Market Socialism: Evaluation of Proposals, Part 2
POST-LANGE MARKET SOCIALISM: AN EVALUATION OF PROFIT-ORIENTED PROPOSALS James A. Yunker Department of Economics Western Illinois University PART II Critique and Response In the history of economic ideas, the notion of profit-oriented market socialism is still fairly recent. Moreover, there exists no perceptible real-world political movement toward such an economic system, even in the ex-communist nations which are at the present time in a process of radical transformation away from their former socioeconomic system. In general, economists tend to orient their interests to what seems to be going on in the real world, and so it is not surprising that there is extremely little evaluative literature on profit-oriented market socialism, and most of what presently exists has in fact been provided by proponents of such systems. Nevertheless, profit-oriented market socialism is an inherently interesting concept, and one possessed of potentially very serious implications for the economic and ethical validity of the capitalist status quo in the advanced industrial nations. In the judgment of this author, of course, it is a topic which deserves much more extensive and serious attention than it has received in the past. In an effort to stimulate thinking on the issue, I will offer here a series of potential objections to the concept that could be offered by a hypothetical skeptic, along with possible responses to be made by a hypothetical proponent. Objection Based on Prior Experience with Communistic Socialism. Humanity has had prolonged experience with socialist systems of public ownership of capital in the communist nations, and this experience has been profoundly disillusioning. To begin with, there seems to be a very serious potential hazard to democracy inherent in socialism: to date all socialist nations have been extremely undemocratic. Control of business enterprise by the state under socialism combines economic and political power, and presents incumbent government officials with various means for suppressing dissent. In addition, even under a democratic political system, public ownership of business enterprises creates natural tendencies toward political intervention in their operations. The various legal obstacles to such intervention inherent in private ownership are swept away, and government officials, whether for reasons of personal aggrandizement or public pressure, begin to assume responsibility for business enterprises and to issue detailed operational instructions. In the extreme, this leads to Soviet-style central planning, under which the flexibility and responsiveness of firms are totally stifled. Even if this extreme is avoided, public ownership of business tends to produce the soft enterprise budget constraint: the government is politically unable to allow large firms to cease operations no matter how inefficient they become, the threat of bankruptcy is eliminated, and poorly managed firms continue to operate indefinitely supported by public subsidies.<14> Response. Any effort to condemn profit-oriented market socialism on the basis of the perceived defects of communistic socialism is begging the question because it assumes invalidly that the defects of past experiences with socialism must inevitably apply to future experiences with socialism. But the history of human civilization demonstrates that there can be new things under the sun: that humanity is capable of learning from past mistakes and of devising new social systems which represent tangible improvements over past social systems. More specifically, the lack of democracy under communistic socialism is more plausibly attributed to historical conditions (the absence of democracy in the pre-revolutionary Russian empire, the perception among the communist leaders of being under siege from a hostile capitalist outer world), than it is to the inherent propensities of public ownership. Profit-oriented market socialism represents a fundamentally new departure in socialist thinking, and it is moreover especially attuned to existent conditions in the advanced industrial nations. Given the past environment, it seems very likely that badly performing corporations under profit-oriented market socialism would in fact be allowed to succumb to bankruptcy despite public ownership, and/or that public corporations would be allowed more or less complete autonomy with respect to business decision-making. Objection Based on Impossibility of Authentic Competition under Unified Public Ownership. The common ownership of all or most business enterprise by society as a whole would inevitably undermine and destroy authentic competition both at the level of the firm, and at the level of capital control and disposition. The firms which should be vying with one another for the favor of consumers and greater market share would become dramatically less competitive with one another. This propensity would be even more pronounced under profit-oriented plans of market socialism because the profitability of business enterprises may certainly be augmented by collusive arrangements among ostensible competitors. The public ownership authorities would have an overpowering incentive to promote such collusive arrangements among corporations in order to augment the profitability by which their success is guaged. As a result, quite possibly the business enterprise sector would show a high rate of profitability under market socialism, but nevertheless the economy would be profoundly stagnant owing to the lack of adequate incentives to managerial effort under imperfectly competitive conditions. Response. The inability to perceive the possibility of authentic competition under public ownership of business enterprise proceeds basically from an invalid perception of governments as totally monolithic and unified, as single-mindedly pursuing the well-defined personal interests of a small group of high government officials (the "antheap" perception). The reality is that governments, like all other social organizations, are amalgamations of large numbers of individuals which endeavor, imperfectly, to correlate the personal interests of each member with overall group interests. In modern democracies, even the highest government officials are divided into legislative, executive and judicial branches. Just as the "separation of powers" may be accomplished in the political sphere, so too it may be accomplished in the economic sphere. No serious proposal for profit-oriented market socialism envisions the public ownership authority being concentrated within a single building in the national capital whose inhabitants would be organized according to the military ideal of total discipline and complete control by one single commander. Proponents of such plans place great emphasis on the subdivision of the public ownership authority over a large number of highly autonomous, independently evaluated individuals or offices. In the case of Stauber's proposal, there would be no formal umbrella authority whatsoever over the various locally owned investment funds, and the likelihood of authentic competition is completely self-evident. In addition, all these proposals also envision subdivision of productive capacity over a large number of independent business enterprises: in some cases (myself and Stauber), it is even explicitly proposed to increase the number of independent business enterprises by means of antitrust structural disaggregations. There are numerous real-world cases of authentic competition among individuals or organizations which are formally unified under some overall authority: examples include different students in the same professor's class, different teams within an athletic association, and the autonomous subsidiaries of a conglomerate business firm. So long as rewards are not pooled, and each individual or group is evaluated independently of the others, competition proceeds despite formal integration. Objection Based on Inadequate Incentives to Capital Management Effort. Under capitalism, the private households which own capital wealth receive the totality of capital property return paid by business enterprises and other organizations (such as government agencies) for the use of capital. These households receive not only the current income on capital but are also able to realize capital gains which embody the expected future return on particular ownership shares (e.g., on a successful entrepreneurial enterprise). Therefore private households under capitalism have a full and undiluted incentive toward a high level of capital management effort. By capital management effort is understood any and all human effort intended to increase the rate of return on capital wealth: examples include corporate supervision such as undertaken by a member of a board of directors, investment analysis such as undertaken by an individual investor, and entrepreneurship in the foundation and management of new firms. In principle under market socialism, the people as a whole possess a right to capital property return, and hence they have an incentive to capital management effort. But since the people as a whole are so numerous and atomized, and since the amount to be received by each person is so small and insignificant, in practice the people as a whole will not provide any significant amount of capital management effort. In practice all capital management effort is provided by the personnel of the public ownership agencies--but these personnel receive only a very small fraction of the total capital property return taken in by these agencies, since according to socialist ideology, the great majority of it must be disbursed to the general public in some sort of social dividend. Not only do the personnel of the public ownership agencies receive only a small fraction of current property return, but in addition they cannot personally claim any potential increases in the value of particular ownership shares (portfolios) stemming from shrewd investment and/or management decisions. As a consequence, their incentive to capital management effort is minimal, the amount of capital management effort provided to the economy is minimal, and the efficiency of capital usage in the economy is drastically reduced.