The radical socialism of George Orwell

George Orwell is remembered as an enemy of fascism and Stalinism and for his totalitarian dystopia, Nineteen Eighty-Four (1949)

But, a friend of mine asked, what was Orwell’s utopia?  What did he advocate?

It’s important to remember that Orwell was not only a hater of tyranny and lies.  He also was a hater of inequality and of social and economic class privilege.

George Orwell

His idea of a good society was a society of equals, which honored the moral values of the working class.

In The Road to Wigan Pier (1937), his book about coal miners and the unemployed in England in the 1930s,  Orwell drew a word portrait of a working class family—dad reading his racing form, mum doing her sewing, children happily amusing themselves and the family dog lying before the fire.  

Provided dad had steady work at good wages, that was probably as good as life got, Orwell wrote.  It was better than typical middle-class life, with its  status seeking, worship of success, fear of poverty and lack of solidarity.

But he said his picture of a working class family sitting around a coal fire after kippers and strong tea was something that could only have existed at this particular moment in time.

He said it would not exist in the imagined utopian future of 200 years hence, with no coal fire, no manual labor, no gambling, no horses or dogs, everything hygienic, sterile and made of steel, glass and rubber.  

But such a home could not have existed in the medieval past.  There would have been no chimney, moldy bread, lice, scurvy, “a yearly childbirth and a yearly death” and “the priest terrifying you with tales of hell.”  (Orwell, by the way, had no use for religion.)

Orwell regarded class distinctions are inescapable, something baked into the nature of British consciousness.  He accepted that he himself was a middle-class person and that he could never make himself think and behave as a working-class person did.  

But he did not agonize over it, as many white liberal Americans nowadays do over their inescapable “whiteness.”  And in other writings, he celebrated middle-class virtues and the widening of the British middle class.

In Homage to Catalonia (1938), his book about his experiences in the Spanish Civil War, he said he experienced for the first time a society truly committed to equality

When he arrived in Barcelona, he said, he was in the midst of a true workers revolution.  Every building had been seized by workers and draped with Communist or anarchist flags.   Every church had been gutted and its images destroyed.  

Every restaurant had a sign saying it had been collectivized.  There were no private automobiles; they had all been collectivized, too.

Nobody called anybody “señor” or “don,” just “comrade.”  Nobody said “buenos Dias,” just “salud.”  Nobody wore suits, just overalls or other work clothes or a militia uniform.  Waiters looked their customers in the eye and took no guff from them..

“I recognized it immediately as a state of affairs worth fighting for,” Orwell wrote.  Later he served in a Spanish militia, in which officers had to argue with troops to get them to agree to follow orders, but the troops fought bravely.  He admired this, too.

Thomas Piketty on corporate co-determination

I’ve written a good bit about Thomas Piketty’s new book.  Click on the Capital and Ideology tag to read my previous posts about it.  In this post, I’m going to discuss his ideas on corporate governance.

Great corporations typically begin with an individual who has a vision—a Steve Jobs, a Walt Disney, a George Eastman, a Henry Ford, a Soichiro Honda or a Jack Ma.

The drive and creativity of the individuals make the companies what they are.  Over time, though, the companies devolve into authoritarian bureaucracies, little junior watered-down versions of the Soviet Union.

Click to enlarge.  Source: Oxford Law Faculty

The goal of reform would be how to prevent corporate abuse without stifling enterprise and beneficial innovation.  Piketty’s solution is to adopt German-Scandinavian co-determination, under which corporations of a certain size have to allow employees to choose a certain number of corporate directors.

In Germany, according to Piketty,  all firms with more than 2,000 employees must reserve half the seats on their oversight committees to worker representatives.  All firms with 500 to 1,999 employees must reserve a third of their oversight committee seats to worker representatives.  There also are factory committees with union representatives who have a say one work rules and training.

However, in Germany, the oversight committees only supervise day-to-day operations of companies.  Policy is set by directorates, on which workers have no representation.

Other countries reserve one-third of seats for workers on companies of a certain size.  In Sweden, the threshold is 35 employees; in Norway, 50 employees; in Austria, 500 employees.

