21st Century Socialism.

As all of Germany seems to engage either in market or Marx bashing these days, I thought it is time to add my two cents to the debate – and I’ll do it with the help of the US Europhile Jeremy Rifkin, who gave the “Stuttgarter Nachrichten” an interview about an old book of his, “the end of work.” The current German debate – the “Kapitalismuskritik” (“capitalism critique”) – is the result of a surprising lack of political imagination, a lot of disappointed social democrats, an important regional election in May, and the lack of a referendum about the European Constitution that would serve to channel the electorate’s fears, as it just happens in France.

Despite the fact that almost everyone, including business professors, in Germany – just as everywhere else – agrees at least theoretically, that there are issues to be debated with respect to the way our economy works, including obvious CEOcratic excesses, the political participants don’t seem to be able to update their class-struggle vocabulary to the needs of the 21st century. While I always thought “the left” had won a conceptional edge over so-called free-market fetishists by accepting that markets are “one coordinational mechanism among others”, I’m not sure about that anymore after having to endure the conflicting and confusing use of so many economic terms by leading German Social Democrats.

Thus, I suppose it was a good idea of the German government to invite Jeremy Rifkin to talk about his ideas concerning the future, or rather the end of work as we know it.

Mr Rifkin is clearly correct to point out that all industrialised economies are currently experiencing a period of more pronounced changes to their transactional structure than at any time in the last 60 years. And he’s also correct to point out the fundamental dilemma of the day – is the classic economic axiom of limited resources and unlimited human needs craving to be satisfied still (always) correct – or, put differently, will the mostly human resources that are freed by technological advances these days, irrespective of their collar’s colour, eventually – or, ideally, in a time span that those freed human resources can actually grasp – find a new use? Are there really as many jobs in non-tradable personal services to uphold largely non-conflictual social structures like the ones we have come used to live in over the last decades? May the construction of the kind of proto-plutocratic hierarchical societies – as, say, Paul Krugman would likely describe the US these days, and the income spreads are growing in Europe, too – even be a necessary pre-condition for such a future. These are important questions without a clear answer. Even the liberal guardian-angel Adam Smith was a radical in this respect stating in “The Wealth Of Nations” that “civil government, so far as it is insituted for the security of prperty, is in reality instituted for the rich against the poor, or of those who have some property against those who have none at all.”

I think Smith was wrong in that respect, but apart from those who believe that property is an absolute natural right, most will find it is easy to agree that property is a social institution needed in order to help overcome the limitations of human bounded rationality, or, more generally, the human nature.

It’s transaction costs economics: If there were no bounded rationality, and if people did not at least have a tendency to seek their interest with “guile”, as Oliver Williamson famously phrased it, there would be no need for any institutionalised organisation of human conduct at all. It is not surprising that Ronald Coase – who partly received a Nobel Price for asking ‘why is there any firm ?’ – stated a couple of years ago that without transaction costs, the efficiency of Communism and any other form of economic governance mechanism would be equivalent. Some economists even believe that in a situation without transaction costs, there would be no need for any kind of property rights regime at all…

But, of course, we live in the real world where institutions matter. And so does, of course, the incentivising nature of property. It’s not actually a secret that command-style economies are only able to grow extensively – that is up to the point where everybody capable of digging has been given a shovel and was told to start using it. But the lack of property-related incentives usually leads to a relative absence of capitalisation of human ingenuity, just as central planning – for simple reasons of bounded human rationality – cannot coordinate the economy as well as the decentralised use of the price-mechanism can.

But now imagine Rifkin and other “end of work” prophets are indeed right in their assertion that the capital intensity of production will rise to previously unseen degrees and far less humans than before will be involved in the economic sphere: then transaction costs “per-output-unit” would necessarily be lower as machine transactions (for the moment at least) do not incur transaction costs.

If that were indeed the case, the social institution “property” would have to somehow take these shifts into account. And that, just looking at the ability of the entertainment industry to use institutionalised concepts of property to their advantage in the political process, could indeed lead to some important distributional conflicts.

Of course, while an author like Mr Rifkin has to present his ideas with an aura of authority, all this is largely speculation. But maybe those who predicted in 1989 that Socialism would make a comeback in some form weren’t entirely wrong. So there’s at least one thing certain about the future – it’s going to be exciting.

7 thoughts on “21st Century Socialism.

  1. That is an interresting theory. However it is just a theory and we will not see governments, unless they are really desperate, jump into the unknown.
    I guess the next seemingly obvious answer to today’s problems will be economic nationalism resulting in a restriction of free trade.

