Central Planning

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Contextual Citation

Cosma Shalizi:

"Planning for the whole economy would, under the most favorable possible assumptions, be intractable for the foreseeable future, and deciding on a plan runs into difficulties we have no idea how to solve. The sort of efficient planned economy dreamed of by the characters in Red Plenty is something we have no clue of how to bring about, even if we were willing to accept dictatorship to do so." ([1])

Discussion: Against

Summary of the anarchist critique of central planning

From the Non-Market Calculation wiki:

"As Hayek summarised, the crux of the matter was "the impossibility of a rational calculation in a centrally directed economy from which prices are necessarily absent", one which "involves planning on a most extensive scale -->. Thus the "one central authority has to solve the economic problem of distributing a limited amount of resources between a practically infinite number of competing purposes" with "a reasonable degree of accuracy, with a degree of success equally or approaching the results of competitive capitalism" is what "constitutes the problem of socialism as a method." ["The Nature and History of the Problem", pp. 1-40, Op. Cit., p. 35, p. 19 and pp. 16-7]

While this was a common idea in Marxian social democracy (and the Leninism that came from it), centralised organisations are rejected by anarchism. As Bakunin argued, "where are the intellects powerful enough to embrace the infinite multiplicity and diversity of real interests, aspirations, wishes, and needs which sum up the collective will of the people? And to invent a social organisation that will not be a Procrustean bed upon which the violence of the State will more or less overtly force unhappy society to stretch out?" Moreover, a socialist government, "unless it were endowed with omniscience, omnipresence, and the omnipotence which the theologians attribute to God, could not possibly know and foresee the needs of its people, or satisfy with an even justice those interests which are most legitimate and pressing." [Bakunin on Anarchism, pp. 268-9 and p. 318] For Malatesta, such a system would require "immense centralisation" and would either be "an impossible thing to achieve, or, if possible, would end up as a colossal and very complex tyranny." [At the Café, p. 65]

Kropotkin, likewise, dismissed the notion of central planning as the "economic changes that will result from the social revolution will be so immense and so profound . . . that it will be impossible for one or even a number of individuals to elaborate the social forms to which a further society must give birth. The elaboration of new social forms can only be the collective work of the masses." [Words of a Rebel, p. 175] The notion that a "strongly centralised Government" could "command that a prescribed quantity" of a good "be sent to such a place on such a day" and be "received on a given day by a specified official and stored in particular warehouses" was not only "undesirable" but also "wildly Utopian." During his discussion of the benefits of free agreement against state tutelage, Kropotkin noted that only the former allowed the utilisation of "the co-operation, the enthusiasm, the local knowledge" of the people. [The Conquest of Bread, pp. 82-3 and p. 137]

Kropotkin's own experience had shown how the "high functionaries" of the Tsarist bureaucracy "were simply charming in their innocent ignorance" of the areas they were meant to be administrating and how, thanks to Marxism, the socialist ideal had "lost the character of something that had to be worked out by the labour organisations themselves, and became state management of industries -- in fact, state socialism; that is, state capitalism." As an anarchist, he knew that governments become "isolated from the masses" and so "the very success of socialism" required "the ideas of no-government, of self-reliance, of free initiative of the individual" to be "preached side by side with those of socialised ownership and production." Thus it was essential that socialism was decentralised, federal and participatory, that the "structure of the society which we longed for" was "worked out, in theory and practice, from beneath" in by "all labour unions" with "a full knowledge of local needs of each trade and each locality." [Memoirs of a Revolutionist, p. 184, p. 360, p. 374-5 and p. 376]

So anarchists can agree with Mises that central planning cannot work in practice as its advocates hope. Or, more correctly, Mises agreed with the anarchists, as we had opposed central planning first. We have long recognised that no small body of people can be expected to know what happens in society and plan accordingly ("No single brain nor any bureau of brains can see to this organisation." [Issac Puente, Libertarian Communism, p. 29]). Moreover, there is the pressing question of freedom as well, for "the despotism of [the 'socialist'] State would be equal to the despotism of the present state, increased by the economic despotism of all the capital which would pass into the hands of the State, and the whole would be multiplied by all the centralisation necessary for this new State. And it is for this reason that we, the Anarchists, friends of liberty, we intend to fight them to the end." [Carlo Cafiero, "Anarchy and Communism", pp. 179-86, The Raven, No. 6, p. 179]

As John O'Neill summarises, the "argument against centralised planning is one that has been articulated within the history of socialist planning as an argument for democratic and decentralised decision making." [The Market, p. 132] So, for good economic and political reasons, anarchists reject central planning. This central libertarian socialist position feeds directly into refuting Mises' argument, for while a centralised system would need to compare a large ("infinite") number of possible alternatives to a large number of possible needs, this is not the case in a decentralised system. Rather than a vast multitude of alternatives which would swamp a centralised planning agency, one workplace comparing different alternatives to meet a specific need faces a much lower number of possibilities as the objective technical requirements (use-values) of a project are known and so local knowledge will eliminate most of the options available to a small number which can be directly compared.

