Archive for November 22, 2011

Are We Really All One Big Equally Unhappy 99%?

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Radical economist Michael Albert has made a tremendous contribution to the so-called occupy movement by injecting nuanced class analysis. The 99% slogan has caught on, and it’s easy to understand why. But it’s not a good idea to accept the notion that everyone who isn’t super rich is in one unified camp, even setting ideology aside. The 99% can’t form an egalitarian society or anything close to it until we address internal structural matters… such as that pesky third class aside from workers and capitalists. I believe it’s downright dangerous, and that maybe my friend Mike understates the problem, if anything.

We Are The 99% – But Are We?

 

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The Real People’s Budget

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I haven’t had a lot of time to blog lately, but I do have a good deal of stuff in the till that I’ll try to share in coming days.

I don’t know anything about the process by which this document from Occupy DC came into existence, but it’s worth reading even if it was just written by one person. It amalgamates a bunch of very interesting progressive and radical ideas. It doesn’t go far enough for my tastes, but if something like this could be popularized, I’d be thrilled to work on bringing it about. It would be a huge step in mostly the right direction.

“The 99%’s Deficit Proposal: How to create jobs, reduce the wealth divide and control spending”

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The Generational Wealth Gap

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There’s been a social storm of intergenerational conflict on the horizon for a long time. Some say it’s merely hype meant to undermine Social Security and Medicare; others believe it’s the likely battlefield of future class conflict. I think it’s somewhere in the middle, but new research suggests the real-world rupture may be more severe than most of us have feared. That doesn’t mean we’re headed for a war between the ages; it just means we should pay attention and try to avert one.

study released last week by Pew suggests there’s been a drastic shift in the intergenerational wealth gap. Under an economic system like capitalism, which permits the accumulation of wealth, it’s only “natural” that older generations would accumulate greater net worth. But these figures point to a serious shift in that ages-old paradigm.

Pew doesn’t put it so bluntly, but basically what we’re looking at is a significant transfer of wealth from young to old in a way atypical of human history.

chart of generational net worth by age group, comparing 1984 to 2009.

Make sure you take a good, long look at those figures. Occupy Wall Street folks clamoring about how the so-called 1% are the only ones to have gained as a class in recent decades might want to take note: Baby Boomers and older folks did better as a class, too. And they seemingly did it on the backs of younger generations. They’re not alchemists, so their wealth came from somewhere, and it’s no coincidence that younger generations have less relative to what their elders had when they were young. Make no mistake, the super-rich capitalist class did way better than the “elderly” class has done over these same years. But these findings are still alarming.

Pew produced few hard figures detailing what’s behind the shift. I suspect much if not most change in the gap can be accounted for by debt; mainly student loans and relatively new mortgages. The benefit of this widened predation disproportionately went to the ultra-rich, of course, but pretty much anyone with 401k or pension fund investments was likely gaining off the trend of more young people getting into more debt. (I do not have data on hand to back this up, so I’d love to hear if I’m wrong.)

During the period in question, elites among Baby Boomers and their parents, the so-called Greatest Generation, managed to undermine blue collar labor across North America, which forced more and more young people to seek college educations. These elites were meanwhile hurting their own age peers, but overall the impact was far greater on those who had little or no established wealth to speak of. They emerged with crippling debt that their degrees aren’t paying back so quickly, and now the white collar jobs and wages they were seeking are basically going the same way or aren’t as secure as promised. They bought homes to provide financial security, but a housing bubble stripped them of equity.

It has long been accepted that each generation is supposed to leave the following generation better off in every possible way; it’s supposed to be “the American way”. That trend has ended. Wealth has been shifted in the wrong direction, as has the burden.

In case the above isn’t staggering enough, look at this switcheroo.

poverty shifts from old to young over the decades

Now, the progressive line on this is that these figures are inaccurate/relatively meaningless and being spun as a case against Social Security and Medicare. (Actually, I haven’t seen much addressing the poverty factor illustrated above, but I’m talking about the more widely publicized Pew findings about net worth and income.)

Well, I’m certainly not trying to start an “intergenerational war” (talk about overhyping; folks, nobody said leftists don’t know how to use alarming language), and I’m certainly not against Social Security or Medicare, and I don’t fall for the bullshit conservative arguments against them. But that doesn’t mean these findings are not significant and illustrative of a real social problem.

