As the discussion so far makes clear, the flow of abundance ultimately depends on only one resource ‑ us ‑ our effort and ingenuity. So reducing obstacles to its fullest and most effective use has to be our primary concern. In poor countries this means eliminating obstacles to the full development of capitalism. In the rich countries where this has already been achieved, capitalism itself has become the primary obstacle. There, it is becoming an increasing impediment to economic progress as technology transforms work from a chore into an activity worth doing for its own sake. Under these conditions we need a system where the means of production are collectively owned by those who do the work, an arrangement that will prove both more economically efficient and more congenial – but more on that later after a discussion of the poor countries.
The following are a few of the more notable impediments to capitalist development often found in these countries:
· their economies are dominated by firms owned by the government or by the cronies of political leaders. These receive preferential treatment and are protected from internal and external competition. Recently many government firms have become crony ones through carefully stage-managed privatization programs;
· they often have governments that continually verge on bankruptcy, because they borrow for consumption or bad investments and raise insufficient tax revenue. This leads to restricted access to credit for anyone except government and the biggest firms, and the theft of savings through inflation and currency devaluations;
· business is deterred by burdensome regulation and associated corruption, and by a judicial system that lacks independence and is invariably corrupt and ineffective. Laws often greatly restrict foreign investment; and
· there is a failure to give sufficient priority to raising the general level of education.
These capitalism-unfriendly conditions will significantly delay affluence for many countries, especially the poorest ones which may have to wait more than a century to substantially overcome their backwardness. For more on growth prospects see the discussion at the beginning of chapter 3.
Among the countries affected there are two groups worthy of special comment. Firstly, there are the countries of the former Soviet Union, such as Russia and the Ukraine, where economic problems are misconstrued as due to too much capitalism rather than not enough of it. Secondly, there are the countries of Sub-Saharan Africa which make up the least developed region of the world. Here extreme internal backwardness and misconceived outside ‘help’ have created a toxic mix that poisons most economic activity. We will look briefly at the former Soviet Union and then at more length at Africa. After that we will turn to the rich or developed capitalist countries and the prospects for collective ownership.
The collapse of the Soviet Union can be best described as an incomplete process and many of the hangovers from that old regime have much in common with other less developed societies. Most large industries continue to be inefficient, protected monopolies whether state or privately owned. Businesses have very insecure property rights. The law has not kept up with the new forms of ownership, and do not provide the basis for legally enforcing contracts and ownership rights. At the same time there is an epidemic of organized crime and corruption which brings rampant theft, fraud and extortion. Indeed, most businesses are thought to pay protection money. Firms face a daunting array of fees and delays for countless licensing and permit requirements. These can often be avoided but only with the payment of a bribe. Organized crime often plays the role of middleman in these situations, facilitating transactions between businessmen and corrupt government officials.
Organized crime and corruption is very much a legacy of the old regime. The underworld had extensive connections to Soviet officialdom and played a critical role in distributing scarce goods and resources (often stolen state property) to those with money and influence. At the same time it was normal for bureaucrats and other state employees to sell favored treatment. Goods arriving at retail stores were set aside for preferred customers who paid extra and those who controlled the distribution of motor vehicles, housing etc were often in a position to extract additional payments from consumers. The black market, bribery or favor swapping were an almost daily experience for the average Soviet citizen.
Legal reform in the area of trade practices and property rights plus deregulation and privatization of the economy are needed if the economy is to be stirred into action. However, for the moment the ruling-elites in the successor countries appear unable or unwilling to carry out these changes.
The most notable feature of Sub-Saharan Africa is that the ruling cliques who control most of the wealth are nothing remotely like a capitalist class. Their primary aim is the consumption of capital rather than its accumulation. They have found a host of ways for ensuring that funds that ought to have been devoted to economic development are wasted. In this they are reminiscent of the rulers of ancient Rome or Egypt, and nothing like a modern bourgeoisie. Like the ancients that they emulate, they have both domestic and external sources of wealth. Locally they engage in the time honored practice of screwing the peasant through either heavy taxation or compulsory crop acquisitions at below market prices. From the outside world, instead of tribute from vassals, they receive aid, loans and resource royalties. Funds are then spent on palaces and luxuries, on prestige projects that make no economic sense or diverted into Swiss bank accounts and various offshore investments. The term ‘kleptocrat’ has been coined to describe this class of people.
The wealth looted by some of the rulers has been staggering. People like Mobutu in Zaire, Moi in Kenya, and Babangida and Abacha in Nigeria, all amassed fortunes worth billions of dollars. Typical in extravagance was Mobutu who ruled Zaire from 1965 to 1997. He built about a dozen palaces and even linked some of them with four-lane highways. He also acquired grand estates and chateaus in Belgium, France, the Ivory Coast, and Spain, as well as vineyards in Portugal.
Like the emperors of Rome and Pharaohs of Egypt, they also wasted vast resources on monuments to enhance their prestige and impress the populace. The continent is littered with grand conference halls, new capitals and show airports. President Felix Houphouet-Boigny of the Ivory Coast in the 1980s built a $360 million basilica to match the best in Rome, while Nigeria’s generals wasted billions of dollars of oil revenue building a brand new capital at Abuja.
Delusions of grandeur has also motivated a lot of what were ostensibly productive investments. They have tended to be big showy symbols of development that make no economic sense under the backward conditions into which they were introduced. They were not accompanied by the necessary development in other areas such as transport and power infrastructure, management and education. Factories were built that never produced anything. Vast amounts of sophisticated agricultural machinery were imported and then abandoned in the field when they broke down.
Then we have the billions of dollars spent every year on the military to provide the wherewithal for competing parasitic elites to fight over the loot. These are often from different tribes or ethnic groups.
These kleptocrats are not totally spendthrift because they also squirrel away billions. However, even these funds have not been put to productive local use but instead exported for investment in the rich world – Swiss bank accounts being a favorite destination. The amount of capital which has fled the continent is staggering. The capital held by Africans overseas could be as much as $700 billion to $800 billion. This exceeds the more than $500 billion in foreign aid pumped into Africa between 1960 and 1997.
The techniques for siphoning off wealth are many and varied. The least imaginative is to pay yourself an horrendously large salary. In the case of Mobutu, his personal budget allocation was more than the Government spent on education, health and all other social services combined. This is not including the revenue from diamond exports which went directly into his pocket.
