On the Relations Between Planning and the Market in the Socialist Economy

In socialist political economy there has been a long-standing view which holds that socialist economy is incompatible with the market because socialist economy is a planned economy while capitalist economy is a market economy. Then people gradually recognized the existence of commodity production and the law of value in socialist economy; nevertheless, they still place the role of planning in a position that absolutely excludes the role of commodity production, the law of value, and the mechanism of market. It seems, according to them, where planning works the mechanism of market will lose its effect; conversely, in places where planning has no effect the mechanism of market will function. This view of the market as incompatible with the nature of socialist economy has created a series of negative effects in our economic life. For example: Production Out of Step with Needs. Owing to the lopsided emphasis on planning to the neglect of the market, our enterprises decide on what to produce and how much to produce mainly according to mandatory planned targets handed down from above. They are in no position to carefully arrange their production according to the actual needs in society. In this way, the products turned out according to plans imposed from above tend to be goods unsuitable for the market and result in overstocking. On the other hand, things needed in society are in short supply. In addition, the state monopolizes the purchase and marketing of the greater portion of products turned out by the enterprises, and according to a unified plan the state allocates to the enterprises the greater portion of the means of production they need. A horizontal contact is lacking between the producers and the consumers, A s they do not meet face to face, the producers are not aware of what is needed by the consumers, while the consumers cannot exert their influence over production. This inconsistency between planned targets and actual needs cannot be quickly shown through the market mechanism and rectified promptly, and the dislocation among production, supply, and marketing remains a long- standing problem difficult to solve.