Democratic socialism in the 1930s

Is it still possible to think big in western democracies about social and economic change in a way that substantially improves the lives and freedoms of most of society? We see the deprivation and indifference of the economic system that has governed most industrialized countries for the past century and a half, leading to gross inequalities, inequities of human wellbeing, and poverty. And we have seen the terrible nightmares created by Leninist-Stalinist Communism. We value freedom, human equality, and human flourishing, and we value democracy. Is it possible to effect a transition to a different economic structure that complies with the values of democracy, individual freedom, and human flourishing?

This was the ambition shared by the socialist movements of the English socialist groups and parties of the late nineteenth and early twentieth century. And many of those men and women had a sophisticated and nuanced understanding of the complicated tensions that exist between the values of democracy and freedom, on the one side, and fairness and equality, on the side of economic life.

What might we want from a reformed progressive economy -- whether it is called social democracy or democratic socialism? Most generally, we would want a set of economic and political institutions that ensure that all members of society are in a position to develop their talents and aspirations, exercise their freedoms, and function as full citizens within a robust democracy. We would want secure protections of the rights of all persons, within a robust system of law. And we would want a public sector that actively works to address failures of the economic system to deliver the prerequisites of these values.

Several key issues stand out as highest priority.

1. tax policies that constrain wealth and income inequalities to some reasonable level
2. economic policies by government that work to ensure high employment rates at decent wages
3. a robust system for universal provision of the prerequisites of productive life in an advanced democracy -- education, healthcare, adequate nutrition
4. robust social arrangements for preventing and addressing poverty in children and adults
5. strong assurances that the least-well-off members of society are fully enabled to live decent lives, based on a reasonable income floor and provision of public services
6. strong assurances of equal opportunity for all members of society in employment, housing, healthcare, and access to social services
7. provisions for disability, unemployment, and retirement security
8. assurance of effective political equality, including constraints on the power of wealthy individuals, corporations, and foundations to determine the outcomes of policy-making and legislation

(It is striking how many of these issues find a place in Rawls's theory of justice, including his account of a property owning democracy; link.)

Elizabeth Durbin's New Jerusalems: The Labour Party and the Economics of Democratic Socialism is an excellent and detailed examination of the economic thinking of British socialists in the 1930s and 1940s, including that of her father, Evan Durbin. And it is important reading for our own generation, when a major reshuffling of the economic relations of capitalism currently seems to be off the table. Two intellectual influences were especially important: a tradition of English trade union activism challenging the power and position of the owners of wealth, and the Keynesian revolution that suggested, among other things, that economic institutions could be modified and managed. Whereas neoclassical economics essentially maintained that only complete freedom of action by economic actors ("laissez-faire") would give rise to "efficient" economic outcomes, these two traditions suggested that regulation of economic activity could be both successful and beneficial for society as a whole -- including the working classes (31-32).

The advantage of this analysis was that it opened up the possibility of redistributing a much wider range of 'unearned' incomes (not just that from land as Henry George had suggested) without reducing the supply of the factors which received such 'rental' payments. The approach also stressed the importance of transferring to the state all those means of production which earned the 'surplus', so that it would benefit society as a whole, not just individual owners. (33)

The financial and unemployment crisis of the Great Depression posed intractable problems for Labour Party leaders. What policies could be designed that would both damp down the fiscal crisis facing the British state and reduce unemployment and provide meaningful unemployment insurance for workers? 

The continued and intensifying unemployment problem in Britain precipitated major policy controversies across a broad spectrum of political views. The contradictions between traditional market explanations of unemployment and daily reality were already spurring the exploration of new theoretical constructs to explain the apparent failure of the market system. (70)

The combination of economic depression and political crisis had a profound effect on the Labour party in the early 1930s. The experience stirred deep emotions among Labour supporters, which left no one unmarked. It also raised fundamental questions about the role of the Labour party, for it seemed as though the only choice was between capitulation to the market forces of capitalism or preparation for a drastic take-over of the economic system. (73)

The drastic choices included either communism along the Russian model or massive nationalization of banks and industry (73), combined with extensive economic planning conducted by government ministries. Piecemeal reform and adjustment of the political economy of Britain seemed impossible. The democratic socialist movement and Labour party engaged in substantial study and consultation through 1933, and in 1934 the Labour party endorsed a new plan for reform.

The new programme called for the central planning of key industries, to include the immediate nationalization of the banking system, transport, coal and power, water supply, iron and steel and land and the drastic reorganization of electricity, gas, agriculture, shipping, shipbuilding, engineering, textiles, chemicals and insurance. Plans were also promised to extend social services, to provide medical care, to clear slums, to raise the school-leaving age, to abolish the means test and to give adequate maintenance for the unemployed. (87)

In other words -- a fairly detailed plan for a social-democratic welfare state with central economic planning in key industries. Much of this programme formed the core of the Labour party manifesto, For Socialism and Peace.

The question of redistribution within Britain's contemporary capitalist economy in the 1930s was a central topic for socialist debate.

Cole's original research design addressed redistributional issues by posing the question 'How far is it an essential part of socialist policy to promote more equal distribution of incomes (a) by raising real wages, (b) by development of the social services?' (125)

What Elizabeth Durbin documents in New Jerusalems is essentially an unresolved struggle, conducted by economists and politicians on the left in Britain, to design institutions that might succeed in fundamentally altering the tendencies of a functioning capitalist system to create extensive inequalities, crises of unemployment, and chronically low standards of living and wellbeing for the majority of working class people. And they were adamant in seeking institutional reforms that were feasible within the constraints of a democratic polity -- with the implication that their policy recommendations needed to find support from durable electoral majorities. As she puts the point late in the book, "Concern with immediate practicality has always been a trade-mark of British democratic socialism" (186). And in the following paragraph, she reiterates the democratic principle: "Their belief in democratic methods is fundamental to understanding the kind of socialist economic policy which emerged from this process.... They repudiated all Marxist policies and systems which depended upon the dictatorship of the proletariat and were considered by definition undemocratic" (186). What distinguished this tradition from other reformers, she writes, is their ongoing allegiance to the idea of public ownership of major economic assets and subsequent redistribution of income and wellbeing towards the least-well-off. And she believes that by the mid-1930s, British socialist and Labour leaders had accomplished a great deal:

By 1935 the Labour party was far better prepared than ever before to manage the country's economic affairs, to take control of financial policy and to begin serious planning efforts. Legislation had been drafted to nationalize the banking system; important leaders such as Dalton, but also other NEC members, were well briefed on banking options and policy operations; a loyal group of trained young professionals were eager to make their contributions. (222)

And yet -- this program failed during the 1930s. Only after the end of World War II did significant nationalization of industry and banking take place; and these economic changes were not durable. Thatcher's government of the 1980s reversed almost all the gains of post-war Labour governments.

 

A valuable resource on the nature and effectiveness of social democracy is the 1992 review article by Gosta Esping-Andersen and Kees van Kersbergen, "Contemporary Research on Social Democracy" (link). The purpose of this paper is to review efforts to evaluate the performance of a range of social-democratic countries in terms of their goals of equity and efficiency, and to try to identify some of the factors that seem to be conducive to successful implementation of the policies of a social democracy. Here is an observation about the centrality of a strong working-class movement in support of social-democratic reforms that seems very relevant to our current time:

Using a variety of different measures of both social democratic strength, and of policy outcomes (from social spending and redistribution to various institutional characteristics), most of these studies had in common a theory of working class mobilization of political power, that is, the social democratization of capitalist societies depends on the degree to which the balance of political power favors labor; in most cases, the political parties were identified as the chief causal agents. (191)

The literature seems to be converging around a common model. Simply put, social democratic parties are more capable of altering the distribution system and maintaining growth with full employment when they are linked to powerful and centralized trade union movement. (202)

This observation is concerning for the prospects of significant progressive reform towards policies leading to greater equity and efficiency in the United States, because the labor movement is at a low point of power and influence, and the mainstream Democratic Party is preoccupied with other issues. The authors pose this problem directly:

Since social democracy's strength lay in its mobilization of the industrial working class masses, it is an open question whether it will have any capacity for power in a postindustrial society. (203)

(Here are several earlier discussions of the political economy of democratic socialism; link, link, link.)

