Planning and market complement each other during the socialist transition

Planning and the market are a relevant subject in the current context of economic transformations which the Cuban economy is undergoing. Despite it being a controversial subject, it has lacked debate. However, where it has most been dealt with and discussed, though insufficiently, is in the academic sphere. There have been times in which an … Leer más

Planning and the market are a relevant subject in the current context of economic transformations which the Cuban economy is undergoing. Despite it being a controversial subject, it has lacked debate. However, where it has most been dealt with and discussed, though insufficiently, is in the academic sphere.

There have been times in which an identity between market and capitalism has been established.

Apparently, at least there are three rather disseminated lines of thinking about planning and market: the one that attributes the fundamental role to planning and does not recognise the existence of the market and its function; a second one that gives the fundamental role to the market and ignores that of planning; and, lastly, the one that presents the establishment of an objective relationship between the role of planning and the market.1

Some questions could perhaps channel the debate: Planned economy is synonymous to socialism, taking into account that in capitalism planning also exists?; Is market economy2 synonymous to capitalism, when in socialism the market also exists?; Are planning and the market just economic mechanisms?; The fact that there is a bit more planning, and a bit more market, is what essentially distinguishes socialism from capitalism?; Is the structure of the form of ownership what determines if a society is socialist or capitalist?3

Undoubtedly, this analysis does not aim in any way to give an answer to all these questions, but rather to present some reflections regarding this.

It is the rather generalised opinion among specialists and businesspeople that in the Cuban economy there still persist rigid forms of control (centralisation) over the economic entities – state-run as well as cooperative, private and joint -, which deprives them of the necessary autonomy, hinders the development of the law of value, the market’s function and business competition, in addition to not favouring the full development of the productive forces.

Experts on the subject consider that the market is not identified with capitalism or socialism, since the market exists ever since the dissolution of the primitive community. They point out that Marx himself said that commodities are only socially recognised through the equivalent exchange (market). The market exists in the two economic systems, since in both the money-commodity relationships are present and, of course, the functions of money.

In the current period of transition of the Cuban economy, the market as a system of economic relations, as the cause of mercantile transactions and the assignment of the productive factors, is formed by the production relations, the development of the productive forces (registering a shortage due to their current underdevelopment) and a third variable, the ideological. The latter, in the conditions of the Cuban economy, has become a constraint and not a facilitator, and shows certain flexibility, though insufficient.

The first of the mentioned factors – production relations – is showing changes in the current process of transformations, because of the diversity of the forms of ownership the Cuban economy is experiencing. The very important second variable – development of the productive forces – is subject to the advance of the other two.

At times planning is identified with the plan and everything seems to indicate that this does not constitute a correct vision: planning encompasses a much wider concept, social, far-reaching, in search of harmonic and sustainable development, based on a systemic focus, in constant movement and interaction of the different variables that make up planning and that, in that process, acquire new properties. The current development of cybernetics gives it dynamism and facilitates the drawing up of different alternatives and decisions to approach it as much as possible to the optimum.

The planning process must be as rich as possible, when contemplating an important number of variables, the most representative in the linking and interaction with the market (supply and demand, price, credits, interests, financing, among others). The exchange between producers, suppliers and buyers must also be taken into account.

The plan is the numerical expression of the planning process; it is a guide, it is not a straightjacket. The practice as criterion of truth motivates adjustments, updating and modifications that must be taken into consideration and, based on the initial plan, apply the necessary adjustments that give rise to an operative plan within the established period. That is one more manifestation of complementation.

Complementation

A series of specialists centre the action of planning on the macroeconomic aspects in search of proportions, balance, the greatest achievable equity, sustained economic growth and of the economy as a whole, as well as in the macro territorial proportions, like the strategy to achieve the most harmonic as possible development in the territorial.

