Saturday, 28 March 2009

The Economics of Co-operation - Part 1

Economics undergraduates are given a definition of Economics, which basically says that it is the study of the “allocation of scarce resources to meet unlimited wants.” Its an inadequate definition shaped by the concerns of the dominant Western School of Economics that arose out of the “Marginal Revolution”, a revolution which shifted the emphasis from what the study of Economics had until that time been about – essentially HOW society goes about producing what it produces, the laws which determine what things are produced and how that impacts on the way they are distributed – on to the mundane question of how efficiency and welfare can be increased by reallocation of inputs at the margin. In defining Economics in this way, it cuts out all possibility of raising the most important questions, which any study of Economics as a study of human society, need to raise.
The framework in which this optimal allocation is most frequently posited is that of so called Pareto Optimality. This can be summarised as saying this. Given any set of original conditions, an optimal state is reached – say for production – where no reallocation of resources, factor inputs, can result in an increase in output of at least one product without a consequent reduction in output of all other products. Similarly, and as a concomitant of this no reallocation can result in an increase in welfare for at least one person, whilst resulting in no reduction in welfare for every other individual.

It can fairly easily be seen what is wrong with all this. Take the definition. Is it true either that there are scarce resources, or unlimited wants? For thousands of years, the Plains Indians in America faced no such dilemma.
The fortunate topography of where they lived meant that there was abundant food resources in the form of herds of bison and other animals, and there was an abundance of root vegetables as well as fruit and nuts ample to feed the population. The climate and wide open spaces meant that the need for shelter and warmth could be accomplished and so on. Moreover, the Indians had lived their lives for all that time with a culture and limited range of needs that these ample resources could easily meet. They would have failed to understand the meaning of this definition of Economics. In fact, the idea of unlimited wants is a rather recent phenomenon. The Medieval peasant
whilst having a wider range of wants than the Plains Indian had a much more limited range of wants than the average person in today’s consumer society. It is one reason why for very long periods of time peasant societies were content to continue to use their traditional means and methods of producing in order to satisfy those limited wants. It is Capitalism, which in its need to continually expand the market, expand the scale and range within which Capital can operate and expand, which creates the idea of unlimited wants. It is Monopoly Capitalism, which needs to produce on a huge scale in order to enjoy the benefits of the economies of large scale production, which needs to keep its huge investments of fixed Capital constantly employed, and which relies on the consumption of millions of wage workers, which creates through sophisticated advertising and marketing, through the provision of consumer credit, the idea of unlimited wants, of a consumer society, or “retail therapy”, based on instant gratification through the continual purchase of ephemera, of throw away products.

A Plains Indian or a medieval peasant would probably look on in bewilderment at such a society. Often to explain economic principles Economists have referred to Robinson Crusoe on his island. Generally, such examples are rather facile, but they can sometimes illustrate a point. Imagine poor Robinson operating by such means. With his limited resource – his Labour Power – he deliberately, produces a pair of trousers that will quickly wear out, just so that he can keep himself busy some other day making a new pair of trousers, instead of spending his scarce Labour Power on producing something else that he requires!

And if we consider those Pareto Optimality conditions the obvious point is that they fail to consider some important issues. By simply accepting, the original starting points they rule out any question of how the different economic players arrived at that original factor endowment.
So the fact that one set of actors – the owners of Capital – arrived at that position by piracy, thieving or other unsavoury methods is not considered, along with the fact that other actors those who only have Labour Power as a commodity to sell, perhaps arrived at that position because they had had their means of production thieved from them! It can only tell us what is an optimum allocation on the basis of those original conditions. It does not tell us, for instance, if some other set of factor endowments were the starting point whether some new optimal condition could arise that would be even more efficient, create an even higher level of welfare than that first optimum.

Furthermore, it is a static model of optimality. It effectively assumes that the re-allocations of resources has no consequence for the nature of the factors themselves. But, this is quite clearly an untenable assumption. Take Capital in the form of machines and equipment. It is not homogenous and unchanging.
A reallocation of inputs might create an optimum condition provided we assume that no such change occurs, but it could be that a diversion of resources might result in the production of a machine that is twice as effective as current equipment, and consequently the efficiency of Capital against Labour is fundamentally altered. It would imply a reallocation to divert resources to employing more Capital and less Labour. Similarly, simply assuming that a change in welfare that results in the increase in welfare for already rich Capitalists, whilst no reduction in the welfare of workers, will have no negative consequences is also a rather silly assumption. It can be fairly well assumed that workers will react to such a change either by demanding higher wages for themselves, or else reducing the productivity of their output by various means.

