Politics of Economic Planning

Papers on Planning and Economics

E.F.M. Durbin

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135033170
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The issue of planning prompted some of the fiercest debate in mid-twentieth century economics. Politics of Economic Planning collects together a number of papers from journals and contributed books that examine the problems of economic planning in a free society. They fall into three groups: Part 1 explains the idea of socialism and defines it in relation to democracy.
Part 2 discusses problems of economic planning both in relation to political economy on the practice of planning and with the application of the theory of value to the conditions of a centrally directed economy.
Part 3 examines the nature of economics.

Problems of a Planned Economy

Paper III

The Importance of Planning¹

This brief Chapter contains my answer to three important questions:

(a) Why is centralised planning a superior form of economic organisation to that of free enterprise?

(b) How should authority be organised and distributed in a planned economy?

(c) What part should pricing and costing play in a planned economy?

Most of the answers I give are now, rightly or wrongly, commonly accepted by democratic socialist planners.

“WE ARE all Socialists now,” said Sir William Harcourt in 1894. We are certainly not all Socialists in post- War Europe. The last few years have seen a wholesale destruction of Socialist Parties on the continent and the election of an overwhelming anti-Socialist majority to the English House of Commons.

But it would be almost true to say that “we are all Planners now.”The collapse of the popular faith in laissez-faire has proceeded with spectacular rapidity in this country and all over the world since the War. There now exists a completely planned economy in Russia, a bold and far-reaching attempt at general planning in America, an extension of the economic power of authoritarian governments in Italy and Germany, and the rudiments of financial and agricultural planning in England. Indeed, in this country planning has become one of the many subjects that scarcely enters into party controversy. The Labour Party proposes to socialise, and thereafter to plan a large sector of industry by the creation of ten or twelve public corporations. It is unquestionably a planning Party. But it was the Conservative Party which passed the Electrical Supply Act of 1928, placed the London Passenger Transport Bill on the Statute Book, set up the Exchange Equalisation Fund, has cartelised sections of the agricultural industry, is making some attempt to re-organise and unify the iron and steel industry, is subsidising shipping and proposes to begin the first stages of geographical planning. All these measures involve in greater or less degree the social control of industry. There is therefore an important agreement between the largest parties in the State on the supersession of private enterprise in the guidance of economic affairs.

There is, however, no such general agreement about the ends which the growing power of the Central Government shall be made to serve. The Conservative Party is not hypocritical in its opposition to the Labour Party, since it is radically opposed to the reform of society which the Labour Party intends. It is Socialism, and not economic planning that is in dispute. These two things are often confused, but they are in fact quite different, and it is of the greatest importance to understand their true relations. In particular it is necessary in this article to consider the importance of planning both to Socialists and to anti-Socialists.

Before this can be done we must define the meaning of economic planning with some precision. The term is used in current speech to describe widely different types of economic reform. It is applied indiscriminately to large-scale and fundamental changes in economic institutions, such as those carried through in the Russian economy, and to the comparatively small alterations which the cartelisation of the English milk industry involves. It is necessary to distinguish between:

(a) Planning, meaning simply the intervention of the Government in a particular industry at a time when the greater part of the economy still remains in private hands, and

(b) Planning which results in the general supersession of individual enterprise as the source of economic decisions.

This distinction is of importance, because the basis of authority and the probable results of the two types of planning are quite different. It is, for example, quite untrue, as certain opponents of Planning always argue, that general planning will be no more than the sum of a large number of interferences with a private enterprise economy. It would be just as sensible to argue that civilisation is nothing more than the destruction of primitive culture. The substitution of one set of institutions for another, whether better or worse, is quite different from the arbitrary frustration of existing arrangements. Thus, while it is easy for certain economists to prove that planning of the first type will result in nothing more than the interference with adjustments to the real situation which would be made by private enterprise and will lead to the use of the new powers created by unification to restrict output and hold up prices, it does not follow that the same thing will be true when central control is generalised and private interest is replaced over a large field of industrial activity.² To begin with, in the case of general planning, the source of authority is no longer an industrial corporation, but an inter-industrial body. This makes the pull of conflicting interests more apparent and the implication of alternative courses more plain. There is, for example, no evidence that the Russian economy, whatever its other economic shortcomings, has been characterised by any attempt to restrict production. Social interests are necessarily more strongly represented in the machinery of generalised planning than in particular interferences, and it is confusing to call these two types of economic change by the same name.

