Democratic Planners and Market Socialists
Can We Be Friends for Now?
Talk given to the Political Economy Seminar Series at the
The debate between those who believe a desirable alternative to capitalism will be some kind of democratic planning and those who believe it will be some kind of market socialism is well known in some circles. My purpose here is not to review that debate. Instead I want to consider how much differences over long-run economic vision matter to how we approach economic program, strategy, and tactics in the here and now. In other words, would it be sectarian to let differences over economic vision divide us, or are there important disagreements over economic program today that logically derive from different ideas about where we eventually want to go? Before I can tackle specific planks in an economic reform program I need to summarize crucial differences between democratic planners and market socialists as I see them.
Rest Assured: Our Visions Are Different
Markets are an efficient way of producing and distributing a very large number of mundane items. Market incentives are a dependable way of getting our bread baked. Markets allow us to make the best use of the information dispersed throughout a society. Markets give their participants a certain kind of freedom – expanding the range of choices and giving each person a variety of partners with whom to deal.
— David Miller and Saul Estrin
Instead of efficiency machines, optimal incentive devices, cybernetic miracles, and human liberators, when we examine markets we find institutions that generate increasingly inefficient allocations of resources, unnecessarily deploy socially destructive incentives, bias and obstruct the flow of essential information, substitute trivial for meaningful freedoms, and lead to irremediable inequities in the distribution of goods and power.
— Robin Hahnel and Michael Albert
People nowadays interchange gifts and favors out of friendship, but buying and selling is considered absolutely inconsistent with the mutual benevolence which should prevail between citizens and the sense of community of interest which supports our social system. According to our ideas, buying and selling is essentially anti-social in all its tendencies. It is an education in self-seeking at the expense of others, and no society whose citizens are trained in such a school can possibly rise above a very low grade of civilization.
— Edward Bellamy
On economic rewards:
It is certainly true that under market socialism there must be some people occupying positions of key decision-making responsibility, and in all likelihood such people will have higher incomes as well as greater power than most of the rest of the population. Thus inequalities of income and power would surely develop under market socialism.
— Tom Weisskopf
Dr. Leete: You ask me how we regulate wages; I can only reply that there is no idea in the modern social economy which at all corresponds with what was meant by wages in your day.
Julian: By what title does the individual claim his particular share? What is the basis of allotment?
Dr. Leete: His title is his humanity. The basis of his claim is the fact that he is a man.
Julian: The fact that he is a man! Do you possibly mean that all have the same share?
Dr. Leete: Most assuredly.
Julian: But some men do twice the work of others. Are the clever workmen content with a plan that ranks them with the indifferent?
Dr. Leete: We leave no possible ground for any complaint of injustice by requiring precisely the same measure of service from all.
Julian: How can you do that, I should like to know, when no two men’s powers are the same?
Dr. Leete: Nothing could be simpler. We require of each that he shall make the same effort; that is, we demand of him the best service it is in his power to give.
Julian: And supposing all do the best they can, the amount of the product resulting is twice greater from one man than from another.
Dr. Leete: Very true, but the amount of the resulting product has nothing whatever to do with the question, which is one of desert. Desert is a moral question and the amount of effort alone is pertinent to the question of desert. All men who do their best, do the same. A man’s endowments, however godlike, merely fix the measure of his duty. The man of great endowments who does not do all he might, though he may do more than a man of small endowments who does his best, is deemed a less deserving worker than the latter, and dies a debtor to his fellows. The Creator sets men’s tasks for them by the faculties he gives them; we simply exact their fulfillment. The right of a man to maintenance at the nation’s table depends on the fact that he is a man, and not on the amount of health and strength he may have, so long as he does his best. From our point of view as to the collective ownership of the economic machinery of the social system, and the absolute claim of society collectively to its product, there is something amusing in the laborious, disputations by which your contemporaries used to try to settle just how much or little wages or compensation for services this or that individual or group was entitled to. Why, dear me, Julian, if the cleverest worker were limited to his own product, strictly separated and distinguished from the elements by which the use of the social machinery had multiplied it, he would fare no better than a half-starved savage. Everybody is entitled not only to his own product, but to vastly more – namely, to his share of the product of the social organism. But he is entitled to this share not on the grab-as-grab-can plan of your day, by which some made themselves millionaires and others were left beggars, but on equal terms with all his fellows.
— Edward Bellamy
It is obvious from the above quotations that market socialists like David Miller, Saul Estrin, and Tom Weisskopf do not see things the same way anti-market visionaries like Edward Bellamy, Michael Albert, and I do. For my part, I willingly concede that markets permit people to interact in ways that are often convenient and mutually beneficial. But I insist that market exchanges usually increase inequities, lead to inefficiencies that are grossly underestimated, and have disastrous effects on the quality of human relations.
Market exchanges are convenient when transaction costs of exchanges are low – which they tend to be whenever buyers, or sellers, or both are price takers, and others beside the buyer and seller are excluded from the transactions. And it is a tautology that any agreement – including a market exchange – is mutually beneficial under the assumptions of rationality and perfect knowledge. And I will stipulate that while knowledge (which includes foresight) and rationality are seldom perfect, both are “perfect enough” so that market exchanges are frequently beneficial to both buyer and seller. But unfortunately, convenience and benefits for both buyer and seller do not imply equity or efficiency, much less a positive social interaction. Below I summarize why we in the anti-market camp believe markets are unfair, inefficient, and socially destructive in order to consider implications for economic reform.
Why Markets are Unfair
Proposition 1: People do have (1) different abilities to benefit others, and (2) different abilities to secure a favorable share of the benefits from exchange.
Proposition 2: Very few, if any, of either kind of different ability carry any moral weight, i.e. bestow on those with a greater ability any moral claim to benefit more, or exercise more decision making authority, than those of lesser ability.
Proposition 3: Market exchanges will permit those with greater abilities to benefit to a greater extent and exercise greater power than those of lesser abilities. While the inequities that result are magnified by asymmetrical information and non-competitive market structures, inequities would occur in the case of fully informed exchanges in perfectly competitive markets as well.
I take proposition 1 to be self evident. Obviously proposition 2 requires philosophical justification and proposition 3 requires proof. I, and others, believe we have provided the necessary justification and proof elsewhere. Here, I consider the major sources of “different abilities” in order to discuss what market socialists propose to do about inequities that result from market exchanges.
#1: Differences in ownership of physical capital: I concede for the sake of argument that not all differences in property income are necessarily inequitable. If someone has more productive property because s/he worked harder or consumed less – i.e. s/he sacrificed more – then greater property income commensurate with the greater sacrifice may be equitable. However, all evidence I have studied about the origins of differential wealth at the end of the twentieth century, support the conclusion Edward Bellamy voiced at the close of the nineteenth century: “You may set it down as a rule that the rich, the possessors of great wealth, had no moral right to it as based upon desert, for either their fortunes belonged to the class of inherited wealth, or else, when accumulated in a lifetime, necessarily represented chiefly the product of others, more or less forcibly or fraudulently obtained.”
All market socialists want to reduce inequities that arise from differences in ownership of physical capital. Originally Oscar Lange and Abba Lerner proposed eliminating such inequities entirely by paying all an equal “social dividend” to go along with whatever wage income people commanded in the labor market. It is interesting that market socialists since Lange and Lerner have backed away from a firm commitment to equal property income. It is now conceded that John Roemer’s coupon model of market socialism does not equalize property income, and just how unequal the distribution of property income would become as people “freely” trade coupons and the values of portfolios diverge is a subject of debate. Labor self-managed versions of market socialism like those originally proposed by Branko Horvat and Jaroslav Vaneck, and more recently espoused by David Schweickart and Tom Weisskopf effectively equalize property income for workers within a given firm, but not across firms. Differences between workers at a high tech firm like Microsoft and a steel mill in the rust belt would be substantial.
#2: Different endowments of human capital: Differences in human capital are due either to genetic differences in talent or differences in education and training. Good luck in the genetic lottery hardly seems to deserve additional reward. And provided those who receive more education and training make no greater personal sacrifice than others who receive less education and training, no further reward for human capital acquired at public rather than personal expense seems merited. But market socialists either propose no correction for wage inequities due to unequal human capital (John Roemer), or partial correction through progressive income taxes (Tom Weisskopf), incomes policies (Irving Howe), or floors and ceilings on wage rates (Alec Nove). Of course market socialists oppose wage discrimination based on race, sex, or sexual preference, or what they call “non market factors.” But the inequities we are discussing here are the inequalities that result precisely for “market reasons,” i.e. marginal revenue product wage rates.
