University of Southern California Dissertations and Theses

Democratic socialism: Reconciling social justice and economic growth

(USC Thesis Other)

Democratic socialism: Reconciling social justice and economic growth

PDF

Download

Open document

Flip pages

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content DEMOCRATIC SOCIALISM:
RECONCILING SOCIAL JUSTICE AND ECONOMIC GROWTH
by
Manizheh Nakhai-Aghmiuny
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(Economics)
January 1978
UMI Number: DP23300
All rights reserved
INFORMATION TO ALL USERS
The quality of this reproduction is dependent upon the quality of the copy submitted.
In the unlikely event that the author did not send a complete manuscript
and there are missing pages, these will be noted. Also, if material had to be removed,
a note will indicate the deletion.
Dissertation Publishing
UMI DP23300
Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author.
Microform Edition © ProQuest LLC.
All rights reserved. This work is protected against
unauthorized copying under Title 17, United States Code
ProQuest LLC.
789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, Ml 4 8 1 0 6 -1 3 4 6
U N IV E R S IT Y O F S O U T H E R N C A L IF O R N IA
T H E G R A D U A T E S C H O O L
U N IV E R S IT Y P A R K
LO S A N G E L E S , C A L IF O R N IA 9 0 0 0 7
This dissertation, w ritten by
under the direction of Dissertation C o m
mittee, and approved by a ll its members, has
been presented to and accepted by T he Graduate
School, in p a rtia l fu lfillm e n t of requirements of
the degree of
PKtx
t . c„
'78
N l 8 3
A s J l I C
MANIZHEH NAKHAI-AGHMIUNY
D O C T O R O F P H I L O S O P H Y
Dean
/©iSSERTATION COMMITTEE
Chairman
ACKNOWLEDGMENTS
I would like to thank Professor John E. Elliott,
j my Committee Chairman, for his help and guidance in this
) study.
I am especially grateful to my parents' under-
j standing and their support throughout my studies.
I
| My special thanks to may husband, Khosrow, for
his encouragement, contribution and patience.
TABLE OF CONTENTS
Page
ACKNOWLEDGMENTS ....................................... ii
LIST OF T A B L E S ....................... vii
Chapter
I SETTING OF THE PROBLEM..................... 1
Purpose and Scope of the Study......... 3
Hypotheses ................................ 4
Method ..................................... 5
Terms and Concepts Defined .............. 5
Democratic Socialism .................. 5
Communism.................... 8
Managed Capitalism ..................... 9
Organization of the Dissertation .... 11
Notes for Chapter I .....................13
II BACKGROUND OF THE STUDY AND REVIEW
OF THE LITERATURE......................... 14
M a r x i s m ...................................14
The Labor Theory of V a l u e ........... 15
The Theory of Surplus V a l u e ......... 16
Marx's Growth Model— The Accumu
lation of Capital ..... ......... 20
The Marxian Ratios.....................21
Contradictions in Capitalist Economy . 24
The Economic Theory of Decentralized
Socialism: Lange’s Model .............. 27
Reaction to Criticism of Socialism . . 28
The Determination of Equilibrium . . . 30
Subjective Condition of Equilibrium . 31
The Objective Condition of
Equilibrium............................32
The Functions of the Central
Planning Board ....................... 35
The Economic Theory of Centralized
Socialism................................ 35
Goals of Centralized Socialism .... 36
Centralized Socialism and Planning . . 37
Critique of Consumer Sovereignty
and Defense of Centralized Goal-
Setting ................................ 38
Plan Formulation.......................41
Notes for Chapter I I .....................4 4
iii
Chapter
III DEMOCRATIC SOCIALISM: REVIEW OF THE
LITERATURE AND THEORETICAL PRIN
CIPLES .......................................... 47
Fabianism . 48
Differences Between Marxists and
F a b i a n s .............................48
Fabian Application of the Law of
Rent to C a p i t a l ................... 52
The Fabians' Program and Method .... 54
The Role of the State in Fabianism . . 56
Transition from Capitalism ............ 59
Revisionism.............................60
Revisionists' Critique of Marxism . . . 61
Reyisionist-Marxist Dispute over
Value Theory........................ 65
Democracy and the Transition to
Socialism ...............................67
Guild Socialism..........................68
The Aims of Guild Socialism......... 68
Working of the Guilds and Their
Characteristics . 70
Functions of the State or Commune . . . 72
The Civic-Sovereignty Theory .... 73
The Guild-Commune Theory ............ 74
Contemporary Democratic Socialist
Principles.............................76
Freedom and equality of the indi
vidual ................................... 76
Failure of laissez-faire and the
use of planning................. 79
Public and private ownership .... 83 j
Democratic socialism and democracy . 87
Notes for Chapter I I I ................. 90
IV DEMOCRATIC SOCIALISM IN ENGLAND ............ 93
I ✓
The Roots, of British Socialism............ 94
The Role of Government in the Economy . . 98
Nationalization ......................... 100
Social Welfare Programs in Britain . . 103
Education................................105
Social Service ....................... 106
National Health Service .............. 107
Income Distribution ..................... 109
Economic Growth in Britain .............. 114
Income Distribution and Economic
Growth.................................... 114
iv
Chapter Page
Major Problems of British
Economy.............................. 123
Inflation......................... 124
Unemployment ....................... 126
Balance of Payment Problems . . . 128
The Slow Rate of G r o w t h ......... 131
Institutionalists' Argument ......... 136
Workers' Attitude ................ . 136
Trade Unions' Policy................ 139
The Public Sector as the Cause
of Low Productivity................ 141
Factors Contributing to Britain's
Problems.............................. 141
Slow rate of growth and economic
maturity............................ 141
Low productivity..................... 144
Inadequate adaptive ability of
British industry .................. 146
The lack of adequate investment . . 14 8
The need to import food and
materials ..................... 150
Britain and commonwealth trade . . . 151
High cost of production in Britain . 152
Inefficiency of management ......... 154
British overseas investment .... 155
Conclusion.............................. 157
Notes for Chapter I V .................. 158
V DEMOCRATIC SOCIALISM IN ACTION: THE
CASE OF S W E D E N ......................... 164
The Socialist Movement in Sweden . . . 166
Government Ownership . 171
The Role and Power of Government . . . 177
Social Welfare Programs .............. 181
H o u s i n g .............................. 184
Compulsory Health Insurance .... 185
Family Allowances .................. 188
Education Policy ..................... 189
Government Income Redistribution
Policies ........... 195
The Private Sector .....................
Economic Growth ....................... 206
Conclusion ............................ 216
Notes for Chapter V .................. 217
Page
VI DEMOCRATIC SOCIALISM IN A DEVELOPING !
COUNTRY: THE CASE OF INDIA.............. 220 !
Socialism 220 '
Roles of the Public and Private
Sectors.................................... 226
Government Regulations .................. 234
Economic Growth of India............. .250
The First Five Year P l a n ................257
The Second Five Year P l a n ............ 260 !
The Third Five Year P l a n .............. 265 ;
The Fourth Five Year P l a n ........... 268 j
Notes for Chapter V I .......................271 j
i
VII CONCLUSIONS 277 j
BIBLIOGRAPHY 285 !
LIST OF TABLES
Table
4-1
l 4-2
i
| 4-3
i
i
4-4
4-5
4-6
4-7
4-8
!
I
I
| 4-9
!
i
1 4-10
i
4-11
i
j 4-12
|
! 4-13
Page
Central and Local Government (Including
National Insurance Funds) Current and
Gross Capital Expenditure on Goods and
Services as a Percentage of GNP at
Market Prices, 1956-71 ............. . . . 99
Composition of Personal Income ............ 109
Distribution of Income and Tax Payments
for the Upper 1 Percent and 5 Percent
of British Income Units for Selected
Y e a r s .......................................... Ill
Redistribution of Income through Taxes
and Benefits in the United Kingdom in
in 1970 112
Increases in Price Indices in U.K.
1960-1970 ................................... 125
Unemployment (in percent) in the U.K.
Labor F o r c e ...............................127
Annual Average Rate of Growth of Gross
National Product in Constant Prices . . . 132
Factors Affecting the Growth of Output,
Eleven Market-Oriented Economies
1955-1968 ................................... 135
Rate of GDP and Rate of Growth of
Manufacturing Production (12 Industrial
Countries) (Average 1953-54 to average
1963-64): Exponential Growth Rates . . . 143
Hourly Wages in Manufacturing (Average
Annual Increase in Percentage) ............ 145
Unit Labor Cost in Manufacturing (Average
Annual Increase in Percentages) ......... 14 5
Average Gross Domestic Asset Formation
as Percentage of GNP (1958-1965)...... 149
British Investments and Earnings Abroad . . 156
v n
Fable Page
5-1 Share of Ownership in Some Major
Branches of Business ....................... 177
5-2 Ratio of Taxes to the Gross National
Product, 1968-1970 ......................... 179
5-3 Income Transfers to Households 1973-1975
Million Kronor, Current Prices ............ 192
5-4 A Comparison of Before Tax and After
Tax Income Distribution in Sweden .... 197
5-5 Household Incomes and Expenditure
1973-1975 . . . ......................... 200
5-6 Distribution of Disposable Income .......... 203
5-7 Gross Domestic Product by Component .... 205
5-8 Growth of GNP 19 50-65 in OECD Countries . . 210
5-9 Change in GDP-Cornponents as a Percentage
of GDP the Previous Year 1972-1976
(1968 prices) .................................215
6-1 Share of Public and Private Sectors
in Domestic Produce (At Current Prices). . 228
6-2 Distribution of Investment in the
Public Sector at the End of 1973-74 . . . 231
6-3 Index of Industrial Production,
Official Series ............................ 243
6-4 The Share of Public and Private Sectors
in Total Investment ....................... 24 4
6-5 Expenditure on Social Welfare .............. 247
6-6 State of Income Distribution 249 ;
6-7 Outlays During the First Five Year j
Plan 1951-1956 .............................. 258 j
6-8 Growth Under the First Five Year Plan . . . 259
6-9 Outlay of the Second Five Year Plan . . . 261
Vlll
Table Page
6-10 Growth Under the Second Five Year
P l a n ....................................... 263
6-11 Outlays of the Third Five Year Plan .... 266
6-12 Growth Under the Third Five Year Plan . . . 267
6-13 Total Outlay in the Fourth P l a n ..........269
CHAPTER I
SETTING OF THE PROBLEM
( A theory is successful insofar as it satisfies the
I
j aspirations of a given society. New theories seem to arise
l . . .
! during extended periods of crisis, when an existing social
order comes under a more or less thorough re-examination.
"Democratic Socialism" is such a political and economic
theory. British social and economic unrest from approxi
mately 1880 to 1920 stimulated the advent of democratic
socialism. Socialism began as a movement of protest and
reform against the injustices created by the industrial
revolution in Europe. In the socialist view, the archi
tects of industrial expansion were dynamic and ruthless
men, capitalists given ideological support by mainstream
economic theory and its policy corollary of laissez-faire.
To socialists, it was clear at the end of the
i
inineteenth century that social progress had failed to keep
step with industrial development; and because of that
failure a startlingly large proportion of population
inherited poverty, destitution, malnutrition, and disease.
( The appeal of democratic socialism to British
j workers at the turn of the present century depended in
large measure upon an intense interest in social
questions— poverty, inequality, and unemployment— and a
growing sense of working class political power and organ
ization. It was no accident of timing that during the
| eighties and nineties a new socialist movement appeared.
I
j It was during the last quarter of the nineteenth
i
! century that socialism, from being a doctrine of economic
and political theorists, became a creed of mass parties.
Today, many people believe that the nadir of
capitalism has passed, and that it has fulfilled its his
toric function in the development of modern industrial
civilization. It is now passing on to give way to the
society of the future— Democratic Socialism.
If we examine the history of economic development
in the leading developed countries, such as England and
Sweden, where democratic socialist views and programs
I
have been especially important, we will see that they
have passed through different stages: from feudalism
through mercantilism and capitalism to industrialism.
Then, in order to have a more even distribution of income
expanded national welfare programs, better working condi
tions for labor, etc., they used democracy to reform the
!economy and introduce socialist programs. In the process
|they have evolved from old-style capitalism toward contem
porary "Democratic Socialism."
At the other end of the developmental ladder, we
witness many underdeveloped countries, such as India, in
the process of development and industrialization, attempt
ing to incorporate programs and institutions at the begin-
j ning of the development effort without going through the
1
traditional stages (feudalism-capitalism-industrialism-
I socialism).
i
Purpose and Scope of the Study
The purpose of this study is to examine and com
pare the different forms that democratic socialism has
taken in these two settings. We will start by examining
I
the institutions of democratic socialism in the developed
economies and the changes and modifications in socialist
principles and goals which have occurred since their -emer
gence in these countries. We will then evaluate their
methods and success in accomplishing their basic aims,
notably reducing injustices and inequalities generated in
the process of capitalist industrialization.
i
j
j In the case of developing countries, we will
examine how successful these countries have been in
establishing democratic socialist programs and institu
tions without going through the traditional stages, how
relevant the institutions of European socialism are to
the problems of these underdeveloped countries, and what
kinds of modifications and/or changes in the European
i
I
democratic socialism model are necessary in order to fit I
the needs of these underdeveloped countries and accom
plish their basic aims, notably, a faster movement toward
development and industrialization within the framework
j of social justice and reform.
i
I To facilitate evaluation of the experience and
performance of developed "democratic socialist" coun- i
i
tries and relevance of the European democratic socialist
model for the specific problems of underdeveloped coun
tries, we will examine and compare the organization and
I
I
performance of two developed countries and one underde- 1
i
veloped country. i
Our case studies will be Great Britain and
Sweden as the two leading developed "democratic socialist",
j
countries, and, as a prominent developing country, India, i
Hypotheses |
i
i
I
This study seeks to examine and evaluate criti- |
I
cally the following hypotheses:
1. The fact that some democratic socialist
governments have been confronted with such economic prob- j
I
lems as inflation and unemployment is no basis for refut
ing democratic socialism, because these are not problems
inherent in or unique to the institutions of democratic
socialism. Our hypothesis is that democratic socialism, ‘
i
in the developed countries, has been a way of establish- !
ing more social justice and democracy without sacrificing
economic growth.
2. In developing countries the role of demo-
j cratic socialism is different from those in developed
I countries. In developing countries the major focus is j
on industrialization. Our hypothesis is that democratic 1
socialism can help these countries to move faster toward
■ I
this end, instead of relying on dictatorship to attain
t
it, while simultaneously promoting social justice.
Method
Two possible methods of approaching the subject
are: (1) building an a priori abstract model or.models
of a socialist economic system; (2) deriving theoretical i
j
perspective from examination of actual systems. The
latter method is utilized in this study.
i
I
!
Terms and Concepts Defined j
I
I
Democratic Socialism j
The term "democratic socialism" is used in sev-
!
eral senses: first, as a theoretical economic system; !
second, as a movement for economic change and social
| I
i reform; third, as an actual economic system. When used
in this third sense, as when we speak of "democratic s
I
socialism" in countries such as England or Sweden, how- |
ever, we do not mean that their economic system is fully
socialist. Rather, we mean that the leading parties in
these countries have believed in democratic socialist
ideas and have been able to put them into practice to !
! t
I '
some significant extent through their considerable influ- (
ence over public economic policy and social reform.
The basis of democratic socialism is its insist-
I
ence on the importance of the individual and the recog
nition that his rights and opportunities can often only
be protected and enhanced by collective decisions and
I
not just individualist methods. |
Democratic socialists believe in equality as an
end. Of course, every human being has different skills,
I
abilities, potentialities and tastes, but democratic
socialists believe that these individual differences are j
negligible by comparison with our common humanity. Their i
!
belief in equality is not just limited to its economic
form. It embraces all the political and personal rights
which make happiness and civilized human life possible; 1
and it is founded on the conviction that no man or woman j
J I
, has a naturally greater claim to these than any other. J
i
j A belief in the importance of the individual and, I
1 following on from that, a belief in individual freedom ;
and equality unites all democratic socialists. So we '
define a "democratic socialist" as a person who believes
in these principles and democratic and collective methods ;
i
of obtaining them. i
!
Equality for a democratic socialist has a differ- j
ent sense in the political and personal sphere on the [
I
one hand, and the economic on the other. Politically j
I
and personally, equality of rights means, literally,
equality, that is, every individual should enjoy the
rights to vote, to express and hold opinion, to engage \
j
in political activity and the like with absolute equality.,
But equality in the economic sense has a different mean-
{
mg. Very few socialists have ever advocated literal j
economic equality. Owen wrote: "perfect equality is ,
I
incompatible with the conditions of human life; but there
will be the nearest approach to it, in practice, that the j
J
difference of age and the original organization will j
admit.No one supposes that every man is born with
i
equal abilities; what democratic socialists believe is
t
that every human being is worthy of equal consideration, !
and that every man should be given an equal opportunity I
I
throughout life to develop his own talents. So, inequal- j
ity is not justified beyond the point necessary to ensure j
that the productive abilities of the community are rea- j
i
sonably and fully used. In the words of Jay: "this then j
7
emerges as the basic economic aim for socialists; not
literally 'equality'; but the minimum of inequality that |
is workable if human beings are actively to use their *
talents; not equal shares, but fair shares, not equality :
2
but social justice."
I
I Communism
Communism, in its broader meaning, is a system in \
which all the means of production areowned by a community I
or group rather than by individuals. In this broad ;
sense, equality through communism is an old idea. j
Communism, in its narrower meaning, is the theory I
and social system promoted by Soviet Russia's Communist j
Party and adopted, with variations, in East Europe, main- !
t
land China, and Cuba. It is a revolutionary movement to
overthrow capitalism and replace it with a society in ;
»
which the means of production— land, factories, mines, !
etc.--are owned by the State. In practice, the Communist j
revolution first took place in a backward agricultural j
country: Russia. Therefore, the unifying theme of !
Communism in practice became rapid industrialization. i
I
This is supposed to be accomplished through highly cen- i
tralized governmental control over the economy, with a j
very small role for individual freedom, because the locus |
I
of economic power is virtually completely with the govern-
i
ment. So, by the term "Communism" we mean a form of
collectivism of a dictatorial nature in which the produc- ;
tive mechanism is owned and operated by the State.
I
Soviet-style Communism is also based on the beliefs that: j
i
history is controlled by economic forces; economic forces |
I
must take the form of group struggle; group struggle j
j must lead to civil war; and a just society can be con- j
structed by a dictatorship of one party. j
I
Managed Capitalism j
i
While elements of capitalism can be traced quite j
far back into history, it is in the period since the j
beginning of the Industrial Revolution in England that
t
the capitalistic system has assumed the greatest signif
icance. The increasing profit possibilities resulting
from the rapid growth of technology in the latter quarter 1
of the eighteenth century and the spread of the philosophy
of individualism contributed to growing sentiment in
favor of laissez-faire governmental policies. j
i
A free enterprise economy meant an unmanaged i
economy. Overall, the system was assumed to be self- !
i adjusting, one that naturally produced the right products,
| i
j the right number of jobs, and the right distribution of .
j income to keep people and resources fully employed. Only
laziness was recognized as a reason for joblessness.
"Free enterprise" has been a shorthand way of referring
to an economy of individually and privately owned, com- j
petitive firms whose "decisions" were coordinated by !
impersonal market forces. I
In the latter quarter of the nineteenth century,
a trend toward large scale production and concentration
in a number of industries became quite pronounced. In
I
time, this situation stimulated the passage of regulatory !
legislation to prevent undesirable business practices. ;
I
From this point on, there have been increasing departures ;
from laissez-faire policy by the United States govern-
I
ment and by the governments of other advanced capitalist ,
I
countries. There has also been a continuing trend away |
from the small-scale, many producers-of-each-product j
pattern characteristic of conditions of pure competition.
The individual entrepreneur has disappeared
i from all but marginal areas of enterprise. The corpora
tion has replaced the individual as the organizational '
base of the system. Within the corporation, freedom of j
i business decision-making now means liberty within guide- j
! i
] [
lxnes set by statutorily established public policy: j
! wages and hours, safety, child labor, union recognition, |
advertising practices are all areas of regulation. ' •
Gardiner C. Means, co-author with Adolf A. Berle,
Jr. of the 1932 classic, The Modern Corporation and
Private Property, see the system as capitalism without
the capitalist; that is, ownership is private, production
is for profit, but the number of owners in the prototype
firm is so great that individually they have no power
and are reduced to dividend receivers.
"Separation of ownership and control" as a char
acteristic of this new capitalistic economy, is empha
sized by many writers. Edward S. Mason says:
Almost everyone now agrees that in the
large corporation, the owner is, in gen
eral, a passive recipient; that, typically,
control is in the hands of management; and
that management normally selects its own
replacements.3
This new form of capitalism is called "managed capitalism"
and the definition we will employ for the term "managed
capitalism" is the one stated by J.E. Elliott in
"Comparative Economic Systems":
Managed capitalists accept private owner
ship of the instruments or means of produc
tion as the predominant, if not exclusive,
pattern in industry. Government owner
ship and enterprise plays an almost non
existent role in models of managed capital
ism .... At the same time, models of
managed capitalism do recognize and incor
porate a variety of general and specific
methods and techniques of government regu
lation and control of private enterprise,
as well as more sophisticated mixtures of
private-government ownership.^
Organization of the Dissertation
Succeeding chapters will proceed along the fol
lowing lines:
Chapter II consists of review of the literature
of socialism, including the Marxian and decentralized
socialism, and will explore the background of the study i
in a broader aspect.
Theoretical principles of democratic socialism
is the subject of Chapter III. i
"Democratic socialism" as it exists in Great j
Britain and Sweden will be examined and evaluated in j
!
Chapters IV and V, respectively, to see whether they have
been successful in implementation of their socialist pro
grams., and to see if the existing economic problems
i
such as inflation, and unemployment, especially in Great i
Britain, have been detrimentally affected by their demo
cratic socialist systems. :
r
In Chapter VI, the emergence of democratic ,
socialism in a developing country will be examined and '
\
assessed. The purpose of this chapter is to see if adopt-i
ing such a system will help in achieving development and
industrialization goals, and whether the institutions of
European democratic socialism are appropriate for them I
or whether they should develop their own kind of demo- j
I
cratic socialist principles and programs. I
i
Chapter VII will include conclusions and comments.j
i
j
12
NOTES FOR CHAPTER I
^Douglas Jay, Socialism In the New Society (New
York: St. Martin's Press, 1963), p. 8.
^Ibid., p. 9.
3
Edward S. Mason, ed., The Corporation in Modern
Society (Cambridge, Mass.: The Harvard University Press,
1959), p. 4.
4
John E. Elliott, Comparative Economic Systems
(Englewood Cliffs: Prentice-Hall, Inc., 1973), p. 357.
i
13
!
t
1
CHAPTER II !
I
l
I
i BACKGROUND OF THE STUDY AND !
i
I
REVIEW OF THE LITERATURE
i
' i
| The purpose of this chapter is to briefly trace
| the major stages in the development of the theory of
I socialism. The most systematic, brilliant and influen- j
tial socialist thinker of the nineteenth century was j
Karl Marx. Marx's Das Kapital, is a penetrating analysis
of the effects of Industrial Revolution. Therefore, we
will start our review of socialist thought by analyzing j
the theory and influence of Marx's writings. j
I
Marxism j
I
Marxian economic theory is essentially an analy- ;
sis and critique of capitalism as an economic system, and
i
only secondarily with the organization and behavior of ;
i
the post-capitalist systems. He envisioned that social- \
I
ism would emerge as a post-capitalist system in an eco- j
nomically highly developed form. He predicted capital
ism's rise to unprecedented power and productivity, and i
! yet concluded that the complete revolutionary transforma- |
i 1
; tion of capitalism into socialism was its inescapable j
14
destiny, because of the existence of contradictions
inherent in the capitalist system. I
i
I
The Labor Theory of Value
We generally associate Marx with a "labor theory
of value." In fact the labor theory of value was the
established value theory of the Classical School of ;
Economics, which prevailed from 1775 to 1870. However, I
i
the mainstream of classical economic thought did not !
i
view their value theory as a part of a broader theory of j
exploitation. Marx did, and it is here that his eco
nomics takes its revolutionary turn. !
I
A prerequisite to the Marxian theory of value is i
I
to distinguish between "use value" and "exchange value." 1
Marx said:
The utility of a thing makes it a use-
value. But this utility is not a thing i
of air. Being limited by the physical ;
properties of the commodity, it has no j
existence apart from that commodity.! j
I
Therefore, to possess value, a commodity must have the |
| capacity to satisfy human wants, that is, utility or use j
i 1
1 value. But Marx was clearly more interested in exchange ;
value than use value. A good is exchanged for a wide
I
variety of other goods equally. Exchange value expresses
something equal in two commodities.
. . . first: the valid exchange values of
a given commodity express something equal;
secondly, exchange value, generally, is only
the mode of expression, the phenomenal
form, of something contained in it, yet j
distinguishable from it.2 i
|
If then, we leave out their use values, commodities have ;
i
one common property, being products of human labor in the j
i
i
j abstract.
j The value of a commodity is something embodied
in it. Value is: "the common substance that manifests I
I
itself in the exchange value of commodities ..." !
j
In the Marxian theory, the value of a commodity j
is determined by the socially necessary labor time con
tained in it. Socially necessary labor time is the time !
required for production under normal conditions, with
t
average degree of skill and intensity, using modern j
machinery.
Commodities, therefore, in which equal
quantities of labor are embodied, or >
which can be produced in the same time, !
have the same value. The value of one I
commodity is to the value of any other, \
as the labor time necessary for the pro- i
duction of the one is to that necessary I
for the production of the other. "As ;
values, all commodities are only definite
masses of congealed labor-time."
The Theory of Surplus Value j
. — - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - i
Marx applied the labor theory of value to labor |
itself. The pressure of the industrial reserve army of
unemployed causes wages and salaries to tend toward •
physiological or cultural subsistence levels. The average
of all wages and salaries thus tends toward a level that j
will just enable the laboring classes to reproduce them
selves, while more or less maintaining their standard of
living.
The value of this subsistence wage, in terms of j
purchasing power over food, clothing, shelter, and other |
items in the workingman's budget,.is the exchange value
of the laborer. According to the theory, a commodity's
value represents only the labor time required to produce
it. The minimum abstract labor time involved in repro
ducing the species is by definition subsistence. This
I
is the minimum that the capitalist pays to hire the |
j j
worker. If wages fall below this level, the work force
cannot reproduce itself. Wages do not typically rise
above this level, because the capitalist certainly has
no motive to raise wages needlessly, the worker has little
!
power to raise wages in the long run, and unemployment ;
i
keeps wages down. j
I
Because the working man must sell his labor power
to the capitalist, he is robbed of:
i
the natural spontaneous activity to which i
he is entitled as a member of the human *
I race . . . and degraded to working for mere
! existence, like a horse.^
!
i In this view he is dehumanized.
Because the worker works longer than that just
required to provide subsistence, living labor can create
17
goods and services worth more than the wages it is paid. ■
i
Thus, the capitalist actually receives more value than j
he pays for. This residual between the value of the
goods produced by labor's effort and the value of the
labor power itself is the "surplus value" or the profits
of the capitalist. So we might say that exploitation of
t
labor occurs in the above sense because the "full" value !
created by labor (S+Vj is always greater than the bill t
of wages and salaries (V). Moreover, according to Marx: ;
(
It is not because he is a leader of indus- ‘
try that a man is a capitalist; on the con- j
trary, he is a leader of industry because i
he is a capitalist. The leadership of j
industry is an attribute of capital, just i
as in feudal times the functions of generals
and judges were attributes of landed prop- !
erty.6 *
We must now add an important qualification. Capital is
productive in the sense that labor becomes more produc
tive when working with the technology embodied in better
i
plant and equipment. \
\
Consequently, the value added in each production I
i
activity depends, not only upon its living labor inputs, j
but also on a broad definition of technology, called the |
"mode of production." The mode of production, in fact
comprises not only the techniques used in production and
distribution, or what Marx called the "productive
forces," but also the aggregate of socio-economic I
18
relationships between individuals which defines the
current organization of production and distribution.
According to Loucks and Whitney: j
In a given situation in which certain
natural resources, human resources, and
technical knowledge of processes prevail,
the economic processes of production,
exchange, distribution, and consumption,
will come to be organized into certain insti
tutions, primarily of a social sort, since j
they involve relationships among men. The I
totality of these relationships, including |
innumerable interactions among them, con- j
stitute as a whole the "mode of production" j
which will set the form and content of all \
other social institutions.^
Therefore any improvement in technology will be a combin
ation of better organization of production, broadly !
understood; better capital, both fixed and circulating, !
for labor to work with; and better use of natural
resources. With this in mind, economists often talk
I
about embodied and disembodied technological progress, j
i
meaning that some technical changes are embodied in the |
i
i
new and improved capital, whereas others are not. How
ever both embodied and disembodied technological progress
represents the fruits of labor spent in research and ;
*
development. Whenever labor works with fixed capital or \
natural resources, we can think of it as unlocking the j
technology within and thereby imparting additional value j
i
to goods and services being created. It is not hard to |
I
reconcile this approach with Marx: I
If the productivity of labor is increased
. . . for instance, if weaving with power-
looms becomes no longer exceptional, and
if the weaving of a yard with the power-
looms requires only half the labor time
required with the hand-loom, the twelve
hours' labor of a hand loom weaver is no
longer represented in a value of twelve
hours, but in one of six, since the
socially necessary labor time has now
become six hours. The hand-loom weaver's
twelve hours now only represents six hours
of social labor-time, although he still
works twelve hours as he did before.^
Marx's Growth Model— The Accumulation of Capital
Marx was more akin to modern growth theorists
than to other Classicists in stressing the productive
power of Laissez-faire capitalism. For him,.capitalism
was the culmination of a series of property-right forms
which has made it possible to subordinate nature to man.
The price of this, however, was exploitation of one
social class by another. For example, in the Communist
Manifests he writes:
Capitalism has been the first to show
what man's activity can bring about. It
has accomplished wonders for surpassing
Egyptian pyramids, Roman aqueducts, and
Gothic cathedrals .... The Bourgeoisie,
during its rule of scarce 100 years, has
created more massive and more classical
productive forces than have all preceding
generations together.^
Marx's observation was that society's saving is
largely done by its better-off citizens: capitalists.
He viewed the capitalists with mixed feelings. On the
one hand, he studied the social costs of exploitation
|
and industrialization. On the other hand, he recognized j
that some social agent had to build the roads, railroads, |
factories, mills, and dams which would make progress to
i
higher standards of living ultimately possible. However,
the capitalist invests primarily to secure a profit. If
i
the expected profitability on investment falls, so will i
his incentive to invest. At this point, it is necessary
to investigate Marx's three strategic ratios.
The Marxian Ratios
In Marxian theory, the distribution of income is
S C 1
closely related to three strategic ratios: y , y , and j
I
s s
Q + y r where y is the rate of surplus value or "rate of
exploitation." The higher the ratio of S to V, the
greater will be the "rate of exploitation" of labor. 1
c
— is the ratio of capital to labor, or what Marx called j
"organic composition of capital." The rate of profit is !
I
defined as total profit S divided by C+V, which can be j
viewed as the outlay neeed to maintain its productive
g
capacity, together with its labor force, so --- signifies ;
C+V ;
i
the rate of profit on to total investment. j
We may expand on and elaborate further on the
determinants of the rate of profit by first dividing both
s
the numerator and denominator of by the quantity V: j
s -S/V . _ s/v
C+V ~C+V C/V+l
- ■ v _ _ .
As Elliott points out:
1. If increases (decreases) and ^
V V remains
S
constant, then will increase
(decrease);
s
2. If C increases (decreases) and — remains
V S
constant, then Q + y will decrease (increase)
and
s c
3. If — increases (decreases) and — decreases
(increases), then the two changes will
S S
exert the same effect on , and ^ will
increase (decrease). It is not obvious
S C I
what will happen if — and ^ both increase \
(decrease), for then the two changes will
g
exert opposite effects on > , -.v ....
S C v-+v
4. If — and — both increase (decrease), then ;
S
r ~XT will increase (decrease) if the change ;
in — is "large enough" to offset the change |
. c io !
m -. |
Now, employing the assumption of constant ^ as Marx did ■
in volume I of Capital, then we see that^ y will fall as |
C
— rises. And this is a simplified version of what Marx
called the "law of the falling tendency of the rate of j
profit." Loucks and Whitney explain this point in the
following manner:
22
As capital accumulates in a capitalist ,
society, proportionately more of the I
total will consist of machinery and i
tools . . . and proportionately less. . . \
will go into payment of current wages i
. . . . However, only the latter can yield
surplus value, since only labor creates
value. Thus, since a smaller proportion
of the total outlay (C+V) goes into that
use where surplus value is created, the
; surplus value realized (S) will tend to
| become a smaller and smaller percentage of i
! total (C+V) as that total increases. * j
. The reason why managers increase C/V is that capitalists j
i
can make temporary profits by adopting labor-saving i
machinery as the wage rate increases. However, it is \
well to remember that Marx believed that machinery added j
to production only what it cost to produce. Therefore,
!
the capitalist was driven to reduce the proportion of
workers to equipment, but only workers could be exploited ,
!
to yield consistent profits. Also, it should be noted
that: I
I
|
The battle of competition between capital- !
ists is fought by cheapening of commodi- '
ties. The cheapness of commodities depends '
. . . on the productiveness of labor and 1
. . . on the scale of production. There
fore, the larger capitals beat the j
smaller . . .^-2 ;
So the point is that not all capitalist progressively add
machines, and increase their constant capital and organic i
composition of their capitals. But the increase in the j
I
| organic composition of capital takes place antagonistic- j
j ally, by way of a competitive struggle governed by that j
23
! law which the great painter, Peter Breughel, portrayed in
an engraving: the big fish eat the little. :
This competition would create tremendous pressures ]
for capitalists to seek combinations into cartels or mon- ;
opolies of various sorts. This brings displacement of a !
| large number of businessmen by a smaller number, and the
I
, transformation of a certain number of independent business j
people into technicians, managers, foremen, and even
simple subordinate office personnel and workers.
Contradictions in Capitalist Economy
The American neo-Marxist Paul Sweezy distinguishes
two major sources of instability in Marx's writing; one
is when labor theory of value holds called "production
crisis." The other is called "realization crisis"; this
is the case where commodities do not sell at their
values.
1. Production Crisis
The economy expands, the demand for labor
increases. This will raise the wage level. Increased
s
wages will reduce ^ which in turn will lead to lower
investment. Decreased investment, in turn, leads to
decreased demand for labor which causes unemployment and
finally a reduction of wages, whereupon surplus and
profits rise again. This increase in surplus will lead to
higher investment and economic expansion, and the cycle
will run once more.
2. Realization crisis:
Marx said:
The last cause of all real crisis always
remains the poverty and restricted con
sumption of the masses as compared to
the tendency of capitalist production to
develop the productive forces in such a
way that only the absolute power of con
sumption of the entire society would be
their limit.^
The profitability of investment depends upon consumption
as well as technology. Consumption, in turn, depends
primarily on wage income. Wage income depends on employ
ment and wage levels. The substitution of capital for
labor increases the "reserve army of unemployed." As
unemployment increases, the labor income will decrease
and so will their consumption; so demand can be insuf
ficient to match supply in the market. Therefore ade
quate consumption is one basis for crisis and its accom
panying depression.
Other problems which will emerge in the process
of capitalist development are:
3. Contradiction between the planned division
of labor organized in the individual factory and the
anarchy of production in society as a whole. Anarchy
exists in production based on the laws of competition.
In the course of development "freedom of competition
changes into its opposite— into monopoly," and "the
planless production of capitalist society capitulates
before the planned production of the invading socialist |
15
j society." This planned regulation of production
j "would be in accordance with the needs both of society
, as a whole and of each individual. " The development
! of monopoly, Engels believed, leads to state ownership |
I '
I
j under capitalism. This paves the way for the taking of
i
power by the working class, and planned socialist pro
duction.
4. Contradiction between social production and
capitalist appropriation; between worker and capitalist—
the class struggle. The means of production become j
social under capitalism with the factory system where
goods are produced by many workers, and where specializa- ,
j
tion and the division of labor exist. But the capitalistsj
as the owners of the means of production, are the owners ;
i
of the good produced. |
I
Drawing all these threads together, Marx con- j
i
eluded that the transition to socialism would at last
arrive. The tempo and intensity of cyclical downturns ■
would increase. The misery of the exploited working |
masses would be stretched to the limits of human capacity.
Finally, something would trigger a revolution. The mass
of the workers would rise and seize power; and socialism
will emerge.
26
The Economic Theory of Decentralized ;
Socialism: Lange's Model
One means of distinguishing among different j
theories of socialism among post-Marxians is that of
decentralization versus centralization. Therefore in j
i this section, we will look at the decentralized model of !
I !
i socialism developed by Lange and in the next section
I
j we will identify centralized socialism.
The Lange model is a theoretical, not an actual,
system. It is distinguished from centralized socialism
i
in that it develops a price system, based on the theories 1
of a purely competitive system. Furthermore, it presup- I
| poses a post-capitalist, highly developed economy. Also j
in this model, consumer sovereignty supplements freedom ,
I
of consumers' choice. It is similar to centralized
l
I
socialism in that the means of production are publicly 1
owned. !
Decentralized socialism has more similarities
i
with "mixed economies," like Western Europe and the j
United Kingdom, than it has with either the classic j
Marxian or the neo-Marxian centralized version of social- j
i
ism. Decentralized socialism has a mixture of private i
! and government economic power, a mixture of private and ;
public ownership, the supplementation of the price system
by political democracy, and government intervention to
27
bring about greater equality in income distribution.
Reaction to Criticism of Socialism
Marx, though aware of the problem of the alloca
tion of resources in a socialist economy, tried to solve
it in an unsatisfactory way, with the labor theory of
value. In addition, the question of utility or demand
still remained. Without incorporating demand in the solu
tion of allocation, the quantity of various goods to be
produced would be indeterminate. Thus Langes said:
i
i H
the limitations of Marx and Engels are those of
,17
the classical economists."
In criticizing socialism, Professor Von Mises
postulated that socialist theoreticians failed to solve
the economic problem. A brief summary of his argument ■
is: Since, in socialism, the material means of production!
are exclusively owned and controlled by the state and are \
i
I
never traded or exchanged, there can be no free market 1
for these factors of production. And because these goods 1
or factors of production are not exchanged in free markets,
I
they will not have exchange ratios or objective money j
I
prices. Since these factors are not objectively priced j
t
in terms of money, no rational economic calculations con- J
i
cerning them are possible. Without economic calculations, J
no efficient allocation of these scarce factors can be !
made. Without an efficient allocation of scarce !
18 I
resources,: no "economy" is possible. j
His vigorous attack on socialism was so clearly j
i
stated that socialist thinkers could no longer ignore
his basic argument that a rational allocation of produc
tive resources would not be possible where capital goods
were socially owned.
| i
I The problem of a socialist economy providing a !
method of allocating resources by trial and error, as a
practical problem, was raised by Hayek and Robbins. I
Lange developed his model, in part, in answer to j
j these criticisms. His purpose was to show the way in
! !
which allocation of resources is effected by trial and t
I
error, in a socialist economy. To do so Lange distin- J
guished between two meanings of the term "price": ;
I
It may mean either price in the ordinary
sense, i.e., the exchange ratio of two |
commodities on a market, or it may have j
the generalized meaning of "term on which I
alternatives are offered."19 j
f
t
Prices in the former sense cannot exist for capital goods j
i
since there is no institutional market for such goods. ;
It is prices in the latter sense that are relevant for a :
| socialist system. Therefore Lange indicated that Mises j
1 r
was wrong in contending that only where capital is pri
vately owned and the prices of capital goods are deter
mined by market forces can there be a rational allocation
of resources. All that is needed, Lange said, is the
29
establishment of the terms on which various capital goods :
I
i
are available. This can be done by administrative I
decree and does not have to be done by free market forces.i
The Determination of Equilibrium
Lange distinguished between two conditions of
; equilibrium: subjective and objective. The former j
i referred to individuals attaining maximization of utility :
or profit on the basis of equilibrium prices. The latter |
referred to equilibrium prices determined by the equality |
I
of supply and demand for each commodity. „ ;
Lange points out that in a capitalist system, j
I
I prices are established as a result of the collective
actions of all individuals in the system, yet each person
in viewing the market accepts existing market prices as '
given and bases his market behavior on them. Under cap- '
italism, then, market prices at any time are parameters i
i
to which individuals react. Through a succession of j
reactions over time— that is, through a succession of i
i
trial and error— an equilibrium set of parameters (prices)j
J
is approached. This is the process of successive taton- j
i
nements described by Walras. :
i
; Lange said the basic problem is to "see whether j
t
a similar method of trial-and-error can be applied in a
20
socialist economy." And he believed that it can be
done in the following way.
j Subjective Condition of Equilibrium
i
Lange assumed a society in which freedom of choice|
I
in consumption and in occupation existed and consumer ;
sovereignty guided allocation of resources. There is a j
j free labor market and a free market for consumer goods. j
i
j But since capital goods are owned by the state, there is
i
| no free market for them. The prices of capital goods are
i |
thus accounting prices or "indices of alternatives i
available."
The subjective equilibrium conditions would be !
i
carried out as follows:
I
1. Consumers, in spending their incomes, con
front prices of consumer goods which they view as given j
or fixed. They allocate their incomes among these goods
I
in the manner which will maximize their satisfaction. In
i
I
this way demand for consumer goods would be determined.
i ;
j 2. The Central Planning Board (C.P.B.) would j
! impose rules on managers of government-owned plants and j
industries. The first rule is that managers must follow
I
the principle of minimizing average cost in deciding in j
what proportions to combine the various factors of pro- j
i
! duction, thus attaining an optimum combination of resource.
| inputs. This simply means that managers are required to 1
I combine the factors of production in such a fashion that
i
the marginal physical product of each factor divided by
31
the marginal outlays for it is the same in all direc
tions .
Lange introduced the second rule in order to
determine the scale of output. The industrial manager
must see to it that the industry produces: j
exactly as much of a commodity as can be |
sold or "accounted for" to other indus- 1
tries at a price which equals the marginal
cost incurred by the industry in producing
this amount.
This rule performs:
j
the function which under free competition
is carried out by the free entry of firms
into an industry or their exodus from it:
i.e., it determines the output of an
industry.21
i
The same rule also applies to plant manager, and in this
sense, it is the liberal socialist counterpart of the (
I
efforts of individual firms to maximize profits under
capitalism. !
3. Flowing from the above rules for the output
of plants and industries, total demand for factors is ;
i
determined. I
I
4. The supply of labor would be determined, j
i
freedom of choice of occupation being assumed, as labor j
would offer its services to those paying the highest
i
wages.
The Objective Conditions of Equilibrium
Under Lange's liberal socialist assumptions, the
32
! prices of consumer goods and of labor are determined in ;
1
free markets while the price of all capital goods would
be fixed on a trial and error basis by the central auth-
i
J orities. This means that prices could perform the same
j parametric function in Lange's model as they do under
<
i capitalism. If the C.P.B. made an error in fixing prices,
:
' physical shortages or surpluses of the commodity or j
I
resources would result. This would be corrected by rais- '
ing prices when shortages occurred and lowering prices !
when surpluses occurred. Thus, through the trial and :
error process, equilibrium prices would be determined.
Once the prices are determined in this way, each con- i
sumer, worker, and manager regards the price as given
data to which he must adjust.
The conclusion is that a trial and error pro- ,
I
cedure, similar to that in competitive market, could work J
in a socialist economy. >
At this point one might ask why bother switching
from one system to another, namely from capitalism to j
i
decentralxzed socialism? Even Oskar Lange asks: 1
i
. . . . But if competition enforces the :
same rules of allocating resources as
would have to be accepted in a rationally :
i conducted socialist economy, what is the j
j use of bothering about socialism? Why
j change the whole economic system if the
i same result can be attained within the
{ present system, if only it could be forced j
to maintain the competitive standard.22
33
Lange had a ready answer for his question:
1. He believed that the trial and error pro-
I
cedure would work more effectively under socialism than :
it does under capitalism, because the central authori
ties would have a broader view of the economy than the
i
j individual firms under capitalism, where the process of
decision making is more diffused. Therefore it can move 1
i
directly and quickly to what it expects to be new equil
ibrium prices. !
2. A socialist economy can attain a variety of '
other social goals, such as greater equality in the dis- j
I
tribution of income, full employment, stability, and :
i
growth. For example, regarding income distribution, |
i
they believe that their system will establish a more
j
equal income distribution, because public ownership of
I i
j the material means of production eliminates the so-called ,
i
unearned income of private persons, and interest, rent,
and profits go to the government and thereby to the
citizenry in the form of a "social dividend." i
I
3. The alternatives are not socialism and com- \
i
i
petitive market capitalism, but socialism and "existing j
capitalist economy" which is not perfectly and purely
competitive. It is one where oligopoly and monopolistic
i
j competition prevail.
The Functions of the Central Planning Board
In addition to setting and readjusting prices
for publicly owned resources, the Central Planning Board
has the following functions:
1. It determines "corporately" the rate of
investment. This decision reflects the Board's evaluation
of "the optimum time-shape of the income stream" rather ;
I
than consumers' evaluation. .
2. It passes on the claims of plants and indus- j
tries for loanable funds for capital expansion.
3. It distributes the "social dividend" among
j
the workers as their share of income from publicly owned j
1
capital and natural resources. j
4. It supervises plant and industry managers
to assure they are following the rules to produce effi-
ciently. j
i
I
5. It provides for "collective wants" such as j
natural defense, education, etc. ,
The Economic Theory of
