calculator

Will the socialist commonwealth need a system of economic calculation? That is, will it need a method for assessing the advantages and disadvantages of alternative courses of action in terms of a common measure? Many socialists think that this will not be necessary. I would like to explain why I disagree and suggest how such a common measure might be devised.

Let me clarify my position at the outset. While I agree with the view that there will be a problem of economic calculation in socialism, I reject the conclusions that economists have drawn from this. Some have concluded that rational decision-making is impossible in socialism. Others – notably, Oskar Lange – have proposed that planners should set prices to simulate the operation of a competitive market. Although Lange considered himself a socialist, he accepted the claim of his openly pro-capitalist opponents that the market provides the optimal solution to the economic calculation problem. 

While rational decision-making will indeed be essential to socialism, it must always be emphasized that socialism will have a different rationality. It will not try to imitate capitalism but solve problems in its own way, in accordance with its own values and priorities. Otherwise why bother to establish it?

Misunderstandings

I would like to avoid misunderstandings that arise from the ambiguity of certain words.

Take the word economic. In capitalism this word is inextricably linked to the idea of saving money. In fact, economics has been defined as the study of a system of production based on production for sale. As socialism will be a non-market system with production directly for use, it will not be an economic system in this sense. It will, however, still have to make choices about the use of resources, seeking to economize them in the sense of not wasting them. In a broader sense of the word, economic calculation and economic decision-making may therefore still exist in a socialist society. 

Take the word costs. In capitalism this word has a very specific and narrow meaning – money expenditures that cannot be avoided in some business activity. But in everyday usage it also refers more broadly to any undesired effects associated with doing something. In this sense production in socialism will also entail costs – effects that people will not want and will seek to minimize (where they cannot be prevented altogether). Examples are unrewarding labor, pollution and the depletion of non-renewable resources that might be needed by future generations.

There is an overlap between the two concepts of cost, but there are also major discrepancies. Thus, cost-benefit analysis (CBA) as applied today to compare the costs and benefits of a project – say, a canal, a dam, or an airport – leaves out of account effects that cannot be expressed in terms of money. For instance, loss of human life is valued merely in terms of income foregone. In socialism such effects will have their due influence on decision-making. Conversely, certain things that in capitalism come under the heading of costs, such as interesting and satisfying work, may be reckoned as benefits. 

A similar ambiguity surrounds the word efficiency. We associate this word with the capitalist drive for profit, and this may make us feel that there is something inhuman in the concept itself. However, once efficiency is defined as the ratio of full social benefits to full social costs, it makes good sense to aim at its maximization.      

‘Scarcity’ and ‘abundance’

The view that socialism will not need economic calculation is based on the idea that economic calculation is a way of coping with scarcity while socialism will be a society of abundance.

When we speak of socialism as a society of abundance we mean that people will have free access to the things they need. They will live a comfortable, secure and satisfying life. At the same time, we reject the absurd claim that desires expand without limit and do not expect people to make unrealistically extravagant demands on the production system.

In this sense I too envisage socialism as a society of abundance. But such a society will not come into being instantaneously as soon as capitalism is abolished. It can emerge only as the successful outcome of massive efforts to overcome the legacy of waste and misery inherited from capitalism. So at its initial stage socialism will not yet be a society of abundance.

Some socialists admit this point but play down its importance by arguing that the initial stage will be brief. That is hard to judge: it depends just how bad the situation will have become by the time socialism is established. But for the sake of argument let us suppose that the initial stage does last only a few years. It is, nevertheless, the crucial stage. The new society will mature only if the problems of this stage are handled effectively. Therefore I take the view that when we think about socialism we should concentrate mainly on the initial stage.

Moreover, the words scarcity and abundance are also ambiguous. In theoretical economics they are given 'technical' meanings. Abundance refers to a hypothetical state of affairs in which the superfluity of resources is so great that it is never necessary to make choices or set priorities. All technically conceivable projects can be carried out, and all at once. Anything less than this counts as scarcity, however well people might be living. In this special sense, even mature socialism is not likely to be a society of abundance. In fact, economical use of non-renewable resources, rooted in awareness of 'scarcity' in the technical sense, may well be a condition of achieving 'abundance' in the everyday sense.

Overload

Some socialists argue as follows. Yes, socialist society will have to make choices and set priorities. But this does not mean that diverse social costs and benefits will have to be reduced to some common measure. People will survey and discuss the full range of social costs and benefits of various options. Costs and benefits that cannot be properly quantified will be assessed in qualitative terms. Then a decision will be made among the options by referendum or some other democratic procedure.

But how well will this ‘qualitative’ approach work? It is difficult for people to make up their minds when called upon to choose among options that all have both important advantages and important disadvantages. So debates would tend to be lengthy, frustrating and inconclusive. And there will be many such matters awaiting resolution.

The likely result is overload of the decision-making system. Urgent decisions will be delayed, but attempts to move forward more quickly may undermine the quality of the decisions taken, so that not all significant factors are given proper consideration. Moreover, the numerous and complicated debates will make such heavy demands on the time and effort of participants that many people will be deterred from participating. Decision-making may become the province of a minority of enthusiasts, who would not necessarily be representative of the general public. Overload is therefore a potential threat not only to the effectiveness of decision-making in socialism but also to its democratic nature.

I conclude that the qualitative approach will work only if it is confined to a relatively small number of issues – let us say, to the most important strategic issues facing society. A shortcut is then needed to allow other issues to be handled expeditiously – by means of standardized procedures, without the need for long debate. For this it must be possible to make direct comparisons between different costs and benefits and calculate the net benefit (benefits minus costs) or benefit-cost ratio for alternative options. That in turn requires attaching a set of weights to different costs and benefits so that they can be expressed in terms of a single common measure.

Which of these two variants – net benefit or benefit-cost ratio – would be better? I suggest that each may be more appropriate under certain circumstances. Ratios would be more convenient in comparing different methods of achieving a given purpose, while the net benefit expected from a project would be crucial in deciding whether or not to undertake it.

It is likely that certain limits would be placed on the scope of decision-making based on calculations of benefits and costs. In particular, certain kinds of costs and risks, especially pertaining to the environment and to human health and safety, may be ruled out in advance, irrespective of the magnitude of compensating benefits.   

Decentralized but consistent

Devising a common measure for economic calculation in socialism will be no easy task, and I do not claim to have a fully worked-out solution. The adoption of a common measure will itself be one of the most important decisions ever made by humanity.

Although objective criteria – for example, energy, land-use, and labor-time requirements – will provide indispensable data for economic calculation, the common measure cannot possibly be derived solely from such objective criteria. First of all, it will be necessary to choose a manageable subset of the numerous objective criteria that could be used, and there will inevitably be a subjective element in this choice. The same is true of the manner in which the chosen objective criteria are combined. The method by which the common measure is determined will reflect the values and priorities of a socialist society, defined democratically following extensive discussion and research, including in-depth analysis of the values and attitudes of representative samples of the population and the use of focus groups. Thus the measure will be only partly and indirectly of an objective nature. It will be essentially inter-subjective, or subjective with the subject being the democratically organized human community,    

Economic calculation in socialism will facilitate decision-making that is expeditious and rational in relation to the society’s own values. Because its method will embody the values of the society as a whole, the great bulk of day-to-day decisions can be taken at the local level or even entrusted to small teams of responsible specialists. The functioning of socialism will be mostly decentralized but consistent in reflecting the guiding values of the community.