Transitioning (5): Deepening Economic Democracy and Encouraging New Forms of Entrepreneurship

Fifth in a series on the transition to a sustainable economy.

Christian Arnsperger:

“It’s likely that growing sections of the alternative pluri-economy we’re investigating here would not be capitalist in nature. Helped by the Economic Transition Income (and also, as we will see in the next installment, by new modes of monetary creation), the successive waves of pioneers and transitioners on their way to the “frugality frontier” may have neither the actual economic means, nor the psychological motivation, to merely re-create a system that would operate on capitalistic incentives. In a political landscape where participatory coordination and subsidiarity-based governance occupy center stage, ETI-supported citizens might be more prone to trying out new types of economic organization encompassing novel ideas about work, management, consumption, investment, saving, and so on. These citizens might be more open to the realization that while capitalistic incentives can be tweaked to a certain extent so as to deal with bio-environmental externalities (most notably, pollution), they are virtually incapable of dealing with the increasingly pervasive anthropo-environmental internalities, precisely because capitalistic incentive structures rely mostly, if not exclusively, on “exit” (i.e., the threat of losing one’s rewards because other agents arbitrage away from us) rather than on “voice” (i.e., the possibility of cooperatively determining the constraints we wish to submit to). The anonymity of the market, which has been hailed as a major virtue of the modern economy, has become a handicap because of both externalities and (even more so) internalities. (I would encourage you to delve into the remarkable body of research built up over decades by Albert O. Hirschman — a towering genius of political economy sadly deprived of a much-deserved Nobel prize.)

Now, attempting — despite the difficulties — to increase the intensity of “voice” in organizations so that anthropo-environmental internalities may be dealt with is, in essence, the project of economic democracy and, more generally, of the whole emerging “Social and Solidarity Economy” (SSE) sector. Cooperatives, in particular, purport to be firms in which decision-making incorporates at least a modicum of egalitarian speech and deliberative discussion. This doesn’t exclude pragmatic arrangements where representative democracy might trump direct democracy. But as a matter of principle, the cooperative model relies on the capacities of human beings to agree on choices without them being purely imposed from the top by an aristocracy or an oligarchy — which is the exact same idea that has driven the whole democratic ideal from the Enlightenment onwards. The idea of involving a broad spectrum of stakeholders in firm-level decisions in a deliberative manner (not reducible to so-called “shareholder democracy”), as well as the idea of applying multiple bottom lines (not all of which can be reduced to shareholder-value maximization), are ideas that have long been developed and practiced on the non-capitalist fringes of our capitalist social democracies. However, overall conditions became increasingly unfavorable to such ideas as the 20th century progressed and “socialism” was more and more identified with Bolshevik totalitarianism, while the consumerism-driven golden fifties and sixties gradually paved the way for Thatcherism and Reaganism by the late seventies.

The fact that economic and political conditions have been deteriorating as far as the viability of post-capitalist alternatives is concerned, has led many of us to portray the situation increasingly as one of total capitalist hegemony. This is, in fact, not correct. As Katherine Gibson and Julie Graham — under the pen name J.K. Gibson-Graham — have shown beautifully in their book A Postcapitalist Politics (Minnesota University Press, 2006), the economic landscape is even today filled with niches where citizens are trying out new ideas, or trying out older ideas in new ways. The same has been claimed, quite convincingly, by Colin C. Williams in his book A Commodified World? (Zed Books, 2005): The impression often expressed by critics of the dominant system (including myself) that capitalism is “total” and has become completely hegemonic is not empirically warranted; there have always been, and there still are (now perhaps even more than two or three decades ago), alternative practices within a plurality of visions of the economy. In fact, I don’t deny this and even bank on it being the case — how else would the idea of transition make any sense? The whole question is how to make these myriad islands of alternative practice into an attractive archipelago and, eventually, into a confederation of independent and mutually linked “bio-economic” regions — not necessarily in the geographical sense but in the sense of providing viable, homogeneous, fully-fledged alternatives to the logic that dominates now? This is the raison d’ĂȘtre of this blog and of all the work that goes on nowadays about transition.

As far as firms and organizations are concerned, there are two main areas in which new framework conditions would be needed: (1) the legal forms of property, combined with new forms of accounting (a private law problem) and (2) the way business schools transmit the notion of entrepreneurship (an education policy problem).

