CHAPTER 18: OPTIMALITY AND ECONOMIC PLANNING

In this chapter we want to raise the question of economic -- as well

as general -- planning in an optimal system. The first issue is whether at
all there is scope for such planning in an optimal economy. Second, if
there is need for planning, what kind and what forms should it assume?

Let us begin by recalling that the optimal economy by our

definition is a market economy, composed of a large number of sellers
(firms) and buyers. Each firm is subject to the optimality principles, that
is, democratically managed, obtaining its capital in a competitive capital
market whether from its own members, the supporting structure or the
general public. As we will show in the subsequent chapter, that economy,
when conceived of as an abstract theoretical model, should produce an
optimal solution in the sense that given its resources it will produce the
maximum attainable satisfaction for its members, workers and consumers.

However, the ideal assumptions of such market economies,

whether the democratic or the capitalistic, are subject to a number of
imperfections or market failures, even though there is reason to believe
that such failures will be less significant in the optimal democratic case.
The main categories of such failures are: external economies, external
diseconomies, monopolistic tendencies of various kinds, and last but for
the purpose of this chapter not least, a number of frictional rigidities
resulting from imperfect information in time and space which do not allow
the economy to adjust to changing structural conditions promptly and
without fault.

These imperfections or market failures can at least in part be

mitigated by what we will refer to as economic planning, through
deliberate and intelligent action by those involved. The involved of course
are all members of the society, or nation, or region who are involved
directly if not vitally (since major failures could even lead to vital
disasters) and involved with equal intensity. Thus they all ought to
participate with equal power in the mitigation of failures and
imperfections. And they will do so, depending on the efficacy and

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feasibility of such action, either directly or indirectly through appropriate
experts, institutions or organizations.

As we noted already, the support organization is one such

institution, and probably the most significant. In its work as supplier of
capital and mitigator of entrepreneurial risks it can and must serve many
of the planning functions noted above. But on the national level it is the
government in general which must be responsible for the carrying out of
the planning functions as one of the aspects of democratic government.
Beyond this point, we will not make much reference to the specific
institutions of planning but rather concentrate on the planning functions
themselves.

There is one significant finding stemming from formal economic

analysis, both theoretical and empirical, that strengthens the case for
planning in optimal systems, and also provides us with the point of
departure for our more detailed discussion. The optimal democratic
economy by its very nature tends to be subject to low short-term
elasticities -- that is, in more common language, subject to a certain
slowness of adjustment to changing conditions, sectoral growth, structural
change, and so forth. Some neoclassical economists think that this is
because of some formal results of analysis (the Ward paradox). [1] But
rather, it flows from the human-centered and humanistic character of the
individual firms' behavior, which precludes rapid and humanly undesirable
change in employment and size of the working community. It is precisely
the disappearance of the Minus Sign Syndrome in a democratic firm -- as
compared to the capitalist alternative -- that precludes instantaneous firing
of working people and thus high neoclassical short-term elasticities.

This being so, there is a good deal of scope for planning activity of
two major types. First of all there is need for good forecasting based on
analysis of present trends of the economy and its structure so as to give the
actual and potential (entering) firms sufficient indication of what is
expected for the near and intermediate future in the economy and in their
sector. With such information, these firms can plan in advance, prepare
for upcoming changes, and introduce the adjustments in a timely manner,
without waiting for the signaling of the markets and ex-post adjustment.

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 The second type of activity concerns the potential firms through
the activity of the support structure -- its feasibility analysis and allocation
of resources for the entry of new firms. With the relative inelasticity of
adjustment of existing firms, the main burden of adjustment in a
democratic economy is on the entry of new firms. If for example the
demand in some specific sector is expected to grow much more rapidly
than the national product in the next five years, the support structure can
allocate appropriately increased funds and support the "entrance" activity
in that sector. It can do so by offering funds to existing firms, or
responding more favorably to potential entrants, or as a last resort, by
creating new democratic firms in the area. It will be noted that this
activity emanating from the relative rigidity of existing firms has one great
advantage; that is, preservation and strengthening of the competitive
character of the sector or economy. Compare this with the intrinsic nature
of the capitalist economy where growth not only tends to occur through
monopolistic or oligopolistic expansion of existing firms, but is often
fostered, quite unnaturally, through advertising and other non-optimal and
oppressive techniques.

