Reply

...After all, its erstwhile owners will walk away with the full value of the firm, if the state sticks to a policy of paying such in order to create good incentives in the private sector...

...The question is whether the state will pay full value to the private owners...

...The first part will be more or less equal across citizens (or, in some cases, will be distributed in accordance with need, as in health or education services), while the second part may vary somewhat across citizens, because of the differential profitability of the different industrial groups...

...The only question concerns private firms that begin as small ones and become large...

...It would not be necessary for the government to announce investment subsidies or surcharges for every sector in the economy—perhaps only for a few central ones...

...A public bad is a "bad" that everyone must consume...

...but a citizen whose income may otherwise decline in the hundreds of millions of dollars may well decide to wage the war, despite the fact that he, too, dislikes war...

...What Barkan and Belkin ignore in their discussion is the important role of bank monitoring: firms are monitored by their boards of directors, which consist of representatives of other firms, other institutional investors (insurance companies, pension funds), and the main bank associated with the industrial group...

...Whether to have mandatory nationalization of private firms that grow large and are not absorbed into the public sector is, again, an issue that will require experimentation...

...I would proceed cautiously and experimentally with this institutional form...

...What is new—and I must emphasize that "Blueprint" is not my own creation but the amalgamation of the work of a number of economists to whom I have referred—is the claim that one can separate various characteristics of an economic mechanism that many have believed to be inseparable...

...In France, where managers move freely between the private and public sectors, public firms are reputedly well run...

...economy is capitalist: each receives some wage income from the firm, and some profit income, but the shares of profit income are highly unequal...

...Finally, I should say that Barkan and Belkin perhaps take my blueprint too literally...

...In Germany, the state bank is also important...

...On the contrary, my intention was to argue that, without the existence of a class of citizens who derive vast incomes from control of the means of production, politics would change...

...I am surprised that my critics seem to believe that democracy is incompatible with the implementation of selective credit controls (their comments on Japan...

...q FALL • 1991 • 575...

...It might be objected that if it does, what's the virtue of nationalizing the firm...

...That only makes my point stronger...

...The key is that these public banks will be in competition to represent, or to induct into their industrial groups, successful firms (including new firms...

...It is that part of the national income that is left over after wages and interest are 572 • DISSENT Market Socialism paid...

...FALL • 1991 • 573 Market Socialism sector managers typically do not migrate to the private sector, they are, reputedly, not.** But even if, for political reasons (that is, to prevent the emergence of a politically powerful capitalist class) the society decides to nationalize large private firms, it need not have the terrible incentive properties that Barkan and Belkin fear...

...Central to my view of market socialism is the claim that a market economy has a great deal of latitude in how to distribute this part of national income—much more latitude, in fact, than it has in the distribution of wages and interest...

...In particular, in a market-socialist economy, where each citizen receives an equal share of the firm's profits, no one will want the public bad to be produced at as high a level as "capitalists" want it to be.** I believe this argument has quite widespread application...

...While private participation in the "stock market" might not be prohibited, privately held shares would not be given a vote in corporate matters...

...I suggest, therefore, that we would observe an improvement in the "quality of life" were society's profit income distributed in an egalitarian fashion, to the extent that that quality is synonymous with small levels of public bads that are associated with the profitability of firms...

...This variability, however, will not be extreme, for the government can tax more profitable firms progressively...

...Economic theory suggests that it may be possible to design the tax mechanism so that worker-controlled firms maximize profits (see the work of Jacques Dreze), but to date the successful examples involve only small parts of a national economy (there are only 18,000 workers involved in Mondragon...

...This is, of course, a much larger topic than the present comment can discuss, but it may be worth noting the rather nihilistic vision of democracy that their criticism implies...

...This is not due to the good intention of New Socialist Persons but just to the fact that their economic interests differ from those of citizens who receive incomes from firm profits...

...The principal point of my discussion of investment planning is that it is possible for the government to redress the market failures involving investment without direct administrative allocation of investment goods, a system that would be plagued with the inefficiencies that were characteristic of Soviet-type economies...

...Indeed, the states of the East Asian tigers (particularly, South Korea) have influenced investment through access to credit from state banks...

