Socialism after Burczak

In the MacIntyre model of criticism within and between communities of rhetoric, outsiders usually fail to appreciate the critical work done by insiders to fix the problems within a community of thought. All the obvious problems have been identified and tackled with some sophistication long before you get there. So if you really want to say something new about a problem, you have to immerse yourself in the vast literature available, and come up with new approaches that can be understood in that community’s own terms. Socialism after Hayek, by Theodore Burczak, is a wonderful example of how to do this, and it’s illustrative of just how fertile this approach can be.

Burczak is a socialist. His goal is to formulate a version of socialism that can withstand valid scrutiny. He does this by combining elements from Marxian socialism, Austrian economics (especially Hayek), and the capabilities approach of Amartya Sen and Martha Nussbaum. All three of these perspectives, Burczak claims, can learn something from one another, and this mutual learning is the essence of the book. But before getting into that, I think it will be clearest if I jump to the final vision.

Burczak favors a market free from direct interference with one big exception: economic firms must be run by and for workers, rather than capitalists. Burczak supports a constitutional amendment proposed by Jaroslav Vanek that would formally ban the wage-for-labor exchange, and require that workers alone “appropriate the results of their labors, whether positive (products) or negative (costs or liabilities) and … manage democratically on the basis of equality of vote or weight the activities of their enterprise.” The workers may or may not also happen to own capital.

This economic structure is combined with a one-time “stakeholder” grant bestowed upon each citizen at the age of majority in an amount roughly equal to the price tag of a bachelor’s degree at a private college (estimated at $80K when the book was written in 2006). This would initially be funded by a new wealth tax, flat at ~2% for estates valued higher than the amount of the stakeholder grant. But it could be modified after the initial generation to be self-financing by a requiring the stakeholder grants be paid back, with interest. A further catch – and a deviation from the original proposal by Bruce Ackerman and Anne Alstott – is that the use of the stakeholder funds must be limited to “capabilities enhancing” expenses, like college, vocational training, perhaps the acquisition of property, etc.

What’s wrong with socialism

This structure of free markets plus labor control of firms plus wealth redistribution is Burczak’s response to the failings of traditional socialism. The chief of these is the knowledge problem identified by Hayek, namely, that socialist economic planning fails to incorporate the local, contingent, subjective, and often tacit nature of knowledge in the way that the price system of a free market can. Knowledge is local in that no two individuals have exactly the same information about the world, including economically relevant information. Knowledge is contingent upon ever-changing circumstances, including the subjective preferences of consumers. And knowledge is often tacit, in that we can’t necessarily articulate what is known in a way that makes sense to others. Think of all the things you do just “by feel” after years of practice (I used to align a lot of lasers in grad school and believe me, the manual gets you only so far). A freely operating price system can put some of this recalcitrant knowledge to social use by evolving in response to the decisions of economic actors. But see Steve Horwitz’s capable review of Burczak for a better discussion of Hayek’s knowledge problem.

This isn’t the only criticism Burczak levels at socialism. Private property, which is often derided as illegitimate by Marxists, is needed to facilitate free entry of new firms into the competitive marketplace. The socialist alternative of needing to petition the central planning board with your clever new idea would represent a significant bureaucratic hurdle, leading to higher prices and less innovation. The capabilities approach also provides a normative foundation for private property. Burczak quotes Sen approvingly, “We have good reasons to buy and sell, to exchange, and to seek lives that can flourish on the basis of transactions. To deny that freedom in general would be in itself a major failing of a society.” Or in Nussbaum’s language, private property is a necessary aspect of “strong separateness”, or “being able to live one’s own life in one’s very own surroundings and context.”

Burczak finds a more palatable conception of private property in David Ellerman’s theory of appropriation. Where many Marxists find the existence of private property to be exploitative as such, Ellerman contends that private property is legitimate for essentially Lockean reasons: ownership arises naturally from mixing one’s labor with material. For this same reason, Ellerman judges the capitalist appropriation of the value arising from the combination of labor and capital (and thus the labor-for-wage exchange) to be illegitimate. Workers do the labor mixing; capitalists don’t. Capitalist appropriation is exploitative because it necessarily alienates the worker from responsibility for the product of their labor. Ellerman offers the analogy that two bank robbers cannot contractually agree for only one of them to be held liable in the event of arrest (perhaps in exchange for a higher portion of the booty). Any court of law would dismiss such a contract and hold both parties fully accountable. Private property is thus permissible so long as the resultant value is appropriated by the workers, consistent with Burczak’s plan for worker-run firms.

What’s wrong with Hayek

Burczak argues the Hayekian worldview cannot stand on its own for a couple reasons. Hayek places too much faith in the common law as a reliably objective institution. Hayek attaches great significance to the fact that judges of common law are bound to precedent. Rule by precedent enables individuals to make reasonable predictions about how a given case will be decided and thus make their plans in the confidence that the rules will not be arbitrarily changed. In the case of gross injustices not resolved by the common law (which only evolves slowly with the general sentiments of the population) the democratic process can be invoked for reform.