As such, removing the assumption of a central planning body automatically drains Mises' critique of much of its force -- rather than an "the ocean of possible and conceivable economic combinations" faced by a central body, a specific workplace or community has a more limited number of possible solutions for a limited number of requirements. Moreover, any complex machine is a product of less complex goods, meaning that the workplace is a consumer of other workplace's goods. If, as Mises admitted, a customer can decide between consumption goods without the need for money then the user and producer of a "higher order" good can decide between consumption goods required to meet their needs. In terms of decision making, it is true that a centralised planning agency would be swamped by the multiple options available to it. However, in a decentralised socialist system individual workplaces and communes would be deciding between a much smaller number of alternatives. Moreover, unlike a centralised system, the individual firm or commune knows exactly what is required to meet its needs, and so the number of possible alternatives is reduced as well (for example, certain materials are simply technically unsuitable for certain tasks)." (http://non-market-calculation.wikispaces.com/A+critique+of+its+assumptions)

Summary of a socialist critique

Seth Ackerman:

"Why not a centrally planned economy where the job of economic calculation is handed over to information-gathering experts — democratically accountable ones, hopefully. We actually have historical examples of this kind of system, though of course they were far from democratic. Centrally planned economies registered some accomplishments: when Communism came to poor, rural countries like Bulgaria or Romania they were able to industrialize quickly, wipe out illiteracy, raise education levels, modernize gender roles, and eventually ensure that most people had basic housing and health care. The system could also raise per capita production pretty quickly from, say, the level of today’s Laos to that of today’s Bosnia; or from the level of Yemen to that of Egypt.

But beyond that, the system ran into trouble. Here a prefatory note is in order: Because the neoliberal Right has habit of measuring a society’s success by the abundance of its consumer goods, the radical left is prone to slip into a posture of denying this sort of thing is politically relevant at all. This is a mistake. The problem with full supermarket shelves is that they’re not enough — not that they’re unwelcome or trivial. The citizens of Communist countries experienced the paucity, shoddiness and uniformity of their goods not merely as inconveniences; they experienced them as violations of their basic rights. As an anthropologist of Communist Hungary writes, “goods of state-socialist production . . . came to be seen as evidence of the failure of a state-socialist-generated modernity, but more importantly, of the regime’s negligent and even ‘inhumane’ treatment of its subjects.”

In fact, the shabbiness of consumer supply was popularly felt as a betrayal of the humanistic mission of socialism itself. A historian of East Germany quotes the petitions that ordinary consumers addressed to the state: “It really is not in the spirit of the human being as the center of socialist society when I have to save up for years for a Trabant and then cannot use my car for more than a year because of a shortage of spare parts!” said one. Another wrote: “When you read in the socialist press ‘maximal satisfaction of the needs of the people and so on’ and … ‘everything for the benefit of the people,’ it makes me feel sick.” In different countries and languages across Eastern Europe, citizens used almost identical expressions to evoke the image of substandard goods being “thrown at” them.

Items that became unavailable in Hungary at various times due to planning failures included “the kitchen tool used to make Hungarian noodles,” “bath plugs that fit tubs in stock; cosmetics shelves; and the metal box necessary for electrical wiring in new apartment buildings.” As a local newspaper editorial complained in the 1960s, these things “don’t seem important until the moment one needs them, and suddenly they are very important!”

And at an aggregate level, the best estimates show the Communist countries steadily falling behind Western Europe: East German per capita income, which had been slightly higher than that of West German regions before World War II, never recovered in relative terms from the postwar occupation years and continually lost ground from 1960 onwards. By the late 1980s it stood at less than 40% of the West German level.

