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Radicals have a habit of speaking in the conditional. Underlying all their talk about the changes they’d like to see in the world is the uneasy knowledge that our social system places rigid limits on how much change can be accomplished now. “After the revolution . . .” is the wistful, ironic preface to many a fondly expressed wish on the Left. Why, then, are radicals so hesitant to talk about what a different system might look like? One of the oldest and most influential objections to such talk comes from Marx, with his oft-quoted scorn toward utopian “recipes” for the “cookshops of the future.” The moral of the quote, supposedly, is that a future society must emerge from the spontaneous dynamics of history, not from the isolated imaginings of some scribbler. This isn’t without some irony, since two years later Marx the scribbler wrote his own little cookshop recipe in his Critique of the Gotha Program — it involved labor tokens, storehouses of goods, and an accounting system to determine how much workers would get paid. As it happens, Marx’s comment was a riposte to a negative review he’d received in a Paris newspaper run by devotees of the philosopher Auguste Comte, criticizing Marx for offering no concrete alternative to the social system he condemned. (That’s why, in the original quote, he asks wryly if the recipes the reviewers had hoped to see happened to be “Comtist” ones.) To grasp the context, you have to understand that like many utopian writers of the era, Comte proffered scenarios for a future society that were marked by an almost deranged grandiosity, featuring precise and fantastically detailed instructions on practically every facet of daily life. It was this obsessive kind of future-painting that Marx was really taking aim at. A related cause for reticence is the feeling that to spell out ideas for future social institutions amounts to a sort of technocratic elitism that stifles the utopian élan of the people-in-motion. Great social change never happens without multitudes becoming inspired to heroic acts of enthusiasm, and patient attempts to grapple realistically with the material problems of a functioning society are rarely so inspiring. This is by no means a trivial objection; one of the oldest fallacies on the Left is the illusion that change happens when someone comes along with a brilliant ten-point plan and manages to convince everyone of its genius. Still, a successful radical project has to appeal to every emotional register: not just those ecstatic moments when history opens up and everything seems possible, but also those pensive and critical moods when even inveterate optimists-of-the-will find doubt and reflection taking over. Even a struggle as epic and impassioned as the movement for the eight-hour day — which “seemed one of the most striking utopias of revolutionary socialism” at the time, as Elie Halévy remembered — was, in the end, about a bureaucratic measure, enforced by legal directives and factory inspectors. Maybe the most fundamental reason the Left has been suspicious of such visions is that they have so often been presented as historical endpoints — and endpoints will always be disappointing. The notion that history will reach some final destination where social conflict will disappear and politics come to a close has been a misguided fantasy on the Left since its genesis. Scenarios for the future must never be thought of as final, or even irreversible; rather than regard them as blueprints for some future destination, it would be better to see them simply as maps sketching possible routes out of a maze. Once we exit the labyrinth, it’s up to us to decide what to do next. In this essay, I start from the common socialist assumption that capitalism’s central defects arise from the conflict between the pursuit of private profit and the satisfaction of human needs. Then I sketch some of the considerations that would have to be taken into account in any attempt to remedy those defects. What I’m not concerned with here is achieving some final and total harmony between the interests of each and the interests of all, or with cleansing humanity of conflict or egotism. I seek the shortest possible step from the society we have now to a society where most productive property is owned in common — not in order to rule out more radical change, but precisely in order to rule it in. There is nothing wrong with thinking concretely and practically about how we can free ourselves from social institutions that place such confining limits on the kind of society we are able to have. Because of one thing we can be certain: the present system will either be replaced or it will go on forever.

Radicals responded to the end of “really existing socialism” mainly in two ways. Most stopped talking about a world after capitalism at all, retreating to a modest politics of piecemeal reform, or localism, or personal growth. The other response was exactly the opposite — an escape forward into the purest and most uncompromising visions of social reconstruction. In certain radical circles, this impulse has lately heightened the appeal of a leap toward a world with no states or markets, and thus no money, wages, or prices: a system in which goods would be freely produced and freely taken, where the economy would be governed entirely by the maxim “from each according to his abilities, to each according to his needs.” Whenever such ideas are considered, debate seems to focus immediately on big philosophical questions about human nature. Skeptics scoff that people