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Anxiety about the state of democracy amid political polarisation should direct us to an unexpected answer—economic citizenship.
Elections in Europe and the United States nowadays provoke a painfully familiar refrain about the crisis of representative democracy. The response to these complaints should not be limited to rehearsing statistics about the declining rate of voter participation or theorising about the electoral attitudes of new cohorts.
To those almost quaint constructs of political science, we must now add the darker news of an increasing rejection of democratic norms and the challenging of election results. The sum total of these trends requires a fresh approach which takes us outside the familiar confines of electoral politics. Democracy needs new frontiers.
Neither European democratic societies nor the US currently enjoy the standard of collective wellbeing of les trente glorieuses (the 30 glorious years) between the end of the second world war and the mid-1970s. Since ‘crisis’ became part of everyday vocabulary in the 70s, mass unemployment—induced by a search for competitiveness based on reducing labour costs—has persisted in the northern hemisphere. While the employment rate has improved significantly since, most incomes have however stagnated.
In countries characterised since 1945 by what was called, depending on the continent, the ‘social-democratic compromise’ or ‘Fordism’, the institution of work has been separated from the vector of solidarity. Wealth is now largely derived instead from property and shares.
On one hand, the diversification of occupational regimes contributes to the fragmentation of the social landscape and national territories. The last 30 years may feel like a success story to the urban software engineer but this has been an era of steady decline for the small-town factory worker. On the other hand, the low income generated by most occupations constitutes an ideological, if not material, obstacle to sharing and pooling expenses in the context of a classical welfare state.
Everyone lacks the money and time to keep a vibrant society alive, while the principle of taxation has been contested by the wealthiest and poorest since the 1980s. Although Thomas Piketty’s writings keep alive the memory of high marginal tax rates on both sides of the Atlantic, these no longer seem realistic to most citizens.
Confrontation, not dialogue
In this environment, defined by an upheaval in the structure of national incomes, precariousness and instability no longer steer people solely in the direction, analysed by Robert Putnam, of the individualisation of life, but rather in the direction of the ‘war of all against all’ as conceived by Thomas Hobbes in the 17th century. The xenophobia which surfaces around certain discussions of trade policies is only one aspect. Election campaigns are moments no longer of dialogue but of confrontation. The success of parties tends to rely once again on the assertiveness of their leaders and the violence of their words.
Similarly, despite the guarantees provided by legal procedures and the mathematical rigour of counting, even election results are contested with virulence. Until recently, this was exceptional in Europe and north America, although already common in the frail democracies of the southern hemisphere. The aftermath of Joe Biden’s election as US president demonstrated this but the phenomenon predated Donald Trump’s prior breakthrough. The recent mid-term elections punished the more extreme election deniers and provide some reason for optimism but the economic and cultural roots of far-right advances remain in the political bloodstream.
In the search for a remedy for a collective malaise within societies that have lost the historical reference points of a measurable economic prosperity, as well as of cultural unity, it is time to look beyond the ‘crisis of representative democracy’. A more contemporary framing would be the loss of economic sovereignty.
For the disaffection of whole sections of the population from representative democracy is only partly rooted in the contestation of electoral procedures or their alleged corruption. It is also, and perhaps above all, rooted in the conviction that national political systems, drowned in globalisation, can no longer guarantee control over the resources of economic production necessary for daily life.
Take the difficulty of European states equipping their populations with masks at the beginning of the pandemic. The shortage of stocks and the disruption of supply chains gave credence to the idea that modern supply chains and the international division of labour were dangerous. The notion that restoration of national sovereignty was urgent found further fuel with the war in Ukraine.
In a slightly more elaborate version, developed by political forces trying to channel widespread dissatisfaction, the rebuilding of sovereignty calls for a national disengagement from trade agreements as well as from regional organisations such as the European Union, whose purpose is not only to increase trade but to regulate it on the basis of common standards among member states. Whether springing from ‘right-wing’ or ‘left-wing’ sources, the sovereigntist parties of the 2020s accompany this with the demand for an increase in the pouvoir d’achat (purchasing power) of citizens, financed by a reform of taxation and public spending.
