Introduction

Despite the fact that the phrase “market socialism” has a respectable history, dating back to Lange's (1938) famous contribution in the Austrian debate, there has been little formal economic theorizing on the nature of market socialism. We take market socialism to be a system of economic organization in which (1) the state has the authority to influence the pattern and levels of investment across sectors; (2a) most, if not all, resources are distributed via markets; (2b) citizens, in particular, earn income from labor that is traded on markets; (3a) firms are publicly owned, which means that profits are distributed to members of the population in proportions that are politically determined; and (3b) firms maximize profits. In this chapter, we depart from much contemporary literature (e.g., Miller, 1990 and Estrin and LeGrand, 1989, but not Brus and Laski, 1990), and do not consider the presence of worker-managed firms to be a necessary condition of market socialism.

Given the above characterization of market socialism, two kinds of question naturally arise. The first concerns the consistency of the five characteristics listed above. For example, can one design institutions which will assure that firms maximize profits while at the same time distributing profits diffusely among the population rather than concentrating firm ownership in the hands of stockholders who can trade stock? Is it possible for the government to control the distribution of corporate profits, without interfering with profit-maximization? It is largely these questions that have animated the debate on market socialism in recent years. The second kind of question concerns the flexibility of market socialism.

In their research on comparable worth, Sara Evans and Barbara Nelson find that states which pass such laws typically have public-sector collective bargaining, Democratic control of state politics, and energetic commissions on the status of women. Minnesota had all these as well as a strong progressive tradition; a politically astute branch of the American Federation of State, County, and Municipal Employees (AFSCME); 154 women's organizations; and feminist (not just women's) caucuses in both major parties. Moreover, as important for the passage of comparableworth legislation as any one of these was Minnesota's position as one of the first states to act, so that events transpired at a time when few knew anything about the issue and opposition forces had not mobilized.

In the late 1970s, Minnesota evaluated the state's personnel system. As a part of the evaluation Hay Associates did a study of salary and benefit policies, which included job evaluation point totals for 762 multiincumbent job classes. Under prodding from Nina Rothchild, the executive director of the Commission on the Economic Status of Women, Hay did a brief analysis comparing male-dominated and femaledominated job classes. Hay reported a “slight tendency” to pay maledominated classes at a higher rate than female-dominated classes, but considered the finding of no significance.

Searching for ways to improve the economic status of women, Rothchild and fellow staffer Bonnie Watkins decided to look again at the relationship of points and pay for male- and female-dominated jobs. Watkins says they began pessimistically, expecting the Hay system to have produced a study justifying the status quo favoring male-dominated positions.

Despite all the serious implementation problems enumerated in Chapter 3, the most fundamental weakness of comparable worth in Minnesota lies not in shifting lines and the like, but in arbitrary job evaluation systems unanchored to labor market signals. The very presentation of female and male lines with points on one axis and pay on the other suggests more solidity to the outcomes of job evaluation than ever exists in fact. To see how tenuous the figures are, one must probe beneath the seemingly objective “total points” for a job on a graph and focus on the political process and subjective criteria that produce the total.

The Department of Employee Relations (DOER) guide for local government implementation takes the standard position that job evaluation “measures job duties against objective criteria such as skill, effort, responsibility, and working conditions.” But if the criteria are objective, phrases like “such as” will not do. We need to know what the criteria are and how they should be weighed and measured. Instead of providing such standards, the DOER guidebook provides a list of sixty-six “possible” criteria and assures its readers that the list is not “exhaustive.” Some of the suggested factors clearly overlap, for example, “work environment” and “working conditions.” To make the whole conceptual mess complete, the guidebook tells local officials that, though the criteria are objective, they can decide for themselves “what they value most” and “pay accordingly.”

As explained in Chapter 1, full-time working women get only $.71 for every dollar received by full-time working men. Supporters of comparable worth know that few years have passed since separate want ads for men and women restricted options for working women. They also know that surveys show that many managers think men more likely than women to have the traits thought to be associated with managerial effectiveness. They cite court cases showing that some major firms continue to restrict women's access to jobs and promotions. And they endorse and publicize an influential report of the National Academy of Science's National Research Council which concludes that a substantial portion of the wage gap results from sex discrimination.

Comparable-worth advocates are outraged that male animal-care attendants get paid more than female child-care workers, and male high school graduates more than female college graduates. They argue that remedying such discrimination is efficient as well as fair since “resources aren't reasonably allocated when some people are underpaid and others are overpaid, relative to their contribution to the employer.” Moreover, at a time when so many families are dependent on women's income, underpaying women is considered a cause of poverty and other social ills.

THE U.K. EQUAL-VALUE LAW AND THE TRIBUNAL SYSTEM

As explained in Chapter 5, the United Kingdom experience should be of most interest to those who would look to European Community (EC) developments for indications of how a comparable-worth system might work in the United States. This single country has provided more than half of all the equal-value legal cases generated in the Community as a whole; it shares with the United States an adversarial, common-law-based legal system; and it has adopted a firm-centered approach to implementation. Further, unlike Minnesota, Britain applies the law to the private sector.

