11
What Is to Be Done? The Economics of Equitable Cooperation
What should we do if we had the opportunity to start over again? We could hold a lottery – or perhaps have a brawl – to decide who owns what productive resources. The unfortunate losers would have to hire themselves out to work for the more fortunate winners, and the goods the losers produced could then be “freely” exchanged by their owners – the people who did not produce them. Of course this is the capitalist “solution” to the economic problem which has been spreading its sway for roughly three centuries. While less “triumphant” than a few years ago, neoliberal capitalism remains stubbornly entrenched despite its latest crisis and absence of meaningful reform.
Alternatively, we could make the best educated – or perhaps the most ruthless among us – responsible for planning how to use society’s scarce productive resources and for telling the rest of us what to do. But that was tried with unsatisfactory results. After a troubled three-quarters of a century Communism and “command planning” have been consigned to the dust bins of history, may they rest in peace.
Whether centrally planned economies caused more or less alienation, apathy, inefficiency, inequity, and environmental destruction than their capitalist rivals is now a moot point. The important conclusion from humans’ most recent experiments in mismanaging our economic affairs is that neither the economics of competition and greed, nor the economics of command, are the answers to our economic problems. In this last chapter we explore the ideas of those who believe the economics of equitable cooperation are not beyond humanity’s grasp.
Not All Capitalisms Are Created Equal
Not all versions of capitalism are equally horrific, and better versions are well worth fighting for. Moreover, since the capitalist ruling class shows no signs of relinquishing power as quickly and easily as Communist rulers did, creating the economics of equitable cooperation will have to go on inside capitalist economies for the foreseeable future. So first we ask, how can capitalism be humanized? After which we discuss why we must go beyond capitalism in order to build the economics of equitable cooperation, and how to do it.
After the demise of Communism free market capitalists quickly targeted a new enemy – Keynesianism. No doubt Lord Keynes would have been just as surprised to find himself replacing Communism as Enemy #1 as his Nobel prize winning disciples, Joseph Stiglitz and Paul Krugman, were to find themselves ostracized by the mainstream of the profession in the 2000s when they refused to recant their Keynesian roots. It is important for not only progressives but radicals as well to understand where their allegiance lies in this new ideological war: When it comes to Keynesianism versus neoliberalism progressives and radicals must be pro-Keynesian with no “ifs, ands, or buts.” This does not mean progressives and radicals do not go beyond Keynesian reforms in our efforts to replace the economics of competition and greed with the economics of equitable cooperation. But what makes progressives and radicals different from Keynesians is not that we do not always support reforms Keynesians are for, but that Keynesians do not always support more far reaching changes that some progressives and radicals are for.
What’s good for the wealthy and the financial companies who serve their interests is not necessarily good for the rest of us. If we listen to advice from the financial industry we will never restrict any of their activities – to our detriment.
Those were the first two sentences in the section on “taming finance” of the first edition published six years before the latest financial crisis. Paul Volker, who served as Chairman of the Board of Governors of the Federal Reserve System from 1979 through 1987, had this to say about financial regulation as far back as 1999 in a luncheon address to the Organization for Economic Co-operation and Development on March 18, 1999:
I’ve been involved in financial supervision and regulation for about 40 of my 70 years, mostly on the regulatory and supervisory side but also on the side of those being regulated. I have to tell you from long experience, bank regulators and supervisors are placed on a pedestal only in the aftermath of crises. In benign periods – in periods of boom and exuberance – banking supervision and banking regulations have very little political support and strong industry opposition.
Because of deregulation pushed by Wall Street and passed by politicians in the Democratic and Republican parties alike, by the early 2000s the domestic and global economies were more vulnerable to financial bubbles and crashes than at any time since the roaring 1920s. Anti-reforms like repeal of Glass-Steagall in 1999, and various measures that go under the label of international capital liberalization orchestrated by the US Department of the Treasury and the IMF, eliminated minimal protections and safeguards dating back to the New Deal and the Bretton Woods Conference. However, unlike the financial crisis of 1929 which did lead to serious financial reform and passage of the Glass-Steagall Banking Act in 1933, the political power of the US financial industry had grown so great by 2008 that it was able to prevent meaningful financial reform in the aftermath of the financial crisis of 2008. For any who suffer under the illusion that the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in July 2010 offers any real protection, suffice it to say that Paul Volker, who was a principal figure in the original committee drafting a bill, was pushed aside by Obama advisors Summers and Geithner and conspicuously out of the country when it was signed into law. Most importantly, the so-called “Volker-rule” banning commercial banks which benefit from federal insurance and protection from the Fed from engaging in speculative “proprietary trading,” and without which the Act has no teeth, continues to be weakened as to its interpretation and application. In the end Dodd-Frank was little more than a fig leaf for the financial industry and its political protectors to hide behind from outraged voters. To rub salt in the wound, the US Treasury under Obama, and the Fed under Chairman Bernanke, have persisted in sparing no expense in bailing out Wall Street while Main Street is told it must tighten its belt.
Even when there are no crises, as our simple credit corn model reveals an unbridled financial sector will almost always distribute the lion’s share of efficiency gains from extending the credit system to those who were better off in the first place, and thereby widen wealth and income inequalities. But as explained in Chapter 7 and illustrated by models 9.1 and 9.2, free market finance is particularly dangerous and prone to crisis, as people as different as Keynes and Volker have warned us. Simply put, an unregulated or badly regulated financial sector is an accident waiting to happen. Therefore it must be regulated in the public interest to diminish the likelihood of financial crises, and to distribute the costs of financial crises more equitably when they do occur. Right now the government provides free underwriting for Wall Street, which is allowed to reap obscene profits from what are often risky investments with little social benefit, while the taxpayer is “on the hook” to pick up the tab whenever panic strikes, since we “the people” also suffer if panic goes unchecked.
Long before the recent crisis financial reformers had warned of dangers from deregulation and offered many useful suggestions. Jane D’Arista, Tom Schlesinger, William Black, Gerald Epstein, Robert Blecker, Tom Palley, Dean Baker, John Eatwell, Lance Taylor, Dorene Isenberg, and Gary Dimsky are among the many political economists who long before 2008 had developed a cornucopia of financial reform proposals ranging from modest reforms that diminish outright corruption and thievery, to substantial reforms to protect the real economy from “financial shocks,” to ambitious reforms that would redistribute the benefits of financial activities from the wealthy to the poor and democratize monetary policy. Unfortunately, because the financial industry has controlled the political response, those who were ignored or ridiculed before the latest crisis, but who proved to be most prophetic, have been entirely excluded from crafting meaningful reforms in its aftermath.
Progressives who work on financial reform must judge how a reform will affect efficiency and stability in the real economy, how it will affect income and wealth inequality, and whether it will give ordinary people more or less control over their economic destinies. Of course they must also consider how likely it is that any particular financial reform is “winnable.” But perhaps the time has come to ask whether or not a private financial sector has now become too big for the rest of us to allow to fail, ever again. After the crash in 1929 we got meaningful financial regulation. After that the financial sector lobbied for deregulation twenty-four seven for seventy-five years, until it had once again created another accident waiting to happen. The rational response in 2008 should have been to ask, “Why should we leave the financial sector in private hands?”
There are many reasons to nationalize the financial industry: (1) Failure to properly regulate the financial industry causes more harm than failure to regulate other industries. (2) The financial industry is more adept at outmaneuvering regulations than other industries, so the alternative to nationalization – regulation – is always likely to unravel. (3) Right now the financial industry is so flush with profits that it has literally bought the allegiance of most politicians, not only making it impossible to pass regulations but making a mockery of political democracy as well. And finally, (4) if one is relieved of the burden of figuring out how to turn the simple business of lending people’s savings to creditworthy borrowers into a giant casino, where the house rips off huge profits while customers cover house losses, it is a fairly straightforward business to run. Even government bureaucrats can count deposits and process loan applications for creditworthiness! One must be careful, however, not to socialize losses and privatize wealth. To nationalize troubled banks and absorb losses on their toxic assets, and then turn them back over to stockholders when they are once again solvent, is worse than no nationalization. Public banks should also be run differently than private banks. The purpose of a public credit system is to lend according to social rates of return, which is not the same as commercial profitability.