Centralized Socialism
Among economists who have contributed to the
analysis of this form of socialism are Maurice Dobb, Paul
Sweezy, and Paul Baran. The basic feature of this system
is a defense of centralized government planning. Halm
defines central planning as:
35
Central planning approaches the problems
of the social economy, as it were, from
the opposite end. The road does not lead
from consumers' choices, via market prices,
to production processes guided by these
prices; rather, it leads from planned aims,
via ex-ante integration of the factors of
production, to results which consumers
have to a c c e p t . 23
t
i Goals of Centralized Socialism
I ---------------------------: --------
1
i Elliott identifies the goals of centralized
socialism in the following way:
Centralized socialists prefer efficiency
to inefficiency, equity to inequity, full
employment and economic stability to unem
ployment and instability, growth to stag
nation, and freedom to t y r a n n y . 24
Then he goes on to explain that the priority given to
these different goals is different from that in other
systems.
The first priority in centralized socialism is
rapid industrialization and growth. Not all economic
sectors, however, are promoted equally; the result is
unbalanced growth. Expansion of industrial sectors is
stressed— more specifically, producers' goods and, par
ticularly, certain heavy industries, such as mining,
metallurgy, and machinery production.
Centralization is regarded as another basic
1 objective in this type of socialism by Brown and
I 25
i Neuberger. They define centralization as meaning, on
the one hand, that important planning decisions are
reserved to the system's directors, and, on the other, ,
that decisions are communicated to operational units by I
i
i
direct commands or directives.
Efficiency and full employment stability are j
other goals of centrally planned economy. However, cen-
i tralized socialists
I
J are clearly more concerned with the j
I dynamic and historical decrease in costs j
| through increased productivity than with J
the static achievement of lowest-cost |
production under given technological con- j
ditions.2^ t I
Centralized Socialism and Planning
Every economic system requires certain mechanisms,
i
or institutional devices, to achieve its basic goals. j
In a centrally planned economy (CPE), the planning mech
anisms are designed to foster rapid economic growth and
i
(
to safeguard centralization. ■
Paul Sweezy believes that a socialist economy :
i
will need real central planning rather than a mere price- j
i
f I
fixing agency: :
i
It is not hard to see that the centraliz
ation of investment decisions makes com- ;
prehensive economic planning all but inev
itable . . . this investment plan will |
begin by translating the general goals
laid down by the government into quanti
tative terms: so many new factories, rail
roads, power plants, mines, apartment
houses, schools, hospitals, theatres, and
so forth .... The dates at which these
various construction projects are to be
37
started and finished will then be speci
fied. From these data it will be possible
to draw up schedules of the different
kinds of materials and labor which will be
required. At this point the investment
plan may be said to be complete. But
would it be sensible for the CPB to stop
here and to rely on prices and income con
trols to ensure that what is needed will
be ready at the right time, at the right
place, and in the right quantities? The
answer is surely that it would not be . . . i
when a consistent and practical plan has
finally been adopted, it can not be left i
to the discretion of individual industry
and plant managers whether or not they
will conform to it; rather it must be
their first duty, imposed by law, to carry
out their part of the plan to the best of
their ability— just as, for example, it is
the duty of corporate managers under capi
talism to make profits for the owners.2'
Here finally, we have the real picture of a centrally
1
planned economy— where the price system no longer encom- 1
passes the plan, where consumers no longer decide what
is to be produced, where managers no longer act inde-
|
pendently on the basis of price-cost relations. In |
I
Sweezy's description of central planning, investment j
decisions are made by the Central Planning Board according!
f
to its preference scale. The Central Planning Board must •
I
see that more important industries are equipped with cor
respondingly more purchasing power than are less important:
ones.
Critique of Consumer Sovereignty and Defense of
Centralized Goal-Setting
i
The theory of centralized planning has found its i
most advanced expression in the writing of Maurice Dobb.
Dobb's theory of central planning rests on the i
!
following premises: |
j
1. The abolition of consumers' sovereignty. j
I
Socialist writers have often pointed out that free choice
of consumption has little meaning in the capitalist
f
(
economy because of (a) inequality of income distribution
which leads to "plural Voting'.’; the rich who have more
to spend exert greater influence on the market, and (b) in
any complex economic system the choice lies with producers
28
rather than with consumers. What is meant by this is
that consumer preferences are, to a considerable extent,
i
influenced by the advertisements of producers. \
\
j Another criticism of consumer sovereignty stated ;
by Dobb is the fact that collective wants are not repre-
j
sented in individuals' demand and therefore can not be 1
I
|
satisfied by consumers as separate units; therefore, to j
satisfy them, collective decision making is needed. |
I
The aim of these criticisms is that to show, even '
in the capitalist economy, the degree of consumer sov
ereignty is much less than that usually suggested.
I ;
Also, the above arguments are rationalizations |
of the natural tendency of the centralized economy to
I
! bring about a much higher degree of standardization of j
i i
j individual behavior and of production. However, this
would make this system less productive in terms of satis- :
faction of human wants. Those who believe in consumers' \
sovereignty suggest that we leave it to consumers to :
decide what price they are willing to pay for diversity
in want satisfaction. They also believe, with J.M.
' Keynes, that the loss of personal choice "is the greatest
I 29
I of all losses of the homogeneous or totalitarian state. j
i
2. Defense of centralized decision making: :
Dobb believes that the task of the central planning board ;
is far less formidable than some economists seem to think.
I
The board does not have to choose "among an indefinitely
large number of economic patterns.Historical, tech- j
I
nological, and social conditions limit the practical
choices of the central planning board to manageable
portions.
The strongest argument for central planning is
I
that independent producing units can not plan far ahead
because they are not able to predict the actions of others|
I
with sufficient accuracy. The planned economy, on the i
other hand, would make conscious use of these technical j
interrelation and would: j
substitute ex-ante co-ordination of the con- ,
stituent elements in a scheme of develop
ment for the tardy past facto-co-ordinating
I tendencies that are operated by the mech-
! anism of price movements on a market in a
! capitalist world-tendencies, moreover, which ;
| in the presence of substantial time-lags |
i
40
may merely achieve extensive fluctuations. ,
In this the essential difference between a [
planned economy and an unplanned evidently i
consists.^
Dobb points out that such ex ante coordination,
by eliminating much uncertainty, not only permits a given
objective to be attained more smoothly, but also makes
possible developments which the capitalist economy cannot |
undertake because the independent producer cannot be cer- !
tain "that others will follow suit and take parallel
i
32 1
action which coordinates with, and justifies, his own." j
Plan Formulation J
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I
Government economic planning under centralized j
i
socialism must involve: "an active determination of the j
main lines of development of the national economy. Other
wise, if planning were mere coordination, the development
of socialist economy would be elemental; it would not
33
really be directed by the will of organized society." !
According to Lange, the plan should include divi- i
sion of national income between capital goods and con- [
j
sumption; it also should determine the distribution of ;
investment funds among the different sectors of the
economy. ,
Under centralized socialism, planning is under
stood not only as the determination of the lines of
expansion, and general acquisition of the means of
achieving those lines, but as the direct assignment of ■
tasks to all economic units. Lower levels are assigned
executive functions; their freedom of choice limited by
i
the narrow boundaries prescribed by central decisions or j
i
decisions derived from those central decisions.
j The production plan of centralized socialism, is
"a complex of output programs for all the main products
of the economic system, embracing real expenditure and
34
real product, input and output m each case.
The necessary coordination of the means of pro
duction can be achieved by use of so-called "balances."
1
A commonly used technique in plan construction is the
"material balance" method. The planners begin with ini- j
tial gross .output targets for all commodities. Care must j
t
be taken in arriving at the initial targeted level of
output by examining more closely the productive capacity
of the industry involved and carefully estimating future j
gains in capacity resulting from the introduction of new
i
. capital equipment or the implementation of new technology.,
i i
I Once the initial targets are formulated, they are presentedl
I
to the production units, who then submit a bill of input j
requests which they feel is the minimum necessary to pro- !
duce the targeted output. It is the task of the planners
then to reconcile input requests of enterprises using
i
| certain goods with output assignments of firms producing
those goods, to insure that there is a balance between
supply and demand.
Not all the balances in the production plan can
be real or physical balances. Where dissimilar things
are to be added together, we need equations or balances
in monetary terms. Monetary balances are necessary,
furthermore, where money incomes are earned and spent on
consumers' goods and where wage differentials are used to
regulate the supply of labor for different industries.
When we introduce factor and product prices, we
change real balances into monetary balances and the pro
duction plan into a financial plan. Prices may have to
be changed if it turns out that' the financial balances
do not balance. However, the heart of centralized plan
ning lies in the physical plan. The function of prices
is reduced to the more modest task of supporting the
planning process.
43
Ibid., p. 43.
Ibid., P- 45.
Ibid., p. 46
NOTES FOR CHAPTER II
"'"Karl Marx, Capital, 3 vols. (Chicago: Charles
H. Kerr and Company, 1906-09), 1:42.
2.
3
4
5
Dirk Struik, The Economic and Philosophical
Manuscripts of 1844 (New York: International Publishers,
1964), p. 45.
®Marx, Capital, 1:332.
7
William N. Louck and William G. Whitney,
Comparative Economic Systems, 8th ed. (New York: Harper,
1969), p. 75.
^Marx, Capital, 3:381.
9
Karl Marx and Friedrich Engels, Manifests of j
The Communist Party (New York: International Publishers,
1948), pp. 11-13. '
"^John E. Elliott, Comparative Economic Systems i
(Englewood Cliffs: Prentice-Hall, Inc., 1973), p. 114. |
i
i
"^Louck and Whitney, Comparative Economic Systems, |
p. 128. i
12
Marx, Capital, 1:626.
13
Elliott, Comparative Economic Systems, p. 130.
14
Marx, Capital, 3:568.
15
Friedrich Engels, "Socialism, Utopian and
Scientifice," in Selected Works (Moscow: Co-operative
Publishing Society of Foreign Works in the USSR, 1935),
p. 178.
44
■^Ibid. , p. 181.
17
Oskar Lange and Frederxch M. Taylor, On the
Economic Theory of Socialism (New York: McGraw-Hill,
1964), p. 134.
18
Ludwig von Mises, "Economic Calculation in the
[ Socialist Commonwealth," in Collectivist Economic Plan-
! ning, ed. Frederich A. Van Hayek (London: George
j Routledge & Sons, 193 5), p. 111.
19
Lange and Taylor, On the Economic Theory of
Socialism, pp. 56-60.
20
Ibid., p. 72.
21Ibid., p. 77.
22Ibid., pp. 98-99. ;
I
23
George N. Halm, Economic Systems: A Comparative!
Analysis (New York: Holt, Rinehart & Winston, Inc., !
1960), p. 220.
24
Elliott, Comparative Economic Systems, p. 311. i
25 !
Alan A. Brown and Egon Neuberger, "Basic
Features of a Centrally Planned Economy," in Comparative j
Economic Systems: Models and Cases, ed. Morris Bornstein 1
(Homewood, 111.: Richard D. Irwin, Inc., 1969), p. 100. ;
I
2 6
Elliott, Comparative Economic Systems, p. 312. ,
27
Paul M. Sweezy, Socialism (New York: McGraw-
; Hill, 1949), pp. 234-236.
2 8
Barbara Wootton, Plan Or No Plan (London:
Victor Gollancz, 1934), p. 173.
29
John Maynard Keynes, The General Theory of
Employment, Interest and Money (London: Macmillan &
Company, Ltd., 1936), p. 380.
*
45
30
Maurice Dobb, Soviet Economic Development Since
1917 (New York: International Publishers, 1948), p. 3.
^Ibid. , p. 9.
■^Ibid. , p. 9.
33
Oskar Lange, The Political Economy of Socialism
(The Hague: Van Kevlen, 1958), p. 20.
34
Dobb, Soviet Economic Development Since 1917,
p. 348.
CHAPTER III [
I
I
DEMOCRATIC SOCIALISM: REVIEW OF THE
LITERATURE AND THEORETICAL PRINCIPLES
I
I
| Democratic socialism is allied with the growth of J
democratic institutions in Western Europe. A main reason j
I
for the rise in democracy was the growth of industrial- !
; ism in Western Europe. Industry had to have educated j
! ' !
j workers. Given this fact, it was impossible in the long
‘ f
run to prevent the workers from forming their own associa-:
I
tions and political parties. In a sense, democratic
socialism both precedes and outlives Marxian socialist I
doctrine, which placed scant faith in the possibility of i
i
socialism evolving out of democratic political reform in i
I
a capitalist system whose basic institutions existed to
protect the owners of the means of production. In gen
eral, social democrats believe that the existing parlia- j
! mentary process is an avenue through which the working ,
i !
class can achieve socialism by voting itself into power; ,
this was the strategy of political movements that first i
I
appeared in Western Europe during the late nineteenth j
i
century. I
In this chapter, we shall review the emergence
and literature of different variants of democratic !
socialism, such as Fabianism, Revisionism, and guild
!
socialism. Then, we shall examine recent democratic I
socialist ideas and principles. j
Fabianism"*-
i
The Fabian Society was an important factor in \
i
the development of democratic socialism, both theoretic
ally and organizationally. From its beginning, the
Society attracted some of the most brilliant minds in
England: Bernard Shaw, Sidney and Beatrice Webb, Graham |
Wallas, Sidney Olivier, and Clement Attlee.
To the Fabians, the problems of socialism were
never distinctly political, or economic, or sociological;
therefore, their studies were usually a combination of '
all three elements.
i
Fabians rejected some elements of the Marxian j
theory, e.g., the theory of distribution. In most cases, j
they have preferred to pursue the classical economics of j
i
Adam Smith and John Stuart Mill to a socialist conclusion.;
Differences between Marxists and Fabians ,
Fabians chose to repudiate Marx, rather than to j
interpret him in a moderate direction as the German j
"Revisionists" did. Marxism would only have been a
48
hindrance to the Fabians in their attempt to permeate the
radicals; on the other hand, doctrines of Ricardo, Mill,
and George were well established among Fabians.
M. Beer, the British socialist historian,
describes these differences in the following way:
Between the years 186 5 and 18 85, Great
Britain had entered on a period of change
. . . . The rise of the working classes
could no longer be denied, . . . they had
obtained the franchise and legalization of
trade unionism. The British Constitution
was turned into a democracy . . . the fun
damental socialist concepts needed a new
basis and new methods more in harmony with
new conditions. This adaptation has been
performed by Sidney Webb. It represents
the transition from Marxism to Fabianism.
Rightly understood, the pre-democratic
socialist of the Chartist or Marxist type
could not but think of a revolution, since
they had first to sweep away the old state
in order to create a political mechanism
for a collectivist reorganization of
society. In a democratic society, and in
a state which acknowledges the duty of
carrying legislation, there was no need
of a revolution in order to create a new
political mechanism, for it was in exist
ence and needed but to be used.
The Marxists scorned all sketches and
all questionings for the details of the
future state, but urged upon the working
class to fight against the existing order,
to obtain political power, to seize the
state for the purpose of the abolition of
the capitalist system which obstructed the
birth of the new order . . . Webb investi
gates the particular evils of society,
points out the remedy for each of them in
accordance with the general principles of
socialism, and the endeavors to persuade
the nation that these remedies are prac
ticable and suitable for legislation.^
The Fabians denied both the labor theory of value J
of Ricardo and Marx and neo-classical marginal productiv
ity theory. They believed that modern industrial organ
izations made it impossible to distinguish the contribu
tion made to the final product by each factor or produc-
j tion. Therefore, they proposed to make wealth public
i i
| property. This is in contrast to those who, in the name i
of Ricardo or Marx, argued that labor should receive all ;
income because labor produced all value. !
The Fabians did not adopt the marginal utility
I
school's theory of distribution. Instead, they developed ;
their celebrated "theory of rent," which, the claimed, i
was a new theory of "surplus value," more accurate and !
3
sounder theoretically than Marx's.
i
The Fabians agreed with Ricardo that rent is a
differential payment which accrues to the owners of any I
land that is more productive than the poorest land in j
cultivation. Shaw accepted that rent in substance was j
"the difference between the fertility of the land for '
I
which it is paid and that of the worst land in the :
country." If we apply equal labor to different lands, >
t
still we see that the product of the land will be differ- !
ent because of its inherent fertility. In fact, it is
fertility, mineral content, position, that combined to
j make the net advantages of one piece of land very
50
different from that of another. This differential
i
advantageousness, rising in scale from the very margin J
of cultivation to the most superior sites, accounted for
1
the phenomenon of economic rent under unrestricted
private ownership and free competition; the landlord will
' retain for himself the whole differential advantage of
I
i that position over and above the yield of the worst in j
! 1
use. The tenants get subsistence and no more. j
I
According to the Fabians, these points justify j
nationalization of land and the abolition of landlords.
i
But unlike Marxists, who would return surplus output to !
the workers (more accurately: worker control), Fabian
distribution theory would collect surplus for society as j
a whole, that is, the state would use the surplus, or
rent, to provide social services such as education, medi
cal care, etc., free of charge. Shaw maintains that the
I private appropriation of land is the source of the unjust i
1
l
privileges against which socialism is aimed. i
The modern form of private property is
simply a legal claim to take a share of
the produce of the national industry year
by year without working for it . . .
socialism involves the discontinuance of j
the payment of these incomes, and the addi- i
tion of the wealth so saved to incomes j
j derived from labor . . . economic rent,
I arising as it does from variations of fer-
j tility or advantages of situations, must j
I always.be held as common or social wealth j
| and used, for public purposes among which 1
I socialism would make national insurance \
5.1J
and the provision of capital matters of
the first importance.^ ,
Fabian Application of the Law of Rent to Capital '
j
Fabians have extended the Ricardian theory of
i
i rent to embrace the return of other factors of produc-
I
i tions, especially the return to capital, and so have
; I
j attempted to create a new "surplus value" theory which, j
j while not necessarily dependent on a marginal theory of '
j value, is quite compatible with it. Fabians argued that j
all kinds of capital, even skills and ability, are
rewarded by the same differential payments which,like :
Ricardo's land rent, are based on the price of the !
product at the "margin of cultivation." They claimed
that the world of business enterprise was as diverse in
I
its productivity as were the various classes of soil.
I
The differential advantages of sites, or machinery, of J
the more'favored businesses, consisted of great indus
trial rents, which did not result from the mental and
bodily efforts of the capitalists. The feature of cap- i
I
italist society is that the main part of the rents is !
i
appropriated by the owners of the means of production.
i
The more skilled worker, through his quasi-monopolistic
I
position, may get a share of it, but never all of it. In ;
any case, skill is often the result of better education
received by the children of landlords and capitalists
and thus 'is $ indirectly a result of private ownership of
5 1
the means of production. Fabians believed that the j
advantages which capitalists enjoyed were the effects of
I
social effort. All who were rendering services to soci- i
ety contributed to the growth of civilized life, to the
I
achievement of science, to the increase of wealth and
i
more efficient forms of organization; therefore, every j
worker should be guaranteed a minimum of civilized !
i
existence, and the more able should receive a higher j
remuneration as rent of ability. j
The policy conclusion of this argument is that j
since differential rent or unearned increment is the !
f
result of social labor and general development, it should
be utilized for the good of the whole society.
I
The Fabians did not reject the Marxian doctrine
I
of the inevitability of socialism. But instead of a i
revolutionary transition to socialism, they believed in
gradualism. By promoting different kinds of legislation,
|
such as labor legislation, progressive taxes, and social !
i
! I
| security, they believed it would be possible to move I
! j
| toward democracy and, through democracy, eventually to •
i 1
i !
socialism. ;
The Fabians rejected the Marxist doctrine of (
class struggle. There is a sort of class struggle in
Fabian literature, but it is a struggle of the lower
classes to receive their rightful share of the national
product, not a struggle to overthrow a privileged class,
as in Marxism.^
The Fabians1 Program and Method
We can classify the main Fabian proposals as set
forth in the tracts published between 1887 and 1891 under
three main headings:
1. Extension of democracy and improvement of
the machinery of democratic government.
2. Extension of government powers to improve
community welfare (especially, the welfare
of the working class).
3. Positive government action to promote
equality.
The Fabians stood for democracy, which meant
simply the control of the administration by freely
elected representatives of the people.
The Fabian proposals for the extension of democ
racy and its improvement ranged widely from the monarchy
and parliament down to the lowest local government bodies
For the attainment of these ends, the Fabian
Society looks to the spread of socialist
opinions, and the social and political
changes consequent thereon, including the
establishment of equal citizenship for men
and women. It seeks to achieve these ends
by the general dissemination of knowledge
as to the relation between the individual
and society in its economic, ethical and
political aspects.®' ,
I
The leaders of the Fabian Society, believing that
it was possible to turn the whole power of British polit
ical action in the direction of distinctly socialist
reforms, urged their members to exercise continuously
I
] their full influence in local political affairs. It is
!
I therefore particularly important that they should make
i
themselves acquainted with the actual machinery of public |
t
5
administration in the districts in which they reside, and |
t
with the parliamentary constituency in which they are j
I
electors. !
The proposals for the extension of government
powers to improve community welfare were of two kinds: '
(1) The enlargement of existing power, like the extension !
of the Factory Acts, and an increase of government activ- |
I
»
ity in the spheres of housing, health, education, poor j
j
relief, etc., and (2) the creation of certain new ones, |
like the nationalization of railways, canals, and coal !
mines, and the "municipalization" of certain main services ;
such as water supply, gas, docks, markets and tramways.
The Fabian Society did not direct its appeals to
j any particular class, but to men and women of all classes
I
: who saw the evils of society and desired to remedy them,
j The Fabian Society opposed all pretensions to
! hamper the socialization of industry with equal wages,
55
equal hours of labor, equal official status, or equal ]
j
authority for everyone. Such conditions were not only j
I
impracticable, but incompatible with equality of subord
ination to the common interests. The Fabians hoped for j
I
government action to promote equality through education
and through taxation. At the lowest level of the educa-
I
tional scale, they expressed their approval of compulsory |
!
education, demanding that it also be made free. Their
policy was to "level up" the educational opportunity j
while they would "level down" the taxation.
t
The Role of the State in Fabianism j
i
Similar to other socialists, Fabians condemned
private property on the basis that it would lead to pri
vate monopoly and unreasonably high prices and restricted
production, and consequently injustices in economic well
being. The State was always envisaged as preventing
these unhappy consequences by playing an ever-larger role ;
along the lines of (1) regulation of industry, (2) munici
pal ownership and administration of industry and (3) tax
ation of rent and interest. To the Fabians, the State !
was potentially good and could be used as an instrument
i
for abolishing "unearned" incomes,, meaning rents, inter- |
ests and certain types of profits. The government could
also be used for owning and managing industries, for pro
moting justice, and for mitigating the existing extremes
56
in economic well-being. j
Sidney Webb, regarding the role of the state, j
said: !
I
Besides our international relations and
the army, navy, police, and the courts of
justices, the community now carries on for
! itself, in some part of another of these
islands, the post office, telegraphs, car
riage of small commodities, coinage, sur
veys, the regulation of the currency and
| note issue, the provision of weights and i
measures, the making, sweeping, lighting '
and repairing of streets, roads and j
bridges, life insurance, the grant of annu- 1
ities, shipbuilding, stock brokering, bank
ing, farming and money lending. It provides :
for many thousands of us from birth to bur- i
ial, midwifery, nursery, education, board i
and lodging, vaccination, medical attend- !
ance, medicine, public worship, amusements, [
and interment. Every one of these func
tions . . . were at one time left to pri
vate enterprise, and were a source of
legitimate individual investment of capi- ;
tal. Step by step, the community has !
absorbed them, wholly or partially, and
the area of private exploitation has been I
lessened.^ i
I
The Fabians had a proper appreciation of the ;
i
manifold, rather than unified, nature of the socialist i
state. Local government was their first discovery. They ,
I
admitted, of course, that certain services (like railways)j
were essentially national in character, and would need j
!
to be under.the control of the central government, but j
I
they had high hopes of municipal enterprise. 1
Webb and the Fabians recommended neither rigid ;
centralization nor complete decentralization in local
5 - 7 — 1
government, but a balance between them.
The Fabians emphasized the reorganization of local
government so as to attain a maximum of democratic par
ticipation in municipal affairs and to approach the !
i
ideal of maximum democratic self-expression of the indi-
j vidual desire for freedom through the medium of the local
I I
government. Parliament's principal duties would be to j
provide for national defense, supervise international
trade, and equalize economic rents for the nationwide
network of socialist municipalities by confiscating,
through taxation, all rents above the national average
i
and subsidizing all municipalities whose rents were, for
natural reasons, below the average. '
The Fabians believed that the extension of munici-,
pal and state enterprise and the increase in taxation of
I
unearned incomes would be a slow and gradual process. j
*
The Fabian acceptance of "gradualism" set the particular j
question: What enterprises should first be socialized? i
Those public utilities vital to the community were listed
i
I first for municipal ownership. Railways, canals, and
j !
coal mines, by their nature, required central control and j
i
"nationalization." Enterprises that had become organized j
8 i
in the form of trusts and those controlling services j
which directly affected the health and well-being of the \
community had a high place. ;
58
Transition From Capitalism
i
Sidney Webb believed that the mainstream that
moved European society toward socialism was the irre
sistible progress of democracy.
Advocates of social reconstruction have J
learned the lesson of democracy, and know
that it is through the slow and gradual
turning of the popular mind to new princi- i
pies that social reorganization, bit by ]
bit, comes. All students of society who j
are abreast of their time, socialists as !
well as individualists, realize that
important organic changes can only be
(1) democratic, and thus acceptable to a
majority of the people, and prepared for
in the minds of all; (2) gradual, and thus
causing no dislocation, however rapid may
be the rate of progress; (3) not regarded
as immoral by the mass of the people, and
thus not subjectively demoralizing to them;
and (4) in this country at any rate, con- |
stitutional and peaceful . . . there is
every day a wider consensus that the
inevitable outcome of democracy is the
control by the people themselves, not ,
only of their own political organization, |
but, through that also, of the main instru- I
ments of wealth production; the gradual j
substitution of organized cooperation I
for the anarchy of the competitive strug- '
gle; .... The economic side of the !
democratic ideal is, in fact, socialism
itself.9
The Fabians' theory of transition to socialism I
i
involved the transfer of private industry to public own- j
ership through forced sale to municipal governments, or |
threat of municipal competition.
As Clark,regarding the combination of capital,
i
writes,
59
State action may take one of three j
courses. It may prohibit and dissolve
them; it may tax and control them; or
it may absorb and administer them.-*-®
i
The expectation was that increased labor union j
i
organization would lead to increased awareness by working
people, and this would lead to a demand for social jus
tice, economic security, and equality to be provided by [
i
the State. These would be financed by the State through |
i
I
higher taxes on income, property, and inheritance. I
As the profits of private industry were reduced
by taxation, the situation would become ready to transfer
productive resources to public ownership. This process
would be cumulative. As the public sector grew, it wouldj
i
become much harder for the private sector to compete. !
Due to governmental regulation, wages will be higher in
public sector. This will further reduce the profit mar- j
gin of private sector when they are forced to raise wages
in order to get labor. This will create favorable con
ditions for municipalization of industries and, conse- j
|
quently, the disappearance of business capitalists.
"Revisionism"
Revision developed in Germany as an adapta
tion of the Marxian point of view. Eduard Bernstein's
Evolutionary Socialism, in 18 99, was the major work of
revisionism. Although there are many points of dis-
I
agreement between Marxism and Revisionism, the vital
difference between them is that the Revisionists ;
believed in a peaceful and evolutionary but not !
inevitable growth into socialism, whereas Marxists held
that the transition from capitalism to socialism was
dialectically "necessary" and would come through revolu- j
tion.
The Revisionists1 Critique of Marxism
The revisionists' critique of Marxism as set forth
by Bernstein can be summarized by the following main con
tentions:
1. The collapse of the capitalist system is not
imminent. The theory of social revolution as stated in
the Communist Manifesto was correct insofar as it char- j
acterized the general tendencies of capitalist develop
ment, but not the time or precise mode of the transition
i
to socialism. j
I
As has been explained in Chapter II, Karl Marx
i
believed that recurring depressions in the capitalist ;
economy are signs of contradictions of capitalism. And
he believed that these crises cannot be cured by capital- ,
I
ist methods, since they are a public expression of the
anarchy of the market, and finally, that demise of the
capitalist system is inevitable.
61
Bernstein opposed Marx's crisis theory because '
he felt that empirical evidence was inconsistent with
the predictions based on the theory.
Bernstein developed a crisis theory in conformity
with empirical evidence. According to his view:
j The general direction of capitalism is up-
i ward, and the disturbances interfering i
with this development have become rarer
and milder .... The intervals separating
periods of prosperity from periods of pro—
perity have narrowed; the intervals sep
arating periods of depression from periods
of depression have widened.H
However, Bernstein still believed that the cap
italist system will bring about general misery and
insecurity not only to the working class, but also to the j
majority of Other employed classes and even businessmen. ^
The references to the tendency toward i
wider depressions are under no circum
stances to be taken as a defense of the |
capitalist economy.^
What Bernstein claimed is that capitalism has ;
created certain countertrends which reduce the severity i
f
of most of the disturbances. These social forces serving J
as a counterweight to trade applications are the growth I
I
of the world market, increased wealth of European indus- j
trial states, the flexibility of modern credit systems, and';
the rise of industrial cartels. He did state clearly that
social wealth was growing generally, and that the workers,
j too, were sharing in this. However, he never doubted
that the large clusters of economic power represented by 1
the trusts and cartels would have to be socialized. ;
i
Centralized giant industries could be more easily social- j
ized than scattered holdings. But he believed in a !
j peaceful and gradual transformation of capitalism into
!
socialism. 1
i
i 2. Social conditions have not developed to so ,
I 1
acute an opposition in classes as was depicted in the
Manifesto. One of the results of capitalist accumulation
in Marxian thought is the concentration of wealth into |
fewer hands. Bernstein, while never claiming that social J
differences were disappearing, did disagree with Marxian i
1
; views that the middle class was vanishing and the number {
of property holders was diminishing. ;
The enormous increase of social wealth
is not accompanied by a decreasing num- |
ber of large capitalists, but by an I
increasing number of capitalists of all i
degrees. The middle classes change their 1
character, but they do not disappear from
the social scale.13 j
He wanted to show that the owning classes were not1
shrinking in size, and to do it, he used statistics and
cited the rise of widespread shareholding in corporations j
as a proof of his argument.
The most modern form of capitalist concentration—
i the trust— has in fact quite a different effect on the
! distribution of wealth from what it seems.
The average trust is not owned by a few, but by j
i
thousands of stockholders. Not all shareholders deserve '
I
I
the name capitalists, and often one and the same great
capitalist appears in all possible companies as a moder
ate shareholder. But with all this, the number of share
holders and the average amount of their stockholdings
have been of rapid growth. J
The failure of the middle class to disappear, j
i
I
however, according to revisionists, does not have a deter-j
rent effect on the movement toward socialism. !
I
I
The prospects of socialism depend not on |
the decrease, but on the increase of j
social wealth. Socialism, or the social i
movement of modern times, has already ' j
survived many a superstition. It will 1
survive this, that its future depends on 1
the concentration of wealth or if one will
put it thus, on the absorption of surplus i
value by a diminishing group of capitalist
mammoths.14 i
i
3. The concentration of productive industry is
not being accomplished at an equal rate and with equal !
i
thoroughness. <
Bernstein argued that concentration and central- ,
ization were indeed taking place, but that the continued
existence of independent small enterprises and the infin- j
ite variety of industrial establishments should not be
forgotten. Of course, in many branches the forecasts of
the Marxists have been justified. But we should also
note that small and medium sized enterprises are not !
. 6 . 4 J
growing at the same rate as the giant industries. In
agriculture, concentration proceeds very slowly. Also,
in commerce and transportation, the process of central
ization will not wipe out the small entrepreneur.
4. Lasting success lies in a steady advance
i
| rather than in the possibilities offered by a cata-
j strophic transformation as suggested by Marxian visions
I
of proletarian revolution.
Revisionists favored gradualist, parliamentary
socialism. They believed in a struggle of the working
class for attaining political rights, and emphasized the
importance of the political activity of the working man
in their own city and country. Bernstein believed that
"movement meant everything," and the final aim of social
ism, "nothing."
I cannot believe in a final aim of social
ism. But I strongly believe in the
socialist movement, in the march forward
of the working classes who, step by step,
must work out their emancipation by chang
ing society from the domain of a commercial
landholding oligarchy to a real democracy
which in all its departments is guided by
the interest of those who work and create.
i
I Revisionist-Marxist Dispute over Value Theory16
| According to the Marxian labor theory of value,
I the value of a commodity is measured by the amount of
I
! labor power embodied in it. However, there was another
I value theory, which introduced marginal analysis into
economics. The value theory of the Austrian school was
different from the Ricardian-Marxian theory. Value,
according to Austrian thinkers, is a function of utility.
j Bernstein believed that both the Marxist and
, marginalist concepts of value contain part of the truth;
I that is, both utility and cost of production are determi
nants of value, and each of them represents different
dimensions of the problem. Therefore, it is not neces
sary to choose between them.
Bernstein declared Marxian value theory as a very
I
j general and abstract concepts remote from actual condi-
j tions and said that the theory is misleading,
i
in that it appears again and again as the
measure of the actual exploitation of the
workers by the capitalist .... The
theory of value gives a norm for the jus
tice or injustice of the partition of the
product as little as does the atomic
theory for the beauty or ugliness of a
piece of sculpture.1'
This, however, does not mean that exploitation of labor
does not exist under capitalism, because whether the
Marxian theory of value is correct or not is quite imma
terial to the proof of the existence of surplus value
since surplus value is an empirical fact, and needs no
deductive proof. Experience shows that a part of the
I
1 community enjoys an income through living in idleness,
out of all proportion to the ratio of its number to that !
18 1
of the total number of workers.
Democracy and the Transition to Socialism !
The Revisionists substituted their conception of
i
j linear evolution for the Marxist view of dialectical con-
j flicts. They relied on the methods of democracy rather
3
than on proletarian dictatorship for the attainment of
socialism. i
To them, capitalism was stabilizing itself, was
increasingly able to reduce depressions, and was distrib
uting the national income widely to all classes. The !
I
area of communal action was steadily increasing in size j
and significance. Workers are steadily growing in num- !
I ’
bers, power, and social importance. Bernstein believed
that this advance of capitalism paves the way for a !
transition to socialism; trusts and cartels are already
organized in such a manner that makes socialization much i
I
easier. This demonstrates that the transformation of i
capitalism into socialism can proceed in a gradual and
nonviolent fashion. Bernstein also advocated what he
19 '
called "organic evolutionism," which is defined as a |
i
concern with construction as opposed to attitudes toward
evolution which are destructive in nature.
Bernstein defined democracy as the absence of
class government. He believed that the right to vote in
67
a democracy makes people partners in the community and
j
that their virtual partnership must in the end lead to
real partnership."^ ,
The Revisionists worked toward their goal within j
j parliament and on the economic front. More votes meant
i greater political power; higher wages and standards of j
living among workers meant greater economic power for ,
I
social democrats. The more power the socialists acquired,|
the sooner socialism would be realized. i
Among the democratic forces in the community, j
i
Revisionists give a prominent place to trade unions.
i
*
Bernstein believed that existence of unions gives the j
worker a direct influence in the management of industry. j
Guild Socialism 1
i
Guild socialism, as a theory of industrial
i
reorganization, originated in England about 1900 as a |
reaction against the theory of state socialism. A.J. I
I
Penty, A.R. Orage, S.G. Hobson and G.D.H. Cole were the
principal leaders of guild socialism. G.D.H. Cole was
very influential in popularizing the movement. j
I
j
The Aims of Guild Socialism |
Guildsmen believed that those engaged in an j
I
industry should be fully responsible for its organization j
I
I
i
68
and management, working as partners in a common service ■
for the community. Each producing firm would be owned
and managed by a guild of workers. Industries would be i
I
organized into guilds representative of the firms, and
| finally, all would be organized into a national producers'
I
, guild. These organizations should remain relatively
! independent of each other, cooperating with, but not j
I I
I under the authority of, any so-called sovereign entity. j
i
Guildsmen supported the Marxian position that the wage i
I
system should be abolished. To them, the wage system ;
suppressed the creative instinct in labor, the worker's
instinct to own and control, and produced a slave state. [
Production by Guilds in a socialist system would mean j
that labor had ceased to be a commodity, having ho
place in industry apart from its being profitable for
someone to purchase it, and that conditions of work in
the broadest and fullest sense would be decided by those
who work, not, as under capitalism, by persons in author- i
ity over the workers.
Cole believed that the aim of the Guilds should
be to obtain self-government for the workers which would
i
assure to them:
1. Recognition and payment as human beings, not
merely as exchange of so much labor power
for wage income based on demand.
2. Consequently, payment in employment and in j
unemployment, in sickness and in health alike.|
3. Control of the organization of production in '
cooperation with his fellows.
4. A claim upon the product of his work, also
i
' 21
! exercised in cooperation with his fellows.
i The Guilds would not own the means of production, 1
i
j but would be responsible for their use. Ownership would
j be vested in the community. The aim of guild socialism [
i t
! was to inspire trade unionism, and to shape the unions' |
j
policy such that eventually they could take over control
from the capitalists. To quote Cole:
The real aim . . . must be not merely the ;
expropriation of the capitalist, but the 1
supercession of his economic functions and
his replacement by the workers in every
sphere of his economic and social power.
For it is by this capture and assumption I
of social and economic functions that the i
workers will alone make possible an equi-
| table distribution of the national income i
and a reasonable reorganization of Society j
as a whole.22
Working of the Guilds and Their Characteristics j
The Guilds would divide the proceeds of the sale ;
of its products among its members according to principles :
and rates of pay which the members themselves would lay
down. Out of its income, the Guild would make provision
for the maintenance of its members in sickness, unemploy
ment, and old age. !
i
I
I
70
The Guild has several important characteristics.
Among these are: democracy, inclusiveness, responsibil- j
ity, and monopoly.
The Guilds should be organized in as democratic
a manner as experience could prove to be possible. Democ
racy, according to Cole, does not mean that mass votes
j I
I would be taken on every move in the productive process. j
| But it means that the managers would be appointed by vote
of the whole departments over which they were to have
control. Besides, whenever a position required certain
skills or techniques, the possession of those character
istics could be made a condition of eligibility for the
i
position.
The managers would not have uncontrolled power ;
to fire a worker, nor would they be able to. ignore public ,
opinion in the guild as a whole. But, Cole believed: '
The managers in such a guild factory would j
have no cause to complain of lack of power. |
If they wanted authority, they would find j
ample scope for it, but I believe most of |
them would cease to think of their posi- i
tions mainly in terms of power and would, i
instead, come to think of them mainly in j
terms of function.23 I
Highly centralized control would, so far as pos-
j
sible, be avoided. There would clearly have to be more ofi
t
it in some industries than in others. In a railway sys
tem, serving a whole country, for example, there cannot be]
\ !
much room for local initiative. But !
apart from this, Guildsmen are keen advo
cates of the greatest possible extension
of local initiative and autonomy for the
small group . . . the factory, mine, ship
yard, or other centers of production would
be the natural and fundamental unit of
industrial democracy. This involves not
! only that the factory must be free, as far
j as possible, to manage its own affairs,
but also that the democratic unit of the
; factory must be made the basis of the
larger democracy of the G u i l d . 24
i By inclusiveness, it is meant that the Guild
I
i should include all of the workers in an industry, trade
or profession insofar as possible.
The Guild should be given autonomy in its own
line of work, and in return those who are doing the
actual work should be held responsible for the direction
and the result of the work.
The last characteristic of the Guild is monopoly,
although in some cases the Guild socialists provided for
a "fringe" of enterprises free from Guild control.
Functions of the State or Commune
There was no doubt in Guildsmen*s minds that
j somebody representative of the entire community, either
\
| a commune or the state, should perform the traditional
I
t
functions of government, such as preservation of order,
i defense, and international relations. However, the
t
i
guildsmen disagreed as to the kind of agency which would
look after these interests. Some believed in
72
"civic-sovereignty theory," and those around G.D.H. Cole
believed in another theory called "The Guild-Commune j
|
Theory." '
I
The Civic-Sovereignty Theory
According to Hobson and other adherents of this
f
; theory , the state would retain its sovereignty, but it
i i
should be relieved of most of the actual duties of admin- :
i
istration. The Guild, on the one hand, and the govern-
i
ment on the other, would conduct the greater number of ;
necessary social functions leaving the state free to j
i
i i
express the civic interest of the community, that is, the j
representation of the individual in his capacity, not as
i
producer or consumer, but as citizen would be the province
of the state. Hobson considers the state
J as the organ of citizenship, possessing
full freedom of movement, itself assuming
all or any function which cannot be
assigned to any suitable organization
. . . . As for sovereignty, I end as I
began: the citizen (voicing his will j
! through the State) must take precedure 1
over the guildsmen. I recognize no other j
sovereignty. ^ 5 i
Two important practical consequences result from ,
this theory. First, the Guild would have no final auth- j
|
ority. The State would be the owner of the tools of j
i
production, and would hand over its property to the Guild
i
] as trustee. Disputes between guilds or between guild and
consumer would find their highest court of appeal in the
State. Second, as long as there were no deadlocks, the
Guilds and the Guild Congress would enjoy complete inde-
i
pendence of action. There might be consultation between
producers and consumers, and interchange of executives
| between various guilds; but provided there were no inter- j
! t
I ference from the State, the Guilds would be free to decide
I
what goods to produce, to charge prices, and to pay wages.i
If, however, a dispute between guilds and consumers arose,1
the State would intervene and it would have the final
word.
I
i
The Guild-Commune Theory
i
Those around G.D.H. Cole were opposed to the !
theory of state sovereignty, rejected the idea of the i
state as the final and only representative of the con- j
sumers, and contended that a new coordinating body should !
be established which would bring together the various |
I
functional bodies— -industrial guilds, cooperatives and |
f
t
collective utilities councils, etc., and which would not I
be inconsistent with the theory of functional democracy (
on which the system of guild socialism is based. There
fore, in place of the state, they would set up a "com
mune . "
The commune would be organized locally, regionally,
and nationally. Since the national guilds would be
74
decentralized, the local commune would probably be the ;
r
f
most important. j
The commune would be thoroughly representative
of both producers and consumers. To its council would
come representatives from the industrial and civic guilds,
representing the producer. The constituencies from which'
those upholding the consumers' point of view would be
i
elected would be the cooperative society, the "collective
utility council," the "health council," and the "cul
tural council."
The Regional Commune would be of a similar nature,
except that it would contain delegates from both town
and country, and that the Agricultural Guilds might have
special representation.
The National Commune would be made up of the
"representatives of the National Guilds, Agricultural,
Industrial and Civic, of the National Councils, economic
2 6
and civic, and of the Regional Communes themselves."
The duties of the communes can be grouped into
five categories:
1. Financial problems, especially the allocation
of national resources, provision of capital,
and to a certain extent, regulation of
incomes and prices.
75
- : !
2. Differences arising between functional bodies ;
on questions of policy. J
3. Constitutional questions of demarcation
between functional bodies.
4. Questions not falling within the sphere of
a functional authority, including general
questions of external relations. !
27 !
5. Coercive functions. |
Contemporary Democratic Socialist Principles I
" — — — — — ,
I
I
Democratic socialists believe that political and i
economic action must be based on carefully determined j
principles. We will now review briefly these basic j
principles:
1. Freedom and equality of the individual.
Democratic socialists believe in individual free
dom and equality. In fact, they believe that there can
be no freedom without equality or equality without free
dom. There cannot be freedom for all unless everybody
enjoys it equally; and equal social, economic, and polit
ical rights are a sham without freedom to enjoy them.
The basic objection to oppression and inequality is that
every man and woman is entitled to enjoy freedom and
equality as a right.
_7_6_
By equality, they do not mean literally identical j
material circumstances, because different people have \
different needs; one man might choose to increase his j
leisure while another might prefer to work longer hours
to save money for the future. It would be harmful for
society if people's efforts and abilities were not
rewarded appropriately. But the important thing is
that any difference must not be larger than is socially
justified.
In addition, they also believe in equality of
status. As Giles Radice explains, this does not just
mean "equality of opportunity." And in fact, equality [
I
of opportunity is not enough. j
A society based solely on rewards— social
as well as financial— for the stronger
members of the community would be the nega
tion of equality. The sick, the aged, the
unemployed, the weak, the lonely, the poor,
the exploited and the unlucky, deserve
special treatment.^
On the same subject, C.A.R. Crosland writes: i
(
The socialist seeks a distribution of :
rewards, status, and privileges egalitar- j
ian enough to minimize social resentment, ;
to secure justice between individuals j
. . . . This belief in social equality i
which has been the strongest ethical i
inspiration of virtually every socialist
doctrine, still remains the most charac
teristic feature of socialist thought
today.29
Jay also believes that equality of opportunity is
not enough:
- 7 - 7 J
Just as the socialist believes that you :
