What is the ‘Democratic Mixed Economy’?

 

above: newly published by Connor Court - 'Turning Left or Right'; and a photo of the author of this essay, Tristan Ewins

The essay that follows was an original draft of an essay on 'The Democratic Mixed Economy' - written for “Turning Left or Right – Values in Modern Politics”: a book edited by Carlo Carli, Tim Wilson and Paul Collits, and published by Connor Court.   That essay was very significantly cut back to be much more concise; so I am hoping readers may get some idea of the intentions of the original draft.

But firstly – the abstract below is an account of that book, and I urge readers to consider purchasing it;  The “Democratic Mixed Economy” essay follows:

Democracy is about choice. But today it can appear to be a choice between personalities as major political parties squabble over different shades of the same policy. Is the great political contest of ideas over? Or are the divisions less obvious than they once were?

How does the left balance competing ideas like free speech and avoiding offence? Why do classical liberals want to abolish the ABC and Australian Institute of Sport? And where do the left, liberals and conservatives agree, and why?

Turning left or right asks these questions, breaks through the wall of sound bites and explores how century-old political philosophies connect to practical policy for the 21st Century.

Each chapter includes three essays from some of Australia’s most engaged political thinkers who explore contemporary policy issues, find the dividing lines and reinject values and ideas. Importantly, every author’s essay provides insight into the solutions they think are needed to make Australia a better country for future generations.  

To order and for more info see: 

http://www.connorcourt.com/catalog1/index.php?main_page=product_info&products_id=262#.UnCWhUG4aUk

 

By Tristan Ewins

Historical Background on the Mixed Economy

The Left has had an often ambiguous relationship with the State when it came to matters of political economy.   Marxists sought centralisation of industry in the hands of the State under socialism en route to ‘stateless communism’.  Yet  there were those among them who believed  that under capitalism the ruling classes would never allow socialisation of any form to progress beyond what was necessary to protect their own economic interests.  In the Marxist view the state was not seen as an impartial arbiter between civic interests nor as a ‘neutral’ vehicle for the common good.   Marxist views of the state as a vehicle for specific class interests contrasted with the socialism of Ferdinand Lassalle – the German socialist who – after the German philosopher Hegel – saw the State as a vehicle for reconciliation and ‘the universal interest’.  And both Lassalle and Marx were at odds with libertarian anarchists such as Proudhon who saw in the co-operative movement the potential to transcend capitalism without the trappings of the State. 

In the 20^th Century, however,  Greek Marxist Nicos Poulantzas was to suggest that states themselves could be marked by internal contradiction due to the logic of class conflict.  This went both beyond liberal notions of a ‘neutral’ state and beyond orthodox Marxist notions that state apparatuses under capitalism by their nature served only narrow bourgeois interests. From this it follows that contested states could advance working class and civic interests even under capitalism depending on the balance of class forces.   It is on this basis that this author intends to argue that a ‘historic compromise’ is possible in the form of a ‘democratic mixed economy’.  Universal suffrage is one potential basis for working class power – and affects the ‘balance of class forces’ - but is best utilised under circumstances of high social democratic and class consciousness and organisation.

Regardless of all this, however, in the course of the twentieth century progressive liberals and socialists alike became associated with ideas of (relatively) ‘big government’ – of a progressive public sector and social wage.  Successive World Wars had demonstrated the potential of central economic planning; indeed of ‘state capitalism’. And classical economic liberalism stood discredited by the experience of Depression.  This lent a degree of prestige to social democracy and its ambitions of strong welfare states, and an advancing public sector. Much of the world adopted a Keynesian approach involving a key role for the state sector in bringing forward public works: stimulating aggregate demand to counter cyclical downturns.  This also required higher (often progressive) taxes – in order to source public investments and service debt.  As opposed to the classical economic liberals and Austrian School economists, for the Keynesians there was no natural ‘equilibrium’ – achieved through the winding back of so-called ‘distortions’ such as tax, the public sector, labour market regulation and so on.  The classical Keynesian economy was ‘mixed’ – but as yet not democratic – in the sense of delivering true popular control.

