Economics for Democratic Socialism

Drexel University

Spring Quarter 2009

Why This Course?

• The economic crisis of 2008 seems to be the most serious reversal for capitalism since 1929-33.

• It is possible that capitalism will not survive.

• Even it it does, the recurrence of crises of this magnitude calls for a consideration of the costs and benefits of capitalism visavis alternative systems.

• Both of these possibilities urge a reconsideration of democratic socialism as an alternative.

Fair Warning

• This course is an experiment.

• There are no social conventions to define the content of the course.

• Unavoidably, in many cases, you are going to get my ideas, for whatever they are worth. I’m not sure how much confidence I have in some of them!

• I am not qualified as a philosopher, political theorist or historian, but will have to digress on all these fields.

• In any experiment, things can go wrong.

Economic and Political Systems

• The use of the term “democratic socialism” suggests that economic and political systems can be taken under separate headings, so that we have, in effect, four alternatives rather than two: socialism with or without democracy, and capitalism with or without democracy.

• Orthodox Marxist-Leninists would deny that (with some basis in Marx’ ideas) and so will I, for different reasons -- but this interpretation will do, for now, as an organizing principle.

Democracy 1

• As a minimum Democratic Socialist would demand a political system that incorporates the democratic liberties:– Freedom of speech, advocacy, assembly and

petition– Openly contested elections– Freedom of organization, including the

freedom to organize political parties to contest elections.

Democracy 2• In Capitalism, Socialism and Democracy, Schumpeter

considers two interpretations of democracy:– Popular sovereignty, that is, that the government should

enact the will of the people– Competitive leadership, that is, the leader is determined

by competition for the free vote of the population. – Schumpeter rejects the first of these. He makes several

criticisms. The one that bites is: the “general will,” if it exists at all, might be best enacted by an autocrat.

– The formation of government by political competition does at least explain the importance and function of democratic liberty.

Democracy 3• Under the influence of anarchism (specifically Wolff,

R. P, 1970, In Defense of Anarchism, New York: Harper) I would prefer a higher standard and would define democracy as follows:– In a democratic system, any person who holds a

position of authority is responsible to those over whom the authority is exercised.

– (Wolff goes much further).– By this standard capitalism can never be democratic.– Neither could centralized state-socialism.– But I won’t insist on doing things my way.

Democracy 4

• Marx-Leninists reject “democratic liberty” as “bourgeois liberty” on the following reasoning:– Marx says that all political organization serves class

interest. – If the capitalist class has been done away with, the

government is the instrument of working-class interest, regardless of “liberties.”

– If some vestiges of the bourgeoisie remain, then the government needs all the power it can obtain to advance working-class interests and repress the bourgeoisie.

Socialist Roots

• W. A Lewis was a Nobel laureate economist (1979) and a Fabian socialist.

• In 1949 he wrote that British socialism had two aims: democracy and a classless society.

• He added that government ownership is a means to those ends, and not in itself socialist.

• He traced these ideas to Robert Owen, among others.

Class Societies

• In ancient societies, the major classes are the payers and recipients of tribute. – The early Islamic Caliphate provides a very refined

instance of this. – The Arab conquerors built new cities (Basra, Kufa,

e.g.) where Arab soldiers lived on salaries derived from tribute.

– Other classes -- merchants and rural landowners -- existed but were minor.

• In Feudalism, the main classes were landlords and peasants.

Classes in the 19th Century

• The Classical Political Economists (about 1776-1880) observed that their society was divided into three classes: landlords, the (wealthy capitalist) middle class, and the laborers. This was still true in Marx’ time.

• Nevertheless, it is specific to a period of transition from feudalism to capitalism.

• Essentially, a worker didn’t own anything he (or she) couldn’t wear or eat. There were no old age pensions.

• The “condition of the working class” has changed over the last century, though.

• Are we “all capitalists now?”

Classes over the Life Cycle• To define a social class in 2009, we

need to think in terms of the life cycle.• Franco Modigliani, antifascist resistor

and Nobel Laureate macro-economist, brought the life cycle perspective into economics.

