• Economic Democracy – An Alternative for Europe?

  • By Joachim Bischoff , Richard Detje | 02 May 12 | Posted under: Contemporary Capitalism , Democracy
  • Updating considerations of economic democracy does not happen by mere coincidence, but represents historically specific attempts1 to provide answers to fundamental processes of transformation in times of crisis (Castel 2011) accompanied by massive failures of political control. In crises in which not only a turning point is transcended in the economic cycle but society and state are also held liable, i.e. in major crises, attempts have repeatedly been made to arrive at a common understanding around far-reaching alternative programmes. In the transformative perspective of most concepts of economic democracy it is an open question how far the new structuring and restructuring of the capitalist mode of production and of bourgeois society will carried forward – so that in a certain way it is possible to speak of an open social laboratory.

    The starting point of any new conceptualisation is the constellation of the current crisis. The role played by concepts of economic democracy today decisively depends on our understanding of the processes of the crisis. Since there is no agreement on the causes of the crises, the counter-measures are also contested. Volatile financial markets, contaminated bank balances and sovereign debt are the phenomenal forms of the crisis. They produce systemically self-destructive forces. To limit their destructive power, we are forced to deploy ever greater amounts of social wealth. In this way, a financial-market crisis turns into state crises, which via austerity policies become social crises.

    The majority of the political classes in Europe are convinced that excessive public deficits and irresponsible behaviour of the decision makers in countries such as Greece, Portugal, Spain, Italy and Ireland caused the crisis. Their political recipes are: deficit reduction, increasing fiscal-policy constraints, more severe debt regulations and sanctions in the event that the new fiscal regime is not duly observed. Until these regulations produce results, so-called bailouts – international loans – are to help in transitioning to the new regime. However, this course is part of what led the European-wide economic disaster; it is not the solution. The crisis has long ago taken hold of all levels of democratic decision-making processes in Europe and its member states.

    The major cause for the massive budget deficits must also be sought in the deficiencies built into the construction of the Euro. But most of all it lies in the structures for distributing social wealth and their aggravation due to a false tax policy. Since the 1980s the major capitalist countries have responded to the chronic weaknesses in accumulation and growth by a policy of tax reduction. The public sectors were shrunk and the compensatory processes provided by the social welfare state massively damaged. The consequences were growing inequality in incomes and assets and an excessive expansion of the financial sectors (financialisation).

    A more in-depth examination of the processes of the financial crisis suggests that we are dealing here with an ongoing “cascade of crises”. Characteristic of the Great Crisis which has been proceeding since mid-2007 is the interweaving of the financial crisis with a crisis of the real accumulation of capital. The forms of financial instability can be seen in the rapid and accelerated changes of the prices for financial and capital investments and for asset management as compared to the prices of ongoing production. Superficially, it may seem as if the financial crisis had caused a massive shrinking of the global real economy. In fact, we have been dealing from the very start with a chronic crisis of real value creation and valorisation processes.2 The entire process of the crisis threatened to get out of control at least on the peripheries of the EU. After a few years of crisis, the entire European Economic and Monetary Union is stuck in the mire of a socio-political dead end.

    The dominant policy accepts an economic depression, with ever more obvious violations of democratic rules of participation. It would have to bet on growth and orient itself toward a step-by-step reduction of deficits and debt overhang. In spite of the agreed on bailouts and the ECB’s interventions, the global economy is confronting an enormous endurance test: To the extent that the forces of the downturn are becoming stronger, financial problems are increasing. But how to tackle the problem? The reduction of public debts and deficits must be accompanied by stabilisation measures for capital accumulation and economic growth. And the Eurozone must find a way of compensating for the imbalances in productivity and competition.

    With the introduction of the Euro (i.e. with exchange rates no longer floating), the differential gap in the level of development between European countries has widened: Germany further extended the export capacities of highly productive industrial branches3, while the production models in the Mediterranean countries of the Euro-club were too weak to enable a sustainable added-value creation: the balances of payments developed a permanent deficit, the debt rose. That this would catapult Europe into a crisis was foreseeable – and in this the deficit crisis is only the indirect expression of the productivity levels of different accumulation regimes.

    The forces of the market are not capable of creating the economic preconditions of sustainable development of national economies in the Eurozone. Wanting to establish trade balance surpluses in a monetary union as permanent condition of development is a mistake. In a strongly inter-dependent economic region such as the EU it is impossible to expect a completely even trade balance for each country every year. Besides adjustment measures for deficit countries, adjustments for surplus countries are indispensable. For example, surpluses could be reduced by strengthening import demand. Moreover, export orientation in economic policy should be relativised, with production focusing more on the domestic markets. Since more countries are continually being caught in the crisis, the bailout fund will not suffice. The ECB has to intervene more actively, already now in the short term. This would include a more relaxed monetary policy with a real reduction of interests, the transformation of the monetary system and a policy for boosting and re-structuring the social process of creating value.