My point in reporting and analyzing these figures is not to engender intergenerational animosity. I certainly don’t think this was a plot by the older generations. If anything, it represents the results of a values split that probably started during the early postwar era, when commercialism and an erosion of interpersonal class solidarity redefined what Americans care about. I’m not saying my generation has been or will be any different in this regard, which is to show a severe disregard for those coming up behind us.

I don’t even think older folks are aware of this apparent shift. More research needs to be done on it. But if it is as real as it seems (and as frankly logic dictates it would be), then it’s something that needs to be addressed along with pressing the 1%. Those in the more politically influential generations need to reverse the shift by investing accumulated wealth in younger generations. There doesn’t need to be a war; once the misplaced burden is identified, redistributing it fairly would be a way to alleviate any bubbling resentment.

photo by: Images_of_Money
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Naomi Klein Takes on Climate Change, Capitalism

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Author and journalist Naomi Klein has done it again. She has written a sensible, perhaps seminal, and truly accessible treatise on what climate change and resource scarcity really mean for the coming decades. I do not fully agree with her conclusions, mainly because she shies away from condemning all markets to the dustbin of history (where she rightly notes the “free market” belongs). But I don’t want to gripe with the piece until after you’ve read it; I think it’s that important. Naomi has clearly spent the last several months much as I have, studying the implications of climate science and resource limits on the future of our economies, but I bow readily to her presentation.

So please, take the time to read “Capitalism vs. the Climate” in The Nation magazine right now.

Pretty impressive, right? Okay, now on to my misgivings, first reiterating that I am overwhelmingly fond of Naomi’s take. I’m just going to address my main concern, then briefly praise Naomi for a daring step in the right direction on another matter.

I am in favor of economic planning. And while Naomi didn’t provide a real framework for how she’d like to see it happen, she did note that participatory engagement in local-level planning would be on her preferred agenda.

In the cities and towns that have taken this responsibility seriously, the process has opened rare spaces for participatory democracy, with neighbors packing consultation meetings at city halls to share ideas about how to reorganize their communities to lower emissions and build in resilience for tough times ahead.

There’s nothing wrong with the above statement; it lays out the basics of what needs to happen society-wide, worldwide, and is already happening in places that overuse resources today (North America, Europe, etc), and places that will suffer the earliest and the most severely from climate change (Asia, Africa, etc).

Local-level planning will definitely be inadequate. It’s clear that Naomi fully understands this, as she advocates for big steps such as agricultural planning and reining in corporations, which no community could ever really do on its own.

But she doesn’t state that over-arching planning (at state, regional, national, and international levels) will have to address differences in capacity, privilege, and other factors that will make it harder or less necessary for some localities to “transition” the way others will have to. That is, communities privileged in terms of geography or wealth will benefit from the marginal advantages of slower and less-thorough transition periods. To the extent planning is based around markets, discrepancies of these kinds will be stark. I wouldn’t actually expect this to be covered in a short piece like Naomi’s, but it’s an implication that deserves to be noted.

Far worse, Naomi’s framework seems to accept that existing governments somehow have the capacity to engage in sensible planning. It’s not clear to me that any polity can responsibly engage in economic planning. Politics is truly a different sphere, dealing with matters of morality and justice; it starts to fail even just with regard to managing production and consumption of public goods. Intervening in the private sector is not the forte of institutions designed and overseen by politicians, especially as they are in turn funded by the industries they’re charged with regulating.

Naomi spends a lot of time in her article noting that market fundamentalists are right about the implications of climate science on the manifestations of their political economic ideology. It is a threat (hence their denial of the science). But so-called libertarians are also at least partly right about government’s inadequacy when it comes to intervening in economies; polities, politicians, and political bureaucrats make ham-fisted planners, at best. When society truly accepts climate change as a catastrophic reality, those arguing that Earth’s collection of profoundly inept governments and literally ridiculous bodies like the United Nations or the World Trade Organization can address matters by meddling with market economies will sound like clowns. Indeed, that’s how it sounds to me today.

Libertarians remain wrong about how profoundly awful markets are. If the contest were only between unregulated markets and regulated markets, the latter should win, but we should also all resign ourselves to a planet ablaze with suffering. Fortunately, those aren’t our only two options, and the alternatives are not limited to central planning, either.

What is needed is a direct-democratically planned economy managed by the population writ large as workers and consumers with more indicative data at their fingertips than simply market prices. It should be essentially autonomous of government, and it should allow for the systematic pricing of externalities, including those affecting ecology, public health, labor, and oppressed communities.

