The Co-operative Movement of the Russian Far East

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Vanek Jaroslsv (USA) "Plan and market: no contradiction but a logical requirement in economic democracy.

Vanek Jaroslav




Because the argument of this paper is new and somewhet complex, I would like to sketch its essentials here in the introduction, indentifying the main logical and matching them with the sections of the paper.

It can be shown thet any social organization of a group [ family, commu-nity, nation] will depend on:

1) structure,

2) dynamic procedure, and

3) a metod of social communication and information transmission and formation. Among all the meny possible sets of the three characteristics i claim thet it is possible to identify one set which is optimal, defining an optimal social organization. For purposes of simpler exposition and for the purpose of showing the essence of what is inficated bu the title of this paper, I restrict myself here only to the first characteristic, i.e. the structure. [This " "partial" analysis is permissibi because either the tree domains are analytically separable, or the first-with wich I deal here impracts the other two and not vice-versa.]

In the following section [2] I restate briefly the analysis permitting the identification of an optimal social structure in general terms. I do so referring to earlier writings {1}, but add some new insights/interpretations which may be useful to the reader.

In section 3 use the above analysis in concretely indicating that tcjgjmic democracy and worker selfmanagement does belong to the optimal set - BUT- all such organisations of productive communities do not fulfill this optimality. Another characteristic of the optimal set delineates, among all forms of economic democracy, only those that fulfill additional requirements of optimality. It is these additional requirements - hereafter AR -that contain, among others, a specific form of democratic planning.

With there observatioins as a background the remaining sections of the paper deal with the following subject:

Section 4 : Substantiation of the "theoretical" optimality of economic democracy derived above through empirical evidence. We use here for the most part earlier published secondaru material {2,3} and especially a new paper [ILR Oct.95] using metaanalysis which integrates almost all previous empirical studies. This empirical evidence also indicates strongly the existence of the AR's dor social optimum.

Section 5: Outlining the principal characteristics, procedures and reasons for economic planning under economic democracy. Essential differentiation from central / directive/ nonmarket planning is called for in the present con-text.

Section 6: Some tentative suggestions about possible elements of institutional structures, economic policy /strategy and concret plan implementation, given the historical antecedents and oter specific characteristics in Russia. But thorough discussion and main contributions should come

from Russian scholars and planning experts.

Section 7. Conclusions


The happiness or peace of mind of individual people depends on many individual conditions and predispositions. Some of these conditions and predispositions all members ofsocienty have in common, beacause they derive from the overall government, freedoms, constitutional rights ect. ruling that society. There are overall rights wich add up to happy - or more or less happy - societies and others which add up to overall social misery.

The state of Hitler's Germany or Somosa's Nicaragua are illustrations of the state of misery, while conditions of a Swiss canton or perhaps of the Dutch nation come close to the socially happy state.

Without any doubt the most significant group of such social conditions and predispositions is realed to the degree to which members of nations or societies can participate in the determination of and decisions bearing on matters affecting them. In the state of misery we find the extreme case of a dictator who not only does not allow members of society such determination or decisions, but in addition may arbitrarily imprrision or even destory members of society. On the other side of the spectrum we find the case of a democratic society respecting basic human rights.

But there are so many possble aspects , forms, intensities, social domains ect.- such a tremendous dimensionality - of this "space" of social conditions, that it is difficult to make any more precise conclusions about which states are to be preferred - and who, if anyone, and how should make such conclusions or judgment. The differential between Hitler's Germany and a Swiss canton may be clear, but there are trillions of intermediate as well as more extreme situations thet are hard to evaluate.

The purpose of this study is to offer some degree of greater order in these matters and perhaps indicate forms of optimality, not as "optimal prescriptions" but rader as indications of the breadth or "fullness" of the dimensionality at hand and of procedures and metods of finding, for any given nation or society, its own optimum.

The full discussion of the subject at hand - too extensive to be undertaken in this chapter /section - falls under three distinct headings :

I. the structure - of static general rules;

II. the dynamics, procedure and process of finding solutions for a given socienty;

III. the actual method or technique through which a society composed of many members arrives at solutions and decisions. The first of the three is the most important when it comes to the determination pf optimal states of society.