    The post-democratic dimension of the crisis

    Social exclusion leads to the amputation of democracy. In critical analyses, the degeneration of democracy is reduced to the social emptying out and power-political capture of political institutions by the economic elite. The institutions of the political field remain outwardly intact: parliament, balance of powers, independent judiciary. But inside, post-democratic conditions have long been the rule.

    The “austerity regime”, now firmly anchored in the German constitution through the “debt-brake”, follows the logic of political legitimacy through alleged “inherent necessities” and de facto unhinges democratic decision-making on the organisation of the public good. Where economic interests are transformed into “inherent necessities” and thus removed from the discussion of democratic alternatives, a “legitimacy based on technical process” makes no sense, because the contents of the processes are one-sidedly predetermined. By the binding transference of this model to Europe, a de-Europeanisation takes place at the same time: The decision-making processes are essentially organised by Germany and France at the inter-governmental level, with majorities secured in the European Council of heads of governments, while the EU-Commission and even more so the European Parliament are forced into the role of bystanders.


    Economic democracy: strategic renewal

    Since its initial success in realising political democracy, the labour movement was oriented towards democratising, after the state, the enterprises and factories, by providing to the employees and their representative bodies institutional rights, committees and representative organs with increasing authority to act. That was the programme of the left social democratic and socialist labour movement, even if there were differences in the scope of the varying transformation perspectives. This model of transferring democracy from “politics” to “the economy” does not work. First, because the political arena is itself delegitimised by the emptying out of democracy. It does not make sense to want to generalise an increasingly ill-functioning system of decision-making and representation, which is discredited among increasing sections of the population. Second, because the system of domination has also changed at the enterprise level. Under Fordism, the capital-labour antagonism remained present and palpable in practical conflicts; the aim was clear: reducing the power of capital.

    Yet, where this approach to democracy as practiced by the Fordist labour movement comprises ever smaller sectors, new opportunities can arise. If the boundary-drawing strategy was essentially focused on the separation of the functions of capital and labour, in which short of an overturn of the capitalist mode of production with the authority over investments not transcending the capitalist mode of production, with sovereignty of investment resting with capital, this sovereign right must now be called into question. Where drawing the line in the old way is no longer possible, the conflict starts with the determining of the parameters and thus with the distribution of means of investment, i.e. it begins with human resources, budgets, time contingents; and more than that, with the conditions of awarding contracts as well as with the conditions under which the contracts are fulfilled. Company policy is thus no longer a separate field just of management but becomes a matter of the representation of the interests of dependent employees.

    Economic democracy is a strategy aimed at the social, ecological and democratic control of economy and society. In this context, the question of ownership is by no means a negligible one, but the question has to be decided based on how a specific form of property contributes to the managing and regulation of investments, jobs, social needs and social living conditions. Thus the management and control of private property rights is equally important in a democratised “mixed economy”. Economic democracy is then not primarily about “ownership”, but about “the power of control”. It is about the redistribution of economic and social power to the detriment of today’s functional elites.

    The left should take the initiative and promote a European debate about the direction of future economic development; about the “why” of production (for example, for the purpose of a socio-ecological restructuring with the growing importance of regional domestic markets as against export-oriented competitive regimes), the “what” (for example, new concepts of mobility, transnational concepts of saving energy and of generating reproductive energy) and the “how” (especially new approaches to labour policy that promotes health and based on expanded co-determination). A fundamental democratic reform of European corporate governance is part and parcel of this concept.

    Despite their the differences in socio-economic and political contexts, what is common to all the historical attempts at programming the economy at macro-economic and sector-specific levels is that they were conceived “from above”, as it were. Their precondition was essentially the appropriation of the political superstructure, in order to achieve the capacity to democratically control economic development. Moreover, this historic heritage often has a built-in reductionism: economic democracy was reduced to the question of ownership, a problem perpetuated up to the present.4 Certainly there is no doubt: In macro-economic accountability, in the division of social wealth and the shaping of labour conditions, crucial questions of power of a capitalist mode of production appear, for which market anarchy and the power of control, derived from property, over the means of production and the deployment of labour power are characteristic. The social nature of work only becomes evident afterwards – if the goods and services have been sold profitably. And this, in turn, comprises immense processes of crisis: when capital was invested in wrong proportions in no longer expanding sectors, as was the case in the years before the outbreak of the Great Crisis on the financial markets and in the real-estate sector. Yet, questions of the social nature of labour or, more precisely, the democratic decision on how people work and which processes of production and which services are organised to meet which needs, cannot be answered with reference to society’s ability to intervene in changing property relations. Nor can they be answered by thinking of the pre-condition of the socialisation of property and democratic management of the economy as the result. Applying this sequential logic, the 20th-century trade-union and political left have failed in many ways – and in the process at times repeatedly fallen into voluntarism.

