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Values and Institutions
The Devil can quote Shakespeare for his own purpose.
The civilized have created the wretched, quite coldly and deliberately, and do not intend to change the status quo; are responsible for their slaughter and enslavement; rain down bombs on defenseless children whenever and wherever they decide that their vital interests are menaced, and think nothing of torturing a man to death: these people are not to be taken seriously when they speak of the sanctity of human life, or the conscience of the civilized world.
The task of developing an economic vision begins with determining what an economy is, determining what values we aspire to, and deciding what our attitude is to existing options that we could retain. While we dont wish to belabor this type of preparatory work, nor can we rush ahead to vision without any preparation at all. Thus our first three chapters, constituting part I, clear the way for what follows.
What Is An Economy?
He tried to read an elementary economics text; it bored him past endurance, it was like listening to somebody interminably recounting a long and stupid dream. He could not force himself to understand how banks functioned and so forth, because all the operations of capitalism were as meaningless to him as the rites of a primitive religion, as barbaric, as elaborate, and as unnecessary. In a human sacrifice to deity there might at least be a mistaken and terrible beauty; in the rites of the money-changers, where greed, laziness, and envy were assumed to move all mens acts, even the terrible became banal.
Ursula K. Le Guin
In the dictionary an economy is a system of producing, distributing, and consuming wealth. A typical modern economy thus produces wheat and milk, guitars and garden hoses, medical care and restaurant meals. This activity needs labor, natural resources, and intermediate goods in useful ratios. We can produce no houses without wood, wires, saws, and builders. We can produce no guitars without guitar string, proper tools, and artisans. Work occurs in factories, hospitals, and on farms and is done by assemblers, surgeons, bakers, sweepers, nurses, accountants, and custodians. Depending which type of laborer we are, we do different tasks, shoulder different responsibilities, receive different rewards, and make different decisions or follow different orders.
Sensible production needs its products used. We dont want to assemble too many or too few items of any kind. We dont want a hundred guitars at the hardware store or a hundred garden hoses at the music store, nor do we want to produce more or less of either than people desire to consume. Allocation is the name for the process and the institutions that determine who produces how much, what rates it exchanges for, and where it winds up. From the multitudinous choices an economy could technically implement, allocation chooses what actually occurs. Instead of 30 or 140,000 radios, the economy produces 72,000. Instead of all the radios going to a single Radio Shack, they disperse appropriately around the society. The same goes for food, clothes, televisions, toothpaste, rubber, transistors, screws and nails, and finally for workers themselves. Allocation synchronizes production and consumption, work and leisure.
Once products arrive where intended, they must be utilized. A garden hose or guitar is valueless if no one uses it. Individuals and sometimes families, neighborhoods, counties, or other collective units consume or otherwise make use of what has been produced and allocated.
In short, production, allocation, and consumption define every economy. Each aspect provides the reason for and informs the practice of the other two. It follows, as we will see, that an economy should produce, allocate, and consume in ways that further peoples values, that meet peoples needs, and that do not waste peoples energies or create unfavorable by-products.
Key Economic Dynamics and Institutions
To parsimoniously understand diverse economies, what dynamics should we highlight? To comprehend main features but avoid minor details, what aspects should we prioritize?
Production occurs in workplaces that utilize hammers and assembly lines, filing cabinets and computer networks. Private individuals may own these means of production and distribution. The state may own them. The whole populace could own an equal share of all means of production. Or, for that matter, a society could have no concept of ownership of productive property at all.
In contemporary economies, a few lucky property holders come into the world to lead lives drenched in continually regenerated opulence. Millions of working people come into the same world only to wonder how they will afford another weeks subsistence. An economys ownership relations dramatically affect peoples incomes, economic responsibilities, and say over economic outcomes. Why are the propertied born already rounding third base headed for home with no catcher trying to tag them out? Why are so many others born standing at home plate, holding a matchstick bat, facing the worlds best pitcher, two strikes against them, resigned to failure?
Allocation exists in all economic systems and the institutions which accomplish allocation have a profound impact on all economic life. Allocation institutions include competitive markets, central planning, and horizontal planning. Within markets buyers and sellers enact decentralized exchanges with one another. Each pursues personal interests and the sum of their separate efforts define the economys overall activity. With central planning a relatively few planners assess societys possibilities and announce the amount of each product to produce and where everything should wind up. Their instructions sum to societys overall activity. With participatory planning all societys members assess their own and others situations and cooperatively negotiate via their worker and consumer councils their individual and joint actions. Their deliberations and negotiations sum to societys undertakings.
Division of Labor
Economies have divisions of labor. Each person does a job that conveys to him or her different responsibilities and different decision-making influence. The extreme possibilities for dividing labor into jobs are twofold: We can opt for typical hierarchical arrangements that include highly differential access to empowering and quality of life work circumstances, or we can opt to provide people with equally empowering and enjoyable work.
