Draft Pt. 4: Variations of Market Socialism

Here is part 4 of a draft essay I’m working on “Paths Toward an Anti-Capitalist Liberation”:

Variations of Market Socialism

The next variation of socialism is called “Market Socialism”. There are basically three kinds of market socialism. There is “State Managed Market Socialism”, “Public Enterprise Market Socialism” and there is “Labor Managed Market Socialism”. The term “Market Socialism” originated from a Polish economist named Oscar Lange…

Lange got into a debate called the “Socialist Calculation Debates” which took place in the 1930′s. He debated with a well known Austrian pro-market economist named Frederick von Hayek, among others. Out of this debate Lange developed what is known as the Lange model of Market Socialism. It was the very first theoretical model of market socialism. It was a state managed model.

The basic outline of this model is public or state owned property with markets determining the prices for consumer goods and wages. The State Central Planning Bureau interfered with the markets, by fixing the prices for capital goods, to influence consumer supply and demand — the over all economic course of society. Lange believed, and perhaps he was right (although it doesn’t really matter as we’ll see below), that his model achieved something closer to “perfect competition” than capitalists could claim under the capitalist system of private ownership of productive property and markets. This is a very brief outline of the Lange model. However, this snap shot of the Lange Model serves our purpose here; the point being that it is a State Managed form of Market Socialism. And so, we can move on…

A more recent model, of Public Enterprise Market Socialism, is John Roemer’s “Coupon Economy” (Roemer, “A Future for Socialism”). Roemer recommends abolition of all ownership of corporations as we know it. Instead, everyone is issued identical portfolios of stocks or coupons, giving each person initially an equal share of ownership in every corporation. Enterprises would compete on the market and shareholders would then be free to trade their shares in one company for shares in another; each trying to out do one another so as not to own shares in a failing enterprise. Such is the market competitive nature of Roemer’s model.

Roemer’s second recommendation is to organize corporations into Japanese style conglomerates, which are also called “Keiretsu”. These would be headed by a major investment bank that would own large blocks of stock in the corporations and loan its corporate clients funds for investment and monitor the performance of corporate management. Roemer does argue that his proposal would be some what more equitable than capitalism and more efficient. However, he also admits that people would have no more control over their work lives in a Coupon Economy than they would in a capitalist economy. Firm managers would be monitored by investment banks and mutual funds would decide what and how much their employees would produce. Again, this is a very brief synopsis of a model of Public Enterprise Market Socialism. But, it is enough to see that it is managed via corporate hierarchies and coordinators, and also that it operates with markets and competition as its allocation mechanism. It’s no wonder that those of us on the Libertarian Left would jettison this model for its corporate management, but more… we could also expect this model to suffer many of the same market failures, such as corruption in trading stocks, as under capitalism. And still yet even more damning of this model, Roemer proposes that progressives aim for over throwing capitalism to replace it with a coupon economy. However, Robin Hahnel makes the point that it would take the same amount of effort to replace capitalism with a coupon economy, as it would to achieve any other type of economy over capitalism; whether a centrally planned economy, a market socialist economy, or a decentralized participatory economy. Hahnel continues, “To put it bluntly, given the strengths and viciousness of the opposition that can reasonably be anticipated from today’s capitalists, a coupon economy is hardly worth risking ones life for.” (Hahnel, Economic Justice and Democracy)

If the two above models of market socialism were alienating and authoritarian then there is another model, the “Employee Managed Model of Market Socialism” of Yugoslavia that is a little more appealing. In addition to being referred to as Employee Managed Market Socialism, it’s also known as “Labor Managed Market Socialism” or “Self-Managed Market Socialism”. Basically, the model that existed in Yugoslavia existed from the 1950′s through the 1980′s. In 1948 Stalin expelled Yugoslavia from the Communist Information Bureau. Soon after the country engaged in a massive experiment in worker owned and operated self-managed enterprises operating within a market economy. This system was implemented through wide spread reforms. These reforms sought to free the workers from the dictatorship of the centrally planned economy, and the dictatorship of managers being appointed by the state so that workers could self-manage their own enterprises and appoint their own managers (although in practice, at different stages in the Yugoslav experience, the state did intervene when appointing managers). Markets were embraced as the only other known way to coordinate economic activity.

