1 Types of Economic System

Transcription

1 1 Types of Economic System Although the purpose of the present chapter is to compare the nature of market capitalism with that of command socialism, other types of economic system will not be disregarded either. It will be examined, too, how economic systems are related to political systems, and how the nature of economic and political systems affects the position and role of trade unions. 1.1 PURE TYPES AND ACTUAL ECONOMIES Economic systems differ with respect to how economic activity is co-ordinated. In the opinion of one influential stream of Western economists, there are three types of co-ordinating mechanism and three corresponding types of economic system: traditional economic systems are dominated by tradition (custom), market economic systems by the market (contract), and command economic systems by command (directive). 1 Besides, economic systems differ with respect to who owns the means of production (productive assets), i.e. has the right to acquire, keep, use and dispose of them and of the products and/or income they generate. Since the means of production may be owned either privately or socially (publicly), there are two types of economic system: those that are based on private ownership of the means of production and those that are based on social (public) ownership of the means of production. At the post-traditional stage they are called capitalist and socialist, respectively. 2 If the three types of co-ordinating mechanism and the two types of ownership of the means of production are combined, six pure types of economic system are theoretically possible, two traditional (premodern) and four modern (post-traditional). The former are agricultural, technologically undeveloped, limited in their productivity, and producing primarily for consumption. The latter (market capitalism, command capitalism,3 market socialism, and command socialism) are 3 J. L. Porket, Work, Employment and Unemployment in the Soviet Union J. L. Porket 1989

2 4 Type of Economic System and Unemployment non-agricultural, complex, technologically developed, and producing primarily for sale. However, actual economies are rarely of a pure type. With the exception of the most primitive, they contain all three types of co-ordinating mechanism, albeit in varying proportions and with one of them usually predominating. In addition, the more complex and technologically developed they become, the more the significance of tradition as a co-ordinating mechanism tends to decline in favour of the market and command, without disappearing completely. As a rule, actual economies also contain both types of ownership of the means of production, although once again in varying proportions and with one of them usually predominating. Nevertheless, in some cases considerable proportions of private as well as social ownership of the means of production exist side by side. Thus, actual economies are in the main mixed economic systems. Despite that, and for the reasons just mentioned, the systemic differences beween them remain substantial. The term 'mixed' stands neither for 'similar' nor for 'converging'. Of the actual modern economies, those established in the developed industrial societies of the West are variants of market capitalism; that established in Nazi Germany between about 1936 and 1945 was a variant of command capitalism; those established in the Soviet Union and Soviet-controlled Eastern Europe are variants of command socialism; and that established in the Soviet Union under the so-called New Economic Policy (NEP) from 1921 to 1928 was, and that established in Yugoslavia since the early 1950s is, a variant of market socialism. 1.2 ECONOMIC SYSTEMS AND POLITICAL SYSTEMS An economic system is a subsystem of society as a social system. Another subsystem of society is the political system, the nature of which in modern societies is either democratic or authoritarian. Since the two interact, economic systems cannot be studied without reference to political systems, and vice versa. Historically, market capitalism has existed in societies with a democratic political system a well as in societies with an authoritarian political system. Yet, while market capitalism has not been tied to political democracy, the latter has been dependent on the former. Hitherto, political democracy has arisen exclusively within market

