Once More Around the Floor

Blogodidact has been kind enough to keep the conversation going. Once again, I will look at his posts and respond, hoping to add more clarity to my views on Distributionism and to answer his questions. Let’s begin.

Van is concerned about government programs and was originally concerned that my comments about things like tax breaks were endorsements of taxes in the first place. This seems to be cleared up now; personally I support the need for minimal taxes only to allow the government to do what the government only can do – a patent office, the military, foreign diplomacy, etc. I even support the FDA – to a point. Originally, the FDA was just an oversight group to investigate and prosecute fraud in medicines and foods. Fraud is criminal and some medicine manufacturers and food producers were ‘getting by’ through producing in one state and shipping to another, allowing them to defraud consumers. If the FDA had limited itself to assisting local police by investigating interstate fraud, it would be a fine (if very small) group. Its current size, cost, and powers, though, are pretty far gone.

Back to the topic at hand, the desire of Distributionists to eliminate all but absolutely necessary organizations and regulations at every level of government in pursuit of the ideal of subsidiarity seems to be clear, finally. I apologize for any confusion!

My discussion of wage slavery seems to have gotten Van, well, lathered up. My intent was not to upset him (or anyone else). But I am going to take a side trip to both explain what I meant and comment on Van’s response. Walk with me for a minute.

As I have mentioned before, my childhood is memorable for a long phase of deep poverty. I don’t mean ‘one year I got socks for Christmas instead of air jordans and it ruined my childhood’ poor, I mean ‘one year I got a bowl of hot stew for Christmas, and it was the first food I had eaten in 4 days’ poor. In the years since I have fought my way up out of poverty to a upper-middle-class life. This was through hard work, luck, and sheer endurance. I have had some serious setbacks over the years and have done everything from work 40 hours a week while taking an 18 credit course load at college to working two jobs. I’ve scraped grease in a sub-basement and I’ve made $5 million sales presentations on Wall Street. I’ve been paid salary, hourly, and commission-only. I’ve had friends and family help out when I needed it, and I’ve had no one at all to turn to when I needed it. I sympathize and empathize with all that Van wrote of his own struggles.

In my travels through life, I have, naturally, met a lot of people. There are two sorts in particular that apply to the discussion at hand about poverty, job skills, and such. [Warning – broad generalizations follow] The first is one I have met most commonly in two places – academia and the white collar world. They feel that poverty is largely an inescapable trap. They point to studies that show the life-long effects of poverty. They talk about the statistics of childhood poverty and how it is ameliorated by ‘transfer spending’ in places like Sweden. They are passionate about the effects of poverty on families and society. They insist that Something Must Be Done and want to create as many safety nets and programs as possible to eliminate poverty. In my experience, the majority of these people have never been in poverty. Oh, sure, they had ramen 3 times a week in grad school, and their entry-level jobs were only about $25,000 a year when they started their career. But they had mom, dad, and student loans to get them by in college and credit cards until they got that raise and a mortgage. They think paying taxes to make sure a kid doesn’t go to bed hungry is a pretty good deal. They, you know, worry about money – but they have never been unable to sleep for three days wondering how they will feed the kids for another meal with no idea where next week’s rent is coming from.

The other sort I usually find in ‘blue-collar’ jobs and middle management. They’ve struggled, they’ve been poor. They worked hard, they got through, they made it. They want to know why everyone else can’t. After all, they didn’t have mom and dad paying for school, they did it themselves. They are ticked off and know that things would have been a lot easier without the taxes being sucked out of their checks for programs that they either never qualified for, weren’t there to help them, or simply didn’t apply – let alone those programs that are a sheer waste of tax monies. They have largely been successful at all they have tried with no true setbacks – no crippling car accidents, no bolts out of the blue, just the grind of making Horatio Alger a prophet. They are damn decent people who think the best way to eliminate the poor is to get Uncle Sam’s hand out of our pockets and get the Hell out of their way as they Make It.

