Capitalism or democracy

"The economic system" sounds boring and abstract. Supply and demand curves, interest rates, currency fluctuations. Lame, boring, irrelevant.

But economics shouldn't be reduced to what professional economists talk about. It's much more personal: it's about how we build our identities through what we consume, it's about how much control we have over our lives at work, it's about how we as individuals and as a society express our priorities through what we pay for.

It's also about how our economic decisions affect the environment, how racial inequality can be reinforced through the concentration of wealth, how women can gain independence and control by having an income. It's about who has enough money to run a viable political campaign, what organizations can pay for high-quality PR, who can hire enough people to see their project through. And who can't.

The economic system influences everything we do and everything we are. It structures our choices, constrains our options, and encourages certain outcomes over others. The dynamics of any given economic system strongly favor certain distributions of power and help institutionalize certain forms of social inequality. The economy doesn't just produce our food, clothes, homes, and consumer goods. It also produces our social relations and our personal identities.

So why don't we ever talk about "the economic system"? Sure, we talk about tax policy and interest rate hikes. But why not the fundamental workings of the economy — and whether something else might be better? What if we could have an economic system that produced enough goods for everyone, that abolished poverty and inequality of wealth, that encouraged cooperation instead of ruthless competition, that brought real democracy into economic decisionmaking? These are things most of us support, so why don't we ever talk about making them reality?

Partly because the field of economics has been so mystified by its practitioners that it's turned something concrete and simple into something intimidating, abstract, and dull. Partly because powerful economic interests have no desire to question the system that gave them their power in the first place. But maybe most of all, because no one thinks any other system is possible.

Do we even want a different system? Professional economists say markets are the most efficient way to run an economy. The profit motive drives everyone to work harder, perform better, innovate more. Losers in this system lose because they're lazy — they deserve it. Winners win because they're driven and because they meet people's needs. What's not to like?

That's the propaganda line anyway. But a quick look at reality puts a lot of the accepted gospel about free markets into deep doubt.

First there's the poverty. And not just the cycle of poverty we see in the ghetto or the soul-destroying routine of the working poor toiling at Wal-Mart. American capitalism does not exist by itself but is part of a global system that produces the most shocking extremes of wealth and want. It was capitalism, working with and through European imperialism, that first produced the pattern of a rich global north and abjectly poor global south. Since then, American-dominated capitalism and military might have protected and expanded those patterns, defeating the only real challenges the system has faced (fascism, communism, and third world anti-imperialism) and intensifying it through the free market reforms imposed by global economic bodies like the IMF.

Then there's the environmental destruction. Free markets are incapable of charging consumers for the actual ecological costs of cutting down rainforests, depleting the ozone layer, or dealing with global warming because these are mere "externalities" — things that affect people other than the buyer and seller. Since free markets allow people to consume without taking responsibility for the environmental consequences, the global economy is quickly and steadily destroying the basis for future life on the planet. Under capitalism, the only way to prevent wanton environmental pillage is through government regulation.

Which is virtually impossible because of the third problem, capitalism's corruption of politics. Great concentration of wealth inevitably leads to great power for those who control it. Corporations and the wealthy always find ways to subvert the superficially democratic political institutions that stand in their way — through campaign contributions, attack ads, patronage organizations, or outright bribes. No matter how strong the reforms are to combat this, wealth will always find a way around them.

Capitalism is about inequality. It operates under a strict principle of winner-take-all: if you have money, it's easy to make money. If you don't, you're pretty much screwed. Though there's always a few who make it, this doesn't change the fact that the vast majority born into poor families will remain poor. Only 7 out of every hundred born into the bottom 20 percent of the population make it into the top 20 percent; those born into the top 20 percent are 7 times more likely to end up there. This is particularly shocking in light of the fact that the richest 10 percent holds two-thirds of the nation's wealth, while the lower 50 percent hold a mere 3 percent. Such extreme disparities affect not just the quality of life and distribution of power in society, but make deepening inequality in the future more likely as the wealthy use their expanding resources to fix the game for their children and friends. Capitalism's "level playing field", on which talent and only talent leads to success, is a vicious myth.

Because capitalism is so compatible with inequality, other inequalities — especially of race and gender — are easily institutionalized within it. Privileged groups, wielding so much economic and political power, can easily defend their privilege. So it's no surprise that decades after minorities achieved political equality, their economic situation is just as bad or worse. In 2001 the median net worth of a white family was $120,900, while that of a family of color was $17,100. And decades after the equality of women became widely accepted, they still earn 44 percent less than men. This is only one symptom of the complex ways an economic system so open to inequality reinforces women's subordination. We have to ask ourselves: is racial and gender equality even possible under capitalism?

So capitalism frustrates our desire for control over our lives as workers and consumers. It undermines our ability as a society to control the direction of our economic development and its impact on the environment. And it blocks our attempts to reduce social inequality through concrete gains for the poor, women, and minorities. A just economy would be based on democracy and equality — instead of their opposites.

But to get there we'll have to radically transform existing institutions. In the process, much of capitalism's ideological underpinning — so deeply ingrained in our culture that it often passes for "common sense" — will have to be challenged. And many of us will have to relinquish some of the privileges we take for granted.

The first preconception we have to give up is the assumption that inequality of wages and decision making power are natural and desirable. Even many otherwise progressive people agree with reigning capitalist dogma on this point: some people are well-suited for making decisions and they should hold power in the workplace — and receive higher pay. Certain kinds of specialized knowledge also merit higher pay, while the majority of workers, doing less skilled or less prestigious work, deserve less pay and less power.

