Allocating Resources
Stock or inventory control systems employing calculation-in-kind are absolutely indispensable to any kind of modern production system. While it is true that today they operate within a price environment that is not the same thing as saying they need such an environment in order to operate. Most students of logistics will be able to explain how unnecessary dollars and cents are for its operation. The key to good stock management is the stock turnover rate – how rapidly stock is removed from the shelves – and the point at which it may need to be re-ordered. This will also be affected by considerations such as lead times – how long it takes for fresh stock to arrive – and the need to anticipate possible changes in demand. The Just-In-Time systems are another tried and trusted tool of warehousing and supply chains which can be utilised. And even so the existence of buffer stocks provides for a period of re-adjustment. We even have the existence of store “loyalty cards” and consumer research that can be put to more creative and constructive non-commercial usage. Socialism does not necessary involve the creation of new layers of administrations but simply the transformation of them.
The “law of the minimum” was formulated by an agricultural chemist, Justus von Liebig in the 19th century. Liebig’s Law can be applied equally to the problem of resource allocation in any economy. For any given bundle of factors required to produce a given good, one of these will be the limiting factor. That is to say, the output of this good will be restricted by the availability of the factor in question constituting the limiting factor. All things being equal, it makes sense from an economic point of view to economise most on those things that are scarcest and to make greatest use of those things that are abundant. Factors lying in between these two poles can be treated accordingly in relative terms.
Actually to claim that all factors are scarce (because the use of any factor entails an opportunity cost) and, consequently, need to be economised is not a very sensible approach to adopt. Effective economization of resources requires discrimination and selection; you cannot treat every factor equally – that is, as equally scarce – or, if you do, this will result in gross mis-allocation of resources and economic inefficiency.
In any economy there needs to be some way of prioritising production goals. How might these priorities be determined? We can apply Maslow’s “hierarchy of needs” as a guide to action. It would seem reasonable to suppose that needs that were most pressing and upon which the satisfaction of other needs are dependant would take priority over those other needs. We are talking here about our basic physiological needs for food, water, adequate sanitation and housing and so on. This would be reflected in the allocation of resources: high priority end goals would take precedence over low priority end goals where resources common to both are revealed (via the self regulating system of stock control) to be in short supply .
We can also speculate, that some kind of “points system” might be used with which to evaluate a range of different projects facing such a society. Again those more qualified can explain how cost-benefit analysis is not dependant upon dollar and cents calculations, as (even now) ecological concerns are required to be taken into consideration in planning. In fact each day we all individually use various methods of adding up pros and cons to determine actions. Naturally, under capitalism the balance sheet of the relevant benefits and costs advantages and disadvantages of a particular scheme or rival schemes is drawn up in money terms, but in socialism a points system for attributing relative importance to the various relevant considerations could be used instead. The points attributed to these considerations would be subjective, in the sense that this would depend on a deliberate social decision rather than on some objective standard. In the sense that one of the aims of socialism is precisely to rescue humankind from the capitalist fixation with production time/money, cost-benefit type analyses, as a means of taking into account other factors, could therefore be said to be more appropriate for use in socialism than under capitalism. Using points systems to attribute relative importance in this way would not be to recreate some universal unit of evaluation and calculation, but simply to employ a technique to facilitate decision-making in particular concrete cases. The advantages/disadvantages and even the points attributed to them can, and normally would, differ from case to case. So what we are talking about is not a new abstract universal unit of measurement to replace money and economic value but one technique among others for reaching rational decisions in a society where the criterion of rationality is human welfare.