<15> Response. In my own evaluative writing on pragmatic market socialism, I have identified the capital management issue as the single most plausible economic objection to market socialism. Whether the focus is on the Bureau of Public Ownership, Stauber's locally owned investment funds, or Roemer's public main banks, the same problem exists: personnel of these agencies may retain as personal income only a small fraction of the total capital property income of these agencies, and moreover they are not able to claim as personal income any capital gains on sales of specific financial instruments. This objection is a fully consistent theoretical possibility. However, much argument may be adduced that it is empirically invalid. The "no realized capital gains" aspect of the problem may be met to some extent by institutional arrangements: for example, under Stauber's plan capital gains income on asset sales would in fact accrue to the locally owned investment funds, while under pragmatic market socialism, the individual BPO agents would continue to receive a declining proportion of the capital property income produced by firms within their respective spheres of responsibility (i.e., in their "portfolio") for an extended period of time following their departure from the position. From a theoretical point of view, the most fundamental response to the capital management effort objection is the possibility of a "plateau production function" relating the level of capital management effort of an individual to the rate of return received on the capital within that individual's ownership (under capitalism) or sphere of responsibility (under market socialism). Under this type of function a very small input of capital management effort, involving insignificant disutility to the individual, suffices to achieve virtually the maximum rate of return on capital. In this case, the drastic reduction in the "retention coefficient" as between capitalism and market socialism does not have a significant impact on the level of capital management effort provided to the economy, and hence on the efficiency of the economy. This type of production function is arguably a natural consequence of the historical evolution of modern capitalism (chiefly the technological concentration of production and the separation of ownership and management) which has rendered capital property income, mostly if not completely, a rentier type of income.16 Objection Based on Inadequate Incentives to Private Saving. Aside from the issue of capital management effort, capital property income is also justifiable as an ethically and economically appropriate return to the disutility of saving. Owing to the inherent time preference of all individuals, saving is a sacrificial act. If this sacrificial act is not compensated by the receipt of property income on savings accumulations (i.e., financial wealth), the level of saving provided by households will be drastically diminished, leading to a shortage of capital investment funds, and consequent economic slowdown, stagnation, and decline. Even if an effort is made to restore saving by means of public saving out of tax revenue, this will entail a sluggish, clumsy, and politically driven investment mechanism. The efficiency of the saving-investment mechanism under capitalism will be lost, in that public intervention in this mechanism will eliminate the equality that exists in a pure market situation between the marginal disutility of saving to private households and the marginal productivity of capital investment to firms.<17> Response. This objection is based on the assumption that there exists an upward-sloping supply curve of saving with respect to the rate of property return--but there is no worthwhile intuitive, theoretical, or statistical evidence that such a function exists. There is considerable evidence, on the other hand, suggesting the dominant effect of income on saving, and in this light it is important to note that the capital property income of capitalism is not "lost" under market socialism, but rather is mostly translated into social dividend income. Thus private household saving under market socialism might well be equivalent to that under capitalism. Beyond this, it is important to emphasize that any economically sensible proposal for market socialism recognizes the possibility that private household saving might be less than it is under capitalism, and that in this event there would be an allocation out of public revenues to capital investment. Under the profit-oriented market socialist proposals of myself, Stauber, and Roemer, this amount would be dispersed throughout the economy by a decentralized investment system guided by profitability criteria. Qualms based on the "microeconomic efficient saving condition" are groundless from a practical point of view, in that already under capitalism there are numerous violations (e.g., progressive income taxation) of various efficiency conditions derived from theoretical economics, which by common consensus do not have quantitatively appreciable impacts on economic performance. Objection Based on Minimal Equity Improvement. The essential equity objectives of socialism have already been achieved through the natural advance of what has been termed "people's capitalism." An extremely large proportion of capital instruments is already owned by middle class and even working class people in the form of pension rights, employee stock ownership plans, and general stock ownership. Also a large proportion of capital wealth inequality is attributable to life cycle saving, and this source of inequality is inherently unobjectionable. In any event, capitalism is an economic system which provides a fair opportunity to everyone to achieve great capital wealth. The possibility of achieving large fortunes is an essential incentive not only to entrepreneurship but to excellence in a wide range of activity ranging from athletics and popular culture to scientific discovery.<18> Response. Reference to "pension fund socialism" and the like is merely an attempt to confuse the issue. As far as the proportion of capital wealth which is owned directly by private households is concerned, there is compelling empirical evidence that its distribution has been extremely unequal--and extremely stable--throughout the second half of the twentieth century. What this means in a practical sense is that the great majority of households would receive more social dividend income (or other benefits) under market socialism than they currently receive property income under capitalism. Compelling empirical evidence also exists that this inequality is very modestly affected by life-cycle saving. With respect to wealth as an incentive to entrepreneurship and other worthy activity, it should be noted that profit-oriented market socialist proposals generally make provision for private ownership of entrepreneurial businesses, and at the same time do not necessarily envision highly progressive taxation of legitimately acquired income and wealth. What this means is that successful entrepreneurs, pop culture superstars, and the like, could still amass extremely large personal fortunes to be spent on whatever the owner desired. Such fortunes would not, however, represent sources of capital property income extending off into the remote future--but this will not be considered a moral problem by those with a proper understanding of individual motivations and social realities. The social reality which tends to be ignored by exponents of people's capitalism is that the great majority of large-scale capital fortunes under contemporary capitalism are achieved by means of random appreciation on an inherited base. The inheriting capitalist is featured neither in the business press nor the entertainment press; nevertheless he/she much better represents the "typical capitalist" than successful entrepreneurs and pop culture superstars. Objection Based on Taxation Alternative to Public Ownership. The equity objectives of socialism might just as easily be met by various forms of taxation, and do not require public ownership. In fact, the exact system envisioned by profit-oriented market socialism could be achieved simply by taxing all current property income at a very high rate (e.g., 90 to 95 percent), and distributing the proceeds from this tax to the