According to Samuel Bowles, A Future for Socialism by John Roemer is “measured, highly accessible, and most of all compelling.” Spurred by this enthusiastic recommendation from my former teacher and esteemed colleague, I tore into the text anticipating penetrating insights about why, in Roemer’s words, “socialism is not dead.” Unfortunately I found Roemer’s book uninformed rather than measured, pedantic rather than accessible, and completely uncompelling. Worse still, if Roemer’s model of what he sometimes calls “managerial market socialism” and sometimes a “coupon economy” were all that remains of socialism—socialism should be dead.
Roemer recommends changing the U.S. economy in two respects only:
1) Void present ownership of corporations and issue everyone identical portfolios of stocks giving each person, initially, an equal share of ownership in every corporation in the economy. People would then be free to trade their shares of stock in one company for shares in another, but not permitted to trade shares of stock for money or goods.
2) Organize corporations into Japanese style conglomerates, or Keiretsu, headed by a major investment bank that would (a) own significant blocks of stock in the corporations under its tutelage, (b) loan its corporate clients funds for investment, and (c) monitor the performance of corporate management.
The rationale for the first change is to diminish non-labor income differentials. The rationale for the second is to create a mechanism for financing investment and weeding out managers who fail to maximize profits from those who do. Roemer claims this economy would be more egalitarian than capitalism and no less efficient, and argues that anti-capitalists should redefine the socialist project as achieving a “coupon economy.”
If socialism wasn’t in enough trouble before Roemer volunteered to come to its rescue, it certainly will be if socialists follow his advice. The most obvious problem with Roemer’s redefinition of the socialist project is that the human costs of transition to his vision would remain high, while the benefits of changing from capitalism to his coupon economy would be meager. We do not have to rely on our own instincts about how much difference Roemer’s coupon ownership scheme would make. According to his calculations—in an appendix remarkable for its inanity—the coupon system would only have increased median Black income in the United States by 2 percent in 1989. And a more egalitarian income distribution is the only benefit Roemer claims for his coupon economy. Roemer admits people would have no more control over their work lives in a coupon economy than in capitalism, which is not a painful concession for Roemer because he argues this is not a serious liability, or necessarily even bad. He offers no reason to believe “managerial socialist” markets would do any better job than capitalist markets dealing with public effects, ecological impact, and other externalities of economic buying and selling. And Roemer’s reason for believing more egalitarian corporate ownership would lead citizens to vote for significantly more stringent restrictions on corporate pollution through the political process is uncompelling. So the gross inefficiencies and environmental destruction resulting from external effects in market allocations would go largely unabated in a coupon economy. Roemer recommends nothing beyond standard fiscal and monetary policy and indicative planning, which leaves his coupon economy as vulnerable to the destructive vagaries of market disequilibria as the French economy under Charles De Gaulle.
In short, a coupon economy would be no less alienating and inefficient than capitalism, and only marginally less unfair. And it would still be an economy where a class of coordinators dominated and exploited ordinary workers, as Roemer freely admits. He makes no apologies for his chosen label, “managerial market socialism,” or for the fact that workers would have no more control over their work lives than they do under capitalism. And he concedes that what he once labeled “socialist exploitation” would persist in a coupon economy where substantial differences in human capital would yield substantial differences in labor incomes. “I do not defend as just any system in which people receive wages proportional to their acquired skills, imprinted as the distribution of skill is and will be for many decades or even centuries to come with the weave of its ancestor, unequal opportunity.” (Roemer, p. 118)
Yet changing from capitalism to a coupon economy would require dispossessing the present owners of the means of production just as surely as changing from capitalism to a participatory economy with democratic workers’ and consumers’ councils, participatory planning, job complexes balanced for empowerment and desirability, and consumption based on personal sacrifice, or effort, i.e. an equitable, efficient economy that promotes solidarity and variety and provides workers and consumers with the opportunity to manage their own economic activities. So, presumably, the human price the U.S. ruling class would extract before succumbing to either change would be roughly comparable. To put it bluntly, given the strength and viciousness of the opposition that can reasonably be anticipated, a coupon economy isn’t worth lifting two fingers for, much less risking one’s life for. One would think someone like Roemer, who prides himself on being both a historical materialist and professional economist, would be able to apply cost benefit analysis to the logic of class war and see that the costs overwhelm the benefits of any plausible transition to his preferred economy—before writing two pages about coupon socialism, much less two books. But the academic mind works in mysterious ways.
