New Formulation

Volume Two, Number Two --- Winter Spring 2004

 

Market Socialist Delusions of Fair and Just Markets

Review by Salvatore Engel-Di Mauro

On the Political Economy of Market
Socialism: Essays and Analyses

By James A. Yunker
Aldershot: Ashgate, 2001

Market Socialism: The Debate among Socialists
By Bertell Ollman (editor)
New York: Routledge, 1998


Numerous apparently viable alternatives to capitalism have been proposed and discussed since the collapse of the USSR, when the bourgeoisie began inundating the world with propaganda about the absence of an alternative to “the market.” Anarchists need to be well-informed rather than dismissive of these currents in order to counter and discredit tendencies that distract people from the task of toppling the present state-based, capitalist world-system.

“Market socialism” (not to be confused with existing economic policies in China) is one such political platform that must be attacked for its reformist orientation. Supporters of market socialism pretend that an egalitarian society can be achieved without much social struggle by rectifying, through state intervention, the inequalities inherent in capitalism. For them, the issue of social equality is merely a matter of increasing the equitable—fair, but not necessarily equal—distribution of wealth, while simultaneously preserving the market as a mechanism for allocating resources, which does not measure efficiency in terms of equality, but in terms of profitability.(1)

The reactionary nature of market socialism results from two fundamental flaws. First, because it is not concerned with establishing the conditions for social equality, it does little to counteract capitalism’s distribution of resources in favor of the few at the majority’s expense. Second, it relies on the state as a guarantor of an equitable market-based distribution system. This latter problem demonstrates the poverty of market socialism alternatives in that its proponents tend to see the world only in terms of state or market institutions. The two recent volumes reviewed here introduce and clarify existing theories of market socialism and provide excellent summaries of the critiques and political implications of the concept from both mainstream and leftist views.

Emergence of a Rhetorical Device
J.A. Yunker’s On the Political Economy of Market Socialism: Essays and Analyses is a collection of fourteen previously published articles in which the author reviews existing ideas and debates on market socialism and proposes his own “pragmatic” version. He attempts to demonstrate, through econometric analysis,(2) how capitalism could be improved through market socialism in matters of balancing social equity with efficiency in resource allocation, pricing mechanisms, and reconciling managerial profit-motives with overall investments.

According to Yunker, broadly speaking, proponents of market socialism attempt to reconcile market efficiency with equity. “Equity” is a current euphemism for the levels of social inequality acceptable to most social scientists and policy makers). This reconciliation typically involves state ownership of most land and capital related to large-scale production and otherwise minimal governmental control over productive enterprises (i.e., the devolution of smaller-scale production to company bosses). The hallmark of a market socialist system would be the appropriation of unearned income (rent, interest, profits) by the state, which has the task of evenly redistributing such income among the members of the public. Here the exclusionary nature of citizenship is a salient problem).

The idea that a market could be socialist springs from the “calculation debate” among Central European economists, such as Lange and von Mises, in the 1920s. The debate centered on whether existing “socialist” systems (e.g., the USSR) were more or less efficient than capitalist systems at establishing the correct market prices for goods and services. Lange envisioned a “Central Planning Board” (CPB) as the principal mechanism for setting prices, which would receive regular inventory reports from all businesses and harmonize prices to the scarcity or abundance of each commodity produced. The CPB would also preempt the emergence of monopolies by creating new businesses in a market sector when one company became dominant in that sector. It would also guarantee the efficient allocation of new investment resources.

Lange and others of his ilk, who believed that economic inequality fostered the higher efficiency in the distribution of goods and services, wished to provide a socialist equivalent to a perfectly competitive capitalism (which has never really existed). Crucially, this marked the abandonment of the notion of exploitation based on surplus-value extraction (the profits appropriated and controlled by the capitalists) in favor of adopting the reactionary assumptions of neoclassical economics.(3) The idea of market socialism, devoid of any fundamental critique of capitalism, was thus from the outset a rhetorical device to justify the state as the sole vehicle for creating the conditions for greater social equality and for affirming “the market” (i.e., a regulated capitalism) as the only system capable of maximizing the efficient allocation of resources.

