• On Economic Democracy

  • Por Michael R. Krätke | 27 May 09 | Posted under: Democracy , Theory
  • Throughout the world there is consensus around the idea of democracy as the one and only viable concept of a good order. However, that consensual view remains restricted to the realm of politics. A good society today is conceived as a mix of political democracy and … a capitalist market economy.

    In this view, capitalism is seen as complementary to democracy, but clearly distinct from it. A capitalist economy is not necessarily perceived as a democratic order in itself; it can be undemocratic or democratic, as long as it goes together with a democratic political order that will counterweigh, even outweigh, the despotism of capital and free markets.1
    Social movements throughout the world, old and new, and the left in general, are deeply convinced of the intrinsic value of democracy. But the restriction of democracy as a principle and as an order to the realm of politics and politics alone is not generally embraced on the left. On the contrary, changing the societal order and changing the world economy, the world of the markets and the rule of capital, is regarded as a democratic process, even the highest possible achievement of democracy. Democracy as a process involves the quest for, and the conquest of, power as well as the use of political power, state power in particular, as the primary lever to change the structure of society and to overcome capitalism as an economic order. Today, on the left nearly everybody agrees that the transformation of capitalism into a good and just economic order will only be possible through democratic means. At least in Europe and North America the left has given up all aspirations to benevolent dictatorship, even for short transition periods.
    The anti-capitalism of the social movements and the left in general today is skeptical of the new capitalist world order and in particular of its neoliberal message. Implicitly, sometimes explicitly, today’s anti-capitalist movements refuse the claim that the free market itself constitutes an economic democracy – and the best and only form of economic democracy that is or could remain viable. In criticising the structures of contemporary capitalism, today’s social movements focus on the rising power of the financial markets. With respect to the tremendous power of contemporary financial capital, they have revived an ancient debate: whether or not capitalism and political democracy are indeed reconcilable, whether they can and will be compatible in the longer run. If your answer to this old question is no, if you see capitalism as it actually is, as a threat to, rather than as prerequisite or stable base for, democracy, and if you hold democracy to be more important for a good society than capitalism you have a clear political argument against capitalism, one that can easily become an argument in favour of another economic order, economic democracy: In order to preserve democracy, we must get rid of capitalism and replace it, if possible, not just with something nicer but with something that is and will be compatible with political democracy – that is economic democracy.

