The Limits of Socialist Planning

Against the Current, No. 12-13, January-April 1988

Leslie Evans

UNTIL RECENTLY Marxists were generally agreed on what they meant by socialism. From the Communist Manifesto of 1847 through the socialist revolutions that have swept up a third of the human race in the twentieth century, socialism has been taken to mean a system of state ownership of the means of production operated through a planned economy by and on behalf of the working class. Such a system has been envisioned as evolving to a classless society where all citizens have a roughly equal claim on consumer goods, an equal voice in setting policy, and where amassing of private wealth, particularly in productive property, is strictly prohibited.

The capstone in such a guarantee against private monopolies counterposed to the rights of the majority is to be the abolition of money altogether. This would eliminate the very medium of unequal individual accumulation. All citizens would receive a far share of life’s chances, and no special advantages other than those conferred by biology and culture could be passed on through inheritance.

It is true that none of the socialist revolutions of the twentieth century have moved much past the stage of dispersing the old capitalist class and nationalizing large parts of the industrial and financial infrastructure. These societies retain important similarities to capitalism in the form of payment of money wages, distribution of at least consumer goods through money prices, a hierarchical and specialist division of labor, and unequal distribution of wealth. These features were expected in classical Marxist theory and viewed as historically transient hangovers from the capitalist past, with such societies conceived by definition as transitional toward communism.

The extent of bureaucratization and its impact in disenfranchising the working class was not expected. The depth and near universality of such perversions of socialist democracy have posed a standing challenge to the classical paradigm as a whole, though voiced initially by antisocialists. Today even the most doggedly optimistic Marxist would be hard pressed to insist on an automatic affinity between state ownership of the means of production and democratic control of society by the producers.

The Traditional Paradigm

Let us complete the description of the classical paradigm, however, before attempting to reevaluate it. The end product of the transition was to be a single world society of abundance based on permanent full production and free of the waste of the capitalist business cycle, including unemployment (the “reserve army of labor”). This was to be possible because most production, especially of producer goods, was to be matched through a central plan to its end consumers before it was undertaken.

Where that was impractical or misjudged, the state, acting for society, could at least guarantee the distribution of any excess, preventing it from being completely wasted, and step in to reorient excess capacity to some other goal, thus protecting jobs and resources. Because of such central ownership and control over investment and production, all output would remain the property of society. It could, consequently, be distributed equally to all productive members of society (including a fund for society’s unproductive dependents), while permitting, for a time, small differences in reward as a form of incentive.

The expected benefits of a socialist transformation of society have rested largely on the claim that it could eliminate both waste and the sources of unequal accumulation that lead to hardened class differences. Waste is inherent in capitalism because investment and production are not planned. No social organ unites production and consumption as it did in simpler, precapitalist economies of the past. Investment is attracted by high profit rates, indicating unfilled needs (although, because wealth is unequally distributed, the “need” for diamond rings may be more able to express itself in paying customers than the need for childcare centers).

Without any overall control of the amount of investment in a particular commodity, overinvestment is inevitable. As more entrepreneurs flock to produce a hot item, sooner or later some or even most of the product cannot be sold. The labor that went into its creation is wasted. The smaller enterprises go bankrupt. The larger ones lay off workers and close their plants, leading to further waste of society’s productive capacity. Capital then flows into some other commodity that is in short supply and promises a high rate of return, only to repeat the performance when that market becomes saturated.

Periodically such saturation becomes general rather than confined to a portion of productive investment. Then there is a general recession or depression, with still more massive waste. And implicit in the private ownership of the means of production under capitalism is that profit goes only to the individuals who own. Society’s wealth is inherently asymmetric. Power over the labor and resources of society accumulates in fewer and fewer hands at one pole, while at the other the majority of citizens themselves become commodities to be sold on the labor market. They resemble temporary slaves for whom the owner has no long-term responsibilities.

Even where custom and class struggle have won a comfortable living for large parts of the working class, this condition is regarded by the dominant class as a privilege and not a right. It confers no say in the disposition of the owners’ collective property, even though this has engorged the whole birthright of the society at large.

Communist society is intended to strike at the base of this vicious circle, not only by the well-known means of expropriating the capitalist class. Perhaps more central is the matching of inputs to outputs, putting a stop to decentralized investment. This prevents a renewed unequal accumulation of capital in private hands and is expected also to put an end to the most common capitalist forms of overproduction. (Planners can make mistakes on how many pink Hondas will be demanded, too, but at least they have control over the whole supply and don’t have to face ten other companies producing unknown quantities of the same thing.)

Since productive property is now social property instead of the private property of individuals, the right of citizenship includes the right to a vote on how such productive property shall be used. Priorities and allocations of resources are to be a matter of public debate and democratic decision-a virtual impossibility where the citizenry is excluded by law from telling a corporation how to manage its resources.

It should be clear why centralized state planning, until recently, has been presumed to be essential to the achievement of this communist vision-as much by theorists of the democratic socialist left in the West as by academic functionaries of the bureaucratic “state socialist” societies of the Soviet Union, Eastern Europe and China. Although there is much recent discussion of some form of “decentralized socialism,” classical Marxist theory, certainly since Lenin’s time, rejected such a possibility as anything more than a temporary expedient under conditions of weakness of the socialized productive forces.

Probably most of the evils of capitalism diagnosed by Marx in Capital flow from the decentralized character of investment, production, and income distribution as much as they do from the fact that the units that own the property are individual persons or families (capitalists). If groups of workers-the famous factory councils of Antonio Gramsci’s council communism-are substituted for capitalist corporations as the owners of industry, each council continues to run its factories in competition with those of all the other councils. It produces for an unknown market just as under capitalism. It must compete with all other such units to find a market for its commodities.

This means differential rates of success and failure in the marketplace, differential rates of accumulation of wealth, periodic crises of overproduction, accumulation of “capital” by successful councils and bankruptcies by the unsuccessful ones. Along this road lie corporate mergers into conglomerates at one pole and pauperization at the other.

To succeed in such a situation, no council could afford to ignore considerations of effective money demand. Just as in capitalist societies, social needs would have to compete for resources with the surer investments in products appealing to the1ury consumption of the more successful layers of administrators and professionals.

Economic planning, if workable at all, would have sharp limitations where most productive property was under control of workers’ councils that were permitted to democratically change their product line, output targets, prices, suppliers, and end consumers to respond to sales opportunities or cost efficiencies as perceived at the factory level.

From this traditional posing of the issues, the now­popular term “market socialism,” if it refers to anything but some temporary expedient imposed by economic backwardness, can only be a contradiction in terms. If it is socialist, investment must be directed by conscious decision of the citizens and their representatives, not by the vagaries of the paying market. If the market decides productive goals, the resultis not a planned economy and therefore not socialist.

Deng & Gorbachev Take the Yellow Brick Road

Since the Stalinist counterrevolution in the 1920s and the collapse of the Bolshevik experiment in Russia into an obscurantist totalitarian police .state, the socialist and communist left in the West has had a difficult time deciding what to make of the experience of “socialist planning” in the Soviet Union, and later Eastern Europe, China and Cuba.

The general consensus among the democratic left has been to deny that anything much can be learned from Soviet planning because of the endemic lack of democracy in the system, robbing the workers of incentive to do better. Theoretical attempts to probe the structural determinants of a statized property system have never produced the equivalent of the voluminous Marxist literature on the structural characteristics of capitalism as a mode of production. Most of the discussion has followed the direction opened by Leon Trotsky in the 1930s, concentrating on studies of status differentiation in Soviet -society to demonstrate a class or caste basis of the ruling bureaucracy.

This was quite natural given the historical infancy of such societies (with some qualifications I will come to). But with the seventieth anniversary of the Russian Revolution now behind us, more of the ligaments of this system are visible than fifty years ago when Trotsky published The Revolution Betrayed.

The most striking development of the recent period has been the relative stagnation of the statized economies in contrast with the supposedly moribund capitalist states of North America, Western Europe, and Japan-or even South Korea, Taiwan, and Brazil. Plainly in its universality and indifference to regimes, leading personalities, countries, cultural contexts, and continents, some central structural characteristic of the system is here at work.

Equally striking is the increasingly unanimous perception by citizens and functionaries alike in these societies that the cause of the .stagnation is to be found in two factors: (1) the unworkability of wholesale central planning, and (2) the lack of democracy of the system. The socialist left has focused its attention almost exclusively on the second point for sixty years. The assertion that central planning is the prime culprit, however, and even a paramount cause of the lack of democracy itself, seems immediately suspect to anyone raised in the classic Marxist tradition.

