In politics, being competitive in the realm of ideas is a prerequisite to being competitive anywhere else. The following is the first part of an attempt to start mapping out an explicitly pro-working class vision upon which a wider movement might be built, namely that of economic democracy as opposed to state socialism or ‘free-market’ capitalism. Part 1 attempts to cover the philosophical underpinning, the ‘why’ of economic democracy; part 2 will begin looking into the ‘what’ and ‘how’.

Introduction: grand strategic failure, or how the left managed to make an enemy out of the working class

The left currently lies utterly defeated, while the right reigns triumphant. So much so that, even in the early stages of a profound crisis for the capitalist system on a par with the Great Depression, the left has no response. One needs only to compare the political state of play now to then to see how profoundly the left has been vanquished. Then, the capitalist class was running so scared that both strategic concessions to the left (in the form of social democracy) and alliances with fascism were felt necessary if the threat from the left were to be beaten back. Now, no such danger is felt. What public anger there is, when it’s focussed politically, goes in favour of the far-right, as they are the only major players doing what should be the left’s bread and butter of at least acknowledging day-to-day working class concerns. What currently passes for the ‘left’ has in large measure abandoned class politics for identity politics, which has succeeded only in preparing the ground for the advance for the BNP (if politics is allowed to become racialised, and the left prioritises non-whites in general as their constituency, then why wouldn’t the white working class give their allegiance to those they perceive as the ‘white party’?). The white working class now regards the left, when they regard it at all, with suspicion and hostility, as an enemy rather than an ally.

If the left is to even survive, let alone advance, understanding the errors that have led it to this pass is crucial. What is the left even for, in its current state? What is the goal? Throughout the twentieth century, its goal has been, brutally summarised, state control of the economy, not as a means to an end but as an end in itself, as a priori the highest form of socialism. This is an ideological commonality that has encompassed, in its differing forms, both the dictatorial left in the Communist bloc and the Parliamentary left in Western Europe, including the left in the Labour party here. Socialism has, in practice, become synonymous with state control in one form or another. But while state control of the economy may have been the goal of the left, there is nothing to suggest that this was, or is, a particular goal or aim of the working class. If anything explains the parting of ways between the left and the working class, then, at bottom, it is this: the adherence by the left to undemocratic, top-down and fundamentally anti-working class methods.

However, there is no reason why socialism should be synonymous with dictatorship or coercion. The eminent American political scientist Robert Dahl made the elementary observation in 1947 that there were two, potentially contradictory, schools of left wing economic thought: one advocating central control of the economy in the hands of the state, and the other advocating workers’ control, where “workers will no longer be merely passive victims of the productive process, but direct participants in the control of productive enterprises”[1], and that, crucially, “after a decade or more of debate over the extent of worker participation in nationalised industries, in 1944-45 the British Labour party flatly rejected the notion that workers were entitled to participate directly in governing state-owned firms [italics added]“[2], coming down firmly on the middle class, Fabian tradition of state control. This, in microcosm, exemplifies the left’s grand strategic failure in the twentieth century. Why this happened is complex (though there is not scope to discuss it here, the influence that Bolshevism, as seemingly the form of socialism most likely to succeed, had on the wider left was crucial[3]), but certainly a major factor in this country was the fact that much of the leadership on the left came from the middle class, in particular the Fabians, resulting in the left drifting away from the pursuit of purely working class goals. The Fabians were an intellectual grouping/think tank formed in 1884 which advocated the ‘gradualist’ road to state socialism, and whose key members, Sidney and Beatrice Webb, founded the London School of Economics in 1895. Clement Attlee, aside from being a public school educated social worker, served as head of the Fabian Research Bureau[4]. Marx and Engels once wrote of middle class socialism:

“A part of the bourgeoisie is desirous of redressing social grievances, in order to secure the continued existence of bourgeois society… The Socialistic bourgeois want the living conditions of modern society without the struggles and dangers necessarily resulting therefrom. They desire the existing state of society minus its revolutionary and disintegrating elements. They wish for a bourgeoisie without a proletariat. The bourgeoisie naturally conceives the world in which it is supreme to be the best; and bourgeois socialism develops this comfortable conception into a more or less complete system. In requiring the proletariat to carry out such a system, and thereby to march straight into the New Jerusalem, it but required in reality that the proletariat should remain within the bounds of existing society, but should cast away all its hateful ideas concerning the bourgeoisie”[5].

The Fabians were a perfect example of this, and Fabianism was such a ‘complete system’. This socialism -the strand which came to dominate the Labour party from at least Attlee until the formation of New Labour, when all pretences to socialism were dropped- is one in which the benevolent middle class rules. They saw the working class as a potential winning horse in history, albeit one that needed the firm hand of a middle class jockey. Their attitudes to the independent, risen working class were spelled out quite explicitly at the moment of truth by Beatrice Webb on the second day of the greatest working class uprising this country has ever seen, the 1926 General Strike, which she described as “a monstrous irrelevance in the sphere of social reform” and forecast would be “the death gasp of that pernicious doctrine of ‘workers’ control’ of public affairs through the trade unions, and by the method of direct action”, something she considered to be an “absurd doctrine… a proletarian distemper which had to run its course – and like other distempers, it is well to have it over and done with at the cost of a lengthy convalescence”. Of the strikers she wrote that “There will be, not only an excuse but a justification of victimisation on a considerable scale” and praised scabs as “patriotic blacklegs!”[6]. John Maynard Keynes, although more of a Liberal by inclination, still had enough in common with the Fabians, and they with him, to be able to join them, sharing as they did a technocratic view of how systematic state action might allow industrial society to be run successfully from the top down without engendering crisis after crisis. In this regard, Keynes’ capitalism was no different from the Fabian’s socialism. Keynes’ view of the working class ran thus: “When it comes to the class struggle as such, my local and personal patriotisms, like those of every one else, except certain unpleasant zealous ones, are attached to my own surroundings. I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie… How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?”[7].

When the middle class left saw that the working class wasn’t going to deliver them the victory they wanted -at least not on their terms- the fishing around for another potential agent of historical change began, with students and ethnic minorities being anointed by the left as the new proletariat, and the ‘old’ proletariat being summarily dumped. The social democrats who so easily transmuted into New Labour are made of the same timber as the former Communist apparatchiks who so easily became free-market thugs after the fall of the Berlin Wall: the only concern is to be on the winning side. With friends like these…

1) Their neo-liberalism: how the right won the battle of ideas

“Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” Milton Friedman.

A look back at the twentieth century will show that the right always fought the class war in a more ruthless and strategically astute manner than the left. While the left was fully embracing statism after World War II -and before-, the right had the sense to begin exploring other avenues. The smarter elements realised that if the communist threat was to be repulsed, the right had to relinquish some of its own excessively statist tendencies -at least in the developed world- and go down another path. The left’s embrace of top-down/anti-democratic methods allowed the right -the side who brought us two world wars and the Great Depression- to increasingly paint themselves as the defenders of freedom and democracy, against the threat posed to these values by state socialism. Throughout the latter part of the twentieth century, the claim that there was more freedom to be had under capitalism than socialism found some resonance beyond the right’s natural constituency, including parts of the working class, for the simple reason that there was a certain amount of truth to it. While the left, instead of looking to extend democracy into the economy, abolish class distinctions and end the exploitation of man by man, was busying itself trying to make a moribund, unsustainable, inherently flawed and undemocratic state socialism work, the right were formulating a defence of free-market capitalism predicated upon the notion that it was, in fact, a form of economic democracy. Milton Friedman, the most feted economist of the twentieth century alongside Keynes, wrote in his prime philosophical work:

“Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom… By relying primarily on voluntary co-operation and private enterprise, in both economic and other activities, we can insure that the private sector is a check on the powers of the governmental sector and an effective protection of freedom of speech, of religion, and of thought… Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion – the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals – the technique of the market place. The possibility of co-ordination through voluntary co-operation rests on the elementary -yet frequently denied- proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed. Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economy- what we have been calling competitive capitalism”[8].

