Preface
There have been critics of capitalist society since its rise in the early nineteenth century. Socialist critics locate its ills in the economic system, specifically, in the system of private property rights in the means of production.
In addition, socialists characteristically believe that a fundamental, that is, radical, change in the economic system is at least a necessary condition for curing these ills. When it comes to specifying an alternative economic system, however, socialists have been much less united, and indeed, many have not had much to say at all. On the other side of the ideological spectrum, the capitalist economic system has had its defenders from the outset. They believe that its problems have been misperceived, misdiagnosed, or real but amenable only to amelioration and thus not solvable by radical change in the economic system. They further believe that socialist economic systems are invariably disasters from both a moral and a practical point of view.The debate between those who favor socialism and those who favor capitalism constitutes the framework for this book. Chapter 1 articulates that framework by attempting to determine the exact nature of the dispute and the burdens of proof that each side bears. It turns out to be a twofold debate about values, goals, or ideals—what I call a vision of the good society—and an empirical dispute about the role of economic systems in achieving or frustrating the realization of such a vision. There is, therefore, a philosophy component to this dispute, which consists of an articulation and defense of the relevant values and ideals. There is also an economics component, which concerns itself with the empirical consequences of capitalist and socialist economic systems.
My main purpose in this book is to make some substantial progress in this dispute, perhaps to the point of coming close to resolving it.
I seek to establish that the most plausible models of a socialist economic system would not, in fact, be able to achieve or realize a widely shared socialist vision of the good society. Identifying those models has proved to be a difficult task. With the collapse of central planning and in light of a renewed appreciation for the market both in the real world and in the realm of ideas, it seems that the most defensible form of socialism would be some form of market socialism. But which form? In attempting to answer this question, I found myself hampered by the dearth of discussion among socialists about the system of property rights in the means of production that they favor. For obvious reasons, few want to defend full state ownership and control, and although many have spoken favorably of worker cooperatives, it has been difficult to get a clear picture of how ownership of these cooperatives and the capital they employ is to be understood.I have dealt with this difficulty by starting with something socialists seem to agree on, namely, a certain critique of the capitalist system that has its roots in Marx but is not exclusively Marxist. This critique identifies five problems, or social vices, with the capitalist economic system, problems that a socialist economic system would presumably eliminate or dramatically reduce. According to this critique, the capitalist economic system is responsible for (1) various forms or manifestations of alienation, (2) systematic exploitation of the workers by those who own or control the means of production, (3) unplanned economic growth and development, (4) a wide range of social irrationalities, ranging from negative externalities (e.g., pollution) to mass cyclical unemployment to distorted economic priorities (e.g.., the production of too many luxury goods and not enough low-cost housing), and (5) substantial inequality in wealth and income, which is bad in and of itself and/or is responsible for other undesirable features of capitalist society.
It is reasonable to suppose that socialists believe that a socialist system would prevent these problems from arising or at least would substantially reduce their incidence and severity. This constitutes a minimal socialist vision of the good society that all, or nearly all, socialists could agree on. Given that, the next step was to reconstruct a system of property rights in the means of production that could be called “socialist” and that could arguably be thought to prevent or substantially ameliorate these problems socialists have attributed to the capitalist system. All of this is done in the second and third sections of chapter 2. What emerges from this discussion is a system of self-managed worker cooperatives which lease their capital from society, or to be more precise, from a democratically controlled state, which is society’s representative.The primary purpose of the next five chapters is to argue that in point of fact, this system would not realize the socialist vision of the good society. In particular, the main problem with such a system would be exploitation. Not only would it not eliminate exploitation, it would be inherently more exploitative than a capitalist system (or, as I prefer to call it, a free enterprise system). If exploitation is a form of injustice, this is a serious charge, not only from the point of view of the socialist vision of the good society but absolutely. Chapter 3 contains a general theory of exploitative exchange; it is not the only possible theory of exploitation, but it has, I believe, considerable intuitive appeal and ironically enough, important connections with Marx’s conception of exploitation. Chapters 4-7 apply this theory to both free enterprise and market socialist economic systems to evaluate the potential for exploitation in each type of system. These chapters make use of recent work in the economics of contracts and organizations. Chapters 4 and 5 give a nontechnical exposition of the relevant literature and explain its bearing on the topic of exploitation.