Reactionaries have been saying this since the French Revolution. Why should we take it seriously just because Stalinist officials now repeat it?

Still, these officials have an intimate knowledge of the practicalities of trying to supply machine tools to Vladivostok, women’s -dresses to Sian, wearable shoes to Budapest, and public housing to Leningrad. If they are correct, and if, therefore, the democratic .socialist commitment lo centralized state planning rests on ignorance of the structural consequences of such a decision, the out-of-power left would doom itself, if successful, to repeat the terrible bureaucratic-experience of these same countries if it blindly recreated the conditions that brought Stalinism about.

In the 1960s the Chinese Communist Party, which was viewed from the outside as monolithic, split -over this very question. At that time, the Mao faction triumphed over its opponents in the party and government leadership. The Mao group defended central planning. It also evolved a set of distinctive. policies that became the focus of most discussion of the “Great Proletarian Cultural Revolution.” These promoted a fanaticized and bureaucratically managed mass mobilization thought to be able to concentrate human resources to compensate for technological backwardness and the growing problems with the centrally planned economy.

Much of the Western left mistakenly endorsed the manipulated Maoist rallies as a form of participatory democracy. These were, instead, a form of mob terror by the largest religious cult of -modern times, as a mountain of testimony from China has since proved beyond all serious doubt.

I would suggest today that one hypothesis explaining why an emancipating social revolution threw up an obscarantis religious cult among its central leaders is that the revolutionary leadership had undertaken tasks that it found impossible to carry out. Unable, given its world view, to admit this impossibility, the faction of the party leadership that committed itself to push ahead along the line of state control over society’s economic life found itself more and more compelled to suppress doubt in its own ranks. It struggled to discredit alternative interpretations of the reality it faced, to strive by superhuman efforts to impose its view of the situation on an increasingly dubious and disaffected populace. It is possible that something similar played a larger role than hitherto supposed in the madness of the Stalinist purges in the Soviet Union in the 1930s and 1940s.

But even most of the minority on the left, such as this writer, who condemned the Cultural Revolution, missed a crucial element of the debate. Mao in 1966 accused China’s president, Liu Shaoqi, of “taking the capitalist road.” I, for one, saw this as factional excess and described the fight as between mass mobilizers and Soviet­style central planners. It was only some years after the fall of the Mao group that it became clear that the Liu Shaoqi/Deng Xiaoping faction had really proposed returning massive elements of the Chinese economy to private hands and restricting central planning to heavy industry and social welfare sectors.

With the complete triumph of these market reformers at the Thirteenth Central Committee meeting in the fall of 1987 and the forced retirement of Soviet-style central planners such as Chen Yun, China has clearly been set on the road of a non-centrally planned experiment quite at variance with the classical concept of a transition toward communism.

It might be merely the idiosyncratic conviction of a small group of leaders to try such an experiment in China. That the longest and firmest opponents of market experiments, the Soviet leadership itself, has under Mikhail Gorbachev set off on the same road in search of hoped for riches marks a historic turn in the character of the statized socialist economies. It is obligatory, then, to examine without prejudice or preconception the claim that central planning is unworkable and the essential fount of bureaucratic abuse of power.

The Theory of Market Socialism

Since the 1930s an increasingly vocal minority within the Marxist and socialist camp in the West have demanded a fundamental reappraisal of the classic centralist paradigm. These critics, who for convenience can be called market socialists, maintain that neither the resources nor the planning techniques exist on the planet to create a communist society, now or in the foreseeable future. Attempts to move in this direction without an adequate material basis, they say, leads on the one hand to perpetual economic inefficiency and stagnation, and on the other, to inevitable uncontrolled bureaucratic dictatorship.

As an alternative they propose what amounts to a permanent mixed economy: a portion of heavy industry, finance, and social services to be owned and planned by the state; a large section of intermediate industry to be placed under nominal state ownership but to be allowed to freely compete in the marketplace much in the manner of capitalist enterprises, receiving little or no direction from social planners; and an important small business sector that would remain fully private.

This proposal is not a small technical modification of socialist theory. It implies the retention of investment decision powerfully influenced by profit. In Marxist terms it posits the continued operation of the law of value as a shaper of society’s priorities. It implies the continued existence of the well-known forms of capitalist waste through competition and overproduction inherent in such decentralized investment decisions. And, most dangerous of all, income for perhaps a majority of citizens would be determined by the profitability of particular firms, as under capitalism, rather than as an equal share of the whole social product. This means inequality and a permanent pressure toward the formation of new privileged classes.

This is not a. slow risk over several generations. While the Marxist left in the West has berated the Chinese state bureaucracy for years for its consumption privileges, in less than a decade of the market reforms, peasant chicken farmers, truck leasers, and other sharp traders have won for themselves incomes that are the envy of even top government ministers in the People’s Republic.

In the villages, where the process has gone further than in the cities because of the ready access to individual small-scale means of production, new class divisions have appeared between rich and poor peasants. Public jealousies over money; hired labor, often at starvation wages and without the most rudimentary safety measures; large homes contrasted to tiny shanties-many of the features that were the stock-in-trade of leftist criticism of the old society have reappeared in just a few years. They are tolerated by the masses as well as by the ruling party because of the recent memories of the far worse poverty, regimentation and brutality of the Maoist Cultural Revolution.

Only the most gullible could believe that “market socialism” is a purely economic formula to increase socialist prosperity. It brings with it, almost instantly and visibly, a substantial measrure of injustice, of poverty at on pole to balance the successful entrepreneurs at the other. And it throws individuals and families back onto their own resources in an economic struggle of all against all.

Even if mitigated by social controls and welfare measures, this thrust toward building little private empires and petty businesses will surely work against the sense of collective enterprise and social community that was always among the strongest appeals of classical socialism. There should be no doubt, either, that the new class of small entrepreneurs will seek legal and political protection of their property and look for ways to prevent the socialist state from interfering in their businesses.

That this is a minimalist version of socialism goes without saying. The market theorists do not deny this. But they argue that attempts to realize communism will fail, leaving the real choice between their class-divided mixed economy and a Stalinist bureaucratic tyranny.

Can We Learn From Existing States?

There are a number of reasons found convincing by the Western non-Stalinist left to disallow the governments of the Soviet Union, China and Eastern Europe as a serious test of the possibilities of socialism. Historically all of them arose in relatively undeveloped countries that lacked the large working class, the level of material wealth, or the security from hostile foreign capitalist powers to expect planning, workers’ democracy, or egalitarianism to operate smoothly, if at all.

As a result of these presumptive causes, by the mid-1920s a hardened privileged social strata had arisen within the Soviet Union under the protection of the Stalin faction of the Communist Party. This formation -­ whether one calls it a new ruling class or, more hesitantly, a caste, as Trotsky did — ruthlessly repressed the Soviet working class, consolidated a complete political monopoly over the party and government, took for itself an inflated share of the national income, and imposed serf-like conditions on the Russian peasantry.

Under these circumstances the direction of Soviet society was powerfully shaped by the needs of the bureaucracy rather than those of the society as a whole. But the abolition of the market presumably frees society for the most part from any automatic laws of motion or regulators. Under such conditions the direction chosen by those in command has greater weight in shaping the direction of development than in any previous society. It would seem that a change in leadership and a new set of priorities could be expected to radically alter any existing patterns.

Finally, there is no clear comparative basis to use to distinguish the relative effects of the different variables: all subsequent socialist revolutions after the Stalin debacle have been in countries outside of the heartland of industrial development. All except the Cuban and Nicaraguan revolutions have been controlled by parties socialized into the Stalinist movement and therefore disposed to replicate the Russian choices to one degree or another even if their actual ties to the Soviet Union were broken. And even the Cubans have been dependent on the USSR for essential aid and been compelled to pay for it by accepting and promoting many of the shibboleths of Stalinized communism.

Reluctant to identify these states as socialist at all, many Western Marxists have chosen to counterpose to them proposals for democratization and wage-leveling within a context of continuing the centrally planned economy (Trotsky, 1945; Ernest Mandel, 1968).

The market-socialist theorists contend that objective reasons prevent true democratization of any central­planning structure. These built-in restrictions would quickly gut provisions for popular control no matter how sincerely established or how rigorously policed. Even after allowing for all of the considerations that make generalizations from existing state socialist societies problematic, they maintain that a considerable amount is known about the effects of planning versus markets as regulators of production and distribution. They conclude that central planning has a strong affinity for bureaucrat&ic states of the Stalinist type no matter what the intentions or purely political/ democratic safeguards one tries to build in.