Contracts for major projects do not go to the lowest bidder but rather to whoever offered the largest bribe. In one notable case in the late 1980s, a contract for a hydroelectric dam in Kenya costing hundreds of millions of dollars was cancelled and bidding reopened when the winner refused to pay a bribe to a leading crony of President Arap Moi, the ruler of Kenya from 1978 to 2002. The eventual winner paid the bribe but put in a bid much higher than the original one. When kickbacks on public contracts do not supply enough cash, politicians award themselves fake ones.
Padding the cost of projects is another method of achieving the same outcome. For example, the Nangbeto dam project in Togo was costed at around $28 million. However, this was increased to $170 million so that funds could be diverted into the pockets of the ruler and his cronies.
Anything requiring government approval can be the source of bribes. These include permits to do just about everything, and most importantly licenses and concessions for mining natural resources. In Nigeria, Abacha, who ruled until his death in 1998, ensured that no oil deal or decision was made without his approval and that always required a ‘fee’, while Ghana’s Minister of Trade in the 1960s used to charge a commission for import licenses equivalent to 10 per cent of the value of the imports.
Owning businesses can be particularly profitable when you are a ruler or high official. The numerous business concerns of President Arap Moi always managed to win huge government contracts and charge the state exorbitant fees and prices. He also owned a cinema chain with monopoly control over movie distribution in Kenya.
Having privileged access to goods can be a good earner when you sell them on the black market. In Rwanda, President Habryimana ran lucrative rackets in everything from development aid to marijuana smuggling. He also operated the country’s sole illegal foreign exchange bureau in tandem with the central bank. One dollar was worth 100 Rwandan francs in the bank or 150 on the black market. He took dollars from the central bank and exchanged them in the exchange bureau. In Zimbabwe top government officials used their influence to buy trucks and cars at the artificially low official price from the state-owned vehicle assembly company and then sold them on the black market for enormous profits.
Fictitious external debt has reaped vast funds for corrupt officials, with ‘repayments’ going into their overseas bank accounts. At one time over $4.5 billion of Nigeria’s external debt was discovered to be fraudulent.
The economic impact of kleptocrats is not confined to ripping off most of the wealth that should have gone into development. They also make it difficult for everyone else to be productive. Most horrific of all is the destruction from their civil wars which have ravaged much of the continent. In 1999, a fifth of all Africans lived in countries battered by wars, mostly civil ones.
Whatever limited infrastructure such as roads, schools, hospitals, power telecommunications is not destroyed in wars has often been allowed to deteriorate. Once bribes have been extracted at the construction stage, kleptocrats do not care if the resulting infrastructure falls apart through lack of maintenance. Besides, money for maintenance is money that can go into their pockets. Zaire (now Congo) was a classic in this respect. Agricultural produce intended for market often rotted on the ground because the transportation system had broken down. While the country had 31,000 miles of main roads at independence from Belgium in 1960, by 1980, only 3,700 miles were usable.
Just registering a business in Africa is an ordeal. In a typical developed country it generally takes a day or two and costs a few hundred dollars, but in Africa it involves long delays and high costs. In Congo for example, it takes about 7 months, costs close to nine times the average annual income per person, and firms must start with a minimum paid-up capital of more than a third of that exorbitant fee. Furthermore, the poor legal framework in which businesses try to operate adds to the cost and unpredictability of running a business. Soldiers and police often feel free to impose their own impromptu forms of ‘taxation’ and trucks carrying goods are constantly stopped at road blocks by police who help themselves to some of the load. Governments can behave in all sorts of capricious and discriminatory ways. Property might be seized or a firm’s license to operate suddenly revoked because the president of the country dislikes the owner’s political views or ethnicity; or you might discover one day that you are now in competition with a business run by the ruler or one of his cronies. Contracts are not readily enforceable because the courts are slow, expensive and frequently corrupt. As a result there is a strong tendency for businesses to deal only with people they know.
The extremely low level of private foreign investment in Sub-Saharan Africa is a stark indication of how economically unattractive the region is. It gets about 1-2 per cent of the funds flowing into developing countries, and most of that goes to South Africa. And of course the fact that the kleptocrats do not invest in Africa tells the same story.
Given the current state of Africa, modest progress is perhaps the best we can hope for over the next quarter century. Nevertheless, there are two positive developments particularly worthy of note that may bode well for the future: a number of countries have achieved some degree of democracy and political accountability; and there has been a drop in the extent of civil warfare.
In the 1990s a dozen political leaders were peacefully voted out of office – a previously unheard of method of departure. In 2004, 16 out of the 48 countries in Sub-Saharan Africa had governments that were described as democratic with elections and a level of civil rights for opponents of the government. Although in some cases the changes lose some of their shine when you take into account election rigging and the lack of independence of the judiciary and media, and neutrality of the armed forces.
In the last five years there has been a significant decline in the number of civil wars. The fighting has stopped in Sierra Leone, Angola, Liberia, Burundi, Sudan and Senegal. The war in the Congo is over, although marauders still plague the east of the country, and the one in northern Uganda appears to be spluttering out. These wars have been horrific in terms of deaths, devastation and duration. The death toll in the Congo was 3 million and in Sudan 2 million. The wars in Sudan, Senegal and northern Uganda lasted for two decades while in Angola even longer. This decline in internal conflict has been due to a mix of exhaustion, one side winning and external pressure. Where there is a victor, they are usually no worse than the vanquished and sometimes better. Whether this decline is temporary or long term remains to be seen given the potential for old conflicts to be rekindled and new ones ignited.
On the economic front, there is also the occasional bright sign. For example, a South African company has taken over the debt ridden and rundown government-owned railway line that runs from Kampala in Uganda to the Kenyan port of Mombasa. They plan to invest $322 million over the next 25 years overhauling the line and its rolling stock.
If these tentative developments prove to be more than a false dawn, they can be attributed in part to the end of the Cold War during which the superpowers propped up those despots that aligned with them or bankrolled equally appalling rebel armies for the same reason.
Any progress will also be assisted by a transformation of the whole aid and lending regime. Historically, it has done nothing to help Africa. Not only have the funds been misused in the ways already discussed, but they have also helped to keep the kleptocrats in power. External funding makes it is easier for governments to be unaccountable and to withstand popular opposition. Luckily the World Bank was not around at the time to prop up bankrupts like Charles I of England and Louis XVI of France! When programs fail the usual response has been to attempt to salvage them with injections of even more funds, rather than to do a critical reassessment. In the case of lending this is made possible by the fact that the World Bank and other development banks are not commercial institutions that will go out of business if their loans do not perform. They are simply provided with more funds by rich country governments. Improving the situation has to mean a strong connection between aid and the quality of governance, and a far greater focus on helping agriculture, the main form of economic activity.
