As many of us would agree, the idea of a perfect and optimising market, conceived of as an exogenous and self-equilibrating mechanism, is a kind of wishful thinking. What comes about in real economies is that: (i) markets embody various “imperfections” that tend to grow with their complexity; (ii) markets are created and maintained by an evolving set of law, institutions and policies often oriented by the stronger groups. Furthermore, (iii) various kind of public goods cannot be delivered by the market and then require a direct public action.

For these reasons, a kind of economic planning is always necessary for attaining the objectives of policy action. We shift then to the issue, namely, as to what kind of economic planning is preferable.
On that account, Original Institutional Economics (OIE) provides ─ along with other heterodox contributions, for instance the theories of democratic and ecological socialism* ─ an interesting analysis. It identifies three kinds of economic planning:

(I) The first is corporate planning, which is the reality of modern capitalism. In this system, the operation of “free market forces” is heavily conditioned by the interests of big corporations. They possess a wide array of instruments to influence the structure of all relevant markets in which are engaged. In William Dugger’s words, “The corporation is privately efficient [in the pursuit of its goals], but it is not socially efficient because its low-cost, high-productivity performance benefits those who control it, generally at the expense of those who depend upon it but frequently also at the expense of the society at large.”, (Dugger, 1988: 239).
Corporate planning is highly hierarchical, since the key decisions are made by the top managers with little involvement of workers and citizens at large.

(II) Then comes totalitarian planning, which is a system characterised by a public purpose which is pursued through a highly hierarchical structure. Such organizations ─ although have sometimes achieved important results in building infrastructures and poverty alleviation ─ are flawed by a fundamental lack of accountability and democratic representation.
Government members are appointed by the ruling (and single) political party. In such instances, there is no guarantee that, (i) the party is organized democratically and expresses the needs and experiences of all the groups and classes of society; and that, (ii) government members and public officials are really accountable for their behaviour.
This system, then, by acquiring a marked self-referential character, makes it impossible any objective and pluralistic assessment of the policies adopted and the results achieved.

(III) We switch then to the third alternative, democratic planning. This system, although it does not always work miracles, is definitely more promising. By allowing a more complete expression of the experiences, competences, motivations and conflicts of the involved subjects, such system can improve the process of social valuation, and then the capacity of policy action to respond to the profound needs of society. One central difference of democratic planning in respect to corporate and totalitarian systems resides in the capacity to self-correct ─ by a process of trial and error ─ its own shortcomings.

In this regard, OIE envisions the following macro-objectives (in particular, Dugger, 1988, Tool, 1986) of democratic planning:

(1) Overcoming the dichotomy, identified by Veblen, between the objectives of profit and that of serviceability. This can be attained by reducing the artificial scarcity and the “invidious distinctions” stemming from market power and ceremonial status, and by making a better and participatory use of the community’s knowledge.

(2) Overcoming the dichotomy, underscored by John Fagg Foster, between structures and functions. Such dichotomy can take place because structures, even if, at least in theory, should be instruments for delivering some functions, can easily outlive their utility. This can happen in various degrees ─ as when, for instance, an organisation becomes a kind of a white elephant ─ and is directly related to the “ceremonial” aspects and power relations residing in the institutions. Also in this case, a broader participatory process, by improving the process of social valuation, can help abate such dichotomy.

(3) Implementing the “instrumental value criterion”, which constitutes the cornerstone of OIE. An effective definition of the instrumental value criterion is (Tool, 1986), “the continuity of human life and the non-invidious re-creation of community through the instrumental use of knowledge”.
This encompassing goal** requires the attainment of the two intertwined objectives: (a) an accountable and participatory democracy in which every citizen can play an active role in decision-making; and (b) a substantial reduction of economic and social inequalities.

