Democracy at Work

1. Capitalism's Instability Stems from Internal Contradictions

Underlying and amplifying all of these problems were the basic structural flaws of the capitalist system.

Endemic cycles. Capitalism is inherently unstable, characterized by recurring cycles of booms and busts. These cycles are not accidental but arise from the system's internal contradictions, such as the constant tension between labor and capital and the competitive struggles among capitalists.

• Downturns, busts, deflations, contractions, recessions, and depressions
• Upturns, booms, inflations, expansions, and prosperity

Uneven development. Capitalism inherently produces uneven development, with wealth concentrated in some areas while poverty persists in others. This unevenness is not merely a side effect but a fundamental feature of the system, as the success of some often comes at the expense of others. For example, the decline of manufacturing in the US has been linked to the rise of manufacturing in China.

Beyond external factors. While external factors like government intervention, natural disasters, or cultural patterns can influence capitalist cycles, the root causes lie within the system itself. The pursuit of profit maximization, inherent to capitalism, inevitably leads to instability and inequality.

2. Government Interventions Often Reinforce Existing Power Structures

The real contents and effects of government regulations depend on the interests that govern their design and implementation.

Trickle-down economics. Government interventions, such as bailouts and tax cuts for corporations, often benefit the wealthy and powerful while failing to address the needs of the majority. This "trickle-down" approach assumes that benefits at the top will eventually trickle down to everyone else, but this often does not happen in practice.

Regulatory capture. Regulations intended to protect the public interest can be undermined by the influence of powerful corporations and lobbyists. This "regulatory capture" can lead to regulations that benefit the industries they are supposed to regulate, rather than the public. For example, the financial industry has successfully lobbied to weaken regulations designed to prevent another financial crisis.

Limited impact. Even well-intentioned government interventions can be limited by the inherent dynamics of capitalism. For example, regulations designed to protect workers' rights can be undermined by employers seeking to maximize profits.

3. The Stagnation of Real Wages Fueled the 2008 Crisis

Real wages stopped rising because of changes on both sides of the labor market.

End of rising wages. The long period of rising real wages in the US ended in the 1970s due to factors such as automation, globalization, and increased labor supply. This stagnation of real wages created a situation where workers had to borrow more to maintain their living standards.

Increased debt. As real wages stagnated, US households turned to debt to maintain their consumption levels. This led to a surge in mortgage debt, credit card debt, and other forms of personal debt, creating a bubble that eventually burst.

Profit shift. The gap between worker productivity and real wages widened, leading to increased profits for corporations and the wealthy. This created a situation where the rich had more money to invest, fueling speculation in the financial sector.

4. The Financial Sector's Speculation Amplified Economic Instability

A pyramid of speculations was erected on ABS—as ever more profit-based incomes piled into them—and on their allied financial instruments, such as the peculiar ABS insurance policies called credit default swaps (CDS).

Asset-backed securities. Banks packaged consumer debts into asset-backed securities (ABS), which were then sold to investors. These ABS became increasingly complex and opaque, making it difficult to assess their true risk.

Credit default swaps. Credit default swaps (CDS) were used to insure ABS, but the issuers of CDS often did not have the reserves to pay out claims when defaults occurred. This created a systemic risk that threatened the entire financial system.

Global contagion. The crisis in the US credit markets quickly spread to the rest of the world due to the interconnectedness of the global financial system. Toxic ABS and CDS were marketed around the globe, facilitating the globalization of the crisis.

5. Austerity Measures Exacerbate Economic Downturns

Austerity means a combination of higher taxes and other payments flowing from the population to the government, and fewer jobs and services provided by that government to its constituents.

Contractionary policies. Austerity measures, such as cutting government spending and raising taxes, can worsen economic downturns by reducing demand and increasing unemployment. These policies are often implemented in response to rising national debt, but they can be counterproductive.

Debt spiral. Austerity can lead to a vicious cycle of economic decline, reduced tax revenues, and increased debt. As the economy weakens, the government has to borrow more to cover its expenses, leading to further austerity measures.

Alternative policies. History shows that alternative policies, such as increased government spending and taxation of the wealthy, can be more effective in addressing economic crises. These policies can stimulate demand and reduce inequality, leading to a more sustainable recovery.

6. True Democracy Requires Economic Empowerment

No democracy is complete if it does not include the economy and its basic institutions.

Political corruption. The concentration of wealth and power in the hands of a few undermines democracy by allowing corporations and the rich to exert undue influence on politics. This can lead to policies that benefit the wealthy at the expense of the majority.

Economic inequality. Extreme economic inequality makes it difficult for ordinary citizens to participate effectively in the political process. Those with more resources have greater access to information, counsel, and other supports needed to influence policy decisions.