You can imagine then how massive this problem is in my view. First, the kind of transformation needed has to happen at all levels, as Naomi acknowledges. Second, it does not make a wit of sense to leave markets intact, as there is no way to responsibly plan (or do anything that concerns the environment) with markets at work. Third, the planning process cannot sensibly be carried out by government institutions; a separate technocracy is required free of the perverse interests of government, and more sensibly structured to facilitate the kind of ideal, consumer- and worker-influenced economic forces I think many people (very wrongly) romanticize the free market as being able to foster.

As a final note, kudos to Naomi Klein for being willing to grapple with the unnecessarily touchy issues of resource depletion, peak oil, and the cult of economic growth. Many conventionally trained progressive economists (which does not include the likes of Naomi or me) seem not to grasp the very real threat of these impending crises. In my experience, even some of the most radical economists exhibit a rather bizarre faith in capitalism’s ability to innovate its way through nearly any crisis, not to mention an almost mystic belief that the earth’s resources are essentially infinite. As I’ve noted before, there’s not overwhelming sense in concluding peak oil is going to collapse our economy in a precipitous fashion, but denying it will have a severe impact is indicative of a blind spot I simply cannot fathom. Mainstreaming acceptance that these factors will have a tremendous influence on any future economy is a terrific contribution.

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Harvard Econ Students Walk Out

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It is not surprising that students would be more astute about economics than their professor. This open letter to Harvard Prof. Greg Mankiw, in which they declare they’re walking out of his class because it has a narrow, conservative bias, is gratifying. It starts:

Dear Professor Mankiw—

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

Sad that these students don’t express an inkling of what’s really out there in the realm of alternative economic thought and critiques of capitalism, but maybe if they wander down to Occupy Boston while they’re sitting out Mankiw’s class, they’ll learn something useful that they’re not going to hear at Harvard. At least they know they’re being manipulated. Pretty soon, it will be their turn to do the manipulating. Let’s hope this undermines their future in this way.

Photo credit: Joe Raedle/Getty Images.

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Making Wall Street Pay

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My friend Lonnie Atkinson’s latest track. This song needs to be heard. Let’s make it viral!

How we gonna make Wall Street pay (with Anitek) by Lonnie Ray Atkinson

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Liberating Possibilities

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I was quite heartened to read Yotam Marom’s recent ZNet contribution, “Liberating the Impossible”. It’s a succinct and probably superior expression of a commentary I had been working on to share my wishes for the real potential of the so-called “occupy” movement that has swept the country and offered even the most pessimistic and cynical among decent people at least a glimmer of hope.

Any cursory glance at the occupy manifestations nationwide can see that they offer a promising model for subjective social change. That is, they are transforming the participants in very concrete ways, raising consciousness and empowering people with real skills for participating in social change. Of course, they’re not really making much objective change yet. The occupy actions are already influencing society’s understanding of itself, while perhaps inspiring some hope. But OWS and its offshoots haven’t really made reforms, let alone the kind of structural social changes that will be necessary to address the roots of the laundry list of legitimate complaints offered by the diverse array of occupy participants.

Yotam’s portrayal of what needs to happen for the occupation movement to become a real force for actual, objective change in society is astute. In his words, what is called for is a new “dual power” movement that is

able to prefigure the values of a participatory, egalitarian and solidaristic society in new and liberated institutions, while simultaneously toppling the old, oppressive structures that exploit and constrain. We must build the new and fight the old at the same time. We must do it all while telling the story of the world we are creating, to defeat the story told by the masters of the status quo.

I have been saying stuff like this for a long time (since 1996 really), but I never said it this well. In these few sentences, Yotam has captured the crux of what I call “grassroots dual power strategy”, with a terrific emphasis on the need for inspirational vision.

Right now, thousands of North Americans are living in ad-hoc communities that could be the seeds of a new society. But of course, the occupation sites themselves cannot form the literal foundation of a new society. That basis for change absolutely must be intertwoven with the fabric of the society we have today until it can create an alternative foundation and the worst auspices of anti-social (i.e. oppressive) institutions can be toppled and replaced whole cloth. If we want to pull the proverbial rug out from under institutions like capitalism and government, we need to have at least a convincing patchwork of an alternative carpet mostly in place.