The Many Faces of Market Socialism
Lange’s original ideas were resuscitated and modified during the 1980s and 1990s to compensate for argumentative weaknesses derived from a reliance on neoclassical assumptions that find no support in reality—such as the idea that wages and prices or supply and demand balance out as a result of the market’s regular functioning or the existence of fully informed participants in the market (in economists’ terminology; “equilibrium conditions,” and “optimality in the distribution of information,” respectively). The most notable and controversial contributors to the reformulation of Lange’s model have been Roemer and Bardhan. Their version of market socialism differs from capitalism in five main aspects: the government redistribution of stocks according to birth-right; the nationalization of all banks; the determination of corporate management through the election of delegates from the main lending institutions, the firm’s employees, and the stockholders; government investment planning through differential interest rates; and the nationalization (with stock redistribution to the public) of businesses that exceed a certain size or whose founder has died. According to Yunker and others, the Roemer-Bardhan model partially addresses the problems of owners or shareholders being able to monitor company managers and of providing sufficient incentives for managers to increase productivity and sales. From an anarchist point of view, these are not problems at all except in terms of ensuring the even distribution of resources in the absence of bosses of any sort). Still, the Roemer-Bardhan approach exhibits some of the weak neoclassical assumptions underlying the Lange model, namely what has been called “Pareto optimality”(4) which ignores the issues of distributive justice and of incentives required for technical or technological innovation, as well as the “Walrasian equilibrium” framework, which implies fully knowledgeable market participants pursuing their self-interest, a farcical notion based on no empirical evidence.

Although the most well-know in academic circles, the Roemer-Bardhan model is but one of several. J.A. Yunker identifies three market socialist approaches that have been proposed to improve upon Lange’s earlier position. The first is Yunker’s own position on market socialism, which he names “pragmatic socialism.” This model retains capitalist market institutions, but establish[es] a revenue redistribution mechanism to correct economic inequality. Due to the increasing separation of enterprise ownership from managerial control in late capitalism, the crucial issue in Yunker’s scheme becomes one of providing a set of incentives for corporate managers—rather than owners—to maximize productivity, “efficiency,” or innovation. Under such a regime, the majority of citizens would not have right of ownership over land, warehouses, industrial plants, real estate, etc. (also known as capital property), except for that pertaining to small-scale enterprise. This would be the case because large-scale property would be publicly owned and returns on property, such as rent, would be redistributed among citizens as dividends.

A second approach to market socialism can be categorized as “service socialism”, whereby profit maximization (maximizing the amount of money made above the costs of production and distribution after the sale of commodities) is replaced by caps on production or on revenues (company incomes) through state planning, regulation, and incentives. The literature on the nationalization of principal industries is frequently associated with this approach. In contrast, a “cooperative socialism” view would involve employees governing enterprises for their own benefit, but wider economic arrangements would remain under the ultimate control of the state. This notion departs considerably from both anarcho-syndicalist and Marxist ideas, as employees in firms characterized by a high organic composition of capital(5) would receive higher incomes than employees in enterprises based on more labor-intensive production methods, a situation that would maintain or even increase economic inequality.

The Market in a Socialist Society
Offering a more critical examination of market socialism, B. Ollman’s edited volume, Market Socialism: The Debate among Socialists expands on the problems of the market as a social—not just economic—dynamic that involves political decisions and cultural constructs. The debate involves four Marxists, of which two are market socialists and thus reside rather uneasily in that category. Market Socialism is divided into four major parts, the first two of which contain D. Schweikart’s and J. Lawler’s essays for and H. Ticktin’s and B. Ollman’s essays against market socialism. The latter two parts feature a critical dialogue between the two authors. A proponent of market socialism, Schweickart argues that the complexities arising from modern technology and the wide range of goods eliminate the possibility of self-sufficient communities and that participatory economic planning in large, industrial economies is a logistical impossibility. Therefore, his model of “economic democracy,” as a form of market socialism, is the most viable alternative to capitalism. This alternative system would provide for (a) worker self-management in firms (with workers voting to elect enterprise managers), (b) the social control of investment by turning profits into a direct tax base and redistributing the funds derived from taxation to everyone as part of their citizenship right, and (c) a market for goods and services. Lawler, on other hand, finds market socialism in Marx’s own writings. He argues, according to the Communist Manifesto, that market production would be gradually absorbed into communist social relations following the revolution in a step-by-step transformation to a new social order sensitive to evolving socio-economic conditions. This transformation period is what Lawler believes would be a form of market socialism, with the state as the main instrument of such a transformation, and would eventually lead to the development of a classless society.

