September 25, 2015

Does democracy require a reform of capitalism?

In 2012, economist Richard Wolff wrote a book called Democracy at work. A cure for capitalism which I read last week. I was a bit skeptical about the book's subtitle, not sure whether the idea that capitalism would need a cure wasn't streching it a bit, but I was attracted to the democracy at work part, so I did decide to read it.

After reading it I found the book interesting but wasn't sure how convincing I thought it was. I still wondered whether capitalism needed a cure. I did not intend to write a post about the book. Then, this week, I read about the news of several corporations being caught in unethical acts (example 1, example 2) and I revisited the book and decided to try to summarize Wolff's criticism and proposed solution.

Wolff describes what happened after the Great Depression in the 1930s. Centrist democrat Franklin D. Roosevelt became president. He started off by focusing on balancing the budget but was gradually more and more forced to develop policies, which became famous as his New Deal, that made him the most progressive president in US history and a highly successful and popular president at that. An important force which drove him in this direction was the success of the CIO (the Congress of Industrial organizations) which brought about a wave of unionization.

Among these progressive measures were tax raises for the rich and businesses, and social welfare programs. Also austerity measures were undermined. Instead costly programs were implemented to help the poor. FDR warned big business and the rich that if these measures would not be implemented a serious anti-capitalist movement would emerge. While these policies did work, they were not sustainable according to Wolff. Since, the 1970s, step by step, the policies were undone and replaced by neo-liberal laissez-fair capitalism. After the 2008 crisis, even democratic politicians did not even suggest New Deal like policies. In the meantime, since the 1970s, real wages for US workers have not grown and economic inequality has increased a lot.

Wolff suggests that capitalism is inherently instable and bound to go from crisis to crisis. Also, he says, there are many problems with capitalism such as environmental degradation, income and wealth inequality, and the undermining of democracy 'as corporations [...] protect their disproportionate wealth and power by corruption politics. He suggests a different kind of solution which is more fundamental. A basic weakness of capitalism, he says, is that there will always be antagonisms between labor and capital.

Here is how he defines capitalism: "A capitalist system is, then, one in which a mass of people - productive workers- interact with nature to fashion both means of production [...] and final products for human consumption. They produce a total output larger than the portion of that output (wages) given back to them. The wage proportion sustains the productive workers: it provides their consumption and secures their continued productive labor. The difference between their total output and their wage portion is called the 'surplus'."

Owners of the surplus generally use the surplus for four things: (1) to pay bonuses to several categories of non-producing workers (like salespeople), (2) to pay taxes and government fees, (3) to pay dividends to shareholders, and (4) to pay themselves.

What the West and the Sovjet and Chinese socialism shared was the fact that both the means of production and the surpluses created by workers were not owned by workers but by different parties. In the West they were owned by private capitalist, in the East by state capitalists. State capitalism, according to Wolff, isn't stable either. Now, the main former state capitalist (communist) countries (Russia and China) have largely reversed their system to private capitalism.

Wolff proposes a solution which, he thinks, will not only prevent the inherent antagonisms in state and private capitalism but also will be more democratic and supportive of state democracy. This solution is to create companies in which (1) workers own and direct companies and (2) receive and distribute the surpluses they create. He calls these companies Workers's Self-Directed Enterprises (WSDEs). This, he says, will prevent worker exploitation and the emergence of an exploitative class.

Question: I'm still torn. The solution sounds interesting and might work but also sounds somewhat radical and a return to New Deal kind of politics, to some extent, might also create progress. And democracy might largely be saved by overturning the Citizens United legislation. What do you think: might Wolff's solution be a valuable and necessary way forward?

1 comment:

  1. If only we state our case in a sufficiently convincing manner. That the system will reform itself for the better in order to survive. Progressive change will only come about as the result of concrete political struggle. The alternative, as always, is barbarism.

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