After Occupy: Economic Democracy - Part 2: The Market System

What are the two types of democracy that a good economy should provide?

• Consumer democracy: giving the population a roughly equal influence over what is produced

• Citizen democracy: giving the population a roughly equal influence over how the economy develops over time (i.e. should there be increased oil extraction? Less deforestation? Promotion of green businesses? etc.)

• In a democratic society, people should have a more or less equal say over what is produced; no person’s preferences are inherently more important than the others.

What is the market, according to the author (and Paul Samuelson)?

• The big “voting machine” which builds changing preferences into price information for others to respond to

• A promoter of “consumer sovereignty” by giving people a say over what should be produced

  • According to the author, we need to go beyond that and move closer towards consumer democracy (which is when consumers have a roughly equal influence over what is produced)

• Ways markets can be democratic: if people simply buy what they want, and if everyone has similar amounts of money, the demand for the products would accurately reflect the desires of the population

What are the 6 main problems with markets that the author lists?

1. Markets respond to dollars, not people: consumers typically have very unequal amounts of dollar “votes”

   1. For example, in 2000 Pfizer did not develop any drugs for TB but developed several drugs for impotence and balding.

   2. The top 10% in the United States today own 60% of the nation’s wealth, while the bottom 50% own only 6%.

2. Monopolies distort prices away from their true social costs/benefits by enabling sellers to keep prices artificially high, which means the market will provide inaccurate price information for the population to “vote” on.

3. Externalities impact people without consent, and they distort market prices since the real social costs are not included or are misrepresented. This misleads consumers into supporting harmful products

   1. For example, the true social cost of gasoline was estimated a decade ago to be about $15/gallon rather than the market price of roughly $3/gallon.

4. The market doesn’t supply enough public goods (like national defense, sewers, highways) EVEN if people want them because private businesses have no incentive to provide them

5. Markets aren’t great at making long-term investment decisions because market prices are determined by current supply and demand and so can be inadequate for long-term planning

   1. Markets can only add up current preferences but are unable to look at the considerations of future generations.

How does one create consumer democracy, in broader terms?

By minimizing the first three market failures (responding to dollars, distorting prices, externalities) through:

• Rough material equality (and systems of taxation to redistribute much of the inequality generated through normal market processes) so that people had roughly equal “votes”

• The accurate reflection of market prices to social costs and benefits to better reflect what people really want through:

  • Restriction of monopolies

  • Regulation/taxation of negative externalities

  • Subsidies for positive ones

What is the main conclusion that the author gives about markets?

Although market systems are good for promoting consumer democracy since they aggregate individual preferences, they are inadequate for providing citizen democracy because they aren't good at dealing with collective, future-based preferences.

Why are social democratic market systems better than neoliberal market systems at guaranteeing consumer democracy and citizen democracy but still NOT sufficient?

• Certain people still have more votes than others, and they fail to develop true consumer democracy because finance and investment is privately controlled

• Although state regulation of the market and state-led investment happen, they happen at the highest levels of the central government, and as such they have very little influence over their community’s economic development

Explain the four types of policies that the Nordic countries have used to reduce inequality AND promote efficiency to a large extent.

1. High levels of progressive taxation and social spending as well as universalism (providing a large range of public services for all) rather than dispersing benefits to certain populations through means testing

   1. Taxes and transfers allow the Nordic countries to achieve a 32.9% reduction of inequality (more than continental European states and LMEs) as well as services (the core of the Nordic model)

2. Unionization and a system of coordinated collective bargaining (a process where multiple unions negotiate simultaneously to achieve common goals — the most effective equalizer of wages is STRONG UNIONS) and solidaristic wage policy (which equalizes pretax income by raising the wages of the lowest earners and limiting the earnings of the highest earners)

3. Full employment through coordinated wage bargaining, because it allows the unions to exercise a certain amount of wage-restraint (not pushing wages too high) in exchange for full employment.

   1. Monetary policy and fiscal policy (keeping interest rates low and government spending high) which has been useful in keeping employment high. Also A LOT of spending on public education.

4. Encouraging workplace democracy in terms of institutionalizing worker participation in the form of co-determination

What are the main features of a co-op friendly market system?

• Tax breaks on co-op income invested in indivisible reserves (profits that a cooperative sets aside for the long-term benefit of the co-op; money that can’t be divided or paid out to individual members, even if the co-op closes)

• Financial support (i.e. the old National Institute of Cooperative Credit and the Contemporary National Labour Bank)

• Cooperatives get special advantages or priority when competing for government projects (when the government offers contracts for public work) — such as building infrastructure, providing services, and supplying goods

• Legal provisions that mandate a sustainable business structure (co-ops must reinvest their profits and cannot be sold off for private gain — this keeps them stable and focused on long-term community benefits)

• Development funds for helping promote new co-ops (i.e. legislation from 1992 requiring that every co-op contribute 3% of its profits to a fund devoted to developing new co-ops and aiding worker takeovers of conventional firms)