Full Employment Macro Policies There is no reason aggregate demand cannot be managed through fiscal and monetary policies to keep actual production close to potential GDP, and cyclical unemployment to a minimum. That is, there is no technical or intellectual reason. Of course there are political reasons that prevent governments from minimizing macroeconomic inefficiency. Because the wealthy fear inflation more than unemployment, they exert political pressure on governments to prioritize the fight against inflation even when inflation is not a danger, to the detriment of combating unemployment. Because employee bargaining power increases when labor markets are tight over long time periods, employers pressure governments to permit periodic recessions in the name of fighting inflation. In an increasingly integrated global economy where demand for exports is an important component of aggregate demand in most countries, and where differential interest rates produce large movements of wealth holdings from one country to another, fiscal and monetary policies must be better coordinated internationally, which admittedly is trickier. But as in the case of domestic stabilization, the primary reason international macroeconomic policy coordination is not done well is political not technical.
Improved use of macroeconomic stabilization policies would not only make economies more efficient, it would strengthen movements fighting for equitable cooperation in other ways as well. Wage increases and improvements in working conditions are easier to win in a full employment economy. Affirmative action programs designed to rectify racial and gender discrimination are easier to win when the economic pie is growing rather than stagnant or shrinking. Union organizing drives are more likely to be successful when labor markets are tight than when unemployment rates are high. The reason privileged sectors in capitalism obstruct efforts to pursue full employment macro policies – it diminishes their bargaining power – is precisely the reason those fighting for equitable cooperation should pressure for it.
Every progressive organization should work to punish elected officials who fail to vote for fiscal stimulus when it is needed to prevent unemployment. But it is important not to overestimate what this would accomplish. Even if everyone had a job, they would not necessarily have a job they could support a family on, much less one that paid them fairly for their sacrifices. Even if everyone had a job that paid a living wage with benefits, they would not necessarily have personally rewarding, socially useful work since most jobs in capitalism are more personally distasteful than necessary, and much work in capitalism is socially useless or counterproductive. So when we fight for full employment stabilization policies we should never forget to point out that what every citizen deserves is a socially useful job with fair compensation. We should never tire of pointing out that while capitalism is incapable of delivering on this, it is just as possible as it is sensible.
Industrial Policy The French practiced what they called “indicative planning” with such success in the 1950s that the British government tried to copy the policy (unsuccessfully) in the early 1960s.1 The German model of capitalism, then the Japanese model, and finally what became known as the Asian development model all used industrial policy to great advantage. In brief the policy consists of identifying key sectors in the economy that are important to prioritize in order to increase overall economic growth rates. In the 1950s the French Commissariat Général du Plan identified “bottleneck sectors” whose sluggish growth was holding back the rest of the economy, and arranged with the Finance Ministry and a state-owned development bank for lower business tax rates and interest rates for firms investing in those sectors. During the heyday of the post WWII Japanese economic miracle, the Ministry of International Trade and Industry, MITI, identified “industries of the future” expected to be crucial to Japanese international economic success, and arranged with the Finance Ministry and Bank of Japan for firms in those industries to be taxed and receive credit on preferential terms. In effect MITI treated comparative advantage as something to be created rather than meekly accepted as “national fate.” As a result Japan became a world power house, first in low cost light manufactured goods, then in high quality steel and automobiles, and eventually in electronics and computers.2 Among the “Asian Tigers” South Korea and Taiwan copied Japan’s successful industrial policies most closely, with great success.3 Finally, it was the “Asian development model” rather than laissez faire capitalism which the Chinese Communist government embraced three decades ago to produce the latest “economic miracle.”
There are three things progressive reformers should bear in mind about industrial policy: (1) Real capitalist economies are often plagued by temporary disequilibria among sectors that cause inefficiencies, and many capitalist economies are trapped playing a role in the international division of labor that dooms them to produce goods where opportunities to increase wages and profits are minimal. Industrial policies can be used to eliminate short-run imbalances between sectors, or to guide an economy out of a “vicious cycle” of specialization onto a more “virtuous” long run development strategy. Neoliberals who dominate policy in all the major international economic institutions are oblivious to the static and dynamic inefficiencies of markets, and therefore see no purpose to such policies, label them “crony capitalism,” and pressure governments to abandon them no matter how successful they may have been. In many ways one can interpret rules countries are now required to follow as members of the World Trade Organization as little more than attempts to outlaw use of industrial policy.4 (2) Industrial policies to help create new comparative advantages are crucial if less developed economies are ever to break out of their vicious cycle of poverty, and therefore are a particularly important part of forging a path toward more productive economies in the third world and a more egalitarian global economy. Industrial policy is also crucial to redirect investment in advanced economies away from priorities overvalued by the market like private luxuries for the affluent toward priorities the market neglects like housing for the poor, education, and environmental protection. (3) However, it is important to realize that industrial policy is highly susceptible to being hijacked by the largest corporations with the aid of high ranking government bureaucrats. If this occurs industrial policy can further reduce the power of workers, consumers, farmers, and small businesses if they are excluded from the industrial policy planning “power game.” In fact, it can be argued that successful industrial policies in France, Japan, South Korea, and Taiwan made their economies less democratic, and the absence of democracy has facilitated its use in China. Industrial policy is a kind of capitalist planning, not to be confused with the kind of democratic, participatory planning discussed below. On the other hand, it was used effectively without reducing economic democracy in Norway, and if progressive reformers win disadvantaged sectors seats at the planning table it can improve investment priorities and increase rather than diminish economic democracy in capitalist economies.
Wage-Led Growth In capitalism the low-road growth strategy is to suppress wages to increase profits and hope the wealthy will plow those profits back into productive investments that expand the capital stock and increase potential GDP. As demonstrated by model 9.5, besides being inequitable, this strategy runs the risk that the wealthy will not invest their profits to expand the domestic capital stock but use them to (1) buy luxury goods, or (2) save them by buying assets either at home or abroad. In the former case socially useful investments lack for funds as resources are used to produce yet more consumer goods for the wealthy. In the latter case not only will profits not be used to add machines to the capital stock, aggregate demand may falter and reduce actual production farther below a stagnant potential GDP, or, as we have just seen, create conditions that increase the risk that when an asset bubble bursts the ensuing financial crisis will turn into a full blown crisis in the real economy as well.
The high road to growth in capitalism is to raise wages to keep aggregate demand high, trusting that if there are profitable sales opportunities capitalists will find ways to expand capacity to take advantage of them. Besides being more equitable, this strategy minimizes lost output due to lack of aggregate demand and reduces unemployment in economies where chronic underemployment is a major social problem. The only risk in this strategy is there will be too little savings to lend to businesses trying to expand their productive capacity, in which case a bold progressive government could always increase taxes on the wealthy to finance socially useful public investment.5
Progressives in developing economies and their allies in the advanced economies need to reject neoliberal, low-road growth programs peddled by the US Treasury, IMF, World Bank, and WTO and point out there is an alternative – wage-led growth and production oriented toward domestic basic needs. Every developing economy needs some dynamic export industries if for no other reason than to import cutting edge technologies. But subordinating the entire economy to export and profit-led growth is a recipe for disaster. It was a disaster for LDCs when the IMF forced it on them in the 1980s, 1990s, and 2000s, and is still a disaster when the EC forces it on the weaker economies inside the EMU.6
A Mixed Economy The truth is that sectors like education, healthcare, and housing for the poor, sectors like telecommunications and energy where technology makes monopoly difficult to avoid, and sectors like the financial industry where perverse incentives generate systemic risk in excess of individual risk and social rates of return often deviate from commercial rates of return, often do not perform well in private hands. In Europe and many developing economies during the golden era of capitalism governments established public enterprises in these sectors producing a mixed economy, i.e. an economy with a mixture of private and publicly owned firms. Privatization of these public enterprises has been a major part of the neoliberal program everywhere.
