Socialist Planning vs. Market Economy, and the Question of the Destruction of Soviet Socialism

The question of how to distinguish socialism from capitalism is one that has been central to the struggles within the international communist movement since before the split in the Second International nearly one hundred years ago. Focusing upon the question of the nature of the Soviet Union over the period of its existence, in order to make a determination of its socialist character is primarily a political matter rather than a technical one. Juridical ownership is not the main criterion for determining the social system; rather, the criterion is which social class wields state power.

Few would doubt that capitalism has now been restored within the former Soviet Union. But of more importance is how and when this occurred. Pro-capitalist economists suppose that this occurred when state ownership of the major means of production was ended and ownership became concentrated into fewer and fewer hands. However, many communists propose a different story as to how and when capitalism was restored. The anti-revisionist communist movement of which the Communist Party of China was a part during the leadership of Mao Zedong holds that the crucial date in the timeline of capitalist restoration in the Soviet Union is 1956, the year that Nikita Khrushchev consolidated his grip on the state power and repudiated much of the socialist experience of the country. As to how this occurred, many communists propose that the internal social force motivating the destruction of the Soviet Union was in fact that country’s exploitative ruling class. While ownership of the vast preponderance of the means of production remained in the hands of the Soviet state until the end of the Soviet Union, socialism had long since been replaced by state monopoly capitalism, with the leadership of the Communist Party forming the nucleus of the ruling class exercising dictatorship over the proletariat.

The new leading group in the Soviet Union qualitatively deepened some of the existing errors in the Soviet Union. Earlier, during the war against fascism, Stalin conciliated with nationalist and reactionary Orthodox sentiment in order to forge the broadest unity against the invaders possible. But after the war, he turned his attention to strengthening the socialist foundations of the country. Notable is his work Economic Problems of Socialism in the USSR, in which he proscribes the operation of the law of value under socialism. However, after Stalin’s death, the leading group returned to a policy of appeasing Great Russian sentiment and gave greater play to the law of value in the workings of the economy.

The new leading group headed by Khrushchev deepened the bureaucratic tendencies within the party, government, and within the state and collective economy, reducing the active role of the working people in running the society. “Corruption” among party and state officials ran rampant and became an institutional hallmark to the extent that a new class formation took form, a state capitalist bourgeoisie. It is not difficult to understand why capitalist restorationists would continue to wave the red flag and proclaim communism instead of openly changing the state power. In the Soviet Union in 1956, there were still powerful forces that were loyal to the socialism and who were communists committed to the historical cause of the working class. The pretense of communism kept many of them politically disarmed.

The Soviet leadership repudiated the dictatorship of the proletariat and insisted that class struggle no longer drove social development in the country. Instead, the “dictatorship of the whole people” was declared, and the category of Soviet “working people” was declared to include manual workers, the intelligentsia, managers, as well as Party and state officials. In this way, the role played by the Soviet ruling class as an exploitative force was obscured.

With regard to capitalist restoration, it is important to point to the relationship between the economic base and its political and cultural superstructure, and the relationship between the forces of production and the relations of production. Many have argued that the qualitative leap presaging the restoration of capitalism in a socialist society takes place in the realm of the superstructure; specifically, the state power of the working class is overthrown and replaced by the power of the exploiting classes, as opposed to changes in the economic base (say, the area of ownership of the means of production) being crucial in this regard. In line with this analysis, mere public ownership of the means of production does not in any way mean that an exploiting class does not rule society. It would, in this case, be only a matter of time before such a class fully imposed its political and economic program on the formerly socialist society. Conversely, when the working class seizes political power, socialist relations of production do not immediately spring forth. This is impossible, and so it took time for the socialist economy to be transformed into a state capitalist economy.

Later, party figures emerged advocating the restructuring of the economy along lines more consistent with capitalism. An economist, Yevsei Liberman, provided many of the theoretical bases for a number of proposed reforms during the mid-1960s. Liberman made an argument that the role of the law of value was wrongly denigrated and must be fully recognized in order to develop the productive forces.

