Sunday, 30 December 2012

"There is no central authority". Review of After Capitalism. Part 3.1

So what, then, is the alternative? So far I have examined, dispassionately I hope, the flaws in capitalism as well as its attractions. Schweickart’s fundamental claim – the point of After Capitalism – is that TINA is a self-imposed intellectual constraint. There is a feasible alternative, a different economic system that substantially reduces or eliminates capitalism’s flaws without replacing them with more virulent pathologies.

This is not a magical transformation, an instant gateway into nirvana. Problems will not miraculously disappear, says Schweickart, “but intractable problems will become tractable”.

He calls this alternative model “Economic Democracy”, which I will refer to as ED for short. Wage labour will be abolished for most enterprises (small businesses like restaurants will be excluded). Most enterprises will be run democratically through one member, one vote and general assemblies of all employees. This is in contrast to the hierarchical, capitalist manner in which employees are hired and are simply tools of production.

When you join [a firm under ED] you receive the rights of full citizenship; you are granted an equal voice, namely, an equal vote in the community,” writes Schweickart. And you get an equal share of the profits made.

Some form of economic democracy, as an alternative to capitalism, has attracted a growing number of advocates recently, including Richard Wolff, Dan Hind, and even Lenin’s Tomb blogger and SWP member, Richard Seymour.

This is not what has traditionally been thought of as socialism. There is no central planning or state control of the commanding heights of the economy in Schweickart’s conception of economic democracy, though he still describes it as socialism. “Economic democracy is a decentralized market economy,” writes Schweickart. “There is no central authority dictating consumption, production or employment.”

If anything, ED is reminiscent of syndicalism, which had its heyday before the First World War.

In many ways, ED is rapidly crystallising into the post-Communist and post-social democracy alternative to dysfunctional capitalism. So in analysing and criticising Schweickart’s ED model, I’m also looking at this larger trend.

The best way to do this is to revisit the flaws of capitalism, outlined in parts 2.1 and 2.2 and see how, if at all, economic democracy will remedy them. And them to look at the question of markets. Can a non-capitalist market work? Is this really a cure for capitalism, or just capitalism in another form?

1 Inequality

Inequality is an intractable problem of capitalism. It is acute and worsening. Schweickart’s ED seems to attack this problem at source and very effectively. The Mondragon collective of co-operatives in Northern Spain, which Schweickart repeatedly cites and says is of “world historical” importance, has a rule that the pay ratio between the highest and lowest paid, should not exceed 6.5-1. By comparison, the pay ratio in Anglo-Saxon corporations is, on average, more than 300-1.

It is possible that scarcity of certain skills and the cultural influence of senior managers, which in grossly magnified in current society, could expand that ratio even under system of economic democracy. But, as a remedy for inequality, ED is far more persuasive than currently touted “solutions” such as a high pay commission and workers represented on remuneration committees.

Cure for Capitalism rating: 8 out of 10

2 Lack of meaningful democracy

Schweickart says that, under capitalism, we live in polyarchies. There are free elections and a choice of candidates, but not real democracy.

ED would fairly obviously enhance and render meaningful democracy, because it would be applied to the one huge area where it is commonly now banished: the work-place. When a person joins an enterprise under ED, they become a citizen not merely an employee.

The democratic advantage of ED over central planning socialism is that it is decentralised. Employment is not monopolised by one entity, the state, with lethal consequences for democracy and freedom of expression.

But Schweickart also advocates social control of investment. The destination for new investment, 10 to 15% of GDP, would not be decided by banks, stock markets or boards of directors, but by public meetings, open to everybody. This democratic control of investment plays a similar role that participating budgeting does for public spending. In this way, the public would be able to influence the pattern of consumption and the way society develops, beyond the limited and skewed capitalist of way just voting with their feet or wallets.

Another democratic enhancement of ED is that, because huge profits do not accrue to small minorities of wealthy people and large corporations, the political system would not be perverted by the influence of money. Against this, it should be remembered that even worker-directed firms have interests which may conflict with those of the wider community. The “red priest”, José María Arizmendiarrieta, who founded the Mondragon co-op movement, warned of the danger of co-operatives becoming “collective egoists” (which Schweickart quotes in After Capitalism). So the problem of lobbying and the pursuit of institutional selfishness are not banished by ED.