Democratic institutions need to be established that are more than a facade – there needs to be constitutions, elected government, civil liberties, the rule-of-law and the separation of powers. Dismantling some of the machinery of corruption is also important. This includes increased transparency in financial dealings and getting rid of regulations that only exist so that officials can be bribed to ignore them. The less progress in these areas the less aid.
The cancelling of external debts can be better handled in this context. The regimes that are more likely to simply accumulate new and equally unsustainable debts are given less chance to do so. Where they are deprived of all new funds the extra scope for waste is limited to the debt repayments avoided which they now get to keep.
Agriculture is the predominant sector of Africa’s economy and is critical to its development. The sector has to retain the economic surplus it needs to introduce improvements and to move from communal (i.e., feudal or pre-capitalist) to private ownership of land. Africa would also benefit from the US, EU and Japan opening up their markets more to agricultural imports. At present they are heavily protected. With the opening up of trade, it would not take long for some farmers to move into producing the crops and livestock desired by these markets. Furthermore, the elimination of the high protection of processed food could see food-processing industries develop in Africa. A lot of humanitarian aid can also have the added longer term benefit of assisting agriculture. Efforts to reduce the impact of AIDS, malaria, TB and malnutrition not only reduce death and misery but ensure more people are well enough to perform productive farm labor. The necessary measures include new medical treatments, strengthened healthcare systems, higher yielding and more robust seed varieties and the development of farmer advisory services. Unfortunately, even programs directed specifically at the rural poor are not immune to corruption as evidenced by the many cases of medicines being diverted onto the black market. And no matter how well run, an assistance program has the problem that it may be freeing up local funds that would have been used for the purpose and which can now be wasted.
The dire state in Sub-Saharan Africa naturally prompts a ‘we must do something’ response. At the moment there is a rock star led campaign calling for debt forgiveness and large increases in aid. There are also various studies and proposals circulating among rich country governments. While some of this concern is informed by the considerations expressed above, it could also rekindle the tendency to simply throw money around and repeat past disasters.
Now let us look at the rich or developed countries. In their case mature capitalism is creating the groundwork for its successor, a far more dynamic and congenial economic system where the means of production are collectively owned by those who do the work. Capitalism has this effect because the machines that result from capital accumulation not only create increasing abundance but also make work less and less like work and more and more like an activity that could be performed for its intrinsic value.
Under these new emerging conditions, we no longer need profit driven capitalists controlling the means of production and forcing us to work for them. And as we will discuss shortly, the combination under collective ownership of self-motivated and highly accountable workers and production for use rather than profit would ensure a far greater rate of economic progress than capitalism.
Our greatest achievement so far in taking the work out of work has been to eliminate a lot of the really hard and dangerous jobs. These include swinging a pick and shovel as they used to do down the mines, and in the construction of buildings, sewers, drains, roads and railways; and also lifting heavy loads in manufacturing and transport.
At the same time there has been a large increase in the proportion of people with professional and managerial jobs. In the US, over 30 per cent of workers belong in this category. This includes teachers, workers in business and financial operations, healthcare professionals and managers who each comprise between 4 and 5 per cent of the workforce. The expansion of this kind of work is also reflected in the increasing levels of education in the US. There, 29 per cent of people aged between 25 to 29 years in 2004 had a bachelors (4 year) or higher degree. In 2003, 38 per cent of 18 to 24 years olds were enrolled in degree granting institutions while 57 per cent of 25 to 29 year olds had completed at least some college. In the same year just over 40 per cent of Americans in their 30s and 40s had been enrolled in a career or job related part-time or short course.
It is true that a lot of routine and menial work still remains. However, it is not hard to envisage much of it disappearing over the next quarter century. Most factory work will vanish once we develop a new generation of robots that can do finicky assembly work. These will need to be better able to distinguish between different kinds of objects and find them wherever they are rather than simply being pre-programmed to pick up something from a particular location. Then they will need the dexterity of the human hand to manipulate and assemble these better understood objects. At the moment robots are mainly confined to fairly simple tasks such as spot welding, spray painting and moving things around.
Likewise, most of the unskilled jobs created with the expansion of the retail and hospitality sectors will go. Virtual shopping will be a big job killer in retailing. Web sites will get better at graphically displaying their wares and become easier to use. Customers will be able to make better choices as they can easily access product and price information from a host of suppliers and third parties. Perhaps shoppers will be able to upload a body scan to on-line clothing shops which can then display a virtual ‘you’ wearing different garb. This will give you a much better idea of what you will look like. You can ensure the best off the shelf size or even ensure a perfect fit through an alteration service or one-off production. Online grocery orders will be filled at a warehouse rather than a supermarket by shelf picking machines. The boxed groceries will be either picked up at local centers by the consumer or home delivered. Labor can also be reduced in conventional shopping with the addition of in-store computers providing information about products to customers and automated check-outs.
Bar service and coffee making can already be provided without humans. The machinery just needs to become cheaper or the labor more expensive. Coming up with a technology to provide automated table service should not be a daunting challenge. You could place an order directly to the kitchen through some electronic device on the table or your own hand-held computer or mobile phone. The order could even be made before you arrive. Maybe machines on the ceiling would lower the food onto your table. In the case of kitchen workers, they are generally doing work that is just as amenable to automation as tasks performed in manufacturing.
Making an appointment to see a doctor, dentist, physiotherapist, accountant or tax adviser will be done online much like we now make hotel and airline flight bookings, except the website will present you with unfilled timeslots to choose from. When you visit an office the computer at the front desk will validate any necessary ID, announce your presence and provide any necessary directions. When you put in an order to a supplier for components or materials the information will be sent directly to the robot in the warehouse which will select it from the shelves. At the same time you will automatically receive an electronic invoice which requires no handling or filing. In many cases even the decision to put in the order can be left to a computer which monitors stock levels and rate of usage.
Snail mail surprisingly still survives but it must go eventually, and with it will go those responsible for handling and delivering it. The typist is another anachronism who will vanish as executives who cannot type retire and voice to text software improves. Then there is that other dinosaur, the bank clerk, who is there to help the old and confused and will disappear with, if not before, the arrival of electronic money.
