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A Case for Economic Democracy

By Gary Dorrien  Posted by David Kendall (about the submitter)     Permalink       (Page 2 of 3 pages)
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We must push Obama for him to create anything like that, as he is surrounded by centrist corporate establishment types eager to placate Wall Street and averse to wiping out shareholders. We must also push him to stick to a social investment strategy throughout his presidency, instead of backing off from it as Franklin Roosevelt did.

A public bank that supports green technology and cooperatives would be a major breakthrough for economic democracy in this country. Economic democracy is about democratizing power and creating environmentally sustainable economies. In its full-orbed version, it features mixed forms of worker, community, and mutual fund or public bank enterprises. I am not suggesting that factors of production trump everything else. Any social justice politics worthy of the name requires a feminist, interracial, multicultural, ecological, and anti-imperial consciousness that privileges liberationist and environmental issues.

But no serious challenge to existing relations of power can ignore the factors of production. Economic justice is never dispensable. Those who control the terms, amounts, and direction of credit play a huge role in determining the kind of society that everybody else lives in. We're getting a dramatic demonstration of that today. The question of who controls the process of investment is enormously important. Gains toward social and economic democracy are needed today for the same reason that political democracy is necessary: to restrain the abuse of unequal power.

Pros and Cons of Economic Democracy

Economic democracy, like political democracy, is messy and time-consuming. Democratically controlled capital is less mobile than corporate capital, and the return to democratically controlled capital tends to be lower than in corporations, because worker-controlled enterprises are more committed to keeping low-return firms in operation. Producer cooperatives are often too slow, small, and humane to compete with corporations, and they require cooperative habits and values that cut against the grain of American individualism. In the United States, any strategy to break down concentrated economic power by expanding the cooperative sector confronts difficult trade-offs, political opposition, and cultural barriers.

But economic democracy also has pragmatic considerations in its favor. Economic losses caused by worker participation can be offset by gains in productivity made possible by it. People often work harder and more efficiently when they have a stake in the company. Worker ownership is a key option for communities threatened by runaway plants and deindustrialization. Experiments with various kinds of worker ownership increased dramatically in the 1990s, aided by a growing network of policy experts, and some unions began to bargain for worker ownership, worker control over pension funds, and worker management rights. These developments have the potential to become the building blocks of a serious movement for economic democracy.

Today there are approximately 12,000 worker-owned firms in the United States, including large enterprises such as Republic Engineered Steels, Publix Supermarkets, and Northwestern Steel and Wire. Most employee ownership plans offer shares without voting rights; most assure that employees will be kept in a minority ownership position; few provide educational opportunities to help worker/owners develop management skills; and virtually none offer programs to build solidarity or help worker/owners forge links with other cooperative enterprises or raise awareness of economic democracy issues. Worker ownership without democratic control is a nominal version of economic democracy, thwarting the real thing, and American unions have a generally dismal record in this area, reinforcing the shortcomings.

With all its limitations, however, worker ownership is a viable option, and a necessary one. The Mondragon network in Spain is spectacularly successful; in the United States, several thousand firms have converted to employee ownership, thousands of others have been launched with worker-ownership plans, and approximately 1,000 companies in the United States are fully worker-controlled.

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It Begins by Building the Cooperative Sector

Full-orbed economic democracy is obviously far off. On the way to something like it, economic democracy is about building up institutions that do not belong wholly to the capitalist market or the state. It begins by expanding the cooperative sector. Producer cooperatives take labor out of the market by removing corporate shares from the stock market and maintaining local worker ownership. Community land trusts take land out of the market and place it under local democratic controls to serve the social needs of communities. Community finance corporations take democratic control over capital to finance cooperative firms, make investments in areas of social need, and fight the redlining policies of banks. These strategies widen the base of social and economic power by mixing together cooperative banks, employee stock ownership plans, producer cooperatives, community land trusts, and planning agencies that guide investments into locally defined areas of need such as housing, soft-energy hardware, infrastructure maintenance, and mass transit.

But merely expanding the cooperative sector is not enough. Cooperatives usually prohibit non-working shareholders, so they attract less outside financing than capitalist firms. They are committed to keeping low-return firms in operation, so they tend to stay in business even when they can't afford to pay competitive wages. They are committed to particular communities, so they are less mobile than corporate capital and labor. They smack of anti-capitalist bias, so they have trouble getting financing and advice from capitalist banks. They tend to maximize net income per worker rather than profits, so they tend to favor capital-intensive investments over job creation. And because cooperative owners often have their savings invested in a single enterprise, they tend to avoid risky innovations.

These problems can be mitigated with productivity-enhancing tax incentives and regulations. Cooperative economics and ecological sustainability are naturally linked by the necessity of creating structural alternatives to the capitalist fantasy of unlimited growth. The kind of economic development that favors the needs of poor and disenfranchised communities and does not harm the earth's environment requires a dramatically expanded cooperative sector consisting of worker-owned firms rooted in communities, committed to survival, and prepared to accept lower returns.

But worker ownership does not do enough for equality, especially in the highest-yielding cooperatives, which nearly always have high entry fees. Rather than allow members to sell out to the highest bidder and take their capital gains, most cooperatives require members to sell out to the company. This policy guards against reverting to traditional capitalist ownership, but in cooperatives with high share prices, one has to be rather well off or very determined to apply. One might address the equality problem by universalizing cooperation, but that would ruin a mostly good thing. If everyone had to belong to a cooperative, the entry fees would be waved and many enterprises would fail.

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Better Social Ownership Models

We need forms of social ownership that facilitate democratic capital formation, have a greater capacity for scaling up, and are more entrepreneurial. Specifically, we need forms of economic democracy featuring public banks and mutual funded holding companies. This approach can take a variety of forms, but the essential idea is to establish competing banks or holding companies in which ownership of productive capital is vested. The companies lend capital to enterprises at market rates of interest and otherwise control the process of investment, including decision-making power to initiate new cooperatives and shut down unprofitable firms. Equity shareholders, the state, and/or other cooperatives own the holding companies or public banks.

Unfortunately there is a lot more theory on this subject than concrete examples of it. The theorists include Peter Abell, Raymond Plant, Alec Nove, Saul Estrin, David Miller, John Roemer, Robert Dahl, Joanne Barkan, Gar Alperovitz, Radoslav Selucky, Otto Sik, Thomas Weisskopf, and David Winter. The biggest experiment thus far was the Meidner Plan in Sweden, named after German economist Rudolf Meidner, which was enacted in 1982 by the Social Democratic government. It called for an annual 20 percent tax on major company profits to be paid in the form of stock to eight regional mutual funds. Worker, consumer, and government representatives controlled the funds, and as their proportion of stock ownership grew, these groups were collectively entitled to representation on company boards. If fully carried out, this experiment would have rendered effective control over profitable firms in Sweden to the worker and public organizations. But the Social Democrats made little effort to educate the public about it or win popular support for it. For eight years Sweden's corporate class railed against it constantly. The Meidner Plan's term expired in 1990, and especially after the Swedish banking crisis of 1992, the Social Democrats lost their enthusiasm for it. That made political sense for them at the outset of second-wave globalization. It may prove to be the death knell for large-scale experiments in full-orbed economic democracy.

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