January 30, 2013
On Communism and Markets: A Reply to Seth Ackerman
In his recent essay on Jacobin, Seth Ackerman makes a number of common arguments in favor of some form of market socialism over and against central planning as well as other designs for non-market, non-capitalist economies. The essay contains much that most socialists could agree with. He rightly cites the failure of the neoclassical argument for general equilibrium to apply in real-world situations under the devastating theoretical impact of the Cambridge capital critique and the so-called ‘theory of the second-best’, and the lack of statistical evidence proving the superior efficiency of market capitalist societies over those of the former Soviet bloc. The historical record of capitalism to achieve general efficiency, equity, and democracy is, in short, atrocious, and neoclassical economics always serves first and foremost as apologetics for this system – we probably need not go into this further.
Also understandable is Ackerman’s negative response to models of a post-capitalist economy along the lines of some form of direct democracy, such as Albert and Hahnel’s “Parecon” approach. For Albert and Hahnel, democratic councils would gather data from individuals regarding their preferences, debate these according to socialist and ecological norms, and process them into a planning system, which would regularly update its information according to the same political processes; all this in order to regulate production for human need. Ackerman is justifiably skeptical of the workability of this proposal, as it would require millions of political debates about millions of input-output processes from wildly divergent sources and for wildly divergent ends. If every aspect of the planning system would have to be truly democratic – in the sense of being up for immediate political input ‘from below’ – any system with more than a rudimentary division of labor would quickly come to a shuddering halt.
For Ackerman, this is proof of the validity of the so-called calculation problem, an old argument from liberal critics of Marxism (in particular the Austrian school of economics), alleging that it is a priori impossible for centrally planned economies of any kind to operate: only prices, the argument runs, are accurately able to convey the necessary decentralized and distributed information that makes up the relative exchange value of goods. Therefore, in any system seeking to replace prices (and by implication, profits) with some form of central management, there necessarily follows a shortage of information in the decision-making process in production and exchange, with the familiar results of shortages, gluts, famines, and failures of supply.
For the liberal critics, and especially the Austrian school, this argument against central planning has often been generalized against any attempt to interfere with the market process: after all, if this argument holds, any interference at all will prevent ‘getting the prices right’, and thereby move the economy away from optimal allocation of goods and services. However, even the mainstream economic literature abounds with debate as to the accuracy of this proposition, with much of the debate revolving around the significance and extent of the presence of externalities, that is, costs not internalized into the price system but nonetheless real from a social or ecological viewpoint. But even taking the pervasiveness of externalities for granted, the critique of government intervention allows the left little substantial political room for maneouvre – at most mere management of market failures. This does not satisfy Ackerman, who is committed to superseding capitalism as a social system, and therefore he is faced with a plausible economic answer to this critique.
Ackerman’s solution is to propose a market socialist alternative, which would have prices (and thereby evade the calculation problem), but not profits – a handy solution if ever there was one, having one’s cake and eating it too. In this, he follows some of the market socialist critics from Eastern Europe, who responded to what they saw as the political-economic failures of their countries under Soviet-oriented rule by formulating a happy middle between a planned economy and the ‘anarchy’ of market capitalism. This proposal boils down to leaving intact the free market in the sphere of production and exchange, with autonomy of firms and competition between them, but by socializing the commanding heights of the economy in the sphere of finance and credit, in particular the banks: “A constellation of autonomous firms, financed by a multiplicity of autonomous banks or investment funds, all competing and interacting in a market — yet all nevertheless socially owned.”
Of course, if one has this, but permits profits to be pocketed by the capitalist class, one would simply have a kind of social-democratic capitalism with nationalized banks – perhaps radical, but not necessarily anything novel. Ackerman realizes this and confronts the problem of profit under market socialism with admirable clarity. His proposal is a compulsory purchase of all private financial assets – stocks, bonds, investments, and so forth – and to deposit them into a “multiplicity of socialized banks and investment funds owning and allocating capital among the means of production”. Any surplus firms would generate would then (presumably as dividend) be allocated towards this socialized fund, and thereby the capitalist class would be eliminated from the social division of labour – the euthanasia of the rentier interest, at least, as Ackerman notes. Now, this would still leave the tremendous inequalities generated by the buying, rather than expropriating, of the capitalists’ financial assets. But here Ackerman has a simple solution as well, a classic left social-democratic measure: one simply caps the total assets an individual (or family) may have. Socialism in two steps!
