After I went to bed last night, I lay awake thinking about some of what I wanted to say regarding how socialism would work in practice, but when I got up this morning, I discovered that after I had retired for the night [I go to bed at about 8:30 and get up at 4:30] several folks had written comments saying much of what I wanted to write, in particular, william u. His comments are too long to reproduce here, so let me suggest that interested readers go back and look at the comments to the February 4 post entitled “AND NOW, A RESPONSE TO JERRY FRESIA.” I shall be building on what was said there and connecting it to things I have written or that I have been thinking about.
First, a quick word about the phrase “creative destruction” as a description of capitalism. I associate it with the work of Joseph Schumpeter, but when I read the remarkably good Wikipedia entry on the term, I discovered that it has a considerably richer provenance. Check it out.
Now, to the matter at hand. In my paper “The Future of Socialism,” archived at box.net, I began by quoting a famous passage from the Preface of Marx’s 1859 work A Contribution to the Critique of Political Economy. Here it is:
“No social order disappears before all of the productive forces for which there is room in it have been developed, and new, higher relations of production never appear before the material components of their existence have matured in the womb of the old society.”
This is, I believe, one of the deepest and most important things Marx ever said about capitalism, and my essay is little more than an extended meditation on its implications. Early 20th century critics of socialism, like Ludwig von Mises, taking the Soviet experiment as their model, argued that since the unfettered market was a more efficient mechanism for attuning supply to demand than a central planning committee could ever be, socialism would inevitably fall short of what could be achieved by capitalism. In my paper, I argued that von Mises was right about capitalism as it had until that time developed, but that the further development of capitalism had superseded the market as a mechanism for decision-making, so that the internal corporate managers of modern large-scale capitalist enterprises inevitably and unavoidably were compelled to engage in what a Soviet commissar would consider central planning. The only difference was that while the operations of the firm had been socialized, the ownership and control remained private. I developed this argument with the help of a rudimentary example and some insights gleaned from the writings of a Canadian theorist of cost accounting.
The enormous growth of capitalist firms and their inevitable internalization of decisions previously made by the impersonal workings of the market was one of the two major developments taking place within the womb of capitalism that, as I saw it, were preparing the way for socialism. The other, which is the focus of william u’s insightful comment, is the divorce of legal ownership from actual management of modern corporations, first anatomized in the classic 1932 work by A. A. Berle and Gardiner Means, The Modern Corporation and Private Property. William u. may be a trifle starry-eyed when he says “In a modern economy, the separation of ownership (the shareholders) and management makes the transition from capitalism to market socialism "almost" painless,” although I read that statement as somewhat tongue in cheek, but his instinct is spot on.
Without these two developments, the transition from capitalism to socialism is doomed to failure, for very much the reasons urged by von Mises. With them, the transition, while hardly inevitable [for the reasons cited in the latter portion of my paper], becomes genuinely possible.
But what of innovation, the creative destruction legitimately celebrated by Schumpeter? Once again, I cannot do better than quote william u: “What about entrepreneurship, you ask? Where are the innovative new firms going to come from? Well: what do Silicon Valley entrepreneurs want today? In the short term, they want to attract venture capital; in the long term, they want to go public or sell to the likes of Google. Now, replace the venture capitalists and the IPO buyers with managers of social wealth funds, and replace Google with.... well, the publicly owned version of Google. The entrepreneur, after his successful IPO or sale, can either retire to a well-earned life of leisure (although not as leisurely as now -- maybe mere millions instead of hundreds of millions), stay on as manager, or start his next firm.”
Von Mises was right that nothing beats the market as a measurer of effective consumer demand. Let the buyers decide whether [to use the example with which I begin my paper] they want Betamax. Clearly those who manage the social wealth funds must be motivated in some way to search for the most successful entrepreneurial proposals. I am too old to place my faith in the higher morality of Socialist Man. There need to be consequences, as there are now, for wrong choices, consequences balanced by rewards for right choices. Those like myself who are risk averse can choose safer, quieter, less well-compensated careers.
Will this be the embodiment of Marx’s famous slogan, From each according to his ability, to each according to his needs? No. But for the purists, I would remind you that this was to be the fundamental principle of communism. Socialism, the way station to communism, would instantiate a different slogan: From each according to his ability, to each according to his work.