The jobs we have mentioned make up about a quarter of the total in the United States, and can be broken down as follows. The clearly menial and readily automated marketing and sales occupations make up around 6 per cent. Waiting, bartending and other food and beverage service occupations are another 5 per cent. Short order and cafeteria cooks plus dishwashers are just under 3 per cent. The less skilled machine operators and process workers whose jobs are the most amenable to automation make up between 4 and 5 per cent. The types of office and administrative support jobs mentioned above are 5 per cent of all jobs and almost 30 per cent of all jobs in that category.
Automation will also impact on more skilled work. However, generally speaking the greater the intellectual content of a job the harder it is to automate and the more likely that at least initially any impact will be confined to the more routine aspects of the task. For example, you still need a surgeon for keyhole surgery but there is less cutting and sewing up.
There is some concern that as the average intellectual content of work increases, a large number of people with less natural ability will be left out in the cold with fewer and fewer jobs that they can perform. This is a rather pessimistic view when we look at what the great previously-unwashed have managed to achieve in recent times and what we can expect in the future. Education levels are a good indicator of the current general achievement. In developed countries school leavers who fail to finish high school are a shrinking minority. In the UK, Finland, Norway, Switzerland and Sweden the figures is less than 10 per cent while it is in the low teens in the US, France and Germany. Just living in a modern industrial society seems to make people smarter as they are confronted by increasingly brain nourishing activities. A few examples will illustrate the point: applying for a job, buying a house, dealing with the healthcare industry; organizing your retirement; cutting through the retail hype to choose a new car, home entertainment system or air conditioner; renovating your house; organizing a holiday on the Internet; trying to figure out how a new electronic appliance works; playing video games; putting in a tax return and deciding who to vote for. Even routine jobs can be more demanding. For example, they generally require you to read and write, carry out a range of verbal interactions with other human beings and be able to use a whole range of machines and appliances without special training. IQ tests seem to confirm that people are getting smarter. We can also expect improved performance in the future as a lot of the conditions that cause stunted development change for the better. These include lack of family support, peer pressure to be an idiot and an inadequate education system. We will also benefit from an increasing understanding of human development and what causes learning difficulties. And over the longer term we can expect to see artificial improvements through mind-enhancing drugs, genetic engineering (induced evolution) and brain link ups to computers.
Any case for collective ownership, of course, has to address the experience of the mislabeled “communist” countries. These are the regimes that used to exist in the former Soviet Union and Eastern Europe and the ones still hanging on in China, Vietnam, Cuba and North Korea. The conclusion generally drawn is that socialism is inherently flawed, and you are bound to end up with economically inefficient police states where the old capitalist exploiters were simply replaced by ‘socialist’ ones.
However, all that we can really conclude is that it is inherently very difficult or even impossible to successfully establish socialism in societies that are poor and backward, that are more feudal than capitalist. As the experience of other backward countries shows, even getting capitalism off the ground under these circumstances is hard enough, let alone socialism.
The socialist transformation achieved was very limited. True, the capitalists were expropriated. However, the position of workers was as you would expect in the early phases of industrialization. Most work was arduous and repetitive manual labor and the education level and background of typical workers left them ill-equipped for involvement in the mental aspects of production.
Both these factors made for a sharp division of the workforce into a large group who were simply operatives and a minority who did the thinking and deciding. These were the managers, engineers and officials – generally referred to as ‘cadres’. With their different role came the need for higher incomes that raised them above the prevailing poverty. To do their job they needed motor vehicles, telephones, and freedom from normal hardships that would hinder their work. Then there were morale boosters such as good food and alcohol, and rejuvenating trips to holiday resorts. On top of that were performance bonuses that widened the gap even further.
It is not hard to see how under this class structure, the revolution was prone to getting stuck and then diverted along the wrong track. Members of the elite had a vested interest in entrenching their privileged position and were unlikely to encourage an invasion of their domain as workers became more skilled and educated and industry more mechanized nor to willingly start to take upon themselves a share of the more routine forms of labor.
Once career, wealth and position are the primary impulse, economic results take a second place to empire building, undermining rivals, promoting loyal followers, scamming the system and concealing one’s poor performance from superiors. The opportunity for workers to resist these developments was limited by the lack of a democratic culture, a condition inherited from backward pre-revolutionary society. Then there is the culture of subordination which drains away confidence and initiative. This can be very strong even in the absence of political tyranny as we can see in any liberal capitalist society. At the same time, one can imagine that any rank and file worker with special abilities or talents would tend to be more interested in escaping the workers’ lot by becoming one of the privileged rather than struggling against them.
Mao Zedong referred to this process, once heavily entrenched and endorsed at the top, as capitalist restoration and those encouraging it as revisionists and capitalist roaders. The Chinese Cultural Revolution that he led in the late 1960s is the only attempt to beat back this trend. However, the capitalist roaders were able to seize power in China after his death in 1976.
Notwithstanding their real nature, the Soviet regime and its satellites in Eastern Europe had no trouble characterizing themselves as socialist. Socialism was equated with state ownership and its present task was simply to achieve economic development and provide a certain level of economic security while such matters as eliminating the division between routine and elite forms of labor were relegated to the far distant pie in the sky future. In China, where such a regime still survives, keeping up the pretense must be more difficult given that they scrapped the communes, reintroduced the profit motive in state enterprises and allowed capitalists to set up businesses. They call it ‘socialism with Chinese characteristics’.
It is generally accepted that the efficient resource allocation in a complex modern economy requires decentralized decisions based on present and expected future costs or prices. There is also a general misconception that such a decentralized system of allocation requires market exchanges and as a result socialism could not make use of it and would instead have to rely on some cumbersome and grossly inefficient system of centralized allocation.
The first point to make is that socialism will still make use of some markets. In the initial phase, there will be a strong connection between the individual’s entitlement to consumer goods and the amount and quality of work performed. In other words society will exchange these goods for work. As the connection loosens it is less of an exchange and more a simple allocation or entitlement. The latter would be denominated in what is better referred to as tokens rather than money because it is no longer facilitating a market exchange but simply putting a limit on the individual’s overall entitlement. The movement of goods across political borders will also generally involve a market exchange of exports for imports because collective ownership for most if not all things will end at political borders. Exceptions would be goods owned at an international level, disaster relief and aid from richer to poorer regions. Over time as the level of economic and social development converges and economic integration increases the number of political borders will diminish.
