Social Capitalism
Discussion
Eric Olin Wright:
"The expression “social capitalism” refers to a wide range of institutional mechanisms and social processes through which social power rooted in civil society directly impinges on the exercise of capitalist economic power, especially in capitalist corporations. The most widespread example of this is, of course, labor unions. Unions are secondary associations and while they organize workers in the economy – in firms and labor markets – their main source of power comes from their capacity as an association to mobilize people for collective action, and in this sense they are also part of civil society.51 When unions are heavily regulated by the state and their roles in governance of economic power are restricted to collective bargaining over wages and limited aspects of working conditions, then the social empowerment enacted through unions is quite limited. But in some times and places unions have a much more expansive role and modify the functioning of capitalism in significant ways. They may have the rights to elect representatives on boards of directors of large corporations, as in the German system of co-determination, or they participate in various kinds of workplace governance and works councils within firms. Unions may also become deeply involved in community activism and coordinate their efforts with social movements in civil society. Such “social movement unionism” potentially contributes to building solidarities across the diverse interests in civil society thus enhancing the coherence of social empowerment.
In what follows I will not discuss the conventional role of unions even though this is an important aspect of social capitalism. Instead I will focus less familiar institutional proposals which attempt to create more democratic ways of directly controlling economic power through associational forms of various sorts. There already exist in capitalist societies large pools of capital that are controlled by public and quasi-public bodies. Endowments of public universities and pension funds of unions and governmental units are typical examples. Modest efforts occur, from time to time, for these kinds of capital pools to be used to impose social constraints on investment. Perhaps the best-known example was the concerted effort to divest university endowments from investments in South Africa during the apartheid period. Certain kinds of pension funds have also vetted investments on the basis of some criterion of social responsibility. More radically, as we shall see, in the 1970s in Sweden unions and the left of the Social Democratic Party proposed that union-run wage-earner funds be used to gradually over time gain significant control over Swedish corporations. The proposal came under concentrated attack and was modified to such an extent that the final version lost these radical features.
The question, then, is whether a broad institutional redesign of the rules and practices governing the creation and control of such public capital pools would enable them to play a much more significant role in constraining capital, of imposing democratic direction and social priorities on accumulation. In particular, pension funds already constitute a vast pool of capital that could be used for these purposes, and the general trend of converting defined benefit pensions into defined contribution pensions is likely to increase the importance of such pools of capital in the future.53 Is there a way of organizing and funding such large pension funds, especially when they are organized by associations like unions, in such a way that they can be used proactively to discipline corporations and reduce the capacity of capital to escape public regulation?
A variety of strategies have either been adopted or proposed with the goal of enabling people and associations to use capital funds to influence corporate behavior. Some of these have already been well-integrated into the capitalist economy. Socially-screened mutual funds, for example, establish various kinds of ethical criteria for the purchase of stocks in corporations. Some of these are highly targeted to a particular kind of ethical concern such as excluding military firms or oil companies or tobacco companies from a portfolio. Others adopt a broader, ethically denser positive social screen by requiring that firms be certified as having high labor standards or environmental standards. These kinds of socially screened funds certainly make it easier for socially concerned people and associations to invest with a clear conscience, but it is a matter of some debate how much real effect this has on corporate behavior. Skeptics argue that social screening might have virtually no impact on stock values of non-screened firms. On the one hand, screening could have negative effect on the stock price of non-screened corporations since the demand for their stock would be slightly less, but on the other hand, this would mean that those stocks would become better bargains for investors who don’t care about social screening, and this would increase the demand for such stocks. The net effect, the skeptics insist, is likely to be minimal, and thus social screening would not put much real pressure on “bad” firms. Defenders of social screening argue that even if the direct effect of ethical investing is small on stock prices, it does contribute to a changed set of cultural expectations about corporate behavior, and over time this could have a larger effect. Corporate practices are never simply driven by the ruthless, single-minded pursuit of maximum profits; they are also governed to some degree by social norms, and the existence of visible socially-screened investment funds contributes to strengthening the moral climate of capitalist behavior.
Here we will explore two strategies for democratic control over pools of capital that go considerably beyond social screening of stock portfolios. One of these – labor-controlled venture capital funds – exists in limited form in a few places, and the other – share-levy wage-earner funds – has been proposed, but not adopted. Both proposals, if adopted on a wide scale, would offer significant prospects for a direct impact of social power on the exercise of economic power." (http://www.ssc.wisc.edu/~wright/ERU_files/ERU-CHAPTER-7-final.pdf)
More Information
For the two strategies, details at
See also: Cooperative Market Economy