Review of Theodore Burczak,
Socialism After Hayek
University of Michigan Press (2006)
Herbert Gintis
Theodore Burczak is Professor of Economics at Denison University. He received his Ph.D. from
the University of Massachusetts, where rigorous training in traditional economic theory and
econometrics was linked to an equally rigorous training in "political economy," by which was
meant the analysis of the politico-economic dynamics of social systems. I was privileged to teach
in this department at the time Burczak was there, and indeed in the acknowledgements, Burczak
says that I "showed how to transform traditional economics into political economy." So the
reader is warned---I am not an unbiased reader of this book.
Many reasonable people believe that capitalism, for all its myriad of weaknesses, is the best
possible economic system. This is a highly defensible position, given the abject failure of all
attempts to create viable alternatives over the past two centuries, and especially after the
spectacular collapse of the Soviet Union, the failure of European socialism, and the bitter
extinction of Third World Socialism. Personally, I believe capitalism is the best system we know
of, but it is very important to have some smart and committed people around who spend all their
time and energy in devising workable alternatives. Burczak lies squarely in this tradition, and
Socialism after Hayek is a very creative and thoughtful work that deserves to be widely read and
evaluated.
The most salient fact about Burczak's defense of socialism is his wedding a model of market
socialism with democratically run, worker-owned firms (Lange, Lerner, although Burczak uses
arguments from the contemporary Austrian school, which fits well with Hayek) with a welfare
analysis based on human flourishing (Aristotle, Sen), and perhaps most uniquely, a defense of
markets inspired by the extremely right-wing, Nobel prize winning economist Friedrich Hayek.
This potent mixture of ideas is a welcome alternative to the usual contemporary defense of
socialism, which is based either on know-nothing populist sloganeering or reliance on the ancient
German philosophers of socialism of the Nineteenth Century---especially Marx and his brainy
intellectual followers, whose obvious Hegelianism reverberates nil with the modern mind (Marx
said that he was "Hegel turned on his head." What he forgot was that an upside down Hegel is
still Hegel, just upside-down, just as an upside-down chicken is just a chicken, upside down).
In Burczak's Lange-Sen-Hayek trinity, traditional economic theory is used to defend market
socialism and democratic worker ownership (Samuel Bowles, John Roemer, Pranab Bardhan and
I were working in this area when Burczak was working on his doctorate at the University of
Massachusetts), to defend egalitarianism on the basis of Sen's notion that human welfare depends
on developing capabilities, not on simply getting material things, and to defend a Postmodern
philosophical position on the basis of Hayek's theory of knowledge.
Burczak's treatment is highly sophisticated, but I am afraid I am not persuaded. The absolutely
central and bottom-line problem is that an economy consisting of worker-owned and
democratically controlled firms would impose a significant static efficiency loss on the economy
and would severely retard scientific and entrepreneurial innovate. I say this with pain and regret,
because I and my colleagues work for almost ten year to devise a workable market socialism, but
my final conclusion (I'll let the others speak for themselves) is that our models are more
applicable to promoting self-employment of poor farmers in developing countries (see Pranab
Bardhan, Samuel Bowles and Herbert Gintis, "Wealth Inequality, Credit Constraints, and
Economic Performance", in Anthony Atkinson and Francois Bourguignon (Eds.) Handbook of
Income Distribution (Dortrecht: North-Holland, 2000):541-603).
The main problem facing democratic worker control of firms is that the workers must be residual
claimants on the profits and losses incurred by the firm, or the workers will have no reason to
adopt efficient technology and work practices. Lenders will not willingly lend to workercontrolled firms because they cannot maintain sufficient influence over the firm's policies in this
case (Herbert Gintis, "Financial Markets and the Political Structure of the Enterprise", Journal of
Economic Behavior and Organization 1 (1989):311-322). John Roemer and Pranab Bardhan
(Pranab Bardhan and John Roemer, "Market Socialism: A Case for Rejuvenation", Journal of
Economic Perspectives 6,3 [Summer] (1992):101-116) worked out a sort-of "pari-mutual"
betting plan that would direct public funds to the most promising firms, but it is implausible that
such a plan, were it workable, would not succumb to political forces in a way to which private
capital markets, based on the inviolability of private property, are virtually immune. Moreover,
firms based completely on outside finance are extremely overleveraged and would inevitably
collapse when even small threats to their viability arose.
The conclusion is that democratic firms must be almost wholly worker-owned, meaning that
virtually all of the firm's capital stock is owned by the workers. However, there are severe
problems with worker ownership. Most important, the capital per worker in the average firm is
greater than the total wealth of the average worker in that firm. If the worker were given a share
in the firm outright, he would prefer to sell it to diversify his asset holdings. Indeed, all the
workers would prefer to sell out to a capitalist enterprise so they would become less vulnerable
to the vicissitudes of the market. Indeed, there are several cases in which land redistribution to
the peasants failed because the peasants sold the land right back to their previous landlords! Of
course, this could be prevented by law, but the economic inefficiency of having a workforce of
highly exposed individuals would be extreme. Moreover, if the workers own the firm, they will
not want to expand employment in the firm, because the new workers would get a share of the
value of the firm. Of course, new workers could be forced to buy a share in the firm, but few
would willingly do so. Finally, the idea of worker ownership might be feasible for some highly
stable and technologically developed sectors, but a vibrant economy is based on entrepreneurial
innovation, and this is incompatible with workplace democracy.
If the contribution of workplace democracy to social welfare were sufficiently great, perhaps
some of these severe problems could be overcome. But in fact, workplace democracy and
popular ownership of capital are not fundamental values, but rather are instrumental values. Of
course, in the minds of truly committed socialists they become ends in themselves, but I do not
think such an idea can be sustained, even using Sen's notion of capacities. Socialists talk of
"wage-slavery," but working for a boss is not slavery by a long shot. There are good and bad
bosses, good and bad workplaces, but there are also good and bad teachers, and this does not
imply that all authoritarianism should be abandoned in the educational process. Market socialists
like to compare workplaces to communities, asking why we should have democratic
communities but not democratic workplaces. This is a good question, but the fact is that our
democratic communities work because we have a traditional market economy to draw upon.
Moreover, while it is clear that a liberal democratic national constitution is a must, it is not clear
that there would be something completely unacceptable about having corporations run
communities, as they now run some schools and prisons.
I think the most creative insight in this book is the relationship between Hayek and
Postmodernism. I love Hayek and I am deeply put off by Postmodernism, so I am certain that the
melding of the two must be carefully executed to maintain continuity with Hayek's thought. But
it is interesting food for thought--one of many Burczak offers us in Socialism After Hayek.