Wlodzimierz Brus and Kazimierz Laski's From Marx to the Market: Socialism in Search of an Economic System

...Lange had set out to show that central planners in an economy without capital markets could correctly determine the prices of capital goods and that they could use these prices and a few simple "rules" effectively and unobtrusively to direct the activities of socialist enterprises into "optimal" channels...

...This implied a capital market (though only by any other name...

...On the other hand, the planning authorities were supposed to restrict their own activities to the realm of strategic investment decisions and selective price fixing and determination of overall accumulation rates...

...But politicization presents problems even when the state is not burdened with a Sisyphean responsibility for directly or indirectly coordinating all economic activity...

...It is important to note that up till now the absence of public accountability, the clubby insulation of planners from conflicting pressures concerning the distributional implications of their schemes, has more often than not been deemed essential in conducting successful industrial policy (as in France or Japan...

...The formula of state ownership of the means of production as "ownership of the whole people" may have been used widely for propaganda purposes, but it reflected also the substantive concept of indivisibility of the object of public ownership, at least on a national scale...

...One of the most influential of these reformers was Wlodzimierz Brus, whose major works (The Market in a Socialist Economy, Socialist Ownership and Political Systems, and The Economics and Politics of Socialism) were translated and gained some currency in the West in the mid-1970s...

...Moreover, the threat of bankruptcy becomes moot because (again WINTER • 1991 • 131 Books because of the absence of a capital market) there are no "free capitals" around to take over failed enterprises...

...Brus's model was based on the theoretical solution provided by Oskar Lange during the "socialist calculation" debate of the 1930s...

...Yet this book asks the reader only to abandon socialism's illusions, not its ideals...

...This means a substantial transfer of the prerogatives of ownership to the individual enterprises...

...Brus was a committed Marxist who took the goal of socialization of production very seriously...

...What Brus and Laski demand and provide is, in the double sense of the word, a disenchantment, and for this they will not be much loved...

...The indivisibility of public ownership underlay the claim to the superior rationality of socialism...

...Depoliticization simply means that, given all of the above, the business of resource reallocation is for the most part conducted by relatively independent entrepreneurs through relatively competitive markets rather than by agents of an overriding state...

...In the end, democratic socialists could take heart...

...they believe rather that a system of extensive state ownership doesn't adequately support such motives...

...Under indicative planning, the state does not own or "run" the economy, but uses a variety of incentives to promote particular priorities...

...As for the period of Yugoslav market socialism itself, the authors conclude that it "presents a case of an abortive attempt at introducing a limited capital market . . . rather than a case of deteriorating performance as a consequence of institutionalization of such a market...

...Nevertheless, "[Elven under conditions of oligopolistic competition a large corporation still acts in a market environment and cannot destroy the principal rules of the game" [emphasis addedDB...

...Brus proposed another way, a combination of "central planning with regulated market," with the plan's dominance secured through public ownership of the means of production and central allocation of capital...

...Third, there could be a drive to support and extend the emerging tendency toward wider worker participation in decision making and ownership rights within enterprises...

...in this review I shall focus on the two that I think Brus and Laski regard as the most crucial: the question of the capital market and the question of ownership...

...This arrangement breaks down essentially because it blurs the responsibility for enterprise performance...

...Second, even supposing that it is possible to reconcile some notion of public ownership with enterprise independence, it remains an open question for Brus and Laski as to whether this can be the basis for bolstering entrepreneurship in the socialist economy...

...This is precisely what is ultimately lacking in a system of public ownership where both the enterprise directors and their superiors in the state administration are agents rather than principals: where in the final analysis there are no personal principals...

...To remind us where we are coming from, Brus and Laski observe that whatever the strength of the negative position with regard to the market in general in orthodox Marxist theory, the attitude towards the capital market must be that of outright and uncompromising rejection...

...On one side of this threshold is the large, multidivision private corporation...