cannot carry the principle of social jus- j
tice to the point of literal equality of j
income, so he believes that you must carry |
it beyond the point of equality of oppor- I
tunity .... Equality of opportunity is
not enough, for this reason. Even if all
started equal, the differences of ability,
cunning and tenacity are so profound
between man and man, and luck is so
potent, that the clever and fortunate ones '
would very soon be earning a far higher ^
reward than the minimum required to induce I
them to exercise their socially useful I
t a l e n t s . j
One argument against inequality is that it |
offends against social justice. The greater inequality j
will imply a heavier concentration of power, and there- !
fore, a domination of small groups over the lives of the j
rest of society. j
Another objection to inequality is that it is
inefficient and wasteful. If social mobility is low, as
it must be in: a stratified society, and people cannot ;
easily move up from the lower or middle classes to the
top, then the ruling positions become hereditary and self-
perpetuating. This is a definite social waste and one
which is directly related to a stratified society and |
barriers in the way of vertical mobility. j
I
Democratic socialists believe that without free
dom, equality is not useful; indeed, it is meaningless.
The role of government is to protect individual freedom—
not to invade it. It is here that democratic socialists '
disagree most widely with Communists. !
78
Therefore, equality and freedom are the basic
goals of democratic socialism. Henry Smith defines
I
socialism as a "demand for the minimization of conflicts !
. . 31
arising out of economic relations." Giles Radice
states:
A short definition of a Democratic Social
ist, or more simply a socialist— is a per
son who believes in equality and freedom,
and in the conscious, directed organiza- j
tion of political, economic and social
machinery to change society in accordance
with these ideals.32
2. Failure of laissez-faire and the use of planning.
Like other socialists, democratic socialists
criticize the unplanned laissez-faire process of free
exchange of the free market. They believe that unplanned
free exchange of goods and services inevitably causes
excessive inequality of incomes. Douglas Jay, a contem- i
I
!
porary democratic socialist, writes: I
It is the process of free exchange, and |
the institution of private inheritance, ;
not ownership of the productive assets, ;
from which the main tendency to cumulative !
• > , J
inequality springs.00
It could be argued that greater inequality could
i
lead to greater individual effort. The answer given by j
democratic socialists to this is that the practical meas-
i ure of supply of effort in any economy is the general
success of the economy in raising output. Therefore, if
we look at the rate of capital formation, we see that
79
there is no historical evidence that great inequality ;
gives better result. Norway, with a very high degree of
equality, has achieved one of the fastest rates of capital
accumulation in the world since 1945 due to deliberate
planning.
There are other bases for socialist criticism
*
of laissez-faire economy besides the creation of excessive!
i
inequality in society. One is the fact that in the proc- :
ess of free exchange, there is no method by which the :
intensity of needs of different people is compared. In j
i
any system of free exchange, the productive system will 1
I
attach exactly the same weight to a'dollar spent by the
j
rich as by the poor. Yet, the latter represents greater
human need than that of the former. Therefore, the sys
tem of free exchange fails to compare the intensity of
the needs of different consumers. ;
The other is that the efforts and sacrifices of 1
the producers are not compared. Therefore, the unfor- t
tunate individual born with low capacities is not ,
rewarded in accordance with his efforts and sacrifices.
So laissez-faire cannot, even if it has other
merits, achieve social justice. It brings a system of
rewards and penalties which are more unequal than is
necessary to make the economic machine work. Therefore,
collective intervention by the democratic state is neces- i
i
sary if social justice is to be achieved. I
As the market mechanism has been characteristic
I
of the capitalist system, so planning of some kind,is, j
of course, the characteristic mechanism of a socialist
system. However, the democratic socialist concept of j
government economic planning goes beyond the correction j
j and supplementation of the market and its defects. J
Democratic socialists believe that in order to have a !
t
harmonious society and justice, the needs of the comrau- ;
nity should be determine and satisfied through the demo
cratic political process.
i
The type of planning favored by democratic !
socialist countries is different in kind from capitalist ■
and Communist planning. The principle of democratic i
socialist planning is that: the people, rather than the
corporations with Government subsidies should decide
C'
priorities, whereas, capitalist planning with its com- I
mercial priorities is inherently limited and unable to
solve its crises even when it recognizes them.
It is also different from the kind of planning
i
! used by Communist countries. The latter is planning by I
government order rather than by mutual agreement between
manufacturers, farmers, workers, and government on the
I democratic pattern, and it is usually characterized by
I
j emphasis on the heavy industry at the expense of the
j consumers.
81
Besides reducing individual freedom of choice,
planning by command has other defects such as: inflex
ibility of planners and the plan, high administrative
costs, and the lack of democratic participation and
control by public.
So, the type of planning contemporary democratic
socialism favors is planning through inducement rather
than command and the public control of the economy
through monetary and price systems. They do not reject
the market system as a social process for resource
allocation completely; indeed, they are critical of a
comprehensive governmentally-planned economy.
Crossman, in "New Fabian Essays," says:
A complex mass of detailed control is
highly unpopular, bad for industrial
efficiency and distorting in the effects
on production. Within the framework of
overall government planning, the proper
way to make the private sector respon
sive to the needs of the community is to
make it competitive.
Elliott, in Comparative Economic Systems, iden
tified four types of "plans" needed by a democratic
socialist society:
1. A plan for the provision of government
services— education, national defense, and
so on;
2. A plan for macroeconomic strategy;
3. A plan for government-owned enterprises;
82
4. A plan for the guidance of private enter-
35
prise.
3. Public and private ownership. I
Democratic socialists believe that public owner
ship is one of the means, among others, of attaining
socialist aims, not the only and the fundamental means i
to the socialist aims, as has been assumed earlier.
i
i
Therefore, contemporary Democratic Socialists have modi- j
fied the more traditional views by emphasizing that:
1. Ownership is not the key to economic power
2. Private ownership is not the basic cause of
inequality
3. Government ownership is merely one of sev
eral possible means whereby governments
affect economic life and endeavor to attain
socialist aims
4. Social-collective ownership may come in a
variety of forms, not merely that of state
36
monopolies.
Unlike other versions of socialism, democratic
socialists do not usually anticipate socialization of the
entire range of producers' goods in the economy. Prior
ities are given to industries that are heavily capitalized
and highly concentrated in terms of output and employment.
They believe that public ownership of the natural
_________________ 83
monopolies and basic industries is essential for planning.
I
But they accept the existence of a "mixed economy" with
both a public and private sector. j
Roger Pane and George W. Hartmann in their book,
Democratic Socialism, state that:
Socialists do not seek to abolish private
j property (as some erroneously charge) but
| to increase such privately-owned property
j as if of a personal nature— this they pro
pose to do by abolishing private owner
ship of all capital that is used by its
owners for the exploitation of other
p e o p l e . j
The Swedish Social Democrats' 196 0 manifesto
stated, "Social Democracy supports the demand for public
i ownership or public control of natural resources and j
I
enterprise, to the extent that it is necessary to safe
guard important public interests." !
Douglas Jay writes that: j
I
In a modern democracy, it is not merely j
desirable to transfer great private for- j
tunes to the State; but that it is also I
desirable that the ordinary individual i
family should possess some savings and !
some private property of their own . . . '
this is really a fundamental condition
both of equality and freedom.3®
C.A.R. Crosland, in The Future of Socialism,
writes that
j
The ideal is a society in which ownership j
is thoroughly mixed up. We no doubt want |
more nationalization than we now have. |
But I at least do not want a steadily i
extended chain of state monopolies, j
t
I
84
‘ 1
believing this to be bad for liberty . . .
State ownership of all industrial capi
tal is not now a condition of creating a
socialist society, establishing social
equality, increasing social welfare, or
eliminating class distinctions. What is
unjust in our present arrangements is the
distribution of private wealth; and that
can as well be cured in a pluralist as in
a wholly state-owned economy, with much
better results for social contentment and
the fragmentation of power.
The strength of the idea of private enterprise
lies in its very simplicity. It suggests that the total
ity of life can be reduced to one aspect, namely, profits.
At the other extreme is the notion of public enterprise,
and the need for a comprehensive and broad humanity in j
i
the conduct of economic affairs. Regarding choice between
these two, Schumacher says, "there are no final solu
tions" to this kind of problem. There is only a "living
solution" achieved on a basis of a recognition that both
opposites are valid. Schumacher's position on this sub
ject can be summed up in the following three points:
(a) In small-scale enterprises, private owner
ship is just and natural and will give
fruitful results.
(b) In a medium scale enterprise, private owner
ship is to a large extent unnecessary and
fruitless, and in this case either through
legislation or voluntarily, they should be
surrendered to the wider group of actual j
workers. |
(c) In a large-scale enterprise, private owner-
i
I
ship is not only unjust but also an irra- |
!
tional element which distorts all relation
ships within the enterprise and permits the
I
functionless owners to live and benefit on {
40 '
the labor of others. j
i
There are many ways of doing away with private !
ownership. One of them is nationalization of the basic j
i
industries. Strachey writes "the real purpose of social- t
!
ization is to secure the proper distribution of the net
41 I
national product among those who create it." |
Recently, democratic socialists have turned to
other forms of public ownership, such as "competitive -
public ownership" and "mixed enterprises." Competitive !
public ownership is a way to bring efficiency into an
i
important sector of the economy, by bringing competition |
t
between publicly owned organization and privately owned j
ones. The nation of competitive public enterprise |
implies a desire to control the use to which certain
physical assets are put. I
I
Democratic socialists also are interested in the
"mixed enterprise," where the ownership, as well as the
profits of the company, are shared jointly by the
86
government and private sector, for basically two reasons:
first, to give the government an opportunity to share in
profit and control of the private firms subsidized by
government; secondly, to create new industries which are
j not quite profitable for private enterprise to carry out.
| The "mixed enterprise" does not involve a sharp break
I
»
in the continuity of the enterprise, with a new, arti- j
I
j ficial pattern of organization imposed by legislation;
the enterprise can grow, or continue to grow, in a
natural organic manner and it is in harmony with what
should be the ultimate socialist aim/ which is not an
unending chain of public monopolies, but a diverse, dif
fused, pulralist, and heterogeneous pattern of ownership, j
Democratic Socialists also encourage the growth ;
| I
of other forms of "social" enterprises, such as municipal
and cooperative enterprises, mainly in order to supply
services that otherwise would be entirely neglected, such
as cheap housing. i
i
4. Democratic socialism and democracy. !
i
Democratic Socialists have been concerned with
j both centralization and decentralization in the process of;
decision making and control of the economy. However, the
, crucial adjective for them is "democratic," not "cen-
I
I tralized" or "decentralized." The aim of democratic
socialism is:
87
"collectivization of public ownership of i
the means of production and distribution i
and their management and operation demo- j
cratically for the common good . . . col- i
lectivism of the industries without polit- i
ical democracy can only result in what is j
generally called "totalitarianism," . . .
so before any large-scale collectivization
of industry is undertaken, the government
must first be fully democratized, so that
j the people actually can direct and effec- ;
j tively control it.^2
Edward Bernstein said in 1906: 1
democracy is at the same time means, and j
ends. It is the means of the struggle -
for socialism, and it is the form social
ism will take once it has been realized.^3
i
There are several arguments in favor of democracy:
i
first, democratic government has the advantage of bringingj
about peacefully a regular change of political power. ' j
Second, only responsible governments can be trusted to !
I
do what the great majority of the governed wish them to
I
do. Third, since a democratic government will be respon- !
I
sible to public opinion, it will tend to avoid tragic I
I
blunders like those of Hitler. Fourth, the toleration !
I
■ of opposition within the nation is the only method by j
i
| which real national unity can be secured; by this it is j
i i
| meant that democracy is the only institutional framework j
within which the spontaneous emotional unity of a nation
i
is possible. I
! 1
! Democracy is heavily emphasized by Democratic i
| Socialists, and this involves both political and economic
i ;
aspects. !
88-
E.F.M. Durbin identifies three characteristics !
I
of political democracy. First, the existence of a govern
ment responsible to the people and the dependence of it
and of the membership of the legislative assembly upon
the free vote of the people. Secondly, freedom to oppose
the government of the day which implies the existence of
a "second" political institution. Unless the electorate
has more than one possible government before it; unless,
that is to say, the opposition is free to prepare itself
to take over power, peacefully, there is no real choice
before the people. Thirdly, the existence of an implicit
undertaking between the parties contending for power in
i
the state not to persecute each other. Democracy requires
the peaceful alternation of parties in government. This ;
i
is impossible if the government believes that the opposi-
tion intends to liquidate them if and when they, the j
. . . 44 I
opposition, attain power. I
But Democratic Socialists also insist on economic !
i
i
and social democracy, such as workers' control of indus- j
try, widening of educational opportunities, etc. These j
i
I
are strategic aspects of the extension of the democratic |
i
principle into the substance and fabric of social life, i
1
and help to prevent democracy's descent into mere journal-j
i
i
ism. «
89
NOTES FOR CHAPTER III
This section draws heavily upon Walter S.
Buckingham, Theoretical Economic Systems, A Comparative
Analysis (New York: The Ronald Press, 1958), pp. 280-
294.
2
M. Beer, History of British Socialism, vol. 2
I (London: G. Bell and Sons, 1929), pp. 279-280.
; 3
G.B. Shaw, "Bluffing the Value Theory," Today,
May 188 9.
i
4
Shaw et al., Fabian Essays (Boston: Ball Pub.
Co., 1908), pp. 22-23.
5
Buckingham, Theoretical Economic Systems, p. 292.
6
H.W. Laidler, History of Socialism (New York:
Thomas Y. Crowell Co., 1968 ) , P« 189.
7
Shaw et al., Fabian Essays, pp. 43-43.
8
Fabian Tract No. 124, State Controls of Trusts,
Henry W. Macrosty (London: Fabian Society, 1905), p. 6.
9
Shaw et al., Fabian Essays, pp. 30-31.
■^Ibid. , p. 91.
^Peter Gay, The Dilemma of Democratic Socialism
(New York: Columbia University Press, 1952), p. 184.
■*"^Ibid. , p. 184.
13
Eduard Bernstein, Evolutionary Socialism (New
York: - B.W. Huebsch, 1909), p. xi.
i ] 4
Ibid., p. 48.
90
15
Ibid., pp. xxii-xxm. :
■^This section draws heavily upon Peter Gay, The j
Dilemma of Democratic Socialism (New York: Columbia
University Press, 1952), pp. 170-176.
17
Bernstein, Evolutionary Socialism, p. 39.
18
Gay, Dilemma of Democratic Socialism, p. 216.
■^Ibid., p. 216. 1
20
Bernstein, Evolutionary Socialism, p. 144.
21
G.D.H. Cole, Self-Government in Industry i
(London: Bell Pub. Co., 1920), p. 155. j
I
22
G.D.H. Cole, Guild Socialism Re-stated (London:
Leonard Parsons, 1920), pp. 206-207.
23
Laidler, History of Socialism, p. 326.
24
Cole, Guild Socialism, pp. 48-49.
25 !
S.G. Hobson, National Guilds and the State
(New York: Macmillan, 1919), p. 352. J
26 . ^
Niles Carpenter, Guild Socialism; An Historical j
and Critical Analysis (New York: D. Appleton & Co., 1922);
p. 184. |
i
27
Cole, Guild Socialism, pp. 139-140.
2 8
Giles Radice, Democratic Socialism, A Short
Survey (London: Longmans, 1965), p. 31.
29
C.A.R. Crosland, The Future of Socialism (New
York: Schocken Books, 1963), p. 77.
30
Douglas Jay, Socialism in the New Society (New
York: St. Martin's Press, 1963), p. 16.
91
31
Henry Smith, The Economics of Socialism
Reconsidered (London: Oxford Univ. Press, 1962), p. 9.
32
Radice, Democratic Socialism, p. 1.
33
Jay, Socialism m the Nev/ Society, p. 21.
34
R.H.S. Crossman, ed., New Fabian Essays
(London: Turnstile, 1952), p. 64.
35
John E. Elliott, Comparative Economic Systems
(Englewood Cliffs: Prentice-Hall, 1973), p. 449.
36Ibid., p. 424.
37
Roger Payne and G.W. Hartmann, Democratic
Socialism (New York: Three Arrows Press, 1948), p. 9.
i
38 1
Jay, Socialism in the New Society, p. 290. |
I
39 I
Crosland, The Future of Socialism, p. 340. j
40
E.F. Schumacher, Small is Beautiful: Economics '
As If People Mattered (New York: Harper & Row, 1973), ,
pp. 250-251. i
41
Strachey, "The Objects of Further Socializa
tions," Political Quarterly (Jan-Mar., 1953).
42
Payne and Hartmann, Democratic Socialism,
pp.68-69. »
43
Radice, Democratic Socialism, p. 67.
44
E.F.M. Durbin, The Politics of Democratic
Socialism (New York: Augustus M. Kelley Pubs., 1969),
pp. 236-243.
i
92
CHAPTER IV !
I
DEMOCRATIC SOCIALISM IN ENGLAND |
j |
j The aim of this chapter and the next is to test |
our first hypothesis that in industrialized and developed :
countries like England and Sweden, policies to reduce j
inequalities and injustices do not endanger economic j
growth. We will test this hypothesis by studying and
examining English and Swedish achievements in the area of j
social justice and economic growth. In the case of !
i
England, the task is harder since the English economic [
c
situation as a world power has deteriorated since World [
War II. A popular view is that current English economic |
i
problems (inflation, slow growth, balance of payments J
difficulties) have been caused by democratic socialist !
|
programs, notably those concerned with reducing inequal- !
i
ities and injustices through government intervention in j
I
the economy and social welfare programs.
We contend that this popular view has not been !
I
established. After a brief discussion about the emergence
of socialism in England, we will continue the discussion
by examining the British social welfare policies; then,
I
i we will examine the roots of the recent British "crisis"
and argue that it has not been caused by income redistri- !
j
bution and social welfare programs. ;
i
f
The Roots of British Socialism 1
I
I
British socialism has special characteristics. j
Socialism has usually been republican in outlook; but j
I
the British socialist movement enthusiastically supports ;
I
the British monarchy. Where Marxist socialists seek 1
I
social control of all the instruments of production and j
distribution, British socialism envisages a typically j
English mixture of nationalized basic industries and j
|
privately owned and operated companies. And, where many :
left wing movements have become increasingly authoritar- j
ian in character, British socialist philosophy derives
most of its strength from its democratic nature.
The emergence of socialist ideas and their pro- ;
gressive increase in a country with the class structure j
and delight in tradition that Britain possesses is by
I
any standard far and away the most significant fact in j
the recent economic and political history of Britain. |
The first labor government in British political j
|
history appeared in 1923. This government was in office j
for just one year and could not pursue the desired social-
list programs.'*' 1
i
The end of World War II left Britain critically ;
impoverished in material resources and with imperial and j
94
international problems of a quite new scope and magni-
I
tude. j
I
The British Labor Government which in 1945 was |
called upon to deal with the vast economic, imperial and
international problems, was a socialist government. But
it was the product of a movement which, when it first
! i
j came into existence, nearly half a century ago, was not
primarily socialist; that is, the Labor party did not
come into being as an expression of socialist philosophy,
but as a by-product of trade unionism. It began as the
political expression of a working-class movement, already
i
industrially organized, whose purpose was to secure par- j
liamentary support for trade unionist policies through
parliamentary cooperation with the Liberals.
The fact is that the Labor Party drew its greatest
strength from the trade union movement. Although the i
socialist theorists and the trade union leaders cooperate |
through the Labor Party to press for economic and social J
|
reforms, they may vary greatly in their approach to these j
|
reforms. Most individual members of the trade unions did I
i
i
not join the Labor Party in the first instance with con- [
scious ideological motives. They joined with the object j
j of obtaining limited but direct advantages, i.e., "bread
j and butter" reforms. If the British Socialist theorists
i
| were not interested in the application of their ideas,
95_
they could afford to ignore the influence of the unions; ;
f
but in fact they are very much concerned with practical !
i
applications. Two essential factors concerning the rela- ;
I
tionship of trade union leaders to socialist theorists j
must be made explicit if this variable is to be seen in j
! its proper perspective. ;
i 1
! !
j First, the union leaders have tended to press for j
immediate reforms, rather than the complete transforma- !
tion of the existing capitalist system. These leaders !
I
are concerned with preserving reforms once they are made j
and are suspicious of further more radical changes vis- f
ualized by the theorists. This problem became more acute j
as the welfare state developed and the revised capitalist i
i
i system became more attractive to the working class.
i
Second, the theorists have felt it their place to
provide leadership for the Labor movement and to have the ;
1
vision to see beyond immediate piecemeal reforms to a i
t
full-scale socialist society. Sometimes the theorists j
I
i
grow impatient with trade union leaders, who seem to favor;
f
the status quo. On the other hand, most theorists have t
j
not expected rapid acceptance of their ideas and have
»
been content to provide a vanguard of challenging concepts
for the Labor movement. If their ideas work, they will ;
I
be accepted; if not, they are willing to modify them. |
i
i
96
Three organizations helped to convert the
by-product of trade unionism that was the early Labor J
Party into a socialist movement. They were the Inde-
1
pendent Labor Party formed by Keir Hardie, the Fabian
Society, which was given its special character by Sidney
j and Beatrice Webb, Bernard Shaw, Graham Walls, and the
l Social Democratic Federation, founded by H.M. Hyndman. j
Of these three, only the last was Marxist. It was the j
i
smallest and least effective; therefore, the influence i
of Marxism on British Socialism was very small.
The Independent Labor Party taught its members !
to carry the message of socialism, by which they meant
human equality, to the street corner, the factory, and ;
the mine. The message they carried was primarily a moral
one. They were less concerned with economics than with
i
social injustices; their cause was that of equality and
freedom: freedom of speech, freedom of association, etc. i
|
They were socialists because they saw in the results of j
I
private industrialism inequality and denial of freedom to j _
the majority. [
i
In contrast to the Independent Labor Party, the j
I
Fabian Society was intellectual, but clear-headed and j
practical. Its concern and great contribution was to
translate socialism into practical administrative terms: !
it demonstrated with immense intellectual confidence that
97
I
a moral attitude could be made into a workable doctrine.
I
It developed the political "know-how" of the Labor Party, j
It conducted research. It produced facts to support posi-'
tions. It is this synthesis of three streams of polit- j
ical development that gives British socialism its special
character, its democratic and moral inspiration, and has
i
accounted for the extremely rapid and progressive increase!
I
in the electoral strength of the Labor Party in the !
post-war period.
i
The Role of Government j
in the Economy
i
Even before World War II, the social and economic ,
activities of British government had begun to grow. War- :
time needs considerably furthered the expansion of govern-:
ment, and the post-war labor government of Clement Attlee 1
enacted a series of major political, social, and economic 1
reforms establishing a managed economy and welfare state, j
Since then, the government's role has been that of a i
planner/protector actively engaged in many aspects of the
i
society.
The government's actions in the sector of the
economy it directly controls influences the economic sit- j
uation in general.
Table 4-1 shows that government expenditure has
claimed around 20% of the gross national product for most
98
] of the 1950s and 1960s. The figure has gradually
increased since 1965 to around 23%. The figures exclude
capital formation by public corporations. Its inclusion
in 1971 would have increased the figure from 23.1% to
26.6%.2
Table 4-1
Central and Local Government (Including National Insurance
Funds) Current and Gross Capital Expenditure
on Goods and Services as a Percentage of
GNP at Market Prices, 1956-71
Year 1956 1957 1958 1959 1960 1961 1962 1963
a
- 5 20.1 19.7 19.3 19.6 19.5 19.7 20.2 20.2
Year 1964 1965 1966 1967 1968 1969 1970 1971
Q ,
" O 20.4 20.7 21.4 23.1 23.1 22. 7 22.8 23.1
Source: A.R. Prest & D.J. Coppock, The UK Economy, A Manual of
Applied Economics (London: Weidenfeld and Nicolson, ]
1972), p , 76.
I
I
I
The government's decisions on investment, wages, |
and prices in the nationalized industries inevitably
affects the rest of the economy and are often made with j
the overall economic effect prominently in mind. j
i
The government also seeks to control the economy :
| through the manipulation of fiscal and monetary policies. j
Direct intervention has been another form of
I 1
j government control over the economy. The imposition of j
;wage and price controls by the Heath Government in 1972 1
i i
|marked the first peacetime use of such economic controls ;
! i
in Britain. Government subsidies have also been used to
I
i
rescue important private corporations in serious finan- '
cial difficulty. For example, in 1972, the government i
pumped massive subsidies into the shipbuilding industry j
to save it from bankruptcy.
I *
! 1. Nationalization ;
; I
| The most striking expansion of the functions of 1
j i
i government in Great Britain resulted from Labor's pro- |
I
gram of nationalization after World War II, Nationaliza- !
tion substitutes public for private ownership so that in
place of the more traditional responsibilities of regulat- j
i
ing and promoting private enterprise, government itself j
j
undertakes production and distribution. Labor's national- 1
ization program brought under public ownership significant :
productive enterprises that were in a strategic position 1
to exercise control over the rest of the economy.
Public ownership was not new, of course, because
three large-scale public enterprises were established in
the interwar period. These were the British Broadcasting
(Corporation, the Central Electricity Board, and the London ;
Passenger Transport Board). What was new about the Labor
government's nationalization program was its basis in ;
socialist theory, its scope, and the potential power it j
i
placed in the hands of the government. j
During its first session, the Labor Government |
nationalized the Bank of England, the coal mines, and j
telecommunications, and consolidated national control i
i
over civil aviation. All electric power supply and trans
mission were nationalized in 1947. The railways, road
I
I transport, London transport, and docks and inland water-
j ways came under national control at the beginning of 194 8. j
I
| The nationalization of gas supply and coal, the steel
3
industry, and the post office, rounded out the program.
Public corporations were established to take I
I
over the assets and liabilities of the nationalized j
industries. In other words, when the British government !
t
[
enters the field of business and industry to manage broad- j
casting services, distribute electrical power, and run the
coal mines, it entrusts the operations not to a department
I
but to a typically business structure— public corporations.|
I
Except for public ownership and the consequent 1
necessity of ensuring ultimate parliamentary responsibil- j
ities, such a corporation is organized like a privately !
owned corporation. The corporation in its day-to-day i
i
operations, is responsible not to a minister or to a j
I
i
Parliament, but to a board holding office for a fixed j
term and with responsibilities defined by statute. The
board, itself, is appointed by a minister and works closely
i
'with the appropriate ministry. It has the power to
recruit the staff and plan the operation of the corpora- j
tion.
I
In an age when the increasing concentration of i
i
economic power in the hands of government has aroused
considerable concern, the public corporation provides a
device for decentralizing authority and removing certain
enterprises from the direct control and political pres- j
sure of the party in power.
Although the public corporation may be organized
and operated in a manner similar to that of the ordinary j
i
company of private capitalistic management, its basic ;
purpose is quite different. Whereas a private company 1
is operated to make a profit, the public corporation is j
expected to provide maximum service at minimum cost. i
Although some public corporations have made a profit, it |
| is not part of their responsibilities to do so. They j
i !
are expected to use the technique of efficient business !
for the purpose of community service. 1
I
The justification for using the public corporation;
rather than the orthodox ministerial structure lies in
the character of the work undertaken. A successful bus- i
iness must plan development over a long period, undertake i
i
experiments, and organize research. But such flexibility ;
i
I
cannot be maintained under a fire of constant criticism j
that obliges officials to justify every step they take. ,
102
The ministerial structure is designed to centralize
/ i
responsibility in a minister who can constantly be held j
I
to account in Parliament. Such control, however, makes |
for caution and dependence on precedent; and although J
I
such qualities may be desirable in administering legis- |
, i
I lation, they are less appropriate for some of the govern- j
ment's new activities. t
I
t
The experience of English Public Corporations
has shown that these corporations are very flexible; that
they have welcomed and ever invited impartial, outside ' |
!
examinations of their structure and working; and that it j
I
is far easier to publicize their errors of judgment or j
I
management than is the case in private industry. j
2• Social Welfare Programs in Britain :
! In the past, individual distress, whether caused 1
i |
by unemployment, sickness, or old age, was looked upon as |
a personal, not a social, problem. More recently, men j
I
have placed the blame for poverty and mass unemployment j
I
upon the economic system rather than upon individuals j
' themselves. They have seen that in a society dependent j
! I
! on mass production, the impact of fluctuating demand and !
I I
i technological change is often felt far outside the par- j
I
J ticular industry involved.
i
I
| The British government has been among the first
103
to take the responsibility of providing a wide range of j
social services. j
Between 1906 and 1911, the British Government ;
made spectacular advances in public welfare by institut- j
I
t
ing a "New Deal" which introduced national health and
; unemployment insurance for some groups, old age pensions,
| i
j a national system of employment exchanges, and free meals i
| for needy school children. In the interwar period, hous
ing programs and slum clearance vied with unemployment
for first place in the attention of the Social Welfare
Department. During the Battle of Britain in World War II,
i
the sacrifices made by all classes threw ordinary social |
i
and economic inequalities into sharp relief, and a new j
I
concept of public welfare began to appear. The older
view— that public welfare should be primarily protective
in character and limited to groups least able to take :
care of themselves— gave way to a newer view: welfare
measures should not only be a support in time of need,
but should also provide positive means of improving the
condition of the whole society.
It was the essence of the argument of Sir William t
Beveridge, the noted British economist, that five i
"giants"— want, ignorance, idleness, squalor, and disease— ■
were preventing the attainment of the goal of "freedom |
4 ■
with security." Although "want" was the "giant" with j
i
104J
which Beveridge's report on "Social Insurance and Allied ■
Services" was particularly concerned, he warned that all
five had to be attacked simultaneously in order to defeat
i
any one of them. Although the most far-reaching of the
measures taken under the Beveridge Plan has been intro-
j duced by Labor governments, they have been, in part, the
| result of joint planning and, in general, have commanded
| the support of every party and substantial groups in the
community.
(a) Education j
I
Basic to change in any society is the educational ,
system, particularly in a country that seeks both tech-
I
nological advance and greater social equality. I
The new educational programs of England do not
seek to change the highly individualized methods of
English education, but rather to open educational oppor
tunities to all students on the basis of intellectual 1
capacity rather than of ability to pay. For this purpose :
the old division between elementary and secondary schools
has been replaced by a unified free system that extends
throughout the period of compulsory education, from five
to fifteen, and for those who are specially gifted, to
college. I
Great Britain has worked out an extremely satis- j
I
I
factory means of providing state aid to its universities ;
without in any way imperiling their independence; that is,1
i
I
although the Government is responsible for providing j
i
about 90 percent of the universities' income, it does i
not control their work or teaching, nor does it have j
direct dealings with the universities. This is due to i
j the existence of the University Grants Committee. The
i Committee acts as a link between the Government, from
I i
i
which it receives a block grant, and the universities to j
which it allocates this grant. ;
(b) Social Services I
i
National insurance, industrial injuries insurance,!
j
I
j family allowances, family income supplements and supple- J
i
mentary benefits together with war pensions constitute a
comprehensive system of social security in the United
i
Kingdom.
i
j Assistance and insurance are the two major j
approaches to social security. Assistance rises from !
i
the old concept of relief and is directly related to i
!
need; and because it has the advantage of being individ- i
I
ualized, it is excellent for emergencies. But the basic i
i
form of modern welfare services is insurance. Social 1
insurance is a great national plan for sharing risk and !
i
handling the problem of maintenance of income. It has I
i
j two great advantages over assistance: it is simpler to
j administer, and the benefits carry no taint of public j
i I
j charity.
The objective of social security is to ensure a
"national minimum standard." The investigations on which i
I
the Beveridge Report were based indicated that between [
i
three-quarters and five-sixths of urban poverty in Great
i
Britain was due to interruption or loss of earning power
. because of unemployment or illness. Hence, the plan for
I
j social security places its greatest emphasis on health
insurance to provide medical care, and national insurance j
to establish a minimum standard of living when unemploy
ment, old age, or death rob the family or individual of <
normal sources of livelihood.
Once a person has made a minimum number of pay-
I
I
ments, he is entitled to benefits when he needs them, |
graded according to the number of his dependents. Bene- ,
fits are awarded regardless of the cause of need, whether
i
sickness, unemployment, or retirement. There are only
two exceptions to this rule: the self-employed cannot •
draw unemployment insurance, and persons injured through
industrial accidents receive more. This is done to I
i
I encourage workmen to enter hazardous occupations such as
! • • 1
| mining. I
*
I
(c) National Health Service !
The most "radical" of the measures to establish a
national minimum standard for everyone is the National
107
5
Health Service Act. It superseded a variety of health
I
insurance schemes and entitled everyone in Great Britain j
i
to virtually free medical attention and hospital care. j
The major difficulty in establishing a national j
I
health service is to combine socialism in its administra-
j tion with individualism in its practice. Though many j
I «
j British doctors were convinced of the need for a national
j health service by the wretched facilities in rural areas, j
i '
they long opposed the government ' s plan on the ground j
i
that they would lose their independence. Ultimately,
compromises have been reached, however, so that by most
i
! standards, the British national health service provides |
!
a working arrangement that combines "socialism and indi- j
i 1
I vidualism." It is based on three principles: health
I services are free and available to everyone; patients
j i
j have a free choice of doctors and of hospitals; and par- !
| i
ticipatxng doctors may have both public and private
practices.
All hospitals are nationalized under the Act,
but there is a good deal of decentralized control:
i
medical and dental clinics and health centers are under I
the direction of local government authorities and of '
I
executive councils nominated by local practitioners, !
i i
j I
local government authorities, and the Minister of Health, j
i
I
108
3. Income Distribution
There has not been a large shift and change in
the composition of total personal income in the United
1971
71.1
8.3
10.4
10.2
100. 0
Source: Central Statistical Office, Social Trends
(London: Her Majesty's Stationery Office,
! 1971), p. 83.
I
j It can be seen that the main changes in the com
position of personal income over the postwar period have
been a small reduction in income from self-employment
and an increase in income from transfer payments. It
would appear that the coming of the welfare state in the
United Kingdom has brought little change in the distri
bution of income on a functional income basis.
Income distribution is, however, altered by
government payments, such as family allowances, old-age
Kingdom. This can be seen from Table 4-2.
Table 4-2
Composition of Personal Income
Source of Income 19 51
Employment 71.2
Self-employment 12.1
Rents, Dividends, Interest, etc. 10.7
Income Transfers 6.0
Total personal income 100.00
109
pensions, national health services, etc., and also by 1
i
i
government taxation policy.
The most important British tax is the income tax,
which accounts for about 40 percent of all tax revenues
excluding social security contributions.^ The income
i tax is graduated by means of personal allowances and
I
progressive tax rates. These rates range from 30 percent j
I
on incomes of 5,000 pounds or less to 75 percent on [
7 I
incomes in excess of 20,000 pounds. I
I
Indirect taxes are another important source of I
government income; excise taxes on tobacco, alcohol and
gasoline account for about 25 percent of the national
8 !
government's total tax revenue. There are also corpor- j
i
ate income taxes, capital taxes, proper, and value-
added taxes.
i
A comparison of the distribution of before and ,
after tax incomes for the upper one percent and 5 percent \
I
of income is given in Table 4-3. As can be seen from I
i
this table, from 194 9 to 1957 there was a trend toward '
greater equality in the distribution of income, reflect- |
ing to some degree the postwar economic policies of the !
Labor Government. After 1957, the trend toward greater
income equality tended to stabilize somewhat.
I
t i
To get a complete picture of distribution of j
income, not only taxes, but different transfer payments
110
Table 4-3
Distribution of Income and Tax Payments
for the Upper 1 Percent and 5 Percent of
British Income Units for Selected Years
Year
Before Taxes
Top
1%
Top
5%
After Taxes
Top
1%
Top
5%
Percentage of
Tax Payments
Top Top
1% 5%
1949 11.12 23.8 6.4 17.7 46.0 69.6
1953 9.8 21.9 5.8 15.9 41.1 62. 3
1957 8.2 19.1 5.0 14.9 35.3 54.2
1958 8.2 19. 5 5.1 15.8 34.8 54.3
1959 8.3 19.9 5.2 16.8 34. 5 54.6
1960 8.5 19.9 5.1 15.6 34.4 54.1
1961 8.1 19.2 5.5 16.0 30.0 49.9
1962 8.1 19.2 5.5 16.2 28.4 46.9
1963 7.9 19.1 5.2 15.7 28.0 47. 3
1967 7.9 19.2 5.0 15.5 22.8 38.1
Source: Martin Schnitzer, Income Distribution (New York:
Praeger Publishers, 1974) , p. 185.
snefits should be taken into account. Table 4-4
shows the redistribution of income through taxes and bene
fits in the United Kingdom in 1970. It can be seen that
inequality in the distribution of factor income is miti
gated by the mechanism of transfer payments and taxation.
The net result of all taxes and benefits is to
111
Table 4-4
Redistribution of Income through Taxes and Benefits in the
United Kingdom in 1970
(in Pounds)
Under
Range of Original Income 260
All Households
Original income 69
Direct benefits in cash
Family allowances 5
Pensions 291
Other cash benefits 123
Direct benefits in kind:
Education 42
National health services 75
Welfare foods 3
Direct taxes:
National insurance, employee
contributions 1
Income tax and surtax 2
Indirect benefits (housing subsidies) 16
Indirect taxes 121
Implied income after all taxes
and benefits 500
260- 315- 382- 460- 559- 676- 816-
289 349 419 510 620 749 905
12 9 11 16 14 19 19
316 304 275 215 204 162 132
64 52 88 77 80 69 72
61 33 55 58 66 70 80
83 77 89 82 80 89 87
6 7 4 6 9 10 10
2 2 5 15 22 31 40
12 19 27 40 60 58 81
7 11 12 14 12 10 18
168 163 178 202 195 243 263
656 660 744 718 809 847 939
(Continued)
Table 4-4 (Continued)
3,104 All In-
and come
Range of Original Income 988- 1,196- 1,148-
1,
752- 2,122- 2,566- Above Ranges
All Households
Original income 1,094 1,327 1,603
1,
927 2,328 2,801 4,306 1,656
Direct benefits in cash
Family allowances 22 29 29 29 27 23 22 22
Pensions 68 53 37 32 35 35 33 102
Other cash benefits 45 35 37 28 20 10 17 49
Direct benefits in kind:
Education 75 100 117 125 147 145 158 104
National health services 85 93 92 89 90 94 99 88
Welfare foods 9 11 10 11 10 9 8 9
Direct taxes:
National insurance, employee
contributions 54 65 74 82 93 106 119 63
Income tax and surtax 99 139 189 243 311 420 826 233
Indirect benefits (housing subsidies) 16 19 17 14 15 17 11 15
Indirect taxes 289 324 378 418 462 555 712 366
Implied income after all taxes
and benefits 971 1,137 1,301
1,
511 1,805 2,063 2,997 1,383
Source: Central Statistical Office, Social Trends, 1972 (London: Her Majesty's
Stationery Office, 1972), p. 96.
redistribute income between families with relatively high ;
and those with relatively low incomes. j
i
i
Economic Growth in Britain
In this part, the aim is to examine whether or
not the economic problems facing the British economy and
her failure to grow industrially and economically at the j
same rate as other industrialized countries have been |
basically caused by her programs intended to reduce !
inequality and injustice. j
We will start by examining different arguments j
i
which relate income distribution to economic growth. I
Income Distribution and Economic Growth
It is commonly argued that inequality in income 1
distribution is necessary in order to generate savings '
and to provide incentives needed for investment. On the
other hand, there are those who believe that higher
income does not necessarily mean higher savings and j
investment and that great equality would contribute to j
I
a higher growth rate in the economy through more partic- I
i
ipation of a larger segment of the population in the !
i
development effort and through raising the living stand-
9
ards of the lowest income group.
In this section, we will review the present ;
i
literature regarding the impact of different distributionalj
patterns of income on economic growth and the interrela
tionship between income distribution and economic growth. {
This is an issue which has recently become the !
focus of a good deal of discussion and one which is par
ticularly crucial in the case of developing countries.
' More rapid economic growth and greater equality of income
are common targets in many countries and development ,
I
plans. ;
I
We want to see how far does the inequality of i
income contribute to economic growth, or constitute a
barrier to economic growth. Of course it is obvious
that to decide on an "optimum" distribution of income,
one should not ignore either efficiency or equity in any j
economic decision.
Economic theory provides two guidelines concern-
I
ing the interrelations between economic growth and
income distribution.^^ First, the neoclassical theory
is supply oriented and approaches income distribution
from the production end of the income generating process. .
The distribution of income reflects the contribution of
the different factors of production to output, or the
marginal productivity of the factors of production.
| Second, the post-Keynesian theory starts from I
! I
| the end of the aggregate expenditure and effective demand ;
, and works backwards to the investment requirements of a i
115J
given rate of growth, assuming a given capital-output 1
ratio. The rate of investment is dependent upon the j
income and its distribution between wages and profits and j
on the propensities to consume and save. The process of j
i
income differentiation is therefore related to the way
in which effective demand is generated and the rate at
which income grows.
Both of these approaches have been criticized by
!
sociologists and institutionalists for not taking into I
account the sociological and institutional aspects of j
distribution of income. ,
I
i
Within the framework of these income distribution ■
theories, different arguments have been developed in i
i
favor of and against the necessity of income inequality ;
i
for economic growth. Some of these arguments are as
!
follows: ■
1. Arguments in favor of great inequality of j
income: !
I
i
The classical economists, emphasizing the impor- |
i
tance of saving for investment purposes, believe that j
inequality of income distribution is necessary for eco- j
nomic growth. It was argued that it is the wealthy who
save and invest. Therefore, inequality of income makes
possible the accumulation that is a necessary part of
economic growth. So they believed that pressures towards .
i
I
i
116
higher real wages and greater equality, especially in [
the developing countries, may result in a distributional
j
pattern that will retard the breakthrough to a higher ■
rate of savings and investment needed for economic
growth.
' The main point is that since the marginal pro-
J pensity to save of wage and salary earners is low, the
J extent of saving and investment and hence the rate of
i
growth will depend on the distribution of income between
profits and wages. Measures tending to shift the distri- j
i
I
; bution of income m favor of entrepreneurial incomes are ,
t
in this view likely to promote growth and measures tend- |
I
ing to increase the share of wage are likely to retard |
growth.
i
W.A. Lewis argues that profit and taxation are
I
the major sources of saving in a developing country, and [
i
i
that wage-earners, peasants and salaried middle classes ;
contribute relatively little.Another writer has con- j
eluded on the basis of a detailed study of Brazilian data j
i
over a twenty-year period that the redistribution of |
i
incremental income in favor of the middle stratum of i
income earners was one of the main reasons for the failure
of the gross domestic savings ratio to increase during a
j period of rising per capita income. The writer argues
i that:
The higher savings rates generally observed !
among the presently developed countries, j
and statistical studies of savings on
income, are also no guarantee that savings
rates will increase with rising income in
the underdeveloped countries. The richer
countries may have reached their present
savings rates— and stayed at a plateau—
under historical conditions approximating
the Veblen model, i.e., with relatively
little income distribution and without a
"demonstration e f f e c t . " 1 2 j
i
It is also argued that the wage structure reflects;
the laws of supply and demand and the marginal produc
tivity of labor of different types and in different cir
cumstances; and that differentials in earnings and income
inequalities are a necessary incentive for greater effi
ciency, for the acquisition of scarce skills, and for
drawing workers into areas of expanding demand. J.E.
Meade argues that in situations where land and capital
are scarce and labor is plentiful, the efficient alloca
tion of resources according to neoclassical theory would
call for a low wage-rate and high returns to property,
resulting in a highly unequal distribution of income as
between property and wage income. A rise in wage-rates
would tend to reduce the rate of economic growth by
reducing the sources of private and public capital forma-
13
txon.
2. Counterarguments to No. 1:
There are different counterarguments to No. 1 that,;
taking into account growth, equity, and institutional
118
factors, favor greater equality of income distribution.
These are as follows:
a. Inequality stimulates low consumption, and |
1
low consumption discourages investment and growth. !
f
Growth is more likely to be stimulated by redistributing
1
income toward those who would consume more, rather than
to those who would consume less. As Keynes puts it: j
In contemporary conditions the growth
of wealth so far from being dependent j
on the abstinence of the rich, as is j
commonly supposed, is more likely to '
be impeded by it.^4
Only if we are convinced that the public wishes to con
sume too much out of full employment income do we need
i
to encourage saving via income redistribution towards
the rich and thrifty. j
15 1
b. The British neo-Keynesian argument: This
j
is based on the Keynesian contention that decisions to I
I
invest are independent from savings, and it is investment I
i
that determines the savings, not the other way around. i
|
According to post-Keynesians, to assert that the i
rate of capital accumulation and therefore growth is
determined by the decision of savers and their prefer
ences can be true only if we live in the world where Say's
Law is true. And this is exactly what they reject by
emphasizing that investment determines income and employ
ment and therefore saving. Saving facilitates growth,
119
but is not the central cause. The basic source of not
!
only increasing output, but any output at all, is invest- J
raent. Investment embodies new technologies, which
i
increase productivity and production, and create income,|
I
and thereby enable savings to be high. Thus investment
| causes saving, saving does not cause investment. ;
I 1
j The consumer has really very little to |
i say in the investment decisions of either !
small family firms or the large impersonal J
corporations. It is the firms' decisions |
that determine both the level of employ- \
ment and output and how the output will j
be divided between investment and consump
tion .... To consume and save, one must
have income; income only results from
positive investment.16 j
I
I
Aggregate supply and aggregate demand will be both I
i
affected by investment decisions. On the one hand, ’
investment determines the proportion of capital to con
sumption goods and therefore the aggregate supply. On
the other hand, it provides demand for consumption goods
through the payments made to the factors of production
i
and out of profits generated by this investment.
c. The view of inadequate private sector saving
will lose much of its relevance if, as is sometimes
i
argued, the institutional sector is the main source of
i i
I !
j savings in a growing economy. The existence of gigantic j
financial institutions such as finance and insurance com- I
i
panies, mutual funds, and tax advantages of rapid 1
120
amortization of capital suggests that the view of inade- ,
|
quate private sector savings is unrealistic. Rao argues j
1
that a redistribution of income from the individual j
1
sector to incorporated enterprise would be expected to be
associated with an increase in savings and a higher rate
of investment.
The more the country's economic activ
ity gets corporate, the larger becomes
the aggregation of income in single
decision units, and the greater the oper- j
ational distance between the ultimate j
owners of the income and those who have !
the virtual authority to determine its
disposal. This in turn leads to a
greater accumulation of undistributed