• If you have to work for a wage or salary for most of your life to survive and get a pension, you are a member of the working class.

• (Modigliani was a free-market liberal.)Franco Modigliani1918-2003

Other Classes1. Those who own wealth enough to operate a business,

so that they have to work but not for wages or a salary, are not part of the working class. They are what a Marxist would call petit bourgeois. Some may be no better off than workers, and there can be a lot of mobility from this class in both directions.

2. Those who inherit wealth enough to live without working, the trust fund class, approximate Veblen’s leisure class.

3. Those with wealth enough to control corporations (and buy congressmen) are the grand bourgeoisie -- what I call the billionaire class.

Strata• The three groups have interests that are somewhat

aligned, and may be thought of as different strata of the same capitalist class.

• However, differences among them can be important, and their interests are not wholly aligned.

• Interests of the grand bourgeoisie tend to be national and international, while those of the petit bourgeoisie tend to be local.

• These conflicts are the major differences between the two parties in the USA.

• In that sense, the capitalist class as a whole can be thought of as the ruling class.

Classless Societies

• Can we even conceive of a classless society?

• “Jeffersonian democracy” -- a society of freehold farmers -- would be classless.

• But that is inconsistent with modern production.

• In state socialism, everybody would (in principle) be a public employee. Thus, no class divisions.

• In a system of worker cooperatives, as envisioned by Mill, everybody earns their income as a member of a worker cooperative. Thus, again, no classes.

State Socialism

• While state socialism is in principle classless, it is unstable because it is hierarchical.

• The technostructure of planners and managers becomes a group distinct from the workers, living off their surplus.

• Whether or not this is a “new class,” it sets the stage (as in the Soviet Union) for the return to capitalism, since they can extract the surplus more effectively as capitalist “oligarchs.”

Nationalization

• Many mid-twentieth century democratic socialists saw selective nationalization as a path to state-socialism.

• As Busky points out, this, too, proved unstable -- and was reversed by privatization, decisions taken by democratic governments with labor parties in the parliament.

• Have the workers any stake in nationalization or state-socialism? No direct stake, anyway -- although perhaps the technostructure do.

Cooperative Socialism

• In a cooperative socialist system, some of the cooperatives will be very large indeed -- unavoidably -- and managers will be specialists.

• However, as they are responsible to the people they manage, it is at least possible that the hierarchy will be much more limited.

• Thus cooperative socialism remains a hope for a classless society.

Back to Lewis

• Writing in the 1940’s, Lewis criticized selective nationalization of industries as essentially a new form of exploitation of labor.

• He agreed with many economists at that time that corporations don’t maximize profits anyway.

• His program was for the government to run an annual surplus, retire the national debt, and begin to buy up shares in the corporations.

• Thus, eventually, the corporations would become public property, although they would continue to be under decentralized and (more or less) interested management.

From Lewis to Greenspan

• Greenspan, too, conceived government surpluses as a path to “socialism.” – That was the reason he gave for supporting the Bush

tax cuts.

• But few socialists of 2007, if any, would regard corporations as progressive organizations.

• Indeed, the crisis of 2009 was, to a considerable extent, a crisis of corporations.

On the Other Hand

• Anticorporate leftists (such as Magnusson) could favor cooperatives as an alternative to for-profit corporations.

• However, historic cooperatives are worker-owned, not public property.

• Can we conceive of a system that combines public ownership with decentralized, interested management (as worker cooperatives?) That is the “socialism” I personally would favor.

Robert Owen

• 1771-1858• Born in Newtown, North

Wales, the son of a saddler.• An entrepreneur at 19 and one

of the all-time great business managers!

• Known as a “utopian socialist.”

New Lanark

• Owen managed innovative spinning mills for Peter Drinkwater and David Dale, whose daughter he married.

• In 1813, he purchased the Dale mill at New Lanark, and reorganized it as a utopian community.

• He was an environmentalist, and hoped to provide an ideal environment to form good character among the workers of New Lanark, and their children.

