Economic Democracy: Advancing Civilization
in a Post-Industrial World

Drew L. Harris and Teresa M. Twomey


Advancing civilization

One could view the advancement of civilization as a saw-toothed climb of complexity, interconnectedness and cooperation interrupted by backsliding of fundamentalism, fragmentation, and hostility. This paper asserts that the key to each major upward climb is what we will call the democratization of formal privilege - the decentralizing or de-concentrating of rights or advantages shared by some and denied to others. For this claim to make sense we must define our terms, add nuance to some terms - especially civilization, privilege and economic democracy - and illustrate our meaning.

What could "advancement of civilization" mean? Black's Law Dictionary (1990: 246) defines Civilization as: "A term which covers several states of society; it is relative, and has no fixed sense, but implies an improved and progressive condition of the people, living under an organized government. It consists not merely in material achievements, in accomplishment and accumulation of wealth, or in advancement in culture, science, and knowledge, but also in doing of equal and exact justice."

The key term "of the people" would seem to imply everyone, perhaps not as individuals, but certainly when considered as one body. We could come up with various criteria to measure "improvement" or "progressive condition", but for any of them to count as advancement, we would have to consider the number of people the improvement benefited and whether it was for the betterment of the whole.

An example of a step forward that most would easily agree upon is the advent of the printing press - the ability to easily mass produce written information. Although there certainly are still some persons who cannot read, civilization as a whole undoubtedly advanced with this technology. However, were the printing press invented but only a small percentage of the population was permitted to learn to read, the impact of this technology on the advancement of civilization would be significantly less.

So, one consistent measure of advancement in civilization would be how widely the measures of being civilized are experienced - what percent of the population enjoy these measures of civility? Some advances in technology, science, economic arrangements, and culture may improve some aspects of society, but for our purposes we want consider what furthers the civilized nature of the broad body of society.

Privilege and Progress

This paper proposes that civilization advances when technology, ideas and/or civic structures cause a shift in the concentration of privileges - where privileges (especially privileges written into law) are removed. Again, Black's (1990: 1197) provides a working definition for Privilege: "A particular and peculiar benefit or advantage enjoyed by a person, company, or class, beyond the common advantages of other citizens. An exceptional or extraordinary power of exemption. A peculiar right, advantage, exemption, power, franchise or immunity held by a person or class, not generally possessed by others."

Some advances which illustrate this meaning of privilege as enabling advances in civilization include[1] :

The rise of the idea of self-determination coupled with greater access to written materials, especially the Bible, led to the Protestant Revolution which rejected the Roman Catholic Church's position (privilege) as the sole mediator between man and God.

The rise of the idea of self-determination and the British monarchy's loss of validation and support from the Roman Catholic Church contributed to the American Revolution which rejected the authority of the monarch in favor of putting the privilege of the sovereign power of governance in the hands of the people.

The passionate belief of the abolitionists in the humanity of the black man increasingly began to lead to bloody clashes between them and the pro-slavery advocates. The animosity and violence increased with the course of Western expansion and the tension over the addition of slave states or free. The Dred Scott case which went to the extreme of denying citizenship to all blacks brought this into the political for-front and set the stage for the Civil War. That war led to the Emancipation Proclamation which granted not only citizenship, but personal freedom to black people by abolishing slavery

The rising sentiment toward self-governance by women and by blacks as well as increasing education of the same, led to the privilege[2] of suffrage to be extended to black men and later to women.

Not surprisingly, belief in the worth of each person and a desire for self-determination often served as catalysts for these shifts in privilege. Notably, these are the same ideals that are the basis for political democracy.

Democracy is defined as "[T]hat form of government in which the sovereign power resides in and is exercised by the whole body of free citizens directly or indirectly through a system of representation, as distinguished from a monarchy, aristocracy, or oligarchy." (Black's 1990: 432). In this definition there is no room for privilege in governance except, perhaps, in the form of representative democracy where the elected representative has the advantage (compared to the non-representative) of direct participation in governance. Indeed, in U.S. such sayings as "One person, one vote", "All people have equal rights under the law", and "No one is above the law" represent the deep-rooted desire for egalitarian governance, for egalitarian arrangements in civic affairs that propelled the American experiment with political democracy. While there are obvious breakdowns in this process and much of the world has not fully embraced this philosophy of human worth (as discussed by many others in this conference), the ideal of democracy still inspires and motivates the vast majority in western countries.

Does Political Democracy Create Economic Democracy?

