Socialism Within Markets: Economic Democracy from Above and Below

Socialists have long debated the possibility of markets within socialism. Today, the utopian impulse that fired the market socialist debate of the ‘90s has resurged, because there had damned well better be an alternative to extreme inequality and destroying the planet.

How to employ capitalist markets within socialism, or socialism within capitalist markets, is periodically debated on the Left without much consequence. The issue runs hot for a while, falls out of fashion, never loses its relevance, doesn’t yield a verdict, and recycles. In the 1840s it flared through the writings of Charles Babbage and John Stuart Mill. In the late nineteenth and early twentieth centuries it stayed alive in the cooperative movement and the reformist wings of Left parties. In the 1930s it revived dramatically in the historic debate over economic calculation. It has fed, ever since, a tiny cottage-industry of theory, reaching its heyday in the 1990s, when Dissent published numerous visions of market socialism. The discussion of the ‘90s was a counterword to a distinctly miserable period, a stubborn refusal to accept that neoliberalism reigns supreme and There Is No Alternative. Today the utopian impulse that fired the market socialist debate of the ‘90s has resurged, because there had damned well better be an alternative to extreme inequality and destroying the planet.

Dissent editor Irving Howe, nobly defying TINA in 1993, said he realized that many readers skipped over his many articles on market socialism. He was fine with that, conceding that these articles were sketchy, abstract, and prone to obsess over disagreements. They were not road maps to an actual future, and of course they were utopian. Howe reasoned that to be a democratic socialist, you have to have a certain amount of utopian imagination. Just because Communist utopianism turned out badly is no reason to condemn utopian thinking altogether. Demanding a better world is a necessity of the moral imagination. Moreover, he added, democratic utopianism is deeply American, running like a bright thread through the entire history and intellectual life of the USA.


The Idea of Market Socialism

The idea of market socialism dates back to the British and French cooperative traditions of the nineteenth century, which argued that there must be a way to combine socialist cooperation with capitalist markets because abolishing markets is hostile to freedom. John Stuart Mill, England’s greatest liberal socialist, said what matters is to eliminate exploitation, not markets. The growth of liberty and economic progress are linked. Any form of collectivist socialism that abolishes competitive markets is bound to thwart liberty and economic progress. Mill carefully weighed the advantages and disadvantages of capitalist, cooperative, and public ownership, advocating firm-wide (not state-wide) cooperative ownership of the means of production. He stressed that competitive markets are motors of economic growth and change—not mere conduits of state planning. The crucial thing is to devise an alternative to the sorry choice between working for oneself alone or for a master: “The aim of improvement should be not solely to place human beings in a condition in which they will be able to do without one another, but to enable them to work for one another in relations not involving dependence.”


“The idea of market socialism dates back to the British and French cooperative traditions of the nineteenth century, which argued that there must be a way to combine socialist cooperation with capitalist markets because abolishing markets is hostile to freedom.”


Mill dreaded the prospect of collectivist regimes that made everyone dependent on each other and subjected to surveillance. Pierre-Joseph Proudhon made a similar argument in France, countering Louis Blanc’s advocacy of state-supported cooperatives. Mill and Proudhon insisted that retaining the rivalry among cooperatives is indispensable to clearing room for freedom and creative ingenuity within socialism. Mill explained: “It would be difficult to induce the general assembly of an association to submit to the trouble and inconvenience of altering their habits by adopting some new and promising invention, unless their knowledge of the existence of rival associations made them apprehend that what they would not consent to do, others would, and that they would be left far behind in the race.” Competition is a problematic and necessary stimulant, “and no one can foresee the time when it will not be indispensable to progress.”

