Commenting on last November’s European Social Forum gathering of anti-globalization activists in Paris, George Monbiot, a columnist for the British paper The Gaurdian, acknowledged that the official anti-capitalist movement has “scarcely attempted to tackle the big issue: What should be done about capitalism? With what do we hope to replace it?”
The fall of the Berlin Wall and the subsequent collapse of the so-called communist bloc were greeted triumphantly by capitalist political and business leaders and academics. Most famously, one U.S. academic, Frances Fukayama, declared it was “the end of history.”
Along with many others, Fukayama believed the search for the most efficient way of organizing society had been settled for good. The liberal free market had proven its superiority over socialist planning. Never again would the rule of capital be challenged.
But the growth of the anti-globalization movement has done just that. Entering the 21st century, half the world’s population lives on less than $2 per day. Multinational companies dictate government policies and dominate local markets. Not since the 1970s, perhaps, have so many workers, students, and young people across the world sought an alternative to capitalism. The question is: What alternative?
Karl Marx proposed the alternative of a planned economy. Major industries and financial services would be publicly owned and controlled by democratic structures representing workers in those industries, local and regional communities, and the elected government.
Marx said that only public ownership could facilitate the democratic control of production because businesses operating in a capitalist market are constrained by the laws of that system. This means that in order to attract investment (capital) a company must maximize its profit. If investors believe they can make a better return elsewhere, they will withhold funds, and the company may not survive.
Marx also observed that as powerful companies grow, they are able to cut their costs by producing on a bigger scale and using their revenues to invest in new technology. This gives the biggest firms a competitive advantage and allows them to become monopoly producers. Having driven their competitors out of business, these giants are able to fix prices and wages for entire industries.
Marx believed that taxing or regulating these industries would ultimately fail. Private firms will use their resources to create or find legal loopholes in tax and regulatory regimes. If that proves too difficult, investors will withdraw from an industry and look elsewhere, a process known as “capital flight.”
Once investors perceive an industry or even an economy of an entire country to be unprofitable, they withdraw their funds, leading to a crippling recession. In recent years, this has been the experience of many less-developed countries which have been told by the IMF to cut taxes and privatize public services to attract capital investment.
The fact is in a market economy a handful of hyper-rich people will always decide what is produced, where, and in what quantities, irrespective of the greater needs of society.
To put this into perspective, consider this: the biggest multinationals control about 70% of world trade. These firms are controlled by boards of directors, a handful of people, who decide the wages we will be paid, the prices we will be charged, and whether we have jobs or not.
Marx’s idea of a planned, socialist economy would solve these problems. If the major industries and banks were publicly owned, then we as a society could democratically plan how to use our resources.
Public ownership and democratic planning would allow everyone to have some input into these decisions. Rather than considering profit margins and market share, a system of democratic planning would consider how to use resources most efficiently to satisfy everyone’s wants and needs.
Maximize Production Not Profit
Capitalist economic theory is based on the model of a “perfect market.” This perfect market allows anyone to produce anything, it allows anyone to buy from any producer, and everyone has an identical supply of knowledge. Firms maximize their profits by producing and selling as much as possible.
The model, though, is a fairy tale. Back on earth, most production is carried out by monopoly or oligopoly firms (an oligopoly is a group of a few large firms who collude to monopolize a market). To maximize their profits, monopoly producers often restrict production to push the price up.
Planning would also eliminate an enormous amount of waste in the form of useless production. Well over half the price paid for many brand name goods goes towards the advertising budget of those products. Retailing goods can also be ridiculously expensive. Clothing is typically marked up by several hundred percent of the manufactured cost. After having paid inflated prices, we often have to buy replacements for products that are designed to fall apart after a short life (planned obsolescence).
A planned economy would not allow individual firms to restrict production or build in obsolescence to products in the way monopolies do now. Factual information about products could be provided, but resources wasted on brand-based advertising which tries to sell an aspiration or image could be used more productively. By utilizing spare capacity and increasing investment in new production, economic growth would soar as a result of planning.
Supply and Demand?
According to “marginal utility theory,” which has been incorporated into orthodox economic theory, the value of a commodity is determined by the price a consumer is prepared to pay for one more unit of that commodity.
This breaks with the classical economic ideas of David Ricardo and Adam Smith, who said that the value of a commodity is created by the labor of those who produce it. This “labor theory of value” is also central to Marx’s work in Capital.
Does it matter who is right? Yes. If it is true that value is determined by the available supply of commodities and the corresponding demand for them, then it is impossible to produce efficiently without a free market.
How else could we know what to charge for something? How could planners know whether a pair of shoes is overpriced at $60 or underpriced? Will the state-owned shops be left with unsold goods or face shortages and long lines of frustrated shoppers? Will the price charged be sufficient to cover production costs?
Marxism maintains that the intrinsic value of any commodity is determined by the amount of socially necessary labor time employed in its production. Of course, in a capitalist market place commodities can be traded, according to circumstances, at a price that is above or below their labor value, but they will tend to oscillate around this level.
It stands to reason that if a commodity is sold at a price significantly below its value for a prolonged period of time, the company will go bust as it will not be able to meet the costs of paying wages to obtain the labor necessary for production.
According to the labor theory of value, then, we can calculate a value, or price, to commodities according to the costs of production. This can be measured just as capitalist firms already do. Planning decisions can then be made democratically in light of accurate information about the costs of producing different commodities.
