Critical thinking concepts and applications

Democracy & Economy

Democracy and the Economic Order: Chapter 3

In Chapter 3 Dahl argues that a good economic system is one that promotes democratic values, equality, and liberty. It should also be just, which goes beyond distribution "of rights, duties benefits disadvantages, opportunities, and claims" (85). A just system is one in which economic fairness is present. The system itself should be efficient for both consumers and producers, and work should be "a source of deep and daily satisfaction for most of us" (87). A good economic system would promote "virtue and intelligence" in the people and "foster various desirable qualities, moral and intellectual" (Mill [1861] 1958, 25 cited in Dahl 87). Personal economic resources that result would be sufficient for a good life, and the individual would be free to pursue economic opportunities whenever they presented themselves.

At this point, the author assumes that "bureaucratic socialism," the kind formerly in use in Eastern Europe, would not achieve these goals because of inefficient central planning. Planning and economic decisions need to be made at "the level of the individual enterprises" (90), and a market system would be necessary for efficiency. However, coordination would be needed and a regulatory framework to achieve the goals. The author suggests a system of self-governed enterprises where employees own the enterprise and each employee is entitled to one (and only one) vote. Each firm would be like a little country in which the workers are participating citizens who decide how revenue is to be spent. They determine wages, how much should be distributed to the citizens, and how money is to be reinvested. Such a system, he argues, would promote democratic values, make better citizens, and foster economic equality. The adversarial relationship between management and employees would be eliminated because employees would hire managers. Enormous differences in income, status and power would be reduced. Every worker would be concerned about the firm's well-being. Self-governing workplaces would "foster human development, enhance the sense of political efficacy, reduce alienation, create a solidary community based on work, strengthen attachments to the general good of the community, weaken the pull of self-interest, produce a body of active and concerned public-spirited citizens within the enterprises, and stimulate greater participation and better citizenship in the government of the state itself" (93). Economic equality would not be produced by the State, but would emanate from the structure of the system itself.

Some possible problems that could arise in all this that Dahl doesn't address. For example, if investors don't get a share of control, they might be less likely to invest in enterprises. How then would the enterprises be set up?

Lack of worker discipline might also be a problem without managers to oversee the work. With more power, workers might sacrifice efficiency for their own personal benefit. For example, they might put forth less effort, or improve the working conditions without improving work performance. They might resist labor saving devices, or guarantee employment at the expense of efficiency.

Workers might also be biased against reinvestment, preferring to reap the benefits of surplus revenue themselves now as opposed to building up the firm for later employees; thus, the net-revenue would tend to be distributed to the workers, rather than re-invested in the business. Workers might demand this because their benefits would be limited to their period of employment.

Another problem could develop if workers maintained employment stability at the expense of efficiency. How would they decide who to let go? Or would they take an overall cut in pay when times were hard? Finally, the workers might be very adverse to risk-taking because their own wealth depended on the enterprise. They couldn't protect themselves with diversification, as an investor-shareholder would in corporate-capitalism. All their eggs would be in one basket. This could result in the firm's stagnation from lack of creativity, innovation, and willingness to take a risk.

Dahl's issue is how to extend democracy and its values, especially equality, into the workplace and thus create a better economic system. He concludes that self-governing enterprises where the workers were responsible for the success of their firms, is the answer. Because every worker would have an interest in the well-being of the firm, greater participation, harder work, and more attention to duty would be the result. Greater economic equality would lead to more harmonious relationships in the workplace and in the greater community as well. He avoids discussing the issue of social ownership. It is not clear who would actually own these enterprises. Would the public own them? Would the workers? He does mention statistical findings in which only 90 of 3,000 firms were found in which "a majority of the equity is owned by a majority of the employees" (93). Perhaps that is his idea of ownership, but it's unclear.

Although Dahl says the economic system should be efficient, he doesn't show specifically how self-governing systems would increase efficiency. He does a better job of showing an improvement in the quality of life for workers and the consequent transformation of their attitudes and values as they invested themselves in the success of their enterprises. He seems to assume that a person's work is central to the person's identity and life satisfaction, which may or may not be true. He also assumes that central planning is the reason why socialism failed before, but he doesn't show why, or why it is so desirable to decentralize. Neither does he address the issue of reforming corporate capitalism rather than changing the whole structure. He does admit that rules and regulations governing the behavior of self-governing enterprises would be necessary, but he doesn't say what form these would take. Would there be a government agency set up? What would be the limits of its power? How would it be prevented from taking to itself the power to plan and make economic decisions?