Re: Re: RE: Krugman.........faux Schumpeterian

["Ian Murray" <seamus2001@xxxxxxxxx>]

[apologies for the length, only posting the stuff along
with the link in case some can't get the link to work. A
great working/appropriating of Legal Realism.  For
heuristics...]




===========================
http://www.austlii.edu.au/au/special/alta/alta95/robertson.
html
Property Theory, Property Rights, and Market Socialism
Michael Robertson
Introduction

With the fall of communist regimes in the Soviet Union and
Eastern Europe, there has been a spate of rejoicing by
supporters of capitalism in the West to the effect that
socialism has finally been exposed as bankrupt, and that
capitalism has been shown by a Darwinian-type process to be
the only way forward. But recently a type of socialism
which has been languishing in the background for many years
has moved into the niche in the political ecology vacated
by the communist dinosaurs, and is claiming to be a more
well-adapted and hardy species of the socialist genus. This
is market socialism, a so-called third way between
capitalism and communism.

The immediate response from capitalist theorists is that
such a hybrid is not viable. Market socialism is an
impossibility since it attempts to combine contradictory
elements. They say that the market requires private
property and freedom of contract, and once you admit these
things, you have given up on any socialist position which
requires socialisation of ownership of productive assets
and planning of economic activity. Thus they throw up an
initial theoretical challenge of 'conceptual incoherence'
that must be met before it is worth putting any effort into
devising more concrete models of market socialism. Some of
the varied accounts of market socialism given by political
theorists and economists do attempt to meet this
theoretical challenge (Miller, 1990). But I will argue that
it is the work of the American Legal Realists and Critical
Legal Studies writers with respect to the nature of the
market and property rights that provides the strongest
theoretical grounding for the viability of the market
socialist project.

Once the market socialist project has been given the
theoretical 'green light', I will move on to consider the
range of concrete proposals which have been offered. I will
argue that the theoretical work of the Realists and CLS
writers also give us guidance as to which part of this
spectrum to favour--namely the highly decentralised models
involving productive enterprises which are democratically
run and owned by those who work in them.

Private Property and the Market in Capitalist and Socialist
Theory
As we are all aware, capitalism stresses the importance of
a free market and private property. The market is seen as a
decentralised mechanism for sending signals to economic
actors that ensure that resources are used efficiently, and
in a way that satisfies the demands of consumers. The
market works by trading valued rights, and so it is no
surprise that capitalism also stresses that market actors
should have a strong bundle of private property rights that
they can use and trade as they see fit. The capitalist
stress on free markets and private property connects with
the stress in classical liberal theory on individual
liberty and neutrality regarding conceptions of the good.
The market was seen as a neutral mechanism which allowed
each individual to pursue his unique conception of the good
or worthwhile life. It maximised freedom of choice.

Socialism can be seen historically as a reaction against
what capitalism actually produced in the 18th and 19th
centuries--for most people it produced great inequality,
lack of freedom, harsh living condition, stunted lives, and
exploitation. This reaction against capitalism took a
number of forms, but Marxism was the dominant variety of
socialism from the second half of the 19th century on.
Marxism stressed the negation of the essential features of
capitalism--private property in the means of production
would be replaced by socialised ownership, and conscious
planning of the economic aspects of our lives would replace
the anarchy and cruelties of the market.

This is the source of the feeling of some theorists on both
the right and the left that market socialism is an
impossible contradiction. Socialism is understood by them
to be co-extensive with the Marxist position that markets
and private property rights must be eliminated. If
socialism is understood in this way, 'market socialism' is
indeed incoherent. But this is a misunderstanding both of
the actual history of socialist thought, and of its
potential resources. Although Marxism has been the dominant
socialist theory for a long time, and although it strongly
influenced the communist regimes, it is not the only
response that socialism did develop or could develop in
response to capitalism.

A much milder socialist response that came into being in
some countries was social democracy. Here there is some
regulation and shaping of market transactions, especially
in the labour market, but the basic approach is to leave
the capitalist property rights and market system alone, and
allow this system to play itself out. Then a social
democratic government changes the resulting end-state to
one which better accords with socialist ideas of equality
and security of material benefits. This is typically
achieved by taxing and redistributing the wealth generated
by the capitalist economic system. In social democracies we
see that a weak form of socialism is compatible with the
market and private property as they are conceived under
capitalism.

