7. General Problems of Socialist Economy

a. Simplification and Rationalization of Data

Socialist economy implies that the producers themselves will consciously manage all economic activity. This management will be exercised at all levels, and, in particular, at the overall or central level. It is illusory to believe that bureaucracies (even “controlled” bureaucracies) left to themselves could guide the economy towards socialism. Such bureaucracies could only lead society towards new forms of exploitation. It is also wrong to think that “automatic” objective mechanisms could be established, which, like the automatic pilots of a modern jet aircraft, could at each moment direct the economy in the desired direction. The same impossibilities arise whether one considers an “enlightened” bureaucracy or some electronic super-computer, namely that the key problems are human ones. Any plan pre-supposes a fundamental decision on the rate of growth of the economy, and this, in turn, depends essentially on human decisions concerning the distribution of the social product between investment and consumption.[15]

No “objective” rationality can determine such a distribution. A decision to invest 10 % of the social product is neither more nor less rational than a decision to invest 90 % of it. The only rationality in the matter is the choice people make about their own fate, in full knowledge of the relevant facts. The fixing of plan targets by those who will have to fulfill them is, in the last analysis, the only guarantee of their willing and spontaneous participation.

But this doesn’t mean that the plan and the management of the economy are “just political matters.” Socialist planning will base itself on certain rational technical factors. It is, in fact, the only type of planning which could integrate such factors into a conscious management of the economy. These factors consist of a number of extremely useful and effective “labor-saving” and “thought-saving” devices, which can be used to simplify the representation of the economy and of its interrelations, thereby allowing the problems of central economic management to be made accessible to all. Workers’ management of production (this time at the level of the economy as a whole, and not just at the level of a particular factory) will only be possible if the fundamental decisions have been enormously simplified, so that the producers and their collective institutions are in a position to judge the key issues in an informed way. What is needed in other words, is for the vast current chaos of economic facts and relations to be boiled down to certain propositions, which adequately sum up the real problems and choices. These propositions should be few in number. They should be easy to grasp. They should summarize reality without distortion or mystification. If they can do this, they will form an adequate basis for meaningful judgments.

A condensation of such a type is possible, firstly, because there are rational ingredients to the economy, and secondly, because there exist already today certain techniques allowing one to grasp the complexities of economic reality, and finally because it is now possible to mechanize and to automate all that does not pertain to human decisions in the strict sense.

A discussion of the relevant devices, techniques, and possibilities is therefore essential as from now. They enable us to carry out a vast clearing of the ground, without which workers’ management would collapse under the weight of the very subject matter it sought to deal with. Such a discussion is in no sense a “purely technical” discussion and at each stage of it we will be guided by the general principles already outlined.

b. The “Plan Factory”

A plan of production, whether it deals with one factory or with the economy as a whole, resembles a reasoning. It can be boiled down to two premises and to one conclusion. The two premises are the material means one disposes of at the onset (equipment, stocks, labor, etc.), and the target one is aiming at (production of so many specified objects, to be brought about within this or that period of time), We will refer to these premises as the “initial conditions” and the “ultimate targets.” The “conclusion” is the path to be followed to pass from initial conditions to ultimate target. In practice, this means a certain number of intermediate products to be made within a given period. We will call these conclusions the “intermediate targets.”

When passing from simple initial conditions to a simple ultimate target, the intermediate targets can be determined quickly. As the initial conditions or the ultimate target (or both) become more complex, or are more spread out in time, the establishment of intermediate targets becomes more difficult. In the case of the economy as a whole (where there are thousands of different products, several of which can be made by different processes, and where the manufacture of any given category of products often directly or indirectly involves many others), one might imagine the complexity to be such that rational planning (in the sense of an a priori determination of the intermediate targets, given the initial conditions and ultimate target), would be impossible. The apologists of “private enterprise” have been proclaiming this doctrine for ages. But, it isn’t true.[16] The problem can be solved, and available mathematical techniques in fact allow it to be solved remarkably simply. Once the “initial conditions” are known and the “ultimate targets” have been consciously and democratically determined, the whole content of planning (the determination of the intermediate targets) can be reduced to a purely technical task of execution, capable of being mechanized and automated to a very high degree.

