Socialism and Underdevelopment by Post Ken;Wright Philip; & Phil Wright

Author:Post, Ken;Wright, Philip; & Phil Wright [Ken Post]
Language: eng
Format: epub
ISBN: 614831
Publisher: Taylor & Francis Group

Whereas, as we have said, the state socialist enterprise faces a resource constraint but no demand constraint, the exact opposite applies for a capitalist enterprise. Because the environment of the capitalist enterprise is not shaped by a plan it is therefore operating more or less in the dark about its competitors' intentions and about consumers' intentions and their ability to pay (goods being rationed by money). Consequently, its preoccupying uncertainty is not generally whether it can produce enough, but whether there will be a sufficient market for what it has produced at some point in the future. Even outside the context of recessions, capitalism is a demand-constrained system. In turn, it therefore also exhibits a permanent tendency to overproduce either because future demands have been incorrectly estimated or because it will be normal practice to hold stocks in order to be able to respond quickly to any market openings which may arise. Thus, just as the operation of a resource constraint and the imminence of shortage means that a state socialist enterprise does not generally face a demand constraint, the operations of a demand constraint and the attendant tendency to overproduce ensures that a capitalist enterprise does not generally face a resource constraint. Moreover, if some form of resource constraint does arise for a capitalist enterprise, the operation of the price mechanism may help to relieve it.

In fact, these differences between state socialism and capitalism were already appreciated by Soviet economists in the 1920s. Kritsman, for example, writing in 1924, asserted that 'in the commoditycapitalist economy there is a general slack, and in the proletariannatural economy a general shortage', and at another point,' in the commodity-capitalist society the crisis appears in the form of an overproduction crisis, while in the natural proletarian society it appears in a contrary form: in the form of an underproduction crisis'. Similarly, in 1926, Novozhilov wrote': 'instead of a general overproduction crisis a general commodity shortage develops.'43

Forced substitution and suction However, the resource constraint facing state socialist enterprises is not just a function of planning to produce at resource limits, for it is further tightened by the practice of what Kornai terms 'forced substitution'. If an enterprise is actually unable to secure adequate supplies of an input necessary to the production of a particular product but is still obliged to meet its plan target for that product, it may resort to what is a forced substitution by another, less appropriate input, but one which will allow the job to be completed. The immediate consequence of forced substitution is that it exacts a large toll in terms of generating waste and, by the same token, increases shortages. On the one hand, more costly inputs than necessary may be substituted in order to be able to produce a particular product. On the other hand, cheaper, lower quality inputs may be substituted such that the product does not satisfactorily fulfil the task for which it was designed, thus giving rise to consumer dissatisfaction or adversely affecting the quality of other products (if it is an investment good).

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