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The End of Neoliberalism and the Future of Economic Democracy |
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by Joachim Bischoff
Email: mbatko (nospam) lycos.com (verified) |
29 Mar 2005
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The social- or welfare state was not a socialist project. it was the culmination of a long process in which capitalism was civili-zed and partly reconciled.. Now after a long rollback, we drift toward an historical depression. |
THE END OF NEOLIBERALISM
AND THE FUTURE OF ECONOMIC DEMOCRACY
By Joachim Bischoff
[This essay published in: Utopie kreativ, March 3, 2005 is translated from the German on the World Wide Web, http://www.linksnet.de/drucksicht.php?id-1537. These thoughts were presented at the Conference on Economic Democracy in Brussels, December 2004.]
On first view, the capital-dominated market economy captivates with its efficiency. In general, this market economy is marked by flexibility and a dynamic; it promotes the personal initiative of subjects and achieves an impressive diversity in supplying consumer goods and services through motivation of entrepreneurs. Even its most resolute defenders cannot deny the deficiencies of this economic order.. Since the great worldwide economic crisis at the end of the 1920s, the capitalist market economy has been supplemented by far-reaching social state insurances. These guarantees were repealed in the last decades in all main capitalist countries. The most important consequences of this deregulation of capitalism are the relative independence of the financial markets, the shift of the balance of power between paid labor and capital in businesses and society, a growing destruction of the paid labor society as well as the return of mass unemployment and fierce financial crises.
Through this development, two questions have moved into the center of political debate. How did this momentous change in the hierarchy of power between paid labor and capital occur? What economic reforms can achieve a complete change of policy?
COLLAPSE OF THE PAID LABOR SOCIETY
The deregulated capitalist market society is presently unable to combine persons seeking work and unused production capacities so these persons can organize their existence by selling their labor independently and with dignity. Since the end of the 1970s, the main European countries of capital have undergone a constantly radicalized policy of “exactions” in the struggle against insufficient economic growth, mass unemployment and rampant growth of precarious working- and living conditions. Since this time, the policy of economic- and global control has been stigmatized more and more by stimulating mass purchasing power and public investments. Instead the neoliberal paradigm of deregulation, flexibility and privatization rules all areas of social life.
Since the end of the 1970s, the policy of “improving the supply side” has dominated. Corporation taxes were lowered repeatedly and the top tax rates drastically reduced. No social regulation remains unchanged from closing time and working hours to protection from unlawful termination. Real wages and mass income fall behind the development of productivity – as urged by neoliberal thinkers and political strategists. The public sector and the social state are deregulated and privatized. A turn of the tide in economic growth and unemployment has not occurred. The political answer has been: “More reform is necessary. The defenders of the dominant course have said this for twenty years. Germany is congealed and encrusted. A stubborn structural problem persists, not an economic problem. More reforms and deregulation are urged to make the labor market more flexible. Social securities are privatized further. The whole reform agenda is consistently worked out.” (1)
No end of this collective march into the social-political cul-de-sac is foreseeable. This policy has undoubtedly produced effects. Social security has been perforated in many ways. Paid labor conditions are protected at a miserable level. Unregulated, atypical and precarious working conditions increase massively under the pressure of mass unemployment and politically-intended deregulation. This development represents the challenge of the 21st century together with the diverse forms of social exclusion and an enormous uncertainty of a large part of the population. (2)
The social- or welfare state was not a socialist project. It was the culminating point of a long process in which capitalism was civilized and partly reconciled with democracy. “From a Marxist perspective, the welfare state is an asymmetric class compromise and a partial integration of the working class movement in the capitalist society. This is asymmetrical because the social representation of interests of the working class is structurally superior. This is “partial integration” because the working class movement under a non-revolutionary leadership always aspires beyond capitalist society.” (3)
The institutionalized class compromise is based on a “mixed economy”, more or less conscious global control (fiscal- and monetary policy) and collective security systems with limited redistribution effects. This compromise brought an asymmetrical distribution of power between paid labor and capital in businesses and social institutions. This “system of regulated capitalism,” moderated according to national-historical peculiarities, resulted in an expansion of social rights and the establishment of a social property (security systems with claims). An annulment of the capitalist accumulation dynamic and distribution procedures was not involved. (4) While attempts at changing the fixed distribution of power between paid labor and capital in favor of the subservient classes were made up to the beginning of the 1970s by altering social constellations, a neoliberal rollback occurred internationally and in the main countries of capital in the middle of the 1970s.
