Socialist economics
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Socialist economics is a broad, and sometimes controversial, term. It can refer from the theories of Keynes to the Five Year Plans of Stalin.
All socialist economic theories and arrangements are united by the desire to give the worker greater control of the means of production.
Socialist economics is a term which refers in its descriptive sense to the economic effects of nations with large state sectors where the government directs the kind and nature of production. In a normative sense, it applies to economic theories which advance the idea that socialism is the best form of economic arrangement, or solution to a particular problem.
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Introduction
The word "socialist" is highly charged politically. Everything from Keynesian economics and post-Keynesian economic theories to Stalinism and Maoism has been labelled "socialist economics".
Socialism has been used both as a banner and an epithet. In the former Soviet Union, 'Socialist economics' meant communist party doctrine and theory. In other countries, for instance the USA, political opponents of a particular policy might label it "socialist" or "communist" as a way of making it unpopular. Everything from public medical care to labelling of medicines and foods has been labelled "socialist economics" from time to time.
In its most technical sense, a "socialist" economy is defined in terms as absolute as a capitalist economy: "a centrally planned economy in which the government controls all means of production" in the words of Robert Heilbroner. Two features, planning and government control over production, are the matter of the most intense debate. If a government purchases an aircraft carrier and creates a demand for spin-off products, is it socialism?
Broadly speaking, socialism can be divided into three categories: revolutionary socialism, derived from the theories of Karl Marx, which describes the necessity of a "dictatorship of the proletariat", democratic state socialism, which envisions a democratically elected government with ownership of the "commanding heights" of the economy, and the social democracy which envisions socialism within the context of corporations and specialization of production, often in cohabitation of elements of capitalism.
While socialism is usually associated with the political left, it is important to remember that some of the methods adopted by socialists were also adopted by liberals, fascists and other political doctrines. In themselves, planning and public ownership need not be socialist. What is distinctively socialist is the intention that these tools are used to further workers' control, not merely their happiness (as in liberalism), and not the interests of a political elite (as in far-right doctrines).
Development of Socialist Economic thought
Main article: History of socialism
Socialism, as with capitalism and communism, has deep roots in Western history, from religious communes in the medieval period, through patents of monopoly granted by monarchs, state control or planning of production, or the sharing of the social surplus.
With the rise of the ability of technology to make significant strides in production that socialism and capitalism emerged in their modern forms, disagreeing particularly on a single question: could the operation of an unregulated market be sufficient to restrain those who owned capital from excessively exploiting their fellow men, or coming into an alliance with the military power of the state to suppress the legitimate aspirations of the broad majority of the population? Capitalists answered "yes", and socialism, to one degree or another answered "no".
Within this context socialism has undergone four periods: the first in the 19th century of socialism as a political doctrine held largely by the emerging intelligentsia of Europe (1780-1830), the rise of revolutionary socialist and communist movements in the 19th century as the primary opposition to the rise of corporations and industrialization (1830-1916), the polarization of socialism around the question of the Soviet Union, and adoption of socialist or social democratic policies in response (1916-1989), and the response of socialism in the neo-liberal era (1990- ). As socialism developed, so did the socialist system of economics.
Utopian socialism
The first theories which came to hold the term "socialism" began to be formulated in the late 18th century, and were termed "socialism" early in the 19th century. The central beliefs of the socialism of this period rested on the exploitation of those who labored by those who owned capital or rented land and housing. The abject misery, poverty and disease to which laboring classes seemed destined were the inspiration for a series of schools of thought which argued that life under a class of masters, or "capitalists" as they were then becoming to be called, would consist of working classes being driven down to subsistence wages. (See Iron law of wages).
Socialist ideas found expression in utopian movements, which often formed agricultural communes aimed at being self-sufficient on the land. These included many religious movements, such as the Shakers in America.
In economic terms utopian socialism had little to offer. In theory, economic problems were dissolved by a utopian society which no longer had unlimited wants. In practice, small communities with a common spirit could resolve allocational problems.
Socialism and political economy
The foundations of socialism as a theory of political economy would be laid by many of the same people who are considered the basis of all economic theory: Smith, Malthus and Riccardo. In Smith there is a conception of a social good, which should not be, or cannot be provided by the market, and the concept of rent as being unproductive, and therefore taxable. The question of whether the renting class is too great a danger was pondered by Ricardo, who felt them to be parasitic on the economy. This, and the possibility of a "general glut", an over accumulation of capital to produce goods for sale rather than for use, became the foundation of a rising critique of the concept that free markets with competition would be sufficient to prevent disastrous downturns in the economy, and whether the need for expansion would inevitably lead to war.
