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Description
To some, economic democracy is self-evidently a good thing if it means spreading economic opportunities more widely, giving workers a greater say in the workplace, and allowing communities to participate in the investment decisions that shape their future. Indeed, a classic argument has it that political democracy--universal suffrage, civic freedoms, and all that is needed to make them practical and effective--will work better if accompanied by 'social' or 'economic' democracy. Absent the latter, real civic participation will be low and big money will corrupt the political process, especially in complex societies where commercial networks can shape political agendas and the cost of campaigning is high.
While few deny the need to reform the way elections are run and financed--a source of recurrent scandal in nearly every rich country--another line of thought would challenge the conclusion that it makes sense to aim for economic democracy. The very phrase is thought to be a contradiction in terms, or a category mistake. Economic processes are too complex to be governed by votes and electioneering. Governments can and must lay down some basic ground rules, but, as Friedrich Hayek showed, they lack the locally specific information required to run complex enterprises effectively, still less to plan the entire economy. On the one hand, consumer needs are too intricate and changeable; on the other, the myriad of specific investment opportunities at the local level can never be known at the planning center.
While Hayek's critique of central planning was in many ways compelling, it failed to acknowledge the extent to which markets rely on the wider social context in which they are embedded. It also did not demolish the argument that public initiative and collective resources are necessary to meet large-scale and manifest threats. (1)
Votes can be effective if directed at a few, simple large-scale choices--alternative policy packages--on a national or even global scale. Ideally, this political democracy would extend to such basic concerns as how best to address climate change or improve public health. In principle, voters would also decide the scope of taxation and of social programs. But there is a widespread sense that prevailing power structures and interest groups narrowly constrain actual outcomes. Economic democracy might be a way to allow greater, more effective citizen input.
Political democracy is based on the principle of one person, one vote. In national politics this principle is easy enough to apply, and one might imagine it playing some role in a more democratic global order. But how would the idea of one person, one vote translate to the everyday economic world?
When I took the equivalent of Economics 101 we still used Paul Samuelson's classic textbook. It opened with the observation that we could think of markets as a sort of electoral process in which dollars work like votes. When a consumer makes a purchase, or a businessman an investment, their dollars function like votes in favor of what they choose. Aggregated across the economy, these 'votes' steer output in one direction or another.
But dollars, unlike votes, are not equally distributed among the citizenry. In the postwar period, the heyday of that textbook, such an objection seemed weaker because both wealth and earnings had undergone a 'great compression.' CEOs did not like to be seen taking too much out for themselves and, instead, showered their employees with benefits.
We all know that things stand very differently today. Most of the gains since 1980 have been garnered by the rich and the superrich--not the top 1 percent of households, but the top 0.1 percent and 0.01 percent. If we take residential property out of the equation, the concentration of wealth is even greater: the top 1 percent own half of all corporate securities and money-market bonds, while half of U.S. households own no productive property at all. (2)
Such plutocracy is especially difficult to justify when it derives, as it now so often does, from chief executives being extravagantly rewarded for indifferent or even negative results, or from backdated options, or from monopolistic forms of financial intermediation. Eliot Spitzer, the New York attorney general, revealed systematic abuse of the latter sort in investment banking, fund management, and insurance in the years 2002-2006. These investigations led a Republican Senator, Peter Fitzgerald of Illinois, to describe the U.S. financial services industry as "the world's largest skimming organization." (3)
Basically, the corporate-securities and money-market instruments not owned by the very rich are held by institutions, supposedly in the interests of millions of... |
More articles from Daedalus
Capitalism, economic growth & democracy.(Critical essay), June 22, 2007
Capitalism & democracy in 2040., June 22, 2007
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