All this is related to the fulfilment of John Dewey’s democratic principle: people affected by decisions must have a say in decision-making and in assessing the results.
It is this aspect that makes, in William Dugger’s words “participatory processes dynamic and authoritarian processes so stultifying”, (quoted: 245).
Needless to say, these objectives will be interpreted differently according to the features of every considered context. This comes about because the relevance of democratic planning lies in the process it engenders for improving social valuation in decision-making. In this respect, the “instrumental value criterion” set forth in particular by Marc R.Tool can usefully be integrated with the concept of “reasonable value” elaborated*** by John R.Commons.
The relevant aspect of democratic planning is its capacity to improve the process of policy coordination, both between policies (for instance, macroeconomic and structural) and institutions (for instance, supranational, national, regional, local).
This can help address a wide array of contemporary issues, often reaching out to a supranational dimension. These include the building of peaceful relations, the reduction of gross inequalities between persons and economic areas, and, as a pivotal theme traversing the previous issues, the solution of the environmental problems.
On that account, the conceptualization of economic planning put forward by the OIE can well complement, in an interdisciplinary spirit****, with other heterodox theories.

Arturo Hermann

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* The main differences between OIE and socialist theories is that, while the latter deal more with the definition of an ideal society, the former are more focused on how to move along this pathway.
The following passage of Michael Lӧwy is interesting in this respect, “There will be no radical transformation unless the forces committed to a radical socialist and ecological programme become hegemonic, in the Gramscian sense of the word. In one sense, time is on our side, as we work for change, because the global situation of the environment is becoming worse and worse, and the threats are coming closer and closer. But on the other hand time is running out, because in some years – no one can say how much – the damage may be irreversible. There is no reason for optimism: the entrenched ruling élites of the system are incredibly powerful, and the forces of radical opposition are still small. But they are the only hope that capitalism’s ‘destructive progress’ will be halted.”, (Lӧwy, 2007).

On that account, he proposes that the major economic decisions should be taken by democratic councils according to a majority rule and that firms should be self-managed by their workers.
These seem sound objectives but tell us little on how to move, here and now, from the enormous advantage of wealth, power, ideological and psychological dominance of the ruling élites, towards a sustainable and equitable society.

** This raises the following central issue: how can we “scientifically demonstrate” ─ even if we agree with it ─ that “the continuity of human life and the non-invidious re-creation of community through the instrumental use of knowledge” should be a criterion inherently better than others?
In fact, considering that the orientations, values and cultural heritage of social scientists can vary widely, social sciences seem doomed to an “intrinsic impossibility” to identify some “objective” criteria for the analysis of social structures.
On this matter, such validity can be found not so much in some abstract universal principles of social usefulness but, rather, in linking these principles to the actual needs of the person. If we assume, following many insights from institutional economics, social psychology and psychoanalysis, that persons have an intrinsic need of establishing sound interpersonal relations, the ethical principles of solidarity and participation become endowed with a more precise scientific content since they become based on a systematic analysis of the ontological foundations of individual and collective life.
In this respect, the notion of psychological soundness ─ namely, how much persons are free from neurotic conflicts in their individual and collective action ─ can also help better clarify the central distinction between ceremonialism and the instrumental value principle.
This perspective also calls for a broader conception of scientific enquiry according to which also qualitative phenomena are amenable to scientific analysis (for instance, in assessing the proficiency of a musician). Moreover, also the evaluation of the most quantitative phenomenon is not an automatic process but involves a choice between different interpretations (and hence also involving a qualitative assessment).

*** This concept is set forth in the following passages,

“The problem arises out of the three principles underlying all transactions: conflict, dependence and order. Each economic transaction is a process of joint valuation by participants, wherein each is moved by diversity of interests, by dependence upon the others, and by the working rules which, for the time being, require conformity of transactions to collective action. Hence, reasonable values are reasonable transactions, reasonable practices, and social utility, equivalent to public purpose….Reasonable Value is the evolutionary collective determination of what is reasonable in view of all changing political, moral, and economic circumstances and the personalities that arise therefrom to the Suprem bench.”, Commons (1934: 681, 683-684).

Reasonable value is by definition an imperfect process whose characteristics can be interpreted as the synthesis of the conflicting and evolutionary components of collective action. The imperfection of social valuing is also caused by its partly unconscious and conflicting character, often embodied in habits of thought and life.

