Planning through the Market

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Article: Planning Through the Market: More Equality Through the Market System. by G. William Domhoff, March 2005



From a contribution to thinking about political strategy, by G. William Domhoff:

(Article: Planning Through the Market: More Equality Through the Market System)

“If non-market planning is a disaster and markets are primarily instruments for exploitation, then it is no wonder that leftists have not been able to project the necessary vision of a better future that would provide renewed energy for their work. It is understandable that they would simply say that the current system is not good enough by defining themselves as “anti-capitalists,”, but not offer any alternatives. However, there is actually more hope than most egalitarians realize. While many leftists have been busy criticizing modern-day economics as an exercise in producing irrelevant mathematical formulas, a new generation of economists has shown that the idolization of the market as a perfect, impersonal, and self-regulating mechanism that always leads to the best possible outcomes is as far from reality as the hopes of socialist central planners. The claims by free-market ideologues that any laws regulating the market hinder productivity, or that greater economic equality inevitably limits freedom, are without significant empirical support. Research shows that markets need guidance from government to operate well, and that there is no inevitable trade-off between equality and efficiency, or between equality and freedom, within a market system. More equality might even mean more efficiency, not less, and it can certainly mean more freedom for more people.

Most importantly for our purposes, markets can be reconstructed to make it possible to plan for a more egalitarian economic future. It turns out it is possible for strong governments to use the market system for planning. Once it is realized that markets can be viewed from a governmental point of view as administrative instruments for planning, it can be seen that with a little reconfiguring they can serve collective purposes as well as the individual consumer preferences trumpeted by conservative free market economists. In this form of planning, the information is supplied by the price system that is so central to the considerable, but far from perfect, efficiency brought about by markets.

There is thus no need for one big planning apparatus. Instead, the planning tools within a reconstructed market system are simply taxes, subsidies, government purchases, and regulation. This point may seem very mundane, but these well-known government powers can be potent when applied to markets. They make it possible to speak in terms of restructuring the market system. They make it possible for different agencies of the state to tinker with different parts of the economic system, and to change course quickly if the economy does not respond as projected. (This is exactly how the Federal Reserve Board operates now, but always in favor of using higher interest rates to control inflation by throwing people out of work, not to increase maximum employment in conjunction with tax and spending policies that could help constrain inflation.)

Planning through the market is in effect the general strategy adopted by the environmental movement, and it has paid good dividends. Although most environmental programs actually increase the number of jobs, not decrease them, the plans developed by environmentalists can call for the government to subsidize any job losses or sudden dislocations through “just transition” programs. For example, in a 2002 plan developed for a green-blue alliance, which would reduce carbon emissions by half in 2020, the authors include a proposal for two years of income and up to four years of education for those who lose their jobs, along with $10,000 in community funds for each job lost. At the same time, they note that their plan to tax carbon and increase the use of renewable energy sources would increase the overall number of jobs. “Just transitions” would be financed by everyone through their taxes, which is a collective solution to a collective problem.

Nor is it necessary that corporations have all the rights of real persons they now enjoy under American law thanks to the governmental power their owners have exercised. They need not be able to enter into the political arena as if they were actual people. Their charters could be limited to the legal rights that are needed for them to buy, sell, and manage a workforce.

Once markets are accepted as a necessity for the production and distribution of most products and services, it is possible to really hammer home on the areas where they don’t work the way politically conservative free-market economists say they do. Here there is much support from moderate and liberal economists. Even the most extreme of free marketers, the libertarians, admit that there are “market failures.” For example, some of them will grant that there are four instances where non-market solutions have what they call a higher level of payoff than private spending. They’re talking about education, public sanitation, mass transit, and highways, which together cover plenty of territory and provide a good starting point.