Worker-owned enterprises as a social solution

image: Mondragon headquarters, Arrasate-Mondragon, Spain

Consider some of the most intractable problems we face in contemporary society: rising inequalities between rich and poor, rapid degradation of the environment, loss of control of their lives by the majority of citizens. It might be observed that these problems are the result of a classic conundrum that Marx identified 150 years ago: the separation of society into owners of the means of production and owners of labor power that capitalism depends upon has a logic that leads to bad outcomes. Marx referred to these bad outcomes as "immiseration". The label isn't completely accurate because it implies that workers are materially worse off from decade to decade. But what it gets right is the fact of "relative immiseration" -- the fact that in almost all dimensions of quality of life the bottom 50% of the population in contemporary capitalism lags further and further from the quality of life enjoyed by the top 10%. And this kind of immiseration is getting worse. 

A particularly urgent contemporary version of these problems is the increasing pace of automation of various fields, leading to dramatic reduction for the demand for labor. Intelligent machines replace human workers. 

The central insight of Marx's diagnosis of capitalism is couched in terms of property and power. There is a logic to private ownership of the means of production that predictably leads to certain kinds of outcomes, dynamics that Marx outlined in Capital in fine detail: impersonalization of work relations, squeezing of wages and benefits, replacement of labor with machines, and -- Marx's ultimate accusation -- the creation of periodic crises. Marx anticipated crises of over-production and under-consumption; financial crises; and, if we layer in subsequent thinkers like Lenin, crises of war and imperialism.

At various times in the past century or two social reformers have looked to cooperatives and worker-owned enterprises as a solution for the problems of immiseration created by capitalism. Workers create value through their labor; they understand the technical processes of production; and it makes sense for them to share in the profits created through ownership of the enterprise. (A contemporary example is the Mondragon group of cooperatives in the Basque region of Spain.) The reasoning is that if workers own a share of the means of production, and if they organize the labor process through some kind of democratic organization, then we might predict that workers' lives would be better, there would be less inequality, and people would have more control over the major institutions affecting their lives -- including the workplace. Stephen Marglin's 1974 article "What do bosses do?" lays out the logic of private versus worker ownership of enterprises (link). Marglin's The Dismal Science: How Thinking Like an Economist Undermines Community explores the topic of worker ownership and management from the point of view of reinvigorating the bonds of community in contemporary society.

The logic is pretty clear. When an enterprise is owned by private individuals, their interest is in organizing the enterprise in such a way as to maximize private profits. This means choosing products that will find a large market at a favorable price, organizing the process efficiently, and reducing costs in inputs and labor. Further, the private owner has full authority to organize the labor process in ways that disempower workers. (Think Fordism versus the Volvo team-based production system.) This implies a downward pressure on wages and a preference for labor-saving technology, and it implies a more authoritarian workplace. So capitalist management implies stagnant wages, stagnant demand for labor, rising inequalities, and disagreeable conditions of work. 

When workers own the enterprise the incentives work differently. Workers have an interest in efficiency because their incomes are determined by the overall efficiency of the enterprise. Further, they have a wealth of practical and technical knowledge about production that promises to enhance effectiveness of the production process. Workers will deploy their resources and knowledge intelligently to bring products to the market. And they will organize the labor process in such a way that conforms to the ideal of humanly satisfying work.

The effect of worker-owned enterprises on economic inequalities is complicated. Within the firm the situation is fairly clear: the range of inequalities of income within the firm will depend on a democratic process, and this process will put a brake on excessive salary and wage differentials. And all members of the enterprise are owners; so wealth inequalities are reduced as well. In a mixed economy of private and worker-owned firms, however, the inequalities that exist will depend on both sectors; and the dynamics leading to extensive inequalities in today's world would be found in the mixed economy as well. Moreover, some high-income sectors like finance seem ill suited to being organized as worker-owned enterprises. So it is unclear whether the creation of a meaningful sector of worker-owned enterprises would have a measurable effect on overall wage and wealth inequalities.

There are several ways in which cooperatives might fail as an instrument for progressive reform. First, it might be the case that cooperative management is inherently less efficient, effective, or innovative than capitalism management; so the returns to workers would potentially be lower in an inefficient cooperative than a highly efficient capitalist enterprise. Marglin's arguments in "What do bosses do?" give reasons to doubt this concern as a general feature of cooperatives; he argues that private management does not generally beat worker management at efficiency and innovation. Second, it might be that cooperatives are feasible at a small and medium scale of enterprise, but not feasible for large enterprises like a steel company or IBM. Greater size might magnify the difficulties of coordination and decision-making that are evident in even medium-size worker-owned enterprises. Third, it might be argued that cooperatives themselves are labor-expelling: cooperative members may have an economic incentive to refrain from adding workers to the process in order to keep their own income and wealth shares higher. It would only make economic sense to add a worker when the product of the next worker is greater than the average product; whereas a private owner will add workers at a lower wage when the new worker's product is greater than the marginal product. So an economy in which there is a high proportion of worker-owned cooperatives may produce a high rate of unemployment among non-cooperative members. Finally, worker-owned enterprises will need access to capital; but this means that an uncontrollable portion of the surplus will flow out of the enterprise to the financial sector -- itself a major cause of current rising inequalities. Profits will be jointly owned; but interest and finance costs will flow out of the enterprise to privately owned financial institutions.

And what about automation? Would worker-owned cooperatives invest in substantial labor-replacing automation? Here there are several different scenarios to consider. The key economic fact is that automation reduces per-unit cost. This implies that in a situation of fixed market demand, automation of an enterprise implies reduction of the wage or reduction of the size of the workforce. There appear to be only a few ways out of this box. If it is possible to expand the market for the product at a lower unit price, then it is possible for an equal number of workers to be employed at an equal or higher individual return. If it is not possible to expand the market sufficiently, then the enterprise must either lower the wage or reduce the workforce. Since the enterprise is democratically organized, neither choice is palatable, and per-worker returns will fall. On this scenario, either the work force shrinks or the per-worker return falls.

Worker management has implications for automation in a different way as well. Private owners will select forms of automation based solely on their overall effect on private profits; whereas worker-owned firms will select a form of automation taking the value of a satisfying workplace into account. So we can expect that the pathway of technical change and automation would be different in worker-owned firms than in privately owned firms.

In short, the economic and institutional realities of worker-owned enterprises are not entirely clear. But the concept is promising enough, and there are enough successful real-world examples, to encourage progressive thinkers to reconsider this form of economic organization.

(Here are several earlier posts on issues of institutional design that confront worker-owned enterprises (link, link). Noam Chomsky and Richard Wolff discuss the value of worker-owned cooperatives within capitalism here; link, link. And here is an interesting article by Henry Hansmann on the economics of worker-owned firms in the Yale Law Journal; link.)

Is there a new capitalism?