    A new project of democratising the economy has got to begin with the far-reaching changes in the enterprises and the organisation of work in order to deal with the labour-policy dimensions of the Great Crisis. Key words in this are shareholder value management, outsourcing and concentration on the most profitable core business, market managing within the enterprise, de-hierarchisation, subjectivisation of the work. This means that “It can no longer be a matter of the division of responsibilities according to the Fordist model, in which company management has sole control over the processes of production and economic democracy develops through the extension of social rights. Democracy has to encompass the whole enterprise. A collective interest has to form, which legitimises the enterprise’s economic activities” (Aglietta / Rebérioux 2005: 23)

    “New economic democracy” thus proves to be a complex programme of democratic participation in the plant including the macro-economic shaping of the economy. What is involved is an integrated approach to a solution. The labour-policy dimension of the crisis makes the interconnection clear: the levelling out of the enormous differences in development of real economies – underlying the creditor-debtor-relationships – requires other regimes of production and labour. And, in the crisis, the collapse of accumulation driven by the financial market requires a new confrontation on sustainable company control. The crucial point in this debate will be the question of how far the ambitious requirements of economic control can be combined with a concept of activation from “below”.

    Transitions between the “how” and the “what” and the “why” of work in the productive and service sectors are civilised in capitalism by the welfare state essentially through interventions into the labour market and social policies (employment agencies, short-time work, early retirement schemes, unemployment compensation, continuing education, etc.). This remains indispensable but at times of deep crisis-ridden transformations of the system proves not to go far enough. It is no longer about secondary cushioning of problems but about control of the economy itself. In this context, new approaches to the democratisation of work must define the interfaces. We can see them at different levels: in the individual industrial sectors, the national economies and the transnational/European level.

    The global imbalances revealed in the Great Crisis as well as the stagnation in highly developed capitalist societies and the ecological-crisis processes represent huge challenges to a forward-looking structural policy.

    Within a nation-wide control of the economy there are a number of levels of intervention we may list:

    • Control of the financial markets: banks as service providers for the creation of values and restructuring in the real economy – controlled by “public financial councils”. The use of taxpayers’ money is transformed into public ownership.
    • Re-regulation: control of leverage, public rating agencies, strict restrictions on hedge funds, etc., expansion of the public-municipal and cooperative banking sector.
    • Stiglitz’s idea of a big public bank (into which existing public banking institutions are integrated), which takes charge of the programmes of the financial markets and which to a great extent guarantees the private provision of liquidity, could be a powerful instrument of indirect public control – and also of diminishing the economic power of private financial-market institutions.
    • Plurality of forms of ownership (mixed-economy), re-municipalisation of private property, strict requirement of public ownership in the sectors of the public basic services; development of a public-community cooperative sector.
    • Strengthening of the union-scale wage system: no zones exempt from these wages; minimum-wages guaranteed by law and facilitation of declarations of general application of collective agreements.
    • Reinforcement of the trade unions’ presence and intervention rights, in particular in view of the enormous growth in the last decade of the low-wage sector, where companies deny or circumvent elementary trade-union rights and rights of co-determination.

    A change of direction is required in the development of the public sector and the welfare state. An expansion of public and social services so that the number and percentage of employees in these sectors approach those in Scandinavian countries – this would mean millions of new and socially regulated jobs and considerably improve the parameters for labour relations also in private, person-centred and social-service sectors. To achieve this, a strong and lasting increase by several percentage points of public revenues from GNP is required.


    The European Dimension

    The European Union and the Euro-Club have in recent years gained ever more importance and have in the course of the Great Crisis themselves become a cauldron of crisis: This is a consequence, on the one hand, of the predominance of monetary integration over real-economy integration, and, with it, of the pressure of the financial markets progressively to privatise social-security systems, in particular with the pension systems as a field of profitable capital investment; on the other hand, of an accumulation regime based on great differences in competitiveness, and with it trade imbalances and the indebtedness of the deficit states. The idea that monetary integration would lead to a relative harmonisation or to an equalisation in real economy processes and, consequently, to levelling out differences of productivity, has been completely discredited – in fact, the opposite was the case.

    Economic democracy in Europe has to change this deficient state of affairs. Revoking currency integration – the return to national currencies – is no option. Instead, the process of integration must be pursued further in structures of the real economy by means of common infrastructural, regional and industrial policies in Europe. The European Commission under Jacques Delors in fact had intended to do just that both before and during the establishment of the monetary union (cf. the various White Papers on that subject), but it proved unfeasible due to the resistance of the economically superior states.