In drawing parallels between a political democracy and something that might be called an economic democracy, we might start by examining economic outcomes to assess how democratically governed countries approximate democratic ideals. Unfortunately, the enormous economic disparity, side-by-side with extreme hardship and deprivation, suggests that the economies of most political democracies look more like aristocracies than democracies. Consider some simple measures of who owns assets and who claims annual income as summarized and estimated by Phillips (2002): In 1997 the top one percent of the population in the United States owned over 40% of all household wealth, 62% of all corporate assets, and collected 13% of all income. The top 10% held 91%.of all corporate assets and collected about 40% of all income. The pay of the top 5% of U.S. workers was more than the pay of the bottom 40%.

Is disparity a cause for concern? Many economists claim that the rising tide of economic expansion has "lifted all boats," that relative measures of wealth do not matter as much as absolutes. So, let's look at absolutes: Over 2B people worldwide earn less than $2 U.S. per day with more than half of these earning less than $1 per day - a level that does not support even minimal subsistence . This may be better than the $.50 per day they earned in 1990, but given inflation there is a real loss of earning among the lower quartile of our global population. In the U.S. in 2005 over 37 million people live in poverty[4] .

If dollars and poverty (which has a relative quality to it) are not adequate measures of disparity, perhaps persistent hunger and starvation would serve better. Despite producing 130% of the calories needed to feed every human on earth[5] , every year about 5mm children (typically the last to go undernourished in a household) world-wide die from the effects of malnourishment. In the United States, which claims the greatest democracy and economy in the world, 4.4mm households per year experience a shortage of food such that someone goes to bed hungry (eating less than 1200 calories per day); in the most severe of these, 40,000 to 50,000 households experience a child going underfed on a daily basis[6] . Approximately 4,000 people starve to death each year in the U.S.[7] .

It seems unlikely that in a world as wealthy as ours, if there were truly universal opportunities for self-determination, so many would choose to starve. Furthermore, because civilization considers the whole of a society, we hold the perspective that widespread, involuntary hunger and starvation are inconsistent with the ideals of civilization. There have been varying and, at times, Herculean efforts to provide food, shelter, and education for the poor. Yet, those have not been sufficient to eliminate poverty and starvation. It may be that the elimination of involuntary hunger and starvation require something more than charity, no matter how generous. Historically, poverty and charity have coincided in political monarchies, aristocracies, and oligarchies. A shift to political democracy, even with so-called "free markets", does not assure outcomes that look like anything that could be called economic democracy.

Current Views on Economic Democracy

Given the vast productive capability of human kind, it seems reasonable to believe that, with a different economic structure, no one should suffer involuntary poverty, much less starvation. This is by no means an original thought. From Marxists to socialists to laissez faire free marketers, all claim their theories hold the potential for fair outcomes for all. Empirical evidence suggests none of these has been successful in either production and/or distribution to advance an economy without poverty and great disparity.

There has been a recent rise in the use of the term "economic democracy." Some have simply substituted this as a euphemism for socialism. Others have defined it in terms of outcomes - equality in living standard, equality in the quality of schools for the children, equality in personal power, material equality. Still others have used it to call for [mandatory] employee ownership of corporations. And, a few have suggested economic democracy means access to subsistence[8] . Smith (2005) provides the closest remedy (though not necessarily a definition) to what we propose when he calls for the "elimination of subtle monopolization of land, technology, money, and information", but differs on such additional points as an internationally enforced "equal pay for equal work" system.

We think that outcomes such as those described above - subsistence for all and more equality of outcomes - would be indicators that civilization had advanced. What we need now is an approach to an equitable economic system that would enable such outcomes while allowing for self-determination. Following our interpretation of the sweep of history, such a large step in progress will require examining the current structure of privileges in the search for what inhibits the next steps of development.

The Structure of Privilege

Smith's (2005) call to eliminate monopoly (an intense form of privilege) would seem to be consistent with the idea of de-concentrating privilege. However, economic efficiency calls for privileges, if not monopolies, in a wide variety of resources in order to fully develop the resource. Consider the following: without exclusive use of "slices" of the electromagnetic spectrum our current technological advances of broadcast television, radio, and cellular telephones would be of little use. Unlimited access to all would quickly turn into in a shout-fest of unregulated use. Few citizens would agree to multiple sets of independently owned power lines strung back and forth across their roads and countryside; it would not be economically efficient to have such an arrangement. Who would erect buildings or otherwise improve the land without an exclusive claim to some tenure in that land?

