Saturday, April 23, 2016

Metamorphosis of Capitalism and Socialism: Part 3

KOI, 2015, courtesy of the artist, Julie Ford Oliver

PART TWO in this series of posts looked at what the tremendously successful Mondragon cooperatives based in Spain have in common with Rudolf Steiner's proposals for economic associations.

That post also explained in simple terms what indivisible reserve capital is, and how Steiner's economics and Mondragon both seek, in part through indivisible reserve capital, to build a new and more compassionate kind of business organization, one that is not private in the traditional sense, but that is also not state owned or controlled.  The new form proposed represents an advance toward what is sometimes called stakeholder capitalism.  Arguably Mondragon has demonstrated, on a large scale, that a more cooperative way of doing things can be more beneficial to society and more prosperous than traditional shareholder capitalism.

As originally planned, the present post was going to identify distinctions as well as overlap between Mondragon and Steiner with regard to economic cooperatives or associations.  Instead today's post will lay some groundwork in that direction.

Joaquín Sorolla, Beach at Valencia, or Afternoon Sun, 1908
This post will touch on the following themes in relation to Steiner's thinking and Mondragon's practice:
  • how the pervasive division of labor shows economic life to be fundamentally cooperative; 
  • how wage-labor masks cooperation by treating the worker in some ways more as an instrument than as a collaborator and partner;
  • how a cooperative economic relationship entails profit-sharing and a truly free contractual relation between workers and management;
  • what the difference is between counterfeit and genuine free contract; 
  • how Abraham Lincoln distinguished between the spirit and the letter of the law, between a golden apple and its silver frame; 
  • how worker-manager equality can be introduced; 
  • how managerial leadership and freedom and their economic benefits can be continued; 
  • how limited executive compensation can be combined with a prosperous business; 
  • how a balance of equality and freedom can build economic brother- and sisterhood. 

Claude Oscar Monet, San Giorgio Maggiore at Dusk, 1908
Why did Rudolf Steiner call for the development of a new, more cooperative form of capitalism?  He presented many reasons.

Division of Labor

His economic reasoning was not based on moralistic exhortation, but on economics itself. He wrote in 1919 that
one actually cannot work for oneself within an economic organism based on the division of labour. One can only work for others, and let others work for oneself. Working for oneself in such circumstances is as impossible as eating oneself up....Division of labour ...precludes economic egotism. If such egotism is nevertheless present in the form of class privilege etc., a socially unsustainable condition arises which leads to upheavals of the social organism.
Steiner held that economic life, in part because it is based on an ever more thoroughgoing division of labor, is fundamentally a cooperative process, though that is often masked.

Wage Labor

He viewed economic life as essentially cooperative also because of the way he conceived of labor.  He thought that the labor of workers could not, except by a kind of deception, be treated merely as a commodity to be bought and sold at will by managers and investors.  Labor, he said, could never truly be a commodity; it helped to produce commodities, and those alone could be bought and sold.

Paul Gauguin, Still Life with Teapot and Fruit, 1896

Thus Steiner criticized the practice of treating work as
a commodity which the employer buys from the employee.  An exchange is made: money (representing goods) for work. But such an exchange is actually impossible.  It only appears to take place....The production of goods comes about through the collaboration of employer and employee. The worker receives one part of the equivalent value of these goods, the employer the other. It is the product of this collaboration which enters economic circulation....In a healthy social organism it must be clear that work itself cannot be paid for -- work cannot receive an economic value as if it were a product. Only the product itself, the result of the work, can be assigned an economic value in relation to other products. 

Profit Sharing

Therefore, not a mere wage, but a share of the profits, Steiner urged, was due to workers, who fundamentally were in a cooperative relationship with management to produce commodities.  Economic life should reflect its cooperative character by being based on truly free contractual relations between workers and management. But what are "truly free contractual relations"?

Paul Signac, Evening Calm, Concarneau, Opus 220 (Allegro Maestoso), 1891

Free Contract

To begin with, in Steiner's view free contract did not mean what it means in some varieties of libertarianism, according to which one should be permitted to do anything contractually, perhaps even pay someone to sign over every human right and literally become a slave.  To Steiner that might technically be "free contract," but more fundamentally it would be the opposite.

Lincoln and Free Contract

A digression on Abraham Lincoln may illuminate aspects of Steiner's attitude to wage labor.  Lincoln acknowledged that slavery was technically constitutional in the Southern states, and accepted that if Congress had passed laws permitting slavery to spread to the rest of the U.S., that too would have been technically constitutional.  Yet passing such laws would in Lincoln's view have been using constitutional means to attack the fundamental spirit of the Constitution itself; for him that spirit was expressed in the Declaration of Independence statement that "all men are created equal."