Neoliberalism is the dominant ideology of unbridled capitalism. Neoliberal policy aims at an intentional political change of income distribution. The repression competition of capital in asserting and expanding individual space intensified with every step of this income distribution. The representatives of neoliberal policy are radicalized through the downward spiral. At the same time the hegemony begins to crumble. Large parts of the population persevere in resignation amid a growing loss of confidence in the social institutions and forms of democratic decision-making.
The forms of this destruction and collapse of the paid labor society are well-known. The relative social strengths have shifted so the economic and political elites control all the elements of paid labor (income, working hours, wage agreements and social security). In the last 25 years employees largely ceded the productivity gain to businesses in the hope that jobs would arise.
TRANSITION TO FINANCE-DRIVEN CAPITALISM
The profit situation for the businesses that survive in the merciless competition has clearly improved as a result of this policy. However the rise of the power of financial markets and the new era of profitability should not lead to ignoring the far-reaching structural changes and crises in modern capitalist businesses. “The rise to power of market finance since the mid-1970s has radically altered the characteristic traits of contemporary capitalism… Market finance’s rise to power not only overturned the business environment; it also transformed firms’ internal structures and objectives. The balance of power of the corporate hierarchy in the “Fordist” era was destroyed while the figure of the shareholder was vaulted to the pinnacle of the firm by the doctrine of shareholder sovereignty and the demands of profitability.” (6)
The accumulation model of capital that arose in the last third of the 20th century is based on drawing a maximum profitability from the applied capital. Notwithstanding the short-term success, this amounts to a replacement of the entrepreneurial mentality through the dominance of financial interests. In the logic of this model, the value of a portfolio has the upper hand over a revolutionizing of the product and the production process. Productivity potentials and profit possibilities are opened up. The superiority of institutional capital investors (funds, insurance companies, pension funds etc) leads to an enhancement of core investments and selling fields of business with trifling profit prospects. The reduction of innovation potentials should be compensated by takeovers and annexation of smaller businesses. On the macro-economic plane, the hegemony of the financial markets strengthens speculative movements (irrational exuberance) that crash in financial bubbles and crisis reactions.
The inadequate regulation of capitalism propelled the opposite process in the course of the 1970s. A growing de-democratization leads to the shift of power to the side of the capital owners. Distribution in the capital-dominated market economy was always shifted strongly toward assets income. Now after a long rollback we drift toward an historical depression where economic power is openly transformed into a political lever for the destruction of the social state.
The possibility of enormous financial crises represents a great potential threat. National economies could quickly face an immense challenge. On the other hand, the growth potentials in developed capitalist societies cannot be activated through the policy of deregulation, flexibility and privatization. As a consequence, mass unemployment, other forms of social exclusion and fragmentation put all qualities of developed civil society in question. The danger threatens that the process of de-democratization could capsize again in a destruction of the democratic foundations of society. “Without a profound change in governance, financial disturbances will continue to erupt, misappropriation of funds and social inequalities will increase and democracy will decline. The poor control of collective risks and the disengagement of citizens are two evils undermining democracy. The only way to lessen their impact is to realize democracy in the collective entity at the heart of contemporary society: the firm.” (6)
Is democratization of shareholder value capitalism possible? Joan Robinson showed that manager capitalism transformed itself into a very peculiar economic system in which persons of independent means dominate accumulation more and more?
The neoliberal elites implemented a radical deregulation and privatization policy. A series of elements of social regulation and control were abolished. These elements gain acceptance amid the worldwide economic crisis, the transition to Fordist mass production and the system confrontation between capitalism and command socialism. With the passage to a laissez-faire orientation, a changed international regime of financial- and monetary policy and a comprehensive re-regulation of consumptive conditions were forced on the commodity labor. Social state transfers and structures of social security are inevitably affected by this reorganization of the regulation- and control system of developed capitalist societies. As consequences on one side the claims on social state redistribution rise on account of mass unemployment, shifts in distribution and erosion of normal working conditions with the simultaneous undermining of financing through declining labor income. On the other side, the competitive conditions for the prices of workers become distorted through increased social security premiums and tax rates.