Where you will not find markets under socialism is in the transfer of intermediate inputs between different production units within political borders. These inputs are the raw materials, energy, services, buildings and machinery that go into making the final goods and services purchased by consumers. This transfer does not involve a market exchange because there is no transfer of ownership. Both the supplier and the user of the input have the same owner, the society of producers. However, this does not rule out decentralized pricing and costing, and the use of this information to make decentralized decisions as to what to produce and what inputs to use.
Just as under capitalism, those given the responsibility for making production and supply ordering decisions will act on whatever information or expectations they have about the demand for the products under their charge and the costs of alternative inputs. The process can be described in the following way. Estimates are continually being made of the quantity demanded, at present and into the future, at different prices for all final consumer good and services. These would be based among other things on past consumer behavior, consumer surveys and demographic predictions. The level of demand then determines the maximum that producers of the consumer goods and services can bid for the intermediate inputs they require in production. Within that constraint they would choose inputs that minimize costs. In turn their input suppliers are estimating the demand for their own output. This will be affected not only by the demand for the final consumer product but also by expectations about changing technologies and substitute inputs. A few examples, should make this clear: producers supplying fuel, power or raw materials may find demand is sensitive to changes in the price of alternatives; production units using obsolete and costly technology will only be needed for demand that newer plants cannot meet; and those providing spare parts for a technology that is being phased in will see demand increase accordingly. With demand determined, these suppliers also chose production methods to minimize costs. These then have suppliers who in turn have suppliers and so on down the line. Each has to make similar economic decisions.
Because the transfer of intermediate goods and services from producers to users does not represent a market exchange, there is no transfer of money to the producer unit. The revenue (and profit if demand exceeds supply) is simply a book-keeping entry and does not belong to the unit. It is not a fund from which anyone can draw an income. Nor is it “retained earnings” entitling the unit to obtain fresh production inputs. The funds available to the unit for future inputs will be continually adjusted in line with changes in demand and supply conditions. This process is no more complex or mysterious than what happens under capitalism, when new funds are provided, either from elsewhere within the firm or from the capital market, for operations that need to expand, and when management reduces funds or does not seek fresh loans for operations that need to contract.
The price/cost mechanism we have described does not provide perfect outcomes. People’s preferences can change at short notice and even if they did not there is a limit to the accuracy of demand predictions. Also what people are willing to pay for a given quantity of a good will depend on the prices of other goods which substitute for or complement it or compete for the consumer’s limited budget. These are all uncertain to varying degrees. And the further into the future you are planning production capacity, the more room for error. At the same time costs to producers can be affected in unexpected ways. For example, there can be: unanticipated technological breakthroughs or failures; new production capacity coming on stream earlier or later than expected; and abnormally severe weather conditions. So, output is not what it would be with perfect knowledge and foresight. One consequence of this is that some goods will face insufficient and others excess demand at their cost of production. The former will have to be allocated at a price below cost and the latter, above cost.
Identifying why collective ownership will be more efficient than capitalism is a fertile, if presently abandoned, field of research. So the following taxonomy of reasons is incomplete and the details of each of the suggested categories needs to be delved into in far more detail. However, it is still a reasonable start.
The five categories are: (1) the greater productivity of more motivated workers, (2) the greater accountability of individuals and organizations, (3) the elimination of unemployment, (4) the better flow of information and (5) the elimination of various resource wasting activities associated with wheeling and dealing, and with the activities of government.
Workers who collectively own the means of production are going to be far keener about what they are doing than employees who “just work here”. It will make a difference knowing that their efforts meet the needs of their equals rather than make a few people rich or richer, and will not be frittered away through avoidable inefficiencies. Even the more routine work will seem less irksome under these conditions, especially when it is shared more equitably. Attitudes to innovation will also change. Knowing that surplus labor will be reassigned rather than thrown out onto the street will remove a current disincentive for workers to come up with and support labor saving improvements to production processes.
Even with far greater self-motivation there will still need to be a high level of supervision and accountability. Some people will still be inclined to shirk and there will be the temptation to misuse resources for one’s own personal benefit. Some people will attempt to protect or promote a particular project or technology in which they have a lot personally and emotionally invested even though it has turned out to be uneconomical or otherwise lacking in sufficient merit. Workers will have to be assessed to determine whether they should be appointed to or retained in a particular position. Individuals and organizations will require feed back on how they are doing their job so that they can improve; and the way tasks are performed and organizations function needs to be continually under scrutiny so that they can be continually redesigned.
While capitalism is limited to top-down supervision, socialism is able to also employ the horizontal and bottom-up modes. The horizontal mode refers to workers at the same level mutually assessing each other’s work. This category includes individuals or groups redesigning their own jobs to increase efficiency. Under capitalism workers generally have no desire to perform this kind of supervision and would invite hostility if they did, given the antagonistic nature of production relations under capitalism, including the threat to people’s livelihood. The bottom up mode refers to workers assessing those at a higher level. This scarcely happens under capitalism because of the tyrannical powers the latter have over their subordinates, and why should people care anyway.
Also top down supervision will be more effective than under capitalism. Those in leading positions can expect greater cooperation and less of the passive resistance often found in the present relationship between leaders and the lead. Also top down supervision from outside an organization will be more effective. This includes better supervision by users, be they other industries or final consumers. Organizations will have no ownership walls to hide behind. There will be no such things as commercial secrecy or confidentiality.
Socialism will also retain the positive features of competition. Different production facilities will have to match each other’s price and quality. New entrants with cheaper production methods or a better product should have no trouble receiving approval from a funding agency. And, ultimately, if nobody wants to use a product because there are better or cheaper alternatives, production will cease and resources be re-assigned. In the case of large one-off products such as a production process or construction project, tenders might be invited if there are alternative providers. There would also be design competitions for major projects. Funding earmarked for research challenges such as a cure for a new disease threat or a better way to turn water into hydrogen, might be allocated to a number of separate organizations. This would help keep people on their toes; and having different approaches to a problem increases the likelihood of success. Even where organizations are not competing, their performance can be compared – e.g., providers of services in different locations will be expected to learn from the industry leaders.
Socialism will not have the unemployed labor which is endemic to capitalism. Its main causes are: lack of market demand for output, mismatch between supply and demand of different types of labor, welfare disincentives and the battle over income share between labor and capital.