    This shows that a new regime comes up against power-political resistance, though this has been weakened in the current crisis as can be gathered from the recent debate on the necessity of a European economic government. However, what was conceived by the earlier EU Commission as a technocratic act, has to become a matter of European public discussion: a European debate about the direction of future economic development, i.e., the “why” (for instance, the goals of a socio-ecological restructuring with the growing importance of regional domestic markets in contrast to export-oriented competitive regime), the “what” (new concepts of mobility, transnational concepts for saving energy and generating reproductive energy) and the “how” of production (with new approaches to a labour policy that would promote health and would be based on an expanded co-determination, as envisaged in the HIRES-report). This must go together with a fundamental democratic reform of the European corporate governance.

    Progress in integration of the real economy has to be sustained by a new European financial regime. This requires a corresponding reform of the European Central Bank, whose responsibilities have to be extended and no longer be restricted to maintaining price and currency stability. In fact, during the crisis the ECB has unavoidably performed tasks as “lender of last resort” by buying shares of highly indebted states. This defensive policy – relaxing the suffocating grip of the financial markets – could be made more offensive if the ECB and the system of central banks associated with it promoted the financing of investments on a European scale, whether directly from interest-subsidised loans or through the mediation of member states. Thus a quasi-public institution would assume important responsibility in fencing in, and in the step-by-step domestication of the private sector driven as it is by maximum profit.

    For an economic-democratic renewal of Europe, the establishment of a new European social model is indispensable. The compartmentalised way in which the defensive struggles against the dismantling of the social welfare state and privatisation are conducted in the different member states is amazing, despite the fact that the attacks are the same everywhere, as can be seen, for example, in the “retirement at 67” plans. In this context, too, a European public needs to be created. In so doing one could start from European minimum standards – for example a European minimum wage – and from a European emergency programme against poverty, proceeding stepwise to a harmonisation of social levels in Europe (social welfare expenditures as a percentage of GDP) without doing away with particularities rooted in national contexts. It is especially progress in constructing a new European social model that can serve as a strong lever in bringing about balanced growth of the domestic markets.

    Indeed, the policy of steadily increased austerity is hopeless: If its intention was to intensify the degree of exploitation of social labour power as a whole throughout Europe and to use the disciplining and intensifying of labour regimes for still greater appropriation of the social surplus, then the price to be paid – in the form of asset write-offs – is equally great and must once again be paid for by the dependently employed. The alternative can, however, not consist in leaving the monetary union, because this would only lead to further and higher structural imbalances and growing social tensions.

    The structural imbalances that have developed between the peripheral and core countries of the Euro-zone are inacceptable in the long run and represent the real problem of the region. The real exchange rates between the core countries and those at the periphery have been diverging since the beginning of the monetary union, and debt is now at a level in a series of countries in which it is no longer financeable. In this situation, there is a danger of defaults and extensive debt rescheduling, along with countries (temporarily) giving up the Euro, with subsequent inflation. If, for reasons of defending national sovereignty, part of the political left in Europe opts for a temporary return to the policy of the nation state, this de facto amounts to moving closer to the forces inspired by right-wing populism – with the false expectation that only by emphasising nation-state concepts could weak states regain control of the instrument of exchange rate policy so important for securing competitiveness.

    The Eurozone – and thus, in the end, the EU – has arrived at a crossroads. Either it is possible to initiate a new process of European integration or the project of intensified European neighbour relations – as ambivalent as it is – will come apart. The left alternative, i.e. the project of an economic-democracy strategy connected to the conception of a “European Clearing Union”, absorbs elements of the current debate and combines them with a further-reaching proposal going back to the 1940s. Then, too, there was a need to draw fundamental conclusions from a great global crisis. As the British government’s chief negotiator in the talks on an economic order for the post-war-period, John Maynard Keynes had in the 1940s suggested the foundation of an International Clearing Union (ICU) including a system of equalising trade imbalances. Along with a neutral global reserve currency and a regime of fixed exchange rates and strict control of capital movements, the most important component of his plan was that both deficit and surplus countries had to take steps towards achieving the balance.




    1)  Economic Democracy in Germany; US-American New Deal during the Great Depression; Wage-Earner Funds in Sweden after the end of the “Golden Age” of post-war-capitalism.

    2)  In “Capital I, Marx makes the following distinction: “The monetary crisis referred to in the text, being a phase of every crisis, must be clearly distinguished from that particular form of crisis, which also is called a monetary crisis, but which may be produced by itself as an independent phenomenon in such a way as to react only indirectly on industry and commerce. The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance.” (Capital, Vol. 1, Chapter Three: Money, or the Circulation of Commodities, Section Three: Money, B. Means of Payment, fn. 49)

    3)  Characteristics of the German production model are “skilled work and dual professional training, diversified quality production for specific market segments, long-term thinking and the primarily technical orientation of business strategies and the dual system of industrial relations based on social partnership”. (Bartelheimer/Kaedthler 2011:19).

    4)  See also the Platform of the Party DIE LINKE adopted in October 2011.

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