Is it really so easy? I would argue it is not. It falls to me to defend the currently very unfashionable proposition that a socialist mode of production, recognizable to the Marxist tradition as well as to non-Marxist opponents of capitalism, actually requires a system of central planning and cannot permit any kind of market socialism to exist in the scale and manner Ackerman suggests. To do so, I must also analyze the significance of the central planning efforts of the Soviet Union, seen by friend and foe alike in these debates as the prototype of such a system, and access to what extent it really did ‘fail’ (as Ackerman takes as decisively proven), and what this might imply. It is no small task, and I will necessarily have to be somewhat summary in my arguments, but the significance of this debate makes it essential to get this right. I do not wish to make a virtue of orthodoxy, but market socialist critiques such as those of Seth Ackerman have been a dime a dozen in the history of the communist movement, and they have never been convincing nor been able to make themselves practical within actual anti-capitalist revolutionary movements. I would argue this is no coincidence, for they contain a number of fundamental flaws that Marx and his immediate successors already identified. In this reply to Ackerman, I will argue two things. Firstly, that market socialism cannot overcome the limitations of capitalism, and secondly, that the failure of Soviet central planning does not condemn the idea of central planning. In fact, I will argue that the flaws in Ackerman’s design and the Soviet model of central planning are remarkably similar: both are rooted in the failure to overcome capitalist production, as opposed to distribution.
The most significant shortcoming of almost all market socialisms, including that of Ackerman, is that they share with neoclassical economics and the liberal tradition generally the exclusive focus on the process of exchange. This stands in stark contrast to Marx’s primary interest, the process of production. It is not for nothing that Marx considered the classical economists’ emphasis on exchange to be a powerful ideological weapon of the bourgeoisie. As long as distribution and exchange are the central categories of social relations, the market will seem to be the natural, self-evident form in which one-off exchange between individuals takes place, at least in societies with an advanced division of labor. But, for Marx, it is precisely this fetishism of commodities, this exclusive focus on the sphere of exchange and distribution, that hides the essential nature of capitalist society. In Capital, after discussing exchange value, he then famously writes: “Accompanied by Mr. Moneybags and by the possessor of labour-power, we therefore take leave for a time of this noisy sphere, where everything takes place on the surface and in view of all men, and follow them both into the hidden abode of production, on whose threshold there stares us in the face – ‘No admittance except on business.’ Here we shall see, not only how capital produces, but how capital is produced. We shall at last force the secret of profit making.”
This secret, the core of capitalist social relations that must be overcome to overcome capitalist society altogether, is the process of capitalist production. It is there that capitalist social relations are reproduced on an ever-expanding scale through the repeated separation of workers from the means of production, and the generation of surplus value that results from this separation. Whatever value is produced in capitalist society can only be distributed within the market, but is never generated in it: whatever you gain in exchange, I lose. Marx for this reason distinguished between the labor in capitalist society that immediately produces surplus value, and the manifold kinds of labor that are involved in exchange, transport, marketing, and so forth. The latter do not reproduce capitalist social relations, and therefore fall in the sphere of distribution. This is not to say distribution in this sense is not important: indeed, it forms by far the largest part of the everyday experience of capitalism in contemporary Western societies. But this is exactly what leads to mistaking all the economic activities of the market for the reproduction of capitalism itself. This is why Marx considered it a form of fetishism. The process of production under capitalist conditions is what reproduces capitalist society – the actual application of labor and technology that allows modern-day society and its accumulative drive to exist. The everyday significance of the sphere of distribution – with its apparent equality of buyer and seller and the smooth machinery of the price system – give rise to the appearance that this is what capitalism is all about, not what happens behind the doors of the factories, sweatshops, and mines. If market socialism does not address the sphere of production, it does not address the fundamental conditions of capitalist society, and therefore does not succeed in overcoming it.
