Socialized Capital Markets

Discussion

Seth Ackerman:

" In a market economy, a troubled firm can sell part or all of its operations to another firm. Or it can seek capital from lenders or investors, if it can convince them it has the potential to improve its performance. But in the absence of a capital market, the only practical options are bankruptcy or bailouts. Constant bailouts were the price the Hungarian leadership was forced to pay to avoid extremely high and wasteful rates of firm failures. In other words, capital markets provide a rational way to deal with the turbulence caused by the hard budget constraints of market systems: when a firm needs to spend more than its income, it can turn to lenders and investors. Without a capital market, that option is foreclosed.

As resistance against Communism rose, those in Eastern Europe who wished to avoid a turn to capitalism drew the appropriate lessons. In 1989, the dissident Polish reform economists Włodzimierz Brus and Kazimierz Łaski — both convinced socialists and disciples of the distinguished Marxist-Keynesian Michał Kalecki — published a book examining the prospects for East European reform. Both had been influential proponents of democratic reforms and socialist market mechanisms since the 1950s.

Their conclusion now was that in order to have a rational market socialism, publicly-owned firms would have to be made autonomous — and this would require a socialized capital market. The authors made it clear that this would entail a fundamental reordering of the political economy of East European systems – and indeed of traditional notions of socialism. Writing on the eve of the upheavals that would bring down Communism, they set out their vision: “the role of the owner-state should be separated from the state as an authority in charge of administration….[E]nterprises…have to become separated not only from the state in its wider role but also from each other.”

The vision Brus and Łaski sketched was novel: 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." (http://jacobinmag.com/2012/12/the-red-and-the-black/)