Worker-owned enterprises as a social solution

image: Mondragon headquarters, Arrasate-Mondragon, Spain

Consider some of the most intractable problems we face in contemporary society: rising inequalities between rich and poor, rapid degradation of the environment, loss of control of their lives by the majority of citizens. It might be observed that these problems are the result of a classic conundrum that Marx identified 150 years ago: the separation of society into owners of the means of production and owners of labor power that capitalism depends upon has a logic that leads to bad outcomes. Marx referred to these bad outcomes as “immiseration”. The label isn’t completely accurate because it implies that workers are materially worse off from decade to decade. But what it gets right is the fact of “relative immiseration” — the fact that in almost all dimensions of quality of life the bottom 50% of the population in contemporary capitalism lags further and further from the quality of life enjoyed by the top 10%. And this kind of immiseration is getting worse. 

A particularly urgent contemporary version of these problems is the increasing pace of automation of various fields, leading to dramatic reduction for the demand for labor. Intelligent machines replace human workers. 
The central insight of Marx’s diagnosis of capitalism is couched in terms of property and power. There is a logic to private ownership of the means of production that predictably leads to certain kinds of outcomes, dynamics that Marx outlined in Capital in fine detail: impersonalization of work relations, squeezing of wages and benefits, replacement of labor with machines, and — Marx’s ultimate accusation — the creation of periodic crises. Marx anticipated crises of over-production and under-consumption; financial crises; and, if we layer in subsequent thinkers like Lenin, crises of war and imperialism.

At various times in the past century or two social reformers have looked to cooperatives and worker-owned enterprises as a solution for the problems of immiseration created by capitalism. Workers create value through their labor; they understand the technical processes of production; and it makes sense for them to share in the profits created through ownership of the enterprise. (A contemporary example is the Mondragon group of cooperatives in the Basque region of Spain.) The reasoning is that if workers own a share of the means of production, and if they organize the labor process through some kind of democratic organization, then we might predict that workers’ lives would be better, there would be less inequality, and people would have more control over the major institutions affecting their lives — including the workplace. Stephen Marglin’s 1974 article “What do bosses do?” lays out the logic of private versus worker ownership of enterprises (link). Marglin’s The Dismal Science: How Thinking Like an Economist Undermines Community explores the topic of worker ownership and management from the point of view of reinvigorating the bonds of community in contemporary society.

The logic is pretty clear. When an enterprise is owned by private individuals, their interest is in organizing the enterprise in such a way as to maximize private profits. This means choosing products that will find a large market at a favorable price, organizing the process efficiently, and reducing costs in inputs and labor. Further, the private owner has full authority to organize the labor process in ways that disempower workers. (Think Fordism versus the Volvo team-based production system.) This implies a downward pressure on wages and a preference for labor-saving technology, and it implies a more authoritarian workplace. So capitalist management implies stagnant wages, stagnant demand for labor, rising inequalities, and disagreeable conditions of work. 

 
When workers own the enterprise the incentives work differently. Workers have an interest in efficiency because their incomes are determined by the overall efficiency of the enterprise. Further, they have a wealth of practical and technical knowledge about production that promises to enhance effectiveness of the production process. Workers will deploy their resources and knowledge intelligently to bring products to the market. And they will organize the labor process in such a way that conforms to the ideal of humanly satisfying work.

The effect of worker-owned enterprises on economic inequalities is complicated. Within the firm the situation is fairly clear: the range of inequalities of income within the firm will depend on a democratic process, and this process will put a brake on excessive salary and wage differentials. And all members of the enterprise are owners; so wealth inequalities are reduced as well. In a mixed economy of private and worker-owned firms, however, the inequalities that exist will depend on both sectors; and the dynamics leading to extensive inequalities in today’s world would be found in the mixed economy as well. Moreover, some high-income sectors like finance seem ill suited to being organized as worker-owned enterprises. So it is unclear whether the creation of a meaningful sector of worker-owned enterprises would have a measurable effect on overall wage and wealth inequalities.

There are several ways in which cooperatives might fail as an instrument for progressive reform. First, it might be the case that cooperative management is inherently less efficient, effective, or innovative than capitalism management; so the returns to workers would potentially be lower in an inefficient cooperative than a highly efficient capitalist enterprise. Marglin’s arguments in “What do bosses do?” gives reasons to doubt this concern as a general feature of cooperatives; he argues that private management does not generally beat worker management at efficiency and innovation. Second, it might be that cooperatives are feasible at a small and medium scale of enterprise, but not feasible for large enterprises like a steel company or IBM. Greater size might magnify the difficulties of coordination and decision-making that are evident in even medium-size worker-owned enterprises. Third, it might be argued that cooperatives themselves are labor-expelling: cooperative members may have an economic incentive to refrain from adding workers to the process in order to keep their own income and wealth shares higher. It would only make economic sense to add a worker when the marginal product of the next worker is greater than the average product; whereas a private owner will add workers at a lower wage when the marginal product is greater than the marginal product. So an economy in which there is a high proportion of worker-owned cooperatives may produce a high rate of unemployment among non-cooperative members. Finally, worker-owned enterprises will need access to capital; but this means that an uncontrollable portion of the surplus will flow out of the enterprise to the financial sector — itself a major cause of current rising inequalities. Profits will be jointly owned; but interest and finance costs will flow out of the enterprise to privately owned financial institutions.

And what about automation? Would worker-owned cooperatives invest in substantial labor-replacing automation? Here there are several different scenarios to consider. The key economic fact is that automation reduces per-unit cost. This implies that in a situation of fixed market demand, automation of an enterprise implies reduction of the wage or reduction of the size of the workforce. There appear to be only a few ways out of this box. If it is possible to expand the market for the product at a lower unit price, then it is possible for an equal number of workers to be employed at an equal or higher individual return. If it is not possible to expand the market sufficiently, then the enterprise must either lower the wage or reduce the workforce. Since the enterprise is democratically organized, neither choice is palatable, and per-worker returns will fall. On this scenario, either the work force shrinks or the per-worker return falls.

Worker management has implications for automation in a different way as well. Private owners will select forms of automation based solely on their overall effect on private profits; whereas worker-owned firms will select a form of automation taking the value of a satisfying workplace into account. So we can expect that the pathway of technical change and automation would be different in worker-owned firms than in privately owned firms.

In short, the economic and institutional realities of worker-owned enterprises are not entirely clear. But the concept is promising enough, and there are enough successful real-world examples, to encourage progressive thinkers to reconsider this form of economic organization.

