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I. Introduction;

One of the most crucial problems of the post-war period is the compatibility of planning and democracy. As in every war the sacrifices were endured in part through the vision of a Golden Age at the end of the conflict, through the promise of material plenty which would make the privations worthwhile. More importantly, the dislocations caused by the impoverishment of major trading-nations, particularly England, the realignment of world-trade due to the loss of overseas investments, as well as the diminishing importance of the old triangular trade with the Malay states and East Indies has forced most European nations to adopt some form of planning as a means of survival. Overshadowing all economic endeavor in the major capitalist countries of the West is the sceptre of the economic depression of the 30's, expressed in a fear of unemployment. To banish the threat of depression must for the foreseeable future remain one of the main tasks of any democracy. No government could maintain itself in power that did not take account of this psychological factor. of economic necessity.

This same form of planning is the heritage of the post-war period, whether it is the physical planning of Britain, the hesitant Monnet plan of France, or the fiscal policies of the U.S. [Yet the crucial question remains whether planning is compatible with democracy or whether on the other hand the gradual emergence of a technocracy or a managerial class may not spell the end of the liberal state of the nineteenth and early twentieth centuries.] This, in the first instance, involves no value judgment. It may well be that economic security becomes the paramount goal of society overriding any considerations of the free moral personality expressed in responsible government. It may well be, that democracy is considered useless if not accompanied

I. On the concept of the managerial class as the new aristocracy see - James Burnham - The Managerial Revolution.

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by a medium of material welfare. But the answer to these considerations
must depend on the reply to three queries:

1. What is democracy?

2. What is planning?

3. Are planning and democracy reconcilable?

## II. What is Democracy?

In any discussion about political systems, two levels of argument
can be distinguished. One can analyze either the institutional manifesta-
tions or the theoretical assumptions which underlie all appearances.

What are the philosophical postulates of democracy? Any political
institution is ethical, in the sense that it embodies a concept of the goals
and abilities of man. The democratic slogans of liberty and equality ex-
press the idea of the moral personality of man, of his essential comparability
with all other men, of his intrinsic worth as an individual. But while
equality in the sense of comparability is relatively easy to reconcile with
an ethical doctrine defined as the content of good, the companion attribute
of democratic thought, liberty, raised many difficulties. For if there is
a standard of Absolute right, obtained by revelation or by approximation to
a Law of Nature, then indeed individual freedom is meaningless and man's sal-
vation depends on the degree of correspondence with this absolute criterion.
Law becomes merely the representation of the already existing standard and
operates as a positive force for morality.

This democratic dilemma was expressed by Rousseau as the problem
"in which each by joining himself to all, may still obey himself alone and
remain as free as before". Kant resolved this difficulty of the uniqueness
of the individual conscience and the general applicability of its maxims.
He argued that morality derived from a mystic relationship to the Infinite

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which elevates Man above the realm of necessity into a higher world-order. This experience represents a disposition of the will and enables reason to give maxims of universal validity. The formulation of this rule, the categorical imperative, implies a will which is universally legislating at the same time subject and ruler in a kingdom of ends. This concept of man as an end is the quintessence of democratic thought, which allows at the same time a morality of Absolute guides to action. This resolves the democratic dilemma and achieves a synthesis of liberty expressed in the righteousness of the will and equality exemplified by its universal applicability.

What is the meaning of this institutionally? Two strands developed from this democratic theory. The concepts of Locke formed the basis for democracy in the Anglo-Saxon countries. Locke argued that government was necessary only to restrain the few unreasonable men whose moral experience was at such variance with that of the majority that they constituted a constant threat. His Social Contract created a type of Joint Stock Company for a specific purpose the preservation of life, liberty and property. Law then is not positive morality but serves to define the frame-work of personal initiative and represents a guarantee of rights, not an ethical criterion.