• Among his first steps were to eliminate child labor and start a school.

New Lanark, Scotland

New View of Society

• “He published his ideas on educational reform and the influence of social environment on character, in a series of essays which were collected and published as a New View of Society. In this major work he outlined his vision of the ideal community - a system run on a co-operative basis involving both factories and agriculture.” -- Robert Owen Museum

• In 1825, purchased New Harmony, Indiana, to establish a colony there. (This was less successful than New Lanark).

The Grand National Consolidated Trades Union

• “At this time, in the early 1830's, the trade union movement was growing and a number of co-operative societies had opened shops and workshops. In 1832 he proposed that the unions should unite and in 1834 the Grand National Consolidated Trade Union was formed. Within a week it had over half a million members and the government were alarmed by this new mass labour movement.” It was suppressed, however.

• “However, the idea of the co-operative movement did not die completely, for in 1844 the Rochdale Pioneers started a co-operative venture in Lancashire which eventually grew into the modern Co-operative Movement.”

After Robert Owen Museum

Owen’s Evolution

• Owen had evolved from a paternalistic utopian to a labor leader and reformer, if not quite revolutionary.

• He did, however, support one later attempt to form a colony in Britain.

• Owen’s freethinking religious views were often violently opposed, and some of his “socialist” followers were prosecuted for blasphemy.

• Last year, the 150th anniversary of his death was celebrated at his birthplace in North Wales. For more information, contact the cooperative there.

Other “Utopian” Socialists

• Francis-Marie-Charles Fourier, 1772-1837

• Advocated planned communities with common ownership and production.

• Claude Henri de Rouvroy, Comte de Saint-Simon, 1760-1825

• Really more technocratic than socialist.

Marx wrote about three Utopian socialists. Owen was one.

A Utopian Communist

• Etienne Cabet, 1788-1856• Political activist, 1830-39 (exiled in

Britain)• Wrote “Voyage en Icarie,” 1840• An environmentalist, he thought that a

communist dictatorship would be necessary to establish a noncompetitive society and transform human nature.

• Influenced the insurrectionist August Blanqui, and through him, Lenin.

Colonies

• Followers of Fourier and Cabet formed colonies after their principles, mostly (only?) in the United States.

• Fourierist “Phalangeries” were founded in New Jersey, Texas, and several middle western states.

• An Icarian colony, planned for Texas, took root in Iowa.

– Cabet was the first president, but defeated for re-election.

– Founded 1848-1852, it lasted in Iowa until August, 1886. (New York Times Archives).

Cooperative Movement 1

• A cooperative is an enterprise operated by a membership organization. Control is based on membership, and profits are distributed among members. Membership is open to those who are part of the enterprise, not as owners, but – Employees, in a worker cooperative

– Customers, in a consumer cooperative or mutual financial organization

– Raw material supplier, in e.g. a farmer cooperative.

Cooperative Movement 2• Under the influence of Owen among others,

cooperatives (especially worker cooperatives) were widely advocated in the 1820’s.

• Among very influential figures was Dr. William King, 1786-1865, who was also active in education of working class children and adults.

• “In 1844 28 working men gathered together to set up the Rochdale Equitable Pioneers Society and opened a co-op shop on Toad Lane in Rochdale.” (Coop online).

• This consumers’ coop is considered the beginning of the international cooperative movement.

France

• In France, cooperatives were organized and advocated as “The Republic in the Workshop.

• Important figures were Philippe Buchez and Louis Blanc, who advocated government aid to the formation of (more or less)

cooperative workshops. Louis Blanc

Cooperative Movement 3• Over the subsequent 170 years, thousands of

cooperatives, including worker cooperatives, have been formed, and the record of success is excellent.

• The international cooperative movement is affiliated with the United Nations and headquartered in Geneva.

• http://www.ica.coop/al-ica/• The slogan of the 150th anniversary

celebration in 1990 was “tried and proven.”

