Skip to main content

books A Democratically Run Economy Can Replace the Oligarchy

Portside is proud to bring our readers a full chapter from the book Imagine: Living in a Socialist USA. Periodically Portside will be sharing with our readers chapters and excerpts from books we feel are noteworthy. What better way to launch, than a book about socialism-in the USA. Ron Reosti's chapter - A Democratically Run Economy Can Replace the Oligarchy - argues we can democratically design and control an economy that satisfies the needs and desires of the people.

Capitalism Isn't Working,NDP Socialist Caucus (Canada)

It is increasingly apparent to most people that the U.S. is an oligarchy, not a democracy. An incredibly small number of very wealthy people (much smaller than 1 percent) have inordinate influence in the government, the media, academia, and most important, the economy.

These oligarchs, of course, are not elected. In fact, polls indicate that the majority in this country, the people who do the work that produces the oligarchs' immense fortunes, want a more egalitarian distribution of that wealth, a national health-care system and secure retirement-all of which the economy can afford, but the oligarchs oppose.

These oligarchs exercise their control by virtue of their immense wealth, which enables them to finance both major political parties, own the major media outlets, and fund think tanks, university departments, and more specialized political publications. They can reward those who promote capitalism and ostracize those who dare challenge their version of reality. Moreover, because they own and control the major corporations, most of the rest of us depend on them for our livelihood. They determine what gets produced, where, when, by which means, and by whom. When they screw up, as in the latest crisis, we had to bail them out because if we did not, the entire economy would have collapsed, as it did in the 1930s.

We are constantly told that the American capitalist system is not just the best system-it is the only system that can provide a decent standard of living for the vast majority and preserve our democratic government. One reason the majority acquiesces in and even endorses this belief is that they are convinced that an egalitarian and democratic economy is a fantasy, that history teaches that socialism equals dictatorship and poverty. But history is not destiny.

We are not a rural, uneducated peasant society. The idea that we cannot democratically design and control an economy that satisfies the needs and desires of the people without waste, inequities, wars, depressions, and environmental degradation is not just insulting. It is not true.

There are many economists, political scientists, and social scientists who have described how such an economy could work. They differ about how decisions would be made, but they are unanimous that the decision-making process must be democratic. This democracy is essential both to ensure against a dictatorship-whether it be a dictatorship of a bureaucracy, a political caste, or an oligarchy of capitalists-and also because democratic decision-making will ensure the most efficient use of resources (including labor) and the most efficient and equitable distribution of goods and services.

The best evidence that capitalists are not necessary is the success of hundreds of successful employee- and community-owned enterprises and co-ops that outperform their capitalist competitors.

There are over 11,000 businesses with employee stock-ownership plans (ESOPs) in the U.S. Not all are totally employee-owned and operated. But many are, and the evidence is that the more ownership and control the employees have, the more productive and successful is the enterprise. Gar Alperovitz, in his book Beyond Capitalism, catalogs some of the success stories, such as W.L. Gore, maker of Gore-Tex waterproof clothing. Studies by the National Center for Employee Ownership, several teams of economists, and the U.S. General Accounting Office, he notes, "all confirm that combining worker ownership and employee participation commonly produces greater productivity gains, in some cases over 50 percent."

Alperovitz also points out that there are over 48,000 co-ops now operating in the U.S., including credit unions, rural electric co-ops, retail co-ops, mutual insurance companies, and housing co-ops. In fact, he reports, 30 percent of U.S. farm products are marketed through co-ops. These co-ops have over 120 million members, and many have been functioning for decades. Their members obviously prefer them to the capitalist alternatives.

Many communities have a long tradition of public ownership of banks, electric companies, water companies, hospitals, and, more recently, cable-TV and Internet providers. Cleveland has had a publicly owned electric company since 1906. Publicly owned utilities on average charge their residential customers roughly 20 percent less than investor-owned utilities, and commercial customers pay 11 percent less. A 2000 study by Elliott Sclar of Columbia University suggested that the promised benefits of privatizing municipal electric utilities were illusory.

Some of these publicly owned enterprises date from the early 20th century and continue to outperform private alternatives. The Bank of North Dakota was founded in 1919. Today it is still going strong, lending money to students, farmers, small businesses, and homeowners. In the two-year period from 2001 to 2003, the bank returned a profit of $75 to $80 million to the state. The Wisconsin State Life Insurance Fund, established in 1911, offers life insurance with premiums 10 to 40 percent lower than comparable private coverage, while returning $3.7 to $3.9 million in dividends to policy holders in the 1990s. In countries such as Canada and the United Kingdom, national health plans provide better results at a significantly lower cost and without denying medical care to millions of citizens. (For more information, I recommend Erik Olin Wright's book Envisioning Real Utopias.)

Even in large corporations, the workers handle the actual day-to-day operations; the owners, stockholders, and financiers don't. This is important, because despite the destructiveness of corporate power in our current society, some enterprises of that size will still exist in a democratically run economy, because they have economies of scale.