It is also necessary to be clear about two different uses to which the machinery of centralised control may be put. Planning does not in the least imply the existence of a Plan— in the sense of an arbitrary industrial budget which lays down in advance the volume of output for different industries. Planning does not, and should not, imply any dogmatism about the future. It is not possible to tell in detail what will happen to human tastes, to technical invention, to general standards of security and well-being. It would therefore be foolish in the extreme to attempt to lay down plans which could not be amended quickly in the light of changing social requirements. There is no power yet known to man whereby he can foretell the movements of human society with the precision and degree of certainty that is exhibited by the physical sciences. There is as yet no economic astronomer, and until this gentleman has made his appearance there can be no reasonable rigidity or permanence in the absolute and relative outputs of the various industrial products.

What, then, is the true characteristic of Planning? If it does not involve the construction of a single plan, and is nevertheless something more than the cartelisation of particular industries, what is the correct definition of its essential nature? The element common to all the forms of new control we regard as “Planning” is the extension of the size of the unit of management and the consequent enlargement of the field surveyed when any economic decision is taken. The diagnostic property of an unplanned economy is the requirement that all decisions should be taken by individual supervisors in only a small— indeed, an infinitesimal—area of the industrial world. Under conditions of perfect competition—the pure type of the unplanned economy—the individual producer controls so small a part of the total output of a single commodity that he can exert no influence upon the price of anything that he either buys or sells. His field of vision is restricted to the technical organisation of his own factory or workshop, and no individual or corporation possesses any power to control the prices or output of the industry. All forms of planning machinery extend the area of economic life surveyed by the deciding authority and increase the number and importance of the economic quantities that can be controlled by some one.

The extension of control can take place in two stages. There is first the grouping of production units making the same or closely related products into one corporation. This is the case of the cartelisation, incorporation or socialisation of a single industry. Electrical production and London passenger transport are English examples of this type. The second and more important extension is that which brings a group of industries and economic activities, and in the limit the whole economic field, under the survey and control of a single authority— termed the Supreme Economic Authority. This would be the result of the present proposals of the English Labour Party, and is the ideal towards which the Roosevelt Administration in America is at present struggling. It is this extension of the area of survey and control which is the definitive thing about all forms of Planning.

2 What is the importance of Planning so defined in the first place to Socialists and in the second place to those who are interested in economic efficiency? Socialists may be described as those who believe it to be of ethical and practical importance to remove inequality between persons and classes in so far as it is based upon the inheritance of property and the institutions created for the service of the rich. To people who hold such views the setting up and subsequently the successful operation of a certain form of Planning is of the first importance.

Now, there is nothing in my definition of Planning to say who is to plan and to what end. It is, however, perfectly clear that social equality cannot be achieved in an unplanned economy. The capitalist system depends for its power of adjustment upon the search for the reward distributed to private property in the means of production and for its power to grow upon the savings derived from large private incomes. It is therefore apparent that any sustained attempt to impair the operations of the profit motive and to destroy inequality in the distribution of wealth, without providing an alternative method of accumulating capital, will lead to a breakdown. The time will come when either the scheme of transferring income must be stopped or the capitalist system will cease to function. Such a disastrous alternative must at all costs be prevented, and it can only be done by removing the power to make economic decisions from the hands of property-owners. They must be vested in the State or the representatives of the State.

To a Socialist the mere change in the seat of power is not sufficient. It is a means to an end. The end consists in the creation of a society in which men are both free and equal. But, while the institution of some form of Planning is not the object, it is the indispensable preliminary means for the attainment of the new society. It is indispensable for the reasons just stated. It is preliminary because men must live and work during the period of social change—a period which may be long and difficult. To a Socialist, therefore, the setting up of a comprehensive machinery for the control of the means of production is of the most urgent importance.

3 But, as we have seen it is not only Socialists who are interested in Planning—not only Socialists who believe in it. An increasing number of thinking men and women are coming to the conclusion that centralised control is a better method of organising production, apart altogether from the kind of social superstructure subsequently created within it. They believe that Planning is an essentially more efficient method of organising economic life.

