Economic Democracy; B. Anderson

Mr. Anderson is a teacher of social studies at Ross·· ville, Georgia, Junior High School. He is the 1982 win·· ner of the Olive W. Garvey essay contest on "The Virtues of the Free Economy" involving a fellowshiJ) to the general meeting of The Mont Pelerin Society. that gives the ,promise of liberty in the marketplace while in reality it promotes the opposite: collectivism. 2 Economic Democracy in the 1980s comes in many forms. There is a well known political movement concen trated mostly on the West Coast that has received much publicity not only for its doctrines of political economy but also for tne celebrity status of many of its leaders and supporters. 3 The term is also used by politicians and public figures not officially as sociated with ithe western political movement, but who "favor some sort ofplan in which workers have a share in either the management of their industries, or ~rofits, or both."4 Ad vocates of Economic Democracy have also been called social democrats.

Whatever the degree of associa651 652 THE FREEMAN November tion, one can assume that those be holden to the term Economic De mocracy have a common belief about the economy and how it should be run: the marketplace, they say, should be taken from the control of private individuals-or "private in terests" -and placed in the hands of democratically-elected legislators and officials who will steer it in the direction of the "public interest." Now, the use of "democracy" to pro mote forms of collectivism is not new. For example, Upton Sinclair, the writer whose works had a vast im pact on the Progressive Movement of the early 20th Century, once said: Of course, when I talk to anybody im portant like Henry [Ford] I have only one thought in mind, and that is to make a socialist out of him. So I told him [Ford] what I thought were the responsibilities of the great masters of industry and how industry must ultimately be democra tized. It has been my life thesis that au tocracy in industry is absolutely incom patible with democracy in politics, and that the two struggle with each other and one or the other will win. I wanted de mocracy to win, of course. 5 Sinclair's remarks, along with the dogma of today's followers of Eco nomic Democracy, bring many im portant questions to mind, the first being: Are they right? Is the free capitalist system in reality a system of autocracy that operates within and constantly struggles with-the framework of democratic politics?

One might also ask: Is collectivism as part of a system of democratic politics the social arrangement that most allows the common character istics of democracy-free choice, self determination, and the like-to op erate within an economy? In answering these questions and in critiquing the movement of Eco nomic Democracy, one cannot just stop with exposing the fallacies of neo-collectivism. It does no good simply to prove an opposing ideol ogy as wrong; one must also demon strate his own ideas are correct, or at least nearer to the truth. Indeed, the burden upon adherents to the free market is great, for they must show that an economic system which de pends upon individual ownership, individual initiative and limited government is compatible with a po litical system which emphasizes pluralism, public accountability and equality under the law.6 CollectivistFallaciesExposed Socialism, central planning and other forms of collectivism have been thoroughly unmasked by the world's most able economists from Adam Smith to Ludwig von Mises to Mil ton Friedman. It is unnecessary to retrace all their devastating argu ments against socialism, since the volumes written against this eco nomic heresy explain collectivism's shortcomings far better than can be done in this short essay.

1982 ECONOMIC DEMOCRACY 653 However, it might be valuable to deal with at least one major fallacy of collectivism, while also examin ing the claim that Economic Democ racy, because it operates within a sphere of political free choice, is the logical extension of political free dom into the economy. As Lawrence Reed has aptly noted, forms of collectivism adhere to nu·· merous economic fallacies. 7 Perhaps the greatest fallacy of collectivists is their assumption of production for its own sake, that production is somehow more important than con·· sumption. As Adam Smith once pointed out, the sole end of produc·· tion is consumption. In other words, people produce in order to consume. But the dogma of those involved in the Economic Democracy move·· ment (and collectivist movements before them) deals with individuals in society not as consumers or recip ients of goods and services, but as employees, or, to use Marx's terms, workers or proletariat. What con cerns the neo-collectivists is not the quali ty of goods and services produced, but rather how they are made, where they are made, and who produces them. For example, nu merous Economic Democracy lob bies are attempting to convince law makers to create laws that make it difficult, if not impossible, for em ployers to close obsolete, noncompe titive factories. s That the products created in such outdated plants are not competitive in the marketplace is of little concern to these people.