An earlier post considered Dave Elder-Vass’s very interesting treatment of the contemporary digital economy. In Profit and Gift in the Digital Economy Elder-Vass argues that the vast economic significance of companies like Google, FaceBook, and Amazon in today's economy is difficult to assimilate within the conceptual framework of Marx’s foundational ideas about capitalism, constructed as they were around manufacturing, labor, and ownership of capital, and that we need some new conceptual tools in order to make sense of the economic system we now confront. (Elder-Vass responded to my earlier post here.)

A new book by Nick Srnicek looks at this problem from a different point of view. In Platform Capitalism Srnicek proposes to understand the realities of our current “digital economy” according to traditional ideas about capitalism and profit. Here is a preliminary statement of his approach:

The simple wager of the book is that we can learn a lot about major tech companies by taking them to be economic actors within a capitalist mode of production. This means abstracting from them as cultural actors defined by the values of the Californian ideology, or as political actors seeking to wield power. By contrast, these actors are compelled to seek out profits in order to fend off competition. This places strict limits on what constitutes possible and predictable expectations of what is likely to occur. Most notably, capitalism demands that firms constantly seek out new avenues for profit, new markets, new commodities, and new means of exploitation. For some, this focus on capital rather than labour may suggest a vulgar econo-mism; but, in a world where the labour movement has been significantly weakened, giving capital a priority of agency seems only to reflect reality. (Kindle Locations 156-162)

In other words, there is not a major break from General Motors, with its assembly lines, corporate management, and vehicles, to IBM, with its products, software, and innovations, to Google, with its purely abstract and information-intensive products. All are similar in their basic corporate navigation systems: make decisions today that will support or increase profits tomorrow. In fact, each of these companies falls within the orbit of the new digital economy, according to Srnicek:

As a preliminary definition, we can say that the digital economy refers to those businesses that increasingly rely upon information technology, data, and the internet for their business models. This is an area that cuts across traditional sectors – including manufacturing, services, transportation, mining, and telecommunications – and is in fact becoming essential to much of the economy today. (Kindle Locations 175-177).

What has changed, according to the economic history constructed by Srnicek, is that the creation and control of data has suddenly become a vast and dynamic source of potential profit, and capitalist firms have adapted quickly to capture these profits.

The restructuring associated with the rise of information-intensive economic activity has greatly changed the nature of work:

Simultaneously, the generalised deindustrialisation of the high-income economies means that the product of work becomes immaterial: cultural content, knowledge, affects, and services. This includes media content like YouTube and blogs, as well as broader contributions in the form of creating websites, participating in online forums, and producing software. (Kindle Locations 556-559)

But equally it takes the form of specialized data-intensive work within traditional companies: design experts, marketing analysis of “big data” on consumer trends, the use of large simulations to guide business decision-making, the use of automatically generated data from vehicles to guide future engineering changes.

In order to capture the profit opportunities associated with the availability of big data, something else was needed: an organizational basis for aggregating and monetizing the data that exist around us. This is the innovation that comes in for Srnicek's greatest focus of attention: the platform.

This chapter argues that the new business model that eventually emerged is a powerful new type of firm: the platform. Often arising out of internal needs to handle data, platforms became an efficient way to monopolise, extract, analyse, and use the increasingly large amounts of data that were being recorded. Now this model has come to expand across the economy, as numerous companies incorporate platforms: powerful technology companies (Google, Facebook, and Amazon), dynamic start-ups (Uber, Airbnb), industrial leaders (GE, Siemens), and agricultural powerhouses (John Deere, Monsanto), to name just a few. (Kindle Locations 602-607).

What are platforms? At the most general level, platforms are digital infrastructures that enable two or more groups to interact. They therefore position themselves as intermediaries that bring together different users: customers, advertisers, service providers, producers, suppliers, and even physical objects. More often than not, these platforms also come with a series of tools that enable their users to build their own products, services, and marketplaces. Microsoft’s Windows operating system enables software developers to create applications for it and sell them to consumers; Apple’s App Store and its associated ecosystem (XCode and the iOS SDK) enable developers to build and sell new apps to users; Google’s search engine provides a platform for advertisers and content providers to target people searching for information; and Uber’s taxi app enables drivers and passengers to exchange rides for cash. (Kindle Locations 607-616)

Srnicek distinguishes five large types of digital data platforms that have been built out as business models: advertising, cloud, industrial, product, and "lean" platforms (the latter exemplified by Uber).

Srnicek believes that firms organized around digital platforms are subject to several important dynamics and tendencies: "expansion of extraction, positioning as a gatekeeper, convergence of markets, and enclosure of ecosystems" (kl 1298). These tendencies are created by the imperative by the platform-based firm to generate profits. Profits depend upon monetizing data; and data has little value in small volume. So the most fundamental imperative is -- mass collection of data from individual consumers.

If data collection is a key task of platforms, analysis is the necessary correlate. The proliferation of data-generating devices creates a vast new repository of data, which requires increasingly large and sophisticated storage and analysis tools, further driving the centralisation of these platforms. (kl 1337-1339)

So privacy threats emerging from the new digital economy are not a bug; they are an inherent feature of design.

This appears to lead us to Srnicek's most basic conclusion: the new digital economy is just like the old industrial economy in one important respect. Firms are wholly focused on generating profits, and they design intelligent strategies to permit themselves to appropriate ever-larger profits from the raw materials they process. In the case of the digital economy the raw material is data, and the profits come from centralizing and monopolizing access to data, and deploying data to generate profits for other firms (who in turn pay for access to the data). And revenues and profits have no correspondence to the size of the firm's workforce:

Tech companies are notoriously small. Google has around 60,000 direct employees, Facebook has 12,000, while WhatsApp had 55 employees when it was sold to Facebook for $ 19 billion and Instagram had 13 when it was purchased for $ 1 billion. By comparison, in 1962 the most significant companies employed far larger numbers of workers: AT& T had 564,000 employees, Exxon had 150,000 workers, and GM had 605,000 employees. Thus, when we discuss the digital economy, we should bear in mind that it is something broader than just the tech sector defined according to standard classifications. (Kindle Locations 169-174)

Marx's theory of capitalism fundamentally originates in a theory of conflict of interest and a theory of exploitation. In Capital that conflict exists between capitalists and workers, and consumers are essentially ignored (except when Marx sometimes refers to the deleterious effects of competition on public health; link). But in Srnicek's reading of the contemporary digital economy (and Elder-Vass's as well) the focus shifts away from labor and towards the consumer. The primary conflict in the digital economy is between the platform firm that seeks to acquire our data and the consumers who want the digital services but who are poorly aware of the cost to their privacy. And here it is more difficult to make an argument about exploitation. Are consumers being exploited in this exchange? Or are they getting fair value through extensive and valuable digital services, for the surrender of their privacy in the form of data collection of clicks, purchases, travel, phone usage, and the countless other ways in which individual data winds up in the aggregation engines?

In an unexpected way, this analysis leads us back to a question that seems to belong in the nineteenth century: what after all is the source of value and wealth? And who has a valid claim on a share? What principles of justice should govern the distribution of the wealth of society? The labor theory of value had an answer to the question, but it is an answer that didn't have a lot of validity in 1850 and has none today. But in that case we need to address the question again. The soaring inequalities of income and wealth that capitalism has produced since 1980 suggest that our economy has lost its control mechanisms for equity; and perhaps this has something to do with the fact that a great deal of the money being generated in capitalism today comes from control of data rather than the adding of value to products through labor. Oddly enough, perhaps Marx's other big idea is relevant here: social ownership of the means of production. If there were a substantial slice of public-sector ownership of big data firms, including financial institutions, the resulting flow of income and wealth might be expected to begin to correct the hyper-inequalities our economy is currently generating.