public as a social dividend, or perhaps using it to finance the operations of various government agencies as a means of reducing the tax burden on the public. In this way all the serious potential problems and deficiencies of public ownership could be avoided. Alternatively, this could be a means by which the ingrained prejudice of the public against "socialism," considered as a general concept, could be evaded. Response. This is a disingenuous objection in that, almost certainly, any polity in which public opinion had proceeded to the point where "virtually confiscatory taxation of capital property income" was a political possibility, would also be a polity in which "socialism" was a political possibility. The economically serious arguments against profit-oriented market socialism as embodied in the proposals of myself, Stauber, and Roemer (inadequate incentives to capital management effort and/or private household saving) may also be lodged against "virtually confiscatory taxation." Beyond that, the institutional flexibility of market socialism provides opportunities for the strengthening of profit motivation in real-world business enterprise that would be lacking under "virtually confiscatory taxation." Already under contemporary capitalism, the separation of ownership and management has created a situation in which the managers of large corporations are excessively insulated and protected. The privileged status of these individuals is clearly manifested in the lavish personal remuneration which they are enabled to award themselves, and these disproportionate financial rewards suggest that they may be taking additional rewards in the form of reduced diligence and effort in their daily work. "Virtually confiscatory taxation" would have the effect of significantly furthering the present dysfunctional situation of inadequate accountability of high corporate executives. Properly designed public ownership agencies under market socialism, on the other hand, might well improve on the present situation. Objection Based on Difficulties of Transition. Whatever might be the hypothetical virtues of a profit-oriented market socialist system once it were fully established and functioning, the existence of formidable transitional difficulties practically guarantees that such a system will never be achieved in the real world. Although capital wealth ownership has become highly concentrated under modern capitalism, it remains the fact that a great many individuals possess small amounts of capital wealth. If this capital wealth is fully compensated (as it would have to be if a socialist transition is to be a serious political possibility), then the financial benefits of socialism to the general population would be postponed for a prolonged period, perhaps indefinitely. Aside from the need for generous financial compensation of former capitalists, the problems confronting a transition from capitalism to socialism have been immensely complicated by the ongoing globalization of economic activity. It cannot be anticipated that all nations in the world would transform themselves into socialist nations at the same time. Those nations remaining capitalistic would become a magnet for wealthy capitalists emigrating from nations planning a shift to socialism. In the modern economy of international investing and multinational corporations, capital ownership relations have become extraordinarily tangled and complex, and as a consequence it would be virtually impossible for any single nation, acting on its own, to achieve a meaningful condition of public ownership of capital. Response. All sensible plans for socialism presuppose compensation arrangements that would achieve the requisite level of political feasibility. For example, it is a standard component of the profit-oriented market socialist proposals described herein that small-scale capital owners would receive full compensation for their holdings. The financial benefits of socialism to the majority need not be "indefinitely postponed," because compensation need not be in the form of interest-bearing government bonds. Owing to the fact that the socialized capital instruments are regarded by their owners as stores of value and sources of long-term income, compensation in the form of cash would not generate undue inflationary pressure. As for the complications implied by the globalization of the economy, it may be suggested that where there is a will, there is a way. Underlying financial capital is physical capital, and high mobility of financial capital does not imply equally high mobility of physical capital. Emigrating capitalists cannot take factories and machines with them, and in the final analysis these factories and machines are the source of their capital income. In any event, these kinds of issues become mostly moot if a very large proportion of nations simultaneously shifts from capitalism to socialism. The globalization of economic life suggests that if profit-oriented market socialism is desirable for the population of one nation, it is desirable for the populations of most nations. Conclusion Although the basic concept of market socialism acquired a threshold level of acceptability within the First World mainstream economics profession owing to the contribution of Oskar Lange in the 1930s, the consensus appraisal of the specific marginal cost pricing market socialist proposal put forward by Lange has been skeptical and unenthusiastic. More recently, following the seminal theoretical work of Benjamin Ward in the 1950s, the time-honored notion of labor self-management has come to be categorized as cooperative market socialism. Mainstream attitudes toward cooperative market socialism are about the same as those toward Langian market socialism: skeptical and unenthusiastic. In the 1970s, the present author (James Yunker) and Leland Stauber independently published proposals for a third general category of market socialism: a category dubbed herein "profit-oriented market socialism." As of the 1990s, John Roemer has produced a third profit-oriented market socialist proposal. Profit-oriented market socialism specifies that the success of the managers of any given publicly owned corporation be evaluated on the basis of the same long-term profitability indicators used to evaluate the success of managers of privately owned corporations under capitalism: thus it does not suffer from the "fatal flaw" of Langian market socialism, the absence of an observable success criterion. Profit-oriented market socialism also specifies that the managers of publicly owned corporations will be basically responsible not to the employees of the corporations but rather to outside public ownership agencies themselves responsible to the general public. Thus is avoided a whole suite of perceived problems with cooperative production ranging from Ward's "perverse" downward-sloping supply curve of output to apprehensions about excessive egalitarianism in distributing rewards within a firm democratically controlled by its own employees. Profit-oriented plans of market socialism thus evade some important problems associated with the better-known varieties of market socialism, and as a consequence these plans would presumably be regarded as more promising in a practical sense by the majority of mainstream economists. This paper has shown that there are numerous possible sub-categories within the general category of profit-oriented market socialism. Three specific institutional proposals have been briefly described, those of myself, Leland Stauber, and John Roemer. Clearly these are only three examples out of a wide array of specific institutional means by which the basic concept and purposes of profit-oriented market socialism might be realized. Moreover, in some respects the three proposals discussed are not mutually exclusive: some of the ideas could be merged to create additional--or simply more elaborate--proposals. As the author of one of these proposals, I should perhaps point out in their defense that one of the reasons why the institutional details provided by their authors are relatively sketchy is that referees and editors apparently possess low levels of toleration for detailed descriptions of hypothetical institutions. Nevertheless, enough institutional details have been specified to present a fair image of the idea, and to allow most economists to arrive at a tentative evaluation of its potential performance. Evaluative thinking about profit-oriented market socialism among mainstream economists is still severely limited owing to at least two important, interrelated factors: the absence of any appreciable political movement toward market socialism anywhere in the real world; the limited awareness among economists, to date, of the possibility of profit-oriented market socialism. It is certainly well imaginable that even if the concept of profit-oriented market socialism were to gain greater currency within the discipline of economics in the future, it will simply be picked apart by a host of critics, in much the same way that the idea of cooperative market socialism has been picked apart by the superabundant theoretical literature that has emerged in the wake of Ward. There is no shortage of objections to be made to the idea: the previous section of this paper briefly discussed