Privatization was a major thrust of Thatcher governments in Great Britain during the 1980s, and has been a constant theme of neoliberals and the IMF over the past thirty years in developing economies. Battles to protect public enterprises from being privatized are often necessary simply to fight against corruption, especially when such privatizations function merely as fire sales to benefit political rulers’ wealthy backers and/or foreign multinationals. But sometimes it is also necessary to preserve public services at equitable prices. The sale of the Bolivian water utility to Bechtel Corporation in 1998 led to such dramatic price hikes that it spurred a popular movement that forced the Bolivian government to rescind the deal, and contributed to the election of a populist government under Evo Morales. In Washington DC a coalition of progressive forces battled the Financial Control Board imposed by the US Congress to oversee city finances to prevent privatization of DC General Hospital, the city’s last public hospital required by law to accept any patient in need. Unfortunately that battle was lost when DC General was shut down in 2001 after almost two hundred years of public service. Sometimes opposing privatization is necessary to keep public enterprises which are key allies for governments in their industrial or economic development strategies. Publicly owned banks have played important roles in guiding economies in settings as varied as France in the 1950s and a number of Latin American and African countries in the 1960s and 1970s. While technically private, many banks in Japan and South Korea were so reliant on support from those countries’ central banks that they could be counted on to cooperate with government industrial policies that brought about the Japanese and Korean economic miracles. Over the past ten years the US government, with a large assist from the IMF in the case of South Korea, has seized on every opportunity to force Korea and Japan to rescind laws barring foreign ownership of their banking sector. Not only does this allow foreign banks to gobble up lucrative assets when crises hit, it eliminates government influence over banking policies that was once an important part of successful industrial policy.
In conclusion, subordinating finance to the service of the real economy rather than the reverse, pursuing full employment fiscal and monetary policies and intelligent industrial policies, embracing a wage-led rather than profit-led growth strategy, and accepting public ownership where practical is nothing more than a “full Keynesian program.” It may seem radical in an environment of free market triumphalism, but it once fell well within the political mainstream. However, as important as it is for progressives and radicals to give the Keynesian program our full support whenever the alternative is neoliberal deregulation and austerity, it is important to understand what a full Keynesian program is not. Even a full Keynesian program falls far short of redressing the fundamental inequities and power imbalances in capitalism. Additional reforms are necessary to make capitalism more fair and humane.
Tax Reform Unless taxes are strictly proportional, that is, unless everyone pays the same percentage of their income or wealth on the tax, taxes will redistribute pre-tax income and wealth. If those with higher income pay a higher percentage of their income on a tax than those with lower income pay, we call the tax progressive because it redistributes income from those with higher incomes to those with lower incomes. While if those with higher income pay a lower percentage of their income on a tax than those with lower income pay, we call the tax regressive because it redistributes income from those with lower incomes to those with higher incomes. Similarly, a tax on wealth can be proportional, progressive, or regressive depending on whether it did not redistribute wealth (a proportional wealth tax), redistributed wealth from rich to poor (a progressive wealth tax), or redistributed income from poor to rich (a regressive wealth tax). It is important to note that if those with more income or wealth can shield a greater part of their income or wealth from a tax by claiming more deductions than those with less income or wealth, even if the rate on taxable income or wealth rises with income, the tax will be less progressive than it appears, and may actually be regressive. Studies show that the federal individual income tax is much less progressive than it appears to be from its rate schedule once exclusions of income, deductions, and credits are taken into account. These exceptions to the complete taxation of income, also known as loopholes or preferences, tend to be distributed disproportionately to higher income persons. The reason is that the greatest loopholes pertain to savings and capital income of various types, and higher income persons have greater capacity to save and larger shares of capital income.
Moreover, many federal taxes such as Social Security and Medicare, or FICA taxes, are highly regressive, and state sales taxes and local property taxes are regressive as well. It is generally believed that despite progressive income tax rates, federal taxes as a whole are barely progressive, and the overall tax system, including state and local taxes, is regressive. In other words, at present in the US taxes are used to redistribute income from the poor to the rich. Obviously equitable cooperation requires exactly the reverse. There are a number of organizations with tax reform proposals that would replace regressive taxes with more progressive ones and make progressive taxes even more progressive – Citizens for Tax Justice (www.ctj.org), United for a Fair Economy (www.ufenet.org), and the Center on Budget Policies and Priorities (www.cbpp.org) to name a few. Unfortunately we have been “progressing” rapidly in reverse in the United States over the past forty years, as the wealthy have used their growing political influence to shift the tax burden off of themselves, where it belongs, onto the less fortunate, where it does not.
Tax Bads Not Goods What makes more sense than taxing socially destructive behavior rather than behavior that is socially desirable? Economists have known ever since A.C. Pigou proved back in the 1920s that efficiency requires taxing polluters an amount equal to the damage their pollutants cause. Moreover, if governments did this they would raise a great deal of revenue. But even if the tax is collected from the firms who pollute, the cost of the tax will be distributed between the firms who pollute and the consumers of the products they produce. To the extent that firms pass the pollution tax on in the form of higher prices, consumers pay part of pollution taxes along with producers. There is nothing wrong with this from the perspective of efficient incentives. The reason pollution taxes improve efficiency in a market economy is precisely because they discourage consumption of goods whose production requires pollution by making those products more expensive for consumers.
But studies of tax incidence – relating to who ultimately bears what part of a tax – have concluded that lower income people bear a disproportionate share of the burden of many pollution taxes, including a carbon tax. In other words, many so-called “green” taxes are regressive, and therefore aggravate economic injustice absent countermeasures. Fortunately, countermeasures are readily available. As just explained federal, state, and local governments in the US already collect taxes that are highly regressive, and in many cases even more regressive than pollution taxes. In 2013 FICA taxes for Social Security and Medicare were the second-largest source of federal tax revenues. Thirty-five percent of all federal revenues came from FICA taxes, where employees contributed 7.65% of their wages up to $113,700, and employers contributed an equal amount. If every dollar collected in pollution taxes were paired with a dollar reduction in Social Security taxes paid by employees we would substitute taxes on “bads” – pollution – for taxes on “goods” – productive work – and make the federal tax system more progressive as well. Or, if part of the revenue from a carbon tax is rebated to lower income households, a carbon tax can be made progressive. A recent study by the Northwest Economic Research Center at Portland State University concluded: (1) An Oregon state tax of only $10 per ton of carbon dioxide equivalents would raise over $1 billion of additional revenue a year. (2) If 50% of the revenue was rebated to Oregonians in inverse proportion to their income, the state could (a) still raise revenues by more than $500 million a year, (b) protect all but the wealthy from being adversely affected financially, (c) substantially reduce Oregon’s carbon emissions, and (d) make renewable energy and energy conservation projects in the state much more cost competitive. Of course if the revenue from a carbon tax is used to reduce Oregon corporate income taxes, as Oregon’s four major business associations are pressing for, Oregon taxes as a whole will become much more regressive.
Living Wages Establishing a minimum wage, and raising it faster than the inflation rate, is both equitable and good economics. Had the federal minimum wage been raised sufficiently during the decades prior to 2008 the financial crisis might have triggered only an “ordinary” recession, instead of the “Great Recession.” Failure to raise the minimum wage from 1997 to 2007 at the national level led to living wage campaigns in many American cities during the 2000s. After Occupy broke the taboo on discussing inequality, raising the federal minimum wage was at long last under discussion again inside the Washington Beltway in 2014.
