The following piece, written by the late Pieter Lawrence, is the seventh chapter of his 2006 work, 'Practical Socialism - Its Principles and Methods'.
Chapter 7
Organisation of Production
It is often argued that because in socialism the free market will be replaced, production would have to be organised through a system of central planning. This idea is wrong, and is one which results from the false association of socialism with state capitalist systems as they have operated, for example, in Russia and East Europe. Certainly those state capitalist economies were run extensively through central state planning but this has nothing to do with the ways in which production would be maintained in socialism.
Of course, planning, in the various spheres of life would have an important part to play in socialist organisation. This would be especially true in its early days when there would be so much to do by way of re-organisation and development. However, development would be from a basis that would be mostly self regulating. We can describe this as a practice of “self regulating production for use.” I first proposed this in two articles published in the “World Socialist,” a journal issued by the Socialist Party of Gt. Britain, in April and Winter 1984.
There is, of course, nothing new about production for use. It is a self evident fact that every form of society must produce goods for use or consumption, otherwise we could not live. In socialism, naturally, this would be continued but after being liberated from the economic constraints that dominate useful production in capitalist society.
It is true that the free market system is mostly self regulating but this is not due, as some imagine, to economic factors such as exchange and the use of money. It is self regulating as a result of the interaction of the materially useful parts of production. This is to say the application of labour and the order and supply of worked up materials and final products throughout the structure of production and distribution. For example, the order and supply of manufactured goods and their worked up components throughout the production system begins with an order from a final user and is passed on from shops to places of final assembly; then to the manufacture of components and further to industrial processing of materials and finally to the mining of raw materials.
Whether it is capitalism or socialism, production units would respond to the communication of required quantities of things without the need for a centralised planning authority. So, in arguing that this would be continued in socialism as a system of self regulating production for use we are not arguing from a theory of anything new. The ways in which production in socialism could be organised would, in principle, be a continuity of existing practice but free from the limitations of the market system.
Free market mythology
Theorists of the free market have not been content to simply emphasise its once progressive role in history, they want to make us believe that we could not exist in the modern world without it. It is acknowledged that the growth of trade and the development of the capitalist system swept away feudal society in Europe. It revolutionised our powers of production and distribution; vastly increased productivity of labour; created administration, instant global communications and some limited democracy. It can be accepted that the productive relations of wage labour and capital provided a social basis for a new and dynamic society which once took communities out of the hideous relations of feudal overlord and serf
Whilst this is not denied, the change from feudalism to capitalism only replaced one exploitative system with another. Since capitalism became the dominant world system its productive relations of wage labour and capital have remained fixed and although it has created great powers of production, the constraints inherent in the market system prevent these powers being used freely for the benefit of all people; this is the main reason why it now acts as a barrier to the solution of problems.
But some theorists of the free market have taken their arguments much further than proclaiming its dynamic part in historical change. They say the free market system is not simply a means of making profit but is the most efficient way of making modern production work. It is said that given the complexities of modern world production which result from the many decisions and dispersed factors that are involved, it works best when the self regulating features of the market system are allowed free play. For this reason it is argued that the market system achieves more than a viable method of producing and distributing goods, it is said to be the best practical way of running modern production in all circumstances. It is even argued that the abolition of the market system would make modern production impossible.
These arguments centre partly on the use of cost pricing which it is said allows millions of different factors of production to be reduced to common unit of measurement which is money. In this way cost/pricing provides a market language that enables a world wide system to be co-ordinated without any kind of overall plan; it allows comparisons, and therefore decisions to be made, selecting the most efficient production methods which maximise labour productivity. It thus enables society as a whole to make the most use of productive resources which in turn provides for optimum supply of consumer goods. It is true that cost calculation can be a means of making economies in a particular business but the object of this is to maximise its profits. In general, the market system dissipates its productivity gains by creating a vast number of wasteful employments which do not in any way contribute to the real needs of the community. (See chapter 8).
But it follows from these arguments that any attempt to either abolish cost/pricing or the countless millions of economic decisions made by individuals and companies who run world production as a self regulating system, would impair the operation of the free market system in ways that would lead to inefficiency or breakdown. In this way its admirers have idealised the free market system, criticised any kind of centralised planning, and claim to have predicted the breakdown of command economies such as in Russia and Eastern Europe.
