A Worker’s Democracy
Capitalism isn’t working. Stagnating wages, rising inequality and growth reliant on ballooning consumer, business and government debt cannot continue indefinitely. The greatest economic crisis in 80 years requires a radical response – a major shift towards a more democratic and egalitarian capitalism. This article will outline such a response, calling for a fundamental restatement and extension of the democratic ideal – into the workplace, and into everyday life.
Since 1970 in the US median wages have stagnated or decreased, while profits have hit record highs. In the UK the share of national wealth going to wages has dramatically decreased since the 1970s, “peaking at 65 per cent in 1973 but running at 53 per cent today” with profit picking up its share. Similarly the share going to profit has been increasing across European economies – there is a broad and enduring trend across industrialised countries of wages losing out to profit.
The consequence of this changing share is that most economic increases have been concentrated in a wealthy minority, with the majority being left behind. The root cause of ballooning inequality is the increasing proportion of value being assigned to capital over labour; Paul Krugman emphasised recently “the capital/labor dimension of inequality”, those who own capital goods – businesses, houses and other assets, have been much more favoured by the economic trends of the past 40 years than those who own nothing but their labour. As he states, “if this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets”.
Living standard improvements have been largely funded by debt, founded on increasing house prices and cheap loans – a 40 year, $50 trillion credit bubble, kept afloat only by colossal government intervention. Credit expansion has outstripped real growth, as investment goes into profitable financial speculation over productive enterprise, and the economy has become dangerously unbalanced, and unsustainable. Richard Duncan argues that governments saw that “the way to buy off the voting public, who were losing their jobs and not seeing any wage increases, was to make their asset prices go up—their houses increased in value, so they could spend more even if their wages didn’t go up”.
Inequality in societies has been shown to correlate with unhappiness. Considering that happiness and wealth suffer a relationship of diminishing returns, with more wealth meaning smaller increases in happiness, economic equality represents a much more efficient allocation, if we want to maximise societal happiness.
Better wages are the best way to deal with inequality, if the root cause is the ratio of income assigned to capital or labour. Redistribution by the state can encourage welfare dependency, or at least decrease the marginal cost of being unemployed and also requires higher taxes, which distort and hinder markets, and discourage expansion. Increasing income for the poor is the most efficient way of boosting consumer spending, and thus aggregate demand, as the poor are most likely to quickly spend any new money. This spending will likely have a multiplier effect, and will be matched to people’s needs with far more accuracy than government spending can be. Boosting demand fuels real economic growth.
The best way to get better wages, and thus real growth, is to increase the power of labour Vis a Vis capital. This could be achieved through democracy in the workplace, enforced by law:
All managers and CEOs must retain majority support of all those under them. They will still be appointed by the board of directors, but also need the consent of the workforce to continue in their positions. Votes will be held annually and a vote of no confidence may be called at any time, with all votes cast by secret ballot.
The policy suggested shifts power to the employee, and would thus most likely result in wage increases at the expense of profits, rebalancing the relationship. Managements that were overzealous in cutting wages would likely be voted out, and would have to take employee interests into account. Businesses that wanted to motivate their workforce into maximising capital, rather than wages, could give a large part of wages in the form of shares – workers would then become shareholders. These new shareholders would have self-interest in promoting and supporting the business they were a part of, rather than working the minimum necessary to avoid punishment, and to keep their wage. The classic class war between labour and capital would be over, as workers became owners themselves. Strikes and labour disputes could be nipped in the bud and democratically resolved, without interruptions to production.
Furthermore, beyond the economic arguments, there is the attraction of extending universal principles. Democracy ensures accountability – currently the only way an employee can hold his/her employer to account is by leaving, or via conflict, protest and strike. An analogy can be made with the citizen of non-democratic country – they have a similar set of options. If we think democracy is good, then we need some strong arguments for why its values should not be involved in the workplace. Why should we spend so much of our lives in organisations in which authority flows only downward, and where we have minimal control? Where our consent means very little? We deserve a better, more democratic capitalism.
Historically, those who control economic production also have political primacy. Under feudalism, power lay with the landed aristocracy. Under industrial capitalism, the captains of industry controlled government. Under globalised financial capitalism transnationals and banks rule supreme. Democracy means popular rule, yet this is impossible while economic processes are not under popular control. In the final analysis workplace democracy is democracy in its true sense, with economic power, and thus political power, in the hands of ordinary people.
Written by Isaac Evans, edited by Simon Renwick