Market socialism

...He deserves our appreciation for the way in which he specifies five basic socialist values and then defends his model with reference to these values...

...Accordingly, those of us who advocate one or another variant of a socialist market economy must recognize that, in giving priority to such goals as democracy, freedom, efficiency, and consumer satisfaction, we may have to sacrifice to some extent a traditional socialist goal such as "the conscious direction of social activities toward common purposes" —since the achievement of this goal would require consensus and central planning but would reduce the scope for democracy and personal freedom...

...If that is so, then market socialism may miss out on one kind of economy of scale while simultaneously benefiting from an economic structure that is generally more competitive...

...However, I believe there are several questions that need to be posed regarding the logic, feasibility, and normative power of his model...

...Similarly with entrepreneurship...

...I have focused on my disagreements with Miller, but I would not like to end without again expressing my admiration for his bold presentation of the case for market socialism...

...First, Miller's discussion of the efficiency of market socialism is incomplete...

...It might be useful to recall the argument of John Maynard Keynes in his 1933 Yale Review article, "National Self-Sufficiency," that any country wishing to experiment with its social arrangements will have to cut itself off from the world market...

...Moreover, Miller's discussion of the issue is mainly focused on the differential impact of individual * Saul Estrin, "Workers' Co-operatives: Their Merits and Their Limitations," in J. Le Grand and S. Estrin, eds., Market Socialism (Oxford: Clarendon Press, 1989), pp...

...p. 179...

...He does not mention a problem that has been widely discussed by economists, namely, that workers' cooperatives, because they generally seek to maximize income per worker, will tend to employ fewer workers than would comparable capitalist firms...

...In a recent discussion of the economics of workers' cooperatives, Saul Estrin concludes that a market socialist economy would probably not allocate resources as efficiently as a capitalist economy does.* If so, would it not be wiser to concede the point and, after noting that allocative efficiency is not exactly at the top of the list of socialist values, shift the emphasis of our case for market socialism to its other virtues...

...Whether or not there is any merit in Keynes's position today, it seems to me that the autarky option constitutes a more logical conclusion to Miller's argument than the rather discouraging speculations with which he ends his article...

...but, taking into account such factors as the danger that public banks may be unduly influenced by "political lobbying," he ends up on the fence: "The choice between public and private investment banks is a fine one...

...Iit might not make much difference in practice what formal system of ownership was adopted for the investment banks...

...A reading of his article leaves the impression that he is excessively enamored with the neoclassical economists' model of a "perfectly competitive" economy in which all firms are relatively small...

...Miller adopts a position of neutrality, citing the pros and cons of both options...

...Although he notes that "private banks might appear to be excluded by the general socialist principle prohibiting private returns from capital," he goes on to say that they would be acceptable if "their shares were owned by cooperatives and public authorities in some proportion...

...As Miller himself notes, a system of private banks will allocate capital exclusively on the basis of the rate of return, in order to maximize the banks' profits...

...He does not consider other factors such as the possibility that a capitalist environment may be more conducive to entrepreneurship because it provides more scope for—and social approbation of—individual creativity, whereas collective entrepreneurship in a socialist environment may in fact be a more cumbersome and less rewarding activity...

...Another important issue that Miller takes up is the question of how to provide capital (which is not to be owned by individual enterprises or their members) to the workers' cooperatives...

...At a time when a fundamental rethinking of the socialist idea is so obviously necessary, contributions like his are highly valuable...

...582 • DISSENT...

...This will produce the result—as it does in capitalist countries—that those firms, industries, and regions that are already operating with healthy profits will get most of the new loans—and, hence, the existing inequalities, regional disparities, and other aspects of uneven development will be exacerbated...

...It seems to me that part of what it means to be a socialist involves being opposed to this particular tendency of a capitalist economy...

...We are faced with difficult choices—and Miller is entirely correct to insist that, in the real world, trade-offs like these are inescapable...

...Similarly, there is a conflict between reliance on competitive markets and traditional socialist conceptions of community...

...With regard to the last question, Miller himself mentions—but then quickly retreats from—the idea of restricting international trade and moving toward autarky...

...He claims that, in most industries, there are no technical factors that require enterprises to be any larger than five hundred person plants and, in a key passage, goes on to say: Of course most industrial corporations incorporate many such plants, but the reasons are financial rather than technological...

...there is free entry into all industries, hence no monopoly...