3 Types of Economic System 5 capitalism, and has been unable to survive except when coupled with it. On the other hand, command socialism (and similarly command capitalism) has been introduced exclusively by an authoritarian political system. Currently, in the developed industrial societies of the West market capitalism goes hand in hand with political democracy. In contrast, command socialism is to be found in countries with an authoritarian, one-party or hegemonic-party political system, which bases itself on Marxism-Leninism as its official ideology. More specifically, in the Soviet Union and Soviet-controlled Eastern Europe political power and political decision-making are highly centralized, ultimately resting with the party leadership, a small group of top-ranking members of the ruling communist party. The group is neither controlled by nor responsible to the population, including the party members, nor restrained by the law, and ensures its position by the application of the principle of democratic centralism; the ban on functionalism and groupism within the party; and the ban on political opposition outside it. Besides exerting control over the political sphere, the party leadership exerts wide-ranging control over all spheres of nonpolitical behaviour and opinion as well. This control over the economy, the trade unions, the press, the judiciary, education, religion, and so on, stems from the party leadership's totalist orientation and is justified by the application of the principle of the leading role of the party. Since the economic sphere is not separated from the political one and since the party leadership is primarily concerned not with regulating activities but with directing them, it is possible to speak of a "mono-organizational society". While the term was coined by T.H. Rigby,S such a society was envisaged by V.1. Lenin in The State and Revolution. 6 To conclude, in theory any of the four types of modern economic system distinguished above may be related to both a democratic and an authoritarian political system. However, market capitalism is compatible with an authoritarian political system only on the condition that the latter is liberal in its orientation, i.e. refrains from controlling the economy and allows autonomous economic roleplayers to set and pursue their economic goals within the framework of stable legal norms. If it is true, as sometimes argued, that in modern societies political democracy is dependent on market capitalism, then the substitution by an elected government of command socialism for market capital-

4 6 Type of Economic System and Unemployment ism in a democratic political system would spell its end. The retention of political democracy would constitute a threat for the government: it would have no guarantee that it would win the next election and that its successor would not re-establish market capitalism. For the same reason, command capitalism too would be incompatible with a democratic political system, unless adopted as a temporary measure in the event of a national emergency, e.g. in wartime. Moreover, once introduced by an elected government on grounds other than a national emergency, it would tend to slip over into command socialism, thus strengthening the case against political democracy. Command socialism, related to an authoritarian political system with a totalist orientation, would raise another question: could it be transformed into market socialism without prior changes of the established authoritarian political system? In the Soviet Union and Soviet-controlled Eastern Europe this would require, inter alia, to drop the principle ofthe leading role ofthe party or, at the very least, to redefine it in such a way as to make it meaningless. 1.3 MARKET CAPITALISM AND COMMAND SOCIALISM In the following, market capitalism and command socialism will be discussed in some detail. However, from n~w on they will be conceived not as pure types, but as types of actual modern economies. As such, they might also be named the capitalist regulated market economy and the socialist centrally planned economy, respectively.7 Nevertheless, the terms 'market capitalism' and 'command socialism' will be retained. Under market capitalism, most of the means of production are privately owned, and resource allocation and income distribution are determined chiefly by market forces. Thus, it is a pluralistic economic system (economic power and economic decision-making are dispersed) as well as a competitive economic system (although perfect competition postulated by the classical economists is not achieved). Capitalist firms, which are the main bearers of economic activity under market capitalism, operate on their own account and at their own risk, and must show profit if they want to survive and expand. Being impelled by the profit motive, they are forced to respond to effective demand, to innovate, and to address themselves to cost-

5 Types of Economic System 7 benefit analysis, a careful weighing of alternatives, and the keeping of systematic records. Since market capitalism rewards success and penalizes failure, it encourages individual effort, initiative, risk-taking, and self-reliance. It also enables consumers to define and promote their preferences and, within the limits of their incomes, to attain the largest possible satisfaction of their wants. Simultaneously, it requires the rule of law and acts as a check on political power. On the other hand, market capitalism is prone to fluctuations in the overall level of economic activity, open unemployment, open inflation, and sluggish growth. It leads to income and wealth inequalities, and brings about uncertainty on the part of economic role-players concerning their economic future. And it escapes neither monopoly, nor unfair competition, nor the defrauding and deception of the buyer by the seller. Moreover, capitalist firms are unable or unwilling to undertake certain tasks, and the values on which market capitalism is based may clash with the ethical principles held by a given society or run counter to national political goals. To deal with these problems, the state intervenes in the economy. While the prime forms of state intervention are regulation, monetaryfiscal measures, and provision, in sporadic cases it takes the form of participation, control, and nationalization. As a result, the role of the state is not confined to that of a night watchman, and market capitalism is not a laissez-faire (fully self-regulating) economy. Just as market capitalism, also command socialism is based on certain values and, in turn, has a distinct impact on the structure and values of society and on the behaviour and attitudes of individual role-players. Its hallmark is distrust of economic pluralism and spontaneity, its credo is belief in economic monism and centralized control and direction. Most of the means of production are socially owned, and resource allocation and income distribution are determined chiefly by an administrative centre (itself an agent of the party leadership) through all-embracing and detailed planning. However, the market mechanism is used to distribute the labour force among planned jobs and the planned supply of consumer goods among households. Consequently, job-seekers are to a considerable degree free to choose their place of employment, and households exercise consumer choice in the expenditures of their money incomes on available goods at the officially set prices.

