Monday, October 24, 2011

Investment in David Schweickart´s "Economic Democracy" (Part 2)

Welcome back.  In this post I will continue analyzing the way on which investment is funded and distributed in David Schweickart`s model of market socialism, denominated Economic Democracy (ED).  

As we saw in my last post, the system of funding in ED consist in a general tax over the capital assets of companies; the resultant income is later distributed by the state to a myriad of “social banks”.  Schweickart itself recognized in his book "After Capitalism" (2002) the possibility of a system of "laissez-faire" marksoc, but preferred to develop a system of banks that would invest in cooperative companies based in social goals, especially to reach full employment.  This alternative laissez-faire system would be structured in the following way: 

Banks would be charged a centrally determined interest rate on the funds they receive. They would be expected to make a profit, that is, to charge more than the baserate interest, adjusted according to risk. Bank officials, who are public officials, would be paid in accordance with performance. Banks would compete, as they do now, trying to balance the riskiness of their loans against the interest rates they charge. As under capitalism, managers of successful banks (i.e., the most profitable) would be rewarded, managers whose banks performed poorly would be sacked. In all cases, bank profits are returned to the national investment fund. (p.49)

For the author of this blog, this system constitutes a mix between what I call pure marksoc and Economic Democracy, since in the later banks are managed by public officials and not by its own workers, and the State controls part of the economy through its management of the "investment fund".  We should remember that in Economic Democracy the workers are not owners of their companies, which belong to all of society. Workers cannot sell the capital stock and use the resultant money as income. 

Let me describe some positive aspects of the ED proposition.  In ED investment is proportionally allocated among regions according to their population.  Following neo-classical economic theory, this allocation would be clearly inefficient, since profitable companies could lack access to funds while less profitable ones could receive them because of their location.  Bruno Jossa (2004) is right to point that labour also moves between regions (albeit more slowly than capital), thus we could see a population movement towards those regions where the returns to capital are higher.  Per-capita allocation of investment can mitigate the concentration effect, and it is based in the principle of fairness.  Being that in ED there is not interest earned for personal savings, the mechanism of tax over the capital stock of companies and fair redistribution of investment avoids the “problem of austerity” of capitalism, because S(avings) can then be equal to I(nvestment) with some slight manipulations.  Jossa argues that in ED we can dispense through the fiscal system with both “Keynesian” and even structural unemployment.

Public ownership and social investment constitute “protective” measures that show an overwhelming preoccupation about the possible destruction of companies and the increase of unemployment, preoccupation proper of developed service economies such as the United States.  In my opinion the gains in efficiency (and happiness) due to real ownership far outweigh the potential costs of the destruction and reconstruction of companies (still, in a mixed system where cooperatives and capitalist companies cohabit, this means that we could see our hopes for the establishment of marksoc dashed by the degradation of cooperatives and their eventual transformation in capitalist companies). 

Jossa agrees that banks should be cooperatives in themselves which can pursue profits, but desires to maintain the per-capita basis of the tax funds`distribution.  He also sustains that granting interest for personal savings (in the form of government bonds) is not a problem in an economy where workers are also company owners.  Jossa recognizes that letting the banks choose companies according to expected returns on their loans could greatly reduce the available funds for the creation of new cooperatives.  However, it is important to note that there is an intrinsic limit to the size of a cooperative company (depending on the sector).  This fact lets horizontal spaces to be filled by new potential enterprises in a specific market, existing also an interest on the cooperatives`side to spur other companies to work with along the production chain, in the way a federation does.

I think that is important to differentiate between complete ideal models such as ED and the possibilities of reality, shaped by political conflict and power struggles.  The conceptual transition from capitalism to pure marksoc, given its similitudes to libertarianism and other “free-market” philosophies, seems to be easier than the transition towards ED at this moment (2011). The most important problem to solve, if we are going to take the pure road to a marksoc system, is how we are going to facilitate the necessary funds for the establishment of the required thousands of new cooperative companies.  If we are right, with minor adjustments our system can quickly supersede the current “capitalism of chaos and friends in high places” (how else can it be described?) and from there further changes towards fairness can be implemented.  Am I too timid to make revolutionary changes?  We should discuss then the desirability of more involvement of the State in the structure of investment, the fairness principle in investment distribution, and the future effects this can have in the environment and personal happiness.  Fire away.


JOSSA, Bruno (2004): "Book Review: Schweickart and Economic Democracy", Review of Radical Political  Economics (36), pp. 546-561.
SCHWEICKART, David (2002):  "After Capitalism", Lanham: Rowman & Littlefield.

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