The Case for Economic Planning

Companies plan for the future. Why shouldn’t governments?
December 1, 2009

 Fiat CEO Sergio Marchionne recently unveiled Chrysler’s five-year operating plan. That a corporation should develop a strategic plan for the future seemed unsurprising and sensible to the reporters covering his press conference. How else could a large, complex organization function?

But if it had been a government unveiling a five-year plan instead of a corporation, would the media’s reaction have been as approving? Not likely. The editorial and business writers would almost certainly take a dim view of any kind of economic planning at the political level. They would remind citizens that it was the Soviets who invented five-year planning and how it is impossible for planned economies to be anything but wasteful disasters.

However, since it is now capitalism that is in crisis, might one not ask the defenders of the free market: if a comprehensive economic plan makes sense for corporations in these trying times, why not the same kind of forward-looking plan for the country?

Let us take stock of the current economic situation in Canada. Despite billions of dollars of stimulus spending, the economy remains stagnant. The rate of job loss has slowed, but unemployment is still rising. The manufacturing sector in Ontario and Quebec has been decimated and, given its dependence on the American market, has little hope of reviving any time soon.

Resource prices remain low, expect for oil, most of which is locked in the tar sands of Alberta. It can now be profitably exploited, but at massive cost to the environment.

These are systemic, country-wide problems, far more complex and serious than the problems faced by an auto company. The auto company, however, is commended for developing a strategic plan that will allow it to make decisions about how best to allocate resources, but when it comes to the economy as a whole, we are supposed to “let the market decide.”

In reality, the “market” is not capable of deciding anything. It will be people who decide -- the people who own and control firms, capital, and resources. As the example of Marchionne shows, they will develop comprehensive plans to help them recover. And these corporate plans will undoubtedly involve employing fewer Canadians and lowering the living standards of those who maintain their jobs.

Thus, when we hear these same people extol the “free market” and attack even the mildest forms of government “interference” in the marketplace, we should keep in mind that it is not Planning per se that they are opposed to — they do it all the time themselves — but democratic planning. And why? Because planning at the political level might generate ideas for a different kind of economy – one that is geared to the needs and concerns of all Canadians, not just those of the CEOs, major stockholders, and financial speculators.

Can national economic plans be seriously proposed in light of the failures of Stalinist command economies on the one hand and globalization on the other? They certainly can -- provided we are willing to assess the claims made by critics of central planning and adopt an evolutionary approach to social transformation.

The most important criticisms of central planning were developed by the Austrian School of economics, whose most famous member was Friedrich von Hayek. Von Hayek argued that central planning could never work because it is impossible for a centralized agency to efficiently process the information generated by any modern, advanced economy. A free market system, by contrast, requires no overall coordinating centre. Individual firms interpret only that sub-set of market information (price signals) that is relevant to their business, and respond accordingly. Overall efficiency is the unintended product of individual firms responding to those price signals that are relevant to their business.

The collapse of centrally planned economies seems to support this criticism of centralized planning. From this critique, however, it does not follow that decentralized and democratic planning would fall victim to the same information overload problems. Models of decentralized and democratic planning have been developed by Pat Devine in England and Michael Albert in the United States. The essential idea behind both is that a planned economy does not have to be an economy of inefficient state firms lumbering under the central command of disconnected bureaucrats.

A democratically planned economy can tolerate independently owned firms and permit market exchange, so long as democratic decisions and not market forces ultimately decide fundamental issues of overall employment levels, investment, and spending priorities. Prices can still be relied upon by individual firms, so long as the way in which firms respond to price signals is constrained by a democratically developed plan.

The plan is not a constraint on individual ideas or initiative, but rather a democratic way of coordinating economic decisions so that people are no longer sacrificial victims of market forces.

Let us take an example. Over last summer, the North American auto industry nearly collapsed. The American and Canadian governments managed to coordinate their responses, and colluded with the companies to dictate massive concessions to the unions, the UAW and the CAW. There was planning involved in the government decisions, but it was not democratic because it excluded the workers, their unions, and the citizens of the communities most affected by the collapse. A democratically planned economy might have decided to bail out the companies, too, but perhaps not. The key difference is that everyone with an interest in the outcome would have been an active participant in the decisions ultimately taken.

In Devine’s model, those interests extend beyond the workers and management to include the local communities, the environment, and the national economy as a whole. In a simplified version of his model, local communities like Windsor and Oshawa would formulate the initial plan, because they were most directly affected. Let us assume that they would at first have recommended maximum investment in the industry in order to maintain existing employment levels. This decision would then be sent on to higher-level planning bodies. These bodies might respond that, if one looks at the bigger economic picture, employment levels in the auto industry cannot be sustained at current levels. The local plan would be sent back for revision.

The next version of the proposed plan, instead of asking for maximum investment in the existing industry, might recommend a negotiated reduction of employment levels, with a percentage of the funds initially requested for bailouts now allocated to investment in new industries, which made economic sense given the skills and resources of the regions.

As one can see, the goal of democratic planning is not to maintain inefficient industries, come what may, or to privilege the short-term interests of workers over long-term economic and social development. Its real goal is to extend the principle of democratic legitimacy into the economy.

That principle is that decisions are legitimate only to the extent that all who must obey them and bear their costs have participated in producing them.

Of course, the complexity of the existing economy and its global interconnectedness pose difficulties for the development of democratically planned economies. The capitalist economy has been developing for centuries and, like a large ship, it cannot be turned on a dime. This point remains true despite the hopes of socialists that, if we just changed the class character of government, all economic problems would be solved.

Nevertheless, the capitalist economy has not developed according to its own internal laws, but in constant struggle and tension with movements which have resisted its monetization and commodification of social life, its brutal indifference to its victims, and its undemocratic modes of decision-making. So “actually existing capitalism” incorporates elements of planning and negotiation, and these existing elements are seeds that can unfold gradually into new economic relationships and practices.

What holds true at the national level holds true at the global level. Forms of international coordination and negotiation already exist, and these will grow despite free market ideology, because complex problems require coordinated intelligence for their solution. So the next time you are suffering through a lecture about why the free market must decide, do not suffer in silence, but ask: why not a plan that benefits all of us, and in which all of us have a voice?

(Dr. Jeff Noonan is Associate Professor of Philosophy and Head of the Department of Philosophy at the University of Windsor.)