a few objections, but this discussion represents merely the tip of a large iceberg. Still, at this point in time it would be presumptuous for anyone to make strong predictions concerning the future fate of profit-oriented market socialism in the history of economic ideas. Just as the concept of market socialism itself deals effectively with the objections to planning-oriented socialism, so too the concept of profit-oriented market socialism deals effectively with the objections to non-profit-oriented forms of market socialism such as the Langian and the cooperative. Profit-oriented market socialism is an attempt to find a genuinely new direction for socialism: to specify a viable, practical socialist economic system that would garner obvious equity benefits without running an appreciable risk of serious efficiency losses. It goes without saying that a real-world system of profit-oriented market socialism might prove disappointing in practice, and have to be repealed (as was Prohibition in the United States earlier in this century). In that case, the relatively minor differences between profit-oriented market socialism and contemporary capitalism would facilitate the restoration of capitalism. The possibility of experimentation on such a grand scale is not often contemplated, but the fact remains that the relative performance of pragmatic market socialism is fundamentally an empirical issue and not a theoretical issue. The theoretical and empirical evidence currently at hand does not compellingly support either a positive or a negative conclusion on the matter. In principle, economists support the experimental approach to the advance of knowledge. In the final analysis, the experimental approach may be the only possible means of obtaining more or less conclusive evidence on whether profit-oriented market socialism would be better or worse than contemporary capitalism. Until such time as an experiment may be considered, it is the author's hope that this survey paper might inspire some economists to serious reflection on the possibilities that may be inherent in profit-oriented market socialism. Notes 1. Robert Lampman's 1962 book on U.S. wealth distribution was a major factor in impressing the high level of capital wealth inequality upon the consciousness of the economics profession. The 1974 study by James Smith and Stephen Franklin in the AER further contributed to awareness of the situation. More recently, Edward N. Wolff's 1987 study in the Review of Income and Wealth suggests even more concentration of capital wealth as between the early 1960s and the early 1980s. 2. Bergson added some nuances to his 1948 essay in an article published in 1967 in the JPE. Note should also be taken of Hayek's rather strident 1940 critique of Lange in Economica. Several other authors have commented on Lange over the years, but none of these other comments have found their way into the standardized evaluation of Lange's proposal to be found in most comparative systems textbooks. 3. The term "service market socialism" was applied in the author's 1975 survey article on market socialist forms. 4. The seminal 1932 book by Adolf A. Berle and Gardiner C. Means, as well as Berle's later 1959 contribution, has inspired a large literature on the separation of ownership and management, and its potential implications concerning the functioning of contemporary capitalism. William Baumol (1967) and Oliver Williamson (1964) have produced the two best-known theoretical "alternatives to profit maximization" inspired by the situation. See Marris (1964) and Wildsmith (1973) for discussion of these and other "managerial models." For the case that despite appearances to the contrary, the separation of ownership and management has not appreciably undermined the profit orientation of large firms, see Jensen and Meckling (1976), Fama (1980), Fama and Jensen (1983). Important surveys of this literature include Marris and Mueller (1980) and Williamson (1981). 5. Benjamin Ward followed up on his 1958 AER article with a book-length treatise published in 1967. For surveys of the steadily exapnding theoretical and empirical literature on cooperative production, see Steinherr (1978), Pryor (1983), and Bonin, Jones and Putterman (1993). See Vanek (1969, 1970, 1971, 1977) for a comprehensive, scholarly and spirited espousal of cooperative market socialism. Nove's "feasible socialism" (1983, 1991) incorporates the cooperative principle for a part of the large-scale production sector, but Nove himself does not provide any additional theoretical evaluation of the principle beyond that provided earlier by Vanek. 6. Two book-length expositions on pragmatic market socialism (Yunker, 1992 and 1993) are currently available. The 1992 book is mostly nontechnical, and the 1993 book, which reports a general equilibrium evaluation of the potential performance of the system, constitutes a technical supplement to the 1992 book. An article-length exposition of pragmatic market socialism appeared in Comparative Economic Studies in 1988. Some additional articles on the subject are included in the references to this paper. 7. See Yunker (1979) for a detailed elaboration of this argument. This article elicited a comment by Peter Murrell (1981) to which I replied. 8. The estimated social welfare gain from this combined improvement in efficiency and equity, on the basis of the Benthamite sum-of-utilities criterion, is 1.7 percent. This is a modest but significant gain, and the number well reflects the incrementalist objective of profit-oriented market socialism. 9. Leland Stauber's market socialist proposal was initially outlined in a 1975 article in Polity, and much amplified in a 1977 article in the Journal of Comparative Economics. The 1977 article elicited critical comments from Wayne Leeman and Susan Rose-Ackerman (JCE 1978), to which Stauber replied. The large book published by Stauber in 1987 does not add much substantive material to the proposal itself, but contains an elaborate analysis of the postwar Austrian economy, which Stauber regards as providing important evidence suggesting the viability and attractiveness of municipal ownership market socialism. Stauber's most recent contribution on municipal ownership market socialism is an article published in Coexistence (1993). 10. A statement of this argument has been provided by the well-known economist Milton Friedman in Capitalism and Freedom (1962). See Yunker (Polity 1986; and 1992, Chapter 8) for the pro-socialist response to the argument. All of the proponents of profit-oriented market socialist plans discussed here (myself, Stauber, and Roemer) argue that extreme capital wealth inequality under contemporary capitalism undermines authentic democracy, and therefore that considerations of political equity as well as economic equity support the socialist alternative. 11. For example, well-considered recommendations for antitrust structural disaggregations have been put forward by Kaysen and Turner (1959) and Bain (1959). I myself have also discussed the possibility of structural disaggregations of large-scale firms under market socialism to improve competition (see Yunker, 1992, p. 49). 12. To date, the published material available on bank-centric market socialism comprises Roemer (1991, 1994), Roemer and Bardhan (1992), Roemer and Silvestre (1993), and Bardhan (1993). 13. I myself have recently published a lengthy review of possible implications of the peripheral theory areas (principal-agent theory, etc.) with respect to the potential viability and efficiency of profit-oriented market socialism: "Agency Issues and Managerial Incentives: Contemporary Capitalism versus Market Socialism" (Yunker, 1994). 14. This line of argument has recently been thoroughly elaborated in Janos Kornai's magisterial The Socialist System (1992). 15. In the author's judgment, a wide range of criticisms of and objections to market socialism--which never use the term "capital management effort"--nevertheless constitute variations on the capital management effort theme. Examples include Ludwig von Mises's critique of the "artificial market" (1951, pp. 137-142), Peter Murrell's demonstration of the theoretical Pareto inefficiency of market socialism (1984), and Louis Putterman's expressed concerns about the nondecentralizability of public ownership (1993). Relevant published work by the author on some of the many possible rewordings and reworkings of the capital management issue include Yunker (JCE 1988; CES 1990). Precise formulations of and responses to the capital management objection, of steadily increasing levels of detail and technical sophistication, are presented in Yunker (1974; 1988; 1992, Chapter 4; 1993). 16. In a paper co-authored with Timothy Krehbiel, I have adduced empirical evidence from the 1971 Purdue University Survey of the Individual Investor in support of the proposition that the real-world function relating capital management effort to rate of return on capital is in fact of the plateau configuration. 17. See Yunker (1992, Chapter 5) for detailed discussion of the saving issue. 18. See Yunker (1982; 1992, Chapter 7) for detailed discussion of the people's capitalism thesis. References Bain, Joe S. Industrial Organization. New York: Wiley, 1959. Bardhan, Pranab K. 