Planned economy

• 1. Introduction

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  A planned economy asks a deceptively simple question: what if instead of letting millions of individual transactions decide what gets made, how much, and for whom, a society could simply decide? In the May 1949 issue of Monthly Review, Albert Einstein wrote that a planned economy, in his view, would adjust production to the needs of the community and distribute work among all those able to do it. That a physicist of Einstein's stature felt compelled to weigh in on economic organization hints at how charged this question had become by the mid-twentieth century.

  The idea is far older than the Soviet Union. Scholars have traced compulsory state planning to the Egyptian countryside and to Hellenistic India, and have argued that the Incan economy organized itself around the movement of labor rather than the exchange of goods. Mercantilism, the dominant European economic doctrine before industrial capitalism, has also been read as a form of planned economy.

  Yet the modern debate really opens in the ruins of World War I, when the Soviet government formalized its planning apparatus in 1921 by founding Gosplan. The story that follows is one of idealism, computation, political violence, and the stubborn problem of knowledge: who gets to decide, how do they find out what people actually need, and can a computer do it better than a market?

• 2. The Soviet Experiment

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  Gosplan was born in 1921 out of the chaos of war communism, the emergency economic policies that had run from 1918 to 1921 and been shaped by the demands of the Russian Civil War of 1917-1923. Leon Trotsky was among the earliest voices pushing for formal economic planning during the period that followed, known as the New Economic Policy. Trotsky argued that specialization and concentrated production could raise the rate of industrial growth to two or even three times higher than the pre-war rate of six percent.

  The New Economic Policy itself lasted roughly from 1921 to 1928, a breathing space before the first five-year plan began. Historian Sheila Fitzpatrick documented the scholarly consensus that Stalin effectively appropriated the industrialization and collectivization positions that had belonged to the Left Opposition. The transition was not a gentle evolution. Historian Robert Vincent Daniels characterized the Stalinist period as an abrupt break with Lenin's government, one that replaced a deliberate, scientifically oriented planning system staffed by former Menshevik economists at Gosplan with a version built on unrealistic targets, bureaucratic waste, and chronic shortages.

  The results were stark. During the 1930s, the Soviet government pushed the share of gross national income devoted to private consumption down from roughly eighty percent to fifty percent. The forced redirection of resources produced massive growth in heavy industry. It also produced a massive contraction of the agricultural sector, driven by the labor shortage that industrialization created. Daniels further attributed Stalin's insistence on measuring national plans in physical quantities of output as a structural cause of stagnant efficiency and quality across the economy.

• 3. The Cybernetics Bet

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  In 1959, a Soviet engineer named Anatoly Kitov sent a detailed proposal to the Central Committee of the Communist Party of the Soviet Union. His plan called for a distributed network of computing centers to reorganize control of both the Soviet armed forces and the Soviet economy. The Defence Ministry killed the idea.

  Kitov tried again in a different form. His 1959 Project Red Book envisioned a distributed computing system focused specifically on managing the Soviet economy. That proposal also failed. Three years later, in 1962, the OGAS economy management network project met the same fate. Viktor Glushkov, the Soviet cybernetician who championed OGAS, argued that his information network would have delivered a fivefold savings return for the Soviet economy over the first fifteen-year period of its operation.

  While the Soviet Union was blocking its own computer proposals, the other major attempt at computational planning was happening in Chile. In 1971, Salvador Allende's socialist government launched Project Cybersyn. The plan was to install a telex machine in every corporation and organization across the economy, creating a real-time channel for economic data flowing between firms and the government. That data would feed into a simulated computer model of the economy for forecasting, and a control room would allow real-time observation of the whole system. The project showed genuine early promise: during a trucker's strike, the system was used to redirect supplies around the disruption. In 1973, a CIA-backed military coup led by Augusto Pinochet ended the experiment, abolished the program, and moved Chile toward a liberalized market economy.

  In 1993, computer scientist Paul Cockshott from the University of Glasgow and economist Allin Cottrell from Wake Forest University published Towards a New Socialism, arguing that a democratically planned economy built on modern computer technology was not only possible but would be both more economically stable and morally preferable to free-market systems.