The society through its government or through the support

structure can also cope with other types of market failure, such as
ecological distortions or external economies or diseconomies. In the first
category a good example is the promotion of solar and other renewable
energy as compared to nonrenewable and polluting fossil-fuel based
energy. Preferential treatment in lending can be offered to the non-
polluting sources of energy through lower interest rates, granting of
licenses and by other means.

The participatory process can even be applied in democratic

determination of some socially optimal "price" or benefit related to the
renewable sources of energy as compared to the polluting ones. For
example, a kilowatt-hour of solar electricity or mechanical power can be
offered a five cent subsidy, to sell in a competitive market at ten cents. In
this case the production of fossil energy must occur at around ten cents to
equal the price of solar energy produced at around fifteen cents, thus
fostering expansion of the latter and reduction of the former.

It is immediately apparent that the ecological rectification can thus

become the result of both optimal participation according to quality of

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involvement and the dynamic process of dialogical consciousness
formation within the optimal society. In capitalist private and state
economies the ecological solutions can often be nonexistent or insufficient
for either or both the absence of an optimal participatory process and the
dialogical learning through praxis progression. This proposition can be
generalized: we may say that all departures from optimum for any kind of
market failure can best be solved in the optimal participatory societies
because of the participatory process applied to all problem solving, and
because of the inherent educational and conscientizing process belonging
to optimality.

The policy maker, government planning office or support structure

have a very powerful tool in their planning and efficiency-seeking activity,
which will satisfy the economist as much as the sociologist and even the
moral philosopher. The beauty of this instrument is that it can work even
without forecasting or planning prediction of the type noted earlier. This
instrument, present in the democratic economy, has no parallel in other
market economies.

We recall that the economic structure of the democratic economy,

because of its humane nature, is likely to be subject to relative inelasticity
and slower transformation when structural demand conditions are
changing. We also recall that to deal with this situation the planner of the
optimal economy should engage in precise study of trends and forecasting
and try to produce the expected structural changes through stimulation of
entry (or as the case may be, exit or contraction) or efficient expansion of
existing firms. But the point we want to make is that even without such
planning and forecasting, the plan implementors merely have to study the
evolution of labor incomes and structural income changes of comparable
jobs in various sectors, and promote entry and expansion where such
incomes are relatively high and retardation where they are low. This will
simultaneously tend to produce an efficient operation of the economy --
Pareto-optimality as the neoclassical economist calls it -- and distributive
justice. Thus the moral philosopher will be satisfied also.

St. Thomas Aquinas, moral philosopher and theologian will also be

satisfied. Given the nature of price formation in competitive democratic
economies, coupled with the equalization of incomes of similar skills
(produced by the market and/or the efficiency-seeking planner) the prices

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thus formed at all times will also be just prices in the Thomistic sense.
Thus in the case of the optimal democratic economy we also attain another
optimality dear to many (including this writer) of a marriage between
socioeconomic efficiency and optimality, and theological or moral
desirability.

So far we have dealt with planning and plan implementation

through governmental or similar institutions where democratically
selected worker-experts carry out certain overall instructions of optimality
for the benefit of the nation. But there are other means through which
members of the fully democratic society can participate directly in
grinding out the socially most desirable solutions. As they do so they can
eliminate many of the pathologies encountered in the capitalist
oligopolistic world we live in, discussed in Part II of this study.

We may begin our analysis precisely by dissecting one such major

pathology. Cigarettes -- their production, sale and pushing through
advertising -- are an extreme example but one representing in many
respects a very significant class of oligopolistic products. The involvement
of those who run this sinister (given the addictive and cancer-causing
properties of the product) activity, that is the capital owners, is remote and
indirect: the owners are trying to maximize their profits. The workers in
the cigarette industry, who are directly involved yet have no say, are to a
degree absolved of the moral dimensions of the case, precisely because of
their non-participation in decisions.

But in the cigarette industry and many other differentiated

oligopolies there is the intermediary advertising industry, which is called
on to maximize both its own profits and those of the manufacturers. Here
also the involvement of the capitalist decision makers is indirect, yet it is
these people who hold all the power -- and in fact in the capitalist society
they enjoy a good deal of respect, promoting their own reputation together
with the products they advertise.