#3: Different opportunities and/or willingness to disobey the golden rule – do unto others as you would have them do unto you – and instead obey the rule of the market place – do in others before they do you in: Truth in advertising, liability, and antitrust laws, and regulation of deceptive business practices are among the policies some market socialists propose to reduce unequal opportunities among market participants to invert the golden rule. But these measures only partially correct unequal opportunities to take what are deemed unfair advantage of others. And unfortunately what competition – the famous harmonizer of the private and public interest – “enforces” regarding willingness to invert the golden rule is “lowest common denominator consciousness” by systematically weeding out the less devious.
#4: Differences in luck: The obvious antidote for unequal luck is insurance. But what kind of insurance? My view is: We cannot prevent natural disasters, old age, sickness, bad eye sight, or crooked teeth. But at least we can make sure these unfortunate experiences do not impose economic hardship as well. This logic leads to programs like disaster relief and universal, comprehensive old age and health insurance. Others reason differently: If incomes are equitable except for luck, let people buy the amount and kind of insurance they want. Don’t impose paternalistic values on people’s freedom of choice regarding risk. We consider the implications of these different visions below when considering the pros and cons of social versus private insurance.
To summarize: there are three ways market socialists can try to “socialize” the market to reduce inequities: (1) “Equitize” initial endowments, (2) intervene to prevent inequitable outcomes from occurring in the first place, and (3) correct inequities after the fact through redistributive taxes, transfers, and insurance. Equitizing endowments is an attempt to level the market playing field. Pre and post market interventions are attempts to temper the inequities of market outcomes. We shall consider predictable technical, motivational, political, and psychological problems that arise with different ways to level the playing field and tame the market game in specific contexts below. Of course, in large part it is frustration with the likelihood of successfully socializing the market that leads people like me to argue for changing to a new game, with a new logic.
Why Markets are Inefficient
Increasing the value of goods and services produced, and decreasing the unpleasantness of what we have to do to get them, are two ways producers can increase their profits in a market economy. And competitive pressures will drive producers to do both. But maneuvering to appropriate a greater share of the goods and services produced by externalizing costs and appropriating benefits without compensation are also ways to increase profits. And competitive pressures will drive producers to pursue this route to greater profitability just as assiduously. The problem is, while the first kind of behavior serves the social interest as well as the private interests of producers, the second kind of behavior does not. Instead, when buyers or sellers promote their private interests by externalizing costs onto those not party to the market exchange, or appropriate benefits without compensation, their maneuvering behavior introduces inefficiencies that lead to a misallocation of productive resources and consequent decrease in the value of goods and services produced.
The positive side of market incentives has received great attention and admiration, starting with Adam Smith who coined the term “invisible hand” to characterize it. The darker side of market incentives has been neglected and underestimated. Two modern exceptions are E.K. Hunt and Ralph d’Arge, who coined the less famous, but equally appropriate label, “invisible foot” to describe the kind of socially counter productive maneuvering behavior markets drive us to engage in.
A question market admirers seldom ask is where are firms most likely to find the easiest opportunities to expand their profits? How easy is it usually to increase the size or quality of the economic pie? How easy is it to reduce the time or discomfort it takes to bake it? Alternatively, how easy is it to enlarge one’s slice of the pie by externalizing a cost, or by appropriating a benefit without payment? Why should we assume that it is infinitely easier to expand profits by productive behavior than by maneuvering behavior?
The same feature of market exchanges primarily responsible for small transaction costs – excluding all affected parties but two from the transaction – is also a major source of potential gain for the buyer and seller. When the buyer and seller of an automobile strike their convenient deal, the size of the benefit they have to divide between them is greatly enlarged by externalizing the costs onto others of the acid rain produced by car production, and the costs of urban smog, noise pollution, traffic congestion, and greenhouse gas emissions caused by car consumption. Those who pay these costs, and thereby enlarge car maker profits and car consumer benefits, are easy marks because they are geographically and chronologically dispersed, and because the magnitude of the effect on each of them is small yet not equal. Individually they have little incentive to insist on being party to the transaction. Collectively they face the well known transaction cost and free rider obstacles to forming a voluntary coalition to effectively represent a large number of people, each with little, but different amounts at stake.
Moreover, the opportunity for this kind of maneuvering behavior is not eliminated by making markets perfectly competitive or entry costless, as is commonly assumed. Even if there were countless perfectly informed sellers and buyers in every market, even if the appearance of the slightest differences in average profit rates in different industries induced instantaneous self-correcting entries and exits of firms, even if every economic participant were equally powerful and therefore equally powerless – in other words, even if we embraced the full fantasy of market enthusiasts – as long as there were numerous external parties with small but unequal interests to market transactions, those external parties would face greater transaction cost and free rider obstacles to a full and effective representation of their collective interest than that faced by the buyer and seller in the exchange. And it is that inherent inequality that makes external parties easy prey to maneuvering behavior on the part of buyers and sellers. Even if we could organize a market economy so that every participant were as powerful as every other, and no one ever faced a less powerful opponent in a market exchange, this would not change the fact that each of us has smaller interests at stake in many transactions to which we are not major parties. Yet the sum total interest of all those external parties can be considerable compared to interests of the two who are presumably the most affected – the buyer and the seller. It is the transaction cost and free rider problems of those with lesser interests that create the crucial inequality in power, which, in turn, gives rise to the opportunity for individually profitable but socially counter productive maneuvering on the part of buyers and sellers. A sufficient condition for the opportunity to profit in socially counter productive ways from shifting behavior is that each one of us has diffuse interests that make us affected external parties to many exchanges in which we are neither buyer nor seller. It doesn’t matter if we made every market actor equally powerful, the problem would still persist.
But the real world bears little resemblance to a game where it is impossible to increase one’s market power, and therefore there is no reason to try. It is just as rational to pursue ways to increase one’s power visa vis others in real market economies as it is to search for ways to increase the size or quality of the economic pie or reduce the time or discomfort of baking it. In the real world there are consumers with little information, time, or means to defend their interests. There are small innovative firms for giants like IBM and Microsoft to buy up instead of tackling the hard work of innovation themselves. There are common property resources whose productivity can be appropriated at little or no cost as they are over exploited at the expense of future generations. And there is a government run by politicians whose careers rely principally on their ability to raise campaign money, begging to be plied for corporate welfare programs financed at taxpayer expense. In a world of unequal economic power the most effective profit maximizing strategy is often to maneuver at the expense of those with less economic power to re-slice the pie rather than work to expand it.
In any case, market socialists concede that externalities lead to inefficient allocations of resources, and that non-competitive market structures and disequilibrating forces are additional sources of inefficiencies. And they concede that efficiency requires “socializing” the market with policies designed to internalize external effects, curb monopolistic practices, and ameliorate market disequilibria. But what market admirers do not concede, but conveniently ignore is:
· External effects are the rule rather than the exception.
· There are no convenient or reliable procedures in market economies for estimating the magnitude of external effects. This means accurate “Pigouvian” taxes are hard to calculate even in an isolated market.
· Because they are unevenly dispersed throughout the industrial matrix, the task of correcting for external effects is even more daunting.
· In the real world, where interest and power take precedence over economic efficiency, the beneficiaries of accurate Pigouvian taxes are usually dispersed and powerless compared to those who would be harmed. Moreover, any hope of accurately estimating the magnitudes of external effects lies with willingness to pay and willingness to accept damage surveys which have well known biases that can be challenged, and discrepancies that can be exploited by special interests.
· Endogenous consumer preferences imply that the degree of misallocation that results from predictable under correction for external effects will increase, or “snowball” over time.
All of which means that the invisible foot operates on a par with the invisible hand, the degree of allocative inefficiency due to external effects is significant, correctives are likely to fall far short of what is required, and the problem will grow worse. And since maneuvering over shares in a world that does not outlaw differences in economic power is usually the first strategy that occurs to most business people – even if it never occurs to economists – the waste of resources due to distributive struggles will be even more substantial.
In sum, convenient deals with mutual benefits for a buyer and seller should not be confused with economic efficiency. When some kinds of preferences are consistently under represented because of transaction cost and free rider problems, when some resources are consistently over exploited because they are common rather than private property, and when profits come as often from greater power as greater contribution, theory predicts free market exchange will result in a misallocation of resources. And when markets are less than perfect – which they always are – and fail to equilibrate instantaneously – which they always do – the results are that much worse.