    The concept of economic democracy

    Inevitably, and just like socialism, communism and anarchism, economic democracy is both a political and an economic concept. As a political concept, economic democracy not only indicates a higher degree of state intervention into, and state control of, economic processes — democratically chosen and legitimised governments have done that already for ages in many parts of the world. It does not mean somewhat more elementary rights for workers, not even in an extended way, including the incorporation of worker’s representatives into the official political decision-making process.2 If that were all that economic democracy means, countries with a strongly entrenched corporatism like Austria or the Netherlands would have been considered fully fledged economic democracies for many decades. However, economic democracy indicates not just a form of workers’ self-government on the level of the shop floor or of the firm – although workplace democracy and shop-floor self-government remain indispensable elements of any concept of economic democracy. Rather, when we speak of economic democracy, we are in fact addressing a large variety of power relations pervading the whole structure of the economy and influencing every single aspect of society and society’s economic life. We think of rights and duties, of controls, and of checks and balances that can provide counterweights to illegitimate private and public economic power. In the end, and completely in line with today’s anti-capitalist, anti-globalisation movements, we are also talking about an economic order for the international economy, an order that could effectively deal with global catastrophes, with the wealth and poverty of nations, and with the exploitative structures of the world markets. This, the concept of a democratic world economic order, is still the weakest link in the chain of contemporary anti-capitalism.
    Since the early 1980s, and in particular again since the Great Transformation of 1989-90, a worldwide debate on models for a feasible or viable “democratic socialism” has re-emerged. Democratic socialism is meant to present an alternative to both capitalism in its various forms and to all forms of a centrally planned, state-run “socialist” economy that have dramatically failed in the former Soviet bloc.3 Although the debate is largely restricted to academe, its relevance is immediately apparent if we consider the largest contemporary socialist experiment, the Chinese effort to build and preserve something that is still officially called a “socialist market economy.”.
    The debate is largely between models of (economic) democracy. Michael Albert’s model of a “participatory economy” provides just the most recent example.4 The issue is a feasible economic alternative to capitalism, an economic order that would be no less efficient, but much more equitable than its historical predecessor. An alternative that would be desirable and acceptable in terms of basic democratic values: equality, liberty, self-government and participation.
    It is not self-government (or self-management) in the workplace which provides the most important bone of contention in the actual debate between different models of economic democracy but rather the democratic nature of the planning and coordination processes on the macroeconomic level (where many firms, many branches, whole regions and countries, even the world economy, are concerned). In view of the bad repute into which central state planning has fallen, the debate hinges essentialy on one crucial question: What, if anything, will be the role of markets in the new economic order? Is some kind of “market socialism” feasible and desirable, an economic order in which markets do not rule but are re-embedded or “socialised,” put and kept under societal control and run by democratic political bodies instead of anonymous “market actors”? 
    It is easy to see why the feasibility or desirability of workplace or firmlevel democracy stimulates little debate: There is simply enough evidence to demonstrate that workers’ cooperatives can run firms as effectively and as efficiently, if not much better, than private entrepreneurs or capitalists and their hired managers: As a rule, they have lower supervision and administrative costs, lower rates of absenteeism, and lower turnover of the labour force than private capitalist enterprises. Cooperation, workers’ self- management and participation on the work-floor actually increase productivity.5 Democracy — that is the right to govern and to organise one’s own activities, together and in accordance with all the people directly involved — on the level of the workplace, works. It works if there are rights that actually give the people on the work floor a voice and power of discretion which they lack in the “normal,” strictly hierarchical labour-relations prevailing in both the private and the public sector today. Such rights are not even inevitably linked to individual or collective ownership of the firm (or the firm’s assets, its productive resources). In fact, there has always been a variety of forms of workers’ cooperatives, just as there have been different forms of worker’s co-determination in private capitalist enterprises.
    Economic democracy could be restricted to the elementary right to elect one’s own managers (be they individual managers or the members of a workers’ council) or it could go as far as the right to be permanently involved in all relevant decision-making on the level of the workplace and/or the firm. Unfortunately, there is a problem here: The structure of work, the inequality of jobs and qualifications, the hierarchy of jobs, which is due to the high levels of specialisation in modern work organisations, cannot easily be overcome. This very structure undermines the democratic principle of “one person – one vote” because it renders the experts or specialists in any field inevitably more important, hence more powerful, than the laymen or the non-specialists.
    So we run into the old Lenin problem: The cook should run, if not the state, at least the kitchen, but can she? Is any cook or group of cooks able to run the kitchen without ruining the meal? One can think of devices like job rotation or a redesigning of the jobs in order to flatten the hierarchy of knowledge, responsibilities, experience and hence “expertise”. One can imagine a structure in which knowledge, expertise and discretionary power are systematically de-coupled so that the philosophers don’t rule. Neither should the bureaucrats or the professional politicians. Instead, councils organised according to the age-old practice of a jury of laymen could do the job.