Here is a different socialist response, although it has not
been applied in any country so far. It does not seek to
eliminate capitalist markets and private property in the
means of production, as in Marxism, nor simply leave them
in place but milk them, as in social democracy. The goal of
this approach is to keep the institutions of private
property and the market, but not as they are realised under
capitalism. The goal is to reconceive and remodel them so
that they naturally produce results which are more in line
with socialist values, without the need for significant ex
post facto rejigging by the state. The focus here is thus
upon establishing an economic system with
socialist-inspired property and market ground rules at the
beginning, rather than on altering the end-state achieved
when an economic system with capitalist ground rules is
allowed to play itself out. If this project could be
realised, it would be a more strongly socialist response to
capitalism than social democracy because it would focus not
just upon altering patterns of distribution, but also upon
altering capitalist property rights and the ways production
is carried on. This project describes the variety of market
socialism which I want to explore in this paper (it is not
the only possible variety as we will see). We will have to
wait until later to see whether it can be carried out in
any convincing concrete way, and even before that there are
other conceptual challenges which will have to be
surmounted. But at least at this stage we can see that it
is a form of market socialism which would be free from the
charge of 'impossible contradiction' which is made by those
who see socialism as being identical with the Marxist
position.

This variety of market socialism has moved a long distance
from Marxism by its refusal to seek the negation of the
market. Notwithstanding this concession to capitalist
orthodoxy, it can expect to meet with further objections
from defenders of capitalist market society. First, they
may feel that private property and the market are not
subject to redesign in the way proposed by this market
socialist model. 'Everything is what it is, and not another
thing', and so private property and the market cannot be
changed much from what they are now without losing their
essential natures. The assertion here is that once you
accept the basic concept of the market, most of the
detailed structure of the market, i.e. its groundrules and
dynamics, follow as a matter of course without significant
choice on your part.. This assertion lies behind the other
capitalist claim that the market is just a neutral
procedural device, i.e. its rules involve no political
choices or commitment to a particular social vision.
Private property and the market have to be realised pretty
much as they are now for them to exist at all, because
technical efficiency considerations and the logical
implications of the concepts 'private property' and
'market' demand this.

Second, they will see the projected redesigning of property
rights and the market as just another example of the
socialist impulse to get the state into areas it does not
belong. As has often been noted, classical liberal
political thinking divides social space into public and
private zones. It is crucial on this picture to keep the
state out of the private zone and confined to its
legitimate role in the public zone. But private property
rights and the free market belong firmly in the private
zone. Any redesigning of them by the state is therefore
deeply improper. It would involve the state moving into the
private zone to affect relationships and decisions that
individuals should be left alone to make. So again we seem
to end up with a contradiction. The market is within a
private area which the state should be kept out to the
greatest extent--that is why it is called a 'free market'.
But a 'market socialism' with the goal of reconceiving and
reconstructing the market and private property involves the
state penetrating deeply into that private zone.

However, I will now argue that Legal Realism and CLS have
provided adequate responses to these objections, and have
also provided the theoretical foundations for a version of
market socialism which seeks to retain private property and
the market, while simultaneously reconceiving them in a
radically different way from capitalism.

Legal Realism and Critical Legal Studies
Critical legal studies writers such as Roberto Unger
(1987:124,129,134,136,160.), Karl Klare (1991:72-81), and
Duncan Kennedy (1991) reject the claim that it is not
possible significantly to rework the content of 'private
property' and 'the free market' from what they are now
without moving outside the boundaries of those concepts
altogether. They reject the views of conservative defenders
of the free market in Anglo-American writings who seem to
think that the free market requires, by definition,
something quite definite and circumscribed, and something
quite close to what already exists in those economies. The
CLS argument is that very abstract concepts such as the
free market, which is just an economic system where 'a
large number of independent agents bargain on their own
initiative and for their own account' (Unger, 1987:122),
can be made concrete in many different ways, and in many
more ways than we have hitherto experienced.