Zuccoti Park and its hundreds of local spinoffs can hardly better serve as the headquarters of a mass movement for social change than could some remote commune or compound. This is because the movement needs more than the popular appeal achieved by the occupy encampments; it must make real connections to the everyday lives of people throughout society. It must not just be relevant to our hearts; it has to become relevant to many more people’s economic, cultural, political, and even personal lives by seeping into the spaces where the rest of the so-called 99 percent spend most of our time.

The headquarters of a successful social change movement for real social liberation will be found in the the workplace, the marketplace, the campus, the town hall, the neighborhood, the congregation, the festival, the home. Only when the movement pervades all of these places and more — offering alternative ways to relate and meet our real-world needs as well as practical ways to fight back or stand in solidarity with fellow resisters — will its true potential become evident to people who today don’t feel a direct connection to the occupy encampments.

I’ve been biting my tongue on these matters since the occupy protests started gaining real steam. Having spent about half my life studying, pondering, discussing, writing, and lecturing on matters of large-scale social change strategy, I hesitate to offer specific ideas for getting from this consciousness-raising stage (which I never knew how to achieve) to the institution-building phase. Those of us looking on from the outside, or coming out of past movements that never accomplished over years a consciousness-raising or imagination-stimulating achievements that the occupiers have already managed, should continue observing and not offering more than encouragement and support during this critical phase. Outsiders using the iconic “human microphone” to say “Go home and start organizing your communities” would rightly be no more welcome than sectarians urging the movement to join some obscure party.

But this fledgling movement has to (and I believe can) make that transition to a dual power. It may come as a natural, evolutionary outgrowth of the occupy phase. Or maybe it will be a leap from spectacular encampment to the far-less-sexy community and workplace organizing activities. Sooner or later, I hope movement participants will recognize a mid-term objective of forming a real dual power capable not only of challenging the dominant system but offering real-world alternatives.

But then again, I think Yotam already said this even better than I can after all these years. And his words are probably going to ring truer with his generation, hopefully more so than mine ever did in my own time. I love the way Yotam portrays the potential for a subsequent phase that would mark the manifestation of a dual-power movement:

We will make a real impact when we re-open the abandoned hospitals and put doctors in them; when we bring the occupation to the schools and the schools to the occupation; when we liberate foreclosed homes not just for a day, but to move families back into them. We will make a real impact when the government sessions where they continue to pass new austerity measures behind our backs are interrupted by our active resistance to them; when the arms trucks can’t get across the bridges because we’ve blocked them; when the banks have to close not their branch lobbies, but their headquarters, because those they have disenfranchised have risen up to barricade their doorways.

Do yourself the favor of reading the rest of his short incitement.

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The Future Economy of International Activism

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[Note: This post was published prematurely by mistake. It has been changed to reflect that Jonathan Glennie did not in fact work for PBI in Colombia (he worked with them as a member of a separate organization). Significant copy edits were made. –BD]

One aim for this blog is to tie activism and economics more closely. Not because I want to inject economic concepts into activism as much as the reverse, or at least to show how serious economic thought and social change or solidarity work are intertwined.

A recent commentary in The Guardian does this well. The former Colombia office manager for a Christian Aid chapter says Peace Brigades International, known for a style of solidarity activism called “protective accompaniment”, is “An NGO fit for the future”. And while I don’t know if he’s right, I like that Jonathan Glennie is looking ahead and encouraging basically radical innovation in the world of international activism.

Glennie starts with a rather odd assumption:

Assuming (and hoping) that the world’s poor countries continue to do relatively well economically, as they have done for the past decade, gradually the problems will become less associated with absolute lack of money.

By “gradually”, he must mean really gradually, with a patient eye for optimism most non-NGOers could never muster. But in any case, Glennie crucially doesn’t miss foreseeing a potential counter-shift based on inevitable effects of climate change or the probable costs of energy and resource price spikes.

The future challenge for international NGOs will be to discern the new threats to the interests of the poorest and most marginalised that emanate from an increasingly unequal, volatile and resource-scarce world.

Gratifyingly, Glennie put human rights in perspective, suggesting NGOs should do what he claims Peace Brigades attempts to, which is “make the links between attacks on human rights defenders and certain development models that lead to displacement and environmental degradation.” He explains:

In my experience, those countries that are most vociferous in their support of human rights defenders are the ones that go cold when questions are raised about their own corporate interests that lie at the heart of the problem. Canada and the UK are prime examples. They will go out on a limb to stand up for human rights, but suggest that it is their own mining companies that are causing the problem and you might as well be talking to a wall.