It is this first subject heading that we will discuss here. Because it was presented several times in both published {1} and unpublished papers of mine, restrict myself here to a compact summary statement, often relying on common sense, intuition or analogy with the ihtention of presenting to the reared a certain whole which he /she can evaluate, and accept or reject.

All the "static" of society can be thought of as an all-inclusive set represented by an oval or ellips, were the optimum is somewhere at the center and the least desirable states [such as Hitler,s, or Somosa,s] are at near the outer edge, as indicated in the sketch of Figure 1.

Figure 1

What is relevant and what determines the degree of optimality or misery Is the relationship between two Indexes, or quanta -1 and P - degree of INVOLVEMENT and PARTICIPATION in a given society or social group and participation by members of the society or group In determination and decisions concerning the group respectively. The case of the two mentioned and many other dictatorial states is that there is no correspondence between those Involved [i.e. the nation] and the decision making process [assumed by the dictator] Thus we can write symbolically

I<==not==> P or, permitting for more precision of expression

I<===o==> p

where the number zero reflects the degree of participation Index D = 0, where D could even be given negative values if the dictator, besides determining himself all the circumstances of the society-, also arbitrarily infringes on the habeas corpus of individual citizens in various ugly manners.

The index D may be thought of as equal to one for maximal or total degree of participation, as determined by the state of society or community. usually written Into Its constitutional law or statutes. For example, even in the "ideal" Swiss canton some decades ago the constitution permitted only men to vote and thus D might be thought of as equal approximately = I 11.

But there is another degree index which must be introduced into our discussion - refer to it as d -, not given by usurpers of power or democratic constitutions but given-fey physical or other circumstances. For example, for the community of residents of New York City [with d varying between minimum of 0 and maximum of I or one hundred per cent] the Involvement In the affairs of Peking is somewhere near zero [d=0], in the affairs of the New Jersey community over thet George Washington bridge, say 0.03 and in the affairs of their own city 1.00. Involvement of a halftime worker in his place of work is d=l/2, that is, one half the involvement of a regular full

time worker. As in these examples, the principal meaning of the index of Involvement "d" Is primarily as a relative number with respect to the maximum possible Involvement of an Individual; that is, d=l for a full member of a community, such as nation, state, labor force of a factory etc.;

but d can also measure the number of shares of an owner relative to the total outstanding number, or the number of [voting] shares of one stockholder relative to another.

With these notions and definitions In mind we can state what we refer, to as the FIRST LAW OF OPTIMAL SOCIAL PARTICIPATION: FOR OPTIMUM, D SHOULD ALWAYS BE EQUAL TO ONE |THIS IS BASED ON HUMAN DIGNITY AND EQUALITY] AND PARTICIPATION IN DECISIONS SHOULD CAT LEAST APPROXIMATELY] BE GOVERNED BY THE INDEX d, that Is, according to the intensity of involvement. This is natural to those living in democratic societies. New Yorkers vote in New York, and not In Peking or New Jersey, but they affect somewhat, through national political participation, the affairs of New Jersey, even though the estimate of 0.03 Is quite tenuous and almost arbitrary.

Perhaps the best illustration of an optimal solution - or application of the first law - is participation of consumers operating in perfectly' competitive markets. Here involvement of buyers in two or more products is measured by the desire/consumption of certain quantities of the products, and participation in control over such products Is indeed expressed by the expenditures devoted to the products respectively. If I consume twice as much potatoes as my neighbor. I participate in the control of that product by an intensity ratio of 2 to 1. But if the markets are not perfectly competitive, and we both spend say the same on potatoes but I buy twice as much as my neighbor [at half price], then the solution is not optimal.

Nor is it optimal if one of the products is subject to a strong negative externality [e.g. production polluting the air or water] while the other is not. The intensity of involvement of the "d" type now is not measured by relative expenditures, because the community is negatively affected by the first product's production - and that residual intensity must be taken care of, for optimum, in some other manner [as it is done in some cases in modern democratic market societies]. But we will have to return to this subject elsewhere. Here let it only be noted that the first law of optimal participation is indeed respected in some situations in democratic market societies.

