Is a decentralized planned economy possible?

In attempts to save and resuscitate the idea of a planned economy, various concepts are invented, and one of these concepts is the idea that a planned economy can be decentralized. It is based on the erroneous premise that the reason for the non-viability of a planned economy lies exclusively in its centralization (in reality, it is not only that — for example, there is the quality problem and the production output indicator problem — we analyzed them in detail in our article on why a planned economy is inefficient; decentralization does not solve these problems, as their roots lie in other planes). But it is not only based on an erroneous premise — the thesis itself that a decentralized planned economy is possible is also erroneous.

Two branches of the concept

The concept of a decentralized plan is divided into two branches. The first (its examples are not formalized into a theory, but are occasionally encountered in discussions between communists) assumes decentralization on a territorial basis. That is, roughly speaking, a general plan for economic development does not exist for the country — each city, village, or region has its own plan. This does not solve any of the problems of a planned economy — instead of one large inefficient economy, we simply get many small inefficient economies. The fact that the countries of the socialist bloc were divided into different states with different governments and different plans did not make their economies efficient, so practice has shown the failure of this branch of the concept.

The second branch assumes decentralization on a production basis. Simply put, in this case, each enterprise has its own development plan. However, this is already realized under conditions of a market and mixed economy. Such an economy is not planned. In many countries today, companies draw up production plans, and this does not make the economy of these countries planned (some communists begin to argue that it does, but in that case, it becomes unclear what exactly they want to change, if the economy in most countries is already planned, by their own definition). The explanatory dictionary of economics edited by Doctor of Economic Sciences Irina Osadchaya characterizes a planned economy as “centralized planning”¹. A dictionary of economic theory reports that “this system is characterized by public ownership of almost all material resources and collective economic decision-making through centralized economic planning. All major decisions regarding the volume of resources used, the structure and distribution of output, and the organization of production are made by a central planning body”². That is, a planned economy by definition can only be centralized.

If there is no unified, agreed-upon, and mandatory plan for all enterprises, it means that each enterprise has its own plan. This is implemented within the framework of a market economy. The very meaning of a planned economy was based, among other things, on the hypothesis that it would allow for not producing excess goods, but producing exactly enough to cover the needs of each consumer. Otherwise, a so-called “overproduction crisis” occurs. If there is no unified plan for everyone, then some enterprises, just as in a market economy, will produce more goods than demand requires, and then this meaning of a planned economy is lost. They tried to solve this problem precisely with a centralized plan, but this attempt failed. In practice, it turned out that an overproduction crisis is much better than an underproduction crisis (which accompanies a planned economy³), and producing exactly as much as the consumer requires — no more, no less — is simply impossible due to the human factor, which influences changes in opinions about needs.

Furthermore, when a plan is not mandatory to fulfill, it is indicative planning⁴, not directive. Indicative planning is part of a mixed/market economy. When some enterprises are free not to fulfill the plan and do not fulfill it, it is no longer a planned economy, but a mixed/market one. Therefore, a planned economy is possible only with directive planning.

It is precisely in this, and not in the fact that modern supporters of the plan invented what their predecessors could not come up with, that lies the reason why no country has ever built a remotely stable “decentralized planned economy”. This concept cannot be successfully implemented in practice simply by virtue of its illogicality and the erroneous premises on which it is based.

How this will be implemented in practice

Let us assume that supporters of a “decentralized plan” were able to gain power in a country and tried to implement their idea in practice. What would it lead to? Some enterprises would refuse to follow their plan. For various reasons — the political views of the owners, disagreement with the plan, and so on. Some enterprises would refuse to monitor the fulfillment of the plan. Some enterprises would agree and monitor, but would not fulfill the plans. Some enterprises would shut down, thereby failing to fulfill the plan — after all, under decentralization, no one has the right to force them to fulfill it, no matter what. All of this in combination would lead to the failure of the economic development plan and the failure to meet demand. Supporters of a planned economy would either have to force enterprises to fulfill the plan, or their plan would not be fulfilled and would have to be abandoned. In the first case, they would implement the most rigid centralized control possible, which would lead to a repetition of the Soviet experience. This is what a planned economy was in practice and always will be.

Other proposals

Another model of “decentralized planning” was presented, for example, in the “Libertarian Socialist Movement” group in August 2020. It was stated there as follows (author’s spelling and punctuation preserved):

Decentralized planning only asserts that the planning process should be coordinated with all participants in the production process, rather than being imposed, under the threat of punishment, from some center. This does not in any way exclude the possibility that there will exist an organization (or organizations) that will engage in planning production processes, but all projects put forward by this organization will be of a recommendatory, not mandatory, nature. After the plan is drawn up, it is submitted for general discussion: if the participants in the production process agree with this plan, it is accepted for implementation; if the participants in the production process are against it, the plan is sent back for revision. Also, any person (or labor collective) has the right to take the initiative and propose their own ideas for inclusion in the plan… decentralized planning is PLANNING in which every economic entity has equal rights of access to necessary production resources (such as raw materials and means of production), and all economic relations are mutual and voluntary in nature⁵.

That is, enterprises jointly compile a general plan which, nevertheless, is not mandatory for execution. But, firstly, what is meant by “if the participants in the production process agree with this plan”? Is unanimous adoption by all production collectives in the country implied? In that case, the coordination of the plan could drag on indefinitely. Is adoption by a majority, say, more than 50%, implied? Then the minority may refuse to fulfill the plan. And it would have to be controlled centrally.

Secondly, if economic relations are truly voluntary in nature, and the plan is not mandatory for execution, then, as we stated above, some enterprises will refuse to fulfill the communists’ plan simply because they do not consider a planned economy reasonable, which will end exactly as we described above — that is, either in centralized coercion or in the abandonment of the general plan.

Conclusion

A “decentralized planned economy” is a demagogic construct that contains a contradiction and is based on erroneous premises. Attempts to implement it in practice will once again lead to failure. Today, the left is making a choice not in favor of these failed concepts, but in favor of social democracy and the social-democratic economy.

1. Economics. Explanatory Dictionary // General editorship: D.Sc. Osadchaya I.M. — M.: “INFRA-M”, Publishing House “Ves Mir”, 2000
2. Dictionary of Economic Theory // Compiled by V.P. Teplov — 136 p. — Novosibirsk: RGTEU, Novosibirsk branch, 2007
3. M.S. Voslensky. Nomenklatura. The Ruling Class of the Soviet Union. – 294 p. – Moscow: MP “Oktyabr” – Sovetskaya Rossiya, 1991. – pp. 215-222.
4. A.A. Tkachenko. Indicative planning // Great Russian Encyclopedia. Volume 11. Moscow, 2008, p. 242. [Electronic resource]. URL: https://bigenc.ru/economics/text/2009079 (Date of access: 07.06.2021).
5. Decentralized planning // Libertarian Socialist Movement. VKontakte (vk.com). August 10, 2020. [Electronic resource]. URL: https://vk.com/@lisomo-decentralizovannoe-planirovanie (Date of access: 07.06.2021).