So for Friedman, power in a free market economy lies with the invisible hand of the sovereign individual. As Friedman quite rightly notes, “the great threat to freedom is the concentration of power”, and it is the free market which decentralises, disperses and devolves economic power. It is the consumer, through the independent exercise of his demand, who determines what is produced. The distribution of wealth, like the rest of the economy, is shaped simply by the combined outcome of individuals utilising their talents and exercising their initiative as a free, rational agents in the marketplace, where “all transactions are bi-laterally voluntary and fully informed”. For Friedman, the private sector of the economy is completely free and democratic, with the sole threat to individual freedom and liberty coming from an over-powerful or too-large state sector.

Thirty-nine people in a hotel in Switzerland

This defence of capitalism did not originate with Friedman: he took it from Friedrich von Hayek (who in turn was inspired by Ludwig von Mises). It is useful to briefly look at the formation and influence of this ideology, as it demonstrates how seriously the right take the task of defending their interests, the importance they attach to winning the battle of ideas, and how the pro-working class movement has fallen short in these regards. In 1947 Hayek convened a conference of like-minded intellectuals at the Swiss resort of Mont Pelerin on the banks of Lake Geneva. This grouping, which included a young Friedman and another future Nobel Prize-winning Chicago School economist, George Stigler, all saw themselves as classical liberals and believers in free markets and individual liberty, following in the tradition of Adam Smith. They had a shared concern with what they identified as the rise of a collectivist, statist consensus -encompassing communism, fascism and Keynesianism- among politically minded people, particularly the intelligentsia. The Mont Pelerin group saw it as their task to revitalise the tradition of classical liberalism as a means of defeating the statist menace. Hayek was quite clear that he saw his task as winning the hearts and minds not of the masses, but of the elites: he ascribed the rise of collectivist ideologies to “the lack of a real programme, or perhaps I had better say, a consistent philosophy of the opposition groups… what to the politicians are fixed limits of practicability imposed by public opinion must not be similar limits to us. Public opinion on these matters is the work of men like ourselves, the economists and political philosophers of the last few generations, who have created the political climate in which the politicians of our time must move”[9]. This was an attitude shared by Keynes and Sydney Webb of the Fabians, who said in 1886 that “Nothing is done in England without the consent of a small intellectual yet political class in London, not 2000 in number. We alone could get at that class”[10] (the LSE was founded precisely for this reason). Hayek was of the view that a prerequisite to re-establishing economic liberalism as a political force was re-establishing it as an intellectual force. There had been a previous attempt in 1938 in Paris to commence a classical liberal counter-offensive, motivated by the rapturous response that Keynes’s General Theory received upon publication in 1936 -‘Le Colloque Walt Lippmann’, named after the American writer who had similarly identified a collectivist groundswell in 1937- , but the war had interrupted the effort. The Mont Pelerin meeting in 1947, following on from the publication of Hayek’s great anti-collectivist tract The Road to Serfdom in 1944, marked the formal beginning of that ultimately successful campaign: this is where ‘neo-liberalism’ comes from, this gathering of thirty-nine people in a hotel in Switzerland in 1947[11].

‘Autonomous spheres in which individuals are supreme’

For Hayek, liberalism stood in direct contrast to collectivism. Where collectivism looks to centralise ownership of property and decision-making power in the hands of the state with the intention of consciously directing society toward some pre-determined goal, liberalism sought to decentralise property and decision-making power as far as possible down to the individual. Hayek lamented that “For at least twenty-five years before the spectre of totalitarianism became a real threat, we had progressively been moving away from the basic ideas on which European civilisation has been built… According to the views now dominant the question is no longer how we can make the best use of the spontaneous forces found in a free society. We have in effect undertaken to dispense with the forces which produced unforeseen results and to replace the impersonal and anonymous mechanism of the market by collective and ‘conscious’ direction of all social forces to deliberately chosen goals” [12]. This for Hayek amounted to “an entire abandonment of the individualist tradition which has created Western civilization… Although we had been warned by some of the greatest political thinkers of the nineteenth century, by de Tocqueville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism”[13].

Hayek denounced the progressives of his time who had been seduced by the notion that socialism might lead to increased freedom. Hayek was of the view that the only means the socialists had to achieve their goals were centralisation and statism. As noted above, in this he can hardly be blamed, because by 1944 the left had by and large embraced solely centralised, statist methods. Hayek asserted that, because of this, notions such as ‘individualist’ or ‘democratic’ socialism were contradictions and oxymorons. Socialism, like any other ideology which sought to consciously direct society toward some goal instead of simply making “the best use of the spontaneous forces found in a free society”, could only ever be a genus of the greater species of collectivism, and thus all the dangers inherent in any other form of collectivism applied to socialism, no matter how superficially noble the goals of socialism were:

“the ‘economic planning’ which is the prime instrument of socialist reform, can be used for many other purposes. We must centrally direct economic activity if we want to make the distribution of income conform to current ideas of social justice. “Planning”, therefore, is wanted by all those who demand that “production for use” be substituted for production for profit. But such planning is no less indispensable if the distribution of incomes is to be regulated in a way which to us appears the opposite of just. Whether we should wish that more of the good things of this world should go to some racial elite, the Nordic men, or the members of a party or an aristocracy, the methods which we shall have to employ are the same as those which could ensure an equalitarian outcome… The common features of all collectivist systems may be described, in a phrase ever dear to socialists of all schools, as the deliberate organisation of the labours of society for a definite social goal… The various kinds of collectivism, communism, fascism, etc., differ between themselves in the nature of the goal towards which they want to direct the efforts of society. But they all differ from liberalism in wanting to organise the whole of society and all its resources for this unitary end, and in refusing to recognise autonomous spheres in which individuals are supreme. In short, they are totalitarian in the true sense of this new word which we have adopted to describe the unexpected but nevertheless inseparable manifestations of what in theory we call collectivism [italics added]“[14].

Hayek believed that collectivists of all stripes shared the same fanatic, authoritarian mindset. He was of the view that “the conflict in existence between the National-Socialist ‘Right’ and the ‘Left’ in Germany is the kind of conflict that will always arise between rival socialist factions… They competed for the support of the same type of mind and reserved for each other the hatred of the heretic. But their practice showed how closely they are related. To both, the real enemy, the man with whom they had nothing in common, is the liberal of the old type. While to the Nazi the communist, and to the communist the Nazi, and to both the socialist, are potential recruits who are made of the right timber, although they have listened to false prophets, they both know that there can be no compromise between them and those who really believe in individual freedom”[15]. For Hayek, attempting to pursue any kind of all-encompassing societal goal poses a grave threat to freedom, because of the near-impossibility of defining a ‘social goal’ or ‘common purpose’ that every individual agrees upon, and state action -or collective action of any kind beyond where the agreement of an aggregate of individuals exists- invariably infringes upon individual freedom and autonomy:

“The attempt to direct all economic activity according to a single plan would raise innumerable questions to which the answer could be provided only by a moral rule, but to which existing morals have no answer and where there exists no agreed view on what ought to be done… It is the price of democracy that the possibilities of conscious control are restricted to the fields where true agreement exists, and that in some fields things must be left to chance. But in a society which for its functioning depends on central planning, this control cannot be made dependent on a majority being able to agree; it will often be necessary that the will of a small minority will be the largest group able to agree among themselves on the question at issue. Democratic government has worked successfully where, and so long as, the functions of government were, by a widely accepted creed, restricted to fields where agreement among a majority could be achieved by free discussion: and it is the great merit of the liberal creed that it reduced the range of subjects on which agreement was necessary to one on which it was likely to exist in a society of free men. It is now often said that democracy will not tolerate “capitalism”. If “capitalism” means here a competitive system based on free disposal over private property, it is far more important to realise that only within this system is democracy possible. When it becomes dominated by a collectivist creed, democracy will inevitably destroy itself”[16].