6 8 Type of Economic System and Unemployment Since planning is all-embracing, it covers not only domestic economic activities but also foreign trade. The latter means that the administrative centre controls the volume, composition, and destination of exports as well as the volume, composition and provenance of imports, and that it is able to export at prices bearing no relation to production costs and to dispose of imports at prices bearing no relation to procurement costs. At the same time, it views exports largely as a means of satisfying particular import needs and accomplishing specific political objectives. Both the state foreign-trade monopoly and the absorption by the state budget of any profit or loss arising from foreign-trade transactions are endemic features of command socialism, which cannot be said of restrictions imposed on and encouragements given to foreign trade by the government under market capitalism. Yet, while the state foreign-trade monopoly and the separation of domestic prices from world prices protect enterprises against foreign-market competition, they do not make the economy as a whole immune against foreign-market fluctuations. Further, since planning is all-embracing and detailed, the administrative centre is overburdened with information, so that it is unable to process, analyze, and integrate the vast volume of collected information in time and in its entirety. Planning is also adversely affected by delayed, insufficient, incomplete, unreliable, inaccurate, and distorted information, by ambitious goals, by conflicting demands and criteria, by changing political decisions, and by unforeseen contingencies. As a result, plans are prone to be neither optimal nor internally consistent, and disproportions and bottlenecks are bound to appear. Enterprises occupy a subordinate position in the vertically organized economy, enjoy low autonomy (managerial latitude), are not exposed to the pressure of market forces, and need not fear bankruptcy. They tend to receive their definite annual plans belatedly and, in addition, these plans contain a strong element of uncertainty, because they are subject to numerous alterations in the course of their implementation. To fulfil the tasks assigned to them from above and to protect their own economic interests, enterprises display in their behaviour both compliance and deviance. To begin with, they shun initiative, are reluctant to innovate, and avoid risk-taking. They hoard resources in order to be able to cope with extraordinary demands and the defects in the official supply system. And they limit overfulfilment of the plan

7 Types of Economic System 9 in order not to give superior organs a pretext for raising their future output targets. Secondly, in their dealings with superior organs enterprises manipulate information, i.e. conceal or distort it. On the one hand, they overstate their needs and understate their capabilities, trying to maximize their input in relation to the output demanded from them and to minimize their output in relation to the input allocated to them. On the other hand, they resort to window-dressing when reporting plan fulfilment. Lastly, enterprises violate, evade, or ignore formal norms and administrative orders. Several factors playa role here: formal norms and administrative orders may give rise to information input overload if their volume is too vast; they may overlap and thus conflict; they may fail to meet and thus create a normative and administrative vacuum; or they may impose obligations without granting corresponding rights; and so on. All this suggests that the nature of command socialism has a distinct impact on the behaviour of enterprises, that deviant behaviour on their part has not only attitudinal but also systemic causes. Moreover, all this suggests that, largely and primarily due to its nature, command socialism can be effective but not efficient. These two dimensions of performance should not be confused, although any performance should be measured by both of them. Effectiveness denotes the degree to which an effort produces against adverse conditions an intended outcome. In contrast, efficiency denotes the ratio between the outcome attained by an effort and the costs incurred in producing it. 8 Nevertheless, various factors attest beyond doubt that command socialism is not highly effective either. They include, inter alia, frequent alterations of output plans, quantitative and qualitative deficiencies in the fulfilment of these plans, delays in the completion of new productive units, abandonment of unfinished investment projects, chronic shortages, the seller's market and the existence of the second economy. Just as under market capitalism, under command socialism too the second economy is a market one. However, its origin is different. Under the former it arises because economic role-players want to avoid paying tax and social security contributions, because they try to establish a false entitlement to social security benefits, or because they engage in illegal economic activity (e.g. the drug trade).9 Under the latter it arises in the first place from chronic shortages affecting