There is another well known example of participation which would at first sight appear as optimal, with D = 1 and the intensities of involvement "d" respected. It has to do with common stock ownership and voting in capitalist corporations. But there is a fundamental problem which Illustrates the need for and helps us to define what we call THE SECOND FUNDAMENTAL LAW OF OPTIMAL PARTICIPATION. In the opinion of this writer - to be judged by the reader as we go along - this second law is of tremendous importance, and if applied promises a major step in the direction of a more just and happy society and the elimination of lots of human misery. What follows in this writing [both in this section and the open-ended many later sections] is dedicated to the substantiation of this claim.

Obviously, in the practice of large capitalist corporations the postulates of the first law are not fully respected, with large stock holders typically having disproportionately strong power and vice versa for the small stockholders. But It Is not this flaw that we speak about here. What concerns us Is that there is a category of people - the workers - who while significantly Involved do not participate at all in the decisions of the corporations [save sometimes indirectly via labor unions]. Thus on our terms thus far D is significantly below unity and the degree intensity of involvement "d" is not respected in determining participation in decisions.. A highly imperfect - sub.optimal - solution, indeed. Later we will concentrate on this suboptimality from the point of view of practical performance: here let us remain with our abstract and conceptual analysis.

Some would suggest that the solution should be sought in various forms of codetermination, such as that practiced in the German economy. While probably a step in the right direction, this is not an optimal solution, and may even Imply a dead end street. Codetermination in general terms postulates that capital and labor produce jointly, and thus should be treated along the lines of the first law with the d intensities somehow determined numerically, perhaps as proportions of value added by the various factors and their • suppliers.

The suboptimality of codetermination can be argued on both practical and theoretical levels. The economic performance of such solutions is good but certainly not the best [ see metaanalysis paper]. In theory, because the primary objectives of capital are profit maximisation, and of labor, maximisation of income/wages, the situation is likely to become unstable, depending on who holds the majority, and especially the incentives structure can be quite flawed. But we do not have to spend much time on this subject because our principal purpose is to move in our analysis towards the determination of true optimal solutions.

The key to the road of optimality is - in addition to intensity of, involvement - the consideration of the NATURE or QUALITY of involvement. We have here at least three major historical analogies or antecedents. [1] The nature and quality of Involvement of the owner In his slaves Is inferior/subordinated to the Involvement of "habeas corpus" of the slaves themselves. AND we have abolished slavery and no one today would question this comparative judgement - on the contrary most of us would attach to It a certain moral or philosophical notion of justice. [2] Similarly, decolonisation was based on the now unquestioned and unquestionable notion that the members of a certain nation [former colony] are differently and far more deeply involved in their society than some colonial EXTERNAL power or even an external owner such as the king of Belgium in the case of Belgian Congo.

And third, in the "domain of political democracy and selfdetermina-tioh, we have the qualitative "jump" from poll taxes or right to vote conditioned by land ownership or wealth to pure personal rights of all members of society', with equal vote for all, or D= 1 rather than D< 1 of the former situations.

In these-and all other situations [to which we will turn later] the qualification of QUALITY/ NATURE of involvement becomes somehow

understandable or "natural" upon critical reflection. Also, the critical reflection usually leads to a conclusion as to how the quality/nature of involvement should impact the form or nature of participation for full opti-mality. The second law of optimal participation can thus be stated as:


While the first law can be thought of as undimensional, as measured or reflected by intensity [d or D] - very often a dimensionality reducible to dollars or material values - the second brings us To a world which Is multidimensional, recognising in addition to intensity the dimensions of justice, love, faith, human life and many others. The world based on both the first and second law of participation Is definitely a better and happier one. Among the many solutions offered by the two laws we also find the analytical justification for the claim contained in the title of this paper. To this analysis I now turn In the remaining sections.


To begin with it may be useful to complete the diagram-set shown for the first law in Figure I above. Recalling that increasing the degree of opti-mality [our social desirability] corresponds to movement from the periphery towards the center of the elliptical set, it can be claimed that the fulfilling of the second law corresponds to a quantum jump in desirability, coinciding with the very center of the total set. However, because we progress here from the unidimensionaliy of intensity to the multidimensionality of nature/quality of involvement which must determine true optimum, we must move to a higher dimension. And for lack of ability- to conceive of more than threedimensional objects we must content ourselves with the third dimension.

