Economic democracy


Economic democracy is a socioeconomic philosophy that proposes to shift ownership and decision-making power from corporate shareholders and corporate managers to a larger group of public stakeholders that includes workers, consumers, suppliers, communities and the broader public. No single definition or approach encompasses economic democracy, but most proponents claim that modern property relations externalize costs, subordinate the general well-being to private profit and deny the polity a democratic voice in economic policy decisions. In addition to these moral concerns, economic democracy makes practical claims, such as that it can compensate for capitalism's inherent effective demand gap.
Proponents of economic democracy generally argue that modern capitalism periodically results in economic crises, characterized by deficiency of effective ''demand;'' as society is unable to earn enough income to purchase its own production output. Corporate monopoly of common resources typically creates artificial scarcity, resulting in socio-economic imbalances that restrict workers from access to economic opportunity and diminish consumer purchasing power. Economic democracy has been proposed as a component of larger socioeconomic ideologies, as a stand-alone theory and as a variety of reform agendas. For example, as a means to securing full economic rights, it opens a path to full political rights, defined as including the former. Both market and non-market theories of economic democracy have been proposed. As a reform agenda, supporting theories and real-world examples can include decentralization, democratic cooperatives, public banking, fair trade and the regionalization of food production and currency.

Deficiency of effective demand

According to many analysts, deficiency of effective demand is the most fundamental economic problem. That is, modern society does not earn enough income to purchase its output. For example, economic geographer David Harvey claims, "Workers spending their wages is one source of effective demand, but the total wage bill is always less than the total capital in circulation, so the purchase of wage goods that sustain daily life is never sufficient for the profitable sale of the total output".
In the Georgist view of any economic system, "wealth" includes all material things produced by labor for the satisfaction of human desires and having exchange value. Land, labor and capital are generally considered the essential factors in producing wealth. Land includes all natural opportunities and forces. Labor includes all human exertion. Capital includes the portion of wealth devoted to producing more wealth. While the income of any individual might include proceeds from any combination of these three sources—land, labor and capital are generally considered mutually exclusive factors in economic models of the production and distribution of wealth. According to Henry George: "People seek to satisfy their desires with the least exertion". Human beings interact with nature to produce goods and services that other human beings need or desire. The laws and customs that govern the relationships among these entities constitute the economic structure of a given society.
Alternately, David Schweickart asserts in his book, After Capitalism: "The structure of a capitalist society consists of three basic components:
  • "The bulk of the means of production are privately owned, either directly by individuals or by corporations that are themselves owned by private individuals.
  • "Products are exchanged in a market -- that is to say, goods and services are bought and sold at prices determined for the most part by competition and not by some governmental pricing authority. Individual enterprises compete with one another in providing goods and services to consumers, each enterprise trying to make a profit. This competition is the primary determinant of prices.
  • "Most of the people who work for pay in this society work for other people, who own the means of production. Most working people are 'wage labourers'".
Supply and demand are generally accepted as market functions for establishing prices. Organisations typically endeavor to 1) minimize the cost of production; 2) increase sales; in order to 3) maximize profits. But, according to David Schweickart, if "those who produce the goods and services of society are paid less than their productive contribution", then as consumers they cannot buy all the goods produced, and investor confidence tends to decline, triggering declines in production and employment. Such economic instability stems from a central contradiction: Wages are both a cost of production and an essential source of effective demand, resulting in deficiency of effective demand along with a growing interest in economic democracy.
In chapter 3 of his book, "Community Organizing: Theory and Practice", Douglas P. Biklen discusses a variety of perspectives on "The Making of Social Problems". One of those views suggests that "writers and organizers who define social problems in terms of social and economic democracy see problems not as the experiences of poor people, but as the relationship of poverty to wealth and exploitation". Biklen states that according to this viewpoint:

Savings, investment and unemployment

In his 1879 book Progress and Poverty, Henry George argued that a majority of wealth created in a "free market" economy was appropriated by land owners and monopolists through economic rents, and that concentration of such unearned wealth was the root cause of poverty. "Behind the abstraction known as 'the market' lurks a set of institutions designed to maximize the wealth and power of the most privileged group of people in the world—the creditor-rentier class of the first world and their junior partners in the third". Schweickart claimed that private savings are not only unnecessary for economic growth, they are often harmful to the overall economy.
In an advanced industrial society, business credit is necessary for a healthy economy. A business that wants to expand production needs to command the labor of others, and money is the default mechanism for exercising this authority. It is often cheaper for a business to borrow capital from a bank than to stockpile cash.
If private savings are loaned out to entrepreneurs who use them to buy raw materials and hire workers, then aggregate demand is not reduced. However, when private savings are not reinvested, the whole economy suffers recession, unemployment, and disappearance of savings which characterize deficiency of effective demand.
In this view, unemployment is not an aberration, indicating any sort of systemic malfunction. Rather, unemployment is a necessary structural feature of capitalism, intended to discipline the workforce. If unemployment is too low, workers make wage demands that either cut into profits to an extent that jeopardizes future investment, or are passed on to consumers, thus generating inflationary instability. Schweickart suggested, "Capitalism cannot be a full-employment economy, except in the very short term. For unemployment is the "invisible hand"—carrying a stick—that keeps the workforce in line." In this view, Adam Smith's "invisible hand" does not seem reliable to guide economic forces on a large scale.
Assuming business credit could come from public sources rather than from private savers, Schweickart and other analysts consider interest payments to private savers both undeserved and unnecessary for economic growth. Moreover, the personal decision to save rather than consume decreases aggregate demand, increases the likelihood of unemployment, and exacerbates the tendency toward economic stagnation. Since wealthy people tend to save more than poor people, the propensity of an economy to slump because of excess saving becomes ever more acute as a society becomes more affluent. Richard Wilkinson and Kate Pickett suggested that health and social problems are significantly worse in more unequal wealthy nations. They argue that there are "pernicious effects that inequality has on societies: eroding trust, increasing anxiety and illness, encouraging excessive consumption"

Monopoly power versus purchasing power

Regarding a social and economic democracy perspective on social problems, Douglas P. Biklen states:
The discipline of economics is largely a study of scarcity management; "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses". Absent scarcity and alternative uses of available resources, many analysts claim there is no economic problem".
While he considers these functions a public wrong, Kellogg also asserted the responsibility of the public to find and implement a remedy. Generally considered monopoly power, some view this "public wrong" as the most influential factor in artificial scarcity. For example, Henry George further suggested:
For example, many analysts consider invention a "more or less costless store of knowledge, captured by monopoly capital and protected in order to make it secret and a 'rare and scarce commodity', for sale at monopoly prices. So far as invention is concerned, a price is put on them not because they are scarce but in order to make them scarce to those who want to use them." Patent monopolies raise share prices above tangible labor value. The difference between labor-value and monopoly-value raises goods prices, and is collected as "profit" by intermediaries who have contributed nothing to earn it.
Analysts generally agree that such conditions typically result in a deficiency of effective demand. Labor does not earn enough to buy what enterprises produce. According to Jack Rasmus, author of The Trillion Dollar Income Shift, in June 2006, investment bank Goldman Sachs reported: "The most important contribution to the higher profit margins over the past five years has been a decline in Labor's share of national income."