(Here are several earlier posts on issues of institutional design that confront worker-owned enterprises (link, link). Noam Chomsky talks about the value of worker-owned cooperatives within capitalism here; link. And here is an interesting article by Henry Hansmann on the economics of worker-owned firms in the Yale Law Journal; link.)

 
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Is there a new capitalism?

 

An earlier post considered Dave Elder-Vass’s very interesting treatment of the contemporary digital economy. In Profit and Gift in the Digital Economy Elder-Vass argues that the vast economic significance of companies like Google, FaceBook, and Amazon in today’s economy is difficult to assimilate within the conceptual framework of Marx’s foundational ideas about capitalism, constructed as they were around manufacturing, labor, and ownership of capital, and that we need some new conceptual tools in order to make sense of the economic system we now confront. (Elder-Vass responded to my earlier post here.)

A new book by Nick Srnicek looks at this problem from a different point of view. In Platform Capitalism Srnicek proposes to understand the realities of our current “digital economy” according to traditional ideas about capitalism and profit. Here is a preliminary statement of his approach:

The simple wager of the book is that we can learn a lot about major tech companies by taking them to be economic actors within a capitalist mode of production. This means abstracting from them as cultural actors defined by the values of the Californian ideology, or as political actors seeking to wield power. By contrast, these actors are compelled to seek out profits in order to fend off competition. This places strict limits on what constitutes possible and predictable expectations of what is likely to occur. Most notably, capitalism demands that firms constantly seek out new avenues for profit, new markets, new commodities, and new means of exploitation. For some, this focus on capital rather than labour may suggest a vulgar econo-mism; but, in a world where the labour movement has been significantly weakened, giving capital a priority of agency seems only to reflect reality. (Kindle Locations 156-162)

In other words, there is not a major break from General Motors, with its assembly lines, corporate management, and vehicles, to IBM, with its products, software, and innovations, to Google, with its purely abstract and information-intensive products. All are similar in their basic corporate navigation systems: make decisions today that will support or increase profits tomorrow. In fact, each of these companies falls within the orbit of the new digital economy, according to Srnicek:

As a preliminary definition, we can say that the digital economy refers to those businesses that increasingly rely upon information technology, data, and the internet for their business models. This is an area that cuts across traditional sectors – including manufacturing, services, transportation, mining, and telecommunications – and is in fact becoming essential to much of the economy today. (Kindle Locations 175-177).

What has changed, according to the economic history constructed by Srnicek, is that the creation and control of data has suddenly become a vast and dynamic source of potential profit, and capitalist firms have adapted quickly to capture these profits.

The restructuring associated with the rise of information-intensive economic activity has greatly changed the nature of work:

Simultaneously, the generalised deindustrialisation of the high-income economies means that the product of work becomes immaterial: cultural content, knowledge, affects, and services. This includes media content like YouTube and blogs, as well as broader contributions in the form of creating websites, participating in online forums, and producing software. (Kindle Locations 556-559)

But equally it takes the form of specialized data-intensive work within traditional companies: design experts, marketing analysis of “big data” on consumer trends, the use of large simulations to guide business decision-making, the use of automatically generated data from vehicles to guide future engineering changes.

In order to capture the profit opportunities associated with the availability of big data, something else was needed: an organizational basis for aggregating and monetizing the data that exist around us. This is the innovation that comes in for Srnicek’s greatest focus of attention: the platform.

This chapter argues that the new business model that eventually emerged is a powerful new type of firm: the 

platform

. Often arising out of internal needs to handle data, platforms became an efficient way to monopolise, extract, analyse, and use the increasingly large amounts of data that were being recorded. Now this model has come to expand across the economy, as numerous companies incorporate platforms: powerful technology companies (Google, Facebook, and Amazon), dynamic start-ups (Uber, Airbnb), industrial leaders (GE, Siemens), and agricultural powerhouses (John Deere, Monsanto), to name just a few. (Kindle Locations 602-607).

What are platforms? At the most general level, platforms are digital infrastructures that enable two or more groups to interact. They therefore position themselves as intermediaries that bring together different users: customers, advertisers, service providers, producers, suppliers, and even physical objects. More often than not, these platforms also come with a series of tools that enable their users to build their own products, services, and marketplaces. Microsoft’s Windows operating system enables software developers to create applications for it and sell them to consumers; Apple’s App Store and its associated ecosystem (XCode and the iOS SDK) enable developers to build and sell new apps to users; Google’s search engine provides a platform for advertisers and content providers to target people searching for information; and Uber’s taxi app enables drivers and passengers to exchange rides for cash. (Kindle Locations 607-616)

Srnicek distinguishes five large types of digital data platforms that have been built out as business models: advertising, cloud, industrial, product, and “lean” platforms (the latter exemplified by Uber).

Srnicek believes that firms organized around digital platforms are subject to several important dynamics and tendencies: “expansion of extraction, positioning as a gatekeeper, convergence of markets, and enclosure of ecosystems” (kl 1298). These tendencies are created by the imperative by the platform-based firm to generate profits. Profits depend upon monetizing data; and data has little value in small volume. So the most fundamental imperative is — mass collection of data from individual consumers.

If data collection is a key task of platforms, analysis is the necessary correlate. The proliferation of data-generating devices creates a vast new repository of data, which requires increasingly large and sophisticated storage and analysis tools, further driving the centralisation of these platforms. (kl 1337-1339)

So privacy threats emerging from the new digital economy are not a bug; they are an inherent feature of design.

This appears to lead us to Srnicek’s most basic conclusion: the new digital economy is just like the old industrial economy in one important respect. Firms are wholly focused on generating profits, and they design intelligent strategies to permit themselves to appropriate ever-larger profits from the raw materials they process. In the case of the digital economy the raw material is data, and the profits come from centralizing and monopolizing access to data, and deploying data to generate profits for other firms (who in turn pay for access to the data). And revenues and profits have no correspondence to the size of the firm’s workforce:

Tech companies are notoriously small. Google has around 60,000 direct employees, Facebook has 12,000, while WhatsApp had 55 employees when it was sold to Facebook for $ 19 billion and Instagram had 13 when it was purchased for $ 1 billion. By comparison, in 1962 the most significant companies employed far larger numbers of workers: AT& T had 564,000 employees, Exxon had 150,000 workers, and GM had 605,000 employees. Thus, when we discuss the digital economy, we should bear in mind that it is something broader than just the tech sector defined according to standard classifications. (Kindle Locations 169-174)

Marx’s theory of capitalism fundamentally originates in a theory of conflict of interest and a theory of exploitation. In Capital that conflict exists between capitalists and workers, and consumers are essentially ignored (except when Marx sometimes refers to the deleterious effects of competition on public health; link). But in Srnicek’s reading of the contemporary digital economy (and Elder-Vass’s as well) the focus shifts away from labor and towards the consumer. The primary conflict in the digital economy is between the platform firm that seeks to acquire our data and the consumers who want the digital services but who are poorly aware of the cost to their privacy. And here it is more difficult to make an argument about exploitation. Are consumers being exploited in this exchange? Or are they getting fair value through extensive and valuable digital services, for the surrender of their privacy in the form of data collection of clicks, purchases, travel, phone usage, and the countless other ways in which individual data winds up in the aggregation engines?

