Economic Democracy

Economic democracy is a socioeconomic philosophy that proposes to shift decision-making power from corporate managers and corporate shareholders to a larger group of public stakeholders that includes workers, customers, suppliers, neighbours and the broader public. No single definition or approach encompasses economic democracy, but most proponents claim that modern property relations externalize costs, subordinate the general well-being to private profit and deny the polity a democratic voice in economic policy decisions.

The term “economic democracy” refers to the ability of citizens, particularly workers, their family members and neighbors, to exercise the power to make major economic decisions affecting society.

There is a paradox at the heart of contemporary capitalism. Societies in the West are fervent about their democratic credentials. Our politicians give speeches extolling the virtues of democracy, our self-conception of being citizens in a democratic state is deeply ingrained in our identity. And yet, despite this, a central part of society, the economy, has very little democracy in it at all. Workers do not elect the managers of their firms. Bankers do not allocate finance with any accountability to the communities in which they operate. Investment decisions are not made with any participation of the citizenry. It is like we have erected a wall down the middle of society, and said that in this half, the economy, there is no need for democracy, while at the same time insisting on calling society as a whole “democratic.”

A fundamental democratic principle is that public power should be accountable to those who are affected by it (i.e., the public). This is a basic safeguard against tyranny and one of the most fundamental rationales for having democracy at all. Yet in a variety of ways, managers, employers, investors, and financiers clearly exercise power too. Their decisions have massive social and public consequences—from a manager’s decision to lay off a thousand workers, to a corporate decision to invest in dangerous deep sea oil extraction, to bankers’ decisions to provide risky subprime mortgages and resell them as complex debt instruments – these decisions have undeniable public consequences. Yet in stark contrast to our political system we do not demand that these people be accountable to those affected in any standard democratic way.

The core idea of economic democracy is that wherever there is power there should be accountability. In contemporary society, economic power is exercised in three main areas: workplaces (where bosses and managers exercise significant power over workers), financial organizations (where banks and money markets exercise significant power through their control over lending or refusing credit), and investment (where business owners exercise significant power over the nation’s citizens through their ability to invest or divest causing the economy to grow or falter).

The power that is exercised over workplaces, finance, and investment is for all intents and purposes political power, since it involves public, sustained relationships of authority and subordination, resulting in fundamentally different levels of freedom for different people. Unaccountable, unequal political power in a democratic society is unjustifiable, and so new economic arrangements should be experimented with in order to allow these sources of power to be accountable to the citizenry on a formally equal basis. The essence of economic democracy is that we should strive to democratize these three areas.

In large measure, the reason for the growing prominance of economic democracy is the failings of state socialism on one hand, and the growing disillusionment with the donimant global economic regime of corporate capitalism on the other. Economic democracy differs from state socialism in that it favors democratic (and often decentralized) planning over former communist-style central planning and makes considerable use of market mechanisms. Economic democracy differs from corporate capitalism in that it favors public or community forms of ownership as opposed to stock ownership, and favors worker self-management over top-down corporate management.