How do you solve a problem like capitalism? Economic democracy versus the abolition of profit

In an interview on this blog last year, Hjalti Hrafn Hafthorsson of the Icelandic organisation Alda, put the case for an intrinsically different kind of economy. Companies, he argued, should be run as worker-controlled enterprises not as shareholder-owned entities managed by small boards of directors. With decisions guided by what employees want, rather than the legally prescribed imperative of maximising profit that determines current corporate behaviour, outcomes would be radically altered. Wealth would be more evenly distributed, companies would reflect what communities wanted and monopolies less likely to be formed.

 “I tend to believe,” Hafthorsson concluded, “that if working people were voting on some of the decisions made by corporate executives today many of those decisions would be overruled because people in general have values that aren’t measured in dollars or pounds.”

Alda’s vision of “economic democracy” is seen by many as a cure for the problems that plague society - inequality, stalling wages, environmental degradation, the dominance of large firms (in the energy ‘market’ for example) that exploit their captive consumers and companies’ footloose relationship with the communities that host them.

This means not merely a different way of reaching economic decisions, but the death of the shareholder. Workers, not wealthy investors or pension funds, would own as well as govern firms. It has been argued that the wider community should be represented on company boards, not just the workforce. Either way, what you have is an economy ostensibly geared towards the public interest, not private profit.

Taken together with the burgeoning movement for a basic, unconditional income, you can see the rudiments of an economy that values people, as opposed to things or profit. An economy, in other words, that treats people not as means to an end - economic survival and profit - but as ends in themselves, and gives them the freedom, and material security, to decide what is right for them.

“The difference, of course, is that we wouldn’t have capitalism anymore,” says Hafthorsson. But are these really the ways to transcend capitalism, or will we still be caught in its web?

There are some who think escape not so easy. The American Marxist, Andrew Kliman, looks upon capitalism as a network of relationships governed by immovable laws. You cannot simply “overrule” decisions because you don’t like them. It doesn’t matter, in this view, who is in charge or what their values are – whether they are money-grubbing psychopaths obsessed with profitability, or managers elected by the workforce, concerned above all else with the welfare of fellow employees and the effect of decisions on the wider community. Kliman is adamant that:

“Directives will not break the laws of capitalist production. The most important law is the determination of value by labor-time. It compels an enterprise, whoever owns or 'controls' it, to minimize costs in order to remain competitive, and therefore to lay off inefficient or unnecessary workers, speed up production, have unsafe working conditions, produce for profit instead of producing for need, and so on. If you are in a capitalist system, you cannot just issue a directive to produce for need, or a directive to refrain from laying off workers. Cutting costs is the key to survival.”

The disagreement as to what is and isn’t possible ultimately stems from contrasting definitions as to what capitalism is. Alda’s “economic democracy” stance reflects philosopher David Schweickart’s definition. Capitalism take places in the familiar “market economy”, yes, but the decisive characteristic, to Schweickart, is that it is based on wage labour. This means the vast majority of people have to rent themselves to the small minority that own companies, shops or offices in order gain the livelihood –  the wages, salaries or fees – that enables them to have a reasonable standard of life and not frequent food banks. Their need of an income means they are compelled to subject themselves to undemocratic rule at work and the baleful consequences of inequality, the dominance of huge firms and a lack of concern of external effects on society and the environment. The solution is to end the division between the elite that owns “the means of production” and the millions of people one or two payslips from bankruptcy. When workplaces are democratised, the argument runs, the behavioural characteristic of firms will change and seemingly intractable problems will become tractable. Values not “measured in dollars or pounds” would predominate. But this is decidedly not about the abolition of profit or competition. Profit will remain, it’s just that the people who receive it will alter.

Another way of describing this transformation is that it aims at the ‘democratisation of capital’.