The basis of the new methods is the concept of the total interdependence of all sectors of the economy (the fact that everything that one sector utilizes in production is itself the product of one or more other sectors; and the converse fact, that every product of a given sector will ultimately be utilized or consumed by one or more other sectors). The idea, which goes back to Quesnay and which formed the basis of Marx’s theory of accumulation, has been vastly developed in the last few years by a group of American economists around Wassily W. Leontief, who have succeeded in giving it a statistical formulation.[17] The interdependence is such that, at any given moment (for a given level of technique and a given structure of available equipment), the production of each sector is related, in a relatively stable manner, to the products of other sectors which the first sector utilizes (“consumes productively”).

It is easy to grasp that a given quantity of coal is needed to produce a ton of steel of a given type. Moreover, one will need so much scrap metal or so much iron ore, so many hours of labor, such-and-such an expenditure on upkeep and repairs. The ratio “coal used : steel produced,” expressed in terms of value, is known as the “current technical coefficient” determining the productive consumption of coal per unit of steel turned out. If one wants to increase steel production beyond a certain point, it won’t help just to go on delivering more coal or more scrap metal to the existing steel mills. New mills will have to be built. Or, one will have to increase the productive capacity of existing mills. To increase steel output by a given amount, one will have to produce a given amount of specified equipment. The ratio “given amount of specified equipment : steel-producing capacity per given period,” again expressed in terms of value, is known as the “technical coefficient of capital.” It determines the quantity of capital utilized per unit of steel produced in a given period.

One could stop at this point, if one were only dealing with a single enterprise. Every firm bases itself on calculations of this kind (in fact, on much more detailed ones) when, having decided to produce so much, or to increase its production by so much, it buys raw materials, orders machinery or recruits labor. But when one looks at the economy as a whole things change. The interdependence of the various sectors has definite consequences. The increase of production of a given sector has repercussions (of varying intensity) on all other sectors and finally on the initial sector itself. For example, an increase in the production of steel immediately requires an increase in the production of coal. But this requires both an increase in certain types of mining equipment and the recruitment of more labor into mining. The increased demand for mining equipment, in turn, requires more steel, and more labor in the steel mills. This, in turn, leads to a demand for still more coal, etc., etc.

The use of Wassily W. Leontief’s matrices, combined with other modern methods such as Koopmans’ “activity analysis”[18] (of which “operational research” is a specific instance) would, in the case of a socialist planned economy, allow theoretically exact answers to be given to questions of this type. A matrix is a table on which are systematically disposed the technical coefficients (both “current technical coefficients” and “technical coefficients of capital”) expressing the dependence of each sector on each of the others. Every ultimate target that might be chosen is presented as a list of material means to be utilized (and therefore, manufactured) in specified amounts, within the period in question. As soon as the ultimate target is chosen, the solution of a system of simultaneous equations enables one to define immediately all the intermediate targets, and therefore, the tasks to be fulfilled by each sector of the economy.

The working-out of these relationships will be the task of a highly mechanized and automated specific enterprise, whose main work would consist in the mass production of various plans (targets) and of their various components (implications). This enterprise is the plan factory. Its central workshop would, to start with, probably consist of a computer whose “memory” would store the technical coefficients and the initial productive capacity of each sector. If “fed” a number of hypothetical targets, the computer could spell out the productive implication of each target for each sector (including the amount of work to be provided, in each instance, by the “man-power” sector).[19]

Around this central workshop, there would be others whose tasks would be to study the distribution and variations of regional production and investment and possible technical optima (given the general interdependence of the various sectors). They would also determine the unit-values (equivalences) of different categories of product. Two departments of the plan factory warrant special mention: that dealing with stock-taking and that dealing with the technical coefficients.