Want to hear the tough part? Distributionists think they are both almost completely right. The keys to escaping poverty are simple and self-evident – hard work and thrift. From the 19^th Century Papal encyclical Rerum Novarum to Chesterbelloc to Schumacher the keys to self-sufficiency have been stated clearly: hard work and thrift. Distributionism is based on hard work and thrift and will always be so. Subsidiarity is about getting as many hands out of your pocket, as many rules out of your life, and as many people you report to out of your life as possible. But we can’t forget reality, and the reality is that things happen. We are human, not super-human. People make bad decisions; conditions change; accidents happen; people you have never met will always impact on your life. There are many things that can cast a person into poverty, and many of them are beyond our control. From cancer to a drunk driver, fraud to disabled children, life is hard and it always will be.

Blogodidact insists, again, that Capitalism is not about happiness, but is only about commerce, production, etc. At best, he concedes, it is a forecasting tool for predicting bad policy. To a Distributivist this is like claiming that the law is only about punishing criminals or that politics is only about power. To clarify terms, as Van tries, let me clarify two terms. To a Distributionist ‘Capitalism’ means “an economic system with ownership and control of capital in private hands” tied up with the concepts of private property, the rule of law, etc. while ‘laissez-faire Capitalism’ refers to ‘the error of trying to isolate economic activity from other facets of life with the expectation that the pursuit of profit divorced from ethics will somehow lead to ethical situations’. Capitalism is a group of ideas and processes within the economic areas of our lives. It must be conceded that Capitalism is intimately dependent upon our legal ideas of private property and our ethical ideas of the goal of jurisprudence and the nature of human rights. How is it possible to concede that Capitalism is dependent upon legal and ethical concepts, and then claim that it must be pursued independently of ethics?

Chesterton and Belloc both pointed out that the “failure” of Capitalism in the late 19^th and early 20^th Centuries was the attempt to divorce economic activity from ethical considerations – this is what I and many current Distributivists mean when they cite ‘laissez-faire Capitalism’. Chesterton and Belloc called it a failure because people instinctively realize that moral and ethical considerations must be a part of every aspect of human life, including economics. The divorcement of these ideas in laissez-faire Capitalism led to mass discontent and a yearning for more ethics in economics. Into this hole stepped Marx and the later Communists and Socialists. Their focus on ‘justice’ and ‘equality’ is a naked appeal to the ethical impulse in Man, and it obviously worked! No matter how horrific all Communists nations have been/are, no matter how badly the economies of Socialist nations wallow, people are still drawn to them because of the overwhelming desire for ethics within economics. Despite this, Objectivists, many Libertarians, and others of the same school continue to insist that ethical considerations are at best secondary within economics. These same folks also continue to wonder what the appeal of Socialism might be.

Distributionism points out that Socialism/Communism misses the mark by a much wider margin than laissez-faire Capitalism. The attempt to impose perfect justice and perfect equality by mandate leads not to justice, or freedom, or even economic improvement – it only leads to greater and greater centralized governmental and economic power. Eventually all centralized governmental and economic power is abused. Thus, Socialism and Communism lead, inevitably, to the effective servitude of workers to the state/an oligopoly.

Instead, Distributionism advances an ethical solution to the ‘problem’ of laissez-faire Capitalism that is, at its heart… Capitalist. Instead of mandated giving (taxes, fees, etc) and government programs, Distributism proposes private organizations and cooperatives and voluntary organizations. If the Guild of Carpenters is more efficient (i.e., they actually take care of their members, have a solid reputation with customers, provide the training they promise, etc) than the International Carpenters’ Guild – the International Carpenters’ Guild will go away and the Guild of Carpenters will thrive – until an even better professional organization comes along. If the Delaware County Seed Coop has negotiated better prices with a distributor for the last five years and is reducing operating costs for its members better than the Farmer’s Coop of Delaware, guess which will have more members? This goes for consumer coops, industrial coops, etc. All along the line, the goal of Distributionism is twofold – get the government (etc.) out of economics and ethics as much as possible and use the market itself to include ethics in the economy in a vibrant, competitive, voluntary manner.

Let me give you a small, personal example. My family belongs to a small consumer coop that purchases raw milk for its members directly from a dairy. We include distribution costs in our prices and we do not negotiate for reductions based on volume (not enough volume yet!). Our price for organic raw whole milk is lower than the same product at the local store; we know the producer (and the cows, and the dog that guards the cows) and can check quality personally any time. The producer is making about 30% more by eliminating the distributors and other middlemen. We are saving about 10% by doing the same. If another dairy with similar quality, quality controls, access, etc. came along with 15% savings over local stores, we would (naturally) switch suppliers (or coops!). As a matter of fact, we should be able to do so right now… except for a state law that makes it illegal for dairies in this state to sell raw milk for human consumption. Indeed, we could eliminate a great deal of our internal distribution costs if it weren’t for a law that gives the advantage to large corporate farms or corporate-processed supplies over small farmers.