There is of course much more than those four areas that are not well served by the market, such as the justice system, parks, and support for the disabled and elderly, which are already under the domain of government. None of these past gains would be lost. However, by realizing that the market is the starting point for the production of most goods and services, and then talking in terms of “planning through the market,” “market failures,” and “reconstructing the market,” egalitarians gain an enormous ideological advantage. They make it possible to think more expansively and creatively about what government agencies can do within the economy instead of worrying about the possibility that government bureaucracies may become too big and oppressive. They also disarm the conservatives at the theoretical level. They force them to talk about specific cases — all crucial to social well being — where even the conservatives’ own economists have conceded that the market is less than perfect. In fact, the free marketers’ admission about a “higher level of payoff” from non-market solutions in some cases can be used as a mantra to move on to other market failures. Important issues in social life where the market can’t get values right also can be used as a battering ram against the anti-government ideology of low taxes that is employed by the corporate-conservative coalition to stifle government spending for the social services everyone needs and wants.

For example, the whole area of health care is another instance of “market failure” for a variety of reasons. People don’t have the time or expertise to shop around when they are sick, so it is difficult to have much “consumer choice.” No one could possibly save enough to pay for the care needed during a catastrophic illness. Not just anyone can delivery health care, so there are “barriers to entry.” Most of all, of course, health care providers can’t make a profit if they have to treat people who can’t pay, which means they would have to let such people sicken or die instead of helping them. The result in the United States is an inefficient private insurance system with a bigger bureaucracy than the government would have if all the bills were paid by Medicare. There are other areas of life where traditional ideas about markets don’t make much sense either, but it is not my purpose to suggest a detailed set of programs. The important point for now is that a critique of the weaknesses in the market system has more credibility if it is within the context of understanding that centralized planning is hopeless.

By drawing on the experience of other democratic capitalist countries, it is also possible to show convincingly that a reconstructed market system could be much more open and flexible than the one that currently exists in the United States. For example, it is possible to have many different types of enterprises compete in the market, not just privately owned corporations. It is possible to conceive of a fully functioning market system based on consumer-owned cooperatives, or of state-owned firms, or a combination of cooperative, state-owned, and private companies. At the least, agencies of the government can own companies that could enter into highly concentrated markets and provide competition for the oligopolists. This is in essence what the New Deal did when it created the Tennessee Valley Authority to produce electricity and fertilizer for the underdeveloped areas along the Tennessee River. The price-gouging utilities controlled by holding companies in New York protested mightily, but the Southern Democrats saw them as Yankee exploiters, and that was the end of it.

Needless to say, a reconstructed market would not put an end to the wage system, so it would not satisfy those influenced by classical Marxist theory. It would not deal with the desire to abolish competition and concentrate on creating more opportunities for self-development within the context of greater non-market social cooperation. But planning through the market could be used to decrease the degree of exploitation that currently exists by making wages higher, the work process more humane, and employment in some form or another a political right. Better unemployment benefits and guaranteed health insurance in one form or another also would reduce exploitation through the wage system.

There are also interesting ways to level up incomes through the market because capitalists are more willing to accept support programs for low-income people that do not interfere with markets for low-wage labor. This means, for example, that they do not object as strenuously to year-end government supplements to the wages of those who have worked a prescribed number of hours at a low-wage job. This supplement is now known by the euphemism “earned income tax credit,” or EITC, but it also has been called a “negative income tax.” From the point of view of workers, it is a year-end bonus from the government. From the point of view of capitalists, it is a government subsidy. From the point of view of egalitarians and government, it is a way to create greater income equality in exchange for accepting the discipline of the market.

The EITC has been endorsed by both free market and left-liberal economists, and it was not stopped by the conservative voting bloc in Congress. The Bush Administration put it under attack, of course, but it is far outside the mainstream of economic thinking. However, now that the principle behind the program is generally accepted, pressure could be mounted by a new egalitarian social movement to improve the program so that everyone over age 18 who works the minimum number of hours would be boosted to a living wage. All of this could be paid for through a more progressive income tax, which would signify a collective commitment to greater income equality. Such a focus would be a useful supplement to living-wage campaigns at the local level.

The heresy of this document for leftists is to admit that markets can have the virtue of being a decentralized form of coordination and control that does expand opportunity for most people. A market system is first and foremost a general social system that makes it possible to have coordination through mutual adjustments. It is a form of cooperation in which people do not have to attend a series of meetings beforehand, or enter into lengthy discussions, or even like each other. There are elements of coercion, in the sense that people have to work at a job for a wage, but they would have to do that under non-market planning as well. And there is competition as well as cooperation, but the competitive aspects of the system can be shaped by planning through the market.