At the core of the 1965 Soviet reform proposals was a policy of self-financing of state enterprises: the government would provide the original funding, but thereafter, enterprises were to survive on their own resources. Profitability was officially declared the main criterion by which enterprises were to be judged. In practice, profitability was weighed along with a number of factors; however, profit was retained as a criterion of success. The Soviet state capitalist bourgeoisie appropriated the surplus value of labor not in order to serve the social needs of the formerly ruling working class, but instead to serve the material interest of the new exploiting ruling class. It is precisely out of this party and state leadership that today’s “oligarchs” and other private capitalist emerged.

Socialist Planning Versus Market Economy

Especially since the collapse of the Soviet Union and the much-heralded “death of communism,” the question of socialist planning versus various “market socialist” schemes is of critical importance to the future of socialist development. The remaining self-proclaimed socialist states each in varying ways proclaim adherence to “market socialism.” An ideological offensive against the concept of central planning and in favor of the concept of allowing market forces to determine prices and production has occurred, creating a broad consensus that central planning is inferior to market forces in terms of economic output.

But the question must first be asked: What is the objective of economic activity? This is first and foremost a class question rather than one of comparing raw figures on the production of this or that commodity. In a capitalist society, the goal of production is to make money, to obtain profit, while in a socialist society the goal is to lay the basis for the realization of communism and create common abundance, in line with the political needs of the continuing transformation of society.

The socialist calculation debate of the 1930s was sparked by an attack on socialist economic planning by liberal, pro-“free market” economists such as Friedrich Hayek and Ludwig von Mises. Stepping up to defend planning were social democrats like Oskar Lange and Abba Lerner. Even today, the writings of Hayek and Mises serve as the ideological basis of proponents of capitalist austerity and the supremacy of private property generally.

It must be pointed out that what was missing in this debate is a voice defending the position of genuine, revolutionary communism. Lange, for instance, succumbs to the ideological framework of the liberals in trying to prove that socialist planning can “out-compete” free markets by mimicking their operation. What he leaves out is what distinguishes socialism from capitalism. That distinctive quality is not planning versus free markets as such; rather, that question must be viewed as an aspect of the broader issue of what social class rules society and shapes society in its interest.

The fallacies of the liberals’ position on planning are built into its assumptions which flow directly from liberal ideology. While many pro-capitalist economists deny that their methods of analysis are based upon ideological presuppositions, in fact all economic theory is a subsumed part of class ideology in general and cannot be viewed separately from that context.

It is important to note that the historical value of the socialist experience cannot be assessed merely by looking at the leading economic indicators of the socialist countries. The materialist conception of history holds that social development is marked by a succession of modes of production, those being slave-owning aristocracy, feudalism, capitalism, and finally socialism and communism. Communists recognize that progress toward new forms of social organization takes place in a spiral rather than linear trajectory, and that the validity of socialist transformation cannot be judged through a simple quantitative comparison of advanced capitalist versus newly-emerging socialist economies. The consolidation of new social systems is an arduous process spanning generations, and progressive forces are locked in constant battle with powerful forces of counterrevolution.

Assessing the socialist calculation debate, two questions have come forward as most pertinent; that is, the issue of the rate of capital accumulation, and also the question of distribution (of income, wages being one component). The liberals see no independent, dynamic role for distribution in relation to the composition of consumer market demand. It is as if, to them, the actual existing incomes, which are inseparable from “demand” as understood in the market, are given by a sort of natural law, as if they are a natural product of entrepreneurial ability.

For a socialist state engaged in economic planning, the question of transforming people’s ideological standpoint is crucial and tied to its broader political objectives for the society. The participants in the socialist calculation debate, whether Mises or Lange, take as given consumer’s demand for various goods. But, the truth is that within either a socialist or capitalist framework, people’s wants are shaped by ruling class ideology. For instance, professional marketing and other messages in capitalist society inculcate the demand for consumption of a relatively private nature; for example, as with the Internet or home entertainment, broadly speaking. On the other hand, in socialist societies, ruling party “marketing” of a different sort encourages demand for a relatively public type of consumption, as with palaces of culture, public entertainment and so forth. And so, consumer demand is not a self-contained entity, but interacts with and is shaped by the ideology permeating the superstructure.