In April 2018, according to Wikipedia, U.S. Senators Tammy Baldwin, Elizabeth Warren and Brian Schatz sponsored the Reward Work Act,  which would amend federal legislation to require all companies listed on national stock exchanges to have one-third board representation for workers.  Polls showed majority support among Americans for the measure.

In August 2018, Elizabeth Warren sponsored a new Accountable Capitalism Act that would require 40 percent of the board of directors be elected by employees in federal corporations with taxable incomes over $1 billion.

In Britain, the Bullock Report in 1977, during the Harold Wilson administration, called for co-determination in big businesses based on the formula 2x + y. In this, workers and stockholders would have equal representation on boards of directors, but there would be two government representatives to break a tie.  It never became reality.

In practice, even though workers have a voice, the final authority rests with the owners.  I think there still is a benefit to having worker representatives.

Employees usually know things about how companies operate that the top managers don’t.  This can be valuable in avoiding the Stupidity Paradox, in which layers of bureaucrats demand good news and truthful information doesn’t filter up.

It’s also good for employees, especially union representatives, to have access to the same information that top management has.  Of course all these desirable goals can be thwarted by a sufficiently cunning and authoritarian management.

Thomas Piketty on equality through taxation

Thomas Piketty’s Capital and Ideology is the most comprehensive study I know about the causes of economic inequality.  He gathered a vast amount of data and made sense of it.  To read my comments on his research, click on this, this, this and this.

In the last chapter, he outlined proposals for a “participatory socialism” to make society less unequal.  He saw three main ways to do this: (1) taxation, (2) reform of corporate governance and (3) educational reform.  This post will be about taxation.  I will take up the other two later.

His plan is based on steeply graduated income taxes, inheritance taxes and new taxes on wealth.  These were to be used to finance a wealth endowment of 60 percent of average wealth to every citizen at age 25 and a guaranteed income of 60 percent of average income.

He does not make absolute equality his goal, but he would allow a much narrower band of inequality than exists today.

I’ve long been indignant at the growing extremes of inequality in my country and the abuses of power of the very rich.  Reading Piketty forces me to think about just how much equality I want and how much I would give up to attain it.

∞

Piketty wrote in earlier chapters of Capital and Ideology about how higher taxes have often been the key to greater national power and wealth.

One of history’s mysteries is how it was that European nations could defeat great Asian empires, such as the Ottoman Empire, the Mughal Empire in India or the Manchu (Qing) Dynasty in China, when, prior to the Industrial Revolution, they were equal in wealth and technology to the European nations.  It was the Chinese, for example, who invented gunpowder.

Piketty’s answer is that the Europeans gained an advantage through a higher level of taxation.  Tax revenue across Europe and Asia prior to the modern era was roughly 1 to 2 percent of national income.  This gave a king or emperor enough revenue to reign, but not to exercise tight control over his realm.

This changed in Europe, during the wars of the 16th and 17th centuries, when military competition forced kings to increase their revenues to 8 to 10 percent of national income.

Click to enlarge

The greater revenue enabled kings to become absolute monarchs, exercising almost as much control over their citizens as a 20th century president or prime minister.  It also enabled them to put armies in the field that the Turks, Persians, Indians, Chinese and Japanese could not match.

Western governments’ revenue was bumped up again in the early 20th century, to 30 to 50 percent of national income.  This made possible the total wars of the early 20th century.  But it also gave governments enough money to pay for universal public education, old age pensions, public health and the other services of the welfare state.

This was only tolerable because the Western nations had grown rich enough that their people could give up a big fraction of their incomes to government and still enjoy a high material standard of living.

It would not have been possible in, say, France in the time of Louis XIV.  The taxes he levied to finance his wars reduced the peasantry to misery and, in some cases, starvation (because the nobles enjoyed most of the national income, but paid no taxes).

The same conditions may exist in poor African countries today.  But in rich Western countries, it is technologically and economically feasible to raise taxes revenues to 50 percent of national income, which is necessary for PIketty’s program.

Who, if anybody, has a vision for the future?

Political debate in the United States is based on nostalgia—a desire to return to a former era.

Donald Trump’s motto is “Make American great again!”  He doesn’t specify when America was great.  My guess is that his favorite era would be the 1920s, when the country was prosperous, big business was respected and the U.S. was free of entangling alliances.

