Political and economic thinking is currently dominated by neoliberal economic ideology and, in the mature capitalist societies, socialism as a counter ideology has weakened in the public consciousness. Market socialism, which blends public ownership with a market economy, is a practical political course involving a gradual reversion to public ownership, mutualisation and indicative planning. While market socialism has flaws, it is a step away from neoliberal policy and a movement towards social-democracy, writes David Lane.

‘We cannot rebuild this economy on the same pile of sand’. So said President Obama in surveying the effects of the global crisis in the USA on 29 April 2009. The extent of economic dislocation was overwhelming. The capital equity loss of US banks was 3.6 trillion dollars. Unemployment shot up and many people have been pushed into poverty. But Obama’s electioneering slogan: ‘Yes we can’ has yet to be realized. Under the sand was a concrete pillar of neoliberalism. None of the tenets underlying neoliberalism has been undermined. Incumbent Leftist politicians (such as Gordon Brown, Barack Obama, Ed Miliband) have sought to correct the economic mechanism rather than to challenge the economic and political basis of neoliberalism.

However, markets repeatedly create situations of financial failure (which reward financial executives and penalize tax payers) and economic breakdown (with respect to growth, equality, employment). Electoral democracy generates the same kinds of economic and political leaders.

Resistance to Change

The reason that neoliberalism has proven so resistant to change is because it infuses not only the financial sector, but also electoral politics, academia (especially economics) and media. These mould the public outlook. The globalisation of capital weakens the nation state thus limiting the electoral system as a vehicle of change.

Outside the ruling political classes, the Left has been particularly reticent to articulate an alternative. Many have recognized the public’s aversion to socialism and the weakness of the socialist movement consequent on the decline in the trade union movement and the disappearance of the traditional working class. Consequently, ideas of market socialism have been put to one side. Whereas the Right, in the form of the Front National in France, the Tea Party in USA and even UKIP, has more radical approaches and growing support and political influence. Extra political movements (‘Occupy Wall St’) vent their anger but lack a coherent alternative.

In conjunction with current austerity policies and growing unemployment, now may be the time for a revival of market socialist ideas. While such proposals have drawbacks, they also have some merits.

The Market Socialist Idea

The key idea, according to British political scientists such as Julian Le Grand and David Miller, is that market socialism retains the market mechanism while socializing the ownership of capital. The thrust of this social-democratic approach is that markets not only promote efficiency but also freedom and democracy thus giving wide political appeal.

‘Social ownership’ can take many forms. Cooperative ownership is highly favoured. Employees do not own their machines or enterprises, which would be regarded as a form of employee capitalism. In many versions, enterprises have the rights to use and draw income from their assets, whereas investment agencies own the capital and take strategic management decisions. But each enterprise has a democratic form, and employees’ control is one of them.

A consequence of a market socialist policy is that companies which fail the public and are clearly lacking in public responsibility would be socialized. Currently, the banking, energy industries and rail transport would be prime candidates. Economic policies could be carried out within the capitalist framework to restore growth and employment. It would allow forms of indicative planning to be introduced which would further enhance public control.

Preserving the Market

While socializing property, policy would preserve much of the appeal of market capitalism and diminish the perceived flaws of socialism. As the socialist ethic is thinly spread, the proposal has an advantage in maintaining the current market linkages of productive enterprises. It has the benefit of applicability in societies in which most of the media, academia and the public are hostile to socialism but positive to democracy. Such policy, when shown to be successful, could be extended to include other large corporate firms.

This line of reasoning has been developed by the American economist, James Yunker. He emphasizes the ways in which ‘pragmatic market socialism’ reduces inequality while concurrently preserving the current consumer culture. He recognizes that some capitalists, providing entrepreneurship roles in the present or the past, have a legitimate right to a profit as a reward for their effort. However, really large capital fortunes are a consequence of inheritance, as well as illegitimate rewards for speculation in financial capital markets. Such income is neither economically necessary nor is its receipt morally equitable.

His proposal is for the public ownership of all large, established business corporations. Whereas small and medium enterprises remain unchanged under private ownership. These include retail trade, family farms, professional partnership and entrepreneurial firms.

Feasibility

Profit maximization would remain the motivation of the business entrepreneur. Market competition would continue giving profits or incurring bankruptcy. The objective would be to achieve a greater degree of equality in the distribution of capital property. Capital property income is unearned, and its highly unequal distribution represents a ‘moral liability’. Such property would be ‘surrendered’ to public ownership. However, profits from genuine entrepreneurship and innovation continue and act as incentives. And income would carry on being used as people wished – luxurious and conspicuous lifestyles could continue.

The retention of many aspects of capitalism, concurrent with the introduction of socialized property and planning, is held to have more appeal to the public. Many then, such as politics lecturer Christopher Pierson, contend that market socialism’s feasibility outweighs the loss of the scope and purity of the socialist agenda. Socialization of the economy as well as public control could be introduced in a piecemeal fashion forming a hybrid system.

Shortcomings

If seen as an end point, market socialism is open to significant criticism. Capitalist values of competition and the profit incentive are still in place and might defeat the socialist elements introduced by social ownership. Such policies, it might be conceded, are forms of democratic capitalism with socialist characteristics. Levels of inequality, even reflecting a positive contribution to the economy, would not be accepted by many on the Left.

Market socialists may be faulted for oversimplifying their proposals for a hybrid economic system. Autonomous enterprises seeking market efficiency require incentives and their success is measured in terms of profitability. This in turn, not only generates inequality but undermines socialist values. Market forces, even in the context of public ownership, would entail a level of economic anarchy and uncertainty. The rich would prosper at the cost of the poor. Competition promotes individualism which is psychologically positive for the winners but depresses the losers.

The market also has to be contextualized in the framework of a global capitalist economy which further complicates the installation of market socialism on a country basis. The nation state loses its coordinating economic powers. Transnational corporations, if confronted with nationalisation, would not meekly ‘surrender’ the ownership of their assets, even with compensation.

Conclusion

Market socialism has the advantage not only of strengthening democracy but also of moving in the direction of socialism within capitalist market societies. There would be positive achievements in terms of the allocation of capital and distribution of income. It has some appeal even to those skeptical of planning and state management. As a minimum programme, it would reverse financialisation and install public ownership over failing companies. Finally, it would extend the much valued social good of democracy in the form of cooperative and employees’ control.

Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.

About the Author

David Lane has been Professor of Sociology at Birmingham University and is currently Emeritus Fellow of Emmanuel College, Cambridge University. His most recent work is The Capitalist Transformation of State Socialism: The making and breaking of state socialist society and what followed (Routledge 2013). He has written widely on socialism and post socialism, as well as on elites and classes. (photo of David Lane © Roeland Verhallen – www.roelandverhallen.com)