I spent this weekend reading David Schweickart’s After Capitalism, and thought I would write a review. Or, more accurately, a critique. First things first: this is the best book by a radical leftist I’ve ever read. By far. The author is calm, logical, intelligent, respectful of differing points of view, and very well-versed in economics. This isn’t your typical dumbass Rachel Maddow/Michael Moore type liberal—this is a serious, challenging work that is far more difficult to absorb and refute. That being said, I’m going to try to refute it anyway.
I should state upfront that I am not an expert in economics by any means. However, Economic Democracy (the name Schweickart has chosen for his socialist system) has what looks like some fairly obvious problems, even to the layman. Before reading my critique, you should check out a shorter description of his system.
1) Schweickart proposes that investment decisions be made by public banks, whose employees will be rewarded based on how profitable their investments are. The glaring question here is: how much are you going to pay them? Experts at investing make a crap-load of money in our current economy, and for good reason: predicting trends and allocating resources is an extremely difficult job. Their pay would presumably be far less under Schweickart’s public banking scheme, which would undermine their incentive to perform well and also create a shortage of investors. With the promise of huge rewards gone, Schweickart’s bankers would be far more conservative and reluctant to invest in heavily risky or expensive innovations. He has eliminated the ultra-rich, but at a cost: his society is now less wealthy and less dynamic.
2) Schweickart wants investment funds distributed to regions on an equal basis. This seems pretty silly because there are often more good investment opportunities in one region than another. Schweickart thinks this will make community life better and stop people from having to move so much, but in reality it will only cause entrepreneurs to have to constantly move to regions with the most available capital.
3) Schweickart believes worker-owned firms should democratically elect management as well as decide on payment structures. He predicts most of them will give larger shares to workers with more skills or responsibilities and stresses that they may lose talented members if they do not. Suppose the most talented CEOs demand salaries as high (or almost as high) as they do now? What’s to stop the horrible inequality Schweickart hates so much?
4) Schweickart says he is not against entrepreneurs and considers them a distinct economic category from capitalists. Sorry, but I don't see how he can a) concede the income of entrepreneurs is legitimate and b) demand an economy of worker-managed firms. The two contradict each other. If it's legitimate for an entrepreneur to open up a business and hire people, then that is precisely the "undemocratic" structure he opposes. Perhaps Schweickart’s answer is that entrepreneurs would have to operate within the confines of the democratic firm. But how can this work if workers are supposed to be electing their own bosses?
No need for separate bullet points, here. Politically, the problem with Economic Democracy is pretty simple: it would be a totalitarian dictatorship. Even Schweickart seems to concede that the closest historical example we have to it would probably be Yugoslavia under the dictator Tito.
Firms would be considered the collective property of “society,” which means “property of the state” in practice. Schweickart says that as long as the Bill of Rights is intact, we’ll have nothing to worry about. BWA HAHAHAHA *snort* A HAHAHAHA! That’s a good one! It’s done such a great job of protecting us so far. /sarcasm
Furthermore, he believes a revolutionary leftist party coming to power in the US would be Economic Democracy’s best chance of coming into being. Has he not noticed that countries run by these parties tend to become dictatorships? Is he not a little ambivalent about how centralized and powerful this kind of government would be? Of course not; otherwise he wouldn’t be a socialist in the first place.
This is the best book you’re likely to ever get out of a socialist, and for that I’ll give the author credit. Unfortunately, socialism still can't work because it always involves violating the laws of the market. Cap the pay of investors (ie, "get rid of the capitalist class") and you get less and worse investment, ditto for managers. Raise wages and you make firms more reluctant to hire. And so on. Still doesn't work but at least the author tried to come up with a coherent system-- which is more than about 99.9% of socialists will do.
I really wish someone over at Mises.org would review this. I'd be interested in their thoughts.
#4 especially makes me laugh. Entrepreneurs "distinct" from capitalism?ReplyDelete
Absurd. I want to know one thing from all these leftists: Do they actually OWN and OPERATE businesses? They seem to completely overlook and appreciate the subtle and dizzying amounts of decisions and ideas that go into running a business. These decisions are made, or should be, of FREE WILL. Not by some appointed group of public-philosopher servants.
Rooting out incentives DOES destroy the dynamic element.
When will they learn?
