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

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Individual Initiative, Entry and
Economic Democracy *
Jaroslav Vanek
2.1 Introduction
The origins of this paper go back to the reforms of President Velasco in
Peru over a quarter of a century ago, when both Professor Horvat and
myself were invited to advise the Peruvian government on the subject
of economic democracy. One of us was coming from the Marxian tradition,
the other from the tradition of the social doctrine of the Catholic
Church.
The Peruvian attempt at reform and its failure, with its obstacles and
myriad flaws of design and implementation, would be lengthy and difficult
to describe. But there is one significant problem which arose for
me then for the first time and which can be dealt with now with the
hindsight of 25 years, whose solution is intimately linked to the search
for an optimal socio-economic system. The analysis also permits a certain
surprising rapprochement between what we often refer to as the
Austrian school of economics and economic democracy.
The problem in Peru 25 years ago was this: the semi-primitive economy
of that country then was based, besides a handful of large agrarian
and mining estates (mostly foreign owned or related), predominantly
on relatively small owner-operated firms with none or a small number
of hired employees. Where there were no hired employees – basically
on family firms – there was no problem, as they represented the ideal
form of self-management and economic democracy. But the problem
in our rather doctrinal approach to economic democracy was how to
* Most of this material is reprinted, with the Egon Sohmen Foundation’s permission,
from section II of J. Vanek’s Egon-Sohmen Lecture, ‘Welfare State: Bandaid
or Full Cure?’, Egon Sohmen Foundation, University of Economics and Business
Administration, Vienna, 15 October, 1996 (printed in Germany 1997).
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