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Socialism after Hayek (Advances in Heterodox Economics) Paperback – October 12, 2006
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An advance well beyong the great 'socialist calculation debate.' Socialism after Hayek is both novel and challenging to contemporary Hayekian scholars. Burczak is the only scholar working in the post-Marxist tradition that thoroughly understands and appreciates the Hayekian critique of socialism. He is on his way to answering many of our long-held objections. - Dave Prychitko, Department of Economics, Northern Michigan University
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Ted Burczak is Associate Professor of Economics, Denison University.
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Many reasonable people believe that capitalism, for all its myriad of weaknesses, is the best possible economic system. This is a highly defensible position, given the abject failure of all attempts to create viable alternatives over the past two centuries, and especially after the spectacular collapse of the Soviet Union, the failure of European socialism, and the bitter extinction of Third World Socialism. Personally, I believe capitalism is the best system we know of, but it is very important to have some smart and committed people around who spend all their time and energy in devising workable alternatives. Burczak lies squarely in this tradition, and Socialism after Hayek is a very creative and thoughtful work that deserves to be widely read and evaluated.
The most salient fact about Burczak's defense of socialism is his wedding a model of market socialism with democratically run, worker-owned firms (Lange, Lerner, although Burczak uses arguments from the contemporary Austrian school, which fits well with Hayek) with a welfare analysis based on human flourishing (Aristotle, Sen), and perhaps most uniquely, a defense of markets inspired by the extremely right-wing, Nobel prize winning economist Friedrich Hayek. This potent mixture of ideas is a welcome alternative to the usual contemporary defense of socialism, which is based either on know-nothing populist sloganeering or reliance on the ancient German philosophers of socialism of the Nineteenth Century---especially Marx and his brainy intellectual followers, whose obvious Hegelianism reverberates nil with the modern mind (Marx said that he was "Hegel turned on his head." What he forgot was that an upside down Hegel is still Hegel, just upside-down, just as an upside-down chicken is just a chicken, upside down).
In Burczak's Lange-Sen-Hayek trinity, traditional economic theory is used to defend market socialism and democratic worker ownership (Samuel Bowles, John Roemer, Pranab Bardhan and I were working in this area when Burczak was working on his doctorate at the University of Massachusetts), to defend egalitarianism on the basis of Sen's notion that human welfare depends on developing capabilities, not on simply getting material things, and to defend a Postmodern philosophical position on the basis of Hayek's theory of knowledge.
Burczak's treatment is highly sophisticated, but I am afraid I am not persuaded. The absolutely central and bottom-line problem is that an economy consisting of worker-owned and democratically controlled firms would impose a significant static efficiency loss on the economy and would severely retard scientific and entrepreneurial innovate. I say this with pain and regret, because I and my colleagues work for almost ten year to devise a workable market socialism, but my final conclusion (I'll let the others speak for themselves) is that our models are more applicable to promoting self-employment of poor farmers in developing countries (see Pranab Bardhan, Samuel Bowles and Herbert Gintis, "Wealth Inequality, Credit Constraints, and Economic Performance", in Anthony Atkinson and Francois Bourguignon (Eds.) Handbook of Income Distribution (Dortrecht: North-Holland, 2000):541-603).
The main problem facing democratic worker control of firms is that the workers must be residual claimants on the profits and losses incurred by the firm, or the workers will have no reason to adopt efficient technology and work practices. Lenders will not willingly lend to worker-controlled firms because they cannot maintain sufficient influence over the firm's policies in this case (Herbert Gintis, "Financial Markets and the Political Structure of the Enterprise", Journal of Economic Behavior and Organization 1 (1989):311-322). John Roemer and Pranab Bardhan (Pranab Bardhan and John Roemer, "Market Socialism: A Case for Rejuvenation", Journal of Economic Perspectives 6,3 [Summer] (1992):101-116) worked out a sort-of "pari-mutual" betting plan that would direct public funds to the most promising firms, but it is implausible that such a plan, were it workable, would not succumb to political forces in a way to which private capital markets, based on the inviolability of private property, are virtually immune. Moreover, firms based completely on outside finance are extremely overleveraged and would inevitably collapse when even small threats to their viability arose.
The conclusion is that democratic firms must be almost wholly worker-owned, meaning that virtually all of the firm's capital stock is owned by the workers. However, there are severe problems with worker ownership. Most important, the capital per worker in the average firm is greater than the total wealth of the average worker in that firm. If the worker were given a share in the firm outright, he would prefer to sell it to diversify his asset holdings. Indeed, all the workers would prefer to sell out to a capitalist enterprise so they would become less vulnerable to the vicissitudes of the market. Indeed, there are several cases in which land redistribution to the peasants failed because the peasants sold the land right back to their previous landlords! Of course, this could be prevented by law, but the economic inefficiency of having a workforce of highly exposed individuals would be extreme. Moreover, if the workers own the firm, they will not want to expand employment in the firm, because the new workers would get a share of the value of the firm. Of course, new workers could be forced to buy a share in the firm, but few would willingly do so. Finally, the idea of worker ownership might be feasible for some highly stable and technologically developed sectors, but a vibrant economy is based on entrepreneurial innovation, and this is incompatible with workplace democracy.