As has been emphasised, in no way are socialists in favour of government intervention or state economic management. These have mostly been a disaster for working people, but we also note that when production was expanded in the Britain of the 19th Century with trade more or less free, its benefits were hardly shared by all. A small class of capitalists took on average about 50% of national income. Some individuals became immensely rich whilst the desperate plight of many in poverty continued. Then, as in later years, the free market system lurched from crisis to crisis, culminating in the Great Depression which continued throughout the last two decades of the century.
The free market system collapsed again with the 1920/30’s slump and it was these problems and the ravages of the trade cycle that caused people of various political persuasions to take up the name of John Maynard Keynes. It was his theories of government intervention and economic management that suggested that the market system could be steered on an even and steadily expanding course for the benefit of all. In retrospect, it may be thought that if the benefits of the free market had been so obvious, presumably, Keynes would have gone unnoticed.
Instead, his interventionist views were taken up by many governments; his theories dominated the politics of Western Europe during the post World War II period, with even the British Conservative Party becoming converts to the Keynsian cause. Eventually Keynsian theories were mostly abandoned. For example this happened in Britain under the Labour Government of 1974/9, when recession again bit deep into the economy.
During the 1980’s, free market theorists enjoyed renewed popularity but again it should be noted that even with Frederick Hayek a great exponent of the virtues of the free market, advising the Thatcher Government, unemployment soared to over 4 million in the early 1980’s which is a very curious way indeed of seeing how the free market system can ensure the maximum use of productive resources for the benefit of the whole population.
It is also significant that during the 1930’s, with Western economies desperate to recover from deep recession, under the administration in America, which included many “new deal” Keynesians, and under the British Government which was more committed to laissez faire policies, both economies performed in similar ways. Both began to emerge from the world slump at a more or less even rate. This indicates that various theories of economic management have little influence over the performance of the market system which operates according to its own economic laws. As we have emphasised the laws of the market are not susceptible to close political control.
It is true that the state capitalist economy in Russia eventually collapsed with the consequent collapse of its East European empire and this has been attributed to the absence of a free markets system. But again it is doubtful if this was caused solely by faults inherent in state control. These were all countries with deeply demoralised work forces, living under tyrannies run by gangster regimes. The economies suffered appalling problems of waste, distortion and corruption. It is likely that the breakdown of the state system in Russia was not solely economic but due more to political and social causes. We also have the different example of the World War II economy in Britain, 1939/45, which was certainly state capitalist with almost complete central control and yet was highly successful in converting industry, manufacture, agriculture, etc., with great speed to its war objectives.
Left to the free market this could never have happened. Within the limits of the war budget which paid for production, having decided what arms, aircraft and increased food were wanted, industry, manufacture and agriculture were organised to produce them. The normal operation of the free market was suspended. Although this example of the British war economy may seem perverse, and as a command economy could not be applied in a socialist system, it does indicate what can be achieved when production and distribution can be organised directly for given production targets and when it is free from the constraints of market forces.
But the fallacies of free market theories mostly arise from a misunderstanding of the function of its economic features. Even a cursory look at how the market system operates indicates that, for example, cost/pricing has little to do with the practical organisation of production. Quite the contrary, the mechanisms of sales for profit work as barriers at every stage of production and distribution.
When it is said that cost/pricing is an indispensable means of co-ordinating the many thousands of material factors that make up a world production system, this is simply wrong. When it is said that market forces result in the most efficient use of resources for the production and supply of consumer needs, this is simply not true. Neither of these two alleged pillars of the moral and material worth of the free market will stand the least scrutiny when tested in the real world of capitalist production which, as we have noted, staggers from crisis to crisis, unable to use our immense potential powers of production directly for the needs of people.