A broad picture would be that production-for-use would operate in direct response to need. These would arise in local communities expressed as required quantities such as grammes, kilos, tonnes, litres, and so forth, of various materials and quantities of goods. These would then be communicated as required elements of productive activity as a technical sequence, to different scales of social production , according to necessity. Each particular part of production would be responding to the material requirements communicated to it through the connected ideas of social production. It would be self-regulating, because each element of production would be self-adjusting to the communication of these material requirements. Each part of of production would know its position. If requirements are low in relation to a build-up of stock, then this would an automatic indication to a production unit that its production should be reduced. If the register of needs and the communication of every necessary element of those needs to the structure of production would be clear and readily known. The supply of some needs will take place within the local community and in these cases production would not extent beyond this, as for example with local food production for local consumption. Other needs could be communicated as required things to the regional organisation of production. Local food production would require glass, but not every local community could have its own glass works. The requirements for glass could be communicated to a regional glass works. These would be definite quantities of required glass. The glass works has its own suppliers of materials, and the amounts they require for the production of 1 tonne of glass are known in definite quantities. The required quantities of these materials could be passed by the glass works to the regional suppliers of the materials for glass manufacture. This would be a sequence of communication of local needs to the regional organization of production, and thus contained within a region. Local food production would also require tractors, and here the communication of required quantities of things could extend further to the world organisation of production. Regional manufacture could produce and assemble he component parts of tractors for distribution to local communities. These would be required in a definite number and, on the basis of this definite number of final products, the definite number of component parts for tractors would also be known. The regional production unit producing tractor would communicate these definite quantities to their own suppliers, and eventually this would extend to world production units extracting and processing the necessary materials. This would be the self-regulating system of production for need, operating on the basis of the communication of need as definite quantities of things throughout the structure of production. Each production unit would convert the requirements communicated to it into its own material requirements and pass these on to its suppliers. This would be the sequence by which every element of labor required for the production of a final product would be known. This system of self-regulating production for use is achieved through communications. Socialism would make full use of the means communications which have developed. These include not only transport such as roads, railways, shipping etc. They also include the existing system of communications which provide for instant world-wide contact as well as facilities for storing and processing millions of pieces of information. Modern information technology could be used by socialism to integrate any required combination of different parts of its world structure of production. Only a few functions would have to be dealt with at world level. Most could be carried out (as in practice at present) at a level that can be called regional (in world terms). It is at this level that production of intermediate goods and machines and equipment can be envisaged as being produced, for distribution for use either in other factories or by local communities. Local communities can only be the basis for consumption and for democratic decision-making but not for production. Of course, the actual degree of centralisation and decentralisation will be up to the people around at the time to decide in the light of their traditions, experiences and preferences.
The first and most important point is that we are not starting from the beginning. Its not a blank sheet. We are taking over and inheriting an already existing economic system which has in place various means of determining allocations and trade-offs. There are countless professional and trade associations and marketing boards and government departments which have the research and diagnostic tools available, plus the trade union movements with its skills and knowledge. All those bodies may at present be based on commerce but they can be quite easily democratized, socialized and integrated organisationally. Planning in socialism is essentially a question of industrial organization, of organizing productive units into a productive system functioning smoothly to supply the useful things which people had indicated they needed, both for their individual and for their collective consumption. What socialism would establish would be a rationalized network of planned links between users and suppliers; between final users and their immediate suppliers, between these latter and their suppliers, and so on down the line to those who extract the raw materials from nature. There is no point in drawing up in advance the sort of detailed blueprint of industrial organization that the old Industrial Workers of the World, the various syndicalists or the GDH Cole’s Guild Socialists used to and what Michael Albert of Parecon now does, but it is still reasonable to assume that productive activity would be divided into branches and that production in these branches would be organized by a delegate body. The responsibility of these industries would be to ensure the supply of a particular kind of product either, in the case of consumer goods, to distribution centres or, in the case of goods used to produce other goods, to productive units or other industries.
