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.

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.