Figure 1: Willy Brandt
Parool quartet game
(by Frits Behrendt)
Many columns of the Heterodox Gazette address the theory of the economic planning. In theory the planning in capitalism is an adequate alternative for market operations. Thus the question arises how good planning has performed in practice, in comparison with pure market economies. The present column evaluates the plan-policy in France by means of a comparison with the ordoliberalism in West-Germany. First the policy in both states is sketched for the period 1950-1970. Next the developments of the economic growth in both neighbours is analyzed.
In the modern society two different methods have been tried to mutually exchange goods and services. The first one is the free market, where an exchange relation is created by the confrontation of demand and supply. In an economic system with money this is transformed into a price ratio. The second method is the central planning, where the distribution of the goods and services is determined by a central agency. That central agency collects information about the needs and about the production facilities, in order to devise the plan. Next the plan is formulated on the basis of a target function, which expresses the view of the society with regard to a reasonable and just distribution1. Various mixed forms of these two mentioned methods are naturally also conceivable.
Your columnist has studied the literature of central planning for several years, notably the Leninist version. That is planning in its purest form, with a maximum of central coordination, extending down to the enterprises. That manner of distributing seems to allow for all-embracing rational decisions, and therefore has some logical appeal. Thus it may surprise, that it has become obsolete. After the appearance of several columns in the Heterodox Gazette about this subject, the final conclusion is, that full central planning with merely collective property does not suit the human nature. The system is simply ineffective, performs badly, and creates irritation and frustration with the citizens.
What remains as an alternative for central planning is a system with free markets, where however a central planning agency sometimes intervenes for steering in the desired direction. In a previous column the theoretical principles of such an approach have been sketched, by means of texts of the well-known Dutch economist Jan Tinbergen. There was insufficient space to describe the experiences, that have been made with such a mixed economy. However, there do exist useful experiences, and it can even be said, that until now the process of learning continues. The present column restricts itself to an analysis of the experiences during the early times, when sound accompanying institutions still had to be tested. This period begins immediately after the Second Worldwar.
The column studies in particular the experiences of West-Germany and France, because they have established the two conceivable opposites. West-Germany prefers a maximum of market operation, whereas France has managed the economy by means of five-years plans. The two states are very suited for a system comparison, because they have much in common in social respect, apart from the choice for the economic management. For, they are neighbours. They dispose of a roughly similar level of welfare, and are both developed well technically. The size of the populations is about equal, at least before the German union of 1991.
One wonders why two neighbouring states have chosen such opposite market systems. Your columnist can not give a definite answer, but can mention several motives. In West-Germany an important factor was the history of fascism, which is based on economic planning. This early experience has provided the concerned politicians and citizens with a strong aversion against any form of economic coercion or domination. Then the liberal market economy appears as a liberation. Nevertheless, the social-democrats still sympathized with planning. Immediately after the Second Worldwar they have indeed tried to nationalize certain activities. However, at that moment the foreign occupation powers are in control, and they have simply forbidden these initiatives2. A few years later the occupiers abandon their power, but then the chance for a fundamentally different policy has already passed.
Immediately after the Second Worldwar France has chosen in favour of rigid economic planning, obviously while maintaining the production by free enterprise. Even in the following decades France has continued the mixed system. The reason must be, that France is traditionally used to planning by the state, for instance under Colbert and under Napoléon Bonaparte. The president De Gaulle could refer to these honourable predecessors. He characterizes his own view by means of the statement: "La politique de la France ne se fait pas à la corbeille"3. Besides it is quite conceivable, that in this way De Gaulle wanted to marginalize the French Leninists, who at that moment (and even later) are politically strong.
This column has consulted for its contents the book Economic planning and policies by Denton, Forsyth and MacLennan4. In references the abbreviation EPP will henceforth be used. The authors refer to the German policy as neoliberalism, and to the French policy as neocollectivism. According to your columnist the addition neo- is rather confusing, and therefore it will be omitted. Both systems have the aim to moderate the conjunctural cycles, and to optimize the economic growth. However, for this column the conjuncture is not very relevant, because it wants to evaluate the (medium-)long term planning. The goal is to increase the labour productivity (in short ap), and at the same time to raise the consumer demand.
