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Friday, April 18, 2014


Seth posted a very interesting and suggestive comment on my post-safari musings about Piketty, and rather than reply in the comments section, I would like to attempt a lengthy response.  Here is what he said:


"The obstacle to socialism has never been the theory, always the practice. How do you manage socialized capital for the benefit of the broad citizenry without losing control of it to the leaders? This is sometimes called the "agency problem" -- how do you ensure (positively) the selection of trust-worthy agents and (negatively) the removal of badly behaved agents?
Democratic socialism is the glib answer to this question, but it begs the question. How do you sustain active participation by a broad enough population when specialized knowledge and focused attention is required to manage any particular part of the socially owned enterprises?
The Polanyi brothers are a neat pair of bookends on this subject: Karl stating the social and political problem elegantly ("The Great Transformation") in its historical context, and Michael expressing the difficulty of solving it ("Personal Knowledge") given the need for specialization and reliance on others' expertise even in epistemological/scientific matters, without even getting into the sort of decision-making required of business managers.
Piketty is perhaps feeding some oxygen to the dying embers of political economy as an academic subject, but we need something more than theory. You have expressed frustration at the prospect of leaving this world before real progress can be made in these matters. I'm a good three decades younger, yet worry that my *grandchildren* will not see this resolved either."


First of all, Seth is of course quite correct.  Uttering the words "Democratic Socialism" is no answer to the question, "How are you going to make it work?"  My first thought is Oscar Wilde's wonderful quip about socialism:  "It  will never work.  Too many meetings."  Nor is it useful, in my opinion, to invoke images of the Soviet Union and play them off against stories about Scandinavia.  The questions Seth raises are actually quite complex, as we would expect, and I can only make preliminary remarks here.

It is always useful to start this sort of exploration with some concrete cases rather than abstract principles.  Are there any examples of the American government running large, complex bureaucratically organized operations, and if there are, has it run them well or badly?

Well, as it happens, there are a number of examples.  Let me start with what is far and away the largest, most  complex, most expensive, most labor intensive operation in the entire U. S. economy, public or private:  The United States Military.  The official budget of the Defense Department is seven hundred billion, give or take the odd twenty billion.  The Armed Forces employ [so to speak] one and a half million men and women, roughly two hundred thousand more than Walmart, the biggest private employer in the country.

Now, you may not like the Armed Forces.  You may not approve of the Armed Forces.  But if you are clear-eyed and objective, you will recognize that the Armed Forces of the United States is an astonishingly efficient and well-run organization.  It trains its employees superbly and it manages them efficiently  With the signal and truly awful exception of sexual harassment, the military is the very model of a modern corporation.   The U. S. military never attempts to interfere in the political life of the country, it carries out the missions it is assigned with great courage and effectiveness, even when those missions are unwise in the extreme, it is almost never touched by financial scandals, and it looks after its employees much better than most private corporations.

How is the military run?  By  its senior officer corps.  And what do these men and women get paid?  Well, a four star general is paid roughly $235,000 a year, plus some perks.  In other words, a general who commands enough fire power to wipe out half a dozen medium sized countries is paid roughly as much as a senior professor at an elite Ivy League university who is probably in charge of a secretary and four teaching assistants.  No one has ever suggested that the Army will fall apart unless its senior managers are paid seventy million dollars a year.  Nor is there a disastrous flight from the ranks of the officer corps to private industry.

You say you don't like anything having to do with the military and don't even want to hear about it.  O.K.  Try Medicare, Medicaid, and Social Security.  The Federal Government spends 586 billion, 265 billion, and 680 billion for those three programs [in 2013].  They are run efficiently, honestly, and without scandal.  The Tennessee Valley Authority, the National Institutes of Health, the Post Office, The Air and Space Museum, Yellowstone National Park?  We are surrounded with efficient, honest, well-run government bureaucracies, large and small.