...See The Washington Post, April 28, 1991...

...in Belgium, where public * It is interesting to note that Rudolf Meidner, the architect of the Swedish "solidaristic" wage policy, advocated high wages for unskilled workers not just for distributional reasons, but to weed out weak firms that could survive only by paying low wages...

...It is also important to have legislation insulating banks from government interference in their short- and medium-run activities...

...Thus, a bank wants to build a reputation as a sound financial manager, one that maintains profitability in its group...

...Perhaps my definition of the social dividend was not sufficiently clear...

...it takes the form of profits of firms...

...Barkan and Belkin are inventing when they say that I "reluctantly" allow the private ownership of small firms...

...Of course, the German and Japanese banks are in the main privately owned, and so a legitimate question is: will publicly owned banks monitor firms as well as private banks evidently can...

...I suggested that, first, most successful small firms would be naturally taken over by large public firms, as successful small firms are in capitalist economies...

...It is not of great import to me whether the firms in "Blueprint" should be denominated as "publicly owned...

...The management wouldn't even meet with him...

...The point of interest-rate differentials is to make otherwise unprofitable sectors attractive for investment, should society decide that growth of such sectors is socially desirable...

...But then their argument really is that a democracy where people have approximately equal economic power cannot successfully (or efficiently) adjudicate conflicts of interest...

...Imagine an economy that has, for simplicity, one large firm that employs all citizens, and produces the one good that they consume...

...It seeks to redress one of capitalism's main evils—the inequality of the distribution of profit income—by making the smallest possible changes from relatively successful capitalist economies...

...The mandate of market socialism is to equalize incomes in the national economy...

...Nor does it presuppose a new kind of altruistic citizen for its successful implementation...

...These terms are not co-extensive...

...The jury is still out on workers' control over management...

...Again, legal safeguards must prevent international capital from playing an important political role in the country...

...T. Boone Pickens finally sold his 26 percent interest in Koito Manufacturing after his attempts to influence corporate policy were totally rebuffed...

...This may be easier said than done...

...It may be useful to outline the economic argument in more detail...

...Each of these fulfills the requirements of the model described above—it is a public bad that directly reduces the welfare of most citizens (or workers), but increases the profits of the firm and, therefore, of citizens' incomes...

...The model implies that, were profits of firms equally distributed in a population, these "public bads" would be set at lower levels than they are in a capitalist society...

...A citizen who derives but a small fraction of her income from an oil refinery whose profits would soar were a war waged to keep the price of oil low may well find it worthwhile to suffer a fall in that component of her income in return for not going to * Forget about the possibility that the rich can buy houses near the ocean, where pollution is minimal...

...If the size of the domestic pie can be increased by the participation of foreign capital, so be it...

...but these costs have to be weighed against the substantial benefits of investment planning in the absence of a full set of futures and insurance markets...

...It is up to the electorate to decide, at the next election, whether the government responded to changes in the economic environment in a good or bad way...

...574 • DISSENT Market Socialism war...

...I believe that, with sufficient legal and institutional safeguards, the answer is yes...

...Public ownership of the means of production...

...In "Blueprint," the share of profits received by a citizen comes from two sources: first, a share of the profits of all firms in the economy, which he or she receives in the form of public services paid for by taxes on firm profits, and second, a direct distribution of a share of profits from the firms in the keiretsu in which the citizen is employed...

...It is this claim that is challenged by Hayekian economics, which maintains that profits must be allocated to those entrepreneurs who "create" them, lest profitcreating activities not be brought forth...

...In democratic France, seven of the top ten The author wishes to thank Pranab Bardhan for his important contribution to this comment...

...There must, however, remain some inequality in the second part as an incentive to profit maximization and innovation...

...Besides pollution, consider the following examples: the speed of the assembly line, noxious advertising, investment of the firm in South Africa, and conducting war to lower the price of some imported input used by the firm...

...Barkan and Belkin have in mind a rigid and unrealistic conception of democratic politics if they believe that a democratically elected government cannot change its plan should economic conditions so warrant...

...it is only the latter that have been shown not to function...

...One of the errors of the postmortems of communism has been the identification of central planning with command/administrative allocation systems...

