Economics for Democratic Socialism

1
Economics for Democratic Socialism

• Drexel University
• Spring Quarter 2009

2
Why This Course?

• The economic crisis of 2008 seems to be the most
  serious reversal for capitalism since 1929-33.
• It is possible that capitalism will not survive.
• Even it it does, the recurrence of crises of this
  magnitude calls for a consideration of the costs
  and benefits of capitalism visavis alternative
  systems.
• Both of these possibilities urge a
  reconsideration of democratic socialism as an
  alternative.

3
Fair Warning

• This course is an experiment.
• There are no social conventions to define the
  content of the course.
• Unavoidably, in many cases, you are going to get
  my ideas, for whatever they are worth. Im not
  sure how much confidence I have in some of them!
• I am not qualified as a philosopher, political
  theorist or historian, but will have to digress
  on all these fields.
• In any experiment, things can go wrong.

4
Economic and Political Systems

• The use of the term democratic socialism
  suggests that economic and political systems can
  be taken under separate headings, so that we
  have, in effect, four alternatives rather than
  two socialism with or without democracy, and
  capitalism with or without democracy.
• Orthodox Marxist-Leninists would deny that (with
  some basis in Marx ideas) and so will I, for
  different reasons -- but this interpretation will
  do, for now, as an organizing principle.

5
Democracy 1

• As a minimum Democratic Socialist would demand a
  political system that incorporates the democratic
  liberties
• Freedom of speech, advocacy, assembly and
  petition
• Openly contested elections
• Freedom of organization, including the freedom to
  organize political parties to contest elections.

6
Democracy 2

• In Capitalism, Socialism and Democracy,
  Schumpeter considers two interpretations of
  democracy
• Popular sovereignty, that is, that the government
  should enact the will of the people
• Competitive leadership, that is, the leader is
  determined by competition for the free vote of
  the population.
• Schumpeter rejects the first of these. He makes
  several criticisms. The one that bites is the
  general will, if it exists at all, might be
  best enacted by an autocrat.
• The formation of government by political
  competition does at least explain the importance
  and function of democratic liberty.

7
Democracy 3

• Under the influence of anarchism (specifically
  Wolff, R. P, 1970, In Defense of Anarchism, New
  York Harper) I would prefer a higher standard
  and would define democracy as follows
• In a democratic system, any person who holds a
  position of authority is responsible to those
  over whom the authority is exercised.
• (Wolff goes much further).
• By this standard capitalism can never be
  democratic.
• Neither could centralized state-socialism.
• But I wont insist on doing things my way.

8
Democracy 4

• Marx-Leninists reject democratic liberty as
  bourgeois liberty on the following reasoning
• Marx says that all political organization serves
  class interest.
• If the capitalist class has been done away with,
  the government is the instrument of working-class
  interest, regardless of liberties.
• If some vestiges of the bourgeoisie remain, then
  the government needs all the power it can obtain
  to advance working-class interests and repress
  the bourgeoisie.

9
Socialist Roots

• W. A Lewis was a Nobel laureate economist (1979)
  and a Fabian socialist.
• In 1949 he wrote that British socialism had two
  aims democracy and a classless society.
• He added that government ownership is a means to
  those ends, and not in itself socialist.
• He traced these ideas to Robert Owen, among
  others.

10
Class Societies

• In ancient societies, the major classes are the
  payers and recipients of tribute.
• The early Islamic Caliphate provides a very
  refined instance of this.
• The Arab conquerors built new cities (Basra,
  Kufa, e.g.) where Arab soldiers lived on salaries
  derived from tribute.
• Other classes -- merchants and rural landowners
  -- existed but were minor.
• In Feudalism, the main classes were landlords and
  peasants.

11
Classes in the 19th Century

• The Classical Political Economists (about
  1776-1880) observed that their society was
  divided into three classes landlords, the
  (wealthy capitalist) middle class, and the
  laborers. This was still true in Marx time.
• Nevertheless, it is specific to a period of
  transition from feudalism to capitalism.
• Essentially, a worker didnt own anything he (or
  she) couldnt wear or eat. There were no old age
  pensions.
• The condition of the working class has changed
  over the last century, though.
• Are we all capitalists now?

