Economic Crisis and Political Economy

Volume 2 of Essays in Honour of Tadeusz Kowalik

R. Bellofiore, E. Karwowski, J. Toporowski, R. Bellofiore, E. Karwowski, J. Toporowski

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781349463220, 9781137335746
• eBook ISBN: 9781137335753
• Topic: Economics
• Subtopic: Econometrics
• Index: Economics

Rosa Luxemburg, Oskar Lange and Micha? Kalecki made important contributions to twentieth century political economy that guided the thinking of their student Tadeusz Kowalik. The chapters of this volume examine how the ideas of Luxemburg, Lange, Kalecki and Kowalik can illuminate our understanding of the crisis in twenty-first century capitalism.

1

The Economic System as an End or as a Means, and the Future of Socialism: An Evolutionary Viewpoint

Alberto Chilosi

1.1 The economic system as an end or as a means

A criterion for the choice between different (economic, political or social) systems may be the capability of a system to pursue the ends that correspond to one’s interests and values (that is to a system of preferences over alternative social states)(‘The higher the level of social development, the stronger the tendency towards variety and differentiation, i.e., enrichment of the forms of social and economic life’ Kowalik, 2003: p. 206). The adoption of specific varieties of the institutions that make up a system can be calibrated to the pursuit of those aims, given the initial historical and institutional setup. Thus, the system and the institutions that make it up and qualify its specific variety can be seen as a means, an empirically adaptable instrument, rather than an end in itself. An alternative viewpoint attributes an intrinsic value to the choice of a system as such. The choice of the system becomes a choice of intrinsic, epochal or ethical, value, a choice of civilisation, independent of the actual results that such a choice may bring about in the immediate or in the middle run (historically speaking). This remark applies to both economic and political systems. For instance, the second viewpoint is often applied to democracy, seen as a value in itself rather than, à la Churchill, as the least obnoxious political system that has been invented up to now, since it renders relatively more probable social states that are valued higher relative to widely (albeit not unanimously) shared social values.

1.2 The fetishism of systems

The fetishism of socialism or capitalism leads to the persuasion that the choice of a system has an intrinsic emancipator or transformational value, for two possible reasons. The first is the millenarian viewpoint of the realisation of the ultimate bliss in an indefinite future which is sometimes perceived as imminent. The second is the ethical viewpoint. Historically the first viewpoint applied in particular to socialism; the millenarian force of ‘real’ socialism rested in the official doctrine that the system was a transition towards a qualitatively superior stage, where the intrinsic imperfections of the intermediate stage would be overcome. In the Marxist tradition this was supposed to apply in particular to the limitation of resources in relation to needs, nullifying the relevance of the distributional issue (Marx, 1875b).

It is more difficult, if not impossible, to attribute millenarian properties to an existing and long-established system, whose characteristics are well known and apparent, that has already fulfilled its potentialities and manifested its intrinsic flaws and imperfections. In the case of transition economies, the starting point was characterised by much lower average living standards in comparison to the advanced market economies, and the attainment of the living standards of the advanced liberal democracies was seen as some kind of relative bliss which could be brought about by the institutional transformation towards a capitalist market economy. In this context, systemic transformation becomes a pre-eminent objective to be pursued by every possible means and as fast as possible, without adequately considering the specificities of the historical and institutional context and the extent of the transition costs associated with its speed and modalities. In another context the relative well-being achieved in the framework of the capitalist system can be defended through an idealisation of the latter, which, being the most natural system is considered to be, à la Pangloss, the best of all possible systems – not artificially constructed along a pre-determined model, such as socialism, which, unlike capitalism and market, is seen as an unnatural constructivist deviation. At the same time the ideology may assume an ethical connotation, and the market may be seen as intrinsically just, because through the market everybody receives according to their merits and so on.

As far as socialism is concerned, the fetishism may, even independent of any millenarian view, be based on the moral foundation of the ethical illegitimacy of profit. This view may be based on ad-hoc theories (such as the Marxian theory of labour value and exploitation), on simplistic viewpoints (such as the idea that the wealth of somebody must perforce originate from the poverty of somebody else), and on erroneous perceptions of the functioning of the real world. Or, more simply, it can derive from the consideration that private capital and entrepreneurial incomes lead to wide income differentials that can be perceived as ethically unjustified.