So the coop works now (the supplier makes more profit, we pay lower costs) and would work even better if it weren’t for intrusive laws that favor large firms over small ones. If there were a different, more efficient/cheaper supplier available, the coop would adapt or wither away. That, baby, is Distributionism at its Capitalist best.

Within the industrial realm the preferred ‘tool’ is also a coop. The largest, most famous example is Mondragon in Sapin. Mondragon is the seventh largest corporation in Spain and has operations in over a dozen countries. With sales of almost 12 billion Euros and a workforce of almost 80,000 people (full and part-time) it is a good-sized company. With business offerings ranging from engineering consultants to brake drum manufacturing to fresh beef, they are well diversified. But how are they different from a well-diversified corporation that isn’t a cooperative? After the probationary period (six months to one year, typically), similar to an apprenticeship, workers become full members of the coop; in effect, they become part owners. Members receive shares in the cooperative (like shares in any company), but shares are only open to employees - no outside ownership exists. Every year a portion of the profits is distributed to shareholders. Typically employees receive a salary and one or more shares when they become full members. Raises and promotions may come in the form of wage increases, more shares, or a combination of both. In Mondragon the shareholders in local ventures (auto plants, dairy farms, etc.) elect spokesmen to an cooperative assembly, who then elect a board. This board then manages the corporation.

In short, it looks and acts like a corporation – but all the owners are workers and only the workers are owners. Unions are allowed but superfluous; after all, the guys on the assembly line, their supervisors, and the managers are all also the owners. If they want a pay raise, they don’t need to strike – they just tell their representative who passes it up the chain. They have all the financial data and know if their operation can afford to give them a pay raise and will elect different representatives if they are lied to. More importantly, if their wages aren’t raised any increase in profits is reflected in the payments of their share profits, too. In Mondragon’s case some profits are diverted from share payments (by the decision of the owners/workers) to run a multi-campus university. Members of the coop can attend at no cost or a reduced cost, and non-members can attend at costs lower than average. It is accredited and graduates are encouraged to attempt to join Mondragon, but it is not required. Since the goal is to create real-world skills and the oversight is by people working in business, not life-long academics, the schools have a good reputation amongst businesses.

Mondragon also provides internal health insurance where needed, pensions, etc. They adjust salaries to reflect local taxes and state-provided benefits to provide comparable compensation while keeping profits high. They also invest in research and development and maintain a strategic reserve of capital.

When it comes to support of Capitalism the Mondragon Faq has this entry:

“Do you consider co-operativism to be an alternative to the capitalist production system?
We have no pretensions in this area. We simply believe that we have developed a way of making companies more human and participatory. It is an approach that, furthermore, fits in well with the latest and most advanced management models, which tend to place more value on workers themselves as the principal asset and source of competitive advantage of modern companies”

I think this is a great example of how a company based on Distributivist ideals can flourish in the ‘real world’. Mondragon’s diversification and expansion to nations like Turkey and China combined with its 13% growth in sales in 2005 seems to bear this out.

Does this eliminate risk? Hell, no. If there are no profits, shares received no dividends and some workers end up less-well-payed than employees of ‘standard’ corporations. Cooperatives can fail completely, just like other corporations. The difference is that the worker/owners decide for themselves what social safety nets they want, fund them themselves, and do so not like an exclusive union (which wants all it can wring from “Management”) but as part-owners, resulting in sensible plans that give you pensions, health care, and profits all together. If health care gets pricey, the owners look for a more affordable plan – or buy some clinics! Instead of eliminating risks, the goal is to spread out and share the risks voluntarily, keeping compulsion and government regulation out of the picture. The effect of tying ethics to the market is not only providing solutions to the potential ‘disappointment and ruin’ but allowing market forces to make those solutions more efficient and more targeted by keeping the government out of providing them.