However, to Kliman, this is based on a fundamental misconception of what capitalism really is. “Capital,” he writes, “is nothing other than value that is invested in order to end up with more value, so the fact that products have value is part and parcel of capitalism as such, no matter what its forms of property and institutional structures may be.” You can turn the institutions - the workplaces and corporations that overshadow our lives - upside down, you can put the people, not the corporate executives in the saddle, and nothing fundamental will change. Because any firm operating in a competitive economy will be drawn, however unwillingly, into the “grow or die” mentality that exists all around it, workers in a worker-controlled company will end up exploiting themselves.

You need do “do away” with capital, Kliman insists, and that requires doing away with commodities and the production of commodities. Given that most people – Marxists included – don’t think people should just live on the potatoes and onions they have planted in the back garden, he must be referring to a special quality in “commodities” that separate them from consumer goods. But more of that shortly.  

Kliman’s firm belief is that, in a capitalist society, institutional forms don’t matter. However hard they try not to, everyone has to swim with the current. In this, I think he is partly right. Non-shareholder enterprises do, I believe, behave differently, but not differently enough. In Britain, for example, you can see a glaring disparity in the way consumers are treated. The traditional shareholder-owned companies dominant in energy and water provision since privatisation in the 1980s, have engaged in crass profiteering. Electricity prices have shot up by 120% and gas prices by 190% in the last decade. Welsh Water, by contrast, which has been run as a social enterprise without shareholders since 2001, has reduced bills every year for seven years. The nationalised Scottish Water, is into its fourth year of a price freeze. Railways in the UK paint a similar picture. Private train companies have, in the context of burgeoning taxpayer subsidy, made an enormous return of 147% for every pound invested, but when the state is inadvertently put in charge of a rail-line, the taxpayer subsidy miraculously drops. The British National Health Service, in its heyday, exemplified the primacy of need over the bottom line.

Gar Alperovitz in America Beyond Capitalism, argues that the price advantage displayed by municipally-owned electricity utilities in the US “is due to the fact of public ownership itself; locally controlled public utilities often can be especially responsive to customers' needs and do not need to pay dividends to private shareholders.”

However, all these instances occur in cases of non-competitive monopolies or without direct competition for market share. When competing in a market against shareholder-owned competitors, social or state-owned or worker-controlled enterprises have much less freedom. The record of the famed worker cooperative corporation in Mondragon in Northern Spain, illustrates both how worker-run coops are an advance on the capitalist model, but also, in important respects, ape it. In Mondragon, we have, not an isolated divergence from capitalism, but Spain’s seventh largest company. Mondragon comprises 256 businesses that generate $4.8 billion a year in manufacturing, retail and distribution. It boasts 43 schools, one university and more than 80,000 employees.

As this analysis demonstrates, in stark contrast to the towering edifices of economic dictatorship and inequality that surround us, Mondragon is a beacon of democracy and egalitarianism. It operates on a one worker one vote basis, and each worker’s vote in the Mondragon general assembly, controlling production, income distribution and the election of the board, carries the same weight. The Mondragon CEO earns only nine times the federation’s lowest paid employee. Economic downturns are not met with automatic lay-offs. Mondragon members are more likely to vote for pay decreases in order to spare unemployment.

“In contrast to most capitalist companies, whereby the measure of a successful company is almost always based on maximum profitability, the cooperative approach offers an alternative that supports democracy through an egalitarian voting system, while at the same time promoting job security for worker-members, social justice and community responsibility,” say authors from the Center for Social Epidemiology, of Mondragon.

But this is not the whole story. While Mondragon embodies these undoubted advances, it has also expanded into other countries – Mexico, Morocco, Egypt, Argentina, Thailand and China, for example –  in much the same way that a capitalist company might and, significantly, its international workforce have not been offered cooperative membership. Roughly a third of Mondragon’s workers are not members of the coop. And, after trying in 1960s to adopt alternative manufacturing processes, Mondragon now incorporates familiar capitalist practices such as just in time inventory and shift work.

