Freedom, Property Rights and Innovation in Socialism.

The paper analyzes the relationship between economic freedom, property rights, and innovation in socialism[1]. It demonstrates that the property rights approach offers an effective explanation of the factors that affect the rate of economic change. The line of reasoning in the paper is exampled by reference to the Yugoslav economy. Relative to other East European countries, the Yugoslav economic system is quite interesting for study of socialism[2]. Yugoslav institutions are supposed to simulate * The first version of this paper was given at the Interlaken Conference of Analysis and Ideology in 1986. A version of this paper will be published in the proceedings of the Liberty Fund Symposium on Economic, Political and Civil Freedom -- I want to thank ARMEN ALCHIAN, STEVE WIGGINS and the managing editors of Kyklos for many valuable comments. The Lynde and Harry Bradley Foundation's research grant is gratefully acknowledged. ** Professor of Economics and Director, Center for Education and Research in Free Enterprise at Texas A&M University. 1. Property rights are defined as behavioral relations among men that arise from the fact of scarcity. Freedom is taken to mean that the interaction between an individual's search for ways of achieving more utility and the prevailing institutional arrangements triggers changes in property rights. 2. The Yugoslav system's basic characteristics are: (l) The state owns capital goods held by the business firms (it makes some people feel better to call it social ownership). This preserves the character of socialism and reflects the ruling elite's dogmatism. (u) Employees govern their respective firms through Worker's Councils, the highest organs of management. This is what sets the Yugoslav system apart. Workers are supposed to control allocation of resources. (m) Employees own returns from their firms' capital. Workers' Councils decide how to allocate profit between firms' wage funds, reinvestments of earnings, and other uses of... [ABSTRACT FROM AUTHOR]