To Lincoln the fundamental spirit of the Constitution was also revealed in how the document had been formed: as a freely contractual agreement among equals.  Yet the same document had confirmed the legality of slavery, and thus, as far as Lincoln was concerned, the Constitution was partly in contradiction with its own essence, its original founding spirit, and the ideal expressed in the Declaration.  The actual letter of the Constitution had incarnated the spirit of constitutional government very imperfectly.

Lincoln visiting General George McClellan, commander of the Army of the Potomac, in Antietam, Maryland on Friday, October 3, 1862

Shortly before the outbreak of the Civil War, Lincoln used imagery to distinguish the spirit of constitutional government from the letter of the Constitution.  In a fragment, he alluded to Proverbs 25:11, which speaks of an apple of gold in a picture frame of silver.  Lincoln wrote that the
expression of that principle [of Liberty to all], in our Declaration of Independence, was most happy, and fortunate….
The assertion of that principle, at that time, was the word, ‘fitly spoken’ which has proved an ‘apple of gold’ to us. The Union, and the Constitution, are the picture [by "picture," Lincoln here means the picture frame] of silver, subsequently framed around it. The picture was made, not to conceal, or destroy the apple; but to adorn, and preserve it. The picture was made for the apple --- not the apple for the picture.
So let us act, that neither picture, or apple shall ever be blurred, or bruised or broken.
(italics in the original; boldface added)  For Lincoln, then, the apple of gold became an image of the Declaration of Independence ideal: that all are entitled to liberty because "all men are created equal."  The silver frame, or Constitution, on the other hand, was only of value as a body of laws to the extent that it incarnated the Declaration's ideal.  For him, law was not truly itself unless it was inspired by the ideal that all should be equal before it.  Lincoln thus came to believe that the Constitution needed to keep evolving in order to become an ever more perfect embodiment of its own freely contractual spirit, its never perfectly attainable north star: the golden ideal of equality and freedom for all.

Lincoln on February 9, 1861, a few
weeks before his first inauguration

Wage Labor as Counterfeit Free Contract

A similar distinction between letter and spirit is connected with Steiner's objection to wage-labor.  For Steiner, although wage-labor technically is legal and appears to be based on "free contract" between workers and employers, more fundamentally it is a kind of human bondage, a last vestige of slavery and serfdom, at least to the extent that the wage-laborer is treated as an instrument to be used or dispensed with at the will or whim of someone else. 

How did Steiner envision the relation between workers and management?  Indivisible reserve capital, which was explained in Part 2 of this series, is one important part of Steiner's answer.  Leaving that aspect aside for the present, however, Steiner's idea of how workers are to be integrated into economic life entailed their equality with management and entrepreneurs in one respect, but in another respect gave managers freedom to lead.  Let these two aspects now be considered in turn.

Paul Cézanne, detail of Apples and Biscuits, c.1880

Equality between Workers and Management, Combined with Managerial Freedom and Leadership 

1) Equality

To Steiner, the element of equality and democracy should influence economic life in two ways immediately relevant to the current discussion: 

First, evolving rights awareness, within a government distinct from the economy and insulated as much as possible from economic manipulation, should set boundaries on how workers may be treated, how many hours a day they may be expected to work, how safe their working environments must be, and should make and enforce other labor laws.  Wrote Steiner:
The kind and amount of work as well as the way in which the individual performs it for the maintenance of the social organism, must be determined by his own abilities as well as the requisites for a decent human existence. This is only possible if the determination is carried out by the political state independently of economic management.
Odilon Redon, Profile on Red Meanders, 1900

Second, and more significantly, Steiner believed that an independent rights-state's influence would cause an element of equality and democracy to penetrate economic life, such that something like a reciprocal hiring relationship would develop: workers would in some sense hire management at least as much as management hired workers.  Thus, Steiner contended that the
proceeds from the use of capital and individual human abilities must derive, as is the case with all spiritual effort, from the free initiative of the doer [the manager] on one side, and the free appreciation of those others [including the workers] who require his efforts on the other. The determination of the amount of these proceeds must be in agreement with the doer's own free insight into what is suitable, taking into consideration his preparation, expenditures, and so forth. His claims in this respect will be satisfied only when his efforts are met with appreciation.

