The following is my contribution to an informal round-table discussion organised by some members of The Equality Trust.  The Equality Trust was set-up as a not-for-profit organisation to educate and campaign on the benefits of a more equal society which in turn grew out of the “evidence based politics” presented in Richard Wilkinson and Kate Pickett’s book The Spirit Level: Why Equality is Better for Everyone.  The main topic of discussion at the round table is to be economic democracy and how this relates to a more equal society. 

How Capitalist Economics Institutionalises Inequality:

Capitalist economics institutionalises a class system, and with it vast inequalities in economic power, in four key ways:

1.         Private ownership

2.         Hierarchical division of labour

3.         Remuneration for ownership and power

4.         Competitive markets

The first feature creates a class distinction between economic actors – there are those who own the workplace and those who rent themselves out for a wage.  This is the capitalist / working class distinction. 

The second feature also creates a class distinction, but in a different way to the first feature. As already stated, there are those who own (capitalists) and those who rent themselves out (workers), but there is also a class of professional managers who monopolise empowering tasks and decision making authority within the economy.  This is the coordinator class who have their own interests separate from those of both the working class and capitalist class. 

The third feature helps reinforces the economic positions of power and privilege of both the capitalist and coordinator class by setting-up a system of reward that perpetuates inequality. 

The fourth feature generates an overall logic within the capitalist system that rationalises elitism.  Within the context of competitive markets organising the economy along class lines is a necessity for business survival and as a consequence economic inequality makes sense. 

From this basic analysis of capitalism we can draw the following conclusions:

Given that, the more inequality we have in our society the less meaningful our democracy becomes, it follows that anyone interested in economic democracy must reject capitalism.  Or put the other way around, given that meaningful democracy requires equality (where people can interact as equals) capitalism is an anti-democratic form of economic organisation.  Furthermore, not only does capitalism institutionalise top-down authoritarian decision-making practices within the economic sphere of society it also undermines meaningful democracy within the political sphere by generating vast levels of inequality amongst citizens.  This fact enables some citizens to impact on the political system more than others (think newspaper ownership) thus distorting the democratic process – in their own favour of course. 

Where Socialists Went Wrong:

Historically it has been socialists who have highlighted and organised against capitalist class exploitation and inequality.  And there have been socialist revolutions during the 20th Century that have successfully established an alternative economic system to capitalism.  However it is also true to say that these revolutions did not succeed in building a classless economy that institutionalised equality and functioned along meaningful democratic lines.  If we do a similar analysis of 20th Century socialism as we did above with contemporary capitalism we will see why.

Despite the good intentions of many socialist to establish a classless and democratic economy they tend to advocate institutions that create new forms of elitism and class oppression.  They are:

1.         Nationalisation of industry and democratisation of the economy

2.         Hierarchical division of labour

3.         Remuneration based on need

4.         Central planning

This is the socialist alternative to capitalism’s private ownership and it constitutes a move in the right direction. However, socialists have never really made it clear what the Nationalisation of industry means or how such an economy would be democratically run – at least nothing that goes beyond vague calls for workers control.  More importantly, as we will see below, socialists also advocate institutions that actually undermine economic equality and democracy.

Socialist fail to come up with an alternative to the hierarchical division of labour.  In doing so they reproduce one of the main sources of inequality in capitalist economies by maintaining coordinator class dominance.  More to the point, as already noted above, maintaining inequality of economic power undermines economic democracy. 

All economic systems need a criteria for remuneration.  We need a fair way to work out who gets what for the work they have done and in a way that does not undermine equality and democracy.  Obviously there are people who cannot work and their needs should be met.  However, for the vast majority,  this is not the case most of the time.  Therefore we require an additional mechanism for assessing economic reward that goes beyond need whilst promoting economic equality and democracy.  Again, socialists fail to do this. 

As an alternative to competitive markets socialists usually advocate central planning.  Now, because competitive markets are probably the most destructive and anti-social man-made institutions in history they must go!  From the point of view of people interested in economic democracy and equality central planning is not a good alternative.  This is because, as with the hierarchical division of labour, central planning elevates the coordinator class to a position of power.  This institutionalises inequality and with it generates an anti-democratic dynamic within the socialist economic system. 

From this basic analysis of socialism we can draw the following conclusion:

Like capitalism, albeit in some different ways, socialism institutionalises a class system and with it economic inequality.  And as with capitalism, the economic inequality generated under socialism naturally undermines economic democracy.  The coordinator class dominance of the economy under socialism also discourages popular participation with the democratic process.  Thus the working class feel alienated from the decision-making process and participate less and less.  Not surprisingly this dynamic results in a tendency towards the centralisation of economic power – which is exactly what we saw in socialist countries of the 20th Century. 

Parecon – Institutions for Economic Equality and Democracy:

Via a basic analysis of both capitalist and socialist economics I have try to show how these systems institutionalise inequality and as a result undermine economic democracy.  Now I would like to turn to a system that has been design institutionalise classlessness (read equality) and self-management (read democracy).  The model is call participatory economics – or sometimes parecon for short.  The main institutional features of a participatory economy are: 

1.         Self-managed worker and consumer councils

2.         Balanced job complexes

3.         Remuneration for effort and sacrifice

4.         Participatory planning

Worker councils and consumer councils constitute the two main institutions in the participatory economic system.  There are no owners of these institutions. Rather, they are self-managed by their members. Here self-management is understood as a specific conception of democracy whereby people have a say in decisions in proportion to how much they are affected by the outcome of that decision.  Not only is this special notion of democracy intuitively fair it also avoids any centralisation of decision-making authority. 

As an alternative to the hierarchical division of labour parecon advocates propose balanced job complexes.  Both capitalist and socialist economics allows for jobs to be design in such a way that some peoples jobs (the coordinator class) are more desirable and empowering that those of other economic actors (the working class).  As we have seen above this is a major cause of economic inequality which in turn undermines democracy.  Parecon gets around this by proposing a redesign of jobs so that everyone’s job is made up of a bundle of tasks that are equal for desirability and empowerment.  This is a balanced job complex. 

What is a fair criteria for remuneration?  Advocates of participatory economics propose effort and sacrifice.  This means that if someone works longer (duration) or harder (intensity) they get more credit as a consumer.  Again, this seems intuitively just but it is also important to point out that such a criteria for remuneration within the context of self-managed councils can ensure that members can maintain conditions of equality where people can interact as equals. 

Instead of competitive markets (as with capitalism) or central planning (as with socialism) a participatory economy would utilise a participatory planning process.  This entails worker and consumer councils submitting information to a special workplace call an iteration facilitation board (IFB).  An IFB is a workplace where workers process information from both consumer and worker councils regarding consumption and production, respectively.  There are a series of rounds whereby a) councils submit their requests to the IFB. b) The IFB feeds back information to the councils, and c) councils resubmit their requests based on this new information.  This co-operative process continues until a mutually agreed upon plan is identified.  What is most important here is that, unlike competitive markets and central planning, participatory planning maintains economic equality and democracy.  

From this basic analysis of participatory economics we can conclude the following:

If we want economic equality and democracy we need a new economic system.  This system will have to have alternative features to those of both capitalism and socialism.  Participatory economics represents such a system.  Each key feature proposed in the parecon model institutionalises economic equality and democracy.  If, for what ever reason, we reject the model altogether or any one of these features we must come up with an alternative  model / features that result in an economy that institutionalises economic equality and democracy.

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