The most involved, not only directly but in a profound manner

VITALLY are the consumers -- smokers of the products. In spite of such
vital involvement, they have no say. I have witnessed or am aware of the
death of several friends, heavy smokers, some with vents dug into their
chests to admit oxygen in the last stages of their life. Some, after death

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are "vindicated" or "compensated" not because they have suffered
enormously, but because the American states or politicians try to
recuperate moneys spent on medical treatment from the cigarette
producers.

In varying degrees, from our point of view, much of the production

in our "advanced" economies is of similar type, producing and pushing
products ranging from unneeded to deadly. Those who consume them,
who are directly and in varying degrees vitally involved, have no say; save
of course for the work of institutions like that of Ralph Nader in the USA.
The governments' interference is minimal and only in extreme cases such
as cigarettes. Why? Probably because the governments themselves and
their selection processes come very close to a money-based deception
similar to advertising. In fact many of the techniques used in selling
candidates for political office are taken from the advertising industry.
Where the efforts of the government or governments becomes more
pronounced, as in the United States in the late 1990's, not only is the
suffering of the victims not alleviated, but a lot of the monetary penalties
imposed on the cigarette producers go to the legal profession.

This being said, we can return to our subject of direct planning

according to the quality of involvement. First of all, some elected
representatives of the consumers should sit on the decision-making boards
of the advertisers with decisive veto power protecting the consumer -- not
only from killing as in the case of cigarettes, but also from the many lesser
dangers of consumerism, including the not lesser danger of losing one's
humaneness and one's soul.

On the positive side, consumers could participate directly, industry

by industry, through consultations between the retailers on the one side
and the consumers on the other. Why could not a mother purchasing
shoes for her child be consulted from time to time on her preferences,
acceptability of design, even suggesting design, price, quality and so
forth? Such information could usefully be provided to all in a given
industry.

This type of participation and information flow could prevent

many of the ills of the present-day oligopolistic economies. It could avoid
a lot of planned obsolescence, incompatibility of designs of various

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producers, unnecessary use of resources, and torturing the minds of the
consumer who must adjust every six months to new computers,
techniques, programs and so on. Also the unnecessary growth of GNP and
the use of scarce resources could be avoided, and what is more important,
a better balance reached between the material and the non-material aspects
of human existence. People could be spared the destiny of gradually
turning into a subhuman species.

A significant aspect of public interference with market failure is

that related to monopolistic and oligopolistic tendencies. In capitalist
economies this type of failure is quite significant, even though in countries
such as the United States considerable effort has been made by the
legislators to deter monopolistic tendencies. In the optimal democratic
economy, as we will see more carefully in the next chapter, such
tendencies are likely to be significantly lessened, but there is no guarantee
that they would be entirely avoided. Thence the need to cope with such
monopolistic tendencies.

There are several levers or instruments that the democratic

economy can use. First of all we must realize that bigness is primarily the
child of capital accumulation and the profit motive: democratic firms do
not relish bigness for its own sake. Just the opposite: if efficiency can be
preserved, smaller is superior to larger for any participating human group.
Moreover, the support structure which already is given the task, for other
reasons, to generate entry of new firms, can find in the prevention of
monopoly another important justification.

Then there is the classical instrument of controlling monopolies or

oligopolies through the imposition of price ceilings. These tend to force
the affected democratic firms to produce more efficiently, while reducing
exorbitant member incomes imputable to monopoly. If even with a price
ceiling the structural efficiency of a monopolistic industry is not reached,
then there is the other classical instrument -- taxing the monopolist in one
manner or another.

In concluding this chapter, it can be said that the modern capitalist

oligopoly-market system is one gigantic market failure leading to totally
un-ecological, excessive and subhuman use of resources. By contrast and
by the very nature of optimal participation and optimal dynamics of the

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democratic economy, far more sane and ecologically balanced solutions
are likely to emerge. Most of the activities broadly defined as planning are
replaced by the natural participation of members of society according to
principles of the nature and intensity of involvement. Perhaps the one
significant aspect of planning that remains in a world of uncertainty about
the future, is the competent study of trends, prediction on the national
(aggregate) level and dissemination of corresponding information to all,
but especially to the support structure or support structures of the
economy.

In a human-oriented society, this long-range planning forecasting

should bear the best fruits in assisting young people in choosing their life's
vocation in harmony with the long-range needs of the economy. To leave
the educational and vocation-oriented period/phase of life -- with gestation
periods of some ten years -- to present-day market forces would be sheer
folly. Only systems which take humanity to be human capital, or human
resources to be marketable slaves, are likely to adhere to it.

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