Karl Marx scathingly replied that Mill was fatuous like all other bourgeois economists, treating the bourgeois relations of production as eternal and their forms of distribution as historical, “and thereby shows that he understands neither the one nor the other.” Marxists took for granted that real socialism abolishes capitalist markets. American Socialist leader Morris Hillquit put it flatly: “There is no room in a socialist commonwealth for production for sale or for commerce.” Most non-Marxists and semi-Marxists in Socialist parties agreed. Eduard Bernstein rocked the German Social Democratic Party in 1898 by contending that Marx got many things very wrong, especially, democracy and apocalyptic proletarian deliverance. But even Bernstein did not challenge the Marxian condemnation of capitalist markets. Neither did the leader of British guild socialism, G. D. H. Cole. Christian socialists, cooperative socialists, and the German “socialists of the chair” (Kathedersozialisten) had market socialism pretty much to themselves for decades. The idea of worker-owned and/or community-owned cooperatives competing with each other in capitalist markets was not radical enough to count as socialism.


After the Calculation Debate

The debate in the 1930s over economic calculation changed this picture. Austrian economist Ludwig von Mises claimed that economic calculation is impossible in any economy lacking private ownership and a full set of markets, including capital markets. Mises taught that markets work properly only when they are embedded in a system of property rights in which private individuals are allowed to buy and sell shares in the means of production. Socialist economists Evan Durbin and Oskar Lange countered that Mises smuggled too much of his individualism into neoclassical theory. The market doesn’t care about individuals, since ownership in a market economy belongs to enterprises registered with courts. Durbin taught at the London School of Economics and was the British Labour Party’s leading economist. He persuaded key party leaders that central economic planning must be combined with market discipline, especially, getting prices right. Lange taught in his early career in his native Poland, emigrated to the U.S. in 1937, taught at the University of Chicago until 1945, served as the Polish delegate to the United Nations Security Council in the mid-1940s, and published his major work in 1936, On the Economic Theory of Socialism. He rejected the Marxian labor theory of value, accepting neoclassical price theory.

Lange and Durbin argued that socialists should retain the benefits of public ownership and centralized control by integrating market mechanisms and incentives into socialism. Lange made a detailed case for a large state sector coexisting with the pricing and market discipline of a private sector of small enterprises. State planners simulated and were instructed by the private sector’s pricing system, and planning boards set prices by adjusting to shortages and surpluses. When shortages occurred, prices were raised to encourage businesses to increase production. When surpluses occurred, prices were lowered to encourage businesses to prevent losses by curtailing production.

This was emphatically an attempt to save the state socialist model by integrating into it an important role for the market. Lange and Durbin still had centralized planners trying to replicate the innumerable and enormously complex pricing decisions of markets—a task exceeding the competence, time constraints, and knowledge of any conceivable planning board. They did not call their economic models “market socialism” and their political success was modest. Durbin and Labour economists Douglas Jay, Hugh Dalton, and Hugh Gaitskell gradually turned Labour Party economic policy in a Keynesian direction emphasizing taxation of wealth and income, macroeconomic intervention, and shifting away from the Fabian emphasis on public ownership. Jay contended that Labour should never have identified socialism with public ownership of the means of production. However, Fabians controlled the Labour Party during its postwar glory days of the late 1940s, when Labour socialized one-third of the British economy; Durbin played a mediating role between the party’s mainstream Fabian and revisionist wings before he died in 1948. After Labour fell out of power in 1951, revisionists led by Gaitskell won control of the party. Lange, meanwhile, returned to Poland in 1945, renounced his American citizenship, and more or less conformed to Poland’s Communist reality. He spent his last years teaching Polish Communists how to use modern economic tools of analysis and planning, with little mention of regulated markets.

Gaitskell and politician-theorist C. A. R. Crosland championed a type of market socialism in all but name in Britain. Their revisionist movement changed the Labour Party, emphasizing the role of markets and the shortcomings of state socialism. They made detailed arguments for expanding the cooperative sector, developing cooperative-public partnerships, establishing solidarity wage policies, accepting the mixed economy, and emphasizing democratic socialist values. But in Britain the orthodoxy to be overturned was Fabian Collectivism, a subject of little interest to Continental Social Democrats and Communists. In the 1950s Lange’s former students and colleagues in Poland revived the discussion of Lange-style market socialism. One Polish Communist economist, Wlodzimierz Brus, was the leading figure.