Ollman criticizes the very notion of the viability of market socialism and sees a central problem of capitalist society in the alienation of people from the commodities they consume. He argues that the culture created through market exchange fabricates desires and needs for commodities, atomizes people, and mystifies the relationship between people as a relationship among things. Such a culture would be incompatible with socialism and so should not be part of a transformation process toward a socialist society. Ticktin takes a much stronger stance against market socialism by viewing the two terms as mutually incompatible by definition. This “definitional nonsense,”(6) is due to the fact that he defines socialism by the relative degree of democratic planning in a context of abundance, the absence of money and exchange-value (value based solely on what can be bought and sold in the market), and global socialism. The market, on the other hand, is equated with capitalism, a sort of socially divisive system that is decaying and being “artificially maintained.”

A Socialism of Capitalist Inefficiency and State Repression
In its starting assumptions, the debate over the viability of market socialism reduces the realm of political possibilities to either a state- or capitalist-based organization of society. In the case of Roemer and Bardhan, among other proponents, they fail utterly to understand that the economic relations in their idea of market conditions are really a set of political relations based on force—one of the main critiques that Marx leveled at liberal democracies. As Marxists such as Ollman have argued, even more flawed is market socialists’ assumption that the problems of capitalism (inequality, investment irrationality, etc.) are technical in character and can be resolved through changes in economic policies, when such policies are nothing more than the results of political struggles over the nature and distribution of property (resources).

Yunker’s “pragmatic” socialism merely presents a neoclassical economics approach under a socialist veneer. First he misidentifies the main charges against capitalism and then misdiagnoses the core problems of capitalism. In his estimation, the “traditional or historical critique of capitalism consists of three key elements: a) capitalism is responsible for devastating business depressions; b) capitalism produces an unacceptable level of income inequality; c) capitalism perpetuates the inequity involved in the highly unequal distribution of an unearned property return.”(7) But these are actually not the “traditional or historical” critiques of capitalism at all. The usual basis for rejecting capitalism is the inequality in the control over the means of production and the illegitimacy of private property. Concepts such as surplus-value extraction, alienation, egalitarianism, monopoly capital, to name but a few, are completely alien to Yunker’s fictitious “traditional or historical critique of capitalism.” It is startling to see a “pragmatic” socialist ignore the main critiques leveled at liberal democracies by socialists of many different backgrounds, from anarchist to Marxist. The diagnosis that directly follows such statements is even more perplexing. “It is proposed,” so continues the “pragmatic” socialist, “that of these three, the first is no longer strongly relevant, the second is valid only insofar as it overlaps the third, and in fact only the third is unambiguously and without qualification still valid and applicable in the present day.”(8) According to Yunker, then, capitalism is not responsible for devastating business depressions anymore. If this is so, one wonders, then, to what century does the “present day” refer, since the 1997 crisis in East Asia and the current recession, which have meant the denial of basic subsistence to millions, have occurred very recently and in direct connection to world capitalism. Lastly, the overlap between Yunker’s “traditional” critiques “b” and “c” is again a function of Yunker’s ridiculous misinterpretation of the actual critiques of capitalism, such as the unprecedented, structural, and widening chasm between the wealthy and the poor. It is not about unacceptable levels of income inequality, but about the unacceptable existence of economic inequality in the first place—inequality which is produced by the expropriation of resources from the masses through the institution of private property for the accumulation of wealth for the few.

In the end, all market socialist models reduce political alternatives to state and market controls over resource allocation. They contribute to the typical market inefficiencies that result from individualistic investment decisions (at the expense of the wider public through bail-outs and unemployment). And they concentrate on notions of distribution and efficiency without questioning property relations, the social processes of production (i.e., the everyday repression of unremunerated houseworkers, expropriation of the means of subsistence of the many to favor the wealthy few, exploitation in the workplace, the lack of democracy over resource use and distribution), and knowledge formation (i.e., who gets what sort of education, whose knowledge counts and for what, and other matters that escape the feeble imagination of most academics).

In contrast to the unsupported arguments and leaps of logic in the market socialist camp, mainstream opponents of market socialism live more pleasantly in a fantasy world where the capitalist market exists independently from the national states that have been pivotal in its development and are crucial to maintaining it. It is only by negating historical and empirical evidence that mainstream economists can claim perfect competition and the most efficient allocation of resources as the hallmark of capitalism. Minimal to no state intervention is the typical recommendation for solving market problems, even though such intervention is essential to the existence of capitalism and the very basis of private property is unthinkable without a strong state creating appropriate legislation and enforcing it through the courts and the police.

