Date: Fri, 11 Apr 1997 07:32:06 -0400 (EDT)
From: louisgodena-AT-ids.net (Louis R Godena)
Subject: M-I: Re: Property Rights Analysis & the "Ubiquitous Market"



Peter writes:

>Markets of some sort _are_ ubiquitous.   Indeed they are
>much more evident in third world countries than in the 
>capitalist west.     Many people with wretched incomes in
>the poorer countries earn their livelihood by primitive markets:
>the peddling of goods,  repairing cars or farm equipment, the
>offering of transport in ancient cars and buses...Olsen points 
>out that markets were also widespread in those (former) countries
> of "actually existing socialism"...much the most important markets 
>were the informal networks that developed between state-owned
>enterprises.   No national plan could predict how much was
>needed by each enterprise in materials and components...
>To prevent production from seizing up,  managers had to get
>together in numerous information exchanges.

But a distinction has to be made between the kinds of market that helps
propel a society into western-style growth and those that do not.    This is
the real function of Professor Olson's "property rights" analysis.
Stalinist Russia, he says,  was extremely effective in maximizing tax
revenue and also work incentives of a fairly sophisticated kind -- all with
the aim of building the state's military and industrial might.    Later
effective property rights passed inexorably to the enterprises from which
the surplus had formerly been extracted.    The "nomenklatura" that ran them
became the main obstacle to the "reforms" of Gorbachev and others (as well
as a source of inefficiency,  of favoritism,  and of inflationary demands
for credit).    What matters to the IMF now is not the *speed* of
privatization but how vigorously the old Red "nomenklatura" can be liquidatd.

On the other hand,  it has been provocatively suggested that capitalist
"reform" was actually more speedily advanced in China because the Cultural
Revolution -- in spite of economically disastrous short-term effects -- did
destroy the old nomenklatura and enable a new variant -- the "planned
market" of Deng Xiao Ping -- to be based on individual incentives.    When
Roderick McFarqhuhar first proposed this in a talk at Harvard in 1986,  I
found the idea novel and shocking;  I have sinced come closer to this view.    

At the same time,  western investors recognize that market regimes -- of
whatever political color -- will be effective only if some absolute "rule of
law" replaces the Communist Party.    In other words,  to realize all gains
>from trade,  there has to be a legal system and a political order
subservient to capital;  one that enforces contracts,  protects property
rights,  executes mortgage agreements,  provides for limited liability or
the equivalent,  and facilitates a capital market that ensures liquidity of
investment or loans.    No Communist Party has heretofore been trusted by
the West to fulfill such an undertaking. It is clear from the current
campaign against China -- orchestrated by those sectors of finance capital
that have been shut out of the "new China" -- that there are those who feel
Beijing cannot even be relied upon to maintain an "absence of predation",
the second condition for a thriving market.    All indications are that,
under the terms of the current power struggle leading up to the fifteenth
congress,  the current or some future leadership may be hard pressed enough
to embark on a "destabilizing" program of property confiscation and contract
repudiation.

But you are in the main correct.    It is ridiculous for neo-liberal
economists to publish league tables of so-called eocnomic freedom in which
fascist regimes like Suharto's emerge ahead of the more "tolerant" societies
of western Europe.     Olson does not do this,  but he clearly gives succor
to those who do.    And his generalization that long-established autocracies
are less likely to interfere with property rights clearly does not apply to
the Pinochet regime in Chile.    Yet "property rights analysis" is
potentially a lethal weapon in the hands of a Left principled and
uncompromising enough to use it,  and use it well.

Louis Godena 



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