7. CZECHOSLOVAK PROPOSALS FOR REFORM

The group of Czechoslovak economists of whom the author is one postulates the need for reform firstly by rejecting the assumption that planning is incompatible with the price mechanism, and that socialism permits the central regulation of production without recourse to the market mechanism. This leads them to contend that central management is self-defeating, since the information needed to eliminate all uncertainty in decision-making becomes too costly and unwieldy. Any restriction of the amount of information transmitted to the center increases the uncertainty of the decision-making and hence the risk of adopting wrong decisions; the absorption ( a considerable part of the labour force in administrative service decreases overall efficiency. They therefore suggest that a market mechanism automates in a coordinated manner a large part of these decisions; in addition, the producer is stimulated to satisfy the demands of the consumer. A market is thus prima facie desirable for the functioning of a socialist economic system. This, however assumes that prices be freely formed on the market and not set up by fiat.

It is nevertheless evident that the market mechanism cannot by itself ensure the smooth and undisturbed operation of the economy and cannot bring about the achievement of the sort of target which a socialist society endeavors to attain. The function of planning and central management should therefore supplement this mechanism in those spheres where it cannot operate satisfactorily - to implement social priorities and fully to utilize capacity. If this is to be done, planning must be seen in an entirely new light: the plan cannot be a fetter constraining reactions to economic change, but a coordinator of the development process from the standpoint of society and with an optimal level in view. But prices cannot fluctuate spontaneously. Some stability is undoubtedly desirable, but it should be achieved not by administrative determination, but by the assurance in the plan that productive capacity would correspond to the demand arising on the basis of planned incomes and planned prices. A situation would then be approached in which the planned price would be a market-equilibrium price. As long as capital investment is centrally allocated, and certain other central instruments of management are retained, such equilibrium prices can only develop as automatic expressions of the law of value and of the economic and social policy of a socialist country.