The banal forms of national sovereignty, which have recently congealed to form a malign and defensive ideology, are founded in appeals to a mythical past. Variants of this ideology have recently surfaced in Great Britain, France, Italy and the US, where Trump’s red hats promised to Make America Great Again. They exhibit both reactionary and exclusionary impulses. Scrutinising the programmes of these parties, one finds not only a hoped-for restoration of a ‘golden age’, amid a supposed betrayal of the general interest by ‘financial elites’, but also a bet on the ability of the state to restore national sovereignty. If these groups are left-leaning, they resurrect the Marxist proposals of the 1970s, which believed it feasible and desirable to propose the nationalisation of companies and price controls to address ‘stagflation’ and globalisation. If they lean to the right, they plead protection of the national job market and social security against the costs attributed to ‘immigration’, the international movement of people.
This banal sovereigntism, which first appeared in Europe in the 1990s and is still defined in academic literature as ‘populism’, has been conceptually overtaken on the old continent by the search for the realisation of a distinctly European sovereignty, notably by the French president, Emmanuel Macron, strengthening the co-ordination of EU member states economically and militarily. The most contemporary expressions of this are the proposal elaborated by the leader of the Italian Democratic Party, Enrico Letta, for a European confederation and the emergence of the Macron-inspired European Political Community.
Far from being a European variant of Trump’s ‘America first,’ this approach shares inspiration with the search by early American leaders such as Alexander Hamilton for federalisation of the states and the notion of concentric circles put forward by the former European Commission president Jacques Delors. It argues for an efficient articulation of the competences of states and the preservation of the commercial openness of a continent toward the world.
Ethos of citizenship
Remarkable for this Hamiltonian understanding of the scale at which politics must proceed, to frame the market, contemporary European appeals to sovereignty nevertheless reproduce the inclination of national power to seek the restoration of trust and prosperity solely through reform of public-law institutions. But while this is essential in geostrategic terms, the perspective it relies upon is probably insufficient at the national level.
The socio-economic protection of citizens provided by international institutions, such as the EU and the International Monetary Fund, during the 2008 financial crisis and the recent pandemic have not been sufficient to strengthen attachment to the concept of democracy, which seems particularly weak among young people. Moreover, in the shadow of the Russian invasion of Ukraine, the next few years will likely involve a challenging budgetary context—prompted by a rise in interest rates and an agenda of rearmament—amid pressures on household spending, faced with the costs of the energy transition and rising prices of primary products.
Responding to these ominous trends calls for a positive ethos of citizenship, complementary to the ‘constitutional patriotism’, of civic allegiance to democratic institutions, advocated by Jürgen Habermas and Jan-Werner Müller. This ethos should not be restricted to an abstract civic realm. It needs a new frontier. It must be extended from the polity to the workplace, through a distinct and comprehensive call for economic democracy.
By becoming a shareholder of the company that employs her, the meaning of ‘citizen’ would be expanded for the employee—no longer restricted to the political arena of voting or paying taxes. Blue and white-collar workplace citizens would be shareholders, owners of capital and possessors of a new right to vote.
Introducing economic democracy at the level of the enterprise would make workers and managers the primary stakeholders in the reconstruction of collective sovereignty. Economic democracy challenges the claim that employees are rented humans, hired solely to execute directives in exchange for a salary. It asserts that employees should instead be entitled to voting rights and a share of the value of a company. In such a democratic company, workers become economic citizens as well.
Historically, such a vision has been shared across a broad spectrum, ranging from radical left-wing libertarians to conservative Catholics and business leaders. Nowadays, it is probably more alive and bipartisan in the US than in Europe, even if it is not dominant in either of the two main American parties.
In Europe, economic citizenship has become a vague notion, left to lie fallow for almost half a century. The left-wing parties and workers’ unions turned away from the radical reform of social relations within the firm which characterised the ‘self-management’ programme of the French CFDT union federation in the late 70s and the late 60s efforts of Yugoslav reformers to break away from Soviet-style ‘socialism’. The recovery of that earlier, more hopeful, self-management terminology—as an alternative to the top-down ‘scientific management’ of the American Frederick Taylor, which the Soviet leadership under Vladimir Lenin came to espouse—aims to rescue work from the simplistic association with narrow economic self-interest, a prison of inescapable alienation.
That negative and psychologically pessimistic caricature, which has dominated left-wing thought since the 70s, portrays work as an institution to flee instead of reform. Policy priorities of the right to retire as early as possible and reduction of working hours illustrate an attitude of defeat rather than a determination to democratise. The perspective of the workplace as a site where democratic life can flourish—even in a context of remote work—has been, if not wholly abandoned, then left to small-scale, utopian ventures on the margins of society, havens in a heartless world. Faced with the formidable financial machinery of the mainstream economy and without a positive vision to put on the field, the left sees no alternative but to play a defensive game—politics is reduced to the word no.