Why Markets Undermine the Ties that Bind Us
In effect markets say to us: “You cannot coordinate your economic activities sensibly, so don’t even try. You cannot orchestrate a group of inter related tasks efficiently, so don’t even try. You cannot come to equitable agreements among yourselves, so don’t even try. Just thank your lucky stars that even such a hopelessly socially challenged species as yourselves can still benefit from a division of labor thanks to the miracle of the market system.” Markets are a decision to punt in the game of human relations, a no-confidence vote on the social capacities of the human species. Markets are a cop out. But if that daily message were not sufficient discouragement, markets harness our creative capacities and energy by arranging for other people to threaten our livelihoods, and by bribing us with the lure of luxury beyond what others have. And finally, markets reward those who are the most efficient at taking advantage of his or her fellow man or woman, and penalize those who insist, illogically, on pursuing the golden rule. Of course, we are told we can personally benefit in a market system by being of service to others. But we also know we can benefit just as easily by tricking our fellow citizens. Mutual concern, empathy, and solidarity are the appendices of human capacities and emotions in market economies – and like the appendix, they continue to atrophy.
Why Markets Subvert Economic Democracy
Confusing the cause of free markets with the cause of democracy is astounding given the overwhelming evidence that the free market jubilee has disenfranchised larger and larger segments of the world body politic. Markets empower the more “able” as I defined the term above, at the expense of the less able. Economic liberalization brings concentration of economic, and therefore political power because the spread of markets works to the comparative advantage of the more “able,” and therefore, of those who are likely to be more powerful in the first place. If the more powerful party succeeds in appropriating more than 50% of the benefits of an exchange, doesn’t it follow that the exchange further disempowers the less powerful party? And who would we expect to usually get the greater share of the benefit from market exchange?
Those who deceive themselves (and others) that markets nurture democracy ignore the simple truth that markets tend to aggravate disparities in economic power, and focus instead on less important effects. It is true that the spread of markets tends to disempower non-economic elites. But this does not imply that power will be more evenly spread and democracy enhanced. If old obstacles to economic democracy are being replaced by new, more powerful obstacles on the boards of directors of multinational corporations and multinational banks, among the free market policemen at the World Bank and IMF, and chairing adjudication commissions for international treaties like NAFTA, and if these new elites are more effectively insulated from popular pressure than their predecessors, it is not the cause of democracy that is served.
Commercial Values vs. Equitable Cooperation
Disgust with the commercialization of human relationships is as old as commerce itself. The spread of markets in eighteenth century England led Edmund Burke to reflect: “The age of chivalry is gone. The age of sophists, economists, and calculators is upon us; and the glory of Europe is extinguished forever.” Thomas Carlyle warned in 1847: “Never, on this Earth, was the relation of man to man long carried on by Cash-payment alone. If, at any time, a philosophy of Laissez-faire, Competition and Supply-and-Demand start up as the exponent of human relations, expect that it will end soon.” And of course running through all his critiques of capitalism Karl Marx complained that markets gradually turn everything into a commodity and, in the process, corrode social values and undermine community: “[With the spread of markets] there came a time when everything that people had considered as inalienable became an object of exchange, of traffic, and could be alienated. This is the time when the very things which till then had been communicated, but never exchanged, given, but never sold; acquired, but never bought – virtue, love, conviction, knowledge, conscience, etc. – when everything, in short passed into commerce. It is the time of general corruption, of universal venality... It has left remaining no other nexus than between man and man other than naked self-interest, than callous cash payment.”
More recently, Robert Kuttner bemoans the fact that the labor market is becoming even more market like in Everything for Sale: The Virtues and Limits of Markets (Alfred Knopf, 1997). “Most of us recognize work as a central source of our identity and livelihood, a valued (or resented) affiliation, and sometimes a calling. But today, downsizing, out-sourcing, leveraged buyouts, relocations, and contingent employment are reshaping the labor market into a product market where customers – employers – can buy labor for only as long as they need it.” Another recent expression of the sentiment that treating every activity as a commodity is deeply offensive at some level to all of us is provided by Margaret Jane Radin in Contested Commodities (Harvard University Press 1996), which provoked no less than Kenneth Arrow to respond with a book review in the Journal of Economic Literature (June 1997) to what he called the “oldest critique of economic thinking.” As Arrow presents them both Radin’s concern and recommendation are remarkably mild: “Her target is related to but perhaps a little different from that of the nineteenth century critics. They were primarily concerned with social relations; the market was in theory and practice replacing all social relations. Radin is somewhat more in the spirit of individualism. Her concern is that actions which are essential to personal identity fall under the sway of the market.... A basic part of her approach is the notion of ‘incomplete commodification,’ a recognition that some form of purchase and sale is called for but with restrictions of one kind or another.” While always respectful, Arrow’s sum total response to her concern and suggestion was blunt: “The market is not something one need enter. A corner equilibrium is a perfectly reasonable outcome even under conditions of full commensurability and fungibility.”
But it is not true that individuals are free to take markets or leave them. If access to the fruits of economic cooperation are available only through participation in markets, then while true that anyone can choose to be an outcast, one does so at great cost. How many of us living in a market economy are going to refuse to buy and sell? What the older, and in my view more important critique of markets amounts to, is an objection to the organization of economic cooperation in a way that is not only personally distasteful and demeaning – i.e. tends to rob us of our “personhood” – but in a way that unnecessarily sours human relations. It is a plea to our fellow citizens to come to our senses and agree to organize our economic cooperation differently. In terms Arrow surely understands, markets are a matter of social, not individual choice. And like all social institutions, markets provide incentives that promote some kinds of behavior and discourage others. Markets minimize the transaction costs of arranging some forms of economic cooperation, but do nothing to reduce the transaction costs and thereby facilitate other forms of cooperation. Not only does this bias the terms of choice individuals face leading to predictable inefficiencies, if the forms of interaction that are encouraged are mean spirited and hostile, and the forms of cooperation that are discouraged are respectful and empathetic, the negative effects on human relations are not trivial.
A few years ago at an URPE panel at the ASSA meetings in Boston David Kotz offered the following anecdote to illustrate the difference between market socialists and democratic planners:
Market socialist talking to Democratic Planner: Do you want to help me with this dangerous stallion I’m trying to tame?
Democratic planner, in horror: I don’t know what you’re talking about, but you better get down off that tiger before it’s too late!
Ultimately the question boils down to this:
· Do we want an economy that rewards people according to differences in morally arbitrary abilities – including the “ability” to maneuver at others’ expense? Or do we want to reward people according to the sacrifices they make?
· Do we want a few to conceive and coordinate the work of the many? Or do we want everyone to have an opportunity to participate in economic decision making to the degree they are affected by the outcome?
· Do we want a structure for expressing our preferences that is biased in favor of individual over social consumption? Or do we want people to be able to register their preferences for parks, libraries, environmental amenities, and pollution reduction as easily as they can express their desires for potato chips, automobiles, and walkman radios?
· Do we want economic decisions to be determined by competition between groups pitted against one another for their well being and survival? Or do we want to plan our joint endeavors democratically, equitably, and efficiently?
The social process of consciously, democratically, and equitably coordinating our interconnected economic activities is fundamentally different from the social process of competing against one another in the exchange of goods and services. When all is said and done, market socialism is about trying to fix the latter, while democratic planning is about moving on to the former.
But if Capitalism is Here for at Least Another Fifty Years...
Make no bones about it, many current trends are bleak – which is reason enough for critics of capitalism to pull together. Mindless equation of free market outcomes with efficiency and freedom in face of overwhelming evidence to the contrary, widening wage, income, and wealth differentials, callous reductions in minimal programs for the needy and elderly, corporate merger madness, desperate scrambling to consolidate international trade blocs, worship rather than resentment of power and privilege, and a wholehearted embrace of social Darwinism in racial, class, and gender forms, all make late twentieth century US capitalism a closer relative of the Robber Baron capitalism of a hundred years ago than its “kinder and gentler” post New Deal cousin. Meanwhile, understandable disillusionment with non-capitalist economies in the former Soviet Bloc, combined with unavoidable naivete about capitalism, promise a painful learning curve for the inhabitants of the second world, most of whom find themselves joining the third world rather than the first world, as they had hoped. Last, but not least discouraging, growing absolute as well as relative poverty is accelerating social dissolution in much of the third world. Obviously, none of this is moving us in the direction we want.
