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June 23, 2019

Is a Planned Economy Possible?

By Dr. Robin Wylie

People's Republic of Walmart

The People’s Republic of Walmart by Leigh Phillips and Michal Rozworski, Verso, 2019.

One of the key arguments against socialism is the market cannot be replaced. Only the market, through price signals, can cope with the complexity of mass production, despite inequality and volatility. Phillips and Rozworski argue – and demonstrate – that economic life can be organized to meet needs rather than profit by planning through a democratic socialist state.

The authors begin with a survey of existing planning by distribution corporations such as Walmart (the world’s largest private company) and Amazon (one half of all online retailing) to show how measures like input/output tables, algorithms for linear programming, and computer databases have created integrated supply management chains that manage demand and supply in mass consumer societies.

So, despite complexity and scale, barriers that capitalist economists have proclaimed to be insurmountable to planning, mass planning does work. Logistic planners are not trying to account for every possible factor and outcome, but plan for ‘good enough’ solutions that work 80% to 95% of the time.

This point is then reinforced by surveys of how planning is used in production and finance, including the role of central banks in setting a planning context for investment, and acting as a backstop when market decisions threaten world depression as in 2008.

They also show where companies like Sears introduced markets within a firm led to dysfunction and bankruptcy.

Non-market allocation is in fact the most efficient, least costly, way to organize production as shown in areas like education and health. The United States market dominated health care system absorbs 17% of GDP – Canada’s public system - only 9%.

But public ownership as a means to efficient planning, whether in the form of Britain’s National Health Service (undermined by internal markets imposed by Conservatives and Labour) or the ‘market socialism’ of the Yugoslavian state (which fostered competition between ethnic republics and a debt that destroyed South Slavic federalism), they argue, won’t be sufficient to allow the new computer assisted mathematical methods to de-commodify the economy or de-carbonize the environment.

The reason why planning, beyond the individual corporation or state agency, can be more inefficient and more costly than the market, and result in horrific man made disasters like the Ukrainian Holomodor or China’s Great Leap Forward, they argue, lie in difficult circumstances (under resourced countries) – and by authoritarian political cultures (such as Stalinism or Maoism) that corrupt the process by adapting to market pressures, whether in the form of economic or military competition.

One of the critical points they repeatedly stress is that authoritarianism is inherently anti-planning in preventing accurate record keeping and consequent rational adjustment whether dealing with unforeseen events or unrealistic goals. Or, more dangerously, mass data becomes a means to mass surveillance as in China. System planning to meet human needs can only work, therefore, in a democratic context, through workers councils.

An Alternative Narrative

To show the origins and possibilities of democratic planning the authors discuss the forces driving national planning from two world wars that led to a Keynesian consensus about the need for state intervention in the market until the reappearance of the 1970s profit crises and the rise of neo-liberalism.

The authors then focus in detail on the socialist take on what could be used from this experience – from Otto Neurath in the German Revolution (from Saxony to the Bavarian Soviet to Austria’s SPO) to the experience of the Russian Revolution, in developing war communism as a crisis management strategy in the civil war, to the New Economic Policy of the 1920s in a compromise with market relations, to the Five Year Plans of Stalin’s Russia. And, in a very interesting extension, the ‘Khrushchev Thaw’ when there was a resumption of debates about more realistic, flexible, and computer assisted planning in the 1960s when the USSR become the world’s second largest economy.

The germ of socialist planning began in 1918 with ‘material balance sheets’ by the Russian Soviet government. How does one reconcile defence needs and food production, just to meet basic nutrition while fighting a civil war?

More significantly for the USSR after winning the civil war, can there be a balance between smallholder farming, the backbone of the economy, and the defence and development needs of the new workers’ state? The gap between the two, expressed in harvest shortfalls in 1926 and 1927 drove the rise of Gosplan (the state planning agency) and the five year plan process based on compulsory collectivization in 1929-30. This was done in such a violent manner that it caused at least 3 million famine deaths in 1931-32, which the authors suggest an enforced food tax, better state prices, and co-operatives may have avoided. But military competition to Stalin, ultimately with Nazi Germany, trumped a more rational, humane approach.

It is in the aftermath of Stalin, in Khrushchev’s experimental era, that the authors see a possibility to revive a rational planning process with decentralization of economic decision making to the republics; consultation with economic actors; a willingness to borrow foreign ideas/technology; and a rebalancing of the relation between town and country with Kolkhov (agricultural collectives) setting initial production goals.

As a consequence, the USSR grew in the 1950s and 60s in terms of housing, education, and health with a space program in advance of the United States with Sputnik in 1957, the first satellite in space, to the first person in space, Yuri Gagarin in 1961. And there was new thinking about computers and linear programming as a cybernetic (the coordination of all systems) method to better plan.

But the regime returned to a conservative leadership with Brezhnev in 1964, stopped cybernetic development to rely instead on oil subsidies, to turn to market relations with Gorbachev in the 1980s – and state collapse by 1991.

Phillips and Rozowski conclude with an example of democratic planning by the Chilean socialist government of Salvador Allende. When the Popular Unity government took power in 1970 it faced two economic challenges – to coordinate a growing public sector and to confront economic sabotage by Chilean business and the United States. Allende’s government created a super public corporation for these tasks, the Chilean Production Development Corporation, with a primitive, but effective, computer/telex cybernetic system. As well, workers created the Cordones (Workplace Councils) to defend their neighbourhoods and workplaces. The combination of the two, measures and organization from above and below stopped the economic counter-revolution in 1972 and Popular Unity won the 1973 election with a greater majority.

A Powerful Argument

This book provides a clear and compelling argument for a non-market economy that can meet human needs based on a century’s experience with planning. Going beyond a moral argument for a socialist future is a major achievement in recovering what is becoming a dim, or non-existent, memory that things have been done differently – and can continue with better planning means.

But as they stress, better methods in the ‘calculation debate’, that market complexity can be tamed and ultimately be replaced, cannot work without a democratic power structure. Otherwise, planning becomes a tool for corporate oligarchy and great power militaries in the service of profit.

While the authors make some questionable assertions: such as the feudal nature of Russian agriculture in the 1920s (see Lenin’s The Development of Capitalism in Russia as a counter argument); ignore the question of Chinese planning (one fifth of humanity); nuclear power as a source of energy in the present; and experts as equal partners of workers; the question of state power to create the space for mass democratic planning is underdeveloped.

The appeal of Chile’s Popular Unity is understandable, a Marxist led socialist government committed to a publicly led economy to meet the majority’s needs – that came to power by democratic election (twice), committed to civil liberties, and working with organs of workers power.

But this is a world of amoral interests driven by profit over people. Popular Unity was crushed physically by counterrevolution in a military coup with American complicity.

We need to know what we are fighting for – a socially owned and directed economy to serve people’s needs rooted in a democratic state that unifies formal rights with the substantive right to control our material existence. But we also need to know how to get there and how to democratically wield the promise of planning. The People’s Republic of Walmart is a useful piece in answering our need to know that another future is possible beyond the market.