Posts Tagged ‘Free-market socialism’

After capitalism: free-market socialism?

July 25, 2011

Kevin Drum is probably correct … that “if, in the real world, Keynesianism is too difficult for human beings to practice during the 80 percent of the economic cycle taken up by expansion, then it’s not much good.” …

But my real non-rhetorical question is, what system of political economy isn’t unworkable then?  Outright communism breeds tyranny, nomenklatura and misallocation [of resources].  Attempted laissez-faire degrades to an archipelago of private tyrannies.  The institutions of neoliberal monetarism (central banks; national treasuries), the governing ideology of the US and Europe since the 1980s, get captured by the asset-holding classes, which is why we’re skating the edge of a deflationary sink.

That leaves . . . what exactly?

via Unqualified Offerings.

The history of the 20th century shows that centrally planned economies don’t work.  Knowledge is too widely distributed in society for a tiny group of masterminds to be able to direct the economic activities of everybody else.  But unfettered capitalism isn’t working either.  Power has migrated into the hands of financiers and corporate executives who are rewarded for exploiting their positions, not for creating value.  Here in the United States, working people have experienced 25 or 30 years of slow decline and we are now mired in a “jobless recovery” (also known as a depression) with no end in sight.

Click to enlarge

A philosopher named David Schweikart, in an interesting book entitled After Capitalism, proposes an alternate system called “economic democracy” or “market socialism.”  In his system:

  • Limited-liability corporations are replaced by cooperatives.  You’re not hired by a co-op; you join it.  The purpose of the co-op is not to maximize profits; it is to maximize wages and benefits.
  • Investment banks are replaced by non-profit grant-making “banks.”  They allocate capital to the cooperatives based on their judgment as to whether the cooperative will create jobs, and are given more capital depending on their success in creating jobs.
  • Free markets and economic competition, however, still determine which cooperatives thrive and grow and which ones fail.  Government does not own industry nor micro-manage individual enterprises.

There is no central planning board.  The cooperative can do anything (within the law) that its members and directors think will be beneficial.  Not everybody in the co-op will have equal shares or equal wages; that’s up to the members.  Not every co-op will be a success; that’s up to the workings of the market.  The difference betwee a co-op and a corporation is in the organization’s purpose.  The objective of a corporation is to maximize the return on capital.  The purpose of a co-op is to maximize the return on labor.

Capital for a cooperative would come not from stock or bonds, but from grant-making “banks.”  Instead of paying interest on loans and dividends on stock, a cooperative would pay a flat tax on its capital (calculated, I suppose, in the same way as the book value of a corporation).  The cooperative would have a legal obligation to maintain the value of its capital, through a depreciation fund, and to pay minimum wage.  If these requirements could not be fulfilled, the cooperative would be required to disband.

Revenue from the tax on capital would go into a new public capital fund, which would be allocated to local areas based on population, and then among local grant-making banks based on their past success in generating jobs.

Schweikart’s model is the successful Mondragon Corporation, a cooperative organized by a Catholic priest, Don Jose Maria Arizmendiarrieta in the Basque region of Spain in 1956, to create jobs for graduates of the vocational school he founded.  It started by making small cookers and stoves, and now is a multinational conglomerate with 84,000 employees and 256 affiliated cooperatives, which did about $19.5 billion worth of business last year.  That’s up from 53,000 employees and $6.6 billion revenue when Schweikart wrote his book.