Democracy And Economic Planning

The Political Economy Of A Self-governing Society

Pat Devine

• Publisher: Routledge
• Year: 2020
• ISBN:
  9780429718717
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Devine begins with an analysis of the theory and practice of capitalist planning, central planning and 'market socialism'. He argues that, while market socialism is currently favoured by many economists who reject both capitalism and the command planning of the Soviet model, it cannot fulfil the promises held out for it. In the remainder of the bo

Part I
Introduction

1
Introduction

1.1 Introduction

This is a book about transformation. It starts from two assumptions. The first is that neither the capitalist countries of the West nor the statist countries of the East¹ represent acceptable ways of organizing society. A third way is needed, and to create it involves the conscious transformation of existing societies. The second assumption is that people create themselves by acting on the circumstances in which they find themselves. Depending on the internal and external resources available to them, people transform to a greater or lesser extent both their circumstances and themselves.

The third way set out in this book is a model of democratic planning based on negotiated coordination. It is democratic, which distinguishes it from the command planning of the statist countries. It is planning, which distinguishes it from the instability and lack of conscious social purpose characteristic of capitalist countries. It is based on negotiated coordination, which distinguishes it from market socialism, the only reasonably worked-out alternative model of a third way that has so far been proposed.

In the most advanced modern capitalist countries political democracy has been won but not economic democracy. The political democracy so far achieved is of unparalleled historical importance but it is incomplete. It is primarily passive representative democracy in which most people elect others to act for them. The extent of active participation in self-government is very limited and in many countries the centralization of political power is increasing. Economic power remains highly concentrated and economic democracy, although now on the agenda, is still fragmentary and for the future.

Modern capitalism is not laissez-faire capitalism. The role of the state has increased inexorably during the twentieth century, notwithstanding the rediscovery of economic liberalism in the 1980s. Part of this process has involved attempts at economic planning, primarily during the two world wars but also in the period since the Second World War. However, planning has been limited, partial and largely unsuccessful. By the 1980s attempts at national economic planning had been effectively abandoned and macroeconomic management was in crisis. High levels of unemployment and inflation, persistent inequality, acute social divisions, environmental problems, the effects of unplanned technical change, international economic instability - all suggested a social system out of control.

The statist societies of the Soviet Union and Eastern Europe have centrally planned economies. Planning has enabled the mobilization of their human and material resources for the priority objectives of developing their backward economies and modernizing their societies. It has also enabled them to achieve full employment, low levels of inflation, and a more equal distribution of income than exists in capitalist countries at the same level of development. However, both political and economic power are highly centralized and neither political nor economic democracy exists in these societies.

As the level of economic and social development has increased, the statist societies have experienced endemic and periodically acute crisis. The absence of political democracy has resulted in a series of political crises, most dramatically in Poland in 1980. The combined absence of political and economic democracy, in a context of full employment and command planning, has resulted in lack of dynamism, economic inefficiency and labour indiscipline. Repeated attempts to deal with these systemic problems by introducing economic reform had come to very little by the mid-1980s, apart perhaps from in Hungary. The advent of Gorbachev in 1985 ushered in a new era in which for the first time in the Soviet Union the connection between economic performance and democracy has been officially recognized.

In both East and West overcentralization, bureaucracy and the exercise of arbitrary state or private power are now widely acknowledged to be major problems. The threat to personal freedom from the concentration of political and sometimes economic power in the state, the paternalism of nationalized industries and welfare state provision, the inefficiency of statist command planning, the power and lack of social accountability of large corporations, have between them led to a search for ways of decentralizing political power and economic decision-making.

Market socialism, in varying forms, has been increasingly advocated by reformers in the East and socialists in the West as the only way forward, the only viable third way. At a theoretical level the work of Lange (1938), Brus (1972) and Nove (1983) has been especially influential. At the level of historical experience the Yugoslav system of worker self-managed enterprises, whose activities are in principle coordinated by the market mechanism, is unique. There is also the Hungarian new economic mechanism, far less of a break with the command system than might appear and qualitatively different from the Yugoslav system.

The strongest argument for market socialism is that it is the only realistic, or feasible (Nove 1983), alternative to capitalism and, more particularly, to statist command planning. Its advocates accept that Yugoslavia has experienced the sort of economic instability and crisis more usually associated with the capitalist West and that Hungary's economic performance has not been noticeably better than that of other statist countries. However, the absence of political democracy means that neither country fully qualifies as an example of the sort of system recommended by market socialists. In any case, no one would expect market socialism, or indeed any system, to be perfect. The question is: is there a better alternative? Is there another third way?

This book is an attempt to show that there is, by developing a model of democratic planning based on negotiated coordination. In my view there are two fundamental problems with the model of market socialism which mean that it cannot constitute the economic part of a realistic vision of a self-governing society based on political and economic pluralism. The first is contingent. The case for planning is that it enables the conscious shaping of economic activity, in accordance with individually and collectively determined needs, and it overcomes the instability that is an endemic empirical characteristic of market-based economies. So far, neither historical experience nor the state of theory gives any reason to suppose that market-based economies can be managed or regulated effectively enough to achieve these objectives.

