Market Socialism


The role of
Bureau of Public Ownership
in a Pragmatic
Market Socialism Economy

by Leonards Subroto



Pragmatic market socialism is one of the five variants of market socialism system. The model envisions corporation executives motivated by profit maximization incentive under rigorous competition, while subject to an outside control by owners (2). In comparison with the Langian model that tries to enforce Price equals Marginal Cost rule, Pragmatic market socialism gives executives more flexibility in deciding price (2). Also, unlike Cooperative market socialism that subject the corporations to be controlled by employee, Pragmatic market socialism allow owners to control the executives just like in capitalism (2). James A. Yunker, the author of Capitalism Versus Pragmatic Market Socialism believe that this model is the best alternative to market capitalism (3). Yunker gives detail economic analysis in his book addressing the good points of the system while refuse to tackle the political concerns that affect the economic system (23). While political concerns are not necessary related to the subject, the effects on the efficiency of the model should not be underestimated.

Under pragmatic market socialism a government agency called the Bureau of Public Ownership will be the supervisor and main conductor of the economy. However, the arrangement of the economic system might make the agency too powerful that it interferes with the system’s efficiency.

Transition to a pragmatic market socialism is about the same as if under socialism. The most essential similarity will be the transfer of capital stocks and bonds (income producing capital investment assets) to public ownership (13). After that, interest rate will be abolished, but banks and other financial intermediaries are still required to pay interest but only as much as the inflation rate (13). Thus, the real value of saving stays intact (14). Some businesses will stay under private ownership (this point marks the difference with socialism) : small business and entrepreneurial businesses. Establishment of entrepreneurial businesses will be helped by banks or any other financial intermediaries and supplemented by investment agencies the National Investment Banking System and National Entrepreneurial Board (14). But in the end, when the private owners of the entrepreneurial businesses depart from their firms, the government will take the companies over (15). With the transition outlined above most of firms under pragmatic market socialism will be state-owned. There are not much harm compare to capitalism that can happen from these changes, because mechanism-wise the firms operate as if they are under capitalism. That is the firms management make profit-maximizing decisions without any outside influences. 

In order for the companies to perform well, a pragmatic market socialist state will need an agency to supervise the corporate executives. Bureau Public Ownership (BPO) will serve the control role. Its duty will be to evaluate the performance of the corporate executives (17). BPO is not allowed to instruct firms on micromanagement decisions, but BPO personnel will have the right to veto their decisions (18). BPO also has the power to dismiss the executives of the firms if its performance evaluation is bad. If the agency’s authority is as outlined above, the arrangement may give the BPO personals a huge influential power in economic role (18). Although the BPO is not allowed to provide instructions, BPO can still organize their performance evaluation to target firms’ micromanagement decision. In order to save their jobs, corporate executives have to arrange their firms to perform well given a BPO performance evaluation. If for example the BPO specify “optimum quantity” in the performance evaluation then BPO will have become a central planning commission in a less-obvious way. It subliminally forces corporate executives to set production level to meet that “optimum quantity” by means of performance evaluation.

Firms under pragmatic market socialism will pay capital property return to the BPO (17). The BPO takes at most 5 % of this, and distribute the rest of the payment to the general population in a form of social dividend proportional to individual labor income (17). Yunker estimates that the majority of the population (around 90 %)  should receive more of the social dividend rather than property income, and their social dividend will be about 5 % of their labor income (17). However estimation may differ from reality. It is hard to imagine that this arrangement will not be prune to corruption. The exact total amount of capital property return received from firms will first be internal to the BPO, and so there is no way for the general public to know this amount unless the BPO disclose it. Further, the mechanism on how BPO distributes the return will also be internal to the BPO, unless they reveal it.  If the BPO personals can collude discreetly and carefully, it is not hard for them to arrange a bigger share of the dividend for themselves.

One of the most serious threats against pragmatic market socialism will be the possibility that capital management effort under pragmatic market socialism may be lower than capital management effort under capitalism (24). The consequence of this will be smaller social dividend received from the firms. Yunker mentions, “The question is whether or not a BPO which retains only, say 5 percent of property return can do as good a job of capital management as does a class of capital owner-managers under capitalism which retains 100 percent of property return” (25). Yunker argues that pragmatic market socialism will perform better as long as the output elasticity of capital management is not relatively high compared to capitalism. But then his question is not without fault as well, there is no guarantee that the BPO will really only take five percent of the property return. In the event that corruption happens, in which there is no guarantee why it should not, the actual return will always be smaller and might also be lower than under contemporary capitalism even if output elasticity is low.

Pragmatic market socialism is still a theory that has not been implemented yet in the actual world (22). This paper speculates on what will go wrong from a political perspective. Economic operations in the system will be more or less the same as if under capitalism; however, witnessing the huge amount of corruption in a communist and socialist state, there is no guarantee that similar thing may as well happen in a pragmatic market socialist state. In Pragmatic market socialism, the Bureau of Public Ownership hold the hegemony in economic role in distribution role and performance evaluation. Even though the bureau is limited by constraints, the personnel can always find a way to turn the performance evaluation into a production decision constraint, as well as to take some share of the distribution. Pragmatic market socialism has its fault, but as with other market socialism system it is developed to cure the ills of contemporary socialism or communism. As long as the BPO can stay efficient it has a good chance to perform better than capitalism, but this does not seem to be realistically possible.

Source: James A. Yunker, Capitalism Versus Pragmatic Market Socialism, 1993 Kluwer   Academic Publishers



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