Rethinking Democratic Economic Planning: An Overview

1. Introduction

Our world is facing enormous social and ecological challenges today - massive inequality and environmental degradation, to name but the most pressing. Economic theory is divided in its responses. Neoclassical economics mainly theorises its conviction of the superiority of markets and capitalism. Post-Keynesianism, aware of some of its drawbacks, tries to identify its adjusting screws in order to make it more humane. Marxist economics, on the other hand, is defined by its conviction that the capitalist mode of production as a system must be overcome.

However, especially since the collapse of "really existing socialism", the Marxist endeavour has been wholly compromised. This is why some Marxist economists have shifted away from their traditional focus on the critical analysis of capitalism and on providing only very abstract prescriptions of a post-capitalist system, towards (re-)defining what such a system, different from the authoritarian and  dysfunctional socialism of the past, might look like and function.

Historical Experience

Authoritarian “real socialism” has historically predominantly taken the form of a centrally planned economy (the Soviet model), associated with problems of over-centralisation and inefficiency (Ellman, 2014). A first dominant reaction has been to identify such a model with a planned economy as such, and to abandon it, in favour of one that combines a dominant position of the market mechanism with socialist public ownership and state regulation: models of market socialism (Nove, 1983; Roemer, 1994; Schweickart, 1996).[1]

Market Socialism?

But those models, others argue, can't resolve the inherent contradiction of any market economy: being able to direct the overall economy towards human needs and ensuring overall coherence while myriad interdependent economic units ultimately act atomistically and towards maximizing profits. Firstly, they argue, there is not a necessary relationship between economic profitability and social and environmental sustainability. Secondly, because of the all-round interdependence of enterprises in a modern economy with a highly differentiated division of labour, the outcome of each individual decision, as well as the macro-outcome, will depend on the aggregate effect of all decisions taken together. However, since these decisions are not coordinated in advance, but are made in isolation and in sequence, it is highly unlikely that all the individual decisions will coincide smoothly (Elson, 1988). Therefore, the market inevitably produces winners and losers, which are not necessarily determined by performance, but at least as likely by chance. This, it is argued, results in a dynamic of emergent market forces that are indifferent and alien to human needs or guidance. And overcoming this dynamic is one of the crucial economic arguments for a socialist economy in the first place (Adaman and Devine, 1997).

Models of a Democratically Planned Economy

Hence, distancing itself from the market socialist strand of the debate, another strand has emerged, which will be the subject of this article: models of a democratically planned economy. Roughly three to four 'schools' of models have emerged, which are still being developed and advocated today, with attempts also being made to synthesise them (classic texts are: Devine, 1988; Albert and Hahnel, 1991; Laibman, 1992; Cockshott and Cottrell, 1993). These models embrace comprehensive planning, but are differentiating themselves from the past unsuccessful attempts to establish planned economies.

In addition to the reflection on the historical experience of ‘really existing socialism’, the development of models of a democratically planned economy is fuelled, conditioned and paralleled by three other aspects.

Climate change and War Economies

First, given the already manifest and increasingly threatening environmental catastrophe and the utter inadequacy of the capitalist market economy to adequately address climate change, as well as the weak and hesitant responses of governments, another distinct historical reference point is being increasingly emphasised: the much more drastic government efforts to control and direct the economy in cases of global emergencies such as WWII, when the US (and UK) 'war economies' undertook a programme of rapid and thorough economic mobilisation, industrial conversion and build-up, unprecedented in scale, scope. An analogy is being drawn with today's challenge for a comprehensive energy transition, in terms of the scale, scope, pace and effectiveness of this historic industrial conversion through a kind of mission-driven capitalist central planning. Hence, calls for a kind of ecological war economy as the only sufficient means of addressing climate change are gaining momentum (Delina, 2016; Silk, 2016). This strand of the debate is the one that is most widely received and discussed in the mainstream, but it is often explicitly framed as non-socialist (even though some of the concomitant proposals, such as radical reductions in income and wealth inequality, are akin to a socialist program) and wants to keep substantial elements of capitalism, such as private ownership of the means of production, intact.[2] This is why it should be differentiated from the debate on models of a comprehensive, democratically planned economy. Even if they do no not receive the same attention, socialist thinkers concerned with the climate crisis are developing proposals and models of an ecologically sound, democratically planned economy, with crucial differences being the aim of a full socialisation of productive property and transcendence of the capitalist market economy towards a different, new mode of production.

