Monday, December 9, 2013

The Three Separations: A Manifesto for Socialism in the Age of Neoliberalism (final draft)

While Marxism and socialism have enjoyed a noteworthy revival in the years since the 2008 financial crisis, this resurgence has not produced a widely accepted blueprint for a new economic order. My claim in this paper is that implementing the visionary hopes emerging from a resurgent left does not require any radical new policy ideas. Indeed, while I will argue for a version of so-called "market socialism," I differ from many others in making the following explicit claim: it is perfectly possible to challenge capitalist hegemony without challenging neoliberal hegemony. As Dean Baker has persuasively shown, a great deal of what passes for "free market" policy really represents a type of government restriction of the free market. The case is no different with socialism: in a striking paper strangely overlooked by many socialists, Grant and Quiggin have argued that a simple analysis using mainstream, neoliberal economic assumptions suggest a much greater role for government ownership of the means of production.

This conclusion, furthermore, fits nicely with the analysis offered by the school of socialist thought sometimes called post-Marxism. The work of Ernesto Laclau in particular implies that what ultimately separates socialism from liberalism and social democracy, or really any political regime from any other, is not so much a set of concrete policies. Rather, it is the mere fact that such policies occur in an environment of socialist hegemony, something that is an effect of mechanisms for framing political debates as much as it is an effect of actual policies. In a similar vein, philosopher Slavoj Zizek has argued that being a communist today means, above all else, the simple commitment to keeping what belongs to the commons in the realm of the common: "The only sense in which we are Communists is that we care for the commons--the commons of nature, of knowledge--which are threatened by the system."

In a recent and influential piece, Jacobin writer Seth Ackerman offers a rudimentary vision of socialism that, while challenging the neoliberal consensus of recent years and not explicitly adopting a post-Marxist framework, suggests that concrete policies are crucial as much because they offer a means for assuaging leftist melancholy and self-doubt as because they actually map out an exclusive path forward: "a successful radical project has to appeal to every emotional register: not just those ecstatic moments when history opens up and everything seems possible, but also those pensive and critical moods when even inveterate optimists-of-the-will find doubt and reflection taking over." What Ackerman does not fully articulate, though, is the degree to which even the most ruthlessly mainstream and pessimistic neoliberal framework already contains its own subversion when simply looked at in the right way. This becomes clear when examining the uncanny proximity of Ackerman's own proposal to Grant and Quiggin's plan to create a kind of nationalized hedge fund for managing the assets of programs like Social Security.

For this reason, the plan I will articulate for achieving socialism is, in a sense, rather conservative: it essentially leaves in place the current free market, free enterprise system of private ownership of the means of production while building a socialist structure of public ownership and social egalitarianism on top of it. The way to achieve this is simple: if socialism in the strong sense means that the government owns the means of production, then the government should simply buy the means of production.

Separation One: Ownership and Management

The work of Grant and Quiggan suggests that a strong market signal in favor of socialism already exists: the so-called equity premium. This phenomenon, discussed perhaps most famously in a paper by Merha and Prescott, refers to the long-standing mystery in financial economics that government securities consistently pay much lower returns relative to private investments than many models would predict. While there are a variety of attempts to explain this anomaly, one possible interpretation is that this imbalance exists because of the artificial intervention into the market preventing the government from borrowing cheaply in order to lend dearly. Any private bank that could borrow money on such favorable terms would be reaping these rewards by purchasing assets that yield higher returns. 

However, in this case, following through on this relatively straightforward market logic leads to a conclusion that most who profess love for that same market logic find extremely unsettling: namely, that governments should nationalize the means of production. Although Grant and Quiggin do not style themselves as radicals like Ackerman, they nonetheless endorse this very conclusion, at least to an extent: "Next we consider the possibility of public ownership of equity and show that, other things being equal, increases in public ownership financed by government borrowing (that is, by selling government bonds) will improve welfare, up to the point where the equity premium is eliminated" (3). It is perhaps telling that mainstream economics, upon demonstrating that a type of socialism is indeed not only feasible but perhaps prescribed by mainstream economic principles, places this point second in the argument.