Brus grew up in Poland, fled to the Soviet occupation zone in Lwow (now Lviv, Ukraine) when Germany invaded Poland in 1939, and returned to Poland in 1945 with the Polish First Army. He found that his parents had perished in the Holocaust and his wife had remarried and become a Communist military official. In the 1950s Brus wrote propaganda for the Communist government of Wladyslaw Gomulka, remarried his wife, and gave mostly unheeded advice to the government on economic reforms. Brus returned to the Lange idea of market socialism, distinguishing between capacity-producing long-term production decisions and capacity-using short-term decisions. He said long-term decisions should be left to central planners, but managers could make decisions in state-owned, short-term enterprises on the basis of profitability. He opposed the dictatorial collectivism of the Soviet Union and the decentralized self-management Communism of Yugoslavia, advocating central planning with regulated markets. His case for a refashioned Lange-style market socialism made it respectable in East Europe, though Brus was expelled from the party in 1968 after he defended party reformers. He taught in the 1970s and ‘80s at Oxford, writing scholarly works on Communist reforms in Hungary and Yugoslavia.


Is there a “Feasible Socialism”?

Did a reform idea forged in Communist East Europe have any relevance to Western socialism? The answer was yes, but Brus did not traffic in assurance. He had hard-earned convictions about the tyranny and squalor of Communism and was dead serious about forging a better socialism. On these counts he was much like his fellow economic historian and market socialist, Alec Nove, a Russian exile who taught at the University of London from 1958 to 1963 and at the University of Glasgow from 1963 to 1982. Nove went beyond the standard criticisms of Stalinist excess and deformations, laying much of the blame for dictatorial socialism on Marx himself, whose few writings about the economics of socialism were “either irrelevant or directly misleading.”

Nove puzzled that anyone ever took seriously Marx’s projection that liberated multipurpose human beings would abolish the division of labor. He was incredulous that this willful credulity carried on for decades, turning Marxian utopianism into a bad religion: “It is nonsense to assert that to be a socialist, or a revolutionary for that matter, one must believe in an unrealizable utopia.” Nove and Brus took for granted the necessity of establishing political control of the major investment flows of the economy, but they were scathing about domineering central planners. So much killing and destruction had been carried out in the name of impossible goals. Market socialism, to them, was a chastened attempt to salvage something from the wreckage, focusing on the contempt for markets that too much of the socialist tradition assumed. They ended up with a feasible socialism that was hard to distinguish from Social Democracy, but being soaked in the Communist experience made them sensitive about their signature point.


“For Nove and Brus, market socialism was a chastened attempt to salvage something from the wreckage, focusing on the contempt for markets that too much of the socialist tradition assumed. They ended up with a feasible socialism that was hard to distinguish from Social Democracy.”


Nove and Brus drove European socialists to the unwelcome verdict that market socialism does not grow best out of socialism. To succeed it must be planted where markets are firmly established. London School of Economics political theorist Saul Estrin and Oxford political theorist David Miller played the leading roles in late-twentieth-century market socialist theory, and remain active in this field. University of Toronto political philosopher Frank Cunningham carries out a similar project that “retrieves” the liberal socialist tradition of Mill and Cunningham’s Canadian mentor C. B. Macpherson. Leading longtime contributors from the global South include Indian philosopher Prabhat Ranjan Sarkar, the founder of Progressive Utilization Theory, and Dada Maheshvarananda, director of the Prout Research Institute of Venezuela. In the United States, World Bank economist David Ellerman, Yale political theorist Robert Dahl, and Southern Illinois University economist Leland Stauber played pioneering roles in market socialist and economic democracy theory before their passing. Longtime theorists still active in this field include University of Maryland political economist Gar Alperovitz, University of California-Davis sociologist Fred Block, People-Centered Development Forum founder David C. Korten, University of California economist John Roemer, Loyola University political philosopher David Schweickart, and University of Michigan economist Thomas E. Weisskopf.

Alperovitz and Korten avoid socialist language; Block, Roemer, Schweickart, and Weisskopf contend that reclaiming the socialist ownership principle is crucial, as did Stauber; and Dahl said he didn’t care if his readers conceived economic democracy as a better form of capitalism or a better form of socialism. Those who embrace the market socialist name argue that European Social Democrats were wrong to discard the socialist focus on the structure of economic ownership. Reclaiming the socialist name is worth the trouble precisely because democratic ownership is a crucial factor in building a just society, but reclaiming the socialist ownership principle must be done in a way that achieves economic efficiency by accepting market discipline.