Some indirect support for this position is found in the
fact that we can find actually existing private property
and free market capitalist regimes that differ
substantially from Anglo-American models in places like
Germany, Japan, and the four Asian 'tigers' (Singapore,
Hong Kong, Taiwan and South Korea). But the thrust of the
CLS argument carries us further than these examples.
Consider again that abstract description of the free
market: an economic system where a large number of
independent agents bargain on their own initiative and for
their own account. One foundational question here is: what
kinds of entities are these independent agents or market
actors to be? Are they to be just individual human beings,
or groups of human beings such as partnerships? Are
artificial legal entities such as corporations and states
to be allowed to participate as market actors too, and if
so, are they to have exactly the same rights and powers as
human market actors? The choices you make with respect to
this one foundational question will produce very different
types of free market systems--imagine what it would be like
if only humans, not corporate actors were allowed--but they
will all fit the definition and be free market systems.

There are many other foundational choices of this kind
which have to be made in order to specify or describe any
free market system:

(1) What types of things can be owned and traded in the
market? For example: can people be owned? Can body tissues
and body parts be owned? Can corporations own other
corporations? Are some desired things to be outside the
scope of the market mechanism entirely (Radin, 1987)?

(2) What bundle of rights does an owner get? Is it the
cluster which Honoré (1961) described in his paradigm case,
or should some of that bundle be permanently redistributed
so that all of those rights can no longer be concentrated
in one pair of hands? Should the right to alienate be
stripped from the ownership bundle for a larger class of
property than it is at present?[1]

(3) How can interests be transferred, and what counts as a
'voluntary' as opposed to a 'coerced' transaction? How much
and what types of power over other people is seen as
acceptable (Robertson, 1995)?

The point made by the CLS writers is that foundational
questions such as these cannot be avoided, and can be
answered in many different ways, producing a much greater
variety of possible free market systems than the orthodox
defenders of currently existing capitalism imagine. This
means that the market socialist project I described earlier
gets the theoretical 'green light', since it simply wants
to give different answers to the foundational choices which
have to be made in any private property and free market
system.

But the necessity for foundational choices of these kinds
to be made also counts against the second objection to the
market socialist project noted above. That objection, you
will recall, was that it was an improper intrusion into the
private zone if the state acted to redefine private
property or market rights. But now we have seen that it is
impossible to have any free market and private property
system without the state acting to provide answers to
foundational questions like the ones above. So if it gives
different answers to these questions at some later time, it
is not doing something any different from what it did when
it set up the original rules; it is not now entering into a
private zone that it has hitherto kept out of. The state
not only always has been, but always has to be, deeply
involved over in the private realm liberals wanted to keep
it out of. This holds true even if you don't have a
soviet-style planned economy, or a social democracy that
alters end-states, and instead have the most laissez-faire
'free market' system. The implication of this is that the
division of social space into public and private realms so
beloved of liberal thinkers has some serious problems.

And it gets worse still. The market is seen as a neutral
facilitating structure in liberal theory. It imposes no
values or goals on people, but simply allows them to pursue
their own unique visions of the good life. But now we see
that any market system requires foundational choices, and
on what basis are these foundational choices made? The
different choices are not simply aesthetic: they have power
implications, and therefore have implications for the
eventual distribution of power, wealth, and status that is
generated by the system. This was a point stressed by
Robert Hale (1923; 1943), a legal economist who had a great
influence on both the Legal Realists and the later Critical
Legal Studies writers.[2] The choices made in establishing
any market system are not just technical and neutral ones,
therefore, but political choices. In making them the state
cannot be neutral, but is guided by a conscious or implicit
commitment to a particular social vision, or vision of how
society could and should be ordered. It then follows that
any conception of free markets that stresses their
neutrality, and denies the political choices that
inevitably go into their formation, is ideological. It
operates to disguise, behind a smokescreen of neutrality,
the political choices benefiting some groups at the expense
of others.