In an unexpected way, this analysis leads us back to a question that seems to belong in the nineteenth century: what after all is the source of value and wealth? And who has a valid claim on a share? What principles of justice should govern the distribution of the wealth of society? The labor theory of value had an answer to the question, but it is an answer that didn’t have a lot of validity in 1850 and has none today. But in that case we need to address the question again. The soaring inequalities of income and wealth that capitalism has produced since 1980 suggest that our economy has lost its control mechanisms for equity; and perhaps this has something to do with the fact that a great deal of the money being generated in capitalism today comes from control of data rather than the adding of value to products through labor. Oddly enough, perhaps Marx’s other big idea is relevant here: social ownership of the means of production. If there were a substantial slice of public-sector ownership of big data firms, including financial institutions, the resulting flow of income and wealth might be expected to begin to correct the hyper-inequalities our economy is currently generating.

Guest post by Dave Elder-Vass

[Dave Elder-Vass accepted my invitation to write a response to my discussion of his recent book, Profit and Gift in the Digital Economy (link). Elder-Vass is Reader in sociology at Loughborough University and author as well of The Causal Power of Social Structures: Emergence, Structure and Agency and The Reality of Social Construction, discussed here and here. Dave has emerged as a leading voice in the philosophy of social science, especially in the context of continuing developments in the theory of critical realism. Thanks, Dave!]

We need to move on from existing theories of the economy

Let me begin by thanking Dan Little for his very perceptive review of my book Profit and Gift in the Digital Economy. As he rightly says, it’s more ambitious than the title might suggest, proposing that we should see our economy not simply as a capitalist market system but as a collection of “many distinct but interconnected practices”. Neither the traditional economist’s focus on firms in markets nor the Marxist political economist’s focus on exploitation of wage labour by capital is a viable way of understanding the real economy, and the book takes some steps towards an alternative view.

Both of those perspectives have come to narrow our view of the economy in multiple dimensions. Our very concept of the economy has been derived from the tradition that began as political economy with Ricardo and Smith then divided into the Marxist and neoclassical traditions (of course there are also others, but they are less influential). Although these conflict radically in some respects they also share some problematic assumptions, and in particular the assumption that the contemporary economy is essentially a capitalist market economy, characterised by the production of commodities for sale by businesses employing labour and capital. As Gibson-Graham argued brilliantly in their book The End Of Capitalism (As We Knew It): A Feminist Critique of Political Economy, ideas seep into the ways in which we frame the world, and when the dominant ideas and the main challengers agree on a particular framing of the world it is particularly difficult for us to think outside of the resulting box. In this case, the consequence is that even critics find it difficult to avoid thinking of the economy in market-saturated terms.

The most striking problem that results from this (and one that Gibson-Graham also identified) is that we come to think that only this form of economy is really viable in our present circumstances. Alternatives are pie in the sky, utopian fantasies, which could never work, and so we must be content with some version of capitalism – until we become so disillusioned that we call for its complete overthrow, and assume that some vague label for a better system can be made real and worthwhile by whoever leads the charge on the Bastille. But we need not go down either of these paths once we recognise that the dominant discourses are wrong about the economy we already have.

To see that, we need to start defining the economy in functional terms: economic practices are those that produce and transfer things that people need, whether or not they are bought and sold. As soon as we do that, it becomes apparent that we are surrounded by non-market economic practices already. The book highlights digital gifts – all those web pages that we load without payment, Wikipedia’s free encyclopaedia pages, and open source software, for example. But in some respects these pale into insignificance next to the household and family economy, in which we constantly produce things for each other and transfer them without payment. Charities, volunteering and in many jurisdictions the donation of blood and organs are other examples.

If we are already surrounded by such practices, and if they are proliferating in the most dynamic new areas of our economy, the idea that they are unworkably utopian becomes rather ridiculous. We can then start to ask questions about what forms of organising are more desirable ethically. Here the dominant traditions are equally warped. Each has a standard argument that is trotted out at every opportunity to answer ethical questions, but in reality both standard arguments operate as means of suppressing ethical discussions about economic questions. And both are derived from an extraordinarily narrow theory of how the economy works.

For the mainstream tradition, there is one central mechanism in the economy: price equilibration in the markets, a process in which prices rise and fall to bring demand and supply into balance. If we add on an enormous list of tenuous assumptions (which economists generally admit are unjustified, and then continue to use anyway), this leads to the theory of Pareto optimality of market outcomes: the argument that if we used some other system for allocating economic benefits some people would necessarily be worse off. This in turn becomes the central justification for leaving allocation to the market (and eliminating ‘interference’ with the market).

There are many reasons why this argument is flawed. Let me mention just one. If even one market is not perfectly competitive, but instead is dominated by a monopolist or partial monopolist, then even by the standards of economists a market system does not deliver Pareto optimality, and an alternative system might be more efficient. And in practice capitalists constantly strive to create monopolies, and frequently succeed! Even the Financial Times recognises this: in today’s issue (Sep 15 2016) Philip Stevens argues, “Once in a while capitalism has to be rescued from the depredations of, well, capitalists. Unconstrained, enterprise curdles into monopoly, innovation into rent-seeking. Today’s swashbuckling “disrupters” set up tomorrow’s cosy cartels. Capitalism works when someone enforces competition; and successful capitalists do not much like competition”.

So the argument for Pareto optimality of real market systems is patently false, but it continues to be trotted out constantly. It is presented as if it provides an ethical justification for the market economy, but its real function is to suppress discussion of economic ethics: if the market is inherently good for everyone then, it seems, we don’t need to worry about the ethics of who gets what any more.

