Economic Update: Capitalism vs. Democracy

[S11 E18] New

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On this week's show, Prof. Wolff presents an analysis of how and why capitalism is an undemocratic economic system. The first half is devoted to the micro-level, namely to the organization of the enterprise (factory, office or store). Its undemocratic character is exposed using examples and empirical evidence. The second half has a macro-level focus that shows how capitalism's generation of growing income and wealth inequality impels the employer class (a small numerical minority) to use their money politically. Their practice undermines real democracy leaving only its empty forms.


This transcript has been edited for clarity.

Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives: jobs, debts, incomes, our own and our children's. I’m your host, Richard Wolff.

In the wake of the attack on the capital, January 6th, there have been many statements from republicans, democrats, and others, referring to, quote-unquote, “an attack upon our democracy.” Well, when you put that together with the questions many of you have sent to me about what exactly the relationship is between our capitalist economic system on the one hand, and the notion of democracy on the other – and by democracy, I mean a situation in which decisions that affect people's lives must be made by those people. In other words, we are entitled, by right, in a democracy, to participate in the decisions that shape and affect our lives.

Given that, I want to devote today to why I believe that capitalism is not a democratic system here in the United States, never has been, and that the claim to the contrary is not sustainable once you look both at the micro level of our economic system, the level of the individual enterprise and workplace, or if you look at the macro, the overall picture. And so, I want to make that case today in the hopes that it answers the questions and puts an end, maybe, to constantly referring to what we would hope to be the case, but what is not, in fact, the case about democracy and capitalism.

So, let's begin with the micro level, the level of the enterprise. And here I will say something and give you evidence that I have said before, that is the basic idea, it's the evidence I’m going to marshal that, I think, will be a contribution for today's program. Here's the basic statement: When you cross the threshold into a workplace, a factory, an office, a store, it doesn't matter, you, in effect, leave one part of the world, let's call it the city, the town, the village where you live, your area of residence, and you enter, instead, the workplace, the area of your labor, if you're a working person, as most adults are.

Now when that happens, you leave whatever democracy might exist in your residence, and you enter a workplace from which democracy is excluded and always has been. What do I mean? Very simple. In your workplace, a very small minority of the people involved, the owner of the business, the family that runs or owns the business, or if you work in a corporation, which is the major form of business in the United States, it's a board of directors, and that's usually 10 to 20 individuals. The vast majority of the people in every enterprise, except a few of the very smallest, are the employees.

So now the question presents itself: Is the majority, the employees, in a position to participate in the decisions that affect their lives? Is it a democratic system? And the answer is an unambiguous, “No.” The owner, the family that owns, the board of directors, whoever runs the enterprise in a capitalist system makes all the key decisions: What the enterprise produces. What technology the enterprise uses. Where the production will take place. And what gets done with whatever profits or revenues or income the enterprise generates. Those are the four big decisions. The owner, the family, the board of directors, they make that decision. The employees are excluded from that decision. They do not participate. But they are required to live with the consequences, which affect them deeply.

Let me give you some examples. If the people who run the business decide to close it, you're out of a job. If they decide to fire you, you're out of a job. If they decide to use a technology that hurts your lungs, you've got a simple choice: take it, suffer it, or quit and go work in another business that's run in the same way. Which is why a lot of people stay when they get abused because where are they going to go where they're not at risk of being abused? And abused in what way? Abused by the lack of democracy in the workplace.

So, when capitalist societies, like the United States, for example, right now, refer to themselves as a democratic society, what must they mean? Well, they must mean something other than the workplace, because that isn't organized in a democratic way, never was. The people who make the decisions are not accountable. The employees who live with those decisions are not in a position to vote them in or out of office. They're not in a position to have some power over the people who have such extraordinary power over them.

So, whatever the word democracy means, it doesn't apply to the workplace in capitalism, and that's a very big statement, because that's where most adults spend most of their lives in our society. Five out of seven days, the best hours of those days, you're in the workplace. You got to add a couple more hours in terms of preparing for, and getting to and from, the workplace. It's the center of your life, as you all know, for much of that life.

So, if you're going to call yourself a democracy, you would have had to have a democratic workplace from the beginning. We never did. Yes, here and there, and we'll talk about that, there are workplaces that tried to organize in a different, a more democratic way. One of them we talk about on this program often, worker co-ops. But the vast majority, under capitalism, are enterprises organized in a fundamentally undemocratic way.

