por John Médaille *
This division between capital and labor is not required by any economic theory. Economics as such is indifferent to the question of the division of capital and labor, even though most economists take it as a “given.” It makes no difference, in theory, whether capital hires labor and claims the whole output, or whether labor hires capital. However, the social and political effects of these two arrangements are quite different.
Nor is this division due to any supposed “economies of scale.” While size may confer some economies, past a certain point these economies disappear to be replaced by diseconomies of scale. For example, in great corporations, the cost of gathering and processing information frequently exceeds the value of the information. And the reliability of the information itself is compromised, because management is increasingly remote from the actual production process; their ability to comprehend the information (or even to know what information to request) decreases with the square of the distance from the shop floor. Further, subordinate managers, mindful of their own careers, tend to give upper management the information it wants rather then the information it needs.
The division of management and labor is mirrored by the division of ownership and management. Too big to be managed by the entrepreneurs who founded them, the great corporations are “owned” by anonymous groups of shareholders. But this raises agency problems. Whose interests does upper management serve? Their stockholders’ or their own? When management becomes divorced from both labor and ownership, they form a “third force” who not only have their own selfish interests, but have the power to enforce those interests, power they may lord over both ownership and work.
Thus, it is neither economics nor efficiency that requires the division of capital and labor. Rather, it is a set of institutional, governmental, and financial arrangements that favor the big over the small, the gargantuan enterprise over human-scale business. But even beyond that, it is a set of expectations that we have, a set of beliefs about what is “possible” and “impossible,” and the dominant belief is that owning our own jobs would simply not be possible in an advanced economy like our own.
The argument that “something is not possible” is finally refuted by pointing out that the supposedly impossible already exists. Economic theory is interesting, no doubt, but every social theory must be tested by practice. The proper question that must be put to any theorist—the capitalist, the libertarian, the communist, the distributist, or whatever—is, “Where can I see a functioning example of your system?” Sound theory is not enough, since without actual practice there cannot be a proper judgment. In response to this question, the capitalist can point to the existing system. However, that system turns out to be not “capitalism” at all, but corporatism or mercantilism, that peculiar combination of private interest and government power sustained by vast bureaucracies—public and private—and by huge and expensive government interventions. The libertarian can point to nothing, while the communist can point to something but would rather not. That leaves the distributist.
“Distributism” is an economic philosophy that arose in response to the poverty of 19th century England and to the first of the so-called “social encyclicals,” Rerum Novarum, written in 1891 by Pope Leo XIII. It was developed by two English thinkers, G. K. Chesterton and Hilaire Belloc, whom George Bernard Shaw called the “ChesterBelloc.” Distributism posits that the economy works better when productive property—the land, tools, and education needed to produce things for the economy—are widely spread throughout the population. It is the theory of small property, rather than large accumulations of capital. Under such a system, a person would have the option of making his or her own way in the world, or joining with his neighbors in larger enterprises, or of working for somebody else. And since he always has the option of working for himself, any wage he negotiates to work for another is more likely to be a fair wage.
Such a theory obviously needs to be “fleshed out” and, more importantly, needs a practice to see whether in fact it works on a large scale. Can we really produce the complex products of modern life by giving each family a little, rather than a few men a lot? The answers to these questions are tackled by Dr. Race Mathews in Jobs of Our Own: Building a Stakeholder Society, Alternatives to the Market and the State (The Distributist Review Press, 2009).
Dr. Mathews is a former member of the Australian parliament who writes widely on the subject of Distributism. His book tackles the history, theory, and practice of Distributism. The book is divided into two sections, the first dealing with the history and theory of Distributism and the second with actual practice of the theory. The history starts with the early socialist attempts to answer the question, “Why are the poor so many?” The socialists identified the accumulation of property as the cause, however they wanted to “cure” the problem of accumulation in a few hands by further gathering property into even fewer hands, namely those of the state bureaucrats. But many that were initially attracted to Socialism began to find that course problematic.
Distributism begins with the efforts of Cardinal Manning, a most remarkable cleric. An archdeacon in the Anglican Church, he converted to Catholicism and became the Archbishop of Westminster. His influence on Catholic social teaching was profound. He converted Elizabeth Belloc to Catholicism and her talented son, Hilaire, became his protégé. But he also urged his friend Pope Leo XIII to tackle the social issues in an encyclical, which the Pope did. This was the masterful document Rerum Novarum, which laid the foundation of modern Catholic social doctrine and which reflected the influence of Manning.
Young Hilaire took the ideas of Rerum Novarum and forged them into the economic philosophy known as Distributism. Among his converts were two young writers, Gilbert and Cecil Chesterton, and the rhetorical talents of all three were sufficient to establish Distributism as a serious movement. The greatest competitors of the distributists were the Fabian Socialists, led by such figures as Sydney and Beatrice Webb and George Bernard Shaw. The Fabian Socialists wanted to impose Socialism by stages, gradually eroding the rights of property, which would fall increasing in the hands of the government. Like all socialists, they saw the great fortunes and immense power conferred by private property as the root of the problem.
Against this plan the distributists reacted forcefully. The problem of property was not that there was too much of it, but too little. Productive property was becoming the domain of a small class, gathered into great estates and huge piles of capital. The answer was not to restrict it to fewer hands—the government bureaucrats—but to spread it among a greater number of citizens, hence the name “Distributism.” Belloc argued that the accumulation of property, whether in the hands of the state or a few industrialists, would lead to a servile state in which people might be politically free but would certainly be economically dependent. The interests of the capitalists and bureaucrats would merge into The Servile State.