Ownership is a complex idea encompassing a variety of rights. There are four basic models of enterprise control within market socialist theory and four models of social claims to income. Social control can mean government-directed public management representing the community at the local, regional, or national level, or cooperative worker management based on individual ownership in which each member owns one share in the enterprise, or cooperative worker management in which workers own a firm collectively as a group, or a blend of public and cooperative models. Social rights to income can mean that the surplus of the enterprise accrues to the public through a local, regional, or national government agency, or to the individual members of a cooperative enterprise, or to a cooperative as a whole, or to a blend of both. These models yield multiple variations, since “public” ranges from local to regional to national and the different sets of rights do not have to be assigned in the same way.

Many market socialists minimize the complexity problem by opting for the simplest model of public or cooperative control combined with a similar right to income—centralized public management combined with public surplus appropriation, or cooperative worker management combined with worker appropriation. Centralized government collectivism, with or without markets, is at least coherent. Producer cooperatives based on one person, one vote worker-owner management have been familiar since the 1820s, while the renowned Mondragon cooperatives in Spain vest the rights of ownership in the workers as a collectivity. Many market socialists in the cooperative self-management camp favor the Mondragon model because it avoids the self-interest traps of individuated cooperatives. Those who self-identify as economic democrats while spurning the socialist category tend to be more comfortable than market socialists with pluralistic complexity and it-all-depends local circumstances, but these are mere tendencies.


“Many market socialists minimize the complexity problem by opting for the simplest model of public or cooperative control combined with a similar right to income—centralized public management combined with public surplus appropriation, or cooperative worker management combined with worker appropriation.”


Ellerman was a leading American advocate of Mondragon-style collective self-management. Schweickart espouses a worker self-management model that adds one feature of public enterprise socialism, national government control over net capital formation. Roemer backs a public enterprise model in which most of the enterprise surplus flows back to the national government and is distributed equitably to the general public as a social dividend. Stauber proposed a public enterprise model in which capital income goes to local government agencies as shareholder income and is distributed either to local citizens or used for local public purposes. Block advocates a mixed model of ownership and control that makes room for workers, outside shareholders, consumers, creditors, suppliers, and environmentalists. Weisskopf espouses a mixed model that features public control of large firms, worker control of smaller firms, public income rights, and worker income rights.

All were chastened in their early careers by the failures of market Communism in East Europe, stressing that two of the three defining features of Communism—one-party politics and command allocation of resources and commodities—have nothing to do with market socialism. The founders of Anglo-American market socialism admired their forerunners in Yugoslavia, Hungary, and Poland for doing their best with the hand dealt to them, but the East European experience showed why market socialism must build on existing markets instead of smuggling them in afterward.

Roemer became prominent in market socialist theory on the strength of his analytical acumen and his throwback collectivism. To him, socialism is not socialist without state control of the commanding heights of the economy, public ownership of enterprises, a democratic distribution of society’s economic surplus, and income equality. Roemer contends that all enterprises must be publicly owned and government must direct all investment. He distinguishes the commanding heights from lower heights without explaining how to do so in firms that produce a myriad of products. He tries to ward off centralized bureaucratic stagnation by appropriating the Japanese keiretsu model, which organizes firms into groups tied to banks that advise, lend to, and monitor firms in their group. According to Roemer, the keiretsu cluster model of chummy bankers, industrialists, and politicians is transferable to the United States and could be democratized by giving to workers in each firm the right to elect and fire their bosses. Democratizing corporatism in this fashion would swallow a bit of worker control that Roemer otherwise dislikes, since he says that cooperatives are inefficient. His version of market socialism has a blueprint mentality and a willingness to tinker with the mechanics, but the point in both cases is to save old-style collectivism. Joanne Barkan and David Belkin rightly countered that it is better to begin with the mix of private, public, and worker-controlled enterprises that already exists than to begin with totalizing dogmas of a past age.