The matter is, of course, also of the greatest importance for Socialists. If Socialism is to be obtained by democratic methods, it is necessary that, as a system, it should work efficiently from the earliest possible moment—and “work efficiently ” in a sense that the ordinary elector can appreciate. Without in the least taking the cynical view that the ordinary elector is indifferent to questions of status and social freedom, it would be flying in the face of plain reality to deny that “the man in the street” judges the economic efficiency of any system by the degree of security in employment and the level of real wages it brings to him. To him Planning will “work” if it brings about a sustained rise in employment and a noticeable increase in the general standard of living. The first stages of Socialism—by which I mean the first period of five years in which a Labour Government seeks to transfer a large sector of industry to social ownership—will be judged by the extent to which “prosperity” is restored during the lifetime of that Government. Any Socialist, therefore, who wishes to secure for the next Labour Government the second period of office necessary for a further advance to social change, and who does not propose to obtain that extended period by unconstitutional and revolutionary methods, will be deeply concerned with the power of Planning to increase the means of livelihood and consumption.

We must therefore examine the efficiency of Planning as a method of directing economic life.

There are three charges which have been brought against Planning—both by professional economists and by business men. It has been argued that a Planned Economy will be a muddled economy because it will lack the automatic guide to productive activity provided by a pricing system;³ that it will lack the necessary incentives to secure efficient management; and that it will be unable to make adequate provision for the future. ⁴ These are serious charges and must be considered.

The first of them—that Planning will lead to chaos because it lacks the automatic guidance of prices—can be advanced in two forms. It may either be said that a Planned Economy cannot have a pricing system because the institutions of central control render accurate prices impossible, or that although prices can exist their guidance will not, in fact, be followed by a Planning Authority. These two versions of the argument are radically different. The first assumes that there is some logical contradiction between prices and central control, while the second argument must be based upon social and psychological assumptions. It could only be justified by a demonstration that people will necessarily be foolish and pigheaded in a society which has chosen to control its economic life. It is of the greatest interest to notice that the arguments of laissez-faire economists have recently shifted their emphasis sharply from the one trend of argument to the other.⁵ This is so for three reasons:

(a) In the first place, Russia, a centrally Planned economy, is plainly operating a price system of a sort. The Communist Party attempted in the first instance to abandon economic calculus altogether, and the result was unspeakably disastrous. ⁶ The present Russian system including the Five-Year Plan is therefore one which is based fundamentally upon prices. The Plan or industrial budget is a schedule of total prices; industries are rationed in the monetary funds placed at their disposal; costs are calculated; and prices are charged for finished products at every stage. No one is saying that their price system is accurate or that relative prices are made the sole criterion of productive policy. But that a price system can exist side by side with the central control of production is demonstrated beyond the possibility of refutation by Russian economic history.

(b) And, in the second place, it cannot be denied that any price system, however crude, must result in some kind of rational guidance as long as consumers are left free to spend their money as they please and a rough uniformity of costing practice is enforced upon all industries at once. Economists are perfectly right to insist that only the most delicate assessment of the value of economic resources in alternative uses will secure a perfect adaptation of production to the needs of society. But the degree of adaptation can vary very greatly, and any Planning Authority which insists upon a uniform assessment of values and costs will be able to make correspondingly wide adjustments to changing tastes and changing conditions. Even in the Russian price system where no payment is made for land or for the differences of individual efficiency within large groups of workers, it is obvious that the Central Authority could detect large divergences between the value produced and the cost incurred in any particular line of production by the tendency for stocks to change or prices to move at any given level of output. And this reasoning applies to every type of product. Crude price systems mean crude adjustment. Delicate price systems mean delicate adjustment. But it is only the absence of any price system which means no adjustment.

(c) From these two lines of investigation it must follow that there is no formal or logical contradiction between planning and pricing. It is perfectly possible for a centralised authority to order a price system to appear and to follow the guidance it necessarily gives. There is no necessary connection between the form of the authority by which decisions are taken and the principles according to which the decisions are made. It would be just as sensible to argue that the organisation of the medical profession under a National Council which laid down rules of professional conduct made it impossible to practise sound medicine as to affirm that the creation of a governing body for industry made it impossible to take wise economic decisions. It all depends upon what the Central Authority chooses to do.

Consequently the emphasis of the attack upon Planning has, in recent years, shifted back to the second charge, that, despite the logical possibility of pricing and wise planning, such wisdom will ...