Limited and elitist
In western Europe, when the idea of economic citizenship has emerged at all it has been restricted to a limited and elitist version. When domestic law imposes it, dependent on the size of companies, trade unions represent the interests of employees in a variety of public and private bodies that ensure collective bargaining and the functioning of welfare states, in their diverse national forms.
The German Mitbestimmung (co-determination) framework is commonly regarded as the most advanced version of collective bargaining. The ambitions of the system introduced by law in 1951 are however less far-reaching than the term might suggest. In Sweden, the Rehn-Meidner model is the most advanced and common form of collective bargaining. It went further in establishing complementarity between industrial and employment policies, but it remained the business of Swedish economic elites.
Even the ‘plan’ in the 1970s by the leading economist of the LO trade union federation, Rudolph Meidner, to ensure gradual socialisation of private ownership of the means of production through ‘wage-earner funds’, did not form the basis for active economic citizenship at the level of the firm. By delegating voice to union groups, instead of the sovereign community of workers and managers in the firm, critics perceived a power grab by the labour movement rather than a move towards genuine economic democracy. More recently, in its failed 2019 election campaign in the United Kingdom, Jeremy Corbyn’s Labour Party was somewhat inspired by Meidner but retained a statist inspiration.
Currently, there is no discussion of democracy at the company level in Europe, beyond the ‘social economy’ of co-operatives and mutuals. This democratic deficit is confirmed by the fact that, within joint-stock, traded or ‘quoted’ companies, most capital holders only marginally exercise their electoral rights at shareholder meetings, reinforcing an oligopolistic tendency which maintains the status quo. As Bo Rothstein has pointed out, firms owned by exchange-traded funds (or ‘trackers’) managed by algorithms are at the forefront of this evolution, effectively eliminating the idea of shareholder voice. Voting in these firms is an anachronism, a relic for which there is no nostalgia.
In the US there are more promising developments. Progressive intellectuals such as Gar Alperovitz, David Ellerman and Christopher Mackin have long reminded us that economic citizenship is a component of the necessary reform of entrepreneurship and of national prosperity, whose fruits can be equitably shared.
To Alperovitz, most American workers are employees and the relationship of subordination in which they have settled—which is unfavourable to economic dynamism—has no equivalent in the political and social sphere. Redistributive policies have meanwhile not achieved the political objective of equalising living conditions. Therefore, other procedures than redistributive taxation, which do not exclude its existence, are necessary.
Instead of advocating a socialist revolution, Alperovitz maintains the classical liberal thesis of the compatibility of freedom of enterprise with the interest of the greatest number. He differs from it in adding a condition: entrepreneurial freedom must flourish on the basis of economic citizenship, guaranteed by reform of company law and the required financing.
Such critical reflections are not the exclusive prerogative of the left-wing tradition to which Alperovitz and Noam Chomsky belong. They are also claimed by advocates, such as Ellerman, who draw upon an emerging, democratic classical-liberal or ‘neo-republican’ school of thought. This approach breaks with the consent-versus-coercion preoccupations of conventional classical liberalism, which also ensnare much of the modern left, posing an alternative grounded in a critique of the employment relationship.
Democratic classical liberalism, also referred to as labour republicanism, focuses on the illegitimacy of the employer-employee framework. It justifies economic democracy at the firm level by reference to inalienable rights of human responsibility, currently frustrated, which should be realised in the firm by structures of democratic self-employment.
These American approaches help to rescue the idea of economic sovereignty from a narrow, nativist grasp. They promote a constructivist, ‘pro-producer’ orientation towards work as a domain of life, to be not eclipsed but cultivated to develop human capabilities. This focus on economic democratisation can be glimpsed at major US universities, such as Rutgers, where an Institute for Employee Ownership and Profit Sharing founded by Joseph Blasi and Douglas Kruse sponsors well-attended, twice-yearly fora.
The American perspective is also pluralistic, with support evident from both major parties. Republicans can applaud how these ideas encourage self-reliance and wealth accumulation, apart from the state. Democrats can meanwhile emphasise how shared ownership breaks workers out of a reliance on wages and finally begins to share the wealth of capitalism.