Modern Information Technology

Second, there is the rapid development of information technology within contemporary capitalism. Marxists have long been aware of the planned, non-market coordination of complex economic activities within capitalist enterprises, as opposed to the market coordination between them. On this basis, recent arguments for a socialist direction of development reflect the increasingly sophisticated and integrated data-driven management and planning technologies within contemporary large capitalist enterprises (Morozov, 2019; Phillips and Rozworski, 2019). This in particular is seen as creating exciting and possibly decisive new conditions for a democratic planned economy for the 21st century. Also relevant here are developments of the more 'enlightened' firms within contemporary capitalism, which incorporate much more participative or 'collaborative' planning and production processes in their internal organisation, and could be seen as a ‘miniature model’ of democratic socialist planning in the 21^st century (Adler, 2019).

Socialist Calculation Debate

Third, there is a long-standing debate about the feasibility of a socialist economy in terms of the problem of economic calculation, known as the Socialist Calculation Debate, which hovers over all these debates and models.[3] Since the entry of the socialist movement into politics, especially since the beginning of the 20th century, socialist and pro-capitalist economists have debated problems of the unit account under socialism, economic knowledge/information and its dispersion, and how to cope with this with and without markets, the requirements for rational economic decision-making, prices and externalities, entrepreneurship, innovation and incentives, and have worked out important problems and challenges that contemporary models must address. The debate continues to this day. (Adaman and Devine, 2022; Phelan and Wenzel, 2023).

To break down two of their main issues: The first is the issue of cost and benefit accounting within a socialist economy. Is it even possible under socialism? Does this require an economic unit of account or should in-kind, non-commensurate measures be used? If there is to be a unit of account, what is its content: labour time or monetary units? What can replace the 'price signals' of market economies under socialism? Should there also be indices that allow enterprises to assess their specific situation in the overall economic context with necessarily imperfect knowledge of the whole economic process? The second, related issue is the important theorem of local, tacit knowledge, which states that a substantial part of the knowledge on which economic agents act is specific to time and place, and thus resists aggregation, and is embodied in practice, and thus resists an expressible form (O’Neill, 2002). It is available only to local agents and can only be used at the local level, especially under the inescapable conditions of uncertainty and constant change to which they must adapt continuously and rapidly (Hayek, 1945). Can this be incorporated into a socialist economy or is a capitalist market economy the only way to cope with this?

Related to this is the question of incentives. In privately owned enterprises (in an idealized capitalist market), there exists a clear incentive for high performance and efficiency, as they not only reap the rewards but also bear the losses – up to bankruptcies. This fosters a climate conducive to risk-taking and innovative entrepreneurship (Lavoie, 1985). Because a socialist economy consciously considers all the interdependencies, this can lead to a situation where socialized enterprises may shift accountability for poor performance to higher, societal levels or factors beyond their control. This would be reinforced through interference by higher levels, leading to a situation where enterprise performance is truly not dependent solely on the efforts of the enterprise itself, diluting the direct responsibility of individual units and diminishing motivation for high performance (Kornai, 1992).  Similarly, within a socialized economy, the presence of full social security and only modest income differentiation undermines the (often brutal) capitalist mechanism of ‘sticks and carrots' in motivating workers. Thus, the mechanisms for incentivizing high performance in a socialist framework requires approaches beyond capitalist economic incentives.

Interim Conclusion

In summary, the 21st century presents distinctive historical, theoretical, and contemporary preconditions, problems and challenges when considering a post-capitalist economic system. Various models of a democratically planned economy have emerged in recent decades with the aim of addressing these issues. This introductory article, however, does not delve into the problems and proposed solutions in detail. Instead, it proceeds in three steps: first, establishing the fundamental challenge of a democratic planned economy; on this basis, second, classifying the proposed models into broad groups; and finally, establishing a coordinate system of basic categories to position the models within, providing an initial framework for orientation and a starting point for further study.