profits and, therefore, a higher rate of
savings. It also usually leads to a J
higher rate of investment. j
d. The Institutionalist Argument: These groups
argue that many measures to promote social welfare and
reduce inequality (e.g., health, education, training,
relocation of persons and industry) also increase pro- j
i
ductivity and thereby contribute to growth. j
They argue that "equalitarianism" is in fact an j
i
important factor of development and unless the actual \
I
distribution of real income is not based on a "perfor- \
I
mance oriented" principle, the economy can hardly begin ;
18 *
to develop. i
Myrdal argues that in South Asian countries meas- i
l
!
ures that increased the essential consumption in the j
121
lower-income groups would raise productivity (quite apart !
i
from welfare consideration), even if this involved j
reducing the income available to the higher-income !
I
19
groups.
It has also been argued that an increase in real
wages may be matched by increased productivity, by rais
ing the consumption level of low-income workers and stim- |
j
ulating better management methods. Myrdal believes that
malnutrition and poor health and low consumption of
i
essential protective foodstuffs work against productivity,!
and therefore increasing economic equality will improve
20
the chance of raising real output per head. This
being the case, the distinction between consumption and
investment loses its validity. A rise in real wages
i
i
becomes another form of investment.
e. There is another counterargument which
directly challenges the argument that favors income i
I
inequality on the basis that rich people save and invest
more. It has been argued that in many developing coun- :
tries the highest income groups are not necessarily those
with a high marginal propensity to save and to engage in j
I
entrepreneurial activities. On the contrary, they usuallyj
engage in large amounts of conspicuous consumption and j
throw away the proceeds of their investment in foreign
countries.
The upper classes who have a surplus do
not use it for productive investment nor
are they interested in entrepreneurial
activity. They go in for more consump
tion, either of a luxury type or involv
ing waste or having some conspicuousness
about it. Moreover in an underdeveloped
country, because of its being in a pre
industrial stage, income accompanies
status rather than function; and status
is determined.more by birth than by merit.
The result is that income gets disasso
ciated with productivity, and there is no
incentive either for intensive work or
the play of enterprise in the productive
field. Thus, the normal pattern of
income distribution in underdeveloped
country encourages neither saving nor
enterprise and does not, therefore, pro
mote economic growth.21
Major Problems of the British Economy
Britain's troubled economy has been the most j
pressing domestic issue of its politics during the past
half-century. Recession during the 1920s was followed
by depression during the 1930s. Then World War II j
stripped away the last vestiges of Britain's nineteenth j
I
century wealth and economic power. These painful exper- j
i
iences led eventually to the forging of a general con
sensus about a new economic and social commitment of
i
government during the latter part of the war. The govern
ment committed itself to manage the economy in order to
provide full employment; maintain a high level of the
standard of living; keep inflation at a minimum; and pro-
i tect the value of the pound sterling. Yet, despite these
!
123
commitments, the British government still contends with
a lagging and crisis-ridden economy.
In this section we will describe the four major
!
contemporary problems of British economy, namely: J
inflation, unemployment, balance of payments problems,
and the slow rate of growth. I
1. Inflation j
------------------------------------------------------------ I
One of the principal differences between the pre- '
i
I
and postwar economies concerns the behavior of prices. j
!
In the 1920s and early 1930s prices were tending slowly
downwards against a background of heavy unemployment,
whereas during the war and afterwards prices have been
i
rising continuously. |
In the period between 1956 and 1966, the average
I
annual rate of increase in domestic income has been
I
i
about 6%, while the increase in gross domestic product i
per head of the labor force has been only between 2 and !
2-1/2%. Retail prices rose on average by nearly 4% {
22 !
m this period. Table 4-5 shows the average rates !
i
of change in final prices for the period 1960-1970. !
It can be seen that consumer prices have gone up
nearly 4% a year, while the prices of government-bought |
commodities have increased somewhat faster, and those of {
23 I
investment goods and exports more slowly. j
I
i
I
124 I
Table 4-5
Increases in Price Indices in U.K. 1960-1970
Overall %
Increase Annual % Increase
1. Consumer goods and
services 45 3.8
2. Government expenditure on
goods and services 73 5.6
3. Gross domestic capital
formation 39 3.3
4. Final goods sold on home
market (1+2+3) 48 4.0
5. Exports of goods and
services 35 3.0
6. Total final expenditure
(1+2+3+5) 46 3.9
i
Source: National Income Blue Book, . 1971 (London:
Her Majesty's Stationery Office, 1971),
Table 16.
Inflation is harmful for two basic reasons; the
first is that it lowers the purchasing power of the
pound, which means that a pound buys less and less as the
years go by; the real value of wages is greatly reduced.
Many workers in strong trade unions can keep ahead of
inflation by obtaining wage increases, but others cannot
do this. Old age pensioners, for example, and those, who
live on relatively fixed incomes, suffer considerable
125
hardship as they see the real value of their pension or
savings steadily eaten away. The second reason is that
inflation does serious damage to exports by raising the
costs of production.
The causes of inflation are complex, and author-
i
j ities have had great difficulty trying to bring it within
I
j reasonable bounds.
2. Unemployment
One of the great social advances of the mid
twentieth century was the acceptance by government of
its responsibility to maintain full employment. Cycles
in national output and employment with a peak-to-peak
duration of seven to ten years were a regular feature of
British economic history in the nineteenth century.
24
From the 1850s up to 1914 the level of employment was
determined by the economic fluctuations of the trade
cycles. In the cyclical expansions, investment, produc
tion, and employment would increase, the reverse happen
ing during the down swings of the cycle. This pattern
changed after the end of World War I. There was massive
unemployment from 1921 to 1939, not only during reces
sion but also at the peak of each cycle. The minimum
unemployment rate in this period was 9 percent— the worst
year being 1932, with unemployment at a rate of 22 per-
25
cent. Unemployment of this scale did not occur after
126
World War II, and the situation was improved, especially !
during the 1960s. By . the early 1970s there was, there-
i
fore, a good deal less emphasis on the concept of full ■
employment and more on the desirability of rapid growth. j
i
i
Table 4-6 shows the percentage of unemployment during
I the 1960-197 3 period.
I '
j As can be seen from this table, following 1970
there was a rising trend in the unemployment rate, such
that by 1972 unemployment had reached nearly 4 percent.
Table 4-6
Unemployment (in percent) in the U.K.
Labor Force :
i
i
Year Unemployment i
1960 1.7
1961 1.6
1962 2.1
1963 2.6
1964 1.7
1965 1.5
1966 1.6
1967 2.5
1968 2.5
1969 2.5
1970 2.7
1971 3.3
1972 3.6
1973 2.6
I
--------------- j
Source: E.S. Kirschen (ed.), Economic Policies ;
Compared: East and West (Amsterdam:
North Holland Publishing Company, Vol. 1 j
[1974], p. 60; Vol, 2 [1975]), p. 40. !
127
3. Balance of Payment Problems ,
The importance of the foreign trade sector for |
the prosperity of the United Kingdom economy cannot be j
denied. The United Kingdom is an "open economy" with a
large dependence on foreign trade. She has to import
about half of her total food requirements and the bulk
27 1
of industrial materials. Because of this, the United j
i !
Kingdom's economic problems have been reflected in
periodic balance of payments difficulties, which have
led to sharp checks to economic expansion and productive
investment; these, in turn have left the country vulner
able to further foreign exchange difficulties when expan
sion was resumed.
The first postwar foreign exchange crisis of i
1947, namely the convertibility crisis, resulted from
a premature attempt to make sterling freely convertible j
into gold or dollars, as a requirement of the Anglo-
2 8 !
American Loan Agreement. Because of the heavy drain
on United Kingdom reserves, this policy had to be aban- j
doned after a few weeks. By the late 1950s, a series j
of difficulties in the balance of payments began, althoughj
this was not apparent until some years later. Imports j
of goods began to increase rapidly, as prosperity created
new demands for foreign goods. On the other hand, earn-
i
ings from "invisible" trade such as profits from shipping j
and financial services, tourism and overseas investment,
which had previously been a big source of income for the
i
United Kingdom, began to fall mainly because foreign i
. . 29
competition became severe in these fields, thereby
reducing the profits on invisible trade. Because of ris-
| ing world demand for agricultural products, there was
I
j also an increase in the prices of British imports rela- '
i J
j tive to British exports. j
| All these factors led to prolonged disturbances !
during the period 1964-1967 and devaluation of the pound j
30
of about 14 percent in 1967. The Labor Government of
j 1964.at first did not want to devalue the pound, so it
tried many ways to improve the situation. A temporary |
31
I import surcharge and export rebates were introduced, i
and overseas investment was discouraged. But the under- j
lying balance of payments failed to respond adequately |
to these measures. Finally, the government was forced to
resort to the ultimate weapon of devaluation.
I
The effect of devaluation was to lower export i
I
prices and raise import prices, which helped to redress ■
I
j the balance of payments, and gave a breathing space in |
i _ i
which the problems of the economy could be put right.
The real impact of the devaluation was felt later on in
1969-71, and began to reinforce the effects of the rapid
growth of world demand for exports, creating a confidence J
in sterling, and producing a reversal of the previous
short-term capital outflow, so that by the end of 1971
the authorities were able to add substantially to the j
official reserves and pay almost all the borrowing out-
32
standing at the end of 1968. In 1971 exports rose in
! value faster than imports, resulting in the highest
I surplus ever on visible trade of 285 million pounds ster- i
t
ling, which, together with a substantial surplus on j
invisibles, produced a record current account surplus of i
1,093 million pounds sterling. This trend, however, was i
reversed in 1972, with the development of a visible
trade deficit that reflected both the rise in world com-
i
modity prices and the depreciation of sterling from
June 1972. The surplus on invisibles more than matched
33
the trade deficit leaving a small surplus account.
i
In 1973, the volume of international trade accel- j
erated rapidly as many countries moved to cyclical peaks. |
The situation was also affected by a commodity price boom
and the rise in oil prices toward the end of the year,
and the continued depreciation of sterling resulting in :
a large visible deficit of 2,375 million pounds sterling, ’
offset to some extent by a surplus on invisibles of ;
i
1,16 5 million pounds sterling leaving the current balance !
34 I
at a defxcit of 1,210 million. Higher oil prices were j
i
the main factor responsible for a further marked deterior-(
i
ation in the external position in 1974. j
130
4. The Slow Rate of Growth
i
Statistical measures show that during the 1950s j
I
and 1960s Britain's rate of economic growth was higher
than in any decade within the previous half-century.
Between 1920 and 1937, the increase in gross domestic
product (at factor cost) was just about one-third; but
in the twenty years between 1950 and 1970 the increase
35
was nearly two-thirds.
The British people could have regarded the post
war record of their country as being satisfactory if the j
i
j
United Kingdom had been an isolated state. But while
I
British growth was above its earlier rates, growth rates !
i
of other industrialized countries of Western Europe and I
the United States were much higher. It is this "cross-
I
section" comparison with Britain's contemporaries that ,
has generated so much concern. Table 4-7 brings together j
j
some of the relevant data. I
I
Of all the industrialized and developed economies,)
I
I
Britain has always had one of the lowest growth rates. As I
can be seen from Table 4-7, between 1950 and 1960,
Britain's annual growth rate was 2.6 percent. This com- j
I
pares with 7.6 percent in Germany, 313 percent in Sweden, J
3 8
5.9 percent in Italy, and 4.4 percent in France. In
j fact, since 1955 the GNP has grown by more than 4 percent
37
only on four occasions: in 1959, 1963, 1964, and 1973.
131
Table 4-7
Annual Average Rate of Growth of Gross
National Product in Constant Prices
1950-1960 1960-1970
Belgium
2.9 4.7
Denmark 3.3 4.7
France 4.4 5.6
Germany 7.6 4.7
Italy 5.9 5.7
Netherlands 4.9 5.1
Norway 3.5 4.7
Sweden 3.3 4.5
Switzerland 5.1 4.2
United Kingdom 2.6 2.7
United States 3.2 4.2
Average 4.2 4.8
Source:(1) A. Maddison, Economic Growth in the West;
Comparative Experience in Europe and North j
America (New York: Twentieth Century Funds, 1
1964), p. 28 i
(2) Organization for European Economic Develop
ment, The Outlook for Economic Growth (Paris:J
Organization for European Economic Develop- :
ment, 1970), p. 14. '
(
i
i
i
i
t
Slow growth in Britain has meant that British per '
capita income is also dropping to a level that is one of
j the lowest among the industrialized countries. There is
| much evidence that the failure of Britain's economic !
132
development to keep pace with that of other European [
I
countries and the United States has sprung largely from j
i
lagging productivity growth. i
Denison, of the Brookings Institution, has exam-
i
ined why growth rates differed between 1950 and 1962 in j
3 8 I
nine Western countries. For each country he estimated
the contribution to growth from labor, capital, and land, j
For labor, he estimated the effect of changes in employ- !
ment, hours of work, age/sex composition, and education.
For capital, he estimated separately the contribution to
growth of investment in dwellings, international assets,
* i
non-residential structures, equipment and inventories. |
i
With land, he grouped together land and natural resources.
Subtracting his estimates of the contribution ■
I
to growth of all three input factors, he obtained the
contribution to growth from increased productivity, or
increased output per unit of input. These were for the
period of 1950-1962:39
Germany 4.5
Italy 4.7
France 3.7
Netherlands 2.8
Norway 2.4
Belgium 2.0
Denmark 2.0
United States 1.4
United Kingdom 1.2
133
Denison found that one major factor contributed to higher '
productivity in other European countries— the shift of
large numbers of labor from an inefficient agricultural
i
sector into industry. This process, however, has been
virtually completed in Britain:
. . . Although real national income per
person employed in all industries in the
United Kingdom was still about as high as j
in the rest of Northwest Europe in 1960, j
this was only because the gains which j
could be made by reducing over-all alloca
tions of resources to agriculture and
self-employment had already been largely
achieved. As the other countries reduce
the amount of such over-allocation they
obtain higher growth rates than the United
Kingdom and improve their relative posi- i
tions.^0 j
41 i
Philip A. Klein also believes that m all |
market-oriented economies the percentage which agricul
tural output contributes to GNP is declining, mainly
i
because other areas of real output are expanding very :
rapidly. Therefore, the United Kingdom cannot easily j
increase her growth rate by shifting resources from
agricultural to industrial sector, because they have
42
already done it.
Table 4-8 shows the contribution of productivity
of different sectors and growth in total employment, and
change in the sectoral mix to the growth in real output
in different countries.
134
135
Table 4-8
Factors Affecting the Growth of Output,
Eleven Market-Oriented Economies
1955-1968
(Percentages)
Growth Growth
in Growth in Total
Growth indus in agri
o.
” 5
in em trial productiv cul Increas
Sector ploy produc ity of tural over
Country . shift ment tivity services output period
(1) (2) (3) (4) (5) (6)
Canada 11.9 43.9 21.4 -1.3 1.8 77.7
United States 7.1 27.1 14.7 13.7 0.5 63.1
France 16.8 8.0 40.4 22.4 4.1 91.7
Germany 12.6 10.1 44.0 15.8 2.3 84.8
Italy 36.2 -7.0 34.8 27.4 6.8 98.3
United Kingdom 2.0 5.0 20.1 10.0 1.4 38.4
Austria 19.4 2.3 39.2 16.6 3.6 81.2
Belgium 7.5 5.7 27.7 15.9 1.5 58.2
Denmark 17.9 21.2 15.4 16.0 4.6 74.9
Netherlands 9.2 16.1 35.6 23.4 4.5 88.9
Norway 16.5 6.7 23.7 25.2 -0.4 71.7
Source: Phillip A. Klein, The Management of Market-Oriented Economies
(Belmont, CA., Wadsworth Publishing Co., 1973), p. 194.
Aver.
annual
increase
over
period
(7)
6.0
4.8
7.0
6.5
7.6
3.0
6.2
4.5
5.8
6.8
5.5
— — ----------------------- -— ------------------------------------------------------------------------------------------------------------------------------------------------------------ - j
As can be seen from Table 4-8, industrial produc- i
tivity contributes more to increased output than agricul
ture and even services. As Klein puts it, "The failure |
of Britain to increase industrial productivity in com-
! parison with her Continental neighbors is a major fail-
i 4 3
j ure." We shall discuss the causes of British failure
! fully later on in this chapter. This has been a brief
summary of basic problems of British economy. In the
next section we review the arguments that British insti- I
tutions and Labor's socialist policies have contributed ;
to these problems. i
l
I
!
Institutional Arguments >
i
i
Some observers find the ultimate cause of |
i
Britain's problems in "real," structural, or institu-
i
tional conditions: vested interests, notably the monop- i
i
oly trade unions, or intellectual influences, notably the j
commitment to full employment and high government expend- j
i
itures. In this section, we will review some of these |
I
i
arguments. I
I !
i i
j Workers' Attitudes j
i I
j P. Enzig, m Decline and Fall? Britain's Crisis
i 44
in the Sixties, has tried to establish that British
problems all stemmed from a fundamental deterioration in
136
the British character which set in after 194 5. The main
i
conclusion of his book is that the attitude of British
labor is the main problem facing the British economy, :
i
and indeed the one responsible for Britain's poor per- j
formance. He believes,
The main cause of the "English disease"
is that far too many British workers don't j
feel they owe it to their self-respect to ;
give full value for their pay, while in !
Germany work is a quasi-religious cult, in j
Britain today idleness is a quasi-religious j
Enzig believes that everyone in Britain is interested ;
only in his own interest and is indifferent to the vital I
j
interests of his country. Moreover, he says that this ;
change in labor's attitude which set in after World War II!
J
has resulted from the change in the balance of power in
their favor,
i
. . . His attitude had deteriorated !
because he has been pampered and spoilt J
by Governments, politicians, trade i
unions and employers since the war. ;
I
Although Enzig maintains that the British Empire J
' I
j was built up and maintained by the efforts of the hard-
! *
working people of Britain, he then goes on to state that j
today, |
Britain is barely able to hold her own
even as a second-class power, owing to
the unwillingness of her people to make
the effort and self-sacrifice needed in
order to become once more self-supporting.
. . . If only the British workers worked
137
as hard as their foreign opposite num- j
bers Britain would undoubtedly hold the
lead in increased productivity and
industrial expansion, at any rate in
Europe.^ I
So, in his view, labor's belief that full employment and {
!
the welfare state are his birthright for which he owes
absolutely nothing to the community, is the main problem j
facing Britain. I
I
E.H. Phelps Brown argues that increased power of i
unions and labor's attitudes are the basic cause of the ,
i
problems. On the one hand, full employment has warranted
the assumption that labor can push up the wages and :
strike without the risk of losing jobs. On the other !
hand, the power of the strike has increased since indus- j
tries have become more concentrated and integrated, and
therefore more vulnerable to work stoppage. The disper
sion of economic power and the change in trade unionism !
are also important factors. Brown explains that, j
The trade union itself is changed radi- !
cally; its officers are no longer able to
enter into agreements which they then hold
their members bound by, but must submit
proposed terms to them for approval or
rejection . . . where the trade union was
a single body guided by its national offi- '
cers, governments could exert an effective |
influence by gaining the cooperation of
those officers, and might rely on statu
tory powers in the last resort; but where
the members of the union are determined
for their own part, individually and col
lectively, to stay away from work, no
government in a free country can compel
them to go back.49
138
The remedy, in his view, is a change in individual atti
tudes and expectations. The problem can only be solved \
by "some mutual agreement to give up the war of all j
against all— by a 'social contract' in the original sense
j of that term."5^
i
j Trade Unions' Policy
! Other observers place the largest share of the
blame for the damaging high rate of wage inflation on the
trade union movement. They charge that the Trade Union
Congress, the spokesman for British unions, is organiza- j
tionally weak and ineffective and that the trade union :
movement is selfishly insensitive to the larger needs of
51 !
the country as compared to its own. 1
The government commitment to secure full employ
ment of labor regardless of its effect on wages and !
j
prices, together with monopolistic labor unions' concern !
I
I
to settle their own money rate of pay without giving j
attention to the rest of the economy, has also been con- ;
!
sidered by James E. Meade to be the main reason for the J
i
52
rapid inflationary rise m costs, and so, m prices. j
1
Meade believes that some kind of social constraint |
i
I
should be imposed on unions' behavior,
. . . we should face the fact that labor
unions can be extremely powerful organiza
tions and that one can not run an economy
unless powerful monopolies are subject to
139
some elements of social constraint . . . !
that same degree of social restraint over !
wage setting is a necessary condition for j
the continuation of an independent trade
union movement in a free society.53
Another view holding trade unions responsible
for rise in wages and prices puts a great deal of empha-
54
I sis on the concept of the leading wage bargain. The
I
: . i
i argument xs especially designed to explain the British
! experience. Its idea is that there are a few "leading"
bargains in each round of wage bargaining which will i
■ i
i
strongly influence all the wage settlements. These key
i
bargains do not depend only on economic factors, and
trade unions have a great deal of influence on them. ,
I
The possibility of institutional factors and j
social attitudes affecting economic development has been
stated in Sir Alec Cairncross's Britain's Economic
!
Prospects Reconsidered, together with other factors such j
as demand management, investment, fiscal and monetary
I
policy, trade and international payments, labor problems j
and industrial policy. He examined the effect of "intan- !
I
gibles" such as the practice and attitudes of managers
and workers, and the impact of the .British social system j
j i
j # j
i on economic efficiency and industrial relations, and
concludes that, j
. . . the long-run relationship that j
should form the basis of growth policy [
seems to rest on social and political
values at least as heavily as on eco- i
nomic variables.56 j
I
140
The Public Sector as the Cause of Low Productivity
It is argued that the large size of the public
sector in Britain is responsible for the weak performance
57
of the British economy. This is due chiefly to two
main causes. First, a substantial proportion of public
investment is in the areas which are not directly pro
ductive, like housing, education, and health services.
Second, public investments in productive areas, such as j
gas, electricity and coal mining are not much concerned ’
<
with the rate of return on the capital involved.
Factors Contributing to Britain's Problems I
i
In this section, we will discuss some of the
important factors responsible for British poor perfor
mance which are quite independent of social welfare or
income redistribution measures. We will show that the
British crisis has many different causes ranging from
purely economic reasons to her historical background.
1. Slow rate of growth and economic maturity.
It has been argued that there is an inevitable
tendency for the secular rate of economic growth in
industrial societies to slow down as they reach maturity.
Schumpeter, for example, suggested that as the
economy matures, the size of the average production/
commercial/economic unit tends to increase. Single
141
individuals find it more difficult to exercise control
over such units and the control of economic resources
becomes increasingly concentrated in the hands of organ
ized committees. Decision-making, that most dynamic of
activities, becomes more and more a corporate process
, and loses its dynamic nature. The corporate attitude
is essentially conservative in nature, the possibility
of dynamic change is lessened, and the economy settles
down, as it were, to a maturity of slow growth.58 The
maturity thesis has been adapted to explain the unsatis
factory performance of the British economy since World
War II.
W. Hoffman, a German economist, believes that the j
declining growth of British output since the late nine
teenth century was the inherent tendency because Britain's
I
K Q
economy had reached its maturity. j
Kaldor also used the "maturity" thesis to explain |
the causes of the troubled British economy. He shows '
that there is a very high correlation between the rate
of growth in the gross domestic product and the rate of
| growth in manufacturing production. This can be seen j
from Table 4-9. I
I
It is a well-known hypothesis that as the level
of real income increases the proportion spent on food
I
j declines and the proportion spent on manufacturing and 1
142 J
Table 4-9
Rate of GDP and Rate of Growth of
Manufacturing Production (12 Industrial
Countries)(Average 1953-54 to
average 1963-64): Exponential Growth Rates
Annual rate
of Growth
of GDP
Annual rate of Growth
of manufacturing
production
Japan 9.6 13.6
Italy 5.6 8.2
W. Germany 6.0 7.3
Austria 5.4 6.2
France 4.9 5.6
Netherlands 4.5 5.6
Belgium 3.6 5.1
Denmark 4.1 4.9
Norway 3.9 4.6
Canada 3.6 3.4
United Kingdom 2.7 3.2
United States 3.1 2.6
Source: Nicholas Kaldar, Causes of the Slow Rate of
Economic Growth in the United Kingdom
(London: Cambridge University Press, 1966),
p. 5.
services increases. Therefore, a high income elasticity
for manufactured goods is a characteristic of a middle
zone of real income. Moreover, in this zone there is a
double interaction between the growth of the industrial
sector and the growth of real income.
But a fast rate of industrial growth has been
associated with a fast rate of growth of labor employed
in the secondary sector of the economy. The main source
of this increased labor is surplus labor transferred
!
from the agricultural sector.®'*' Therefore, Kaldor |
argues that,since Britain started the process of indus- ^
trialization earlier than any other country, she has j
reached "maturity" sooner, which means that,
. . . it has attained a distribution of
the labor force between the primary,
secondary and tertiary sectors at which j
industry can no longer attract the labor !
it needs by drawing on the labor reserves I
of other sectors.62 !
i
There have been counterarguments to the maturity !
I
thesis. They are known as pessimistic in mood. The counter?
|
arguments are mainly based on the comparison of British j
j
growth rates (especially since 1945) with those of other ;
economies showing some or all of the features of maturity ;
credited with hampering expansion.
I 2. Low productivity.
i - I — . - .. ....
j
Low productivity has been cited as one of the
basic causes of the economic problems of Britain— not
; just increases in wages. Indeed, wages have increased
'
in most of the industrialized countries. As can be seen
from Table 4-10, increases in wages in the United
Kingdom have not been significantly larger than else-
( 3 3
where. The problem in the United Kingdom is that
increases in productivity have been very low.
It is lower productivity together with higher
wages that have increased unit labor costs in Britain
144
Sons, 1974), p. 25.
relative to other countries. This can be seen from
Table 4-11. The increase in unit labor costs in manu
facturing would, of course, burden any industrialized
country. In the case of Britain, the burden is even
Table 4-10
Hourly Wages in Manufacturing (Average i
Annual Increase in Percentage)
1962-65 1965-69 1970-73
United Kingdom 4 . 2 6.0 11.7
France 7.4 8.9 11.4
Germany 7.8 5.9 11.3
Italy 12. 0 5.0 17.3
United States 3.1 5.2 6.2
Japan* 9.7 14. 0 17.6
*Monthly earnings
Source: The Hudson Institute Europe, The United
Kingdom in 1980 (New York: John Wiley &
Table 4-11
Unit Labor Cost in Manufacturing (Average
Annual Increase in Percentages)
1962-65 1965-69 1970-73
United Kingdom 2.1 2.7 8.1
France 3.4 2.2 6.3
Germany 2.6 1.4 7.5
Italy 5.7 1.9 11.4*
United States -0.8 3.6 2.4
Japan 5.0 0.8 6.0
*1970-72
Source: The Hudson Institute Europe, United Kingdom
in 1980 (New York: John Wiley & Sons, 1974),
p. 25.
145
worse, because of the importance of the manufacturing
sector in the economy. This sector employs 44 percent
of the total labor force in the country and accounts for
ity and quantity of capital labor is working with. Far
j too many workers in Britain are working in old-fashioned
| factories and coping with outmoded machinery. Often too,
I
the size and shape of the building— adequate when it was
first built--now handicaps progress by preventing the
introduction of new machinery and new methods. Old
machinery, even if still capable of good work, is bound
to be slower. Old machinery is often temperamental and
I workers capable of dealing with its tantrums. If the
i
! old machine is scrapped and a new one bought then the
well-trained worker can go on to more important work and
the new machine can be tended by a semi-skilled and less
highly paid worker.
3• Inadequate adaptive ability of British industry
Britain was the early starter in industrialize- ,
tion. Her traditional export industries, particularly
cotton textiles, were technologically simple and could
not retain indefinitely their competitive advantage in
the face of competition from more recently industrialized j
about 84 percent of the country's exports.
64
Productivity of labor is influenced by the qual-
I requires the attention of well-trained and highly paid
countries. To maintain an acceptable rate of industrial
growth, particularly after World War I, Britain would j
i
have had to alter rapidly the structure of industry and j
the composition of her exports in some industries. j
But British industry as a whole was unable to j
i I
; adapt rapidly enough. The responsiveness of the supply of:
I British exports to changes in the composition of foreign ;
; demand for such exports was, and remains, inadequate. !
i ■
f
Some critics have put the blame on Britain’s |
i
financial organization, and claim that the preoccupation
of the London capital market with overseas investments
deprived domestic industry of the capital it needed for !
modernization.
Others blame the government industrial policy, and,
claim that,
. . . through the influence of the govern
ment, capital has been dissipated in bol
stering up inefficient, established indus
tries, and that human resources have been
wasted by measures designed to maintain
employment in declining manufactures and
so to retard their transference to more
productive o n e s . 66
This problem has also been mentioned earlier in
I |
i the discussion of economic incentives. The special dif- 1
I
ficulties and risks involved in British industry's great
dependence on exports impaired management incentives.
i
1 . 4 - 7 .
4. The lack of adequate investment. I
i
It is argued that the over-all level of British
i
investment, public and private, has been inadequate.
Indeed, fixed enterprise capital per worker is lower in
I
Britain than in almost any other country in Western
*67
Europe. Also, as Table 4-12 shows, the percentage of
i gross national product devoted to domestic asset forma-
i
tion is very low in the United Kingdom in comparison to j
| 1
I other industrialized countries. !
j |
There is a close relationship between the level
I I
of investment and the level of output. Indeed, the much
higher output per worker in the United'States, compared to ;
I
Europe, is frequently attributed to the greater amount j
of capital per worker in the United States.
So, the lower level of investment in Britain
I
l
explains partly her unsatisfactory postwar economic per- j
i
formance. The most important cause of this inadequate
i
level of investment was the stop-go policies of govern- !
ment. The "stop" phase of the cycle, marked by its
restrictive monetary policy, wage freezes, credit squeezes,
I
i etc., has served to curtail investment and production;
the "go" phase has unfortunately been focused on con- !
i
sumers-led expansion rather than a selective promotion |
of productive investment. !
The level of investment in the private sector
depends in part on the expectations which businessmen
__________________________________ 148
Table 4-12
Average Gross Domestic Asset Formation
as Percentage of GNP (1958-1965)
Country Percentages
Japan 32
Norway 30
Switzerland 26
Germany
25
Netherlands 24
Austria 24
Sweden 23
Italy 21
France 20
Denmark 20
Belgium 19
United States 17
United Kingdom 16
Source: Christie Davies, Incentive to Investment
(London: Conservative Political Center,
1972), p. 32.
hold about the future. If they expect the demand for
! their products to expand quickly and continuously they
i
will be encouraged in their plans to expand capacity.
But in postwar Britain the frequent attempts by govern
ment policy to cut back or curb the level of demand
introduced much uncertainty as to its future level which
I
j discouraged investment, especially long-term investment.
149
5. The need to import food and materials. 1
Britain is a small island, in no sense self- |
I
sufficient in food or raw materials. Britain needs to \
import about half of its food. She imports 4 2 percent
of her wheat, about 21 percent of her beef, 30.9 percent
of her pork, and 84.97 percent of her butter consump- :
69
tion. ,
i
i
Because of its relative poverty in raw materials I
I
other than coal, Great Britain relies more heavily than
ever on outside sources to maintain its factories; it
j
needs vast quantities of oil from the Middle East, rubber :
i
from Malaysia, nickel from Canada, and iron ore to make j
I
the steel with which to produce locomotives and heavy
70
machinery that form so substantial a part of her exports.
I
Besides, Great Britain must manufacture not only for its
I
own needs but also for export, both to pay for the raw
I
materials that it turns into manufactured products for
i
itself and other countries, and to pay for steadily j
!
I
increasing imports for its own consumption. [
I
In the face of a rising world demand for agri- j
cultural commodities since the war, the rate of growth \
t
I
of agricultural exports from non-dollar countries has
declined. This has aggravated Britain’s balance of pay- I
ments problem, for it has raised the prices of British
imports relative to export prices. And Britain has been
150
forced to buy from the United States and Canada agri
cultural goods formerly imported from non-dollar areas.
t
6. Britain and Commonwealth trade. :
In the early postwar years the Commonwealth took
71
more than two-thirds of all British exports. It was
1 in many ways an ideal export market in the sense that it j
I ,
j could be regarded in effect like an extension of the home j
i i
market. But, as the colonies became independent, there <
i
was a growing tendency to diversify sources of supply |
at Britain's expense. Moreover, for a variety of rea- |
I
sons, the Commonwealth in the postwar world as a whole
has been a slow growing market. As a result of these
I
two factors, British industry has had to switch to 1
faster growing markets, such as Western Europe and the ;
United States. And, these markets are much tougher, more j
I '
! sophisticated, and more competitive than the old j
Commonwealth. They do not always express their needs in i
I
British weights and measures, and often their standards j
and tastes are different. It has been a hard process of
adaptation for Britain, and she has not been quite sue- 1
i
cessful in this regard. The novelty to British industry :
of making the necessary sales promotion efforts, the |
! shortage of funds for investment, and the insufficient
initiative of much British management are some of the
i
reasons for this failure.
151
7. High cost of production in Britain.
The failure of government to solve or signif- I
j
icantly mitigate the problems contributing to Britain's
economic stagnation has been due in large measure to the i
i
72 i
continued high rate of price and wage inflation.
1 Britain so depends on the condition of its international
i
I
trading position that inflation, as it increases con
sumers' demand at home and heightens the costs of goods
produced for export, exerts a decisively negative influ
ence on the country's economic health.
But the basic question to ask here is: What are
the fundamental causes of these high prices? Is it fair j
1
to put all the blame for higher prices on the trade
unions' policies and their demand for wage increases?
Labor costs, although an important item of cost of pro
duction, are only one item among many several production
costs. |
i
Production costs include several items such as i
raw materials, advertising the product, transportation ;
!
i
of raw material and finished product, the cost of main
tenance of the factory, machinery and administration,
and workers' wages and owners' profit. Manufacturers
i all over the world have to meet similar costs, yet Britishi
firms seem to be faced with higher costs than their com
petitors— because of the following reasons:
(a) Few manufacturing countries are as poor in j
raw materials as is Britain. Most of her
raw materials have to be imported— some from ;
as far away as Australia. The net result
is that raw materials often cost British
manufacturers almost twice as much as for
eign manufacturers because transport costs j
have to be added to the cost of the actual |
commodity.
(b) The prices of British exports include not
I
only the cost of the finished product but '
also the cost of transporting both the raw j
materials and the finished product. It is
not impossible to have a situation where
iron ore is exported from Australia to
I
Britain, made up into some sort of steel j
i
merchandise which, in turn, is exported back |
to Australia where it has the impossible !
task of competing with a similar Australian
produced article. j
I
(c) As has been explained earlier, there is still |
!
i
a large amount of old factories and outmoded
machinery. It is obvious that heating,
lighting and repairs all cost more money if i
i
the factories and machines are old. j
153
Of course, labor costs represent an important element of :
l
total cost of production. One reason for high labor ,
i
costs is that often workers are not allowed to work to !
I
I
capacity. In order for a worker to work to capacity, he j
must be properly trained, have good equipment, and be a j
i I
: member of a well-organized unit. ;
I i
! There are two aspects of good organization that
should be considered. First of all is the need for well- |
j
organized management (this will be discussed later on). 1
i I
The second aspect of good organization relates to labor i
organization itself— the Trade Union. Any trade union
activity which prevents a worker from working to capacity
i
! ■
is an activity which puts up labor costs. Every time a |
trade union unnecessarily causes work to be stopped or
t
slowed down, then that trade union is pushing up costs,
i
which, in turn, pushes up prices. It is therefore j
obvious that the cooperation of trade unions and workers !
and management is one of the conditions of improving
t
the economy. ;
8. Inefficiency of management.
Another factor contributing to Britain's problems ;
7 3 :
is the lack of efficient industrial management. For [
!
Britain to achieve rapid economic growth, it is necessary j
I I
i to utilize all the factors of production efficiently.
The role of management in this regard is very important.
15 4_
In Britain, management was for the most part slow '
i
in coming to terms with the new social temper. For many I
j
firms, industrial relations was not a major preoccupation j
of management until trouble came. It is also a fact that !
i
the presence of innovative and efficient management in
positions of authority will confer on the economy a readi-
'
; ness to change, to reallocate resources as technology and ;
i !
markets alter. So, it has been suggested that more train-;
ing of management is a necessary condition of improve- ;
i
74
ment of the British economy.
9. British overseas investment. i
---------------------------------------------------------------- i
Britain has a traditional tendency, partly as a ■
i
I
result of the well-developed institutions of the city of !
London, to invest her capital overseas, particularly in [
the Commonwealth rather than in Britain. Britain has !
i
continued to play the role of banker to the world, bor- !
rowing short and lending long, even when the domestic
resources that once supported this lending have disap- j
t
peared. j
! i
j This foreign investment has occurred at the |
expense of home investment, with the result that British |
I
industry has been left outmoded and uncompetitive. ;
i
Table 4-13 compares British investment and earn- J
; ings since 1963, and shows that since 1968 net outflow j
I ;
! has been more than earnings and, in fact, Britain has not
155
156
Table 4-13
British Investments and Earnings Abroad
(In millions of pounds)
1963 1964 1965 1966 1967 1968 1969 1970 1971 1972
UK private
long-term
capital (-)
Interest,
profits,
dividends (+)
Balance
Source: The Hudson Institute Europe, The United Kingdom in 1980 (New York:
John Wiley & Sons, 1974), p. 37.
320 399 368 303 456 727 679 772 875 1472
531 512 569 546 551 571 831 756 669 632
211 113 201 243 95 186 149 -17 206 849
1973
1382
»
1290
92
been profiting from its foreign investments. So, Britain
has been sending money abroad which could have been used
more effectively at home whereby a newly efficient
British industry could earn much more.
1
This has been a brief discussion of factors con-
i tributing to economic problems of Britain.
i
i
Conclusion
The arguments in previous sections support the
view that Britain's problems range from purely economic !
|
phenomena to her past historical role in the world econ-
i
omy, and that the contention that the British policies j
t
i and institutions to promote equality and social welfare j
have been the main cause of the problem is at the very
!
least "not proved."
NOTES FOR CHAPTER IV j
|
■*"Allen G. Gruchy, Comparative Economic Systems '
(Boston: Houghton Mifflin Company, 1966), pT 457. j
i
2 !
A.R. Prest and D.J. Coppock, The UK Economy/ A j
Manual of Applied Economics (London: Weidenfeld and
Nicolson, 1972), p. 76.
^R. Kelf-Cohen, British Nationalization 1945-1973
(New York: St. Martin's Press, 1973), pp. 37, 67.
4
Sidney Pollard, The Development of the British
Economy 1914-1967 (New York: St. Martin's Press, 1969),
pp. 348-351.
5
Gruchy, Comparative Economic Systems, p. 571.
6
Martin Schnitzer, Income Distribution (New York:
Praeger Publishers, 1974), p. 170.
7
Central Office of Information, The New British
System of Taxation (London: Her Majesty's Stationery
Office, 1973) .
g
Schnitzer, Income Distribution, p. 173.
9
Gunner Myrdal, Asian Drama, vol. 2 (New York:
Pantheon, 1968), p. 745.
"^This brief summary has been drawn on from Jean
Marchal and Bernard Ducros, "Introduction," in The Dis
tribution of National Income (New York: St. Martin's
Press, 1968).
^ .A . Lewis, Development Planning; The Essentials
of Economic Policy (New York: Harper & Row, 1966), p. 93.
12
N.H. Leff, "Marginal Savings Rates in the Devel
opment Process: The Brazilian Experience," Economic
Journal, Sept., 1968, p. 617.
158
13
J.E. Meade, Efficiency, Equality, and the
Ownership of Property (Cambridge, Mass.: Harvard
University Press, 1965), p. 14.
14 I
J.M. Keynes, The General Theory of Employment, ;
Interest and Money (London: Macmillan, 1973) , p ~ . 373. j
15
Jean Robinson and J. Eatwell, An Introduction to
Modern Economics (Maidenhead: ’McGraw-Hill, 197 3).
i
I 1 C
j J.A. Kregel, The Reconstruction of Political
Economy (New York: John Wiley & Sons, 1973), p. 76.
17
V.K.R.V. Rao, "Redistribution of Income and
Economic Growth in Underdeveloped Countries," in Income
and Wealth: Series X, edited by Cobin Clark and Geer
Stubel (London: Bowes & Bowes Publishers, 1964), p. 312.
18
Ian Bowen and B.J. Svikhart, eds., Redistribu-
tion With Growth (London: Oxford University Press, 1974)
p. 111.
19
Myrdal, Asian Drama, p. 7 45.
20Ibid., p. 747.
21
Rao, Income and Wealth, p. 309.
22 . .
The British Economy, Issued by Great Britain
Central Office of Information, Reference Division, 1967,
p. 9.
23
National Income Blue Book 1971 (London: Her
Majesty's Stationery Office, 1971), table 16.
24 .
Walford Johnsons et al., A Short Economic and
Social History of Twentieth Century Britain (London:
Allen & Unwin, 1967), p. 135.
25
James M. Livingston, The British Economy in j
Theory and Practice (New York: St. Martin's Press, T974),j
pp. 93-100. !
159
26E.S. Kirschen, ed., Economic Policies Compared:
West and East, vol. 2 (Amsterdam: North Holland Publish
ing Co., 1975), p. 15.
27
Prest and Coppock, The UK Economy, p. 99.
33Ibid. , p. 99.
29
M. St. J. Parker and D.J. Reid, The British
Revolution 1750-1970, A Social and Economic History
(London: Blandford Press, 1972), pp. 322-323.
30
Jeremy Bray, Decisions m Government (London:
Victor Gollancz, 1970), p. 20.
3^Ibid. , p. 20.
32
Prest and Coppock, The UK Economy, pp. 112-117. j
33 I
Britain 1975, An Official Handbook (London: j
Her Majesty's Stationery Office, 1975), pp. 383-385. |
34Ibid., p. 385. ;
The British Economy; Key Statistics, 1909-1970 J
(London: published for the London and Cambridge Economic I
Services by Times Newspapers, 1971),p.2. 1
I
3 6 '
A. Maddison, Economic Growth in the West, ;
Comparative Experience in Europe and North America, I
A Twentieth Century Fund Study (New York: Twentieth
Century Fund, 1964),p . 28.
37 •
The Hudson Institute Europe, The United Kingdom
in 1980 (New York: John Wiley & Sons, 1974), p. 8.
3 8 '
Edward F. Denison, Why Growth Rates Differ 1
(Washington: Brookings Institution, 1967), p. 17.
39Ibid., p. 191.
4 0
Ibid., p. 293.
160
41
Phillip A. Klein, The Management of Market-
Oriented Economics: A Comparative Perspective (Belmont,
CA: Wadsworth Publishing Company, 1973), pp. 134-136.
4 2
Ibid., p. 193.
43Ibid., p. 193.
44
P. Einzig, Decline and Fall? Britain's Crisis
in the Sixties (London: Macmillan and Co., 1969).
43Ibid., p. 77.
46
Ibid., p. 81.
4^Ibid., pp. 30, 79.
4 8 I
E.H. Phelps Brown, "The Dispersive Revolution,"
in Crisis 75? (London: The Institute of Economic
Affairs, 1975), pp. 22-25. j
4 9 ^
Ibid., p. 23.
30Ibid., p. 25.
51
Andrew Shonfield, Modern Capitalism (London:
Oxford University Press, 1965), pp. 150-165. i
52 i
James E. Meade, "An Effective Social Contract," 1
in Crisis 75? (London: The Institute of Economic Affairs,!
1975), pp. 28-31. j
53 '
Ibid., pp. 29-30. j
i
p. 23.
54
Kirschen, ed., Economic Policies Compared,
55
Sir Alec Cairncross, ed., Britain's Economic
Prospects Reconsidered (Albany: State University of
New York Press, 1972).
56Ibid., p. 220.
57
L.J. Williams, Britain and the World Economy,
1919-1970 (Fontana, England: Collins Sons & Co., 1971),
pp. 167-168.
Schumpeter, Capitalism, Socialism and
Democracy, Part 2 (New York: Harper, 1950).
59
W. Hoffman, British Industry 1700-1950, trans.
by W.O. Henderson and H.W. Chalaner (London: Oxford
University Press, 1955), p. 206.
^Nicholas Kaldor, Causes of the Slow Rate of
Economic Growth of the United Kingdom (London: Cambridge
University Press, 1966), pp. 4-9.
^Ibid. , pp. 25-26.
62Ibid., p. 31.
63
United Kingdom m 1980, p. 25.
I
64 I
Gruchy, Comparative Economic Systems, p. 4 75.
^5W.H.B. Court, British Economic History 1870-
1914 (London: Cambridge University Press, 1965), p. 80. j
^G.C. Allen, The British Disease (London: The j
Institute of Economic Affairs, 1976), p. 26. ;
i
6 7
R.E. Caves and Associates, Britain's Economic
Prospects (Washington: The Brookings Institution, 1968) ,
p. 272. |
6 8 ^
Christie Davies, Incentive to Invest (London: j
Conservative Political Center, 1972), p. 32. i
69
OECD Food Consumption Statistics 1955-1971
(Paris: Organization for Economic Cooperation and j
Development, 1971),p . 52. I
i
70 . '
G.M. Carter and J.H. Herz, Major Foreign Powers j
(New York: Harcourt, Brace & World, 1967), p. 24.
162
71
Michael Shanks, "Is Britian Viable?" in Fabian
Tract 378 (London: Fabian Society, 1967), p. 4.
72
Gerald A. Dorfman, Wage Politics in Britain
1945-1967 (Ames, Iowa: Iowa State University Press.
1973), p. 4.
73
D.M.S. Blackett, Technology, Industry and
Economic Growth (London: The Camelot Press, for the
University of Southampton, 1966), p. 17.
74
Allen, The British Disease, p. 75.
CHAPTER V j
I
DEMOCRATIC SOCIALISM IN ACTION,
THE CASE OF SWEDEN
I
I
The economic system of Sweden has been called the !
"middle way" by Marquis Childs.^- This term, when it was j
i
first used in the 1930's, referred to a sort of middle- j
ground approach between the economic structure of American
capitalism and Russian Communism. The goal of Swedish (
i
policy during the 193 0's was to modify the excesses of
!
capitalism while avoiding outright socialization of the I
agents of production. I
There is no accepted and well-established theory !
[
of democratic socialization in Sweden. Instead, the
characteristic of Swedish economy is its highly practical
and pragmatic nature. They try to solve their problems
in a practical spirit, not guided so much by utopian
schemes, as by the old maxim that "politics is the art of
the possible." j
The system has also been called "functional
2
socialism," which means that certain equity goals of
socialism, such as a more equitable distribution of income,
have been realized without recourse to formal
nationalization of the means of production. Instead, j
t
I
there has been a selective socialization of some of the j
1
more important functions within a totality of private !
ownership.
| Today, in Sweden, a system of social insurance
j has evolved which, if nothing more, has at least resolved
the most perplexing problems of security for the great j
majority. Sweden now has schemes to guard against the
financial consequences of old age, ill health, and unem-
1
ployment. The Swedish labor market has become thoroughly J
organized, with unions representing not only manual j
workers, but also salaried employees and professional j
workers. Collective bargaining is conducted with refer
ence to all categories of employees, including those on
the payrolls of central and local government. Sweden
!
has become the prototype of the welfare state organized !
i
from the top to the bottom. i
Comparisons have shown that Sweden has the highest'
per capita income in Europe. The growth rate has been j
steady for a long time without any marked recessions or !
i
depressions.
I
What is more, the distribution of this level of i
I
!
living is more equal than possibly anywhere else. This j
i
is an achievement which is considered even more important i
than a very high average standard of living.
165
In this chapter, we will evaluate Swedish labor
market policy, her policy of peace, agreements and com
promises, and her social welfare programs. We will show
that Sweden has been able to develop a system which has
resolved the problems of unemployment, poverty, and
income inequality which have affected western civiliza
tion during this century. We will also show that the
above-named goals have not been an obstacle to her eco
nomic growth, and that at the same time, she has been
able to sustain a steady and moderate rate of growth.
The Socialist Movement in Sweden
The democratic socialist movement came to Sweden
3 . . .
in 1881 under the inspiration of August Palm, a tailor
who had become dedicated to socialist ideals during sev
eral years in Germany and Denmark. A few years later
the leadership of the movement was taken over by Hjalmar
Brunting, who was the author of the first program of the
Social Democratic Party.
By 1917, the social democrats had become the
largest party in the Swedish parliament, a position they
have held most of the time ever since. The Swedish
4
government of 1920 was the first socialist government
in the world to come to power by democratic means.
It was not until the 188 0s that the trade union
movement began to exert itself, mainly due to the fact
5 !
that industrialization came late to Sweden. During the
i
1880s, several trade unions were formed, mainly in the j
southern part where the influence of the Danish trade
union movement was felt, and in central Sweden around
the Stockholm region.
The Major organization in the Swedish movement
is the Confederation of Trade Unions (Landsorganisalionen,j
or LO), which is the largest, and represents memberships j
i
of forty-four affiliated national unions. Membership is |
mainly in the wage earner category, but some salaried j
employees are also included. Today, one out of every
five Swedes is a member of this major labor union, or
LO. 6 I
Salaried workers in both private and public
sectors are represented by the Central Organization of
Salaried Employees (Tjanstemannens Centralorganisation,
t
or TCO).7 |
The employers are represented by the Swedish