Guest post by Dave Elder-Vass

[Dave Elder-Vass accepted my invitation to write a response to my discussion of his recent book, Profit and Gift in the Digital Economy (link). Elder-Vass is Reader in sociology at Loughborough University and author as well of The Causal Power of Social Structures: Emergence, Structure and Agency and The Reality of Social Construction, discussed here and here. Dave has emerged as a leading voice in the philosophy of social science, especially in the context of continuing developments in the theory of critical realism. Thanks, Dave!]

We need to move on from existing theories of the economy
Dave Elder-Vass

Let me begin by thanking Dan Little for his very perceptive review of my book Profit and Gift in the Digital Economy. As he rightly says, it’s more ambitious than the title might suggest, proposing that we should see our economy not simply as a capitalist market system but as a collection of “many distinct but interconnected practices”. Neither the traditional economist’s focus on firms in markets nor the Marxist political economist’s focus on exploitation of wage labour by capital is a viable way of understanding the real economy, and the book takes some steps towards an alternative view.

Both of those perspectives have come to narrow our view of the economy in multiple dimensions. Our very concept of the economy has been derived from the tradition that began as political economy with Ricardo and Smith then divided into the Marxist and neoclassical traditions (of course there are also others, but they are less influential). Although these conflict radically in some respects they also share some problematic assumptions, and in particular the assumption that the contemporary economy is essentially a capitalist market economy, characterised by the production of commodities for sale by businesses employing labour and capital. As Gibson-Graham argued brilliantly in their book The End Of Capitalism (As We Knew It): A Feminist Critique of Political Economy, ideas seep into the ways in which we frame the world, and when the dominant ideas and the main challengers agree on a particular framing of the world it is particularly difficult for us to think outside of the resulting box. In this case, the consequence is that even critics find it difficult to avoid thinking of the economy in market-saturated terms.

The most striking problem that results from this (and one that Gibson-Graham also identified) is that we come to think that only this form of economy is really viable in our present circumstances. Alternatives are pie in the sky, utopian fantasies, which could never work, and so we must be content with some version of capitalism – until we become so disillusioned that we call for its complete overthrow, and assume that some vague label for a better system can be made real and worthwhile by whoever leads the charge on the Bastille. But we need not go down either of these paths once we recognise that the dominant discourses are wrong about the economy we already have.

To see that, we need to start defining the economy in functional terms: economic practices are those that produce and transfer things that people need, whether or not they are bought and sold. As soon as we do that, it becomes apparent that we are surrounded by non-market economic practices already. The book highlights digital gifts – all those web pages that we load without payment, Wikipedia’s free encyclopaedia pages, and open source software, for example. But in some respects these pale into insignificance next to the household and family economy, in which we constantly produce things for each other and transfer them without payment. Charities, volunteering and in many jurisdictions the donation of blood and organs are other examples.

If we are already surrounded by such practices, and if they are proliferating in the most dynamic new areas of our economy, the idea that they are unworkably utopian becomes rather ridiculous. We can then start to ask questions about what forms of organising are more desirable ethically. Here the dominant traditions are equally warped. Each has a standard argument that is trotted out at every opportunity to answer ethical questions, but in reality both standard arguments operate as means of suppressing ethical discussions about economic questions. And both are derived from an extraordinarily narrow theory of how the economy works.

For the mainstream tradition, there is one central mechanism in the economy: price equilibration in the markets, a process in which prices rise and fall to bring demand and supply into balance. If we add on an enormous list of tenuous assumptions (which economists generally admit are unjustified, and then continue to use anyway), this leads to the theory of Pareto optimality of market outcomes: the argument that if we used some other system for allocating economic benefits some people would necessarily be worse off. This in turn becomes the central justification for leaving allocation to the market (and eliminating ‘interference’ with the market).

There are many reasons why this argument is flawed. Let me mention just one. If even one market is not perfectly competitive, but instead is dominated by a monopolist or partial monopolist, then even by the standards of economists a market system does not deliver Pareto optimality, and an alternative system might be more efficient. And in practice capitalists constantly strive to create monopolies, and frequently succeed! Even the Financial Times recognises this: in today’s issue (Sep 15 2016) Philip Stevens argues, “Once in a while capitalism has to be rescued from the depredations of, well, capitalists. Unconstrained, enterprise curdles into monopoly, innovation into rent-seeking. Today’s swashbuckling “disrupters” set up tomorrow’s cosy cartels. Capitalism works when someone enforces competition; and successful capitalists do not much like competition”.

So the argument for Pareto optimality of real market systems is patently false, but it continues to be trotted out constantly. It is presented as if it provides an ethical justification for the market economy, but its real function is to suppress discussion of economic ethics: if the market is inherently good for everyone then, it seems, we don’t need to worry about the ethics of who gets what any more.

The Marxist tradition likewise sees one central mechanism in the economy: the extraction of surplus from wage labour by capitalists. Their analysis of this mechanism depends on the labour theory of value, which is no more tenable that mainstream theories of Pareto optimality (for reasons I discuss in the book). Marxists consistently argue as if any such extraction is ethically reprehensible. Marx himself never provides an ethical justification for such a view. On the contrary, he claims that this is a scientific argument and disowns any ethical intent. Yet it functions in just the same way as the argument for Pareto optimality: instead of encouraging ethical debate about who should get what in the economy, Marxists reduce economic ethics to the single question of the need to prevent exploitation (narrowly conceived) of productive workers.

We need to sweep away both of these apologetics, and recognise that questions of who gets what are ethical issues that are fundamental to justice, legitimacy, and political progress in contemporary societies. And that they are questions that don’t have easy ‘one argument fits all’ answers. To make progress on them we will have to make arguments about what people need and deserve that recognise the complexity of their social situations. But it doesn’t take a great deal of ethical sophistication to recognise that the 1% have too much when many in the lower deciles are seriously impoverished, and that the forms of impoverishment extend well beyond underpaying for productive labour.

I’m afraid that I have written much more than I intended to, and still said very little about the steps I’ve taken in the book towards a more open and plausible way of theorising how the economy works. I hope that I’ve at least added some more depth to the reasons Dan picked out for attempting that task.

Capitalism as a heterogeneous set of practices

Image: O. Beauchesnes, "Map of the Geographical Structure of Wikipedia Links" (link)

A key part of understanding society is making sense of the "economy" in which we live. But what is an economy? Existing economic theories attempt to answer this question with simple unified theories. The economy is a profit-driven market system of firms, workers, and consumers. The economy is a property system dependent upon the expropriation of surplus labor. The economy is a system of expropriation more or less designed to create great inequalities of income, wealth, and well-being. The economy is a system of exploitation and domination.

In Profit and Gift in the Digital Economy Dave Elder-Vass argues that these simple theories, largely the product of the nineteenth century, are flawed in several fundamental ways. First, they are all simple and unitary in a heterogeneous world. Economic transactions take a very wide variety of forms in the modern world. But more fundamentally, these existing theories fail completely to provide a theoretical vocabulary for describing what are now enormously important parts of our economic lives. One well-know blindspot is the domestic economy -- work and consumption within the household. But even more striking is the inadequacy of existing economic theories to make sense of the new digital world -- Google, Apple, Wikipedia, blogging, or YouTube. Elder-Vass's current book offers a new way of thinking about our economic lives and institutions. And he believes that this new way lays a basis for more productive thinking about a more humane future for all of us than is offered by either neoliberalism or Marxism. 

What E-V offers is the idea of economic life as a jumble of "appropriative" practices -- practices that get organized and deployed in different combinations, and that have better and worse implications for human well-being. 

