Labor-Management and Efficiency Before the Russian Revolution in 1917, there were a number of schools of thought in socialism, as we have seen. Some were opposed to government control of the economy, and some were opposed to the existence of government at all -- they were anarchists. Thus, they opposed government control of the economy, and opposed economic planning in that sense. Instead, they proposed that the economy should be controlled by the working people themselves, in the individual workshops, factories, and offices. Their idea was that each place of employment should be a little democratic republic, with the employees electing the bosses and determining the basic policies of the enterprise by majority voting. In the twentieth century, the ideal of a market economy with labor managed enterprises has been followed by one country, Yugoslavia, and has been advocated by some economists and others.
We may think of labor-management as a form of market socialism, with the difference that, rather than being managed by government appointees directed to maximize profits at market prices, labor-managed enterprise would be managed by a person elected by the employees and directed to manage the enterprise in their interests. Ideally, then, the control of enterprises is distinct from the control of government, and we might hope that "soft budget constraints" might not be so much of a problem.
While Yugoslavia is the only country that has ever attempted to base its economic system on labor-managed enterprises, many labor-managed "cooperative" enterprises have existed in generally capitalist countries, and they have been successful in many cases. Some also existed in Soviet-type economies. In the German Federal Republic, some large enterprises have been required for generations to allow the employees to elect one-third to one-half of the members of their boards of directors, introducing a democratic element into the operation of capitalist corporations. This, too, has been successful. So there is a good deal of experience in the operation of democratic enterprises, in and of themselves, and the proposal that enterprises could be run democratically is by no means visionary.
But who would "own" labor-managed enterprises? If the system is to be socialist, then they cannot be owned by a capitalist class. Most advocates of a socialist system with democratic firms would say that the enterprises themselves, and their machinery and factories and workshops, should be "social property," the property of society. But what does that mean? One possibility is that the enterprises could be the property of the state, with the state acting as the agent of society. This comes even closer to market socialism, but it also poses the question of keeping the control of enterprises clearly separated from the control of government and eliminating "soft budget constraints." An alternative approach to "social property" has been suggested in these pages, but it is untried in practice. In the alternative approach, organizations such as workers' pension funds and endowment funds for socially useful activities such as free hospitals and fire protection would be recognized as agents of society and could be owners of social property. But "what could social property mean?" will have to remain an open question for now.
Labor-Management and Efficiency 