If the contribution of workplace democracy to social welfare were sufficiently great, perhaps some of these severe problems could be overcome. But in fact, workplace democracy and popular ownership of capital are not fundamental values, but rather are instrumental values. Of course, in the minds of truly committed socialists they become ends in themselves, but I do not think such an idea can be sustained, even using Sen's notion of capacities. Socialists talk of "wage-slavery," but working for a boss is not slavery by a long shot. There are good and bad bosses, good and bad workplaces, but there are also good and bad teachers, and this does not imply that all authoritarianism should be abandoned in the educational process. Market socialists like to compare workplaces to communities, asking why we should have democratic communities but not democratic workplaces. This is a good question, but the fact is that our democratic communities work because we have a traditional market economy to draw upon. Moreover, while it is clear that a liberal democratic national constitution is a must, it is not clear that there would be something completely unacceptable about having corporations run communities, as they now run some schools and prisons.
I think the most creative insight in this book is the relationship between Hayek and Postmodernism. I love Hayek and I am deeply put off by Postmodernism, so I am certain that the melding of the two must be carefully executed to maintain continuity with Hayek's thought. But it is interesting food for thought, one of many Burczak offers us in Socialism After Hayek.
Socialism after Hayek is essentially an attempt at formulating a theory which truly takes to heart Friedrich von Hayek's critique of economic planning, while nevertheless fulfilling longstanding socialist objectives. Despite Burczak's appreciation of Hayek's numerous insights, however, he remains highly critical of many Austrian school positions - offering penetrating critiques of private adjudication, the alleged "impartiality" of common law, Israel Kirzner's "finders-keepers" defense of entrepreneurial profit, and so forth. A significant portion of the book is also devoted to the nature of the credit rationing system under capitalism, which systematically discriminates against the asset-poor in society, leaving them unable to receive loans to take advantage of entrepreneurial opportunities.
To remedy the various injustices endemic to capitalism, Burczak develops a system of worker self-managed market socialism by synthesizing Hayek's defense of the market with Marx's theory of alienation and Ellerman's opposition to the wage-for-labor-time contract on the basis of the juridical principle of imputation. However, Burczak's market socialism differs from previous models insofar as it does not recommend the complete abolition of private ownership over capital goods or private finance. What the model does share with earlier conceptions of market socialism is that labor-managed firms would represent the dominant organizational form of production - thereby eliminating capitalist exploitation through enabling workers to democratically allocate whatever surplus their firms generate.
Burczak also articulates a theory of distributive justice based upon Sen and Nussbaum's Aristotelian capability theory. He favors the formation of a "socialist stakeholder society," wherein every citizen (when they reach legal adulthood) would be granted a social inheritance of roughly $80,000. This grant would be used exclusively for the purpose of capability-enhancement, thus allowing the recipients the "equal opportunity to enter into nonexploitative work arrangements, through self-employment or by joining a labor-managed firm" (p. 133). To subsidize such a grant, Burczak favors implementing a tax policy similar to that which Ackerman and Alstott promote in The Stakeholder Society.
Aside from his dismissal of the aforementioned libertarian policy proposals advocated by many Austrian school economists, Burczak also analyzes Michael Albert and Robin Hahnel's theory of participatory economics (or 'parecon'). His assessment is that Hayekian "knowledge problems" and a lack of sufficient economic incentives prevents even decentralized planning from being capable of overcoming the same obstacles experienced in centrally planned economies. I was unpersuaded by his arguments against Albert and Hahnel's socialist model, but I do question the overall desirability of parecon nonetheless.
One significant drawback in Socialism after Hayek is that it may leave nonpartisan readers somewhat underwhelmed with respect to Burczak's case for workers' self-management. After all, one could easily make the claim that while certain redistributive measures are essential for securing justice in a market economy, the elimination of the traditional capitalist enterprise is not. For example, Herbert Gintis (a former advocate of market socialism himself) argues that human beings are fundamentally indifferent to the issue of wealth inequality and that "workplace democracy and popular ownership of capital are not fundamental values, but rather are instrumental values." Such arguments can and should be addressed by socialist activists. Personally, I strongly disagree with the notion that people look onto the massive wealth inequalities observed in capitalist countries with indifference - which the empirical data collected on the topic verifies [see, for example, Michael I. Norton and Dan Ariley's (2011) "Building a Better America - One Wealth Quintile at a Time," Perspectives on Psychological Science Vol. 6, No. 1 (Jan.), pp. 9-12]. And as far as workplace democracy is concerned, since the age of Enlightenment and the ascent of the capitalist mode of production, many workers and intellectuals alike have been extremely critical of the concept of wage labor. Take the following passage from Simon-Nicholas Henri Linguet, penned in 1793, for example:
"It is the impossibility of living by any other means that compels our farm laborers to till the soil whose fruits they will not eat, and our masons to construct buildings in which they will not live. It is want that drags them to those markets where they await masters who will do them the kindness of buying them. It is want that compels them to go down on their knees to the rich man in order to get from him permission to enrich him. . . . What effective gain has the suppression of slavery brought him? . . . He is free you say. Ah! That is his misfortune. The slave was precious to his master because of the money he had cost him. But the handicraftsman costs nothing to the rich voluptuary who employs him. . . . These men, it is said, have no master - they have one, and the most terrible, the most imperious of masters, that is need. It is this that reduces them to the most cruel dependence."