The neoliberal policy of radically strengthening private property as an answer to the growth- and structural problems of modern capitalist states has failed. Instead of a new dynamic in real accumulation, the policy of favoring private capitalist investments with simultaneous restriction of mass income and cutting social benefits only leads to an accelerated debt accumulation. The different forms of social protest or resistance against the neoliberal deformation of regulated capitalism could be combined in a comprehensive project of the democratization of the economy. Economic democracy is understood here as a strategic concept connecting the different aspects of social resistance against neoliberal policy starting from the lines of conflict within laissez-faire capitalism. “Nevertheless one must not commit the error of thinking that returning to the first sort of labor society is a possibility. In the last 30 years, capitalism has produced irreversible changes rendering obsolete the old system of governance by internal control… There can no longer be a question of shared responsibilities where the company managers had exclusive control of the organization of production and where economic democracy progressed through the development of social rights. Democracy must now take hold of the company goals.” (8)
Democratization of the economy or economic democracy has been the epitome of the reform-socialist goals and strategies of German unions at the end of the 1920s. The actual resonance has been modest measured by the political-reform pragmatism of this strategic option and the influence of its advocates (unions, social democracy). The highly developed capitalist societies and their “mature economies” are still ruled by the double illusion criticized by Keynes: “On one side, the working class accepts out of ignorance or powerlessness – or is forced to accept through custom, agreement and the well-anchored order of society – a situation in which they can only call their own a very small piece of that cake they baked together with nature and the capitalists. On the other side, the capitalist class may claim and theoretically consume the largest part of the cake for themselves under the silent condition that they really only consume very little of it. The duty of `saving’ amounted to nine-tenths of virtue. The growth of the cake was an object of religious worship.” (10)
As long as democratization is still in the future, the capitalist economic order tends to the increasing concentration of assets in the hands of a small minority. This undemocratic order of property and business is the reason for the deficiency within the main capitalist countries.
The key thesis is that the tendency to transformation toward unearned income is strengthened with deregulation and privatization. The downward spiral of the economy turns faster while a democratization of the economy would lead to a decisive change of policy like substantial reduction of mass unemployment and environmental destruction. The democratization – starting from businesses – should extend to distribution and the control of financial markets. The capitalist society must be subject to a sweeping democratic control. “In the current phase of the labor society, the mobilization of a large political interest in favor of a double reform is vital: on one hand, introducing democracy into the heart of the firm to realize a collective interest and on the other hand, developing regulated finance by supervising all financial institutions and reforming the criteria for investments of collective savings.” (11) This complex reform program is critically connected to the advantages and weaknesses of the sinking paid work society.
This proposal for democratizing the economy is clearly reformist. An effective social reform policy is tied to a radical change of course. Full employment can be achieved with an expansion of state spending in public investments and the qualitative change of mass consumption. These measures in taxation and expansion of public investments and mass consumption are joined with along-term structural policy unlike the beginnings of aggregate economic global control practiced up to now. The formation of a socially and ecologically compatible lifestyle is central, not more economic growth within the conventional income- and consumption structures. A fundamental reform of the capitalist economy must pursue a long-term structural policy with the means of combating the present inequality in income distribution. “On one side the reform proposals for coping with the consequences of crises must be tied to the current problems and include a catalogue of short-term measures. On the other hand, these proposals may not be reduced to a technocratic discussion of short-term instruments but must show the way to realizing an alternative type of development.” (12)
This complex program of democratization extends to all areas: the return to a soliarian wage policy, taxation of capital- and assets income, democratization of business structures, development of a new type of comprehensive social security, restoration of a mixed economy, effective control of financial markets and international financial institutions and return to an aggregate economic control of the economy. This alternative to the dominant policy can be illustrated in four points.
