Economic historians Barry Eichengreen and Kevin H. O’Rourke are using empirical data to compare this downturn to the Great Depression. I’ll be referring to and adding to their comparison in the next Debtwatch (which will be published late next week, before the RBA’s July meeting), but the research is so good that it deserves to be highlighted now.
Their conclusion is compelling:
To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.
Click here to see the full post; below I simply link to some of the figures.
June 24th, 2009 at 5:16 pm
Seeing these graphs reminded me of this:
http://www.gold-eagle.com/editorials_01/seymour062001.html
oh but at least Australia isn’t in a recession :p
June 24th, 2009 at 5:36 pm
ponzi finance created the imbalance where debtors were sucked in beyond ability to pay when assets prices reversed. On the flip side bankers and perhaps those who sold assets before the bubble burst have reaped undeserved gains. You can explain this to most people who don’t even have an economic background and they get it. Surely there must be an attempt to reduce the claims on wealth by those who do not deserve it. This has to be a policy reponse from the view point of bringing the system back into something resembling balance and from a moral hazzard view point.
June 24th, 2009 at 7:57 pm
This is interesting:
“US lodges WTO case against China”
http://www.ft.com/cms/s/0/d594245e-600a-11de-a09b-00144feabdc0.html
The American administration may want to achieve certain internal political goals. However if this spins out of control we may soon see who has more power.
June 25th, 2009 at 10:09 am
China does not have what it takes to challenge the US. A perfect example is how the US spy plane landed in China and US bullied its way out crying China played foul.
I expect what Peter Schiff said to occur that being the US will never repay China’s debt and insist it is Chinas fault for lending them the money (or enticing them to borrow the money) when they very well knew that they could not pay it back.
China taking on the US? Never will happen. I think we will see US bullying China. I don’t think the same holds for Russia.
June 25th, 2009 at 10:46 am
“Surely there must be an attempt to reduce the claims on wealth by those who do not deserve it.”
Interesting idea. Who would you suggest we entrust with this responsibility?
June 25th, 2009 at 10:47 am
I saw a documentary last night on Melbournes’ Channel 31 about Prout Economics. Does anyone think this is a viable alternative to our current system? How would a transition to a this, or any other, new system be organised?
Thanks if anyone has any ideas.
June 25th, 2009 at 12:26 pm
I liked this article:
“Fed tries to turn conversation away from deflation risk”
‘The old statement wording read, “The Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”
That was code for deflation’.
http://latimesblogs.latimes.com/money_co/2009/06/at-least-we-can-stop-worrying-about-deflation—-or-so-the-federal-reserve-appears-to-be-saying-today–in-its-post-meeting-s.html
June 25th, 2009 at 1:10 pm
MMitchell,
Sadly Prout system has no chance to work.
People simply don’t work when they don’t have to regardless how much ethics you pump into them. All the cooperatives either collapse or evolve into normal commercial enterprises. If you force people to work you have the Stalinist model. Otherwise corruption and stealing of what desn’t belong to anyone (is common) takes its own course. This was tried so many times that I don’t think we should waste more time even thinking about it.
If you want I can write a story or two about cooperatives in Poland before 1989. Or I can ask my Israeli friend to tell her story about the Kibbutz movement (which was the most successful attempt so far).
June 25th, 2009 at 1:43 pm
gamma
I see a transparent system to decide on extent of wealth polarization due to ponzi finance and then to mark down claims and redistribute across the board based on certain parameters agreed upon in a democratic way.
It’s obviously extremely complicated and perhaps currently there would not be enough access to information to do this, with all the tax evasion and off shore accounts etc, and it would have to be a fairly crude and unspecified shaving and redistribution of net worth on a sliding scale.
June 25th, 2009 at 2:15 pm
Look at the nonsense people write.
http://business.smh.com.au/business/earthdestroying-bomb-defused–just-20090625-cxj7.html
Pascoe and Joye should hire a room they are truly deserving of each other.
June 25th, 2009 at 3:26 pm
Thanks Ak for your reply. If you have the time I would very interested in anything you or your friend write about co-operatives and the Kibbutz, even if it is just to verify that they are not viable!
June 25th, 2009 at 6:36 pm
Great graphs – see the latest Archdruid Report for a challenge no maverick economist can surely resist. Looking forward to the next Debtwatch very much.
http://thearchdruidreport.blogspot.com/2009/06/thermodynamic-economy.html
June 25th, 2009 at 6:55 pm
MMitchell,
If you’re interested in cooperatives and the like, I would suggest you read through Anarcho’s excellent AFAQ: http://anarchism.pageabode.com/afaq/index.html
June 25th, 2009 at 7:14 pm
Hi Steve
‘Bart’ of nowandfutures.com posted these charts a few days ago.
http://www.nowandfutures.com/great_depression.html
These charts ‘appear’ to indicate something different. They are of course very US centric. I had not given the matter a lot of thought but it did occurred to me that the measures so far taken by the Fed have just ‘kicked the can down the road a bit’. The initial, better than 1929, outcome is simply a measure of higher debt incurred by the Fed. The outcome further down the road may turn out MORE disastrous as a result.
More importantly, the “kick the can down the road” approach, as taken by all States and the Federal Govt in Australia, may result in an even more disastrous outcome. If everything does not go as per Treasury’s unrealistic model, then we are in one heck of a lot of trouble…just my opinion!!
Anyway I thought I would throw them into the mix for your consideration. I look forward to your expanded commentary in due course.
June 25th, 2009 at 7:52 pm
I am sorry Philip but I find the anarchist FAQ quite naive but naive in a very sophisticated way. Reading it is a waste of time to somebody with my attitude and age. I just quickly skimmed through an article relevant to cooperatives.
The fact that they criticise the current model of society and production doesn’t mean that their proposals are any better – they are much worse than the current order because utopias always grow into monsters. I don’t care about another dead philosopher from the 19th century.