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"Capital Management under Market Socialism," Review of Social Economy 32(2): 196-210, October 1974. Yunker, James A. "A Survey of Market Socialist Forms," Annals of Public and Cooperative Economy 46(2): 131-162, April-June 1975. Yunker, James A. "The Microeconomic Efficiency Argument for Socialism Revisited," Journal of Economic Issues 13(1): 73-112, March 1979. Yunker, James A. "The Microeconomic Efficiency of Socialism: Reply," Journal of Economic Issues 15(1): 220-227, March 1981. Yunker, James A. "The People's Capitalism Thesis: A Skeptical Evaluation," ACES Bulletin (Association for Comparative Economic Studies) 24(4): 1-47, Winter 1982. Yunker, James A. "A Market Socialist Critique of Capitalism's Dynamic Performance," Journal of Economic Issues 20(1): 63-86, March 1986. Yunker, James A. "Would Democracy Survive under Market Socialism?" Polity 18(4): 678-695, Summer 1986. Yunker, James A. 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POST-LANGE MARKET SOCIALISM: AN EVALUATION OF PROFIT-ORIENTED PROPOSALS James A. Yunker Department of Economics Western Illinois University PART II Critique and Response In the history of economic ideas, the notion of profit-oriented market socialism is still fairly recent. Moreover, there exists no perceptible real-world political movement toward such an economic system, even in the ex-communist nations which are at the present time in a process of radical transformation away from their former socioeconomic system. In general, economists tend to orient their interests to what seems to be going on in the real world, and so it is not surprising that there is extremely little evaluative literature on profit-oriented market socialism, and most of what presently exists has in fact been provided by proponents of such systems. Nevertheless, profit-oriented market socialism is an inherently interesting concept, and one possessed of potentially very serious implications for the economic and ethical validity of the capitalist status quo in the advanced industrial nations. In the judgment of this author, of course, it is a topic which deserves much more extensive and serious attention than it has received in the past. In an effort to stimulate thinking on the issue, I will offer here a series of potential objections to the concept that could be offered by a hypothetical skeptic, along with possible responses to be made by a hypothetical proponent. Objection Based on Prior Experience with Communistic Socialism. Humanity has had prolonged experience with socialist systems of public ownership of capital in the communist nations, and this experience has been profoundly disillusioning. To begin with, there seems to be a very serious potential hazard to democracy inherent in socialism: to date all socialist nations have been extremely undemocratic. Control of business enterprise by the state under socialism combines economic and political power, and presents incumbent government officials with various means for suppressing dissent. In addition, even under a democratic political system, public ownership of business enterprises creates natural tendencies toward political intervention in their operations. The various legal obstacles to such intervention inherent in private ownership are swept away, and government officials, whether for reasons of personal aggrandizement or public pressure, begin to assume responsibility for business enterprises and to issue detailed operational instructions. In the extreme, this leads to Soviet-style central planning, under which the flexibility and responsiveness of firms are totally stifled. Even if this extreme is avoided, public ownership of business tends to produce the soft enterprise budget constraint: the government is politically unable to allow large firms to cease operations no matter how inefficient they become, the threat of bankruptcy is eliminated, and poorly managed firms continue to operate indefinitely supported by public subsidies.<14> Response. Any effort to condemn profit-oriented market socialism on the basis of the perceived defects of communistic socialism is begging the question because it assumes invalidly that the defects of past experiences with socialism must inevitably apply to future experiences with socialism. But the history of human civilization demonstrates that there can be new things under the sun: that humanity is capable of learning from past mistakes and of devising new social systems which represent tangible improvements over past social systems. More specifically, the lack of democracy under communistic socialism is more plausibly attributed to historical conditions (the absence of democracy in the pre-revolutionary Russian empire, the perception among the communist leaders of being under siege from a hostile capitalist outer world), than it is to the inherent propensities of public ownership. Profit-oriented market socialism represents a fundamentally new departure in socialist thinking, and it is moreover especially attuned to existent conditions in the advanced industrial nations. Given the past environment, it seems very likely that badly performing corporations under profit-oriented market socialism would in fact be allowed to succumb to bankruptcy despite public ownership, and/or that public corporations would be allowed more or less complete autonomy with respect to business decision-making. Objection Based on Impossibility of Authentic Competition under Unified Public Ownership. The common ownership of all or most business enterprise by society as a whole would inevitably undermine and destroy authentic competition both at the level of the firm, and at the level of capital control and disposition. The firms which should be vying with one another for the favor of consumers and greater market share would become dramatically less competitive with one another. This propensity would be even more pronounced under profit-oriented plans of market socialism because the profitability of business enterprises may certainly be augmented by collusive arrangements among ostensible competitors. The public ownership authorities would have an overpowering incentive to promote such collusive arrangements among corporations in order to augment the profitability by which their success is guaged. As a result, quite possibly the business enterprise sector would show a high rate of profitability under market socialism, but nevertheless the economy would be profoundly stagnant owing to the lack of adequate incentives to managerial effort under imperfectly competitive conditions. Response. The inability to perceive the possibility of authentic competition under public ownership of business enterprise proceeds basically from an invalid perception of governments as totally monolithic and unified, as single-mindedly pursuing the well-defined personal interests of a small group of high government officials (the "antheap" perception). The reality is that governments, like all other social organizations, are amalgamations of large numbers of individuals which endeavor, imperfectly, to correlate the personal interests of each member with overall group interests. In modern democracies, even the highest government officials are divided into legislative, executive and judicial branches. Just as the "separation of powers" may be accomplished in the political sphere, so too it may be accomplished in the economic sphere. No serious proposal for profit-oriented market socialism envisions the public ownership authority being concentrated within a single building in the national capital whose inhabitants would be organized according to the military ideal of total discipline and complete control by one single commander. Proponents of such plans place great emphasis on the subdivision of the public ownership authority over a large number of highly autonomous, independently evaluated individuals or offices. In the case of Stauber's proposal, there would be no formal umbrella authority whatsoever over the various locally owned investment funds, and the likelihood of authentic competition is completely self-evident. In addition, all these proposals also envision subdivision of productive capacity over a large number of independent business enterprises: in some cases (myself and Stauber), it is even explicitly proposed to increase the number of independent business enterprises by means of antitrust structural disaggregations. There are numerous real-world cases of authentic competition among individuals or organizations which are formally unified under some overall authority: examples include different students in the same professor's class, different teams within an athletic association, and the autonomous subsidiaries of a conglomerate business firm. So long as rewards are not pooled, and each individual or group is evaluated independently of the others, competition proceeds despite formal integration. Objection Based on Inadequate Incentives to Capital Management Effort. Under capitalism, the private households which own capital wealth receive the totality of capital property return paid by business enterprises and other organizations (such as government agencies) for the use of capital. These households receive not only the current income on capital but are also able to realize capital gains which embody