To be fair, one of the co-authors, John Quiggin, in a blog post does recognize the potential impact of his paper. He even references Marx in doing so: "To misquote Marx, the problem now is not to explain the equity premium but to derive its policy implications … Some of the implications reinforce common ideas … Other implications are more sup rising at least to those who have imbibed the current conventional wisdom … An immediate implication is that, other things (such as operational efficiency) being equal, privatisation will reduce welfare and nationalisation will increase it." Despite this interpretation, some socialists no doubt may object that this is really just a type of corporatism, or that it is a watered down version of the real thing. Indeed, the proposal would have to start out slow, and at first it would own a small portion of the means of production. As Ackerman notes, however, any economic system needs a way of allocating goods, creating new firms, and shutting down existing ones that are failing, and we should look at the market framework not so much as determinative of the ultimate nature of an economic system but as simply one possible means of allocating goods and services. Thus, Grant and Quiggin's proposal is indeed a form of socialism, even if the market is involved, because it quite literally argues that we should follow market signals in setting the level of socialism by continuing purchases "up to the point where the equity premium is eliminated."

The main concern these authors outline is that private management is ultimately more efficient than public control. Ackerman, too, raises a similar problem, and suggests that preserving firm autonomy would be necessary even with socialism. In other words, economic decisions, rather than political ones, would have to determine when a company is closed down. Grant and Quiggin indirectly provide a suggestion of how to avoid some of the problems of public ownership while getting the efficiency benefits of private management. In their article, they note that one possible policy is to "invest part of the Social Security fund in equities while maintaining the defined-benefit character of the scheme" (1). Essentially, an investment fund, modeled on a private bank, could take investments from Social Security and other public pension funds at various levels of government. To ensure safety and efficiency, these funds could be modeled on index funds and other funds that invest in an entire class of assets, thus eliminating the need for active management and the high salaries that those who manage such funds command. Because much of the money invested would come from from borrowing (selling bonds), this fund could take advantage of the higher returns that were once available only to select institutions like banks, and because these privileges are often implicitly underwritten by the taxpayer, the public would finally be taking advantage of the privilege doled out to special interest groups at its own expense. It would even be possible to use direct democracy to manage these public funds: because the people as a whole would be the shareholders, they arguably would have the right to vote on top management, just like individual shareholders do today.

Separation Two: Consumption and Ownership

This program, of course, would still leave a substantial amount of the means of production in private hands for the foreseeable future, even if it eventually resulted in the government owning the majority of the means of production. For this reason, there will no doubt be some socialists who object that this is not really a form of socialism at all. This is a reasonable objection, but I would actually argue just the opposite: even in the absence of such a policy, it would be possible to implement a version of socialism. This is where hegemony, the essence of Laclau's post-Marxist socialism, becomes crucial: even if the government attained nominal ownership of the means of production, it is not at all unthinkable that nothing could really change in the economy. The government would be under no obligation to pay out more generous public benefits as dividends, and top executives could easily continue to command outsized salaries, further exacerbating inequality--indeed, it is not difficult to imagine that the managers of the government fund might receive similar compensation.

This difficulty leads to the next and, arguably, more crucial separation that socialists should fight for: the separation of private ownership from private consumption, something that can be achieved through tax policy, specifically a progressive consumption tax. The notion of the progressive consumption tax is beginning to gain favor with both the liberal left and the right. The attraction for the liberal left is that it allows the government to raise a large amount of money in an economically efficient way; the attraction for the right is that it eliminates taxes on capital gains while encouraging the type of savings and investment that drives long term economic growth (Frank). From a socialist point of view, the attraction is less that it would raise a large amount of revenue per se and more that it would encourage a social norm of equality: while there would still be a right for individuals to own private capital, a strongly progressive consumption tax would, in practice, make it much more difficult to use this wealth to fuel luxurious lifestyles. As Frank notes, it would be possible to have very high rates of taxation on consumption without necessarily harming the economy. 

