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Home , Planned economy

Paper to be presented to the international workshop on and the European Left in the age of Globalisation, Stockholm, June 2003.

Organized by: CMS and Transform

What Economic Democracy should not be about - The dead end of centrally planned *

Johan Ehrenberg, chief editor, ETC, [email protected] Sten Ljunggren, assistant professor, studies, Uppsala University, [email protected]

Abstract

Economic democracy might hopefully once more be on the political agenda. But one trait of these thoughts must be ruled out at the outset of a new discussion. And that is the notion connected with managing the socialist as a centrally planned firm. This form – the centrally planned econ- omy – is a distinct historic phenomenon. It tries to abolish markets as far as possible and replace them with a single common enterprise, where as much as possible is planned beforehand. The aim of this paper is to show that this solution is not a viable alternative for a socialistic vision. Obviously they were worsened by Soviet being a dictatorship, but there were other problems, such as bad adaptability, hierarchic inertia, absents of horizontal relations, no unexpected renewal and primi- tive growth. criticize two proposals to reform the traditional centrally (the Soviet type). The first one is the suggestion that a democratically managed centrally planned economy is workable. The second proposal we criticize is the notion of a centrally planning being based on advanced mathemati- cal planning techniques. Our conclusion is that the whole idea of a centrally planned economy is a dead end. Centrally planned economies are one of the historical failures of mankind. We will not go anywhere by continue to cling to them, in one form or another. We conclude with a short discussion of a viable socialist vision and states that 1) markets and capi- talism are two totally different things, 2) a socialist vision must be based not on just accepting mar- kets, but on embracing them, 3) the private ownership of the must be replaced with non-owned and self-managed firms, 4) for any markets too work well, there is a need for a con- siderable degree of governmental involvement and equality of opportunity, income and wealth and finally 5) the question of economic democracy is in a globalised world perhaps a question of the sur- vival of political democracy.

*Part of this article was published in an earlier version in the magazine Röda Rummet. Ola Inghe translated it for manifest.se.

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Introduction introduction of a centrally planned economy on the agenda. In order to discuss the centrally planned economy it is necessary to qualify the concept One may call the centrally planned economy somewhat. Centrally planned economy is not a form of a planned economy and of a strategi- equal to planned economy or to a strategically cally planned economy. But this does not im- planned economy. ply that a strategically planned economy, or a planned economy, is a centrally planned econ- Most economies are more or less planned. omy (Figure 1). Those in power put up some targets, which they subsequently try to meet by various meth- Figure 1. Planned economy, strategically ods. Since 1980, around the planned economy and centrally planned econ- world have weakened unions, forced omy through a huge increase in income and prop- erty gaps, and substituted for private service. Surely, no one can deny that Planned economy this is a result of planned changes – that politi- cal goals are able to steer the economy in a thoroughgoing way. Within the framework of the EMU there has been a co-ordinated, Strategically planned economy planned and very deliberate change of the European economies. We have got lowered interest rate, less inflation, smaller budget defi- Centrally cits and a smaller , higher un- planned economy employment, increased income gaps. Thus, even with traditional monetary and fiscal poli- cies, big changes have been implemented in capitalist countries in a planned way. Centrally planned economy is not equal to strategically planned economy, or planned Before 1980 there are examples of a more in- economy. terventionist planning. Many capitalist coun- tries had a large sector of state-owned compa- nies. Public was important in Strategically planned economy is a broader governing and influencing the business sector. concept than centrally planned economy and Some countries went even further. had 5- when we talk about planned economy the con- year plans for industrial development and cept is broader still. When discussing centrally France had a framework planning for industry. planned economy, strategically planned econ- The Ministry for Industry and technology omy or planned economy, it is a problem that (MIT) in Japan had a strong position as a plan- nearly all non-capitalist countries in the last ning authority. century were centrally planned economy. During the Second World War many coun- Yugoslavia was an exception, being neither a tries, including USA, had an centrally planned economy nor a strategically best described as a strategically planned econ- planned economy (in some periods it was omy. The whole economy was redirected to- hardly a planned economy at all). today wards a single purpose – winning the war. maybe could be called a strategically planned After WW II we had in Sweden the so-called economy. planhushållning debate*. The social democrats However, the important point here is that a presented proposals on far-reaching state direc- centrally planned economy (henceforth abbre- tion of the business sector. But! Neither during viated CPE) is a distinct historic phenomenon the war nor in the social democratic proposals in managing the economy. It is something to- for a strategically planned economy, was an tally different from the concept of a “socialist planned economy”, and even from a “socialist strategically planned economy”. A CPE try to * We use strategically planned economy as a trans- abolish markets as far as possible and replace lation of the Swedish planhushållning.

3 them with a single common enterprise, where cles and the stockpiles of the red bicycles dis- as much as possible is planned beforehand. appear. The aim of this paper is to show that this so- This, to adjust prices but not production, was lution is not a viable alternative for a socialistic the main content in the efforts to reform the vision. CPE:s from the middle of the 60:s to the final debacle in the early 90:s. First we discuss the problems in the tradi- tional CPE. Obviously they were worsened by There has been no lack of ideas to create Soviet being a dictatorship, but there were some form of adjustment allowing peoples other problems, such as bad adaptability, hier- demands to direct what is produced in a CPE. archic inertia, absents of horizontal relations, One is to use studies – asking people no unexpected renewal and primitive growth. what goods they want to buy. These market studies should then be the base for the planning Secondly we criticize two proposals to re- for consumer goods. form the CPE. The first one is the suggestion of a democratically managed CPE (Benny But! The capitalist large companies globally Åsman in Röda Rummet No 1/2001). The sec- invest billions in market studies, and then they ond proposal we criticize is the notion of a invest hundreds of billions in advertising to CPE based on advanced mathematical plan- convince us that what they produce is what we ning techniques (Cockshott & Cottrell in To- want to buy. Yet time and again it appears that wards a new ). there are products that people do not want to buy. One of the beautiful things is that peo-