If the labor power is hired according to market forces, it is inevitable that class differentiation will be reinforced, not broken down. While Lange posits the rule of labor market forces as being a matter of “free choice of occupation,” in actuality this free choice is the same one permeating all capitalist relations of production. It is the same free choice of exchanging land and capital and the product of such at a price determined by the capitalist.

Under capitalism, price acts as a signal for market demand. But pro-capitalist economics does not critically analyze what is the basis of such demand. First, the question of distribution cannot be separated from market demand. The shape of the distribution of income determines precisely the shape of market demand. A relative increase in the polarization of incomes in society, all else the same, will lead to most of society increasing its relative demand for necessity goods, while the more affluent minority increases its relative demand for luxury goods. Further, market demand in no way corresponds to social need or utility. It is entirely a function of monetary demand, as opposed to social demand.

Socialist planning enables the state to make decisions about the short-term and long-term needs of society, and to balance them against each other. While the capitalist views monetary profit as the signal of success, this type of efficiency criterion does not account for long-term needs, which could for instance be met by increasing the rate of capital investment so as to expand the future productive forces. Through planning, calculation for many variables can be devised that are not addressed by the market.

One argument raised by more “libertarian”-minded socialist sympathizers is that central planning, by appropriating the product of labor, is engaging in a form of exploitation akin to that of the capitalist. Profit must be understood as being equal to (Surplus Value/[Fixed Capital+Variable Capital]) (for an explanation of this, see: This ), and as such it exists in either a capitalist or a socialist society. If “worker control” is devolved to the level of workplace units such as individual factories or groups of factories, instead of collaborating in a planned way to meet mutually understood social needs, the separate units will become atomized and behave as competing capitals. Such competition mimics that of capitalism, resulting in an inefficient allocation of resources—especially if the goal of production is not monetary profit but instead, broadly speaking, meeting of the people’s material needs as determined by the socialist state.

As for the question of capital accumulation, Preobrazhensky and other Soviet figures make the case for deferring, say, increases in consumer welfare, so as to instead produce the means of production. The liberals instead are focused on immediacy and do not see the value of an increased rate of accumulation. Marxist economist Maurice Dobb’s claims regarding the nature of the Soviet “stagnation” in the post-war period are related to this. Dobbs said that in the earlier periods, planning was mainly focused on a few, key products that were determined to be of importance not to the consumer market, but to what he called the “primary sector,” which would include production of the means of production. Later, he claims, Soviet planning did not successfully guide the “intensive growth” of the economy as a whole, that is, the transition by Soviet planning from relatively few products, with the “production campaigns” including Stakhanovism playing a key role in the earlier period, to the post-war period when planning took on a comprehensive form, with an increasing focus on complex mathematical relationships needing to be determined, and also what Dobbs would call the necessary transition from extensive to intensive growth.

Two constraints upon the development of the higher phase of communism in a society under the leadership of the working class are, first, encirclement by hostile countries ruled by class exploiters and second, an insufficient development of the level of the productive forces. The socialist state must engage in extended reproduction (production of the means of production) in order to defend its sovereignty through national defense and also to lay the groundwork for transcending the existing, less-than-communist productive relations.

Conclusion: The Necessity of Economic Planning and Restricting the Operation of the Law of Value In Socialist Society

Marx’s treatment of labor as a special kind of commodity is a key distinction from capitalist economics. Specifically, he addresses the matter with the labor theory of value. The Manifesto proclaims that the socialist distribution principle is “to each according to work,” which is distinct from that of capitalism, which is determined by a subsistence wage plus a certain cultural minimum requisite for the type of work involved, and is further modified by political need to maintain social cohesion and maintain its class dictatorship. But socialism cannot follow such a dictate and simultaneously carry out social planning. The socialist state must appropriate a surplus in order to accumulate capital and build the material foundations for communism and in order to use science and technology to improve the living standards of the population. Doing this requires conscious, systematic economic planning on the part of the socialist state, and minimizing the operation of the law of value rather than attempting to replicate the capitalist market.