Unlike an imaginary economy with no states or markets, the Communist economies did have an economic calculation mechanism. It just didn’t work as advertised." (https://www.jacobinmag.com/2012/12/the-red-and-the-black/)

Discussions: In Favour

The Failure of Soviet Central Planning was Political

Matthijs Krul:

"Doesn’t the Eastern European experience under ‘really existing socialism’ disprove the possibility of central planning? Is central planning really necessary to overcome the limitations of market socialism outlined above? The Soviet (and Soviet-dependent) experience plays a central role in Ackerman’s argument against the very possibility of a centrally planned society. For Ackerman, Soviet-type central planning was simply too radical; by ignoring the centrality of the market it represented a kind of bureaucratic utopianism whose only result was a shortage of toilet paper at crucial moments. Ackerman only barely acknowledges the very real accomplishments of Soviet society: “when Communism came to poor, rural countries like Bulgaria or Romania they were able to industrialize quickly, wipe out illiteracy, raise education levels, modernize gender roles, and eventually ensure that most people had basic housing and health care”. But this is not enough for him. Central planning seems to be unable to go beyond the point of the achievement of mere basic provisions. It can achieve no more than a mid-table economy in GDP per capita terms, with shoddy cars and insufficient toothpaste. This will not do, for the aim of socialism cannot be universal equal poverty, but the possibility of abundance for the widest possible share of society. If central planning cannot achieve this, then we must reject it. But is that true?

I argue that the conventional narrative of central planning’s failure must be radically revisited. Ackerman himself already notes that the central planning system performed not much less efficiently than most actually existing capitalisms of today. The Soviet strategy was based on a classic model of high investment rates, financed by the artificial repression of living standards and the (forcible) distribution of the surplus population unproductive in agriculture into the cities as an industrial working class, generating an enormous increase in the productivity of labor. The idea is that such productivity gains are then reinvested into heavy industry, further generating productive capacity, and so forth. This model was followed not just by the USSR, but in a different way also by China, Japan, South Korea, and other nations.

Using mainstream productivity and growth models, the liberal economic historian Robert C. Allen compared the central planning and collectivization of the Stalin period to various alternative approaches. In his book Farm to Factory, Allen astounded orthodox economic historians by finding that the ‘Stalinist’ approach (albeit credited to Preobrazhensky) was the best possible result among the alternatives(2). But, the narrative goes, Soviet planning could undertake labor-intensive industry well, but not capital-intensive industry. While the USSR could compete in sheer quantities of steel and coal and cars produced, as their propaganda often boasted, it couldn’t compete in spheres of production requiring substantial R&D and rapid technological upgrading of goods. Robert Allen’s account, for example, uses this as the explanation of Soviet failure. However, I believe evidence points to a very different conclusion.

William Easterly and Stanley Fischer’s World Bank study of the ‘Soviet climacteric’ argues that Soviet R&D on civilian production actually increased substantially between 1959 and 1984, rejecting the common notion that the Soviet arms race combined with the inflexibility of Soviet production caused the consumer economy to come to a standstill.(3) Moreover, Brendan Beare’s correction of the Easterly and Fischer paper has demonstrated that due to statistical mistakes in the reconstruction of the data, the elasticity of substitution between capital and labor in the Soviet economy was much higher than is commonly believed.(4) In other words: previous scholars claimed that when the Soviet surplus population ran out, the USSR was unable to efficiently replace labor with machinery, leading to an inability to make the leap from labor-intensive to capital-intensive production. But Beare’s data show that the ratio of this replacement of labor by capital may not have been as bad as previously thought, but in fact may have been quite high, as it was in Japan, which did not experience such stagnation. Nor did investment itself falter: even as late as 1989 the Soviet investment share of GDP was a staggering 35%. In short, Soviet central planning did not fail due to its inability to develop or implement labor-saving technology.

Why do I mention all these technicalities? Simply to make the important point that the traditional narrative, in which the Soviet central planning model collapsed due to the inherent flaws in such a system’s ability to expand and deliver the goods, is untrue. The failure of Soviet and Eastern European planning is no less real than it was before, but it must be understood as a contingent, political failure, located not in the concept of central planning itself, but in the limitations of the Soviet version. By most statistical measures, even those of outright foes of the Soviet Union, their central planning system was an overwhelming success in terms of growth, increases in productivity, and raising the potential living standards. It is not a coincidence that the USSR was the only state ever to make the American ruling class tremble – no mean achievement. Contrary to Ackerman however, I would argue its ultimate failure rested not so much in these categories. It failed for reasons not dissimilar to the flaws of Ackerman’s market socialism. The Soviet Union failed not because it was too socialist, but because it was not socialist enough.