The targets of economic planning are price stability, an equilibrated balance of payments, employment, redistribution of income, and economic growth. It is desirable to maintain the perfect competition in the branches, because she guarantees the effectiveness. However, there are branches, where the efficiency of the production increases significantly with its scale. Such branches become oligopolies, and then the state must manage the production in order to protect the general interest. Furthermore, in principle an income policy is desirable, because the wages must not rise faster than the productivity. For, too high wages can lead to unstable prices and to inflation. That affects the competitive power, and thus undermines the balance of payments.
The analysis in Economic planning and policies covers the period until 1969. The present column slightly extends the analysis, namely until about 1980. During the seventies the economic climate becomes less favourable for planning, because the international trade increases in importance. And unfortunately the international developments are hard to predict, so that henceforth large uncertainties must be incorporated in the national policy. Thus in 1973 and 1979 oil crises occur, which push up the price level. Neither of them has been predicted by the experts. And the Japanese penetration in the European markets also peaks in 1970. The increased uncertainty requires a new form of planning, which your columnist in the near future hopes to analyze. The present column is restricted to the experiences with the rigorous planning of the domestic economy, which for instance Tinbergen has studied and refined so thoroughly.
During the first decades after the Second Worldwar the German christian-democracy is dominant at the federal level. Then she embraces the economic ideas of the so-called School of Freiburg, which has been founded by the well-known economist Walter Eucken (see EPP p.35). Eucken tries to integrate the ideas from the neoclassical theory and from the Historical School, in other words, he wants to apply the economic coordination to the micro-economy. The liberalism of Eucken has a social component, for instance in the plea for the minimum wage. And an order is required, that takes into account the mutual dependencies. This is also called ordoliberalism. Therefore the governments under Konrad Adenauer and Ludwig Erhard have tried to form a soziale Marktwirtschaft or Sozialstaat.
It is expected of the people, that they behave in a socially responsible manner. The education and public services are stimulated. Nevertheless, the operation of markets is essential. The market effects by means of the price formation, that all suppliers are informed well about the consumptive needs. Thus it does not surprise, that for instance the car maker Volkswagen is privatized. Therefore also the state gives a higher priority to price stabilization than to employment. The policy in West-Germany mainly aims at the supply side. And the federation has also propagated the reduction of the various customs tariffs in Europe. Indeed during the fifties and sixties of the last century the German production costs remain low, among other because the labour market is expanded due to the migration of fugitives from East-Germany, and later from the GDR.
Eucken accepts state interventions, under certain circumstances, but demands that they are always temporary. For, the markt operation must finally be restored5. In fact this is only a problem in the housing market. Therefore there the state intervention remains indispensable for decades. Only in 1960 the rent control is abandoned, except in regions with a large demand excess. According to Eucken oligopolies are harmful, so he wants to minimize their number. Therefore the German policy is aimed at the stimulation of the shopkeepers and small entrepreneurs (in short SSE), whereas the concentration in the big industries (in short BI) is combatted. It is clear that Eucken rejects the marxist determinism of increasing scales. There does exist a tendency, and therefore some bridling is necessary, by means of market regulations. In 1957 even the horizontal and vertical integration of industries is forbidden (EPP p.59). There is a cartel agency, that supervises oligopolies.
The preference for the SSE is partly determined culturally. The formation in the handicraft even has a corporatistic character. Incidentally, the Deutsche Gewerkschaftsbund (in short DGB) commonly makes moderate demands. The trade unions propagate in particular the co-determination. The result is that the trade unions can henceforth appoint a number of members in the supervisory board of the BI. It is also remarkable, that during those years the state tries to widely spread private property. Saving and buying of shares are stimulated by the state. Nevertheless, then the large banks have maintained their former position of power. And like before, these avoid the granting of credits to the SSE. The state has continued the post-war Marshall plan in the European recovery programme, which supports the SSE. Strategically important branches such as the agriculture and mining are also permanently subsidized.
