Capitalism Crises Should Send Us Back to the Drawing Board

Modern culture assumes the natural order includes a capitalist philosophy – it is not necessarily the case. Here is a very simple and informative animation that explains how we think about the roots of our current economical crises.

In reality, there are alternatives to capitalismRichard Wolf of the Guardian UK explains based on first hand observation:

Modern societies have mostly chosen a capitalist organization of production. In capitalism, private owners establish enterprises and select their directors who decide what, how and where to produce and what to do with the net revenues from selling the output. This small handful of people makes all those economic decisions for the majority of people – who do most of the actual productive work. The majority must accept and live with the results of all the directorial decisions made by the major shareholders and the boards of directors they select. This latter also select their own replacements.

Capitalism thus entails and reproduces a highly undemocratic organization of production inside enterprises. Tina (short for Euro style capitalism) believers insist that no alternatives to such capitalist organizations of production exist or could work nearly so well, in terms of outputs, efficiency, and labor processes. The falsity of that claim is easily shown. Indeed, I was shown it a few weeks ago and would like to sketch it for you here.

In May 2012, I had occasion to visit the city of Arrasate-Mondragon, in the Basque region of Spain. It is the headquarters of the Mondragon Corporation (MC), a stunningly successful alternative to the capitalist organization of production.

MC is composed of many co-operative enterprises grouped into four areas: industry, finance, retail and knowledge. In each enterprise, the co-op members (averaging 80-85% of all workers per enterprise) collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise (what, how and where to produce and what to do with the profits).

As each enterprise is a constituent of the MC as a whole, its members must confer and decide with all other enterprise members what general rules will govern MC and all its constituent enterprises. In short, MC worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs. One of the co-operatively and democratically adopted rules governing the MC limits top-paid worker/members to earning 6.5 times the lowest-paid workers. Nothing more dramatically demonstrates the differences distinguishing this from the capitalist alternative organization of enterprises. (In US corporations, CEOs can expect to be paid 400 times an average worker’s salary – a rate that has increased 20-fold since 1965.)

Given that MC has 85,000 members (from its 2010 annual report), its pay equity rules can and do contribute to a larger society with far greater income and wealth equality than is typical in societies that have chosen capitalist organizations of enterprises. Over 43% of MC members are women, whose equal powers with male members likewise influence gender relations in society different from capitalist enterprises.

MC displays a commitment to job security I have rarely encountered in capitalist enterprises: it operates across, as well as within, particular cooperative enterprises. MC members created a system to move workers from enterprises needing fewer to those needing more workers – in a remarkably open, transparent, rule-governed way and with associated travel and other subsidies to minimize hardship. This security-focused system has transformed the lives of workers, their families, and communities, also in unique ways.

The MC rule that all enterprises are to source their inputs from the best and least-costly producers – whether or not those are also MC enterprises – has kept MC at the cutting edge of new technologies. Likewise, the decision to use of a portion of each member enterprise’s net revenue as a fund for research and development has funded impressive new product development. R&D within MC now employs 800 people with a budget over $75m. In 2010, 21.4% of sales of MC industries were new products and services that did not exist five years earlier. In addition, MC established and has expanded Mondragon University; it enrolled over 3,400 students in its 2009-2010 academic year, and its degree programs conform to the requirements of the European framework of higher education. Total student enrollment in all its educational centers in 2010 was 9,282.

The largest corporation in the Basque region, MC is also one of Spain’s top ten biggest corporations (in terms of sales or employment). Far better than merely surviving since its founding in 1956, MC has grown dramatically. Along the way, it added a co-operative bank, Caja Laboral (holding almost $25bn in deposits in 2010). And MC has expanded internationally, now operating over 77 businesses outside Spain. MC has proven itself able to grow and prosper as an alternative to – and competitor of – capitalist organizations of enterprise.

During my visit, in random encounters with workers who answered my questions about their jobs, powers, and benefits as cooperative members, I found a familiarity with and sense of responsibility for the enterprise as a whole that I associate only with top managers and directors in capitalist enterprises. The easy conversation (including disagreement), for instance, between assembly-line workers and top managers inside the Fagor washing-machine factory we inspected was similarly remarkable.

Our MC host on the visit reminded us twice that theirs is a co-operative business with all sorts of problems:

“We are not some paradise, but rather a family of co-operative enterprises struggling to build a different kind of life around a different way of working.”

No one is supposing that alternatives to capitalism are all sunshine and lollipops, there will always be challenges that arrive, but with a shared interest in efficiency, profit making, and employee quality of life, the solution sounds more fair for more people. The fruits of productivity can raise the standard of living for all, workers really can reap what they sew.

If nothing else, it is time, like the animation showed, to seriously debate and discuss the entire capitalist system.

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7 thoughts on “Capitalism Crises Should Send Us Back to the Drawing Board

  1. Robert Malt says:

    Capitalism didn’t fail. Crony capitalism did.
    Fiat money isn’t capitalism.
    An artificially low interest rate-fueled housing bubble isn’t capitalism.
    Fannie Mae & Freddie Mac (GSEs) buying up mortgages isn’t capitalism.
    Bailing out Wall Street isn’t capitalism.
    Bailing out Detroit isn’t capitalism.
    Creating moral hazards is not capitalism.
    …and so on and so forth….

    By the way, the Austrian School Economists DID predict the housing bubble and crash. Why, given all of the overwhelming evidence, do people continue to listen to the people who got it wrong, and ignore the people who got it right?

    Also, the video presenter talks about (real) wage stagnation, but fails to address the root cause which is inflation. The stagnation took place at the same time the United States came off of the last remnant of the gold standard. It is no coincidence that this is when real wages stagnated. If you don’t understand monetary policy, you can’t begin to understand the nature of the problems we face.

    If you are serious about debating capitalism, then let’s set up a forum here locally to do just that. I will be glad to participate.

    • lokywoky says:

      Inflation in this country has not been a problem for at least two decades and is not a problem now. I do not see how anyone can argue that any of the problems we are currently facing have inflation as a root cause since it is an arguably nonexistent problem now, or in the past two decades at least.

      Find some other thing to blame all this on – that is not it.

  2. Robert Malt says:

    Fiat Money Kills Productivity
    http://azizonomics.com/2012/06/27/fiat-money-kills-productivity/

    Since productivity is what drives wages, one could re-write the title as “Fiat money Kills Wages”.

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