Marxism vs. social democracy

Whilst re-reading Straw Dogs by John Gray, I came across this remark on the post-war consensus:

The welfare state was a by-product of the Second World War. The National Health Service began in the Blitz, full employment in conscription.

Look back to the nineteenth century, to the time between the end of the Napoleonic Wars and the outbreak of the First World War. That great era of peace in Europe was also a period of great inequality. The majority of the population lived from hand to mouth, and only the very rich were safe from sudden poverty.

In affluent, high-tech economies, the masses are superfluous – even as cannon fodder. Wars are no longer fought by conscript armies but by computers – and in the collapsed states that litter much of the world, by the ragged irregular armies of the poor. With this mutation of war, the pressure to maintain social cohesion is relaxed. The wealthy can pass their lives without contact with the rest of society. So long as they do not pose a threat to the rich, the poor can be left to their own devices.

Social democracy has been replaced by an oligarchy of the rich as part of the price of peace.

It is worth reminding ourselves that William Beveridge originally conceived of the British welfare state as a system to “keep men fit for service”.

I have suspected for a long time now that the post-war consensus was an historical one-off. A confluence of global and national factors enabled the creation of a relatively peaceful and relatively prosperous world, at least in the western democracies. Adam Posen argues that we are returning to the Victorian ‘old normal’ of a highly unequal, globalised, and multi-polar world. The world founded on what Cosma Shalizi calls the “useful work of mid-century optimism and intelligence” in monetary policy has collapsed, and been replaced with a world of floating exchange rates and neoliberal trade policy; a policy which benefits the global 1%, and results in stagnant or falling living standards for the majority – at least in the western democracies.

But of course, humanity as a whole has been made better off. The new working classes of China and India are massively wealthier than they were during the so-called ‘golden age’ of capitalism. Essentially, the last thirty years has seen a transfer of wealth from the middle and working classes of the developed world up to the global elite, and down to the Chinese and Indians. What I don’t understand is whether this transition could have been handled better; could it have been possible for politicians to ‘ease the fall’ as jobs went overseas? Is it true that many people in ‘post industrial’ countries are simply surplus to requirements, as Gray implies?

Chris Dillow is fond of pointing out that social democracy faces many inherent limitations in what it can accomplish, because it attempts to reach an accord with a capitalist system that is inherently hostile to the interests of most working people. I don’t know if Chris is right; after all, what was once achieved may again be achievable, but I agree that there are many systemic reasons to be sceptical of social democracy.

Markets vs. central planning: some distinctions

I left the following comment on Unlearning Economics’ post at Peria:

As I see it, there are three intermingled debates going on here. They are: 1) An argument about the relative information-theoretic and allocative abilities of centralised hierarchical systems on the one hand and decentralised market systems on the other; 2) an argument about the intrinsic ethical and moral status of various types of political economy; and 3) an empirical argument about which nation states have killed the most people, and been responsible for the most suffering.

On the subject of argument 1): Free markets are not the same thing as capitalism. Central planning is not the same thing as communism. There has been a tendency for capitalist countries to exhibit far greater decentralisation of decision making and a greater reliance on some form of market system; but this historical fact doesn’t mean that ‘private ownership of the means of production’ necessarily requires a market system, nor does it mean that the historical tendency for communist countries to adopt central planning means that *all* future communist or socialist economies must be built around central planning.

I would also note that the most economically successful countries have historically used *both* central planning (in the form of large, centralised private firms; large, centralised government departments; and government-directed industrial policy) and decentralised market systems. Markets and hierarchies are tools, and different jobs require different tools.

I recommend ‘The Market System’ by Charles Lindblom on this subject. ‘The Origin of Wealth’ by Eric Beinhocker is also very good.

 

Capitalism vs. communism and markets vs. central planning

Reading the comments under this excellent article by Unlearning Economics, I am struck by the fact that most of the arguments in the capitalism vs. communism debate are let down by the two sides failing to lay out rigorous definitions from the outset. In order for a proper debate to take place, both sides must specify what they consider to be the necessary and sufficient conditions for an economy to be considered ‘communist’ or ‘capitalist.’

I have pointed out before that markets are not the same thing as capitalism; it would be useful now to note that central planning is not the same thing as communism. Historically, most so-called communist states have attempted to engage in central planning, rather than in market-based solutions to problems of resource allocation; but this does not mean that all conceivable communist states must necessarily engage in central planning.

I’ve just realised I used the phrase ‘so-called communist states’ in my previous paragraph; in doing so, I could be accused of ‘special pleading’, and claiming that ‘true communism’ has never existed. This wasn’t my intention, which was to highlight the fact that just because people give something a particular name doesn’t mean that the name is accurate or descriptive.

So what is communism?

I’m not entirely sure. I can think of several highly limited and unsatisfactory definitions off the top of my head. Marx himself was somewhat vague on the subject of exactly what communism would look like. This continuing vagueness is part of the problem; communism can mean lots of things to lots of different people, just like capitalism. All this just shows how important it is to lay out rigorous definitions at the outset.

Markets are not the same thing as capitalism

Many left wingers are, broadly speaking, against markets. This is unfortunate, because markets are powerful tools for solving particular problems of collective action. Markets can enable diverse agents to engage in cooperation, on a more-or-less equal basis, in a fashion that leads to every participant agent being better off than they would be in the absence of the market.

So why are left-wingers so suspicious of markets? After all, as Chris Dillow argues, markets encourage many of the behaviours and outlooks that left wingers eulogise; individual freedom, consideration for the needs of others, and co-operation in pursuit of general prosperity. So it is perhaps surprising that there is so much hostility to market solutions on the left.

I suspect that the reason for this is that right-wingers have successfully elided capitalism and markets in popular debate on the subject, with the result that many left-wingers believe arguing against the iniquities of capitalism requires that they also argue against the use of markets. This view is reinforced by the historical observation that the rise of the ‘market system’ occurred alongside the rise of capitalism.

But it is important to note that capitalism and markets are not the same thing, nor is one a necessary condition for the other. Capitalism is a social system in which the means of production are privately owned, and in which those means of production grow and accumulate over time. Markets are a social technology whereby individual agents aggregate knowledge and so optimise the allocation of a given set of resources. The knowledge they aggregate consists of information about their abilities and resources, and information about their desires and needs.

It is possible for a social system to be capitalistic and simultaneously lack free markets. The ‘market’ for oil in the US at the beginning of the twentieth century was such a social system. The means of production were owned by one company, which largely dictated the price of oil. Similarly it is possible for markets to exist in social systems that are not capitalistic, for example one can conceive of a social system consisting of worker-owned cooperatives which interact with each other through market interactions.

So markets are distinct from capitalism. Capitalism is a social system with characteristics that many find iniquitous. Markets are a tool – a very powerful tool – for resource allocation, and like all powerful tools they need careful monitoring, maintenance, and oversight for them to work properly. Furthermore it is important to use the right tools for the job, and to recognise those problems for which markets are not a suitable solution.