Why Market Socialism?

Voices from Dissent

Frank Roosevelt, David Belkin, Robert L. Heilbroner

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315286679
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

A collection of essays on market socialism, originally published in Dissent between 1985 and 1993. Among other topics, they take issue with the traditional view that socialism means rejecting the use of markets to organise economic activities, and question the reliance upon markets.

Part I
Introduction

1
Why Market Socialism? From the Critique of Political Economy to Positive Political Economy

David Belkin

If the workers in a socialist State should organize their labour in a manner convenient to themselves but detrimental to its productivity, such a one-sided policy on the part of the producers would speedily find its Nemesis. The new system would soon enter upon a path of retrogression, while the old capitalist States, existing by its side, would continue to develop their productive forces. The inevitable result would be that the workers, or at least the great part of them, in the socialist State would be worse off as consumers, in spite of the abolition of capitalist exploitation, than the workers in a capitalist society, in spite of the pressure of increasing exploitation. Sooner or later the socialist community would lose its vitality.

Karl Kautsky (1922)¹

The past decade has seen a remarkable flowering of ideas about market socialism. This has been prompted both by cumulative setbacks of socialist hopes and by cumulative advances in theories of social and economic organization. The setbacks have pried (most) socialists away from the naive belief that, in Alec Nove's words, a socialism is possible "in which 'society' decides" what to produce and how to distribute goods and services "without the 'detour' of market and value relations" (chapter 10). The theoretical advances have furnished powerful tools for understanding the underlying logic, necessity, and comparative advantages of both market and nonmarket "detours."

The transformed concept of market socialism that is emerging from all this appears to relinquish much of classical socialism's long-cultivated "otherness" vis-á-vis the liberal economic order; and yet, at the same time, it recovers a distinctive liberal socialist tradition whose bona fides are as old as those of the classical socialism that eclipsed it over a century ago.

The classical socialist project was in trouble from the moment socialists were given opportunities to realize it. For as Irving Howe observed in "Thinking About Socialism" (chapter 2), when state power fell into the laps of several European socialist parties at the end of the First World War, it turned out that "they often had no clear idea, no worked-out vision, of what a socialist transformation might entail." This was not only true of the German social democrats, who "began to find the idea of socialism increasingly slippery, evanescent, insubstantial" and were unable to move beyond cautious palliatives. It was equally true of the Bolsheviks, whose "aura of certainty" belied "a deep incoherence, a floundering by gifted ideologues" that led them to "veer wildly in their economic policies"—first left, then right, then left—right into Stalin's deadly embrace.

After these miscarriages of revolutionary ambitions, the argument for socialism could no longer proceed directly (if indeed it ever could) from the critique of capital. Instead, that argument became mired in seemingly endless equivocations that said more about all the ways that various socialist desiderata (public ownership, employment security, and so on) might not add up to genuine democratic socialism than about how they would.

The sudden collapse of Communism in the European Revolutions of 1989 stirred up democratic socialists' hopes of recovering their own voice. For a euphoric moment the toppling of false gods seemed to provide a chance to show what genuine socialism is, an opportunity to actually implement the ideas and models that democratic socialists had nurtured for many years, but never fully tested. The conditions seemed about right: populations in rebellion against authoritarian rule but habituated to job and income security and suspicious of competition and possessive individualism;² a seasoned corps of industrial planners and managers who were versed in what worked and didn't work in an administered economy; and finally the reform models themselves, schemes to retrieve the original socialist project of "politicizing the economic" by (1) placing planning under the aegis of the people ("democratizing the political") and (2) permitting some markets to operate under the aegis of the plan.

The Rise and Fall of Simulated Market Socialism

The models favored by would-be post-Communist reformers arose out of the famous "socialist calculation" debates of the interwar period. In 1920 the Austrian economist Ludwig von Mises argued that economic calculation was not merely difficult but impossible in an economy without private ownership and a full set of markets (including capital markets) which, he asserted, socialism precluded by definition.³ A decade later, a group of neoclassically trained socialist economists in England and the United States—principally Oskar Lange, Abba Lerner, H.D. Dickinson, and Evan Durbin—responded by showing that with a partial simulation of markets (and a few subordinate or derivative real ones), a socialist regime could retain all the putative benefits of public ownership and centralized control (equitable distribution, full employment, and rapid growth along predetermined socially optimal paths) without the excessive bureaucratization that plagued Soviet development.⁴

It is revealing that while Lange labeled his answer to Mises the "Competitive Solution," he never applied the term market socialism to his model. In the three-cornered debates that followed, the Competitive Solution failed to convert either sophisticated supporters of Soviet-style command planning like Maurice Dobb or sophisticated critics of all state economic planning like Friedrich Hayek, both of whom attacked it for being static and abstract.⁵ Indeed, as Tadeusz Kowalik recounts in chapter 6, during the latter stages of the socialist calculation debate Lange himself began to tilt towards a mixed economy with limited state intervention in capital goods markets—only to veer back to (critical) advocacy of orthodox Soviet planning practices upon his return to Communist Poland. From the late 1940s on, "Lange's chief concern became to 'enlighten' central planners, to equip them with modern tools of analysis, forecasting, and planning" (Kowalik)—tools that did not include regulated markets.

But during the 1950s and 1960s, a circle of Eastern European reformers, including students and colleagues of Lange such as Wlodzimierz Bras, fleshed out the original idea of "central planning with regulated markets" (Brus's term) by drawing a line between production decisions that were "long-term" or "capacity-producing," and those that were "short-term" or "capacity-using." The former were to be the responsibility of politically accountable central planners, while the latter would be left to the managers of state-owned but otherwise autonomous profit-maximizing enterprises. This was the main form in which the idea of market socialism took hold in Eastern Europe, although there was also considerable interest in the Yugoslav model, which devolved more investment planning (but not ownership rights) to self-managed enterprises.