ple’s behaviour cannot be planned or pre- Bad adaptability dicted. Assume that the central planning authority decides that during the coming five-year pe- Hierarchic inertia riod, a certain amount of red and blue bicycles will be produced. When the bicycles reach the Another solution for the dilemma of unpre- shops it turns out that people want much more dictable people is to let the plans adapt to what blue bicycles than produced, and fewer red. people wants to buy. If shortage occurs for an item production should increase, if surplus As a result, queues emerge for obtaining a occurs it should decrease. A socialist CPE blue bicycle, while the stocks of unsold red could be based on planning agencies who plan bicycles grow. The endlessly repeated short- production of consumer goods based on market ages of certain goods create special consumer studies and who, when imbalances neverthe- behaviour. When an attractive product emerges less occur, adjust these by subsequently chang- in the shops, it is bought not in the amount one ing the production of some items. needs but as much as one affords. Subse- quently, it is sold or bartered away, or hoarded One reason that this was never implemented for future private consumption. Because people and never can be implemented is that the very buy as much as possible, shortages are aggra- construction of the CPE makes every change vated and the queues grow. Hoarding makes it very complicated. There are no possibilities of virtually impossible for the planners to get rid linking different parts of the economy – other of the queues by increasing the production. than by higher-level administrative decisions. Every decision must be forwarded upwards in Traditional CPE lacks a mechanism allowing the system. peoples demand – their tastes and preferences – to influence the direction of the production. Assume that the bicycle factory really wants From the early 60:s this was a constant prob- to adjust its production to consumer demands. lem. This in itself is unrealistic because there are no incentives to make that change. But assume In the middle of the 60:s, a revolutionary idea that the decision is taken anyway. In the emerges. Increase prices for the blue bicycles neighbourhood is the paint factory, which de- and lower it for the red ones. In this way, de- livers the paint to the bicycle factory. Unfortu- mand increases for the red bicycles and de- nately it is not only to take a walk to the paint creases for the blue ones. Demand and supply factory delivering the paint to the bicycle fac- will be balanced. The queues for the blue bicy-

4 tory and say that from now on we want more Lenin was tremendously impressed of the blue paint and less red. panning developed by within the companies and considered that the correspond- The bicycle factory is subordinated to the ing planning of the whole society would be a ministry for durable consumer goods, while the comparatively simple process: paint factory is subordinated to the ministry for chemical products. The bicycle factory has to “All citizens become employees and contact its regional ministry and they (may) workers of a single countrywide state contact the local ministry for chemical prod- "syndicate". All that is required is that they ucts. There the answer is that unfortunately the should work equally, do their proper share blue paint contains other chemical ingredients of work, and get equal pay. The and the supply is decided on the central level. and control necessary for this have been The case is handed upwards to the central min- simplified by capitalism to the utmost and istries in Moscow. The change affects not only reduced to the extraordinarily simple op- the ministries for durable consumer goods and erations - which any literate person can for chemical products. Even the ministry for perform - of supervising and recording, non-metallic raw materials and the central knowledge of the four rules of arithmetic, ministry of transport have to take stands. At and issuing appropriate receipts.”(Lenin the best the case reach the central planning 1917) authority, which states that this is a good idea But it is not that easy. Surely, every one has and, when recalculating all material balances played the whispering game as a child. You sit before the next five year plan, of course we down in a ring and whisper a message to your shall take these wishes into consideration. neighbour. When the message has gone around They do it. But five years later for some reason the whole ring it is often totally unrecognis- people prefers red bicycles to blue ones! able. It is the same with big organisations. The traditional CPE simply lacks space for Information is lost on the way up to the top. As direct horizontal relationships between enter- a rule of thumb, 10 to 20 percent is considered prises. Every decision has to be handed up and to be lost at each level. This situation was not down through the planning hierarchies (Figure acute for 19:h century companies with perhaps 2). 1 000 employees. As a matter of fact, it was only in the 30:s that researchers begun to study To get a realistic understanding of the prob- how information is changed when transmitted lems, the figure should be multiplied with per- between humans. Some consider this problem haps 20 in height and several thousands side- now to be solved by the modern information ways. There were approximately 49 000 indus- technology. trial enterprises, 23 000 state farms, 27 000 collective farms, 47 000 building enterprises and nearly a million wholesale and retail trade enterprises. The economy as a whole had more than 24 million products. (Ericsson 1991)

Figure 2. Relationships in a CPE

The contact between the bicycle and the paint factory must go up and down and side-wards in the panning hierarchy

They miss the point. It is not a technical The idea of a working CPE comprising hun- transmission problem, but about how and what dreds of millions of people is impossible. We man can understand. Even Lenin’s simple op- can steer complicated mechanical course of erations of supervising and recording were events because we have a very detailed knowl- technically more than enough powerful to edge of these processes. That level of knowl- transmit more information than humans are edge the social sciences will never reach and it able to comprehend. The Soviet CPE was is therefore impossible to manage in the way uncritically built on the conception that an presupposed by CPE. organisation can function as a mechanical Contrary to Lenin, who considered the whole building box into which new cogwheels can be as a simple accounting operation, Trotsky saw added indefinitely. the problems. He wrote in 1932: Capitalism has introduced a multitude of If there existed the universal mind, that changes – functional organisation, divisions, would register simultaneously all the proc- matrix organisations, profit centres, manage- esses of nature and of society, that would ment by objectives, self-managing groups, flat measure the dynamics of their motion, organisations, project organisations, flow- such a mind, of course, could a priori draw oriented organisations, and so forth – in order up a faultless and exhaustive economic to manage ever growing corporations. Some plan, beginning with the number of hec- advocators of CPE take these innovations as tares of wheat and come down to the last proof of the viability of centrally planned button for a vest. economies. In truth, the bureaucracy often conceives This view neglects the obvious. There are that just such a mind is at its disposal; that two fundamental differences between a large is why it so easily frees itself from the con- capitalist company and an economy of a whole trol of the market and of Soviet democracy. society. (Trotsky 1932) Firstly, the large capitalist corporation is tar- There are those who seem to believe that geted towards a single goal – maximum profit. computer technology give us such an omnipo- The higher up in the hierarchy, the less meas- tent demon. But, as already said, the problem ures on what really goes on, and the more con- is not a technical one, but concerns human centration on the single all-embracing goal – ability and how we as humans solve social profitability. An economy of a society cannot problems, namely by creating social networks. be steered in the same one-dimensional way, and when more and contradictory goals are introduced the amount of information increases Horizontal relations absent exponentially. If the problems were limited to such simple Secondly, and even more important, the large things as red or blue paint, the CPE model may capitalist corporations can get rid of units that have been able to cope with them. But rela- don’t meet the planning goal – maximum prof- tions between enterprises are not so simple by itability. When a unit is disbanded the com- far. The idea of CPE is built on the same basic pany will have no responsibility and no costs concept as the traditional market theory in for those who worked there. Within the , namely that products and services framework of a whole society, it is of course are homogeneous – red paint is red paint. This impossible to get rid of units, who not wholly implies that all we need for complete knowl- fulfil the planning targets, in the same way. edge is the quality of red paint and the In spite of a multitude of organisational inno- price/cost for red paint. But in reality, few vations and in spite of the ability of the capital- products and services are homogeneous. On ist corporations to steer towards a single all- the contrary, they are heterogeneous in nearly embracing goal, no capitalist corporation has endless ways. managed to grow bigger than around half a It is not enough to have the knowledge – this million employees. In a CPE of Soviet size we and that litres of red paint to this and that price. are dealing with over 100 millions. There is a multitude of qualities and types of red paint. What is suitable in a certain situation

