Logocracy - Chapter 21: The Social Goods Authority

No more state-owned enterprises

The Iron Rolling Mill (Eisenwalzwerk), 1870s, by Adolph Menzel.

Most countries have at least some state-owned enterprises. Some have a lot:

As measured by numbers of SOEs, China has the largest SOE sector (51,000 SOEs). This is followed by Hungary (370 SOEs), India (270), Brazil (134), the Czech Republic (133), Lithuania (128), Poland (126) and the Slovak Republic (113).

Note the predominance of communist and ex-communist nations. Whatever the historical or political circumstances, however, nationalization of industries has put control of vast enterprises in the hands of governments. But state authorities are usually highly inefficient at managing them. They may do a good job building them, but when it comes to everyday operations, “modernization, and keeping up with technological progress,” they leave a lot to be desired.

When they do operate well, it is usually due to a level of administrative independence, and the relative simplicity of their production process (e.g. transportation and energy services). As this article on SOEs concludes:

• SOEs’ performance has declined vis-à-vis private companies, largely because of corruption, mismanagement, and technical incompetence of their staff.

• To improve SOEs’ performance efficiency, developing countries must appoint competent and autonomous management bodies to oversee SOEs’ day-to-day operations.

• Unlike private enterprises, SOEs’ performance evaluations must entail their profitability as well as social benefits.

• SOE management must encourage a competitive work culture by hiring and retaining talented individuals through competitive compensation packages and performance-based bonuses.

Lobaczewski agrees, summing it up in two essential conditions: skills and employee commitment. He cites examples of successful solutions from Poland’s history, including transforming inefficient SOEs into joint stock companies and selling shares cheaply to competent professionals, giving them the authority to make the businesses profitable while retaining majority ownership. In line with the recommendations above, “Efforts were also made to economically interest the executives, who gained good remuneration.” Additionally, the workers have to want to work there—they must be personally committed to the enterprise’s success. He suggests: “If all workers benefit from a share of the income, in equal proportion to their basic earnings, this should produce a better result than rewarding a select few.”

However, for countries with abnormally high levels of nationalized industry and who thus lack the tradition and experience of private industry, or the capital to achieve it, simple privatization is not the right answer. (Witness Russia in the 1990s, for example.) The workers in such situations often wish(ed) to see their industries as public or social goods, and to participate in management and profits. As David Lipton and Jeffrey Sachs, who were advisors for Poland’s privatization scheme, acknowledged at the time:

The transfer of power to private owners poses a significant political challenge to the governments of Eastern Europe, since support for worker control and worker ownership remains powerful in many enterprises and in some political circles. Not only was the worker management ideology validated in years of struggle against central planning, but it also enjoys well-organized support in enterprises that have active workers’ councils. These councils now aim to strengthen their control and perhaps win outright ownership of the firms. In enterprises facing cutbacks in employment, many workers view their workers’ councils as the best hope for avoiding layoffs and protecting workers’ interests, if not the interests of the capital.

Similarly to how logocracy finds a middle way between between centralization and federalism (with inspiration from the Swiss model), it also does so here, between nationalization and privatization. A logocracy will not have SOEs. All existing SOEs will be reclassified as Class II or III goods and taken out of government control. Instead, they will come under the management of an independent Directorate of Social Goods utilizing the above principles, promoting efficiency and creativity in key industries, and gaining tax revenue for the state in the process. At the very least, Lobaczewski believes, this should have results no worse than capitalist industry, with advantages arising from a the directorate’s “strong economic status, its ability to plan and invest on a large scale, and a certain influence of national and local patriotism.”

As with science and education, the chief executive of social goods will be the head of state (president or king), and the chief governing body will be a council, similar in size to that of science/education, which will elect its chief director, to be approved by the head of state and who will serve until retirement or removal. The head of state, each of the other four independent powers, industrial unions, and technical universities will have the right to delegate members, who must have parliamentary rights.

The council should operate on a permanent basis, with breaks set aside for its members’ contacts with workplaces, scientific institutions, and for recreation. This council will make the most important decisions in economic, technical, and social matters concerning the goods under its authority.

As for its relations with the other powers, the council will also select a representative vice-minister (approved by the prime minister) to work with the minister of industry in the executive. For the legislature, it will elect a representative senator every three years. And it will have a representative on the National Education Council, which in turn will have its own rep on the Social Goods Council.

Subordinate departments should include various industries, general planning, social affairs (which will manage employment issues), and ecological affairs. Self-government at these various levels will be developed, and lower levels should have an influence on the staffing of higher levels. Profits should be split between investment, social purposes, and annual employee dividends.