The Marxist tradition likewise sees one central mechanism in the economy: the extraction of surplus from wage labour by capitalists. Their analysis of this mechanism depends on the labour theory of value, which is no more tenable that mainstream theories of Pareto optimality (for reasons I discuss in the book). Marxists consistently argue as if any such extraction is ethically reprehensible. Marx himself never provides an ethical justification for such a view. On the contrary, he claims that this is a scientific argument and disowns any ethical intent. Yet it functions in just the same way as the argument for Pareto optimality: instead of encouraging ethical debate about who should get what in the economy, Marxists reduce economic ethics to the single question of the need to prevent exploitation (narrowly conceived) of productive workers.

We need to sweep away both of these apologetics, and recognise that questions of who gets what are ethical issues that are fundamental to justice, legitimacy, and political progress in contemporary societies. And that they are questions that don’t have easy ‘one argument fits all’ answers. To make progress on them we will have to make arguments about what people need and deserve that recognise the complexity of their social situations. But it doesn’t take a great deal of ethical sophistication to recognise that the 1% have too much when many in the lower deciles are seriously impoverished, and that the forms of impoverishment extend well beyond underpaying for productive labour.

I’m afraid that I have written much more than I intended to, and still said very little about the steps I’ve taken in the book towards a more open and plausible way of theorising how the economy works. I hope that I’ve at least added some more depth to the reasons Dan picked out for attempting that task.

Saskia Sassen on austerity and social exclusion

Soup 2 greece
 
The previous post summarized some of Kathleen Thelen’s thinking about the prospects for a more egalitarian capitalism in our future. Saskia Sassen offers a more negative view of the direction of the development of European capitalism in her most recent book, Expulsions: Brutality and Complexity in the Global Economy.

Here is a post in Open Democracy in which Sassen summarizes her current thinking. Her view is that there is something new in the political economy of liberalization and austerity — the systematic exclusion and expulsion of a significant portion of the population from the economy altogether. She writes:

Low growth, unemployment, inequality, and poverty are no longer reliable markers for capturing the ‘economic cleansing’ afflicting European institutions and societies throughout Europe. This ‘works’ on the backs of all those who have simply been expelled.

This seems pretty descriptive in the urban environment in which I live in Detroit metro. The factors Sassen highlights — high unemployment, even higher rates of discouraged workers, and high rates of foreclosure and abandonment fit the Detroit experience very well. The most recent development — water shutoff notices to tens of thousands of Detroit residents — only reinforces the point of exclusion.

Thanks, Saskia, for providing the link!

Thelen on the prospects for egalitarian capitalism

source: Kathleen Thelen, Varieties of Liberalization (kl 3310)

There is a version of economic historical thinking that we might label as “capitalist triumphalism” — the idea that the institutions of a capitalist economy drive out all other economic forms, and that they tend towards an ever-more pure form of unconstrained market society. “Liberalization,” deregulation, and reduction of social rights are seen as economically inevitable. On this view, the various ways in which some countries have tried to ameliorate the harsh consequences of unconstrained capitalism on the least well off in society are doomed — the welfare state, social democracy, extensive labor rights, or universal basic income (link). Through a race to the bottom, any institutional reforms that impede the freedom and mobility of capital will be forced out by a combination of economic and political pressures.

The graphs above demonstrate the current structural differences among Denmark, Sweden, Germany, Netherlands, and USA when it comes to training and income support for the unemployed and underemployed. It is visible that the four European economies devote substantially greater resources to support for the unemployed than the United States. And on the triumphalist view, the states demonstrating more generous benefits for the less-well-off will inevitably converge towards the profile represented by the fifth panel, the United States.

Kathleen Thelen is a gifted historical sociologist who has studied the institutions of labor education and training throughout the past twenty years. Her book How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan is an important contribution to our understanding of these basic economic institutions, and it also sheds important light on the meta-issues of stability and change in important social institutions. With James Mahoney she also edited the valuable collection Explaining Institutional Change: Ambiguity, Agency, and Power on this topic.

Thelen’s most recent book, Varieties of Liberalization and the New Politics of Social Solidarity addresses the question of capitalist triumphalism. (That isn’t a term that she uses, but it seems descriptive.) She locates her analysis within the “varieties of capitalism” field of scholarship, which maintains that there is not a single pathway of development for capitalist systems. “Coordinated” capitalism and neoliberal capitalism represent two poles of the space considered by the VofC literature.

From the beginning, the VofC literature challenged the idea that contemporary market pressures would drive a convergence on a single best or most efficient model of capitalism. (kl 228)

Thelen is interested in assessing the prospects for what she calls “egalitarian” capitalism — the variants of capitalist political economy that feature redistribution, social welfare, and significant policy support for the less-well-off. She focuses on several key institutions — industrial relations, vocational education and training, and labor market institutions, and she argues that these are particularly central for the historical issue of the development of capitalism towards harsher or gentler versions.

Different varieties of liberalization occur under the auspices of different social coalitions, and this has huge implications for the distributive outcomes in which many of us are ultimately interested. (kl 243)

This point is key to her view of the plasticity and path-dependency of basic economic institutions: these institutions change as a result of economic imperatives and the strength of various social groups who are in a position to influence the form that change takes. “The conclusions I reach here are based on a view of institutions that emphasizes the political-coalitional basis on which they rest” (kl 259). But there is no simple calculus proceeding from power group to institutional outcome; instead, the results for institutional change are a dynamic consequence of strategy, coalition, and constraint.

I suggest that the institutions of egalitarian capitalism survive best not when they stably reproduce the politics and patterns of the Golden Era, but rather when they are reconfigured — in both form and function — on the basis of significantly new political support coalitions. (kl 330)

A key finding in Thelen’s analysis is that “coordinated” capitalism and “egalitarian” capitalism are not the same. Coordinated capitalism corresponds to the models associated with social democracies of the 1950s and 1960s, the “Nordic” model. But Thelen holds that egalitarian capitalism can take more innovative and flexible forms and may be a more durable alternative to neoliberal capitalism.

Is a more “egalitarian” capitalism possible? The data on labor markets that Thelen presents shows that there are major differences across OECD economies when it comes to wage inequality. Here is a striking chart:

Source: Thelen, Figure 3.3. Share of Employees in Low-Wage Work, 2010

Fully a quarter of US workers are employed in low-wage work in 2010. This is about double the rate of Denmark and quadruple the rate of low-wage workers in Sweden. Plainly this reflects a US economy that is creating substantially greater numbers of low-income people than any other OECD country. And yet all of these countries are capitalist economies, some with rates of growth that are higher than the United States. This demonstrates that there are institutional and policy choices available that are consistent with the imperatives of a capitalist market economy and yet that give rise to more egalitarian outcomes than we observe in the US, Canada, and the UK.

