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Book Review: Alternatives to Capitalism

Alternatives to Capitalism

A review of Elster and Moene (eds.), Alternatives to Capitalism (Cambridge: Cambridge University Press, 1989), $31.99.

(Originally posted on, 8/29/2012.)

“Alternatives”? Yes. “To Capitalism”? Not Quite…

Despite its rather controversial reputation among the more orthodox elements of the contemporary Left, there are aspects of the analytical Marxist tradition which I consider to have been valuable contributions to Marxist theory. G. A. Cohen’s political philosophy, for instance, is immensely useful for challenging the ethical dimensions of bourgeois ideology, as well as for envisioning how a just society might be organized.[1] And although I found John Roemer’s “coupon socialism” proposal utterly ridiculous upon learning of it years ago,[2] I had heard that other members of the September Group were proponents of worker controlled variants of market socialism, and even democratic economic planning. So I had anticipated Alternatives to Capitalism to consist of concrete proposals for transitioning away from capitalism and toward a socialist mode of production. Instead I was presented with a compendium featuring policy prescriptions which, for the most part, do virtually nothing to alter the manner by which goods and services are produced and distributed in society.

The first section of the book, erroneously titled “Alternatives,” consists of several essays on economic theory. György Sziráczki opens this section with an essay analyzing semiprivate, quasi self-managing entities—which were being experimented with in the People’s Republic of Hungary—known as “internal subcontracting enterprises.” Simply put, they were autonomous work-groups operating inside state-owned firms on a subcontract basis. Aside from explaining the history of their development and efficiency strengths, Sziráczki endorsed their further utilization. Not very inspiring or useful in today’s context, to say the least.

The following essay was authored by Martin L. Weitzman, and it is a concise description of an economic model he has been promoting for decades called “profit-sharing capitalism.” Weitzman contends that if workers were to “receive a significant portion of their pay in the form of a profit-sharing bonus” full employment without inflation would be attainable (p. 69). This is so because “A profit-sharing system makes the marginal value of an extra worker exceed the marginal cost of hiring that worker,” thereby ensuring that the system “gravitate(s) towards an equilibrium with excess demand for labor” (p. 65). Weitzman dismisses the potential of labor-managed firms in his scheme due to his skepticism regarding their operational viability and potential to facilitate technological dynamism, and their alleged inability to produce full employment—all of which are inaccurate and adequately addressed in the theoretical literature on market socialism.[3] Overall, Weitzman’s proposal is interesting, but certainly not an alternative to capitalism.

Like the aforementioned Sziráczki essay, Tamás Bauer’s essay (“The Unclearing Market”) also concerns the Hungarian socialist economy; specifically the difficulties it was experiencing during its market reforms. He targets bureaucratic interference and inefficiency as the cause and suggests privatizations and further market reforms as the remedy. Why this essay was deemed worthy of inclusion by Elster and Moene is, quite frankly, beyond me. That is not to imply that Bauer’s views were without merit, but rather that they are not germane to the subject of alternatives to capitalism.[4]

Karl Ove Moene’s essay is, in my opinion, the most interesting economic analysis featured in the book. In it, he compares market socialism with a form of capitalism dominated by “strong unions”—an endangered species at this point, but still somewhat prominent in certain industries at the time of the book’s publication (1989). Moene argues that “worker influence exerted through pressure and threats,” as observed in trade unions, “may lead to perverse outcomes.” This is obviously true, since workers within capitalist enterprises have an incentive to work the least amount possible while demanding the most they can bargain for in the wage-for-labor-time contract. Unions, granting greater power to labor in wage negotiations and organizing shopfloor policy, can be expected to perform less productively than their cooperative counterparts—the reason being that the incentive structure of labor-managed firms are the exact inverse of capitalist enterprises, since workers are the firm’s residual claimants in the former. Unionized capitalist firms also invest significantly less in capital relative to labor-managed firms because “each increment of capital will increase the wage payment to the union later on” (p. 91).

Moene further provides a thorough refutation of Benjamin Ward’s classic critique of labor-managed firms.[5] As is well known to students of comparative economic systems, Ward had argued that labor-managed firms are faced with a perverse short-run supply curve, resulting in “the optimal number of members in the coop [decreasing] and the firm’s supply decreas[ing] the higher the output price” (p. 86). In practice, however, this does not occur because it violates the basic cooperative principles which labor-managed firms are organized around. “It can be shown that when the coop practices the principle of equal treatment in either an ex ante or ex post way, no one will vote for reductions in membership when faced with higher output prices,” writes Moene (ibid). Thus a perverse short-term output supply curve poses no threat to a worker controlled economy. Nevertheless, there are factors which limit the growth dynamic of labor-managed firms. For example, under conditions of constant returns to scale, worker cooperatives will not increase employment because they are designed to maximize profit per worker as opposed to total profits, thereby placing a definite limit on their growth potential. This would imply that companies in a socialist market economy would be relatively smaller than capitalist corporations currently are, and full employment would likely require state intervention (e.g., by implementing a policy wherein the government serves as the employer of last resort). But if full employment could be reached, a market socialist economy would be less prone to recession than capitalist market economies are because a decline in demand would not lead to increased unemployment, since labor-managed firms are more flexible under volatile economic conditions[6]—the exemplary manner by which the Mondragón Cooperative Corporation (the world’s largest and most successful cooperative network) has managed to maintain remarkably high levels of employment throughout this economic crisis serves as an empirical validation of this.[7]