The Clinton-Biden wing of the Democratic Party simply wants to turn the clock back to 2015.  Bernie Sanders wants to complete the unfinished business of the New Deal of the 1930s.  Elizabeth Warren wants to go back to a time when capitalism worked the way it should—perhaps under Eisenhower.

The closest thing we have to a positive vision of the future is Alexandria Ocasio-Cortez’s Green New Deal.  Her idea is to meet the challenge of global warming and resource exhaustion in ways that avoid or minimize hardship on working people.

Her key idea is full employment through a 1930s-type public works program that builds a green infrastructure and meets the country’s other long-deferred needs.  This is the only way the coming bad years can be made bearable.  I don’t blame her for not thinking out all the details in advance.

The government of China, in contrast, has a definite, feasible plan to make China a powerful and prosperous nation.  It includes an industrial policy to make China a technological leader and a foreign investment program to bring about the economic integration of Eurasia.

For the past 15 years, Pepe Escobar has been writing about the overreach and coming collapse of American empire and how China, along with Russia, will pick up the pieces.  I think that is highly possible, although my view of China is not as uncritical as his.

I think the socialist vision of a utopian centrally-planned economy has been discredited, both in theory and practice. All the uprisings going on all over the world seem to have a vision of radical democracy, which I think is hopeful, but I don’t claim to understand them well.

Science fiction offers visions of the future.  There is a lot of excellent, dystopian, near-future science fiction – Paolo Bacigalupi’s The Water Knife; Ken McLeod’s Intrusion; and Cory Cotorow’s Radicalized.

For a positive SF vision of the future, I recommend Kim Stanley Robinson’s work.  Cory Doctorow’s novels are said to be good, but I haven’t read them.

The trouble with extrapolating present trends into the future is that there are foreseeable crises that are likely to change everything in unpredictable ways;

• a climate and renewable resources crisis, as global warming becomes unbearable and fossil fuels and certain raw materials become unobtainable;
• an economic and financial crisis, as the system of global finance and fragile global supply chains breaks down; and
• an international crisis, as the world turns against the United States and the dominance of the dollar.

I don’t know whether the change will be for the better or the worse.

If the future is unpredictable, what is the point of even thinking about it?  It is because your vision of the future gives you a compass point for the present.

‘Remind me why socialism is so great again’

Economist Mark J. Perry, who posted this chart on the American Enterprise Institute’s Ideas blog, argued that prices are highest in the economic sectors that are most heavily regulated.

Said he:  “Remind me of why socialism is so great again.”

One possible explanation of the price difference is Baumol’s Cost Disease, the tendency of the cost of human services to rise relative to the cost of manufactured goods.  That’s not the whole story.

The fact is that European countries that most Americans would consider socialist have free or affordable medical care and free or affordable higher education.   And it is not a case of costs being shifted from patients and students onto taxpayers.

Overall costs of health care and higher education are less in so-called socialist European countries (I write “so-called” because most of them have self-described conservative governments).

The reasons why health care costs less in those European countries than in the USA is that there are no for-profit insurance companies standing between the patient and the physician, that European countries control prescription drug prices and that the incomes of physicians and other health care providers are less.

My guess is that European universities cost less because they provide a no-frills education without spending huge sums on sports stadiums and student amenities.  My other guess is that their hospitals and universities are not so top-heavy with highly-paid administrators.

In and of itself, government regulation is neither good nor bad.  It depends on what is being regulated, how it is being regulated and in whose interest it is being regulated.

LINKS

Chart of the day (century?): Price changes 1997 to 2017 by Mark J. Perry for AEI Ideas.

Mark Perry Has Never Heard of William Baumol by ProGrowth Liberal for Angry Bear.

Bernie Sanders, the socialist mayor of Burlington

As Mayor of Burlington, Vermont, from 1981 to 1989, Bernie Sanders showed that radical democracy is  feasible, even in a small American city.

His accomplishments in Burlington would make him a significant figure in the history of American political reform even if he never held any other elected office.

Bernie Sanders in 1981

As mayor, he fostered public ownership and local businesses, including worker-owned businesses.  He fought big corporate development projects and privatization of public services, and proved a small city could thrive without providing big tax abatements to attract outside industry and chain stores.