Opponents invariably argue that minimum wage laws and increases in the minimum wage hurt the people they are supposed to help by increasing unemployment. Unless the demand for labor is infinitely inelastic, raising wages does decrease employment to some extent as simple supply and demand analysis reveals. However, as explained in Chapter 4, what opponents of minimum wages do not want to admit is that the demand for labor is, in fact, often inelastic in the short run, and even more importantly, raising the wage, unlike raising other prices, can be expected to shift the demand curve for labor to the right as well as move us up the demand curve for labor. Because workers spend a higher percentage of their income than employers, wage increases increase the aggregate demand for goods and services which will make employers more likely to hire workers because they will have less trouble selling the goods those workers make. While moving up a given labor demand curve reduces employment, shifting the labor demand curve out – as wage increases do – increases employment. That is also simple supply and demand analysis, but not the kind opponents of minimum wages want to engage in. Opponents of a minimum wage also neglect to mention that the wage rate, like the rate of profit, is a distributive variable, and as the Sraffa model 5.4 of wage, profit, and price determination demonstrates, there are an infinite number of combinations of long-run equilibrium wage rates and profit rates, with associated relative prices for goods and services, that are possible in any capitalist economy. The only difference between combinations where the wage rate is high and profit rate is low, and combinations where the profit rate is high and the wage rate is low, is that the former are more equitable and the latter less so! So in the long run increasing the minimum wage simply moves us to a more equitable distribution of benefits in capitalist economies. As long as appropriate macroeconomic policies are used to preserve full employment there need be no loss of employment from increasing the minimum wage in the long run.7
Opponents’ criticism that living wage campaigns in a single city will cost jobs in that city as employers move to other locations is more compelling on theoretical grounds than arguments against raising the federal minimum wage. It is nothing more than an example of the “race to the bottom effect” critics of corporate sponsored globalization are right to warn against. For that matter, it is no different from making local environmental regulations stronger, or local business taxes higher. Anything that raises costs to businesses in one locale makes it more likely they will move their business and jobs to another locale. But the lesson those working on living wage campaigns need to draw from this is not to give up, but to expand the living wage into adjoining jurisdictions, and to press for restrictions on the right of businesses to pick up and move. Just as a national minimum wage is better than minimum wages in some states but not others, the more jurisdictions covered by a living wage, the less likely there will be job losses because businesses would have to move farther. And while it is common today to think “freedom of enterprise” means businesses are free to do whatever they want – including murderous releases of toxic pollutants and life-threatening working conditions – the fact is that corporations are licensed by governments and can be held accountable to community needs. In the 1980s the Ohio Public Interest Campaign collected enough signatures to get an initiative on the ballot to place serious restrictions on how quickly, and for what reasons, corporations in Ohio could shut down and move out of state. Unfortunately the initiative was defeated when businesses outspent supporters by more than ten to one.
Theory aside, there is strong empirical evidence that local living wages have not led to significant job losses where they have been enacted. Partly this is because living wage ordinances often only cover city employees and employees of private employers who do business with the city. Robert Pollin and Stephanie Luce present evidence regarding job loss along with an excellent analysis of a number of living wage campaigns in The Living Wage: Building a Fair Economy (The New Press, 1998). As of February 2002 seventy cities and counties in the US had adopted some form of living wage. Successful living wage campaigns also provide opportunities to press private employers not covered by a city ordinance to pay their employees a living wage. The living wage ordinance in the city of Cambridge helped workers, students, and progressive faculty at Harvard University win substantial wage concessions from a recalcitrant institution and its neoliberal president, Laurence Summers, in the winter of 2001 – after a long campaign including student occupations of university offices. A much less publicized campaign at American University in Washington DC issued a report in February 2002 titled “A Living Wage for Workers at American University: A Question of Fairness and Social Responsibility” recommending an hourly wage of $14.95 in 2001 dollars for a 35-hour work week based on standards for the DC metropolitan region developed by the Economic Policy Institute and Wider Opportunities for Women. Oakland passed one of the nation’s first living wage ordinances in 1998, but due to the city charter this law did not apply to the Port of Oakland. In 2002 a ballot initiative known as “Measure I” was passed which broadened coverage to include 1,500 low wage workers at the Oakland airport and seaport.
Single-Payer Healthcare Because single-payer healthcare reform was defeated in 1948 when most advanced economies were adopting it after WWII, and because the US healthcare system ever since has been left in the hands of private providers and the private insurance industry, the US healthcare system was in shambles by 2008.8 Passage of the Patient Protection and Affordable Care Act in 2010 was arguably the largest legislative “accomplishment” of Obama’s presidency. But typical of all of Obama’s legislative efforts, in failing to take on powerful interests, while “Obamacare” ameliorated some problems it perpetuated and even aggravated others.
In all reform campaigns there is always tension between those who want to hold out for more far reaching, significant changes and those who preach the practical necessity of a more incremental approach. Usually the debate reduces to how much better a far reaching solution is compared to how much more likely incremental changes are to be won. The jury is still out on whether well-known deficiencies in Obamacare will lead to further reform, or only further delay moving to a single-payer system in the US. However, one could argue that the struggle for healthcare reform in the United States is a rare case where the incremental approach is actually less practical than fighting for significant reform because there is simply no way to extend adequate coverage to all and control escalating costs through the private insurance industry.
Only a single-payer, government insurance program can provide universal coverage while containing costs by eliminating the considerable administrative expenses of private insurance “cherry picking” healthier people for coverage. Only a single-payer program can eliminate the paper work and confusion associated with administering multiple insurance plans – all of which are worse deals than provided through single-payer systems in every other industrialized country in the world. A single-payer system is best suited to use monopsony power to control drug prices and hospital fees. And only a system separated from the workplace and employers’ choices about providing insurance can end the strife caused when some companies in an industry which do provide healthcare benefits to their employees must compete against other companies which do not. The fact is that providing healthcare through private insurance and managed-care organizations for profit is so inefficient that incremental reforms that leave those institutions in control of the health care system simply cannot succeed. Instead, there is a much better deal for healthcare recipients, healthcare professionals, taxpayers, and the business community as a whole – single-payer, government insurance. It’s been there for the taking since 1948. The only losers would be private insurance companies, drug companies, and for-profit managed care organizations – in other words, those who continue to be responsible for the crisis in American healthcare.
Save Public Education Like healthcare, public education in the United States is also in shambles. Progressives must fight for adequate and fair funding, and for parents, teachers, and students to take control of their schools from corrupt and bloated administrative bureaucracies. Mandatory standard testing and linking school funding and teacher salaries to test results move beyond blaming the victims to punishing the victims. Nor are charter schools and vouchers a program to rebuild the public education system. Instead they are strategies to further destroy it. Proponents of charter schools and vouchers cynically manipulate images of disadvantaged children trapped in overcrowded, ghetto schools with incompetent, tenured teachers to argue for “choice” and “competition.” The problem is not that the images fail to accurately represent the educational abuse disadvantaged children do, in fact, suffer. The problem is that competition and choice are not remedies for these problems.
A sufficient reason to oppose these initiatives is that instead of being policies to make sure there will be “no child left behind,” vouchers and charter schools are policies designed precisely to “leave the most disadvantaged children behind” so that educational resources can be concentrated on children from advantaged homes who will experience diversity only in the personage of a relatively few poor and minority children from upwardly mobile homes. What happens to ghetto schools where some students use their vouchers to leave? When ghetto schools are the predictable losers in school “competition,” will they be shut down? Will there be no schools in poor neighborhoods? Will all children from poor neighborhoods be bussed out to wealthy areas of cities and the suburbs? Obviously this “solution” is unacceptable because it robs poor children of any chance to enjoy adequate schooling in their own communities and because it places the burden of transportation entirely on their shoulders. Severely disadvantaged families can barely function even when all the children in the family attend local schools. Severely disadvantaged families cannot adequately support children traveling into strange and distant neighborhoods.
But this solution is also unlikely to ever be permitted. Instead, what will happen is ghetto schools will be consolidated, become even more overcrowded, will be stripped of their better students and more active parents, and become even less able to mount the necessary political pressure to secure their fair share of educational resources. What will happen is the most dysfunctional ghetto schools will be auctioned off to private corporations to run, like jails, for profit, to be abandoned when opportunities for short-run profit taking have been exhausted, or when outraged parents revolt over the miserable education their children receive in charter schools. Proponents of competition and choice don’t talk about the schools and children who will inevitably be left behind. All one has to do is imagine what conditions will be like in those schools for those children to understand why competition and choice is not an acceptable strategy for public education.9
Instead we must fight for good schools in all neighborhoods – and particularly in poor neighborhoods since that is where the least advantaged students live. Public schools in all neighborhoods must be adequately funded and staffed. Scandalous differences in per pupil expenditures must be eliminated.10 Appropriate programs and curricula must be available for all children in all schools. Parents, teachers, and students of schools in all neighborhoods must be empowered to participate in the educational process. And as long as housing segregation by race and income is rampant, children and families of all races and incomes must share the burden of integrating schools by participating in a fair lottery whose losers must temporarily forego the advantages of attending a local school and be bussed to a more distant one. So-called “educational reforms” that distract us from accomplishing these formidable tasks should be soundly criticized and rejected.