Today’s Market Socialists

Today, Schweickart and Korten are the most widely quoted and influential figures in this discussion, from opposite flanks of the field. Korten eschews the language, history, and ideological debates of socialism, while Schweickart espouses a market socialist model that adheres to occasional price controls, market regulation, and social control of investment. Both found larger audiences after the financial crash of 2008 by contending quotably that Wall Street is hopelessly corrupt, indefensible, and should be abolished. On this subject they popularized the usual market socialist view that economic democracy completely severs the connection between savings and investment, eliminating stock markets. Control of enterprises should be vested only in public agencies serving the community, or in cooperative worker councils, or a blend of both. Schweickart argues that instead of relying on the hunches, desires, interests, and private savings of a capitalist class to decide how much societal investment is needed and where it should be invested, the entire business of business loans should be socialized. All funds for business investment should be raised from taxes, and all private financial markets should be abolished. Individuals would be allowed to save money in savings and loans banks paying modest interest on deposits, but all funds for business investment should be raised publicly, relying on a flat-rate tax on the value of a firm’s tangible property. Revenue from the property tax would be kept separate from general tax revenues and allocated to networks of regional and local banks on a regional per capita basis. Schweickart is basically opposed to economic planning, conceiving market socialism as a decentralized alternative to it, though his scheme for democratized investment through banks is a weak-control form of planning.

If we took economic democracy this far, there would be no more economic crashes because there would be no stock markets, bond markets, hedge funds, private investment banks, or private financial services of any kind. There would still be markets for goods and services, but mortgages would stay with their banks of origin and speculative financial gambling would be abolished. On occasion Schweickart has taken the next step by contending that private property itself should be abolished. We are very deep into the utopia problem and the anti-freedom problem if “real” economic democracy entails the abolition of private financial markets and private property. Utopian fantasies about abolishing capitalism have a terrible track record. Economic democracy is not incompatible with external equity ownership rights and fully functioning stock markets. Stauber restricted equity ownership and trading to public financial institutions and public enterprises, vesting each local government with an investment fund, a publicly controlled financial institution that bought and sold securities in corporate enterprises. He implored that bending capital markets to market socialist purposes retains an important engine of wealth and is workable.

I have argued since the early 1980s for an economic democracy model that operates step-by-step in pragmatic fashion, expanding the cooperative sector, adding public banks to the mix, and eschewing utopian fantasies and blueprints of a new world order requiring coercion over holdouts and departures from worldly reality. In my view the aim should be to achieve contextually optimal mixtures of public social ownership, cooperative social ownership, and private ownership. Public ownership works better than the cooperative model in industries with large economies of scale or extensive externalities, it pays greater heed than cooperatives to the needs of the entire society, and cooperatives have trouble scaling up. Cooperative ownership achieves direct, democratic, humane, interpersonal self-determination at the firm or guild level, it works better than public ownership in industries with small economies of scale and few externalities, and centralized bureaucracies tend to bloat and stagnate. Both kinds of social ownership carry the danger of discouraging entrepreneurship and innovation, and each is needed as a counterweight against too much of the other. Public enterprise socialism is susceptible to the soft budget restraint problems that plague all public enterprises, with decisions being made on the basis of political connections and inefficient agencies or firms getting financed. Cooperatives, on the other hand, are typically underfinanced because capitalist banks don’t like them and they prohibit non-working shareholders. Cooperatives maximize net income per worker rather than profits, so they tend to favor capital-intensive investments over job creation.


“I have argued since the early 1980s for an economic democracy model that operates step-by-step in pragmatic fashion, expanding the cooperative sector, adding public banks to the mix, and eschewing utopian fantasies and blueprints of a new world order requiring coercion over holdouts and departures from worldly reality.”