Ironically, Burczak argues, there are essentially Hayekian reasons to suspect the common law will not be so objective as Hayek imagines. First, subjectivity enters the court in determining even the relevant facts of any given case. A judge will inevitably bring prior beliefs and biases to the case, influencing the interpretation of limited evidence presented by necessarily motivated parties. Second, the law itself, in both statute and precedent, is not a perfectly objective text but must be interpreted, introducing further subjectivity. These considerations undermine the rule of law as a stable platform for the market order, and thus weaken Hayek’s rule-utilitarian justification for the market order.

Hayek’s case for the free market rests on the notion that stable rules and the spontaneous market order will “improve the life chances of anyone chosen at random.” Acknowledging this will not be sufficient in all cases, he supported a safety net as a result. But seen in light of Hayek’s famous dismissal of “social justice” as a “mirage”, his support for a social safety net seems purely ad hoc. Burczak offers two theoretical bases for a social minimum. First, the poor are excluded from the wealth-generating possibilities of the market economy. For example, credit markets are systematically biased against the poor due to their lack of collateral, not to mention any more controversial possibilities of social prejudices against the poor. The poor are thus effectively barred from seizing most entrepreneurial opportunities they identify. A social floor could offset this bias.

Second, a safety net is intuitively justified by the capabilities approach. A safety net can ensure each individual achieves some minimum of welfare that accords with the dignity of a truly human life, meaning resources sufficient to stay fed, clothed, and sheltered, but also sufficient to be able to appear in public without shame (to borrow Adam Smith’s phrase) and to participate in the activities expected of a respected member of the community. I discussed these issues in my capabilities series here and here.

What’s wrong with Burczak

Hayekians and Marxists could both learn from capabilitarians, but Burczak argues the latter could learn from Marxism as well. Specifically, the capabilities approach offers no discussion of class exploitation by capitalist appropriation of the fruits of labor, per Ellerman’s theory of exploitation discussed above. Even if a person has all the other trappings of a flourishing existence, if they sell their labor they are necessarily alienated from both the responsibility and appropriate reward for their labor. The worker is treated as a mere means to the ends of the capitalist, and not accorded the dignity of a free and equal human being.

At least, this is the idea Burczak wants us to take seriously, but this is where he falters. While there may be some value in Marxian analysis, the idea of exploitation by capitalist appropriation of surplus value does no useful work in the marriage of Hayekian and capabilitarian liberalisms, and it actively distracts. I want to preface what follows by saying I am wholly unversed in Marxism, so I am eager to have any misconceptions corrected.

Selling a flotation device for an exorbitant price to a drowning person is exploitative. An immigrant working at below-market wages under threat of deportation is exploited. A victim of blackmail is exploited. These are all intuitive cases of exploitation, even if the exploited party may in fact be made better off by the exchange. The important qualities of an exploitative relationship seem to be callous or cruel advantage taken by the exploiter of the exploited, in the presence of gross imbalances of power and the absence of good alternatives for the exploited. Exploitative exchanges may be voluntary but they fail to be euvoluntary.

Certainly, it is possible for some instances of the wage-for-labor exchange to qualify as exploitation in this more general sense. But we violate the word to maintain that all wage-for-labor exchanges are exploitative. Suppose a prospective worker has independent resources such that the wage job isn’t sought out of need, and that the worker has reasonably good alternatives and is aware of them. Such a person is surely not exploited except in the peculiar sense of the Marxian definition. There is no obvious reason the wage-for-labor exchange cannot be one that respects the full human dignity of those involved, and indeed there seem to be abundant real world examples of just such exchanges. A socialist might retort that workers will not typically find themselves in such a fortunate position as long as capitalist appropriation of surplus labor is the norm, but this transforms the issue into an empirical question of which means are necessary to satisfy (traditional) capabilitarian ends.

As to the empirical question, the socialist must contend with some uncomfortable facts. Foremost is the Great Fact that, since the onset of the Industrial Revolution two centuries or so ago, even the poorest individuals in what is now the rich world have experienced a steady enhancement of their basic (and even not so basic) capabilities, all within economies where capitalist appropriation is the norm. Meanwhile, where anticapitalist policies have been implemented most consistently, poverty and social dysfunction have reigned. Burczak of course would argue that this is precisely why he incorporated Hayekian considerations into his theory. It is the market’s ability to solve knowledge problems, and not capitalist appropriation, that has given rise to the advances of the last two centuries.

The problem is that a ban on the very labor-capital arrangement that has been radically improving human capabilities for several generations would seem to risk that improvement by reducing rather than expanding options for workers, all for the sake of a highly contestable ideological viewpoint. It may be that labor appropriation and workplace democracy are superior employment arrangements. But such arrangements are already permitted. (I wouldn’t be surprised if there are legal rules in many places that do restrict such arrangements, and I fully support the elimination of such restrictions). Perhaps such arrangements would burgeon after implementation of the stakeholder grant plan or a universal basic income, as such policies would lessen economic need in prospective workers’ career planning. Individual level experimentation with novel labor and leisure arrangements has always been one of the selling points of such universal safety net programs. But Burczak and other socialists must persuade the rest of us that labor appropriation and worker-controlled workplaces are better, rather than forcing this singular ideal on everyone.