A Safe Safety Net The Scandinavian economies in the 1960s and early 1970s were the only capitalist economies to ever provide a safety net worthy of the name. Lyndon Johnson’s so-called “War on Poverty” in the 1960s established a welfare system that was most noteworthy for how bureaucratic, inefficient, and demeaning it was, and how pitiful it was compared to Scandinavian, German, and British, welfare programs. But even that was more than those who were fortunate enough not to need a safety net in the US could stand. The centerpiece of the Republican Party “Contract for America” in 1994 was to abolish welfare. Newt Gingrich found in New Democrat Bill Clinton a President willing to collaborate with the same House Republicans who voted to impeach him four years later to “end welfare as we know it” in the President’s infamous words. Max Sawicky and his co-authors provide an excellent analysis of the devastating human effects of slashing welfare in The End of Welfare? Consequences of the Federal Devolution for the Nation (EPI Books, 2000). Building a safety net for the victims of capitalism that is worthy of the name remains the most pressing domestic task facing those of us who would make US capitalism more equitable and humane.
However, not even a full Keynesian program complemented by progressive taxes, adequate minimum wages, single-payer healthcare, decent public schools, and a safety net that is truly safe is sufficient to establish an institutional framework conducive to equitable cooperation. Only “future economy” initiatives combined with more radical “imperfect experiments in equitable cooperation” which ultimately lead to an altogether different economic system that distributes decision-making power in proportion to how much people are affected, rewards people according to their sacrifices and needs, and adequately protects the natural environment can accomplish that.
Even the most efficient and equitable capitalist economies cannot restore the environment, provide people with economic self-management, distribute the burdens and benefits of economic activity equitably, and promote solidarity and variety while avoiding wastefulness. That is one reason we must go beyond capitalism to build the economics of equitable cooperation. Another reason that has become painfully apparent over the past forty years is that reforms to humanize capitalism are always at risk of being reversed. If we leave private enterprise and markets in place the economics of competition and greed will always threaten reforms and lead to renewed attempts to weaken restraints they place on capitalists.
In the United States, the Humphrey Hawkins Full Employment and Balanced Growth Act was signed in 1978 after decades of lobbying by organized labor and civil rights groups, only to become a dead letter under a Democratic President, Jimmy Carter, and a Democratic Congress as soon as the ink was dry. Financial regulatory reforms prompted by the Crash of 1929 and the Great Depression were scuttled first by the Reagan administration in the early 1980s, leading to the Savings and Loan crisis of the 1980s, and later by the Clinton administration, who invited the financial industry to rewrite rules that had long irked them but protected the rest of us leading to the repeal of Glass-Steagall in 1999 and laying the ground work for the financial crisis of 2008. Welfare reforms dating from the “War on Poverty” in the 1960s were rolled back when a Democratic President, Bill Clinton, collaborated with a Republican Congress in the mid-1990s. Privatization of Social Security was first raised by the Clinton White House, and Obama’s attempt in early 2014 to reduce benefits through the ploy of a chain-weighted consumer price index was only nixed by an all-court press from an outraged liberal coalition.
In Great Britain in the 1980s Margaret Thatcher’s Tory governments reversed reforms that had made British capitalism more stable and equitable. Tony Blair’s “New Labor” governments continued the process of dismantling reforms “Old Labor” and its progressive allies once worked decades to win. And most recently the Cameron Tory/Liberal government has used the crisis neoliberal policies created as an excuse to dismantle the British welfare state even further.
But the most successful attempts to humanize capitalism were in the Scandinavian economies during the 1960s and early 1970s. Norway and Sweden had a full Keynesian program, the most generous welfare system to date, and the Meidner Commission in Sweden had even begun to press for significant worker participation in firm governance. However, starting in the mid-1970s all these reforms came under attack. First international competition, and now the economic crisis are the excuses given for why Scandinavians can “no longer afford” their welfare safety net, despite the objective fact that their economies are more than twice as productive as they were forty years ago. Like the triumph of free market over Keynesian capitalism in the United States and Great Britain, the backward trajectory of social democracy in Scandinavia also stands as a reminder why we must replace the rule of corporations and market forces and go beyond capitalism if we expect to sustain progress toward the economics of equitable cooperation.
Worker and Consumer Empowerment
The essence of capitalism is, of course, that those who own the means of production decide what their employees will produce and how they will do it. Capitalism denies workers and consumers direct decision-making power over how they work and what they consume, and gives them in exchange something mainstream economists call “producer and consumer sovereignty.” Producer sovereignty supposedly operates through labor markets where the ability of employees to vote with their feet provides incentives for their employers to take their wishes into account when deciding what they order them to do. Consumer sovereignty supposedly operates through goods markets where the ability of consumers to vote with their pocket books provides incentives for capitalists to take their wishes into account when deciding what they order their employees to produce. If labor and goods markets are competitive, the story goes, workers and consumers will exert indirect influence over issues that concern them. However, as we have seen, this indirect influence operates far from perfectly even when markets are competitive, and much less effectively when they are not. The “point” of capitalism is that economic power is concentrated in the hands of employers who own the means of production, or in modern capitalism, in the hands of corporations. Modern capitalism means corporate power.
But since humans want control over their lives, and work better when they have more control over the economic decisions that affect them, the essence of capitalism is problematic and gives rise to the following dynamic: Employees sometimes try to win some of the direct power capitalism denies them. Employers sometimes pretend to give their employees some direct power because their employees work better if they think they have power. Employee stock options, total quality programs, joint worker-management committees, and a host of programs that go under the all-embracing title co-determination in Europe, are the outgrowth of this dynamic. The secret to evaluating different forms of worker and consumer empowerment in capitalism is to try to distinguish between appearance and reality. Anything that really enhances employee or consumer power moves us toward the economics of equitable cooperation. But programs that increase employers’ ability to get more of what they want out of their employees by deceiving them into thinking they have some power when, in fact, they do not, promote the economics of competition and greed, not the economics of equitable cooperation. Unfortunately it is not always easy to know which is which, or when a concession has been won by employees rather than bestowed by employers like the Trojan horse.
Cooptation of employees by their employers is impossible when there are neither employers nor employees, which is the case in worker-owned, or producer cooperatives where employees are the sole owners of their enterprises. But the argument for worker ownership is much stronger than as a means to avoid cooptation. As we have seen in capitalism people are rewarded according to the value of the contribution of the productive capital they own as well as the value of the contribution of their labor, so a Rockefeller heir who never works a day in his life can enjoy an income hundreds of times greater than that of a skilled brain surgeon. For this reason many political economists believe private ownership is incompatible with economic justice and must be abolished. Similarly, political economists who believe people have a right to manage their own labor call for the abolition of private enterprise because giving absentee owners the legal right to decide what their employees will produce and how they will produce it violates a more fundamental human right of their employees.
Some support a mixture of public and private enterprise for the pragmatic reason that private enterprise has proven ill-suited to provide even minimally acceptable results in certain industries and situations. However, others support mixed economies as an incremental strategy for replacing private enterprise altogether, leading eventually to a public enterprise economy where property income no longer exists and workers, rather than absentee owners, choose their managers or manage themselves. All political economists who espouse public enterprise market models, or what is frequently called “market socialism,” do so because they believe private enterprise is inherently incompatible with economic justice and democracy, and therefore must eventually be replaced by worker ownership. Yugoslavia was a living example of a workers’ self-managed, market economy from 1952 until the collapse of Yugoslavia in the late 1980s. Few today are aware that the Yugoslav economy had the highest rate of economic growth in the world over much of that time period – even higher than Japan during the heyday of the “Japanese economic miracle.”11
Others of us believe that not only must private enterprise eventually be replaced by worker ownership, but the market system must be replaced as well by participatory, democratic planning by worker and consumer councils and federations if we are to provide an institutional environment conducive to the economics of equitable cooperation. While differences obviously remain between those who advocate replacing capitalism with market socialism and those who favor participatory planning, recently some long associated with opposing sides in this historic “debate” have discovered a great deal of common ground.12 There are also differences of opinions within each “camp.” Whether publicly owned enterprises should be entirely under the management of those who work there, whether to introduce and how to go about investment planning, and whether to provide a guaranteed basic income even for those who do not work are among the subjects debated among market socialists. The spring issues of Science & Society in 2002 and ten years later in 2012 were both devoted to models of democratic planning. In his introduction to the 2002 issue Pat Devine13 explained:
[The authors] and I all share a commitment to democratic, participatory planning as the eventual replacement for market forces. But while there are many other points of agreement among all or some of us, there are also disagreements over fundamental principles and values as well as details.