Such sentiments were echoed in the United States at the height of the Industrial Revolution in the 1850s, where the so-called "factory girls" of Lowell, Massachusetts coined the expression "wage slavery." The working class press frequently wrote of the similarities between chattel slavery and wage labor, and it was intuitively obvious to many that the workers themselves should own the factories they labored in and collectively run them [Noam Chomsky, Powers and Prospects: Reflections on Human Nature and the Social Order (Boston: South End Press, 1996), p. 85]. (Bear in mind that the American working class press at that time was literally run by wage laborers, not by professional revolutionaries. These workers had never read a single word written by Marx or Proudhon, their disdain for wage slavery was entirely organic.) Considering that bourgeois social relations are a relatively modern phenomenon, this should come as no surprise. It could very well be the case that human beings have an innate impulse to reject the authoritarian structure of capitalist firms - what Mikhail Bakunin referred to as an "instinct for freedom." As Noam Chomsky argued, "It's conceivable that the founder of what's now called 'evolutionary psychology' (Peter Kropotkin) is right, and that there are evolutionary pressures leading to his version of communist anarchism. Or to Parecon. Or, take your pick" [Jump Arts Journal, "On Terrorism," Noam Chomsky interviewed by John Bolender, January, 2004.] Toward this end, while democratic firms can certainly help mitigate the alienation workers experience in the process of production, they are by no means a panacea. Nevertheless, when workers are polled regarding how they feel about working in a labor-managed firm, as opposed to a traditional capitalist enterprise, the vast majority state their preference for having the ability to have a say in the productive process, and they also like management being held accountable to them and enjoy the relative job security worker cooperatives provide. Even when a cynical worker-member of the Mondragón Cooperative Corporation was asked if it mattered to her if she worked in a cooperative or a capitalist firm, she unequivocally replied "of course it matters. Here I have job security, and here I can vote" [David Schweickart, After Capitalism (Lanham: Rowman & Littlefield, 2002), p. 70]. One need not accept Marxian value theory or David Ellerman's interpretation of the labor theory of property in order favor democratic production over authoritarian production, it may just accord better with our natural preferences as a species.
Certain critics have also argued that labor-managed firms are "less efficient" than capitalist firms - for a thought-provoking critique of orthodox notions of economic efficiency, see Richard Wolff's (2002) "Efficiency: Whose Efficiency?", Post-Autistic Economics Review, No. 16 - but this contention is ill founded. Numerous studies have been conducted on existing cooperative firms throughout the world and the results are nearly unanimous: labor-managed firms are just as efficient as capitalist firms, and, in many cases, they are even more so [see Chris Doucouliagos's (1995), "Worker Participation and Productivity in Labor-Managed and Participatory Capitalist Firms: A Meta-analysis," Industrial and Labor Relations Review, Vol. 49, No. 1, pp. 58-77]. The claim that cooperatives tend towards risk aversion and perverse behavior are also empirically false [see David Schweickart Against Capitalism (Boulder: Westview Press, 1996), p. 91]. Another obstacle critics point to is the problem of finance under market socialism, which I believe Burczak's model, unfortunately, does not sufficiently address. The most promising model of finance I have encountered thus far can be found in Michael W. Howard's Self-Management and the Crisis of Socialism (pp. 156-161). I also reject the claim that an economy consisting of labor-managed firms would lack technological dynamism. There is ample evidence suggesting that the conventional "carrot and stick" method is not needed to effectively spur creativity [see Daniel Pink's Drive: The Surprising Truth About What Motivates Us to understand the profound extent by which mastery, autonomy, and purpose can yield job performances superior to those which derive from threat or material reward].
For my part, I have never had much patience or respect for the tenured academicians who endlessly praise capitalism, joyfully explaining just how magnificent this particular economic arrangement has been for working men and women the world over. Many of these very intellectuals have the privilege to work with a relatively high degree of autonomy and self-management themselves, yet they refuse to imagine a situation in which all workers could be provided such benefits. I believe Noam Chomsky was essentially correct when he said that the "intellectual tradition is one of servility to power." Theodore Burczak deserves to be commended for his willingness to challenge the status quo and provide us with an interesting and feasible alternative to capitalism.
The alleged problems facing market socialism are clearly not insurmountable, and I believe there is a good case to be made for the desirability of the system - from the preferences of workers, to a reduction in the destructive class divisions that currently divide society. In the end, the people will decide the matter for themselves. In the words of Richard D. Wolff:
"Socialism was born with capitalism, it's capitalism's shadow/other, and is provoked and revived by capitalism's own mechanisms. Those who suffer, like those able to see and sympathize with the suffering, caused by the deep irrationality of capitalism, will sooner or later rise from a focus on fixing the system, to fundamentally changing it."