Moreover, within capitalist companies in the US, there are many different methods for inclusion, primarily Employee Stock Ownership Plans. ESOPs provide tax incentives for firms to allocate substantial amounts of stock to legal trusts, benefiting all workers and managers, without requiring workers to put any capital they have at risk. These companies show the performance advantages of corporate cultures in which the interests of owners and employees are in common.
The traditional co-operative sector, with early-20th-century roots in agriculture, also enjoys bipartisan support in Congress. Contrary to European practices, the US also features an impressive number of non-profit associations, co-operative foundations and mutuals supporting these ideas.
A leading European thinker on this issue, Isabelle Ferreras of Université Catholique de Louvain, has put economic democracy back on the agenda where André Gorz—a link back to the 1970s and ‘self-management’ in France—had left it. Her work points out the contradictions between the submissive status typical of the wage-earner and European constitutions that express an ideal of freedom.
To date Ferreras has been less concerned with restructuring the ownership of the firm. She, along with Dominique Meda, has instead emphasised mechanisms for voice. Their work advocates strengthening the representation of workers in firms’ decision-making, inspired by an adaptation of the concept of parliamentary bicameralism.
In 1930s Belgium Henri de Man, the father of social-democratic planning, attempted to dedicate the upper house in parliament to socio-economic representation but this idea was quickly abandoned by the socialist party. In France, the notion of a national economic parliament found a very partial incarnation in the Conseil économique et social.
Unlike in the American model, the democratisation of the enterprise in Europe has relied upon a range of consultative bodies which might contribute voice. It has not yet been framed with the firm as a democratic entity, owned and controlled by its worker and manager members. Lacking that democratic vision, European models have not been directed toward the task of recovering a national and supranational economic sovereignty based on the citizenship of producers, as a condition for a dynamic industrial policy.
If the American experience and literature teach us one primordial thing, it is that policy should not build simplistic moral fences around inclusionary and democratic ideas which are acquiring currency in economic life and potentially have broad political appeal. Economic citizenship should not be restricted to the communist utopias or performative vocabulary of ‘social and solidarity economies’ which dominate these discussions in Europe. Allies should be welcomed from unexpected places, irrespective of ideological fashion, including from business and finance.
The concept of economic citizenship can be applied to nation states and to the organisation of a continent. It applies to the consolidation, on the scale of France, the EU or the US, of a democratic version of sovereignty understood in the terms of Jean-Jacques Rousseau—as the product of ‘a form of association which defends and protects with all the common force the person and the goods of each associate, and by which each one, uniting with all, obeys only himself, and remains as free as before’.
Concretely, the exercise of economic citizenship within the firm presupposes two conditions: holding shares in the capital and exercising the rights associated with them. The first brings together, in each individual employed in the world of work, the condition of owner and producer. The second associates the members with the management of a joint enterprise. The latter condition constitutes a step in the empowerment of citizens. It extracts individuals from a largely passive, spectator model of life consisting of a dual status of employees, capable solely of making demands, and consumers, responding to advertising and price signals.
Further, economic citizenship should not be be restricted to the narrow frame of employees as investors. Associated and active in enterprises as thinking workplace citizens, they discover the nature of their contribution to the exercise of economic sovereignty at the level of the firm. It involves them as participants in collective decisions relating to the type, quality and quantity of goods or services to be produced.
Long in vogue in managerial discourse, the ‘social responsibility of companies’ can only find meaning if extended to workers and managers. It acquires an authentically democratic political dimension only if the representatives of firms take their place as legal partners and owners capable of ensuring co-ordination and organising economic sovereignty in the industrial planning necessary for firms to orient themselves in a market economy on a large scale.
Economic sovereignty based on the democratisation of enterprises does not, therefore, require nationalisation or expropriation. It need not be reduced to simplistic narratives which encourage perpetual conflict between virtuous workers and evil bosses. The intervention of public authorities and the transfer of ownership rights can take place in relative peace through education and appropriate tax incentives. The state plays a catalytic role in support while retaining traditional, robustly negative, regulatory powers to protect the public interest. Positive power should reside at the level of the democratic firm.
Procedures for conversion
The two main procedures available to economic actors to begin the conversion of corporate ownership forms can be put in place by civil society. As the American experience has shown, the first consists of supporting new companies by gathering capital in investment funds which enable workers and managers to acquire firms from their current owners at market prices. This approach can be enhanced by government-backed loan guarantees operating through existing private banking networks.