But where democratic socialist reformers wished to lead in 1989, few former Communist subjects were prepared to follow: they were simply not convinced that "central planning with regulated markets" could deliver the goods—not so much because that alternative was untested as because of the perception that enough of it had been tested to demonstrate that it was irreparably flawed.

The main test run took place in Hungary and lasted about two decades, from the introduction of the New Economic Mechanism (NEM) in the late 1960s until the Communist collapse. In accordance with the reform recipe, NEM rewired the circuits of state enterprise guidance by replacing quantitative targets with indirect indicators (administered prices, taxes, credits, subsidies). It turned out, however, that state enterprise managers could not or would not display the profit-maximizing flexibility and initiative expected of them when enterprise outcomes were still so dependent on variables manipulated by central planners. At the same time, those central planners could not or would not impose the requisite budget discipline on poorly managed or otherwise underperforming state enterprises. On the one hand, it was the state itself that would ultimately be held accountable for the turmoil of bankruptcy and reorganization of revenue-losing enterprises. On the other hand, the very enterprise guidance instruments that made the state accountable—the whole paraphernalia of administered prices and credits and so on—could also be used to cover (or cover up) enterprise losses and avoid such politically unpalatable reckonings. Thus planners had both the motive and the means to feed enterprises a steady diet of what János Kornai called soft budget constraints.⁶

In the long run, of course, the great reckoning was only postponed, because the perpetuation of soft budget constraints in the state enterprise sector sabotaged efforts to reduce waste and shortage in the Hungarian economy—and the Communist regime was finally held accountable for that.⁷

Kautsky's dire warning had proved prophetic. Under "central planning with regulated markets" no less than in conventionally planned economies, soft budget constraints became entitlements that allowed workers and managers to lock in underperforming investments—that is, to "organize their labour in a manner convenient to themselves but detrimental to its productivity"—and this system had indeed "found its Nemesis," if not speedily, then at least in time to discredit the reformers' claims to have designed a better noncapitalist mousetrap.⁸ Brus himself came to that conclusion even before the Revolutions of '89 (see Belkin's review of Brus and Laski, chapter 7).

Contemplating Gorbachev's failed last-ditch attempt to "move from a centrally planned economy to market socialism" in the Soviet Union, David Miller concluded in 1991 that "[t]he lesson is that the market element of market socialism must be in place prior to the socialist element" (chapter 12, emphasis added)—the very opposite of what some observers of the Eastern European revolutions had initially hoped. What was needed, he wrote, was a setting "where working under market constraints is a familiar experience, but where many employees find themselves frustrated by the hierarchal structure of the traditional capitalist firm." That setting was in the West; but here, too, a large question mark hovered over the means and ends of the socialist project.

The Rediscovery of the Invisible Hand

For Western socialists the end of the rainbow was, practically speaking, not behind the Bolshevik mountain, but somewhere "beyond social democracy." But as Robert Heilbroner and Joanne Barkan asked (chapter 9), just where beyond social democracy did democratic socialists want to go? Although the Competitive Solution was originally introduced and vetted in Western academic and socialist circles, resistance—or more likely indifference—toward this very cautious opening to markets persisted longer among committed democratic socialists outside the Soviet bloc than among Eastern reformers. Perhaps this was because the dilemmas of nonmarket economic administration were more remote from Western socialists than the danger of sliding down the slippery slope of social democratic reformism into what Michael Harrington called "socialist capitalism."⁹ This was, after all, where the initially cautious introduction of markets into post-World War I "socialization" discussions in Germany, Austria, Sweden, and Britain had ultimately led.¹⁰

In any event, well into the 1970s many Western socialists who shared Lange's goal of decentralizing and democratizing social planning still leaned toward the hope that this could be done with little or no recourse to markets, perhaps by organizing the economy along something like Guild Socialist or Austro-Marxist lines, or by substituting computers and "optimal planning" techniques as the later Lange (and other giants of economics like Michal Kalecki and Leonid Kantorovich) proposed.¹¹ The idea that production could be directly coupled to individual and social need through democratic assemblies (or cybernetic networks) of workers and consumers was highly alluring to those who remained suspicious of the corrosive and alienating affects of any production for exchange. As Michel Rocard remarks in chapter 4, even the relatively pragmatic French Socialist Party "still partly supported a project of an administered economy in the 1970s." Among the Americans, there was only a gradual and begrudging shift toward Harrington's argument that real "socialist socialism" could join decommodification of most basic consumption with selective use of what he would later call "markets within a planning framework" (see below and chapter 3).

But by then the ground was shifting under the Western socialists' feet. As James Tobin observes in chapter 15, while the state economies of the Soviet Union and Eastern Europe slid from stagnation to collapse, Adam Smith's "invisible hand" doctrine was enjoying a remarkable renaissance almost everywhere else around the globe. From Western Europe to Latin America to East Asia, both advanced and developing nations were yielding to the pull of economic liberalization. Countries with histories of vigorous and successful state oversight of industry (Japan, South Korea) or of widespread direct state owners...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Contributors
• Foreword
• Preface
• PART I: INTRODUCTION
• PART II: THE DEMOCRATIC SOCIALIST PERSPECTIVE
• PART III: MARKETS AND THE SOCIALIST TRADITION
• PART IV: VISIONS, MODELS, AND BLUEPRINTS
• PART V: CURRENT DEBATES
• Index