Market Socialism

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Summary from the Wikipedia article at http://en.wikipedia.org/wiki/Market_socialism

"Market Socialism is an economic system in which the means of production are owned either by the state or by the workers in each company (meaning in general that "profits" in each company are distributed between them: profit sharing) and the production is not centrally planned but mediated through the market . Its central idea is that the market is not a mechanism exclusive to capitalism and that it is fully compatible with collective worker ownership over the means of production — which is one of the fundamental principles of socialism.

Proponents of market socialism argue that it combines the advantages of a market economy with those of socialist economics. The theory is fundamentally contradictory to orthodox Marxism.

Proponents of market socialism include economist John Roemer and philosopher David Schweickart, whose version of market socialism is called "Economic Democracy".

Versions of Market Socialism

David Schweickart

From http://www.solidarityeconomy.net/2007/03/02/economic-democracy-vs-parecon/:

"I argue that “the market” is not in fact a unitary mechanism, but should be disaggregated into three markets: a market for goods and services, a labor market and a capital market. I argue further that it is those latter two markets–the labor and capital markets–that do the most damage under capitalism and hence need to be replaced. I argue that a competitive market for goods and services, while not wholly benign, is vastly preferable to alternative allocative mechanism, whether they be centralized planning a la the Soviet union or the decentralized, participatory planning of Albert and Hahnel.

Let me set out the basic institutional structures of what I call Economic Democracy, a model of socialism I consider to be vastly superior to both capitalism and the Soviet model of centralized, command socialism. And to Parecon. The basic model has three fundamental features.

  • Enterprises are governed democratically by their workers. Ultimate authority rests with the workforce, one person, one vote. Workplace democracy is the replacement for the capitalist labor market
  • Enterprises compete for customers in a relatively free market. That is to say, the market for goods and services is carried over from capitalism.
  • Capital markets are replaced by what I call “social control of investment.” Funds for investment are generated from a capital-assets tax, a flat rate tax imposed on all enterprises–not from the private savings of wealthy individuals. These funds are allocated, first to regions on a per-capita basis, and then to public investment banks in the regions, which are responsible for allocating these funds for
  1. public capital projects,
  2. existing enterprises wanting to expand production or upgrade their technology and
  3. individuals wanting to start up a new enterprises.

I propose several other features in what I call the “expanded model” of Economic Democracy. I won’t discuss them here, but for the sake of completeness, let me note that Economic Democracy would also include

  • The government acting as employer-of-last resort
  • A quasi-capitalist sector comprised of small businesses and perhaps a sector of entrepreneurial capitalist firms,
  • A policy of “socialist protectionism” that blocks low-wage competition from poor countries but rebates the tariff proceeds to those countries.

I have argued at length, in various books and articles, that such an economic structure would be at least as efficient as capitalism, more rational in its growth, more egalitarian, better able to cope with the ecological challenges we face, and vastly more democratic." (http://www.solidarityeconomy.net/2007/03/02/economic-democracy-vs-parecon/)

The market as a civilisational achievement

By Elston Gunn at http://www.solidarityeconomy.net/2006/09/07/the-left-the-market-and-the-struggle-for-socialism/

"The market is an achievement of human civilization that both predates capitalism and will persist for a long time even if capitalism is replaced by another system. It is truly system neutral - a place where politics and different values contend for influence and hegemony. Capitalism has taken the power of the market as a tool for its influence to new heights, and demonstrated the cruelty of its “market reality.” A socialist society would use the power of the market to extend democracy and promote sustainable development.

To truly build a powerful revolutionary left, we must recognize that the market is not simply synonymous with Low Road capitalism.

The dominant trend in today’s left regards the market only as a capitalist construct. This simplistic view reflects the intellectual superficiality of this trend on the left, as well as the powerful influence of the traditional Soviet and social democratic model for socialism that sees only the state as the defender and protector of society.

The extension of this thinking is the one-sided view that the people (businessmen and women, employers, etc.) and the structures, like the “corporation,” that emerge in the market are only tools of capitalism and have no role in a socialist transformation of society.

The simplistic generalization that sees the “corporation” as the enemy is the most destructive intellectual construct in our movement. It denies us critical alliances and diverts us from information and work that are fundamentally important and productive in building a competitive model to the neo-liberal capitalist policies.

Of course, we have corporate enemies that must be exposed and blocked; but there are important tactical and strategic corporate allies in the business community that we must align with and bring into our movement.