Also, ED does not affect wider political decisions and how these are made. ED enshrines direct democracy in the realm of the enterprise where people spend their working lives. But, by definition, it is silent about the wider political realm.

Cure for Capitalism rating: 6.5/10

3 Environmental degradation

The environmental flaw in capitalism is that it grows, exhausting natural resources and causing poisonous side-effects of production, such as carbon emissions. At first glance, it is difficult to see how ED would be any different. Enterprises would, as Schweickart freely concedes, compete for market share and to satisfy their consumers. The difference, he argues, is that worker directed enterprises do not have the same growth dynamic as their capitalist counterparts. A capitalist company exists to maximise profit, but an economic democracy enterprise exists to secure profit per worker. As result ED enterprises are less likely to seek growth because profit will have to be shared among a growing work-force. A bog standard capitalist company does not have the same internal limit to growth because workers are merely a tool of production, and do not receive profits.

As a consequence, ED firms are compatible with low or zero growth, says Schweickart.

The other way in that ED is less harmful to the environment is that new investment is more geographically spread out. Money for new investment is generated by a tax on all enterprises, which is distributed to regions on a per head basis, a method Schweickart calls “social control of investment”. At present, capital and thus jobs, concentrate in certain areas (such as London in the UK) creating mega-cities and putting an intolerable strain on the surrounding environment. The same damaging concentration of people and resources would not occur under ED.

I can see Schweickart’s arguments but I’m not completely convinced that ED enterprises would so readily eschew growth. I have to conclude, with regard to environmental degradation, case unproven. For example, it has been argued by another economic democracy advocate, Richard Wolff, that worker self-directed enterprises would not pollute because the workers would suffer from the results and they won’t want to harm themselves or their families. But what about pollution, such as carbon emissions, whose effects may be felt on the other side of the world? It’s also apparent that enterprises in a market seek growth, not just to maximise profit, but also to head off competition and protect market share. This condition applies to worker directed enterprises, as much as their capitalist equivalents.

Cure for Capitalism rating: 5.5/10

4 Unemployment

This is a distinctly mixed picture. Under ED there is no desire or need for unemployment to discipline the workforce, no requirement for a reserve army of the unemployed. If anything, the opposite is true. A prime aim, says Schweickart, of ED is the creation of employment, whereas under capitalism, it is merely a by-product. Job creation is an explicit goal of the Mondragon collective of cooperatives in the Basque country, which Schweickart believes, demonstrates how a non-capitalist economy can work.

In fact, says Schweickart, there is an intrinsic bias against employment in capitalism. Capitalist enterprises are more inclined to replace workers with machines (partly because payroll taxes fall on each individual worker, whereas under ED they would be replaced with an enterprise tax) in order to maximise profit. ED enterprises, more dedicated to securing durable employment, would be less prone to mechanisation. But this in itself creates a looming problem. Because ED enterprises aim to create employment, they would be more likely to not develop or even suppress technologies that render labour redundant. In this way society would artificially hold back the development of technology for the sake of preserving paid jobs.

Not only is this, like King Canute trying to hold back the tide, impossible, it tries to defer facing how society is going to deal with the fact that in the future there will simply be less demand for labour because of the advance of technology. We can’t all, nor should we, all have 5 day a week jobs. In 1930, John Maynard Keynes believed that in a century’ time, people would work 15 hour weeks. Schweickart simply does not deal with this issue and I believe it is a major lacuna in his alternative model. The absence of a central authority, or a corrective to the free workings of markets, just incubates a vast problem.

In short, ED does deal with the problem of capitalist unemployment but in a way that generates problems of its own.

Cure for Capitalism rating: 5/10

I realise this is already quite long. So, for those that are following this saga, I will write the final part soon and examine whether ED can eradicate capitalist instability and overwork. And then consider the broader question of markets.

I was going to include a clip of Schweickart speaking but I’ve run out, so this will have to do.