are too selfish for such a system to work. Optimists argue that humans are a naturally cooperative species. Evidence is adduced for both sides of the argument. But it’s best to leave that debate to the side. It’s safe to assume that humans display a mixture of cooperation and selfishness, in proportions that change according to circumstances. The lofty vision of a stateless, marketless world faces obstacles that are not moral but technical, and it’s important to grasp exactly what they are. We have to assume that we would not want to regress to some sharply lower stage of economic development in the future; we would want to experience at least the same material comforts that we have under capitalism. On a qualitative level, of course, all sorts of things ought to change so that production better satisfies real human and ecological needs. But we would not want to see an overall decline in our productive powers. But the kind of production of which we are now capable requires a vast and complex division of labor. This presents a tricky problem. To get a concrete sense of what it means, think of the way Americans lived at the time of the American Revolution, when the typical citizen worked on a small, relatively isolated family farm. Such households largely produced what they consumed and consumed what they produced. If they found themselves with a modest surplus of farm produce, they might sell it to others nearby, and with the money they earned they could buy a few luxuries. For the most part, though, they did not rely on other people to provide them with the things they needed to live. Compare that situation with our own. Not only do we rely on others for our goods, but the sheer number of people we rely on has increased to staggering proportions. Look around the room you’re sitting in and think of your possessions. Now try to think of how many people were directly involved in their production. The laptop I’m typing on, for example, has a monitor, a case, a DVD player, and a microprocessor. Each was likely made in a separate factory, possibly in different countries, by various companies employing hundreds or thousands of workers. Then think of the raw plastic, metal, and rubber that went into those component parts, and all the people involved in producing them. Add the makers of the fuel that fired the factories and the ship crews and trucking fleets that got the computer to its destination. It’s not hard to imagine millions of people participating in the production of just those items now sitting on my desk. And out of the millions of tasks involved, each individual performed only a tiny set of discrete steps. How did they each know what to do? Of course, most of these people were employees, and their bosses told them what to do. But how did their bosses know how much plastic to produce? And how did they know to send the weaker, softer kind of plastic to the computer company, even though it would have been happy to take the sturdier, high-quality plastic reserved for the hospital equipment makers? And how did these manufacturers judge whether it was worth the extra resources to make laptops with nice LCD monitors, rather than being frugal and making old, simpler cathode ray models? The total number of such dilemmas is practically infinite for a modern economy with millions of different products and billions of workers and consumers. And they must all be resolved in a way that is globally consistent, because at any given moment there are only so many workers and machines to go around, so making more of one thing means making less of another. Resources can be combined in an almost infinite number of possible permutations; some might satisfy society’s material needs and desires fairly well, while others would be disastrous, involving huge quantities of unwanted production and lots of desirable things going unmade. In theory, any degree of success is possible. This is the problem of economic calculation. In a market economy, prices perform this function. And the reason prices can work is that they convey systematic information concerning how much of one thing people are willing to give up to get another thing, under a given set of circumstances. Only by requiring people to give up one thing to get another, in some ratio, can quantitative information be generated about how much, in relative terms, people value those things. And only by knowing how much relative value people place on millions of different things can producers embedded in this vast network make rational decisions about what their minute contribution to the overall system ought to be. None of this means that calculation can be accomplished through prices alone, or that the prices generated in a market are somehow ideal or optimal. But there is no way a decentralized system could continually generate and broadcast so much quantitative information without the use of prices in some form. Of course, we don’t have to have a decentralized system. We could have a centrally planned economy, in which all or most of society’s production decisions are delegated to professional planners with computers. Their task would be extremely complex and their performance uncertain. But at least such a system would provide some method for economic calculation: the planners would try to gather all the necessary information into their central department and then figure out what everyone needs to do. So something needs to perform the economic calculation function that prices do for a market system and planners do for a centrally planned system. As it happens, an attempt has been made to spell out exactly what would be required for economic calculation in a world with no states or markets. The anarchist activist Michael Albert and the economist Robin Hahnel have devised a system they call Participatory Economics in which every individual’s freely made decisions about production and consumption would be coordinated by means of a vast society-wide plan formulated through a “participatory” process with no central bureaucracy. Parecon, as it’s called, is an interesting exercise for our purposes, because it rigorously works out exactly what would be needed to run such an “anarchist” economy. And the answer is roughly as follows: At the beginning of each year, everyone must write out a list of every item he or she plans to consume over the course of the year, along with the quantity of each item. In writing these lists, everyone consults a tentative list of prices for every product in the economy (keep in mind there are more than two million products in Amazon.com’s “kitchen and dining” category alone), and the total value of a person’s requests may not exceed his or her personal “budget,” which is determined by how much he or she promises to work that year. Since the initial prices are only tentative estimates, a network of direct-democratic councils must feed everyone’s consumption lists and work pledges into computers, in order to generate an improved set of prices that will bring planned levels of production and consumption (supply and demand) closer to balance. This improved price list is then published, which kicks off a second “iteration” of the process: now everyone has to rewrite their consumption requests and work pledges all over again, according to the new prices. The whole procedure is repeated several times until supply and demand are finally balanced. Eventually, everyone votes to choose between several possible plans. In their speaking and writing, Albert and Hahnel narrate this remarkable process to show how attractive and feasible their system would be. But for many people — I would include myself in this group — the effect is exactly the opposite. It comes off instead as a precise demonstration of why economic calculation in the absence of markets or state planning would be, if perhaps not impossible in theory, at least impossible to imagine working in a way that most people could live with in practice. And Parecon is itself a compromise from the purist’s point of view, since it violates the principle “from each according to ability, to each according to need” — individuals’ consumption requests are not allowed to exceed their work pledges. But of course without that stipulation, the plans wouldn’t add up at all. The point is not that a large-scale stateless, marketless economy “wouldn’t work.” It’s that, in the absence of some coordinating mechanism like Albert and Hahnel’s, it simply wouldn’t exist in the first place. The problem of economic calculation, therefore, is something we have to take seriously if we want to contemplate something better than the status quo.

But what about the other alternative? Why not a centrally planned economy where the job of economic calculation is handed over to information-gathering experts — democratically accountable ones, hopefully. We actually have historical examples of this kind of system, though of course they were far from democratic. Centrally planned economies registered some accomplishments: 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. The system could also raise per capita production pretty quickly from, say, the level of today’s Laos to that of today’s Bosnia; or from the level of Yemen to that of Egypt. But beyond that, the system ran into trouble. Here a prefatory note is in order: Because the neoliberal Right has habit of measuring a society’s success by the abundance of its consumer goods, the radical left is prone to slip into a posture of denying this sort of thing is politically relevant at all. This is a mistake. The problem with full supermarket shelves is that they’re not enough — not that they’re unwelcome or trivial. The citizens of Communist countries experienced the paucity, shoddiness and uniformity of their goods not merely as inconveniences; they experienced them as violations of their basic rights. As an anthropologist of Communist Hungary writes, “goods of state-socialist production . . . came to be seen as evidence of the failure of a state-socialist-generated modernity, but more importantly, of the regime’s negligent and even ‘inhumane’ treatment of its subjects.” In fact, the shabbiness of consumer supply was popularly felt as a betrayal of the humanistic mission of socialism itself. A historian of East Germany quotes the petitions that ordinary consumers addressed to the state: “It really is not in the spirit of the human being as the center of socialist society when I have to save up for years for a Trabant and then cannot use my car for more than a year because of a shortage of spare parts!” said one. Another wrote: “When you read in the socialist press ‘maximal satisfaction of the needs of the people and so on’ and … ‘everything for the benefit of the people,’ it makes me feel sick.” In different countries and languages across Eastern Europe, citizens used almost identical expressions to evoke the image of substandard goods being “thrown at” them. Items that became unavailable in Hungary at various times due to planning failures included “the kitchen tool used to make Hungarian noodles,” “bath plugs that ﬁt tubs in stock; cosmetics shelves; and the metal box necessary for electrical wiring in new apartment buildings.” As a local newspaper editorial complained in the 1960s, these things “don’t seem important until the moment one needs them, and suddenly they are very important!” And at an aggregate level, the best estimates show the Communist countries steadily falling behind Western Europe: East German per capita income, which had been slightly higher than that of West German regions before World War II, never recovered in relative terms from the postwar occupation years and continually lost ground from 1960 onwards. By the late 1980s it stood at less than 40% of the West German level. Unlike an imaginary economy with no states or markets, the Communist economies did have an economic calculation mechanism. It just didn’t work as advertised. What was the problem? According to many Western economists, the answer was simple: the mechanism was too clumsy. In this telling, the problem had to do with the “invisible hand,” the phrase Adam Smith had used only in passing, but which later writers commandeered to reinterpret his insights about the role of prices, supply, and demand in allocating goods. Smith had originally invoked the price system to explain why market economies display a semblance of order at all, rather than chaos — why, for example, any desired commodity can usually be found conveniently for sale, even though there is no central authority seeing to it that it be produced. But in the late nineteenth century, Smith’s ideas were formalized by the founders of neoclassical economics, a tradition whose explanatory ambitions were far grander. They wrote equations representing buyers and sellers as vectors of supply and demand: when supply exceeded demand in a particular market, the price dropped; when demand exceeded supply, it rose. And when supply and demand were equal, the market in question was said to be in “equilibrium” and the price was said to be the “equilibrium price.” As for the economy as a whole, with its numberless, interlocking markets, it was not until 1954 that the future Nobel laureates Kenneth Arrow and Gérard Debreu made what was hailed as a momentous discovery in the theory of “general equilibrium” — a finding that, in the words of James Tobin, “lies at the very core of the scientific basis of economic theory.” They proved mathematically that under specified assumptions, free markets were guaranteed to generate a set of potential equilibrium prices that could balance supply and demand in all markets simultaneously — and the resulting allocation of goods would be, in one important sense, “optimal”: no one could be made better off without making someone else worse off. The moral that could be extracted from this finding was that prices were not just a tool market economies used to create a degree of order and rationality. Rather, the prices that markets generated — if those markets were free and untrammeled — were optimal, and resulted in a maximally efficient allocation of resources. If the Communist system wasn’t working, then, it was because the clumsy and fallible mechanism of planning couldn’t arrive at this optimal solution. This narrative resonated with the deepest instincts of the economics profession. The little just-so stories of economics textbooks explaining why minimum wages or rent controls ultimately make everyone worse off are meant to show that supply and demand dictate prices by a higher logic that mortals defy at their peril. These stories are “partial equilibrium” analyses — they only show what happens in an individual market artificially cut off from all the markets surrounding it. What Arrow and Debreu had supplied, the profession believed, was proof that this logic extends to the economy as a whole, with all its interlocking markets: a general equilibrium theory. In other words, it was proof that in the end, free-market prices will guide the economy as a whole to its optimum. Thus, when Western economists descended on the former Soviet bloc after 1989 to help direct the transition out of socialism, their central mantra, endlessly repeated, was “Get Prices Right.” But a great deal of contrary evidence had accumulated in the meantime. Around the time of the Soviet collapse, the economist Peter Murrell published an article in the Journal of Economic Perspectives reviewing empirical studies of efficiency in the socialist planned economies. These studies consistently failed to support the neoclassical analysis: virtually all of them found that by standard neoclassical measures of efficiency, the planned economies performed as well or better than market economies. Murrell pleaded with readers to suspend their prejudices: The consistency and tenor of the results will surprise many readers. I was, and am, surprised at the nature of these results. And given their inconsistency with received doctrines, there is a tendency to dismiss them on methodological grounds. However, such dismissal becomes increasingly hard when faced with a cumulation of consistent results from a variety of sources. First he reviewed eighteen studies of technical efficiency: the degree to which a firm produces at its own maximum technological level. Matching studies of centrally planned firms with studies that examined capitalist firms using the same methodologies, he compared the results. One paper, for example, found a 90% level of technical efficiency in capitalist firms; another using the same method found a 93% level in Soviet firms. The results continued in the same way: 84% versus 86%, 87% versus 95%, and so on. Then Murrell examined studies of allocative efficiency: the degree to which inputs are allocated among firms in a way that maximizes total output. One paper found that a fully optimal reallocation of inputs would increase total Soviet output by only 3%-4%. Another found that raising Soviet efficiency to US standards would increase its GNP by all of 2%. A third produced a range of estimates as low as 1.5%. The highest number found in any of the Soviet studies was 10%. As Murrell notes, these were hardly amounts “likely to encourage the overthrow of a whole socio-economic system.” (Murell wasn’t the only economist to notice this anomaly: an article titled “Why Is the Soviet Economy Allocatively Efficient?” appeared in Soviet Studies around the same time.) Two German microeconomists tested the “widely accepted” hypothesis that “prices in a planned economy are arbitrarily set exchange ratios without any relation to relative scarcities or economic valuations [whereas] capitalist market prices are close to equilibrium levels.” They employed a technique that analyzes the distribution of an economy’s inputs among industries to measure how far the pattern diverges from that which would be expected to prevail under perfectly optimal neoclassical prices. Examining East German and West German data from 1987, they arrived at an “astonishing result”: the divergence was 16.1% in the West and 16.5% in the East, a trivial difference. The gap in the West’s favor, they wrote, was greatest in the manufacturing sectors, where something like competitive conditions may have existed. But in the bulk of the West German economy — which was then being hailed globally as Modell Deutschland — monopolies, taxes, subsidies, and so on actually left its price structure further from the “efficient” optimum than in the moribund Communist system behind the Berlin Wall. The neoclassical model also seemed belied by the largely failed experiments with more marketized versions of socialism in Eastern Europe. Beginning in the mid-1950s, reformist economists and intellectuals in the region had been pushing for the introduction of market mechanisms to rationalize production. Reforms were attempted in a number of countries with varying degrees of seriousness, including in the abortive Prague Spring. But the country that went furthest in this direction was Hungary, which inaugurated its “new economic mechanism” in 1968. Firms were still owned by the state, but now they were expected to buy and sell on the open market and maximize profits. The results were a disappointment. Although in the 1970s Hungary’s looser consumer economy earned it the foreign correspondent’s cliché “the happiest barracks in the Soviet bloc,” its dismal productivity growth did not improve and shortages were still common. If all these facts and findings represented one reason to doubt the neoclassical narrative, there was a more fundamental reason: economists had discovered gaping holes in the theory itself. In the years since Arrow and Debreu had drafted their famous proof that free markets under the right conditions could generate optimal prices, theorists (including Debreu himself) had uncovered some disturbing features of the model. It turned out that such hypothetical economies generated multiple sets of possible equilibrium prices, and there was no mechanism to ensure that the economy would settle on any one of them without long or possibly endless cycles of chaotic trial-and-error. Even worse, the model’s results couldn’t withstand much relaxation of its patently unrealistic initial assumptions; for example, without perfectly competitive markets — which are virtually nonexistent in the real world — there was no reason to expect any equilibrium at all. Even the liberal trope that government interventions are justified by “market failures” — specific anomalies that depart from the Arrow-Debreu model’s perfect-market assumptions — was undermined by another finding of the 1950s: the “general theory of the second best.” Introduced by Richard Lipsey and Kelvin Lancaster, the theorem proves that even if the idealized assumptions of the standard model are accepted, attempts to correct “market failures” and “distortions” (like tariffs, price controls, monopolies or externalities) are as likely to make things worse as to make them better, as long as any other market failures remain uncorrected — which will always be the case in a world of endemic imperfect competition and limited information. In a wide-ranging review of “the failure of general equilibrium theory,” the economist Frank Ackerman1 concluded: A story about Adam Smith, the invisible hand, and the merits of markets pervades introductory textbooks, classroom teaching, and contemporary political discourse. The intellectual foundation of this story rests on general equilibrium. . . . If the foundation of everyone’s favorite economics story is now known to be unsound . . . then the profession owes the world a bit of an explanation. The point is this: If a deterministic story about free markets generating optimal prices, leading to maximum output was no longer viable, then the failure of planned economies could hardly be attributed to the absence of those features. As Communist systems were collapsing in Eastern Europe, economists who had lost faith in the neoclassical narrative began to argue that an alternative explanation was needed. The most prominent theorist in this group was Joseph Stiglitz, who had become famous for his work on the economics of information. His arguments dovetailed with those of other dissenters from the neoclassical approach, like the eminent Hungarian scholar of planned economies, János