The fossil fuel-based economy is unsustainable, both because the fossil fuels themselves will eventually become scarce, and because burning fossil fuels will change climate in large and unpredictable ways. Fossil fuels are a “miracle” substance: they allow for a civilizational structure of technologies, lifestyles and economic processes that are very wasteful, and their disappearance will make such wasteful structures impossible to maintain.
In order to either prevent or deal with the consequences of fossil fuel burnout, it will be necessary to become much more efficient and will require a restructuring to what I will call “the efficient economy”.

The waste-industrial-complex
The first kind of human waste is the employment of people and resources in sectors where they are not needed. Unique to the U.S. are three sectors that stand out for their profligacy:

the military,
the health industry, and
the prison system.

Even not counting Iraq or expenses outside the Department of Defense, next year’s military budget will be $550 billion, most of which is unnecessary.
By simply expanding Medicare to all citizens, we could free up about 5% of the GDP that is now going to medical insurance companies, whose main activity is to figure out why they shouldn’t cover their members’ insurance claims.
 
“The U.S. incarcerates the largest number of people in the world”, according to Christopher Hartney at the National Council on Crime and Dependency, in a fact sheet released in November of 2006. According to Hartney, “The US has less than 5% of the world’s population but over 23% of the world’s incarcerated people”. In a 2003 study, Marc Mauer of The Sentencing Project showed that nearly a quarter of the nearly 2 million inmates now in prison were there for drug offenses, up from only 40,000 in 1980. According to Mauer, “Within the U.S., policy changes adopted under the rubric of the ‘get tough’ movement and the ‘war on drugs’ have contributed substantially to the rising prison population”. [1]   According to the website drugsense.com, in 2006, $50 billion was spent by Federal and state governments on the war on drugs. An efficient society will not have the “luxury” of engaging in wars and imprisonment of this kind.

The dictatorship of the CEOs
The second, and for most of the world, most important source of waste is the dictatorial way in which firms are organized. If the economy was composed of firms in which all employees were owners and decision-makers, we would be in a much better position to dispense with fossil fuels.

Most firms are hierarchical, that is, there is one top manager, often called the CEO, who is in effect a dictator. He -- usually a he -- determines who will fill the ranks of managers underneath him, which means that all of those managers are more focused on pleasing the CEO than helping the firm. The CEO can reward himself with whatever resources he wants, to the detriment of the firm (and society).

The managers under the CEO all strive to increase their departmental head count in an effort to show that they are more important than their peers, in an attempt to convince the CEO that they should be promoted before the others. Those managers, and the CEO as well, hire as many people as they can to help them in their internal struggle for power. The goal of the upwardly mobile manager is to claim more power, and only secondarily to increase the firm’s profits. Many of the people in these staffs serve police functions over the people who actually produce the goods and services of the firm. All of this behavior leads to larger and larger administrative staffs. The late Seymour Melman called this “the expansion of profits/power without limit”.

Administrative overkill
Seymour Melman followed the trends in the U.S. for administrative overhead for the better part of a century. Looking just at manufacturing, he calculated that the ratio of administrative workers to production workers in manufacturing increased from 10:100 in 1899 to 53:100 in 1990. He then calculated administrative overhead for the whole economy, including entire industries, such as banking, as administrative overhead. By 1990, the last year for which he as able to do the calculations, 140 people were employed in the economy for every 100 people employed for production, while in 1947, the ration had been 42:100.[2]

The dynamics of a democratic firm are very different than the dynamics of a dictatorial one, just as the dynamics of a democratic polity are different than those of a dictatorship. In a firm which is owned and controlled by all of its employees, the CEO is usually elected indirectly by a directly elected governing council. While, just as in a democracy, the head of state still has enormous power, in a democratic firm, the CEO is constrained from rewarding himself with the lavish lifestyle and staff that is business as usual for your average CEO. The democratically-elected CEO must consider the needs of his employees, and even the needs of the community in which the employees live, if he is to retain the confidence of his electorate.

When a hierarchy is top-down, information has a tendency not to flow from the bottom up. Since the main goal of employees is to satisfy the manager, not benefit the firm, information which contradicts the opinions of the manager will not reach the manager. Thus, the organization has difficulty adapting to new environments, and loses much of its ability to improve its own operations and innovate.

In a democratic firm, on the other hand, the employees are given more responsibility; they are not required to stop and wait for a manager to approve a new course of action; they feel freer to point out problems and suggest new procedures. There is also evidence that production lines are more stable when workers have more decision-making power, leading to greater productivity.[3]  The democratic firm is more productive than the dictatorial one.

