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Joe Guinan © 2003


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'Market Socialism' and the Problem of Planning

" socialism is resolutely anti-capitalist, resting on the fundamental insight that the capitalist qua capitalist is, in the modern world, functionally obsolete. Capitalists are no longer needed to raise capital, manage industries, or create new products or technologies. There are other, better, ways of performing these functions."

 -- David Schweickart, Market Socialism: A Defense. [1]

We are back then, by a circuitous route, to the question of common ownership of the means of production, distribution and exchange. Given that the Soviet Union, with its collapse, brought down with it the credibility of many of the traditional socialist arguments for the abolition of private ownership and its replacement by efficient public management of the economy, this would seem to be a real problem for the Left. However, this is not the complete picture: bureaucratic management of large state-owned enterprises in a centrally-planned Command economy does not exhaust the list of possibilities for collective ownership.

At this point, arguments for 'Pension Fund Socialism' and its analogues--strategies for the collective capture of capital through redirected pension investments and share levies on corporations--feed into the various discussions about the potential for 'Market Socialism', the quest for a political economy which "seeks to promote the traditional socialist goals of equity, democracy and solidarity while maintaining economic retaining one major feature of capitalist economies--the market--while replacing another major feature of capitalism--private ownership of the means of production." [2]

Markets, left to themselves, are powerful engines of inequality. Furthermore, the experience of the capitalist economies of the advanced industrial world in the period since the Second World War suggests that, when untrammeled laissez-faire markets are given their head, they do not necessarily generate economic growth either. In the past, markets have frequently been dispensed with altogether as design features of a socialist political economy (on grounds of both equity and efficiency), the role of the market being given over instead to the state in its development of an economic plan. Though we may quarrel with it in some ways, H.D. Dickinson's definition of socialism gives a feel for the central importance of planning to twentieth century socialists: "socialism is an economic organisation of society in which the material means of production are owned by the whole community and operated by organs representative of and responsible to a general economic plan..." [3]

The rejection of the market has a fine pedigree: "Within the cooperative commonwealth based on the social ownership of the means of production," Karl Marx wrote in his Critique of the Gotha Programme, "the producers do not exchange their products." [4]  For Marx, paradoxically, an overestimation of capitalism's potential for a revolution in productivity had removed the hard edges from the problem of planning by allowing him to ignore the issue of prices. The Associated Producers, in their abundance, would not trade their products: they would have no need for market mechanisms of allocation and exchange because the abolition of scarcity would make considerations of economic efficiency irrelevant. Thus, crucially, there would be no economic role for the state (and the state bureaucracy), which could be abolished (or allowed to wither away) along with the market. But Marx's anticipated capitalist revolution in productivity failed to fully materialize and, so long as scarcity persisted (to say nothing of ecological limits), efficient allocation of resources in production was a necessity. The socialist solution to this dilemma was invariably some form of economic planning, what Engels described in Anti-Dühring as "a society which makes possible the harmonious co-operation of its productive forces on the basis of one single vast plan." [5]

Planning, however, as subsequently put into practice in the twentieth century did not have its origins in the socialist movement but rather in 1914 and the military requirements of the Warfare State--in particular, of the implications for Wilhelmine Germany of a dependence on raw-material imports. Meghnad Desai gives a good account:

"Walter Rathenau, a dynamic young businessman, proposed to the German military authorities on the second day of the war that they should allocate scarce raw materials in a properly co-ordinated way. He was immediately absorbed into the German war machine, and became its first central planner. The idea of planning was not unknown to economists; the Italian economist Vilfredo Pareto had written about a fully planned economy, and another Italian economist, Enrico Barone, had taken Pareto's speculations much further...Rathenau's efforts inaugurated a practical experience in planned allocation of resources... The Germans called their experience of a planned war economy 'war socialism.' Here was the first example of an advanced economy run consciously from the centre: what socialists had spoken of in vague terms was alive and concrete...But the other belligerent powers also began to think about some central co-ordination of production plans and allocation of scarce materials. Trade unions were welcomed through the portals of power for the first time. There was continuous full employment. The Gold Standard was suspended. Economies had to be run by committees of bureaucrats, army staff, and businessmen. International trade was severely disrupted, and capital movements dried up. A new logic of economy was suddenly born. There had been wars before and armies had always been like planned economies. But this was total mass war: nothing could escape the war effort. Although business stayed in private hands, the market was no longer the logic of the economy. This was new territory. This was a new phase of capitalism." [6]