I don’t start with this apparent diversion for no good reason. I do so in order to point out the limitations of attempting to study the economics of Co-operative production using the usual tools of orthodox economics. Although, I intend to look at those orthodox theories, and to deal with them in their own terms, I hope to show why the assumptions generally used have to be modified, and I also hope to show that the use of Marxist Value Theory is a better guide to understanding Co-operative Production and distribution.

Although, its not overtly stated, the Paretian model is always presented as though this allocation of resources to maximise production and welfare is effected through a competition between and for inputs. In other words an assumption of a competitive market. That is not essential. In fact, the Paretian Economist, Oskar Lange,
was one of those who showed in the 1930’s that the claim of Von Mises and others that planning was impossible, because its impossible to calculate efficient prices, was wrong. But, it is fairly unsurprising given the fact of the ruling capitalist ideas, that a general assumption of competitive behaviour is made, the notion that Man himself by nature is competitive. In the year of the centenary of Darwin’s “Origin of the Species”, it also has to be admitted that whatever the general benefits that have derived from that theory, it along with Darwin himself, who, in later editions of his work, took on board the concept of “a war of all against all”, has contributed to the idea of Man as a naturally competitive animal like all others. Its worth I think before proceeding further to just look at that idea, and check its validity. In fact, I would argue that far from such competition being natural it is the very opposite.

If we think about most animals we in fact see Co-operative behaviour at least as much as competitive behaviour. Animals congregate in herds, because they provide protection against predators, particularly as means of protecting the young. Every member of the herd acts to keep watch and convey any sign of danger to the rest of the herd. Similarly, predators often hunt in packs combining their actions to best secure the kill.

In fact, its long been known that even animals thought to be natural enemies are only so, because of the environment in which their behaviour is conditioned. Experiments with animals have shown that through conditioned reflexes, far-reaching alterations in the environment have the effect of abolishing aggressive tendencies, which were once thought to be “unchangeable”. Its been shown that its possible to get cats and rats to co-operate peacefully provided you start the training early enough, and provided the obtaining of food is based on co-operation. As Zing Y. Kuo put it “Genesis of Cat’s Responses to the Rat”, in Journal of Comparative Psychology Vol II 1931 p35, “Nothing is more natural than for the cat to ‘love’ the rat. And if one insists that the rat has an instinct to kill the rat, I must add that it has an instinct to love the rat too.” In nature behaviour is what can be built in and not what is supposed to unfold from within. In the same journal Loh Seng Tsai came to a similar conclusion in his article “Peace and Co-operation among Natural Enemies”.
Both are quoted by the eminent American anthropologist Ashley Montagu in his book ”Direction of Human Development” see pp 34-5, 35-8. See: Montagu .

Langois even undertook similar experiments with perch that were presumed to be cannibalistic and showed they could be trained not to be. Montagu concluded,

“Slight changes in the environment are sufficient to change the behaviour of creatures from a cannibalism that was erroneously thought to be instinctive to social behaviour that is co-operative.” Op cit p44.

More recent studies also demonstrate that animals can co-operate.

Science Daily

Elena Berg Co-operative Jays

In fact, there is profusion of evidence of Co-operative behaviour in the natural world, and recent developments of Darwin’s Theory demonstrate why that is.
As Richard Dawkins has argued in The Selfish Gene what characterises natural behaviour is not a desire for the individual member of the species to survive and multiply, but the need for the SPECIES to survive and multiply, and so altruistic or co-operative behaviour amongst members of that species is the most effective way of achieving that end. This explains why some ants or bees give up their individual rights to pass on their genes, and live their lives servicing the hive instead.