Moreover, fewer can find solace in old left doctrines of inevitable capitalist collapse. Many twentieth century progressives sustained themselves emotionally and psychologically with false beliefs that capitalism’s dynamism and technological creativity would prove to be its weakness as well as its strength. Grandiose Marxist crisis theories – a tendency for the rate of profit to fall as machinery was substituted for exploitable living labor, or insufficient demand to keep the capitalist bubble afloat as productive potential outstripped the buying power of wages – used to buoy the hopes of the faithful in face of crushing political defeats. And less ideological reformers were still affected by the myth that capitalism organized its own replacement. Unfortunately, none of this was ever true.
What is true is that capitalism is not satisfying essential human needs for the majority of people on the planet. Capitalism is not satisfying the need for basic economic security for most of the third world and a growing underclass in the advanced economies. Capitalism is not satisfying the need for self-managed, meaningful work that an increasingly educated populace demands. Capitalism is not satisfying needs for community, dignity, and economic justice. And capitalism is not keeping itself from devouring the environment and generating an international climate that fosters conflict and war instead of peace and cooperation. Moreover, the new Robber Baron capitalism currently unfolding virtually unconstrained on a global scale, gives every indication of escalating the pace of human immiseration and environmental degradation, which means most people will have to struggle harder than their parents to meet their economic needs. If ever there was a time for critics of capitalism to put aside their differences – particularly differences over choices that do not have to be made for fifty years or more – this would seem to be that time. But is it that simple? What if differences over long-run vision are also differences over what is wrong with capitalism? What if different visions are really differences over what is fair and how people should work together? What if different visions are also differences over who, beside capitalists, are the enemy, and who are friends?
How to Fight for Economic Justice
As best I can tell the situation is as follows: Some, like myself, reject markets in large part because we believe rewards for contributions due to greater abilities, not to mention rewards for greater ability and/or willingness to maneuver, are not fair. Some market socialists, on the other hand, think it is unfair not to reward those who make greater contributions, and convince themselves that maneuvering can be rendered impossible. These two groups fundamentally disagree about what is a fair distribution of economic burdens and benefits, and what it is possible to eliminate in a market system. Other market socialists, however, concede that reward according to contribution is not entirely fair, but are willing to sacrifice some equity to advance other goals such as efficiency or freedom. In their view, rewarding personal contribution serves the cause of efficiency and/or freedom and the gain can outweigh the loss in equity. A third group of market socialists agree that in theory only reward for personal sacrifice, or effort, is truly equitable, but they have a “stage theory” of economic justice. They reason we can only eliminate categories of economic injustice step by step. In their view, first we eliminated injustices based on a monopoly of military power – feudal exploitation. Now we are working to eliminate injustices that stem from unequal wealth – capitalist exploitation. While the moral struggle against capitalism is being waged it is counter productive in their view to raise the issue of injustice stemming from unequal endowments of human capital, because we cannot expect to eliminate “socialist exploitation” at the same time capitalist exploitation is being eliminated.
In this situation it is tempting to conclude we should all “unite and fight” unequal property income. Increase capital gains taxes. Raise inheritance taxes. Replace regressive FICA and sales taxes with a wealth tax. What could be wrong with a “soak the rich” campaign to reverse the recent trend of tax breaks for the wealthy? My answer is, it depends on how it’s done.
First of all, limiting our campaign for economic justice to opposing unequal property income is annoying. When Michael Jordan is paid more per year by Nike to endorse their shoes than all the wages paid to Indonesian workers making Nike, Reebok, and Adidas shoes in a year, its annoying to have to mute one’s criticism of injustices that stem from differences in human capital. Because Michael Jordan can jump higher and stay in the air longer than any human being, he is able to provide extraordinary sport viewing benefits and command endorsement income that dwarfs his mind boggling salary. It reeks of injustice just like the difference between the salaries of doctors and lawyers and the wages of ditch diggers and maids.
Second, it’s worrisome. What guarantee do those who are poor in physical and human capital have that after they make common cause to dispossess the wealthy with those who are poor only in physical capital, those rich in human capital will put their shoulder to the wheel in the next stage of the sequential fight for economic justice? If the movement for economic justice fails to challenge injustices resulting from unequal endowments of human capital, don’t those who are doubly capital poor run the risk of undermining their own cause? This is a problem familiar to feminists and minorities who are always encouraged to subordinate their own agendas in service of unity in progressive coalitions defined around economic goals. “Don’t rock the boat, your time will come,” is familiar enough advice. But nobody wants to be a sucker, especially those who can least afford it.
Third, the trade-off rationale is bogus, and the stage theory of justice is highly questionable. The only factor people control that affects their productivity is their level of effort. Contrary to popular opinion it follows that rewarding effort is the most efficient way to promote performance. So much for sacrificing fairness because it increases efficiency.
Few consider it a virtue to allow people “freedom” to exploit others. Free societies do not justify slavery on grounds that it allows people “freedom” to exploit slaves. Market socialists do not argue for private enterprise on grounds that it allows people with greater physical capital “freedom” to exploit employees. So why would we accept an argument for reward according to contribution on grounds that it allows people with more human capital “freedom” to exploit those with less? Of course that is not how those rich in human capital usually see themselves.
Instead, they see themselves as deserving more because they contribute more. But we have already rejected that conclusion on grounds that their greater contribution, if not the result of greater effort or sacrifice, carries no moral weight. To conclude they have no moral right to benefit from their greater endowment of human capital is to conclude that we deny no legitimate freedom by preventing them from doing so. So much for sacrificing fairness because it serves the cause of freedom.
Finally, the stage theory of justice is highly questionable – which makes complicated rationalizations for tolerating injustice based on differences in human capital smell more than a little fishy – especially given the fact that they are usually offered by people who are as rich in human capital as they may be poor in physical capital! The basic problem with the stage theory of economic justice is that it is schizophrenic. It requires people to engage in the difficult task of questioning society’s first operating principle – it is, therefore it is right – but to selectively apply the conclusions they reach by doing so. By its nature justice is a concept based on principles. If the principle that implies that advantages due to inherited wealth are unjust is that the heir has done nothing to merit those advantages, “inquiring minds” are not free to abandon that principle when it is pointed out that other people enjoy advantages due to human capital they inherited genetically. The problem is not only high levels of cognitive dissonance. Conclusions about justice are meaningless unless they carry weight of conviction. If we deny the validity of a principle in one application it undermines the moral power of that principle in all its applications. How can I condemn what Rockefeller’s grandchildren have with any conviction if I wink at Michael Jordan’s fortune? Stage theories of justice turn justice into a political game – political strategy determines what we call just and unjust – and ultimately robs it of its power as a social force.
The second problem is that while there may be a certain logic to stage theories of history, that logic does not carry over to a stage theory of justice. Supposedly “stages” in the evolution of human societies were based on advances in the material conditions of life, or advances in human education and discourse. The point was that necessary conditions for a stage might not exist at one point in time, but only at a later time. However, there is no reason to believe any such thing is true about the human capacity for moral reasoning. We are no more able to engage in the kind of moral reasoning required to discover what is fair or unfair now than were a hundred, thousand, or ten thousand years ago. More to the point, our powers of moral reasoning are already sufficiently developed to reveal to us that human capital gained without personal sacrifice carries no more moral weight than physical capital gained without personal sacrifice. It is folly to pretend to build a powerful movement for economic justice while requiring people to perform partial lobotomies on their moral nodes. Besides, it won’t work if for no other reason than that our enemies won’t let us get away with it. Milton Friedman pointed out the hypocrisy of condemning income from inherited wealth while falling silent about income from inherited talent in Capitalism and Freedom back in 1962.
How to Fight for Economic Democracy
Unequal economic power is an obvious obstacle to economic democracy in today’s market economies. Multinational corporations larger than medium sized third world economies, and 447 billioneers whose total wealth is greater than the total wealth of the poorest half the population of the planet – are clearly situations that give some people much more economic decision making authority and political influence than others. But while democratic planners and market socialists can agree that diminishing differences in economic power would promote economic (and political) democracy, it is not clear what else we agree on regarding economic democracy. I define economic democracy as decision making input in accord with the degree one is affected by an economic decision – and see markets as major obstacles to distributing decision making authority along these lines since they disenfranchise large numbers of affected parties from decisions made by a buyer and seller. Market admirers define economic democracy as the freedom to use one’s person and property as one sees fit, and see markets as the unique solution to coordination without coercion. Under today’s conditions I usually see moving decisions from the market to the political sphere as the way to increase economic democracy. Market socialists are likely to want to do just the reverse. I see markets as stranglers of worker self-management and breeders of hierarchy in production, while those market socialists who do value employee management see markets as the key to making it possible. In considering specific parts of a reform program below we will see where there is, and is not common ground.
