General Theory of Labour-Managed Market Economies

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* Book: Jaroslav Vanek. The General Theory of Labour-Managed Market Economies. Ithaca: Cornell University Press, 1970.

Description

From the Wikipedia:

"Jaroslav Vanek (born 1930, Prague) is an economist and Professor Emeritus of Cornell University known for his research on labour-managed firms (a similar idea to that of a worker cooperative), and also to the theory of international trade.

Vanek wrote "The General Theory of Labour-Managed Market Economies," a seminal work on self-management. His work in the economics of participation included "The Participatory Economy: An Evolutionary Hypothesis and a Strategy for Development" which reviewed behaviour of labour-managed firms in more social spheres beyond their interests in net revenue per worker." (http://en.wikipedia.org/wiki/Jaroslav_Vanek)


Interview

Excerpts:

Cooperative Economics: An Interview with Jaroslav Vanek; interviewed by Albert Perkins. This article was published in New Renaissance magazine Vol. 5, No. 1


Albert Perkins: Professor Vanek, how did you first develop your ideas on economy?

Jaroslav Vanek: I had four major influences. First, I experienced the evils of communism when I was a refugee in Czechoslovakia from Stalinism, and later, when I came to the West, I also experienced the evils of western capitalism. Then, in between, I was fortunate enough to spend time with my late brother who did extensive work for the I.L.O. (International Labor Organisation) and wrote the first book about the workers' councils in Yugoslavia. I learned many of my basic ideas from him. He was a sociologist and I was an economist, and I was able to transpose his ideas into my field. Third was the doctrine of the Catholic Church. Pope John 23rd went a long way toward suggesting the desirability of economic democracy. Finally, I was influenced by Dubceck's model of social democracy. It could have been more successful than the Yugoslavian experiment, but for the Soviet tanks. I have had several interests in my life, including the area I call economic democracy. Economic democracy is a transposition of the idea of political democracy. It implies that economic life is governed by people who are involved in thateconomic life. Capitalism is based on property rights, and democracy on personal rights. Perhaps the most important aspect of capitalism, its objective function, is to maximise profit. If you look at it more carefully, profit is revenue minus labor costs and other costs. This means then human beings enter the defining objective function of the system with a negative sign. By contrast, economic democracy has an objective function where people are on the positive side of the equation. The idea is to maximise the welfare of the people participating. This is an enormous difference, and I'm convinced that the tragic difficulties of our culture -- ecological devastation, starvation, etc. -- can be traced to this negative side But capitalism could be cured slowly if we developed economic democracy. One of the main reasons why the western world is so schizophrenic is that we have political democracy and economic autocracy.


AP: What would such a system look like?

JV: The system should be a market system, not ruled from a central ministry, but by the rules of supply and demand This is the only true market economy. The capitalist economy is not a true market economy because in western capitalism, as in Soviet state capitalism, there is a tendency towards monopoly. Economic democracy tends toward a competitive market. The system is composed of households, enterprises government and so on. The main distinguishing characteristics are in the area of production. Productive enterprises are small republics. Everyone who works is a member and the enterprise is run democratically directors are elected democratically and stockholders have no control.


AP: Do you see all firms run cooperatively?

JV: There are many possibilities. In Mondragon you have cooperatives developed from the Rochdale principles, characterised by democratic management. And the Yugoslav firms, although poorly designed, were democratically run and semi-cooperative. In an article to the Russian Academy of Sciences concerning Khabarovsk, I argued that during the transition period they should have democratic, but not necessarily cooperative enterprises. These could be associations of workers in a democratic firm who would lease the assets of the factory from the state. The American ESOP co-op provides a good model. By insisting on co-ops we narrow things down unnecessarily. The idea of economic democracy is broader than just co-ops. Visualize two sets of loops. One set is co-ops and one set workers participation. Where they intersect on the co-op side we could have housing, credit etc. On the other side we can have participation as simple as suggestion boxes. There are workers coops where the owners make $2000 a week while the workers make $200. 1 wouldn't call that economic democracy.


AP: Why aren't co-ops working in the West?

JV: If you go to a bank and ask for a loan to start a co-op, they will throw you out. Co-ops in the West are a bit like sea water fish in a freshwater pond. The capitalist world in the last 200 years has evolved its own institutions, instruments, political frameworks etc. There is no guarantee that another species could function if it had to depend on the same institutions. In capitalism, the power is embedded in the shares of common stock, a voting share. This has no meaning in economic democracy. Economic democracy needs its own institutions for one simple reason. Workers are not rich. Let's face it, most working people in the world today are either poor or unemployed. They do not have the necessary capital to finance democratic enterprises. Hence, we need some instruments and institutions which make this possible. Why? Because we know that once democratic firms are organized, or even if they have all the elements of democratic principles, they work far better than capitalist enterprises.