In an efficient society, it would be much more productive if all firms were democratic, not dictatorial. Not only would the number of employees necessary to produce goods and services be smaller, but the quality of the goods and services would improve.

The world according to Mondragon
The clearest and most successful example of democratic governance within the firm can be seen in the Mondragon  co-operative Corporation (MCC) in the Basque region of Spain.[4] It is the 7th largest industrial group in Spain, having been founded in 1956 by a Catholic priest in order to make oil stoves and paraffin heaters. It employs over 78,000 people in 264  co-operatives, and its industrial group had sales of almost 12 billion euros in 2005; its financial group, anchored by a bank, controlled about the same in assets

Why did this happen in the northeast corner of Spain? Spain has a long tradition of syndicalism, the ownership of the firms by their employees. However, there may be a special reason that the Basques are able to pull this off, however. In his book “Against the Grain”, Richard Manning argues that the Basque people of Spain can be linked linguistically to the Cro-Magnon peoples of prehistoric Europe, who drew the painting in the caves of Lascaux and dominated Europe until the arrival of the grain people of the Caucasus and Middle East.[5]  Throughout most of history, agriculture has involved backbreaking labor and often, according to the archaeological evidence, a hard life.

Agricultural societies are where hierarchies first became established. Whether this happened from necessity, imposition from outside, or both, one can not know; but the result was that a grain surplus was created by the unfortunate field workers which the elite used to keep themselves and their military compatriots in fine fettle. Effectively, the poor peasants were forced to create the food to feed their masters. A priest class emerged to create religions to try and convince the masses that servitude was what the gods wanted; today, neoclassical economists serve essentially the same function. So perhaps it is ironic that a priest helped to create the greatest experiment in workplace democracy in modern history in the Basque city of Mondragon. Basically, each member of the group of  co-operatives owns a share in his or her  co-op, which the member invests in with their own money or from money borrowed from the Bank, and this share is not transferable to anybody else. If the member leaves, they can take the accrued profits that have been deposited in their account over the years, but they do not take their share with them. This way, outside absentee owners can not take over the co-ops. The members elect the governing council for their co-op; there are 650 members of the Co-operative Congress that are delegated by the individual members, and there is also the General Assembly of all members who collectively elect the Governing Council of the MCC, which picks the top managers.

The bank, known as the Working People’s Bank, helps new  co-ops to become established, or helps to maintain or expand the existing businesses. The Bank therefore serves as a central unifying force in the group, much like the banks within the Japanese keiretsu, helping with technical advice as well as financial aid.

The system of co-ops expanded from about 25,000 workers in 1992 to its present 78,000. 81% of the employees within the Basque region are members of the co-ops, but because they expanded so rapidly, almost half of their employees who are not in the Basque region are not members. The MCC believes that potential members in nonBasque regions have to build up an understanding of the co-op culture before they let them become permanent members. Since training is a huge part of the Mondragon system (there are 4,000 students at their own university), they are starting to train nonBasques in a “participative enterprise” model, as they put it.

You can contact Jon Rynn directly on his jonrynn.blogspot.com . You can also find old blog entries and longer articles at economicreconstruction.com. Please feel free to reach him at This email address is being protected from spam bots, you need Javascript enabled to view it .

[1] “Comparable International Rates of Incarceration: An examination of causes and trends”, presented to the U.S. Commission on Civil Rights, Marc Mauer, The Sentencing Project, 2006
[2]   See Seymour Melman, “After Capitalism”, 2001, A.A. Knopf, p.176-83. David M. Gordon also discussed this problem in his book, “Fat and Mean: The corporate squeeze of working Americans and the myth of managerial ‘Downsizing’”. Gordon asserts that managerial waste is worse than military waste.
[3]    “After Capitalism”, p.424-26.
[4]   The data for the following discussion of Mondragon comes from their website. See also a discussion in “After Capitalism”, 2001, Seymour Melman, pages 351-8. The classic book is “Making Mondragon” by William Whyte, 1991, Institute For Labor Studies Press
[5]   See also http://folk.uio.no/paltr/basque_mystery.html for a scholarly and sympathetic look at the claim of Cromagnon ancestors, and the book “The Basque History of the World”, Mark Kurlansky, 2001, Vintage Canada, although this scholarly article disputes the assertion. At the very least, the Basque were there before the agricultural peoples were.