Planks in a Progressive Reform Program
Marx’s prophesy of economic emiseration did not prove true for the first world. But capitalism has never delivered sustained growth, much less economic development in the periphery, and the prospects for third world economies are more bleak than ever. Junior status in the global capitalist system is hardly an attractive prospect as we enter the twenty-first century. The necessity of meeting minimal economic needs of the majority of the populace, and the negative track record of capitalism in the periphery will be strong allies third world progressives can count on in their battle against international capital and local elites. Which means that third world progressive movements will continue to play a leading role in the next century just as they did in the last.
Promoting Economic Development in the Periphery
But what kind of development strategy should third world progressive movements espouse? More trade on less favorable terms? More foreign investment and international credit on less favorable terms? These are the current trends we can all agree to denounce. But what is the solution? Many are quick to conclude that protection and import substitution did not work. Dependency theory is dead, amen. But export lead growth and integration into the new imperial order aren’t working either. The truth is that very little has worked. There have been very few success stories. Some of them were largely lies. Others are looking more like bubbles about to burst than sustainable growth. And what little success there has been is not something more than a few countries could imitate at a time. Very little has worked because the imperial deck is stacked.
In my view the fight must largely be to disengage – to extricate third world economies from the international market place. I say this not primarily because engagement leads to growing internal inequality – which it does. Nor because debt or financial crisis are likely to bring in the IMF and World Bank at some point to dictate deflation, depreciation, negative growth, more unemployment, and fire sales of national assets – which it will. I say this because the normal operation of international trade, investment, and lending under free market conditions almost always increase economic inequality between MDCs and LDCs, and erode the little economic sovereignty LDCs have as well. Moreover, pursuit of an economic program of basic needs production and distribution is incompatible with international economic engagement at this time. And this is the only program with any hope of preventing untold human suffering in the third world over the next fifty years. This does not mean that every third world economy must go it alone. But it does mean that governments of third world countries must not enter into international economic relations that undermine programs that reorient their economies toward basic need provision. If this means trade, investment, and credit relations must be limited largely to the Scandinavian economies and other third world economies dedicated to basic need provision as well, so be it.
The issue is what to espouse and how to work in organizations like the People’s Global Action (PGA) against “free” trade, the World Trade Organization (WTO), and the Multilateral Agreement on Investment (MAI) made up of organizations like the Brazilian Movimento Sem Terra, the Indian KRRS, the Peasant Movement of the Philippines, the Mexican Zapatistas, the Nigerian Movement for the survival of the Ogoni People, the Indigenous Women’s Network of North America, the Maori of Aotearoa, the Sandinista workers’ federation, and Mama 86 from the Ukraine. Six hundred representatives will meet in February 1998 in Geneva to write a manifesto, attend roundtables, and plan campaigns and activities. What should the manifesto say? What topics are important to cover at the roundtables, and what should presenters teach?
It seems to me that while a market socialist vision is compatible with reform campaigns to improve the terms of international exchange, it is unsupportive of a strategy of disengagement from international markets. Perhaps I am wrong. Maybe market socialists will support semi-autarkic basic need development strategy on grounds that it is best not to participate until markets are minimally “socialized.” But I fear market socialists will be more prone to counsel organizations such as PGA to pursue attempts to secure better terms of engagement even when those attempts prove futile, and the terms that are actually secured undermine basic need programs. Or, worse still, market socialists might criticize semi-autarkic basic need provision strategies as backward, outdated, and unmindful of the “truth” that exchange is always mutually beneficial. I would anticipate few problems over exposing international rip offs. Differences are more likely to occur over when unfair international deals are good enough to accept, and when they are bad enough to walk away from.
Building on Pre-Capitalist Cultures of Cooperation
In many third world settings pre-capitalist, cooperative traditions and institutions still remain but are threatened by marketization. Should progressives honor these cooperative traditions and help indigenous communities protect them from being undermined by the intrusion of the market, or should we teach indigenous populations commercial consciousness while trying to equip them to compete more successfully in the marketplace? If the goal is to integrate everyone into the marketplace, but on equal terms, there is little place for pre-market habits of thought. But if the goal is to eventually replace commercial consciousness and competitive relations with democratic, equitable cooperation, it would be tragically counter productive to collaborate in the demise of those very habits within indigenous communities – since every example of the possibility and desirability of such behavior is an answer to the cynicism that is capitalism’s strongest defense. Helping indigenous women’s sewing cooperatives in Central and South America obtain sewing machines and materials on more favorable terms, and securing them less exploitative marketing outlets in high income economies is something we can all agree on. But how their work should be organized and income shared, whether or not products should always be tailored to international market dictates, and whether markets are portrayed as friend or foe and their own values are treated as sensible or backward are important choices in the day to day work of political movements like the Zapatistas who work with oppressed indigenous peoples. I worry that the difference between market and non-market visions can lead to different choices about how to go about these tasks.
Fighting Neo-Liberalism in the Center
Unlike the Kennedy Administration that sweetened free trade with Trade Adjustment Assistance and other worker retraining programs, Republicans in the 1980’s and 1990s have helped US corporations grab for all the benefits of increased trade and foreign investment while sharing none of the costs. Clinton talked like Kennedy before the vote on NAFTA but then behaved like a Republican afterwards – which lost him the fast track vote in Congress. Supply and demand analysis is sufficient to understand the effects of increased foreign investment on the demand for labor in the US. Heckscher-Ohlin models tells us all we need to know about the effects of trade liberalization on the return to labor (the relatively scarce factor) and returns to capital (the relatively abundant factor) here in the US. And the effect of more firms enjoying lower environmental and labor standards competing on “freer” terms with firms facing higher standards on those higher environmental and labor standards is obvious.
So part of the progressive response is such a “no-brainer” that differences between pro and anti market visionaries should not matter: (1) Insist on fair labor standards and real environmental protection as preconditions to international liberalization. And (2) insist on assistance and retraining for displaced workers as preconditions to international liberalization. But these two “planks” are of no consequence unless progressives are also prepared to (3) say “nyet” until enough of the famous benefits from trade are redistributed so US workers and the US environment are actually made better rather than worse off. The real trick is in the “nyet.” Because in today’s political environment there usually isn’t a snowball’s chance in hell that progressive forces will win enough concessions regarding standards and sharing adjustment costs to justify acquiescing to greater liberalization. This is the most important place the difference between pro and anti-market visions could become relevant. But there are more subtle areas where the difference can enter as well.
Whether distribution of the benefits of greater international specialization actually – rather than theoretically or potentially – benefits disadvantaged constituencies is one issue. Whether, more trade yields efficiency gains rather than loses is a different question. Most economists are quick to assume the answer to this question is obvious. If parties trade there must be mutual benefits. But in fact, the answer is not obvious, and hinges on the extent to which international prices accurately reflect the true social costs of goods and services. Of course the answer to this depends on the prevalence and magnitude of external effects – as we have seen, a crucial difference between pro and anti market visionaries. For example, many progressive agronomists and ecologists argue that only because significant social costs of modern agriculture and transportation go unaccounted for does it appear that more international trade in agricultural products provides efficiency gains which could be shared. More generally, there is presumably an optimal degree of autarky versus integration of the world economy as measured purely in terms of social costs and benefits. Whether “free” trade at current international prices will move us closer to, or farther from the optimal degree of international specialization depends on the significance of external effects. But besides asking if greater international specialization actually promotes global efficiency and equity, we should ask if it promotes or undermines international economic democracy as well. Pro market visionaries seldom see how moving decisions into the market place can be subversive of people’s ability to control their economic fates. But particularly if international agreements disempower elected representatives by giving authority to unelected international arbitration committees there can be negative repercussions on economic democracy as well. If I remember correctly, Cuatemoc Cardenas stated when speaking at the URPE plenary session at the ASSA meetings in New Orleans seven years ago that he opposed NAFTA, purely on grounds that the treaty had never been subjected to debate much less a democratic decision making process in Mexico. He went so far at that time to state that he would consider the treaty invalid if he were elected President.
There is no logical reason why market socialists could not support decisions to say nyet to greater international liberalization until prices are corrected for external effects, until disadvantaged constituencies are actually benefitted, and until affected constituencies have democratic input – in other words, until international markets are in fact sufficiently “socialized” so that liberalization advances rather than undermines progressive economic goals. But if a pro-market vision makes one more susceptible to the sirens of comparative advantage and free trade; if a pro-market vision makes one more uncomfortable wearing the dunce cap of protectionism; if a pro-market vision makes one more likely to cave in at the first offer of concessions on standards and adjustment cost sharing; if a pro-market vision makes one less likely to recognize significant discrepancies between international prices and social costs; if a pro-market vision makes one less likely to stick to “nyet” – then a pro-market vision might be an obstacle to effective work in the anti neo-liberal alliance.