Sanders was born in Flatbush, Brooklyn, on Sept. 8, 1941, the son of a Jewish immigrant from Poland.  He attended public schools and Brooklyn College and graduated from the University of Chicago in 1964 with a degree in political science.  He spent some time on an Israeli kibbutz, and moved to Vermont in 1968.

During the first 20 years of his adult life, he led a marginal existence as a left-wing activist.  He ran twice for Senator and twice for Governor of Vermont in the 1970s, never getting more than 6 percent of the vote.  He was barely able to earn a living, working as a carpenter, freelance writer and creator of slide shows and documentaries for college classes.

He was elected mayor of Burlington, a city then of just under 38,000 population, defeating the incumbent by a margin of just 10 votes.   He won re-election three times by substantial majorities, and stepped down voluntarily after his fourth term.  None of his successors have tried to dismantle his accomplishments.

Sanders went on to become one of Vermont’s most popular politicians.   He won more than 70 percent of the statewide vote in the last two elections.

Can workers own the means of production?

The Marxist economist Richard D. Wolff thinks that a new form of economic organization, the worker self-directed enterprise, can gradually replace the for-profit corporation.

Richard D. Wolff

I hope he is right because the world needs something better than predatory corporations or oppressive government bureaucracies, which are the main choices on offer now.

But successful worker-owned enterprises have been around for a long time, and yet have never reached the critical mass that would enable them to become an important part of the economy.

Advocates of worker-owned businesses cite the example of the Mondragon Corporation, which originated in the Basque country in Spain in 1956 with a half dozen people and now is a federation of 257 businesses and co-ops employing 76,000 people in 31 countries.  But why is there only one Mondragon Corporation?  Why hasn’t it become a template for other successful efforts?

One of the things that limit worker-owned businesses, as I see it, is precisely this lack of critical mass.  There is a societal infrastructure of business schools, business services and business finance to serve the new for-profit business.  Worker-owners would have to learn as they go.  This takes a level of commitment of which many people aren’t capable, unless they are in dire straits.

One of Wolff’s ideas is to provide seed money for WSDEs by giving the unemployed their compensation in a lump sum rather than weekly checks.  This shows how he underestimates the difficulty of implementing his program.

To begin with, starting a successful small business is not something everybody can do, although many people think they can.  If you wanted a pool of people with the ability to succeed in business, you probably wouldn’t choose them from among the unemployed.  You’d be more likely to find them among people who have good jobs and money in the bank.

Then again, the American Dream is to own your own business.  Generally speaking, it is not to be part of a community of comrades who share and share alike.   We Americans think of ourselves as individualists, no matter how subservient to authority we may be in practice, and we only abandon the dream of self-sufficiency for compelling reasons.

Farmers’ marketing co-ops came into existence because farmers thought they were being cheated by middle-men.  Electric power co-ops came into existence because the investor-owned utilities weren’t interested in serving them.  Savings and loan associations, and later credit unions, were formed because people were dissatisfied with banks.

Workers have been known to take over factories from bankrupt employers and restart the businesses.  Some co-ops are formed around political and social movements, such as selling organic food.  But worker-owned and cooperative businesses are not the norm.  There has to be a compelling reason to commit to starting one.

The commitment tends to fade when the compelling reason fades.  Even the successful cooperatives tend to wither away, or be bought out, or to incorporate.  Even the successful utopian communities, the Oneida community in New York state and the Amana community in Iowa, wound up as corporations.

Is economic democracy possible?

Richard D. Wolff, a Marxist economist, wrote in his recent books that capitalism has failed, and that it is necessary to replace for-profit corporations as we know them with what he calls worker self-directed enterprises.

But for-profit corporations aren’t going to go away, even if—which remains to be seen—worker-owned enterprises offer a better alternative.

If economic democracy is the only means by which workers can keep the value of what they produce, then it is going to be necessary to reform existing corporate structures.

The USA needs legislation to curb abuses in corporate management, such as leverage buyouts, in which slick financial operators can gain control of a company with borrowed money and then milk it for their own benefit, regardless of its impact on the company.  We need enforcement of anti-trust laws and prosecution of corporate and financial fraud.