8 10 Type of Economic System and Unemployment consumers and enterprises alike. Thus, its main function is to supply those consumer goods and services desired or needed by consumers and those materials, components and equipment needed by enterprises which the official economy fails to supply. 10 If the second economy and other factors attest to flaws in the effectiveness of command socialism, state subsidies attest to its low efficiency. Whereas under market capitalism they are a form of state intervention in the market, under command socialism they result from the substitution of officially set prices (the role of which is neither to allocate scarce resources nor to express consumers' preferences) for market-determined ones.ll 1.4 TRADE UNIONS The nature of modern economic systems has an impact not only on the position, role and behaviour of enterprises, but also on the position, role and behaviour of trade unions. Conceived as pure types, market capitalism and market socialism call for fragmented trade unions, while command capitalism and command socialism call for unified ones. Besides, the nature of political systems has an impact on the position, role and behaviour of trade unions. A political system may suppress trade unions, control them, regulate them, be indifferent to them, or grant them special privileges. Once they gain acceptance, the degree of their autonomy is high in democratic political systems, medium in authoritarian political systems with a liberal orientation, and low in authoritarian political systems with a totalist orientation. Under market captialism as established in the democratic societies of the West, trade unions have developed spontaneously. As a result, the density of trade union membership varies widely from one country to another. In 1978, for instance, it was about 20 per cent in France, about 24 per cent in the USA and Canada, about 38 per cent in the FRG and Italy, about 45 per cent in the UK and Denmark, about 50 per cent in Austria and Japan, and about 84 per cent in Sweden. 12 Everywhere, the trade unions enjoy considerable autonomy and freedom of action. They are able not only to define what their interests are but also to defend and assert them, because they have real bargaining power based on the threat and use of collective action, one form of which is the strike. Since economic decision-

9 Types of Economic System 11 making is dispersed, they can bargain collectively with individual employers, employers' associations and the government over a number of issues, including wages, working conditions, and manning levels. On top of that, they can exert political influence. On the other hand, the trade unions may misuse their power and pursue goals that, in the short and/or long run, are detrimental to the economy as a whole, not excluding their own members. Their restrictive practices, unbridled demands, and militancy may adversely affect work discipline, labour productivity, technological modernization, efficiency, competitiveness, profitability, economic growth, jobs, the rate of inflation,13 and so on. In contrast with market capitalism, under command socialism as established in the Soviet Union and Soviet-controlled Eastern Europe key economic decisions (including those about wage rates, the prices of consumer goods and services, and the share of consumption in national income) are made by the administrative centre. Therefore, trade unions would have to defend and assert the interests of their members largely and primarily by bargaining collectively with this centre at the plan-formulation stage. But even if they were free to do so, they would be handicapped by the shortcomings that inhere in command socialism due to the insignificance of the market. Consequently, if they wanted to defend and assert the interests of their members effectively, they would have to try to bring the market into being. However, command socialism is incompatible with the predominance of the market. For that reason, it does not (and cannot) allow the trade unions to play a genuine interest role, and this is exacerbated by the nature of the industrial relations system within which they operate. 14 Since command socialism is organized hierarchically, the industrial relations system too is organized hierarchically, and the rules governing it are set unilaterally by the party leadership. At the societal level, its main actors are the party leadership, the administrative centre, the trade union leadership, and the working masses. At the enterprise level, its main actors are the enterprise director, the enterprise party committee, the enterprise trade union committee, and the personnel. The trade unions are a unified mass organization with a nominally voluntary membership and a hierarchical, centralized, and authoritarian structure. Although theoretically they are independent in the sense that they are neither a party nor state organization, they recognize the leading role of the party and are required to be assistants and collaborators of the party and of the state. Thus, their