And in addition to offering the best, and only, prospect for freedom and democracy, it is also the natural, organic development of the market economy which has made possible the complex division of labour we see today, all organised in a voluntary, non-coercive manner by the mysterious genius of the price mechanism, something a centrally directed economy could never hope to match. It is the price mechanism which diffuses economic decision-making power and information, which

“enables entrepreuners, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their prices to those of their fellows. The important point here is that the price system will fulfil this function only if competition prevails, that is, if the individual producer has to adapt himself to price changes and cannot control them… It is no exaggeration to say that if we had had to rely on conscious central planning for the growth of our industrial system, it would never have reached the degree of differentiation, complexity, and flexibility it has attained. Compared with this method of solving the economic problem by means of decentralisation plus automatic co-ordination, the more obvious method of central direction is incredibly clumsy, primitive, and limited in scope. That the division of labour has reached the extent which makes modern civilization possible we owe to the fact that it did not have to be consciously created, but that man tumbled on a method by which the division of labour could be extended far beyond the limits within which it could have been planned. Any further growth of its complexity, therefore, far from making central direction more necessary, makes it more important than ever that we should use a technique which does not depend on conscious control”[17].

For Hayek, the only legitimate function of government is to design a legal framework within which humans, as free, autonomous agents, can pursue their own goals in a rational manner. Anything beyond this is illegitimate and contrary to the principle of individual freedom. Economic liberalism “is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority”[18].

The myth of the market economy

“A great intellectual and moral advance was thus, it is claimed, frustrated by the intellectual and moral weaknesses of the mass of the people; what the spirit of Enlightenment had achieved was put to nought by the forces of selfishness. In a nutshell, this is the economic liberal’s defence. Unless it is refuted, he will continue to hold the floor in the contest of arguments.” Karl Polanyi, 1944.

The Hayekian interpretation of classical liberalism has become intellectually dominant over the past thirty-plus years. The free-market view of the world forms the philosophical -though not necessarily the methodological- inspiration for mainstream neo-classical economics, and also public choice theory in the field of political science and the New Institutionalist school in economic history[19]. Its dominance in the intellectual world is reflected in the influence it wields in the political world: it spawned Thatcherism, and then New Labour, over here; Reagan/Bush and then Clinton in the US; it has seen off the socialist challenge and has become increasingly dominant worldwide since the fall of the Berlin Wall. It lays claim to being the modern-day descendant of the classical liberal tradition of Adam Smith and Alexis de Tocqueville of individual freedom being guaranteed through limited government and private property, and thus to capitalism being the highest stage of progress, the embodiment of classical liberal principles, and the culmination of the Enlightenment project.

So goes the modern day capitalist story. Unquestionably it is seductive, and in addition to the intellectual effort in producing it there has been a huge public relations effort to sell it[20]. But is it true? Is the Hayek/Friedman view of contemporary capitalism -voluntary co-operation of autonomous individuals in free markets, no conscious control beyond individual agreements, and the invisible hand of the free market determining the distribution of goods, resources and wealth, except where prevented from doing so by fanatic collectivists- objectively accurate? On the first page of the foremost text on US business history, Alfred Chandler states:

“modern business enterprise took the place of market mechanisms in coordinating the activities of the economy and allocating its resources. In many sectors of the economy the visible hand of management replaced what Adam Smith referred to as the invisible hand of market forces. The market remained the generator of demand for goods and services, but modern business enterprise took over the functions of coordinating flows of goods through existing processes of production and distribution, and of allocating funds and personnel for future production and distribution. As modern business enterprise acquired functions hitherto carried out by the market, it became the most powerful institution in the American economy and its managers the most influential group of economic decision makers [italics added]“[21].

Chandler’s former colleague at Harvard Business School, William Lazonick, states that “The superior development and utilization of productive resources increasingly requires that business organizations have privileged access to productive resources. Inherent in such access is the supersession of market coordination to some degree. The shift from market coordination to planned coordination within business organizations has become an increasingly central characteristic of a successful capitalist economy… privileged access to finance, labour and technology by firms and industries may be critical to the process of industrial innovation writ small and the process of economic development writ large [italics added]“[22]. Milton Friedman once cited the pencil as an example of a commodity brought into being solely by the complex, unconscious co-ordination of the market[23]. In 2005 the US free-trade economist Pietra Rivoli produced a more documented study of a single commodity: the t-shirt. Intending her piece to act as a riposte to the anti-globalisation movement and a defence of free markets, she instead found that “the key events in the T-shirt’s life are less about competitive markets than they are about politics, history and creative maneuvers to avoid markets. Even those who laud the effects of highly competitive markets are loathe to experience them personally, so the winners at the various stages of my T-shirts life are adept not so much at competing in markets but at avoiding them… it is only at the retail level, and after it is tossed into a Salvation Army bin, that my T-shirt’s life is a story about markets rather than politics”< a href=”#_ftn24″>[24]. Sir Alec Cairncross, head of the Government Economic Service from 1964 to 1969, wrote “The bigger the average size of business unit the more is organised and planned rather than left to the operation of market forces. The possibility of a parallel growth in government planning is suggested almost inevitably by successful business planning; and coordination of the activities of large businesses becomes itself an object of government policy”[25]. John Kenneth Galbraith, economic adviser to the Kennedy administration, concluded that:

“we have an economic system which, whatever its formal ideological billing, is, in substantial part, a planned economy. The initiative in deciding what is to be produced comes not from the sovereign consumer who, through the market, issues the instructions that bend the productive mechanism to his ultimate will. Rather it comes from the great producing organisation which reaches forward to control the markets that it is presumed to serve and, beyond, bend the customer to its needs. And in so doing, it deeply influences his values and beliefs… Planning exists because it [the price mechanism] has ceased to be reliable. Technology, with its companion commitment of time and capital, means that the needs of the consumer must be anticipated – by months or years. When the distant day arrives, the consumer’s willingness to buy may well be lacking. By the same token, while common labor and carbon steel will be forthcoming in response to a promise to pay, the specialized skills and arcane materials required by advanced technology cannot similarly be counted upon. The needed action in both instances is evident: in addition to deciding what the consumer will want and will pay, the firm must take every feasible step to see that what it decides to produce is wanted by the consumer at a remunerative price. And it must see that the labor, materials and equipment that it needs will be available at a cost consistent with the price it will receive. It must exercise control over what is sold. It must exercise control over what is supplied. It must replace the market with planning… The modern large Western corporation and the modern apparatus of socialist planning are variant accommodations to the same need. It is open to every free born man to dislike this accommodation. But he must direct his attack to the cause. He must not ask that jet aircraft, nuclear power plants or even the modern automobile in its modern volume be produced by firms that are subject to unfixed prices and unmanaged demand. He must ask…that they not be produced”[26].