As in Minnesota, the U.K. experience has been marked by an absence of objective or even agreed-upon criteria for job evaluation and by much wrangling over the relative value of diverse jobs. The process has produced arbitrary and inefficient outcomes, including, once again, a legal requirement that certain employers pay their employees different wages for similar jobs.

The original U.K. Equal Pay Act of 1970 came into full force at the end of 1975. The act required that women (and men) receive equal contractual treatment where they did the same or “broadly similar” work or work that had been given an equal value through job evaluation. Employers were not required to conduct job evaluations if none existed.

From 1970 to 1977 the average weekly earnings of women climbed from 54 percent of men's to 65 percent. For much of this period, an active government incomes policy meant to control wage and price inflation provided for flat-rate pay increases, thus compressing skill differentials.

The comparable-worth movement gets its fuel from a number – $.71. This is the amount that women working full time in 1990 earned for every dollar earned by men working full time. Supporters of comparable worth believe that at least half of the wage gap reflects discrimination and that women in many predominantly female occupations are paid substantially less than their work is actually worth. Comparable worth would require employers to pay employees equal salaries for dissimilar jobs requiring “comparable” amounts of factors such as know-how, problem solving, accountability, and undesirable working conditions. The Hay Associates job evaluation system, for example, used these four factors to rate delivery van drivers and “clerk typists 2” working for the state of Minnesota. The jobs were found to be of equal worth, but the maximum monthly salary for the delivery van driver was more than $200 higher. Under Minnesota's 1982 pay-equity law this disparity was remedied by means of a substantial raise for clerk typists.

Sometimes comparable worth is seen as a way to eliminate racial discrimination in pay, but it is everywhere aimed at eliminating gender discrimination in pay. The women's movement as well as some unions with large numbers of women members have kept the issue alive in the public arena. Their goal is a substantial reduction in the female–male wage gap.

The effort to establish equal pay for comparable worth is worldwide, though in most of the world it goes by the title “equal pay for work of equal value.” For over fifteen years, Australia and the countries of the European Community (EC) have legally required both public and private employers to base salaries on comparable-worth/equal-value criteria.

The main source of support for the comparable-worth movement is the reported wage gap, which proponents see as largely the product of sex discrimination. Chapter 2 explained that empirical studies have reached widely varying conclusions on the importance of discrimination as an explanation for the pay gap. Many opponents of comparable worth think that differences between the sexes in human capital and in the importance the sexes attribute to varying job characteristics explain much more about the wage gap and occupational sex segregation than does discrimination. For example, as explained in Chapter 2, on the average, women have stronger preferences than men for jobs with shorter commutes, more flexible scheduling, and good working conditions, and they more often than men work in jobs with these desired characteristics. Such characteristics can be considered a form of nonmonetary income, and their disproportionate availability in predominantly female jobs means that monetary estimates of the wage gap overstate differences in total compensation for work. In any case opponents believe that even substantial marketplace discrimination need not have a significant effect on the wage gap because of competition for labor among nondiscriminatory firms.

For their part, comparable-worth proponents argue that even supposedly nondiscriminatory factors such as human capital or family responsibilities are themselves tinged with discrimination. Some of this discrimination results from societal forces. Families and schools may raise young women to believe that they are odd if they want to work in scientific fields or in dirty, risky, predominantly male jobs or if they want to devote more energy to their careers than to their families. But proponents believe that much of the discrimination is the fault of employers.

What people in the United States call “equal pay for comparable worth,” those in the European Community (EC) and Australia call “equal pay for work of equal value.” By its equal-value name, comparable worth has been a legal requirement in the EC for over a decade and a half. Christopher McCrudden, a fellow and tutor in law at Lincoln College, Oxford University, has correctly noted that many U.S. participants in the debate about comparable worth are completely unaware of this fact. McCrudden believes that European experience can provide evidence to rebut complaints leveled against the concept – such as the charges that it ignores the economic realities of supply and demand and requires courts and agencies to undertake the impossible task of ascertaining the worth of dissimilar jobs. However, like most people who write on the subject in Europe, McCrudden is interested primarily in a legal analysis of comparable worth. In an article written for a U.S. audience he discusses statutory and case law but explicitly omits analysis of “the practice of comparable worth in Europe, except to look briefly at the extent of litigation.” Though he thus says nothing about European methods of comparing various jobs or about the economic effects of their efforts, he nonetheless makes it clear that he thinks Americans have spent too much time debating the merits of comparable worth and worrying about possible ill effects. After more than a decade of experience in Europe, he states, “The sky has not fallen.” In McCrudden's view, it is time for Americans to consider institutional modifications that would facilitate the effective implementation of the concept.

Serious research for this book began in early 1988 when I spent six months in Oxford, England. Traveling frequently to London for interviews and spending a week interviewing at the European Community headquarters in Brussels, I conducted seventy-one interviews – twentyeight in person, the rest by telephone. For the United Kingdom as for my research elsewhere, some of the phone interviews were conducted in succeeding years after my travel had been completed. Thirty of my interviews were with U.K. or EC political/administrative officials having some responsibility for equal value now or in the past. Eighteen were with scholars, and eleven with officials of organizations representing business or employees. Other interviews conducted were with politicians, management consultants, industrial tribunal members, independent experts assisting the tribunals, and people in business. Among my written sources, the Equal Opportunities Review, which gives detailed coverage and analysis of developments on equal pay for equal value throughout the United Kingdom and the EC more generally, proved especially helpful.