Employer's Federation (Svenska Arbetsgivareforeningen, |
i
or SAF) and other small organizations. The major one is |
i SAF. In practice its policies strongly influence the
other groups which cooperate with the SAF through common j
committees. Dating back to 1902, the SAF was formed j
i
with "explicit recognition of the fact that trade unions |
had come to stay and could not be repressed by employer 1
measures to prevent workers combining."*5
167
By 1906, the LO and SAF had signed an agreement
i
recognizing the right of employees to organize and the !
right of management to be sole judge of the demand for '
I
labor. Several acts were passed recognizing the rights
of each side by government. Included was the Mediation
j Act of 1906 and the Collective Contracts Act of 1928
i ;
I which included a Labor Court. This Court has the power I
I I
to enforce collective contracts once they have been signed|
by the parties concerned. The Labor Court has a special !
function:
It is not at all concerned to adjust dif
ferences of opinion, to compromise or
conciliate, but to adjudicate on what col- j
lective contracts mean . . . when disputes
about them arise.9 :
There is no appeal from its decision.
Although the LO and SAF held discussions for
I
many years, the formal or "Basic Agreement" was reached 1
10 •
xn 1938. Before this Agreement, negotiations with i
employers were carried on in a fairly decentralized j
|
fashion with each main sector of the labor union negotiat-j
ing for itself. The Central Labor Organization's office i
had limited powers and did not negotiate directly with
the employer's association. i
According to "Basic Agreement" the Labor Market
Council was set up to centralize the discussions between
i
the LO and SAF. Also, part of the Basic Agreement was !
168
the provision for a peaceful method of settling disputes [
i
involving termination of contracts, employment, and lay- ■
I
offs; use of economic sanction, protection of neutral
third parties, and essential public services.
Today, in Sweden, wages are set in central nego-
: tiations by the two main organizations, often covering a j
! period of two or even three years. The agreements ;
I ;
achieved in this process are legally binding to the
I
parties. All conflicts arising from the agreements must
'
be decided upon in a peaceful manner through arbitration
or by a special labor court.
I
|
In the central bargaining process, the government !
assists by providing statistical information along with |
information about what monetary and fiscal policy will be
doing during the upcoming period. It is characteristic
i
of all negotiations in Sweden that the mainspring of ,
i
debate and agreement is a knowledge of economic facts, ;
used not only to justify wage demands, but also to test J
these demands in terms of what they mean to the industry |
and to the economy as a whole. "Bargaining in Sweden is 1
largely a matter of conditioning public expectations."'^
After the national agreement has been reached,
each member union then negotiates an industry contract.
The central agreement provides recommendations to the
i unions and employers associations to be used in their
169
negotiations for the renewal of agreements at the
industry-wide level. It also gives recommendations on j
the overall rise in wages. But it leaves to the indi- !
I
vidual industries, unions and management the task of dis- |
j
tributing this rise to different categories of workers. j
i It is commonly ascertained in some of the capital-j
i 1
1 i
1
i ist countries that the reason for trouble in the economy
j
j is due to the labor unions being too strong. In Sweden,
however, there is no such problem, even though the unions j
are very strong and powerful. This is largely because
of the total organization of the labor market. No part J
i
of the labor union movement is allowed by the other parts ]
of the organization to behave in an irresponsible way. j
Thus* the labor movement as a whole has generally acted
very peacefully and has gained great benefits for all
t
members. !
i
i
There is no question that labor unions possess a
i
closer working relationship with the Swedish government
than management. But this does not necessarily mean that j
\
the Social Democratic party is completely beholden to ■
i
the unions. It does mean that at least it is generally j
receptive to policies which the unions advance. In par- j
i
ticular, the LO federation has supported the full- !
i
employment and social welfare policies of the party. i
Full employment has always been an objective of the j
170
highest order for the trade union movement. This is so
because of the economic security and the opportunities
for consumption associated with a high level of employ
ment.
However, in all fairness, it should be said that
capitalists and managements in Sweden have been the main
dynamic driving agents towards the excellent growth in
Sweden. The capitalists have been greatly helped by the
peaceful and well-organized labor union group. But the
labor movement has been more active in dividing the gross
national product than in making it grow. Growth has
been regarded as the function of the leaders and entre
preneurs in the private sector. We should not forget
that even Marx and Engels, in The Communist Manifesto,
highly praised the capitalist system as a marvelous
engine for spurring growth in society during a specific
stage of economic development.
Government Ownership
Demands for government ownership were struck out
of the Social Democratic Party program some time ago.
"Democratic Socialism" the program reads, "wants to test,
in each individual case, the forms of ownership, business
and development that best serve material growth and human
welfare." It urges "competition between different
i
171
companies and kinds of companies" and the combating of
trends towards bureaucracy in "privately and co- j
12 I
operatively owned companies." I
The fact is that over the years Sweden's social
j democrats have come to feel more and more that government
! ownership is not the most efficient means of controlling '
i
the economic life of the nation. The discussion has ;
become less and less a matter of whether government j
should own more companies, but rather what tools provide
government with the power to influence and direct busi
ness. That government should have access to such tools
is also accepted by many non-socialists and anti- J
socialists. Disagreement arises over the utilization and j
power of the tools.
True enough, the Social Democrats have national-
ized very little of Swedish business and industry during [
their years of almost uninterrupted rule. The threats i
I
of nationalization, however, have been mumbled more or |
j
less loudly at various times, usually when Social Demo- \
i
i
crats have believed that certain sectors of industry have |
!
been making undue profits and exploiting citizens or
|
when fears of recessions have been pronounced. In sev- j
eral important cases, the cooperative movement has either j
alone, or jointly with the Federation of Labor, stepped |
in instead. At the end of World War II, the Social 1
i
172
Democrats, guided by Ernest Wigforss, then Minister of
Finance, and Gunnar Myrdal, then Minister of Commerce,
proposed to nationalize the oil industry and private !
i
i
insurance companies. When one of the most outspoken J
| opponents of nationalization turned out to be Abbin
( Johansson, then director of the cooperative movement,
I the Social Democrats soft-pedaled the issue. Johansson, I
I
a confirmed believer that a free economy best serves the '
interests of consumers, urged the gas and oil buyers
throughout the country to band together with the cooper
ative societies and establish the Swedish Consumer
I
I
Cooperative Oil Company, known as OK, which sells heavy :
oil directly to customers and gasoline through the Car ;
Owners' Purchasing Association. OK has played a signif
icant part in keeping down gas prices in Sweden.
The Social Democratic party of Sweden has never I
considered nationalization to be of great importance. |
They have maintained the goals of socialism, but have !
chosen the means to realize them in a more sophisticated i
i
i
way than by socializing all the means of production. !
There has not been a total socialization of ownership |
j
in Sweden. Rather, there has been a selective socializa- I
i
i
tion of some of the most important functions inside the
I
totality of ownership. ^
Gunnar Adler-Karlson, writing in the late sixties j
(functional Socialism, 1969), described the Swedish way |
173
of Socialism as embodying the following elements:
i
a. Belief in the balance of power. |
I
b. Dislike of violent solutions to social
(
problems.
j c. Pragmatic approach to the problems of economy.
13
j d. Functional socialism.
i
i
] Karlson noted that the Swedish government is
i
j consciously trying to keep as balanced a system of power
i •
as possible. And this has been accomplished through the !
I
I
Social Democratic Party and a very strong labor movement j
which together have been able to balance out the power i
i . ;
of the rich top hierarchy in the society.
In Sweden, the belief in the necessity of revo
lution was never widespread and they couldn't believe
I
that a heavy price in human life accompanied by a revo-
i
lution can be justified.
(
Pragmatism is the third characteristic noted by
Adler-Karlson. In building a mixed economy in Sweden,
pragmatism (or compromise within the existing economic
i
structure) has taken precedence over ideology. As we
know, there are very basic ideological differences i
between how the two extreme systems, capitalism and com- I
munism, look' upon the free market mechanism. The capital--
i
ists, in the tradition of Adam Smith's Wealth of Nations,
believe that free competition will lead to harmonious
174
solutions to economic problems. The Communists, on the ;
other hand, believe that there is no such harmony what-
!
i
soever in the free market system. :
The Swedish socialists, however, have taken a
j middle position. They believe that there is neither a
I
j total conflict nor a perfect harmony between the differ-
I ent classes of the society. That is, although the j
i
I Swedish economy is predominantly operated by private j
i
enterprise under free market conditions, the government j
I
is the ultimate coordinator of economic activity. Swedes j
i . . . '
believe that attaining social and economic goals such as
social justice, growth, and stability, cannot be done i
f
without a certain cooperation between workers and the j
owners of the means of production.
Karlson also notes that Swedish socialists have
i
come to regard ownership as a bundle of discrete func-
I
tions, rather than as one of concrete reality. "Func- j
tional Socialism," he argues, "is more practical and more j
relevant than the sterile dogmatic theorising . . . of
14
formal socialization." Osten Unden, a brilliant 1
!
<
Swedish socialist and lawyer, was the one to show that j
ownership is a concept embodying different ownership j
functions, which can easily be separated from each other.
Therefore, it should be possible to socialize some of the
i !
most important functions of ownership, instead of total \
175
socialization. For instance, a homeowner may rent out a ,
I
house, but he cannot charge any rent he likes, because |
rents are partially controlled by the state. 1
A basic characteristic of the Social Democrats
| and the labor movement in Sweden is that they have not
been doctrinaire • in their choice of methods. They
! I
believe that results are what counts. ;
The government owns 6 percent of Swedish industry.!
I
i
The growth rate of the government sector has lagged when :
I
compared to private enterprise, which owns 90 percent of
15
industry. Cooperatives own about 4 percent. Govern-
I
ment ownership is primarily limited to a few special
sectors, such as public utilities, iron ore, mining and
transportation. The state operates the postal service,
|
telegraph, telephone, nearly all the railroads, many of
I
the buses, and is the largest single shareholder in ■
i
Linjeflyg, the domestic airline. It also owns varying :
quantities of the nation's four main natural resources:
iron ore, forests, water power, and atomic energy. The
state for a long time has also had two important monop- '
olies: the sale of alcoholic beverages and the sale of j
i
tobacco. Both of these products are used as important |
means of taxation. The following table shows the distri
bution of ownership in some of the important branches of
i
; business in Sweden. ‘
Table 5-1
Type of Industry
Share of Ownership in Some Major Branches
of Business
Others
Of Which
Central Consumer More than 99%
Government Cooperatives Are Private Total
Mining 82
Metal & Engineering 5
Stone, clay & glass 1
Timber, pulp & paper 3
Printing 2
Food manufacturing 4
Textile & clothing 0
Leather, furs & rubber 0
Chemicals 3
Total Manufacturing.
Industry 5
Commercial Banks 8
0
1
1
3
1
34
1
5
1
4
0
18
94
98
94
97
62
99
95
96
91
92
100
100
100
100
100
100
100
100
100
100
100
Source: Larry Hufford, "Sweden: The Myth of Socialism," Young i
Fabian Pamphlet 33 (London: Fabian Society, 1973), p. 34. j
The Role and Power of Government
The government has much greater influence over the
Swedish economy than can be seen from the figures of owner
ship.
177
Since 1945, the public sector has developed much
i
I
more rapidly than the private sector, and it now accounts j
i
for around a third of all domestic economic activity. j
I
The Swedish government provides certain basic economic
functions, notably, coordinating economic policy and
; determining some of the boundaries or rules to which busi-
i
! i
; ness firms must pay attention in their own decision- |
! I
I
making. The Swedish government participates directly in J
the life of the economy not only through its various
agencies and enterprises, but also through the redistri- j
I
bution of income by means of taxation and transfer payments.1
»
In any discussion of the economic significance of j
i
public activity, it is not the absolute level of public
expenditures that is important, but their level relative '
to other major expenditure components, such as consumption
>
i
and investment. The economic significance of the public
I
sector as a supplier of social goods can be determined
!
by computing government expenditures for goods and ser- ,
vices as a percentage of gross national product. This !
i
j will show what proportion of the total output is being i
i ;
absorbed by public bodies to be utilized for the satis- I
I
faction of social wants. The share of the public sector j
i
has increased during the period since the end of World
War II. The public sector is more important on the
"demand side"; public consumption and investment accounted
for about 20 percent of the GNP in 1950, and had increased j
to 30 percent in 1970.^ j
Another measure of the participation of the public
sector in the Swedish economy is the extent to which
income plans are affected by taxation. No other Western
i
I
j country diverts a greater percentage of its gross national
iproduct from the private to the public sector than does
Sweden. Table 5-2 shows that Sweden has had the highest ;
ratio of taxes to gross national product in the period of j
17
1968-197 0 than other industrialized nations. |
In fact, the taxation system has been used as a j
I
means of indirect socialization. The personal income tax |
has been very progressive, thus contributing to the
creation of greater equality in income after taxes. The
Table 5-2 j
I
Ratio of Taxes (a) to the Gross National Product,
1968- 1970 (in percent)
Sweden 43.0 Finland 32. 8
Netherlands 39. 7 Luxemburg 32.4
Denmark 38.7 Canada 30. 2
Norway 38 .4 Italy 30.1
United Kingdom 36.6 Eire 29.8
France 36.3 United States 27. 9
Austria 35.8 Australia 24.4
Germany (FR) 34.0 Switzerland 21.5
Belgium 33.8 Japan 19. 4
(a) Including social security contributions.
Source: E.S. Kirschen, ed., Economic Politics Com- i
pared; West and East (Amsterdam: North
Holland Publishing Company, 1966), p. 314.
taxes on income and profits have, moreover, been so !
i
devised that it has been profitable for private owners to
reinvest them in business. According to Swedish tax laws, '
it is possible for corporations to consider up to 40 per
cent of their pre-tax income as a tax-free investment
reserve and put it in a blocked account with the Bank of
Sweden. The Swedish Labor Market Board controls the use I
I
of these investment reserves. When the economic activ-
i
I
ities are down, a business enterprise, with the permission j
of the Board will be able to use part or all of its j
blocked investment reserve for investment purposes in the j
areas of construction of buildings or purchase of machin- j
X8 i
ery and equipment as they are needed. In this way, the |
tax system has stimulated the owners of industry to expand,,
and thus to provide more employment and better produc
tivity.
Total public sector incomes— in the form of taxes, j
]
social security fees, etc.— account for about 51 percent ;
19 !
of GNP (in 1971). Therefore, whereas nationalization
of the means of production is rather small, the degree of I
I
"nationalization" of income in Sweden is very large. j
i
The increased importance of the public sector in
income formation also implies an increased public role for
saving and credit supply. The public sector— including
the semi-public pension fund— in the early 70s, accounts
I
j
180
for about 4 3% of gross savings and 4 0 percent of the supply!
i
of credit in the organized credit market. However, in the j
total banking sector, including the postal bank and sav- '
ing banks, the public sector accounts for 22 percent of !
20
i the stock of assets.
There are two major types of activities of Swedish
government. One activity of the government is the pro
vision of a broad array of goods and services to its citi
zens, including expenditures on roads, police protection,
i
and education. I
i
The other activity of government is redistribution 1
of income by the use of transfer payments, generally with |
ithe dual objectives of greater income equality and the i
provision of some minimum standard of living for everyone.
I
Transfer payments, which should be distinguished 1
from government expenditures on goods and services, and j
involve only the transfer of income from one group to '
1
another with no equivalent value in terms of goods and 1
services, include family allowances, old-age pensions, !
maternity grants, and unemployment compensation. i
Social Welfare Programs
. ^
j
In Sweden neither the politicians nor the citizens j
i
any longer argue the basic questions of the government's J
role in providing social insurance and health and welfare i
programs. !
1
181
The Swedish government has assumed increasing ,
i
responsibility for maintaining the incomes of those per
sons who do not have the ability to earn an adequate
income through their own efforts. People beyond the |
working age, the disabled, the involuntarily unemployed, J
I
dependent children and their families, and other people ,
I with little or no incomes have received increasing amounts
t
| !
j of social insurance and public assistance. j
The Swedish welfare program has certain definite J
characteristics: it is not reserved exclusively for the i
I
needy, but benefits are available to all as a right of !
citizenship; it is not offered as charity, so that there
t
is no stigma attached to it; and it covers a span from j
i
] the prenatal period when an expectant mother becomes j
' ■ I
entitled to certain benefits, to the grave, when the state
I
j helps with the funeral expenses, if necessary.
I 1
The welfare program in Sweden aims to maintain a
certain minimum standard of living, or what Mr. Moller,
who personally promoted much of the legislation for social '
i
benefits during his two decades as Minister of Social {
21 *
Welfare, calls, "a simple and decent" living.
I
The welfare program has developed mainly over the
past four decades since the world depression hit Sweden
j in the early thirties, so that it has been a fair-weather !
i program and has never been put to a severe test; however, !
Swedish economists believe that it is well adapted to
meet hard times. They contend that this type of spend- |
I
ing, to which most governments resort only in times of
depression, is a guarantee of some stability, since it
provides a steady income for the old-age group and some
continuing help for children, no matter what the economic
plight of the country might be. There could be no cut in
these benefits except when there is a lowering in the |
cost-of-living index to which they are tied.
The Swedish system of income maintenance is far
superior to the American system; also far more costly.
Its superiority is reflected in the provision of free
medical care for everyone, regardless of income. Old-age i
pensions in Sweden afford the aged many more benefits
and a higher living standard than their counterparts in
i
the United States. |
i
The Government's immediate problem is to meet j
I
the increasing welfare costs. Political leaders of all i
shades are agreed that the saturation point has been |
I
reached as far as direct taxes are concerned. A Govern- 1
ment committee has reached the same conclusion; since !
the state had to find new sources of revenue, it has i
turned to indirect taxation on liquor and tobacco, both
!
government monopolies, which together provide about half j
the government's expenditure in social welfare.
183
The welfare program, being the most expensive
item in the Swedish budget, has expenditures which even j
exceed the arms program, designed to protect Sweden's *
security and neutrality. Welfare expenditures account
for a third of all government, municipal, and county
22
expenditures.
i
Let us now examine some of these welfare programs i
i
I
in Sweden:
t
I
Housing |
Sweden has set an example in modern housing for j
I
low income groups, which provides a high standard for the :
people. There are no slums; and even the poorer and older!
|
housing, marked for destruction, has nothing in common :
with slums. The new housings are coordinated with plan- j
ning schemes which emphasize landscaping, light, airiness,
and simplicity of style.
The Government controls the building situation. !
I
By means of a double licensing system, it decides who !
I
may build and where and when. One license is needed to !
build in conformity with the town planning, and the other '
to obtain labor and start the work. The Government pro- !
vides loans at extremely low rates, in some cases up to
the full amount of the building cost, to municipalities,
cooperatives, and to private individuals, particularly in
the low-income groups. .
j
184
About 90 percent of all dwelling units are built
i
with Government assistance in the form of loans and sub- I
23
sidies. The Government first came to control the hous
ing situation as an emergency wartime measure, but this
i has been maintained ever since by yearly extensions by
i
i
Parliament. It became necessary during the war for the
Government to allocate building materials which were in ,
I
short supply and to direct labor into the channels where ;
it was most needed. In the immediate postwar years,
labor was diverted mainly to export industries to bolster
Sweden's diminishing gold reserves. Now, with the finan
cial situation improved, the Government continues its ;
control for the double purpose of checking inflation and :
i
leveling out the supply of labor.
t
Compulsory Health Insurance :
Ever since it came to power, the Social Democratici
i
Party had promised compulsory health insurance, but it !
was bitterly opposed by doctors. The Government was com
pelled to move slowly because of the tremendous cost
! involved, which became the more apparent from the British .
I
example. ,
In 1931, the government gave grants to regional I
i
and local health insurance offices, which later devel
oped into a voluntary health insurance plan that covered
! about 7 0 percent of the population. But the compulsory
health insurance plan, which went into effect in 1955, |
24 i
marked a great change.
While the Social Democratic Party has taken I
i
credit for most of the welfare projects, the other parties
have generally gone along with them and have even com
peted in claiming authorship. The new compulsory health
i
i
insurance replaced a voluntary government-subsidized
insurance, which provided very low cost hospitalization I
I
and a refund of two-thirds of medical expenses.
The new system falls into two parts. Every
Swedish citizen is insured and entitled to free hospital- !
I
ization and a refund of three-quarters of his medical
25
expenses if treated by private practitioners.
On the other hand, the plan departed from the
earlier universality principle by making up for some of
the patient's loss of income. j
Accident insurance fits into the framework of j
I
the health insurance. A worker injured in the course of |
I
his occupation is entitled to the regular benefits of 1
the health insurance for the first three months of sick- !
i
ness or incapacity, after which the accident insurance
benefits come into force and provide invalidity pensions. I
I
The Swedish health system allows both doctors |
' ]
and patients much greater freedom than the British. !
i Whereas in England a patient has no choice of doctor, but i
186
is included in a panel of patients, a Swede may choose
!
his own hospital provided it is within the municipality j
i
where he pays his taxes, and may select what hospital !
t
clinic he will visit. Once in the hospital, however, he j
I
must accept whatever medical or surgical care is available
unless he is a private patient. He may call on any pri-
! vate doctor of his own choice and still be entitled to
i
I
the medical refund of a certain amount.
Close to 90 percent of all doctors in Sweden are j
employed in some way by the Medical Board, the municipal- !
t
ities, or the county councils, but most of them maintain
their own private practice, which provides their main j
!
source of income. Swedish doctors are unanimously j
opposed to the British system of limiting doctors to gov-
f
ernment fee.
The other essential difference between the
British and Swedish systems concerns cash benefits dur-
i
i ing sickness. The British system provides a uniform rate, !
whereas the Swedish plan is based on income. This has J
been a hotly debated subject in Sweden for years between ^
those who considered the flat rate the more democratic
way and those who felt that the cash benefit should com
pensate a wage earner for his loss of income during ill
ness and help him maintain his customary standard of liv- j
ing. The argument was settled in favor of the wage basis
J mainly because it was found to be much cheaper for the \
government, since it is able to collect higher insurance
rates. It was also easier to coordinate the health
insurance with the accident insurance, which was on the !
i wage scale.
|
Family Allowances
It is a fact that low-income families have more \
children in comparison to high-income families, and this
is obviously a factor in reducing the margin of economic
security in low-income families. To prevent this from j
happening, family allowances,, which are regular cash
i
payments to families with children, have been established.■
Therefore, the family allowances program is a means of
] redistributing income to benefit the child-rearing por- j
tion of society,
j These allowances are financed from general gov-
j ernraent revenue, and, unlike most countries with family
I
allowances, Sweden does not exclude the first child from <
receiving assistance. i
i Among other social welfare expenditures, we can i
I
name pensions, which were first developed in the j
I
Scandinavian countries as a means of giving financial |
I
aid to the aged who were without financial means to sup- j
port themselves. In more recent years old age pension '
i
! schemes have been altered to provide a national pension ;
188
or basic sum to all individuals over 67 years of age in
Sweden. The annual minimum basic sums are small but are j
supplemented in a number of ways fay grants from the j
municipalities. Supplementary pension benefits are J
t
granted for children under 18, for higher cost of living
in urban areas, rent rebates, and home nursing services,
26
if necessary. ;
Education Policy
The first major step in the education revolution,
I
much inspired by American education, started with the '
Swedish Education Commission of 1940, which recommended
the establishment of nine-year comprehensives. The fail- ;
ure of the education authorities at the time, however, '
to agree on a syllabus and an administrative structure, !
led to the formation of a number of experimental schools j
empowered to engage in continuous change and adjustment
to the demands of pupils and society at large. In 1957,
an educational drafting committee, set up to evaluate
the progress of the experimental schools, recommended
the establishment of a nation-wide system of comprehen
sives. Following these recommendations, the school act 1
of 1962 spelled out the individual's right to attend
school and his obligation to complete nine years of
full-time education. In 1966, a single, municipally
administered, comprehensive secondary school (gymnasium)
18.9
replaced three former types of gymnasia (general, com
mercial and technical) which had been administered by i
both central and local authorities. Now more than 90%
i
i
of the youngsters attend a nine-year comprehensive
27
school. j
Tuition is free in Sweden, but the students must j
i belong to the respective student union organization. In j
I I
fact, the universities and other schools of higher learn- I
ing are the only closed shops in the country. These
student unions are an excellent training ground for \
young people with administrative or political ambitions.
The major obstacles on the road to democratizing
education were lack of money and the psychological atti- I
I
tudes of the less well-educated groups. Studies showed
clearly that even though school was free, the overwhelm-
i >
j ing majority of students in secondary schools and at the j
universities and professional schools came from upper and
upper middle-class homes. For economic reasons, lower
middle-class and lower-class families often discouraged
their children's staying in school. They argued that
it should not be necessary to invest in further education
in a country where jobs are plentiful.
Even though the children of parents with limited
j means qualified for long-term, low-interest government
I
i
loans, many groups agitated for increased state aid. The
ultimate goal was a study program to make youths finan
cially independent of their parents, and to place higher
education on an equal footing with taking a job. At
present, all students at schools of higher learning, |
trade schools, and vocations are receiving a long
term, non-interest bearing government loan.
As a result of this comprehensive welfare pro- |
gram, there is in Sweden no destitution such as exists !
in so many other countries, and there is a high level j
of standard of living for the people. Table 5-3 shows |
the latest data on income transfers to households as a J
result of these different programs. j
i
A contention that has been frequently made |
i
during the creation of this "Social Sweden" is that
security of such broad scope would have devastating
effects on incentives to work and to save, that a !
I
large army of work-shy would sprout forth. Such |
I
forecasts have proved quite erroneous, at least up [
j
to the present time. Whatever tendencies may have man- |
ifested themselves in this direction have statistically !
been drowned in full employment, a virtually unbroken
upward curve of private savings, and tremendously I
heightened aspirations for the schooling and training that!
qualifies for more interesting and better paid jobs. The
losses that arise intermittently in the form of voluntary
Table 5-3
Income Transfers to Households 1973-1975
Million Kronor, Current Pices
1973 1974 1975
Transfer proper 10,956 12,902 14,262
of which: Child Allowances 2,361 3,038 2,700
Housing allowances 1,090 1,365 1,690
Education allowances 483 496 560
Vocational training 487 516 578
Pensions from Central
Govt. & local govt. 1,961 2,106 2,235
Other 4,574 5,381 6,499
Social security payments 20,726 29,210 33,372
Of which: National Basic Pension 11,380 13,841 15,656
National Supplementary Pension 2,943 3,884 5,021
Payments from National Health
Insurance Offices2 5,577 10,346 11,373
Payments from unemployment
benefit societies 561 785 926
Other 265 354 396
Income transfers to households 31,682 42,112 47,634
■^-Local government housing allowances to pensioners are included
in National Basic Pension.
2
Includes pharmacy discounts.
Source: Ministry of Finance and the National Institute of Economic
Research, The Swedish Economy, Revised National Budget
1975 (Stockholm: Economic Department of the Ministry of
Finance and the National Institute of Economic Research,
1975), p. 125.
unemployment, that is, from the frequent changes of jobs
and workplaces, have been small as compared with what a
drop of one or two percent in the general employment
level would entail. Since the different types of
19
I insurance compensate for only between 6 0 and 85% of lost
income, and since the insurance sums are geared to pre
vious income and, as regards supplementary pensions, the
income earned over many years, the incentive to work is
ample. Many married women, calculating the expectation
; of better health insurance and a supplementary pension,
I
j have elected to return to the labor market.
i
Finance Minister Gunnar Strang denies that
social security has lessened the inducement to work
! among the Swedish people. He contends that it is only
when people are freed from insecurity and anxiety that
they are able to assert themselves creatively. "Inde
pendence and will to work," he declares, "do not develop
t
!
j in a dependent situation and under the pressures of fear
I 2 8
| and want." On the other hand, Jarl Hjalmaroon, leader
J of the Conservative opposition party, says, "What we
I
need in Sweden is a plan for economic freedom and not
a policy to control the unfavorable consequences of
29
regulation."
But on balance, the welfare program has worked
admirably for Sweden. This does not mean that full
employment and welfare programs have eliminated all prob
lems of economic policy. Actually, they have instead
indirectly caused major difficulties in the striking of
sectoral balances in the Swedish economy. The problems
unsolved are crucial: how shall national and local
i
i
government acquire the resources to meet the new demands |
of a welfare economy? And since a large slice of the 1
cake for the public sector inevitably infringes on pri- !
j vate consumption, how can an appropriate share of j
■ resources be allocated to the community for industrial j
I
| investment?
I
These are questions that have challenged vir
tually all the modern industrial nations since World
War II. Inflationary tendencies and economic over- i
I
heating have had to be struggled with everywhere, at
least intermittently. A number of circumstances have ;
been peculiar to the Swedish development, however. One i
t
is that the social insurance schemes in use before the
i
adoption of national supplementary pensions in 1960,
t
which are entirely paid for by employer contributions, j
I
were financed less from contributions and more from taxes,
i in comparison to schemes in other countries. Conceivably,1
(
this preference for tax financing has made it politically
easier to introduce and expand the social reforms; the
costs do not show up as quickly. A second circumstance
peculiar to Sweden is that the public sector, apart from
j the transfer payments, has grown faster and accounts for i
a larger portion of the national product in Sweden than
I
in any other Western European country. Third, up to the |
mid-fifties, Sweden rigidly maintained a low interest
level, which meant that much of the national debt found
its way back to the Rikshank and thus had to be financed
by the note printing press, instead of private savings.
In order to keep interest rates down, the Rikshank had
to make supporting purchases so as to keep exchange rates
up. Fourth, a very large part of housing construction
has been financed by state loans, at the same time that
rents have been kept down both by direct price controls
and by subsidies. A perpetual inflationary gap has
thereby been created, a gap expressed in housing larger
than would have existed otherwise, as well as in a sur
plus of purchasing power aimed at other goods and ser
vices .
Government Income Redistribution Policies
Concern over the distribution of income has
played a great role in economic policy discussion in
Sweden in the period following the Second World War.
Concern over income distribution and equality has had a
strong influence on other aspects of Swedish economic
policy. One outstanding example of this, of course, is
the expansion of the system of social insurance and other
transfer payments which today account for about 20 per
cent of the GNP. Another example is the expansion of the
sector of public consumption— above all in education,
health and welfare--which today accounts for about 23
percent of the GNP.
In Sweden, the expenditure policies of govern
ment, together with taxation, have played a very impor
tant role in the redistribution of income. Since we have
I
I
■ already discussed the role and the effect of different
j
government expenditures and transfer payments, in this
section we will concentrate on the role of taxation in
the Swedish economy.
i
j Swedish income taxes redistribute income in
i
three ways. First, of course, they do so because they
are much higher on large incomes than on small ones;
this means that as the general level of income rises
I
j there is a continuous redistributionary effect. Second,
i the taxation system redistributes income toward those
|
j with more dependents, so that, generally speaking, a
1 married person is taxed more lightly than a single one.
Finally, to some extent, unearned income— income from
property of any kind— is taxed more heavily than income
from employment. For example, there is no exemption
j from either the national or local income tax or interest
on government securities. Income from property is sub
ject to both the national and local income tax, and the
property itself is subject to the national tax on wealth.
196
Table 5-4 shows the distribution of income
before and after income taxes for 1972. The data do not
include tax-free social benefits of any type. The income
concept used here is that part of Swedish income which
is subject to the Swedish income tax.
Table 5-4
A Comparison of Before Tax and After Tax
Income Distribution in Sweden
Distribution of Income Before Taxes
Single Married
Income Class Taxpayers Percent Taxpayers Percent
0-10,000 kr. 601,284 35.8 102,102 5.8
10,000-20,000 677,393 40. 3 355,519 20.1
20,000-30,000 308,633 18.4 545,341 30.9
30,000-40,000 62,689 3.7 387,226 21.9
40,000-50,000 16,455 1. 0 188,585 10.7
50,000-100,000 12,599 0.7 165,926 9.4
100,000-and over 1,595 0.1 20,231 1.2
1,680,648 100.0 1,765,030 100.0
Distribution of Income After Taxes
Single Married
Income Class Taxpayers Percent Taxpayers Percent
0-10,000 kr. 886,432 52.7 166,176 9.4
10,000-20,000 713,053 42.4 735,838 41. 7
20,000-30,000 65,262 3.9 604,834 34. 3
30,000-40,000 10,224 0.6 171,214 9.7
40,000-50,000 3,005 0.2 48,570 2.7
50,000-100,000 2,376 0.1 35,322 2.0
100,000-and over 296 0. 0 3,076 0.2
1,680,648 100.0 1,765,030 100.0
Source: Central Bureau of Statistics, Statistical Abstract of
Sweden (Stockholm: Central Bureau of Statistics, 1973),
p. 340.
197
It is apparent that inequality in the distribu- j
tion of income is reduced to some extent through income J
taxation. The reduction in the number of upper-income
]
taxpayers is particularly significant. j
I
Indirect taxes, to a certain extent, counter- j
1 i
| balance the progressivity of the income tax. Sumptuary I
I ;
| taxes on liquor and tobacco are quite high and account j
j i
for 15 percent of national tax revenue. An element of !
regression is introduced for the reason that the amount J
which a person spends on liquor or tobacco is not really !
i
dependent upon his income. In 1969, the value added tax
replaced the general sales tax, which had been used for '
a number of years. However, the economic impact Of the
value added tax is essentially the same as the general
I
retail sales tax, in that the consumer ultimately pays. ,
t
An element of regression is introduced into the tax sys- :
i
tem for the reason that the tax is a consumption-based i
I
tax which amounts to a larger part of the incomes of the 1
I
lower income groups than for higher income groups.
I
Also, extremely large sums of money are redis- ;
i
tributed to the taxpayers, partly in the form of direct
transfer payments, such as family allowances and old-age j
pensions, and partly through expenditures such as free J
| medical care and schooling (see Table 5-3) . The extent
i ]
j to which incomes are increased through transfer payments i
198
and other welfare expenditures depends on a taxpayer's
i
position on the income ladder. Since public welfare
measures are available to all, irrespective of the j
level of income, and since there is no means test for {
t
most of the direct and indirect transfer payments, it
f is hard to estimate the effect of transfer payments !
1
| as a supplement to income at various income levels.
However, it can be seen from Table 5-5 that j
households' net payments to the public sector (the I
net of direct taxes and transfers) have fallen since 1972.1
! |
The net result of factor incomes and transfers i
i
after tax, known as household disposable income, rose
17% in 1974.30 i
i
There are also some redistributional effects
in society's income caused by government interventions
i
i
in the economy. For example, the system of rent
control redistributes about 1% of national income
I
from houseowners and public authorities to tenants. !
I
Also, agricultural price regulation redistributes I
i j
i approximately about 1.5% of national income from con-
I
sumers to producers of agricultural products. !
When Sweden is compared with other Western ,
i
countries, a smaller percentage of personal income i
I
I
is concentrated in the hands of upper-income earners.
| Erik Lundberg compared before-tax-distributions of !
i I
199
Table 5-5
Household Incomes and Expenditure 1973-1975
Million
Kronor
Percentage Change From
Previous Years
Current Prices
1. Factor income*2 ^
Wages & Salaries
Other earned income
Income from capital, net
Other factor income
4
2. Income transfers to households
3. Direct taxes, fees, etc.
Of which: Prel. A-tax
4. Household net payments to
the public sector (3-2)
5
5. Disposable income
6. Private consumption
7. Savings (5—6)^
8. Savings ratio (7:5)
1968 prices
9. Disposable income
10. Private consumption
(Continued)
1973 1974 1973 1974 1975
140,397 158,847 7.5 13.1 10.5
115,889 130,517 7.7 12.6 10.6
9,620 11,445 9.1 19.0 6.3
1,589 1,830 19.9 15.2 19.1
13,299 15,055 3.2 13.2 11.7
31,682 42,112 11.8 32.9 13.1
48,608 56,458 2.9 16.1 9.7
42,180 48,556 4.2 15.1 6.2
16,926 14,346 -10.5 -15.2 -0.2
123,396 144,493 10.5 17.1 11.6
114,940 130,861 8.5 13.9 12.6
8,456 13,632 47.5 61.2 1.6
6.9 9.4 C O
• ^ J
2.55 0.8
93,809 100,846 3.9 7.5 2.3
87,310 91,159 1.9 4.4 3.5
201
Table 5-5 (Continued)
‘ ''Apart from households, the household sector includes such non-profit organiza
tions as serve the households and are not wholly or mainly financed and con
trolled by the public sector. These include the trade unions, popular educa
tion, the temperance movement, sport organizations, the associations of salaried
employees, the Red Cross, etc., and such private hospitals, children's homes,
children's holiday camps and vacation homes as do not attract state grants.
Apart from employee households, the sector includes households owning non cor
porate firms, i.e., which acquire their main income by business (independent
traders).
2
Employers contributions for social security and imputed pension contributions
of Central Government authorities, local government authorities, local govern
ment enterprises and of non-financial enterprises are not included.
3
Inc. pension from Central Government enterprises, industry and trade.
4
Inc. interest on private insurance funds (excl. casualty insurance). See note
below.
5
Inc. net casualty insurance: -75 million kronor in 1973, -8 million kronor in
1974 and 40 million kronor in 1975.
5
Inc. private insurance saving, which totaled 3 582 million kronor in 1973, 4 569
million kronor in 1974 and is forecast to 5 144 million kronor in 1975.
7
Change in percentage units
Source: Ministry of Finance and the National Institute of Economic Research, The
Swedish Economy, Revised National Budget 1975 (Stockholm: Economic
Department of the Ministry of Finance and the National Institute of
Economic Research, 1975), p. 124.
income in Holland, West Germany, the United Kingdom,
the United States and Japan. The highest 2.5% of the ;
i
I
income earners received 11% of personal income in !
Sweden compared to 27% in West Germany. His explana
tion for the more even distribution of income in
j Sweden is that wages and salaries constitute a larger
percentage of gross national product in Sweden than in ■
other c o u n t r i e s . i
There has been a rather dramatic shift in the I
i
distribution of disposable income and savings between
the three main sectors of the Swedish economy (house
holds, firms, and the public sector) during the post- i
war period. According to Table 5-6, the share for
households of total disposable income has fallen from
i
about 75% to 62%, that is, a fall of 13 percentage
points, from 1950 to 1970. Also, the share of total i
J
I
disposable income held by firms (gross savings by !
!
firms)has fallen substantially— from about 6% to about !
3.5%— by about 2.5 percentage points. !
The mirror image of the drop in the share i
i
of households and firms is, of course, the increase
in the share of public and semi-public authorities—
from about 20% of total disposable income in 1950 to
about 34.8% in 197 0— an increase of 15 percentage points.
In these calculations, public transfer payments have been
202
Table 5-6
Distribution of Disposable Income (percent of total)
1950-4 1955-9 1960-4 1965-9 1970-
Households 74.2 74.0 69. 5 64.5 61.9
Firms1 6. 0 4.0 4. 0 3.3 3.3
Public authorities 19.6) 21.4) 24.3) 27.8) 29.6)
Social insurance
119. 8 j 22.0 j 26. 5 j 32.2
)
)
institutions 0. 2) 0.6) 2.2) 4.4) 5.2)
1 I
Includes only "juridical persons," such as various types of cor
porations, private as well as public, and government public
utilities.
1 ~ ~ I
Source: Central Bureau of Statistics, National Accounts (Stockholm: :
Central Bureau of Statistics, 1972), p. 12. |
registered as disposable income for the household rather
l
than for the public sector. Disposable income of the
i public sector is defined here as public consumption,
i
; public investment and public financial saving.
i
The Private Sector
Business and industry are primarily in the hands !
of private industry. As explained earlier, nationaliza- i
tion or socialization of industry has not been a part of ,
| the program of the Social Democratic party. Most of the j
j gross national product is contributed by the private
sector of the economy, and the basic institutions of ,
capitalism, freedom of enterprise, private ownership of
property, and consumer sovereignty prevail in Sweden
I
subject to certain modifications. Nevertheless, govern
ment control is substantial as a result of fiscal, mone- j
tary, and regulatory measures of the kinds familiar in
i other highly developed industrial countries, and the
! I
Swedish government has large interests in various sectors j
of the economy. j
I
A measure of the contribution of the private j
i
sector to the Swedish economy can be obtained by compar- j
ing the amounts of private consumption and investment !
expenditures to gross national product. Using this i
I
approach from the standpoint of the national economy, j
aggregate demand is equal to the sum of consumption and .
investment expenditures, The familiar Keynesian equation
i
Y = C+ I + G can be used, where Y is equal to total out- |
I
put, C represents consumption expenditures, I represents
investment expenditures and G represents government
expenditures. However, it is possible to further divide
government expenditures into the category of consumption
and investment expenditures.
Table 5-7 represents the contribution of the <
' private sector to the Swedish gross national product for
years 1969 to 1974.
204
205
Table 5-7
Gross Domestic Product by Component
Million Kronor
1969 1970 1971 1972 1973 1974
1. Private consumption 85202 91940 97999 105928 114940 130861
2. Central government consumption 12559 13721 15697 16397 18160 20595
3. Local government consumption 18778 22382 25876 29030 32194 37939
4. Private domestic gross capital forma
tion excl. permanent residential
housing 13025 14295 15184 17294 19935 25055
5. Central government domestic gross capital
formation excl. permanent residential
housing 4443 5035 5544 6575 6876 7723
5. Local government domestic gross capital
formation excl. permanent residential
housing 7978 9419 9192 10067 9685 10600
7. Permanent residential housing, gross
capital formation 9835 9747 10259 11207 11840 11192
8. Changes in stock -2047 4821 1519 -189 -1158 5671
9. Exports of goods, f.o.b. and services 35026 41544 45082 48747 61340 80996
10. Less: Imports of goods, c.i.f. and
services 35537 42419 43111 46154 54689 83289
11. Gross domestic product at market prices 153356 170485 183232 198902 219078 247343
12. Less: Indirect taxes 18493 21498 26309 28791 32294 34046
13. Plus: Subsidies 1417 1776 1650 2010 2516 3655
14. Gross domestic product in factor values 131680 150763 158573 172121 189300 216952
Source: Ministry of Finance and the National Institute of Economic Research, The
Swedish Economy, Revised National Budget 1975 (Stockholm: Economic
Department of the Ministry of Finance and the National Institute of
Economic Research, 1975), p. 14.
In the private sector of the Swedish economy, the j
problem of resource allocation is largely solved through |
I
the mechanism of the market. In a social sense, the !
market is a device for the organization of economic activ-j
ity and its functions by transmitting consumer preferences,
i as revealed through the expenditure of income, to pro
ducers who, in the process of adjusting output to cor- j
I
respond: with these preferences, direct economic resourcesj
into various and alternative uses. j
i
Economic Growth
No society has undergone full modernization with
I
greater rapidity, tranquility, and thoroughness than |
Sweden did. In the course of a generation, from the
1890s to about the 1920s, Sweden saw the rapid and sim-
I
ultaneous development of organized liberalism and social- !
I
ism, of parliamentarianism and popular democracy, and
the transformation to an industrial society. By 1930, j
i
the Swedish economy had achieved maturity according to
i
the criteria of W.W. Rostow, that is (then) modern tech
nology had been applied to most of the society's
3 3
resources. !
I
Industrial growth in Sweden started with basi- j
cally an export-led, or export-biased, process, closely {
connected with the expansion of international demand for j
Swedish exports, mainly forest products— to begin with
timber, but later on also more refined forest products, j
such as pulp and paper. The export impulses contributed ■
to generating a sustained and regionally rather dispersed j
growth process in Sweden. One reason for this response
I
j of the Swedish economy to the export stimulus was pre-
j sumably that forestry work, as well as the production of I
j I
oats, at that time was a very labor-intensive activity,
and that it was also spread out over large areas of the
country. Thus, the character of the products themselves,
I as well as the existing economically profitable produc
tion technology, prevented the growth impulse from being j
isolated to a small geographical enclave of the country, j
as was experienced in the twentieth century by several
presently underdeveloped countries, with heavy exports
i
(
of raw materials such as minerals and oil.
The expansion of the export sector started before ■
an elaborate infrastructure, such as in transportation, !
| i
had been created. However, such an infrastructure was
developed later, particularly from the 1870s, largely on
government initiative. !
Moreover, it is quite likely that the fairly
advanced education reforms in the middle of the nine- 1
I
I
teenth century, both at the elementary level and at the I
i
more advanced levels, helped the economy to respond to
i
]
________________________________________________________________ 207
the growth impulses from abroad. Mainly owing to private
initiatives, a rather advanced banking system was also
developed as early as in the middle of the nineteenth
century.
Another favorable factor was presumably that
Sweden had very big capital imports during the early
industrialization process. The import of capital took
the form mainly of government borrowing, for the purpose
of railroad building; consequently, the domestic capital
market was to a large extent reserved for private long
term borrowing.
International factor mobility was important for
Sweden in the case of labor too. The severe underemploy
ment problem, linked to a surplus (excess supply) of
labor in agriculture, was relieved by substantial emigra
tion, mainly to the United States.
Thus, early Swedish economic growth was closely
connected with imports of capital and with exports of
commodities and labor.
It has sometimes also been suggested that a
favorable factor for the economically and socially
"favorable" development in Sweden has been that the labor
force was ethnically and perhaps also culturally fairly
homogeneous as compared with several other countries.
This factor has helped to create an atmosphere of
cooperation between different groups of employees, and
possibly also between employees and employers.
The weakest growth in Sweden has naturally been
noted during the two world wars, following the disorgan
ization of the country's economic life. In the Thirties,
. also, Sweden had a lower rate of growth in comparison to
| a long-term average. Nonetheless, it was still higher
I than that of most other countries.
A comparison of the rate of growth of different
countries since 1950 is illustrated in Table 5-8. As it
can be seen from this table, during the first half of the
Fifties, Sweden had by international comparison, a very
low growth rate (3.2%). The high growth rates in other
countries have been partly due to the existence of a
large reserve army of un-utilized labor, which could be
drawn on. However, during the second half of the Fifties,
when the production growth rate fell off in most coun
tries, Sweden succeeded in raising her growth rate.
In the first half of the Sixties, the growth
rate increased in most of the countries, but the increase
has been particularly marked in Sweden. The growth rate
of Sweden in this period has been considerably above the