What this indicates, I think, is that it is very difficult to make worker cooperatives universal – to expand them without ensuring, at the same time, that a sizeable chunk of the population remains outside them. And also that cooperatives will inevitably respond to outside competition. There is no way to ensure that even a worker’s coop that is an exemplar of internal democracy will not vote to gain an edge through the introduction of ultra-competitive practices, thus compelling other cooperatives to follow suit, to grow or die.

Kliman would say that these inescapable flaws mean you have to “do away with” capitalism and markets, or, alternatively, that capitalism, the process of adding value through the sale of products, inevitably entails markets and you cannot have one without the other. That is what he means by commodities, the selling of products and the reinvestment of the profit made through that sale, as opposed to the neutral designation, ‘consumer goods’. But lesson of 20th history seems to indicate that you can’t abolish capitalism and markets, without entering a nightmare realm of central planning and total state domination. Kliman refers to the “horrors of state-capitalism that called itself ‘communism’” so he clearly doesn’t want to go back to that. He also says “we have to work out how we can have a modern society that operates without the laws of capitalist production being in control”. By “modern society” he seems to mean a society with a myriad of consumer goods and conveniences but lacking the compulsion or necessity to make a profit from these goods; to turn them into commodities. Is this an impossible dream? Is economic democracy within some form of regulated market, the best we can hope for? Can you really abolish capitalism? I would like to consider these questions at some point when I have the time.

"I think the Alda model can easily be taken up pretty much anywhere" Alda, Iceland, interview. Part Two

In the second part of the interview with Hjalti Hrafn Hafthorsson of Alda, we discuss the post-crash situation in Iceland, Alda’s plans for the future and how present society might change.

I suppose the story that’s emerged from Iceland since the crash of 2008 is that the state didn’t bail-out insolvent banks because it didn’t have the money, and as result the Icelandic economy is recovering and the depredations of austerity have been avoided. Is that an accurate summary or does it miss something?

The three big banks in Iceland were nationalized during the crash. Two of them were almost immediately given over to stakeholders; no-one seems to know who owns them today. There are plans to re-privatise the third one. The government took on a lot of debt but the bankers weren’t bailed out, at least not the high profile Icelandic bankers. Like I said, no-one seems to know who owns these banks today. There were considerable austerity measures, the recession has been felt by everyone. The government claims that the economy is recovering but since there have been no structural reforms in the economic model we are working in all that really means is that the rich are again getting richer and the rest of us must wait for the money to trickle down.   

There was a large-scale constitutional reform process in Iceland in 2012. Could you say a bit about that process and what Alda’s input was?

An elected committee of 25 individuals was given mandate to write a new constitution. The election was ruled to be illegal because of a technicality but the parliament chose to form the comity anyways. Alda turned in very detailed suggestions for constitutional reforms but it was very difficult to get feedback on whether they were even read by the committee. None of them made it into the constitution bill in any recognizable form. The new constitution bill is in many ways progressive but it is being opposed by some very powerful interest groups, namely the fishing industry, and now it seems likely that it will be held up in the parliament until elections come this spring. Constitution changes need to be accepted by two parliaments so if the bill isn’t voted on before elections we can forget about any constitution reforms for at least four more years, probably just altogether. 

Alda wants a welfare system that maintains the foundations of civil society, offering equal access to education, health-care and a pension. What, in practice, does this involve?

Pretty much what it involves now: people and companies paying taxes which are put to use running the infrastructure of a healthy society. Alda has a topic group working on reforming the education system in very fundamental ways and some of the versions of unconditional basic income we have talked about require comprehensive revision of the welfare system.

What advice would you give to people in other countries struggling against endless corporate bail-outs, government-imposed austerity and economic stagnation or collapse? What should they do?

Start where you are. Use what you have. Do what you can. I think the Alda model is good for promoting social change and I think it can easily be taken up pretty much anywhere. 

What does the future hold for Alda? What are your immediate aims?

