ourEconomy

Economic planning is back

Big data has created new opportunities for a postcapitalist future. But to realise its potential, our democracy must catch up.

Cédric Durand Razmig Keucheyan
12 July 2019
Image: Mohamed Hassan, CC0 Public Domain

When the USSR collapsed, the issue of economic planning seemed to be settled once and for all. In the struggle between the market and the plan, the former had won a decisive victory. Thirty years after the fall of the Berlin wall, the verdict is not so obvious anymore. Throughout the world, academic and political debates about economic planning are on the rise.

Three reasons explain this unexpected return. First, the Great recession of 2008. This crisis of capitalism not only illustrated, once again, the irrationality of the market. But the efforts to contain it came with massive state interventions, financial and regulatory. In the post-2008 world, the victory of the “free and undistorted” market mechanism appears less decisive after all.

Secondly, the ecological crisis. When it comes to thinking about sustainable development, many consider planning without using the word. Nowadays experts rather refer to environmental “scenarios”, that will deliver a carbon-free future. In the “Green new deal” debate sparked by Alexandria Ocasio-Cortez’s endorsement of the project, the word “planning” is rarely used. But the idea of subjecting productive choices and investment to long-term goals other than profit is clearly there. It amounts to economic planning.

The third reason is the rise of information technologies. Historical forms of planning were burdened with the so-called “information problem”. Socialist regimes of the 20th century tried to replace coordination by the price-signal and supply and demand with ex-ante planning. This was meant to allow a more rational allocation of resources (natural resources, labor force) and hence to make economies less crisis and unemployment prone. Among other things, this implied being able to predict in advance which needs to satisfy, and to provide this information to the production units.

In the 20th century, ex-ante planning clearly failed. What do consumers want, and how much of it do they want, are two questions planners were never able to answer efficiently. Gathering the necessary information so as to coordinate economic activity revealed impossible. To elaborate a plan, you have to aggregate information at the macroeconomic level, and at the same time face inescapable uncertainties in production and changes in consumer’s preferences. Moreover, this should be done in a timely manner. Distortions in the expression of needs, and inertia in the productive apparatus, provoked the stalemate of the system.

One of the great questions of the early 21st century is this: do algorithms and big data change the nature of this problem? ‘The Big Data revolution can revive the planned economy’, according to a September 2017 Financial Times column. Digital platforms are a powerful tool for centralizing and managing information. Unlike what happened in the USSR, this centralization is not done by human beings with limited cognitive faculties, and prone to error and corruption. It is done by algorithms.

Amazon knows a great deal about consumer preferences in many sectors. Big data allows to combine macroeconomic (or quantitative) with microeconomic (or qualitative) coordination. Platforms are able to aggregate massive amounts of information instantly, and simultaneously to keep track of individual preferences. This, the Soviet bureaucracy of planners was never able to achieve.

In the past decades, enterprise resource planning (ERP) software became a major governance device, in the industrial sector as well as services. The most powerful ERPs allow for a panoptic, real-time, vision of the ecosystem the firms find themselves in. This greatly reinforces their capacity of control and transformation.

Walmart uses a software program called HANA as an incentive for innovation. The data furnished by 245 million customers, at the pace of 1 million transactions per hour, by 17,500 suppliers, by the internal activity of the firm, and also external data likely to impact on business – weather, social networks sentiment, economic indicators – all represent raw materials from which analysts draw to solve the challenges the firm faces.

Against all odds, algorithms may then well be socialist. Is it conceivable that Amazon, Google, or the Industry 4.0 program developed in Germany prepares for a postcapitalist economic future? This argument is developed by Leigh Phillips and Michal Rozworski in their recently published book People’s Republic of Walmart. Alibaba boss Jack Ma also takes this idea very seriously:

“Over the past 100 years, we have come to believe that the market economy is the best system, but in my opinion, there will be a significant change in the next three decades, and the planned economy will become increasingly big. Why? Because with access to all kinds of data, we may be able to find the invisible hand of the market.”

Jack Ma, executive chair of the Alibaba Group.

Planning, obviously, is not only an economic problem. It is a political one. It means taking control of important productive choices, that will influence all sectors of social life, and also the relationship between societies and nature. Consequently, it implies a deepening of democracy.

In the 20th century, economic planning came with authoritarian political structures. In the USSR, a bureaucracy of planners decided the qualities and quantities of goods to produce, i.e. which needs to satisfy and which needs not to. This was done top-down. But this correlation between planning and authoritarianism is not unavoidable. For one thing, capitalism also generates its own political authoritarianisms, as the current rise in right-wing “populist” governments shows.

Now is the time to be creative in matters of institutional design, so as to combine democratic control on the economy and individual emancipation from consumerism. Economic planning should be bottom-up. Experiments in “participatory” or “deliberative” democracy have been numerous throughout the world during the past twenty years or so. To this day, however, focus groups, citizen’s juries, participatory budgets or consensus conferences have not been used to influence productive choices.

French philosopher Dominique Bourg argues in favor of an Assembly of the Future. Through regulation, it could take charge of medium and long-term societal choices, like the ones affecting climate change mitigation and adaptation. This assembly should be granted strong decisional powers in matters of economic activity. The current institutions of representative democracy would remain in place, but they would be upgraded so as to adapt to the challenges of the 21st century.

Transcending economic crises and environmental destructions simultaneously is the goal. Democratic economic planning is the instrument to rebuild a collective narrative, and to deploy a new sovereignty over time.

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