Beyond that, the USA needs to build up labor unions as a countervailing power.  Congress should enact the Employee Free Choice Act, aka Card Check, in which employees get the right to bargain collectively when a majority sign up to join a union.  It should repeal or reform the Taft-Hartley Act and Landrum Griffin Act.

But all of this falls short of true economic democracy.  True economic democracy would mean something like Germany’s co-determination system, in which employees of firms are represented on the board of directors.  I think this should be required of all companies whose stock is publicly traded.  If an entrepreneur doesn’t want to share control of a company,  then don’t sell its shares on the open market.

Economic democracy also would mean letting workers share in day-to-day management of the company, along the lines suggested by W. Edwards Deming.  Knowledge in any institution is widely distributed.  No small group has a monopoly on useful information.  I think a company will be better managed when workers and managers have the same information available.

Banking and finance are a separate issue.  There can be no economic democracy when financiers have a veto over democratic decisions.  Banks should be regulated utilities.  Bankers should be servants of the people, not masters of the universe.

When and if these things can be achieved, there will be a favorable environment for Wolff’s worker-self-directed enterprises.  The government would give them the same kind of support across the board that rural electric co-ops got in the 1930s and 1940s.  Otherwise, probably not.

Is there a better way than capitalism?

Marxists say that the trouble with the capitalist economy is that workers don’t get the full value of what they produce.  Whether or not that’s true as a general principle, it is a good description of the current direction of the U.S. economy.

The Marxist solution is that the workers themselves should own the means of production.  A Marxist economist, Richard D. Wolff, said that where socialists and Communists have gone wrong is in promoting government ownership rather than worker ownership.

I recently read Wolff’s three latest books.  His view of the current economic crisis is the same as mine.   In the 1970s, overall American wages stopped growing.  Working people tried to maintain their material standard of living by putting in longer hours and having more family members in the work force.   When that reached a limit, they kept up their spending levels by borrowing.

Now the spending power of ordinary Americans has reached a limit.  Most Americans are either broke, nearby broke or paying down their debts.  That’s why the government has failed to stimulate the economy through spending or lower interest rates.

The solution, according to Wolff, is the creation of WSDEs – worker self-directed enterprises – in which the workers themselves are the ultimate deciders of what is done with the profits (in Marxist lingo, the “surplus”).

A WSDE would be more than worker participation in management, where corporate ownership remains the same.  And it would be more than a worker-owned business, where board of directors and the rest of the corporate management structure remains in place.   And it would be more than just a co-operative, which can be organized to serve the interests of any group, not just employees.

This would not necessarily solve all problems, Wolff wrote, but it would make other problems easier to solve.  A WSDE wouldn’t lay off workers or reduce wages merely to increase the income of managers and stockholders.  Employees wouldn’t feel alienated from their work.  A worker-owned business would be less likely to be willing to pollute the community in which they live than would a board of directors responsible to stockholders who live far away.

I am in favor of more worker-owned businesses, but I think Wolff greatly underestimates the opposition to his proposed program.   Does he think the interests that engineered the sale of the Postal Service’s assets to private businesses (such as Nancy Pelosi’s husband) or advocate replacing public schools with for-profit businesses (aka charters)—does he think these interests are going to sit still and allow Wolff’s WSDEs to push them aside?

Back in the New Deal era, the federal government fostered electric power co-operatives, which provided electricity at lower rates than the for-profit corporations.  But they did not displace the for-profit corporations, nor become a model for how to operate electric utilities.

Instead the electric power industry successfully pushed for deregulation of the industry, in which competition between electric power providers was supposed to keep rates low.  Deregulation also abolished a requirement that an electric utility have enough reserve generating capacity to prevent future blackouts and brownouts.  Nobody is responsible for keeping the lights on now.

 The fact that something is economically feasible and socially desirable does not mean that it will be politically successful.   There is no substitute for political power.

Is there a path to economic democracy?

If you, like me, think our present corporate capitalist system is not working, and if you, like me, thinks state socialism and central planned economies are proven failures, what is the alternative?

Economist Gar Alperovitz, in a flawed but thought-provoking new book, What Then Must We Do? says the answer is economic democracy – worker-owned businesses and cooperatives.  Unlike the giant for-profit corporation, the worker co-op would operate for the benefit of the employees instead absentee stockholders.  Unlike with nationalized industry under central planning, the worker-owners would be deciding for themselves and not trying to rule over other people.

