The need for a socialist planned economy | Communist Revolution

Source: Txetxu, Flickr This article is a transcript of the presentation given by Vincent R. Beaudoin at Fightback’s Marxist Winter School 2021. When the Soviet Union collapsed in 1991, Francis Fukuyama told us that this was evidence of the failure of the planned economy and the success of the capitalist market economy, and that it represented the end of history. In October 2018, however, he changed his mind. He recognized that the neoliberal period, which began with Ronald Reagan and Margaret Thatcher, promoting the benefits of an undirected market, had had disastrous effects. He also recognized that Marx was right when he said that capitalism leads to crises of overproduction that impoverish the workers and propel a class of oligarchs to power, who will make the workers pay for the crisis. It was Fukuyama who said all this! Although capitalism has been going into crisis every 10 years or so for 200 years, and impoverishing the workers every time, Fukuyama had to see the effects of the 2008 global crisis for himself to understand the relevance of the Marxist analysis. In 2008, the banking sector collapsed as a result of a crisis of overproduction. The “invisible hand of the market” did not save the capitalists. It was the state that rescued the banks by gifting billions of dollars to them, which was paid for by the workers in the form of austerity in the decade that followed. The current COVID-19 pandemic also shows the limits of the capitalist market. Business owners have pressured governments to leave non-essential businesses open. Workers were thus forced to work in unsafe, unsanitary conditions so that the bosses could continue to make a profit. And the big bosses made a lot of profit. Since the beginning of the pandemic, Canadian billionaires have become nearly $40 billion richer, and American billionaires have become $637 billion richer, while 40 million American workers have applied for unemployment benefits. Between March and September of 2020, former Amazon CEO Jeff Bezos became $74 billion richer, and now has a fortune of $200 billion. Bezos now makes more money per second than the average American worker makes in a week.

What an American worker will earn in a lifetime, about $2.2 million, Bezos makes in 15 minutes. Since the beginning of the COVID-19 pandemic, workers around the world have lost $3.7 trillion and billionaires have gained $3.9 trillion. In the pandemic there is a contradiction between the needs of the market economy, and the needs of public health. Bosses cannot close non-essential businesses and continue to pay workers wages. If they had done so, they would have gone bankrupt. It was the state that bailed out these companies with wage subsidies and other handouts, while also providing a subsistence income to the workers through emergency benefits like the Canadian Emergency Response Benefit (CERB). The Canadian government has paid out hundreds of billions of dollars to save corporate profits, a huge amount of money that will have to be paid back by the workers in the form of taxes, inflation and austerity. Conversely, if we lived in a socialist planned economy, where corporations are nationalized under the democratic control of the workers, we would have quickly closed down all non-essential workplaces and continued to provide full wages to the workers. No company would have gone bankrupt. The virus would have been contained from the beginning, and at this point the pandemic would probably be a thing of the past. Listen to this presentation on Spotify: The problem of economic calculation Ludwig von Mises and Friedrich A. Hayek. Source: Public domain The central question of the current article is: What is the best economic system for the efficient distribution of goods and services—a capitalist market economy or a socialist planned economy? This debate has been formulated notably through the writings of the economist Ludwig von Mises, in the early 1920s, then developed by the economist Friedrich Hayek. This debate is referred to as the “economic calculation problem” or the “socialist calculation debate.” Mises’ thesis is that in a large-scale economy, a socialist planning council would be unable to obtain and calculate all the information necessary to know what products to produce and in what quantity, and how to distribute them. And so socialist planning would create mismatches between supply and demand, and lead to shortages, famine, chaos, etc. For Mises, the solution is simple: we need a market economy, in which private companies compete with each other.

Through competition, the law of supply and demand is exercised, which, according to Mises, makes it possible to set the prices of commodities. In the end, we find in Mises the same old idea of Adam Smith’s “invisible hand” of the market. According to Adam Smith, individuals make decisions to buy or sell for their own benefit, and they are thus directed by an “invisible hand” that allows them to achieve an end that they did not want, namely the well-being of society as a whole, thanks to the market system. According to Mises, commodity prices allow for the spontaneous calculation of information from all aspects of production and distribution, from production costs to changes in consumer needs. According to him, the market decentralizes the vast amount of information that a single planner could not compile and calculate. We often hear the idea that socialism works in theory, works only on paper, but not in practice. Mises wanted to show that socialism does not even work in theory. There is something wrong with his idea, however, and perhaps it is only recently that it can be demonstrated: economic planning is a fundamental pillar of production for large companies. In their book, The People’s Republic of Walmart, Leigh Phillips and Michael Rozworski explain how the case of Walmart demonstrates that economic planning works in practice, and shows how a socialist economy would surpass capitalism in efficiency. Walmart: an internal planned economy Source: Mike Mozart, Flickr Walmart has become the largest company in the world. It operates 11,000 stores in 27 countries, and employs more people than any private company. If state-owned enterprises are included in the calculation, Walmart is the third largest employer in the world after the US Department of Defense and the Chinese People’s Liberation Army. If Walmart were a country, its economy would be about the size of Sweden or Switzerland. Although Walmart operates in the market, within Walmart there is no market, everything is planned. The different departments, stores, suppliers, etc., are not competing with each other in a market: they are all coordinated together. Walmart is not just a planned economy, but a planned economy the size of the USSR during the middle of the Cold War.