2. The Fundamental Challenge of a Democratic Planned Economy

Recall that above, the fundamental contradiction of the market economy has been described as being unable to direct the overall economy towards human needs and ensuring overall coherence while myriad interdependent economic units ultimately act atomistically and towards maximizing profits. This stems from its main characteristics: the private ownership of the means of production and the inter-enterprise mediation via the market mechanism and money. From this it can be deduced what a planned economy, as a negation of a market economy, must essentially consist of.

Capitalism is characterised by the development of increasing specialisation, i.e. a highly differentiated division of labour not only within but also between firms, leading to increasing, almost universal interdependence between them. But because they remain privately owned, this interdependence is not consciously coordinated – only ‘unconsciously’ through the market process, whose results we can only encounter as an alien force. In a modern socialist economy, therefore, the socialisation of production already inherited from capitalism is unified with its obvious complement, the socialisation of productive ownership. The whole economic process works as an integrated whole and is therefore socially planned and coordinated, and directed towards human needs.

Importantly, this process must adhere to democratic principles, ensuring that stakeholders at various levels, such as individual enterprises and society as a whole, have a meaningful say in decision-making without jeopardizing the efficient operation and smooth running of the economy. The basic ‘economic problem’ of a democratically planned economy is thereby: How can plans, decisions and actions of myriad local productive units be reconciled with each other, with consumers, communities, and with democratically determined societal goals (e.g. environmental and social requirements), i.e. how can planning and activity on the macro- and one the aggregated micro-level converge?

3. Classification of Models of a Democratic Planned Economy[4]

Besides the large family of market socialist models, there can be identified at least six groups of models that envision a democratically planned economy, to solve its basic ‘economic problem’.

Labour-time calculation

The initial group of models originates from the council communist tradition and draws inspiration from classic Marxist writings. It emphasizes decentralization and the autonomy of enterprises, against central planning. Its primary emphasis lies in addressing the unit of account. It is argued that utilizing labour-time units instead of money as the basis for accounting, would demystify the relationship between producer and product in a socialist mode of production and makes it transparent. In a labour time calculation, every hour is worth the same, regardless of whether it is spent by a cleaner or a manager. Products cost their (indirect and direct) labour time, e.g. an apple 10 minutes or a machine 400 hours. Self-governing worker's councils propose plans from below and sector or central councils (constituted by upward delegation) compare and approve these plans. In addition, all enterprises disclose their planning in a transparent, public accounting system and can thus be monitored and evaluated. These mechanisms, it is argued, will suffice to establish a democratic planning system (Lueer and Groep van Internationale Communisten, 2018).

Commonism

The next group, labelled ‘commonism’, comes from the tradition of ’commons’-research, marrying it to Marxist fundamentals. Basic rules of already existing co-called ‘peer-production’, as in open-source software development – contribution instead of exchange, coordination by ‘stigmergy’ (a kind of reference-based task distribution known, for example, from Wikipedia with its ‘red links’), self-selection of tasks, voluntariness (abolition of compulsory work), distribution according to need – are applied to a vision of the whole economy, which is argued to be able to function through these principles. In terms of coordination, the approach is very decentralized, there is no central authority and the enterprises organize themselves autonomously. Various committees work out solutions to conflicts, but no institution has the power to enforce them; instead, the enterprises and associations decide on solutions. Furthermore, there is no central calculation variable, but a multitude of indicators (required work/products, working hours, ecology, job satisfaction, etc.) to help the enterprises to operate coherently (Sutterlütti and Meretz, 2023).

Parecon/’Amazon-Socialism’

Another group of models stems from Marxist and neoclassical theory. Here, the Parecon-model of Albert/Hahnel (Hahnel, 2021), as well as Saros’ ‘Amazon-Socialism’ are meant (Saros, 2014).

In the Parecon-model, prior to production, producer and consumer councils (from local to higher levels like industry associations or regions) gather information about demand and production possibilities. In a horizontal process, these councils communicate their production and consumption plans and, in an iterative process, equilibrium prices are approximated. Production and consumption then continue until the next planning period, in which further adjustments are made. Workers do not work rigidly in one occupation, but have 'balanced job complexes' that fairly divide manual and intellectual, empowering and boring tasks. Enterprise and neighbourhoods are collectively self-governed. Production and consumption then commence until the next planning period where adjustments are again made. Remuneration of works is according to individual effort, as opposed to enterprise “income”.

