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Wednesday, February 27, 2013


Socialism in Business

     In a recent argument with a friend of mine surrounding socialism vs. capitalism, he mentioned so-called "socialist enterprises" as being living proof that socialism can work. He referred me to one particular corporation in Spain, the Mondragon Corporation. While looking into it, I came across this editorial article on The Guardian entitled "Yes, there is an alternative to capitalism: Mondragon shows the way..."


     Essentially, these socialist corporations are owned and operated by the workers themselves, and all business decisions, including allocation of labor among enterprises, are decided on democratically. From the article: 

    MC is composed of many co-operative enterprises grouped into four areas: industry, finance, retail and knowledge. In each enterprise, the co-op members (averaging 80-85% of all workers per enterprise)   collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise (what, how and where to produce and what to do with the profits).
    As each enterprise is a constituent of the MC as a whole, its members must confer and decide with all other enterprise members what general rules will govern MC and all its constituent enterprises. In short, MC worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs. One of the co-operatively and democratically adopted rules governing the MC limits top-paid worker/members to earning 6.5 times the lowest-paid workers. 

     There are many things incredibly wrong with Wolff's argument. To begin, socialism is a term used to describe an entire political-economic system, not a way a particular group or business operates. I would say, at this point, that it was a simply a debate of semantics, as it is not uncommon for people to discuss the benefits of socialist-style groups in different terms than socialism as an economic system. However, he begins the article by criticizing the policies of Margaret Thatcher and capitalism as a system, then presents his argument that socialism is a better alternative, using the Mondragon Corporation as some kind of a relevant example. The fact of the matter is that the MC is simply operating with an unusual business model, but is still working within a largely competitive, capitalist economy. All of its workers, including the "elected" directors,  voluntarily join the corporation, with knowledge of its business operations and their salaries beforehand. Just because they run their business democratically does not mean that the voting individuals are not still profit-seeking.
    Wolff claims that... 
      "The MC rule that all enterprises are to source their inputs from the best and least-costly producers – whether or not those are also MC enterprises – has kept MC at the cutting edge of new technologies...In 2010, 21.4% of sales of MC industries were new products and services that did not exist five years earlier." 

     What a profitable way to do business! Wait...what kind of force could be driving them to be so innovative? This statement implies that he understands the nature of competition...do capitalist businesses not also operate in this way? The fact that he cannot distinguish between an economic system and a business model undermines his entire argument. Perhaps the method the Mondragon Corporation, and others like it, uses is an innovative way to operate, and I don't doubt that it benefits the workers and directors alike, they are members of it after all (I would still argue that it is inherently less profitable than "capitalist enterprises", as they are deliberately reducing the division of labor, but that is a different argument than I'm trying to establish).
      However, its mere existence depends on the system in which it thrives, which is something fundamentally different than an operational model. Him and my friend seem to think that since these basic principles function within a relatively small group, it is logical to extend them to the system in which it, and all economic exchange operates. He is entirely mistaken, and I believe that is what is wrong with a lot of political philosophy/ideology today.  

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