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.”