From this perspective it becomes possible to see our economy as a complex ecosystem of competing and interacting economic forms, each with their own strengths and weaknesses, and to develop a progressive politics that seems to reshape that ecosystem rather than pursuing the imaginary perfection of one single universal economic form. (5)

The argument here is that we can understand the economy better by seeing it as a diverse collection of economic forms, each of which can be characterised as a particular complex of appropriative practices -- social practices that influence the allocation of benefits from the process of production. (9)

Economies are not monoliths but diverse mixtures of varying economic forms. To understand and evaluate economic phenomena, then, we need to be able to describe and analyse these varying forms in conjunction with each other. (96)

Capitalism is not a single, unitary "mode of production," but rather a concatenation of multiple forms and practices. E-V believes that the positions offered here align well with the theories of critical realism that he has helped to elaborate in earlier books (19-20) (link, link). We can be realist in our investigations of the causal properties of the economic practices he identifies.

This way of thinking about economic life is very consistent with several streams of thought in Understanding Society -- the idea of social heterogeneity (link), the idea of assemblage (link), and a background mistrust of comprehensive social theories (link). (Here is an earlier post on "Capitalism 2.0" that is also relevant to the perspective and issues Elder-Vass brings forward; link.)

The central new element in contemporary economic life that needs treatment by an adequate political economy is the role that large digital enterprises play in the contemporary world. These enterprises deal in intangible products; they often involve a vast proportion of algorithmic transformation rather than human labor; and to a degree unprecedented in economic history, they depend on "gift" transactions at every level. Internet companies like Google give free search and maps, and bloggers and videographers give free content. And yet these gifts have none of the attributes of traditional gift communities -- there is no community, no explicit reciprocity, and little face-to-face interaction. E-V goes into substantial detail on several of these new types of enterprises, and does the work of identifying the "economic practices" upon which they depend.

In particular, E-V considers whether the gift relation familiar from anthropologists like Marcel Mauss and economic sociologists like Karl Polanyi can shed useful light on the digital economy. But the lack of reciprocity and face-to-face community leads him to conclude that the theory is unpersuasive as a way of understanding the digital economy (86).

It is noteworthy that E-V's description of appropriative practices is primarily allocative; it pays little attention to the organization of production. It is about "who receives the benefits" (10) but not so much about "how activity and labor are coordinated, managed, and deployed to produce the stuff". Marx gained the greatest insights in Capital, not from the simple mathematics of the labor theory of value, but from his investigations of the conditions of work and the schemes of management to which labor was subject in the nineteenth-century factory. The ideas of alienation, domination, and exploitation are very easy to understand in that context. But it would seem that there are similar questions to ask about the digital economy shops of today. The New York Times' reportage of working conditions within the Amazon organization seems to reveal a very similar logic (link).  And how about the high-tech sweat shops described in a 2009 Bloomberg investigation (link)?

Elder-Vass believes that a better understanding of our existing economic practices can give rise to a more effective set of strategies for creating a better future. E-V's vision for creating a better future depends on a selective pruning of the more destructive practices and cultivation of the more positive practices. He is appreciative of the "real utopias" project (36) (link) and also of the World Social Forum. 

This means growing some progressive alternatives but also cutting back some regressive ones. It entails being open to a wide range of alternatives, including the possibility that there might be some valuable continuing role for some forms of capitalism in a more adequate mixed economy of practices. (15)

Or in other words, E-V advocates for innovative social change -- recognizing the potential in new forms and cultivating existing forms of economic activity. Marxism has been the impetus of much thinking about progressive change in the past century; but E-V argues that this perspective too is limited:

Marxism itself has become an obstacle to thinking creatively about the economy, not least because it is complicit in the discourse of the monolithic capitalist market economy that we must now move beyond.... Marx's labour theory of value ... tends to support the obsessive identification of capitalism with wage labour. As a consequence Marxists have failed to recognise that capitalism has developed new forms of making profit that do not fit with the classic Marxist model, including many that have emerged and prospered in the new digital economy. (45)

This is not a wholesale rejection of Marx's thought; but it is a well-justified critique of the lingering dogmatism of this tradition. Though E-V does not make reference to current British politics in the book, these comments seem very appropriate in appraisal of the approach to change championed by Labour leader Jeremy Corbyn.

E-V shows a remarkable range of expertise in this work. His command of recent Marxian thinking about contemporary capitalism is deep. But he has also gone deeply into the actual practices of the digital economy -- the ways Google makes profits, the incentives and regulations that sustain wikipedia, the handful of distinctive business practices that have made Apple one of the world's largest companies. The book is a work of theory and a work of empirical investigation as well.

Profit and Gift in the Digital Economy is a book with a big and important idea -- bigger really than the title implies. The book demands a substantial shift in the way that economists think about the institutions and practices through which the global economy works. More fundamentally, it asks that we reconsider the idea of "economy" altogether, and abandon the notion that there is a single unitary economic practice or institution that defines modern capitalism -- whether market, wage labor, or trading system. Instead, we should focus on the many distinct but interconnected practices that have been invented and stitched together in the many parts of society to solve particular problems of production, consumption, and appropriation, and that as an aggregate make up "the economy". The economy is an assemblage, not a designed system, and reforming this agglomeration requires shifting the "ecosystem" of practices in a direction more favorable to human flourishing.

Capitalism 2.0?

Capitalism is one particular configuration of the economic institutions that define production and consumption in a society. It involves private ownership of firms and resources, and a system of wage labor through which individuals compete for jobs within the context of a labor market. In its nature it creates positions of substantial power for owners of capital, and generally little power for owners of labor power -- workers. In theory capitalism can be joined with both democratic and authoritarian systems of government -- for example, France (democratic) and Argentina 1970 (military dictatorship). (Here is an earlier post on alternative capitalisms; link.)

As Marx himself noted, capitalism brought a number of powerful and emancipatory changes into the world. But it is plain that there are substantial deficiencies in our contemporary political economy, from the point of view of the great majority of society. For example:

• Rising inequalities of income and wealth
• Disproportionate power of corporations in political and economic life
• Persistence of racial and ethnic segregation and discrimination 
• Slow rates of social mobility
• Pervasive inequalities of opportunity
• Overwhelming influence of money in electoral politics
• Inability to address the causes of climate change
• Inability of the state to effectively regulate products and processes to ensure health and safety
• Manipulation of culture and values for the sake of profit

What kinds of institutional changes might we imagine for our current political economy that do a better job of satisfying the demands of justice and human wellbeing?

A number of philosophers, political scientists, and economists have addressed the question of how to envision a more just form of capitalism. Kathleen Thelen considers the prospects for an "egalitarian capitalism" (Varieties of Liberalization and the New Politics of Social Solidarity ; link); Jon Elster had an important contribution to make on the question of alternatives to capitalism (Alternatives to Capitalism; link); and John Rawls put forward a view of a preferable alternative to capitalism, which he referred to as a property-owning democracy (O'Neill and Williamson, Property-Owning Democracy: Rawls and Beyond; link).

So what might capitalism 2.0 look like if we want a genuinely fair and progressive society in the 21st century? Several features seem clear.

• Something like decentralized markets in labor and capital seem unavoidable in a large modern society. So the 21st-century economy will be a market economy.
• Rawls is right that extreme inequalities of property ownership lead to unacceptable inequalities of political participation and human capability fulfillment. So the 21st century will need to find effective ways of distributing wealth and income more broadly.
• Market mechanisms generally leave some disadvantaged sub-populations behind. A key goal of the 21st century state must be to find effective ways of improving the prerequisites of opportunity for disadvantaged groups. This means that a substantial equality of availability and access to education, nutrition, housing, and other components of quality of life need to be secured by the state.
• Existing market institutions do not automatically guarantee fair equality of opportunity. So the political economy of capitalism 2.0 will need to use public resources and authority to ensure equality of opportunity for all citizens.