In Sweden especially Rudolf Meidner and Gosta Rehn developed an approach to economic management involving full employment, growth, high incomes and the containment of inflation.  In Sweden security and growth went hand in hand as a steadily expanding welfare state developed alongside one of Europe’s most robust economies. Strong industry policies aimed to create high wage jobs in the place of unviable industries which could not survive without cheap labour.  Full employment was accepted by both employers and employees as part of the Swedish ‘historic compromise’.  This was opposed to the previous reality: of capitalism founded on insecurity – with a ‘reserve army of labour’ resulting in ‘labour market discipline’ – but at great economic and social cost.

Swedish social democracy was to advance steadily for decades – achieving ‘political citizenship’ (through universal suffrage) and ‘social citizenship’ (through the welfare state): and finally attempting to achieve a regime of “economic citizenship” through innovative measures of economic democratisation and socialisation. But Sweden’s march forward was brought to a halt over the issue of Meidner wage earner funds.  Through these funds, Rudolf Meidner and the powerful unions who promoted the cause sought to compensate Swedish workers for past wage restraint – which had resulted in ‘super profits’ and concentration of ownership – by according to them collective capital share. This held the potential of gradually socialising investment in Sweden – leading to what in retrospect could legitimately have been called a “democratic mixed economy”.  The defeat of the Meidner initiative by militant employers, here, was ‘the high water mark’ for Swedish social democracy.

Around about the same time (the 1970s and 1980s) social democracy underwent a succession of defeats through much of the advanced capitalist world.  The First and Second Oil Shocks hit western capitalism hard, underscored by an ongoing tendency of profits to fall as anticipated by Marx as far back as the 19^th Century..  (This ‘falling rate of profit’ remains the consequence of the cost of constant revolutionising of the means of production; although capitalists can get away with intensifying the rate of exploitation as a response - in a context where new technology improves productivity and living standards in absolute and qualitative terms at the same time; Favourable terms of trade can also serve as a protection at a national level – as historically with Sweden - but not a comprehensively global level)  Wage restraint and a falling wage share of the economy, as well as attacks on industrial liberties were promoted as a means of restoring profitability. So too was ‘corporate welfare’ – funded through attacks on the welfare state, implementation of ‘user pays’, reduction of corporate taxation and like measures. Profits were restored and inflation contained – but through much of the world this was at tremendous social cost.  (Sweden was not unaffected, being forced to drastically reduce the value of the Krona to remain competitive; but its welfare state remained resilient, and cushioned vulnerable Swedes against the ‘economic storm’)

The rise of neo-liberal ideology meant the progressive stigmatisation of the public sector; of the welfare state and social wage; of industrial rights and of progressive taxation. User pays and more regressive tax mixes hit the vulnerable hard.  Even in Australia the Accords entered into by the unions and the Hawke Labor Government did not deliver the ‘Nordic’ outcomes some had hoped for. Wage restraint was rewarded with tax cuts – but those very tax cuts also reduced the revenue base from which the social wage and welfare state might otherwise have been expanded.  Stigmatisation of labour militancy – on the grounds of ‘reconciliation’ – also led to a growing intolerance for industrial action.  Furthermore – the most rudimentary ideas of social democratic redistributive justice became virtually ‘unspeakable’ – let alone a more robust critique of capitalist instability, exploitation, waste and centralisation of power.

Fast forward to 2013, however, and there were growing ‘cracks in the neo-liberal ideological edifice’ despite decades of its Ideological hegemony.  In Australia robust intervention by the Rudd Labor government managed to steer Australia through the 2007-08 ‘Global Financial Crisis’ relatively unscathed.  But stigma against major tax reform remained; and an ill-timed attempt to introduce a ‘super profits’ tax on mining saw the end of Rudd Labor with Prime Minister Kevin Rudd’s replacement by Julia Gillard.  Following this, Prime Minister Gillard’s carbon tax was successful in reducing emissions – and yet its introduction was politically damaging in light of previous promises not to introduce such a tax; and with Conservative disinformation about the proportionate effect of the tax on cost of living pressures)

What kind of Democratic Mixed Economy for Today?

