As the Occupy movement keeps developing, it seeks solutions for the economic and political dysfunctions it exposes and opposes. For many, the capitalist economic system itself is the basic problem. They want change to another system, but not to the traditional socialist alternative (e.g., USSR or China). That system too seems to require basic change.

The common solution these activists propose is to change both systems’ production arrangements from the ground up. Every enterprise should be democratized. Workers should occupy their enterprise by collectively functioning as its board of directors. That would abolish the capitalist exploitative system (employer versus employee) much as our historical predecessors abolished the parallel exploitative systems of slavery (master versus slave) and feudalism (lord versus serf).

In workers’ self-directed enterprises, those who do the work also design and direct it and dispose of its profits: no exploitation of workers by others. Workers participate equally in making all enterprise decisions. The old capitalist elite — the major corporate shareholders and the boards of directors they choose — would no longer decide what, how, and where to produce and how to use enterprise profits. Instead, workers — in partnership with residential communities interdependent with their enterprises — would make all those decisions democratically.

Only then could we avoid repeating yet again the capitalist cycle: (1) economic boom bursting into crisis, followed by (2) mass movements for social welfare reforms and economic regulations, followed by (3) capitalists using their profits to undo achieved reforms and regulations, followed by (1) again, the next capitalist boom, bust, and crisis. US capitalism since the crash of 1929 displays this 3-step cycle.

In democratized enterprises, the workers who most need and benefit from reforms would dispose of the profits of enterprise. No separate class of employers would exist and use enterprise profits to undo the reforms and regulations workers achieved. Quite the contrary, self-directing workers would pay taxes only if the state secures those reforms and regulations. Democratized enterprises would not permit the inequalities of income and wealth (and therefore of power and cultural access) now typical across the capitalist world.

Actually existing socialist systems, past and present, also need enterprise democratization. Those systems’ socialization of productive property plus central planning (versus capitalism’s private property and markets) left far too much unbalanced power centralized in the state. In addition, reforms (guaranteed employment and basic welfare, far less inequality of income and wealth, etc.) won by socialist revolutions proved insecure. Private enterprises and markets eventually returned and erased many of those reforms.

Traditional socialism’s problems flow also from its undemocratic organization of production. Workers in socialized state enterprises were not self-directed; they did not collectively decide what, how, and where to produce nor what to do with the profits. Instead, state officials decided what, how, and where to produce and how to dispose of profits. If socialist enterprises were democratized, the state would then depend for its revenue on collectively self-directed workers. That would institutionalize real, concrete control from below to balance state power from above.

Workers’ self-directed enterprises are a solution grounded in the histories of both capitalism and socialism. Establishing workers’ self-directed enterprises completes what past democratic revolutions began in moving societies beyond monarchies and autocracies. Democratizing production can finally take democracy beyond being merely an electoral ritual that facilitates rule by the 1% over the 99%.

Richard D. Wolff is Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York. He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications. Check out Richard D. Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at www.capitalismhitsthefan.com. Visit Wolff’s Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It. His weekly radio program, “Economic Update,” broadcasts on WBAI, 99.5 FM in New York City every Saturday at noon for an hour; it can also be heard live and in podcast archive on wbai.org. This article also appears in the Occupy Harvard Crimson.

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