1.3 The intrinsic imperfection of economic systems and their comparison

In reality, the institutions of both ‘real’ capitalism and ‘real’ socialism are largely imperfect, and are characterised by an unavoidable set of shortcomings and inefficiencies on which there is no need to dwell because they are well known.¹ The contest between ‘real’ capitalism and ‘real’ socialism during the 20th century has eventually seen the former prevail. The experiment has been of enormous value in deepening our understanding of social facts and possibilities. Meanwhile, the costs have been sustained on their very flesh by the citizens of the former socialist bloc, who have since then served as guinea pigs for another original experiment, of lesser, but still great, social significance – that of the post-communist transition, aiming (according to the late Branko Horvat’s preferred terminology) at the restoration of capitalism, or rather to the construction, or reconstruction, of modern capitalist institutions.

Does all this mean that socialism is doomed not only for the present, but also for the indefinite future? Will it be worthwhile to try again? In the name of what? Certainly the simple consideration that the capitalist system, in all its variations, leads to questionable results, with respect to both ethics and efficiency, in comparison with some abstract benchmark is not enough to justify a new, however partial, experiment in socialism. The view that the proven imperfection of a system is a sufficient reason for the establishment of a new system, after the removal (be it forcible or peaceful) of the first, is a fallacy which has led to tragic consequences, but which continues to find new supporters (such as recently the so-called anti-globalisers and other radical groups).

Owing to the inevitable shortcomings of actual systems and the experience of the 20th century, the only reasonable perspective may consist in an instrumental and pragmatic approach towards systems and institutions whereby the latter are not considered to have intrinsic value, and their merit lies exclusively in the societal objectives they allow to be reached in a limited time horizon rather than in what they are alleged to bring about in an indefinite future. Moreover, one must be aware that the consequences of introducing new institutions depend on the specific historical circumstances, as has been shown by the different impact of the introduction of analogous institutions in different countries. In particular, the introduction, or restoration, of market institutions has in general produced better results in the countries where a functioning market economy was present in a not too distant past.

1.4 Socialism of the means and socialism of the aims

From this perspective we can make a distinction between socialism of the means and socialism of the aims. The means consist, on the negative side, in the prohibition of private entrepreneurial activity and of private ownership of productive assets. The positive part is the substitution of public, or ‘social’, ownership and entrepreneurship for private (‘capitalist’) ownership and entrepreneurship.

But socialism can also be seen as a set of aims such as equality, or social security, the same as those that would usually be advocated for justifying the adoption of a variety of socialism of the means, apart from the discredited Marxist justification of socialism as being an historically inevitable and much more productive, economic system. Theoretically speaking, these aims translate into preferences over social states. More precisely, one may characterise as ‘socialist’ a subset of the possible preference sets, the set of those preference sets that are relatively better shaped by socialist values. Thus, one may conceive a socialism of aims that is in principle independent of the choice of a particular social system through which socialist aims can be pursued. In this case the socialism of aims, not being constrained to a particular choice of means, acquires in theory an additional degree of freedom, and its pursuit may bring about outcomes that are not inferior to those that can be achieved through the constrained pursuit of socialism, given a ‘socialist’ preference system. From this perspective, what is left of socialism is the specificity of the aims that are pursued. This is so even in a context where capitalist institutions prevail, if the latter are seen as more suitable to achieve preferred social outcomes on the basis of the given ‘socialist’ preference system in which socialist aims, such as equality or social security, cannot be exclusive but must be traded off with relevant alternative aims, such as material affluence or the range of choice. Summing up, from this perspective socialism is characterised by the nature and the weighting of its objectives, independent of the institutional means used for their pursuit. The qualification of President Obama as a socialist by the ‘tea party’ republicans could be seen from the viewpoint of socialism of the aims not as absurd as it is from that of the socialism of means.

1.5 Is there socialism in the future of capitalism?

The fact that in the 20th century the socialism of means (or organisational socialism) failed in the contest with capitalism does not mean that in the future a different setup could not reveal itself as superior. In a very long-run perspective the failing could turn out to be only temporary; in Schumpeter’s words a simple ‘surface’ in relation to ‘the tendency toward another civilization that slowly works deep down below’.² Moreover some institutions that are usually considered as socialist could be usefully imported into capitalism (or rather, into the mixed economy), as has been the case in the past, such as with the social security systems. The reverse could also be successful, for instance the insertion of capitalist institutions into Soviet socialism under Lenin’s New Economic Policy, or the transformation of the Chinese economy since 1978, amounting to a gradual evolution into a capitalist mixed market economy where the capitalist element gradually increases its relative weight in time, and the power of private (or at any rate decentralised) entrepreneurship is harnessed to achieve exceptional rates of growth in a context of still strong State ownership and control.