These include part of the 8 million privately held small companies that must find local solutions and partnerships if they are to survive. This includes innovative technology people and environmentalists that truly are inventing essential new technologies for the next century. And this includes leaders in the investment community truly committed to sustainable development." (http://www.solidarityeconomy.net/2006/09/07/the-left-the-market-and-the-struggle-for-socialism/)

A Proposal for Socialized Capital Markets by Seth Ackerman

Seth Ackerman:

"What is needed is a structure that allows autonomous firms to produce and trade goods for the market, aiming to generate a surplus of output over input — while keeping those firms public and preventing their surplus from being appropriated by a narrow class of capitalists. Under this type of system, workers can assume any degree of control they like over the management of their firms, and any “profits” can be socialized– that is, they can truly function as a signal, rather than as a motive force. But the precondition of such a system is the socialization of the means of production — structured in a way that preserves the existence of a capital market. How can all this be done?

Start with the basics. Private control over society’s productive infrastructure is ultimately a financial phenomenon. It is by financing the means of production that capitalists exercise control, as a class or as individuals. What’s needed, then, is a socialization of finance — that is, a system of common, collective financing of the means of production and credit. But what does that mean in practice?

It might be said that people own two kinds of assets. “Personal” assets include houses, cars, or computers. But financial assets – claims on money flows, like stocks, bonds, and mutual funds — are what finance the productive infrastructure. Suppose a public common fund were established, to undertake what might be euphemistically called the “compulsory purchase” of all privately-owned financial assets. It would, for example, “buy” a person’s mutual fund shares at their market price, depositing payment in the person’s bank account. By the end of this process, the common fund would own all formerly privately-owned financial assets, while all the financial wealth of individuals would be converted into bank deposits (but with the banks in question now owned in common, since the common fund now owns all the shares).

No one has lost any wealth; they’ve simply cashed out their stocks and bonds. But there are far-reaching consequences. Society’s means of production and credit now constitute the assets of a public fund, while individuals’ financial wealth balances are now its liabilities. In other words, the job of intermediating between individuals’ money savings and society’s productive physical assets that used to be performed by capitalist banks, mutual funds, and so on, has been socialized. The common fund can now reestablish a “tamed” capital market on a socialized basis, with a multiplicity of socialized banks and investment funds owning and allocating capital among the means of production.

The lesson here is that the transformation to a different system does not have to be catastrophic. Of course, the situation I’m describing would be a revolutionary one — but it wouldn’t have to involve the total collapse of the old society and the Promethean conjuring of something entirely unrecognizable in its place.

At the end of the process, firms no longer have individual owners who seek to maximize profits. Instead, they are owned by society as a whole, along with any surplus (“profits”) they might generate. Since firms still buy and sell in the market, they can still generate a surplus (or deficit) that can be used to judge their efficacy. But no individual owner actually pockets these surpluses, meaning that no one has any particular interest in perpetuating or exploiting the profit-driven mis-valuation of goods that is endemic under capitalism. The “social democratic solution” that was once a contradiction – selectively frustrating the profit motive to uphold the common good, while systematically relying on it as the engine of the system – can now be reconciled.

To the same end, the accrual of interest to individuals’ bank deposits can be capped at a certain threshold of wealth, and beyond that level it could be limited to simply compensate for inflation. (Or the social surplus could be divided up equally among everyone and just paid out as a social dividend.) This would yield not exactly the euthanasia of the rentier, but of the rentier “interest” in society. And while individuals could still be free to start businesses, once their firms reached a certain size, age and importance, they would have to “go public”: to be sold by their owners into the socialized capital market.

What I’m describing is, in one sense, the culmination of a trend that has been proceeding under capitalism for centuries: the growing separation of ownership from control. Already in the mid-nineteenth century, Marx marveled at the proliferation of what we now call corporations: “Stock companies in general – developed with the credit system – have an increasing tendency to separate this work of management as a function from the ownership of capital, be it self-owned or borrowed. Just as the development of bourgeois society witnessed a separation of the functions of judges and administrators from land-ownership, whose attributes they were in feudal times.” Marx thought this development highly significant: “It is the abolition of capital as private property within the framework of capitalist production itself.” (http://jacobinmag.com/2012/12/the-red-and-the-black/)

Discussion

Market Socialism is unworkable

  • Shleifer, Andrei; Vishny, Robert. Pervasive shortages under socialism. RAND Journal of Economics. 1992 Summer; 23(2):237–246.