The one weakness of the Soviet model was that it was still a form of the 20th century ‘developmental state’, that is, part of the general push of the past century of poor and underdeveloped countries to develop the productive forces (as Marxists would say) and to modernize at all costs. In so doing, it achieved tremendous things, but it was still subject to the logic of accumulation characteristic of all the negative aspects of capitalism. The workers of the USSR never saw the ‘switch’ from the development of heavy industry to the point in which the enormous productive capacities so generated would actually be used in their favour: when production would no longer be for exchange or reinvestment, but for general use. Their working days were long and intense, and as illustrated by the propaganda of Stakhanovism, they were ever exhorted to work harder and longer for the accumulation of a socialized surplus.

This brings me to the similarities between the failure of the Soviet model and the problems with Ackerman’s plan. Since the USSR arguably lacked a capitalist class, the surplus so accumulated was socialized, but not used for the purpose of general needs. The technology developed was socialized, but applied to further generate surplus, not to reduce the necessary labor-time to a minimum. Finally, the ultimate yardstick of the USSR was its military-industrial competition with the USA, not the fullest development of all. In short, just like Ackerman’s market socialism, Soviet society fell short of true socialism. Soviet society, and the Eastern European states dependent on them, asked its working class to postpone the move to a recognizably socialist form of production as long as the country, isolated and surrounded, needed to develop. Investment, the distribution of goods, housing and healthcare: all these were socialized, but there was no ‘society of the associated producers’ sought by Marx. The result was that competitive production would lead to the preservation of exploitation. This is exactly the same flaw I outlined in Ackerman’s plan: a failure to overcome capitalist production means a failure to overcome capitalism itself. In this sense, the Soviet economy is actually closer to Ackerman’s ideal than he realizes.

I would argue then, contrary to Ackerman, that the failure of actually existing central planning is not one of its potential, but historically one of its politics. The drive for accumulation for its own sake makes sense, when productivity in poor countries must be developed so that socialism can mean general abundance, not general poverty. I completely agree with Ackerman when he points to the importance of whether the supermarkets are full or empty. But there can be no market-based socialism, because capitalism ultimately does not reproduce itself in the market, but in production. Soviet central planning is in this respect a step up from that, as it socializes not only all spheres of distribution and surplus, but also consciously aims for developing productivity so that ultimately the ‘switch’ can be made towards a general needs-based society. However, it failed this test. The working class resisted this accumulation, as it represented the perpetual postponement of their personal development in the name of the general interest. This resistance took the form of a resistance to work, since this and this only was the remaining locus of capitalist logic in the Soviet system: hence the endless thefts from the workplace, the low quality of production, the shoddiness of the finished goods, the sullen, passive noncompliance with the state apparatus and its designs, and finally the fruitless attempts by the Soviet state to remedy these by draconian measures and moral exhortations. The problem with Soviet-type central planning was therefore a political, not a technical one.

Central planning is simply not the problem Ackerman makes it out to be. In fact, we see it at work even in ‘normal’ capitalism all the time. As soon as push comes to shove, and the liberal-democratic societies are threatened by total war, they approximate central planning in their production methods as closely as their political systems allow. Capitalist firms rely on high-level central planning all the time in the modern economy. Just-in-time distribution, Amazon’s on-demand system, modern supermarket provisioning, international cargo shipping, air traffic coordination: all these are examples of sophisticated and accurate central planning in the contemporary world. Our computing techniques and capacity have improved by several factors since the Cuban Missile Crisis: there is nothing technical stopping us from applying this technology in the benefit of socialist humanity rather than a small elite of owners and investors. But if we do not want to repeat the mistakes of market socialism and of Soviet planning both, we must put the conditions of production at the forefront of our transition to socialism. Let us learn all we can about logistics, about organizational theory, about planning models. Let us take the enormous technological capacities and productivity of capitalist society, “which has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals”, and use it to reduce to a minimum the work expected from everyone; especially dirty, unpleasant, and degrading work. Our unprecedented expansion of free time will see not just a flourishing of culture and the intellect, but also of many more ideas to perfect the process of production and distribution to the benefit of all. Then the realm of freedom will truly begin, and with it a new, socialist, history of humanity." (http://rosswolfe.wordpress.com/2013/01/30/on-communism-and-markets-a-reply-to-seth-ackerman-by-matthijs-krul/)


  1. Robert C. Allen, Farm to Factory (Princeton, NJ 2009).
  2. Easterly, William and Stanley Fischer. 1995. “The Soviet Economic Decline”, in: World Bank Economic Review vol. 9, p. 341-371.
  3. Beare, Brendan K. 2008. “The Soviet Economic Decline Revisited”. Econ Journal Watch 5:2 (May 2008), p. 135-144.