What kinds of political and economic institutions would serve to advance these social goals?

One approach that is gaining international attention is the idea of a universal basic income for all citizens. Belgian philosopher Philippe van Parijs makes a powerful case for the need for universal basic income (link) in the world economy we now face. Here is his definition in the Boston Review article:

By universal basic income I mean an income paid by a government, at a uniform level and at regular intervals, to each adult member of society. The grant is paid, and its level is fixed, irrespective of whether the person is rich or poor, lives alone or with others, is willing to work or not. In most versions–certainly in mine–it is granted not only to citizens, but to all permanent residents. 

The UBI is called "basic" because it is something on which a person can safely count, a material foundation on which a life can firmly rest. Any other income–whether in cash or in kind, from work or savings, from the market or the state–can lawfully be added to it. On the other hand, nothing in the definition of UBI, as it is here understood, connects it to some notion of "basic needs." A UBI, as defined, can fall short of or exceed what is regarded as necessary to a decent existence. (link)

Swiss voters defeated such a proposal for Switzerland this spring (link), but serious debates continue. 

Another approach results from politically effective demands for real equality of opportunity. Equality of opportunity requires high-quality public education for everyone. So capitalism 2.0 needs to embody educational institutions that are substantially better and more egalitarian than those we now have -- ranging from pre-school to K-12 to universities. Consider this fascinating county-level map of the United States combining per capita income, high school graduate rate, and college graduate rate (link):

The map makes clear the strong association between county income and educational attainment, which implies in turn that children born into the wrong zip code have substantially lower likelihood of attaining high-quality educational success. A more just society would show little variation with respect to educational attainment, even when it also shows substantial variation in per-capita incomes across counties. Achieving comparable levels of educational attainment across rich and poor counties requires a substantial public investment in schools, teachers, and educational resources.

Another determinant of equality of opportunity is universal access to quality healthcare. Poor health affects both current quality of life and future productivity; so when poor people are in circumstances in which they cannot afford or gain access to high-quality healthcare, their current and future life prospects are at risk.

All of these ideas about a more just capitalism require resources; and those resources can only come from public finance, or taxation. The wealth of a society is a joint product which the market allocates privately. Taxation is the mechanism through which the benefits of social cooperation extend more fully to all members of society. It is through taxation that a capitalist society has the potential for creating an environment with high levels of equality of opportunity for its citizens and high levels of quality of life for its population. The resulting political economy promises to be the foundation of a more equitable and productive society. (Here is a post on the moral basis for the extensive democratic state; link.)

Saskia Sassen on austerity and social exclusion

The previous post summarized some of Kathleen Thelen's thinking about the prospects for a more egalitarian capitalism in our future. Saskia Sassen offers a more negative view of the direction of the development of European capitalism in her most recent book, Expulsions: Brutality and Complexity in the Global Economy.

Here is a post in Open Democracy in which Sassen summarizes her current thinking. Her view is that there is something new in the political economy of liberalization and austerity -- the systematic exclusion and expulsion of a significant portion of the population from the economy altogether. She writes:

Low growth, unemployment, inequality, and poverty are no longer reliable markers for capturing the 'economic cleansing' afflicting European institutions and societies throughout Europe. This 'works' on the backs of all those who have simply been expelled.

This seems pretty descriptive in the urban environment in which I live in Detroit metro. The factors Sassen highlights -- high unemployment, even higher rates of discouraged workers, and high rates of foreclosure and abandonment fit the Detroit experience very well. The most recent development -- water shutoff notices to tens of thousands of Detroit residents -- only reinforces the point of exclusion.

Thanks, Saskia, for providing the link!

Thelen on the prospects for egalitarian capitalism

source: Kathleen Thelen, Varieties of Liberalization (kl 3310)

There is a version of economic historical thinking that we might label as "capitalist triumphalism" -- the idea that the institutions of a capitalist economy drive out all other economic forms, and that they tend towards an ever-more pure form of unconstrained market society. "Liberalization," deregulation, and reduction of social rights are seen as economically inevitable. On this view, the various ways in which some countries have tried to ameliorate the harsh consequences of unconstrained capitalism on the least well off in society are doomed -- the welfare state, social democracy, extensive labor rights, or universal basic income (link). Through a race to the bottom, any institutional reforms that impede the freedom and mobility of capital will be forced out by a combination of economic and political pressures.

The graphs above demonstrate the current structural differences among Denmark, Sweden, Germany, Netherlands, and USA when it comes to training and income support for the unemployed and underemployed. It is visible that the four European economies devote substantially greater resources to support for the unemployed than the United States. And on the triumphalist view, the states demonstrating more generous benefits for the less-well-off will inevitably converge towards the profile represented by the fifth panel, the United States.

Kathleen Thelen is a gifted historical sociologist who has studied the institutions of labor education and training throughout the past twenty years. Her book How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan is an important contribution to our understanding of these basic economic institutions, and it also sheds important light on the meta-issues of stability and change in important social institutions. With James Mahoney she also edited the valuable collection Explaining Institutional Change: Ambiguity, Agency, and Power on this topic.

Thelen's most recent book, Varieties of Liberalization and the New Politics of Social Solidarity addresses the question of capitalist triumphalism. (That isn't a term that she uses, but it seems descriptive.) She locates her analysis within the "varieties of capitalism" field of scholarship, which maintains that there is not a single pathway of development for capitalist systems. "Coordinated" capitalism and neoliberal capitalism represent two poles of the space considered by the VofC literature.

From the beginning, the VofC literature challenged the idea that contemporary market pressures would drive a convergence on a single best or most efficient model of capitalism. (kl 228)

Thelen is interested in assessing the prospects for what she calls "egalitarian" capitalism -- the variants of capitalist political economy that feature redistribution, social welfare, and significant policy support for the less-well-off. She focuses on several key institutions -- industrial relations, vocational education and training, and labor market institutions, and she argues that these are particularly central for the historical issue of the development of capitalism towards harsher or gentler versions.

Different varieties of liberalization occur under the auspices of different social coalitions, and this has huge implications for the distributive outcomes in which many of us are ultimately interested. (kl 243)

This point is key to her view of the plasticity and path-dependency of basic economic institutions: these institutions change as a result of economic imperatives and the strength of various social groups who are in a position to influence the form that change takes. "The conclusions I reach here are based on a view of institutions that emphasizes the political-coalitional basis on which they rest" (kl 259). But there is no simple calculus proceeding from power group to institutional outcome; instead, the results for institutional change are a dynamic consequence of strategy, coalition, and constraint.

I suggest that the institutions of egalitarian capitalism survive best not when they stably reproduce the politics and patterns of the Golden Era, but rather when they are reconfigured -- in both form and function -- on the basis of significantly new political support coalitions. (kl 330)

A key finding in Thelen's analysis is that "coordinated" capitalism and "egalitarian" capitalism are not the same. Coordinated capitalism corresponds to the models associated with social democracies of the 1950s and 1960s, the "Nordic" model. But Thelen holds that egalitarian capitalism can take more innovative and flexible forms and may be a more durable alternative to neoliberal capitalism.