12
Classes over the Life Cycle

• To define a social class in 2009, we need to
  think in terms of the life cycle.
• Franco Modigliani, antifascist resistor and Nobel
  Laureate macro-economist, brought the life cycle
  perspective into economics.
• If you have to work for a wage or salary for most
  of your life to survive and get a pension, you
  are a member of the working class.
• (Modigliani was a free-market liberal.)

Franco Modigliani 1918-2003
13
Other Classes

1. Those who own wealth enough to operate a
   business, so that they have to work but not for
   wages or a salary, are not part of the working
   class. They are what a Marxist would call petit
   bourgeois. Some may be no better off than
   workers, and there can be a lot of mobility from
   this class in both directions.
2. Those who inherit wealth enough to live without
   working, the trust fund class, approximate
   Veblens leisure class.
3. Those with wealth enough to control corporations
   (and buy congressmen) are the grand bourgeoisie
   -- what I call the billionaire class.

14
Strata

• The three groups have interests that are somewhat
  aligned, and may be thought of as different
  strata of the same capitalist class.
• However, differences among them can be important,
  and their interests are not wholly aligned.
• Interests of the grand bourgeoisie tend to be
  national and international, while those of the
  petit bourgeoisie tend to be local.
• These conflicts are the major differences between
  the two parties in the USA.
• In that sense, the capitalist class as a whole
  can be thought of as the ruling class.

15
Classless Societies

• Can we even conceive of a classless society?
• Jeffersonian democracy -- a society of freehold
  farmers -- would be classless.
• But that is inconsistent with modern production.
• In state socialism, everybody would (in
  principle) be a public employee. Thus, no class
  divisions.
• In a system of worker cooperatives, as envisioned
  by Mill, everybody earns their income as a member
  of a worker cooperative. Thus, again, no classes.

16
State Socialism

• While state socialism is in principle classless,
  it is unstable because it is hierarchical.
• The technostructure of planners and managers
  becomes a group distinct from the workers, living
  off their surplus.
• Whether or not this is a new class, it sets the
  stage (as in the Soviet Union) for the return to
  capitalism, since they can extract the surplus
  more effectively as capitalist oligarchs.

17
Nationalization

• Many mid-twentieth century democratic socialists
  saw selective nationalization as a path to
  state-socialism.
• As Busky points out, this, too, proved unstable
  -- and was reversed by privatization, decisions
  taken by democratic governments with labor
  parties in the parliament.
• Have the workers any stake in nationalization or
  state-socialism? No direct stake, anyway --
  although perhaps the technostructure do.

18
Cooperative Socialism

• In a cooperative socialist system, some of the
  cooperatives will be very large indeed --
  unavoidably -- and managers will be specialists.
• However, as they are responsible to the people
  they manage, it is at least possible that the
  hierarchy will be much more limited.
• Thus cooperative socialism remains a hope for a
  classless society.

19
Back to Lewis

• Writing in the 1940s, Lewis criticized selective
  nationalization of industries as essentially a
  new form of exploitation of labor.
• He agreed with many economists at that time that
  corporations dont maximize profits anyway.
• His program was for the government to run an
  annual surplus, retire the national debt, and
  begin to buy up shares in the corporations.
• Thus, eventually, the corporations would become
  public property, although they would continue to
  be under decentralized and (more or less)
  interested management.

20
From Lewis to Greenspan

• Greenspan, too, conceived government surpluses as
  a path to socialism.
• That was the reason he gave for supporting the
  Bush tax cuts.
• But few socialists of 2007, if any, would regard
  corporations as progressive organizations.
• Indeed, the crisis of 2009 was, to a considerable
  extent, a crisis of corporations.

21
On the Other Hand

• Anticorporate leftists (such as Magnusson) could
  favor cooperatives as an alternative to
  for-profit corporations.
• However, historic cooperatives are worker-owned,
  not public property.
• Can we conceive of a system that combines public
  ownership with decentralized, interested
  management (as worker cooperatives?) That is the
  socialism I personally would favor.

22
Robert Owen

• 1771-1858
• Born in Newtown, North Wales, the son of a
  saddler.
• An entrepreneur at 19 and one of the all-time
  great business managers!
• Known as a utopian socialist.

23
New Lanark

• Owen managed innovative spinning mills for Peter
  Drinkwater and David Dale, whose daughter he
  married.
• In 1813, he purchased the Dale mill at New
  Lanark, and reorganized it as a utopian
  community.
• He was an environmentalist, and hoped to provide
  an ideal environment to form good character among
  the workers of New Lanark, and their children.
• Among his first steps were to eliminate child
  labor and start a school.