    The problem of macroeconomic planning

    We run into even more trouble if we dare to imagine some kind of democratic planning procedure on the macroeconomic level. Nobody denies the necessity of careful planning – all large and small firms do their share of it. But there is much discussion of the salient questions (a) what should be planned, (b) by whom, and, last but not least, (c) how should such macroeconomic planning be democratically organised?
    Planning has a bad name today, although it happens all the time – budget planning everywhere in the public sector, long-term production and investment planning in all larger corporations. But the macroeconomic planning institutions that do exist in one guise or the other in many countries (central banks, even central planning bureaus as in France or in the Netherlands) do not in fact have any authority over individual firms or branches. Hence, their planning is pointless where it is not meant to instruct the firms belonging to the public sector (as, for instance, in the case of the French ‘planification’).
    All of this is to be changed radically in any form of “democratic” economy: Not only will basic rules of governance be imposed on individual firms. The self-governance of workers’ collectives will also be subjected to some control and guidance from above, legitimised by democratic decision-making on governance / management rules on a higher (societal) level. What is more, all sorts of basic economic activities, producing, consuming, saving, investing, de-investing, selling, buying, crediting, marketing etc., will no longer be merely a private affair but will instead by thoroughly politicised. In a democratic economic order, basic economic activities have to be legitimised, the rule of “market forces” challenged, and individuals and collectivities empowered: Instead of the “markets” (in practice a way of indicating private makers and rulers of particular markets), producers and consumers, all stakeholders, should deliberate, negotiate and eventually decide on the direction and course of economic developments.
    Of course, not everything can or should be planned; firms and workers’ cooperatives should and would retain a large degree of autonomy in their day-to-day affairs. But there is a lot of agreement with respect to the crucial importance of investment decisions – on the level of firms, branches, and regions. Because investment decisions – on the level of the firm as well as on the societal level – do include decisions on innovations, decisions on new products, the use, and/or the development of, new technologies, the restructuring of whole industries, the opening of new firms or the closing down of others. Generally speaking, four tasks are involved in the business of macroeconomic investment planning: (1) to decide on the overall size of the social investment funds; (2) to decide on investment priorities among extant alternatives; (3) to decide on either major and minor innovations (regarding the risks and chances involved and concerning both products and production processes) or on the issue of initiating or terminating certain kinds of economic activities; (4) to decide on success and performance criteria for firms and branches. Obviously, decisions (2) and (3) together determine the path of “growth” and “development” of the economy as a whole. Accordingly, the most important basic right that citizens have to gain in any democratic economic order will be the right to participate in collective decision-making on accumulation and investment.
    Models of economic democracy are based at least on some sort of social control of net investment. On the societal level, they require a form of democratic decision-making, using one or another form of representative democracy and involving producers, as well as consumers and the state, as representing “general interests” like environmental development or the interest of the next generations. The allocation of extant investment funds (today between 5 and 12 % of GNP in the advanced capitalist countries) will not be subject to the discretion of private owners, capitalists or their hired managers, but to collective decision-making by bodies of elected representatives of all people involved in and concerned with the economic reproduction process. In a democratic economic order, individual firms or corporations will have to contribute to the societal investment funds by means of taxes regularly paid and levied on their net profits. In order to make investments, they will have to apply for the means of investment granted as credits; they will have to submit individual investment plans for approval according to general standards established by the public bodies which are actually in control of the societal investment funds. A system of public investment banks will act as intermediary between the society – or its representative bodies – as the owner of general investment funds and individual firms (including the workers’ cooperatives) as temporary users of parts of these funds. Such a minimal system of democratic control and planning of course needs particular institutions – investment planning councils and public investment banks – which will operate under the control of the general representative bodies (councils and /or parliaments) responsible for all kinds of political decision- making. 
    At the other extreme, we would have to imagine an economy where everything is under public, democratic control and every single economic decision is taken by all people affected by them. Accordingly, consumers will have to decide on their needs and demands and to make their preferences known to the producers. Workers’ cooperatives (firms), on the other hand, will have to provide the necessary cost-information for several production alternatives. Finally, decisions about what to produce, when, where, how and at what cost, will have to be taken in an interactive process where individual consumers (or larger communities of consumers) are negotiating with individual workers’ cooperatives (or larger groups, like cooperative corporations). The crucial question remains whether or not and to what degree market relations and competition between producers (the autonomous firms or workers cooperatives) can and should play a role in this process – and if so, whether they could be kept under democratic control. With respect to this salient problem of how to fit an element of “market socialism” into a democratic economic order, it has been suggested that markets could be effectively “socialised”.6 By embedding markets within particular institutions which organise and supervise the actions of all the market actors, it might be possible to create transparency, to regulate competition and actually “govern the markets”. 
