Monday, April 22, 2013


Welcome back, this time to a completely speculative and absolutely non-scientist look at the transition from a Capitalist economy to Market Socialism.  In this episode of the Road to Utopia we will dissect David Schweikart´s attempt at a transition and I will point my departure from his vision.  Welcome to the "what if..." of posts, the game of choice for dreamers and future marble statue subjects.

This episode starts in Chapter 6 of Schweickart´s "After Capitalism".  In this chapter our good friend David tries to find a way to go from "here" (our now) to "there" (our imagined market socialism future).  He divides our now into two camps, the first is the branch of the post-war capitalist economies, and the second is the branch of the socialist countries.

(1) The developed capitalist economies chose a Keynesian path, that brought them finally to stagflation (inflation plus unemployment).  I think that many up-and-coming Third World countries are currently entering this stage, as without the competition provided by cooperatives, they are jailed into a cage of massive spending and strong oligopolies that control prices, always correcting upwards, passing wage increases into consumers.   On those countries that abandoned Keynesianism in favor of "capitalism of friends" (my name for neo-conservative policies), things are faring even worse, with rampant unemployment and/or decreases of real wages fueled by bubble bursts (Spain, Greece, the U.S., etcetera).  The problem with all models of post-war capitalism is insufficient demand.  It seems to me that Marx is finally exacting his delayed revenge on the system.

(2) The socialist branch of the tree of economic policy was buried under the weight of inefficient central planning and bureaucracy, and we could see its quick fall into oblivion some years ago, amid the fanfare and triumphalism of Francis "Mission Acomplished" Fukuyama and friends.  We all know by now that victory for American capitalism was declared way too soon.  According to Shweickart, the nascent market socialist techniques aborted in the ex-Yugoslavia gave fruits later on China, our new super-power.  If the Chinese system can be called as market socialist is something that I left to each one of you to peruse. Schweickart suggests that socialist countries can find its way into marksoc better than capitalist countries. Again, Marx influence is obvious in my position: a real marksoc system must be developed in an open and democratic society, hence I want to analyze how the path on those countries "from-here-to-there" would happen.

  • Workplace Democracy
As told before in this blog, I favor a snow-ball  approach to the subject: small changes in the right places bring to the complete overhaul of the system.  These strategic changes can happen from an bottom-up perspective as well as aided or directly promoted by the top-down direction.  As an example, I put the development of the worker cooperatives in Argentina, which took force with the movement of "Recovered Factories" born from the economic meltdown that culminated on 2001.  With the credit crisis initiated on February 4, 1994 (known later as the "Tequila Effect"), the Argentinean economy, hand-cuffed by pegging its currency to the USD dollar, started to slow down and fell on a spiral of capital flight, decreased demand and high unemployment.  Many local capitalists decided then to "vacuum" funds from their business until they crashed.  Without the possibility of finding a new job, or even traveling back home due to unpaid wages, many workers decided to guard the factories were they worked and start production on their own; and surprisingly, many of those factories not only survived but thrived once the external conditions changed for the better.

This movement was clearly a bottom-up phenomena, normal workers dictating change to those on top, which thankfully helped with the required changes in legislation to finally grant full ownership to these stoic producers.  I agree with Schweickart that this approach can be dangerous, as the workers are taking into themselves the task of building up companies that crashed, and this could mean years of subsistence-level income and gargantuan efforts (self-exploitation).  This approach works well in a high-unemployment environment and knit-tight worker communities, but if other job options are available, and workers are not united, the outcome will be the demise of the company.  The same will happen if the economy surrounding the company is in tatters for a long time, no matter how much effort the workers put in,  or if the company is fundamentally unsustainable from reasons other than capitalist abuse or mismanagement.

The following point in Schweickart´s agenda is to grant workers a share in a capitalist company through ESOPs (Employee Stock Ownership Plan), and to change its meaning to share control over an enterprise.  Personally, I think that any measure about capital that does not transfer control to workers is akin to bonuses or the ownership of small portions of stock through the stock market: maybe good for your portfolio, potentially dangerous (ENRON and similar cases) and not in line with a program towards marksoc.  Giving control alongside shares could make workers more susceptible to the idea of taking over their workplace, but it could also reify the position of the capitalist owners and current management.  It is a social pact of the likes we have seen before during the 20th Century in Germany and Northern Europe, and it could be instable, with capitalists taking every part back from the workers once the external conditions are in their favor.

