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What Is Twenty-First-Century Socialism?
By John E. Roemer

The failures of communism in the twentieth century were an indictment not of socialism but of autocracy and central planning. After four decades of Gilded Age-style capitalism, it is time to give cooperative production and egalitarian distribution another try, this time through a democratic "sharing economy."
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Socialism is back on the political agenda in the United States. Two household names on the American left, US Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, are self-declared socialists. And most of the current crop of Democratic Party presidential candidates support policies that many call socialist – single-payer health insurance, guaranteed employment, massive infrastructural investment, universal pre-school, and state-financed tertiary education. Moreover, around half of younger Americans tell pollsters that they prefer socialism to capitalism (though what they have in mind is more akin to social democracy than socialist central planning).

Socialism can be thought of as consisting of three linked pillars: an ethos of economic behavior, an ethic of distributive justice, and a set of property relations that conform to the ethos and implement the ethic. If people behave according to the ethos, and implement the property relations, the distributive ethic should be realized. Our understanding of these three pillars evolves as history unfolds. To determine what twenty-first-century socialism is, we should identify its philosophical underpinnings, compare them with capitalism, and then present several socialist variants.

The behavioral ethos of socialism is cooperation. Citizens of a socialist society should recognize that they are engaged in a cooperative enterprise to transform nature in order to improve the lives of all. A socialist society’s distributive ethic is one that favors pervasive equality of opportunity.

The philosopher John Rawls argued that no one deserves to benefit or suffer by dint of the resources they are assigned in the “birth lottery.” These resources include not only the wealth of the family into which a child is born, but all the possible advantages that accrue to a person by virtue of birth, including a fortunate endowment of inborn traits.

This view does not imply that socialists advocate genetic engineering, only that those with more fortunate endowments (both material and genetic) do not deserve to receive higher incomes than those who are less fortunate. Equality of opportunity requires compensating those who suffered bad luck in the birth lottery with substantial education and training.

To that end, the property relations of socialism are meant to implement pervasive equality of opportunity, so far as this is possible in a market economy, and to reflect the cooperative ethos of economic behavior. Large firms (although not small ones) would not have owners to whom profits accrue. Rather, the entire income of firms would be distributed to those who contribute production inputs of labor and capital.

It is useful to contrast these socialist pillars with the analogous pillars of capitalism. The behavioral ethos of capitalism is individualism: economic activity is characterized as the struggle of each person against all other persons and nature. The distributive ethic of capitalism is laissez-faire: it is right and admirable for individuals to prosper materially without limit, as long as they do not interfere with the opportunity of others to likewise. Children may rightly gain by virtue of everything they receive in the birth lottery, and others may duly suffer by sheer bad luck. Freedom of contract is paramount, even if its consequences are to impede equality of opportunity (as inheritance of vast wealth surely does). Property relations in firms are private: individuals own firms, and their profits accrue to the owners after the costs of production are met, including the payment of wages to labor and rent or interest to investors.

Under this variant of socialism, the entire product of large firms would thus be allocated to those who contribute to production. There would be no class of non-contributing shareholders, nor would there be a stock market through which ownership in firms could be traded. Large firms would effectively be owned by those who directly contribute the factors of production.

Paying investors for their contributions to production might strike some socialists as contradicting Karl Marx’s view that, under socialism, income should be distributed entirely to workers. Marx’s view was appropriate in Britain in 1850, when essentially all financial wealth was owned by the richest few centiles of the citizenry, who mainly had acquired their wealth as landed aristocrats. Today, however, 56% of financial wealth in America is owned by the middle and upper-middle classes (the 50th-99th percentiles), and the amount of capital invested per worker in the American corporate sector is over $400,000.

Thus, any form of democratic socialism now or in the future must induce citizens to invest their wealth as well as their labor profitably. The obscene wealth of those at the very top should be taxed away: the top 1% today own 42% of American financial wealth. But the wealth of today’s middle class is not all “dripping from head to foot, from every pore, with blood and dirt,” as Marx wrote of capital accumulation in early-capitalist Britain, and it must not be expropriated.