A key element in common among the more egalitarian labor outcomes that Thelen studies (Netherlands, Denmark, Sweden, Germany) is the expansion of part-time work, mini-jobs, and “flexi-curity”. This phenomenon reflects a combination of liberalization (relaxation of work rules and requirements of long labor contracts), with a set of arrangements that allows a smoother allocation of labor to jobs and an improvement in income and security for the lower end of the labor market. This trend is part of what Thelen calls a strategy of “embedded flexibilization”, which she regards as the best hope for a pathway towards equitable capitalism.

Thelen closes with a realistic observation about the uncertain coalitional basis that is available in support of the policies of embedded flexibilization. Xenophobic tendencies in countries like the Netherlands and Denmark have the potential for destroying the social consensus that currently exists for this model, and the leaders of nationalistic anti-immigrant parties have made this a key to their efforts at political mobilization (kl 5541). Maintenance of these policies will require strong political efforts on the part of progressive coalitions in those countries, and organized labor is key to those efforts.

This analysis is deeply international and comparative, but it has an important consequence for the political economy of the United States: where are the coalitions that can help steer our economy towards a more egalitarian form of capitalism?

(Readers may be interested in an earlier discussion of the Nordic model; link.)

Thorstein Veblen’s critique of the American system of business

stove-factory-in-michigan-1900Thorstein Veblen was certainly a heterodox observer of modern capitalism. He was trained in the late nineteenth-century iteration of neoclassical economics, but he was more impressed by the irrationality of what he observed than the optimizing rationality that is postulated by the neoclassicals. He was also an intelligent observer and analyst of contemporary economic and sociological trends — not in theory but in the concrete forms that turn-of-the-century capitalism was taking in the United States and Europe. It is interesting, therefore, to examine his analysis of the business firm in The Theory of Business Enterprise, published in 1904. (I examined his critique of American universities in The Higher Learning in America in an earlier post.)

Here is how he describes his approach to the topic of American business:

In respect to its point of departure, the following inquiry into the nature, causes, utility, and further drift of business enterprise differs from other discussions of the same general range of facts. Any unfamiliar conclusions are due to this choice of a point of view, rather than to any peculiarity in the facts, articles of theory, or method of argument employed. The point of view is that given by the business man’s work, — the aims, motives, and means that condition current business traffic. This choice of a point of view is itself given by the current economic situation, in that the situation plainly is primarily a business situation. (Preface)

Veblen is sometimes credited with being one of the originators of institutional economics. This is due, in large part, to his effort to discover some of the institutional dynamics created for the modern industrial system by the incentives and constraints created for the owners and managers of firms.

One of the central impressions that emerges from reading The Theory of Business Enterprise is this: the modern American industrial economy is a coordinated system that requires many things to happen in sync with each other; but the owners of the components of this system often have strategic interests that lead them to take actions leading to de-synchronization and short-term crisis. There is a serious conflict of interest that exists between the interests of the owner and the needs of the system — and the public’s interests are primarily served by a smoothly functioning system. So owners are in conflict with the broader interests of the public.

So who is the primary actor, the “business man”, in Veblen’s account, and what are his or her motives?

The business man, especially the business man of wide and authoritative discretion, has become a controlling force in industry, because, through the mechanism of investments and markets, he controls the plants and processes, and these set the pace and determine the direction of movement for the rest. (Chap. 1)

The motive of business is pecuniary gain, the method is essentially purchase and sale. The aim and usual outcome is an accumulation of wealth. Men whose aim is not increase of possessions do not go into business, particularly not on an independent footing. (Chapter 3)

So the owners and managers of businesses have a great deal of power in organizing and coordinating economic activity, and their goal is to maximize individual financial gain. Does this work to further the interests of society as a whole? Veblen does not adopt Adam Smith’s notion that the pursuit of self-interest leads naturally to the expansion of the common good, and that the hidden hand guides this economy towards optimal outcomes and uses of available resources:

The outcome of this management of industrial affairs through pecuniary transactions, therefore, has been to dissociate the interests of those men who exercise the discretion from the interests of the community…. Broadly, this class of business men, in so far as they have no ulterior strategic ends to serve, have an interest in making the disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges…. It is, as a business proposition, a matter of indifference to the man of large affairs whether the disturbances which his transactions set up in the industrial system help or hinder the system at large. (7%)

Here Veblen seems to be making an interesting and unorthodox point: that the strategic actions of the owners of capital in a modern economy are oriented towards disequilibrium as often as they are towards equilibrium. The comment seems uncannily apt with regard to the financial crisis of 2008.

The end of his endeavors is, not simply to effect an industrially advantageous consolidation, but to effect it under such circumstances of ownership as will give him control of large business forces or bring him the largest possible gain. (8%)

Veblen appears to have in mind the consolidations and strategic actions involved in the railroad industry at the turn of the century. But this comment also has resonance with respect to the past two decades of recent history in the software industry, with companies jockeying for advantage on the desktop of users for their operating systems and applications.

Another incentive that owners of industries have, according to Veblen, is to insulate themselves from competition — to create partial or complete monopolies in the fields they occupy. And Veblen looks at advertising as one of the tools that businesses use to secure a partial monopoly.

The endeavor of all such enterprises that look to a permanent continuance of their business is to establish as much of a monopoly as may be. (12%)

So Veblen’s organizing view of modern industry (circa 1900, anyway) is that it is dispositionally inclined towards being anti-competitive — to finding means of sheltering its production methods and prices from competition from other firms.

In the end Veblen does not believe that these practices turn the balance sheet negative against this form of economic organization. But he believes that the wastefulness associated with these strategic efforts at short-term advantage with regard to competitors is only compensated for due to the pressure that this system creates on the direct producers — workers, engineers, architects, and service providers — to be as productive during their working hours as possible. Owners and managers have an incentive to destabilize their competitors; but they also have an interest in optimizing their own uses of resources.