Having drawn such a set with a threedimensional sphere at its center, we obtain an image resembling the planet Saturn shown In Figure 2. Because we are arguing here the optimality of economic democracy; and because the Saturn production Plant of GM is a first attempt In my country to emulate the democratising elements of production of the Japanese economy - and because my son, an amateur astronomer, gave me a good photo-Image -1 am also using as our representation/diagram that true representation in Figure 2a. We have only added the descriptions ranging from the most suboptimal/evil systems to the optima where the multidimensionality of various types of Involvement Is recognised on the visible crescent of the planet. [Perhaps useful symbolic notions are that it is the reflection of some exterior light source that provides us with this indication of a road to a superior human existence; and also that only the crescent Is visible; with a good deal of the true advantages of the second law being hidden and only revealed to those who are willing to enter - and inhabit - the third dimension ].

Among the representative types of nature quality of involvement, the first and foremost which concern us here are the direct and the Indirect type. The direct involvement of the workers for years or entire lives, eight hours a day, is a quality entirely apart from the indirect involvement of

mostly atomised stockholders who very likely have never seen the factory. [footnote:: The situation of an individual entrepreneur who creates and runs his enterprise while belonging to it most directly himself is another case which we will not be considering here. But I will deal with it in my lecture in honor of Professor Egon Sohmen in Vienna in October this year - noting the "parent" - type involvement of the enterepreneur. This is quite appropriate,

Figure 2

because that case of capitalism corresponds most closely to the Men-ger-Schumpeter entrepreneur of the Austrian school;).

The inadequacy of codetermlnatlon as an optimal solution becomes Immediately apparent; It resembles George Washington sharing the vote in matters of the United States with King George III of England. The only logical optimal solution according to the Second Law becomes economic democracy, with D= 1 and democratic control by the full time workers [with fractional d<l for part time members]

The capitalist solution of D=0 for the workers and full capital control assigned to those withTar more superficial Indirect Involvement immediately strikes us as absurd for an optimal solution. It is so absurd that even in capitalist economies the control of large publicly owned corporations is transferred from the stockholders to a de facto select group directly involved within the enterprise [the CEO and his self-appointed acolytes] with mixed and undefined motives, but with no participation by the workers.

But this argument of social optimality and desirability of economic

democracy has been produced elsewhere* [see Elgar '96 etc] and is not the prime objective of this paper. Our prime objective Is to deal with planning and its consistency with market-based economic democracy.

The key to answering these questions are two other possible qualities of involvement - also noted In Figure 2. They are i. the Involvement in risk by those participation In the process of production [,1.0. workers and capital owners] and ii. the vital involvement of a special type of some members of society. Let us begin with the discussion of the first of the two:

In the enterprise and in the economy in general, subject to risk are both the capital owners and workers, even If In standard textbooks of economics we often hear It said that It Is the capital owners who bear the burden of risk of the enterprise. In fact the risks of a typical worker are far graver - and can even be fatal - than those of the capital owners, who can divers' their portfolios without Unlit and who often are much better endowed to cope with risks both Intellectually and financially.

In a historical context, however, it was far easier and more natural to develop instruments and Institutions to cope with risks of capital owners. Moreover for many reasons - Including the inability and virtual impossibility of workers to diversify - institutions and instruments of risk prevention for labor could not be developed. Some might have even been deemed illegal under capitalist antitrust laws.

And thus a socially and economically Inferior system of capitalism became the rule In western democratic societies because that system could handle the all important problem of risk. Of course that meant for the most part risk prevention for capital owners and not for workers who often end up having some of the capital risks shifted onto them {5}.

Once this Is understood and relying on our fundamental laws we find that It Is necessary for all • workers and owners - to participate In dealing with risk while living in an optimal system of economic democracy [by virtue of direct Involvement of labor;). And this requires Its own optimal Instruments and institutions [as capitalism did call for its own Institutions and Instruments].