From this we see that some privileges are necessary for economic efficiency. Indeed it is difficult to imagine a modern economy without a wide array of privileges. However, two problems immediately present themselves. First, we have a wide array of privileges that are not economically efficient. Among these, economists (though not politicians) agree that subsidies, transfer payments, quotas, import tariffs and the like create what is called "dead weight losses" - losses to the total productivity of an economy.

From this we draw a distinction between two types of privileges: those that are economically efficient and those that are economically inefficient. The economically efficient privileges present problems discussed below, but it should be clear that economically inefficient privileges are at odds with outcomes we would associate with an economic democracy - material well-being (for all) and some sense of egalitarian outcomes.

We will also note that the formal actions of the state are not the only arenas in which privilege occurs. There are a set of "informal privileges" that are not codified in law and are not the formal actions of government. These include such differential treatments as freedom from racial profiling, getting a warning instead of a ticket because the police officer knows your father, or getting into a top-notch school because of reasons other than your own intellect or accomplishments. We call these "Informal or Cultural Privileges" because they appear to reside in the culture. The cultural privileges cited above appear to be economically inefficient for society, and some have argued that the state has a role in intervening in these privileges, typically by creating compensating privileges such as affirmative action, individual welfare, and needs-based scholarships.

We should also note that there are economically efficient cultural privileges. These might include ideas such as "first-come, first served", queues at bank tellers, ticket booths, and public bathrooms and much of what we call "good manners".

This line of analysis results in the 2x2 topology of privilege presented in Figure 1 below. On one dimension we have formal (actions taken by the state) contrasted with culturally-based (informal) privileges. On the other dimension we distinguish concepts of economically efficient (or order inducing) and economically inefficient privileges. We provide illustrative examples to further illustrate our meaning. This topology should allow for more efficient analysis of the effects of privilege and more effective dialogue between multiple disciplines that have an interest in privileges (economics, sociology, political science, etc.) and in the advance of civilization,

Figure 1 - A beginning topology of privilege

Economically Efficient Economically Inefficient
Formal - Property rights in natural resources
- Incorporation
- Current farm subsidies
- Gifts to corporations for relocation
Informal (cultural) Manners Nepotism in corporations
- Gender bias in hiring and promotion

h4>Defining Economic Democracy
One clear step towards economic democracy would be to eliminate the economically inefficient privileges granted by the state. This would have the dual effect of improving the productive capability of the economy as a whole and of eliminating unequal advantages granted to a small group. These privileges create an unequal playing field wherever they are applied. This cannot be justified in an economy based on some sense of equal participation, a condition that would seem necessary to call an economy "democratic". So, our first proposal for an economic democracy would be:

Proposition 1: In an economic democracy, the state would not grant privileges that were not economically efficient for the whole of the economy.

The second type of formal privilege, those we deem economically efficient, also present problems. For example, early developers of broadcast television successfully argued that they should be given exclusive access to portions of the electromagnetic spectrum. This way, they could risk investment in the development of broadcast technology without having the value or potential value of the spectrum as part of their start-up cost. In the legislation authorizing the grant of the permanent rights to the spectrum, the U.S. congress provided language to the effect that in return for the privilege of exclusive access, the holders of that privilege had to provide programming that was in the public interest. Because there was no operational definition of "public interest" this provision has become nearly meaningless. Meanwhile, the broadcast networks and individual broadcast operations made vast fortunes on their privilege - fortunes that have been used to lobby for further protection and privileges (e.g., the 1990's give away of another slice of the spectrum, ostensibly for development of HDTV).

Currently most economically efficient privileges confer upon their holders economic advantages that create great disparities in wealth and earning power compared to those who do not hold the privilege. Because these unequal advantages are granted (and enforced) by the state, there is a strong likelihood that the processes taken to grant these privileges create an overwhelmingly tempting environment for corruption. The recent U.S. lobbying scandals provide the prima facie evidence of this assertion. However, even without corruption, where the value which is returned to the public is nonexistent or vastly inferior to the profits or advantages gained by the privilege holder, the granting of these privileges creates inequality and is undemocratic.

Okum (1975) and most mainstream economists proposed that a necessary choice must be made in the use of natural resources (and by extension, other state granted privileges) - equality or efficiency? The neo-classical answer, the answer Okum reluctantly accepted, is to treat natural resources and their attendant values as if they were the product of human effort. That is, natural resources become part of the person claiming the resource and that all economic returns to those resources, whether due to individual effort or to exogenous development (say, the state building infrastructure nearby), are treated as the individual's work product. This, in effect, is the privatization of nature and the legitimization of privilege. Unfortunately, if the bounty of nature can be claimed by some to the exclusion of others, or granted by the state to some and not to others, it results in extreme inequalities of opportunity as well as outcome. That is hardly a viable foundation for something that could be called "economic democracy."

