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Economic democracy is a socioeconomic philosophy that suggests an expansion of decision-making power from a small minority of corporate shareholders to a larger majority of public stakeholders. While there is no single definition or approach, all theories and real-world examples of economic democracy are based on a core set of fundamental assumptions.
Proponents generally agree that modern economic conditions tend to hinder or prevent society from earning enough income to purchase its output production. Centralized corporate monopoly of common resources typically forces conditions of artificial scarcity upon the greater majority, resulting in socio-economic imbalances that restrict workers from access to economic opportunity and diminish consumer purchasing power.
As either a component of larger socioeconomic ideologies or as a stand-alone theory, economic democracy promotes universal access to common resources that are typically privatized by corporate capitalism or centralized by state socialism. Assuming full political rights cannot be won without full economic rights, economic democracy suggests alternative models and reform agendas for solving problems of economic instability and deficiency of effective demand. As an alternative model, both market and non-market theories of economic democracy have been proposed. As a reform agenda, supporting theories and real-world examples include democratic cooperatives, fair trade, social credit, and the regionalization of food production and currency.
According to proponents of economic democracy, the most basic economic problem is that modern society does not earn enough income to purchase its output production. While balanced mixed economies have existed briefly throughout history, most analysts agree that command economies tend to dominate, listing contemporary expressions of capitalism as an extreme example, not an exception to the rule. As common resources are monopolized by imperial centers of wealth and power, conditions of scarcity are imposed artificially upon the greater majority, resulting in large-scale socio-economic imbalance.
In any economic system, "wealth" includes all material things produced by labor for the satisfaction of human desires and having exchange value. Land and labor are generally considered the two most essential factors in producing wealth. Land includes all natural opportunities and forces. Labor includes all human exertion. Capital includes the portion of wealth devoted to producing more wealth.
While the income of any individual might include proceeds from any combination of these three sources—land, labor, and capital are generally considered mutually exclusive factors in economic models of the production and distribution of wealth. According to Henry George, "People seek to satisfy their desires with the least exertion". Human beings interact with nature to produce goods and services (products) that other human beings need or desire. The laws and customs that govern the relationships among these entities constitute the economic structure of a given society.
In his book, After Capitalism, David Schweickart suggests, "The structure of a capitalist society consists of three basic components:
The bulk of the means of production are privately owned, either directly or by corporations that are themselves owned by private individuals.
Products are exchanged in a "market;" that is to say, goods and services are bought and sold at prices determined for the most part by competition and not by some governmental pricing authority. Individual enterprises compete with one another in providing goods and services to consumers, each enterprise trying to make a profit. This competition is the primary determinant of prices.
Most of the people who work for pay in this society work for other people, who own the means of production. Most working people are "wage labourers."
While supply and demand are generally accepted as market functions for establishing price, the present financial price system is not self-liquidating. Corporate firms typically endeavor to 1) minimize the cost of production and 2) increase sales, in order to 3) maximize shareholder value. But when consumers cannot buy all the goods being produced, "investor confidence" tends to decline, triggering declines in both production and employment. According to many analysts, such economic instability stems from a central contradiction: Wages are both a cost of production and an essential source of effective demand (needs or desires backed with purchasing power). Moreover, "those who produce the goods and services of society are paid less than their productive contribution".
Generally considered the forceful extension of a nation's authority by territorial gain or by the establishment of economic and/or political dominance over other nations, some view imperialism as an advanced stage of capitalism. The merging of banks and industrial cartels give rise to finance capital, which is then exported (rather than goods) in pursuit of greater profits than the home market can offer. Political and financial power is divided amongst international monopolist firms and European states, colonizing large parts of the world in support of their businesses.
On a global scale, wealthy developed nations tend to impede or prohibit the economic and technological advancement of weaker developing countries through the military force, martial law, and inequitable practices of trade that typically characterize colonialism. Rhetorically termed by some as a "tragedy of the commons", "survival of the fittest", or "might makes right", proponents of Economic Democracy generally attribute such economic crises to the imbalances imposed by corporate imperialism.
In his book, Economic Democracy: The Political Struggle for the 21st Century, J.W. Smith examines the economic basis for the history of imperial civilization. Just as cities in the Middle Ages monopolized the means of production by conquering and controlling the sources of raw materials and countryside markets, Smith claims that contemporary centers of capital now control our present world through private monopoly of public resources sometimes known as "the commons". Through inequalities of trade, developing countries are overcharged for import of manufactured goods and underpaid for raw material exports, as wealth is siphoned from the periphery of empire and hoarded at the imperial-centers-of-capital:
"Over eight-hundred years ago the powerful of the city-states of Europe learned to control the resources and markets of the countryside by raiding and destroying others’ primitive industrial capital, thus openly monopolizing that capital and establishing and maintaining extreme inequality of pay. This low pay siphoned the wealth of the countryside to the imperial-centers-of-capital. The powerful had learned to plunder-by-trade and have been refining those skills ever since".
Like other financial empires in history, Smith claims the contemporary model forms alliances necessary to develop and control wealth, as peripheral nations remain impoverished providers of cheap resources for the imperial-centers-of-capital. Belloc estimated that, during the British Enclosures, "perhaps half of the whole population was proletarian", while roughly the other "half" owned and controlled the means of production. Now, under modern Capitalism, J.W. Smith claims fewer than 500 people possess more wealth than half of the earth’s population, as the wealth of 1/2 of 1-percent of the United States population roughly equal that of the lower 90-percent.