...So now, when Brus and his frequent collaborator, Kazimierz Laski, write a book that focuses intensively on the Hungarian and Yugoslav reforms and their theoretical underpinnings, we might expect the results to be of particular concern to democratic socialists everywhere...

...As the price for being "at the wheel" of the economy, the directors of the state sector would be forced to drive blindfolded...

...0 134 • DISSENT...

...WINTER • 1991 • 133 Books First, the state could establish a capacity for indicative planning (or industrial policy) that is democratic and inclusive...

...What distinguished Brus's approach was his exceptional thoroughness in mapping out the conditions for realizing socialist values in an economic system...

...As befits a full-fledged "labor-managed market economy," the responsibility for resource allocation and for determining the proportions of accumulation and personal consumption was to be shifted from the state to the self-managed firms...

...Perhaps one could argue that the lessons drawn from the struggle for economic reform in Eastern Europe don't apply here, since the United States suffers from too much market, not too much state planning...

...It points not to the certain end of our quest, but to an uncertain beginning...

...Without straying over the threshold discussed above, there are at least three initiatives that can be considered that might advance socialist values beyond the level proverbially realized in Sweden...

...This is understandable enough, and obtains not merely on doctrinal grounds (the capital market, even limited to non-private participants, denies labor the alleged role of the ultimately single factor of production and the only legitimate non-exploitative source of income) but also because socialization of capital, its allocation on behalf and in the interests of the community as a whole, represents the mainstay of the postulated economic superiority of socialism over capitalism...

...Second, the state could cultivate a delimited but vigorous role as an economic actor in its own right, not large enough to "destroy the rules of the game," but capable of mounting projects that the private sector can't or won't pursue...

...However, if we couldn't find our way, at least we remained sure of our goal: a democratically controlled economy that either eliminated or subdued production for private gain...

...From Marx to the Market is an unsparing portrayal of a socialism held spellbound by the "idea of the grand design of a supremely rational economy" in its many guises...

...Emphasis added—DB] It is evident that what the authors call market socialism bears a great resemblance to, and may be no more than, social democracy...

...It is clear, however, that From Marx to the Market is addressing not just specific failures but underlying models of democratic socialism (note the subtitle of the book...

...It does not mean laissez-faire...

...While a transition from state or "societal" ownership to cooperatives is a form of privatization (breaching the concept of "ownership of the whole people"), a transition from capitalist corporate ownership to cooperatives still embodies significant elements of socialization...

...On the other side of this threshold would be a socialized state sector whose weight within the overall economy is so great that concerted action by this sector "would actually destroy the market and let in the command system by the back door...

...Genuine socialization would be attained "by ensuring the real participation of society in the taking of decisions at the center, that is, by a genuine democratization of the system for the exercise of state power...

...His model influenced the construction of the New Economic Mechanism (NEM) in Hungary...

...In this respect, he found both the etatist planning practices of the Soviet Union and its satellites and the radical self-management approach of Yugoslavia wanting...

...Brus and Laski remind us that the old preoccupation with nationalization was not just some accidental alien graft onto the body of socialism...

...But these have mostly been, or appeared to be, crises of agency and strategy, brought on by repeated failures to build the movement or by capitalism's disconcerting capacity to emerge strengthened from depression and war...

...The recourse to MS means that socialism should actually cease to be perceived at all as a bounded system, transcending the institutional framework developed in the past, and hence by definition postulating its total replacement by new institutional foundations, if not immediately so then in a longer perspective...

...The authors' prescription for enlarging the scope of marketization in the East is at the same time a warning to define better the limits of prospective extensions of state power over markets and enterprises in the West...

...But what about economies that have never been, in the special sense given, politicized...

...The main target of Nove's attack was the Soviet system...

...Nowadays one doesn't hear too much talk about undivided public or state ownership of the means of production being a prerequisite for socialism...