Most NGOs are incapable, owing to mission constraints and structural ineptness, to ask the big questions essentially hitting on why they exist in the first place. Their mantras more or less boil down to “treat the symptoms”, implicitly ignoring the cause.

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Small is Beautiful… Can Big Be, Too?

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Recently I’ve noticed economic observers engaging in something of a backlash against the idea that small businesses are the key to economic prosperity. And as much as I hate nearly every feature of large corporations, I have to agree that the fetishization of small business is blind to the very important matters of stability and productivity.

In one important contribution to this emerging counter-trend, Jared Bernstein of the progressive Center on Budget and Policy Priorities wrote an op-ed that appeared in the New York Times under the title “Small Isn’t Always Beautiful”. Bernstein is primarily concerned with job growth, and while he seems to tacitly admit he’s ignoring the rest of the big vs. small picture, that picture is by no means black and white.

Think Progress’s Matt Yglesias picked up on the Bernstein piece, praising purported evolutionary characteristics of the growth of firms. This prompted Karl Smith at Modeled Behavior to wax positively apoplectic about this “market selection” process that weeds out the little guys and yields benevolent giants.

Perhaps most readably, The New Yorker financial writer James Surowiecki made a series of astute, essentially undeniable points about large vs. small businesses vis a vis economic growth, under the title “Big is Beautiful”. He followed up these statements (which I’ll get to in a minute) with a conclusion that only makes sense in a world where all economic writing in the American liberal press has to somehow uphold the absurd notion that capitalism is not utter lunacy. In the end, Surowiecki conspicuously does not uphold the title assertion about big being beautiful, but rather just exposes one of capitalism’s many critical contradictions: that big and small are often both bad and good simultaneously.

Let’s look at some of Suroweicki’s unassailable truths, all building the case that large companies are good for the economy because “greater productivity is the main driver of long-term economic growth and higher living standards”:

small businesses are, on the whole, less productive than big businesses, and though they do create most jobs, they also destroy most jobs, since, while starting a business is easy, keeping it going is hard.

True enough (though I think semantically it should say small businesses create and destroy the most jobs, not most jobs).

In part, this is because big businesses are able to enjoy economies of scale and scope. Big businesses are also better able to make investments in productivity-enhancing technologies and systems;

Another truism. And these are big matters. Productivity and employment stability are huge factors in any economy.

But let’s look at some of the more qualitative assessments of the large-small break.

A recent study by the economists Erik Hurst and Benjamin Pugsley shows that only a tiny fraction of small-business owners have any interest in becoming big-business owners, or even in bringing a new idea to market. Most are people who simply want to run a small company, do work they enjoy, and have some control over their own financial lives.

Now that’s curious: most small-business owners (thus almost certainly most business owners) are in it not for empire or wealth so much as for self-management and fulfillment.

Some of the [political] support [for small businesses] derives from real virtues that small companies offer—diversity of choice, connection to local communities.

Surowiecki doesn’t take this further, but it’s also true that large businesses have an incredibly difficult time meeting the challenges of diversity and community. He’s tacitly arguing for the loss of these things.

The conclusion?

Small may be beautiful. It’s just not all that prosperous.

Think about that. The more qualitatively appreciable way of doing business doesn’t provide as many stable jobs or as much growth as the approach that is inferior in qualitative terms. Shouldn’t such a glaring contradiction be considered a fundamental flaw of capitalism, rather than treated as a natural law of economics that we all just have to accept? In order for it to be a law, it would have to extend across systems and not be particular to just some, like market capitalism.

Let’s examine scale by looking at some of the relevant factors that inhibit small businesses from being more productive in raw economistic terms. It’s not too complicated; mainly, we’re talking about the ability to pool resources, carry out common tasks in-house vs. using vendors, and the advantages mass-oriented branding and reach.