Among these first and foremost are two: 1.democratic and market consistent planning, and 2. a broadly defined support structure which assists the productive sectors of the economy. Without these two we cannot speak of optimality. In terms of the multidimensional optimal set of Figure 2, the application here pertains to the qualities of "directness" and "risk" involvement of the working members of society. Without at least these two sets of conditions It Is Impossible to speak of optimality of economic democracy. And this Is not only the result derived from our analysis: It has also been borne out many times by real experiences and the demise of many individual and unassisted democratic worker cooperatives. THIS IS ALSO THE CENTRAL CLAIM OF THIS PAPER : NOT ONLY DO PLANNING AND THE OTHER INSTITUTIONAL FACTORS NOT CONTRADICT ECONOMIC DEMOCRACY, BUT THEY ARE REQUIRED AS A NECESSARY PRECONDITION OF AN OPTIMAL DEMOCRATIC ECONOMY.

The "directness" which already led us to economic democracy also shows us the concrete modalities of treatment of risk. First of all, by implication the Indirectly Involved capital owners can cover their risks in conventional manners of capital market operations combined with diversification. They can also use a new debt instrument - I refer to It as the VID ir variable income debenture - which allows them directly to assume some of the risks of operation of the firms to which they lend, and at the same time diminish possibilities of bancruptcy while preserving the genuine incentive structures of the democratic firm.

The worker-members of democratic firms who are directly involved and who tear the more serious risks, not being able to diversify, form with respect to risk a broad family - perhaps the entire labor force of the country - which has to cooperate In forming a democratic body or body or planning institutions and support structures. The political government of the country can play a role in this, but does not have to. The planning and other support functions can be undertaken as a matter of a second- or third- level cooperation, as is the case in Mondragon {16,7]}. It can be argued that in the concrete case of the Russian economy the earlier ministerial structures, transformed, democratised and reduced in scope, could be appropriate both in being efficient and in solving personnel problems of human resource utilisation. But to argue this one way or another the present writer is not qualified.

The risk alleviating function of the support structure resides in several domains which should be noted briefly. First is the participation in forming of new firms or expansion of existing ones. The simultaneous evidence and information available to the support institution is of enormous significance in making the right decision. In Mondragon virtually no newly created firms ever failed: compare this with more than 50 per cent failure rates in the first few years of operation in western capitalist economies, which do not have such support institutions, and where unadvised individual decisions and allocation of capital funds are frequently the rule, Another key role of the support structure Is to give advice in time of distress to a member firm, and even to enforce policy steps on grounds of statutory protection of outside investors' funds.

Yet another risk reducing role Is retraining and reallocation of worker members in case of structural modifications. Closely- related Is the role of overall education of young potential workers, but in principles of the democratic economy and In general education. And there are many other roles which we do not have the time space to deal with In this paper.

We ought turn now to the subject of planning which gave the Impetus for this whole paper: But because there is still the other significant quality-nature of Involvement, ?nat is VITAL involvement which we introduced as essential for the design of an optimal democratic economy, this Is the time to introduce that "dimension" of our Saturn's Inner core. As we will see, the consideration of this dimension also calls for planning of a certain type.

By VITAL in the context of our nature-quality dimensions we understand human involvement which Is even more Immediate than "direct" because It is related to the very life and existence of those Involved which can be affected or even destroyed, physically or mentally-intellectually. Thus, starving populations can be said to be Involved vitally In the world supplies of food. Or students in a school are vitally involved In the educational

process, because their mind and psyche are affected. Similarly, patients In a hospital are vitally Involved In the services provided by the hospital. Even the working members of firms-whom we thus far considered as directly involved-really most often are Involved at the more significant and deeper level of vital involvement. Their entire being and life existence may be affected and transformed after decades in a mine or a factory.

The last example of work-related vital involvement Is similar to the vital involvement of the unemployed which Is definitely vital in nature but linked not to the productive capacity of their given firm but to the nationally available capital and technical resources which they need to find employment. These types of vital involvements of the working population, but especially that of the unemployed, call for a preferential access to the capital and technical resources of any democratic economy which wants to call itself optimal.

And it is planning and the action of the supporting structures that must in one way or another translate the claims of this vital involvement Into reality. Ofcourse, competitive forces of the capital market implemented by the support structures ought to perform this translation automatically; but if they do not, other more discrete action will be needed to satisfy the population's express need for employment. Planning, as we will see below, becomes relevant here In providing the information, prediction and instruments to prevent, ex ante, the occurrence of any serious or lasting involuntary unemployment.