Saros' model, which has been called "Amazon socialism", builds on the Parecon model, but with some changes and a greater emphasis on modern information technology. Self-managed enterprises publish their products on a digital platform-like interface, the 'General Catalogue'. In the planning phase before production, consumers indicate what they want to consume and how much of it. Proportional to the declared demand, the firms are allocated "points" with which they acquire productive resources. Then, consumption can take place until the next planning phase. This cycle is repeated and adjusted. Remuneration of works is proportional to time worked at a particular enterprise, again not determined by enterprise “income”. A committee of experts regulates the inclusion of ecological limits.

Cyber-Communism

A more prominent model is Cockshott/Cottrell’s ‘Cyber-Communism’ (Cockshott, Cottrell and Dapprich, 2022). This model advocates for the extensive use of modern information technology to enable democratic central planning. It argues that, thanks to modern computing power and interconnected networks, highly centralized planning can be much more detailed detailed, comprehensive, and efficient and compared to historical attempts, such as in the Soviet Union. Furthermore, elements like labour-time calculation, pseudo-markets for consumer goods, and the implementation of direct democratic principles are implemented.[5]

Half-Earth Socialism

Vettese/Pendergrass have developed a model that takes the climate crisis and ecological issues as its starting point (Vettese and Pendergrass, 2022). Their model could be described as eco-socialist central-cybernetic planning.[6] It is about being able to calculate in kind and democratically decide between certain physical trade-offs in relation to societal needs and planetary boundaries at a necessary planetary, central level, without reference to a universal unit of account that would undermine this. Here, Vettese/Pendergrass point to socialist arguments against a universal unit of account which, in decision-making, seeks to reduce multidimensional, actually incommensurable options to a 'single denominator' such as labour time or money - which will inevitably be reductionist, especially in relation to ecological issues. Thus, in their model, at a central level, i.e. in a world parliament, basic proportions in kind regarding emissions constraints, energy mix, energy use and land use are determined by means of a democratic process in relation to societal needs and planetary boundaries, resulting, for example, in energy quotas for individuals. But the model is not supposed to amount to a fully centrally planned economy. These centrally determined aggregates should primarily form a basis for a nested structure of planning efforts at each descending level. Lower levels, i.e. regional parliaments and local enterprises, plan on the basis of these central, but disaggregated physical specifications for regions and sectors. They have sufficient decision-making powers so that local and domain-specific knowledge is integrated. Vettese/Pendergrass also refer to modern information technology and the earth system and integrated assessment models, which, it is argued, have already laid down essential theoretical and technical requirements for this kind of 'cybernetic planned economy'. Half-Earth Socialism is the name of the model, because it argues that because nature – as opposed to the economy - is a complex system that truly can't be controlled, half of the Earth's land area must be set aside for wildlife reserves for truly sustainable species protection.

Negotiated Coordination

Devine's model (Devine, 1988; Adaman and Devine, 1997) aims to achieve a balance between decision-making at central and decentral levels, incorporating sufficient autonomy of local units to overcome the distortions of Soviet-style top-down planning. It also focusses on overcoming anarchic 'market forces' through a process of 'participatory planning through negotiated coordination.' This essentially entails a comprehensive socialization of the investment function through representative democracy and disaggregation of implementation facilitated by a network of deliberative bodies. At the central level, society determines broad goals and priorities (consumption, investment etc.) in the form of general plans. With regard to existing productive capacity, self-managed enterprises act relatively autonomously. They decide how they produce, which products they buy and set the prices for their products - apart from some centrally set ‘primary input’ prices. In this way, horizontal market relations are maintained, the enterprises compete for sales and use their local, tacit knowledge that is an inevitable aspect of any complex economic system. However, with regard to changes in productive capacity, the unconscious domination of ‘market forces’ is overcome, as the investment function is socialized and planned on several levels in a participatory manner. It is not success in competition that decides which companies grow and which shrink, but 'Negotiated Coordination Bodies' distribute investment funds. In these bodies, direct negotiations and coordination take place with the participation of representatives of all those affected by investment decisions (e.g. planning commissions, workers, consumers, suppliers, local communities, etc.). They assess the performance figures of the companies provided by the parameters generated by ‘market exchange’, their economic, environmental and social performance, etc. and decide on the allocation of funds with regard to the general goals set in macro plans. The emphasis here lies on a political process of negotiated coordination.