And although the federation is not active in planning, in 1964 a Sachverständigenrat of expert economists is yet established, for developing prognoses. Furthermore it is worth mentioning, that the German Länder have their own central banks until 1957. However, in this year a central bank at the federal level is established. The state curbs the inflation mainly by means of the monetary policy. The German growth is driven by its export, and therefore Germany often has a surplus on the balance of payments. These threaten to increase the money quantity. This is combatted by a monetary policy of credit restrictions. Nevertheless, in 1961 the German mark must be revalued, conversely to France (see further). An advantage of the orientation towards export is that the German industries remain internationally competitive.
Furthermore, the Länder levy their own taxes. The distribution of the total tax yield between the federation and the states is 55% versus 45% (EPP p.223). Economic planning inevitably also implies regional planning, because the economic activities are commonly distributed unequally over the territory of the state. In Germany the federation makes regional plans, but she delegates their execution to the Länder (EPP p.296). The main instrument is the granting of cheap credits to regions with a weak economic structure. An important policy goal is the reduction of the local unemployment. Just like other forms of state intervention, here the aim is also, that after some time the supported regions are able to grow by their own strength. This regional policy is fairly successful, because the weaker regions indeed make up arrears with regard to the rest.
In 1966 the social-democrats join the government of the federation, for the first time since the war, in the Große Koalition. The social-democratic party SPD has abandoned the planning in her Godesberger Programm of 1959, but she does advocate an anti-cyclical policy. Until then such an intervention was lacking in the German policy. Before, the need was not felt, because the wages remain moderate. However, since 1964 the enterprises raise their wages, which requires a more active intervention by the state. This is partly the cause, that eventually the SPD can participate in the government (EPP p.279). Erhard, who even in 1962 does not see the need for economic prognoses, must retire from the field, when the coalition is formed in 1966. In 1967 parliament passes a stability- and growth-law, in order to curb the inflation by means of anti-cyclical interventions6.
In 1969 the social-democrats even seize power on their own, albeit with the help of the liberal FDP. Although Willy Brandt is the leader of the social-democratic party SPD, at the time mainly his congenial Karl Schiller is responsible for the economic policy. Schiller organizes a concerted action (konzertierte Aktion), which gives a tripartite basis to the conjunctural policy, with deliberations between the state, ths trade unions, and the associations of entrepreneurs. Here the book Economic planning and policies ends. However, from other sources it is known, that Schiller propagates a social symmetry, that is to say an equilibrated evaluation of all economic interests7. The two oil crises rigorously end such illusions.
Since the end of the Second Worldwar France issues a central plan, which is indeed not compulsory, but yet is fairly coercive. Although during all those years the general Charles de Gaulle is the president, the initiative for the planning must be attributed to Jean Monnet, the man who also played an important role in the European integration (EPP p.81). The state establishes a separate Commissariat du plan, which coordinates the planning process. The duration of the plans is approximately five years, although some plans are changed between times. See the table 1. The First plan simply manages the reconstruction of France, and is partly meant to account for the application of the Marshall help. That plan targets the heavy industries, which are partly state property. For instance, the car maker Renault is nationalized.
The reconstruction is already completed around 1950, just like everywhere in western Europe. The Second plan is valid from 1954 until 1957, and wants to restructure the economy. The rise of the labour productivity ap gets a high priority, because the competition with other states must be improved. That is necessary in order to stabilize the balance of payments. However, during this period the consumptive demand increases much faster than expected. Therefore the inflation remains high, which hurts the exports. The Third plan (1957-1961) tries to remedy this, and also attempts to control the total economy, that is to say, all branches. In 1958 the French franc devalues, so that in 1960 an interim plan is needed. During that period the planners give a higher priority to the social investments and facilities than to the private consumption.