...Twenty years ago, Brus asserted that "the question of socialization is decided not on the plane of 'depoliticization of the economy' but of 'democratization of politics.' " Similar formulations are indeed still recited by democratic socialists in the West...

...He sketched out an alternative that, although including product and labor markets and even production for profit, also featured large measures of public and cooperative ownership and severely restricted private capitalist accumulation...

...Perhaps paradoxically, such an approach may be more amenable to efforts to make economic policy democratically accountable than one in which direct public ownership is dominant and individual production decisions are politicized...

...Establishing genuine public participation in this area would be an important breakthrough...

...This line of reasoning is confuted by one of the pivotal conclusions of Brus and Laski's analysis—that a critical threshold is crossed when planning seeks to broadly supplant, rather than selectively compliment, markets as a means for resource reallocation...

...And so they are...

...Second, if an enterprise is doing poorly but—having no access to a capital market—is unable to branch out on its own into new activities or otherwise redeploy its resources, it is hard to argue that this enterprise should be punished for its performance, that is, threatened with bankruptcy...

...There is a comparable dilution of personal responsibility under the Yugoslav system of "societal" ownership...

...The book covers many critical questions concerning the scope for socialist economic policy...

...But perhaps not...

...Emphasis added—DB] Lange's solution in the 1930s debates, the East European reform models of Brus and others in the 1950s and 1960s, the Hungarian NEM after 1968, and Nove's proposal in Feasible Socialism all remained faithful to this most basic of socialist tenets: all postulated some sort of overt political control of at least the major investment flows of the economy, with leading enterprises retaining sovereignty only over decisions adjusting levels (not types) of current output and capacity...

...and the state, with little other real alternative, winds up granting most of what the firm is bargaining for—but usually, to protect its own interests, accompanied by new instructions and restrictions regarding enterprise operations, which make the enterprise even less responsible for its own performance...

...they were to keep their noses out of the day-to-day operations of the firms—this was the major departure from the command approach— leaving the latter free to work out the most efficient responses to (plan-mediated) consumer demand, or to suffer the consequences if they did not...

...True, within such an organization vast numbers of economic transactions are shielded from the direct glare of the market...

...This sector, in other words, would ultimately lack what even imperfectly competitive markets provide, external reference points for judging the effectiveness of its actions...

...This applies in particular to the commonplace belief that the growth of the great multinationals and the widening scope of state interventions in the capitalist economy demonstrates an objective tendency towards the subordination of markets by rational control on a continuously expanding scale, so that it is only a question now of whether we will have corporatist or democratic control...

...It was justjust!— a matter of getting there, not whether there is a "there...

...First, an enterprise may do well or poorly financially because of distortions in prices fixed by the state...

...In theory, Yugoslavia following the 1965 reforms was to have been different...

...The authors are not arguing that managers and workers in state-owned enterprises are never personally motivated to be innovative...

...Entrepreneurial behavior has always been grounded in a sense of personal material risk, even, the authors argue, in the so-called managerial corporation of modern capitalism...

...This resulted in chronic underinvestment, contributing to the relatively poor performance of the Yugoslav economy in the post-1965 market socialist period, and after a few years there was a turn toward more bureaucratic mechanisms of economic coordination...

...Thus Brus and Laski emphasize that it is not merely poor policy decisions or the twisted legacy of Stalinism, but flaws in the basic design of the system of "central planning with regulated market," in particular its exclusion of a capital market, that perpetuate what Janos Kornai calls the "soft budget constraint" with all its debilitating effects...

...On the contrary, it flowed immediately from the original socialist idea of "directly social labor," with its powerful stress on integration and cooperation as against separation and rivalry...

...Instead, the enterprise winds up devoting most of its energy to securing the state dispensations (soft loans, price changes, tax exemptions, and so on) required to keep going regardless of its immediate financial condition...

...Nove's prescription reflected in part the work of a 130 • DISSENT Books number of economists in Poland, Hungary, and Czechoslovakia who developed reform socialist models in the 1950s and 1960s...