10 12 Type of Economic System and Unemployment autonomy is low: they are subordinate to the party and have to ensure the execution of assigned tasks. Offically, the trade unions are expected to perform a number of functions. With recourse to V.1. Lenin, these tend to be grouped into two broader roles, namely, the production role and the interest role. Not surprisingly, the former is regarded by the party leadership as being more important than the latter. In playing the production role, the trade unions are to mobilize the working people for the fulfilment of the state plan and the implementation of the party programme; to strengthen work discipline; to raise labour productivity; to struggle against shortcomings in production; to uphold the authority of managers; to foster in workers high political consciousness, a correct socialist attitude towards work, and dedication to the public interest; to educate workers in the spirit of intolerance to shortcomings, mismanagement, waste, a negligent attitude towards public property, antisocial tendencies, and survivals of the past in people's minds; and the like. In playing the interest role, the trade unions are to defend and represent the justified and rightful interests of the workers, i.e. to protect the working people against excessive administrative zeal and bureaucratic distortions of individual functionaries of the state and economic apparatus, as well as against unconscientious workers and violators of work discipline. In addition it is argued that the interests of the working people are protected not only by the trade unions but also by the state and the party, that the trade unions must combine individual and group interests with societal interests, and that conflicts of interest between them on the one hand and the state and the party on the other hand cannot arise because their interests are identical. Consequently, the interest role of the trade unions is both contradictory and limited. Contradictory, since they must combine individual and group interests with societal interests. Limited, since while they are allowed to protect the rightful interests of the workers against individual role-players, they are not allowed to define what the workers' interests are and to protect the workers against the state and the party. Nevertheless, in practice the trade unions tend to defend and assert the workers' interests, albeit mostly informally and usually exclusively at the enterprise level. They do so, first, by tolerating and supporting deviant behaviour on the part of the enterprise management, displayed in attempts to negotiate a soft plan with superior organs, to fulfil the tasks assigned to the enterprise from above, and

11 Types of Economic System 13 to increase the enterprise's material prosperity. Secondly, they do so by tolerating deviant behaviour on the part of the personnel (such as late arrivals at work, prolonged breaks, and early quitting time; socializing, shopping, arranging of personal affairs, and moonlighting during working hours; etc.) and by themselves initiating it (e.g. by holding meetings, seminars, gatherings, and the like during working hours). Finally, they do so by tolerating a separation of rewards from performance, which means that wages are insufficiently linked to performance and contain a concealed social (i.e. unearned) element. It goes without saying that these ways of defending and asserting the workers' interests are a response to the nature of command socialism and of the established industrial relations system, and are possible only to the extent to which enterprises have control over their internal processes, i.e. can make decisions autonomously, or are able to influence superior organs. It is obvious, too, that these ways of defending and asserting the workers' interests would be impossible without at least tacit approval on the part of the enterprise party committee. Expressed differently, in enterprises there often exists close co-operation or even collusion between the enterprise management, the enterprise party committee and the enterprise trade union committee, directed not against the personnel but against superior organs. Yet, neither the deviant behaviour displayed by the trade unions for the purpose of defending and asserting the workers' interests nor the trade unions' social welfare activities make the trade unions into a genuine interest organization. Inevitably, they remain an element of a system of levers and transmission belts, designed to pass on the party directives to the working masses and to provide the party with information about the working masses and their moods. CONCLUSION Market capitalism and command socialism are two different types of modern economic system. At the same time, in practice there exist noticeable differences among the individual capitalist regulated market economies established in the developed industrial societies of the West (e.g. in the extent to which the state intervenes in the economy and the means of production are socially owned), as well as among the individual socialist centrally planned economies established in the Soviet Union and Soviet-controlled Eastern Europe