Workplace democracy. Genuine democracy requires extending democratic principles to the workplace. Workers should have a say in the decisions that affect their lives, including what to produce, how to produce it, and how to distribute the surplus.

7. State Capitalism Replaces Private Capitalists with State Officials

In state capitalism, the employers are state officials who have replaced the former private capitalists.

State control. State capitalism involves the state taking control of the means of production, replacing private capitalists with state officials. This can lead to greater state control over the economy, but it does not necessarily eliminate exploitation.

Soviet model. The Soviet Union is an example of state capitalism, where the state owned and controlled most of the means of production. While this system achieved some successes, it also suffered from inefficiencies and a lack of innovation.

China's model. China's economic system is also a form of state capitalism, where the state plays a significant role in the economy but allows for some private enterprise. This system has achieved rapid economic growth, but it has also led to increased inequality and environmental degradation.

8. Workers' Self-Directed Enterprises (WSDEs) Offer a Path Beyond Exploitation

This cure involves, first, replacing the current capitalist organization of production inside offices, factories, stores, and other workplaces in modern societies.

Ending exploitation. WSDEs offer a way to move beyond capitalism by eliminating exploitation, where the surplus produced by workers is appropriated by others. In WSDEs, workers collectively own and control the means of production, and they democratically decide how to distribute the surplus.

Democratic control. WSDEs empower workers by giving them a say in the decisions that affect their lives. This can lead to greater job satisfaction, increased productivity, and a more equitable distribution of wealth.

Beyond state control. WSDEs differ from state capitalism by giving workers direct control over their workplaces, rather than relying on state officials to make decisions on their behalf. This can lead to greater innovation, responsiveness to local needs, and a more democratic economy.

9. WSDEs Democratize Workplace Decisions

Instead, all of the workers in enterprises—those directly producing outputs and those providing the support services enabling production—would collectively become the directors deciding what, where, and how to produce and how to distribute the appropriated surpluses.

Collective governance. In WSDEs, all workers participate in making decisions about what to produce, how to produce it, and how to distribute the surplus. This ensures that the interests of all workers are taken into account, not just those of a few shareholders or managers.

Empowerment. WSDEs empower workers by giving them a sense of ownership and control over their workplaces. This can lead to greater job satisfaction, increased productivity, and a more engaged workforce.

Beyond hierarchy. WSDEs challenge the traditional hierarchical structure of capitalist enterprises, where decisions are made by a few at the top and passed down to the rest. This can lead to a more collaborative and innovative work environment.

10. WSDEs Foster Community Engagement and Social Responsibility

Because the decisions reached in WSDEs would affect residents in these communities and vice versa, a genuine democracy would require each interacting partner to participate in decisions reached by the other.

Community ties. WSDEs are more likely to be responsive to the needs of their local communities than capitalist enterprises, as workers live and work in the same area. This can lead to greater social responsibility and a more sustainable economy.

Environmental stewardship. WSDEs are more likely to prioritize environmental sustainability, as workers have a direct stake in the health of their communities. This can lead to more environmentally friendly production practices and a reduced carbon footprint.

Social justice. WSDEs can promote social justice by providing good jobs, fair wages, and opportunities for advancement to all workers. This can help to reduce inequality and create a more equitable society.

11. WSDEs Can Coexist with Various Forms of Ownership and Distribution

Among the major social decisions to be so codetermined would be the following: (1) what mix of private and socialized property in the means of production would be best, (2) what mix of markets and planning would be preferred as means of distributing resources and products...

Flexible models. WSDEs can coexist with various forms of ownership, including state ownership, collective ownership, and even private ownership. The key is that workers have control over the workplace and the distribution of the surplus.

Market and planning. WSDEs can also coexist with various forms of distribution, including markets and planning. The optimal mix of markets and planning will depend on the specific context and the preferences of the workers and communities involved.

Pragmatic approach. The focus should be on what works best in practice, rather than adhering to rigid ideological prescriptions. WSDEs can adapt to different economic and political environments, making them a viable option in a variety of contexts.

12. WSDEs Require a Shift in Values and Priorities

Social criteria—democratically determined by self-directed workers and community members—would replace the drive for profit and accumulation in investment and all other economic decisions.

Beyond profit. WSDEs require a shift in values from profit maximization to social responsibility, community engagement, and environmental sustainability. This shift in values is essential for creating a more just and sustainable economy.

Democratic values. WSDEs require a commitment to democratic principles, including participation, transparency, and accountability. These values are essential for ensuring that all workers have a voice in the decisions that affect their lives.

Long-term vision. WSDEs require a long-term vision that prioritizes the well-being of workers, communities, and the environment over short-term profits. This long-term vision is essential for creating a more sustainable and equitable future.

Last updated: April 4, 2025