Van and I do seem to have friction about corporations. Van seems to at once glamorize them (“[corporations are] an organization that has yet to be improved upon for most practical purposes.”) and point out that they can be (and usually are) terribly inefficient. I particularly like his point that the collaboration of many small firms and individuals seems to be very efficient at making a particular project. Such ‘project management’ ventures are becoming much more common and effective. Yet for all of Van’s admiration for the Really Large Corporation, how much of it is misplaced? After all, a great deal of the success of a particular corporation can rest largely on… where it was incorporated. Need a corporation to dodge taxes? File in Delaware, and then never do business there! Want your shareholders to be anonymous? File in Nevada, which has no disclosure laws! In the end, corporations are legal fictions, an abstract concept in constant flux that is evolving as we speak. LLCs, large sole proprietorships, cooperatives – these and many other structures can do many of the same things, often better. More critically, what we have seen time and again through recent history is that large corporations use their economic might in coercive ways. Van wrote this:

“As long as the Corp gains NO legislative/regulatory political power, and uses no PHYSICAL force; and threatening to no longer do business with a company, or convince other members of their supply chain to not do business with their company DOES NOT qualify as Physical Force – it is negotiation, though hardball, true, it is still a legitimate part of the process of making agreements.”

Really, Van? So when Standard Oil told oil suppliers that they would take the payment Standard Oil offered (below market rate) or no one would ship their oil to a competitor, there was no coercion? When Standard Oil told the railroads that all Standard Oil shipments would get a below-market shipping rate and that Standard Oil’s competitors would pay 20% above the market or the railroads would pay triple for oil and railroad track – if there was any available - there was no coercion? Van asked:

“What is the principled difference between such hardball tactics on the part of Corporations, and your trying to wheel and deal at the local service station by saying “Look I’ll let you put a set of your top tires on both my and my wife’s car, but if I do, I want you to throw in a alignment check and road hazard on all the tires of both cars, for free, other I’m taking my business across the street to Big Bob’s place and you and your mechanics will not see any more of our regular business”?”

Here’s the difference; a large corporation can do this;

“Here’s the deal – you are going to sell my tires with a road hazard kit and an alignment check. You are going to sell my competitor’s tires with an additional 10% markup. If you do, you pay rate on electricity, lubricants, and windshield wipers. If you don’t, you pay triple for lubricants and windshield wipers and quintuple for electricity – unless there is a blackout.”

That is a big difference. What happens with a powerful enough corporation is that you are no longer capable of voting with your feet. In these cases the corporations can eliminate existing competitors and then raise the market entry costs to prevent new competitors, and then cascade into other markets. The coercion comes not from physical violence (or its threat) or governmental regulation, but it is real nonetheless.

I do not think that such behavior is inevitable. Indeed, it has been more rare than you might expect – but we have no way of knowing if that would be the case in the absence of anti-trust laws. So let us assume a simple thing – I am wrong. Large corporations never become coercive, and preventing competition is not bad. Let’s just talk about another – diseconomies of scale.

Now, everyone learns about economies of scale in Econ 101. And Econ 105. And, heck, most of Econ. You don’t hear about diseconomies of scale quite so much. In effect, economies of scale means that as you make more of something, the cheaper it is per unit to make it – so, the larger the firm, the more efficient it is. Diseconomies of scale is the opposite; beyond a certain point the per-unit costs of producing something go up – so, beyond a certain size, the larger the firm, the less efficient it is. The threshold seems to be primarily related to two factors; initial required capital; and ongoing capital requirements. Like Van, I have worked at firms small and large, and Very Large, and I prefer the small ones.

For the record, my opposition to large firms is one of ethics and efficiency. I don’t want more laws to control anybody. The preference for smaller firms, although shared by all Distributists, obviously isn’t an impediment to the creation of something like Mondragon. Indeed, if cooperative-based corporations working as a conglomerate or consortium became the world’s largest corporation, I’d have no problem with that.

If it was still ethical and efficient, that is.

In the end, all is as Van said – same words, different meaning. Most disagreements between Distributists and other Capitalists are like that, it seems. But my thanks to Blogodidact for forcing me to be more clear and more detailed. Good luck with work (I, too, am in IT). And as for the Kant, Hegel, Hume, etc. I suggest 2 beers, hot shower, two beers, read James J. Hill and the Opening of the Northwest.