It is useful here to apply our method of making a distinction between the socially useful, material factors of production which tend to facilitate production and the economic factors of the market system which tend to inhibit production. When it is said that the use of money and cost/pricing enables consumer choice to be communicated to production and therefore activates it into supplying that choice, this is not what actually happens. Signals to produce may well pass from consumers through the shops to relevant parts of production but not as economic signals. In reality, it is every day experience that a customer will go to a shop or store and ask for an article of use. In the case of a television set a consumer may approach a salesperson and say, “I’m looking for a television set.” The salesperson will then say, “Certainly,” and after offering various models will add, “this one will cost you £250.00,” – or whatever may be the price.
A television set is a complex thing. It would be very difficult indeed to trace and identify the productive history of every component. Its basic materials are glass, plastics and metals. So at the beginning of the sequence of order and supply, the customer asks for a model of his or her choice. If the sale is agreed, the television will be supplied from stock or perhaps ordered from a nearby wholesaler. Then, according to the wholesaler’s stocks, more sets will be ordered from the manufacturer whose function will mostly be the final assembly of sets from their component parts. Again, according to stocks the manufacture may order more components from his suppliers. The work of producing components will involve glass and plastic moulding, metal casting, wire production and cutting, and circuits. From this point in the sequence, the ordering of supplies extend to the oil industry for plastics, the glass industry and the various sources of metals where these are mined and processed throughout the world distribution of raw material deposits.
What is apparent in this network of productive links is that the order and supply of goods begins with a consumer choice which is eventually transmitted throughout the entire structure of production, first as a finished product and then on as worked up materials. At every stage the information being communicated consists of required quantities of material things. But the notion that this network is co-ordinated by the communication of economic, cost price signals is wrong. In reality, cost pricing is not passed from users to producers. The sequence of economic signals is in the opposite direction, from producers to users. For this reason, they could not possibly be signals to produce, nor can they have any practical part to play in the co-ordination of production. The idea that cost/pricing is a means of integrating modern production is free market mythology.
But of course, cost/price signals do have a function but it is not a practical or useful function. Contrary to what market theorists believe as part of their idealisation of buying and selling, the cost/price signals that pass from producers to users act as a barrier against the free use of productive resources. When a consumer wishes to order a television set it may be an instruction to produce. But this depends on whether the would be user has the money to pay for it. Clearly, the television salesman is not in the business of providing goods directly for people’s needs. He or she is in the business of selling television sets with a view to making profit. So goods may well be distributed for use but only on condition that distribution takes the economic form of a sales transaction from which the seller makes profit.
If we trace the sequence of production from extraction of raw materials, through industrial processing, manufacture of components, final assembly and transport to stores, we find that each addition of labour throughout this sequence not only brings the work forward, it creates an expansion of value in the various commodities that is expressed as their prices. These prices are specified on invoices for the worked up materials or finished goods and if the bills are not paid, distribution of the goods stops. Distribution is dependent on payment not on any indication of a particular material need. The general rule of the market is “no profit – no production.”
Moreover, this economic determination of production subjects the market system to cyclical break down. If a particular market becomes over supplied or sales decline, cut backs take place, workers are sacked, machinery and equipment becomes idle and if the knock on affects become extensive, production can sink swiftly into general break down. This happens irrespective of whether there may be a real need for the goods that could be produced.
Examples of profit before needs are all around us; they are a normal part of our every day life. But a particular example that was both cynical and tragic occurred during the 1980’s when the world prices of cereals had fallen to unacceptable low levels for profit hungry agribusiness. The response of the government in America, an important source of cereals, was to arrange with farmers to take 83 million acres of farmland out of production. This resulted in increased prices at a time when according to the Food and Agricultural Organisation, over 435 million of the world’s population were seriously undernourished.
The power of the market system to maintain its existence is ubiquitous. For example it has sometimes been argued that different kinds of production units such as worker’s co- operatives could better work for the benefit of their communities. But this in no way could avoid the economic pressures that would compel it to work as part of the market system. Nor would its work arrangements matter. It could be a kibbutz or a co-operative taking decisions collectively; it could be a monastery producing pottery, honey or herbs; in whatever way they may be internally organised, authoritarian or democratic, and in whichever scale they may operate, as a part of social production, they could only function as part of the economic circuits of the capitalist system.