The General glut problem can be phrased this way: as labor becomes specialized, if people want a higher standard of living, they must produce more. However, producing more lowers prices (See Adam Smith, Wealth of Nations, Book II) and leads to the need to produce yet more in response. If those who have money choose not to spend it, then it is possible for a national economy to become glutted with all of the goods it produces, and still be producing more in hopes of overcoming the deficit. While Say's Law supposedly dealt with this problem, successive economists came up with new scenarios which could throw an economy out of General equilibrium, or require expansion through conquest, which became termed imperialism.
At this stage the theories of Malthus also became widespread. He recognised that an increasing population would get diminishing returns from the same amount of agricultural land, and that for each person there would be less and less food produced. This doomsday scenario indicated a potentially serious failing in the economic system.
Another school of thought was that of the French radicals, exemplified by Pierre-Joseph Proudhon who is most famous for saying 'property is theft'. In their view the existence of personal property was against fundamental aspects of humanity.
However, these schools of thought offered few practical solutions to economic problems. Malthusian diminishing returns did not arise, because of improvements in productivity. the General Glut remained an unsolved problem until Keynes. And Proudhon and other radicals were more political theorists than practical economists.
Das Kapital
Karl Marx is the first socialist to take a capitalist theory of political economy seriously, and rather than simply dismissing it as exploitative, seeks to use its own systematic exploration as the basis for proof that it is internally contradictory. He accepts a labor theory of value from Adam Smith, a market conception of capital as money from JS Mill, a theory of exchange from Ricardo.
His approach, which he dubbed "scientific socialism", would stand as the branching point in economic theory: in one direction went those who did not accept that the capitalist system could ever be self-regulating, and in the other, those who believed that, while intervention and regulation might be required, that the surplus of people's efforts was best allocated through the free market.
Das Kapital is one of the many famous incomplete works of economic theory: Marx had planned four volumes, completed two, and left his collaborator Engels to complete the third. In many ways the work is modelled on Adam Smith's Wealth of Nations, seeking to be a comprehensive logical description of production, consumption and finance in relation to morality and the state.
It is a work of philosophy, anthropology and sociology as much as one of economics. However, it has several important statements:
- Capitalists derive surplus value from the workers
- Workers are alienated from the capitalist system
- Capitalism will go through successive crises until it falls apart
- A revolution by the workers is inevitable, which will bring about a socialist and then a communist state.
Of these, only the first is really an economic statement. However, the idea of surplus value gave theoretical justification to all of the proto-socialist feelings. And the drive to find a practical system to remove surplus value, form a workers' community and either replace or modify the capitalist system gave 20th century socialism its life.
After Marx
Marx's work emphasised the existing differences between the revolutionary and non-revolutionary socialists.
The non-revolutionary socialists took inspiration from the work of Keynes and the Keynesians, who provided theoretical justification for (potentially very extensive) state involvement in an existing market economy. If the business cycle could be solved by national ownership of key industries and state direction of their investment, there would be no need for an ultimate crisis and no need for revolution.They were also heavily influenced by the trade union movement.
Revolutionary socialists were confronted by the necessity of running an economy, and generally a war economy, and developed ideas and practice in response to the situations they found themselves in.
Socialist Economies In Practice
A wide range of explicitly socialist economic systems have been constituted, and some still survive (or survive in part) today.
Western Europe
Many of the industrialised, open countries of Western Europe experimented with one form of socialist development or another during the 20th century. They can be regarded as social democratic or state capitalist experiments, because they univerally retained a wage-based economy and private ownership of some of the means of production.
Nevertheless, many Western European countries tried to restructure their economies away from a pure capitalist model. Elements of these efforts persist throughout Europe, even if they have repealed some of the more extreme measures.
They are typically characterised by:
Nationalisation of key industries, such as coal, steel, power, and transportation. These were referred to in the UK as the 'commanding heights' of the economy. in various countries other large industries were nationalised, e.g. aircrafts, pharmaceuticals. A common model was for a sector to be taken over by the state and then one or more public corporations set up for its day-to-day running. Socialist advantages to nationalisation were:
- The ability of the state to direct investment in key industries
- The redistribution of profits from those ndustries for the national good
- The ability to direct producers to national rather than market goals
- Greater control of the industries by and for the workers.