I think so, too, and so do other people, whose books I’ve reviewed on this web log.  Alperovitz’s book represents an advance over David Graeber’s The Democracy Project in that he suggests some practical ways in which this ideal can be advanced.   Alperovitz’s blind spot, compared to Graeber, is his failure to see the magnitude of the opposition that would have to be overcome.

Alperovitz pointed out that there already are quite a number of worker-owned businesses and cooperatives.  In Cleveland, there’s a worker-owned Evergreen Cooperative Laundry, which is powered by solar panels bought from the worker-owned Evergreen Energy Solutions.  In Madison, Wisconsin, there is the worker-owned Isthmus Engineering and Manufacturing Co., which makes precision machines and robots.  He has a long list covering much of the country.

Local governments spend a lot of money subsidizing private businesses.   Instead of providing economic incentives to bring in a big box retail store, which is likely to put established retail merchants out of business, or a manufacturing plant, which is likely to relocated in 10 or 15 years in search of low wages and new economic incentives, why not help the worker-owned businesses in your own community?

Executives of big corporations (except for family-run companies such as Corning Inc. or Wegmans Food Markets) have no tie to any community or, indeed, to any country.  Workers, along with small-business owners, are the ones who are committed to living in a community and building it up.

Along with worker-owned businesses, there are credit unions, electric power co-operatives, businesses with employee stock ownership plans – all with more democratic forms of organization than corporations listed on the New York Stock Exchange.  There is something called a “B” corporation, whose charter says it is organized for public benefit rather than maximizing shareholder value.  All these provide something to build on and expand.  One simple reform, Alperovitz noted, is to allow owners of stock under ESOP plans to vote their own shares rather than giving their proxies to a trustee.

He advocated public banks, such as the Bank of North Dakota, as a way of serving local communities and providing a safe haven for depositors.  He said states such as Vermont. which is working on a single-payer, universal health insurance plan, could show the way for health care reform.  In the next financial crash, the federal government is likely to take over some failed corporations, as it did AIG and General Motors, and the next time around it should ask for reforms to make these companies serve workers and the community.

In time, over a period of decades, Alperovitz thinks that worker-owned and public enterprises could gain constituencies and crowd out the dysfunctional corporate system that we have down.  Such an approach offers more hope, he wrote, than supporting the declining labor movement or progressive political action.  In this I think he is naive.  The corporatist elite that have worked for decades to crush organized labor and thwart progressive politics is not going to stand idly by and let themselves be threatened by worker co-operatives.

What kind of a socialist is Strauss-Kahn?

Before his arrest in New York City on charges of attempted rape of a hotel maid, Dominique Strauss-Kahn was considered the front-runner for the Socialist Party’s nomination for President of France.

Socialism historically has been a movement against economic injustice and in favor of greater economic equality.  Socialists claim to represent workers in their struggle against the economic elite.  How does Strauss-Kahn fit into this historic tradition?

Strauss-Kahn entering friend's Porsche

According to Forbes magazine, Strauss-Kahn’s lawyer said his bank balance is in the “low seven figures.”  He was paid roughly $420,000 as managing director of the International Monetary Fund, and got an additional $75,000 to maintain a style of life appropriate to his position.  He and his third wife, Anne Sinclair, an heiress and TV personality, have economic assets estimated by Forbes as worth $100 million to $200 million. Most of this is the art collection of Sinclair’s grandfather Paul Rosenberg, an art dealer who represented Picasso, Matisse and Braque.  This estimate does not include more than $90 million worth of art she’s sold over the years.

Strauss-Kahn and his wife live well.  He and Sinclair own a house in the Georgetown section of Washington, D.C. (which is headquarters of the IMF), not one but two luxury apartments in Paris, and a traditional Moroccan house in Marrakesh.  The houses have a combined value of $15 million, according to Forbes.

Strauss-Kahn’s wealth is small change compared to the wealth of the world’s billionaires, but it is a lot by most people’s standards.  Political opponents call him a “caviar socialist.”  There was an uproar when he was photographed getting into a friend’s $140,000 Porsche earlier this year.

