Beyond Social Democracy

This means we need to review the legislative component of our path to socialism — how government policy can be shaped to enable changes in political economy that reflect and promote class struggle. One of these mechanisms should be legislation that mandates a ratcheting increase in worker ownership and control of major companies.

There are a number of models that the US left can look to — the most well-known being the Meidner Plan, the 1970s Swedish scheme to use a share levy on profitable companies to build up union-controlled funds that would have eventually controlled all significant firms in the economy. The plan failed due to strong opposition from capitalists, right-wing parties, and the lukewarm attitude of the Social Democratic leadership — it was reduced to a shadow of its former self in its eventual implementation before being dissolved entirely in the early 1990s.

However, similar ideas have recently been revived in the United Kingdom, where Shadow Chancellor John McDonnell has proposed a system of “Inclusive Ownership Funds” (IOF) that would underline Labour’s other economic policies on living wages, union rights, democratic ownership, codetermination, and public banking.

Going beyond this, the party now proposes that 1 percent of companies’ shares be given to workers through an inclusive ownership fund each year, up to a cap of 10 percent (this is of only moderate relevance, since Labour could stand in future elections on a platform of raising the cap). The funds would, in many firms, make the workers the largest single shareholder, and instead of vesting the powers in a distant pension fund they have little control over, they would directly elect their own trustees.

If we are thinking about how a Sanders administration might introduce a democratic heartbeat which gradually increases the level of economic democracy around the country on an automatic basis, even if one or more of the institutions of power falls to opponents, a law of this sort could be an incredibly important tool for resetting the default state of economic development, away from greater privatization and towards greater socialization.

What we are considering here are residual policies which aim to introduce a rising baseline of economic democracy in those parts of the economy that are not covered by our specific policies that aim to rapidly socialize or eliminate key sectors or firms.

There is certainly, for example, a compelling need to dismantle the health insurance industry by creating a single-payer national health care program. Companies like Aetna and Blue Cross Blue Shield will not be brought under workers’ control through a gradual transition mediated through an IOF; they will instead be eliminated entirely, with displaced workers assisted through a transitional program.

This is important to note. Some potential objections to inclusive ownership funds or Meidner-style approaches center around a need for more rapid socialization in specific areas — banking and finance, for example, or the fossil fuel industry. These are not residual sectors — a socialist administration should ideally be socializing finance through controls on capital mobility, public banking, and a national investment bank; and bringing fossil fuel companies immediately into public ownership and phasing out their polluting activities by 2030 as proposed by the Green New Dealers.

There are undoubtedly additional similar sectors, but there are others which should be lower on our list of priorities. What is important, however, is to maintain an ambitious horizon. We do not simply seek to change the boundaries between the public and private sector; as socialists it is our position that profit extracted by capitalists should not exist. Abandoning the goal of socializing residual sectors because they are not destroying the planet or posing an existential threat to our project would be a historic mistake.

With that justification, let’s discuss in broad terms how a Sanders Plan could operate.

A Sanders Plan?

Workers in each firm would elect trustees from among their ranks on an annual basis. If other arrangements, such as a codetermination law, are being implemented by the same government, these elections all could happen at the same time — an annual “economic election day.” The inclusive ownership fund’s worker-trustees would exercise all the rights from IOF shares including the use of voting rights and any minority shareholder protections and rights to access information.

A large proportion of the dividends would be distributed equally among workers in each firm, while the remainder would be used as a “social dividend” to promote collective ownership and control on a wider scale. A classic concern with firm-level worker ownership schemes involves fears about turning workers into petty capitalists. We avoid this by making sure that they retain a strong interest in each dollar in firm revenue being added to labor’s share instead of capital’s share.

Workers do not “buy in” to the scheme, nor can they “cash out” on leaving or retirement — there is an “asset lock” which makes the trust a permanent part of the company owned by the current workers at any moment in time. They receive a dividend, which is limited in size, and use their shares to influence and control the company. IOFs should not be seen as retirement savings or pension funds, though of course workers are free to put their own dividends in a retirement account.