Perhaps the most cogent proponent of the market model is Alec Nove, a well-known British specialist in Soviet economic history. Nove puts the matter bluntly in his The Economics of Feasible Socialism: “As an economist, I have been struck by the fact that the functional logic of centralised planning ‘fits’ far too easily into the practice of centralised despotism.” (1983, ix)

Nove is a socialist but not a Marxist. His purpose is not to defend capitalism as a superior system, which he vigorously denies, but to persuade Marxists to abandon attempts to place the whole of the productive forces under the command of the state. His book is intended as a dialogue with Western Marxists already in disagreement with traditional Soviet-style socialism, and with party and government officials in China, Yugoslavia, Hungary, and now the Soviet Union itself, who have begun experiments with decentralization and market forces.

The implication in accepting Nove’s view is that privilege of the leading group and lack of formal democratic rights for the ranks were not the essential causes of bureaucratization. The bureaucracy is a function (1) of the tasks the state has set itself, contrasted to the means at its disposal to carry them out, and (2) the lack of practical power by everyone outside of the central planning apparatus over real resources and property-a lack that plebiscitary votes cannot overcome.

If this is true, then one must accept as a valid part of the discussion of socialism the actual experience of the Soviet Union and examine it in detail. One must treat the Soviet-model states as in some sense socialist societies-a difficult shift in perspective for Marxists who have chosen to characterize these states as new class-dominated societies under the names of bureaucratic collectivism or state capitalism.

How Can Needs and Costs Be Measured?

The phrase “production for need” abounds in Marxist literature. In a famous debate in the 1930s, the question arose, how is it possible to define need without money in a complex economy? Money, after all, is for Marx the universal equivalent, the measure of the socially necessary labor time embodied in all the other commodities. Without money, how will relative costs be compared? How will the comparative intensity of needs be measured? This argument was elaborated by procapitalist economist Ludwig von Mises (1951, originally published 1932) as a proof of the impossibility of socialism.

By this time research on planning methods and theoretical economics had been discontinued in the Soviet Union (Lewin 1974, 58-59). So the challenge was taken up by a Polish economist teaching at the University of California. Oskar Lange, in perhaps the first formulation of market­socialist theory, argued that the law of supply and demand could be used by central planners as well as by individual entrepreneurs to set prices that reflected, as well as practicable, costs of production mediated by consumer needs (the ultimate verification of the socially necessary quality of the labor involved).

This would work, provided that factory managers, in addition to being given output targets for their products, were also permitted to negotiate the lowest mix of costs for their inputs. It would also be necessary for the central planners to agree to review prices frequently and to lower those for products showing a surplus and raise those for products that were in short supply. In this system, accounting would reflect the preferences of the ultimate consumers, as prices are adjusted to consumer spending patterns, which in turn guide further investment (Lange, 1938: 87-90).

The system would theoretically balance at effective costs even in a very centralized application, where people were assigned their jobs and told what to consume through rationing. The accounting in that case, however, “reflects the preferences of the bureaucrats in the Central Planning Board, instead of those of the consumers” (Lange 1938, 91).

But even here, managers had to be instructed to choose the lowest cost for each factor of production and produce no more than could be accounted for at a price equaling marginal cost. That is, they had to have considerable freedom to choose between suppliers and to take demand into consideration in setting output totals and prices for finished goods. If these conditions were not met-and they were never met in the Soviet Union-inputs and outputs could only be priced arbitrarily by the planners, allocated by rationing to the productive units, and the final product presented to the ultimate consumer at a fixed price that no longer reflected real costs.

In this case, intermediate producers had no means at all to express their needs except through letters to the central planners or by failing in their output targets. Even ultimate consumers would have little opportunity to use their purchases to express real social needs, since prices could radically diverge from true costs. If, for example, trousers were priced at a month’s pay (not far from the truth in the Soviet Union of the 1930s), unsold trousers could mean there was no need for them, or that they were simply priced disproportionately to the labor time that went into their production.

In this case, Lange said, the economy could retain consistency by matching inputs to outputs, but it would lose any means to measure efficiency (1938, 94). By efficiency, Lange had in mind not the organization of labor in a given firm, but the availability to planners of prices that reflected real comparative costs for alternative choices. Where prices do not reflect either relative scarcity of inputs or need for particular outputs (socially necessary labor time, not just the costs of the labor used to make the product), planners have no practical means to deter­ mine the costs to society of other ways of doing things. This implies massive waste.

Nor can planners tell if any particular product is priced too high or too low. If too high, even a pressing social need may go fully or partially unmet because consumers will not buy their ration. If too low, the state may waste even very large resources by providing expensive materials at a low price when truly cheaper materials would serve just as well. If managers (or, in our democratic variant, factory committees) are prohibited from changing suppliers to hold down costs or from changing output totals and sales prices to match demand, then at best physical totals could be matched, but neither real costs nor real needs could be determined.

Lange’s alternative, however, would restore much of the decentralized investment decision-making that central planning had been instituted to eliminate in the first place. For this reason it was rejected by the Soviet party, which controlled the planning process, and by most Western Marxists as well, even those highly critical of Soviet practice (Mandel 1968, 662-63).

The failure to develop an accurate pricing mechanism to replace that of the capitalist market has more serious effects than might at first be apparent. Orthodox Marxist democrats might be inclined here to shake their heads and say, “Isn’t it inevitable that a socialist economy will be less efficient than a capitalist one, because capitalism is based on squeezing the workers? Better an inefficient democracy than an efficient capitalism.”

The difficulty is this. The Teal meaning of prices as a measure of costs appears only when there are comparative prices. These are established on a society-wide basis in capitalist and precapitalist systems because each unit engaged in production for exchange can shop among several suppliers for some or all of its inputs.

‘The main exception has always been monopoly, which can demand a disproportionate share of the social surplus product because there is no alternative supplier. Under allocational planning all suppliers are, in effect, monopolies. Comparative shopping, at ieast by intermediate producers such as factories, is not permitted because it would invalidate the plan.

For example, the planner has been promised a ton of number 10 nails from producer X. The planner then matches these to consumers: 100 pounds to a construction project in Kiev; 50 pounds to a prefabricated housing plant in Novosibirsk; 25 pounds to a domestic hardware distributor in Archangel, and so on. For the plan to operate, the planning office cannot permit the nail manufacturer to divert the 100 pounds of nails destined for Kiev to a higher-paying customer in Moscow. Nor can the planner permit the Kiev construction firm to cancel its order because it has found a cheaper local supplier.

But in exchange for the efficiency of being able to match all producers with customers, allocational state planning acquires the inefficiency of losing comparative shopping by all producer units. The prices of all commodities rapidly acquire an artificial, customary character. They are not lowered by superior technique or greater abundance of raw materials and only occasionally raised because of effective shortages.

After a time, the real costs, if production of everything become unknown. And because horizontal agreements with alternative suppliers would destroy the plan, all producers become dependent on the planning office for all of their supplies. This is a classic case of a captive market, but now extended to the whole economy.

This necessarily radically diminishes the buyer’s leverage to reject materials because of inferior quality, late delivery, or excessive price. If you reject a shipment there is no place but the same supplier to go to get a replacement. As a result, consumers, including industrial enterprises, have very little power over their suppliers compared to buyers in capitalist economies.

That does not mean there is no system of rewards and punishments, of promotions and demotions, facing Soviet managers. It simply means that effective power in the system gravitates upward: the state planning agencies, not the consumers, make the judgments on whether a manager has done well or poorly. Consequently, producers at every level of the productive chain keep their eyes focused upwards, on meeting the requirements of the units that direct them administratively, rather than downward, toward the units they supply with products.

Since customers are effectively at the mercy of their suppliers, they are naturally reluctant to annoy them by filing complaints. This makes the job of the central planner still more difficult, as the feedback on which judgment of managerial performance must be made is distorted.

In incorporating factories into the national plan, the government planning apparatus undertakes the responsibility of supplying that factory with all of its required materials — on time and in the correct quantities and condition. It contracts also to dispose of the whole output of the factory at predetermined prices and find all of the consumers necessary to do this. And once promised, the state planner cannot permit the local units to back out of or evade the agreement or the whole matched set risks falling apart. This places an enormous responsibility on the government planning apparatus — the theorists of market socialism would say, an impossible responsibility.