1. DISTRIBUTION OR SOCIAL PROPERTY
For a long time, economic policy has rested with the owners of capital. The appropriation of the economic surplus is granted to owners of capital alongside the control over labor power only limited by labor laws. Businesses’ one-sided orientation in realizing profit as their exclusive goal is a consequence of this power structure and not the inevitable conclusion from market coordination and market control. “Rather this orientation is based on the capital-oriented order of property- and working conditions and decision-making processes in businesses. Capital has dominated in businesses since the industrial revolution. Capital first conquered this central position with the help of its superior economic power and then used its political influence everywhere in the world to move the state to legal acknowledgment of its power. Consequently, our legal order privileges capital in the regulation of businesses.” (13)
A privileging in the distribution of economic success is derived from this hegemony that turns out more and more to be a blockade for the value-creation and profit-making process. Moreover this privileging cannot be justified with the performance-principle that is invoked again and again. The owners of capital make possible the conditions for producing results and pocket the lion’s share of the product without their own work. Most unearned income increases the concentration despite all Sunday speeches about wealth formation. Despite their low number, the owners of capital obtain between a quarter and half of the gross domestic product without having to work. The rest falls to more than 90% of the population who cannot live from capital yields but depend on earning a living through their own work. As a result, the opposition between poor and rich intensifies more and more.
The power position of the owners of capital who maintain the business sphere as a democracy-free zone extends into conditions of distribution. Firstly, the economic return does not correspond to the work or output. Secondly, the growth in assets is taxed along with the applied capital while owners of labor power are spared. The principle of equality orders that the profit not be assigned to owners of capital and no tax-reducing deductions are allowed to capital. Capital must no longer be privileged. The owners of capital should act like those who earn their living through their own labor.
Democratic business structures, changed business goals, corrections in primary distribution and the de-privileging of the tax law are closely connected. These incursions in the power of capital will obviously be supplemented by measures against money capital and exploitation of real estate.
2. THE CAPITALIST ENTERPRISE AS A DEMOCRATIC SPACE
The principle is in effect in all main capitalist countries: Whoever finances an investment or enterprise controls the underlying structures of rule. Our legal- and property order favor the financial backers, that is capital. Labor, capital and land cooperate in production according to the dominant opinion. However the decision sovereignty and the right to returns are actually only promised to capital. “Let us take as an example the typical case of a stock corporation whose shareholders are only interested in the price of their shares and dividends and do not worry about the enterprise financed with their capital.
With the help of capital, the employees of businesses do all the work. According to the standards of German law, their close solidarity with the business, their work and the importance of the business with its jobs as a foundation of their existence deserve less protection than the economic interests of shareholders who have great influence on business operations.” (14)
Operational joint-determination must replace the dominance of profit in businesses with social goals oriented in the needs of employees. Two areas should be emphasized: first, individual rights of grievance and protest must be anchored and secondly, investment decisions must be subject to joint-determination by the personnel and their representatives. Only with expansion of internal democracy can the competence of the personnel be developed and social and ecological control of structur4al change realized. The opposition between operational logic and economic reason should be annulled.
In the past, minimization of private labor costs through personnel cuts and location destruction were in the foreground. In the future, reduction of the social costs of unemployment in creating substitute jobs must have priority. The priority of preserving socially meaningful jobs over social cushioning and regional employment over revitalizing private business is central. New training for manufacturing new products should be possible for the employees. Harmony between an inevitable destruction of present jobs and an absolutely necessary establishment of new jobs is vital. Promoting cooperative and public-legal forms of property and business must begin here alongside a democratization of the business order.
The obvious conclusion: Different experiences (like cooperatives, kibbutz) show that capital hegemony can be changed through a democratized business order without losing efficiency. Economic power is relativized with the de-privileging of the rule of capital. Exercisi9ng directional authority over employees in the conventional sense is no longer possible. The one-sided orientation of business goals in profit maximization can be broken. Breaking through the hegemony of capital opens up development possibilities for other entrepreneurial forms (cooperatives, public enterprises etc.), severs the close interconnection of economic and political power and opens the way for changing distribution conditions.
3. CONTROL OF FINANCIAL MANAGEMENT
The argument that financial markets are indispensable for an optimal distribution of resources of a capitalist society was never convincing and represents an absurd claim in the age of “irrational exuberance” and serious financial crisis. The prices of financial assets are inflated more by the enthusiasm of investors than by a realistic assessment of the actual assets.
The development of the financial markets runs in the wrong direction because far-reaching deregulation with minimum control dominates. Social security systems are systematically exposed to the risks of the financial markets. The alternative to this neoliberal policy is the inclusion of financial markets in a democratic development strategy and their return to their main functions, financing investments and developing long-term private assets. A stronger control of the prices and operations of banks and insurance companies, limitation of excessive risks in awarding credits and excessive speed in the security business, a balanced bank structure policy, strict separation of the solidarian system of social security from the risks of the capital markets, ending tax competition in favor of close cooperation in reducing tax evasion, taxation of all income including interests and dividends and finally a European monetary- and budgetary policy that promotes sustainable growth, stability and employment are elements of that strategy.