The quality of planning, conceived in this way, depends on how well people are informed of the real state of the economy which forms its basis. The accuracy of the solution, in other words, depends on adequate information about both “initial conditions” and the “technical coefficients.” Industrial and agricultural censuses are carried out at regular intervals even today, by a number of advanced capitalist countries: they offer a very crude basis, because they are extremely inaccurate and fragmented. The drawing up of an up-to-date and complete inventory will be one of the first tasks of a self-managed society. The collective preparation of such an inventory is a serious task. It can’t be achieved “from above,” from one day to the next. Nor, once drawn up, would such an inventory be considered final. Perfecting it and keeping it up-to-date would be a permanent task of the plan factory, working in close cooperation with those sections of the local Councils responsible for industrial stocktaking in their own areas. The results of this cooperation would constantly modify and “enrich” the “memory” of the central computer.

Establishing the “technical coefficients” will pose similar problems. To start with, it could be done very roughly, using certain generally available statistical information (“on average, the textile industry uses so much cotton to produce so much cloth”). But, such knowledge will have to be made far more precise through technical information provided by the Councils of particular industries. The data “stores” in the computer will have to be periodically revised as more accurate knowledge about the technical coefficients – and in particular, about the real changes in these coefficients brought about by new technological developments – is brought to light.

Knowledge of the real state of affairs, combined with the constant revision of basic data and with the possibility of drawing instant conclusions from them, will result in very considerable, possibly enormous, gains. The potentialities of these new techniques remain untapped, in the very field where they could be most usefully applied: that of the economy taken as a whole. Any technical modification, in any sector, could in theory affect the work load and the conditions of a rational choice of methods in all other sectors. A socialist economy would be able totally and instantaneously to take advantage of such facts. Capitalist economies only take them into account belatedly and in a very partial way.

The setting-up of such a plan factory should be immediately possible, in any country which is even moderately industrialized. The equipment necessary exists already. So do the people capable of working it. Banks and insurance companies (which will be unnecessary under socialism) already use some of these methods in work of this general type. Linking up with mathematicians, statisticians, econometricians, those who work in such offices could provide the initial personnel of the plan factory. Workers’ management of production and the requirements of a rational economy will provide a tremendous impetus to the development, both “spontaneous” and “conscious” of rational techniques of planning.

Let us not be misunderstood; the role of the “plan factory” won’t be to decide on the plan. It won’t impose anything on others. The targets of the plan will be determined by society as a whole, in a manner shortly to be described. Before any proposals are voted upon, however, the plan factory will work out and present to society as a whole the implications and consequences (for various groups of the population) of the plan (or plans) suggested. This will result in a vast increase in the area of real democracy (i.e., of deciding in full knowledge of the relevant facts). After a plan has been adopted, the task of the plan factory will be to constantly bring up-to-date the facts on which the plan was based, to draw the necessary conclusions from possibilities of change and to inform both the Central Assembly of Councils and the relevant sectors of any alterations in intermediate targets (and therefore, of production tasks) that might be worth considering.

In none of these instances would those actually working in the plan factory decide or impose anything – except the organization of their own work.

c. Consumer Goods

But what about consumption? In a socialist society, how could people determine what is produced?

It is obvious that this cannot be based on direct democracy. The plan can’t propose, as an ultimate target, a complete list of consumer goods or suggest in what proportions they should be produced. Such a proposal would not be democratic, for two reasons. Firstly, it could never be based on “full knowledge of the relevant facts,” namely on a full knowledge of everybody’s preferences. Secondly, it would be tantamount to a pointless tyranny of the majority over the minority. If 40 % of the population wish to consume a certain article, there is no reason why they should be deprived of it under pretext that the other 60 % prefer something else. No preference or taste is more logical than any other. Moreover, consumer wishes are seldom incompatible with one another. Majority votes in this matter would amount to rationing, an absurd way of settling this kind of problem anywhere but in a besieged fortress.

