Justin, democracy is a two-edged sword

Justin Schwartz jschwart at freenet.columbus.oh.us
Thu Nov 10 08:00:38 MST 1994

On Wed, 9 Nov 1994 tgs at cunyvms1.gc.cuny.edu wrote:

> Justin,
> Thanks for the recent post on market socialism. When I have the time,
> I want to respond to it at length.  But here's a point I want to make now:
> You say that Andrew and I are foolish that democracy is the solution for
> planning.  In democracy, you have said many times, my single consumer
> input/vote gets lost among a million others.
> Let's accept this for the sake of the argument (I'll trash it in a bit).
> You also say, however, that in your market socialist scheme, there will be
> not only a market run by producers, in their individual firms, but also a
> DEMOCRATIC state, which will regulate this market to see to it that it
> does not become inegalitarian.
> My point: Your centrallized state model of democracy would work not better with
> market socialism than it works with planning.  How can my vote, lost among
> a million others, stop corruption?

Quite right, the inherent limitations of large-scale democracy are quite
general and apply to any democratic society, socialist or not, market or not.

A couple of things will tend to reduce corruption and undue influence on
the government by wealthier firms (not the same thing) in market socialism:

With regard to the latter, even more successful firms will be much
smaller. This is because cooperatives only grow to the size where they can
take advantage of economies of scale and not beyond, because taking on new
workers who don't add to profits reduces the shares of profit for each
cooperator. So we won't have an economy dominated by giant corporations.
Smaller firms have ipso facto less wealth and less influence.

With regard to corruption, both of firms and the state, first of all, I
wonder how significant this is. It depends, in Italy or Russia, very,
but rather less in the US or Western Europe. The extent of corruption
seems in part a cultural variable and while it has to taken account of
in application, I don't see it as part of an economic model unless a
system promotes corruption. Actually I do think planned socialism will do
this. But even that is a secondary objection. In general the advantages
and disadvantages from a democratic point of of an economic system should
be considered in view of their structural characteristics, and I don't
think corruption is one. In any event, two mechanisms can reduce corruption:

Diane Elson, in her market model, proposes that firm books be kept open so
anyone can look at them. This makes it harder to do sneaky things
(including bribe officials). One could extend this to include state
records too, insofar as they are not already open.

Second, market socialism can take advantages of decentralization. "All
politics is local" and given that it's easier for folks to monitor the
behavior and honesty of their local officials, given public records and a
free press than it is to monitor those far away. In the model I advocate,
among the key officials would be those at the state bank who hand out
investment grants. Presumably if these inappropriately or illegally favor
some forms over others, this will create organized resistance among those
locally whose interests are harmed. Since we're talking about people who
are locally (regionally, etc.) accountable, this is some check on corruption.

Still, the issue is as ever comparative. Doubtless there would be
corruption in MS. Would it be greater than in democratic planning?

> Yet I would also argue that centralized "democracy" is intrinsic to market
> socialism models, because, as I have said, the producers act as private groups
> within a market, and are thus subject to inter-group conflicts of interest.
> Thus a "strong" centralized state is necessary to keep these conflicts in
> check.
> In the hopelessly utopian model of democratic planning, however, the producers
> form a public within the economy, and have very strong common interests.
> Therefore, a strong centralized state is not needed.
That's too utopian for me. You can't just help yourself to the
supercession of all economic conflicts by fiat. In fact planning generates
conflicts, as Mises and Hayek explain. Even if all have an interest in the
plan being fulfilled, each has an interest in fulfilling her own part of
it, meeting her own targets. She will therefore tend to understate her
capabilities and overstate her needs to assure that she can do her bit. If
all do this, misinformation is general (in fact, lying is general) and
planning is made on the basis of false facts.

Moreover there is a collective action or free rider problem (not
Hayekian). Each has an interest the plan be fulfilled--by someone else.
Insofar as work is not itself a pure joy (and however you cut it much of
it won't be: not only is some work inherently hard, menial, and dangerous,
and boring--call it dirty work--but even the good work will be distributed
in a way that people don't always, or even usually, get their first
choices, pace Andrew), there is a tendency to avoid it, to seek to enjoy
the benefits of having someone else do it. If each enjoys the results of
planning but the contribution to it (work) is costly and the benefits
will flow even if a given person shirks, she will tend to. This means that
there will be free riders throughout. This is a conflict of collective and
individual interest.

> What's needed, and what is eminently possible, for and with democratic
planning > ,
> is a decentralized democracy, a la the Paris Commune.  With local, regional,
> and national assemblies SHARING power as is appropriate, my vote counts for
> much more.

Well, it has to be shown that decentralized democracy is possible and
would work. The Commune model is insufficiently specified. I wish many
Marxists would not assume that all the answers were written down by Marx.


> Regards,
> Tom


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