This leads to a demand for a minimum of government and to the con-
finement of authority to well-understood general principles. It implies the
responsibility of the rulers to the people in terms of the conditions of the
Social Contract. The function of government is primarily negative then, as
a restraining agency, not as a force shaping social aims. Expressed in the
U.S. in the separation of powers and in England in a Cabinet system under
an unwritten constitution of great power, Locke's concepts became the theore-
tical bulwark of laissez-faire democracy.
2.

1. The second formulation of the categorical imperative

2. The theories of the classical economists are but particular applications of this. Moreover by arguing merely the efficiency of laissez-faire their concepts can be overthrown by a representation of superior efficiency. The moral interpretation of democracy makes this somewhat more difficult.

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The other strand of democratic theory was represented by Rousseau. He attempted to achieve a legal obligation which carried with it the same moral sanction as attached to personal conduct. Rousseau's General Will institutionalizes the categorical imperative and expresses an individual's will when addressed to the problem of the common good. This represents the organic view of democracy in which the individual finds his true fulfillment only as part of the community. It leads to the supremacy of the legislature of which French institutions furnish a striking example. Moreover, since the General Will results from the moral attitude, dissidents must be by definition selfish. Thus the absolutist type of democracy ensues from Rousseau, the exaltation of the group over the individual, the assertion of a common goal to validate all personal striving. Rousseau is the precursor of Hegel and Marx.

Democracy then in its theoretical and institutional embodiments represents an expression of the intrinsic worth of the individual and of his right to shape his own destiny. Whether in the form of the creator of minimum restraining rules as in the Anglo-Saxon countries or as the positive expression of ethical values such as in France, government serves the people and is limited by the consensus obtainable in the community. But the concept of the intrinsic worth of the individual also is a doctrine of responsibility, an affirmation that man must make certain decisions for himself.

What is the relation of this to planning? The profounder aspects of democracy imply that a planned economy does not become democratic merely by the utilization of a machinery of representation. In order to be ethically justified it must demonstrate the possibility of a consensus among the population on its objectives. To be democratically meaningful, a planned economy ought to express certain general principles on which the community may agree and still leave a latitude for the expression of the individual personality.

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The answer to this problem depends on an examination of the meaning and the
mechanism of planning.

### III. What is Planning?

In planning, too, one can distinguish two levels, the theoretical and the institutional. The philosophical argument for planning is in many respects but a restatement of Rousseau's General Will. It argues that the will of all if directed to the common benefit guarantees the individual's well-being. It believes that the state can not operate as an instrument of repression. The demand for the nationalization of industries expresses a conception that the state guarantees individual rights and that economic difficulties result, not from the fatedness of existence, but the selfishness of humanity. The concern with man as an end, begun by the Enlightenment and formalized by Kant, leads to the humanitarianism which conceives of government as the champion of the oppressed and the redresser of the economic balance. Planning is another facet of the fight against privilege, of the striving for self-realization that modern history exhibits. as was Lassalle - Gar� doctrine.

The difficulties of the post-war period have given a material impetus to these vague feelings. The deterioration of the world's economic position, the realignment of trade patterns have all resulted in a tremendous pressure on the nations of Europe and to a lesser degree of the U.S. Some form of planning is no longer polemical but an actuality. Only the extent of government intervention remains for discussion. What are the reasons for this trend?

Sir Oliver Franks adduces three reasons for the inevitability of 1. planning. His first argument is on the grounds of military security. The preparations for potential war impel each government to pay considerable attention to the economic implications of preparedness. This involves remedial measures for the removal of deficiencies in the war potential and 1. Franks, Sir Oliver - Central Planning in Peace and War p.20 et seg.

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the subsidy of industries which are themselves uneconomic. To the extent
that the state encourages these enterprises, the more efficient industries
are curtailed (under assumed conditions of full employment). Moreover,
foreign competition must be reduced to a minimum in order to make the mili-
tarily important industries viable. This interrupts the free flow of world
trade. For countries dependant on the export trade this results in a des-
parate effort to maintain a constant share in a continuously shrinking volume
of international commerce. A most careful planning of the allocation of
goods and services is therefore required to insure a maximum of foreign trade.

