Rethinking market socialism.

datePosted on 20:15, March 28th, 2009 by Pablo

The crisis of the latest incarnation of market -driven economics, particularly in its financial sector, has raised the possibility of political-economic alternatives not so much as remedies but as significantly different approaches to the structuring of national economies in a global system of production and exchange. One of these is a revamped–as opposed to resurrected–market socialism. For those who are not familiar with the concept, a quick synopsis is found here. Although current conditions are different from those that led to the original formulation, some basic tenets can be discerned and elaborated upon. Basically, within a market system of supply and demand, the state operates as a macroeconomic manager (not just a toothless regulator) by obtaining majority stakes in strategic assets (be they primary good or value added). In parallel, at a mircroeconomic level it moves to promote significant (be it as a majority or as part of a tripartite arrangement with the state and capitalists) worker ownership in strategic industries (such as through employee stock option programmes  (ESOPs) or by encouraging the formation of cooperatives) in exchange for wage restraint and greater productivity. The logic is that with workers as co-owners of the industries in which they are employed, they will understand managerial rationales as well as the conditions on the production line, thereby promoting what could be called “equitable efficiency” in production.  Non-strategic components of the economy can be encouraged to follow suit but will not be forced to engage in such “socialising” programmes, but will be taxed at a higher rate if worker participation schemes are not incorporated. All sectors will follow the laws of economic efficiency followed by private firms–that is, the market logics of supply, demand and prices. Hence, the object is to prevent rent seeking behaviours usually associated with state ownership of the means of production–to wit, no “make work” or ghost worker schemes, no padding of employee roles, no patronage or clientalistic networks etc. Needless to say, unions may see a threat in this, but their self-interest as agents should not detract from the potential benefits of ownership accrued by workers as a class as well as principals of unions (where they are organised). Union shareholding schemes might be one way to reconcile the interests of agents and principals in such an event.

Under such a market socialist approach a restrained individual taxation rate that increases the amount of discretionary income to wage-owners as well as as capitalists can be complemented by a differential corporate rate that rewards worker ownership with lower rates while maintaining a higher rate for “traditional” firms–i.e. those that appropriate the surplus generated by workers in the form of profits that are in the majority distributed to non-workers (be they shareholders or managers).

With a greater State macroeconomic presence as a stakeholder in strategic industries and manager of microfoundational (the orientation of specific  industry) policy, coupled with active promotion of worker participation in ownership of the industries in which they are employed, backed by a taxation policy that rewards those who see the wisdom of making workers co-owners and understand that the State, as representative of all sectoral interests, is better suited for macroeconomic management than individual capitalists or their associations, a new market socialist project can be advanced that will filter global market dynamics into a more nuanced, and fairer, distribution of wealth and income in society. In a small island trade-dependent state, socio-economic stability depends on this.

There is actually a model for such a system, although it has yet to incorporate worker ownership schemes as part of its developmental project. That model is Singapore and the only reason it does not incorporate policies of worker ownership  into what is otherwise a state-dominated export-oriented economy that is successful is that it is a)authoritarian and thus can impose its will without worrying about the filter of mass consent;  b) foreign investors resist worker participation as a condition for investment; and c) as a result of the previous two factors, foreign workers on temporary visas unprotected by labor laws reserved for Singaporean citizens are used to structurally undermine any moves in that direction.

As a liberal democracy NZ can not emulate everything that Singapore does, but what it can do is note the commanding position of the State in its macroeconomic affairs, to include its use of  State holding companies as channels for public investment in a range of “private” industries as well as its use of taxation as an incentive for corporate investment and production, on the one hand, and household consumption on the other. Admittedly, the argument presented here is just a simplified sketch of the possibilities of market socialism in the present conjuncture, but the intention is to raise the point rather than fully elaborate upon it. The latter task is left to the readers.

6 Responses to “Rethinking market socialism.”

  1. ak on March 29th, 2009 at 01:09

    For fracks sake Pabs – can’t ya get the guts of ya post into fewer words?
    Too right an increased worker interest in the success of the enterprise is desirable – for frack’s sake, aint it been as obvious as the nose on ur face for ever – but how in Dog’s name to achieve it when our entire socio/psychological hegemonic is still utterly focussed on ME?
    Forget it son. Another 28,000 babies will die tomorrow – and the next day, and the one after that – for want of pennies, and our “leaders” will continue to talk (shit – they might even exhort, a la JK)
    Forget your theories, and instead prepare to march Pabs: it’ll take a major, meta-discombabulating upset to make any difference. Sweet Jesus, I pray one’s at hand.

  2. jcuknz on March 29th, 2009 at 09:09

    A precis would help, but I don’t see a need to ‘march’. The militant only escalates the problem.

    My query as I read was how does the person who wishes to help themselves to a higher level of income than the State’s fit in? Such as those who restricted their consumption during their working life and contributed to the national provident fund as well as expecting national super at retirment. Sorry if this is a dumb question :-)

  3. reid on March 29th, 2009 at 09:31

    It’ll take a major, meta-discombabulating upset to make any difference. Sweet Jesus, I pray one’s at hand.