Thanks for this critique and for recognizing the quality of the work of Schweickart. I didn't read "After capitalism" but I read "Against capitalism" which is supposed to be a more detailed and more theoretical version of the same argument. I think your critique is fair but wrong. So I will try to address each point the best I can, even though Schweickart would do a much better job than me.ReplyDelete
#1 bankers in the public banks will be paid on the basis of the profit they make, which means that the market will determine their pay (with a governement insured minimum I suppose). Your argument against that relies on two assumptions. a. the quality of the work is proportional to the income, with no limitation (very high income equals very high talent and productivity) and b. the way finance works under a capitalism system is good for the economy.
These 2 assumptions are wrong.
Against the first I can take the example of the whole open source community (income near zero) or public research (income very low) which both show very high creativity. Of course, the money incentive is important but the relationship between income and talent or productivity saturates very quickly (there are some experimental economics experiments showing that).
Against the second, I can take the example of derivatives, credit default swaps, the role of finance in the present crisis, in the asian crises, etc... It's a long argument to make and I won't detail it here but you see the point.
However, the system in Economic democracy still relies on money incentive to promote efficiency in capital allocation, but in a rational and controlled way (as opposed to Wall Street).
#2 An important point is that arguments 1 and 2 are mostly details of implementation of the global economic paradigm and Schweickart insists himself that they are only propositions and that there is still room for improvement. In addition, it is not the only allocation system proposed in Economic Democracy. Part of the funds are allocated directly by the government for ambitious projects that require lots of subsidies.ReplyDelete
However, I still believe that allocating funds as a function of the number of inhabitants is a good strategy. Obviously, it makes sense from the point of view of fairness but it is also, I believe, a sensible economic policy.
You point to the fact that investment opportunities may vary according to regions. In our current economic system, the attractiveness for investments of different regions indeed varies and sometimes with a very short time resolution. This is because investments drive investments and vice versa. So the investment opportunities are driven not by long-term economic benefits for the region but by short-term financial benefits for the investors, which are two distinct things.
In Economic Democracy, while investment opportunities could be affected by geographic and strategic factors, these should bring their effects slowly, on a long-term. Regions with these types of benefits should produce more employment oportunities and hence be more densely populated. Consequently, they will receive more funds...
In economic democracy CEOs income would hit a ceiling because a) income distribution is allocated democratically in all firms. B) the size of firms is reduced because each firm seeks to maximize profit per worker, not for the firm as a whole, thus number of firm member reaches a limit way before capitalist firms, which skew democratic power away from management. C) CEO cannot award themselves bonuses without coworker consent. D) Public investors have multiple mandates because of their accountability and scrutiny by the general population. Cronyism with corporate management will be limited, among other things because they can't be members of boards of directors of a firm, and their income won't be manipulated in collusion with firms management.ReplyDelete
I agree essentially with your point on the per capita allocation of investment, although i don't understand the logic of your last statement: in economic democracy the investors would in theory reside in regions in a number proportional to the population of that region, as a matter of course.ReplyDelete
That said i agree that economic opportunity cannot be distributed homogeneously across geography, resources aren't.
"Laws of the market"... You just negated your own argument against Economic Democracy; markets are *not* natural forces but human-made socioeconomic constructs, and as such can be shaped to operate as we wish them to. Only an propagandized ignoramus or someone with a vested interest in the status quo would believe in "invisible hands" and "laws of the market"; which are you?ReplyDelete
"We hate what we fear, and fear what we don't understand." - me
The revolutionary socialist labour government in the UK in 1945 certainly did not tend towards dictatorship! To suggest that if a left wing revolutionary party came to power in the United States that they would be able to throw off the shackles of democracy and form a dictatorship is patently absurd! I know you might disagree with socialism however at least be reasonable with regards your position. I understand that special interests groups / capitalist parasites would be petrified of such an eventuality however it would not bring down democracy but in fact strengthen it by bringing it into the business world.ReplyDelete
I agree. Tito's Yugoslavia was a planned economy without a market for goods and services and thus different from Sweickart's model. He does use it as an example of (limited) worker control of firms. There's no reason why a worker controlled market socialism wouldn't also be a political democracy.ReplyDelete
Right wingers who insist that any form of socialism has to be totalitarian should contemplate that the only examples of laissez faire capitalism we have are dictatorships like Chile under Pinochet or 19th century societies where the franchise was essentially restricted to male owners of property who could be relied on to protect their interests.