  • wholesaling & resources — This is the most common element we think of when the term “economies of scale” is raised. The more you buy, the less you pay per unit, thus the higher the margin. Each item you stock in your corner grocery cost you more from the wholesaler than it did the giant chain that has a retailer competing with you across the street. If you custom-build motorcycles, you’re going to pay way more per tire than a big manufacturer does when it puts in an order for 100,000 at a time.
  • distribution — Whether you own your own trucks like many groceries, department stores, and other chains, or you simply have a huge contract with a major trucking company (and other shippers), you’re paying less per unit to ship the goods you sell if you’ve got a massive network and are shipping huge quantities around the clock.
  • R&D — Research and development is resource intensive, and in most industries it doesn’t make a lot of sense for the “little guy” to buck up against concentrated capital. Consider even that many (if not most) terrific inventions and innovations that arise from independent minds (rather than big R&D departments) get licensed and gobbled up by major operators, and also that rolling out innovations can often be costlier than developing them, and it’s easy to see why this area is dominated by big guns, with wonderfully notable exceptions.
  • labor — Payroll processing, benefit packages, human resources overhead, and numerous other costs of employing workers are cheaper per-unit for large companies with thousands of employees than for small businesses.
  • marketing — In a capitalist economy, massive advantage is accrued by firms that can leverage advanced or large-scale marketing campaigns. National companies can afford to create higher-end ads for multiple markets, and they can do ad buys in bulk.
  • market access — That larger companies can reach more potential customers is obvious, but consider that it also more likely includes overseas markets, and we see another fundamental advantage to scale.
  • capital and credit access — As a rule, big companies can more easily raise fundamentally more operating funds.
  • administrative overhead — Sure McDonald’s spends more on accountants than Joe’s Burger Joint, but probably not as a share of gross revenues. Big businesses concentrate and compartmentalize management and secretarial functions in ways that small operations simply cannot.
  • environmental impact — (This isn’t a productivity factor, for the most part, but I’m including it so we can assess and understand the fuller advantages of scale.) Environmental impact is a mixed matter, but generally speaking fewer facilities doing more concentrated production means less pollution, duplication, waste, and greenhouse gas emissions. However, it can also mean concentrated pollution that is fundamentally worse than distributed pollution (such as with factory farm waste). It can also mean more alienation between decision makers and the habitats they affect, which encourages careless policies. And it can lead to increased shipping activity. But overall, like it or not, fewer facilities would be more environmentally friendly than more facilities, assuming the same production output.

All these advantages would seem to uphold Surowiecki’s conclusion that big businesses are the true backbone of growth, and that the more of them we have, the better off everybody is.

Setting the rest of their relative “ugliness” aside for now, let’s first note that an economy heavily reliant on big businesses isn’t without growth- or jobs-related liabilities, not to mention the political threat of conglomerated capital. As unlikely as the corner store may be to innovate or offer a great benefits package, it’s also unlikely to offshore jobs or move overseas at the drop of a dime. And while small businesses can associate to apply generalized pressure on policymakers, rarely can they muster the same kind of concentrated, specialized political influence as giants in fields such as manufacturing, agribusiness, telecom, finance, and so forth (especially compared to the power these sectors wield when they associate). Nor are small businesses so phenomenally distanced from the rest of the population — including their own workers and consumers — as giant corporations inherently wind up, enabling the notorious “faceless corporation” to engage in anti-social policies without having to face the consequences so immediately or directly.

Nevertheless, while he conspicuously fails to paint a complete picture of big vs. small for us to evaluate the merits of each, and by extension consider his thesis that “big is beautiful”, Surowiecki is correct on the matter of productivity advantages of scale and scope, and it’s a very important point that many who romanticize small business tend to want to downplay.

But all this contradiction exposes is how inadequate capitalism is. This isn’t some side feature of the system that naysayers like me can take potshots at. It’s a core attribute: the keys to productivity inherently detract from the quality of economic interactions. As scale increases, workers are alienated from their bosses and the products they make; consumers are alienated from the decision-makers of the businesses they patronize; marketing departments and firms add a whole layer to this mediation.

One of the key ways to grow an economy is to concentrate production processes in order to create greater marginal advantages of scale. This also tends to concentrate capital and to alienate capitalists from consumers, not just within firms (think of the quality of interactions at Barnes and Noble compared to your local independent bookseller), but also in the economy as a whole as more and more small businesses give way to big competitors, leaving fewer producer-consumer interfaces available.

A sane economic system would harness the opportunities of scale without losing the advantages of more intimate enterprises. But how could this be done? What is keeping firms from doing this in a market capitalist system?

The key problem is propriety. In order to achieve scale in a competitive market system, a company has to grow itself. Want a spiffy ad campaign? You have to be national. Want to do your own shipping? Get vertical.* To take advantage of scale in a market economy, a business has to grow its power base. In doing so, it sacrifices the community connections and personal capacities that make it a quality employer and producer. This is a simplistic generalization, but it’s basically stipulated by reasonable critics of the “small is beautiful” mentality.

