A Democratic Economy for the Left- a friendly reply to Eric Aarons

above: Social democratic economist Karl Polanyi - author of 'The Great Transformation'

In this our latest article Shayn McCallum responds to Eric Aarons again on the theme of the Democratic Mixed Economy.  Drawing from the insights of Karl Polanyi McCallum argues for a democratic mixed economy employing both markets and planning, but moving beyond 'the market society'.  For McCallum economy must serve society and not vice versa.  This includes environmental preservation.  

Honest and respectful debate always welcome!!!

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Shayn McCallum, October 2012

I appreciate the response that Eric Aarons recently made to my recent article on a democratic mixed economy. His critique raised a number of important points that I had been either entirely unable to address or at least unable to expand on in my paper which had been originally written as a contribution to discussions on economic policy within the Party of European Socialists, first being circulated within the French Socialist Party and German SPD.  I also offered it within the UK Fabian society as a critique of Ed Miliband’s “Decent Capitalism”.  Indeed, my main target in writing the original article, as much as to promote the idea of what I term (albeit imperfectly) a “democratic mixed economy” was to attack the use of the term “decent capitalism” which, I feel, is an unfortunate choice, linguistically and semiotically, that sets the parameters of the debate on economic policy at exactly the wrong point.

This original article was somewhat truncated to meet maximum length requirements and, therefore, was only partially able to convey the theoretical position I am coming from.   As I feel a more detailed explication of this background may serve to clarify the areas in which my approach and Eric’s both converge and diverge, I would like to take the time to more clearly set out my assumptions below.

To begin with, I’d like to go over some of the areas where I feel Eric and I are closer than it may appear based on my original article and Eric’s subsequent response.  Firstly; both Eric and I share an ecological emphasis.  This may not be terribly clear from my original article but, in fact, we both appear to be agreed on the need to prioritise the issue of environmental destruction and, therefore, question any economic model based on untrammelled growth.  I hinted at this very briefly in my original argument by including a few sentences rejecting the idea that there is much value in trying to reinvent manufacturing in the advanced capital-dominated societies.  Also, like Eric, I am not overly challenged by the idea of a post-industrial society (although this involves problematic aspects which I will come to further on in this response).   Furthermore, I would also tend to agree with Eric that econocentric arguments reducing socialism to questions of property forms are caught in an overly-limiting approach that is, at best, irrelevant and at worst, totally incapable of offering cogent responses to modern realities.  Although, due to being an article focusing on economic issues, it may not have been clear; my intention was largely to attack econocentric thinking, which remains deeply imprinted in our collective consciousness.

With all respect to the considerable genius of Karl Marx, the Left remains burdened with the legacy of “Marxism” which, I would argue, is merely the flip-side of neo-liberalism, in that both approaches are agreed on the centrality of economics.  This is, ironically, part of the reason why neo-liberalism gained so much ground among social-democrats after the rise of Thatcher and Reagan in the 1980’s and the collapse of Soviet-style socialism in the last year of that decade.  The either/or, Marxism vs. Liberalism discourse ultimately obscured what was always really going on within the advanced, capital-dominated societies.  Although capitalism is a force that has, especially in recent years, established greater and greater dominance, I do not feel it is entirely accurate to simply refer to most modern economies or societies as “capitalist” as this obscures the complexity of what is actually occurring.  Capital has had to struggle to establish and hold onto its hegemony over the course of its dominance.  “Capitalism” (meaning the hegemony of capital) is a reality, but it is not as strong as either the Marxist approach, nor that of its neo-liberal mirror image, would have us believe.  In fact, a brief look at the actual history of capitalism shows its hold to have been marked by constant precariousness and unending setbacks resulting from its many, obvious failures and the ways in which societies have organised to check and restrict its power. Failing to realise this, amounts to short-changing ourselves at exactly the moment when we have an opening to fundamentally change our way of life for the better.