Planning decisions won’t therefore relate to particular items, but to the general standard of living (the overall volume of consumption). They will not delve into the detailed composition of this consumption.

In relation to human consumption, deciding on living standards doesn’t require the same kind of considerations that go into determining how many tons of coal are needed to produce so many tons of steel. There are no “technical coefficients of the consumer.” Under capitalism, there is, of course, some statistical correlation between income and the structure of demand (without such a correlation private capitalism couldn’t function). But, this is only a very relative affair. It would be turned upside down under socialism. A massive redistribution of incomes will have taken place; profound changes will have occurred in every realm of social life; the permanent rape of the consumers through advertising and capitalist sales’ techniques will have been abolished; new tastes will have emerged as the result of increased leisure.

Finally, the statistical regularity of consumer demand can’t solve the problem of variations that might occur within a given period, between real demand and that envisaged in the plan. Genuine planning doesn’t mean saying “living standards will go up by 5 % next year, and experience tells us that this will result in a 20 % increase in the demand for cars, therefore let’s make 20 % more cars,” and stopping at that. One may have to start in this way, where other criteria are missing, but there will have to be powerful correcting mechanisms capable of responding to disparities between anticipated and real demand.

Socialist society will have to regulate the pattern of its consumption according to the principle of consumer sovereignty. This implies the existence of some mechanism whereby consumer demand can genuinely make itself felt. The “general decision” embodied in the plan will define:

1. what proportion of its overall product society wishes to devote to the satisfaction of individual consumer needs,

2. what proportion it would like to allocate to collective needs (“public consumption”), and

3. what proportion it wants to devote to “developing the productive forces” (i.e., to invest). But the structure of consumption will have to be determined by the individual consumers themselves.

How could a mutual adaptation of supply and demand come about? How might consumer demand really manifest itself?

First there would have to be an overall equilibrium. The sum total distributed in any given period (as “wages” and other benefits) would have to be equal to the value of consumer goods (quantities x prices) made available in that period. An “empirical” initial decision would then have to be taken, to provide, at least, a skeleton for the structure of consumption. This initial decision would base itself on traditionally “known” statistical data, but in full knowledge of the fact that these will have to be extensively modified by taking into account a whole series of new factors (such as the equalization of wages, for instance). Stocks of various commodities, in excess of what it is expected might be consumed in a given period will, initially, have to be scheduled for.

Three “corrective” processes would then come into play, the net result of which would be to immediately demonstrate any gap between anticipated and real demand, and to bridge it:

1. Available stocks would either rise or fall.

2. According to whether the reserve stocks decreased or increased (i.e., according to whether demand had been initially underestimated or overestimated), there would be an initial rise or fall in the price of the various commodities. The reason for these temporary price fluctuations would have to be fully explained to the people.

3. There would simultaneously take place an immediate readjustment in the output of consumer goods, to the level where (the stocks having been reconstituted) the production of goods equals the demand. At that moment, the sale price would again become equal to the “normal price” (labor value) of the product.

Given the principle of “consumer sovereignty” any differences between the actual demand and production scheduled will have to be corrected by a modification in the structure of production and not by resorting to permanent differences between selling prices and value. If such differences were to appear, they would automatically imply that the original planning decision was wrong, in this particular field.

d. “Money,” “Wages,” Value

Many absurdities have been said about money and its immediate abolition in a socialist society, and there is a great deal of loose thinking about the subject.{14} It should be clear that the role of money is radically altered from the moment where it can no longer be a means of accumulation (the means of production being owned in common) or as a means of exerting social pressure (wages being equal). What residual function would money then have?