What matters i to them is that em ployees not lose their jobs because of economic dislocations. To deal with the inevitable prob lems of less-expensive, foreign-made goods competing with domestic products made in outdated plants kept open by fiat, the Economic De mocracy lobbies also support high protecti ve tarIffs to discourage con sumers from! buying abroad. 9 Of course, the damage done to domestic exporters by the imposition of tariffs would also be 'a serious problem, al though one cBin most likely assume that industries hurt under those cir cumstances would receive govern ment subsidies. In the end, con sumers-who are also taxpayers and employees-would be deprived of freedom of choice, along with a goodly share of their incomes. WorkersAre Consumers Other socia~ plans that ultimately divide an economy into employers and employe~s again miss the fun damental point of production: the fi nal purpose of production is con sumption. To ignore that fact is fatal, for a productive, competitive econ omy cannot exist in the framework of a legally static society. When pro duction is held to be more important than consumption, the workers themselves, supposedly protected by restricted legislation, cannot truly 654 THE FREEMAN November enjoy the fruits of their own labor.

After all, workers, too, are con sumers. One ultimately works so that he or she may eat and possibly enjoy the finer things of life. Few persons work just for the privilege of staying busy. However, Economic Democracy adherents may argue that a person's life, his very being is tied up in his work. No doubt, that is true in part. Most persons find work that they be lieve fits their own goals and per sonalities. But the very quality of their work is dependent upon the in novation and creativity that are sti fled when creative, entrepreneurish outlets are blocked by the law. For example, few steel workers would prefer the hot, dangerous plants of the late 19th century to the modern facilities of today. Likewise, most automobile workers find the modern assembly line far superior to the monotonous, labor-intensive conveyor process that was dominant in the days of the Model T. The im provements in those factories, and, indeed, in most areas of production are due not to following the laws of legislatures but rather to following the laws of supply and demand.

Modernization has come because economic progress and innovation have demanded it. Of course, some workers have been temporarily dis placed in the process of moderniza tion' but in the long run workers have benefited not only as employees but also as consumers from the very system that many say runs counter to their best interests. The Assaulton Capital It can well be argued that labor unions have often sought to sup press the introduction of work-sav ing capital (which often makes the workplace safer) in order to preserve their power-all for the short run, of course. And, indeed, capital is one of the targets on the Economic De mocracy "hit list," as collectivists seek to make industrial plants more labor-intensive. lO The suppression of capital, unfortunately, has perverse effects upon those who are on the bottom rungs of the economic lad der. For one, to suppress capital to keep industries labor-intensive also tends to suppress wages, since capi tal creates wealth and rising wealth is what brings high wages. Sec ondly, by keeping wages low and ba sic industries labor-intensive, such policies retard the growth of the ser vice economy, including meaningful jobs in medical care, education and recreation. 11 Thus, by assaulting capital, pro ponents of Economic Democracy ac tually lessen options of employment for workers and retard consumer choice, which is the antithesis oftheir stated goals. The economic collapses of socialist countries such as Tanza nia, China and others that have fol lowed policies of production for its 1982 ECONOMIC DEMOCRACY 655 So effectively did muckrakers mingle fact and fiction, reporting and righteous indignation, open descriptionwith dovert prescription that the historian who would disentangle the reality of these years from the myth has a formidable undertaking.

There were movements, too, which took up the cudgels for collectivism and helped to spread these ideas. Prominent among these was the Social Gospel movement. Religioli1,which had long offered the most profound bases for individual liberty, was substantially changed as a result of this movemient.Out of moral conviction, out of concern for social and economic conditions, under the influence of the theories of evolution and the sociological findings of the effect of environment upon men, preachers and thinkers formed their thought and started the movement. Instead of being individualistic, this movement was sparked by men who conceived of society as an organism. The life of an individual, they held, is inextricably bound up Within this organic unity. Clarence B. Carson, The Fateful Turn own sake are grim reminders that economic laws must be obeyed-or else. However, as Sinclair argued, is not socialism or Economic Democracy more compatible with political de mocracy than free market capital ism? After all, Sinclair and present day Economic Democracy adherents argue, is not business today just an autocracy run by a few men who sit in the boardrooms of New York· and.

Chicago and collaborate with the Congress and the Presidency to con·· trol the lives of most individuals? Such beliefs--and they are legion today-demonstrate a profound misunderstanding not only of capi talism' but of 'democratic socialism as well. First, 'and most important, socialism, wh~ther or not it is en forced by democratic means, is not democracy in )the marketplace be cause consumers are ultimately de prived of free choice, or at least their choices are limited. Because social ism operates on the premise that production is more important than consumption, existing producers are usually favored over consumers, 656 THE FREEMAN November which means tariffs or import quo tas, restrictions for new entries in the marketplace and policies to en hance the power of labor unions. An excellent example of this can be seen in the Western European steel industries. Last year, those in dustries combined, including both nationalized and subsidized private firms, lost more than $2 billion, which, in essence, means that Eu ropeans were forced to lower their standards of living for the privilege of producing steel. 12 European steel company executives and members of steel-making unions were no doubt pleased by their governments' poli cies of subsidizing losses and "pro tection" from steel products of other nations, but the real costs of such government plans were borne by European taxpayers and consumers, who were given no choice in the matter.

