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Yet socialist ideas, both in the nineteenth century and in the
twentieth century, while strong on criticizing capitalist arrangements,
have tended to be weak, if not altogether vague, in devising practicable
alternatives to traditional private ownership for the bulk of the
corporate sector of the economy.
There has been for decades growing realization that socialist
economies cannot function well without extensive use of competitive
market pressures upon firms, within the context of one or another
conception of needed regulatory and planning measures by government.
One result is growing trends
in Eastern Europe, China, and elsewhere toward various types and degrees
of market socialism—systems that combine societal ownership of large
enterprises with one aspect of capitalism, namely market processes.
Another result has been the growth of discussion within various
Social-Democratic parties and movements of the political West about
possibilities of various kinds of market socialism for large firms in
presently capitalist countries.
This latter discussion, however, has tended to perpetuate a
quality of vagueness, so characteristic of previous socialist tradition,
when it comes to concrete institutional structures, as distinct from
general social aims and broad principles.
A good illustration of this tendency is the recent work of Alec
Nove, The Economics of Feasible Socialism.
He ably surveys the Marxian legacy, the Soviet experience, and
recent reform models in Eastern Europe and China, and then advances his
own general conception of an optimal form of socialism, which
he (quite sensibly) labels “feasible socialism.”
But these prescriptions are cast in the form of broad principles
and stop short of any concrete and detailed proposal for any alternative
system of ownership that could serve as a general replacement for the
capitalist mode of ownership in the corporate sector of modern
economies.
The purpose of the present book is to fill this void in the
present state of socialist thinking and in the awareness of the general
public as to what the range of options really is.
This means pointing out social possibilities for reconciling
efficiency and dynamic economic performance, on the one hand, with far
greater equality. These
possibilities, it is suggested, have existed in principle all along,
from the beginnings of the industrial revolution, but have gone
generally unnotieced
Because of the grip of inherited ideological
doctrines.
Here the obstacles to new thinking lie just as much in the
inherited belief-system of the United States as in “outmoded dogmas”
of the Soviet Union. In
both these nations the status quo has been defended by proclaiming there
are “only two alternatives.” Soviet
leaders portray the options as a choice only between their present
system, with minor tinkering, and private ownership-corporate business
and centralized, bureaucratic socialism.
By distracting public attention from other possibilities, leaders
in both nations support existing structures of power by maintaining a
climate of ideological psychosis. One of the more difficult questions for modern social science
would be to decide which nation has achieved the greater heights on this
dimension.
Like most other nations, however, the United States has become,
and predictably will remain, pervasively
entangled in its international environment in an interactive process
that is not only political and economic but also cultural.
This means America’s own inherited belief system, as it
operates for Americans themselves, will be increasingly exposed to
comparisons and questionings from other points of view.
No human society is inherently immune to change originating in
cultural processes by which new ideas, however gradually, creep into the
minds of its leaders and people.
Paradoxically, in recent years even the most conservative of
American governments has actively encouraged trends toward market
socialism—when they are located in Eastern Europe and China.
It is the purpose of this book to bring responsible discussion of
market socialism, of a new type, to the United States itself.
In any nation, the bases of social thought are largely
unconscious.
In the United States, the dominant framework of social
assumptions has been the principles of Liberalism, in the broader
European usage of that term. These
principles include (1) representative government in the political
system, (2) private capitalism and private property in the economic
system, and (3) a minimum type of social equality, namely equality of
legal status, involved in rejection of a hereditary titled nobility and
rejection of serfdom and slavery.
In regard to inequality of legal status and slavery, the power of
Liberalism in American culture is evident, not only in the eventual
abolition of black slavery in the United States, but also in the
rationale that had been produced for it.
Serfdom under the ancient regime in Europe was justified with a
view that assumed inherent human inequality.
But in the United States few of the antebellum Southern slave
holders were really able to justify slavery, in their own minds, with a
view that could justify, even theoretically, the enslavement of people
of white skin color. The
very extent of their own belief that “all men are created equal”
forced them to argue that blacks were somehow subhuman and thus to
invent a racist doctrine in order to justify slavery within a Liberal
culture.