Is a more "egalitarian" capitalism possible? The data on labor markets that Thelen presents shows that there are major differences across OECD economies when it comes to wage inequality. Here is a striking chart:

Source: Thelen, Figure 3.3. Share of Employees in Low-Wage Work, 2010

Fully a quarter of US workers are employed in low-wage work in 2010. This is about double the rate of Denmark and quadruple the rate of low-wage workers in Sweden. Plainly this reflects a US economy that is creating substantially greater numbers of low-income people than any other OECD country. And yet all of these countries are capitalist economies, some with rates of growth that are higher than the United States. This demonstrates that there are institutional and policy choices available that are consistent with the imperatives of a capitalist market economy and yet that give rise to more egalitarian outcomes than we observe in the US, Canada, and the UK.

A key element in common among the more egalitarian labor outcomes that Thelen studies (Netherlands, Denmark, Sweden, Germany) is the expansion of part-time work, mini-jobs, and "flexi-curity". This phenomenon reflects a combination of liberalization (relaxation of work rules and requirements of long labor contracts), with a set of arrangements that allows a smoother allocation of labor to jobs and an improvement in income and security for the lower end of the labor market. This trend is part of what Thelen calls a strategy of "embedded flexibilization", which she regards as the best hope for a pathway towards equitable capitalism.

Thelen closes with a realistic observation about the uncertain coalitional basis that is available in support of the policies of embedded flexibilization. Xenophobic tendencies in countries like the Netherlands and Denmark have the potential for destroying the social consensus that currently exists for this model, and the leaders of nationalistic anti-immigrant parties have made this a key to their efforts at political mobilization (kl 5541). Maintenance of these policies will require strong political efforts on the part of progressive coalitions in those countries, and organized labor is key to those efforts.

This analysis is deeply international and comparative, but it has an important consequence for the political economy of the United States: where are the coalitions that can help steer our economy towards a more egalitarian form of capitalism?

(Readers may be interested in an earlier discussion of the Nordic model; link.)

Thorstein Veblen's critique of the American system of business

Thorstein Veblen was certainly a heterodox observer of modern capitalism. He was trained in the late nineteenth-century iteration of neoclassical economics, but he was more impressed by the irrationality of what he observed than the optimizing rationality that is postulated by the neoclassicals. He was also an intelligent observer and analyst of contemporary economic and sociological trends — not in theory but in the concrete forms that turn-of-the-century capitalism was taking in the United States and Europe. It is interesting, therefore, to examine his analysis of the business firm in The Theory of Business Enterprise, published in 1904. (I examined his critique of American universities in The Higher Learning in America in an earlier post.)

Here is how he describes his approach to the topic of American business:

In respect to its point of departure, the following inquiry into the nature, causes, utility, and further drift of business enterprise differs from other discussions of the same general range of facts. Any unfamiliar conclusions are due to this choice of a point of view, rather than to any peculiarity in the facts, articles of theory, or method of argument employed. The point of view is that given by the business man's work, -- the aims, motives, and means that condition current business traffic. This choice of a point of view is itself given by the current economic situation, in that the situation plainly is primarily a business situation. (Preface)

Veblen is sometimes credited with being one of the originators of institutional economics. This is due, in large part, to his effort to discover some of the institutional dynamics created for the modern industrial system by the incentives and constraints created for the owners and managers of firms.

One of the central impressions that emerges from reading The Theory of Business Enterprise is this: the modern American industrial economy is a coordinated system that requires many things to happen in sync with each other; but the owners of the components of this system often have strategic interests that lead them to take actions leading to de-synchronization and short-term crisis. There is a serious conflict of interest that exists between the interests of the owner and the needs of the system -- and the public's interests are primarily served by a smoothly functioning system. So owners are in conflict with the broader interests of the public.

So who is the primary actor, the "business man", in Veblen's account, and what are his or her motives?

The business man, especially the business man of wide and authoritative discretion, has become a controlling force in industry, because, through the mechanism of investments and markets, he controls the plants and processes, and these set the pace and determine the direction of movement for the rest. (Chap. 1)

The motive of business is pecuniary gain, the method is essentially purchase and sale. The aim and usual outcome is an accumulation of wealth. Men whose aim is not increase of possessions do not go into business, particularly not on an independent footing. (Chapter 3)So the owners and managers of businesses have a great deal of power in organizing and coordinating economic activity, and their goal is to maximize individual financial gain. Does this work to further the interests of society as a whole? Veblen does not adopt Adam Smith's notion that the pursuit of self-interest leads naturally to the expansion of the common good, and that the hidden hand guides this economy towards optimal outcomes and uses of available resources:

The outcome of this management of industrial affairs through pecuniary transactions, therefore, has been to dissociate the interests of those men who exercise the discretion from the interests of the community.... Broadly, this class of business men, in so far as they have no ulterior strategic ends to serve, have an interest in making the disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges.... It is, as a business proposition, a matter of indifference to the man of large affairs whether the disturbances which his transactions set up in the industrial system help or hinder the system at large. (7%)

Here Veblen seems to be making an interesting and unorthodox point: that the strategic actions of the owners of capital in a modern economy are oriented towards disequilibrium as often as they are towards equilibrium. The comment seems uncannily apt with regard to the financial crisis of 2008.

The end of his endeavors is, not simply to effect an industrially advantageous consolidation, but to effect it under such circumstances of ownership as will give him control of large business forces or bring him the largest possible gain. (8%)

Veblen appears to have in mind the consolidations and strategic actions involved in the railroad industry at the turn of the century. But this comment also has resonance with respect to the past two decades of recent history in the software industry, with companies jockeying for advantage on the desktop of users for their operating systems and applications.

Another incentive that owners of industries have, according to Veblen, is to insulate themselves from competition -- to create partial or complete monopolies in the fields they occupy. And Veblen looks at advertising as one of the tools that businesses use to secure a partial monopoly.

The endeavor of all such enterprises that look to a permanent continuance of their business is to establish as much of a monopoly as may be. (12%)

So Veblen's organizing view of modern industry (circa 1900, anyway) is that it is dispositionally inclined towards being anti-competitive -- to finding means of sheltering its production methods and prices from competition from other firms.

In the end Veblen does not believe that these practices turn the balance sheet negative against this form of economic organization. But he believes that the wastefulness associated with these strategic efforts at short-term advantage with regard to competitors is only compensated for due to the pressure that this system creates on the direct producers -- workers, engineers, architects, and service providers -- to be as productive during their working hours as possible. Owners and managers have an incentive to destabilize their competitors; but they also have an interest in optimizing their own uses of resources.

While it is in the nature of things unavoidable that the management of industry by modern business methods should involve a large misdirection of effort and a very large waste of goods and services, it is also true that the aims and ideals to which this manner of economic life gives effect act forcibly to offset all this incidental futility. These pecuniary aims and ideals have a very great effect, for instance, in making men work hard and unremittingly, so that on this ground alone the business system probably compensates for any wastes involved in its working. There seems, therefore, to be no tenable ground for thinking that the working of the modern business system involves a curtailment of the community's livelihood. It makes up for its wastefulness by the added strain which it throws upon those engaged in the productive work. (14%)

One reason I particularly enjoy re-reading thinkers like Veblen is that they do a good job of challenging our current assumptions. Veblen was looking at a functioning economy with important similarities to our own, consisting of visibly distinct groups of actors (owners, engineers, workers, advertising execs, ...), and he was in a position to notice some of the dysfunctional features of this system that are still with us today but that are no longer so visible.

(Here is an earlier post about Charles Perrow's treatment of corporations during much the same time period; link.)

How is "work" socially constituted?