Meanwhile, they consider the market as a tool that facilitates a better distribution, economic efficiency, the formation of prices (these issue important signs to the economy about certain situations and make it possible to make decisions and necessary adjustments), among others; but based on a non-spontaneous market, rather as a complementation with planning, where certain non-administrative, but rather economic, regulations are manifested, and the State works for a balance, avoiding and correcting the deformations that the market can originate. When there is talk of complementation between planning and market, in no way does it refer to quantitative participations (50 and 50 or 60 and 40% respectively). This would be completely schematic; complementation rather refers to the qualitative aspects, variables and the use of both components in different macro, meso and micro economic levels, under a dialectical process, where the functions that correspond to the State with those of the market interact. Finally, both components are manifested or carried out in the market itself.

Complementation between planning and market is presented as a single and interactive process, on several occasions. It begins in macro economy, passes through the meso and micro economy (the enterprise), until it reaches its realisation and full recognition in exchange (market).

The action of the law of value4 is found in this complementation relation and, of course, the value-labour theory developed by Marx.5

The socially6 necessary work, materialised in commodities, is its value (abstract human work) in its natural form and is expressed in its exchange value. But the value, in its natural form, lacks objective existence and, consequently, is not perceivable. Value only becomes objective in one commodity’s relationship with the other (when it resorts to the C-M market,7 the commodity-money formula) and, of course, the process continues in the M-C relationship, the second or final metamorphosis of the commodity. It is actually a simultaneous process: on one side the seller; on the other, the buyer.

The relationship of a commodity with another already contains the price form, which is one of the many forms of value. That is to say, it is just a question of the specific character of the work creator of value, in a first part; and as a second, linking that determination with the necessary transformation of the commodity into money. The price is the monetary expression (external) of the exchange value. And here there is no apologia of the market, but rather the confirmation that the values, created in production, are carried out in the market.

In theory it is considered that there is an exact coincidence between the magnitude of value and price; in practice there will always be quantitative inconsistencies between both categories: value and price.8 In scientific terms it is important and defining to recognise that difference and the existence of imaginary prices.9

Compared to natural phenomena, agents with a conscience and will act in the social ones. Thus, if a person decides to sell his honour for a good amount of money, and does so, this leads to his honour assuming a price, adopting the form of commodity. His honour lacks value, but has a price. A qualitative inconsistency takes place between value and price. And when this happens, it is referred to as imaginary price, instead of real price.

Price is always centred on value, but in no case can an absolute coincidence between them be supposed. In an economy where mercantile relations are manifested, it is consistent that irregularities be registered, in which the prices are rated above or below the magnitude of value. It is considered that, as a mean of all the transactions made during a year, the magnitude of value and price coincide.

The Marxist theory of work value has not been surpassed until now by another theory that represents, scientifically, the nature and forms of value in a more precise and advanced way than Marx’s. Taking as a reference prestigious contemporary economists like Samuelson and Nordhaus, in the section “The market mechanism” of their book Economy, they state that in a market system, everything has a price, which is the value of the commodity expressed in money. Both of them recognise the two sides: value and price. They also recognise that the relationship between them is of expression, that one is the expression of the other.

But this work does not include a space dedicated to presenting the nature of value and its relationship with price. Conventional economists remain in the price because it is what comes up to the surface, and they are not precise about the analysis of value, they do not get to seeking the essence of the problem, they do not perceive it or do not know how to capture it in its natural form. This confirms the absence of a common theory regarding this. Thus, Marx’s theory of value cannot be refuted from the conventional economy.

Based on the previously analysed aspects regarding the value-work theory, the law of value, the exchange process (C-M, market) and the value-price relation is favourable to considering the action of the law of value (knowing its nature and form of functioning) and the role of planning in the process of transition toward a socialist society. The first would not be imposed in a blind way given the necessary and possible complementation between planning and market, to avoid with this the creation of imbalances and damages to society, to revert this situation in search of a more harmonious, proportional, efficient development and with the greatest possible equity at the different moments in which this complementation is manifested.

It is important to take into account the contradictions that can appear between the value of use and the exchange value, for the enterprises and the population. For the first as a means of production and, for the second, as a means of consumption; both can, to a certain extent, demand the same product. As part of the process of transition toward a socialist society, the complementation that is needed between planning and market cannot be achieved bureaucratically. A bureaucratic solution to this contradiction can lead to an unequal competition between the socialist business sector and members of society, intensifying the shortage in the market of the means of consumption and, therefore, against the socialist society.