Making Unions the Hammer of Justice
Union membership and political strength are at their lowest since World War II. Conditions for progressive organizing in the US union movement have not been this favorable for fifty years. Say what? Perhaps because things had gotten so bad, union leadership has embraced a program of revitalization with tremendous potential.
· The AFL-CIO has committed unprecedented resources to organize the unorganized – prioritizing minorities, women, and workers in traditionally non-union sectors. The energy and enthusiasm at the Organizing Institute is one sign that this is not all hot air.
· The AFL-CIO has embraced a new educational program called Common Sense Economics. The goal is to educate its entire membership about why and how the US economy is not serving their interests and what they can start to do about it. The projected scope and depth of the campaign is astounding, and the content of the curriculum is more radical and hard hitting than I would have ever thought possible.
· The generation of union leadership from the Vietnam War era has largely replaced the old Cold Warrior leadership at the same time the Cold War has ended. It is now easier to preach radical anti-capitalism and militancy in unions without being red baited than at any time in our life times.
· Union leadership is less hostile to political activity outside the Democratic Party, more critical of centrist Democratic Party politicians, and more aggressive at punishing Democrats who fail to vote pro-labor than at any time in recent memory.
· Labor led the unsuccessful fight against NAFTA, the successful fight against Fast Track, and shows no sign of relenting on this critical issue.
Clearly the union movement should be a high priority for progressive activism in the years ahead. But what are the implications, if any, of differences between market socialists and democratic planners over how this work should be done? We can agree that profits are too high and wages too low, that the ratio of CEO salaries to workers wages in the US is obscene, and to make a long story short, that the corporate political agenda sucks. But more than anything else, unless the union movement becomes the hammer of economic justice, there is little hope that it can revitalize itself. And there’s the rub. As long as we aren’t clear about what is fair and unfair it is hard to be the hammer of justice. And right now many union leaders, militants, and progressives working in the union movement can’t tell the rank and file and the general public whether workers are exploited because they are not paid their marginal revenue products, or because they are paid their marginal revenue products.
I think confusion and hypocrisy over economic justice is one important reason why unions have stumbled in the past. It is not enough to say our wages are too low and corporate profits and CEO salaries are too high. Unless one already believes this, that is no argument. It amounts to preaching to the choir. To add that profits and CEO salaries have been rising and wages falling in real terms since 1975 is no argument either since it requires the assumption that wages were too low, rather than too high, in 1975 to become an argument. In other words, it only begs the question. At this point one can argue either (a) wages are unfairly low because they are less than the market value of what the worker contributes, or (b) wages are unfairly low because they pay the worker less than others receive who work less hours, less hard, under less dangerous or disagreeable circumstances – in other words, less than others receive who sacrifice less.
Unions are tempted to choose “a” and “b.” After all, why not use all arguments in one’s favor? The problem with this approach is one will get caught in logical contradictions by choosing “a” and “b.” The contradiction arises because it is only sometimes true that greater contributions coincide with greater sacrifices or efforts. Other times someone makes a greater contribution to the value of output while making less of a sacrifice than others. A brilliant Java programmer might increase the sales of a company by half a million dollars while working under luxury conditions with plenty of time out for golf. And other times someone makes a greater sacrifice than others but less of a contribution to the market value of output. A night maid who scrubs floors in hallways of the same company the Java programmer works in – enduring callouses, back ache, and boredom – might increase company revenues by only $2 for every hour she works. But we can’t pay big contributors according to contribution and those who sacrifice more according to sacrifice because there will not be enough to go around. The economic pie we bake is only so big. We can divide it up according to relative contributions. Or we can divide it up according to relative sacrifices. But if we let people choose which method of slicing they want to apply to them, personally, the pie will run out before we get to the last people in line.
When forced by logic to choose, unions are tempted to argue “a” because it appears to appeal to employers’ sense of self interest – which we know they have – rather than their sense of justice – which we know they don’t. “I’m worth more to you than you’re paying me. So you could pay me more and still be better off than if you didn’t hire me at all.” This, of course, is true. But unfortunately it is irrelevant. Sure your employer could pay you more and still be better off hiring you than not. But they can be even better off by not paying you more. The employer has already hired you, the remaining question is whether or not to pay you more. Obviously it is never the case that an employer will be better off paying an employee more, rather than less. So strategy “a” will not succeed in appealing to employers’ self-interest – it only appears to. Moreover, if unions base their wage demands on contribution they have no reason to object to multi million dollar salaries for CEOs, half million dollar salaries for highly talented professionals, and wage rates below the poverty line for those of lesser abilities. Sure, we can quibble about whether or not stockholders are getting ripped off by CEOs and talented professionals who sometimes get paid more than their marginal revenue products, at the same time stockholders underestimate the marginal revenue products of night maids. But that is a bad corner to get boxed into since most union members would not accept accurate marginal revenue product wage rates as fair – and they shouldn’t. Moreover, once one accepts contribution as the determinant of fair compensation it is far more difficult to argue against profit income since having more ovens also makes it possible to bake a bigger pie. It is true, as Joan Robinson pointed out long ago, that the fact that more ovens leads to more pie is no reason to pay those who own those ovens dividend slices. But that is because ownership of ovens carries no moral weight. Unless ownership of those ovens was the result of some greater effort or sacrifice on the part of their owner, there is no moral reason to pay their owner merely because the ovens contribute to pie baking. What prevents owners of ovens from morally qualifying for compensation is the fact that very few oven owners made greater sacrifices than others, and even for those who may have, the magnitude of their sacrifice is almost always insignificant compared to the magnitude of the contribution of their ovens. But then why is “ownership” of human capital which is objectively responsible for a greater contribution morally deserving of greater compensation? If human capital is the result of genetic talent and education at public rather than private expense – if it is not the result of personal effort or sacrifice – why is it on any different moral footing than physical capital that was inherited or acquired without personal sacrifice?
The solution is to admit what is true: there is no convincing answer to this question. There is no moral difference between physical and human capital per se. Both objectively contribute to the value of economic output. But ownership of neither is a valid moral reason for compensation. If a person acquired either physical or human capital through some greater sacrifice on her or his part, this is due compensation. But what is due compensation is always the greater sacrifice – not the morally irrelevant greater contribution.
In the end unions cannot appeal to employers’ self-interest when asking for wage increases because it is never in employers’ self-interest to pay more rather than less. Which means any appeal is an appeal for justice. Moreover, the appeal for justice is not primarily directed at the employer since employers cannot afford much of a sense of justice. Instead the appeal to justice is directed at the union membership and the general public. Any and all argumentation is logically nothing more than an attempt to rally union membership and the public behind the just demands of the workers. If unions believe this is not likely to prove very effective, logically they should dispense with argumentation and go straight to threats – directed at the employer and/or the public at large. But I concur with most unions that this would be unwise – that the hammer of justice does carry some power. That being the case, since the moral argument that those who work hard and make sacrifices deserve compensation is logical and more powerful than the argument that those whose physical or human capital permits them to contribute more deserve compensation, unions should be better served by arguing “b” than “a.”
Not to be misunderstood, I sincerely doubt there is a single union in the US that does not advance the cause of economic justice whenever it wins a pay raise. Wage increases do come largely out of profits, and the impact of price increases on income distribution are very diffused. Moreover, there is a strong precedent effect. When relatively privileged workers win a wage increase it makes it more, not less easy for more exploited workers to win wage increases as well. And the negative domino effects of a lost strike are even stronger. In this very important sense, unions are an objective hammer for justice. But they cannot become a moral hammer for justice until they believe, teach, and mean that only effort deserve reward, and that everyone – everywhere – deserves to be rewarded according to the economic sacrifices they make. Wobblies believed, taught, and lived by that code when they organized in the labor movement early in the century. Rank and file socialists believed, taught, and lived by that code when they worked in the labor movement in the thirties and forties. And the labor movement wielded greater moral power in those periods. What will progressive activists working in unions in the twenty-first century believe and teach?