24
New Lanark, Scotland
25
New View of Society

• He published his ideas on educational reform and
  the influence of social environment on character,
  in a series of essays which were collected and
  published as a New View of Society. In this major
  work he outlined his vision of the ideal
  community - a system run on a co-operative basis
  involving both factories and agriculture. --
  Robert Owen Museum
• In 1825, purchased New Harmony, Indiana, to
  establish a colony there. (This was less
  successful than New Lanark).

26
The Grand National Consolidated Trades Union

• At this time, in the early 1830's, the trade
  union movement was growing and a number of
  co-operative societies had opened shops and
  workshops. In 1832 he proposed that the unions
  should unite and in 1834 the Grand National
  Consolidated Trade Union was formed. Within a
  week it had over half a million members and the
  government were alarmed by this new mass labour
  movement. It was suppressed, however.
• However, the idea of the co-operative movement
  did not die completely, for in 1844 the Rochdale
  Pioneers started a co-operative venture in
  Lancashire which eventually grew into the modern
  Co-operative Movement.

After Robert Owen Museum
27
Owens Evolution

• Owen had evolved from a paternalistic utopian to
  a labor leader and reformer, if not quite
  revolutionary.
• He did, however, support one later attempt to
  form a colony in Britain.
• Owens freethinking religious views were often
  violently opposed, and some of his socialist
  followers were prosecuted for blasphemy.
• Last year, the 150th anniversary of his death was
  celebrated at his birthplace in North Wales. For
  more information, contact the cooperative there.

28
Other Utopian Socialists
Marx wrote about three Utopian socialists. Owen
was one.

• Francis-Marie-Charles Fourier, 1772-1837
• Advocated planned communities with common
  ownership and production.

• Claude Henri de Rouvroy, Comte de Saint-Simon,
  1760-1825
• Really more technocratic than socialist.

29
A Utopian Communist

• Etienne Cabet, 1788-1856
• Political activist, 1830-39 (exiled in Britain)
• Wrote Voyage en Icarie, 1840
• An environmentalist, he thought that a communist
  dictatorship would be necessary to establish a
  noncompetitive society and transform human
  nature.
• Influenced the insurrectionist August Blanqui,
  and through him, Lenin.

30
Colonies

• Followers of Fourier and Cabet formed colonies
  after their principles, mostly (only?) in the
  United States.
• Fourierist Phalangeries were founded in New
  Jersey, Texas, and several middle western states.
• An Icarian colony, planned for Texas, took root
  in Iowa.
• Cabet was the first president, but defeated for
  re-election.
• Founded 1848-1852, it lasted in Iowa until
  August, 1886. (New York Times Archives).

31
Cooperative Movement 1

• A cooperative is an enterprise operated by a
  membership organization. Control is based on
  membership, and profits are distributed among
  members. Membership is open to those who are part
  of the enterprise, not as owners, but
• Employees, in a worker cooperative
• Customers, in a consumer cooperative or mutual
  financial organization
• Raw material supplier, in e.g. a farmer
  cooperative.

32
Cooperative Movement 2

• Under the influence of Owen among others,
  cooperatives (especially worker cooperatives)
  were widely advocated in the 1820s.
• Among very influential figures was Dr. William
  King, 1786-1865, who was also active in education
  of working class children and adults.
• In 1844 28 working men gathered together to set
  up the Rochdale Equitable Pioneers Society and
  opened a co-op shop on Toad Lane in Rochdale.
  (Coop online).
• This consumers coop is considered the beginning
  of the international cooperative movement.

33
France

• In France, cooperatives were organized and
  advocated as The Republic in the Workshop.
• Important figures were Philippe Buchez and Louis
  Blanc, who advocated government aid to the
  formation of (more or less) cooperative
  workshops.

Louis Blanc
34
Cooperative Movement 3

• Over the subsequent 170 years, thousands of
  cooperatives, including worker cooperatives, have
  been formed, and the record of success is
  excellent.
• The international cooperative movement is
  affiliated with the United Nations and
  headquartered in Geneva.
• http//www.ica.coop/al-ica/
• The slogan of the 150th anniversary celebration
  in 1990 was tried and proven.