While it is in the nature of things unavoidable that the management of industry by modern business methods should involve a large misdirection of effort and a very large waste of goods and services, it is also true that the aims and ideals to which this manner of economic life gives effect act forcibly to offset all this incidental futility. These pecuniary aims and ideals have a very great effect, for instance, in making men work hard and unremittingly, so that on this ground alone the business system probably compensates for any wastes involved in its working. There seems, therefore, to be no tenable ground for thinking that the working of the modern business system involves a curtailment of the community’s livelihood. It makes up for its wastefulness by the added strain which it throws upon those engaged in the productive work. (14%)

One reason I particularly enjoy re-reading thinkers like Veblen is that they do a good job of challenging our current assumptions. Veblen was looking at a functioning economy with important similarities to our own, consisting of visibly distinct groups of actors (owners, engineers, workers, advertising execs, …), and he was in a position to notice some of the dysfunctional features of this system that are still with us today but that are no longer so visible.

(Here is an earlier post about Charles Perrow’s treatment of corporations during much the same time period; link.)

Many capitalisms?

Professor Luciano Segreto lectured in Michigan this week on the subject of a comparison between US and European capitalisms.  Segreto is professor of International Economic History, Financial History, and the History of Regional Economic Development at the University of Florence.  His lecture was fascinating in many ways, but of special interest here is whether there is one capitalism or many.  Segreto’s view is that there are multiple capitalisms that have been implemented in various countries — England, France, Germany, Italy, the United States, and Japan, to consider a short list; and that these systems of political economy differ in significant ways.  He identifies different structures of the markets, different relations between technology and economic development, and significantly different ways in which finance and banking systems have been implemented as important dimensions of difference across these systems of political economy. 

The idea that there are distinct versions of capitalism is not a new one. Peter Hall and David Soskice’s Varieties of Capitalism: The Institutional Foundations of Comparative Advantage looks at recent work on the important institutional variations that exist across existing forms of market economies.  Charles Sabel’s historical investigations of alternative pathways of capitalist development represent one important line of thought on the question, and Frank Dobbin’s investigation of the different ways that the technology of the railway were incorporated in Britain, France, and the United States represents another important line of thought.  For Sabel the distinctions have to do with the ways in which skilled labor and workers were incorporated into the political economy (World of Possibilities: Flexibility and Mass Production in Western Industrialization (Studies in Modern Capitalism)link); for Dobbin it is the differences in political culture defining the role of state involvement in central economic institutions that made the largest difference (Forging Industrial Policy: The United States, Britain, and France in the Railway Agelink).

In listening to Professor Segreto I was drawn to a different way of analyzing the differences across historically realized capitalisms in the past century and a half.  We might imagine that there are three “attractors” that define a modern capitalist political economy: the values associated with the market and independent decision making by corporations and entrepreneurs; the value associated with the establishment of regulations protecting the common good and the safety and health of the public; and the value associated with securing the welfare of the whole population, involving a social security system and a willingness to redistribute income and wealth through taxation. This suggests the following diagram:

 Graph of capitalisms

The graph is offered only for the purpose of illustration of the idea. I have included the country’s 2011 HDI (link) and 5-year growth rate (link), but I don’t have data to allow scaling of these economies according to the three dimensions mentioned here.  But I’m sure that a capable graduate student would be able to come up with some available measures to do a much more rigorous job of pacing national economies in this tri-polar graph.  Measures of regulation might include degree to which key industries like energy, chemicals, pharmaceuticals, and food are effectively regulated by independent agencies. Measures of welfare-state commitments would include breadth of health system coverage, unemployment coverage, old age coverage, and percentage of GDP devoted to social programs.  And measures of free markets might include the degree to which companies can make choices unencumbered by regulations on safety, labor relations, market concentration, etc., as well as the effective rate of corporate taxation.

The United States and the United Kingdom seem to be on the low side among OECD countries in terms of both effective regulation and commitment to social welfare principles; Russia and China seem to afford quite a wide scope of business freedom but limited regulation of environment and safety and limited commitment to a social safety net; Sweden, France, and Germany have substantially greater commitment to effective state regulation of industry and to a high social minimum; Greece seems to have had high social welfare commitments but relatively low regulation of industry; and so forth.

We might label the three extremes of the diagram as “unencumbered business/corporate system,” “technocratic state,” and “social welfare state.”

It is significant that the political ideology of the right in the United States has for the past three decades waged a determined struggle against two of the poles of this analysis — regulation and social welfare policies.  Under the legislative and executive influence of politicians with this “small government” ideology, the political economy of the United States has been pushed further and further into the corner of untrammeled free market activity by corporations and individuals. Along the way the idea that government serves as a key guarantor of the public good has dwindled in importance.
 
Is this a useful way of characterizing the political economies of the contemporary world? And how would readers readjust the locations of the twelve economies listed relative to the poles of the diagram?

Rawls and exploitation

image: Karl Marx by David Levine

It is interesting to consider whether the principles of justice that Rawls describes in A Theory of Justice would in fact permit economic exploitation in Marx’s sense of the term. Do Rawls’s two principles of justice permit what Marx would call systemic exploitation of one group of individuals by another?  A very interesting post by Will Wilkinson in BigThink suggests that Rawls was a more radical critic of capitalism than we thought, and the reasoning he puts forward is very relevant to the question of justice and exploitation.

First, the basics.  Marx believed that the greatest accomplishment of his economic theory in Capital (link) was its ability to explain how exploitation could occur within a system of free and unforced exchanges among equals, including employers of labor and sellers of labor time.  The exploitation of the serf by the lord within feudalism depends on forcible extraction and coercion. But how could exploitation take place in a system of free exchange?

Marx’s concept of exploitation is formulated in the language of labor value and surplus value. The value of a commodity is equal to the quantity of socially necessary labor time involved in its production. The capitalist purchases the worker’s labor time for a wage that is the equivalent of a certain number of labor hours X. The length of the working day is greater than X. The capitalist subtracts the cost of constant capital (machinery depreciation, space, and raw materials), and is left with a positive sum of value in the form of profit. And this fund of surplus value permits accumulation into the next cycle of economic activity.  Marx describes this as extraction of surplus value and as technical exploitation by the capitalist of the worker.

The key question about whether exploitation is just by Rawls’s principles, then, is whether the two principles permit private ownership of the means of production and whether they permit a generalized system of wage labor in which the labor time of the worker is purchased on the basis of a wage set by a competitive labor market. If so, then Marx would conclude that exploitation is compatible with the principles of justice; if not, then we have a basis for thinking that the two principles are powerful enough to rule out exploitation.

Rawls is explicit in holding that laissez-faire capitalism is unjust.  This is because of the difference principle.  The difference principle mandates that the condition of the worker should be better than it would be without this system of capital and labor, which may entail transfer of wealth through taxation to bring the worker’s welfare up to that standard. Laissez-faire capitalism is not just, according to the two principles because it lacks fiscal and legislative means for transferring wealth to improve the condition of the least-well-off (see the discussion of a property-owning democracy in an earlier post). But if just institutions permit ownership of capital and generalized wage labor, then Marx would still regard this as a system of exploitation and surplus extraction.