Lenin looked on with approval at the German experience, but over the course of the century the practice of state economic planning--particularly in the Command economies of the East, but also in moderated form in the Western Social Democracies--raised a new set of problems: soft budget constraints, information problems, incentive and entrepreneurial problems, authoritarian tendencies. In the eyes of anti-Soviet critics on both Left and Right, these came together to form the lineaments of a grotesque. Here is Michael Harrington:

"The investment and production decisions were fixed according to planned, quantitative targets, which facilitated both waste and shoddy goods... [If] a Soviet pin factory were assigned a quota of so many tons of pins, it would turn out one, monstrously large and unusable pin; and if it were told to produce a certain number of pins, it would achieve the numerical goal with a myriad of pins so thin that they were also useless..." [7]

This is somewhat exaggerated: in fact, planning brought many successes. Particularly during the 1930s (when the West languished in Depression) and again in the '50s and '60s, the Soviet Union achieved remarkable levels of growth. Planners, then, can plan an entire economy:

"Planners in the Soviet Union, in Eastern Europe, in China and elsewhere did exactly that for decades. By concentrating the production of specific products into relatively few (often huge) enterprises and by issuing production targets in aggregate form, allowing enterprise managers flexibility in disaggregation, goods and services were produced, and in sufficient quantity to generate often impressive economic growth...To cite only the Soviet Union: an economic order that endured for three-quarters of a century in the face of relentless international hostility and a German invasion, and that managed to industrialize a huge, quasi-feudal country, to feed, clothe, house and educate its citizenry, and to create a world-class scientific establishment should not be called impossible." [8]

Planning is possible (indeed, vital) under certain conditions and for certain purposes, but these are not necessarily the same problems we face in building a socialist society. The planners achieved much, but the limits are obvious from Soviet history. The alternative, if we are not to abandon socialism altogether, is to disentangle the conflation of market mechanisms with categories of capitalist ownership and look at the possibilities of combining (limited) markets with egalitarian outcomes: in other words, 'Market Socialism.'

Though it owes a considerable debt to the ideas of Eduard Bernstein and Otto Bauer, the true father of Market Socialism is the great Polish socialist economist Oskar Lange, whose 'competitive solution' to the problem of planning emerged from his famous exchange with F.A. Hayek and Ludwig von Mises--the so-called 'socialist calculation' debates of the interwar years. Lange argued that, contrary to Mises, it was possible for planners in an economy without capital goods to calculate approximate prices, and thus to establish simulated markets and direct socialist enterprises into optimal channels. [9] Since then the debate has continued to rage, mainly in academic left-wing circles, and a number of theorists (Marxist and non-Marxist) have developed proposals for a workable Market Socialism, usually (but not always) involving competing worker- or community-owned enterprises and social control of investment. Perhaps the two most comprehensive models are those of David Schweickart ('Economic Democracy') and John Roemer ('Coupon Socialism'), but there have also been important contributions from such authors as Alec Nove, James Yunker, Wlodzimierz Brus and Kazimierz Laski, Pranab Bardhan, Michael Albert and Thomas Weisskopf, among others. [10]

The basic principle (in Robin Blackburn's summation) is that "Market prices are not just a delusion but approximate to social cost. They should be revised to take account of costs they are not good at measuring, such as the using up of non-renewable resources, but they cannot be entirely disregarded without unfortunate results. Likewise profit and loss." [11] Beyond that, Market Socialist models diverge widely, and the question of where exactly to draw the line on market mechanisms has been an abiding problem. Roemer's 'Coupon Socialism,' a particularly extreme example, has fully functioning markets in absolutely every area with the exception of share ownership (where each citizen has an equal number of government-endowed shares which cannot be bought and sold with money but only traded for other shares through a system of competing Mutual Funds); Schweickart's 'Economic Democracy,' on the other hand, (characterized as "an economic system with three basic structures, worker self-management of enterprises, social control of investment, and a market for goods and services [in] contrast with the defining elements of capitalism: wage labor, private ownership of the means of production, and a market for goods, services, capital, and labor"), has neither capital markets nor labour markets in the usual sense, for the good old-fashioned reason that "when the market extends beyond goods and services to capital and labor, it begins biting the neighbors, urinating on the carpet, and worse." [12]

