The Economist Explains Why Socialism Works

In a surprise twist, the Economist is now a socialist magazine. In the first of a series of explainers this week, the Economist asks, and explains: why do firms exist? They outline a simple typology of two different kinds of economic transactions – spot transactions and contracts:

Most transactions take place in spot markets. They are well suited to simple, low-value transactions, such as buying a newspaper or taking a taxi. And they are governed by market forces, as lots of buyers bargain over the price of similar goods. Things become trickier for goods or services that are not standardised. Parties to a transaction are then required to make commitments to each other that are costly to reverse.

Those commitments, formalized as long-term contracts, cannot be regulated by free markets and require economic planning organizations to oversee.

In a 2010 treatment of the same topic, Schumpeter (perhaps considering a name change to Polyani or Kautsky) began with a simple question:

“Why do firms exist? Why isn’t everything done by the market?”

The Economist …. welcome to the #Resistance.

Schumpeter goes on to point out that “free market” political economies are not really “free market,” at all. In fact, a great deal of economic activity is centrally planned. In fact, it is one of the defining features of capitalism:

Yet most people also spend their working lives in centrally planned bureaucracies called firms. They stick with the same employer for years, rather than regularly returning to the jobs market. They labour to fulfil the “strategic plans” of their corporate commissars.

So the Economist and the Sewer Socialists agree that economic planning is necessary in at least some cases. Market socialists have long acknowledged the reverse as well: that market competition is also necessary for certain functions. The socialist think tank People’s Policy Project has pointed out that, since index funds permit ownership of firms to be completely separated from their internal management, then market socialism must be economically feasible. The Mondragon Corporation of the Basque Country has demonstrated that democratic structures are at least as effective as capitalist firms at economic planning, in addition to being more socially responsible.

The Economist concludes their explainer by agreeing with socialists that modern economic life requires collective organizations to carry out economic planning. The economy is under human control after all. The market is not a natural force mortals defy at their peril. The invisible hand has no clothes. The Economist stops short of actually endorsing socialism only through a failure of imagination:

Economies need both the benign dictatorship of the firm and the invisible hand of the market.

The only thing keeping The Economist from renaming themselves The Central Planner is their failure to imagine the functions of the firm being carried out by anything other than “benign dictatorship.” Calling a corporation a “benign dictatorship” is as brutal and boring a conclusion as anyone can reach after discovering that human hands can grasp the awesome powers of industrial plenty. The enlightened despotism of the corporate boardroom, they conclude, is the highest possible achievement of social organization.

Like the great philosophes of the Parisian salons, the Economist sees through the feudal rituals of the day to imagine an enlightened world administered by the eternal light of reason. Like the sniveling viziers who actually wielded the brutal powers that flowed from the courts of the inbred kings, they fail to imagine – as socialists do – that such a world could be a democracy.


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