One of the vital points or aspects within the process of complementation pointed out refers to the presence of the fundamental economic law of society. It is known that in the capitalist form of production the law of value is subordinated to the law of capital gain. In the new society, in search of the most just and the greatest possible equity, the law of value is subordinated to the full development of each member of society; where the worker receives according to his results, through wages, according to the necessary time of work (see footnote no. 4), which allows him to cover his growing needs and those of his family.

It is obvious that a part of the additional work in the new society be devoted to social requirements, which to a certain extent are reverted to the society formed by the worker and his family forms; but it is necessary that that proportion reach a point of balance between the necessary and additional work, according to the existing production relations and the development of the productive forces, and that it not be to the detriment of the due wages through individual income, in favour of the social.

It must be taken into account that the new society, during the period of transition, emanates from the previous form of production; during this transition period, work is still a way of life and is not presented as a vital need, and that stage of transition toward socialism is not built with enthusiasm, but rather based on the interest of producers.

In this entire process of transition, the actions directed at production and the meeting of its needs require an integral regulation and watching out for the protection of two original sources of all human production: the land and the human being.

Moments of complementation

Traditionally, the study of the economy has been divided into two large fields: the macro and the micro economy. But in recent times the experts interested in economic development introduced two new sectors of study in that science: the meso economy and meta economy.10 The latter, because of its importance and interrelation with planning and the market, and with the social and territorial aspects, requires its own analysis.

Macro economy

In the macroeconomic action the function of the State is to sponsor a favourable atmosphere for growth and to maintain stability under conditions of distributive equity, for which it can act with a certain relative autonomy.

Planning in the macro environment requires concentration in the essential aspects of the search for the economy’s proportions. Undoubtedly, a series of variables are required, like: demand, availability of resources (material, financial, natural and human), infrastructure, prices (domestic and foreign market, tendencies), credits, sources of internal and external financing, technological tendencies, the environment, non-renewable and renewable energy sources, among others.

The process is interactive and needs to be backed by the methods of input-product matrixes, which help the scientific support for planning. It needs to unchain in several horizons: the mid-term (3-5 years, less detail than the annual planning) and a long-term vision (10-15 years), while annual planning indicative bases is manifested as an updating of the mid-term planning. The figures and indicative economic proportions for the economy are established at that moment.

It is necessary to have market studies and assessments in the macro and meso levels (supply-demand, updated prices and projections, internal as well as external, global as well as territorial), to thus begin, from the start of the planning process, the complementation between planning and the market.

Meso economy

The meso economy11, which studies how the relations between the economic agents and the global economic performance affect the current situation, is located in the intermediate level between the macro and micro economy. The meso economy studies the institutional aspects of the economy not grasped by the macro economy and the micro economy. However, favouring the use of dot-matrix methods and models12 of optimisation as tools and procedures that lead to a scientific-technical basis of planning one has to recognise that the usual macroeconomic and microeconomic current models are insufficient to explore the dynamic and complex relations between human beings, institutions and nature, with which it has been disconnected from the real economy.

The meso economic factors that must be considered and studied (as part of the process of complementation between planning and the market) include the configuration of a competitive material infrastructure (transport, communication and power systems) and of sectorial policies, especially education, training, research and development plus innovation (RD+i) and technological policies.

It is also necessary to consider a specific commercial policy, market mechanism and some regulatory systems (for example, environmental and technical safety standards), which contribute to the generation of competitive advantages (in addition to regional and local policies) for the local administrations, the RD+I institutions, the local juridical and natural enterprises. These can and must interact, deploy horizontal relations, for the improvement of quality and territorial economic-social development. Thus, the State and the social actors create local and facilitation advantages at the national, regional and local levels.