What most of the models do have in common, however, is their embrace of the transformation of capitalist enterprise into social enterprise, what James Lawler describes as "a strategy of socialist organization that takes advantage of trends that are promoted by the self-transforming logic of capitalist development itself." [13] The market (in Roemer's insight) "does not perform its good deeds unaided; it is supported by a myriad cast of institutional characters which have evolved painstakingly over time, and in a variety of ways, in various market economies...these institutional solutions to the design problems of capitalism also suggest how the design problems of socialism may be solved in a market setting." [14]

Such an innovative approach would seem, on the face of it, to hold out endless possibilities for socialist renewal. Unfortunately, the many interesting and workable models for a Market Socialist economy that have been put forward are usually unaccompanied by any suggestion whatsoever of a plausible political-economic strategy for getting there. Meanwhile, committed socialist politicians and activists flounder about before the advancing neoliberal tide, desperately in search of a programme, often reduced, in the new climate of rampant inequality and social revanchism, to promising a kinder, gentler management of their constituents' downward mobility on the basis of an ethic of comparative scarcity. The theoretical and political wings of socialism are like ships that pass in the night, while the absence, on the Left, of widely-discussed, concrete and coherent proposals for a twenty-first century socialist political economy is used by apologists for the status quo to confirm their lazy mantra that "There Is No Alternative", typified by the back-handed tribute to the persistence of Marx's ideas that appeared in a recent issue of The Economist:

"Nowhere in the "Manifesto", or anywhere else in his writings, did Marx take the trouble to describe how the communism he predicted and advocated would actually work...[A] cartoon is almost all Marx ever said about communism in practice. The rest has to be deduced, as an absence of things he deplored about capitalism: inequality, exploitation, alienation, private property and so forth. It is striking that today's militant critics of globalisation, whether declared Marxists or otherwise, proceed in much the same way. They present no worked-out alternative to the present economic order. Instead, they invoke a Utopia free of environmental stress, social injustice and branded sportswear, harking back to a pre-industrial golden age that did not actually exist. Never is this alternative future given clear shape or offered up for examination." [15]

                These are serious challenges. In the past, the socialist movement was able to draw considerable strength from the widespread conviction that socialism was in some sense 'inevitable,' that 'history is on our side.' No more. The old line about not needing to cook up recipes for tomorrow's kitchens has worn thin, and is in danger of discrediting the struggle for a better society. G.A. Cohen, in his snappily-titled If You're An Egalitarian, How Come You're So Rich?, highlights a number of problems with what he terms "the obstetric metaphor" in Marxist teleology, the idea that, in Rosa Luxemburg's words, history "has the fine habit of always producing along with any real social need the means to its satisfaction, along with the task simultaneously the solution." [16] Certainly, Marx himself took different attitudes to capitalist development at different times. But the flip side of this (to risk a tautology) is that any solution we are able to fashion to the problem of the transition to socialism can only be fashioned from the current range of possibilities, and with the tools we have available.

We should look, then, among the institutions of late capitalism for the outlines of their successors. This view would seem to find endorsement in Marx's own thinking, as he looked around and, even back then, began to discern the outlines of a possible future. In his Inaugural Address to the International Working Men's Association, after praising the recent passage of the Ten Hours Bill, he went on to say:

"But there was in store a still greater victory of the political economy of labour over the political economy of property. We speak of the cooperative movement, especially the cooperative factories raised by the unassisted efforts of a few bold 'hands.' The value of these great social experiments cannot be overrated. By deed, instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried out without a class of masters employing a class of hands; that to bear fruit, the means of labour need not be monopolized as a means of domination over, and of extortion against the labouring man himself; and that, like slave labour, like serf labour, hired labour is but a transitory and inferior form, destined to disappear before associated labour plying its toil with a willing hand, a ready mind, and a joyous heart." [17]

The danger, as ever, is discouragement and resignation. Meghnad Desai, in Marx's Revenge, begins with a rigorous and tough-minded engagement with the historical failures of 'Statist Socialism' but collapses at the end into little more than a pale pink version of the liberal argument that the only hope lies in a rising capitalist tide that will lift all boats:

"Capitalism has not just survived: it has been rejuvenated, and shows no prospect of imminent collapse, or even ageing. This is the totally unpredictable outcome of the twentieth century. It is still unbelieved in many circles. Many point to the injustices, inequities and costs of the new dispensation. Others wish for a return to the heyday of Keynesianism...There is no rival mode of production on the horizon as a viable alternative. Capitalism is the only game in town. The contest is between rival versions..." [18]