The Soviet Planned Economy system actually worked in terms of allocative efficiency

Seth Ackerman:


"when Western economists descended on the former Soviet bloc after 1989 to help direct the transition out of socialism, their central mantra, endlessly repeated, was “Get Prices Right.”

But a great deal of contrary evidence had accumulated in the meantime. Around the time of the Soviet collapse, the economist Peter Murrell published an article in the Journal of Economic Perspectives reviewing empirical studies of efficiency in the socialist planned economies. These studies consistently failed to support the neoclassical analysis: virtually all of them found that by standard neoclassical measures of efficiency, the planned economies performed as well or better than market economies.

Murrell pleaded with readers to suspend their prejudices:

The consistency and tenor of the results will surprise many readers. I was, and am, surprised at the nature of these results. And given their inconsistency with received doctrines, there is a tendency to dismiss them on methodological grounds. However, such dismissal becomes increasingly hard when faced with a cumulation of consistent results from a variety of sources.

First he reviewed eighteen studies of technical efficiency: the degree to which a firm produces at its own maximum technological level. Matching studies of centrally planned firms with studies that examined capitalist firms using the same methodologies, he compared the results. One paper, for example, found a 90% level of technical efficiency in capitalist firms; another using the same method found a 93% level in Soviet firms. The results continued in the same way: 84% versus 86%, 87% versus 95%, and so on.

Then Murrell examined studies of allocative efficiency: the degree to which inputs are allocated among firms in a way that maximizes total output. One paper found that a fully optimal reallocation of inputs would increase total Soviet output by only 3%-4%. Another found that raising Soviet efficiency to U.S. standards would increase its GNP by all of 2%. A third produced a range of estimates as low as 1.5%. The highest number found in any of the Soviet studies was 10%. As Murrell notes, these were hardly amounts “likely to encourage the overthrow of a whole socio-economic system.” (Murell wasn’t the only economist to notice this anomaly: an article titled “Why Is the Soviet Economy Allocatively Efficient?” appeared in Soviet Studies around the same time.)"


"Two German microeconomists tested the “widely accepted” hypothesis that “prices in a planned economy are arbitrarily set exchange ratios without any relation to relative scarcities or economic valuations [whereas] capitalist market prices are close to equilibrium levels.” [2] They employed a technique that analyzes the distribution of an economy’s inputs among industries to measure how far the pattern diverges from that which would be expected to prevail under perfectly optimal neoclassical prices. Examining East German and West German data from 1987, they arrived at an “astonishing result”: the divergence was 16.1% in the West and 16.5% in the East, a trivial difference. The gap in the West’s favor, they wrote, was greatest in the manufacturing sectors, where something like competitive conditions may have existed. But in the bulk of the West German economy – which was then being hailed globally as Modell Deutschland – monopolies, taxes, subsidies, and so on actually left its price structure further from the “efficient” optimum than in the moribund Communist system behind the Berlin Wall."" (http://jacobinmag.com/2012/12/the-red-and-the-black/)

Otto Neurath’s Central Planning

by Gavin Mendel-Gleason [3] :

"Neurath is perhaps the greatest historical proponent of central rational planning without money. He wrote for decades on the necessity of abolishing money, and about the methodology one would use, by using input/output matrices for the calculation of the goods which we would like to produce. He assumed that these goods would be decided in kind, without ever mediating through some currency (as in contrast with Cockshott’s proposal, or even Kantorovich’s which contains “shadow prices” for instance).

While the goal of destroying the root of all evil is laudable, the proposal appears lacking in that it can not decide how to truncate from all possible wants described by participants in society, down to those that we would like to fulfil given the amount of labour which would be diverted towards their production. For this reason Neurath’s proposal is not tenable unless it is somehow reworked to include at least a concept of a demand schedule, and probably some partial order on those schedules which would allow them to be truncated. Further it would probably have a process which was iterated such that the truncated items did not include your grocery list while you were only able to acquire a plasma screen telly. Further some way of deciding how we would like to allocate our labour is missing. Do we volunteer for that which we’d most enjoy? How do the crap jobs get filled in society. I’m not yet convinced that some theory in this orbit is impossible to work out, but unfortunately, Neurath has not done it for us."

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