All this said, what kind of ‘democratic mixed economy’ should Leftists be aiming for today?  Certainly the Left would be well advised to exploit any weak points in the ‘neo-liberal edifice’ as the basis for and ideological counter-offensive. Importantly: many arguments for the old kind of mixed economy remain relevant – and Labor needs to reassess its previous commitment to the neo-liberal Ideology; including its own past rejection of the mixed economy.

Firstly we will observe the centrality of the welfare state and social wage for ‘social citizenship’. 

Public sector intervention can provide ‘social insurance’ – for example in aged care, disability support and services, comprehensive socialised medicine, legal aid, social housing and various forms of welfare. Arguably these services must be provided to all on the basis of need – as a matter of human decency, and of distributive justice. At the moment the quality of aged care in Australia is a hidden shame; and one which would spur much greater social outrage if working class voters realised what quite possibly awaited them and their loved ones in their final years.

The strongest welfare states are found in the Nordic nations (Sweden, Finland, Norway, Denmark) as well as in the Netherlands.  Australian social democracy as embodied in the Labor Party has a long way to go to deliver Nordic levels of social security; and falls short in its scope of social expenditure compared to many other OECD countries as well. And yet the class base necessary as a foundation for a strong welfare state remains viable in Australia. Tax reform aimed at the wealthy and the upper middle class (in the vicinity of the top 15% income demographic) – would have a broad enough base to deliver tens of billions in funds for comprehensive social wage and welfare reform to the benefit of the remainder of the population.

Modern abundance also provides the economic foundation for greater cultural development and popular cultural participation than ever before.

As early as 1892 the Marxist scholar Karl Kautsky proclaimed:

 

 “We must not think of the socialist society as something rigid and uniform, but rather as an organism, constantly developing, rich in possibilities of change, an organism that is to develop naturally from increasing the division of labour, commercial exchange, and the dominance of society by science and art.”  (my emphasis) (Kautsky, P  141)

 

In the information age Kautsky’s words appear prophetic. And yet modernity in its capitalist guise also warps culture, including science and art themselves. Even science and art are increasingly commodified to fulfil the ends of profit maximisation. In the field of academia, Arts and Social Sciences not ‘functional’ to capitalism are increasingly marginalised. But free education, including liberal education and education for ideological literacy and active and critical citizenship - could accommodate a plurality of wide ranging criticism – including of capitalism itself - as part of the project for a  ‘democratic mixed economy’.

 

This brings us to the matter of public infrastructure and enterprise.

There are ‘natural public monopolies’ – especially in the area of infrastructure – where competition just doesn’t make sense  - and private monopoly even less so.  To elaborate – competition can duplicate cost structures – the physical cost of infrastructure; the cost of duplicated administration; the cost of profit margins.  And private infrastructure (also Public Private Partnerships) tend to pass on an increased cost of borrowing on to consumers. On the other hand private monopoly can be just as damaging – lacking the corrective functions of competition, and also potentially leading to profit gouging and abuse of market power.  To be specific, current areas of potential natural public monopoly include communications infrastructure; as well as water and energy; roads and public transport; ports and airports.  In Melbourne it is notable that emerging working class suburbs are lacking crucial infrastructure including public transport, health services and schools because the state has abrogated its responsibilities – in order to hold down tax.  Private infrastructure is the more-costly option; and if funded through user pays mechanisms can be highly regressive.

Large public sector corporations can also potentially compete in the global marketplace – delivering social dividends to the public – and made viable by the economies of scale provided in the context of government investment - without removing the corrective and refining influences of competition.  Social investment in mining via a Sovereign Wealth Fund could potentially capture tens of billions for social purposes which otherwise are largely diverted overseas.  It could even be financed in part via a reformed mining tax.

There are other areas where public sector intervention makes sense – not always to form a ‘natural public monopoly’ – but to enhance competition and outcomes in otherwise monopolistic or oligopolistic sectors.  Sometimes there is also the need to counter possible collusion. Examples include public sector banking; state owned general insurance; state-owned private health insurance.  State enterprises have also historically involved cross-subsidisation for the disadvantaged.  Municipal as well as co-operative and not-for-profit child care and aged care can also ‘deliver a better deal’ to consumers.  (where necessary with state subsidy)

State funding can also be essential in areas of pure scientific research where the immediate commercial gains are not clear. And  public sector media and broadcasting can provide a corrective influence – pursuing goals beyond mere profitability, or the ‘cultural power-plays’ of a handful of billionaires. This can include the goals of an authentic and inclusive pluralism, as well as ensuring quotas for local content, and the genuine promotion of participatory media.