How does "work" take shape in an advanced manufacturing and service economy? Is the division of labor a natural outcome of technology, or is it the result of a concrete set of social processes involving the strategies and interests of several groups? What kinds of social processes determine the bundle of skills, knowledge, and training that go together to represent a job classification? How is the suite of tasks and activities assigned to a given job arrived at?

Here is a brief description from the Bureau of Labor Statistics of one specific skilled job function within a factory environment, the millwright (link):

Millwrights install, dismantle, repair, reassemble, and move machinery in factories, power plants, and construction sites. Millwrights typically go through a formal apprenticeship program that lasts about 4 years. Programs are usually a combination of technical instruction and on-the-job training. Others learn their trade through a 2-year associate’s degree program in industrial maintenance. Employment of millwrights is expected to decline 5 percent from 2010 to 2020. Despite declining employment, job opportunities should be good for those with a broad set of skills in machine maintenance.

Here is a description of a low-skill job function, the hand laborer and material mover (link):

Hand laborers and material movers transport objects without using machines. Some workers move freight, stock, or other materials around storage facilities; others clean vehicles; some pick up unwanted household goods; and still others pack materials for moving. Generally, hand laborers and material movers need no work experience or minimum level of education. Employers require only that applicants be physically able to do the work. Employment of hand laborers and material movers is projected to grow 14 percent from 2010 to 2020, as fast as the average for all occupations. Job prospects should be good because the need to replace workers who leave the occupations should create a large number of job openings.

And here is a highly skilled industrial job, the mechanical engineer (link):

Mechanical engineering is one of the broadest engineering disciplines. Mechanical engineers design, develop, build, and test mechanical devices, including tools, engines, and machines. Mechanical engineers need a bachelor’s degree. A graduate degree is typically needed for promotion into managerial positions. Mechanical engineers who sell services publicly must be licensed in all states and the District of Columbia. Employment of mechanical engineers is expected to grow 9 percent from 2010 to 2020, slower than the average for all occupations. Job prospects may be best for those who stay abreast of the most recent advances in technology.

So how is it determined which tasks are assigned to which classifications? And what social processes determine which individuals receive the right kind of training to qualify for any of these jobs?

One researcher who has contributed a lot to this issue is Charles Sabel in Work and Politics: The Division of Labour in Industry and The Second Industrial Divide: Possibilities For Prosperity (with Michael Piore).  Sabel's work is particularly insightful in the light it sheds on the sociological processes and structures through which the bundles of skills needed in individual workers are determined and then transmitted through a training regime. Here is how Sabel frames the problem I'm interested in here:

This is an essay about the reasons industrialists create different kinds of factory jobs, about why workers put up with these jobs when they do, and about what they want when they do not. It shows how workers' ideas of self-interest, born of the principles of honor and dignity they bring to the factory, can be transformed by workplace struggles. And it shows how these struggles, colliding or combining with conflicts in the larger society and between nations, can reshape technologies, markets, and factory hierarchies. (Work and Politics, 1)

Notice the most fundamental idea being advanced here: that the natures of work, jobs, and implementation of technology are all the result of active back-and-forth negotiations over time between workers and owners.  The structure of work doesn't follow from a certain level or kind of technology; instead it is the result of an extended "game" in which the players seek out definitions of work and technology that suit them. Workplace struggles "reshape" technologies and jobs, and the division of labor is a socially mediated and historically conditioned reality.

This chapter argues that the capitalist organization of production creates clusters of jobs offering workers systematically different opportunities for the use and acquisition of skills, and for regular employment. The capitalists create jobs of various types, and the worker tries to find one suited to his ambition. (31)

Essentially the labor process is defined by several constraints, imperatives, and interests.  Products can be made for use and for sale in a market through a variety of combinations of tools, skills, and labor.  By subdividing tasks, economists and managers since Adam Smith have recognized that it is possible to increase efficiency or quality or both. And profit-oriented owners and managers have recognized that skilled workers can demand more for their services than unskilled workers.  So pursuing a combination of specialized tools and machines with repetitive, unskilled labor has been a profit-maximizing strategy since Henry Ford began experimenting with the assembly line.  "Fordism" is a specific economic and technological system, involving factory production for a mass market, specialized tools and machines, and mass unskilled labor.

There are many alternatives that exist for defining skill regimes that would get the job done for a given level of technology and organization. The Fordist regime separates workers into a low-skill group where only a minimal amount of training is required and the worker's activities are limited to a repetitive and simple set of actions, a smaller group of high-skill technicians, and a group of supervisors who oversee the activities of both groups. In this Fordist regime the low-skill workers are not expected to exercise independent judgment or to function as creative problem-solvers. The high-skill technicians are assigned a greater degree of independence and scope for problem-solving.

But, as Sabel observed in an important 1985 article with Jonathan Zeitlin ("Historical Alternatives to Mass Production"; link), the Fordist regime is not the only solution possible for advanced science-based production. There were alternatives. One such alternative is a high-skill, high-independence paradigm where ordinary production workers employ much more sophisticated skills and knowledge to carry out the production process. Here is how they describe their central argument:

Mass production -- the combination of single-purpose machines and unskilled labour to produce standard goods -- has been throughout this century the undisputed emblem of industrial efficiency. No more. Powerful currents of technological change are stirring up this sedimented lesson of the past. The development of numerically controlled machine tools which can be programmed to perform many different tasks automatically; the spreading use of such machines in highly competitive small firms in industries as diverse as engineering and textiles and regions as distinct as Baden-Wurtemberg and Emilia-Romagna; the increasing capacity of some large firms in Japan, West Germany, and the United states to switch production rapidly from product to product; the creation of new jobs which blur the distinction between skilled and unskilled work -- all these churn up established understandings of modern production methods. Engineers and managers take increasingly seriously the possibility that economic success in the future may depend on the flexible use of multi-purpose or universal machines and skilled labour to make an ever changing assortment of semi-customized products: a system that reverses the principles of mass production. (133)

The Volvo production system illustrates this regime. This approach bundles the market advantages associated with flexible production with a skills regime that focuses on teams of producers with advanced and flexible skills and an extensive degree of production independence.

These questions are pressing today for two important reasons. First, many of the "good" jobs that existed in the United States in manufacturing have either disappeared or have suffered major reductions in compensation. Moreover, the manufacturing jobs that are returning to the US are coming back at much lower rates of pay.  And jobs have disappeared for reasons that are very consistent with Sabel's argument: companies have made deliberate, strategic decisions to de-skill labor within their operations and to offshore some parts of the production process. Or in other words, companies have restructured work to increase profits. That is the logic of a capitalist economy.

Second, most observers accept the idea that worker productivity in the future -- and therefore worker compensation -- will be determined by the level of knowledge and skill the worker possesses. High skill and high knowledge production adds a lot of value to the product, and is compensated accordingly. But companies have a choice to make, whether they adopt production processes that depend on a smaller number of high-skill and high-pay workers, or processes that depend on a larger number of low-skill, low-pay workers.  And the company is of course aware of the terms of bargaining that exist with regard to these two groups; the high-skill group is more able to exercise influence in the bargaining process and thereby increase its compensation more rapidly.  Deskilling of the production process is therefore a tactical choice on the part of the employer.

This line of thought seems to have disjunctive consequences, neither of which is promising for the future of the American middle class: either companies will restructure their activities to incorporate a higher mix of high-skill workers in substantially smaller numbers; or they will continue to expand activities around a low-skill model while exercising substantial downward pressure on wages.  And this implies that employment growth will be slow, or else there will be more robust jobs growth in low-pay jobs leading to a falling standard of living for the majority of workers.

(Here is a post on Stanley Aronowitz and William DiFazio's version of this kind of analysis in The Jobless Future: Second Edition.)