The solution to ending capitalism’s dominance over human beings and human values has two dimensions. First, capitalist enterprises must be subordinated to the larger ethical standards of civil society. The “capitalist ecosystem” I described in Part I must be reabsorbed into and subordinated to civil society, the society of free and equal men and women. Second, institutional alternatives to capitalist enterprises should be encouraged to develop whenever possible. We do not know how far this process can go, but as I will show below, it can go much farther than it has in America.
As long as economic disparities exist there can never be a permanent solution to these problems, and economic disparities will always exist in market economies. In this respect our situation is like our Founders’ warning about political freedom: there will always be those plotting against it And there will always be those who abuse it, but these dangers cannot be removed without also ending the freedom we so value. The same is true for economic inequality. We must learn to live with the problem and address it wisely.
But what do we put in its place?
An extraordinary and inspiring alternative
The Mondragon cooperatives are located mostly in the Basque Country of Spain. They constitute one powerful and positive challenge to the assumption that American practice has no alternatives if we wish to preserve our prosperity and innovation. I had the opportunity to visit and study these cooperatives in the Fall of 2012. Here are some facts demonstrating why these co-operatives, so little known in the US, are very important to us as examples of possibilities freeing us from capitalism while preserving the advantages of the market.
• As many people know, Spain currently has an unemployment of 25%. The Basque region is in better shape, having an unemployment rate of 15%, substantially above ours. The Mondragon co-operatives numbering around 80,000 worker-owners have 0% unemployment.
• The Mondragon co-operatives are well over 50 years old and are engaged in high tech, traditional manufacturing, banking, retail sales, housing, education, services, and agriculture. Pretty much every dimension of a modern economy is performed by these companies other than mining and energy extraction.
• The management within each cooperative is chosen from among the worker-owners by the worker-owners. It can never be paid more than six times the lowest paid ‘wage’ in that particular firm. In America top corporate CEOs receive over 500 times what an equivalent worker receives. Yet these co=operatives compete with such corporations in international trade.
• During their first 25 years 86 co-operatives were started using the Mondragon model, and only one, a fishing co-operative, failed. This record of successful entrepreneurship beats the traditional American model in its rate of success. Today there are 120 Mondragon co-operatives.
• When the Mondragon co-operatives were started the Basque region was the poorest in Spain. It is now the country’s richest.
As Spain’s Mondragon co-operatives demonstrate, markets can perform enormously complex manufacturing and other tasks without joint stock corporations and within contexts able to reflect the complex values and trade offs of human life.
The Mondragon cooperatives also suggest a practical solution to problems of generational succession sometimes encountered with other market institutions. Partnerships, proprietorships, and family owned businesses as well as more traditional efforts for creating worker-owned and managed enterprises all have problems transiting to a new generation. Ironically the very success of worker-owned and managed enterprises often makes them too valuable for a new generation of workers to afford. Mondragon has solved those problems, not least because it has its own bank, the most solvent large bank in Spain.
In addition, the Mondragon cooperatives not only enlarge workers’ freedom, they expand the value rich context of human life into a realm now largely given over to corporations. We are not simply faced with controlling a necessary evil. We also have a world of positive alternatives that have been discovered to have worked. And not just in Spain.
Finally, a new transformative wave is rapidly bearing down on modern societies. Robots are getting increasingly capable of taking over a wide variety of human jobs. And robots need no wages, no pensions, no medical insurance, and never go on strike. Under capitalism where labor is always a cost to be minimized, the advent of robots creates a fatal contradiction. Every factory and business has an incentive to roboticize its work force as soon as they can save money by doing so. Yet if every factory does so, there will be hardly anyone being paid and so no one to buy the products they produce. What is rational for a factory is irrational for the system as a whole. The invisible hand in this case is an invisible scythe.
When production exists to benefit those who both own and work in the enterprise, the logic is changed. In a sense it is as if every worker becomes the owner of mechanical slaves. Workers are not laid off, they receive income from roboticization, and so can continue as consumers to power the economy along with more traditional employment.
