The Economics of Democracy

Tom Hill

Tom Hill, UK-based ecological economist, writes about the interplay between democracy and economics and how the two could be brought into closer alignment.

In centrist and mainstream political analysis market capitalism is often portrayed as being a natural bedfellow to democracy, sometimes to the extent of attempting to outright ban the criticism of capitalism on the basis it represents ‘an extreme political stance’. By contrast and in response, left-wing political discourse (in Europe at least) regularly frames market capitalism as being in opposition to democracy by making the case that markets are constructed in the interests of the powerful.

While I am inclined to agree with the left’s criticism of capitalism, I think that the common conflagration of ‘markets’ with ‘capitalism’ is unhelpful - particularly when it comes to thinking about their respective relationships with democracy. Insight into the importance of the distinction between capital and markets can be found in the work of David Schweickart, an American Mathematician and Philosopher. Schweickart has a particular interest in Economic Democracy - a socioeconomic philosophy that makes the case for a shift away from traditional corporate capitalism towards new business models that better service the needs of a broader range of stakeholders.

To many, the most recognisable manifestation of ED will be the traditional ‘cooperative’, though the philosophy goes much deeper than that. As with cooperatives, ED tends to be supportive of markets while opposing capitalist ownership models and entitlements; under ED, goods and services can be sold in the marketplace but crucially the beneficiaries are the workers, their customers and society at large rather than the corporate managers and shareholders that disproportionately benefit under capitalism.

In common with many left-wing critiques of capitalism, Schweickart shares the view that in capitalist societies the political leaders that are elected to represent us are generally incentivised to serve the interests of capital rather than those of the average wage labourer. Examples of this are plentiful; from the merry-go-round that exists between careers in public office and those in senior corporate roles, through to the alarmingly high correlation between the spend on election campaigns and the likelihood of being elected. However, he also supports competitive markets for goods and services arguing that, whilst not wholly benign, they are preferable to the allocative mechanism that is central to the planned economies because they are both more efficient and also entail greater freedom and choice than is available in a centralised approach.

According to Schweickart the core conditions of economic democracy are as follows:

  • Worker self-management: businesses are controlled democratically by their workers.

  • The market: businesses engage each other and their customers in a way that is largely free of governmental price controls; goods and services are exchanged at prices that are largely determined by the forces of supply and demand.

  • Social control and allocation of investment: funds for new investment are acquired through the use of public investment banks. A fraction of the profits that are derived from enterprise are returned back to these banks.

ED goes further than cooperativism in that it can be conceived as being either a stand-alone economic theory wholly distinct from market capitalism or part of a reform agenda that attempts to modify and transition the existing system towards more equitable outcomes. Spain’s multi-sector Mondragon worker-cooperative is perhaps the best example of a stand-alone system that has been designed to sit in parallel to the mainstream economy. Established in 1956, Mondragon's 257 different companies have created an integrated network of worker-owned cooperative businesses that support over 80,000 people. On the reform side, examples of policies and interventions that are compatible with economic democracy include the promotion of worker or consumer cooperatives, public banking systems and the regionalisation of food production and/or currencies.

Through considered reflection on the above, it quite quickly becomes apparent that the struggle for political democracy is inherently intertwined with that of the struggle for economic democracy. Within both the political and the economic domain, the key challenge is not so much in designing or articulating an effective system, but rather in determining how best to transition away from the status quo. While few of us have much in the way of political power, we tend to have slightly more influence over the way in which we expend our labour; small groups can make collective decisions about the way that we work whereas political change typically requires whole swathes of society to work together at the same time. Put another way, if small groups of us can successfully break out and secure our full economic rights, then the resultant erosion on corporate power will also begin to open up a pathway to securing full political rights as well.

Tom Hill is a UK-based ecological economist with expertise in pluralist approaches to decision making. He has provided consultancy advice to a range of Governments and businesses on how to use market-based, regulatory and democracy-led interventions to achieve sustainable outcomes.

Tom previously worked for the Institute for Public Policy Research in the United Kingdom, where he led the Institute’s research in relation to democratic responses to the climate crisis.

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