Editors' Note: We are printing this article-length piece as a letter because we want to encourage all our readers to respond as intelligently and fully as Richard Schmitt has done here.

David Schweickart is not certain that President Obama's rescue efforts of the economy will work. He is not alone in that, but his reasons are distinctive and very interesting. He believes that most of the experts failed to understand the historical roots of the current crisis. They blame "greed" or "casino capitalism" or lack of government oversight of financial institutions. Schweickart points out that since 1970, productivity in the United States has risen while wages have remained flat. The economy produced more and more goods and services, but buying power did not increase proportionally because wages barely rose in the last forty years. Shrewd bankers discovered an ingenious solution: let's just lend people the money to buy the ever-increasing goods and services produced by the economy. That's what they did, and now many American families have large debts and no prospects of repaying them. But sooner or later debts need to be repaid, and when the money is not there, the economy collapses.

This historical look at the current crisis is just the beginning of Schweickart's analysis of the current problems. He asked himself how it was possible for American workers to accept flat wages for forty years. And the answer, of course, was that they had no choice. As outsourcing became technologically possible, American workers were under the gun. If they wanted more money, the employer would simply pack up the whole factory or office and ship it off to Haiti, or Mexico, or Asia. American workers did not choose to work in 2009 for pretty much the same pay their parents earned in 1970; this deal was forced on them. It's a clear case of extortion.

That is an important insight. The lack of buying power to purchase the output of the American economy was forced on American workers. The current crisis is rooted in the profound imbalance between the power of employers and workers, even if they belong to a union, in the marketplace. As I write this, the New York Times, the owner of the Boston Globe, is forcing the workers at the Globe to accept sharp reductions in pay and benefits by threatening to close down the Globe altogether. To be sure, all newspapers are losing money due to technological change. But the methods applied by the New York Times are typical of the ways employers treat their employees under capitalism. Milton Friedman used to say that the bargain between employer and employee was truly voluntary. The experience of the workers at the Boston Globe shows how wrong Friedman was about that. Employers are able to and do force workers to accept very unfavorable wages and working conditions.

Schweickart uncovers the deep roots of the current economic crisis in the sharp discrepancy of economic power between employer and worker. I have no doubt that he is right about that. He is also at least in the right ballpark with his prescriptions for curing this malady of the economy. As long as employers and employees have such disparate power, employers can force workers to work for low wages and thus lay the groundwork for more crises of overproduction. The way to resolve that problem is to equalize power between workers and employers in a set of institutions that Schweickart calls "economic democracy."

Economic democracy has several parts. The first is that all workers are also owners of their workplace. Not only are they legal owners, but they also control the place where they work. Under economic democracy they are owners, as well as managers and workers. The chasm between the owner/manager and the worker has been closed by making the workers also managers. That is what the word "democracy" in economic democracy refers to.

This is not unknown or particularly esoteric. There have been cooperatives in the United States and elsewhere for more than 150 years, and in them the owners were also managers and workers: everyone ran the business together. Some of these cooperatives have become very large and successful such as Mondragon in the Basque region of Spain and others in northern Italy. They have been thriving even though they operate in capitalist economies and are competing with capitalist enterprises.

Under economic democracy, in addition to workers owning their workplaces, investment capital belongs to all. If worker/owners need investment capital for expansion or to start a whole new enterprise, they do not need to go to a private financier who wants to maximize profit. They instead go to the local bank and apply for a loan. The bank, which is a government agency, gives that loan if it fits within the guidelines adopted democratically in Congress after public discussion within the electorate.

These are the two important principles of economic democracy: workers manage their businesses, and capital is owned by all and distributed according to guidelines adopted by the electorate. These are the essentials of an alternative to current ways of running the economy. They follow once the current crisis is seen to result from the imbalance of power between the employers (for instance the owners of the New York Times) and workers (for instance the employees of the Boston Globe) There is, of course, a good deal of debate about the fine details. But we can leave them aside for the moment.

