You are here

Classical Neoliberalism and Market Socialism: A Comparison

Classical neoliberalism resembles market socialism in many ways. It, of course, is not socialist but the basic structure that it recommends is effectively analogous to market socialism in many ways. I find it interesting that two very different political philosophies could end up recommending such functionally isomorphic basic structures. To prove this point, I will need to outline the basic structure of a just polity as proposed by each philosophy.

Classical Neoliberalism & Its Basic Structure

The classical neoliberal model contains several key components: (1) anti-trust laws and government regulation of corporations in order to encourage socially acceptable behaviors, (2) a land value tax, (3) a minimum income guarantee, and (4) universal healthcare. These are the key components of what a classical neoliberal polity would look like if the old-school neoliberals were allowed to design a State from scratch. Of course, so-called "neoliberal" politicians have failed to provide us with a genuinely neoliberal polity in the real world.
The classical neoliberals, if designing a system from scratch, would opt for a land value tax, but they are not strong advocates of land value tax in practice. F. A. Hayek and Milton Friedman could both agree that a land value tax is the "least bad tax." However, all taxes entail injustice in their estimation. In their estimation, the cost of switching from our current tax system to the geo-libertarian alternative is likely not worth it.

Fred Foldvary says the following of F. A. Hayek:

"Friedrich Hayek was ambivalent about using rent for public finance. Hayek was first inspired to study economics after being exposed to Georgist ideas. He thought using rent for public finances is a good idea if the land value could be separated from the value of the improvements, which in practice can be and is done by professional assessors and appraisers, as discussed above. Hayek regarded any tax as inherently socialist, but he regarded a tax on rent as the least-bad ‘socialist' tax."
(Fred Foldvary, The Ultimate Tax Reform: Public Revenue from Land Rent)

F. A. Hayek himself says:
"A decisive step in my introduction to economic theory, perhaps the occasion which made me see what it was all about, was when, some time during my first year of the university, somebody introduced me to a group of single-taxers [Bodenreformers] - the German version of the Henry George School… my enthusiasm for the single-tax proposal rapidly ended. I do not remember what flaws in it I found then, because it seems to me to the present day the theoretically most defensible of all socialist proposals"
(F. A. Hayek, Hayek on Hayek: An Autobiographical Dialogue)

Milton Friedman explains:
"There's a sense in which all taxes are antagonistic to free enterprise — and yet we need taxes. We have to recognize that we must not hope for a utopia that is unattainable. I would like to see a great deal less government activity than we have now, but I do not believe that we can have a situation in which we don't need government at all. We do need to provide for certain essential government functions — the national defense function, the police function, preserving law and order, maintaining a judiciary. So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago."
(Milton Friedman, On Taxes)

Friedman and Hayek also both supported a flat income tax alongside a minimum income guarantee. It should be noted that Corina Boar and Virgiliu Midrigan concluded that a flat tax alongside generous transfers is "nearly optimal" in their paper on Efficient Redistribution. This is a paper frequently cited by social-democratic policy wonks. The paper makes the case that transfers have a greater impact on how progressive and redistributive a system is than taxation does. The United States has a highly progressive tax system alongside a highly regressive transfer system, rendering the system regressive overall. The Hayek/Friedman model of flat income tax alongside a minimum income guarantee would be much more progressive than the existing system.

Hayek does not tell us exactly what his preferred method of providing a minimum income guarantee would look like, but Friedman does and Friedman's plan does meet all the criteria laid out by Hayek. Therefore, we can take Friedman's minimum income guarantee proposal as being representative also of Hayek's vision. Milton Friedman's preferred method of providing a minimum income was through the mechanism of the income tax system. You could simply add a negative income tax (or subsidy) rate to people below a certain level of income. This would mean that people with little to no income would end up paying no taxes but receive a subsidy instead. This is not just an American neoliberal idea. In Germany, under the neoliberal leadership of Konrad Adenauer, the 1961 Federal Act guaranteed a minimum income as part of a social safety net.

Alongside this idea of a minimum income guarantee, Hayek and Friedman both argued for government provision of universal healthcare through the mechanism of social insurance. Again, Hayek does not lay out a specific plan for universal healthcare but Friedman does. Friedman proposes universal catastrophic insurance or universal catastrophic coverage (UCC). Under a UCC plan, everyone would automatically be covered and you could have differential deductibles. For instance, the plan could have a deductible of zero for anyone below 300% of the federal poverty line, a moderate-sized deductible for people above that point, and an exceeding high deductible for wealthy people. Thus, it would guarantee universal access to healthcare by making it automatic and free to anyone below a certain income.

Overall, the basic structure of a Hayekian/Friedmanite neoliberal order would look highly progressive and come very close to being optimal in terms of distributive justice and eliminating poverty. Hayek/Friedman style consequentialist libertarian capitalism ends up looking much more like market socialism than it does like "actually existing capitalism." While this style of neoliberalism would greatly reduce inequality, it would not challenge the capitalist form of property ownership nor alter organizational structures under capitalism. It would not eliminate hierarchy, democratize the workplace, or give workers and the community more control over the economy. Even though it would greatly reduce inequality and oppression, it would still permit and perpetuate many forms of domination and hierarchy. This sort of neoliberalism would have certain institutions that are analogous to institutions one might find under liberal socialism but would also not resemble democratic socialism in many important ways.