True, markets also can make it possible for the owners of income-producing private property to gain the power to dominate government, as is currently the case in the United States. But by their very nature they leave open the possibility that government can limit the power and rewards of ownership through taxes, subsidies, government purchases, and regulation. Government also can create competitive public enterprises to compete with privately owned companies, and it can tax incomes and wealth far more than it is doing now without disturbing the functioning of the market. The real issue is political power. If a liberal-labor-left coalition had political power, it could have significant impact on the economy. Of course capitalists would howl and threaten, but they do that already.

On balance, then, markets are more useful than not, and can provide a starting point for developing new egalitarian policies and programs that have only been touched upon briefly in this document. It therefore makes sense to talk about reconstructing the “market system” and figuring out ways to democratize it. It makes sense to think about Congress setting out general plans for energy conservation and health care, and to develop separate agencies to carry out these plans. The models here are the Social Security Administration and the Environmental Protection Agency. Only right wingers live in dread of such agencies, which could serve people even better if they were backed by higher budgets and an egalitarian majority in Congress.

By adopting a strategy of mixing electoral politics within the Democratic Party with social movements based on strategic nonviolence, and then adding an egalitarian economic vision based on planning through the market, leftists could begin to contend within the American political arena. They would be able to take advantage of the next unforeseen accident, scandal, or disaster, which is always right around the corner. And elections happen at the national level every two years, not to mention all the elections at the state and local level.” (

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Annotated Bibliography

G. William Domhoff:

For the foundational texts concerning the Marxist view of history, see Karl Marx, "A contribution to the critique of political economy," In Eugene Kamenka, editor, The Portable Karl Marx, New York: Penguin Books, 1983, pp. 159-161; Karl Marx, "The German ideology," in Kamenka, The Portable Karl Marx, op. cit., pp. 163-171; and Karl Marx and Friedrich Engels, The Communist manifesto, as newly translated by Paul M. Sweezy and reprinted by Monthly Review Press of New York in 1964. See also the accompanying essay by Paul Sweezy and Leo Huberman, "The Communist manifesto after 100 years." For the classic attack on utopian socialism, see Frederich Engels, Socialism: Utopian and scientific, New York: C. Scribner's sons, 1892.

On the failures of central planning, see Charles Lindblom, Politics and markets: The world's political economic systems, New York: Basic Books, 1977; Charles Lindblom, The market system: What it is, how it works, and what to make of it, New Haven: Yale University Press, 2001; and Alex Nove, The economics of feasible socialism revisited, 2nd ed., New York: HarperCollins, 1991. However, it should be added that there is a huge literature on this topic that is only summarized in these books. Nove, for example, wrote many earlier books explicitly devoted to issues of central planning.

For evidence that central planning was essential to Marx's view of socialism, see N. Scott Arnold, Marx's Radical Critique of Capitalist Society: A Reconstruction and Critical Evaluation, New York: Oxford University Press, 1990, Chapter 6. To understand why classical Marxists cannot consider the use of the market, see the analysis of the role of the market in Stanley Moore, The critique of capitalist democracy: An introduction to the theory of the state in Marx, Engels, and Lenin, New York, Augustus M. Kelley, 1969, Chapter 2. For evidence that some of the most prominent Marxist scholars in the United States continue to see the market primarily in terms of deception, see Bertell Ollman, "Market mystification in capitalist and market socialist societies," pp. 81-121 in Bertell Ollman, Ed., Market socialism: The debate among socialists, New York: Routledge, 1998. Ollman makes the following amazing claim on page 81: "One major virtue of centrally planned societies, then, even undemocratic ones, even ones that don't work very well, is that it is easy to see who is responsible for what goes wrong. It is those who made the plan. The same cannot be said of market economies, which have as one of their main functions to befuddle the understanding of those who live in them. This is essential if people are to misdirect whatever frustration and anger they feel about the social and economic inequality, unemployment, idle machines and factories, ecological destruction, widespread corruption and exaggerated forms of greed that are the inevitable byproducts of market economies."