John Stuart Mill

• 1806-1873• Son of James Mill, a

Ricardian political economist

• Mill was raised as a sociological experiment -- to create a genius by education.

• For whatever reason, he was one of the greatest minds of the 1800’s.

Mill’s ‘Socialism’ 1

“The form of association, however, which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist between a capitalist as chief, and work-people without a voice in the management, but the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.”

Mill’s ‘Socialism’ 2“[C]ooperation tends ... to increase the productiveness of labour, consists in the vast stimulus given to productive energies, by placing the labourers, as a mass, in a relation to their work which would make it their principle and their interest -- at present it is neither -- to do the utmost, instead of the least possible, in exchange for their remuneration.“I agree, then with the Socialist writers in their conception of the form which industrial operations tend to assume in the advance of improvement; and I entirely share their opinion that the time is ripe for commencing this transformation, …”

Mill’s ‘Socialism’ 3“But while I agree and sympathize with Socialists in this practical portion of their aims, I utterly dissent from the most conspicuous and vehement part of their teaching, their declamations against competition. … they have in general very confused and erroneous notions of [the] actual working [of society]; and one of their greatest errors, as I conceive, is to charge upon competition all the economical evils which at present exist. They forget that wherever competition is not, monopoly is; and that monopoly, in all its forms, is the taxation of the industrious for the support of indolence, if not of plunder.”

Karl Marx

• 1818-1883

• Born Trier, German Rhineland

• His father, originally Jewish, converted to Christianity

• PhD, 1841, Jena, on Greek materialist philosophy

• Not being able to find an academic job, he turned to journalism for a living.

Marx’ Curriculum Vitae I• 1842: Editor of the Rhenish Gazette, Köln• 1843: Escaped Prussian police to France, married.• Editor, Franco-German Annals. Friedrich Engels, a

wealthy industrialist and political radical, was a contributor.

• 1845: Expelled from France to Belgium, supported by Engels as a one-man communist think-tank.

• 1847-8: Wrote The Communist Manifesto, based on a draft by Engels.

• 1848: Expelled from Belgium; participates in revolutionary agitation in Köln, again.

Marx’ Curriculum Vitae 2

• From 1849, in exile in England.• From 1852-early 1860’s, writes for the New York Daily

Tribune, somewhat alleviating his extreme poverty.• 1859: Contribution to the Critique of Political Economy

states economic materialist position. • 1867: Capital, v. 1• Died 1883• 1885: Capital, v. 2 published posthumously.• 1894: Capital, v. 3 published posthumously.The latter volumes were finished by Friedrich Engels.

Revolution

• In Western Europe, from 1789 to 1871, there was no continuous, peaceful politics. The only political events that mattered were revolutions and coups d’etat.

• The French Revolution of 1789 was followed by a series of coups d’etat, culminating in Napoleon’s.

• 1830 was a year of revolution throughout western Europe.

• So was 1848. In France, this was followed by a coup d’etat by yet another Napoleon.

• This was the political milieu Marx had experienced and that seemed inevitable to him.

• The Communist Manifesto was written in the context of the 1848 revolutions.

Ideology• In the mid 1840’s, Marx and Engels wrote “The

German Ideology,” a critique of the “young Hegelians.” • “The Young-Hegelian ideologists, in spite of their

allegedly ‘world-shattering’ statements, are the staunchest conservatives.”

• Point being that their critical philosophy, though very “radical” in its attack on older ideas, is in the interest of the dominant class -- that’s what ideology does.

• That doesn’t mean ideology is simply wrong. If it is to do its job, an ideology needs to have enough truth to be persuasive.

• This book is an early statement of Marx’ theory of history and argues that ideas arise from material conditions of production.

From The Communist Manifesto

• “The history of all hitherto existing society is the history of class struggles. … The modern bourgeois society that has sprouted from the ruins of feudal society has not done away with class antagonisms. It has but established new classes, new conditions of oppression, new forms of struggle in place of the old ones.

• “ …the first step in the revolution by the working class is to raise the proletariat to the position of ruling class to win the battle of democracy.