With the coming of industrialism and the growth of large business
corporations, the underlying Liberal basis of American ideology is
evident in the Progressive Movement of the pre-1914 era and the New Deal
of the 1930s. Both were large-scale reform movements directed against
business political influence. Neither,
however, directed their attacks against the principle of private
property. This commitment
has been a matter of faith and celebration rather than of critical
thought about is social and political consequences, and the actual range
of alternatives to it.
European Liberalism, the real content of what has been labeled
“the American way of life,” has always contained a profound
contradiction between its rhetoric of equality and actual social
inequalities, passed on from generation to generation, deriving from
economic inequality.
In Europe this contradiction has led to all the modern varieties
of socialist politics, because
the protracted struggle of Liberal middle classes against the
aristocratic class principle raised the issue of equality and set in
motion a spirit of equality that did not stop with critique of
aristocratic institutions. It
prompted large parts of society, including significant parts of the
middle classes, to view and judge private capitalism also by the
criterion of social equality.
With the transplantation of European Liberalism to the western
hemisphere, the same contradiction, in reality, was transplanted with
it, But in North America, quite unlike Latin America, the absence of a
hereditary nobility and of Europe’s struggles of social revolution
against it meant this contradiction has operated in a less
class-conscious atmosphere and without a tradition of social revolution.
The result in the United States has been not the reality, but the
illusion and pretense of a classless society.
What, then, of alternatives?
If private ownership of the whole corporate sector within modern
economies were to be replaced by
some form of socialized ownership,
a host of evils would have to be avoided, if the aim is to
preserve the economic advantages of a market economy and protect the
institutions of political democracy.
No sound design for such an economic system can be developed
unless these evils are systematically identified and thoroughly
understood.
For this purpose, this book makes unorthodox, but eminently
functional, use of the case-study method, in order to examine these
problems intensively and in depth.
A major part of this book is a case study of nationalization in
Austria. The subject of
this part of the book, however, is not the history of nationalization in
Austria per se, but problem-oriented analysis of it.
In this inquiry, Austria is treated not a s a model for a
program, but as a laboratory for analysis.
The primary purpose of this inquiry is not to assess how well
Austria’s arrangements for public ownership in Austria.
By and large, they work quite well.
The primary purpose, rather, is to identify systematically evils
that would occur if certain traditional forms of public ownership,
namely supervision of firms directly by ministries or by
government-owned conglomerate holding companies, were used for a far
larger scope of socialized ownership, namely replacement of traditional
private ownership in the whole of the
corporate sector.
From the resulting analysis, in turn, a program is developed which, the author submits, effectively short-circuits all the
evils conventionally attributed to socialism and reduces them not to
zero, but to an order of importance no different from the impurities and
abuses that occur anyway in government regulation of securities markets
and private financial institutions, which is a kind of government role
necessary in any market economy, no matter how it is owned,
This program differs radically from the present Austrian
arrangements, and departs radically from the prevailing and inherited
assumptions of the world’s democratic Labor and Social-Democratic
parties.
This program, the author suggests, thoroughly removes the present
rationale for maintaining both private corporate capitalism and its
concomitant, and aristocracy of wealth, aside from allowing
opportunities for individuals to get rich.
It is open to defenders of the present system to devise some new
rationale for it, or to reformulate their defense of it.
But to do so, they will have to go back to their drawing boards
and think-tanks.
For the purpose of this kind of inquiry, Austria is ideally
suited as a laboratory for several reasons that have hitherto attracted
little notice,; to wit:
In Austria the political accident of the German assets
reparations issue at the end of World War II ultimately led to an
unusually large nationalization in 1946, which has been retained because
of the success of the
Austrian Socialist Party in blocking most denationalization efforts
after the end of the four-power occupation in 1955. The result is a sector of public ownership of industrial
firms, as distinct from “utilities” alone, that is unusually large
by comparison with most Western European countries.
This extensive outright socialism has operated in the context of
deeply established political democracy and quite high levels of
governmental and entrepreneurial capabilities.
During World War II Austria suffered extensive destruction and
economic dislocation, and this led Austrian governments in the immediate
postwar period to utilize extensive economic planning measures and a
degree of direct governmental involvement in the economy that is unknown
in the experience of the United States and many other industrialized
countries. The record of
this experience offers opportunity to probe both the positive
possibilities and the limitations of economic planning—a central issue
in socialist tradition.