**** For instance, psychoanalysis ─ and other contributions of social psychology, also provided within the OIE’s perspective ─ can cast light on many aspects of group psychology. The vast majority of these works highlights ─ within partly different approaches on the role of the various “instincts or propensities” in human development ─ that persons have an emotional need of establishing sound interpersonal relations in order to express the various aspects of their personality. In this sense, group life acquires significance for persons in that it allows, in a dynamic interaction, (i) to give and receive affection, (ii) to shape individual and social identity and (iii) to unfold intellectual faculties.
But, very importantly for social analysis, a group can also become a way for expressing predatory instances largely resting on neurotic conflicts. This happens not only in overtly aggressive and intolerant groups but also in more “ordinary” groups. In the latter instances, it is likely that positive and negative aspects are merged in a very tangled way.
All these contributions stress the role of groups and organizations for expressing the needs and conflicts of the person. For instance, to the person, the group may represent an idealized ego; and, in this connection, its “morals” and “code of conduct” symbolize parental figures that, through a process of “internalization”, play the role of superego.
In this regard, it is important to note that the instance of superego certainly also stems from a normal human tendency to establish sound interpersonal relations, and, accordingly, to behave with kindness and solicitude towards each other.
However, whereas in non-neurotic situations the “code of conduct” emerging from such tendencies asserts itself as a genuine behaviour, in neurotic situations leading to the formation of superego things run in a completely different way. Here, the tendency of improving personality tends to be, under an appearance of goodness and morality, subordinated to the expression of neurotic contents at cross-purposes with such tendency. These tendencies take most often the form ─ especially when the paranoid aspects of personality are overwhelming ─ of marginalization and persecution of persons and groups where the aggressiveness (and more in general, the bad aspects of personality) has been projected (and history is full of such instances).

References

Cole, G.D.H. (1918), Self-Government in Industry, London, G.Bell and Sons.

Commons, J.R. (1995), Legal Foundations of Capitalism, (New Jersey, U.S.A.), Transaction Publishers. Originally published by the Macmillan in 1924.

Commons, J.R. (1990), Institutional Economics: Its Place in Political Economy, New Brunswick (New Jersey, U.S.A.), Transaction Publishers. Originally published by the Macmillan in 1934.

Dewey, J. (1939), Theory of Valuation, Chicago, University of Chicago Press.

Dugger, W.M. (1988), “An Institutionalist Theory of Economic Planning”, in Evolutionary Economics, vol.II, edited by Marc.R.Tool, New York, Sharpe.

Freud, S. (1921), Massenpsychologie undIich-Analyse, Lipsia, Vienna and Zurich, Internationaler Psychoanalytischer Verlag. English version, Group Psychology and the Analysis of the Ego, Standard Edition, New York, Norton, 1959.

James, W. [1950 (1890)], The Principles of Psychology, New York, Dover Publications. Originally published by Holt in 1890.

Kernberg, O. (1998), Ideology, Conflict and Leadership in Groups and Organizations, New Haven, Yale University Press.

Lӧwy, M. (2007), “Ecosocialism and Democratic Planning”, in L.Panitch and C. Leys (eds), Socialist Register, London, Merlin.

Reck, A.J. (1964)(ed.), Selected Writings – George Herbert Mead, Chicago, University of Chicago Press.

Ross, L. and Nisbett, R.E. (1991), The Person and the Situation: Perspectives of Social Psychology, New York, McGraw-Hill.

Tool, M.R. (1986), Essays in Social Value Theory: A Neoinstitutionalist Contribution, New York, Sharpe.

Tool, M.R. (ed.)(1988), Evolutionary Economics, 2 volumes, New York, Sharpe.

Veblen, T. (1990), The Instinct of Workmanship and the State of the Industrial Arts, New Brunswick, N.J., Transaction Publishers. Originally published by the Macmillan in 1914.

Hermann, A. (2010), “Institutionalism and Psychoanalysis: a Basis for Interdisciplinary Cooperation”, International Journal for Pluralism and Economics Education, vol.1(4): 372-387.
https://www.academia.edu/28757790/Institutionalism_and_psychoanalysis_a_basis_for_interdisciplinary_cooperation