6 cannot be summarised in a simple statistic to “The paper qualities are changing all the be sent upwards in the planning hierarchy. time. It is predominantly the paper mills What is suitable can only be decided by trial whom, in order to stay competitive, de- and error, and trial again. That knowledge can velop new qualities. But the printers have only be obtained by an intensive interaction an interest to influence the development. between the bicycle factory and the paint pro- The printing staff of Interprint have meet- ducer. ing with the engineers of the paper mill to discuss the quality development.” (Bruns- To illustrate this, we have sampled a little son & Hägg 1992) from a textbook in business economics. (Ljung 1988) The relationship between a supplier and Inside these relations is created a “tacit a customer can be described as an interaction - knowledge” which only can be won by experi- an interplay. Interaction is a way of solving ence. Knowledge that is not possible to codify problems. It may be a matter of finding solu- and write down in statistics publications or tions who are more cost-effective, better other reports to be transmitted to others. adapted to the production of the customer, This interplay was nearly absent in the Soviet better adapted to the routines of the customer, CPE. When it occurred it was in the form of better adapter to the customer of the cus- illegal contacts between the enterprises. Soviet tomer’s demands on the products, etc. This enterprises had small or no contact with its requires a developed interaction between the suppliers and customers. The only contact they companies and inside the companies (Figure developed was with the nearest level of supe- 3). rior planning authority. There were no relation Quality improvements are seldom the result to suppliers and customers. They were wholly of a grandiose internal product development anonymous. There was no interplay, no possi- project within a company. They are rather a bilities to learn from the relationship to suppli- consequence of an interplay – or maybe rather ers and customers. Every form of adaptation confrontation – between problems and possi- took place indirectly, via the planning hierar- bilities within several different companies. It is chy. (Johanson 2001) It is sometimes striking a confrontation, which occurs within a frame- what similarities there are between the CPE work of relations between the companies, and and the image of how markets function in neo- not on an anonymous market. Here is an ex- classical economics. The image of markets in ample from the relationship between a paper economics is also of a place without social mill and a printer: relationships and where purchasers and sellers are totally anonymous for each other.

Figure 3. Relations between two companies in a

Seller Buyer

Plannning Planning Construction Production Sales Purchase Production Sales R&D R&D Quality control Quality control

The interplay between supplier and customer demands adaptation of a multitude of processes. From development, planning, production, and quality control to administrative processes.

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Can one imagine a CPE where those inter- existed. There is no space for this kind of dis- enterprise contacts forbidden in the Soviet coveries within the CPE. model, was allowed? Yes, it would without On the market new and unexpected solutions doubt improve the situation. But we do not arise from the interaction between buyer and believe it would solve the problems. seller. They arise in social environment that is The CPE is an authority type of organisation. diversified. In a homogenous environment, the And it is something special with authorities. probability of unknown discoveries is very They are always right – irrespective of if we low. The environment of CPE does not allow like it or not. The bicycle factory and the paint space for the differences, the social contacts producer may surely arrive at a solution to- and the independence needed for new ideas to gether. But if one of their superior planning burst forth. The enterprises do not have the authorities (or some other one at the same close and ongoing relations with their custom- level) do not like the solution it will drop dead. ers that may result in new, unexpected discov- So why even try? Especially, as it is hard to eries. learn and adapt. It requires a great effort. And However, if an unexpected discovery appears if it is the planning authorities that decide, why anyway, it is best to keep quiet. There is no take all this inconvenience on oneself? On the space to explore the discovery directly within other hand, there may not be a good solution the relationship to the customer. All interac- between the bicycle factory and the paint pro- tions take place by way of a superior planning ducer. It may be better to discontinue the co- authority. The superior planning authority operation. But in a CPE this is not a decision knows nothing about missed opportunities. that can be taken by the bicycle and paint pro- They will never be able to punish those enter- ducer. It is the planning authority that decides prises that do not use the opportunities. Those who will deliver what to whom. who try taking the risk that the new discovery For the interplay to be more than a deceptive does not work and then the planning authority appearance the two parts need to have a real can use its power, and take measures against right of decision. Even if the enterprises are those who have committed themselves to a allowed to contact and learn of each other, the failure. The enterprises learn to neglect new situation will be the same is in a big company. discoveries. They have no possibilities to test When it matters, it is a superior level that them out in direct interaction with their cus- really decides. We are back at square one tomers or suppliers, and upwards nothing is again. This is something that has worked for a lost by not changing anything, while every size of around 500 000 employees, but not for proposal of change includes the risk of failure. 100 millions. Some things cannot be achieved by planning. They only happen; someone grasps the oppor- tunity. This does not imply that nothing could No unexpected renewal or should be planned. In many areas, extensive How do we find new knowledge? How are planning and steering is needed. new discoveries done? One way is that there is However, CPE is based on the belief that all a problem and to solve it, we start a planned economic activity can and shall be planned. It search process. Here, CPE has no handicap. strangles that part of discoveries which is un- The ability of the to solve prob- expected. In a CPE the unexpected is very lems within military and space technology rarely created, and if it is, there is no space to through a planned search process was impres- test if it functions. sive. The process fitted hand-in-glove with the mode of functioning of the CPE. For consumer products, the problem is still worse. CPE lacks the capacity to allow new But, a lot of new knowledge and lots of new products to get a foothold and, equally serious, discoveries do not origin in this straightfor- it lacks the capacity to weed out failed prod- ward and planned way. A surprisingly large ucts. proportion of all discoveries are not the result of a planned search process. Suddenly there is How do we get new consumer goods? Well, a a solution to a problem we did not even know company decides to try to get people to buy a certain item, e.g. freestyle. At first it is only a