Available from: http://www.economics.harvard.edu/faculty/shleifer/files/pervasive_shortages.pdf. (Accessed 2012 Jan 31. Archived by WebCite at http://www.webcitation.org/6577P5JXK)

"Shleifer and Vishny argue that shortages of consumer goods arise under market socialism because of self-interested behavior on the part of bureaucratic managers who control production. In a typical market-socialist economy, marginal income from manipulation of production arises primarily from bribes taken for illicit access to scarce goods and services, and is proportional to the difference between their fixed official price and the market-clearing price. Thus, rent-seeking motives induce bureaucrats to maximize this difference, which is accomplished by keeping fixed official prices as low as possible, while restricting production quantity so as to maximize the market-clearing price. Shleifer and Vishny conclude that pervasive shortages are a predictable consequence of market socialism, and are due principally to corruption, rather than to classical explanatory factors such as impaired price equilibration. Implicitly, they conclude further that market socialism is unworkable. While this conclusion is premature, their argument is otherwise compelling, and poses a serious problem that must be addressed if market socialism is to be viable."

A Critique of Seth Ackerman's Market Socialism

Matthijs Krul:

"In his recent essay on Jacobin [1], Seth Ackerman makes a number of common arguments in favor of some form of market socialism over and against central planning as well as other designs for non-market, non-capitalist economies. The essay contains much that most socialists could agree with. He rightly cites the failure of the neoclassical argument for general equilibrium to apply in real-world situations under the devastating theoretical impact of the Cambridge capital critique and the so-called ‘theory of the second-best’, and the lack of statistical evidence proving the superior efficiency of market capitalist societies over those of the former Soviet bloc. The historical record of capitalism to achieve general efficiency, equity, and democracy is, in short, atrocious, and neoclassical economics always serves first and foremost as apologetics for this system – we probably need not go into this further.

Also understandable is Ackerman’s negative response to models of a post-capitalist economy along the lines of some form of direct democracy, such as Albert and Hahnel’s “Parecon” approach. For Albert and Hahnel, democratic councils would gather data from individuals regarding their preferences, debate these according to socialist and ecological norms, and process them into a planning system, which would regularly update its information according to the same political processes; all this in order to regulate production for human need. Ackerman is justifiably skeptical of the workability of this proposal, as it would require millions of political debates about millions of input-output processes from wildly divergent sources and for wildly divergent ends. If every aspect of the planning system would have to be truly democratic – in the sense of being up for immediate political input ‘from below’ – any system with more than a rudimentary division of labor would quickly come to a shuddering halt.

For Ackerman, this is proof of the validity of the so-called calculation problem, an old argument from liberal critics of Marxism (in particular the Austrian school of economics), alleging that it is a priori impossible for centrally planned economies of any kind to operate: only prices, the argument runs, are accurately able to convey the necessary decentralized and distributed information that makes up the relative exchange value of goods. Therefore, in any system seeking to replace prices (and by implication, profits) with some form of central management, there necessarily follows a shortage of information in the decision-making process in production and exchange, with the familiar results of shortages, gluts, famines, and failures of supply.

For the liberal critics, and especially the Austrian school, this argument against central planning has often been generalized against any attempt to interfere with the market process: after all, if this argument holds, any interference at all will prevent ‘getting the prices right’, and thereby move the economy away from optimal allocation of goods and services. However, even the mainstream economic literature abounds with debate as to the accuracy of this proposition, with much of the debate revolving around the significance and extent of the presence of externalities, that is, costs not internalized into the price system but nonetheless real from a social or ecological viewpoint. But even taking the pervasiveness of externalities for granted, the critique of government intervention allows the left little substantial political room for maneouvre – at most mere management of market failures. This does not satisfy Ackerman, who is committed to superseding capitalism as a social system, and therefore he is faced with a plausible economic answer to this critique.

Ackerman’s solution is to propose a market socialist alternative, which would have prices (and thereby evade the calculation problem), but not profits – a handy solution if ever there was one, having one’s cake and eating it too. In this, he follows some of the market socialist critics from Eastern Europe, who responded to what they saw as the political-economic failures of their countries under Soviet-oriented rule by formulating a happy middle between a planned economy and the ‘anarchy’ of market capitalism. This proposal boils down to leaving intact the free market in the sphere of production and exchange, with autonomy of firms and competition between them, but by socializing the commanding heights of the economy in the sphere of finance and credit, in particular the banks: “A constellation of autonomous firms, financed by a multiplicity of autonomous banks or investment funds, all competing and interacting in a market — yet all nevertheless socially owned.”