the expected future return on particular ownership shares (e.g., on a successful entrepreneurial enterprise). Therefore private households under capitalism have a full and undiluted incentive toward a high level of capital management effort. By capital management effort is understood any and all human effort intended to increase the rate of return on capital wealth: examples include corporate supervision such as undertaken by a member of a board of directors, investment analysis such as undertaken by an individual investor, and entrepreneurship in the foundation and management of new firms. In principle under market socialism, the people as a whole possess a right to capital property return, and hence they have an incentive to capital management effort. But since the people as a whole are so numerous and atomized, and since the amount to be received by each person is so small and insignificant, in practice the people as a whole will not provide any significant amount of capital management effort. In practice all capital management effort is provided by the personnel of the public ownership agencies--but these personnel receive only a very small fraction of the total capital property return taken in by these agencies, since according to socialist ideology, the great majority of it must be disbursed to the general public in some sort of social dividend. Not only do the personnel of the public ownership agencies receive only a small fraction of current property return, but in addition they cannot personally claim any potential increases in the value of particular ownership shares (portfolios) stemming from shrewd investment and/or management decisions. As a consequence, their incentive to capital management effort is minimal, the amount of capital management effort provided to the economy is minimal, and the efficiency of capital usage in the economy is drastically reduced.<15> Response. In my own evaluative writing on pragmatic market socialism, I have identified the capital management issue as the single most plausible economic objection to market socialism. Whether the focus is on the Bureau of Public Ownership, Stauber's locally owned investment funds, or Roemer's public main banks, the same problem exists: personnel of these agencies may retain as personal income only a small fraction of the total capital property income of these agencies, and moreover they are not able to claim as personal income any capital gains on sales of specific financial instruments. This objection is a fully consistent theoretical possibility. However, much argument may be adduced that it is empirically invalid. The "no realized capital gains" aspect of the problem may be met to some extent by institutional arrangements: for example, under Stauber's plan capital gains income on asset sales would in fact accrue to the locally owned investment funds, while under pragmatic market socialism, the individual BPO agents would continue to receive a declining proportion of the capital property income produced by firms within their respective spheres of responsibility (i.e., in their "portfolio") for an extended period of time following their departure from the position. From a theoretical point of view, the most fundamental response to the capital management effort objection is the possibility of a "plateau production function" relating the level of capital management effort of an individual to the rate of return received on the capital within that individual's ownership (under capitalism) or sphere of responsibility (under market socialism). Under this type of function a very small input of capital management effort, involving insignificant disutility to the individual, suffices to achieve virtually the maximum rate of return on capital. In this case, the drastic reduction in the "retention coefficient" as between capitalism and market socialism does not have a significant impact on the level of capital management effort provided to the economy, and hence on the efficiency of the economy. This type of production function is arguably a natural consequence of the historical evolution of modern capitalism (chiefly the technological concentration of production and the separation of ownership and management) which has rendered capital property income, mostly if not completely, a rentier type of income.16 Objection Based on Inadequate Incentives to Private Saving. Aside from the issue of capital management effort, capital property income is also justifiable as an ethically and economically appropriate return to the disutility of saving. Owing to the inherent time preference of all individuals, saving is a sacrificial act. If this sacrificial act is not compensated by the receipt of property income on savings accumulations (i.e., financial wealth), the level of saving provided by households will be drastically diminished, leading to a shortage of capital investment funds, and consequent economic slowdown, stagnation, and decline. Even if an effort is made to restore saving by means of public saving out of tax revenue, this will entail a sluggish, clumsy, and politically driven investment mechanism. The efficiency of the saving-investment mechanism under capitalism will be lost, in that public intervention in this mechanism will eliminate the equality that exists in a pure market situation between the marginal disutility of saving to private households and the marginal productivity of capital investment to firms.<17> Response. This objection is based on the assumption that there exists an upward-sloping supply curve of saving with respect to the rate of property return--but there is no worthwhile intuitive, theoretical, or statistical evidence that such a function exists. There is considerable evidence, on the other hand, suggesting the dominant effect of income on saving, and in this light it is important to note that the capital property income of capitalism is not "lost" under market socialism, but rather is mostly translated into social dividend income. Thus private household saving under market socialism might well be equivalent to that under capitalism. Beyond this, it is important to emphasize that any economically sensible proposal for market socialism recognizes the possibility that private household saving might be less than it is under capitalism, and that in this event there would be an allocation out of public revenues to capital investment. Under the profit-oriented market socialist proposals of myself, Stauber, and Roemer, this amount would be dispersed throughout the economy by a decentralized investment system guided by profitability criteria. Qualms based on the "microeconomic efficient saving condition" are groundless from a practical point of view, in that already under capitalism there are numerous violations (e.g., progressive income taxation) of various efficiency conditions derived from theoretical economics, which by common consensus do not have quantitatively appreciable impacts on economic performance. Objection Based on Minimal Equity Improvement. The essential equity objectives of socialism have already been achieved through the natural advance of what has been termed "people's capitalism." An extremely large proportion of capital instruments is already owned by middle class and even working class people in the form of pension rights, employee stock ownership plans, and general stock ownership. Also a large proportion of capital wealth inequality is attributable to life cycle saving, and this source of inequality is inherently unobjectionable. In any event, capitalism is an economic system which provides a fair opportunity to everyone to achieve great capital wealth. The possibility of achieving large fortunes is an essential incentive not only to entrepreneurship but to excellence in a wide range of activity ranging from athletics and popular culture to scientific discovery.<18> Response. Reference to "pension fund socialism" and the like is merely an attempt to confuse the issue. As far as the proportion of capital wealth which is owned directly by private households is concerned, there is compelling empirical evidence that its distribution has been extremely unequal--and extremely stable--throughout the second half of the twentieth century. What this means in a practical sense is that the great majority of households would receive more social dividend income (or other benefits) under market socialism than they currently receive property income under capitalism. Compelling empirical evidence also exists that this inequality is very modestly affected by life-cycle saving. With respect to wealth as an incentive to entrepreneurship and other worthy activity, it should be noted that profit-oriented market socialist proposals generally make provision for private ownership of entrepreneurial businesses, and at the same time do not necessarily envision highly progressive taxation of legitimately acquired income and wealth. What this means is that successful entrepreneurs, pop culture superstars, and the like, could still amass extremely large personal fortunes to be spent on whatever the owner desired. Such fortunes would not, however, represent sources of capital property income extending off into the remote future--but this will not be considered a moral problem by those with a proper understanding of