Friday, 23 December 2011

I live in a democracy but I spend half my life in a tyranny. Go figure

Review of The Return of the Public by Dan Hind
Part Three 

In 1970 the US-based Czech economist Jaroslav Vanek said, “One of the main reasons why the western world is so schizophrenic is that we have political democracy and economic autocracy.”

As the ‘great recession’ which began in 2007 unfolds, the schizophrenia engendered by economic autocracy is not only producing strange hallucinations but endangering the life of the subject.

Hind unmistakably echoes US economist Richard Wolff in locating the germ of the crisis in the way corporations are organised. Corporations, the source of financial survival for most people, are run as autocracies. Corporate boards of directors receive the profits from the work of millions of people who rent their time and effort. A small elite decides what to do with this huge amount of money. In political terms, corporations are tyrannies.

And corporations - private tyrannies - were responsible for the downturn that began in 2007

In the US, where the crisis started, corporations were basking in a 30 year profits bonanza as the influence of trade unions, the only check on their power to do as they pleased, declined. The result was stagnating wages for the majority, while productivity raced ahead. The reaction to this change took the form of a huge increase in borrowing. People borrowed from the banks, the very organisations who received the increased profits, in the form of deposits, from corporations. The banks then tried to make more money by lending, as banks do.

Eventually, the circle could not be squared. The need for ever-increasing consumption could no longer be met by substituting historically unprecedented borrowing for stagnating demand. Reality – the reality of stagnating wages – eventually caught up with the prevailing delusions and crisis ensued.

It is a crisis fomented by the dominance of corporations. There is, in the words of Oscar Wilde, only one thing worse than not getting what you want, and that is getting it.

Not just the crisis, but many of the related ills besetting us today, would evaporate says Hind (with Wolff nodding in the background) if corporations were organised differently: If they were run, not by their boards of directors, but by the workforce as a whole.

“It is likely that they [the workers] will prevent managers from behaving in ways that jeopardize their own livelihoods,” says Hind. “Asset stripping, ill-considered mergers and takeovers, and financial engineering will all become less attractive in companies where the overriding preoccupation is with maintaining stable and rewarding conditions of employment.”

Worker-run companies would not seek tax havens abroad, says Hind, because their workers are also taxpayers in their own countries and have no desire to rip themselves off. These companies would not gleefully outsource functions overseas because they are not just interested in securing the cheapest price for labour, but the best working conditions for workforce: for themselves.

At its simplest level, the case for economic democracy is that you don’t normally shoot yourself in the foot. Unless you’re mad or a very bad shot. Or have read a lot of Milton Friedman.

The fundamental cause of the economic crisis was not that the fortunes of investment banking were inextricably linked with those of retail banking, but that the small elite running the economy have interests different from, and in conflict with, the interests of the vast majority of the population. Until that basic conflict at the heart of the economy is dealt with, crisis will always haunt us.

Imagine, says Richard Wolff, that for the last 40 years we had lived in an economic democracy. Worker self-directors would not have stopped real wages rising in the 1970s. It “made sense for capitalist boards of directors to enrich themselves and their shareholders [through stagnating wages and thus soaring profits] but it would not have made sense for worker self-directors,” he says.

A subterranean interest in economic democracy has developed that remains invisible to the political mainstream. Apart from Dan Hind and Richard Wolff, the authors of The Spirit Level, Kate Pickett and Richard Wilkinson, have embraced worker ownership as the only solution to mushrooming economic inequality. Human rights campaigner Peter Tatchell and occasional Labour party adviser Maurice Glasman, have both advocated the German model of co-determination, where all enterprises with 50 or more employees would have to share control between management and the workforce.

These thinkers, to their credit, accept that a real answer to the economic impasse we face has to delve far deeper than the cosmetic solutions offered by politicians. The needs of the 1 per cent can’t continue to override the needs of the 99 per cent. But they do, as this blog has suggested before, present half an argument.

Full employment is now a chimera, both in the sense of what society actually needs, and in the sense of the number of employees that enterprises, worker-controlled or otherwise, require. “No matter how hard we try, the current economic system needs fewer and fewer of us,” Hind says. Another economic system will have different aims, but it won’t magically create permanent paid employment for everyone.

It’s also the case that to turn enterprises into cooperatives, and that is essentially what we are talking about here, will not automatically ensure that the needs of society, of the public in general, are met. These cooperatives could well be just as competitive, seeking to benefit solely their own employees, as conventional capitalist businesses. The limits as well as the virtues (and there are many) of syndicalism, workers running their own enterprises, have been scrutinised before, in reflections going back as far as the drawbacks of worker control during the Spanish Civil War of the late 1930s. In contemporary society, a pertinent criticism of Conservative attempts to make public sector worker form cooperatives, aside from the jaw-dropping irony, is how would the needs of the users of public services, be represented?

Caveats to economic democracy have been expressed by another economist who has been reviewed in this blog, Harry Shutt. Hind echoes Shutt’s proposal on how to ensure that enterprises don’t stray from the public interest.

Shutt, too, wants a “more functional and publicly acceptable pattern of enterprise organisation”. But he does not advocate economic democracy. Instead he says that companies should only benefit from state-granted limited liability if the community is represented on their board or they are run on a non-profit basis.

Limited liability means that investors can lose only the amount they invest in a company, no matter what wrongdoing it is guilty of. This artificial limit, for free market aficionados granted by the state, does not apply in ordinary life.

“A man who causes harm in the course of his work can be sued for the full cost of that harm to the point of personal ruin,” Hind points out. “A man who own shares in a company that causes the same harm risks only his original investment.” Adam Smith, the 18th century Scottish thinker who inspires a lot of today’s free marketeers, was against limited liability.

Hind’s idea is that the privilege of limited liability should be reserved for companies controlled by their workforce. For all other companies, the behavioural check of unlimited liability would apply.

Without limited liability, for example, banks would not have been so keen to sell sub-prime mortgages, package those same mortgages into investments that they did not own, and then rely on the taxpayer to cough up £1.5 trillion to save them when everything went wrong. The externalising impulse of all corporations – we just want the profits and the subsidies, the problems we cause aren’t our responsibility – would be impossible without limited liability.

“There can be no principled objections to reforms that inculcate a proper prudence into the actions of large commercial concerns,” says Hind.

The adoption of unlimited liability, or in other words ethical responsibility, would make profit harder to contrive. It might lead in time to a more rational economic system.

In Hind’s system, the carrot of limited liability would still be on offer – as a way of inducing companies to change in ways which gave overall control to their workforce.

The reason is that without economic democracy, political democracy is denuded of meaning. The current system of corporate ownership means that senior managers have the resources to control the political process and the world of ideas. Recent UK and US history is inexplicable without understanding this dominance, and the concomitant political passivity of most people.

 We are not really schizophrenic, as Jaroslav Vanek described us in the 1970. Now economic autocracy has hollowed out political democracy.

But, says Hind, if enterprises are democratised, they not only cease to be so toxic to the humans that inhabit them, they will also transform the remnants of political democracy. “Instead of providing funds with which owners and senior managers can intimidate their employees and dominate the political process, enterprises instead become schools for deliberation on matters of general concern.”

If the last 30 years have been dominated by the attempt to remake the public sector in the image of the private sector, now the political imagination has to turn around. In its sights will be banks, pharmaceutical companies, private equity funds, hedge funds, the basic architecture of the misnamed “private” sector. Now it’s your turn.

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