In spite of their efforts to repudiate such specious argumentation, the Marxist critics Ollman and Ticktin fail to question the very premises of capitalists’ power; that is to say state repression by threat or use of violence. This repression enforces and reproduces—through property laws and the education system, for instance—the market mystification that Ollman rightly but insufficiently critiques. More disconcerting, like market socialists, the Marxist critics disregard unpaid work and the environmental devastation that never appears on the balance sheets of companies’ profits and losses. They fail to grasp that one of capitalism’s main contradictions is the reduction of all values to that (partially) calculated through (some) human labor, while simultaneously making human labor itself increasingly redundant through the mechanization of production.9 In addition, they underestimate the extent to which the state is an elite-based social structure founded on inequality (if they even consider the state a problematic institution!). It is by overlooking these general contradictions and omissions that these Marxist critics miss the opportunity to expose the reactionary underpinnings of market socialist ideas of which anarchists should also beware.

Market socialism is therefore no alternative to capitalism. It reinforces the existing social order by trying to reform the system, using the state to introduce different economic policies, rather than changing it through a revolutionary social struggle that would topple the state-based, capitalist world-system. This reactionary emphasis originates from the lack of concern for social equality and the conception of society in terms of markets and states, which necessarily denies the possibility of egalitarian alternatives beyond market and state.


Endnotes

1. Mainstream economists and policy-makers frequently appeal to efficiency issues in order to dismiss economic alternatives as impractical or utopian in a pejorative sense. Such specious argument can be easily dismantled by questioning what a process, such as the market, is efficient at accomplishing. It would then be clear that efficiency is not an adequate or sufficient criterion to use when evaluating an economic system. For example, capitalism is very efficient at producing enormous quantities of commodities. At the same time, capitalism is equally efficient at devastating the rest of nature and humans themselves through the consumption of resources and the environmental pollution required for the production of those commodities. In addition, capitalism is tremendously efficient at creating ever-larger wealth inequalities, such that millions of people can die of starvation amidst a global oversupply of food. So the issue should not be how efficient a system is, but what a system is efficient at accomplishing.

2. Econometrics is a branch of economics in which formulaic abstractions (prices, wages, etc.) and/or statistical data are analyzed through mathematical modeling.

3. Neoclassical economics is a body of theories closely associated with classical and neoliberal philosophies that were developed more than 200 years ago to justify the capitalist system. According to Neoclassical economists, a truly competitive market (the “free market”) is composed of small consumers and firms which individually have only minimal market impact. Firms purchase factors of production (land, labor, capital) to maximize their profits through the production and selling process. Neoclassicists assume society to be comprised of self-interested individuals, whose only desires are to maximize “utility” (satisfaction). This fictitious system, which ignores existing cooperation among individuals, the activities of the state that are essential to the system itself, the tendency for centralization and concentration of wealth (market monopolies), and other realities of market-based societies, is supposedly regulated through supply and demand interactions in the market. These function as a redistributive mechanism for resources and income (i.e., wages or, put differently, access to resources). Among other problems, this economic model is really a poorly camouflaged belief system that fails to question who controls what kind of supplies and who can make what sort of economic demands, given actually existing and ever increasing wealth inequalities.

4. The idea that the reallocation of resources, under optimal conditions of efficient distribution of goods and services, cannot be done without reducing the wealth of some groups, or, put differently, that redistributing resources towards the poor would transgress market optimality conditions because it would mean taking resources away from the wealthy.

5. This is the ratio of the value of materials, machinery, and other fixed costs of an enterprise relative to the value of the labor-power contributed by the employed workers (e.g., costs of goods, services used in production relative to total wages). In other words, a greater use of machinery to maximize the production goods usually leads to higher levels of commodity output, which usually means greater profitability than in the case of enterprises that primarily use human labor to produce commodities (so that wages comprise the higher cost of production).

6. Bertell Ollman, Ed., Market Socialism: The Debate among Socialists (New York: Routledge, 1998), 59.

7. James A. Yunker, On the Political Economy of Market Socialism: Essays and Analyses, (Aldershot: Ashgate, 2001), 21.

8. Ibid.

9. See M. Postone, Time, Labor and Social Domination: A Reinterpretation of Marx’s Critical Theory, (New York and Cambridge: Cambridge University Press, 1993).

 

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