Of course, if one has this, but permits profits to be pocketed by the capitalist class, one would simply have a kind of social-democratic capitalism with nationalized banks – perhaps radical, but not necessarily anything novel. Ackerman realizes this and confronts the problem of profit under market socialism with admirable clarity. His proposal is a compulsory purchase of all private financial assets – stocks, bonds, investments, and so forth – and to deposit them into a “multiplicity of socialized banks and investment funds owning and allocating capital among the means of production”. Any surplus firms would generate would then (presumably as dividend) be allocated towards this socialized fund, and thereby the capitalist class would be eliminated from the social division of labour – the euthanasia of the rentier interest, at least, as Ackerman notes. Now, this would still leave the tremendous inequalities generated by the buying, rather than expropriating, of the capitalists’ financial assets. But here Ackerman has a simple solution as well, a classic left social-democratic measure: one simply caps the total assets an individual (or family) may have. Socialism in two steps!

Is it really so easy? I would argue it is not. It falls to me to defend the currently very unfashionable proposition that a socialist mode of production, recognizable to the Marxist tradition as well as to non-Marxist opponents of capitalism, actually requires a system of central planning and cannot permit any kind of market socialism to exist in the scale and manner Ackerman suggests. To do so, I must also analyze the significance of the central planning efforts of the Soviet Union, seen by friend and foe alike in these debates as the prototype of such a system, and access to what extent it really did ‘fail’ (as Ackerman takes as decisively proven), and what this might imply. It is no small task, and I will necessarily have to be somewhat summary in my arguments, but the significance of this debate makes it essential to get this right. I do not wish to make a virtue of orthodoxy, but market socialist critiques such as those of Seth Ackerman have been a dime a dozen in the history of the communist movement, and they have never been convincing nor been able to make themselves practical within actual anti-capitalist revolutionary movements. I would argue this is no coincidence, for they contain a number of fundamental flaws that Marx and his immediate successors already identified. In this reply to Ackerman, I will argue two things. Firstly, that market socialism cannot overcome the limitations of capitalism, and secondly, that the failure of Soviet central planning does not condemn the idea of central planning. In fact, I will argue that the flaws in Ackerman’s design and the Soviet model of central planning are remarkably similar: both are rooted in the failure to overcome capitalist production, as opposed to distribution.

* * *

The most significant shortcoming of almost all market socialisms, including that of Ackerman, is that they share with neoclassical economics and the liberal tradition generally the exclusive focus on the process of exchange. This stands in stark contrast to Marx’s primary interest, the process of production. It is not for nothing that Marx considered the classical economists’ emphasis on exchange to be a powerful ideological weapon of the bourgeoisie. As long as distribution and exchange are the central categories of social relations, the market will seem to be the natural, self-evident form in which one-off exchange between individuals takes place, at least in societies with an advanced division of labor. But, for Marx, it is precisely this fetishism of commodities, this exclusive focus on the sphere of exchange and distribution, that hides the essential nature of capitalist society. In Capital, after discussing exchange value, he then famously writes: “Accompanied by Mr. Moneybags and by the possessor of labour-power, we therefore take leave for a time of this noisy sphere, where everything takes place on the surface and in view of all men, and follow them both into the hidden abode of production, on whose threshold there stares us in the face – ‘No admittance except on business.’ Here we shall see, not only how capital produces, but how capital is produced. We shall at last force the secret of profit making.”

This secret, the core of capitalist social relations that must be overcome to overcome capitalist society altogether, is the process of capitalist production. It is there that capitalist social relations are reproduced on an ever-expanding scale through the repeated separation of workers from the means of production, and the generation of surplus value that results from this separation. Whatever value is produced in capitalist society can only bedistributed within the market, but is never generated in it: whatever you gain in exchange, I lose. Marx for this reason distinguished between the labor in capitalist society that immediately produces surplus value, and the manifold kinds of labor that are involved in exchange, transport, marketing, and so forth. The latter do not reproduce capitalist social relations, and therefore fall in the sphere of distribution. This is not to say distribution in this sense is not important: indeed, it forms by far the largest part of the everyday experience of capitalism in contemporary Western societies. But this is exactly what leads to mistaking all the economic activities of the market for the reproduction of capitalism itself. This is why Marx considered it a form of fetishism. The process of production under capitalist conditions is what reproduces capitalist society – the actual application of labor and technology that allows modern-day society and its accumulative drive to exist. The everyday significance of the sphere of distribution – with its apparent equality of buyer and seller and the smooth machinery of the price system – give rise to the appearance that this is what capitalism is all about, not what happens behind the doors of the factories, sweatshops, and mines. If market socialism does not address the sphere of production, it does not address the fundamental conditions of capitalist society, and therefore does not succeed in overcoming it.