In order to democratically plan production, workers must first control their workplaces. Elected committees of representatives of the workers, the socialist government, and the trade union movement would run large-scale workplaces.
These committees would make decisions about the day-to-day running of the workplace. A system of local, regional, and national governments would represent communities and also have delegates from workplaces. This is where broad priorities for the economy would be decided, including allocation of scarce resources between different sectors and deciding how to distribute resources for investment and wages.
Although business leaders (falsely) lambast socialists for wanting to control every economic decision centrally, there is a large element of this already taking place within multinational corporations. Of course, not every decision is made by big multinational firms, but the decisions that really matter are.
According to the 18th-century capitalist economic philosopher Adam Smith, “the invisible hand of the market” would organize production and exchange. In the long run, in a capitalist economy market conditions will determine aggregate levels of investment, prices, and employment.
However, the day-to-day decisions are organized, planned even, by teams of economists and accountants who try to anticipate the market. They move production around the world in search of cheap labor; they hide profits until they turn up in an offshore tax haven; they estimate future demand and hire or fire accordingly.
These are the decisions that must be made democratically in a planned economy. They are a relatively small number of decisions but have a massive impact on society.
Alternatively, there are millions of small decisions to be made that have only a local or even individual impact. Whether to eat out for dinner or how to run a small shop or restaurant are decisions that can continue to be made by individuals or small firms in the planned economy.
The crucial difference is that firms will be operating according to new rules. Wage rates, working conditions, and prices will no longer be set by multinational firms but by democratic governments.
Where the economy is unable to produce sufficient commodities to meet demand, then a price mechanism and market would continue to operate. But with the profit motive removed, many necessities, such as basic foods, housing, and fuel, could be provided for free.
Vladimir Lenin and Leon Trotsky, the leaders of the Russian Revolution, both explained how an administrative apparatus, a state, will be necessary during the transition from capitalism to communism. But as the planned economy develops, it will be able to meet more and more of people’s wants until there is no need to ration and limit distribution. Then the state would wither away
Today, the distribution of such goods could be achieved far more efficiently than at the time of the 1917 Russian Revolution, especially given recent developments in information technology. What could be simpler than ordering free, publicly provided goods on the Internet? Inventories, demand, and future production needs could be monitored continuously and fed into the planning process.
Socialism and Democracy
Trotsky wrote that socialism needs democracy as a body needs oxygen. Tragically, in the conditions of extreme economic disintegration, which existed in Russia after the capitalist West’s military interventions against the revolution, Trotsky and his followers were defeated by the forces of Stalinism in the isolated Soviet state.
Stalin represented a totalitarian wing of the administrative apparatus that opposed any form of workers’ democracy and ruled instead in their own interests. With that defeat went the chances of establishing a genuine socialist democracy to control the USSR’s planned economy. A new revolution to overthrow the Stalinist dictatorship would be necessary.
In the absence of any effective democratic checks, the Soviet economy was held back by inefficiencies and lack of coordination. Nevertheless, the Soviet Union was still able to make tremendous progress, especially in the development of heavy industry and infrastructure.
State planning, even under bureaucratic direction, proved effective in managing huge national projects in which one uniform product was required everywhere. Infrastructure projects such as electrification and public transport were developed at a speed unimaginable in the capitalist countries, while resources were also found for the provision of healthcare and education, at least in the major cities.
But as Trotsky predicted in his book The Revolution Betrayed, as the economy grew the bureaucratic decision-making process came into sharper conflict with the needs of a modern society.
The inability of the Soviet economy to react to what people wanted in the form of consumer goods eroded support for the system of planning. The nature of bureaucratic planning failed to take account of the quality of goods produced. Central planners set quantitative production targets, but in order to meet them many factories produced substandard goods. With no democratic input, the economy simply failed to provide the type and quality of commodities needed.
Historically, many firms, and sometimes entire industries, have been taken over (nationalized) by capitalist governments. This often occurred, for example in Britain after World War II, when it was perceived that industries critical to the national economy were in danger of collapsing if left in private hands. But during the past 20 years, under the reign of neo-liberal “globalization,” governments have been busy privatizing everything in sight.
However, the old nationalized industries were not a model for a planned economy. Principally, the problem with them lay in the structure of these nationalized firms as government-owned capitalist businesses.
Decisions on production, wages, and employment were made by a board of directors in order to compete with a much larger private sector in domestic and world markets. Socialists demanded that nationalized industries be run by elected boards made up equally of delegates from the firm’s workforce, the trade union movement as a whole, and the government. This would have allowed real workers’ control over publicly owned industries.
Even then, nationalized firms and other forms of non-profit-making enterprises, such as cooperatives, will never be able to flourish if forced to play by the rules of a capitalist market. Unless a firm maximizes profit competitively, it will lose market share and investment funds.
Only democratic planning and public ownership allows decisions to be made on a coordinated basis to maximize production of what is needed for all.
Frederick Engels wrote in Socialism: Utopian and Scientific that the great accomplishment of capitalism was to take production out of the home workshop and socialize it in the more productive form of mechanized, specialist production.
The task of socialism, he wrote, is to socialize distribution. That is, to take the decisions about how to distribute production and profits out of the hands of private firms. It is in this historic step forward that a democratic socialist planned economy can begin to free humankind from poverty and provide the opportunity for billions of people to develop their talents and abilities beyond the ability to toil and survive.