapacity relative to effective demand–not, of course, relative to the needs and wants of existing human beings. “Overproduction” does not stand in contradiction of Marxian “fettering,” but is an exemplification.

11. Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Anchor Books, 2000), p. 104.

12. Paul Krugman, The Great Unravelling: Losing Our Way in the New Century (New York: W.W. Norton, 2003), p. 377, and “For Richer,” The New York Times, October 20, 2002.

13. For additional support for this claim, see Economics Nobel-laureate Joseph Stiglitz’s scathing critique in Globalization and Its Discontents (New York: W.W. Norton, 2002).

14. For a detailed consideration of this point, see Gregory Dow, Governing the Firm: Workers’ Control in Theory and Practice (Cambridge: Cambridge University Press, 2003).

15. Per-capita share is the prima facie principle governing investment allocation. This could be modified by the legislature at the appropriate level to take into account special circumstances.

16. Not to be confused with anti-union “right to work” laws that have been enacted in many states.

17. Slavoj Zizek, “How Much Democracy is Too Much?” In These Times, June 9, 2003, p. 25.

18. Alasdair MacIntryre, After Virtue (Notre Dame University Press, 1981), p. 245.

19. George Orwell, “Second Thoughts on James Burnham,” Polemic (Summer 1946). Accessible at http://orwell.ru/library/reviews/burnham/english/e_burnh.html.

20. Arundhati Roy, War Talk, (South End Press, 2003), p. 75.

[This paper was first presented at the Graduate Student Philosophy Conference: Discourse, Democracy, Justice, Loyola University Chicago, March 10, 2006]