  • Social Control of Investment
Schweickart proposes reforms which could be applied undercurrent circumstances and gradually take control over investment, always prone to crash due to lowered expectations or the opportunity cost of the financial “casino”.  We all are witnesses to the  production and destruction of gigantic bubbles that suck up funds from productive investments and throw them into the bottomless pool of financial games crafted in some nice office in New York or London.  Schweickart proposes to incorporate environmental externalities into production costs, since this would make capitalists to invest into technological solutions.  At the same, a “Tobin Tax” should be implemented to reduce the speed and volume of financial speculative transactions.  The last two reforms he suggest are the “democratization of pension funds” and the implementation of a “capital assets tax”.

If those proposals seems positive, not all of them are the exclusive province of capitalists.  Introducing externalities into the production would hit also cooperatives, and until a marksoc system is put in place a Tobin tax could hurt a profitable source of income for coops that generates surpluses.  Ideally all income should originate in normal production, but I don`t see nothing wrong with taking parts of the pie of the financial casino.  Is it true that this money will come from other workers around the world, since in the end governments bails out the monstrous financial institutions responsible for these bubbles, but where would this money go if not into the coffers of coops? Into the pockets of bankers and other capitalists, of course.  I agree that we need to contaminate less, and that we need to limit financial speculation.  Are we going to do it just when worker cooperatives are starting to sprung all over the place?  Whose organizations would survive these limitations? The all-powerful multinational conglomerates, or the small newly born coops?

  • From Reform to Revolution...
Schweickart presents two ways on which we can do a peaceful transition from capitalism to Economic Democracy.  Both include the ascend into power of a leftist political party.  I guess that the meaning of "leftist" is informed by American politics, that do not correlate with the situation in other countries around the world. The radical quick path that he suggests would be born of a big capitalist crisis that would give this hypothetical party the votes necessary to implement all legal changes towards market socialism,  first abolishing stock dividends, and second, automatically converting big companies into worker cooperatives.  The third measure would be the implementation of his famous flat rate tax over capital assets.  The fourth one, the nationalization of all banks.  The radical softest path that he suggests in the following incise introduces smaller changes to the system as a whole, but still converts big corporations, and also takes care of the middle class stockholders that are left stranded in a smoother transition.

As I wrote above, I believe in a snowball approach.  Maybe others will consider my way to be naive, but I want to win the game by utilizing its rules, not by writing new ones.  Is the game slanted? Sure it is. But with a little push in the right direction, changes can be made to be permanent.  If we write new rules, those can be erased when another administration has its turn.  If we do it organically, nobody can claim foul.  The secret is to study cooperatives and their efficiency and effectiveness.  I think that they can be more efficient than their capitalist counterparts, and that the problems with coops is that there are not enough of them, especially in highly profitable sectors such as Internet-related high-tech.  Make them a palatable choice, and workers will vote with their feet.  Nobody wants consciously to be worse off.

If  I agree, as Schweickart writes, that the "problem with capitalism is lack of effective demand for all the goods it is capable of producing" (Schweickart, same chapter),  I think that economists often forget about the lack of opportunities to affront large scale production, due to problems with financing or logistics, and the conservative nature of a working business.  That is why I put so much importance on the function of the State as the original soccer player.  The ball just needs to be kicked, and then the game can proceed.  Provide funding and some technical support in the right direction, and coops can by their own effort produce a good amount of Maradonian goals for our marksoc team.  If somebody is offended, the same government can offer funding for new small capitalist enterprises.  Why not? If we are right, our cooperatives will blow them off the board.  If not, we will nevertheless introduce new competitors into the market (which is always a good thing).

So boys and girls, prepare your investigative goggles, and start your research.  We need the best factual  information about coops, the best theoretical developments, the best resulting laws and regulations you can create.  We have only a bright future to gain, and some old chains to lose from all of this.  Are you ready?

SCHWEICKART, David (2002):  "After Capitalism", chapter 6, Lanham: Rowman & Littlefield.

For the accumulated Bibliography and the Glossary please click here

Post-script: Why aren´t enough coops? Read my previous entry into this blog, and the subsequent ones, which will be probably centered on the work of Gregory K. Dow and his book "Governing the Firm".

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