The Socialist Vision of the Good Society

The socialist credentials of the models proposed by Ellerman, Jay, and Estrin were called into question on the grounds that it is not clear whether owner­ship of the means of production in those models was truly social.

In the worker control-state ownership model, the state controls the social surplus (as socialists call it). That is, the state receives the returns to capital and controls most new investment. The motivation for this is to control the rate and direction of economic growth. The state does not have these own­ership rights in these other models. Even if the latter include some role for the state in planning new investment, it is hard to see how they could prop­erly be said to control economic growth.¹¹ These systems are specified in such a way that the returns to capital go to individuals or to nonstate organiza­tions, which means that the state would not have direct control over the financial resources used for new investment; equally important, these other organizations and/or individuals would have the financial muscle to thwart, in one way or another, any attempts to exert collective control over the econ­omy that run contrary to their own interests.

Second, if the state controls the social surplus, this provides it with the financial resources to suppress or correct the various social irrationalities that would be caused by the unfettered operation of the market. By contrast, in all of the models discussed earlier in this chapter (with the possible exception of the pure state ownership model), the state does not have the financial resources to deal effectively with these problems. Like the state in a free enterprise system, it must rely on general tax revenues to address these prob­lems. For this reason alone, it is not likely to do much better than states in free enterprise systems in dealing with these problems.

Finally, and perhaps most important, state ownership of capital in the worker control-state ownership model more or less automatically guarantees

relative equality of material condition among the citizens of a market social­ist society. On the other hand, if the returns to capital went directly to the cooperatives and thus their members, the fact that different firms have widely different capital-to-labor ratios would mean that some workers would have much higher incomes than others. To achieve some measure of equality of material condition under these circumstances, society (in the guise of the state) must find some way to pry loose some income from these wealthier workers, or at least from their cooperatives. This is difficult to achieve in a society in which the cooperatives control not just physical resources but also financial resources. This gives them real independence from the state, and they can presumably use those resources to influence state policies. Similar problems arise in the Jay model with the quasi-equity owners and in the Estrin model with its individual and collective stockholders receiving divi­dends from the holding companies.

If, however, the returns to capital went directly to the state and did so more or less automatically (as they do in the worker control-state ownership model), then the workers in the cooperatives would receive only the returns to labor plus any residuals.

The same point can be appreciated from another angle. Many socialists, especially twentieth-century socialists, have maintained that one of the most important vices of free enterprise systems is significant inequality of material condition. Moreover, they believe that the problem cannot be corrected by substantial redistribution through the state; indeed, that is one reason—per­haps the main reason—-why they are socialists. They believe that reform in this respect is futile either because the state represents the interests of the rul­ing class or because the fundamental interests of the ruling class serve as a significant constraint on state action.¹² Public choice theorists have made the case that once the state (in a free enterprise system) gets involved in wealth or income redistribution, special interests (especially wealthy special inter­ests) invariably hijack the process to serve their own ends (Wagner 1989).

Despite these attractions from a socialist perspective, this type of economic system cannot realize the socialist vision of the good society. In point of fact, it cannot suppress the social irrationalities of the market. Although the state receives all of the returns to capital and thus has the financial muscle to deal with these problems, it is hopelessly compromised by the moral hazards it faces in trying to direct new investment to problems caused by the operation of the market. As a general matter, there is no way the state can reserve to itself the right to overturn the verdict of the market without opening itself up to the influence of those whose private agenda does not serve the public interest. This is not reducible to a matter of simple corruption that could be prevented by public-spiritedness among those state employees charged with decision making. Rather, it is a natural consequence of the multiple decision criteria used for investment decisions and important information asymme­tries between the cooperatives and the state. The interaction of these two fac­tors, mixed in with some opportunism on the part of the cooperatives or their agents, guarantees some distinctive forms of exploitation in the worker con­trol-state ownership model.

To see how and why, notice that because the state is planning new invest­ment and not just disbursing funds according to projected profitability, it must be using multiple decision criteria to make its investment decisions. Some of these criteria would be unrelated to the profitability of the investment (e.g., relieving unemployment in certain sectors). Moreover, there would inevitably be important informational asymmetries between cooperatives and the state about the former’s abilities and intentions to meet the various criteria in which the state is interested. Does firm X really have the ability and intention to pro­vide employment opportunities for the hard-core unemployed and to make a modest profit doing it? Can firm Y really develop the requisite expertise in pollution control technology and still break even with its new investment? The corresponding problems faced by banks who lend to firms in free enterprise systems are less serious in two respects: (1) their concerns are more narrowly focused, since all that they care about is profitability; and (2) capitalist organi­zations typically have an equity cushion to secure their loans, which serves not only that purpose but also as a bonding device to ensure that the firm’s man­agement and ultimate decision makers are being relatively honest about their projections for any new investment projects. By contrast, the workers put up no equity in the worker control-state ownership model, except perhaps their firm-specific assets, which would be lost if the firm went under or to be more exact, if the state let the firm go under.

