Critical Education Articles Placed in the Teacher Staff Lounge While I Was a Teacher, Part Thirty-Three: Economic Democracy

When I was a French teacher at Ashern Central School, in Ashern, Manitoba, Canada, I started to place critiques, mainly (although not entirely) of the current school system. At first, I merely printed off the articles, but then I started to provide a summary of the article along with the article. I placed the summaries along with the articles in a binder (and, eventually, binders), and I placed the binder in the staff lounge.

As chair of the Equity and Justice Committee for Lakeshore Teachers’ Association of the Manitoba Teachers’ Society (MTS), I also sent the articles and summary to the Ning of the MTS (a ning is “an online platform for people and organizations to create custom social networks”).

As I pointed out in a previous post, it is necessary for the radical left to use every opportunity to question the legitimacy of existing institutions.

The attached article for the ESJ Ning is prefaced by the following:

Hello everyone,

I have sent another article to the ESJ Ning. I prefaced it with the following summary:

David Schweickart, in his article, “Economic Democracy: A Worthy Socialism That Would Really Work,” is as relevant today as it was when it was published two decades ago.

Schweickart argues that there is an alternative to either market capitalism or state socialism—it is economic democracy.

Although both market capitalism and state socialism have advanced technological conditions and expanded our lives in certain directions, they also have led to immeasurable suffering, oppression and exploitation for multitudes.

The alternative that would alleviate if not eradicate the many inequities and social justices in the world is based on a synthesis of three economic systems or subsystems that have had some success in the past: the Yugoslavian socialism, the Japanese form of capitalism and the Mondragon collective and cooperative economic system.

The author labels the model “economic democracy” rather than “workers’ control” since consumers and citizens have a role in determining the nature and functioning of the economy. Economic democracy includes, but is not limited to, worker self-management.

Economic democracy is composed of three elements. Firstly, companies are operated on the basis of democratic principles by workers. Secondly, the interrelationships among companies and other organizations are based on market principles of sale and purchase of raw materials and consumer goods through the forces of supply and demand, allowing for adjustments in prices and quantities. (Note exclusion carefully: there is not really a formal market for workers. Thirdly, investment is controlled by organizations which are themselves controlled according to democratic principles; a plan is democratically developed but is integrated into the market structure. The fund for investment is based on taxation.

The first principle—of workers’ self-management—involves several aspects, ranging from the election of managers to the determination of what, how and how much to produce and what to do with the surplus (if any) after a given period of time. There would be one person, one vote. The means of production (presumably, the major investments, such as building, machines and so forth) are not owned by the workers but are owned, collectively, by the entire society.

Since the means of production are socially owned, the workers have the responsibility to maintain a replacement or depreciation fund. They can reorganize the workplace, and workers are free to go to other places of production, but no one can sell off the means of production without the permission of community representatives, such as a community bank.

The second principle—a market economy between companies—involves using the market as an instrument to provide needed information to companies so that they can make rational decisions. However, if circumstances warrant it, price controls will be in place (when a monopoly exists, for instance), or price subsidies (such as in agriculture due to the vagaries of weather). The market is a tool to regulate our lives and not something good in itself.

Worker-managed companies would endeavour to make a profit, but the profit would be very different from the profit of a capitalist company. There would be profit on the basis of differences in the sale prices of the commodities produced and the costs of non-human inputs. The workers would have no “cost of production,” or price tag attributed to them.

Income for workers would be based on the level of net revenue available (after, of course deducting from gross revenue such items as depreciation fund, operating costs and so forth). Within that general pool of net revenue, equal shares need not be proportioned; differential revenue could be distributed according to the level of skills required and the dirtiness or difficulty of the work involved.

The second principle, of a market in means of production and consumer goods, is a way of reducing bureaucracy and an overly centralized economy.

The third principle—social control over investment—is a way of overcoming the limits of a capitalist economic structure, with its anarchy of production, its business cycle of prosperity, accelerated accumulation, recession or depression and improvement, with its attendant human suffering and waste.

In a capitalist economy, the market distributes resources and, in addition, it determines future development through changing prospects for profits in various industries. Saving of money and investing through money are linked via the rate of interest.

In an economic democracy, such a link is broken. The funds for investment are derived from taxes. This tax not only has the function of creating investment funds. It also is an inducement to use the means of production in an efficient manner.

