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Socialism and economic democracy

For many, capitalism is synonymous with democracy. It’s said to provide people with the freedom to ‘choose’ and empowers consumers. It’s popularly believed that, since we in the west are able to vote once every four or five years, we live in healthy democratic societies in which the people are sovereign. This notion of democracy is a glaringly shallow one, however. Under this setup, one’s average democratic input amounts to around two votes every decade – not exactly power of the people. During the long periods in between the occasional election, we live under the almost total domination of our bosses.

Capitalism is a profoundly anti-democratic system. Workplaces, where we spend the majority of our lives, are run on an authoritarian basis, with workers given almost no say on how production is organised. Key investment decisions are taken by unaccountable, unelected wealthy individuals in pursuit of private profit, while employment of human labour is subject to the whims of “the markets”. Although we enjoy a certain amount of political democracy – and that is not to be taken for granted – we live under what is essentially an economic dictatorship. A key political task for socialists in the 21st century is to highlight the lack of democracy which exists when it comes to economics. A deeper and more participatory form of democracy should be strongly advocated. As journalist Peter Tatchell said: “We expect political democracy. Why not economic democracy too?”

Democracy under socialism necessarily means economic democracy. Those who work in a certain organisation should be entitled to have a say on how it is run on the basis of one person one vote. Managers should be elected and decisions made democratically. This may sound unrealistic to many, who have been conditioned to believe that only those with “special talents” have the ability to run economies. Paul Foot did an admirable job of tearing down this common assumption when he wrote about US industrialist Howard Hughes. Describing him as a “mediocrity”, he wrote:

“He started life as playboy and ended it as a lunatic. He had no ability at all. Yet through a mixture of luck and the ability to read a balance sheet, Hughes became the boss of a gigantic financial and industrial empire. He was able, almost alone, to nominate the President of the United States, Richard Nixon, who also had no ability, knowledge or skill of any kind. Howard Hughes designed an aeroplane which crashed and directed a film which was a monumental failure. He couldn’t do anything which mattered. Yet he made the decisions. The list is endless. Successful capitalists, almost to a man, are not people with any natural ability. Yet they decide what the experts do…They decide that engineers must build the Concordes. They decide that physicists must work on nuclear weapons.”

Given the current state of the world’s economy, it is clear that those who control it are unable to carry out their task in a humane, logical and sane manner. If the economy was organised democratically, would the results really be worse than what we are experiencing at present? Should we really expect to see the same level of economic chaos, environmental destruction and extreme inequality which occurs under the existing system? With the proper training, experience and education, there’s no reason why most people would not be able to acquire the skills necessary to help organise an economy. As David Schweikhart asked in his pioneering book, After Capitalism: “We deem ordinary people competent enough to select mayors, governors, even presidents. We regard them as capable of selecting legislators who will decide their taxes, who will make laws that, if violated, consign them to prison, and who can send them off, the young ones, to kill and die in war. Should we really ask if ordinary people are competent enough to elect their bosses?”

Actually existing economic democracy

And rather than abstractly theorise about what form democracy would take under socialism, we can look to real life examples – worker co-operatives. They are practical living alternatives to authoritarian capitalism and serve as vital tools in educating working people on how the economy operates on a daily basis. They have a proven track record of success, many of which would be the envy of capitalists the world over, and show that production can be carried out without bosses looking over the shoulders of workers.

One of the world’s largest and most successful worker-led co-operatives is the Mondragon Corporation. Based in the Basque Country, it is currently the sixth largest company in Spain and employs almost 100,000 people. And with an annual revenue of around €15 billion, it’s certainly not a small operation. Mondragon is entirely different from a modern corporation, however. All decisions are made by the workforce, who collectively own and control the firm, with job creation being seen as a key pillar of the organisation’s ethos. Writing for Yes magazine, Georgia Kelly and Shaula Massena, reported on what happened when the corporation was faced with difficult financial times:

“The worker/owners and the managers met to review their options. After three days of meetings, the worker/owners agreed that 20 percent of the workforce would leave their jobs for a year, during which they would continue to receive 80 percent of their pay and, if they wished, free training for other work. This group would be chosen by lottery, and if the company was still in trouble a year later, the first group would return to work and a second would take a year off. The result? The solution worked and the company thrives to this day.”

This stands in glaring contrast to the common spectacle of authoritarian companies who close down factories on a whim in order to exploit cheaper labour in the developing world. Had Mondragon’s principles of fairness and solidarity been existed across the economy, wages would not have stagnated, trade unions would not have been supressed and, most likely, we would not have experienced the crisis we are going through now. And since wages are set democratically by the workforce, Mondragon’s top executives receive a maximum income of six times more than the organisation’s lowest paid members. This is a remarkable figure, considering that Apple CEO, according to the Fortune 500 list, this year received 6,000 times more than the average worker at his company.