individual motivations and social realities. The social reality which tends to be ignored by exponents of people's capitalism is that the great majority of large-scale capital fortunes under contemporary capitalism are achieved by means of random appreciation on an inherited base. The inheriting capitalist is featured neither in the business press nor the entertainment press; nevertheless he/she much better represents the "typical capitalist" than successful entrepreneurs and pop culture superstars. Objection Based on Taxation Alternative to Public Ownership. The equity objectives of socialism might just as easily be met by various forms of taxation, and do not require public ownership. In fact, the exact system envisioned by profit-oriented market socialism could be achieved simply by taxing all current property income at a very high rate (e.g., 90 to 95 percent), and distributing the proceeds from this tax to the public as a social dividend, or perhaps using it to finance the operations of various government agencies as a means of reducing the tax burden on the public. In this way all the serious potential problems and deficiencies of public ownership could be avoided. Alternatively, this could be a means by which the ingrained prejudice of the public against "socialism," considered as a general concept, could be evaded. Response. This is a disingenuous objection in that, almost certainly, any polity in which public opinion had proceeded to the point where "virtually confiscatory taxation of capital property income" was a political possibility, would also be a polity in which "socialism" was a political possibility. The economically serious arguments against profit-oriented market socialism as embodied in the proposals of myself, Stauber, and Roemer (inadequate incentives to capital management effort and/or private household saving) may also be lodged against "virtually confiscatory taxation." Beyond that, the institutional flexibility of market socialism provides opportunities for the strengthening of profit motivation in real-world business enterprise that would be lacking under "virtually confiscatory taxation." Already under contemporary capitalism, the separation of ownership and management has created a situation in which the managers of large corporations are excessively insulated and protected. The privileged status of these individuals is clearly manifested in the lavish personal remuneration which they are enabled to award themselves, and these disproportionate financial rewards suggest that they may be taking additional rewards in the form of reduced diligence and effort in their daily work. "Virtually confiscatory taxation" would have the effect of significantly furthering the present dysfunctional situation of inadequate accountability of high corporate executives. Properly designed public ownership agencies under market socialism, on the other hand, might well improve on the present situation. Objection Based on Difficulties of Transition. Whatever might be the hypothetical virtues of a profit-oriented market socialist system once it were fully established and functioning, the existence of formidable transitional difficulties practically guarantees that such a system will never be achieved in the real world. Although capital wealth ownership has become highly concentrated under modern capitalism, it remains the fact that a great many individuals possess small amounts of capital wealth. If this capital wealth is fully compensated (as it would have to be if a socialist transition is to be a serious political possibility), then the financial benefits of socialism to the general population would be postponed for a prolonged period, perhaps indefinitely. Aside from the need for generous financial compensation of former capitalists, the problems confronting a transition from capitalism to socialism have been immensely complicated by the ongoing globalization of economic activity. It cannot be anticipated that all nations in the world would transform themselves into socialist nations at the same time. Those nations remaining capitalistic would become a magnet for wealthy capitalists emigrating from nations planning a shift to socialism. In the modern economy of international investing and multinational corporations, capital ownership relations have become extraordinarily tangled and complex, and as a consequence it would be virtually impossible for any single nation, acting on its own, to achieve a meaningful condition of public ownership of capital. Response. All sensible plans for socialism presuppose compensation arrangements that would achieve the requisite level of political feasibility. For example, it is a standard component of the profit-oriented market socialist proposals described herein that small-scale capital owners would receive full compensation for their holdings. The financial benefits of socialism to the majority need not be "indefinitely postponed," because compensation need not be in the form of interest-bearing government bonds. Owing to the fact that the socialized capital instruments are regarded by their owners as stores of value and sources of long-term income, compensation in the form of cash would not generate undue inflationary pressure. As for the complications implied by the globalization of the economy, it may be suggested that where there is a will, there is a way. Underlying financial capital is physical capital, and high mobility of financial capital does not imply equally high mobility of physical capital. Emigrating capitalists cannot take factories and machines with them, and in the final analysis these factories and machines are the source of their capital income. In any event, these kinds of issues become mostly moot if a very large proportion of nations simultaneously shifts from capitalism to socialism. The globalization of economic life suggests that if profit-oriented market socialism is desirable for the population of one nation, it is desirable for the populations of most nations. Conclusion Although the basic concept of market socialism acquired a threshold level of acceptability within the First World mainstream economics profession owing to the contribution of Oskar Lange in the 1930s, the consensus appraisal of the specific marginal cost pricing market socialist proposal put forward by Lange has been skeptical and unenthusiastic. More recently, following the seminal theoretical work of Benjamin Ward in the 1950s, the time-honored notion of labor self-management has come to be categorized as cooperative market socialism. Mainstream attitudes toward cooperative market socialism are about the same as those toward Langian market socialism: skeptical and unenthusiastic. In the 1970s, the present author (James Yunker) and Leland Stauber independently published proposals for a third general category of market socialism: a category dubbed herein "profit-oriented market socialism." As of the 1990s, John Roemer has produced a third profit-oriented market socialist proposal. Profit-oriented market socialism specifies that the success of the managers of any given publicly owned corporation be evaluated on the basis of the same long-term profitability indicators used to evaluate the success of managers of privately owned corporations under capitalism: thus it does not suffer from the "fatal flaw" of Langian market socialism, the absence of an observable success criterion. Profit-oriented market socialism also specifies that the managers of publicly owned corporations will be basically responsible not to the employees of the corporations but rather to outside public ownership agencies themselves responsible to the general public. Thus is avoided a whole suite of perceived problems with cooperative production ranging from Ward's "perverse" downward-sloping supply curve of output to apprehensions about excessive egalitarianism in distributing rewards within a firm democratically controlled by its own employees. Profit-oriented plans of market socialism thus evade some important problems associated with the better-known varieties of market socialism, and as a consequence these plans would presumably be regarded as more promising in a practical sense by the majority of mainstream economists. This paper has shown that there are numerous possible sub-categories within the general category of profit-oriented market socialism. Three specific institutional proposals have been briefly described, those of myself, Leland Stauber, and John Roemer. Clearly these are only three examples out of a wide array of specific institutional means by which the basic concept and purposes of profit-oriented market socialism might be realized. Moreover, in some respects the three proposals discussed are not mutually exclusive: some of the ideas could be merged to create additional--or simply more elaborate--proposals. As the author of one of these proposals, I should perhaps point out in their defense that one of the reasons why the institutional details provided by their authors are relatively sketchy is that referees and editors apparently possess low levels of toleration for detailed descriptions of hypothetical institutions. Nevertheless, enough institutional details have been specified to present a fair image of the idea, and to allow most economists to arrive at a