Even in the absence of any direct purchase of the means of production, a progressive consumption tax could arguably achieve results even more attractive for socialists than the former policy. It would not nationalize the means of production, but it would create a kind of public utility model for private ownership of capital as such, one in which the individual benefits to capitalists and high level managers would be controlled, in a process that would also raise government revenues for more general welfare benefits. Combined with a much higher level of government ownership of wealth, this combination of outright government ownership and the private utility model of capital ownership would help to maintain the type of competitive capital market with a multitude of participants that would be necessary for maintaining efficiency in the government owned sector.

Other taxes, too, could and should be implemented as much for their disincentive effects as for the actual revenue they raise. From the perspective of ensuring socialist hegemony in the form of norms promoting equality, reducing consumption at the higher end of the income scale is arguably much more important than raising taxes per se on the rich without regard to whether that tax hits investment or consumption. Another top tax priority that would have a powerful effect on social norms would be to implement a series of taxes that are not only economically efficient but perhaps even necessary for our survival: I am thinking of, first and foremost, a carbon tax, one that was sufficiently high to reduce carbon emissions the requisite amount. After this, we could consider some other types of consumption tax: taxes on other forms of pollution, processed food, alcohol and tobacco, newly legal marijuana, traffic congestion, natural resources, land rents, and so on. All of these taxes are economically efficient and will raise money, but, especially when looked at from a global perspective, because such things are disproportionally associated with affluence, they will further limit consumption at the higher levels of the income scale.

Finally, although actively articulating these policies as explicitly socialist aims is crucial, the actual effects themselves are also consistent with the aims of equality. Indeed, they are arguably more consistent with these aims than standard, soak-the-rich progressive and social democratic policies. Libertarian economists like Scott Sumner who have a serious and genuine commitment to redistribution and equality rightly point out that in order to actually redistribute resources, it is necessary to discourage consumption at the high end while also encouraging investment: as others consume less, those resources become available for redistribution, and as investments come on line, the additional productive capacity necessary for a higher total level of consumption also gradually emerges (Sumner, "You Can't Redistribute Income"). The next section will discuss redistribution policies that not only create equality in an efficient way but that also encourage the type of norms that will further cement socialist hegemony.

Separation Three: Work and the Labor Market 

Just as government ownership of the means of production through market socialism would not necessarily encourage equality, so an implicit ceiling on consumption at the top, enforced through norms, taxes, and perhaps eventually a hard cap on annual consumption, would only work toward reducing inequality at the top end of the scale. It would still be quite possible for those at the lower end to fall behind. A floor on consumption is therefore perhaps even more urgently necessary than a ceiling (however, the revenues from the taxes that enforce the ceiling are necessary to help fund the floor, so these last two at least function symbiotically). If the second separation aims at proletarianizing the capitalist class, gradually blurring class divisions by transforming ownership into a type of labor (management), on the other end of the spectrum the next separation seeks to blur the boundary in the other direction by ownerizing the proletarians, that is, ensuring a set level of compensation regardless of access to the labor market.

What this means, in practice, is recognizing that a job, and the secure compensation it offers, is not a naturally occurring product of the labor market. A variety of tax incentives, for example, create what we think of as a "good job": tax breaks on employer provided health insurance, and regulations affecting the way this health insurance works, ensure that employees in certain circumstances receive the total package that we think of as a good job. While arguably these benefits could be replaced by cash payments, cash payments would not replicate the implicit social insurance that exists in things like employer provided health insurance. Until the recent Affordable Care Act, the group insurance market was the area of the economy where insurance had to accept all people regardless of pre-existing conditions. A "good job," then, is more than the sum of its costs: in many cases it would be impossible for individuals to buy a similar benefit even if they were given the fair market value of those benefits in the form of a cash grant. 