levels calculated both for total OECD and for the
European OECD countries.
The period 1960-1965 offered, in part, a new
experience as compared with the preceding years. Swedish
____________________________________________209
Table 5-8
Growth of GNP 1950-65 in OECD Countries
Percent Per Annum
In Constant Prices
1950-
1955
1955-
1960
1960
1965
Belgium 4.61 2.3 4.4
Canada 4.6 3.4 5.1
Denmark 2.0 4.7 5.3
France 4.4 4.8 4.7
Italy 6.0 5.8 4.9
Netherlands 5.'7 4.2 4.6
Norway 3.6 3.2 5.1
Switzerland 4.8 4.0 5.5
United Kingdom 2.6 2.8 3.3
United States 4.3 2.3 4.2
Sweden 3.2 3.5 5.1
Austria 6.1 5.2 4.3
Germany (F.R.) 9.1 6.3 4.9
The above 13 indus
trial countries 4.6 3.2 4.3
Greece 7.0 5.4 8.1
Iceland 5.5 3.4 8.4
Ireland 2.3 1.3 4.1
Portugal 3.8 4.7 5.5
Turkey 6.3 5.1 4.7
The above 5 develop
ing countries 5.5 4.5 5.9
Total OECD, excl. Japan 4.7 3.3 4.4
EEC 6.6 5.4 4.8
EFTA 3.1 3.3 3.9
OECD Europe 5.3 4.6 4.5
U.S.A. and Canada 4.3 2.4 4.2
11953-1955.
Source: Ministry of Finance, The Swedish Economy
1966-1970 (Stockholm: Ministry of Finance,
1966), p. 10.
210
business in 1960 entered its second decade without dis
ruption from world wars or depression. Therefore,’ both j
the public and private sectors were able in the Fifties j
to concentrate their forces on planning and expansion I
!
j which was to be realized and reinforced during the Sixties(
I I
without any major external disruptions. !
i ;
J There has been a substantial change in the pro- j
| portions between the production sectors in Sweden during
the post-Second World War period. Thus, the production
of services has changed from 43 percent of GNP in 1950 to :
i
50 percent in 1970; consequently, the commodity-producing j
sectors have fallen from 57 to 50 percent of the GNP. j
The bulk of the shift is due to the expansion of the j
i
34
production of public services. i
There have also been substantial shifts between
the various other sectors; for example, the share of
agriculture fell from 5 percent of GNP to 2 percent, for- 1
estry from 3.5 to 1.7 percent. Substantial changes have
i
occurred also within the manufacturing industry, such as j
the increase in engineering from 30 percent to 42 percent,|
and the fall of textiles from 15 percent of value added j
35
in manufacturxng to 6 percent. i
All the developments are, of course, very much ;
related to developments in international markets. i
I
! One important explanation for the acceleration j
of the rate of structural change is probably that j
international competition has hardened considerably in
recent years.. In Sweden, as in several other countries, |
I
this shows up as a fall in profit margins. Among con- I
i
ceivable explanations for this development could be men
tioned not only the continuous increase in labor costs,
; including various social security fees and taxes on the
t
i
! wage sum, but also trade liberalization for commodities |
i !
i in manufacturing, a fall in transportation costs xn inter-j
national trade, and the emergence of a number of new j
exporting countries in manufacturing.
i
These tendencies have contributed to some new
I
trends in the economic policy debate in Sweden in recent J
years. One example is the demand for subsidies to j
rescue, or at least to extend the life of existing firms,
I
j as well as to create new industries in areas hit by con-
i
| \
i tracting industries; the new regional development policy !
and certain selective uses of investment funds policy
I
are cases in point. A further example is a combination \
of releases of investment funds for industry and a selec
tive investment tax of 25 percent for so-called "non-
priority sectors" (office buildings and services) in the ,
early Seventies. Thus, as compared to a subsidy of about
10 to 35 percent for some investments in manufacturing j
J
(those financed by investment funds), there has been a
tax on investment in offices, distribution, and services
212
of a magnitude of 25 percent. The motive behind this
j
policy seems mainly to have been to improve the balance j
I
i
of payments. Obviously, a certain deterioration in the !
I
efficiency of the allocation of resources, then, is a
| price to be paid for an improvement in the balance of
■ payments— as compared, for instance, with a policy of
j adjusting the exchange rate. j
The pattern of economic activity in Sweden dur- !
in the Seventies has been relatively more stable than I
in most of the other countries. After the slow-down in
| 1971, the economy picked up again during 1972. This was
helped, in 1973, by a rise in exports induced by an
I
international boom. During 1974, when the international I
i
demands slackened sharply, further growth was generated ,
I
instead by the development of domestic demand, particu-
! I
i i
j larly private consumptions and the accumulation of i
] stocks. So, during 1974, when OECD area experienced the |
! i
strongest recession and the highest unemployment since j
1
the Thirties, activity in Sweden was maintained on a
I
highly satisfactory level by means of a strong stimulus ■
O r j
to domestic demand. >
I
This alteration between an external and an
i
internal stimulus to economic growth has been a crucial ■
j element in stabilization policy. During the Fifties and
I ;
, Sixties, the Swedish economy ran the risk of generating ’
I
I i
213 1
a substantial trade deficit during each boom because >
t
demand at home tended to culminate simultaneously with |
international demand, so that exports were impeded by !
!
capacity limitations and imports were boosted. j
!
As can be seen from Table 5-9, development in j
recent years has produced a new situation in this respect I
i |
in that domestic activity has not culminated at the same i
I
time as the international activity and exports have con- I
i j
sequently benefited to the full from the latter. This ledj
I
in turn to a marked improvement in the foreign balance
during 1972 and 1973.
This policy created a favorable initial position ;
from which to tackle the strains on the Swedish economy
during 1974. During that year, the growth of exports
weakened appreciably due to a combination of capacity
i
shortages (chiefly in certain parts of the raw materials !
!
sector) and declining demand. At the same time, the j
r
[
price increases for oil products and other raw materials i
had a clearly counteractive effect on domestic demand. ^
i
Measures to stimulate this demand were taken on two i
!
occasions— December 1973, and March 1974— and coupled j
with a sharp swing for stock investments, this not only !
counteracted the downward tendencies, but actually caused
j total demand to accelerate substantially during the
; course of 1974. ;
Table 5-9
i
Change in GDP-Components as a Percentage j
of GDP the Previous Year i
1972-1976 (1968 prices) j
1972 1973 1974 1975 1976
Private Consumption 1.3 1.0 2.3 1.5 1.9
Central Government Consumption -0.1 0. 2 0.2 0.4 0.1
Local Government Consumption 0.7 0. 3 0.4 0.8 0. 5
Gross Investments in the
Business Sector 0. 6 0.8 1.1 -0.2 0.1
Central Government Gross
Investments 0.2 0.0 -0.1 0. 0 0.1
Local Government Gross Investments’ * " 0.2 -0. 5 -0. 3 -0. 0 0. 0
Dwellings, Gross Investments 0.2 -0.1 -0.4 -0.4 -0.5
Change in Stocks -0.8 -0.4 2.6 0.7 -2.3
Total Domestic Demand 2.4 1.4 5.7 2.7 0.0
Exports of Goods & Services 1.8 4.0 2.6 -2.7 2.6
Imports of Goods & Services -1.5 -1.9 -4. 2 0. 6 -0.6
Total Change in GDP 2.7 3.5 4.1 0. 6 2.0
■*"Excl. Dwellings
Source: Ministry of Finance and the National Institute of
Economic Research, The Swedish Economy, Revised National
Budget 1976 (Stockholm: Economic Department of the
Ministry of Finance and the National Institute of
Economic Research, 1976), p. 125.
215
Conclusion
■ - . i
Can we say that Swedish economy has been able to J
achieve a just and equitable society, and at the same
time, has been able to sustain a fair degree of economic
I
I growth?
|
I Of course, there is never an absolute standard for :
|
j any of these tasks that is felt to be completely satis-
! fying. But, when we compare the Swedish achievements
with the standard that has been reached in other nations, ]
i
we see that they have been relatively successful in j
! achieving the mentioned goals. The welfare programs have
j
]been successful in reducing inequalities in society and
the growth rate has been steady for a long time without
any marked recessions or depressions,
j What is more, the Swedish experience has proved
' i
that the Communists today are wrong m saying that with- ,
out revolution and without formal socialization of the i
I
means of production, it is impossible to give the workers ;
a lasting improvement. By making itself as strong as it |
i !
!is, the Swedish labor union movement has achieved the j
: |
j power to influence the decisions of capitalists on how j
I
jto set wages, and how to share profits m a more "just" J
i
!way between owners and workers.
216
NOTES FOR CHAPTER V
"'"Marquis Childs, Sweden: The Middle Way (New
Haven: Yale University Press, 1961).
2
Gunnar Adler-Karlson, Functional Socialism: A
j Swedish Theory for Democratic Socialization (Stockholm:
, Bokforlaget Prisma, 1969).
3
Frederic Fleisher, The New Sweden, The Challenge |
of a Disciplined Democracy (New York: David McKay Co.,
1967), p. 50.
4
Russell Lansbury, "Swedish Social Democracy," in !
Young Fabian Pamphlet 2 9 (London: Fabian Society, 1972), !
p. 13. '
5 ! ■
Larry Hufford, "Sweden: The Myth of Socialism," in
Young Fabian Pamphlet 33 (London: Fabian Society, 1973),
p. 3 *
^Ibid., p. 5.
7 ,
William Fellner; Milton Gilbert; Bent Hansen;
Richard Kahn; Friedrick Lutz and Pieter de Wolff, The
Problem of Rising Prices (Paris: The Organization for I
European Economic Cooperation, 1961), p. 392. 1
!
g
T.L. Johnston, Collective Bargaining in Sweden
(London: Allen and Unwind 1962), pT 124.
^Ibid., p. 154.
■^Lansbury,"Swedish Social Democracy," p. 11.
■'■■'"F.C. Burnett, "Some Issues in the Incomes Policy
Debate Discussion," in Wages, Prices, Profits, and
Economic Policy, ed. by John Crisps (Toronto: University
of Toronto Press, 1968), p. 85.
12
Lansbury, "Swedish Social Democracy," p. 13.
13
The discussion in this part is heavily drawn
from Gunnard Adler-Karlson, Functional Socialism, A Swedish
Theory for Democratic Socialization (Stockholm: Bokforla
get Prisma, 1969), pp. 11-39.
"^Ibid. , p. 101.
^Ibid. , p. 24.
^Assar Lindbeck, Swedish Economic Policy
(Berkeley: University of California Press, 1974), p. 8.
17
E.S. Kirschen (ed.), Economic Policies Compared;
West and East (Amsterdam: North-Holland Publishing Co.,
1974), p. 314.
18
Allen G. Gruchy, Comparative Economic Systems
(Boston: Houghton Mifflin Co., 1966), p. 404.
19
Lindbeck, Swedish Economic Policy, p. 8.
20t, . 0
Ibid., p. 9.
21
M. Donald Hancock, Sweden, The Politics of
Post-Industrial Change (Hinsdale, 111.: The Dryden Press,
1972), p. 30.
22
Wilfred Fleisher, Sweden, The Welfare State
(Westport, Conn.: Greenwood Press, 1973), p. 227.
23
Martin Schnitzer, The Economy of Sweden (New
York: Praeger Publishers, 1970) , p~! 140.
24
F. Fleisher, The New Sweden, p. 199.
2^Ibid., p. 200.
2 6
Gruchy, Comparative Economic Systems, p. 4 33.
27
F. Fleisher, The New Sweden, pp. 319-320.
2 8
W. Fleisher, Sweden, The Welfare State, p. 241.
218
29Ibid., p. 241.
30
Ministry of Finance and the National Institute
of Economic Research, The Swedish Economy, Revised
National Budget, 197 5 (Stockholm: Economic Department
of the Ministry of Finance and the National Institute of
Economic Research, 1975), p. 124.
31
Lindbeck, Swedish Economic Policy, p. 203.
32
Erik Lundberg, "Sweden's Economy in an Inter
national Perspective," in Skandinaviska Banken Quarterly
Review, first Quarter, 1968, p. 4.
33
W.W. Rostow, The Stages of Economic Growth
(Cambridge: Cambridge University Press, 1960), pp. 59-60,
62-63.
34
Goteborgs Bank, Economic Survey (Stockholm:
Economic Intelligence Department of Goteborgs Bank, 1971).
2^Ibid., p. 3.
36
The Swedish Economy, Revised National Budget
1975, pp. 2-3.
I
219
CHAPTER VI
I DEMOCRATIC SOCIALISM IN A DEVELOPING COUNTRY:
' THE CASE OF INDIA
I i
I
This chapter is primarily concerned with the nature1
of India's "mixed" economy as an example of the applica- j
tion of Democratic Socialism in a developing country, and J
some of the major difficulties in economic growth of the
country since independence.
»
i
This chapter considers the Indian Government's j
i
goal of "socialism"; the roles of the public and private \
sectors in the economy; government regulation of private
industry; and economic growth of India since her inde-
i
pendence.
1
I
i
Socialism j
I
The most significant factor is that India has
I
chosen democratic processes and institutions to solve her j
economic problems. The objective of the government
I
within this democratic process is a "socialistic pattern |
of society." Parliament adopted this goal in December
1954, and the Congress Party passed a resolution to this
effect at its Avadi session in January 1955.^
What is the philosophy behind this objective, and 1
t
how has it manifested itself in government policies and
actions? Prime Minister Nehru was deliberately vague in
his definition of a "socialist pattern of society." He j
I
had wished to avoid any doctrinaire interpretation of j
!socialism. His view of a "socialist pattern of society" ]
jmeans equality of opportunity for everyone to live "a good *
life." This involves a society where there is social
cohesion without classes and wide disparities of wealth.
He recognized that socialism cannot consist of spreading
existing poverty, but that greater production and wealth
are essential.^
Nehru believed that nineteenth-century capitalism j
brought benefits as well as sufferings to people. He felt
I
that nineteenth-century capitalism and the type of society
*
it brought about have had their day. Nehru did not feel
that it is necessary or advisable for India to follow
I
the historical growth pattern of advanced capitalistic
countries.^ 1
i
j The idea of Nehru's socialistic objective is to
!have all basic industries state owned, and to have medium 1
i '
and small-scale industries cooperatively managed. This :
has not been possible in India because such a policy would
require large-scale nationalization. Nationalization on
I
<
a broad basis would imply compensatory payments to the I
i
221
private sector, which the government could not afford.
Adequate scope must therefore be given to the private
sector to operate. This should make possible maximum
mobilization of resources for the Five Year Plans.
Nehru saw the private sector operating within a
l framework in which basic industries, such as mineral
exploitation and heavy machinery building, would be state
owned. This would give the government control over key
4
sectors of the economy. Nehru hoped through these
means to achieve his ultimate goal of having the govern
ment control the principal means of production. His
policies may thus best be termed as pragmatic. He
believed he could borrow from both the communist and
5
capitalxst systems.
The Second Five Year Plan wrote of the goal of
a "socialist pattern of society." This meant that the
basic criterion of progress must be social gain rather
than private profit. The objective was to be greater
equality in incomes and wealth as well as increases in
national income and employment. A pragmatic approach
! was to be taken and the socialist pattern of society was
j
not to be regarded as a fixed dogma. The state was to
shape the pattern of investment in the economy. The pri
vate sector was to play its role within the structure
of the Five Year Plans. The public sector was to grow
222
not only absolutely, but also relatively, to the private
sector.6 |
I
The preceding viewpoints envisage a broad role i
S
for the public sector. Not all statements by government
officials are consistent with this philosophy. H.V.R.
^ Iengar, for example, former Governor of the Reserve
Bank of India, has a somewhat different outlook on the :
I
subject. He feels that the government role in the econ- ;
I
omy is dictated by practical rather than ideological
considerations.
The capital necessary for the three government
sponsored steel plants, for instance, would not have been j
available from private sources. On the other hand, vir- j
. I
tually the entire secondary and tertiary steel using
i
industry is still in the private sector.
A similar case is that of the manufacture of I
I
electrical machinery. Here again, the private sector j
probably does not have the required capital resources.
f
Producing these items also will not be a profitable
undertaking for some time.
Ienger feels that the proper question is not
I ;
whether the state should undertake projects. Neither is ;
j the problem one of whether the state should have powers i
of control and regulation. The pertinent difficulty is I
I
the extent to which the government should intitiate and ,
223
regulate economic activities. His view is that the role '
I
of the state must be strategic at the outset of develop
ment planning, but that it can and should diminish after !
7
a stage of self-sustained growth has been reached.
There seems to be little chance of a declining
government role in the economy, as envisaged by Iengar.
i
The fact that there have been divergences of opinion at
! high official levels on the place of government in eco- |
j
nomic matters, however, is worthy of note. I
I
An original draft resolution on the subject of
, "Socialism and Democracy" at the November 1963 meeting 1
of the All-India Congress Committee at Jaipur contained !
strong anti-socialistic language. The final resolution |
was more moderate, and no anti-socialist stand was
taken by the conference. The tenor of the resolution
!
and statements made by leaders at the meeting displayed j
a much more moderate approach to the goal of socialism j
Q |
than had been evidenced at previous conferences. |
!
The resolution on "Socialism and Democracy" was :
not actually passed at the Jaipur conference, for the ' j
Congress Party wanted further discussion on the topic. j
The procedure was adopted of circulating the draft reso- :
lution to the state party organizations. These bodies |
| then gave their written opinions, which were considered
i 9 !
. at the annual Congress session in January 1964. \
| t
.
I
I
224
The annual meeting of the Congress Party at ;
i
Bhubanshwar in January 1964 unanimously adopted a reso- !
|
lution defining its objective as "democratic socialism." j
The target date set for achieving a "basic" living stand- j
i
ard for every Indian was 197 5.
The means to be used to realize this goal were
a large public sector; workers' participation in indus- j
trial management; land reforms; and progressive state j
j
control through cooperatives in agricultural industries j
such as rice and flour mills.
The preceding section on policy statements may
seem to belabor the subject. However, due to the mis
understanding in many sections of the United States about |
India's "socialism," it would appear to be of value to
|
determine exactly what is involved. The "socialism" of
I
a communist country like China and that of India are sirn- I
ilar in name only.^ India is following neither the J
model of Western capitalism nor that of Soviet communism, j
|
The scarcity of investment resources and the !
socialistic objective have brought about government plan- i
I
ning for economic development. I
i
Planning in India dates back to 1938 when a ;
Conference of provincial Ministers of Industry appointed
a National Planning Committee. During the 1940s,a number
1
of "Plans" appeared. The National Planning Committee !
!
225 I
issued a Main Report with supplementary reports on
different economic sectors. A group of industrialists
published the free enterprise oriented Bombay Plan. 'The
Indian Federation of Labor produced a socialist People's
Plan. A Gandhian Plan envisaged a decentralized economy
i 11
based on self-suffxcxent vxllages.
I The Planning Commission in India has been j
i
responsible for structuring four Five Year Plans and i
12 i
three annual Plans since its inception in March 1950. |
i
It is ultimately accountable to the National Development
Council. The Council is composed of the chief ministers ;
1
in the central and state governments. The Five Year -
Plans are formulated through the compilation of schemes j
i
by the state governments, drawing up of the plan by the
13 !
Planning Commissxon, and final submission to Parliament.
i
The planning process is a fairly centralized j
affair, in which most major decisions are made by the 1
i
government at New Delhi. D.R. Gadgil feels that one of j
the greatest needs of the country is the dispersal of '
14
power xn relatxon to plannxng decxsxons. The polxtxcal
i
and administrative aspects of planning are outside the
scope of this study.
Roles of the Public and Private Sectors
It has been argued that government industry in
i
I
India is not probably responsible for more than 10%
226
of industrial and mining activity.
I
Milton Friedman does not believe that the above
estimate is meaningful because one-half of national
I
income in India is produced by agriculture, and the agri
cultural sector has only peripheral contact with the
market. He feels government expenditures are a larger
fraction of income generated through the market than of i
total income, and an even larger fraction of non- |
15 ^
agricultural income. Henry Schloss, however, estimates
that even omitting the agricultural sector the propor- i
I
tion of goods produced in the private sector is still \
above 80 percent . ^
The share of government (Government Administration!
J
and Government Enterprises) in the generation of the
national income is shown in Table 6-1.
In order to fully understand the role of the :
Indian government in the country's economy, we should ■
i
recognize that its role in the income and investment 1
i
!
aspects of the economy should not be the only focus of
our attention. The investment of the government in |
"overhead" facilities benefits private enterprise, and \
the large fiscal expenditure of the government helps
create demand for the products of the private sector. ■
The government also aids the private sector
I
through such measures as credit and marketing facilities ’
Table 6-1
Share of Public and Private Sectors in Domestic Produce
(At Current Prices)
RS (crores)
1950- .1960- 1970- 1971- 1972-
1951 1961 1971 1972 1973
Net domestic product (total) 9,550 13,335 34,909 36,879 39,399
(100.0) (100.0) (100.0) (100.0) (100.0)
Net product of public sector 720 1,422 5,047 5,691 6,357
(7.5) (10.6) (14.5) (15.4) (15.9)
Government administration 430 735 2,401 2,698 2,965
(4.5) (5.5) (6.9) (7.3) (7.4)
Departmental enterprises
( 290
/ i g r\ \
522 1,361 1,493 1,560
(3.9) (3.9) (4.0) (3.9)
Non-departmental enterprises
((3.0)
165
(1.2)
1,285
(3.7)
1,500
(4.1)
1,832
(4.6)
Net production of private sector 8,830 11,913 29,862 31,188 33,542
(92.5) (89.4) (85.5) (84.6) (84.1)
Source: India, Ministry of Information and Broadcasting, India, A Reference Annual
1962, ,p. 163; and India, A Reference Annual 1976, p. 143 (New Delhi:
Ministry of Information and Broadcasting).
*Note: Figures in parentheses indicate percentage shares.
for farmers, artisans, and small businessmen, who are
17 !
the largest section of private enterprise m India. j
Government loans for capital formation as a percentage j
of private net fixed investment increased from .2 percent !
in 1950 to 2 percent in 1957. This represented an
j increase in loans as a percentage of total government
! •
i expenditures from .4 percent in 1950 to .7 percent in !
| t
1957. These figures seem higher than comparable ones 1
i
18 '
for the free enterprise oriented economy of Pakistan.
]
The amounts are, admittedly, only a marginal aspect of j
total private investment. But they do signify willing- J
i
1
ness of the government to help private industry. ;
The purpose of this research is not to enter into j
an exhaustive discussion of the advantages and disadvan
tages of either government or private enterprise. Both
the market and planning have their justifications and
shortcomings. Edward S. Mason states, "The really good
arguments for planning lie in the obvious inadequacies
of the market, and the really good arguments for the
19
market rest on the deficiencies of planning."
Mason found economic development to be possible j
i
with little government planning as in nineteenth-century
Great Britain, and with a great deal of government control
as in Russia. The optimal role of government in economic
advancement can clearly vary depending upon the
229
20 1
conditions, values, and institutions of a country. '
W. Arthur Lewis believes that economic progress
is due to the activities of both the public and private ;
sectors of an economy. He feels the only pertinent
21
question is what should be the contribution of each.
All countries have experienced government partici-
i
pation in economic development. Even the recent West j
German free enterprise miracle was not accomplished
without large governmental preferences to the private
sector. The government of India had clearly gone beyond
what one would consider the minimal functions of increas
ing social overhead capital, fostering greater agricul-
22 i
tural productivity, and facilitating capital imports.
The public sector has a number of companies operating (
23 '
in various industries in India. Table 6-2 shows the
i
sector-wise distribution of investment in public sector j
|
undertakings. j
I
Government investment in heavy industry and j
i
overhead facilities is necessary so that the private
t
sector will be able to procure the basic services, power, :
transportation, and raw materials it requires. Govern
ment spending also serves to insure demand for private ,
j
sector products.
More than purely economic considerations are
$ >
involved in the role of the government in the Indian
230J
Table 6-2
Distribution of Investment in the Public
Sector at the End of 1973-74
(In Percentage)
Percent of Total
Category Investment
A. Enterprises producing and
j selling goods:
! Steel 32.5
Minerals and metals 14.0
Petroleum 5.8
Chemicals and pharmaceuticals 13.1
Heavy engineering 10.8
Medium and light engineering 2.3
Transportation equipment 3.7
Consumer goods 1.1
Agro-based enterprises 0.1
B. Service enterprises
Trading and marketing services 5.0
Transportation services 8.5
Contracts and construction
services 0.3
Industrial development and
technical consultancy services 0.1
Development of small industries 0.5
Tourist services 0.3
Financial services 1.4
Rehabilitation of sick industries 0.5
Insurance services ---
Total (A+B) 100.0
Source: India, Ministry of Information and
Broadcasting, India, A Reference Annual
1976 (New Delhi: Ministry of Informa
tion and Broadcasting, 1976), p. 263.
economy. The government's position is a political neces
sity because of the desire for a better life by the
masses. The Indian government cannot afford to take a
231
chance on the market mechanism alone. Lack of Indian
development in the nineteenth century may have been due
to Great Britain not fostering growth. But it may also
have been because of some lack in the private sector.
The Indian government does not wish to take a chance on j
the latter proposition being correct.
The social inequality consequent from developing
along purely capitalistic lines is also antipathetical
24
to the policy objectives of the Indian government.
India is beset with a combination of problems
stemming from limited resources, widespread illiteracy,
extremes of wealth and poverty, lack of skills and tech
nology, the instability of the international economy,
and the threat of military aggression upon her borders.
The most important point of all is that India is dedi
cated to solving the above problems through democratic
processes and institutions. Considering the magnitude
of the difficulties involved, the lack of time available
to develop on a free enterprise basis, and the abhorrence
of the loss of individual freedom under the communist
system, there would seem to be no feasible economic
course to follow for development other than the one that
India has chosen.
The preceding section upon government policy was
undertaken in order to provide a clear perspective of
the government's ideological orientation. However, it
232
is well to remember that there is no simple relationship
between ideology and economic development. An ideology j
itself will not bring about growth, but rather energetic j
responses to developmental problems. Furthermore, var-
i
ious ideologies can promote economic advancement. Both .
I I
: Indian and China, with contrasting ideologies, are exper- J
! 25 '
■ lencmg economic growth.
i
Perhaps too much stress has been placed upon the j
role of the state in economic development. Questions J
i
I
about policies which will foster a higher rate of savings
and investment may be more meaningful than asking about
the role of the state. There is no necessary correla- j
I
tion between the role of either the government sector |
i
or private sector and the pattern of saving and invest
ment. There are highly regulated economies (e.g.,
Portugal) with a low rate of investment, and relatively
free economies (e.g., Japan and West Germany) with a
high proportion of investment. There are also highly !
regulated economies (e.g., communist countries) with a !
high rate of investment. J
i The politics of economic growth should be con- j
sidered in terms of the varied means by which different j
societies may be able to achieve similar economic results.
Newly developing countries, such as India, should not be
concerned with patterning their economies after a
233
particular "ism," but rather with the fundamental require-’ ,
raents of economic advancement.^
r
i
We have been considering the role of the government!
sector. What is more important in the Indian economy, as j
i
far as the private sector is concerned, is government
i
; regulation of private industry.
i
I
Government Regulations
i
I
A statement of Industrial Policy was issued by
the government in 1945. This proclamation envisaged the |
i ,
continued government operation of ordinance factories,
j
public utilities, and railways. The bulk generation of j
electric power was to come under government sponsorship.
Other "basic industries" might be nationalized where ;
i
private capital was not forthcoming and it was essential
to the national interest to do so. The government might
also take over industries in which the tax element pre
dominated over the profit element, such as in the manu
facture of salt. All other industries were to be left ■
i
to private enterprise under varying degrees of public \
; control. j
i i
The Advisory Planning Board of 194 7 recommended ;
the nationalization of the coal, minerals, oil, iron and
steel, and motor, air, and river transport industries.
Most of the Industrial Panels which reported to the
Board, however, did suggest nationalization of industries
either on grounds of a lack of private capital or of
being essential to the national interest.
The Conference on Industrial Development in 1947
advocated dividing industries into three categories.
These were those to be owned only by the state; those to
I be owned by the state and private enterprise; and those
to be owned only by private enterprise. No recommenda
tions were made as to which industries should fall into
each category. The criteria of "economic and defense
requirements" and the "possibility of quick and effi
cient production" were suggested to be used in the selec-
27
tion of industries.
The government's first Industrial Policy Resolu
tion was announced in 194 8. This statement visualized
j a "mixed" economy with an overall responsibility by the
I
government for the planned development of industries and
their regulation in the national interest.
The 194 8 resolution stated that besides arms and
ammunition, atomic energy, and railways transportation,
which would be monopolies of the government, the state
would also be exclusively responsible for the establish-
2 8
ment of new undertakings in six basic industries except
where, in the national interest, the state found it neces
sary to secure the cooperation of private enterprise.
Outside of eighteen areas subject to central control and
regulation, the rest of the industrial field was left J
open to the private sector. However, it was made clear !
that the state would also progressively participate in !
this sphere. Privately operated enterprises currently
j in the six fields restricted to new government concerns
j were to be left alone for ten years. At the end of that
I
I time, the situation was to be reviewed in the light of j
I 29 1
the existing circumstances. j
t
A revised Industrial Policy Resolution was issued !
J
on April 30, 1956. This statement was made in the light \
I
of the changes that had taken place in the economy since |
i
1948, and Parliament's acceptance of a socialistic pat
tern of society as the government's goal. The economy
was again divided into three spheres of influence.
The first category lists seventeen industries, the
future development of which will be the exclusive respon- .
sibility of the state unless the national interest
requires that private enterprise be brought in with
t
minority control rights. i
t
The list includes the three monopolies mentioned [
I
in the 194 8 Resolution and the new one of air transporta- [
tion. The generation and distribution of electricity
is included because this public utility is controlled by
the state through legislative measures. The six areas
reserved for the state in the 1948 Resolution are also ■ ;
in this list. The remaining six industries pertain \
i
30 1
mainly to minerals and heavy equipment.
The second category contains twelve industries j
j in which the state will increasingly establish new under-
j
! taking. Private enterprise will also have the opportun-
I
i
I ity to develop in this field, either on its own or with
. . . 31
state participation. !
i
All the remaining industries fall in the third j
category, and it is expected that their development will
i
be undertaken ordinarily on the initiative of the private I
sector. Nevertheless, it will be open to the state to j
i 32
start any industry even in this section.
Harry Robinson has succinctly summarized the
I
objectives and effects of the Industrial Policy Resolu-
!
tion of 1956:
1. That greater emphasis is to be placed on
the Government's development of an
expanded public sector;
2. That a steadily increasing proportion of
the activities of the private sector will
be developed along cooperative lines;
3. That existing private industry will be
permitted to develop along with State-
owned undertakings in all three indus
trial categories defined in the 1956
Resolution, provided that private indus
try is properly directed and regulated so
that it does not seize advantages which I
react adversely to the welfare of the j
people. j
4. That the door is open for private enter- j
prise to enter the industrial field
237
reserved for State development if it :
is found that exclusive jurisdiction |
would retard development or otherwise j
be adverse to the national interest; j
5. That, with the possible exception of
one or two industries dealing with pub
lic sector.^
The other major government regulations are: the
I
Indian Companies Act, directing the registration and |
I . 34
I operation of corporations; The Capital Issues Act, I
| j
requiring government approval for all security issues;
i
3
the Mines and Minerals (Development and regulation) Act, j
giving the government certain regulatory authority over j
i
mineral exploitation; the Industries (Development and !
!
Regulation) Act, providing the government with broad |
. powers to regulate and, if necessary, take over manage
ment of certain specified industries; and the Fourth
Amendment to the Constitution, permitting the government
f
to take over property on the payment of compensation, !
the amount of which is not subject to judicial review. J
This large body of government legislation cannot j
be taken up in detail. Comments will be made only upon ;
a few of the characteristics of some of the means of 1
| '
regulation, upon taxation, and upon price and production !
controls. :
The government has power to control prices and j
I
make allocations in respect to several commodities, such j
as steel, cement, raw cotton, sugar, and coal. i
I
238
Fertilizer prices are regulated through the Central ;
Fertilizer Pool. The government can also adjust the !
I
rates of excise duty on all excisable articles so as to j
alter the relationship between particular prices.
Government action along the above lines raises
i significant issues in the areas of production, alloca-
j tion, prices, and controls. The basic question involved
! is that of reliance upon the market mechanism, or govern-
i
ment administered prices and controls, or some mixture j
i
of the two. The latter alternative is demonstrated by '
i
Yugoslavia which has shown that it is possible to pre
serve, in some degree, the operation of the market mech- ;
anism without having a free enterprise system. |
A central planning authority cannot have the
comprehensive knowledge to allocate commodities as effi
ciently as the market mechanism, it is often held. This [
I
is due to the great number of production and consumption j
units in an economy. However, there may be a possibility \
of some conflict between market mechanism allocation i
economies and "growth" economies. Even the neo-classical j
i
economists expressed doubt about the efficiency of the j
I
i
market mechanism when they advocated government action j
I
for protection, education, social overhead capital, and !
i technological development. These happen to be areas in |
! i
■ j
I which there are significant external economies.
Realization of need in these areas and advocacy of gov
ernment action would require the existence of large public
sectors in most newly developing countries.
There undoubtedly exist many desirable areas
involving external economies where government action is
I necessary. This entails the exercise of economic
I decision-making by politicians and civil servants,
j Operation of this system within a democratic framework
signifies that these officials should be held responsible
to the electorate.
Newly developing societies have generally set
certain social and economic objectives. The socially
determined goals may not be immediately economically
feasible. But who determines the economic priorities
and policies? Generally this will be some type of plan
ning commission made up of politicians and civil ser
vants. These in turn must be responsible to the elec
torate in a viable democratic system. The same basic
question remains: Does one prefer to entrust economic
matters to bureaucrats; or private entrepreneurs; or
some combination of the two?
The other query to be raised is that of price
policy. What kind of price mechanism does one want?
Does one want some kind of discrimination in prices which
will yield arbitrary gains to certain people or to the
240
government? Will a free price mechanism alone ensure a I
I
desirable pace of development? Economic theory states
that the right price policy is one which equates supply
i
and demand. Some feel that the necessity of social over
heads and the existence of monopolies requires a govern-
j ment directed price policy in newly developing countries.
I Another important aspect of government policy is
I
s taxation. The previous corporate income tax rate of 45
percent was raised to 50 percent, excluding export earn- !
ings. This rate is not unreasonable compared to that of
i
other countries. This is especially true when consider- I
ation is taken of depreciation allowances and development !
rebates. The uncertainty of the corporate tax structure
would seem to be a more serious deterrent to investment
i
than the present rate of taxation. For example, the
I
government has experimented with, but subsequently j
dropped, the use of such measures as a wealth tax and
compulsory deposit of corporate reserves.
One of the incentives employed by the Indian
government is the granting of tariff protection to cer- 1
tain industries. This aids the new industry to establish I
itself and may also save the economy foreign exchange
}
if the product manufactured is an import substitute. The i
I
I
problem here is one of determining the real cost to the j
I
consumers of the products of a protected industry. There ;
| is also the difficulty of fostering vested interests j
which may not favor lowering tariffs in the future. j
Another incentive is that of tax concessions. A
development rebate of 20% of the cost of new invest- j
ment is permitted. This means 120% of the original
; cost may be depreciated. Accelerated depreciation
I
t 1
j allows a new enterprise to write off 85% of its invest- j
i ment during the first three years. If there are any j
profits of the new business still subject to tax, j
I
they are exempt from income tax and supertax for five j
years to the extent of 6% per annum on the capital !
I
employed in the undertaking. The tax law also permits i
I
a carry over of business losses for eight years and J
35
favorable treatment of expenditures upon research.
Intercorporate dividends of new companies, in certain (
cases, are exempt from supertax, but not income tax, j
* . . . . 36 !
for the receiving company. ;
i
Tax incentives are a rather delicate instrument j
of economic policy. They can be effective only if the i
general climate is favorable to private investment. Con- ■
! cessions are successful only if they are coordinated !
l
with other factors bearing upon private investment deci
sions. Perhaps the most powerful incentive for private i
i
I !
enterprise m India has been the aggregate effect of j
fiscal policy on the level of demand, and the fact that
242
competing products from abroad in many industries are
excluded by protective tariffs. Elements such as these
are probably more pertinent in influencing private
investment decisions than tax concessions. Tax conces
sions have advantages, nevertheless, when superimposed
37
j upon other measures to promote economic growth.
The various measures adopted by government to
control, regulate, and direct industry have resulted
in an appreciable increase in production as can be seen
from the following, Table 6-3.
Table 6-3
Index of Industrial Production,
Official Series
Year 1951=100
1951 100. 0
1955 125.0
1960 117.0
1965 250.9
1970 320.3
Source: S. Swamy, Economic Growth in China and j
India 1952-1970 (Chicago: The University j
of Chicago Press, 1973), p. 31. i
While part of the above rise in production has taken
; place in undertakings set up in the public sector, a
I
243
large percentage of the increase should also be attrib
uted to the private sector. Table 6-4 compares the
contribution of public and private sectors of the economy
to total investment.
Table 6-4
The Share of Public and Private Sectors
In Total Investment
Rs. crores
Public Sector Private Sector Total
First Plan
(1951-56)
Second Plan
(1956-61)
Third Plan
(1961-66)
Fourth Plan
(1969-74)
1560
3731
6300
15902
1800
3100
4100
8980
3360
6831
10400
24882
Source: N. Das, The Indian Economy Under Planning
(Calcutta: The World Press, Private Limited,
1972), Appendix A.
Social Welfare and Redistributional
Policies in India
Since Independence, the Indian Government has
tried to establish social welfare and more even distribu
tion of income mainly through the following channels:
244
1. Education
The quality of life is determined largely by
education. Thus the improvement of education is an
I
important step toward social justice and economic growth.
J Among the social services, the Planning Commis-
j sion had general education very much in mind, and in j
j attaining the planned targets for education they have I
i !
j been successful.
Education in India is primarily the concern of ;
State Governments; but the Union Government has also
been entrusted with certain responsibilities specified
in the Constitution. Most of the educational development
1
plans are formulated and implemented with some assistance j
from the central government. Primary education is now
free in all the states and is compulsory in most of the
4- 4- 3 8 t
states. 1
The literacy rate in India has increased from ;
39 '
about 16 percent in 1951 to 30 percent in 1971. In ;
I
1951, there were only 33 percent of children in the age
! group 6-11 at school. In 197 6, the relevant figure is !
! Q , ^ 40 !
i 86 percent.
During the five-year plans, successively more j
funds have been appropriated for education. There has
been an increase in expenditures on education from RS 153
crores in the First Plan to Rs 781 crores in the Fourth
Plan.
| Of course, there are still substantial difficul
ties in rural areas, particularly in regard to the 11-14 !
years of age group children, who are withdrawn from
schools for work on farms; yet as prosperity comes to j
rural areas with extension of high yielding varieties,
| dairy farming, etc., more improvement is expected in
j these areas too.
I
There has also been an increase in the numbers |
of trained workers. For example, a survey by the Planning,
Commission found that in a representative public sector ;
enterprise in Bangalore, 95 percent of the workers were j
i
42
i educated. These, of course, will have an important j
t
effect on increasing the productivity of labor. !
2. Health
j Public health is primarily the concern of the
j State Governments, with the Central Government supporting |
| !
[ and sponsoring the major programs for improving the
health of the population. !
The broad objectives of India's health pro-
i
grams are to provide curative and preventive health ser
vices in rural areas by establishing health centers in
those areas and to control communicable disease, and to
| expand the programs for the training of medical personnel. 1
In the Fifth Plan, the aim of the health program j
I )
j is to provide minimum public health facilities integrated <
with family planning.^
There have been vast improvements in health-
related areas as a result of over twenty years of planned
development. The life expectancy has increased from 32
44
to 50. In 1974,.there were 5,288 primary health cen-
45
ters m rural areas, whereas none existed before 1951.
3. Social Welfare
Social welfare programs include these services
designed for the development and rehabilitation needs of
the weaker sections of the society. These programs fall
under six headings, namely, programs for women, children,
maladjusted groups, physically handicapped, composite
programs for children and women, and social legisla-
46
tion.
The trend of expenditure on social welfare pro
grams is given in Table 6-5.
Table 6-5
Expenditure on Social Welfare
(Rs. crores)
1966-69
First Second Third Annual Fourth
Plan Plan Plan Plans. Plan
Centre 1.60 8.49 12.84 7.76 65.71
States — 4.95 5.63 3.20 9.67
Union Territories — — 0.93 0.60 1.43
Total 1.60 13.44 19.40 11.56 76.81
Source: India, Ministry of Information and Broadcast-
ing, India, A Reference Annual 1976 (New
Delhi: Ministry of Information and Broadcast
ing, 1976), p. 95.
247
Among other welfare programs, we can name social
security schemes which seek to provide adequate cover to
the workers against such contingencies as ill health and
industrial accidents.
4. Distribution of Income and Wealth
I
There are no comprehensive studies of the struc
ture of income distribution in the India, and the avail
able data is poor and inadequate.
The available evidence, however, shows that the
income tax has a negligible impact on income distribu
tion. The study by the Mahalanobis Committee showed that
in 1960, the top 20 percent in urban areas kept 56.2 per
cent of income after tax, compared with 57.6 percent
47
before tax.
In India, direct taxes were only 2.8 percent of
48
natxonal income m 1967, and 3.07 percent in 1972.
So, very little redistribution is attained by this means.
The major attempts to redistribute income have
been indirect and partly through the government expendi
tures on such areas as education, health, social welfare
programs, and partly through extension of public owner
ships in the economy. The public sector now owns more
than 25 percent of the total assets in the country,
i 4 9
j which is much higher share compared to the Fifties.
! However, this has not had any significant impact on
personal income inequalities. Table 6-6 compares the
state of income distribution in 1960 and 1970.
Table 6-6
State of Income Distribution
1960 1970
Percent of National Income
Received by Lowest 20% 4.0 5.0
i
Percent of National Income
Received by Highest 5% 27.0 25.0
i
Source: World Tables 1976 (The Johns Hopkins
University Press, 1976), p. 514.
i
As can be seen from this table, there is a slight
improvement toward reducing income inequality.
i
To remove the excessive concentration of wealth
and power in the country, recent policies in India have !
been mainly of two sorts: (a) government itself under- [
takes heavy investments, particularly in the creation of [
an infrastructure of utilities, power, transport, etc., I
i
and also greater participation by the government and :
I
public financial institutions in the management of indus- I
i
tries; (b) widening opportunies for new entrants and for j
I
medium-and small size units and preventing the big houses ;
j
from expanding or going into new industries below a par
ticular size. Those industries calling for investment i
i
below a particular level are reserved for small size
50 !
entrepreneurs. These issues have been discussed j
earlier in this chapter. These regulations have had j
some effect on reducing wealth concentration, but there 1
is no available data to quantify the results. j
!
Economic Growth of India
Many theories of economic growth have been
advanced. The emphasis of economists in the past has I
!
been upon such factors as capital formation and entre
preneurship. More recently, the great complexity of the ■
i
I
development process has been better appreciated, and
stress has been placed upon some of the non-economic
aspects of growth. This has necessitated the inclusion j
i
of data from disciplines other than economics. The
approach to development is no doubt more comprehensive
now than it used to be. But at the same time, this has
increased the difficulty of explaining economic growth
and generalizing about it.
There is some agreement upon the range of forces
affecting economic development, but not always upon their !
individual emphasis or phasing. This is because it is j
not always possible to distinguish between causation and
coincidence in economic growth. The differences in the
course and rate of advancement of economies, and the
diversity of their individual environments, also add to
51
the difficulties of analyzing economic developments.
t
250
W.W. Rostow doubts that, even after a number of j
decades of research, there will be a satisfactory theory j
of economic growth. He feels that there are too many J
variables involved to make possible a general theory
52
of economxc development. This, of course, is not
I
| meant to depreciate the edifying influence of theory on
stretching the imagination; or the contribution theory j
has to make to the solution of any particular type of 1
problems.
There are currently many different approaches to
the explanation of economic growth. Most of these
theories of development contain elements of truth. Each I
draws attention to some factor which affects the course
i
of development. Whether the search for "the unifying
j
theory of economic growth" is or is not a will-o’-the-
wisp is really not too important for the newly develop
ing countries today. These countries are faced with a
host of specific problems not requiring a general theory 1
of economic development, but rather individual analysis ;
i
j !
I and polxcy recommendations.
I
' The economic approach to the study of growth
I
j has emphasized the contribution of capital formation.
The rate of economic development depends to a large !
I
degree upon the rate of real savings and investment. j
j However, it should be remembered that the success of eco- •
nomic policies and institutions cannot be measured by
the rate of capital formation alone. The productivity
of one factor of production depends also upon the amount |
and quality of the other components of production. A J
general consideration of the factors of production in j
j the Indian context is the subject of the following
discussion.
I I
The twin factors of a large population and great
poverty are the essential characteristics of India. j
j
There is a large potential for economic growth. India |
I
has a vast internal market and abundant raw materials.
There are ample deposits of iron ore, manganese, mica,
I
bauxite, and other minerals The untapped reserves of j
hydroelectric power are great. Large deposits of coal, |
I
although not enough of the coking variety, are also
I
available. The prospects exist for increasing agricul-
i
i
tural production through more intensive methods and j
better supplies of fertilizers and water. !
One of the most serious difficulties to be faced |
I
in the economic development of India is that of ,
l population pressure. The population increased 22% ;
i from 1951 to 1961 and 25% from 1961 to 1971. This '
j ;
j large increase has come about largely through a decline i
i '
in the death rate. The experience of Great Britain j
was that it took over a hundred years for its birth J
! rate to fall to the level of its death rate. India !
i *
<
I
t
252
cannot afford this much time. India differs from
I
Great Britain in that the density of its population J
is already high, the possibility of emigration is j
unlikely, and it is possible to reduce death rates
53
faster today than prevxously.
The population problem essentially has two
aspects. On the one hand is the necessity of reducing j
the present high birth rate; and on the other is the j
urgency of providing work for the large number of unem
ployed and underemployed. ;
The Indian government, approaching the problem
in a democratic way, and without using dictatorship or j
the so-called "democratic dictatorship" of communist
theory, is endeavoring to formulate a policy designed
J
to reduce population pressure through birth control
clinics and other methods. A great deal more work i
I
remains to be done along these lines. However, it is i
I
economic growth which ultimately is likely to bring about j
a better balance between birth and death rates. i
I
Along with the problem of population pressure, '
j is the equally critical one of agriculture production;
€7% of India's consumer spending goes for food,
j But agricultural production and productivity are low ;
j and there is need to import food. India's challenge
! is to produce more food and derive some savings
!
I
I
I
j 253
from the increased production for investment in industry.
Also involved is the problem of changing the structure
of the economy and reducing dependence on the agricul- j
tural sector for employment and income. J
.
j The scarcity of foreign exchange also continues
I to be a threat to the implementation of the Five Year
Plans. There is unanimity that priority should be given j
to the promotion of exports and to those industries whose |
products can replace imported goods. India will continue |