Obviously one may say that what I wrote below doesn’t apply. But I can say the same about all the great ideas – even True Democracy could have worked in Iraq if only a few little mistakes hadn’t been made.
What I have against cooperatives in Eastern Europe is that people didn’t bother working there. There were many cooperative farms established across Eastern Europe. Some of them were set up in Poland. I remember one day a guy whom I visited asked us to help harvesting potatos from the neighbouring farm, I don’t remember whether it was collectivised or just state-owned. “But it isn’t yours, aren’t we going to steal?”. “Don’t worry they have already harvested what they wanted, what is left will rot”.
So we went there and collected 50kg in an hour or so. They just had ridden a harvester and left a half of potatos still burried in the soil.
No wonder we had food rationing in Poland before 1989. We had food coupons. Can you imegine that now? In one of the main food producers in Europe?
The same was all over there – in Ukraine or Russia.
Now about the kibbutz movement. Apparently according to my Israeli friend the wikipedia article is not bad.
http://en.wikipedia.org/wiki/Kibbutz
“In the last decades, most Kibbutzim have privatized and no longer practice communal living.”
June 25th, 2009 at 8:48 pm
… more on cooperatives. During Communist period you basically couldn’t own an apartment (with some exceptions). Housing needs were satisfied by either an equivalent of housing commission (“communal” flats) or by housing associations (cooperatives).
Obviously apartments were in very short supply.
For an unknown reason these bodies have not been dissolved after the collapse of communism. They evolved into a kind of muddied strata appartment management bodies – but practically you cannot opt out from them once you got there.
I remember that a new housing association was created by a group where post-communist and post-Solidarity aparatchiks joined their forces. They acquired prime land in Gdansk (later there was a public scandal about that). They also sold (much worse) flats for normal people. There were almost like a developer but a cheap one.
It all happened in 2000. I was silly enough to buy a 2 bedroom apartment from them.
The apartments were not ready in time. They were almost half a year late. But we had sold our old flat already as there were no normal credits available at that time. We were renting a 17m^3 studio from my friend, we had a small child and my wife was expecting another one. The flat was full of boxes with our belongings. I slept on the floor in the kichen annex. I could have sued the cooperative … good luck. Later they refunded me something like $1000.
So we settled the new apartment when there was no road and no central heating only running (cold) water and electricity. I will never forget drowning my car in a puddle of mud next to the house. I wanted to get rid of the management of the cooperative with a couple of my friends but the old management manipulated the meeting.
Do you still want to establish a cooperative?
There is nothing more corrupt than these inventions of the 19-th century well-wishing idealists.
I opted out from the system in 2003 by leaving the country.
June 25th, 2009 at 9:21 pm
“What I have against cooperatives in Eastern Europe is that people didn’t bother working there. There were many cooperative farms established across Eastern Europe.”
As if comparing freely created co-operatives with state imposed ones make a lot of sense!
Look, it is simple, Eastern Europe was a system of state capitalist economies in which people where forced into so-called “co-operatives” by the state, which owned all the means of production (land included). Rather than having the 95% wage-labour rate of private capitalism, these regimes had a 100% wage-labour rate — everyone was a wage-slave to the state rather than a capitalist.
Needless to say, anarchists have opposed the state capitalist form of “co-operation” from the start! Thus Proudhon from 1848:
“We do not want to see the State confiscate the mines, canals and railways: that would be to add to monarchy, and more wage slavery. We want the mines, canals, railways handed over to democratically organized workers’ associations . . . We want these associations to be models for agriculture, industry and trade, the pioneering core of that vast federation of companies and societies woven into the common cloth of the democratic social Republic.”
That aim cannot be compared to the state capitalist system in Eastern Europe. Unsurprisingly, the regimes and their economies were pretty bad.
Compare that to system of co-operatives created by workers themselves in opposition to capitalist autocracy in the workplace (for example, during the Spanish Revolution of 1936). The Mondragon co-operative complex in the Basque Country is a very successful example of what is possible, if you wish to use a current example.
And I should point that the evidence is firmly in favour of the anarchist argument that workers’ self-management is more efficient and more productive that capitalist wage-slavery.
So, please argue against what anarchists actually suggest — using state-imposed examples from Stalinist dictatorships is pretty meaningless…
I.3 What could the economic structure of anarchy look like?
http://anarchism.pageabode.com/afaq/secI3.html
June 25th, 2009 at 10:03 pm
Anarcho,
First let’s dispose of one of your myths – about more freedom in your system:
“The revolution abolishes private ownership of the means of production, distribution, and with it goes capitalistic business. Personal possession remains only in the things you use. Thus, your watch is your own, but the watch factory belongs to the people.”
So will I be able to own a computer and work as a contractor on my own or not?
“harmony in such a society being obtained, not by submission to law, or by obedience to any authority, but by free agreements concluded between the various groups, territorial and professional, freely constituted for the sake of production and consumption, as also for the satisfaction of the infinite variety of needs and aspirations of a civilised being.”
What if I try to freely associate with other free people and establish not a cooperative but a normal firm hiring people? Will it be banned?
Will the revolutionaries shoot me or just reeducate in a prison camp or maybe give me drugs to cure my perversion? If not I will ignore your ideology because I don’t believe in anything like that. Call me a pervert.
Of course I have misunderstood the greatest idea of free association and sharing but it is my right to do so.
Regarding cooperatives:
Some of these structures were established not because were imposed but because people really believed in them!
Of course these lasted a bit longer.
I don’t want to say that at the very beginning they may not work but that they will degenerate after a while into either corrupt clusters of people stealing common property or into normal commercial enterprises.
The fact that something worked for a few years or even decades doesn’t prove anything. Also – there were normal commercial enterprises around. I am not for banning cooperatives – you may join one if you want but what if somebody doesn’t want to?
