Economic democracy: why handing power back to the people will fix our broken system
Behind the superficial froth of the UK election campaign, the competing parties are offering fundamentally different visions of the economy, who controls it and who benefits from it. The Conservatives and, to some extent, the Liberal Democrats, despite their differences on Brexit, offer versions of the status quo, with an economy dominated and driven by private interests.
Labour and the Greens offer a more radical, and I would argue more democratic, vision that seeks to tackle inequality and open up the economy to more public engagement and participation. The nationalist parties in Scotland and Wales are somewhere between these two poles.
Of course, the whole reason the UK is having its first December general election since 1923 is because of Brexit. In that vote, the winning mantra was “take back control”. It was a slogan that spoke to people’s emotions rather than political and economic reality. Yet it raises many questions about what “control” really means – and who is actually taking it back.
The reality is that we live in a complex, interconnected and, at times, dangerously fluid and unstable global economy. The desire to regain control – and voting for the politicians that promise it – is understandable. But no amount of delusional thinking by Brexiteers can wish inescapable facts of the existing global economic system away.
As most perceptive commentators have noted, Brexit is not an isolated phenomenon. Donald Trump was elected to the US presidency on an anti-free trade and anti-immigrant platform of “making America great again”. Similar authoritarian-minded political projects are evident in countries from India to France, Turkey and Hungary.
Instead of looking to these ideologues to “take back control”, we need to fundamentally fix the way we run our economies and hand economic power back to the people. I believe this can – and must – be done through a concept called economic democracy. As I outline in a forthcoming book, The Case for Economic Democracy, it is key to transitioning toward a more socially just and ecologically sustainable system.
In the past, people have tended to think about the idea of economic democracy in quite a restricted sense. They have focused on developing the collective voice of employees through trade unions and collective bargaining. Or concentrated on cooperative or employee ownership policies. While these remain important, my colleagues and I argue that an expanded definition is needed, one that forces us to think afresh about how we might radically democratise the economy as a whole.
In this respect, I argue that there are three critical interlocking pillars to economic democracy: individual economic rights, diverse forms of democratic collective ownership of companies, and the need for greater public participation in economic decision-making.
The economic democratic deficit
There is plenty of mainstream media commentary about a global crisis of liberal democracy, the deepening divide between elites and citizens, and the opportunism of faux “outsiders” such as Trump and Johnson (themselves from wealthy elites). But there is seldom much discussion of the underlying economic fundamentals.
A common feature of disaffected voters is anger toward the excesses of economic globalisation, which was pursued by centre-left and centre-right politicians of the 1990s. The theory ran that reducing the restrictions on business and finance operating across borders – and, in the EU’s case, a single market with freedom of movement for both business and workers – would be good for us all.
But that has not been the experience for many. The collapse of well paid and unionised industrial jobs in Europe and North America, and the shift of work to China and other developing countries, has fuelled a reaction against globalisation. Or at least against globalisation in its neoliberal, free trade variant. Economic nationalists such as Trump and Victor Orban in Hungary, have capitalised on this reaction.
The 2007-08 financial crisis and the years of state-sanctioned austerity that followed it added to the stagnation of real wages for the average worker in a number of developed economies seen since the 1970s. Meanwhile, CEO pay and the wealth of the very rich shot into the stratosphere.
This has fuelled a sense of alienation and loss of control among ordinary people. The threat posed to work by further automation is likely to further depress everyday life, adding grist to the mill of populists.
Brexit and the broader rise of right-wing populism show the limitations of democracy under the existing capitalist system. Politically, voters are asked every few years to choose from a limited range of options and then leave everything else in the hands of their political representatives.
In economic terms, people have a diminishing sense of control over the key activities and events that shape their lives. The proliferation of zero hours contracts and casual work, and the decline of stable permanent employment have disconnected many from secure jobs and incomes.
In the workplace itself, employees have little say over their companies’ decision-making process. Trade unions are in retreat and what limited collective bargaining we have is under attack in most large developed economies. There is still a tradition of cooperatives and employee-owned enterprises nominally committed to democratic practice (though often sadly lacking in reality). But even these are marginal to the dominant corporate and privatised economy.