According to many analysts, the United States has maintained some measure of stability by economically dominating of the rest of the world as a means of filling the gap between production consumption. Beginning with massive loans to European combatants during World War I, and continuing through the lend-lease program of World War II, U.S. domination of trade reached its peak through economic recovery measures following those wars. Though forming the basis for U.S. prosperity during the 1950s and 1960s, U.S trade domination was exhausted by the mid-1970s, when the United States implemented a policy known as dollar hegemony, intended to stabilize the economy.
With a consistently negative trade balance over the decades since, some suggest the United States has compensated for the gap between purchasing power and prices with a wide variety of debt in all sectors of the economy. In this process, many analysts claim that dollar hegemony has flooded the world with U.S. currency, loans, or debt instruments to support U.S. fiscal and trade deficits, pay for extraordinary levels of U.S. resource utilization, induce foreign governments to purchase U.S. armaments, ensure the allegiance of foreign governing elites, and maintain foreign economies in subservience through World Trade Organization and International Monetary Fund trade and lending policies.
At the domestic level, inequities maintained by corporate imperialism tend to result in the large-scale debt, unemployment, and poverty characteristics of economic recession and depression. According to Jack Rasmus, author of The War At Home and The Trillion Dollar Income Shift, income inequality in contemporary America is an increasing relative share of income for corporations and the wealthiest 1-percent of households while shares of that income stagnate and decline for 80-percent of the United States workforce. After rising steadily for three decades after World War II, the standard of living for most American workers has sharply declined between the mid-1970s to the present. Rasmus likens the widening income gap in contemporary American society to the decade leading up to the Great Depression, estimating "well over $1-trillion in income is transferred annually from the roughly 90-million working class families in America to corporations and the wealthiest non-working class households. While a hundred new billionaires were created since 2001, real weekly earnings for 100 million workers are less in 2007 than in 1980 when Ronald Reagan took office".
According to Rasmus and other analysts, this "quarter century pay freeze", imposed by rapidly increasing control of wealth by the very rich, has resulted in innumerable negative externalities:
"For the first time since the U.S. government began to collect the data in 1947, wages and salaries no longer constitute more than half of total national income. In contrast, corporate profits are at their highest levels since World War II, having risen double digits every quarter in the last three and a half years alone and 21.3% in the most recent year, 2005, according to Dow-Jones 'Market Watch'. Corporate profit margins are higher than they have been in more than half a century, according to Merrill Lynch economist, David Rosenberg. After tax profits are now equal to 8.5% of the U.S. Gross Domestic Product -- that's more than a trillion dollars -- and the highest since the end of World War II in 1945."
1% of all U.S. households now receive between 19%-21.5% of the annual Gross Domestic Product (GDP) of the United States, up from 8% in 1980. This same 1% also hold more than 35% of all assets and wealth of the nation — about $17 trillion. They own 51% of all stocks and 70% of all bonds, own homes worth $3 million and have a net worth of $6 million. According to a 2006 report by the Boston Consulting Group, the number of millionaires in the U.S. rose from 6 to 7.5 million since 2000, and one hundred new billionaires were created since 2001.
In contrast, the bottom 50% of all U.S. households, nearly 60 million families, own only 2.5% of the nation's total assets and wealth. Real wages of 100 million workers are less today than they were in 1980. According to the U.S. Commerce Department, college educated workers’ real wages have stagnated, growing less than a half of one percent a year from 1979 through 2005 and actually declining in 2004-05. Median households ($31,000 to $41,000 per year) have experienced a 5.9% income decline over the past five years. Below the median, thirty-seven million households now live below the U.S. government’s official poverty level, and sixteen million of them earn less than $9,800 for a family of four.
According to David Schweickart, Economic Democracy is a market economy, at least insofar as the allocation of consumer and capital goods is concerned. Firms buy raw materials and machinery from other firms and sell their products to other enterprises or consumers. "Prices are largely unregulated except by supply and demand, although in some cases price controls or price supports might be in order -- as they are deemed in order in most real-world forms of capitalism."
Without a price mechanism sensitive to supply and demand, it is extremely difficult for a producer or planner to know what and how much to produce, and which production and marketing methods are the most efficient. It is also extremely difficult in the absence of a market to design a set of incentives that will motivate producers to be both efficient and innovative. Market competition resolves these problems, to a significant if incomplete degree, in a non-authoritarian, non-bureaucratic fashion.
In Schweikart's view, centralized planning is inherently flawed, and schemes for decentralized non-market planning are unworkable. As theory predicts and the historical record confirms, central planning is both inefficient and conducive to an authoritarian concentration of power. This is one of the great lessons to be drawn from the Soviet experience.
Since enterprises in Economic Democracy buy and sell on the market, they strive to make a profit. However, the "profit" in a worker-run firm is not the same as capitalist profit. It is calculated differently. In a market economy firms, whether capitalist or worker-self-managed, strive to maximize the difference between total sales and total costs. But for a capitalist firm, labor is counted as a cost. For a worker-run enterprise it is not. In Economic Democracy labor is not another "factor of production" technically on par with land and capital. Labor is the residual claimant. Workers get all that remains, once non-labor costs, including depreciation set asides and the capital assets tax, have been paid............
Because of the way workplaces and the investment mechanism are structured, Schweickart's model aims to facilitate fair trade, not free trade, between nations. Under Economic Democracy, there would be virtually no cross-border capital flows. Enterprises themselves will not relocate abroad, since they are democratically controlled by their own workers. Finance capital will also stay mostly at home, since funds for investment are publicly generated and are mandated by law to be reinvested domestically. "Capital doesn't flow into the country, either, since there are no stocks nor corporate bonds nor businesses to buy. The capital assets of the country are collectively owned -- and hence not for sale."