8 few percent that buys the new product. Later, chain. The framework for this is put down in several things can happen. The product may the five-year plan, which pre-dominantly af- became a mass consumption item, which fects , suppliers and transport com- means that from the first percent its use in- panies. The details applying all the way down creases to five, ten and them maybe as much as to the shop are decided on in the one-year plan. 90 percent of the consumers. Or the product Then the consumers do not want the new excit- may remain an exclusive item never reaching ing product! In fact, such things happen now more than a few percent of the population, and again, in spite of billions invested in ad- which is prepared to pay somewhat extra. Fi- vertising. It is a quite sure bet that in a CPE the nally, the product may be a failure. After the product will continue to be produced, even if fist test there are no more who want it and even not demanded to the price necessary to cover the first ones are not prepared to keep on pay- its costs. ing the price for it. The important point here is that all new products are small and uncertain in the beginning. Primitive growth Suppose now that we in a democratic order The Soviet CPE was a functioning tool to (exactly how that should be done for hundreds achieve a single goal – high production growth of thousands of product, we don’t understand) counted in tonnes and numbers. Here CPE can decide on our production of consumer goods. show impressive sustained growth (Figure 4). One percent of the population perhaps wants to Already in the early 60:s the direction of this test it – the remaining 99% consider it unnec- growth began to be put in question, even by the essary. The decision will nearly always be that Soviet rulers. Chrustjev spoke about it no we shall not produce anything of the new item. longer being enough to show diagrams of in- Of course, one may think that society in this creasing production of steel, coal and cement. way will be liberated from a lot of rubbish. But The population demanded more and else. To we will also have missed a lot of products that meet a growing malcontent with the function- people have received much delight from. ing of the CPE, major reforms were repeatedly Suppose that the decision is to add a new ex- undertaken - 1965, 1967, 1972, 1976, 1979, citing product to the plan. This demands deci- and 1982 (Ericsson 1991). One tried: region- sions on in new plants, changed alisation, a “streamlining” of the planning bu- delivery norms for input suppliers, changed reaucracy, new mathematical methods together norms for transport companies, new delivery with computerisation of the planning, price lists for middlemen, that space is allocated for reforms, increasingly complicated systems of the new product in the shops – to only mention incentive, market studies, and an increased a few of the things occurring in a production effort to produce consumer goods.

Figure 4. Growth of GDP in USA and Soviet Union (1950=100)

300 USA Tidigare Sovjet 250

200

150

100 1950 1960 1970 1980 1990 2000

Source: Maddison, Angus, The a millennial perspective, OECD 2001

But nothing of this was able to change the envisages. It appears to be systems where the basic characteristics of the CPE. One never direction of the production is thoroughly man- succeeded in adapting the production to the aged by CPE methods that they want. fancies and tastes of the consumers. One was In the market economy of today – and in the not even able to improve the proportion of self-governed market economy we envisage – consumer goods compared to means of produc- the shoe factory is embedded in a network of tion, in spite of it being a repeatedly iterated relationships. The shoe factory has many sup- goal since 1965. The hierarchic structure with pliers, who in their turn have suppliers and long communication chains up and down in the other customers. The shoe factor sells to vari- planning bureaucracy was not significantly ous middlemen and shops. (See Figure 5.) changed. Horizontal relations for adaptation between enterprises were not established. No answers were given on how to generate and (if Figure 5. A network of relationships they happened anyway) assimilate into the planning unexpected discoveries. The only Suppliers way to introduce some new consumer products Shops was a limited amount of copying from the West of guaranteed successes. Distributors The shoe factory A democratic CPE? Some argue (this example is from Benny Åsman in Röda Rummet no 1/2001) that a so- cialist CPE has no need to discuss how many pair of shoes will be produce by an entrepre- neur or by a collectively owned shoe factory. In a market, every enterprise is embedded in On the other hand, the democratic decision- a network of relations. making ought to concern itself with the num- ber of shoe factories to be invested in. With modern computer technology, To understand the networks it is necessary to technology, and the Internet there is, according remember that every single relationship may to this view, every precondition necessary for a be as complicated as that shown in Figure 3. democratic decision-making process to be able Also it is a network that is not confined to the to centrally plan the economy. local level, but reach out nationally and inter- The local investment councils, it is argued, nationally. may have the task of evaluating what invest- If these relations are broken to make way for ments to put in first priority. The local invest- a conformation of each enterprise into a hierar- ment councils make inventories and discuss the chic CPE, we will encounter the deficiencies need and priorities of the region. The same we have discussed earlier. If the enterprises chain of information flow and democratic dis- can decide the number of items, it will maybe cussions follows at national and international ameliorate the problems somewhat. But they levels. Only by a recurrent back-and-forth will not go away. Questions of who will de- process, where information, discussion and liver to whom will by necessity be handed up decision-making is taken care of by the major- and down in the planning bureaucracy. It shall ity, can the necessary and desirable invest- not be that much easier for enterprises to adapt ments polices be envisioned and then fine- to each other, because every adaptation is to a tuned. great extent connected with investments (who If this means that some local, regional, na- are decided on higher up in the hierarchy). As tional and international investment decisions enterprises are prohibited to cancel their rela- shall be decided on politically grounds, we tions, the pressure towards adaptation will be have in principle no objections. Possibly we lessened. The arguments for the difficulties to will disagree on which and how many. But this get renewal in a democratic CPE are as valid is no what the proponents of a democratic CPE