It has meant in practice that the state must come up with the raw materials, funds, labor, machinery, and even customers for every enterprise. It is imperative that every unit produce its quota on line as failure will bottleneck the next stage of the production process to which their output contributes. Extensive surveillance and po1ice efforts are required to stop the natural efforts of enterprise officials trying to succeed in their jobs from evading aspects of the plan in order to do so.

When some item (or aspect of the process is overlooked, the enterprise that is shorted turns to the planning apparatus to demand satisfaction. A mountain of paperwork flows upwards: complaints about late deliveries; requests to renegotiate the agreed-on quotas because of unforeseen difficulties, requiring canvassing other producers to make up the shortfall; applications for additional labor for new machines, for more raw materials; protests over poor quality.

The planners become buried in paperwork involving decisions they are fundamentally unqualified to make, asking for resources they do not have at their disposal to give. Does the steelworks in Gorki really need a new #10 klln as the manager claims, or can the old one be upgraded? Is this complaint about substandard enamels from the Kharkov glassworks legitimate, in which case action should be undertaken against the supplier, or is it a cover by the glassworks manager for his incompetent handling of the shift rotation system, preparing a dossier to excuse his impending failure to make his quota? Can the repairs of the suspension bridge spanning the Volga at Astrakhan be made with braided steel cable from the local metal fiber works or is engineer Strakhov correct that these are inadequate and a special allocation from the Moskow central stores should be approved?

The massive Siberian coal gasification complex scheduled to begin operations next fall reports that it failed to include in its requisition for this five-year plan an electric power station for 30,000 units of workers’ housing. Unless materials for this are found immediately, operation will be delayed a full year. There are no materials or free labor to construct such a power station, but the Riga shipyards is depending on shipments of natural gas from the Siberian complex for all of its winter heating needs this winter.

As the paper mountain grows taller, the officials devise a system of priorities and sort the papers into categories. Life and death needs, state security, the military, and the special projects of powerful Politburo members get first attention. Bigger units are easier to deal with than a multitude of small ones. The complaints of the thousands of local machine shops, state farms, shoe distributors, and small-scale manufacturing plants end up in a basket to be handled when things are a little quieter. Eventually a directive comes down insisting that this backlog be cleared. A day is set aside in which 500 documents are scanned, initialed, approved, disapproved, their contents a blur. Six months later a toaster factory in Minsk, its request for exchanges turned down, ships 20,000 toasters with coils that burn out the third time they are used. It marks its quota as overfulfilled for the present year, and the manager and workers celebrate by holding a picnic with some of their bonus payment.

The thing to note about this setup, which is not much exaggerated, is that the hypothesis of Stalinist dictatorship is not essential to explain its general failure. Imagine, in keeping with the program of the democratic left, that the political system is multipartied; the press is free; the planners are democratically elected; the plan itself is submitted to the voters for approval; and in each factory a workers’ council elects the manager, votes on all policy decisions, and conducts relations with the central planning board. Even add for good measure that the planners make frequent on-site inspections and that consumer surveys are widely used to help decide product lines and styles. It would operate substantially the same.

If the factory committee has the power to choose new suppliers, products, prices, or consumers, then they override the plan. But it was the national plan that was approved by the voters, not the changes made in it by some local factory. And if each factory is free to make changes, there is no plan. But as one moves away from the enterprise level, the knowledge needed to make an intelligent decision becomes sparser and sparser. More accurately, there is knowledge of different kinds, differentiated by levels. Planners, who know national needs and global markets in a way that no local factory can, do not and cannot have sufficiently detailed knowledge of local processes to make certain decisions that a national plan obligates them to make anyway.

The situation could be summed up by stating that in all previous economies involving populations of any size, production and distribution decisions are made at millions of points in the economy. Some decisions, such as establishing a national railway network or building an oil pipeline, are efficiently made and administered at a centralized governmental level.

But a majority of decisions can only be made intelligently at the point of production, not in an office thousands of miles away. And because every step of the process usually raises new questions and issues, efficient and democratic economic decision-making must have the capacity to change targets of various kinds rapidly in midstream. Such flexibility, however, is not compatible with allocational planning.

The essential problem of the Soviet economy lies in its pushing too many decisions too far away from the place in the economy where the knowledge to make them intelligently exists and in substituting a numerically small planning cadre for the actual producers themselves.

Let us look more closely at the planning mechanism in the Soviet Union to see if this unflattering description of its capacities-but partial exoneration of its human administrators-is fair. Let’s examine the question whether a task Marxists have always assumed to be merely technical might prove beyond the capacity of present-day society after all.

Soviet Economy: How Much Is Planned?

It is customary for some Western Marxists to describe the Soviet Union as having a planned economy, and to point to the superiorities of this economy over unplanned capitalism. These advantages include its ability to avoid periodic recessions and to allocate extensive social goods and services such as low rent, free medical care and education, and large-scale public transportation.

In this discussion it is necessary to give greater precision to the term “planned economy.” In particular it is important to distinguish between state ownership in-and-of itself and true planning. That is, if the plan was capable of verifying needs and preferences at every level of the economy, from the heavy industries to the retail shops and their customers, no one would notice the loss of the market regulator with its well-known distortions through the power of money to command production. We have a sufficiently detailed picture of the Soviet economy today to indicate in what ways it has not succeeded in developing such a mechanism, a failure that underlies the Gorbachev reforms.

State ownership and input/output tables do not in themselves constitute a balanced national economy. Stalinist central planning operated by a simple rule. It surveyed each existing plant to verify what it had produced the previous year. Using this as a basis, a new target was set for the following year through negotiations with the plant manager. These targets, once written into the plan, were binding by law. The profit from the plant’s output was returned to the state, which concentrated most new investment in additional heavy industrial plants.

A large portion of the national income was allocated to savings and reinvestment by the simple expedient of keeping wages very low. Workers were kept from starving by setting prices for a small list of essentials-rent, medical care, bread-quite low through state subsidies, but the prices of all other goods were drastically raised, to match, in their total, the remaining aggregate wages paid in a year. This last step discouraged inflation and the black market by sopping up workers’ wages in steep prices for goods that, while essential, only needed to be replaced occasionally, such as clothes and shoes.

To secure stable but politically determined prices Soviet planners rejected the idea of allowing them to follow consumer preferences. Over time, however, actual enterprise costs shifted independently of the plan, as raw materials because abundant or scarce. Similarly, consumer demand shifted from plan expectations.

The state accommodated this without raising “prices” by means of a turnover tax, an amount that was often one-third to two-thirds the price of the commodity, and which was applied either to producer goods or to consumer goods to regulate demand. If production costs decreased, the turnover tax was raised to absorb the excess profit; if costs increased, the tax was lowered to preserve the planned profit rate.

Similarly in the retail market, as demand increased, the turnover tax was raised. This in effect meant that instead of increasing the supply of consumer goods to meet demand, prices (here, taxes) were raised to the point where demand fell off. By interposing the turnover tax between enterprise and consumer it became difficult for anyone, planner or enterprise director, to estimate real relative costs or actual demand.

Retail prices bore little resemblance to actual costs, and inflated prices artificially reduced “demand,” if by this is meant actual social ne ds at a given cost of production. Since sales prices did not reflect costs anyway, enterprises tended to retain production methods after they became more expensive than other possibilities. (See a discussion of the turnover tax in Wilczynski 1972, 214-226.)

Freed from considerations of costs, and prohibited from looking for new processes or suppliers anyway, except for innovations kept entirely within their factory walls, the factories ceased to be centers of technical innovation. But harassed government planners with little technical experience in real production were a poor substitute. Whole branches of industry were simply over­ looked, and for decades, in drafting five-year plans.

Possibilities and interconnections grasped in the West, because competition and decentralization permitted a kind of spontaneous and rapid innovation, were lost on Soviet planners. At root, after finding out what each existing factory could make and settling on a few hundred new target projects, no one in the Soviet Union could conceptualize or formulate a working model of the whole dynamic economic organism.