Let me emphasize right up front that when I speak about post-capitalist or non-capitalist alternatives, I am not implying that the idea of “capital” should be scrapped. There can be no modern economy without capital, that is, without a principle by which resources are moved around — within certain limits — so as to finance, enhance, and support economic projects. But there can very well be non-capital-ist ways of handling capital. Cooperatives, for instance, have and need capital but are not driven by capitalistic incentives. The way they use capital makes them able, with varying degrees of success depending on managerial skills and on economic context, to fulfill their economic objectives in a way that doesn’t generate the same anthropo-environmental internalities as in a capitalist firm. And while there are most certainly problems in cooperatives, some which are specific to the cooperative model, the general hope is that within a participatory economy such as the one I discussed in installment #3, citizens would develop a different attitude towards deliberation and towards each other in general — not necessarily ushering in a golden age of mutual love and selfless altruism, but realizing that when it comes to facing anthropo-environmental internalities, cooperative attitudes (which don’t exclude conflict and argument and might involve emotional upheaval) generally trump non-cooperative, competitive attitudes (which usually involve no open conflict at all but make people feel like they are being sanctioned by a faceless, anonymous force they have no relationship to). If human beings are to become better “environmental factors” for each other — which is what my rather ugly expression “anthropo-environmental” means — the right mixture between anonymity and privacy, in the one hand, and relationship and publicity, on the other, needs to be found. And if recent clinical evidence of alienation and suffering in capitalistically oriented organizations (be they private or public) is any indication, the capitalistic bottom line isn’t sufficient to ensure this.

Surely, even in a participatory economy there are bound to be anonymous mechanisms such as markets or, in the democratic-planning model proposed by Michael Albert and Robin Hahnel, nested, subsidiarity-based citizens’ committees that use calculated prices and qualitative information in order to allocate resources on a large scale. Arbitrage through competition — or what Hirschman calls “exit” — is an important part of a free society: Workers, customers, or producers have to be able to arbitrage away from consistently underperforming or corrupt trading or exchange partners, without necessarily having to justify their decision face to face. However, competitive arbitrage shouldn’t be viewed as a principled attitude: rather, in a deeply democratic society infused with “voice,” exit is to be used as a tool in negotiation and discussion — as an ever-present threat to be used in the last resort — but it can’t be the primary and certainly not the only tool. A “voice” society is one in which direct or participatory deliberation, complemented when necessary by representative mechanisms, takes center stage in place of competitive anonymity, which gets relegated to the fringes. Thus, while workers’ cooperatives never completely abandon the practice of laying off workers, they will approach the firing process in a very different way from a capitalist firm or from a public administration seeking to emulate capitalistic incentives. Similarly, the members of a consumers’ cooperative will not at once give up the practice of ending up buying from another producer if the goods offered them are consistently and unashamedly of poor quality, but the way in which they will envision the shift to another producer will be different from the standard grocery shopper in a big supermarket or on an online website. Economic democracy is not about mere niceness: it’s about using political voice as a hierarchically superior way of settling problems — and this, of course, includes the use of deliberative processes in decision-making. (Which does not imply, of course, that in a cooperative economy all innovators, managers, workers, and customers would have to always commit to stay wedded to each other for life when “voice” has run up against unchangeable realities…)

Now clearly, within our capitalist social democracies there are already various setups that point in the right direction, especially in the area of labor relations. In most European countries, workers can’t be fired without some modicum of contradictory procedures where unions and the worker himself may have some say. Similarly, employee stock ownership and participation in profits is already being encouraged by some mainstream management approaches so as to reinforce existing incentives towards efficiency and commitment. Zellig Harris’s book The Transformation of Capitalist Society (Rowman & Littlefield, 1997) provides interesting insights about this. However, being part and parcel of capitalist social democracy, such arrangements remain squarely within a framework where anthropo-environmental internalities can’t be fully addressed. Incumbent power relations, which are linked to the structure of ownership rights and the modes of economic governance associated with the capitalist bottom line, will still usually imply that “voice” can be used only in quite restricted ways (to the point of sometimes being made irrelevant), or that in actual practice it may be almost totally silenced (even if in theory there are legally sanctioned “voice” mechanisms available). As long as “voice” and participation are seen only as management tools to enhance capital’s profitability for private shareholders, rather than being an end in themselves (acting as constraints on how far capital’s profitability can be pushed), many anthropo-environmental internalities are likely to be poorly addressed.