Alec Nove, renowned economic historian of the Soviet Union and market socialist theorist, spends a significant portion of his contribution to the book refuting the market fundamentalism overtaking British politics during the Thatcher administration—and his criticism of laissez-faire mythology remains as timely as ever. “[M]arkets and automatic economic forces cannot solve all problems,” Nove proclaims at the start of his essay (p. 99). He then goes on to list a variety of industries which, in his opinion, undoubtedly warrant central economic planning and price controls—e.g., electricity, oil, gasoline, and coal—due to their being natural monopolies. He also defended, contra Thatcher, maintaining public ownership of Britain’s social services circa 1989 (health care, council housing, transportation, etc.); the reason being that their efficiency (or lack thereof) was unrelated to their ownership structure, and they were/are vital for reasons of societal welfare regardless (pp. 102-103). Like most market socialists, Nove also suggested that a system of public banking replace capitalist financial markets and that workers’ control of the means of production be expanded to the greatest extent possible—though he expressed some reservations with respect to whether workers would be genuinely interested or content in participating in management (p. 103).[8] Perhaps suffering from a lack of imagination or class bias, Nove denied the possibility of a feasible model of comprehensive economic planning ever being devised which precluded a technocratic elite at the helm—just as he did in his earlier work, The Economics of Feasible Socialism (London: Routledge, 1983). With that exception, his chapter was quite valuable.

Following Nove is the second section of the book, entitled “Criteria,” which features essays on political philosophy from G. A. Cohen, Jon Elster, and John Roemer. For me, this was the redeeming element of the book. Cohen’s chapter, “Are Freedom and Equality Compatible?”, is a critical analysis of Robert Nozick’s critique of socialism and defense of libertarianism (more appropriately referred to as ‘propertarianism’) on the basis of self-ownership. Propertarians like Nozick believe that unequal economic outcomes and private property logically follow from an acceptance of this theory, but Cohen demonstrates that what the Right generally considers “freedom”—broadly defined as meaning that an individual is the “morally rightful owner of himself, even if the existing legal systems do not fully acknowledge that fact” (pp. 113-114)—is not at all incompatible with socialist egalitarianism. “Self-ownership is, contrary to what Nozick says, compatible with equality of external resource distribution, since the inequality that Nozick defends depends on adjoining to self-ownership an inegalitarian principle of external resource distribution, which need not be accepted. When instead, self-ownership is combined with joint ownership of the world its tendency to generate inequality is removed” (p. 124).

Jon Elster’s essay defends an ideal featured in Karl Marx’s early philosophical writings. Those familiar with Maslow’s hierarchy of needs will already be aware of it: “self-realization”—which simply means “the full and free actualization and externalization of the powers and the abilities of the individual” (p. 131). It is a very Aristotelian concept, and one which is central to most socialist theories of distributive justice. Elster counterposes self-realization with the standard bourgeois concept of the good life consisting solely of possessive individualism (i.e., atomized consumption), and provides persuasive arguments for believing the former maximizes welfare to a greater extent than the latter. The purpose of consumption, Elster explains, is to “derive satisfaction” (as in reading a book, eating a meal, etc.), whereas the purpose of self-realization is to “achieve something, and satisfaction is supervenient upon the achievement rather than being the immediate purpose of the activity” (p. 130). Using the Solomon-Corbit theory of ‘opponent process,’ Elster then juxtaposes consumption with self-realization and proceeds to show that “Any given consumption episode. . . . has the pattern that it is initially pleasurable, but includes painful withdrawal symptoms once the activity ceases.” “The pleasure of consumption” therefore “tend(s) to become jaded over time, while the withdrawal becomes increasingly more severe.” Self-realization, on the other hand, produces the converse effect: “the attractions of self-realization increase over time, as the start-up costs diminish and the gratification from achievement becomes more profound” (pp. 134-135). Elster goes on to reject the marginalist approach to the utility of work because “work tasks are not made up of homogenous bits, but have a complex temporal structure” (p. 143).