With the hierarchical approach, a person becomes a secretary or a Company Chairperson, a janitor or a doctor, a manager or an assembly-line worker, and undertakes responsibilities pegged at a particular level of skill, knowledge, quality of life impact, and influence over outcomes. One actor may have no say over any outcomes, while another has some modest say over a few outcomes, and a third has immense say over many outcomes.
With the contrasting non-hierarchical approach, we have no secretaries or CEOs. Each person has a complex of tasks unique in its details but nonetheless comparable to every other persons regarding its quality of life and empowerment effects. We each do some rote and some creative work, some mechanical and some conceptual work. The mix gives us a fair share of burdensome and fulfilling and/or boring and empowering tasks. While with the existing corporate division of labor some workers have a preponderance of more pleasant, uplifting, and empowering work, and other workers have a preponderance of more boring, dangerous, and stultifying work, with the proposed balanced job complexes we would all have jobs embodying an average quality of life and empowerment effect. We would each do our own different tasks, but the empowerment and quality of life effects of each of our jobs would be just like those of everyone elses. The upshot is simple. Along with the British philosopher and economist Adam Smith (1723-1790), who penned The Wealth of Nations in 1776, we believe that:
The understandings of the greater part of men are necessarily formed by their ordinary employments .... the [person] whose life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his/her understanding .... and [is] generally [pushed to] become as stupid and ignorant as it is possible for a human creature to be.
Smith understood that a person would do different things and have different circumstances at work depending on whether he or she was a secretary, assembly worker, manager, or owner, and that these differences would profoundly affect life prospects. And we agree. The division of labor matters greatly.
The dictionary says remunerate means to compensate for; make payment for. Remuneration norms and procedures determine what goods and services people can afford from the whole social output. Some people are remunerated a pittance for their labors, such as the man or woman who cooked the flapjacks you ate for breakfast in the local diner, or who cleaned rooms in the local motel. Some people are remunerated a huge ransom such as Michael Jordan or a surgeon or prominent lawyer. Some are remunerated not only for their own labors but also for the labors of otherssometimes the labors of thousands or even tens of thousands of others, such as Warren Buffet and his comrades in capital.
Economic remuneration can occur according to five broad standards. We can pay people for:
- What each persons property produces, or total output
- What each person herself produces, or personal output
- What each person is strong enough to take, or bargaining power
- What each person expends and the sacrifices each person makes, or effort and sacrifice
- What meets each persons needs, regardless of activities
Depending which remuneration norms an economy employs and the exact mechanics of their implementation, who gets more and who gets less will differ, as will peoples behaviors and thus their evolving motivations and personalities. Remuneration matters.
Who or what establishes how work is organized, how long we labor, what goods are available, and at what rates goods exchange? Where does power over economic outcomes reside? What logic justifies existing or alternative distributions of power? What mechanics propel the enactment of particular power relations? How does the distribution of economic power affect peoples life prospects? Why do some people rule while others obey and are any other relations possible? Many approaches exist for economic decision-making:
- Economic decision-making can give the most say to those best prepared, most informed, and with the most prior experience or best prior decision-making record.
- Economic decision-making can disperse power among diverse actors and agents according to various but still differentially distributed criteria. For example, people who own property might be given disposition over it because they hold the deed regardless of any past experience.
- Economic decision-making can accord more or less say to people depending on whether their jobs give them more or less control over critical decision-making information.
- Economic decision-making can be determined by a specific singular norm, such as that one actor gets one vote and majority rules or a consensus approach.
- Economic decision-making can be guided by a flexible range of norms so that decisions are made differently depending on each decisions specific nature and likely implications.
And of course, economic decision-making can combine more than one of these normsfor example, an economy can have a democratic or even participatory norm for decision-making among those who own property or who have elite and empowering jobs, while at the same time completely excluding from decision-making those who dont own property and have rote and disempowering jobs.
At any rate, to carry out one or another norm or combination of decision-making norms, an economy will have associated institutions and institutional relations which will themselves bear strongly on the kinds of information each actor has at their disposal, the leverage each actor has over outcomes, each actors partici- pation in choices, and each actors subservience to the choices other actors make. So of course the logic and structures of economic decision-making matter.
If we examine all modern approaches to issues of ownership, allocation, division of labor, remuneration, and decision-making, we can group economies usefully into some broad types that flexibly summarize their essential similarities and properties.
- Capitalism has private ownership, market allocation, corporate divisions of labor, remuneration for property, power, and output, and capitalist class domination of decision-making.
- The two socialisms (market and centrally planned), have public or state ownership, market and/or central planning allocation, corporate divisions of labor, remuneration for output and/or power, and ruling coordinator-class domination of decision-making.
- Bioregionalism, the goal of some environmental activists, has public ownership, decentralized exchange via face-to-face allocation, and mostly cooperative divisions of labor, plus a lack of clear definition of other features (at least in so far as we have been able to discover).