Through the kind of social arrangements described here, the ground can be prepared for a truly free contractual relation between manager and worker. This does not mean an exchange of commodities, i.e. money, for labour-power, but an agreement as to the share each of the persons who jointly produced the product is to receive.
Steiner also wrote that the 
legal relationship between management and labour will not express itself in monetary values which, after the abolition of wages (representing the exchange relation between commodities and labour-power), will only measure commodity (and service) values.
Thus truly free contract in economic life means treating other adults as partners, associates in an enterprise; it means that "labor" is legally withdrawn from the economic process and is no longer bought and sold; it means that when commodities are bought and sold, workers negotiate from a position of equality with management and entrepreneurs as to how profits will be shared. 

Wassily Kandinsky, Interior, Dining Room, 1909


In part with reference to the division of labor, Steiner maintained that voluntary cooperation is the main principle actually operative in economic life, but that the principle is nevertheless often opposed, hindered, and masked.  Economic cooperation, he suggested, can be strengthened where there is an effort to introduce equality (in the senses described above) balanced by freedom (in senses to be described below). The impartial introduction of a kind of equality between management and workers depends, Steiner said, on the existence of a government that functions as a regulatory and rights-state but otherwise remains distinct from the economy and independent of economic interests; at the same time equality must be balanced by managerial creative freedom, which can develop in a benign and fruitful fashion only to the extent that educational, cultural and spiritual life are liberated from both state and economic control and interests.

2) Managerial Freedom and Leadership

For the benefit of workers and society, Steiner said, it is essential that organizational talent, creative genius, and specialized technical skill be allowed to play a managerial role in economic life.  Therefore, once workers and management have freely agreed, as described above, on the terms of their relationship, the principle of equality should recede in one respect: workers and others grant the expert manager, within certain limits, broader decision-making power and initiative than workers have.  It would not be economically productive for a manager's every action and decision to be subject to an egalitarian vote by workers.  Managers' individual freedom, inspiration, and leadership are needed to help guide the business, at least so long as those being guided are satisfied.

Joaquín Sorolla, Young Girl in a Silvery Sea, 1909


Limits on Executive Pay

Although they freely negotiate for a share of profit, managers as Steiner conceives them also face limits:  he says they are properly entitled only to an "interest-like percentage," of profits, and obviously does not contemplate executives receiving hundreds of times the share that each worker would receive, although such disparities often appear today. But speaking realistically, how can such limits actually be adopted?  

In Steiner's conception, as in Mondragon's practice, limits are imposed on executive pay in three ways:
  • by the fact that a significant part of an economic association's accumulating capital is designated as indivisible collective reserve capital, a category described in Part 2 of this series of blog posts.  The indivisible reserve can never legally become the property of managers (or workers);
  • by the egalitarian nature of the worker-management relationship as Steiner and Mondragon conceive it: workers and management in some fashion hire each other, and also negotiate the share of profits due to each.
  • by the inspiration coming from a cultural and spiritual life liberated from the state and from economic interests.
Steiner contended that given a truly free educational, spiritual, and cultural life, business managers would gain a source of inspiration very different from that provided by the potential for personal financial profit.

Claude Oscar Monet, detail of Nympheas, 1897-99

According to Steiner, although
present social conditions have indeed made the prospect of financial advantage a highly significant factor....conditions are urging us to find another sort of motivation for the exercise of our individual capacities, one which must lie in social understanding supported by a free and healthy life of mind and spirit...
This does not have to be illusory idealism....The view propounded here is....based...on observation of the free meeting of people's mind and spirit, on their free collaboration and interaction. By its very nature this collaboration acquires a social form when it is allowed to develop in a truly free way. 
Lest it be considered naive to imagine that a free cultural and spiritual life could inspire managers with other motives than financial gain, consider the Mondragon cooperatives, which on almost any metric have been more successful than most conventional businesses.  At Mondragon, which started in the 1950s with a few workers and currently has over 70,000 of them and some $13 billion in annual revenues, the highest paid managers average only about six times the pay of the lowest paid workers.  In a 2015 interview, Josu Ugarte, the CEO of Mondragon, said,
We are not losing out for managerial talent because of our pay limits. For us, it is difficult to understand huge pay differences....the values and the solidarity of your organization give you a kind of wealth that doesn’t express itself in money.
Thus Mondragon and Steiner show how equality and freedom can be balanced within economic life so that it becomes both more cooperative and more prosperous.

Part 4 in this series of blog posts may try to focus on one possible difference between Steiner and Mondragon.  Stay tuned.

Take Action

One can help make economic life more cooperative (and by the same token reduce the need for an ever-expanding State) by donating to these non-profit organizations, educating oneself at their websites, or participating in their volunteer projects:

Associative Economics
Hawthorne Valley Center for Social Research
ICA Group
Rudolf Steiner Social Finance

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