    The history of capitalism provides many examples of sustained efforts to “govern the markets” which were quite successful – certainly in the case of the Newly Industrialising Countries. As a rule, the states and state bureaucracies organising and governing the markets could hardly be characterised as “democratic”.7 Autocratic regimes dominate the annals of the Newly Industrialising Countries of the 19th and 20th century.For a viable form of economic democracy, more is necessary than just the political will and power to push in the direction of economic ‘development’.  On the contrary, a vital economic democracy would be compatible with low(er) rates of economic growth, and would be based on qualitative common goals of ‘development’ such as could be defined in organised public debates. Of course, a democratic economic order which politicises all macroeconomic issues, hence requiring much more sophisticated arguments and legitimisations, would be all the more difficult to manage for the policy makers.
    This is linked to the question of the scope and scale of “market socialism”: whether or not there should be a labour market, a capital market, a market for natural resources. In the socialist / communist tradition, there is the strong inclination either to abolish or severely to restrict such markets. “Socialised” markets providing democratic control and decisionmaking regarding market processes would provide an alternative. Because such markets would be run and controlled by public supervisory and regulatory bodies, principles of democratic decision-making could be applied. Many such agencies or bodies exist today. These are what are know in current jargon as BINGOs, that is NGOs with a strong business orientation, actually formally organised and institutionalised business communities that are beyond the reach of democratic control and act as gentlemen’s clubs which network among themselves. To replace them by democratically organised, legitimate public bodies would be easy and even necessary once the private capital-owner and entrepreneur has been removed from his central place in the economic life of society. In the new context of “socialised markets”, the public bodies would have to establish norms, standards and rules for the market participants – price norms, wage norms or remuneration norms as well as product or quality norms and production norms (as regards, for instance, energy consumption, environmental effects, health and behavioural effects). With the addition of a strong element of collective, democratic decision-making on investments (as outlined above), socialising the allocation function of the market and even socialising the “entrepreneurial” function, along with the promotion of innovations and of “new combinations”, we would be very close to a fully-fledged democratic economic order.
    The preservation of some market elements,  thus combining “economic democracy” and “market socialism”, might at first glance seem awkward, even compromising the whole project of a new economic order in which society would again be in charge of its economy instead of being dominated by it as in capitalism. However, markets, even highly regulated ones, have some advantages: They can avoid the endless and inconclusive interactive battles among conflicting individual interests. Market outcomes could be accepted as temporary solutions to actual conflicts between particular and legitimate economic interests. However, in a democratic economic order markets could never be the ultimate authority responsible for the final settling of conflicts. Because markets are blind and deaf, because ‘market failures’ occur everywhere, and because markets are seldom ‘efficient’, any concept of ‘market socialism’ should strongly rely on correctives to the market built into the system as a whole. There should always be the possibility of appeal against market outcomes, an appeal to a higher, that is political authority, an authority able and empowered to re-launch public debate and democratic decision- making on any clash of economic interests. An economic democracy would indeed be time-consuming. One of its prerequisites would therefore be a reasonable reduction of working hours for all.
    The present debate on democratic socialism and a feasible form of economic democracy is haunted by the failed experience of highly centralised state planning in the so called “socialist countries”. Can failure then be avoided by democratising the planning process? In principle it can. But what form of decision-making, what form of participation is needed in order to make the planning process effective. Nowadays, socialists are inclined to think that the technical problems of central planning can be overcome thanks to the greater computer power that we have at our disposal. Based on the internet as a new device for the exchange and distribution of information as well as for decision making, Michael Albert has conceptualised a participatory process that is both highly inclusive – giving everybody a voice of his own – and interactive. Although it appears to be quite time-consuming, it looks very simple: We need to know what people want? We just ask them. We need to know what costs are linked to those desires? We just ask them.8 But how do we decide afterwards on priorities if we do not suppose a basic condition of “very rich abundance” where every single desire can be fulfilled regardless of cost? Obviously, we need a negotiation process, but we also need to decide. How do we decide on such matters? By a simple majority of votes, by qualified majorities, or by other rules of collective decision-making? In any case, the first act of institutionalising a democratic economic order would always imply a collective decision on how to decide in economic matters. How do we organise planning as a process that makes it possible to learn from mistakes and avoid dead-ends and crises? Inevitably, there will at times be clashes of economic interests. How do we assess and weigh them? Which economic interests should prevail once the power of capitals has been abolished as the quasi-natural base of economic decision-making? Even if we are bound to accept everybody’s economic interests as equally important, not all interests are of the same kind. What might be a vital concern for one will appear as a marginal question for some one else. Hence we need a rule (or rules) to decide between economic interests of different urgencies and range. As regards empowerment and participation in economic decision-making, one might imagine the application of a rather Rawlsian rule: To empower those (perhaps even give them the power to veto and block collective decision-making dominated by others) who are directly bearing the brunt of the collective decision at hand, even if they are a small minority — for instance, those people who will lose something vital to them, like homes, jobs, skills, or environment, because of the economic change at hand, should be given an opportunity to veto and force the majority to rethink and renegotiate the matter.