So the key question is whether the two principles of justice permit private property in the means of production and a system of wage labor.  There are two plausible approaches we can take on this question, leading to different results. 

The answer, it would appear, does not depend on the second principle of justice (the difference principle) but rather the first principle of justice (the liberty principle).  This is Wilkerson’s central point: does the liberty principle include protection of economic rights, including the right to own the means of production and the right to buy and sell labor power? 

It is possible to read the liberty principle as representing a form of Lockean liberalism, with rights of life, liberty, and property to be protected above all else.  And in fact, Rawls explicitly includes the right to hold (personal) property as a right protected by the liberty principle.  It is only a small step to argue that ownership of property extends to all potential things.  On this interpretation, some form of capitalism follows.  If the first principle permits private ownership of property, including property in the means of production, then it is not inherently unjust to derive income from ownership of property and to hire workers to make one’s property “productive”. Further, if the first principle entails the right to use one’s labor as one chooses, then presumably one has the right to sell one’s labor time.  This is the essence of capitalism.  The second principle may moderate the effects of this system; but at best we get welfare capitalism instead of laissez-faire capitalism, and we get exploitation in the technical sense.  A surplus is transferred from the workers who create it to the owners of capital. 

But perhaps the liberty principle doesn’t in fact support these economic rights after all.  This is Wilkerson’s argument, and it is the basis for his claim that Rawls is more radical than we thought.  And it is the view that Sam Freeman explores in greater depth in his book Rawls.  In a nutshell, Freeman gives an extensive argument for concluding that Rawls does not include these economic rights under the liberty principle (the right to own and accumulate capital and the right to buy and sell labor time).  Here is Freeman’s position:

Then again, Rawls resembles Mill in holding that freedom of occupation and choice of careers are protected as a basic freedom of the person, but that neither freedom of the person nor any other basic liberty includes other economic rights prized by classical liberals, such as freedom of trade and economic contract. Rawls says that freedom of the person includes having a right to hold and enjoy personal property. He includes here control over one’s living space and a right to enjoy it without interference by the State or others. The reason for this right to personal property is that, without control over personal possessions and quiet enjoyment of one’s own living space, many of the basic liberties cannot be enjoyed or exercised. (Imagine the effects on your behavior of the high likelihood of unknowing but constant surveillance.) Moreover, having control over personal property is a condition for pursuing most worthwhile ways of life. But the right to personal property does not include a right to its unlimited accumulation. Similarly, Rawls says the first principle does not protect the capitalist freedom to privately own and control the means of production, or conversely the socialist freedom to equally participate in the control of the means of production (TJ, 54 rev.; PL, 338; JF, 114). (Kindle Locations 1239-1248).

Unlike John Locke, then, John Rawls does not accept the fundamental moral rights that give rise to capitalism as basic rights of liberty. If these rights are to be created within a just society, they must be governed by the difference principle.  Or in more contemporary terms: Rawls and Nozick part ways on liberties even more fundamentally than they do on distributive justice (Anarchy, State, and Utopia).

If we accept Freeman’s argument (and Wilkinson’s) — and I am inclined to — then the answer to the question posed above is resolved. The two principles of justice are not apriori committed to the justice of the basic institutions of capitalism; and therefore Rawls’s system is not forced to judge that exploitation is just.  Or more affirmatively: exploitation is unjust.

What is surprising about this conclusion is the fact that it is surprising, now forty years after the original publication of A Theory of Justice.  The first generation of readers of the theory formed a compelling impression that the book was largely centered on liberal welfare market society — perhaps something along the lines of Nordic social democracy.  And yet the passages and ideas that Freeman calls out were there all along.  So it is surprising that the radicalism of Rawls’s critique was not better recognized in the 1970s.

Ordinary and theoretical knowledge of capitalism

John Levi Martin argues in The Explanation of Social Action, among other things, that we need to understand the social world through the ways it is experienced by participants. “Sociology and its near kin have adopted an understanding of theoretical explanation that privileges ‘third-person’ explanations and, in particular, have decided that the best explanation is a ‘causal’ third-person explanation, in which we attribute causal power to something other than flesh-and-blood individuals” (kl 75). He thus criticizes sociological theorizing because it is third-person and aims to explain social arrangements in terms foreign to the participants. 

But this is really what the act of “theorizing” always involves, and why it is important. The social world always exceeds the vision of the participants, and though Levi Martin cringes at the thought, there are in fact distant, unseen structures and systems that constrain local experience. The role of theory — one role, anyway — is to discover in thought what some of those systemic processes and forces are. “Capitalism,” “trading system,” “sugar-cotton-slave nexus,” “finance capital,” and “bourgeois ideology” are all theoretical formulations designed to connect the dots — to draw attention to the systems within which everyday experience takes place. And those systems exist and have consequences for individuals at all levels of agency — beliefs, assumptions, purposes, incentives, and constraints. 

It is of course true that social entities at every level require microfoundations. So it isn’t quite right to say that social entities convey effects through something other than flesh-and-blood individuals. But this does not mean that they do no convey effects onto individuals and local arrangements that are beyond the ken of the local actors.

Take the complex of ideas associated with Marx’s conception of materialism as an example, and put yourself in a particular historical setting–say British factory expansion in the 1830s and 1840s. Participants at every location had perceptions and ways of talking about their experiences. The recently “freed” factory worker in Manchester had his perspective; the dockworker in London had his; the “putting-out” spinner had hers; the Caribbean slave had his and hers; and likewise the baker, the tailor, and the candlestick maker. For that matter, Marx, Engels, and Carlyle were participants too, and they made their own efforts to conceptualize and explain their experience. They wanted to say what was going on. 

But here is the crucial point; none of them really got it. They got parts of the story — the harsh conditions in the factory, the swirl of new finance activity, the overseers’ whip, the living conditions in slums in Birmingham, Manchester, and London, the stench of the River Irk, and much else. But none was in a position to perceive the relationships among these social locations. 

These are all fragments of the picture, and as Marx insisted in Capital when he discussed commodity fetishism — some of these perspectives conceal rather than expose the system of social relations that was emerging. It took something else in order to cognize “emerging capitalist urban industrial society”. Carlyle did his part (he coined the phrase, the “cash nexus”); so did Engels and Marx; and so have Gramsci and Wallerstein. Theorizing was necessary in order to transform the partial and sometimes mystifying bits of ordinary experience into a more revealing system-level understanding. The worker perceives the temporal coercion of the factory; but he and she do not perceive the larger social structures that explained that system of organization. 

