WEBVTT NOTE IV. Responsibility and Initiative in Communal Concerns 1 00:00:00.000 --> 00:00:05.840 Section 4. Responsibility and Initiative in Communal Concerns 2 00:00:05.840 --> 00:00:13.920 The problem of responsibility and initiative in socialist enterprises is closely connected 3 00:00:13.920 --> 00:00:21.200 with that of economic calculation. It is now universally agreed that the exclusion 4 00:00:21.200 --> 00:00:26.880 of free initiative and individual responsibility on which the successes 5 00:00:26.880 --> 00:00:34.480 of Private Enterprise Depend constitutes the most serious menace to socialist economic organization. 6 00:00:35.120 --> 00:00:38.880 The majority of socialists silently pass this problem by. 7 00:00:39.440 --> 00:00:43.920 Others believe they can answer it with an allusion to the directors of companies, 8 00:00:43.920 --> 00:00:48.560 in spite of the fact that they are not the owners of the means of production. 9 00:00:48.560 --> 00:00:52.080 Enterprises, under their control, have flourished. 10 00:00:52.080 --> 00:00:57.040 If society instead of company shareholders becomes the owner of the means of production, 11 00:00:57.040 --> 00:01:02.320 nothing will have altered. The directors would not work less satisfactorily for society 12 00:01:02.320 --> 00:01:07.440 than for shareholders. We must distinguish between two groups of joint stock companies 13 00:01:07.440 --> 00:01:12.800 and similar concerns. In the first group, consisting for the large part of smaller companies, 14 00:01:12.800 --> 00:01:18.480 a few individuals unite in a common enterprise in the legal form of a company. They are often the 15 00:01:18.480 --> 00:01:24.160 the heirs of the founders of the company, or often previous competitors who have amalgamated. 16 00:01:24.160 --> 00:01:29.520 Here the actual control and management of business is in the hands of the shareholders 17 00:01:29.520 --> 00:01:36.280 themselves, or at least of some of the shareholders, who do business in their own interest, or in 18 00:01:36.280 --> 00:01:40.840 that of closely related shareholders, such as wives, miners, etc. 19 00:01:40.840 --> 00:01:45.620 The directors in their capacity, as members of the board of management, or of the board 20 00:01:45.620 --> 00:01:52.660 of Control, and sometimes also in an attenuated legal capacity, themselves exercise the decisive 21 00:01:52.660 --> 00:01:58.980 influence in the conduct of affairs, nor is this affected by the circumstance that sometimes 22 00:01:58.980 --> 00:02:06.220 part of the share capital is held by a financial consortium or bank. Here, in fact, the company 23 00:02:06.220 --> 00:02:11.740 is only differentiated from the public commercial company by its legal form. The situation is 24 00:02:11.740 --> 00:02:29.740 This is quite different in the case of large-scale companies, where only a fraction of the shareholders, i.e. the big shareholders, participate in the actual control of the enterprise, and these usually have the same interest in the firm's prosperity as any property holder. 25 00:02:29.740 --> 00:02:42.900 Still, it may well be that they have interests other than those of the vast majority of small shareholders, who are excluded from the management, even if they own the larger part of the share capital. 26 00:02:42.900 --> 00:02:50.740 Severe collisions may occur when the firm's business is so handled on behalf of the directors that the shareholders are injured. 27 00:02:50.740 --> 00:03:01.240 But, be that as it may, it is clear that the real holders of power in companies run the business in their own interest, whether it coincides with that of the shareholders or not. 28 00:03:01.240 --> 00:03:17.240 In the long run, it will generally be to the advantage of the solid company administrator, who is not merely bent on making a transient profit, to represent the shareholders' interests only in every case, and to avoid manipulations which might damage them. 29 00:03:17.240 --> 00:03:34.240 This holds good in the first instance for banks and financial groups, which should not trifle at the public's expense with the credit they enjoy. Thus, it is not merely on the prescriptiveness of ethical motives that the success of companies depends. 30 00:03:34.240 --> 00:03:38.740 The situation is completely transformed when an undertaking is nationalized. 31 00:03:38.740 --> 00:03:44.940 The motive force disappears with the exclusion of the material interests of private individuals, 32 00:03:44.940 --> 00:03:53.540 and if the state and municipal enterprises thrive at all, they owe it to the taking over of management from private enterprise, 33 00:03:53.540 --> 00:04:03.540 or to the fact that they are ever driven to reforms and innovations by the businessmen from whom they purchase their instruments of production and raw material. 