To clarify where I am coming from; I should explain that my own theoretical position is strongly rooted in the thought of the sovereign socialist thinker Karl Polanyi, whose nuanced critique of capitalism was equally critical of the economism of Marx’ approach.

Polanyi and anti-economism

Karl Polanyi was a sovereign socialist of Hungarian origin who authored one of the most comprehensive critiques of capitalism produced from outside the Marxist tradition; The Great Transformation (which Eric clearly alludes to in the title of his response to my article).  Indeed, Polanyi was seriously critical of Marx, in that, Marx’ own critique of capitalism was fundamentally econocentric.  The eschatological historicism of Marx that predicted an inevitable collapse of the capitalist system and/or its overthrow by the socialist proletariat was based on one serious error; that the free-market capitalism described by the classical economists such as Smith and Ricardo represented the economy as it actually was (or would become in time as the last remnants of feudalism were expunged) rather than merely as an idealised, utopian model.  In reality, capitalism, as envisaged by the classical economists, is an impossible system- a utopia (or dystopia) capable of functioning only on paper.  This contention of Polanyi’s is borne out by the fact that, whenever there is an attempt to establish a self-regulating market system, collapse occurs soon after.  Polanyi himself witnessed the Great Depression and we are currently witnessing the second proof of Polanyi’s theory as the rotten fruits of three decades of neo-liberalism are reaped over our heads. 

Liberal economists, of course, always counter from the opposite perspective; blaming government intervention or imperfect policies for inhibiting the growth of the “true” self-regulating market yet, quite honestly, whilst this ever-ready excuse that things went wrong because the capitalism involved was not “pure” capitalism should be given more credibility than the frustrated Marxist claim that the Soviet bloc collapsed because it was not “pure” socialism, is beyond me.  The reality appears to be that there is always something blocking the “pure market economy” and always will be because such an economy, in reality, is utterly unworkable.  Most people, not just the working-class, will want to oppose it or, at the very least, modify it to reduce its extremes.  Thus the undying nature of the liberal dream paralleling that of the convinced Marxist; “our system would surely work if only people would stop getting in the way and diluting its purity”. We are faced with a hermetically-sealed, self-replicating logic as un-debatable as an item of religious faith.

According to Polanyi however, society must be understood as an organic whole, of which the economy is but one embedded part.  Unlike Marx who divided a society into its “base” and “superstructure”, Polanyi made the point that this econocentrism had only emerged with the industrial revolution and was part of the ideology of this revolution.  For most of history, the economic question had been secondary and embedded within a broader network of culture, social expectations, legal arrangements and political systems.  The specific feature of capitalism, as a rising force, was a conscious effort to extinguish pre-industrial and pre-capitalist modes of existence to impose “the rule of economics” over the whole society.  Where under feudalism, with all its abuses, ordinary people enjoyed certain unspoken social rights, primarily the right to live by, if all else failed, hunting and gathering on common land, measures such as the famous enclosures act forced the poor to seek their means of sustenance by selling their labour on the market.  The important feature of the rule of capital was its totalitarian nature- its quest to privatise common space in order to ensure total compliance with the market.

Moreover, “the market” was no longer the simple merchant’s or trader’s market that had existed and evolved in most societies able to support more than a subsistence economy but rather a new system based on legal contracts in which virtually every form of commodity could be traded.  As Eric points out in his response, financial markets and consumer markets are of a different nature yet “market economics” ignores this fact and treats all commodities as basically similar.  Land, labour and capital may all be bought, sold or rented alongside consumer goods and professional services in a theoretical space of free and open mutual contracts entered into willingly by buyers and sellers.  What the rising capitalist class intended to do was to make this system pervasive so that, rather than the multi-level feudal economy based on taxation/tribute and peasant subsistence with trade existing, however sophisticated, as a secondary pursuit by the urban bourgeoisie and peasant farmers producing enough to trade in surpluses, capitalism was a system seeking to enshrine trade and exchange as the central economic mechanism.  The dream of capitalism, in other words, is not merely a “market economy” (to replace the multi-tiered economies of the pre-capitalist era) but, in effect, a “market society”.