The Plan but not THE Plan
Planning is indeed central to the idea of socialism, but socialism is the planned, but not “central-planning”, production of useful things to satisfy human needs instead of the production of wealth as exchange value, commodities and capital. In socialism wealth would have simply a specific use value (which would be different under different conditions and for different individuals and groups of individuals) but it would not have any exchange, or economic, value. Although centralised world-wide planning of production and distribution has become more and more possible with the evolution of communication systems and the information-handling capabilities of computers, it has, at the same time, become less and less necessary or desirable. There are bound to be democratic decisions taken about certain aspects of production and distribution from time to time, at local, regional, continental and even global level. But, for the great mass of adjustments and controls, ordinary channels of supply and demand (real demand) will provide the most flexible and responsive basic system for regulating socialist society’s production and distribution. The almost infinitely complex network of manufacturers, growers, distributors and suppliers will, however, need well-organized communication and co-operation amongst themselves, as well as ready access to a richness of information about research, designs, methods, output, capacity, local preferences, etc., which is simply impossible in capitalism. The problem with a centrally-planned model of socialism was its inability to cope with change. It lacks any kind of feedback mechanism which allows for mutual adjustments between the different actors in such an economy. It is completely inflexible. We witnessed in Russia how it was unable to determine prices by central-planning. Prices were set, re-set, fixed then re-fixed, plans were made then re-appraised, re-defined, changed and dropped. Socialism however is a decentralized or polycentric society that is self-regulating, self-adjusting and self-correcting, from below and not from the top. It is not a command economy but a responsive one. The rule will be “fitness for purpose”, such as the regions of the world most suited for the production of certain goods be used for their production, because it would be stupid to do otherwise. In the world cooperative commonwealth goods will be “distributed” not “exchanged”, neither “exported” nor “imported” but instead as if the whole world’s goods were pooled and then each region were to draw what is required. When we declare that production will be planned, do not make the mistake of imagining some super-bureaucratic organization or World State imposing such a plan. This is not suggesting that a single agency based in New York or Geneva or wherever would be making policy decisions for everyone on the planet. Its function could be to provide information and propose various development strategies so that alternatives could be decided democratically. From where we stand now a lot of people would say that priority should be given to ecologically benign methods such as wind, wave, solar power, etc. With the freedom to make such a decision without the economic constraints of capitalism, socialism could do it. The sole motive would be the needs of people and this would be in sharp contrast to the way in which governments decide matters now from the point of view of national economic and military interests. Capitalist organizations are mostly hierarchical, consisting of a few people at the top who give orders and the many lower down or at the bottom who take them. Communication is usually top down. Socialist organizations will be mostly lateral, meaning that all participants will work according to a democratically agreed plan. Communication will be free-flowing, not one-way.
Having produced all that is required, all that is now necessary is to distribute it to the people so that each person’s needs are fully satisfied. Since the needs of consumers are always needs for a specific product at a specific time in a specific locality, we will assume that socialist society would leave the initial assessment of likely needs to a delegate body under the control of the local community (although, other arrangements are possible if that were what the members of socialist society wanted). In a stable society such as socialism, needs would change relatively slowly. Hence it is reasonable to surmise that an efficient system of stock control, recording what individuals actually chose to take under conditions of free access from local distribution centres over a given period, would enable the local distribution committee to estimate what the need for food, drink, clothes and household goods would be over a similar future period. Some needs would be able to be met locally: local transport, restaurants, builders, repairs and some food are examples as well as services such as street-lighting, libraries and refuse collection. The local distribution committee would then communicate needs that could not be met locally to the bodies charged with coordinating supplies to local communities.
The individual would have free access to the goods on the shelves of the local distribution centres; the local distribution centres free access to the goods they required to be always adequately stocked with what people needed; their suppliers free access to the goods they required from the factories which supplied them; industries and factories free access to the materials, equipment and energy they needed to produce their products; and so on. In the case of perishable goods it would merely be a matter of transport from factory or farm direct to the local distributing centres, and in the case of other goods to large regional, county or city stores or warehouses. From there it is but a step to the local distributing stores which would stock the whole range of necessary goods – a kind of show-room or warehouse – and from which goods could be delivered to the homes of people, or, collected by them if so preferred. After all the daily, weekly, and monthly needs of any given number of people in a district are easily worked out, even nowadays – take, for example, the distribution of milk – so it should not be very difficult to find out what stocks the local stores would require.
