Michael Harrington's "Socialism," Part III

"Profits before people," oh please . . .

MH’s confusion about the evolutionary transition from capitalism to socialism via reform comes down to his lack of awareness of what economists call the “calculation problem.” This blind spot is consistent with his vagueness about how “authentic socialism” would differ from the other kinds.

In a modern economy, there are millions of products, industrial processes, and types of labor. How it all must fit together is a problem for somebody, or some thing, to solve. Calculation here refers to decisions on how much of each thing to produce, where to produce it, etc. Calculation is crucial because it embodies one of the two basic questions for an economy (the other being how to maintain high employment without risk of excessive inflation).

To be sure, any such decision can be done well or badly, with attendant waste of resources, under any kind of regime. We see that in the scandal of the destruction of agricultural output, in a hungry world. We see it in the disruptive path of the business cycle under capitalism. Doubtless we would see other problems under socialist planning, as we already do in other economies. It is not enough to discount the Soviet experience as a problem of a lack of democracy. There is no reason to doubt there would have been bouts of error and waste under benevolent planning, however organized. I just read today that the Chinese have radically overbuilt housing, with many empty units.

The Left is mostly unaware of this issue, beyond a general demand for jobs. It tends to think of socialism in distributional terms. The people will be housed, clothed, and fed. Check the platforms of Democratic Socialists of America and its assorted component factional caucuses. It’s all about food, clothing, and shelter, the contemporary counterpart to the Bolsheviks’ “bread, peace, and land.”

The live questions of, for instance, the privatization of the U.S. postal service or the FAA, are side issues. I was in a little DSA group focusing on the USPS. Economic planning in the large was not on the radar screen.

If socialism is a planned economy based on publicly-owned “means of production,” where does the plan come from, and how is it implemented? How this is approached is central to a transition from capitalism to socialism. MH hardly touches upon it, beyond vague references to democracy, though he talks a lot about planning.

It is interesting that even a hundred years ago, there was speculation that the centralization of capitalism, in the form of trusts, would facilitate a socialist transformation. There was a recent argument along similar lines that I wrote of in my review of a book about Amazon for The American Prospect. The idea was that Amazon’s management of its huge network of suppliers provides some evidence for the feasibility of economic planning. A similar idea has attached to the construction of index funds as some kind of socialist entity. I beg to differ.

There is a huge difference between a socialization of the entire economy and of one piece of it, even a big piece. Public management of selected sectors with appropriate regulation is certainly plausible, but like Amazon, it would benefit from a confrontation with price information supplied by the rest of the economy. That information is manufactured from a decentralized base, as the great reactionary Friedrich Hayek became famous for describing. The more inclusive nationalization becomes, the greater the allocation problem, the less decisions benefit from information supplied by markets.

The indifference to the calculation or allocation problem goes along with folklore about profits. Profits raise the question of how to allocate the surplus an economy produces, once it has compensated labor and replaced capital that has been consumed (literally, depreciated due to wear and tear, or using up raw materials). “People before profits!”

We could say the third principal economic problem, after allocation or employment, is investment and growth. Economists have a fairly good grip on growth that results from more labor and capital, scaling everything up. Productivity growth, however, is more of a mystery. In any case, profits are the source of an economic surplus that is available for investment that can lead to growth.

Socialism in any form requires profits, since from profits come investment, and from investment comes economic growth, the basis for food, clothing, and shelter, as well as the means to deal with climate change and environmental concerns. Accumulation needs to be governed, but it would not pay any society to routinely consume its seed corn. Political woe is destined for any regime that cannot supply growth in living standards, or at the very least stability. Donald Trump may be about to learn that.

The diversion of surplus to self-indulgent children of the bourgeoisie in wasteful fits of conspicuous consumption is the smallest share of the surplus, though it may be the most visible, absorbing, scandalous part of it. Socialists should care more about what Warren Buffet is up to, rather than the Kardashians.

The most naive hope for public ownership of capital is that somehow, the filthy lucre of the rich will be shared out, satisfying desperate needs of the poor. The poor can certainly be desperate, but consumption of the rich is the least of the sources for a socialist utopia.

MH associates accumulation with state socialism, to which he counterposes a murky allusion to democracy, contra “bureaucracy.” As above, however, accumulation is the basis for growth. Was the state socialism bit a play to the old-time Students for a Democratic Society bias against centralization and for “participatory democracy”? I can’t be sure; I wasn’t there.

Me, I like bureaucracy. I was a bureaucrat, and we are a dedicated, industrious, public-spirited bunch. If it comes down to “Red versus Expert,” I’ll go Expert every time. The people, bah. They don’t know shit about the economy in the large, and they have better things to do, other things to care about. Don’t try to impose too much economic planning on them. (An alternative perspective that I have yet to review is available here.)

I’ll have more to say about MH and planning in the next installment.