People will probably receive a token in return for what they put into society.{15} These “tokens” might take the form of units, allowing people to organize what they take out of society, spreading it out (a) in time, and (b) between different objects and services, exactly as they wish. As we are seeking here to get to grips with realities and are not fighting against words, we see no objection to calling these tokens “wages” and these units “money,”{16} just as a little earlier we used the words “normal prices” to describe the monetary expression of labor value.[20]

Under socialism labor value would be the only rational basis for any kind of social accountancy and the only yardstick having any real meaning for people. The first aim of socialist production will be to reduce both the direct and indirect expenditure of human labor power. Fixing the prices of consumer goods on the basis of their labor value, would mean that for everyone the cost of objects would clearly appear as the equivalent of the labor (in hours) s/he himself would have had to expend to produce them (assuming s/he had access to the average prevailing equipment and that s/he had an average social capacity).

It would both simplify and clarify things if the monetary unit was considered the “net product of an hour of labor” and if this were made the unit of value. It would also assist total demystification if the hourly wage, equal for all, were a given fraction of this unit, expressing the ratio “private consumption : total net production.”

If these steps were taken and thoroughly explained, they would enable the fundamental planning decisions (namely the distribution of the social product between consumption and investment) to be immediately obvious to everyone, and repeatedly drawn to their attention, every time s/he bought anything. Equally obvious would be the social cost of every object acquired.

e. Wage Equality

Working class aspirations, whenever they succeed in expressing themselves independently of the trade union bureaucracy, are often directed against hierarchy and wage differentials. Basing itself on this fact, socialist society will introduce absolute wage equality.

There is no justification for wage differentials, whether these reflect differing professional qualifications or differences in productivity. If an individual himself/herself advanced the costs of his/her professional training, and if society considered him/her “an enterprise,” the recuperation of those costs, spread out over a working lifetime would at most “justify,” at the extremes of the wages spectrum a differential of 2:1 (between a sweeper and a neurosurgeon). Under socialism, training costs would be advanced by society (they often are, even today), and the question of their “recovery” would not arise. As for productivity, it depends (already today) much less on bonus and much more on the coercions exercised on the one hand by the machines and by the foreman (tending to push it up), and on the other hand by the disciplined resistance to production, imposed by primary working groups in the workshop (tending to keep it down). Socialist society could not increase productivity by economic constraints without resorting again to all the capitalist paraphernalia of norms, supervision, etc. Cooperation would flow (as it already does, in part, today) from the self-organization of primary groups in the workshops, from the natural relationships between different shops, and from gatherings of producers in different factories or different sectors of the economy. The primary group in a workshop, can, in general, secure that any particular individual does his/her share. If, for any particular reason, they couldn’t work with a particular person, they could ask him/her to leave the particular shop. It would then be up to the individual in question to seek entry into one of many other primary groups of workers and to get himself/herself accepted by them.

Wage equality will give a real meaning to consumption, every individual at last being assured of an equal vote. It will abolish a large number of conflicts both in everyday life and in production, and will enable an extraordinary cohesion of working people to develop. It will destroy at the very roots the whole mercantile monstrosity of capitalism (both private and bureaucratic), the commercialization of individuals, that whole universe where one doesn’t earn what one is worth, but where one is worth what one earns. A few years of wage equality and little will be left of the whole distorted mentality of present day individuals.

f. The Fundamental Decision

The fundamental decision, in a socialist economy, is the one whereby society as a whole determines what it wants (i.e., the ultimate targets of its plan). This decision is about two basic propositions. Given certain “initial conditions,” how much time does society want to devote to production? And how much of the total product does it want to see respectively allocated to private consumption, to public consumption, and to investment?

In both private and bureaucratic capitalist societies, the amount of time one has to work is determined by the ruling class by means of economic or direct physical constraints. No one is consulted about the matter. Socialist society, taken as a whole, will not escape the impact of certain economic facts (in the sense that any decision to modify labor time will – other things being equal – have a bearing on production). But, it will differ from all previous societies, in that for the first time in history, people will be able to decide about work in full knowledge of the relevant facts, with the basic elements of the problem clearly presented to them.