June 26th, 2009 at 4:58 am
Outback Oracle,
I wonder why they chose 10/07 as the start of the current depression. 10/08 seems more reasonable, at least for the US. Smells fishy to me.
June 26th, 2009 at 2:48 pm
Anarcho, Like a lot of Utopian socialist fantasies, Anarchism sounds great in theory. It has been tried before, and comprehensively failed. It didn’t work in Barcelona, it didn’t work in Nimbin, it didn’t work in Kuranda.It is doomed to fail due to the contrariness of human nature. You should go somewhere where it is “work in progress” and waste several years of your life finding out the reasons for yourself. Nothing sharpens the mind like practical experience. The lion may lie down with the lamb, but after a short time there won’t be many lambs around.Good luck.
June 26th, 2009 at 3:39 pm
It is doomed to fail due to the contrariness of human nature.
Human nature here invariably means whatever reactionaries want it to mean. If the much abused concept of ‘human nature’ means anything at all, it is surely adaptiveness, not some innate disposition toward greed and competition above cooperation.
June 26th, 2009 at 4:51 pm
This has nothing to do with reactionaries or neoconservatives.
The behaviour of humans in groups has been studied by social psychologists. When certain conditions are met individuals collaborate otherwise they compete. There are circumstances when people punish cheaters but sometimes cheating becomes a norm.
Have you heard about this?
http://www.prisonexp.org/
Unfortunately this knowledge was absent in 19th when the predominant leftist and right-wing utopias were born.
Unless you enforce certain conditions people will not necesarily cooperate. The largest scale experiment on enforcement of cooperation was conducted by Stalin and Mao. If there is no enforcement of cooperation some groups of people will compete. The main issue is not to allow them to cheat what big corporations do.
Now back to Nimbin.
One can argue that a system based on cooperatives will offer better share of value of what is produced to the participants. This may be true if we are talking about old labour-intensive industries for example manufacturing rocking chairs or growing pot.
However if either investment (so called capital) plays predominant role (I am not talking about speculation) or even worse, invention and advanced technological process are involved cooperatives lose their edge. I would argue that they will usually lose competition with normal firms and that’s why so few of them are around. It is not conspiracy it is simply a process of natural selections however it is true that big corporations make life difficult for small enterprises what is bad. But it also affects normal firms not only cooperatives.
Imagine that I run a normal software company and I manage to hire the best programmers. I pay them just 90% of the profit they work brings to the company. The rest is mine. But because we don’t share our inventions with the others we can make 2 times more money than the competitors sharing everything and getting 100% of the net income divided between participants. So my guys will get 180% of what the members of coop get.
Of course somebody may ban competition. This has already been tested in the county called USSR with a well known result.
Somebody may mandate sharing knowledge. But you will always find a place where this is not enforced and start selling services or products from there.
I am not defending proprietary software. There is room for both open source and proprietary. There is room for cooperatives and for competing firms.
However there is no room for utopia.
June 26th, 2009 at 7:04 pm
“First let’s dispose of one of your myths – about more freedom in your system:”
This should be interesting…
“So will I be able to own a computer and work as a contractor on my own or not?”
Yes, there is a whole sub-section in I.3 on that — or did you not bother reading that?
“What if I try to freely associate with other free people and establish not a cooperative but a normal firm hiring people? Will it be banned?”
Why would free people become your servants? I thought you were talking about freedom? Or is freedom the freedom to be bossed about?
“Will the revolutionaries shoot me or just reeducate in a prison camp or maybe give me drugs to cure my perversion?”
Strange you should mention that, given the substantial state repression required to make people think selling their freedom to others equals “liberty”…
http://anarchism.pageabode.com/blogs/afaq/secF8.html
But, of course, as explained in AFAQ freedom cannot be given or imposed, it is up to people to free themselves from oppression. If people wish to be slaves, there is little you can do…
“Of course I have misunderstood the greatest idea of free association and sharing but it is my right to do so.”
It is your “right” to misunderstand what anarchism stands for?
“Some of these structures were established not because were imposed but because people really believed in them!”
These would be the structures in Stalinist Europe? Again, the point is that these co-operatives were created (imposed, usually) in the context of a state capitalist dictatorship. You cannot isolate one feature of an economy and assume that is how it would operate in a totally different socio-economic context…
“I don’t want to say that at the very beginning they may not work but that they will degenerate after a while into either corrupt clusters of people stealing common property or into normal commercial enterprises.”
As opposed to workers stealing from their bosses property? Into “normal” commercial enterprises? Doubtful…
“The fact that something worked for a few years or even decades doesn’t prove anything.”
I know, slavery worked for thousands of years. Wage-labour for a few hundred. The same with dictatorships. Perhaps people are not ready for freedom, eh?
“I am not for banning cooperatives – you may join one if you want but what if somebody doesn’t want to?”
Wow, there is at least 3 sub-sections in AFAQ on this very subject… I guess people don’t feel the need to explore an issue before discussing something…
June 26th, 2009 at 7:14 pm
“Anarcho, Like a lot of Utopian socialist fantasies, Anarchism sounds great in theory. It has been tried before, and comprehensively failed. It didn’t work in Barcelona, it didn’t work in Nimbin, it didn’t work in Kuranda.”
I’ve never heard of Nimbin or Kuranda, so I’m guessing they are not related to anarchism at all. As for Barcelona, the syndicates of the CNT successfully ran industry for 3 years in extremely difficult economic and political circumstances. Perhaps you have a different definition of “didn’t work” than me…
“It is doomed to fail due to the contrariness of human nature.”
Ah, yes, “human nature” — that allows people not to think about anything… But, surely, it is “human nature” to seek to control their own life, to associate with others? The fact that our physical and mental health suffers under inequality suggests that “human nature” is more in tune with freedom than authority.