Subsequently, the felt need for extensive planning declined, and
Austrian governments have experimented with not just one, but a range of
devices for putting publicly owned industrial firms on a autonomous and
more or less commercial basis close to that of privately owned firms.
The record of this experience
offers opportunity to probe both the possibilities and the deeper
dilemmas of a market socialism—another central issue in contemporary
socialist thought, and the central focus of the present book.
All these characteristics of the Austrian experience make it
possible to isolate and probe in depth, through detailed evidence and
illustration, the more inherent dilemmas of social ownership of large
firms—as distinct from effects of political authoritarianism, economic
or cultural backwardness, commitment to comprehensive central planning
and vested interests of large governmental planning bureaucracies, or
government takeovers of sick firms and industries.
Much conventional thinking about socialism has failed to
disentangle these factors.
The primary emphasis is on administrative realities, an area
where socialist theories have often been especially weak, and
particularly on the effects of differing ownership arrangements upon the
politics of subsidies. This,
in the author’s judgment, should be one central criterion for
evaluating any proposal for some form of socialism.
But the treatment of Austria also reaches beyond this area, and
is deliberately structured to bring out a variety of other dimensions of
the Austrian evolution and experience that are significant for the
overall political issue of democratic socialism in regard to large
firms. Some of these other
dimensions are as follows:
1.
Detailed evidence buttresses a fundamental social critique of the
capitalist mode of ownership for large firms, in terms of elimination of
social privilege.
2.
For American readers, the book is designed to bring out
differences in cultural attitudes about governmental activity and about
socialism as a instrument of social change, and to expand understanding
of the real causes of such cultural differences.
Chapter 2 and much of chapter 3 are designed to do this.
Here Austria is in many respects a microcosm of the larger
European pattern and of the history of Social-Democratic parties
generally. Conversely, for
European readers this material can improve understanding of the real
causes of the hostility so many American feel toward both governmental
activity and socialism, in principle.
3.
Chapter 2 similarly advances a theory about political development
in regard to sources of conservatism and change in any nation’s
political life, and this contention is restated at the end of the last
chapter. The conclusions
here, which point to the real importance of ideas in politics, are
critical both of traditional Marxism and of conventional descriptions of
liberal-democratic political systems and point to genuine possibilities
of change in all countries, including the United States.
4.
The German assets issue in Austria is examined in chapters 3 and
4. This issue, however, is
not discussed merely as background to enable the reader to understand
the situation of an unusually large sector of public ownership (in which
conservative businessmen and Socialists sitting on the boards of
directors of firms were jointly charged with figuring out how to make
socialism work); rather, the issue is deliberately treated in detail for
an important additional reason: Many (not all) Austrian Socialists have
long misrepresented the real origins of the large nationalization of
1946, which had nothing to do with any socialist ideology, in order to
dramatize the idea of economic planning.
The treatment of this subject, and of related climates of opinion
within the Austrian Socialist Party, gives an intimate picture of an
emotional tendency that is pervasive within socialist parties in many
countries of the world, namely a compulsion to embrace economic planning
as a mystique, as distinct from a subject of strictly pragmatic thought
and rational discourse. Understanding
this emotional complex is central to the issue of a market socialism.
5.
Though this is a derivative, not a central, focus of the present
book, attention is given to Austria’s system of wage –price
intervention as an instrument if improved management of the business
cycle and performance in export markets.
While various Communist regimes have, through painful experience,
been learning more of the usefulness of material incentives and market
mechanisms, Western capitalist societies have been learning , also
through painful experience, that the degree of social cooperation in
restraining wage demands has a far greater bearing on the efficiency of
a “market” economy than was earlier supposed.
The Austrian record is consistent with other indications that a
market socialism for large firms, by avoiding extreme economic
inequalities, offers a social and political context for macroeconomic
management that is far more functional for that purpose than the usual
pattern of private corporate capitalism.
The date on Austria, while providing a
comprehensive picture for the period covered, have not been carried
forward to the present. To
do so would add nothing of significance for the purposes of this
particular work, which examines the effects of large choices in
institutions and the design of wholly new institutions that differ
radically from those in Austria. In
any case, the institutions discussed here have not undergone any basic
changes since the period covered in this book.
