"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.