Political power devolved into each of the six federal republics within Yugoslavia. That meant that each of the six republics tried to remain self sufficient, they were autonomous in many respects. However, there were inefficiencies associated with this economic system because many of the independent republics would duplicate each other in long term investment projects. Rather than having one over all coordinated economic goal, there were separate duplications of effort and a wasting of resources.

Another interesting feature of the Yugoslav experiment in self-management is that managers could not fire workers. When a firm went under, workers went to another enterprise (this feature also had associated inefficiencies). If firms were to initiate subsidiary companies, it was by law that the firm had to become an autonomous, self-managing enterprise. These are just some of the features that make Yugoslav self-management a little more appealing than many of the above models. However, perhaps it is the explicate principle of workers self management which is so desirable, even though many of the operating institutions did not foster it.

A more modern version of worker self-managed market socialism is David Schweickart’s “Economic Democracy Model”. This model features common characteristics that were prevalent in the Yugoslav model, Japanese style capitalism and the Mondragon Cooperative movement in Spain. There are three basic characteristics of this economy. Each productive enterprise is managed by its workers, but they were “owned” by society as a whole. Next, the economy is a market economy, were raw materials and goods are bought and sold with prices determined by supply and demand on the market. New investment projects are socially determined and controlled. Investment funds are generated by a tax and are decided by some forms of democratic planning. These instances of democratic planning have to converge with market pressures. And finally, the broad contours of the democratic process in this type of economy are realized through the election of various bodies on a local, regional and national scale. However, over all the economy is a market economy.

Market Institutions

Just as with Central Planning, we can also make some hypothetical assumptions about economies that use markets as their allocation mechanism, whether capitalist or market socialist. For markets to work, the theory of capitalism states that all economic actors have perfect information and that there is perfect competition. Now, even if we want to make the same assumptions for market socialism (and these assumptions sink like a ton of bricks in the real world), regardless, markets still have the institutional roles of buyer and seller, where there are interrelated relationships and activities for expected outcomes — the goal is to buy cheap and sell dear, to out do one another. So, there is an inherent competitive relationship within markets.

More, buyers and sellers don’t see anything beyond their immediate transaction. In a market economy, if I go to buy a car at a car dealership, it’s great for me and the car dealer. But as soon as I go out driving my car around emitting carbon dioxide, that has a broader impact on the rest of society that markets do not account for (not to mention all the labor and material used to produce the car, etc.) This is a bad externality that, no matter how many taxes you want to put into place, markets cannot account for the full amount of social and ecological costs and consequences.

Markets also have an inherent bias towards private, rather than public, consumption of goods. Noam Chomsky gives a compelling example in his August 8, 2005 ZNet blog entry, that of the high tech industry:

”The computer industry is a well-studied example…The basic story is not controversial. Computers were developed almost entirely in the dynamic state sector on which the economy relies for innovation and socialization of cost and risk. When private corporations began producing computers, having learned how at public expense, their markets were usually government. Some “private” corporations were involved, but on government contracts, and relying on R&D from the state sector. AT&T, technically private, was able to run a great research lab that developed transistors, information theory, and a lot of basic science because they had a government-guaranteed monopoly and therefore could transfer costs, relied on government R&D and government procurement. The mythology is much preferred, including the myth that the US has been dedicated to free markets, that the “free trade agreements” are dedicated to free trade, etc.”

So, early IT development was done through a public subsidy by socializing the cost and risk, the initial publicly funded innovations and monetary rewards extracted for privatization and corporate profit. Other examples of the pressure towards private consumption is the contrast between private transportation such as cars, and public transit systems. Also, highly valuable property, say beach front or ocean side property, is available to the highest bidder, rather than socialized for public use.

By using markets as an allocation mechanism we assume that human nature is greedy, individualist and competitive. I would even argue that this is true for all the above cases of Market Socialism; where people did have some very strong ideals that were honorable, unfortunately, the market institution, and I would say, Market Socialism, makes these assumptions about human nature as well. They don’t try to imagine more liberating institutions or human behavior. So again, the outcome of markets is an over all warped human development; where individual and societal development, over long periods of time, is sent on a trajectory, through the institutional roles of buyer and seller. The over all bias is towards private consumption and individualism, rather than public consumption and collective welfare.

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