It is unlikely that what is a basic urge within nature is not present in Man himself. In fact, as Mandel outlines in ”Marxist Economic Theory” there is more reason to believe that this altruism and co-operation is more natural in Man than in all other parts of Nature. As Ashley Montagu puts it in his book “Direction of Human Development” and also in Malinowski’s “A Scientific Theory of Culture” p209, competition is a tendency which is not “innate” but socially acquired. And as others have noted, of all the higher mammals it is the very biological nature of man, which makes him more disposed to co-operation, solidarity etc. than to competition. Man is a social being not just in the sociological sense but in the biological sense too. He is born in the weakest state of all the higher mammals, least protected and least capable of self-defence. Anthropo-biology considers Man to be an embryo prematurely born, one of the reasons for his greater adaptability thanks to socialisation, in fact its now thought that this is one of the features that leads to the creation of Modern man as a species. (See Portmann “Die Zoologie und das neueste bild des menschen pp74-76 and La barre “L’Animal humain” pp5051)

And, again as Mandel points out even studies undertaken in the most unpromising conditions – those of Nazi Germany – have confirmed this. Professor A. Gehlen in fact conducted one of the studies, which proved this, under the Nazi regime. See “Der Mensch” pp39-40 and Portmann “Die Zoologie und das neuest bild des menschen” p14. The Nazis tried to direct anthropology towards the study of “unchangeable biological characteristics” of “racial substances” and the like. Scientific truth showed itself stronger than these charlatan appeals even though the Nazis had massive state power behind them. As Gehlen concludes from his studies what is distinctive about man is precisely his capacity for adaptation, his capacity to create a second nature in the culture, which forms the only framework in which he can live.

(The above taken from Mandel “Marxist Economic Theory” pp 669-71)

So discussing Co-operation in terms of Economics as a means of Man achieving his basic needs is not in some way to suggest a change in Man’s behaviour, certainly not to suggest a change to a way of producing that is alien to Man, but is really to look at the specific ways in which that Co-operation has manifested itself in the past, how it is manifested within present Monopoly Capitalism, and how the current material conditions lead towards future such Co-operation, and the most effective means of organising it. The forms of Co-operation depend upon the forms of property that exist in society, and those forms of property in themselves depend upon the nature of the productive forces at any specific time, and the productive relations which grow up on those forces.

The most primitive forms of Co-operation arise within the most primitive societies where the limited nature of the productive forces prevents the development of private property in the means of production as a decisive social force. At its most basic level we can consider human society arising out of the animal world with packs of humans as hunters and gatherers with very little in terms of weapons or tools to assist their productive efforts, and whereby co-operative effort is essential. In fact, one of the techniques used by North American Indians involved no weapons at all, but consisted in driving the Bison towards a cliff or ravine into which they fell to their death. But, the first such weapons and tools would have been available materials – sticks to scrabble in the Earth with, or to sharpen as spears, rocks to throw or again to sharpen for use as a cutting blade. But, such tools would have formed a small part of the human activity of production. Quickly, worn out, destroyed there would be little in the way to be retained by the individual hunter-gatherer in the way of means of production. The main element would be the combined and collective effort of the members of the clan or tribe, and that collective effort in production would find its concomitant in the collective consumption of what was produced.

Even when society develops beyond such primitive levels and tools become more durable and passed on within the family such co-operative behaviour continues not because it is economically necessary in the strict sense, but because it gives other benefits, benefits which orthodox economics does not take into consideration when evaluating the responses of Labour as a factor input within a competitive model.

”The interest of primitive work is increased, and its drudgery mitigated, by the fact that it is often co-operative. Major undertakings, such as house-building or the construction of large canoes, usually require the labour of more than one person. And even when the task concerned could be done individually, primitive peoples often prefer collective labour. Thus in Hehe agriculture much of the cultivation is done individually or by small family groups. But at the time of the annual hoeing of the ground, it is customary for a man to announce that on a certain day his wife will brew beer. His relatives and neighbours attend, help with the hoeing, and are rewarded with beer in the middle of the day and in the evening. This is not to be regarded as payment, since casual visitors who have not helped with the hoeing may also take part in the beer drink. Under this system, each man helps others and is helped by them in turn. From the purely economic point of view, the system has no advantage, since each man could quite well hoe his own ground and the preparation of beer adds substantially to the work involved. But the system does possess psychological advantages. The task of hoeing might well appear endless if undertaken by each individual separately. Collective labour, and the collateral activity of beer-drinking, changes a dreary task into a social occasion. The same principle applies to collective labour in general in primitive society, and to the social activities of feasting, dancing and other forms of collective enjoyment which frequently accompany it or mark its conclusion.”

