The Basic Model

In contrast to the theory of market-socialism developed by Lange (1938), the economic theory of the labour-managed firm is a relatively recent development. The first important paper on the subject was that of Benjamin Ward (1958).[1] Two factors may perhaps go a long way to explaining this. Firstly, economists concerned with the study of socialist economics were largely concerned with ‘systems’, i.e. the structure of national economy and the mechanisms by which production units could be stimulated by the planners to operate according to the preference function of the planners (i.e. the plan). Secondly, although a number of cooperative firms were established in the 19th century, relatively few have survived. It was largely as a result of one major development in this field (that of Yugoslavia) that Ward seems to have been encouraged to consider the micro-economic implications of self-management. To some extent, however, he was also concerned with ‘some Eastern European countries groping toward a less centralized form of economic organization … and some Western European socialists struggling with the implications for democracy (and efficiency) of further nationalization’ (Ward, 1958, p. 566).