There are four key variables in designing the contours of the policy: the mechanism and rate of share transfer; the threshold above which firms are covered; the design of the social dividend; and the destination of “social dividend” funds. In the Labour Party policy, there are answers to some of these questions already — it would transfer 1 percent of equity to an inclusive ownership fund every year (up to a 10 percent limit); in all firms with more than 250 workers; taking all dividend funds over a £500 per worker annual cap as a social dividend. The answer as to the destination of the funds has been left relatively unclear.

The closest one could get to the original Meidner proposal within this framework would involve taking 20 percent of pre-tax profits a year (with no limit); in all firms with more than 50 workers, taking 100 percent of dividend funds and giving them to funds controlled by sectoral unions. However, there are serious reasons for having some deviation here — the political economy of the original proposal left too many of the approach’s benefits too far in the future, ensuring that support for it remained largely limited to union militants; a direct link between increases in social ownership and increases in personal income can help to create a wider appeal without compromising the core commitment to socializing ownership.

It is also a concession to the reality that in the United States today, people feel a considerably greater sense of attachment to a firm than a sector, and creating a genuine sense of collective ownership over firms will be considerably more difficult when it involves persuading a Walmart worker that they have meaningful ownership over Target.

In order to equalize distribution of socialized wealth between industries and to ensure that nonworkers and public sector workers see some of the benefits, an increasingly large share of dividends from inclusive ownership funds should be sent to a social wealth fund that would own and manage equity stakes in companies on behalf of the whole of society. The social wealth fund could also receive capitalization from other capital taxes — a range of these are proposed by Matt Bruenig at the People’s Policy Project.

This creates a double mechanism to increase social ownership of the economy — shares are created in large companies and dilute existing investors while empowering workers within the firm, while capital taxes and the returns on those shares capitalize a wealth fund that invests and increases its holding while paying a yield to the federal government that could be used for social expenditure. The fund would also be able to invest strategically in specific firms, combining its own holding with that of the workers to create a public-worker partnership with a majority stake.

It is crucially important that large firms be compelled rather than incentivized to issue the baseline minimum of shares. However, there is a strong case for providing some financial inducement to those who voluntarily socialize companies at an accelerated rate — this assists the policy by introducing divisions and conflict into the ranks of capitalists. Any resources that business spends on preventing “strikebreaking” among its own ranks are resources they are not able to use combatting the general policy.

Astute observers have previously noted that worker dividends could potentially be cancelled out by lower wages. This indeed could be the case in a laissez-faire market, which is why restoring union power and introducing sectoral wage-bargaining are so important to the success of this policy. The approach here is a method of moving past social democracy towards democratic socialism, not a silver bullet that will allow us to skip the work of building up independent working-class power and a welfare state. It is, in short, a plan for victory.

The American Road to Socialism

It’s likely that a Sanders administration will have no intention of going beyond the laudable social-democratic program outlined in 2016. That would be unfortunate, but it would still be worthy of socialist support — if the government managed to pass ambitious climate legislation, Medicare for All, expansion of union rights, and stopped the slaughter in Yemen it would be worth our while.

But there is another likelihood — a confrontation that the administration does not choose, in which the choices are retreat or rupture. We do not know for a fact that this will happen immediately, but there is a real possibility of a Sanders presidency being constrained by an undemocratic constitution and the autonomous power of capital.

If Sanders is elected on a platform of social-democratic reforms and chooses to implement those reforms over a socialist rupture, it would be difficult to criticize him for sticking to his platform. But if the choice is retreat or rupture, he must select the latter — unaccountable powers which threaten democracy must be defeated, whether they are empowered by money or by law.

It should be the responsibility of socialists, inside and outside the administration, to prepare policy and the movement for such a situation. We need a coalition to create a new economic system, one based around democratic and ecologically responsible control over the means of production, distribution, and exchange.

Many of us are confident that a policy informed by Labour’s inclusive ownership funds and Sweden’s Meidner Plan has an important place in our tool kit — but any who disagree should also be thinking about other agendas for socializing the economy in the event of a successful confrontation with capital. At this point, I am convinced that there are no better options on the table — a Sanders government should look to McDonnell and Meidner for a policy to bring economic democracy to America.