The Socialism Website

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I recently read the 'socialism' entry in the 100 year-old Catholic Encyclopedia. If it was inspired by The Almighty, he must have been having a bad day. Nevertheless, if you want a short introduction to pre-20th century socialism, you could find worse. It was also thought provoking in places. So thank you God.

There are a number of matters that it raises that I would like to address. I will  cover them in a number of posts. In this one I will discuss the claim that socialism prohibits private ownership of the means of production. (The next one will be on socialism being "materialistic".)

The article says:
 

"State control and even state ownership are not necessarily Socialism: they become so only when they result in or tend towards the prohibition of private ownership not only of "natural monopolies", but also of all the sources of wealth."

After various transitional arrangements, we can certainly say that all businesses would be publicly owned under socialism. That would mean that if you or a group of people wanted to set up a business, you would approach funding sources just like you would now except that you would not have funds of your own involved and you would work purely for a wage. You would be motivated by the work and the desire to contribute. You would still have 'skin in the game' of sorts - not financial but moral - honor and reputation.

Notwithstanding initial compulsion to expropriate the old owners and prevent the emergence of a new lot while human nature is undergoing a few adjustments, social ownership ultimately has to maintain its position through being superior. It needs to be superior in terms of both output and relations between people. Just as no one now wants  to revert from capitalism to feudalism so in the future no one will want to revert from socialism to capitalism. A socially-owned business would have to be more competitive on cost and quality. The relationship between socially owned suppliers and customers needs to be superior to relations where a private firm is involved. Consumers need to feel more confident in a socially provided product or service. Conditions need to be such that no one wants to be an employe or a business owner

As we know 'actually existing socialism' did not create something better than capitalism and they collapsed once compulsion was removed. (Check the discussion of these regimes in the FAQs.) I am just thinking that an exploration of why real compulsion-free socialism is presently impossible in Cuba would help us get a better grasp of the matter.

 

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I have just submitted this article to the World Economic Review where it is now undergoing an online review process.

Re-Opening the Debates on Economic Calculation and Motivation under Socialism

This is the abstract:

According to the orthodox view, a properly functioning price system would be logically impossible under socialism because there are no markets for intermediate goods. This is referred to as the calculation problem. The article takes the contrary view and contends that the absence of these markets creates no logical barrier to such a price system and that it could function effectively as long as the motivation or so-called human nature problem is resolved. Achieving this would require that most workers in a socialist system desire to contribute to the best of their abilities and find in work its own reward. Orthodoxy is also negative on this question. However, as the article shows, there are solid grounds for expecting the emergence of this change in work attitudes in an industrially advanced society. Furthermore, an economy driven by such motivation and unencumbered by capitalist forms of property not only could have a properly functioning price system but a superior one, as the market failure literature attests.
 

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If the world economy gets stuck in a serious and prolonged slump, the most likely response by governments is to do nothing useful. This is because the only effective action is for governments around the world to take over ownership of large chunks of their economies’ productive assets. This ownership would give them control over a lot of spending decisions and therefore the potential to restore effective demand to levels that would get the economy moving again. Of course, it is hard to imagine governments adopting such a policy unless there is a really big change in the political landscape.

 A lot of government ownership could be achieved with a fairly minimum amount of fuss by hitting the very rich. They could be slugged with a 100 per cent tax on any wealth that made them more than just very affluent. My hunch is that the cut off would be somewhere around $10 million. Paying this tax would not require the liquidation of financial assets such as shares and bonds. They would simply be handed over.  

 I am not sure how much government ownership would be achieved in this way. I suspect not enough. So what could they do next? Extending the wealth tax to the large number of people who are merely very affluent would cause far too much political resistance and would require the government to take over a lot of small and medium sized businesses. This problem could be avoided while greatly increasing government ownership and control if all shares in large public and private firms that have not been seized by the wealth tax were compulsorily exchanged for government bonds. In this way wealth is not confiscated, it is simply put in a form where it cannot cause quite so much mischief.

 The government would then have considerable control of the financial sector. It would own the banks and all shares in large companies. To minimize the hassle involved and to quarantine them from political machinations the government could assign these shares to existing or newly formed investment houses. These firms would function much as they do now, except that they would be instructed by their new owner to invest on the assumption that the economy was taking off again. Likewise, companies would be instructed to utilize existing capacity on that assumption. All this activity would then create a self-fulfilling prophecy.

Through these institutions the government could also act as so-called investment angels and venture capitalists, indeed more vigorously than the present lot. They would take a stake in small private entrepreneurial startups and prepare them for the big takeover just like now.

 Everything could then just chug along pretty much like the world as we know it. Businesses would continue to be driven by senior executives on high profit based salaries. And I think the government owned investment funds would be fairly effective vehicles for market discipline because their success and failure would show up clearly in their bottom line. (Am I missing anything free-marketeers?)

OK we have got rid of the super-rich and eliminated the business cycle.  That’s pretty good. However, I suspect a society which has just stripped the rich of their wealth, would be up for more than simply replacing them with government-owned capitalism.

(Also posted at Strange Times)

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The Hospital Services Union corruption scandal in Australia highlights a major challenge that would face a socialist society. Here was a case of workers handing over their union affairs to a handful of crooks and self-seekers. The latter overpaid themselves, diverted union resources for their own use, used high cost suppliers in return for kickbacks and handed out jobs to family members and loyal supporters. Would workers do the same with the means of production if they managed to wrest them from the capitalists?

Of course various formal regulatory and inspection arrangements would play some part in limiting fraud and incompetence but most of the time it would be about workers understanding that they have a new role and equipping themselves to perform it. I will call this role "sticking your nose in where it is not wanted". This would usually require workers to move well outside their existing comfort zone.  (Any therapist will tell you how important that is for personal growth!) It would also require  a strong desire to help achieve good outcomes.
 
You may find that someone above you or on your level is acting in a way that reduces the quality or increases the cost of a good or service. Your motivation to do something about  it would be two-fold. Firstly, you would resent the fact that your pride in your work has been diminished.  Secondly,  there is mutuality or reciprocity. By taking action you are not benefiting greatly unless you are a heavy user of the good or service yourself. This would not usually be the case. However, you know that most of the people producing all the goods and services you consume are going the extra yard to ensure high quality and least cost. So you are reciprocating. You would feel bad about not doing so.

The direct reward for sticking your neck out and enduring a bit of grief may be little or zero. However, you are rewarding others who are rewarding you through their actions.

Does this seem very unlikely?  I think it just requires the right conditions.  BTW reciprocity has always been a major feature of human society to some degree. I also think there is a bit a literature on the concept which might be worth a look.