People's Republic of Walmart: How the World's Biggest Corporations Are Laying the Foundation for Socialism
By Leigh Phillips & Michael Rozworski
This article appears in the Summer 2019 issue of The American Prospect magazine. Subscribe here.
More and more people are talking about socialism, but nobody’s doing anything about it. If we’re talking about “nationalizing the means of production,” Bernie Sanders’s democratic socialist political revolution falls well short. Old notions of the state owning the “commanding heights” of industry and employing central planning to guide the economy fit a classic concept of socialism. Old-fashioned lefties are given to gripe that Bernie’s vision extends little beyond a beefed-up New Deal.
An extension of the space that Sanders has cleared is the book by Leigh Phillips and Michal Rozworski, People’s Republic of Walmart: How the World’s Biggest Corporations Are Laying the Foundation for Socialism. Their elevator pitch could be: The success of firms like Walmart and Amazon, rooted in extensive planning systems, demonstrates the growing feasibility of socialist planning.
Central planning means the government owns and directs the operations of the bulk of land, plant, and equipment—capital—used to produce most of the economy’s goods and services. It is distinct from the expanded public sector promised by Sanders that would provide more benefits, facilities, and services where the private sector is most delinquent. Health insurance is currently the most cited example.
In centrally planned economies, instead of business firms we have enterprises. These enterprises are given instructions from a central authority on what to produce, how to produce it, and what to sell it for. Capital investment is decided by the government, which owns all the capital goods. For an enterprise to expand, or switch to some different production method, agreement must be secured from higher authorities. The “lower authorities”—the enterprises—must obey.
An alternative to central planning is the market socialist model. In that system, individual enterprises are controlled by their own workers. They produce for profit and compete with other enterprises for market share. The authors are noncommittal as to a preference for either model, though libertarian socialist sympathies for market socialism are detectable in their account.
Central planning was taken up by the communist governments of Eastern Europe and the Soviet Union, and in recent decades, abandoned. State-owned enterprises were sold to private parties. Usually the beneficiaries of these transfers, at fire sale prices, were former communist bureaucrats. Meet the new boss, literally the same as the old boss. Exhibit A is the fabulously wealthy president of the Russian state, Vladimir Putin, whose business experience was acquired in the KGB.
Market socialism has also mostly left the scene, unless you count the social wealth fund ownership and state-owned enterprises in Norway and other Scandinavian states. This libertarian socialist vision scratches the right itches—decentralization, democracy, communal ownership, equality.
State-owned enterprises and state-run economies were famously unproductive, among other deficiencies. When it came to providing a competitive supply of consumer goods, central planning failed. “Competitive” in this context means that these planning systems could produce, but they could not produce enough at acceptable quality to discourage their citizens from envying capitalist alternatives in the West.
Yugoslavia’s market socialism story was different. The authors might have devoted more attention to its devolution, since it goes to the heart of their appeals. At any rate, there is little question that today, labor-managed firms, cooperatives, and nonprofit organizations are relatively ubiquitous in capitalist economies and have proven capabilities of producing marketable, profitable goods and services.
The burden of analysis from Phillips and Rozworski is that communist planning systems, multiple affronts to human freedom aside, failed at logistics, and were further handicapped by the limited computing power available in their heydays. Now we have giant corporations that rely on planning, and they are doing just fine.
The authors are keen to emphasize that the prosperity of these firms does not hinge on market efficiency, since the internals of these firms are not organized along market lines. They are right to cite the economist Ronald Coase of the University of Chicago, who pointed this out in the 1930s, though they might have also given attention to John Kenneth Galbraith, who cultivated this field in more recent decades.
Under the hallowed theory of supply and demand, we get an efficient market when many well-informed buyers and sellers come together, prices are thrown back and forth, and equilibrium is reached.
The departures of really existing markets from this best of all possible worlds were always obvious. Coase’s insight was that internally, business firms’ operations do not rely on market forces at all. The custodian summoned to fix the furnace does not begin dickering with the supervisor over his fee. There is no bidding war for who will sweep the floor. Workers on an assembly line do not auction off their services for each task performed.
Internally, business firms have always run as little command economies, or “islands of power.” What’s remarkable about Amazon or Walmart is not only the fact of this planning, but the scale at which they operate successfully. These corporations’ outputs exceed the gross domestic product of entire countries. Has planning become feasible for an entire nation?
The analogy of corporate giants’ internal operations to central planning is tantalizing but limited. One reason is due to what economists call survivorship bias. Walmart is successful, but what about firms with internal planning that are no longer with us, or that were never able to scale up in the first place? The authors offer one counterfactual bit of evidence: the failure of Sears, whose attempt to organize competition among different subdivisions of the firm ended in fiasco.
Second, one feature of Walmart’s operations vociferously rejected by the authors—the squeezing of labor costs and the suppression of workers’ voices at work—could inform its success. It’s true that “flatter” organizational pyramids with bottom-up participation can function effectively, but if such alternatives are more profitable, why don’t more firms resort to them?
Third, another egregious practice that helps Walmart and Amazon to succeed is a feature of their scale and dominance: the ability to grind down the prices paid to their suppliers. A large share of these suppliers operates in nations that suppress labor costs in ways that the most rapacious American robber baron might envy. Neither state-owned nor worker-managed enterprises would necessarily be immune to such temptations.
Fourth, Walmart and Amazon are in large part intermediaries—they don’t manufacture the products they sell. As large as they are, so too are the worlds of their suppliers and customers. The planning problem is largely solved for them. They can obtain information on costs of production and consumers’ willingness to pay by surveying external markets. They are similarly informed on whether to contract out some component of their production, such as custodial services. They know the prices offered by outside vendors. This information would be lacking under central planning, if not under market socialism.
Fifth, one feature of corporations is that decisions are made in a hierarchy. The results may be unlovely from a social standpoint, but they are arrived at more quickly. A drawback to the authoritarianism of extinct communist governments was the tendency for the information flow to be stifled. The authors urge the replacement of hierarchy by democratic procedure: “Democracy is the beating heart of socialism.”
But democratic rule by councils of interested, not always unbiased or informed, parties brings its own costs, particularly in time. A decision arrived at by a central authority that must be run back and forth through subordinate councils, or councils of councils, takes longer to resolve. By the time it is resolved, it could be obsolete.
Great advances in computing power combined with Big Data certainly enlarge the ability to plan. The extent to which such capacity is adequate to the problem of determining production and consumption decisions is still an open question. Alongside the greater scope for calculation, moreover, comes the greater threat to individual privacy.
Socialism in the U.S. is back, at least as something to talk about, so chances are we are not done talking about planning either. A myriad of social problems cries out for the intervention of a regulating authority to restrict or transform the way business firms operate. These interventions imply planning, though not necessarily of the sort hoped for in this book.
We need better planning for cities and regions. We need a plan to reduce carbon emissions through the reorganization of transportation and electricity generation and distribution. We need a plan to reverse the trend of residential segregation by race. The lowest priority for planning may be the basic production decisions of corporations.
The government could require Walmart to phase into renewable energy. It could devise trade agreements that inhibit the super-exploitation of labor in nations that export to the U.S. It could put floors on the wages Walmart can pay its employees and, indirectly, its vendors, and mandate equal pay by race and gender. It could tax the incomes and inheritances of Walmart’s chief shareholders and executives at progressive rates. It could purchase shares and expand public ownership stakes in corporations. None of these measures requires central planning, but with their proliferation, the U.S. would be a different country. You might even call it “democratic socialism.”