The Cambridge economist Ha-Joon Chang has demonstrated how that, contrary to the Friedman/ Hayek view, economic development has almost always depended not on the free market, but on state intervention in the economy, up to and including the development of IT, the internet and biotechnology[27]. In his analysis of economic liberalism which still stands up today, the great economic historian Karl Polanyi wrote in 1944 that “Economic history reveals that the emergence of national markets was in no way the result of the gradual and spontaneous emancipation of the economic sphere from governmental control. On the contrary, the market has been the outcome of a conscious and often violent intervention on the part of a government which imposed the market organisation on society for noneconomic reasons… There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course. Just as cotton manufactures -the leading free trade industry- were created by the help of protective tariffs, export bounties, and indirect wage subsidies, laissez-faire itself was enforced by the state… This paradox was topped by another. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not”[28]. In his foreword to the 2001 edition of Polanyi’s great work, Joseph Stiglitz -2001 Nobel Prize winner and chief economist of the World Bank between 1997 and 2000- states: “Polanyi exposes the myth of the free market: there never was a truly free, self-regulating market system. In their transformations, the governments of today’s industrialized countries took an active role, not only in protecting their industries through tariffs, but also in promoting new technologies”[29].

We could continue in this vein, but let one more example suffice. The American historian Michael Hogan has described the type of capitalism that gradually evolved in the US in the decades after World War One, and which picked up pace in response to the Depression, as ‘corporative neo-capitalism’, which “married the older traditions associated with the localized and fragmented political economy of the nineteenth century, including individualism, privatism, competition, and antitrust, to the twentieth century trend toward an organized capitalism characterized by national economies of scale, bureaucratic planning, and administrative regulation. The result as it unfolded after the First World War was something of a hybrid economic order: an American brand of corporative neo-capitalism that went beyond the laissez-faire political economy of classical theory but stopped short of statist syndicalism”[30]. For Hogan, the real intent behind the Marshall Plan -the massive US aid programme to rebuild Western Europe after World War II- was to transplant this model of capitalism there in order to prevent the continent from falling out of the capitalist sphere. Thus, the continued presence and survival of capitalism in Europe after 1945 was not spontaneous or organic, but was the product of a conscious act of external foreign policy intended to implant a semi-market, semi-collectivist form of economic organisation, the type of which had evolved in the US, into western Europe in order to prevent it from ‘going Red’ (and to provide a market for American exports). Other methods of preventing Europe ‘going Red’ included the subversion of free elections in Italy and installing a military dictatorship in Greece.

“Who will do the managing? For whose benefit? What will be the goals? Who will set them? How?”

This picture of capitalism, it scarcely needs to be said, somewhat contradicts the free market view of Friedman and Hayek. Lazonick refers to this view, quite accurately, as ‘the myth of the market economy’. Suffice to say that all this lays waste to Hayek’s view of the modern-day capitalist sphere as any kind of spontaneous, unplanned, free, anarchistic economic democracy (Hayek does not even like the word ‘economy’, preferring instead ‘catallaxy’). If any further proof were needed, the huge state-coordinated rescue of the global banking system in recent months -necessitated by the disaster produced by the deregulation and marketisation of the financial sector, and which has been successful to the point that, rather than a second Great Depression, we are instead only going to have the worst recession since the 1930s- has, one would like to think, exploded ‘the myth of the market economy’ once and for all[31].

Why is this significant? The Hayek/Friedman world view associates capitalism with freedom by associating capitalism with markets -free, unconscious markets-, and markets with freedom. Under this prescription, no-one holds illegitimate, coercive power or authority over anyone else (except trade unions): we’re all free to choose, your fate is what you make it. But if we determine that capitalism and the market mechanism aren’t synonymous; that capitalism, far from being unconsciously directed by the invisible hand propelled by the combined action of individuals, is in reality consciously planned and managed to a significant degree; that it didn’t evolve organically; that Western civilisation isn’t the product of the ‘individualist tradition’; that capitalist development entails a general move away from market principles rather than towards them, with capital controlling the market rather than vice-versa, what then? Michael Reagan set the question perfectly in 1963:

“from a market-regulated economy we have shifted to one directed by the personal, visible hands of governmental and corporate managers… the dominant and dynamic part of our economy is “free enterprise” only in that firms are privately owned… The automatic economy is dead. “The managed economy” is the phrase that applies to both the public and the private sectors, and it also indicates the specific quality of the mixed economy: that both elements are managed. Once we begin to look at our system as one that is consciously planned rather than impersonally directed by market forces, some essentially political questions come to the fore. Who will do the managing? For whose benefit? What will be the goals? Who will set them? How?” [32]

These are indeed political questions. Friedman would answer by saying ‘we all do, as sovereign individuals, via the free market’. He may even have genuinely believed it, but objective, non-ideological analysis shows it to be nonsense: capitalism is collectivist. The myth of the market economy acts as fine propaganda for contemporary capitalism, and this is what makes the myth so resilient: while the (first) Great Depression finished off free-market economics in reality, it still couldn’t do it in theory, because the theory has such ideological value in obfuscating basic, objective reality about where power lies. However, as we have seen, once confronted it is easy enough to debunk. Why the so-called ‘intellectual’ or academic left have been unwilling -or perhaps just unable- to draw attention to the gaping holes, contradictions, lies and flat-out smears in the ruling class’s current governing ideology (Hayek’s equating of German working class anti-fascists with the Nazis they killed and died fighting, whilst saying nothing of the Nazis immediate clampdown on the German left upon taking power, or the fact that it was the German middle class ‘liberals of the old type’ who made the most enthusiastic Nazis of all, being perhaps the most disgusting and slanderous[33]) is a question for them to answer. However, overturning the positive part of Hayek’s thesis is futile unless we can also overturn the negative part, namely that all alternatives to ’competitive capitalism’ are inherently totalitarian and illiberal (and in this Hayek does have a good deal of supporting evidence behind him, namely the twentieth century), and thus capitalist freedom, whatever its flaws, is as good as it gets. It is to this task that we now turn, and again, we find that, once there is a willingness to face the question, some answers are quite readily available. For as we are about to find, not only is the Friedman/Hayek worldview not descriptively accurate, it is also not the only possible interpretation -or even a particularly credible one- of the classical liberal tradition. This opens up a potentially great opportunity for our side, namely that of turning Hayek’s philosophical weapons against himself, of claiming the notions of freedom and democracy -and even classical liberalism and the Enlightenment tradition- for the pro-working class side, where they used to reside and where they should have been kept all along.

2) Our neo-liberalism: economic democracy

In his prime philosophical work (one which has been utterly neglected by the left in the decades since), Noam Chomsky wrote in 1970:

“I think that the libertarian socialist concepts -and by that I mean a range of thinking that extends from left-wing Marxism through anarchism- are fundamentally correct and that they are the proper and natural extensions of classical liberalism into the current era of advanced industrial society [italics added]“[34].

This, it scarcely needs to be said, could hardly differ more from Hayek’s conclusion. For Hayek, the culmination of the classical liberal tradition is capitalism, while for Chomsky it is socialism. Both Chomsky and Hayek are major thinkers and great intellects, so what accounts for the difference?

