Monday, March 14, 2011

Basic institutions and democratic equality

Modern societies seem to produce persistent social inequalities that are contradictory to many of the values we espouse when it comes to the idea of democratic equality.  We continue to find wealth and income inequalities, inequalities of educational and health outcomes, inequalities of political power and influence, and these disparities seem to increase over time.  Is this a residual defect in these specific societies, or is it rather a natural result of the logic of the institutions that define a market economy and an electoral democracy in the circumstances of extensive existing inequalities of wealth and power?

Consider these polar views:
  • Modern market democracies work to narrow social and economic inequalities over time.  
  • The institutions of modern market democracies work to increase economic and political inequalities; the rich and powerful become more so through their privileged positions within existing institutions.
Which of these views is correct?

We would like to think that it is possible for a society to embody basic institutions that work to preserve and enhance the wellbeing of all members of society in a fair way. We want social institutions to be beneficent (producing good outcomes for everyone), and we want them to be fair (treating all individuals and groups with equal consideration; creating comparable opportunities for everyone).

There is a fundamental component of liberal optimism that holds that the institutions of a market-based democracy accomplish both goals. The economic institutions of the market create efficient allocations of resources across activities, permitting the highest level of average wellbeing. Free public education permits all persons to develop their talents. And the political institutions of electoral democracy permit all groups to express and defend their interests in the arena of government and law.

But social critics cast doubt on all parts of this story, based on the role played by social inequalities within each of these sets of institutions. The market embodies and reproduces a set of economic inequalities that result in grave inequalities of wellbeing for different groups. Economic and social inequalities influence the quality of education available to young people. And electoral democracy permits the grossly disproportionate influence of wealth holders relative to other groups in society. So instead of reducing inequalities among citizens, these basic institutions seem to amplify them.

On this line of thought, market and electoral institutions both create and reproduce social inequalities even when they are working correctly; inequality is built into them at a very basic level.  The institutions are tilted in favor of privileged groups, and it is no surprise when corporations wield substantial influence in Washington and Paris and tax policies are enacted that favor the richest percent of American income earners.   These aren't abnormal anomalies; they are instead precisely what we should expect when we analyze the basic institutions carefully.

What remedies are available to help move a modern society towards greater democratic equality for all of society?  Several large institutional variations have been tried in the past century -- social democracy, small self-sufficient communities, local economies based on cooperatives, etc.  Jon Elster surveyed some of these alternatives in Alternatives to Capitalism over twenty years ago -- at a time when there was more openness to the idea of fundamental institutional reform.  Tamas Bauer opens his essay, "The unclearing market," with these words:
The well-functioning market of textbooks brings about general satisfaction. Under market-clearing prices, goods and factors offered for sale are sold; the demand of each agent is satisfied by supply by others.  Wage earners are paid wages that more or less correspond to their marginal contribution.  Etc., etc. ... Life is, of course, much different. (71)
The social-democratic solution to these tendencies was developed in the early twentieth century.  It was recognized that market institutions create unacceptable inequalities and leave some citizens in circumstances of insecurity, deprivation, and indignity; and it was argued that the institutions of the state needed to correct these tendencies through the establishment of a strong social safety net.  The majority of a society would have the electoral strength to create and maintain strong protections of the interests of ordinary working people through a combination of positive economic rights. (Gosta Esping-Andersen reviews this history in The Three Worlds of Welfare Capitalism.)  

The triumph of social and economic conservatism -- Thatcher, Reagan, and other conservative European leaders and their political parties -- took this theory of the role of the state off the public agenda, and the past thirty years have witnessed the systematic disassembly of the institutions of social democracy in most countries.  And the consequences are predictable: more inequality, more deprivation, more severe disparities of life outcomes for different social groups.

What is truly surprising is that there has been so little continuing exploration of alternatives in the intervening two decades.  Democratic theorists have explored alternative institutions in the category of deliberative democracy (link), but there hasn't been much visioning of alternative economic institutions for a modern society. We don't talk much anymore about "economic justice," and the case for social democracy has more or less disappeared from public debate.  But surely it's time to reopen that public debate.


Anonymous said...