While it is true that in a social democracy, voters are free to choose the politicians who then choose the economic· planners, once the plan ners hand down their economic dic tums, those policies then become law. Voters, who are also consumers, are not legally free to break those laws. Therefore, the exercise of free choice at the political polls ultimately leads to either a lessening or deprivation of free choice in the marketplace. Of course, consumers, when faced with legislation that impedes upon their free economic choice, often choose to become lawbreakers, which brings underground economic activity that is not just confined to dictatorial so cialist states such as Tanzania, the Soviet Union and China, but also to politically-free democratic socialist nations such as Sweden, Italy, France, Great Britain and even the capitalist United States. The Underground Economy The implications of the ever-in creasing amounts of illegal business activities are sinister, for such un derground transactions undermine respect for law, order and the very foundations of trust that undergird a society. And yet, this spurning of the law happens precisely because of the laws that are passed supposedly to make an economy more just, more humane and more productive. In reali ty, most restrictive economic legislation is not created to improve economic prospects for consumers, but rather to satisfy members of po litically-strong special interest groups. 13 In contrast to the stifling eco nomic controls enacted under Eco nomic Democracy, it can be strongly argued that the free market. is the ultimate economic democracy. Up ton Sinclair was simply wrong.

Henry Ford's automobile company was not an autocracy that controlled the car market, but rather was sim ply a cog in the wheel of economic freedom.

1982 ECONOMIC DEMOCRACY 657 While Ford may have been an au tocrat within his company (he also paid the highest wages in American industry), he could not give orders to the consumers. For a while Ford ruled the automobile roost with his black, inexpensive Model Ts and Model As, but when General Motors began to offer various-colored cars that were given yearly design changes--and could be bought on credit--in contrast to the uniform Fords that could be purchased only with cash, car buyers voted with their money to give GM the lion's share of the market. The process was totally democratic; the results may not have been to Henry Ford's liking, but fOll all the power Sinclair believed Ford allegedly owned, he could not force consumers to change their minds. Ford had no choice-- if he wished to stay in business--but to give pro spective car buyers a greater selec tion from which to choose.

In a free market consumers de cide, by choosing from the array of goods and services made available to them, which businesses are to become successful and which are not. This democratic aspect of the mar ket has been clearly driven home by William H. Peterson in his booklet "Who Is the Real Employer? /The True Source of Jobs"; By your decision to purchase or not, you, in concert with your fellow con sumers across the land and, in fact, across the globe, decide what is to be produced and who will produce it. In effect, you decide who will be employed, how much they will be paid, who is to be promoted, who demoted. 14 Contrary to popular belief, pro ducers do not :control the free mar ketplace. Consumers do; and all of us who live and breathe and eat are consumers. Notes Peterson: Businessmen, you see, are agents of you, the consumer. They must do your bidding-or else. They must produce the quality you demand-or else. They must turn out goods ~nd services at the price you are willing to pay-or else. I5 For exampl~, throughout most of my teenage and adult life I have heard time and again that the American automobile manufactur ers are monopolies that have stran gled the V.S. economy for most of this century. Indeed, for most of my life domestic: car producers have dominated the V.S. market. This phenomenon was not due to coercion on the part :of the producers but rather the exercise of free choice on the part of coIl-sumers.Now, with the success of Japanese, German and Swedish auto producers evident in our nation today, it seems prepos terous at best:to suggest that domes tic manufacturers have a "strangle hold" anywh¢re in this country. To paraphrase an oft-repeated state ment from a former General Motors executive, what j.s good for the American consumer may not always 658 THE FREEMAN November be good for GM (to its credit, how ever, GM has still advocated free trade in the automobile industry in contrast to the positions taken by the other two major U.S. producers and the United Auto Workers).