Chomsky agrees with Hayek that the central idea of classical liberalism was “an opposition to all but the most restricted and minimal forms of state intervention in personal and social life”[35]. However, for Chomsky the reasoning that led to this conclusion was more important than the conclusion itself. What fundamentally motivated it was the desire to protect individual freedom against the threat posed to it by over-powerful institutions of all kinds (“the great threat to freedom is the concentration of power”, after all). However, the classical liberals were pre-capitalist: in their time, the great overbearing institution simply was the state, and it was thus primarily against state power that their critique was directed. As far as the private economy was concerned, Adam Smith’s experience, as pointed out in the introduction to a recent edition of Wealth of Nations, was one of “pre-industrial, small-scale technology. He does not anticipate the high technology, multinational interests of modern institutions”[36]. Smith knew a world of economic agents of approximately equal size, and his arguments in favour laissez-faire and the ‘invisible hand’ were predicated on this. He could not foresee that economic agents would come into being who would be strong enough to overpower the market (or more accurately, would have to overpower the market if they were to be viable). It is thus disingenuous to simply transpose the classical liberal critique of state power, and its assertion of private property and unfettered free trade as the best guarantors of individual freedom, into the present era as a defence of corporate industrial capitalism, for this critique necessarily neglects the modern-day influence of private power, the private control of capital and the means of production, and the power this wields over the individual.

For Chomsky, the ideals of the Enlightenment liberals were articulated most profoundly by the German philosopher Wilhelm von Humboldt, a man for whom Hayek himself had “the highest regard”[37]. Humboldt’s view of human nature was that man is born “To enquire and to create, these are the centers around which all human pursuits more or less directly revolve… The true end of Man…is the highest and most harmonious development of his powers to a complete and consistent whole. Freedom is the first and indispensable condition which the possibility of such a development presupposes [italics added]“[38]. On the importance of free choice, and the lack of it, in human activity, Humboldt states that:

“all peasants and craftsmen might be elevated into artists; that is, men who love their labour for its own sake, improve it by their own plastic genius and inventive skill, and thereby cultivate their intellect, ennoble their character, and exalt and refine their pleasures. And so humanity would be ennobled by the very things which now, though beautiful in themselves, so often serve to degrade it… But still, freedom is undoubtedly the indispensable condition, without which even the pursuits most congenial to individual human nature can never succeed in producing such salutary influences. Whatever does not spring from a man’s free choice, or is only the result of instruction and guidance, does not enter into his very being, but still remains alien to his true nature; he does not perform with truly human energies, but merely with mechanical exactness… a man’s pursuits react beneficially on his culture, so long as these, and the energies allied with them, succeed in filling and satisfying the wants of his soul; while their influence is not only less salutary, but even pernicious, when he directs his attention more to the results to which they lead, and regards the occupation itself as merely a means. For anything which charms us by its own intrinsic worth, awakens love and esteem, while what is only looked on as a means to ulterior advantage, merely appeals to self-interest; and the motives of love and esteem tend as directly to ennoble human nature, as those of interest to degrade it”[39].

The crucial point here is that Chomsky notes that Humboldt’s view on the importance of free activity, as opposed to effect of work carried out under external command, has a remarkable continuity with the arguments Marx made fifty-odd years later about the alienating effects of wage labour under capitalism:

“His labour is therefore not voluntary, but coerced; it is forced labour. It is therefore not the satisfaction of a need; it is merely a means to satisfy needs external to it. Its alien character emerges clearly in the fact that as soon as no physical or other compulsion exists, labour is shunned like the plague. External labour, labour in which man alienates himself, is a labour of self-sacrifice, of mortification… For labour, life activity, productive life itself, appears to man in the first place merely as a means of satisfying a need -the need to maintain physical existence. Yet the productive life is the life of the species. It is life-engendering life. The whole character of a species -its species-character- is contained in the character of its life activity; and free, conscious activity is man’s species character. Life itself appears only as a means to life… If he treats his own activity as an unfree activity, then he treats it as an activity performed in the service, under the dominion, the coercion, and the yoke of another man”[40].

So Marx -the communist- and Humboldt -the classical liberal- both laud the importance of free labour and free activity; decry the enervating, ruinous effects of work performed out of compulsion or merely as a means to ‘maintaining physical existence’; and recognize that man is not truly liberated unless he is able to pursue free conscious activity of his choosing. They differ only in that Humboldt was writing prior to the advent of industrial capitalism, and was as unaware of the institution of capitalist wage labour as Adam Smith was of the multinational corporation: Humboldt’s philosophical commitment to human freedom, liberation and emancipation is the same as Marx’s.

The capitalist ‘original sin’

The institution of capitalist private property is key here. As alluded to above, the definition of ‘property’ that Adam Smith dealt with was quite different from that of Hayek’s. It is not just that the rough equality of agents is no more: a more fundamental class change has taken place, as Marx illustrates: “In England serfdom had disappeared in practice by the last part of the fourteenth century. The immense majority of the population consisted then, and to a still larger extent in the fifteenth century, of free peasant proprietors, however much the feudal trappings might disguise their absolute ownership… they enjoyed the right to exploit the common land, which gave pasture to their cattle, and furnished them with timber, fire-wood, turf, etc”[41]. Thus, the individual had free access to the means of production, or at least subsistence. He was independent. However, this independence was removed at the end of the fifteenth and start of the sixteenth centuries, at the dawn of the capitalist era, by the process of enclosure. The rising capitalist class simply removed the common lands from the peasantry by force: “the great feudal lords, in their defiant opposition to the king and Parliament, created an incomparably larger proletariat by forcibly driving the peasantry from the land, to which the latter had the same feudal title as the lords themselves, and by usurpation of the common lands… the English working class was precipitated without any transitional stages from its golden age to its iron age”[42]. The expropriation of the land created the large landholdings the nascent capitalists needed, and turned the previously independent peasants into landless proletarians who had to sell their labour-power if they were to survive.

This institutional arrangement continues essentially to this day. Robert Dahl notes that something similar happened in post-Revolutionary America. The American economy was characterised by what he calls “agrarian democratic republicanism… a self-regulating egalitarian order”[43]: that is, a Jeffersonian republic of free independent farmers typified by a wide and thorough dispersal of land holdings, at least among white males. But, again, the republic of free, independent farmers did not survive the birth of industrial capitalism. Where previously land was abundant, easily available and widely diffused, with the dawning of capitalism it became increasingly narrowly concentrated and accordingly scarce, restricting access to the individual, again turning independent farmers in wage labourers. But as Dahl notes, in this entirely different context “radical conservatives were amazingly successful in transferring to corporate property the ideological justification for private ownership that was at the heart of the older ideology of agrarian democratic republicans”[44], which is essentially the same trick as pulled by Hayek and the neo-liberals. What both Dahl and Marx illustrate for us here is the ‘original sin’ of capitalism and its central institution of private property. Far from the institution of capitalist private property guaranteeing individual freedom and independence, the origin of capitalism is characterised by the removal of the means of independence -the right of access to property- from the mass of the population, turning them into rightless proletarians. This stands in direct contradiction to the stated view of another of the great figures of the Enlightenment, and the American Revolution, Thomas Paine:

“There are two kinds of property. Firstly, natural property, or that which comes to us from the Creator of the universe – such as the earth, air, water. Secondly, artificial or acquired property – the invention of men. In this the latter, equality is impossible; for to distribute it equally it would be necessary that all should have contributed in this the same proportion, which can never be the case; and this being the case, every individual would hold on to his own property, as his right share. Equality of natural property is the subject of this little essay. Every individual in the world is born therein with legitimate claims on a certain kind of property, or its equivalent”[45].