The way in which new investment funds would be allocated could vary according to time and place. For instance, in some circumstances it might be preferable for the funds to be controlled by a minority of experts, who draft a plan for its use, develop a consensus (with possible modifications), propose the plan to a legislature and then implements it via tax incentives or disincentives in order to direct investment in a particular direction (the Japanese model). Another possibility would be to allocate the investment fund to a free market of local banks, charging the banks interest and thereby gaining tax revenue in this manner. There need not be a fixed method applicable for all times and places for the allocation of investment funds. This could be considered a socialist laissez-faire manner for new investment.

As Schweickart points out, new investment, though crucial in determining the direction and pace of the economy, does not represent a large proportion of actual investment.

New investment would assume one of three forms: the new investment decided by the worker cooperatives; the investment based on the promotion of certain lines of production that are considered desirable but which would not probably arise through cooperatives, perhaps due to the scale of production or because they are not profitable (but, it should be noted, the production would still be undertaken by cooperatives); and investments in infrastructure that would not have a price associated with them (education, health care, roads and so forth—organized along cooperative lines as well, of course).

Decisions on what investment to undertake and how much to allocate to each would be decided through legislatures at the appropriate level of centralization or decentralization.

The allocation of funds would be based on national, regional and local priorities. The national legislature would allocate certain funds (based on the decisions of the legislature) that are national in scope (transport and communications, for instance). The rest would be allocated to regional legislatures based on per capital levels, which would in turn allocate them to local communities on a per capita basis.

Similar to the Mondragon model, local companies could affiliate to the banks of their choice, which would hold their depreciation fund as well as their income from sales. The bank(s) would provide operating funds and, perhaps, other financial and technical services. It would also provide new investment funds.

The banks would be run or governed differently than the worker-run companies in that it would be a tripartite governing council, composed of representatives from the community, workers from the bank and representatives from the companies affiliated to a particular bank.

Schweickart argues that economic democracy is not only more democratic than democratic capitalism, but it is also more efficient. He identifies three kinds of inefficiencies: allocative, Keynesian and X inefficiencies. Allocative inefficiencies emerge when prices do not reflect the optimal allocation of resources that lead to the maximum level of benefit to all, due mainly to monopolies and externalities (such as pollution produced by a company not being penalized for such pollution). Keynesian inefficiencies arise when resources are not fully employed. X-inefficiencies arise because of the lack of optimum allocation within a company rather than between companies.

The author implies that allocative inefficiencies may arise, but their significance in relation to the total economy would not be a major problem. Since workers would not be marketable, there may be some allocative inefficiency, but other conditions already outlined above (such as the existence of markets) would minimize such efficiency. Since the market would still exist, allocative efficiency would be minimized; there would not be a repetition of the allocative efficiencies characteristic of command economies characteristic of, for instance, the former Soviet Union.

On the other hand, Keynesian inefficiency, characteristic of democratic capitalism, would be much less since there would be incentives to maintain full employment. Indeed, Schweickart argues that economic democracy would be more efficient in this area—an area that is more important for overall efficiency than small inefficiencies in allocation.

He argues the same with respect to X-inefficiency, or inefficiency arising from problems of internal allocations within a democratically-run company. There would be mechanisms for self-managed companies to operate with efficient technology and with a need to satisfy consumers. The author argues that political democracy assumes that the citizen is capable of making rational decisions about who is to govern. Why is it assumed by opponents to economic democracy that citizens could not elect their bosses and control their own economic lives?

In cases where workers have increased their power to make decisions at work, productivity has generally increased, not decreased. Furthermore, one of the main causes for the decline in efficiency in the Yugoslavian economy was a decrease in self-management of companies by workers. Workers have an economic interest in selecting good managers—not the opposite. It is power structures at work and in government that prevent the emergence of such structures.

Although economic democracy could be just as if not more efficient than democratic capitalism, it would be much freer than democratic capitalism since not only political life but economic life would answer to the common person—the essence of real democracy. Furthermore, economic democracy need not lead to excessive growth patterns that lead to massive destruction of the environment characteristic of democratic capitalism’s pattern of economic growth.

Those who are concerned with equity and social justice issues would do well to think through how equitable and just can modern society be if it excludes economic democracy.

Unless, of course, equity and social justice have little to do with economic democracy.