In a world shaped by financial crises, digital transformation and the urgent need for climate action, one question is resurfacing among economists and social scientists: who really plans the economy?
A new paper by Christoph Sorg of Humboldt University, Berlin, and Roskilde University, Denmark, published in the journal Competition & Change, argues that finance itself has become a form of economic planning. In his study, Finance as a Form of Economic Planning, Sorg examines how institutions like central banks, investment funds and asset managers quietly shape the trajectory of modern capitalism, often performing the same coordination role once imagined for socialist planners.
His conclusion is provocative yet persuasive: the financial system does not merely allocate capital; it effectively plans economic development. The question, then, is whether this immense planning power can be directed towards democratic, social and ecological goals.
Rethinking the myth of the free market
For decades, mainstream economics has portrayed capitalism as a realm of free markets, where competition and private enterprise spontaneously generate order. Sorg’s research challenges that idea. Drawing on historical and theoretical work, he argues that capitalism has always combined markets and planning. Large corporations such as Amazon and Walmart, for instance, coordinate vast global supply chains through deliberate internal planning rather than market prices.
This dual nature of capitalism, where planned coordination operates alongside market exchange, is central to Sorg’s argument. He builds on the insight that both private corporations and public institutions engage in ex ante allocation of resources, that is, planning before production occurs. What differs is the motivation. Firms plan for profit, while governments plan for broader economic stability and growth. Yet both are constrained by the unpredictable forces of the market.
In Sorg’s framework, public planning, such as industrial or fiscal policy, creates the conditions in which private planning can occur. Each influences the other, but both are also shaped by financial mechanisms that decide which projects receive investment and which do not. This is where finance, he argues, steps in as a central planner in disguise.
How finance plans the economy
Finance’s planning power lies in its ability to decide where society’s surplus resources flow. Whether through central banks setting interest rates, investment funds allocating capital, or credit institutions determining loan access, financial actors continuously shape the direction of production and innovation.
According to Sorg, the process resembles what early economists described as “decentralised planning by many separate persons”. Central banks, for example, coordinate the economy by managing liquidity and steering interest rates. Meanwhile, large asset managers such as BlackRock, Vanguard and State Street now control around a quarter of all votes in major US corporations, granting them unprecedented influence over global economic priorities.
Sorg highlights that this influence is neither accidental nor neutral. Financial actors make decisions based on expected future profitability, effectively planning economic development in anticipation of market outcomes. By steering resources towards certain sectors and away from others, finance determines which industries expand, which decline and which technologies flourish.
The financialisation of the economy, where profits increasingly derive from financial activities rather than production has magnified this role. Since the 1970s, corporations have shifted from reinvesting profits in production to maximising shareholder value, often through stock buybacks and dividends. This has entrenched finance as a system of coordination that privileges short-term gains over long-term social investment.
The rise of central banks as social planners
While private finance plans for profit, public finance plans for stability. Central banks have evolved into de facto social planners, managing not only inflation and interest rates but also broader economic expectations. Their decisions influence housing markets, employment, and the value of national currencies.
Sorg draws on the work of political economist Benjamin Braun to show that central banks engage in non-market coordination, stepping in to prevent the financial system from collapsing under its own volatility. This was most visible during the global financial crisis of 2008 and the COVID-19 pandemic, when massive liquidity injections and asset purchases effectively determined the fate of entire industries.
Yet, this technocratic form of planning raises questions of democratic accountability. Central bank independence, once justified as protection from political interference, has placed vast decision-making power in unelected hands. Sorg suggests that, while central banks already act as planners, their objectives have been narrowly defined around price stability rather than social or ecological well-being.
If planning is inevitable, he asks, should it not be democratically directed?
When planning meets inequality
The dominance of finance has deep social consequences. Under the regime of shareholder value, corporate planning is driven by the interests of investors rather than workers or communities. The result has been rising inequality, stagnant wages, and declining investment in productive sectors.