So far, none of this picture much contradicts Marx, however the important difference between Polanyian and Marxian narratives is that, unlike Marx who believed that the capitalist revolution had been successfully completed, or at least soon would be, Polanyi argued that the reality was somewhat more complex.  People resisted the imposition of the economy on their lives creating, what Polanyi termed “a double movement” in which every attempt to advance capitalism was met by popular resistance, necessitating compromises and accommodations between the revolutionary capitalist class and the various counter-forces (which included, alongside the nascent urban proletariat, the peasantry, dispossessed feudal aristocracies, petit bourgeoisie and various other groups all presenting a range of, often contradictory and antagonistic, objections to market rule).  Unlike Marx, who envisaged a revolutionary awakening in the urban proletariat as the dialectical antithesis of this capitalist rise, Polanyi saw a conservative resistance to a revolutionary capitalist class attempting to preserve, and later extend, rights which were being extinguished.  Moreover, it was this initially conservative response that empowered the radical answer in socialism which Polanyi defined as “the tendency inherent in an industrial civilisation to transcend the self-regulating market by consciously subordinating it to a democratic society”[1]. 

Marx had ambiguous feelings towards democracy.  Towards the end of his life, he began to speculate that, in countries such as Britain at least, socialism might yet be introduced peacefully.  For most of his life however, Marx saw parliamentary democracy, in particular, as little more than a bourgeois trick.  Subsequent orthodox Marxists belittled and ridiculed notions such as “the parliamentary road to socialism” and the revisionist ideas of Bernstein that, in the end, despite the ongoing embarrassment they caused, came to roost in the practice, if not theory, of virtually the entire European socialist movement (including the Eurocommunist parties).  Whilst Marxists disdained the political, seeing all politics under capitalism as bourgeois politics, the success of socialist parties- not necessarily in building (capital “s”)“Socialism” as conceived in its pure form, but in forcing back the power of capital, clearly show its effectiveness.  This success is much under-estimated, I believe, due to the ideological blinkers imposed by orthodox Marxism.  According to the Marxist “revolutionary” reading of social-democracy, reformism was a form of betrayal and the reformist working-class suffering from “false consciousness” however, for Polanyi, like Bernstein before him, this slow, incremental struggle in the field of politics was the natural form of the struggle for socialism itself in a democratic (or democratising society). Moreover, for Polanyi, this process of democratisation was, in itself, part of the socialist struggle per se.

Looking at modern history through Polanyian eyes, everything suddenly makes sense.   Whereas Marxists struggle to account for the lack of revolutionary fervour in the European working-class and liberals insist that capitalism and democracy are inseparable twins, a Polanyian reading of history sees democracy emerging and advancing largely against capital.  This is particularly obvious in the neo-liberal era as democracy is being increasingly reduced to an empty ritual whilst “the market” is held up as an apolitical, “common sense” area not to be interfered with by meddling politicians or the unwashed plebeian masses with their “market distorting” trade unions, environmental organisations and other barriers to the sovereignty of business.  In truth, “capitalism” has never managed to fully establish itself although it has acquired considerable ideological force, because, in the end, most people (including smaller capitalists) don’t want to live in the kind of dystopia capitalism actually implies.  If “pure” capitalism were ever established, it would quite simply resemble hell for almost everyone (shades of which we can see in the U.S. or Greece, Spain, Portugal and Ireland among others)- a system with no security where every individual was seeking the maximisation of their own self-interest and the losers were simply “left to the wolves”.  Modern “capitalism” as we live it is a compromise and always must be.