Chapters 6 and 7 offer a comparative evaluation of market socialist and free enterprise systems on the question of exploitation. The general conclusion is that the economic organizations of a market socialist system—self-managed cooperatives and the state organizations from which they rent all of their capital—permit and encourage forms of exploitation that are prevented or discouraged by the characteristic organizations of a free enterprise system, namely, the classical capitalist (i.e., owner-operated) firm and the modern corporation.Chapter 8 considers in a systematic way some alternative types of economic systems that look plausible or attractive from a socialist perspective. It is argued that these systems (1) are also inferior to a free enterprise system on the question of exploitation, (2) are not really forms of socialism, or (3) are unable to realize other elements of the socialist vision of the good society. This discussion is not meant to be exhaustive; but together with the arguments of chapters 6 and 7, it is intended to make the defense of any form of market socialism a daunting task.
Since the objects of discussion in this debate are systems of property rights, I found much of the literature on the economics of property rights, specifically on the economics of contracts and organizations (transactions cost analysis, as it sometimes called), to be directly relevant. That relevance is established in chapter 3, which argues for a conceptual connection between certain forms of inefficiency and exploitation. Much of transactions cost analysis is informed by a general evolutionary hypothesis to the effect that the policies, procedures, and organizational forms that are found in free enterprise systems exist or persist because they are efficient responses to various features of the economic environment. As a working hypothesis or methodological assumption this can hardly be objected to, but it cannot be taken as a complete and accurate description of economic reality.
Fortunately for my purposes, the causal or explanatory claim to the effect that organizational forms (notably the classical capitalist firm and the corporation) persist because they are efficient is unnecessary. All that is needed are the claims that these organizations have the various transactions cost efficiencies that they do; they need not exist or persist because they have those efficiencies. This allows me to sidestep some of the more problematical aspects of this literature having to do with the explanatory significance of these efficiencies and the empirical confirmation or disconfirmation of more particular hypotheses derived from the general evolutionary hypothesis about the transactions cost efficiencies of what exists.Although the general framework of this book is the capitalism/socialism dispute, that framework recedes into the background after the second chapter and does not reappear until the end of chapter 7. In chapter 6 and most of chapter 7, it seems that the worker cooperative, as an organizational form, is being subjected to relentless criticism. This appearance is misleading, however, since the object of criticism is not the worker cooperative per se, but the worker cooperative in the context of the type of market socialist system outlined and motivated in chapter 2. Many of the opportunities for exploitation that exist in the market socialist cooperative would not exist or would be minimized in an environment where a wide variety of economic organizations were permitted, something that market socialism cannot allow for reasons explained in chapter 2. In other words, I am not offering a comprehensive critique of worker cooperatives but a more limited comparison of market socialist worker cooperatives and the corresponding capitalist institutions. This, of course, is motivated by the larger purposes of this project.
This project exemplifies a certain way of conceiving of the relationship between social and political philosophy and the social sciences that may have applications beyond the capitalism/socialism dispute.
Social and political philosophy traditionally concerns itself with the ideals, values, or fundamental principles to which social institutions should conform and what arguments might be offered in support of them. It considers such questions as what is equality and in what respects is it a desideratum? What is wrong with exploitation? What does justice require? On the other hand, the social sciences are supposed to explain the genesis and persistence of social institutions and how those institutions function. Typically, social scientists are insensitive to the variety and complexity of values, ideals, and fundamental principles that social institutions might realize or frustrate, as well as the arguments that might be offered in favor or against them. On the other side, philosophers are typically insensitive to the variety and complexity of actual existing social institutions. In particular and most importantly, they seem to know little of what social science can tell us about the likely effect of changes either in social institutions or in the social environment in which they operate. This apparent ignorance is part of what accounts for the air of unreality that surrounds much of contemporary social and political philosophy, a phenomenon that has been remarked on by philosophers and nonphilosophers alike.Although I come to the capitalism/socialism dispute as a philosopher, I have found the empirical questions to be both more interesting and more tractable than the traditional philosophical questions raised by this debate (about, e.g., rights, justice, and equality). I have sought to articulate a set of values and ideals that most socialists subscribe to and then (without worrying about how one might justify them) to consider the empirical question of whether or not market socialist institutions could achieve or realize those goals. If, as I argue, those goals cannot be realized, there is no need to settle the thorny philosophical questions that surround those values and ideals, at least as far as the capitalism/socialism dispute goes. The philosophical questions remain, of course, but progress has been made on the most fundamental question of social and political philosophy, namely, What kind of institutions should we have?
