Equality, Participation, Transition: Essays in Honour of Branko Horvat

Milica Uvalić and Vojmir Franicaević xxiii
growth – consumption included. In his two classic articles in the
Economic Journal (1958, 1965), he emphasized the direct link between
the limited absorptive capacity of an economy and the optimal rate of
growth, stressing the importance of determining the optimal rate of
investment for a given economy. If an economy tries to realize a higher
than optimal rate of investment, rather than achieving faster economic
growth, the rate of growth will be reduced. Related to this work is his
research on business cycles in Yugoslavia, which enabled him to provide
valuable advice to Yugoslav policy makers in the 1960s.
Perhaps even more important are Horvat’s contributions to the theory
of the labour-managed firm. After the pioneering work of Benjamin
Ward (1958) on the firm in Illyria, and later, the appearance of Jaroslav
Vanek’s General Theory of Labor-managed Market Economy (1971), the
theoretical literature on the labour-managed firm blossomed, producing
a whole new school of thought. Horvat has made a number of
important contributions to this literature, proposing how to correct the
alleged inefficiency and perverse behavior of the labour-managed firm
(see Wachtel’s and Dubravcaić’s contribution to this volume, Chapters 1
and 5). He showed that the theory, as developed by Ward, Vanek,
Domar and other scholars, is not applicable to the real world labourmanaged
firm, since the basic assumptions of Ward’s model do not correspond
to its actual behaviour. The observed practice in Yugoslavia led
him to suggest that instead of maximizing income per worker, the
Yugoslav firm sets the total wage fund ex ante, and the actual wages distributed
to the workers at the end of the period depend directly on
obtained results.
Horvat has never been an economist of narrow views and approaches
but has been a true political economist. Very early in his life, he realized
the importance of institutions for an economically efficient, politically
democratic, and just, socialist society. This is what led him
towards an indepth critique of capitalism and of ‘etatism’ (what, in his
opinion, ‘real socialism’ actually was) and his endeavour to construct a
theory of socialism built on premises of economic and political democracy.
His work on socialist economic theory produced what probably
can be considered his greatest work, The Political Economy of Socialism
(1982). As he himself commented in the Foreword, ‘The present book
is an exploration into this uncharted territory, intended to meet Robert
Heilbroner’s request to convert economics into an instrument of social
science … an exercise in system design.’
Being a Marxist but well trained in neoclassical economics, Horvat’s
growing dissatisfaction with logical fundamentals of the neoclassical