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The grand plan from Mr. Varoufakis

The grand plan from Mr. Varoufakis

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This article was originally published by Adam Smith Blog

Yanis Varoufakis has taken the time out from his busy schedule to produce a plan for the management of the world. It suffers from the occasional problem we are sad to have to say:

But to be crisis-proof, there is one market that market socialism cannot afford to feature: the labour market. Why? Because, once labour time has a rental price, the market mechanism inexorably pushes it down while commodifying every aspect of work (and, in the age of Facebook, our leisure too).

This is not true. It is not even remotely true. Here is the time series (OK, a time series) of real wages in England. The acceleration of wages starts around when capitalist labour markets, unconstrained by the Corn Laws, really start to operate, subsequent to the 1840s. After that well known Engels Pause. Thus the theory behind this new form of socialism fails to have even that nodding acquaintance with reality so necessary for success in the real world.

The pencil sketch on offer of the system as a whole is:

People receive two types of income: the dividends credited into their central bank account and earnings from working in a corpo-syndicalist company. Neither are taxed, as there are no income or sales taxes. Instead, two types of taxes fund the government: a 5% tax on the raw revenues of the corpo-syndicalist firms; and proceeds from leasing land (which belongs in its entirety to the community) for private, time-limited, use.

Essentially the Social Credit of Major Douglas plus the land value taxation of Henry George. We like half of that – and it’s not the Maj. Douglas bit – but it’s difficult to say that the combination is really anything new or radical.

There is also this crippling problem:

But it is the granting of a single non-tradeable share to each employee-partner that holds the key to this economy. By granting employee-partners the right to vote in the corporation’s general assemblies, an idea proposed by the early anarcho-syndicalists, the distinction between wages and profits is terminated and democracy, at last, enters the workplace.

The identifying feature of capitalism is that it is possible to gather capital from outside the labour force of the organisation. The same statement from the other direction, it is possible to invest in adventures that one does not work in. In this system this is not possible. Therefore outside capital is not available to an enterprise. It thus becomes impossible to have any large scale economic organisations – or at least to start any. Well, unless government is going to be doing all the capital allocation and the 20th century tried that idea to destruction.

Sure, there will be those who enjoy this idea. But note what it actually means. The 5,000 or so workers in a modern steel plant will not have the several billions necessary to build a modern steel plant. Therefore we will not have modern steel plants. Nor any of the things that come with such big ticket capital needs. A chip fab these days costs upwards of $6 or $7 billion. It isn’t possible to replace one with some hundreds of smaller scale operations that could be financed by their future workforces.

And of course the inability to tap into outside capital makes starting anything new pretty much impossible.

There is actually a reason why no one has – OK, we’ll admit, as yet – successfully sketched out a workable alternative to roughly capitalist roughly free marketry. Yes, there are flavours within that spectrum, from Hong Kong’s laissez faire to Sweden’s social democracy. But the reason that designs outside that spectrum don’t work is because the two – together, both capitalism and also markets – solve the basic economic problems we face. How to make the people richer through the efficient allocation of scarce resources.

Nowhere has got rich without that capitalism and markets, those who did not get rich but recently adopted the twin system are getting rich and those places which have abandoned them have become poorer again.

Which does lead to an important question – why mess with what works?


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