See for example: An Introduction to Social Anthropology – Piddington .

Even the development of slave society does not abolish such Co-operation in production, but the form of Co-operation changes. For the slave certainly it changes, the slave is now required to co-operate with other slaves in order to undertake production typically on some large plantation, or in some mine but as the property of the slave owner the slave does not engage in such co-operation on the basis of their own free will, not out of some desire for mutual advantage in bringing about a higher level of productive efficiency, nor even as described above by Piddington to reduce the tedium or unpleasantness of the work, but solely on the instruction of the slave-owner, who already recognises the advantages of the division of labour, whose concomitant co-operation is.

Moreover, it has to be remembered that even in the most successful slave societies such as the Roman Empire only a minority were slaves. At most around 30% of the population were slaves, though the figure is likely to have been much smaller than this. See: Slavery The majority of people were peasant producers with also a sizeable number of artisans as trade had a large role in the City States. And, although peasant production represents individual production par excellence, most peasants through to perhaps as late as the 18th century continued to live in some form of communal organisation be it a clan, or as in the case of Medieval Europe the Village Commune, and with similar structures within the Asiatic Mode of Production. Clan ownership of land continued until the Highland clearances in Scotland, and in Ireland clan ownership of land continued until it was forcibly destroyed by the British in successive apportionments to those who assisted the British State. Through until the General Enclosure Act in England of 1801, and similar measures throughout Europe, alongside the village commune stood the Common Land, owned and used in common by all the peasants and landless labourers.
And in the US even into quite modern times the principal of co-operation still existed even amongst the most individualistic of peasant farmers in the custom of “barn-raising” whereby farmers would all join together to help build a new barn for one of their neighbours, in a way reminiscent of the accounts given by Piddington above.


Medieval Commune
Barn Raising

So, it is important to remember that even at the height of the age of individualism in the 18th century, an individualism that arises out of the nature of the form of individual, self-sustaining peasant production that leads to the development of the Libertarian
ideals of that century summed up in the writings of Rousseau, co-operation continued to be a powerful force within human production and life, but its specific form is dictated by the nature of productive relations, and of the property relations which dominate. It is not co-operation as collective action for overall production, as in the case of the primitive communist society, but co-operation between atomised family units for the purpose of mutual support. In a sense we see the same kind of co-operation today in the numerous agricultural co-operatives of particularly Southern Europe. The Co-op is not a collective farm effort, but a joint organisation made up of individual farms for such mutual support, and for the more effective marketing of output, or for the sharing of costs on the provision of equipment etc.

The revolutionising aspect of Capitalist production is that it does away with these individual family units of production and combines them in one large co-operative productive effort. But, where the individual peasant producer shares in common with the member of the primitive commune a decision to engage in co-operative effort out of free will, out of a recognition that such co-operative effort is to their own advantage, the worker in the Capitalist enterprise in contrast shares with the slave the distinction that their co-operation is borne not out of any such mutual benefit, nor even of lessening the tedium or drudgery of the task at hand – on the contrary the raising of the division of labour to previously unheard of heights magnifies those aspects of the work process – but, purely on the behest of the Capitalist who buys their labour power, and who recognises the tremendous power of that division of labour, and of the co-operative production function in order to raise the productivity of labour to every higher levels. It can be summed up like this in the Primitive Commune and the Peasant Commune it is the producer who owns the means of production, and that dictates the motivation for the Co-operation, and dictates its nature. In the slave society and under Capitalism, the producer does not own the Means of Production, and again that determines the motivation for Co-operation, and dictates its nature.

From the earliest human societies to today Co-operation has remained a constant of human labour and production. Its form and function have changed as the forms of production and property have changed.