The Fourth plan concerns 1962-1965, and tries to really direct the industries. It includes a wage- and price-policy, as well as social policies. In this plan a growth rate of yearly 6% is targeted. Modernization commissions were formed, in order to specify the plan at the branch level. The goal is again a more efficient production. The preceding plans could merely be accepted or rejected by parliament, but now for the first time it has some say concerning its contents. Nevertheless, in 1963 a separate Stabilization plan is needed in order to curb the rising prices. The Fifth plan covers the period 1966-1970. Various scenario's have been studied, and parliament can choose one. Incidentally, the trade unions, who at the time were extremely radical in France, have rejected both the Fourth plan and the Fifth plan. This is also the last plan, that is discussed in Economic planning and policies.
A hallmark of the Fifth plan is, that a so-called value planning is added. Namely, the previous plans are always essentially material (physical). Thanks to the planning of the financial capital flows the inflation could be controlled, which threatens to derail since 1963. The rising wages must be moderated, but certainly in those times a French income policy is difficult to realize. The state investments must be planned carefully, because in the past the state has sometimes absorbed too much capital. Then not enough is left for the industries (in English crowding out). The planning agency even adds indicators (in French clignotants) to the plan, so that the development can be "measured" (EPP p.99).
It is fascinating to consider the various steering instruments of the state. Favourable conditions for credits are granted to enterprises, that conform to the plan. Or the entrepreneur is rewarded with a tax benefit. The state also subsidizes certain forms of research and development (in short R&D). Sometimes the state negociates with enterprises about contracts for targeted price modifications. Those contracts give some latitude to the enterprise. It is hoped that this approach works better than rigid price controls. Fiscal contracts are applied for the stimulation of R&D, or for encouraging exports, for instance by the car makers (EPP p.201). All this also holds for the big state enterprises, which all have their own budget. Nevertheless, during the Fifth plan the influence of the planning agency already wanes (EPP p.168).
The situation of France has always been favourable for planning, because traditionally its foreign trade has been inconsiderable. Therefore the economic growth must be realized on the domestic market. That explains why the policy of the French state places so much emphasis on the demand side of the market (EPP p.138, p.343). Moreover, in France the SSE have a significant market share, and precisely those enterprises are unable to plan. Thus the state shoulders the planning instead of the enterprises8. Perhaps the dominance of the SSE incites the French state to stimulate mergers, and in this way to increase the industrial concentration. So this is exactly the reverse of the German policy. And in a planned economy the emergence of oligopolies is indeed not seen as a huge problem.
Nevertheless, during the sixties the planning becomes more and more complex, because the technological progress accelerates. Moreover, the European Economic Community (in short EEC) compels the opening of the domestic markets. France is no longer free, such as during the fifties, to keep out the competition by means of customs tariffs and regular devaluations. Since 1958 the devaluations are seen as an undesirable manner of competition, which is allowed by the EEC merely in exceptional circumstances. Therefore France is less able to protect its domestic market, and the French industries are increasingly confronted with foreign competition. Still during the Fifth plan the state tries to curb the wage growth, also because the planning agency prefers public investments. However, the trade unions refuse to cooperate.
| plan | First | Second | Third | Fourth | Fifth | Sixth | Seventh | Eighth | Nineth | Tenth |
|---|---|---|---|---|---|---|---|---|---|---|
| period | 1947-1953 | 1954-1957 | 1957-1961 | 1962-1965 | 1966-1970 | 1970-1975 | 1976-1981 | 1981-1985 | 1984-1989 | 1989-1992 |
| realization GDP | - | 103% | 97% | 100% | 101% | 83% | 83% | - | - | - |
In 1960 the regional planning really takes off in France, when the régions de programme are designated. The spatial problem is in this case the excess of economic activity in the area around Paris, whereas on the other hand the agricultural south-west of France suffers from unemployment. Therefore the incomes in Paris double those in the south-west. In 1963 each designated region obtains her own prefect, with considerable competencies with regard to the policy execution. So these prefects work independently from the prefects in the traditional departments. In the Fifth plan the regional plans are integrated into the national planning. Some of the regions are marked as growth centres with a regional significance.
