Incentives,Optimization,and Democratic Planning: A Socialist Primer

Abstract

Socialism has traditionally been identified with central, top-down planning, which is seen as impossible and irrational. The only alternative is “the market,” identified with capitalism. The 20th-century socialist experience, by contrast, put forward a multilevel (central-local) model, in which enterprises form their own detailed plans, under incentives to plan both ambitiously and realistically. The incentive design literature in Western economics has suggested an “impossibility” result: there is no way to incentivize local agents to tell the truth about their actual possibilities and therefore to contribute to efficient central plans. However, under modern conditions, a Collective Morale Function operates: planning requires activist mobilization of, and critical understanding among, workers. If an enterprise is to organize production successfully, it must attain high levels of morale, which in turn requires truth-telling and ambitious planning. This constitutes a path toward mature socialism, breaking the one-dimensional binary: either authoritarian planning, or the “market.”