“Economic Freedom” and “Freedom from Economics”

The neo-liberals rankle against the necessity of this “market-distorting” compromise which has arisen as a result of subordinating the economy to society through the mechanism of democracy and have instead, attempted to create a conceptual universe based on “economic freedom” and have moved to enact policies, over the last 30 years, which entrench this mythology.

 “Freedom” in neo-liberal terms is the freedom to enter contracts, to buy and sell at liberty and to act in one’s own self-interest.  It does not take a great deal of effort to expose the shoddiness of this conception of freedom which, for the majority does not even amount to meaningful economic freedom (for example; can the “right” to work for subsistence wages or starve be considered a genuinely free choice? Yet this is the essence of the neo-liberal approach to unemployment). 

The socialist answer to capitalism, has always been, in effect, to propose “freedom from economics”.  Marx’ rare ruminations on communism envision a society where work is no longer mere “labour” but performed as an act of contribution to the society or self-fulfillment, for which each individual may expect the satisfaction of his/her material needs without the need for elaborate accounting.  It is a beautiful vision and one worth dreaming about for the very distant future.  For the forseeable future however, we may have to tolerate some degree of economic rule over our lives.  Nonetheless, the goal of the Left must be to “put economics in its place”.  The economy must serve humanity and not the other way around.  In other words, rather than the empty ideal of “economic freedom” which presents a false definition of what it means to be free, the Left must continue to struggle for “freedom from economics”.

Ironically however, to free ourselves from economics we must turn our attention more to economic issues.  I would like to assure Eric that, perhaps contrary to the impression given in my previous article, I am not altogether dismissing questions of culture as political issues, yet, I must insist that these must not become the sole, or primary, focus of politics in the current period.  Unfortunately, for the moment, economics truly is the “substance” of politics because the market has enslaved us.  How can we doubt this for a second when the richest, most prosperous societies in the world are facing galloping poverty rates, massive unemployment and the wholesale destruction of social services?  Moreover, this is all occurring in the middle of unprecedented material abundance.  Throughout Greece and Spain the shelves of shopping centres and supermarkets groan with an abundance of goods even as the streets outside fill with the recently impoverished and unemployed who lack the economic means to consume what is available.  Here we see the tyranny of economics and the waste and inefficiency of a market society. Production and distribution are misaligned.

This does not imply that the only, or even preferred solution is a return to Soviet-style planning.  The downfalls of this system have been enumerated at length for years.  Nor is there much point asserting some utopian notion of “democratic planning”(not that it mighn’t be a good idea to experiment with this on a small scale) or some other exotic solution.  People used to being able to determine their own consumption preferences in the marketplace are unlikely to want to replace this with a totally planned system no matter how democratic.  Markets clearly have their place but what should that place be?  What goods and services should be covered by the market and which should be provided as untraded “social goods”?  These are important questions.  Few people much mind having a variety of restaurants to go to or a choice of clothing styles or technological items but perhaps many of us do not feel a pressing need for a variety of power providers competing to sell us electricity or a host of private banking institutions that differ only to the extent that they are ripping us off.  And there are other “empty” choices that would perhaps be more satisfactorily be taken over by well-run, transparent, public service providers (or perhaps a combination of public and third-sector non-profit providers if so desired) such as education, health, public utilities and welfare services.

My reason for proposing a “democratic mixed economy” (and I should point out I am not “married” to the term but prefer it, for a number of reasons, to any of the alternatives on offer) is to allow for an open-ended experimental approach to reorganising the economy that puts people first, through the democratic, participatory mechanism and which is open-ended with regard to the question of the role and limitations of markets, the ownership and property mechanisms that exist and the degree of state, as opposed to private, cooperative or third-sector delivery of services.  My own orientation within such a framework, would be strongly towards the socialist end of the continuum and the “mix” I would prefer would perhaps be leaning heavily towards the public/cooperative/mutualist approach but, in the end it would not be me but the majority which would (hopefully) have the final say on the composition of the mix (which would be bound to change over time anyway- probably in ways we cannot even foresee).

