prediction markets as a substitute for capital markets
mobilizing tacit knowledge needn’t require private ownership of firms
Prediction markets are betting arenas. In principle, these gambling venues produce social knowledge of which outcomes are likely - if you think the market is wrong, and one boxer is overvalued, you can bet against him. These markets, then, provide an incentive for people to publicly provide their true estimates of likelihood.
Traditional gambling markets bet on outcomes of no special importance. However, prediction markets could also be used to bet on measures whose outcome we would want to know - for instance, the likelihood of war between two countries, or how much carbon output is likely to decline. So subsidizing markets like these can, potentially, elicit tacit knowledge about what informed observers think is likely.
useful functions and less useful functions of capital markets
First, capital markets mobilize a portion of the social product towards investment. (This is is a very necessary function, albeit one easily replaced by other means.)
Secondly, capital markets steer investment of the social product towards firms that investors expect to be profitable. While it isn't hard to see eras where this mechanism funneled money into worthless boondoggles, it's also certainly better than random chance.
At the same time, there are several functions of capital markets that socialists do not like, functions that are intimately related to the objections socialists have to capitalism in general.
The first objection to capitalism is that it is a form of class society dominated by a concentrated minority. Capital markets are not just a betting arena; there are a market for governance over the institutions where people spend half or so of their conscious time. Liberal political philosophy already recognizes why markets for permanent claims over people or over explicit political institutions would open the road to unacceptable forms of domination; socialist objections to capital markets are just an extension of this.
Secondly, capital markets are based on estimates of profitability rather than overall social utility. In ideally functioning competitive markets, this rewards whatever happens to be best at this particular measure to the exclusion of all else - a Molochian race to the bottom.
how prediction markets can substitute for capital markets
Prediction markets can substitute for the role of capital markets in a number of ways.
In a comprehensively planned economy - or simply for SOEs in a mixed economy - that is prediction markets can be used to advise planners. This is most similar to the existing futarchy proposals of Robin Hanson, where governments may choose to make policies contingent on prediction market results (do x if markets expect p, y if markets expect q), though it may be used informally as well.
In a Lange model economy, prediction markets may be used to estimate the prices of future capital goods. (This addresses the main Austrian criticism of the Lange model, that of its inability to rationally calculate the economic impact of new technology.) This can be extended to all
For an economy dominated by (or legally limited to) cooperatives and simple commodity production, prediction markets could make public the kind of information fhat investors would otherwise provide, giving people looking to start cooperatives, or retool existing ones, information on what the lucrative areas would be.
Finally, while a fully communist society that has abandoned money could not use classical prediction markets, it might benefit from using reputation-based "markets" like Metaculus. These could quantify information utilizing that best and most unstoppable human force - the desire to be proven right in a fight on the internet.
concerns
There are two concerns that I would have about the use of prediction markets in this way.
First, doesn’t this reproduce all the short-term irrationalities present in existing bourses? “Pump and dump” is a good (but collective knowledge-destroying) strategy for stocks, and would be for prediction markets as well. Prediction markets at scale would evince at least as much irrational exuberance and bubble behavior as financial markets.
Second, doesn’t this empower outside purchasers to “buy” decision-making power, if in a less direct way than capital markets do? Outsourcing decisions to prediction markets is a surrender of autonomy that should give us pause.
Both of these concerns, I think, are alleviated if we think of prediction markets as supplementary to democratic deliberation - data points, rather than decision points. “Baseline” individual and collective deliberation also has irrationalities, and exposure to different modes of reasoning - which marketized logics are - can help them.