Two quotations, juxtaposed, summarize the errors into which modern American defenses of ‘free markets’ and capitalism have entered. In the process these errors led to abandoning any real meaning for liberty or human well-being. Right wing libertarians in particular sincerely believe they are seeking to preserve these values, but they are sincerely wrong. But before going further, the quotes:
Praising her new book, Atlas Shrugged Ludwig von Mises wrote Ayn Rand : “You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the effort of men who are better than you.”
David Ellerman reports that when Father Josef Arizmendi advocated founding a bank to members of a worker owned cooperative in Spain, one of the men recalled: “We told him, yesterday we were craftsmen, foremen, and engineers. Today we are trying to learn how to be managers and executives. Tomorrow you want us to become bankers. That is impossible.”
If Mises was right, the bank Fr. Arizmendi urged being formed would have failed. Even its future directors felt it was impossible to achieve. It did not fail, ever, and today is the seventh largest and most solvent bank in Spain. But experiences such as reported by Ellerman are largely ignored while Rand remains a favorite among classical liberals and Mises is venerated. How did this blindness arise? I think there are three basic reasons.
I. Confusing factors of production with human beings
Economists divide factors of production into three broad categories: land, labor, and capital. Entrepreneurs see an opportunity for a profitable exchange. Businessmen, who may or may not also be entrepreneurs in this sense, then combine these factors of production together in order to create goods and services for those exchanges. Consumers ultimately buy the products and services these people have created. If they do, the entrepreneur’s insight is validated and a profit is made. Everyone involved is better off than if the insight had not occurred.
Pretty simple, which is why economic science likes it. But it also shatters the unity of what it is to be a human being. Analytically we are treated as consumers, workers, or entrepreneurs/capitalists. When pressed economists will say that this is only an analytical statement, not a empirical one. These same economists emphasize we are all consumers so everyone being in service to consumers is a good thing.
The reality is messier.
Early capitalism took off at a time in England when most people were virtually penniless and increasingly dependent on jobs in the new enterprises since they had been made landless by the powerful who wanted to sell their goods in the market and so destroyed traditional agriculture. Even in places where the original workers were reasonably well treated because they had options, like the first New England textile mills, conditions rapidly degenerated once mass immigration duplicated some of Europe’s worst poverty. It became so bad that Southern apologists used northern working conditionsto defend slavery, which at least took care of people in their old age.
Further early English capitalism was intensely hierarchical, reflecting the aristocratic society out of which it grew. For much of its early history the new English working class was denied the vote and the protections against the powerful the vote would have given them. Further, European liberals were almost universally afraid of “the masses” who had participated in the French Revolution. They also brought with them a noveau riche contempt for the ‘mass’ of the people that were not like them. These attitudes seemed to confirm economists’ neat categories as describing different kinds of people.
II. Human beings can be understood by fragmenting them into functional units
ironically, once treated as actual descriptions of different types of people, the economists’ categories created divisions and antagonisms that need not have existed. To the degree these models legitimated institutions of domination and hierarchy in the economy they then brought these antagonisms into reality.
First, ‘labor’ is under the direction of entrepreneurs, people who are not laborers. Skilled labor, such as managers, have other less skilled labor under their direction. All serve consumers through implementing the insights of the guy on top. This view is presented in its purest form in Ayn Rand’sAtlas Shrugged, where John Galt said
The man at the top of the intellectual pyramid contributes the most to all below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all their brains. Such is the nature of the “competition” between the strong and weak of intellect.
Labor is simply a cost of doing business and so best minimized
Second, this model assumes labor is a pure cost of doing business. Like capital and “land,” it is best to minimize labor inputs as much as possible in order to increase the efficiency of producing for the consumer. Price feedback tells businessmen the best proportions of land, labor, and capital needed to produce efficiently for consumers. In general the less you pay labor and the more you can replace workers with machinery and now robots, the better. When this is correctly interpreted and acted on, prices fall and consumers are benefited.