Finally, today most Australian families would prefer to own their own home.  But the Howard-era housing bubble has put housing out of reach for many.  Substantial investment  in public and social housing (say in the vicinity of at least $10 billion; perhaps significantly more) could provide for disadvantaged families, pressing urban consolidation, while also increasing housing supply, and helping to correct the market failure of unaffordable housing.

Manifestations of Economic Democracy: Consumer and producer co-operatives

But the public sector alone is not ‘the last word’ on the democratic mixed economy. To be truly ‘democratic’ an economy must rest on real popular control.  There is no ‘play of class forces’ favourable enough currently to result in the socialisation of the big transnational corporations – the ‘economic commanding heights’. (for instance as envisaged in the 1970s by British Labour thinker Stuart Holland)  And engagement with the transnationals is necessary in order to make available their innovations for the general public. But there are a number of possible strategies which could gradually extend the ‘democratic sector’ of the economy.  We will mention co-operative enterprise, mutualism and collective capital formation, co-determination and economic regulation. 

Karl Marx had argued at one point that co-operative productive enterprise attacked capitalist exploitation “at its very roots”.   Though socialist revisionist Eduard Bernstein observed that co-operative enterprise under capitalism faced the same contradictions as private enterprise. To elaborate, Bernstein – who had refuted important parts of the Marxist orthodoxy – nonetheless observed of Marxian economic analysis:

“The fall of the profit rate is a fact, the advent of over-production and crises is a fact, periodic diminution of capital is a fact, the concentration and centralisation of industrial capital is a fact, the increase of the rate of surplus value is a fact.”   (Bernstein, Pp 41-42)   

 

So as opposed to comprehensive socialisation under socialism, co-operatives under capitalism would face competitive pressure due to the economies of scale of their private sector rivals – who tended increasingly towards monopolism.  They would be affected – and potentially ruined – by cyclical crises. And they would have to reserve greater proportions of their profits for investment (ie: internally financed investment)  in the means of production – to retain co-operative status and still remain competitive.

Bernstein also feared co-operatives – for instance as anticipated by Lassalle - could become ‘corporate interests’ which actually gouged and exploited consumers. Specifically he considered the scenario of union-run co-operatives coming to dominate “whole branches of production”.  

In reality, though, co-operatives have achieved nowhere near monopoly status. Even the largest co-operatives can be held to account through competition in local and global markets. Corporate monopolisation on a global scale is the real threat.  And mutual societies have no incentive to ‘maximise profits’ – as all revenue is reinvested for the benefit of members.  Canadian economist and labour movement activist, Jim Stanford has observed several examples of successful co-operative enterprise. As of 2007 this included ‘Rabobank’ in the Netherlands, with 55,000 staff and 600 billion Euros under management.  Also notable was the ‘Mondragon Co-operative’ in Spain – a worker-owned co-operative network employing over 80,000 people. (Stanford, p 329) 

While subject to capitalist pressures, existing co-operatives do away with the expropriation of surplus value by capitalists.  Generally under the co-operative model any profits are duly socialised; and workers maintain democratic control.  And while small co-operatives may be subject to greater risk, participation in that context can be rewarding insofar as direct control overcomes the kind of alienation resulting from the division of labour under capitalism.

Meanwhile consumer co-operatives can provide ordinary people with greater market power; and mutual societies can provide voluntary social solidarity while cutting out the profit motive and indeed the profit mechanic entirely. Mutualised automotive societies, mutual credit and mutual insurance all have long histories.

Arguably, though, robust state-aid is necessary to support these endeavours, and ensure such democratic enterprise retains strong market share, and a higher market profile.  Ideally this should involve concessional loans, financial advice, tax concessions, and assistance with marketing.  This is suggestive of potentially visionary policies favouring economic democracy by a future Australian Labor government, and other potentially progressive future governments worldwide.

