SELF—MANAGEMENT AND REQUIREMENTS FOR SOCIAL PROPERTY: LESSONS FROM YUGOSLAVIA DIANE FLAHERTY 1 INDEX I. INTRODUCTION............................................................................................................................................. 2 II. THEORETICAL VIEWS OF THE EFFICIENCY OF SELF—MANAGEMENT ............................................... 3 III. YUGOSLAV SELF—MANAGEMENT........................................................................................................... 7 IV. MARKET REFORM AND SELF—MANAGEMENT ...................................................................................... 7 V. TOWARD NON—MARKET SELF—MANAGEMENT.................................................................................... 9 VI. CONTRADICTIONS OF SELF—MANAGEMENT...................................................................................... 10 VII. CONDITIONS AND MECHANISMS OF SOCIAL PROPERTY ................................................................. 13 VIII. TOWARDS A DEFINITION OF SOCIAL PROPERTY ............................................................................. 16 IX. CONCLUSION............................................................................................................................................ 19 X. BIBLIOGRAPHY.......................................................................................................................................... 20 1 Diane Flaherty: Professor Economics Department University of Massachusetts Amherst, MA 01003 email. [email protected] SELF—MANAGEMENT AND REQUIREMENTS FOR SOCIAL PROPERTY. LESSONS FROM YUGOSLAVIA 1 I. INTRODUCTION taxation of established firms or attempts to harden budget constraints so that firms do not 1. Problems with transitions in Eastern Europe squander social capital. have focused attention on alternatives to both 4. Each solution, government intervention or central—planning and unregulated markets. private ownership, does violence to some Naive enthusiasm for the market has already definitions of self—management. For example, begun to wane in the face of growing economic with government intervention to maintain chaos and inequality, precipitating a search for employment, conflict arises between the rights more humane and stable forms of organization. of workers in any one firm to control hiring Theoretically and in practice, worker self— decisions and the right of all workers to have a management is being advocated as a system job. Which right dominates depends upon one's able to produce efficiently and at the same time definition of self—management. If self— distribute goods and power equitably. The management is narrowly construed as purpose of this paper is to evaluate the role of autonomy of workers within any given firm, the self—management in achieving equity and cost of self—management may well be efficiency from both theoretical models of the unemployment. Similarly, if worker ownership, self—managed economy and the experience of not merely worker management, is considered Yugoslavia, the one economy at least nominally to be a defining characteristic of self— self—managed on a system—wide scale. management, the rights of workers who can 2. Theoretical models derive from many afford to own their firms dominate the rights of different frameworks, distinguished from each those who cannot. other by assumptions about property rights, the 5. Other models pose the issue in terms of a level of competitiveness or openness of the different set of defining characteristics of self— economy and even the objectives of the management, including enhanced enthusiasm, worker—managers within their firms. At issue commitment and therefore productivity of fundamentally are the degrees of inefficiency workers who manage their own firms. From and inequality inherent in self—management. this theoretical perspective, the self—managed The major sources of theoretical inefficiency firm is necessarily more efficient than its are an inability of self—management to secure capitalist counterpart because of the greater full employment in the long run, vulnerability effort exerted by a self—determining to inflation and a tendency toward less than workforce. optimal rates of investment due to ambiguous 6. Whether the individualist or the committed property rights. Inequality arises from the character of the self—managed firm prevails in tendency of self—managed organizations to reality derives to a large extent from the nature maximize their internal gains, rather than of the property and social relations in which the satisfy social goals. firm is embedded. For example, considerable 3. Solutions to the unemployment and inflation recent work on the conditions necessary for problems usually call for either further market cooperation focuses on destructive effects of reform to establish private property rights or private ownership on the trust and cooperation government intervention to promote entry of needed to make both heirarchical and self— new firms. Property rights concerns typically managed firms efficient. have been addressed by reformers with calls for 7. The major thesis of the paper, based on an private ownership, based largely on reference to evaluation of Yugoslav experience, is that the tragedy of the commons. On the other hand, efficiency and equity cannot be based on self— concerns for preserving social ownership have management at the level of the firm. However led to government intervention in the form of appealing the ideal of control by direct SELF—MANAGEMENT AND REQUIREMENTS FOR SOCIAL PROPERTY. LESSONS FROM YUGOSLAVIA 2 producers, intrafirm organization is not the II. THEORETICAL VIEWS OF THE primary determinant of economic and social EFFICIENCY OF SELF—MANAGEMENT trajectories. Unemployment, inequality among sectors and regions and inefficient investment 10. Beginning with the original Ward (Ward, are hardly features of a desirable transition. 1967) and Domar (Domar, 1966) models of the Moreover, autonomous firms in a competitive producer cooperative, the focus of self— environment seem to reproduce many of the management theory has been the goal of the least appealing features of the capitalist worker—managed firm. Although these models organization of work, among them intra—firm assume social ownership of means of hierarchy. Any new economic system must be production, what is seen to distinguish the construed as a society—wide system of self—managed firm is maximization of income production and distribution, including but not per worker rather than profit as the goal. Thus reduced to structure of the firm. the socialist context of the firm is relegated to 8. Further, the optimal form of organization for the background. The self—managed firm is enhancement of self—management rests upon a different from the capitalist firm not because form of social property that moves beyond a private property in capital is abolished but simple dichotomy between private and state simply because the two firms pursue different ownership. Rather, social ownership and social goals. property are relationships that may incorporate 11. Theoretically, the consequence of reducing aspects of both private and state ownership the difference between capitalist and socialist where necessary, but both must emphasize the firms to management structure is to define social nature of production and distribution. efficiency relative to the performance of the Concretely, social property can be privately or ideal competitive capitalist firm. Several state owned, but the constraints within which conclusions about the inefficiency of self— production and distribution decisions be management follow from using a capitalist defined to reflect norms of equality and social “twin” firm as the standard of reference. responsibility. 12. In the simplest one variable input case, the 9. The first section of the paper briefly reviews behavior of the self—managed firm compared the major theoretical literature on efficiency to its capitalist twin is “perverse”. The supply and equity in self—management. In the second curve is backward—bending and prices are section, the performance of Yugoslav self— highly volatile in response to cost or demand management is evaluated briefly for two changes. Most perverse is the result that if periods of reform, the 1960's in which markets prices rise, the firm produces less, not more as were emphasized and the 1970's, when non— the capitalist firm would do. Therefore, rising market methods of economic coordination were prices are associated with contraction of sought. The third section links failures of self— employment and output in self—management. management to an insufficient development of 13. Many extensions of the basic model have the theory and practice of social ownership and shown that the perversities dwindle with more social property. A final section addresses the reasonable approximations to reality, like role of social property in generating solutions to multiple variable input and substitutability the failures of self—management revealed by among inputs (Milenkovitch, 1984). Yugoslav experience. Nonetheless, maximization of income—per— worker does have the undesirable effect of rendering marginal productivities of labor unequal across firms. Because hiring decisions are made on the basis of payment to the worker SELF—MANAGEMENT AND REQUIREMENTS FOR SOCIAL PROPERTY. LESSONS FROM YUGOSLAVIA 3 of a share of the firm's net revenue, firms will 17. The first approach to salvaging the only hire workers if