Paine is not concerned with equalitarian outcomes, as Hayek dreads, but with independence: every human has, in the state of nature, a legitimate claim on an equal share of the gifts of nature -property- as of right. Capitalism, and capitalist private property removes this right. Hayek denounces socialism as “totalitarian” on the grounds that it “refus[es] to recognise autonomous spheres in which individuals are supreme”, but doesn’t capitalist private property do precisely this, by removing from man his means of independence? And how then can anyone’s decision to sell their labour-power under capitalist conditions constitute a “transaction that is bi-laterally voluntary”, as Friedman would have it?

“Transforming the proletariat into free men by eliminating the commodity character of labour, ending wage slavery and bringing the commercial, industrial and financial institutions under democratic control”

This brings us to the heart of the difference between Hayek’s and Chomsky’s differing interpretations of the classical liberal tradition. It will be remembered that at the start we introduced Robert Dahl’s conception of there being two traditions of left-wing thought, one advocating state control of production, the other advocating workers’ control of production, and that, while it never suited Hayek’s purposes to mention it, the two strands are very different. The former shares with state fascism the goal of centralising economic decision-making power in the hands of the state, while the latter has the aim of decentralising economic decision-making power as far as possible down to the productive individual, and for this reason it can also be seen as a legitimate modern-day interpretation of the classical liberal tradition: where it differs from Hayek’s interpretation is that while his argues for the decentralisation of economic-decision making power down to capital, our interpretation -what we have been calling economic democracy- argues for the decentralisation of decision-making power down to labour. This is what Chomsky means when he refers to “a range of thinking that extends from left-wing Marxism through anarchism” being the “proper and natural extensions of classical liberalism into the current era of advanced industrial society”.

One can only accept the Hayekian interpretation of classical liberalism as either right or legitimate if one accepts the capitalist ‘original sin’ as either immutable or desirable. In Hayek’s case, it was probably the latter: just as Keynes never hid his loathing for the working class, Hayek never hid his contempt for democracy. For Hayek, it was perfectly right and natural that the ownership of the means of production should remain in private hands; that capital should exercise dominion over labour, rather than the other way round. Further, if political democracy ever threatened the private control of capital, Hayek made it clear that of the two it should be political democracy that be done away with[46]. To steal a term beloved of the American lunatic right, and to use it against one of their own, we can think of Hayek’s right-wing liberalism as liberal fascism, as opposed to state fascism, in that he wants power in the several visible hands of capital rather than the single visible hand of the state, while still controlling, rather than being controlled by, labour. Chomsky comments that:

“The modern conservative tends to regard himself as the lineal descendant of the classical liberal in this sense, but I think that can be maintained only from an extremely superficial point of view, as one can see by studying more carefully the fundamental ideas of classical libertarian thought as expressed, in my opinion, in its most profound form by Humboldt… classical liberal ideas in their essence, though not in the way they developed, are profoundly anti-capitalist. The essence of these ideas must be destroyed for them to serve as an ideology of modern industrial capitalism”[47].

What Hayek did was to destroy the democratic essence of classical liberal ideas in order to provide a philosophical justification for, and defence of, private, undemocratic, top-down control of the economy and the means of production, cloaked in the Enlightenment ideal of individual freedom. This is in keeping with a long strand of Western thought. Kenan Malik writes that “the Enlightenment, and the emerging capitalist society that accompanied it, established for the first time in history the possibility of human equality but did so in social circumstances that constrained its expression”[48]. The ‘social circumstances’ he refers to is the institution of capitalist private property. Although the Enlightenment was formally committed to freedom and equality for all, the property relation necessarily put paid to that in reality. This led to capitalist apologists casting around for other explanations, rather than structural ones, for class inequality, and thus the modern-day concept of race was born. Hayek’s perversion of the ideals of the Enlightenment is no different from those first racists. For Hayek, and those who share his anti-democratic mindset, the Enlightenment project is complete. For those of us who don’t, like Chomsky, there is another step to go:

“And if there is something degrading to human nature in the idea of bondage, as every spokesman for the Enlightenment would insist, then it would follow that a new emancipation must be awaited, what Fourier referred to as the “third and last emancipatory phase of history” -the first having made serfs out of slaves, the second wage earners out of serfs- which will transform the proletariat into free men by eliminating the commodity character of labour, ending wage slavery and bringing the commercial, industrial and financial institutions under democratic control [italics added]“[49].

This is the only long-range goal for our side to pursue. Everything else is meaningless and a diversion. Anyone who is not committed to this vision has no right to think of themselves as either progressive or a friend of the working class.

Conclusion: the need for a vision

“Our demands most moderate are: we only want the earth.” James Connolly.

Does such a vision seem, at present, highly speculative? Absolutely. Is there any prospect of achieving these goals in the immediate future? Of course not. A frank assessment is that we are no closer to achieving these goals now than when Marx died. Probably further away, in fact. Equally, one could say that the situation looked hopeless for capital when those thirty-nine people gathered in Switzerland in 1947, that the onward march of socialism seemed unstoppable. They were fully cognisant of the fact that they wouldn’t achieve their aims in the short term either. It would take a long, attritional, generational campaign to win the hearts and minds of their constituency -the elites- over to their way of thinking, to make them believe that socialism could be defeated, and capital reign triumphant again. After all, let us take a moment to consider what they were facing, what Hayek really feared. Keynes’ general theory emerged in the 1930s when Britain was troubled by inflation and unemployment. Then, as in the 1970s, there was debate about how these problems should be tackled. The economic liberals of the day, led by Lionel Robbins and Hayek at the LSE (while the LSE was a largely Fabian institution, the economics department had become radically liberal under Robbins’ leadership) ascribed these difficulties to wages being rigid and thus too high. They argued that the root causes of wage rigidity -which Robbins identified as trade unions and unemployment insurance- needed to be removed so that wages could fall and the economy return to equilibrium: “only such measures go to the root of the difficulty. The others are at best are temporary palliatives which do nothing to eradicate the fundamental disease”[50].

Keynes argued, on the other hand, that the solution to unemployment was the reflation of the economy through public spending, increasing aggregate demand to levels sufficient to produce full employment, something that even ‘equilibrium’ in a laissez-faire economy could not guarantee. The liberals denounced Keynes’ solution as inherently inflationary, as unsustainable, a “lingering disease” in Robbins’ words, and they were right, as the 1970s eventually proved. Yet in the 1930s the Keynesian path was chosen. Why? This was just a few years after the 1926 General Strike, which had been provoked by an attempt to cut the wages and increase the working hours of British miners. As Robbins acknowledged, his prescription entailed the “extreme difficulty” of taking on organised labour again. Keynes’s prescription sidestepped this difficulty, which is why it was chosen. Simply put, in the 1930s the state and capital were unable to impose the wage cuts and reforms that the neo-liberals of the day demanded because the working class was too strong to take on. Cockett summarises the significance of this thus:

“The central charge against Keynes was that he had constructed a new ‘system’ of economics which was based not on economic theory, but on a strictly political judgement that it was impossible to lower wages in Britain during the depression… Keynes was fully aware of the fact that governments could not afford to offend the unions in the political circumstances of the late 1920s and early 1930s by tackling the real problems of the economy, the rigidity of wages, the plethora of ‘restrictive practices’ and the concomitant uncompetitiveness of British industry – in this respect the 1926 General Strike was, indeed, a watershed in industrial relations, as the politicians were thereafter afraid that the body politic itself would not survive another attempt to drive down wages in a depressed industry as the coal-owners had eventually succeeded in doing after the General Strike itself had collapsed. It was the spectre of class war that haunted the deliberations of both politicians and economists as they grappled with the problems thrown up by the depression… by working from the premise that the coercive power of organised labour was such that it was politically impractical to reduce wages as part of a solution to the problem, Keynes had already conceded Marx’s argument. The moment when economists and politicians accepted Keynes’ alternative, mild inflation, to class war was the moment when the class war was effectively won by the industrial proletariat, because…only the massed battalions of organised labour stood to gain in the Keynesian system of demand-management… In the long run, Keynes was, in fact, running up the white flag on behalf of capitalism, and negotiating an honourable withdrawal. It was a very English revolution – virtually unnoticed at the time, and presided over by an old Etonian”[51].