What would the coupon ownership system really do? Roemer wants to outlaw trading shares of stock for money or goods so those who are goods poor and/or poor in training/skills and other human traits that increase productive output will not sell off their stocks and end up with as little income as they have now in a few years. But he wants to permit trading stocks in one company for stocks in another to generate a market mechanism that will signal which companies stockholders believe will be more profitable and which less profitable. The problem is dividend rich and poor would reappear, and his coupon price signals would be useless window dressing in any case.
Those who are luckier, more skillful, or privy to “insider information” would make more successful trades on the coupon stock exchange. So when the lions are done fleecing the lambs, not only will labor income be just as unequal as in capitalism, dividend or profit income in Roemer’s coupon economy will be highly unequal as well since the poor will end owning shares of stock in corporate “lemons.” If this were not enough to assure major inequities, Roemer chastises socialists for their “knee jerk” opposition to private enterprise and assures us there is a significant role for privately-owned and managed companies in his coupon economy. To stimulate innovation and make sure public enterprises are subjected to stiff competition Roemer would encourage private ventures and only convert them to public enterprises by buying out their owners when the businesses reached substantial size. Unless a thankless government set buy-out prices ridiculously low and barred winners from reentering the entrepreneurial race anew, substantial “capitalist” income differentials would reappear in Roemer’s coupon economy along with salary and dividend differentials. Not to mention the fact that by assuming it would be necessary to import a substantial dose of capitalism to breath creativity into his economy, Roemer hardly demonstrates much faith in the superiority of coupon “socialism.”
But it is unclear why Roemer thinks the opinions of his coupon stockholders about the future profitability of companies are so valuable or important in any case. The actual profit differentials between companies would be a matter of record in his, or any version of market socialism, and could easily serve as the criteria for managerial reward and punishment. Besides, Roemer is anxious to staff the investment departments of his large banks with personnel he expects to be as knowledgeable about the business performance and prospects of the companies under their financial tutelage as the corporate management they are monitoring. Why would the bankers, the apex of Roemer’s new power elite, pay heed to the uninformed speculations of small time stockholders—which is all coupon stock market prices would reflect if the value of stock portfolios remained more or less equal?
Only if Roemer assumes that lions will eat lambs, will the coupon prices reflect the judgments of a relative few who might conceivably vie with bankers in the talent and resources they could bring to bear on portfolio evaluation, thereby successfully imitating what Roemer sees as a primary virtue of capitalism—large, knowledgeable capitalists rewarding more profitable corporations by buying their stocks and punishing less profitable ones by selling theirs. But assuming coupon stock prices are useful signals amounts to admitting that coupon dividends will be highly unequal. If the reader can forgive Roemer for confusing capitalism’s ultimate crime for a virtue, s/he can enjoy catching Roemer trying to have his cake and eat it too. He suggests that mutual funds could become the owners of the majority of stocks—creating a few, large watchdogs over corporate performance—and citizens could own shares in the mutual funds—preserving egalitarian income distribution. But just as Roemer has no answer to the question, who would judge and control the big bankers?, he also has no answer to the question, who would judge and control the managers of the mutual funds?, since he wants the government out of the picture and small fries cannot be expected to control big enchiladas in either case.
It is not hard to see why Roemer is schizophrenic about popular, democratic control over major decisions. He believes only highly informed elites are capable of making intelligent decisions. What is hard to figure is why he is reluctant to rely on his investment bankers to be the elite he can’t imagine doing without, having them reward and punish corporate management according to the actual profit performance of enterprises. Because then he could dispense with coupon trading and at least keep coupon dividend income distribution egalitarian. Of course he could also dispense with coupons entirely and have the government issue every citizen a “social dividend” based on the productivity of the economy as a whole. But this is exactly what the first influential market socialists, Lange and Lerner, proposed 60 years ago, leaving Roemer nothing to add to their proposal. Simpler still would be to just go with the powerful elite that has proven so successful in the real world survival of the fittest. I would recommend that strategy to Roemer, given his limited liberatory aims, since it also solves his otherwise insurmountable transition problem.