As individual workplace and industry councils develop, members should be qualified, in line with the principle of competence. This should include, at minimum, vocational training, civic rights, a factory councillor course (several months, with sections on economics, law, factory organization, and organizational psychology), and a minimum length of service at the workplace in question. Council size should range from 7 to 37 (dependent on size and complexity), at least two thirds of whom should be elected by employees, the rest by upper management. Each council will elect a chairperson to represent itself before higher levels, and have the ability to propose candidates for management positions and protest others. While it will not have veto power over candidates, it will have the right to cast votes of no confidence “in members of management who are deemed to be incompetent or dishonest.” Councils will gravitate towards social and worker issues, management toward technical ones.

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Chapter 21: The Social Goods Authority

In many countries and as a result of various political circumstances, there is an increase in the amount of property, especially workplaces, that has become state property. Only the USA successfully defends itself against this phenomenon, but there are specific reasons for it. The administrative authorities there are capable of bankrupting any establishment very quickly. At the same time, the wave of nationalizations that took place in Eastern Europe, and to a lesser extent in Western Europe and on other continents, revealed the inefficiency of the state authorities in managing industry. The state turned out to be more efficient in building new industrial facilities than in their later operation, modernization, and keeping up with technological progress.

However, examples can be cited of the satisfactory operation of state-owned enterprises, especially communication and energy systems. The prerequisite for this seems to be a certain administrative independence of these plants from political factors, as well as a less complex type of production, such as electricity or transportation services. Difficulties will arise where production requires constant modernization and changing models in competition with other plants with similar production. Industry suffers from bureaucratic thinking as much as the nation’s education or agriculture.

During Władysław Grabski’s premiership (around 1924), state enterprises were made economically independent, with very favorable results. Similarly, an ad hoc solution to the technical and economic inefficiency of many enterprises was devised at that time. State enterprises with deficits were transformed into joint stock companies and a few percent of their shares were sold cheaply to persons known for their technical and economic skills. Although the representative of the state had a decisive voice on the board of shareholders thus created, the initiative belonged to these professionals. This made it possible in a short time to transform neglected plants into prosperous and profitable ones for the state treasury. Efforts were also made to economically interest the executives, who gained good remuneration. These solutions still lacked the appropriate interest of entire crews, but this was already the subject of an ideological search for appropriate forms.

These examples highlight two basic conditions for success: skills and people’s personal commitment to the development of production. A logocratic system will, by its very nature, value qualities of mind and character, but certain talents special to the field may also be decisive. However, the right kind of personal commitment of workers to successful production must be skillfully built into the overall management of the former state goods that will become Class II social goods. If all workers benefit from a share of the income, in equal proportion to their basic earnings, this should produce a better result than rewarding a select few. Similar interest should be given to employees of the central administration of social goods.

In countries where almost all industry has been nationalized and the condition of state capitalism has lasted for nearly half a century, the reconstruction of the social and psychological structure of private capitalism must encounter significant difficulties. There is a lack of people with the right tradition and experience. Society does not have the capital to take over and modernize the workplaces. In these conditions, the pressure of international institutions for “privatization” should be considered the result of a lack of imagination and understanding of our existing conditions, or as an action for the benefit of foreign capital that seeks to enrich itself at the expense of the achievements of such a nation and thanks to its difficult situation. Meanwhile, the broad masses of politically active workers wish to see this industry as a social good, to participate in its management as well as in the profits earned. Total privatization has become a historical anachronism, a sociological and economic error. It only opens the way to large-scale abuses.

Under these conditions, to choose a third way—our own. The generation of an efficient power capable of administering Class II goods in a creative way, mainly key industries, is the only right way out. But this requires high-class socially constructive thinking. Let us consider the real possibilities in this field.

Such an authority would have to supervise and plan the activities of economically autonomous industrial unions and through them the workplaces, directing their activities accordingly. The mode of organization of this authority and of the industry subordinate to it should be thought out, on the basis of a logocratic realist conception of social affairs, in order to achieve an efficiency of management not inferior to that of the modern administration of capitalist enterprises. One can also bear in mind that the latter administrations also make mistakes and are no strangers to wasting resources. Therefore, it is theoretically possible and practically feasible to create a system of social industry management that will produce results no worse. A great social good concern, on the other hand, will have certain advantages, arising from its strong economic status, its ability to plan and invest on a large scale, and a certain influence of national and local patriotism. Here is a proposal for the organization of such an independent power:

The first stroke should be to grant all enterprises taken over by such a power the status of a Class II social good. Thus, they would cease to be the property of the state and this would put an end to the situation which should be considered as state capitalism. The new legal state will create the basis for the activity of an independent economic authority, called—the Directorate of Social Goods.