In addition to discussing methods whereby work life can be utilized for advancing self-realization, Elster also considers political participation to be another promising avenue for achieving the same goal, arguing “The development of moral competence through rational discussion is a form of self-realization that ought to be valued as highly as self-realization at the workplace” (p. 147). But Elster warns of the possible hazards which lie in allowing any democratic institution to “degenerate into activist rule,” which results in individuals becoming mere means in other peoples’ pursuit of self-realization. To defend against this possibility, Elster suggests implementing a system whereby democratic processes are automatically “transformed from direct to representative. . . . when the level of participation drops below a certain level” (p. 154). It is clearly a thought-provoking essay and a well-argued defense of Marx’s conception of the good life.

John Roemer concludes the book with a discussion of private and public ownership, analyzing the welfare implications of each and finding the former difficult to reconcile with egalitarian principles (not surprising).

In closing, I was both disappointed and pleasantly surprised with this book. Disappointed because, as I previously mentioned, the title and introductory chapter led me to believe that this work would focus more on actual alternatives to capitalism, but surprised by the caliber of its philosophical essays. With that said, the book would have benefited greatly by including contributions from the leading theoreticians of socialism today, e.g., Michael Albert and Robin Hahnel (the progenitors of participatory economics[9]), W. Paul Cockshott and Allin F. Cottrell (who advocate cybernetic economic planning[10]), and David Schweickart (an important market socialist theorist[11])—all of whom were publishing work on socialism in 1989.

[1] G. A. Cohen’s blistering critiques of John Rawls and Robert Nozick—the hegemonic thinkers in contemporary liberal political philosophy—published in If You’re an Egalitarian, How Come You’re So Rich? (Cambridge: Harvard University Press, 2000) and Self-Ownership, Freedom, and Equality (Cambridge: Cambridge University Press, 1995), respectively, remain unsurpassed in the field. Why Not Socialism? (Princeton: Princeton University Press, 2009) is also an engaging text which analytically explores the desirability and feasibility of a socialist commonwealth.
[2] It can be found, in excruciating detail, in John Roemer’s dreadful A Future for Socialism (Cambridge: Harvard University Press, 1994).
[3] I recommend David Schweickart’s Capitalism or Worker Control?: An Ethical and Economic Appraisal (New York: Praeger Publishers, 1980) to those interested in the subject.
[4] Interestingly, opinion polls conducted in Hungary continue to indicate that “80% of those 50 years of age or older consider the time before the change of regime happier,” while “Nearly 75% of those aged 40-49, and 55% of those who were students and young adults during the late 1980s concur.” See Pál Tamás’s research for more on this phenomenon.
[5] Featured in his paper, “The Firm in Illyria: Market Syndicalism,” American Economic Review, Vol. 48, pp. 566-589 (1957).
[6] Giles Tremlett (2013, March 7), “Mondragón: Spain’s Giant Co-operative, Where Times are Hard but Few Go Bust,” The Guardian.
[7] Moene, however, appears to endorse an underconsumptionist theory of capitalist crisis in his essay, whereas I believe the evidence better supports the traditional Marxist explanation of a secular fall in the rate of profit generating systemic instability. A decent exposition of the underconsumptionist position is Paul Baran and Paul Sweezy, Monopoly Capital: An Essay on the American Economic and Social Order (New York: Monthly Review Press, 1966). Michael Roberts’s The Great Recession: Profit Cycles, Economic Crisis—A Marxist View (Raleigh: Lulu Press, 2009) and Andrew Kliman’s The Failure of Capitalist Production: Underlying Causes of the Great Recession (London: Pluto Press, 2011) are cogent works which explain the current economic crisis through the aforementioned falling rate of profit paradigm.
[8] Although most studies conducted on workers’ self-management indicate that there is a positive correlation between managerial participation and overall job satisfaction. See, for example, Gerry Hunnius, G. David Garson, and John Case (eds.), Workers’ Control: A Reader on Labor and Social Change (New York: Vintage Books, 1973); Chris Barker and Brian Martin, “Participation: The Happiness Connection,” Journal of Public Deliberation, Vol. 7, No. 1 (2011); Samuel Dolgoff (ed.), The Anarchist Collectives: Workers’ Self-Management in the Spanish Revolution, 1936-1939 (Montréal: Black Rose Books, 1974); and Lavaca Collective, Sin Patrón: Stories from Argentina’s Worker-Run Factories (Chicago: Haymarket Books, 2007).
[9] See Michael Albert and Robin Hahnel, The Political Economy of Participatory Economics (Princeton: Princeton University Press, 1991).
[10] See W. Paul Cockshott and Allin Cottrell, Towards a New Socialism (Nottingham: Spokesman Books, 1993).
[11] Schweickart’s latest work on the subject is After Capitalism (Lanham: Rowman & Littlefield, 2011).

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