Moshe Lewin indicates a few of the imbalances that resulted from the lack of a coherent overall plan (that is, a theory of what would contribute to future growth):

“Some of the signals pointing to misdirection of resources and to an unfavorable structure included the neglect of agriculture; the emphasis given to construction materials and mining at the expense of machine building; the mining of coal at the expense of petroleum extraction; the building of huge hydroelectrical stations at the expense of thermal stations; the relative weakness of the light industries (which absorb less capital); and the small share of investment in chemistry and electronics.” (1974, 151)

One can laugh at the Soviet planners because we have Western capitalist economies as a comparative experience to validate the worth of machine building, petroleum extraction, consumer-goods industries, chemistry and elec­ tronics. But in a world socialist society, all under a single plan, how would one argue for alternative mixes of industries?

Again, it would be too facile lo place the blame for this crude approach entirely on Stalinism. Recognizing the absence of even an effort at integrated growth planning in the Soviet Union does not imply that such an integrated plan could be produced at the will of any democratic and technically astute leadership.

Anyone who has looked even sketchily at present-day American computer economic modeling would instantly see why. It is possible to make proportional lists of many millions of presently produced products. But in trying to predict future growth rates and the potential contribution of particular elements to them, only a handful, perhaps a few dozen or few hundred of real life’s thousands of variables and combinations can be considered. And that in an often lifeless, speculative manner.

In the Soviet case, no market existed to make the needs of neglected sectors felt, but the plan proved unable to come up with any substitute criterion that could take the needed balances into account. In practice a key determinant of priorities was-and remains-the relative influence of particular departments and particular officials. In effect this amounts to a lobbying procedure for determining priorities, with the officials lower in the hierarchy being slighted.

Nove gives as an example a complaint by Leonid Brezhnev of a chronic shortage of minor items such as toothbrushes. Nove comments:

“Who, then, is responsible for toothbrushes? One must suppose that the official is a fairly junior one. So, under conditions of shortage, in the competition for scarce resources he or she carried less weight than a more senior official in charge of, say, wool cloth or electronics. With too many items to handle, the planning mechanism inevitably tends to identify some as priority.” (1983, 79)

In a system of planned inputs and outputs, enterprise managers, whether they are individual technocrats, party bureaucrats, or an elected workers’ committee, are accountable to higher officials for fulfillment of the plan’s criteria. Nove suggests that Marxists have not been wrong to see potential efficiencies and advantages to such public control. But, he cautions, it is only effective in a narrow range of cases, not across the board as classical Marxism presumed. It is necessary to differentiate enterprises by scale and by product type rather than adopt a general judgment of state planning as efficient or inefficient.

Clearly there are many enterprises that function perfectly well under state ownership and planning even in the capitalist United States. Nove suggests that those sec­ tors that have a uniform product that requires large-scale facilities and centralized decision making are most suit­ able to such administration. He suggests examples such as a central bank, power generation, the railroads, steel, oil, petrochemicals (1983, 201).

Measuring Enterprise Performance

The Soviet experience seems to indicate that in firms that handle more diverse product lines, planning criteria not tied to a single multidimensional measure such as profitability have produced a repetitive pattern of waste and inefficiency that has counteracted most of the expected increases in productivity promised by eliminating the built-in slack of the capitalist system.

In a capitalist economy the nominal regulator is profit. Maximizing profit is done by cutting costs, resulting in enterprise efficiency. Socialist economies, after ensuring that wage levels and social services protect workers from cost cutters, are no less under an obligation to reduce unnecessary costs and produce as efficiently as possible.

“Profit” is a neat overall category that provides a bottom line of all expenses, balanced against actual demand for the product. Soviet planners until now, through arbitrary pricing policies, have made it largely impractical to use profit as a meaningful accounting measure. For almost sixty years, from the beginning of the First Five Year Plan in 1929 until the start of the Gorbachev reforms, they sought without any clear success for some indices of accountability that would allow central planners to control both the quantity and quality of enterprise output quotas.

The traditional Soviet index has been a physical output quota. The manager, quite naturally, seeks to maximize the chance of success in meeting this legal standard by setting the quota well within the feasible range and by asking for the maximum allowable resources with which to complete it: as much labor, machinery, raw materials, and state credit as the central planners will allow for his or her enterprise.

The result has been a history of unused capacity, although for different reasons than in capitalist society. The social costs are not so high in terms of unemployment, since the slack does not include a permanent underclass of reserve workers. But neither are the resources available, after all, for dramatically higher growth rates than in the capitalist economies without placing a heavy squeeze on the consumption standards of the working class.

Many Western Marxists at this point are likely to bring forth spontaneously the demand to finance expansion out of the consumption privileges of the bureaucracy. Here the tendency to equate East and West can play one false. Monstrous as the Soviet bureaucracy has been from the standpoint of political democracy, its pilfering from society’s output is on a far smaller scale than its capitalist counterpart in the West.

There has been a dramatic lowering of wage differentials as industrialization, proletarianization, and the growth of white-collar sectors have advanced in recent decades. By the late 1970s, when the income differential between the wealthiest Americans and the average U.S. wage had reached 7,000 to one, it had fallen in the Soviet Union to well under 100 to 1 and perhaps under 20 to 1. Estimates by some informed Western scholars put the total for wages and the famous nonwage privileges and special stores still at a modest 8 to 1 level (a handful of the highest officials and entertainment stars are at the 15 to 1 level).

Furthermore, the Soviet elite remains very small. In the early 1970s, when the labor force was 113 million, with an average wage of 130 rubles a month, only 227,000 persons had an income above 500 rubles. The top pay for central government officials ranged from 900 rubles a month for a first party secretary to 2,000 for a Soviet Army marshall (Lane 1982, 57-58).

Since Soviet consumers, including industrial consumers, have little pull, which planners know very well, the planners themselves have sought to build in some index of quality control. On the whole, this has failed.

When planning targets have been stated in terms of raw physical output totals, these have been the main goal met by enterprises, with quality a distant second. When value of output was used, managers in various ways bent their product mix and material lists to favor more expensive raw materials. Experiments using value added in production resulted in a manager shift toward an unnecessary use of labor (labor-time was the measure used to establish added value), or concentration on labor-intensive articles within the plan. Bonuses for technical innovation, product diversification, and quality improvement prompted a manager concentration on these aspects, but in turn resulted in a neglect of the central indices of quantitative production (see Wilczynski 1972).

This is not to say that the planned economies, even in their bureaucratic and centralist form, have been complete failures. They have not matched the most successful of the advanced or Third World capitalist economies either in diversity or rate of growth. But neither have they stagnated as badly as many of the Third World nations outside of the successful few that have broken through into modernization.

Between 1950 and 1970, the share of total world industrial production accounted for by the Soviet Union and the seven other East European state-socialist economies (excepting Albania) grew from 18 percent to over 30 percent (Wilczynski 1972, 20). Wilczynski cautions that these official figures are probably somewhat exaggerated on the Soviet side because of inflated prices for many consumer goods to achieve domestic political goals.

These advances in industrialization are not, however, largely a consequence of a greater productivity of statized resources predicted by traditional Marxists. For the most part they must be explained by the ability of the state to decree a higher rate of social savings and investment at the cost of a lower standard of living. Wilczynski estimates that the Eastern European state-socialist economies invest 10 percent more of the G.N.P. than the average in the capitalist West. Wilczynski summarizes some of the costs of this policy that linger to the present day:

“There are inadequate supplies of many consumer goods, such as tea, coffee, meat, fancy foods, modem household gadgets and various luxuries. Queues in shops and long waiting lists for housing, cars and some other consumer durables are familiar features, as are black markets …. The quality of industrial products is usually below the levels in the industrialized capitalist countries. Housing is not only scarce, but the dwellings also have small living space and are poorly equipped with modem conve­ niences. The range of entertainments is small and foreign travel is restricted, especially to capitalist countries. Owing to the prevalent sellers’ markets, the quality of service in shops is deplorably poor. To the above, we must add the violations of human rights by the state. The mono­ party system of government, the over-developed police system (including the powerful secret police), censorship, labour camps, psychiatric asylums and political imprisonment are the facts of life.” (Wilczynski 1983, 155)

How Nove Poses the Problem

It is necessary, says Alec Nave, to recognize that all feasible systems offer, at best, partial improvements and not total solutions, and contain within them long-range trade-offs between advantages and disadvantages.

The choice, as he sees it, is between retaining indefinitely many of the contradictions of capitalism under controls that may or may not successfully contain them, or adopting a centralist planning mechanism that will almost inevitably produce some form of bureaucratic despotism.

He offers four arguments for considering the classical socialist perspective as an unrealizable, and therefore dangerous, utopia.