Collective Capital formation

Another area of potential economic democratisation is collective capital formation. This involves workers and citizens coalescing to invest in the economy; and in the process potentially delivering economic power to those people collectively.  Collective capital formation can take many forms: some radically redistributive; others barely challenging the logic of capitalism.

In Australia it is true to argue that industry superannuation funds (private pensions) hold the potential of delivering economic power to organised labour – which administers many funds on a not-for-profit basis. This is a common argument. And yet there is a downside as well.  Public pension funds hold the advantage of socialising (rather than privatising) risk faced by workers; and also of not replicating labour market inequalities in retirement. Policy makers also have to deal with the future prospect of an Aged  Pension marginalised along class lines. And there is the potential for rent-seeking behaviour when it comes to fund involvement in Public Private Partnerships which simply cannot provide the best value infrastructure for citizens.

However: returning to ‘Meidner’; wage eager funds in Sweden were based on far more radically redistributive premises, with 20 per cent of annual company profits set aside for workers.  In decades, this would have led those democratic funds to a dominant position in the Swedish economy.  But Meidner was arguably flawed in its apparent ‘productivism’ – its focus on Swedes in their capacity as employees - as opposed to their capacity as citizens. Arguably ‘citizens funds’ – marked from the start by a cap on the projected level of fund ownership – may have won over more voters, and averted the unflinching opposition of employers.  At the time they were ‘wound up’ the funds only controlled 7 per cent of the Swedish stock market.  (see: http://newleftreview.org/II/34/robin-blackburn-capital-and-social-europe )  

But learning the lessons of Meidner, the time could be right for a reconsideration of democratic and redistributive forms of collective capital formation.

 ‘Peeling the Onion’ of bourgeois property rights: Nils Karleby

Swedish social democrat Nils Karleby was well-known for his characterisation of economic ownership of the means of production not as an ‘indivisible’ phenomenon – but rather as a ‘bundle of rights’.  The consequence of this is that socialisation ought be approached piecemeal – and that infringements upon the ‘prerogatives’ of private ownership can proceed gradually – with labour market regulation, health and safety standards, accident insurance, an eight hour day and so on.   (Tilton, pp 79-81)

 

Hence there was Karleby’s powerful metaphor that: Social Democrats should

 

“[strip] away the prerogatives of capitalists, like layers of an onion, until nothing remains.”  (Karleby in Tilton, pp 80-81)

However in Australia far-reaching economic deregulation – including labour market deregulation – and tax cuts contributing to a regime of ‘corporate welfare’ – have  restored these prerogatives. Meanwhile Financial deregulation and uncontained finance market speculation led to the Global Financial Crisis disaster in 2007-2008.  (the legacy of which we are still living with)

A democratic mixed economy does not simply leave these matters to ‘the market’ when the consequence is an intensification of exploitation. Restrictions on union rights of organisation, withdrawal of labour, and access are intended to facilitate this intensification and overcome resistance.

Growth is always considered ‘good’ as it facilitates the endless expansion of consumption and of the world market on which capitalist self-reproduction depends.  But proponents of a democratic mixed economy question the assumed “rights of property” and the social consequences of this.  Increasing levels of over-time for some and promoting casualization and job insecurity for others; with a steadily-rising retirement age - all contribute to the logic and imperatives of capitalist accumulation - to the detriment of the ‘life-world’ of real people.  Work/Life balance across peoples’ entire lifetime conflicts directly with these ‘prerogatives of capital’.

Further – neo-liberal capitalism is self-destructive in the sense that the inequality it produces dampens aggregate demand – and hence the very growth upon which its systemic logic depends.  (as those on lower incomes tend to spend a greater portion of their income)

In response to these phenomena strong unions could be well advised to pursue an optional shortened working week for those unionised workers who so choose;  and a more robust minimum wage; with recognition of the hardship faced by some workers enduring unpleasant and or inconvenient hours and conditions. (for example cleaners)  Further government subsidy of wages in areas such as child care and aged care - largely feminised industries currently involving high levels of exploitation for skilled workers - could also comprise a welcome reform.  (as of writing the Gillard Labor government had made some progress on this front; but the new Conservative Abbott government is rescinding subsidies for Aged Care workers)

Also co-determination as has been attempted in some countries – very notably Germany – could involve mandatory employee representation on the boards of major companies and employee input into safe work practices amongst other areas - ameliorating the ‘absolutism of capital’. Though it is no permanent or comprehensive solution for antagonisms of class interest.

