Part 5 of 8

4. Responsibility and Initiative in Communal Concerns

The problem of responsibility and initiative in socialist enterprises is closely
connected with that of economic calculation. It is now universally agreed that the
exclusion of free initiative and individual responsibility, on which the successes
of private enterprise depend, constitutes the most serious menace to socialist
economic organization.
14
The majority of socialists silently pass this problem by. Others believe they
can answer it with an allusion to the directors of companies; in spite of the fact
that they are not the owners of the means of production, enterprises under their
control have flourished. If society, instead of company shareholders, becomes the
owner of the means of production, nothing will have altered. The directors would
not work less satisfactorily for society than for shareholders.
We must distinguish between two groups of joint-stock companies and similar
concerns. In the first group, consisting for the large part of smaller companies, a
few individuals unite in a common enterprise in the legal form of a company.
They are often the heirs of the founders of the company, or often previous
competitors who have amalgamated. Here the actual control and management of
business is in the hands of the shareholders themselves or at least of some of the
shareholders, who do business in their own interest; or in that of closely related
shareholders such as wives, minors, etc. The directors in their capacity as
members of the board of management or of the board of control, and sometimes
also in an attenuated legal capacity, themselves exercise the decisive influence in
the conduct of affairs. Nor is this affected by the circumstance that sometimes
part of the share-capital is held by a financial consortium or bank. Here in fact
the company is only differentiated from the public commercial company by its
legal form.
                                               
14
Cf. Vorläufiger Bericht der Sozialisierungskommission über die Fragse der Sozialisierung des
Kohlenbergbaues, concluded 15th February, 1919 (Berlin, 1919), p. 13.
The situation 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. 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 sharecapital. Severe collisions may occur, when the firm’s business is so handled on
behalf of the directors that the shareholders are injured. 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. 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. 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.
The situation is completely transformed when an undertaking is nationalized.
The motive force disappears with the exclusion of the material interests of private
individuals, and if State and municipal enterprises thrive at all, they owe it to the
taking over of “management” from private enterprise, or to the fact that they are
ever driven to reforms and innovations by the business men from whom they
purchase their instruments of production and raw material.
Since we are in a position to survey decades of State and socialist endeavor, it
is now generally recognized that there is no internal pressure to reform and
improvement of production in socialist undertakings, that they cannot be adjusted
to the changing conditions of demand, and that in a word they are a dead limb in
the economic organism. All attempts to breathe life into them have so far been in
vain. It was supposed that a reform in the system of renumeration might achieve
the desired end. If the managers of these enterprises were interested in the yield,
it was thought they would be in a position comparable to that of the manager of
large-scale companies. This is a fatal error. The managers of large-scale
companies are bound up with the interests of the businesses they administer in an
entirely different way from what could be the case in public concerns. They are
either already owners of a not inconsiderable fraction of the share capital, or hope
to become so in due course. Further, they are in a position to obtain profits by
stock exchange speculation in the company’s shares. They have the prospect of
bequeathing their positions to, or at least securing part of their influence for, their
heirs. 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; 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.
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.
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 general could not possibly arise. Everybody will act
in his own interest in giving of his best because he participates in the product of
all economic activity. The obvious objection that the individual is very little
concerned whether he himself is diligent and enthusiastic, 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. They believe they can construct a socialist
commonwealth on the basis of the Categorical Imperative alone. How lightly it is
their wont 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.”
15
 This is nothing but sheer Utopianism.
But even if we for the moment grant that these Utopian expectations can
actually be realized, that each individual in a socialist society will exert himself
with the same zeal as he does today in a society where he is subjected to the
pressure of free competition, there still remains the problem of measuring the
result of economic activity in a socialist commonwealth which does not permit of
any economic calculation. We cannot act economically if we are not in a position
to understand economizing.
A popular slogan affirms that if we think less bureaucratically and more
commercially in communal enterprises, they will work just as well as private
enterprises. The leading positions must be occupied by merchants, and then
income will grow apace. Unfortunately “commercial-mindedness” is not
something external, which can be arbitrarily transferred. A merchant’s qualities
are not the property of a person depending on inborn aptitude, nor are they
acquired by studies in a commercial school or by working in a commercial house,
or even by having been a business man oneself for some period of time. The
entrepreneur’s commercial attitude and activity arises from his position in the
economic process and is lost with its disappearance. When a successful business
man is appointed the manager of a public enterprise, he may still bring with him
                                               
15
Cf. Karl Kautsky, Preface to “Atlanticus”[Gustav Jaeckh], Produktion und Konsum im
Sozialstaat (Stuttgart: J.H.W. Dietz, 1898), p. 14.
certain experiences from his previous occupation, and be able to turn them to
good account in a routine fashion for some time. Still, with his entry into
communal activity he ceases to be a merchant and becomes as much a bureaucrat
as any other placeman in the public employ. It is not a knowledge of
bookkeeping, of business organization, or of the style of commercial
correspondence, or even a dispensation from a commercial high school, which
makes the merchant, but his characteristic position in the production process,
which allows of the identification of the firm’s and his own interests. It is no
solution of the problem when Otto Bauer in his most recently published work
proposes that the directors of the National Central Bank, on whom leadership in
the economic process will be conferred, should be nominated by a Collegium, to
which representatives of the teaching staff of the commercial high schools would
also belong.
16
 Like Plato’s philosophers, the directors so appointed may well be
the wisest and best of their kind, but they cannot be merchants in their posts as
leaders of a socialist society, even if they should have been previously.
It is a general complaint that the administration of public undertakings lacks
initiative. It is believed that this might be remedied by changes in organization.
This also is a grievous mistake. The management of a socialist concern cannot
entirely be placed in the hands of a single individual, because there must always
be the suspicion that he will permit errors inflicting heavy damages on the
community. But if the important conclusions are made dependent on the votes of
committees, or on the consent of the relevant government offices, then
limitations are imposed on the individual’s initiative. Committees are rarely
inclined to introduce bold innovations. The lack of free initiative in public
business rests not on an absence of organization, it is inherent in the nature of the
business itself. One cannot transfer free disposal of the factors of production to
an employee, however high his rank, and this becomes even less possible, the
more strongly he is materially interested in the successful performance of his
duties; for in practice the propertyless manager can only be held morally
responsible for losses incurred. And so ethical losses are juxtaposed with
opportunities for material gain. The property owner on the other hand himself
bears responsibility, as he himself must primarily feel the loss arising from
unwisely conducted business. It is precisely in this that there is a characteristic
difference between liberal and socialist production.
 
                                               
16
Cf. Otto Bauer, Der Weg zum Sozialismus (Vienna: Ignaz Brand, 1919), p. 25.