• “The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie …”

Manifesto Summary“When, in the course of development, class distinctions have disappeared, and all production has been concentrated in the hands of a vast association of the whole nation, the public power will lose its political character. Political power, properly so called, is merely the organized power of one class for oppressing another. If the proletariat … makes itself the ruling class, and, as such, sweeps away by force the old conditions of production, then it will, along with these conditions, have swept away the conditions for the existence of class antagonisms and of classes generally, and will thereby have abolished its own supremacy as a class.”

Socialism and Communism

• The anticapitalist “left” by Marx’ time already had factions of socialists, communists, and anarchists.– Socialism called for the abolition of social classes, in

particular the division between owning and working classes. (Authority: W. A. Lewis)

– Communism usually demands common ownership of the means of production (sometimes at the local level) but sometimes just means the more extreme or “advanced” socialism. (Authority: Paul Sweezy)

– By 1848, Marx categorized himself as a communist.

Marx as Economist and Politician

• Marx undertook the study of economics and produced the book Capital.

• In the 1860’s, he joined the International Workingmens’ Association (“First International”) and became a leader of its more moderate faction.

• This moderate faction advocated participation in parliamentary politics by workers’ (socialist) parties where this was permitted, as -- increasingly -- in Germany.

• The other major faction, led by anarchists, called for struggle through strikes and violence.

Second International

• The IWA, always divided, disbanded 1876.

• A new International was founded 1889, an association of (largely Marxist) workers’ socialist parties.

• There was a tendency away from revolutionary politics and toward “evolutionary socialism” (Eduard Bernstein) Eduard Berstein

Bolsheviks

• An exception was Russia, where any opposition continued to be repressed by a police state that presaged 20th century totalitarianism.

• Nicolai Lenin (Vladimir Ilych Ulyanov) advocated a small party of professional revolutionaries and led his followers out of the Second International.

• The Second International broke up during World War I.

Lenin

Russian Revolution 1

• The success of the Bolsheviks in seizing power and establishing a “dictatorship of the proletariate” led to a permanent division among socialists.

• From this time, it is necessary to distinguish “Democratic Socialists” as socialists who reject the “Dictatorship of the Proletariate.”

Russian Revolution 2• Following the Russian Revolution, Communist Parties

were formed in many countries, generally by former socialists. (Two were formed in the US, but soon merged.)

• Democratic Socialists were further divided as some (e.g. SPUSA) refused to work with Communists while others -- under pressure from Fascism, or seeking unity for working-class movements -- entered into “popular front” organizations.

• As Fascism advanced -- and “democratic” western governments would not assist those who opposed it in Europe -- these popular fronts were more and more dominated by the Soviet Union.

Intellectual Controversy

• With “socialism” understood as centralized state control of the economy, “Austrian” economists argued that a rational “socialist” system would be impossible.

• Socialist economists responded by proposing that a socialist society could use markets in the allocation of resources-- combining public ownership with decentralized management instructed to maximize profits.

• This is the origin of “market socialism.”

Twentieth Century• During the twentieth century, especially after the defeat

of fascism, social-democratic and labor parties often played parts in parliamentary governments, often as the leading party.

• Socialist measures -- such as selective nationalization of important industries and the creation of a “social safety net” -- were adopted.

• As Lewis notes, these did not transform capitalism to a classless society, and many were reversed by later conservative governments.

• Some -- including universal health care, social security, and codetermination in Germany and elsewhere -- do not seem likely to be reversed.

Arthur Lewis, Again

• Lewis’ program was that -- instead of nationalization of steel-making and coal mining and such -- the government should run a surplus, on the average.

• After paying off the national debt, they would buy shares in corporations.

• Increasingly, the system would combine public ownership with decentralized, interested management.

• This is a kind of market socialism.

• But: can corporations really be part of the solution?

Twenty-First Century

• Democratic Socialists have learned a great deal from the twentieth century, and done some good, but have not created a classless society. The way to this objective seems, if anything, less clear rather than more.