Conclusion

Looking back to the 1950s it is interesting to note that the conservatives and ‘centrists’ of that time were often more ‘radical’ on the economy than today’s avowed social democrats: and even of some avowed members of the Socialist Left.

 

In his important work, ‘Hayek Versus Marx’ former Australian Communist leader Eric Aarons considers the “social market” model – as embraced by the German Christian Democrats in 1950s, and the German Social Democrats “after 1959”. As Aarons explains, this approach suggested “a social vision couched in moral as well as economic terms…”, and “recognition of the fundamentally social nature of organised production”. Further, it implied a “moral community” “required to legitimate the social order…” , and the“[prevention] of the emergence of a ‘two-tier’ society” including a layer of permanently poor.  A consequence of this was that “resources are allocated through both the political and economic system.”   And yet it also involved “recognition that desirable public ownership should not be seen as a bridgehead to full public ownership and a traditional socialist society”. (Aarons pp 33-34)

Talk of a “traditional socialist society”, here, is presumed to infer comprehensive state ownership and central planning.  This author does not seek to replicate the errors of the old Communism – for instance the virtual usurpation of peoples’ right to determine their own needs structures to a reasonable extent via market-mediated channels of consumption.  Even though increasingly there are many areas – for example the energy market – where the promise of ‘choice’ has rung hollow – simply providing a cover for needless duplication, profiteering and waste. And while comprehensive central planning stifled individual consumer choice, it did make more sense in economies marked by greater scarcity.

 

A moderate form of the ‘democratic mixed economy’ could well conceive of itself in the tradition of the ‘social market’.  Although what this author does aspire to – at least in principle – is significantly more radical. As Leftists we should probably seek to shift the whole relative centre of political discourse – ultimately striving for a new hegemony.  So when we speak of a ‘democratic mixed economy’ there is a potential plurality of interpretations.  But a common denominator should be a robust public  sector, and a commitment to substantial democratisation in a wide array of forms as outlined in this chapter. 

 

Again: in addition to a strategically extended public sector this could involve a mix of co-operatives, mutualism, collective capital formation, co-determination, economic regulation, a progressive tax system, welfare state and social wage; extension of liberal rights to the industrial sphere; and appropriate economic regulation – including labour market regulation – to ensure fairness.

 

Importantly: the language of a "democratic mixed economy" brings together a notion which is still relatively mainstream - (the mixed economy) - in combination with "economic democracy" - which has radical connotations. In so doing, that combination is creating a space for radical and progressive ideas - possibly introducing radical ideas to a broader audience.  The ‘democratic mixed economy’ has strategic value both as a political discourse and as a strategy for economic management, democracy and liberation.

 

Concluding, though: Arguably there is a place for co-operation and competition: planning and markets. And yet large scale co-operation (at the level of the largest multinationals, say) looms as ‘the economic undiscovered country’. Who is to say that the refining logic of competition and self-interest is the only guarantor of quality, and will remain so forever?   What future potential is there for economic activity based on altruism and co-operation?  Only the future will tell.

 

Bibliography:

 

Aarons, Eric; Hayek versus Marx And Today’s Challenges; Routledge. New York, 2009

Bernstein, Eduard  “Evolutionary Socialism”, Shocken Books, NewYork, 1961

Kautsky, Karl,  “The Class Struggle” (Erfurt Program), the Norton Library, Toronto, 1971

Stanford, Jim; Economics for Everyone – a Short Guide to the Economics of Capitalism, Pluto Press, London, 2008

Tilton, Timothy; “The Political Theory of Swedish Social Democracy – Through the Welfare State to Socialism”; Clarendon Press, Oxford, 1990