Finally, the key elements in the program proposed in the present
book may be adumbrated here.
A long-standing trend in modern corporate capitalism has been the
growth of institutional investors.
It would be only a small step in logic, but a large step in
social democratization, to replace ownership by individuals in large
firms altogether with ownership by municipally owned investment banks,
as a new type of institutional investor under regulation, but not direct
control, of the national government, with public financial inducements
for venture capital from them, alongside other provisions for venture
capital, while retaining stock and bond markets, existing private
institutional investors, and the entire competitive market process fort
the bulk of the economy.
This approach would have far-reaching social and political
implications:
1.
A far-reaching decentralization of operative power, to thousands
of autonomous financial institutions, could be achieved within the
framework of socialized ownership of large firms. The entire idea that
extensive socialism is necessarily incompatible with political democracy
falls to the ground.
2.
Extensive socialism on the plane of ownership can be combined
with deliberate rejection of the “control” that has loomed large in
socialist tradition. For
the bulk of the economy, the purpose of societal ownership of large
firms is completely severed from planning.
“Private enterprise,” as a managerial concept, and free
founding of new firms by private promoters would proceed undisturbed.
3.
The proposal advanced in this book is neutral with respect to the
basic decision on the optimal mix of market and planning elements in the
economy. That decision
would be made first, and different types of ownership for different
sectors of the economy would then be fitted around it.
A proposed system of municipally owned investment banks applies
only to a market socialist sector, which,
however, would presumably be the bulk of the corporate parts of
the economy. Technical
considerations for or against various kinds of planning or other
governmental intervention are beyond the scope of this book, and are
irrelevant to its purpose. The
proposal allows for whatever may be deemed the appropriate mix of
markets and governmental intervention.
4.
Within the market socialist sector, the proposal advanced in this
book is neutral with respect to governmental intervention for economic
or social purposes. The
purpose of a proposed capital-market mechanism, as a separate
institution, is to maximize the public visibility of governmental
intervention when it occurs in order to keep subsidies exposed to
political debate. The
absence of such a institution has been a key weakness in much of the
socialist tradition.
5.
The proposed new ownership structure is neutral with respect to
employee participation and power in management, and is designed to keep
ownership on the one hand, and employee participation in management on
the other, separate as
political issues. The
proposal allows fully for pragmatic experimentation with a range of
types of employee participation, but the overall proposal, for large
firms, rejects the syndicalist formula on the grounds that it
underestimates the importance of professional management for economic
performance.
6.
The proposed system of municipally owned investment banks
involves genuine problems of regulation.
But none of the problems appears insurmountable.
Impurities and abuses would occur, but these need not be of an
order of importance different from the abuses that occur anyway.
Securities markets and financial institutions must be regulated
in any case.
7.
The economic functions of an aristocracy of wealth would be
effectively duplicated by new social institutions, removing any economic
need for great economic inequality, and proposed tax measures would work
a gradual but far-reaching leveling of large personal wealth and very
high income.
8.
From the point of view of equality, the proposed ownership
institutions would be more effective than any situation of widespread
equity participation by individuals in large economic enterprises, for
the latter situation maintains the idea of speculative investment by
individuals and the idea of pursuit of large personal wealth as a large
element in the overall political culture, with corresponding effects on
tax policies. Property
institutions have systemic effects, and much of American social science
has operated to obscure this one.
9.
For the reasons stated in chapter 1, the political experience of
such change in the American social structure at home would work
far-reaching changes in the dominant American outlook and produce major
shifts in the larger pattern of American policies in both domestic and
foreign policy areas. Among
other things, it would lower the level of ideological tension between
the United States and the Soviet Union and lower the intensity of
military competition attributable to it—and simultaneously expand the
capability of the United States to compete with the Soviet Union on the
political plane in many areas of the world by occupying more of
the intervening ideological space.
Politics is human choice of basic purposes.
The
Progressive-New Deal tradition in the United States has directed a vast
part of its struggles against things that are, in reality, effects of
the traditional institutions of private corporate capitalism and the
absence of previous experience in transforming those institutions in
socialist directions.
In the long run, it is always open to the Democratic Party to
alter the rules and deal, not just with symptoms, but with causes.
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