In the winter and spring of 1989 I turned to Australia. The written sources, both on equal value per se and on the contentious question of wage fixation in Australia, were excellent. After absorbing as much as possible, I traveled to Australia, interviewing in Sydney, Melbourne, and Canberra for two weeks in late March and early April. In all, thirty-two interviews were conducted, sixteen in person. Fourteen of these were with academics, the remainder with government and arbitration commission officials, union and business representatives, politicians, and journalists.

In the late spring, summer, and fall of 1989, I devoted my attention to Minnesota, traveling to that state for a week in June and for two two weeks in August.

When discussing foreign experience with comparable worth, U.S. proponents turn most often to Australia. Without fail they draw on the work of Australian economist Robert Gregory and various coauthors. Gregory argues that Australian policy has significantly decreased the gap between women's and men's pay without disrupting the economy. Gregory's conclusions are based principally on his examinations of the impact of a 1969 decision of the Australian Conciliation and Arbitration Commission that granted women equal pay for equal work, and of the impact of a 1972 decision that phased in equal pay for work of equal value over a three-year period. By 1975 the pay of women relative to that of men had increased by almost 30 percent, and as Gregory and his colleagues see it, the negative effects were extremely small. In fact, some of their work suggests that negative effects were almost nonexistent. Comparable-worth proponents in the United States note that Australia applied the concept in a dramatic way throughout most of the economy and in a very short time. Since no “economic chaos” resulted, proponents wonder how critics can predict disaster from far more modest U.S. initiatives.

Though proponents treat Gregory's conclusions about comparableworth practice in Australia as gospel, they are disputed by other economists in Australia and the United States. Moreover, it is acknowledged on all sides that Australian economic performance over recent decades has been poor by most standard measures. A host of economic analysts have linked that poor performance to an unusual centralized wage-setting system, a system that made possible the rapid economywide introduction of large wage increases for female employees.

Up to this point my analysis has focused on the effects of institutions on social life. My main argument has been that the primary force of institutional effects is distributional — the determination of the division of benefits that characterize social outcomes. Now, as we turn to questions about the origin of these institutions, we need to consider the implications of these distributional effects on explanations of institutional development and change. Given the importance of distributional effects, we would expect social actors to prefer and seek to establish those institutional arrangements that favor them in distributional terms. Therefore, our theories of institutional development and change should either invoke this pursuit of distributional advantage as a major source of explanation or explain why other factors counteract and override distributional concerns.

Contemporary theories of institutional change seek to understand both the conditions under which social institutions develop and the circumstances under which they change. In explaining the origin of institutions, such theories emphasize one of two processes: (1) spontaneous, or evolutionary, emergence or (2) intentional design. These theories primarily invoke the collective value of social institutions. If the earlier argument about the primacy of distribution is correct, these theories will need to elaborate mechanisms of change describing either how the pursuit of distributional advantage is offset by other factors oriented toward collective gain or how a selection mechanism favors the development of collectively beneficial social institutions.

Social institutions are prevalent wherever individuals attempt to live and work together. From the simplest to the most complex, we produce them while conducting all aspects of our social life. From political decision making to economic production and exchange to the rules governing personal relationships, institutional arrangements establish the framework in which these social interactions take place. To be a member of a community or society is to live within a set of social institutions.

Consider their variety. At the most basic level of society, an array of social conventions, rules, and norms affects the ways in which we act in our everyday lives. Their influences on social life are substantial and numerous. They structure relations between the sexes and the ongoing affairs of family life; they set the standards of behavior among the members of a neighborhood or community; and they constitute an important source for the transmission of social knowledge and information from one generation to the next. In short, these informal conventions form the base on which a vast range of formal institutions organize and influence economic and political life. Economic organizations, from the small firm to the multinational corporation, are governed by institutional frameworks in the workplace and the boardroom.

What are the implications of a distributive conception of institutional emergence and change for the ways in which we think about social institutions? In the remaining pages I want to consider this question as a way of summarizing my analysis and arguments.

We started out with a set of questions about the social institutions in our everyday lives. Why do we have so many of them? Why does their basic structure differ across communities and societies? How do they develop and change? These questions are important for many reasons, but two are central here. First, their answers are crucial to our understanding of what happens in social life. And second, they are crucial to our assessments of what kinds of institutions we ought to have and whether or not our institutions manifest the goals and benefits by which we justify them. These are issues of explanation and justification, issues at the heart of our debates over the nature of the society in which we live.

EXPLANATION

Social institutions affect social life in many ways. Without them we would be unable to enjoy most of the benefits that we gain from acting in concert with others. They structure social life so as to produce collective benefits, variously characterized as gains from cooperation, coordination, and trade; functional and systemic needs; and so on.