...The essence of entrepreneurship is risk-taking, "the grasping of new opportunities," the deliberate creation of disequilibrium —a facility the importance of which Lange never grasped...

...Depoliticization has a very specific meaning for Brus and Laski...

...Brus and Laski don't entirely abandon the concept of social ownership, but they suggest that socialism will require a "renunciation of any sort of ownership doctrinairism...

...For it was the work of an avowed socialist, and it went beyond the usual criticisms of Stalinist "deformations" and laid a significant part of the blame for the problems of the command planning model on Marx himself...

...Capital markets were excluded, and it could be reasonably argued that the principle of social determination of the basic contours of the economy was preserved...

...But this requires a wrenching reorientation, for the distinctions between capitalist and socialist economic systems, as hitherto perceived, become under MS [market socialism] thoroughly blurred...

...First, it requires that the state effectively separate itself from the economy, so that it is no more than "one of the actors" —rather than the actor—on the economic stage...

...In 1983 Alec Nove's The Economics of Feasible Socialism set off some alarm bells...

...Together, these kinds of initiatives (and no doubt others) might point toward a socialism that doesn't need to be realized as "a bounded system," which can abide as a perpetual restless "movement toward" rather than as a consummated end, with its aspirations for solidarity and participation and justice existing in ongoing, fruitful tension with the elements of competitive self-interest that also drive society...

...Brus and Laski argue in the most forceft 1 terms that this envisioned (and in Hungary attempted) division of responsibility does not and cannot work...

...It does not preclude enforcing environmental and safety standards for industry, recognizing areas of market failure and providing public goods (education, health, infrastructure, and so on), assuming responsibility for poverty, or conducting monetary and fiscal policies to stabilize employment...

...The recourse to MS means, on the contrary, that the very idea of the grand design of a supremely rational economy has been acknowledged as utterly fallacious...

...It also fell within the mainstream of democratic socialist thinking in the West, although many Western leftists remained (and, needless to say, remain) suspicious of the market socialist label...

...Brus and Laski seem to leave us with no alternative but to try to specify a socialism that can be identified with, or at any rate accepts, substantial private (individual, share, or cooperative) ownership rights, real competition, and capital markets—in the authors' words, a genuine market socialism...

...Under these circumstances, it really does not make much sense for the enterprise to pay too much attention to product quality, consumer demand, prospects for innovation, and the like...

...Now he and Laski declare that "the economy has to become depoliticized," and support democratization "because no other guarantee can meaningfully exist for the maintenance of the depoliticization of the economy...

...They hold out more hope for a mixed system whose nonstate sector 132 • DISSENT Books is large enough to provide meaningful competition for state-owned enterprises...

...In reality, however, Yugoslavia's twin commitments to "societal" ownership of capital and direct labor as the only proper source of earnings made it hard to impose hard budget constraints and at the same time did not allow much latitude for investments by either the enterprises or their members...

...From Marx to the Market raises fundamental doubts about the premises of the regulated market and self-management alternatives that have been the basis for democratic socialism's rejection of both capitalist and "bureaucratic collectivist" economics...

...Instead, Western socialists tend to argue more in terms of public controls selectively aimed at the essential sectors (sometimes depicted as the "commanding heights") of the economy—but with the same object of effectively subordinating the whole to conscious planning...

...And the Marxist axioms that Nove methodically dismantled— long sacrosanct beliefs concerning the feasibility of ex ante economic coordination and "production for use" —had in part animated our democratic planning schemes as well as their centralized bureaucratic approach...

...American socialism has endured many crises...

...The incorporation of capital markets (which, by the way, Nove now also endorses) threatens to breach this concept of indivisible public or social ownership in two ways...

...If therefore marketization is accepted as the cure for the economic ills of "real socialism," not only the original Marxist promise has to be cast aside as anachronistic, but also the very concept of transition from capitalism to socialism...