Nor am I saying that unions should be criticized for failure to achieve complete economic justice over night. As a matter of fact, I think it is important that unions teach their membership why, as long as the laws of supply and demand influence wage determination, unions will only be able to achieve partial victories that are subject to erosion. Instead I am saying unions must be clear about what is fair, clear about what prevents them from winning it, and committed to doing the best they can to move wages toward the goal of payment according to effort within the confines of private enterprise and labor markets until those obstacles to economic justice can be removed. An excellent example of a morally consistent position in a context where only partial victories were possible was the “wage solidarity policy” that was the lynch pin of the Swedish labor movement bargaining strategy for fifty years. Under that policy the federation of Swedish labor unions committed itself to negotiate higher percentage wage increases for those in the lower wage brackets as well as overall real wage increases in excess of productivity increases. This policy was calculated to diminish economic injustice due to morally arbitrary differences in the distribution of both physical and human capital.
In my view, those who embrace a market socialist vision are obviously handicapped in this critical area of revitalizing the American labor movement. At best they have a confused and contradictory view of economic justice. At worst they oppose one kind of inequity – profit income – only to support another kind of inequity – marginal revenue product wages. In either case, I fear they are more likely to be part of the problem than the solution to making the American labor movement into an effective hammer for economic justice.
Building and Connecting Cooperatives
The culture of capitalism is firmly rooted among citizens in the advanced economies. Most employees, not just employers believe that hierarchy and competition are necessary for the economy to run effectively. 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 the needs it leaves unfulfilled. It falls to progressives to learn and teach others how to do this. And there can be no mistake about it, this 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 the task, looking instead for short cuts and excuses for why it would not be necessary. For all these reasons people like myself ask where can a culture of cooperation and justice grow in modern capitalism, and place a high priority on working within cooperatives. Thousands of producer and consumer cooperatives exist in the United States. Some were organized by employees who didn’t want to lose their jobs when their employer no longer found them profitable. Some were organized by independent farmers to withstand competition from agribusiness. Some were created by idealistic owners who relinquished ownership to their employees. Some were organized by consumers who couldn’t get credit from capitalist banks, and others by consumers who wanted to eat food that capitalist supermarkets wouldn’t provide.
The past ten years has witnessed a resurgence of cooperatives as governments at every level have abandoned social services and businesses have abandoned necessary, but unprofitable activities. Unlike cooperatives created thirty years ago as an outgrowth of the counterculture of the 1960s, the recent wave of cooperative formation is larger, less self-consciously progressive, and more driven by necessity. But that also means that their members and activists are more firmly rooted in mainstream America than cooperativists in the sixties and early seventies. The possibility of linking producer and consumer cooperatives is particularly attractive. One example received national attention recently because of the research of an academic nutritionist. She pointed out that the nutritional quality of school lunch programs could be dramatically increased by replacing processed foods with locally grown vegetables and fruits, provided school cafeteria staffs were taught how to prepare seasonal menus. At the same time, advance contracts for local growers could provide much needed economic security, provided they organized into cooperatives. Of course the largest and most advanced example of a successful network of industrial cooperatives is the well known Mondragon “experiment” in Spain which has survived and grown for almost fifty years and no longer should be labeled “experiment.”
From my perspective the major problem is not lack of cooperatives, but failure to develop cooperative principles and practices within and between cooperatives. Progressives need to help sustain and expand self-management practices and develop more equitable internal wage structures within producer cooperatives. We need to create new organizational procedures that help members participate in consumer cooperatives without heavy burdens on their time. In my view cooperative members need to be taught how the competitive market environment limits the abilities of their cooperatives to deliver economic democracy and justice. Then, when this ground work has been laid, progressives need to start to link cooperatives together into networks that relate according to democratic and equitable norms rather than competitive dictates.. After strengthening cooperative principles and habits inside existing cooperatives, progressives can try to connect them into networks that function as an archipelago of equitable cooperation within, but in contrast to, the larger competitive economy.
I fear that market socialists have less reason to develop cooperatives as a living example of an alternative to competitive principles and behavior. I fear they would be more tolerant of “market wage rates” and internal decision making hierarchy than I feel is warranted. And I can see no reason they would not recommend linking cooperatives through markets while I see networks of cooperatives as the best place to start to build living examples of democratic planning.
Working in Community Economic Development Projects
Many poverty stricken areas in the United States have community economic development projects. When employers, banks and developers withdraw from areas they consider less profitable than other alternatives, abandoned communities are left without jobs, adequate housing, or a tax base sufficient to provide basic social services. According to the logic of capitalism, people should not waste time whining about their fates, but get with the program and move to where the action is: Abandon your family and community roots in the rust belt and migrate to the sun belt – or you’re just a loser and deserve what you get. Community development projects are testimony to peoples' unwillingness or inability to follow this advice.
Community development projects respond to economic abandonment by trying either to change incentives to re-attract capitalist activity, and/or by substituting non-capitalist means of employment and housing for the capitalist activity that departed. Particularly community development programs that take the latter course are important areas where people are busy meeting needs capitalism leaves unfulfilled.
As with cooperatives and unions, more institutional space exists in existing community development projects than progressives presently make good use of. When working in these projects progressives need to reaffirm the right of people to remain in historical communities of their choice irrespective of the logic of profitability. We need to point out the inefficiency and waste inherent in abandoning perfectly good economic and social infrastructure in existing communities to build socially costly new infrastructure in new communities elsewhere. We need to press for strategies based on non-capitalist employment and housing since this provides more worker, resident, and community security and control than relying on newly courted capital. And, where non-capitalist institutions are not possible to organize quickly enough, progressives should work to maximize community control over employers and developers who benefit from incentives offered by community development initiatives. It is also important to note that community economic development work builds positive relations with constituencies that are largely poor and minority. Moreover, poor urban areas are where progressive politicians are most electable. So often these days progressives have to operate outside society’s major power centers which is always isolating. Community economic development programs are one of our best opportunities to work with constituencies from which we have been isolated, and even with the help of some elected politicians.
While market socialists presumably have as much reason as I do to prioritize organizing community and worker controlled enterprises to fill vacuums left by private companies that desert old communities to relocate elsewhere, I fear they would be less supportive of the claims of abandoned communities against the logic of the market in the first place. Again, a market socialist could theoretically condemn the community reorganizational logic of markets on grounds that they were not properly “socialized” – that costs of infrastructure in sunrise communities and underemployment of infrastructure in sunset communities, for instance, were not fully accounted by prevailing prices. But I am skeptical that those guided by a pro market vision would be likely to give as much support as I believe they deserve to communities fighting to preserve their economic integrity.
Protecting the Environment
Pollution is one important kind of negative external effect – and it is well known that markets lead us to over produce goods whose production or consumption entails negative external effects. Pollution reduction is a public good – and it is well known that markets tend to under supply public goods. Much of the natural environment is a common property resource – and it is well known that the individually rational strategy under free access is to over exploit a common property resource. Crucial choices about environmental preservation and restoration hinge on what rate of time discount we use to compare present costs and future benefits – and it is well known that any reasonable estimate of the rate of growth of economic well being per capita is significantly lower than the normal rate of profit which means future environmental benefits are over discounted and present costs of environmental protection are over valued. And it is also well known that only meaningful social relations like peer monitoring and concern for one’s reputation and for the well being of others are capable of transforming important environmental situations from prisoner dilemma “games” into assurance “games” with more positive environmental outcomes. Yet the social effect of “anonymous” markets is precisely to undermine these kinds of social ties and replace them with individualistic, commercial values. Finally, the environment has existence and option value beside its use value – and it is well known that market-based methods like hedonic regression and travel cost of estimating environmental benefits are inherently incapable of estimating these kinds of benefits. No wonder serious environmentalists consider markets and commercial values as major enemies, and are skeptical, if not down right hostile, to market socialist visions.
Yet I believe that in the sort-run there is considerable grounds for cooperation between those of us who believe in planning for wise stewardship of the environment through democratic planning and market socialists – provided market socialists heed some well meant advice. The reason is I think the first best environmental policy right now is almost always pollution taxes, which are something market socialists should be able to support wholeheartedly.
In the short-run there are three policies to choose from: regulation, pollution taxes, or tradable pollution permits. Elsewhere I have explained why I believe pollution taxes are preferable: They embody the “polluter pays” principle, are always superior to regulations and tradable permits on efficiency grounds, and pose no different enforcement problems than other policies. And while regulations seem to have the ideological advantage of saying: “Thou shalt not abuse the environment beyond X¼” the regulation glass is always half empty as well as half full because regulations implicitly say: “Thou hast the right to abuse the environment up to X¼ and free of charge!”
There are two keys to making pollution taxes effective: (1) setting them high enough, and (2) enforcing them effectively. Setting them high enough requires: (a) accurate estimates of the true social costs of pollution which primarily means more extensive use of improved contingent valuation survey techniques, and (b) sufficient political will and clout to overcome well financed opposition from polluters. Effective enforcement requires: (a) high penalties for violators, and (b) sufficient resources for monitoring. I see no reason market socialists should not be just as willing as we democratic planners to fight for these reforms. After all, they are nothing more than actually “socializing” one market.