Production and distribution in socialism would thus be a question of organising a coordinated and more or less self-regulating system of linkages between users and suppliers, enabling resources and materials to flow smoothly from one productive unit to another, and ultimately to the final user, in response to information flowing in the opposite direction originating from final users. The productive system would thus be set in motion from the consumer end, as individuals and communities took steps to satisfy their self-defined needs. Socialist production is self-regulating production for use. The average requirements of a person are known: say X pounds of this, Y pounds of that; multiply by the number of people in that locality concerned, and you have on an average the total amount necessary to be “shipped” to that place for local distribution. This is now, although in a difficult and complicated way, exactly what’s being done. Doesn’t the wheat importer, know almost exactly, how much wheat he can distribute to his customers and doesn’t he import accordingly? Things will be different, but only in a small way. Whereas now you have dozens of importers for wheat, in the socialism there will be a food control or administration. Its function will be to organise production so that there is no shortage or excessive surplus, and that distribution to the demands of the people are satisfied. The food control in each region will arrange for the satisfaction of the needs of that region, and will in addition plan for distribution of its own products in excess of its needs, to other regions. There will no doubt be need of a world organisation – probably a statistical body – to control the whole output. It has already been explained how distribution would proceed from this point. From place of production to distribution depot, and from there to local depots. From the local depots there would be daily delivery of perishable goods, such as we have today for milk, and possibly weekly and monthly deliveries of other foods. Clothes, furniture, electrical items and other goods not required frequently or regularly, would be obtained at large outlet stores somewhat similar to as we have today. These will be placed at points in the various localities according to the needs and convenience of the local population. At these stores people will do their “shopping” without money, much as they do today. The stock control systems now in use in many major stores and the computer-controlled warehousing (such as Amazon) gradually being installed by large distributors already permit the constant monitoring of consumption of goods to be carried on, future demand to be predicted within quite fine limits and automatic, and almost instantaneous, re-ordering to be carried out. Modern information systems make it feasible for anyone, anywhere in the world, who has access to a telephone-linked computer to find out all the specifications and quantities of goods or services that are available or in demand. In the post-capitalist world it is this greatly enhanced information network which will replace and supersede the market and the price mechanism. The immense volume of information about the daily facts and figures of all production, distribution and services which is in the possession of the working class – and which is today barely used, except to total output figures and compile balance sheets – will be accorded its true value in socialist society as the data for conscious social control of the means of life by every member of society. “Democratic control” will be far more than a matter of voting when contentious issues arise. It will be the continual exercise of informed individual power in the co-operative processes of sustaining and enhancing social life.
It would be necessary to calculate the amount of inputs that would be needed to achieve a certain level of production. This kind of input-output calculation would need to occur on different geographical scales–from “local” forms of calculation to the regional and even global. This connects to our second question about the extent of localised versus centralized decision making in socialism. Looking at local forms of organization, individual units of production in capitalism (factories, offices etc.) already have IT systems for calculating the resources that are required in production, as well as stock control systems for managing the supplies of resources. Aside from the parts of that are concerned with monetary accounting, these systems could be of use to the socialist society inheriting them. To ensure the smooth functioning of the system, statistical offices (and many of those now exist in various shapes and forms) would be needed to provide estimates of what would have to be produced to meet peoples likely individual and collective needs. These could be calculated in the light of consumer wants as indicated by returns from local distribution committees and of technical data (productive capacity, production methods, productivity, etc) incorporated in input-output tables. For, at any given level of technology (reflected in the input-output tables), a given mix of final goods (consumer wants) requires for its production a given mix of intermediate goods and raw materials; it is this latter mix that the central statistical office would be calculating in broad terms. Such calculations would also indicate whether or not productive capacity would need to be expanded and in what branches. The centres for each world-region would thus be essentially an information clearing house, processing information communicated to it about production and distribution and passing on the results to industries for them to draw up their production plans so as to be in a position to meet the requests for their products coming from other industries and from local communities. The only calculations that would be necessary in socialism would be calculations in kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other side the amount of the good produced, together with any by-products.
