Towards a Theory of Planned Economy

• Doctorate / Book: Branko Horvat. Towards a Theory of Planned Economy.

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"The book was published in Belgrade under the title Ekonomska teorija planske privrede in 1961; and the English original was published in 1964."

Source

• Article: V. Stipetic: Branko Horvat and Economic Science. Zb. Rad. - Sveuè. Rij., Ekon. fak. Rij., god. 21. Sv. 2 (2003), str. 7-28

Discussion

V. Stipetic:

"There are three fields in which Branko Horvat gave an exceptional contribution to economics. They do not include everything he wrote (he used to write on topics beyond economics – for example Ogled o jugoslavenskom društvu – Zagreb 1969), but they cover fundamental fields in which he improved our economics and influenced world economics, too. I believe that the most significant Horvat’s internationally distinguished and recognised contributions to economy are in the fields of theory of economic growth and business cycles, political economy of contemporary society and a firm’s self management.

His contribution to economic theory is the most significant one. Graduating from the Faculty of Economics, acquiring great knowledge from outstanding economists of the time (he attended lectures of M. Mirkoviæ and R. Biæaniæ, Š. Babiæ and S. Kranjèeviæ, S. Pulišeliæ and O. Mandiæ, V. Serdar and Vraniæ – not to mention the others) and defending doctoral thesis on oil industry economics at the Faculty of Economics in Zagreb (1955), Branko obtained the possibility to study in England in Manchester in 1956. Arthur Lewis was the dean there, whose lectures Branko attended regularly being an attentive listener, as, exactly at that time, Lewis set up the economic development model for economically undeveloped countries with rural overpopulation. Lewis was awarded Nobel Prize for these works in economics. Under his influence Horvat wrote and defended his second doctoral thesis Towards a Theory of Planned Economy, introduced economic innovations in Yugoslav planning and special use of economic models. Harrod-Domar’s model types (created at late 1930s) were instantly put into practice with national product, capital and investments and employment as endogen variables.

With his theory of planned economy he tried to overcome alternative approaches, which characterised contemporary economy, namely the division on Keynesians (who, according to Keynes, manage aggregate demand on national level using interests and other methods) and monetarists (who in their belief in the operation of market’s global tendencies, doubt the effectiveness of national state’s macroeconomic methods). Therefore, Horvat aiming at achieving maximum of economic dynamic development, expected adherence to the tendencies both on global market (which in 1961, when the book was published, sounded revolutionary) and national plan as it was subject to market laws as well.

Naturally, he was not the first in economic theory who proclaimed planning as a medium of accelerating economic growth and stability. Enrico Barone, Oskar Lange and Abbe Lerner were his predecessors in western economic literature, as well as a bunch of Marxist economists (from Buharin and Preobraenski to A.M. Rumjancev and V. Bajbakov). However, Branko spoke about it in the second half of the past century based on the successful practice in one backward country, which had more democratic form of rule than other socialist countries. The boarders in that country were opened for the exit of hundreds of thousands of workers and market laws were respected (which is the postulate of free economy). Hence, his theses on economic development, based on planning, self-management and market, were accepted as a possibility and attractive alternative. Strong government intervention, however, was implied, but it respected market laws in order to maximize welfare.

He suggested some theoretical innovations: thus he was the first in world literature to mention “amortization multiplier”, claiming that in a dynamic business environment, because of the relationship of amortization and real trade of capital, the value of primary means – fixed funds – increases faster than it would suit the growth per account of net-investments. Elaborating tersely a series of other models in his book on theory of planned economy, only a year later, he published a book Economic Models, and voluminous Economic Analyses in 1968. He elaborated Intersection Analyses with Mijo Sekuliæ (1962).

His theoretical work culminated in a great synthesis he had given in his book Political Economy of Socialism (English edition 1982, Croatian translation 1984, later translated into other languages), which was his masterpiece in questioning interpretation and application of economic principles and practice of socialism. Here he conducted criticism of contemporary social and economic systems, he traced for alternative and found it in the construction of self-managing socialism. He anticipated that certain countries and areas according to their with development and social and economic system would pass through some irregularities in the shifting period.

...

It is obvious that the disintegration of socialist systems at early 1990s brought to the triumphal return of liberal theories to economic theory. Branko was not satisfied with the ways of transition of former socialist economies because he was convinced that they both disintegrated the achieved goals on social spheres and restored the primitive capital formation by newly-formed political class. Obviously, the socialist systems caused their own collapse ardently supported by common people who expected significant improvements in their standard of living. However, it did not happened.

Therefore, Horvat was trying to find out the methods that would make the ideals of his generation come true. He continued to believe that achieving welfare and social justice were the basis of contemporary civilisation that could not be left over to laissez-faire.

On the contrary, according to Horvat, government should control markets, which was part of their responsibility and of vital importance for the country. Horvat’s most prolific period of writing in the field of pure theory was after his retirement. He had time to synthesize his rich experience so he published two exceptional contributions to the development of value theory: The Theory of Value, Capital and Interest (Edgar-Aldershot, 1995) and The Theory of International Trade (Macmillan, 1999). They are such significant works that it is too early to speak about them or their achievements today. However, almost unbelievable, but not to this day have these works been translated into Croatian or, at least not to my knowledge, did any publisher come to Horvat for copyright and possible translation.