So it’s no surprise that in Ackerman’s example, nothing at all is said about the production process itself. In his concern to evade the calculation debate’s critique of central planning, he permits the central conditions of capitalism to perpetuate themselves: the separation of workers from the means of production, which are not the banks and other distributional institutions, but the factories, mines, sewing machines, and tractors. If nationalizing banks and investment itself had the power to create socialist conditions by themselves, the Royal Bank of Scotland would now be in the vanguard of socialism – which is sadly not the case. Even if all banks were nationalized, and a good deal else besides, as was de facto the case under total war conditions in various capitalist societies during WWII, there would still be a capitalist mode of production. Private appropriation of surplus is not the central feature of capitalism, although this permits a capitalist class to exist independently in political terms. Rather, its central feature is coercing working people to work on means of production not held in common, means that are used for the purposes of accumulation for its own sake. Even if one were to have a 100% tax on profit, and nationalization of banks, hedge funds, and pension funds, as Ackerman’s proposals seem to reduce to, this would be a left social-democratic version of capitalism, perhaps a radically egalitarian capitalism: but a capitalism nonetheless. It would be nothing to sneeze at, but not achieve his aim of an actually socialist society; with capitalist production left intact, so is exploitation, the alienation of working people, and the politics of growth for its own sake.
The reason for this is that, as Marx pointed out, the root of exploitation under capitalism is not insufficient wages per se, or the depredations of finance, but the theft of alien labor time. Not only is labor under capitalism alienated from the means of production and is the worker alienated from society’s general interests, but more importantly, the process of exploitation under capitalism necessarily implies that for accumulation to take place on one end, the worker must be paid less than the value of her labor-time on the other. The more capitalist production expands, the less time the worker has for herself. This is why so much of the history of socialist activism does not revolve around higher taxes on the wealthy or the nationalization of the commanding heights, but about reducing the share of their total lifetime workers are forced to produce for the reproduction and expansion of capitalist society – for example through pensions and social security, or overtime laws.
The struggle over exploitation is fundamentally the question of whether the worker has the time to fully develop her intellectual, social, and creative powers, or must devote this time instead to the reproduction of a hostile, alien, and benumbing society, with no time to call her own. Here central planning comes back into view. The aim of central planning, what Marx calls “the society of associated producers”, is therefore not just to socialize the process of exchange and distribution of goods – though as Ackerman rightly notes, this is a ‘bread and butter’ question in its own right – but to develop the productive forces to the degree that the necessary labor-time for all workers can be reduced to a minimum. This leaves maximum time for playing, singing, socializing, sports, art, music, writing, debating, and all those things that have been considered the good things in life and the birthright of humanity since the classical age.
There is no known process of the market that can achieve this aim, for the logic of the market is blind to the process of production, and concerns itself exclusively with private accumulation and consumption. Just as we do not care, in practice, about the appalling conditions under which our clothing and our food is made, in Ackerman’s market socialism the condition and work of the producers is of no significance. Their alienation is not abolished by the mere phrase ‘socializing finance'; as long as they are subject to the coercive pressure of competition and accumulation, each other’s eternal counterparts, they cannot fully realize their talents and potential as individuals and can therefore society is a hostile force for them.
Ackerman’s society, in short, would socialize capital, but not abolish it. It would socialize exploitation, but not abolish it. It would not work towards the fullest development of the creative, intellectual, and social capacities of the majority, and would not apply technology, the embodiment of reduction of necessary labor-time, to this end. As Marx wrote: “economy of time, to this all economy ultimately reduces itself.” This applies to market socialism as much as any society, and Ackerman’s proposal keeps at arm’s length “the very possibility of defetishizing economic life”, to borrow from David McNally’s critique of market socialism, Against the Market. “To reject this possibility is to embrace the inevitability of alienated labor, of exploitation, and the unplanned and anarchic drive towards competitive accumulation”.(1)
Seth Ackerman also confronts us with a new problem, however – a historical one. Doesn’t the Eastern European experience under ‘really existing socialism’ disprove the possibility of central planning? Is central planning really necessary to overcome the limitations of market socialism outlined above? The Soviet (and Soviet-dependent) experience plays a central role in Ackerman’s argument against the very possibility of a centrally planned society. For Ackerman, Soviet-type central planning was simply too radical; by ignoring the centrality of the market it represented a kind of bureaucratic utopianism whose only result was a shortage of toilet paper at crucial moments. Ackerman only barely acknowledges the very real accomplishments of Soviet society: “when Communism came to poor, rural countries like Bulgaria or Romania they were able to industrialize quickly, wipe out illiteracy, raise education levels, modernize gender roles, and eventually ensure that most people had basic housing and health care”. But this is not enough for him. Central planning seems to be unable to go beyond the point of the achievement of mere basic provisions. It can achieve no more than a mid-table economy in GDP per capita terms, with shoddy cars and insufficient toothpaste. This will not do, for the aim of socialism cannot be universal equal poverty, but the possibility of abundance for the widest possible share of society. If central planning cannot achieve this, then we must reject it. But is that true?