The second reason for the inevitability of planning is closely re-
lated to the first. The conflict of political systems prevents the growth
of that confidence which alone can insure a flourishing international trade.
A careful programming is necessary to maintain the position in the export-
trade.

Though the above two reasons are more applicable to Great Britain
than to the U.S., Sir Oliver Franks' final argument is of universal validity.
He maintains that the spiritual malaise induced by the depression of the 1930's
has led to a penchant for economic security which prevents any political course
but the maintenance of full employment. The history of free enterprise, on
the other hand, has been replete with violent swings of the business cycle,
with periodic unemployment and economic stress. It becomes incumbent on all
governments to engage in some form of planning to minimize these dangers. The
cry for self-sufficiency is apt to result, a testimony to an attempt to be
complete master of one's own destiny.

Thus planning is, according to Sir Oliver Franks, the inevitable con-
comitant of this stage of economic development. But what is planning? As a
crude approximation it can be defined as the selection and production of the
most favorable bundle of goods and services out of the resources available to
the community and its equitable distribution. In this sense every economic

system implies a plan. Even the laissez-faire school of economics maintained
this principle, merely arguing that to give free reign to natural economic ten-
dencies would assure the highest level of well-being. Government planning,
on the other hand, involves active intervention for a two-fold objective:

1. The maintenance of economic stability usually through the mechanism of a counter-cyclical fiscal policy.

2. The achievement of a total level of spending and demand.

This implies a determination by the planning organ of the attainability of
its goal, an analysis of the present economic position and the Net National
Product possible under full employment. The tools in this case are long-run
fiscal policy or total physical planning. *not mutually exclusive.*

It must be noted that both types of planning require a determination
of society's aims by the state. Stability is an abstraction and reflects the
value-system of a society as much as an economist's analysis. Long-run fiscal
policy and even more pronouncedly total physical planning imply the setting of
objectives by the government. This must be kept in mind in a consideration of
the compatibility of planning with democracy. Can a democratic society intelli-
gently choose these objectives? Can any meaningful responsibility be assigned
in a planned society? This requires a brief discussion of what the various
types of planning involve.

Compensatory fiscal policy is an instrument for the attainment of
economic stability and therefore most compatible with democratic institutions.
It relies on the fiscal powers of the government to dampen the swings of the
business cycle. This implies only an agreement on the desirability of long-
range stability and an economic decision on the average level of the required
national product. Since the National income reflects the sum of the private

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consumption expenditure and investment plus government expenditure, the latter can be varied to offset any fluctuations in the private sector of the economy. Though compensatory fiscal policy will incur a government deficit during deflationary periods it attempts to balance the budget over a business-cycle.

Long-run fiscal policy does not confine itself to the achievement of economic stability but strives for a dynamic process of realizing full employment. This necessitates an analysis of the level of Net National Product under such conditions and the adjustment of governmental policies (through monetary policy and/or deficit spending) to such a goal. Thus inflationary methods would be applied during a period of secular stagnation and deflationary policies during times of secular exhilaration. Policy is not tied to a balanced budget, even over a business-cycle, but relies entirely on the decision of the level of the Net National Product at full employment.

Fiscal policy involves major policy decisions regarding the economic goals of the community and the allocation of resources. This is particularly true of the long-run fiscal policy. But in a democracy these decisions become very difficult. The larger the proportion of government expenditures in the Net National Product, the greater will be the pressures by various interest groups for their share. It may be politically impossible to resist pressure groups despite the dangerous economic implications of certain policies. Moreover, though the increase in money income would make inflationary policies popular, considerable courage is required for the application of deflationary methods if the situation should demand it. Indeed it is exceedingly doubtful

1. The methods used include: a) The planning and operation of public works to be utilized during depressions. b) Social Security which has the advantage of being automatic, i. e. does not depend on accurate forecasting. c) Falling tax income with lowered personal and corporation income. This, too is automatic. d) Lowering tax rates. This increases consumption expenditure and implies the need for flexible tax rates. These points are not developed at length since this paper concerns itself with compatibility of planning and democracy.

