A Future for Socialism

John Roemer's 1994 book "A Future for Socialism" was very much written in the context of the fall of the USSR and the great feeling of despondency and defeat that set in among socialists worldwide following it, even those socialists who had never been very supportive of the Soviet Union in the first place. The seemingly inevitable victory of the "there is no alternative" ideology led many socialists to reconsider socialism altogether, whereas others tried to 'reconstruct' socialism on new foundations which would acknowledge the seeming invincibility of capitalist market structures. This book is exemplary of the second category. Roemer, who currently holds the chair in Economics and Political Science at Yale but at the time was the Professor of Economics and the director of the program of Economics, Justice and Society at UC Davis, was originally associated with the 'September Group' of analytical Marxists who tried to transform Marxist political economy and philosophy of history into a set of positivist laws and axioms while maintaining its explanatory power. When this failed, as virtually all analytical Marxists eventually recognised it did, Roemer then went on to try and devise forms of socialism which would follow up on what he saw as the main commitments of socialist ideology while being founded on the methods and acceptance of neoclassical economics and individualism. This book is the result of one such attempt at creating a 'market socialism'.

Roemer sets out from the twin principles that on the one hand, Hayek's critique of socialism is so powerful that any consideration of central planning is practically impossible and that the capitalist market has been proven to be more efficient and successful than any other social relation, and on the other hand that socialists should nonetheless remain committed to their basic ideals. He defines these ideals as maximizing the highest level of self-realization, political influence and social status that can be achieved on the basis of equality in these respects. This sounds plausible enough, and his discussion of what this does and does not imply for socialists in terms of social organisation is illuminating - he is quite right to point out that socialists have too often considered nationalisation the obvious solution for achieving these ends, when it is by no means given a priori that this is the best way of doing so (indeed Marx himself was highly skeptical of nationalisations). He then spends some considerable time explaining in a rather simplistic and overly pessimistic way why any central planning must fail and why Hayek and other critics were right, something which isn't remotely as certain as he thinks and which he has no reason at all to concede. In fact, while he correctly acknowledges the world-historical importance of the USSR having existed, he locates its main failures in the economic sphere just like the liberals do, while he at the same time is aware that for by far the greatest part of Soviet history most people attacked it on political grounds because its economic success seemed beyond doubt. He does not go into the other achievements of the USSR at all, making it unclear why he thinks it was such an obvious failure that it would require entirely abandoning the whole idea even as a component of a future socialism.

Roemer's own proposal is essentially a capitalist market system but one with two separate currencies - one is the usual money, and the other is a coupon currency which is given as a minimum income at adulthood, is nontransferrable, and is taxed 100% on death. This coupon currency is then the only currency allowed for buying stock in private companies, i.e. a coupon stock market. The idea here is that this ensures that on the one hand the capitalist system of allocation is preserved on the basis of individual preferences, and yet on the other hand the means of production will never be altogether much differently distributed than they would be on the basis of equality and thereby all the 'public bads' resulting from inequality in such ownership are avoided. To overcome the likelihood of a black market in coupons, Roemer proposes sensibly that they be held in a database rather than in a physical form, somewhat like bank accounts today. Investment of firms would still need to be financed in real value, of course, and this would then be done via bank loans and the like; to avoid this becoming the new focus of capitalist inequality, Roemer then rather ad hoc proposes that the bank directors be elected by the population of a particular area. Of course, this reveals the rather silly and arbitrary nature of his scheme: if this is to be done, and capitalist accumulation to that extent subsumed under the public will, then why not do away with the whole coupon scheme and simply elect managers generally? Roemer points to the case of Yugoslavia, but as he himself acknowledges, the workplace elections in that country had little meaning and the coordination failures resulted from mainly exogenous political circumstances. While I have considerable sympathy for Roemer's proposal to use a share system to divide up ownership of the means of production in society in a fair yet pragmatic manner, I object to the idea that this is the furthest that socialism could realistically go; in fact, it is not clear whether this isn't just an idealized form of social-democracy, a system which Roemer excessively and rather unfoundedly seems to consider the best of all possible worlds. He himself recognizes that many socialists would be dissatisfied with his solution as a final goal to work towards (p. 118), but in the context of the post-USSR years he simply says he does not think anything better is possible. I think there is, and while Roemer's contributions to clarifying the analytical issues in socialist economics are welcome, I do not think that on the basis of his ideas there is a real future for socialism.