The latter problems reflect the virtues of cooperatives and can be mitigated with tax incentives and regulations that promote job expansion, reinvestment, innovation, and bank support. But even cooperatives aided by better financing and entrepreneurial incentives carry a bias toward capital-intensive investments. Capitalist firms readily scale up because they have structural incentives to grow under conditions of constant returns to scale. When costs-per-item are constant, capitalist firms are predisposed to grow to increase profits. Doubling the size of a capitalist firm will double its profit. Cooperatives maximize share income per worker, not total profits, so they do not automatically expand production when demand increases. Unless sizable economies of scale are involved, cooperatives have little to gain by doubling the size of their enterprises. A cooperative hardware store run by 30 people will have the same per-worker share income as a cooperative run by 60 people.

These problems drove Estrin to his signature proposal—run the capital of cooperative enterprises through semi-autonomous holding companies that don’t allow cooperatives to stagnate. Three precursors of this proposal are significant. English Anglican archbishop William Temple, in 1941, proposed an excess profits tax to generate social funds that would gradually acquire decentralized democratic control of major enterprises. He called it a revised guild socialism. In the late 1960s the German Trade Union Confederation (DGB) proposed to create worker-controlled company funds by taxing major company profits. The DGB said something had to be done to break West Germany’s worsening spiral of inequality. In 1975, Swedish union economist Rudolf Meidner put his name on the social fund idea. Meidner and economist Gösta Rehn, working for the Confederation of Swedish Trade Unions (LO), had devised the two-track system that built the Swedish welfare state—a wage-bargaining system featuring a solidarity wage policy and a state-run pension system built on collective savings, combined with a trade policy emphasizing high-tech exports. The Rehn-Meidner Model set wages to ensure equal pay for equal work, assigning high rates to inefficient firms and low rates to competitive firms. Inefficient firms were forced to improve or die, promoting efficiency and equality. The state retrained and relocated displaced workers, eroding the connection between the marginal productivity of individual firms and wage rates. Swedish Social Democracy created the most egalitarian society in Europe by minimizing the life-determining role of the market. It was so successful that proposals to improve it felt like overkill, until the LO pressed for economic democracy.

The Meidner Plan for Economic Democracy called for an annual 20 percent tax on major company profits to be paid in the form of stock to eight regional mutual funds. Worker, consumer, and government representatives controlled the funds. As their proportion of stock ownership grew, these groups were collectively entitled to representation on company boards. Locals and branch funds jointly held voting rights of the employee shares. In 1976 the LO formally adopted the Meidner Plan and the Social Democrats had an anguished debate over it. Prime Minister Olof Palme pleaded that Sweden didn’t need to socialize the economy; ordinary social democracy worked just fine. The Social Democrats beat the second-place Centre Party in 1976 but lost the election, thwarted by campaign attacks on Meidner socialism. In 1982 the Social Democrats regained power and enacted a weak version of the Meidner Plan but downplayed it as much as possible, trying not to scare the investor class. A 40 percent ceiling was placed on the amount of stock the eight funds in total could own of any single firm, and the funds were managed conventionally. Still, even with a 40 percent ceiling the Meidner Plan would have eventually rendered effective control over Swedish companies to the worker and public organizations. Since the funds represented part of workers’ compensation, the plan contained a built-in system of wage restraints and facilitated a new form of capital formation. It required no program of nationalization, and investors still sought the highest rate of return. The Meidner Plan separated risk in production from entrepreneurial risk, assigning production risks to worker-managed enterprises and entrepreneurial risks to the holding companies.


After the Meidner Plan

The fate of the Meidner Plan is a symbol of our time. Unionists and Social Democrats stressed that benefits from the capital fund accrued to all wage earners, and the plan traded wage restraint for greater control over investment capital. Big-business groups howled against it incessantly, determined to kill it. They protested that small businesses didn’t have to pay the tax and charged that unions were consumed with power lust. The capitalist class inveighed against its loss of control. Stock markets are the home turf of financiers, a privilege that Swedish capitalists defended aggressively. Managers of the worker funds, trying to legitimize themselves to the financial class, managed like ordinary fund managers, but that made the whole enterprise abstract to the general population.