Under socialism unified ownership can always ensure sufficient effective demand for the output of a fully employed economy, while a capitalist government is mainly confined to the very blunt instruments of fiscal and monetary policy; and with these it has to rely on economic information that is skimpy, inaccurate and out of date. This limited power of economic policy is sometimes described by economists as pushing on string. At the same time a socialist government does not have separately owned companies acting at cross purposes to each other. In a capitalist economy this appears to be a major problem in times of crisis or economic downturn when companies cut back on purchases and call in their debts as they try to shore up their financial position.
Where a change in output or technology leaves some workers with skills that are in low demand, there would be far greater commitment to the various adjustment measures required. Leaving people to rot is acceptable under capitalism but not under collective ownership. Measures include retraining allowances where necessary and wage subsidies or lower wages while learning on the job. At the same there will be greater ability and willingness to learn new skills helped along by the elimination of the narrow division of labor which relegates many workers to restricted functions defined by others. The dole as we know it in most developed capitalist countries will be abolished and individuals will not be left to sink into an unemployable torpor.
People who for whatever reason cannot keep up with expected education and skill levels, can have their wages subsidized so that more primitive technologies that require their less skilled labor can be retained or re-adopted. Where the subsidy is less than 100 per cent of the wage, there would still be a net gain to society of not leaving their labor idle. Beyond that point it is pretend work, which still may be appropriate in extreme cases. This should be a declining problem as learning ability improves with each generation .
The struggle between labor and capital over wage share can affect unemployment in a number of ways. On the one hand, governments will adopt economic policies aimed at slowing economic growth to prevent threats to profits from wage increases that generally occur in a tight labor market. On the other hand organized labor may manage to push wages above market clearing levels through industrial action and political support for minimum wage laws, trading off some unemployment for increased income for workers as a whole. Once there are no capitalists, there will be no struggle over “share”. Wages will equal the full social product. Only then are taxes and levies deducted for investment and social spending such as pensions. And these deductions will be the result of a political process that has general support.
Under socialism the information available to economic decision-makers will be far better than it is at the moment. This includes information about investment and production decisions, scientific and technical knowledge, and cost and price data.
Under capitalism vast amounts of knowledge and information are subject to secrecy or deception. Firms try to conceal whatever they can about their investment plans from competitors and this can contribute to under or over investment by the industry as a whole. Product designs are commercial secrets and experience gained in production such as overcoming difficulties or improving methods are not openly shared. At the same time customers will often be denied information relevant to their choosing the product that best meets their requirements.
Price and cost information can only help producers make efficient decisions to the extent that it is accurate and available. For example, choosing the lowest cost method of production requires accurate cost information about alternatives. However, under capitalism prices are distorted and cost information obscured in various ways. Below is a list of the more important ones.
Monopoly pricing Firms are always keen to overcharge if their market position allows them to. This includes both long term market power resulting from having a dominant position in an industry and also the temporary market power that comes with being first in with a new product or process. They will do whatever they can to create and maintain these conditions.
External costs Capitalist firms unless required to by regulation fail to consider ‘external’ costs that are not covered in market exchanges. The primary example is the cost of pollution and other forms of environmental degradation. Present attempts by governments from outside the market to rectify this problem are costly and give results that are far from optimal. This is particularly the case where government policy is captured by the ‘environment industry’ which is more than happy to place obstacles in the way of economic progress. Socialism could make use of far cheaper and more effective self-regulation based on a determination to do the right thing from the point of view of society and the absence of any benefits to anyone from doing otherwise. There would also be the greater transparency to outside supervision.
Overheads or fixed costs A major problem is that posed by the unwillingness of economic players to reveal the value they place on a good in the presence of overheads or fixed costs. A high proportion of costs come into this category. These are incurred regardless of the actual level of output, and include designing the product and production process, computer software development, factory lighting and heating, and security.
If firms try to cover these in a uniform unit price, output will be less than optimal. This is because there are costumers who will not purchase at this price but still value the product sufficiently to pay at least the extra (i.e., marginal or incremental) costs that would be incurred in providing them with it. In other words the benefits of provision match or outweigh the cost. These costs include raw materials and in some cases wear and tear on machinery.
To avoid the problem there needs to be a system of variable pricing, so that those who place the highest value on the good pay a higher contribution towards fixed costs than those with a lower valuation. (This is referred to in the economic literature as ‘price discrimination’.) Producers under capitalism can usually obtain some idea of the difference in valuations, from whatever they know about the intensity of demand for their customers’ own products and the extent that they can substitute some other input. However, this information will be of a much poorer quality than what they would receive if customers were forthcoming with their own assessments. However, a capitalist enterprise is not going to volunteer such information if it will lead to them being charged more. In a socialist economy, however, those responsible for putting in a bid or valuation would be guided by overall economic efficiency rather than the profit of the particular enterprise or plant using the product. Also under socialism, a price discrimination regime would not be undermined by either competitors or low-price recipients offering the product at a lower price to those users being charged the higher price.
So-called public goods are an extreme form of the overhead or fixed cost problem. With these the marginal (incremental) cost is zero, or extremely low compared with average cost. In the case of intermediate goods, the most important of these are information goods, particularly computer software and the results of research and development. With these only one unit of the good has to be produced and this can be consumed by an infinite number of users. Use of the information in one production process does not prevent its use in others. There is no limit to the number of copies which can be made on the appropriate dissemination medium. The only marginal cost is associated with the production of these copies, and this is very low. A journal article or research paper downloaded from the internet costs virtually nothing. Software is disseminated in the same way or by CDs costing less than a dollar.
The more basic research is normally funded by government or philanthropy and is generally made freely available except where military secrecy is a factor. However, funds are not always well directed because of the excessive influence of entrenched academics and research institutions and the tendency of politicians to placate noisy lobbyists and support vote catching fads.
Commercial or applied research and the vast bulk of computer software is subject to intellectual property rights and made available under license. Licensing would be fine if it underpinned an efficient charging system which did not exclude any firm by charging them more than they valued the product’s use. However, for the reasons discussed above, this is not the case.
Surprisingly, if you believe all the rhetoric about the dynamism of entrepreneurial capitalism, government has played a critical role not only in basic research but also in the development of most of the major product innovations over the last half century or so. This has been mainly through military and space programs, which rely on war or the threat of it. These technological developments include jet aircraft, rockets, satellite communications, the Internet, computers, transistors, micro-chips, integrated circuits, bar codes, nuclear power and a vast array of new materials initially developed for military or space use. Even the mass production of consumer goods after World War II owes much to the diffusion of mass-production methods during the period of war production. Then we must not forget the role in the development of computer software of individual enthusiasts who work for the fun of it rather than profit.