So now let me give you some evidence of what's at stake. I begin with a professor of business in England, Leeds University to be precise, in the business school. Her name is Virginie Pérotin, French name. She's famous around the world because here's what is her research as a professor in a business school. She systematically finds companies where there are examples of the company doing a certain kind of business, producing a certain kind of product, organized as a capitalist, hierarchical, undemocratic enterprise, and she compares that to another enterprise organized as a worker co-op, a democratic enterprise where everybody makes the decisions together about what to produce, how to produce, where to produce, and what to do with the profits. So, we have a comparison, and a professor who's done it systematically in a number of countries over a period of time. 

How do they compare? And here's an interesting piece of information that's based on her published research. The worker co-op enterprise, the democratic enterprise, is more efficient, more profitable, and lasts longer than its hierarchical parallel. So, for those who might think, in response to me, that somehow a democratically organized enterprise is not workable, isn't doable, is a fantasy. None of that's true. And we have, in Professor Pérotin's research, very clear, documented, empirical evidence.

Number two. There are some exceptions, the most famous one, which I have mentioned on this program, is the Mondragon Cooperative Corporation of Spain. It is now the 7th or 8th largest corporation in Spain. It started in 1956 when a catholic priest in the north of Spain decided that it was too hard for his parishioners to wait for some capitalist employer to come in and make jobs for people.

“Let's do it for ourselves,” he told his parish.

And they did. Six workers, with the priest's help, started a co-op where everybody together made the democratic decisions running the business. Fast forward to today, 2021, it's an enormous corporation, more than a hundred thousand people work there, and the bulk of it, not all of it, but the bulk of it, is run democratically. It's actually a family of a couple hundred co-ops, come together under one corporate entity, but each of them is operated democratically. All the workers together decide their level of income, top and bottom much narrower than in most companies in the world, much less inequality, and I could go on. But they've succeeded for 70 years. They've grown. They've out competed their capitalist competitors. They show, too, that the notion of a democratic workplace is not a fantasy, and not a utopia, and not a distant possibility. It's a reality, and it has been for a long time.

Next, I want to quote to you Winston Churchill, the great wartime leader in England. He's famous for the following remark. “Democracy,” said Churchill, “is the worst form of government, except for all the others.” How cute. How nice. Unfortunately, Churchill couldn't imagine what I’m trying to explain now, that what applies to politics, his remark, applies equally in economics. Democracy may be a clumsy, may be a messy way of running an enterprise, but it's better than all the others, just as in politics.

Next, some people seem to think well you couldn't run a business like that. Don't some people have to do something, and other people have to do something else? Isn't the division of labor how we get to be efficient and productive? My answer to that is simple. Yes, we need to divide the labor, but that's not the same as dividing the laborer. You can concentrate on a particular task, if that's more efficient than doing lots of different things during the day. But it stops being efficient if that's all you do in your life. You need variety. You need to have different muscles, different parts of your brain, engaged, or else it isn't good for you. So, we can divide the labor, but we can solve the problem by rotating people around to different kinds of work, so that they have a variety of skills, and a variety of activities. It's more healthy, and in the long run, more productive. And, again, the Mondragon Corporation has wonderful records showing exactly that. 

And here's the last point. A democratic workplace gives people the appetite for democracy. It gives people the experience of democracy. They run the enterprise. And, you know, if you're in charge of the enterprise, and not just a worker there, you have a demand and a sense of yourself as having power, and you're not going to let somebody else dictate to you in politics either if you have developed the taste and the competence for democracy in the workplace. We don't have democracy in the workplace, and that's a contradiction between democracy and capitalism. 

We've come to the end of the first part of today's show. Before we get to the second half, I want to remind you about our new book, The Sickness is the System: When Capitalism Fails to Save us from Pandemics or Itself. That book is available at www.democracyatwork.info/books. I also want to thank our Patreon community for their ongoing and valuable support. And if you haven't already, please, go to www.patreon.com/economicupdate to learn more about how you can get involved. Please stay with us, we will be right back.