In preparing to write this book, I have benefited considerably from the writings of many authors, among them, David Schweickart. His book, Capitalism or Worker Control?, defends a form of market socialism similar to the one outlined in chapter 2. Schweickart is one of the few philosophers who has made an effort to spell out a socialist system of property rights that is consistent with a market economy. Oliver Williamson’s book, The Economic Institutions of Capitalism, proved to be invaluable; it provides a framework for thinking about exploitation in free enterprise systems (and, by implication, in other economic systems) toward which I had been groping for several years. Implicit in the perspective of that book—and, indeed, of transactions cost analysis in general—is a vision of an economic system in which exploitation can never be eliminated but where institutions, organizations, and contractual arrangements can preclude or minimize opportunities for exploitation that might otherwise exist. This coheres with my Churchillian vision of capitalism as an economic system with many vices but whose chief and decisive virtue is that it is better than all the alternatives.
Part of the argument of the second section of chapter 6 first appeared in “Equality and Exploitation in the Market Socialist Community,” Social Philosophy & Policy 9 (Winter 1992): 1-28. A compressed and truncated version of the main argument of chapters 2-7 can be found in my “Market Socialism,” Critical Review 6 (Fall 1993): 517-557.
There are many people and a number of (noncapitalist!) organizations that I have to thank for help on this book. This project was partially funded by the Discretionary Grant Program, Department of State, Soviet-Eastern European Research and Training Act of 1983, Public Law 98-164, Tide VIII, 97 Stat. 1047-50. This grant was administered by the Hoover Institution at Stanford University. I would like to thank Richard Starr and the staff at the Hoover Institution for bringing me to Hoover and for the many kindnesses they showed me during the 1990-91 academic year. The facilities were outstanding, and the time I spent there was extraordinarily productive. I would also like to thank Paul Milgrom of Stanford’s department of economics for allowing me to sit in on his graduate course on the economics of contracts and organizations.
Further support for this project came from the Social Philosophy and Policy Center at Bowling Green State University in Bowling Green, Ohio. I was able to complete the manuscript in my capacity as a visiting scholar there in the summer of 1992. Thanks are due to Fred Miller (executive director), Ellen Frankel Paul and Jeffrey Paul (associate directors), and the staff at the center. Many people read and commented on sections or chapters of the manuscript, and it is much improved as a result. They include Tom Bethell, Peter Cloyes, Gerald Cohen, Harold Kincaid, Eugene Fama, Terry Moe, Barry Weingast, and Justin Schwartz. Two people who helped me the most were Daniel Shapiro and David Miller. David Miller reviewed the manuscript at two different stages of the project and made penetrating criticisms and extremely valuable suggestions at both stages. Though he represents the other side in this dispute, I found his comments a model Ofjudiciousness and fairness. Daniel Shapiro was also a visiting scholar at the Social Philosophy and Policy Center during the summer of 1992, and he provided me with immediate and useful feedback on the final chapters as they were written. I would also like to thank Angela Blackburn at Oxford University Press for her support.
Finally, I would like to express my gratitude to my wife, Theresa, for her support and for putting up with my absence during the many weekends I spent working on the book. I am also pleased to acknowledge her assistance in a more direct way: as a certified public accountant who has audited both small and large corporations, she was able to give me a perspective on how firms actually work in the real world that one cannot get from the writings of economists, not to mention philosophers.
Birmingham, Alabama
N.S.A.
June 1993