Although Mondragon and other co-operatives are not explicitly socialist, they do provide a model which progressives can emulate. It is part of a wider movement springing up around the world and is a living alternative to the workplace totalitarianism which most of us are subjected to. They give a small glimpse of what work life, as well as democracy, could be like under socialism. While acknowledging the important role they can play we must also, however, recognise their limitations. Ultimately, co-operatives are obligated to operate within a capitalist market. As such, they are unable to overcome some of the greater problems caused by capitalism, such as the destruction of the eco-system and the chaos which comes from the unplanned use of resources. They should be seen primarily as a living example of economic democracy and should be employed as a tool to challenge the legitimacy of capitalism.

A post capitalist society should ensure that workplaces are organised democratically. They should, however, be part of a national economic plan, which treats both human well-being and the survival of our ecosystem as top priorities. As has been argued previously, the most practical way to ensure the fairest allocation of resources is with a central economic plan worked out on a democratic basis.

Nora Castañeda, president of the Women’s Development Bank of Venezuela, summed up the economic goal of socialism well when she said: “We are creating an economy at the service of human beings instead of human beings at the service of an economy.”

Part One can be viewed here.

“The working class demands the right to make its mistakes and learn in the dialectic of history. Let us speak plainly. Historically, the errors committed by a truly revolutionary movement are infinitely more fruitful than the infallibility of the cleverest Central Committee.’’
Rosa Luxemburg

The demise of the Soviet Union and its Eastern European satellite states was greeted triumphantly by right-wing commentators the world over as evidence that capitalism, as a system, had defeated “socialism”. Francis Fukyama’s refrain, which has now become a sort of cliché, that history ended with the collapse of these states has now been shown to be remarkably short-sighted. Although socialism has yet to make much of an advance in Europe and North America, despite years of crisis, the current period is one which has exposed both the moral and financial bankruptcy of capitalism. The collapse of “actually existing” neo-liberalism has created fertile ground for progressives to offer long term solutions to the world’s political, economic and environmental problems.

The repression which occurred in the Eastern Bloc has long blackened the name of socialism. The inefficiencies of these economies, coupled with Stalinist totalitarianism, repelled many from supporting revolutionary change. The aberrations which occurred in these states are seen by a significant number of people as the natural outcome of attempts to build an alternative economic system. However mistaken this view may be, it is a genuinely held fear which needs to be addressed by socialists. Concrete alternatives, as well as a realignment of our political priorities, are required if we are to successfully renew socialism in the 21st century. These are issues I hope to address in the following articles.

The problem with capitalism

Before exploring the possibility of renewing socialism, it’s necessary to define the system we want to replace. Capitalism is an economic system in which the majority of the means of production – factories, workplaces, natural resources – are privately owned. Under this system, commodities are produced not for their use value, but to be sold in exchange for money. And because they do not own any means of production, the people who produce these commodities – workers – labour in exchange for a set wage paid by the people who do.

The case against capitalism is a strong one. The fact that 6 million children under the age of five die every year as a result of starvation and malnutrition on a planet with a food surplus should be enough to persuade anyone that the current economic is system is deeply flawed. The extreme level of inequality which exists is also disturbing. The Walton family, who own Wal Mart, possess more wealth that the poorest 40% of all Americans, while the world’s three richest individuals control more wealth than the poorest 600 million. The most pressing issue facing our species at the minute, however, is the environmental crisis. Capitalism, with its internal need to pursue unending economic growth, is unlikely to put an end to the destruction of our ecosystem. Surely humans are capable of building a better system than this?

No other system in human history has produced as many goods and as much technology as capitalism. For a minority of human beings, mostly in Europe and North America, it has improved standards of living, albeit on an extremely unequal basis. However, capitalism’s economic insanity shows that this system can no longer play a progressive role for humanity. It is a grossly illogical system, which allows thousands of people to sleep rough on the streets while countless homes lie empty. It is a system under which 200 million people are prevented from working, while those with jobs are, more often than not, overworked. It’s a system which wastes colossal amounts of human and natural resources on socially useless industries, such as advertising and, of course, war. In short, it is a system of economic anarchy.