  2. I’ve just read the FT report on last weekend’s exchanges between SPD politician Franz M?nterfering and employers’ representative Dieter Hundt. With M?nterfering suggesting equity investors were like “swarms of locusts” and Hundt responding that “What is going on in this country at the moment makes me puke.” it seems that the ‘social dialogue’ isn’t very user friendly right now. You have my sympathy.

    http://news.ft.com/cms/s/4cafd164-baa6-11d9-a27b-00000e2511c8.html

  3. Yeah, if I were doing PR for Deutsche Bank (which has been singled out in the debate) I would be talking about the small businesses and startups financed with loans from DB. I certainly wouldn’t be defending massive layoffs while the bosses are getting big bonuses, I’d be talking about the indispensible role the banks play in keeping businesses of all sorts going.

    I gotta sympathize a bit more with Muntefering, though. Big business in Germany has agreed with but nothing that Red-Green has been doing, with the possible exception of relaxed immigration rules. Before the last election, I was even hearing rumors that big AGs were holding back on investment to make look Schroeder look back and to give an extra boost after Stoiber’s inevitable victory. Didn’t turn out that way. Anyway, M seems to have concluded that Schroeder’s Genosse der Bosse approach hasn’t paid off enough, and it’s time to turn up the heat a bit. If big business is going to fight the cabinet tooth and nail, then the fight ought to at least pay dividends for the party that M is general secretary of. If Hundt can’t come out of this looking like the good guy, he either needs to hire better PR people or listen to the ones he has.

    (And even the much-maligned equity investors aren’t that hard to defend: who is really in favor of keeping a conglomerate together that’s worth less than the sum of its parts?)

  4. Anyway, M seems to have concluded that Schroeder’s Genosse der Bosse approach hasn’t paid off enough, and it’s time to turn up the heat a bit. If big business is going to fight the cabinet tooth and nail, then the fight ought to at least pay dividends for the party that M is general secretary of.

    Now? Why not a few weeks earlier or coordinated with the campaign?
    It might be panic, but underestimating him is probably a mistake. Either he really believes what he says, or he’s preparing the party for becoming the opposition.

  5. At a guess, I’d say the goal is to boost turnout in the NRW election later this month (22 May).

  6. “I gotta sympathize a bit more with Muntefering, though. Big business in Germany has agreed with but nothing that Red-Green has been doing, with the possible exception of relaxed immigration rules.”

    I think it is quite possible to feel a great deal of sympathy for the whole Schr?eder government which has found itself trying to govern a country in a most difficult moment, and trying to find responses to problems which largely have been not of their making.Like most governments they have probably done some things well and others badly, but there is no quick and easy solution for the underlying malaise and the SPD is probably unfairly receiving all the stick for this.

    To put things in perspective, here in Spain the Zappatero government is undoubtedly not of the calibre of the Schr?eder one (we are currently having virtually no ‘reforms’) yet it is riding on the back of a wave of popularity. The reason for this is probably that Spain is still in the middle of a relative economic boom (thanks mainly to having negative real interest rates, but that’s another story) but of course the current government is the recipient and not the architect of this boom.

    Having said all this, such sympathy doesn’t justify statements like those Muntefering seems to have made at the weekend. Obviously every country has its ‘Enrons’ (what Edward Heath once called the unacceptable face of capitalism), and it is normal to deplore this kind of activity. It is quite another thing to sucggest that your core investors are essentially a bunch of asset strippers (especially when what you badly need is more investment and innovation).

    “descending on Germany intent on sacking workers and making quick profits” were his exact words according to the FT. This is simply demagogery and really isn’t going to help the majority of Germans face up to the difficult decisions their situation imposes.

    Glad to here that government and industry share a common positive attitude to immigration though. Ironically this is something which may not continue if the opposition are returned to government at some stage.

    Just going back briefly to Spain for a moment, I was surprised to find an hour long documentary on national TV last night dedicated to contemporary Germany and its problems. This is a first for me. I have never seen such a documentary about another EU country here before. I think it may be an indication of the fact that the rest of Europe is slowly waking up to the fact that something important is happening in Germany.

  7. At a guess, I’d say the goal is to boost turnout in the NRW election later this month

    But why with, in principle, an uncoordinated outburst? And of course why not before Schleswig-Holstein? They didn’t want to lose that either.
    Also note that his speech invites the conclusion that his own party’s government in effect sold out to those he now blames.
    It seems to me that he really wants to close the eastern border but doesn’t dare to think his own ideas through.