for some time to depend on the more industrially advanced '
i
countries for capital equipment and technical advice. j
India has many difficulties in the above- i
i :
mentioned areas. Nevertheless, it should be remembered j
I
j that she may be differentiated from other newly develop
ing countries by the quality of her national leadership;
by the absolute rather than the relative achievements of j
i
her industries; by the growth of modern commercial prac- i
I |
tices and the steady expansion of her financial system; I
i
and by numerous other examples of the growing diversity ;
i
54
of her economic and social institutions. I
There are, however, more than purely economic
[
questions to be considered in a newly developing society.
The organizational, and even more the social and insti
tutional elements, may set limits to the rate of advance
ment. Such factors as the growth and spread of ideas,
.2 . 5 . 4 J
the availability of skilled labor and managerial person- !
nel, the adoption of new technology, and the evolution j
i
of necessary social and economic institutions may hamper
i
development plans. One Indian writer, because of these
reasons,has set a limit of nearly two generations for a j
55 '
nation to industrialize itself.
This discussion of the general factors in India's j
development leads us to the more specific consideration j
of economic growth under the Indian Five Year Plans.
The Government of India made several ventures j
into economic planning during the 1930's; but these j
I
I
plans were never implemented because of growing opposi- i
56
tion to the British. During World War II, the Govern
ment of India created and implemented plans for the
57
entire Indian economy. These plans had little impact
i
on the post-independence planning process. The most ,
i
valuable result of this activity was that it stimulated :
i
I
the Indians to try to prepare their own plans. :
Although the Congress Party's National Planning ;
I
I
Committee did not formulate a plan before independence, I
i
several groups and individuals outside of the Congress i
i
organization commissioned or drew up economic plans. The
best known of these are the "Bombay" plan, commissioned j
5 8
by a group of leading industrialists; the "People's"
plan, sponsored by M.N. Roy and the Indian Federation of !
j
255
59 '
Labor, and the "Gandhian" plan, written by Shnman
i
60
Narayan Agarwal. None of these plans was adopted after :
I
independence, but they did provide concrete models from 1
which elements were drawn. I
I
Economic or development planning can be placed ,
on a spectrum with perfect planning; that is, total j
control over the economy at one end of the spectrum and
the perfect market at the other.^ Examples of these
polar extremes probably do not exist. All nation-states I
4 i
practice planning. The more control and impact a govern- ;
I
ment has on an economy, the more the government has to
plan for the economy. This can be done in several
g 2
ways. India has opted for a written document, public j
ownership of key industries, and a fixed time period
within which to complete the goals of targets of the
plans. India did not attempt total public ownership as
it is in so-called communist countries. But by owning
key industries and controlling key infrastructure, India |
was able to constrain the private sector indirectly. ;
The Plans themselves had to make allowances for these ;
63 1
constraints. This type of planning is known as "indi- i
I
cative planning" which can be considered consonant with j
I
the democratic version of economic planning compared to
other kinds of planning customary in communist countries.
In 1946, the Congress of India established the 1
Advisory Planning Board. It was the job of the Advisory
256
Planning Board to study planning and make recommendations ,
about the role of government in the economy after inde- J
l
pendence. The Advisory Planning Board had established j
i
what a Planning body was to do; all that remained was I
j
for the Government of India to establish the machinery
i and set it into motion. On March 15, 1950, the Planning
l
I
Commission was brought into existence by a Cabinet reso-
i
lution. By August of 1950, the Planning Commission had !
produced what was to become the First Five Year Plan.
I
I
I
The First Five Year Plan j
I
The first plan that India produced was little j
more than a compendium of projects. Because of the pres- !
sure of time, a more systematic plan could not be drawn I
up, and the statistical data could not have been collected
fast enough to provide a foundation for a more complex i
* i
plan. The overwhelming emphasis of the plan was on ;
I
I
agriculture and infrastructure. The lack of time pre- j
i
vented the Planning Commission from developing a complex j
| model which is necessary for industrial development. It ;
i ' 1
J was a remarkable feat that the Planning Commision pro-
; duced a plan at all. But because of the hasty fashion
i
j with which the original draft was drawn up, the plan was |
I revised in 1952.
I
j The first five year plan is summarized in
i ;
Table 6-7. Agriculture, irrigation and the
257
Table 6-7
Outlays During the First Five Year Plan
1951-1956
(In crores of rupees)
Agriculture
Irrigation and power
Industry and mining*3
£
Transportation
Social Services^
Miscellaneous
Total
289.89 14,8%
583;06 29.7%
96.83 5.0%
517.99 26.4%
411.91 21. 0%
60.68 3.1%
1,960.36 100.0%
Notes: Includes community development.
^Includes Rs. 44 crore to village and
small scale industries.
c
Railroads received Rs. 267 crore, roads
and road transport received Rs. 14 7 crore,
posts and telegraphs and sea transport
received the rest.
d
Includes education, health, housing,
labor and rehabilitation.
Source: India (Republic), Planning Commission,
Statistics and Survey Division, Basic
Statistics Relating to the Indian Economy,
1950-51 to 1966-67 (Delhi: Government
of India Press, T968) , p. 94.
infrastructure headings (power and transportation)
accounted for 70.3 percent of the total plan. This dis
tribution proved to be successful because, as can be seen
in Table 6-8, the net domestic product increased at an
Table 6-8
Growth Under the First Five Year Plan |
I
!
%increase I
1956 over
1951 1952 1953 1954 1955 1956 1951
Net domestic
product (in
Rs. abja*) 88.7 91.2 94.7 100.3 102.8 104.2 17.5%
Per capita j
product 246.3 250.1 256.6 268.7 271.9 272.1 10.5%
*1 abja = 100 crore = 1 billion rupees
Source: India (Republic) Planning Commission, Review of the First
Five Year Plan, p. 8.
|
average annual rate of 3.5 percent while the per capita !
product increased at an average rate of slightly more
than 2 percent. The per capita increase was especially
encouraging because, even with the undercounting of the
census, per capita income was continuing to grow. This
was an encouraging result for an initial attempt at
|
planning. I
I
As the First Five Year Plan came to a close,
i
India was buoyed by success in agriculture; in achieving
the projected outlays; and by an increasing rate of I
growth. However, as will be seen in the next section,
some of the optimism was a bit premature. j
!
_______________________________________ 259 [
The Second Five Year Plan j
The Second Five Year Plan was the first com- j
pletely integrated plan that India produced. During the !
i
period of the First Five Year Plan, India had been at
work establishing the necessary prerequisites for a
j well-developed, internally consistent, indicative plan
I for continued growth in the Indian economy. India had
!
| begun to develop the necessary statistical base for such
a plan. The First Five Year Plan was under massive crit
ical review. But even more significantly, India began
I
to define policies on how development was to occur. |
i
In 1951, on the eve of the Second Five Year Plan, |
the government of India passed and included in the Second J
Plan the Industrial Policy Resolution. The Resolution
began by reiterating the basic principles of state policy
that had been established in 194 8 and then went on to
say,
In order to realize this objective, it
is essential to accelerate the rate of
economic growth and to speed up indus
trialization and, in particular, to ■
develop heavy industries and machine- j
making industries, to expand the public
sector, and to build up a large and grow- j
ing cooperative sector.^ j
This gave an indication of the emphases and priorities |
I of the Second Plan. As Table 6-9 shows, the emphasis
of the Second Plan passed quickly from agriculture, the
chief emphasis of the First Five Year Plan, to industrial '
development. !
260
Table 6-9
Outlays of the Second Five Year Plan
(In crores of rupees)
Agricultural development 529.00 11.50%
Irrigation and power 865.66 18.82%
Industry and mining 1,075.55 23.38%
c
Transportation 1,299.75 28.26%
Social Services^ 730.24 15.87%
Miscellaneous 99. 80 2.17%
Total 4,600.00 100.00%
Notes: alncludes Community Development.
b '
Includes Village and Small Scale Industry.
Includes railroads, road transport, and j
ocean transport. i
i
d.
Includes health, education, housing, labor,
and rehabilitation.
Source: India (Republic), Planning Commission,
Statistics and Surveys Division, Basic
Statistics Relating to the Indian Economy ;
1950-51 to 1966-67 (Delhi: Government of
India Press, 1968),, p. 94. j
1
But just an indication of the need for industrial j
I
development was not sufficient for the Government of j
I
India. India defined explicitly how this development !
should take place. '
The adoption of the socialist pattern j
of society as the national objective, as
well as the need for planned and rapid
development, require that all industries
of basic and strategic importance, or in
the nature of public utility services,
261
should be in the public sector. Other
industries which are essential and I
require investment on a scale which only !
the State, in present circumstances, !
could provide, have also to be in the
public sector. The State has therefore
to assume direct responsibility for the
future development of industries over a
wider a r e a . 65
The Resolution goes on to identify which industries are
I
I
to be the sole province of the Government of India and
which industries the Government of India is going to
6 6
enter in order to speed up development. This resolu
tion provided the clearest definition to date of the
policy for development of the Government of India.
The shift from agriculture to industry was
founded on success in agriculture. Based on the final
years of the First Year Plan, the Planning Commission
projected that the rate of development in the agricultural
sector would remain fairly constant. The final years of
the First Plan were very impressive for the steady
I increases in agricultural production.
While the Planning Commission did not completely
overlook the interdependence of industrial development
6 7
and agricultural growth, it did overlook a very impor
tant factor in Indian agriculture: the weather. The
I
remarkable production in agriculture during the final
years of the First Plan had been due to exceptional mon
soon years. During the first two years of the Second
Plan there were bad monsoons, and as a result there was
an actual decline in the Indian economy in the fiscal
year 1957-58, as is shown in Table 6-10.
Table 6-10
Growth Under the Second Five Year Plan
%Growth over
56-57 57-58 58-59 59-60 60-61 1955-56
Net National
Income 110.0 108.9 116.5 118.6 127.3 22.17
(In Rs.
abja*)
Per capita
Income 275.6 267.3 280.1 279.2 293.2 7.75
(In rupees)
*1 abja = 100 crore = 1 billion
Source: India (Republic), Planning Commission, Statistics
and Surveys Division, Basic Statistics Relating to
the Indian Economy, 1950-51 to 1966-67 (Delhi:
Government of India Press, 1968), p. 97.
As we see, doubling the size of the Second Plan
over the First Plan was, as the Planning Commission '
pointed out, the result of the agricultural successes in
the First Plan. "More than any other factor, the increase i
in agricultural production which has taken place since j
!
1952-53 has helped to end inflation, stabilize the econ
omy and prepare the way for a higher rate of development
' 6 8
jduring the second five year plan." However, a substan-
i i
itial increase in the growth rate did not occur, as is
263
shown in Table 6-10. The growth rate of per capita !
income actually declined during the Second Plan. These
results came in spite of a plan in which the outlays were j
doubled, the emphasis was shifted from agricultural devel
opment to industrial development, and India defined the I
( course that economic development was to take.
Besides the deterioration in food supplies, other
elements that adversely affected India's balance of pay- j
ments were: (1) the Suez crisis of 1956-57 disrupted j
international trade and raised shipping costs; (2) the
1957-58 global recession reduced the demand for the raw
materials India had to sell; (3) import policy was too
f
I
lenient, and foreign exchange reserves v/ere depleted; j
(4) disturbances on India's borders forced her to increase
her arms purchases from abroad; and (5) India's mounting
price level discouraged exports. Mention should also be
made of the fact that price estimating was unrealistic :
in some cases, and made more so by inflation at home and j
I
i
abroad. Deficit financing forced India's prices up. !
The capital-output ratio at 2.3 to one was underestimated, \
and the required rate of investment was higher.
Despite the above difficulties, national income j
increased by over 22 percent and per capita income rose
by 7.75 percent. Investment as a percentage of national
income grew from 8 percent to 11 percent, but savings
j i
\
' i
I
264
expanded only from 7 percent to 8.5 percent of national
income.
Total investment in the public sector was about
Rs. 4600 crores compared to Rs. 1960 crores in the First
Plan. Investment in the private sector increased from
' Rs. 1800 crores in the First Plan to Rs. 3100 crores in
|
the Second Plan.
Agricultural production increased by 18 percent
compared to 22 percent in the First Plan. The index of
industrial production grew by 39 percent, about the same
as in the First Plan. This figure understates the actual
increase in output, because new industries which com
menced after 1951 are not included in the index.
The Third Five Year Plan
Obviously, the Planning Commission was unmoved by
its critics. As Table 6-11 indicates, not only was the
size of the Third Five Year Plan nearly doubled over the
size of the Second Plan, but agriculture continued to
play a minor role in the plan. The Third Plan is there
fore, basically an extension of the Second Plan. This
was to be expected since there were no basic policy
changes during the period of the Second Plan. In fact,
the only change in policy that occurred was during the
1957-59,period when India began to rely more heavily on
foreign aid as a source of revenue to finance the plans.
Table 6-11
Outlays of the Third Five Year Plan
Outlay % of Total Outlay % of
61-62 Total Third Plan Total
Agricultural
Development 148.08 13.1% . 1,088.82 12.6%
Irrigation and
Power 245.48 21.77% 1,917.03 22.21%
Industry and
mining 232.51 20.62% 1,885.03 21.85%
Transportation 296.50 26.29% 2,111.71 24.48%
Social Services 191.72 17.00% 1,499.76 17.38%
Miscellaneous 13.48 1.19% 126.15 1.46%
Totals 1,127.77 100.00% 8,628.00 100.00%
Source: India (Republic), Planning Commission, Statistics and
Survey Division, Basic Statistics Relating to the
Indian Economy, 1950-51 to 1966-67 (Delhi: Government
of India Press, 1968), p. 94.
j Table 6-12 shows that there was a growth of 2.5
I
| percent over the last year of the Second Five Year Plan.
i
i
j Overall growth during the Third Five Year Plan was 15.16
i
t
I percent, with an average annual growth rate of 3.03
i
- percent.
i
t
j Two possxble problems present themselves within
I the context of Tables 6-11 and 6-12. The first is that
|
a bottleneck was developing in agriculture. Without
enough food there could not be rapid development in the
Table 6-12
Growth Under the Third Five Year Plan
%Growth over
61-62 62-63 63-64 64-65 65-66 1960-61
Net National
Income 130.6 131.1 139.7 150.0 146.6 15.16%
(In Rs. abja)
Per capita
Income 294.3 293.4 301.1 316.0 301.8 2.9%
(In rupees)
Source: India (Republic), Planning Commission, Statistics and
Survey Division, Basic Statistics Relating to the
Indian Economy, 1950-51 to 1966-67 (Delhi: Government
of India Press, 1968), p. 97
industrial sector. In the first place, there would not
have been enough food to feed the increased population
of industrial workers. And since,, agriculture remained
labor-intensive, there were few able-bodied workers to
spare for employment in the factories. Thus, a vicious
cycle was developing because of the lack of emphasis on
developing the agricultural sector.
The second problem that was beginning to assert
itself during the Third Five Year Plan was that of popu
lation. Even though the Indian economy did continue to
grow during the Third Five Year Plan, the per capita
income growth tended to lag behind, with an average
| annual growth rate of only 0.59 percent. During the two
!
| years when Net National Income rose, per capita Income
267
declined. By continuing to ignore the rapid rate of
growth of population, India was creating a problem that
would perhaps prove greater than the bottleneck in
agriculture.
The Fourth Five Year Plan
The situation created by the Indo-Pakistan
conflict, two succesive years of severe drought, deval-
i
uation of the currency, the general rise in prices, and
the erosion of resources available for plan purposes
delayed finalization of the Fourth Five Year Plan.
Instead, between 1966 and 1969, three Annual Plans were
formulated within the framework of the Draft Outline of
the Fourth Plan. The fact is that the state of the econ
omy and the non-availability of financial resources for
plan purposes kept down the size of development outlay
during this period.
The Fourth Plan (1969-74) aimed at accelerating
the tempo of development in conditions of stability and
at reducing fluctuations in agricultural production as
well as the impact of uncertainties of foreign aid. It
aimed at raising the standard of living of the people
! through programs which at the same time were designed to
I
promote equality and social justice. The plan laid par-
t
! ticular emphasis on improving the condition of the less
privileged and weaker sections of the society, especially
268
through the provision of employment and education.
Efforts were also directed towards reduction of concen
tration and wider diffusion of wealth, income and eco
nomic power. Total outlay in the Fourth Plan is indi
cated in Table 6-13.
Table 6-13
Total Outlay in the Fourth Plan
(in crores of rupees)
1. Agriculture and allied sectors 4323
2. Irrigation and flood control 1087
3. Power 2523
4. Village and small industries 853
5. Industry and minerals 5338
6. Transport and communications 4157
7. Education 873
8. Scientific research 140
9. Health 435
10. Family planning 315
11. Water supply and sanitation 406
12. Housing, urban and regional development 2412
13. Welfare of backward classes 142
14. Social welfare 41
15. Labor welfare and craftsman training 40
16. Other programs 192
17. Inventories 1600
Total 24882
Source: D. Butani, India of the 1970s (New Delhi:
Promilla & Co. Publishers, 1970), p. 306.
The Plan aimed at increasing the net domestic
product at 1968-69 factor cost from Rs 29,071 crores in
1969-70 to Rs 38,306 crores in 1973-74. In terms of
1960-61 prices, this implied an increase from Rs 17,351
crores in 1968-69 to Rs 22,863 crores in 1973-74. The
average annual compound rate of growth envisaged was
5.7 percent.^
NOTES FOR CHAPTER VI
^"D.H . Butani, India of the 1970s (New Delhi:
Promilla & Co., 1970), p. 45.
2
India, Ministry of Information and Broadcasting,
Planning and Development, Speeches of Jawaharlal Nehru
(1952-56) (Delhi: Government of India Press, 1956),
pp. 63-64.
3
India, Ministry of Information and Broadcasting,
Jawaharlal Nehru's Speeches, Volume Three; March 1953-
August 1957 (Delhi: Government of India Press, 1958),
p. 78.
4Ibid., pp. 79-80, 101-103.
5
Quoted by Jag Parvesh Chandra, India1s
Socialistic Pattern of Society (Delhi: Metropolitan
Book Company, 1956), p. 19.
g '
D.R. Gadgil, Planning and Economic Policy in
India (Poona: Gokhale Institute of Politics and
Economics, 1972), p. 111.
7 .
H.V.R. Iengar, Monetary Policy and Economic
Growth (Bombay: Vora and Company, 1962), pp. 70-71.
8
New York Times, November 4, 1963, p. 3.
9
Christian Science Monitor, November 25, 1963,
p. 13.
"^Butani, India of the 1970's, p. 45.
"^A.H. Hanson, Public Enterprise and Economic
Development (London: Routledge and Kegan Paul, 1959),
pp. 152-53.
12
Jagdish N. Bhagwati and Padma Desai, India:
Planning for Industrialization (London: Oxford University
Press, 1970), p. xviii.
13 . 1
Merrill R. Goodall, "Planning In India: !
Research and Administration," Public Administration j
Review, 17 {Spring, 1957), pp. 111-16. I
I
14 . ■
Gadgil, Planning and Economic Policy m India,
pp. 157-59. ;
15
Milton Friedman, "Economic Aid Reconsidered: A
Reply," Yale Review, 50 (Summer, 1961), p. 534.
■^Henry H. Schloss, "The Role of the Private j
Sector in the Indian Economy," Conference on Asian I
Studies, Grinnell, Iowa, 1961, p. 5. (Mimeographed.) 1
17
Govindan Nair, "Indian Economic Development," in
Democracy and National Development in India, ed. Edgar |
Mclnnis (Toronto: Canadian Institute of International
Affairs, 1960), p. 62.
18
United Nations, Department of Economic and
Social Affairs, World Economic Survey 1959 (New York,
1960), p. 89.
19
Quoted by Charles Wolf, Jr., "Economic Aid
Reconsidered," Yale Review, 50 (Summer, 1961), p. 528.
20
Edward S. Mason, Economic Planning in Under
developed Areas: Government and Business (New York:
Fordham University Press, 1958).
21
W . Arthur Lewis, The Theory of Economic Growth
(London: Allen and Unwin, 1955), p. 376.
22
W.W. Rostow, Industrialization and Economic
Growth (Cambridge, Mass.: Massachusetts Institute of
Technology, 1960), p.25.
23
Bhagwati and Desai, India: Planning for Indus
trialization, p. 138.
24
John Kenneth Galbraith, "Rival Economic Theories
in India," Foreign Affairs, 36 (July, 1958), p. 59.
272
25 '
Wilfred Malenbaum and Wolfgang Stolper, ;
"Political Ideology and Economic Progress: The Basic ;
Question," World Politics, 12 (April, 1960), pp. 420-21. i
f
o ^
C.E. Black, "The Politics of Economic Growth,"
World Politics, 13 (July, 1961), p. 632.
27
India, Ministry of Industry and Supply, Con-
j ference on Industrial Development in India (New Delhi:
| Government of India Press, 1948), pp. 13, 14, 147.
i , I
28 .
Coal; iron and steel; aircraft manufacture; !
shipbuilding; manufacture of telephone, telegraph and I
wireless apparatus, excluding radio, receiving sets; and |
mineral oils. j
29 '
United States, Department of Commerce, Invest- i
ment in India, Conditions and Outlook for United States
Investors (Washington: U.S. Government Printing Office,
1953), pp. 107-109. |
30
Heavy castings and forgings of iron and steel; :
| heavy plant and machinery required for iron and steel 1
! production, for mining, for machine tool manufacture, and ,
for such other basic industries as may be specified by !
the central government; heavy electrical plant, including
j large hydraulic and steam turbines; mining of iron, man-
! ganese, chrome, gypsum, sulphur, gold, and diamond; mining,
and processing of copper, lead, zinc, tin, molybdenum, andj
wolfram; and aircraft. i
31 '
These industries include: all other minerals
except "minor minerals" as defined in Section 3 of the
Minerals Concession Rules, 1949; aluminum and other non- j
' ferrous metals not included in Schedule "A"; machine j
| tools; ferro alloys and tool steels; basic and inter
mediate products required by chemical industries such as
1 the manufacture of drugs, dyestuffs, and plastics; anti
biotics and other essential drugs; fertilizers, synthetic I
rubber; carbonization of coal; chemical pulp; road trans- i
portation; and sea transportation. J
i |
32 I
India, Industrial Policy Resolution (New Delhi:
Government of India Press, 1956).
273
3 3
Harry Robinson, Industrial Development Policy
in India (Menlo Park, CA: Stanford Research Institute,
1956), p. 7.
34
India, Ministry of Law, The Companies Act, 1956
(New Delhi: Government of India Press, 1956).
3 5
| Matthew J. Kust, "A Partnership Approach,"
j India and the United States, ed. Selig S. Harrison (New
York: Macmillan Company, 1971), p. 151.
3 6
United States, Department of Commerce, Investment
in India, Basic Information for United States Businessmen
(Washington: U.S. Government Printing Office, 1961),
p. 143.
37
United Nations, Economic Commission for Asia
and the Far East, Economic Survey of Asia and the Far
East 1960 (Bangkok: 1961), p. 99.
oq
R.F. Nyrop et al., Area Handbook for India
(Washington, D.C.: Foreign Area Studies of the American
University, 1975), p. 233.
^Ibid. , p. 233 .
^India, Ministry of Information and Broadcasting, ,
India, a Reference Annual 197 6 (New Delhi: Ministry of !
Information and Broadcasting, 1976), p. 49.
^^Ibid., p. 52.
42 !
Butam, India of the 197 0's, p. 18. j
43
India, A Reference Annual 1974, p. 79.
■
44
Ibid., p. 79.
4 5
India, A Reference Annual 1976, p. 83.
^Ibid., pp. 95-96.
i
47
A. Maddison, Class Structure and Economic
Growth (New York: Norton & Company, Inc., 1971), p. 87.
274
^Ibid. , pp. 132, 143.
49
Ian Bowen and Brian J. Svxkhart, ed. Published
for the World Bank, Redistribution with Growth (London:
Oxford University Press, 1974), p. 256.
50
B. Jalan, Essays in Development Policy (New
Delhi: Macmillan Company of Indian Limited, 1975), pp.61-
62.
51
Ben W. Lewis, "Recent Developments in Eco
nomics," Liberal Education, 47 (May, 1961), pp. 269-71.
52
W.W. Rostow, "Some Reflections on Capital
Formation and Economic Growth," Capital Formation and
Economic -Growth, National Bureau of Economic Research
(Princeton: Princeton University Press, 1955), p. 642.
53
Ajit K. Biswas and Max G. Mueller, Population
Growth and Economic Development in India (Cambridge:
Massachusetts Institute of Technology, 1954), p. 6.
54
Geoffrey Tyson, "Foreign Investment in India,"
Inrernational Affairs, 31 (April, 1955), p. 176.
5 5
D.T. Lakdawala, International Aspects of Indian !
Economic Development (London: Oxford University Press, j
1951), p. 28. j
56 1
A.H. Hanson, The Planning Process; A Study of ,
India's Five Year Plans, 1950-1964 (New York: Oxford ;
University Press, 1966), pp. 35-41. j
I
57Ibid. I
1
5 8
Parshotamdus Tharkurdaset et al., The "Bombay \
Plan" for India's Economic Development (New York: i
Institute of Pacific Relations, 1944). |
59
Hanson, The Planning Process, p. 42.
^Shriman Narayan Agarwal, The Gandhian Plan
Reaffirmed (Bombay: Padma Publications, 1948).
275
Zygmut Bauman, "The Limitations of Perfect
Planning," in Bertram Gross, ed., Action Under Planning
(New York: McGraw-Hill, 1967), p. 109.
62
W. Arthur Lewis, The Principles of Economic
Planning (New York: Harper and Row, 1969), pp.XXV-XXVI.
6 3
i W. Arthur Lewis, Development Planning (New
i York: Harper and Row, 1966), p. 147.
I
64
! India (Republic), Planning Commission, Second
! Five Year Plan (Delhi: Government of India Press, 1956),
; p. 44.
^Ibid. , p. 45.
66Ibid., p. 50.
^Ibid. , p. 255.
^Planning Commission, Second Five Year Plan,
p. 255.
69
India, A Reference Annual 1976, p. 142.
276
CHAPTER VII 1
I
CONCLUSIONS
t
It is believed that the discussions in the
previous chapters of this work can be of much help in I
|
deriving appropriate conclusions in regard to our two j
hypotheses. These were: i
1. The fact that some democratic socialist
governments have been confronted with such economic prob- j
I I
j lems as inflation and unemployment is no basis for refut
ing democratic socialism, because these are not problems i
inherent in or unique to the institutions of democratic
socialism. Our hypothesis is that democratic socialism,
in the developed countries, has been a way of establish
ing more social justice and democracy without sacrificing j
economic growth. j
I
2. In developing countries the role of demo- ;
! " '
! cratic socialism is different from that in developed
countries. In developing countries the major focus is on
industrialization. Our hypothesis is that democratic
socialism can help these countries to move faster toward
this end, instead of relying on dictatorship to attain 1
1 it, while simultaneously promoting social justice.
I In regard to the first hypothesis, it seems that
the distribution of income has been a key problem in any
i
society for a long time. However, in the present situa- J
tion of the world, with existing advancements of tech
nology in areas such as mass communications, transporta-
I
j tion, as well as availability of educational opportuni-
j 1
j ties for all of the people regardless of their income, |
I
have made it possible for every individual to be aware -
more of the existing inequalities of income in the world
as well as his own country. Then, if he is one of the j
i
poor, it is reasonable to assume that he may try to do
what he can to get a bigger share of income in his soci- ;
l
ety. In this sense, the problem seems to be more vital j
than ever before. Failure to solve it can lead to costly ,
I
social problems that, because of time lags, may not be
possible to be solved in a democratic way.
As was discussed in previous chapters, such
countries as Great Britain and Sweden use the power of
i
government as an instrument for redistribution of income I
, I
in society for two main objectives: (1) greater equality
3
j in the money income distribution, (2) a guaranteed mini
mum standard., of living for all. j
I
As was also mentioned in previous chapters, the
immediate result of measures to achieve these objectives .
is an expansion of transfer payments. Transfer payments j
and taxes are the main tools by which governments can
278
provide for greater equality in the distribution of
income. A system of transfer payments financed by taxes
can alter a market-determined pattern of income distri
bution in a way that most of the transferred money goes
to people, specifically, to lower income people.
There are some arguments that it is not possible
to reduce inequality and, at the same time, sustain a
relatively high rate of economic growth. The case of
the Swedish economy contradicts these arguments. (Of
course, even if this were not so, government policy
inspired by the democratic socialist perspective and com
mitted to equality as a prime component of human welfare,
might give a lower priority to economic growth in favor j
of a policy of seeking to apply more egalitarian criteria ;
i
of welfare.)
i
I
Some writers seem to argue that since welfare
state measures have not worked as expected in a single
country, notably Great Britain, they will not work in any j
other state. But the case of the Swedish economy, as !
analyzed in this work (as well as several other Western
European industrial countries), shows that the social ,
services were much less advanced than in Britain at an j
earlier time. Now, Sweden can boast of much more advanced!
social services than Britain without having the problems !
that Britain is trying to solve. Britain's problems have
279
been profoundly affected by other elements than her wel-
I t
fare state measures, and by unique features of her geo- j
graphical, historical, and social background, as was
discussed earlier in this work. Therefore, it is not
j accurate to blame Britain's economic and social problems
!
entirely on her welfare and income redistributive pro
grams. At least, considering the complex pros and cons j
j
of British economic growth (or each thereof), we feel j
impelled to regard such a simplistic view as "not proved."!
I
Further, even if we were to attribute a significant por- J
tion of Britain's current economic ills to excessive
t
wage demands by organized labor (a position, as we saw I
earlier, which is open to debate), this would not per se j
i invalidate the democratic socialist view that growth and
equality are essentially reconcilable objectives, at
|
least over a fairly wide range— unless, that is, an egal- ]
; j
i itarian and welfare-oriented society is bound to be char
acterized by excessive wage demands. Again, the Swedish
t !
\ i
| experience, characterized by a reasonably successful ;
( j
national wage-price bargain, determined by a consortium i
of organized labor, employee associations, and govern- ;
i
ment, is instructive counterweight against overly sim
plistic analysis.
i
! In regard to our second hypothesis, we should
i
1 recognize that the expansion of government activities in !
advanced countries, rapid though it seems when viewed |
against the backdrop of history, has nevertheless been at j
a pace which allowed time for adjustment and for marshal- j
ing of resources. The gap between expectations and the j
|
standard of living currently available usually reflected
I a time lag in responsiveness rather than the absence of
the means by which to meet demands. In contrast, devel
oping countries have, within the course of a single gen- j
]
eration, become involved in cataclysmic change. Rapid j
j
growth in international communications, travel, and j
trade have brought into sharp relief the vast differences !
I
that exist in standards of life. The impact has been j
I
I
sudden and dramatic, and these nations are now faced with i
a truly monumental task. It is nothing less than that ,
i
of transferring a nation with a culture, a social and ,
political framework, and human material resources appro- |
priate to the eighteenth century into a modern twentieth- ;
century state. To bridge the centuries and to provide
within a short space of time the basic facilities of a \
I ‘
| modern society which more advanced countries took decades i
to provide is the nature and magnitude of the task.
Besides, developing countries cannot stop the clock while j
I
they plan their future development; both planning and
!
I execution have to be accomplished while the difficult
I - i
I . I
day-to-day tasks are carried out.
281
Inevitably, it is to the government that people
look to achieve the transformation in every aspect of
their lives, especially in the areas of economic devel- I
I
opment, social justice, and more even income distribution I
i
that the majority of the people in the developing coun-
! tries so earnestly desire. This is not a matter of pref
erence but simply the realization that only the govern
ment can tackle the gigantic problems involved. The need :
i
stems from the weakness of the private sector typical of j
developing nations and is attributable to the lack of ]
mutual trust and confidence essential to private invest
ment. Such private institutions as do exist undoubtedly i
I
have a part to play, but, without over-all coordination, j
development in the various sectors would be haphazard and ,
the right pace would not be set.
For developing countries, where responsibility
for national advancement rests almost entirely with the
government, the role of the government sector as the ' '
instrument by which national goals are to be achieved, j
is of prime importance.
The central planning organization has to play an
i
important part in formulating national goals and establish-*
ing major policies— more so than occurs in the capital- |
istic Western countries and to some extent less than what
j they do in the communist countries of the Eastern bloc.
I In this way, and without sacrificing freedom like the com-i
I
munist countries, the government should try to improve
the economy and smooth the road for the industrialization ,
I
of the country. In doing so, the government of every
j country has problems of its own to overcome and obviously,
!
j the bigger the problems, the more difficult is the road.
t
In the case of India, as we have seen,the most
important problems are the large population, the overall
poverty, and the uneven distribution of income in the
country. Extreme poverty in the country ; grips a vast
proportion of population. The vicious circle of poverty
i
i
leads from low labor productivity, insufficient income, |
i
and lack of food to poor health, little education, and I
high birthrates, and back to extreme poverty. That
circle cannot be broken solely by minor levies on the
rich to provide low-cost welfare programs. Such programs ;
can not be useful to the poor unless a much larger
income places a much greater supply of goods in their
hands. These are the problems that only government may
be in a position to attempt to resolve. And to do so,
without appealing to dictatorship or totalitarian methods,
it seems that some form of Democratic Socialism is the
only possible way.
J In the circumstances of India, policies aimed at
I
| improving the agricultural and industrial sectors of the
economy, building infra-structures, raising the produc
tivity of the masses of workers, especially of those who
are unskilled or lacking the means of production, will
contribute both to the growth of output and to the wel
fare of the society.
Since Independence, India has adopted the demo
cratic socialist ideology and development planning.
This adoption registers her cultural conviction and
reflects her practical wisdom as a nation committed to
the idea of justice, liberty, equality, and fraternity.
But to reach the goal is a difficult task, particularly
because the ideology does not have the support of
resources, both financial and personnel. However, it
seems that the way India is going, in combining social
justice with economic growth, is the right way. They
are achieving a reasonable rate of economic growth— con
sidering the country's overall poverty, over-population,
and inadequacy of resources— without extreme human sacri
fices and through democratic institutions.
BIBLIOGRAPHY
Adler-Karlson, Gunnar. Functional Socialism: A Swedish
Theory for Democratic Socialization. Stockholm:
Bokforlaget Prisma, 1969.
Agarwal, Shriman Narayan. The Gandhian Plan Reaffirmed.
Bombay: Padma Publications, Ltd., 1948.
Allen, G.C. The British Disease. London: The Institute
of Economic Affairs, 1976.
Bauman, Zygmut. "The Limitations of Perfect Planning."
In Action Under Planning. Edited by Bertram
Gross. New York: McGraw-Hill, 1967.
Beer, M. History of British Socialism. 2 vols. London:
G. Bell and Sons, Ltd., 1929.
Bernstein, Eduard. Evolutionary Socialism. New York:
B.W. Huebsch, 1909.
Ghagwati, Jagdish N., and Desai, Padma. India: Planning
for Industrialization. London: Oxford Universityi
Press, 1970. !
Biswas, Ajit K., and Mueller, Max G. Population Growth
and Economic Development In India. Cambridge:
Massachusetts Institute of Technology, 1954. ;
Black, C.E. "The Politics of Economic Growth." World |
Politics 13 No. 4 (July 1961): 622-632. :
Blackett, P.M.S. Technology, Industry and Economic j
Growth. London: The Camelot Press, Ltd., 1966'. i
Bowen, Ian, and Svikhart, Brian J., ed. Published for
the World Bank. Redistribution with Growth. ;
London: Oxford University Press, 1974. j
i
Bray, Jeremy. Decisions In Government. London: Victor
Gollancz, Ltd., 1970). I
i
i
Britain 1975: An Official Handbook. London: Her J
Majesty's Stationery Office, 1975.
Brown, Alan A., and Neuberger, Egon. "Basic Features of
A Centrally Planned Economy." In Comparative
Economic Systems: Models and Cases. Edited by
Morris Bornstein. Homewood, 111.: Richard D.
Irwin, Inc., 1969.
Brown, E.H. Phelps. "The Dispersive Revolution." In
Crisis '75? London: The Institute of Economic
Affairs, 1975.
Buckingham, Walter S. Theoretical Economic Systems: A
Comparative Analysis. New York: The Ronald
Press Company, 1958.
Burnett, F.C. "Some Issues In the Income Policy Debate
Discussion." In Wages, Prices, Profits, and
Economic Policy. Edited by John Crisps. Toronto,
Canada: Univerity of Toronto Press, 1968.
Butani, D.H. India of the 1970s. New Delhi: Promilla
and Co., Publishers, 1970.
Cairncross, Sir Alec., ed. Britain's Economic Prospects
Reconsidered. Albany: State University of New
York Press, 1972.
Carpenter, Niles. Guild Socialism: An Historical and
Critical Analysis. New York: D. Appleton and
Company, 1922.
Carter, G.M., and Herz, J.H. Major Foreign Powers. New ,
York: Harcourt, Brace and World, 1967. |
Caves, Richard E.; Cooper, Richard N.; Denison, Edward F.;
Kareken, John H.; Krause, Lawrence B.; Musgrave,
Richard A.; Musgrave, Peggy B.; Peck, Merton J.;
Shepherd, William G.; Smith, David C.; and Ulman,
Lloyd. Britain's Economic Prospects. Washington:
The Brookings Institution, 1968.
Chandra, Jag Parvesh. India's Socialistic Pattern of
Society. Delhi: Metropolitan Book Company, 1956.
Childs, Marquis. Sweden: The Middle Way. New Haven:
Yale University Press, 1961.
Christian Science Monitor. November 25, 1963
286
Cole, G.D.H. Guild Socialism Re-stated. London:
Leonard Parsons, 1920.
___________ . Self-Government in Industry. London:
Bell Publishing Co., 1920.
Court, W.H.B. British Economic History 1870-1914.
London: Cambridge University Press, 1965.
Crosland, C.A.R. The Future of Socialism. New York:
; Shoeken, 1963.
I
i Crossman, R.H.S., ed. New Fabian Essays. London:
Turnstile, 1952.
Danison, Edward F. Why Growth Rates Differ. Washington:
Brookings Institution, 1967.
Das, N. The Indian Economy Under Planning. Calcutta:
The World Press, Private Limited, 1972.
Davies, Christie. Incentive to Invest. London: Con
servative Political Center, 1972.
Dobb, Maurice. Soviet Economic Development Since 1917.
New York: International Publishers, 1948.
Dorfman, Gerald A. Wage Politics In Britain 1945-1967.
Ames, Iowa: The Iowa State University Press,
1973.
Durbin, E.F.M. The Politics of Democratic Socialism.
New York: Augustus M. Kelly Publishers, 1969.
Paul. Decline and Fall? Britain's Crisis In
the Sixties. London: Macmillan and Co. Ltd.,
1969.
Friedrich. "Socialism, Utopian and Scientific."
In Selected Works. Moscow: Co-operative Pub
lishing Society of Foreign Works In the USSR,
1935.
Fellner, William; Gilbert, Milton; Hanson, Bent; Kahn,
Richard; Lutz, Frederic; and Wolff, Pieter. The
Problem of Rising Prices. Paris: The Organiza
tion for European Economic Co-operation, 1961.
Einzig,
Engels,
Fleisher, Frederic. The New Sweden: The Challenge of A
Disciplined Democracy. New York: David McKay j
Company, Inc., 1967.
Fleisher, Wilfred. Sweden, The Welfare State. Westport,
Conn.: Greenwood Press, 1973.
Friedman, Milton. "Economic Aid Reconsidered: A Reply."
Yale Review 50 (Summer 1961): 533-40.
Gadgil, D.R. Planning and Economic Policy In India.
| Poona: Gokhale Institute of Politics and :
j Economics, 1972. I
I
I Galbraith, John Kenneth. "Rival Economic Theories In
I India." Foreign Affairs 36 (July 1958): 587-96.
Gay, Peter. The Dilemma of Democratic Socialism. New i
York: Columbia University Press, 1952.
Goodall, Merrill P. "Planning In India: Research and
Administration." Public Administration Review i
17 (Spring 1957): 111-16. ]
I
Goteborgs Bank. Economic Survey. Stockholm: Economic j
Intelligence Department of the Goteborgs Bank,
1971.
Great Britain, Central Office of Information. The New
British System of Taxation. London: Her
Majesty's Stationery Office, 1973.
Great Britain, Central Statistical Office. Social Trends.!
London: Her Majesty's Stationery Office, 1971-72.
i !
! Great Britain, National Income Blue Book, 1971. 1
London: Her Majesty's Stationery Office, 1971. i
Gruchy, Allen G. Comparative Economic Systems. Boston: j
Houghton Mifflin Company, 1966.
Halm, George N. Economic Systems: A Comparative Analysis.
New York: Holt, Rinehart and Winston, Inc., j
1960.
Hancock, M. Donald. Sweden, The Politics of Post- j
Industrial Change. Hinsdale, 111.: The Dryden j
Press, Inc., 1972. i
Hanson, A.H. Public Enterprise and Economic Development.
London: Routledge and Kegan Paul, 1959. j
____________. The Planning Process: A Study of India's j
Five Year Plans, 1950-1964. New York: Oxford I
University Press, 1966.
Hobson, S.G. National Guilds and the State. New York:
j Macmillan, 1919.
I
! Hoffman, W. British Industry 17 00-1950. Translated by
I W.O. Henderson and H.W. Chaloner. London:
j Oxford University Press, 1955.
i
i
Hufford, Larry. "Sweden: The Myth of Socialism." In
Young Fabian Pamphlet 33. London: Fabian
Society, 1973. , i
(
Iengar, H.V.R. Monetary Policy and Economic Growth. i.
Bombay: Vora and Company, 1962. |
I
India, Ministry of Industry and Supply. Conference on
Industrial Development In India. New Delhi:
Government of India Press, 1948.
India, Ministry of Information and Broadcasting. India,
A Reference Annual 1976. New Delhi: Ministry
of Information and Broadcasting, 1976.
___________ . Jawaharlal Nehru*s Speeches; March 1953- i
August 1957. 3 vols. Delhi: Government of \
India Press, 1958. :
___________ . Planning and Development, Speeches of j
Jawaharlal Nehru (1952-56). Delhi: Government i
of India Press, 1956. j
India, Ministry of Law. The Companies Act, 1956. New
Delhi: Government of India Press, 1956. i
i
India (Republic), Planning Commission. Review of the j
I First Five Year Plan. Delhi: Government of
India Press, 1951.
___________ . Second Five Year Plan. Delhi: Government
of India Press, 1956. i
i
I
289
India (Republic), Planning Commission, Statistics and
Survey Division. Basic Statistics Relating to
the Indian Economy, 1950-51 to 1966-67. Delhi:
Government of India Press, 1968.
Jalan, B. Essays In Development Policy. New Delhi:
Macmillan Company of India Limited, 1975.
Jay, Douglas. Socialism in the New Society. New York:
St. Martin's Press, 1963.
| Johnston, T.L. Collective Bargaining In Sweden. London:
I George Allen and Unwin, Ltd., 1962.
i
! Johnsons, Walford; Whyman, John; and Wykes, George. A
Short Economic and Social History of Twentieth
Century Britain. London: G. Allen and Unwin,
1967.
Kaldor, Nicholas. Causes of the Slow Rate of Economic
Growth of the United Kingdom. London: Cambridge
University Press, 1966.
Kelf-Cohen, R. British Nationalization 1945-1973. New
York: St. Martin's Press, 1973.
Keynes, John Maynard. The General Theory of Employment,
Interest and Money. London: Macmillan and
Company, Ltd., 1936.
Kirschen, E.S., ed. Economic Policies Compared: West
and East. 2 vols. Amsterdam: North Holland
Publishing Co., 1974-75.
Klein, Phillip A. The Management of Market-oriented
Economies: A Comparative Perspective. Belmont,
CA: Wadsworth Publishing Company, Inc., 1973.
Kregel, J.A. The Reconstruction of Political Economy.
New York: John Wiley and Sons, 1973.
Kust, Matthew J. "A Partnership Approach." In India
and the United States. Edited by Seling S.
Harrison. New York: Macmillan Company, 1971.
Laidler, H.W. History of Socialism. New York: Thomas
Y. Crowell Co., 1968.
Lakdawala, D.T. International Aspects of Indian
Economic Development. London: Oxford University
Press, 1951.
Lange, Oskar. The Political Economy of Socialism.
The Hague: Van Kevlen, 1958. '
Lange, Oskar, and Taylor, Frederich M. On the Economic
Theory of Socialism. New York: McGraw-Hill,
I 1964.
I
j Lansburry, Russell. "Swedish Social Democracy." in Young |
i Fabian Pamphlet 29. London: Fabian Society, I
! 1972. '
i
Leff. N.H. "Marginal Savings Rates in the Development
Process: The Brazilian Experience." Economic
Journal 78 (Sept. 1968): 610-23.
Lewis, Ben W. "Recent Developments In Economics." i
Liberal Education 47 (May 1961): 267-72. j
Lewis, W. Arthur. Development Planning. New York: |
Harper and Row, 1966.
___________ . Development Planning: The Essentials of 1
Economic Policy. New York: Harper and Row,
1966.
____________. The Principles of Economic Planning. New
York: Harper and Row, 1969.
____________. The Theory of Economic Growth. London:
George Allen and Unwin, 1955.
Lindbeck, Assar. Swedish Economic Policy. Berkeley: {
University of California Press, 1974. i
Livingston, James M. The British Economy In Theory and
Practice. New York: St. Martin's Press, 1974. j
i
London and Cambridge Economic Services. The British
Economy; Key Statistics, 1909-1970. London: j
Published for the London and Cambridge Economic j
Services by Times Newspapers, 1971. I
| Louck, William N., and Whitney, William G. Comparative
Economic Systems. 8th ed. New York: Harper,
1969.
291
Lundberg, Erik. "Sweden's Economy In An International
Perspective." Skandinaviska Banken Quarterly
Review 49 (First Quarter 1968); 1-5.
Macrosty, Henry W. "State Controls of Trusts." in Fabian
Tract 124. London: Fabian Society, 1905.
Maddison, A. Class Structure and Economic Growth. New
York: Norton and Company, Inc., 1971.
___________ . Economic Growth In the West: Comparative
Experience In Europe and North America. A
Twentieth Century Fund Study. New York: ;
Twentieth Century Fund, 1964. I
i
Malenbaum, Wilfred, and Stopler, Wolfgang. "Political j
Ideology and Economic Progress: The Basic j
Question." World Politics 12 No. 3 (April 1960): 1
413-21.
Marchal, J., and Ducros, B., ed. The Distribution of
National Income. New York: St. Martin's Press,
1968.
Marx, Karl. Capital. 3 vols. Chicago: Charles H.
Kerr and Company, 1906-09.
Marx, Karl, and Engels, Friedrich. Manifests of the
Communist Party. New York: International
Publishers, 1948.
Mason, Edward S. Economic Planning In Underdeveloped
Areas: Government and Business. New York:
Fordham University Press, 1958.
, ed. The Corporation In Modern Society.
Cambridge, Mass.: The Harvard University Press,
1959. j
i
Meade, James E. "An Effective Social Contract." In
Crisis *75? London: The Institute of Economic i
Affairs, 1975. j
___________ . Efficiency, Equality, and the Ownership of
Property. Cambridge, Mass.: Harvard University |
Press, 1965. j
i
Myrdal, Gunnar. Asian Drama: An Inquiry into the
Poverty of Nations. 3 vols. New York: Pantheon,i
1968. !
i
292
Nair, Govindan. "Indian Economic Development." In
Democracy and National Development in India. (
Edited by Edgar Mclnnis. Toronto: Canadian |
Institute of International Affairs, 1960. j
New York Times. November 4, 1963. I
-------------------------------------------------------------------------- I
Nyrop, Richard F.; Benderly, Beryl Lieff; Cover, William
W.; Cutter, Melissa J.; and Parker, Newton B.
Area Handbook For India. 3rd ed. Washington,
D.C.: Foreign Area Studies of the American
I University, 1975. j
[
j OECD Food Consumption Statistics 1955-1971. Paris:
Organization for Economic Cooperation and i
Development, 1971. j
Organization For European Economic Development. The |
Outlook For Economic Growth. Paris: Organization!
For European Economic Development, 1970. !
i
Parker, M. St. J., and Reid, D.J. The British Revolution I
1750-197 0: A Social and Economic History. i
London: Blandford Press, 1972. '
Payne, R., and Hartman, G.W. Democratic Socialism. New
York: Three Arrows Press, 1948. :
Pollard, Sidney. The Development of the British Economy
1914-1967. New York: St. Martin's Press, 1969. !
j
Prest, A.R., and Coppock, D.J., ed. The UK Economy: A J
Manual of Applied Economics. London: Weidenfeld !
and Nicolson, 1972. !
i
Radice, Giles. Democratic Socialism: A Short Survey. I
London: Longmans, 1965. •
Rao, V.K.R.V. "Redistribution of Income and Economic |
Growth in Underdeveloped Countries." In Income
and Wealth: Series X. Edited by Colin Clark and I
Geer Stubel. London: Bowes and Bowes Publishers,
1964. !
Robinson, Harry. Industrial Development Policy In India.
Menlo Park: Stanford Research Institute, 1956.
Robinson, Jean, and Eatwell, J. An Introduction to Modern1
Economics. Maidenhead: MacGraw-Hill, 1973.
Rostow, W.W. Industrialization and Economic Growth.
I Cambridge: Massachusetts Institute of Technology,
1960. |
I
___________ . "Some Reflections on Capital Formation and j
Economic Growth." Capital Formation and Economic
Growth. Princeton: Princeton University Press,
1955.
I
! ___________ . The Stages of Economic Growth. Cambridge:
; Cambridge University Press, 1960.
i i
I Schloss, Henry H. "The Role of the Private Sector In
J the Indian Economy." Conference on Asian Studies.
■ Grinnell, Iowa: 1961. (Mimeographed.)
i
! Schnitzer, Martin. Income Distribution. New York: |
Praeger Publishers, 1974. j
___________ . The Economy of Sweden. New York: Praeger I
Publishers, 1970. :
Schumacher, E.F. Small is Beautiful: Economics as if |
People Mattered. New York: Harper and Row !
Publishers, 1973. j
Schumpeter, Joseph. Capitalism, Socialism and Democracy, j
New York: Harper, 1950.
Shanks, Michael. "Is Britain Viable?" In Fabian Tract 378.
London: Fabian Society, 1967.
I t
I
Shaw, George Bernard. "Bluffing the Value Theory." j
Today, May 1889, pp. 12-15.
Shaw, George Bernard; Webb, Sidney; Clark, William; |
Oliver, Sir Sidney; Besant, Annie; Wallace, j
Graham; and Bland, Hubert. Fabian Eassays. 1
Boston: Ball Pub. Co., 1908.
Shonfield, Andrew. Modern Capitalism. London: Oxford j
University Press, 1965. I
Smith, Henry. The Economics of Socialism Reconsidered.
London: Oxford University Press, 1962.
I
j Strachey, John. "The Objects of Further Socializations."
1 Political Quarterly 24 (Jan.-March 1953): 68-77.
294
I Struik, Dirk. The Economic and Philosophical Manuscripts *
of 1844. New York: International Publishers,
1964. i
Swamy, S. Economic Growth in China and India 1952-1970. j
Chicago: The University of Chicago Press, 1973. j
Sweden, Central Bureau of Statistics. National Accounts.
Stockholm: Central Bureau of Statistics, 1972.
_. Statistical Abstract of Sweden. Stockholm:
■ Central Bureau of Statistics, 1973.
I
Sweden, Ministry of Finance. The Swedish Economy 1966- '
1970. Stockholm: Ministry of Finance, 1966. I
----------------------------------------------------------- I
Sweden, Ministry of Finance and the National Institute of !
Economic Research. The Swedish Economy. Revised J
National Budget 1975. Stockholm: Economic
Department of the Ministry of Finance and the
National Institute of Economic Research, 1975.
_. The Swedish Economy. Revised National [
Budget 1976. Stockholm: Economic Department of
the Ministry of Finance and the National Institute I
of Economic Research, 1976. i
Sweezy, Paul M. Socialism. New York: McGraw-Hill, 1949..
The British Economy. London: Central Office of Informa- !
tion, Reference Division, 1967. j
i
The Hudson Institute Europe. The United Kingdom in 1980.
New York: John Wiley and Sons, 1974.
Tyson, Geoffrey. "Foreign Investment In India." j
International Affairs 31 (April 1955) : .174-81. ;
i
j United Nations, Department of Economic and Social Affairs.|
I World Economic Survey 1959. New York, 1960.
United Nations, Economic Commission for Asia and the Far '
East. Economic Survey of Asia and the Far East :
1960. Bangkok, 1961. i
| United States, Department of Commerce. Investment In
j India: Basic Information for United States
i Businessmen. Washington: U.S. Government !
i Printing Office, 1961.
295
Investment In India, Conditions and Outlook
for United States Investors. Washington: U.S. ;
Government Printing Office, 1953. j
i
Von Mises, Ludwig. "Economic Calculation In the Socialist!
Commonwealth." In Collectivist Economic Planning.
Edited by Frederick A. Van Hayek. London:
George Routledge & Sons, 1935.
Williams, L.J. Britain and the World Economy, 1919-197 0.
Fontana, Great Britain: Collins Sons and Co.,
Ltd., 1971.
Wolf, Charles. "Economic Aid Reconsidered." Yale
Review 50 (Summer 1961): 518-32.
Wootton, Barbara. Plan Or No Plan. London: Victor
Gollancz, 1934.
World Tables 1976. Baltimore: The Johns Hopkins
University Press, 1976.