Will the selection, training, and oversight of the corps of government managers always be a problem, a task, a matter of the greatest public important?  Of course.  How could it be otherwise?  Is there reason to suppose that a democratic socialist government could do the job at least as well as is now being done by the boards of directors of private corporations?  Well, considering the disasters visited on all of us by the captains of industry in the private sector, I think we have reason to be optimistic about the prospects for democratic socialism.

But that is not even the most interesting question, and one of the great values of Piketty's book is that it recalls us to a really urgent question confronting modern economies, which, to use the jargon of the economics trade, is the proper choice of a social rate of savings.  Let me explain.

Each year, the economy reproduces itself.  Some of what is produced is consumed as subsistence by the working class [and also as luxury consumption by the owners of capital, but rich though they are, their annual luxury consumption is a small share of the total output because there are not many of them, and one can only buy so many McMansions and Lamborghinis.]  A good deal more is set aside as inputs required in the next round of production.  And some of it goes to replace worn-out capital stock -- i.e., depreciation.  The remainder is divided between the owners of capital in the form of profits and the workers in the form of wages over and above whatever is considered as subsistence at that time and in that society.

In a capitalist economy, the owners of capital are constantly trying to drive wages down to subsistence, and the workers are doing their best [which is often not much] to push wages above subsistence.   The outcome of this push and pull determines how much output is set aside as additional capital for future investment.  In short, the struggle between capital and labor determines the social rate of savings.

In a capitalist economy, it is extremely difficult for the society as a whole to make collective rational choices about the desirable social rate of savings.  Should the society consume most of what it produces and grow very slowly, or should it tighten its collective belt and save as much as it can so as to expand future production dramatically?  In a capitalist economy, this question cannot be raised directly, because the social rate of savings is not directly the object of political deliberation.  It is of course possible in a democratic capitalist society for the electorate, through its representatives, to seize a portion of the profit as taxes and distribute what has been seized as a supplement to wages.  The struggle over such redistribution is very much the story of electoral politics in America in the twentieth and twenty-first centuries.

In a democratic socialist society -- a society in which the great capital accumulations are collectively owned and managed -- the question of the desirable social rate of savings could for the first time become the object of collective democratic deliberation.  In a sense, the question could be put quite simply:  Shall we raise wages now and produce in the future at the same level we are producing now, or shall we hold wages steady and expand production by investing the social surplus in new plants, roads, high speed trains, and electronic innovations?

Readers of this blog know that I have had issues, personal and philosophical, with Jack Rawls.  I think, therefore, that I ought to take a moment to acknowledge that Rawls is, to my knowledge, the only major social and political philosopher in the entire history of the subject to talk about this question and recognize its important.

There is a great deal more to be said about this subject, and I will be happy to continue if anyone is interested, but 1500 words is enough as a response to a comment on a blog, so I will post this and go get a cup of decaf while the world reads what I have written [I wish!]




levinebar said...

I can't speak for the world, but I read, and look forward to the next installment

Seth said...

Thanks for the very substantial reply. I agree that there are a lot of effective government agencies. But the guardians of the public sector are our elected officials and the voting public. And as long as the public remain confused and equate any form of public sector investment with "socialism" (which they take to mean Soviet-style dictatorship), they will be divided enough to allow the ongoing sale of public policy to the highest bidders. The US military, for example, has been rapidly shifting its logistical tasks to private sector contractors. The dismantling of the public sector has been proceeding for at least 35 or 40 years, and it is hard to see how the public mood will change sufficiently to make a difference.

The future has a way of surprising us, so I will have to hope for something I'm not thinking of right now.

Seth said...

Here's a ray of hope already. The US doesn't often follow the Swiss lead on social policy, but at least this idea has the blessing of Milton Friedman and some positive press from right libertarians:

Bjorn said...

"Shall we raise wages now and produce in the future at the same level we are producing now, or shall we hold wages steady and expand production by investing the social surplus in new plants, roads, high speed trains, and electronic innovations?"

I would very much like to hear your thoughts on this question.