I argue that the conventional narrative of central planning’s failure must be radically revisited. Ackerman himself already notes that the central planning system performed not much less efficiently than most actually existing capitalisms of today. The Soviet strategy was based on a classic model of high investment rates, financed by the artificial repression of living standards and the (forcible) distribution of the surplus population unproductive in agriculture into the cities as an industrial working class, generating an enormous increase in the productivity of labor. The idea is that such productivity gains are then reinvested into heavy industry, further generating productive capacity, and so forth. This model was followed not just by the USSR, but in a different way also by China, Japan, South Korea, and other nations.
Using mainstream productivity and growth models, the liberal economic historian Robert C. Allen compared the central planning and collectivization of the Stalin period to various alternative approaches. In his book Farm to Factory, Allen astounded orthodox economic historians by finding that the ‘Stalinist’ approach (albeit credited to Preobrazhensky) was the best possible result among the alternatives(2). But, the narrative goes, Soviet planning could undertake labor-intensive industry well, but not capital-intensive industry. While the USSR could compete in sheer quantities of steel and coal and cars produced, as their propaganda often boasted, it couldn’t compete in spheres of production requiring substantial R&D and rapid technological upgrading of goods. Robert Allen’s account, for example, uses this as the explanation of Soviet failure. However, I believe evidence points to a very different conclusion.
William Easterly and Stanley Fischer’s World Bank study of the ‘Soviet climacteric’ argues that Soviet R&D on civilian production actually increased substantially between 1959 and 1984, rejecting the common notion that the Soviet arms race combined with the inflexibility of Soviet production caused the consumer economy to come to a standstill.(3) Moreover, Brendan Beare’s correction of the Easterly and Fischer paper has demonstrated that due to statistical mistakes in the reconstruction of the data, the elasticity of substitution between capital and labor in the Soviet economy was much higher than is commonly believed.(4) In other words: previous scholars claimed that when the Soviet surplus population ran out, the USSR was unable to efficiently replace labor with machinery, leading to an inability to make the leap from labor-intensive to capital-intensive production. But Beare’s data show that the ratio of this replacement of labor by capital may not have been as bad as previously thought, but in fact may have been quite high, as it was in Japan, which did not experience such stagnation. Nor did investment itself falter: even as late as 1989 the Soviet investment share of GDP was a staggering 35%. In short, Soviet central planning did not fail due to its inability to develop or implement labor-saving technology.
Why do I mention all these technicalities? Simply to make the important point that the traditional narrative, in which the Soviet central planning model collapsed due to the inherent flaws in such a system’s ability to expand and deliver the goods, is untrue. The failure of Soviet and Eastern European planning is no less real than it was before, but it must be understood as a contingent, political failure, located not in the concept of central planning itself, but in the limitations of the Soviet version. By most statistical measures, even those of outright foes of the Soviet Union, their central planning system was an overwhelming success in terms of growth, increases in productivity, and raising the potential living standards. It is not a coincidence that the USSR was the only state ever to make the American ruling class tremble – no mean achievement. Contrary to Ackerman however, I would argue its ultimate failure rested not so much in these categories. It failed for reasons not dissimilar to the flaws of Ackerman’s market socialism. The Soviet Union failed not because it was too socialist, but because it was not socialist enough.
The one weakness of the Soviet model was that it was still a form of the 20th century ‘developmental state’, that is, part of the general push of the past century of poor and underdeveloped countries to develop the productive forces (as Marxists would say) and to modernize at all costs. In so doing, it achieved tremendous things, but it was still subject to the logic of accumulation characteristic of all the negative aspects of capitalism. The workers of the USSR never saw the ‘switch’ from the development of heavy industry to the point in which the enormous productive capacities so generated would actually be used in their favour: when production would no longer be for exchange or reinvestment, but for general use. Their working days were long and intense, and as illustrated by the propaganda of Stakhanovism, they were ever exhorted to work harder and longer for the accumulation of a socialized surplus.