As far as the public³ ownership and management of economic activities goes, this has been shown in the past to be on the whole less efficient in the case of the former socialist countries in dynamic terms, with respect to the generation and absorption of technical progress in consumer satisfaction, more in general in terms of factor dynamic efficiency (growth in the value of production deriving from total factor growth) – and also, more trivially, in terms of X-efficiency.⁴ At the same time, the relative organisational slack that in general characterises public sector activities, which theoretically speaking could be compatible with Pareto-efficiency, may well be inefficient from the point of view of the principle of compensation, and thus from the unconstrained Paretian viewpoint as well (that is, its advantage for public employees could be less than its cost for taxpayers). In practice, up to now whenever State and private enterprises have coexisted, the former have proved to be on the whole less efficient.⁵ But the actual consequences of State ownership and control can be different in the different social and political contexts, and not always so disastrous such as, for instance, in the Italian case, where the accumulated past losses of State enterprises account for about half of the present huge public debt.⁶ As a matter of principle there is no fundamental reason why the performance of State-owned enterprises should be worse than that of privately owned enterprises. For efficiency, what matters more than ownership are probably the extent of competition and the enforcement of hard budget constraints (here lies the problem with State-owned enterprises: they are often established in non-competitive environments, and instead of the objective of profitability they are assigned by politicians a variety of different other commitments, Stiglitz, 1994: pp. 80–81). But in the future things may change for the reasons considered below, and public ownership and management may become relatively more efficient than private ownership and management.

1.6 Public goods, collective goods, and the socialisation of consumption

But let us consider first of all the process of change in the nature of consumer goods leading to a progressive increase, as a consequence of changes in technology and tastes, in the relative importance of public goods. Among the possible characteristics of a socialist system there is the tendency towards socialisation of consumption; this means an allocation of consumer goods independent of individual budget constraints. In Marx’s Critique of the Gotha Programme, the part of social product ‘which is intended for the common satisfaction of needs [ ... ] from the outset [ ... ] grows considerably in comparison with present-day society and it grows in proportion as the new society develops’.⁷

There are three types of consumption that can be of relevance here:

(1) collective consumption proper, which may be made up of private, public or semi-public goods in an economic sense, whose production and distribution is decided collectively through the political process and are not rationed through private budget constraints (such as public provision of health, education, social services, defence, law and order, national broadcasting, even private consumer goods under the future hypothetical abundance of Full Communism and saturation of needs).

(2) purely public goods (at least in the sense of non-rivalry), which are privately or publicly produced (such as radio and TV broadcasting or the Internet)⁸ and are freely available, financed by the State (such as in the case of national broadcasting services), by private volunteers and benefactors (as in the case of Wikipedia)⁹ or advertising. In the latter case, production of public goods is strictly derivative of the existence of a large market for private goods in which the rewards from advertising can be reaped. Since the production of public goods is the main reason for the existence of the State, there are some obvious theoretical reasons in favour of pushing t...

Table of contents

• Cover
• Title
• Introduction: Tadeusz Kowalik and the Political Economy of the 20th Century
• 1 The Economic System as an End or as a Means, and the Future of Socialism: An Evolutionary Viewpoint
• 2 Whatever Happened to the ‘Crucial Reform’?
• 3 ‘Crucial Reform’ in Post-War Socialism and Capitalism: Kowalik’s Analysis and the Polish Transition
• 4 Michał Kalecki’s Capitalist Dynamics from Today’s Perspective
• 5 ‘Political Aspects of Persisting Unemployment’: Kalecki and Beyond
• 6 The Dynamics of Competition
• 7 Net Private Savings in Relation to the Government’s Financial Balance
• 8 Confidence, Increasing Risks, Income Distribution and Crisis in a Post-Kaleckian Stock-Flow Consistent Model
• 9 Kalecki’s Macroeconomic Analysis and the ‘Great Recession’
• 10 ‘The Accumulation of Capital’ of Rosa Luxemburg, and Systemic and Structural Reasons for the Present Crisis
• 11 Capitalism, Crisis, Growth and Ecology
• 12 Trend and Cycle: On the Timeliness of Grossman’s Breakdown Theory
• 13 Macroeconomic Paradoxes with Kalecki and Kaleckians
• 14 Revisiting the Socialist Calculation Debate: The Role of Markets and Finance in Hayek’s Response to Lange’s Challenge
• References
• Bibliography of Published Works by Tadeusz Kowalik
• Index