Comment
Belkin, David & Barkan, Joanne
Fashioning models for a successful socialist economy is an idiosyncratic inclination these days, but one that we share with John Roemer. He's not willing to concede that the socialist project has...
...The debate, we hope, will continue...
...It's generally agreed that efficiency goes hand in hand with profit maximization...
...So the government will put constraints on the movement of capital—which immediately creates another level of bureaucratic management where lobbyists can congregate...
...Perhaps FALL • 1991 • 571 Market Socialism because Roemer begins with assumptions that are too global (all enterprises will be publicly owned...
...When private firms reach a certain size, the government will nationalize them with fair compensation...
...Indicative planning for a variable number of sectors...
...Will capital be able to move from a lackluster cluster to a vibrant one...
...And workers might prefer taking profits home rather than reinvesting...
...Fourth, we wonder if worker-shareholders will really be motivated to monitor management closely...
...The serious flaw in Roemer's thinking here is wishing into existence the New Socialist Man and Woman...
...the remaining profits would go into the social dividend...
...Government Control Over Investment Roemer's socialist government will arrange the pattern and levels of investment throughout the economy by setting a specific interest rate for each sector's borrowing...
...Worker-shareholders might consistently resist taking on new employees because a larger payroll would shrink profits per worker in the short run...
...But how can one partition a complex economy into neat sectors with unambiguous boundaries...
...Firms with good friends in high places—or mass followings below—will wrangle more favorable terms...
...And along the way, the socialist content has been greatly diluted...
...But something is wrong...
...First, he actually reintroduces a form of principle ownership with his bank-and-firm clusters, creating a quasi-privatized system...
...With vast resources at hand and the likelihood of even greater profits to come, they coordinated long-range plans without the intrusion of democratic procedure...
...A few firms were chosen as industry leaders in several key sectors and favored accordingly...
...Furthermore, Japanese industrial policy has always been much less ambitious than what Roemer proposes...
...Economists have discovered— Roemer explains—that even private ownership can't guarantee efficiency unless a few principle owners have a stake in monitoring management...
...The more successful the lobbying, the less effective the government's plan...
...Third, in order to have principle owners who will monitor efficiency, Roemer must pare down the social dividend—that socialist feature that distributes economic surplus equally among citizens...
...This is because politics in Roemer's system has such a direct and predictable impact on income...
...Roemer speculates that this won't have much effect on political thinking because only a small portion of their income will come from enterprise profits...
...Since economists agree that dynamism depends on some high-risk, high-return innovation, a cluster economy could bog down...
...Are the parties in power locked into a plan that is more detailed than the usual economic program and therefore more inflexible...
...After setting out these initial propositions, Roemer senses that the boat won't float...
...If not, the economy will 570 • DISSENT Market Socialism sink into inefficiency...
...Other assumptions implement ideology too rigidly (the people, as owners of the means of production, will democratically select the government's investment plan...
...He does this to ensure that inventorentrepreneurs will still play their role as innovators in the economy...
...the government will direct all investment...
...It may well flow in directions not desired by the government, once again foiling the grand plan...
...Let's say the government takes over firms with more than one hundred employees...
...Workers might shy away from labor-saving technology in order to preserve their jobs...
...They'd be more inclined to take their profits and get out, undercutting innovation in the long run...
...Monitor duty resulting in stronger cluster-firm profits might yield the individual worker no more than a few hundred dollars a year...
...Meanwhile, the government must find a way to make its interest-rate differentials stick...
...He then anticipates the standard and stickiest objection: such enterprises won't operate efficiently even if their managers swear on pain of dismissal to maximize profits...
...We've argued that this small portion might not be enough to encourage workers to monitor management or to jump into risky investments, but it's probably quite enough to shape political behavior...
...It's not clear whether the new arrangement—workers' control—would be sufficient to counter the power of a managerial class...
...Finally, the problem of capital mobility, which cropped up in the interest-rate scheme, surfaces again...
...Roemer is correct to worry about innovation, but his solution could be a nightmare...
...Sitting atop financial empires, their economic strength would easily slip into political influence...
...And who would make sure that no private business went over the limit...
...Or Sony...
...When it comes to encouraging risk taking, the cluster system might fail again...
...q 572 • DISSENT...
...After taxes, a portion of a firm's profits would go to its workers and to all its shareholders (the latter also make up the board of directors...
...What might work better...
...Second, his clusters would inevitably produce substantial variations in wealth and economic power, with some clusters churning out record profits and others barely hanging on...
...Working carefully and with an open mind, Roemer has pushed the debate on market socialism forward a good measure...
...but the tighter the controls on capital, the less dynamic the economy...
...If workers aren't inclined to oversee management, efficiency throughout the economy will suffer in the long run, and the very rationale for the cluster system falls apart...
...This tendency, rippling throughout an economy, would inhibit labor mobility— and, ultimately, efficiency...
...Roemer argues that this system is both democratic and socialist because citizens, as owners of the means of production, elect their government on the basis of party platforms, each of which includes an FALL • 1991 • 569 Market Socialism investment proposal...
...By the time profits trickle down to the single worker-shareholder, the potential gain from a gamble might not be hefty enough to induce adventurous investment...
...This may be formally democratic, but is it economically rational...
...Roemer doesn't speculate on how much would be left for the social dividend, but it might not be more than any government could collect with progressive taxes...
...Workers might find more lucrative (or enjoyable) uses for their time...
...The system is corporatist: a powerful old-boys' network— bankers, industrialists, politicos—called the shots...
...He sets out to show that markets function no less effectively when enterprises are publicly, rather than privately owned, and that his version of socialism will be as efficient as capitalism...
...Since Roemer designated income equality as a socialist feature, his model loses another distinguishing characteristic...
...Not only will these deviations throw off the government's investment plan...