Issues of Economic Structure and Governance

Of course, as Eric pointed out, with regard to Australia but, in fact it is also largely true of all the advanced economies, we are no longer dealing with “industrial” but rather “post-industrial” economies in most of the wealthy nations.  As I mentioned above, I do not feel the shift to a service economy is, in itself, a particularly terrible thing any more than it can be seen as intrinsically emancipatory.  There is, however, an important element to this structural shift which presents a far more serious problem for the Left: the growing international division of labour effected by “globalisation”.

It should be obvious to anyone that, no matter how abstracted from any kind of material production most of our jobs become, someone somewhere has to be growing the food we eat, buy, sell, market or advertise just as someone has to manufacture the clothes we wear, the vehicles we travel in and the computers we increasingly rely on in our service-sector jobs.  The idea of a “virtual economy” is a risible fantasy that can only exist as long as we are prepared to ignore the fact that everything we really need to stay alive is physically produced somewhere.

Indeed, the shift from a “production” to a “consumption” oriented society was one of the pillars of neo-liberal strategy.  As Marx pointed out, when we view economic processes as consumers it is easy to ignore the injustices and exploitation that delivers us cheap goods, however, if we look at the same process through the eyes of producers, all of these miseries become clear.  Not only did killing off industry in the wealthy countries have the effect of increasing unemployment (and therefore facilitating union-busting and assaults on wages in order to pursue the anti-inflationary policies that neo-liberals are so in love with) but also allowed large companies to deepen the international division of labour that is so beloved of free-trade theory, by relocating manufacturing to the cheap-labour havens of the “developing world”.

Add to this the fact that there is no equivalent of the state at international level to govern or regulate these processes and it is quite clear that this whole process has had a great deal to do with a strategic flanking of the postwar social-democratic compromise.  Governments renounced their competencies over economics “for the greater good” leaving no political response to market rule easily available.

To a large extent, this explains the “deer caught in the headlamps” response of social-democrats to the current global economic crisis.  The tools simply do not yet exist to do much about the problems we face.  Where governance mechanisms are being instituted however, as can be seen at present in the European Union, they are not of a democratic nature but rather embody a technocratic response aimed at preserving the hegemony of capital, if not the self-regulating market nonsense that has had its dirty underwear exposed yet again.

So, what to do?  In this era, international coordination among Leftists is a matter of survival.  This is something I have been actively struggling for in the Party of European Socialists.  Socialists and social-democrats in Europe (which is my primary focus as I live on the margins of Europe in Istanbul, Turkey)  need to work much more unitedly to present structural reforms at the European level that would enable greater democratic participation and transparency as well as advance a Europe-wide “social Europe” agenda.  This is not an easy proposition as the European institutions are weighed down with layers of treaties, bureaucratic and technocratic measures and entrenched ideologies that are firmly opposed to reform.  The European Union was specifically conceived of as a “benign technocracy” rather than a democracy as its architects feared (probably correctly) that European public opinion would be hostile to integration- let alone political union.

The need to reform Europe is only one, fairly limited, step in the struggle to reform globalisation.  I, personally, do not consider globalisation as an intrinsically negative phenomenon and certainly see no future in any attempt to go backwards to re-entrench the Westphalian state or try to reindustrialise the rich world economies.  Our problems today truly are global yet we lack global political mechanisms to deal with these.  Ultimately, these struggles to oppose and limit the power of capital must become international and, moreover, they must be democratic if they are to succeed in any worthwhile way.

Environmental Collapse and Reevaluating Growth

Finally, I’d like to address one of the most pressing issues raised by Eric in his critique of my previous article; environmental destruction.   This is perhaps one of the most important indications of our need to adopt a global approach as the environmental disaster posed by climate change is not limited in its effects to any one country or region but rather, poses significant risks for all life on earth.