This is the worst kind of defeatism, and at exactly the point when growing resistance and opposition to capitalism is bursting forth from all directions. The Left intelligentsia needs to stop crying into its beer and return to the ideas offensive. Immanuel Wallerstein, in New Left Review, outlines a four-part programme for this era of systemic instability and capitalist restructuring which consists, in the first three instances, of "a process of constant, open debate about the transition and the outcome we hope for...short-term defensive action, including electoral action...[and] the establishment of interim, middle-range goals [such as] ever-widening decommodification." Fourthly, and most significantly, Wallerstein argues that:

"We need to stop assuming what the better (not the perfect) society will be like. We need to discuss it, outline it, experiment with alternative structures to realize it; and we need to do this at the same time as we carry out the first three parts of our programme for a chaotic world in systemic transition..." [19]

[1] David Schweickart, "Market Socialism: A Defense," in Bertell Ollman (ed.), Market Socialism: The Debate Among Socialists, (New York: Routledge, 1998), p.  20.

[2] Thomas E. Weisskopf, "Challenges to Market Socialism: A Response to Critics," in Frank Roosevelt and David Belkin (eds.), Why Market Socialism? Voices from Dissent, (Armonk, New York: M.E. Sharpe, 1994), p. 297.

[3] H.D. Dickinson, The Economics of Socialism, (Oxford: Oxford University Press, 1939), as quoted in Brian Burkitt, Radical Political Economy: An Introduction to the Alternative Economics, (New York: New York University Press, 1984), p. 1.

[4] Karl Marx, Critique of the Gotha Programme, (London: Martin Lawrence, 1933), p. 29.

[5] Frederick Engels, Anti-Dühring, (London: Martin Lawrence, no publication date), p. 331.

[6] Meghnad Desai, Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism, (London: Verso, 2002), pp. 107-08.

[7] Michael Harrington, "Markets and Plans: Is the Market Necessarily Capitalist?" in Frank Roosevelt and David Belkin (eds.), Why Market Socialism? Voices from Dissent, (Armonk, New York: M.E. Sharpe, 1994), p. 92.

[8] David Schweickart, "Market Socialism: A Defense," in Bertell Ollman (ed.), Market Socialism: The Debate Among Socialists, (New York: Routledge, 1998), p. 12.

[9] Oskar Lange and Fred M. Taylor, On the Economic Theory of Socialism, (New York: University of Minnesota and McGraw-Hill, 1938).

[10] See, in particular, David Schweickart, Against Capitalism, (Boulder, Colorado: Westview Press, 1996); John E. Roemer, "A Future for Socialism," in John E. Roemer et al, Equal Shares: Making Market Socialism Work, (New York: Verso, 1996); Wlodzimierz Brus and Kazimierz Laski, From Marx to the Market: Socialism in Search of an Economic System, (Oxford: Clarendon Press, 1992). For a useful survey of the literature on Market Socialism, see Thad Williamson, What Comes Next? Proposals for a Different Society, (Washington, D.C.: National Center for Economic and Security Alternatives, 1997), pp. 43-86.

[11] Robin Blackburn, Banking on Death, Or, Investing in Life: The History and Future of Pensions, (London and New York: Verso, 2002), p. 497.

[12] David Schweickart, "Market Socialism: A Defense," in Bertell Ollman (ed.), Market Socialism: The Debate Among Socialists, (New York: Routledge, 1998), pp. 18-20.

[13] James Lawler, "Marx as Market Socialist," in Bertell Ollman (ed.), Market Socialism: The Debate Among Socialists, (New York: Routledge, 1998), p. 37.

[14] John E. Roemer, "A Future for Socialism," in John E. Roemer et al, Equal Shares: Making Market Socialism Work, (New York: Verso, 1996), p. 9.

[15] "Marx After Communism," The Economist, Vol. 365, No. 8304, December 19, 2002, p. 19.

[16] G.A. Cohen, If You're An Egalitarian, How Come You're So Rich?, (Cambridge, Mass.: Harvard University Press, 2000), p. 58.

[17] Karl Marx, "Inaugural Address of the International Working Men's Association," in Karl Marx, The First International and After, David Fernbach (ed.), (London: Penguin and New Left Review, 1981), pp. 79-80.

[18] Meghnad Desai, Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism, (London: Verso, 2002), p. 303.

[19] Immanuel Wallerstein, "New Revolts Against The System," New Left Review, November-December 2002. Available online at: <>




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