The Soviet experience

If the left is serious about socialist ideas resonating among the general population again, a frank and honest appraisal of what occurred in the Soviet Union must take place. As well as condemning the many crimes committed under Stalinism, it’s also important to recognise the achievements of the planned economies. History is very rarely as simple as what is taught in schools. For example, life expectancy in China before the 1949 revolution was 35. Today, it is 73. Russia also went from being an underdeveloped, peasant society in 1917 to a world superpower which defeated Nazism in 1945. On top of this, free healthcare, free education, housing and full employment were provided to citizens. Even during the Great Depression, the USSR retained full employment. These things would not have happened without a centrally planned economy.

Following the October Revolution in 1917, the young Soviet State found itself in an extremely precarious position. Crippled by a world war which had taken the lives of millions of Russians, and a culturally backward society, the task of building socialism there was always going to be an uphill battle. The civil war, during which fourteen imperialist armies invaded Russia, physically decimated country’s working class, resulting in the political destruction of the institutions of workers’ democracy – the soviets. This gave rise to a powerful ‘Red’ bureaucracy which history now knows as Stalinism.

The problems in the Soviet Union were not caused by central planning per se, but by the fashion in which the bureaucracy carried out that planning. There was no democratic input on the part of the workforce and discussion was stifled. Industrialisation occurred at a rapid pace, causing much needless human misery. Socialists should not reject out of hand the idea of central planning because of the failures in the USSR. It is clearly the best way of ensuring that resources are distributed fairly and the needs of society are met. When faced with enormous difficulties, even capitalists agree with this. During the Second World War, the US and Britain planned production. Churchill and Roosevelt knew fine well that the “free market” could not meet the needs of the war effort.

Socialism, if it is to mean anything, should be about workers’ control and mass democracy. Clearly, these things did not exist for very long in the USSR, so to describe this state as “socialist”, in my view, is wrong. The tiresome argument that Marx and Engels would have endorsed this repressive system should not be taken seriously. As Tony Benn once said: “The Marxist analysis has got nothing to do with what happened in Stalin’s Russia: it’s like blaming Jesus Christ for the Inquisition in Spain.” And although it should not be regarded as socialist, neither would it be fair to describe the USSR as capitalist. Granted, there was most certainly a privileged elite at the top of Soviet society with superior access or education, health care and housing, but the means of production were controlled by the state and there was almost no inherited wealth.

What should also be acknowledged in this discussion is the devastation which the restoration of capitalism has caused in the former Soviet states. In a report for the World Bank in 1999, Nobel Prize winning economist Joseph Stiglitz, wrote: “For eighteen of the twenty five countries [of Eastern Europe and the Soviet Union] poverty on average has increased from 4% to 45% of the population…and life expectancy in these countries on average has fallen even while world life expectancy has risen by two years.” Between 1992 and 1994, Russia’s GDP collapsed by 42% – a bigger collapse than what the US experienced during the Great Depression. Suicide rates doubled and infant mortality was comparable to some third world countries. Russia’s “market reforms” had an immense human cost.

Previous attempts to build socialism failed. That does not mean, however, that future attempts are doomed to inevitable failure as well. Capitalism’s overthrow of feudalism, which required a number of revolutionary attempts, did not come about overnight. The same may be true for socialism. Rather than taking a dogmatic approach, like some on the left have done in the past, we must learn from both the mistakes as well as the achievements of history and act accordingly.

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There are many issues which lay bare the subservience of Ireland’s political elite to the edicts of international capital. The bank guarantee of September 2008; the handing over of natural resources to multinationals; the miniscule tax rate levied on corporations; a crippling austerity agenda which continues to stunt the country’s economy – the list goes on.

This week saw yet another bleak day in the state’s history when gombeenism ran roughshod over common decency. On Monday (October 1), €1 billion was handed over to unguaranteed, unsecured bondholders of Allied Irish Bank, which is 99% owned by the state, as part of a pitiful bid to appease “the markets”. The Fine Gael/Labour coalition has claimed ignorance over the identities of these and other similar recipients of Irish state funds, although the list is widely known to include financial institutions such as Goldman Sachs, Deutsche Bank and Barclay’s. By the end of this year, a total of more than €19 billion will be paid to speculators who gambled in the boom years and now refuse to take a loss. In 2013, more than €17 billion of state money will be squandered in the same way.

This enormous transfer of wealth takes place against the backdrop of the largest spending cuts in the state’s history. In the demented political sphere of Ireland, where the nation’s economy is seen as a mere tool to service the needs of multi-national corporations, closing A&Es, reducing the wages of teachers and slashing allowances for disabled people are seen as “tough” decisions. Increasing corporation tax and forcing the super-rich to take a loss on their gambles are, apparently, weak decisions. A 15% unemployment rate on top of mass emigration, it seems, is the tolerable price to pay in the appeasement of “the markets”. Sacrifices must be made to save the European financial system, we have been told.