The optimality of economic democracy with Its proper Institutions and instruments, such as planning and support structures. Is not only the result of the application of our two rules of optimal participation: It Is also just about without exception borne out by empirical findings. Since most of these results are published, we do not have to repeat them here in any detail. Let us just note some of the most salient conclusions and point out a few perhaps less conspicuous Insights.

First to note Is the collection of studies Paving for Productivity [i.e. of capitalist firms] edited by Blinder {2} which - as the title Indicates - views the issues at hand from the capitalist point of view and Is prepared by basically liberal capitalist authors. It is concerned primarily with situations where the capitalist firms "pay" for productivity by Instituting (Skinner-type] participatory devices in the areas of profit sharing, decision sharing and ownership sharing. All by and large Indicate positive effects on productivity with perhaps the weakest In the area of worker ownership.

Of greater Interest for us here Is a very recent study published just some months before our Moscow meeting, by Chris Doucouliagos {4} which applies a method - rather new and unknown to economists - of meta-analysais. This is an approach which leads to a formal synthesis of a large number of studies [actualy 43 - in number, a vast majority of the more serious literature opn the subject] produced by other authors. In fact, some of the studies are those included or referred to in the Blinder compendium. I quote from his summary statement:

"He [i.e. Doucouliagos] finds that..„profit sharing, worker ownership, and worker participation In decision making are all positively associated

with productivity. ... And all the observed correlations are stronger among labor managed firms [i.e. economic democracy; this explanation Is mine] than among participatory capitalist firms."

Another finding is that the effects of codetermination [see my discussion and apprehension stated above in the context of application of opti-mality laws] are negative. The stronger positive effects of full economic democracy as compared to [skinnerian] participatory devices also would seem to be In harmony with our analysis; the former belonging approximately to the three- dimensional portion of the Saturn design while the latter to one of the Intermediate rings of the planetary diagram.

Of course It will be remembered that the effects of economic democracy, besides productivity and human dignity and happiness, also bear on many other socioeconomic variables, such as the twelve listed in my comparative-efficiency table published elsewhere {3} and reproduced herewith as Table I. The table distinguishes various concrete forms of the types of participation analysed in the Blinder volume. It also recognises the distinction between the nonoptimal and optimal forms of full economic democracy - i.e. rows 10 and 11 of the table. To a degree this Is Interesting be-. cause the table was constructed years before the optimality analysis of the present paper following a different path.

-Insert here Table 1-


[(*) footnote: For more basic discussion on planning under economic democracy see chapter 18 in {8}]

First we ought to recall the almost obvious. Planning under a system of market economic democracy, like any system of policy and policy implementation, is a set of action which supplement, and as the case may be, correct the results of a market economyin which markets and market forces of various kind provide the operational vehicle of the economy. By contrast, in former centrally planned economies the plan - or central plan - was the very operational vehicle of the economy. Where in the former situation the forces of supply and demand are the motor of the economy, in the latter the plan and planning activity and carrying out of the plan provided the motor of the economy.

The being said, in a democratic market economy, planning is fairly close to the concept of economic policy, except perhaps that it involves actions of a longer range nature than conventional economic policy. But both have in common that tRfey work within the framework of the markets, which they may alter while respecting the market forces. Because our subject thus defined is extremely wide and could be dealt with in several books, let us restrict ourselves, t& some central observations pertaining to the potential Russian case of economic democracy, speaking about both planning and economic policy making in general.

If markets, knowledge and information were complete and perfect, and if market forces could carry out their results without delay, there would be no need of or scope for planning or policy making. The democratic economy would generate economically optimal results. But of course this

perfection does not obtain and thus there is considerable scope for planning and policy implementation:

1. Low short term elasticities are a well known aspect of democratic firms. While highly desirable because of the relative stability of the firms and of the whole economy, this may cause structural stickness which calls for planning/policy action of various types.

2. First of all there is the special need - even greater than for capitalist economies - for some kind of indicative planning.