In short, ordinary citizens have very little say in how the capitalist economy works. This applies at the macro level – how the economy as a whole functions, who controls it and makes the key decisions on investment, what to produce, how and what to tax, what to regulate and what is produced. And it applies at the individual level of accessing economic resources to lead decent lives, in a way that is fair to others and sustainable in caring for the planet and future generations. Both are critical matters of concern.
This is the backdrop for understanding the growing popularity of alternative economic policies that seek to give workers and citizens real power and control over their livelihoods. In the UK, the Labour party’s policies to reverse privatisation and create new more democratic forms of public ownership are massively popular. A recent opinion poll by the right-wing Legatum Institute think tank found 83% of respondents favoured nationalisation of water companies, 77% for electricity and gas, and 76% for train services.
Other radical proposals include plans to give workers elected representation on company boards. This has long been done in Germany. It was even mooted by former UK prime minister, Theresa May (who then u-turned on the issue) and is now part of Labour’s UK election campaign, as well as both Bernie Sanders and Elizabeth Warren’s bids for the US presidency. Even more radical, is the endorsement on both sides of the Atlantic of a policy to force larger companies to transfer a percentage of their profits to employee ownership funds.
Even in the US, where there is traditional hostility to ideas seen as “socialist”, public opinion appears to be shifting. A poll carried out by Washington-based think tank the Democracy Collaborative discovered that 55% of people supported the idea of employee ownership funds, while only 20% were opposed. The idea that workers should have the first right to buy their companies when they comes up for sale had 69% support.
Add to this the upsurge in demand to tackle climate change by fundamentally transitioning away from a growth-driven carbon-based economic model and it is clear that there is something radical in the air. This, in short, is the case for economic democracy.
But what should this look like in practice? Unlike older visions of economic democracy that started with class or the collective, my starting point is the individual. We should all have the right to participate in a democratic society on equal terms.
Nobel Prize winning economist Amartya Sen has emphasised that individual economic freedom is only possible where citizens have the resources, competence and capability to flourish. Rather than the restricted choice of whatever the market is offering, it is important to create a sense of economic citizenship, one that provides all people with the resources and capability to make meaningful life choices.
An important mechanism for doing this is to provide everyone with a universal basic income that would cover their essential living requirements: food, shelter and clothing. This idea has provoked plenty of controversy with enthusiasts and detractors on the left and right.
Right wing proponents, such as Milton Friedman, support it because they think it could allow governments to cut welfare services elsewhere. Others reject it for creating indolence and dependency. If everyone was given an income, why would anybody turn up for work? Many trade unionists and social democrats don’t like the idea because they think it would shift focus away from workplace rights and public services, allowing further attacks from the right.
The more substantive research suggests little evidence that labour market participation falls when UBI is introduced, although some people take the opportunity to reduce hours for positive reasons such as spending more time with family and volunteering. Meanwhile, the biggest positives tend to be improvements in the physical and mental health of participants and the greater likelihood of young people staying on for longer in education.
In response to fears on the left, UBI should not be viewed as a standalone policy but rather part of a progressive agenda of fairer taxation, living wage rates, reducing working hours and strengthening employment rights. Framed this way, the idea has much appeal in providing people with real choices.
It would also change the balance of power in the labour market. Rather than coercing people into poorly paid and inhumane forms of work, employers would also be forced to make work more attractive and rewarding.
Democratic collective ownership
Under a proper economic democracy, the individual should also have ownership rights and control over the work they do and how it is used. Under capitalism, once we enter employment, we effectively sell the right to own and control our labour to employers. The workplace becomes a managerial dictatorship.
Many thinkers since the 19th century, from Karl Marx to liberals such as John Stuart Mill, have recognised that this is unjust. People have a basic right to control their labour and any benefits that accrue from it, whether that’s in the form of income or profit.
Work is a social activity, not an individual one. It involves interaction and cooperation with others. Recognising this, my second pillar of economic democracy is collective, diverse and democratic forms of ownership. This is very different to the existing dominance of shareholder capitalism, where companies are privately controlled and largely subject to the whims of the market.
