Friday, October 25, 2013

Democratic communism is democratic

In the comments to Standing on one foot, HH asks how democratic communism would actually work. It's a fair question, and before I answer it in more detail, I want to give a non-answer. Democratic communism is democratic, so the general answer to the question, "How does does X work?" is "How do you want it to work?" Democratic communism places the allocation of capital in the hands of a process that is as truly democratic, as completely in the hands of the people, as is physically possible. In contrast, a democratic republic by design takes a lot of important political power out of the hands of the people, sometimes in the name of "efficiency," but also explicitly because the people are not to be trusted. Democratic communism trusts the people, at least to make their own mistakes, in preference to the mistakes of a ruling class. If you don't like democracy in principle, if you don't trust the people, well, ok, but we would then have an ideological difference, not a practical difference. We can talk about our ideological differences elsewhere.

I'm going to answer HH's question in more detail, but that answer will be with my hat of bastard semi-expert* in economics, business administration, legal theory, and bureaucratic theory. Here, I'll talk with my hat of authority on my own theory of democratic communism, about the theory of the firm.

*More semi than expert.

I define here an "entrepreneur" as someone who wishes to create a new business entity, a firm. An "employee" is a person who wishes to join an already existing firm. Both are workers, those who create something that (hopefully) has value to society, and who justly deserve compensation, i.e. deserve to receive value from society. Although some might act completely alone, an entrepreneur will typically want to recruit employees to staff her business.

The first structural constraint on an entrepreneur is that she is not legally privileged at the firm just because she is the one who created the business. If she acquires privilege within the firm, it is by virtue of the employees giving her privilege. Entrepreneurial privilege must be earned, not assumed. I'll address the specific mechanisms by which entrepreneurs can earn privilege in a subsequent post.

The entrepreneur she is always in competition with the government, who employs anyone who wants a job, and pays a living, dignified wage, i.e. a wage sufficient to support a family with the basic civilized necessities. This gives both more and less freedome to an entrepreneur. The firm (not the entrepreneur, as I will discuss below) can pay employees as much or as little as it chooses, but it must compete with the government at that basic level.

Although the entrepreneur typically receives her capital — the money necessary to acquire physical capital and to pay herself and the firm's employees until revenue is realized — from the government, except in special cases (such as the creation and destruction of money), the government cannot forbid or prevent private individuals from doing what it itself does. If she cannot, through the appropriate means, get capital from government, she is free to seek private capital, and make any agreement she wishes to get that private capital. (J. S. Mill makes some convincing arguments for this side-by-side arrangement.)

The government does have an inherent advantage in creating new capital, though: the national government alone can create money, and no individual or group has privileged access to this newly created money. It is allocated either directly democratically or indirectly through democratically controlled and/or accountable institutions. Again: democratic communism is democratic: if you don't like how the government is allocating new capital, because you yourself are ineluctably part of the government, you are free change the rules in a democratic manner. If the majority of your fellow citizens agree with you, you will change the rules. If not, too bad for you.

In the next post I'll talk more directly about specific mechanisms whereby an individual can create a new business.

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