Second, the invisible hand, even if it could be steadied to avoid instability and guided to achieve broad social objectives, necessarily operates through an appeal to narrow individual or sectional self-interest and the coercion of market forces. It thus reinforces individualism and atomization and precludes conscious participation by people in the taking of key decisions that affect their lives. This, in turn, has far-reaching implications for motivation and the possibilities for linking the present and the future through transformatory activity and experience.

The fact that I reject market socialism as a model for the future does not mean that I necessarily regret the attempts currently being made to increase the role of the market in the Soviet Union, Eastern Europe and China. In my view, as argued in chapter 5, these are not socialist societies but rather societies with a non-capitalist social formation constituting an alternative to capitalism as a means for creating the material and cultural preconditions for socialism. It may be that a greater role for the market will be part of the process of undermining the monolithic political power of the state in these countries and moving towards political democracy, undoubtedly the central challenge facing them.

What is a matter for regret is the extent to which the doctrine of market socialism has achieved near hegemony among non-dogmatic, non-fundamentalist socialists in the West. The demise of capitalist planning and the breakdown of the post-war social democratic consensus on which it was based have not been replaced by a socialist trajectory. The crisis of the traditional socialist vision has enabled the new right's market-oriented project to gain the ascendancy. In my view, the increasing popularity of market socialism reflects the extent to which the ideology of the new right has succeeded in becoming dominant across the entire theoretical and political spectrum.

The rest of this introductory chapter assesses the Marxist socialist critique of capitalism and the crisis of credibility of the traditional model or vision of socialism. It then restates the case for socialism and planning in the light of historical experience and theoretical developments since the traditional model was developed.

Part II of the book looks in detail at the historical experience of planning, capitalist and statist, and examines the claim that market socialism enables effective planning to be combined with decentralized decision-making. Part III then sets out the objectives that I believe a desirable social system should seek to achieve. Part IV outlines the model of democratic planning based on negotiated coordination which, I argue, is a realistic third way whose logic works for the achievement of those objectives, unlike the logic of market socialism. Part IV is the core of the book. Part V then identifies trends present in today's capitalist and statist societies which might be developed as part of the process of transition to a democratically planned society.

1.2 The Marxist Socialist Critique of Capitalism

The traditional Marxist socialist critique of capitalism can be considered under three headings - exploitation, the anarchy of production and economic crisis, with the first two between them causing the third. The traditional case for socialism is that it abolishes exploitation and it replaces production for profit by production for use, that is, it replaces the anarchy of production for sale in the market by planned production for social need.

Under capitalism exploitation occurs as a result of the relationship between two classes: a minority class who between them own and control the means of production - capitalists; and a majority class who own no means of production - workers or wage labourers. Workers have no option but to work for one capitalist or another, on terms that produce a surplus in the form of unearned income, with the principal form of unearned income being profit. The market enters the picture in that workers' labour power, their ability to work, is bought and sold in the labour market and profit is only realized when what is produced is sold in the relevant product market. Thus, exploitation under capitalism results in profits and is mediated through markets.²

Marx used the term anarchy of production, Smith referred to the invisible hand. Both were talking about how society's productive resources come to be used in different branches of production and how changes in the pattern of resource use between different branches of production occur. Both were agreed that under capitalism this happens as a result of capitalists (also workers, landowners and moneylenders) responding to market forces. Capitalists take decisions about what, how and how much to produce with the intention of making as much profit as possible. Since each capitalist takes decisions independently of all other capitalists, and yet the outcome depends on the combined effect of all their decisions, the outcome of any individual decision cannot be known in advance.

If the result of all the independently-taken decisions is that too much or too little of any product is supplied, in relation to demand, the price at which the product can be sold, and therefore the profit realized, will be lower or higher than expected. Capital will move from low-profit branches of production to high-profit branches. Exit from and entry into branches of production will affect the balance between supply and demand in each branch and therefore the pattern of relative prices and profit rates. A new set of independent decisions will then be made, based on the new situation, with the outcome of each decision once again depending on the aggregate outcome of all decisions and therefore unknowable in advance.

In this way, resources are allocated and reallocated between different uses without any conscious overall decision or direction. The overall outcome is willed by no one. Independently taken individual decisions are coordinated but the coordination is unconscious, blind and invisible. Smith viewed the process as benign and so called it the invisible hand. Marx, while not denying the coordinating function of market forces, stressed the disruptive, wasteful, crisis-ridden character of the process and called it the anarchy of production.