A job, then, is something akin to a type of social insurance, a deliberate policy creation of relatively recent origins, and to ensure equality at the lower end of the income scale, it is simply necessary to extend much more broadly the type of social insurance that transforms labor into jobs and, ideally, into meaningful work. The first step in this process of separating the jobs people have from those that the labor market produces is, paradoxically, to encourage a vigorous and robust labor market. Separating jobs from the labor market is not the same as interfering with the latter: indeed, part of the process of expanding comprehensive job insurance is to encourage a vigorous and free labor market. This will help to ensure that the labor market on its own does as much as it possibly can to raise labor up to the standard of work and jobs. 

Many leftists have been critical of using the Federal Reserve as a means to address the recent failure of the labor market out of a sense that the goal should be to transcend the vicissitudes of the labor market altogether. They argue that to emphasize Fed stimulus is to remove the labor market from the realm of politics, and to reduce the struggle for meaningful work to a mere technical macroeconomic fluke. This is an enormous mistake. It will be much easier to extend forms of social insurance to laborers if there is already a healthy labor market. We should see a vigorous labor market, then, as a necessary but not sufficient condition of creating meaningful work: it facilitates, rather than preempts, more fundamental reforms. Indeed, as Christina Romer has argued, the vast majority of the recovery from the Great Depression was a product of monetary policy, not fiscal policy. The political boost that a very quick economic recovery provided--a boost or jolt that monetary policy is uniquely suited to provide--laid the political groundwork for the later successes of the New Deal. 

The best way to establish stable monetary policy that will encourage a robust job market is to adopt something like the NGDP level targeting regime advocated by Scott Sumner ("Retargeting"). It is important to recognize the very radical implications that the apparent humble technicality of this issue obscures: Sumner's proposal aims at nothing less than eliminating recessions as such. Getting behind this proposal is not something that just liberals and progressives should be interested in doing; it should be a core socialist goal. While ending recessions could go a long way toward raising the standards of the labor market part of the way up to the standards of meaningful work and that highly unnatural social construction we call a job, it no doubt will not go all of the way there. The other part of the task will be to boost wages. The minimum wage is a great way to do this, and in an influential paper, Card and Krueger found that modest increases in the minimum wage do not lead to increases in unemployment. 

Of course, this too will not be able to go all the way to creating meaningful work. To further this end, expanding wage subsidies such as the earned income tax credit and establishing a universal basic income will go a long way to furthering this separation. Finally, for those who still have difficulty finding work, implementing a government jobs program on a permanent basis will help to further eliminate any additional uncertainty associated with the labor market. The logic here, again, should not be that of intervening in the market but rather instituting free market reforms: by raising the minimum wage, we make sure that taxpayers are not subsidizing employers who do not pay their workers a living wage; by replacing paternalistic programs with wage subsidies, we combat bureaucracy and regulations that intrude into the lives of benefit recipients; and by removing the current restrictions on allowing the government to hire as many people as need work, we ensure that society can benefit from the work that these individuals are no doubt already doing, while also ensuring that society receives additional benefits for the support it is already paying--in some form or other--to these individuals. In all cases, these policies not only increase employment and improve job quality, but they also ensure strong norms that raise the social status of all work. One interpretation of Card and Krueger is that the level of the minimum wage is more a political than an economic question. Even if the minimum wage is a relatively inefficient way to alleviate poverty, raising it still creates a strong social norm for improving the status of all forms of work.

Conclusion: It's the Economic Norms, Stupid!