In this new perspective the region around Paris is again allowed to grow. The migration is more left to the market operation. It is acknowledged that sometimes the efficiency requires a certain spatial concentration. For instance, then the investments in infrastructure become more profitable. The reader may observe that this approach goes beyond a mere economic planning, and an integral approach of spatial ordering develops. It is obvious that such plans require investments in the long term. The conformity with markets follows logically from the European integration. Traditionally the French industries are protected, and therefore their efficiency is insufficient. That changes during the Fourth and Fifth plan.
From other sources it is known, that during the seventies the planning becomes more and more problematic, say starting with the Sixth plan (1970-1975)10. The oil crises cause a total economic confusion, which can not be remedied by planning. In the Eighth plan the setting of targets is even abandoned. The government under the socialist Mitterrand tries to revive the idea of planning, in order to realize reduced hours and a redistribution of incomes. But also this Nineth plan (1984-1989) fails, in spite of all good will. For instance, this plan led to special agreements with the industries and with the regions, so that the execution can be decentralized. However, in practice the central government can not desist from yet continuous interventions. Besides, the disorganization due to the second oil crisis drags on for a long time. And due to the European market it becomes more difficult to screen from the foreign shocks.
In Great Britain the state has preferred a mixture of market operation and planning. This experience adds little to the preceding discussions, and therefore the British history will not be studied in detail. This paragraph is restricted to some remarks with regard to the British policy, pertaining to special situations. A hallmark of the British situation is, that at the end of the fifties an arrears is created with respect to the continental states (EPP p.110). The British wages are too high in comparison with the productivity. Now the political parties begin to consider a restructuring of the economy by means of a planned approach. In 1961 the National economics development council (in short NEDC) is formed, which begins as a tripartite organization11. But in 1964 the NEDC is integrated by the Labour government into the Department of economic affairs (in short DEA).
It falls beyond the time horizon of Economic planning and policies, but already in 1979 the Conservative party under Margaret Thatcher comes to power. This is obviously the definitive end of the careful British attempts at planning. But in 1963 planning is still so popular, that the conservative government under Macmillan agrees with the plan to realize a yearly growth of 4%. This plan is peculiar, because from the start it is already unachievable. The 4% growth is merely an ambition, because the state wants to give confidence to the industries and create positive expectations. It is hoped that extra investments will follow, so that the plan will become a self-fulfilling prophecy. This policy reminds of the practices in Leninist planning, and she obviously discredits the plan formation. For, the aim of planning is precisely to support the policy with objective information.
When in 1964 the Labour party wins the elections, she simply includes the growth target of 4% in her National plan. That plan becomes an instrument for political propaganda, and it is presented to the industries as an ambition (EPP p.121, 125). An action program for concrete stimulating measures is lacking. Incidentally, accompanying measures do exist, for instance training-programs, and subsidies for R&D. The investments are encouraged by means of a short-term (conjunctural) fiscal and monetary policy. Nevertheless, this all fails, and the pound must devalue in 1967.
It is interesting that the state expects a growing shortage of labour in its National plan. Therefore the plan pleads in favour of raising the labour costs, exactly the reverse of the present policy (EPP p.213). The raise will be realized by means of increasing income taxes. This resolution seems strange, because during the fifties the British wages had also increased excessively (EPP p.256). It gives the impression, that at the time the policies are not quite healthy. The regional planning in Great Britain is also of interest. Namely, since 1964 a policy of promising growth centres is started, in addition to the fight against unemployment. This approach resembles the one in France.
The previous paragraphs show that in the period 1950-1970 Germany and France make clearly different choices for managing the economy. The German growth is based on a stimulation of the export, whereas the French growth is realized mainly by stimulating the domestic market. This is called respectively a supply side and a demand side policy. The consequence is that Germany has an inflow of capital, and France has an outflow. Thus off and on the Mark must revalue, whereas the franc must devalue. The German policy has incitations to compete, whereas the French policy has incitations to collaborate and coordinate. There is evidently the intriguing question whether all these differences affect the national growth paths.