Can such large publicly owned corporations operate democratically, subject to a democratically determined central plan? If the criteria for an efficiently run large corporation are not about how much profit it makes for private investors, but how well it delivers the goods and services demanded by the community, with the minimum expenditure of resources and labor, there is no reason that it can't succeed. The Social Security Administration, the Veterans' Administration hospitals, publicly owned utilities, and more all do so by this standard.

These institutions operate efficiently and are run by professional and dedicated employees. Millions of people depend on them for essential goods and services, and they are often responsible for and control billions of dollars. Despite the government's control of these programs, they have not established a dictatorship, and they are remarkably free of corruption. In fact, such government enterprises are examples of a democratic economy. They are ultimately subject to the will of the electorate. It should also be obvious that the more democratic, responsive, and truly representative the government, the more responsive will be the bureaucrats that it selects and hires to run these programs.

But is it enough that employee-owned and controlled firms are more productive than comparable privately owned firms, and that publicly owned and operated businesses can compete with privately owned businesses? How does this guarantee that the ECONOMY would function efficiently if run democratically? How will investment priorities be decided? What will ensure that the necessary resources get to the firms that can best utilize them? How will a democratic socialist economy motivate workers to be efficient and creative?

Ironically, under capitalism there is no guarantee that the economy will work efficiently-and certainly no guarantee of fairness or social welfare. Thousands of firms go bankrupt every year. The system experiences frequent recessions and less frequent but disastrous depressions. These generate huge amounts of waste, destruction or abandonment of productive equipment and buildings, and human suffering. Moreover, the so-called "free market" is unable to build infrastructure, provide education, health care, and social welfare, and ensure a livable environment. Government now provides most of these essential elements of an effective economy.

Some degree of central planning is both desirable and necessary. Even under capitalism, the Federal Reserve System decides monetary policy, and the government decides tax policy and therefore public investment priorities. Some decisions would have to be made centrally, as they affect the entire economy.

The benefit of socialism is that those decisions can be made democratically in the public interest, not by the oligarchy for the benefit of the oligarchy. A truly democratic society can develop how the central planning will work, who will do the planning, who will approve the plans, how the community will voice its approval or disapproval of the plan, and what issues will be subject to the plan. It could also decide where central planning should override decisions made at the local or enterprise level and where it shouldn't.

If people are sophisticated enough to choose their own leaders and to operate an economy democratically, they are certainly sophisticated enough to design political controls to guard against planners using political or police power to become a self-perpetuating dictatorship. The planners would be democratically chosen, could only serve for limited terms, and would have no power outside their office. We can avoid the emergence of a new oligarchy by ensuring that incomes will vary only within a very narrow range.

With capitalism, the system's success supposedly comes from the interplay of the profit motive and the market-with, of course, a big help from the government, including taxation to pay for the infrastructure, education, police, the military, courts, coinage, and the various regulatory agencies.

What will replace the profit motive and the market?

First, the profit motive: Can humans cooperate, or must they compete to succeed? Is it true that the prospect of amassing a huge fortune is necessary to motivate people to spend the necessary time and effort studying and/or training to develop and perfect their art, profession, or creative genius? Was that the motivation for J.S. Bach, Isaac Newton, Albert Einstein, or Jesse Owens?

The geniuses whose innovations lie under whatever progress we have made have not been the capitalists. At best, entrepreneurs have organized production based on the discoveries of those who were motivated by scientific curiosity and had the time to study, explore, and develop their ideas. In fact, many, if not most, of the innovations of the 20th century were developed by the military or public universities. It was never necessary to turn those discoveries and innovations over to large corporations. The profits those corporations reaped rightfully belong to the taxpayers who paid the salaries and provided the laboratories for the people who actually made the discoveries and developed the technology.

If researchers were properly supported, whether individuals or small groups, working alone or in public universities or research labs, there is no reason they would not continue to come up with bright ideas for more efficient or more desirable products and/or methods of production. Nor is there any reason why a democratically run economy wouldn't take advantage of such developments. In fact, an economy based on worker-owned and operated firms and a democratically controlled central plan would have more freedom to utilize new technology for the common good than an economy run by giant corporations and banks wedded to a particular business model.

Even so, wouldn't there be too many slackers if everyone were assured that their needs would be met? Will people work efficiently without a boss wielding the lash of unemployment and starvation? Will a democratic socialist economy have to wait until humans become saintlike?

The answer to those questions is no. There is empirical evidence from worker-owned and controlled firms that people who are actually invested in an enterprise will work harder, more efficiently, and more cooperatively. There is no historical evidence of a society starving to death because its people refused to do what was necessary to survive, i.e.; work. Is it really conceivable that a democratically run economy would fail because too many people would refuse to act responsibly and go to work, or that they would democratically vote to starve to death?

It might be necessary and desirable to give people additional compensation or time off for education, training, or performing onerous or dangerous work. A democratic economy is certainly capable of solving these issues, whether at the firm level or the national level, without creating a new class of privileged individuals who could undermine the democratic basis of the economy.