34 00:04:03.540 --> 00:04:08.540 Since we are in a position to survey decades of state and socialist endeavor, 35 00:04:08.540 --> 00:04:13.540 it is now generally recognized that there is no internal pressure to reform 36 00:04:13.540 --> 00:04:17.540 and improvement of production in socialist undertakings, 37 00:04:17.540 --> 00:04:21.540 that they cannot be adjusted to the changing conditions of demand, 38 00:04:21.540 --> 00:04:25.540 and that in a word they are a dead limb in the economic organism. 39 00:04:25.540 --> 00:04:29.540 All attempts to breathe life into them have so far been in vain. 40 00:04:29.540 --> 00:04:35.380 It was supposed that a reform in the system of remuneration might achieve the desired end. 41 00:04:35.380 --> 00:04:40.340 If the managers of these enterprises were interested in the yield, it was thought they would be in a 42 00:04:40.340 --> 00:04:46.580 position comparable to that of the manager of large-scale companies. This is a fatal error. 43 00:04:46.580 --> 00:04:51.860 The managers of large-scale companies are bound up with the interests of the businesses they 44 00:04:51.860 --> 00:04:57.220 administer in an entirely different way from what could be the case in public concerns. 45 00:04:57.220 --> 00:05:04.920 They are either already owners of a not inconsiderable fraction of the share capital, or hope to become so in due course. 46 00:05:04.920 --> 00:05:11.720 Further, they are in a position to obtain profits by stock exchange speculation in the company's shares. 47 00:05:11.720 --> 00:05:19.720 They have the prospect of bequeathing their positions to, or at least securing part of their influence for, their heirs. 48 00:05:19.720 --> 00:05:31.820 The type to which the success of joint-stock companies is to be attributed is not that of a complacently prosperous managing director resembling the civil servant in his outlook and experience. 49 00:05:31.820 --> 00:05:43.820 Rather, it is precisely the manager, promoter and man of affairs who is himself interested as a shareholder, whom it is the aim of all nationalization and municipalization to exclude. 50 00:05:43.820 --> 00:05:56.120 It is not generally legitimate to appeal in a socialist context to such arguments in order to ensure the success of an economic order built on socialist foundations. 51 00:05:56.120 --> 00:06:12.120 All socialist systems, including that of Karl Marx and his orthodox supporters, proceed from the assumption that in a socialist society a conflict between the interests of the particular and the general could not possibly arise. 52 00:06:12.120 --> 00:06:20.120 Everybody will act in his own interest in giving of his best because he participates in the product of all economic activity. 53 00:06:20.120 --> 00:06:26.120 The obvious objection that the individual is very little concerned, whether he himself is diligent and enthusiastic, 54 00:06:26.120 --> 00:06:34.120 and that it is of greater moment to him that everybody else should be, is either completely ignored or is insufficiently dealt with by them. 55 00:06:34.120 --> 00:06:40.120 They believe they can construct a socialist commonwealth on the basis of the categorical imperative alone. 56 00:06:40.120 --> 00:06:56.120 How lightly it is there won't, to proceed in this way, is best shown by Kautsky when he says if socialism is a social necessity, then it would be human nature and not socialism which would have to readjust itself if ever the two clashed. 57 00:06:56.120 --> 00:06:59.120 This is nothing but sheer utopianism. 58 00:06:59.120 --> 00:07:05.040 But even if we for the moment grant that these utopian expectations can actually be realized 59 00:07:05.040 --> 00:07:11.520 that each individual in a socialist society will exert himself with the same zeal as he does today 60 00:07:11.520 --> 00:07:17.200 in a society where he is subjected to the pressure of free competition, there still remains the 61 00:07:17.200 --> 00:07:22.560 problem of measuring the result of economic activity in a socialist commonwealth which does 62 00:07:22.560 --> 00:07:28.520 does not permit of any economic calculation. We cannot act economically if we are not in 63 00:07:28.520 --> 00:07:35.580 a position to understand economizing. A popular slogan affirms that if we think less bureaucratically 64 00:07:35.580 --> 00:07:41.420 and more commercially in communal enterprises, they will work just as well as private enterprises. 