Welcome back, friends, to the second half of today's Economic Update, devoted to the relationship, a contradictory one, between capitalism on the one hand as an economic system, and democracy, understood as an arrangement among a group of people in which the decisions that affect people require their participation in making those decisions if the system, if the community, is to deserve the name “democratic.” In the first half of the show, we talked about the micro level, the individual enterprise, and why it is organized in capitalism in a way that is clearly, and fundamentally, undemocratic. I want to shift the focus now to the macro level, to the economy as a whole. And so, let me show you why there's a contradiction between capitalism and democracy there, as well. So, let's begin.

We know from decades, centuries, of observing capitalism, culminating in a wonderful book published in 2014 that some of you may remember by Thomas Piketty, a very famous French scientist, economist, who works with his counterpart at the University of California at Berkeley, Saez. It's called Piketty and Saez. They're known around the world as the leading authorities on the distribution of wealth and income in capitalist systems. They maintain a website, freely available to you, Piketty and Saez, and you can go there and get the documentation and the statistics if you are interested.

Here's what the research of the book Capital in the 21st Century, by Mr. Piketty, what it found. That in every case, around the world, now, 20 years ago, 50 years ago, 100 years ago, capitalism, as a system, produces a widening inequality of income and wealth. Periodically, when it goes somehow “too far,” in quotations, people react, and stop it, and even reverse it sometimes. But then, after 10 years or so, typically, it resumes. The basic underlying tendency for capitalism is to produce inequality and keep doing so.

Nothing illustrates that better than the last 70 years in this country, more precisely, the period since 1970, when inequality, which had been reversed by the Great Depression and in the immediate aftermath. Once again, the underlying tendency resumed, inequality continued, and literally since 1980 for sure, the line has been a straight line to greater inequality, reaching a situation now where we really have levels of inequality that remind folks of ancient Egypt and the pharaohs on the one hand, and the mass of the slaves on the other. So, we have great inequality.

What's the issue here? Here's the problem. We live in a society that has an institution called universal suffrage, that is, after long struggles, everyone is entitled to vote. You know in the early days of the United States only people with wealth, considerable wealth, were entitled to vote. Women could not vote. Poor people could not vote. Black and African American people couldn't vote, etc. It took long struggles to get all of that stopped and finally get to the point where everyone who's an adult, nearly, is allowed to vote, at least in theory.

So, here's then the simple problem. If you have universal suffrage as, for example, we more or less do in the United States. We do exclude felons in certain parts of the country and so on, and there are debates about that. But, in general, we allow nearly everyone to vote. When that's the case, here's the problem for capitalism. The employer class is a small, indeed a tiny, minority. The vast majority of us are employees.

If the majority rules, and we have universal suffrage, then it's always a possibility that we, the majority, the employees, will use the fact that we're the majority, to vote for politicians, and laws, and rules and regulations, that favor us. And, for example, if we don't like the level of inequality that our society dumps on us – and by the way, poll after poll in this country indicates that Americans overwhelmingly want less inequality than we, in fact, have – wow, we could use our majority, politically, to undo the inequality that capitalism produces and imposes on us.

How could we do it? Easy. We could pass taxes that tax people at the top much more highly than they do now. Elizabeth Warren introduced, very recently, the senior senator from Massachusetts, a wealth tax on stocks, and bonds, and people's wealth above 50 million dollars. It's only 2 or 3 percent, very small, but it's a start in that area, isn't it? And, of course, as every rich person knows, it may start at 2 or 3 percent, but where might it go?

So, yes, in all capitalist systems there's a problem. The minority becomes wealthier and wealthier over time, that's how capitalism works, and it always has. Yet the majority are therefore given an incentive, if you like, over time, to do something about the inequality of wealth and income by using their majority position politically.

You know who understands this best? The rich. They understand their vulnerability. They understand. That's one of the reasons why they weren't so enthusiastic about universal suffrage over the years. It had to be fought for. They know, and they're not passive. They figured out that the only way to be secure in their wealth, given universal suffrage, and the risk that the mass of employees will use it to their advantage, the rich understood they have to prevent that.