Similarly, while plans to take privatised utilities back into public ownership are important, these entities need to be run along much more democratic lines than in the past. Many older and existing forms of public ownership have been too removed from public control, run by elite officials or boards composed of private sector interests rather than giving the public themselves a role in decision-making. The BBC is a good example of this, set up as a corporation on behalf of the pubic, who in reality have little say over how it is run.
As well as providing democratic participation for workers, it’s also important to include users of public services in the way they are run. There are different ways of achieving this and plenty of good examples from around the world of how happens in practice.
For example, when the French city of Montpelier de-privatised its water system, taking it back into public ownership in 2016, it set up a water observatory, a citizens forum with the power to scrutinise and hold the new public enterprise to account. It also drew 30% of its board from civil society organisations.
Another interesting example of a more hybrid form of democratic public ownership comes from Costa Rica. Here, the country’s third largest bank, the Banco Popular is a public enterprise that is legally owned by the country’s workers, with 1.2 million members (20% of the total population).
To own a share, a worker needs to have had a savings account with the bank for one year. The key governing body of the bank is a democratic assembly of 290 elected representatives, which determines the bank’s strategic direction. A quarter of the bank’s revenues fund social projects and it has played an increasingly important role in the country’s rapid expansion of renewable energy, including financing the first Latin American energy supplier to become carbon neutral.
Beyond public services, other forms of democratic collective ownership (such as employee ownership, cooperative or mutual societies) could play a greater role across the economy. The Mondragon network of worker cooperatives in Spain’s Basque country is inspirational for many because of its intense democratic ethos across its workforce of more than 70,000. Workers in every cooperative have an annual general assembly. On the basis of one member one vote, the assembly approves the business plan and budget, and elects a governing council (the board of directors).
Key ingredients in Mondragon’s continued success include having its own bank, lots of cooperation across its network, collective knowledge sharing and an emphasis upon lifelong learning alongside job security. These are measures of public effectiveness and social value that contrast strongly with the short-term, profit maximisation mantra of privately-owned firms.
Part of the wider appeal of Mondragon is the sense that its model can be transplanted elsewhere to create whole ecosystems of worker-owned enterprises at the local and regional level. These could stimulate interesting new initiatives that build the wealth of communities in post-industrial places, from Cleveland in the US to Preston in the UK.
Public participation and deliberation
Beyond extending economic rights to the individual and at the business level, my third pillar requires greater public participation and engagement at the macro level of the economy as a whole. This would involve the public becoming more involved in decisions about spending in the wider economy.
One well-researched phenomenon, for example, is the idea of participatory budgeting. This is where governments devote a proportion of their budget directly to citizens groups who are brought together in a series of deliberative exercises to decide on investment priorities.
So far, this has only occurred at the local level. But the results are overwhelmingly positive, both in engaging citizens and in making more socially progressive investment choices. Brazil, beginning with the southern city of Porto Alegre in the late 1980s, has been a pioneer of the concept.
Regional assemblies of residents were set up across the city to vote on priorities, which were then fed into city-level planning. Participatory budgeting then spread throughout Brazil with over 120 cities adopting it in the 1990s and 2000s. The idea has also spread widely across the world. There are currently over 250 schemes in the US, with Chicago and New York being important centres.
Advocates of participatory budgets point to how they increase the involvement of women and lower income groups in democratic processes. When sustained over a longer time period, they reduce corruption, improve transparency and public engagement, and create better institutions that involve citizens more regularly into governance processes. The evidence also suggests that they lead to greater spending on health and education in poorer areas of cities, significantly reduce infant mortality and are linked to the growth of civil society organisations.
Struggling for economic democracy
There remain powerful vested interests that will mobilise against more radical initiatives to democratise the economy. Commercial interests have powerful resources to protect the status quo. They can fashion superficial media narratives, that have been notably successful in protecting fossil fuels and undermining efforts to tackle climate change.
But, if we are to confront the major economic, social and ecological crises that face us, these interests must be overcome to create a very different kind of global economy. This needs democratic mechanisms that rebalance economic resources and decision-making away from the rich and powerful toward the pursuit of the common good, while safeguarding the planet for future generations. As the examples here demonstrate, these ideas are not unworkable utopias but existing forms of democratic economy.