35
John Stuart Mill

• 1806-1873
• Son of James Mill, a Ricardian political
  economist
• Mill was raised as a sociological experiment --
  to create a genius by education.
• For whatever reason, he was one of the greatest
  minds of the 1800s.

36
Mills Socialism 1
The form of association, however, which if
mankind continue to improve, must be expected in
the end to predominate, is not that which can
exist between a capitalist as chief, and
work-people without a voice in the management,
but the association of the labourers themselves
on terms of equality, collectively owning the
capital with which they carry on their
operations, and working under managers elected
and removable by themselves.
37
Mills Socialism 2
Cooperation tends ... to increase the
productiveness of labour, consists in the vast
stimulus given to productive energies, by placing
the labourers, as a mass, in a relation to their
work which would make it their principle and
their interest -- at present it is neither -- to
do the utmost, instead of the least possible, in
exchange for their remuneration. I agree, then
with the Socialist writers in their conception of
the form which industrial operations tend to
assume in the advance of improvement and I
entirely share their opinion that the time is
ripe for commencing this transformation,
38
Mills Socialism 3
But while I agree and sympathize with Socialists
in this practical portion of their aims, I
utterly dissent from the most conspicuous and
vehement part of their teaching, their
declamations against competition. they have in
general very confused and erroneous notions of
the actual working of society and one of
their greatest errors, as I conceive, is to
charge upon competition all the economical evils
which at present exist. They forget that wherever
competition is not, monopoly is and that
monopoly, in all its forms, is the taxation of
the industrious for the support of indolence, if
not of plunder.
39
Karl Marx

• 1818-1883
• Born Trier, German Rhineland
• His father, originally Jewish, converted to
  Christianity
• PhD, 1841, Jena, on Greek materialist philosophy
• Not being able to find an academic job, he turned
  to journalism for a living.

40
Marx Curriculum Vitae I

• 1842 Editor of the Rhenish Gazette, Köln
• 1843 Escaped Prussian police to France, married.
• Editor, Franco-German Annals. Friedrich Engels, a
  wealthy industrialist and political radical, was
  a contributor.
• 1845 Expelled from France to Belgium, supported
  by Engels as a one-man communist think-tank.
• 1847-8 Wrote The Communist Manifesto, based on a
  draft by Engels.
• 1848 Expelled from Belgium participates in
  revolutionary agitation in Köln, again.

41
Marx Curriculum Vitae 2

• From 1849, in exile in England.
• From 1852-early 1860s, writes for the New York
  Daily Tribune, somewhat alleviating his extreme
  poverty.
• 1859 Contribution to the Critique of Political
  Economy states economic materialist position.
• 1867 Capital, v. 1
• Died 1883
• 1885 Capital, v. 2 published posthumously.
• 1894 Capital, v. 3 published posthumously.
• The latter volumes were finished by Friedrich
  Engels.

42
Revolution

• In Western Europe, from 1789 to 1871, there was
  no continuous, peaceful politics. The only
  political events that mattered were revolutions
  and coups detat.
• The French Revolution of 1789 was followed by a
  series of coups detat, culminating in
  Napoleons.
• 1830 was a year of revolution throughout western
  Europe.
• So was 1848. In France, this was followed by a
  coup detat by yet another Napoleon.
• This was the political milieu Marx had
  experienced and that seemed inevitable to him.
• The Communist Manifesto was written in the
  context of the 1848 revolutions.

43
Ideology

• In the mid 1840s, Marx and Engels wrote The
  German Ideology, a critique of the young
  Hegelians.
• The Young-Hegelian ideologists, in spite of
  their allegedly world-shattering statements,
  are the staunchest conservatives.
• Point being that their critical philosophy,
  though very radical in its attack on older
  ideas, is in the interest of the dominant class
  -- thats what ideology does.
• That doesnt mean ideology is simply wrong. If it
  is to do its job, an ideology needs to have
  enough truth to be persuasive.
• This book is an early statement of Marx theory
  of history and argues that ideas arise from
  material conditions of production.