AP: Tell us why'?

JV: There are many reasons. First of all, if you know that your employer is maximizing profit and you are a negative aspect of production for him, it creates a terrible situation. In the UK recently, the miners said "Don't fire the miners. Fire Prime Minister Major." This is the conflict. Major is like a director of a state enterprise. But if the director is elected by the workers to represent their will, as in Mondragon, there is a greater likelihood of mutual respect. One of the greatest advantages of economic democracy in well organized co-ops is mutual supervision. Normally the foreman must be paid three times more than the average worker, because he is really a slave driver who doesn't produce anything. In fact the workers will produce as little as possible in this situation. We have found from studies that the opposing forces of alienation and cooperation can be exceedingly strong. In French construction coops, capital productivity is double the norm. The democratic firm can produce two buildings while the capitalist firm produces only one. The reason for this increased productivity is that in a democratic firm the workers supervise each other while in capitalist firms they cover each other's theft or poor work. In GM you will be called a pig if you expose a theft by a fellow worker. Then there is the savings of materials. Capitalist firms invest in a lot of unnecessary machinery. They replicate the inclination of the average Americans buying things they don't need. The democratic firm can adjust to the optimum level of intensity. Productivity is not measured only in dollars and output but also in happiness and job security. Job security is more important than whether you earn three or four or five hundred dollars a week. In fact, one of the main theoretical and practical characteristics of the cooperative system is job security. In capitalist firms workers are constantly being laid off and fired Unfortunately, the people that would benefit most from economic democracy have infinitely less power than the people who rule, the captains of capitalism who create laws, customs, bartering systems, and especially schools. By and large, the economic departments of America's universities are institutions for brain washing. They pour a certain culture into students' heads which teaches them that the capitalist system is the best thing in the world. Our politicians have called Russia the evil empire, which might have been true at one time, but since it has disappeared, our system has become the most evil in the world.


AP: What sort of support systems do we need to get cooperative enterprises off the ground? Perhaps you could use Khabarovsk as an example.

JV: First of all, we must take into consideration the history of Russia. The problem is the Harvard school -- and Western leaders have often echoed this --wants to take a textbook example of capitalism and transpose it onto Russian soil. Russia has had a functioning state socialist system for over 75 years. To suddenly import an alien system is exceedingly difficult. Certain support structures are necessary if a new system is to be accepted. We know the evils of the police state, one party system, absence of democratic expression etc., but all was not bad with socialism. Income distribution was, if anything, overly just: medical doctors could earn half that of miners; and workers enjoyed reasonable job security. Both are necessary conditions for the Russian mentality of fairness of distribution and job security. However, economic democracy provides for a more equitable income distribution, and far greater income security. A major historical coincidence that will help, whether we like it or not, is that, in Russia, bureaucratic ministries organized most of the industrial sector. A ministry for shoes, another for mining and so on. The capitalist model abolishes this structure and substitutes a stock market. This bureaucratic structure is still in place and by incorporating it into the incoming system, the transition can be smoothed. Thus, before we discuss the implementation of economic democracy in Russia, we must first consider the historical evolution of the Russian people over the past 75 years. When we do this we see the enormous difficulties that a proposed capitalist system must face. For example, several important ingredients in a successful capitalist system are risk taking, entrepreneurship and a moneyed class. None of these three are present in Russia. On the positive side, the historical conditions that led Russia to accept a system that offered equitable income distribution and job security will make them much more open to the implementation of economic democracy.


AP: Will there be less people working in the ministries?

JV: Yes. Perhaps by as much as 50 percent. However, we must not totally eliminate the possibility of capitalism in Russia. Some of the younger and more able bureaucrats may wish to set up private enterprises. It's not my preference, but it may be theirs. Anyone who reads this interview would benefit greatly by watching the video the BBC made on the Mondragon co-ops in Spain. You can see the practical implementation of much of what I am saying. Economic democracy is based on a competitive system, with a large number of autonomous firms which, by themselves, cannot fulfill all the functions of a large company. General Motors, for example, is so big it can it can do its own R&D, banking, credit, accounting, transportation, marketing etc. Democratic companies, which are smaller and more personal, need support systems to help in these areas. These would be second level co-ops. They would follow in the same spirit of the larger firms, maximizing welfare and income for all its members.


AP: How would the poor be able to capitalise their co-ops?

JV: There are existing enterprises already in place. These can be leased to the workers at a reasonable price. It could be in the form of a fixed lease contract that would give an incentive to the workers to earn extra income. The lease money would have to be efficiently allocated to those who need it for start up costs. The best use of finance is to develop second level co-ops. If we have mining in an area, we should also have local production facilities. Rather than ship copper to Moscow for smelting, they could build a smelter and factories for the production of copper commodities for sale in their local market as well as for export. " (http://www.ru.org/51cooper.html)


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