The Ellermanian idea that Lockean considerations of labor mixing demand worker appropriation of value is ingenious, but, again, contentious. It crashes headlong into powerful intuitions about ownership and consent. The capitalists own the productive property (acquired, for the sake of argument, legitimately). And since we’re considering whether labor appropriation is a necessary basic capability, we should assume all parties involved have the rest of their basic capabilities met. As such, the workers are fully able to consent in the normal sense, coerced neither by other actors nor by malign circumstances. They merely consent to an exchange Marxists find distasteful. Ellermanian appropriation also seems to ignore the value the capitalist brings to the labor-capital arrangement, especially in terms of risk, the generation of entrepreneurial ideas, and organization.

In short, there are good reasons one might believe capitalist appropriation is illegitimate. The viewpoint deserves a place in the marketplace of ideas, and worker-run firms deserve a place in the marketplace of stuff, if they can find willing participants. But the idea is far too contestable to count as a basic human capability. Individuals can live perfectly dignified lives while agreeing to work for capitalists in exchange for wages.

Socialists have long been agoraphobic, blind to the power of markets to propel humanity to prosperity unimaginable to our forebears, just as libertarians have all too often been blind to the many subtle though real ways people can be made unfree even in the absence of government interference. Burczak has blazed a path forward for socialism by immersing himself within the conversations of both Hayekian libertarianism and the capabilities approach, discovering the valuable ideas therein, and garbing those ideas in socialist raiment. Burczak’s contribution is a brilliant exercise in honest, productive engagement between hostile communities of thought.

4 thoughts on “Socialism after Burczak

  1. Some thoughts:

    One of the major claims present in this article is the claim that a rising tide has lifted all boats and that provides the basis for why Capitalism is better (while still flawed in some ways) than Socialism & Marxism. I think there are a couple of jumps in analysis that need exploration: a) whether or not the capitalism of the developed world has (some say necessarily) come at a cost to the less/under-developed portions of the world. b) whether or not capitalism now just shifts the burden onto future generations who will have it significantly worse than if capitalism was held in check. c) Also, was the general welfare of the individual, in a more truly Capitalist time (lassez-faire capitalism of the 1800s-1900s), significantly better than the welfare of the individual now? It seems the advent of more Neo-Liberal/Safety Net/Socialist programs have given rise to significantly more benefits in the last 80 years than the first ~200.

    A & B may go beyond the scope of this discussion because I am not at all sure how Socialism or a Capabilities approach will resolve those issues either.

    Also, you make a statement about Capitalists assuming *nearly* all the risk and that’s a justification for at least some of the gap between production and value. However, aren’t the workers just as at risk with the threat of a lost job/wages, reduction in benefits, if the product is a poor one. With fewer options, the working (poor), probably bear a greater risk to their individual lives since their lives have fewer systems in place to make them resilient to these changes.

    I do like the idea that this style of business production should exist in the status quo, however, I am not sure how sustainable that is if some of the other aspects of the capabilities approach are not also entwined. It would seem from your analysis of Burczak that there is probably some positive feedback loop that is created by creating a 2% tax above a median line and constructing your industrial base this way. Separately they fail, together they are larger than the sum of their parts?

    1. Paul Crider

      Hey Ish,

      a) This would be a good criticism if it were true, but I’ve seen no evidence that that is the case *in general*. The weak and poor classes (and weak foreigners when possible) have always been exploited by the powerful when the powerful could get away with it. Every once in a while, conditions have arisen so that other classes have gained power and institutions congealed to protect the rights of those newly risen classes. That checks exploitation and enables a broader based prosperity. That’s the Acemoglu-Robinson-Johnson line and I pretty much buy it. Since the Enlightenment, there has been an intellectual and rhetorical defense of broad-based rights and dignity for the individual, regardless of class, allowing them to live and work and create wealth without as much fear that they will be plundered or hated. That’s the McCloskey line and it’s pretty convincing too (and consistent with the institutionalists in my view). Anyway, with the rate at which the world’s poor are getting richer, pretty soon Western capitalists will run out of people to oppress! 🙂

      b) Not convinced this is a problem. There’s pretty good reason to believe our descendants will be even richer and more capable of dealing with problems than we are. As people get richer and have their basic capabilities ensured, they also seem to start caring more about environmental issues and taking action on the same. See Kuznets curves.

      c) I don’t really care about what you call “more truly Capitalist”. I favor safety nets for basic capabilitarian reasons of making sure people have sufficient resources to live and act with dignity but also because safety nets (done right) can make markets work better (and markets can then work better for people). Maybe it wasn’t clear in the post which was mostly descriptive there in the middle, but I agree with Burczak’s criticisms of Hayek. (Oh and Hayek supported safety nets too).

      Workers face less risk in joining a firm than capitalists. Workers basically risk foregone opportunities. Capitalists risk losing a lot of financial resources.

  2. Burczak takes Hayek, his critics, and other social theorists and produces the foundations of a legal-economic order in which the concerns of most current thinkers are provided for. It is a deep, sustained, and brilliant achievement.

  3. Pingback: Andrew J. Ho | Singaporean political discourse is completely dysfunctional

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