Page 144 - Culture Society and Economy

Robotham-07.qxd 1/31/2005 6:24 PM Page 137

‘LOCALIZATION’ EXPLORED

medium-sized business to the local community or region is achieved by
some Herculean political effort. These firms now begin to compete in the
market as is envisaged, albeit a local market. Some firms turn out to be
more efficient than others. They innovate. They sell more and seek to
produce more. They make more profit. Their owners are thus able to
remunerate themselves more than is the case with less successful small
firms. They naturally seek to reinvest these profits and to expand their
‘productive assets’.
On the other hand, other firms do less well. For whatever reason they
are not able to compete as efficiently. They are less profitable and may
even lose money. After all, this is a market economy. At this point, it is
worth noting that one of the main sources of economic inequality after
the relatively successful Hungarian reforms of 1968 was the rise of effi-
cient, highly successful small firms, often operating in the service sector.
Clearly, the normal operations of the market, even the local market, will
over time undermine the lofty sentiments expressed in the statement on
economic and political democracy quoted above. Of course, it could be
that the IFG group has in mind the idea that they would not allow bank-
ruptcies. That they would offer subsidies in the cause of keeping the local
community firm alive. But experience teaches that this cure may be
worse than the disease!
First, whence the surplus to finance these subsidies? Large corpora-
tions generating super-profits and making hefty contributions to the tax
base (they also massively avoid taxes, of course – not being denied) would
have been abolished. The taxes would now have to come from the suc-
cessful small firms – likely to be the minority. Setting aside the impossi-
ble politics of such a tax policy (it brought down Allende and helped to
put Pinochet in power), will sufficient funds even exist at all? Then there
is an even more important question. If there is no penalty for failure, why
bother with success? Surely any sensible person in the successful firms
would look around and notice that economic and social reward was inde-
pendent of profitability and economic success, at least as measured by
the market. So why bother? What then would happen to the successful
firms? This is the well-known problem of incentives in a situation of mar-
ket constraints. Those who think this is a theoretical issue or one to be
resolved by the creation of ‘the new socialist woman’ should take a closer
look at the history of Cuban and Eastern European (especially Polish)
productivity or rather the lack thereof.
What is more, the efficient small business may want to expand. It has
identified cheaper and higher quality raw materials in Romania. It has
found better machinery in Brazil and some phenomenally attractive

137