2. One of the most articulate exponents of the Keynesian approach to economics, Sir William Beveridge, advocates the creation of a National Economic Budget of five headings: Private consumption outlay, Public consumption outlay (in the form of subsidies), Private investment, public investment (in pilot plants) and wholly governmental expenditures for social services.

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if a legislature exposed to fixed elections would possess the stability to carry out such policies. On the other hand, as Beveridge's suggested policy well shows, fiscal policy involves a degree of government commitment which will look very askance at any interference with its aims by the private sector of the economy. Above all, fiscal policies take time to work themselves out. The interval may well have produced such lasting psychological effects that counter-cyclical policies lose effectiveness. Since the economic budget depends on the availability of labor, any rigidity on their part in response to fiscal policies may well doom all endeavor. All these factors tend to combine to produce total physical planning.

Sir Oliver Franks defines physical planning as "decisions of policy quantitatively expressed in the forms of programmes and such measures as in particular circumstances may be necessary to ensure the performance of the programmes." The important part of this definition is the phrase "quantitatively expressed". It asserts that the free market economy, which determined the production of goods and services by the profits of the entrepreneur, is replaced by the government plan which allocates resources and controls production. Since the prize mechanism as a device of distribution is largely eliminated, the government must rely on other controls. The direction of labor can not rely entirely on the wage-level. Any rigidity in responding to incentives would cause a breakdown in the plan. This is particularly damaging in a planned economy since no self-regulatory mechanisms are at hand.

Therefore, every planned economy sooner or later resorts to a compulsory direction of labor. This was the case in Great Britain where even a Labor government allied to the Trade Union Congress could not avoid a labor draft. Many planners argue that physical planning can confine itself to only certain

1. Beveridge's doctrine of more jobs than job-seekers is a frankly political decision with tremendous inflationary tendencies.

2. Franks op.cit. p. 17

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sectors of the economy. This seems fallacious, however. The government must be certain to obtain the labor and resources required under the plan. Since the rigidity of fiscal policies led to physical planning in the first place the government can hardly utilize ~~THEM~~ to outbid other segments of the economy. Moreover, since the plan expresses a quantitative relationship any delay in one sector would have very serious effects on all other fields of activity. Physical planning will consequently be forced to include all significant sectors of the economy and at least fix prices in the remainder for no planner can permit the uncontrolled part of the economy to outbid the planned portion for goods and services.

Total planning in the absence of a self-regulatory mechanism must involve physical controls. Sir Oliver Franks distinguishes two: agreement and a license system. The agreement is attained through the medium of joint government-private enterprise boards to determine allocations. Their decisions presumably will reflect a joint effort and therefore offer a certain assurance of cooperation. The most significant control is, however, the license system which allocates resources according to the master plan and structures economic activity by its legal requirements for government sanction of production.

The role of the civil service is greatly magnified in the planned economy. It serves as the collector of the information which forms the basis of the plan, as the formulator of general policy and largely as the implementer of the economic goals. The significant economic decisions now require such a vast store of technical information that government by bureaucracy becomes a reality.

1. Finer - Theory and Practice p. 33, Franks op.cit. p. 17

2. Franks op.cit. p. 55 et seq. See also Finer op.cit. p. 709 et seq.

3. In this connection it must be emphasized that the question of nationalization is independent of the problem of planning. Nationalization involves usually operation by a public corporation, in its essential characteristics as much a part of the planning process as private corporations and raising similar problems of control. See Franks op.cit., Finer op.cit. and Millett.