Actually, the problem just described is not limited to state control over new investment in a market socialist system, though it is particularly serious in that area. The problem is pervasive in any market economy where the state has a potentially unlimited mandate to deal with the social irrationalities that fortuitously arise as a result of the operation of market forces or indeed any other uncontrolled or ill-understood social forces.

This brings us back to the topic of exploitation. Chapter 2 identifies the elimination of exploitation as one of the elements of the socialist vision of the good society. The account of exploitation developed in chapter 3 made it rea­sonably clear that the elimination of this phenomenon is a utopian dream that could never come to pass. Any market economy will suffer some exploitation, so the only question is, how much? Or, more precisely, how much in com­parison to the alternatives? Could the worker control-state ownership model do better, at least, than a free enterprise system in minimizing the incidence of exploitative exchange? Chapters 5-7 argue that even this could not be achieved. It was argued that the worker control-state ownership model per­mits and encourages forms of exploitation that are precluded or discouraged in free enterprise systems. The first two sections of this chapter argue that other models (whether or not they are truly socialist) are also inferior to free enterprise systems, to greater or lesser degrees, on this score. Indeed, the dis­cussion of chapter 5 suggests (though it does not prove outright) that a free enterprise system minimizes, in some absolute sense, the incidence of exploitative exchange because its characteristic organizational forms tend to minimize transactions costs. Whatever its absolute standing, however, chap­ters 6 and 7 and the first two sections of this chapter demonstrate that a free enterprise system is superior to the most plausible market socialist alterna­tives on the issue of exploitation. This answers the question asked at the end of chapter 7 about the larger significance of the main argument of chapters 6 and 7 as it pertains to the worker control-state ownership model. Though not all logically possible alternatives have been considered, it is doubtful whether there are very many other well-motivated versions of market social­ism out there in logical space. If this is so, it is fair to say that substantial progress has been made in the capitalism/socialism dispute.

This progress can be made more secure by reassessing the significance of exploitation as it relates to the good society. Specifically, why is exploitation so important? Why can’t the market socialist admit that the worker con­trol-state ownership model is more exploitative than free enterprise systems but that the additional exploitation is a price worth paying? After all, this type of system could well satisfy other socialist goals, notably, relative equality of material condition; if inequality of material condition is responsible for as much evil in the world as many socialists seem to believe, this trade-off may appear to be reasonable.

There are two responses to this. One is that it is arguable that paying this price involves commitment to a society that is profoundly unjust. Recall from chapter 3 that what makes an exchange exploitative is that the exploited party is not getting the value of what he is giving up (i.e., the value of his con­tribution) and that he has no real alternative but to accept those terms of exchange. The first of these conditions involves a failure of reciprocity; there is a tradition in philosophy, going back at least to Aristotle that conceives of the lack of reciprocity as central to injustice.¹³ So the short answer to the ques­tion about the importance of exploitation is that it is arguably a form of injus­tice; this means that if the worker control-state ownership model were to be realized, it would permit and encourage forms of injustice that either would not exist or would be minimized in a free enterprise system. If, as Rawls maintains, justice is the first virtue of social institutions (1971, 3), this is no small matter.

Some modern egalitarian socialists might be unimpressed by this argu­ment from reciprocity, however. They believe that people’s wealth or income should be relatively equal, in fact, as a matter of justice, which means that there is no compelling reason why people ought to be paid according to the value of their contributions. Indeed, if the account of the distribution of income in the worker control-state ownership model is accurate, why should exploitation, as it has been defined in this book, matter very much at all? If people end up with incomes that do not fall outside of an acceptable range, distributive justice has been assured. What difference does it make if some exploitation takes place along the way?