• 4. The Calculation Problem

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  Friedrich Hayek and Ludwig von Mises gave the sharpest theoretical edge to the critique of central planning, each attacking a distinct but related weakness. Mises focused on the economic calculation problem: without genuine markets, planners have no prices, and without prices, they cannot rationally allocate economic inputs. Hayek identified what he called the local knowledge problem, the observation that individuals possess particular knowledge of their own circumstances and constantly shifting needs that no central authority can collect or process in time to act on.

  Michael Polanyi contributed related ideas from a different angle. Tibor Machan summarized the practical implication directly: without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals.

  Polish economist Oskar Lange, who lived from 1904 to 1965, took the opposite position. He argued that a computer is more efficient than the market process at solving the simultaneous equations required to allocate economic inputs efficiently, whether those inputs are measured in physical quantities or monetary prices.

  Studies of Eastern Bloc command economies conducted in the 1950s and 1960s by both American and Eastern European economists found something that surprised both groups: output fluctuations in those economies were actually greater than in market economies during the same period. The instability that central planning was supposed to prevent turned out to be worse, not better, than in the systems it was designed to replace.

• 5. Decentralized Alternatives

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  Not all advocates of planned economies accepted the Soviet model as their template. During the Spanish Revolution of 1936, areas where the anarchist CNT and the socialist UGT held strong influence, particularly in rural regions and parts of Catalonia, put elements of decentralized planning into actual practice. Anarcho-syndicalist Diego Abad de Santillan had outlined a vision of economy-wide federations of industries and a unified council of the economy, but what actually emerged in Revolutionary Spain fell short of that blueprint. Local collectives and federations did coordinate production and distribution to a degree, but the broader structures Santillan had envisioned were never fully established.

  Economist Robin Hahnel, a supporter of participatory economics, acknowledged that a more democratic political system might have improved centrally planned economies. Still, he argued that they could never have delivered genuine economic self-management; they would always have been slow to innovate as apathy set in, and always vulnerable to growing inequities as differential economic power accumulated. His conclusion was that central planning would have been incompatible with economic democracy even if it had solved its information and incentive problems.

  Economist Pat Devine proposed a model he called negotiated coordination, built on social ownership by those affected by how specific assets are used and on participatory decision-making at the most localized level of production. The theoretical structure of decentralized planning more broadly rests on producers and consumers, or their representatives, negotiating the quality and quantity of what gets produced. That model is central to guild socialism, participatory economics, and economic theories linked to anarchism.

  India's state of Kerala has put elements of decentralized economic planning into practice, with local level planning agencies gathering input through Gram Sabhas, the village-based institutions where residents can participate directly in assessing community needs.

• 6. Planning Beyond Communism

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  After World War II, the practice of state direction over economic life extended well beyond the communist bloc. France and Great Britain both adopted dirigisme, a form of government direction of the economy that used incentives and guidance rather than coercion. Sweden launched its Million Programme in 1965, a government-planned public housing initiative that ran until 1974 and drew on the same logic as urban planning.

  In mixed economies, states routinely use economic planning in strategic industries. The aerospace industry is one example where predominantly market-oriented Western economies apply targeted planning while leaving microeconomic decisions to prices. This form of indicative planning directs an economy through incentives rather than commands and is the reason market economies are sometimes called planned market economies or mixed market economies.

  The market abolitionist strand of socialist thought takes a more thoroughgoing position, proposing to replace factor markets entirely with direct calculation as the means of coordinating the activities of socially owned enterprises. More recent proposals have come from economists and computer scientists drawing on advances in information technology, extending the arguments Cockshott and Cottrell made in 1993 and the tradition that Kitov and Glushkov represented in the Soviet Union.

  Edward Bellamy's 1888 novel Looking Backward imagined a United States around the year 2000 that had become a socialist utopia with a fully planned economy, placing the idea in popular fiction more than a century before the computation debate fully matured. Yevgeny Zamyatin's We, published in 1924, offered a darker fictional treatment of the same terrain.