Why market socialism is a viable alternative to neoliberalism

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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)