For too long, socialists and the left have concentrated on all-or-nothing plans. This ensured that if the left did not get everything, it did not get anything. Instead, socialists should concentrate on "nothing is all" planning: ensuring that any movement forward on any of these plans--including simply talking about these ideas more, and talking about them in an explicitly socialist context--is already to move the plan as a whole forward. This is small-c conservative politics in the best, Burkean sense of the term: through what may appear to be gradual, imperceptible changes, the totality of society slowly alters, until one day it becomes clear that we had been on the path to a brand new order all along. Norms, values, and customs, rather than explicit changes to policies, are the key movers of this small-c conservative politics, and the left has too long let the right monopolize these extremely powerful forces. To put this otherwise, once people think about themselves as socialists, and think about the norms that define their lives in socialist terms, even small changes can become extremely radical. The goal above all else for socialists should be to encourage ways of acting, speaking, and thinking that cement the social norm and precedent that any form of property with a common character--the environment, ideas, public institutions, and of course capital itself--should function as a public trust, even if and when it is nominally privately owned.

Finally, and perhaps most unexpectedly, this proposal could have broad appeal beyond the traditional left, for the simple reason that many of the ideas here come from non-socialists. Quiggin defines himself as a social democrat, but the progressive consumption tax is supported by economists and policy analysts both left and right; NGDP targeting is supported primarily by libertarians, as well as by some right-leaning thinkers; and Charles Murray, of all people, recently came out in support of a basic income. Of course, it is certain that as these views become increasingly associated with socialism, this support will begin to vanish. That is not only expected but perhaps desirable. Nonetheless, anyone who truly values free markets and neoliberal thinking more than capitalism itself will find something to like in this plan.

Indeed, ironically, the path to socialism in an international context will now run through many of the supply-side reforms supported by many on the right, because these reforms tend to strengthen the economic and political infrastructure that make an equity premium emerge in the first place. Furthermore, by placing entitlement programs on a sound financial footing and connecting their funding to the equities market, the plan also gives the population a direct interest in an efficient, productive economy. As with all people who suddenly find themselves with newfound wealth, the population will become much less susceptible to a cruder and more inefficient form of populist economic appeal: if the people own the means of production, they can always take advantage of them; but as their owners, they will recognize that, just as with any investment, it is wise to avoid drawing upon it as much as possible. As our friends on the right are quick to remind us, it is the owner who has the biggest interest of all in the wellbeing and success of the enterprise. Taking this observation to its limit, socialism becomes the ultimate pro-market, pro-enterprise neoliberal reform.

Works Cited

Ackerman, Seth. "The Red and the Black." Jacobin 9 (December 2012): n.p. Web.

Baker, Dean. The End of Loser Liberalism: Making Markets Progressive. Washington: Center for Economic and Policy Research, 2011. Web. 

Card, David and Alan Krueger. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania." American Economic Review 84.4 (September 1994): 772-93. Web.

Frank, Robert. "Progressive Consumption Tax." Democracy Journal 8 (2008): n.p. Web.

Grant, Simon and John Quiggin. "Public Investment and the Risk Premium for Equity."Economica 70 (2003): 1-18.

Laclau, Ernesto. Hegemony and Socialist Strategy (New York: Verso, 2001). Print.

Quiggin, John. "The Equity Premium: Puzzle and Policy." John Quiggin. John Quiggin, 5 March 2003. Web. 25 November 2013. 

Mehra, Rajnish and Edward C. Prescott. "The Equity Premium: A Puzzle." Journal of Monetary Economics 15 (1985): 145-161. Web. 

Romer, Christina D. "What Ended the Great Depression." The Journal of Economic History 52.4 (December 1992): 757-84. Web.

Sumner, Scott. "You Can't Redistribute Income." The Money Illusion. The Money Illusion, 26 July 2011. Web. 25 November 2013.

--. "Retargeting the Fed." National Affairs 9 (Fall 2011): n. p. Web. 

Zizek, Slavoj. "Slavoj Zizek at Occupy Wall Street." Blog post by Sarah Shin. Verso Blog. Verso, 10 Oct. 2011. Web. 25 Nov. 2013.

1 comment:

  1. Just ran across this. You might be interested in

    Quiggin, J. (2005), ‘The equity premium and the socialist case for public ownership’, Imprints: Egalitarian Theory and Practice, 8(2), 112–24.