    Strategy and strategies

    Socialist transformation strategies were always based on the conviction that we would find the elements, the basic ingredients with which to build the new economy in the capitalist economies as they have developed up to now.9 Actually, we still see elements, even islands, of economy democracy, in the capitalist world economy today. We see them in the worldwide cooperative movement (with more than 800 million people involved on a world-scale), we see them in the various forms of organised solidarity and self-help in many parts of the world, which appear in many guises. In some parts of the world, even in some European countries, the “social” economy still provides work and a living for many people. The cooperative movement is very much alive around the world, including more than 800 million people in its rank-and-file worldwide. In the Europe of the 15, we currently count about 135,000 cooperatives with more than 84 million members, providing jobs for about 2.7 million people. This may not seem very impressive considering the majority of the producers’ cooperatives are very small (about 4.5 to 5% share in overall employment in countries like Spain or Finland), although their market shares are much larger (18 – 35 % in retail trade and health care, 55 – 83 % in agriculture, in various European countries). If we take the whole of the “social” economy (including not only cooperatives but various kinds of non-profit organisations) we get much larger employment shares (from 8.2% in Italy to 16.6 % in the Netherlands).
    The left should propagate and support such alternative and more or less non-capitalist forms of economic life and use them as a cornerstone for its long-term transformation strategies. It is necessary to rebuild the previously existing alliances between social movements like the cooperative movement, the trade unions and the political parties of the left. In strategic terms, it makes a great deal of sense to support and promote the “third sector” in all capitalist countries and to try to formalise the “informal economy”. Workers’ rights have to be extended and strengthened, alongside consumers’ rights. The social movements and the unions and the political parties of the left have to engage in struggles over public investment, reclaiming and regaining the public realm where decisions on our common or public wealth (in terms of public goods and services) are made. The left has to re-engage in debates on economic reforms and large-scale economic experiments in socialist countries – China’s hazardous road towards “market socialism” being by far the most important topic. It has to rethink the economic and societal order which lies beyond capitalism and which it aspires to achieve. If it fails to do so, reforming capitalism and making it viable or less destructive would be the only option left. If, on the other hand, it succeeds in reappraising economic democracy, it would have some strong reasons to rebuild an alliance with the millions of people already engaged in the “social” economy and the cooperative movements in Europe and elsewhere. What is more, it would regain the rationale for a radical reformist strategy of regulating and even governing the markets – entailing sustained efforts to democratise (hence “socialise”) the institutions that are actually ruling different kinds of markets today. 

    1 Cf. Dan Usher, The economic prerequisites to democracy, New York: Columbia University Press 1981. Usher’s book exemplifies well the conventional, liberal view: there is no democracy without capitalism.  

    2 As with Germany’s “codetermination,” which gives workers’ representatives the right to participate in decision-making at the level of he board of directors – of course not in every sector but only in certain, selected areas of the private economy. Even in its reduced and crippled form, workers’ “co-determination” is fiercely opposed by capitalists and managers whose despotism is at stake. Some of the more enlightened capitalist despots, of course, have learned to live with it.

    3 For a survey of left analysts who took their leave from any concept of central macroeconomic planning, see Christopher Pierson, Socialism after Communism. The New Market Socialism, Cambridge: Polity Press 1995

    4 Cf. Michael Albert, Parecon. Life after capitalism, London – New York: Verso 2003.

    5 See the evidence provided by a detailed study of the largest complex of workers’ cooperatives in Europe, the Spanish cooperative Mondragon: H. Thomas / D. Logan, Mondragon: An Economic Analysis, London: Allen & Unwin 1982. Already in the middle of the 19th century, British trade union reports on workers’ cooperatives confirmed that they actually worked more “efficiently,” that is had less “management costs,” and far less “administrative costs” than comparable private enterprises had. When Marx praised the higher efficiency of workers’ cooperatives in 1864/65 (in the manuscript that was later to become volume III of Capital), he was drawing on evidence provided by the trade union reports

    6 Cf. Diane Elson, Market socialism or socialization of the market?, in: New Left Review172, 1988, pp. 3 – 44.

    7 Cf. Robert Wade’s account of the experience of developmental states in Asia in: Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Princeton: Princeton University Press 1992.

    8 Cf. Michael Albert, Op.  cit., pp. 128 e.s.

    9 That is, essentially, the gist of Marx’ concept of a ‘scientific’ socialism: If we cannot find the material, moral and intellectual elements to build a new economy and society within the framework of actually-existing capitalism – although in disguise – all our efforts to overcome capitalism will indeed be futile. Of course, we must not only find such elements but we must use them in order to “build” a new society. Cf., Michael R. Krätke, Jenseits des Kapitalismus. Oder wo die kapitalistische Entwicklung über sich hinausweist, in: Marcus Hawel / Gregor Kritidis (Hg), Aufschrei der Utopie, Hannover: Offizin Verlag 2006 – 163 – 183.

    Michael R. Krätke is professor of political science and economy at the University of Amsterdam and co-editor of spw – Zeitschrift für sozialistische Politik und Wirtschaft. 


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