The Political Economy of Socialism.

AuthorPongracic, Ivan

In his inaugural lecture at the London School of Economics in 1933, the Austrian economist Friedrich Hayek observed that some of his colleagues suffered from "an intense urge to reconstruct the world," which caused them profound dissatisfaction. For the next sixty years, Hayek continued to urge social scientists to resist this urge, but to little avail. Driven by what Hayek later called the "scientific mentality," many persisted in formulating plans for ideal societies.

The efforts of Branko Horvat, an economist from the former Yugoslavia, are typical and instructive. Horvat's writings display a boundless trust in his ability to discover the just economic order and his desire to organize human existence scientifically in order to usher mankind into the economic paradise he sincerely believes could be just around the corner. Fifteen years ago, in The Political Economy of Socialism, Horvat boldly presented workers' self-management socialism, as practiced in Yugoslavia, as the only humane politico-economic system. In an interview, which I remember reading at the time in Yugoslavia, Horvat expressed his conviction that the book contained the ultimate in economic wisdom, and he anticipated his nomination for the Nobel Prize in economics.

As his hopes for the Nobel Prize faded and his real-life model slid into financial bankruptcy, Horvat decided that the time was ripe for another book. Deploring "the present [economic] paradigm" of capitalism, he sought a "new [economic] paradigm" that would "hopefully elevate [economics'] scientific status" and, at the same time, provide a basis for reforming the unjust and wasteful capitalist system (Horvat 1995, 257). Eventually, in 1995, he brought forth The Theory of Value, Capital and Interest: A New Approach.

Horvat's Old Approach

To understand Horvat's present dissatisfaction with the world, some of his political and economic conclusions of 1982 must be recounted. In his previous book, he announced at the outset that he intended "to accomplish what Marx called for in his famous thesis on Feuerbach: to change the world, not just to explain it" (Horvat 1982, xiii). He aimed to create "a truly socialist society" (4). Life-long research in economics had led him to "this simple truth": capitalism is the problem of human society, and capitalism cannot be repaired. "In order to eliminate the basic shortcomings of capitalism, it is necessary to eliminate--occasionally to destroy by force--capitalism itself" (4). The "basic" shortcomings from which capitalism incurably suffers are competition, which gives rise to monopolies; lack of planning, which fails to ensure sufficient aggregate demand; reification, which produces a society in which humans are treated as things; and last but not least, waste, which lowers everybody's standard of living.

At the same time, Horvat found "etatism," state socialism as practiced in the Soviet Union and its Eastern European satellites, equally unappealing. Although superior to capitalism ("in etatist societies the broad masses live longer, receive more education, and enjoy much better medical care" [49]), it created alienation among workers, unnecessary human suffering, and much waste (though not as much as capitalism). Begrudgingly Horvat admitted that central planning, a corollary of etatism, must founder because central planners simply could not know enough to direct the economic life of a country.

The solution came to Horvat as a self-evident truth: self-management socialism, which had been practiced in Yugoslavia for almost three decades with, according to Horvat, only minor problems, was "not a utopian dream but a realizable project" (174). All that was needed to eliminate its problems and achieve its full potential was "a good theory," which Horvat promptly offered. Confident that his system could easily achieve what Hayek had believed unachievable, he decided not to leave Hayek's "challenge unanswered" (577).

He proceeded to advance an improved version of Marxism: "Horvatism." This theory rested on "social," not state, ownership of the means of production; on autonomous firms that would "truly" compete in the market; and on workers who would freely use their ideas and knowledge to lift their standard of living. But self-management would not be limited to firms; it would pervade all parts of society. Through an ex ante plan composed by "social" planners, the political apparatus would provide the data needed by the workers to manage their firms and make correct decisions. Everything else the people would decide for themselves.

Horvat's "improvement" over the alternative systems, capitalism and etatism, thus consisted of two ideas: "social" planning is superior to central planning, and workers as managers need not suffer from either the chaos of a laissez-faire market or the authoritarianism of central planners. Horvat's main theoretical contribution to economic science consisted of his economist-kings: the social planners of the socialist avant-garde, who know everything, can predict potential problems, and, should the workers make an occasional mistake, will provide an immediate solution for every temporary problem.

Such "a truly socialist society," with free, self-managed workers and incorruptible social planners, Horvat believed...

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