12 14 Type of Economic System and Unemployment (e.g. in the extent to which the market is tolerated and the means of production are privately owned).15 Similarly, while the position, role and behaviour of trade unions under market capitalism differ from the position, role and behaviour of trade unions under command socialism, in practice the position, role and behaviour of trade unions also vary from one capitalist regulated market economy to another as well as from one socialist centrally planned economy to another, albeit less markedly among the latter than among the former. 16 Besides, in practice there are to be found, both between the two types of modern economic system and within each of them, considerable national differences in per capita national income, the rate of economic growth, the economic activity rate of the population of working age, the share of the agricultural labour force in the total labour force, the distribution of income, the standard of living, and so on. However, these differences are not systemic differences, although they are affected by the prevailing type of economic system. Three systemic differences between the two types of modern economic system should be recalled here once again, because of their significance for the examination of unemployment that follows. First, while under market capitalism economic power and economic decision-making are dispersed, under command socialism they are centralized. This implies that under the former the scope of the government's decision-making in the economic sphere is limited and the government's main concern is to regulate economic activity, i.e. to set rules applying to general types of situation, whereas under the latter the scope of the administrative centre's decision-making in the economic sphere is unlimited and the administrative centre's main concern is to direct economic activity, i.e. to assign tasks to individual economic role-players. 17 As a result, the former tends to be more flexible than the latter. Secondly, while market capitalism has an in-built tendency towards efficiency, command socialism has an in-built tendency towards inefficiency. The underlying reason is that under the former capitalist firms must show profit if they want to survive and expand and, therefore, strive to use as few resources as possible for a given output, whereas under the latter enterprises use the allocated resources to fulfil their plans without fear of bankruptcy. As J <in os Kornai put it, in contrast with the classical capitalist firm which has a hard budget constraint, the traditional socialist firm has a soft budget constraint. 18

13 Types of Economic System 15 Lastly, while under market capitalism income inequalities arise primarily from the operation of the market,19 under command socialism they arise primarily from the decisions made by the administrative centre. Consequently, under the former, incomes accruing from economic activity (i.e. employment and selfemployment) tend to depend mainly on performance, whereas under the latter, incomes accruing from employment in the official economy tend to be insufficiently linked to performance. Although the present chapter has concentrated on the nature of market capitalism and command socalism, the question of change cannot be disregarded entirely. Changes of the system (when the nature of the established system undergoes changes) should be distinguished from those within the system (when the nature of the established system does not undergo changes); changes introduced from above should be distinguished from those introduced from below; and attempted changes should be distinguished from achieved ones. For the purposes of an analysis, introducing changes from above may be viewed as a process of consisting of six phases: (1) the appearance of a phenomenon; (2) its recognition as a problem; (3) its diagnosis culminating in the formulation of possible responses; (4) decision-making by the government under market capitalism or by the party leadership under command socialism; (5) the implementation of the decision made; (6) intended and/or unintended consequences, leading back to phase (1). The process is usually a protracted one, because each phase constitutes a shorter or longer period and because time-lags occur between individual phases. In modern societies, changes introduced from above are mostly changes within the system, not of the system. Thus, the direction they take is of crucial importance. Basically, there are two alternatives to the status quo, namely, to reinforce the nature of the established system, or to weaken it. Under market capitalism, the aim of state invervention in the economy may be either to make it more pluralistic and competitive than hitherto (i.e. to reassert economic criteria at the expense of social, ideological, and political ones), or to make it less pluralistic and competive than hitherto (i.e. to promote social, ideological, and political criteria at the expense of economic ones). In contrast, under command socialism the party leadership may try either to strengthen central controls (i.e. to make central planning and management more all-embracing and detailed), or to relax them (i.e. to make central

14 16 Type of Economic System and Unemployment planning and management less all-embracing and detailed by reducing the number of success indicators, by substituting state parameters for administrative orders,2o by expanding the role of the market, and the like). Since changes within the system are not expected to change the nature of the system, both the government under market capitalism and the party leadership under command socialism are constrained in what they can do. The constraints are primarily systemic. After all, each system has its own logic and resists changes which contradict it. If the limits are overstepped, penalties are to be paid and, unless retreat occurs, the nature of the system begins to change.