Yet if we believe in the principle that every human being should have a say over the things that affect his or her life, this situation is repulsive. We think democracy is hugely important, yet accede to strict authoritarianism in the workplace? And do we really believe that the majority of the population — those engaged in disempowering, rote work with little or no say over their work lives — are simply incapable of taking part in workplace decision making? We should be careful with such rationales: that's always how groups in power — whether monarchs, slaveholders, or colonialists — have justified excluding others. Many workers under the current system may show no interest in taking part in decisions and may even seem incapable of doing so. But this is hardly surprising under circumstances — cultural, educational, and work-related — that have conditioned them to always leave the decisions to others.

A better approach is laid out in participatory economics, a proposal for a desirable economic system by theorist Michael Albert and economist Robin Hahnel. A participatory economy, or parecon, seeks to eliminate workplace hierarchy and major differences in wealth while extending democracy into the economy and preserving efficiency.

At the base of this system are non-hierarchical workplaces. What does this mean? First, there are no bosses — decisions are made by the workers themselves through discussion and voting. Second, there is no hierarchy of desirable and undesirable jobs. Under capitalism, some jobs (management and professionals) specialize in interesting and empowering work, while most people do rote and manual labor that not only sucks, but also robs them of the chance to develop their capacity for self-government. In parecon, all jobs include a mix of both kinds of work — there are no janitors because the surgeons clean toilets too.

That means a surgeon might "waste" some of his time performing tasks unrelated to his training. But the slack will be easily taken up under a system that not only gives a high-level education to anyone who wants it but pays them for going to school. The benefits — providing access to education for everyone and gaining the talents of those currently excluded, giving everyone a fulfilling job, and allowing real participation in decision making for everyone — far outweigh whatever slight productivity losses might result.

With similarly desirable and difficult jobs for everyone, equal pay makes sense. Everyone will have the same hourly wages, with slight variations for those who work particularly hard or are particularly lazy. This preserves incentives to work, but eliminates the current practice of rewarding those who are more productive by virtue of things they can't control: access to better tools, better training, or more talent.

These deep reforms at the workplace level are necessary, but we'll also have to change things at the macroeconomic level. Capitalism uses markets to coordinate buying, selling, and investing, and in some ways markets are desirable. They allow the individual to "vote" with his or her dollars for what the economy should produce, and because markets match up supply and demand, they limit wasted resources.

But this should not be mistaken for democracy or real efficiency. Far from "naturally" meeting the needs of consumers, markets privilege those with greater wealth and have a strong tendency to promote inequality. Furthermore, they systematically undersupply collective goods. Markets provide no institutional mechanism for meeting group consumption desires, like a neighborhood swimming pool or a good public transit system, at any level — leaving clumsy government intervention as the only solution. And because market mechanisms can only take into account the interests of individual buyers and sellers in any transaction, their outcomes never reflect the costs or benefits for society or the environment. Thus markets yield deeply inefficient results whenever a purchase affects anyone other than the buyer and seller — as it almost always does.

Our goal should be to retain the positive attributes of markets while putting in place mechanisms that are truly democratic and which reflect the socially-determined costs of our economic decisions. The parecon solution to this problem is called "participatory planning". First, both workers and consumers submit proposals at the beginning of each year based on last year's prices and production/consumption patterns. These proposals are then compared, prices are adjusted to reflect gaps in supply or demand, and the proposals are returned to the workplaces and neighborhoods. Workers and consumers adjust their proposals in light of the new prices, resubmit them, and the process continues for several rounds. Finally, several economy-wide plans at equilibrium can be formulated and submitted for a vote.

It might sound complicated and time-consuming, but it's not really any worse than what we currently have. We all have to plan ahead for big purchases, and aside from that our buying patterns don't usually change radically year-to-year. The consumer wouldn't have to rigidly adhere to his or her proposed consumption since the system can be easily made responsive to unexpected changes in demand. Keep in mind that large corporations already feature this kind of planned flexibility as they successfully adjust to the changing desires of millions of consumers.

The drawbacks are slight, but the benefits are tremendous. Parecon makes it easy to guarantee food, shelter, and healthcare for everyone. There is no unemployment or poverty, and equality of wealth means not only an equal say for everyone, but a much more difficult environment for racism and sexism to flourish in. Prices can be set to reflect the actual social and environmental costs of what and how we consume. Collective goods can be easily and democratically allocated. Taxes are eliminated (hear that conservatives?) and instead citizens take direct control — and responsibility — of decisions about how much to spend collectively. The interests of individual consumers are brought into harmony with those of workers and the environment, instead of being directly opposed. Solidarity is encouraged, instead of selfishness and exploitation.

Still doubtful? Afraid human nature is incompatible with equality and cooperation? Keep in mind that for most of humanity's existence, we lived as foragers with extremely high levels of egalitarianism. What changed was not human nature, but the ability to accumulate wealth and the institutions and norms that decided its distribution. Our task is to build new values and new institutions that can organize our material abundance in sustainable and socially desirable ways. Participatory economics is a concrete blueprint for such a world.
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This is far from a full explanation of how a participatory economy would work, and I encourage you to read further:

This site has numerous essays on parecon and its implications.

Michael Albert and Robin Hahnel, Looking Forward: Participatory Economics for the Twenty First Century is the best introduction to parecon.

Michael Albert, Parecon: Life After Capitalism is a detailed account useful as a reference tool.

Michael Albert and Robin Hahnel, The Political Economy of Participatory Economics is a formal economic defense (stay away unless you know econometrics).

Michael Albert, Moving Forward: Program for a Participatory Economy is the best book for a quick overview of the system and how we can fight for it.

Robin Hahnel, Economic Justice and Democracy: From Competition to Cooperation - strongly recommended as both a quick introduction to parecon, including a detailed response to critics, and a thought-provoking reflection on why libertarian socialist movements have failed in the past and how we can build a movement for parecon today.