...That was nowhere implied in "Blueprint...

...Politics...

...And this conclusion holds given people as they are now, not as they arguably would become after several generations of society without the constant barrage of propaganda meant to win the average citizen over to support the interests of capitalists...

...The answer is that citizens with large private wealth in a market socialist society will not have the political power of citizens with large private wealth in a capitalist economy, for they will not be able to invest that wealth in a way that controls the means of production...

...Will capital "seek the highest return...

...Its firms must be exposed to the brisk winds of international competition, which will weed out the ones that should not survive.* I see no reason to shy away from the participation of foreign capital in the national economy...

...Bank monitoring of firms has been shown to be a successful alternative to the stock market in Japan and Germany...

...Blueprint" is purposefully conservative in its proposals...

...as in my earlier discussion of rent-seeking, there is a trade-off, and the government must optimize...

...This is "market socialism in one country...

...Finally, the state must commit itself to a relatively free trade policy (with the exception of infant industry protection...

...All actual democratic governments do this, and there is no reason that a market socialist government could not do so as well...

...None of its particular microeconomic features are new: markets, investment planning, bank monitoring of firms, and nonvoting corporate shares are all existing practices and institutions...

...Granted, any system of selective credit controls will induce some rent-seeking activity...

...Probably the most prudent proposal is for the firm's board of directors and its workers each to have some voice in the selection of management...

...For the details of this argument, see my as yet unpublished paper, "Would economic democracy decrease the amount of public bads...

...The ** I owe this point to Gerard Roland...

...And it is not necessarily industrial sectors that would be subsidized, but perhaps underdeveloped areas of the country...

...That is, people who derive only a relatively small fraction of their income from profits generally (say 20 percent to 25 percent, which is approximately the share of profits in national income, and would therefore be the share of a citizen's social dividend in his or her income), and an extremely small fraction of their income from any one firm, will have different economic interests from people who derive all of their income from the profits of a single firm, and I rely on that to predict a difference between politics in market socialism and capitalism...

...It can be shown that, under reasonable economic conditions, the larger a citizen's share of profits in the firm, the larger the level of the public bad he or she will want...

...Thus, if the level of the public bad is decided upon by those who own the firm, it will be higher the more powerful the large shareholders in the firm...

...Again, this practice has been typical in Japan, and has not ruined the capital market...

...its existence affects all of society...

...A person's welfare in this economy depends upon two things: the level of the private good that she or he consumes and the level of the public bad, which everyone consumes equally.* The trick is that profits increase with the level of the public bad, so that citizens have different interests concerning what the level of the public bad should be, depending upon the fraction of their income that derives from profits...

...Why will banks not soften the budget constraint of failing firms in their group...

...Suppose, now, that the firm's profitability depends on the level of some "public bad," say, the level of pollution that the firm emits...

...Blueprint" is distinguished from other proposals of market socialism in the peripheral role played by workercontrolled firms...

...banks are state owned and are influential in channeling investment...

...This will involve efforts to rescue firms that should be rescued but not to prop up firms that should die...

...Of course...

...Of course, Barkan and Belkin might respond that France and Germany are not really democratic, because economic policy is heavily influenced by a capitalist class...

...it is not realistic, at this time, to try to plan for an equal distribution of the international pie, desirable though that may be...

...Barkan and Belkin are again inventing when they write that my discussion of politics presupposes a New Socialist Person...

...It may be desirable not to nationalize large-profit firms, for there is some evidence that public sector managers do a better job if the managerial labor market includes private firms...

...Private ownership...

...Worker management...

...they share with the traditional public firm the characteristic that profits are distributed equally to (or finance services that are consumed equally by or according to need by) members of the population, but they differ from the traditional public firm in being controlled by entities that have direct economic interests, as opposed to political interests, in their performance...

...On government control of investment: There have been, and are, selective credit controls in many capitalist countries, and the "lobbying hordes" that Barkan and Belkin fear have not swept down to sabotage the system...

...To wit, planning is not the same thing as central allocation, and the equal distribution of profits does not entail highly diffuse, and therefore unsuccessful, monitoring of firms...