In the meso economic action, the State is responsible for the role of promoter, generator and catalyser of the adequate conditions to achieve the relationship between agents and organisations, with a view to creating and recreating a functional environment for systemic competitiveness. Action can be taken from the macro and meso levels, through economic mechanisms, using product and currency reserves, and interact with the market, through the use of government institutional structures, in the face of detected price hikes and imbalances; also by applying levels of subsidies, interest rates, taxes, credit facilities, among other economic mechanisms.

Micro economy

Micro economy13 covers the study of the allotment of resources for homes and enterprises, the microeconomic regulations and institutions that entail macroeconomic consequences.

At the micro levels (where the enterprise works, the economic cell of the economy) it is necessary to have a more immediate and daily use of the market as a tool, of the performance of supply-demand, prices (formed based on national and foreign attendance), competition (that businesspeople work based on tense liquidity conditions, which favour creativity), as well as the necessary updated and speedy information to the producers to make fast decisions (that they have the autonomy that is due to them). The enterprise is the closest, immediate level that achieves the mentioned interaction of complementation with the market.

The performance of the businesspeople (producers) radically changes when they produce for a market:

  • The sale of their production is not guaranteed if they are not able to produce within the limits of quality and prices imposed by the market.
  • Their level of production is no longer restricted by supplies or productive inputs assigned to them through the material balance of centralised planning, but rather by their own ability to expand their participation in the market and ability for self-financing.

Final considerations

Resources are not unlimited for any economy. Applying the methods of optimisation, assessment, management and market in complementation with planning can help a better economic distribution and efficiency.

This entire tour and process of analysis carried out has the fundamental objective of expressing that the forms of organisation and functioning of the economy are active elements on ownership and production, to discern how both forms (planning and market) are complemented in their different moments, in search of achieving the correct functioning of the economy, clearly specifying the role each one plays in the period of transition and, as a last resort, which determines or conditions. (2015)

1 Armando Nova: “Plan y mercado” (Plan and Market), in La agricultura en Cuba, evolución y trayectoria (1959-2005) (Agriculture in Cuba, Evolution and Trajectory [1959-2005]), Ciencias Sociales publishers, Havana, 2006.

2 Strictly speaking, a market economy does not exist; the market, at least ever since capitalism was established as a dominating system in the world, has always had the presence of regulation. And market economy is usually identified with capitalism, in the face of the known socialism.

3 The type of predominating ownership determines and identifies the form of production. State ownership in the construction of socialism is not the predominating type or the one that must predominate; it is one of the forms that, together with other forms of social ownership like the cooperatives (which could be conceived as the predominant), or the family, private form (including the one that hires labour force), coexist in the transition process. This becomes an initial consideration, which marks the complementation to be achieved between planning and the market during this stage. However, the forms of organisation and functioning of the economy are active elements and they act on ownership and production. It is important to highlight that both forms – planning and the market – are complemented for the organisation and functioning of the economy, clearly taking into account the role that each one carries out in the transition period.

4 The law of value aims to explain the regulation of the proportion in which commodities are exchanged between them. The different proportions in which commodities are exchanged by the others must be able to be reduced to a common expression and be distinguished only by the proportion in which they contain that pattern or common measure. The law of value is based on the fact that the common substance between the different commodities, as social products, is human labour. The value and, therefore, the proportion of value is determined by the amounts of socially necessary human labour-time required to produce the commodities.

5 There are two key questions on the theory of value developed by Marx: the specific character of the work creator of the value and the concatenation between the determinations of the value by the time of labour and the transformation of commodities into money (C-M).

6 The amount of work is measured in units of time, and this is how the time of socially necessary work is expressed. It is known that wages are established according to an average working day in hours of work, and it stands out that the time of necessary work, wages, must correspond with the needs of the worker and his family, considering the reposition and expansion of the labour force. The decrease in the time of work (live and past) is also a vital element in the increase of productivity and production. Time is a fundamental economic concept.

7 Karl Marx: The leap in value of the commodities from its body to the body in gold is, as I already said, the mortal leap of commodities. Of course, if it fails, it is not the commodity that crashes but rather its owner, in Capital, Vol. 1, section 1, chapter 3, “Money or the circulation of commodities.” First metamorphosis of commodities into C-M.