For all the brilliance of Belloc and Chesterton, they were never interested in pursuing Distributism as a purely economic theory. This put them at a great disadvantage in regard to the Fabians, who always insisted on first-class economic research. It would remain a task for the implementers of Distributism to develop a practice that would amount to a theory. Distributism thus became not a textbook exercise, but an evolved system based on its own practice.
This evolved Distributism is the subject of the second half of Mathews’ book, which deals with two large-scale examples of Distributism in practice. The first is the Antigonish movement of Nova Scotia which flourished for a long while before failing. The second is the Mondragón Cooperative Corporation of Spain, which survives to this day as one of the largest corporations in Spain, and is comparable in size and range of products to the great corporate conglomerates of Europe or the United States.
Both the success and the failure are instructive. The Antigonish movement began in the 30′s, and elements survived into the 80′s. It went a long way towards giving many families in the Maritime provinces some economic independence, but it suffered from being insufficiently concentrated on property and production. In the end, it suffered “de-mutualization.” That is, the cooperatives were turned over to “professional” management and abandoned the principles that made them successful in the first place. As Race Matthews puts it,
The lesson from all the consumer co–operatives and co–operative movements that have failed, either wholly or in part, is that the experience of consumption either of goods or services is insufficiently central to the lives of ordinary people to provide the foundation on which a lasting co–operative consciousness — and thereby an enduring immunity to the basic agency dilemma — can be established. As the account of Mondragón in the following chapters makes clear, the only experiences equal to the task of developing a lasting co–operative consciousness or culture are those of work and property. It is only through stakeholding in property and the exposure on a daily basis to workplace democracy that members can acquire the habit of seeing themselves as the masters of their own destiny, and fully accepting the entitlements and obligations consequent on their status.
It is the sense of ownership alone that can build an enduring distributist culture, and this sense that makes Mondragón the more interesting example. Founded in 1953 by students of a rather remarkable parish priest, Father José Maria Arizmendiarrieta, it has grown from a simple paraffin stove factory into a giant corporate conglomerate with several hundred worker-owned firms involved in the manufacturing of the most sophisticated products, banking, retailing, research, education, construction, business services, and insurance. Today, the Corporation has €33 billion in assets, does €16 in sales, employs 104,000 workers, 81% of whom are worker-owners to whom they distribute 52% of the profits. But Mondragón is more than a mere “corporate success story.” It is a business model that is completely counter to the modern corporation.
In the first place, Mondragón is ruled by the principle of subsidiarity; that is to say, the higher level exists to serve the lower levels. Indeed, the individual cooperatives have the right to leave the corporation; participation is voluntary. This makes it impossible for a centralized authority to “lord it over” the member cooperatives. The corporation itself is ruled not by outside investors (there are none) but by the workers themselves. You might call this an inverted model of corporate organization. The firm is built from the ground up rather than the top down.
But that is only part of the story, because Mondragón is more than just a business enterprise; it is a social one. It is of course a profit-making enterprise, but profit is not an end in itself. It is merely a means to a much broader set of ends. In addition to its normal business enterprises, Mondragón runs an education system, a university, social safety networks, retirement systems, research and training institutes—things normally provided by governments through taxes—and provides all on its own resources, without the help of government. The guiding principle is solidarity, people caring for each other with the help of formal structures and institutions.
Between these two principles, subsidiarity and solidarity, Mondragón takes the principles of Catholic social doctrine and turns them into a living reality. And a successful one at that. The fear of implementing a “morality-based” system is that it might compromise the necessary business goals. But the opposite seems to be the case; the cooperative model doesn’t merely work, it works to produce a strong and growing network of firms that are fully profitable and competitive in local and world markets. Moreover, it lessens the need for big government by providing social services from its own resources. But more than these successes, what Mondragón really builds up is community, that sense of mutual caring and obligation that must be the real point of any sane economic system.
And therein lies the significance of Race Mathews’ book. The Pope recently published a new social encyclical, Caritas in Veritate, “Love in Truth,” which speaks in terms that most businessmen and women will find difficult to comprehend. Benedict calls for a “principle of graciousness” in business, that is, that beneath (or above) the logic of exchange stands the logic of the gift (grace). Naturally, these gifts must reside in self-sustaining institutions, that is, must make a profit. But that is not the end of it:
Alongside profit-oriented private enterprise and the various types of public enterprise, there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves. It is from their reciprocal encounter in the marketplace that one may expect hybrid forms of commercial behaviour to emerge, and hence an attentiveness to ways of civilizing the economy. (38)
A businessman reading these words may not be able, from his own experience, to assign them any meaning or significance. But after reading Mathews’ book, he will be able, one hopes, to realize both the moral and business possibilities of this task of civilizing the economy.
Jobs are not a gift from on high, from the great bureaucracies of corporations and governments. They are a gift we give ourselves through our mutual care and concern for each other. Great capital may appropriate this gift to itself, but that always produces a less stable society, and one more dependent on government expense and subsidy. Catholic social teaching shows us another path, a more civilized path, and Race Mathews is able to show us what that means in concrete terms. Everyone interested in the health of the family, the community, and their own nation, ought to read this book.
* John Médaille is an adjunct instructor of Theology at the University of Dallas, and a businessman in Irving, Texas. He has authored the book The Vocation of Business, edited Economic Liberty: A Profound Romanian Renaissance and just completed Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More.
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