Rather in a democratic economy it would be much more consistent with the spirit of equality to make all technologies'a public good, accessible to all members of society [or all firms of the democratic sector] at appropriate cost or fee per unit of technology application. One of the roles of the sectoral or national support structures would then be the management and implementation of such technology strategy. Of course there is the issue of foreign [external to the democratic economy] patents and technologies. But rather than accepting such alien principles for one's internal use it would be desirable to purchase foreign patents for the democratic economy, sector as a whole or not use the technology at all and develop one's own parallel technology for one's own use. Again, the support structures or their specialised departments could handle such foreign technology adaptations.


We may begin with dealing with some issues of macroeconomic policy. While having primarily in mind a democratic market economy, most of what we want to say is just as applicable to the present Russian market or quasi-market economy.

In the New York Times of May 7, '96 reference is made to the American "expert" on Russia, Professor Sachs of Harvard, who is critical of the design for expansion of some of the not-pro-Yeltsin groups who want to deal with the critical situation of underemployed capacity of some of the pre-reform sectors and industries. Defending the western-IMF designs for Russia, Prof. Sachs claims that it is impossible to increase the output of steel because there is just no demand for it. The truth of the matter is that there is not demand for such steel in a world emanating from some wishful thinking of Harvard economic, the IMF and the overall capitalist world.

In a more sensible world which pursues Russian and not foreign interests, of course the output of steel and many other products can and should be expanded, and thus growing GDP and employment and Russia's wellbeing secured. Only someone with a mind distorted by years of western ivory towers does not see that there is virtual: unlimited demand for steel in Russia, rebuilding and building bridges, repairing and expanding railroads, building new pipe lines, building an infinity, of new apartment dwellings, producing and replacing oil rigs, etc. And such inreased demand for steel will increase demand for coal and consequently increase the wellbeing of Russian miners, and so on.

It is another matter that such increases in demand must be oper-

ated in harmony with some macroeconomic principles guaranteeing price stability . But. did the western advisors of the Rurssian economy produce such price stability? In fact they have accentuated the inflation, destabilisation and pauperisation of the majority of the Russian people.

Of course the monetary and short term credit expansion should not be geared to requirements of deficit budgets, but to real growth. But if there is fifty or hundred per cent of unused capacity and a corresponding growth potential, monetary mass should be expanded at least in that proportion, and this will provide for sante of the expansionary credit.

The main sources for financing of the infractructural and other investments in the absence - or insufficency and lack of confidence - of Russian investors should come from increased tax revenues (as suggested by Professor Abalkin quoted in the same NYT article) and another source I have been suggesting for years for the Russian economy (10) if it were to adopt the democratic road. Because real capital to be used effectively must be leased/hired at an appropriate price/cost, all the industrial capacities should pay an appropriate return on such capital. And that - a kind of capital tax - can provide a lot of the funds necessairy for the investment,

To this the western trained economists will again retort that the firms which would have to pay the tax could not because they are inefficient. The answerer to this is that free trade ofGATT and the IMF is more of a devil's than God's commandment. This notion is based on several quite solid arguments first and formost being that if an economy is in a lasting manner in a state of fantastic underutilisation of capacity and underemployment, it does not matter if some industries are below some internationally accpted norm of productivity - what counts is to produce increased national outputs at a higher level of utilisation of resnurces and especial labor.

OF COURSE Russian industries should be protected. There are two other weighy: reasons which hold for all more advanced economies.

First of all, even in the United States with 10 dollar wages competing with 10 cent wages in the poorest parts nf the world, we are undergoing a holocaust of our lower-income working classes (with the bottom of the labor market in state prisons instead in concentration camps). Most lower skilled and simple jobs which used to provide hope to the poorer half of our population have moved or are moving to Mexico, China or the Philipines. And the same will tend to happen in Russia in due course. A policy of tariff protection of Russian industries - whether democratic or not - is called for.

It is called for also for another reason which may be less conspicuous but graver in the more immediate future. It is well known that under free market conditions in an international setting a country well endowed with natural resources will find it virtually impossible to develop its own industrial base. And which economy in the world is relatively the richest in all kinds of natural resources but Russia? Thus if Russian industries are not protected in a free international market, Russian people will become over the coming decades the miners, the woodcutters,-the oil drillers and the farmers supplying most valuable resources to the world which will provide its capitalist manufacturing and high profits for the owners (another Machiavellian design by the western "experts"?).