Circumstantial evidence suggests that a few wealthy individuals specifically encouraged the development of this neo-classical model (Gaffney & Harrison, 1994). Not coincidentally, those individuals would be the same persons who stood ready to exploit those natural resources for their own personal gain. For example, J.P Morgan funded the development of Columbia University's economics department from two members to approximately forty. J.B. Clark, the early champion of neo-classical economics who went to great efforts to collapse the classical economics distinctions between land, labor and capital, was prominent among Columbia's early hires. Similar efforts were undertaken in expanding the neoclassical economics departments at the University of Chicago (with Rockefeller funding), John Hopkins University (with B&O Railroad funding) and Stanford University (with Southern Pacific Railroad money).

The development of the neo-classical model occurred at the same time that there was a rising populist tide seeking to implement the classically-based economic solution proposed by George (1879). Classical economics clearly separates natural resources from labor and capital (saved, man-made products used to improve production) as inputs to economic production. George proposed an elegant solution to the equality-versus-efficiency issue with regards to land (George focused primarily on land to illustrate his points but his logic applies to all natural resources and state granted privileges). The state could grant tenure but identify and collect economic rents associated with natural resources and thereby separate the issues economic privilege from the issues of tenure and utilization of the resources.

Economists of all stripes define economic rents as the productive potential of a particular unit of resource above the next freely available unit of the resource. Economic rent can also be understood as the values that arise from demand for the resource. Rents are often called "unearned income", reflecting the fact that the resource holder did not create the rent - the demand from the larger population created the rent. In a broad simplification, one might consider the difference in value between an acre of land in downtown Manhattan and an acre in the most remote corner of North Dakota is the value of economic rent for the acre in Manhattan.

Because increases in demand (economic rents) rise along with increased population and investment in community value (infrastructure, cultural opportunities, public health facilities, etc.), George proposed that rents collected be distributed back to the people through their collective desires for things such education, security, public health, etc. Some modern, classic economists have proposed a per capita redistribution of collected rents; as an example, they point to Alaskan oil royalties distributed to citizens of that state each year. In either case, we see that the state need not redistribute the physical aspect of a natural resource or privilege to effect an equal sharing of the resource's value.

This leads to our second proposition:

Proposition 2: Each person has an equal and inalienable right to share in the bounties of nature and, in particular, in economic efficiencies or rents that arise from formal privileges.

These two propositions would ameliorate much of the vast inequalities created by the state. The second proposition is a dramatic shift in understanding privilege - that the economic gains arising solely from the privilege can be separated from the wage and interest earned on labor and capital while exploiting the privilege. One of the primary vehicles for this separation could be auctions of the privileges. For example, since 1994 the FCC has been auctioning new allocations of the electromagnetic spectrum (primarily for cellular telephone operations); these auctions have raised approximately $58.9 billion in public revenue through 2006 and have accelerated, not hampered the exploitation of that resource[9] .

We do not feel this example is a perfect one, however, as we believe any permanent sale of a privileged use of or access to a natural resource or any permanent granting of a formal wealth-producing privilege for a one-time fixed price is foolish. IN our earlier example of television broadcast rights, if the state had auctioned permanent rights to that portion of the spectrum early in the development of television the auction price would have probably been close to zero. In an economic democracy, such a sale would abrogate the rights of future generations. We would propose either auctioning of short, fixed term rights (e.g., five to ten years) or providing privileges with an annually adjustable rent.

Is Democratizing Privilege Enough?

A Marxist or socialist reading this might say that a truly Marxist-socialist economy would remove the privileges and establish subsistence for all. Perhaps this is true in the abstract, but after more than 100 years of experiments, we have no empirical evidence to support this claim. Most Western economists point to economic inefficiency as the problem - the disincentive effect of having wages and interest appropriated by the state coupled with the overwhelming task of trying to set prices and production centrally in a complex environment (although Kanter's (1972) analysis of the small scale, community-based socialist experiments during the 19th Century Utopia community movement demonstrated this is not practical on a small scale either).

