Sunday, October 26, 2008

Social Deficits

In his book, The Culture of the New Capitalism, Richard Sennett states that large scale structural changes currently occurring in the corporations are resulting in increases in three social deficits: low institutional loyalty, diminished informal trust among workers, and weakening of institutional knowledge.

Sennett explains that in the modern corporate world the employee is viewed to be on his or her own. If you need health care don’t look to the corporation, instead you need to buy your own. Want a pension? Forget it, better start putting money in a 401K and an IRA. Don’t even think that you have job security for there is someone in India that your job could be sent to tomorrow.

But this lack of loyalty works both ways. As corporations abandon any loyalty to their employees then the workers begin to lack any sense of loyalty to their employers. Hence, when times get tough for the corporations management is shocked when employees refuse to take cuts in pay or benefits.

Trust is also passé in the new capitalism. Sennett points out that trust takes time to develop. But in the high-paced modern corporation employees struggle to keep up with demands of both the market and shareholders. Reorganization has become the norm, which prevents employees from forming informal bonds of trust.

Finally, the new capitalism creates conditions where institutional knowledge is lost. In the old bureaucratic capitalist businesses employees on the floor learned the system. In fact, the lower employees often better understood how to work the system than management. The rise of distance and the high turnover of employees this knowledge is now being lost. Corporations try to compensate for the lost with new technologies but it doesn’t solve the problem.

As it turns out these three social deficits are not unique to the new capitalism. It’s simply that these deficits are dramatically increasing in magnitude. So what is the source of these three deficits? Sennett references to Mark Roe, a legal scholar, who states that the source of the three social deficits is due to “separation of ownership from control.” Managers try to build loyalty, trust, and institutional knowledge within corporations but the shareholders, who have no day to day control of operations, have the ultimate power.

The problem of the three social deficits wouldn’t occur in an economic democracy because the workers of the cooperative enterprises would have both ownership and control over the operation. Workers could insure their needs are taken care of. The workers of the cooperative enterprise would naturally develop loyalty because the economic enterprise would be their own creation. Trust would develop naturally between the workers of the enterprise because cooperative enterprises by nature are stable allowing for long term relations to develop. Finally, this long-term stability would also translate into the retaining of institutional knowledge by the workers.

Sunday, October 12, 2008

The Real Alternative Part 2

In part 1 of this series I pointed out that Treasury Secretary Paulson was wrong when he said on Meet the Press that taxpayers bailing out the financial markets was “far better than the alternative” because the real alternative is to replace capitalism with an economic democracy based on worker-owned cooperatives supported by a system of social investment. I also explained that while such a conversion would be possible by simply passing the appropriate laws, and possibly constitutional amendments, to accomplish this there would be problems for the middle-class along with the non-profits that are vested in the financial markets. It’s these problems that I wish to address.

In an excellent web article David Schweickart recently wrote, “There’s one more thing we should do. A lot of people have seen their pensions disappear. Let’s restore those pensions. We’ll pick a date before the crash. Whatever value a person’s holdings in a pension fund was at that date will be transferred to that person’s social security account, to be paid out as an annuity supplement to that person’s basic social security income, when s/he retires.”
(I’d like to send a special thank you to activist Carl Davidson for providing this link.)

In his book, After Capitalism, Schweickart provided an expanded version of this solution. In his book he proposed that the government would, “exchange all outstanding stock certificates and corporate bonds for long-term government annuities – guaranteeing a steady income to each holder until the value of his investment portfolio has been redeemed. “ Schweickart also wrote that the government would, “bail out those pension funds invested in the stock market – and all other stockholders as well, capitalists included.” (Emphasis is mine) To pay for this he recommended a sharply graduated tax on the annuity. (pg 174 - 175)

While his web article was very good I believe that his proposal as he presented it in his book to be far better. I’ll let Schweickart himself make the case from me. On pages 175-177 of his book he gave six arguments in support of this expanded buy-out:
* These payments would not be paid forever but would end once the value of the investment has been recovered or once a set date is passed, such as a maximum of thirty years.

* The pension funds would be exempt from the annuity tax. This would protect the retirees while taxing what would have been reinvested by the capitalists

* While we may recoil at propping up the rich in their lifestyle there is something to be said about the economic benefits of their consumption. Allowing them to spend would help continue providing jobs.

* To answer the objections over the cost of such a bail out Schweickart points out that we currently pay for the lifestyle of the rich since part of what should be paid to the workers are instead siphoned off to pay dividends and interest to the capitalists.

* The fundamental problem with capitalism isn’t supply side. It’s the power that capitalist have that is the problem. Paying off the capitalists is a small price to pay to transfer economic power to the workers.

* We should not demonize individual capitalists. Providing the annuity to everyone would help create a spirit of generosity to the economic conversion. This could also mollify many capitalists who may otherwise try to prevent such a conversion.

I would add to Schweickart’s six arguments a seventh. By providing this annuity it would take into account those non-profits that are invested as well as the individuals who depend on their earnings from investments.

In conclusion, not only do we know what the real alternative that Paulson failed to mention is (economic democracy) but we also have a good idea of the democratic, peaceful and equitable means by which to achieve it. The only question then that remains is how long do we have to wait until we see an economic democracy, this Third Way alternative to capitalism, become a reality? How long?