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What would a socialist economy look like?

January 27, 2006 | Page 12

ERIC RUDER compares today's market madness to a socialist economy based on planning.

IT'S WIDELY assumed today that the free market is the only feasible way to coordinate economic life. And there's an endless parade of academic books and mainstream economists to promote the idea that the "law of supply and demand" is the best way to insure that what people want gets produced.

In exchanges on a free market, goes the argument, no one is forced to buy what they don't want. You can't force someone to buy a banana or a television, or a ticket to a movie at a price they're not willing to pay.

But if people buy--or "demand"--so many of these commodities at the current price that their supply becomes scarce, then the price rises until only those people willing to pay the higher price will still buy them. And if people no longer want an item, then the supply rises, the price falls, and those who make the good will stop producing so many.

The free market, according to this logic, provides both a measurement of what society needs, and an efficient mechanism for shifting resources to meet those needs.

But in the real world, markets fail--repeatedly and predictably--to live up to their promise.

Take the example of today's rapidly expanding coal industry. The rising cost of oil and natural gas has breathed new life into what was thought to be a nearly extinct industry. Operators are hiring thousands of new miners to meet rising demand as electricity generators and other industrial plants begin burning coal in place of more expensive petro-fuels.

The free market may produce big profits for the mine owners, as they sell coal at rising prices to industries hoping to cut fuel costs. But their relentless competition with one another--which requires each operator to cut costs as much as possible--is also responsible for the deaths of 15 miners in West Virginia in the last month due to unsafe working conditions.

And the free market doesn't measure in any way the increased social costs of acid rain, asthma and global warming resulting from the burning of coal, which is even worse for the environment than other fossil fuels.

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FREE MARKETS fail spectacularly when simple truths of the real world are considered.

Let's consider the example of the 1990s, when low oil prices, economic growth in less developed areas of the world, and rising incomes in the U.S. produced a massive global demand for cars. Every automobile manufacturer in the world rushed to build factories, buy steel and line up suppliers to increase their production capacity--to take as large a proportion of the growing market as possible and ultimately make as large a profit as possible.

For several years, many car corporations posted big profits. But now, with all the new factories coming online at the same time, there's a massive excess of capacity internationally, producing a global glut of automobiles.

Last year, global automobile sales hit about 57 million, but auto manufacturers around the world had the capacity to produce 81 million vehicles. This explains, at least in part, GM's readiness to lay off tens of thousands of workers.

While the theory of the free market suggests that excess supply would cause falling prices and compel car corporations to put their investments elsewhere, the truth is that such adjustments can't take place so effortlessly. The theory assumes away the passage of time--the fact that a carmaker that decides to produce more cars will have to invest in building factories over a period of years to bring more cars to market.

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A SOCIALIST economy would replace the anarchy of the free market with rational and democratic planning.

Capitalism is based on market competition between rival capitalist firms--which, in the rush to edge each other out, unavoidably embark on an irrational and breakneck expansion of production.

Socialism harnesses the immense productive capacity that capitalism has brought into existence and gives the power to decide on what and how much to produce to the people who actually do the producing--the workers whose labor is essential to running every factory, office and school.

Defenders of the free market object that without the market allocating resources, the end result will be "inefficiency"--in other words, resources will be directed toward producing stuff that won't be consumed. But as we've seen, capitalism is itself highly inefficient--consider automobile production--and factories either go idle or are simply scrapped when their output won't be consumed.

And even though the pro-market economists denigrate the very idea of planning, every capitalist firm does it.

GM, Boeing and Wal-Mart, which represent huge chucks of the economy, don't use markets to allocate investment to building factories or buying advertising. Instead, they assemble multi-year plans to decide what to invest in, how many workers to hire and what goods to produce. When these corporations take their products to market, they are implementing their individual plans--but with the hope of destroying their competitors' ability to carry out their plans.

Capitalism isn't just inefficient, however. Whole sectors of the capitalist economy are simply a waste. There would be no need whatsoever in a socialist society for the immense sums of money spent annually on advertising and insurance, for example.

And more importantly, capitalism wastes the creativity of countless numbers of people, grinding them down and treating them as passive consumers rather than active producers.

For example, most corporations don't even bother to ask workers what they think about how to make production more efficient. But when they do, the "reward" is often layoffs or figuring out ways to make the same number of workers produce more. In other words, profits increase without improving conditions for workers.

In a socialist society, increasing efficiency and the elimination of waste will translate directly into benefits for workers--by increasing the standard of living and adding to leisure time.

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FOR MOST of the last century, the experience of "actually existing socialism" left most people with the impression that socialism was its opposite--societies where people had to wait in long lines to purchase basic consumer goods and enjoyed no basic rights.

That's because the rulers of the former USSR and the Eastern bloc countries that lived under Russia's domination employed the rhetoric of socialism, while presiding over the opposite--a system of state capitalism.

For a socialist society to succeed, abundance, rather than scarcity, must be the norm. The immense technological advances in production over the last couple centuries have made such a world feasible--a world based on Karl Marx's famous principle of "from each according to his ability, to each according to his need."

But without money or some other mechanism to limit what people consume, won't there be chaos with people hoarding goods or wasting food and other resources?

To answer this question, the Belgian Marxist Ernest Mandel pointed to the fact that water is readily available for free, or virtually free of charge. Though there may be slight waste, he argued, this costs less than implementing rigorous methods for controlling its use--which itself would require significant expenditure of resources.

"This is where Marx's 'vision of socialism/communism' comes into its own," wrote Mandel in an article called "In Defense of Socialist Planning." "For with the advance of social wealth, the growth of productive forces and the emergence of post-capitalist institutions, the number of goods and services...capable of being distributed free of charge, can progressively increase. When--let us say--up to 60 percent or 75 percent of all consumer goods are so allocated, this cumulative increase will have altered the overall 'human condition' dramatically."

The world can already produce more than enough cars, water, food, telecommunications capacity and shelter to meet many of these needs. It's clear that the chief barrier to such an economic arrangement is that the social surplus is controlled by capitalists, who only have an interest in producing things if they can be sold for a profit.

In a socialist society, the power to decide what or even whether to invest would be taken from this small, parasitic class that lives off the labor of the vast majority.

The people who do the work in the world's workplaces could--through a process of voting and surveys about consumption desires--decide whether they were interested in working fewer hours or having more consumption choices, or whether they'd like more ability to travel or larger places to live.

One workplace or community might choose one mix of work and leisure, and another might chose differently. After all, equal access to resources doesn't mean conformity.

As Mandel put it, "The hallmark of a classless society itself would not be the similarity of the individuals who comprise it, but the greatest differentiation of the greatest number of individuals within it. The goal of socialism is not so much the socialization of the person as the personalization of society--that is, the fullest possible development of the unique personality of each individual."

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