Palme did the minimum for the worker funds, and in 1986 he was assassinated. To stir popular support, Social Democrats needed to back up the plan with industrial policies targeting specific needs–things that citizens could see at work in their communities during the period that Sweden’s shipbuilding industry and other pillars of the manufacturing base were restructured. Instead, the charter for the Meidner Plan expired in 1990, and the Social Democrats lost the 1991 election. The following year Conservatives wound up the social funds, which owned 7 percent of Sweden’s stock market, using the proceeds to finance scientific research institutes. Sweden had a banking crisis in 1992, which it resolved by nationalizing the banks, and in 1994 the Social Democrats regained power as the party best suited to manage the turbulence of economic globalization and nationalized banks. They stabilized the currency, got the government’s fiscal house in order, swore off economic democracy, and scaled back their historic achievement, the Swedish welfare state.

Estrin fixed on a seemingly minor aspect of this sad story. To Meidner, the new entity needed to manage the funds was merely instrumental. Estrin fixed on the new entity, stressing that it could be a creative firewall between the state and enterprise management. Whatever problems economic democracy faced at the real-world political level did not obviate that the Meidner Plan held the answer to the knottiest of the theoretical-implementation problems. The answer was to place a semi-autonomous investment agency or holding company between the state and the enterprise, giving it the authority to make investment decisions. The holding company would vest the ownership of productive capital, loan capital to enterprises at the market rate of interest, pay attention to market signals, and shut down inefficient firms.

Miller endorsed Estrin’s scheme and shared Estrin’s interest in applying it only to cooperatives. But Roemer, Nove, Block, and Weisskopf also endorsed it, reasoning that it better applied to public enterprises or mixed models. They concurred with Estrin that establishing separate entrepreneurial institutions might be the best way to solve the hard problem of making socialism more entrepreneurial. Every form of social ownership must ward off partisan interference, corrupting influences, and insularity. Estrin rightly cautioned that cooperatives have inherent limitations that often cause them to underperform at entrepreneurial creativity, innovation, and reinvestment. His scheme stretched the capital supply constraints of worker ownership by compelling the holding companies to maintain an arms-length relationship with cooperative firms. Basically, it was a public bank scheme to help cooperatives scale up, which Roemer and Block subsequently applied to public enterprises.

The key problem with Estrin’s proposal is that it weakens workers’ power at the firm level. To the extent that the holding companies are granted supervisory control over their client enterprises, worker control is diminished. To the extent that the holding companies are kept in a weak position, the advantages of the mutual fund model are traded off as the enterprises essentially became cooperatives. Estrin and Miller said the holding companies should provide capital to cooperatives without exercising control rights that thwart self-management. Roemer and Block said the opposite—the holding companies should monitor the enterprises closely, and undoubtedly would in any case. The latter outcome is more likely, by design or not, because Estrin’s version depends on a demanding form of civil service. The asset managers maintain a supervisory distance from the asset users and a financial and entrepreneurial commitment to the users. The holding companies are asked to bear substantial capital risks while having little or nothing to say on decisions affecting the risks. The mutual fund model may in fact displace cooperative ownership or public ownership of the commanding heights with semi-distant public bank finance.

Market socialists are usually willing to say that capitalist markets are economically efficient, get prices right, increase freedom of choice, and decrease the power of bureaucracy. They also insist, rightly, that consumers are not sovereign, markets do not distribute goods and services justly, and markets do not foster healthy persons and communities. Belkin and economist Frank Roosevelt, introducing their valuable reader on market socialism in 1994, stressed that market socialism is novel only in name. Socialists have recognized “for as long as there have been socialist movements” that relying on the state to coordinate and direct economic activity is very problematic. Market socialists usually claim to uphold the socialist principle that markets should operate within plans–until they get to specifics, where many just mean that social democratic interventions such as solidarity wage policy or co-determination should operate within markets.


“Market socialists usually claim to uphold the socialist principle that markets should operate within plans–until they get to specifics, where many just mean that social democratic interventions such as solidarity wage policy or co-determination should operate within markets.”