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I believe that there is another lesson to be drawn from the current economic debacle: not to oversell one's ideas. There is a good deal to be said for markets-there is room for a free market for consumer goods also in economic democracy. But the market has been oversold. From an understanding of its usefulness as a source of information about prices, and for providing incentives for innovation, the market became the new golden calf to which American leaders--both Republicans and Democrats--have been bowing down in awe since the days of Ronald Reagan. The market became God.

Another form of overselling the market is to confuse the economic model with reality. Economists build models because reality is too complicated for us to understand without some simplifying assumptions. They help us understand. But we still live in the real world, which rarely conforms to the models. The same is true of economic democracy. What Schweickart has worked out is an interesting model. We need to be prepared to find that economic democracy in the real world is more complicated and a lot messier.

The market has been oversold, and we are paying a heavy price for that in many respects. We must be careful not to oversell economic democracy either. The questions I will raise about economic democracy are designed to keep us cautious and humble. On paper economic democracy looks quite wonderful. So does the picture Adam Smith paints of the "unseen hand" of the market. But the real world market is more complicated and has more problems. Economic democracy is likely more complicated, as well.

One central problem with capitalism is that it enables the employer to forcibly lower wages. Economic democracy will be a valuable alternative to the extent that there is no power differential between workers and managers. The economy is truly democratic; everyone has a say. What power differentials there are, are very limited. But we have a good deal of experience with democracy and we even have a certain amount of experience with economic democracy and we know that it is a real challenge to maintain institutions with small power differentials. Experience shows that as cooperatives grow in size, the distance between rank-and-file workers and their managers grows. Meetings become larger; the persons who manage are more distant from the persons on the shop floor or in the word-processing pool. The latter feel, not without reason, more distant from the levels where real decisions are made. They feel ignored; they lose interest in democracy and stop going to meetings. Class differences of a sort develop. Power in managing the enterprise is no longer equal.

The experience of Mondragon exemplifies those kinds of problems. Many workers today are really disillusioned with the democratic economy and cease to participate actively in meetings. Originally the greatest allowable pay differential between top and bottom levels was 3 to 1. Today the differential is 6.5 to 1, and management is pushing for permission to pay much more to select managers. The serious breakdown in solidarity between managers and workers looks very much like the emergence of class differences.

The size of enterprises is clearly a problem for maintaining complete workplace democracy; economic democracy must reckon with it, and we must admit it openly. I'm not saying that this problem has no solution, but we must acknowledge that the problem exists.

Economic democracy faces other problems--problems that are familiar to us from our political democracy. In a democracy, policies are distilled from conflicting ideas, proposals, and interests. No one is forced to adopt a policy he or she detests. Long discussions may be needed in order to work out a compromise that is acceptable to everyone. Forging a compromise is of the essence of the democratic process.

Not all compromises are the same. A good compromise is based on a careful discussion of alternative policies, resting on a study of relevant information, in which the members of a group develop a policy that is as fair to conflicting interests as is humanly possible and promises to benefit everyone as much as one can. But there are also the "bridge to nowhere" kind of compromises. The senator from Alaska wants to appropriate $300 million to build a bridge that will benefit at most 150 people (who now take a ferry boat). He gets his colleagues in the Senate to vote for that white elephant with a promise that he will vote for their favored local pork barrel project. Here decisions rest on the crudest self-interest: I will do something for you, however bizarre, if you will do something for me--practically no questions asked. No one examines the different projects, no one cares whether the projects they vote for are good for most citizens or whether they benefit only a small number of cronies.

The question for economic democracy obviously is how we can prevent the same kind of "I scratch your back, you scratch mine" bargaining from entering the new system. National guidelines for investments are voted on by elected representatives. It is of the utmost importance that these guidelines be the result of serious and thoughtful discussions among all concerned. Economic democracy will fall apart once the investment guidelines begin to include the favorite projects of local politicians and their friends. Economic democracy demands that banks show no favoritism when they hand out investment funds to different worker-owned enterprises.

