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

profit per unit of output is higher due to higher prices. As stake holders,
workers as managers lower output in these circumstances, because in
the short-term the option of expanding capital is precluded by definition.
The consequence of this economic behaviour in a Walrasian equilibrium
model is instability, as both demand and supply curves are
downward sloping.
There are two problems with Ward’s model. First, it is static and does
not have a function for reinvestment out of surpluses. In a multiperiod
model Ward’s results are not upheld. 5 Secondly, does he have
the right optimizing function? Horvat argues that he does not. The
worker-managed enterprise, Horvat argues, ‘plans to increase per person
income by a specified amount in the planning period, and maximizes
the remainder of net income with respect to the firm as a
whole and not with respect to the number of the currently employed
workers’ (Horvat, 1967: 28). With this modification of Ward’s optimizing
premise, the downward sloping product supply curve disappears,
which Horvat demonstrates by working through the implications of a
product price increase.
Horvat’s stout defense of the micro foundations of the Yugoslav
worker-managed firm has never acquired the currency it should have.
Western economists continued to view the micro implications of
labour management as an oddity with its built-in instabilities. Several
articles appeared around the time of Horvat’s argument and about a
decade after Ward’s original firm in Illyria, all reinforcing the results of
Ward. 6 A substantial part of the reasons for Horvat’s retort being dismissed
is that it only became available in English some years later. But
even after its publication in English, economists continued to ignore
the argument.
The sole controlling element in all of these issues – the downward
sloping supply curve, excessive labour hoarding, and inability to
expand employment – is the optimizing function. This matter could be
readily resolved by examination of the empirical evidence. Prior to the
articles in the American Economic Review, Jan Vanek had published
a comprehensive empirical study of the Yugoslav firm for the
International Labor Office. He found support for Horvat’s optimizing
function, and none for Ward’s. 7
1.6 Labour market implications
Howard M. Wachtel 9
More troubling than Walrasian disequilibrium emanating from a
downward sloping product supply curve, are the implications for the