- Participatory economics as proposed in this book combines social ownership, participatory planning allocation, council structure, balanced job complexes, remuneration for effort and sacrifice, and participatory self-management with no class differentiation.
Note that any two instances of one type of economy can differ greatly. Variations can occur in everything from their level of development, to population, to available resources, to specific structures (like a special banking system), to the distribution of power among competing classes or other sectors, to features that derive from a racist or sexist history or special political forms. Thus capitalism takes on different features in the US than it did in the old Sweden, the old South Africa, and currently in Haiti. Market socialism can also differ in its implementation, as we have seen in the old Yugoslavia and old Hungary. Centrally planned socialism is different in Cuba than it was in the old Soviet Union. Green bioregionalism and participatory economics are as yet unim- plemented in history, but they can also of course have different features in different instances.
However, despite the possibility of diverse instances any instance of any single type of economy will retain the defining features of that type. To understand the broad properties of capitalist, market socialist, centrally planned socialist, bioregionalist, and partici- patory economies will therefore tell us much about any particular instance of any of these, even without knowing all that countrys secondary features.
Another way to look at types of economies is by how their institutions broadly divide people into opposed groups. Of course in any economy there will be differences in the precise circumstances that any two economic actors have regarding the economys institutions. You have one job; I have another. You work with those tools; I work with these tools. You have such and such income; I have so and so income. Yet within the spectrum of endlessly different precise circumstances allotted to each and every actor, economic institutions may also differentiate people into relatively large constituencies all of whose members share certain critical circumstances different from those shared by other large con- stituencies. Regarding the economy, we call such different consti- tuencies classes, where a class is a group of people who by the positions they occupy vis-à-vis production, allocation, and con- sumption have sufficiently similar circumstances, material interests, and motivations for us to usefully talk about their group conditions and group tendencies as opposed to the group conditions and group tendencies of other classes who in turn share different circumstances, interests, and motivations.
Of course not everyone in an economic class has the exact same situation or inclinations as everyone else in that class. Bricklayers go to different workplaces than waiters do. Pharmaceutical capi- talists own different property than automotive capitalists. Still, the point of class analysis is that the circumstances and conditions that everyone in a class have in common are great enough and their implications for peoples behaviors are important enough that it is useful to highlight the class collectively in trying to understand the overall dynamics of the economy.
So what divides people into classes? As every economist agrees, having fundamentally different ownership relations certainly divides people into different classes. History shows that ownership dramatically affects ones claims on social product, ones impact on economic decisions, and ones interests and motives. Thus, in a capitalist society the conditions shared by all who own some means of productionwhether pharmaceutical, automotive, or computer companiesgive capitalists sufficiently similar circumstances and motivations for us to usefully talk about their collective (profit- seeking) behavior. It was owning some means of production that made the Rockefellers capitalists and it is the shared (profit- seeking) motives that ownership induces in capitalists that caused Adam Smith to write that people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
Yet despite its importance, ownership is not the sole possible basis for class division. Instead, an economys division of labor or the role implications of its allocation institutions could also lead to some people sharing conditions systematically different than those shared by others, even with the same ownership situation.
In capitalism, virtually every serious analyst calls those who own the means of production capitalists and those who own nothing but their ability to work and who must sell that ability for a wage paid to them for doing a rote and subservient job, workers. But in going beyond property as a basis for class division, we can also identify a coordinator class composed of those who receive a wage for their labors but who, unlike workers, do jobs that have considerable influence over their own and other peoples economic situations and who retain their more empowering jobs largely due to monopolizing certain skills and knowledge. And we can note that the class of workers such as assemblers, waiters, truckers, and janitors, and the class of coordinators such as managers, doctors, lawyers, and engineers, regard one another with opposed interests. And that each also opposes capitalists, though in different ways.
So, What Is An Economy?
We have argued that:
1 An economy is a set of institutions concerned with produc- tion, allocation, and consumption, and including identifiable divisions of labor, norms of remuneration, methods of allocation, and means of decision-making.
2 Key features are public or private ownership relations; hierarchical or balanced divisions of labor; markets, central, or horizontal planning; and elite or democratic decision- making; each of which can differentiate economic actors into classes whose circumstances give each class shared material interests, assets, and behaviors, opposed to those of other classes.
3 Different broad types of economies include capitalism, market socialism, centrally planned socialism, bioregion- alism, and what we call participatory economics. While specific instances of each type can have widely varying development, population, political, family, cultural, and other institutions, among other variable characteristics, within any one economic type all instances will at least share the same broad centrally defining economic insti- tutions and derivative class structure.
4 To study an economic type one should determine its core component institutions and their impact on divisions of labor, modes of remuneration, and distribution of influence over outcomes, and on how all these affect different economic classes.
5 And finally, to judge a type of economy one should ask how its features and aspects impact on human outcomes and prospects and whether we like the impacts or not.