This brings me to the similarities between the failure of the Soviet model and the problems with Ackerman’s plan. Since the USSR arguably lacked a capitalist class, the surplus so accumulated was socialized, but not used for the purpose of general needs. The technology developed was socialized, but applied to further generate surplus, not to reduce the necessary labor-time to a minimum. Finally, the ultimate yardstick of the USSR was its military-industrial competition with the USA, not the fullest development of all. In short, just like Ackerman’s market socialism, Soviet society fell short of true socialism. Soviet society, and the Eastern European states dependent on them, asked its working class to postpone the move to a recognizably socialist form of production as long as the country, isolated and surrounded, needed to develop. Investment, the distribution of goods, housing and healthcare: all these were socialized, but there was no ‘society of the associated producers’ sought by Marx. The result was that competitive production would lead to the preservation of exploitation. This is exactly the same flaw I outlined in Ackerman’s plan: a failure to overcome capitalist production means a failure to overcome capitalism itself. In this sense, the Soviet economy is actually closer to Ackerman’s ideal than he realizes.
I would argue then, contrary to Ackerman, that the failure of actually existing central planning is not one of its potential, but historically one of its politics. The drive for accumulation for its own sake makes sense, when productivity in poor countries must be developed so that socialism can mean general abundance, not general poverty. I completely agree with Ackerman when he points to the importance of whether the supermarkets are full or empty. But there can be no market-based socialism, because capitalism ultimately does not reproduce itself in the market, but in production. Soviet central planning is in this respect a step up from that, as it socializes not only all spheres of distribution and surplus, but also consciously aims for developing productivity so that ultimately the ‘switch’ can be made towards a general needs-based society. However, it failed this test. The working class resisted this accumulation, as it represented the perpetual postponement of their personal development in the name of the general interest. This resistance took the form of a resistance to work, since this and this only was the remaining locus of capitalist logic in the Soviet system: hence the endless thefts from the workplace, the low quality of production, the shoddiness of the finished goods, the sullen, passive noncompliance with the state apparatus and its designs, and finally the fruitless attempts by the Soviet state to remedy these by draconian measures and moral exhortations. The problem with Soviet-type central planning was therefore a political, not a technical one.
Central planning is simply not the problem Ackerman makes it out to be. In fact, we see it at work even in ‘normal’ capitalism all the time. As soon as push comes to shove, and the liberal-democratic societies are threatened by total war, they approximate central planning in their production methods as closely as their political systems allow. Capitalist firms rely on high-level central planning all the time in the modern economy. Just-in-time distribution, Amazon’s on-demand system, modern supermarket provisioning, international cargo shipping, air traffic coordination: all these are examples of sophisticated and accurate central planning in the contemporary world. Our computing techniques and capacity have improved by several factors since the Cuban Missile Crisis: there is nothing technical stopping us from applying this technology in the benefit of socialist humanity rather than a small elite of owners and investors. But if we do not want to repeat the mistakes of market socialism and of Soviet planning both, we must put the conditions of production at the forefront of our transition to socialism. Let us learn all we can about logistics, about organizational theory, about planning models. Let us take the enormous technological capacities and productivity of capitalist society, “which has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals”, and use it to reduce to a minimum the work expected from everyone; especially dirty, unpleasant, and degrading work. Our unprecedented expansion of free time will see not just a flourishing of culture and the intellect, but also of many more ideas to perfect the process of production and distribution to the benefit of all. Then the realm of freedom will truly begin, and with it a new, socialist, history of humanity.
1) David McNally, Against the Market (London/New York, NY 1993), p. 184.
2) Robert C. Allen, Farm to Factory (Princeton, NJ 2009).
3) Easterly, William and Stanley Fischer. 1995. “The Soviet Economic Decline”, in: World Bank Economic Review vol. 9, p. 341-371.
4) Beare, Brendan K. 2008. “The Soviet Economic Decline Revisited”. Econ Journal Watch 5:2 (May 2008), p. 135-144.