Further Implications of the Legal Realist and CLS Analysis
for Market Socialism
The Realist and CLS analysis just described has significant
implications for a widening of the scope of the market
socialist project. When we turn to those offering
descriptions and analyses of market socialism, we find that
many of their models and critiques implicitly accept
limitations on what the market socialist project involves
(Bardhan and Roemer, 1993; Le Grand and Estrin, 1989). In
particular, many seem to accept that the differences
between capitalism and socialism, in an economic sense,
depend upon different answers to the choices between public
ownership versus private ownership, and market versus plan.
If you choose public ownership and plan, you have
communism. If you choose private ownership and market, you
have capitalism. On this understanding, market socialism is
what you get when you chose instead public ownership and
market. The underlying limitation is that any form of
socialism must involve public ownership, (although it
needn't be what we know as nationalised state ownership).

Oscar Lange's market socialism of the 1930s would fall into
this category (Lange and Taylor, 1994). An interesting
modern example of this type of market socialism is provided
by John Roemer (1993a:89; 1993b:347). He basically sees all
enterprises as publicly owned, run by hired managers, and
competing against each other for profits in a market system
However, instead of the profits going to the state, they
are distributed directly to citizens via dividends paid by
mutual funds which supply capital to the enterprises, and
in which all citizens are given shares. These shares can be
traded for other mutual fund shares, but cannot be sold for
cash, and thus the ability to concentrate holdings is
limited. A much more egalitarian distribution of wealth
results.

However, I would argue that a great value of the Realist
and CLS analysis is to provide the theoretical foundations
for varieties of market socialism that are not confined to
working out new forms of 'public ownership', as these
models do, but seek instead to rework the content of
'private property'. The realist and CLS contributions give
a theoretical foundation for varieties of market socialism
in which private property and the market are retained, but
reconceived by the giving of different answers to the
foundational choices necessary to establish any private
property and market system. The market socialist
foundational choices would be guided by the desire to
achieve, without massive government ex post facto
tinkering, outcomes or end-states that were more
egalitarian, democratic, and communitarian than those
produced by the capitalist private property and market
system.

A Market Socialist Model
Finally, after the theoretical objections have been
overcome and the theoretical foundations have been
provided, we come to the task of evaluating attempts to
carry this new type of market socialist project forward. In
practice this project has amounted to a shift to producers'
co-operatives as the predominant economic form.[3] There
are many differing models of such a 'self-managed market
socialism', and we shall choose one to look at in more
detail shortly. But first note how an economic system based
on producers' co-operatives is still recognisable as a
private property and market system.

(1) The main economic actors are producers' co-operatives
rather than corporations, but these co-operatives compete
against each other to sell goods and services to the
public. There is still a market structure but with
different actors than the ones we are used to under
capitalism.

(2) There are still private property owners who own these
new economic actors, but again, these are different from
the owners we are familiar with now. Whereas the owners of
corporations, the shareholders, can be people who do not
work in the enterprise, this is not possible with
producers' co-operatives. Their owners can only be people
working in the enterprise.

(3) On some models these new owners take over most of the
ownership bundle that Honoré described. Thus the right to
manage, the right to income, and the right to capital that
Honoré described as part of private property ownership are
not taken away and given to the state, as in
nationalisation. Instead this bundle is taken from one set
of people, the suppliers of capital, and given to another
set, the suppliers of skills and labour.

(4) On other models the treatment of the ownership bundle
is more complex. In them it is not the case that the
familiar ownership bundle under capitalism is simply
transferred to a different class. The rights might be
permanently disaggregated, and distributed among different
groups of people. Or the ability of the owners of the
enterprise to alienate their interests might be more
limited than they are under capitalism, without being
removed altogether.

Let us finally look briefly at one detailed model of
self-managed market socialism.[4] The model I will describe
is that given by Thomas Weisskopf in 'A Democratic
Enterprise-Based Market Socialism' (1993:120). Weisskopf
recognises that capitalist forms of enterprise ownership
combine control rights and income rights, (understood
broadly as including both the income from assets and the
proceeds from asset sales), and also allow private
individuals to acquire such ownership rights in varying
amounts. But this means that 'capitalist ownership
generally confers control over enterprises on a group of
private owners or shareholders with unequal membership
rights, little social contact, few ties to the area in
which the enterprise is located, and no enduring common
identity.' (Weisskopf, 1993:126) Such private ownership is
not 'individual', since many owners are involved, but nor
is it collective or social in any strong sense.