Undersupply of cost informationFirms are just as keen to limit competitors’ knowledge of their current and expected future costs as they are of matters relating to production activity and technology. This deprives both customers and competitors of information which could otherwise help them make better decisions about future technologies and choices of alternative inputs.
Even if secretiveness were not a problem, cost data would still be undersupplied because it is a public good. Firms develop estimates of their future costs relying on whatever they can glean about the future costs of inputs and on their in-house knowledge of their own operations. On the basis of this information and projections of demand for their products, they can decide on whether to expand or shrink their operations. The more detail and precise the information the better. However, the better it is the greater the cost involved and so beyond a certain point the increasing costs outweigh the benefits. However, if you bring into account the value to other players, it would be worth spending more for better information. However, like any information it has a marginal cost of zero and this implies the undersupply problem we have just referred to.
Socialism will be free from a range of burdens that consume a great deal of resources under the present system. These include wheeling and dealing, government policy driven by vested interests, bloated law and order and inefficient tax collection.
Wheeling and dealing In a capitalist economy a lot of resources are devoted to activities that can for want of a better term be referred to as wheeling and dealing. These include, among others, the securities “industry” and advertising and marketing.
The purchase and sale of financial assets such as stocks and debt in the securities market seems like an excessively resource consuming and roundabout way of simply allocating funds to where they are needed. The effectiveness of the mechanism is also marred by speculation and various forms of chicanery.
Advertising and marketing is a source of considerable waste. Under socialism the production of goods and services will be accompanied by a flow of information that will make potential customers aware of their existence and suitability for various purposes. However, we will not need to be constantly reminded of a beverage that has been on the market for the last 50 years.
Bloated legal system and the cost of crime Capitalism requires an expensive judicial system to settle contractual and other disputes between businesses, to deal with criminals and to encourage the law-abiding to remain that way.
In the US there are two and quarter million law enforcement officers, including police, private security and prison guards. There are also judges, lawyers and other workers in the judicial system who make up another million people. Combined this is over 2.5 per cent of the employed workforce.
Then there is the horrendous impact on victims. A 1996 US report on the cost to victims of crime estimated these to be $450 billion annually or five to six per cent of GDP. Violent crime (including drunk driving and arson) accounted for 95 per cent of total costs. The tangible costs which comprise medical care, lost earnings, and public programs related to victim assistance came to $105 billion. The pain, suffering, and the reduced quality of life were given a monetary value of $345 billion. Rape and sexual assault were 35 per cent of these intangible costs. Some high impact crimes were not included in the study, notably many forms of white-collar crime (including personal fraud) and drug trafficking.
Socialism would provide less fertile ground for the breeding of a criminal class. With nobody denied a job, crime is not required as a means of earning a living. And, the fact that work would be virtually mandatory would discourage the establishment of a criminal sub-culture of idlers and provide less opportunity to engage in crime. At the same time, transparent collective ownership should make it harder to set up front organizations for the movement of illicit goods or the laundering of money. A socialist regime would also be in a better position to crack down on the criminal element. It can mobilize people in problem neighborhoods to combat their influence. It can also claim a mandate in its early days to implement emergency measures to facilitate convictions, if necessary. For example, being a hoodlum could be an offence, obviating the need for water tight evidence of a particular crime. Such a mandate could be claimed because it is one-off and effective – those convicted are not simply replaced by a fresh crop – and it is not excessively punitive. Conviction, except for diehards and those known to have committed heinous crimes, would lead to retraining and guaranteed work.
Then there is the on-going epidemic of domestic violence perpetrated by outwardly normal people. Capitalism certainly does not help matters given the brutalizing and esteem lowering effects of workplace stresses and the general dog-eat-dog nature of capitalist society. It seems plausible that changing these conditions would also reduce the prevalence of sexual assault, although making the case for that is beyond the scope of the book and the author’s competence.
Another serious problem is robbery and theft by drug users funding a habit made very expensive by its illegality. It is hard to imagine a revolutionary government doing a worse job of choosing the degree of legality or illegality which minimizes harm. Socialism would also be far less conducive to drug use. With better life options people will be less drawn to self-destructive behavior and those that do will be more likely to get the support they need to control their habit and to live a functional life.
Vested interests Government policies can be seriously affected by the demands of politicians, officials, workers and capitalists pushing their own individual or sectional interests. Common forms of government action corrupted in this way include restrictions on competition such as trade protection and vote-buying expenditures by politicians. These can lead to considerable misallocation of resources.
To some extent sectional interests can be fought off under capitalism and this has been one of the aims of so-called microeconomic reform and deregulation. However, the pressure for special treatment will always be a problem, given that benefits from such measures are concentrated while the losses are dispersed throughout the population at large.
By eliminating capitalist ownership, socialism eliminates the vested interests stemming from that quarter. The interests of workers will become far more in line with those of society given that the need to eliminate specific jobs does not lead to people being thrown on the scrap heap. Although there will still be some divergence. There will still be the problem referred to earlier in the discussion on accountability where people have a lot invested in a particular project, in terms of skills, personal prestige and sense of worth. They may be tempted to use corrupt influence and disingenuous argument to press for more resources than may be economically justified and resist its closure if it proves to be a mistake or obsolete. This, as already suggested, would require a very transparent decision-making environment.
A similar problem requiring a similar solution may arise in the location of industries or facilities. People will tend to want their preferred work to be near where they currently live. Or they might oppose a development because of negative local amenity effects despite the fact that from society’s point of view it is the best location.
Inefficient taxation system Capitalist countries all have very inefficient taxation systems. The US Internal Revenue Service has a budget of just under $11 billion which is equal to about 0.1 per cent of GDP or $36 per person. Estimates of compliance costs incurred by taxpayers are unreliable but they are generally believed to be at least a few per cent of GDP. It is certainly possible that capitalist countries could come up with better tax-systems, however they could never be as efficient as the tax-system under socialism.
