Socialism Vs. Social-Democracy: Ownership of the Means of Production

A common distinction between socialism, democratic or otherwise, and social-democracy is the question of public ownership. There is a sense that only collective ownership of “the means of production” (‘MoP’) is adequate to solve the problems of society. It sounds more radical, and as radical as possible is thought to be necessary in the face of our myriad of problems. This formulation leads to all sorts of confusion.

The root of the matter is what collective ownership is supposed to entail. Do workers each own the enterprises for which they work? Do states own businesses (presumably above a certain size) within their boundaries? Or does the national government own the MoP? This makes a big difference because how productive enterprises function is deeply related to their mode of organization – what factors cause their workers and supervisors to act as they do. In this regard, mainstream microeconomic and public choice theory can be useful.

A common radical evasion is to just assume that everybody will act in a disinterested, public-spirited way. Everyone will be virtuous, socially speaking.

For instance, consider worker-owned firms. It should be clear that as a group, the owners of a firm can be just as predatory regarding the outside world – dealing with suppliers, customers, and the environment – as individual capitalists. There can be internal hierarchies and oppression as well. There is some historical experience with this in the former Yugoslavia. The celebrated Mondragon cooperative in Spain does out-sourcing and uses contract labor, so not all its workers are owners.

What about a government-owned firm? We have to ask, how is it run, and what incentives are faced by those who work and make decisions. Public ownership in and of itself does not point to any specific solution.

Ownership itself is a slippery thing too. Capitalist firms in legal terms are owned by thousands, or millions, of shareholders, but it should be obvious that only a few big fish have any real control. Mostly the public firms (those based on stock ownership) are under the purview of managers who nourish themselves in a self-perpetuating hierarchy.

We already have some public owned firms. There is the U.S. Post Office, and there are the government sponsored enterprises (GSEs) like the Federal National Mortgage Association (‘Fannie Mae’) and the Federal Home Loan Mortgage Corporation (‘Freddy Mac’). There are also public utilities. The contribution of these to the national interest has always been a mixed bag. Regulation can entail total control by business interests (so-called ‘regulatory capture’). The USPS has a progressive history but has come to be a contentious owner, as far as its workers are concerned. Alternatively, it is at least possible to imagine regulation that is effective in driving a private enterprise to serve the common good.

The upshot is that public ownership of the MoP is an empty box. Periodically we see calls to “Nationalize X.” It’s meaningless.

I have read that in the Peoples Republic of China, firms are subject to diverse ownership features. There is ownership by diverse levels or branches of government, as well as shareholding by private individuals, as well as cooperative arrangements. There seems to be no independent control by workers’ organizations. The overriding factor, however, is the sway of the Communist Party. What cannot be disputed is the success of their system, in terms of aggregate economic growth. Growth is pretty important, but it is not everything. That too leaves a lot to the imagination.

The other blind spot on the left is to think of public ownership of the MoP in binary terms. You either have it or you don’t. As noted, even in the U.S. we have a spectrum of publicly-owned enterprises. We also have worker coops and labor-managed firms. State governments own a great deal of shares in private companies, as do national governments in Europe.

We seldom see major changes happen all at once. Progress is usually incremental. That’s why democratic socialism or social democracy is more like an evolution, not a change from night to day. Those on the left who reject incrementalism usually withhold their own scenario, which typically entails fantasies about an abrupt smashing of the State.

Democratic socialism is a process, not an outcome. Progress would entail movement towards a greater degree of public control over the MoP. In this regard, the Left has been mostly sleep-walking. Everybody talks about the MoP, nobody does anything about it. An exception is the interest in postal banking. Actually the USPS has the potential to do much more than that, as I wrote about here.

There is still the issue of priorities. We need to build out the welfare state. We have thin social insurance, a paltry safety net, and minimal public investment. We need to move quickly on climate change. Arguably these should take precedence over public ownership of the MoP, which by the way would not necessarily address the problems of poverty and inequality, to say nothing of matters of race and gender.

I’ve written that the climate change agenda will need to include public enterprises, since environmental benefits are not typically provided by for-profit business firms. Since there is a logical sequence of the changes that we need, setting priorities means some will happen later and others sooner. There is what in other contexts is called “path dependence.” My bias is that MoP ownership ranks lower and should not be placed before more urgent needs.

As noted above, climate change naturally entails public enterprises. The Green New Deal movement seems to think most everything is done by the Federal government. This is unlikely. The Left tends to gloss over the extent to which the U.S. public sector is spread over diverse levels and types of public control. Beyond direct spending by the Federal government, there are 90,000 local governments. There are tax incentives to do or not do certain things (‘tax expenditures’ or if you don’t like them, “loopholes”). There are regulations and loan guarantees. There are semi-public agencies to which governments contract out. Non-profits with government funding perform a lot of social services.

What is fundamental is that the MoP is not a logical focus at this time for the U.S. Left.