Free markets need socialism

Aditya Chakrabortty describes well the huge size of the corporate welfare state. What he leaves out, however, are the colossal economic and political forces that give us such crony capitalism.

Of course, there's nothing new about state support for business: remember the East India Company? But it could be that there is especial need for it now. In a time of slower technical progress (pdf) and a dearth of monetizable investment opportunities, capitalism cannot generate sufficient profits under its own steam. Instead, it needs the state to create them by outsourcing, privatizations, bailouts and tax credits wage subsidies.

What's more, there are huge pressures on politicians to give business what it wants:

 - As Kalecki pointed out, in a capitalist economy, growth and jobs depend upon business confidence, which governments must maintain.

- Politicians want money; bosses want political power. And when one person wants what another has, guess what - there'll be a trade.

 - Politicians believe that the private sector has managerial skill. It thus outsources functions on the grounds of "efficiency". However, such skill might be partly illusory. Belief in it might instead be just the latter day manifestation of what Adam Smith called the "disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition*."

This poses a question. Given these structural tendencies for capitalism to degenerate into cronyism, could it be that some form of market socialism (big pdf) would do better? For example:

 - It would eliminate the need for wage subsidies partly because a decent citizens basic income would allow workers to reject exploitative jobs, and partly because wages would be topped up by a share of profits.

 - The maintenance of full employment via jobs guarantees and sane macroeconomic policy would reduce capitalists' ability to demand handouts and tax breaks, because "confidence" would no longer matter quite so much.

 - Greater pre-tax egalitarianism - as workers' control enables them to restrain bosses pay - would reduce politicians' tendency to defer to the rich. And it would also reduce their incentive to give companies favours in exchange for high-paying jobs when they leave office.

Now, I say this tentatively as I'm deliberately vague about the precise nature of market socialism, vaguer still about how to achieve it, and because I'm not at all sure it would eliminate all the many pressures towards cronyism. I'm merely raising a question: could it be that, if you are serious about wanting a genuinely free market economy, then you must advocate not capitalism but socialism?

* Theory of Moral Sentiments I.III.28

Comments

[Jeff]

So...because politicians accept bribes, and thus abuse their power, let's entrust them with even more power, so they will have fewer incentives to abuse their power. While there is a certain logic to that, given that history shows a tendency for powerful governments to butcher their peasants, I can't support this idea at all.

[Luis Enrique]

to take the Disney example, if a £150m bung generates insufficient return in terms of job creation, tax revenue etc. then it shouldn't be done, regardless. If it generates a good return, that is, if a government concerned with the welfare of its citizens not corporate profits, would choose to do it, where does calling it corporate welfare get us?

There are lots of things governments do which we can say benefit corporations, should be take all these to be crony capitalism, things that good lefties should scorn? I do not like Aditya's habit of taking anything that looks like a payment from government to a firm and rolling them all up as bad things to be condemned that should be cut.

Conversely, whilst there may be economic returns to welfare (income support, housing benefit) we do not justify it on those grounds.

[NewPoliticsMag]

For the best argument for market socialism, see writings of David Schweickart. For Marxist critiques of market socialism, see Pat Devine and Al Campbell. All have essays that can be found online.

[Deviation From the Mean]

Richard Wolff touches on these issues, brilliantly as always, here:

http://www.rdwolff.com/content/tim-danahey-show-depth-conversation-economist-richard-wolff-about-wealth-and-publicprivate--0

He is first class at this sort of thing.

[Zwollenar]

This has history stretching to the 1930s socialist calculation debates between Oskar Lange, the proponent of market socialism on one side and Hayek and Von Mises on the other.

[Brett]

It sounds like a lot of those policies could exist without a market socialist firm set-up, like the Job Guarantee and/or Basic Income (not sure why you'd want both at the same time, since one would be redundant).

But as for the set-up itself, I think you're too optimistic. The cooperatives would lobby for special treatment and benefits like any other firm, possibly even more vigorously since it wouldn't just be the leadership at the top of the firm pushing for it - the entire firm labor force gets a cut out of any monopoly rents captured from rule changes and tax credits.

They might be harder to dislodge as well - the versions of market socialism I've read about tend to have issues with entrepreneurialism. The harder it is to shake up incumbent firms with outside competition, the easier for them to become entrenched and privileged.

[Neil Wilson]

Primarily you need public funding of the political process for the same reason you need public funding of the judicial process - to prevent capture.

That is much harder to achieve even than a Job Guarantee.

[Neil Wilson]

"not sure why you'd want both at the same time, since one would be redundant"

State Pensions, Disability Benefit, Student Maintenance Grants are all forms of basic income - given to those that society considers worthy of receipt.

The Job Guarantee is actually a Basic Income with the requirement for a social contribution. The primary reason for that is because others in society need to see you doing something of value if they are to share what they made with you.

Very few people are actually good at doing something useful *and* doing the necessary PR to make sure everybody else appreciates that. The whole point of a Job Guarantee is to provide that mechanism to show the world that you are indeed worthy of your corn.

That way then people don't end up being labelled as 'shirkers' or 'scroungers'. That label is the first step towards a political move to remove their income or suppress them in some way. We really need to get to a point where calling somebody a 'shirker' is seen as offensive as calling somebody a 'nigger'.

[Bud Meyers]

"Under capitalism, man exploits man. Under socialism, it is the other way around."

In a genuinely free market economy, capitalism does require some socialism. The following two articles could better explain than a short comment here...

Capitalism Requires Government
http://www.governmentisgood.com/articles.php?aid=13

Free Markets are Fraudulent Markets
http://www.economicpopulist.org/content/free-markets-are-fraudulent-markets-5360

[El]

Are basic income and greater worker control necessarily socialist?

[Nicholas]

@Zwollenar The 1930's calculation debate was not at least with regard to Oscar Lange about market socialism in the sense of having real trade and competition. Lange advocated a kind of simulated 'market' based on the neoclassical model of competition. In which plant managers act robotically according to a marginal cost rule. It really has nothing to do with mutualist or cooperative style socialism. Neoclassical socialism having it's origins in trying to theoretically salvage something from marxist style comprehensive planning after Mises critique revealed it as untenable.

[Dan]

You'll never get the right answer if you don't ask the right question.
And this is the right question.
I appreciate your tentative advancement of a solution. Who knows? nobody yet, but one reason for this is the question hasn't been asked.
One thing is clear, we are all getting taken for a ride by the silliness of the current system. The question needs to be asked.
I agree there are many great thinkers who have asked and responded to this question. Their insights need to be built upon.

[Churm Rincewind]

I agree with Luis Enrique. Disney's £150 million tax credit claim is based on 20% of the money they spend on film production in the UK - i.e. they've spent an additional £600 million from their own resources on UK goods and services. Which can't be bad.

The net benefit to the UK is constantly monitored. Oxford Economics estimates that inward investment in the UK film industry in 2011, for example, accounted for 80% of total UK production spend and contributed £3.7 billion to UK GDP and £1 billion to Exchequer revenues.

To characterise this achievement, as Aditya Chakrabortty does, as "keeping Kenneth Branagh employed" is just plain ignorant. This ain't "corporate welfare" or "crony capitalism" by any stretch, and I can't see the point of doing so.

[NoniMausa]

People often say thus-and-such is "a subsidy to business." But in truth, all of society is a subsidy to business. Basic, underlying essentials which go on through thick and thin, even child rearing and struggling for subsistence uphold the less concrete structures that derive profit.