Market socialists argue that ownership of productive assets
should be more social; it should be ownership by people who
do form a genuine community. Different models of market
socialism result depending on the type of community chosen.
'In particular, whether the community is a political
constituency (local, regional, or national) or an economic
constituency (those who work in an enterprise) and which
enterprise ownership rights--control and/or income--are to
be held on an equal basis by members of the relevant
community and which (if any) are till to be available for
acquisition in varying amounts by private individuals.'
(Weisskopf, 1993:122). He describe two pure models based on
(1) ownership by political communities and (2) ownership by
workers of an enterprise. In each of these the community
keeps the full ownership bundle of control and income
rights. After noting problems with each pure model, he
tries to combine elements of both to produce a hybrid that
combines greater economic efficiency with greater
satisfaction of the socialist goals of greater equality,
democracy, community, and social rationality.

(1) Democratic self-management is required for all
enterprises with more than a minimum number of people
involved. The members of the enterprise elect a governing
council on a one person, one vote basis, and this council
hires managers. (Weisskopf, 1993:126)

(2) The enterprise finances itself and/or acquires assets
in the following ways:

(a) by leasing assets.

(b) by borrowing funds from independent and democratically
self-managed banks and other financial intermediaries to
purchase assets.

(c) by selling non-voting tradable equity shares to
independent mutual funds, and using the proceeds to
purchase assets. The mutual funds receive no formal control
rights, but get the right to receive dividends and to
realise capital gains or losses by selling shares. Thus his
model 'unbundles the control and income rights associated
with capitalist enterprise ownership.' (Weisskopf,
1993:125).

(d) by reinvesting some of their net operating surplus in
the purchase of assets. 'In this case all members of the
enterprise community receive--in proportion to the rate at
which they earn income in the enterprise--individual
nonvoting nontradable equity shares, which generate
dividends and capital gains or losses in exactly the same
way as any tradable shares held by outsiders, according to
the performance of the firm; the capital gains or losses
can be realised, however, only as and when the insiders
leave the firm and cash in their equity--by selling
positive equity claims back to the enterprise, or making
good on negative equity claims resulting from poor
enterprise performance.' (Weisskopf, 1993:127). This
internal capital account model is based on that developed
by the Mondragon co-operatives in Spain. (Ellerman and
Pitegoff, 1982-3).

(3) In order to achieve a broader distribution of the
fruits of these enterprises without the familiar taxation
and redistribution, Weisskopf proposes a two-tier stock
market system. The two tiers are (a) shares in the
worker-owned enterprises themselves, and (b) shares in the
mutual funds which purchase shares in the worker-owned
enterprises. The shares in the worker-owned enterprises can
only be purchased by competing mutual funds, not
individuals or enterprises. These mutual funds can sell
shares in their portfolios to other mutual funds for cash.
But the shares in these mutual funds themselves would, in a
manner borrowed from Roemer (1993a;1993b), be spread among
all of the adult citizens, thus ensuring a more egalitarian
distribution of the income of the worker self-managed
enterprises. To avoid some people being able to buy up and
accumulate citizens' mutual fund shares, these shares can
only be traded for other mutual fund shares. They cannot be
purchased for cash or converted into cash. But this
trading, based on the dividends paid by the mutual funds,
which are in turn based on the performance of the
enterprises which form the portfolios of the mutual funds,
will send signals about the performance of the enterprises
and their managers which can be used for disciplinary
purposes.

I have chosen to focus on Weisskopf's model of market
socialism because at one level it retains many of the
familiar features of capitalism. There is private ownership
of productive assets and capital, there is debt financing
and equity financing, there are decentralised market
mechanisms at work. But each of these elements has been
reinflected, reconceived and altered to increase socialist
outcomes. There will be greater equality in the
distribution of material benefits because income
differentials are typically smaller when they are chosen by
the workers at producers' co-operatives, and because some
of their profits will be distributed to all citizens via
ownership of shares in the mutual funds. Democratic
decision-making will be extended into the workplace and the
economy because workers in an enterprise now retain control
over it. The expectation is that this enhancement of
democratic skills will flow over into the regular political
process too. Ownership of productive assets will have a
more social nature, as now ownership will be held by people
in a genuine form of community, rather than isolated
shareholders with no real connection to the enterprise they
own.