And, of course, we discuss the “Human nature” myth in An Anarchist FAQ…
“You should go somewhere where it is “work in progress” and waste several years of your life finding out the reasons for yourself.”
Anarchists argue that we apply our ideas where we work, make our struggles and life a “work in progress” — that is why we don’t drop out but apply our ideas of self-management in the here and now. In our strikes, say…
“Nothing sharpens the mind like practical experience.”
Yes, and my practical experience of over 20 years of anarchist activism shows that people, when they start to resist authority, tend to organise in a libertarian fashion. So I’m optimistic that this can be generalised and work on a large scale.
“The lion may lie down with the lamb, but after a short time there won’t be many lambs around.Good luck.”
Last time I looked, humans were neither lions nor lambs. Perhaps you could use an analogy which is less obvious and less wrong? good luck…
June 26th, 2009 at 7:17 pm
ak said, in June 26th, 2009 at 4:51 pm
quote: I would argue that they will usually lose competition with normal firms and that’s why so few of them are around. unquote
From a European coop website http://www.coopseurope.coop/spip.php?article518
an example
Population of France : 60,8 million
………….
The French co-operative movement counts today more than 20.000 cooperative enterprises, employing one million persons. In 2006, 58% of the newly hired employees in the banking sector were employed in co-operative banks (around 16.000 jobs).
………….
Paul
June 26th, 2009 at 7:22 pm
“The largest scale experiment on enforcement of cooperation was conducted by Stalin and Mao.”
I would suggest you have a seriously strange definition of “co-operation”, not to mention grasp of what these regimes were like.
The regimes of Stalin and Mao were hierarchical, dictatorial, top-down state structures which ruled over an economic regime where state appointed bosses ordered wage-workers about.
By no stretch of the imagination were they “co-operative” (they were capitalist in nature, state capitalist). There is no “co-operation” between master and servant. This applies to the capitalist firm as well as the state-capitalist economic plan (which, in many ways, is just the capitalist workplace writ-large).
James C. Scott has written an excellent book on this, Seeing Like a State. I would recommend it.
Also, in terms of co-operation in nature, may I suggest reading Kropotkin’s Mutual Aid? It has stood up well in terms of its arguments:
http://anarchism.pageabode.com/anarcho/mutual-aid-an-introduction-and-evaluation
Yes, in some circumstances animals compete, in others they co-operate. Anarchists argue that we need to transform our circumstances (and ourselves in the process of doing that) so that people co-operate — and are willing to defend themselves against those who seek to exploit or oppress them.
June 26th, 2009 at 8:27 pm
Anarcho,
You are talking about ideas I am talking about the reality.
It is not true that everything in the Soviet system was based on opression. A significant number of people believed in the ideology. That’s why the ideology was so poisonous. How much time did you spend in the former Soviet bloc? I lived there 22 years and visited the most of the neighbouring countries. You ignore what I have said because it would invalidate your claims. In fact by doing that you are repeating anti-communist propaganda made up by the Western governments.
The system collapsed not because there was too much oppression. It collapsed because it was inefficient and corrupt. It was inefficient and corrupt because things didn’t belong to people. They belonged to nobody. The second reason was the central planning. But limited market mechanisms were allowed in the 1980-ties in some countries. It didn’t help much. The third reason was the lack of democracy in microscale and in macroscale. No social feedback mechanism. But Gorbachev tried to introduce the democracy – again it didn’t help much, the system finally collapsed. In China they have a sort of feedback mechanism fitting their society even if it looks weird for us – but for them this is the democracy.
When they allowed for private enterprises their country powered ahead.
I do see the fundamental difference between anarcho-syndicalists and communists. I am not saying that cooperatives won’t work. I am not saying that whatever you wrote is rubbish. There is a lot of value in some of your ideas. But my point is different.
When I hear that somebody has a theory describing everything this sounds all too familiar to me especially if it requires transforming ourselves and everything.
You haven’t responded to my claim that free people may actually want to work in normal firms because these firms may be more efficient. Because this is exactly the case – if you are going to pay me more in a cooperative I don’t care I will join it today.
I can send you my resume today.
I fully agree with the diagnosis that the current market system is sick because it has been corrupt by big corporations and banks. But this only means that the existing problems need to be solved, nothing more, nothing less.
And our democracy fixed.
I don’t believe that when talking about revolution you will not end up forcing people to do something. Come on there is no social change without destroying the existing social order. Are you sure that all the anarchists are peaceful? Are you sure that once the process is started it will not look exactly the same as any other revolution – idealists becoming oppressors or a third party manipulating everything and seizing power? I know that all these questions have been answered in your book but as I said I am interested in describing the reality not ideas.
June 26th, 2009 at 8:34 pm
It’s interesting that when the terms co-operation and collective are brought up, the worst examples are immediately given as “proof” that it couldn’t possibly work and thus the status quo must be maintained. This reminds me of Thatcher’s TINA.
Within a capitalist economy, co-ops are at a distinct disadvantage. Despite the illusions of competition creating wealth, furthering technological advancement, making the best use of resources, etc, the firms that externalize their costs onto society, commit to a program of legal political corruption (rent-seeking), and receive state protection will be able to undermine other firms who abide by market principles (whether they are co-ops or not).
Our Western liberal economies are not representative of the survival of the fittest but survival of the most inefficient and corrupt. We are usually told in economics courses that inefficient firms are weeded out by competition but this is nonsense. A firm that externalizes its costs, rent-seeks and commits crime will be able to undercut other firms who follow market principles and will thus come out on top.
Such firms are the most inefficient according to conventional economic criteria and by society’s point of view but the most efficient by managements’ and shareholders’ point of view.