In today’s Capitalism Co-operation has been raised in production to levels that would have been inconceivable in the period of 19th century free market capitalism. That Capitalism began by farming out production by Merchants to individual peasant producers, and then selling their individual products, increasingly raising their productivity as they concentrated more and more on that production at the expense of expending their labour on meeting their own immediate needs. It progressed by bringing those individual peasants together into a manufactory where, still using handicraft methods their labour could be combined in a co-operative manner to raise productivity, and thereby through the division of labour to increase productivity further by each worker becoming a specialist carrying out one single function, and their labour then being dependent upon co-operation with all other workers each of whom had their own specific function to perform.

But, this co-operation between different aspects of the labour process was only one aspect of the general extension of co-operative labour that Capitalism brought about. Each enterprise was in its turn dependent upon the output of other enterprises in which a similar process of co-operation took place, so that a division of labour occurred not just within the factory, but within the economy as a whole.
Adam Smith set out the idea that this co-operation arises within Capitalism spontaneously as a result of each individual seeking to maximise their own benefits. The butcher does not co-operate in providing meat to their customer out of any sense of altruism, but in order to turn a profit. It just so happens that this act benefits both parties who obtain what they want. Of course, Smith’s notion of the invisible hand here is one that a Marxist would challenge, and other economists too. Joe Stiglitz for example commented, "the reason that the invisible hand often seems invisible is that it is often not there." (Making Globalization Work, 2006).

Yet, the fact remains that in a very real sense Capitalism does raise to a high level this need for co-operation in production. The fact that this co-operation is not planned, that the invisible hand isn’t there, doesn’t change that fact, it only tells us something about the specific nature of Co-operation under Capitalism, its specific form determined by the productive relations and forms of property. In fact, its that criticism of the fact that under Capitalism that Co-operation is NOT planned, which is the fundamental basis for arguing for the rational extension of that Co-operation in a way which overcomes that criticism, which leads to a new form of Co-operation in the form of Worker Owned Co-operatives, and which in their turn form the rational core of the argument for socialism.

In fact, globalisation shows the degree to which Capitalism HAS raised that co-operation already. Globalisation makes every worker in Britain reliant upon tens of millions of workers all around the globe whether that reliance is upon the output of those workers for the clothes they wear, the food they eat, the car they drive and so on, or for the materials and machines they utilise in their own work process every day.

And, although the classical definitions of Capitalism talk about it being based on such concepts as competition and risk, the reality is that Capitalists themselves have always done everything they could to avoid both!!! The first large Capitalist enterprises were themselves Monopolies guaranteed by Royal Charter like the East India Company. From, the end of the 19th century in place of competition the Capitalists instead attempted to develop production based on their own Co-operation first in the form of price fixing agreements, then of cartels, and then of giant Trusts, the whole motivation for which was the removal of competition and risk.
As early as the middle of the 19th century the US Capitalists had forged a close relationship with the State, which provided its Army to clear American Indians from their lands so their railroad could traverse it, and which imposed high tariffs on foreign goods so those Capitalists could develop their own production free from external competition.

And as those cartels and trusts themselves became obsolete as the average size of many businesses expanded to huge proportions as the economies of scale ensured that production had to be conducted on an ever larger scale with ever larger investments of fixed Capital so those firms increasingly had to look to protect their investments in the long term, by looking for co-operation from the State in providing an overall macro-economic environment in which they could continue to invest with a certain degree of confidence, confidence that an adequate supply of suitable labour would be available, confidence that an adequate level of aggregate demand would continue in the economy so that they could sell their commodities at prices that guaranteed a return on those investments.

And in an economy where it is these huge enterprises that effectively determine the market price, and where the main concern is to ensure that their huge investments continue to be fully utilised, the mechanism for determining production, for allocating Capital can no longer be the idea of responses to the price mechanism, but can only be the formulation of long term production and business plans, based on sophisticated market research, demographics etc. and the shaping of the market around the margin by the use of psychologically based marketing and advertising techniques. In fact, except for this latter many of the techniques that a society in transition might use to determine consumer needs, and to organise production to meet them. Even that other fundamental aspect of an economy based on Co-operation rather than competition can be detected within the modern Capitalist economy. In the motorcar industry the huge costs involved have led to a sharing of not just technology, but of the basic building blocks of car construction. Nearly all motor manufacturers now share engines, gear boxes, etc., whilst the application of game theory to design and production decisions ensures – if the latter technical requirements didn’t already necessitate it – that within each range each manufacturer’s products are barely distinguishable from another’s. As the old song used to have it “boxes, little boxes all the same.”