The question is whether the representative institutions that run economic democracy, for instance by adopting guidelines for the disbursement of investment capital, will run any differently from the way Congress runs today in the United States. There is, we know from sad experience, a great deal of difference between democracy as a plan for a joint managing of a business or a whole country, and the actuality of democracy corrupted as we see it everywhere in our own experience. Once cliques of legislators hand out favors to their friends, because they went to the same schools, or attended Harvard, or summered on Cape Cod, equality--that essential prerequisite of democracy--will be impaired and democracy weakened.

In response to this worry, the defenders of economic democracy can rightly point to the fact that the existence of great wealth has corrupted our democracy. Even the founders knew that that was a danger. They had read their Rousseau who had insisted that "no citizen shall ever be wealthy enough to buy another, and none poor enough to be forced to sell himself." But I don't think that the enormous disparity in wealth between rich and ordinary Americans and the corresponding disparity in power is the only source of corruption in democratic processes. The question remains of how economic democracy can assure that the compromises made are based on the views and interests of all concerned, on full information, and on exhaustive discussions, rather than on favoritism, cronyism, and crooked deals.

Economic democracy faces many worries like this. I want to mention only one more. Schweickart's version of economic democracy includes a free market among other institutions. It is a market only for consumption items; there are no financial markets. Markets are competitive, and competition is often a good thing. The astonishing advances in computers-hardware and software-in the last twenty years are in part the result of different groups of engineers, hackers, and tinkerers competing with each other to improve products. This kind of competition or emulation requires that all competitors remain active and working. But there is another kind of competition in which one competitor tries to eliminate the other. Bill Gates is a master of that kind of competition, and now the vast majority of computers in the world run on Windows, which has become bloated, cumbersome, and expensive. For the last 150 years, market competition has shown itself to produce oligopolies. It produces larger and larger enterprises. But, as I have described above, workplace democracy is endangered as enterprises become bigger. The markets in economic democracy may well contain their own dynamics that create obstacles to continuing economic democracy for an extended period.

I have mentioned three worries about economic democracy: Can enterprises remain truly democratic once they grow in size? Can we prevent enterprises from growing larger and larger in a competitive market? Will democracy in a country with economic democracy be as corrupt as ours? These are not rhetorical questions. They are real worries that defenders of economic democracy should take seriously. All these issues threaten the equality that is an essential prerequisite for the functioning of economic democracy.

There are many other questions such as these about economic democracy, many of them drawn from the experience of existing or past cooperatives and other alternative economic institutions. In the background of these specific lessons stands a controversy at least as old as Marxist Socialism. In 1845 Karl Marx and Frederick Engels wrote in The German Ideology that the new social order that would replace capitalism required not only transformed institutions but also new human beings. In their enthusiasm for revolutionary change, they claimed that the process of revolution itself would enable the working class to rid "itself of the muck of ages and become fitted to found society anew." About seventy years later, Lenin proposed to make a revolution "with human beings as they are." The socialist tradition has long been split over this question of whether the institutional change would have to be accompanied by a moral change. There are good reasons for Lenin's realism. Changing institutions is difficult enough; changing human beings seems an insurmountable task.

But the questions I raised suggest strongly that moral change is indispensable for economic democracy. Good institutions can easily be ruined by bad or even just ordinary, fallible people. We are left with the uncomfortable sense that if people like us are going to run the institutions of economic democracy, it won't be long before economic democracy will start to resemble, at best, a reasonably benign version of capitalism.

It is not sufficient to lay out this beautiful model of economic democracy. We must also ask ourselves how we can "rid ourselves of the muck of ages and become fitted to found society anew."

Born to a Jewish mother in Germany, Richard Schmitt was fortunate to survive the Nazi persecutions. Teaching philosophy for fifty years, he has written and edited books on existentialism, Marxism, and socialism.