Emergence Cannot Be Planned.
The planned economy has long been a desired outcome by the men of system, and arrangers of the human chess pieces have long pointed to large businesses, making comparisons of their sales with the gross domestic products of small countries. That thinking got Leigh Phillips and Michal Rozworski to write People's Republic of Walmart: How the World's Biggest Corporations are Laying the Foundations for Socialism. They open with "We're just intrigued by how this epitome of capitalism is also, paradoxically, a vast planned economy." The argument they attempt to update goes back to that passage in Das Kapital about the expropriators being expropriated. That expropriation does not have to be the violent seizure of the means of production, rather it might be the working out of the socialization of labor in such a way that the operatives are able to operate the machinery without the supervision of private owners. Their conclusion? "Planning works, just not yet for us."
I could keep Book Review No. 11 to two words. Nice try.
The book is interesting reading, engaging the calculation debate of the 1920s and 1930s and the difficulties the Soviet Union had both with making plans and with implementing them. Their discussion of the Red Plenty era includes the observation, page 161, that "authoritarianism fatally undermines planning." Yes, and that is an inevitable consequence of giving the men of system power, even if they are democratically elected. "Unfortunately, in a country where chess is a spectator sport and theoretical mathematicians almost as respected as ballerinas, the dimensionality of the problem is too large. Don't let reality get in the way of ideology." These days, though, we're not contemplating a monster linear programming problem being run on a supercomputer. Networked computers might be able to do the job, see page 206. "A distributed planning network of quite modest personal computers, linked by an economy-wide telecommunications system and employing a standardized system of product identification and computer databases, would be sufficient." Yes, if you swore off new toppings on pizza and flavors in coffee, now and forever, Amen.
Where their nice try breaks down, however, is with an observation by Herbert Simon in 1991 about how much human activity took place within businesses under the direction of an entrepreneur or manager and how little of it was structured by market transactions. That leads them to the work of Ronald Coase, and they get to the correct conclusion, page 51, "Planning is more efficient - though for Coase, only up to a certain point."
Yes, and that's the way I got beginning graduate students to think about institutions and firms. Consider Adam Smith's pin factory. Why, dear reader, does it begin with the metal billets drawn out to make the wire and end with the finished pins? Might it be that the transactions that go on inside the pin factory would be more costly to organize using markets, there being little use for a drawn out strand of wire other than in a common pin, while the boundaries of the pin factory, while, with a metal billet coming in or a pin going out having a number of competing uses, the higgling and bargaining of the market determines the price of the pin going out and the metal coming in, making the management of the pin factory easier.
What happens if the price of the metal changes? The manager makes substitutions accordingly.
Why did the price of the metal change? The manager doesn't have to know. A planner does. Friedrich Hayek's Use of Knowledge in Society grasps that distinction. "It does not matter for our purpose-and it is very significant that it does not matter-which of these two causes has made tin more scarce." That's how economic calculation works.
Nor do the authors consider the possibilities for internal politicking to gum up the planning. The owner of the pin factory makes what Oliver Williamson calls an "idiosyncratic" investment in pin-making machinery and the employee makes an idiosyncratic investment in human capital. Now the owner is in a position to hold up the employee by making the working day longer (all of Das Kapital summarized in one sentence for you, dear reader) and the operative is in a position to hold up the owner by working slowly or not showing up, which leads to strikes and collective bargaining. That's always a challenge with vertical integration, and I've not yet seen any democratic socialist analyses abolishing those tensions. We'll draw the curtain of charity over what went down in Novocherkassk in 1962.
(Cross-posted to Cold Spring Shops.)
I could keep Book Review No. 11 to two words. Nice try.
The book is interesting reading, engaging the calculation debate of the 1920s and 1930s and the difficulties the Soviet Union had both with making plans and with implementing them. Their discussion of the Red Plenty era includes the observation, page 161, that "authoritarianism fatally undermines planning." Yes, and that is an inevitable consequence of giving the men of system power, even if they are democratically elected. "Unfortunately, in a country where chess is a spectator sport and theoretical mathematicians almost as respected as ballerinas, the dimensionality of the problem is too large. Don't let reality get in the way of ideology." These days, though, we're not contemplating a monster linear programming problem being run on a supercomputer. Networked computers might be able to do the job, see page 206. "A distributed planning network of quite modest personal computers, linked by an economy-wide telecommunications system and employing a standardized system of product identification and computer databases, would be sufficient." Yes, if you swore off new toppings on pizza and flavors in coffee, now and forever, Amen.
Where their nice try breaks down, however, is with an observation by Herbert Simon in 1991 about how much human activity took place within businesses under the direction of an entrepreneur or manager and how little of it was structured by market transactions. That leads them to the work of Ronald Coase, and they get to the correct conclusion, page 51, "Planning is more efficient - though for Coase, only up to a certain point."
Yes, and that's the way I got beginning graduate students to think about institutions and firms. Consider Adam Smith's pin factory. Why, dear reader, does it begin with the metal billets drawn out to make the wire and end with the finished pins? Might it be that the transactions that go on inside the pin factory would be more costly to organize using markets, there being little use for a drawn out strand of wire other than in a common pin, while the boundaries of the pin factory, while, with a metal billet coming in or a pin going out having a number of competing uses, the higgling and bargaining of the market determines the price of the pin going out and the metal coming in, making the management of the pin factory easier.
What happens if the price of the metal changes? The manager makes substitutions accordingly.
Why did the price of the metal change? The manager doesn't have to know. A planner does. Friedrich Hayek's Use of Knowledge in Society grasps that distinction. "It does not matter for our purpose-and it is very significant that it does not matter-which of these two causes has made tin more scarce." That's how economic calculation works.
Nor do the authors consider the possibilities for internal politicking to gum up the planning. The owner of the pin factory makes what Oliver Williamson calls an "idiosyncratic" investment in pin-making machinery and the employee makes an idiosyncratic investment in human capital. Now the owner is in a position to hold up the employee by making the working day longer (all of Das Kapital summarized in one sentence for you, dear reader) and the operative is in a position to hold up the owner by working slowly or not showing up, which leads to strikes and collective bargaining. That's always a challenge with vertical integration, and I've not yet seen any democratic socialist analyses abolishing those tensions. We'll draw the curtain of charity over what went down in Novocherkassk in 1962.
(Cross-posted to Cold Spring Shops.)