Under socialism workers would receive the total income of society. Out of this income they would then pay a uniform head tax and also a land rent on their places of residence. These imposts do not distort prices and have low collection and compliance costs. A head tax could also conceivably be introduced under capitalism but as Margaret Thatcher’s attempt in the UK shows there is bound to be a major backlash. Under capitalist conditions where incomes are very unequal and precarious, a large number of people would be either unable to pay or seriously burdened. Under socialism where income is secure and more equal (see below) these problems do not arise. As well as being non-distorting, it is the only tax that imposes an equal burden on everyone. Unlike an income tax, it would not favor those who work less. You could have some flexibility in the timing of tax payments, particularly to cater for people who take an extended period off from work. You could have a delayed payment with an interest penalty or maybe even discounted prepayment.
Another source of revenue would be rent on land. All land would be collectively owned and residents would pay a rental based on its value. So a house with a river view would incur a higher land rent than one next to a cement works. This arrangement could be in place regardless of the form of tenure over the dwelling which could range from short term rental to something similar to the existing form of private ownership.
The revenue from tax and land-rent would then be spent on (1) net investment to increase the productive capacity of the economy, (2) maintenance and expansion of the supply of collective goods such as medical, sporting, education and transport facilities, (3) pensions and wage subsidies, (4) funding goods and services that society may choose to subsidize or provide free, such as healthcare and education and (5) the provision of administration.
As well as being more efficient than capitalism, collective ownership is more equitable in the distribution of what is produced. To start with, of course, there will no longer be rich capitalists or overpaid executives nor people on reduced incomes because of unemployment or underemployment.
Over time there will be less and less reliance on financial incentives and more on intrinsic motivation. So the more productive people won’t resent the less productive receiving a similar hourly wage rate or respond by reducing their own productivity. These includes people who have a particular brilliance or flair and make an especially large contribution to human productivity through innovations. As we discussed earlier, technological progress causes a continual decline in low skilled jobs. This means the bulk of the workforce becomes less spread out in terms of training and skills. So to the extent that this effect wages, most workers will not be far apart.
Excess supply or demand for certain kinds of labor may still be a source of pay differentials. However, whenever excess demand emerges it would usually be a short term problem solved by increased training and by giving priority to automating less popular tasks. As for excess supply due to some particular activities being very popular, the problem would diminish as an increasing proportion of work takes on a rewarding character. Also when choosing between more or less equally congenial activities, workers should need little inducement to choose the one on which society places the highest value.
When it comes to predicting when and how collective ownership will supersede capitalism, we are confronted with a very murky crystal ball. There is certainly little support at the moment for such a project and nothing resembling a credible political trend espousing it. Once such a trend does emerge it will have quite a lot on its plate. It will have to: (1) gain a popular following; (2) ensure that its opponents are dividedand isolated; (3) be able to form a government; and (4) possess a clear-headed understanding of its mission once in power. It is important to appreciate that such a movement will have nothing in common with the present pseudo left which is clearly part of the problem rather than the solution. This trend is hideously reactionary. It flirts with the greenies in their opposition to modernity, e.g., their nature worship and hostility to modern science and industry. It enthusiastically embraces the anti-globalization movement which opposes the industrialization of developing countries. It supports the fascist “resistance” in Iraq and Afghanistan. And it has a vision of socialism that is all about government hobbling growth and innovation, and supervising what people can consume.
The main thing working for change is the fact that capitalism’s obsolescence becomes harder to ignore. With rising education levels and new technology continuing to take more of the irk out of work, capitalism is a mounting hindrance to people getting on with their working lives. Furthermore, the new work tasks are harder to supervise and so require a level of self-activated commitment which this system has difficulty engendering. Then, as discussed in detail above, there is the increasing inefficiency of pricing under capitalism as fixed costs such as research and development and overheads grow in importance.
Establishing a new government, and new laws and institutions is only the first step. It will be followed by a protracted process of transformation and consolidation. Part of this will involve people getting over the habit of being subordinates and having others take the initiative. This includes resisting those in authority who want to turn social ownership into state capitalism. Hopefully, this process of transition will not be as protracted and painful as the one from backward agricultural societies to capitalism. It took centuries in Europe and is still going on in the developing countries today.
The prospects can best be summed up as: the future is bright but the road is tortuous.
 Ayittey 1992: 105)
 Ayittey 1992: 112
 Betrayed 0023 252
 Ayittey 1998: 144-145
 Ayittey 1992: 342
 Ayodele 2005: 2.
 Ayodele 2005: 1.
 Ayittey 1992: 255
 Ayittey 1992: 245
 Ayodele 2005: 3.
 Ayittey 1992: 239
 Ayyittey 2002: 9.
 Hope and Chikulo 1999: 122.
 Ayittey 1992: 0019.
 Ayittey 1998: 177.
 Ayittey 1992: 0015.
 Ayittey 1992: 0024.
 “Sub-Saharan Africa Survey” The Economist Jan 15th 2004.
 Ayittey 1992: 0031.
 “Sub-Saharan Africa Survey” The Economist Jan 15th 2004.
 “Sub-Saharan Africa Survey” The Economist Jan 15th 2004.
 Ayittey 2002: 10.
 The Economist, 20 Oct 2005
 The total foreign debt of SSA governments today stands at $350 billion. (Ayittey2004:2) and of this about half is owed by the 34 Sub-Saharan countries described as Heavily Indebted Poor Countries, the real basket cases. (Cato Institute 2005: 698) The vast bulk of the debt is owed to Western governments and multi-lateral financial and development institutions such as the World Bank, the IMF and the UNDP. Currently debt service obligations absorb a large proportion of export revenue.
 These include Bono and Bob Geldoff.
 National Center for Education Statistics 2005:161
 This is called the Flynn Effect. See http://www.wired.com/wired/archive/13.05/flynn_pr.html
 It is, of course, problematic to talk about socialism having employment, full or otherwise, given that workers are now owners rather than employees. It is used here as a matter of convenience given the difficulty of coming up with a more suitable word.
 In the mathematics of game theory, this is an example of the so-called prisoner’s dilemma problem where the ‘rules of the game’ are such that each individual player is forced to adopt a non-cooperative strategy that delivers to them an outcome that is inferior to the one they would receive in a ‘game’ that enforced a cooperative strategy.
 At the other end of the spectrum, people with abilities in high demand will get what is effectively a negative subsidy. Organizations will bid a “shadow” wage for the labor based on the value they place on it. However, the worker should only receive what is required to induce him or her into that position. Economist refer to the difference as a rent which can be taxed without affecting economic decisions.
 Miller et al. 1996.