10 here as they were for the traditional CPE. It is that GM always can liquidate units, or get will look in the same way (Figure 6). rid of non-profitable suppliers. As mentioned, one cannot do so in a society. Figure 6. The same CPE model Proponents of a democratic CPE stress that the economy shall not be governed by the profit interest, but by people’s need. The prob- lem is that the need of people is nearly end- lessly varied. When entering a superstore there is 10 000 items. Over a year, one person may consume 500, maybe 1 000, of them. The con- sumer pattern of one person cannot be applied to the pattern of everyone else. An incisive example: One person may read perhaps a hun- Suppliers Shoe factory Distributors Shops dred books per year. Thousands of books are published in Swedish every year. Shall we In a CPE the enterprises are conformed into limit the selection? We, for our part, think that a hierarchy. a socialist economy should be about a wider selection – not only regarding books.

How will a democratic assembly be able to Benny Åsman writes that the turnover of make meaningful decisions on those invest- General Motors is bigger than the GNP of ments necessary to deliver the 10 000 items Denmark. “Yet there is no market present in a superstore? It is virtually impossi- between the production units and sub- ble. contactors of GM. Everything is planned to the very smallest particulars. ‘Just-in time’ meth- The result will be that the planning ends up in ods steers the goods flow within the corpora- the hands of bureaucrats; while at the same tions and the sub-contractors are tightly reined time there will be strong demands to decrease in to keep the production chains unbroken.” the selection. It has been proposed to solve this Lars Henriksson has a similar example when by substituting computers for the market. By he argues for a democratic CPE (Röda Rum- help of the computer, everyone can enter met no 1/2002). “The ever-growing corpora- online with the central planning computer and tions have, inside themselves, a detailed and choose their future consumption (in detail for top-down managed international planned the next year and more crudely for the coming economy.” five years). The central planning computer weighs all wishes and sends out production It is a very big difference between GNP of a orders to factories, take care of the distribution country and the turnover of a company. If a to the nearest shop and, last but not least, comparison shall be made between a country check if one is able to buy what one wants. and a company, the relevant measure is the value added of the company (the sum of sala- This was discussed primarily in East Ger- ries plus gross profit, or turnover minus the many in the decades before the fall of the Ber- cost of all purchased products and services). A lin Wall. Bourgeois economics assume that simpler and even more relevant measure is the human beings are a man that is perfectly in- number of employees. And here, even a small formed and always doing completely rational economy like Denmark’s is many times bigger choices. On top of this, computer socialists than that of GM with half a million employees. assume her to be a perfect planner. She shall be This should be compared to CPE’s with tens to able to decide her whole consumption in ad- hundreds of millions. vance and then trust the computers to take care of everything. (This view of man as a com- But there is, as we have mentioned, two other pletely knowing planner is also the fundament completely decisive differences between coun- of the so called “parecon economy”, see for tries and big capitalist corporations. The first is example Albert & Hahnel 1991) that the whole of GM can bee steered towards one single goal – maximal profitability. One How could any one have known in the mid- cannot do that for a developed economy (and dle of the 80:s that she in the late 80:s should hardly for a non-developed either). The second

11 want to invest substantial sums in PC pur- mometer. It is a picture that may characterise a chases? Personally, we are more scared by this planning of self-managing unit in a socialist model than by bureaucratic socialism. economy. A new socialism? In the following, we have extrapolated from the two pictures and tries to characterise what In the book , Paul distinguish the picture of planning as a plan- Cockshott and Allin Cotrell argue for a CPE ner-thermostat and as person-thermometer, built on mathematical solutions. They write: respectively (Figure 8 summarises). “We are proposing a system of computer- Figure 8. Planning as thermostat or as per- ised planning which involves the simula- son - thermometer tion of the behaviour of the economy in

great detail. To make this feasible the cen- Planner- Person- tral computers must be supplied with copi- thermostat thermometer ous amounts of technical information, for instance lists of the products being pro- picture picture duced and regular updates on the technol- Static Dynamic ogy used in each production process. Given goals Undecided goals Other computer systems will have to re- Goal fulfilment Goal change cord the available stocks of each type of Fully-learned Learning raw material and every model of machine so that these constraints can be fed into the Simple behaviour Complex behaviour planning process.” (Cockshott & Cottrell Complex structure Simple structure 1993) Planning as a thermostat is a fairly striking The account is infested with mathematics. picture of CPE. Planning as person – ther- But their basic image of how a CPE works is mometer is more in line with what a planned fairly simple: “Planning can be thought of as a socialist economy built on self-management branch of control theory, the study of regulat- would look like. ing systems.” (Cockshott & Cottrell 1993) An example of this is a thermostat (Fig 7): Our encyclopaedia offers the following ex- Figure 7. CPE as a thermostat planation for the word thermostat: “From Greek thermos – warm, and statos – standing. Controller Plannner Plant Device for keeping temperature constant.” The very definition of thermostat as “keeping … constant” gives associations to something static. The explanation for the word thermome- Sensor ter is: “From Greek thermos – warm, and met- ron – measure. Instrument for measuring tem- perature.” (Nationalencyclopedin) The point with measuring something can only derive Source: Adapted from Cockshott & Cottrell, from the fact that this something changes – is p. 84. dynamic.

