the Collapse of Communism In comparing ideals, then, we may say that the labor-managed enterprise may be somewhat less efficient in the short run, but equally efficient in the long run. But there are practical difficulties on both sides. In the labor-managed enterprise, we may have higher labor productivity because the employees feel they are "working for themselves." Many economists have expressed skepticism about that, but a mind as great as that of John Stuart Mill accepted it. In any case, it is a question to be decided by the evidence, and the evidence is that labor-managed enterprises do attain higher labor productivity than capitalist-owned (or government-owned) enterprises in comparable circumstances. Thus the inefficient labor-managed enterprise may actually produce more than the efficient capitalist enterprise! (With more output per worker, a smaller work force might produce a larger output). This is not shown in the diagrams, of course. On the other hand, the actual labor-managed enterprise may do less well than the ideal one in the long run. Long run equilibrium comes about through free entry. The ideal labor-managed economy would have free entry, in that new enterprises may be set up to compete for the wages above the opportunity cost that we see in Figure 5. But a labor-managed enterprise is a bit more complicated than a capitalist firm, and so it could be more difficult to set them up. Thus, we have to worry about whether enough new labor managed enterprises will be set up to bring the labor-managed economy into long run equilibrium.
In addition to these practical difficulties, a labor-managed market economy would face the problems of any market economy: What some see as the tawdry values of the marketplace, monopoly and externality, and possibly "Keynesian" unemployment. In addition, the unclarity of the concept of social property has been a crucial difficulty. Yugoslavia, which had labor-managed enterprises for several decades beginning in the 1950's, never really decided this issue. At the beginning, the government was the owner as the agent of society. Later on, attempts were made to modify this, but no-one ever really knew what the rules of the game were.
the Collapse of Communism 