This is the danger Hayek recognized, this is why the right were so scared of the Keynesian settlement. We can only dispute Cockett on one point: rather than running up the white flag, Keynes was launching a holding action, a temporary class compromise in order to preserve capitalism. In the time this compromise bought, Hayek and those around him were able to construct a philosophical and economic alternative rooted in the ideals of classical liberalism and the Enlightenment, whereas all the left had to offer was more moribund, discredited bureaucratic socialism. When the Keynesian compromise fell in the 1970s, capital was ready, and this time they won, and were able, though not without resistance, to put into effect the pro-business restructuring of the economy they had been unable to in the ‘30s.

What does this tell us? The right won because they had a vision and were prepared to play the long game. For any movement, having a long-term vision is crucial. Without a vision one cannot set goals. Without goals there can be no strategy, and without a strategy there are no day-to-day tactics. More importantly, if you have no vision then what are you even in business for? So when it comes to outlining a vision, the criticism that it might be momentarily unrealistic or distantly utopian is meaningless. It took the neo-liberals decades before they started making significant gains (1974 in Chile, when the Chicago Boys won the favour of Pinochet ahead of the old-fashioned tyrants in his court; 1975 to take the Tory party from the hated Keynesian appeaser Heath here). Now they are triumphant worldwide. They stuck to their task throughout because they had a clear vision they believed in – and a nightmare to avoid. The pursuit of any political aim is necessarily a ruthless, dirty business, making it all the more important that the aim itself be pure. If the vision is in any way wrongheaded, perverted, polluted, vague, ill-defined or compromised, so will be the campaign to achieve it (evidence: the twentieth century). But if one has a coherent philosophy, one can then begin the long process of building a practical economic model, and then a political strategy for attaining it.

One also needs opportunity. As quoted above, Milton Friedman once said “Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around”. And just as the neo-liberals seized the opportunity presented by the crisis of Keynesianism in the 1970s, because the ideas lying around were theirs, so the current, chronic crisis of neo-liberalism -a crisis we are entering, not exiting- offers an historic opportunity to fill the huge (and growing) political, philosophical and moral vacuum for those who are bold enough to take it. But there are no silver medals in history, and while this may be an opportunity, it is also a time of great danger. If our side fails to summon up the courage and ambition to meet this challenge, we can be assured that less congenial types will (and already are), and the insidious drift to the right will continue.

Furthermore, the vision itself is a selling point. The first step in any successful campaign is the winning of hearts and minds. Hayek, Keynes and the Fabians knew this, but their constituency first and foremost was the elites. Our job is to win the hearts and minds of the masses. Hard, honest, pro-working class work on the ground does this, as the IWCA already knows, but ideas can travel where local work and limited resources cannot. As we have seen, Hayek ascribed the lack of success of the anti-collectivist tendency in the early part of the twentieth century to “the lack of a real programme, or perhaps I had better say, a consistent philosophy of the opposition groups”. Our side is currently in the same position: the pro-working class elements opposed to the neo-liberal orthodoxy -whether they be groups or individuals- are isolated and scattered for a similar reason, and it is the BNP -who do have a “consistent philosophy”- who are hoovering up. A resolutely pro-working class philosophy could unify them, provide something to gather around. A winning, long-term, pro-working class vision demonstrates credibility and ambition, and our vision is a winning one. Hayek, correctly, described “the craving for freedom” as “the strongest of all political motives”[52]. This is what lies at the root of our vision: nothing less than the completion of the Enlightenment project and the emancipation of all mankind, the “transformation of the proletariat into free men”. Nothing less will now do and, unlike Hayek who so successfully stole the language of freedom, we actually mean it.

Addendum:

Having here outlined the philosophical underpinning of economic democracy -the ‘why’, if you like-, part two of this piece will begin to look into the ‘what’ and ‘how’, by attempting to sketch out some basic principles and reviewing the existing theory and practice of micro- and macroeconomic democracy, such as it is. The IWCA has not pulled the concept of economic democracy out of thin air: indeed, before the Fabians were allowed to take over, it was a live current of the mainstream British labour movement. Areas to look into include: the Mondragon co-operative in the Basque country, apparently the greatest example extant of worker-managed industry (and perhaps other examples in Spain); worker-managed enterprises in the former Yugoslavia, and elsewhere, including the United States; the theoretical work of the economists Jan and Jaroslav Vanek; an examination of state-led moves toward ‘economic democracy’ in Sweden and Denmark in the 1970s, and the exploration of similar themes here during the same timeframe; contemporary writers who have written of, or expressed some sympathy for, the concepts of economic democracy including Stiglitz, Chomsky, Robin Archer, David Harvey, Richard Wilkinson; and a historical sketch of the workers control/economic democracy strand in Britain and abroad, including the Independent Labour Party, Karl Polanyi, Walter Kendall, James Connolly and Rosa Luxemburg. Also: democratic control of pension funds; and the impact of capital liberalisation (a question of profound strategic importance).

[1] Robert A. Dahl (1947), ‘Workers’ Control of Industry and the British Labor Party’, American Political Science Review,(5) (Oct., 1947), p875-900 (pdf available on request).

[2]Robert Dahl (1985), A Preface to Economic Democracy (Berkeley and Los Angeles: University of California Press), p143. See also note 1.

[3] For some further discussion on the Bolshevik question see http://www.redaction.org/open/contents.html.

[4] http://www.lse.ac.uk/resources/LSEHistory/fabian.htm

[5] Karl Marx and Friedrich Engels (1848, 1992), The Communist Manifesto (Oxford: Oxford University Press), p33. Available online at http://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch03.htm#b

[6] The Diary of Beatrice Webb, vol. 4: 1924-1943 (1985), Norman and Jeanne MacKenzie (eds.) (London: Virago), p77, 78 [4th May, 1926].

[7] John Maynard Keynes, ‘Am I A Liberal?’ (1925), p297 and ‘A Short View of Russia’ (1925), p258 in The Collected Writings of John Maynard Keynes, Volume IX (1972): Essays in Persuasion (1931), (London: MacMillan).

[8] Milton Friedman (1962), Capitalism and Freedom (Chicago: University of Chicago Press), p2, 9, 13.

[9] Quoted in Richard Cockett (1994), Thinking the Unthinkable: think-tanks and the economic counter-revolution, 1931-1983 (London: HarperCollins), p111, 112.