It is in the nature of a thermostat that the With a thermostat the desired temperature is goals are given. We adjust to a wished tem- decided; a sensor determines the real tempera- perature and expect the thermostat to do the ture and if the goal and the real temperature do job of keeping that temperature. A thermostat not correspond a feedback occurs which acti- is characterised by given goals and emphasis vates a correcting process, e.g. by putting on or on goal fulfilment – not changing the goals. off the stove burner. This picture can be found When we read a thermometer the situation is in many American textbooks in Management different. Our aim may be to determine how (See e.g. Horngren & Foster 1991). It is much we shall dress if going out, to decide if we will rarer, to not say non-existent, in research in go out at all, or to simply verify what we al- business studies. A contrasting picture to plan- ready know – today it is really warm. The ning as a thermostat is to consider the system goals are undecided and an essential function as a relationship between a person and a ther-

12 of a thermometer is that we after reading it crisis-free growth of the socialist economy.” may decide to change our goals – we may de- (Fedorenko 1975) cide not to go out as we had imagined. There is one method that was not on the For a thermostat to work we must have full agenda in the middle of the 70:s. In the studies knowledge of our goals and of the connections to develop artificial intelligence, the scientists within the system. We have to be fully learned. have developed mathematical algorithms con- When we read the thermometer we learn a sidered by the authors to be important tools to little – if only just that the present temperature keep the CPE balanced (e.g. as regards supply is 10 degrees. Or else we confirm knowledge and demand). we already have – it is not warm at present. Cockshott is doctor in computer science and When reading is combined with action (in Cottrell is professor in economics. Both these whatever direction) we learn something more disciplines have a strictly mathematical nature. lasting – it is not comfortable to go out wear- Of course, we have no possibility to assess the ing a T-shirt when it is 10 degrees. The ther- value of these mathematical methods (except mometer image put emphasis more on learning that the first three apparently didn’t save the than on full knowledge. Soviet CPE). What we know is that economists A thermostat has a complex structure, which nearly always can explain fairly complicated assume simple and predictable behaviours. course of events afterwards by help of their Without simple and predictable behaviours the mathematical models. On the other hand, they complex structure will break down. The ap- hardly ever manage to predict the future. proach to behaviours as being simple and pre- Something unexpected always occurs which dictable is possible to uphold in a world where was not included in the mathematical formulas. we have given goals, emphasis on goal fulfil- It is a qualitative leap from analysing and try- ment, and to do things in the right way. With ing to predict the economy by help of ad- an emphasis on undecided goals, goal chang- vanced mathematics, as is done by economists, ing and on doing right things by learning, we to state that the economy can be governed by have to take care of more complex behaviour. advanced mathematics, as is done by Cock- At the same time, we have in the picture of shott and Cottrell. The attempts made in for person–thermometer a comparatively simple example the stock market to use advance structure. mathematical models to decide purchases and The left column in Figure 8 is for us a fairly sales have, to put it mildly, not been success good characteristic of what distinguishes a stories. It worked for a while, but when some- CPE. Therefore, we understand why advocates thing unexpected occurred the computer pro- for CPE like the thermostat picture. What we grammes run amok and contributed to worsen cannot understand is the conception of the the situation. world, the approach to how society works, The democratic governing of the mathemati- which underpin it. A society with the traits cal CPE proposed by the authors is in our view mediated by the thermostat picture is for us a very dubious. The authors write: poor society. “For we envisage a

system in which teams of professional Mathematical socialism economists draw up alternative plans to put before a planning jury which would The method for planning in the “new social- then choose between them. Only the very ism” advocated by Cockshott and Cottrell, is major decisions (the level of taxes, the per- mathematics. They treat for example input- centage of national income going towards tables, linear programming, and com- investment, health, education, etc.) would puter-calculated prices, so-called shadow have to be put to direct popular vote.” prices. But this is not so new. All three meth- (Cockshott & Cotrell 1993) ods can be found in Soviet planning today (Ellman 1972). In the introduction to this book, Planning shall not be under con- academy member Fedorenko writes: trol but under a supervisory committee drawn by lot among all citizens. (Cockshott & Cotrell “This book reflects the main trends in Soviet 1993) planning, who have contributed to a constant,

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This is a combination of an advanced and ex- mense enterprise, it is obvious tremely intricate planning and a management that everything must be precisely calcu- of those doing the planning not being politi- lated.” (Bukharin & Preobrazhinsky) cally founded. We fail to see how this can do This view of the planned socialistic economy anything else than set the stage for an expert as a gigantic enterprise has remained since rule that makes the power held by today’s eco- then. Some uses General Electric to convince nomic experts pale by comparison. of the possibility of CPE. Others follow the Economics is about social relationships cre- same track when they refer to the international ated by humans. Capitalism has given these – planned coordination of the big corporations. man-made – relationships an appearance of But that picture is lop-sided on a number of being laws of nature not possible for man to points: influence. A CPE of the kind proposed by Cockshott and Cottrell can only raise this • It is a difference of size. The biggest capi- alienation to heights hitherto unimagined. talist companies have several hundreds of thousands employees. Even a small CPE For the authors, “” implies a would comprise millions of employees and radical abolishing of all representative democ- a middle-sized one tens of millions. racy – this applies to both parliamentary and council-democratic structures. Instead, they • Capitalistic corporations can be ruled by a want a modern and computerised version of single principle – maximum profitability. the Athenian democracy. For our part, we fail This simplifies the planning tremendously. to see how a democratic form of govern-meant But it is not possible for a society. adapted to 10 000 free men in Athens can functions within the framework of a total CPE • The capitalist corporation can easily get rid comprising tens to hundreds of million people. of the costs for units not fulfilling the plan target. A whole society cannot do that.