An obvious indicator for the economic performance is the productivity ap. She is shown in the figure 3 for the period 1950-1990, for both states12. Here it concerns the nett added value per hour of labour, expressed in dollars of 1990. It is clear that the productivity in both states increases almost identically. It turns out that generally West-Germany is somewhat more productive than France, although the difference is small. As an illustration the figure 3 also shows the ratio of the French productivity with regard to the German one, where for the sake of the presentation and the vertical scale the result is multiplied by a factor of 15 (see the red curve). This shows that the ratio is generally less than 1. This naturally causes a somewhat faster growth in Germany, but the difference becomes only really visible in the national product after many decades. Your columnist thinks that the difference is so small, that it is hard to judge the national systems on this basis.
Another interesting indicator is the national unemployment. For, the unemployed do not add value. It is shown in the figure 4 for the period 1970-1990, for both states13. These are the official data, that the state have published themselves. West-Germany suffers more from the two oil shocks than France. Incidentally, after 1990 Germany will perform better than France, in spite of the burden of the German unification. Furthermore, it is clear that at the beginning of the seventies the unemployment in both states is still marginal. These early years in the figure 4 are especially relevant for the system-comparison. This indicator does not give a definite outcome with regard to the superiority of one of both alternatives either. The conclusion must be, that apparently in both states the professional population produces a similar yearly added value per capita.
The next question is what is the concrete form of the yearly added value. West-Germany produces more industrial products, whereas on the other hand France specializes in agriculture. However, such structural differences are simply a division of labour, and they are not an indication of inferiority. Another difference is the size of the state sector, which in France is significantly larger than in West-Germany. Here the previous column about European statistics gives a clear illustration. Your columnist does not feel compelled to investigate in detail the tasks, that in Germany are left to the private sector. It suffices to conclude, that in France the state bureaucracy is popular. This is at least partly a free choice of the French voters, who like their state apparatus. As such it is a consumptive preference, that can not be objected to.
There is even a certain logic, that a state with a planned economy tries to keep a maximal amount of activities in the hands of the state. In such systems there often is a fluid boundary between the state and the private sector. The English call this crony capitalism. Think about states in South-East Asia and in South-America14. This idea has been carried through to its ultimate consequence in the Leninist states, where the administration and enterprises coincide. Nevertheless, the bureaucracy is notorious for her lack of efficiency, together with a drive to expand. For, the decisions are primarily based on political and social considerations, and less on the accompanying economic costs. It seems obvious that the French people pay for their love of the state with a deficit of consumptive goods. Now this aspect is studied more in detail.
Even when two states produce about the same per capita, then the distribution of the product can yet be very different. Therefore it is logical to analyze the equality of the income distribution. A useful measure for the equality of the distribution is the so-called Gini coefficient G 15. She is zero for an egalitarian distribution, and increases with a rising inequality. In Germany G increases from 0.25 in the eighties to 0.28 at the start of the new millenium, and in France G has a value around 0.28 since the nineties16. Apparently there are no shocking differences between the income distributions in West-Germany and France.
Furthermore, it can be attempted to make a qualitative comparison of the living standard in West-Germany and France. An interesting effort is made by S. Haustein in her book Von Mangel zum Massenkonsum17. Haustein concludes that during the period 1950-1970 modern appliances such as refrigerators, washing-machines and the telephone reach the French countryside only at a slow rate, because the farmers do not feel the need. And at first the German industrial workers can not afford them. However, as soon as the welfare increases and the wages allow it, the German workers massively buy the modern domestic appliances. It it striking that in France the car becomes an article of mass consumption already in the fifties, and this is sooner than in Germany. In both states televisors become rapidly popular among the masses. So also this qualitative analysis of the living standard does not exhibit large differences between West-Germany and France.
In conclusion it can be said, that with the data in the column at least for the period 1950-1970 no preference can be given to the operation of markets or planned production. Apparently this requires a profound social analysis, where all aspects of the daily life are considered. Your columnist hopes to engage in this activity at a later time. The absence of a conclusion evidently does not imply, that at present the traditional planning is an alternative. For, this column has stressed again and again, that the modern economy has become different and especially more global than during the first decades after the Second Worldwar.