Is there a connection under capitalism between exploitation and the anarchy of production? The standard Marxist argument is that the connection is provided by the institution of private property, by the private ownership of the means of production. Such private ownership is the basis for exploitation since it is the form through which the surplus produced is appropriated. It also necessitates the anarchy of production since the means of production are not owned collectively by the capitalist class but are divided into individual capitals, each privately owned by an individual capitalist with the exclusive right to determine its use. Private ownership of capitals and competition between them preclude any planned coordination before decisions are made and resources committed.

Marx's analysis of the law of motion of the capitalist mode of production is based on the coexistence of private property, private appropriation of the surplus and atomized decision-making. On the one hand, there is the need to maintain the conditions in which workers owning no means of production can be obliged to produce a surplus that is appropriated by capitalists owning the means of production and realized by them in the form of profit by being sold in the market. On the other hand, the increasingly social and interdependent character of production as a whole renders atomized decision-making increasingly disruptive and dysfunctional. It is the interaction of these two systemic features which gives rise to the economic crises and instability endemic to capitalism.

From this analysis has followed the traditional Marxist socialist, indeed general socialist, programme: the abolition of private ownership of the means of production and its replacement by social or common ownership. The emphasis has been on social ownership as a necessary condition for social control and the abolition of exploitation and the anarchy of production, that is, the replacement of production for profit for sale in the market by production for use in a planned economy. This programme, in varying forms, has been the bedrock of traditional socialist belief, rarely if ever challenged until recently. In the past decade or so, however, a crisis of credibility has arisen.

1.3 The Crisis of Credibility

The crisis of credibility of the traditional socialist programme has arisen as a result of over half a century's historical experience of what has been taken to be socialism in practice, and an even longer period of theoretical work. Three interrelated areas of reassessment can be identified: the relationships between legal ownership, actual control and exploitation; between planning and the market; and between individual freedom, planning and the market.

First, public, or state, ownership, whether in the public sector of capitalist economies or in the statist societies, has not in itself achieved what socialists have traditionally sought from common, or social, ownership. Nationalized industries and state-owned enterprises in the West have not behaved very differently overall from private sector enterprises, and they have been widely criticized for bureaucracy and inefficiency. The proper extent of direct state involvement in, and the criteria to be followed by, public sector enterprises remain unsettled and contested. Worker involvement in management has been token or non-existent, industrial conflict has not disappeared and the status of workers as wage labour is little if at all different from that of workers in the private sector.

It is equally true that workers in the statist countries, with the exception of Yugoslavia, play no part in management and are effectively wage labourers. Even in Yugoslavia unskilled workers play little part in the institutions of worker self-management and their actual status is hard to distinguish from that of wage labour, irrespective of the legal position. In the other statist countries the principle of one-person management has been rigorously operated and attempts to form workers' councils have been everywhere suppressed.³ In this context, the issue of whether the control by the bureaucracy over the means of production carries with it some of the benefits traditionally associated with legal ownership has been the subject of continuing debate.

The traditional Marxist position on these issues is that everything depends on the character of the state. If, as in the West, it is a capitalist state, then state ownership is not social ownership. If it is a socialist state, as some socialists still argue is the case in what I have called the statist countries, then state ownership is the form taken by social ownership. There is no easy answer to this problem. The character of the state is certainly crucial. Yet this raises more questions than it answers. How democratic is the political system? How real is popular control over the decisions of state bodies? What sort of political and economic structure is necessary for self-government? This last question is really what this book is about.

What are the implications of this for the abolition of exploitation? The Marxist concept of exploitation is concerned with the extraction of a surplus product from the direct producers by an exploiting class. The traditional socialist programme assumes that with the abolition of private ownership exploitation is also abolished. Without at this stage considering the question of whether the controlling bureaucracy in the statist countries constitutes a new class, it is evident that workers in these countries have control neither of the production process nor of the use made of the social surplus, that is, the output not accruing to them directly in the form of household consumption.

Although not explicit in the classical Marxist analysis, it is surely implicit that the abolition of exploitation cannot mean just that the surplus product is no longer privately appropriated. It must also mean that the direct producers have some control over the production process and the use of the social surplus. For exploitation to be abolished in this sense requires some form of worker self-management and also democratic control over the state or the other institutions through which decisions over the use of productive capacity and the social surplus are made. In addition, there need to be processes or procedures that coordinate, or link together, the output decisions of production units and the demand for their output stemming from individually and collectively determined wants and needs.

This then connects with the second area, the relationship between planning and the market. Are the two antithetical, as in classical Marxism, or are they complementary, as argued by reformers in the East and market socialists in the West, with a regulated market mechanism constituting an essential instrument of planning? The traditional socialist programme envisaged the replacement of production for profit for sale in the market by planned...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• Preface
• PART I INTRODUCTION
• PART II HISTORICAL EXPERIENCE
• PART III OBJECTIVES
• PART IV DEMOCRATIC PLANNING
• PART V CONCLUSION
• Notes
• Bibliography
• Index