• The large corporations are authoritarian or A dead end even totalitarian organisations. Does the The classical Marxists was impressed by the image of the capitalist company tell us any- planning developed by capitalism within the thing on what is possible and desirable in a factories and considered a corresponding plan- democratic organisation? ning of the whole society to be a comparatively It surprises us that the paradigm for how to simple process. The trend-setting socialist govern the economy during socialism contin- standpoint on the society of the future was very ues to be the capitalist corporation – the most clearly expressed of the Russian revolutionar- efficient organisation for exploitation of hu- ies Bucharin and Preobraszjenski in The ABC mans created by mankind! This must be due to of from 1922: that one, like Cockshott & Cottrell, considers “In these circumstances society will be planning of large organisations as mainly a transformed into a huge working organiza- technical problem. Most of us can see the ad- tion for cooperative production. There will vantages of the technical advances done under then be neither disintegration of produc- capitalism. But! Management of big organisa- tion nor . In such a tions is not a technical problem it is a social social order, production will be organized. problem. To use a Marxist language, it appears No longer will one enterprise compete with to us that one confuses the development of the another; the factories, workshops, mines, forces of production and the development of and other productive institutions will all be the relations of production. The gigantic corpo- subdivisions, as it were, of one vast peo- ration groups do not represent a development ple's workshop, which will embrace the en- of the forces of production, but is a part of the tire national economy of production. It is capitalist relations of production. obvious that so comprehensive an organi- It also surprises us that persons, who call zation presupposes a general plan of pro- themselves anti-Stalinists or democratic social- duction. If all the factories and workshops ists refuse to see the development of the CPE together with the whole of agricultural in its historical context. The main explanation production are combined to form an im- for the origin of this system of economic man-

14 agement is that it fitted so well into the main and Engels 150 years ago (this does not mean aspiration of the Stalinist dictatorship – to get that we should not fight to regain free allow- total control over society. ance concerning local transports, health care etc.) All economic changes - from the forced col- lectivisations in the 20:s, the up-speeded five- This leaves us with markets as an important year plans in the 30:s, to the nearly endless governing principal in a socialist economy. numbers of economic reforms from 1960 to the This is a conclusion many have reached. But it end of the 80:s - have been about the control of is often a reluctant conclusion. We have to the economy by the bureaucracy, not on what accept markets, even though we don’t like has been economically rational in the given them, because we cannot find any alternative. situation. It is a sorry state of affairs to have to build a vision on something you really do not like. A planned socialist economy built up during other historical circumstances would have had In our view a socialist vision should not just a completely different appearance. In a democ- accept markets but embrace them. This re- ratic socialism founded on strong, independent quires two changes of mind. Firstly it is neces- and worker-controlled enterprises the special sary to realize that markets and capitalism are economic formation we call CPE would never two different things. Secondly it is necessary to have emerged. replace the neo-classical model of what mar- kets are, with a different concept. To conclude – centrally planned economy is a dead end! Markets and capitalism are two interlinked but distinct processes. Capitalism has taken • It lacks the capacity to adapt to people’s command over markets and it is difficult to tell changing need; after their whims and them apart in today’s real economy. Still, we wishes. think it is necessary to view them as distinctly • Its hierarchical construction makes it hard different social processes. On markets goods to initiate changes from the base. and services are bought and sold. It is a social process of exchange between people. • The lack of horizontal relations prevents adaptation between different production Capitalism on the other hand, is about buying units. and selling companies. It is a social structure of a few having the power over the many. The • Innovation can only be done if planned in historical roots of markets and capitalism are advance, not as a response to an unexpected different (see Braudel 1988), and the logic is situation or discovery. different (see Ljunggren 1998 and Ehrenberg There is no reason to deplore its collapse & Ljunggren 2002). Looking at markets and (but, of course, what has replaced it in Eastern capitalism as two different and even contradic- Europe). To realise this, is a necessary starting tory processes is a first necessary step for not point for the important discussion on how to only accepting markets, but also positively manage a socialist economy. Centrally planned embraces them as a part in a socialist econ- economy is one of the historical failures of omy. mankind. We will not go anywhere by con- It is furthermore necessary to replace the neo- tinue to cling to it, in one form or another. It is classical model of what markets are and how necessary to ponder how to get out of the cul- they work. The neo-classical model represents de-sac. a historically extreme picture of markets (Brunson & Hägg 1992). Researchers in busi- ness studies have long opposed the picture of Accept markets markets as an equilibrium-creating mechanism, What should then be the basic concept of a where companies are passively reacting to democratic socialist economy? The Green changes and thereby spontaneously reaching dream of locally self-subsistent societies is in the most cost-efficient solution. Instead mar- our view a truly reactionary concept. The kets are about active companies that in co- Marxist dream of free allowance is, we be- operation, consciously tries to handle an ever- lieve, further away today then it was to Marx ongoing disequilibria. In doing this markets

15 never reaches a cost-efficient solution. At best the form of direct democracy. In large firms it they can be said to be effective in continuously would be more like a representative democ- finding new means and ends. But this is a racy. Each member (former employee) has a process that is inherently wasteful. (see for vote in electing representatives to what is re- example Johanson 1994, Snehota 1990) placing today’s general meeting of sharehold- ers, which in its turn elects a board of direc- The first point here is that markets are social tors. institutions, which work in a specific historical context. Their way of functioning – good or Those opposing economic democracy usually bad – are dependent on specific historical and rely on one of the following four arguments. social circumstances. Markets in a socialist The first argument is, as we have mentioned economy would probably differ as much from before, that the consumer is king on the market the capitalist markets we see today, as today’s and there is no need for democracy in compa- markets differ from those under . The nies or on the market. This argument relies on second point is that in viewing markets this the neo-classical picture of markets, which way it is not possible to disregard (as neo- simply is not realistic for any socially based classical theory does) the question of who has theory of what markets are about. It simply power on the market. In short, the emerging denies the question of power over markets in social theories of markets as business networks its starting assumptions. gives socialists a strong argument both for seeing markets as a natural part of a socialist A second argument comes from business economy and at the same time arguments for administration theories on marketing. Here economic democracy. markets are viewed as “battlefields”. And no one really thinks a democratic organisation is