In fact, one form of Co-operative production that began in the realm of computer programming – Open Source – has now even found its way into motor manufacture, as a means of reducing R&D costs. See: Open Source Car at Geneva Motor Show

In fact, if we look at modern capitalism we find that it has been forced increasingly to adopt the basic techniques and forms of a Co-operative, socialist society. Huge monopolistic enterprises engage in market research to determine consumer wants i.e. to ascertain what use values they should produce – though it has to be said that they also shape those consumer desires to fit what they have already committed to – and then develop long term plans to organise production accordingly. Large sections of the capitalist economy are taken out of the circuit of Capital and placed in the realm of direct production of Use Values i.e. provision of services by the Capitalist State such as Healthcare, Education, Roads and infrastructure, Social Services, Security and so on, amounting in most advanced economies to around 40% of all economic activity(See Edit Below). The provision of a “planned” macro environment. The recent examples of State intervention to deal with the consequences of risk taking by sections of Capital in the Bank bail-outs, and probably bail-outs of other sections of Capital, for example in the Motor Industry – even Larry Flynt has now petitioned for Congress to give a bail-out to the Sex Industry (I’ll resist the temptation to say because its fell on hard times) – show how far it is from the concept of Capitalism based on Competition and Risk Taking. The Anarcho-Capitalist variety of Libertarian may well bemoan such facts and conclude that they mean that what exists is some form of Mercantilism or even Socialism, but the truth is that what exists is just the mature form of Capitalism. A Capitalism in which the need to remove competition and risk taking, to enhance Co-operation etc. has been taken to the limit that it can reach within the confines of a still essentially Capitalist economy, an economy in which for all the above features the driving force remains the organisation of production in order to maximise profits over the longer term. The only way in which that process can be taken further now, is to step outside the bounds which Capitalist production imposes and to begin to organise production on a basis other than long-term profit maximisation.

(January 2011 Edit)
They are only taken out of the circuit of Capital in the sense that this is true for all Monopolies. For example, Marx shows how the Monopoly of Land Ownership leads to Capital involved in agriculture being taken out of the Circuit of Capital in the calculation of the Average Rate of Profit. It is this fact, which enables the Landlord to extract Rent. Similarly, an effective Monopoly enables a similar extraction of Rent, which may take the form of Monopoly Profit, or higher rates of wages. However, Marx makes the point that although competition leads to Monopoly, Monopoly also leads to competition. If Monopoly profits are being made, then this will lead to other large Capitalists entering production, or will lead to the development of alternative products. The same is true if the Monopoly leads to the prices of the product rising to levels that are uncompetitive with available alternatives, due to the monopoly leading to a lack of dynamism, and failure to revolutionise technique.

A lot of this can be related to the State Capitalist Sector, and the analysis of Aglietta in relation to neo-Fordism are relevant. Capital should be viewed as a single entity, and each enterprise as just a Department. A large company that provides a creche in order to sustain its supply of Labour Power, does not establish it as a profit making centre. The same company that sets up a gym for its workers to use, again does not do so as a profit making centre, but as a means of maximising its supply of suitable Labour Power. Yet, the Capital involved in providing the creche or the gym remain Capital, remain an expenditure to buy Labour Power, as much as if it had been laid out as wages. The role of the Capitalist State is the same. Its function is to ensure the reproduction of Labour Power, and the provision of State Education, and Healthcare are a central aspect of that function. But, if the company were to prove inefficient in the provision of the creche or gym, compared to some other private provider, then it would be possible for the workers to negotiate with the employer for a rise in wages in return for the employer no longer providing the creche and gym. The employer would raise profits by a reduction in costs, and workers living standards would rise provided the increase in wages was more than the cost of the new provision of creche and gym facilities.

This is essentially the situation workers face in the event that new more efficient provision of Education or Healthcare or other welfare provision opens up by alternative providers to the State Capitalist.

Forward to Part 2

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