8 Karl Marx: The possibility of quantitative inconsistency between price and magnitude of value lies in the very form of price. This is not a defect of the form, but rather that, on the contrary, it makes of it the appropriate form of a means of production where the rule is imposed as a mean and blind law of irregularity, in Capital, Vol. 1.

9 Karl Marx: Things that in and of themselves are not commodities, for example conscience, honour, etcetera, can be considered by their owners as sellable for money and thus receive, through their price, the form of commodities. Consequently, because of this a thing can have a price without having value. Here the expression of price becomes imaginary, like certain magnitudes of mathematics. On the other hand, the form of imaginary price, for example the price of non-cultivated land, which lacks value because no human work has not been objectivised in it, can also hide a real relation of value, or a value derived from it, in Capital, Vol. 1.

The critics of the Marxist theory say that the virgin soil has a value and, however, no human work has been objectivised on it. Therefore they conclude that the substance of value cannot be abstract human work. But their mistake lies in that they do not differentiate between value and price, since it is certain that the virgin soil has a price, nevertheless, it is not correct that it has value. The essence of the problem lies in recognising the difference between value and price and, on the other hand, of recognising the existence of imaginary prices.

10 The meta economy goes even further, by studying the deepest functional aspects of the economy, understood as a complex and interactive live and dynamic system, which forces the adoption of an open, systemic and evolutionary approach and the recognition of the real economy as a complex live system within other systems. It is difficult because the official statistics do not exactly collect these aspects – or simply do not take them into account -, including many of the hidden regulations and practices of the real economy.

For some authors the meta economy is defined as the humanisation of the economy, taking into account the imperative of a sustainable environment; thus, it includes elements of philosophy, morality, psychology, anthropology and sociology that transcend the limits of obtaining the maximum benefit and individual rationality.

The aforementioned is aimed toward a new approach that is gaining space, which has been identified as “the new economic thinking”, or “a new way of seeing and understanding the economic world.” That approach requires the incorporation of psychology, anthropology, sociology, history, physics, biology, mathematics, computer science and other disciplines that study complex adaptive systems.

The meta economy approaches a scientific tool of auditing of the system when it analyses and assesses the effects of the models of economic organisation over society and the environment, out of whose sum comes the global whole that defines the wealth of nations. This sector introduces humanistic focuses that reinforce the character of the economy’s social science with respect to the human dimension in which it develops, by analysing officially the emerging potential values in bigger terms than the sum of the parts.

It is formulated as a recent specialty that analyses the economic balances together with the social and environmental balances, considering the development of tools of analysis that will specify in body the metaphor of the invisible hand, and with this making it possible to better assess in practice the difference between the elements that enrich the whole of the system in which human beings perform; of those that impoverish it as detonators of crises and social instabilities.

11 Intermediate level between macro economy and micro economy, where persons and institutions interact in order to promote development from the region, taking into account that diverse regions exist in a country, with different needs and degrees of development. Thus the interaction and articulation between all the social actors is very important, in order to achieve that the country be competitive on an international level.

12 The form and elegance of the microeconomic and macroeconomic models makes them useful to explain the mechanism of prices and the balance and imbalance of the fundamental added economic variables, but none of the two models can describe or analyse the real performance of the participants, principal actors in the markets.

13 The micro economy is part of the economy that studies the economic performance of individual economic agents, like consumers, enterprises, workers and investors; as well as the markets. It considers the decisions made by each one to meet some of their goals. The basic elements in which the microeconomic analysis is centred are commodities, prices, markets and the economic agents.

For the study of these phenomena, the micro economy uses official models, which explain the decisions of producers and consumers, based on suppositions, until it reaches conclusions through methods of deduction.

Persons have basic and specific needs they have to cover (food, clothes, medicines, housing, others), and there are multiple factors that have an influence on the ability to generate resources to meet these needs, like work, raw material or capital. The balance and optimum distribution of these resources is microeconomic matter.

The sectors studied by micro economy, to develop its applications, are theories and indicators. The theories used in micro economy are the following: theory of the consumer, of the demand and of the producer, general balance and asset and financial markets.

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