For all their talk of “injustice” and “unfairness” earlier this year, the GAA stars who rallied behind disgraced former billionaire Séan Quinn have remained remarkably silent on this particular issue. The handing over of scarce public funds to nameless professional gamblers merits no public demonstration of anger from Joe Kernan, Mickey Harte or the others who chose to support a corrupt billionaire. Nor were they as outspoken when Ireland’s economic sovereignty was handed over to the IMF in 2010.

Diarmuid O’Flynn, a hurling reporter for the Irish Examiner, has filled the void left by these sports stars and, of course, many other journalists. RTÉ, the national broadcaster, failed to report on Monday’s €1 billion bond payment. O’Flynn is one of the organisers of a weekly demonstration in his home village of Ballyhea in County Cork against the bondholder bailout. Now into its 84th week, the Ballyhea protest is a small glimpse of indignation among a population which has been renowned globally for its tame acceptance of harsh cutbacks. O’Flynn’s blog, Bondwatch Ireland, is an excellent source of information for those seeking to find out the true scale of the toxic debt plunged onto the nation’s shoulders. A result of meticulous research, the site details on a weekly basis the upcoming bond payments due at Ireland’s state-owned banks. Irish journalists should be well advised to consult the site.

Many of the attempts to explain what caused Ireland’s economic collapse have been muddled, causing much confusion around the issue. Some commentators point to the “cute-hoorism” prevalent among the Irish ruling and political class, while others highlight the outright criminality which existed at the top of Ireland’s banking sector. All of these arguments carry weight, but ultimately fail to provide a thorough explanation.

Ireland’s problems transcend its own national boundaries. Although all of the above were certainly contributing factors, the country’s collapse was part of a global calamity. Since the 1970s, capitalism was transformed from its Keynesian model towards a more radical neo-liberal one. Trade union influence diminished, financial markets were deregulated and public assets were privatised. Ireland was long touted as the “success story” of this economic arrangement.

The rise of neo-liberalism saw an unprecedented concentration of the world’s wealth into increasingly fewer hands. The demise of trade union movements in much of the west resulted in falling and stagnating wages for most workers. In order to make up for the loss of income, people were forced to take on ruinous amounts of debt to secure some of life’s basics, most notably in Ireland’s case, a home. The bursting of this credit bubble was inevitable.

In 2011, the British TUC released a report revealing the extent to which the incomes of workers had stagnated. It was found that UK workers would be earning a combined total of £60 billion more had wages increased in proportion to the growth of the wider economy. The same is true in many other countries. In the United States, the Irish bourgeoisie’s ideological home, this inequality occurs to an unnerving degree. The poorest 50% of Americans own a mere 1% of their country’s wealth, while the richest 1% own more than 34%. Or, to put in another way; the richest 1% of Americans own 34 times more wealth than half of all the American population combined. One family, the Waltons, who own Wal Mart, now possesses more wealth than the bottom 40% of Americans. Such is the economic model our rulers aspire to.

During the boom years, with its unregulated financial markets and low tax rates for corporations, Ireland was held up as the poster boy of neo-liberal capitalism. The Celtic Tiger ran riot as the worst off in society were left behind. On 24 September, the Simon Community reported that homelessness has increased in Dublin, with more than 2,600 people seeking the housing charity’s assistance. This situation continues alongside the sordid spectacle of up to 400,000 empty homes scattered around the country – many of them owned by the state’s ‘bad bank’, NAMA.

Just as many of Ireland’s problems were rooted in a global system, so too do the seeds of a solution lie in other parts of the world. Although afflicted with a notoriously parochial political system, the population would do well to note the actions of people in other parts of Europe. Following its own crisis in 2008, Iceland refused to repay the debts accumulated by private banks, to the fury of the neo-liberal “experts” and “the markets”. Depositors’ money was guaranteed but private investors were forced to take a loss. These are real “tough” decisions. Iceland now has an unemployment rate which is less than half that of Ireland’s, and a growth rate of 3%. This political courage needs to be combined with the resistance of the kind shown by trade union movements in Greece, Spain and Portugal. Neutered as it is by a subservient ‘social partnership’ model, the Irish trade union movement, with honourable exceptions of course, has so far failed to inspire mass action. The leadership of the Irish Congress of Trade Unions even refused to take a position on the EU Austerity Treaty in May.

Ireland’s socialisation of private losses is a national scandal which remains so far under-reported. It’s astounding that many fail to make the connection between this and the array of cuts to public services taking place right now.