Market Socialism and Its Basic Structure

Market socialism, as I envision it, would have the following components: (1) the socialization of the means of production, allowing for more community control of how resources are used, (2) worker-management of co-operatives on a competitive basis, (3) a minimum income guarantee [ultimately in the form of a social dividend], (4) a land value tax [as a form of communal ownership of land], and (5) universal healthcare.
This version of market socialism is a mixture of the Lange-Lerner model of socialism and the market syndicalism approach. Land and capital would be publicly owned. (It should be noted that "capital" here refers exclusively to debt capital, the kind of capital one obtains from a loan or credit.) Companies would pay rent and interest to the Treasury. The revenue from ground-rent and interest payments would then be divided up evenly amongst the citizens as a social dividend. The natural resources and capital of the nation (the "means of production") would be communally owned and the wealth that they create would be distributed evenly amongst the citizens.

Individuals would receive income from two sources: (1) from the social dividend and (2) from wages. The companies within this syndicalist market-socialist economy would exist in the private sector. The means of production (land and capital) would be publicly owned and the "private companies" would rent and borrow from the public. However, private companies would be structured as worker-owned and worker-managed co-operatives. The workers would make all decisions. Under this model, profits become nearly coterminous with wages, as workers would be shareholders and profits would go primarily to wages and dividends. The workers could choose to reinvest profits if they were convinced that such was the best way to maximize profits (and, thereby, their own incomes). This syndicalist market-socialism approach preserves both the profit motive and the pricing mechanism.

Oskar Lange explains market socialism as follows:

"As the productive resources outside of labour are public property [under market socialism], the incomes of the consumers are divorced from the [private] ownership of those resources... But ... there must be some connection between the income of a consumer and the services of labour performed by him. It seems, therefore, convenient to regard the income of consumers as being composed of two parts: one part being the receipts for the labour services performed and the other part being a social dividend constituting the individual's share in the income derived from the capital and the natural resources owned by society."
(Oksar Lange, On the Economic Theory of Socialism, Part 1)

The land and capital - "productive resources outside of labour" - are public property. The market socialist community provides each member with "a social dividend constituting the individual's share in the income derived from the capital and natural resources owned by society." The individual will receive a minimum income of whatever the social dividend happens to be. At the same time, the individual worker will also receive a wage for the work that he does. The social dividend, therefore, supplements his wages.

Benjamin Ward explains market syndicalism as follows:

"In summary, market syndicalism differs from [conventional] market socialism in that in the former (1) both price and output decisions are decentralized to the level of the firm; (2) the workers employed in each firm control policy making; and (3) material interest is the governing incentive. Some of the arguments in favor of market syndicalism as a nonbureaucratic alternative to other forms of socialism would bear a striking resemblance to those of the economic liberal when attacking some tendencies of contemporary capitalism; and conversely for arguments against syndicalism."(Benjamin Ward, The Firm in Illyria: Market Syndicalism)

Where Neoliberalism and Market Socialism Diverge: Who Controls Things?

The primary difference between these two approaches - classical neoliberalism and syndicalist market-socialism - is that the former allows for much more hierarchy and domination. The neoliberal approach does confront the power imbalance between landlord and tenant through the use of a land value tax, but it does not confront the power imbalance in the employee-boss relationship or in the creditor-debtor relationship. While the neoliberal approach would significantly reduce inequality and make the worst off better off, it would not directly confront as many of the relations of domination that exist within society. The syndicalist market-socialist approach confronts hierarchy and domination by democratizing the workplace and by eliminating the distinction between creditor and debtor. The worker is given a participatory role in the management of the company, either through direct participatory democracy or by a representative democratic (republican) organizational structure that lets him choose who will have decision-making power. All individuals receive a dividend from the interest paid on loans, blurring the distinction between who is the creditor and who is the debtor. The syndicalist market-socialist ideal is far more egalitarian than the neoliberal ideal, though the latter is still far more egalitarian than "actually existing capitalism. " Both are versions of a realist utopia.

It should also be noted that the two approaches have a lot in common. Market socialists are pragmatic. Democratic socialists, from Howie Hawkins to Sanna Marin, have been in favor of providing a minimum income guarantee through a negative income tax. And the idea of government collecting ground-rent by imposing a land value tax features in the writings of Marx, as well as in the Fabian Essays In Socialism, and in the platforms of various democratic socialist politicians. And, of course, the classical neoliberal and the social democrat will agree on the short-term objective of imposing and enforcing anti-trust laws and strong regulations to encourage optimal outcomes within the market system. The short-term goals of centrist neoliberalism (as represented by the Niskanen Center, Vox Media, et al.) align with the short-term goals of most social democrats. While social democrats may want something like syndicalist market-socialism in the long run, there is a lot of potential for collaboration with neoliberals on more short-term policy objectives.

If you value liberty, it will ultimately be your personal conception of liberty that will determine what sort of system you are inclined to embrace. If you have an extreme liberal conception, then you will likely incline towards individualist anarchism of some sort, as you will value eliminating all interference with your own choices. If you have a more moderate liberal conception, balancing positive and negative conceptions, you may be inclined to a more centrist neoliberal position. However, if you hold to a more republican conception of liberty, regarding the elimination of domination as more important than eliminating interference per se, then you will probably be inclined to some form of libertarian socialism or democratic socialism.

Commenting on this Story will be automatically closed on December 18, 2020.