American socialist leader Michael Harrington, in his last years, offered a telling example of moving from the former position to the latter, while fudging the difference, being constrained by his leadership roles. In the 1970s Harrington contended that true socialism, which he called “socialist socialism,” must be marked off from two things not deserving the name—the “socialist capitalism” of Social Democratic parties that humanized capitalism and the “capitalist socialism” of Soviet-style Communist regimes that imposed dictatorial rule and economic planning from above. Harrington argued that the real thing features public ownership, Lange-type partially decentralized democratic planning, and partial decommodification. True socialism has a central plan that operates in decentralized democratic fashion. The market should operate within an economic plan without determining its basic priorities.

In May 1981, Harrington was thrilled when his socialist friend Francois Mitterrand was elected president of France. Mitterrand enacted his entire campaign program, nationalizing banks and key industries, increasing social benefits, instituting a 10 percent increase in the minimum wage, and enacting a solidarity tax on wealth. He sought to boost economic demand and achieve full employment with a stimulus designed to help the poorest the most. But the economy stagnated, unemployment worsened, the Bank of France maintained a stringent monetary policy, and the franc was devalued three times. In 1982 Mitterrand retreated. In March 1983 he caved entirely, imposing austerity policies that wrung inflation out of the economy. Harrington was deeply chastened by the spectacle in France. Nationalizing the banks had not worked and neither did Mitterrand’s Keynesian stimulus. Harrington said the world was going through a wrenching structural transition that couldn’t be helped. He grew fond of saying that any idiot can nationalize a bank. For the rest of his life, Harrington spoke about the market operating within a plan, but in fact, he advocated Social Democratic plans within markets—solidarity wages, full employment, co-determination, and Meidner-type proposals. He denied that he had retreated from socialism, declaring in 1986: “To think that ‘socialization’ is a panacea is to ignore the socialist history of the twentieth century, including the experience of France under Mitterrand. I am for worker- and community-controlled ownership and for an immediate and practical program for full employment which approximates as much of that ideal as possible. No more. No less.”

He had landed near Nove, who admitted that he struggled to identify the precise difference between social democracy and market socialism. Some hold fast to the difference that market socialists intervene before markets operate and social democrats usually intervene afterward. On this telling, social democracy is more vulnerable to buckling under political challenge because its interventions are easier to reverse than changes in property rights. But markets already operate everywhere that market socialists propose to install socialist planning. Market socialism only sounds more radical than economic democracy. When the market-and-plan discussion cuts to specifics, market socialists and economic democrats push for the same thing: achieving as much economic democracy as possible under the constraints of politics and efficiency.


Socialism Against Climate Disaster

We need new forms of social ownership that are entrepreneurial and innovative, facilitate capital formation, have a capacity for scaling up, make room for everyone, and don’t replicate the bloated bureaucracies of centralized state socialism. The Meidner Plan was, and is, the best example of a “non-reformist reform,” a mere reform that would transform the system if enacted. Always there are trade-offs to negotiate concerning how much supervisory control to grant the holding companies. The investment agencies envisioned in public bank theory diminish democratic worker control in cooperatives and compel fund managers to play a competitive game on behalf of the common good, making stringent demands. But these trade-offs are inherent in the attempt to make democratic socialist values work within capitalist markets and capitalist societies.

Neoclassical theory pictures the economy as an isolated system through which exchange value circulates between firms and households, but the environment is everything bundled together from the inside-out with feedback loops and interconnected wholes. Lacking a fundamental course correction in the modern way of life, the earth is condemned to overheat, choke on its waste, exhaust its resources, and turn on its human destroyers. Nobody is willing anymore to build a fossil fuel plant without the promise of endless government subsidies. Instead of subsidizing more of that, the U.S. could invest in the green economy of a shared future, guided by the values of democratic socialism, with or without the name.

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Gary Dorrien teaches at Union Theological Seminary and Columbia University. He is a member of the Advisory Board at the Institute for Christian Socialism. His many books include The New Abolition: W. E. B. Du Bois and the Black Social Gospel, which won the Grawemeyer Award, and Breaking White Supremacy: Martin Luther King and the Black Social Gospel, which won the American Library Association Award, both published by Yale University Press. This article is adapted from American Democratic Socialism: History, Politics, Religion, and Theory (Yale University Press, 2021).

Photo credit: Creative Commons 2.0. Photo by Janine and Jim Eden/Flickr.


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