The aim of John Roemer's book is to "sketch blueprints for a feasible socialism, to provide a basis, once again, for daring to believe in the dream" (p. 124). Socialism - the dream - is here defined in terms of equality of opportunities, not outcome. The question is then how he wants to do this.
Roemer has two proposals. First, to change the structure of ownership in firms. Second, to increase government control over the investment process. I shall discuss these in turn.
In Roemer's scheme large firms are first nationalized, and the ownership is then redistributed to the people. All citizens above 21 are supposed to receive coupons which they must invest in firms, but they are not free to sell or give the coupons to each other. They are, however, free to withdraw their coupons from one firm and invest in another whenever they want to (the price of a stock is given by the number of coupons you have to give. This price is allowed to fluctuate freely). The coupon-holders would then own the firm collectively and receive dividends from the coupons in the same way that owners of stocks receive dividends i.e. according to the profitability of the firm. When a person dies the coupons go back to the state for redistribution, for example to those who have just turned 21. In short, the coupons become a kind of money which can be used to buy stocks, the only difference being that you are not free to sell or give the coupons away.
The aim of this coupon-scheme is to increase equality of opportunities by making the income from ownership more equal. Today 10% of the people in a country often owns 70-80% of all corporate wealth. Under Roemer's scheme the distribution would be much more equal, and more people would have the opportunity to live good lives.
The second proposal put forth by Roemer, is to increase government control over the investment process. This is to be done, mainly, by creating a system of differentiated interest rates for different sectors. He gives three reasons why state intervention is desirable (p. 90-92). First, because of positive and negative externalities from investment. For example, investment in research and education is under-provided by the market, while investment in processes that pollute is over-provided. Second, to create public goods such as highways and communication systems. This may not be too controversial, but Roemer argues that the government should greatly increase this kind of spending since - he believes - it pays a very high return. Third, to compensate for incomplete markets. For example, there is no market for insurance against unlucky investment decisions. This means that firms do not make enough risky investments - investment which also have a very high potential return. In fact, there is something of a prisoners' dilemma situation: Individually it is not optimal to take a high risk, but socially it is optimal that some firms - more than now - make high-risk investments. These three arguments complete Roemer's case for larger government control over the investment process.
Combined Roemer believes that the two changes - the coupon system and increased government intervention in the investment process - would significantly improve total welfare in society. According to his estimates, based on US data for dividends from firms, he believes the income of the poor would increase by about 20%. Moreover, it would move the level and distribution of investment closer to its socially optimal level (reduce pollution, avoid missing markets). Is this really possible? And, is it possible to know whether it is possible?
Pros and Cons
First of all, Roemer's argument should not be dismissed as dogmatic socialist rambling. The tone of his book is cautious and the arguments are couched in a language familiar to most conservative economists. This, of course, does not mean that Roemer is always right. First, I think that concentrated ownership may be better than Roemer's equal distribution of ownership in maintaining the efficiency of firms. Second, I believe the book would have profited from a closer discussion of whether freedom and democracy is reduced or increased in Roemer's socialist system. Third, I believe one might argue against Roemer even if we agree that his proposal might work since the risk of trying a new system may outweigh the potential benefits.

"A Future for Socialism" is a neat book that analyzes the feasibility and desirability of socialism in light of the failure of Soviet-style economies.

In lieu of central planning, the author would retain markets but distribute stock ownership (and company profits) widely, thus blocking concentrated ownership of wealth. With no class deriving most of its income from corporate profits, a market-socialist society would have no lobbies agitating for public "bads" (such as pollution or unfair labor practices) that generate profits even though they reduce overall welfare. The author would also allocate credit through publicly-owned banks to correct the tendency of private firms to under-invest in the economy. These banks would also "monitor" firms to ensure that they remained profitable.

The book is based on egalitarian principles and modern micro-economics, not on Marxist notions of "exploitation" or the labor theory of value. It recognizes the strengths of markets, and insists that inter-firm competition is an essential condition for innovation. It argues the case for market socialism on the ground that socialism is needed to correct market failures and promote equality.

"A Future for Socialism" provides one hopeful blueprint for humanizing and democratizing modern economies. Written in the 1990s, it seems to have been aimed at Eastern European publics grappling with the need to transform centrally-planned economies and dispose of state-owned companies. Unfortunately, the proposals have limited relevance to the U.S., where the political environment provides little opportunity for radical reform. That said, the book is still a mind-expanding read. Highly recommended.