The key, then, is to break the bonds of competition so that all producers of all sizes can take advantage of scale. In a participatory economy, scale would be built into every enterprise, no matter the size. While each firm would have to demonstrate its ability to work generally as efficiently with resources as the others in its industry, it would have the freedom to customize and personalize everything from its workplace to its products, within socially agreed norms that maintain the integrity of its output.

Let’s see how a participatory economy fairs on the main productive aspects of scale mentioned earlier.

  • wholesaling — In a “parecon”, all resources are equally accessible by all producers. Without markets, all allocation is merely a logistical matter, with no one looking to take a cut out of being the “middle man” doing the simplest or fewest transactions for the highest relative return.
  • distribution — All firms have equal access to distribution networks with priority managed through participatory planning that seeks equity (fairness) rather than profit in distribution. There is no obvious advantage to a firm being large, except that it might influence location of transportation “hubs”. Locating near such a hub would achieve this advantage for a small producer.
  • R&D — The elimination of patents and intellectual property means the advantages of all inventions and innovations are immediately available to all producers. The advantage of this to the entire economy cannot be overstated.
  • labor — In a parecon, aside from relatively minimal overhead of tracking personnel, the marginal advantages of scale offered to large employers in modern capitalism are all but eliminated. No more bulk health insurance packages or payroll management to tip the scales in favor of big players.
  • marketing — Participatory socialism entirely eliminates the need for marketing, trusting consumers to know what they want and facilitating the acquisition of it without hawking wares through an artificial desire-creation machine that itself constitutes a net drain on the economy, requiring work and spawning waste where there need be none.
  • market access — The entire participatory economy benefits from giving all producers bilateral access to consumers (who are after all participatory planners), but more importantly, a lack of such access on a large scale would not make or break a firm. Parecon facilitates appropriately scaled consumer-producer interactions, and it does so fundamentally better than any capitalist marketing department or firm could ever dream.
  • capital and credit access — All firms have access to the counterparts of these features in a participatory economy, with industry and consumer councils considering all proposals for expansion on their merits. Size would not be a condition for acquiring increased capacity.
  • administrative overhead — This is perhaps the one area where participatory socialism might at first appear weaker than capitalism. No doubt, generally more “man hours” will be spent on managerial tasks inside a given firm or industry, though many administrative tasks would either be eliminated or would lend themselves to concentration with the achievement of scale. In any case, the upside of this distributed (collective) management is the huge advantage of widespread personal empowerment as a byproduct of economic activity. This is that self-management factor Surowiecki noted as an incentive for small business owners to stay small. There’s no concentration of managerial power or overhead at the top… and this is good. Most of us want a nice, comfortable, fair share of management, not a king’s ransom of power.
  • environmental impact — On this matter, there’s really no contest. In a participatory economy, there are in theory essentially no externalities; the environmental effects of production and consumption are built into “prices”. This would likely encourage scaling of at least some aspects of many production operations, all else being equal, but it would only be one factor, and it wouldn’t necessarily effect key elements of an enterprise, such as community interface or worker self-management.

In short, a participatory economy permits firms of various sizes to productively coexist, respecting the needs of each operation and the population it serves (both workers and consumers), be it local, regional, international, and so forth, all while increasing access to most of the advantages currently only associated with large-scale firms. By eliminating the incentive to make those advantages proprietary, society can assure that they don’t get hoarded. If society decides the efficiency enhancements of concentrated administrative activity and softened environmental impact militate toward increased scale, such would be the trend. But if consumers and workers decided smaller is indeed overwhelmingly desirable in terms of workplaces, public interfaces, product outlets, etc, few if any advantages of scale would be lost on smaller firms.

An economic system that offers the advantages of economies of scale and the advantages of small, personalized enterprises would seem to be fundamentally superior than one that poses a trade off. Too bad the very idea of a rational economy is outside the realm of acceptable discourse, where a system rife with contradictions has been pre-ordained.

 

* There are notable exceptions in businesses that pool resources to achieve some advantages of scale, including owner cooperatives and associations. Better known is the franchise model. But these exceptions have weaknesses that prove the rule. To the extent they achieve scale through association, they lose the distinct characteristics that customers and employees appreciate.

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