The Market Is Democratic If the essence of democracy is free choice, then the free market is truly democracy in action. Indeed, as N0 vak has aptly pointed. out, capital ism is most qualified to be exercised in a politically-democratic society because of its own democratic na ture. The free market, he notes, pro tects individuals' "economic liber ties as democracy protects their political liberties." 16 Socialism, as Novak demon strates, "fuses the economic system and the political· system into one." And in so doing socialism limits the choices of the individual, an action that is not democratic but rather au thoritarian. To politicize the deli cate, intricate actions of the market place in reality subverts the democratic process. Choice is taken from consumers-and ultimately workers-and placed in the hands of government agents. An excellent case in point is the Lada, the Soviet Union's version of the automobile. The Lada, which is available to Soviet citizens at a few years' wages, has been carefully drawn up by economic planners who supposedly have the "people" in mind. The car, however, has a few flaws. First, and foremost, it is in credibly expensive. Secondly, it is quite noisy. It also breaks down quite easily and buyers are given a hand crank upon purchase because the electric .starter inevitably stops working. No doubt Russian con sumers would rather place their ru bles on a Toyota or a Chevy, but such is not their liberty.

Barriers to Growth One might argue that because Economic Democracy is laid into place by the permission of voters, the market breakdowns that plague dic tatorial socialist nations· like the So viet Union could not happen under Economic Democracy. Yet, since Economic Democracy places produc ers. ahead of consumers in prefer ence, innovation and change that are so necessary to economic growth are less likely to happen. Protection of existing producers and their unions demands the keeping of the status quo. Economic Democracy promises a static society, one in which the eco nomic pie does not.expand, but rather is divided .into politically-popular sections. There is an ironic note of gloom in the discussion. of Economic Democ racy that undermines ,the promise of democracy itself. Writes Novak: Governments can govern today only insofar as they meet the exigent ma terial needs· of their peoples. Given the 1982 ECONOMIC DEMOCRACY 659 new historical possibilities, the economic policies of governments will be rejected if their peoples cannot glimpse the real probability of a future better than the past. Governments depend upon the pro ductivity of their economic system. More than philosophers and theologians have recognized in the past, the promise of de mocracy depends upon high levels of eco nomic productivityY When government intervenes in the marketplace-whether or not it acts in the name of democracy-it does so at the expense of the essence of democracy, that is, free choice.

That it intervenes in the name of freedom is deceptive; that the public accepts such intrusion as part of the democratic process is nothing short of tragic. Yet, in truth, political democracy needs real economic democracy in order to survive. And authentic eco-· nomic democracy is nothing less than the free market. I -FOOTNOTESIMichael Novak, ''The Economic System: The Evangelical Basis of a Social Market Econ omy," The Review ofPolitics,Vol. 43 (July, 1981), 369-370. 2For a look at misused terms or "hooks" in medicine, read Jane M. Orient, "Collectivism in Medicine: An Exception or a Hook?" in the June, 1982, Freeman. 3For an in-depth investigative view of the Campaign for Economic Democracy, an organi zation headed by Thm Hayden and Jane Fonda, read Justin Raimondo "Inside the CED" in the February, 1982, edition of Reason. 4'~ Atari-Age Agenda," Newsweek (June 28, 1982),46. 5UptonSinclair, "How I ReformedThree Great American Families," The Thirties, ed. Morton J. Frisch and Martin Diamond (DeKalb, Illi nois, 1968), pp. 150~15l.

6While the essence of democracy is one man, one vote, the present-day promoters of democ racy have emphasized solely the collective as pects of it, such as "public good," "public inter est," etc. 7Lawrence W Reed, "Seven Fallacies of Eco nomics," Freeman (April, 1981), 213-214. BJustin Raimondo~ "Inside the CED," Reason (February, 1982), 24L 9Raimondo, p. 2l. lORaimondo,p. 2l. Hln an ironic twist, Ronald J. Sider, author of the popular Rich Christians in an Age of Hunger, suggests in his book that the creating oflabor-intensive industries instead of capital intensive ones will ;lctually create more jobs in the service sector, a view also promoted by the late E. F: Schumacher in his Small is Beautiful. The reason for thelr beliefs, in my opinion, is that both men saw work-saving capital as a device that put people out of work, thereby causing unemployment and poverty. Neither recognized that capital creates wealth, and the more wealth that i~ created, the more employ ment possibilities exist.

I2We continue tol marvel at the French who manage to lower t~eir real standard of living by creating such technological wonders as the Concorde SST and the bullet trains. French taxpayers ultimately foot the bill for such de vices. I30ne may argue that price controls have the consumer in mind, but, for the most part, price control legislation !is written so that producers charge on a cost-plus basis, thereby allowing for profit margins. The price-control legislation also, for the most part, restricts entry into the marketplace by neyv producers. I4William H. Peterson, Who /s the Real Employer? (Washington, D.C., 1976), p. 10. I5/bid. 16Novak,pp. 377'-378. I7Novak,p. 368.