By its very democratic and self-managerial nature, combined with its usually small/medium size, co-ops will not externalize its costs, rent-seek or commit crime (though of course it still remains a possibility). Thus firms that do the opposite will be able to smash co-ops out of the market. The fact that co-ops are still surviving in some places around the world is a testament to itself.
On the matter of communist regimes, they are basically representative of the economy being run by one megacorporation. Since the internal structure of a corporation is highly inefficient totalitarian central planning, it is no surprise that communist economies don’t function well. Apparently people have “freedom” in Western liberal economies because we have the choice of renting ourselves to a number of capitalist firms rather than just to the state under communist economies. While this choice is better than no choice, it is merely an illusion because the people have no choice but to rent themselves out to structures of power – this is really no choice.
Systems of equality without liberty and liberty without equality are failed systems.
Regardless of anarchism, it would be nice if we even had an economy that was representative of the market ideal. However, capitalism’s claim to the mantle of the market has no more substance than the claim of the rogue who dressed the naked emperor in a fine gown.
June 26th, 2009 at 8:57 pm
Philip,
I don’t want to maintain the status quo but just to solve real problems.
1. Get rid of middle class welfare – negative gearing, private school subsidies…
2. Remove the possibility of creating Ponzi schemas by introducing Steve’s proposals
3. Change patent law (even do not abolish it but just fix)…
4. Strenghten shareholders rights
5. Tax energy consumption not “adding value” possibly by introducing individual tredeable carbon dioxide emission permits
6. Build new generation nuclear power plants near every capital city and solar arrays then close coal mines …
Is this TINA?
June 26th, 2009 at 9:41 pm
What does this even mean?
Where are all the successful non-failed systems?
How do you go about measuring equality when one man chooses to work hard and another chooses not to and both men have the liberty to make such a choice?
June 26th, 2009 at 9:56 pm
Philip,
I agree with everything you said. I think that to compare a totalitarian regimes with central planning to cooperatives is stupid. No offense ak, but it’s also funny how some people believe in democracy on the government level but don’t believe in democracy on the workplace level. I think it’s just a human nature – I am sure in Medieval times, there were many serfs sceptical about democracy as much as there are now many middle-class working people sceptical about democratic workplace.
I recently read Ricardo Semler’s book “Maverick” about Brazilian company Semco, and while it is not strictly a cooperative, it is still interesting example of how much more democracy can be implemented in the workplace and how well it works in the end. By the way, ak, information sharing didn’t seem to be much problem for them – the benefits of access to information by workers seem to overweight the negatives by potential access from the competitors, which is similar to what we see in science.
I would also like to note that it seems that cooperatives don’t have such need to expand and market themselves, which is also a disadvantage against conventional corporations, even if they act responsibly and morally (as they often don’t for various reasons).
However, I don’t think that various forms of anarchism solve the problem either. The basic issue is still the valuation of capital vs. valuation of labor, or in other words, should the company be more run by those who put their investment into it or by those who work in it? It’s hard to have it both ways really, and if you prefer one over another too much, it may easily lead to inefficiency and failure.
I don’t think anyone knows the good answers to these questions, but I would say it’s pretty obvious there are still many areas in which human society can be significantly improved.
June 26th, 2009 at 10:41 pm
JS,
“it’s also funny how some people believe in democracy on the government level but don’t believe in democracy on the workplace level”
You most likely never lived in Eastern Europe.
I found the following fossil from 1990 on the Internet:
http://www.country-data.com/cgi-bin/query/r-14846.html
You are most likely not aware of this but in the 1980-ties (and even earlier) there were multiple attempts in Yugoslavia to reform socialism especially by promoting self-governing socialist enterprises.
You know what happened there in 1990-ties.
June 26th, 2009 at 11:36 pm
ak
What happened in Yugoslavia in 1990 has nothing to do with economy or any internal economic issue. Eastern block started crumbling after Perestroika and demise of CCCP, everything was planed, organised and implemented from Langley. Yugoslavia was and still is very important from geopolitical and geostrategic point of view. Scenario used to create war in Yugoslavia is the same one that is used today in Iran, with all this spontaneous demonstration after presidential elections. I have lived in Yugoslavia and consider myself lucky for that experience. We had a socialist system, free education, free medical care, factories were, on paper, owned by working class but everyone employed was receiving a salary and was able to live of that salary. We never had communal flats you have mentioned in previous post or housing association. If you have been employed after a certain number of years you would be given an apartment from government, based on your personal needs. If you a married with one kid you will have a two bedroom apartment, two kids three bedroom and so on. Private ownership was existent, so you could have owned a house, land, apartment, boat etc. Of course we had a bad thins as well like corruption, verbal delict but hay nothing is ideal. At that time people were happy and there was no hungry people on the streets, unlike today that in newly created democratic countries from former Yugoslavia public kitchens to feed hungry people are introduced. Sorry for turning away from main post but had to clarify this issue.
June 27th, 2009 at 12:38 am
ak,
While such reforms would promote a better functioning capitalist economy, it does little to reform the substance (corporate capitalism) that hides behind the shadow (political democracy). I can think of many other ideas that would improve the functioning of our economy but very little is going to change until our corporate capitalist system of hierarchy and domination is reformed.
Some of the proposals you’ve mentioned, while useful, will be opposed by industry and the rich. Unfortunately, no matter the level of scientific evidence, business as a system of power is simply going to ignore it.
As for the Yugoslavian attempt, it was indeed a dismal failure but certainly not representative of democratic and self-management ideals. Such ideals will not function when leaders try to impose it – economic matters must be decided by people first and foremost within democratic institutions, not by unelected communist or capitalist leaders. Imposing democracy and self-management from top-down is unlikely to work.
Yugoslavian workers were allowed to manage the firms they worked in to a degree. The problem with this is the word allowed – no one should be in a position to allow or disallow workers the right to self-management and workplace democracy. Another major problem was Western power in the form of IMF programs which were slowly imposed during the 1980s and 1990s.