Returning to controls in capital transactions is indispensable in defending a financial sector that satisfies social claims in public goods. An essential segment of the security market is the currency market with its great volume of transactions. Taxation of all currency transactions could quiet the currency markets and protect against speculative waves. A financial sector that considers social and democratic interests as an alternative to the neoliberal subjugation of society under the laws of financial markets and the interests of their dominant enterprises could point the way for other regions of the world.
Global financial markets need global regulation. Regional regulatory initiatives are still sensible. The present organizations of the IMF and the World Bank are oriented in a cooperative monetary-, credit- and currency policy that ultimately leads to the control system of a common artificial money. The second pillar of a new global order of financial markets is a common financial oversight. Common obligatory principles for this financial oversight are most important, not whether the oversight is exercised by a global institution. These principles must be directed to the credit policy of banks and the investment policy of financial investors (investment banks, insurance companies, capital investment companies and others) and limit international financial speculators.
4. ECONOMIC CONTROL
All advocates of a democratization of the economy know about the complexity and interconnection of social reforms. The obstruction policy of owners of capital is manifest. Capital flight can be combated and counter-measures taken against the investment strike. The era of investment incentives and tax advantages for owners of capital must be ended. The attempts at defending capital rule can be turned back through development associations, collective assets, democratization of the banking system and building global control. For a long time, most attempts at democratization were confined to the micro-plane of businesses. Changing distribution with new forms of global control through financial- and fiscal policy is vital. Connecting the micro-economic business order and macro-economic reform in distribution conditions and control potentials is necessary, not a complete sketch of the strategy of democratization.
Protagonists of economic democracy recognize that the desired reform ultimately amounts to a revolutionizing of society. “An economic order without mass unemployment enabling every healthy person to earn his livelihood through his own work and assuring that the gross domestic product will be justly distributed according to the works of every individual will make unnecessary many social state equalization mechanisms of the social market economy. When mass unemployment decreases, mass poverty will also decrease. When the oppositions between rich and poor are reduced, the whole economy will concentrate more on satisfying the most urgent needs than on the luxury needs of the rich. The assistance of the state can concentrate on those whose performance is restricted through disability, sickness or age.” (15)
The structure of the world economy would inevitably change and new chances of a development policy would open up. Such a reform policy of democratization and domestic market orientation can only succeed when they fit in a new order of the international division of labor given the existing globalization of production and internationalization of the economy.
The basic idea of this democratization strategy is that the conventional equation of the market and the capitalist world order cannot be maintained. Changing the capital-oriented property- and legal order is important. All the aspects of the economy could have a changed form. “Market control is generally far superior to all economic control through central planning. However market control also has a number of deficiencies. These deficiencies refer back to the framing conditions that our capital-oriented economic order gives to the markets.” (16)
The same key problem arises from a critical confrontation with the basic deficiencies of the capitalist economic order and from a critical consideration of the central planned economies: Is it possible to use the competition of democratized businesses through markets to create a more socially and ecologically compatible economy? Whoever supports a new attempt at socialism with a planned economy foundation must show the possibilities of avoiding the well-known basic economic and political shortcomings. The conception of an economic democracy lives from the well-known deficiencies of the capitalist economic order. Whether such a qualitative change can be realized under present political-social conditions remains open.
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2. “We face a de-stabilization of the paid work society that grasps all society like a shock wave starting from the center with different effects on different planes.” Robert Castel: Der Zerfall der Lohnarbeitsgesellschaft, in: Bordieu, P., 2002.
7. “The old justification for the existence of a rich class – that it is necessary for amassing the necessary savings – has worn out… The main obstacle in removing functionless wealth is… the deficiency in imaginativeness in developing ideas and institutions appropriate to an economy that is over the mountain of massive accumulation and must find a rational way to rake in the fruits.” Joan Robinson: Die fatale politische Okonomie, Frankfurt 1966. |
See also:
http://www.mbtranslations.com
http://www.globalexchange.org
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