Basis of Democracy in the Economic System

A general and basic idea of democracy is that if a significant decision affects you, there’s a role you should have to be involved with it. The major point to be made about democracy in the world today though is that almost all of the world’s economic systems are undemocratic. This raises the question of, if democracy is so important, then why shouldn’t the economic system — and not just the political system — be democratized?

The United States is an example of a country that practically makes a fetish about valuing democracy, but it actually has never been much of a democracy overall. Voting politically was restricted to white male property owners at the early stages of the country’s formation, and women only gained suffrage nationally from the Nineteenth Amendment in 1920.

Also a revealing insight is that the preferred maxim of the first Chief Justice of the U.S. was that “Those who own the country ought to govern it.” He was referring to the people Adam Smith called “the Masters of Mankind,” who are also known as the small number of people who have amassed immense wealth and resources, typically through unjust advantages they’ve gained at public expense. In a practical sense, that maxim was a bigger part of the country’s early societal formation than actual democratic principles were.

The economic system of slavery is an example of how the U.S. (and other countries that have had it) were undemocratic economically, as slaves while enslaved obviously lack much of a role to participate in decisions affecting them. This should be noted considering that slavery is among the biggest moral failures of the U.S. in its history — with vile racist detriments on the society from it that continue to this day.

Even since the abolition of slavery though, the U.S. hasn’t been much of a democracy. Other countries generally are similar, but I’ll use the U.S. as an example for the sake of what I refer to half jokingly and half seriously as its democracy fetish. The examination of the workplace in a capitalist American corporation is a useful starting point.

The people at the workplace will spend much of their time there, but they will also have little or no role in deciding what happens to the profits of the corporation and what actions the corporation pursues. That would be decided mostly by the board of directors and major shareholders, which are small groups of people who have somehow gained a larger amount of wealth and power. In the U.S., besides the top 1 percent owning 40 percent of the stock market, the top 1 percent there also control the bulk of the shares in corporations not listed on the stock exchange too.

In a capitalist corporation, there is typically an “election” about every year or so to determine the board of directors. Who is placed on the board of directors is determined through a process where one share is one vote. In this vein, a small number of people controlling the bulk of the shares grants them disproportionate power to choose the board of directors, and the board of directors will then subsequently make significant decisions on what happens to a lot of resources and to a lot of people.

Those people undemocratically elected often are placed in those positions not as a result of a meritocracy of deserved power, which — looking at the occupants of the current executive branch and other influential sectors of society — the U.S. largely is not. But still having arrived at the top, this small group of people wielding concentrated power will then usually act as would be suspected, operating economic institutions for their own self-interest, whether that tends to harm the general public or not.

Part of that unjust operation for concentrated power will be based around what happens to the net revenues of the institution. Employing a worker may only pay $10 per hour in wages, but the output of that worker’s value could be worth $50 per hour, which of course isn’t an unreasonable outcome in a society whose wages for the majority of people have been largely stagnant – even with rising productivity – for 4 decades. The costs of maintaining the equipment and facility the worker uses could be an easily covered $20 an hour, which again isn’t an unreasonable sort of example considering that U.S. corporate profits are at record highs.

The remaining $20 is the extra amount of value, and as long as economic institutions are undemocratically controlled by corrupt, concentrated power, the worker won’t have a reasonable amount of say in what happens to that added value. Instead, the $20 would join the exorbitant pay of CEOs and the enormous upward redistribution of income to the rich that’s occurred over the last 40 years.

If the worker, acting with other workers, was much more empowered at the institution, it’s easy to guess how that $20 of net revenue would probably be used. It’d be primarily used in the interests of the workers instead of in the major shareholders and executives, and that multiplied across the society would make a significant difference. Democracy is supposed to mean that the supreme power rests with the public, but it’s easy to see how rare that actually has been in practice.

In a democratic economic system, the workers would have the legal or institutional authority to pick their managers, instead of the other way around. To say it again: In a a democratic worker enterprise, the workers would be able to join together to vote for or against their bosses, which would represent a departure from hierarchically top-down corporations dictating who is hired and fired. It’s rather amazing how many people have never even considered that difference as a possibility, and it’s merely one major difference that democratic worker enterprises (sometimes referred to as worker cooperatives) would make in organizational structures.

With worker cooperatives instead of top-down, quasi-totalitarian corporations, the government’s dependence on revenue would be different. The general public – with much more use of worker cooperatives – would personally gain higher individual incomes, and that means that the structure of dependence for tax revenues would change from being so dependent on the rich to more dependent on the mass of people. The political ramifications of this are potentially substantial, as most policy today is effectively written by the interests of the wealthy top 1 percent, and to a lesser extent the top 20 or 30 percent. The bottom 70 percent of the U.S. – by wealth standards – tends to be disenfranchised from deciding much in policy, which is clear enough from observing public opinion polls. Majorities consistently poll for universal healthcare, a higher minimum wage, investment in renewable energy to oppose climate change, a carbon tax, measures to break up the big banks, free public university tuition, and higher taxes on the rich, among other measures, but these policies aren’t being implemented across the country. Taking the basic examination of how democratic a country is by viewing public opinion polls is another way of showing how plutocratic (and not democratic) the U.S. actually is.

Much needs to be altered, and it would be with more robust organization that supports majority opinions, which are correct in their findings surprisingly often. As the necessary paths forward to fighting injustice become more urgent, they do tend to become clearer though. Those interested in an improved world should recognize this, as there is a lot currently at stake.