Multilevel Democratic Iterative Coordination (MDIC)

Laibman's approach (Laibman, 2001, 2014) also emphasizes a balance between central and decentral decision-making and aims to provide enterprises with enough autonomy to incorporate local, tacit knowledge into the planning system and avoid the problems of top-down planning of the Soviet system. Using modern information technology, a 'multi-level democratic iterative coordination'-process is envisaged in which there is an iterative and continuous process of communication, adaption and convergence between central and decentral planning. At the central level, in contrast to Devine’s model, Laibman's model relies more on technical, parametrical means rather than direct negotiation. For example, there is comprehensive, central price setting that attempts to take account of all externalities, and there are incentive schemes for enterprises that reward realistic and ambitious planning. As in Negotiated Coordination, at the central level, broad goals and priorities (consumption, investment etc.) are democratically determined in the form of macroeconomic and strategic plans. On this basis, enterprises then formulate their own detailed plans, pass them upwards and try, on the basis of information passed back by the centre, to reconcile them with the plans of society as a whole and the other, interdependent units. Also, enterprises sell their products and buy productive resources relatively autonomous (in contrast to Cyber-Communism, not output targets are set centrally, but above all prices). This multilevel, democratic iterative coordination process is designed to ensure that local units are provided with a stable macro framework within which they can plan effectively, taking into account broad priorities set in macro plans as well as their own local, specific conditions. The central planning authority in turn benefits from accurate information, as local enterprises have a vested interest in providing it with reliable information and in planning and producing efficiently. This should ensure a beneficial, complementary relationship between local enterprises and the central planning authority within the planning system.

4. Coordinate System of Models of a Democratic Planned Economy

In an attempt at a more systematic view of these models (Laibman, 2015, 2022), they can be classified based on two crucial dimensions, each consisting of a pair of categories representing opposite extremes along a spectrum. The first dimension refers to the dominance or authority of decision-making levels and encompasses central and decentral poles. The second dimension refers to the primary means of mediation between levels and units - through direct, personal deliberation and negotiation or through indirect, impersonal and quantitative means and parameters - and encompasses political and parametrical poles.

On the central-decentral axis, Cyber-Communism is at the upper end of the spectrum, being a highly centralised planning mechanism (apart from more decentral feedback through pseudo-markets for consumer goods). Half-Earth Socialism is closer to the decentral pole because of its implementation of cybernetic principles, but there is still a strong emphasis on central planning with regard to planetary issues. The models of Devine and Laibman both see the central and decentral levels as complementary and aim to mediate between them, and are therefore in the middle. Parecon and Labour Time Calculation are largely decentralised models, apart from higher-level councils – whose decision-making authority seems in tension with the emphasis on the full autonomy of local, self-governing councils. Commonism is at the other extreme, being a highly decentralised mechanism.

On the parametrical-political axis, Cyber-Communism is at the minimum, as its planning mechanism is primarily a technical, algorithmic process – even if there is implementation principles of ‘Athenian’ and direct democracy at the central level. Parecon and 'Amazonian socialism' are close to the minimum on this axis. These modes are characterised by a tension between a parametrical and a political process. While there are political processes at the enterprise level, inter-enterprise mediation ultimately amounts to a predominantly parametric process. Labour Time Calculation, Commonism and MDIC aim for mediation and thus lie in the middle of the axis - but with important differences. In Commonism, for example, there are parametric means in the sense of 'stigmergy’ signal', but the complete voluntariness of the whole process means that they don't necessarily have to relate to them. In the other two, the parameters amount some sort of socialist prices. In Negotiated Coordination there are also quantitative, parametric elements, but the emphasis is on the political, personal process of deliberation; hence it is further along the positive axis than Laibman. Half-Earth Socialism is deeply sceptical about the benefits of some sort of price system, although multidimensional parameters in kind are considered. As a result, the allocation decisions made by means of linear programming are predominantly political, though democratic, deliberative bodies.

