Introduction

Cascading economic problems and crises, coupled with dysfunctional political responses, have plunged modern societies into deepening turmoil. Capitalism—the dominant economic system of our time—has once again become the subject of criticism and opposition. A global capitalist system that no longer meets most people’s needs has prompted social movements everywhere to arise and coalesce in the active search for systemic alternatives. Yet the particular versions of anticapitalism—the various forms of state socialism and communism—that actually prevailed over the last century no longer seem to offer a model or inspiration to those looking for an alternative to capitalism. People are looking for a new solution, a new cure for capitalism’s injustices, waste, and massive breakdowns. This book offers one such cure.

In presenting the idea of workers’ self-directed enterprises (which I will call WSDEs throughout this book), I offer a new version of an old idea: that production works best when performed by a community that collectively and democratically designs and carries out shared labor. In analyzing capitalism to show its shortcomings and in establishing how WSDEs would overcome them, I use Karl Marx’s theory of the production, appropriation, and distribution of the surplus, his “class analysis.”* This is also a book with a political purpose: I seek to add the expansion of WSDEs to contemporary programs for progressive social change. I do not offer examinations of the countless past and present examples of collective or cooperative enterprises or of their contemporary counterparts. A rich literature on such projects is available in many reference documents.† In contrast, this book about workers’ self-directed enterprise analyzes WSDEs in relation to capitalism and advocates them as a superior way to organize production.

The United States has recently suffered five years of the worst economic crisis since the Great Depression of the 1930s. For most people, the end of this crisis is not in sight. Tens of millions remain unemployed, many for extended lengths of time. Unprecedented numbers of foreclosed and homeless people live not far from unprecedented numbers of homes that stand empty. Wages and benefits are trending downward while profits are simultaneously increasing. Just as these conditions force millions to need and want more from local, state, and federal governments, officials continue to announce ever more cutbacks in public services. This crisis is reminding millions about capitalism’s inherent instability, its historic failure for centuries to prevent the recurrence of downturns, and how poorly, unjustly, and cruelly it typically “manages” them.

A Tale of Two Crises

The current economic crisis comes after a period of thirty years during which business interests rolled back the New Deal that saved capitalism during the Great Depression of the 1930s. There is more than a little irony in that story. The three years after the 1929 crash both shook and ended capitalism’s roaring 1920s, as well as the Republicans’ hold on the presidency. A centrist Democrat, Franklin D. Roosevelt, became president. He and his party worried—as did Republicans then—about deficits and balancing Washington budgets. FDR began his presidency acting much like most leading Democrats today. But the Depression provoked and strengthened forces that changed him. Those forces both pressed him and enabled him to change his policies and thereby become the most progressive and the most popular president in US history.

The Great Depression provoked the formation and immense successes of the Congress of Industrial Organizations (CIO). The CIO organized millions of industrial workers into unions for the first time, bringing about the greatest unionization wave in US history. Members and leaders agreed that unions were working people’s best weapons against the ravages of a severely depressed capitalism. They confronted employers (with job actions, strikes, and collective bargaining) and politicians (by mobilizing union members and their money for both electoral and non-electoral campaigns). The CIO’s demands for jobs and for direct government help to the average American changed political conditions in the 1930s. The CIO undermined the conservative or centrist Democratic program of the time (what today would be called “austerity”).

The Great Depression also drove into high gear a variety of socialist and communist groups, movements, and parties. Inside and outside the CIO, they mobilized large numbers of workers, students, farmers, and others. These left organizations mixed (1) public campaigns for jobs and better living conditions for the mass of Americans, (2) systematic electoral work, often coordinated with the CIO and other unions, and (3) more or less revolutionary demands aimed at transition from capitalism to socialism.

Together, the CIO, socialists, and communists made it impossible to continue policies that “managed” the Great Depression by bailing out the banks and major corporations, keeping government economic intervention otherwise minimal, and leaving the unemployed and foreclosed basically unassisted. At the same time, the CIO, socialists, and communists brought millions into the streets shaking their fists. They criticized business and capitalism more and more intensely. Those actions prompted and enabled FDR to present big business and the richest citizens (the business and power elite that included his own family) with a plan.