This would be a good time to return to political democracy for guidance. Political democracy rests on a moral foundation - a belief in the inherent value of the individual and the inalienable sovereignty of the people in matters of governance. The framers of the Declaration of Independence, while speaking of political equality, also knew that they were creating an economic arrangement. When they stated, "… [the people] are endowed with certain inalienable rights, that among these are life, liberty and the pursuit of happiness", they were making an economic statement as well as a political statement. We believe the core of this philosophy - inalienable right to an individual's life - would be a good addition to our propositions for a democratic economic system. (We will not explore the inequalities and compromises which, prior to the early 1900's in the United States, conflicted with these noble intentions. Over time, we have made much progress to correct those.)

Proposition 3: Every human being has an inalienable right to their life; that right to their life is equal to the same rights of all other human beings.

Just as in political democracy, this right suggests sovereignty over one's self and acknowledges the inherent value of each individual simply by virtue of their humanity. In an economic democracy, it also, by extension, provides for private property rights in things created by humans. This follows from the logic that if a person invests their time in producing something, they have invested a portion of their life in that work product. To allow another to appropriate that work product is to allow another to appropriate or alienate that portion of that person's life.


The implications of our three proposals are far reaching and would surely create upheaval in the current structure of power. While it would take volumes to explore all the possibilities (and we hope those volumes will be written), we would like to touch on a few issues related to outcomes we identified as desirable for the advance of civilization.

We assert that these proposals would improve the ability of everyone to live above a subsistence level. We base this on an understanding of opportunities that implementing these proposals would represent. If the state respected individual sovereignty, it would not tax incomes, private transactions or savings. In the United States, the average citizen works until early May to pay his wage and savings taxes for the year. Even those below the poverty line pay income taxes; in some states this begins with the first dollar earned as does the social security wage tax. Under our proposal, those who currently enjoy none of the economic privileges granted by the state would not be called upon to pay any taxes - thus lowering the effort required to make a subsistence living.

The advantage of removing taxes from wages would extend to the middle class as well. For most middle class employees, the only significant privilege they hold is the ownership of the land which their homes occupy. Because most of those homes and land are purchased with mortgages at fair market rates, and taxes on economic rents are generally perceived as non-transferable, the cost of housing for the middle class would not go up. The cost to the mortgage holders would likely go up as those institutions have a considerable array of formal privileges that allow them to capture economic rents in the properties they mortgage. This is an area that would cause considerable upheaval.

One might be concerned if there would be enough public revenue from rents on privileges to support the activities that the public apparently desires. Arnott & Stiglitz (1979) demonstrated that land rents (alone) should pay for well designed public infrastructure. Durning, Bauman & Gussett (1998) showed that fees for privileges (including the privilege to pollute but not land rents) could supplant all current taxes in states in the Northwest United States. In Western Australia all public revenues arise from rents and privilege fees (Forster, 1997); supporting our thesis, the cities and states in Western Australia have higher wages and lower unemployment than the cities and states in the eastern part of that country where wage and sales taxes prevail.

Were this evidence not sufficient one should consider the savings that would arise from putting the three propositions into practice. Annually, the U.S. provides approximately $175B in aid and subsidies to corporations; most, if not all, of this would be removed by the pursuit of proposition 1 - no granting of economically inefficient privileges. If poverty were not such a concern, we could save about another $75B per year in aid to the poor. It is difficult to estimate the far ranging multiplier effects of this change, but it should be clear that there is enough public income potential to fund legitimate actions of the state.

The last point we would like to make is that implementing the three propositions would likely improve participation in political democracies. By basing a public revenue system on practical and moral values similar to our political democracy, it is reasonable to assume the economic system would appear more legitimate than it currently appears. As the state defines the rules for the economic system, the state currently appears to tilt the playing field and provide advantages to a privileged few. A more clearly level playing field might encourage more people to participate in the government that sets the rules.


We have proposed three criteria for economic democracy: 1) The state cannot grant privileges that are not economically efficient for the whole of the economy; 2) Each person has an equal and inalienable right to share in the economic efficiencies or rents that arise from formal privileges; 3) Every human being has an inalienable right to their life and that right to their life is equal to the same rights of all other human beings.

Just as with political democracy, outlining the conception of economic democracy is certain to be much simpler than the actual implementation. As our political democracy is an organic, evolving process founded on shared ideals, we see the potential for economic democracy in much the same way. We do not assert that we have all the answers. For that matter, we do not assert that we know all the questions. However, we do believe that this concept may be the seed of the next step in the evolution of civilization.

* Contact the authors for footnotes and references