Sorg links this to what he calls the depoliticisation of public planning. Governments, increasingly dependent on private credit and capital markets, have lost the autonomy to pursue ambitious social policies. Financial markets reward austerity and punish governments that attempt redistribution or public spending. The threat of a “capital strike” the withdrawal of investment constrains democratic decision-making.
This dynamic, he argues, turns financial markets into political actors. When elected governments fear destabilising markets, democratic control over the economy erodes. Finance becomes not only a planner of production but also an arbiter of politics.
Can finance be democratised?
Sorg’s paper does not stop at critique. He envisions ways to democratise finance, using its planning capacities for collective goals rather than private profit. This involves three complementary approaches:
- Public financial planning, where institutions such as central banks and public investment banks are brought under democratic oversight.
- Cooperative financial planning, through public banks, credit unions and social investment funds that allocate capital according to social and ecological priorities.
- Systemic transformation, in which financial power is restructured to support social ownership and deliberative decision-making.
A democratised central bank, for instance, could act as a “Swiss army knife” of public policy, balancing full employment, climate goals and economic resilience. Strategic asset purchases could fund renewable energy, affordable housing or research infrastructure. Similarly, public or worker-owned wealth funds could channel capital towards cooperatives and community enterprises, creating a social economy less vulnerable to the volatility of private markets.
These proposals echo broader movements in economics that seek to socialise investment. The idea is not to abolish markets but to embed them within democratic institutions that decide collectively how resources are used.
The limits of reform
However, Sorg cautions that democratising finance within capitalism faces structural limits. The primacy of profitability and the structural power of capital constrain any attempt at deep reform. When policies threaten profits, capital can retaliate through capital flight or credit strikes, as seen in historical cases such as France’s early-1980s nationalisation programme and Greece’s debt crisis in 2015.
This tension reveals what Sorg calls the contradiction of Keynesian planning: public intervention can stabilise the economy but cannot fully overcome the power imbalance between capital and labour. True democratisation, he argues, requires transforming the ownership and governance of financial institutions themselves.
Here, Sorg draws inspiration from models of market socialism and economic democracy, proposed by thinkers such as John Roemer and David Schweickart. In these systems, finance acts as a public tool for allocating investment according to democratically agreed priorities, bridging the gap between markets and planning.
Towards a democratic planning of investment
Sorg identifies investment, the decision over what to produce, where and how as the core of economic planning. In capitalist economies, investment is guided by profit expectations. In a democratic economy, it would be guided by deliberation among affected groups: workers, consumers, communities and policymakers.
He draws on Pat Devine’s concept of “negotiated coordination”, where investment decisions are collectively determined by stakeholders. Such processes would replace the blind directionality of markets with transparent, participatory planning. Finance, under democratic control, could then serve as a coordination mechanism for social and ecological transformation.
This approach would not eliminate markets entirely but would subordinate them to social goals. It would also re-politicise economic decision-making, giving citizens a say in questions that affect their livelihoods and environment.
A roadmap for transformation
In the final part of his paper, Sorg turns to strategies of transformation. He draws on sociologist Erik Olin Wright’s theory of “real utopias”, which describes how change can emerge through three pathways: ruptural, interstitial and symbiotic strategies.
Sorg favours a combination of interstitial (building alternative institutions within the existing system) and symbiotic (reforming through alliances and compromises) approaches. For example, establishing local public banks, union-controlled investment funds or cooperative financial institutions can gradually expand the social economy. Over time, these initiatives could accumulate enough social power to challenge the dominance of private finance.
At the same time, public investment banks and climate funds can spearhead large-scale transitions such as the green transformation, channelling capital into low-carbon technologies and climate resilience. Sorg even envisions a Global Climate Bank, funded through taxes on historical carbon emissions, to finance ecological repair and support the Global South.
Such measures, he contends, would not only mitigate inequality but also strengthen democracy by embedding financial decision-making within collective deliberation.
Reference
Sorg, C. (2023). Finance as a form of economic planning. Competition & Change, 29(1), 17–37. https://doi.org/10.1177/10245294231217578