Redistribution of wealth, typically by punitive taxation of high earners. The UK at its most extreme saw marginal tax rates of 80% on very high incomes, rising to 98% of 'unearned income'.
Minimum wages, employment protection, and trade union recognition rights for the benefit of workers. There were a number of different models of protection and trade union protection which evolved. Germany, for instance, appointed union representatives at high levels in all corporations and had much less industrial strife than the UK, whose laws encouraged strikes rather than negotiation. The objectives of these policies were to redistribute and to help produce full employment.
National planning of industrial development.
Demand management in a Keynesian fashion to help ensure economic growth and employment.
The USSR & Eastern Europe
The USSR and its European satellites aimed for a fully socialist economy. They dispensed almost entirely with private ownership of capital. Workers were still, however, effectively paid a wage for their labour.
Unlike the Western European attempts, the USSR exhibited genuine public ownership of all of the means of production. According to Marxist theory this should have been a step towards a genuine workers' state.
The characteristics of this model of economy were:
Production quotas for every productive unit. A farm, mine or factory was judged on the basis of whether its production met the quota. It would be provided with a quota of the inputs it needed to start production, and then its quota of output would be taken away and given to downstream production units or distributed to consumers.
Full employment by fiat. Every worker was allocated to a production unit, therefore all were employed.
Clearing goods by planning : if a surplus of a product was accumulated, then the central planning authority would either reduce the quota for its production or increase the quota for its use.
Workers Councils in control both of production units and of the state apparatus.
Five Year Plans for the long-term development of key industries.
In this system there was 'no need' for many of the policies of a social democrat state. Workers were employed by definition. Redistribution was unnecessary, because of the abolition of the capitalist class. Trade unions were unnecessary because workers ran everything. Demand management was unnecessary because goods went where they were told.
Indian Socialist Economics
Main article: Economy of India
After gaining independence from Britain, India adopted a broadly socialist approach to economic growth. Like other countries with a democratic transition to socialism, it did not abolish private property of capital. India proceded by nationalisation and redistribution in a manner more similar to Western European nations than to the USSR or China. It did however adopt a very firm focus on national planning with a series of Five-Year Plans.
Chinese Communist Economics
Main article: Economy of the People's Republic of China
China embraced a wholehearted socialist model after the Communist victory in its Civil War. Private property and capital were abolished, and various forms of wealth made subject to state control or to workers' councils.
The Chinese economy broadly adopted a similar system of production quotas and full employment by fiat to the Russian model. In the large agricultural sector, the state simply replaced peasants' existing warlord or landlord.
The Great Leap Forward saw a remarkable large-scale experiment with entirely abolishing wages based on work. Agricultural workers were assured that they would receive food regardless of the output of their village. This system was abolished soon afterwards, and is often considered to be one of the reasons for a significant famine in China in the 1960s.
In recent decades China has opened its economy to foreign investment and to market-based trade. It has carefully managed the transition from a pure socialist economy to a mixed economy.
Relation to other economic theories
In many senses socialist economics is the polar opposite of classical economics. While classical theories are about free markets producing allocative efficiency with no regard for the nature of the community that uses the goods, socialist theories are about abolishing markets and creating a socialist community with less regard for allocative concerns.
The aim of implementing a socialist ownership structure is to create an economy that acts in the direct interest of workers, members, or the general populace, rather than a capitalist class. This is the source of the Economic calculation debate, an old argument between socialist and free market / Austrian school economists. Here the Austrian school economists have argued that the denial of private property ownership - as nearly all models of socialist economics promote - would inevitably create worse economic conditions for the general populace than those that would be found in market economies. Socialists, of course, refute this claim and argue that an economy based on private property inevitably benefits the wealthy few in the detriment of the poor and middle classes.
Many liberal or libertarian societies nevertheless allow the existence of some groups or institutions with a socialist flabour. Cooperatives or communes have existed, and competed, in market economies like the United Kingdom and Israel. Similarly, many western economies have had state controlled businesses compete against private companies, or state monopolies in some critical areas of otherwise market economies - for example Telstra in Australia.
While socialist economics can be green economics, it is not necessarily . Economic bodies with socialistic ownership structures are not inherently more environmentally concerned than traditional businesses. The massive environmental pollution caused by the communist Soviet Union hints towards the opposite.
See also
- Economic calculation debate
- Feminist economics
- History of economic thought
- Primacy of economics in politics
- Labour economics
- Marxist economics
- Syndicalism
- Welfare economics