Sunday, 16 December 2012

The most fortunate people that have ever lived? Capitalism and its contents. Review of After Capitalism, Part 2.3

It’s an amazing state of affairs when you stop and think about it. Almost everyone in the West enjoys lives which would be envy of any Roman Emperor or Pharoah of ancient history, remarks John Lanchester, in his book about the financial crisis, Whoops!  Whether we appreciate it or not, we live in the best societies that have ever existed.

Because of our wealth, we are the most fortunate humans that have ever lived, says Lanchester.

Do you feel lucky, punk?

Anti-austerity journalist Polly Toynbee was a mere seven years ago eulogising current society as an overlooked golden age. There has never been a better time to be alive, she said, despite the mood of pessimism. Supermarkets were “modern miracles of splendour and choice … Unimaginable luxuries and choices are now standard - mobile phones sending pictures everywhere, accessing the universe on the internet and iPods with all the world's music in your ear.”

In previous centuries, most children died before they reached maturity, epidemics and malnutrition were rife, most people did not survive past forty and women bore so many children, they were used up and exhausted by their thirties.

Larry Elliot, economics editor of the Guardian newspaper, recently told the same story in economic terms. “Before new and more efficient production methods for agriculture and industry were developed in the 18th century, per capita incomes in the west had risen at a glacial pace for more than 1,000 years,” he wrote. “Modern industrial capitalism generated surpluses and it was this that differentiated it from the subsistence model.”

Is not, therefore, modern industrial capitalism responsible for our “unimaginable luxuries” and the blessings of wealth? Should we not be thankful?

“The reality of the world resists us”

If you are searching for a reason why a pervasive sense of dissatisfaction has not led to a more widespread alienation from capitalism, I think it’s because of an unconscious fear of killing the troublesome goose (and its incurable troubles were laid bare in Parts 2.1 and 2.2) that lays the golden eggs.

As an example, take foreign holidays. More and more people, and young people in particular, experience them as a matter of course. In the 1970s neoliberal think-tanks in the UK asserted that secretaries flying off on holiday to the Greek islands was a standing refutation of the Left. In the film La Guerre Est Finie Yves Montand, a Spanish Communist, says, “14 million tourists vacation in Spain every year. The reality of the world resists us.”

Here is the appeal of capitalism in all its seductive glory, its ability to achieve technological advancement and satisfy consumer desires. Yes the same ability is inescapably linked to its faculty to eat up resources and destroy the natural environment. Capitalism's failings may bring it down and “us with it” said investment manager Jeremy Grantham last year.

Consumerism was and still is the glue that binds people most tightly to the system. Everyone, says US economist Richard Wolff, from economists, to advertisers, business, the media but also trade unions and left movements bought into this idea. Modern economics was built on the assumption that labour was the burden for which consumption, enabled by wages, was the compensation.

Rising wages became the gold standard for what they could buy but consumerism has been entrenched at the expense of other, possible advancements of human freedom and welfare. Roads, not less traveled, but not traveled at all. Wolff describes consumerism as a deal. Though he is speaking of the US, what he says is true of any western country.

“The deal might have collapsed at any time if US workers rebelled against the organization of production in the US. This could have occurred if rising wages did not suffice to make them ignore the growing inequality of US life, or if they rejected subordination to ever more automated, exhausting work disciplines, or if they refused to deliver ever more wealth to every fewer corporate boards of directors of immense corporations ever further removed from them in power, wealth and access to culture.”

Of course, now, one part of the consumerist deal – rising wages – is falling apart. The golden age seems definitely over. Young people may be able to fly to Barcelona but they are also sinking further into debt to in order to pay for the education to get jobs that don’t exist.

Yes the glue has retained most of it stickiness up to now.

You can’t always get what you want

But I want to argue that capitalism’s ability to deliver utility, to provide satisfaction to consumers – the choice of multi-national food, the EasyJet flight to Prague for the cost of a pub lunch is (setting aside externalities like climate change) more than matched by its capacity to create dis-utility. And both come from the same source.