1. Scarcity is an absolute obstacle to communism. Nave begins by rejecting the concept of a transitional society, on the grounds that communism is conceivable only if scarcity is eliminated and no hard economic choices have to be made. This, he says, must be excluded today as a realistic possibility, given the comparatively slow rates of growth of all known societies, the rapid growth of population, the finite character of so many resources being used extravagantly by all industrialized societies, and the appalling poverty of much of the world.

Marx, he points out, never claimed that socialism could prevent conflicts over scarce resources. Marx predicted an end to conflict because resources would not be scarce. There still remains some truth to Marx’s argument against Malthus that the mode of production rather than absolute scarcity sets lower than necessary limits on the production and distribution of needed goods and services. But even the most egalitarian society producing at peak potential will for the foreseeable future face at least a relative scarcity of necessary, or at least badly desired, products (Nave 1983, 17-18). It is possible that our dependency on fossil fuels and scarce minerals means a future of absolute scarcity under any conceivable government.

One line of argument by traditional Marxists in defense of the classical paradigm is that people today are socialized by capitalism to be acquisitive and to demand from society more than they really need. Real needs, in this view, are fairly simple and could plausibly be distributed free to the population without restriction or money. One proponent of this view is my friend Ernest Mandel, in his magisterial work, Marxist Economic Theory, and in a recent article in the New Left Review.

That may be true for some basic foodstuffs and clothing. But everyone in society has different tastes and interests. Working for several years in the iron mines of Northern Minnesota I encountered this among ordinary workers. Some saved up and bought ten or twenty acres of land and were building two-story homes. Others owned several snowmobiles, customized four-wheel­drive trucks, and thousands of dollars’ worth of hunting and camping equipment. Others put their money into extravagant stereo systems. Others owned motorboats worth $6,000 or $7,000.

I knew a retired metal worker who built large model trains and had a private model railroad on which he had spent $10,000. And I even knew several electricians and welders who had gone in together and bought a $30,000 airplane, which they shared among the buyers on different weekends of the month.

How shall we choose to meet these workers’ “needs”? If everything is to be free and there is to be no money, surely we cannot give each of them ten acres of land, a two­story house, three snowmobiles, two trucks, a thousand­dollar stereo system, a $7,000 motor boat, a $10,000 toy railroad, and an airplane!

We could speculate that their natures will change and they won’t want such things, but that seems a prudish and almost religious supposition, surely not the basis of a serious political movement.

We could give each of them 1000 square feet of land, a three-room house, a pair of skis, a $100 stereo system, a rowboat, a plastic model train, and a ticket to fly on a commercial airplane once a year. Probably that would satisfy no one. Or we would have to retain that evil, money, a discretionary income. We could then distribute certain basic goods for free. And beyond that offer each citizen an equal share in the collective product of society-but a share that had limits: a share that required the recipient to make choices.

And could it be morally right to offer everything free to workers in advanced countries when the rest of the world still lived in comparative poverty? How long does any serious person believe it will be even after a demo­ cratic socialist world government is set up before one could throw open the doors of every store everywhere on the planet? Isn’t a discretionary income something at least possible? But that implies the ability to waste it or to conserve it, with the resulting inequality.

To forestall a too easy solution here, recall that Pierre Proudhon a century ago thought it possible to do away with money without giving everything away for free. He proposed destroying all the currency and replacing it with vouchers for hours of labor contributed to society. Marx in the Grundrisse replied that unless products could be given away freely, any divisible script was nothing but money in another disguise. It would be exchanged and bargained for and would differ from the previous money only in the sense that it would be harder to make change because it wasn’t designed in neatly divisible units like a true currency.

2. Under conditions of general scarcity, social need is almost impossible to measure, providing opportunities for special interest groups to put their demands ahead of others. Local units are often better qualified than a central plan or a general vote to make such partially arbitrary allocations for social welfare.

“[Elven if it were to be assumed that people wanted the general good,” Nave writes, “there could be no conceivable way in which it could be operationally defined” (1983, 18). As examples, he asks how “society” could weigh the allocation of comparatively scarce resources between two libraries, the need to improve a science laboratory, or provide food aid to a poorer country.

His point at this stage is not (yet) to preach the superiority of consumer sovereignty through voting with the dollar in the marketplace. That is, none of his examples are likely to be thrown into the market for decision in any modern society.

His point is simply that the slogan “production for use and not for profit” leads many Marxists to suppose that production for use in a large and complex society is in some way simple and self-evident. What he is building up to, of course, is the claim that the sheer volume of such decisions is far beyond what can be intelligently voted on by either ordinary citizens or an elected legislature, or any plausible body of trained planning specialists.

To acquire enough information to responsibly choose among the four alternatives he presents would take a fair amount of time. If such choices, all freed of any consideration of profit or self-interest, were multiplied many thousandfold to encompass the whole society, they would pose a momentous undertaking. Personal taste, philosophical conviction, and familiarity with definite needy groups would play an enormous role in one’s choices.

From this, Nove concludes that the greater the volume of decisions of this kind that are handled at the national center, the lower the likelihood that they will be resolved in an informed manner. He argues that the higher the decision-making level, the greater must be the aggregation of cases and the greater the loss of essential details. If a self-serving handling of information and a promotion of projects of special interest to the high planners and officials are added as not unreasonable assumptions, quite large disparities can be expected between needs as perceived by large parts of the population and the decisions of the planning apparatus.

In essence, before we come to output decisions and pricing policies for market-type goods, Nove is making an argument for the strong decentralization of decision making.

Nove’s point is well taken, but can be absolutized so as to make any resolution seem impossible. He is correct that there is nothing automatic about making choices that are fair, efficient, or balanced just because the capitalist class no longer bends the decisions to fit their priorities. And it is also true that even a democratic adoption of a priorities list at the level of generality practical in a national center or public referendum tells planners little about how to distribute these resources between many thousands of competing projects hidden under the macro labels.

But there is some reasonable approach to the problem. Clearly an otherwise unmanageably large number of choices can be aggregated into a small number of manageable types: housing, health care, education, ecological preservation, industrial development, research, care of the aged. As aggregates it is possible for elected legislatures or voters to gain some general sense if an area is underfunded.

All industrial societies confront burgeoning state budgets and areas of state or semi-state responsibilities. This problem is not peculiar to socialist economies, and is not resolved by market means under capitalism. In practice, some combination of central and local governments attempt to create proportionality in social spending between the items on their list. Those ultimate recipients who are short-changed must organize to make their needs felt.

Presumably a government that was chartered with responsibility for improving social goods and services would be able to do as well or better than one chartered to protect the profitability of private business. This should be so even if its decisions were made by rule of thumb on the basis of nothing better than rough prioritization of a shopping list.

At the least it would be agreed that it is a socialist government’s business to make such improvements and it should be held accountable if it fails to do so, as opposed to a capitalist state where a majority of the legislators are hand-picked by business interests on the basis of defendiing the proposition that the state should not assume responsibility for social welfare.

3. Planning is inferior to markets for measuring many needs for material goods and services. Following Oskar Lange, Nave insists that, short of conditions of absolute abundance where products can be given away, no mechanism exists to measure true consumer need other than market prices that vary to reflect supply and demand. Here he lambastes Soviet efforts to set prices according to estimated calculations of socially necessary labor time. No measure of inputs, he says, can tell one what price to sell a commodity for without knowing what demand exists for it. Here Nave is actually a more orthodox Marxist than the Soviet planners.

This highlights an implicit difficulty of the “transition period.” For Marx, the central contradiction of capitalism is the separation of use value and exchange value. This means that labor is not recognized by society as socially necessary until it is validated by purchase on the market. Whatever portion of the social product fails to find its equivalent in the market is, in effect, wasted labor.

Socialism, even before the abolition of money, is supposed to at least supplement the law of (exchange) value by the law of planning (Evgeny Preobrazhensky’s formulation). This means that the state guarantees the distribution of the product of each enterprise, thus confirming beforehand the directly social character of labor. But, so long as production is separated from consumption while the state cannot afford to freely distribute the articles produced, whether or not society needs a particular product must still be verified after the fact by whether consumers buy it.

When Soviet planners have substituted labor time alone as the measure of social costs (that is, where they do not depart from actual costs altogether to achieve political goals with pricing policies) they in fact eliminate from the calculation Marx’s adjective, “socially necessary.” Socially necessary, except where output can be directly allocated to a consumer, means for Marx, as much as for bourgeois economics, that the individuals who make up society choose to consume the product after it is manufactured.