On the one hand, they could accommodate FDR’s demands for taxes on business and the rich to be used to meet major social welfare demands of the CIO, socialists, and communists. FDR believed he could thereby satisfy enough mass social needs to preserve the capitalist ownership and production systems intact, though they would be more regulated than before. On the other hand, if big business and the rich refused, FDR warned that they would soon face a population led by increasingly anticapitalist forces seeking much more fundamental changes to the system.

FDR’s plan split the ranks of big business and the rich. Enough of them agreed to higher taxes on business and the rich to allow FDR to offer a parallel deal to the left. He urged them to be reformers, not revolutionaries: to keep demands for going beyond capitalism at the level of rhetoric but not take them into practical politics.

FDR built a powerful political partnership between that part of big business and the rich he had won over and the unions and the left, despite some dissenters on both sides of the equation. That partnership never fundamentally challenged boards of directors’ dominant control over US corporations. Major private shareholders continued to select boards of directors who continued to make the basic decisions of what, how, and where to produce and where to distribute the surpluses they appropriated from their workers.

FDR’s partnership proceeded to construct a kind of social democracy or welfare state in the United States, a genuine New Deal. FDR promised that such a program would get US capitalism out of the Depression, provide better lives to most Americans quickly, and prevent future depressions. The only alternative to the New Deal, FDR warned, would be deepening economic and social divisions, tensions, and conflicts.

The partnership was crafted from both sides. One side was comprised of business leaders and wealthy citizens, led by FDR, who believed it necessary and expedient to accommodate left forces unleashed and strengthened by the Depression. On the other side were those leaders of the CIO, socialist, and communist movements who saw reform as the most that could be accomplished and revolution as premature at best and far too dangerous a gamble at worst. To FDR’s right, a considerable number of big businesses and rich Americans rejected his political partnership and steadfastly opposed its social democratic program. To FDR’s left, some radicals and revolutionaries also rejected the partnership as a reformist sellout of the movement to overturn capitalism.

FDR’s partnership prevailed politically. In the depths of the Great Depression, it launched costly programs that helped many millions (especially remarkable given what has not happened in the economic crisis since 2007). An expensive Social Security system was established to provide public pensions to the mass of US workers. An expensive federal unemployment insurance system was established to directly assist the unemployed. Expensive federal hiring programs were established that created and filled more than twelve million jobs during the Depression years after 1934. At a time when employers, employees, and government officials all complained of depleted revenues and funds, Washington found and spent vast sums directly to ease the suffering of working people and to stimulate a deeply depressed economy.

It was not a shortage of money that had previously prevented the government from helping people. The problem was, rather, political, and FDR’s partnership provided a solution. It saved US capitalism from the risks of insufficient private-sector demand and of major social conflict between the devotees of capitalism and an angry working class that was better organized and mobilized than ever before or since. When the opposition of business and the rich limited what FDR’s partnership could achieve after 1937, the United States’ entry into World War II again split and weakened that opposition.

In the current crisis of capitalism, an FDR-type solution has not emerged, for several reasons. First, the fifty-year decline and consequent weakness of the labor union movement and the extreme decline of socialist and communist movements removed them as effective agents for such a solution. During his first term in office, President Obama did not even propose, let alone implement, any federal hiring programs, and supported the contraction, not expansion, of Social Security benefits. Second, the majority of businesses and the rich see little need—yet—for any compromise solution that would increase their taxes. Third, no actually existing socialism (such as the Soviet Union represented during the 1930s) poses an alternative today that might attract significant working-class support and thereby frighten conservatives into FDR-type political partnerships.

Political Dysfunction Worsens Economic Dysfunction

The absence of a left-wing force from below has left the United States with a severe crisis but without government intervention adequate to sustain a broad economic recovery. Instead, continued mainstream faith in neoliberal and neoclassical economics, which oppose government intervention on principle, yields insufficient fiscal stimulus measures coupled with overreliance on government debt. Meanwhile, the Federal Reserve’s monetary policy pumps massive sums into support for banks and global credit markets. This program seeks to save and bolster the largest businesses (both financial and nonfinancial), the stock markets, and the richest 5 percent of individuals who depend on those businesses and markets. These beneficiaries of public policy are also the key financiers for US political parties, candidates, and officials. The latter devise and execute this rather classic example of a “trickle-down economics” program. Large and direct government assistance for business and the rich is supposed to “trickle down” and provide a recovery for the mass of people, too.