44
From The Communist Manifesto

• The history of all hitherto existing society is
  the history of class struggles. The modern
  bourgeois society that has sprouted from the
  ruins of feudal society has not done away with
  class antagonisms. It has but established new
  classes, new conditions of oppression, new forms
  of struggle in place of the old ones.
• the first step in the revolution by the
  working class is to raise the proletariat to the
  position of ruling class to win the battle of
  democracy.
• The proletariat will use its political supremacy
  to wrest, by degree, all capital from the
  bourgeoisie

45
Manifesto Summary
When, in the course of development, class
distinctions have disappeared, and all production
has been concentrated in the hands of a vast
association of the whole nation, the public power
will lose its political character. Political
power, properly so called, is merely the
organized power of one class for oppressing
another. If the proletariat makes itself the
ruling class, and, as such, sweeps away by force
the old conditions of production, then it will,
along with these conditions, have swept away the
conditions for the existence of class antagonisms
and of classes generally, and will thereby have
abolished its own supremacy as a class.
46
Socialism and Communism

• The anticapitalist left by Marx time already
  had factions of socialists, communists, and
  anarchists.
• Socialism called for the abolition of social
  classes, in particular the division between
  owning and working classes. (Authority W. A.
  Lewis)
• Communism usually demands common ownership of the
  means of production (sometimes at the local
  level) but sometimes just means the more extreme
  or advanced socialism. (Authority Paul Sweezy)
• By 1848, Marx categorized himself as a communist.

47
Marx as Economist and Politician

• Marx undertook the study of economics and
  produced the book Capital.
• In the 1860s, he joined the International
  Workingmens Association (First International)
  and became a leader of its more moderate faction.
  
• This moderate faction advocated participation in
  parliamentary politics by workers (socialist)
  parties where this was permitted, as --
  increasingly -- in Germany.
• The other major faction, led by anarchists,
  called for struggle through strikes and violence.

48
Second International

• The IWA, always divided, disbanded 1876.
• A new International was founded 1889, an
  association of (largely Marxist) workers
  socialist parties.
• There was a tendency away from revolutionary
  politics and toward evolutionary socialism
  (Eduard Bernstein)

Eduard Berstein
49
Bolsheviks

• An exception was Russia, where any opposition
  continued to be repressed by a police state that
  presaged 20th century totalitarianism.
• Nicolai Lenin (Vladimir Ilych Ulyanov) advocated
  a small party of professional revolutionaries and
  led his followers out of the Second
  International.
• The Second International broke up during World
  War I.

Lenin
50
Russian Revolution 1

• The success of the Bolsheviks in seizing power
  and establishing a dictatorship of the
  proletariate led to a permanent division among
  socialists.
• From this time, it is necessary to distinguish
  Democratic Socialists as socialists who reject
  the Dictatorship of the Proletariate.

51
Russian Revolution 2

• Following the Russian Revolution, Communist
  Parties were formed in many countries, generally
  by former socialists. (Two were formed in the US,
  but soon merged.)
• Democratic Socialists were further divided as
  some (e.g. SPUSA) refused to work with Communists
  while others -- under pressure from Fascism, or
  seeking unity for working-class movements --
  entered into popular front organizations.
• As Fascism advanced -- and democratic western
  governments would not assist those who opposed it
  in Europe -- these popular fronts were more and
  more dominated by the Soviet Union.

52
Intellectual Controversy

• With socialism understood as centralized state
  control of the economy, Austrian economists
  argued that a rational socialist system would
  be impossible.
• Socialist economists responded by proposing that
  a socialist society could use markets in the
  allocation of resources-- combining public
  ownership with decentralized management
  instructed to maximize profits.
• This is the origin of market socialism.

53
Twentieth Century

• During the twentieth century, especially after
  the defeat of fascism, social-democratic and
  labor parties often played parts in parliamentary
  governments, often as the leading party.
• Socialist measures -- such as selective
  nationalization of important industries and the
  creation of a social safety net -- were
  adopted.
• As Lewis notes, these did not transform
  capitalism to a classless society, and many were
  reversed by later conservative governments.
• Some -- including universal health care, social
  security, and codetermination in Germany and
  elsewhere -- do not seem likely to be reversed.

54
Arthur Lewis, Again

• Lewis program was that -- instead of
  nationalization of steel-making and coal mining
  and such -- the government should run a surplus,
  on the average.
• After paying off the national debt, they would
  buy shares in corporations.
• Increasingly, the system would combine public
  ownership with decentralized, interested
  management.
• This is a kind of market socialism.
• But can corporations really be part of the
  solution?

55
Twenty-First Century

• Democratic Socialists have learned a great deal
  from the twentieth century, and done some good,
  but have not created a classless society. The way
  to this objective seems, if anything, less clear
  rather than more.