Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 103
A Socialist Stock Market?
Even in the days before perestroika,
socialism was never a monolith. Within the
Communist countries, the spectrum of socialism ranged from the
quasi-market, quasi-syndicalist
system of Yugoslavia to the centralized totalitarianism of neighboring
Albania. One time I asked
Professor von Mises, the great expert on the economics of socialism, at
what point on this
spectrum of statism would he designate a country as "socialist" or not.
At that time, I wasn't sure
that any definite criterion existed to make that sort of clear-cut
judgment.
And so I was pleasantly surprised at the clarity
and decisiveness of Mises's answer. "A
stock market," he answered promptly. "A stock market is crucial to the
existence of capitalism
and private property. For it means that there is a functioning market
in the exchange of private
titles to the means of production. There can be no genuine private
ownership of capital without a
stock market: there can be no true socialism if such a market is
allowed to exist."
And so it is particularly thrilling to see that in
the headlong flight from central planning
and socialism, several of the Communist countries are actually
introducing, or preparing to
introduce, a stock market. A prospect that would have been unthinkable
only a few years ago!
The process is already in its early stages in Communist China. And the
Soviet Union is beginning
to talk about introducing a stock market.
Stock markets already exist in several cities in
China. So far, however, they are pitiful
fledglings. Although the Communist leadership now allows the expansion
of private firms and
permits them
to issue stock, only a few companies have issued stock and they are, so
far,
much more like bonds. Stock dividends are fixed very much like interest
on bonds, and, more
importantly, there is no free pricing system in these stock markets;
instead, there is rigid
price-fixing of the shares by the central government.
Even so these tiny stock markets are expanding, as
state enterprises in China are selling
off chunks of their shares to the public, while thousands of
cooperatives are selling shares of
ownership to their workers. Harry Harding of the Brookings Institution
comments that "the idea
is to have enough public ownership so that they can say it's still
socialist," while at the same time
they "make the enterprises accountable to someone other than the state
bureaucracy." Despite
great reluctance, China and other Communist countries are anxious to
induce productive savings
from their citizens, and channel savings from jewelry and art, into
capital investment.
Another motive propelling China, Soviet Russia, and
other Communist countries into
establishing stock markets is the desire to attract foreign investors.
But it is obvious to all,
including the Communist leaders, that to attract foreign funds, the
ruble and other Communist
currencies must be removed from their current absurd controls and
overvaluations, and become
freely convertible into dollars and other Western currencies. It will
take the Communist
governments quite a while to bite this bullet, but they are definitely
moving in this direction.
As might be expected, the most radical advance
toward free stock markets in the
Communist countries has been in Hungary. A tiny stock market has been
open in Budapest for
some time, but on January 1, 1989, Hungary began to allow foreigners to
invest in Hungarian
stocks, even permitting foreigners to own up to 100% of a number of
Hungarian firms, public
and private. At first, these shares will be traded in the current tiny
market, but within six months,
Budapest is scheduled to open a functioning daily international stock
exchange--the first in
Eastern Europe since World War II.
This first real stock exchange will have from ten
to twenty companies listed at its
opening, and will, unfortunately, also come with all the attendant
trappings of an American stock
exchange--including insider trading rules and a Hungarian type of
Securities and
Exchange Commission. Learning too well from the West!
Particularly enthusiastic about the new development
is Szigmond Jarai, deputy director of
the Budapest Bank and chairman of the government committee supervising
the establishment of
the daily stock exchange. Jarai declared that "the stock market is the
heart of an effective
economy . . . . . We need to reduce our bureaucracy and free up
entrepreneurs," he added,
sounding, as the New York Times commented, "more
like a Wall Street free-mar-ket enthusiast
than an official of a Communist government."
More freedom is coming soon. The Hungarian
Parliament is considering a tax reform that
would allow foreign equity investors to pay no Hungarian tax on either
dividends or capital
gains, and laws are being prepared allowing both Hungarians and foreign
joint ventures to
operate as stockbrokers. In addition, the way forward has been paved by
the fact that Hungary
already has in place the only bond market in Eastern Europe, as well as
a system of bankruptcy
laws so that insolvent firms can be forced out of business.
There is, of course, a long way to go, even in
Hungary. But plans are in the works to
privatize large sectors of the Hungarian economy within the next two
years, and there are
increasing mutterings about making the Hungarian forint convertible
into Western currencies.
Even in benighted Poland, there are bills now in Parliament to allow
private commercial banking,
and to eliminate exchange controls over the Polish zloty. Not only is
socialism cracking all over
the world, but, using Mises's criterion, we might be able to throw our
hats in the air very soon
and proclaim that Hungary is no longer socialist.
Previous Page * Next Page