However, the trickle-down economics program hasn’t worked—and for reasons that are not hard to discern. The government-enhanced wealth at the top does not “trickle down” in the real world. Instead, boards of directors continue to see their self-interest in not sharing the recovery funds poured into their hands. Thus we experience continuing high unemployment, massive numbers of home foreclosures, declining real wages and job benefits, and inaccessibility of credit for personal borrowing. Stagnant consumption and investment are the results. They undermine the recovery of business and the stock markets. The global capitalist crisis deepens.

What is to be done? The political and economic establishment simply repeats its usual mainstream mantra: maintain the post-2007 trickle-down program with maximum hype about the government’s efforts to end the crisis and wait until the crisis depresses wages and the costs of doing business enough that profit opportunities prompt capitalists to resume investing. The establishment prefers to wait rather than to pay the costs of a government intervention sufficient to overcome the crisis. Capitalism, it insists, will eventually produce an economic upturn.

An alternative, though predictable and inadequate, program has come from the still-small but growing coterie of Keynesians. They have been reinvigorated by this crisis much as John Maynard Keynes’s intervention, their inspiration, was produced by the 1930s crisis. They want a much bigger government fiscal stimulus paid for by bigger temporary budget deficits. They insist that the rising national debt can easily be offset later, once robust economic growth resumes. They are quite confident that a bigger stimulus will solve what they see as the problem: returning to a “normal” capitalism from a crisis-ridden capitalism.

The struggle in Washington continues between a somewhat crisis-weakened but still dominant mainstream and its very moderate Keynesian critics. Both sides speak and act as if their positions mark the limits of legitimate debate and fully exhaust the space of economic policy options. It took the explosion of Occupy Wall Street to open that space to the other—nonmainstream and non-Keynesian— options. These options were always available but have been long repressed by business interests and their political, media, and academic allies. This book is devoted to one of those other options.

As an enduring crisis brings economic suffering to most American families, the political system shows less and less capacity to solve the root problem. Indeed, growing numbers of Americans see the political debates in Washington as irrelevant or even detrimental to their concerns. The mainstream trickle-down policies of George W. Bush and Barack Obama appear to have pandered to corporations and the rich while bypassing recovery for the vast majority. Because massive government borrowing helped to pay for those policies, national deficits and debt rose quickly. Now both political parties bicker over the details of austerity to reduce those deficits and that debt. They debate larger versus smaller cutbacks in public services and public employment.

In short, Americans have suffered from years of an economic crisis they did not cause. They have watched a recovery program that did not help them. They have been lectured by the architects of that recovery program on the need for “everyone” to pay its costs. And then the mass of Americans learned that “everyone” means them—not the people whose actions caused the crisis—and that they must suffer austerity cutbacks just when they urgently need more and better government services. No wonder the prospect of alternative Keynesian policies running up still-larger deficits and debts and thereby risking worse austerity measures is unattractive to so many.

The Delusion of Regulation

Broadly defined, the government intervenes economically by regulating the economic interactions among and between enterprises and individuals. It does this by taxing their activities (earning income, owning wealth, spending money, and so on) and by making rules governing those activities. However, the real contents and effects of government regulations depend on the interests that govern their design and implementation.

The New Deal–era taxes on business and the rich and regulations of enterprise behavior proved vulnerable and unsustainable. The enemies of the New Deal had the incentives (profit maximization) and the resources (their returns on investments) to undo many of its reforms after World War II, with ever-greater effect in the period since the 1970s. They systematically evaded, then weakened, the taxes and regulations of the New Deal, and eventually, when politically possible, eliminated them altogether. Business profits funded the parties, politicians, public relations campaigns, and professional think tanks that together shaped the real social effects and historical decline of government economic regulation. Examples include the destruction of the Glass-Steagall Act, the current assault on Social Security, the shift in the federal tax burden from business to individuals and from upper- to middle-income individuals, and so on.