Economic democracy, and the cooperative logic in particular, does make “voice” and participation an intrinsic end of the firm’s operation. Now — let me repeat — this does not mean that by some magic trick all human-relations problems are suddenly eliminated. There are also abuses of power and oppressive relationships in cooperatives. The presence of trade unions in cooperatives can be perceived as problematic by even an elected and provisional management team, since often such firms proclaim themselves to be havens of mutual solidarity and reciprocity where everything can be discussed among equals, implying no need for any unions or other “employee” representation. This is even more so in the associative non-profit sector. In actual fact, this imagine of strict equality is frequently belied by concrete power relations and by an excessively patriarchal and much too “family-like” mode of governance. None of these problems (which are common to all “intentional communities” and can become terribly stifling) should be denied or minimized. However, it remains the case that the juridical status of cooperatives and other non-profits allows in principle for egalitarian “voice” and participation — which is not the case for organizations and firms whose juridical status (e.g., that of an incorporated company) ties them to the capitalistic bottom line. In a cooperative, the breaching of equality can be used in litigation, and equality can be made into a legitimate claim by an employee. In a non-cooperative firm, it often can’t.

So one key of the transition we need is a change in juridical status and in accounting principles so that more people can, if they are so inclined (and their ETI may also assist them a bit in doing so), move into a cooperative venture or, more broadly, into activities within a suitably democratized Social and Solidarity Economy (SSE). Assuming that enough people do so, we would see the emergence of a truly renewed economy obeying criteria of governance and evaluation which have the potential for resolving many of the anthropo-environmental internalities that plague today’s system. Since, when one looks at the purely capitalistic bottom line, non-democratic firms have — in today’s predominantly capitalistic system — a clear competitive advantage over democratic ones, an “unfair competition tax” (UCT) levied on the bulk of firms which haven’t yet adopted democratic governance practices might well be warranted, so as to minimally shield and protect democratic firms during the transition. This UCT would therefore not be pocketed by the State but would be entirely redistributed to democratic firms as a protective subsidy — one which would have to be made decreasing over time as the stamina of the SSE increases, since the UCT should by no means become a standing subsidy for institutionalized mediocrity. In fact, ideally the UCT should be distributed differentially to SSE firms and organizations according to how well each of them meets its specific bottom lines, i.e., how well it combines exit and voice in its quest for optimal non-capitalistic performance.

This implies that alternative measures of economic performance, more suitable for cooperatives (which may have a limited for-profit goal) and for non-profits (which may not be cooperatives), need to be found. This is a very complex area. We would need, in particular, to find a system of measurement in which what the capitalistic bottom line views as human-resource costs linked to value creation would be transformed into a component of the value generated by capital. I do mean a component of value, not merely a source of value. Human labor is already a source of value, and this is often what creates the internality problems, when all it is is a source — rather than also a component — of economic value. Indeed, it’s precisely because no capital can ever generate any amount of surplus without the addition of human labor that “human resources” become a rather burdensome commodity within the logic of “capitalist capital.” For instance, how might a job that was created, or even a wage that was paid out, also be counted as fully-fledged elements of the remuneration of capital? Undoubtedly, this would require that we stop seeing capital only as a means of exploiting natural, hence also human, “resources” with a view to making the highest possible profit, and that we start seeing capital primarily as a means of giving livelihood to a community of human beings and of contributing to the meaning of their lives. Such contributions to people’s existence should be seen as results of a firm’s activities, and not just as means to get a higher profit — and, in addition, these contributions shouldn’t all be reduced to the firm’s accepting to chop off a chunk of its profits in order to grudgingly pay out a wage.

But is such a radical shift really imaginable as long as productive capital (be it industrial or financial) is allowed to remain strictly in the hands of people — who include you and I as would-be pensioners holding shares of companies we often don’t even know — whose predominant approach to life is couched in terms of the profitable exploitation of the energy and knowledge of other human beings? Shouldn’t the alternative pluri-economy instead be grounded in a regime of communalist property of capital in which the community as a whole would — in a completely democratic, hence not at all “collectivist,” manner — decide on the ways in which human labor and economic capital ought to be combined? I suggested as much when I discussed the participatory economy in installment #3: One of the things the citizens’ committees at all levels of decision-making would be busy with is the orientation of productive investment, trying to take into account not just short- or medium-term financial profitability but also various externalities and internalities. To the extent that capital was increasingly channeled towards the Social and Solidarity Economy (including cooperatives), we would witness the emergence of an economic democracy in which capital would no longer — and in fact could no longer, legally speaking — be a source of mere personal enrichment, but only a source for producing “communal” wealth that would, by right, flow to those who added their labor to the common capital.

Within this context, so-called “social entrepreneurs” would come in at least three varieties. One would be the Muhammad Yunus-type social entrepreneur, possibly sponsored by Ashoka or some other private fundraiser (as documented, for instance, in David Bornstein’s How to Change the World: Social Entrepreneurs and the Power of New Ideas). People like Yunus believe that the capitalistic bottom line can be made to work for social objectives, through what he now calls “social business” (see his 2007 book Creating a World Without Poverty: Social Business and the Future of Capitalism). Such still relatively classic entrepreneurship is important to the extent that — as we will see in Part 5 — we want to harness the force of the incumbent economic logic so as to move on step in the right direction. The second, somewhat intermediate, type would be what John Ivanko and Lisa Kivirist have called “ecopreneurs” (in their 2008 book ECOpreneurship: Putting Purpose and the Planet Before Profits). These people insist not only on a “triple bottom line” (ecological, social, and economic) and on the need to always reflect on what “sufficient profit” means. They also move more and more towards small-size green businesses, trying to apply to their economic activities some of the ideas of E.F. Schumacher’s Small Is Beautiful and Kirkpatrick Sale’s Human Scale. The first type of social entrepreneurship has one strong limitation: Meeting “social” goals can leave the capitalistic bottom line’s blindness and deafness to anthropo-environmental internalities unchanged. As to the second type of social entrepreneurship, it keeps wavering between standard, hierarchical modes of labor organization and truly democratic ones. Some — though not all — small-business ecopreneurs move towards cooperative types of work organization, going all the way to new juridical forms where managers are elected for limited periods, where workers are actual owners of the firm, and possibly even where various workers perform what Hahnel and Albert call “balanced job complexes” (that is, mixed activities combining manual, intellectual, and coordination tasks).

This, in fact, leads to the third type of social entrepreneur, one who will push the logic of the second type to its final conclusions (while keeping to the triple-bottom-line approach and actually sharpening it within the context of a participatory economy) and who will, in the process, also sometimes recapture one aspect of the first type — namely, the de-sacralization of the “small.” Indeed, some cooperatives or democratically governed organizations are not small-sized, and need not be. Economic efficiency may, in some cases, dictate larger-scale organization — but this need not and, within the overall context delineated in installment #3, will not lead to the recreation of capitalist “social business” firms. Type 3 social entrepreneurs are the main ones who will create the conditions for the Social and Solidarity Economy (SSE) and, more largely, the sustainable pluri-economy I’ve been trying to describe in past posts. With additional macro-tools like the Economic Transition Income (ETI), the Unfair Competition Tax (UCT), and the new modes of monetary creation to be outlined in our next installment, such entrepreneurs might well create a new “frugality frontier” that grows while the mainstream economy — which includes “social businesses” — gradually contracts.

Of course, none of this will really be possible unless business schools make some pretty radical changes in the way they teach and transmit the notion of entrepreneurship. I am not — please mark my words — advocating a totally horizontal view which would deny any specificity to the enterprising spirit and to the ability to lead and direct groups of people. I do agree (and this may sound like a major put-down for postmodern hyper-egalitarians) that some individuals spontaneously have more talent than others for being entrepreneurs, for being successful coordinators, for being innovators, and so on. It’s no use to try to deny this sort of fundamental inequality. This does not, however, imply that today’s curricula are up to the task of bringing into the circuit a sufficient number of really “new” social entrepreneurs, namely, type 3 ones. Sure enough, while we are on a transition path, type 1s are going to be predominant, and “social business” will be a growing trend. That’s not a problem in itself, and it may even be part of the solution — provided the social business trend becomes, at some point, self-effacing so as to usher in genuinely social entrepreneurs of type 3. And such a deeper mutation can only occur if it is consciously engineered. Business schools have a huge, and still largely understated, role to play here.