Spurred first by the demise of Communism, and more recently by the ecological and economic crises in the advanced economies, there is also growing interest in community based economy alternatives to capitalism. Left Greens such as Howard Hawkins and social ecologists like Murray Bookchin propose replacing environmentally destructive market relations with planning by semi-autonomous municipal assemblies who they argue would have reason to preserve the ecological systems necessary to their own survival and wellbeing.14 There has also been renewed interest in classic writings from the anarchist and utopian socialist traditions15 among young people dissatisfied with capitalism and Communism. All these economic visionaries believe equitable cooperation and environmental preservation require replacing markets with some kind of democratic planning.
To provide a concrete idea of what the economics of equitable cooperation might look like, I briefly describe how one of the most fully developed and best-known alternatives to capitalism, a participatory economy, could work.16 Not to be confused with a transition program, or a strategy for replacing the economics of competition and greed, the “model” of a participatory economy should be thought of as a proposal for how we might eventually provide robust institutional support for the economics of equitable cooperation.
The major institutions in a participatory economy are: (1) democratic councils of workers and consumers, (2) jobs balanced for empowerment and desirability, (3) compensation according to effort as judged by work mates, and (4) a participatory planning procedure in which councils and federations of workers and consumers propose and revise their own activities under rules designed to yield outcomes that are efficient and equitable.
Production would be carried out in workers’ councils where each member has one vote, individual work assignments are balanced for desirability and empowerment within reason, and workers’ efforts are rated by a committee of their peers to serve as the basis for consumption rights. Every economy organizes work tasks into jobs. In hierarchical economies most jobs contain a number of similar, relatively undesirable and unempowering tasks, while a few jobs consist of relatively desirable and empowering tasks. But why should some people’s work lives be less desirable than other’s? Does not taking equity seriously require trying to balance jobs for desirability? And if we want everyone to have equal opportunity to participate in economic decision making, if we want to ensure that the formal right to participate translates into an effective right to participate, does this not require trying to balance jobs more for empowerment? If some people sweep floors year in and year out, while others review new technological options and attend meetings year in and year out, is it realistic to believe they have equal opportunity to participate in firm decisions simply because they each have one vote in the workers’ council? Trying to balance jobs for desirability and empowerment does not mean everyone must do everything, nor an end to specialization. Each person would still do only a few tasks – but some of them will be more enjoyable and/or empowering and some less.
In economies where compensation is determined by competitive forces in labor markets, people are rewarded according to the market value of the contribution of their labor. But the market value of the services of a skilled brain surgeon will be many times greater than the market value of the services of a garbage collector no matter how hard and well the garbage collector works. Since people will always have different abilities to benefit others, those with lesser abilities will always be disadvantaged in economies where compensation is determined in the market place. Therefore, a participatory economy rewards people according to the effort, or sacrifice they make in work, rather than the value of their contribution. If someone works longer, harder, or at more dangerous, stressful, or boring tasks than others, then, and only then, would she be rewarded with greater consumption rights in compensation for her greater sacrifice.
In a participatory economy every family would belong to a neighborhood consumers’ council, which, in turn, belongs to a federation of neighborhood consumer councils the size of a city ward or rural county, which belongs to a city or regional federation of consumer councils, which belongs to a state federation of consumer councils, which belongs to the national federation of consumer councils. The major purpose of “nesting” consumer councils into a system of federations is to allow different sized groups to make consumption decisions that affect different numbers of people. As we have seen, in market systems failure to arrange for all those affected by consumption activities to participate in choosing them not only entails a loss of selfmanagement, but a loss of efficiency as well. Having consumer federations participate on an equal footing with workers’ and neighborhood consumers’ councils in the planning procedure avoids this bias in a participatory economy.
Members present consumption requests along with the effort rating their workmates awarded them to their neighborhood consumption council. Using estimates of the social costs of producing different goods and services generated by the participatory planning procedure described below, the burden a consumption proposal imposes on others can be easily calculated. No consumption request justified by a person’s effort rating can be denied. Neighborhood councils can also approve requests on the basis of need in addition to merit.
The participants in participatory planning are worker councils and federations, consumer councils and federations, and the Iteration Facilitation Board. Conceptually participatory planning is quite simple: The Facilitation Board announces current estimates of the opportunity costs for all goods, services, resources, categories of labor, and capital stocks. Consumer councils and federations respond with their consumption requests accompanied by average effort ratings for their members, while worker councils and federations respond with production proposals, listing the outputs they would provide and the inputs they would need to make them. The Facilitation Board calculates the excess demand or supply for each good and adjusts the estimate of the opportunity cost of the good up, or down, in light of the excess demand or supply. Using these more accurate estimates of social opportunity costs, consumer and worker councils and federations revise and resubmit their proposals until the proposal from each council and federation has been approved by all the other councils and federations.
Essentially this procedure whittles overly optimistic proposals that are not mutually compatible down to what economists call a feasible plan in two ways: (1) Consumer councils requesting more than their effort ratings warrant are forced to reduce their requests, or shift their requests to less socially costly items, to win approval from other consumer councils who reasonably regard their requests as too greedy. Just as the social burden implied by a consumption proposal can be calculated by multiplying items requested by their opportunity costs to be compared with members’ average effort rating, the benefits of the outputs a worker council proposes can be compared to the social costs of the inputs the workers requests using the same estimates of opportunity costs from the planning procedure. (2) Worker councils whose proposals have lower than average social benefit to social cost ratios are forced to increase either their efforts or efficiency to win the approval of other workers. Moreover, because “communities of affected parties” are empowered to decide how much of any pollutant they are willing to tolerate, and worker councils who want to emit a pollutant must ask their permission to do so and pay for damages caused, the planning procedure only permits emissions whose social benefits outweigh their damages.
Of course much more needs to be explained, and many questions need to be answered. There is now a considerable literature discussing all this into which interested readers can dig.17 But it is important for those who want “system change” to understand why many people are skeptical of proposals to replace capitalism. At the beginning of the twentieth century most socialists assured people that central planning would make rational use of productive resources and put workers in charge of their destinies. But revolutionary dreams turned into Stalinist nightmares, and promises of equitable cooperation among “associated producers” turned out to be just that – promises – that real world socialism came to resemble less and less as years went by. In light of twentieth-century history, people today have every right to demand that advocates of an alternative to capitalism provide concrete answers as to how they propose to make all the different kinds of decisions that must be made in any economy, and address doubts critics raise.
Before we will be able to replace competition and greed with equitable cooperation, before we can replace private enterprise and markets with worker and consumer councils and participatory planning, we will have to convince a majority of the population that they need and want a different kind of economy. The only way to do this is to combine reform work with work to establish and expand elements of the future economy, an economy that is environmentally sustainable, democratic, and just. Work to reform capitalism and work to create imperfect experiments in equitable cooperation are both necessary. Neither strategy is effective by itself.
Reforms alone cannot achieve equitable cooperation because as long as the institutions of private enterprise and markets are left in place to reinforce antisocial behavior based on greed and fear, progress toward equitable cooperation will be limited, and the danger of retrogression will be ever present. The culture of capitalism is firmly rooted in popular consciousness. Most employees – not just employers – believe that hierarchy and competition are necessary for the economy to run effectively, and that those who contribute more should receive more irrespective of sacrifice. And why should people not believe this? Even if you feel you haven’t gotten a fair shake, or that people born with a silver spoon in their mouth don’t deserve what they get, few are likely to reject a major linchpin of capitalist culture all on their own. We should not fool ourselves that capitalism teaches people about its failings or shows them how to live non-capitalistically – quite the opposite. The only sense in which capitalism serves as midwife for its heir is by forcing people to learn to think and live non-capitalistically in order to meet needs it leaves unfulfilled. It falls to us to learn and teach others how to do this – which is a monumental task. We can ill afford to repeat the error of our twentieth-century predecessors who failed to face up to the magnitude of this undertaking, looking instead for short cuts and excuses for why it would not be necessary.