Is the participant-level even the right perspective from which to try to identify an explanation? I don’t think so. Were conditions in this factory harsh because this owner was hostile or cruel towards these particular workers? No, rather because the competitive environment of profitability and accumulation created an inexorable race to the bottom. So we can’t explain this factory’s working conditions by referring to specific features of this factory and its owner. This logic is spelled out very clearly in Capital, and it is a system-level characteristic.

Here is what Levi Martin has to say about this line of argument, early in ESA. He paraphrases the argument in these words:

Actors may see the little picture — particularities that while undeniable are still ignorable — but they do not produce the sweeping abstractions that have important implications across many domains of social life. It is these general abstracts that, when linked in some system, deserve the credit of behing “theory, and the more surprising the implications — the less they agree with the particular, everyday knowledge of actors — the more brilliant the theory is if confirmed. (kl 104).

It is plain that L-M does not accept this move from the particular local knowledges to a more abstract “theory” that connects the dots. He favors instead a mode of theorizing that derives from phenomenology:

Phenomenology in this sense is the study of how every-day people orient themselves to the world and how they determine what needs to be done. (kl 152)

But it is likely that no one within the emerging factory system in Manchester or Birmingham would have experienced the system-level factors that shaped the emergence of that system. The self-conception of the capitalist factory owner is “modernizer,” “bringer of better life prospects to immigrant Irish peasants,” or “contributor to a new Britain” — not “cog in a system of profit-maximizing competition where to lose one’s footing in pushing costs down is to drown.”

So how do distant, impersonal social forces impinge on local experience? This is the nexus that draws the greatest skepticism from Levi Martin. But it isn’t particularly difficult to answer. Take the rapid development of tenements and slums that Engels describes in The Condition of the Working Class in England. The expansion of trade, rapidly rising demand for finished goods, and the workings of financial markets are the distal causes that shaped the choices of capitalists, city fathers, and legislators, and these choices compounded to the misery described by Engels. This is the value of Immanuel Wallerstein’s work; he helps demonstrate these distal relations and systemic interrelationships (The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century, With a New Prologue).  And I don’t think that Wallerstein’s work is at all incompatible with an actor-centered, microfoundational view of social causation.

Basic institutions and democratic equality

Modern societies seem to produce persistent social inequalities that are contradictory to many of the values we espouse when it comes to the idea of democratic equality.  We continue to find wealth and income inequalities, inequalities of educational and health outcomes, inequalities of political power and influence, and these disparities seem to increase over time.  Is this a residual defect in these specific societies, or is it rather a natural result of the logic of the institutions that define a market economy and an electoral democracy in the circumstances of extensive existing inequalities of wealth and power?

Consider these polar views:

  • Modern market democracies work to narrow social and economic inequalities over time.
  • The institutions of modern market democracies work to increase economic and political inequalities; the rich and powerful become more so through their privileged positions within existing institutions.

Which of these views is correct?

We would like to think that it is possible for a society to embody basic institutions that work to preserve and enhance the wellbeing of all members of society in a fair way. We want social institutions to be beneficent (producing good outcomes for everyone), and we want them to be fair (treating all individuals and groups with equal consideration; creating comparable opportunities for everyone).

There is a fundamental component of liberal optimism that holds that the institutions of a market-based democracy accomplish both goals. The economic institutions of the market create efficient allocations of resources across activities, permitting the highest level of average wellbeing. Free public education permits all persons to develop their talents. And the political institutions of electoral democracy permit all groups to express and defend their interests in the arena of government and law.

But social critics cast doubt on all parts of this story, based on the role played by social inequalities within each of these sets of institutions. The market embodies and reproduces a set of economic inequalities that result in grave inequalities of wellbeing for different groups. Economic and social inequalities influence the quality of education available to young people. And electoral democracy permits the grossly disproportionate influence of wealth holders relative to other groups in society. So instead of reducing inequalities among citizens, these basic institutions seem to amplify them.

On this line of thought, market and electoral institutions both create and reproduce social inequalities even when they are working correctly; inequality is built into them at a very basic level.  The institutions are tilted in favor of privileged groups, and it is no surprise when corporations wield substantial influence in Washington and Paris and tax policies are enacted that favor the richest percent of American income earners.   These aren’t abnormal anomalies; they are instead precisely what we should expect when we analyze the basic institutions carefully.

What remedies are available to help move a modern society towards greater democratic equality for all of society?  Several large institutional variations have been tried in the past century — social democracy, small self-sufficient communities, local economies based on cooperatives, etc.  Jon Elster surveyed some of these alternatives in Alternatives to Capitalism over twenty years ago — at a time when there was more openness to the idea of fundamental institutional reform.  Tamas Bauer opens his essay, “The unclearing market,” with these words:

The well-functioning market of textbooks brings about general satisfaction. Under market-clearing prices, goods and factors offered for sale are sold; the demand of each agent is satisfied by supply by others.  Wage earners are paid wages that more or less correspond to their marginal contribution.  Etc., etc. … Life is, of course, much different. (71)

The social-democratic solution to these tendencies was developed in the early twentieth century.  It was recognized that market institutions create unacceptable inequalities and leave some citizens in circumstances of insecurity, deprivation, and indignity; and it was argued that the institutions of the state needed to correct these tendencies through the establishment of a strong social safety net.  The majority of a society would have the electoral strength to create and maintain strong protections of the interests of ordinary working people through a combination of positive economic rights. (Gosta Esping-Andersen reviews this history in The Three Worlds of Welfare Capitalism.)

The triumph of social and economic conservatism — Thatcher, Reagan, and other conservative European leaders and their political parties — took this theory of the role of the state off the public agenda, and the past thirty years have witnessed the systematic disassembly of the institutions of social democracy in most countries.  And the consequences are predictable: more inequality, more deprivation, more severe disparities of life outcomes for different social groups.

What is truly surprising is that there has been so little continuing exploration of alternatives in the intervening two decades.  Democratic theorists have explored alternative institutions in the category of deliberative democracy (link), but there hasn’t been much visioning of alternative economic institutions for a modern society. We don’t talk much anymore about “economic justice,” and the case for social democracy has more or less disappeared from public debate.  But surely it’s time to reopen that public debate.

 

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