But if market socialists support tradable permits over pollution taxes; if market socialists argue that over population and industrialization per se – not markets – are primarily to blame for environmental destruction; if market socialists defend “market based” techniques for estimating environmental benefits rather than help improve contingent valuations techniques; if market socialists offer examples of environmental degradation under totalitarian central planning as evidence that democratic planning is unlikely to protect the environment; if market socialists deny that the environment will remain at risk until we replace the market system with an economic system that allows people to register their preferences for environmental protection and amenities as a matter or course, through their normal participation in economic decision making, and just as easily as they express their preferences for shirts and shoes – work within the environmental movement could, unfortunately, become a major battle ground between pro and anti market visionaries.
Health insurance and insurance against personal accidents and natural disasters are more complicated than so-called old age insurance, or social security, because we don’t know who is going to suffer ill health or fall victim to an accident while there is absolutely no doubt that each and every one of us is going to age and retire from work.
The best and simplest system of providing for people during retirement is to give them an equitable monthly stipend every month after they retire until they die. But what would an equitable retirement stipend be? It seems unfair to give those who no longer work, but who have worked all their lives, any less than what those still working receive, which means permitting the retired to benefit from continued increases in economic productivity after their retirement. Next, one might reason that since society has waived any further claim on their services, there is no basis for different stipends for different retirees. Alternatively, one might argue that retirement payments can and should be differentiated according to the average effort rating someone had achieved over their work lives. In either case the idea is not to let the fact that people retire, and live different lengths of time after retirement, or the fact that economic productivity increases over time, interfere in a fair system of economic rewards. We wish neither to abandon a generation after their work time is done, nor exploit one generation at the expense of another.
But right now social security collects taxes from those working unfairly – only labor income is taxed, and the tax rates are not as progressive as those for federal income taxes. And retirement stipends are neither equal nor determined by sacrifices incurred during one’s working life. Nonetheless, social security is both a system of providing something for everyone during retirement and a system that, to some extent transfers income and wealth from the better to the worse off. In other words, social security is partially successful as a retirement system, and partially successful as a program to rectify economic injustice. In the short-run progressives’ tasks are simple: Prevent dilution of the size and security of retirement benefits people receive. Prevent attempts to make the distribution of benefits and system of collection even less equitable than it is at present. Work to increase the size and security of payments until they reach 100% of average income of those still working. And work to make the distribution of benefits and burdens of taxes of this program more progressive than it currently is.
There should be no controversy among progressives about taxing non-labor as well as labor income to finance social security, and making the rates more progressive. Means testing benefits is more controversial, but the issues are straightforward. Since means testing excludes those who already have more than the average monthly retirement income from getting additional benefits from social security, it furthers economic justice. Unless of course, it proved to be a bad political move by diluting political support for the program to the point that the program is weakened or abandoned. The other argument against means testing is that universal coverage sends an ideological message that society accepts responsibility for the economic well being of all its retired members. According to this line of thought, means testing undermines an important principle.
If there were a difference of opinion between pro and anti market visionaries on means testing one would expect those like myself to place greater value on the principle of universal coverage. But I must admit that if right now I thought we could win a penny more for poorer retirees by cutting back benefits to the wealthy without risking necessary political support for the program, I’d support it.
One question regarding health, accident, and disaster insurance is whether there should be a single, social insurer or many, competing insurers. Whenever multiple insurers could not help but “compete” to insure better clients – those least likely to need benefits – and to avoid insuring worse clients – those most likely to need benefits – insurance costs for an industry of many providers who will go to considerable expense to sort potential clients will be larger than for a single insurer required to insure all. Economies of scale from spreading risk over the largest possible pool also point toward a single social insurer.
A second question is whether all should be charged the same premium. If poor health and accidents were entirely a matter of luck, then there would be no problem of moral hazard and no reason to charge people different premiums. But to the extent that behavioral choices do affect the probability of accident or illness, there is an efficiency argument for differential premiums based on behavior. The simplest way for a single, social insurer to handle this would be to award bonuses for safe behavior like good driving records and non-smoking or surcharges for smoking and traffic violations.
A third question is if all should have the same benefit package, or people should be allowed to choose what kind and how much insurance they want. To the extent the rest of us are unprepared to stand by and let a risk taker suffer if his/er luck runs out, a case can be made for mandatory universal coverage. But this only seems to require mandatory universal coverage at some basic level. The problem is there is a conflict between accommodating legitimate differences in risk aversion and preventing people from taking advantage of others through adverse selection. If the social insurer can neither exclude me nor charge me more than others for a benefit, but I know that I am more likely to qualify for particular benefits, allowing me to choose types and levels of benefits permits me to manipulate the system to my advantage and the disadvantage of others. What this points to is a universal, single payer, single package health care system, perhaps with some behavioral incentives. A market with multiple providers and different packages to choose from is inferior on both equity and efficiency grounds.
What is health care, and therefore covered, and what is cosmetic and therefore left out of the package for people to buy if they wish like anything else, should be decided democratically – not via different coverage options and individual consumer choice. Adverse selection makes that impossible in the context of universal social coverage. Disaster relief should be provided like health care, perhaps also with behavioral incentives not to live on earth quake fault lines or in flood plains.
For market socialists who readily concede that some things should not be provided through the market system, and that health care in particular, and insurance in general are two of those things, I foresee no problems working together in coalitions for single payer health care and insurance reform. If there are market socialists who have bought into insurance company propaganda about their social usefulness, working relations will get strained.
Life Within the Movement
Besides working to curb the worst abuses of capitalism, in my view it is incredibly important that progressive activists themselves live according to the dictates of self-management and economic justice. Decision making in proportion to the degree one is affected, using expertise but limiting it to its proper role, and consumption according to effort cannot be demonstrated as desirable and viable within the workings of capitalism. The fact that capitalism makes all these things impossible to sustain is precisely the reason it must be replaced! But sensible people do not endorse new ideas until they are sure they work. Especially in light of the twentieth century history of failed alternatives to capitalism, the progressive movement must respect people’s skepticism and adopt a more sincerely humble attitude. This means testing the principles of what I call a participatory economy within the movement for economic change and proving that they do work is especially important. Refining and defending the principles in ideological debate with opponents must be accompanied by testing them in the flesh in the only setting where they can operate for now. That is how to “keep hope alive,” and how the principles of economic justice and self-management can successfully challenge the hegemony of “might makes right.” Unfortunately there is little in a market socialist vision that stimulates efforts to convince progressive activists to work for wages based on effort when many could command higher “market based” wages. There is little reason market socialists would work to protect the less experienced within the movement from being overwhelmed by the more experienced – much less take the extra effort to consciously develop new leadership. In general, while both market socialists and democratic planners have reason to build a movement for economic change that “pre-figures” the alternative to capitalism, since they envision different alternatives there are good reasons we would organize life within the movement differently. In this area, I suspect we must go our separate ways. Which is not to say that our separate movement communities need be hostile to one another – anymore than we will disagree about much of the work we do when working on the same programs and with the same constituencies, as I have tried to reason through in this talk. No doubt there will be a certain amount of friendly competition between our two movement communities, even involving invidious comparisons! But I honestly do not foresee a repetition of the kind of destructive, sectarian infighting that went on between different sects and tendencies in the left community during much of the twentieth century. I think most of us have learned the lesson that squabbles over differences that are not crucial to present tasks only alienates those whose interests we claim to serve, that disagreements can be honest, and that no person, group, or system of thought ever has a monopoly on political truth.
Conclusion: Friends of Foes?
Standing Fast: The next century will prove no easy road for progressive organizers. Capitalism does not dig its own grave, it loans and charges us dearly for the shovels we use to dig our own graves. Only as enough of us come to our senses and put our shovels to better use will the increasing human misery and environmental destruction that marks the end of the century that should have been capitalism’s last, give way to an efficient, democratic and sustainable economy.. Unfortunately, “coming to our senses” is easier said than done and will entail many disagreements – one of which is the current disagreement between market socialists and democratic planners. The transition from capitalism to a more desirable economy will come to pass only after more sweat and tears have flowed in more campaigns on more fronts than we can yet imagine. Fortunately, sweat and tears in the cause of justice and freedom are at the center of the human spirit, and the best of all ways of life. Friends or foes with others who are in the fight? There is no need to even ask such a question.