Why Not a Planned Economy?

I found an interesting discussion at Crookedtimber yesterday, over the way that information and its intelligibility figure in politics and economics. The background is that F.A.Hayek is mildly famous for arguing that central planning is economically inferior to market organisation because it is unable to collect together and make use of the large quantities of information that are held by disparate individuals.

The spark of the discussion is this piece by James Scott, who discusses the same issue (and the history of attempts to do away with such inaccessible local knowledge in favour of standardised, centrally-intelligible systems) but who emphasises that it applies as much to capitalist firms and markets as it does to states:

“…large-scale capitalism is just as much an agency of homogenization, uniformity, grids, and heroic simplification as the state, with the difference that, for capitalists, simplification must pay. The profit motive compels a level of simplification and tunnel vision that, if anything, is more heroic that the early scientific forest of Germany. In this respect, the conclusions I draw from the failures of modern social engineering are as applicable to market-driven standardization as they are to bureaucratic homogeneity.”

In the comments at Crookedtimber there is some dispute over whether state and market do play the same role here, and whether standardisation is always a loss of information or not. One thing I notice is that the examples of bone-headed ‘knowledge-destroying’ standardisation are often ones where the parties involved have significant conflicts of interests, whereas the examples of beneficial standardisation, such as Tim Worstall’s rare earth metals, tend to be ones where common interests preponderate – in this particular example, I imagine, because if you sell someone the wrong purity of scandium and something goes horribly wrong and explodes, they’ll notice and your chances of doing business again will be much lower.

This brought to mind something else I had been reading, a debate between four socialists over the viability of ‘Market Socialism’. Here’s an extract from Hillel Ticktin, defending the idea of planning:

““The reason why central planning did not work in the former USSR was that the workers were alienated and opposed to the elite who were the central planners…The local unit had every incentive to lie about its potentialities, and hence its reports to the centre did not conform to the reality of the plant or institution. In turn, the centre did not have the resources to scrutinise the reports of every enterprise and then fit them into an efficient pattern…Finally, the instructions that the centre saw fit to impose on the enterprise were necessarily evaded in the interests of the local unit.

At the heart of the problem lies the conflict of interest between the worker and the manager/capitalist…Socialism necessarily presupposes that the direct producers are involved in the planning itself and hence support the directions of the central planners.”

This point – that conflicts of interests, especially in hierarchical systems, generate ignorance and inefficiency – is frequently made by Chris and Stumbling and Mumbling, such as here and here.

I’m not trying to draw much of a conclusion here, just throw out ideas – in particular, that the traditional idea of socialism or communism as a society of solidarity and co-operation rather than conflict and narrow egoism may have value not just morally or culturally but also economically.

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