Why? Because the Russian currency will become relatively so strong thanks to the natural resources that it will be easier to import everything than to produce it domestically. A reasoned conservation, together with sensible ecological strategy, coupled with commercial protection according to the real needs of the Russian people (and not the mafia) should be installed.

Still remaining for a a while with the тасвдесопопмс isscues, a sug-gesiion regarding price stabilih: Indeed the expansionary policies here suggested run the risk of at least structural inflationary pressures. But here moral suasion applied to the managers calling^for resistence to price increases may be operational, if it is well explained that the greater stability and the greater increase in real production, the better off everyone will be. In the case of democratic production sectors using the expansionary investments as suggested above, a powerful additional stimulus is to give credits preferentially where price discipline and "aggressive" production-increase strategy is practiced.

Last but not least for the Russian economy is the consideration of support structures. These as we have found in the early section of this paper are essential for optimality of a democratic economy. Without even hoping for a full-fledged application of the optimal system in Russia, a pragmatic government coming out of the June election might choose to diversify its risks and, for example, provide conditions for all three sectors, state-owned, provate capitalist and democratic, to compare their performance and choose the road for the future accordingly.

In such a situation, the more orderly approach of state ownership of large and strategic industries might fit quite organically the optimal design of a democratic economy/sector. First of all what used to be - or might be in the future - the industry ministries could cooperate with supporting structures in the same sectors, the former ruled from above by the plan and economic policy, the latter controlled by member firms for their benefit, but in cooperation and consultation with the state institutions.

For example, national sectoral plans of the economy could be coordinated in the two sectors. More concretely, large state industries could use ancillary democratic/cooperative firms as suppliers of parts for assembly in the main industry etc. If later on greater experience were secured with the democratic decentralised sector, it would be much easier to transform the state firms into democratic and presumably more efficient firms under the same roof, so to speak, of the sectoral state-cum-democratic body.


Inspired by the purpose and title of the conference I have dedicated this paper to the subjects of economic democracy, planning and markets and attempted to show that under market economic democraticy there is no conflict with planning, but on the contrary, efficient and effective economic democracy calls for its own kind of economic planning. The structure of my argument is indicated in the introduction (section 1) and need not be repeated here. The logical development of my thaught is contained in the main body of the preceding five sections and cannot easily be summarised or condensed.

And thus my remaining task is to state what I feel is the most relevant

conclusion given my analysis and given the date and place of our conference - just following the first round and just (probably) preceding the second round of the presidential elections in Russia:



Approximate raitings derived from empirical the theory:

1 = Excellent; 2 = Good; 3 = Poor/Bad; - Impossible to ascertain. Horizontally, eleven types of economic organizations are presented. Vertically, the success or efficiency indicators are given, where:

A = Stuctural efficiency; В = Incentive efficiency; С = Distribute justice;

D = Capital use; E = Human efficiency; F = Job security; G = Risk distribution; H = Monopolistic tendency; I = Growth capacity; J = Ecological implications;

К = Educational implications; L = Political and social harmony.  


1. Vanek, "A General Theory of Efficient Participatory Society", in Prychitko, David, and Jaroslav Vanek, eds., Producer Cooperatives and Labor-Managed Systems, (Cheltenham, UK, 1996) Vol. I, Pp. 315- 328.

2. Blinder, Alan S., ed., Paying for Productivity, Washington, Brookings, 1990.

3. Vanek, "Towards a Strategy of Democracy, Political and Economic, in Russia", Human Systems management, Vol. 12, No. 4, 1993.

4. Doucouliagos, Chris, "Worker Participation and Productivity in Labor-Managed and Participatory Capitalist Firms: a Meta- analysis," Industrial and Labor Relations Review, Vol. 49, No. 1 (Oct. 1995) 58-77

5. Dreze, Jacques H., Labour Management, Contracts and Capital Markets, Oxford and New York, 1989. •

6. Whyte, William F. and Kathleen King, Marking Mondragon, Ith-aca,NY, 1988 and 1991.

7. Thomas, Henk and Chris Logan, Mondragon: an Economic Analysis, London and Boston, 1982.