So it’s no surprise that in Ackerman’s example, nothing at all is said about the production process itself. In his concern to evade the calculation debate’s critique of central planning, he permits the central conditions of capitalism to perpetuate themselves: the separation of workers from the means of production, which are not the banks and other distributional institutions, but the factories, mines, sewing machines, and tractors. If nationalizing banks and investment itself had the power to create socialist conditions by themselves, the Royal Bank of Scotland would now be in the vanguard of socialism – which is sadly not the case. Even if all banks were nationalized, and a good deal else besides, as was de facto the case under total war conditions in various capitalist societies during WWII, there would still be a capitalist mode of production. Private appropriation of surplus is not the central feature of capitalism, although this permits a capitalist class to exist independently in political terms. Rather, its central feature is coercing working people to work on means of production not held in common, means that are used for the purposes of accumulation for its own sake. Even if one were to have a 100% tax on profit, and nationalization of banks, hedge funds, and pension funds, as Ackerman’s proposals seem to reduce to, this would be a left social-democratic version of capitalism, perhaps a radically egalitarian capitalism: but a capitalism nonetheless. It would be nothing to sneeze at, but not achieve his aim of an actually socialist society; with capitalist production left intact, so is exploitation, the alienation of working people, and the politics of growth for its own sake.

The reason for this is that, as Marx pointed out, the root of exploitation under capitalism is not insufficient wages per se, or the depredations of finance, but the theft of alien labor time. Not only is labor under capitalism alienated from the means of production and is the worker alienated from society’s general interests, but more importantly, the process of exploitation under capitalism necessarily implies that for accumulation to take place on one end, the worker must be paid less than the value of her labor-time on the other. The more capitalist production expands, the less time the worker has for herself. This is why so much of the history of socialist activism does not revolve around higher taxes on the wealthy or the nationalization of the commanding heights, but about reducing the share of their total lifetime workers are forced to produce for the reproduction and expansion of capitalist society – for example through pensions and social security, or overtime laws.

The struggle over exploitation is fundamentally the question of whether the worker has the time to fully develop her intellectual, social, and creative powers, or must devote this time instead to the reproduction of a hostile, alien, and benumbing society, with no time to call her own. Here central planning comes back into view. The aim of central planning, what Marx calls “the society of associated producers”, is therefore not just to socialize the process of exchange and distribution of goods – though as Ackerman rightly notes, this is a ‘bread and butter’ question in its own right – but to develop the productive forces to the degree that the necessary labor-time for all workers can be reduced to a minimum. This leaves maximum time for playing, singing, socializing, sports, art, music, writing, debating, and all those things that have been considered the good things in life and the birthright of humanity since the classical age.

There is no known process of the market that can achieve this aim, for the logic of the market is blind to the process of production, and concerns itself exclusively with private accumulation and consumption. Just as we do not care, in practice, about the appalling conditions under which our clothing and our food is made, in Ackerman’s market socialism the condition and work of the producers is of no significance. Their alienation is not abolished by the mere phrase ‘socializing finance’; as long as they are subject to the coercive pressure of competition and accumulation, each other’s eternal counterparts, they cannot fully realize their talents and potential as individuals and can therefore society is a hostile force for them.

Ackerman’s society, in short, would socialize capital, but not abolish it. It would socialize exploitation, but not abolish it. It would not work towards the fullest development of the creative, intellectual, and social capacities of the majority, and would not apply technology, the embodiment of reduction of necessary labor-time, to this end. As Marx wrote: “economy of time, to this all economy ultimately reduces itself.” This applies to market socialism as much as any society, and Ackerman’s proposal keeps at arm’s length “the very possibility of defetishizing economic life”, to borrow from David McNally’s critique of market socialism, Against the Market. “To reject this possibility is to embrace the inevitability of alienated labor, of exploitation, and the unplanned and anarchic drive towards competitive accumulation”." (http://rosswolfe.wordpress.com/2013/01/30/on-communism-and-markets-a-reply-to-seth-ackerman-by-matthijs-krul/)

Key Books to Read

  • After Capitalism (Rowman and Littlefield, 2002) - ISBN: 0742513009
  • Market Socialism: The Debate Among Socialists, coauthored with Bertell Ollman, Hillel Ticktin and James Lawler (Routledge, 1998)
  • Against Capitalism (Cambridge University Press, 1993) [Spanish translation, 1997; Chinese translation, 2003])
  • Capitalism or Worker Control? An Ethical and Economic Appraisal (Praeger, 1980)

See also the book on Self-Managed Market Socialism