tentative evaluation of its potential performance. Evaluative thinking about profit-oriented market socialism among mainstream economists is still severely limited owing to at least two important, interrelated factors: the absence of any appreciable political movement toward market socialism anywhere in the real world; the limited awareness among economists, to date, of the possibility of profit-oriented market socialism. It is certainly well imaginable that even if the concept of profit-oriented market socialism were to gain greater currency within the discipline of economics in the future, it will simply be picked apart by a host of critics, in much the same way that the idea of cooperative market socialism has been picked apart by the superabundant theoretical literature that has emerged in the wake of Ward. There is no shortage of objections to be made to the idea: the previous section of this paper briefly discussed a few objections, but this discussion represents merely the tip of a large iceberg. Still, at this point in time it would be presumptuous for anyone to make strong predictions concerning the future fate of profit-oriented market socialism in the history of economic ideas. Just as the concept of market socialism itself deals effectively with the objections to planning-oriented socialism, so too the concept of profit-oriented market socialism deals effectively with the objections to non-profit-oriented forms of market socialism such as the Langian and the cooperative. Profit-oriented market socialism is an attempt to find a genuinely new direction for socialism: to specify a viable, practical socialist economic system that would garner obvious equity benefits without running an appreciable risk of serious efficiency losses. It goes without saying that a real-world system of profit-oriented market socialism might prove disappointing in practice, and have to be repealed (as was Prohibition in the United States earlier in this century). In that case, the relatively minor differences between profit-oriented market socialism and contemporary capitalism would facilitate the restoration of capitalism. The possibility of experimentation on such a grand scale is not often contemplated, but the fact remains that the relative performance of pragmatic market socialism is fundamentally an empirical issue and not a theoretical issue. The theoretical and empirical evidence currently at hand does not compellingly support either a positive or a negative conclusion on the matter. In principle, economists support the experimental approach to the advance of knowledge. In the final analysis, the experimental approach may be the only possible means of obtaining more or less conclusive evidence on whether profit-oriented market socialism would be better or worse than contemporary capitalism. Until such time as an experiment may be considered, it is the author's hope that this survey paper might inspire some economists to serious reflection on the possibilities that may be inherent in profit-oriented market socialism. Notes 1. Robert Lampman's 1962 book on U.S. wealth distribution was a major factor in impressing the high level of capital wealth inequality upon the consciousness of the economics profession. The 1974 study by James Smith and Stephen Franklin in the AER further contributed to awareness of the situation. More recently, Edward N. Wolff's 1987 study in the Review of Income and Wealth suggests even more concentration of capital wealth as between the early 1960s and the early 1980s. 2. Bergson added some nuances to his 1948 essay in an article published in 1967 in the JPE. Note should also be taken of Hayek's rather strident 1940 critique of Lange in Economica. Several other authors have commented on Lange over the years, but none of these other comments have found their way into the standardized evaluation of Lange's proposal to be found in most comparative systems textbooks. 3. The term "service market socialism" was applied in the author's 1975 survey article on market socialist forms. 4. The seminal 1932 book by Adolf A. Berle and Gardiner C. Means, as well as Berle's later 1959 contribution, has inspired a large literature on the separation of ownership and management, and its potential implications concerning the functioning of contemporary capitalism. William Baumol (1967) and Oliver Williamson (1964) have produced the two best-known theoretical "alternatives to profit maximization" inspired by the situation. See Marris (1964) and Wildsmith (1973) for discussion of these and other "managerial models." For the case that despite appearances to the contrary, the separation of ownership and management has not appreciably undermined the profit orientation of large firms, see Jensen and Meckling (1976), Fama (1980), Fama and Jensen (1983). Important surveys of this literature include Marris and Mueller (1980) and Williamson (1981). 5. Benjamin Ward followed up on his 1958 AER article with a book-length treatise published in 1967. For surveys of the steadily exapnding theoretical and empirical literature on cooperative production, see Steinherr (1978), Pryor (1983), and Bonin, Jones and Putterman (1993). See Vanek (1969, 1970, 1971, 1977) for a comprehensive, scholarly and spirited espousal of cooperative market socialism. Nove's "feasible socialism" (1983, 1991) incorporates the cooperative principle for a part of the large-scale production sector, but Nove himself does not provide any additional theoretical evaluation of the principle beyond that provided earlier by Vanek. 6. Two book-length expositions on pragmatic market socialism (Yunker, 1992 and 1993) are currently available. The 1992 book is mostly nontechnical, and the 1993 book, which reports a general equilibrium evaluation of the potential performance of the system, constitutes a technical supplement to the 1992 book. An article-length exposition of pragmatic market socialism appeared in Comparative Economic Studies in 1988. Some additional articles on the subject are included in the references to this paper. 7. See Yunker (1979) for a detailed elaboration of this argument. This article elicited a comment by Peter Murrell (1981) to which I replied. 8. The estimated social welfare gain from this combined improvement in efficiency and equity, on the basis of the Benthamite sum-of-utilities criterion, is 1.7 percent. This is a modest but significant gain, and the number well reflects the incrementalist objective of profit-oriented market socialism. 9. Leland Stauber's market socialist proposal was initially outlined in a 1975 article in Polity, and much amplified in a 1977 article in the Journal of Comparative Economics. The 1977 article elicited critical comments from Wayne Leeman and Susan Rose-Ackerman (JCE 1978), to which Stauber replied. The large book published by Stauber in 1987 does not add much substantive material to the proposal itself, but contains an elaborate analysis of the postwar Austrian economy, which Stauber regards as providing important evidence suggesting the viability and attractiveness of municipal ownership market socialism. Stauber's most recent contribution on municipal ownership market socialism is an article published in Coexistence (1993). 10. A statement of this argument has been provided by the well-known economist Milton Friedman in Capitalism and Freedom (1962). See Yunker (Polity 1986; and 1992, Chapter 8) for the pro-socialist response to the argument. All of the proponents of profit-oriented market socialist plans discussed here (myself, Stauber, and Roemer) argue that extreme capital wealth inequality under contemporary capitalism undermines authentic democracy, and therefore that considerations of political equity as well as economic equity support the socialist alternative. 11. For example, well-considered recommendations for antitrust structural disaggregations have been put forward by Kaysen and Turner (1959) and Bain (1959). I myself have also discussed the possibility of structural disaggregations of large-scale firms under market socialism to improve competition (see Yunker, 1992, p. 49). 12. To date, the published material available on bank-centric market socialism comprises Roemer (1991, 1994), Roemer and Bardhan (1992), Roemer and Silvestre (1993), and Bardhan (1993). 13. I myself have recently published a lengthy review of possible implications of the peripheral theory areas (principal-agent theory, etc.) with respect to the potential viability and efficiency of profit-oriented market socialism: "Agency Issues and Managerial Incentives: Contemporary Capitalism versus Market Socialism" (Yunker, 1994). 14. This line of argument has recently been thoroughly elaborated in Janos Kornai's magisterial The Socialist System (1992). 15. In the author's judgment, a wide range of criticisms of and objections to market socialism--which never use the term "capital management effort"--nevertheless constitute variations on the capital management effort theme. Examples include Ludwig von Mises's critique of the "artificial market" (1951, pp. 137-142), Peter Murrell's demonstration of the theoretical Pareto inefficiency of market socialism (1984), and Louis Putterman's expressed concerns about the nondecentralizability of public ownership (1993). 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