In 1970, the GDP of the USSR was $433.5 billion in today’s money, and was then the 2nd largest economy in the world, while Walmart in 2017 had an income of $485 billion, which is much larger. If Mises were right, then Walmart wouldn’t exist, because it would have hit the wall of “too many calculations.” In addition, there are hundreds of multinational companies similar to Walmart, which are planned economies. But let me make it clear at the outset that these companies, including Walmart, do not represent socialist workplace models for socialists. These companies operate solely for profit, and the bosses impose disgusting conditions on their employees. The employees have to endure the dictatorship of the bosses and are reduced to mere extensions of the machines. But it must be recognized that Walmart has made some pretty revolutionary advances in how it integrates its supply chains into a more or less harmonious, fully planned network. Let me explain this idea. The bullwhip effect Let’s start with a small retailer or store that has nothing to do with Walmart. The retailer usually deals with distributors to obtain its commodities, and the distributors buy from producers. Together they form a supply chain. The companies in the chain are all autonomous, and together they build business relationships, so they are ultimately competing and ensuring that they maintain their own profit. In this supply chain, it is the retailer who has to coordinate with changes in consumer demand, then adjusts his orders to the distributors accordingly, and the distributors order from the producers. In 1961, an economic effect was observed to occur in this type of situation, the bullwhip effect. If, for example, demand varies by five per cent, i.e., the store’s customers increase or decrease their purchases for specific products within a five per cent variation, the store must adjust its orders to distributors with a five per cent change. But at the level of the distributor, who may supply several stores, the changes accumulate and this can result in a 10 or 20 per cent change in their inventory. For producers who supply distributors, the variation in demand causes their inventory to vary even more. In relatively complex supply chains, a simple five per cent change in demand at the beginning can result in a 40 per cent change in inventory at the other end of the chain.

Such a variation is enough to result in large excess production that is wasted, or to lead to shortages. It can literally ruin businesses. The bullwhip effect is the fact that a small wave at the beginning of the supply chain starts to amplify and can destabilize the entire chain. The bullwhip effect directly shows the problems of the market and competition, and shows the need for economic planning. Walmart’s solution to counter the bullwhip effect is to integrate different companies into a harmonious chain, reducing competition between the different levels. At Walmart, demand is managed from the other end of the chain. The seller tells the buyer how much he’s going to buy. The retailer or store leaves it up to the supplier to make decisions about restocking. Manufacturers, who produce, are responsible for managing Walmart’s warehouse inventories. Throughout the chain there is transparency and data sharing technologies are used. A good counter-example of transparency is Volvo. They produced too many green cars, so the marketing department spent money on advertising to sell more green cars and sell off stock, but they didn’t tell the manufacturing department. So the manufacturing department noticed the increase in the demand for green cars, and increased the production of green cars. They then found themselves with an overproduction of green cars that they could no longer sell. At Walmart they use Retail Link, a huge database, connected by satellite, which allows the tracking of demand information from cash registers. The database provides information directly to the suppliers, who can adapt their production in real time. In short, Walmart has developed a whole series of mechanisms to harmonize its supply chain, from production to distribution, and acts like a true planned economy—and it works. The proof lies in their revenue. As a socialist, one can certainly admire the power of the class enemy, without trying to mimic their tactics. Walmart remains a gigantic dictatorship of bosses and shareholders, and the workers are just cogs in this big machine. But if Walmart were nationalized under the democratic control of the workers, the workers could use Walmart’s satellites, state-of-the-art computers and databases to plan production and distribution, without shortages or overproduction, and at low cost, since there would be no need to fill the shareholders’ wallets with profits. On the other hand, workers could decide together how to organize their workplace and provide themselves with decent working conditions.