Unions, the left, and the progressive wing of the Democratic Party—even when in power—proved unable or unwilling to secure the federal government’s commitment to New Deal policies. Proposals for “new” New Deals therefore strike many today as fundamentally inadequate given that the system’s dominant institutions—capitalist corporations—retain the incentives and keep obtaining the resources to undo any such New Deals. To the dismay of Keynesians, their critiques of mainstream economic policies and proposals of new New Deals draw little enthusiasm or support. Regulation, deregulation, and reregulation strike ever more Americans as a delusional misunderstanding of where the basic problem lies.

A Cure for Capitalism

An increasing number of people are seeking a very different solution to the economic and political morass engulfing the United States and beyond. For them, that solution must have several key components. One is a permanent end to the periodic crises generated by capitalism (promised repeatedly but never achieved by its leaders over the last century). Another component is an economic system reorganized to secure greater income and wealth equality. Still another component is a genuinely democratic distribution of power among individuals inside both their workplaces and their communities.

To achieve this solution requires, first, a comprehensive critique of how capitalism works to yield its unacceptable outcomes. Second, we need a vision of an alternative economic system free of capitalism’s structural flaws. That system would constitute a cure for capitalism. It would overcome its otherwise intractable problems. This book uses and builds on Marx’s critique of capitalism because, notwithstanding its limits, it remains the most developed and useful critique available. The cure I advocate here is also informed by several traditions: movements for social justice, traditions of working-class protest against capitalism, and movements for cooperative economic action (purchasing, owning, and producing).

This cure involves, first, replacing the current capitalist organization of production inside offices, factories, stores, and other workplaces in modern societies. In short, exploitation—the production of a surplus appropriated and distributed by those other than its producers—would stop. Much as earlier forms of class structure (lords exploiting serfs in feudalism and masters exploiting slaves in slavery) have been abolished, the capitalist class structure (employers exploiting wage laborers) would have to be abolished, as well.

In corporations, the dominant form of modern capitalist enterprises, no longer would small boards of directors selected by a typically tiny number of major shareholders appropriate and distribute the surplus produced by employees. Instead, the surplus-producing workers themselves would make the basic decisions about production and distribution. They would become, collectively and democratically, their own board of directors. Shareholder-selected boards would no longer direct what, how, and where the enterprise produces. Instead, all of the workers in enterprises—those directly producing outputs and those providing the support services enabling production—would collectively become the directors deciding what, where, and how to produce and how to distribute the appropriated surpluses. Capitalist enterprises would thereby be transformed into workers’ self-directed enterprises (WSDEs).

Secondly, such reorganized production sites would partner with similarly democratic organizations of residential communities interdependent with WSDEs. Because the decisions reached in WSDEs would affect residents in these communities and vice versa, a genuine democracy would require each interacting partner to participate in decisions reached by the other. Codetermination by workplace and community democracies would become the new reality of social self-governance.

Among the major social decisions to be so codetermined would be the following: (1) what mix of private and socialized property in the means of production would be best, (2) what mix of markets and planning would be preferred as means of distributing resources and products, and (3) what mix of representative and direct democratic decision-making should exist within both workplaces and residential communities. The democracies at both social sites would make and continually adjust these decisions collaboratively.

Such a reorganization of workplaces, coupled with the institutionalization of democratic codetermination, would effectively end capitalism. It would mark yet another milestone in human history, following the earlier transitions out of slavery and feudalism as organizations of production. The disappearances of slaves and masters and lords and serfs would now be replicated by the disappearance of capitalists and workers. Such oppositional categories would no longer apply to the relationships of production. Instead, workers would become their own collective bosses. The two categories—employer and employee—would be integrated within the same individuals.

At the same time, reorganizing workplaces in this way would be different from the historic efforts in the twentieth century to go beyond capitalism. Unlike those traditional state forms of socialism and communism, it would no longer be enough to just nationalize productive property and replace markets with central planning. The crucial additional—and hence transformative—element would be the reorganization of all workplace enterprises to eliminate exploitation. Instituting WSDEs would structurally position workers as appropriators and distributors of any surpluses they generated.

The state would thus become dependent for its revenues, operation, and very existence on receiving distributions of portions of the surpluses from the self-directed workers themselves. The power imbalance between states and their populations that haunted the last century of socialism and communism would thereby be structurally overcome. In this way, we could establish the material basis for the eventual withering away of the state that many Marxists envisage.