Nave’s main point is that efforts to substitute planning decisions, consumer surveys, or democratic votes, for the validation of “socially necessary” by actual consumer choices at prices that reflect supply and demand can only be extremely cumbersome and miss the nuances of real consumer needs.

There is a minority tradition within orthodox Marxism that accepts this viewpoint, although without thereby rejecting the possibility of a future abundant society that could eliminate money relations. In a relatively little-read article of 1932, Leon Trotsky called for extensive use of market relations to ensure economic democracy in a socialist society:

“The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical detenninations of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable degree, realized through the market. The regulation of the market itself must depend upon the tendencies that are brought out through its mechanism. The blueprints produced by the departments must demonstrate their economic efficacy through commercial calculation.” (Trotsky 1973, 274)

There is a major difference between Nove and Trotsky. Nove regards the market, as a regulator of socialist production and pricing, as a permanent state of affairs. Trotsky, while accepting it for an indefinite period, presumes a slow replacement of market decision with free distribution in kind.

4. Central planning is antithetical to democracy. Nave’s most compelling argument, and the place where he differs most radically from classical Marxism in even its most libertarian forms, lies in his counterposing of planning and democracy. The Soviet economy, he points out, produces “12 million identifiably different products.” (1983, 33) A single large factory

“… is an assembly plant of parts and components which can be made in literally thousands of different factories, each of which has also other tasks and which, in turn, may depend on supplies of materials, fuel and machines, made by hundreds or more of other production units.” (1983: 33)

Since the system has been set up in such a way that the factory can secure none of its inputs except through an allocation from a planning office, the massive and strictly hierarchical bureaucracy “becomes a functional necessity” (1983, 34). The entire operation can be

“…brought to a halt if one link in this multilevel chain were to be broken; if, for instance, some enterprise in the food industry were not to send the necessary victuals to the north, or the required metal were not delivered to who­ ever is charged with making pipe, or the goods wagons were not provided to move the pipe, or the workers to install it.”… (1983, 35)

This extremely technical and interdependent division of labor, lacking provision for alternate suppliers that can be quickly located and brought on-line through cash on the market, can only function as a strictly centralized machine. There is no place in it, given the very nature of the system, where democracy could play any role beyond setting the most general targets at the national level or reviewing performance at the local level in meeting goals set elsewhere. Any vote on goals taken at the enterprise level must not contradict the complex input-output assignments made at higher levels, or it would be destructive to the plan as a whole.

The producers of pumps, he says, cannot and must not decide among themselves what models of pumps to produce or where they should be delivered. Without being able to undertake such decisions, however, the level of decision-making inevitably gravitates higher and higher in the economy.

At best, even if they remain democratic in the sense of being made by honestly elected representatives, such decisions suffer from two flaws: (1) “As one goes ‘higher’ one encompasses a wider area, but in doing so one loses precision of detail” (1983, 37), and (2) orienting production by majority vote, rather than by willingness to pay, risks robbing substantial minorities of goods and services that they want and would willingly pay for but which were regarded as unimportant by the majority.

Central planners must, of necessity, work from aggregated plan targets. These work well for more or less uniform goods and services: electric power generation, automobile production, health care, education. They are infinitely more difficult to plan effectively for more variegated products: x amount to be produced of furniture, musical instruments, fresh vegetables, women’s clothing, music tapes, frozen foods, books; or even producer goods such as machine tools, bolts of cloth, hospital equipment and electronic parts.

“The more choice there is, the less the predictability, for obvious reasons. It is therefore tempting for planners to limit or even eliminate choice, in the interests of good forecasting and the avoidance of the waste which is the inevitable consequence of getting a forecast wrong.” (Nave 1983, 41)

It is in the 12 million producer and consumer goods and the absence of alternate suppliers than Nove locates the pressures for both the centralist, hierarchical bureaucracy and for the repetitive pattern of poor quality, failed out­ put targets, and lack of choices that plague the Soviet economy. If he is correct, something very similar would remain even after the removal of the present bureaucrats, the institution of full democratic freedoms, and a strict policy of wage equality. The “smaller the role of producers’ autonomy and of markets, the greater must be the role of hierarchy and of bureaucracy” (Nove, 1983: SO).

What Kind of Socialism Is “Feasible”?

Are we to take it, then, that wage workers, with blue or white collars, are caught in the trap described by Max Weber of an uncontrollably expanding bureaucratic nightmare, either of corporate monopoly capitalism or of bureaucratized state socialism? Here Nove offers an almost bitter challenge to revolutionary Marxists. Socialist economists, he claims, “cannot even begin to face the real problems unless they openly reject the utopian elements of the Marxist tradition” (1983, 60). There is, still, he proposes, a socialist alternative to the growing unplanned disaster of capitalism, but it must be firmly accepted as “a conservationist, share-scarcity socialism” (1983, 60).

Such a socialism must begin from the following set of assumptions:

1. Sufficient abundance to eliminate markets as a determinant of need for either producer or consumer goods must be rejected as a basis for socialist policy.

2. The idea that any party or government can directly represent the working class is based on a parallel assumption that specialization can be eliminated and the whole people can take turns playing significant roles in government and economic administration. This idea is unrealistic in a modern industrial society. Consequently highly centralized power will lack the main control Marx expected to keep it from producing a new elite. The struggle against elitism must begin with forms of decentralized power, in economic as well as political areas.

3. There should be an official preference for small-scale decentralized enterprises over large state-owned ones wherever there is not a dramatically demonstrable economy of scale to be realized in the larger firm (1983, 200).

4. The elected legislature and the planners need to differentiate within the socialist economy by function and scale, implying “the coexistence of a very wide variety” of production relations (1983, 200).

Specifically, Nove proposes a five-tier economy. This would consist of:

(1) Centrally planned state enterprises in areas such as banking, steel production, petrochemicals.

(2) Socialized enterprises, owned by the state but operated fully autonomously by workers’ committees and a professional management. These enterprises would be free to choose their suppliers, set prices and product lines, compete for customers in an open market. They would be ultimately accountable to the state for their business practices, and would be regulated indirectly through tax and fiscal policy. The state would be responsible for the losses of socialized firms, but could intervene to liquidate them if they became antiquated. These might be quite large-scale enterprises wherever a large and varied product line required a large volume of rapid micro-level decisions to keep in tune with demand.

(3) Cooperative enterprises. These would be smaller firms wholly owned by their workers. The state would not be responsible for failure of these enterprises beyond supplying unemployment insurance to workers in the event of bankruptcy. The state would also set limits to profits and participant incomes through a progressive company and individual income tax but would allow substantial rewards to those willing to take part in such firms where they were successful.

(4) Private enterprise. This would be limited by number of employees permitted and total income. Unlike traditional Marxist theory which called for protecting such businesses where they already existed, Nove proposes that the state encourage their formation to fill gaps in the output line of the state enterprises.

Finally, (5), there would be private individuals, allowing those who choose to opt out of the state employment system if they wish to work as free-lance peddlers, writers, tutors or artisans.

By permitting competition between state and semi­private enterprises, all units below the level of state enterprises are able to change both suppliers and customers without depriving their customers of alternative sources of supply. Hence no disruption of the plan; hence production decisions and democratic votes can be shifted to “the level at which production takes place” without destroying the plan (1983, 203).

Transition and Abundance?

What are Marxists who are committed to a democratic and egalitarian society to make of this vision of a minimalist mixed economy? That it would improve on both capitalist and Soviet reality seems beyond dispute. That it abandons much of the vision of a communist future is also an explicit part of the package. The strongest part of Nove’s argument, however, seems to me to be the judgment that a rapid transition to worldwide abundance is impossible even under the most optimal conditions of working-class democracy.

The evidence so far seems to show that even under parties trained in the Stalinist camp .and in countries of relative economic backwardness, decentralized market measures rapidly increase the supply and quality of consumer goods.

More significant, the decentralization of the economy goes hand in hand with political and ideological decentralization. Those countries that have adopted the market socialist structure-Hungary, Yugoslavia, China, and now the Soviet Union-have substantially increased the personal freedom of their citizens: in the small decisions of daily life, in job choices, in the quantity and quality of information available to them, not in comparison to the most politically stable of the capitalist democracies, but certainly in comparison to their own centralist past.

These improvements, real as they are, remain within narrow limits. Nor, as capitalism is itself the witness, is there any reason to believe that bigger and bigger doses of free markets produces greater and greater democracy. To the contrary, once unequal incomes are in people’s pockets, it is a very chancy business to take them back through state taxes. Privileged groups coalesce, gain their own strangleholds on local and national power, and use their freedom to oppress others.