In buying in its machinery, equipment, materials, premises and transport; and in paying its rates, any unit, including worker’s co-operatives must pay all these costs. A generating company is not going to supply electricity free simply because a production unit declares itself to be working for the benefit of the community. The running costs of any unit include the profits made by all other units previously involved in the production of the materials, machinery, and power supplies, etc., which are bought in. In addition, the people working in the unit must have income to cover personal living costs such as rent or mortgage repayments, food, clothes, leisure activities, and so on.
It is elementary that the pressure of economic selection determining the existence of production units exerts itself as daily book-keeping. Regardless of any aspirations to operate on principles different to those dictated by the market system, production units can only exist whilst they remain economically viable, that is, where income exceeds expenditure. If expenditure exceeds income then sooner or later they must disappear, as the constant number of bankruptcies well attests. It is these pressures of economic selection, which cannot be set aside, that maintain the market system as an exclusive, self-perpetuating capitalist structure.
It follows that the economic pressures that compel production units to operate on a profit making basis rule out any possibility of combining the productive relations of capitalism with the relationships of socialism. This also indicates that a socialist system can only be commenced with the removal of the economic factors from production as a result of a democratic and politically conscious act.
Self Regulating Production For Needs.
The description of production in socialism as being for need is not strictly accurate; this should be expressed as production “solely” for need. This recognises, as is self evident, that every social system must produce useful goods for consumption. So, even with all the economic constraints imposed by production for profit, the capitalist system does operate as a system of useful labour producing useful goods for consumption. What follows from this is that when we come to look at how production will operate in a socialist society, we do have something of a working model in front of us. This is the reason why we can say that our proposals for the organisation of production in socialism arise from experience and not from theoretical or futuristic speculation
It is true that modern production could not be run according to a world wide plan laid down, in advance, by a central planning authority. But the point is hardly worth making because the question does not arise. We have acknowledged that production embraces activity across the world as a vastly extensive network of links. It depends on millions of independent decisions and actions by individuals, small units, and large organisations. Its interactions are complex and fast changing in ways that constantly change the patterns of the whole system. It can only operate in a self regulating way with all its parts being self adjusting to the whole as a result of information being communicated to them.
But we have discounted the false notion that the structure is co-ordinated by economic factors such as cost/pricing. In fact it operates with the order of finished goods, worked up components and raw materials being communicated throughout the structure from points of distribution to final assembly and on to mining and processing of raw materials. This stream of material information also calls up requirements of transport and energy supply and is not confined to industry and manufacture but also applies to agriculture of every kind.
We have illustrated this with the order and supply of television sets but perhaps a less complex example is with glass. A main producer of glass in Britain is the firm of Pilkingtons in St. Helens, Lancashire. Its various glass products are distributed throughout Britain and overseas for a wide range of construction, manufacturing, horticultural and domestic purposes. In socialism, whether or not it will keep its name, Pilkingtons Glass would be commonly owned and the workers and technical staffs who run it would be freed up to respond directly to the requirements of the users of glass. The orders for glass would be registered and therefore the total quantities of required glass would be known.
Materials for the making of flat glass include silica sand, soda ash, limestone, magnesium oxide, aluminium oxide, potassium, so3, and iron oxide. Given that the requirements for glass would be known in an area of supply, it follows that the materials required for the making of that quantity of glass would be known and these would be communicated to the suppliers of those materials. In practice the lines of communication would extend beyond these eight units to their own suppliers. However, the example outlines the means by which all the materials required for final glass production would be known throughout all relevant parts of the structure of production. Each unit would know its position. If orders are high in relation to stocks, this would indicate that production should be increased. If orders are low in relation to stocks this would indicate that production should be reduced. This would be a self adjusting system of stock control indicating to each production unit what needs to be done to supply consumer requirements and also to maintain the various stages of production in more or less even balance. It would be a basis for a system of self regulating production, solely for use.
In practice it would use the same self regulating mechanisms which now maintain the market system as a self regulating system. This is the communication of required quantities of finished goods and worked up materials throughout the structure of world production. The difference being that in the market system we have profit motivated production in anticipation of sales. In socialism production would be a direct response to needs. The motive of sales and profits with its uncertainties and destructive effects prevent production being a controlled social effort, carried on by communities directly in their interests.
Pieter Lawrence
Link to Chapter 8.
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