The ideology of untrammelled growth central to capitalism is profoundly dysfunctional.  The only analogue in nature to an organism that recognises no limits or controls to growth is cancer.  As we all know, the point at which untreated cancer cells cease growing is at the point where the host body dies.  It is an ugly analogy but, the economic system we currently follow is essentially cancerous.  Schumpeter’s “creative destruction” increasingly looks more like simple destruction without any “creation” worth mentioning.

It is necessary that, lacking a global political mechanism able to coordinate such efforts, individual nations do what they can to respond to the environmental crisis but, we must acknowledge that, just as individual responses to the related economic crisis are limited, so too will our very best efforts to address the environmental crisis be.  This is, however, no reason for refraining from the attempt.  What can be done must be done and struggle is the best way to perceive the limits to what can be achieved and the only way to force up past those limits.

What Is To Be Done?

The task for Leftists in the current era is, I would argue, to advance international cooperation and solidarity among ourselves whilst reaching out to our allies.  The movements for change of the future are liable to be networks and loose coalitions cooperating around specific issues rather than the mass parties of the past.  We need to leave our ideological conceits, sectarian preferences and vanguardist fantasies buried in the Twentieth Century where they belong. 

Our goal must, I believe, be to advance new forms of participatory democracy at the local, national and international level and, a major programmatic focus must be economic.  If we are to ever be “free from economics” we must attack economism by offering alternative economic models that subordinate the economy to society and democratic politics.  As much as possible, we need to experiment with practical models rather than attempting to push dry theory which does little more than keep academics in jobs.  People are understandibly skeptical of almost any new idea until they can see for themselves that it works.  The wasteland of failed ideas lurks behind us all and provokes us all to caution and conservatism; the Left needs to work with this cautiousness rather than trying to browbeat people with our “superior understanding”- an unfortunate personality flaw which has left us stereotyped as “out-of-touch, self-righteous elites” by the cunning conservative populists of the Right.

There is no question that the task is daunting and the stakes are extremely high but the global crisis of capitalism is right on top of us, threatening everything we hold sacred and even everything that keeps us alive.  There is a golden opportunity presenting itself, for perhaps the briefest of times, to change direction and lay the foundations for a quantum shift in the way we live on this fragile planet of ours, how we treat each other and how we view ourselves and our societies.  The possibility to really change for the best is tantalisingly tangible yet frustratingly held back by our own limitations and the lack of structures to work through.

I admit that my own answers remain vague and more a matter of principle than detail but these things are always a collective effort.   Already there are countless examples of activists doing what needs to be done and trying to implement change on the ground, perhaps what we need is just to deepen our links with each other and see what can be gleaned from our common experience as we try to forge disparate acts of resistance and creation into a broader strategy for change.  The nature of the times demand that we stretch the limits of our creativity in responding to the needs of our era.

In contrast, it is in just such times as these that the last thing we need is a “Left” that has nothing more to offer than a bleating plea for “decent capitalism” based on a return to some sanitised, nostalgic fantasy of the industrial past.  Such an appallingly stunted vision is worse than no vision at all, and it is in this spirit that I was originally moved to make my previous contribution to the economics debate within the European social-democratic movement.

A Final, Personal Note

I hope this goes some way towards clarifying the perspective from which I approached my previous contribution on the “democratic mixed economy”.  I believe there are several points on which my own views and Eric’s converge or, at least overlap though several points of contention may yet remain, which I believe is a strength rather than a weakness as it is only through discussion that ideas can be refined.  I would be more than happy to discuss these ideas further with Eric or anyone else who is interested.   The most important thing is to discuss and develop the concepts and approaches that can take us forward and my own views are nothing but a work in progress- I am always open to the persuasion of better ideas and more insightful perspectives.  In other words, all (constructive) responses are welcome.

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[1] Polanyi Karl (2001 (1944) The Great Transformation, The Political and Economic Origins of Our Time, Boston,

                                                 Beacon Press  p. 242