Linked assets

University of Southern California Dissertations and Theses

Conceptually similar

PDF

Middle-aged men in the labor force: A graphical and empirical exploration of health capital, disability insurance, and time allocated to work

PDF

Selected aspects of full employment policies in France, West Germany and the United Kingdom, 1955-1969

PDF

The economics of education of the urban ghetto

PDF

Land tenure and national development in a labor surplus economy: The case of Mexico

PDF

Export development of Iran, 1900-1982

PDF

Fully rational optimization, costly information, and the neutrality

PDF

Some estimates of potential wealth effects from policy actions under various monetary-real sphere transmission models

PDF

An application of economic growth models to the experience of Turkey

PDF

Exchange Rate Policy And Export Performance

PDF

The impact of exports upon Korean economic growth during the decade 1962-1972

PDF

Investor actions and forecasted earnings in an efficient market

PDF

The approval and performance of SBA business loans: A study of managerial and financial profiles

PDF

A discriminant analysis of financial ratios as predictors of real estate investment trust failure

PDF

The feasibility of using decision-making style as a criterion for career assignments in the United States Air Force

PDF

Money, credit and economic growth in fragmented economies

PDF

An Application of the Global Monetarist-Wedge model to post-1973 Chilean economic policies and the effects of these policies on macroeconomic, social and political variables

PDF

United States versus Soviet Union aid to Afghanistan (1950-1961)

PDF

MBO in the U.S. Forest Service: An analysis of two implementation strategies

PDF

Two essays in political economy of education and economics of immigration

PDF

The Scottish economists and the theory of international trade (1752-1776)

Asset Metadata

Creator Nakhai-Aghmiuny, Manizheh (author)

Core Title Democratic socialism: Reconciling social justice and economic growth

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest,political science, general

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Elliott, John E. (committee chair), Morgner, Aurelius (committee member), Pounders, Cedric Jack (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-266049

Unique identifier UC11259191

Identifier DP23300.pdf (filename),usctheses-c20-266049 (legacy record id)

Legacy Identifier DP23300.pdf

Dmrecord 266049

Document Type Dissertation

Rights Nakhai-Aghmiuny, Manizheh

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA