1. “Self-Conscious Economic Order”: Planned Economy and Democracy
What is “democratic planned economy”? We seem to be discussing something that has never existed before. Historically, planned economies—or command economies—have never been democratic. So what does “democratic planned economy” refer to? Particularly, what does the modifier “democratic” mean in this context?
We might define “democratic planned economy” as:
An economic model that adheres to the principles of “economic democracy,” organizing the production and distribution of society through systematic “economic planning and execution.”
Regarding the description of planning, we can mostly reach a consensus—unlike the “market economy” which reacts to the public’s goals in a “spontaneous” manner, “planned economy” signifies a clear understanding of goals and “consciously” executing the plan to achieve those goals. But what does the modifier “economic democracy” mean?
Robin Hahnel, in his book “Participatory Economics,” provides the following definition:
Thus, proponents of participatory economics argue that economic democracy should be defined as decision-making power proportional to the extent to which an individual is affected by economic choices. We call this “collective economic self-management” and consider it the optimal way to achieve economic democracy.
This restriction is crucial for a “desirable economic model” and can be seen as a necessary but insufficient condition for achieving what Marx referred to as the “socialization of production.” Because a “planned economy” is indeed a “conscious economy” rather than a “spontaneous economy,” but it does not specify “whose consciousness” is at play: is it the political bureaucrats consciously controlling the entire society, or is it the conscious control of the economy by the people and their effective representative institutions? The structure of a planned economy does not answer this. Therefore, a “planned economy” can either be a tool for the people’s liberation or constitute a terrifying “cybernetic Leviathan.” The latter possibility could even mean that monopoly capital has completed its own transcendence, entering the highest stage of capitalism—a stage I almost dare not name.
Thus, we can say: a planned economy without democracy is not worth anticipating. A “planned economy” is akin to nuclear technology—rather than being neutral, it contains both positive and negative potentials—and once a particular potential path is chosen, the technology becomes imbued with good or evil.
2. The Structure of “Democratic Planned Economy”: Three Steps
It can be said that “planning” does not necessarily mean “centralization.” Imagine a giant whiteboard where every citizen has the right to contribute several ideas under the guidance of a few public personnel responsible for maintaining order. Citizens orderly and consciously propose their opinions on the economic plan, and finally, a fair and automatic algorithm synthesizes and balances these opinions, reaching a plan that everyone is satisfied with. This is the process of a “democratic planned economy.”
The improvements brought by a democratic planned economy are not just “system optimizations”—whether in terms of overcoming economic crises, improving efficiency, or promoting social equity—these are merely economic dimensions. Another significance of a democratic planned economy is the democratization of the economy. In other words, in such a planned economic system, citizens and associations can more effectively decide how the economy operates. Compared to the freedom of being subjected to the invisible hand in the market, a democratic planned economy means that humanity can truly determine its own destiny, with every consumer and producer deeply involved in the economy’s development. In short, a democratic planned economy signifies not only prosperity and abundance but also the realization of economic democracy and human agency.
So, under this viewpoint, how does a planned economy operate? How do people participate in the planning process?
We can conceptualize the operation of a planned economy as a simple flowchart, which we can call the “annual three-step economic plan.” Similar structures could also exist for monthly plans or long-term planning. If this three-step structure can be seen as a common feature of historical command economies, it also applies to all democratic planned economies we will discuss. These three steps are:
1. Setting overall goals and constraints.
2. Formulating specific plans and multiple feedbacks.
3. Plan execution: production and distribution.
First, let’s discuss the first step: (1) setting the overall goals and constraints of the plan. Historically, this work was often carried out by the central planning bureau or other similar organizations—even the finance ministries in Keynesian economies performed similar functions. This step is crucial in setting macroeconomic indicators such as investment rates and key industries for annual economic development. “Overall goals” mean that the economy should fulfill the people’s aspirations; “constraints” ensure that the price of essentials like food and utilities does not rise beyond a certain level. In any modern economy—whether planned or market-based—this work is necessary. Free-market capitalist countries announce target economic growth rates and employment rates; state capitalist countries set development directions for key industries.
In the first step of a “democratic planned economy,” more projects and greater public participation might be involved. Production committees or consumer committees from various industries, representatives drawn by lot from the public, or other elected representatives would collectively determine the general direction of economic development and specific constraints. In short, the first step of economic planning puts the reins of the “economic system” firmly in the hands of the people.
The second step of the annual plan is (2) the process where macro-departments and micro-departments, planning bureaus, and other social groups repeatedly negotiate, finally determining the overall plan. This is also often the process Hayek referred to as the “dissemination of tacit knowledge.” Macro-departments represent the overall goals and constraints set in the first step, i.e., the “common goals of all citizens”; various local departments and groups represent the diverse goals of producers and even consumers. The “essence of planning” lies not in the former controlling the latter, but in achieving a balance between the two.
Such local group participation in the formulation of economic plans is a common feature of all planned economies—even the highly centralized Soviet command economy included the necessary “enterprises submitting production plans,” “the central government formulating a national overall plan,” and “enterprises adjusting their plans accordingly” feedback process. This process was known in China’s command economy model as “one up, one down, one up.” Unlike historical command economies, capitalist countries in any sense do not include this process; in fact, this “multiple feedback in economic planning” and the subsequent “production and distribution execution” are jointly left to the market, that mysterious deity, to operate. Similar work is mostly reflected in the industrial policies of state capitalism—Japan’s MITI and South Korea’s Economic Planning Board under the developmental state are good examples.
Compared to these two models, democratic planned economies also feature such multiple feedback processes and often grant more decision-making power to various local groups. The greater autonomy in such planned economies stems from two main factors: the significant advances in computer technology since the 1990s, which make it much easier to calculate a balanced economic plan; and theoretical innovations by scholars, such as Hahnel’s “social cost accounting” and Cockshott’s adoption of Lange’s “trial market prices,” which were unheard of or unused by traditional planning officials.
The final step is (3) the execution of the economic plan, where social groups carry out production according to the overall plan and the subsequent distribution of consumer goods. In command economies, this step manifests as a top-down bureaucratic command system, including official inspections of production results, production competitions, and rigid pricing in consumer goods markets. In market economies, the production plans of some monopolistic enterprises themselves constitute the structure of the so-called free competitive market, allowing them to earn monopoly profits, while small producers and consumers are left to fend for themselves in a brutal game of survival. Subsequently, the widows and gold-diggers on the battlefield will praise the market deity’s power and the invisible hand’s might.
In democratic economic planning, although the overall economic plan is mandatory rather than referential, it does not exclude the autonomy of each enterprise. On the contrary, this process will be filled with what political scientist Robert Putnam referred to as “participatory democracy.” If a worker-run factory discovers a better plan, the production committee can choose not to follow the submitted plan and adopt a more efficient production technique instead. Such production optimization can save materials or create higher wages for them; consumers can use their labor vouchers or consumption points to purchase the goods they want in a market-like institution—except that the goods will be cheaper, and they will feel everything is the same as before. At the end of the year, the final review might mean that worker cooperatives that fail to meet their production plans will have their “entrepreneurial spirit rating” downgraded. This means they will find it harder to obtain investment next year or have to dissolve according to regulations, allowing the capital goods they occupied to be included in the production accounting table of the next year’s economic plan.
3. “Annual Plan”: A Short Science Fiction Story
Let’s imagine three visitors from the capitalist era waking up in a democratic planned economy republic. One of them is a worker who used to work in an electronics factory, working fourteen hours a day; another is a college student with many ideas and determination but unable to secure investment; the last one is a capitalist who earns $1.6 million annually from his bonds and investments.
The worker joined an electronics production committee, contributing his experience to the cooperative’s production plan. During the “Economic Planning Month” at the start of the year—a national holiday and grand festival in the Republic—he enjoyed free pork rice and snacks provided by the Ministry of Finance while improving the factory’s production plan. After several iterations, the plan’s efficiency surpassed the societal average and was approved on the morning of January 23rd. For the next eleven months, he worked four hours a day, spending the rest of his time playing games, running, studying programming, and learning guitar and English. In July, he used his newly acquired skills to improve the production plan, saving the factory a significant amount of materials. As a result, he was rated in the top tier during the year-end employee performance review, earning a salary 20% higher than the average.
The aspiring entrepreneur submitted his startup plan during the “Economic Planning Month”—similar to the worker’s plan, it was a production scheme. Facing a three-member investment committee—randomly selected from the local community—he persuaded them with his eloquence and secured investment. His plan was to cultivate seaweed along coastal tidal flats. He and his 213-member team worked tirelessly to set up the facilities. However, a typhoon in September destroyed all the facilities and most of the harvest, preventing them from completing their production plan. The university student was anxious, fearing bankruptcy or imprisonment. At the year-end, when the three-member committee reviewed the plan’s completion, they acknowledged the typhoon’s impact and decided not to downgrade his “innovation credit rating.” One committee member, an elderly man, reassured the young entrepreneur, sharing that he had faced similar setbacks in his youth but eventually succeeded. The student later learned that this unassuming old man had failed five ventures before finally leading a team to achieve controlled nuclear fusion at the age of 45—a feat never accomplished in capitalist societies.
The capitalist’s story is much simpler. He spent his first year in a mental hospital because he couldn’t adjust to seeing others as equals. He constantly complained to the community about uncollected trash outside his door, although he never fulfilled his obligation of three hours of weekly community cleaning. He was often ignored in restaurants for shouting, “Hey, waiter!” His future is uncertain; he might learn to treat others as equals and become a worker, an entrepreneur, or even a novelist relying on universal basic income. In that case, his income would only cover basic needs and a modest living, as he had refused to help other citizens. In the “Republic of Democratic Economic Planning,” a citizen’s wealth comes not from inheritance or innate talent but from mutual aid within the community.
After a year under the annual plan, the visitors from a capitalist era would realize that this system is not only more efficient than market or command economies but also more democratic and free. Workers and consumers enjoy much more freedom and democracy than in traditional economic orders because each step of the three-step process is firmly in the hands of the people. The overall goals and constraints are set by representatives of the people—whether they are randomly selected, democratically elected, or corporately appointed. In the second step, various workers’ committees, consumers’ committees, and local communes participate in the economic planning process. The production plans they submit form the basis for the Economic Coordination Bureau’s planning, and the final plan ensures a level of security that the market cannot provide—as long as you complete your production plan, all citizens of the Republic will collectively ensure its success. Moreover, the actual production process and consumer interactions remain entirely free. The democratic procedures within workers’ committees offer much more freedom than the factory servitude of the past.
Therefore, democracy in democratic planned economies is not merely an embellishment or constraint. It does not mean adding superficial public participation to a centrally controlled planned economy. On the contrary, only a planned economy can achieve true economic democracy and freedom. To borrow a phrase from the era of the great Revolution:”The Economic Planning without democracy is cruel, and democracy without the Economic Planning is hollow”. Thus, if prosperity and equality are the promises of all planned economies, then democracy is another promise of democratic planned economies: the “economic system” will no longer be the master of humans; instead, “humanity” will become the master of the economy.