JS,
It wasn’t so much the serfs that professed skepticism of democracy but rather the “responsible” and “respectable” people – the rich. They were utterly aghast that the rascal multitude and unwashed masses were pressing their concerns. In the face of this threat of political democracy, the rich become hysterical and threw tantrums.
That was during the 16th – 20th centuries, and now it is formally accepted that the public should have a measure of control over how society is to be run (political democracy). However, the ability for the public to decide how things are to be run (economic democracy) is severely stunted if the public at large have little to no control over how the economy functions.
As for information, it has the characteristics of a public good, not a private good. Thus, economic policy should be crafted from this position. I suspect that competition is stunted by state & corporate barriers to the dissemination of information.
One of the problems with firms is that capitalists appropriate the surplus from both capital and labor. At a minimum, labor should be able to capture the surplus it creates, while capitalists should appropriate the surplus their capital creates. Capitalists are never going to allow labor to appropriate its own surplus.
Tel,
I was referring to both communism and capitalism. Communism is an economic system that was imposed top-down on populations to enforce equality but clearly failed in regards to liberty. Capitalism, another economic system of domination and hierarchy, has some aspects of liberty present but in terms of equality is a very bad joke.
Currently there are no successful economic systems in existence. All systems have their pros and cons but probably the least worst in modern times is Scandinavian social democracy and the Spanish anarchist experiment – before it was wiped out by the fascists backed by Western capital. Both communism and capitalism has been extraordinarily successful during the 20th century in ensuring no other major alternative forms of democratic, bottom-up economic organization has taken root.
According to convention neoclassical theory, markets are supposed to ensure that the distribution of wealth and income is commensurate to the marginal productivity of labor and capital – another bad joke. Steve’s Debunking Economics analyzes these issues.
If we had an economy actually approaching the market ideal, subordinated to democratic values, and policy was based upon an economic theory that understood how markets worked in the real world, then equality and liberty would both be enhanced under capitalism. Unfortunately, this isn’t going to happen any time soon.
June 27th, 2009 at 12:54 am
“Eastern block started crumbling after Perestroika and demise of CCCP, everything was planed, organised and implemented from Langley.”
Eastern block started crumbling when red bastards shot people in Poznan and later on a larger scale in Budapest in 1956, tanks were driven to Prague in 1968, workers shot in again Gdansk in 1970.
I will never forget tanks on our streets in 1981. Only a few people died then but this was not an excuse.
Killing workers on our streets was a sign of the moral bankruptcy of the communist ideology as much as the current crisis is the sign of the moral (and financial) bankruptcy of the neoliberal ideology.
I don’t want to say that all what happened in socialist countries was bad. Quite the opposite – this was my point, not everything was imposed, some people believed in the ideology and it worked to some extent. Only to very limited I would say.
What happened next after the collapse was often worse – even in Poland 20% unemployment despite the growth of GDP – would you accept it as a better model?
What I want to say is that all the ideologies belong to the rubbish bin of history including communism, nationalisms, anarchism, green utopia and neoliberalism.
Whenever you start designing a new better world you end up with exactly the same.
June 27th, 2009 at 3:35 am
ak,
in fact, I am from Czechia, and lived through communist regime as a child, so I partly remember it. I don’t know what the situation was in Yugoslavia, but I believe it was rather developed compared to other Eastern bloc countries. Anyway, I don’t simply believe you can have a real democracy in the workplace if you don’t have a real democracy in the government. It just won’t add up in my opinion.
Also, if you put all the ideologies into the dustbin, what will be left? Only democracy? But that’s exactly what the others are talking about, in fact.
Philip,
what I meant was that some of the serfs were sceptical of democracy, even though it would help them. It is similar to ak’s scepticism – I am sure ak would like to have democratic workplaces if they would work, but he is actually afraid that such system would be worse than the current one (nevermind there is enough empirical evidence for this not to be case). A similar example is in Semler’s book – when they allowed workers set their own working schedule, the unions were initially against it, because they thought it’s some sort of trick. I can understand such scepticism, and I believe it’s a part of human nature. It makes it difficult to impose democracy from top or very quickly.
June 27th, 2009 at 6:42 am
This has been a very interesting comment thread, thanks everyone for the discussion. One point I’d like to bring up, since its implications are very big and haven’t been touched on in this thread yet: JS said
“it’s also funny how some people believe in democracy on the government level but don’t believe in democracy on the workplace level”
This disparity is one of the core issues behind choosing a type of government. The only fundamental difference between a government organization and a private organization is the government’s LEGAL use of force! Since the government can legally threaten use of violence to enforce rules, there needs to be a feedback mechanism such as democracy. The same does not apply to private institutions — maybe a democratic system is better, but if so then democratic private organizations will simply outperform non-democratic ones, making them obsolete, since the weaker organizations cannot use violence to maintain status quo.
June 27th, 2009 at 10:04 am
The problem:
“The Rudd Government has buckled under pressure from the big supermarkets and abandoned its $13 million election promise to force grocery prices down.
The joint might of Woolworths and Coles has successfully blocked the Grocery Choice scheme just six days before its scheduled launch next Wednesday. The price monitoring website had promised to impose unprecedented transparency on the powerful supermarket duopoly.”
http://www.smh.com.au/national/labor-breaks-promise-on-cheaper-groceries-20090626-czuu.html
The solution?
1. Ban donations from all corporations and other organisations like trade unions to political parties and finance them from the budget based on the number of votes. Allow only for limited donations from citizens which need to be fully disclosed.
Separate executive political power from economic power in exactly the same way courts are separated from the government. Hard to achieve? I agree.