The other field in which Horvat gave a great contribution was economic policy. Analytically minded as he was, he first conducted the analyses of the relations between Economic science and folk economy (1969) and then finding the great discrepancy between the proclaimed economic principles (in economic reform from 1965) and realization, he decided to conduct research of relevant phenomena at the Institute. Thanks to this principle, a number of monographs were born: first of them was Business Cycles in Yugoslavia (1969), followed by the book Economic Systems and Economic Policy (1970) and an analysis Economic stabilisation policy (1976), all of them topped by critical analysis Economy of Yugoslavia 1965-1983 (in two volumes, 1983 and 1984). In these books he gave analytical critique of weaknesses of economic reform from 1965 but also of later methods of economic policies, which respected neither market law nor new understandings in economics. That approach could have been of greatest use to the society but it was vaguely acknowledged but Croatian economic policy turned a deaf ear to the voice of Branko Horvat when he discussed it. It referred to his critiques in nineties as well when his voice was not listened to, either. He was not a convenient public speaker in front rows as of criticising ways of privatisation and advocating for joining the circle of countries that afterwards created CEFTA.

From time to time he got an opportunity to express his opinion: then he was invited to take part in “dialogue bridge” that was aired by Slobodna Europa radio station every week since 1994.

In July 1994, Horvat in a dialogue with Dragan Veselinov, PhD considered economic programmes of Croatia and Yugoslavia of the time. Both participants were pessimistic. Veselinov was a fierce critic of the policy then conducted by Miloševiæ and Aramoviæ, who was their National Bank governor. Branko Horvat was not so critical of stabilisation programme in Croatia but pointed out that in Croatia there was a threat that “government will not get access to the international capital market” as well as that “raised social contradiction may suddenly burst”. At that time he believed that the stabilisation programme would “give in” until the end of 1994. As we know, he was not right, but his public speaking was marked by dissonant tone in dominant apologetic writings of certain economists. His last book published in 2002 in Zagreb was treated in the same way, and explanation can be found in the title: What kind of a state do we have and what kind of a state do we need?

Finally, there is a work on development of economic and political democracy and social justice. He considered that part of his work as important as that on economic theory. He considered self-management to be irreplaceable part of democratisation of economic life. Social Crisis in Yugoslavia (1985) was according to him, to a great extent the result of incompletely and inconsistently conducted ideas to introduce economic democracy – self-management – in companies as basic unities of future society in which the participation of working people would be conditio sine qua non.

He believed that the bad economic results in the eighties were the consequence of inadequate economic policy of government but misunderstanding of self-managers about their function in creating socially acceptable development. For this aim he popularised his understanding (book ABC of Yugoslav Socialism, 1989), all in the belief that it would improve the employees’ approach to managing “socially-owned property”.

In the 1980s, deep crises of self-managing system, instigated by crises on Kosovo, were reflected on economic development stagnation accompanied by inflation and the decline of living standard. Engaged Horvat in order to liberate self-managing system from the political burden wrote a book Question of Kosovo (first edition 1989, second 1989). He considered the crucial problems and found out that they could be solved. He wrote, “With certain methodological attempt I have confronted the widespread belief that Kosovo problems are insoluble. Namely, what remains impenetrable in rigid politically institutionalised frames becomes soluble when it is situated in broader historical and political context. Economists are familiar with that methodological: and removing certain limitations enables better optimal solutions.” he wishes to change the “ugly reality” so in spite of his orientation towards objectivity, uncompromisingly engaged to solve that Yugoslav Problem.

However, the results of his book could neither cure nor prevent the events – Yugoslavia was falling apart, thus creating new states. Newly created social and economic frames endangered his postulates: especially accepted methods of supporting social property. He fiercely attacked ways of privatisation (book Entrepreneurship and Market Transformation of Socially-owned Property, 1990), and he is particularly critical towards development results of the decade (What kind of state do we have and what kind of state do we need, 2002). But as the time went by Horvat’s pleas became less audible. Politically engaged in a small marginal party, he was outspoken in publicity and medias, therefore his arguments and his voice reached the sounds of silence. Since his retirement in 1993, he was not even teaching any longer, and hence, doomed to become vox clamantis in deserto.

This unavoidable fact affected the destiny of his magazine as well. Branko Horvat did not merely formulate and express his attitudes on economic phenomena, but he created opinions of other people’s works. He had strong understanding for possible weaknesses of other scientific workers. In his oral debates, he used to explain and justify other people’s weaknesses by saying that the author would overcome them.

However, there was one flaw of some economic writers, he could never tolerate: the aspiration of individuals to express answers a priori that did not come out of the fact analysis. He objected to such abuse that was defended by individuals in the name of science: nor did he approve adhering to trends and orientations of other schools not analysing our situation. He rejected volunteering and accepting dual point of views if they were merely fashionable views and opportunism and not based on research and evidence. He was sincerely disappointed when he came across submission to current policy in his colleagues’ work under an illusion of quasi-scientific and so-called forward understanding of economics and current policy."