Kornai, and evolutionary economists like Peter Murrell. They all pointed to a number of characteristics, largely ignored by the neoclassical school, that better accounted for the ability of market economies to avoid the problems plaguing centrally planned systems. The aspects they emphasized were disparate, but they all tended to arise from a single, rather simple fact:in market systems firms are autonomous. That means that within the limits of the law, a firm may enter a market; choose its products and production methods; interact with other firms and individuals; and must close down if it cannot get by on its own resources. As a textbook on central planning put it, in market systems the presumption is “that an activity may be undertaken unless it is expressly prohibited,” whereas in planned systems “the prevailing presumption in most areas of economic life is that an activity may not be undertaken unless permission has been obtained from the appropriate authority.” The neoclassical fixation with ensuring that firms exercised this autonomy in a laissez-faire environment — that restrictions on voluntary exchange be minimized or eliminated — was essentially beside the point. Thus, free entry and multiple autonomous sources of capital mean that anyone with novel production ideas can seek resources to implement their ideas and don’t face a single veto point within a planning apparatus. As a result, they stand a much greater chance of obtaining the resources to test out their ideas. This probably leads to more of the waste inherent in failed experiments — but also far greater scope for improved products and processes, and a constantly higher rate of technological improvement and productivity growth. Firms’ autonomy to choose their products and production methods means they can communicate directly with customers and tailor their output to their needs — and with free entry customers can choose between the output of different producers: no agency needs to spell out what needs to be produced. To illustrate the relative informational efficiency of this kind of system, Stiglitz cited a Defense Department contract for the production of plain white t-shirts: in the tender for bidding, the physical description of the t-shirt desired ran to thirty small-print pages. In other words, a centralized agency could never learn and then specify every desired characteristic of every product. Meanwhile, East European economists realized that an essential precondition for firms to be truly autonomous was the existence of a capital market — and this helped explain the failure of Hungary’s market-oriented reforms. In seeking an explanation for the persistence of shortages under the new market system, the Hungarian economist János Kornai had identified a phenomenon that he called the “soft budget constraint” — a situation where the state continually transfers resources to loss-making firms to prevent them from failing. This phenomenon, he argued, was what lay behind the shortage problem in Hungary: expecting that they would always be prevented from going bankrupt, firms operated in practice without a budget constraint, and thus exerted limitless demand for materials and capital goods, causing chronic production bottlenecks. But why did the state keep bailing out the troubled firms? It’s not as if the Hungarian authorities were opposed to firm failures on principle. In fact, when bankruptcies did happen, the Communist leadership treated them as public relations events, to demonstrate their commitment to a rational economic system. The ultimate answer was the absence of a capital market. In a market economy, a troubled firm can sell part or all of its operations to another firm. Or it can seek capital from lenders or investors, if it can convince them it has the potential to improve its performance. But in the absence of a capital market, the only practical options are bankruptcy or bailouts. Constant bailouts were the price the Hungarian leadership was forced to pay to avoid extremely high and wasteful rates of firm failures. In other words, capital markets provide a rational way to deal with the turbulence caused by the hard budget constraints of market systems: when a firm needs to spend more than its income, it can turn to lenders and investors. Without a capital market, that option is foreclosed. As resistance against Communism rose, those in Eastern Europe who wished to avoid a turn to capitalism drew the appropriate lessons. In 1989, the dissident Polish reform economists Włodzimierz Brus and Kazimierz Łaski — both convinced socialists and disciples of the distinguished Marxist-Keynesian Michał Kalecki — published a book examining the prospects for East European reform. Both had been influential proponents of democratic reforms and socialist market mechanisms since the 1950s. Their conclusion now was that in order to have a rational market socialism, publicly-owned firms would have to be made autonomous — and this would require a socialized capital market. The authors made it clear that this would entail a fundamental reordering of the political economy of East European systems — and indeed of traditional notions of socialism. Writing on the eve of the upheavals that would bring down Communism, they set out their vision: “the role of the owner-state should be separated from the state as an authority in charge of administration. . . .[E]nterprises . . . have to become separated not only from the state in its wider role but also from each other.” The vision Brus and Łaski sketched was novel: 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.