2. Down with capitalism. Easy.
June 27th, 2009 at 11:28 am
Fantastic article http://business.smh.com.au/business/age-of-uncertainty-20090626-cztl.html?page=-1
Quote of the year, following on from his mention of Steves view of the world, is “Do we really want to get back to “normal” when normal was anything but normal. When investment banks had 33 times leverage; mortgage brokers were given incentives to sell loans without any thought of collecting repayments; and asset bubbles went from mania to panic.”
The problem with worker run business and our democracies is very similar, they work well when people take a long-term view and see that poor decisions will adversely affect them. The worst people to babble on about politics and economics are public servants with job security because they can believe whatever they like, it is never going to affect them as much as it effects other members of the community.
June 27th, 2009 at 4:45 pm
interesting graphs steve,
you see , great uncle was a central banker, and when he departed for the great treasury in heaven he left me some books, some of them examining the economic and currency situation during the inter war period and the depression.
i would have prefered it if he had left me the keys to the vault, but it was not to be.
they were published by the league of nations in the 40’s, so their sense of immediacy is quite stricking.
they make sober reading indeed, especailly when you look at the collapse of industrial production and the collapse in global trade.
one conclusion does stand out however, and that is , creditor or capital exporting countries seemed to rebound sooner in terms of there industrial production as oppossed to debtor countries.
would this be a thesis we could subscribe to in our current predicament, given that we live in a world of central bankers potentially willing to provide unlimited liquidity.
comments anyone
June 27th, 2009 at 4:54 pm
yes ken,
its always better to have the people making decisions to be there at the pointy end of those decisions. then they will think long and hard about the ideas they are about to inflict on others.
June 27th, 2009 at 6:35 pm
scrollbar,
I don’t quite understand your argument. You are arguing for the democratic government on the moral grounds (the government should be kept under control), yet you won’t allow such arguments for the private enterprises. My argument for democracy in the workplace is moral too first and foremost, and it is that people should have a right to affect their environment.
I find your argument about violence quite weak and unconvincing, because there is no hard line between choice and not choice, and violence and non violence. In former communist Czechoslovakia, you could live pretty good life without any violence from the government, even though it was undemocratic. On the other hand, you could consider threat of unemployment (especially if you have children) also a form of violence. You can also leave most states, just like you can leave most private employers.
About efficiency of democracy – I think if you look at the map of the world, the efficiency of democratic government is quite obvious. It is also quite obvious if you read the book I mentioned. But the efficiency doesn’t necessarily mean that it will come out on the top easily as a governance system. It took several millennia for democratic government to establish as a good standard. It may take similar time to establish it as a standard for private enterprises (actually, I believe it will be much quicker than that, and I would argue that we are slowly and steady going in that direction).
June 27th, 2009 at 8:04 pm
scrollbar,
I found another interesting rebuttal of your argument – local governments, such as city councils. Should they be elected democratically? Mostly, they don’t have rights to use force against their citizens, and in a single state, you have right to change your local government by moving out. So, would you also argue for unelected city council?
June 27th, 2009 at 9:07 pm
Great charts Steve. IMO it’s the World trade comparison that’s the scariest of them all. Every politician and central banker keeps telling us that we’ll avoid GD2 if we can avoid another Smoot-Hawley, but the comparison seems to suggest that there are other forces at work which have done the same job at twice the pace. Could it be that Smoot-Hawley actually had no effect on GD1? If so I would imagine there would be a great many economics text books that would be in need of being re-written.
June 27th, 2009 at 9:18 pm
hi anarcho,
the problem is that regardless of the well meaning institutional structures we humans set up , they usually evolve to reflect the contrivences of the strong willed maniacs that eventually end up running them.
we place too heavy a reliance on the fact that if we have the correct institutional structure that some sought of utopian equilibrium will be achieved. there’s that word again.
human beings arent created equal, and organisations do have cultural change from within when we have alpha males and females running them.
if we organise we must have people doing the organising, the leaders. those doing the organising get power through the very fact of their organising and the force of their character which allows them to get things done. the question is can we get leaders and organisers that can keep their ego’s and character flaws in check so we dont eventually get the very opposite of what we were looking for.
that i think is going to need another evolutionary step in the human journey i think, or at the very least a cathartic moment of such profundity in our collective psychie , that we will have to change our ways.
oddly enough, i think such moments arent too far away
June 27th, 2009 at 9:28 pm
what did max weber say,
charismatic leadership,
we shouldnt forget the profound effect of this phenomenon when talk about how we go about organising a society and its economic system
June 27th, 2009 at 10:54 pm
there is a lot of talk here about “democracy” but not about “direct democracy”. I know it is off topic but there is a strong relationship between the kind of democracy and economics. For us here in Europe the Swiss example is of great importance.
I quote from one of the numerous papers about this issue:
Since the 1960s, the discussion whether democracy is a precondition for or a result of economic growth has not yet been finished. In this paper, a comparative institutional analysis of the relative performance of direct and representative democratic decision making in the Swiss economy is undertaken using a cross section of the twenty-six Swiss states in 1989 and panel data for the states from 1982 to 1993. The empirical results and robustness tests support the hypothesis that the stronger control of the representatives by the voters due to obligatory and optimal referenda leads to better economic performance. Copyright 1997 by WWZ and Helbing & Lichtenhahn Verlag AG” unquote
http://www.democracy-international.org/
Paul
June 27th, 2009 at 10:59 pm
Philip,
What I like about what you say is that you stick to the “nuts and bolts” of how society works or has worked and leave behind a lot of intellectual baggage that comes with ideology: socialism, capitalism, anarchism, communism etc. Most political “scientists”, economists etc. because of their baggage never learned to think straight even though they had many good ideas including Marx, Keynes, etc. The generally corrupt system (intellectually and politically) has meant that we have not moved or progressed in several decades beyond the past masters (in thinking and understanding) and hence there is the global financial crisis and probably another great depression.
mahaish is absolutely right when he said:
“the problem is that regardless of the well meaning institutional structures we humans set up , they usually evolve to reflect the contrivences of the strong willed maniacs that eventually end up running them.”