Reorganizing production so that workers become collectively self-directed at their worksites moves society beyond both capitalism and the last century’s actually existing socialisms and communisms. In that sense, WSDEs represent an alternative to both capitalism and traditional state socialism/communism, an alternative to systems that accord directing power inside enterprises either to private capitalists elected by shareholders or to state capitalists selected by government or party. In WSDEs, decisions about production and distribution of outputs no longer primarily serve small subgroups (receivers of profits, dividends, and capital gains) rather than the majority of workers and their communities. Social criteria—democratically determined by self-directed workers and community members—would replace the drive for profit and accumulation in investment and all other economic decisions.

All workers would now have two job descriptions. First, they would be democratically and collectively assigned a specific production task (usually for a specific time period) within the workplace division of labor. Second, they would be democratically and collectively given fully equal participation throughout their term of employment in the design, operation, and change of that division of labor and in the distribution of its outputs. No one could work without engaging in both roles. The ancient divisions between mental and manual laborers, between workplace controller and controlled, between bosses and wage slaves would be overcome, thereby achieving an immense step toward economic and hence social equality.

Building Support for the Cure

To win social approval for the creation and sustenance of WSDEs inside modern economies, a number of different campaigns could be pursued. A government program of financing and supporting new WSDEs could focus on the unemployed. FDR’s model of federal job creation, for example, could be modified to provide specifically for the unemployed to regain work within self-directed enterprises. WSDEs would thereby become a significant kind of enterprise alongside traditional capitalist enterprises.

Another parallel campaign could stress the social benefits of giving citizens genuine freedom of choice between work within a traditional, hierarchical capitalist enterprise or within a workers’ self-directed enterprise. That choice doesn’t currently exist. This campaign would advocate extending government programs that assist small businesses and minority-owned businesses to include a major program for workers’ self-directed enterprises. In such programs, government would provide subsidies, incentives, and technical support to particular kinds of enterprises, because markets dominated by capitalist enterprises would otherwise destroy them and because their existence provides important social benefits.

Still another campaign could be built around extending democracy from its currently very limited, residence-based, and mostly formal application to governing geographic areas. The basic idea would be to bring democracy to the communities that comprise worksites. Legislation, for example, might henceforth depend on the approval of both workplace democracies and residential democracies in a system of codetermination by both enterprise-based and residence-based democratic procedures. There are three compelling reasons to sustain such a campaign. First, no democracy is complete if it does not include the economy and its basic institutions. Second, the weakness and merely electoral formality of actually existing political democracies flow from their lack of economic democracy. Finally, the capitalist organization of production inside modern corporations directly contradicts and precludes economic democracy.

The problems of capitalism generally have been intensified and magnified by its recurring crises, especially now in the major downturn that began in 2007. Capitalism’s problems have also become more visible to millions of people. As criticism mounts, so has oppositional thought and action. Capitalism is not “delivering the goods” to most people, and they know it. But we need to know why capitalism is in such deep trouble to see a way forward, to find a cure. I undertake the critical analysis and take an initial step forward in part I of this book.

Among the victims and critics of the capitalist system today, the fastest-growing demand is for a better alternative system. People are increasingly looking for changes in today’s intertwined economic and political systems that can reasonably promise to do better than capitalism while avoiding the problems associated with earlier efforts to reform or replace it. Part II of this book focuses on clarifying what needs to be done and why. Most of this book, part III, is devoted to presenting, explaining, and endorsing what I believe to be the best alternative we have to accomplish what needs to be done.

 

* “Surplus” is the excess of the value added by workers’ labor—and taken by the employer—over the value paid in wages to them. To pay a worker $10 per hour, an employer must receive more than $10 worth of extra output per hour to sell. Surplus is capitalists’ revenue net of direct input and labor costs to produce output; enterprise profits represent one portion of the surplus. For fuller expositions, see Stephen Resnick and Richard Wolff, Knowledge and Class: A Marxian Critique of Political Economy (New York and London: Routledge, 1987), chapter 3, and the same authors’ Contending Economic Theories: Neoclassical, Keynesian, and Marxian (Cambridge: MIT University Press, 2012).

† See Immanuel Ness and Dario Azzellini, eds., Ours to Master and to Own: Workers’ Control from the Commune to the Present (Chicago: Haymarket Books, 2011), and also www.democracyatwork.info.