workable on a battlefield. Of courses, in capi- Un-owned companies talistically dominated markets there is a strong influence of predetatory behaviour. Our view We have argued that to become a viable vi- is though that markets are not best pictured as sion, the question of economic democracy battlefields. Success on the market is reached must get rid of all thoughts of a centrally be an ability to co-operate with costumers and planned economy and instead point at the posi- suppliers. tive role markets can play in a socialist econ- omy. A third argument is that we already have a democracy. – “stockholder democracy”. But as There are of course a large number of pro- Robert Dahl points out “allocating votes by posals in this direction. It is well beyond the shares would violate a fundamental criterion of scope of this paper to deal with them. Some the democratic process, voting equality among short remarks, though: citizens. Democracy requires that votes of each It is to us impossible to talk about economic citizen be counted equally, a requirement that democracy without the abolition of the private cannot be satisfied by counting vote of each ownership the means of production. We like share of stock equally.” (Dahl 1989) the idea of not replacing the private ownership A fourth argument is that those working in with either state, communal, or worker owner- companies are less competent to elect the man- ship, but with un-owned companies (this idea agement of companies then shareholders are. was as far as we know first raised in Sweden We hear in these arguments all the familiar by Ernst Wigforss 1957). The legal form defences for guardianship against democracy. would be that of economic association. No one owns an economic association. It cannot be In short, the arguments for economic democ- bought or sold. And as the Swedish Nation- racy are exactly the same as those for political alencyklopedin states: democracy, something the radical liberal Robert Dahl has shown brilliantly. “Distinctive of the economic association is that it rests on membership and not on “I have no doubt that many people will contribution of capital” immediately reject the idea of extending the democratic process to business firms as The economic association also rests on one foolish and unrealistic. It may therefore be member on vote. In small firms this could take helpful to recall that not long ago most

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people took it as a matter of self-evident or from capitalists to workers, but should good sense that the idea of applying the also ensure that doctors and capitalists do democratic process to the government of not have the power to define relationships the nation-state was foolish and unrealis- of dominance.” (Kymlicka 1990) tic.” (Dahl 1989) In a marked-based socialist economy, a few Un-owned, democratically governed compa- will become rich, by luck, genius or strive. As nies working on markets can as little as capital- long as this is not a systematic error of some ist firms work well without a considerable groups always getting unfairly much, this is degree of governmental involvement. Many not a great problem. We never met a socialist things are not suited to market solutions (edu- that seriously wants to forbid winning up to a cation, health, infra-structure investments, million euro on the football pools (even though etc.). Markets are also unable to attain politi- it is a point in restricting gambling misuse). cally set goals (correcting differences in re- The issue, however, is to prevent people being gional development, environmental issues, able to inherent wealth in a scale that makes it etc.). So, advocating market solutions for some into power over other people. This calls for a of our economic exchange does by no means confiscatory inheritance tax - above, let’s say mean that we are against reaching politically one million euro. determined goals.

We are not against planning, but we think In defence of political democracy this planning has to be done in a quite different way from that in the centrally planned econo- As one last remark we would like to state that mies. the question of economic democracy in a global economy, also is a question of the sur-

vival of political economy. Once again we take Equality our starting point in radical liberalism. March and Olsen writes, in their book Democratic Abolishing the private ownership of the Governance, that one great change in thinking means of production and a considerable degree about politics took place during the late six- of governmental involvement are two corner- teen’s and early seventeenth centuries. A con- stones of economic democracy and a socialist cept of the society as divine, natural, hierarchi- economy. The third cornerstone is equality. cal and beyond human control was replaced by Markets do not work well with high degrees of a conception of society as created by humans inequality in opportunity and income. They and by their choices. In short the change was will furthermore generate -formations about “a belief in human agency”. This con- when having a high degree of inequality in ception has been the backbone of liberals and wealth. Once again we quote a radical liberal. socialists for more then a hundred years. Will Kymlicka writes that the liberal view of equality; “In recent years visions based on such democratic optimism and conception of “… demands that each person start their modernity have become less prevalent” life with an equal share of society’s re- (March & Olsen 1995) sources, which is a striking attack on the entrenched division of class, race, and Society is once again portrayed as out of hu- gender in our society. Quite radical gov- man control. Now it is not Gods or Nature, but ernment policies might be required to the Market that makes us powerless. Counter- eliminate those entrenched hierarchies – ing this belief (we have called it “the sickness e.g. nationalizing wealth, affirmative ac- of powerlessness” – maktlöshetssjukan) is of tion, worker self-ownership, payment to the outmost importance for the Left. One way homemakers, public health care, free uni- is arguing for economic democracy as an an- versity education, etc. … swer to globalisation and as a necessary de- fence for political democracy. Liberals, therefore, should not only re- distribute income from doctors to nurses,

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Literature Albert, M., & Hahnel, R., Looking forward, for the 21:st century, Boston 1991 Brunsson, N. & Hägg I. (ed.), Marknadens makt, Stockholm 1992. Braudel, F., Kapitalismens dynamik, Värnamo 1988 Bukharin N.I., & Preobrazhensky, E.,: The ABC of Communism. Marxists Internet Archive 2001. Cockshott, W. P. & Cottrell, A., Towards a new socialism, Nottingham 1993 Dahl, R., A., Democracy and its critics, New Haven 1989 Ehrenberg, J., & Ljunggren, S., Ekonomihandboken, Stockholm 2002 Ellman, M., Soviet planning today. Cambridge 1972. Ericson, R. E.; The Classical Soviet-Type Economy: Nature of the system and implications for reform, i Journal of Economic Perspectives, Vol 5, Nr 4, Fall 1991. Fedorenko, N. P.; Economic development and perspective planning, Moskow 1975. Horngren & Foster, Cost accounting - A managerial approach. 1991, p 7. Johanson, J., Internationalization, relationship and network, Uppsala 1994 Johanson, M.; Searching the known, discovering the unknown, Uppsala 2001. Lenin, V. I., The State and , Collected Works, Volume 25. Ljung, J., et al., Företag och marknad, samarbete och konkurrens, Lund 1988 (in Swedish). Ljunggren, S., Marknad och kapital, Stockholm 1998 (in Swedish) March, J., G., & Olsen, J., P., Democratic Governance, New York 1995 Snehota, I., Notes on a theory of business enterprise, Uppsala 1990 Wigforss, Ernst, Vision och verklighet, Stockholm 1967 Trotsky, L., Bulletin of the opposition no 31, 1932, cited by Michael Ellman in Soviet planning today. Cam- bridge 1972.