The centrally planned economy of communist governments, monarchies before the twentieth century, dictatorships past and present, government bureaucracies, large corporations, even probably large co-operatives etc., irrespective of ideology or utopian ideals all suffer from the psychopathic scum that ultimately dominate the hierarchical structure, as mahaish suggests. I have personally witnessed this from working in academia, business and government, all are plagued to some degree with this problem. All such hierarchical structures often fail eventually simply because they are grossly inefficient, because they do not and cannot make use of all the talents and creativity from many people outside their ruling elites.
The reason that democracy is the best institution so far developed is that it is the only system that can get of the ruler(s) without the bloodbaths normally associated with revolutions. Democracy allows many more talented people to contribute to the improvement of the society.
Philip has rightly observed:
“Our Western liberal economies are not representative of the survival of the fittest but survival of the most inefficient and corrupt. We are usually told in economics courses that inefficient firms are weeded out by competition but this is nonsense. A firm that externalizes its costs, rent-seeks and commits crime will be able to undercut other firms who follow market principles and will thus come out on top.”
The monopolies that represent corporate hierarchies will eventually fail from inefficiency and corruption. (We have seen many such failures of ” too big to fail” firms in the GFC.) Governments and nations which seek to perpetuate this corrupt structure will also fail. United States is in danger of becoming a failed state, if it does not rid itself of the corruption which is so evident in its current economic and political system. Capitalism and its corporations need to be democratized, to become more efficient to survive.
June 28th, 2009 at 12:11 am
ak,
I think you are confusing cooperatives with collectivism.
I find the best way to think of the modern cooperative, is as the natural expansion of democracy – to include the workplace. All the talk from most pundits and politicians about our ‘democratic principles’ neatly over-looks our failure to fix this glaring divergence from those stated principles. Coops are completely compatible with a ‘free-market’, property owning democracy.
David Ellerman (interestingly a former world bank economist and adviser and speech writer for Joseph Stiglitz) has written extensively on this (http://www.ellerman.org/Davids-Stuff/AboutDavidEllerman.htm ). I can’t make a better summary of his approach than he, so I will quote him:
“There is a clear and definitive case for workplace democracy based on first principles that descends to modern times from the democratic, anti-slavery, and inalienable rights theories of the Enlightenment and the Reformation with antecedents traceable back to Stoic thought. By the 20th century, the arguments had been “lost” partly due to misconceptions, mental blocks, and misinterpretations embodied in Marxism, liberalism, and economic theory. When one has worked through some of these intellectual road-blocks, then one may be better able to reassemble the case for workplace democracy from well-known first principles.” http://www.ellerman.org/Davids-Stuff/The-Firm/case4wd.doc
It is worth noting that the financial structures, profit making motives, incentivised renumeration and worker-participation in decision making of modern cooperatives vary widely, with varying results. (I personally don’t know much about the prout coops and I don’t go in for the metaphysical side of the movement).
The spanish cooperatives of Mondragon have, in my view, the most promising cooperative model. Their capital structure in particular avoids the problems of many other ‘mutual’ organisations (including credit unions and insurance companies) which have an unfortunate organisational/incentive structure (because capital is not regularly paid out to members) for later generations to privatise the built up capital for their own gain. The mondragon coops’ structure avoids this, by paying out capital to members on a regular basis.
Also the Brizilian ‘captialist worker-profit-share’ company is another great example of democracy in the workplace. Here is a great SBS storey on SEMCO: http://www.youtube.com/watch?v=gG3HPX0D2mU
In my view the Mondragon Coops have the best capital structure and SEMCO the best decision-making structure in terms of democratic workplaces that I know of.
It is also worth noting that cooperatives also address certain incentive, information and ‘principle-agent’ problems that significant issues within standard firms.
It would be a huge mistake to equate coops with totalitarianism.
June 28th, 2009 at 12:19 am
mahaish,
You’re right to some degree about the maniacs that inhabit the power structures within society. At least within our political institutions, the rascal multitude theoretically have the choice to remove elected leaders, which is representative of the democratic ideal. In the private sector, however, business firms are as institutionally close to totalitarianism as humans have ever come. As such, the effects upon society are felt due to this perverse arrangement.
From what I gather, there are three general forms of organization: (1) authoritarian (2) democratic and (3) self-management. 3 is preferable over 2 and 2 is preferable over 1. Unfortunately, 1 describes almost every institution in our society, whereas 2 describes the government at all levels. It makes sense to reform institutions to more closely reflect 2 and 3.
The author David Korten, correctly I think, makes an astute observation that on the individual level, most humans are cooperative and social minus a few psychopaths on the margins. The real problem is at the collective institutional level, where society is infected with unaccountable, tyrannical structures called for-profit, limited-liability corporations. They are pure psychopaths that care for nothing more than making money from money to enrich those who have money. If corporations actually followed market principles, then they could be tolerated. The problem is that they don’t. Australia’s coming economic storm could provide the stimulus needed to reform these institutional psychopaths.
Unless something is done, life is going to become more intolerable in a number of areas, even for the wealthy.
Lyonwiss,
Three new forms of totalitarianism were formed during the 20th century: fascism, Bolshevism, and corporatism. Fortunately, Australia is free from the first two, but not the last. There also occurred three political movements of great importance during the 20th century: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda that protects corporate power from democracy.
Corporations are inherently inefficient, and the larger they become, they more inefficient they are. I see that the only way to make our economy more efficient is to democratize it. This means instituting representative democracy and self-management within firms. Only when these institutions are democratized will they stop externalizing costs, rent-seeking and committing crime.