How are they going to do that? They have to use the one thing they have: money. They have to buy the political system. They have to make the political system depend on their money, at least as much as it depends on the mass of people's votes. And that's what they've done. They've made the political parties dependent on donations, not on the mass of people mobilized, that's old politics. Money. You need to dominate the airwaves, the tv, the social media. You need an army of people to do all of that work, to monitor all that, to put out the tweets, to do… You know what it takes because you all live in it, just like I do: an army of people paid for by money from the rich, like the campaigns are donated to, the parties are donated to. 

As if that weren't enough, the rich hire lobbyists, people who work full-time, all year round, working with the candidates that get elected, providing them with support, raising money for them, literally writing the bills that go through Congress for the congressmen and women who are supposed to be doing it. In every way possible, the rich corrupt the political system so it doesn't respond to the mass of people. And you should know that if you don't already. The polls indicate the mass of Americans want less inequality. But, in fact, it gets worse. The mass of the people are interested in a proper medical care system, overwhelming majorities, but we don't get one, the only country without a comprehensive national health care, health insurance program.

I could give you many, many more examples in which you watch the majority feeling one way, but the politicians don't do it. And the reason they don't is they don't have to, because the money they need for their political careers is more important to their survival than the votes. Or, to say the same thing more precisely, they can use the money they get from their donors to manipulate the voters. That's what's called advertising. The exact same companies that show you how and why you ought to buy this soap, or eat that cereal, or drive that car, are working to get you to vote for this woman, or that man, by telling you this story, that story, this image, that image. The rule of our politicians is this: do what you have to to get the money. With the money, you can buy the advertising to get enough voters on your side. That's the only strategy that works. 

To go against the donors and appeal to the workers, the voters, that's the long shot. Only an occasional politician will dare to do that. And you have to have an extreme situation in a society that will get people to understand and resist all of the PR heaved at them by the well-heeled politicians to go with the ones who don't have the money and give them a few bucks so they have the money. Bernie was one of those. And that's why he was so exceptional. He could appeal to the mass of people. It is possible, but it is not the norm in our system.

And so, what happens? A tiny group of people, the rich, use their money to have an outsized impact on our politics. That's not democracy. Democracy has the idea: one person, one vote, that we all have an equal say on the decisions that affect us. We don't. You who go into a voting booth and move the lever and vote for someone, that's a very different level of influence compared to Rockefeller, or Bezos. When they want to influence people, they use their money. Jeffrey Bezos purchased the Washington Post. That gives him an influence that you and I can't even dream about. That's not democracy. That's not equal influence, equal access, one person, one vote. That's all thrown aside.

And so, democracy is not the way we organize the big picture. Capitalism, by concentrating wealth in the hands of a small number of people, contradicts democracy, makes a joke out of democracy. You know what we have? The forms of democracy, but they're paper-thin, and the minute you go behind to see how it works, you find Mr. and Ms. Moneybags in control of this situation and using more and more money. If I have my numbers right, the 2020 election saw the expenditure of in excess of $13 billion spent on that election. And that's probably an underestimate. Those $13 billion were not equally contributed by everybody. They were overwhelmingly contributed, as all the documents show, by a tiny core of very rich people and corporations.

So, no, what was attacked on the capitol on January 6 was a political regime trying to overthrow another one. A serious question. Important. Very bad. Very scary. But an assault on our democracy? The biggest assault on our democracy is the economic system we do not question enough, and that we don't change, because it is the underlying sickness, that system. It undercuts democracy, not just at the workplace, but everywhere else.

Thank you very much for your attention. I appreciate your interest, and I look forward to speaking with you again next week.

Transcript by Scott McCampbell.

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Showing 2 comments

  • Antonio Whitacre
    commented 2021-05-25 06:18:45 -0400
    Thanks for the post, Interesting stuff to read.
  • Pasqual DiGesu
    commented 2021-05-10 08:26:02 -0400
    Another very good show / lesson.
    As for Churchill’s “democracy is the worst form of govt. but better than the others” It never existed in the life of his government “either”, as history has demonstrated during his career and political acts/goals alone and as you have just proven in his and in our economic and work place structure. The difference in his alliance of western democracies and the “others” was projecting the illusion of democracy while “others” called it what it was. “something to be said about an honest crook”
    If we can be “so influenced” and so manipulated by financial powers, then we can shove universal suffrage.
    You will never see democracy in the work place until you truly establish it in the masses and their government, and you won’t. It will require another type of authority than the authority which presently controls us.

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