While most mainstream discussion of economic systems focuses on Capitalism and Socialism, and the ways they inevitably combine in the modern mixed economy, some advocate a radical alternative to either of them: Distributism. Distributism’s proponents, many of whom are devout Catholics who see the system as most compatible with and, in fact, formed by the social teaching of the Catholic Church as expressed by papal encyclicals like Rerum Novarum and Quadragesimo Anno, are highly skeptical of the concentration of economic power either in the hands of the state or a small number of wealthy people. This is because they are, in general, more concerned with a system’s morality, humaneness, and aesthetics than with its actual effectiveness. So what form does their ideal system actually take?
Distributists desire a system that incorporates private property and the buying and selling of goods, as in Capitalism, but embrace a seriously different view of what form that exchange would take. In short, they want ownership to be more diffused throughout society than Capitalism allows, but less than socialism requires. As one of their more prominent proponents G. K. Chesterton once quipped, “Too much Capitalism does not mean too many capitalists, but too few.” So, while sharing the Marxist concern that, in a standard laissez-faire economy, capital dominates labor and forces it into wage slavery, the Distributist seeks, not collective ownership of the means of production on behalf of the workers, but private ownership by each worker of the tools and land he uses.
This means that, in a Distributist system, economic activity would be based not most heavily in firms operating in the market where most people work for others, but instead would be centered in independent families producing goods for themselves. But these independent producers would not be entirely isolated; rather, economic activity would be constrained and channeled by non-governmental mediating institutions like guilds. These guilds would train new skilled workers and usher them into the workforce as well as set quality and price controls. In order to achieve these goals they would need the backing of the state, which raises the risk of guilds becoming mere state puppets.
As an economist, I worry greatly about the desire to bring back guilds. While in their time, guilds did serve valuable roles such as providing vocational training and certification, and insurance to their members, these roles are better served in other manners now, and guilds come with their own set of serious problems. As they tend to act primarily to benefit their members, guilds hamper the admission of new workers into the field and inflate prices. Thus, in a guild system, those looking for employment would more likely than not be shut out from the skilled labor industry, and consumers would be harmed by higher prices. More problematically over the very long horizon, restrictions imposed by guilds would prevent or at least drastically slow the changes in the workforce that need to occur for the economy to properly grow in response to technological change. If in the 1980s a guild of programmers were in charge of determining how many new programmers were trained, it is doubtful that computers would be anywhere nearly as powerful and beneficial as they are today.
Guilds cannot be discarded without a replacement in a Distributist system, however, because there are many areas of life where an individual family operation would be too small to effectively produce the goods the family needs by itself. In these cases, Distributists suggest the use of worker cooperatives. These would be legal entities similar to firms but owned and managed by the workers, a fact that would bring them certain tangible and intangible advantages in a Distributist system. They would provide an incentive for higher productivity and lower waste for a worker even when not monitored by his employer, since higher returns for the cooperative would result in higher personal earnings. More importantly, workers in cooperatives would be more able to monitor their fellow workers, and thus encourage them to work diligently, resulting in higher profits for all.
Despite these benefits, there are several advantages the traditional firm owned and run by a few executives will always have over worker cooperatives. To begin with, firms are able to easily raise funds when starting out by issuing stock. While there are some ways that cooperatives can raise funds from their own members, this cannot be entirely relied upon, because most workers do not have large amounts of money to invest. While loans in a variety of forms could be used to purchase capital, they would only magnify the next problem that threatens cooperatives to a greater extent than firms, which is risk.
If a standard firm has a bad year, the owners take a hit, but the workers still get paid. However, in a home business or cooperative where the workers are the owners, wages would go down dramatically for all involved. Unless the workers had substantial savings left over, this would disrupt their lives much more than a decrease in dividends in one firm would harm an investor. Of course, while it harms individual workers, this ability to decrease wages without creating resentment represents one advantage cooperatives have over the traditional firm, where the morale problems caused by wage reductions prevent wage rates from falling in hard times (a phenomenon known as sticky wages). These informal price floors created by firms result in much if not all of the involuntary unemployment that occurs in recessions. Cooperatives do not face this problem—witness the Basque region of Spain, which has many cooperatives who were forced to cut wages drastically during the Great Recession, but which now has an unemployment rate lower than the rest of Spain by about ten percent.
More problematically for Distributism, if the cooperative or home business failed drastically, not only would the worker-owners be out of their jobs, but also they would have lost much of their savings (look, for example, at Enron, whose failure was so calamitous because many of its employees had purchased a large amount of its stock and were ruined by its collapse). For certain types of production where there is a high labor-to-capital ratio, little risk, and difficult-to-monitor production, these constraints are not significant. But much of the manufacturing, agriculture, and heavy industry that serves as a crucial background to modern society is so heavily mechanized that it would be impossible to run as a cooperative, much less by oneself. Nevertheless, a moderate Distributist could leave these areas to be run by firms while still having much of the population either working for themselves or in cooperatives. But the fact remains that, far from helping those in distress, the combination of one’s job and investment would insure that those down on their luck would be in truly dire straits, especially as finding a new career would require substantial personal investment.
Thus, while I am sympathetic towards Distributist ideals, I am rather cautious about embracing the system given its apparent risks. To those who advocate Distributism, I would recommend getting practical. Most aspects of a Distributist system could be experimented with within a broader Capitalist economy through self employment, voluntary guilds, and cooperatives. This Distributist subculture would be an interesting test of the system’s ability to work out practical solutions to problems such as investment, industry-wide risk, and coexistence with Capitalist firms, and that could be undertaken without changing government policy or exposing the broader economy to Distributism’s many risks.
Wynne Kerridge is a sophomore from Dallas, Texas, majoring in the Economics Department. He can be reached at email@example.com.