65 00:07:41.420 --> 00:07:46.240 The leading positions must be occupied by merchants and then income will grow apace. 66 00:07:46.240 --> 00:07:50.540 Unfortunately commercial mindedness is not something external which can be arbitrarily 67 00:07:50.540 --> 00:07:51.540 be transferred. 68 00:07:51.540 --> 00:07:57.080 A merchant's qualities are not the property of a person depending on inborn aptitude, 69 00:07:57.080 --> 00:08:02.500 nor are they acquired by studies in a commercial school or by working in a commercial house, 70 00:08:02.500 --> 00:08:06.860 or even by having been a businessman oneself for some period of time. 71 00:08:06.860 --> 00:08:13.300 The entrepreneur's commercial attitude and activity arise from his position in the economic 72 00:08:13.300 --> 00:08:16.980 process and are lost with its disappearance. 73 00:08:16.980 --> 00:08:20.480 When a successful businessman has appointed the manager of a public enterprise, he may 74 00:08:20.480 --> 00:08:25.760 still bring with him certain experiences from his previous occupation, and be able to turn 75 00:08:25.760 --> 00:08:30.680 them to good account in a routine fashion for some time. Still, with his entry into 76 00:08:30.680 --> 00:08:35.520 communal activity, he ceases to be a merchant and becomes as much a bureaucrat as any other 77 00:08:35.520 --> 00:08:43.520 placeman in the public employ. It is not a knowledge of bookkeeping, of business organization, 78 00:08:43.520 --> 00:08:48.100 or of the style of commercial correspondence or even a dispensation from a commercial high 79 00:08:48.100 --> 00:08:55.440 school which makes the merchant but his characteristic position in the production process which allows 80 00:08:55.440 --> 00:09:00.880 of the identification of the firms and his own interests. 81 00:09:00.880 --> 00:09:07.320 It is no solution of the problem when Otto Bauer in his most recently published work 82 00:09:07.320 --> 00:09:12.040 proposes that the directors of the National Central Bank on whom leadership in the economic 83 00:09:12.040 --> 00:09:18.800 process will be conferred, should be nominated by a collegium to which representatives of 84 00:09:18.800 --> 00:09:22.840 the teaching staff of the commercial high schools would also belong. 85 00:09:22.840 --> 00:09:26.900 Like Plato's philosophers, the directors so appointed may well be the wisest and best 86 00:09:26.900 --> 00:09:32.200 of their kind, but they cannot be merchants in their posts as leaders of a socialist society 87 00:09:32.200 --> 00:09:35.760 even if they should have been previously. 88 00:09:35.760 --> 00:09:41.640 It is a general complaint that the administration of public undertakings lacks initiative. 89 00:09:41.640 --> 00:09:46.280 It is believed that this might be remedied by changes in organization. 90 00:09:46.280 --> 00:09:49.200 This also is a grievous mistake. 91 00:09:49.200 --> 00:09:53.520 The management of a socialist concern cannot entirely be placed in the hands of a single 92 00:09:53.520 --> 00:09:58.640 individual, because there must always be the suspicion that he will permit errors inflicting 93 00:09:58.640 --> 00:10:03.240 heavy damages on the community, but if the important conclusions are made dependent on 94 00:10:03.240 --> 00:10:08.460 the votes of committees or on the consent of the relevant government offices, then limitations 95 00:10:08.460 --> 00:10:11.160 are imposed on the individual's initiative. 96 00:10:11.160 --> 00:10:16.900 Companies are rarely inclined to introduce bold innovations. 97 00:10:16.900 --> 00:10:22.880 The lack of free initiative in public business rests not on an absence of organization, it 98 00:10:22.880 --> 00:10:26.700 is inherent in the nature of the business itself. 99 00:10:26.700 --> 00:10:31.380 One cannot transfer free disposal of the factors of production to an employee however high 100 00:10:31.380 --> 00:10:38.160 his rank, and this becomes even less possible the more strongly he is materially interested 101 00:10:38.160 --> 00:10:40.920 in the successful performance of his duties. 102 00:10:40.920 --> 00:10:46.760 For in practice, the property-less manager can only be held, morally responsible for 103 00:10:46.760 --> 00:10:51.720 losses incurred, and so ethical losses are juxtaposed with opportunities for material 104 00:10:51.720 --> 00:10:52.720 gain. 105 00:10:52.720 --> 00:10:57.760 The property owner, on the other hand, himself bears responsibility, as he himself must primarily 106 00:10:57.760 --> 00:11:01.300 feel the loss arising from unwisely conducted business. 107 00:11:01.300 --> 00:11:06.320 It is precisely in this that there is a characteristic difference between liberal and socialist production.