Socialism will also be the first social system enabling people to decide in a rational way about how society’s product should be divided between consumption and investment. Under private capitalism, this distribution takes place in an absolutely arbitrary manner and one would seek in vain any “rationality” underlying what determines investment.[21] In bureaucratic capitalist societies, the volume of investment is also decided upon quite arbitrarily. The central bureaucracy, in these societies, have never been able to justify their choices except through recourse to incantations about the “priority of heavy industry.”[22] But, even if there were a rational, “objective” basis for a central decision, such a decision would automatically be irrational, if it was reached in the absence of those primarily concerned, namely the members of society. Any decision taken in this way would reproduce the basic contradiction of all exploiting regimes. It would treat people, in the plan, as components of predictable behavior, as theoretical “objects.” It would soon lead to treating them as objects in real life, too. Such a policy would contain the seeds of its own failure: instead of encouraging the participation of the producers in carrying out the plan, it would irrevocably alienate them from a plan that was not of their choosing. There is no objective “rationality” allowing one to decide, by means of mathematical formulas, about the future of society, about work, about consumption, and about accumulation. The only rationality in these realms is the living reason of mankind, the decisions of ordinary men and women concerning their own fate.

But, these decisions won’t flow from a toss of the dice. They will be based on a complete clarification of the problem and on full knowledge of the relevant facts. This will be possible because there exists, for any given level of technique, a definite relation between a given investment and the resulting increase in production. This relation is nothing other than the application to the economy as a whole of the “technical coefficients of capital” of which we spoke earlier. Such-and-such an investment in steelworks will result in such-and-such an increase in what the steelworks turn out – and such-and-such a global investment in production will result in such-and-such a net increase in the global social product.[23] Therefore, such-and-such a rate of accumulation will allow such-and-such a rate of increase of the social product (and therefore, of the standard of living or amount of leisure). Finally, such-and-such a fraction of the product devoted to accumulation will also result in such-and-such a rate of increase of living standards.

The overall problem can therefore be posed in the following terms. Such-and-such an immediate increase in consumption is possible – but it would imply a significant cut-down on further increases in the years to come. On the other hand, people might prefer to choose a more limited immediate increase in living standards, which would allow the social product (and hence, living standards) to increase at the rate of x % per annum in the years to come. And, so on. “The conflict between the present and the future,” to which the apologists of private capitalism and of the bureaucracy are constantly referring, would still be with us. But, it would be clearly seen. And, society itself would settle the matter, fully aware of the setting and of the implications of what it was doing.

In conclusion, and to sum up, one could say that any overall plan submitted to the people for discussion would have to specify:

1. the productive implications for each sector of industry, and as far as possible for each enterprise;

2. the amount of work for everyone that these implied;

3. the level of consumption during the initial period;

4. the amounts to be devoted to public consumption and to investment;

5. the rate of increase of future consumption.

To simplify things, we have at times presented the decisions about ultimate and intermediate targets (i.e., the implications of the plan concerning specific areas of production) as two separate and consecutive acts. In practice, there would be a continuous give-and-take between these two phases, and a multiplicity of proposals. The producers will be in no position to decide on ultimate targets, unless they know what the implications of particular targets are for themselves, not only as consumers but as producers, working in a specific factory. Moreover there is no such thing as a decision “taken in full knowledge of the relevant facts,” if that decision is not founded on a number of choices, each with its particular implications.

The fundamental decisional process might, therefore, take the following form. Starting from below, there would, at first, be discussions in the General Assemblies. Initial proposals would emanate from the Workers’ Councils of various enterprises and would deal with their own productive possibilities in the period to come. The plan factory would then regroup these various proposals, pointing out which ones were mutually incompatible or entailed unintended effects on other sectors. It would elaborate a series of achievable targets, grouping them as far as possible in terms of their concrete implications. [Proposal A implies that factory X will next year increase its production by Y % with the help of additional equipment Z. Proposal B, on the other hand, implies..., etc.]

There would then be a full discussion of the various overall proposals, throughout the General Assemblies and by all the Workers’ Councils, possibly with counter-proposals and a repetition of the procedure described. A final discussion would then lead to a simple majority vote in the General Assemblies.