"What is truly surprising is that there has been so little continuing exploration of alternatives in the intervening two decades." - One discussion on alternatives worth being mentioned is: Roberto Unger. False Necessity, Cambridge University Press, 1987.

Main Street Muse said...

"We want social institutions to be beneficent (producing good outcomes for everyone), and we want them to be fair (treating all individuals and groups with equal consideration; creating comparable opportunities for everyone).

There is a fundamental component of liberal optimism that holds that the institutions of a market-based democracy accomplish both goals."

So I'm not a university professor and do not have the time to research as you do. But in my world, I don't know ANYONE who thinks that "the institutions of a market-based democracy" are either beneficent OR fair.

Like it or not, our market institutions exist to sell whatever they are selling to the broadest number of consumers. Sometimes the focus of "strictly business" can lead to humanitarian outcomes - as when companies donate goods and services to victims of natural disasters.

Employees within companies often try to tie a sense of purpose to their work. But that purpose is not always intrinsic in the business activity.

Witness the shenanigans of our financial sector.

Or take a look at KV Pharmaceuticals. They saw a $20 progesterone shot to help prevent premature birth (used for years and readily available at speciality pharmacies) was not a branded product. KV recognized the value to them of branding this product; they can now charge $1500 a shot to help prevent premature birth. That's what our institutions do. And it's strictly business.

nomadron said...

You say that “What is truly surprising is that there has been so little continuing exploration of alternatives in the (last) two decades”. Perhaps it might be more precise to say that what work there is receives little exposure? I’m trying to do a short literature review on the change visions and processes suggested by those who have diagnosed the various malaises of contemporary capitalism and are trying to set out ideas for dealing with them These ideas focus variously on economic and political systems – and on individual psychology. Your post has encouraged me to make an initial list of some of the economic work.
Since "When Corporations Rule the World" (1995) David Korten has been critiquing the operation of companies and setting out alternatives – using both books and a website He has just published a new book – "Agenda for a new economy" - much of which can be accessed at Google Scholar. Peter Barnes published in 2006 a thoughtful critique and alternative vision "Capitalism 3.0" based on his entrepreneurial experience. This can be downloaded in entirety from the internet
At a more technical level, Paul Elkans published in 2000 an important book "Natural Capitalism" which showed what could be done within existing frameworks. And Ernst von Weizsaecker has long been an eloquent spokesman for this approach see the 2009 "Factor Five" report for the Club of Rome.
In the UK, Will Hutton has been giving us a powerful systemic critique of the coherence of neo-liberal thinking and policies since "The State We’re In" (1995) although his latest - "Them and us" (2010) – is weaker on alternatives and fails to mention a lot of relevant work. However William Davies published a useful booklet "Reinventing the Firm" (Demos 2009) which has echoes of Korten.
These are some of the contributions from what we might call the moderate school (politically).

Perhaps the most readable material, however, comes from the Green corner. And, in particular, from an Irish economist Richard Douthwaite whose 2003 book "Short Circuit – strengthening local economies for security in an unstable world" is a marvellous combination of analysis and case-studies of successful community initatives. It can be down loaded in entirety from
People at the centre for the advancement of the steady state economy are doing a good job – as is evident from their latest publication "Enough is enough" (CASSE 2010).

And then there are the indefatigable writers on the left who are stronger on description than prescription – although David Harvey’s latest book "The Enigma of Capital" does try to sketch out a few alternatives.

Unfortunately most writers feel a need to suggest they have the distinctive answer and are less than generous in their cross-referencing It is therefore difficult for the average reader to see the common thread in this writing. This is where Douthwaite scores.

russell1200 said...

I would say that across the broad spectrum democracies are equalizers, if only in the sense that as the franchise expands, those with lower inputs tend to favor greater spending.

IMO if they can ever untangle the question, they will find that the disproportionate income wealth has more to do with economic scaling than political systems. At almost every level (City, State, Country, Company) there seems to be a tendency for the large to drive out the small where there is any efficiencies to distribution, production, politics, information, etc.

To the extent that this scaling might create a tendency toward democratic governance (?) the interaction would then be one of effects with a common cause.

troutsky said...

From the left there is also the good work of Albert and Hahnel in Participatory Economics at ZNet.