What are the real implications of investment banks and Keiretsu? Roemer proposes bank centered conglomerates because he is anxious to answer critics of market socialism who argue that no political authority can be trusted to stick to “economic” rather than “political” criteria in evaluating, rewarding, and punishing enterprise and management performance. So Roemer proposes investment banks to make sure there is a “hard” rather than “soft” budget constraint on corporate performance. Apparently Roemer’s cursory study of the Japanese economy has convinced him that bank-centered conglomerates increase the efficiency of long-run planning in market economies. Combined with his undisguised admiration for Taiwanese government strategic planning and French indicative planning, a clear preference for a corporatist rather than popular model emerges. Leaving aside whether or not managed capitalism will out compete more laissez faire capitalism in the 21st century, it is impossible to reconcile Roemer’s second recommendation with democratic political values. In his attempt to answer conservative critics of the socialist project he replaces capitalists with investment bankers and mutual fund managers. Unfortunately for Roemer, it will prove easier for proponents of capitalism to maintain the myth that capitalism can be libertarian than for Roemer to pretend that his Keiretsu-coupon economy would not be run by a small, privileged economic elite.
Pedantry combined with unaccustomed pretense of humility begins on the first page of the preface of A Future for Socialism: “The views held by all thoughtful people about socialism... have necessarily been radically transformed by the events of the last several years.” Mine haven’t, but I am notoriously unthoughtful. In any case, Roemer continues, “Because these events are so fresh, there is a danger that one’s thoughts about them are also half-baked. I feel doubly uneasy about putting my own thoughts into print after such a short while: in my past writings I have preferred to publish only statements I could prove under sets of clearly stated axioms, but that approach is not possible for the present venture. Against these risks of publishing prematurely, one must balance the possible benefit of interjecting a different viewpoint in a vital debate while the iron is hot. Evidently, I have decided the expected net benefit is positive.” Does this have the ring of sincere humility?
In the introduction, Roemer graciously surrenders, posthumously, for Oscar Lange, the original proponent of managerial market socialism, to Friedreich Hayek, the arch-conservative critic of market socialism: “Lange argued that what economists now call neoclassical price theory showed the possibility of combining central planning and the market, and Hayek retorted that planning would subvert at its heart the mechanism that gave capitalism its vitality. Hayek’s criticisms of market socialism, and more recently those of Janos Kornai, are for the most part on the mark.” No matter that Lange’s model was, essentially, a pure market model without anything resembling planning, much less central planning. No matter that Roemer’s own model reduces to a minor variation on Lange’s model. I’m sure Lange along with Abba Lerner, Frederick Taylor, and other proponents of managerial market socialism—as well as all who have objected to the tautological equation of efficiency and freedom with free market exchange and private ownership preached by Hayek’s disciples in the ultra-conservative Austrian school of economics—will appreciate that Roemer has spared them the trouble and embarrassment of running up their own white flag.
In his chapter on “Public Ownership” Roemer freshens stale, socialist air like a bathroom deodorizing spray: “Socialists have made a fetish of public ownership: public ownership has been viewed as the sine qua non of socialism, but this judgment is based on a false inference.” What a relief to cut that stone from around our necks! And, “an infinite gradation of possible property rights separates full, unregulated private ownership of firms... and complete control of a firm by a government organ. There is no guarantee that the state-control end of this spectrum is optimal.... The link between public ownership and socialism is tenuous, and I think one does much better to drop the requirement that `the people' own the means of production from the socialist constitution.” I get it. Once socialists demonstrate they have come to their senses on this issue, it will be easier to talk to capitalists without them dismissing our ideas out of hand. How ingenious! It’s a wonder nobody thought of this before. And I wonder if other readers will be as surprised as I to learn that: “the widest variety of property forms became visible in modern capitalism, not socialism: nonprofit firms, limited-liability corporations, partnerships, sole proprietorships, public firms, social-democratic property, labor-managed firms, and other forms of social-republican property. The property forms that will best further socialist goals may involve direct popular control or state control of the means of production in only a distant way.” Presumably the more distant the better since Roemer wants control over firm management by large investment banks and/or mutual funds. General Douglas MacArthur identified Keiretsu as the social basis of Japanese fascism and tried (unsuccessfully) to destroy them in post-war Japan so U.S.-style “democratic” capitalism could flourish. Wouldn’t MacArthur be surprised to find a late 20th century American socialist trying to import Keiretsu into the United States to become the center piece of U.S. “socialism?”