One answer to this question is that possibly it would not matter if, in fact, income were distributed in that way. However, this account of the distribu­tion of income in the worker control-state ownership model completely abstracts from the effects of exploitation. Once those effects are taken into account, there is no guarantee that a relatively egalitarian income distribu­tion would result. The myriad vulnerabilities to exploitation that afflict the worker control-state ownership model make it possible for some people to become much wealthier than others by exploiting the system, as it were. Especially in their relations with the state, cooperatives with unusually ruth­less and opportunistic members or leaders would be able to expropriate con­siderable social wealth—much more than their more slow-witted or more honorable competitors. It is likely that the distribution of wealth and/or income in this society would track people’s cleverness and penchant for opportunism even more closely than it does in free enterprise systems (and that is saying something). Because people differ considerably in both attri­butes, this system would be highly unlikely to assure an egalitarian outcome. It is also an unstable situation, since more honorable men and women would begin to feel like “chumps” as the opportunists went undetected and unpun­ished and, not coincidentally, as it became more and more difficult to sur­vive according to the rules. Society might evolve into two classes, what the Poles have called “the unprotected” and “the unpunished.” This seems to have been the pattern in centrally planned economies, where survival by the rules became, or perhaps always was, impossible. So there is no assurance that the worker control-state ownership model would realize distributive justice, even if the latter is best understood in terms of relative equality of material condition.

There is another reason why an egalitarian socialist cannot dismiss con­cerns about the exploitation that would take place in the worker control-state ownership model. Opportunism in the present context is defined as the vio­lation of people’s legitimate expectations concerning the performance of con­tractual obligations. Assuming the legitimacy of the basic system of property rights of this model (as the defender of the worker control-state ownership model must), proponents of this version of market socialism have no choice but to pronounce exploitative exchanges unjust or, at the very least, in vio­lation of legitimate expectations. In other words, suppose (as proponents of the worker control-state ownership model believe) that society really ought to be the owner of all of its capital. If a cooperative systematically siphons value from the capital it controls into its members’ pockets, it has violated legitimate expectations held by others in the society.

One final reason why proponents of market socialism cannot look benignly on the relatively widespread exploitation that would take place in the worker control-state ownership model is that paying people in accor­dance with the value of their contributions is a way of allowing them to con­trol their own lives, at least in the interrelated spheres of production, con­sumption, and leisure. If the income that people receive bears little or no connection to what they contribute, it is difficult for them to exert control over their own lives at the intersection of these important areas. It is doubt­ful that a socialist could endorse a system in which this crucial component of self-determination was missing.¹⁴ This is especially important in a regime of scarcity, that is, in a society in which people cannot have everything thing they want, or even everything it is reasonable for them to want. A regime of scarcity, of course, is what market socialism would face from now until as far into the future as it makes sense to look.

All of the models canvassed in this book are inferior to a free enterprise system as far as exploitation is concerned. However, some of the ones dis­cussed in this chapter do not seem to be so bad, that is, so exploitative rel­ative to free enterprise systems that they could not have counterbalancing virtues, especially the virtues associated with self-management. Justice may be the first virtue of social institutions, but it is not the only one. And per­haps (Rawls notwithstanding) it is not lexically prior to all the others. Instead, it may be first in some vaguer sense, which grants it pride of place but allows some trade-offs with other virtues. Perhaps one of these other models might prove superior, in some all-things-considered sense, to a free enterprise system.

A defense of one of these models, however, is arguably not a defense of a socialist economic system because it is not at all clear that these models are forms of social ownership of the means of production. Perhaps more impor­tantly, a defense of this sort would require giving up on the socialist vision of the good society. That vision springs from a widely shared critique of cap­italist society that has its roots in the nineteenth century and has persisted throughout most of the twentieth century. All the social virtues identified in chapter 2 are mirror images of social vices that socialists have attributed to the free enterprise system over the past century and a half. The promise of socialism is the promise of an economic system that eliminates these ills or reduces them to the status of mere social blemishes. The argument of this book has been that perhaps the best motivated version of market socialism from a socialist perspective would, in point of fact, be responsible for some of the vices (most notably exploitation) that have been attributed to the cap­italist system. Indeed the only virtue of market socialism whose realization has not been called into question in this book is the virtual elimination of alienation in the workplace. If someone wants to defend one of the models identified in this chapter—or some hybrid of these models—and to mount that defense on the basis of some other conception of the good society, that may be a project with some prospects for success, but it requires one to give up on socialism, both as an economic system and as a vision of the good soci­ety. While this would not vindicate the free enterprise system as the eco­nomic system of the good society, it would bring the capitalism/socialism dis­pute to an end with a defeat for socialism and a clear, though limited, victory for capitalism.

This page intentionally left blank