5. Conclusion

In conclusion, the exploration of models for democratically planned economies reflects a significant departure from traditional economic systems. Amidst growing social and environmental challenges, Marxist (and other heterodox) economists are rethinking alternatives to capitalism, particularly in the aftermath of the failure of past socialist experiments. This overview highlights the emergence of various models aiming to reconcile a comprehensive planned economy with economic efficiency, democratic principles and concerns for social and environmental sustainability. These models offer different approaches to the locos of decision-making authority and the nature of mediation mechanisms. By analyzing their fundamental challenges and by categorizing them, this overview provides a first entry into the complexities and potential trajectories of democratically planned economies in the 21st century, as a starting point for further study. Ultimately, the discussion underscores the need for innovative solutions that address economic, social and environmental imperatives while upholding democratic principles.

Looking ahead, it is imperative that the discussion on democratically planned economies continues, with a particular focus on engaging in thorough comparative analysis and further development of the various approaches outlined. Understanding the strengths and weaknesses of each model in relation to each other is crucial for identifying potential synergies and areas for further development. By fostering dialogue and collaboration among proponents of different models, we can strive towards a higher synthesis that integrates the most persuasive elements of different approaches. This ongoing discussion holds the key to developing more robust and adaptive economic systems capable of addressing the multifaceted potentials and challenges of the 21st century while remaining true to democratic principles, economic efficiency and social and environmental sustainability. Hopefully, this will also help to build a broader movement capable of overcoming capitalism as inherently limited system, in addressing the pressing social and environmental challenges of our time.

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[1] While central planning can develop considerable economic rationality in the case of large structural change with clear priority sectors - seen in the case of the Soviet ‘big push’-industrialization (Allen, 2003), in war economies, or to be considered today with regards to the challenges of a rapid and comprehensive energy transition - as a model for the whole economy, it is plagued by substantial information and incentive problems, waste, inertia, etc. and becomes particularly deficient in the case of more complex economic structures and in the quest for intensive growth.

[2] An Exception is Malm with his reference to the historical ‘war communism’ of the Soviet early 1920s.

[3] https://en.wikipedia.org/wiki/Socialist_calculation_debate

[4] The following, brief descriptions of the models are taken (slightly modified) from the website www.democratic-planning.com, which is the work of the current author in cooperation with Simon Sutterlütti of the ‘commonism’-strand.

[5] Proponents claim that this model is a 'cybernetic' model of a planned economy. However, there is ongoing debate regarding the model's connection to 'cybernetics.’ Some argue (Heyer, forthcoming) than any system identifying as cybernetic should strongly advocate local autonomy of enterprises. In the cybercommunist model of Cockshott/Cottrell, the extent and nature of local autonomy seems out of touch with cybernetic principles - or seems even not given at all. Or, it can be argued, it should be made more explicit that the model is much more related to a type of top-down cybernetics, than to the more decentralized types emphasizing local autonomy, in the tradition of Beer (Beer, 1994).

Cybernetics can be broadly described as the science of the control and regulation of complex systems, which emphasises in particular the importance of the self-regulation of subsystems and the achievement of overall coherence through continuous communication between them. A 'cybernetic socialism' recognises that a modern economy is a complex system, but in contrast to the Austrian School (Moreno-Casas et al., 2022), argues that its macro-results can be consciously brought into line with democratically determined goals. It is a matter of 'planning emergence', i.e. of harnessing the emergent behaviour that results from the interaction of relatively autonomous local units within a more decentralised planning system for conscious social purposes, precisely because this emergent behaviour results from specific rules of interaction and from parameters that can be consciously manipulated.

In such a planning system, local autonomy and self-regulation of subunits are built in from the outset, and overall coherence is achieved primarily through continuous communicative feedback loops and iterative coordination between levels and units, so that planning and activity are highly adaptive (Beer, 1994). Particularly under conditions of local autonomy within such a framework, local units must be enabled by an information system to assess the consequences of their actions for the overall system as far as possible themselves. They must also be well networked with other production units and with the system as a whole (Marcolli, 2020) and develop a vested interest in consciously coordinating their activities with each other and with a regard to societal priorities. It should then be possible to reconcile plans at a societal and local level in such a way that they converge in sum.

[6] See footnote 5.