We have a lot of projects going on. Elections are coming up, so we are holding a randomly selected citizens assembly to set the tone for the political parties on what the people want to see happen during next term. We are working on getting a bill through parliament about laws for co-operatives. We are working with the labour unions to get a shorter work day on the agenda. We are working two schools on democratic education programmes. We are starting an eco-village in collaboration with other groups. We have more topic groups working than I can recall at the top of my head. In the future I hope we will do just what we have been doing, get people involved in finding solutions to problems and then agitate for those solutions. 

One recurring question is how current society will change. A large scale, oppositional movement seems indispensable. Do you have any ideas about what is necessary to build that movement?

It might take a large scale movement but I think change is better brought about by many smaller ones. There is a vast variety of groups and ideologies out there working on different fronts. That has great advantages as well as disadvantages. I am not sure that a unified big movement would be better, that kind of vision for change almost always involves heavy top down, authoritative organization. The spontaneous organization of smaller groups trying to influence and affect social change through diverse methods is more likely to lead to a happy society in the end.

There is also the question on how change should take form. Some believe that change cannot occur except in a sweeping revolution, others are content with any progress in the right direction. Both visions have merits and I think there must be a little bit of both. There is a lot of build-up to any revolution.

"We set out to provide radical but viable alternatives to the current social organization." Interview with a board member of the Icelandic group, Alda. Part One

The 2008 financial crisis was more extreme and far-reaching in Iceland than elsewhere. As a result, many new grassroots organisations and political parties were formed. One of them was Alda – The Association for Sustainability and Democracy. Alda’s goal is introduce new ideas about how to deepen democracy and re-think the nature of the economy into public debate. What follows is the first of a two-part interview with Hjalti Hrafn Hafthorsson, an elected member of Alda’s managing board. In this part, we discuss economic democracy, a shortened work-day and the concept of randomly selected citizen assemblies.

Why and when was Alda formed and what are its aims?

Alda was formed in 2009. This is in post-bank collapse Iceland, and in some ways Alda was formed as a response to the social awakening that happened after the bank collapse and the demands for political and economic reforms. There were very loud voices in Icelandic society that were critical of the whole political and economic infrastructure but very few proposed any changes. We set out to provide radical but viable alternatives to the current social organization.

Alda is an association for sustainability and democracy. At the founding of Alda its aims were to promote an organization of society that empowers individuals and is sustainable in the long run. Environmental issues and democracy are still our main themes but we have, in the past three years, expanded to dealing with a whole range of other issues. Asylum seekers, shorter work day, gender issues, for example.

The reason for this expansion lies in how Alda is organized and how that organization unexpectedly began to change how Alda could function. Being believers in direct and participatory democracy we decided at the start that all Alda meetings should be open and anyone attending a meeting would have the right to speak and to vote on any statement put forth by the meeting. The first meetings we held dealt with new ideas - like economic democracy - and how they might work in Iceland. It turned out that by holding open meetings to brainstorm about political subjects was a very good idea.

Now Alda functions very much as an open think-tank lobby group. Anyone who proposes an issue in a general meeting can start a topic group. Topic groups discuss the problem or idea at hand and come up with proposals for solutions. A general meeting then accepts the proposal as an official statement of Alda. This process we go through gives statements or proposals form Alda greater legitimacy than for example an individual writing the same thing. There is power in numbers and an association of many people coming up with ideas in an open, accessible, transparent process is something that is more difficult to ignore than an individual. 

How big is Alda?     

I don’t have the member count but last time I heard we had around 400 registered members. I’d say there are about 50 who are actively participating in meetings.

What intellectual inspirations do you draw on?

I can honestly say that there are members of Alda reading anything from Marx to Friedman and everything in between. After Capitalism by David Schweickhart and Envisioning Real Utopias by Erik Olin Wright were two books that really inspired some of us to try to find and implement alternative social, political, and economic ideas. Those two books were very much discussed within Alda and have been read by many members. Personally I have drawn much from political philosophers like Hannah Arendt, Rawls, Habermas, Chomsky, Beauvoir, Foucault, Marx etc.

One of Alda’s core beliefs is that the economy should be democratised – corporations and companies should be governed by their employees of the basis of one person one vote. How would this new economic system be organised and what difference would it make?