On the other hand, concentrating exclusively on organizing alternative economic institutions within capitalist economies also cannot be successful. First and foremost, exclusive focus on building alternatives within capitalism is too isolating. Until a non-capitalist sector is large, the livelihoods of most people will depend on winning reforms in the capitalist sector, and therefore that is where most people will become engaged. But concentrating exclusively on experiments in equitable cooperation will also not work because the rules of capitalism put alternative institutions at a disadvantage compared to capitalist firms they must compete against, and because market forces drive non-capitalist institutions to abandon cooperative principles. Our experiments proving to ourselves and others that a “new world” is possible will always be fully exposed to competitive pressures and the culture of capitalism. Yet failure to find ways within advanced capitalist economies to build and sustain non-capitalist networks capable of accommodating the growing numbers who will be drawn to the economics of equitable cooperation will prove just as damaging to our cause as failure to wage successful economic reform campaigns and build mass economic reform movements. In short, concentrating exclusively on reforming capitalism, or focusing only on building the future economy within capitalism, are both roads that lead to dead ends. Only in combination will reform campaigns and movements, and a growing future economy of diverse experiments in sustainable and equitable cooperation, successfully challenge the economics of competition and greed in the decades ahead.
Even before the latest economic crisis, the failures of neoliberal capitalism had spurred the growth of what came to be known as “the new economy.” Deteriorating economic conditions in all the advanced economies ever since 2008 have greatly accelerated its growth. Since some elements, like worker and consumer cooperatives, are hardly new, it seems more accurate to call it the future economy –a diverse array of economic institutions and innovations that reject business-as-usual to self-consciously address rising inequality, environmental degradation, and economic decline in one way or another. The future economy includes triple bottom line corporations, certified B-corps, ESOPs, worker-owned cooperatives, agricultural co-ops, electrical co-ops, insurance co-ops, retail co-ops, healthcare co-ops, artist co-ops, collaborative consumption, recycled clothing exchanges, solidarity economic networks, local exchange and trading systems, regional food systems, community supported agriculture, greenbelts, organic farming, renewable energy and energy efficiency initiatives, socially responsible investment, crowd sourcing, credit unions, community development financial institutions, state-owned banks, community development corporations, eco-villages, egalitarian and sustainable intentional communities, affordable housing mandates, community land trusts, participatory leasing, municipal equity investments, transit linked development districts, walkable neighborhoods, new urbanism, anchor institution collaboration, urban growth boundaries, municipality-owned utilities, public internet networks, city-owned hotels and convention centers, social investments by state pension funds, participatory budgeting . . . and more.18
Clearly some initiatives are larger and others smaller; some prioritize protecting the environment while others focus on economic justice, or participatory decision making; some deviate farther and some less from “business-as-usual”; and some are more “reproducible” and others less so. It is important not to put any particular experiment on a pedestal and blind oneself to its limitations. It is also important not to focus exclusively on the limitations of a particular experiment and fail to recognize ways in which it advances the cause of equitable cooperation. But it is most important not to underestimate the value of these living experiments in equitable cooperation in general. What is called for is to nurture and improve future economy experiments that exist, build new ones that can reach out to more people, and link experiments in equitable cooperation together to form a visible alternative to capitalism in its midst.
The question boils down to this: Do we want to try and measure the value of each person’s contribution to social production and allow individuals to withdraw from social production accordingly? Or do we want to base differences in consumption rights on differences in personal sacrifices made in producing goods and services as judged by one’s work mates? In other words, do we want an economy that obeys the maxim “to each according to the value of his or her personal contribution,” or the maxim “to each according to his or her effort and sacrifice?”
Do we want a few to conceive and coordinate the work of the many? Or do we want everyone to have the opportunity to participate in economic decision making to the degree they are affected? In other words, do we want to continue to organize work hierarchically, or do we want jobs balanced for empowerment?
Do we want a structure for expressing preferences that is biased in favor of private consumption over social consumption? Or do we want it to be as easy to register preferences for collective as individual consumption? In other words, do we want markets or nested federations of consumer councils?
Do we want economic decisions to be determined by competition between groups pitted against one another for their wellbeing and survival? Or do we want to plan our joint endeavors democratically, equitably, and efficiently? In other words, do we want to abdicate economic decision making to the market or do we want to embrace the possibility of some kind of participatory planning?
Those willing to work for the economics of equitable cooperation need not agree now on how far we will have to go to secure it. At this point there is an overwhelming consensus among opponents of the economics of competition and greed on reforms needed to make capitalism more efficient and equitable. There is also a growing awareness of the importance of expanding and deepening the future economy. As we do both we will no doubt continue to discuss and reevaluate whether it is necessary to move beyond capitalism, how far beyond capitalism we must go, and what a sustainable economics of equitable cooperation will eventually look like.
Unfortunately all of the above will be for naught unless cataclysmic climate change is prevented. If the planet is rendered inhospitable whatever progress we may have made toward the economics of equitable cooperation will quickly unravel. Therefore, one of the great mass movements of the early twenty-first century must be a movement to secure an effective, fair, and efficient international climate treaty and launch a Green New Deal in all of the advanced economies before it is too late. Scientists warn us that unless global greenhouse gas emissions are reduced by at least 80% before mid-century we run an unacceptable risk of triggering irreversible, cataclysmic climate change. Yet emissions continue to rise while international negotiations and domestic climate policy go nowhere. The bad news is that the economic crisis has distracted attention from the looming crisis of climate change. The good news is there is a single solution to both the economic and ecological crises – a Green New Deal. Replacing fossil fuels with renewables, transforming not only transportation but industry and agriculture as well to be much more energy efficient, and rebuilding our built infrastructure to conserve energy will be an immense, historic undertaking. What is needed if we are to avoid unacceptable climate change is the greatest technological “reboot” in economic history.
Six years since the financial crisis catapulted us into the Great Recession unemployment remains unacceptably high in the US and is far worse in Europe. If we do not put hundreds of millions of people to work over the next few decades in Europe and North America making our economies much more energy efficient and replacing fossil fuels with renewable energy sources, we will literally broil ourselves to death at some point in the century ahead. But if we fail to create hundreds of millions of new jobs transforming our economies stagnation will drag on indefinitely and the young generation in Europe and North America will face a jobless future. Two problems. One solution. A massive Green New Deal.
As Van Jones, soon to be appointed special advisor to the President for green jobs, put it in 2008: “The generations living today get to retrofit, reboot, and reenergize a nation. We get to rescue and reinvent the US economy. The more aggressive we are, the better off we will be. There is a better future out there.” Unfortunately Van Jones was dismissed by President Obama under pressure from conservatives after being on the job for less than six months. Much that progressive activists do over the next decade will revolve around building a domestic political coalition powerful enough to launch a massive Green New Deal.
Notice how the “growth versus. the environment” trade-off disappears in a Green New Deal. Whenever economic growth slows, the labor movement, quite understandably, clamors for more economic stimulus to put people back to work. But whenever the economy grows more rapidly, the environmental movement complains, also understandably, that more production puts more strain on the environment and is unsustainable. But it depends on what we are producing! If we are building more McMansions for the 1%, putting more cars in every garage, paving more roads and highways, and building new port terminals to ship more coal to Asia, then getting jobs by increasing production does put unsustainable pressure on the environment. But if we create more jobs for laid-off construction workers retrofitting office buildings and houses so they will be more energy efficient; if we rebuild and expand public transportation systems; if we create more teaching jobs to train the new generation to transform and operate a decentralized electric grid that welcomes electricity from hundreds of millions of rooftops and substitutes local sources for distant central generators wherever possible; if we put laid-off coal miners to work assembling wind turbines; if we put high school grads to work installing solar panels on roof tops . . . then the new jobs are producing things we desperately need to save the environment, not throughput intensive consumption goods that destroy the environment. In sum, only a Green New Deal can provide people with what they cannot find now, and want more than anything else: socially useful work. And only a Green New Deal will prevent climate change that unleashes unthinkable destruction.
However, none of this will happen domestically unless there is an effective international climate treaty for two simple reasons. (1) Climate change is a global problem and cannot be solved without cooperation from all countries. Even China, the most populous country with roughly a fifth of the world’s population, only enjoys roughly one-fifth of the benefit from its own emission reductions. Every other country enjoys an even lower percentage, and therefore has an even greater incentive not to reduce its own emissions but ride for free on the reductions of others. (2) An effective, equitable, and efficient climate treaty is needed to create incentives for national governments to implement domestic programs to reduce carbon emissions.