In his chapter “A Brief History of Market Socialism” Roemer manages never to mention a single theorist of labor-managed market socialism. Apparently Benjamin Ward, Evsy Domar, Branko Horvat, Jaroslav Vanek never wrote a worthy word on the subject of market socialism. Funny, many of us thought they were the banner carriers for market socialism for decades. Misinformed again. In any case, without mentioning them or their arguments, Roemer tells us: “Contemporary models of labor-managed market socialism all recognize that firms must raise capital from non members and this would, to some unknown extent, compromise the autonomy of workers with regard to control of the firm.” Roemer does not enlighten us on why the autonomy of stockholders is not compromised when capitalist firms “raise capital from non members” by selling bonds or taking out bank loans. But no matter. He continues: “it is therefore not clear to what extent the managerial and labor-managed proposals for market socialism really differ.” I think I will leave modern disciples of labor-managed market socialism like David Schweikart and Tom Weisskopf to educate Roemer on the difference, if they still care to. In any case, Roemer finishes with a refreshingly honest conclusion. “My preference for the managerial proposals is based on conservatism, namely, that it is best to change features of a system one at a time, if possible. The biological metaphor is apt: an organism with one mutation is more likely to survive than one in which two mutations occur simultaneously.” Thank you, John “Darwin” Roemer. That analogy certainly clinches the argument.
I do not wish to be misinterpreted as “model bashing” in general. There are times when a formal model is useful to make a non-intuitive point, or settle a controversy. I should know, since most of my “research” work over the years has taken the form of searching for the simplest model adequate to proving a non-intuitive relationship between a set of conditions and consequences. And, to give him credit, Roemer has often been a master at deploying this device. His models in A Mathematical Analysis of Marxian Economics, and A General Theory of Exploitation and Class are well chosen to illustrate a number of interesting relationships between conditions and consequences that many political economists denied, or, at a minimum were unaware of. But in this case, Roemer’s model only suggests the following conclusion and no more: If people start with the same stock portfolio but different amounts of the good, and if the poor are permitted to sell their shares of stock to the rich for goods, a relatively few rich will end up with controlling interest in most firms. In firms controlled by a few, each member of the controlling group will gain substantially from increased firm output, and therefore dividends, but will lose relatively little from the associated increase in production of the “bad” since the “bad” is public, and shared equally by the entire population. On the other hand, if the poor are prevented from selling their shares of stock for goods to the rich—which is the entire difference between Roemer’s coupon economy and capitalism—most firms will be controlled by a relatively large number of people since nobody can acquire a large number of shares of stock. In this case, each member of the controlling group will gain only a small amount from increased firm output and dividends, to be weighed against the loss of living with an increase in the public bad. So, Roemer predicts lower levels of output and public bads in a MSPEE than in a CPEE—if you remember his cryptography—because MSPEE citizens would vote for higher anti-pollution standards than CPEE citizens in a democratic political process.
Unlike most of Roemer’s formal model building, the model he constructs to suggest this conclusion is pure pedantic obfuscation. It is completely unnecessary to make the point. Worse still, it doesn’t even prove the point. Roemer admits “All this is conjecture, for the general-equilibrium effects can be complicated. The only way to be sure what welfare will be in equilibrium is to prove a theorem.... I have no general theorems at this time.” In other words, all he has done with the model, so far, is perform some illustrative calculations, based on particular choices for functions and parameters. He has not proved that his conclusion would follow under different and no-less-reasonable choices for functions and parameters. Which makes his entire model and the elaborate table presenting the results of his calculations on pages 70 and 71 no more compelling than my verbal summary of the logic he predicts. I have no doubt he, or one of his graduate students will succeed in proving some general theorems based on the model sooner or later. After all, where else can dissertations come from? But until then, “half-baked” is a phrase that comes to mind. Moreover, no sensible person would require such a model, with theorems, to convince him or her of what is hardly a non-intuitive point.
It is fascinating how fast a tactical retreat urged on us by our academic fellow travelers turns into a complete rout. In response to the collapse of communism some self-styled radical economists at the Socialist Scholars Conference in New York five years ago argued that market “rejectionism” should be reconsidered, and perhaps markets could be a useful part of a socialist economy provided they were properly “socialized,” to use a phrase coined by Diane Elson. Now Roemer is congratulated by the likes of Samuel Bowles and Erik Olin Wright for admitting that Lange was wrong and Hayek was right, for pointing out that the only corrective needed to free market allocations is indicative planning modeled on Japanese Keiretsu and MITI, German investment banks, and investment planning in Taiwan, for over throwing capitalism by making every citizen a capitalist—everyone must play the coupon market poker game and you can’t even cash out—and for chastising socialists for demonizing private ownership and fetishizing public ownership. Market socialists have, indeed, “come a long way, baby.”