Not just governed by employees but collectively owned by employees as well. We are essentially arguing for an economy of workers co-operatives rather than a capitalist economy. There are many issues in this picture that aren’t clear and there isn’t necessarily any one answer to the questions that arise. I don’t believe that an economic system can really be effectively organized from above so many of the issues in regard to organization would simply have to evolve as the system emerged. In Alda, we have focused more on finding ways to help co-operatives form and help capitalist companies reform into co-operatives.

The difference is of course that we wouldn’t have capitalism anymore. Wealth would be more equally distributed, workers would have greater empowerment over crucial aspects of their lives, companies would have stronger ties into communities and emphasis might shift from pure profit to more substantial things.  

Economic democracy, under your vision, would still be a market economy. Is that true?

Yes, democratic companies would produce commodities that are bought and sold on a regulated free market. Democratic companies fail if there is no demand for their commodities and new companies are started when new innovations appear or demand shifts. A democratic economy thus has the flexibility and drive towards innovation that a capitalist economy has. There is however a strong consensus within Alda that the market should be regulated. Trading commodities is fine, but we would see an end to derivative trading and finance markets and so on. Shares in companies could, for example, not be traded. The only way to own a share is to work in that company.

But you argue that competition would no longer result in monopoly under economic democracy. Why is this?

That is one reason to regulate markets to a degree. One might also speculate that given the different social dynamic of democratic companies there would be less drive to form monopolies. Companies are today legally obligated to generate profit for shareholders and this creates a strong drive towards monopolies. Most people with a day job are more concerned with simply living a comfortable life - getting decent wages is one thing and profit at all costs is quite another. I tend to believe that if working people were voting on some of the decisions made by corporate executives today many of those decisions would be overruled because people in general have values that aren’t measured in dollars or pounds.

“Economic Democracy” has been criticised from the Left on the grounds all citizens have an interest in what enterprises do, the amount of investment they receive, their prices and their treatment of their workers, not just the current work-force. And the voices of citizens in general, under economic democracy, have no way to be heard. Do you think this is a valid objection?

Citizens in general have very limited means of being heard in the capitalist economy as it is. At least economic democracy empowers those people most affected by a company, its employees, to participate in decisions regarding their livelihood. For citizens in general to have influence over companies would require a very top down authoritative approach to the economy which I do not think would be beneficial and in the end not really conducive to the freedom, autonomy and well-being of anyone. 

Alda also believes in the achievement of “full employment”. Do you think, given technological advance and that many current jobs under present-day capitalism are ‘socially useless’ that full employment is realisable in a different economic set-up? What do you think of the idea of a basic income, payable unconditionally to everybody?

I think full employment may be achievable but it would require a shift from capitalist economy where the price of labour is driven down by having a certain degree of unemployment. A capitalist economy therefore always stabilizes at a certain percentage of unemployment. Most models for sustainable economy would avoid this. I don’t think, however, that work should necessarily be as big a part of our lives as it currently is. One of the most active topic groups in Alda is a group dealing with shortening the work day. There is also a topic group working on unconditional basic income proposals. Though Alda has not formally adopted suggestions for unconditional basic income I think I can safely say that we are in favour of it.

In politics, Alda promotes the concept of randomly selected citizen assemblies. I think you have argued part of the Icelandic Parliament should be reserved for randomly selected citizens. How would random selection work and what advantages does it have over conventional political parties and elected representatives?

A randomly selected group represents a cross section of a population. Studies show that randomly selected representatives are more likely to consider themselves to represent the interests of the whole population rather than the interests of a political party. It is also a way of getting individuals in minority groups involved in the political process, individuals who might otherwise not have stepped up. It could be used to equalize racial or gender ratios within a democratic assembly. I certainly think that it would shake up the very entrenched and corrupt party politics in Iceland if a third of the MPs were randomly selected. Also, random selection is simply a very incorruptible process, unlike elections which are usually won with money.