One of the principal advertisements for the capitalist economic mechanism – markets plus competition plus private ownership of firms – is that, under somewhat idealized conditions, it delivers a “Pareto efficient” allocation of commodities and resources. No resources are being wasted or squandered, because it is impossible to find another allocation that improves one person’s welfare unless some other person’s welfare is decreased. But the same is true of a sharing economy. Indeed, Pareto efficiency follows directly from the socialist cooperative ethos. As anticipated in Franklin’s quip, “hanging together” gives workers and investors a precise recipe for making economic decisions.

By my calculation, in a sharing economy, taxing and redistributing the wealth that the top 5% holds in excess of the bottom 95% would reduce the average income of a household in the top decile to around 5.4 times that of an average household in the bottom half – which is roughly the ratio in Sweden today. And this scenario considers just a wealth tax, not further redistribution through income and value-added taxation.

A sharing economy has important advantages over social democracy, starting with the fact that a class of non-productive owners would cease to exist. The distribution of the entire income of large firms (most of which are currently held in the corporate form) to those who contribute the factors of production would enhance the ethos of cooperation that is central to socialism. Of course, there would still be a need for a welfare state to provide temporary social insurance and to support those who cannot work.

Skeptics will argue that it is utopian to postulate a society in which workers and investors are motivated by a desire to cooperate. But this wrongly assumes that “going it alone” is human nature. In fact, evolutionary psychologists now argue that the capacity for cooperation is the principal feature of homo sapiens that explains our economic success. Ten thousand years ago, the largest human society in which peace flourished was the band, consisting of at most several hundred people. The modal form of interaction between such bands was war, which took the lives of 25-50% of all men. Today, generally peaceful societies comprising millions, hundreds of millions, or even more than one billion people are now the norm. In Europe, the death rate from homicide and war has fallen to one in 100,000. What more evidence do we need for the innate human capacity for cooperation?

The question, then, is how a country can move from capitalism to the kind of sharing economy I have outlined. In Europe, quite a few countries have already included workers and other stakeholders on corporate boards. This is a first step. Equally important is wealth taxation, especially on billionaires, so that the top 1% of households do not own over 40% of financial assets. At most, this cohort should not own more than 10% of a country’s financial wealth. As for the distribution of corporate income entirely to those who contribute labor and capital to the firm, there is no technological hurdle standing in the way. Corporate law would have to be changed.

Wouldn’t the economy suffer from the gradual disappearance of the stock market? Not according to thoughtful economists like John Maynard Keynes, who likened stock exchanges to a casino, or former Federal Reserve Chair Paul Volcker, who quipped in 2009 that the most important financial innovation of the previous years was the ATM. After all, firms would continue to maximize profits. But in the absence of a small class of equity holders whose income depends largely on profits, the choices made by corporate boards would change for the better, just as firms today that include non-owner stakeholders pay more attention to the negative externalities of unmitigated profiteering.

Finally, on the question of whether we can easily replace the individualist ethos with a cooperative one, to point out that millennia of history attest to our species’ cooperative capacity does not settle the matter. One also must understand why so many people accept cutthroat competition as if it were some sort of physical law: fostering the ethos of individualism is and always has been a primary ideological task of the capitalist class.

That class and its spokespeople have been remarkably successful in altering public consciousness, such that we have forgotten the relatively more cooperative society of the postwar era. The reversal was engineered in no small part by charismatic politicians like US President Ronald Reagan and British Prime Minister Margaret Thatcher in the 1980s, and by a financially beholden press. Individualism and consumerism have been fostered through the media, while trade unions – cooperative institutions par excellence – have been smashed.

In 1949, Albert Einstein described socialism as mankind’s attempt to advance beyond the predatory phase of human development. In many cases, the socialist experiments of the twentieth century were just that. The recent rekindling of interest in socialism in America indicates that a new generation – one that hardly recalls those experiments – is looking for an attractive alternative to our new Gilded Age and its attendant pathologies. They should look to the sharing economy.

John E. Roemer is Professor of Political Science and Economics at Yale University.
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