Economic Democracy: Advancing Civilization in a Post-Industrial
World
Drew L. Harris and Teresa M. Twomey
[2012]
Advancing civilization
One could view the advancement of civilization as a saw-toothed climb
of complexity, interconnectedness and cooperation interrupted by
backsliding of fundamentalism, fragmentation, and hostility. This
paper asserts that the key to each major upward climb is what we will
call the democratization of formal privilege - the decentralizing or
de-concentrating of rights or advantages shared by some and denied to
others. For this claim to make sense we must define our terms, add
nuance to some terms - especially civilization, privilege and economic
democracy - and illustrate our meaning.
What could "advancement of civilization" mean? Black's Law
Dictionary (1990: 246) defines Civilization as: "A term which
covers several states of society; it is relative, and has no fixed
sense, but implies an improved and progressive condition of the
people, living under an organized government. It consists not merely
in material achievements, in accomplishment and accumulation of
wealth, or in advancement in culture, science, and knowledge, but also
in doing of equal and exact justice."
The key term "of the people" would seem to imply everyone,
perhaps not as individuals, but certainly when considered as one body.
We could come up with various criteria to measure "improvement"
or "progressive condition", but for any of them to count as
advancement, we would have to consider the number of people the
improvement benefited and whether it was for the betterment of the
whole.
An example of a step forward that most would easily agree upon is the
advent of the printing press - the ability to easily mass produce
written information. Although there certainly are still some persons
who cannot read, civilization as a whole undoubtedly advanced with
this technology. However, were the printing press invented but only a
small percentage of the population was permitted to learn to read, the
impact of this technology on the advancement of civilization would be
significantly less.
So, one consistent measure of advancement in civilization would be
how widely the measures of being civilized are experienced - what
percent of the population enjoy these measures of civility? Some
advances in technology, science, economic arrangements, and culture
may improve some aspects of society, but for our purposes we want
consider what furthers the civilized nature of the broad body of
society.
Privilege and Progress
This paper proposes that civilization advances when technology, ideas
and/or civic structures cause a shift in the concentration of
privileges - where privileges (especially privileges written into law)
are removed. Again, Black's (1990: 1197) provides a working definition
for
Privilege: "A particular and peculiar benefit or
advantage enjoyed by a person, company, or class, beyond the common
advantages of other citizens. An exceptional or extraordinary power of
exemption. A peculiar right, advantage, exemption, power, franchise or
immunity held by a person or class, not generally possessed by others."
Some advances which illustrate this meaning of privilege as enabling
advances in civilization include[1] :
The rise of the idea of self-determination coupled with
greater access to written materials, especially the Bible, led to
the Protestant Revolution which rejected the Roman Catholic Church's
position (privilege) as the sole mediator between man and God.
The rise of the idea of self-determination and the British
monarchy's loss of validation and support from the Roman Catholic
Church contributed to the American Revolution which rejected the
authority of the monarch in favor of putting the privilege of the
sovereign power of governance in the hands of the people.
The passionate belief of the abolitionists in the humanity of the
black man increasingly began to lead to bloody clashes between them
and the pro-slavery advocates. The animosity and violence increased
with the course of Western expansion and the tension over the
addition of slave states or free. The Dred Scott case which went to
the extreme of denying citizenship to all blacks brought this into
the political for-front and set the stage for the Civil War. That
war led to the Emancipation Proclamation which granted not only
citizenship, but personal freedom to black people by abolishing
slavery
The rising sentiment toward self-governance by women and by blacks
as well as increasing education of the same, led to the privilege[2]
of suffrage to be extended to black men and later to women.
Not surprisingly, belief in the worth of each person and a desire for
self-determination often served as catalysts for these shifts in
privilege. Notably, these are the same ideals that are the basis for
political democracy.
Democracy is defined as "[T]hat form of government in which the
sovereign power resides in and is exercised by the whole body of free
citizens directly or indirectly through a system of representation, as
distinguished from a monarchy, aristocracy, or oligarchy."
(Black's 1990: 432). In this definition there is no room for privilege
in governance except, perhaps, in the form of representative democracy
where the elected representative has the advantage (compared to the
non-representative) of direct participation in governance. Indeed, in
U.S. such sayings as "One person, one vote", "All
people have equal rights under the law", and "No one is
above the law" represent the deep-rooted desire for egalitarian
governance, for egalitarian arrangements in civic affairs that
propelled the American experiment with political democracy. While
there are obvious breakdowns in this process and much of the world has
not fully embraced this philosophy of human worth (as discussed by
many others in this conference), the ideal of democracy still inspires
and motivates the vast majority in western countries.
Does Political Democracy Create Economic Democracy?
In drawing parallels between a political democracy and something that
might be called an economic democracy, we might start by examining
economic outcomes to assess how democratically governed countries
approximate democratic ideals. Unfortunately, the enormous economic
disparity, side-by-side with extreme hardship and deprivation,
suggests that the economies of most political democracies look more
like aristocracies than democracies. Consider some simple measures of
who owns assets and who claims annual income as summarized and
estimated by Phillips (2002): In 1997 the top one percent of the
population in the United States owned over 40% of all household
wealth, 62% of all corporate assets, and collected 13% of all income.
The top 10% held 91%.of all corporate assets and collected about 40%
of all income. The pay of the top 5% of U.S. workers was more than the
pay of the bottom 40%.
Is disparity a cause for concern? Many economists claim that the
rising tide of economic expansion has "lifted all boats,"
that relative measures of wealth do not matter as much as absolutes.
So, let's look at absolutes: Over 2B people worldwide earn less than
$2 U.S. per day with more than half of these earning less than $1 per
day - a level that does not support even minimal subsistence . This
may be better than the $.50 per day they earned in 1990, but given
inflation there is a real loss of earning among the lower quartile of
our global population. In the U.S. in 2005 over 37 million people live
in poverty[4] .
If dollars and poverty (which has a relative quality to it) are not
adequate measures of disparity, perhaps persistent hunger and
starvation would serve better. Despite producing 130% of the calories
needed to feed every human on earth[5] , every year about 5mm children
(typically the last to go undernourished in a household) world-wide
die from the effects of malnourishment. In the United States, which
claims the greatest democracy and economy in the world, 4.4mm
households per year experience a shortage of food such that someone
goes to bed hungry (eating less than 1200 calories per day); in the
most severe of these, 40,000 to 50,000 households experience a child
going underfed on a daily basis[6] . Approximately 4,000 people starve
to death each year in the U.S.[7] .
It seems unlikely that in a world as wealthy as ours, if there were
truly universal opportunities for self-determination, so many would
choose to starve. Furthermore, because civilization considers the
whole of a society, we hold the perspective that widespread,
involuntary hunger and starvation are inconsistent with the ideals of
civilization. There have been varying and, at times, Herculean efforts
to provide food, shelter, and education for the poor. Yet, those have
not been sufficient to eliminate poverty and starvation. It may be
that the elimination of involuntary hunger and starvation require
something more than charity, no matter how generous. Historically,
poverty and charity have coincided in political monarchies,
aristocracies, and oligarchies. A shift to political democracy, even
with so-called "free markets", does not assure outcomes that
look like anything that could be called economic democracy.
Current Views on Economic Democracy
Given the vast productive capability of human kind, it seems
reasonable to believe that, with a different economic structure, no
one should suffer involuntary poverty, much less starvation. This is
by no means an original thought. From Marxists to socialists to
laissez faire free marketers, all claim their theories hold the
potential for fair outcomes for all. Empirical evidence suggests none
of these has been successful in either production and/or distribution
to advance an economy without poverty and great disparity.
There has been a recent rise in the use of the term "economic
democracy." Some have simply substituted this as a euphemism for
socialism. Others have defined it in terms of outcomes - equality in
living standard, equality in the quality of schools for the children,
equality in personal power, material equality. Still others have used
it to call for [mandatory] employee ownership of corporations. And, a
few have suggested economic democracy means access to subsistence[8] .
Smith (2005) provides the closest remedy (though not necessarily a
definition) to what we propose when he calls for the "elimination
of subtle monopolization of land, technology, money, and information",
but differs on such additional points as an internationally enforced "equal
pay for equal work" system.
We think that outcomes such as those described above - subsistence
for all and more equality of outcomes - would be indicators that
civilization had advanced. What we need now is an approach to an
equitable economic system that would enable such outcomes while
allowing for self-determination. Following our interpretation of the
sweep of history, such a large step in progress will require examining
the current structure of privileges in the search for what inhibits
the next steps of development.
The Structure of Privilege
Smith's (2005) call to eliminate monopoly (an intense form of
privilege) would seem to be consistent with the idea of
de-concentrating privilege. However, economic efficiency calls for
privileges, if not monopolies, in a wide variety of resources in order
to fully develop the resource. Consider the following: without
exclusive use of "slices" of the electromagnetic spectrum
our current technological advances of broadcast television, radio, and
cellular telephones would be of little use. Unlimited access to all
would quickly turn into in a shout-fest of unregulated use. Few
citizens would agree to multiple sets of independently owned power
lines strung back and forth across their roads and countryside; it
would not be economically efficient to have such an arrangement. Who
would erect buildings or otherwise improve the land without an
exclusive claim to some tenure in that land?
From this we see that some privileges are necessary for economic
efficiency. Indeed it is difficult to imagine a modern economy without
a wide array of privileges. However, two problems immediately present
themselves. First, we have a wide array of privileges that are not
economically efficient. Among these, economists (though not
politicians) agree that subsidies, transfer payments, quotas, import
tariffs and the like create what is called "dead weight losses"
- losses to the total productivity of an economy.
From this we draw a distinction between two types of privileges:
those that are economically efficient and those that are economically
inefficient. The economically efficient privileges present problems
discussed below, but it should be clear that economically inefficient
privileges are at odds with outcomes we would associate with an
economic democracy - material well-being (for all) and some sense of
egalitarian outcomes.
We will also note that the formal actions of the state are not the
only arenas in which privilege occurs. There are a set of "informal
privileges" that are not codified in law and are not the formal
actions of government. These include such differential treatments as
freedom from racial profiling, getting a warning instead of a ticket
because the police officer knows your father, or getting into a
top-notch school because of reasons other than your own intellect or
accomplishments. We call these "Informal or Cultural Privileges"
because they appear to reside in the culture. The cultural privileges
cited above appear to be economically inefficient for society, and
some have argued that the state has a role in intervening in these
privileges, typically by creating compensating privileges such as
affirmative action, individual welfare, and needs-based scholarships.
We should also note that there are economically efficient cultural
privileges. These might include ideas such as "first-come, first
served", queues at bank tellers, ticket booths, and public
bathrooms and much of what we call "good manners".
This line of analysis results in the 2x2 topology of privilege
presented in Figure 1 below. On one dimension we have formal (actions
taken by the state) contrasted with culturally-based (informal)
privileges. On the other dimension we distinguish concepts of
economically efficient (or order inducing) and economically
inefficient privileges. We provide illustrative examples to further
illustrate our meaning. This topology should allow for more efficient
analysis of the effects of privilege and more effective dialogue
between multiple disciplines that have an interest in privileges
(economics, sociology, political science, etc.) and in the advance of
civilization,
Figure 1 - A beginning topology of privilege
|
Economically Efficient |
Economically Inefficient |
Formal |
- Property rights in natural resources
- Incorporation |
- Current farm subsidies
- Gifts to corporations for relocation |
Informal (cultural) |
Manners |
Nepotism in corporations
- Gender bias in hiring and promotion |
h4>Defining Economic Democracy
One clear step towards economic democracy would be to eliminate the
economically inefficient privileges granted by the state. This would
have the dual effect of improving the productive capability of the
economy as a whole and of eliminating unequal advantages granted to a
small group. These privileges create an unequal playing field wherever
they are applied. This cannot be justified in an economy based on some
sense of equal participation, a condition that would seem necessary to
call an economy "democratic". So, our first proposal for an
economic democracy would be:
Proposition 1: In an economic democracy, the state would not
grant privileges that were not economically efficient for the whole of
the economy.
The second type of formal privilege, those we deem economically
efficient, also present problems. For example, early developers of
broadcast television successfully argued that they should be given
exclusive access to portions of the electromagnetic spectrum. This
way, they could risk investment in the development of broadcast
technology without having the value or potential value of the spectrum
as part of their start-up cost. In the legislation authorizing the
grant of the permanent rights to the spectrum, the U.S. congress
provided language to the effect that in return for the privilege of
exclusive access, the holders of that privilege had to provide
programming that was in the public interest. Because there was no
operational definition of "public interest" this provision
has become nearly meaningless. Meanwhile, the broadcast networks and
individual broadcast operations made vast fortunes on their privilege
- fortunes that have been used to lobby for further protection and
privileges (e.g., the 1990's give away of another slice of the
spectrum, ostensibly for development of HDTV).
Currently most economically efficient privileges confer upon their
holders economic advantages that create great disparities in wealth
and earning power compared to those who do not hold the privilege.
Because these unequal advantages are granted (and enforced) by the
state, there is a strong likelihood that the processes taken to grant
these privileges create an overwhelmingly tempting environment for
corruption. The recent U.S. lobbying scandals provide the prima facie
evidence of this assertion. However, even without corruption, where
the value which is returned to the public is nonexistent or vastly
inferior to the profits or advantages gained by the privilege holder,
the granting of these privileges creates inequality and is
undemocratic.
Okum (1975) and most mainstream economists proposed that a necessary
choice must be made in the use of natural resources (and by extension,
other state granted privileges) - equality or efficiency? The
neo-classical answer, the answer Okum reluctantly accepted, is to
treat natural resources and their attendant values as if they were the
product of human effort. That is, natural resources become part of the
person claiming the resource and that all economic returns to those
resources, whether due to individual effort or to exogenous
development (say, the state building infrastructure nearby), are
treated as the individual's work product. This, in effect, is the
privatization of nature and the legitimization of privilege.
Unfortunately, if the bounty of nature can be claimed by some to the
exclusion of others, or granted by the state to some and not to
others, it results in extreme inequalities of opportunity as well as
outcome. That is hardly a viable foundation for something that could
be called "economic democracy."
Circumstantial evidence suggests that a few wealthy individuals
specifically encouraged the development of this neo-classical model
(Gaffney & Harrison, 1994). Not coincidentally, those individuals
would be the same persons who stood ready to exploit those natural
resources for their own personal gain. For example, J.P Morgan funded
the development of Columbia University's economics department from two
members to approximately forty. J.B. Clark, the early champion of
neo-classical economics who went to great efforts to collapse the
classical economics distinctions between land, labor and capital, was
prominent among Columbia's early hires. Similar efforts were
undertaken in expanding the neoclassical economics departments at the
University of Chicago (with Rockefeller funding), John Hopkins
University (with B&O Railroad funding) and Stanford University
(with Southern Pacific Railroad money).
The development of the neo-classical model occurred at the same time
that there was a rising populist tide seeking to implement the
classically-based economic solution proposed by George (1879).
Classical economics clearly separates natural resources from labor and
capital (saved, man-made products used to improve production) as
inputs to economic production. George proposed an elegant solution to
the equality-versus-efficiency issue with regards to land (George
focused primarily on land to illustrate his points but his logic
applies to all natural resources and state granted privileges). The
state could grant tenure but identify and collect economic rents
associated with natural resources and thereby separate the issues
economic privilege from the issues of tenure and utilization of the
resources.
Economists of all stripes define economic rents as the productive
potential of a particular unit of resource above the next freely
available unit of the resource. Economic rent can also be understood
as the values that arise from demand for the resource. Rents are often
called "unearned income", reflecting the fact that the
resource holder did not create the rent - the demand from the larger
population created the rent. In a broad simplification, one might
consider the difference in value between an acre of land in downtown
Manhattan and an acre in the most remote corner of North Dakota is the
value of economic rent for the acre in Manhattan.
Because increases in demand (economic rents) rise along with
increased population and investment in community value
(infrastructure, cultural opportunities, public health facilities,
etc.), George proposed that rents collected be distributed back to the
people through their collective desires for things such education,
security, public health, etc. Some modern, classic economists have
proposed a per capita redistribution of collected rents; as an
example, they point to Alaskan oil royalties distributed to citizens
of that state each year. In either case, we see that the state need
not redistribute the physical aspect of a natural resource or
privilege to effect an equal sharing of the resource's value.
This leads to our second proposition:
Proposition 2: Each person has an equal and inalienable right
to share in the bounties of nature and, in particular, in economic
efficiencies or rents that arise from formal privileges.
These two propositions would ameliorate much of the vast inequalities
created by the state. The second proposition is a dramatic shift in
understanding privilege - that the economic gains arising solely from
the privilege can be separated from the wage and interest earned on
labor and capital while exploiting the privilege. One of the primary
vehicles for this separation could be auctions of the privileges. For
example, since 1994 the FCC has been auctioning new allocations of the
electromagnetic spectrum (primarily for cellular telephone
operations); these auctions have raised approximately $58.9 billion in
public revenue through 2006 and have accelerated, not hampered the
exploitation of that resource[9] .
We do not feel this example is a perfect one, however, as we believe
any permanent sale of a privileged use of or access to a natural
resource or any permanent granting of a formal wealth-producing
privilege for a one-time fixed price is foolish. IN our earlier
example of television broadcast rights, if the state had auctioned
permanent rights to that portion of the spectrum early in the
development of television the auction price would have probably been
close to zero. In an economic democracy, such a sale would abrogate
the rights of future generations. We would propose either auctioning
of short, fixed term rights (e.g., five to ten years) or providing
privileges with an annually adjustable rent.
Is Democratizing Privilege Enough?
A Marxist or socialist reading this might say that a truly
Marxist-socialist economy would remove the privileges and establish
subsistence for all. Perhaps this is true in the abstract, but after
more than 100 years of experiments, we have no empirical evidence to
support this claim. Most Western economists point to economic
inefficiency as the problem - the disincentive effect of having wages
and interest appropriated by the state coupled with the overwhelming
task of trying to set prices and production centrally in a complex
environment (although Kanter's (1972) analysis of the small scale,
community-based socialist experiments during the 19th Century Utopia
community movement demonstrated this is not practical on a small scale
either).
This would be a good time to return to political democracy for
guidance. Political democracy rests on a moral foundation - a belief
in the inherent value of the individual and the inalienable
sovereignty of the people in matters of governance. The framers of the
Declaration of Independence, while speaking of political equality,
also knew that they were creating an economic arrangement. When they
stated, "
[the people] are endowed with certain inalienable
rights, that among these are life, liberty and the pursuit of
happiness", they were making an economic statement as well as a
political statement. We believe the core of this philosophy -
inalienable right to an individual's life - would be a good addition
to our propositions for a democratic economic system. (We will not
explore the inequalities and compromises which, prior to the early
1900's in the United States, conflicted with these noble intentions.
Over time, we have made much progress to correct those.)
Proposition 3: Every human being has an inalienable right to
their life; that right to their life is equal to the same rights of
all other human beings.
Just as in political democracy, this right suggests sovereignty over
one's self and acknowledges the inherent value of each individual
simply by virtue of their humanity. In an economic democracy, it also,
by extension, provides for private property rights in things created
by humans. This follows from the logic that if a person invests their
time in producing something, they have invested a portion of their
life in that work product. To allow another to appropriate that work
product is to allow another to appropriate or alienate that portion of
that person's life.
Discussion
The implications of our three proposals are far reaching and would
surely create upheaval in the current structure of power. While it
would take volumes to explore all the possibilities (and we hope those
volumes will be written), we would like to touch on a few issues
related to outcomes we identified as desirable for the advance of
civilization.
We assert that these proposals would improve the ability of everyone
to live above a subsistence level. We base this on an understanding of
opportunities that implementing these proposals would represent. If
the state respected individual sovereignty, it would not tax incomes,
private transactions or savings. In the United States, the average
citizen works until early May to pay his wage and savings taxes for
the year. Even those below the poverty line pay income taxes; in some
states this begins with the first dollar earned as does the social
security wage tax. Under our proposal, those who currently enjoy none
of the economic privileges granted by the state would not be called
upon to pay any taxes - thus lowering the effort required to make a
subsistence living.
The advantage of removing taxes from wages would extend to the middle
class as well. For most middle class employees, the only significant
privilege they hold is the ownership of the land which their homes
occupy. Because most of those homes and land are purchased with
mortgages at fair market rates, and taxes on economic rents are
generally perceived as non-transferable, the cost of housing for the
middle class would not go up. The cost to the mortgage holders would
likely go up as those institutions have a considerable array of formal
privileges that allow them to capture economic rents in the properties
they mortgage. This is an area that would cause considerable upheaval.
One might be concerned if there would be enough public revenue from
rents on privileges to support the activities that the public
apparently desires. Arnott & Stiglitz (1979) demonstrated that
land rents (alone) should pay for well designed public infrastructure.
Durning, Bauman & Gussett (1998) showed that fees for privileges
(including the privilege to pollute but not land rents) could supplant
all current taxes in states in the Northwest United States. In Western
Australia all public revenues arise from rents and privilege fees
(Forster, 1997); supporting our thesis, the cities and states in
Western Australia have higher wages and lower unemployment than the
cities and states in the eastern part of that country where wage and
sales taxes prevail.
Were this evidence not sufficient one should consider the savings
that would arise from putting the three propositions into practice.
Annually, the U.S. provides approximately $175B in aid and subsidies
to corporations; most, if not all, of this would be removed by the
pursuit of proposition 1 - no granting of economically inefficient
privileges. If poverty were not such a concern, we could save about
another $75B per year in aid to the poor. It is difficult to estimate
the far ranging multiplier effects of this change, but it should be
clear that there is enough public income potential to fund legitimate
actions of the state.
The last point we would like to make is that implementing the three
propositions would likely improve participation in political
democracies. By basing a public revenue system on practical and moral
values similar to our political democracy, it is reasonable to assume
the economic system would appear more legitimate than it currently
appears. As the state defines the rules for the economic system, the
state currently appears to tilt the playing field and provide
advantages to a privileged few. A more clearly level playing field
might encourage more people to participate in the government that sets
the rules.
Conclusion
We have proposed three criteria for economic democracy: 1) The state
cannot grant privileges that are not economically efficient for the
whole of the economy; 2) Each person has an equal and inalienable
right to share in the economic efficiencies or rents that arise from
formal privileges; 3) Every human being has an inalienable right to
their life and that right to their life is equal to the same rights of
all other human beings.
Just as with political democracy, outlining the conception of
economic democracy is certain to be much simpler than the actual
implementation. As our political democracy is an organic, evolving
process founded on shared ideals, we see the potential for economic
democracy in much the same way. We do not assert that we have all the
answers. For that matter, we do not assert that we know all the
questions. However, we do believe that this concept may be the seed of
the next step in the evolution of civilization.
* Contact the authors for footnotes and references
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