Weisskopf acknowledges that his model is more achievable at
the moment in the Eastern European post-communist
countries, where most of the productive assets had already
been socialised in the hands of the state. The state need
only devolve most of its ownership rights to enterprises
and mutual funds to establish a Weisskopf-type economy,
whereas in the West the realisation of his model would
involve massive and costly expropriation of the current
owners of shares in enterprises and mutual funds.


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References
Bardhan, Pranab and Roemer, John (1993) Market Socialism:
The Current Debate. Oxford: Oxford University Press.

Ellerman, David and Pitegoff, Peter (1982-3) 'The
Democratic Corporation: The New Worker Co-operative Statute
in Massachusetts', [1992-3] New York University Review of
Law and Social Change 441

Hale, Robert (1923) 'Coercion and Distribution in a
Supposedly Non-Coercive State', 38 Political Science
Quarterly 470

--(1943) 'Bargaining, Duress and Economic Liberty', 43
Columbia Law Review 603

Honoré, Tony (1961) 'Ownership', in A. G. Guest, (ed.)
Oxford Essays in Jurisprudence

Kennedy, Duncan (1991) 'The Stakes of Law, or, Hale and
Foucault!', 15 The Legal Studies Forum 327.

Klare, Karl (1991) 'Legal Theory and Democratic
Reconstruction: Reflections on 1989', 25 U. of British
Columbia Law Rev. 69.

Lange, Oscar and Taylor, Fred (1994) 'On the Economic
Theory of Socialism' in A. Nove and I. Thatcher (eds.)
Markets and Socialism Aldershot: Edward Elgar.

Le Grand, Julian and Estrin, Saul (1989) Market Socialism.
Oxford: Clarendon.

Miller, David (1990) Market, State and Community.
Oxford:Clarendon

Nove, Alec (1983) The Economics of Feasible Socialism.
London: George Allen and Unwin.

Radin, Margaret (1987) 'Market-Inalienability', 100 Harvard
Law Review 1849.

Robertson, Michael (1995) 'Property and Ideology', 8 The
Canadian Journal of Law and Jurisprudence 275.

Roemer, John (1993a) 'Can There Be Socialism after
Communism?' in P. Bardhan and J. Roemer (eds.) Market
Socialism: The Current Debate. Oxford: Oxford University
Press.

--(1993b) 'The Possibility of Market Socialism' in D. Copp
et al. (eds.) The Idea of Democracy. Cambridge: Cambridge
University Press.

Unger, Roberto (1987) Social Theory: Its Situation and its
Task. A Critical Introduction to Politics, a Work in
Constructive Social Theory. Cambridge: Cambridge University
Press.

Weisskopf, Thomas (1993) 'A Democratic Enterprise-Based
Market Socialism' in P. Bardhan and J. Roemer (eds.) Market
Socialism: The Current Debate. Oxford: Oxford University
Press.



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[]

Endnotes
1. Even under current capitalist arrangements, it is not
the case that all those things which can be owned as
private property can be freely alienated. E.g. prescription
medicines, home brewed beer.

[2.] For reliance on Hale by Critical Legal Studies
writers, see Klare (1991) at footnotes 18, 20, 25 and
accompanying text, and Kennedy (1991).

[3.] They will not be the only economic units or actors.
Market socialist models tend to be pluralist. See for
example Nove (1983) ch. 5 where he lists centralised state
corporations, socialised enterprises, co-operative
enterprises, small-scale private enterprise, and
individuals.

[4.] Remember though there are many differing models. Is
the enterprise to be owned jointly, or are workers to have
individual alienable shares reflecting their portion of the
capital value? Although only workers can be owners, can the
enterprise also hire employees who are not owners? How is
the enterprise to be financed--internally through retained
earnings, or externally from lenders of capital? What kinds
of entities should these capital providing bodies be? The
choices with respect to these issues turn out to be very
relevant for efficiency considerations. It is not enough,
after all, to think up a different form of private property
and market system: it has to be one that works efficiently
or it will compare poorly to the existing arrangements.