...The processes that spew out interest-rate differentials, for example, influence the size and distribution not only of the social dividend but of wages as well...
...Regulated markets...
...they obtained their own financing on their own terms based on their own reading of investment opportunities...
...Or Dupont...
...Roemer doesn't discuss integration into the international market, but his economy could have big trouble here...
...Workers' Control Over Management Roemer recognizes a dangerous flaw in his socialist model—the likely evolution of a cryptocapitalist class made up of bankers and managers in the most powerful firms...
...This, too, would impede efficiency...
...How can worker-shareholders not take the deepest personal— that is, factional—interest in these politics...
...Roemer begins with some traditional noncapitalist assumptions: state control over the "commanding heights" of the economy, public ownership of enterprises, democratic disposition of society's economic surplus, and income equality...
...Lines based on product groups often cut through firms rather than between them...
...Instead, a firm's surplus goes first to its workers and shareholders...
...This sounds like wishful thinking—especially since Roemer hasn't demonstrated that his system won't spawn its own domineering elite...
...But as we pore over his blueprint, imagining how it would function in three dimensions, it looks seriously flawed...
...Rid of the capitalists, suddenly they reveal themselves to be clearheaded, farsighted, and consistently generous...
...If this interest-rate scheme looks so problematic, one wonders how the Japanese pulled off their triumph in sectoral planning, which also involved interest-rate manipulation...
...He ends up with an economy potentially mired in bureaucracy and hamstrung by rigid structures...
...Politics in the Absence of a Capitalist Class Roemer sees politics shifting left once there is no domineering capitalist class to subordinate the general good to profit making...
...Feature by feature, here's what we found...
...all profits will be distributed to the people as owners of the means of production...
...The system's susceptibility to logrolling and influence peddling will be immense...
...The answer is that the Japanese version dispensed with democracy...
...The threat of nationalization would probably ward off foreign investors—as would restrictions on the free flow of capital needed to maintain the cluster system and interest-rate differentials...
...We see several difficulties here...
...To keep these managers in check, Roemer decides to give the workers of each firm the power to elect and dismiss their bosses...
...Over time, innovation as well as efficiency would founder...
...He's not willing to concede that the socialist project has been buried irretrievably beneath the wreckage of communism, and neither are we...
...Every brisk business with 102 employees would probably badger (or pay off) the bureaucracy for dispensation, monkey around with payroll records, or regularly fire a few hapless workers...
...But let's suppose that the big bankers and managers are somehow reigned in...
...Unable to reconcile profit maximization with public ownership of the means of production and citizen appropriation of economic surplus, Roemer drops some of the socialist features he used to justify his model...
...they will insinuate soft budget constraints throughout the economy, sabotaging efficiency...
...So Roemer introduces a version of the Japanese keiretsu system...
...So 50 percent plus one of the voters will determine a pattern of interest rates by selecting the one that seems to benefit them most...
...Wielding this instrument, the government will control the famous "commanding heights...
...Most firms, small and large, no longer produce in narrow product niches...
...Most problematic of all, inevitable nationalization would discourage entrepreneurs from making long-range plans...
...So he introduces new devices— again universally applied—such as the cluster system and workers' control...
...He says no more, but it's worth speculating on what many economists agree could be the results of basing an entire economy on workers' control...
...they'll be less inclined to sacrifice the environment...
...Gross inequalities would beget the same cruelties in Roemer's society that they do under capitalism...
...John Roemer grapples seriously with key issues— democracy, equality, efficiency, innovation— thereby leading anyone interested in market socialism to consider its possible economic mechanisms more closely...
...Private Ownership According to his own standards, Roemer dilutes the socialist nature of his model still further by permitting—reluctantly—private ownership of small firms...
...They'll be more inclined to spend for social benefits like education...
...Every working person in society now has her or his income directly tied—through the social dividend—to annual profit reports...
...When a firm need not cover costs with earned income because it receives a subsidy of some kind, that firm operates under a soft budget constraint...
...If capital can flow freely from one sector to another, it will naturally seek the highest return...
...But suppose such a model ends up producing greater socialist substance...
...Firms often ignored the preferences of the Ministry of International Trade and Industry...
...And suppose economic conditions shift dramatically between elections...
...The banks would control shares in each firm, and each firm would in turn control shares in the other firms of the same cluster...
...Where would General Electric go...
...Roemer simply states that workers' control or some other mechanism might work—which hardly seems an adequate investigation of a serious problem...
...Low-cost capital was provided for research and development, but the state never took on the role of exclusive supplier of credit...
...Of course, the government could smooth out sharp differences with progressive taxation— a fine and just solution, but one that's available under capitalism and thus doesn't enhance the socialist nature of Roemer's model...
...But if capital is allowed to move freely, the ties between a bank and its firms will be loosened, once again undermining the rationale for the cluster system...
...Not socialist enough...
...comes the cry...
...Well, whatever the model, it will have to tackle the problems raised here...
...Unlike capitalists, citizens in his society will think more objectively about their true interests...
...An economy that begins as a mix of public, private, and worker-controlled enterprises, including banks...
...High quality, universal public services that decommodify human needs by taking them completely out of the market...
...State banks would each oversee several clusters of enterprises, deciding on loans and monitoring management...
...Public Ownership of the Means of Production Roemer lays out an economy made up of publicly owned enterprises whose profits after taxes are dispersed to all citizens in the form of a social dividend...
...As soon as the government attempts to carve up the national product, the lobbying hordes will swoop down, clamoring for their firms or industries to be redefined into a lower interest-rate sector...
...One would need an army of size-investigators to knock on doors all over the country and count heads...
...Roemer brushes past another difficulty when he mentions being leery of workers' control because it could undermine efficiency...
Vol. 38 • September 1991 • No. 4