The mobilization for World War II proved Americans' ability to cooperate for a social good they believed in. Surely a cooperative economy that delivers a decent life without the death and destruction of war would be an equally strong motivation. Even in today's unfair society, most people go to work, act responsibly, and feel empathy for their fellow citizens. There is no reason to believe that an economy operated by the people and for the people would have fewer responsible and productive citizens.

How about the market? What's going to ensure that resources, including labor, are utilized efficiently, and that the right mix of products and services is produced?

In theory, in the classic Adam Smith model, a free-market society does this when numerous equally powerful producers compete to supply the demand at the lowest cost, and consumers can seek out the best product at the lowest price. In reality, capitalists and the profit motive produce monopolies and oligopolies that gain enough power to distort the market. The market, despite being regulated by government to a significant extent, doesn't do such a great job, given the amount of waste, duplication, environmental destruction, and harmful products it produces, and the gross disparities in income and wealth that it causes.

If not markets, then what? How will firms decide what to produce, and at what price? The answer is the same one now used by corporations: customer surveys and computer-generated plans. In today's world of electronic communication, economic units can make pretty good estimates of how many cars, shirts, rolls of toilet paper, or tons of steel to produce. If they are wrong, they can correct the error as efficiently, if not more efficiently, than private, profit-oriented corporations.

Experience may demonstrate that there is a place for a market in a democratic, socialist economy, such as for local farmers, small businesses, and services like plumbers, tailors, and hairdressers. If so, that issue can be decided democratically.

There are no inherent or insurmountable barriers to a democratically run economy being efficient, equitable, and environmentally friendly without capitalists. There are, of course, many other issues. How will work be distributed? Who will do the undesirable work? Who will do the desirable work? How will wages and salaries be determined? Who should play what role in controlling the workplace-workers, labor unions, political parties, and the community?

All of these important issues can be resolved democratically. We don't need a group of oligarchs or capitalism itself to do that. Nor does the difficulty of resolving them imply that creating a democratically run economy is not feasible-or not desirable and, ultimately, necessary.

A democratic socialist society can also correct itself in ways capitalism can't. It was evident long before 2007 that the housing boom and therefore the economy were headed for disaster. But the capitalist system failed to remedy these problems before the crash, as it failed to correct the similar imbalances that caused the Great Depression. We also cannot implement obvious solutions for the environmental crisis and the shortage of health care, because capitalism's vested interests oppose anything that would diminish the fortunes they are making from the status quo.

This problem will not go away entirely in a democratic socialist economy. Some people or groups may be reluctant to change the way they work. But they will not have the power to block solutions obvious to the majority. The solutions to problems likely to arise in any economy are best addressed by using the best evidence and the best intelligence in sharing the costs and, of course, the benefits.

The evidence is that a democratically run socialist economy could function competently and equitably, and that it could provide essential goods, services, and economic security to the entire population. That is the economy we must have. The world can no longer sustain the ecologically destructive, wasteful and inhumane capitalist system and its distorted allocation of privilege and wealth.

We can create this alternative economy and society, if we have the courage to fight to achieve it.

[Ronald Reosti was born in Detroit in 1938. His parents, both from Italy, imparted to him a working-class identity, a sense of justice, a belief in the possibility of social change, a commitment to democracy, and a hatred of the undemocratic ruling class. He embraced socialism in his early teens, during the McCarthy era, and has remained committed to that vision. For the last 48 years he has practiced law and been part of the radical community in Detroit. He looks forward to a vibrant socialist movement to win the millions yearning for an alternative to the inequitable and destructive capitalist system.]


About the book - Imagine: Living in a Socialist USA

The polar ice caps are melting, hurricanes and droughts ravish the planet, and the earth's population is threatened by catastrophic climate change. Millions of American jobs have been sent overseas and aren't coming back. Young African-American men make up the majority of America's prison population. Half of the American population are poor or near poor, living precariously on the brink, while the top one percent own as much as the bottom eighty. Government police-state spying on its citizens is pervasive. Consequently, as former President Jimmy Carter has said, "we have no functioning democracy."

Imagine: Living In a Socialist U.S.A., edited by Francis Goldin, Debby Smith, and Michael Steven Smith, is at once an indictment of American capitalism as the root cause of our spreading dystopia and a cri de coeur for what life could be like in the United States if we had economic as well as a real political democracy. This anthology features essays by revolutionary thinkers, activists, and artists-including Academy Award-winning filmmaker Michael Moore, civil rights activist Angela Davis, incarcerated journalist Mumia Abu Jamal, and economist Rick Wolff- addressing various aspects of a new society and, crucially, how to get from where we are now to where we want to be, living in a society that is truly fair and just.

Imagine: Living In a Socialist U.S.A.
edited by Frances Goldin, Debby Smith, and Michael Steven Smith
HarperCollins Publishers - Harper Perennial, 320 pages
Trade Paperback:   $15.99
January 21, 2014
ISBN: 9780062305572   ISBN 10: 0062305573

Reprinted with permission of HarperCollins Publishers. Many thanks to the editors and the author for facilitating Portside's publication of this chapter.

If you like this article, please sign up for Snapshot, Portside's daily summary.

(One summary e-mail a day, you can change anytime, and Portside is always free.)