He and his wife of course have a right to spend their money as they choose.  The question is whether someone who is (literally) wedded to great wealth can understand and champion the interests of working people.  His record in French politics and as managing director of the IMF help provide answers to that question.

Entrepreneurs under socialism

One of Americans’ great strengths is our entrepreneurial spirit.  Polls show that a higher percentage of Americans than of any other advanced country dream of owning their own businesses.  But a survey by the U.S. Small Business Administration shows that the percentage of Americans who actually start new businesses is less than for Canadians, Danes, Norwegians and Swiss.

U.S. government policy for the past 30 years has been aimed at encouraging business growth by cutting the marginal tax rate, which is the top tax rate, the tax rate on the next dollar earned.  The idea is that the less a business owner has to pay in taxes on additional profits, the more incentive the owner has to start and grow the business.

Along with this is the shrinking of the social safety net.  Owners of financial assets are supposed to be more productive because they have a greater incentive of gain.  Wage earners are supposed to be more productive because they have a greater incentive of fear.

But what if it doesn’t work that way?  What if, as the RSA Animate video suggests, other things were more important?

When I reported on business for the Rochester (NY) Democrat and Chronicle, the successful entrepreneurs I interviewed didn’t fit that pattern.  The typical story was somebody working for a large corporation had a good idea, couldn’t get anybody in the corporation to pursue it, and so decided to pursue it on their own.  These entrepreneurs wanted to get rich, of course.  Who doesn’t?  But the main thing was to achieve their goal.

Inc. magazine this month ran an excellent article about business start-ups in Norway. It began with a profile of Wiggo Dalmo, a high school graduate and mining equipment machanic, who got tired of working for a large company and started a successful business of his own, Momek, which now has 150 employees and $144 million in annual revenue.  He is taxed more heavily than he would be in the United States, but, according to Inc., he doesn’t mind.

“The tax system is good—it’s fair … What we’re doing when we are paying taxes is buying a product. So the question isn’t how you pay for the product; it’s the quality of the product.” Dalmo likes the government’s services, and he believes that he is paying a fair price.

Modern capitalism is possible because entrepreneurs and investors are cushioned from the worst consequences of failure. With bankruptcy laws, entrepreneurs can only lose what they have.  With limited liability corporations, investors can only lose what they put in.  Without these cushions, anybody who started a business, or even invested in a business, would be in jeopardy, when the business failed, of a debt burden they could never pay off in their lifetimes.  The consequences of failure are spread over society.  Arguably this is unfair, but by reducing fear of failure, it makes possible a dynamic, growing society.

In a welfare state such as Norway, there is more cushioning of risk.  Entrepreneurs have even less reason to fear failure than in the United States.  No matter what happens, they and their families will have access to medical care, their children will have access to a good education and their retirement income will be above the poverty level.

What a real socialist sounds like

Senator Bernie Sanders, an independent from Vermont, is the only avowed socialist in the U.S. Senate.  He gave an 8.5-hour speech on Dec. 10 on the agreement between President Obama and the Republican leadership on tax legislation.  Some parts of the speech are on the YouTube videos below.  If you think President Obama is a socialist, listen to what a real socialist sounds like.

Capitalism, socialism and democracy

Karl Marx predicted that under capitalism, wealth would become more and more concentrated, that the concentration of wealth would lead to concentration of political power, and that workers would become more and more powerless.

In my younger days, I thought Marx was outdated, but his predictions seem to be validated by what has been happening in the United States in the past 30 or so year.  Steven Greenhouse’s The Big Squeeze: Tough Times for the American Worker and Jacob Hacker’s and Paul Pierson’s Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class tell the story very well.

In spite of this, neither Greenhouse, Hacker nor Pierson are socialists.  What they advocate is a return to the rough balance of forces between labor, business and government as existed in the United States from the late 1940s through the early 1970s.  That is pretty much my own position.  I would like to preserve and restore the New Deal social safety nets and economic firewalls and the 1960s civil rights laws, update to meet current conditions, and I would like to see the United States adopt a universal health care system, based on best practices in other countries, but that is as far as I go.

The core value of socialism is egalitarianism.  I am not an egalitarian.  If I have enough for my own needs, I am not bothered by other people having more.  What I am against is exploitation.  By exploitation, I mean profiting at someone else’s expense, other than in a free and fair competition.