It’s almost a truism to note, although still worth noting, that capitalism’s ability to satisfy consumer desire is a by-product. “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest,” said Adam Smith. You are not given the choice to buy a new Smart Phone by the pure, unadulterated desire of Apple to enhance human communication, but by that corporation’s need to make a profit.

But, just as intrinsic to capitalism, although less frequently observed, is that it is an accumulative system. Every year,” writes David Schweickart, “enormous quantities of commodities are produced that, when sold at anticipated prices, generate enormous profits, a large fraction of which are reinvested back into the economy in anticipation of still greater production and still more profits.”

For capitalism to function smoothly, this money must find somewhere to go. That it can’t find somewhere to go – corporations in the UK are sitting on £750bn – is one reason why it’s not functioning smoothly. But the use and re-use of money is at the heart of capitalism. That’s why it’s called capitalism – money becomes capital by virtue of the fact that it is employed to make more money. This explains why it grows but also why there is unrelenting pressure to find outlets for investment. An alternative name, given by one economist to capitalism, is 'the profits system'.

There is no conscious choice in this. It is why Apple don’t respond to consumer desires so much as think of products and then try to get consumers to want them (which they seem to be very good at. Steve Jobs, said one journalist “anticipated technological desires you didn’t even know you had”).  The idea of voluntary choice is the basic error of writers like Lanchester. He argues that, despite the credit crunch, he could discern no general desire to slow down. Actually I think this desire does exist but it can’t be translated into tangible action.

If you feel like you are on a treadmill, that’s because you are.

I can’t get no satisfaction

This inherent characteristic of capitalism, its machine-like ability to create profit which then needs to be re-invested to create more money, explains why it manufactures dis-utility as much as utility.

The credit crunch and subsequent economic depression are a prime example of dis-utility. Banks seeking profits lent to consumers who eventually couldn’t pay back. Those same banks created asset-backed securities as a means of making more money, thus spreading the credit crunch around the world. “The crisis was generated by the system itself,” in George Soros’ words. The same system that generates Tesco and Ryan Air.

The fact that now many businesses cannot get credit from the institutions – banks – that in any rational economic arrangement are supposed to supply credit as a matter of course, is another example of mammoth dis-utility.

The pharmaceutical industry is another case of dis-utility. In France, it has been estimated that over half of prescription drugs are either useless or dangerous. Why is this happening? Because of the overriding need of pharmaceutical companies to use their profits to produce more drugs for sale. The consumer – which capitalist genius is to suppose to satisfy – does not benefit from this need. The opposite is true.

Public services are now a major destination for private investment and thus dis-utility. The director of the British Confederation of British Industry, John Cridland, states in one breath that only business can create jobs, and in the next that a third of public spending should be opened up to competition from business.

In other words, public services should provide an outlet for the investment of private funds.

That this will create spiraling dis-utility is shown by recent history. In Britain, the Private Finance Initiative has seen new hospitals built by private companies, which they then own. It has resulted, on average, in a 30% drop in the number of beds in PFI hospitals compared to ordinary public hospitals. Thus, there has been a large increase in the ‘through-put’ of patients using the reduced number of beds, a major cause of the spread of the lethal MRSA virus. Capitalism in health services has resulted in mammoth dis-utility for “consumers” of hospital services, as well as being more expensive for the taxpayer.

The management theorist, Peter Drucker said in 1939 that the Great Depression revealed capitalism as a system that didn’t serve any purpose but it’s own. That is becoming increasingly apparent again.

Virtuous consumerism

Is it possible to have an economic system that does not spurn consumer desires as inherently worthless and strives, within reason, to satisfy them, but one that avoids the glaring systemic flaws and downsides of capitalism?

David Schweickart would say that you can – through a largely market economy made up of worker, not capitalist, controlled enterprises. He argues you can have a market without that becoming a capitalist market and that makes all the difference in the world. But thinkers throughout history, from Aristotle to Karl Polanyi and Murray Bookchin, have criticised markets as inherently destructive of human solidarity and the environment, and the ‘market economy’ is frequently used as a synonym for capitalism. It is to this question of markets, good or bad, that we turn in the last part of this review.