For the quote from the editor of The Socialist Register, see Leo Panitch, Renewing socialism: Democracy, strategy, and imagination, Cambridge: Westview Press, 2001, page 202.

For good discussions of the possibilities of market socialism, see Nove, The economics of feasible socialism revisited, op. cit.; and Christopher Pierson, Socialism after communism: The new market socialism, Oxford: Polity Press, 1995. For the argument among Marxists about market socialism, see Ollman, Market socialism, op. cit. The Marxists who advocate any form of market socialism, even in conjunction with minimum of central planning or as a transitional program, are in the distinct minority in the general debate.

For critiques of central planning, see again Lindblom, The market system, op. cit., and Nove, The economics of feasible socialism, op. cit. For a dramatic statement of the failure of central planning in the USSR, see Stephen Kotkin, Magnetic mountain: Stalinism as a civilization, Berkeley: University of California Press, 1995. For a friendly critique of market socialism that ends up skeptical about the workability of social ownership or any degree of central planning, see Pierson, Socialism after communism, op. cit.

For accessible accounts of the scholarly studies that upset the claims of those who attribute perfection to markets, see Paul Krugman, Peddling prosperity: Economic sense and nonsense in the age of diminished expectations, New York: W. W. Norton & Company, 1994; and Robert Kuttner, Everything for sale: The virtues and limits of markets, New York: Alfred A. Knopf, 1997. For the argument that the market system could be even more efficient if there were greater equality, see Samuel Bowles and Herbert Gintis, Recasting egalitarianism: New rules for communities, states, and markets, New York: Verso, 1998.

See Lindblom, The market system, Chapter 18, for an excellent argument for the possibilities of planning through the market. No reader should reject the argument of this document out of hand without having read Lindblom very carefully.

For information on the blue-green energy report, see David Moberg, "Fueling the flames," In These Times, April 1, 2002, pp. 11-13. For the general case that environmental laws do not decrease the number of jobs, see Eban Goodstein, The trade-off myth : fact and fiction about jobs and the environment, Washington, D.C. : Island Press, 1999.

For a discussion of the limited rights actually needed by corporations in a market system, see Lindblom, The market system, op. cit, page 239. For one good account of the limits of the market in the domain of health care, see Kuttner, Everything for sale, op. cit., Chapter 4. For a good overview of the flexible use of markets in other countries, in some states in the United States, and during the New Deal, see Martin Carnoy and Derek Shearer, Economic democracy, White Plains, N.Y. : M. E. Sharpe, 1980.

On the high levels of job satisfaction over the past decades in the United States, see Richard F. Hamilton, Marxism, revisionism, and Leninism: Explication, assessment, and commentary, Westport, CT: Praeger, 2000. For a good overall analysis of the Earned Income Tax Credit, see John Myles and Jill Quadagno, "Envisioning a third way: The welfare state in the twenty-first century," Contemporary Sociology, 29, 1, 2000, pp. 156-167. For the suggestion that a negative income tax should be used more widely than it is now, see Fred Block and Jeff Manza, "Could we end poverty in a postindustrial society?" Politics and Society, 25, 473-512. For a model of an egalitarian market economy that incorporates the negative income tax, see Fred L. Block, The Vampire State, New York: The New Press, 1996, Chapters 24-29. For another statement of what would be possible with the help of planning through the market and other government programs, see Benjamin Page and James R. Simmons, What government could do: Dealing with poverty and inequality, Chicago: University of Chicago Press, 2002. For information on the effectiveness of the current EITC system, see Robert Greenstein and Isaac Shapiro, New research findings on the effects of the earned income tax credit, Washington: Center on Budget and Policy Priorities, 1998; and Bruce D. Meyer and Douglas Holtz-Eakin, editors. Making work pay: The earned income tax credit and its impact on America's families, New York: Russell Sage Foundation, 2001.

For a good account of some of the policy possibilities within the context of a reconstructed market system, see Bowles and Gintis, Recasting egalitarianism, op. cit." (