...no one firm can influence the price of anything because prices are determined by supply and demand in the larger market...

...There are numerous other important and helpful points in Miller's article—such as his argument that workers' control is more likely than capitalist enterprise to foster ecologically responsible decision making—and I am in accord with the overall thrust of his project...

...Miller offers a sustained argument to counter the oft-repeated charge that market socialism would be inferior to capitalism because it would not provide sufficient incentives to induce entrepreneurs to introduce innovations in production processes and products...

...that is, there will be a larger number of smaller firms, and less tendency to monopoly or oligopoly...

...This is an important issue, and I found Miller's discussion of it to be imaginative and helpful...

...The more fundamental issue is the question of what criteria will be used to make investment decisions and thus to allocate capital among the various enterprises and localities...

...Particularly useful are his points (a) that there are tensions among the values and (b) that no single model of socialism can express or promote all five values to the same extent...

...There are several problems here...

...Miller's commitment to the neoclassical model is evident in the paragraph in which he argues that virtually the entire economy can be made up of worker-controlled firms employing no more than about five hundred people each...

...If such factors as these (as well as the differences in financial rewards) are indeed operative—and if we assume open borders— we might see potential entrepreneurs emigrating to capitalist countries rather than trying to be socialist entrepreneurs in the way Miller proposes...

...First, in what sense is it true that an economic structure made up of small-scale, worker-controlled firms is more competitive...

...However, his solution to the problem—which offers collective entrepreneurship as a substitute for the capitalist kind—remains in the realm of speculation, whereas the proponents of capitalist entrepreneurship have numerous case studies to support their view that individual monetary rewards are an effective way of inducing entrepreneurial behavior...

...He focuses on the effectiveness of workers' cooperatives as a way of organizing enterprises in various industries but he does not systematically address the question of how well an economic system made up mainly of workers' cooperatives would be able to allocate resources and achieve macroeconomic objectives such as full employment...

...Miller himself concedes this point near the end of his article when he refers to competition in quite a different way: "A society that . . . implements a form of self-management . . . may find that its products cannot compete internationally with those of other countries where capitalist practices remain unmodified...

...I must here register a strong disagreement...

...Although I do not have the space to deal with all the relevant issues, among the questions we should be considering are the following: • Is the neoclassical "perfectly competitive" model, with worker-controlled enterprises substituted for capitalist firms, the best available normative standard for socialists...

...If we establish a market socialist economy in one country but its products are not competitive in international trade, should we restrict trade and move toward autarky...

...and so on...

...The final question I would like to pose concerns Miller's use of the term and his understanding of competition...

...The issue at stake here is more than a semantic one...

...164-192...

...Miller notes that there are "social considerations" as well as commercial factors relevant to investment decisions...

...there may be economic advantages in coordinating a complex production process through organization rather than through market relations between separate units...

...See esp...

...The problem with this is that such an economy—and the firms in it—may not actually be very competitive in the real world...

...Indeed, the sense in which a socialist market economy is or is not competitive is of crucial importance to a strategy for getting from "here" to "there" and, more important, to our understanding of what we mean by "there...

...I hope that raising these issues will be taken as a friendly effort to promote dialogue and enhance progress toward a common goal...

...all "factors of production" are paid the equivalent of their marginal contribution to output...

...If the small-scale, worker-controlled enterprises that Miller proposes are not actually competitive in a world dominated by transnational corporations, by what means should we attempt to bring about a transition from capitalism to market socialism...

...Given the impact of investment decisions on the future of a country—affecting everything from the energy sources we rely upon to the movement of the population between urban and rural areas to the pattern of wealth and income distribution—it is incumbent upon socialists to make every effort to devise public investment mechanisms that can implement democratically determined social priorities without succumbing to the distortions of bureaucratic authority and inappropriate political influence that have been all too prevalent in the Communist countries...

...My interpretation is that by "more FALL • 1991 • 581 Communications competitive" Miller really means more like the neoclassical model of "perfect competition...

...What would justify the receipt of—or the benefits derived from—unearned income accruing to individuals as members of cooperatives, he does not say...

...The fundamental debate here is over whether the capital-providing mechanism should be in the public sector (and thus democratically accountable through the political process) or whether a market socialist economy would be better off having a set of private banks and ordinary capital markets...

...580 • DISSENT Communications monetary rewards (under capitalism) versus shared rewards (for socialist entrepreneurs...