Basically, business education ought to be, as much as possible, oriented towards what I’d like to call “neo-Scandinavian” entrepreneurship. By this I mean a form of entrepreneurship that combines a social-business perspective (the only realistic option nowadays, like it or not) with a politically lucid outlook — an outlook in which the entrepreneur sees him/herself as an agent of the renewal of social democracy. If any sort of “Green New Deal” or, for that matter, any sort of Global De-growth Compact (see installment #1) is going to be implemented, international organizations, national governments, and local decision-makers absolutely need to feel they’re being backed and supported by firms. The new social entrepreneurs have to be co-opted into — and, in fact, have to adhere voluntarily to — the overall project of transition towards a new form of social democracy. The old Scandinavian model of the 1960s, ’70s, and ’80s, which has been badly bruised by neoliberalism and the dismantling of the Scandinavian welfare States, might be a definite inspiration for such a renewal. Entrepreneurs (as well as managers, of course) absolutely need to view themselves as part of a collective project that isn’t purely market-based and has major cooperative and participatory features. The democratically coordinated, multi-level, participatory economy needs entrepreneurs just as much as capitalism does — but it needs a very different breed of entrepreneurs. (It also needs a different breed of bankers and financiers, as we’ll see in the next post.)

So, needless to say, the new non-capitalist regime of capital formation would be nothing like a planned economy! I’m not advocating any sort of return to nauseous Soviet-type practices (and neither are Albert and Hahnel or Bookchin, whom we discussed in installment #3). There would obviously still be managers. However, being mere employees themselves, they’d be peer-designated, and most likely elected on the basis of a regular campaign platform, by the employees within the firm, as the ones who are going to temporarily perform management and coordination tasks rather than production tasks. (Albert and Hahnel’s insistence on “balanced job complexes” notwithstanding, a fairly strong division of labor within the firm seems to be here to stay.) As I said, entrepreneurs would still exist, too, but they would be considered, and given their education would willingly consider themselves, more as sophisticated, high-level public servants or “creative delegates” than as private, market-obsessed pioneers righteously claiming the rights and prerogatives of the self-made man.

The communalist entrepreneur would be an employee like any other, receiving an income for his/her creative labor, subject to the same democratic control that would also rein in and limit the remunerations of employees who produce (blue- and white-collar production workers) and of employees who coordinate (managers). In an economic democracy where firms have access to the UCT-protected realm of alternative, cooperative juridical regimes, there is likely to be less wage tension so that the gap between the highest and the lowest remuneration would probably be significantly smaller than it is nowadays. But wouldn’t the incentives be too weak for such a “communalist” entrepreneur? The answer, I think, is fairly simple: Given the new forms of entrepreneurship education in business schools, and given the advent of a neo-Scandinavian mentality within the business classes, only those individuals would remain entrepreneurs who have a real calling, not only at the technical and instrumental level but also at the social and “spirit” level. (Remember that I’m speaking here of the richer countries that need to cap and perhaps even reduce quantitative growth and need to boost qualitative dimensions. In poorer countries who still need massive quantitative growth, more classical forms of private initiative as well as moderately progressive forms of “social business” would still be the way to go.) Such a new entrepreneurial class would derive satisfaction and “wealth” not only from the economic and financial surplus generated by their innovations, but also from the joy and pride of having contributed to the community’s prosperity while minimizing bio-environmental externalities and anthropo-environmental internalities. (So Milton Friedman’s idea of contributing to society by generating maximal private shareholder value through free-market capitalist ventures would not be acceptable.)

A number of those who are called “entrepreneurs” within the logic of industrial-financial capitalism — while contributing to the collective effort exclusively through taxes paid grudgingly (and evaded whenever possible) on competitively generated private profits — would tend to be socially disqualified and would gradually become a dying breed. Others would reveal themselves as being creative, innovative, and dynamic as social entrepreneurs, within a new logic in which capital would be a loan coming from the democratic community, put at their disposal so that they can launch innovations and creative ideas for the benefit of that democratic community, always within the broader context of the new “communalist” global governance system coordinated by the World Transition Organization. That such a fundamental shift would also require a big change in the monetary and financial branches of our economy seems pretty obvious.”

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