Original Institutional Economics

Discussion

Arturo Hermann:

“As many of us would agree, the idea of a perfect and optimising market, conceived of as an exogenous and self-equilibrating mechanism, is a kind of wishful thinking. What comes about in real economies is that: (i) markets embody various “imperfections” that tend to grow with their complexity; (ii) markets are created and maintained by an evolving set of law, institutions and policies often oriented by the stronger groups. Furthermore, (iii) various kind of public goods cannot be delivered by the market and then require a direct public action.

For these reasons, a kind of economic planning is always necessary for attaining the objectives of policy action. We shift then to the issue, namely, as to what kind of economic planning is preferable.

On that account, Original Institutional Economics (OIE) provides ─ along with other heterodox contributions, for instance the theories of democratic and ecological socialism* ─ an interesting analysis.

It identifies three kinds of economic planning:

(I) The first is corporate planning, which is the reality of modern capitalism. In this system, the operation of “free market forces” is heavily conditioned by the interests of big corporations. They possess a wide array of instruments to influence the structure of all relevant markets in which are engaged. In William Dugger’s words, “The corporation is privately efficient [in the pursuit of its goals], but it is not socially efficient because its low-cost, high-productivity performance benefits those who control it, generally at the expense of those who depend upon it but frequently also at the expense of the society at large.”, (Dugger, 1988: 239).

Corporate planning is highly hierarchical, since the key decisions are made by the top managers with little involvement of workers and citizens at large.

(II) Then comes totalitarian planning, which is a system characterised by a public purpose which is pursued through a highly hierarchical structure. Such organizations ─ although have sometimes achieved important results in building infrastructures and poverty alleviation ─ are flawed by a fundamental lack of accountability and democratic representation.

Government members are appointed by the ruling (and single) political party. In such instances, there is no guarantee that, (i) the party is organized democratically and expresses the needs and experiences of all the groups and classes of society; and that, (ii) government members and public officials are really accountable for their behaviour.

This system, then, by acquiring a marked self-referential character, makes it impossible any objective and pluralistic assessment of the policies adopted and the results achieved.

(III) We switch then to the third alternative, democratic planning. This system, although it does not always work miracles, is definitely more promising. By allowing a more complete expression of the experiences, competences, motivations and conflicts of the involved subjects, such system can improve the process of social valuation, and then the capacity of policy action to respond to the profound needs of society. One central difference of democratic planning in respect to corporate and totalitarian systems resides in the capacity to self-correct ─ by a process of trial and error ─ its own shortcomings.

In this regard, OIE envisions the following macro-objectives (in particular, Dugger, 1988, Tool, 1986) of democratic planning:

(1) Overcoming the dichotomy, identified by Veblen, between the objectives of profit and that of serviceability. This can be attained by reducing the artificial scarcity and the “invidious distinctions” stemming from market power and ceremonial status, and by making a better and participatory use of the community’s knowledge.

(2) Overcoming the dichotomy, underscored by John Fagg Foster, between structures and functions. Such dichotomy can take place because structures, even if, at least in theory, should be instruments for delivering some functions, can easily outlive their utility. This can happen in various degrees ─ as when, for instance, an organisation becomes a kind of a white elephant ─ and is directly related to the “ceremonial” aspects and power relations residing in the institutions. Also in this case, a broader participatory process, by improving the process of social valuation, can help abate such dichotomy.

(3) Implementing the “instrumental value criterion”, which constitutes the cornerstone of OIE. An effective definition of the instrumental value criterion is (Tool, 1986), “the continuity of human life and the non-invidious re-creation of community through the instrumental use of knowledge”. This encompassing goal** requires the attainment of the two intertwined objectives: (a) an accountable and participatory democracy in which every citizen can play an active role in decision-making; and (b) a substantial reduction of economic and social inequalities.

All this is related to the fulfilment of John Dewey’s democratic principle: people affected by decisions must have a say in decision-making and in assessing the results.

It is this aspect that makes, in William Dugger’s words “participatory processes dynamic and authoritarian processes so stultifying”, (quoted: 245). Needless to say, these objectives will be interpreted differently according to the features of every considered context. This comes about because the relevance of democratic planning lies in the process it engenders for improving social valuation in decision-making. In this respect, the “instrumental value criterion” set forth in particular by Marc R.Tool can usefully be integrated with the concept of “reasonable value” elaborated*** by John R.Commons.

The relevant aspect of democratic planning is its capacity to improve the process of policy coordination, both between policies (for instance, macroeconomic and structural) and institutions (for instance, supranational, national, regional, local). This can help address a wide array of contemporary issues, often reaching out to a supranational dimension. These include the building of peaceful relations, the reduction of gross inequalities between persons and economic areas, and, as a pivotal theme traversing the previous issues, the solution of the environmental problems.

On that account, the conceptualization of economic planning put forward by the OIE can well complement, in an interdisciplinary spirit, with other heterodox theories.” (https://together381.wordpress.com/2019/11/20/democratic-planning-in-the-original-institutional-economics-perspective/?)