The international climate meetings scheduled for December 2015 in Paris may be our last chance before it is too late. Massive popular pressure must be put on country governments to finally commit to doing what is needed: (1) Sign a treaty that enforces mandatory reductions on national annual emissions in every country sufficient to reduce global emissions by at least 80% by 2050. (2) Distribute national reductions fairly. To be fair national reductions should be set according to a country’s historic responsibility for causing the problem (its cumulative per capita emissions), and its capability to contribute to solving the problem (per capita GDP of those above a poverty threshold). In less than five minutes anyone can use the equity calculator, available on the EcoEquity website www.ecoequity.org, to calculate what they believe are fair reduction quotas for every country in the world. Finally (3) many economists, including this author, believe that once fair caps are set on national emissions for all countries, allowing governments to authorize sales of emission reduction credits by sources within their territories to sources elsewhere can do a great deal to reduce the global costs of preventing climate change and thereby lower resistance to deep emission reductions, while simultaneously reducing global inequality.19
If we do not create a mass movement sufficiently powerful to prevent climate change the world may soon not be worth saving. There is a serious likelihood that global emissions reductions will not be sufficient. There is an even greater likelihood that even if humanity comes to its senses at the last minute and reduces global emissions enough to prevent cataclysmic climate change, the costs of doing so will not be distributed fairly. It is the job of the climate justice movement to see that the climate problem is not only solved, but is solved fairly. There is no reason it cannot be.
Andrew Shonfield provides an excellent evaluation of both the French policy and the failed British attempt to copy it in Modern Capitalism (Oxford University Press, 1974). |
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President Nixon created a commission to study The United States in the Global Economy in the early 1970s. Peter Gary Peterson who headed the commission was so impressed with the advantages of Japanese industrial policy that he added a special appendix to the GAO report titled “The Japanese Economic Miracle,” in which he urged the US government to imitate Japanese industrial policy. |
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See Alice Amsden, Asia’s Next Giant: South Korea and Late Industrialization (Oxford University Press, 1989), and The Rise of “the Rest:” Challenges to the West from Late-Industrialization Economies (Oxford University Press, 2001). |
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Ha Joon Chang has become the most visible critic of wealthy countries who once used these policies themselves to develop, but are now rewriting the rules for the global economy to prevent their use by poor countries today. See Kicking Away the Ladder (Anthem Press, 2002), Reclaiming Development (Zed Books, 2004), The East Asian Development Experience (Zed Books, 2006), The Bad Samaritans (Bloomsbury Press, 2007), and 23 Things They Don’t Tell You About Capitalism (Bloomsbury Press, 2010). |
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The danger of insufficient savings to finance productive investment in a wage-led growth strategy appears more dangerous in our political economy growth model 9.5 than it need be in the real world. Readers should note that there is no government in model 9.5. If we add a government willing to tax capitalist savings which are not being used to finance productive investment and use the revenues to pay for public investment the principal danger in the “high road” to growth disappears. |
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See Arthur MacEwan, Neo-Liberalism or Economic Democracy (Zed Books, 2000) for a comprehensive, wage-led growth program for developing economies emphasizing domestic production for basic needs. MacEwan goes a long way toward rebutting the taunt neoliberals hurl at their critics: TINA – There Is No Alternative. |
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Thomas Palley provides an excellent defense of “the new economics of the minimum wage” in “Building Prosperity from the Bottom Up,” in the September/October 1998 issue of Challenge. |
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For a brief introduction to healthcare reform see Seeking Justice in Health Care: A Guide for Advocates, available from the Universal Health Care Action Network, UHCAN, www.uhcan.org. |
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In 1993 Edith Rasell and Richard Rothstein edited a large collection of essays in School Choice: Examining the Evidence (Economic Policy Institute) which argued that evidence suggested that choice of schools had neither raised student achievement nor enhanced equal opportunity. Martin Carnoy rebutted reports purporting to demonstrate that students using vouchers improve their academic performance, and that the threat of vouchers improves performance in public schools in School Vouchers: Examining the Evidence (Economic Policy Institute, 2001). And Fred Hiatt reported that a study by Emily Van Dunk and Anneliese Dickman, “School Choice and the Question of Accountability,” released in February 2004, “found little evidence that the Milwaukee program, with 10,000 vouchers (about 10 percent of public school enrollment), had spurred improvement in the public schools” (“Limits and Lessons of Vouchers,” Washington Post 2/23/04). |
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Differences in per pupil expenditures are due to the fact that unlike other countries where public education is financed out of national tax revenues, K-12 public education in the United States is provided by 14,000 local school districts and funded largely by local property taxes despite the fact that property values differ widely between districts. Often spurred by legal suits, some states now pool property taxes at the state level, to be redistributed to school districts on an equal per pupil basis. |
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Benjamin Ward, Branko Horvat, and Jaroslav Vanek provided excellent theoretical analyses of Yugoslav-type, market socialist economies in the 1960s and 1970s. David Schweickart (After Capitalism, Rowman & Littlefield, 2002) and Michael Howard (Self-Management and the Crisis of Socialism, Rowman & Littlefield, 2000) are two recent proponents of employee managed, public enterprise, market economies. |
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For example, see Robin Hahnel with Erik Olin Wright, Alternatives to Capitalism: Proposals for a Democratic Economy (New Left Project, 2014). |
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Devine’s own model of democratic planning as “negotiated coordination” was spelled out in his path breaking book Democracy and Economic Planning (Westview Press, 1988). |
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See Howard Hawkins, “Community Control, Workers’ Controls, and the Cooperative Commonwealth” in Society and Nature 1, 3, 1993, and Murray Bookchin with Janet Biehl, The Politics of Social Ecology (Black Rose Books, 1998). For a sympathetic evaluation see Robin Hahnel, “Eco-localism: A Constructive Critique,” Capitalism, Nature, Socialism 18, 2, June 2007: 62–78. |
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Some anarchists whose writings have been rediscovered are Michael Bakunin, Peter Kropotkin, Emma Goldman, Alexander Berkman, Errico Malatesta, Anton Pannekoek, Isaac Puente, Diego Abad de Santillan, and Rudolf Rocker. Utopian socialists whose writings seem more compelling in the aftermath of the death of Communism include William Morris, G.D.H. Cole, and Sidney and Beatrice Webb. |
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This model was first presented in The Political Economy of Participatory Economics (Princeton University Press, 1991) and Looking Forward: Participatory Economics for the Twenty First Century (South End Press, 1991), both by Michael Albert and Robin Hahnel. The model has been featured in every journal and symposium devoted to alternatives to capitalism over the past quarter century. It is most recently explained and defended in Pareon: Life After Capitalism (Verso, 2003) by Michael Albert, and in Of the People, By the People: The Case for Participatory Economics (Soapbox Press, 2013) by Robin Hahnel. |
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I would suggest interested readers look first at Of the People, By the People: The Case for a Participatory Economy (Soapbox Press, 2013), and then Alternatives to Capitalism: Proposals for a Democratic Economy (New Left Project, 2014). |
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The “future economy” is only beginning to be seriously studied. Gar Alperovitz has done much to make people aware of the breadth and diversity of what is going on in several recent books: America After Capitalism (Democracy Collaborative, 2011), and What Then Must We Do? (Chelsea Green, 2013). The Community Wealth website of the Democracy Collaborative Project, http://community-wealth.org, provides information about resources available to future economy initiatives, as well as information about initiatives that come to their attention. And I evaluate the strengths and weaknesses of different “experiments in equitable cooperation” in Chapter 13 of Economic Justice and Democracy (Routledge, 2005). But as useful as all this information may be, it is no substitute for serious studies measuring how future economy initiatives are performing on a number of dimensions and their overall impact. Economics for Equity and the Environment only launched its “Future Economy Initiative” in early 2014, beginning by applying a preliminary analytical framework to study and evaluate a handful of future economy case studies. |
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Model 5.3 demonstrates why international carbon trading can be helpful once national emission reductions are set fairly. Also see Robin Hahnel “Left Clouds Over Climate Change Policy,” Review of Radical Political Economics 44, 2, June 2012: 141–159, “Desperately Seeking Left Unity on Climate Change Policy,” Capitalism, Nature, Socialism 23, 4, December 2012: 83–99, and “An Open Letter to the Climate Justice Movement.” New Politics, Winter 2014: 76–83. |