The chief administrator of social goods will be the head of state—in a republican system, the president. By virtue of his office and within the framework of the constitution, the president will be provided with an insight into the operation of the social goods authority and will have the right of advice and initiative. According to the procedure established by the constitution, he will approve the chief director of social goods elected by the council of social goods. He will personally appoint one member of the council.

The social base of such power will be a council of social goods. The constitution and laws will determine the method of selecting its members, which should ensure their high qualifications. The condition for election should be holding parliament rights. The president and other independent authorities will each delegate one member of the council. The others will be elected by the industrial unions together with delegations of the workplaces. The privilege of delegating a member to the council will be given to some universities, especially technical universities. The size of the council could not be determined by law, but should be similar to that of the National Education Council. The council should operate on a permanent basis, with breaks set aside for its members’ contacts with workplaces, scientific institutions, and for recreation. This council will make the most important decisions in economic, technical, and social matters concerning the goods under its authority.

The Council of Social Goods will elect a director of goods for an indefinite term, to be approved by the president, and a representative vice-minister to work with the minister of industry, to be approved by the prime minister. Every three years, the council will elect a representative senator. In this way, the tripartite cooperation of the Directorate of Social Goods with the parliament and the government should be ensured. The council will have its representative in the National Education Council and vice versa.

The director of social goods will coordinate the work of subordinate departments corresponding to industrial branches and the departments of general planning, social affairs, and ecological affairs. The social affairs department should manage employment issues, and organize and facilitate the work of company directors or social affairs clerks and industrial doctors and psychologists.

In the workplaces under the directorate of social goods, its departments and industrial complexes, self-government with a relatively wide range of possibilities will be developed. They will cooperate with the directorates and will have an influence on their staffing. They will see to the development of the plant and the modernization of production, and to the economy and efficiency of labor. For all this will be in the common interest of the workers, so that they can get a share of the profit, or develop the plant for the benefit of others and their children. They will divide the profit wisely for investment purposes, social purposes, and for annual dividends for the employees.

Since the action of these councils will be an essential factor in the success of the entire system of social goods, their organization should be so designed that they can creatively carry out these tasks. The councils must not be allowed to become an avenue through which short-sightedness and primitivism will creep in. It is not possible, therefore, to set up efficiently functioning councils merely by an appropriate law or ordinance. A certain selection of people and their appropriate preparation will be necessary. Therefore, haste in organizing self-government could prove fatal to the very idea. Initially, the management of social goods should rest in the hands of their directors, and the existing factory councils should have a limited scope of competence.

According to the principle of competence, factory council members should first be qualified. A vocational school, civic rights, a factory councillor course, and the necessary length of service in the plant in question can be regarded as minimum preparation. The councillors’ course should be a serious school, lasting several months and ending with an examination, which would give the necessary knowledge of economics, law, factory organization, as well as social and psychological issues. Liberalizing the requirements would be a mistake that would later avenge itself on the whole operation of councils and plants. Elections to local councils should take place when the number of eligible persons exceeds twice the number of elected council members. The skills of council members should be developed through appropriate journals and lectures, possibly broadcast by radio.

The size of these councils, e.g. from 7 to 37 members, should be determined individually for each plant, higher in plants with a large staff and more complex production. At least 2/3 of the number of councilors should be elected by the workers of the plant. The rest will be added by the upper management of the plant, e.g. the industrial association. They can be both employees of a given plant and persons with appropriate education and experience who belong to councils of several plants.

The council shall elect its own chairperson to represent it before the upper organization. The council should have the right to propose its own candidates for management positions in the company, obviously from among those with the appropriate qualifications. It can also protest against the filling of these positions by persons known to the council for their shortcomings. However, the council must not have the power of decision, as this would restrict access to these positions to persons who are highly qualified but previously unconnected with the plant. The council should agree to fill the position of director or community affairs officer closest to the council.

It is natural that the interests of the factory councils will gravitate towards social issues and the needs of the workers. Technical issues will remain primarily in the hands of the management of the company. The council will, however, have the opportunity to criticize and present its initiatives to the management of the company or to the upper organization. The council will have the right to cast a vote of no confidence in members of management who are deemed to be incompetent or dishonest.

A plant’s self-government, composed of persons adequately prepared for this work and deepening their experience, most of them working in the plant and familiar with its technical and social problems, should perform its duties better than, for example, shareholders’ councils can do. The latter, often insufficiently understanding the problems of a plant, are inclined to be guided by the desire for profit in the nearest future. Therefore, in capitalist countries it sometimes happens that the decisions of these boards lead to the collapse of enterprises. This is facilitated by the dispersion of share ownership. In our country, time and experience should contribute to working out better and better forms of cooperation between factory councils and the technical and economic administration, within the framework of plans for an independent power of social goods.

Note: This work is a project of QFG/Red Pill Press and is planned to be published in book form.