[10] http://www.lse.ac.uk/resources/LSEHistory/fabian.htm

[11] The definitive guide to the growth, development and influence of neo-liberal ideology in the UK is Richard Cockett (1994), Thinking the Unthinkable: think-tanks and the economic counter-revolution, 1931-1983 (London: HarperCollins); see also Philip Mirowski and Dieter Plehwe (eds.) (2009), The Road From Mont Pelerin: the making of the neoliberal thought collective (Cambridge, MA: Harvard University Press); and Juan Gabriel Valdes (1995): Pinochet’s Economists: the Chicago School in Chile (Cambridge: Cambridge University Press). The philosophical influence of Hayekian liberalism was clearly evident by 1976 in the Tory policy statement The Right Steps, http://www.margaretthatcher.org/archive/displaydocument.asp?docid=109439.

[12] F. A. Hayek (1944, 2001), The Road to Serfdom (London: Routledge), p13, 21.

[13] Hayek, p20, 13.

[14] Hayek, p34-5, 59, 60.

[15] Hayek, p8-9, 30.).

[16] Hayek, p61, 73.

[17] Hayek, p52. See also F. A. Hayek (1945), ‘The Use of Knowledge in Society’, American Economic Review, 35(4), available at http://www.virtualschool.edu/mon/Economics/HayekUseOfKnowledge.html.

[18] Hayek, p37-8.

[19]As one of the earliest New Institutionalist texts put it: “in the beginning, there were markets” (Oliver Williamson (1975), Markets and Hierarchies: Analysis and Antitrust Implications (New York: Free Press) p20). For some background on public choice political theory, see Adam Curtis’s BBC documentary series The Trap (http://video.google.com/videoplay?docid=404227395387111085)

[20] Alex Carey (1995), Taking the Risk Out of Democracy: corporate propaganda versus freedom and liberty (Champaign, IL: University of Illinois Press); Elizabeth Fones-Wolf (1994), Selling Free Enterprise:the business assault on labor and liberalism, 1945-60(Champaign, IL: University of Illinois Press).

[21] Alfred D. Chandler, Jr. (1977): The Visible Hand: the managerial revolution in American business (Cambridge, MA: Harvard University Press), p1.

[22] William Lazonick (1991), Business Organization and the Myth of the Market Economy (Cambridge: Cambridge University Press), p8.

[23] Milton and Rose Friedman (1980), Free To Choose: a personal statement (New York: Harcourt Bruce Jovanovich). Friedman took this from an essay (http://www.econlib.org/LIBRARY/Essays/rdPncl1.html) by Leonard Read of the United States Chamber of Commerce, also founder of the ‘libertarian’ think tank ‘Foundation for Economic Education’ and, like Friedman, an attendee at the first Mont Pelerin conference.

[24] Pietra Rivoli (2005), The Travels of a T-shirt in the Global Economy (Hoboken, NJ: John Wiley and Sons), x, p212.

[25] Alec Cairncross (1970), ‘The Managed Economy’ in Alec Cairncross (ed.), The Managed Economy (Oxford: Basil Blackwell), p7.

[26] John Kenneth Galbraith (1967, 2007), The New Industrial State (Princeton: Princeton University Press), p8, 27, 41.

[27] Ha-Joon Chang (2002), Kicking Away the Ladder: development strategy in historical perspective (London: Anthem Press).

[28] Karl Polanyi (1944), The Great Transformation (Boston: Beacon Press), p250, 139, 141. In particular see chapters 11-13 for Polanyi’s full critique of contemporary economic liberalism. It is politically and historically significant that The Great Transformation should have emerged in the same year as The Road to Serfdom, yet it is the latter book which is now so celebrated while the other is almost forgotten. It shows that just having the right ideas is not enough, they need to be prosecuted as vigorously as the neo-liberals did theirs.

[29] Joseph Stiglitz, ‘Foreword’ in Polanyi (1944, 2001), xiii

[30] Michael J. Hogan (1987), The Marshall Plan: America, Britain and the reconstruction of Western Europe, 1947-1952 (Cambridge: Cambridge University Press), p3.

[31] US Treasury Secretary at the time of the crisis, Henry Paulson, has recently said that without the bail-out the US “could have gone back to the sorts of situations we saw in the Depression… I remember talking about, for instance, German leaders who were explaining to me that people in the old east were unhappy with the big discrepancies in wealth, but they at least believed in the system and believed in some form of market-driven capitalism, but that if we had a meltdown of the system, this could even lead to chaos or people even questioning the basic system”: http://blogs.wsj.com/deals/2009/07/16/paulsons-version-of-financial-armageddon-people-in-the-streets/.

[32] Michael D. Reagan (1963), The Managed Economy (New York: Oxford University Press), p4, 13, 18.

[33] For a more informed, less offensive perspective, see Eve Rosenhaft (1983), Beating the Fascists?: the German communists and political violence, 1929-1933 (Cambridge: Cambridge University Press).

[34] Noam Chomsky (1970, 2005), Government in the Future (New York: Seven Stories Press), p8. Audio of the lecture available at http://tinyurl.com/me7s42

[35] Chomsky, p9.

[36] Kathryn Sutherland, ‘Introduction’ in Adam Smith (1776, 1993), Wealth of Nations (Oxford, New York: Oxford University Press), ix.

[37] C. R. McCann (2002), ‘F. A. Hayek: The Liberal as Communitarian’, Review of Austrian Economics, 15:1, p25. See also Hayek’s remarks on Humboldt as one of the keepers of the liberal flame in Germany in chapter 12 of The Road to Serfdom, ‘The Socialist Roots of Nazism’.

[38]Wilhelm von Humboldt (1791, 1969), On the Limits of State Action (Cambridge: Cambridge University Press), p76, p16.

[39] Ibid, p27, 28, 29.

[40] Karl Marx (1844, 1977), Economic and Philosophic Manuscripts of 1844 (Moscow; London: Progress Publishers; Lawrence & Wishart), p66, 68, 71.

[41] Karl Marx (1867, 1976), Capital, volume 1 (London: Penguin), chapter 27, ‘The Expropriation of the Agricultural Population from the Land’, p877.

[42] Ibid., p878, 879.

[43] Robert Dahl (1985), A Preface to Economic Democracy (Berkeley and Los Angeles: University of California Press), p71, 70.

[44] Ibid, p72.

[45] Thomas Paine, ‘Agrarian Justice’ (1795) in The Thomas Paine Reader (1987), Michael Foot and Isaac Kramnick (eds.) (London: Penguin), p471-2.

[46] See the final section of chapter 5 of The Road to Serfdom, ‘Planning and Democracy’. See also Hayek’s remarks in praise of the Pinochet regime in Chile -the first neo-liberal state, an admiration shared by many senior Thatcherites (Cecil Parkinson openly said during his time as Thatcher’s trade minister that the Chilean economic experiment under Pinochet “is very similar to what we’re trying to develop now in Great Britain”), Chicago School economists and James Buchanan, father of public choice political theory- and the fascist Salazar regime in Portugal, in a 1981 interview with the Chilean newspaper El Mercurio: http://www.fahayek.org/index.php?option=com_content&task=view&id=121

[47] Chomsky, p10, 15.

[48] Kenan Malik (1996), The Meaning of Race: race, history and culture in Western Society (Basingstoke: MacMillan), p40.

[49]Chomsky, p18-19.

[50] Lionel Robbins (undated, 1930s), Committee of Economists Draft Report, Lionel Robbins papers, London School of Economics archives.

[51] Cockett, p44, 45.

[52] Hayek, p25.