I am glad to see people whose achievements are valuable contributions to society be richly rewarded for those achievements.  I don’t mind that J.K. Rowling, the author of the Harry Potter books, has a net worth of $1 billion.  I am fine with the fact that Larry Page and Sergey Brin, the creators of Google, have a net worth of $14 billion each.

H. Ross Perot began his career as an IBM salesman.  IBM Corp. capped the commissions salesmen could receive because Perot was earning too much relative to the other salesmen. Perot’s response was to earn the maximum annual commission in a few weeks, quit IBM and founded Electronic Data Systems.  My sympathies are with Perot.

I reluctantly accept the necessity for differences in income based on differences in rank.  I have misgivings about economic privilege based on inheritance.  I am morally outraged by executives of organizations leveraging their authority to reward themselves at the expense of people below them in the hierarchy. And I am outraged at financiers who enrich themselves by manipulating prices and selling worthless securities.

The first form of exploitation is found in any society based on hierarchical organizations.  It existed in the old Soviet Union, and it exists in the so-called non-profit sector of the United States today.  The second is a form of exploitation specific to capitalist society.  Capitalism requires honest financial markets to function well, but does not automatically generate them.  When market abuses are unchecked, the result is what you see in the United States today.

Thomas Geohegan’s Germany

I remember once years ago when my friend George was telling a bunch of us what a wonderful vacation he had in Paris.  It was a great place to be, he said, but there was one problem with the French and with Europeans generally.  “They have it too good.”

That’s the impression many Americans have of the European welfare states.  Yes, it’s nice to have long vacations, universal health care, beautiful parks, generous old age pensions and so on – but how then can the Europeans compete with the Chinese, the Koreans, the Indians or, for that matter, us lean and mean Americans.

Thomas Geoghegan, a Chicago labor lawyer, has written a new book Were You Born on the Wrong Continent? How the European Model Can Help You Get a Life to argue that the reverse is true.  He wrote that what looks like socialism to us Americans is precisely what makes France, Germany and the other leading European countries competitive.

He concentrates on Germany, because it is Europe’s leading economic power and because he likes the German model better than that of France and some of the others.  Germany’s social democracy is based not so much on governmental power as on empowerment of workers, he writes.  They have strong unions, workplace councils, representation on boards of directors and regional collective bargaining (so that the German equivalents of Borders and Barnes & Noble have to pay the same wages.)

This works.  The European Union, unlike the United States, has a positive trade balance.  Germany has a positive trade balance with the world, and with China specifically.  In fact, Germany for years was the world’s leading exporting nation, and now is a close runner-up to China; the United States is a distant third – astonishing when you think Germany has a population of 83 million, the United States more than 300 million and China more than 1 billion. None of this would be true if the keys to success in the global economy were low wages, no benefits and union-busting.

Yes, Geoghegan admits, Germany isn’t perfect, Germany has problems, the German economic model is eroding a bit under global competition, but overall Germans are doing better under their system than we Americans are doing under ours.

In Germany, it is difficult (though not impossible) for corporations to shut down operations and shift production to poor countries, so they think about ways of making their domestic industry more efficient and productive.  And because workers have a voice in decisions, they accept what is decided.  In the United States, Geoghegan says, it is easy for corporate management to make a decision, but difficult to implement it; in Germany, it is difficult to come to a decision, but easier to carry it out once decided.

Should public libraries be allowed?

Having just checked out some books from the Rochester Public Library, I thought how strange it is that an institution like a public library is allowed to exist.

Public libraries are socialistic. Rich people pay taxes in order that the children of poor people can read books for free, which by the lights of Ayn Rand, Rush Limbaugh, Glenn Beck and the Tea Party movement is impermissible tyranny.

Public libraries defy current notions of intellectual property rights.  I intend to read some books which maybe dozens or even hundreds of people have read before me, and yet the publisher does not get a dime for any of us except for the original price of the book. Isn’t this the kind of file-sharing that the Millennium Copyright Act was intended to prevent?

Then, too, books can contain dangerous ideas. Who knows what dangerous ideas the public library is allowing to circulate?

I’m sure that if public libraries did not exist, the creation of such institutions would not be allowed today. 🙂