Labor then is therefore a problem to be minimized.
Consumers are abstracted from human beings in production
Third, consumers are treated as distinct from laborers. Chinese workers producing goods for American consumers are an example of this model in the real world. So long as competition exists, the less Chinese workers are paid the better, for American consumers. That American workers become unemployed is simply a cost of serving American consumers. After all, the consumers benefit. That almost all consumers are workers, and almost all American consumers are American workers is irrelevant.
These three assumptions are deeply misleading or wrong.
III. The ultimate disappearance of human beings
As the individual disappeared from economic analysis to be replaced by feuding fragments forced to cooperate by external forces of competition, satisfying the consumer became the ultimate value and the measure of that satisfaction was what they bought. Market reductionism gradually replaced all other understandings of social life and except for entrepreneurs and consumers, all other human functions became costs to be minimized. Economic science dehumanized itself. The institutions it defended dehumanized the lives of millions. And defenders of the ‘free market’ called this freedom, the good society.
Economics as if humans mattered
Last September I visited the Mondragon worker owned cooperatives in Spain for a week of intensive study. Today Spain is in the midst of a serious economic crisis with over 25% unemployed, a crisis brought on by its political and economic elites. However the Mondragon cooperatives, with 80,000 members, still have 0% unemployment. They are suffering of course, but in a different way, a way far kinder to the people associated with them. People work shorter hours and if a company still does not have enough business to keep people working, members are shifted to other cooperatives. Compared to Spain as a whole the Mondragon cooperatives are doing fine. They have other benefits over traditional employment relations as well, but I want to focus on only one.
Mondragon’s work relations are not primarily economic, they are political in Aristotle’s sense. Equals meet to persuade one another of what is good for them all as human beings. The closest easily understandable model of what this is like is a community of citizens that work to make sure all do well. Membership in a cooperative stems not from share ownership (though they have that) but from working. When a worker retires he or she no longer retains a voting share, but receives its value plus their portion of all additional value accrued by the company since they started to work. So far this has resulted in an enormous retirement bonus. It’s equivalent in traditional corporations is the accrual of share value going to people who often have no idea what the company does.
Citizenship is a better model than ownership here, though it is citizenship in an economic enterprise. In other words, it is invisible to traditional economic ways of thinking and perceiving.
At Mondragon the interests of workers, whether a rank and file person in production or a top manager, come before all other economic values. The company is a means by which worker-owners can produce for consumers and thereby make a good living. Entrepreneurs are of no special status, their function being incorporated in the broad Mindragon system. This arrangement has worked for 60 years, long before Rand and Mises made such brutal statements about people they did not know. Capital is hired by workers rather than capitalists hiring workers. The human being shattered by economic theory into parts with interests at odds to one another is unified, and so human beings flourish.
Labor is not a cost of doing business; providing decent work for working people is what business is all about. Achieving this requires they serve consumers. To serve consumers labor power must be used efficiently, but the goal is not to pay shareholders unassociated with the company, but to make all within the firm benefit from how it is organized. Consequently human beings are considered as wholes, working people within symbiotic networks serving one another in order that all will prosper. When the Mondragon cooperatives first began over 60 years ago the Basque region of Spain was the country’s poorest. Today it is the country’s richest. It is this vision that economic theory and ‘free market’ advocates have rendered invisible through their way of thinking about economies. As a result when this vision actually happens, it is ignored.
It is a sad commentary of economic theory in general, and so-called ‘free market’ economics in particular, that not only do they show no interest in this model (which as I will show in later posts, works in very different cultures as well, such as the US), their theoretical models make grasping what it is and why it works almost impossible. Mondragon and other achievements are like the gorilla walking across the basketball court, in plain sight but ignored by all who are intently looking elsewhere. And yet, far more than most contemporary economic theory, the Mondragon cooperatives and others like them demonstrates what human freedom and well-being are like in a contractual setting.