    Hahaha. I might use that in conversation, ak. The upset is happening right now but unfortunately you and I are going to be the upsetees.

    The current system design is actually fine at the mo, apart from the fact it’s built on sand: fiat money and fractional reserve banking. Change those two foundations but keep the existing actual economic structures wit a few refinements especially in the regulatory field, and you have a sustainable system. Until you change those foundations, whatever you design is still built on sand.

    We have what we have because the major global banks in the UK/US played with casino money = CDO’s, CDS’s, a.k.a. derivatives. Many of the smaller banks in the US at least, did not deal with those and they have solid deposits and money to lend – it’s just that they’re not doing it at the mo. Why? Read this article and also this.

    What Obama needs to do which he’s showing no sign of doing, is to nationalise the major banks, fire all the managers who encouraged the casino and direct those banks to start lending again. The reason he’s not doing that, is because his Executive is populated with more people from Wall Street than any other in history. What d’ya think they’re telling him?

    The first absolutely fundamental foundational issue is that the US Fed is a privately-owned for profit corporation. Most countries round the world operate a Central Bank, fractional-reserve model, guess which ones don’t? Cuba, North Korea, Iraq and Iran. What a coincidence, eh? If you want to know what this means, then look at a google video called “The Money Masters.” It’s long, but explains it well.

    The second fundamental foundational issue is that we all operate fiat currencies. These are currencies that aren’t backed by gold or a similar commodity. Doing so keeps it stable, without it, it floats freely and is open to hyper-inflation, which is a possibility for the US because guess how they’re paying for the bailouts? Printing money. Zimbabwe, anyone? JFK signed an executive order to return the US dollar to gold standard a few days before he was killed. Ron Paul is a strong advocate of a gold standard.

    The meta-discombobulation we could and in fact probably will see in the not too distant 2-5 year future is the end of the USD as the reserve currency, probably in favour of the Euro. Removing this artificial prop (which means all countries that buy oil need to hold USD’s), will see the dollar tank overnight. That will bring the end of the US as the global economic engine and the rise of China to take its place. It will retain its military strength for a few decades afterwards. Personally I’m predicting that in 10-20 years, Shaghai and Moscow will replace NY and London as the global finance centres. What’s that going to mean as we move through that process? Probably a war.

    There is a great video on the web that explains the difference between the economics of market-socialism (Maynard Keynes) and that advocated by a guy called Hayek which forms the basis of what some called Thatcherism, Reaganomics, Rogernomics, etc. It’s called Commanding Heights and is a PBS doco.

  4. Quoth the Raven on March 29th, 2009 at 19:11

    The wiki article you linked to mentioned, in my mind, a better form of market socialism:

    A second form of market socialism is called by its proponents free market socialism because it does not involve planners.[7] Pierre-Joseph Proudhon developed a theoretical system called mutualism, which attacks the legitimacy of existing property rights, subsidies, corporations, banking, and rent. Proudhon envisioned a decentralized market where people would enter the market with equal power, negating wage slavery.[8] Proponents believe that cooperatives, credit unions, and other forms of worker ownership will become viable without being subject to the state. Market socialism has also been used to describe some individualist anarchist works[9] which argue that free markets help workers and weaken capitalists.

    One way to vastly improve the market would be to get rid of the legal fiction that is limited liability. That’s an idea that of course would not hold much currency with your right wingers, possibly because they abhor personal responsibility and like the state enforcing a contractual arrangment on third parties who never consented to it. I am surprised that this idea doesn’t come up as often from those on the mainstream side of the left. You will it hear it often from libertarian free market advocates. I wonder how many, who see themselves as moderate left wingers, own shares and don’t wish to take full responsibility for the risks that come with that and would rather the state protect them from those risks and remove their responsibility.

  5. SPC on March 30th, 2009 at 16:35

    I would surmise that the reaction is going to be in two forms – immediate (whatever is necessary or seems helpful to prevent any deflation risk) and in the longer term structural change with a re-ordering of international finance (which might include agreed terms of regulation of domestic/international banking).

    I would doubt that the balance of favour to capitalism or socialism is going to change much because of this – though the debt legacy will create some heightened political pressure as to choices made.

    Tax havens are going out of fashion (banking will be more accountable to tax regimes), IMF run facilities such as SDR will be developed to become an effective reserve currency in place of the dollar.

    PS I don’t see fiat money coming to an end – making nations with gold mine deposits and speculators wealthier whenever the world went into recession and began to print money or otherwise preventing the printing of money to combat deflation is not an attractive alternative. The American distrust of big government and socialism in the national economy was/is behind the private ownership of their central bank – whether they can get over that and bring in national health care and the Fed Reserve is certainly something they will consider in the next few years. It is possible the US government taking over the Fed Reserve might be seen as an earned reward for bailing out the privtae banks … but the private ownership of the Fed Reserve had little to do with this crisis.

  6. reid on March 30th, 2009 at 17:12

    … but the private ownership of the Fed Reserve had little to do with this crisis.

    It has a lot to do with the strategy to deal with it, especially when you consider that even though the Fed refuses to reveal its shareholder base, those in the know think it’s most likely that they comprise the very banks who’re receiving the bailout funds…

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