The second process is to encourage the allocation of capital shares to workers, to be purchased or received as part of their annual remuneration. As Timothée Duverger has pointed out, this may consist of intervention through ‘conversion funds’ but these need not be financed solely by public authorities. Conversions can be gradual, as employee shares grow over time, or fully effective and transactional, when employees and managers initiate bids to acquire control of firms through a negotiated sale, as routinely occurs in the mergers-and-acquisitions marketplace.
Economic democracy need not grow solely from small seeds, as with most co-operative ventures. It can also happen efficiently and at scale through the conversion of established firms, acquired using tax incentives and government-backed guarantees. The American experience and the future-oriented work in universities at the forefront of social and economic research indicate that promotion of economic democracy is not limited to the small-producer philosophical ideal of a minority, inspired in Europe by Pierre-Joseph Proudhon and in the US mostly by John Dewey.
Progressive reform of corporate ownership should meet the developmental needs of small enterprises. But it should also take its place in the mainstream economy among larger firms, particularly those privately held, especially perhaps family-owned ‘middle market’ firms of scale. A practical model of ‘sovereignty-respecting investment’, pursued through new private funds which function according to rules that preserve sovereign ownership structures, can provide an alternative prospect to the predation of ‘vulture funds’.
Three practical benefits are associated with the democratisation of the enterprise. The first, already mentioned, is the aggregation of the capital necessary to maintain the company’s democratic constitution. Once democratised, the firm is no longer the property of a minority but remains oriented—only now better capitalised—towards the search for economic success within the framework of a market economy.
The second advantage of economic democratisation is as a response to the challenge of the ‘silver tsunami’ of ageing owners of small and medium enterprises. About 20 per cent of SME managers in France are over 60, as is also typical of the rest of Europe and the US. Planning upstream for the transfer of a company through efficient acquisition by its employees can avoid the scenario of a financially driven, strategic sale, impinging on the jobs and income of local communities.
The third advantage is that it contributes to the diversification of forms of enterprise within a market economy, whose dynamism also depends on the variety of governance models. Even if the involvement of producers in governance is not reserved for SMEs, the immediate and complete democratisation of the functioning of all market and non-market companies is not a condition for its effectiveness. Research evidence from the US indicates that, over time, as the process of participation and involvement is refined by experiment and education, the more inclusively owned and governed firms will out-compete conventional models.
Would corporate reform through economic democracy be the solution to all the ills of an era characterised by the weakening of civil peace within states and renewed economic and military tensions between nations? Only a huckster or a naive person could claim so. The democratisation of the enterprise is neither an electoral gadget nor a magic potion. On the other hand, we should not underestimate its potential to respond to the political malaise of the new millennium and the lack of a directing head for the ‘invisible hand’.
Encouraging social trust
The most important opportunity it offers is undoubtedly the promise to give back to citizens, in a context tending to full employment once more, the means to influence the evolution not only of their professional income and working time but also the orientation of society. Corey Rosen, a leading US spokesperson and founder of the National Center for Employee Ownership, asserts that shared enterprise ownership encourages the emergence of social trust across class and cultural boundaries. This claim speaks directly to the polarised politics which have recently infected American culture.
The experience of social trust made possible by firm-level employee involvement fosters democratic habits which follow workers into the civic realm. An ethos of responsibility learned at work can be applied to workers as citizens. In this way, the environment’s future ceases to be an abstraction and becomes, in Ernst Renan’s phrase about national identification, a matter of a ‘daily plebiscite’.
A broad political programme of enterprise reform, which bridges longstanding ideological divides, can therefore provide the basis for reconstructing popular sovereignty on the dual basis of democracy and the market economy. Practical plans for implementing these ideas can take several possible forms.
One possibility is to organise this association through national, non-profit advisory groups, staffed by financial and human-resource professionals to help guide individual firms in the transition to more inclusive ownership. Another candidate for an enabling intermediary might be trade union organisations, supplemented by expert staff who can advise on financial transitions. A third option would be to organise the technical capacity to assist these transitions at the state level.
Any and all such intermediaries should be versed in how to effect their work within not just national borders but also an international architecture. The multinational then is no longer merely an economic enterprise but acquires a political dimension and a debate on the reform of the firm can begin.
In the end, the success of political and economic democracy is contingent upon the will of the individuals who invest in it. Sovereign firms that promote democracy and shared responsibility through their very corporate structures counter plutocratic concentrations of wealth and power. They complement the limitations of political democracy by expanding its experience to include everyday life.