To Re-cap
To summarize a typical sequence of allocation and information flows in a socialist economy might be as follows. Lets assume a store stocks a certain consumer good – say, shoes and boots. From past experience it knows that it will need to re-order approximately 1000 pairs from its suppliers at the start of every month or, by the end of the month, supplies will be low. Assume that, for whatever reason, the rate of stock turnover increases sharply to say 2000 pairs per month. This will require either more frequent deliveries or, alternatively, larger deliveries. Possibly the capacity of the distribution point may not be large enough to accommodate the extra quantity of footwear required in which case it will have to opt for more frequent deliveries. It could also add to its storage capacity but this would probably take a bit more time. In any event, this information will be communicated to its suppliers. These suppliers, in turn, may require additional leather, to make the shoes or boots to be processed and this information can similarly be communicated in the form of new orders to suppliers of those items further down the production chain. And so on and so forth. The whole process is, to a large extent, automatic – or self-regulating – being driven by dispersed information signals from producers and consumers concerning the supply and demand for goods and, as such, is far removed from the gross caricature of a centrally-planned economy.
Thus , we can counter many critics claims that moneyless society cannot calculate opportunity costs and allocate rationally :-
1) calculation-in-kind.
2) a self-regulating system of stock control – which identifies quantities of stocks available and provides a reliable indication of consumer demand (via the the depletion rates of stocks.)
3) the law of the minimum – whereby you economize most on those factors of production that are relatively most scarce.
4) a social hierarchy of production goals – which sorts out the allocation of scarce factors where competing demands are placed upon them.
With this approach it is possible to ascertain opportunity costs. Assume a particular factor X has 20 units in stock (as revealed via the self-regulating system of stock control mentioned above – feature 2). Assume there are two end-uses for X , end-use A and end-use B. Assume A requires 12 units of X and B requires 10 units of X. Clearly the full requirements for X for both A and B cannot both be met. If we chose to met A’s requirements fully then the opportunity cost of this is a slight reduction in the output of B – and vice versa. Deciding which end use should take priority is a function of feature 4) of a socialist allocative mechanism.
This mechanism will direct producers towards economically efficient outcomes for the economy as a functioning whole since every part of it is connected to every other part via a feedback system. The rapid development of computer technology offers a new kind of response to the pro-market arguments concerning calculation and decision-making. The provision of information will be an essential part of the democratic structure of socialism and the task of designing the systems that can best manage this will be one of the biggest challenges facing socialist society. Information Technology can provide the building blocks for new forms of organization, facilitate rather than dictate social organization, once it is used to work in the interests of the whole of society.
In socialist society, productive activity would take the form of freely chosen activity undertaken by human beings with a view to producing the things they needed to live and enjoy life. The necessary productive work of society would not be done by a class of hired wage workers but by all members of society, each according to their particular skills and abilities, cooperating to produce the things required to satisfy their needs both as individuals and as communities. Work in socialist society could only be voluntary since there would be no group or organ in a position to force people to work against their will. As to collective needs (schools, hospitals, theatres, libraries and the like), these could be decided by the groups of individuals concerned, using the various democratic representative bodies which they would create at different levels in socialist society. Thus production in socialism would be the production of free goods to meet self-defined needs, individual and collective. Society require a rational, long-term attitude towards conserving resources and yet present day society imposes intolerable conditions on the actual producers (speed-up, pain, stress, boredom, long hours, night work, shiftwork, accidents).
Socialism, because it will calculate directly it kind, will be able to take these other, more important, factors than production time into account. This will naturally lead to different, in many cases quite different, productive methods being adopted than now under capitalism. If the health, comfort and enjoyment of those who actually manipulate the materials, or who supervise the machines which do this, to transform them into useful objects is to be paramount, certain methods are going to be ruled out altogether. The fast moving production lines associated with the manufacture of cars would be stopped for ever; night work would be reduced to the strict minimum; particularly dangerous or unhealthy jobs would be automated (or completely abandoned). Work can, in fact must, become enjoyable. But to the extent that work becomes enjoyable, measurement by minimum average working time would be completely meaningless, since people would not be seeking to minimize or rush such work.