Nevertheless there is a central truth in the argument for market socialism that seems, once stated, an almost obvious conclusion from the premises of classical Marxism — yet a conclusion that shatters the classic paradigm of the transition to communism.

For Marx, classes are constructed around unequal access to property. We are most familiar with that idea in his writings about capitalism, where the unequal access took the clear form of direct juridical ownership of means of production. But in his writings on societies of the East, where the state itself directly appropriated the social surplus product, Marx saw a different pattern. Where the state established the necessary territorial unity and pre­conditions for labor, the state itself

“…may appear as the higher or sole proprietor, the real communities only as hereditary possessors. Since the unity is the real owner, and the real precondition of common ownership, it is perfectly possible for it to appear as something separate and superior to the numerous real, particular communities. The individual is then in fact propertyless …” (Marx 1965, 68)

Ironically, in the Soviet central planning system, the opponents of private property, the Marxian socialists, established precisely these conditions: by controlling all allocation of productive property, the state planning mechanism became the channel through which all productive life must flow. Consequently it became the pre­condition of social labor and abstract unity in whose face the “real communities” were reduced to the role of hereditary possessors in a society of propertyless individuals.

The error in the traditional paradigm was that its understanding that property confers power was not matched by a grasp that institutional hierarchies rapidly differentiate themselves from the social classes that create them. If the ranks of the working class owned no property separate from the great unity of “their” state, they consequently had no resources of their own with which to oppose “their” state when the bureaucracy became conscious of itself and began to exercise its juridically unlimited power over all the property.

If we set aside the romantic idea that any small group of leaders can directly and for long periods of time embody the whole will of their constituents, it should be clear that the formal right to vote on policy has little meaning if there are not practical things to decide at the level where one has enough competence to decide them. Fundamentally that comes down to control over actual resources, not merely the right to forward recommendations to those higher up who do control the resources.

To vote every four years on national policy becomes a plebiscite where the voter has no real alternative to the entrenched leadership. That truism has been much explored by Marxists in criticizing capitalist rule. But it is potentially true in state socialist societies also, for simiilar structural reasons, even where a privileged stratum has not coalesced at the top of society. The best counter to such a loss of popular power is the power at the local level to control actual resources, which in this case must be a portion of the productive property of the nation.

The surest structural means of ensuring counterpower to a centralized authority is through secondary associations. That observation was made more than a century ago by Alexis de Tocqueville in explaining how it happened that democracy was more extensive and real under the American bourgeoisie than it was under the various systems of European capitalism with their hierarchical aristocratic pasts. Tocqueville told us in 1835 that

“The morals and intelligence of a democratic people would be in as much danger as its commerce and industry if ever a government wholly usurped the place of private associations.” (Tocqueville 1969, 515)

Under capitalism, Marxists tend to ignore this advice since it is swallowed up by the more central class division in society. It recovers its truth and potency precisely through a socialist revolution that removes the deep class gulf and allows lesser structural factors to assume their natural importance once more.

The principal virtue of market socialism as a means of structuring a socialist society is that it acknowledges directly the heterogeneous character of the oppressed classes under capitalism. The class struggle does not end with the abolition of capitalism. It becomes an intra-class struggle among different regions, interest groups and strata. While extreme centralism may be necessary for a successful revolution against entrenched capitalist power, it is the worst of mistakes to subsume the interests of a multimillioned and diverse people under a single center and a single command post as a permanent norm of the new society.

To the extent that most Western Marxists recognize this fact, their recognition is usually limited to a call for political pluralism-multiparty socialist democracy and freedom of the prosocialist press. The notion that the class character of postcapitalist society rests on nothing more than the presence or absence of political democracy seems, from a classical Marxist standpoint, a rationalist rather than a materialist posing of the question.

Once we get past the mythical unity of socialist society and acknowledge that rival classes and class fragments remain, then the determinants of power, as in all class societies, rest in the relations of different classes and class fragments to the means of production. Social organiza­ tion here is weightier than political organization.

Moreover, while this is not the place to develop it, classical Marxism would be immeasurably strengthened, particularly in its study of “classless” statist societies, if it went beyond its founders’ initial concentration on social classes alone as the central actors. To these must be added, as Max Weber has so ably shown, cross-class status groups (think of “members” of the ruling mass parties in the Soviet Union and China) and institutional bureaucracies. These strata and formations have great coherence and immense power in postcapitalist society. If anything, underestimation of the autonomous power of the state bureaucracy was the single greatest miscalculation of the Leninist tradition.

That is not to say that socialist society will have a ruling class in the old sense-posing some inevitable new revolution. But it is and will remain class divided. The various strata of the working class, the intelligentsia, and the small farmers will be compelled to exert their power to make their needs felt. In my opinion, the state bureaucracy, as a large cadre of professional planners and administrators, can never be done away with without a relapse into primitivism. Neither can this institutional strata ever be regarded as simply the representative of the workers or citizens of the socialist society.

Such a society will have two permanent poles, each as necessary as the other. At the state extreme stands the familiar civil service bureaucracy, purged, through struggles in which part of the present officialdoms may participate on the right side, of the worst holdovers from the Stalinist period.

At the other extreme is the petty capitalist class aspiring to accumulation and eventual corporate power. This society as a mode of production contains a classical unity of opposites. Complete victory by either pole over the other would destroy it, yet each pole in practice aims at just such a victory.

Stability here depends on the great weight of the conscious and organized working class and intelligentsia, possessing their own portion of industrial and commercial property as a basis of ongoing power. The strategy of the socialist citizens must be to maintain an alliance with each extreme against the other, to work to weaken which&ever is now the stronger of the two.

This may seem a strange and combative vision. But its logic can be grasped instantly if we look at capitalism and Stalinism as two varieties of the same pitfall: a coherent minority formation has captured monopoly power over society’s living resources. That is, unhappily, the spontaneous direction in which modern industrial society tends to evolve, in its statist as much as in its privatist incarnation. This is not an immutable law, but can be fought only by consciously preventing the natural concentration of social wealth in government as well as private hands.

Above all, we should strive never to face going into struggle against an opponent to whom we have ceded in advance the whole productive capacity of society. The evidence we are able to see now suggests that attempts to nationalize everything carry unacceptable risks for the future of a socialist alternative to the inhumanity of capitalism.


Lane, David. 1982. The End of Social Inequality? Class, Status and Power under State Socialism. London: George Allen & Unwin.

Lange, Oskar, and Fred M. Taylor. 1938. On the Economic Theory of Socialism. Minneapolis: University of Minnesota Press.

Lewin, Moshe. 1974. Political Undercurrents in Soviet Economic Debates: From Bukharin to the Modem Reformers. Princeton, N.J.; Princeton University Press.

Mandel, Ernest. 1968. Marxist Economic Theory. New York: Monthly Review Press.

Marx, Karl. 1965. Pre-capitalist Economic Formations. New York: International Publishers. (Selections from the Grundrisse of 1857-58.)

Nove, Alec. 1983. The Economics of Feasible Socialism. London: George Allen & Unwin.

Preobrazhensky, Evgeny. 1965. The New Economics. Oxford: Claren­ don Press. (Originally published in Russian in 1926.)

Sweezy, Paul M. and Charles Bettelheim. 1971. On the Transition to Socialism. New York: Monthly Review Press.

Tocqueville, Alexis de. 1969. Democracy in America, ed. J. P. Mayer. Garden City, New York: Anchor Books. (Originally published, 1835-40.)

Trotsky, Leon. 1945. The Revolution Betrayed. New York: Pioneer Publishers. (Originally published in 1937.)

Trotsky, Leon. 1973. “The Soviet Economy in Danger.” October 22, 1932. Writings of Leon Trotsky, 1932. ed. George Breitman and Sarah Lovell. New York: Pathfinder Press.

von Mises, Ludwig. 1951. Socialism: An Economic and Sociological Analysis. New Haven: Yale University Press. (Original German edition published in 1932, first published in English in 1937.)

Wilczynski, Jozef. 1972. Socialist Economic Development and Reforms: From Extensive to Intensive Growth Under Central Planning in the USSR, Eastern Europe and Yugoslavia. London: Macmillan

Wilczynski, Jozef. 1983. Industrial Relations in Planned Economies, Market Economies, and Yugoslavia. London: Macmillan.

January-April 1988, ATC 12-13

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