This transformation is happening and will continue to grow. The traditional capitalist economy cannot cope with it except at the cost of enormous human suffering. An economy rooted in civil society has a much better chance of minimizing the suffering and maximizing the benefits of this transformation.
Corporations are at best unreliable servants and today they are seriously out of control. Nor do they seem able to handle the profound changes coming to the world over the next few decades. What once promised to be a comforting campfire has become a forest fire. The following measures need to be taken as soon as possible.
1. No corporation may make any political contribution. Ever. Enabling corporations to make political donations is essentially encouraging sociopaths to dominate political funding for elections. It is better to interpret this limitation too broadly than not broadly enough. This reform obviously requires a new majority in the Supreme Court.
2. One of the most frustrating aspects of capitalism American style is that no one pays for crimes when they are committed by corporations. A fine is paid, usually smaller than the income from the infraction, and life continues. Banks routinely commit frauds that would send a middle class charlatan to jail, and remain free to commit more.
A “Three Strikes and you are out” corporate “death penalty” needs implementation. Using the same logic conservatives love to employ with real people, if a corporation breaks the law three times the offending company should have its assets sold to the highest bidder with the money going first to pay for damages, second, for the sustenance and retraining of its wage employees, and if any remains, to pay off public debt. If a national law is its third strike, it goes to reduce the national debt. In every case share value becomes zero.
If a national corporation were convicted of a third strike in a state, its right to do business in that state would end and its assets there would be seized and sold.
Once in existence this penalty would rarely need to be applied. Corporations, unlike human sociopaths, are better able to live within the rules when it is in their interests to do so. And this law would make it very much in their interests to do so.
A first conviction would impact share values because it would increase uncertainty. The company would become a riskier investment than would one that had not been convicted of a crime. Investors would act accordingly. Existing management would find their positions imperiled.
With a second conviction share prices would tumble, virtually guaranteeing top management will be ousted, their careers ended. Managerial risk-taking will become buffered by managerial responsibility. A different kind of personality will be valued at all levels of decision-making, pushing back against the advantages relative sociopaths currently possess in rising to leadership positions.
This law would almost certainly need to be passed at least initially through state initiatives. Ideally a large state such as California would be one of the first.
3. No corporation may own a patent or a copyright giving it monopoly control over a product, process, or information. No corporation may own a patent on any living process. Copyrights and patents exist to encourage invention, innovation and artistic production. If only individuals could own them the purpose of these measures would be better served and corporations would be prevented from stifling access to information or inventions.
4. No corporation may purchase and then use a name or trademark from another. Identities must always be clear. Recently an initiative requiring labeling of GMO contents to food products was on California’s ballot. Consumers were rudely surprised when they discovered that national name brand organic food was owned by corporations also producing food filled with GMO ingredients who were pushing for the defeat of the fair labeling initiative. They money they spent buying organic went, some of it, into undermining the values they hoped to strengthen by so buying. If name brands could not be bought that problem would not have existed to nearly the same degree because the corporations are buying the name and reputation, and have no commitment to the product.
5. Whenever a corporation purchases a business of any sort its employees have the right of first refusal to purchase the business themselves at that price. If they cannot, the sale can go through. This would encourage developments such as Mondragon style enterprises without prejudicing production when there is insufficient demand by employees. It does not involve any expropriation or seizure and the original owners would be fully compensated.
Longer term measures:
1. No corporation may own land, water, or air. Land, water, and air serve vital values no monetary price can adequately reflect, and corporations are institutionally incapable of oversight of such values. Their management is properly within the scope of civil society, not capitalism. Corporations can lease land for factories and other facilities from others.
2. No corporation may engage in farming, forestry, fishing, education, or medicine. In all these cases a more complex ability to handle values is required than can be achieved under the publicly held joint stock form. These more complex values cannot be reduced to money and so require abilities only human beings immersed within civil society rather than capitalism can bring to bear.
I emphasize none of these measures interferes with the market as it would exist in civil society. Private, family, and cooperatively owned companies are conducive to maintaining and strengthening the role of human values and have long since proven themselves capable of handling the complex tasks of production required for the modern world. They can ensure the market remains a component of civil society rather than metastasize into its master.