http://mrzine.monthlyreview.org/images/pb2563.jpgMichael A. Lebowitz is original in locating the source of inefficiency in a contradictory triangular relationship of three social layers: central planners, managers of productive enterprises, and workers. Their conflicting interests, he says, produces the distinguishing economic characteristic of "real socialism": pervasive shortages and the consequent hoarding by enterprises of productive inputs. Under "real socialism," all but the smallest enterprises were state-owned and typically received direction from state ministries regarding production, raw materials procurement, and product delivery from state ministries. Enterprise managers were, in theory, driven to optimize output by bonuses for achieving production norms. Lebowitz's analysis is sustained by the observations of Che Guevara in the early 1960s, who noted that money incentives generate the social irresponsibility characteristic of capitalism. Managers send incorrect information to their ministries, designed to understate their enterprises' potential and to overstate its needs, in order to keep production quotas well below what was possible. Planning can be no better than the information on which it is based, and in this case, "false information flowed upward," Lebowitz says. He quotes British economist Alec Nove: "To expect unbiased information from those interested in the results to which the information is put is to live in cloud-cuckoo land." But tricking the planners was only one of many illegal techniques used to meet quotas. Among others: "stockpile inputs and hoard materials . . . do favors, bribe officials, make alliances . . . [s]tockpile and hoard workers." The Czechoslovakian economist and reformer Ota Šik referred to this in 1968 as "a mechanism for deception on a grand scale . . . the only sphere in which people's initiative could really develop to the full." Lebowitz views the disharmony of planners and managers as an example of a "principal-agent problem." This term is used by mainstream political scientists to describe situations where those carrying out policies (e.g. factory management) have different interests from those making the decisions (e.g. head office). In capitalist firms, this disharmony is kept within bounds by the discipline of market-based accounting and the threat of layoffs and bankruptcy. But attempts to introduce such mechanisms in "real socialism" (often called "market socialism") ran up against constraints flowing from the relations of both planners and managers with the working class. In the countries of "real socialism," the capitalist ruling class had been dispossessed and the traditional mechanisms of social control dismantled. The new regime's fragile stability rested on its claim to rule on behalf of working people. Workers surrendered some political rights they had fought for under capitalism, such as freedom of speech and association and representative democracy, but they received other hitherto unobtainable rights in return. This outcome represented a "social contract," Lebowitz says, quoting Russian socialist Boris Kagarlitsky's description of it as "a system of mutual obligations." The regime undertook to ensure a rising level of consumption, stable prices, and above all full employment, while granting workers "substantial individual control over the organization and execution of work." Labor itself remained alienated; workers felt no impulse to maximize productivity or quality; the productive system was marked by "rigidity and inertia." "The population was forced into the social contract," Kagarlitsky says. It was "definitely not free." But "it was accepted . . . because people liked certain aspects of the contract." In many ways it provided workers with a better deal than that available under capitalism. Elements of this social system, like the abolition of capitalist ownership, were necessary and progressive as potential building blocks for socialism, Lebowitz believes. He acknowledges the need for social leadership and for an authoritative state administration. The decisive weakness, he says, lay elsewhere.

More... (http://mrzine.monthlyreview.org/2015/riddell160515.html)